<PAGE> 1
As filed with the Securities and Exchange Commission on October 30, 1998
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DORAL FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
COMMONWEALTH OF PUERTO RICO 66-0312162
(State or other (I.R.S. Employer
jurisdiction Identification
of incorporation or No.)
organization)
</TABLE>
1159 FRANKLIN D. ROOSEVELT AVENUE
SAN JUAN, PUERTO RICO 00920
(787) 749-7100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
SALOMON LEVIS
CHIEF EXECUTIVE OFFICER
DORAL FINANCIAL CORPORATION
1159 FRANKLIN D. ROOSEVELT AVENUE
SAN JUAN, PUERTO RICO 00920
(787) 749-7100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
IGNACIO ALVAREZ JOSE A. AXTMAYER
EDUARDO J. ARIAS CESAR R. ROSARIO VEGA
PIETRANTONI MENDEZ & ALVAREZ AXTMAYER ADSUAR MUNIZ & GOYCO, P.S.C.
SUITE 1901, BANCO POPULAR CENTER SUITE 1400, HATO REY TOWER
209 MUNOZ RIVERA AVENUE 268 MUNOZ RIVERA AVENUE
SAN JUAN, PUERTO RICO 00918 SAN JUAN, PUERTO RICO 00918
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TITLE OF SHARES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noncumulative Monthly Income Preferred Stock, Series
A, $1.00 par value per share........................... $74,750,000 $20,780.50
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER , 1998
PROSPECTUS
1,300,000 SHARES
(DORAL FINANCIAL CORPORATION LOGO)
% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A
PRICE TO PUBLIC: $50 PER SHARE
Doral Financial Corporation is offering to the public 1,300,000 shares of
its % Noncumulative Monthly Income Preferred Stock, Series A. The Series A
Preferred Stock will have the following characteristics:
- Will entitle you, subject to declaration by the Company's Board of
Directors and availability of funds, to a preferential noncumulative
cash dividend, at a rate per annum of % of the $50 liquidation
preference, payable monthly on the last day of each month, commencing
December 31, 1998.
- Will be redeemable, at the option of Doral Financial subject to the
approval of the Federal Reserve Board, commencing on November 30,
2003, at varying prices depending on the date of redemption.
- Will have a liquidation preference of $50 per share plus accrued and
unpaid dividends for the current monthly dividend period.
- Will not be convertible or exchangeable into other securities of Doral
Financial.
- Will not have a stated maturity and will not be subject to any sinking
fund or mandatory redemption.
- Will not grant you preemptive or preferential rights to purchase
additional securities of Doral Financial and will not grant you voting
rights except in the limited circumstances described in this
prospectus.
There is currently no public market for the Series A Preferred Stock. The
Company has applied to have the Series A Preferred Stock approved for quotation
on the Nasdaq National Market System under the symbol "DORLP." The market price
of the shares of Series A Preferred Stock after this offering may be higher or
lower than the public offering price.
INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 8 OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public Offering Price.............................. $50.00 $65,000,000
Underwriting Discounts............................. $ 1.575 $ 2,047,500
Proceeds to Doral Financial........................ $48.425 $62,952,500
</TABLE>
In addition, Doral Financial has granted the underwriters an over-allotment
option which allows the underwriters to purchase up to 195,000 additional
shares. This offering is being underwritten on a firm commitment basis, which
means that the underwriters must purchase all of the securities if any are
purchased.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR
COMMONWEALTH OF PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PAINEWEBBER INCORPORATED OF PUERTO RICO POPULAR SECURITIES
(JOINT LEAD MANAGERS)
SANTANDER SECURITIES PRUDENTIAL SECURITIES INCORPORATED SALOMON SMITH BARNEY
NOVEMBER , 1998
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 3
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Payment of Dividends................ 8
No Prior Market..................... 9
Holding Company Structure........... 9
General Economic and Financial
Conditions May Affect Results of
Operations....................... 10
Interest Rate Fluctuations.......... 10
Lack of Geographic
Diversification.................. 11
Year 2000 Risks..................... 11
Recent Developments................... 12
Use of Proceeds....................... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Ratios of Earnings to
Combined Fixed Charges and
Preference Security Dividends....... 13
Capitalization........................ 14
Selected Financial Data............... 15
Summary of Certain Terms of the Series
A Preferred Stock................... 17
Description of Capital Stock.......... 23
Taxation.............................. 26
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
</TABLE>
---------------------
Throughout this prospectus, we refer to Doral Financial Corporation as
either "Doral Financial" or the "Company" and to the % Noncumulative
Monthly Income Preferred Stock, Series A as the "Series A Preferred Stock."
Unless otherwise stated, all information in this prospectus assumes that
the underwriters will not exercise their over-allotment option to purchase any
of the 195,000 shares subject to that option.
---------------------
This prospectus, including information incorporated in this prospectus by
reference, contains certain "forward-looking statements" concerning Doral
Financial's operations, performance and financial condition, including its
future economic performance, plans and objectives and the likelihood of success
in developing and expanding its business. These statements are based upon a
number of assumptions and estimates which are subject to significant
uncertainties, many of which are beyond the control of Doral Financial. The
words "may," "would," "could," "will," "expect," "anticipate," "believe,"
"intend," "plan," "estimate" and similar expressions are meant to identify such
forward-looking statements. Actual results may differ materially from those
expressed or implied by such forward-looking statements.
---------------------
Doral Financial's principal executive offices are located at 1159 Franklin
D. Roosevelt Avenue, San Juan, Puerto Rico, and its telephone number is (787)
749-7100.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission (the "SEC") allows the Company to
"incorporate by reference" the information it files with them, which means the
Company can disclose important information to you by referring to these
documents. The information included in the following documents is incorporated
by reference and is considered a part of this prospectus. The most recent
information that the Company files with the SEC automatically updates and
supersedes previously filed information. The Company has previously filed the
following documents with the SEC and is incorporating them by reference into
this prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1997;
(ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998; and
(iii) Current Reports on Form 8-K dated January 21, 1998, October 7,
1998 and October 19, 1998.
The Company also incorporates by reference all documents filed by it
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of this prospectus and
until all the shares being offered by this prospectus are sold.
The Company will provide, at no cost, to each person, including a
beneficial owner, to whom this prospectus is delivered, upon written or oral
request of any such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference into such documents). Requests for
such copies should be directed to Doral Financial Corporation, Attention: Mario
S. Levis, Executive Vice President and Treasurer, 1159 Franklin D. Roosevelt
Avenue, San Juan, Puerto Rico 00920, telephone: (787) 749-7108.
---------------------
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports, proxy statements
and other information with the SEC. The Company has also filed with the SEC a
Registration Statement on Form S-3, to register the Series A Preferred Stock
being offered in this prospectus. This prospectus, which forms part of the
Registration Statement, does not contain all of the information included in the
Registration Statement. For further information about the Company and the shares
of Series A Preferred Stock offered in this prospectus, you should refer to the
Registration Statement and its exhibits.
You may read and copy any document filed by the Company with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. The Company files its SEC materials electronically
with the SEC, so you can also review the Company's filings by accessing the web
site maintained by the SEC at http://www.sec.gov. This site contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the SEC. You can also obtain more information about the
Company by visiting our web site at http://www.doralfinancial.com.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all information that you should consider
before investing in the Series A Preferred Stock. You should read the entire
prospectus, including the information incorporated by reference into this
prospectus and the "Risk Factors" section beginning on page 8.
THE COMPANY
The Company is a bank holding company subject to regulation and supervision
by the Federal Reserve Board. The Company, together with its wholly-owned
subsidiaries, is primarily engaged in a wide range of mortgage banking
activities. The Company is the leading mortgage banking institution in Puerto
Rico based on the volume of origination of first mortgage loans secured by
single family residences and the size of its mortgage servicing portfolio. The
Company's mortgage banking business is conducted principally through two
operating units, Doral Mortgage Corporation, a wholly-owned subsidiary of the
Company and HF Mortgage Bankers, a division of the Company. The Company
originated and purchased $930.7 million in mortgage loans for the six months
ended June 30, 1998 and had a mortgage servicing portfolio of $5.1 billion as of
June 30, 1998.
While the Company's mortgage banking operations are concentrated in Puerto
Rico, the Company is in the process of expanding its operations outside of
Puerto Rico. The Company has recently established a wholesale loan operation in
Illinois and a multi-family and commercial lending operation in the New York
City metropolitan area. Both of these operations are conducted by Doral Money,
Inc., a subsidiary of Doral Bank.
In Puerto Rico, the Company is also engaged in the banking business through
its subsidiary Doral Bank and in the securities business through its subsidiary
Doral Securities, Inc. As of June 30, 1998, Doral Bank operated 8 branches in
Puerto Rico and had total assets and deposits of $519.3 million and $386.5
million, respectively. The Company is also in the process of organizing a new
federal savings association in the New York City metropolitan area.
As of October 30, 1998, the Company operated 36 business locations:
- 22 mortgage banking offices in Puerto Rico
- 8 bank branches in Puerto Rico
- 1 broker-dealer office in Puerto Rico
- 2 mortgage banking offices in Florida
- 2 wholesale loan offices in Illinois
- 1 multi-family lending office in New York
4
<PAGE> 6
THE OFFERING
Series A Preferred Stock
Offered.................... 1,300,000 shares (1,495,000 shares if the
Underwriters' over-allotment option is exercised
in full).
Offering Price............. $50 per share.
Proceeds to Company (after
deducting expenses of
this offering)........... $62,652,500 ($72,095,375 if the Underwriters
exercise their over-allotment option).
Use of Proceeds............ The Company expects to use the net proceeds for its
general corporate purposes, which may include the
following:
- making capital contributions to the Company's
banking and non-banking subsidiaries
- investing in mortgage servicing rights
- funding possible acquisitions
- increasing working capital
Dividends.................. Dividends on the Series A Preferred Stock are
noncumulative and are payable monthly commencing
on December 31, 1998, and on the last day of each
calendar month thereafter, at the fixed annual
dividend rate of % of the $50 liquidation
preference per share. Payment of dividends is
subject to declaration of the dividends by the
Company's Board of Directors (or a committee
thereof), the Company having sufficient funds
available to pay the dividend and compliance with
certain regulatory requirements.
Voting Rights.............. In general, except as required by applicable law or
as described in this prospectus, you will not
have any voting rights.
Liquidation Preference..... $50 per share of Series A Preferred Stock, plus
accrued and unpaid dividends for the current
monthly dividend period, subject to certain
limitations described in this prospectus.
Redemption................. The Series A Preferred Stock is not redeemable
prior to November 30, 2003. On or after that
date, the Series A Preferred Stock is redeemable
in whole or in part at the option of the Company,
upon not less than 30 nor more than 60 days'
notice by mail, at the prices set forth in this
prospectus. The Company may not redeem the Series
A Preferred Stock without prior approval of the
Federal Reserve Board.
No Repurchase Option for
Holders.................. You will not have the right to require the Company
to repurchase the Series A Preferred Stock
purchased by you. The Series A Preferred Stock
does not have a fixed maturity date and is not
subject to any sinking fund or similar
obligation.
Conversion; Exchange....... The Series A Preferred Stock will not be
convertible into or exchangeable for any other
securities of the Company.
Preemptive Rights.......... The Series A Preferred Stock will not entitle you
to any preemptive or preferential rights to
purchase any securities of the Company.
5
<PAGE> 7
Rank....................... The Series A Preferred Stock ranks senior to the
common stock of the Company and on an equal basis
to the Company's outstanding preferred stock with
respect to dividend rights and the distribution
of assets upon liquidation. Additional shares of
preferred stock, par value $1.00 per share, of
the Company ranking senior to the Series A
Preferred Stock may not be issued without the
approval of persons holding at least two-thirds
of the aggregate liquidation value of the Series
A Preferred Stock.
Listing on the Nasdaq
National Market.......... The Company has applied to have the Series A
Preferred Stock approved for quotation on the
NASDAQ National Market System under the symbol
"DORLP."
Risk Factors............... For a discussion of certain factors that you should
consider carefully before investing in the Series
A Preferred Stock, see "Risk Factors."
6
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net income(1)............ $ 24,101 $ 15,039 $ 20,231 $ 27,041 $ 19,560 $ 17,430 $ 21,320
Cash dividends paid...... $ 4,786 $ 3,389 $ 7,199 $ 6,008 $ 4,374 $ 3,943 $ 3,142
BALANCE SHEET DATA:(2)
Total assets............. $2,497,356 $1,312,043 $1,857,789 $1,106,083 $ 917,922 $ 768,019 $ 486,431
Stockholders' equity..... $ 246,233 $ 163,849 $ 186,955 $ 150,531 $ 129,017 $ 90,496 $ 76,945
OPERATING DATA:
Mortgage loans originated
and purchased.......... $ 931,000 $ 434,000 $1,037,000 $ 817,000 $ 636,000 $ 824,000 $1,433,000
Loan servicing
portfolio.............. $5,100,000 $3,300,000 $4,655,000 $3,068,000 $2,668,000 $2,644,000 $2,375,000
SELECTED RATIOS:(3)
Return on Average
Assets(4).............. 2.21% 2.49% 1.37% 2.68% 2.32% 2.78% 5.28%
Return on Average
Equity(5).............. 22.25% 19.13% 11.99% 19.35% 17.82% 20.82% 31.49%
</TABLE>
- ---------------
(1) The net income for the year ended December 31, 1997 reflects a non-cash
extraordinary charge to earnings of $12.3 million. The extraordinary item
refers to a non-cash charge to the Company's earnings resulting from the
exchange of a new issue of convertible preferred stock for an outstanding
issue of convertible debt. The charge represented the excess of the fair
value of the preferred stock at the date of the exchange over the net
carrying amount of the debt on the Company's financial statements.
(2) Certain data for years prior to 1997 has been made to conform to 1997
classifications.
(3) The return on average assets ratio and return on average equity ratio
computed on income before extraordinary item for the year ended December 31,
1997 would have been 2.19% and 19.29%, respectively.
(4) This ratio is computed by dividing the Company's net income by its average
total assets for the period.
(5) This ratio is computed by dividing the Company's net income by its average
stockholders' equity for the period.
CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERENCE SECURITY DIVIDENDS
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------
1998 1997 1996 1995 1994 1993
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined
Fixed Charges and Preference Security Dividends
Including Interest on Deposits................... 1.54x 1.61x 1.67x 1.49x 1.76x 3.75x
Excluding Interest on Deposits................... 1.64x 1.72x 1.76x 1.53x 1.79x 3.75x
</TABLE>
For purposes of computing the consolidated ratios of earnings to combined
fixed charges and preference security dividends, earnings consist of pre-tax
income from continuing operations plus (i) fixed charges (excluding capitalized
interest) and (ii) amortization of capitalized interest. Fixed charges consist
of interest expensed and capitalized (ratios are presented both including and
excluding interest on deposits), amortization of debt issuance costs and the
Company's estimate of the interest component within rental expense.
The term "preference security dividend" is the amount of pre-tax earnings
that is required to pay dividends on outstanding preference securities, which in
the case of the Company consist solely of preferred stock.
7
<PAGE> 9
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus, including the information incorporated by reference in this
prospectus, before deciding to invest in the Series A Preferred Stock.
PAYMENT OF DIVIDENDS
Payment of dividends on the Series A Preferred Stock is subject to certain
restrictions described below:
General. Payment of dividends on the Series A Preferred Stock is subject
to declaration by the Company's Board of Directors, which means that the Board
of Directors or a committee of the Board must specifically vote to pay each
monthly dividend. Dividends are payable from Company funds that are legally
available for the payment of dividends. The Company intends to declare and pay
monthly dividends at the stated rate for the Series A Preferred Stock. However,
the Company is not obligated or required to declare or pay dividends on the
Series A Preferred Stock even if it has funds legally available for the payment
of such dividends. The Company cannot guarantee you that it will have funds
available for the payment of dividends and that its Board of Directors will in
fact vote to declare such dividends. Under Puerto Rico law, the Company can
legally pay dividends out of its "surplus" or if it does not have a surplus out
of its net profits either for the year in which the dividend is declared or for
the prior year. The Company's surplus which is the difference between the
Company's stockholders equity and the aggregate par value of all its capital
stock, was $205.7 million as of June 30, 1998.
Noncumulative Nature of Dividends. Dividends on the Series A Preferred
Stock are noncumulative, which means that if, for any reason, funds are not
legally available to pay a dividend for a particular monthly dividend period or
the Company's Board of Directors fails to declare a dividend for such period,
you will not have the right to receive a dividend for such monthly dividend
period, whether or not funds are or subsequently become available or dividends
on the Series A Preferred Stock are declared for any future dividend period. The
Company's Board of Directors may determine, in its business judgment, that it
would be in the best interest of the Company to pay less than the full amount of
the stated dividends or no dividends for any dividend period even if the Company
has funds available to pay such dividends. Factors that would be considered by
the Board of Directors in making this determination are the Company's financial
condition and capital needs, the impact of legislation and regulations as then
in effect or as may be proposed, economic conditions, and such other factors as
the Board may deem relevant.
Sources of Funds for Payment of Dividends. Unlike many bank holding
companies, the Company has significant business operations and assets at the
parent company level. In the past, the Company has not relied on dividends or
distributions from its subsidiaries to pay dividends to the holders of its
capital stock. However, an important part of its operations is conducted through
wholly-owned subsidiaries, principally Doral Mortgage Corporation and Doral
Bank. The Company cannot guarantee you that it may not have to rely in the
future, at least in part, on distributions from its subsidiaries to pay
dividends on the Series A Preferred Stock. If the Company needed to rely on
earnings from its subsidiaries to pay dividends on the Series A Preferred Stock,
the Company cannot guarantee you that such subsidiaries' earnings would be
sufficient to make the required distributions in order to pay the dividends on
the Series A Preferred Stock or that such subsidiaries would not be prevented
from making the distributions because of regulatory restrictions applicable to
such subsidiaries. The ability of Doral Bank to pay dividends to the Company is
subject to certain regulatory restrictions discussed below.
Regulatory Considerations. As a bank holding company, the Company is
subject to supervision and regulation by the Federal Reserve Board. The Federal
Reserve Board has issued a policy statement that bank holding companies such as
the Company should pay dividends only out of their current operating earnings.
The ability of Doral Bank, the Company's commercial banking subsidiary, to
pay dividends to the Company is restricted by the Puerto Rico Banking Law, the
Federal Deposit Insurance Corporation Act, and by FDIC regulations. The Puerto
Rico Banking Law provides that when the expenditures of a bank are greater than
its receipts, the excess of expenditures over receipts shall be charged against
the undistributed profits of
8
<PAGE> 10
the bank and the balance, if any, shall be charged against the required reserve
fund of the bank. If the amount in the reserve fund is not sufficient to cover
such balance, the outstanding amount must be charged against the bank's capital
account. Until the bank's capital has been restored to its original amount and
the reserve fund is restored to 20% of the original capital of the bank, the
bank may not declare any dividends. The Federal Deposit Insurance Act and FDIC
regulations restrict the payment of dividends when a bank is undercapitalized,
when the bank has failed to pay FDIC insurance assessments, or when there are
safety and soundness concerns regarding such bank. Under applicable federal
regulatory capital guidelines, at June 30, 1998, Doral Bank was considered "well
capitalized."
Contractual Restrictions. The Company is a party to various loan
agreements which limit its ability to pay dividends. These agreements generally
prohibit the Company from paying dividends if it is in default under such
agreements. In addition, the agreement pursuant to which the Company issued its
7.84% Senior Notes due 2006, prohibits the Company from paying dividends if the
aggregate amount of dividends paid by the Company on its capital stock,
including the Series A Preferred Stock, would exceed the sum of the following:
- 50% of the Company's consolidated net income earned since October 1,
1996, and prior to the end of the Company's fiscal quarter ending not
less than 45 days prior to the proposed dividend payment date;
- $15 million; and
- the net proceeds of any sale of capital stock after October 1, 1996
(which would include the proceeds of this offering).
As of June 30, 1998, after giving effect to this offering, the Company
could have paid up to $136.8 million in dividends under the above test.
NO PRIOR MARKET
There has been no public market for the Series A Preferred Stock prior to
this offering. The Company has applied to have the Series A Preferred Stock
approved for quotation on the Nasdaq National Market System under the symbol
"DORLP." The Company cannot guarantee you that an active market will develop for
the Series A Preferred Stock, or that if it does develop that it will continue.
The Company cannot guarantee you that the Series A Preferred Stock will trade
above the price that you paid for the Series A Preferred Stock.
HOLDING COMPANY STRUCTURE
The Company is subject to supervision and regulation by the Federal Reserve
Board as a bank holding company. Pursuant to Federal Reserve Board 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
Company might not otherwise provide such support. In the event of the Company's
bankruptcy, any commitment by the Company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be entitled to a priority of
payment vis-a-vis creditors and stockholders of the Company, including holders
of the Series A Preferred Stock. In addition, any capital loans by the Company
to any of its subsidiary banks must be subordinated in right of payment to
deposits and to certain other indebtedness of such subsidiary bank. Doral Bank
is currently the only depository institution subsidiary of the Company. However,
the Company is in the process of organizing a new federal savings association in
the New York City metropolitan area. As of the date of this prospectus, the
Company has not entered into any agreement with a federal regulatory agency to
maintain the capital of Doral Bank nor has it made any capital loans to Doral
Bank.
Because the Company is a holding company, its right to participate in the
assets of any subsidiary upon the latter's liquidation or reorganization will be
subject to the prior claims of the subsidiary's creditors (including depositors
in the case of Doral Bank) except to the extent that the Company may itself be a
creditor with claims against the subsidiary.
9
<PAGE> 11
GENERAL ECONOMIC AND FINANCIAL CONDITIONS MAY AFFECT RESULTS OF OPERATIONS
The Company's results of operations will depend on, among other things, the
level of interest income generated by the Company's mortgage loans,
mortgage-backed securities and other interest earning assets, the market value
of such mortgage loans and other interest earnings assets, and the supply of and
demand for such mortgage loans and other assets. Prepayment rates, interest
rates, borrowing costs and credit losses depend upon the nature and terms of the
mortgage loans and other assets, the geographic location of the properties
securing the mortgage loans, the collateral securing the Company's assets,
conditions in financial markets, the fiscal and monetary policies of the United
States Government and the Federal Reserve Board, international economic and
financial conditions, competition and other factors, none of which can be
predicted by the Company with any certainty.
