<PAGE> 1
As filed with the Securities and Exchange Commission on December 28, 1998
Registration No. 333-66453
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DORAL FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
COMMONWEALTH OF PUERTO RICO 66-0312162
(State or otherjurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
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. [ ]
---------------------
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 DECEMBER 28, 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 is offering to the public 1,300,000 shares of its %
Noncumulative Monthly Income Preferred Stock, Series A. The Series A Preferred
Stock has the following characteristics:
- Will entitle you, if declared by Doral Financial's Board of Directors,
to a preferential noncumulative cash dividend in the amount of $
per share each year, which is equivalent to % of the $50
liquidation preference per share.
- Dividends are payable on the last day of each month, commencing
, 1999.
- If dividends for any monthly period are not declared by Doral
Financial's Board of Directors, you will not be entitled to receive
dividends for such monthly period.
- Will be redeemable, at the option of Doral Financial, commencing on
, 2004, at varying prices depending on the date of
redemption.
- Will not have a stated maturity and will not be subject to any
mandatory redemption.
- 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
Nasdaq National Market has approved the Series A Preferred Stock for quotation
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 7 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>
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.
In addition, Doral Financial has granted the underwriters an over-allotment
option which allows the underwriters to purchase up to 195,000 additional
shares.
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.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS OF ANY BANK OR
SAVINGS ASSOCIATION, ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL
AGENCY AND MAY LOSE VALUE. THERE IS NO BANK GUARANTEE ATTACHED TO THESE
SECURITIES.
PAINEWEBBER INCORPORATED OF PUERTO RICO POPULAR SECURITIES
(JOINT LEAD MANAGERS)
SANTANDER SECURITIES PRUDENTIAL SECURITIES INCORPORATED SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Payment of Dividends Subject to
Discretion of Board of
Directors........................ 7
Noncumulative Nature of Dividends... 7
Regulatory Restrictions on the
Payment of Dividends............. 7
Contractual Restrictions on the
Payment of Dividends............. 7
Interest Rate Fluctuations.......... 7
Credit Risks Related to Sales of
Non-Conforming Loans with
Recourse......................... 8
Increased Credit Risk Related to
Commercial Loans................. 9
Lack of Geographic
Diversification.................. 9
Year 2000 Risks..................... 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements............ 9
Recent Developments................... 9
Use of Proceeds....................... 10
Capitalization........................ 11
Selected Financial Data............... 12
Summary of Certain Terms of the Series
A Preferred Stock................... 14
Description of Capital Stock.......... 19
Taxation.............................. 21
Underwriting.......................... 29
Incorporation of Certain Documents by
Reference........................... 30
Available Information................. 30
Legal Matters......................... 31
Experts............................... 31
</TABLE>
------------------------
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.
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including the information incorporated by
reference into this prospectus and the "Risk Factors" section beginning on page
7.
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.
THE COMPANY
Doral Financial 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. Doral
Financial originated and purchased $1.5 billion in mortgage loans for the nine
months ended September 30, 1998 and had a mortgage servicing portfolio of $5.5
billion as of September 30, 1998.
Doral Financial is also engaged in the commercial banking business through
its subsidiary Doral Bank and in the securities business through its subsidiary
Doral Securities, Inc. As of September 30, 1998, Doral Bank operated 9 branches
in Puerto Rico and had total assets and deposits of $628.4 million and $410.8
million, respectively.
Doral Financial is a bank holding company subject to regulation and
supervision by the Federal Reserve Board. Unlike many bank holding companies,
Doral Financial has significant operations at the holding company level. HF
Mortgage Bankers, one of Doral Financial's principal operating units, is a
division within Doral Financial. As of September 30, 1998, Doral Financial had
assets of $1.5 billion at the holding company level.
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.
3
<PAGE> 5
THE OFFERING
Series A Preferred Stock
Offered.................... 1,300,000 shares (1,495,000 shares if the
underwriters exercise their over-allotment option
in full).
Offering Price............. $50 per share.
Liquidation Preference..... $50 per share, plus accrued and unpaid dividends
for the current monthly dividend period, subject
to certain limitations. Liquidation preference is
the right of holders of the Series A Preferred
Stock to receive $50 out of the assets of Doral
Financial in a liquidation or similar proceeding
prior to common shareholders or holders of
capital stock that rank junior to the Series A
Preferred Stock.
Dividends.................. Dividends on the Series A Preferred Stock are
noncumulative. If dividends for any monthly
period are not declared by Doral Financial's
Board of Directors, you will not be entitled to
receive dividends for such monthly period.
Dividends are payable monthly commencing on
, 1999, and on the last day of each
month thereafter, in the amount of $ per
share each year, which is equivalent to % of
the $50 liquidation preference per share.
No Voting Rights........... You will not have any voting rights, except as
required by applicable law or if Doral Financial
fails to pay dividends for 18 consecutive monthly
dividend periods.
Redemption at Option of
Doral Financial............ Doral Financial may not redeem the Series A
Preferred Stock prior to , 2004. On
or after that date, Doral Financial may redeem
the Series A Preferred Stock in whole or in part
at its option, at the prices set forth in this
prospectus. Doral Financial may not redeem the
Series A Preferred Stock without prior approval
of the Federal Reserve Board.
No Repurchase at Option of
Holders.................. You will not have the right to require Doral
Financial to repurchase the Series A Preferred
Stock.
No Maturity Date or
Mandatory Redemption....... The Series A Preferred Stock does not have a
maturity date. Doral Financial is not required to
provide for the retirement of the Series A
Preferred Stock by mandatory redemption or
sinking fund payments.
No Conversion or Exchange
Rights................... The Series A Preferred Stock will not be
convertible into or exchangeable for any other
securities of Doral Financial.
No Preemptive Rights....... The Series A Preferred Stock will not entitle you
to any preemptive rights to purchase any
securities of Doral Financial.
Rank....................... The Series A Preferred Stock ranks senior to the
common stock of Doral Financial and on an equal
basis to Doral Financial's outstanding preferred
stock with respect to dividend rights and the
distribution of assets upon liquidation.
Additional shares of preferred stock of Doral
Financial ranking senior to the Series A
Preferred Stock may not be issued without the
approval of holders of at least two-thirds of the
aggregate liquidation preference of the Series A
Preferred Stock.
Nasdaq National Market
Symbol..................... DORLP
4
<PAGE> 6
SUMMARY FINANCIAL AND OPERATING DATA
You should read the summary financial information presented below in
conjunction with Doral Financial's consolidated financial statements and notes
which are incorporated by reference into this prospectus and with the historical
financial information of Doral Financial included under "Selected Financial
Data" beginning on page 12 of this prospectus.
Net income for 1994 includes the cumulative effect of a change in the
method of accounting for unrealized gains and losses on trading securities. In
connection with the adoption of a new accounting pronouncement in 1994, Doral
Financial reclassified approximately $132 million of mortgage-backed securities
and recognized a gain of $1.2 million.
