<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________
TO _______________
COMMISSION FILE NUMBER 0-17224
DORAL FINANCIAL CORPORATION
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico 66-0312162
----------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1159 F.D. Roosevelt Avenue,
San Juan, Puerto Rico 00920-2998
- --------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (787) 749-7100
Former name, former address --------------
and
Former fiscal year, if changed Not Applicable
since last report --------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT NOVEMBER 12, 1999 - 40,428,920
<PAGE> 2
DORAL FINANCIAL CORPORATION
INDEX PAGE
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of September 30, 1999 (Unaudited) and
December 31, 1998................................................................................ 4
Consolidated Statements of Income and Retained Earnings (Unaudited) - Quarters ended
September 30, 1999 and September 30, 1998 and nine months ended September 30, 1999 and
September 30, 1998............................................................................... 5
Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 1999 and
September 30, 1998............................................................................... 6
Consolidated Statements of Comprehensive Income (Unaudited)-
Quarters ended September 30, 1999 and September 30, 1998 and nine
months ended September 30, 1999 and September 30, 1998........................................... 7
Notes to Consolidated Financial Statements....................................................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............ 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk....................................... 36
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings................................................................................ 36
Item 2 - Changes in Securities............................................................................ 36
Item 3 - Defaults Upon Senior Securities.................................................................. 36
Item 4 - Submission of Matters to a Vote of Security Holders.............................................. 36
Item 5 - Other Information................................................................................ 37
Item 6 - Exhibits and Reports on Form 8-K................................................................. 37
SIGNATURES..................................................................................................... 38
</TABLE>
2
<PAGE> 3
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities, competitive and regulatory
factors and legislative changes, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
3
<PAGE> 4
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(unaudited) (audited)
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,152 $ 31,945
------------- ------------
Money market investments:
Securities purchased under agreements to resell 20,208 120,733
Time deposits with other banks 134,201 51,549
Other short term investments, at cost 40,900 140,469
------------- ------------
Total money market investments 195,309 312,751
------------- ------------
Loans:
Mortgage loans held for sale, at lower of cost or market 991,449 883,048
Loans receivable, net 190,922 166,987
------------- ------------
Total loans 1,182,371 1,050,035
------------- ------------
Investment securities and other instruments:
Trading securities, at fair value 770,931 606,918
Securities available-for-sale, at fair value 67,906 408,888
Securities held-to-maturity, at amortized cost 1,255,142 190,778
Federal Home Loan Bank of NY (FHLB) stock, at cost 16,320 6,914
------------- ------------
Total investment securities and other instruments 2,110,299 1,213,498
------------- ------------
Receivables and mortgage servicing advances 38,374 32,568
Broker dealers' operations receivable 93,953 144,486
Accrued interest receivable 30,865 23,570
Servicing assets, net 92,833 72,568
Property, leasehold improvements and equipment, net 30,594 19,273
Cost in excess of fair value of net assets acquired, net 10,135 5,475
Real estate held for sale, net 2,791 2,987
Prepaid and other assets 11,699 8,957
------------- ------------
Total assets $ 3,823,375 $ 2,918,113
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold under agreements to repurchase $ 1,515,592 $ 1,197,328
Loans payable 375,531 426,704
Deposits 844,583 533,113
Notes payable 408,709 199,733
Advances from FHLB 104,000 32,000
Broker dealers' operations payable 91,917 142,002
Accrued expenses and other liabilities 110,125 117,674
------------- ------------
Total liabilities 3,450,457 2,648,554
------------- ------------
Commitments and contingencies
------------- ------------
Stockholders' equity:
Serial Preferred Stock, $1 par value, 10,000,000 shares authorized; 8%
Convertible Cumulative Preferred Stock, $1 par value (liquidation
preference $1,000 per share), 20,000 designated, 8,460 shares issued
and outstanding; 7% Noncumulative Monthly Income Preferred Stock,
$1 par value (liquidation preference $50 per share) 1,495,000 shares
issued and outstanding 1,503 8
Common stock, $1 par value, 200,000,000 shares authorized; 40,484,920 shares
issued; 40,428,920 shares outstanding 40,485 40,485
Paid-in capital 140,822 70,252
Legal surplus 2,499 2,499
Retained earnings 193,976 156,315
Accumulated other comprehensive income, net of taxes (6,311) 56
Treasury stock at par value, 56,000 shares held (56) (56)
------------- ------------
Total stockholders' equity 372,918 269,559
------------- ------------
Total liabilities and stockholders' equity $ 3,823,375 $ 2,918,113
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF DOLLARS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Month Period Ended
September 30, September 30,
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 20,184 $ 10,129 $ 55,661 $ 30,985
Mortgage-backed securities 14,204 14,161 40,564 41,110
Investment securities 17,324 10,299 36,520 25,734
Other interest earning assets 3,116 3,968 9,714 6,734
-------- -------- -------- --------
Total interest income 54,828 38,557 142,459 104,563
-------- -------- -------- --------
Interest expense:
Loans payable 5,333 6,108 16,803 18,366
Securities sold under agreements to repurchase 18,595 15,972 49,620 40,114
Deposits 9,662 4,536 24,227 12,032
Other borrowed funds 8,831 4,309 17,559 9,856
-------- -------- -------- --------
Total interest expense 42,421 30,925 108,209 80,368
-------- -------- -------- --------
Net interest income 12,407 7,632 34,250 24,195
Provision for loan losses 878 163 1,631 474
-------- -------- -------- --------
Net interest income after provision for loan losses 11,529 7,469 32,619 23,721
-------- -------- -------- --------
Non-interest income:
Net gain on mortgage loan sales 21,094 12,581 61,215 29,438
Trading account profit 2,109 2,113 6,632 6,717
Gain on sale of investment securities 1,581 1,960 1,807 3,554
Servicing income 7,170 5,469 21,581 15,673
Gain on sale of servicing assets -- -- -- 1,829
Commissions, fees and other income 2,064 847 4,069 1,998
-------- -------- -------- --------
Total non-interest income 34,018 22,970 95,304 59,209
-------- -------- -------- --------
Non-interest expense:
Compensation and benefits, net (See Note f) 12,721 5,962 33,807 13,378
Taxes, other than payroll and income taxes 776 465 1,759 1,266
Maintenance 420 438 1,118 1,038
Advertising 1,415 1,420 4,014 4,234
Professional services 1,081 1,088 3,839 2,964
Telephone 886 709 2,612 1,974
Rent 1,113 865 3,270 2,374
Amortization of servicing assets 2,554 1,795 8,274 4,748
Depreciation and amortization 1,196 930 3,169 2,656
Other, (See Note f) 4,384 1,653 9,130 5,497
-------- -------- -------- --------
Total non-interest expense 26,546 15,325 70,992 40,129
-------- -------- -------- --------
Income before income taxes 19,001 15,114 56,931 42,801
Income taxes 1,723 1,237 6,714 4,823
-------- -------- -------- --------
Net income 17,278 13,877 50,217 37,978
Retained earnings at beginning of period 181,410 133,568 156,315 114,253
Less cash dividends paid:
8% Convertible Cumulative Preferred Stock 169 169 507 507
7% Noncumulative Monthly Income Preferred Stock 1,309 -- 3,155 --
Common stock 3,234 2,425 8,894 6,873
-------- -------- -------- --------
Retained earnings at the end of period $193,976 $144,851 $193,976 $144,851
======== ======== ======== ========
Earnings per share:
Basic $ 0.39 $ 0.34 $ 1.15 $ 0.94
======== ======== ======== ========
Diluted $ 0.38 $ 0.33 $ 1.11 $ 0.91
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Month Period Ended
September 30,
-----------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 50,217 $ 37,978
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................. 2,888 2,110
Amortization of interest-only strips held in trading accounts ............. 4,673 2,535
Amortization of cost in excess of fair value of net assets acquired ....... 281 546
Amortization of servicing assets .......................................... 8,274 4,748
Deferred tax benefit ...................................................... (1,073) (1,208)
Gain on sale of servicing assets .......................................... -- (1,829)
Provision for loan losses ................................................. 1,631 474
Origination and purchases of mortgage loans held for sale ................. (1,971,846) (1,415,235)
Principal repayment and sales of mortgage loans held for sale ............. 890,108 472,821
Purchases of trading securities ........................................... (1,084,903) (866,177)
Principal repayments and sales of trading securities ...................... 1,912,072 1,179,872
(Increase) decrease in interest only strips, net .......................... (23,549) (5,172)
Increase in servicing assets .............................................. (28,539) (20,575)
Decrease (increase) in receivables and mortgage servicing advances ........ (5,806) (7,361)
Decrease (increase) in broker dealers' operations receivable .............. 50,533 (197,469)
Increase in accrued interest receivable ................................... (7,295) (8,815)
(Decrease) increase in interest payable ................................... 2,497 5,472
(Decrease) increase in broker dealers' operations payable ................. (50,085) 196,120
Increase (decrease) in accounts payable and other liabilities ............. (4,827) 2,912
(Increase) decrease in prepaid and other assets ........................... (2,742) 3,004
----------- -----------
Total adjustments ...................................................... (307,708) (653,227)
----------- -----------
Net cash used in operating activities ..................................... (257,491) (615,249)
----------- -----------
Cash flows from investing activities:
Purchase of securities held to maturity ...................................... (495,036) --
Principal repayments of securities held to maturity .......................... 77,586 12,770
Origination of loans receivable .............................................. (82,431) (82,304)
Principal repayments of loans receivable ..................................... 47,858 14,852
Purchases of securities available for sale ................................... (664,516) (404,724)
Principal repayments and sales of securities available for sale ............. 358,109 452,178
Purchase of FHLB stock ....................................................... (9,406) (1,100)
Purchase of property, leasehold improvements and equipment ................... (14,209) (7,034)
Decrease in real estate held for sale ........................................ 196 185
Proceeds from the sale of servicing assets ................................... -- 1,829
----------- -----------
Net cash used in investing activities ..................................... (781,849) (13,348)
----------- -----------
Cash flows from financing activities:
Increase in deposits ......................................................... 311,470 110,278
Increase in securities sold under agreements to repurchase ................... 318,264 292,210
(Decrease) increase in loans payable ......................................... (51,173) 150,844
Issuance of common stock ..................................................... -- 40,592
Issuance of preferred stock .................................................. 72,065 --
Proceeds from FHLB advances .................................................. 72,000 --
Increase in goodwill related to the purchase price of subsidiary ............. (4,941) --
Increase in notes payable .................................................... 208,976 27,905
Dividends declared and paid .................................................. (12,556) (7,380)
----------- -----------
Net cash provided by financing activities ................................. 914,l05 614,449
----------- -----------
Net decrease in cash and cash equivalents .................................... (125,235) (14,148)
Cash and cash equivalents at beginning of period ............................. 344,696 174,794
----------- -----------
Cash and cash equivalents at the end of period ............................... $ 219,461 $ 160,646
=========== ===========
Cash and cash equivalent includes:
Cash and due from banks ................................................... $ 24,152 $ 11,711
Money market investments .................................................. 195,309 148,935
----------- -----------
$ 219,461 $ 160,646
=========== ===========
Supplemental schedule of non-cash activities
Loan securitizations ...................................................... $ 975,059 $ 678,368
=========== ===========
Supplemental cash flows information:
Cash used to pay interest ................................................. $ 105,712 $ 74,896
=========== ===========
Cash used to pay income taxes ............................................. $ 8,403 $ 6,863
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income: $ 17,278 $ 13,877 $ 50,217 $ 37,978
-------- -------- -------- --------
Other comprehensive income, net of tax:
Unrealized net gains (losses) on securities arising during the period
(net of taxes of $234,000 (1999) and $1.3 million (1998) for the
quarters and $4.4 million (1999) and $1.5 million (1998) for the
nine months) (366) 1,989 (6,824) 2,335
Less reclassification adjustment for (gains) losses
included in net income (net of taxes of $100,000 (1999) and
$79,000 (1998) for the quarter, and $292,000 (1999) and
$702,000 (1998) for the nine months) (156) 124 (457) 1,098
-------- -------- -------- --------
Other comprehensive income (loss) (210) 1,865 (6,367) 1,237
-------- -------- -------- --------
Comprehensive income, net of taxes $ 17,068 $ 15,742 $ 43,850 $ 39,215
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
DORAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a. The Consolidated Financial Statements (unaudited) include the accounts
of Doral Financial Corporation ("Doral Financial" or "the Company"),
Doral Mortgage Corporation ("Doral Mortgage"), SANA Investment Mortgage
Brokers, Inc. ("SANA"), Centro Hipotecario de Puerto Rico, Inc., Doral
Securities, Inc. ("Doral Securities"), Doral Bank and Doral Money, Inc.
References herein to "Doral Financial" or "the Company" shall be deemed
to refer to the Company and its consolidated subsidiaries, unless
otherwise provided. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Consolidated
Financial Statements (unaudited) have been prepared in conformity with
the accounting policies stated in the Company's Annual Audited
Financial Statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and should be read in
conjunction with the Notes to the Consolidated Financial Statements
appearing in that report. All adjustments (consisting only of normal
recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of results for the interim periods have been
reflected.
b. The results of operations for the quarter and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
c. Cash dividends per share paid for the quarter and nine month periods
ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
8% Convertible Cumulative Preferred Stock $ 20.00 $ 20.00 $ 60.00 $ 60.00
7% Noncumulative Monthly Income Preferred Stock $ 0.88 $ -- $ 2.12 $ --
Common Stock $ 0.08 $ 0.06 $ 0.22 $ 0.17
</TABLE>
d. At September 30, 1999, escrow funds include approximately $63.6 million
deposited with Doral Bank. These funds are included in the Company's
financial statements. Escrow funds also include approximately $6.9
million deposited with other banks which are excluded from the
Company's assets and liabilities.
e. The number of average shares of common stock used for computing the
basic and diluted net income per share was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 40,428,920 40,428,920 40,428,920 39,776,664
Diluted 42,366,149 42,416,813 42,413,421 41,743,051
</TABLE>
f. Employee costs and other expenses are shown in the Consolidated
Statements of Income and Retained Earnings net of direct loan
origination costs which, pursuant to SFAS No. 91, are capitalized as
part of the carrying cost of mortgage loans and are offset against net
gains on mortgage loan sales when the loans are sold.
8
<PAGE> 9
Set forth below is a reconciliation of the application of SFAS No. 91
to employee costs and other expenses:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
----------------------------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Employee costs, gross $17,342 $14,344 $51,594 $37,850
Deferred costs pursuant to SFAS No. 91 4,621 8,382 17,787 24,472
------- ------- ------- -------
Employee cost, net $12,721 $ 5,962 $33,807 $13,378
======= ======= ======= =======
Other expenses, gross $ 5,296 $ 3,550 $14,263 $10,374
Deferred costs pursuant to SFAS No. 91 912 1,897 5,133 4,877
------- ------- ------- -------
Other expenses, net $ 4,384 $ 1,653 $ 9,130 $ 5,497
======= ======= ======= =======
</TABLE>
g. Segment information
The Company operates three reportable segments identified by line of
business: mortgage banking, commercial banking and broker dealer
operations. Management made this determination based on operating
decisions particular to each business line and because each one targets
different customers and requires different strategies. The majority of
the Company's operations are conducted in Puerto Rico.
The Company monitors the performance of its reportable segments based
on pre-established goals for different financial parameters such as net
income, interest rate spread, loan production and increase in market
share.
The information that follows presents net interest income after
provision for loan losses, non interest income, net income and
identifiable assets for the Company's reportable segments for the
quarter and nine month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
(In thousands)
Mortgage Commercial Broker
Banking Banking Dealer Eliminations Totals
---------------- --------------- ----------- ---------------- ----------------
QUARTER ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 2,372 8,378 561 218 $ 11,529
Non-interest income $ 30,265 2,419 1,817 (483) $ 34,018
Net income $ 12,752 4,363 426 (263) $ 17,278
Identifiable assets $2,293,034 1,543,181 679,058 (691,898) $3,823,375
QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses $ 3,324 3,717 428 - $ 7,469
Non-interest income $ 20,547 1,187 1,568 (332) $ 22,970
Net income $ 11,577 2,239 395 (334) $ 13,877
Identifiable assets $1,788,473 632,976 836,242 (542,152) $2,715,539
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
(In thousands)
Mortgage Commercial Broker
Banking Banking Dealer Eliminations Totals
---------------- --------------- ----------- ---------------- ----------------
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 11,199 19,075 1,729 616 $ 32,619
Non-interest income $ 84,381 7,473 4,760 (1,310) $ 95,304
Net income $ 40,052 9,797 1,062 (694) $ 50,217
Identifiable assets $ 2,293,034 1,543,181 679,058 (691,898) $ 3,823,375
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses $ 12,877 9,728 1,116 - $ 23,721
Non-interest income $ 52,358 3,299 3,777 (225) $ 59,209
Net income $ 31,166 5,986 1,006 (180) $ 37,978
Identifiable assets $ 1,788,473 632,976 836,242 (542,152) $ 2,715,539
</TABLE>
h. The fair value of the Company's trading securities and the fair values
and carrying values of its securities classified as available for sale
and held to maturity are shown below by category.
The following table summarizes Doral Financial's holdings of trading
securities as of September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
TRADING SECURITIES SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1999 1998
------------- ------------
<S> <C> <C>
Mortgage-backed securities ................ $ 673,293 $ 560,675
Interest only strips ...................... 72,275 42,202
U.S. Treasury and agencies ................ -- 202
Puerto Rico government obligations ........ 14,906 --
Other ..................................... 10,457 3,839
------------- ------------
Total ............................ $ 770,931 $ 606,918
============= ============
</TABLE>
The following tables summarize amortized costs, unrealized holding
gains and losses, approximate market values, weighted average yield and
contractual maturities of available for sale securities as of September
30, 1999 and December 31, 1998.
Expected maturities of certain debt securities may differ from
contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
10
<PAGE> 11
<TABLE>
<CAPTION>
WEIGHTED
SECURITIES AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF SEPTEMBER 30, 1999 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) ---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Debt securities
US Treasury Notes (Maturing over 5 years) $68,506 $ -- $ 600 $ 67,906 5.50%
========== ========== =========== =========== ====
WEIGHTED
SECURITIES AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF DECEMBER 31, 1998 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) ---------- ---------- ----------- ----------- --------
Debt securities
Fed Farm Credit Notes (Maturing from 1 to 10 years) $ 13,000 $ 65 $ -- $ 13,065 6.06%
FHLB Notes (Maturing within 1 year to over 10 years) 358,861 370 -- 359,231 6.64%
US Treasury Bonds (Maturing within 1 year to over 10 years) 36,935 -- 343 36,592 5.35%
---------- ---------- ----------- ----------- ----
$ 408,796 $ 435 $ 343 $ 408,888 6.48%
========== ========== =========== =========== ====
</TABLE>
The following tables summarize amortized costs, unrealized holding
gains and losses, approximate market values, weighted average yields
and contractual maturities of held to maturity securities as of
September 30, 1999 and December 31, 1998.
Expected maturities of certain mortgage-backed and debt securities
might differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
WEIGHTED
SECURITIES HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF SEPTEMBER 30, 1999 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
GNMA (Maturing over 10 years) $ 27,442 $ 853 $ 19 $ 28,276 6.95%
CMO (Maturing within 4 to over 10 years) 142,642 1,177 105 143,714 5.99%
Debt securities
FHLB Notes (Maturing within 1 year to over 10 years) 915,913 -- 23,273 892,640 6.97%
Fed Farm Credit Notes (Maturing within 5 to 10 years) 14,879 -- 592 14,287 6.35%
US Treasury (Maturing over 10 years) 149,266 13 14,041 135,238 5.39%
PRHB Notes (Maturing within 1 year to over 10 years) 5,000 -- -- 5,000 6.20%
---------- ---------- ---------- ---------- ----
$1,255,142 $ 2,043 $ 38,030 $1,219,155 6.66%
========== ========== ========== ========== ====
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
WEIGHTED
SECURITIES HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF DECEMBER 31, 1998 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
GNMA (Maturing over 10 years) $ 31,511 $ 385 $ 19 $ 31,877 6.98%
CMO (Maturing from one to over 10 years) 154,267 983 2 155,248 6.05%
Debt securities
PRHB Notes (Maturing over 10 years) 5,000 -- -- 5,000 6.20%
---------- ---------- ---------- ---------- ----
$ 190,778 $ 1,368 $ 21 $ 192,125 6.21%
========== ========== ========== ========== ====
</TABLE>
i. The following table sets forth certain information regarding Doral
Financial's loans receivable as of the dates indicated:
<TABLE>
<CAPTION>
LOANS RECEIVABLE, NET
(DOLLARS IN THOUSANDS)
AS OF SEPTEMBER 30, 1999 AS OF DECEMBER 31, 1998
-------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Construction loans $ 113,048 46% $ 72,081 33%
Residential mortgage loans 70,197 29% 80,902 37%
Commercial real estate 13,606 6% 16,443 8%
Consumer -- secured by mortgage 3,614 1% 5,005 2%
Consumer -- other 10,000 4% 6,290 3%
Commercial (non-real estate) 10,515 4% 11,051 5%
Loans on saving deposits 6,776 3% 3,676 2%
Land secured 15,853 7% 21,418 10%
--------- ------- --------- ---------
Gross loans receivable(1)(2) 243,609 100% 216,866 100%
--------- ---------
Less:
Undisbursed portion of loans
in process (47,334) (47,575)
Unearned interest and deferred
loan fees (3,366) (648)
Allowance for loan losses(3) (1,987) (1,656)
--------- ---------
(52,687) (49,879)
--------- ---------
Loans receivable, net $ 190,922 $ 166,987
========= =========
</TABLE>
- ---------------------
(1) Sum of the columns may not add up to the totals due to
rounding.
