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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-17224
-------
First Financial Caribbean Corporation
----------------------------------------------------------
(Exact name of the registrant as specified in its charter)
Puerto Rico 66-0312162
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification
number)
1159 F.D. Roosevelt Avenue,
San Juan, Puerto Rico 00920-2998
--------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (787) 749-7100
including area code --------------
Former name, former address and Not Applicable
former fiscal year, if changed --------------
since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Common Stock outstanding at August 13, 1997 - 9,198,730
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FIRST FINANCIAL CARIBBEAN CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited) and
December 31, 1996.........................................................................................3
Consolidated Statements of Income and Retained Earnings (Unaudited) - Quarters ended
June 30, 1997 and June 30, 1996 and six months ended June 30, 1997 and June 30, 1996......................4
Consolidated Statement of Cash Flows (Unaudited) - Six-month period ended June 30,
1997 and June 30, 1996....................................................................................5
Notes to Consolidated Financial Statements................................................................6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................................................8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings........................................................................................13
Item 2 - Changes in Securities....................................................................................13
Item 3 - Defaults Upon Senior Securities..........................................................................13
Item 4 - Submission of Matters to a Vote of Security Holders......................................................13
Item 5 - Other Information........................................................................................13
Item 6 - Exhibits and Reports on Form 8-K.........................................................................15
SIGNATURES.................................................................................................................16
</TABLE>
FORWARD LOOKING STATEMENTS
When used in this form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities, competitive and regulatory
factors and legislative changes, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
2
<PAGE> 3
FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(unaudited) (audited)
----------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 44,772 $ 81,213
Mortgage loans held for sale, net 282,785 261,608
Securities held for trading, net 533,906 436,125
Securities held to maturity 188,793 109,055
Securities available for sale 7,825 12,007
Loans receivable, net 160,162 128,766
Accounts receivable and mortgage servicing advances, net 21,503 15,882
Accrued interest receivable 13,074 10,091
Servicing asset 25,206 20,969
Property, leasehold improvements and equipment, net 10,298 9,360
Cost in excess of fair value of net assets acquired 6,390 6,562
Real estate held for sale, net 3,221 2,246
Prepaid expenses and other assets 14,108 8,071
----------- -----------
$ 1,312,043 $ 1,101,955
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans payable $ 193,370 $ 196,397
Securities sold under agreements to repurchase 530,700 387,651
Deposit accounts 214,288 158,902
Notes payable 149,627 147,893
Advances from Federal Home Loan Bank 15,000 15,000
Convertible Subordinated Debentures 8,460 10,000
Accounts payable and other liabilities 26,986 26,992
Income tax payable 548 217
Deferred tax liability 9,215 8,372
----------- -----------
Total liabilities 1,148,194 951,424
----------- -----------
Commitments and contingencies - - - - - - - - - - - -
Stockholders' equity:
Serial Preferred Stock, $1 par value, 2,000,000 shares
authorized; no shares outstanding
--- ---
Common Stock, $1 par value, 20,000,000 shares authorized;
9,212,730 shares issued (1996-9,124,730); 9,198,730 shares 9,213 9,125
outstanding (1996-9,111,730)
Paid-in capital 40,122 38,673
Retained earnings 114,575 102,925
----------- -----------
163,910 150,723
Unrealized gain (loss) on securities available for sale,
net of deferred tax 1 (81)
Treasury stock at par value, 14,000 shares (14) (14)
Unearned compensation under employment contracts (48) (97)
----------- -----------
Total stockholders' equity 163,849 150,531
----------- -----------
Total liabilities and stockholders' equity $ 1,312,043 $ 1,101,955
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
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FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands of dollars, except for per share data)
Unaudited
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Mortgage loans sales and fees 5,740 6,539 11,057 13,422
Servicing income 3,069 2,946 7,048 5,697
Interest income 20,687 16,353 41,073 32,600
Rental and other income 338 146 730 300
-------- -------- -------- --------
29,834 25,984 59,908 52,019
-------- -------- -------- --------
Expenses:
Interest 14,050 10,826 28,115 21,818
Employee cost, net (See Note g) 746 1,946 3,134 4,533
Taxes, other than payroll and income taxes 326 236 644 483
Maintenance 237 163 448 290
Advertising 860 800 1,728 1,624
Professional services 802 706 1,564 1,387
Telephone 528 448 987 920
Rent 611 515 1,196 1,047
Other, net (See Note g) 2,886 3,219 4,850 5,242
-------- -------- -------- --------
21,046 18,859 42,666 37,344
-------- -------- -------- --------
Income before income taxes 8,788 7,125 17,242 14,675
Income taxes:
Current 770 231 1,360 668
Deferred 100 (140) 843 620
-------- -------- -------- --------
870 91 2,203 1,288
-------- -------- -------- --------
Net Income 7,918 7,034 15,039 13,387
Retained earnings at beginning of period 108,497 86,885 102,925 81,892
Less cash dividends paid:
Convertible preferred stock -- -- -- 14
Common stock 1,840 1,551 3,389 2,897
-------- -------- -------- --------
Retained earnings at the end of period $114,575 $ 92,368 $114,575 $ 92,368
======== ======== ======== ========
Earnings per share (See Note i):
Primary:
Net Income $ 0.86 $ 0.77 $ 1.65 $ 1.49
======== ======== ======== ========
Fully Diluted:
Net Income $ 0.83 $ 0.74 $ 1.58 $ 1.41
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
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FIRST FINANCIAL CARIBBEAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six-Month Period Ended
June 30,
----------------------
1997 1996
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 15,039 $ 13,387
--------- ---------
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of interest-only strips........................................... 1,848 629
Amortization of cost in excess of fair value of net assets acquired ........... 191 188
Amortization of servicing assets ............................................. 1,244 467
Depreciation and amortization ................................................. 1,044 862
Allowances for losses ......................................................... 461 366
Origination and purchases of mortgage loans held for sale ..................... (363,485) (382,391)
Principal repayment and sales of loans held for sale .......................... 180,333 219,267
Purchases of securities held for trading ...................................... (185,525) (56,887)
Principal repayments and sales of securities held for trading ................. 256,950 220,483
Additions of interest-only strips.............................................. (9,079) (7,683)
Increase in accounts receivable and mortgage servicing advances ............... (6,082) (3,401)
Increase in servicing asset ................................................... (5,481) (5,817)
Principal repayments and sales of securities available for sale ............... 4,264 6,831
Increase in interest receivable ............................................... (2,983) (1,090)
Decrease in loans payable ..................................................... (3,027) (35,548)
Increase in interest payable .................................................. 777 2,048
Increase in securities sold under agreements to repurchase .................... 143,049 26,237
Decrease in payables and accrued liabilities .................................. (783) 1,595
Increase (decrease) in income tax payable ..................................... 331 (205)
Deferred tax provision ........................................................ 843 620
Amortization of unearned compensation under employment contracts .............. 49 48
--------- ---------
Total adjustments .......................................................... 14,939 (13,381)
--------- ---------
Net cash provided by operating activities ..................................... 29,978 6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held to maturity ........................................ (87,774) (40,154)
Principal repayments of investments held to maturity ............................ 8,036 5,462
Origination of loans receivable ................................................. (70,802) (41,169)
Principal repayments of loans receivable ........................................ 39,406 5,838
Purchase of property, leasehold improvements and equipment ...................... (1,982) (906)
Additions to cost in excess of fair value of net assets required ................ (19) (214)
Increase in real estate held for sale ........................................... (975) (167)
Increase in other assets ........................................................ (6,037) (2,597)
--------- ---------
Net cash used by investing activities ......................................... (120,147) (73,907)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in common stock ............................................. (3) 475
Increase in notes payable ....................................................... 1,734 20,041
Increase in deposits ............................................................ 55,386 40,771
Dividends declared and paid ..................................................... (3,389) (2,911)
Decrease in advances from FHLB .................................................. -- 4,994
--------- ---------
Net cash provided by financing activities ..................................... 53,728 63,370
--------- ---------
Net decrease in cash and cash equivalents ....................................... (36,441) (10,531)
Cash and cash equivalents at beginning of period ................................ 81,213 59,872
--------- ---------
Cash and cash equivalents at the end of period .................................. $ 44,772 $ 49,341
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Noncash financing activities-conversion of preferred stock ...................... $ ---- $ 216
========= =========
Noncash investing activities-conversion of subordinated debentures .............. $ 1,540 $ ----
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used to pay interest ....................................................... $ 27,338 $ 19,770
========= =========
Cash used to pay income taxes ................................................... $ 1,029 $ 874
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
5
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FIRST FINANCIAL CARIBBEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a. The Consolidated Financial Statements (unaudited) include the accounts of
First Financial Caribbean Corporation and its wholly-owned subsidiaries,
Doral Mortgage Corporation ("Doral"), RSC Corp. ("RSC"), Centro
Hipotecario, Inc., AAA Financial Services Corporation ("AAA Financial")
and Doral Federal Savings Bank ("Doral Federal"). References herein to the
"Company" or "FFCC" shall be deemed to refer to the Company and its
consolidated subsidiaries, unless otherwise provided. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The Consolidated Financial Statements (unaudited) have been
prepared in conformity with the accounting policies stated in the
Company's Annual Audited Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, and
should be read in conjunction with the Notes to the Consolidated Financial
Statements appearing in that report. All adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of results for the interim periods have
been reflected.
b. The results of operations for the quarter and six-month period ended June
30, 1997 are not necessarily indicative of the results to be expected for
the full year.
c. Cash dividends per share paid for the quarter and six-month period ended
June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Series A Preferred Stock $ -- $0.12 $ -- $0.3825
Common Stock $0.20 $0.17 $0.37 $ 0.32
</TABLE>
All outstanding shares of Series A Preferred Stock were redeemed on May
10, 1996.
d. At June 30, 1997, escrow funds include approximately $26.1 million
deposited with Doral Federal. These funds are included in the Company's
financial statements. Escrow funds also include approximately $20.6
million deposited with other banks excluded from the Company's assets and
liabilities.
e. Certain reclassifications of prior years' data have been made to conform
to 1997 classifications. In connection with the adoption by the Company,
effective January 1, 1997, of SFAS No. 125 "Accounting for Transfers of
Servicing Assets and Extinguishment of Liabilities" ("SFAS 125"), the
Company reclassified the asset previously shown on the Company's
Consolidated Balance Sheet as "Mortgage Servicing Rights"to "Servicing
Asset". In addition, the asset previously shown as "Excess Servicing Fees
Receivable" was reclassified as "Interest Only Strips" and is now
reflected in the Company's Consolidated Balance Sheet as a component of
"Securities held for trading, net". For additonal information regarding
SFAS 125 refer to Note h.
f. The number of average shares of common stock used for computing the
primary and fully diluted net income per share was as follows:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
--------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary 9,171,653 9,092,942 9,141,360 9,020,462
Fully diluted 9,682,158 9,683,394 9,682,158 9,679,136
</TABLE>
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<PAGE> 7
g. Employee costs and other expenses are shown in the Consolidated Statement
of Income and Retained Earnings net of direct loan origination costs that,
pursuant to SFAS No. 91, are capitalized as part of the carrying cost of
mortgage loans and are offset against mortgage loan sales and fees when
the loans are sold. Employee costs would have been $8.9 million and $7.5
million, respectively, for the quarters ended June 30, 1997 and 1996, and
$17.3 million and $15.1 million, respectively, for the six-month periods
ended June 30, 1997 and 1996, except for the application of SFAS No. 91.
Other expenses would have been $3.6 million and $3.9 million,
respectively, for the quarters ended June 30, 1997 and 1996, and $7.1
million and $7.4 million, respectively, for the six-month periods ended
June 30, 1997 and 1996, except for the application of SFAS No. 91.
Set forth below is a breakdown of direct loan origination costs that were
deferred pursuant to SFAS No. 91.
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Employee Costs $8,211 $5,516 $14,127 $10,536
Other Costs 705 715 2,216 2,150
------ ------ ------- -------
$8,916 $6,231 $16,343 $12,686
====== ====== ======= =======
</TABLE>
h. In June 1996, the Financial Accounting Standards Board ("FASB") issued
SFAS 125. SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on the application of a financial-components approach
that focuses on control. That approach requires the recognition of
financial assets and servicing assets controlled by the reporting entity,
the derecognition of financial assets when control is surrendered, and the
derecognition of liabilities when they are extinguished. Specific criteria
are established for determining when control has been surrendered in the
transfer of financial assets.
This Statement requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be
initially measured at fair value, if practicable. It also requires that
servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets
sold, if any, and retained interest, if any, based on their relative fair
values at the date of the transfer. Servicing assets and liabilities must
be subsequently measured by (a) amortization in proportion to and over the
period of estimated net servicing income and loss and (b) assessment for
asset impairment or increased obligation based on their fair values.
SFAS 125 modifies the accounting for interest-only strips ("IOs") or
retained interests in securitizations, such as excess servicing fees
receivable, that can be contractually prepaid or otherwise settled in
such a way that the holder would not recover substantially all of its
recorded investment. In this case, it requires that they be classified as
available for sale or as trading securities. IO's and retained interests
are to be recorded at market value in accordance with SFAS No. 115.
Changes in market value of IOs are included in operations, if classified
as trading securities, or in shareholders' equity as unrealized gains or
losses, net of taxes, if classified as available for sale
Under the provisions of SFAS 125, management has determined that excess
servicing fees receivable retained by the Company as a result of
securitization transactions or bulk sales will be held as trading
securities as IOs. In addition, all residual interests and mortgage backed
securities previously retained by the Company as part of its
securitization transactions will also be held as trading securities.
The provisions of this Statement, except as indicated below, are effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and must be applied
prospectively. Earlier or retroactive application is not permitted. In
December 1996, the FASB issued a statement that defers for one year the
effective date applicable to the provisions of SFAS 125 that deal with
secured borrowings and collateral. Additionally, the deferment provision
would apply to transfers of financial assets for repurchase agreements,
dollar rolls and securities lending.
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<PAGE> 8
Refer to Note e for certain reclassifications made by the Company as a
result of the adoption of SFAS 125.
i. On July 10, 1997, the Board of Directors declared a two-for-one
stock split of the Company's Common Stock $1.00 par value (the "Common
Stock"). The stock split will be effected in the form of a stock dividend
of one additional share of Common Stock to be issued on August 28, 1997
for each share of Common Stock held of record on August 18, 1997. Prior
to the declaration of the stock split, the Company had 9,682,158 fully
diluted shares outstanding. Following distribution of the additional
shares, the Company will have 19,364,316 fully diluted shares
outstanding. The stock split will not dilute shareholders' voting rights
or their proportionate interest in the Company. Pro forma dividends per
share data on a post-split basis is presented below:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
---------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Series A Preferred
Common Stock -- $0.12 -- $0.3825
$0.10 $0.085 $0.185 $0.16
</TABLE>
Pro forma information on the number of average shares of Common Stock used for
computing the primary and fully diluted net income per share on a post-split
basis are provided below:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
----------------- ----------------------
1997 1996 1997 1996
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Primary 18,343,306 18,185,884 18,282,720 18.040,924
Fully diluted 19,364,316 19,366,788 19,364,316 19,358,272
</TABLE>
Pro forma earnings per share data on a post-split basis is provided below:
<TABLE>
<CAPTION>
Quarter Ended Six-Month Period Ended
June 30, June 30,
----------------- ----------------------
1997 1996 1997 1996
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Primary:
Net Income $0.43 $0.385 $0.825 $0.745
Fully diluted:
Net Income $0.415 $0.37 $0.79 $0.705
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise from loan originations and
purchases, repayments of debt upon maturity, payments of operating and interest
expenses, servicing advances and loan repurchases. The Company's primary sources
of liquidity are sales in the secondary mortgage market of the loans it
originates and purchases, short term borrowings under warehouse, gestation and
repurchase agreement lines of credit secured by pledges of its loans and
mortgage-backed securities (in most cases until such loans are sold and the
lenders repaid) and revenues from operations. In the past, the Company has also
relied on publicly offered and privately-placed debt financings and public
offerings of preferred and common stock. Doral Federal, the Company's thrift
subsidiary, also relies on deposits, borrowings from the Federal Home Loan Bank
of New York (the "FHLB-NY") as well as term notes backed by letters of credit of
the FHLB-NY.