Net income for the year ended December 31, 1997 reflects a non-cash
extraordinary charge to earnings of $12.3 million. The charge resulted from the
issuance by Doral Financial to Popular, Inc., a bank holding company
headquartered in San Juan, Puerto Rico, of shares of convertible preferred stock
in exchange for the cancellation of $8.5 million of Doral Financial's
subordinated debentures owned by Popular, Inc. The charge was equal to the
excess of the fair value of the preferred stock on the date of the exchange over
the net carrying amount of the debentures on Doral Financial's financial
statements. The return on average assets ratio and return on average equity
ratio computed on income before this extraordinary item for the year ended
December 31, 1997 would have been 2.19% and 19.29%, respectively.
The return on average assets and average equity ratios for the nine month
periods ended September 30, 1998 and 1997, have been presented on an annualized
basis.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 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............... $ 37,978 $ 23,631 $ 20,231 $ 27,041 $ 19,560 $ 17,430 $ 21,320
Cash dividends paid...... $ 7,380 $ 5,229 $ 7,199 $ 6,008 $ 4,374 $ 3,943 $ 3,142
BALANCE SHEET DATA:
Total assets............. $2,715,539 $1,546,105 $1,857,789 $1,106,083 $ 917,922 $ 768,019 $ 486,431
Stockholders' equity..... $ 259,382 $ 170,679 $ 186,955 $ 150,531 $ 129,017 $ 90,496 $ 76,945
OPERATING DATA:
Mortgage loans originated
and purchased.......... $1,497,000 $ 716,000 $1,037,000 $ 817,000 $ 636,000 $ 824,000 $1,433,000
Loan servicing
portfolio.............. $5,500,000 $3,600,000 $4,655,000 $3,068,000 $2,668,000 $2,644,000 $2,375,000
SELECTED RATIOS:
Return on Average
Assets(1).............. 2.21% 2.38% 1.37% 2.68% 2.32% 2.78% 5.28%
Return on Average
Equity(2).............. 22.69% 19.62% 11.99% 19.35% 17.82% 20.82% 31.49%
</TABLE>
- ---------------
(1) This ratio is computed by dividing net income by average total assets for
the period.
(2) This ratio is computed by dividing net income by average stockholders'
equity for the period.
5
<PAGE> 7
CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERENCE SECURITY DIVIDENDS
The ratios presented below measure Doral Financial's ability to generate
earnings sufficient to pay the fixed charges or expenses of its debt and
dividends on its preferred stock. The ratios of earnings to combined fixed
charges and preference security dividends were computed by dividing earnings by
combined fixed charges and preferred stock dividends.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 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............... 1.52x 1.61x 1.67x 1.49x 1.76x 3.75x
Excluding Interest on Deposits............... 1.60x 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 fixed charges (excluding capitalized
interest) and amortization of capitalized interest. Fixed charges consist of
interest expense, capitalized interest, amortization of debt issuance costs, and
Doral Financial's estimate of the interest component of rental expense. Ratios
are presented both including and excluding interest on deposits.
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 Doral Financial consist solely of preferred stock.
6
<PAGE> 8
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 SUBJECT TO DISCRETION OF BOARD OF DIRECTORS
Doral Financial is not obligated or required to pay dividends on the Series
A Preferred Stock. The Board of Directors must specifically vote to declare and
pay each monthly dividend before you are entitled to receive such dividend.
NONCUMULATIVE NATURE OF DIVIDENDS
If the Board of Directors of Doral Financial does not declare a dividend
for a particular monthly dividend period, you will not be entitled to receive
such dividend in the future.
REGULATORY RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
The Federal Reserve Board has issued a policy statement that a bank holding
company such as Doral Financial should pay dividends only out of its current
operating earnings. To the extent Doral Financial does not have sufficient
current earnings in the future to pay dividends on the Series A Preferred Stock,
it may have to refrain from paying dividends.
In addition, Doral Financial's banking subsidiaries are subject to
regulatory restrictions that could prevent them from making distributions to
Doral Financial at times when such distributions are needed to make dividend
payments on the Series A Preferred Stock.
CONTRACTUAL RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
Doral Financial is a party to various loan agreements which limit its
ability to pay dividends. These agreements generally prohibit Doral Financial
from paying dividends if it is in default under such agreements. In addition,
the agreement pursuant to which Doral Financial issued its 7.84% Senior Notes
due 2006, prohibits Doral Financial from paying dividends if the aggregate
amount of dividends paid on its capital stock, including the Series A Preferred
Stock, would exceed the sum of the following:
- 50% of consolidated net income earned since October 1, 1996, and prior to
the end of the 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 September 30, 1998, after giving effect to this offering, Doral
Financial could have paid up to $139.3 million in dividends under the above
test.
INTEREST RATE FLUCTUATIONS
Interest rate fluctuations is the primary market risk affecting Doral
Financial. Changes in interest rates affect the following areas of its business:
- the number of mortgage loans originated and purchased;
- the interest rate spread earned on loans and securities;
7
<PAGE> 9
- gain on sale of loans;
- the value of securities holdings; and
- the value of mortgage servicing assets.
Demand for Mortgage Loans. Higher interest rates generally increase the
cost of mortgage loans to consumers and reduce demand for mortgage loans.
Reduced demand for mortgage loans results in reduced loan originations by Doral
Financial and lower income related to such originations. Demand for refinance
loans is particularly sensitive to increases in interest rates. Doral Financial
has consistently relied on refinance loans for a significant portion of its
mortgage loan production. For the nine months ended September 30, 1998, and the
years ended December 31, 1997, 1996, and 1995, refinance loans represented
approximately 62%, 51%, 47% and 41%, respectively, of its total dollar volume of
loans originated.
Net Interest Income. Increases in short-term interest rates adversely
affect Doral Financial's net interest income. Net interest income is an
important element of Doral Financial's earnings. Net interest income or spread
is the difference between the interest received by Doral Financial on its
mortgage loans, mortgage-backed securities and other interest earning assets and
the interest rates paid on its borrowings to finance the origination, purchase
and holding of such assets. Doral Financial's interest earning assets, such as
its mortgage loans and mortgage-backed securities, tend to have longer
maturities while its borrowings tend to have maturities of less than one year.
Because short-term interest rates are generally lower than long-term interest
rates, Doral Financial is able to earn a spread or net interest income on such
assets.
Gain on Sale of Mortgage Loans. Changes in long-term interest rates
between the time Doral Financial commits to or establishes an interest rate on a
mortgage loan and the time it sells the loan or obtains a commitment for the
sale of such loan affect its gain or loss on the sale of such mortgage loan. If
interest rates go up during such period, Doral Financial may realize a reduced
gain or a loss on such sale.
Price Volatility of Mortgage Loans and Securities' Holdings. Increases in
interest rates could reduce the value of Doral Financial's fixed rate financial
assets and have an adverse impact on its earnings and financial condition. Doral
Financial owns a substantial portfolio of mortgage loans, mortgage-backed
securities and other debt securities with fixed interest rates. The market value
of an obligation with a fixed interest rate generally reacts inversely to
interest rate changes. When prevailing interest rates decline, its price usually
rises, and when prevailing interest rates rise, its price usually declines.