(2) Does not include mortgage loans held for sale by Doral
Financial of $991.4 million as of September 30, 1999 and
$883.0 million as of December 31, 1998.
(3) Does not include $3.6 million and $3.5 million of allowance
for loan losses allocated to mortgage loans held for sale as
of September 30, 1999 and December 31, 1998, respectively.
j. Certain amounts reflected in the 1998 Consolidated Financial Statements
have been reclassified to conform to the presentation for 1999.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Doral Financial Corporation is a bank holding company that, together
with its wholly-owned subsidiaries, is engaged in mortgage banking, commercial
banking and broker-dealer activities. It is primarily engaged in a wide range of
mortgage banking activities, including the origination, purchase, sale and
servicing of mortgage loans on single-family residences, the issuance and sale
of various types of mortgage-backed securities, the holding of mortgage loans,
mortgage-backed securities and other investment securities for sale or
investment, the purchase and sale of servicing rights associated with such
mortgage loans and, to a lesser extent, the origination of construction loans
and mortgage loans secured by commercial real estate and land (the "mortgage
banking business").
Doral Financial is currently in its 27th year of operations. The
Company is the leading originator of mortgage loans on single-family residences
in Puerto Rico and also manages the largest portfolio of mortgage loans in the
Island. The volume of loans originated and purchased during the quarters ended
September 30, 1999 and 1998 was approximately $601.0 million and $567.0 million,
respectively. For the nine month period ended September 30, 1999 and 1998 the
volume of loans originated and purchased was approximately $2.1 billion and $1.5
billion, respectively. Doral Financial's mortgage servicing portfolio increased
to approximately $7.3 billion as of September 30, 1999, from $5.5 billion as of
the same date a year ago, an increase of 34%. Doral Financial's traditional
strategy has been to increase the size of its mortgage servicing portfolio by
relying principally on internal loan originations.
Doral Financial maintains a substantial portfolio of mortgage-backed
securities held for trading. This is a direct result of the Company's mortgage
securitization activities . At September 30, 1999, Doral Financial held
securities for trading with a fair market value of $770.9 million, approximately
$595.7 million of which consisted of Puerto Rico tax-exempt GNMA securities, the
interest on which is tax-exempt to the Company. These tax-exempt securities are
generally held by Doral Financial for longer periods prior to sale in order to
maximize the tax-exempt interest received thereon. Pursuant to SFAS No. 115,
securities held for trading are reflected on Doral Financial's Consolidated
Financial Statements at their fair market value with resulting gains or losses
included as part of trading account profit.
As part of its strategy to maximize net interest income, Doral
Financial also invests in securities that are classified as available for sale
or held to maturity. During the third quarter of 1999 the Company purchased
$325.3 million in securities classified as held to maturity. As of September 30,
1999, Doral Financial held approximately $1.3 billion in securities and other
investments that are classified as held to maturity. As of September 30, 1999,
Doral Financial also held $67.9 million of investment securities that were
classified as available for sale and reported at fair value, with unrealized
gains or losses included in stockholders' equity and reported as "Accumulated
other comprehensive income, net of taxes," in Doral Financial's Consolidated
Financial Statements.
Doral Financial, principally through Doral Bank, and, to a lesser
extent, through other specialized units, originates mortgage loans secured by
income producing residential and commercial properties, construction loans, land
loans and other commercial and consumer loans that are held for investment and
classified as loans receivable. Most of Doral Financial's loans receivable
represent loans made to entities or individuals located in Puerto Rico. The
loans originated by the Company's multi-family lending operation in the New York
City metropolitan area are classified as loans held for sale.
For the quarters ended September 30, 1999 and 1998, Doral Bank, the
Company's commercial banking subsidiary, contributed approximately $4.4 million
and $2.2 million, respectively, to the Company's consolidated net income, which
includes the operations of its wholly-owned subsidiary Doral Money, Inc., that
became operational during the third quarter of 1998. For the first nine months
of 1999 and 1998, Doral Bank contributed approximately $9.8 million and $6.0
million, respectively, to the Company's consolidated net income.
Doral Money contributed approximately 5% and 13%, respectively, to the
Company's total loan production for the third quarter and first nine months of
1999. Doral Money was established during the second quarter of 1998 as a vehicle
for the Company's expansion into the mainland United States. Until the third
quarter of 1999, Doral Money
13
<PAGE> 14
operated a multi-family and commercial lending unit in the New York City
metropolitan area and a residential wholesale operation in Chicago. During the
third quarter of 1999, the Company phased-out the Chicago wholesale operation
previously operated through Doral Money. See "Recent Developments - Phase-out of
Chicago Wholesale Operation."
The Company's broker-dealer operation is conducted through Doral
Securities, a subsidiary that provides retail and institutional, financial
advisory and investment banking services in Puerto Rico. For the quarters ended
September 30, 1999 and 1998, Doral Securities' net income was approximately
$426,000 and $395,000, respectively. For the nine month period ended September
30, 1999 and 1998, Doral Securities' net income was approximately $1.1 million
and $1.0 million, respectively. Results for the quarter and nine months ended
September 30, 1999 reflect increased personnel and rental expenses related to
Doral Securities' continued growth, which include the opening of an additional
branch in the city of Mayaguez, on the western side of the Island.
Unlike most bank holding companies, Doral Financial has significant
assets and operations at the holding company level. HF Mortgage Bankers, one of
the Company's principal mortgage units, is organized as an operating division
within the parent company. As of September 30, 1999, Doral Financial had assets
and net income of $1.9 billion and $21.8 million, respectively, at the parent
company level.
RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998.
Doral Financial's operations are mainly the result of: (i) the level of
loan production; (ii) the behavior of the mortgage loan servicing portfolio;
(iii) the various components of the Company's revenues; (iv) the elements of
risk inherent to loan activities; and (v) the Company's ability to manage its
liquidity demands and capital resources. These factors are, in turn, primarily
influenced by: (i) the direction of interest rates; (ii) the level of demand for
mortgage credit; (iii) the strength of the economy in Puerto Rico; and (iv) the
relationship between interest rates and the cost of funds.
14
<PAGE> 15
LOAN PRODUCTION
The following table sets forth the number and dollar amount of Doral
Financial's loan production for the periods indicated:
<TABLE>
<CAPTION>
TABLE A QUARTER ENDED NINE MONTH PERIOD
LOAN PRODUCTION ------------- -----------------
(DOLLARS IN THOUSANDS) SEPTEMBER 30, ENDED SEPTEMBER 30,
------------ -------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FHA/VA mortgage loans
Number of loans ............................ 2,272 1,845 7,006 5,263
Volume of loans ............................ $ 186,850 $ 146,568 $ 572,832 $ 412,969
Percent of total volume .................... 31% 26% 28% 28%
Conventional conforming mortgage loans(1)
Number of loans ............................ 1,142 2,118 7,219 5,949
Volume of loans ............................ $ 93,417 $ 190,015 $ 636,739 $ 530,157
Percent of total volume .................... 15% 33% 31% 35%
Conventional non - conforming mortgage loans(2)(3)(4)
Number of loans ............................ 3,327 2,729 7,837 7,314
Volume of loans ............................ $ 214,724 $ 146,087 $ 575,681 $ 420,922
Percent of total volume .................... 36% 26% 28% 28%
Other(5)
Number of loans ............................ 578 229 1,214 533
Volume of loans ............................ $ 106,355 $ 84,207 $ 269,025 $ 133,491
Percent of total volume .................... 18% 15% 13% 9%
Total loans
Number of loans ............................ 7,319 6,921 23,276 19,059
Volume of loans ............................ $ 601,346 $ 566,877 $2,054,277 $1,497,539
</TABLE>
- --------------------
(1) Refers to mortgage loans that qualify for the sale or exchange
programs of FNMA or FHLMC.
(2) Refers to mortgage loans that do not qualify for the sale or exchange
programs of FNMA or FHLMC.
(3) Includes $8.3 million and $4.9 million in second mortgages for the
quarters ended September 30, 1999 and 1998, respectively, and $15.8
million and $16.3 million in second mortgages for the nine month
periods ended September 30, 1999 and 1998, respectively.
(4) Includes $11.7 million and $8.6 million in home equity or personal
loans secured by real estate mortgages of up to $40,000 for the
quarters ended September 30, 1999 and 1998, respectively, and $25.8
million and $26.1 million for the nine month periods ended September
30, 1999 and 1998.
(5) Consists of construction loans on residential projects, mortgage
loans secured by multi-family and commercial properties as well as
other commercial, land, and consumer loans.
A substantial portion of Doral Financial's total mortgage loan
originations has consistently been comprised of refinance loans. For the nine
months ended September 30, 1999 and 1998, refinance loans represented
approximately 57% and 62%, respectively, of the total dollar volume of mortgage
loans originated (excluding loans purchased from
15
<PAGE> 16
third parties). Doral Financial's future results could be adversely affected by
a significant increase in mortgage interest rates that reduces refinancing
activity.
Doral Financial customarily sells or securitizes into mortgage-backed
securities substantially all the loans it originates, except for certain
consumer, construction, land, and commercial loans originated by Doral Bank and
construction and land loans originated by other specialized units of Doral
Financial which are held for investment and classified as Loans Receivable.
The following table sets forth the sources of Doral Financial's loan
production as a percentage of total loan originations for the periods indicated:
<TABLE>
<CAPTION>
TABLE B
LOAN ORIGINATION SOURCES
NINE MONTH PERIOD ENDED SEPTEMBER 30,
-----------------------------------------------------------
1999 1998(1)
------------------------------------ -------------
PUERTO RICO US TOTAL
<S> <C> <C> <C> <C>
Retail........................................ 46% -- 46% 60%
Wholesale..................................... 25% 8% 33% 22%
New Housing Developments...................... 8% -- 8% 9%
Multi-family.................................. -- 5% 5% 4%
Other(2)...................................... 8% -- 8% 5%
</TABLE>
- --------------------
(1) For the third quarter and first nine months of 1998, originations from the
mainland United States represented less than 5% of total loan originations.
(2) Refers to commercial, construction, land, and consumer loans originated
through Doral Bank and other specialized units.
MORTGAGE LOAN SERVICING
Doral Financial's principal source of servicing rights has traditionally
been its mortgage loan production. However, during the third quarters of 1999
and 1998, Doral Financial purchased servicing rights to approximately $35.0
million and $18.2 million, respectively, in principal amount of mortgage loans.
For the nine month period ended September 30, 1999 and 1998, Doral Financial
purchased servicing rights to approximately $168.9 million and $187.9 million,
respectively, principal amount of mortgage loans. Doral Financial intends to
continue growing its mortgage servicing portfolio by internal loan originations
and will continue to seek and consider attractive opportunities for bulk
purchases of servicing rights.
16
<PAGE> 17
The following table sets forth certain information regarding the total
mortgage loan servicing portfolio of Doral Financial for the periods indicated:
<TABLE>
<CAPTION>
TABLE C
MORTGAGE LOAN SERVICING
(DOLLARS IN THOUSANDS, EXCEPT FOR AVERAGE SIZE OF LOANS PREPAID)
AS OF SEPTEMBER 30,
-------------------
1999 1998
---------- ----------
<S> <C> <C>
COMPOSITION OF SERVICING PORTFOLIO AT PERIOD END
GNMA ................................................ $2,550,686 $2,258,708
FHLMC/FNMA .......................................... 2,114,013 1,282,247
Doral Financial grantor trusts ...................... 117,113 161,781
Other conventional mortgage loans(1) ................ 2,554,349 1,758,849
---------- ----------
Total servicing portfolio ........................... $7,336,161 $5,461,585
========== ==========
SELECTED DATA REGARDING
MORTGAGE LOANS SERVICED
Number of loans ..................................... 112,211 94,416
Weighted average interest rate ...................... 7.44% 7.97%
Weighted average remaining maturity (months) ........ 220 206
Weighted average servicing fee rate ................. .3883% .3685%
Average servicing portfolio ......................... $6,469,539 $5,054,185
Principal prepayments ............................... $ 565,960 $ 440,235
Prepayments to average portfolio (annualized) ....... 12% 12%
Average size of loans prepaid ....................... $ 52,312 $ 49,079
DELINQUENT MORTGAGE LOANS AND
PENDING FORECLOSURES AT PERIOD END(4)
60-89 days past due ................................. 1.46% 2.28%
90 days or more past due ............................ 2.14% 2.75%
---------- ----------
Total delinquencies excluding foreclosures .......... 3.60% 5.03%
========== ==========
Foreclosures pending ................................ 1.47% 1.16%
========== ==========
SERVICING PORTFOLIO ACTIVITY
Beginning servicing portfolio ....................... $6,186,059 $4,655,135
ADD:
Loans funded and purchased(2) ................ 1,821,374 1,409,961
Bulk servicing acquired ...................... 168,867 187,900
LESS:
Servicing sales transferred .................. -- 103,003
Run-off(3) ................................... 840,139 688,408
---------- ----------
Ending servicing portfolio .......................... $7,336,161 $5,461,585
========== ==========
</TABLE>
(1) Includes $1.1 billion and $695.2 million of loans owned by the Company
at September 30, 1999 and 1998, respectively, which represented 14% and
13 % of the total servicing portfolio respectively.
(2) Excludes approximately $232.9 million and $87.0 million of commercial,
construction and loans sold with servicing released not included in the
Company's mortgage servicing portfolio as of September 30, 1999 and 1998.
(3) Run-off refers to regular amortization of loans, prepayments and
foreclosures.
(4) Expressed as a percentage of the total number of loans serviced. Based on
the principal amount of the loans serviced as of September 30, 1999, the
percentage of delinquent loans 60-89 days past due is 1.22%, 90 days or
more past due is 1.75%, total delinquencies excluding foreclosures are
2.97% and pending foreclosures are 1.29%.
Substantially all of the mortgage loans in Doral Financial's servicing
portfolio are secured by single (one-to-four) family residences located in
Puerto Rico. At September 30, 1999 and 1998, less than 10% and 2%, respectively,
of Doral Financial's mortgage servicing portfolio was related to mortgages
secured by real property located outside Puerto Rico.
17
<PAGE> 18
COMPONENTS OF REVENUES
As shown in the Company's Consolidated Statements of Income, the
principal components of Doral Financial's revenues are: (i) net interest income;
(ii) net gains on mortgage loan sales; (iii) servicing income; (iv) trading
account profit; (v) gain on sale of investment securities; (vi) gain on sale of
servicing assets; and (vii) commissions, fees and other income.
NET INCOME
Doral Financial's net income for the quarter ended September 30, 1999
increased $3.4 million, or 25%, from $13.9 million for the 1998 period to $17.3
million for the 1999 period. For the first nine months of 1999 and 1998, the
Company's net income amounted to $50.2 million and $38.0 million, respectively,
an increase of 32%. Diluted earnings per common share for the third quarter of
1999 were $0.38, an increase of 15% over the $0.33 per diluted share recorded
for the same period a year ago. Diluted earnings per common share for the first
nine months of 1999 increased by 22% when compared to the same period of 1998,
from $0.91 for 1998 to $1.11 for 1999.
NET INTEREST INCOME
Net interest income is the excess of interest earned by the Company on
its interest earning assets over the interest incurred on its interest bearing
liabilities.
The increase in net interest income for the third quarter and first nine
months of 1999, as compared to the respective 1998 periods, was principally due
to an increase in Doral Financial's average interest earning assets. Average
interest earning assets for the quarter grew by 39% from September 30, 1998 to
September 30, 1999, while net interest income grew by 63% during the same
period. Average interest earning assets grew by 37 % for the nine months ended
September 30, 1999, as compared to the respective 1998 period, while net
interest income grew by 42 % for such period.
Doral Bank contributed approximately $8.6 million or 69% of the
consolidated net interest income of Doral Financial for the quarter ended
September 30, 1999, compared to $3.8 million or 50% of consolidated net interest
income for the quarter ended September 30, 1998. During the first nine months of
1999, Doral Bank's contribution to the Company's net interest income was $19.7
million or 57%, compared to $9.9 million or 41% for the first nine months of
1998.
18
<PAGE> 19
The following tables present, for the periods indicated, the Company's
average balance sheet, the total dollar amount of interest from average
interest-earning assets and the related yields, as well as the interest expense
on average interest-bearing liabilities expressed both in dollars and rates, and
the net interest margin. The tables do not reflect any effect of income taxes.
All average balances are based on the average of month-end balances for Doral
Financial and its non-banking subsidiaries, and average daily balances for Doral
Bank, in each case during the periods presented.
<TABLE>
<CAPTION>
TABLE D
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
QUARTER ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Earning Assets:
Total Loans(1) $1,089,439 $ 20,184 7.41% $ 564,514 $10,129 7.18%
Mortgage-Backed Securities 824,543 14,204 6.89% 812,343 14,161 6.97%
Investment Securities 1,045,806 17,324 6.63% 607,269 10,299 6.78%
Other Interest-Earning Assets(2) 207,830 3,116 6.00% 297,517 3,968 5.33%
---------- ---------- ---- ---------- ------- ------
Total Interest Earning Assets/Interest
Income 3,167,618 $ 54,828 6.92% 2,281,643 $38,557 6.76%
========== ==== ======= ======
Total Non-Interest Earning Assets 432,618 319,943
---------- ----------
Total Assets $3,600,236 $2,601,586
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest Bearing Liabilities:
Loans Payable $ 334,948 $ 5,333 6.37% $ 338,901 $ 6,108 7.21%
Repurchase Agreements 1,462,861 18,595 5.08% 1,266,163 15,972 5.05%
Deposits 830,305 9,662 4.65% 412,213 4,536 4.40%
Other Borrowed Funds(3) 432,945 8,831 8.16% 248,556 4,309 6.93%
---------- ---------- ---- ---------- ------- ------
Total Interest Bearing Liabilities/
Interest Expense 3,061,059 $ 42,421 5.54% 2,265,833 $30,925 5.46%
========== ==== ======= ======
Total Non-Interest Bearing Liabilities 172,446 81,967
---------- ----------
Total Liabilities 3,233,505 2,347,800
Stockholders' Equity 366,731 253,786
---------- ----------
Total Liabilities and Stockholders' Equity $3,600,236 $2,601,586
========== ==========
Net Interest Earning Assets $ 106,559 $ 15,810
Net Interest Income on a Non-Taxable Equivalent
Basis $ 12,407 $ 7,632
Interest Rate Spread(4) 1.38% 1.30%
Interest Rate Margin(4) 1.57% 1.34%
Net Interest-Earning Assets Ratio 103.48% 100.70%
</TABLE>
- ---------------
(1) Average loan balances include the average balance of non-accruing
loans, on which no interest income is recognized.
(2) Consist of money market instruments, reverse repurchase agreements and
deposits in other banks.
(3) Consist of FHLB-NY advances and notes payable.
(4) Interest rate spread represents the difference between Doral
Financial's weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities. Interest rate
margin represents net interest income on an annualized basis as a
percentage of average interest-earning assets.
19
<PAGE> 20
<TABLE>
<CAPTION>
TABLE E
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
NINE MONTH PERIOD ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------ ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
--------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Earning Assets:
Total Loans(1) $1,009,889 $ 55,661 7.35% $ 558,443 $ 30,985 7.40%
Mortgage-Backed Securities 798,515 40,564 6.77% 819,024 41,110 6.69%
Investment Securities 747,320 36,520 6.52% 493,965 25,734 6.95%
Other Interest-Earning Assets(2) 252,064 9,714 5.14% 183,724 6,734 4.89%
---------- -------- ------ ---------- -------- ------
Total Interest Earning Assets/Interest
Income 2,807,788 $142,459 6.76% 2,055,156 $104,563 6.78%
======== ====== ======== ======
Total Non-Interest Earning Assets 446,980 267,098
---------- ----------
Total Assets $3,254,768 $2,322,254
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest Bearing Liabilities:
Loans Payable $ 374,398 $ 16,803 5.98% $ 341,238 $ 18,366 7.18%
Repurchase Agreements 1,304,905 49,620 5.07% 1,044,188 40,114 5.12%
Deposits 711,368 24,227 4.54% 364,533 12,032 4.40%
Other Borrowed Funds(3) 308,640 17,559 7.59% 194,976 9,856 6.74%
---------- -------- ------ ---------- -------- ------
Total Interest Bearing Liabilities/
Interest Expense 2,699,311 $108,209 5.35% 1,944,935 $ 80,368 5.51%
======== ====== ======== ======
Total Non-Interest Bearing Liabilities 209,598 141,170
---------- ----------
Total Liabilities 2,908,909 2,086,105
Stockholders' Equity 345,859 236,149
---------- ----------
Total Liabilities and Stockholders' Equity $3,254,768 $2,322,254
========== ==========
Net Interest Earning Assets $ 108,477 $ 110,221
Net Interest Income on a Non-Taxable Equivalent Basis $ 34,250 $ 24,195
Interest Rate Spread(4) 1.41% 1.27%
Interest Rate Margin(4) 1.63% 1.57%
Net Interest-Earning Assets Ratio 104.02% 105.67%
</TABLE>
- -------------------
(1) Average loan balances include the average balance of non-accruing
loans, on which no interest income is recognized.
(2) Consist of money market instruments, reverse repurchase agreements and
deposits in other banks.
(3) Consist of FHLB-NY advances and notes payable.
(4) Interest rate spread represents the difference between Doral
Financial's weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities. Interest rate
margin represents net interest income on an annualized basis as a
percentage of average interest-earning assets.