The interim Consolidated Statement of Cash Flows reflects the working
capital needs of the Company. Operating activities provided approximately $29.9
million of net cash during the six-month period ended June 30, 1997,
reflecting, in part, increased borrowings under agreements to repurchase used to
finance the Company's portfolio of mortgaged-backed securities. FFCC held
mortgage loans (including mortgage loans converted into mortgage-backed
securities) prior to sale for an average period of approximately 298 days for
the six-month period ended June 30, 1997 and 259 days during the year ended
December 31, 1996. This increase in the average holding period prior to sale
was due to an increase in the portfolio of mortgage-backed securities held for
trading.
Investing activities used cash of approximately $120.1 million during the
six-month period ended June 30, 1997 due primarily to origination of loans
receivable and purchases of securities held to maturity of approximately $70.8
million and $87.8 million, respectively, which were partially offset by
principal repayments of loans receivable of approximately $39.4 million.
During the first six months of 1997, financing activities provided
approximately $53.7 million of net cash primarily due to additional deposits
amounting to approximately $55.4 million received by Doral Federal.
FFCC borrows money under warehousing lines of credit to fund its mortgage
loan commitments and repays the borrowings as the mortgages are sold. The
warehousing lines of credit then become available for additional borrowings.
Included among FFCC's warehousing line of credit facilities are gestation or
presale facilities that permit the Company to obtain more favorable rates once
mortgage loans are in the process of securitization but prior to actual issuance
of the mortgage-backed securities as well as to finance such mortgage-backed
securities upon their issuance. At June 30, 1997 and December 31, 1996, FFCC had
available warehousing lines of credit, including gestation lines of credit, of
$695 million and $595 million, respectively. At June 30, 1997 and December 31,
1996, FFCC had used approximately $166.1 million and $186.4 million,
respectively, of credit available under its warehousing lines of credit. FFCC's
warehousing lines of credit are generally subject to termination at the
discretion of the lender.
FFCC also obtains short-term financing through repurchase agreement lines
of credit with financial institutions and investment banking firms. Under these
agreements, FFCC sells GNMA, FNMA or FHLMC-guaranteed mortgage-backed securities
or collateralized mortgage obligations and simultaneously agrees to repurchase
them at a future date at a fixed price. FFCC uses the proceeds of such sales to
repay borrowings under its warehousing lines of credit. The effective cost of
funds under repurchase agreements is typically lower than the cost of funds
borrowed under FFCC's warehousing lines of credit. At June 30, 1997, FFCC had
used approximately $530.7 million of credit under repurchase agreements. FFCC's
continued use of repurchase agreements will depend on the cost of repurchase
agreements relative to the cost of borrowing under its warehousing lines of
credit with banks and other financial institutions.
Certain of the debt obligations of the Company contain various provisions
that may affect the ability of the Company to pay dividends and remain in
compliance with those obligations. These provisions include requirements
concerning net worth, financial ratios, limitations on capital distributions and
other financial covenants. These
8
<PAGE> 9
provisions have not had, and are not expected to have, an adverse impact on the
ability of the Company to pay dividends in the future.
The monthly weighted average interest rate of FFCC's borrowings for
warehousing lines of credit and for repurchase agreement lines of credit was
6.82% and 5.73%, respectively, for the six-month period ended June 30, 1997
compared to 6.71% for warehousing lines of credit and 5.45% for repurchase
agreements in each case for the year ended December 31, 1996.
Doral Federal obtains funding for its lending activities through the
receipt of deposits, FHLB-NY advances and from other borrowings, such as term
notes backed by FHLB-NY letters of credit and repurchase agreements with
brokerage houses. As of June 30, 1997, Doral Federal held approximately $223.3
million in deposits (including $8.9 million in corporate accounts of the
Company that are eliminated in the preparation of the Company's Consolidated
Financial Statements) at a weighted average interest rate of 4.22%,
approximately 20% of which consisted of non-interest bearing deposits.
Approximately $42.6 million of total deposits consisted of brokered certificates
of deposit obtained through broker-dealers with maturities ranging from six
months to five years. Doral Federal, as a member of the FHLB-NY, has access to
collateralized borrowings from the FHLB-NY up to a maximum of 30% of its total
assets. Advances and reimbursement obligations with respect to letters of
credit must be secured by qualifying assets with a market value equal to 120%
of the advances. At June 30, 1997, Doral Federal had $15 million in outstanding
advances from the FHLB-NY at a weighted average interest rate cost of 6.21%. In
addition, as of June 30, 1997, Doral Federal had $53.1 million outstanding in
term notes secured by FHLB-NY letters of credit at an average interest rate
cost of 6.55%. Approximately $5 million principal amount of such term notes
bear interest at a fluctuating rate based on the London Interbank bid rate for
dollar deposits ("LIBID"). The interest rate on such floating rate notes has
effectively been fixed pursuant to an interest rate swap agreement with a major
brokerage house. The interest rates on all term notes are subject to an upward
adjustment to a rate equal to 100% of LIBID for a term equal to the remaining
term of the note as a result of the recent changes to Section 936 of the
Internal Revenue Code. Because Doral Federal has the contractual right to
prepay the notes if the investor seeks an upward adjustment, in all but one of
the three cases in which an investor requested on upward adjustment, Doral
Federal has been successful in negotiating a rate adjustment below 100% of
LIBID.
As of June 30, 1997, Doral Federal exceeded all its regulatory capital
requirements (i.e. tangible and core capital of at least 1.5% and 3.0%,
respectively, of adjusted assets and total risk based capital of at least 8% of
risk weighted assets). As of June 30, 1997, Doral Federal had tangible capital
and core capital of $25.3 million or approximately 7.90% of adjusted assets and
total risk-based capital of $26.4 million or 17.65% of risk weighted assets.
Servicing agreements relating to the mortgage-backed securities programs
of FNMA, FHLMC and GNMA and certain other investors and mortgage loans sold to
certain other purchasers, require FFCC to advance funds to make scheduled
payments of principal, interest, taxes and insurance, if such payments have not
been received from the borrowers. FFCC generally recovers funds advanced
pursuant to these arrangements within 30 days. During the six-month period ended
June 30, 1997, the monthly average amount of funds advanced by the Company under
such servicing agreements was approximately $3.5 million.
During the six-month period ended June 30, 1997, the Company collected an
average of approximately $1.2 million per month in net servicing fees, including
late charges. At June 30, 1997 and December 31, 1996, the servicing portfolio
amounted to approximately $3.3 billion and $3.1 billion, respectively. The
Company may, from time to time, determine to sell portions of its servicing
portfolio and to purchase servicing rights from third parties.
FFCC expects that it will continue to have adequate liquidity and
financing arrangements to finance its operations. The Company will continue to
explore alternative and supplementary methods of financing its operations,
including both debt and equity financing. There can be no assurance, however,
that the Company will be successful in consummating any such transactions.
ASSETS AND LIABILITIES
At June 30, 1997, total assets were $1.3 billion compared to $1.1 billion
at December 31, 1996. This increase was due primarily to net increases in
interest earning and servicing related assets in connection with the Company's
mortgage loan production and securitization activities. Total liabilities were
$1.1 billion at June 30, 1997 compared to $951 million at December 31, 1996. The
increase in total liabilities was primarily related to increased deposit
accounts held at Doral Federal and increases in securities sold under agreements
to repurchase incurred in connection with the Company's mortgage banking
activities.
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<PAGE> 10
As of June 30, 1997, Doral Federal had $319.7 million in assets compared
to $280.7 million at December 31, 1996. This increase was due primarily to a net
increase of $31.4 million in loans receivable. At June 30, 1997, Doral Federal's
deposit accounts totaled $223.3 million compared to $187.2 million at December
31, 1996. These amounts include $8.9 million and $28.3 million, respectively, in
corporate accounts of the Company which are eliminated in the preparation of the
Company's Consolidated Financial Statements. Deposit accounts include $26.1
million as of June 30, 1997 in non-interest bearing demand deposits representing
escrow funds and other servicing accounts from FFCC's servicing operations.
Changes in interest rates can have a variety of effects on the Company's
business. In particular, changes in interest rates affect the volume of mortgage
loan originations and purchases, the interest rate spread on the Company's
portfolio of loans and mortgage-backed securities, the amount of gain on sale of
loans and the value of the Company's loan servicing portfolio and
mortgage-backed securities holdings.
The Company does not generally hedge conventional loans in the pipeline or
in the process of origination because the Company does not generally permit
customers to lock-in an interest rate prior to closing. Instead, the interest
rates on loans are generally fixed at closing based on a certain spread over a
prevailing rate that adjusts weekly. For FNMA and FHLMC conforming loans and
FNMA and FHLMC mortgage-backed securities, the Company seeks to sell or obtain
commitments for the sale of such loans or mortgage-backed securities following
the funding of such loans. These loans are normally sold to institutional
investors or to FNMA and FHLMC. To the extent the Company does engage in
offerings of mortgage products which lock-in the interest rate until the closing
date, it attempts to obtain forward commitments at the time it fixes the rates
for the loans. Non-conforming conventional loans are normally sold in bulk to
local financial institutions or packaged into collateralized mortgage
obligations. The sale of non-conforming conventional loans normally takes longer
than the sale of conforming mortgage loans. Accordingly, the Company attempts to
manage this interest rate risk through the purchase of listed options on U.S.
Treasury Securities, as well as through the purchase of option contracts in the
over-the-counter market on other interest rate sensitive instruments.
In the case of GNMA securities, the Company has normally held such
securities for longer periods prior to sale to maximize its net interest income
and to take advantage of the tax exempt status of the interest on such
securities under Puerto Rico law. Prices for GNMA certificates in Puerto Rico
have tended to be more stable than on the mainland U.S. because the tax exempt
status of interest paid on these securities under Puerto Rico law makes them
more attractive to retail investors. This relative stability of prices for
Puerto Rico GNMA securities has allowed the Company to carry out a less
aggressive hedging strategy to attempt to protect the value of these assets
than what might otherwise be required. The Company seeks to protect itself from
interest rate risk associated with its inventory of GNMA securities by
purchasing listed options on U.S. treasury bond futures contracts and other
interest rate sensitive instruments, as well as purchasing options on U.S. GNMA
securities in the over-the-counter market. As of June 30, 1997, the Company had
in place $70.2 million of long-term repurchase agreements secured by
collateralized mortgage obligations backed by GNMA certificates with a
principal amount of approximately $80 million. The Company does not obtain
forward commitments or otherwise hedge such securities because they are
financed pursuant to long-term repurchase agreements. The Company has the right
to substitute similar securities under the repurchase agreements.
Effective August 1, 1997, only GNMA securities backed by FHA-VA mortgage
loans originated to finance the acquisition of newly constructed housing will
continue to be tax exempt. The tax exemption of GNMA securities backed by
FHA-VA mortgages originated prior to August 1, 1997 will be grandfathered. See
"Recent Developments - Modification of Tax Laws Affecting GNMA Securities". As
a result of such changes, the Company intends to hedge the value of
non-tax exempt GNMA's through the use of forward sales and other hedging
techniques.
Declines in interest rates can adversely affect the Company's revenues by
increasing prepayment rates and causing an increase of the amortization of the
Servicing Asset and IOs (previously classified as excess servicing fees
receivable) or causing an impairment to be recognized with respect to such
assets. Moreover, increased prepayment rates can reduce the Company's servicing
income by decreasing the size of the Company's servicing portfolio. To date,
the Company has not used synthetic instruments to protect the value of
its Servicing Asset and IOs from future interest rate fluctuations. The primary
means used by the Company to reduce the sensitivity of the Company's servicing
income to possible reduction of its servicing portfolio has been the
development of a strong retail origination network that has allowed the Company
to increase or maintain the size of its servicing portfolio even during periods
of high prepayments.
The net interest income of the Company is also subject to interest rate
risk because its interest-earning assets and interest-bearing liabilities
reprice at different times and varying amounts. Most of the Company's interest
earning assets, including its mortgage-backed securities held for trading, are
fixed rate interest-earning assets that are not subject to repricing (except for
replacement of assets through repayments, sales and new originations) while the
short-term borrowings used to finance these positions normally reprice on a
periodic basis (e.g., daily, monthly or quarterly). To protect against major
fluctuations in short-term interest rates, the Company purchases listed put and
call options and sells call options on financial instruments, including
Eurodollar contracts. This policy attempts to ensure a relatively stable
short-term cost of funds. With respect to the loans receivable and securities
held to maturity of Doral Federal, Doral Federal attempts to obtain long-term
deposits and other long-term debt financing, including
10
<PAGE> 11
longer term brokered certificates of deposits, advances from the FHLB-NY and
term notes backed by FHLB-NY letters of credit.
In the future, FFCC may utilize alternative hedging techniques including
futures, options or other hedge vehicles to help mitigate interest rate and
market risk. However, there can be no assurance that any of the above hedging
techniques will be successful. To the extent they are not successful, the
Company's profitability may be adversely affected.
INFLATION
FFCC is affected by inflation in the areas of loan production and
servicing fees. General and administrative expenses increase with inflation.
However, the increase in real estate values in Puerto Rico in recent years has
been a positive factor for the Company's mortgage banking business. The average
size of loans originated tends to increase as home values appreciate, which
serves to increase loan origination fees and servicing income faster than the
cost of providing such services. Interest rates normally increase during periods
of high inflation and decrease during periods of low inflation. See "Assets and
Liabilities" for a discussion of the effects of changes of interest rates on the
Company's operations.
RESULTS OF OPERATIONS FOR QUARTERS ENDED JUNE 30, 1997 AND 1996
Net income for the quarter ended June 30, 1997 increased to $7.9
million from $7.0 million for the comparable period of 1996. Doral Federal
contributed approximately $969,000 in net income for the second quarter of 1997
compared to $626,000 for the second quarter of 1996. The increase in net income
of $900,000 from 1996 was due mainly to an increase of $1.1 million in net
interest income during the same period. Doral Federal contributed approximately
$2.4 million and $6.0 million to the consolidated net interest income of the
Company for the quarters ended June 30, 1997 and 1996, respectively.
The weighted average interest rate spread was 201 basis points
during the second quarter of 1997 compared to 277 basis points for the
comparable period of 1996.
Revenues from mortgage loan sales and origination fees decreased to $5.7
million for the quarter ended June 30, 1997 from $6.5 million for the comparable
period of 1996. The total volume of loans originated and purchased for the
quarter ended June 30, 1997 was $252 million compared to $224 million for the
quarter ended June 30, 1996. The total volume of loans purchased was
approximately $5.0 million for the quarter ended June 30, 1997 compared to $24
million for the comparable period of 1996.
When FFCC sells the mortgage loans it has originated or purchased, it
generally retains the rights to service such loans and receives the related
servicing fees. Mortgage loan servicing fees are based on a percentage of the
principal balances of the mortgages serviced and are credited to income as
mortgage payments are collected. Loan servicing income was $3.07 million for the
quarter ended June 30, 1997 compared to $2.95 million for the same period in
1996. The Company's servicing portfolio totaled $3.3 billion at June 30, 1997
compared to $2.9 billion at the same date a year ago. The Company's servicing
portfolio at June 30, 1997 increased by approximately $200 million over the size
of the servicing portfolio at December 31, 1996.