Effect on Servicing Asset. Increases in mortgage prepayment rates can
reduce Doral Financial's revenues by increasing the amortization of its
servicing asset or by causing Doral Financial to record a loss to reflect the
decrease in the value of such asset. Doral Financial records the fair value of
the future servicing fees it expects to receive on the mortgage loans it has
sold as an asset on its financial statements. Fair values are assigned by
reference to prices paid for comparable servicing rights in recent transactions.
The assigned fair value is then amortized over the expected life of the
servicing asset. Amortization of the servicing asset is recorded as an expense
and reduces Doral Financial's earnings. When changes in anticipated prepayment
rates reduce the expected life of the servicing asset, Doral Financial may be
required to increase the rate of amortization or recognize a loss or impairment
that must be charged to earnings.
CREDIT RISKS RELATED TO SALES OF NON-CONFORMING LOANS WITH RECOURSE
For the nine-month period ended September 30, 1998, approximately 44% of
the total volume of loans originated by Doral Financial consisted of mortgage
loans that did not qualify for the guarantee programs sponsored by GNMA, FNMA or
FHLMC. Doral Financial often sells such "non-conforming loans" on a recourse or
partial recourse basis. Under such arrangements, Doral Financial agrees to share
the credit risk with the purchaser of the mortgage loans. Doral Financial
suffers losses on such recourse arrangements when foreclosure sale proceeds of
the property underlying a defaulted mortgage loan are less than the outstanding
principal balance and accrued interest of such mortgage loan and the cost of
holding and disposing of such property. As of September 30, 1998, Doral
Financial's outstanding recourse obligations with respect to mortgage loans
being serviced on a recourse or partial recourse basis was $329.5 million.
8
<PAGE> 10
INCREASED CREDIT RISK RELATED TO COMMERCIAL LOANS
Doral Financial and its subsidiaries have recently become more active in
originating mortgage loans secured by income producing commercial properties and
apartment buildings. Such loans involve greater credit risks than residential
mortgage loans because they are larger in size and more risk is concentrated in
a single borrower. The properties securing such loans are also harder to dispose
of in foreclosure. For the nine month period ended September 30, 1998, Doral
Financial originated approximately $93.9 million in mortgage loans secured by
income producing commercial properties and apartment buildings.
LACK OF GEOGRAPHIC DIVERSIFICATION
During the nine months ended September 30, 1998, and the year ended
December 31, 1997, 95% and 99%, respectively, of Doral Financial's mortgage loan
originations 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.
YEAR 2000 RISKS
Doral Financial relies on the use of date calculations in its daily
operations for matters such as interest accruals, maturity dates, delinquency
status and customer statements. While Doral Financial has taken steps to ensure
that its computer hardware, software systems and data processing applications
can properly process and calculate date-related information after January 1,
2000, Doral Financial can give no assurance that problems suffered by providers
of basic services, such as telephone, water, sewer and electricity, will not
have an adverse impact on its daily operations. Doral Financial is in the
process of revising its existing business interruption contingency plans to
address any disruptions of such basic services. These contingency plans will
provide for, among other things, performing certain functions manually.
FORWARD-LOOKING STATEMENTS
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.
RECENT DEVELOPMENTS
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, Doral Financial's mortgage banking,
commercial banking and securities operations were fully operational within two
days. While the disruption caused by Hurricane Georges has resulted in some
short-term increases in delinquency rates, Doral Financial does not anticipate
that the effects of the hurricane will have a material adverse effect on its
financial condition or results of operations. The structures securing Doral
Financial's mortgage loans are almost all constructed of concrete and Doral
Financial requires that borrowers obtain property insurance as a condition of
lending.
9
<PAGE> 11
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, Doral Financial 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. Doral Financial intends to sell most of
these loans to third parties and to retain the servicing rights.
During the third quarter of 1998, Doral Financial also commenced a
wholesale mortgage operation in the Chicago metropolitan area through its
subsidiary, Doral Money, Inc. This operation is primarily dedicated to the
purchase of residential mortgage loans that conform to the requirements of the
Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association, the packaging of such loans into FHLMC or FNMA 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.
Doral Financial 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 to Doral Financial after deducting expenses from the sale
of shares of Series A Preferred Stock are estimated at approximately
$62,652,500. If the Underwriters' over-allotment option is exercised in full,
such net proceeds are estimated at $72,095,375. Doral Financial intends to use
such net proceeds for general corporate purposes, which may include:
- making capital contributions to its banking and non-banking subsidiaries;
- 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;
- funding possible acquisitions of mortgage banking and other financial
institutions; and
- increasing working capital.
Doral Financial has no current agreements or understandings regarding any
possible acquisitions.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the unaudited indebtedness and
capitalization of Doral Financial at September 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 reflected below, Doral
Financial had deposits of $410.8 million. This table should be read in
conjunction with Doral Financial'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............................................. $ 416,150 $ 416,150
Short-term portion of notes payable....................... 64,429 64,429
Short-term portion of securities sold under agreements to
repurchase............................................. 1,030,152 1,030,152
---------- ----------
Total short-term borrowings....................... $1,510,731 $1,510,731
========== ==========
Long-term borrowings
Long-term portion of notes payable........................ $ 53,410 $ 53,410
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........................ $ 260,610 $ 260,610
========== ==========
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......................................... 144,851 144,851
Accumulated other comprehensive income(2)................. 2,138 2,138
Treasury Stock at par value, 56,000 shares................ (56) (56)
---------- ----------
Total stockholders' equity........................ $ 259,382 $ 322,035
========== ==========
</TABLE>
- ---------------
(1) Does not include up to 1,933,714 shares of Common Stock issuable upon
conversion of outstanding shares of 8% Convertible Cumulative Preferred
Stock.
(2) Consists of unrealized gain on securities available for sale, net of
deferred tax.
11
<PAGE> 13
SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial and
operating data of Doral Financial on a historical basis as of and for the
nine-month periods ended September 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 Doral Financial's Consolidated Financial Statements and related
notes thereto incorporated by reference in this prospectus. Financial
information for the nine-month periods ended September 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 nine-month period ended September 30, 1998, are not necessarily
indicative of results for the full year.
Net income for 1994 includes the cumulative effect of a change in the
method of accounting for unrealized gains and losses on trading securities. In
connection with the adoption of a new accounting pronouncement in 1994, Doral
Financial reclassified approximately $132 million of mortgage-backed securities
and recognized a gain of $1.2 million.
Net income for the year ended December 31, 1997, reflects a non-cash
extraordinary charge to earnings of $12.3 million resulting from the issuance to
Popular, Inc. of shares of convertible preferred stock in exchange for the
cancellation of $8.5 million of Doral Financial's subordinated debentures owned
by Popular, Inc. The charge represented the excess of the fair value of the
preferred stock on the date of the exchange over the net carrying amount of the
debentures on Doral Financial's financial statements. The return on average
assets and return on average equity ratios computed on income before
extraordinary item for the year ended December 31, 1997, would have been 2.19%
and 19.29%, respectively.