INTEREST RATE FLUCTUATIONS
Interest rate fluctuations is the primary market risk affecting the
Company. Changes in interest rates affect the following areas of the Company's
business:
- the number of mortgage loans originated and purchased by the Company
- the interest rate spread earned on loans and securities owned by the
Company
- the Company's gain on sale of loans and the value of mortgage servicing
rights
- the value of the Company's securities holdings
- the value of the Company's assets relating to mortgage servicing
Demand for Mortgage Loans. Lower interest rates generally increase demand
for mortgage loans. Higher interest rates make it harder for potential borrowers
to qualify for mortgage loans to purchase homes and reduce demand for refinance
loans. As a result, higher interest rates may decrease the Company's loan
originations, as well as the income related to mortgage production.
Net Interest Income. Net interest income is an important element of the
Company's earnings. Net interest income or spread is the difference between the
interest received by the Company on its mortgage loans, mortgage-backed
securities and other interest earning assets and the interest rates paid by the
Company on its borrowings to finance the origination, purchase and holding of
such assets. The Company's interest earning assets, such as its mortgage loans
and mortgage-backed securities tend to have longer maturities while its
borrowings tend to be short-term (less than one year). Because short-term
interest rates are generally lower than long-term interest rates, the Company is
able to earn a spread or net interest income on such assets. Increases in
short-term interest rates relative to long-term rates reduce the spread and
thereby adversely affect the Company's net income.
Gain on Sale of Mortgage Loans. Changes in prevailing long-term interest
rates between the time the Company commits to or establishes an interest rate on
a mortgage loan and the time the Company sells the loan or obtains a commitment
for the sale of such loan affect the Company's gain or loss on the sale of such
mortgage loan. If interest rates go up during such period, the Company's gain
from the sale may be reduced or eliminated.
Price Volatility of Securities' Holdings. The Company owns a substantial
portfolio of mortgage-backed securities and other fixed income securities the
value of which is affected by changes in prevailing interest rates. The market
value of a fixed income obligation generally reacts inversely to interest rate
changes, meaning that when prevailing interest rates decline, the securities'
price usually rises, and when prevailing interest rates rise, the securities'
price usually declines. Accordingly, increases in prevailing interest rates
could reduce the value of the Company's securities and have an adverse impact on
the Company's earnings or financial condition.
Effect on Servicing Assets. Declines in interest rates can adversely
affect the Company's revenues by increasing prepayment rates and causing an
increase of the amortization of the Company's servicing assets recorded on the
Company's financial statements. Increases in prepayment rates can also cause the
Company
10
<PAGE> 12
to record a loss on its financial statements to reflect the decrease in market
value ("impairment") of such assets. Moreover, increased prepayment rates can
reduce the Company's servicing income by decreasing the size of the Company's
mortgage servicing portfolio.
LACK OF GEOGRAPHIC DIVERSIFICATION
During the six months ended June 30, 1998, and the year ended December 31,
1997, 99% of the Company's mortgage loan originations (as measured by principal
balances) were secured by property located in Puerto Rico. To the extent that
properties securing such mortgage loans are located in the same geographic
region, such mortgage loans may be subject to a greater risk of delinquency or
default in the event of adverse economic, political or business developments and
natural hazard risks that may affect Puerto Rico. If Puerto Rico's real estate
market should experience an overall decline in property values, the rates of
delinquency, foreclosure, bankruptcy and loss on the mortgage loans may be
expected to increase substantially, as compared to such rates in a stable or
improving real estate market. Accordingly, the Company is more susceptible to
any single economic, political, regulatory or natural hazard risk than a
corporation with greater geographic diversification.
YEAR 2000 RISKS
The Year 2000 problem is caused by the situation whereby existing computer
software programs use only the last two digits to identify the year. Those
programs could read "00" as the year 1900, and thus, may not recognize dates
after December 31, 1999. This misinterpretation of data could cause significant
problems with banking and mortgage banking entities, such as the Company, as the
use of date calculations is widely used in daily operations for matters such as
interest accruals, maturity dates, delinquency status, and customer statements.
Year 2000 problems go beyond computer systems and affect anything that uses an
internal microchip such as telephone, fax machines, security and alarm systems,
vaults, elevators, heating and air conditioning.
The Company does not own any proprietary software systems or applications
and relies on those provided by third party vendors. The Company has completed
the assessment of its computer hardware, software programs and data processing
applications, including these provided by third party vendors. The Company has
received revised programs from its third party vendors that have been modified
to address the Year 2000 problem for the principal applications used by it in
its mortgage banking, banking and securities businesses. The Company began
testing these revised programs and applications during the first week of October
1998 and the testing is scheduled to be completed by December 31, 1998. The
Company is using outside consultants to assist it in verifying the test results.
The Company's mainframe computer, used principally in its banking operations, is
Year 2000 compliant, meaning that it can properly process and calculate
date-related information after January 1, 2000. The Company is in the process of
replacing other equipment, primarily desk top computers that are not Year 2000
compliant.
The Company estimates that its costs of addressing Year 2000 issues will be
approximately $800,000, of which $500,000 has already been spent. Most of such
costs is directly related to the costs of replacing existing equipment,
primarily desktop computers, which have been fully depreciated on the Company's
financial statements. The Company expects that all such costs will be paid from
the Company's own cash resources.
The Company does not anticipate that the Year 2000 problem will have a
material adverse effect on its financial condition or results of operations.
However, Year 2000 problems suffered by third party providers of basic services,
such as telephone, water, sewer and electricity, could have an adverse impact on
the daily operations of the Company. The Company does not have a contingency
plan to address disruption of such basic services caused by the Year 2000
problem.
As a bank holding company, the Company could be subject to enforcement
action by federal banking authorities if it fails to adequately address the Year
2000 problem.
11
<PAGE> 13
RECENT DEVELOPMENTS
UNAUDITED THIRD QUARTER RESULTS
The Company's unaudited net income for the quarter ended September 30,
1998, was $13.9 million, compared to $8.6 million for the quarter ended
September 30, 1997, an increase of 62%.
Net interest income for the quarter ended September 30, 1998, was $7.6
million, compared to $7.9 million for the quarter ended September 30, 1997. The
slight decrease in net interest income is primarily the result of the flattening
of the yield curve, which means a reduction in the difference between long-term
interest rates and short-term interest rates. The flattening of the yield curve
normally results in a decrease in the amount of interest spread the Company
earns on its portfolio of mortgage loans, mortgage-backed securities and other
interest-earning assets, primarily long-term obligations, and the short-term
borrowings used to finance the Company's portfolio. Revenues from mortgage loan
sales and fees increased to $16.7 million for the quarter ended September 30,
1998, compared to $7.2 million for the third quarter of 1997, an increase 132%.
The increase in revenues from mortgage loan sales and fees was due principally
to higher volume of mortgage loan originations and gains on the sale of mortgage
loans and mortgage-backed securities. For the quarter ended September 30, 1998,
servicing income increased to $5.5 million, compared to $3.8 million for the
third quarter of 1997, an increase of 43%. This increase is due to the
significant growth of the Company's mortgage servicing portfolio.
The Company's total mortgage loan production (internal originations and
purchases) increased to $567 million compared to $282 million for the third
quarter of 1997, an increase of 101%. The Company's mortgage loan servicing
portfolio totaled approximately $5.5 billion at September 30, 1998, compared to
$4.7 billion as of December 31, 1997.
IMPACT OF HURRICANE GEORGES
On September 21, 1998, Puerto Rico suffered the direct impact of Hurricane
Georges, a category 3 hurricane on the Saffir/Simpson scale. The passage of
Hurricane Georges caused extensive property damage in Puerto Rico and disrupted
many sectors of the economy. In general, the Company's mortgage banking,
commercial banking and securities operations were fully operational within two
days. While the disruption caused by Hurricane Georges may result in some
short-term increases in delinquency rates, the Company does not anticipate that
the effects of the hurricane will have a material adverse effect on the
financial condition or results of operations of the Company. The structures
securing the Company's mortgage loans are almost all constructed of concrete and
the Company requires that borrowers obtain property insurance as a condition of
lending.
It is too early to determine the long-term effect of the passage of
Hurricane Georges on the economy of Puerto Rico. The Government of Puerto Rico
has estimated that assistance payments from the Federal Emergency Management
Agency and other governmental programs together with payments from private
insurers will inject more than $2.0 billion into the economy.
EXPANSION IN MAINLAND UNITED STATES
During the second quarter of 1998, the Company commenced a multi-family and
commercial lending unit in the New York City metropolitan area through Doral
Money, Inc., a wholly-owned subsidiary of Doral Bank. This unit originates loans
secured by first mortgages on multi-family apartment buildings and, to a lesser
extent, other commercial properties. This unit closed $53.4 million in loans for
the quarter ended September 30, 1998. The Company intends to sell most of these
loans to third parties and to retain the servicing rights.
During the third quarter of 1998, the Company also commenced a wholesale
mortgage operation in the Chicago metropolitan area also through Doral Money,
Inc. This operation, which employs 12 persons and operates through two offices,
is primarily dedicated to the purchase of residential mortgage loans that
conform to the requirements of the Federal Home Loan Mortgage Association
("FHLMC") or the Federal National
12
<PAGE> 14
Mortgage Association ("FNMA"), the packaging of such loans into FNMA or FHLMC
mortgage-backed securities and the sale of such mortgage-backed securities to
third parties while retaining the servicing rights to the underlying loans.
Purchases of loans by the wholesale operation for the quarter ended September
30, 1998, amounted to $12.2 million.
The Company is also in the process of organizing a new federal savings
association in the New York City metropolitan area which it anticipates will
open for business during the first quarter of 1999.
USE OF PROCEEDS
The net proceeds (after deducting expenses of this offering) to the Company
from the sale of shares of Series A Preferred Stock offered hereby are estimated
at approximately $62,652,500 ($72,095,375, if the Underwriters' over-allotment
option is exercised in full). The Company intends to use such net proceeds for
general corporate purposes, which may include: (i) making capital contributions
to its banking and non-banking subsidiaries; (ii) investing in mortgage
servicing rights through the internal origination of mortgage loans, the
acquisition of mortgage loans with the related servicing rights and the purchase
of contracts to service mortgage loans; (iii) funding possible acquisitions of
mortgage banking and other financial institutions; and (iv) increasing working
capital. The Company has no current agreements or understandings regarding any
possible acquisitions.
CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERENCE SECURITY DIVIDENDS
The following table sets forth the Company's consolidated ratios of
earnings to combined fixed charges and preference security dividends for the
periods indicated.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------
1998 1997 1996 1995 1994 1993
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined
Fixed Charges and Preference Security Dividends
Including Interest on Deposits................... 1.54x 1.61x 1.67x 1.49x 1.76x 3.75x
Excluding Interest on Deposits................... 1.64x 1.72x 1.76x 1.53x 1.79x 3.75x
</TABLE>
For purposes of computing the consolidated ratios of earnings to combined
fixed charges and preference security dividends, earnings consist of pre-tax
income from continuing operations plus (i) fixed charges (excluding capitalized
interest), and (ii) amortization of capitalized interest. Fixed charges consist
of interest expensed and capitalized (ratios are presented both including and
excluding interest on deposits), amortization of debt issuance costs and, the
Company's estimate of the interest component within rental expense.
The term "preference security dividend" is the amount of pre-tax earnings
that is required to pay dividends on outstanding preference securities, which in
the case of the Company consist solely of preferred stock.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the unaudited indebtedness and
capitalization of the Company at June 30, 1998, on an actual basis and as
adjusted to give effect to the issuance of the shares of Series A Preferred
Stock offered hereby and assuming the Underwriters do not exercise their
over-allotment option. In addition to the indebtedness of the Company reflected
below, the Company had deposits of $386.5 million. This table should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term borrowings
Loans payable............................................. $ 429,583 $ 429,583
Short-term portion of notes payable....................... 45,751 45,751
Short-term portion of securities sold under agreements to
repurchase............................................. 1,012,983 1,012,983
---------- ----------
Total short-term borrowings....................... $1,488,317 $1,488,317
========== ==========
Long-term borrowings
Long-term portion of notes payable........................ $ 53,610 $ 53,610
Long-term portion of securities sold under agreements to
repurchase............................................. 100,200 100,200
Advances from the Federal Home Loan Bank.................. 32,000 32,000
Senior Notes.............................................. 75,000 75,000
---------- ----------
Total long-term borrowings........................ $ 260,810 $ 260,810
========== ==========
Stockholders' Equity
Serial Preferred Stock, $1 par value, 2,000,000 shares
authorized; 8,460 shares of 8% Convertible Cumulative
Preferred Stock outstanding and 1,300,000 Series A
Preferred Stock, as adjusted........................... $ 8 $ 1,308
Common Stock, $1.00 par value, 50,000,000 shares
authorized; 40,484,920 shares issued and 40,428,920
outstanding(1)......................................... 40,485 40,485
Paid-in capital........................................... 70,252 131,605
Legal Surplus............................................. 1,704 1,704
Retained earnings......................................... 133,568 133,568
Accumulated other comprehensive income(2)................. 272 272
Treasury Stock at par value, 56,000 shares................ (56) (56)
---------- ----------
Total stockholders' equity........................ $ 246,233 $ 308,886
========== ==========
</TABLE>
- ---------------
(1) Does not include up to 1,933,714 shares of Common Stock issuable upon
conversion of outstanding shares of the Company's 8% Convertible Cumulative
Preferred Stock.
(2) Consists of unrealized gain on securities available for sale, net of
deferred tax.
14
<PAGE> 16
SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial and
operating data for the Company on a historical basis as of and for the six-month
periods ended June 30, 1998 and 1997, and for each of the five years in the
period ended December 31, 1997. This information should be read in conjunction
with the Company's Consolidated Financial Statements and related notes thereto
incorporated herein by reference. Financial information for the six-month
periods ended June 30, 1998 and 1997, is derived from unaudited financial
statements, which, in the opinion of management, include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the results for such periods. Results for the six-month period ended June 30,
1998, are not necessarily indicative of results for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 66,006 $ 41,073 $ 90,131 $ 66,987 $ 61,907 $ 46,508 $ 23,775
Interest expense........ 49,443 28,115 61,438 46,443 43,380 23,252 9,710
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income..... 16,563 12,958 28,693 20,544 18,527 23,256 14,065
Provision for loan
losses................ 311 365 600 655 110 168 23
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 16,252 12,593 28,093 19,889 18,417 23,088 14,042
Non-interest income..... 36,239 18,835 45,286 40,846 29,930 25,535 46,453
Non-interest expense.... 24,804 14,186 35,582 29,456 26,287 29,878 29,574
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes,
cumulative effect and
extraordinary item.... 27,687 17,242 37,797 31,279 22,060 18,745 30,921
Income taxes............ 3,586 2,203 5,249 4,238 2,500 2,530 9,601
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before cumulative
effect and
extraordinary item.... 24,101 15,039 32,548 27,041 19,560 16,215 21,320
Cumulative effect of
change in accounting
principle(1).......... -- -- -- -- -- 1,215 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
extraordinary item.... 24,101 15,039 32,548 27,041 19,560 17,430 21,320
Extraordinary
item -- non-cash loss
on extinguishment of
debt(2)............... -- -- 12,317 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 24,101 $ 15,039 $ 20,231 $ 27,041 $ 19,560 $ 17,430 $ 21,320
=========== =========== =========== =========== =========== =========== ===========
Cash dividends
paid.......... $ 4,786 $ 3,389 $ 7,199 $ 6,008 $ 4,374 $ 3,943 $ 3,142
=========== =========== =========== =========== =========== =========== ===========
BALANCE SHEET DATA:(3)
Mortgage loans held for
sale.................. $ 620,478 $ 282,785 $ 406,297 $ 261,608 $ 245,484 $ 263,773 $ 262,515
Securities held for
trading, net.......... 682,036 533,906 620,288 436,125 418,348 327,960 129,180
Securities held to
maturity.............. 155,128 188,793 143,534 107,222 77,945 66,804 6,530
Securities available for
sale.................. 514,077 7,825 240,876 12,007 14,579 -- --
Loans receivable, net... 130,672 160,162 133,055 128,766 51,355 34,809 9,561
Total assets............ 2,497,356 1,312,043 1,857,789 1,106,083 917,922 768,019 486,431
Loans payable and
securities sold under
agreements to
repurchase............ 1,542,766 724,070 1,103,448 584,294 598,436 569,436 335,994
Notes payable........... 174,361 149,627 164,934 152,126 51,682 17,055 --
Deposits accounts....... 376,304 214,288 300,494 158,902 95,740 66,471 26,451
Stockholders' equity.... 246,233 163,849 186,955 150,531 129,017 90,496 76,945
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON
SHARE:(4)
Basic:
Income before
cumulative effect
and extraordinary
item................ $ 0.60 $ 0.41 $ 0.89 $ 0.75 $ 0.67 $ 0.58 $ 0.79
Cumulative effect..... -- -- -- -- -- 0.04 --
Extraordinary item.... -- -- (0.34) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 0.60 $ 0.41 0.55 $ 0.75 $ 0.67 $ 0.62 $ 0.79
=========== =========== =========== =========== =========== =========== ===========
Diluted:
Income before
cumulative effect
and extraordinary
item................ $ 0.58 $ 0.40 $ 0.85 $ 0.71 $ 0.64 $ 0.54 $ 0.71
Cumulative effect..... -- -- -- -- -- 0.04 --
Extraordinary item.... -- -- (0.32) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 0.58 $ 0.40 0.53 $ 0.71 $ 0.64 $ 0.58 $ 0.71
=========== =========== =========== =========== =========== =========== ===========
OTHER PER SHARE DATA:
Cash dividends:
Common Stock.......... $ 0.11 $ 0.09 $ 0.195 $ 0.165 $ 0.145 $ 0.13 $ 0.10
10 1/2% Preferred
Stock............... -- -- -- 0.3825 1.05 1.05 1.05
8% Convertible
Cumulative Preferred
Stock............... 40.00 -- 15.33 -- -- -- --
Weighted average shares
outstanding:
Basic................. 39,445,130 36,565,440 36,680,158 36,266,244 29,231,680 27,770,936 26,459,416
Diluted............... 41,400,647 38,728,632 38,728,632 38,725,072 31,040,540 30,307,856 30,067,856
OPERATING DATA:
Mortgage loans
originated and
purchased............. $ 930,000 $ 434,000 $ 1,037,000 $ 817,000 $ 636,000 $ 824,000 $ 1,433,000
Loan Servicing
Portfolio........... 5,100,000 3,300,000 4,655,000 3,068,000 2,668,000 2,644,000 2,375,000
SELECTED RATIOS:(5)
Return on Average
Assets(6)............. 2.21% 2.49% 1.37% 2.68% 2.32% 2.78% 5.28%
Return on Average
Equity(7)............. 22.25% 19.13% 11.99% 19.35% 17.82% 20.82% 31.49%
Average Equity to
Average Assets(8)..... 9.95% 13.00% 11.39% 13.81% 13.02% 13.35% 16.77%
</TABLE>
- ---------------
(1) Refers to the effect of the adoption of SFAS 115, an accounting standard
that requires the Company to include in its financial statements unrealized
gains and losses on its trading securities. In connection with the adoption
of this pronouncement the Company, as of January 1, 1994, classified
approximately $132 million of mortgage-backed securities as trading
securities and recognized a gain of approximately $1.2 million.
(2) The extraordinary item for the year ended December 31, 1997, refers to a
non-cash charge to the Company's earnings as a result of the exchange of a
new issue of convertible preferred stock for an outstanding issue of
convertible debt. The charge represented the excess of the fair value of the
preferred stock at the date of exchange over the net carrying amount of the
debt on the Company's financial statements.
(3) Certain reclassifications of prior years' data have been made to conform to
1997 classifications.
(4) Adjusted to reflect two-for-one stock splits effected on August 28, 1997,
and May 20, 1998.
(5) The return on average assets ratio and return on average equity ratio
computed on income before extraordinary item for 1997, would have been 2.19%
and 19.29%, respectively.
(6) This ratio is computed by dividing the Company's net income by its average
assets for the period.
(7) This ratio is computed by dividing the Company's net income by its average
stockholders' equity for the period.
(8) This ratio is computed by dividing the Company's average assets for the
period by its average stockholders' equity.
16
<PAGE> 18
SUMMARY OF CERTAIN TERMS OF THE SERIES A PREFERRED STOCK
The following description does not purport to be complete and is subject to
and qualified in its entirety by reference to Article Four of the Restated
Certificate of Incorporation of the Company and to the Certificate of
Designation creating of the Series A Preferred Stock (the "Certificate of
Designation"), copies of which are incorporated by reference in this prospectus
as exhibits to the registration statement of which this prospectus is a part.
GENERAL
Under the Restated Certificate of Incorporation of the Company, the Board
of Directors of the Company is authorized to provide for the issuance of up to
2,000,000 shares of serial preferred stock $1.00 par value (of which 20,000
shares have been authorized and designated and 8,460 shares have been issued in
connection with a private transaction with a financial institution), in one or
more series, with such designations of titles, dividend rights, redemption or
purchase provisions, conversion provisions and voting rights as shall be set
forth in resolutions providing for the issuance thereof adopted by the Board of
Directors (or a committee thereof) of the Company.
DIVIDENDS
Holders of record of the Series A Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available therefor, noncumulative cash dividends
at the annual rate per share of % of the liquidation preference of $50 per
share, or $ per share per month, with each aggregate payment made to
each record holder of the Series A Preferred Stock being rounded to the next
lowest cent.
Dividends on the Series A Preferred Stock will accrue from their date of
original issuance and will be payable (when, as and if declared by the Board of
Directors of the Company out of funds of the Company legally available therefor)
monthly in arrears in United States dollars commencing on December 31, 1998, and
on the last day of each calendar month of each year thereafter to the holders of
record of the Series A Preferred Stock as they appear on the books of the
Company on the second Business Day (as defined below) immediately preceding the
relevant date of payment. In the case of the dividend payable on December 31,
1998, such dividend shall cover the period from the date of issuance of the
Series A Preferred Stock to December 31, 1998. 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 or Sunday or a general banking holiday in San Juan,
Puerto Rico or New York, New York.
Dividends on the Series A Preferred Stock will be noncumulative. The
Company is not obligated or required to declare or pay dividends on the Series A
Preferred Stock, even if it has funds available for the payment of such
dividends. If the Board of Directors of the Company or an authorized committee
thereof does not declare a dividend payable on a dividend payment date in
respect of the Series A Preferred Stock, then the holders of such Series A
Preferred Stock shall have no right to receive a dividend in respect of the
monthly dividend period ending on such dividend payment date and the Company
will have no obligation to pay the dividend accrued for such monthly dividend
period or to pay any interest thereon, whether or not dividends on such Series A
Preferred Stock are declared for any future monthly dividend period.