The Company capitalized approximately $3.3 million in servicing assets
during the quarter ended June 30, 1997, compared to $3.0 million for the quarter
ended June 30, 1996. At June 30, 1997, the unamortized balance of servicing
assets approximated their fair value. The amortization of servicing assets for
the quarters ended June 30, 1997 and 1996 was $666,000 and $243,000,
respectively, and is recorded in the accompanying Consolidated Statement of
Income and Retained Earnings under "Other Expenses."
The Company creates IOs (previously classified as excess servicing fees
receivable) as a result of the sale of loans in bulk or securitization
transactions. IOs are created on the sale of loans by computing the present
value of the excess of the weighted average coupon on the loans sold over the
sum of: (i) the pass-through interest paid to the investor and (ii) a base
servicing fee, and adjusting such amount for expected losses and prepayment
assumptions. The Company capitalized approximately $4.4 million in IOs
(previously classified as excess servicing fees receivable) during the quarter
ended June 30, 1997, compared to $5.1 million for the quarter ended June 30,
1996. Amortization of IOs for each of the quarters ended June 30, 1997 and 1996
was approximately $956,000 and $325,000, respectively. Effective January 1,
1997, this amortization is recorded as a reduction of interest income. SFAS
No. 125 requires that effective January 1, 1997, assets previously classified
as excess servicing fee receivable be classified as IOs. Such IOs are reflected
in the Company's Consolidated Balance Sheet as part of Securities Held for
Trading.
11
<PAGE> 12
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
The Company's net income for the six months ended June 30, 1997 increased
to $15.0 million, compared to $13.4 million for the corresponding period of
1996. For the six-month period ended June 30, 1997, Doral Federal contributed
approximately $1.9 million in net income compared to $1.2 million for the six
months ended June 30, 1996.
Revenues from mortgage loan sales and fees for the first six months of
1997 decreased $2.3 million to $11.1 million for the first six months of 1997
from $13.4 million for the comparable period of 1996. The total volume of loans
originated and purchased was approximately $434 million for the six-month period
ended June 30, 1997 compared to approximately $424 million for the six-month
period ended June 30, 1996. Refinancing loans comprised 48% of production during
both periods.
Net interest income increased by approximately $2.2 million for the
six-month period ended June 30, 1997 versus the comparable period of 1996. The
weighted average interest rate spread was 209 basis points during the six months
ended June 30, 1997 compared to 266 basis points for the comparable period of
1996. Doral Federal contributed approximately $4.7 million and $3.2 million to
the consolidated net interest income of the Company for the six-month periods
ended June 30, 1997 and 1996, respectively.
For the six-month period ended June 30, 1997 loan servicing income was
$7.0 million compared to $5.7 million for the same period in 1996. Sales of
mortgage loans during the first six months of 1997 resulted in the recording of
approximately $9.1 million in IOs compared to $7.7 million for the first six
month of 1996. Amortization of IOs for each of the six-month periods ended June
30, 1997 and 1996 was approximately $1.8 million and $629,000, respectively.
Effective January 1, 1997, the amortization of IOs is recorded as a reduction of
interest income. For the six months ended June 30, 1997 the Company capitalized
servicing assets of $5.5 million compared to $5.8 million for the comparable
period of 1996. For the six-month periods ended June 30, 1997 and 1996,
amortization of servicing assets was $1,244,000 and $467,000, respectively.
Amortization of servicing assets is recorded as a component of "Other Expenses."
Aggregate expenses for the six-month period ended June 30, 1997 increased
by $5.3 million compared to the same period for 1996, primarily because of
additional costs associated with the expansion of the Company's customer base
and loan origination capacity.
RECENT DEVELOPMENTS
Modification Of Tax Laws Affecting GNMA Securities
The Company has historically benefited from Puerto Rico tax laws that
exempt from Puerto Rico income taxes the interest received on mortgage loans
secured by real property in Puerto Rico and insured by the Federal Housing
Administration or guaranteed by the Veteran's Administration ("FHA-VA loans")
and on GNMA mortgage-backed securities backed by FHA-VA loans. This favorable
tax treatment has permitted the Company to sell tax-exempt Puerto Rico GNMA
mortgage-backed securities to local investors at higher prices than those at
which comparable instruments trade in the mainland United Sates and to reduce
its effective tax rate through the receipt of tax exempt interest.
On July 22, 1997, an amendment (the "Amendment") was passed to the Puerto
Rico Internal Revenue Code that modified the tax exempt treatment of FHA-VA
loans. Under the terms of the Amendment, effective August 1, 1997, only FHA-VA
mortgage loans used to finance the original acquisition of newly constructed
housing and mortgage-backed securities backed by such loans qualify for tax
exempt treatment. The Amendment, however, provides a preferential flat tax rate
of 17% for individuals with respect to interest received on FHA-VA mortgages
not qualifying for tax exemption. In addition, the Amendment grandfathered the
tax-exempt status of FHA-VA loans originated on or prior to July 31, 1997 and
mortgage-backed securities backed by such loans. For the six months ended June
30, 1997 and the year ended December 31, 1996, approximately 30% and 40%,
respectively, of the Company's total FHA-VA mortgage originations consisted of
mortgages on newly constructed housing that would qualify for tax exemption
under the Amendment. Management believes that the adoption of the Amendment
will not have a material adverse effect on the Company's financial condition or
results of operation.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the opinion of the Company's management, the pending and threatened
legal proceedings of which management is aware will not have a material adverse
effect on the financial condition of the Company.
ITEM 2 - CHANGES IN SECURITIES
(a) The Company has entered into an Exchange Agreement, dated July 9,
1997, with Popular, Inc. ("Popular"), whereby the Company has agreed to exchange
(the "Exchange") newly issued shares of a new series of preferred stock to be
designated 8% Convertible Cumulative Preferred Stock (Liquidation Preference
$1,000 per share) (the "8% Preferred Stock") having an aggregate liquidation
preference of $8,460,000 for the $8,460,000 principal amount of the Company's
8.25% Convertible Subordinated Debentures due January 1, 2006 (the "Debentures")
currently held by Popular.
Under the terms of the Exchange Agreement, the Exchange will not take
place and the shares of 8% Preferred Stock will not be issued until such time as
the Company becomes a bank holding company under the Bank Holding Company Act of
1956, which is expected to occur before September 30, 1997. See Item 5 "Other
Information - Status as Bank Holding Company". The 8% Preferred Stock will
count as Tier I capital for bank holding company purposes.
Once issued, the shares of 8% Preferred Stock will have a preference in
liquidation over the shares of Common Stock of $1,000 per share. In addition,
the terms of the 8% Preferred Stock will not permit the payment of cash
dividends on the Company's Common Stock if dividends on the 8% Preferred Stock
are in arrears. The holders of the 8% Preferred Stock will be entitled to
receive cumulative cash dividends when, as and if declared by the Board of
Directors, at an annual rate of 8% of the liquidation preference thereof,
payable monthly. A copy of the Exchange Agreement is included as Exhibit No.
10.73 to this Quarterly Report on Form 10-Q.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on April 16,
1997. The proposals submitted to the shareholders together with the results of
the voting thereon were previously disclosed under Item 4 of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and are
incorporated herein by reference.
ITEM 5 - OTHER INFORMATION
EXCHANGE AGREEMENT WITH POPULAR, INC.
Reference is made to Item 2 above for a description of an Exchange
Agreement, dated July 9, 1997, entered into with Popular, Inc., whereby the
Company has agreed to exchange shares of a new series of preferred stock to be
created and designated 8% Convertible Cumulative Preferred Stock (Liquidation
Preference, $1,000 per share) for the outstanding 8.25% Convertible Subordinated
Debentures currently held by Popular, Inc.
STATUS AS BANK HOLDING COMPANY
In connection with the proposed conversion of Doral Federal into a Puerto
Rico chartered commercial bank, on July 17, 1997, the Company filed an
application with the Board of Governors of the Federal Reserve Board (the
"Federal Reserve") to become a bank holding company pursuant to the provisions
of the Bank Holding Company Act of 1956 (the "BHCA"). The BHCA and Federal
Reserve regulations promulgated thereunder generally place limitations on the
types of activities in which a bank holding company and its subsidiaries may
engage. In general, such activities must be banking services or activities so
closely related to the business of banking as to be a proper incident thereto.
Regulation K promulgated by the Federal Reserve, generally grants bank holding
companies and their subsidiaries somewhat broader powers with respect to
activities conducted "outside the United States" than with respect
13
<PAGE> 14
to activities conducted within the United States. For purposes of Regulation K,
Puerto Rico is considered to be outside the United States.
In addition to the activity restrictions discussed above, the BHCA also
imposes various other restrictions on bank holding companies and their
subsidiaries. Many of these restrictions are similar to those currently imposed
on the Company under the Savings and Loan Holding Company Act (the "SLHCA"). For
example, the BHCA contains change of control provisions similar to those
contained in SLHCA. Sections 23A and 23B of the Federal Reserve Act governing
transactions between depositary institutions and their affiliates also apply
in the same manner to bank holding companies and their subsidiaries as to
savings and loan holding companies.
As a bank holding company, the Company would, however, be subject to
certain additional regulatory restrictions that are not otherwise applicable to
savings and loan holding companies. For example, unlike savings and loan holding
companies, bank holding companies are subject to certain regulatory capital
requirements. Under the Federal Reserve's risk-based capital guidelines, a bank
holding company must maintain a ratio of total capital (the "Total Capital") to
risk-weighted assets (including certain off-balance sheet items, such as standby
letters of credit) equal to 8%. At least half of the Total Capital is to be
comprised of common equity, retained earnings, minority interest in consolidated
subsidiaries, noncumulative perpetual preferred stock and a limited amount of
cumulative perpetual preferred stock, less goodwill and less certain intangible
debt, other preferred stock, certain other instruments, and a limited amount of
loan and lease loss reserves ("Tier 2 capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 capital to average quarterly assets of 3% for bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory rating. All other bank holding companies are required to
maintain a leverage ratio of 3% plus an additional cushion of at least 100 to
200 basis points. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve will continue to consider a "tangible Tier 1
leverage ratio" (deducting all intangibles) and other indications of capital
strength in evaluating proposals for expansion or new activities. The tangible
Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 capital,
less all intangibles, to total assets, less all intangibles.
The Federal Reserve has adopted regulations with respect to risk-based and
leverage capital ratios that require most intangibles, including core deposit
intangibles, to be deducted from Tier 1 capital. The regulations, however,
permit the inclusion of a limited amount of intangibles related to mortgage
servicing rights and purchased credit card receivables. The Federal Reserve has
also decided to exclude from regulatory capital the amount of net unrealized
gains and losses on securities available-for-sale, except the net unrealized
losses of equity securities with readily determinable fair values.
The Federal Reserve has issued a policy statement that provides that
insured banks and bank holding companies should generally pay dividends only out
of current operating earnings. In addition, under Federal Reserve policy, a bank
holding company is expected to act as a source of financial strength to each of
its subsidiary banks and to commit resources to support each subsidiary bank.
This support may be required at times, when absent such policy, the bank holding
company might not otherwise provide such support.
The Company believes that if it were to become subject to the provisions
of the BHCA it would be in compliance with all of the above regulatory and
capital requirements and would be able to continue to conduct its mortgage
banking business as presently conducted.
The conversion of Doral Federal into a Puerto Rico chartered bank would
also subject Doral Federal to supervision and examination by the Office of the
Commissioner of Financial Institutions of Puerto Rico (the "Office of the
Commissioner") and to the provisions of the Puerto Rico Banking Act and the
regulations promulgated thereunder. The Company does not believe that the
application of such laws or regulations would have a material adverse effect on
the manner in which Doral Federal currently conducts its operations.
Section 12 of the Puerto Rico Banking Act requires the prior approval of
the Office of the Commissioner with respect to a transfer of capital stock of a
bank that results in a change of control of the bank. Under Section 12, a change
of control is presumed to occur if a person or group of persons acting in
concert, directly or indirectly, acquire more than 5% of the outstanding voting
capital stock of the bank. In the past, the Office of the Commissioner has
interpreted the restrictions of Section 12 to apply to acquisitions of voting
securities of entities controlling a bank, such as a bank holding company. The
provisions of the Mortgage Banking Law and the SLHCA currently applicable to
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<PAGE> 15
acquisition of the Company's capital stock only require regulatory approval for
the acquisition of more than 10% of the Company's outstanding voting securities.
Accordingly, the conversion of Doral Federal into a Puerto Rico commercial bank
would result in additional restrictions to be placed on the acquisition of the
Company's common stock.
STOCK SPLIT
On July 10, 1997, the Board of Directors of the Company declared a
two-for-one split of the Company's Common Stock. The stock split will be
effected in the form of a stock dividend of one additional share of Common Stock
to be issued on August 28, 1997, for each share of Common Stock held of record
as of August 18, 1997.
Prior to the stock split, the Company had 9,682,158 fully diluted shares
outstanding. Following the distribution of the additional shares, the Company
will have 19,364,316 fully diluted shares outstanding. The stock split will not
be dilutive to voting rights or shareholders' proportionate interest in the
Company. In connection with the stock split, the Board of Directors determined
to revoke the reservation of shares for use in connection with the Company's
1997 Stock Option Plan and Restricted Stock Plan until such time as the
shareholders act upon the proposal to increase the Company's authorized capital
stock discussed below under "Special Shareholders' Meeting".
SPECIAL SHAREHOLDERS' MEETING
On July 10, 1997, the Board of Directors of the Company voted to convene a
special meeting of shareholders on September 22, 1997 to consider two proposals:
(i) an amendment to the Company's Certificate of Incorporation to change the
name of the Company to "Doral Financial Corporation" and (ii) an amendment to
increase the number of authorized shares of Common Stock from 20,000,000 to
50,000,000 shares. The Board of Directors fixed August 19, 1997 as the record
date to determine shareholders who are entitled to notice of and to vote at the
special shareholders meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.73 - Exchange Agreement, dated July 9, 1997, between the
Company and Popular, Inc.
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
N/A
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL CARIBBEAN CORPORATION
(Registrant)
Date: August 14, 1997 /s/ Salomon Lewis
-------------------------------------
Salomon Levis
Chairman of the Board
and Chief Executive Officer
Date: August 14, 1997 /s/ Richard F. Bonini
-------------------------------------
Richard F. Bonini
Senior Executive Vice President
and Chief Financial Officer
Date: August 14, 1997 /s/ Ricardo Melendez
-------------------------------------
Ricardo Melendez
Vice President and
Principal Accounting Officer
16
<PAGE> 1
EXHIBIT 10.73
================================================================================
FIRST FINANCIAL CARIBBEAN CORPORATION
8% CONVERTIBLE CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $1,000 PER SHARE)
======================
EXCHANGE AGREEMENT
DATED AS OF JULY 9, 1997
================================================================================
<PAGE> 2
EXCHANGE AGREEMENT dated as of July 9, 1997, between
FIRST FINANCIAL CARIBBEAN CORPORATION, a Puerto Rico
corporation (the "Company"), and POPULAR, INC., a Puerto Rico
corporation
("Popular").
The Company and Popular are parties to a Debenture Purchase Agreement
dated as of September 25, 1995, amended and restated as of December 15, 1995
(the "Debenture Purchase Agreement"), pursuant to which Popular purchased
$10,000,000 aggregate principal amount of the Company's 8.25% Convertible
Subordinated Debentures Due January 1, 2006 (the "Debentures").