The return on average assets and average equity ratios for the nine-month
periods ended September 30, 1998 and 1997, have been presented on an annualized
basis.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 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......... $ 104,563 $ 64,099 $ 90,131 $ 66,987 $ 61,907 $ 46,508 $ 23,775
Interest expense........ 80,368 43,214 61,438 46,443 43,380 23,252 9,710
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income..... 24,195 20,885 28,693 20,544 18,527 23,256 14,065
Provision for loan
losses................ 474 609 600 655 110 168 23
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 23,721 20,276 28,093 19,889 18,417 23,088 14,042
Non-interest income..... 59,209 30,214 45,286 40,846 29,930 25,535 46,453
Non-interest expense.... 40,129 23,669 35,582 29,456 26,287 29,878 29,574
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes,
cumulative effect and
extraordinary item.... 42,801 26,821 37,797 31,279 22,060 18,745 30,921
Income taxes............ 4,823 3,190 5,249 4,238 2,500 2,530 9,601
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before cumulative
effect and
extraordinary item.... 37,978 23,631 32,548 27,041 19,560 16,215 21,320
Cumulative effect of
change in accounting
principle............. -- -- -- -- -- 1,215 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
extraordinary item.... 37,978 23,631 32,548 27,041 19,560 17,430 21,320
Extraordinary
item -- non-cash loss
on extinguishment of
debt.................. -- -- 12,317 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 37,978 $ 23,631 $ 20,231 $ 27,041 $ 19,560 $ 17,430 $ 21,320
=========== =========== =========== =========== =========== =========== ===========
Cash dividends
paid.......... $ 7,380 $ 5,229 $ 7,199 $ 6,008 $ 4,374 $ 3,943 $ 3,142
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 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>
BALANCE SHEET DATA:(1)
Mortgage loans held for
sale.................. $ 670,194 $ 326,252 $ 406,297 $ 261,608 $ 245,484 $ 263,773 $ 262,515
Securities held for
trading, net.......... 692,405 611,297 620,288 436,125 418,348 327,960 129,180
Securities held to
maturity.............. 130,764 191,024 143,534 107,222 77,945 66,804 6,530
Securities available for
sale.................. 490,641 71,548 240,876 12,007 14,579 -- --
Loans receivable, net... 200,327 165,702 133,055 128,766 51,355 34,809 9,561
Total assets............ 2,715,539 1,546,105 1,857,789 1,106,083 917,922 768,019 486,431
Loans payable and
securities sold under
agreements to
repurchase............ 1,546,502 907,056 1,103,448 584,294 598,436 569,436 335,994
Notes payable........... 192,839 150,141 164,934 152,126 51,682 17,055 --
Deposits accounts....... 410,772 250,945 300,494 158,902 95,740 66,471 26,451
Stockholders' equity.... 259,382 170,679 186,955 150,531 129,017 90,496 76,945
NET INCOME PER COMMON
SHARE:(2)
Basic:
Income before
cumulative effect
and extraordinary
item................ $ 0.94 $ 0.65 $ 0.89 $ 0.75 $ 0.67 $ 0.58 $ 0.79
Cumulative effect..... -- -- -- -- -- 0.04 --
Extraordinary item.... -- -- (0.34) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 0.94 $ 0.65 $ 0.55 $ 0.75 $ 0.67 $ 0.62 $ 0.79
=========== =========== =========== =========== =========== =========== ===========
Diluted:
Income before
cumulative effect
and extraordinary
item................ $ 0.91 $ 0.62 $ 0.85 $ 0.71 $ 0.64 $ 0.54 $ 0.71
Cumulative effect..... -- -- -- -- -- 0.04 --
Extraordinary item.... -- -- (0.32) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income...... $ 0.91 $ 0.62 $ 0.53 $ 0.71 $ 0.64 $ 0.58 $ 0.71
=========== =========== =========== =========== =========== =========== ===========
OTHER PER SHARE DATA:(2)
Cash dividends:
Common Stock.......... $ 0.17 $ 0.14 $ 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............... 60.00 -- 15.33 -- -- -- --
Weighted average shares
outstanding:
Basic................. 39,776,664 36,641,484 36,680,158 36,266,244 29,231,680 27,770,936 26,459,416
Diluted............... 41,743,051 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............. $ 1,497,000 $ 716,000 $ 1,037,000 $ 817,000 $ 636,000 $ 824,000 $ 1,433,000
Loan Servicing
Portfolio........... 5,500,000 3,600,000 4,655,000 3,068,000 2,668,000 2,644,000 2,375,000
SELECTED RATIOS:
Return on Average
Assets(3)............. 2.21% 2.38% 1.37% 2.68% 2.32% 2.78% 5.28%
Return on Average
Equity(4)............. 22.69% 19.62% 11.99% 19.35% 17.82% 20.82% 31.49%
Average Equity to
Average Assets(5)..... 9.76% 12.11% 11.39% 13.81% 13.02% 13.35% 16.77%
</TABLE>
- ---------------
(1) Certain reclassifications of prior years' data have been made to conform to
1997 classifications.
(2) Adjusted to reflect two-for-one stock splits effected on August 28, 1997,
and May 20, 1998.
(3) This ratio is computed by dividing net income by average assets for the
period.
(4) This ratio is computed by dividing net income by average stockholders'
equity for the period.
(5) This ratio is computed by dividing average assets for the period by average
stockholders' equity.
13
<PAGE> 15
SUMMARY OF CERTAIN TERMS OF THE SERIES A PREFERRED STOCK
The following summary contains a description of the material terms of the
Series A Preferred Stock. The summary is subject to and qualified in its
entirety by reference to Doral Financial's Restated Certificate of Incorporation
and to the Certificate of Designation creating the Series A Preferred Stock (the
"Certificate of Designation"), copies of which are incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.
DIVIDENDS
If declared at the option of Doral Financial's Board of Directors, holders
of record of the Series A Preferred Stock will be entitled to receive cash
dividends in the amount of $ per share each year, which is equivalent
to % of the liquidation preference of $50 per share. Doral Financial is not
required to declare or pay dividends on the Series A Preferred Stock, even if it
has funds available for the payment of such dividends. Dividends may only be
paid out of funds that are legally available for such purpose.
Dividends on the Series A Preferred Stock will accrue from their date of
original issuance and will be payable on the last day of each month in United
States dollars commencing on , 1999. Payment of dividends will be made
to the holders of record of the Series A Preferred Stock as they appear on the
books of Doral Financial on the second Business Day immediately preceding the
relevant date of payment. In the case of the dividend payable on ,
1999, such dividend shall cover the period from the date of issuance of the
Series A Preferred Stock to , 1999. If any date on which dividends are
payable is not a Business Day, then payment of the dividend will be made on the
next Business Day without any interest or other payment in respect of any such
delay. If December 31 of any year is not a Business Day, then the dividend
payable on such date will be made on the immediately preceding Business Day. 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. If the
Board of Directors does not declare a dividend for any monthly dividend period
on the Series A Preferred Stock, then the holders of Series A Preferred Stock
will not have a right to receive a dividend for such monthly dividend period,
whether or not dividends on the Series A Preferred Stock are declared for any
future monthly dividend period.