The amount of dividends payable for any monthly dividend period will be
computed on the basis of twelve 30-day months and a 360-day year. The amount of
dividends payable for any period shorter than a full monthly dividend period
will be computed on the basis of the actual number of days elapsed in such
period.
17
<PAGE> 19
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 Series A Preferred
Stock.
So long as any shares of the Series A Preferred Stock remain outstanding,
the Company 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 Company ranking junior to the Series A Preferred Stock as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up of the Company) on, or redeem, purchase, set apart or
otherwise acquire (except upon conversion or exchange for stock of the Company
ranking junior to the Series A Preferred Stock as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or winding up
of the Company), shares of common stock or of any other class of stock of the
Company ranking junior to the Series A Preferred Stock as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up of the Company, unless (i) all accrued and unpaid dividends on the
Series A Preferred Stock for the twelve monthly dividend periods ending on the
immediately preceding dividend payment date shall have been paid or are paid
contemporaneously and the full monthly dividend on the Series A Preferred Stock
for the then current month has been or is contemporaneously declared and paid or
declared and set apart for payment, and (ii) the Company has not defaulted in
the payment of the redemption price of any shares of Series A Preferred Stock
called for redemption. See "Redemption at the Option of the Company."
When dividends are not paid in full on the Series A Preferred Stock and on
any other shares of stock of the Company ranking on a parity as to the payment
of dividends with the Series A Preferred Stock, all dividends declared upon the
Series A Preferred Stock and any such other shares of stock of the Company will
be declared pro rata so that the amount of dividends declared per share on the
Series A Preferred Stock and any such other shares of stock will in all cases
bear to each other the same ratio that the full dividends payable to the Series
A Preferred Stock for the then current monthly dividend period (which shall not
include any accumulation in respect of unpaid dividends for prior periods) and
the full dividends, including required or permitted accumulations, if any, on
such other series of stock, bear to each other.
For a discussion of the tax treatment of distributions to stockholders see
"Taxation," "Puerto Rico Taxation," and "United States Taxation," and for a
discussion on certain potential regulatory limitations on the Company's ability
to pay dividends, see "Risk Factors -- Payment of Dividends -- Regulatory
Considerations."
CONVERSION; EXCHANGE
The Series A Preferred Stock will not be convertible into or exchangeable
for any other securities of the Company.
REDEMPTION AT THE OPTION OF THE COMPANY
The shares of the Series A Preferred Stock are not redeemable prior to
November 30, 2003. On and after that date, the shares of the Series A Preferred
Stock will be redeemable in whole or in part from time to time at the option of
the Company, upon not less than 30 nor more than 60 days' notice by mail, at the
redemption prices set forth below, during the twelve-month periods beginning on
November 30 of the years set forth below, plus accrued and unpaid dividends for
the then current monthly dividend period to the date fixed for redemption.
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
2003........................................................ $51.00
2004........................................................ 50.50
2005 and thereafter......................................... 50.00
</TABLE>
In the event that less than all of the outstanding shares of the Series A
Preferred Stock are to be redeemed in any redemption at the option of the
Company, the total number of shares to be redeemed in such redemption shall be
determined by the Board of Directors and the shares to be redeemed shall be
allocated pro
18
<PAGE> 20
rata or by lot as may be determined by the Board of Directors, or by such other
method as the Board of Directors may approve and deem equitable, including any
method to conform to any rule or regulation of any national or regional stock
exchange or automated quotation system upon which the shares of the Series A
Preferred Stock may at the time be listed or eligible for quotation.
Notice of any proposed redemption shall be given by the Company by mailing
a copy of such notice to the holders of record of the shares of Series A
Preferred Stock to be redeemed, at their address of record, not more than sixty
nor less than thirty days prior to the redemption date. The notice of redemption
to each holder of shares of Series A Preferred Stock shall specify the number of
shares of Series A Preferred Stock to be redeemed, the redemption date and the
redemption price payable to such holder upon redemption, and shall state that
from and after said date dividends thereon will cease to accrue. If less than
all the shares owned by a holder are then to be redeemed at the option of the
Company, the notice shall also specify the number of shares of Series A
Preferred Stock which are to be redeemed and the numbers of the certificates
representing such shares. Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the stockholder
receives such notice, and failure duly to give such notice by mail, or any
defect in such notice, to the holders of any shares designated for redemption
shall not affect the validity of the proceedings for the redemption of any other
shares of Series A Preferred Stock.
Notice having been mailed as described above, from and after the redemption
date (unless the Company defaults in the payment of the redemption price for any
shares to be redeemed), all dividends on the shares of Series A Preferred Stock
called for redemption shall cease to accrue and all rights of the holders of
such shares as stockholders of the Company by reason of the ownership of such
shares (except the right to receive the redemption price, on presentation and
surrender of the respective certificates representing the redeemed shares) shall
cease on the redemption date, and such shares shall not after the redemption
date be deemed to be outstanding. In case less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued without
cost to the holder thereof representing the unredeemed shares.
At its option, the Company may, on or prior to the redemption date,
irrevocably deposit the aggregate amount payable upon redemption of the shares
of the Series A Preferred Stock to be redeemed with a bank or trust company
designated by the Company having its principal office in New York, New York, San
Juan, Puerto Rico, or any other city in which the Company shall at that time
maintain a transfer agent with respect to its capital stock, and having a
combined capital 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 Series A
Preferred Stock 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
Series A Preferred Stock to be redeemed, the Company shall thereupon be released
and discharged (subject to the provisions described in the next paragraph) from
any obligation to make payment of the amount payable upon redemption of the
shares of the Series A Preferred Stock to be redeemed, and the holders of such
shares shall look only to the Depositary for such payment.
Any funds remaining unclaimed at the end of two years from and after the
redemption date in respect of which such funds were deposited shall be returned
to the Company forthwith and thereafter the holders of shares of the Series A
Preferred Stock called for redemption with respect to which such funds were
deposited shall look only to the Company for the payment of the redemption price
thereof. Any interest accrued on any funds deposited with the Depositary shall
belong to the Company and shall be paid to it from time to time on demand.
Any shares of the Series A Preferred Stock which shall at any time have
been redeemed shall, after such redemption, have the status of authorized but
unissued shares of serial preferred stock, without designation as to series,
until such shares are once more designated as part of a particular series by the
Board of Directors.
Certain Regulatory Considerations Affecting Redemptions
Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Board of Governors of the Federal Reserve Board (the "Federal Reserve
Board").
19
<PAGE> 21
Ordinarily, the Federal Reserve Board would not permit such a redemption unless
(1) the shares are redeemed with the proceeds of a sale by the bank holding
company of common stock or perpetual preferred stock, or (2) the Federal Reserve
Board determines that the bank holding company's condition and circumstances
warrant the reduction of a source of permanent capital.
Also, under Puerto Rico law, a corporation such as the Company may not
redeem any shares of its capital stock, unless the assets remaining after such
redemption are sufficient to pay any debts of such corporation for which payment
has not otherwise been provided.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of the Company, the then record holders of shares of Series A Preferred Stock
will be entitled to receive out of the assets of the Company available for
distribution to shareholders, before any distribution is made to holders of
common stock or any other equity securities of the Company ranking junior upon
liquidation to the Series A Preferred Stock, distributions upon liquidation in
the amount of $50 per share plus an amount equal to any accrued and unpaid
dividends for the current monthly dividend period to the date of payment.
If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Company, the amounts payable with respect to the Series A Preferred Stock
and any other shares of stock of the Company ranking as to any such distribution
on a parity with the Series A Preferred Stock are not paid in full, the holders
of the Series A Preferred Stock and of such other shares will share ratably in
any such distribution of assets of the Company in proportion to the full
liquidation preferences to which each would otherwise be entitled. After payment
of the full amount of the liquidation preference to which they are entitled, the
holders of shares of Series A Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Company.
In the Certificate of Designation it is provided that neither the
consolidation or merger of the Company with any other corporation, nor any sale,
lease or conveyance of all or any part of the property or business of the
Company, shall be deemed to be a liquidation, dissolution, or winding up of the
Company.
VOTING RIGHTS
Except as described below, or except as required by applicable law, holders
of the Series A Preferred Stock will not be entitled to receive notice of or
attend or vote at any meeting of stockholders of the Company.
If the Company does not pay dividends in full on the Series A Preferred
Stock for eighteen consecutive monthly dividend periods, the holders of
outstanding shares of the Series A Preferred Stock, together with the holders of
any other shares of stock of the Company having the right to vote for the
election of directors solely in the event of any failure to pay dividends,
acting as a single class without regard to series, will be entitled, by written
notice to the Company given by the holders of a majority in liquidation
preference of such shares or by ordinary resolution passed by the holders of a
majority in liquidation preference of such shares present in person or by proxy
at a separate general meeting of such holders convened for the purpose, to
appoint two additional members of the Board of Directors of the Company, to
remove any such member from office and to appoint another person in place of
such member. Not later than 30 days after such entitlement arises, if written
notice by a majority of the holders of such shares has not been given as
provided for in the preceding sentence, the Board of Directors or an authorized
committee thereof will convene a separate general meeting for the above purpose.
If the Board of Directors or such authorized committee fails to convene such
meeting within such 30-day period, the holders of 10% of the outstanding shares
of the Series A Preferred Stock and any such other stock will be entitled to
convene such meeting.
The provisions of the Restated Certificate of Incorporation and By-laws of
the Company relating to the convening and conduct of general meetings of
stockholders will apply with respect to any such separate general meeting. Any
member of the Board of Directors so appointed shall vacate office if, following
the event which gave rise to such appointment, the Company shall have resumed
the payment of dividends in full on the Series A Preferred Stock and each such
other series of stock for twelve consecutive monthly dividend periods.
20
<PAGE> 22
The Bylaws of the Company provides for a minimum of five members of the Board of
Directors and a maximum of ten members. As of the date of this Prospectus, the
Company's Board of Directors consisted of eight members.
Any variation or abrogation of the rights, preferences and privileges of
the Series A Preferred Stock by way of amendment of the Company's Restated
Certificate of Incorporation or otherwise (including, without limitation, the
authorization or issuance of any shares of the Company ranking, as to dividend
rights or rights on liquidation, winding up and dissolution, senior to the
Series A Preferred Stock) shall not be effective (unless otherwise required by
applicable law) except with the consent in writing of the holders of at least
two thirds of the outstanding aggregate liquidation preference of the Series A
Preferred Stock or with the sanction of a special resolution passed at a
separate general meeting by the holders of at least two-thirds of the
outstanding aggregate liquidation preference of the Series A Preferred Stock.
Notwithstanding the foregoing, the Company may, without the consent or sanction
of the holders of the Series A Preferred Stock, authorize and issue shares of
the Company ranking, as to dividend rights and rights on liquidation, winding up
and dissolution, on a parity with or junior to the Series A Preferred Stock.
No vote of the holders of the Series A Preferred Stock will be required for
the Company to redeem or purchase and cancel the Series A Preferred Stock in
accordance with the Certificate of Incorporation of the Company or the
Certificate of Designation for the Series A Preferred Stock.
The Company will cause a notice of any meeting at which holders of the
Series A Preferred Stock are entitled to vote to be mailed to each record holder
of the Series A Preferred Stock. Each such notice will include a statement
setting forth (i) the date of such meeting, (ii) a description of any resolution
to be proposed for adoption at such meeting on which such holders are entitled
to vote, and (iii) instructions for deliveries of proxies.
Certain Regulatory Issues Related to Voting Rights
Under regulations adopted by the Federal Reserve Board, if the holders of
shares of Series A Preferred Stock become entitled to vote for the election of
directors as described above, the Series A Preferred Stock could be deemed a
"class of voting securities" and a holder of 25% or more of the Series A
Preferred Stock (or a holder of 5% if it otherwise exercises a "controlling
influence" over the Company) could then be subject to regulation as a bank
holding company in accordance with the Bank Holding Company Act. In addition, at
such time as the Series A Preferred Stock is deemed a class of voting
securities, (i) any other bank holding company may be required to obtain the
approval of the Federal Reserve Board to acquire or retain 5% or more of the
outstanding shares of Series A Preferred Stock, and (ii) any person other than a
bank holding company may be required to file with the Federal Reserve Board
under the Change in Bank Control Act to acquire or retain 10% or more of such
series.
Section 12 of the Puerto Rico Banking Law requires the prior approval of
the Office of the Commissioner of Financial Institutions of Puerto Rico (the
"Office of the Commissioner") to obtain control of any bank organized under the
Banking Law. The Banking Law requires that in any transfer of voting and
outstanding capital stock of any bank organized under the laws of Puerto Rico to
any person or entity that, upon consummation of the transfer, will become the
owner, directly or indirectly, of more than 5% of the voting and outstanding
capital stock of said bank, the parties to the transfer shall inform the Office
of the Commissioner of the proposed transfer at least 60 days prior to the date
such transfer is to be effected. The Banking Law does not contain any provision
allowing for the extension of such 60-day time period. The transfer requires the
approval of the Office of the Commissioner if it results in a change of control
of the bank. For the purposes of Section 12 of the Banking Law, the term
"control" means the power to, directly or indirectly, direct or influence
decisively the administration or the norms of the bank. The Office of the
Commissioner has made an administrative determination that the foregoing
provisions of the Banking Law are applicable to a change in control of the
Company.
Pursuant to Section 12(d) of the Banking Law, as soon as the Office of the
Commissioner receives notice of a proposed transaction that may result in the
control or in a change of control of a bank, the Office of the Commissioner
shall have the duty to make the necessary investigations. The Office of the
Commissioner shall
21
<PAGE> 23
issue authorization for the transfer of control of the bank if the results of
its investigations are in its judgment satisfactory. The decision of the Office
of the Commissioner is final and unreviewable.
RANK
The Series A 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 Company, and to all other equity securities
issued by the Company the terms of which specifically provide that such equity
securities will rank junior to the Series A Preferred Stock (or to a number of
series of preferred stock which includes the Series A Preferred Stock); (ii) on
a parity with the Company's outstanding 8% Convertible Cumulative Preferred
Stock (Liquidation Preference $1,000 per share) and with all other equity
securities issued by the Company the terms of which specifically provide that
such equity securities will rank on a parity with the Series A Preferred Stock
(or with a number of series of preferred stock which includes the Series A
Preferred Stock); and (iii) junior to all equity securities issued by the
Company the terms of which specifically provide that such equity securities will
rank senior to the Series A Preferred Stock (or to a number of series of
preferred stock which includes the Series A Preferred Stock). For this purpose,
the term "equity securities" does not include debt securities convertible into
or exchangeable for equity securities.
The Company may not issue shares of the Company ranking, as to dividend
rights or rights on liquidation, winding up and dissolution, senior to the
Series A Preferred Stock except with the consent of the holders of at least
two-thirds of the outstanding aggregate liquidation preference of the Series A
Preferred Stock. See "Voting Rights" above.
TRANSFER AGENT; DIVIDEND DISBURSING AGENT; REGISTRAR
ChaseMellon Shareholder Services, LLC ("ChaseMellon") will initially act as
the transfer agent, dividend disbursing agent and registrar for the Series A
Preferred Stock. Holders of the Series A Preferred Stock may contact
ChaseMellon, at the following address: ChaseMellon Shareholder Services, LLC,
P.O. Box 3315, So. Hackensack, NJ 07606, toll-free telephone number
1-800-851-9677.
The transfer of a share of Series A Preferred Stock may be registered upon
the surrender of the certificate evidencing the share of Series A Preferred
Stock to be transferred, together with the form of transfer endorsed on it duly
completed and executed, at the office of the transfer agent and registrar.
Registration of transfers of shares of Series A Preferred Stock will be
effected without charge by or on behalf of the Company, but upon payment (or the
giving of such indemnity as the transfer agent and registrar may require) in
respect of any tax or other governmental charges which may be imposed in
relation to it.
The Company will not be required to register the transfer of a share of
Series A Preferred Stock after such share has been called for redemption.
REPLACEMENT OF LOST CERTIFICATES
If any certificate for a share of Series A Preferred Stock is mutilated or
alleged to have been lost, stolen or destroyed, a new certificate representing
the same share may be issued to the holder upon request subject to delivery of
the old certificate or, if alleged to have been lost, stolen or destroyed,
compliance with such conditions as to evidence, indemnity and the payment of
out-of-pocket expenses of the Company in connection with the request as the
Company may determine.
NO PREEMPTIVE RIGHTS
Holders of the Series A Preferred Stock will have no preemptive or
preferential rights to purchase or subscribe for any securities of the Company.
22
<PAGE> 24
NO REPURCHASE AT THE OPTION OF THE HOLDERS; MISCELLANEOUS
Holders of the Series A Preferred Stock will have no right to require the
Company to redeem or repurchase any shares of Series A Preferred Stock, and the
shares of Series A Preferred Stock are not subject to any sinking fund or
similar obligation. The Company may, at its option, purchase shares of the
Series A Preferred Stock from holders thereof from time to time, by tender, in
privately negotiated transactions or otherwise.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL
The Company is authorized to issue 50,000,000 shares of Common Stock, $1.00
par value, and 2,000,000 shares of Serial Preferred Stock, $1.00 par value (the
"Serial Preferred Stock"). The following summary of certain rights and
privileges of the Common Stock and Serial Preferred Stock of the Company does
not purport to be complete. Statements in this summary are qualified in their
entirety by reference to the Company's Restated Certificate of Incorporation and
the amendments thereto and to the General Corporation Law of Puerto Rico.
COMMON STOCK
As of October 30, 1998, there were 40,484,920 shares of Common Stock issued
and 40,428,920 shares of Common Stock outstanding. In addition, as of that date,
a total of 1,933,714 of the Company's authorized but unissued shares had been
reserved for possible issuance upon the conversion of all outstanding shares of
the Company's 8% Convertible Cumulative Preferred Stock (the "8% Preferred
Stock"), and 2,000,000 and 288,776 shares were reserved for issuance in
connection with the Company's 1997 Employee Stock Option and Restricted Stock
Plan, respectively. In addition, 800,000 shares were reserved for issuance to
honor certain contractual purchase rights. See "Purchase Rights of Popular,
Inc." below. The Common Stock is traded in the over-the-counter market on the
NASDAQ National Market System. The holders of the Common Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of
stockholders. Each share of Common Stock has the same relative rights as, and is
identical in all respects with, each other share of Common Stock. There are no
cumulative voting rights for the election of directors.
Subject to the rights of holders of the outstanding 8% Preferred Stock and
any other outstanding shares of Serial Preferred Stock, in the event of the
liquidation, dissolution or distribution of assets of the Company, the holders
of Common Stock are entitled to share ratably in the assets of the Company
legally available for distribution to stockholders. The Common Stock has no
redemption, conversion or sinking fund privileges.
Subject to any dividend preferences which may be established with respect
to any series of Serial Preferred Stock, the holders of Common Stock are
entitled to receive, pro rata, dividends when and as declared by the Board of
Directors out of funds legally available therefor.
Holders of Common Stock do not have preemptive rights to subscribe for or
purchase additional securities of the Company.
ChaseMellon Shareholder Services LLC, New York, New York, is the transfer
agent and registrar for the Common Stock.
SERIAL PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to fix
the designation, voting powers, preferences, limitations and relative rights of
any series of the Company's Serial Preferred Stock at the time of issuance. As
of October 30, 1998, the 8% Preferred Stock described below was the only series
of Serial Preferred Stock designated by the Company.
23
<PAGE> 25
OUTSTANDING SERIAL PREFERRED STOCK
The Company entered into a Debenture Purchase Agreement dated September 25,
1995, as amended and restated as of December 15, 1995 (the "Debenture Purchase
Agreement"), with Popular, Inc. ("Popular"), a bank holding company
headquartered in San Juan, Puerto Rico, providing for the issuance and sale in a
private transaction to Popular of $10.0 million of convertible debentures (the
"Convertible Debentures"). Approximately $6.6 million of Convertible Debentures
were issued on September 25, 1995, and the remaining $3.4 million were issued on
December 22, 1995. The Convertible Debentures were convertible into shares of
Common Stock at a conversion price of $4.375 per share (as adjusted for
subsequent stock splits), subject to adjustment in certain circumstances.
The Company entered into an Exchange Agreement dated July 9, 1997, with
Popular, whereby the Company agreed to exchange 8,460 newly issued shares of the
8% Preferred Stock for the $8.46 million principal amount of the Convertible
Debentures held by Popular at the time. Popular had previously converted $1.54
million of Convertible Debentures and sold the shares of Common Stock issued
upon conversion of such Convertible Debentures in the open market. On October
22, 1997, the exchange contemplated under the Exchange Agreement took place and
the shares of 8% Preferred Stock were issued. The 8% Preferred Stock qualifies
as Tier 1 capital for purposes of compliance with the regulatory capital
requirements applicable to bank holding companies.
As of October 30, 1998, there were 8,460 shares of the Company's 8%
Preferred Stock issued and outstanding. The shares of 8% Preferred Stock are not
traded in the over-the-counter market or any national securities exchange.
Dividend Rights and Limitations. The holders of the shares of 8% Preferred
Stock, in preference to holders of the Common Stock and to any other class of
capital stock ranking junior to the 8% Preferred Stock with respect to the
payment of dividends, are entitled to receive cumulative cash dividends when, as
and if declared by the Board of Directors, out of the assets of the Company
legally available therefore at the annual rate of 8% of the liquidation value
thereof payable monthly or $6.66 2/3, per share per month.
The Company may not declare, set apart or pay any dividend on or make any
distribution of assets (other than dividends paid or other distributions made in
stock of the Company 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 Company) on, or redeem, purchase, set apart or otherwise
acquire (except upon conversion or exchange for stock of the Company 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
Company), shares of Common Stock or of any other stock of the Company 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
Company, unless all accrued and unpaid dividends on the 8% Preferred Stock have
been or contemporaneously are declared and paid and the full monthly dividend on
the 8% Preferred Stock for the current month has been or is contemporaneously
declared and paid or declared and set apart for payment and unless the Company
has not defaulted in the payment of the redemption price of any shares of 8%
Preferred Stock called for redemption.
Whenever all accrued dividends on the 8% Preferred Stock and any other
stock of the Company ranking on a parity to the 8% Preferred Stock as to the
payment of dividends are not paid in full, all dividends declared upon the 8%
Preferred Stock and any such other parity stock of the Company must be declared
pro rata so that the amount of dividends declared per share on the 8% Preferred
Stock and such other parity stock of the Company will bear the same ratio that
the liquidation preference per share of 8% Preferred Stock and such other stock
of the Company bear to each other.