Prior to the date hereof, Popular converted $1,540,000 aggregate
principal amount of Debentures into 88,000 shares of common stock of the Company
and sold such shares in a Rule 144 transaction.
The parties have agreed to exchange the remaining $8,460,000 aggregate
principal amount of Debentures into 8,460 shares of the Company's newly issued
8% Convertible Cumulative Preferred Stock (Liquidation Preference $1,000 per
share) (the "Securities").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders (as defined below) of the
Securities (except for Articles 3 and 5, which are for the exclusive benefit of
Popular):
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1. DEFINITIONS.
"Act" means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.
"Agreement" means this Agreement as amended or supplemented
from time to time.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, rights
to purchase, warrants, options, participations or other
<PAGE> 3
-2-
equivalents of or interests in (however designated) corporate stock, including
any Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company" means the party named as such in this Agreement until a
successor replaces it and, thereafter, includes the successor.
"Contractual Obligation" shall mean, as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Conversion Price" shall have the meaning set forth in the Certificate
of Designation.
"Doral" means Doral Mortgage Corporation, a Puerto Rico corporation.
"Doral Federal" means Doral Federal Savings Bank, a federal savings
bank organized under the laws of the United States, and the successor thereto
following its conversion to a Puerto Rico chartered bank.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute then in effect.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GNMA" means the Government National Mortgage Association.
"Governmental Authority" shall mean any nation or government, any
state, commonwealth or other political subdivision or instrumentality thereof,
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Lien" means any mortgage, pledge, security interest, conditional sale
or other title retention agreement or other similar lien.
<PAGE> 4
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"Market Price" shall have the meaning set forth in the
Certificate of Designation.
"Material Adverse Effect" shall mean a material adverse effect with
respect to (a) the business, operations or financial condition of the Company or
Doral, (b) the ability of the Company to pay and perform its obligations
hereunder and under the Securities, or (c) the validity or enforceability of
this Agreement or the Securities or the rights and remedies of the Holders
hereunder or thereunder.
"Material Amount" means, at any time, ten percent (10%) of the
Company's consolidated stockholders' equity, as set forth in the most recent
annual or quarterly financial statements of the Company delivered to the
Holders.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Holders. The counsel may be an employee of or counsel to the
Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Requirements of Law" shall mean, as to any Person, the Articles or
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, any law, treaty, rule or regulation, and any final and
binding determination of an arbitrator or determination of a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"SEC" means the Securities and Exchange Commission or any
successor to such entity's functions.
"Shares" means shares of common stock of the Company issuable upon
conversion of the Securities.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests
<PAGE> 5
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(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i) the
Company, (ii) the Company and one or more Subsidiaries or (iii) one or more
Subsidiaries.
SECTION 1.2. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including, without limitation;
and
(5) words in the singular include the plural and words
in the plural include the singular.
ARTICLE 2
EXCHANGE OF DEBENTURES FOR SECURITIES;
TERMS OF THE SECURITIES
SECTION 2.1. EXCHANGE OF DEBENTURES FOR SECURITIES. On the closing
dated of the exchange, which shall be a date mutually agreed by the parties
after the satisfaction of the condition set forth in Section 7.1(i), the Company
shall issue and deliver the Securities to Popular. Effective on such closing
date, the Debenture Purchase Agreement shall terminate and cease to have any
force and effect.
SECTION 2.2. TERMS OF THE SECURITIES. On or prior to the closing date
of the exchange, the Company shall file with the Department of State of Puerto
Rico a Certificate of Designation in the Form of Exhibit A (the "Certificate of
Designation") creating the series of preferred stock constituting the
Securities. The terms of Exhibit A, including the definitions contained therein,
are incorporated herein by reference as if fully set forth herein.
The Securities shall be substantially in the form of Exhibit B, which
is hereby incorporated in and expressly made a part of this Agreement. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
<PAGE> 6
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(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its issuance.
ARTICLE 3
COVENANTS
SECTION 3.1. SEC REPORTS. The Company shall provide Popular within 10
days after it files them with the SEC copies of its annual report and of the
information, documents and other reports which the Company is required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. In the event
the Company is at any time no longer subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, it shall continue to provide to Popular
reports containing substantially the same information as would have been
required to be filed with the SEC had the Company continued to have been subject
to such reporting requirements. In such event, such reports shall be provided at
the times the Company would have been required to provide reports had it
continued to have been subject to such reporting requirements.
SECTION 3.2. LINE OF BUSINESS. The Company and its Subsidiaries shall
continue to engage in the business of mortgage banking and lending, servicing
mortgage loans and other financial services (including banking) as their
principal business.
SECTION 3.3. SOURCE OF INCOME. The Company shall do or cause to be done
all things necessary or proper within its control to ensure that interest paid
on the Securities will not constitute income from sources within the United
States or will be otherwise totally exempt from or otherwise not subject to
United States income taxes when received by Popular under the applicable
provisions of the Code as currently in effect. If the Company violates its
covenant set forth in this Section, and Popular submits a claim in writing to
the Company to the effect that it has or will be required to pay United States
income taxes in respect of dividends paid or accrued on the Securities held by
Popular, the dividend rate on the Securities will be increased such that the
incremental amount of dividends will be equal, with respect to any period, to
the sum of (i) any additional income taxes (after deducting any taxes no longer
payable as a result of such change in the source of income) Popular was or will
be required to pay with respect to dividends paid or accrued on the Securities
held by Popular during such period, and with respect to payments of additional
dividends under this Section, after giving effect to any credit relating to such
dividends that Popular is entitled to take, and (ii) any penalties and interest
that have been or will be assessed against Popular with respect
<PAGE> 7
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to the late payment of such taxes. The payment of such additional dividends
shall be the exclusive remedy for violation of this covenant.
SECTION 3.4. COMPLIANCE CERTIFICATE. The Company shall deliver to
Popular within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any violation by the Company of its covenants hereunder and whether
or not the signers know of any such violation that occurred during such period.
If they do, the certificate shall describe the violation, its status and what
action the Company is taking or proposes to take with respect thereto.
SECTION 3.5. FURTHER INSTRUMENTS AND ACTS. Upon request of Popular, the
Company will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Agreement.
ARTICLE 4
REGISTRATION RIGHTS
SECTION 4.1. REGISTRATION OF SECURITIES AND SHARES. (a)
No Registration under Securities Act. Neither the Securities nor the
Shares have been registered under the Act. Each Holder, by acceptance of a
Security, represents that it is acquiring the Securities to be issued to it for
its own account for investment and not with a view to distribution thereof or
with any present intention of distributing or selling any of such Securities
except in compliance with the Act, provided that the disposition of such
Holder's property shall at all times be within its control, and agrees not to
sell, transfer, pledge or hypothecate any Securities or any Shares unless a
registration statement is effective for such Securities or Shares under the Act
or in the opinion of such Holder's counsel (a copy of which opinion shall be
delivered and shall be reasonably acceptable to the Company) such transaction is
exempt from the registration requirements of the Act; provided that Securities
and Shares issued to such Holder may be transferred to any affiliate of such
Holder, without any such registration or opinion, subject to the foregoing
restriction on any further sale, transfer, pledge or hypothecation by such
affiliate.
The Company will comply with the reporting requirements of Sections 13
and 15(d) of the Exchange Act (whether or not is shall be required to do so
pursuant to such Sections) and will comply with all other public information
reporting requirements
<PAGE> 8
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of the SEC (including, without limitation, Rule 144 promulgated by the SEC under
the Act) from time to time in effect and relating to the availability of an
exemption from the Act for sale of restricted securities. The Company also will
cooperate with the Holders of the Securities and with each holder of any Shares
in supplying such information as may be necessary for any such holder to
complete and file any information reporting forms presently or hereafter
required by the SEC as a condition to the availability of an exemption from the
Act for the sale of restricted securities.
(b) "Piggyback" Registration. Whenever the Company proposes to
file under the Act a registration statement relating to the issuance or sale of
any of its Capital Stock (other than a registration statement (i) required to be
filed in respect of employee benefit plans of the Company on Form S-8 or any
successor form from time to time in effect, (ii) on Form S-4 or any successor
form, (iii) with respect to any dividend reinvestment plan of the Company, or
(iv) pursuant to subsection (c) of this Section), the Company shall at least 30
days prior to such filing give effective written notice of such proposed filing
to the registered holder of each Security or Share. Upon receipt by the Company
not more than 15 days after such effective notice of a written request or
written requests from one or more of such holders for registration of Securities
or Shares, the Company shall (i) include in such registration statement or in a
separate registration statement concurrently filed, and shall use its best
efforts to cause such registration statement to become effective with respect to
the Securities or the Shares as to which such holder or holders request
registration and (ii) if such proposed registration is in connection with an
underwritten offering, upon request of such holder or holders cause the managing
underwriter therefor to include in such offering the Securities or Shares as to
which such holder or holders request such inclusion, on terms and conditions
comparable to those of the other securities to be offered, provided such holders
accept the terms of the under writing as agreed between the Company and the
underwriter selected by the Company (provided such terms are consistent with
this Agreement), and provided further that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this subsection (b)
without any obligation to any holder of Securities or Shares.
(c) Demand Registration. Whenever one or more registered
holders of Securities or Shares shall make a written request to the Company to
register under the Act Securities having an aggregate liquidation preference of
at least $5,000,000, or (in the case of any person initially buying at least
$2,500,000 in aggregate liquidation preference of Securities) constituting all
the Securities held by such holders,
<PAGE> 9
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or at least 285,000 Shares (or such other number of Shares as shall result after
giving effect to consolidations or subdivisions of the common stock of the
Company after September 25, 1995), or (in the case of any person initially
owning at least 150,000 Shares or initially owning Securities convertible into
at least 150,000 Shares) constituting all the Shares of such holder, either
issuable upon conversion of such Securities or held by such holder or holders,
the Company within five days after such request is effective shall promptly give
written notice of such request to all registered holders of outstanding
Securities or Shares other than the holder or holders making such request, such
notice stating the estimated approximate date of filing such registration
statement, and shall thereupon promptly file a registration statement with
respect to and use its best efforts to register the Securities or Shares of or
pertaining to the holder or holders making such request and each other holder of
Securities or Shares from whom written request for registration is effective or
received on or before the later to occur of (i) the twentieth day after the
effective date of such notice by the Company or (ii) the thirtieth day prior to
the estimated date of filing specified in such notice.
The Company shall not be required to effect any registration
(other than on Form S-3 or any successor form relating to secondary offerings)
within 120 calendar days after the effective date of any other registration
statement of the Company relating to debt or equity securities of the Company
(in the case of a demand for registration of Securities) or to equity securities
of the Company (in the case of a demand for registration of Shares) made
pursuant to this subsection (c) or in which the holders of the Securities and
the Shares had the opportunity to participate pursuant to Section 10.1(b).
If at the time of any request to register Securities or Shares
pursuant to this subsection (c), the Company is engaged or has fixed plans to
engage within thirty (30) days of the time of the request in a registered public
offering as to which the holders of the Securities and the Shares may include
Securities or Shares pursuant to Section 10.1(b) or is engaged in any other
activity that, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of 120 calendar days
from the effective date of such offering or the date of commencement of such
other material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period.
<PAGE> 10
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(d) Reduction in Number of Securities Included in
Registration. In the event that the managing underwriter of any registered
offering made pursuant to subsection (b) or (c) above notifies the Company in
writing that, in its opinion, the amount of securities to be included in such
registration exceeds the amount that can be sold in such offering within a price
range acceptable to the Company and the holders of the securities being offered
(or, in the case of a registration pursuant to subsection (c) above, within a
price range acceptable to the Securityholders and the holders of the Shares),
the Company will include in such registration only the amount of securities that
the Company is so advised can be sold in such offering within such price range.
In such event, the number of securities to be included in such registration
shall be allocated among the persons participating in such offering as follows:
(i) in the case of a registration relating to a primary offering by the Company,
first, the Company shall have the right to include in such registration all
securities proposed to be sold by the Company and, second, all other persons
participating in such re gistration shall have the right to include in such
registration the balance, allocated pro rata among such persons in accordance
with the number or principal amount of securities originally proposed to be sold
by them; (ii) in the case of a registration pursuant to subsection (c) above,
first, the holders of the Securities and the Shares shall have the right to
include in such registration all Securities and Shares proposed to be sold by
such holders, pro rata among such holders in the event that not all such
Securities or Shares can be included, and, second, all other persons
participating in such registration shall have the right to include in such
registration the balance; and (iii) in all other cases, pro rata among all
persons participating in the offering in accordance with the number or principal
amount of securities originally proposed to be sold by them.
(e) Other Provisions Relating to Registration Rights.
In connection with any registration pursuant to this Section:
(i) Upon the request of the registered holder of any
Security or Shares participating in such registration, the Company will
cooperate with any underwriters (as defined in the Act) for such holder,
including, without limitation, providing such information, certificates, comfort
letters of accountants and opinions of counsel as may be reasonably requested by
such underwriters.
(ii) The Company shall not be required to maintain
the effectiveness of any registration statement under subsection (b) or (c) of
this Section for a period in excess of four months or, in the case of any
registration statement under subsection (b) or (c) of this Section filed on a
Form S-3
<PAGE> 11
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Registration Statement under the Act, for a period in excess of six months, or
in the case of an underwritten offering, such longer period as may be required
by the Act to enable the underwriters to complete such offering.
(iii) The Company will furnish to each holder of
Securities or Shares (i) at least seven days prior to the filing thereof with
the SEC, a copy of the registration statement in the form in which the Company
proposes to file the same with the SEC and, not later than the effective date
thereof, a copy of any and all amendments to such registration statement, (ii)
within five days of the filing thereof with the SEC, a copy of any and all
post-effective amendments to such registration statement, and (iii) at the
request of any such holder and, in the case of a registration pursuant to
subsection (c) of this Section, the Securityholders' Managers (as defined
below), a reasonable number of copies of a preliminary prospectus and a final
prospectus (each of which shall, as of their respective dates, comply with
Section 10 of the Act and shall not, as of such dates, include 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)
covering the offering and sale by such holders of the Securities or Shares to be
covered thereby as aforesaid.
(iv) The Company will advise each of such holders of
the entry of any stop order suspending the effectiveness of such registration
statement or of the initiation of any proceeding for that purpose, and, if such
stop order should be entered, use its best efforts promptly to cause such stop
order to be lifted or removed.
(v) For such period of time (not exceeding the
maximum period of time for which the Company is required to maintain the
effectiveness of such registration statement) as any of such holders may be
required by law to deliver a prospectus in connection with a sale of any
Securities or Shares pursuant to such registration statement, if any event shall
occur as a result of which it is necessary to amend or supplement the prospectus
forming a part of such registration statement in order to correct an untrue
statement of a material fact, or an omission to state a material fact necessary
to make the statements therein, in the light of the circumstances existing when
such prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement such prospectus to comply with any law, the
Company will forthwith prepare and furnish to each of such holders and, in the
case of a registration pursuant to subsection (c) of this Section, the
Securityholders' Managers, a reasonable number of amended or supplemented
prospectuses so that statements in the prospectuses as so amended or
supplemented will
<PAGE> 12
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not, in the light of the circumstances then existing, be misleading, or so that
such prospectuses will comply with law.