Dividends for any monthly dividend period will be paid in equal
installments in the amount of $ per share. 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.
Dividend payments will be mailed to the record holders of the Series A
Preferred Stock at their addresses appearing on the register for the Series A
Preferred Stock.
The terms of the Series A Preferred Stock do not permit Doral Financial to
declare, set apart or pay any dividend or make any other distribution of assets
on, or redeem, purchase, set apart or otherwise acquire shares of common stock
or of any other class of stock of Doral Financial 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 Doral Financial, unless
certain conditions are met. Such conditions are (1) 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, (2) 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
(3) Doral Financial 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 Doral Financial." The above limitations do not apply to stock
dividends or other distributions made in stock of Doral Financial ranking junior
to the Series A Preferred Stock as to the payment of dividends and as to the
distribution of assets. The above limitations also do not apply to conversions
or exchanges for stock of Doral Financial ranking junior to the Series A
Preferred Stock as to the payment of dividends and as to the distribution of
assets.
14
<PAGE> 16
If Doral Financial does not pay in full the dividends on the Series A
Preferred Stock and on any other shares of stock of equal rank 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 will be declared pro
rata. In making such pro rata payments the amount of dividends declared per
share on the shares of Series A Preferred Stock and any such other shares of
stock will bear to each other the same ratio that the liquidation preference per
share of the Series A Preferred Stock and any such other shares 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 Doral Financial's
ability to pay dividends, see "Risk Factors -- Payment of
Dividends -- Regulatory Considerations."
NO CONVERSION OR EXCHANGE RIGHTS
The Series A Preferred Stock will not be convertible into or exchangeable
for any other securities of Doral Financial.
REDEMPTION AT THE OPTION OF DORAL FINANCIAL
Doral Financial may not redeem the shares of the Series A Preferred Stock
prior to , 2004. On and after that date, Doral Financial may redeem,
at its option, the shares of the Series A Preferred Stock in whole or in part
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 of
the years set forth below, plus accrued and unpaid dividends for the then
current monthly dividend period to the redemption date.
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
2004........................................................ $51.00
2005........................................................ 50.50
2006 and thereafter......................................... 50.00
</TABLE>
In the event that Doral Financial elects to redeem less than all of the
outstanding shares of the Series A Preferred Stock, the shares to be redeemed
will be allocated pro rata or by lot as may be determined by the Board of
Directors of Doral Financial, or by such other method as the Board of Directors
may approve and deem equitable. Any method chosen by Doral Financial will
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.
Doral Financial will mail a notice of any proposed redemption to the
holders of record of the shares of Series A Preferred Stock to be redeemed, at
their address of record, not less than 30 nor more than 60 days prior to the
redemption date. The notice of redemption to each holder of shares of Series A
Preferred Stock will 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 the redemption date
dividends will cease to accrue. If Doral Financial redeems less than all the
shares owned by a holder, the notice shall also specify the number of shares of
Series A Preferred Stock of such holder which are to be redeemed and the numbers
of the certificates representing such shares. Any notice mailed in accordance
with these procedures shall be conclusively presumed to have been properly
given, whether or not the stockholder receives such notice. The failure by Doral
Financial 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.
If the redemption notice is properly mailed and Doral Financial pays the
redemption price, from and after the redemption date, all dividends on the
shares of Series A Preferred Stock called for redemption shall cease to accrue
and all rights of the holders of the shares being redeemed as stockholders of
Doral Financial shall cease on the redemption date. Holders will retain the
right to receive the redemption price upon presentation of their stock
certificates. If Doral Financial redeems less than all the shares represented by
any certificate, a new certificate representing the unredeemed shares shall be
issued without cost to the holder.
15
<PAGE> 17
At its option, Doral Financial 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 Doral Financial having its principal office in New York, New York,
San Juan, Puerto Rico, or any other city in which Doral Financial shall at that
time maintain a transfer agent with respect to its capital stock, and having a
combined capital and surplus of at least $50,000,000 (hereinafter referred to as
the "Depositary"). The Depositary will hold such amount in trust 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 deposited are immediately available to the
holders of the shares of the Series A Preferred Stock to be redeemed, Doral
Financial shall be released and discharged from any obligation to make payment
of the amount payable upon redemption of the shares of the Series A Preferred
Stock to be redeemed. Following the deposit, except as discussed in the next
paragraph, holders of such shares shall look only to the Depositary for such
payment.
Any funds remaining unclaimed at the end of two years after the redemption
date in respect of which such funds were deposited shall be returned to Doral
Financial. After the funds are returned to Doral Financial, the holders of
shares called for redemption shall look only to Doral Financial for the payment
of the redemption price. Any interest accrued on any funds deposited with the
Depositary will belong to Doral Financial and shall be paid to it on demand.
After the redemption of any shares of the Series A Preferred Stock, such
shares will 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 of
Doral Financial.
Certain Regulatory Considerations Affecting Redemptions
Under current regulations, Doral Financial may not redeem the Series A
Preferred Stock, without the prior approval of the Federal Reserve Board.
Ordinarily, the Federal Reserve Board will not permit such a redemption unless
(1) the shares are redeemed with the proceeds of a sale of common stock or
perpetual preferred stock, or (2) the Federal Reserve Board determines that
Doral Financial's condition and circumstances warrant the reduction of a source
of permanent capital.
Also, under Puerto Rico law, Doral Financial may not redeem any shares of
its capital stock unless the assets remaining after such redemption are
sufficient to pay any debts for which payment has not otherwise been provided.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution, or winding up of Doral Financial, the
then record holders of shares of Series A Preferred Stock will be entitled to
receive out of the assets of Doral Financial available for distribution to
shareholders, before any distribution is made to holders of common stock or any
other equity securities of Doral Financial ranking junior upon liquidation to
the Series A Preferred Stock, 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 such liquidation, dissolution or winding up of Doral Financial,
the amounts payable with respect to the Series A Preferred Stock and any other
shares of stock of equal rank as to any such distribution 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 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 Doral Financial.
A consolidation or merger of Doral Financial with any other corporation, or
any sale, lease or conveyance of all or any part of the property or business of
Doral Financial, shall not be deemed to be a liquidation, dissolution, or
winding up of Doral Financial.
16
<PAGE> 18
VOTING RIGHTS
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 Doral Financial,
except as described below or as required by applicable law.