Liquidation Rights. Upon the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of the 8% Preferred Stock
are entitled to receive out of the assets of the Company an amount in cash equal
to $1,000 per share plus accrued and unpaid dividends thereon to the date of
such distribution, before any payment may be made to the holders of Common Stock
or any other securities of the Company ranking junior to the 8% Preferred Stock
as to the distribution of assets upon liquidation. No such distribution or
payment on account of liquidation, dissolution or winding up of the Company may
be made to the holders of the shares of any class or series of stock of the
Company ranking on a parity with the 8%
24
<PAGE> 26
Preferred Stock as to the distribution of assets upon liquidation, unless the
holders of the 8% Preferred Stock receive like distributive amounts ratably in
accordance with the full distributive amounts which they and the holders of such
parity stock are respectively entitled to receive upon such preferential
distribution.
Neither the consolidation or merger of the Company with any other
corporation, nor the sale, lease or conveyance of all or any part of the
property or business of the Company, will be deemed to be a liquidation,
dissolution or winding up of the Company. After the payment to the holders of
the 8% Preferred Stock of the full preferential amounts provided for above, the
holders of the 8% Preferred Stock as such will have no right or claim to any of
the remaining assets of the Company.
Conversion Rights. The holders of shares of 8% Preferred Stock have the
right, at their option, to convert such shares into shares of Common Stock of
the Company at any time before the close of business on December 1, 2005, at a
conversion price of $4.375 per share, subject to adjustment from time to time
upon the occurrence of certain events. The number of shares of Common Stock
issuable upon conversion of a share of 8% Preferred Stock shall be determined by
dividing the aggregate liquidation preference of the shares of 8% Preferred
Stock being converted by the conversion price in effect on the conversion date.
As of October 30, 1998, the 8,460 shares of 8% Preferred Stock held by Popular
were convertible into 1,933,714 shares of Common Stock, or approximately 4.6% of
the outstanding Common Stock.
Redemption. The 8% Preferred Stock is subject to redemption in whole or in
part, at the option of the Company with the consent of the Federal Reserve on or
after January 1, 2001, and on or prior to December 31, 2002, at a price of
$1,020 per share and thereafter at redemption prices declining to a price of
$1,000 per share on or after January 1, 2005. There is no mandatory redemption
or sinking fund obligation with respect to the 8% Preferred Stock.
Voting Rights. The holders of shares of 8% Preferred Stock are not
entitled to any voting rights except as required by law or as described below.
The affirmative vote or consent of the holders of at least a majority of
the outstanding shares of the 8% Preferred Stock, voting as a class, is required
for the approval of any variation or abrogation of the rights, preferences and
privileges of the 8% Preferred Stock by way of any amendment of any provision of
the Company's Restated Certificate of Incorporation or otherwise which would
alter or materially affect the special rights, powers or preferences of the 8%
Preferred Stock or to authorize or issue any class of stock ranking prior to the
8% Preferred Stock as to dividends or upon liquidation.
Registration Rights. Under the terms of the Exchange Agreement, the
holders of shares of 8% Preferred Stock are entitled to include such shares (or
the shares of Common Stock into which their shares of 8% Preferred Stock are
convertible) in certain registration statements filed by the Company with
respect to its equity securities. In addition, one or more holders of shares of
8% Preferred Stock having an aggregate liquidation preference of not less than
$5.0 million ($2.5 million in the case of Popular) may require the Company to
file a registration statement covering such shares under certain circumstances.
Rank vis-a-vis Series A Preferred Stock. The Series A Preferred Stock will
rank on a parity with the 8% Preferred Stock as to the payment of dividends and
as to the distribution of assets upon liquidation, dissolution or winding up of
the Company.
PURCHASE RIGHTS OF POPULAR, INC.
The Exchange Agreement incorporates a provision previously contained in the
Debenture Purchase Agreement which grants Popular a non-transferable right to
acquire up to a maximum of 800,000 additional shares of Common Stock, at a price
of $4.375 per share (subject to adjustment upon the occurrence of certain
events). Popular may exercise its purchase rights if, as a result of the
issuance of newly issued shares of Common Stock or of options or securities
convertible into Common Stock by the Company, the shares of Common Stock issued
or issuable upon conversion of the 8% Preferred Stock held by Popular (plus any
shares previously acquired by Popular upon conversion of the Convertible
Debentures or the 8% Preferred Stock) represent in the aggregate less than 4.99%
of the Company's fully diluted outstanding shares of Common Stock. Popular's
right to acquire additional shares of the Company's Common Stock expires on June
30, 1999, and is subject to termination upon the occurrence of certain corporate
events involving the acquisition of the Company.
25
<PAGE> 27
TAXATION
GENERAL
The following is a summary of the material Puerto Rico tax and United tax
considerations relating to the purchase, ownership and disposition of Series A
Preferred Stock. This summary does not purport to be a comprehensive description
of all the tax considerations that may be relevant to a decision to purchase
Series A Preferred Stock and does not describe any tax consequences arising
under the laws of any state, locality or taxing jurisdiction other than Puerto
Rico and the United States.
This summary is based on the tax laws of Puerto Rico and the United States
as in effect on the date of this prospectus, as well as regulations,
administrative pronouncements and judicial decisions available on or before such
date and now in effect. All of the foregoing are subject to change, which change
could apply retroactively and could affect the continued validity of this
summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PUERTO RICO, UNITED
STATES OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
SERIES A PREFERRED STOCK, INCLUDING THE APPLICATION TO THEIR PARTICULAR
SITUATIONS OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE APPLICATION
OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX.
PUERTO RICO TAXATION
The following is a summary of certain Puerto Rico tax considerations
relating to the purchase, ownership and disposition of Series A Preferred Stock.
The discussion is based on Puerto Rico tax laws, regulations, and judicial and
administrative interpretations, all as of the date hereof, all of which are
subject to change (with possible retroactive effect). This discussion does not
purport to cover all aspects of Puerto Rico taxation that may be relevant to a
purchaser of Series A Preferred Stock in light of such purchaser's particular
circumstances, or to purchasers subject to special rules of taxation, such as
life insurance companies, "Special Partnerships," "Subchapter N Corporations,"
registered investment companies, and certain pension trusts.
For purposes of the discussion below, a "Puerto Rico corporation" is a
corporation organized under the laws of Puerto Rico and a "foreign corporation"
is a corporation organized under the laws of a jurisdiction other than Puerto
Rico.
OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK
Taxation of Dividends.
General. Distributions of cash or other property made by the Company with
respect to Series A Preferred Stock will be treated as dividends to the extent
that the Company has current or accumulated earnings and profits. To the extent
that a distribution exceeds the Company's current and accumulated earnings and
profits, the distribution will be applied against and reduce the adjusted tax
basis of the Series A Preferred Stock in the hands of the holder. The excess of
any such distribution over such adjusted tax basis will be treated as gain on
the sale or exchange of such Series A Preferred Stock and will be subject to
income tax as described below.
The following discussion regarding the income taxation of dividends on
Series A Preferred Stock received by individuals not residents of Puerto Rico
and foreign corporations not engaged in a trade or business in Puerto Rico
assumes that such dividends will constitute income from sources within Puerto
Rico. Generally, a dividend declared by a Puerto Rico corporation will
constitute income from sources within Puerto Rico unless the corporation derived
less than 20% of its gross income from sources within Puerto Rico for the three
taxable years preceding the year of the declaration. The Company has represented
that it has derived more than 20% of its gross income from Puerto Rico sources
on an annual basis since its incorporation in 1972.
Individual Residents of Puerto Rico and Puerto Rico Corporations. In
general, individuals who are residents of Puerto Rico will be subject to a
special 10% income tax (the "10% Special Tax") on dividends paid with respect to
Series A Preferred Stock which tax is generally required to be withheld by the
Company.
26
<PAGE> 28
An individual may elect for such withholding not to apply, and in such case he
or she will be required to include the amount of the dividend as ordinary income
and will be subject to income tax thereon at the normal income tax rates, which
may be up to 33%.
Puerto Rico corporations will be subject to income tax on dividends paid
with respect to Series A Preferred Stock at the normal corporate income tax
rates, subject to the dividend received deduction discussed below. In the case
of a Puerto Rico corporation, no withholding will be imposed on dividends paid
with respect to Series A Preferred Stock. The dividend received deduction will
be equal to 85% of the dividend received, but the deduction may not exceed 85%
of the corporation's net taxable income. Based on the applicable maximum Puerto
Rico normal corporate income tax rate of 39%, the maximum effective income tax
rate on such dividends will be 5.85% after accounting for the dividend received
deduction.
As a practical matter, dividends with respect to Series A Preferred Stock
held in "street name" through foreign financial institutions or other securities
intermediaries not engaged in trade or business in Puerto Rico will generally be
subject to a separate 10% withholding tax imposed on foreign corporations. See
"-- Foreign Corporations." Accordingly, individuals resident of Puerto Rico who
desire to file an election out of the applicable 10% Special Tax and applicable
withholding tax should have their shares of Series A Preferred Stock issued and
registered in their own name. Similarly, Puerto Rico corporations that own any
shares of Series A Preferred Stock and wish to avoid withholding imposed on
foreign corporations with respect to distributions on such shares should have
such shares issued and registered in their own name in order to ensure that no
withholding is made on dividends thereon.
United States Citizens Not Residents of Puerto Rico. Dividends paid with
respect to Series A Preferred Stock to a United States citizen who is not a
resident of Puerto Rico will be subject to the 10% Special Tax which will be
withheld by the Company. Such an individual may elect for such withholding not
to apply, and in such case he or she will be required to include the amount of
the dividend as ordinary income and will be subject to income tax thereon at the
normal income tax rates, which may be up to 33%. Notwithstanding the making of
such an election, a separate 10% withholding tax will be required on the amount
of the dividend unless the individual timely files with the Company a
withholding exemption certificate to the effect that such individual's gross
income from sources within Puerto Rico during the taxable year does not exceed
$1,300 if single or $3,000 if married. Withholding exemption certificates will
only be accepted by the Company or its agent from individuals who have the
shares of Series A Preferred Stock registered in their names. Individuals who
hold shares of Series A Preferred Stock in "street name" will not be eligible to
file with the Company or its agent withholding exemption certificates.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. Dividends paid with respect to Series A Preferred Stock to any individual
who is not a citizen of the United States and who is not a resident of Puerto
Rico will generally be subject to a 10% tax which will be withheld at source by
the Company..
Foreign Corporations. The income taxation of dividends paid with respect
to the Series A Preferred Stock to a foreign corporation will depend on whether
or not the corporation is engaged in a trade or business in Puerto Rico.
A foreign corporation that is engaged in a trade or business in Puerto Rico
will be subject to the normal corporate income tax rates applicable to Puerto
Rico corporations on their net income that is effectively connected with the
trade or business in Puerto Rico. This income will include net income from
sources within Puerto Rico and certain items of net income from sources outside
Puerto Rico that are effectively connected with the trade or business in Puerto
Rico. Net income from sources within Puerto Rico will include dividends with
respect to Series A Preferred Stock. A foreign corporation that is engaged in a
trade or business in Puerto Rico will be entitled to claim the 85% dividend
received deduction discussed above in connection with Puerto Rico corporations.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico are also subject to a 10% branch profits tax. However, dividends
with respect to Series A Preferred Stock received by such corporations will be
excluded from the computation of the branch profits tax liability of such
corporations.
27
<PAGE> 29
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the
Series A Preferred Stock.
Partnerships. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to Puerto Rico
and foreign corporations is equally applicable in the case of most Puerto Rico
and foreign partnerships, respectively.
Taxation of Gains upon Sales or Exchanges (Not Including Redemptions).
General. The sale or exchange of Series A Preferred Stock will give rise
to gain or loss equal to the difference between the amount realized on the sale
or exchange and the tax basis of the Series A Preferred Stock in the hands of
the holder. Any such gain or loss that is required to be recognized will be a
capital gain or loss if the Series A Preferred Stock is held as a capital asset
by the holder and will be a long-term capital gain or loss if the stockholders'
holding period with respect to the Series A Preferred Stock exceeds six months.
Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on
the sale or exchange of Series A Preferred Stock by an individual resident of
Puerto Rico or a Puerto Rico corporation will generally be required to be
recognized as gross income and will be subject to income tax. If the stockholder
is an individual and the gain is a long-term capital gain, the gain will be
taxable at a maximum rate of 20%.
If the stockholder is a Puerto Rico corporation and the gain is a long-term
capital gain, the gain will qualify for an alternative tax rate of 25%.
United States Citizens Not Residents of Puerto Rico. A United States
citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico
income tax on the sale or exchange of Series A Preferred Stock if the gain
resulting therefrom constitutes income from sources outside Puerto Rico.
Generally, gain on the sale or exchange of Series A Preferred Stock will be
considered to be income from sources outside Puerto Rico if all rights, title
and interest in or to the Series A Preferred Stock are transferred outside
Puerto Rico, and if the delivery or surrender of the instruments that evidence
the Series A Preferred Stock is made to an office of a paying or exchange agent
located outside Puerto Rico. If the gain resulting from any such sale or
exchange constitutes income from sources within Puerto Rico, an amount equal to
20% of the payments received will be withheld at the source; and if such gain
constitutes a long term capital gain, it will be subject to a tax at a maximum
rate of 20%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described under "-- United
States Citizens Not Residents of Puerto Rico"; provided, however, that if the
gain resulting from the sale or exchange of Series A Preferred Stock constitutes
income from sources within Puerto Rico, an amount equal to 25% of the payments
received gain will be withheld at the source; and provided further, that if the
gain resulting from such sale or exchange represents a capital gain from sources
within Puerto Rico, the individual will generally be subject to tax on such gain
at a fixed rate of 29%. The amount of tax withheld at source will be creditable
against the shareholder's Puerto Rico income tax liability.
Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to Puerto Rico corporate
income tax on any gain realized on the sale or exchange of Series A Preferred
Stock if such gain is (i) from sources within Puerto Rico or (ii) from sources
outside Puerto Rico and effectively connected with a trade or business in Puerto
Rico. Any such gain will qualify for an alternative tax of 25% if it qualifies
as a long term capital gain.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax. In the computation
of this tax, any gain realized by such corporations on the sale or exchange of
Series A Preferred Stock and that is subject to Puerto Rico income tax will be
taken into account. However, a deduction will be allowed in such computation for
any income tax paid on the gain realized on such sale or exchange.
28
<PAGE> 30
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Series A Preferred Stock if
such gain is from sources within Puerto Rico. Gain on the sale or exchange of
Series A Preferred Stock will generally not be considered to be from sources
within Puerto Rico if all rights, title and interest in or to the Series A
Preferred Stock are transferred outside Puerto Rico, and if the delivery or
surrender of the instruments that evidence the Series A Preferred Stock is made
to an office of a paying or exchanged agent located outside Puerto Rico. If the
gain resulting from any such sale or exchange constitutes income from sources
within Puerto Rico, an amount equal to 25% of the payments received will be
withheld at the source and be creditable against the shareholder's Puerto Rico
income tax liability. In the case of such foreign corporation, no income tax
will be imposed if the gain of Series A Preferred Stock constitutes income from
sources outside Puerto Rico.
Partnerships. Partnerships are generally taxed as corporations.
Accordingly, the discussion with respect to Puerto Rico and foreign corporations
is equally applicable to most Puerto Rico and foreign partnerships,
respectively.
Taxation of Redemptions.
A redemption of shares of the Series A Preferred Stock for cash will be
treated as a distribution taxable as a dividend to the extent of the Company's
current or accumulated earnings and profits if it is "essentially equivalent to
a dividend". Under regulations issued by the Department of the Treasury of
Puerto Rico (i) a redemption of stock that completely terminates a shareholder's
interest in a corporation does not constitute a dividend, and (ii) certain
prorata redemptions among all the shareholders will be treated as a dividend. In
situations not described by such regulations the Department of the Treasury of
Puerto Rico will generally follow principles applied by the United States
Internal Revenue Service ("IRS") under the United States Internal Revenue Code
of 1986, as amended, in determining whether a distribution is essentially
equivalent to a dividend. The Department of the Treasury of Puerto Rico,
however, is not bound by IRS determinations on this issue and is free to adopt a
different rule.
If the redemption of the Series A Preferred Stock is not treated as a
dividend, it will generally generate gain or loss that will be measured as
provided above under "-- Taxation of Gains upon Sales or Exchanges (Not
including Redemptions)" for a sale or exchange of Series A Preferred Stock. Gain
on the redemption of Series A Preferred Stock will generally be recognized and
will be subject to income tax. If the stockholder of the Series A Preferred
Stock is an individual resident of Puerto Rico and the gain is a long-term
capital gain, the gain will be taxable at a maximum rate of 20%. If the
stockholder is a Puerto Rico corporation and the gain is a long-term capital
gain, the gain will qualify for the alternative tax rate of 25%.
If the stockholder of the Series A Preferred Stock is an individual who is
not a resident of Puerto Rico or a foreign corporation or foreign partnership,
any gain realized by such holder on the redemption of the Series A Preferred
Stock that is not taxable as a dividend may be subject to Puerto Rico income tax
if such gain constitutes income from sources within Puerto Rico or is
effectively connected with a trade or business conducted by such holder in
Puerto Rico. The Puerto Rico income tax law does not clearly provide a source of
income rule for a gain of this nature. As a result thereof, such mentioned
prospective shareholders should be aware that a gain realized from a redemption
of the Series A Preferred Stock may be subject to Puerto Rico income tax.
ESTATE AND GIFT TAXATION
The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to estate and gift tax if the
individual is a citizen of the United States who acquired his or her citizenship
solely by reason of birth or residence in Puerto Rico. Other individuals should
consult their own tax advisors in order to determine the appropriate treatment
for Puerto Rico estate and gift tax purposes of the transfer of the Series A
Preferred Stock by death or gift.
29
<PAGE> 31
MUNICIPAL LICENSE TAXATION
Individuals and corporations that are not engaged in a trade or business in
Puerto Rico will not be subject to municipal license tax with respect to
dividends paid on the Series A Preferred Stock or with respect to any gain
realized on the sale, exchange or redemption of such stock.
A corporation or partnership (Puerto Rico or foreign) that is engaged in a
trade or business in Puerto Rico will generally be subject to municipal license
tax with respect to dividends paid on the Series A Preferred Stock and with
respect to gain realized on the sale, exchange or redemption of such stock if
such dividends or gain are attributable to such trade or business. The municipal
license tax is imposed on the volume of business of the taxpayer, and the tax
rates range from a maximum of 1.5% for financial businesses to a maximum of 0.5%
for other businesses.
PROPERTY TAXATION
The Series A Preferred Stock will not be subject to Puerto Rico property
tax.
UNITED STATES TAXATION
The following is a summary of certain United States federal tax
consequences of the ownership and disposition of the Series A Preferred Stock by
U.S. Holders, as defined below, and corporations organized under the laws of
Puerto Rico ("PR Corporations"). This summary is based on the United States
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
regulations of the U.S. Department of the Treasury promulgated thereunder
("Treasury Regulations"), administrative pronouncements and judicial decisions,
all of which are subject to change (even with retroactive effect). This summary
deals only with Series A Preferred Stock held by initial purchasers as capital
assets within the meaning of Section 1221 of the Code. It does not discuss all
of the tax consequences that may be relevant to a purchaser in light of such
person's particular circumstances or to purchasers subject to special rules,
such as entities that are taxed under the Code as partnerships or "Subchapter S
Corporations," life insurance companies, tax exempt entities, dealers in
securities, financial institutions, persons who hold Series A Preferred Stock as
part of an integrated investment (including a straddle) or to persons whose
functional currency is not the U.S. dollar or who owns 10% or more of the voting
stock of the Company. Persons considering the purchase of Series A Preferred
Stock should consult their own tax advisors with regard to the application of
the United States tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local, foreign or other taxing
jurisdiction. As used herein, the term "U.S. Holder" means a beneficial owner of
Series A Preferred Stock that does not own directly, constructively or by
attribution 10% or more of the voting stock of the Company and is, for United
States federal income tax purposes, (i) a citizen or resident of the United
States, (ii) a corporation organized under the laws of a state of the United
States, (iii) a corporation organized under the laws of the United States or of
any political subdivision thereof, or (iv) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source. The term "U.S. Holder" does not include individual Puerto Rico residents
who are not citizens or residents of the United States nor does it include
corporations organized under the laws of Puerto Rico. As used herein, the term
"Puerto Rico U.S. Holder" means an individual U.S. Holder who is a bona fide
resident of Puerto Rico during the entire taxable year (or, in certain cases, a
portion thereof).
OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK
Taxation of Dividends.
General. Under the source of income rules of the Code, dividends on the
Series A Preferred Stock will constitute gross income from sources outside the
United States if less than 25% of the Company's gross income on an ongoing basis
is effectively connected with a trade or business in the United States. Since
its incorporation in 1972 the Company has not derived income effectively
connected with a trade or business in the United States and does not expect that
25% or more of its gross income during the current and future years
30
<PAGE> 32
will be treated as such. Accordingly, dividends on the Series A Preferred Stock
distributed by the Company will constitute gross income from sources outside the
United States.
U.S. Holders (other than Puerto Rico U.S. Holders). Subject to the
discussion under "-- Passive Foreign Investment Company Rules" below,
distributions made with respect to the Series A Preferred Stock, including the
amount of any Puerto Rico taxes withheld therefrom, will be includable in the
gross income of a U.S. Holder (other than a Puerto Rico U.S. Holder) as foreign
source gross income to the extent such distributions are paid out of current or
accumulated earnings and profits of the Company as determined for United States
federal income tax purposes. Such dividends will not be eligible for the
dividends received deduction generally allowed to U.S. Holders that are
corporations. To the extent, if any, that the amount of any distribution by the
Company exceeds its current and accumulated earnings and profits as determined
under United States federal income tax principles, it will be treated first as a
tax-free return of the U.S. Holder's tax basis in the Series A Preferred Stock
and thereafter as capital gain.
Subject to certain conditions and limitations, any Puerto Rico income tax
imposed on dividends distributed by the Company in accordance with Puerto Rico
law will be eligible for credit against the U.S. Holder's United States federal
income tax liability. See "Puerto Rico Taxation -- Ownership and Disposition of
Series A Preferred Stock -- Taxation of Dividends" above. For purposes of
calculating a U.S. Holder's United States foreign tax credit limitation,
dividends distributed by the Company will generally constitute foreign source
"passive income" or, in the case of certain U.S. Holders (those predominantly
engaged in the active conduct of a banking, financing or similar business),
foreign source "financial services income."