(vi) At any time prior to the filing of a regis
tration statement pursuant to subsection (c) of this Section, the holders of
Securities or Shares making or joining in a request for such registration may
select an investment banker or bankers (collectively, the "Securityholders'
Managers") which shall be satisfactory to the Company, and the offering pursuant
to such registration statement shall be made through the Securityholders'
Managers. The Company shall enter into an underwriting agreement in customary
form with the Securityholders' Managers and will indemnify the Securityholders'
Managers, their officers and directors, and each person, if any, who controls
the Securityh olders' Managers within the meaning of the Act to the same extent
as hereinafter provided with respect to the holders of Securities or Shares
requesting such registration. Such underwriting agreement will contain
indemnification and contribution provisions substantially identical to those set
forth in clauses (ix), (x), (xi) and (xii) below or otherwise acceptable to the
underwriters.
(vii) The Company will qualify, file or register the
Securities or Shares being registered under the securities laws of such states
of the United States of America and of the Commonwealth of Puerto Rico as may be
reasonably designated by the holders of Securities or Shares or by the
Securityholders' Managers and will obtain the consent, authorization or approval
of any governmental agency (other than any such consent, authorization or
approval required under any statute or regulation applicable to any such holders
and not applicable to investors generally) required in connection with the
issuance of the Securities or Shares being registered or in order that such
holders may publicly sell the Securities or Shares covered by such registration
statement; provided, however, that the Company shall not be required in
connection with this subsection (vii) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
(viii) All fees, disbursements and expenses incurred by
the Company in connection with any registration pursuant to subsection (b) or
(c) of this Section shall be borne by the Company, including, without
limitation, all registration and filing fees, all costs of preparation and
printing (in such quantities as the holders of Securities or Shares, or the
Securityholders' Managers, may reasonably request) of any registration statement
and related prospectus and any amendments or supplements thereto, all fees and
disbursements of counsel for the Company, the expenses of complying with
applicable securities or blue sky laws, and all costs in connection with the
prepara-
<PAGE> 13
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tion and delivery of such legal opinions, auditors' comfort letters or other
closing documents as the holders of Securities or Shares, or as the
Securityholders' Managers, shall reasonably request. All underwriting
commissions, expenses of the Securityholders' Managers and fees and expenses of
counsel to the selling holders of Securities or Shares shall be allocated among
the holders of Securities or Shares pro rata according to the number of
Securities or Shares being registered by each such holder or in such other
manner as such holders may agree. The Company shall not be responsible for the
fees and expenses of counsel to the selling holders of Securities or Shares.
(ix) The Company will indemnify and hold harmless each holder
of Securities or Shares and any underwriter (as defined in the Act) for such
holder and each person or entity, if any, who controls such holder or
underwriter within the meaning of the Act or the Exchange Act, against any
losses, claims, damages, liabilities, costs or expenses, joint or several, or
actions in respect thereof to which such holder or underwriter or controlling
person or entity may become subject under the Act, the Exchange Act, state
securities or Blue Sky laws, or otherwise, insofar as such losses, claims,
damages, liabilities, costs, expenses or actions in respect thereof arise out
of, or are based upon, or are related to, any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which Securities or Shares of or pertaining to such holder were registered under
the Act, any preliminary prospectus, amended preliminary prospectus, or final
prospectus contained therein, or any amendment or supplement thereto, or arise
out of, or are based upon, or are related to, the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse such holder or
underwriter or controlling person or entity for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided that to the extent that
any such loss, claim, damage or liability arises out of, or is based upon, an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary prospectus, said amended
preliminary prospectus or said final prospectus or any said amendment or
supplement in reliance upon, and in conformity with, written information
furnished to the Company by such holder or by any underwriter for such holder
specifically for use in the preparation thereof, the Company will not be so
liable to such holder or underwriter.
(x) Each seller of Securities or Shares, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors and
officers and each underwriter (if any) and
<PAGE> 14
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each person, if any, who controls the Company or any such underwriter within the
meaning of the Act or the Exchange Act, against any losses, claims, damages, or
liabilities, joint or several, to which the Company, such directors and
officers, underwriters or controlling person may become subject under the Act,
the Exchange Act, state securities or Blue Sky laws, or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Securities or Shares were registered under the Act, any preliminary prospectus
or final prospectus contained in the registration statement, or any amendment or
supplement to the registration statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such seller furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such registration statement, prospectus, amendment, or supplement.
(xi) Each party entitled to indemnification under subsection
(ix) or (x) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, the counsel for the
Indemnifying Party assuming the defense of any such claim or litigation shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this subsection (xi). The Indemnified Party shall be entitled
to retain separate counsel at its own expense, provided that the Indemnifying
Party shall pay the expense of such separate counsel if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgement or enter into settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent
<PAGE> 15
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to entry of any judgement or settle such claim or litigation without the prior
written consent of the Indemnifying Party.
(xii) If the indemnification provided for in clause (ix) or
(x) is due in accordance with its terms but is for any reason held by a court to
be unavailable, on grounds of policy or otherwise, then the Company and the
selling holders shall contribute to the aggregate losses, claims, damages,
liabilities and expenses to which the Company and the selling holders may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company and of the selling holders in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company and the selling holders shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact relates to information supplied by the Company of by the selling
holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the selling holders agree that it would not be just and equitable if
contribution pursuant to this clause (xii) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the two immediately preceding
sentences. Notwithstanding the provisions of this clause (xii), the selling
holders shall not be required to contribute any amount in excess of the amount
by which the total price at which the Securities or Shares owned by the selling
holders were offered to the public exceeds the amount of any damages which the
selling holders have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
fraudulent misrepresentation.
ARTICLE 5
RIGHT TO PURCHASE ADDITIONAL SHARES
SECTION 5.1. RIGHT TO PURCHASE ADDITIONAL SHARES. The Company hereby
grants to Popular the non-transferable right to buy shares of common stock of
the Company at the Conversion Price in effect from time to time (or, in the
event that the Securities shall have been converted, at the Conversion Price
that would have been in effect if any Securities were outstanding), after giving
effect to any adjustment required by the Certificate of Designation, at any time
and from time to time that the Company takes action to issue additional shares
of its common stock on or
<PAGE> 16
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prior to June 30, 1999, and as a result of which the sum of (i) the Shares
issued or issuable upon conversion of the Securities and the Debentures, whether
or not then held by Popular, and (ii) any shares of common stock of the Company
previously purchased by Popular pursuant to this Section (collectively, the
"Popular Shares") represents less than 5% of the fully diluted shares of common
stock of the Company, assuming conversion of all outstanding securities
convertible into common stock of the Company, whether or not convertible at the
time, and the exercise of all outstanding options, warrants and other rights to
purchase common stock of the Company, whether or not exercisable at the time
(the "fully diluted shares").
The maximum number of shares subject to the right granted in this
Section and issuable at any time upon exercise of the right granted in this
Section shall be equal to the lesser of (i) the remainder of (A) 0.0499 times
the total number of fully diluted shares of common stock of the Company at such
time minus (B) the total number of Popular Shares and (ii) the remainder of (A)
200,000 (adjusted for combinations and subdivisions of the common stock of the
Company after September 25, 1995) minus (B) the total number of shares
previously purchased by Popular upon exercise of the right granted in this
Section.
The right granted in this Section may be exercised by Popular no later
than 90 days after receipt by Popular of notice from the Company of a
transaction resulting in a reduction of the percentage ownership of the common
stock of the Company represented by the Popular Shares. In the event that
Popular shall at any time fail to exercise such right within such period of time
after such notice, the reference in clause (i)(A) above shall be changed to the
percentage ownership of the common stock of the Company represented by the
Popular Shares after the transaction in connection with which such notice was
given.
Upon notice from Popular of its intention to exercise the right granted
in this Section at any time, the Company may, at its option, instead of issuing
the number of shares to be purchased by Popular, pay to Popular with respect to
each such share an amount equal to the difference between the Market Price of
such shares and the Conversion Price in effect at the time. In such event, the
reference in clause (i)(A) above shall be changed as set forth in the preceding
paragraph as if Popular had not exercised its right.
The right granted in this Section shall expire upon the purchase of 90%
or more of the outstanding common stock of the Company pursuant to a tender
offer for all the outstanding shares of common stock of the Company or pursuant
to a merger or consolidation of the Company in which, in both the case of a
<PAGE> 17
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tender offer and of a merger or consolidation, the shares of Capital Stock of
the Company shall be converted into the right to receive cash, non-convertible
debt securities, non-convertible preferred stock or shares of common stock
representing in the aggregate less than 20% of the outstanding common stock of
the surviving or resulting corporation.
No person, including any person acquiring Securities or Shares from
Popular, other than Popular or any successor entity, shall have any rights under
this Article.
SECTION 5.2. REGISTRATION RIGHTS AND CERTAIN OTHER MATTERS. Holders of
shares of common stock of the Company issued upon the exercise of the right
granted in Section 5.1 shall have the same registration rights with respect to
such shares that holders of Securities or Shares have under Article 4, which
Article 4 shall apply, mutatis mutandis, to such shares issued upon the exercise
of the right granted in Section 5.1. References to "Shares" in such Article 4
and references to shares of common stock of the Company in Section C.3 of the
Certificate of Designation shall be deemed to include, mutatis mutandis, shares
of common stock of the Company issued or issuable upon the exercise of the right
granted in Section 5.1, except that the Company shall not be obligated to list
such shares as provided in Section C.3 of the Certificate of Designation until
the actual issuance thereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
As an inducement to Popular to enter into this Agreement and to
purchase the Securities, the Company represents and warrants to Popular that:
SECTION 6.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW AND CONTRACTUAL
OBLIGATIONS. Each of the Company and Doral (a) is duly organized, validly
existing and in good standing as a corporation under the laws of the
Commonwealth of Puerto Rico and in each jurisdiction where its ownership of
property or conduct of business requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect; (b) has the
corporate power and authority and the legal right to own and operate its
property and to conduct business in the manner in which it does and proposes so
to do; and (c) is not in violation of any Requirement of Law or any Contractual
Obligation if such violation could have a Material Adverse Effect.
SECTION 6.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
The Company has the corporate power and authority to execute, deliver and
perform this Agreement and the Securities
<PAGE> 18
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and has taken all necessary corporate actions to authorize such execution,
delivery and performance. This Agreement and the Securities, when issued, have
been or will have been duly executed and delivered on behalf of the Company and
constitute or will constitute legal, valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency and
other similar laws affecting creditors' rights generally and by general
principles of equity.
SECTION 6.3. NO LEGAL OR CONTRACTUAL BAR. The execution, delivery and
performance of this Agreement and the Securities, including the use of the
proceeds of the Securities, do not and will not (a) violate any Requirement of
Law or any Contractual Obligation of the Company or any of its Subsidiaries, (b)
require any license, consent, authorization, approval or any other action by, or
any notice to or filing or registration with, any Governmental Authority or any
other Person, other than the filing with the Secretary of State of the
Commonwealth of Puerto Rico of a certified copy of the resolution of the Board
of Directors approving the issuance of the Securities and the terms of this
Agreement, or (c) result in the creation or imposition of any Lien on any asset
of the Company or any of its Subsidiaries.
SECTION 6.4. FINANCIAL INFORMATION. (a) The consolidated balance sheet
of the Company and its consolidated Subsidiaries as at December 31, 1996 and the
related consolidated statements of income, retained earnings and cash flows for
the fiscal year then ended, including in each case the related schedules and
notes, reported on by Price Waterhouse, true copies of which have been
previously delivered to Popular, are complete and correct and fairly present the
consolidated financial condition of the Company and its consolidated
Subsidiaries as at the date thereof and the consolidated results of operations
and cash flows for such period, in accordance with GAAP applied on a consistent
basis.
(b) The unaudited consolidated balance sheet of the Company and Doral
and their consolidated Subsidiaries as at March 31, 1997, and the related
unaudited consolidated statements of income, retained earnings and cash flows
for the three-month period then ended, certified by the chief financial officer
of the Company, true copies of which have been previously delivered to Popular,
are complete and correct and fairly present the consolidated financial condition
of the Company and its consolidated Subsidiaries as at the date thereof and the
consolidated results of operations and cash flows for such periods in conformity
with GAAP applied on a basis consistent
<PAGE> 19
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with the financial statements referred to in subsection (a) of this Section,
subject to normal year-end audit adjustments.
(c) Neither the Company nor Doral has any material liability of any
kind, whether accrued, contingent, absolute, determined, determinable or
otherwise, and no condition, situation or set of circumstances exists that could
be reasonably expected to result in such a liability, in each case that is not
reflected in the financial statements referred to in Section 6.4(a) or 6.4(b).
Any such material liability arising in the future will be reflected in the
financial statements delivered to Popular pursuant to Section 3.1.
(d) Since December 31, 1996, no material adverse change has occurred in
the business, financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole.
SECTION 6.5. NO MATERIAL LITIGATION. Except as set forth on Schedule
6.5, no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Company,
threatened by or against the Company or any of its Subsidiaries, or against any
of the Company's or any such Subsidiary's properties or revenues that, if
adversely determined, could alone, or with any other litigation, investigation
or proceeding, affect the business, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole, in excess of a Material
Amount or could have a Material Adverse Effect.
SECTION 6.6. TAXES. The Company and each of its Subsidiaries have filed
or caused to be filed all tax returns that are required to be filed and have
paid all taxes shown to be due and payable on such returns or on any assessments
made against them or any of their property other than taxes and assessments that
are being contested in good faith by appropriate proceedings and as to which the
Company or such Subsidiary has established adequate reserves in conformance with
GAAP.
SECTION 6.7. INVESTMENT COMPANY ACT. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and is not controlled by any "investment company".
SECTION 6.8. SUBSIDIARIES. The Company has no Subsidiaries other than
Doral, Doral Federal, Centro Hipotecario de Puerto Rico, Inc., RSC Corp., AAA
Financial Services Corporation, and First Florida Realty Corporation. The
Company owns, directly or through another Subsidiary, one hundred percent (100%)
of the stock of each such Subsidiary, and all of the stock of each such
<PAGE> 20
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Subsidiary has been duly issued and is fully paid and nonassessable.
SECTION 6.9. USE OF PROCEEDS. The proceeds of the sale of the
Debentures were used by the Company for its general corporate purposes,
including to finance its general working capital needs and to purchase mortgage
loans and mortgage servicing rights.
SECTION 6.10. ERISA. (a) No Prohibited Transactions, accumulated
funding deficiencies (as described in Section 302 of ERISA), withdrawals from
Multiemployer Plans or Reportable Events have occurred with respect to any Plans
or Multiemployer Plans that, in the aggregate, could subject the Company or any
of its Subsidiaries to any material tax, penalty or other liability where such
tax, penalty or liability is not covered in full, for the benefit of the Company
or such Subsidiary, by insurance; (b) no notice of intent to terminate a Plan
has been filed, nor has any Plan been terminated under Section 4041 of ERISA,
nor has the Pension Benefit Guaranty Corporation instituted proceedings to
terminate, or appoint a trustee to administer, a Plan and no event has occurred
or condition exists that might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan;
(c) the present value of all benefits liabilities (as defined in Section
4001(a)(16) of ERISA) under all Plans (based on the actuarial assumptions used
to fund the Plans) does not exceed the assets of the Plans; and (d) the
execution, delivery and performance by the Company of this Agreement and the
Securities and the use of the proceeds thereof will not involve any Prohibited
Transaction. For purposes of this Section, the following terms shall have the
following meanings:
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be supplemented or amended, and the rules and
regulations issued thereunder as from time to time in effect.
"ERISA Affiliate" shall mean each trade or business, including the
Company, whether or not incorporated, that together with the Company would be
treated as a single employer under Section 4001 of ERISA.
"Multiemployer Plan" shall mean a plan described in Section 4001(a)(3)
of ERISA to which the Company or any ERISA Affiliate is required to contribute
on behalf of any of its employees.