If Doral Financial 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 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,
will be entitled to appoint two additional members of the Board of Directors of
Doral Financial. They will also have the right to remove any such member from
office and appoint another person in place of such member. To effect such
appointment, the holders of a majority in liquidation preference of such shares
must send written notice to Doral Financial of such appointment or pass a
resolution adopted by such majority of holders at a separate general meeting of
such holders convened for such purpose. Not later than 30 days after the right
of holders of Series A Preferred Stock to elect directors 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 of Doral
Financial or an authorized committee thereof is required to convene a separate
general meeting for this purpose. If the Board of Directors 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
Doral Financial 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 appointed as set forth above shall vacate
office if Doral Financial resumes the payment of dividends in full on the Series
A Preferred Stock and each such other series of stock for twelve consecutive
monthly dividend periods. The By-laws of Doral Financial 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, Doral Financial's Board of Directors consisted of
eight members.
Any change or abrogation of the rights and preferences of the Series A
Preferred Stock will require the approval of holders of at least two thirds of
the outstanding aggregate liquidation preference of the Series A Preferred
Stock. Such approval can by evidenced either by a consent in writing or by a
resolution passed at a meeting of the holders of the Series A Preferred Stock.
The authorization or issuance of any shares of Doral Financial ranking, as to
dividend rights or rights on liquidation or similar events, senior to the Series
A Preferred Stock shall be considered a change requiring the consent of the
Series A Preferred Stock. Conversely, the authorization or issuance of shares
ranking, as to dividend rights or rights on liquidation or similar events, on a
parity or junior to the Series A Preferred Stock, will not be considered a
change or abrogation of the rights of the Series A Preferred Stock and the
consent of the holders of the Series A Preferred Stock will not be required in
connection with any such action.
No vote of the holders of the Series A Preferred Stock will be required for
Doral Financial to redeem or purchase and cancel the Series A Preferred Stock in
accordance with the Restated Certificate of Incorporation or the Certificate of
Designation for the Series A Preferred Stock.
Doral Financial 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 (1) the date of such meeting, (2) a description of any resolution
to be proposed for adoption at such meeting, and (3) 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." In such instance, a holder of 25% or more of the
Series A Preferred Stock could then be subject to regulation as a bank holding
company in accordance with the Bank Holding Company Act. A holder of 5% that
otherwise exercises a "controlling influence" over Doral Financial could also be
subject to regulation under the Bank Holding Company Act. In addition, at such
time as the Series A Preferred Stock is deemed a class of voting securities, (1)
any other bank holding company may be
17
<PAGE> 19
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 (2)
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 that the Office of the
Commissioner of Financial Institutions of Puerto Rico approve any change of
control involving a bank organized under the Banking Law. The Banking Law
requires that the Office of the Commissioner be informed not less than 60 days
prior to any transfer of voting stock of a Puerto Rico bank that results in any
person owning, directly or indirectly, more than 5% of the outstanding voting
stock of said 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 Doral
Financial.
Pursuant to 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 Doral Financial, the Office of the Commissioner shall have
the duty to investigate and determine whether a change of control is involved.
The Office of the Commissioner shall issue an authorization for the transfer of
control of Doral Financial 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:
- senior to all classes of common stock of Doral Financial, and to all
other equity securities issued by Doral Financial the terms of which
specifically provide that such equity securities will rank junior to the
Series A Preferred Stock;
- on a parity with Doral Financial's outstanding 8% Convertible Cumulative
Preferred Stock (Liquidation Preference $1,000 per share) and with all
other equity securities issued by Doral Financial the terms of which
specifically provide that such equity securities will have equal rank as
the Series A Preferred Stock; and
- junior to all equity securities issued by Doral Financial the terms of
which specifically provide that such equity securities will rank senior
to the Series A Preferred Stock.
For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.
Doral Financial may not issue shares 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 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.
18
<PAGE> 20
Registration of transfers of shares of Series A Preferred Stock will be
effected without charge by or on behalf of Doral Financial, but upon payment of
any tax or other governmental charges which may be imposed in relation to it or
the giving of such indemnity as the transfer agent and registrar may require.
Doral Financial 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, the holder may request a new
certificate representing the same share. Doral Financial will issue a new
certificate subject to delivery of the old certificate or, if alleged to have
been lost, stolen or destroyed, compliance with such conditions as to evidence
of ownership, indemnity and the payment of out-of-pocket expenses of Doral
Financial as Doral Financial 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 Doral
Financial.
NO REPURCHASE AT THE OPTION OF THE HOLDERS
Holders of the Series A Preferred Stock will have no right to require Doral
Financial to redeem or repurchase any shares of Series A Preferred Stock.
NO MANDATORY REDEMPTION OR SINKING FUNDING OBLIGATION
The shares of Series A Preferred Stock are not subject to any mandatory
redemption, sinking fund or similar obligation.
PURCHASE OF SHARES BY DORAL FINANCIAL
Doral Financial 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
Doral Financial 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 following is a summary of certain rights and privileges of the Common
Stock and Serial Preferred Stock. Statements in this summary are qualified in
their entirety by reference to Doral Financial's Restated Certificate of
Incorporation and the amendments thereto and to the General Corporation Law of
Puerto Rico.
COMMON STOCK
As of December 1, 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 Doral Financial's authorized but unissued shares had
been reserved for possible issuance upon the conversion of all outstanding
shares of Doral Financial'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 Doral Financial's 1997 Employee Stock Option Plan and
Restricted Stock Plan, respectively. In addition, 800,000 shares were reserved
for issuance to honor certain contractual purchase rights to a private investor.
The Common Stock is traded in the over-the-counter market on the NASDAQ National
Market System under the symbol "DORL." 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.
19
<PAGE> 21
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 Doral Financial, the
holders of Common Stock are entitled to share ratably in the assets 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 Doral Financial.
ChaseMellon Shareholder Services, LLC is the transfer agent and registrar
for the Common Stock.
SERIAL PREFERRED STOCK
The Restated Certificate of Incorporation authorizes the Board of Directors
to fix the designation, voting powers, preferences, limitations and relative
rights of any series of Doral Financial's Serial Preferred Stock at the time of
issuance. As of the date of this prospectus, the 8% Preferred Stock described
below is the only series of Serial Preferred Stock designated by Doral
Financial, other than the Series A Preferred Stock.
OUTSTANDING SERIAL PREFERRED STOCK
Doral Financial has outstanding 8,460 shares of 8% Preferred Stock. All
shares of 8% Preferred Stock are held by Popular, Inc. Popular acquired the 8%
Preferred Stock in a private transaction with Doral Financial, in which Popular
exchanged convertible debentures of Doral Financial in the principal amount of
$8.46 million it had previously acquired. Popular is the parent company of
Popular Securities, Inc., one of the underwriters of this offering.
Doral Financial entered into the exchange because the 8% Preferred Stock
qualified as Tier 1 capital for purposes of compliance with the regulatory
requirements applicable to bank holding companies whereas the convertible
debentures did not qualify for such treatment.
Dividend Rights and Limitations. The holders of the shares of 8% Preferred
Stock are entitled to receive cumulative cash dividends when, as and if declared
by the Board of Directors, at the annual rate of 8% of the $1,000 liquidation
preference thereof payable monthly. The holders of the 8% Preferred Stock are
entitled to receive such dividends prior to any payment of dividends or
distribution of assets 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.