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, distributions of dividends
made by the Company with respect to the Series A Preferred Stock to a Puerto
Rico U.S. Holder will constitute gross income from sources within Puerto Rico,
will not be includable in such stockholder's gross income and will be exempt
from United States federal income taxation. In addition, for United States
federal income tax purposes, no deduction or credit will be allowed that is
allocable to or chargeable against amounts so excluded from such Puerto Rico
U.S. Holder's gross income.
PR Corporations. In general, distributions of dividends made by the
Company with respect to the Series A Preferred Stock to a PR Corporation will
not, in the hands of such PR Corporation, be subject to United States income tax
if such dividends are not effectively connected with a United States trade or
business of the PR Corporation and such PR Corporation is not treated as a
domestic corporation for purposes of the Code. The Code provides special rules
for PR Corporations that are "Controlled Foreign Corporations", "Personal
Holding Companies"," Foreign Personal Holding Companies", or "Passive Foreign
Investment Companies."
Taxation of Capital Gains.
U.S. Holders (other than Puerto Rico U.S. Holders). A U.S. Holder (other
than a Puerto Rico U.S. Holder) will recognize gain or loss on the sale or other
disposition of Series A Preferred Stock (including redemptions treated as sales
or exchanges of the Series A Preferred Stock under Section 302 of the Code) in
an amount equal to the difference between the U.S. Holder's adjusted tax basis
in the Series A Preferred Stock and the amount realized on the sale or other
disposition. Subject to the discussion under "-- Passive Foreign Investment
Company Rules" below, such gain or loss will be a capital gain or loss. U.S.
Holders should consult their own tax advisors concerning the treatment of
capital gains and losses. Redemptions of the Series A Preferred Stock that are
not treated as sales or exchanges under section 302 of the Code will generally
be subject to income tax under the Code as dividends.
Gain recognized by a U.S. Holder on the sale or other disposition of Series
A Preferred Stock generally will be treated as United States source income.
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, gain from the sale or
exchange of the Series A Preferred Stock (including redemptions treated as sales
or exchanges of the Series A Preferred Stock under Section 302 of the
31
<PAGE> 33
Code) by a Puerto Rico U.S. Holder that is a resident of Puerto Rico for
purposes of Section 865(g)(1) of the Code will constitute income from sources
within Puerto Rico, will not be includable in such stockholder's gross income
and will be exempt from United States federal income taxation and no deduction
or credit will be allowed that is allocable to or chargeable against amounts so
excluded from such Puerto Rico U.S. Holder's gross income. Redemptions of the
Series A Preferred Stock that are not treated as sales or exchanges under
Section 302 of the Code will generally be subject to income tax under the Code
as dividends.
PR Corporations. In general, any gain derived by a PR Corporation from the
sale or exchange of the Series A Preferred Stock to a PR Corporation will not,
in the hands of such PR Corporation, be subject to United States income tax if
such gain is not effectively connected with a United States trade or business of
the PR Corporation and such PR Corporation is not treated as a domestic
corporation for purposes of the Code. The Code provides special rules for PR
Corporations that are "Controlled Foreign Corporations", "Personal Holding
Companies", "Foreign Personal Holding Companies", or "Passive Foreign Investment
Companies." Redemptions of the Series A Preferred Stock that are not treated as
sales or exchanges under section 302 of the Code will generally be subject to
income tax under the Code as dividends.
Backup Withholding. Certain incorporate U.S. Holders may be subject to
backup withholding at the rate of 31% on dividends paid or the proceeds of a
sale, exchange or redemption of Series A Preferred Stock. Generally, backup
withholding applies only when the taxpayer fails to furnish or certify a proper
taxpayer identification number or when the payor is notified by the IRS that the
taxpayer has failed to report payments of interest and dividends properly. U.S.
Holders should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any applicable
exemption.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Code provides special rules regarding certain distributions received by
U.S. Holders with respect to, and sales and other dispositions (including
pledges) of, stock of a Passive Foreign Investment Company ("PFIC").
Based upon certain proposed Treasury Regulations under PFIC provisions of
the Code (the "Proposed Regulations"), the Company believes that it has not been
a PFIC for any of its prior taxable years and expects to conduct its affairs in
such a manner so that it will not meet the criteria to be considered a PFIC in
the foreseeable future. If, contrary to Company's expectation, the Series A
Preferred Stock were considered to be shares of a PFIC for any fiscal year, a
U.S. Holder would generally be subject to special rules (regardless of whether
the Company remains a PFIC) with respect to (a) any "excess distribution" by the
Company to the U.S. Holder (generally, any distributions received by the U.S.
Holder on the Series A Preferred Stock in a taxable year that are greater than
125% of the average annual distributions received by the U.S. Holder in the
three preceding taxable years, or the U.S. Holder's holding period for the
Series A Preferred Stock if shorter) and (b) any gain realized on the sale,
pledge or other disposition of Series A Preferred Stock. Under such rules, (i)
the excess distribution or gain would be allocated ratably over the U.S.
Holder's holding period for the Series A Preferred Stock, (ii) the amount
allocated to the current taxable year and any taxable year prior to the first
taxable year in which the Company is a PFIC would be taxed as ordinary income,
and (iii) the amount allocated to each of the other taxable years would be
subject to tax at the highest rate of tax in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral benefit
would be imposed with respect to the resulting tax attributable to each such
year. As an alternative to these rules, if the Company were a PFIC and effective
for taxable years of U.S. Holders beginning after December 31, 1997, U.S.
Holders may, in certain circumstances, elect a mark-to-market treatment with
respect to their Series A Preferred Stock, provided that the Series A Preferred
Stock will constitute "marketable stock" for purposes of these rules.
In general, the Proposed Regulations provide that Puerto Rico U.S. Holder
would be subject to the rule described in (iii) above only to the extent that
any excess distribution or gain is allocated to a taxable year during which the
individual held the Series A Preferred Stock and was not a bona fide resident of
Puerto Rico during the entire taxable year (or, in certain cases, a portion
thereof).
32
<PAGE> 34
Under current law, if the Company is a PFIC in any year, a U.S. Holder who
beneficially owns Series A Preferred Stock during such year must make an annual
return on IRS Form 8621 that describes any distributions received from the
Company and any gain realized on the disposition of Series A Preferred Stock.
ESTATE AND GIFT TAXATION
The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to U.S. federal estate and gift tax
if the individual is a citizen of the United States who acquired his or her
citizenship solely by reason of birth or residence in Puerto Rico. Other
individuals should consult their own tax advisors in order to determine the
appropriate treatment for U.S. federal estate and gift tax purposes of the
transfer of the Series A Preferred Stock by death or gift.
33
<PAGE> 35
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters
severally has agreed to purchase from the Company, the aggregate number of
shares of Series A Preferred Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES(1)
- ------------ ---------
<S> <C>
PaineWebber Incorporated of Puerto Rico.....................
Popular Securities, Inc.....................................
Santander Securities Corporation of Puerto Rico.............
Prudential Securities Incorporated..........................
Salomon Smith Barney Inc....................................
---------
Total............................................. 1,300,000
=========
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
Under the terms and conditions of the Underwriting Agreement, the Company
is obligated to sell, and the Underwriters are obligated to purchase, all of the
shares of Series A Preferred Stock set forth in the table above, if any of the
shares of Series A Preferred Stock are purchased.
The Underwriters propose to offer the shares of Series A Preferred Stock to
the public initially at the public offering price set forth on the cover page of
this prospectus.
The Company has granted the Underwriters an option exercisable for 30 days
from the date of this prospectus, to purchase up to 195,000 additional shares of
Series A Preferred Stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discounts, as set forth on the cover page
of this prospectus. If the Underwriters exercise this option, then each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the table above. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
shares of Series A Preferred Stock offered hereby.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by the Company as well as the
proceeds (before expenses of the offering) received by the Company from the
offering. Such amounts are shown assuming both no exercise and full exercise of
the Underwriters' option to purchase up to an additional 195,000 shares.
<TABLE>
<CAPTION>
TOTAL, ASSUMING
FULL EXERCISE OF
OVER-ALLOTMENT
PER SHARE TOTAL OPTION
--------- ----------- ----------------
<S> <C> <C> <C>
Public Offering Price..................................... $ 50.00 $65,000,000 $74,750,000
Underwriting Discount..................................... $ 1.575 $ 2,047,500 $ 2,354,625
Company Proceeds.......................................... $48.425 $62,952,500 $72,395,375
</TABLE>
In connection with this offering, certain Underwriters may engage in
passive market making transactions on the Nasdaq Stock Market's National Market
System (the "Nasdaq Stock Market") immediately prior to the commencement of
sales in this offering, in accordance with Rule 103 of Regulation M. Passive
market making consists of displaying bids on the Nasdaq Stock Market limited by
the bid prices and effect in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Series A Preferred Stock
during a specified period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Series A Preferred
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
34
<PAGE> 36
In connection with this offering, the Underwriters may engage in
stabilizing, syndicate short-covering transactions penalty bids or other
transactions during the offering that may stabilize, maintain or otherwise
affect the market price of the Series A Preferred Stock at a level above that
which might otherwise prevail in the open market. Stabilizing transactions are
bids for and purchases of Series A Preferred Stock on behalf of the Underwriters
to provide them with enough Series A Preferred Stock to deliver those purchasing
Series A Preferred Stock in the offering. A penalty bid is an arrangement that
permits the Underwriters to reclaim a selling concession when the Common Stock
originally sold by the syndicate member are purchased in a syndicate covering
transaction. Such stabilizing, syndicate short covering transactions, penalty
bids and other transactions, if commenced, may be discontinued at any time.
The Company estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be $300,000.
In connection with this offering, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has applied to have the shares of Series A Preferred Stock
approved for quotation on the Nasdaq Stock Market under the symbol "DORLP."
Several of the Underwriters have from time to time been customers of,
engaged in transactions with or performed services for the Company and its
subsidiaries in the ordinary course of business. The Underwriters may continue
to do so in the future. In addition, Popular Inc., the parent company of Popular
Securities, Inc., one of the Underwriters, owns all the outstanding shares of
the Company's 8% Preferred Stock. The shares of Common Stock issuable upon
conversion of the 8% Preferred Stock together with other shares of Common Stock
owned by Popular Inc. equal approximately 4.9% of the Company's outstanding
Common Stock.
LEGAL MATTERS
The validity of the shares of Series A. Preferred Stock offered hereby will
be passed upon for the Company by Pietrantoni Mendez & Alvarez, San Juan, Puerto
Rico. Certain legal matters will be passed upon for the Underwriters by Axtmayer
Adsuar Muniz & Goyco, P.S.C., San Juan, Puerto Rico.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, incorporated by reference into this prospectus, have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
35
<PAGE> 37
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION INCORPORATED BY
REFERENCE OR CONTAINED IN THIS PROSPECTUS. NEITHER DORAL FINANCIAL CORPORATION
NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
INFORMATION DIFFERENT FROM THAT INCORPORATED BY REFERENCE OR CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 3
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Recent Developments................... 12
Use of Proceeds....................... 13
Consolidated Ratios of Earnings to
Combined Fixed Charges and
Preference Security Dividends....... 13
Capitalization........................ 14
Selected Financial Data............... 15
Summary of Certain Terms of the
Series A Preferred Stock............ 17
Description of Capital Stock.......... 23
Taxation.............................. 26
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,300,000 SHARES
DORAL FINANCIAL
CORPORATION
% NONCUMULATIVE
MONTHLY INCOME
PREFERRED STOCK, SERIES A
PRICE TO PUBLIC: $50 PER SHARE
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
OF PUERTO RICO
POPULAR SECURITIES
(JOINT LEAD MANAGERS)
------------------------
SANTANDER SECURITIES
PRUDENTIAL SECURITIES
INCORPORATED
SALOMON SMITH BARNEY
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 38
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than commissions
and fees of the Underwriters. All of the amounts shown are estimates except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
Securities and Exchange Commission registration fee......... $ 20,780
NASD filing fee............................................. 7,975
Printing and engraving expenses............................. 60,000
NASDAQ listing fee.......................................... 33,750
Accounting fees and expenses................................ 45,000
Legal fees and expenses..................................... 125,000
Miscellaneous expenses...................................... 7,495
--------
Total............................................. $300,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Article 1.02(B)(6) of the Puerto Rico General Corporation Act (the "PR
GCA") provides that a corporation may include in its certificate of
incorporation a provision eliminating or limiting the personal liability of
members of its board of directors or governing body for breach of a director's
fiduciary duty of care. However, no such provision may eliminate or limit the
liability of a director for breaching his duty of loyalty, failing to act in
good faith, engaging in intentional misconduct or knowingly violating a law,
paying a dividend or approving a stock repurchase which was illegal, or
obtaining an improper personal benefit. A provision of this type has no effect
on the availability or equitable remedies, such as injunction or rescission, for
breach of fiduciary duty. Article Seventh of the Company's Restated Certificate
of Incorporation contains such a provision.
(b) Article 4.09 of the PR GCA authorizes Puerto Rico corporations to
indemnify their officers and directors against liabilities arising out of
pending or threatened actions, suits or proceedings to which they are or may be
made parties by reason of being directors or officers. Such rights of
indemnification are not exclusive of any other rights to which such officers or
directors may be entitled under any by-law, agreement, vote of stockholders or
otherwise. The Restated Certificate of Incorporation of the Company provides
that the Company shall indemnify its directors, officers and employees to the
fullest extent permitted by law. The Company also maintains directors' and
officers' liability insurance on behalf of its directors and officers.
(c) Section 1 of Article IX of the Company's By-laws (the "By-laws")
provides that the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employer or
agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 2 of Article IX of the By-laws provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees), judgments, fines and amounts
II-1
<PAGE> 39
paid in settlement actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted under similar
standards set forth in the preceding paragraph, except that no indemnification
may be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the court in which such action or suit was brought shall determine
that despite the adjudication of liability, such person is fairly and reasonably
entitled to be indemnified for such expenses which the court shall deem proper.
Section 3 of Article IX of the By-laws provides that to the extent a
director or officer of the Company has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
Sections 1 and 2 of Article IX of the By-laws or in the defense of any claim,
issue, or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 5 of Article IX of the By-laws provides that the Company shall pay
expenses incurred in defending a civil or criminal action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding. The Company
must make such advanced payments if it receives an undertaking by or on behalf
of any person covered by Section 1 of Article IX of the By-laws to repay such
amounts, if it is ultimately determined that he is not entitled to be
indemnified by the Company as authorized in Article IX of the By-laws.
Sections 6 and 7 of Article IX of the By-laws provide that indemnification
provided for by Sections 1 and 2 of Article IX of the By-laws shall not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the Company may purchase and maintain insurance on behalf of
a director or officer of the Company against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such
whether or not the Company would have the power to indemnify him against such
liabilities under such Sections 1 and 2 of Article IX of the By-laws.
(d) The resolutions of the Board of Directors adopted on October 19, 1998
approving the issuance and sale of the Series A Preferred Stock provide that, to
the extent permitted by the Company's Restated Certificate of Incorporation and
applicable law, the Company (i) will indemnify and hold harmless the directors
and executive officers and their attorney-in-facts who signed this Registration
Statement against any losses, claims, damages or liabilities they may become
subject under the Securities Act of 1933, the Securities Exchange Act of 1934,
any state securities or insurance laws or regulations of any other jurisdiction,
insofar as such losses, claims, damages or liabilities arise in connection with
this Registration Statement or any other registration statement filed in
connection with the Series A Preferred Stock and (ii) shall reimburse each such
person for any legal or other expenses reasonably incurred by him in connection
with investigating or defending any such action or claim.
ITEM 16. EXHIBITS. (Parenthetical number denotes incorporation by reference as
described in footnote.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement
4(a) -- Form of Series A Preferred Stock Certificate.
4(b) -- Certificate of Designation designating the terms of Series A
Preferred Stock
5 -- Opinion regarding legality and consent of Pietrantoni Mendez
& Alvarez.
8 -- Opinion regarding tax matters of Pietrantoni Mendez &
Alvarez
12 -- Statement re: Computation of Ratio of Earnings to Combined
Fixed Charges and Preference Security Dividends
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of Pietrantoni Mendez & Alvarez (included in the
opinion of counsel filed as Exhibit 5 hereto).
24.1 -- Powers of Attorney (included on Page II-4).
</TABLE>
II-2
<PAGE> 40
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provision described under Item 15 above, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in San Juan, Puerto Rico, on the 30th day of October, 1998.
DORAL FINANCIAL CORPORATION
By: /s/ SALOMON LEVIS
------------------------------------
Salomon Levis
Chairman of the Board and Chief
Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Salomon Levis and Richard F. Bonini and each of them, each with full power to
act without the other, his true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, for him and in his name,
place and stead in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
registration statement relating to the same offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SALOMON LEVIS Chairman of the Board and October 28, 1998
- ----------------------------------------------------- Chief Executive Officer
Salomon Levis
/s/ RICHARD F. BONINI Senior Executive Vice October 28, 1998
- ----------------------------------------------------- President, Chief Financial
Richard F. Bonini Officer and Director
/s/ RICARDO MELENDEZ Vice President and Chief October 28, 1998
- ----------------------------------------------------- Accounting Officer
Ricardo Melendez
/s/ A. BREAN MURRAY Director October 28, 1998
- -----------------------------------------------------
A. Brean Murray
/s/ EDGAR M. CULLMAN, JR. Director October 28, 1998
- -----------------------------------------------------
Edgar M. Cullman, Jr.
/s/ JOHN L. ERNST Director October 28, 1998
- -----------------------------------------------------
John L. Ernst
</TABLE>
II-4
<PAGE> 42
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EFRAIM M. KIER Director October 28, 1998
- -----------------------------------------------------
Efraim M. Kier
/s/ ZOILA LEVIS Director October 28, 1998
- -----------------------------------------------------
Zoila Levis
/s/ VICTOR M. PONS, JR. Director October 28, 1998
- -----------------------------------------------------
Victor M. Pons, Jr.
</TABLE>
II-5
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement.
4 (a) -- Form of Series A Preferred Stock Certificate.
4 (b) -- Certificate of Designation designating the terms of Series A
Preferred Stock.
5 -- Opinion regarding legality and consent of Pietrantoni Mendez
& Alvarez.
8 -- Opinion regarding tax matters of Pietrantoni Mendez &
Alvarez.
12 -- Statement re: Computation of Ratio of Earnings to Combined
Fixed Charges and Preference Security Dividends.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of Pietrantoni Mendez & Alvarez (included in the
opinion of counsel filed as Exhibit 5 hereto).
24.1 -- Powers of Attorney (included on Page II-4).
</TABLE>
<PAGE> 1
EXHIBIT 1
1,300,000 Shares
DORAL FINANCIAL CORPORATION
___% Noncumulative Monthly Income Preferred Stock, Series A
UNDERWRITING AGREEMENT
----------------------
November ___, 1998
PAINEWEBBER INCORPORATED OF PUERTO RICO
As joint-lead underwriter and co-representative
of the several Underwriters named in Schedule I
American International Plaza, PH
Hato Rey, Puerto Rico 00918
POPULAR SECURITIES, INC.
As joint-lead underwriter and co-representative
of the several Underwriters named in Schedule I
Banco Popular Center, 10th. Floor
Hato Rey, Puerto Rico 00918
Ladies and Gentlemen:
DORAL FINANCIAL CORPORATION, a Puerto Rico corporation (the "Company"),
proposes to sell an aggregate of 1,300,000 shares (the "Firm Shares") of the
Company's ___% Noncumulative Monthly Income Preferred Stock, Series A (the
"Preferred Stock"), which are to be issued and sold by the Company to you and
the other underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as co-representatives (the
"Representatives"). The Company also has agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 195,000
shares of Preferred Stock (the "Option Shares") on the terms and for the
purposes set forth in Section 1(b) hereto. The Firm Shares and the Option Shares
are hereinafter collectively referred to as the "Shares."
<PAGE> 2
2
The Company hereby confirms as follows its agreements with the
Representatives and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions of this Agreement, the Company agrees to sell to each Underwriter
and each Underwriter, severally and not jointly, agrees to purchase from the
Company at a purchase price of $____ per share, the number of Firm Shares set
forth opposite the name of such Underwriter in Column (1) of Schedule I hereto,
plus such additional number of Firm Shares which such Underwriter may become
obligated to purchase pursuant to Section 9 hereof
(b) Subject to all the terms and conditions of this
Agreement, the Company grants the Option to the several Underwriters to
purchase, severally and not jointly, the Option Shares at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover overallotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time and from time
to time on or before the 30th day after the date of this Agreement (or on the
next business day if the 30th day is not a business day), upon notice (the
"Option Shares Notice") in writing or by telephone (confirmed in writing) by
the Representatives to the Company no later than 5:00 p.m., Atlantic Standard
time, at least two and no more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Closing Date")
setting forth the aggregate number of Option Shares to be purchased and the
time and date for such purchase. On the Option Closing Date, the Company will
issue and sell to the Underwriters the number of Option Shares set forth in the
Option Shares Notice and each Underwriter will purchase such percentage of the
Option Shares as is equal to the percentage of Firm Shares that such
Underwriter is purchasing hereunder, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares.
2. Delivery and Payment. Delivery of the Firm Shares shall be
made to the Representatives for the accounts of the Underwriters at the office
of Axtmayer Adsuar Muniz & Goyco, P.S.C., counsel to the Underwriters, 268
Munoz Rivera Ave.,Suite 1400, Hato Rey, P.R. 00918, against payment of the
purchase price by wire transfer of immediately available funds to the bank
account designated by the Company. Such payment shall be made at 10:00 a.m.,
New York City time, on the third full business day following the date of this
Agreement, or at such other time on such other date, not later than seven
business days after the date of this Agreement, as may be agreed upon by the
Company and the Representatives (such date is hereinafter referred to as the
"Closing Date"). Time shall be of the essence and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder.
<PAGE> 3
3
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance, sale and delivery of the Firm Shares and Option Shares by the Company
to the respective Underwriters shall be borne by the Company. The Company will
pay and save each Underwriter and any subsequent holder of the Shares harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying Federal, state or Commonwealth of Puerto Rico stamp and other
transfer taxes, if any, which may be payable or determined to be payable in
connection with the original issuance, sale or delivery to such Underwriter of
the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) A registration statement on Form S-3 (Registration No.