"Plan" shall mean any plan (other than a Multiemployer Plan) subject to
Title IV of ERISA maintained for employees of the Company or any ERISA Affiliate
(and any such plan no longer
<PAGE> 21
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maintained by the Company or any of its ERISA Affiliates to which the Company or
any of its ERISA Affiliates has made or was required to make any contributions
during the five years preceding the date on which such plan ceased to be
maintained).
"Prohibited Transaction" shall mean any transaction described in
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or the
transitional rules set forth in Section 414(c) of ERISA and any transaction
described in Section 4975(c)(1) of the Code that is not exempt by reason of
Section 4975(c)(2) or Section 4975(d) of the Code, or the transitional rules of
Section 2003(c) of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in Section 4063 of ERISA, a cessation of operations described in
Section 4068(f) of ERISA, an amendment to a Plan necessitating the posting of
security under Section 401(a)(29) of the Code, or a failure to make a payment
required by Section 412(m) of the Code and Section 302(e) of ERISA when due.
SECTION 6.11. AGENCY APPROVALS. Each of the Company and Doral is a
FHLMC approved Seller/Servicer, a HUD Direct Endorsement Lender, and a VA
approved Lender in good standing, and the Company is a FNMA approved
Seller/Servicer and a GNMA approved Issuer/Servicer.
SECTION 6.12. SOLVENCY. Each of the Company and Doral is able to pay
its debts as they mature. The aggregate estimated fair market value of each of
the Company's and Doral's assets is greater than the Company's or Doral's
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities and any and all obligations hereunder and under the Securities),
respectively. Each of the Company and Doral has capital sufficient to carry on
the business and transactions in which it is engaged and all business and
transactions in which it proposes to engage.
ARTICLE 7
CONDITIONS PRECEDENT
SECTION 7.1. CONDITIONS PRECEDENT. It shall be a condition precedent to
the exchange of the Debentures for the Securities that Popular shall have
received the following documents and that the following conditions shall have
been satisfied:
(a) a certified copy of the resolution of the Board of
Directors of the Company approving the execution, delivery and
<PAGE> 22
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performance of this Agreement and the Securities and the transactions
contemplated herein and therein;
(b) a certificate of the Secretary or an Assistant Secretary of the
Company certifying the names and true signatures of the officers of the Company
authorized to sign this Agreement and the Securities and the other documents
required to be executed and delivered hereunder, in each case dated as of the
date of exchange;
(c) an opinion of Pietrantoni, Mendez & Alvarez, counsel for the
Company, in form and substance acceptable to Popular, covering such matters as
Popular may reasonably request, dated as of the date of exchange;
(d) a copy of the Certificate of Incorporation of the Company and Doral
certified by the Secretary of State of Puerto Rico as of a recent date and by
the Secretary or Assistant Secretary of the Company as of the date of exchange
and a copy, stamped as filed with the Department of State of Puerto Rico, of the
Certificate of Designation in the form of Exhibit A;
(e) a copy of the By-laws of the Company, certified by the Secretary
or an Assistant Secretary of the Company as of the date of exchange, as being
accurate and complete;
(f) a certificate of the applicable officer in the relevant
jurisdiction or other equivalent document certifying as of a recent date that
each of the Company and Doral is in good standing in each jurisdiction in which
each such party is qualified to conduct business;
(g) an Officer's Certificate of the Company confirming compliance with
the covenants and confirming the accuracy of the representations set forth
herein as of the date of exchange;
(h) evidence satisfactory to Popular that all acts and conditions
(including the obtaining of any necessary regulatory approvals and the making of
any required filings, recordings or registrations) required to be done and
performed and to have happened prior to the execution, delivery and performance
of this Agreement and the Securities and to constitute the same legal, valid and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws;
(i) evidence satisfactory to Popular that the Company has become a
"bank holding company," as that term is defined in the Bank Holding Company Act
of 1956;
<PAGE> 23
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(j) such other documents or legal opinions as Popular or its counsel
may reasonably request, all in form and substance reasonably satisfactory to
Popular;
(k) all documentation, including documentation for corporate and legal
proceedings in connection with the transactions contemplated by this Agreement
and the Securities, shall be reasonably satisfactory in form and substance to
Popular and its counsel;
(l) the Company shall have paid all fees required to have been paid
under this Agreement and the Securities;
(m) no default or Event of Default shall have occurred and be
continuing;
(n) since December 31, 1996, no material adverse change shall have
occurred in the business, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. NOTICES. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:
If to the Company:
First Financial Caribbean Corporation
1159 Franklin Delano Roosevelt Avenue
San Juan, Puerto Rico 00920
Attention of: Mr. Mario S. Levis
Telephone: (787) 749-7108
Telecopier: (787) 792-4025
If to Popular:
Popular Corporation
Banco Popular Center
Hato Rey, Puerto Rico 00918
Attention of: Mr. Jorge A. Junquera
Telephone: (787) 754-1685
Telecopier: (787) 759-8900
<PAGE> 24
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The Company or Popular by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 8.2. STATEMENTS OR OPINION. Each certificate or opinion with
respect to compliance with a covenant or condition provided for in this
Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
such person, such covenant or condition has been complied with.
SECTION 8.3. WHEN TREASURY SECURITIES DISREGARDED. In determining
whether the Holders of the required principal amount of Securities have
concurred in any waiver or consent, Securities owned by the Company or by any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company shall be disregarded and deemed not to
be outstanding. Also, subject to the foregoing, only Securities outstanding at
the time shall be considered in any such determination.
SECTION 8.4. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not
<PAGE> 25
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normally open in the Commonwealth of Puerto Rico. If a payment date is a Legal
Holiday, payment shall be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If a regular
record date is a Legal Holiday, the record date shall not be affected.
SECTION 8.5. GOVERNING LAW. This Agreement and the Securities shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Puerto Rico but without giving effect to applicable principles of conflicts of
law to the extent that the application of the laws of another jurisdiction would
be required thereby.
SECTION 8.6. SUCCESSORS. All agreements of the Company in this
Agreement and the Securities shall bind its successors.
SECTION 8.7. MULTIPLE ORIGINALS. The parties may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Agreement.
SECTION 8.8. TABLE OF CONTENTS; HEADINGS. The table of contents and
headings of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not intended to be considered a part hereof
and shall not modify or restrict any of the terms or provisions hereof.
SECTION 8.9. REPRESENTATIONS AND COVENANTS BY POPULAR. Popular
represents that (i) no part of the funds being used by it to purchase the
Securities constitute assets of any employee benefit plan, as defined in Section
3 of ERISA and (ii) Popular has the corporate power and authority to execute,
deliver and perform this Agreement and has taken all necessary corporate action
to authorize such execution, delivery and performance. This Agreement has been
duly executed and delivered on behalf of Popular and constitutes the legal,
valid and binding obligation of Popular enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
SECTION 8.10. SURVIVAL OF CERTAIN PROVISIONS. The covenants and other
provisions set forth in Articles 1, 4, 5, 6 and 8 and in Sections 3.3 (with
respect to periods prior to the redemption or conversion of the Securities) and
3.5 shall survive the redemption or conversion of the Securities. All other
covenants and provisions of the Agreement shall expire upon redemption or
conversion of all the Securities, provided that rights or causes of action
accrued prior to such payment or conversion shall survive.
<PAGE> 26
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
FIRST FINANCIAL CARIBBEAN
CORPORATION
By: /s/ MARIO S. LEVIS
----------------------------
Name: Mario S. Levis
Title: Executive Vice President
POPULAR, INC.
By: /s/ JORGE A. JUNQUERA
----------------------------
Name: Jorge A. Junquera
Title: Senior Executive
Vice President
<PAGE> 27
EXHIBIT A
[FORM OF CERTIFICATE OF DESIGNATION]
<PAGE> 28
CERTIFICATE OF DESIGNATION
OF THE BOARD OF DIRECTORS OF FIRST FINANCIAL CARIBBEAN CORPORATION
8% CONVERTIBLE CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $1,000 PER SHARE)
(Pursuant to Article 5.01 of the General Corporation Law of the
Commonwealth of Puerto Rico)
We, the undersigned, President and Secretary of FIRST FINANCIAL
CARIBBEAN CORPORATION (hereinafter called the "Corporation"), a corporation duly
organized and existing under the laws of the Commonwealth of Puerto Rico, do
hereby certify that, pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Restated Certificate of Incorporation of the
Corporation, the said Board of Directors on June 16, 1997, adopted the following
resolutions creating a series of 20,000 shares of Serial Preferred Stock
designated as the "8% Convertible Cumulative Preferred Stock."
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation in accordance
with the provisions of its Restated Certificate of Incorporation, a
series of Serial Preferred Stock of the Corporation be and it hereby is
created.
FURTHER RESOLVED, that the directors have determined that the
preferences and relative, participating, optional or other special
rights of the shares of such series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, as stated and
expressed herein, are under the circumstances prevailing on the date
hereof fair and equitable to all the existing shareholders of the
Corporation.
FURTHER RESOLVED, that the designation and amount of such
series and the voting powers, preferences and relative, participating,
optional or other special rights of the shares of such series of
Preferred Stock, and the qualifications, limitations or restrictions
thereof are as follows:
A. DESIGNATION AND AMOUNT
The shares of such series of Preferred Stock shall be
designated as the "8% Convertible Cumulative Preferred Stock
(Liquidation Preference $1,000 per share)" (hereinafter called the "8%
Preferred Stock"), and the number of authorized shares constituting
such series shall be 20,000.
B. DIVIDENDS
1. Holders of record of the 8% Preferred Stock ("Holders")
will be entitled to receive, when, as and if declared by the Board of
Directors of the Corporation, out of funds of the Corporation legally
available therefor, cumulative cash dividends at the annual rate per
share of 8% of their liquidation preferences, or $6.66 2/3 per share
per month.
2. Dividends on the 8% Preferred Stock will accrue from their
date of original issuance and will be payable (when, as and if declared
by the Board of Directors of the Corporation out of funds of the
Corporation legally available therefor) monthly in arrears in United
States dollars commencing on the last day of the month in which the 8%
Preferred Stock is issued, and on the last day of each calendar month
of each year thereafter to the holders of
<PAGE> 29
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record of the 8% Preferred Stock as they appear on the books of the
Corporation on the Business Day (as defined below) immediately
preceding the relevant date of payment. In the case of the dividend
payable in the month in which the 8% Preferred Stock is issued, such
dividend shall cover the period from the date of issuance of the 8%
Preferred Stock to the end of such much. In the event that any date on
which dividends are payable is not a Business Day, then payment of the
dividend payable on such date will be made on the next succeeding
Business Day without any interest or other payment in respect of any
such delay, except that, if such Business Day is in the next succeeding
calendar year, such payment will be made on the Business Day
immediately preceding the relevant date of payment, in each case with
the same force and effect as if made on such date. A "Business Day" is
a day other than a Saturday, Sunday or bank holiday in San Juan, Puerto
Rico.
3. Dividends on the 8% Preferred Stock will be cumulative from
their date of issuance, and will accrue, to the extent not paid, on the
last day of each month.
4. The amount of dividends payable for any monthly dividend
period will be com puted 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 monthly dividend period will be computed on the basis of
the actual number of days elapsed in such period.
5. Subject to any applicable fiscal or other laws and
regulations, each dividend payment will be made by dollar check drawn
on a bank in New York, New York or San Juan, Puerto Rico and mailed to
the record holder thereof at such holder's address as it appears on the
register for such 8% Preferred Stock or, in the case of holders of
$1,000,000 or more in aggregate liquidation preference of the 8%
Preferred Stock, by wire transfer of immediately available funds to the
account of such holders as notified by such holders to the Corporation.
6. So long as any shares of the 8% Preferred Stock remain
outstanding, the Corporation shall not declare, set apart or pay any
dividend or make any other distribution of assets (other than dividends
paid or other distributions made in stock of the Corporation ranking
junior to the 8% Preferred Stock as to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding up of
the Corporation) on, or redeem, purchase, set apart or otherwise
acquire (except upon conversion or exchange for stock of the
Corporation ranking junior to the 8% Preferred Stock as to the payment
of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Corporation), shares of common stock
or of any other class of stock of the Corporation ranking junior to the
8% Preferred Stock as to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up of the
Corporation, unless all accrued and unpaid dividends on the 8%
Preferred Stock shall have been paid or are paid contemporaneously and
the full monthly dividend on the 8% Preferred Stock for the then
current month has been or is contemporaneously declared and paid or
declared and set apart for payment and unless the Corporation has not
defaulted in the payment of the redemption price of any shares of 8%
Preferred Stock called for redemption.
7. When dividends are not paid in full on the 8% Preferred
Stock and any other shares of stock of the Corporation ranking on a
parity as to the payment of dividends with the 8% Preferred Stock, all
dividends declared upon the 8% Preferred Stock and any such other
shares of stock of the Corporation will be declared pro rata so that
the amount of dividends declared per share on the 8% Preferred Stock
and any such other shares of stock will in all cases bear to each other
the same ratio that the liquidation preference per share of the 8%
Preferred Stock and any such other shares of stock bear to each other.
<PAGE> 30
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8. Holders of record of the 8% Preferred Stock will not be
entitled to any dividend, whether payable in cash, property or stock,
in excess of the dividends provided for herein on the shares of 8%
Preferred Stock. The Corporation may, however, at its discretion,
declare a special dividend in an amount sufficient to allow the
Corporation to pay dividends on any stock of the Corporation ranking
junior to the 8% Preferred Stock in compliance with the provisions of
Section B.6 above.
C. CONVERSION
1. A holder of a share of 8% Preferred Stock may convert it
into common stock of the Corporation at any time before the close of
business on December 1, 2005 (the "Expiration Date"). If a share of 8%
Preferred Stock is called for redemption, the holder may convert it at
any time before the close of business on the redemption date. The
initial conversion price is $17.50 per share of common stock of the
Corporation, subject to adjustment in certain events as provided in
subsection 4 below (as so adjusted from time to time, the "Conversion
Price"). To determine the number of shares of common stock of the
Corporation issuable upon conversion of a share of 8% Preferred Stock,
divide (a) the aggregate liquidation preference of the shares of 8%
Preferred Stock to be converted, plus the total amount of accrued but
unpaid dividends on such shares to the date of conversion by (b) the
Conversion Price in effect on the conversion date. The Corporation will
deliver a check for any fractional share.
2. To convert a share of 8% Preferred Stock a Holder must (1)
complete and sign the conversion election on the back of the
certificate, (2) surrender the certificate to the Corporation, (3)
furnish appropriate endorsements and transfer documents if required by
the Corporation, and (4) pay any transfer or similar tax if required.
3. Reservation, Listing and Issuance of Shares. The
Corporation will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue shares of common stock of the
Corporation upon the conversion of shares of 8% Preferred Stock, the
number of shares of common stock of the Corporation deliverable upon
conversion of the outstanding shares of 8% Preferred Stock. The
Corporation will, at its expense, cause the shares of common stock of
the Corporation deliverable upon conversion of the 8% Preferred Stock
to be listed (subject to issuance or notice of issuance of such shares)
on all stock exchanges on which the common stock is listed not later
than the date such common stock is so listed. The Corporation agrees to
list such shares (subject to issuance or notice of issuance) on
NASDAQ-NMS, to the extent not already listed, promptly after the date
of this Certificate of Designation.
Before taking any action which could cause an
adjustment pursuant to subsec tion 4 below reducing the Conversion
Price below the then par value (if any) of the shares of common stock
of the Corporation, the Corporation will take any corporate action
which may be necessary in order that the Corporation may validly and
legally issue at the Conversion Price as so adjusted shares of common
stock of the Corporation that are fully paid and non-assessable.