The following tables describe the extent to which changes in interest
rates and changes in volume of interest rates on interest earning assets and
interest bearing liabilities have affected Doral Financial's interest income and
interest expense during the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to: (i) changes in volume (change in volume
multiplied by prior year rate), (ii) changes in rate (change in rate multiplied
by current year volume), and (iii) total change in rate and volume. The combined
effect of changes in both rate and volume has been allocated in proportion to
the absolute dollar amounts of the changes due to rate and volume.
20
<PAGE> 21
<TABLE>
<CAPTION>
TABLE F
NET INTEREST INCOME ANALYSIS
(IN THOUSANDS) QUARTER ENDED
SEPTEMBER 30,
- ---------------------------------------------- ---------------------------------------------
1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
-------- ------ --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS
TOTAL LOANS $ 37,675 $ 2,545 $ 40,220
MORTGAGE-BACKED SECURITIES 851 (679) 172
INVESTMENT SECURITIES 29,750 (1,650) 28,100
OTHER INTEREST EARNING ASSETS (4,785) 1,377 (3,408)
-------- ------- --------
TOTAL INTEREST EARNING ASSETS 63,491 1,593 65,084
-------- ------- --------
INTEREST BEARING LIABILITIES
LOANS PAYABLE (285) (2,815) (3,100)
REPURCHASE AGREEMENTS 9,925 567 10,492
DEPOSITS 18,403 2,101 20,504
OTHER BORROWED FUNDS 12,786 5,302 18,088
-------- ------- --------
TOTAL INTEREST BEARING LIABILITIES 40,829 5,155 45,984
-------- ------- --------
NET INTEREST EARNING ASSETS $ 22,662 $(3,562) $ 19,100
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
TABLE G
NET INTEREST INCOME ANALYSIS
(IN THOUSANDS) NINE MONTH PERIOD ENDED
SEPTEMBER 30,
- ---------------------------------------------- ---------------------------------------------
1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
-------- ------ --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS
TOTAL LOANS $ 33,398 $ (496) $ 32,902
MORTGAGE-BACKED SECURITIES (1,373) 645 (728)
INVESTMENT SECURITIES 17,599 (3,217) 14,382
OTHER INTEREST EARNING ASSETS 3,340 634 3,974
-------- ------- --------
TOTAL INTEREST EARNING ASSETS 52,964 (2,434) 50,530
-------- ------- --------
INTEREST BEARING LIABILITIES
LOANS PAYABLE 2,380 (4,464) (2,084)
REPURCHASE AGREEMENTS 13,354 (680) 12,674
DEPOSITS 15,264 996 16,260
OTHER BORROWED FUNDS 7,661 2,610 10,271
-------- ------- --------
TOTAL INTEREST BEARING LIABILITIES 38,659 (1,538) 37,121
-------- ------- --------
NET INTEREST EARNING ASSETS $ 14,305 $ (896) $ 13,409
======== ======= ========
</TABLE>
INTEREST INCOME
Total interest income increased from approximately $38.6 million during
the third quarter of 1998, to $54.8 million during the third quarter of 1999, an
increase of 42%. For the first nine months of 1999, interest income increased by
approximately $37.9 million, to $142.5 million for the nine month period ended
September 30, 1999 compared to $104.6 million for the comparable period of 1998,
an increase of 36%. The increases in interest income during both periods is
primarily related to the increase in Doral Financial's total average interest
earning assets, which increased from $2.1 billion at September 30, 1998 to $2.8
billion at September 30, 1999.
Interest income on loans increased by $10.1 million or 99% during the
third quarter of 1999, as compared to the respective 1998 period. For the first
nine months of 1999, interest income on loans increased 80%, from
21
<PAGE> 22
$31.0 million for the nine months ended September 30, 1998, to $55.7 million for
the nine months ended September 30, 1999. The increase during 1999 reflected an
increase in the level of loans held by Doral Financial as compared to 1998, due
to the increased volume of loan originations.
Interest income on mortgage-backed securities remained fairly constant
from 1998 to 1999, for both the quarterly and nine month periods. For the
quarters ended September 30, 1999 and 1998, interest income on this type of
interest earning asset amounted to $14.2 million for both periods. During the
first nine months of 1999, income on mortgage-backed securities was $40.6
million versus $41.1 million for the comparable period of 1998. The results for
the 1999 periods reflect a constant holding of mortgage-backed securities,
mainly comprised of tax-exempt Puerto Rico GNMA securities, which the Company
holds for longer periods prior to sale in order to maximize tax exempt interest
income on such securities.
Interest income on investment securities increased by $7.0 million
during the third quarter of 1999, as compared to the same period of 1998, from
$10.3 million to $17.3 million. Interest income on these securities was $36.5
million for the nine months ended September 30, 1999, as compared to $25.7
million for the same period a year ago. These results reflect the increase in
the average balance of investment securities held during the period to $747.3
million as of September 30, 1999, compared to $494.0 million as of September 30,
1998. The increase in investment securities relates primarily to increased
investment in US Government and agency obligations, the interest on which is
exempt to the Company for income tax purposes in Puerto Rico.
Interest income on other interest earning assets decreased by $852,000
or 21% for the quarter ended September 30, 1999 as compared to the same quarter
a year ago. Interest income on other interest earning assets was $9.7 million
for the nine months ended September 30, 1999, as compared to $6.7 million for
the comparable period of 1998. Other interest-earning assets consist primarily
of money market instruments, overnight deposits, term deposits, and reverse
repurchase agreements. The increase in the nine month period from 1998 to 1999
was due primarily to higher liquidity and the investment of such liquidity in
short-term investments. The increase in interest income from other
interest-earning assets reflects Doral Financial's strategy to diversify its
sources of interest income.
INTEREST EXPENSE
Total interest expense increased to $42.4 million during the third
quarter of 1999, compared to $30.9 million for the respective 1998 period, an
increase of 37%. Total interest expense for the first nine months of 1999 was
$108.2 million, as compared to $80.4 million for the same period of 1998, an
increase of 35%. The increase in interest expense for the 1999 period was due
primarily to the increase in the average amount of interest-bearing liabilities
used to fund the increase in interest earning assets. Average interest bearing
liabilities increased to $2.7 billion at an average cost of 5.35% as of
September 30, 1999, compared to $1.9 billion at an average cost of 5.51% as of
September 30, 1998.
Interest expense related to loans payable decreased by $775,000 or 13%
during the third quarter of 1999 as compared to the same period of 1998. For the
first nine months of 1999, interest expense associated with loans payable was
$16.8 million, a decrease of 9% from $18.4 million for the nine months ended
September 30, 1998. The weighted-average interest rate cost for borrowings under
Doral Financial's warehouse lines of credit was 6.37% and 7.21% for the third
quarters of 1999 and 1998, respectively. For the first nine months of 1999 and
1998, the weighted average cost for borrowings under the Company's warehousing
lines of credit was 5.98% and 7.18%, respectively.
Interest expense related to securities sold under agreements to
repurchase increased by $2.6 million or 16% during the third quarter of 1999 as
compared to the same period of 1998. During the first nine months of 1999,
interest expense related to securities sold under agreements to repurchase was
$49.6 million, versus $40.1 million for the corresponding 1998 period, an
increase of 24%. The increases during these periods reflected increased
borrowings to finance the acquisition of mortgage-backed securities and other
investment securities. The weighted average interest rate of borrowings under
repurchase agreements was 5.08% and 5.05% for the third quarters of 1999 and
1998, respectively. For the first nine months of 1999, the average interest rate
for borrowings under repurchase agreements was 5.07%, compared to 5.12% for the
same period a year ago.
22
<PAGE> 23
Interest expense on deposits increased by $5.1 million, or 113%, for
the third quarter of 1999, as compared to the respective 1998 period. For the
first nine months of 1999, interest expense on deposits was $24.2 million, an
increase of 101% over the $12.0 million recorded for the same period of 1998.
This increase is primarily related to a higher deposit base, due to the fact
that Doral Bank now operates through a total of 15 branches, compared to a total
of eight as of the same date a year ago. This trend of expansion is expected to
continue throughout the remainder of 1999 and into 2000. Doral Bank's average
interest cost on deposits was 4.65% and 4.54%, respectively, for the quarter and
nine month periods ended September 30, 1999, as compared to 4.40% for both 1998
periods.
Interest expense on other borrowed funds was $8.8 million for the
quarter ended September 30, 1999, as compared to $4.3 million for the same
period a year ago, an increase of 105%. Interest expense on other borrowed funds
for the first nine months of 1999 and 1998 was $17.6 million and $9.9 million,
respectively, which represents an increase of 78%. The increase for the 1999
periods is mainly due to the issuance during the third quarter of $200 million
of medium term notes and an additional $29 million of unsecured notes, and also
to an increase in the amount of FHLB-NY advances during the first nine months of
1999. For the third quarter and first nine months of 1999, the weighted average
interest rate for other borrowed funds was 8.16% and 7.59%, respectively,
compared to 6.93% and 6.74%, respectively, for the corresponding 1998 periods.
Interest expense on other borrowed funds includes, in addition to those
mentioned above, various term notes issued by Doral Bank, Doral Financial's $75
million senior notes due October 10, 2006, and Doral Bank's advances from the
FHLB-NY, as well as various other borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses relates to loans held by Doral Financial.
The provision is charged to earnings to bring the total allowance for loan
losses to a level considered appropriate by management based on Doral
Financial's loss experience, current delinquency rates, known and inherent risk
in the loan portfolio, the estimated value of any underlying collateral, and an
assessment of current and anticipated economic conditions. While management
believes that the current provision for loan losses is sufficient, future
additions to the allowance for loan losses could be necessary if economic
conditions change substantially from the assumptions used by Doral Financial in
determining the allowance for loan losses.
The following table summarizes certain information regarding Doral
Financial's allowance for loan losses and losses on other real estate owned
("OREO"), for both the Company's commercial banking and mortgage banking
business for the periods indicated.
23
<PAGE> 24
<TABLE>
<CAPTION>
TABLE H
ALLOWANCE FOR LOAN
LOSSES AND OREO
(DOLLARS IN THOUSANDS)
QUARTER ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OREO:
Balance at beginning of period .............. $ 791 $ 899 $ 1,011 $ 676
Provision for losses ........................ 135 360 485 1,180
Losses charged to the allowance ............. (93) (240) (663) (837)
------- ------- ------- -------
Balance at end of period ......................... $ 833 $ 1,019 $ 833 $ 1,019
======= ======= ======= =======
Allowance for Loan Losses(1):
Balance at beginning of period ................... $ 5,405 $ 4,614 $ 5,166 $ 2,866
Provision for loan losses ........................ 878 163 1,631 474
------- ------- ------- -------
Charge-offs:
Mortgage loans held for sale ................ (690) -- (1,134) --
Construction ................................ -- -- -- --
Residential mortgage loans .................. (24) -- (24) (25)
Commercial real estate ...................... -- -- -- --
Consumer .................................... (82) (19) (241) (53)
Commercial non-real estate .................. (17) (15) (17) (15)
Other ....................................... (25) -- (89) --
------- ------- ------- -------
Total Charge-offs ................................ (838) (34) (1,505) (93)
------- ------- ------- -------
Recoveries:
Mortgage loans held for sale ................ 90 -- 229 --
Construction ................................ -- -- -- --
Residential mortgage loans .................. -- -- -- --
Commercial real estate ...................... -- -- -- --
Consumer .................................... 24 1 38 29
Commercial non-real estate .................. -- -- -- --
Other ....................................... 48 -- 48 --
------- ------- ------- -------
Total recoveries ................................. 162 1 315 29
------- ------- ------- -------
Net charge offs .................................. (676) (33) (1,190) (64)
------- ------- ------- -------
Other ............................................ -- -- -- 1,468
------- ------- ------- -------
BALANCE AT END OF PERIOD ......................... $ 5,607 $ 4,744 $ 5,607 $ 4,744
======= ======= ======= =======
Allowance for loan losses as a percentage
of total loans outstanding .................... 0.47% 0.54% 0.47% 0.54%
</TABLE>
- ---------------
(1) Relates to both mortgage loans held for sale and to loans receivable held
for investment.
As shown above, net charge offs are principally related to mortgage
loans held for sale, indicative of the main mortgage banking activities
conducted by Doral Financial. This is consistent with the allocation of Doral
Financial's allowance for loan losses, where a majority of the total allowance
is allocated to mortgage loans held for sale.
The increase in the provision was primarily as a result of the increase
in the size of Doral Financial's loan portfolio and an increase in the amount of
construction loans and commercial mortgage loans for which Doral Financial
provides a higher allowance for loan losses.
24
<PAGE> 25
The allowance for loan losses relating to loans held by Doral Financial
was $5.6 million at September 30, 1999, compared to $4.7 million as of September
30, 1998. The increase in the allowance was primarily the result of the increase
in the size of the loan portfolio.
NON-INTEREST INCOME
Net Gains on Mortgage Loan Sales. Net gains from mortgage loan sales
increased by 68% during the third quarter of 1999 to $21.1 million, as compared
to the same period of 1998. For the nine month periods ended September 30, 1999
and 1998, net gains on mortgage loan sales were $61.2 million and $29.4 million,
respectively, an increase of 108%. Results for 1999 are mainly the result of
increased mortgage production and the ability of the Company to obtain higher
profitability on sales of various loan products, including the creation of
interest only strips ("IOs") in connection with bulk sales of mortgage loans to
corporate investors. See "Amortization of IOs and Servicing Assets."
Servicing Income. Servicing income represents revenues earned for
administering mortgage loans. Loan servicing fees depend on the type of mortgage
loan being serviced and for residential mortgage loans range from 0.25% to 0.50%
of the declining outstanding principal amount of the serviced loan. The size of
Doral Financial's loan servicing portfolio and the amount of its servicing fees
have increased substantially since its inception as a result of increases in
loan originations and bulk purchases of servicing rights. During the third
quarters of 1999 and 1998, the Company purchased servicing rights to
approximately $35.0 million and $18.2 million, respectively, of mortgages
through bulk purchases. For the first nine months of 1999 and 1998, such
purchases were approximately $168.9 million and $187.9 million, respectively.
Doral Financial anticipates that it will continue to make bulk purchases of
mortgage servicing rights in the future to the extent it can identify attractive
opportunities.
Servicing income increased 31% from the third quarter of 1998 as
compared to the same period of 1999. For the first nine months of 1999,
servicing income increased to $21.6 million from $15.7 million for the first
nine months of 1998, an increase of 38%. The increase in the amount of loan
servicing income for the third quarter and first nine months of 1999 was
primarily due to the increase in the principal amount of loans serviced as
compared to the 1998 periods. The mortgage servicing portfolio was approximately
$7.3 billion at September 30, 1999, compared to $5.5 billion as of September 30,
1998. At September 30, 1999, less than 10% of Doral Financial's servicing
portfolio was related to mortgages originated outside Puerto Rico.
The amount of principal prepayments on mortgage loans serviced by Doral
Financial was $566.0 million and $440.2 million for the nine months ended
September 30, 1999 and 1998, respectively. This represented approximately 12% on
an annualized basis of the average principal amount of mortgage loans serviced
during both periods. The primary means used by Doral Financial to reduce the
sensitivity of its servicing income to increases in prepayment rates is the
maintenance of a strong retail origination network that has allowed it to
increase or maintain the size of its servicing portfolio even during periods of
high prepayments.
Trading Account Profit. Trading account profit includes any unrealized
gains or losses in the market value of its securities held for trading, realized
gains and losses on trading securities, as well as gains or losses on options
and future contracts used for interest rate management purposes. Trading account
activities for the quarters ended September 30, 1999 and 1998, resulted in gains
of $2.1 million during both periods, including $594,000 and $2.0 million of
unrealized gains, respectively, on the value of its securities held for trading
pursuant to SFAS No. 115. Trading account activities for the nine month period
ended September 30, 1999, resulted in gains of $6.6 million compared to $6.7
million during the respective 1998 period, including $861,000 of unrealized
losses and $4.7 million of unrealized gains, respectively, on the value of its
securities held for trading pursuant to SFAS No. 115.
For the quarters ended September 30,1999 and 1998, trading account
profit included losses of $1.5 million and $617,000 on options and futures
contracts used for interest rate management purposes, including unrealized gains
or losses charged to operations as a result of mark to market adjustments. For
the nine months ended September 30, 1999 and 1998, trading account profit
included gains of $5.0 million and $933,000, respectively, on such options and
futures contracts.
25
<PAGE> 26
Gain on Sale of Investment Securities. Gain on sale of investment
securities represents the impact on income of transactions involving the sale of
securities available for sale. During the quarter ended September 30, 1999, the
Company had $1.6 million in gain on sale of investment securities compared to
the same 1998 period which resulted in gains of $2.0 million. For the nine
months ended September 30, 1999 and 1998, such transactions resulted in gains of
$1.8 million and $3.6 million, respectively.
Gain on Sale of Servicing Assets. During the first nine months of 1998,
Doral Financial sold servicing rights to $103 million of mortgage loans,
realizing pretax gains of approximately $1.8 million during such period. No such
sales were made during the corresponding 1999 period. While Doral Financial's
strategy is to continue to increase the size of its servicing portfolio by
retaining the servicing rights on the mortgage loans it originates, the Company
may sell servicing rights in the future when market conditions are favorable.
Commissions, Fees and Other Income. Other income, commissions and fees
increased 144% during the third quarter of 1999 as compared to the same 1998
period. For the first nine months of 1999, commissions, fees and other income
increased 104%, as compared to the same 1998 period. The increases during the
1999 periods were due primarily to increased commissions and fees earned by
Doral Bank and Doral Securities.
NON-INTEREST EXPENSE
Total non-interest expense increased by 73% during the third quarter
ended September 30, 1999, as compared to the respective 1998 period, reflecting
the expansion of the Company's loan origination capacity and banking operations,
the resulting increase in employees and management, investment in technology,
and the increased costs associated with the substantial growth of the servicing
portfolio. During the third quarter of 1999, the Company completed the
acquisition of 100% of the outstanding common stock of SANA. Such transaction
added seven branches for a total of 57 business offices. Furthermore, the
Company opened an additional bank branch in Puerto Rico during the third
quarter. For the nine month period ended September 30, 1999, total non-interest
expense increased by 77% from the comparable 1998 period.
PUERTO RICO INCOME TAXES
The Puerto Rico maximum statutory corporate income tax rate is 39%. For
the third quarters of 1999 and 1998, the effective income tax rate of Doral
Financial was 9% and 8%, respectively, while for the nine month periods ended
September 30, 1999 and 1998 it was 12% and 11%, respectively.
The lower effective tax rates (as compared to the maximum statutory
rate) experienced by the Company reflect the fact that the portion of the net
interest income derived from certain FHA and VA mortgage loans secured by
properties located in Puerto Rico and on GNMA securities backed by such mortgage
loans is exempt from income tax under Puerto Rico law. The interest received on
U.S. Treasury and agency securities is also exempt from Puerto Rico income
taxation.
Effective August 1, 1997, the Puerto Rico Internal Revenue Code was
amended to limit tax exemption to those FHA and VA loans and GNMA securities
backed by such loans that are used to finance the original acquisition of newly
constructed homes.
AMORTIZATION OF IOS AND SERVICING ASSETS
Doral Financial creates IOs (previously classified as excess servicing
fees receivable) as a result of the sale of loans in bulk or securitization
transactions. IOs are created on the sale of loans with servicing retained, by
computing the present value of the excess of the weighted-average coupon on the
loans sold over the sum of: (i) the pass-through interest paid to the investor
and (ii) normal servicing fee, based on the servicing fee permitted by FNMA and
FHLMC, and adjusting such amount for expected losses and prepayments. The amount
of the IOs is recognized at the time of sale of the related loans as an
adjustment to the resulting gain or loss on sale of loan and is recorded as a
component of "Net Gains on Mortgage Loan Sales" on Doral Financial's
Consolidated Statements of Income. Sales of mortgage loans made
26
<PAGE> 27
during the third quarter of 1999 resulted in the recording of approximately $9.3
million of IOs, compared to $10.4 million for the corresponding 1998 period. For
the nine month period ended September 30, 1999 and 1998 the Company recorded IOs
in the amount of $32.9 million and $18.4 million, respectively. The unamortized
balance of the IOs is reflected in Doral Financial's Consolidated Statement of
Condition as a component of "Securities held for trading."
IOs are amortized over the expected life of the asset and such
amortization is recorded as a reduction of interest income. The amortization of
IOs is based on the amount and timing of estimated future cash flows to be
received with respect to the IOs. Amortization of such IOs for each of the
quarters ended September 30, 1999 and 1998, was approximately $1.7 million, and
$848,000, respectively. For the first nine months of 1999 and 1998, amortization
of IO's was approximately $4.7 million and $2.5 million, respectively.
Beginning with the second quarter of 1995, following the implementation
by Doral Financial of SFAS No. 122 (later superseded by SFAS No. 125), whenever
Doral Financial originates a mortgage loan, it assigns a fair value to the
related mortgage servicing right (the "servicing asset") associated with such
mortgage loan. The servicing asset represents the present value of the servicing
fees expected to be received on the loan over the expected term of the loan. The
amount of the servicing asset is recognized at the time of sale of the related
loan as an adjustment to the resulting gain or loss on sale of the loan and is
recorded as a component of "Net Gains on Mortgage Loan Sales" on Doral
Financial's Consolidated Statement of Income. The increase in the creation of
servicing assets reflects increased mortgage loan production during such periods
and bulk purchases of servicing rights. The unamortized balance of the servicing
asset is reflected on the Consolidated Statements of Condition of Doral
Financial. (Refer to Table I for servicing assets activities for the periods
indicated).