333-_____) relating to the Shares, including a preliminary prospectus relating
to the Shares and such amendments to such registration statement as may have
been required to the date of this Agreement, has been prepared by the Company
under the provisions of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (collectively referred to as the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The Commission has not
issued any order preventing or suspending the use of the Prospectus (as defined
below) or any Preliminary Prospectus (as defined below) or instituted or, to
the knowledge of the Company, threatened any proceeding for that purpose. The
term "Preliminary Prospectus" as used herein means a preliminary prospectus
relating to the Shares included at any time as part of the foregoing
registration statement or any amendment thereto before it became effective
under the Act and any prospectus filed with the Commission by the Company
pursuant to Rule 424(a) of the Rules and Regulations. Copies of such
registration statement and amendments and of each related Preliminary
Prospectus have been delivered to the Representatives. If such registration
statement has not become effective, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the
Company with the Commission. If such registration statement has become
effective, a final prospectus relating to the Shares containing information
permitted to be omitted at the time of effectiveness by Rule
<PAGE> 4
4
430A will be filed by the Company with the Commission in accordance with Rule
424(b) of the Rules and Regulations promptly after execution and delivery of
this Agreement. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including all financial statements and schedules and all exhibits,
documents incorporated therein by reference and all information contained in
any final prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or in a term sheet described in Rule 434 of the Rules and
Regulations in accordance with Section 4 hereof and deemed to be included
therein as of the Effective Date by Rule 430A of the Rules and Regulations and
including any registration statement filed pursuant to Rule 462(b) of the Rules
and Regulations (a "Rule 462 Registration Statement") increasing the size of
the offering. The term "Prospectus" means the prospectus relating to the Shares
as first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no such filing is required, the form of final prospectus
relating to the Shares included in the Registration Statement at the Effective
Date. References herein to any document or other information incorporated by
reference in the Registration Statement shall include documents or other
information incorporated by reference in the Prospectus (or if the Prospectus
is not in existence, in the most recent Preliminary Prospectus). References
herein to any Preliminary Prospectus or the Prospectus shall be deemed to
include all documents and information incorporated by reference therein and
shall be deemed to refer to and include any documents and information filed
after the date of such Preliminary Prospectus or Prospectus, as the case may
be, and so incorporated by reference, under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(b) On the date that any Preliminary Prospectus was filed
with the Commission, the date the Prospectus is first filed with the Commission
pursuant to Rule 424(b) (if required), at all times subsequent to and including
the Closing Date and, if later, the Option Closing Date and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement, each Preliminary Prospectus and the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment or supplement thereto), including the financial statements
included in the Prospectus, did or will comply with all applicable provisions
of the Act and the Rules and Regulations and did or will contain all statements
required to be stated therein in accordance with the Act and the Rules and
Regulations. On the Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration Statement
or any such amendment did or will contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. At the
Effective Date, the date the Prospectus or any amendment or supplement to the
Prospectus is filed with the Commission and at the Closing Date and, if later,
the Option Closing Date, the Prospectus did not or will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in reliance on
and in conformity with information relating to any Underwriter
<PAGE> 5
5
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement, each Preliminary Prospectus or
Prospectus or any amendment or supplement thereto. There are no contracts or
other documents required to be filed as exhibits to the Registration Statement
by the Act or the Rules and Regulations that have not been so filed. The
documents which are incorporated by reference in any Preliminary Prospectus or
the Prospectus or from which information is so incorporated by reference, when
they became effective or were filed with the Commission, as the case may be,
complied in all material respects with the requirements of the Act and the
Rules and Regulations or the Exchange Act and the rules and regulations
thereunder, as applicable, and did not, when such documents were so filed,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and any documents so filed and incorporated by reference subsequent
to the effective date of the Registration Statement shall, when they are filed
with the Commission, conform in all material respects with the requirements of
the Act and the Rules and Regulations and the Exchange Act and the rules and
regulations thereunder, as applicable.
(c) The only subsidiaries of the Company (each, a
"Subsidiary" and collectively, the "Subsidiaries") are those listed on Exhibit
A hereto. Except as set forth in the Prospectus (or if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or as acquired in
connection with the exercise of its rights as a creditor, or pursuant to a bona
fide collateral pledge arrangement, neither the Company nor any Subsidiary
owns, nor at the Closing Date and the Option Closing Date, will own an interest
in any corporation, partnership, trust, joint venture or other business entity.
The Company has been and, at the Closing Date and Option Closing Date, will be
duly organized and validly existing as a corporation under the laws of the
Commonwealth of Puerto Rico and is and, at the Closing Date and Option Closing
Date, will be in good standing with the Commonwealth of Puerto Rico. The
Company is registered as a bank holding company under the Bank Holding Company
Act of 1956 (the "BHCA") and is and, at the Closing Date and Option Closing
Date will be in good standing with the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). Each of the Subsidiaries is and, at the
Closing Date and Option Closing Date, will be a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation. Each of the Company and its Subsidiaries is and,
at the Closing Date and the Option Closing Date, will be duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business or use of its property and assets makes such
qualification necessary, except where the failure to so qualify would not have
a material adverse effect on the condition, financial or otherwise, or the
earnings, prospects or business affairs of the Company and its Subsidiaries
taken as a whole.
(d) The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable and are not subject to any preemptive or similar rights, other
than certain conversion and registration rights issued by the
<PAGE> 6
6
Company to Popular, Inc., under a certain Exchange Agreement dated July 9,
1997. The Shares to be issued and sold by the Company will be, upon such
issuance and payment therefor, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar rights. The
Company has, and, upon completion of the sale of the Shares, will have, an
authorized, issued and outstanding capitalization as set forth in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus). The description of the
securities of the Company in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus)
is, and at the Closing Date and, if later, the Option Closing Date, will be,
complete and accurate in all respects. No holders of securities of the Company
are entitled to have such securities registered under the Registration
Statement, except where such rights have been waived.
(e) The consolidated financial statements and the related
notes of the Company included in the Registration Statement or incorporated
therein by reference and the Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) present fairly the
financial condition of the Company and its Subsidiaries as of the dates
indicated and the consolidated results of operations, and cash flows of the
Company and its Subsidiaries for the periods covered thereby, all in conformity
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the entire periods involved. PricewaterhouseCoopers LLP (the
"Accountants"), who have reported on those of such financial statements and
related notes which are audited, are independent accountants with respect to
the Company and its Subsidiaries within the meaning of the Act and the
applicable and published rules and regulations.
(f) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(g) Except as set forth in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date and, if later, the Option Closing Date, (i) there has not
been, and will not have been, any material adverse change in the business,
properties, financial condition, net worth or results of operations of the
Company and its Subsidiaries considered as one enterprise, (ii) neither the
Company nor any of its Subsidiaries has entered into, or will have entered into
any material transactions other than pursuant to this Agreement, and (iii) the
Company has not, and will not have, paid or declared any dividends or other
distributions of any kind on any class of its capital stock, except for the
payment or declaration of quarterly dividends
<PAGE> 7
7
on the Company's common stock (the "Common Stock") in the ordinary course of
its business and the payment of the monthly dividends to the holders of the
Company's 8% Convertible Cumulative Preferred Stock (Liquidation Preference
$1,000 per share).
(h) The Company and each of its Subsidiaries have good and
marketable title to all properties and assets described in the Registration
Statement, including the documents incorporated by reference therein, and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), as owned by it, free and clear of all liens, security
interests, restrictions, pledges, encumbrances, charges, equities, claims,
easements, leases and tenancies (collectively, "Encumbrances") other than those
described in the Registration Statement, or in the documents incorporated by
reference therein, and Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) or those that will not materially
affect the value of such properties and assets or will not interfere with the
use made and proposed to be made of such properties and assets. The Company and
each of its Subsidiaries have valid, subsisting and enforceable leases for the
properties and assets described in the Registration Statement or in the
documents incorporated by reference therein; and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) as
leased by them, free and clear of all Encumbrances, other than those described
in the Registration Statement or in the documents incorporated by reference
therein, and Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), or those that will not materially affect the
value of such properties and assets or will not interfere with the use made and
proposed to be made of such properties and assets.
(i) The Company is not required to be registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(j) Except as set forth in the Registration Statement, or
incorporated therein by reference, and Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), there are no actions,
suits, arbitrations, claims, governmental or other proceedings (formal or
informal), or investigations pending or threatened against or affecting the
Company or any of its Subsidiaries, or any directors, officers or shareholders
of the Company or any of its Subsidiaries in their respective capacities as
such, or any of the properties or assets owned or leased by the Company or any
of its Subsidiaries, before or by any Federal, state or Commonwealth of Puerto
Rico court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign (collectively, a "Governmental Body"),
wherein an unfavorable ruling, decision or finding would adversely affect the
business, prospects, financial condition, net worth or results of operations of
the Company and its Subsidiaries taken as a whole and would be required to be
disclosed in the Registration Statement and Prospectus (or if the Prospectus is
not in existence, in the most recent Preliminary Prospectus). Neither the
Company nor any Subsidiary is in violation of, or in default with respect to,
any law, rule, or regulation, or any order, judgment, or decree, except as
described in the Prospectus (or if the Prospectus is not in existence, in the
most recent Preliminary Prospectus) or such as in the aggregate do not now
<PAGE> 8
8
have and can reasonably be expected in the future not to have a material
adverse effect upon the operations, business, properties, or assets of the
Company and its Subsidiaries taken as a whole; nor is the Company or any
Subsidiary presently required under any order, judgment or decree to take any
action in order to avoid any such violation or default.
(k) The Company and each of its Subsidiaries have and, at the
Closing Date and the Option Closing Date, will have all governmental licenses,
permits, consents, orders, approvals, franchises, certificates and other
authorizations (collectively, "Licenses") necessary to carry on their
respective businesses and own or lease their respective properties as
contemplated in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). The
Company and each of its Subsidiaries have and, at the Closing Date and the
Option Closing Date, will have complied in all material respects with all laws,
regulations and orders applicable to it or its business, assets and properties.
Neither the Company nor any of its Subsidiaries is, nor, at the Closing Date
and the Option Closing Date, will be in default (nor has any event occurred
which, with notice or lapse of time or both, would constitute a default) in the
due performance and observation of any term, covenant or condition of any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument (collectively, a "contract or other
agreement") to which they are a party or by which their respective properties
are bound or affected, the violation of which would individually or in the
aggregate have a material adverse effect on the condition, financial or
otherwise, or the earnings, prospects or business affairs of the Company and
its Subsidiaries taken as a whole. There are no governmental proceedings or
actions pending or threatened for the purpose of suspending, modifying or
revoking any License held by the Company and its Subsidiaries.
(l) No consent, approval, authorization or order of, or any
filing or declaration with, any Governmental Body is required for the
consummation of the transactions contemplated by this Agreement or in
connection with the issuance and sale of the Shares by the Company, except such
as have been obtained and such as may be required under state or Commonwealth
of Puerto Rico securities or Blue Sky laws or the bylaws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution by the Underwriters of the Shares to be sold
hereby.
(m) The Company has full power (corporate and other) and
authority to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company and is enforceable against the Company in
accordance with the terms hereof, except as rights to indemnity and
contribution may be limited by federal, state or Commonwealth of Puerto Rico
securities laws or the public policy underlying such laws. Except as disclosed
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), the execution, delivery
and the performance of this Agreement and the consummation of the transactions
contemplated
<PAGE> 9
9
hereby will not result in the creation or imposition of any Encumbrance upon
any of the properties or assets of the Company or any of the Subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
or conflict with any of the terms or provisions of, or constitute a default
under, or give any other party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, (i) the
Certificate of Incorporation or By-laws of the Company, in each case as
amended, or (ii) any contract or other agreement to which the Company or any of
the Subsidiaries is a party or by which it or any of the respective assets or
properties are bound or affected, the violation of which would individually or
in the aggregate have a material adverse effect on the condition, financial or
otherwise, or the earnings, prospects or business affairs of the Company and
its Subsidiaries or (iii) any judgment, ruling, decree, order, law, statute,
rule or regulation of any Governmental Body applicable to the Company or any of
the Subsidiaries or their respective businesses or properties, the violation of
which would individually or in the aggregate have a material adverse effect on
the financial or otherwise, or the earnings, prospects or business affairs of
the Company and its Subsidiaries.
(n) No statement, representation, or warranty made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when
made, inaccurate, untrue or incorrect in any material respect. Each certificate
signed by an officer of the Company and delivered to the Representatives or
counsel for the Underwriters shall be deemed to be a representation and
warranty by the Company to each Underwriter as to the matters covered thereby.
(o) Neither the Company nor any of its directors, officers or
affiliates has taken, nor will he, she or it take, directly or indirectly, any
action designed, or which might reasonably be expected in the future, to cause
or result in, under the Act or otherwise, or which has constituted,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or otherwise.
(p) The Shares have been approved for quotation on the
National Association of Securities Dealers Automated Quotation National Market
System ("NASDAQ NMS"), subject only to notice of issuance.
(q) Neither the Company nor any of its Subsidiaries is
involved in any collective labor dispute with its employees nor is any such
dispute threatened or imminent.
(r) Neither the Company nor any of its Subsidiaries nor, to
the Company's best knowledge, any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or any Subsidiary or
received or retained any funds of the Company or any Subsidiary in violation of
any law, rule or regulation which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus (or, if the Prospectus
is not in existence, in the most recent Preliminary Prospectus).
<PAGE> 10
10
(s) The business, operations and facilities of the Company
and its Subsidiaries have been and are being conducted in compliance with all
applicable laws, ordinances, rules, regulations, licenses, permits, approvals,
plans, authorizations or requirements relating to occupational safety and
health, or pollution, or protection of health or the environment (including,
without limitation, those relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic
substances, materials or wastes into ambient air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment
storage, disposal, transport or handling of chemical substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, gaseous or liquid in nature) of any governmental department, commission,
board, bureau, agency or instrumentality of the United States, any state, or
the Commonwealth of Puerto Rico or political subdivision thereof, and all
applicable judicial or administrative agency or regulatory decrees, awards,
judgments and orders relating thereto; and neither the Company nor any of its
Subsidiaries has received any notice from any governmental instrumentality or
any third party alleging any violation thereof or liability thereunder
(including, without limitation, liability for costs of investigating or
remediating sites containing hazardous substances and/or damages to natural
resources), except where failure to so comply would not have a material adverse
effect on the financial condition, or the earnings or business affairs of the
Company and its Subsidiaries taken as a whole. The intended use and occupancy
of each of the facilities owned or operated by the Company and its Subsidiaries
complies in all material respects with all applicable codes and zoning laws and
regulations, and there is no pending or threatened condemnation, zoning change,
environmental or other proceeding or action that will in any material respect
adversely affect the size of, use of, improvements on, construction on, or
access to such facilities.
(t) The Company filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions thereof
and has paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is due
and payable, except for any failure to file that would not have a material
adverse effect on the financial condition of the Company.
(u) The Company meets the requirements for use of Form S-3
under the Rules and Regulations.
(v) The deposit accounts of Doral Bank, a Subsidiary of the
Company ("Doral Bank") are insured by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to the legal
maximum, and no proceeding for the termination or revocation of such insurance
is pending or threatened. Doral Bank is a member in good standing of the
Federal Home Loan Bank of New York.
(w) None of the Company, Doral Bank, their affiliates, or any
of their respective directors or officers is subject to any order or directive
of, or party to any agreement with, any regulatory agency having jurisdiction
with respect to its business or operations except
<PAGE> 11
11
as disclosed in the Prospectus (or if the Prospectus is not in existence, in
the most recent Preliminary Prospectus).
4. Agreements of the Company. The Company covenants and agrees with
each of the several Underwriters as follows:
(a) The Company will not, either prior to the Effective Date
or thereafter during, such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) If the Registration Statement is not yet effective, the
Company will use its best efforts to cause the Registration Statement to become
effective not later than the time indicated in Section 6(a) hereof. The Company
will notify the Representatives promptly, and will confirm such advice in
writing, (i) when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) of any request by the
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose or the threat
thereof, (iv) of the happening of any event during the period mentioned in the
first sentence of Section 4(f) that in the judgment of the Company makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading
and (v) of receipt by the Company or any representative or attorney of the
Company of any other communication from the Commission relating to the Company,
the Registration Statement, any Preliminary Prospectus or the Prospectus. If at
any time the Commission shall issue any order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible moment. The
Company will prepare the Prospectus in a form approved by the Representatives
and will file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day following
the execution and delivery of this Agreement or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act. If the Company has
omitted any information from the Registration Statement pursuant to Rule 430A,
the Company will use its best efforts to comply with the provisions of and make
all requisite filings with the Commission pursuant to said Rule 430A and to
notify the Representatives promptly of all such filings.
(c) If the Company elects to rely upon Rule 462(b) of the
Rules and Regulations, the Company shall file the Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) of the Rules and
Regulations by 10:00 p.m., Washington, D.C.
<PAGE> 12
12
time, on the date of this Agreement, and the Company shall at the time of
filing, either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment of such
fee pursuant to Rule 111(b) of the Rules and Regulations.
(d) If, at any time when a Prospectus relating to the Shares
is required to be delivered under the Act, any event occurs as a result of
which, in the judgment of the Company or in the opinion of counsel for the
Underwriters, the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or the Registration
Statement, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading, or if for any other reason it is necessary
at any time to amend or supplement the Prospectus or the Registration Statement
to comply with the Act or the Rules and Regulations, the Company will promptly
notify the Representatives thereof and, subject to Section 4(b) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will furnish to the Representatives, without
charge, two signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules,
and all exhibits thereto and will furnish to the Representatives, without
charge, for transmittal to each of the other Underwriters, copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules but without exhibits.
(f) The Company will comply with all the provisions of all
undertakings contained in the Registration Statement.
(g) On the Effective Date, and thereafter from time to time
for such period as the Prospectus is required by the Act to be delivered, the
Company will deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the several Underwriters
and by all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for any period of time thereafter during
which the Prospectus is required by law to be delivered in connection
therewith. If during such period of time any event shall occur which in the
judgment of the Company or counsel to the Underwriters should be set forth in
the Prospectus in order to make any statement therein, in the light of the
circumstances under which it was made, not misleading, or in the Registration
Statement in order to make any statement therein not misleading, or if it is
necessary to supplement or amend the Prospectus or the Registration Statement
to comply with law, the Company will forthwith prepare and duly file with the
<PAGE> 13
13
Commission an appropriate supplement or amendment thereto, and deliver to each
of the Underwriters, without charge, such number of copies thereof as the
Representatives may reasonably request.
(h) Prior to any public offering of the Shares by the
Underwriters, the Company will cooperate with the Representatives and their
counsel in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions as
the Representatives may reasonably request; provided, that in no event shall
the Company be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so subject.
(i) During the period of five years commencing on the
Effective Date, the Company will furnish to the Representatives and each other
Underwriter who may so request copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will furnish to
the Representatives and each other Underwriter who may so request a copy of
each annual or other report it shall be required to file with the Commission.
(j) The Company will make generally available to holders of
its securities, as soon as may be practicable, but in no event later than the
last day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, a consolidated earnings statement (which need
not be audited but shall be in reasonable detail) for a period of 12 months
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(k) The Company will apply the net proceeds from the offering
and sale of the Shares in the manner set forth in the Prospectus under "Use of
Proceeds."
(l) The Company will not at any time, directly or indirectly,
take any action intended, or which might reasonably be expected, to cause or
result in, or which will constitute, stabilization of the price of the shares
of Preferred Stock to facilitate the sale or resale of any of the Shares.
5. Expenses.
(a) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will
pay, or reimburse if paid by the Representatives, all costs and expenses
incidental to the performance of the obligations of the Company under this
Agreement, including, but not limited to, costs and expenses of or relating to
(i) the preparation, printing and filing by the Company of the Registration
Statement and exhibits thereto, each Preliminary Prospectus prior to or during
the period specified in the first
<PAGE> 14
14
sentence of Section 4(g) but not exceeding nine (9) months after the Effective
Date, the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus, (ii) the preparation and delivery of certificates
representing the Shares, (iii) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
Preliminary Prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (iv) the quotation of
the Shares on the NASDAQ NMS, (v) any filings required to be made by the
Underwriters with the NASD, (vi) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(h) and the preparation and
printing of preliminary, supplemental and final Blue Sky memoranda, (vii)
counsel and accountants to the Company and (viii) the transfer agent for the
Shares.
(b) If the transactions contemplated by this Agreement are
not consummated or if this Agreement is terminated by the Company pursuant to
any of the provisions hereof, the Company will reimburse the Representatives
for all of their accountable out-of-pocket fees and expenses (including the
fees, disbursements and other charges of their counsel) incurred by them in
connection herewith.
6. Conditions of the Obligations of the Underwriters. The
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 3:00 p.m.,
New York City time, on the date of this Agreement or at such later date and
time as shall be consented to in writing by the Representatives and all filings
required by Rule 424 of the Rules and Regulations and Rule 430A shall have been
made. If the Company has elected to rely upon Rule 462(b) of the Rules and
Regulations, the Company has filed the Rule 462(b) Registration Statement by
10:00 p.m., Washington D.C. time, on the date of this Agreement, and the
Company has otherwise.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect, and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the
Commission or such authorities, and (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Representatives and the
Representatives did not object thereto in good faith, and the Representatives
shall have received certificates, dated the Closing Date and the Option Closing
Date and signed by the Chief
<PAGE> 15
15
Executive Officer of the Company and the Chief Financial Officer of the Company
(who may, as to proceedings threatened, rely upon the best of their information
and belief), to the effect of the foregoing clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not
have been a material adverse change in the general affairs, business,
properties, management, financial condition or results of operations of the
Company whether or not arising from transactions in the ordinary course of
business, and (ii) the Company shall not have sustained any material loss or
interference with its business, assets or properties from fire, explosion,
flood or other casualty, or from any labor dispute or any court or legislative
or other governmental action, order or decree, which is not set forth in the
Registration Statement and the Prospectus.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been
no litigation or other proceeding instituted against the Company or any of its
officers, directors or shareholders in their capacities as such, or any of its
assets or properties, before or by any Governmental Body in which litigation or
proceeding an unfavorable ruling, decision or finding would materially and
adversely affect the business, properties, financial condition, net worth or
results of operations of the Company.