The Corporation covenants that all shares of common
stock of the Corporation deliverable upon conversion of the 8%
Preferred Stock will, upon issuance in accordance with the terms
hereof, be (i) duly authorized, fully paid and non-assessable, and (ii)
free from all taxes with respect to the issuance thereof and from all
liens, charges and security interests created by the Corporation.
<PAGE> 31
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4. Adjustments of Conversion Price and Number of Shares of
Common Stock Issuable upon Conversion of the 8% Preferred Stock. (i)
Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever, after September 25, 1995, the Corporation shall issue or sell
any shares of common stock (except upon conversion of one or more of
the 8.25% convertible subordinated debentures due January 1, 2006 or of
one or more shares of the 8% Preferred Stock or upon exercise by
Popular, Inc. of certain rights to purchase shares of common stock of
the Corporation set forth in Article 5 of the Exchange Agreement dated
July 9, 1997, between the Corporation and Popular, Inc.) for a
consideration per share less than the Market Price (as hereinafter
defined) at the time of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall be reduced to the price
(calculated to the nearest cent) determined by multiplying the
Conversion Price in effect immediately prior to the time of such issue
or sale by a fraction, the numerator of which shall be the sum of (a)
the number of shares of common stock of the Corporation outstanding
immediately prior to such issue or sale multiplied by the Market Price
immediately prior to such issue or sale plus (b) the consideration
received by the Corporation upon such issue or sale, and the
denominator of which shall be the product of (c) the total number of
shares of common stock outstanding immediately after such issue or
sale, multiplied by (d) the Market Price immediately prior to such
issue or sale. No adjustment of any Conversion Price, however, shall be
made in an amount less than $0.01 per share, but any such lesser
adjustment shall be carried forward and shall be made at the time of,
and together with, the next subsequent adjustment which together with
any adjustments so carried forward shall amount to $0.01 per share or
more.
(b) For the purposes of this subsection 4, the following
provisions shall also be applicable:
(i) Issuance of Rights or Options. In case at any time the
Corporation shall grant (whether directly or by assumption in a merger
or otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, common stock or any stock or securities
convertible into or exchangeable for common stock (such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") whether or not such rights or options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which common stock is issuable
upon the conversion of such rights or options or upon conversion or
exchange of such Convertible Securities (determined as provided below)
shall be less than the Market Price determined as of the date of
granting such rights or options, then the total maximum number of
shares of common stock issuable upon the conversion of such rights or
options or upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the conversion of such rights
or options shall (as of the date of granting of such rights or options)
be deemed to be outstanding and to have been issued for such price per
share. Except as provided in clause (iii) of this subsection, no
further adjustments of any Conversion Price shall be made upon the
actual issue of such common stock or of such Convertible Securities
upon conversion of such rights or options or upon the actual issue of
such common stock upon conversion or exchange of such Convertible
Securities. For the purposes of this clause (i), the price per share
for which common stock is issuable upon the conversion of any such
rights or options or upon conversion or exchange of any such
Convertible Securities shall be determined by dividing (A) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the conversion of all such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or
<PAGE> 32
-5-
exchange thereof, by (B) the total maximum number of shares of common
stock issuable upon the conversion of such rights or options or upon
the conversion or exchange of all such Convertible Securities issuable
upon the conversion of such rights or options.
(ii) Issuance of Convertible Securities.
In case the Corporation shall issue (whether directly or by assumption
in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which common stock is issuable
upon conversion or exchange of such Convertible Securities (determined
as provided below) shall be less than the Market Price, determined as
of the date of such issue or sale of such Convertible Securities, then
the total maximum number of shares of common stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of
the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued for such price per share,
provided that (1) except as provided in clause (iii) of this
subsection, no further adjustments of any Conversion Price shall be
made upon the actual issue of such common stock upon conversion or
exchange of such Convertible Securities, and (2) if any such issue or
sale of such Convertible Securities is made upon conversion of any
rights to subscribe for or to purchase or any option to purchase any
such Convertible Securities for which adjustments of any Conversion
Price have been or are to be made pursuant to other provisions of this
subsection (b), no further adjustment of any Conversion Price shall be
made by reason of such issue or sale. For the purposes of this clause
(ii), the price per share for which common stock is issuable upon
conversion or exchange of Convertible Securities shall be determined by
dividing (A) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by
(B) the total maximum number of shares of common stock issuable upon
the conversion or exchange of all such Convertible Securities.
(iii) Change in Option Price or Conversion
Rate. If the purchase price provided for in any rights or options
referred to in clause (i) above, or the additional consideration, if
any, payable upon the conversion or exchange of Convertible Securities
referred to in clause (i) or (ii) above, or the rate at which any
Convertible Securities referred to in clause (i) or (ii) above are
convertible into or exchangeable for common stock, shall change (other
than under or by reason of provisions designed to protect against
dilution), then the Conversion Price in effect at the time of such
event shall forthwith be readjusted to the Conversion Price which would
have been in effect at such time had such rights, options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold.
(iv) Expiration of Options, Rights and
Other Similar Conversion Privileges. On the expiration of any such
option or right or the termination of any such right to convert or
exchange such Convertible Securities, the Conversion Price then in
effect hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration or
termination had such right, option or Convertible Security, to the
extent outstanding immediately prior to such expiration or termination,
never been issued, and the common stock issuable thereunder shall no
longer be deemed to be outstanding. If the purchase price provided for
in any such right or option referred to in clause (i) above or the rate
at which any Convertible Securities referred to in clause (i) or (ii)
above are convertible into or exchangeable for common stock, shall
decrease at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the
delivery of common stock
<PAGE> 33
-6-
upon the conversion of any such right or option or upon conversion or
exchange of any such Convertible Security, the Conversion Price then in
effect hereunder shall forthwith be adjusted to such respective amount
as would have obtained had such right, option or Convertible Security
never been issued as to such common stock and had adjustments been made
upon the issuance of the shares of common stock delivered as aforesaid,
but only if as a result of such adjustment the Conversion Price then in
effect hereunder is thereby decreased.
(v) Stock Dividends. In case the
Corporation shall declare a dividend or make any other distribution
upon any stock of the Corporation payable in common stock or
Convertible Securities, any common stock or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(vi) Consideration for Stock. In case
any shares of common stock or Convertible Securities or any rights or
options to purchase any such common stock or Convertible Securities
shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of common stock
or Convertible Securities or any rights or options to purchase any such
common stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be deemed to be the fair
value of such consideration as determined, in good faith and in the
exercise of reasonable business judgment, by the board of directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of common stock
or Convertible Securities or any rights or options to purchase such
shares of common stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the Corporation is
the surviving corporation (other than any consolidation or merger in
which the previously outstanding shares of common stock of the
Corporation shall be changed into or exchanged for the stock or other
securities of another corporation), the amount of consideration
therefor shall be deemed to be the fair value as determined reasonably
and in good faith by the board of directors of the Corporation of such
portion of the assets and business of the non-surviving corporation as
such board may determine to be attributable to such shares of common
stock, Convertible Securities, rights or options, as the case may be.
In the event of any consolidation or merger of the Corporation in which
the Corporation is not the surviving corporation or in which the
previously outstanding shares of common stock of the Corporation shall
be changed into or exchanged for the stock or other securities of
another corporation or in the event of any sale of all or substantially
all of the assets of the Corporation for stock or other securities of
any corporation, the Corporation shall be deemed to have issued a
number of shares of its common stock for stock or securities or other
property of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of all such stock or securities or other property of the
other corporation, and if any such calculation results in adjustment of
the Conversion Price, the determination of the number of shares of
common stock issuable upon conversion of the Securities immediately
prior to such merger, consolidation or sale, for purposes of subsection
(e) below, shall be made after giving effect to such adjustment of the
Conversion Price.
(vii) Record Date. In case the
Corporation shall take a record of the holders of its common stock for
the purpose of entitling them (A) to receive a dividend or
<PAGE> 34
-7-
other distribution payable in common stock or in Convertible
Securities, or (B) to subscribe for or purchase common stock or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of common stock deemed to have
been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(viii) Treasury Shares. The number of shares
of common stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or sale of
common stock for the purposes of this subsection (b).
(ix) Definition of Market Price. "Market
Price" shall mean the average of the daily closing prices per share of
the common stock for the ten consecutive trading days immediately
preceding the day as of which "Market Price" is being determined,
except that, in the case of an underwritten bona fide public offering,
"Market Price" shall mean the initial public offering price. The
closing price for each day shall be the last sale price regular way or,
in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case on the New
York Stock Exchange, or, if shares of the common stock are not listed
or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange (including for this purpose the
NASDAQ-NMS) on which the shares are listed or admitted to trading, or
if the shares are not so listed or admitted to trading, the average of
the highest reported bid and lowest reported asked prices as furnished
by the National Association of Securities Dealers, Inc. through NASDAQ
or through a similar organization if NASDAQ is no longer reporting such
information. If shares of the common stock are not listed or admitted
to trading on any exchange or quoted through NASDAQ or any similar
organization, the "Market Price" shall be deemed to be the higher of
(A) the book value of a share of the common stock as determined by any
firm of independent public accountants of recognized standing, selected
by the board of directors of the Corporation, as at the last day of any
month ending within sixty days preceding the date as of which the
determination is to be made or (B) the fair value thereof determined in
good faith by an independent brokerage firm or Standard & Poor's
Corporation as of a date which is within fifteen days of the date as of
which the determi nation is to be made (the fees and expenses of any
such independent public accountants, independent brokerage firm or
other firm engaged pursuant to subclauses (A) and (B) of this clause
(ix) to be paid by the Corporation).
(x) Determination of Market Price under
Certain Circumstances. Anything herein to the contrary notwithstanding,
in case the Corporation shall issue any shares of common stock or
Convertible Securities in connection with the acquisition by the
Corporation of the stock or assets of any other corporation or the
merger of any other corpora tion into the Corporation, the Market Price
shall be determined as of the date the number of shares of common stock
or Convertible Securities (or in the case of Convertible Securities
other than stock, the aggregate principal amount of Convertible
Securities) was determined (as set forth in a written agreement between
the Corporation and the other party to the transaction) rather than on
the date of issuance of such shares of common stock or Convertible
Securities.
(xi) Certain Issues Excepted. Anything
herein to the contrary notwithstanding, the Corporation shall not be
required to make any adjustment of any Conversion Price in case of the
issuance of shares of common stock (1) upon the conversion of options
or rights relating to up to 500,000 shares (subject to adjustment for
stock splits, stock combinations, stock dividends and similar events)
of the Corporation's common stock granted or
<PAGE> 35
-8-
provided or to be granted or provided under the Corporation's stock
option plan, as in effect on July 9, 1997, or (2) under the
Corporation's restricted stock plan, as in effect on July 9, 1997, up
to a maximum of 250,000 shares (subject to adjustment for stock splits,
stock combinations, stock dividends and similar events), and shall not
be required to make any such adjustment upon the granting of any
options or rights referred to above if and to the extent that issuance
of the shares covered thereby is excepted by this clause.
(c) Adjustment for Certain Special Dividends. In
case the Corporation shall declare a dividend upon the common stock
payable otherwise than out of earnings or earned surplus, determined in
accordance with Generally Accepted Accounting Principles, and otherwise
than in common stock or Convertible Securities, the Conversion Price in
effect immediately prior to the declaration of such dividend shall be
reduced by an amount equal, in the case of a dividend in cash, to the
amount per share of the common stock so declared as payable otherwise
than out of earnings or earned surplus or, in the case of any other
dividend, to the fair value per share of the common stock of the
property so declared as payable otherwise than out of earnings or
earned surplus, as determined, reasonably and in good faith, by the
board of directors of the Corporation. For the purposes of the
foregoing a dividend other than in cash shall be considered payable out
of earnings or earned surplus (other than revaluation or
paid-in-surplus) only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend,
as determined, reasonably and in good faith, by the board of directors
of the Corporation. Such reductions shall take effect as of the date on
which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of common stock
of record entitled to such dividend are determined.
(d) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide the outstanding shares of
common stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of common stock
shall be combined into a smaller number of shares, the Conversion Price
in effect immediately prior to such combination shall be
proportionately increased.
(e) Adjustments for Consolidation, Merger, Sale of
Assets, Reorganization, etc. In case the Corporation (a) consolidates
with or merges into any other corporation and is not the continuing or
surviving corporation of such consolidation or merger, or (b) permits
any other corporation to consolidate with or merge into the Corporation
and the Corporation is the continuing or surviving corporation but, in
connection with such consolidation or merger, the common stock is
changed into or exchanged for stock or other securities of any other
corporation or cash or any other assets, or (c) transfers all or
substantially all of its properties and assets to any other
corporation, or (d) effects a capital reorganization or
reclassification of the capital stock of the Corporation in such a way
that holders of common stock shall be entitled to receive stock,
securities, cash or assets with respect to or in exchange for common
stock, then, and in each such case, proper provision shall be made so
that, upon the basis and upon the terms and in the manner provided in
this subsection (e), the Holders, upon the conversion of each Security
at any time after the consummation of such consolidation, merger,
transfer, reorganization or reclassification, shall be entitled to
receive (at the aggregate Conversion Price in effect for all shares of
common stock issuable upon such conversion immediately prior to such
consummation as adjusted to the time of such transaction), in lieu of
shares of common stock issuable upon such conversion prior to such
consummation, the stock and other securities, cash and assets to which
such Holder would have been entitled upon such consummation if such
Holder had so converted such Security immediately prior thereto
(subject
<PAGE> 36
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to adjustments subsequent to such corporate action as nearly equivalent
as possible to the adjust ments provided for in this subsection 4).
(f) Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall
promptly deliver a notice to the registered holder of the Securities,
which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(g) Other Notices. In case at any time:
(1) the Corporation shall declare or pay any
dividend on or make any distribution with respect to its common stock,
other than quarterly cash dividends consistent with past practice;
(2) the Corporation shall offer for
subscription pro rata to the holders of its common stock any additional
shares of stock of any class or other rights;
(3) there shall be any capital
reorganization, or reclassification of the capital stock of the
Corporation, or consolidation or merger of the Corporation with another
corporation (other than a Subsidiary of the Corporation in which the
Corporation is the surviving or continuing corporation and no change
occurs in the Corporation's common stock), or sale of all or
substantially all of its assets to, another corporation;
(4) there shall be a voluntary or involuntary
dissolution, liquidation, bankruptcy, assignment for the benefit of
creditors, or winding up of the Corporation; or
(5) the Corporation proposes to take any
other action or an event occurs which would require an adjustment of
the Conversion Price pursuant to subsection (h) below;
then, in any one or more of said cases, the Corporation shall give
written notice, addressed to each Holder at the address of such Holder
as shown on the books of the Corporation, of (1) the date on which the
books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (2) the date
(or, if not then known, a reasonable approximation thereof by the
Corporation) on which such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, bankruptcy,
assignment for the benefit of creditors, winding up or other action, as
the case may be, shall take place. Such notice shall also specify (or,
if not then known, reasonably approximate) the date as of which the
holders of common stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange
their common stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, bankruptcy, assignment for the benefit of
creditors, winding up, or other action, as the case may be. Such
written notice shall be given at least twenty days prior to the action
in question and not less than twenty days prior to the record date or
the date on which the Corporation's transfer books are closed in
respect thereto.
(h) Certain Events. If any event occurs as to
which in the reasonable opinion of the Corporation, in good faith, the
other provisions of this subsection 4 are not strictly
<PAGE> 37
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applicable but the lack of any adjustment would not in the opinion of
the Corporation fairly protect the conversion rights of the Holders in
accordance with the basic intent and principles hereof, or if strictly
applicable would not fairly protect the conversion rights of the
Holders in accordance with the basic intent and principles hereof, then
the Corporation shall appoint a firm of independent certified public
accountants (which may be the regular auditors of the Corporation) of
recognized national standing, which shall give their opinion upon the
adjustment, if any, on a basis consistent with the basic intent and
principles established in the other provisions of this subsection 4,
necessary to preserve, without dilution, the conversion rights of the
Holders. Upon receipt of such opinion, the Corporation shall forthwith
make the adjustments described therein.