Liquidation Rights. Upon the liquidation, dissolution or winding up of
Doral Financial, whether voluntary or involuntary, the holders of the 8%
Preferred Stock are entitled to receive out of the assets of Doral Financial an
amount in cash equal to $1,000 per share plus accrued and unpaid dividends
thereon to the date of such distribution. Such distribution must be made before
any payment may be made to the holders of Common Stock or any other securities
of Doral Financial 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 Doral Financial may be made
to the holders of the shares of any class or series of stock ranking on a parity
with the 8% Preferred Stock as to the distribution of assets upon liquidation,
unless the holders of the 8% Preferred Stock receive like 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.
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 Doral
Financial.
20
<PAGE> 22
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
Doral Financial at any time on or before 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. 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 Doral Financial 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 in connection with
any changes or abrogations of the terms or rights of the 8% Preferred Stock.
Rank vis-a-vis Series A Preferred Stock. The 8% Preferred Stock will have
the same rank as 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
Doral Financial.
TAXATION
GENERAL
The following is a summary of the material Puerto Rico and United States
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 YOUR 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 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 Doral Financial
with respect to Series A Preferred Stock will be treated as dividends to the
extent that Doral Financial has current or accumulated
21
<PAGE> 23
earnings and profits. To the extent that a distribution exceeds Doral
Financial'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. Doral Financial 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. This tax is generally required to be withheld by Doral
Financial. 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 the 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 Doral Financial. 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 Doral Financial 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 Doral Financial 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 Doral Financial 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
Doral Financial.
22
<PAGE> 24
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.
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 above under
"-- United States Citizens Not Residents of Puerto Rico." However, if the gain
resulting from the sale or exchange of Series A Preferred Stock constitutes
income from sources within Puerto Rico, an
23
<PAGE> 25
amount equal to 25% of the payments received will be withheld at the source;
provided, 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 (1) from sources within Puerto Rico or (2) 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.
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 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 Doral
Financial'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 (1) a redemption of stock that completely terminates a
shareholder's interest in a corporation does not constitute a dividend, and (2)
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 under the United States Internal Revenue Code of
1986, 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
24
<PAGE> 26
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.
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 (the "Code"), existing and proposed regulations of
the U.S. Department of the Treasury promulgated thereunder, 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, "Subchapter S Corporations," life insurance companies, tax
exempt entities, dealers in securities, financial institutions, or to persons
whose functional currency is not the U.S. dollar.
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:
- a citizen or resident of the United States,
- a corporation organized under the laws of a state of the United States,
- a corporation organized under the laws of the United States or of any
political subdivision thereof, or
25
<PAGE> 27
- 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 PR
Corporations. 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 Doral Financial's gross income on an ongoing
basis is effectively connected with a trade or business in the United States.
Since its incorporation in 1972, Doral Financial has not, nor does it expect in
the future, that 25% or more of its gross income will be effectively connected
with a trade or business in the United States. Accordingly, dividends on the
Series A Preferred Stock distributed by Doral Financial 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 Doral Financial 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
Doral Financial 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 Doral Financial 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 Doral Financial 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 Doral Financial 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 Doral
Financial 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."
26
<PAGE> 28
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 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 (1) will constitute income from sources within
Puerto Rico, (2) will not be includable in such stockholder's gross income and
(3) will be exempt from United States federal income taxation. Also, 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 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 corporate 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 the PFIC provisions
of the Code (the "Proposed Regulations"), Doral Financial believes that it has
not been a PFIC for any of its prior taxable years and expects to conduct its
affairs in a manner so that it will not meet the criteria to be considered a
PFIC in the foreseeable future. If, contrary to Doral Financial'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 Doral Financial remains a PFIC) with respect to (1) any
"excess distribution" by Doral Financial to the U.S. Holder and (2) any gain
realized on the sale, pledge or other disposition of Series A Preferred Stock.
An "excess distribution" is, generally, any distributions received by the U.S.
Holder
27
<PAGE> 29
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.
Under such rules, (1) the excess distribution or gain would be allocated
ratably over the U.S. Holder's holding period for the Series A Preferred Stock,
(2) the amount allocated to the current taxable year and any taxable year prior
to the first taxable year in which Doral Financial is a PFIC would be taxed as
ordinary income, and (3) 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 Doral Financial 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. Holders
would be subject to the rule described in (3) 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).
Under current law, if Doral Financial 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
Doral Financial 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.
28
<PAGE> 30
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), Doral Financial has agreed to sell to each of
the Underwriters named below, and each of the Underwriters severally has agreed
to purchase from Doral Financial, 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, Doral
Financial 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 and to certain selected dealers at such public offering price
less a concession not to exceed $ per share. The Underwriters or such
selected dealers may reallow a commission to certain other dealers not to exceed
$ per share. After the offering to the public, the public offering price,
the concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
Doral Financial 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 Doral Financial as well as the
proceeds (before expenses of the offering) received by Doral Financial 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
Proceeds to Doral Financial............................... $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 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
29
<PAGE> 31
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.
Until the distribution of the Series A Preferred Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters to bid for and purchase the Series A Preferred Stock. As an
exception to these rules, the Underwriters may engage in certain transactions
that stabilize the price of the Series A Preferred Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Series A Preferred Stock.
If the Underwriters create a short position in the Series A Preferred Stock
in connection with the offering, i.e., if the Underwriters sell more shares of
Series A Preferred Stock than are set forth on the cover page of this
prospectus, they may reduce that short position by purchasing shares of Series A
Preferred Stock in the open market. The Underwriters may also elect to reduce
any short position by purchasing all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Doral Financial estimates that the total expenses of this offering,
excluding underwriting discounts and commissions, will be $300,000.
In connection with this offering, Doral Financial 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 Series A Preferred Stock has been 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, Doral Financial 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 Doral Financial'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 Doral Financial's
outstanding Common Stock.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows Doral Financial to
"incorporate by reference" the information it files with them, which means Doral
Financial 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 Doral Financial files with the SEC automatically updates and
supersedes previously filed information. Doral Financial has previously filed
the following documents with the SEC and is incorporating them by reference into
this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998; and
- Current Reports on Form 8-K dated January 21, 1998, October 7, 1998
and October 19, 1998.
Doral Financial 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, after the date of this prospectus and until all the shares being offered
by this prospectus are sold.
Doral Financial 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
30
<PAGE> 32
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
Doral Financial files annual, quarterly and current reports, proxy
statements and other information with the SEC. Doral Financial 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 Doral
Financial 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 Doral Financial 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. Doral Financial files its SEC materials
electronically with the SEC, so you can also review Doral Financial'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 Doral Financial by visiting our web site at
http://www.doralfinancial.com.
LEGAL MATTERS
The validity of the shares of Series A Preferred Stock offered hereby will
be passed upon for Doral Financial by Pietrantoni Mendez & Alvarez, San Juan,
Puerto Rico. As of December 22, 1998, attorneys working in Pietrantoni Mendez &
Alvarez owned, in the aggregate, approximately 2,864 shares of Common Stock of
Doral Financial. 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 Doral Financial 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.