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct at the Closing Date and, with
respect to the Option Shares, at the Option Closing Date, as if made on such
date, and all covenants and agreements herein contained to be performed on the
part of the Company and all conditions herein contained to be fulfilled or
complied with by the Company at or prior to the Closing Date and, with respect
to the Option Shares, at or prior to the Option Closing Date, shall have been
fully performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion, dated
the Closing Date and the Option Closing Date, from Pietrantoni Mendez &
Alvarez, Puerto Rico counsel for the Company to the following effect:
(i) The Company has been duly organized and validly
existing as a corporation under the laws of the Commonwealth
of Puerto Rico and is in good standing with the Commonwealth
of Puerto Rico. Each of Doral Mortgage Corporation ("Doral
Mortgage") and Doral Bank, each a Subsidiary, is a
corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of
incorporation. Each of the Company, Doral Mortgage and Doral
Bank is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the
nature or conduct of its business or use of its property and
assets makes such qualification necessary, except where the
failure
<PAGE> 16
16
to so qualify would not have a material adverse effect on the
financial condition, or the earnings or business affairs of
the Company and its Subsidiaries taken as a whole;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus; the Company has duly authorized
the issuance and sale of the Shares to be sold by it
hereunder; such Shares, when issued by the Company and paid
for in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and will conform in all
material respects to the description thereof contained in the
Prospectus and will not be subject to any preemptive,
subscription or other similar rights; the Shares have been
duly authorized for quotation on the NASDAQ NMS; and no
holders of securities of the Company are entitled to have
such securities registered under the Registration Statement,
except for holders who have waived any such registration
rights;
(iii) The Registration Statement, including any Rule
462(b) Registration Statement, is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b)
has been made in the manner and within the time period
required by Rule 424(b); and to the best knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto and no order
directed at any document incorporated by reference in the
Registration Statement or of the Rule 462(b) Registration
Statement or any amendment thereto has been issued, and, no
proceedings for that purpose have been instituted or are
pending or are threatened or contemplated under the Act;
(iv) The Registration Statement and the Prospectus
as of its date, appeared on their face to be appropriately
responsive, in all material respects (other than the
documents incorporated therein by reference and not including
the financial statements, schedules and other financial data
contained therein, as to which such counsel need not express
any opinion), with the requirements of the Act and the
related rules and regulations thereunder;
(v) The descriptions contained and summarized in
the Registration Statement, or incorporated therein by
reference, and the Prospectus are accurate and fairly
represent in all material respects the information required
to be shown by the Act and the Rules and Regulations; and the
statements set forth under the headings "Recent
Developments," "Risk Factors-Holding Company Structure,"
"Description of Capital Stock," and "Taxation" in the
Prospectus, insofar as such statements constitute a summary
of the legal matters, documents or proceedings referred to
therein, provide an accurate summary of such legal matters,
documents and proceedings;
<PAGE> 17
17
(vi) To the knowledge of such counsel, there are no
contracts or documents which are required by the Act to be
described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement which
are not filed or incorporated therein by reference as
required by the Act and the Rules and Regulations;
(vii) To the knowledge of such counsel after
reasonable investigation, there is not pending or threatened
against the Company or any of the Subsidiaries any action,
suit, arbitration, claim, governmental or other proceeding
(informal or formal) or investigation before or by any
Governmental Body of a character required to be disclosed in
the Registration Statement or the Prospectus which is not so
disclosed therein. To the knowledge of such counsel after
reasonable investigation, neither the Company nor any
Subsidiary is in violation of, or in default with respect to,
any law, rule, or regulation, or any order, judgment or
decree, except as described in the Registration Statement or
Prospectus or such as in the aggregate do not now have and
can reasonably be expected in the future not to have a
material adverse effect upon the operations, business,
properties, or assets of the Company and its Subsidiaries
taken as a whole; nor is the Company or any Subsidiary
presently required under any order, judgment or decree to
take any action in order to avoid any such violation or
default;
(viii) The Company has full legal right, power, and
authority to enter into this Agreement and to consummate the
transactions provided for herein; this Agreement has been
duly authorized, executed and delivered by the Company; this
Agreement, assuming due authorization, execution and delivery
by each other party hereto, is a valid and binding agreement
of the Company, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or
hereafter in effect relating to or affecting creditors'
rights generally or by general principles of equity relating
to the availability of remedies and except as rights to
indemnity and contribution may be limited by federal, state,
or Commonwealth of Puerto Rico securities laws or the public
policy underlying such laws;
(ix) None of the Company's execution or delivery of
this Agreement, its performance hereof, its consummation of
the transactions contemplated herein or its application of
the net proceeds of the offering in the manner set forth
under the caption "Use of Proceeds," conflicts or will
conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of
any Encumbrance upon, any property or assets of the Company
pursuant to (A) the terms of the Certificate of Incorporation
or By-laws of the Company, in each case as amended; (B) the
terms of any contract or other agreement to which the Company
is a party or by
<PAGE> 18
18
which it is or may be bound or to which any of its properties
is or may be subject and of which such counsel has knowledge,
(C) any statute, rule or regulation of any Governmental Body
having jurisdiction over the Company or any of its activities
or properties; or (D) the terms of any judgment, decree or
order of any arbitrator or Governmental Body having such
jurisdiction and of which such counsel has knowledge; and no
consent, approval, authorization or order of any Governmental
Body has been or is required for the Company's performance of
this Agreement or the consummation of the transactions
contemplated hereby, except such as have been obtained under
the Act or may be required under state or Commonwealth of
Puerto Rico securities or blue sky laws in connection with
the purchase and distribution by the Underwriters of the
Shares;
(x) To such counsel's knowledge, the conduct of
the respective businesses of the Company and its Subsidiaries
is not in violation of any federal, state or local statute,
administrative regulation or other law, which violation is
likely to have a material adverse effect on the Company and
its Subsidiaries taken as a whole; and the Company and its
Subsidiaries have obtained all material licenses as are
necessary or required for the conduct of their businesses as
presently conducted;
(xi) The Company is not required to be registered
as an investment company under the Investment Company Act;
(xii) To the knowledge of such counsel, the Company
is not in any breach or violation of any of the terms or
provisions of, or in default under (nor has an event occurred
which with notice or lapse of time or both would constitute a
default or acceleration under), (A) the terms of its
Certificate of Incorporation or By-laws, in each case as
amended; (B) the terms of any contract or other agreement
known to such counsel after reasonable investigation to which
the Company is a party or by which the Company is or may be
bound or to which any of its properties or assets is or may
be subject; (C) any statute, rule or regulation of any
Governmental Body having jurisdiction over the Company or any
of its activities, assets or properties, which breach,
violation or default could have a material adverse effect on
the Company and its Subsidiaries taken as a whole; or (D) the
terms of any judgment, decree or order, known to such counsel
after reasonable investigation, of any arbitrator or
Governmental Body having such jurisdiction, which breach,
violation or default could have a material adverse effect on
the Company and its Subsidiaries taken as a whole;
(xiii) To such counsel's knowledge after reasonable
investigation, no legal or governmental proceedings are
pending to which the Company or any of its Subsidiaries is a
party or by which the assets or property of the Company or
any of its Subsidiaries is subject that are required to be
described in the Registration
<PAGE> 19
19
Statement or the Prospectus and are not described therein and
to the knowledge of such counsel, no such proceedings have
been threatened against the Company or any of its
Subsidiaries or any of their respective assets or properties;
(xiv) The deposit accounts of Doral Bank are insured
by the SAIF of the FDIC to the legal maximum, and to such
counsel's knowledge no proceeding for the termination or
revocation of such insurance is pending or threatened. Doral
Bank is a member in good standing of the Federal Home Loan
Bank of New York; and
(xv) To the knowledge of such counsel, none of the
Company, Doral Bank, their affiliates, or any of their
respective directors or officers is subject to any order or
directive of, or party to any agreement with, any regulatory
agency having jurisdiction with respect to its business or
operations except as disclosed in the Registration Statement
or the Prospectus.
In addition, such counsel shall state that in the course of
the preparation of the Registration Statement and the Prospectus, such counsel
has participated in conferences with officers and representatives of the
Company and with the Accountants, at which conferences such counsel made
inquiries of such officers, representatives and Accountants and discussed the
contents of the Registration Statement and the Prospectus and, on the basis of
the foregoing nothing has come to such counsel's attention that causes such
counsel to believe that the Registration Statement as of the date it was
declared effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of the date
thereof, contained any untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need not express
any opinion with respect to the financial statements, schedules and other
financial data included in the Registration Statement or the Prospectus). Such
counsel may state that they make no representation that they have independently
verified the accuracy or completeness of the statements contained in the
Registration Statement and Prospectus.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials and, as to matters
involving the application of laws of any other jurisdiction than the
Commonwealth of Puerto Rico and the United States (to the extent satisfactory
in form and scope to counsel for the Underwriters) such counsel may rely upon
the opinion of local (including in-house) counsel to the Company. The foregoing
opinion shall also state that such counsel has no reason to believe that the
Underwriters are not justified in relying upon such opinion of local counsel,
and copies of such opinion shall be delivered to the Representatives and their
counsel.
<PAGE> 20
20
References to the Registration Statement and the Prospectus in this
paragraph (f) shall include any amendment or supplement thereto at the date of
such opinion.
(g) The Representatives shall have received an opinion, dated
the Closing Date and the Option Closing Date, from Axtmayer Adsuar Muniz &
Goyco, P.S.C. , counsel to the Underwriters, which opinion shall be
satisfactory in all respects to the Representatives.
(h) Concurrently with the execution and delivery of this
Agreement, or, if the Company elects to rely on Rule 430A, on the date of the
Prospectus, the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery (the "Original Letter"), addressed to
the Representatives and in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent accountants within the meaning
of the Act and the applicable published rules and regulations
thereunder;
(ii) in their opinion, the consolidated financial
statements of the Company and its Subsidiaries audited by
them and incorporated by reference in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act, the Exchange
Act and the published rules and regulations thereunder with
respect to registration statements on Form S- 3;
(iii) on the basis of procedures (but not an audit in
accordance with generally accepted auditing standards)
consisting of (a) reading the minutes of meetings of the
stockholders and the Board of Directors of the Company and its
Subsidiaries since December 31, 1997 as set forth in the
minute books through a specified date not more than five
business days prior to the date of delivery of the Original
Letter; (b) performing the procedures specified by the
American Institute of Certified Public Accountants for a
review of interim financial information as described in SAS
No. 71, "Interim Financial Information," on the unaudited
consolidated interim financial statements of the Company and
its Subsidiaries included in the Registration Statement and
reading the unaudited interim financial data for the period
from the date of the latest balance sheet incorporated by
reference in the Registration Statement to the date of the
latest available interim financial data; and (c) making
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters regarding
the specific items for which representations are requested
below; nothing has come to their attention (as of a date not
more than five business days prior to the date of the delivery
of such letter) as a result of the foregoing procedures that
caused them to believe that: (1) the unaudited consolidated
interim financial statements, incorporated by reference in the
Registration Statement, do not comply as to form in all
material respects with the applicable
<PAGE> 21
21
accounting requirements of the Exchange Act and the published
rules and regulations thereunder; (2) any material
modifications should be made to the unaudited consolidated
interim financial statements, included in the Registration
Statement, for them to be in conformity with generally
accepted accounting principles, (3) (i) at the date of the
latest available interim financial data and at a specified
date not more than five business days prior to the date of
delivery of the Original Letter there was any change in the
capital stock, loans payable, or securities sold under
agreements to repurchase or any decreases in the consolidated
stockholders' equity (only as to the latest interim financial
data) of the Company and its Subsidiaries as compared with
amounts shown in the June 30, 1998 balance sheet incorporated
by reference in the Registration Statement and (ii) for the
period from July 1, 1998, to the latest interim financial data
available which should be no later than forty (40) days prior
to the date of delivery of the Original Letter, there were any
decreases, as compared with the corresponding period in the
preceding year, in consolidated net interest income, non
interest income, income before taxes or in the total or per
share amounts of net income, except in all instances for
changes or decreases which the Registration Statement
discloses have occurred or may occur, or they shall state any
specific changes or decreases; and
(iv) the information set forth under the captions
"Consolidated Ratios of Earnings to Combined Fixed Charges
and Preference Security Dividends," "Capitalization,"
"Description of Capital Stock," "Recent Developments," and
"Selected Financial Data," which is expressed in dollars (or
percentages derived from such dollar amounts) and has been
obtained from accounting records which are subject to the
internal controls of the Company's accounting system or which
has been derived directly from such accounting records and
analysis or computations, is in agreement with such records
or computations made therefrom.
At the Closing Date and, as to the Option Shares, the Option
Closing Date, the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery, which shall confirm, on the basis of a
review in accordance with the procedures set forth in the Original Letter, that
nothing has come to their attention during the period from the date of the
Original Letter referred to in the prior sentence to a date (specified in the
letter) not more than five days prior to the Closing Date or the Option Closing
Date, as the case may be, which would require any change in the Original Letter
if it were required to be dated and delivered at the Closing Date or the Option
Closing Date, as the case may be.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or
<PAGE> 22
22
inadvisable to proceed with the purchase and delivery of the Shares as
contemplated by the Registration Statement, as amended as of the date hereof.
(i) At the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives an
accurate certificate, dated the date of its delivery, signed by each of the
Chief Executive Officer and the Chief Financial Officer of the Company, in form
and substance satisfactory to the Representatives, to the effect that to the
best of their knowledge:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and
(A) as of the date of such certificate, (x) the Registration
Statement does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading and (y) the Prospectus does not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading and
(B) since the Effective Date no event has occurred as a
result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein not untrue
or misleading in any material respect;
(ii) Each of the representations and warranties of the
Company contained in this Agreement were, when originally
made, and are, at the time such certificate is delivered,
true and correct in all respects; each of the covenants
required herein to be performed by the Company on or prior to
the date of such certificate has been duly, timely and fully
performed and each condition herein required to be complied
with by the Company on or prior to the delivery of such
certificate has been duly, timely and fully complied with.
(iii) No stop order suspending the effectiveness of
the Registration Statement or any post-effective amendment
thereto and no order directed at any document incorporated by
reference in the Registration Statement or any amendment
thereto or the Prospectus has been issued, and no proceedings
for that purpose have been instituted or threatened or, to
the best of the Company's knowledge, are contemplated by the
Commission.
(j) The Shares shall be qualified for sale in such states and
possessions as the Representatives may reasonably request, each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date and the Option Closing Date.
(k) Prior to the Closing Date, the Shares shall have been
accepted for quotation on the NASDAQ NMS.
<PAGE> 23
23
(l) The Company shall have furnished to the Representatives
such certificates, letters and other documents, in addition to those
specifically mentioned herein, as the Representatives may have reasonably
requested as to the accuracy and completeness at the Closing Date and the
Option Closing Date of any statement in the Registration Statement or the
Prospectus, as to the accuracy at the Closing Date and the Option Closing Date
of the representations and warranties of the Company, as to the performance by
the Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Underwriters.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to you. The Company will furnish you with such conformed
copies of such opinions, certificates, letters and other documents as you shall
reasonably request.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages or liabilities, joint or several (and actions
in respect thereof), to which they, or any of them, may become subject under
the Act or other Federal, state or Commonwealth of Puerto Rico statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement made by the Company in
Section 3 of this Agreement, (ii) any untrue statement or alleged untrue
statement of any material fact contained in (A) any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus or (B) any application or other
document, or any amendment or supplement thereto, executed by the Company or
based upon written information furnished by or on behalf of the Company filed
in any jurisdiction in order to qualify the Shares under the securities or blue
sky laws thereof or filed with the Commission or any securities association or
securities exchange (each, an "Application"), or (iii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any amendment or supplement to the Registration Statement or
the Prospectus or any Application a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse,
as incurred, each Underwriter and each such other person for any legal or other
expenses reasonably incurred by such Underwriter or such other person in
connection with investigating defending or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability based solely upon an untrue
statement or omission or alleged untrue statement or omission in any of such
documents made in reliance upon and in conformity with information relating to
any Underwriter furnished in writing to the Company by
<PAGE> 24
24
the Representatives on behalf of any Underwriter expressly for inclusion
therein; Provided, further, that such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or any such other
person) from whom the person asserting any such loss, claim, damage, liability
or action purchased Shares which are the subject thereof to the extent that any
such loss, claim, damage or liability (i) results from the fact that such
Underwriter failed to send or give a copy of the Prospectus (as amended or
supplemented) to such person at or prior to the confirmation of the sale of
such Shares to such person in any case where such delivery is required by the
Act and (ii) arises out of or is based upon an untrue statement or omission of
a material fact contained in such Preliminary Prospectus that was corrected in
the Prospectus (or any amendment or supplement thereto), unless such failure to
deliver the Prospectus (as amended or supplemented) was the result of
noncompliance by the Company with Section 4(g). This indemnity agreement will
be in addition to any liability that the Company might otherwise have. The
Company will not, without the prior written consent of each Underwriter, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act is a party to each claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of each Underwriter and each such other person from all
liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter will indemnify and hold harmless the
Company, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, each director of
the Company and each officer of the Company who signed the Registration
Statement against any losses, claims, damages or liabilities (or actions in
respect thereof) to which the Company and any such director, officer or
controlling person may become subject under the Act or other federal, state or
Commonwealth of Puerto Rico statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any amendment or
supplement to the Registration Statement or the Prospectus or any Application,
or material fact required to be stated therein or (ii) the omission or the
alleged omission to state in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or any Application, a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through the Representatives expressly for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company and any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any
action
<PAGE> 25
25
in respect thereof. The Company acknowledges that, for all purposes under this
Agreement, the statements set forth under the heading "Underwriting" constitute
the only information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of the Underwriters expressly for
inclusion in the Registration Statement, any Preliminary Prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability that
each Underwriter might otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
or parties under this Section 7, notify such indemnifying party or parties of
the commencement thereof, but the omission so to notify the indemnifying party
or parties will not relieve it or them from any liability which it or they may
have to any indemnified party under the foregoing provisions of this Section 7
or otherwise unless, and only to the extent that, such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party. If any
such action is brought against an indemnified party and it notifies an
indemnifying party or parties of its commencement, the indemnifying party or
parties against which a claim is made will be entitled to participate therein
and, to the extent that it or they may wish, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 7 for any legal or
other expenses other than reasonable costs of investigation subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the reasonable fees and expenses of more than one
separate counsel, or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the written consent of the indemnifying party, unless such indemnified
party waived its rights under this Section 7 in which case the indemnified
party may effect such a settlement without such consent.
(d) If the indemnification provided for in the foregoing
paragraphs of this Section 7 is unavailable or insufficient to hold harmless an
indemnified party under paragraph (a)
<PAGE> 26
26
or (b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties, on the one hand, and
the indemnified party, on the other, from the offering of the Shares or (ii)
if, but only if, the allocation provided by the foregoing clause (i) is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the indemnifying party or parties on the one hand, and the
indemnified party, on the other, in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriters, on the other, shall be deemed
to be in the same proportion as the total proceeds from the offering of the
Shares (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. Relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Representatives on behalf of the Underwriters, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this Section 7(d) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities (or actions in respect thereof) referred to above in this
Section 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the total underwriting discounts received by it with respect to the
Shares purchased by such Underwriter under this Agreement, less the aggregate
amount of any damages that such Underwriter has otherwise been required to pay
in respect of the same or any substantially similar claim. No person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) will be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters obligations to contribute
as provided in this Section 7(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 7(d), each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act will have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, will have the same rights to contribution as
the Company, subject in each case to the provisions of this paragraph (e). Any
party entitled to contribution
<PAGE> 27
27
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made under this Section 7(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation(s) it or they may have hereunder or otherwise than under this
paragraph (d) or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may otherwise have.
No party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).
(e) The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company contained
in this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of the Underwriters,
(ii) acceptance of any of the Shares and payment therefor or (iii) any
termination of this Agreement.
8. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time prior to the Closing Date (or, with
respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from any of the Representatives, without liability on the
part of any Underwriter to the Company if, prior to delivery and payment for
the Firm Shares (or the Option Shares, as the case may be), in the sole
judgment of the Representatives, (i) trading in the Common Stock or the
Preferred Stock or securities generally shall have been suspended by the
Commission or by the NASDAQ NMS, (ii) minimum or maximum prices shall have been
established for the Common Stock or the Preferred Stock or securities generally
on either the NASDAQ NMS or the New York Stock Exchange, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by any of such market or
exchange or by order of the Commission or any court or other Governmental
Authority, (iii) a general banking moratorium shall have been declared by the
United States, New York State, or Commonwealth of Puerto Rico authorities, or
(iv) any material adverse change in the financial or securities markets in the
United States or any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or other
calamity or crisis shall have occurred, the effect of any of which is such as
to make it, in the sole judgment of any of the Representatives, impracticable
or inadvisable to market the Shares on the terms and in the manner contemplated
by the Prospectus. Any termination pursuant to Section 8 shall be without
liability of any party to any other party except as provided in Sections 5(a)
and 7.
9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Shares or Option Shares hereunder and the
aggregate number of such Shares that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Shares or Option Shares to be purchased by all of the
Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory
<PAGE> 28
28
to the Representatives for the purchase of such Shares by other persons (who
may include one or more of the nondefaulting Underwriters, including the
Representatives), but if no such arrangements are made by the Firm Closing Date
or the related Option Closing Date, as the case may be, the other Underwriters
shall be obligated severally in proportion to their respective commitments
hereunder to purchase the Firm Shares or Option Shares that such defaulting
Underwriter or Underwriters agreed but failed to purchase. If one or more
Underwriters so default with respect to an aggregate number of Shares that is
more than ten percent of the aggregate number of Firm Shares or Option Shares,
as the case may be, to be purchased by all of the Underwriters at such time
hereunder, and if arrangements satisfactory to the Representatives are not made
within 36 hours after such default for the purchase by other persons (who may
include one or more of the nondefaulting Underwriters, including the
Representatives) of the Shares with respect to which such default occurs, this
Agreement will terminate without liability on the part of any nondefaulting
Underwriter and the Company other than as provided in Section 10 hereof. In the
event of any default by one or more Underwriters as described in this Section
9, the Representatives shall have the right to postpone the Firm Closing Date
or the Option Closing Date, as the case may be, established as provided in
Section 9 hereof for not more than seven business days in order that any
necessary changes may be made in the arrangements or documents for the purchase
and delivery of the Firm Shares or Option Shares, as the case may be. As used
in this Agreement, the term "Underwriter" includes any person substituted for
an Underwriter under this Section 9. Nothing herein shall relieve any
defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the
Company, any of its officers or directors, any Underwriter or any controlling
person referred to in Section 7 hereof and (ii) delivery of and payment for the
Shares. The respective agreements, covenants, indemnities and other statements
set forth in Sections 6 and 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
11. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 1159 Franklin
D. Roosevelt Avenue, San Juan, Puerto Rico 00920, Attention: Mario S. Levis,
Executive Vice President and Treasurer, or (b) if to the Underwriters, to the
Representatives at the offices of (i) PaineWebber Incorporated of Puerto Rico,
American International Plaza, PH, Hato Rey, Puerto Rico 00918, Attention: Jose
G. Arias, and (ii) Popular Securities, Inc., Banco Popular Center, 10th. Floor,
Hato Rey, Puerto Rico 00918, Attention: Carlos J. Ortiz. Any such notice shall
be effective only upon receipt. Any notice under Section 7 or 8 may be made by
telex or telephone, but if so made shall be subsequently confirmed in writing.