(i) All calculations under this subsection 4 shall
be made to the nearest cent or to the nearest one hundredth (1/100) of
a share, as the case may be.
(j) In any case in which the provisions hereof
require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the
occurrence of such event (i) issuing to the Holder of any Security
converted after such record date and before the occurrence of such
event the additional shares of common stock issuable upon such
conversion by reason of the adjustments required by such event over and
above the shares of common stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such Holder any
amount in cash in lieu of a fractional share of common stock; provided,
however, that the Corporation shall deliver to such Holder a due bill
or other appropriate instrument evidencing such Holder's right to
receive such additional shares and such cash upon the occurrence of the
event requiring such adjustment.
D. REDEMPTION AT THE OPTION OF THE CORPORATION
1. The shares of the 8% Preferred Stock are not redeemable
prior to January 1, 2001. On and after that date, the shares of the 8%
Preferred Stock will be redeemable in whole or in part from time to
time at the option of the Corporation, with the consent of the Board of
Governors of the Federal Reserve System, upon not less than thirty nor
more than sixty days' notice by mail, at the redemption prices set
forth below, during the twelve-month periods beginning on January 1 of
the years set forth below, plus accrued and unpaid dividends to the
date fixed for redemption.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001 ................................................... $ 1,020.00
2002 ................................................... $ 1,015.00
2003 ................................................... $ 1,010.00
2004 ................................................... $ 1,005.00
2005 and thereafter .................................... $ 1,000.00
</TABLE>
2. In the event that less than all of the outstanding shares
of the 8% Preferred Stock are to be redeemed in any redemption at the
option of the Corporation, the total number of shares to be redeemed in
such redemption shall be determined by the Board of Directors and the
shares to be redeemed shall be allocated pro rata or by lot as may be
determined by the Board of Directors or by such other method as the
Board of Directors may approve and deem equitable, including any method
to conform to any rule or regulation of any national or regional stock
<PAGE> 38
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exchange or automated quotation system upon which the shares of the 8%
Preferred Stock may at the time be listed or eligible for quotation.
3. Notice of any proposed redemption shall be given by the
Corporation by mailing a copy of such notice to the holders of record
of the shares of 8% Preferred Stock to be redeemed, at their address of
record, not more than sixty nor less than thirty days prior to the
redemption date. The notice of redemption to each holder of shares of
8% Preferred Stock shall specify the number of shares of 8% Preferred
Stock to be redeemed, the redemption date and the redemption price
payable to such holder upon redemption, and shall state that from and
after said date dividends thereon will cease to accrue. If less than
all the shares owned by a holder are then to be redeemed at the option
of the Corporation, the notice shall also specify the number of shares
of 8% 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; and failure duly
to 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
8% Preferred Stock.
4. 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 8% Preferred Stock called for redemption shall cease to
accrue and all rights of the holders of such shares as stockholders of
the Corporation by reason of the ownership of such shares (except the
right to receive the redemption price, on presentation and surrender of
the respective certificates representing the redeemed shares), shall
cease on the redemption date, and such shares shall not after the
redemption date be deemed to be outstanding. In case less than all the
shares represented by any such certificate are redeemed, a new
certificate shall be issued without cost to the holder thereof
representing the unredeemed shares.
5. At its option, the Corporation may, on or prior to the
redemption date, irrevo cably deposit the aggregate amount payable upon
redemption of the shares of the 8% Preferred Stock to be redeemed with
a bank or trust company designated by the Board of Directors having its
principal office in New York, New York, San Juan, Puerto Rico, or any
other city in which the Corporation shall at that time maintain a
transfer agency with respect to its capital stock, and having a
combined capital and surplus (as shown by its latest published
statement) of at least $50,000,000 (hereinafter referred to as the
"Depositary"), to be held in trust by the Depositary for payment to the
holders of the shares of the 8% Preferred Stock then to be redeemed. If
such deposit is made and the funds so deposited are made immediately
available to the holders of the shares of the 8% Preferred Stock to be
redeemed, the Corporation shall thereupon be released and discharged
(subject to the provisions of Section D.6) from any obligation to make
payment of the amount payable upon redemption of the shares of the 8%
Preferred Stock to be redeemed, and the holders of such shares shall
look only to the Depositary for such payment.
6. Any funds remaining unclaimed at the end of two years from
and after the redemption date in respect of which such funds were
deposited shall be returned to the Corporation forthwith and thereafter
the holders of shares of the 8% Preferred Stock called for redemption
with respect to which such funds were deposited shall look only to the
Corporation for the payment of the redemption price thereof. Any
interest accrued on any funds deposited with the Depositary shall
belong to the Corporation and shall be paid to it from time to time on
demand.
<PAGE> 39
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7. Any shares of the 8% Preferred Stock which shall at any
time have been redeemed shall, after such redemption, have the status
of authorized but unissued shares of Pre ferred Stock, without
designation as to series, until such shares are once more designated as
part of a particular series by the Board of Directors.
E. LIQUIDATION PREFERENCE
1. Upon any voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, the then record holders of shares of
8% Preferred Stock will be entitled to receive out of the assets of the
Corporation available for distribution to shareholders, before any
distribution is made to holders of common stock or any other equity
securities of the Corporation ranking junior upon liquidation to the 8%
Preferred Stock, distributions upon liquidation in the amount of $1,000
per share plus an amount equal to any accrued and unpaid dividends to
the date of payment. Such amount shall be paid to the holders of the 8%
Preferred Stock prior to any payment or distribution to the holders of
the common stock of the Corporation or of any other class of stock or
series thereof of the Corporation ranking junior to the 8% Preferred
Stock in respect of dividends or as to the distribution of assets upon
liquidation.
2. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the amounts payable with
respect to the 8% Preferred Stock and any other shares of stock of the
Corporation ranking as to any such distribution on a parity with the 8%
Preferred Stock are not paid in full, the holders of the 8% Preferred
Stock and of such other shares will share ratably in any such
distribution of assets of the Corporation in proportion to the full
liquidation preferences to which each is entitled. After payment of the
full amount of the liquidation preference to which they are entitled,
the holders of shares of 8% Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Corporation.
3. Neither the consolidation or merger of the Corporation with
any other corpora tion, nor any sale, lease or conveyance of all or any
part of the property or business of the Corporation, shall be deemed to
be a liquidation, dissolution, or winding up of the Corporation.
4. If the assets distributable upon any dissolution,
liquidation, or winding up of the Corporation shall be insufficient to
permit the payment to the holders of the 8% Preferred Stock of the full
preferential amounts aforesaid, then such assets or the proceeds
thereof shall be distributed among the holders of the 8% Preferred
Stock ratably in proportion to the respective amounts the holders of
such shares of stock would be entitled to receive if they were paid the
full preferential amounts aforesaid.
F. VOTING RIGHTS
1. Except as described in this Section F, or except as
required by applicable law, holders of the 8% Preferred Stock will not
be entitled to receive notice of or attend or vote at any meeting of
stockholders of the Corporation.
2. Any variation or abrogation of the rights, preferences and
privileges of the 8% Preferred Stock by way of amendment of the
Corporation's Restated Certificate of Incorporation or otherwise
(including, without limitation, the authorization or issuance of any
shares of the Corporation ranking, as to dividend rights or rights on
liquidation, winding up and dissolution, senior to the 8% Preferred
Stock) shall not be effective (unless otherwise required by applicable
law) except with the consent in writing of the holders of at least a
majority of the outstanding
<PAGE> 40
-13-
shares of the 8% Preferred Stock or with the sanction of a special
resolution passed at a separate general meeting by the holders of at
least a majority of the outstanding shares of the 8% Preferred Stock.
Notwithstanding the foregoing, the Corporation may, without the consent
or sanction of the holders of the 8% Preferred Stock, authorize and
issue shares of the Corporation ranking, as to dividend rights and
rights on liquidation, winding up and dissolution, on a parity with or
junior to the 8% Preferred Stock.
3. No vote of the holders of the 8% Preferred Stock will be
required for the Corporation to redeem or purchase and cancel the 8%
Preferred Stock in accordance with the Restated Certificate of
Incorporation of the Corporation.
4. The Corporation will cause a notice of any meeting at which
holders of any series of Preferred Stock are entitled to vote to be
mailed to each record holder of such series of Preferred Stock. Each
such notice will include a statement setting forth (i) the date of such
meeting, (ii) a description of any resolution to be proposed for
adoption at such meeting on which such holders are entitled to vote and
(iii) instructions for deliveries of proxies.
5. Except as set forth in this Section F, holders of 8%
Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote
as set forth herein) for taking any corporate action.
G. RANK
The 8% Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank (i) senior
to all classes of common stock of the Corporation and to all other
equity securities issued by the Corporation the terms of which
specifically provide that such equity securities will rank junior to
the 8% Preferred Stock (or to a number of series of Preferred Stock
which includes the 8% Preferred Stock); (ii) on a parity with all
equity securities issued by the Corporation the terms of which
specifically provide that such equity securities will rank on a parity
with the 8% Preferred Stock (or with a number of series of Preferred
Stock which includes the 8% Preferred Stock); and (iii) junior to all
equity securities issued by the Corporation the terms of which
specifically provide that such equity securities will rank senior to
the 8% Preferred Stock (or to a number of series of Preferred Stock
which includes the 8% Preferred Stock). For this purpose, the term
"equity securities" does not include debt securities convertible into
or exchangeable for equity securities.
H. FORM OF CERTIFICATE FOR 8% PREFERRED STOCK; TRANSFER AND
REGISTRATION
1. The 8% Preferred Stock shall be issued in registered form
only. The Corporation may treat the record holder of a share of 8%
Preferred Stock, including the Depository Trust Company and its nominee
and any other holder that holds such share on behalf of any other
person, as such record holder appears on the books of the registrar for
the 8% Preferred Stock, as the sole owner of such share for all
purposes.
2. The transfer of a share of 8% Preferred Stock may be
registered upon the surrender of the certificate evidencing the share
of 8% Preferred Stock to be transferred, together with the form of
transfer endorsed on it duly completed and executed, at the office of
the transfer agent and registrar.
<PAGE> 41
-14-
3. Registration of transfers of shares of 8% Preferred Stock
will be effected without charge by or on behalf of the Corporation, but
upon payment (or the giving of such indemnity as the transfer agent and
registrar may require) in respect of any tax or other governmental
charges which may be imposed in relation to it.
4. The Corporation will not be required to register the
transfer of a share of 8% Preferred Stock after such share has been
called for redemption.
I. REPLACEMENT OF LOST CERTIFICATES
If any certificate for a share of 8% Preferred Stock is
mutilated or alleged to have been lost, stolen or destroyed, a new
certificate representing the same share shall be issued to the holder
upon request subject to delivery of the old certificate or, if alleged
to have been lost, stolen or destroyed, compliance with such conditions
as to evidence, indemnity and the payment of out-of-pocket expenses of
the Corporation in connection with the request as the Board of
Directors of the Corporation may determine.
J. NO PREEMPTIVE RIGHTS
Holders of the 8% Preferred Stock will have no preemptive
rights to purchase any securities of the Corporation.
The undersigned hereby certify that the capital of the Corporation will
not be reduced under or by reason of the adoption of the above resolutions
providing for the creation of the above described series of Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President, Zoila
Levis, and its Secretary, Richard Bonini, this day of, 1997
FIRST FINANCIAL CARIBBEAN CORPORATION
By:___________________________________
Zoila Levis
President
[CORPORATE SEAL]
By:__________________________________
Richard Bonini
Secretary
<PAGE> 42
EXHIBIT B
[FORM OF SECURITY]
<PAGE> 43
<TABLE>
<S> <C> <C>
8% CONVERTIBLE CUMULATIVE
PREFERRED STOCK (LIQUIDATION
PREFERENCE, $1,000 PER SHARE)
NUMBER SHARES
FIRST FINANCIAL CARIBBEAN CORPORATION
________ INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PUERTO RICO ________
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF 8% CONVERTIBLE CUMULATIVE
PREFERRED STOCK (LIQUIDATION PREFERENCE, $1,000 PER SHARE), OF THE PAR VALUE OF
$1 EACH, OF FIRST FINANCIAL CARIBBEAN CORPORATION, transferable on the books of
the Corporation in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until signed by
the Corporation.
WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
AUTHORIZED SIGNATURE
Secretary President
</TABLE>
<PAGE> 44
FIRST FINANCIAL CARIBBEAN CORPORATION
The Corporation will furnish without charge to each shareholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of the 8% Convertible Cumulative Preferred
Stock (Liquidation Preference, $1,000 per share) and of each other class of
stock or series which the Corporation is authorized to issue and the
qualifications, limitations or restrictions of such preferences and/or rights.
Any request should be made to the Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _________________ Custodian ______________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of Act ________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used through not in the above list.
</TABLE>
FOR VALUE RECEIVED, _________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
[____________________________________]_________________________________________
_______________________________________________________________________________
Please print or typewrite name and address, including postal zip code of
assignee.
_______________________________________________________________________________
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________ Shares
to transfer said stock on the books of the within-named Corporation with full
power of substitution in the premises.
______________________________________________________________________ Attorney,
Dated, ________________________
_______________________________________
A form of election to convert for use by holders desiring to convert
shares evidenced by the foregoing certificate is attached to the back of this
certificate.
<PAGE> 45
FORM OF ELECTION TO CONVERT
(To be executed by the Holder if the Holder desires
to convert Securities evidenced by the foregoing
Security certificate)
To [Name of Company]:
The undersigned hereby irrevocably elects to convert _____ shares of
the Company's 8% Convertible Cumulative Preferred Stock (Liquidation Preference
$1,000 per Share) evidenced by the foregoing Security certificate for
________________ full shares of common stock issuable upon conversion of said
number of shares of preferred stock as provided for in the foregoing Security
certificate and in the Certificate of Designation referred to therein.
The undersigned requests that certificates for such shares be issued in
the name of ____________________.
Please insert social security or
tax identification number
--------------------------------
- ------------------------------
(please print name and address) --------------------------------
- ----------------------------------------------------------------------------
If said number of shares of preferred stock shall not be the entire
number of shares of preferred stock evidenced by the
<PAGE> 46
-2-
foregoing Security certificate, the undersigned requests that a new Security
certificate evidencing the number of shares of preferred stock not so converted
be issued in the name of and delivered to
- -------------------------------------------------------------------------------
(please print name and address)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dated: _____________ Name of Holder
(print):
(By:)_________________________
(Title:)
Signature Guarantee:___________________________________________________________
(Signature must be guaranteed by a member
firm of the New York Stock Exchange or a
commercial bank or trust company)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST FINANCIAL CARIBBEAN CORPORATION FOR THE QUARTER
ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 44,772
<SECURITIES> 730,524
<RECEIVABLES> 34,577
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 17,485
<DEPRECIATION> 7,187
<TOTAL-ASSETS> 1,312,043
<CURRENT-LIABILITIES> 0
<BONDS> 158,087
0
0
<COMMON> 9,213
<OTHER-SE> 154,636
<TOTAL-LIABILITY-AND-EQUITY> 1,312,043
<SALES> 0
<TOTAL-REVENUES> 59,908
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,115
<INCOME-PRETAX> 17,242
<INCOME-TAX> 2,203
<INCOME-CONTINUING> 15,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,039
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.58
</TABLE>