31
<PAGE> 33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,300,000 SHARES
[DORAL FINANCIAL CORPORATION LOGO]
% 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
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 34
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 and the NASD filing 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 Doral Financial'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 provides that Doral
Financial shall indemnify its directors, officers and employees to the fullest
extent permitted by law. Doral Financial also maintains directors' and officers'
liability insurance on behalf of its directors and officers.
(c) Section 1 of Article IX of Doral Financial's By-laws (the "By-laws")
provides that Doral Financial 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 Doral Financial) by
reason of the fact that he is or was a director, officer, employee or agent of
Doral Financial or is or was serving at the request of Doral Financial 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 Doral
Financial, 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 Doral Financial 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
Doral Financial 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
II-1
<PAGE> 35
amounts 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 Doral Financial 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 Doral Financial 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 Doral Financial 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. Doral Financial 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 Doral Financial 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 Doral Financial may purchase and maintain insurance on behalf
of a director or officer of Doral Financial 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 Doral Financial 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 Doral Financial's Restated Certificate of Incorporation
and applicable law, Doral Financial (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.
<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
4(c) -- Second Restated Certificate of Incorporation of Doral
Financial (incorporated by reference to Exhibit No. 3.1(c)
of Doral Financial's Annual Report on Form 10-K for the year
ended December 31, 1997).
4(d) -- By-laws of Doral Financial, as amended as of October 19,
1998 (incorporated by reference to Exhibit No. 3.2 of Doral
Financial's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
5 -- Opinion regarding legality and consent of Pietrantoni Mendez
& Alvarez.
8 -- Opinion regarding tax matters of Pietrantoni Mendez &
Alvarez
</TABLE>
II-2
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <C> <S>
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>
- ---------------
* Previously filed.
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 of 1933 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
of 1933 may be permitted to directors, officers and controlling persons of Doral
Financial pursuant to the provision described under Item 15 above, or otherwise,
Doral Financial has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Doral Financial of expenses incurred or paid by a director, officer,
or controlling person of Doral Financial 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, Doral
Financial will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 37
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 Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in San Juan, Puerto Rico, on the 28th day of December, 1998.
DORAL FINANCIAL CORPORATION
By: /s/ RICHARD F. BONINI
------------------------------------
Richard F. Bonini
Senior Executive Vice President and
Chief Financial Officer
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>
* Chairman of the Board and December 28, 1998
- ----------------------------------------------------- Chief Executive Officer
Salomon Levis
/s/ RICHARD F. BONINI Senior Executive Vice December 28, 1998
- ----------------------------------------------------- President, Chief Financial
Richard F. Bonini Officer and Director
* Vice President and Chief December 28, 1998
- ----------------------------------------------------- Accounting Officer
Ricardo Melendez
* Director December 28, 1998
- -----------------------------------------------------
A. Brean Murray
* Director December 28, 1998
- -----------------------------------------------------
Edgar M. Cullman, Jr.
* Director December 28, 1998
- -----------------------------------------------------
John L. Ernst
* Director December 28, 1998
- -----------------------------------------------------
Efraim M. Kier
* Director December 28, 1998
- -----------------------------------------------------
Zoila Levis
* Director December 28, 1998
- -----------------------------------------------------
Victor M. Pons, Jr.
* /s/ RICHARD F. BONINI
- -----------------------------------------------------
Richard F. Bonini
as attorney-in-fact for
each of the persons indicated
</TABLE>
II-4
<PAGE> 38
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.
4 (c) -- Second Restated Certificate of Incorporation of Doral
Financial (incorporated by reference to Exhibit No. 3.1(c)
of Doral Financial's Annual Report on Form 10-K for the year
ended December 31, 1997).
4 (d) -- By-laws of Doral Financial, as amended as of October 19,
1998 (incorporated by reference to Exhibit No. 3.2 of Doral
Financial's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
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>
- ---------------
* Previously filed.
<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 ,
1999, 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, noncumulative cash dividends at the annual rate per share of __%
of their liquidation preferences, 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.
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 _____________, 1999, 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 __________,
1999, such dividend shall cover the period from the date of issuance of the
Series A Preferred Stock to __________, 1999. 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
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 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 liquidation
preference per share of the Series A Preferred Stock and any such other shares
of stock bear to each other.
<PAGE> 3
-3-
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 ______, 2004. 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 ___________ of the years set forth below, plus accrued and unpaid dividends
to the date fixed for redemption.
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2004................................ $51.00
2005................................ $50.50
2006 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 for the current monthly dividend period 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 the Corporation's outstanding 8% Convertible
Cumulative Preferred Stock (Liquidation Preference $1,000 per share) and with
all other 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
December 28, 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 (No. 333-66453) filed
with the Securities and Exchange Commission on or about October 30, 1998
as amended on the date hereof (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. The opinions
expressed above are limited to the laws of the Commonwealth of Puerto Rico and
any applicable federal laws and we 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
December 28, 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 (No. 333-66453), filed with
the Securities and Exchange Commission on or about October 30, 1998, as amended
on the date hereof (the "Registration Statement") 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
material 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>
NINE-MONTH PERIOD ENDING
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ -----------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 42,802 $ 37,797 $31,279
Plus:
Fixed Charges (excluding capitalized interest) 81,025 62,269 47,130
-------- -------- -------
TOTAL EARNINGS $123,827 $100,066 $78,409
======== ======== =======
FIXED CHARGES:
Interest expensed and capitalized $ 79,947 $ 60,912 $45,857
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 421 526 586
An estimate of the interest component within rental expense 783 831 687
-------- -------- -------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 81,151 62,269 47,130
-------- -------- -------
Preferred dividend requirements 507 130 14
Ratio of pre tax income to net income 1.127 1.161 1.156
-------- -------- -------
PREFERRED DIVIDEND FACTOR 571 151 16
-------- -------- -------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $ 81,723 $ 62,420 $47,147
======== ======== =======
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.52 1.61 1.67
======= ======== =======
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 42,802 $ 37,797 $31,279
Plus:
Fixed Charges (excluding capitalized interest) 68,993 52,255 41,604
-------- -------- -------
TOTAL EARNINGS $111,795 $ 90,052 $72,883
======== ======== =======
FIXED CHARGES:
Interest expensed and capitalized $ 67,915 $ 50,898 $40,331
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 421 526 586
An estimate of the interest component within rental expense 783 831 687
-------- -------- -------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 69,119 52,255 41,604
-------- -------- -------
Preferred dividend requirements 507 130 14
Ratio of pre tax income to net income 1.127 1.161 1.156
-------- -------- -------
PREFERRED DIVIDEND FACTOR 571 151 16
-------- -------- -------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $ 69,691 $ 52,406 $41,620
======== ======== =======
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.60 1.72 1.76
======== ======== =======
</TABLE>
<TABLE>
<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 (No-333-66453), as
amended, 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
PricewaterhouseCoopers LLP
San Juan, Puerto Rico
December 28, 1998