<PAGE> 29
29
12. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company, and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Company contained in Section 7 of this
Agreement shall also be for the benefit of any person or persons who control
any Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii) the indemnities of the Underwriters contained in
Section 7 of this Agreement shall also be for the benefit of the directors of
the Company, the officers of the Company who have signed the Registration
Statement and any person or persons who control the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Shares from any Underwriter shall be deemed a successor because of such
purchase. This Agreement shall not be assignable by either party hereto without
the prior written consent of the other party.
13. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PUERTO RICO,
WITHOUT GIVING EFFECT TO ANY
PROVISIONS RELATING TO CONFLICTS OF LAWS.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
DORAL FINANCIAL CORPORATION
By:
------------------------------------------------
Name: Mario S. Levis
Title: Executive Vice President and Treasurer
Confirmed as of the date first above mentioned:
<PAGE> 30
30
PAINEWEBBER INCORPORATED OF
PUERTO RICO
By:
-----------------------------
Name:
Title:
Acting on its behalf and
as joint-lead underwriter and co-representative
of the other several Underwriters
named in Schedule I hereof.
POPULAR SECURITIES, INC.
By:
-----------------------------
Name:
Title:
Acting on its behalf and
as joint-lead underwriter and co-representative
of the other several Underwriters
named in Schedule I hereof.
<PAGE> 31
31
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Aggregate Number
of Shares to be
Purchased
<S> <C>
PaineWebber Incorporated of Puerto Rico......................................... ----------------
Popular Securities, Inc. ....................................................... ----------------
Salomon Smith Barney Inc. ...................................................... ----------------
Santander Securities Corporation of Puerto Rico................................. ----------------
Prudential Securities Incorporated.............................................. ----------------
Total
----------------
</TABLE>
<PAGE> 32
32
EXHIBIT A
LIST OF SUBSIDIARIES
1. Doral Mortgage Corporation
2. Doral Securities, Inc.
3. Centro Hipotecario, Inc.
4. Doral Bank
5. Doral Bank, FSB
6. Doral Money, Inc.
7. Doral Capital (USA), Inc. (inactive)
<PAGE> 1
EXHIBIT 4(a)
% NONCUMULATIVE MONTHLY INCOME
PREFERRED STOCK, SERIES A
PAR VALUE $1.00 PER SHARE
<TABLE>
<CAPTION>
SHARES
DORAL FINANCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PUERTO RICO
CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
<S> <C> <C> <C>
THIS IS TO CERTIFY that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF % NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A, OF THE PAR VALUE OF $1 EACH OF
DORAL FINANCIAL 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 countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
/s/ Richard T. Bonnini /s/ Zoila Levis
Secretary [Doral Financial Seal] President
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT
AND REGISTRAR
BY AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
DORAL FINANCIAL 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 each 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> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ----------- ------------
JT TEN - as joint tenants with right of survivorship (Cust) (Minor)
and not as tenants in common Under Uniform Gifts to Minors
Act
-----------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address, including postal zip code of
assignee.
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney,
- ----------------------------------------------------------------------
to transfer said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated,
-----------------------
---------------------------------------
<PAGE> 1
EXHIBIT 4(b)
CERTIFICATE OF DESIGNATION
OF THE BOARD OF DIRECTORS OF DORAL FINANCIAL CORPORATION
__% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A
(Pursuant to Article 5.01 of the General Corporation
Law of the Commonwealth of Puerto Rico)
We, the undersigned, [President/Vice President] and [Secretary/Assistant
Secretary] of DORAL FINANCIAL 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 and resolutions adopted by the
Board of Directors creating a committee thereof known as the "Preferred Stock
Pricing Committee", the said Preferred Stock Pricing Committee on ,
1998, adopted the following resolutions creating a series of _____ shares of
Serial Preferred Stock designated as the "___% Noncumulative Monthly Income
Preferred Stock, Series A."
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 Preferred Stock Pricing Committee designated
by the Board of Directors has 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, preference 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
"__% Noncumulative Monthly Income Preferred Stock, Series A" (hereinafter
called the "Series A Preferred Stock"), and the number of authorized shares
constituting such series shall be ________.
B. DIVIDENDS
1. Holders of record of the Series A 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 __% of
their liquidation preferences, or $____ per share per month.
2. Dividends on the Series A 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 December 31, 1998, and on the last day of each calendar
month of each year thereafter to the holders of record of the Series A
Preferred Stock as they appear on the books of the Corporation on the
second Business Day (as defined below) immediately preceding the
<PAGE> 2
-2-
relevant date of payment. In the case of the dividend payable on December 31,
1998, such dividend shall cover the period from the date of issuance of the
Series A Preferred Stock to the end of such month. 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 a general bank
holiday in San Juan, Puerto Rico or New York, New York.
3. Dividends on the Series A Preferred Stock will be noncumulative. The
Corporation is not obligated or required to declare or pay dividends on the
Series A Preferred Stock, even if it has funds available for the payment of such
dividends. If the Board of Directors of the Corporation or an authorized
committee thereof does not declare a dividend payable on a dividend payment date
in respect of the Series A Preferred Stock, then the holders of such Series A
Preferred Stock shall have no right to receive a dividend in respect of the
monthly dividend period ending on such dividend payment date and the Company
will have no obligation to pay the dividend accrued for such monthly dividend
period or to pay any interest thereon, whether or not dividends on such Series A
Preferred Stock are declared for any future monthly dividend period.
4. The amount of dividends payable for any monthly dividend period will be
computed on the basis of twelve 30-day months and a 360-day year. The amount of
dividends payable for any period shorter than a full 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 Series A Preferred
Stock.
6. So long as any shares of the Series A 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 Series A
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 Series A 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 Series A Preferred
Stock as to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, unless (i) all
accrued and unpaid dividends on the Series A Preferred Stock for the twelve
monthly dividend periods ending on the immediately preceding dividend payment
draft shall have been paid or are paid contemporaneously and (ii) the full
monthly dividend on the Series A 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 Series A Preferred Stock called for
redemption.
7. When dividends are not paid in full on the Series A Preferred Stock and
any other shares of stock of the Corporation ranking on a party as to the
payment of dividends with the Series A Preferred Stock, all dividends declared
upon the Series A Preferred Stock and any such other shares of stock of the
Corporation will be declared pro rata so that the amount of dividends declared
per share on the Series A Preferred Stock and any such other shares of stock
will in all cases bear to each other the same ratio that the full dividends
payable to the Series A Preferred
<PAGE> 3
-3-
Stock for the then current monthly dividend period (which shall not include any
accumulation in respect of unpaid dividends for prior periods) and full
dividends, including required or permitted accumulations, if any, on such other
series of stock, bear to each other.
8. Holders of record of the Series A 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 Series A Preferred Stock.
C. CONVERSION
1. The Series A Preferred stock will not be convertible into or
exchangeable for any other securities of the Corporation.
D. REDEMPTION AT THE OPTION OF THE CORPORATION
1. The shares of the Series A Preferred Stock are not redeemable prior to
November 30, 2003. On and after that date, the shares of the Series A 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 (the "Federal Reserve Board") to the extent required by D.8
below, 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 November 30 of the years set forth below, during the twelve-month
periods beginning on November 30 of the years set forth below, plus accrued and
unpaid dividends to the date fixed for redemption.
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003................................ $51.00
2004................................ $50.50
2005 and thereafter................. $50.00
</TABLE>
2. In the event that less than all of the outstanding shares of the
Series A Preferred Stock are to be redeemed in any redemption at the option of
the Corporation, the total number of shares to be redeemed in such redemption
shall be determined by the Board of Directors and the shares to be redeemed
shall be allocated pro rata or by lot as may be determined by the Board of
Directors or by such other method as the Board of Directors may approve and
deem equitable, including any method to conform to any rule or regulation of
any national or regional stock exchange or automated quotation system upon
which the shares of the Series A Preferred Stock may at the time be listed or
eligible for quotation.
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 Series
A 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 Series A Preferred Stock shall specify
the number of shares of Series A Preferred Stock to be redeemed, the redemption
date and the redemption price payable to such holder upon redemption, and shall
state that from and after said date dividends thereon will cease to accrue. If
less than all the shares owned by a holder are then to be redeemed at the
option of the Corporation, the notice shall also specify the number of shares
of Series A Preferred Stock which are to be redeemed and the numbers of the
certificates representing such shares. Any notice which is mailed as herein
provided shall be conclusively presumed to have been duly given, whether or not
the stockholder receives such notice; 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 Series A Preferred Stock.
<PAGE> 4
-4-
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 Series A Preferred Stock
called for redemption shall cease to accrue and all rights of the holders of
such shares as stockholders of the Corporation by reason of the ownership of
such shares (except the right to receive the redemption price, on presentation
and surrender of the respective certificates representing the redeemed shares),
shall cease on the redemption date, and such shares shall not after the
redemption date be deemed to be outstanding. In case less than all the shares
represented by 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, irrevocably deposit the aggregate amount payable upon redemption of the
shares of the Series A 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 Series A 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 Series A 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 Series A 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 Series A Preferred Stock called for redemption with respect to which such
funds were deposited shall look only to the Corporation for the payment of the
redemption price 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.
7. Any shares of the Series A Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of authorized
but unissued shares of Preferred Stock, without designation as to series, until
such shares are once more designated as part of a particular series by the
Board of Directors.
8. To the extent required to have the Series A Preferred Stock treated as
Tier 1 capital for bank regulatory purposes or otherwise required by applicable
regulations of the Federal Reserve Board, the shares of Series A Preferred Stock
may not be redeemed by the Company without the prior consent of the Federal
Reserve Board.
E. LIQUIDATION PREFERENCE
1. Upon any voluntary or involuntary liquidation, dissolution, or winding
up of the Corporation, the then record holders of shares of Series A 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 Series A Preferred Stock, distributions
upon liquidation in the amount of $50 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 Series A Preferred Stock prior to any payment or
distribution to the holders of the common stock of the Corporation or any other
class
<PAGE> 5
-5-
of stock or series thereof of the Corporation ranking junior to the Series A
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 Series A
Preferred Stock and any other shares of stock of the Corporation ranking as to
any such distribution on a parity with the Series A Preferred Stock are not
paid in full, the holders of the Series A 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
would otherwise be entitled, the holders of shares of Series A 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
corporation, 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.
F. VOTING RIGHTS
1. Except as described in this Section F, or except as required by
applicable law, holders of the Series A Preferred Stock will not be entitled to
receive notice of or attend or vote at any meeting of stockholders of the
Corporation.
2. If the Corporation does not pay dividends in full on the Series A
Preferred Stock for eighteen consecutive monthly dividend periods, the holders
of outstanding shares of the Series A Preferred Stock, together with the
holders of any other shares of stock of the Corporation having the right to
vote for the election of directors solely in the event of any failure to pay
dividends, acting as a single class without regard to series, will be entitled,
by written notice to the Corporation given by the holders of a majority in
liquidation preference of such shares or by ordinary resolution passed by the
holders of a majority in liquidation preference of such shares present in
person or by proxy at a separate general meeting of such holders convened for
the purpose, to appoint two additional members of the Board of Directors of the
Corporation, to remove any such member from office and to appoint another
person in place of such member. Not later than 30 days after such entitlement
arises, if written notice by a majority of the holders of such shares has not
been given as provided for in the preceding sentence, the Board of Directors or
an authorized committee thereof will convene a separate general meeting for the
above purpose. If the Board of Directors or such authorized committee fails to
convene such meeting within such 30-day period, the holders of 10% of the
outstanding shares of the Series A Preferred Stock and any such other stock
will be entitled to convene such meeting. The provisions of the Certificate of
Incorporation and By-laws of the Corporation relating to the convening and
conduct of general meetings of stockholders will apply with respect to any such
separate general meeting. Any member of the Board of Directors so appointed
shall vacate office if, following the event which gave rise to such
appointment, the Corporation shall have resumed the payment of dividends in
full on the Series A Preferred Stock and each such other series of stock for
twelve consecutive monthly dividend periods.
3. Any variation or abrogation of the rights, preferences and privileges
of the Series A 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 Series A Preferred Stock) shall not be effective
(unless otherwise required by applicable law) except with the consent in writing
of the holders of at least two thirds of the outstanding aggregate liquidation
preference of the outstanding shares of the Series A Preferred Stock or with the
sanction of a special resolution
<PAGE> 6
-6-
passed at a separate general meeting by the holders of at least two thirds of
the aggregate liquidation preference of the outstanding shares of the Series A
Preferred Stock. Notwithstanding the foregoing, the Corporation may, without the
consent or sanction of the holders of the Series A 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
Series A Preferred Stock.
4. No vote of the holders of the Series A Preferred Stock will be
required for the Corporation to redeem or purchase and cancel the Series A
Preferred Stock in accordance with the Restated Certificate of Incorporation of
the Corporation.
5. 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.
6. Except as set forth in this Section F, holders of Series A 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 Series A 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 Series A Preferred Stock (or to a
number of series of Preferred Stock which includes the Series A 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 Series A Preferred Stock (or with a number of series of
Preferred Stock which includes the Series A 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 Series
A Preferred Stock (or to a number of series of Preferred Stock which includes
the Series A 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 SERIES A PREFERRED STOCK; TRANSFER AND REGISTRATION
1. The Series A Preferred Stock shall be issued in registered form only.
The Corporation may treat the record holder of a share of Series A 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 Series A Preferred Stock,
as the sole owner of such share for all purposes.
2. The transfer of a share of Series A Preferred Stock may be registered
upon the surrender of the certificate evidencing the share of Series A
Preferred Stock to be transferred, together with the form of transfer endorsed
on it duly completed and executed, at the office of the transfer agent and
registrar.
3. Registration of transfers of shares of Series A 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.
<PAGE> 7
-7-
4. The corporation will not be required to register the transfer of a
share of Series A Preferred Stock after such share has been called for
redemption.
I. REPLACEMENT OF LOST CERTIFICATES
If any certificate for a share of Series A 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 Series A Preferred Stock will have no preemptive or
preferential rights to purchase any securities of the Corporation.
K. NO REPURCHASE AT THE OPTION OF HOLDERS; MISCELLANEOUS
Holders of Series A Preferred Stock will have no right to require the
Corporation to redeem or repurchase any shares of Series A Preferred Stock,
and the shares of Series A Preferred Stock are not subject to any sinking
fund or similar obligation. The Corporation may, at its option, purchase
shares of the Series A Preferred Stock from holders thereof from time to
time, by tender, in privately negotiated transactions or otherwise.
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/Vice
President], and its [Secretary/Assistant Secretary], this day of , 1998.
DORAL FINANCIAL CORPORATION
By:_______________________________
[President/Vice President]
[CORPORATE SEAL]
By:_______________________________
[Secretary/Assistant Secretary]
<PAGE> 1
PIETRANTONI MENDEZ & ALVAREZ
BANCO POPULAR CENTER--SUITE 1901
209 MUNOZ RIVERA AVENUES
SAN JUAN, PUERTO RICO 00918
SWITCHBOARD (787) 274-1212
TELECOPIER (787) 274-1470
EXHIBIT 5
October 30, 1998
Doral Financial Corporation
1159 Franklin D. Roosevelt Avenue
San Juan, Puerto Rico 00920
Dear Sirs:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of up to 1,495,000 shares (the "Shares") of Noncumulative
Monthly Income Preferred Stock, Series A, $1.00 par value per share, of Doral
Financial Corporation (the "Company") to be registered under the Act pursuant to
the Company's Registration Statement on Form S-3, to be filed with the
Securities and Exchange Commission on or about October 30, 1998 (the
"Registration Statement"), we, as your counsel, have examined such documents,
corporate records and other instruments, and such questions of law, as we have
deemed necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we are of the opinion that when the
Registration Statement shall have been declared effective, the certificate of
resolution containing the designation of the relative rights and preferences of
the Shares has been duly filed with the Department of State of the Commonwealth
of Puerto Rico, the Shares have been issued in accordance with the authorization
of the Board of Directors of the Company, and when the Shares have been duly
countersigned by the Company's transfer agent and registrar and sold and
delivered as contemplated by the Registration Statement and the Underwriting
Agreement referred to therein, the Shares will be
<PAGE> 2
2
duly authorized and validly issued, fully-paid and nonassessable when delivered
against payment therefor.
We are members of the Bar of the Commonwealth of Puerto Rico and do not
purport to be experts in, or to render any opinions with respect to, the laws of
any state or jurisdiction other than the laws of the Commonwealth of Puerto Rico
and the Federal laws of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus contained in the Registration Statement. In giving
the foregoing consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Pietrantoni Mendez & Alvarez
--------------------------------
<PAGE> 1
PIETRANTONI MENDEZ & ALVAREZ
BANCO POPULAR CENTER-SUITE 1901
209 MUNOZ RIVERA AVENUE
SAN JUAN, PUERTO RICO 00918
SWITCHBOARD (787) 274-1212
TELECOPIER (787) 274-1470
EXHIBIT 8
October 30, 1998
Doral Financial Corporation
1159 Franklin D. Roosevelt Avenue
San Juan, Puerto Rico 00920
Gentlemen:
We have acted as counsel for Doral Financial Corporation (the "Company")
in connection with a Registration Statement on Form S-3, as amended (the
"Registration Statement"), to be filed with the Securities and Exchange
Commission on or about October 30, 1998 for the purpose of registering under
the Securities Act of 1933, as amended, up to 1,495,000 shares of Noncumulative
Monthly Income Preferred Stock, Series A, $1.00 par value, of the Company (the
"Shares").
We have examined the prospectus contained in the Registration Statement
(the "Prospectus") and have reviewed the summary of certain Federal and Puerto
Rico income tax considerations of the proposed offering described in the
Prospectus (the "Summary") appearing under the captions "Taxation," "Puerto
Rico Taxation" and "United States Taxation". We have also reviewed such other
documents and instruments and have examined such questions of law as we have
considered necessary for the purpose of this opinion. In addition, we have
relied on certificates of officers of the Company as to certain factual matters.
It is our opinion that the statements of law contained in the Summary,
subject to the limitations stated in the Summary and below, while not
purporting to discuss all possible Federal and Puerto Rico
<PAGE> 2
income tax ramifications of the offering, are accurate statements of the
principal Federal and Puerto Rico tax consequences to the investors who
purchase Shares in the offering described in the Prospectus.
Our opinion is based upon the review of the Prospectus and of applicable
Federal and Puerto Rico income tax statutes, regulations, rulings and
decisions, as now in effect. A change in any of the foregoing could necessitate
a change in our opinion. In addition, our opinion pertains only to the accuracy
of the statements of law contained in the Summary. As to statements of fact, we
are relying upon your representation that such factual statements are accurate.
Very truly yours,
/s/ PIETRANTONI MENDEZ & ALVAREZ
--------------------------------
<PAGE> 1
DORAL FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY
DIVIDENDS
EXHIBIT 12
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDING
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $27,687 $ 37,797 $31,279
Plus:
Fixed Charges (excluding capitalized interest) 49,857 62,269 47,130
------- -------- -------
TOTAL EARNINGS $77,544 $100,066 $78,409
======= ======== =======
FIXED CHARGES:
Interest expensed and capitalized $49,251 $ 60,912 $45,857
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 192 526 586
An estimate of the interest component within rental expense 498 831 687
------- -------- -------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 49,941 62,269 47,130
------- -------- -------
Preferred dividend requirements 338 130 14
Ratio of pre tax income to net income 1,149 1.161 1.156
------- -------- -------
PREFERRED DIVIDEND FACTOR 388 151 16
------- -------- -------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $50,329 $ 62,420 $47,147
======= ======== =======
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.54 1.61 1.67
======= ======== =======
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $27,687 $ 37,797 $31,279
Plus:
Fixed Charges (excluding capitalized interest) 42,361 52,255 41,604
------- -------- -------
TOTAL EARNINGS $70,048 $ 90,052 $72,883
======= ======== =======
FIXED CHARGES:
Interest expensed and capitalized $41,755 $ 50,898 $40,331
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 192 526 586
An estimate of the interest component within rental expense 498 831 687
------- -------- -------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 42,445 52,255 41,604
------- -------- -------
Preferred dividend requirements 338 130 14
Ratio of pre tax income to net income 1,149 1.161 1.156
------- -------- -------
PREFERRED DIVIDEND FACTOR 388 151 16
------- -------- -------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $42,833 $ 52,406 $41,620
======= ======== =======
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.64 1.72 1.76
======= ======== =======
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $22,060 $18,745 $30,921
Plus:
Fixed Charges (excluding capitalized interest) 44,442 23,996 10,268
------- ------- -------
TOTAL EARNINGS $66,502 $42,741 $41,189
======= ======= =======
FIXED CHARGES:
Interest expensed and capitalized $43,380 $23,252 $ 9,710
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 372 83 81
An estimate of the interest component within rental expense 690 661 477
------- ------- -------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 44,442 23,996 10,268
------- ------- -------
Preferred dividend requirements 187 325 497
Ratio of pre tax income to net income 1.127 1.198 1.449
------- ------- -------
PREFERRED DIVIDEND FACTOR 211 389 720
------- ------- -------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $44,653 $24,385 $10,988
======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.49 1.76 3.75
======= ======= =======
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $22,060 $18,745 $30,921
Plus:
Fixed Charges (excluding capitalized interest) 41,081 22,891 10,260
------- ------- -------
TOTAL EARNINGS $63,141 $41,636 $41,181
======= ======= =======
FIXED CHARGES:
Interest expensed and capitalized $40,019 $22,147 $ 9,702
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 372 83 81
An estimate of the interest component within rental expense 690 661 477
------- ------- -------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 41,081 22,891 10,260
------- ------- -------
Preferred dividend requirements 187 325 497
Ratio of pre tax income to net income 1.127 1.198 1.449
------- ------- -------
PREFERRED DIVIDEND FACTOR 211 389 720
------- ------- -------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $41,292 $23,280 $10,980
======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.53 1.79 3.75
======= ======= =======
</TABLE>
<PAGE> 1
[PricewaterhouseCoopers Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated February 23, 1998, appearing on Page F-3 of Doral Financial Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/PricewaterhouseCoopers LLP
San Juan, Puerto Rico
October 30, 1998