Doral Financial's servicing assets are amortized in proportion to, and
over the period of, estimated servicing income. Amortization of servicing assets
is included as a component of "Non-interest expense-Amortization of Servicing
Assets" in Doral Financial's Consolidated Statements of Income and Retained
Earnings.
The following table shows the increase in the Company's mortgage
servicing assets for each of the periods shown:
<TABLE>
<CAPTION>
TABLE I
CAPITALIZATION OF MORTGAGE SERVICING ASSETS
(IN THOUSANDS)
QUARTER ENDED NINE MONTH PERIOD
------------- -----------------
SEPTEMBER 30, ENDED SEPTEMBER 30,
------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period .... $ 86,590 $ 57,324 $ 72,568 $ 46,416
Capitalization of rights .......... 7,113 5,767 20,817 14,929
Rights sold ....................... -- -- (7) (54)
Rights purchased .................. 1,684 947 7,729 5,700
Amortization:
Scheduled ................ (2,554) (1,795) (8,274) (4,748)
Unscheduled .............. -- -- -- --
-------- -------- -------- --------
Balance at end of period .......... $ 92,833 $ 62,243 $ 92,833 $ 62,243
======== ======== ======== ========
</TABLE>
Increases in prepayment rates or credit loss rates over anticipated
levels used in calculating the value of IOs and servicing assets can adversely
affect Doral Financial's revenues and liquidity by increasing the amortization
rates for servicing assets and IOs, as well as requiring Doral Financial to
recognize an impairment against income over and above scheduled amortization.
See "Interest Rate Management." The portion of Doral Financial's mortgage
servicing portfolio consisting of the servicing asset that was originated by
Doral Financial prior to the adoption of SFAS No. 122 is not reflected as an
asset on Doral Financial's Consolidated Financial Statements, and is not subject
to amortization or impairment.
27
<PAGE> 28
CREDIT RISKS RELATED TO LOAN ACTIVITIES
With respect to mortgage loans originated for sale as part of Doral
Financial's mortgage banking business, the Company is generally at risk for any
mortgage loan default from the time the Company originates the mortgage loan
until the time it sells the loan or packages it into a mortgage-backed security.
With respect to FHA loans, the Company is fully insured as to principal by the
FHA against foreclosure loss. VA loans are guaranteed up to 25% to 50% of the
principal amount of the loan subject to a maximum, ranging from $22,500 to
$50,750. Loan-to-value ratios for residential mortgage loans generally do not
exceed 80% (85% for qualifying home purchase transactions through Doral Bank)
unless private mortgage insurance is obtained.
Loans that do not qualify for the insurance or guarantee programs of
FHA and VA, or the sale or exchange programs of FNMA or FHLMC ("non-conforming
loans"), including loans secured by multi-family projects, are often sold to
investors on a partial or full recourse basis or with put back options to the
purchasers. In such cases, the Company retains part or all of the credit risk
associated with such loan after sale. As of September 30, 1999, the maximum
amount of loans that the Company would have been required to repurchase if all
loans subject to recourse defaulted or if investors exercised their put back
options was $624.9 million. As of September 30, 1999, the Company maintained a
reserve of $1.4 million for potential losses from such arrangements which is
included in "Accrued expenses and other liabilities" in the Company's
Consolidated Financial Statements.
Loans secured by income producing residential and commercial properties
involve greater credit risk because they are larger in size and more risk is
concentrated in a single borrower. The properties securing these loans are also
more difficult to dispose of in foreclosure.
Doral Financial manages credit risk by maintaining sound underwriting
standards, monitoring the quality of the loan portfolio, assessing reserves and
loan concentrations, recruiting qualified credit officers, implementing and
monitoring lending policies and collateral requirements, and instituting
procedures to ensure appropriate actions to comply with laws and regulations.
The Company's collateral requirements for loans depend on the financial strength
of the borrower and the type of loan involved. Acceptable collateral principally
includes cash, deposit and investment accounts and real estate, and, to a lesser
extent, liens on accounts receivable, lease receivables, inventory and personal
property. In the case of non-conforming loans sold subject to recourse, the
Company also generally requires lower loan-to-value ratios to protect itself
from possible losses on foreclosure.
Because most of Doral Financial's loans are made to borrowers located
in Puerto Rico and secured by properties located in Puerto Rico, the Company is
subject to greater credit risks tied to adverse economic, political or business
developments and natural hazards, such as hurricanes, that may affect the
Island. For example, if Puerto Rico's real estate market were to experience an
overall decline in property values, the Company's rates of loss on foreclosure
would probably increase.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets ("NPAs") consist of loans held for sale past due
90 days and still accruing, loans on a non-accrual basis and other real estate
owned. Mortgage loans held for sale by Doral Financial's mortgage banking units
are not normally placed on a non-accrual basis following default. Doral
Financial believes that this policy is reasonable because these loans are
generally adequately secured by real estate and the amounts due on the loans are
generally recovered in foreclosure. Doral Bank's policy is to place all loans 90
days or more past due on a non-accrual basis, at which point a reserve for all
unpaid interest previously accrued is established. Interest income is recognized
when the borrower makes a payment, and the loan will return to an accrual basis
when it is no longer 90 or more days delinquent and collectibility is reasonably
assured. For the quarters ended September 30, 1999 and 1998, Doral Bank would
have recognized $302,000 and $329,000, respectively, in additional interest
income had all delinquent loans owned by Doral Bank been accounted for on an
accrual basis.
28
<PAGE> 29
The following table sets forth information with respect to Doral
Financial's non-accrual loans, other real estate owned ("OREO") and other
non-performing assets as of the dates indicated. Doral Financial did not have
any troubled debt restructurings as of any of the periods presented.
<TABLE>
<CAPTION>
TABLE J
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1999 1998
------------------- -----------------
<S> <C> <C>
Mortgage Banking Business(1):
Loans held for sale past due 90 days
and still accruing(2) .............................. $41,873 $49,201
Other real estate owned ("OREO") ...................... 2,732 2,987
Other non-performing assets(3) ........................ -- 1,011
------- -------
Total NPAs of Mortgage Banking Business ............... 44,605 53,199
------- -------
Other Lending Activities through Doral Bank(4):
Non-accrual loans
Construction ...................................... 156 183
Residential mortgage loans ........................ 2,394 2,382
Commercial real estate ............................ 324 770
Consumer .......................................... 219 241
Commercial non-real estate ........................ 70 95
Other ............................................. -- --
------- -------
Total non-accrual loans ............................... 3,163 3,671
OREO .................................................. 56 --
------- -------
Total NPAs of Doral Bank .............................. 3,219 3,671
------- -------
Total NPAs of Doral Financial (consolidated) .......... $47,824 $56,870
======= =======
Total NPAs of Doral Bank as a percentage of
Doral Bank's loans receivable, net and OREO ........ 2.24% 2.88%
Total NPAs of Doral Financial (consolidated) as a
percentage of consolidated total assets ........... 1.25% 1.95%
Ratio of allowance for loan losses to
non-performing assets (consolidated) ............... 11.72% 9.08%
</TABLE>
- ---------------------------
(1) Includes mortgage loans held for sale and OREO related to Doral
Financial's mortgage banking business.
(2) Does not include approximately $25.8 million and $6.5 million of 90
days past due FHA/VA loans as of September 30, 1999 and December 31,
1998, respectively, which are not considered non-performing assets by
the Company because the principal balance of these loans is insured or
guaranteed under applicable FHA and VA programs and interest is, in
most cases, fully recovered in foreclosure procedures.
(3) This amount refers to a mortgage loan to a real estate partnership to
which Doral Financial previously sold OREO. This loan is included in
"Receivables and mortgage servicing advances" in Doral Financial's
Consolidated Financial Statements.
(4) Includes mortgage loans and OREO of Doral Bank.
29
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Doral Financial has an ongoing need for capital to finance its lending
and investing activities. This need is expected to increase as the volume of the
loan originations and investing activity increases. Doral Financial's cash
requirements arise from loan originations and purchases, repayments of debt upon
maturity, payments of operating and interest expenses and servicing advances and
loan repurchases. Servicing agreements relating to the mortgage-backed
securities programs of FNMA, FHLMC and GNMA, and certain other investors and
mortgage loans sold to certain other purchasers, require Doral Financial to
advance funds to make scheduled payments of principal, interest, taxes and
insurance, if such payments have not been received from the borrowers. The
Company generally recovers funds advanced pursuant to these arrangements within
30 days. During the nine month period ended September 30, 1999, the monthly
average amount of funds advanced by Doral Financial under such servicing
agreements was approximately $8.2 million.
Doral Financial's primary sources of liquidity are sales in the
secondary mortgage market of the loans it originates and purchases, short term
borrowings under warehouse, gestation and repurchase agreement lines of credit
secured by pledges of its loans and mortgage-backed securities (in most cases
until such loans are sold and the lenders repaid) and revenues from operations.
In the past, Doral Financial has also relied on privately-placed and publicly
offered debt financing and public offerings of preferred and common stock. Doral
Financial's bank subsidiary also relies on deposits, borrowings from the FHLB-NY
as well as term notes backed by letters of credit of the FHLB-NY.
The following table shows Doral Financial's sources of borrowings and
the related average interest rate as of September 30, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
TABLE K
SOURCES OF BORROWINGS
(DOLLARS IN THOUSANDS)
AS OF SEPTEMBER 30, 1999 AS OF DECEMBER 31, 1998
------------------------ -----------------------
AMOUNT AVERAGE AMOUNT AVERAGE
OUTSTANDING RATE OUTSTANDING RATE
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Repurchase Agreements............................... $ 1,515,592 5.27% $1,197,328 5.26%
Loans Payable....................................... 375,531 6.26% 426,704 6.69%
Deposits............................................ 844,583 4.54% 533,113 4.30%
Notes Payable....................................... 408,709 7.95% 199,733 7.03%
Advances from FHLB.................................. 104,000 5.77% 32,000 6.34%
</TABLE>
Doral Financial has warehousing, gestation and repurchase agreements
lines of credit totaling $4.6 billion as of September 30, 1999, of which $1.9
billion was outstanding as of such date.
30
<PAGE> 31
The following table presents the average balance and the annualized
average rate paid on each deposit type of Doral Bank for the period indicated.
<TABLE>
<CAPTION>
TABLE L
AVERAGE DEPOSIT BALANCE
(DOLLARS IN THOUSANDS) NINE MONTH PERIOD YEAR ENDED
ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ---- ------- ----
<S> <C> <C> <C> <C>
Certificates of deposit............... $ 428,656 5.68% $232,702 5.77%
Regular passbook savings.............. 51,551 4.20% 29,054 4.74%
Now accounts.......................... 96,198 4.64% 36,075 5.06%
Non-interest bearing.................. 134,963 - 95,726 -
--------- ----- -------- ----
Total deposits............... $ 711,368 4.54% $393,557 4.40%
========= ===== ======== ====
</TABLE>
The following table sets forth the maturities of Doral Bank's
certificates of deposit having principal amounts of $100,000 or more at
September 30, 1999.
<TABLE>
<CAPTION>
TABLE M
DEPOSIT MATURITIES
(IN THOUSANDS)
AMOUNT
------
<S> <C>
Certificate of deposit maturing
Three months or less........................ $ 74,932
Over three through nine months.............. 47,007
Over nine through twelve months............. 82,667
Over twelve months.......................... 161,575
--------
Total....................................... $366,181
========
</TABLE>
As of September 30, 1999 and December 31, 1998, Doral Bank had
approximately $196.2 million and $96.8 million, respectively, in brokered
deposits obtained through broker-dealers. Doral Bank uses such deposits as a
source of long-term funds.
As of September 30, 1999, Doral Financial and Doral Bank were in
compliance with all the regulatory capital requirements that were applicable to
them as a bank holding company and state non-member bank, respectively (i.e.,
total capital and Tier 1 capital to risk weighted assets of at least 8% and 4%,
respectively, and Tier 1 capital to average assets of at least 4%). Set forth
below are Doral Financial's and Doral Bank's regulatory capital ratios as of
September 30, 1999, based on existing Federal Reserve and FDIC guidelines.
<TABLE>
<CAPTION>
TABLE N
REGULATORY CAPITAL RATIOS
DORAL DORAL
FINANCIAL BANK
--------- ----
<S> <C> <C>
Tier 1 Capital Ratio (Tier 1 capital to
risk weighted assets)..................... 19.8% 19.3%
Total Capital (total capital to risk
weighted assets).......................... 20.1% 19.6%
Leverage Ratio (Tier 1 capital to
average assets)........................... 10.3% 10.3%
</TABLE>
31
<PAGE> 32
As of September 30, 1999, Doral Bank was considered a well-capitalized
bank for purposes of the prompt corrective action regulations adopted by the
FDIC pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991. To be considered a well capitalized institution under the FDIC's
regulations, an institution must maintain a Leverage Ratio of at least 5%, a
Tier 1 Capital Ratio of at least 6% and a Total Capital Ratio of at least 10%
and not be subject to any written agreement or directive to meet a specific
capital ratio.
Doral Financial expects that it will continue to have adequate
liquidity, financing arrangements and capital resources to finance its
operations. Doral Financial will continue to explore alternative and
supplementary methods of financing its operations, including both debt and
equity financing. There can be no assurance, however, that Doral Financial will
be successful in consummating any such transactions.
ASSETS AND LIABILITIES
At September 30, 1999, Doral Financial's total assets were $3.8 billion
compared to $2.9 billion at December 31, 1998. The increase in assets was due
primarily to a net increase in the securities portfolio of $896.8 million. Total
liabilities were $3.5 billion at September 30, 1999, compared to $2.6 billion at
December 31, 1998. The increase in liabilities was largely the result of an
increase in securities sold under agreements to repurchase, deposit accounts at
Doral Bank, and FHLB-NY advances. At September 30, 1999, deposit accounts
totaled $844.6 million, compared to $533.1 million at December 31, 1998. As of
September 30, 1999, Doral Bank had $1.5 billion in assets, compared to $805
million at December 31, 1998.
INTEREST RATE MANAGEMENT
General. Interest rate fluctuations is the primary market risk
affecting Doral Financial. The effect of changes in interest rates on the volume
of mortgage loan originations, the net interest income earned on the Company's
portfolio of loans and mortgage-backed securities, the amount of gain on sale of
loans, and the value of Doral Financial's loan servicing portfolio and
securities holdings, as well as the Company's strategies to manage such effects,
are discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Interest Rate Management."
In the future, Doral Financial may use alternative hedging techniques
including futures, options, interest rate swap agreements or other hedge
instruments to help mitigate interest rate and market risk. However, there can
be no assurance that any of the above hedging techniques will be successful. To
the extent they are not successful, Doral Financial's profitability may be
adversely affected. For additional information on the use of derivatives to
manage interest rate risk, see "Derivatives" below.
Interest Rate Sensitivity Analysis. The following table summarizes the
expected maturities or repricing of Doral Financial's interest-earning assets
and interest-bearing liabilities as of September 30, 1999. Condensed information
as of December 31, 1998 is also shown. For purposes of this presentation, the
interest-earning components of mortgage loans held for sale and securities held
for trading are assumed to mature within one year. Off balance sheet instruments
represent the notional amounts of interest rate swap agreements. Notional
amounts are used to calculate the contractual amounts to be exchanged under the
swap agreements.
32
<PAGE> 33
<TABLE>
<CAPTION>
TABLE O
INTEREST RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
- --------------------------------------------- -------------------------------------------------------------------------------------
1 YEAR 1 TO 3 3 TO 5 OVER 5 NON-INTEREST
AS OF SEPTEMBER 30, 1999 OR LESS YEARS YEARS YEARS RATE BEARING TOTAL
- --------------------------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money Market Instruments $ 219,461 $ - $ - $ - $ - $ 219,461
Total Loans 1,086,438 4,509 20,534 70,890 - 1,182,371
Securities Held for Trading 770,931 - - - - 770,931
Securities Available for Sale 67,906 - - 67,906
Securities Held to Maturity 32,469 - 22,341 1,200,332 - 1,255,142
FHLB Stock - - - 16,320 - 16,320
Other assets - - - - 311,244 311,244
----------- --------- --------- ---------- --------- ----------
TOTAL ASSETS $ 2,177,205 $ 4,509 $ 42,875 $1,287,542 $ 311,244 $3,823,375
=========== ========= ========= ========== ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Loans Payable $ 375,531 $ - $ - $ - $ - $ 375,531
Repurchase Agreements 1,221,120 - 24,120 270,352 - 1,515,592
Deposits 615,595 54,565 73,356 - 101,067 844,583
Other Borrowed Funds 89,214 59,347 223,148 141,000 - 512,709
Other Liabilities - - - - 202,042 202,042
Stockholders' equity - - - - 372,918 372,918
----------- --------- --------- ---------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,301,460 $ 113,912 $ 320,624 $ 411,352 $ 676,027 $3,823,375
=========== ========= ========= ========== ========= ==========
Off Balance Sheet Instruments - Interest
Rate Swaps $ 105,000 $ (5,000) $(100,000) $ - $ - $ -
Interest Rate Sensitivity Gap (19,255) (114,403) (377,749) 876,190 (364,783) -
Cumulative Interest Rate Sensitivity (19,255) (133,658) (511,407) 364,783 - -
Cumulative Gap to Interest Earning Asset (0.75)% (5.19)% (19.85)% 14.16% - -
</TABLE>
<TABLE>
<CAPTION>
CONDENSED INTEREST RATE
SENSITIVITY ANALYSIS 1 YEAR 1 TO 3 3 TO 5 OVER 5 NON-INTEREST
AS OF DECEMBER 31, 1998 OR LESS YEARS YEARS YEARS RATE BEARING TOTAL
- --------------------------------------------- -------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Off-Balance Sheet Instruments - Interest
Rate Swaps $105,000 $ (5,000) $(100,000) $ - $ - $ -
Interest Rate Sensitivity Gap 166,034 (113,722) (115,785) 368,371 (304,898) -
Cumulative Interest Rate Sensitivity 166,034 52,312 (63,473) 304,898 - -
Cumulative Gap to Interest Earning Assets 6.44% 2.03% (2.46)% 11.83% - -
</TABLE>
Gap analysis measures the volume of assets and liabilities at a point
in time and their repricing during future periods. The volume of assets
repricing is adjusted to take into consideration the expected prepayment of
certain assets such as mortgage loans and mortgage-backed securities, which can
be prepaid before their contractual maturity. The net balance of assets and
liabilities (the "gap") repricing during future periods is an indicator of the
degree of interest rate risk being assumed by the Company. A positive gap
generally denotes asset sensitivity and that increases in interest
33
<PAGE> 34
rates would have a positive effect on net interest income while a decrease in
interest rates would have a negative effect on net interest income. A negative
gap denotes liability sensitivity and means that an increase in interest rates
would have a negative effect on net interest income while a decrease in rates
would have a positive effect on net interest income interest. As of September
30, 1999, the Company had a one year negative gap of approximately $19.3 million
compared to a positive gap position of $166.0 million as of December 31, 1998.
The Company's negative gap within one year is due primarily to the fact that a
significant portion of the Company's assets are financed with repurchase
agreements that generally reprice within 90 days. While static gap analysis is a
useful measure for determining short-term risk to future net interest income, it
does not measure the sensitivity of the market value of assets and liabilities
to changes in interest rates. For example, the value of the Company's mortgage
loans held for sale and trading assets would probably fall in a rising interest
rate environment thereby adversely affecting the Company's revenues from
mortgage loan originations and trading account profit.
Derivatives. The Company uses derivatives to manage its interest rate
risk. Derivatives include interest rate swaps, futures, forwards and options.
Derivatives are generally either privately-negotiated over-the-counter ("OTC")
or standard contracts transacted through regulated exchanges. OTC contracts
generally consist of swaps, forwards and options. Exchange traded derivatives
include futures and options.
Although the Company uses derivatives to manage market risk, for
financial reporting purposes its general policy is to account for such
instruments on a marked to market basis with gains or losses charged to
operations as they occur, except for interest rate swaps entered into by Doral
Bank which are not reflected on the Company's Consolidated Financial Statements.
Contracts with positive fair values are recorded as assets and contracts with
negative fair values as liabilities after the application of netting
arrangements. For the nine-month period ended September 30, 1999, average
assets and liabilities related to derivatives were $5.1 million and $4.1
million, respectively. The notional amounts of assets and liabilities related to
derivatives which are not recorded on the Company's statement of condition
totaled $8.0 billion and $4.8 billion, respectively, as of September 30, 1999.
Notional amounts indicate the volume of derivatives activity but do not
represent the Company's exposure to market or credit risk.
In addition to the use of derivatives discussed above, Doral Financial
has used interest rate swap agreements to effectively fix the cost of short-term
funding sources which are used to finance the funding and holding of
interest-earning assets with longer maturities. An interest rate swap is an
agreement where one party (in this case, Doral Financial) agrees to pay a
fixed-rate of interest on a notional principal amount to a second party
(generally a securities broker-dealer) in exchange for receiving a variable rate
of interest on the same notional amount for a pre-determined period of time. No
actual assets are exchanged in a swap of this type and interest payments are
generally netted. As of September 30, 1999, Doral Financial, through Doral Bank,
had in place various interest rate swap agreements with an aggregate notional
amount of $105 million.
The use of derivatives involves market and credit risk. The market risk
of derivatives arises principally from the potential for changes in the value of
derivative contracts based on changes in interest rates. The Company generally
manages its risks by taking risk offsetting positions.
The credit risk of derivatives arises from the potential of a
counterparty to default on its contractual obligations. Credit risk related to
derivatives depend on the following: the current fair value of outstanding
contracts with an entity; the potential credit exposure on the derivative over
time; the extent to which legally enforceable netting arrangements allow the
offsetting of contracts with the same entity to be netted against each other;
the extent to which collateral held against the contract reduces credit risk;
and the likelihood of defaults by the counterparty.
To manage this credit risk, the Company deals with counterparties of
good credit standing, enters into master netting agreements whenever possible
and, when appropriate, obtains collateral. Master netting agreements incorporate
rights of set-off that provide for the net settlement of contracts with the same
counterparty in the event of default. The credit risk associated with futures
contracts is also limited due to daily cash settlement of the net change in the
value of open contracts with the exchange on which the contract is traded.
34
<PAGE> 35
INFLATION
Doral Financial is affected by inflation in the areas of loan
production, servicing fees and in the value of its financial and servicing
assets. General and administrative expenses increase with inflation. However,
the increase in real estate values in Puerto Rico in recent years has been a
positive factor for Doral Financial's mortgage banking business. The average
size of loans originated tends to increase as home values appreciate, which
serves to increase loan origination fees and servicing income faster than the
cost of providing such services. Interest rates normally increase during periods
of high inflation and decrease during periods of low inflation. See "Interest
Rate Management" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 for a discussion of the effects of changes of interest rates
on Doral Financial's operations.
CHANGES IN ACCOUNTING STANDARDS
Accounting for Derivative and Similar Financial Instruments and for
Hedging Activities. In September 1998, the FASB issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities" ("SFAS No. 133"). This new standard, as
amended, will become effective for all fiscal quarters of all fiscal years
beginning after September 15, 2000, but with earlier application permitted as of
the beginning of any fiscal quarter subsequent to September 15, 1998,
establishes accounting and reporting standards for derivative financial
instruments and for hedging activities, and requires all derivatives to be
measured at fair value and to be recognized as either assets or liabilities in
the statement of financial position. Under this Standard, derivatives used in
hedging activities are to be designated into one of the following categories:
(a) fair value hedge; (b) cash flow hedge; and (c) foreign currency exposure
hedge. The changes in fair value (that is, gains and losses) will be either
recognized as part of earnings in the period when the change occurs, or as a
component of other comprehensive income (outside earnings) depending on their
intended use and resulting designation. Management has determined to adopt this
Statement during the first quarter of fiscal year 2001 and believes that such
adoption will not have a material effect on the Company's financial position or
results of operations.
YEAR 2000 ISSUES
The Year 2000 problem is caused by the situation whereby existing
computer software programs use only the last two digits to identify the year.
Those programs could read "00" as the year 1900, and thus, may not recognize
dates after December 31, 1999. This misinterpretation of data could cause
significant problems with banking and mortgage banking entities, such as the
Company, as the use of date calculations is extensive in daily operations for
matters such as interest accruals, maturity dates, delinquency status, and
customer statements. Year 2000 problems go beyond computer systems and affect
anything that uses an internal microchip such as telephone, fax machines,
security and alarm systems, vaults, elevators, heating and air conditioning.
Doral Financial does not own any proprietary software systems or
applications and relies on those provided by third party vendors. The Company
has completed the assessment of its computer hardware, software programs and
data processing applications, including those provided by third party vendors.
The Company has received revised programs from its third party vendors that have
been modified to address the Year 2000 problem for the principal applications
used in its mortgage banking, commercial banking and securities businesses. The
Company began testing these revised programs and applications during the first
week of October 1998. The testing for most of Company's software systems and
applications including those applicable to mortgage servicing and commercial
banking operations were substantially completed by December 31, 1998. Testing on
certain applications used in mortgage originations that interface with FNMA,
FHLMC and GNMA were completed during the third quarter of 1999. The Company is
using outside consultants to assist it in verifying all test results. The
Company's mainframe computer, used principally in its commercial banking
operations, is Year 2000 compliant, meaning that it can properly process and
calculate date-related information after January 1, 2000.
Doral Financial does not anticipate that the Year 2000 problem will
have a material adverse effect on its financial condition or results of
operations. However, Year 2000 problems suffered by third parties, including
providers of basic services, such as telephone, water, sewer and electricity,
could have an adverse impact on the daily operations
35
<PAGE> 36
of the Company. The Company has adopted contingency plans to address disruptions
that could be caused by the Year 2000 problem. These plans will include, among
other things, performing certain processes manually, contracting third parties
to perform certain operations and reducing or suspending impaired services. The
Company intends to continue to review and modify its contingency plans as it
acquires additional information through its ongoing Year 2000 program.
The Company estimates that the costs of addressing Year 2000 issues
will be approximately $1.4 million, of which $1.3 million has already been
spent. Most of such costs are directly related to the costs of replacing
existing equipment, primarily desktop computers, which have been fully
depreciated on the Company's financial statements. The Company has and intends
to continue to fund such costs through operating cash flow.
As a bank holding company, Doral Financial could be subject to
enforcement action by federal banking authorities if it fails to adequately
address the Year 2000 problem.
RECENT DEVELOPMENTS
Opening of Doral Bank, FSB. On October 6, 1999, Doral Bank, FSB, the
Company's newly chartered federal savings bank, opened for business. Doral Bank,
FSB currently operates out of a single branch location in the New York
metropolitan area. Doral Bank, FSB, is currently exploring the possibility of
opening other branch offices in the New York metropolitan area.
Phase-Out of Chicago Wholesale Operation. The Company made a strategic
decision to phase-out its Chicago wholesale operation during July 1999. This
decision was made because management felt that realized and anticipated returns
from this operation did not justify the investment of additional management and
financial resources. The Chicago wholesale operation originated approximately
$172 million and $143 million of residential mortgage loans for the nine months
ended September 30, 1999 and the year ended December 31, 1998, respectively.
This decision does not affect the Company's New York based commercial lending
unit.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk to which the Company is exposed,
see the information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate
Management."
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the opinion of the Company's management, the pending and threatened
legal proceedings of which management is aware will not have a material adverse
effect on the financial condition of the Company.
ITEM 2 - CHANGES IN SECURITIES
Not Applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
36
<PAGE> 37
ITEM 5 - OTHER INFORMATION
Acquisition of SANA Mortgage Bankers. On September 1, 1999, Doral
Mortgage Corporation, a wholly-owned subsidiary of Doral Financial Corporation,
completed the acquisition of 100% of the outstanding common stock of Sana
Investment Mortgage Brokers, Inc. for $6.0 million in cash. Sana, which is
licensed as a mortgage banking institution in Puerto Rico, specialized in small
to mid sized residential conventional mortgage loans. The terms of the
transaction are discussed in the Company's Current Report on Form 8-K dated
August 3, 1999.
Financing for New Headquarters Building. On November 3, 1999, Doral
Properties, Inc., a wholly-owned subsidiary of the Company, completed an
industrial bond financing the proceeds of which will be used to construct,
develop and equip the Company's new headquarters building in San Juan, Puerto
Rico. Puerto Rico's industrial development authority issued $44,765,000 in
Puerto Rico tax-exempt bonds the proceeds of which were lent to Doral
Properties. The Company has guaranteed Doral Properties' obligations with
respect to the bonds. The bonds are also secured by a mortgage on the new
headquarters building.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.1 - Loan and Guaranty Agreement among Puerto Rico
Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority ("AFICA"), Doral
Properties, Inc. and Doral Financial Corporation.
Exhibit 4.2 - Trust Agreement between AFICA and Citibank, N.A.
Exhibit 4.3 - Form of Serial and Term Bond (included in
Exhibit 4.2 hereof).
Exhibit 4.4 - Deed of Constitution of First Mortgage
Exhibit 4.5 - Mortgage Note (included in Exhibit 4.4 hereof)
Exhibit 4.6 - Pledge and Security Agreement
Exhibit 12(a) - Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 12(b) - Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends.
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
(i) Form 8-K, dated July 7, 1999, reporting under Item 5
- "Other Items" the Company's unaudited results for
the quarter and six months ended June 30, 1999 and
the closing on July 8, 1999 of the sale of $200
million of the Company's 8.50% Medium-Term Senior
Notes, Series A due July 8, 2004.
(ii) Form 8-K, dated August 3, 1999, reporting under Item
5 - "Other Items" the execution of a Purchase
Contract to purchase all the outstanding stock of
Sana Investment Mortgage Brokers, Inc.
(iii) Form 8-K, dated September 1, 1999, reporting under
Item 5 - "Other Items" the closing of the acquisition
of Sana Investment Mortgage Brokers, Inc.
(iv) Form 8-K, dated October 7, 1999, reporting under Item
5 - "Other Items" the Company's unaudited results for
the quarter and nine months ended September 30, 1999
and the issuance on September 19, 1999 of $29 million
of the Company's unsecured senior notes.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DORAL FINANCIAL CORPORATION
(Registrant)
Date: November 15, 1999 /s/ Salomon Levis
-----------------------------------
Salomon Levis
Chairman of the Board
and Chief Executive Officer
Date: November 15, 1999 /s/ Richard F. Bonini
-----------------------------------
Richard F. Bonini
Senior Executive Vice President
and Chief Financial Officer
Date: November 15, 1999 /s/ Ricardo Melendez
-----------------------------------
Ricardo Melendez
Vice President
Principal Accounting Officer
38
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
4.1 - Loan and Guaranty Agreement among Puerto Rico
Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority
("AFICA"), Doral Properties, Inc. and Doral Financial
Corporation.
4.2 - Trust Agreement between AFICA and Citibank, N.A.
4.3 - Form of Serial and Term Bond (included in Exhibit 4.2
hereof).
4.4 - Deed of Constitution of First Mortgage
4.5 - Mortgage Note (included in Exhibit 4.4 hereof)
4.6 - Pledge and Security Agreement
12(a) - Computation of Ratio of Earnings to Fixed Charges.
12(b) - Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends.
27 - Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 4.1
================================================================
LOAN AND GUARANTY AGREEMENT
AMONG
PUERTO RICO INDUSTRIAL, TOURIST
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY,
DORAL PROPERTIES, INC.
AND
DORAL FINANCIAL CORPORATION
------------------
DATED NOVEMBER 3, 1999
------------------
================================================================
This Loan and Guaranty Agreement has been assigned to Citibank, N.A.,
as Trustee under a Trust Agreement dated November 3, 1999, as amended or
supplemented from time to time, from Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority to
such Trustee. A copy of such Trust Agreement may be inspected at the corporate
trust office of the Trustee at One Citibank Drive, 2 South, San Juan, Puerto
Rico 00926.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - Definitions and Rules of Construction........................ 1
Section 1.01. Definitions...................................... 1
Section 1.02. Rules of Construction............................10
ARTICLE II - Representations.............................................11
Section 2.01. Representations by the Authority.................11
Section 2.02. Representations, Warranties and
Covenants of the Borrower........................12
Section 2.03. Representations, Warranties and
Covenants of the Guarantor.......................14
ARTICLE III - Construction of the Project................................15
Section 3.01. Construction of Project..........................15
Section 3.02. Revision of Plans and Specifications.............15
Section 3.03. Disbursements from Construction Fund.............15
Section 3.04. Borrower Required to Pay Cost of Project.........16
Section 3.05. Establishment of Completion Date.................16
Section 3.06. Certificate of Independent Accountants...........17
ARTICLE IV - Loan by the Authority to the Borrower;
Repayment; Maintenance; Indemnity.........................17
Section 4.01. Issuance of the Bonds to Fund the Loan;
Making of the Loan; Repayment....................17
Section 4.02. No Set-Off.......................................19
Section 4.03. Covenant to Maintain the Project.................19
Section 4.04. Expenses.........................................20
Section 4.05. Indemnification..................................21
Section 4.06. Past Due Payments................................24
Section 4.07. Payment of Costs upon Default....................24
Section 4.08. Guarantee........................................25
ARTICLE V - Further Agreements...........................................27
Section 5.01. Covenant to Maintain Existence;
Consolidation, Merger and Sale...................27
Section 5.02. No Warranty by Authority.........................28
Section 5.03. Maintenance and Examination of
Books and Records of Borrower;
Right of Inspection..............................28
Section 5.04. Officers of Authority Not Liable.................28
Section 5.05. Compliance with Applicable Law...................29
Section 5.06. Authority's Performance of the
Borrower's Obligations...........................29
Section 5.07. Indemnification with Respect to
Government Obligations...........................29
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 5.08. Annual Reports...................................30
Section 5.09. Covenant by Borrower as to Compliance
with Trust Agreement.............................30
Section 5.10. Covenant as to Source of Income..................30
Section 5.11. No Purchase of Bonds by Borrower or
Guarantor........................................32
Section 5.12. No Interest of Authority in Project..............33
Section 5.13. Consent to Jurisdiction..........................33
Section 5.14. Limitation Upon Creation of Liens on
Voting Stock of Principal Mortgage
Banking Subsidiaries.............................33
Section 5.15. Limitation upon Disposition of Voting
Stock of Principal Mortgage
Banking Subsidiaries.............................34
Section 5.16. Liens............................................35
ARTICLE VI - Sale of the Project; Assignments............................36
Section 6.01. Sale, Transfer or Encumbrance of
the Project......................................36
Section 6.02. Assignment by Borrower...........................37
Section 6.03. Assignment by Authority..........................39
ARTICLE VII - Events of Default and Remedies.............................39
Section 7.01. Events of Default................................39
Section 7.02. Acceleration; Remedies...........................43
Section 7.03. Remedies Not Exclusive...........................44
Section 7.04. Attorneys' Fees and Expenses.....................44
Section 7.05. Waivers..........................................44
ARTICLE VIII - Prepayment of the Loan....................................45
Section 8.01. Optional Prepayment..............................45
Section 8.02. Mandatory Prepayment of Loan.....................45
Section 8.03. Extraordinary Optional Prepayment
of Loan..........................................47
Section 8.04. Relative Position of Loan Agreement
and Trust Agreement..............................48
ARTICLE IX - Miscellaneous...............................................48
Section 9.01. Termination......................................48
Section 9.02. Reference to Bonds Ineffective After
Bonds Paid.......................................49
Section 9.03. No Additional Waiver Implied by
One Waiver.......................................49
Section 9.04. Authority Representative.........................49
Section 9.05. Borrower Representative..........................49
Section 9.06. Confidential Information.........................50
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 9.07. Notices..........................................50
Section 9.08. Binding Effect...................................51
Section 9.09. If Payment or Performance Date Not
a Business Day...................................51
Section 9.10. Severability.....................................51
Section 9.11. Amendments, Changes and Modifications............52
Section 9.12. Execution in Counterparts........................52
Section 9.13. Applicable Law...................................52
Section 9.14. No Charge Against Authority Credit...............52
Section 9.15. Authority Not Liable.............................52
Section 9.16. Agreement Supersedes Prior Agreements............53
</TABLE>
-iii-
<PAGE> 5
THIS LOAN AND GUARANTY AGREEMENT, dated November 3, 1999, by and among
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY, a public corporation and governmental
instrumentality of the Commonwealth of Puerto Rico (the "Authority"), DORAL
PROPERTIES, INC., a corporation organized and existing under the laws of the
Commonwealth of Puerto Rico (the "Borrower"), and DORAL FINANCIAL CORPORATION, a
corporation organized and existing under the laws of the Commonwealth of Puerto
Rico (the "Guarantor"), and its successors and assigns,
WITNESSETH:
In consideration of the respective representations and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.01. DEFINITIONS. Unless otherwise defined herein, all terms
used herein shall have the meanings assigned to such terms in Section 101 of the
Trust Agreement, dated November 3, 1999, between the Authority and Citibank,
N.A., San Juan, Puerto Rico, as Trustee, either as originally executed or as
amended or supplemented from time to time:
"ACT" means Act No. 121 of the Legislature of Puerto Rico,
approved June 27, 1977, as amended, and all future acts supplemental thereto or
amendatory thereof.
"ACT OF BANKRUPTCY" means the filing of a petition commencing
a case under the United States Bankruptcy Code by or against the Borrower or the
Guarantor.
1
<PAGE> 6
"ADMINISTRATIVE FEE" means the one time fee to the Authority
in the amount of one half of one percent (1/2 of 1%) of the principal amount of
the Bonds.
"AFFILIATE" means a corporation, partnership, joint venture,
association, business trust or similar entity organized under the laws of the
Commonwealth, the United States of America or any state or territory thereof
which (i) is directly or indirectly controlled by the Borrower or by any Person
which directly or indirectly controls the Borrower, or (ii) controls, directly
or indirectly, the Borrower. For purposes of this definition, control means the
power to direct the management and policies of a Person through the ownership of
not less than a majority of its voting securities or the right to designate or
elect not less than a majority of the members of its board of directors or other
governing board or body by contract or otherwise.
"AGREEMENT" or "THIS AGREEMENT" means this Loan and Guaranty
Agreement, including any amendments or supplements hereto as permitted by the
Trust Agreement.
"AMORTIZATION REQUIREMENT" shall have the meaning given to
that term in the Trust Agreement.
"APPLICABLE INTEREST PERIOD" means a taxable year of the
Borrower.
"AUTHORITY" means Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority, a
body corporate and politic constituting a public corporation and governmental
instrumentality of the Commonwealth, and any successor thereto.
"AUTHORITY REPRESENTATIVE" means each of the persons at the
time designated to act on behalf of the Authority in a written certificate
furnished to the Borrower, the Trustee and the
2
<PAGE> 7
Guarantor containing the specimen signature of such person and signed by an
authorized officer of the Authority.
"BOARD" means the board of directors of the Authority as
constituted from time to time and defined by the Act, or if said board shall be
abolished, then the board, body or officer succeeding to the principal
functions thereof or to whom the powers of the Authority shall be given by law.
"BOND FUND" means the fund created and so designated by
Section 501 of the Trust Agreement.
"BONDS" means the bonds issued under Section 208 of the Trust
Agreement.
"BORROWER" means Doral Properties, Inc., a corporation
organized and existing under the laws of the Commonwealth of Puerto Rico and its
successors and permitted assigns and any surviving, resulting or transferee
entity.
"BORROWER REPRESENTATIVE" means each of the persons at the
time designated to act on behalf of the Borrower in a written certificate
furnished to the Authority and the Trustee containing the specimen signature of
such person and signed by an authorized officer of the Borrower.
"BUSINESS DAY" means any day of the year other than a
Saturday, Sunday or other day in which commercial banks in the Commonwealth or
New York, New York are generally closed for business to the public.
"CLOSING" means the date on which this Agreement becomes
legally effective, the same being the date on which the Bonds are initially
issued and delivered against payment therefor.
3
<PAGE> 8
"CODE" means the United States Internal Revenue Code of 1986,
as amended, and the rules and regulations thereunder.
"COMMONWEALTH" means the Commonwealth of Puerto Rico.
"COMPLETION DATE" means the date of completion of the Project
as that date shall be certified as provided in Section 3.05 of this Agreement.
"CONSTRUCTION FUND" means the fund created and so designated
pursuant to Section 401 of the Trust Agreement.
"CORPORATION" AND "CORPORATION" includes corporations,
associations, companies (including joint stock companies and limited liability
companies) and business trusts.
"COST", as applied to the Project, without intending thereby
to limit or restrict any proper definition of such word under the Act, has the
meaning set forth in Section 403 of the Trust Agreement.
"EMINENT DOMAIN" or "TAKING" means the taking pursuant to
eminent domain or condemnation proceedings, or by any settlement or compromise
of such proceedings, or any voluntary conveyance of the Project or any part
thereof during the pendency of, or as a result of a threat of, such proceedings.
"ENVIRONMENTAL CLAIM" means any claim, demand, notice of
violation, suit, applicable and binding administrative or judicial proceeding,
regulatory action, or order involving any Hazardous Substance, Environmental
Law, noise or odor pollution or any injury or threat of injury to human health
or the environment.
"ENVIRONMENTAL LAW" means any applicable federal, state,
Commonwealth, local law, regulation, applicable and binding order, decree,
opinion or agency requirement relating to: (i) the
4
<PAGE> 9
handling, use, disposal or release of any Hazardous Substance, or (ii) the
protection of the environment or human health.
"EVENT OF DEFAULT" means, with respect to this Agreement,
each of the events set forth in Section 7.01 of this Agreement.
"EVENT OF TAXABILITY" means (i) the failure by the Borrower
to comply during its immediately preceding taxable year with the covenants
provided in Section 5.10(a) or (b), or (ii) the failure by the Borrower to
comply with the representations made in Section 2.02(g). An Event of Taxability
shall be deemed to have occurred if any of the certificates or reports required
to be furnished under Section 5.10(c) indicate that the Borrower has failed to
comply with any of the covenants of Section 5.10(a) or (b) or the
representations made in Section 2.02(g).
"FEDERAL TAXES" means any income taxes imposed under the
Code.
"GOVERNMENT OBLIGATIONS" means (i) direct obligations of, or
obligations the timely payment of the principal of and the interest on which are
unconditionally guaranteed by, the United States of America, and (ii) any
certificates or other evidences of ownership interest in obligations or in
specified portions thereof (which may consist of specified portions of the
principal thereof or the interest thereon) of the character described in clause
(i).
"GUARANTOR" means Doral Financial Corporation.
"HAZARDOUS SUBSTANCE" means any substance that is: (i)
listed, classified or regulated pursuant to any Environmental Law, or (ii) any
petroleum product or by-product, asbestos containing material, polichlorinated
byphenyls, radioactive materials or radon.
5
<PAGE> 10
"INDEBTEDNESS" means (1) any obligation of a Person for (a)
the repayment of borrowed money, whether or not evidenced by bonds, debentures,
notes or other written instruments or for the payment of the deferred purchase
price of property or assets (other than Trade Payables), or (b) the payment of
money relating to a lease that is required to be classified as a capitalized
lease obligation in accordance with generally accepted accounting principles;
(2) any liability of others described in the preceding clause (1) that the
Person has guaranteed, that is recourse to such Person or that is otherwise its
legal liability; and (3) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types referred to in
clauses (1) and (2) above.
"INDEPENDENT ACCOUNTANTS" means a firm of certified public
accountants experienced in federal tax matters that is recognized in the
Commonwealth, which may also be the firm which audits the books of the Borrower
and the Guarantor, which is in fact independent with respect to the Borrower and
the Guarantor within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants and is employed by the
Borrower with the approval of the Authority (which approval shall not be
unreasonably delayed or withheld).
"INDUSTRIAL FACILITIES" shall have the meaning given to such
term by the Act.
"INTEREST PAYMENT DATE" means the first day of each calendar
month, commencing on December 1, 1999.
"LOAN" means the loan of the proceeds of the Bonds made by
the Authority to the Borrower pursuant to Section 4.01 of this Agreement.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chairman, the President, the Chief Financial Officer or an
6
<PAGE> 11
Executive Vice President, and by the Treasurer, the Chief Accounting Officer,
the Controller, the Secretary, or an Assistant Secretary of the Guarantor and
delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who
may be counsel to the Borrower or the Guarantor (including an employee of the
Borrower or the Guarantor) and who shall be satisfactory to the Authority, which
is delivered to the Authority.
"PAYMENT OF THE BONDS" means payment of the entire principal
of and premium, if any, and interest on all or a portion of the Bonds in
accordance with their terms, whether through payment at maturity, upon
acceleration, redemption or provision for such payment in such a manner that
such Bonds or such portion shall be deemed to have been paid under Article XIII
of the Trust Agreement.
"PERMITTED LIENS" has the meaning set forth in Section 5.16.
"PERSON" includes an individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or a government or an agency or a political subdivision thereof, or
any other entity.
"PLANS AND SPECIFICATIONS" means, collectively, the plans and
specifications prepared by the Borrower for the Project as the same may be
implemented and detailed from time to time and as the same may be revised from
time to time by the Borrower prior to the Completion Date.
"PRINCIPAL MORTGAGE BANKING SUBSIDIARY" means any Subsidiary,
including its Subsidiaries, which (1) is principally engaged in the mortgage
banking business, and (2) meets any of the following conditions: (i) the
Guarantor's and its other Subsidiaries' investments in and advances to the
Subsidiary exceed
7
<PAGE> 12
30 percent of the total assets of the Guarantor and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year; (ii) the
Guarantor's and its other Subsidiaries' proportionate share of the total assets
(after intercompany eliminations) of the Subsidiary exceeds 30 percent of the
total assets of the Guarantor and its Subsidiaries consolidated as of the end of
the most recently completed fiscal year; or (iii) the Guarantor's and its other
Subsidiaries' equity in the income from continuing operations before income
taxes, extraordinary items and cumulative effect of a change in accounting
principles of the Subsidiary exceeds 30 percent of such income of the Guarantor
and its Subsidiaries consolidated for the most recently completed fiscal year;
provided, however, that any Subsidiary chartered as a banking corporation or as
a savings association under the laws of the United States, any State or the
Commonwealth shall not be considered a Principal Mortgage Banking Subsidiary
unless the Guarantor shall, after the date of this Agreement, transfer the
mortgage banking business currently conducted by Doral Mortgage Corporation or
the Guarantor's HF Mortgage Bankers Division to such banking corporation or
savings association.
"PROJECT" means the industrial facilities financed in part
with the proceeds from the sale of the Bonds and more fully described in Exhibit
A hereto.
"QUALIFYING BONDHOLDER" means (i) an individual who during
the entire taxable year in which an Event of Taxability occurred was a bona fide
resident of the Commonwealth or (ii) a Commonwealth or other foreign corporation
(for purposes of the Code) that is not engaged in any trade or business in the
United States.
"SIGNIFICANT SUBSIDIARY" means a Subsidiary, including its
Subsidiaries, which meets any of the following conditions: (i) the Guarantor's
and its other Subsidiaries' investments in and
8
<PAGE> 13
advances to the Subsidiary exceed 10 percent of the total assets of the
Guarantor and its Subsidiaries consolidated as of the end of the most recently
completed fiscal year; (ii) the Guarantor's and its other Subsidiaries'
proportionate share of the total assets (after intercompany eliminations) of the
Subsidiary exceeds 10 percent of the total assets of the Guarantor and its
Subsidiaries consolidated as of the end of the most recently completed fiscal
year; or (iii) the Guarantor's and its other Subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principles of the Subsidiary exceeds
10 percent of such income of the Guarantor and its Subsidiaries consolidated for
the most recently completed fiscal year.
"SUBSIDIARY" means any Corporation of which at least a
majority of the outstanding stock having by the terms thereof ordinary voting
power to elect a majority of the directors of such Corporation, irrespective of
whether or not, at the time, stock of any other class or classes of such
Corporation shall have or might have voting power by reason of the happening of
any contingency, is at the time, directly or indirectly, owned or controlled by
the Guarantor or by one or more Subsidiaries thereof, or by the Guarantor and
one or more Subsidiaries thereof.
"TITLE POLICY" means the mortgagee title insurance policy
issued to the Authority and the Trustee on the date of issuance of the Bonds.
"TRADE PAYABLES" means accounts payable or any other
indebtedness or monetary obligations to trade creditors created or assumed in
the ordinary course of business in connection with the obtaining of materials or
services.
"TRUST AGREEMENT" means the Deed of Trust Agreement, dated
November 3, 1999, by and between the Authority and the
9
<PAGE> 14
Trustee, as the same may be amended or supplemented in accordance with the terms
thereof.
"TRUSTEE" means the Trustee at the time serving as such under
the Trust Agreement, whether the original or successor trustee.
"VOTING STOCK" means capital stock the holders of which have
general voting power under ordinary circumstances to elect at least a majority
of the board of directors of a corporation, provided that, for the purposes of
such definition, capital stock which carries only the right to vote conditioned
on the happening of an event shall not be considered voting stock whether or not
such event shall have happened.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of which all of
the outstanding voting stock (other than directors' qualifying shares) is at the
time, directly or indirectly, owned by the Guarantor, or by one or more
Wholly-Owned Subsidiaries of the Guarantor, or by the Guarantor and one or more
Wholly-Owned Subsidiaries of the Guarantor.
SECTION 1.02. RULES OF CONSTRUCTION. (a) Words of the
masculine gender shall be deemed and construed to include correlative words of
the feminine and neuter genders.
(b) Unless the context shall otherwise indicate, the words
"Bond," "Bondholder," "owner," "Holder" and "Person" shall include the plural as
well as the singular number, and "Holder" and "Bondholder" when used herein with
respect to the Bonds shall mean the holder or registered owner, as the case may
be, of the Bonds at the time issued and outstanding.
(c) Words importing the redemption or calling for redemption
of the Bonds shall not be deemed to refer to or connote the payment of the Bonds
at their stated maturity.
10
<PAGE> 15
(d) The captions or headings in this Agreement are for
convenience of reference only and in no way define, limit or describe the scope
or intent of any provisions or sections of this Agreement.
(e) All references herein to particular articles, sections or
exhibits are references to articles, sections or exhibits of this Agreement
unless some other reference is established.
(f) Except as provided in Section 8.04, any inconsistency
between the provisions of this Agreement and the provisions of the Trust
Agreement shall be resolved in favor of the provisions of the Trust Agreement.
ARTICLE II
REPRESENTATIONS
SECTION 2.01. REPRESENTATIONS BY THE AUTHORITY. The Authority
represents that:
(a) The Authority was duly created and is validly existing
under the laws of the Commonwealth as a body corporate and politic constituting
a public corporation and governmental instrumentality of the Commonwealth.
(b) Under the provisions of the Act, the Authority is duly
authorized to enter into and to execute and deliver this Agreement, the Pledge
Agreement and the Trust Agreement, to undertake the transactions contemplated by
this Agreement and the Trust Agreement and to carry out its obligations
hereunder and thereunder.
(c) By duly adopted resolution, the Authority has duly
authorized the execution and delivery of this Agreement, the Trust
11
<PAGE> 16
Agreement and the Pledge Agreement and the issuance, sale, execution and
delivery of the Bonds.
(d) Under existing law all payments received by the Authority
pursuant to this Agreement are exempt from Commonwealth income taxation.
SECTION 2.02. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
BORROWER. The Borrower represents, warrants and covenants that:
(a) It is a duly constituted and validly existing corporation
under the laws of the Commonwealth, has elected to be treated as a special
partnership in accordance with the provisions of the Puerto Rico Internal
Revenue Code of 1994, as amended, and Act No. 3 of the Legislature of Puerto
Rico, approved September 27, 1985, and its proposed operations qualify under the
above provisions for treatment as a special partnership.
(b) It has the power and authority to enter into and perform
its obligations under this Agreement and the Collateral Documents.
(c) It has the necessary power and authority to develop,
construct and operate the Project, and to conduct its operations as presently
conducted or proposed to be conducted.
(d) It has duly authorized by proper corporate action the
execution, delivery and performance of this Agreement and the Collateral
Documents.
(e) The execution and delivery of this Agreement and the
Collateral Documents by the Borrower, and the consummation of the transactions
contemplated hereby and thereby and the fulfillment of or compliance with the
terms and conditions hereof and thereof do not and will not conflict with the
provisions of the certificate of
12
<PAGE> 17
incorporation or by-laws of the Borrower and do not and will not conflict with,
or constitute on the part of the Borrower a breach of or default under any
indenture, deed of trust, mortgage, agreement or other instrument to which the
Borrower is a party or by which the Borrower or any of its property is bound or
conflict with, violate or result in a breach of any existing law, public
administrative rule or regulation, judgment, court order or consent decree to
which the Borrower or any of its property is now a party or by which it is
bound, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of the
Borrower under the terms of any instrument or agreement other than this
Agreement or the Trust Agreement.
(f) It will cause the Project to be operated as Industrial
Facilities within the meaning of the Act.
(g) At all times during each of the last three taxable years
(or for such part of such period as may be applicable) and up to and including
the date of execution and delivery of this Agreement, except for the receipt of
lease payments with respect to the Minor Parcels (as defined in the Pledge
Agreement) commencing on October 22, 1999, (i) the Borrower has not been engaged
in any trade or business in or outside the Commonwealth; and (ii) the Borrower
has not derived any gross income from sources within or without the
Commonwealth, as determined under the general source of income rules of the
Code.
(h) Except as set forth in Exhibit B hereto, all consents,
approvals, licenses and permits of any governmental authority having
jurisdiction, or of any other Person, that are required for the construction of
the Project are, and shall remain, in full force and effect.
(i) All consents, approvals, licenses and permits of any
governmental authority having jurisdiction, or of any other Person, that are
required for the development and construction of the
13
<PAGE> 18
Project and which are not in effect on the date hereof or for the proposed
operation of the Project shall be obtained and, once obtained, shall remain in
full force and effect.
(j) To the best of Borrower's knowledge: (i) the Project is
not in violation of any applicable Environmental Law and (ii) the Project has
not received any Environmental Claims or threatened Environmental Claims.
SECTION 2.03. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
GUARANTOR. The Guarantor represents, warrants and covenants that:
(a) It is a duly constituted and validly existing corporation
under the laws of the Commonwealth.
(b) It has the power and authority to enter into and perform
its obligations under this Agreement.
(c) It has duly authorized by proper corporate action the
execution, delivery and performance of this Agreement.
(d) The execution and delivery of this Agreement by the
Guarantor, and the consummation of the transactions contemplated hereby and the
fulfillment of or compliance with the terms and conditions hereof do not and
will not conflict with the provisions of the certificate of incorporation or
by-laws of the Guarantor and do not and will not conflict with, or constitute on
the part of the Guarantor a breach of or default under any indenture, deed of
trust, mortgage, agreement or other instrument to which the Guarantor is a party
or by which the Guarantor or any of its property is bound or conflict with,
violate or result in a breach of any existing law, public administrative rule or
regulation, judgment, court order or consent decree to which the Guarantor or
any of its property is now a party or by which it is bound, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the property or
14
<PAGE> 19
assets of the Guarantor under the terms of any instrument or agreement other
than this Agreement or the Trust Agreement.
(e) The Company is registered as a bank holding company under
the Bank Holding Company Act of 1956 and is subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System.
ARTICLE III
CONSTRUCTION OF THE PROJECT
SECTION 3.01. CONSTRUCTION OF PROJECT. The Borrower will cause the
Project to be constructed and equipped substantially in accordance with the
Plans and Specifications and in accordance with Exhibit A hereto with all
reasonable dispatch; but if for any reason such construction and equipping shall
be delayed or shall not be completed, there shall be no resulting diminution in
or postponement of the payments required under this Agreement to be paid by the
Borrower.
SECTION 3.02. REVISION OF PLANS AND SPECIFICATIONS. The Borrower may
cause the description of the Plans and Specifications and the description of the
Project in Exhibit A hereto to be revised from time to time; provided, however,
no such revision shall be inconsistent with the representation made in
subsection (f) of Section 2.02 hereof, and in the case of any change that would
render materially inaccurate the description of the Project in Exhibit A, there
shall be delivered to the Trustee and the Authority (i) a revised description of
the Project as altered by the change in the Plans and Specifications, the
accuracy of which shall have been certified by a Borrower Representative and
(ii) the approvals and consents, if any, required by the Act and the Trust
Agreement.
SECTION 3.03. DISBURSEMENTS FROM CONSTRUCTION FUND. The Authority and
the Borrower hereby agree that the monies in the
15
<PAGE> 20
Construction Fund shall be applied to the payment of the Cost of the Project and
otherwise as provided in accordance with Article IV of the Trust Agreement and
substantially to the extent of the estimates of Cost of the Project set forth in
the application filed with the Authority or otherwise approved by the Authority,
and such monies shall be invested and reinvested in accordance with Article VI
of the Trust Agreement.
SECTION 3.04. BORROWER REQUIRED TO PAY COST OF PROJECT. If the monies
in the Construction Fund available for the payment of the Cost of the Project
should not be sufficient to pay or cause to be paid the Cost of the Project, the
Borrower agrees to cause the Project to be completed and to pay all that portion
of the Cost of the Project as may be in excess of the monies available therefor
in the Construction Fund. The Authority does not make any warranty, either
express or implied, that the monies which will be paid into the Construction
Fund, together with any other available monies of the Borrower, will be
sufficient to pay the Cost of the Project. The Borrower agrees that if, after
exhaustion of the monies in the Construction Fund, the Borrower should pay or
cause to be paid any portion of the Cost of the Project, it shall not be
entitled to any reimbursement therefor from the Authority or from the Trustee,
and that it shall not be entitled to any abatement, diminution or postponement
of the payments to be made pursuant to Article IV of this Agreement.
SECTION 3.05. ESTABLISHMENT OF COMPLETION DATE. The Completion Date for
the construction of the Project shall be evidenced to the Trustee by a
certificate delivered, after the review and approval of the Guarantor, to the
Trustee and signed by a Borrower Representative setting forth the Cost of the
Project and stating that, except for amounts not then due and payable or the
liability for the payment of which is being contested or disputed by the
Borrower, the construction of the Project has been completed in accordance with
the description thereof and the Plans and Specifications therefor and the Cost
of the Project has been paid.
16
<PAGE> 21
Such certificate shall state that it is given without prejudice to any rights
against third parties which exist at the date of such certificate or which may
subsequently come into being.
SECTION 3.06. CERTIFICATE OF INDEPENDENT ACCOUNTANTS. The Borrower
shall furnish to the Authority and the Trustee, within ninety (90) days after
the end of the Borrower's fiscal year during which the Completion Date occurs, a
written statement prepared by a firm of Independent Accountants, based upon a
review of the Borrower's financial records verifying the Cost of the Project and
that all Bond proceeds were used by the Borrower to pay the Cost of the Project.
ARTICLE IV
LOAN BY THE AUTHORITY TO THE BORROWER;
REPAYMENT; MAINTENANCE; INDEMNITY
SECTION 4.01. ISSUANCE OF THE BONDS TO FUND THE LOAN; MAKING OF THE
LOAN; REPAYMENT. Simultaneously with the delivery of this Agreement, the
Authority shall issue and deliver the Bonds to provide it with funds to be
loaned to the Borrower pursuant to this Agreement. The Bonds shall be issued in
accordance with the Trust Agreement. The approval of the terms of the Bonds and
the Trust Agreement by the Borrower shall be conclusively established by its
execution of this Agreement. Upon the terms and conditions of this Agreement,
the Authority shall loan the Borrower the proceeds of the Bonds. The Loan shall
be deemed to have been made when the proceeds of the sale of the Bonds are
delivered to the Trustee. The proceeds for the Loan shall be used by the
Borrower, together with other available funds, to (i) pay the Cost of the
Project, (ii) pay interest on the Bonds during the construction of the Project,
and (iii) pay certain expenses incurred in connection with the authorization and
issuance of the Bonds. The principal amount of the Loan shall be equal to the
aggregate principal amount of the Bonds.
17
<PAGE> 22
The Borrower agrees to repay the Loan in accordance with the
provisions of this Agreement. The Borrower acknowledges that the proceeds of the
Loan will be delivered to the Trustee and applied on behalf of the Borrower in
accordance with this Agreement and the Trust Agreement.
With respect to each date on which the principal amount of,
redemption premium, if any, or the interest on the Bonds is payable (whether at
maturity, upon acceleration, redemption or otherwise), the Borrower will pay
such additional amounts which, together with all other monies available therefor
in the Bond Fund, will be sufficient to pay:
(a) all interest which will become due and payable on the
Bonds on such date;
(b) the principal amount of the Bonds and redemption premium,
if any, which will become due and payable on such date; and
(c) amounts, if any, required to effect redemption or
purchase of the Bonds on the dates specified pursuant to Section 301 of the
Trust Agreement.
The Borrower will pay the amounts it is required to pay under
clauses (a), (b) and (c) above directly to the Trustee in immediately available
funds for deposit in the Bond Fund. The Borrower shall deposit or cause to be
deposited such amounts with the Trustee no later than the date on which the
corresponding amounts are due on the Bonds or are required to be deposited under
the Trust Agreement, if earlier, except as provided in Section 8.01, 8.02 and
8.03 hereof.
All payments required to be made by the Borrower under the
terms of this Loan Agreement shall be made in lawful money of the United States
of America.
18
<PAGE> 23
For purposes of this Section 4.01 all payments made by the
Guarantor pursuant to Section 4.08 to the extent made and applied to the payment
of the principal amount of and interest on the Bonds will be deemed to satisfy
the corresponding obligation of the Borrower under this Section 4.01.
Except as provided in Section 906 of the Trust Agreement, the
Trustee shall not use any of the amounts deposited in the Bond Fund pursuant to
this Section for any purpose other than the payment of the principal amount of
and redemption premium, if any, and interest on the Bonds.
SECTION 4.02. NO SET-OFF. The obligation of the Borrower to make the
payments required by Section 4.01 and all other payments required under this
Agreement and to perform and observe the other agreements contained in this
Agreement shall be absolute and unconditional. The Borrower shall pay without
abatement, diminution or deduction (whether for taxes or otherwise) all such
amounts regardless of any cause or circumstance whatsoever including, without
limitation, any defense, set-off, recoupment or counterclaim which the Borrower
may have or assert against the Authority, the Trustee, any holder of a Bond or
any other Person.
SECTION 4.03. COVENANT TO MAINTAIN THE PROJECT. The Borrower will at
all times, at its sole cost and expense, maintain, preserve and keep the Project
in good repair, working order and condition and cause to be made all needed and
proper repairs, replacements and renewals; provided, however, that the Borrower
will have no obligation to cause to be maintained, preserved, repaired, replaced
or renewed any element or unit of the Project, the maintenance, repair,
replacement or renewal of which becomes uneconomic to the Borrower because of
damage or destruction or obsolescence or change in economic or business
conditions, or change in government standards or regulations. The Borrower
covenants that it will not permit, commit or suffer any waste of the whole or
any major part of the Project and shall not use or permit the use of the
Project,
19
<PAGE> 24
or any part thereof, for any unlawful purpose or permit any nuisance to exist
thereon.
The Borrower covenants that it will promptly notify the
Trustee and the Authority if the Project ceases to be operated as an Industrial
Facility within the meaning of the Act as in effect on the date hereof.
SECTION 4.04. EXPENSES. The Borrower shall pay, when due and payable,
certain costs and expenses (without duplication), exclusive of costs and
expenses payable from the proceeds of the Bonds, as follows:
(a) the fees and other costs payable to the Trustee, including
the reasonable compensation and the reasonable expenses and disbursements of
Trustee's counsel and the reasonable costs and expenses of indemnifying the
Trustee for, and holding the Trustee harmless against, any loss, liability or
expense (including the reasonable costs and Trustee expenses of defending
against any claim of liability) incurred without negligence or willful
misconduct by the Trustee and arising out of or in connection with its acting as
Trustee under the Trust Agreement;
(b) all costs incurred by the Authority or the Trustee in
connection with the purchase or redemption of Bonds to the extent money is not
otherwise available therefor;
(c) the fees and other costs incurred for services of such
attorneys, management consultants and accountants as are employed by the
Authority or the Trustee to make examinations, provide services, render opinions
or prepare reports required under this Agreement or the Trust Agreement;
(d) reasonable fees and other costs that the Borrower is
obligated to pay, not otherwise paid under this Agreement or the Trust
Agreement, incurred by the Authority in connection with its
20
<PAGE> 25
administration and enforcement of, and compliance with, this Agreement or the
Trust Agreement, including, but not limited to, the Administrative Fee; and
(e) fees and other costs incurred at the request or with the
consent of the Borrower in connection with the issuance of the Bonds to the
extent such fees and other costs are not paid from the proceeds of the Bonds;
provided, however, that in no event shall the total amount of such fees and
other costs paid from the proceeds of the Bonds exceed two percent (2%) of the
proceeds of the Bonds, less amounts paid to the underwriters of the Bonds as
underwriters' discount, but excluding for purposes of this limitation the amount
of the Administrative Fee, the cost of cancelling any existing mortgage lien on
the Property and of executing and recording the Mortgage, and the cost of the
Mortgage, and the cost of the mortgage title insurance policy insuring the
Mortgage, all of which may be paid from the proceeds of the Bonds without
reference in this limitation.
SECTION 4.05. INDEMNIFICATION.
(a) The Borrower and the Guarantor shall at all times
indemnify and hold harmless the Authority against any and all losses, costs,
damages, expenses and liabilities (individually, a "Loss" or collectively
referred to hereinafter as "Losses") of whatsoever nature (including but not
limited to reasonable attorneys' fees, litigation and court costs, amounts paid
in settlement consented to in writing by the Borrower or the Guarantor, and
amounts paid to discharge judgments) directly or indirectly resulting from,
arising out of, or related to one or more Claims, as hereinafter defined. The
word "Claims" as used herein shall mean all claims, lawsuits, causes of action
and other legal actions and proceedings of whatsoever nature, including bodily
or personal injury or death of any person or damage to any property (including
but not limited to persons employed by the Authority, the Borrower or any other
Person) brought against the
21
<PAGE> 26
Authority or to which the Authority is a party, that directly or indirectly
result from, arise out of, or relate to (i) the design, construction, transfer,
sale, operation, use, occupancy, maintenance or ownership of the Project or any
part thereof, (ii) the execution, delivery or performance of this Agreement, the
Trust Agreement, the Collateral Documents, or any related instruments or
documents or (iii) any untrue statement or alleged untrue statement of a
material fact contained in the official statement relating to the Bonds, or any
amendment or supplement thereto, or any preliminary official statement relating
to the Bonds, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which they were
made not misleading; provided, however, that the Borrower and the Guarantor will
not be liable in any such case to the extent that any such Loss or Claim arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any of such documents in reliance upon and
in conformity with written information furnished to the Borrower or the
Guarantor by the Authority specifically for use therein (it being understood
that the information in said official statement under the captions "AFICA" and
"Government Development Bank for Puerto Rico" has been so furnished to the
Borrower and the Guarantor by the Authority specifically for use therein). The
obligations of the Borrower and the Guarantor under this Section 4.05 shall
apply to all Losses or Claims, or both, that result from, arise out of, or are
related to any event, occurrence, condition or relationship existing prior to
termination of this Agreement, whether such Losses or Claims, or both, are
asserted prior to termination of this Agreement or thereafter. The Authority
shall reimburse the Borrower or the Guarantor, as applicable, for payments made
by the Borrower or the Guarantor pursuant to this Section 4.05 to the extent of
any proceeds, net of all expenses of collection, actually received by the
Authority from any insurance covering such Claims with respect to the Losses
sustained. The Authority shall have the duty to claim any such
22
<PAGE> 27
insurance proceeds and the Authority shall assign its rights to such proceeds,
to the extent of such required reimbursement, to the Borrower. In case any
action shall be brought against the Authority in respect of which indemnity may
be sought against the Borrower and the Guarantor, the Authority shall promptly
notify the Borrower and the Guarantor in writing and the Borrower and the
Guarantor shall have the right to assume the investigation and defense thereof
including the employment of counsel and the payment of all expenses. The
Authority shall have the right to employ separate counsel in any such action and
participate in the investigation and defense thereof, but the fees and expenses
of such counsel shall be paid by the Authority unless the employment of such
counsel has been authorized by the Borrower or the Guarantor. The Borrower and
the Guarantor shall not be liable for any settlement of any such action without
the written consent of the Borrower or the Guarantor but, if any such action is
settled with the written consent of the Borrower or the Guarantor or if there be
a final unappealable judgment for the plaintiff in any such action, the Borrower
and the Guarantor agree to indemnify and hold harmless the Authority from and
against any such Losses or Claims by reason of such settlement or judgment.
Nothing herein shall be construed as requiring the Authority to acquire or
maintain insurance of any form or nature with respect to the Project or any
portion thereof or with respect to any phrase, term, provision, condition or
obligation of this Agreement or any other matter in connection herewith so long
as this Agreement is in effect.
(b) The Borrower and the Guarantor do hereby agree to
indemnify and hold harmless the Authority and the Trustee from and against all
reasonable losses, costs, damages, Environmental Claims expenses (including
reasonable attorneys and consultants fees), liabilities, fines, enforcement
actions, remedial costs, and third party cost recovery actions that the Trustee
may sustain by reason of the Trustee becoming liable as an operator (and/or as
an owner if, in its function as a lender, the Trustee or the Authority is
23
<PAGE> 28
deemed to be an owner) under CERCLA or other applicable Environmental Law or
related to the presence in, under or at the Project of any Hazardous Substance
or related to the Borrower's failure to comply with any applicable Environmental
Law.
The above notwithstanding, the Trustee and the Authority shall not be
entitled to the foregoing indemnity if any such losses, costs, damages, expenses
(including reasonable attorneys fees), liabilities, fines, enforcement actions,
remedial costs, and third party cost recovery actions are a result of, or in any
way related to, the negligent or reckless acts or omissions of Trustee, the
Authority, their agents, representatives, employees, officers or directors.
Furthermore, in the event the Borrower or the Guarantor has indemnified the
Trustee or the Authority pursuant to the above indemnity provisions, and the
Trustee or the Authority have received any monies from insurance or other
similar source for the above indemnifiable situations, then the Trustee and the
Authority shall reimburse the Borrower or the Guarantor, as applicable, any
amounts received by any of them from the Borrower or the Guarantor pursuant to
the above indemnity which has otherwise been covered by insurance or a similar
source.
(c) The provisions of this Section 4.05 shall survive the
expiration or termination of this Agreement.
SECTION 4.06. PAST DUE PAYMENTS. In the event the Borrower shall fail
to pay any amounts required to be paid under Section 4.01 or any other amounts
payable under this Agreement, any such amounts shall continue to bear interest
until their payment (to the extent permitted by law) from the maturity date,
redemption date or interest payment date to which such defaulted amounts relate
at the then current rate of interest on such Bonds.
SECTION 4.07. PAYMENT OF COSTS UPON DEFAULT. The Borrower shall pay,
and shall indemnify the Authority against, all costs and charges, including
reasonable counsel fees, lawfully and reasonably
24
<PAGE> 29
incurred in enforcing any covenant or agreement of the Borrower contained in
this Agreement. The Borrower shall reimburse the Trustee for any funds advanced
by the Trustee for the performance of any of its duties hereunder or under the
Trust Agreement, or in the exercise of any of its rights or powers and shall pay
interest on any funds so advanced at rates customarily charged by the Trustee,
which rates shall never be more than two percent over the prime rate of
Citibank, N.A. or the maximum rate permitted by law, whichever is lower.
SECTION 4.08. GUARANTEE. The Guarantor hereby unconditionally and
irrevocably guarantees, jointly and severally with the Borrower, to each holder
of a Bond authenticated and delivered by the Trustee, and to the Authority, (1)
the due and punctual payment of the principal of (including any amount in
respect of original issue discount), and any premium and interest on, such Bond
and the due and punctual payment of the Amortization Requirements, if any, and
analogous obligations, if any, provided for pursuant to the terms of such Bond,
when and as the same shall become due and payable, whether at stated maturity or
upon redemption or upon declaration of acceleration or otherwise according to
the terms of such Bond and of the Trust Agreement, and (2) the payment of all
other amounts payable by the Borrower and the performance of all other
obligations of the Borrower under this Agreement and the Collateral Documents.
In case of default by the Borrower in the payment of any principal (including
any amount in respect of original issue discount), interest, Amortization
Requirements, or analogous obligation, or in the payment of any other amounts
payable by the Borrower or the performance of any other obligations of the
Borrower under this Agreement, the Guarantor agrees duly and punctually to pay
or perform the same. The Guarantor hereby agrees that its obligations hereunder
shall rank pari passu with all other unsecured and unsubordinated obligations of
the Guarantor, whether now existing or hereafter incurred, shall be as principal
and not merely as surety, and shall be absolute and unconditional irrespective
of any extension of the time for payment of any such
25
<PAGE> 30
Bond or other obligation, any modification of any such Bond, this Agreement or
the Trust Agreement, any invalidity, irregularity or unenforceability of any
such Bond, this Agreement or the Trust Agreement, any failure to enforce the
same or any waiver, modification, consent or indulgence granted to the Borrower
with respect thereto by the Holder of such Bond or the Trustee, or any other
circumstances which may otherwise constitute a legal or equitable discharge of a
surety or guarantor. The Guarantor hereby waives diligence, presentment, demand
of payment, filing of claims with a court in the event of merger or bankruptcy
of the Borrower, any right to require a demand or proceeding first against the
Borrower, protest or notice with respect to any such Bond or the indebtedness
evidenced thereby and all demands whatsoever, and covenants that this guarantee
will not be discharged except by payment in full of the principal of (including
any amount payable in respect of original issue discount), and any premium and
interest on all Bonds and of all other amounts payable by the Borrower and
performance of all other obligations of the Borrower under this Agreement. The
Guarantor agrees that any and all rights under this guarantee may be enforced by
any Bondholder, by the Authority and by the Trustee in accordance with the terms
of the Trust Agreement and this Agreement.
Until such time as the Bonds are paid in full, the Guarantor
irrevocably waives any and all rights to which it may be entitled, by operation
of law or otherwise, upon making any payment hereunder (i) to be subrogated to
the rights of a Holder against the Borrower with respect to such payment or
otherwise to be reimbursed, indemnified or exonerated by the Borrower in respect
thereof or (ii) to receive any payment, in the nature of contribution or for any
other reason, from any other obligor with respect to such payment.
The guarantee set forth in this Section shall not be valid or become
obligatory for any purpose with respect to a Bond until the
26
<PAGE> 31
certificate of authentication on such Bond shall have been signed by the
Trustee.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any obligation guaranteed hereunder
is rescinded or must otherwise be returned by any holder of a Bond or by the
Authority upon the insolvency, bankruptcy or reorganization of the Borrower, or
otherwise, all as though such payment had not been made.
ARTICLE V
FURTHER AGREEMENTS
SECTION 5.01. COVENANT TO MAINTAIN EXISTENCE; CONSOLIDATION, MERGER AND
SALE. The Borrower and the Guarantor covenant that so long as any Bonds are
outstanding they will maintain their existence, will not dispose of all or
substantially all of their assets and will not acquire, consolidate with or
merge into another Person; provided, however, that the Borrower or the Guarantor
may acquire, consolidate with or merge into another Person, or transfer to
another Person all or substantially all their assets and thereafter dissolve, if
(i) the successor or transferee is solvent and irrevocably and unconditionally
assumes in writing all the obligations of the Borrower or the Guarantor, as the
case may be, herein and under the Trust Agreement and the Collateral Documents;
(ii) such consolidation, merger or transfer shall not cause the Borrower to fail
to comply with any of the covenants of Section 5.10(a) or (b) or the
representations made in Section 2.02(g) of this Agreement; and (iii) immediately
after such consolidation, merger or transfer none of the Borrower, such
successor or transferee (if other than the Borrower) or the Guarantor shall be
in default in the performance or observance of any duties, obligations or
covenants imposed on them under this Agreement or the Collateral Documents.
27
<PAGE> 32
SECTION 5.02. NO WARRANTY BY AUTHORITY. The Authority makes no
warranty, either express or implied, as to the condition of the Project or its
suitability for the Borrower's purposes or needs or that the proceeds of the
Bonds will be sufficient for the purposes set forth above.
SECTION 5.03. MAINTENANCE AND EXAMINATION OF BOOKS AND RECORDS OF
BORROWER; RIGHT OF INSPECTION. The Borrower covenants that it will keep accurate
records, books and accounts of all items of cost and of all expenditures
relating to the Project, whether or not financed under the provisions of this
Agreement. The Authority and the Trustee and their duly authorized agents shall
have the right at all reasonable times during business hours to enter upon and
examine and inspect the Project, to determine whether the Project continues to
constitute Industrial Facilities. The Authority and the Trustee shall also be
permitted, at all reasonable times during business hours, to (i) examine the
Plans and Specifications and the other books and records (other than
confidential personnel records) of the Borrower, including any accountants' work
papers, with respect to the Project in connection with the transactions
contemplated by this Agreement and the Trust Agreement, and (ii) to make copies
of those portions of such books and records as the Authority and the Trustee or
such agents shall reasonably request. Any proprietary or confidential
information obtained by the Authority or the Trustee pursuant to this Section
5.03 shall not be disclosed to third parties unless such disclosure is required
in order to comply with its obligations hereunder or under the Trust Agreement
or the Collateral Documents.
SECTION 5.04. OFFICERS OF AUTHORITY NOT LIABLE. All covenants,
stipulations, promises, agreements and obligations of the Authority contained
herein shall be deemed to be covenants, stipulations, promises, agreements and
obligations of the Authority and not of any member of the Board of the Authority
or any officer, agent, servant or employee of the Authority in his individual
capacity, and no recourse shall be had for the payment of the
28
<PAGE> 33
principal amount of or redemption premium or interest on the Bonds or for any
claim based thereon or hereunder against any member of the Board of the
Authority or any officer, agent, servant or employee of the Authority or any
natural person executing the Bonds. Neither any member of the Board of the
Authority nor any person executing the Bonds shall be liable personally on the
Bonds or be subject to any personal liability or accountability by reason of the
issuance of the Bonds.
SECTION 5.05. COMPLIANCE WITH APPLICABLE LAW. The Borrower covenants
that the Plans and Specifications shall comply with all provisions of applicable
laws, ordinances, orders, rules, regulations and requirements of all federal,
Commonwealth and municipal governments, and appropriate departments,
commissions, boards and officers thereof, whether now or hereafter in force.
SECTION 5.06. AUTHORITY'S PERFORMANCE OF THE BORROWER'S OBLIGATIONS. In
the event the Borrower at any time neglects, refuses or fails to perform any of
its obligations under this Agreement, the Authority or the Trustee, at their
respective options and following at least thirty (30) days' written notice to
the Borrower and the Guarantor (except where a shorter period of notice is
necessary to avoid a default in the Bonds or to avoid endangering the interest
of the Authority or the Trustee in the Project, or any part thereof, or to
prevent any loss or forfeiture thereof), may perform or cause to be performed
such obligations, and all reasonable expenditures incurred by the Authority or
the Trustee thereby shall be promptly paid or reimbursed by the Borrower to the
Authority or the Trustee, as the case may be.
SECTION 5.07. INDEMNIFICATION WITH RESPECT TO GOVERNMENT OBLIGATIONS.
If the Borrower shall elect to cause Government Obligations to be deposited with
the Trustee pursuant to Section 1301 of the Trust Agreement, the Borrower shall
pay and shall indemnify and hold harmless the Trustee, the Authority and each
holder of the Bonds against any tax, fee or other charge imposed
29
<PAGE> 34
upon or assessed against such Government Obligations or the principal thereof,
or premium, if any, and interest received thereon.
SECTION 5.08. ANNUAL REPORTS. Within 95 days following the completion
of each of their fiscal years, the Borrower and the Guarantor shall furnish a
copy of their year-end audited financial statements to the Trustee and the
Authority, together with a certificate signed by the chief financial officer (or
other executive officer performing similar functions) of the Borrower and the
Guarantor certifying that no default has occurred under this Agreement, and that
no fact or circumstance exists which, with the lapse of time or the giving of
notice or both, would result in an Event of Default hereunder.
SECTION 5.09. COVENANT BY BORROWER AS TO COMPLIANCE WITH TRUST
AGREEMENT. The Borrower and the Guarantor approve all the terms of the Trust
Agreement and consent to the assignment made by the Authority to the Trustee
therein, covenant and agree that they will comply with the provisions of the
Trust Agreement with respect to the Borrower and the Guarantor and recognize
that the Trustee shall have the power and authority provided in the Trust
Agreement. The Borrower and the Guarantor further agree to cooperate with the
Authority and the Trustee in providing any information or documentation that is
necessary or convenient for the rendering of any legal opinion that may be
required under the Trust Agreement.
SECTION 5.10. COVENANT AS TO SOURCE OF INCOME.
(a) The Borrower covenants that: (i) during the three taxable
years (or for such part of such period as may be applicable) immediately
preceding the taxable year during which interest is paid on the Bonds, more than
20% of its total gross income will be attributable to its trade or business in
the Commonwealth, as determined under Section 861(c)(1)(B) of the Code as in
effect on the Closing and will be derived from sources within
30
<PAGE> 35
the Commonwealth under the general source of income rules of the Code, as in
effect on the Closing; and (ii) no part of the interest paid on the Bonds will
be treated under the Code, as paid by a trade or business of the Borrower
conducted outside the Commonwealth, such determination to be made in accordance
with Section 884(f)(1)(A) of the Code and Treas. Regs. Section 1.884-
4(b)(1)(i)(A) or (B) issued thereunder, as in effect on the Closing.
(b) The Borrower covenants that all interest paid or accrued
on the Bonds will constitute income from sources within the Commonwealth under
the general sourcing rules of the Code as in effect on the Closing.
(c) The Borrower covenants that for each taxable year, up to
and including the taxable year when all interest on and principal of the Bonds
are paid in full, not later than the 120th day following the close of each such
taxable year, beginning with the first taxable year ending after the Closing, it
will (1) deliver to the Trustee, the Independent Accountant and the Authority, a
certificate (the "Borrower's Certificate") addressed to the Trustee, the
Independent Accountant and the Authority: (i) stating for the three immediately
preceding taxable years of the Borrower (or for such part of such period as may
be applicable), the percentage of the Borrower's gross income that was derived
from sources within the Commonwealth under the general sourcing rules of the
Code as in effect on the Closing; (ii) stating the percentage of the Borrower's
gross income that was attributable to, the active conduct of (A) its trade or
business in the Commonwealth and (B) any trade or business outside the
Commonwealth, in each case as determined under Section 861(c)(1)(B) of the Code
as in effect on the Closing; (iii) making an assertion as to whether or not the
Borrower has complied with each of the covenants of Section 5.10(a) and the
representation of Section 2.02(g); and (iv) making an assertion as to whether
the Borrower or the Guarantor has taken any other action which shall cause
interest on the Bonds to become
31
<PAGE> 36
subject to federal taxation for Puerto Rico residents; and, accordingly, whether
or not an Event of Taxability has occurred; and, (2) cause an Independent
Accountant to deliver to the Trustee, the Guarantor and the Authority, an
Independent Accountant's report stating (i) that they have examined (such
examination being made in accordance with standards established by the American
Institute of Certified Public Accountants) management's assertion included in
the Borrower's Certificate as to the Borrower's compliance with the covenants of
Section 5.10(a) and the representation of Section 2.02(g) and (ii) whether in
their opinion the Borrower's assertion as to compliance with each of such
covenants and representation is correct. If the Borrower's Certificate or the
Independent Accountant's Report indicates that the Borrower has failed to
comply with any of the covenants of Section 5.10(a) or the representations made
in Section 2.02(g), or that the Borrower or the Guarantor has taken any other
action which shall cause interest on the Bonds to become subject to federal
taxation for Puerto Rico residents, an Event of Taxability shall have occurred
and the Trustee shall cause a copy of such report to be mailed to each
Bondholder together with a notice to each Bondholder that an Event of Taxability
has occurred, within five (5) Business Days of the receipt of such report. Upon
the occurrence of an Event of Taxability, the Borrower shall cause the
Independent Accountants or tax counsel acceptable to the Trustee and the
Authority, to provide an opinion as to what would be the Applicable Interest
Period in which a Qualifying Bondholder would be subject to Federal Taxes with
respect to the interest paid or accrued on the Bonds.
SECTION 5.11. NO PURCHASE OF BONDS BY BORROWER OR GUARANTOR. Except as
permitted by the Trust Agreement with respect to the purchase of Bonds for
cancellation in connection with the Amortization Requirement, the Borrower and
the Guarantor covenant that none of the Bonds will be purchased by the Borrower
or the Guarantor, or their respective Affiliates, other than Doral Securities in
the ordinary course of its broker-dealer business.
32
<PAGE> 37
SECTION 5.12. NO INTEREST OF AUTHORITY IN PROJECT. The Authority shall
not have any rights to or interest in the Project, which shall be the sole and
exclusive property of the Borrower.
SECTION 5.13. CONSENT TO JURISDICTION. The Borrower and the Guarantor
consent to the jurisdiction of the courts of the Commonwealth for causes of
action arising under or related to the terms of this Agreement, the Trust
Agreement, or any related documents.
SECTION 5.14. LIMITATION UPON CREATION OF LIENS ON VOTING STOCK OF
PRINCIPAL MORTGAGE BANKING SUBSIDIARIES. The Guarantor will not, and it will not
permit any Subsidiary at any time directly or indirectly to, incur, issue,
assume or guarantee any Indebtedness for borrowed money secured by a pledge of,
lien on or security interest in any shares of Voting Stock of any Principal
Mortgage Banking Subsidiary without making effective provision whereby the Bonds
(and, if the Guarantor so elects, any other Indebtedness of the Guarantor
ranking on a parity with the Bonds) shall be secured equally and ratably with
such secured Indebtedness; provided, however, that the foregoing covenant shall
not apply to any Indebtedness secured by a pledge of, lien on or security
interest in any shares of Voting Stock of any corporation at the time it becomes
a Principal Mortgage Banking Subsidiary; and provided further, however, that the
foregoing covenant shall not be applicable to liens for taxes or assessments or
governmental charges or levies not then due and delinquent or the validity of
which is being contested in good faith or which are less than $5,000,000 in
amount, liens created by or resulting from any litigation or legal proceeding
which is currently being contested in good faith by appropriate proceedings or
which involve claims of less than $5,000,000, or deposits to secure (or in lieu
of) surety, stay, appeal or customs bonds.
If the Guarantor shall hereafter be required to secure the
Bonds equally and ratably with any other Indebtedness of the
33
<PAGE> 38
Guarantor pursuant to this Section, (i) the Guarantor will promptly deliver to
the Trustee an Officers' Certificate stating that the foregoing covenant has
been complied with, and an Opinion of Counsel stating that in the opinion of
such counsel the foregoing covenant has been complied with and that any
instruments executed by the Guarantor or any Subsidiary in the performance of
the foregoing covenant comply with the requirements of the foregoing covenant
and (ii) the Authority is hereby authorized to enter into an agreement
supplemental hereto and to take such action, if any, as it may deem advisable to
enable the Trustee to enforce the rights of the holders of the Bonds so secured.
SECTION 5.15. LIMITATION UPON DISPOSITION OF VOTING STOCK OF PRINCIPAL
MORTGAGE BANKING SUBSIDIARIES. Subject to Section 5.01, the Guarantor will not
sell, assign, transfer or otherwise dispose of any shares of, securities
convertible into or options, warrants or rights to subscribe for or purchase
shares of, Voting Stock (other than directors' qualifying shares) of any
Principal Mortgage Banking Subsidiary and will not permit any Principal Mortgage
Banking Subsidiary to issue (except to the Guarantor) any shares of, securities
convertible into or options, warrants or rights to subscribe for or purchase
shares of, Voting Stock of any Principal Mortgage Banking Subsidiary, except for
sales, assignments, transfers or other dispositions that:
(1) are for fair market value on the date thereof, as determined by the
Board of Directors of the Guarantor (which determination shall be conclusive)
and, after giving effect to such disposition and to any possible dilution, the
Guarantor will own not less than 80% of the shares of Voting Stock of such
Principal Mortgage Banking Subsidiary then issued and outstanding free and clear
of any security interest;
(2) are made in compliance with an order of a court or regulatory
authority of competent jurisdiction, as a condition imposed by any such court or
authority permitting the acquisition
34
<PAGE> 39
by the Guarantor, directly or indirectly, of any other mortgage banking
institution or entity the activities of which are legally permissible for a bank
holding company or a subsidiary thereof to engage in, or as an undertaking made
to such authority in connection with such an acquisition;
(3) are made where such Principal Mortgage Banking Subsidiary, having
obtained any necessary regulatory approvals, unconditionally guarantees payment
when due of the principal of and premium, if any, and interest on the Bonds; or
(4) are made to the Guarantor or any Wholly-Owned Subsidiary if such
Wholly-Owned Subsidiary agrees to be bound by this covenant and the Guarantor
agrees to maintain such Wholly-Owned Subsidiary as a Wholly-Owned Subsidiary.
Notwithstanding the foregoing, any Principal Mortgage Banking
Subsidiary may be merged into or consolidated with another mortgage banking
institution organized under the laws of the United States, any State thereof,
the Commonwealth or the District of Columbia if, after giving effect to such
merger or consolidation, the Guarantor or any Wholly-Owned Subsidiary owns at
least 80% of the Voting Stock of such other mortgage banking institution then
issued and outstanding free and clear of any security interest and if,
immediately after giving effect thereto and treating any such resulting
institution thereafter as a Principal Mortgage Banking Subsidiary and as a
Subsidiary for purposes of this Agreement, no Event of Default, and no event
that, after the giving of notice or lapse of time or both, would become an Event
of Default, has occurred and is continuing.
SECTION 5.16. LIENS. The Borrower shall not create, incur, assume or
permit to exist any lien on the Property, other than (i) the lien under the
Mortgage, the Mortgage Note and the Pledge Agreement, (ii) liens, charges,
encumbrances and rights identified as subsisting liens on the Mortgage or listed
as exceptions in the
35
<PAGE> 40
Title Policy, (iii) liens for real estate taxes or assessments not yet due and
payable or which are being contested in good faith by appropriate proceedings
and for which adequate reserves are maintained by the Borrower, (iv) zoning
restrictions, easements, rights of way, licenses, exceptions, reservations,
restrictions on use, minor defects and irregularities in title, and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and do not materially detract from the
value of the Property or interfere with the ordinary conduct of the business of
the Borrower proposed for said parcel of Property; (v) carriers',
warehousemen's, mechanic's, materialmen's, repairmen's or other like liens
arising in the ordinary course of business and securing obligations that are not
due or which are being contested in good faith; (vi) pledges and deposits made
in the ordinary course of business in compliance with workmen's compensation,
unemployment insurance and other social security laws or regulations; (vii)
liens on the Minor Parcels (as defined in the Pledge Agreement) following their
release in accordance with Section 5 of the Pledge Agreement; and (viii)
deposits to secure the performance of bids, trade contracts, leases (other than
capital lease obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business (the Liens listed in clauses (i) through (viii)
being referred to as "Permitted Liens").
ARTICLE VI
SALE OF THE PROJECT; ASSIGNMENTS
SECTION 6.01. SALE, TRANSFER OR ENCUMBRANCE OF THE PROJECT. Without the
necessity of obtaining the consent of the Authority or the Trustee, the Project
may be sold, leased or otherwise transferred or encumbered as a whole or in part
and any proceeds thereof retained by the Borrower, subject, however, to the
following conditions:
(a) the Borrower shall, prior to such sale, transfer or
encumbrance of the Project or lease of the Project as a whole or
36
<PAGE> 41
substantially as a whole, notify the Authority and the Trustee thereof;
(b) prior to the proposed sale or other transfer of the
Project as a whole or substantially as a whole, the Trustee and the Authority
are provided with proof satisfactory to them by the Borrower (which may include
an opinion from counsel approved by the Trustee) that as a result of such
transfer or the terms thereof, interest payable on the Bonds will continue to
constitute Commonwealth source income under the Code as in effect on the
Closing;
(c) the Person to whom the Project is sold or transferred as a
whole or substantially as a whole, or in favor of whom the Project is
encumbered, shall, in a certificate delivered to the Authority and the Trustee,
which certificate shall be in a form reasonably satisfactory to the Authority
and the Trustee, expressly agree to perform all of the obligations of the
Borrower under the Collateral Documents; and
(d) no sale, lease or other transfer or encumbrance of the
Project shall relieve the Borrower or the Guarantor of its obligations
hereunder, including the obligation to make the payments required by Sections
4.01 and 4.08 hereof or under the Collateral Documents.
The provisions of subsections (b) and (c) of this Section 6.01
shall not apply to a sale, lease or other transfer of the Project from the
Borrower to the Guarantor, or any of their respective subsidiaries or to any
transfer permitted by Section 5 of the Pledge Agreement.
SECTION 6.02. ASSIGNMENT BY BORROWER. Without the necessity of
obtaining the consent of the Authority or the Trustee, the Borrower may assign
its interest in this Agreement or the Collateral Documents, in whole or in part,
subject, however, to the following conditions:
37
<PAGE> 42
(a) the Borrower shall, prior to such assignment of this
Agreement, notify the Authority and the Trustee thereof;
(b) prior to the proposed assignment the Trustee is provided
with proof satisfactory to it by the Borrower (which may include an opinion from
counsel approved by the Trustee) that as a result of such assignment or the
terms thereof, interest payable on the Bonds will continue to constitute
Commonwealth source income under the Code as in effect on the Closing;
(c) no assignment of this Agreement shall relieve the
Borrower or the Guarantor of its obligations hereunder, including the obligation
to make the payments required by Sections 4.01 and 4.08 hereof, or under the
Collateral Documents;
(d) the assignee shall, in a certificate delivered to the
Authority and the Trustee, which certificate shall be in a form reasonably
satisfactory to the Authority and the Trustee, expressly assume, and agree to
pay and to perform, all of the obligations of the Borrower under this Agreement
and the Collateral Documents which shall have been assigned to it; and
(e) the assignee shall deliver to the Authority and the
Trustee a certificate executed by its chief financial officer (or other
executive officer performing similar functions) stating that none of the
obligations, covenants and performances under this Agreement and the Collateral
Documents assumed by it will conflict with or constitute on the part of such
assignee a breach of, or default under, any indenture, mortgage, agreement or
other instrument to which such assignee is a party or by which it is bound, or
under any existing law, rule, regulation, judgment, order or decree to which
such assignee is subject.
The provisions of subsections (d) and (e) of this
Section 6.02 shall not apply to any assignment of this Agreement in
38
<PAGE> 43
which all the parties consist of the Borrower or the Guarantor, or any of their
respective Subsidiaries.
SECTION 6.03. ASSIGNMENT BY AUTHORITY. By the provisions of the Trust
Agreement, the Authority will assign its rights under and interest in this
Agreement (except its rights to receive notices, reports and other statements
given both to the Authority and the Trustee, its rights under Sections 4.04,
4.05, 5.07, 7.02 and 7.04 hereof to payment of certain costs and expenses and to
indemnification, and its right to individual and corporate exemption from
liability under Sections 5.04, 9.14 and 9.15 hereof) and will pledge and assign
any payments, receipts and revenues receivable by it (except as aforesaid) under
or pursuant to this Agreement and income earned by the investment of funds held
under the Trust Agreement, to the Trustee as security for the payment of the
principal of and premium, if any, and interest on the Bonds. Except as provided
in this Section 6.03, the Authority will not sell, assign, transfer, convey or
otherwise dispose of its interest in this Agreement or the payments, receipts
and revenues of the Authority derived hereunder.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT. The term "Events of Default" shall
mean, whenever used with reference to this Agreement, any one or more of the
following occurrences:
(a) failure to pay the amounts required to be paid with
respect to principal of or redemption premium, if any, or interest on the Bonds
when the same shall become due and payable, at maturity, upon acceleration,
redemption or otherwise, and, in the case of failure to pay interest, the
continuation of such failure for a period of five (5) days; or
39
<PAGE> 44
(b) failure by the Borrower to pay when due any payment
required to be made under this Agreement (other than payments under subsection
(a) of this Section 7.01) or the Collateral Documents, which failure shall
continue for a period of thirty (30) days after written notice, specifying such
failure and requesting that it be remedied, is given to the Borrower by the
Authority or the Trustee, unless the Authority or the Trustee shall agree in
writing to an extension of such time prior to its expiration; or
(c) the Borrower or the Guarantor shall fail to duly perform,
observe or comply with any covenant, condition or agreement on their part under
this Agreement or the Collateral Documents other than a failure to make any
payment as described in subsections (a) or (b) of this Section 7.01, and such
failure shall continue for a period of ninety (90) days after the date on which
written notice of such failure, requiring the same to be remedied, shall have
been given to the Borrower and the Guarantor by the Authority or the Trustee,
unless the Authority and the Trustee shall agree in writing to an extension of
such time prior to its expiration; provided, however, that if such performance,
observation or compliance requires work to be done, action to be taken, or
conditions to be remedied, as the case may be, within such ninety (90) day
period, no Event of Default shall be deemed to have occurred or to exist if, and
so long as, the Borrower or the Guarantor shall commence such performance,
observation or compliance within such period and shall diligently and
continuously pursue the same to completion; or
(d) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Guarantor or any
Significant Subsidiary in excess of $5,000,000, whether such indebtedness now
exists or shall hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to
40
<PAGE> 45
the date on which it would otherwise have become due and payable, without such
acceleration having been rescinded or annulled within a period of 30 days after
there shall have been given, by registered or certified mail, to the Guarantor
by the Trustee or to the Guarantor and the Trustee by the Holders of not less
than 25% in principal amount of the Bonds a written notice specifying such
default and requiring the Guarantor or the Significant Subsidiary, as the case
may be, to cause such acceleration to be rescinded or annulled and stating that
such notice is a "Notice of Default" hereunder; provided, however, that if such
default shall be remedied or cured by the Guarantor or the Significant
Subsidiary or waived by the holders of such indebtedness, then the Event of
Default hereunder by reason thereof shall be deemed likewise to have been
thereupon remedied, cured or waived without any action on the part of the
Trustee or any of the Holders; or
(e) the Borrower or the Guarantor shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, custodian, liquidator, assignee, trustee or
sequestrator (or other similar official) of itself or of any substantial part of
its property, or shall make a general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due, or the Borrower or
the Guarantor shall take any action in furtherance of any of the foregoing
(except in connection with a consolidation or a merger of the Borrower with or
into another entity or transfer of all or substantially all the assets of the
Borrower not prohibited by Sections 5.01 and 6.01 hereof); or
(f) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Borrower or the Guarantor in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect,
41
<PAGE> 46
or appointing a receiver, custodian, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Borrower or the Guarantor, respectively, of
any substantial part of their respective properties, or ordering the winding up
or liquidation of their affairs, and the continuance of such decree or order
unstayed and in effect for a period of sixty (60) consecutive days.
The foregoing provisions of subsection (c) of this Section are
subject to the following limitations: if by reason of Force Majeure, the
Borrower or the Guarantor is unable in whole or in part to carry out any of its
agreements herein contained, failure of the Borrower or the Guarantor to carry
out any such agreements other than the obligations on the part of the Borrower
or the Guarantor contained in Sections 4.01, 4.08 and 5.01 hereof, shall not be
deemed an Event of Default during the continuance of such inability, including a
reasonable time for the removal of the effect thereof.
The term "Force Majeure" shall mean the following:
(a) acts of God; strikes, lockouts or other industrial
disturbances; acts of public enemies; orders or restraints of any kind of the
government of the United States of America or of the Commonwealth or any of
their departments, agencies, political subdivisions or officials, or any civil
or military authority; war; insurrections; civil disturbances; riots; epidemics;
landslides; lightning; earthquakes; fires; hurricanes; storms; droughts; floods;
washouts; arrests; restraint of government and people; explosions; breakage,
malfunction or accident to facilities, machinery, transmission pipes or canals;
partial or entire failure of utilities; shortages of labor, materials, supplies
or transportation; or
(b) any cause, circumstance or event not reasonably within the
control of the Borrower or the Guarantor.
42
<PAGE> 47
The Borrower and the Guarantor agree, however, to use their
best efforts to remedy with all reasonable dispatch Force Majeure preventing
them from carrying out their agreements; provided, that the settlement of
strikes, lockouts and other industrial disturbances, shall be entirely within
the discretion of the Borrower and the Guarantor, and the Borrower and the
Guarantor shall not be required to make settlement of strikes, lockouts and
other industrial disturbances by acceding to the demands of the opposing party
or parties when such course is in the judgment of the Borrower or the Guarantor
unfavorable to the Borrower or the Guarantor.
SECTION 7.02. ACCELERATION; REMEDIES. (a) Whenever any Event of Default
hereunder shall have happened and be continuing, any one or more of the
following remedial steps may be taken, provided that written notice of the Event
of Default has been given to the Borrower and the Guarantor by the Authority or
the Trustee (except that notice need not be given in the case of an Event of
Default specified in Section 7.01(a), (e) and (f) hereof) and the Event of
Default has not theretofore been cured and provided further that no remedial
steps shall be taken by the Authority the effect of which would be to entitle
the Authority to funds necessary for the payment of principal of and interest on
Bonds which have not yet matured or otherwise become due unless such principal
and interest shall have been declared due and payable in accordance with the
Trust Agreement and such declaration shall not have been rescinded:
(1) The Authority may at its option declare all unpaid
amounts payable under Section 4.01 hereof to be immediately due and payable,
whereupon the same shall become immediately due and payable.
(2) The Authority may take any action at law or in equity to
collect the payments then due and thereafter to become due, or to enforce
performance and observance of any obligation,
43
<PAGE> 48
agreement or covenant of the Borrower or the Guarantor under this Agreement.
(3) The Authority may exercise its remedies under the
Collateral Documents.
Any amounts collected pursuant to action taken under this Section
shall be applied in accordance with the Trust Agreement.
SECTION 7.03. REMEDIES NOT EXCLUSIVE. No remedy conferred upon or
reserved to the Authority in connection with the Loan to the Borrower pursuant
to this Agreement is intended to be exclusive of any other available remedy or
remedies, but each and every remedy shall be cumulative and shall be in addition
to every other remedy either given under this Agreement or now or hereafter
existing at law or in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as it may be deemed expedient. In order
to entitle the Authority to exercise any remedy reserved to it in this Article,
it shall not be necessary to give any notice, other than such notice as may be
herein expressly required.
SECTION 7.04. ATTORNEYS' FEES AND EXPENSES. If an Event of Default
shall occur and the Authority or the Trustee shall employ attorneys or incur
other expenses for the collection of payments due hereunder or for the
enforcement of performance or observance of any obligation or agreement on the
part of the Borrower or the Guarantor contained herein, the Borrower or the
Guarantor will on demand therefor reimburse the reasonable fees of such
attorneys and such other expenses so incurred.
SECTION 7.05. WAIVERS. In view of the assignment of the Authority's
rights under and interest in this Agreement to the Trustee by the provisions of
the Trust Agreement (except for the
44
<PAGE> 49
rights reserved by the Authority hereunder), the Authority shall have no power
to waive any default hereunder by the Borrower or the Guarantor or extend the
time for the correction of any default which could become an Event of Default by
the Borrower or the Guarantor without the consent of the Trustee to such waiver.
ARTICLE VIII
PREPAYMENT OF THE LOAN
SECTION 8.01. OPTIONAL PREPAYMENT. (a) The Borrower shall have, and is
hereby granted, the option to prepay all or any portion of the amounts payable
in respect of the Bonds under Section 4.01 by taking the actions required to
effect an optional redemption of the Bonds pursuant to Section 301(b) of the
Trust Agreement.
(b) To make a prepayment pursuant to subsection (a) of this
Section, the Borrower shall give or cause to be given to the Authority and the
Trustee written notice setting forth (i) the date of redemption, which date
shall be not less than 45 days from the date notice is received by the Trustee,
(ii) the principal amount and maturities of the Bonds to be redeemed, and (iii)
the applicable redemption provision of the Trust Agreement.
SECTION 8.02. MANDATORY PREPAYMENT OF LOAN. (a) The Borrower shall be
obligated, and agrees, to prepay a portion of the amount payable under Section
4.01 hereof to the extent and in the manner set forth in Section 301(a) of the
Trust Agreement.
(b) The Borrower shall be obligated, and agrees, to prepay a
portion of the amount payable under Section 4.01 hereof on or prior to each June
1 or December 1 for which there shall be a Amortization Requirement in an amount
equal to such Amortization Requirement.
45
<PAGE> 50
(c) The Borrower shall be obligated, and agrees, to prepay all
of the amounts payable under Section 4.01 hereof, if the Project ceases to be
operated as an Industrial Facility within the meaning of the Act. A cessation of
operations of the Project shall not be deemed to have occurred until (i) the
Borrower shall have delivered to the Trustee a notice stating that the
operations of the Project have ceased and the Borrower has no present intention
of causing the resumption of operations of the Project or (ii) until thirty (30)
days shall have elapsed after written notice has been given to the Borrower by
the Authority that operations of the Project have ceased and the Borrower has
not demonstrated to the satisfaction of the Authority that the Project is being
operated as an Industrial Facility. The Borrower agrees to make the payments
required by this paragraph upon the cessation of operations.
(d) The Borrower shall be obligated, and agrees, to prepay all
of the amounts payable under Section 4.01 hereof, upon the occurrence of an
Event of Taxability. The Borrower shall deliver to the Trustee a notice stating
that it has become obligated to pay all of the amounts payable under Section
4.01 hereof and setting forth the amount required to pay the redemption price of
the Bonds pursuant to Section 301(d) of the Trust Agreement.
(e) The Borrower shall be obligated, and agrees to prepay, in
whole or in part, the amount payable under Section 4.01 upon the occurrence of
an event of Casualty or Taking (as defined in the Pledge Agreement) to the
extent such prepayment is required by, and in accordance with the provisions of,
the Pledge Agreement. The Borrower shall deliver to the Trustee a notice stating
that the Borrower has become obligated to prepay, in whole or in part, the
amount payable under Section 4.01 hereof, setting forth the amount required to
pay the redemption price of the Bonds pursuant to Section 301(c) of the Trust
Agreement. The Borrower agrees to make
46
<PAGE> 51
the payment required by this paragraph (e) at the time such notice is delivered
to the Trustee.
SECTION 8.03. EXTRAORDINARY OPTIONAL PREPAYMENT OF LOAN. The Borrower
shall have the option to prepay the Loan in whole or in part by paying an amount
which, together with amounts held in the funds and accounts under the Trust
Agreement and available for the purpose, will be sufficient to provide for the
redemption of the Bonds together with interest accrued thereon to the redemption
date if any of the following shall have occurred:
(a) The Project shall have been damaged or destroyed to the
extent that, in the opinion of the Borrower, (i) the required restoration and
repair thereof cannot reasonably be expected to be completed within a period of
6 months, or (ii) the Borrower is prevented or would likely be prevented from
carrying on its normal operation of the Project for a period of 6 months or
more, or (iii) the restoration and repair of the Project is not economically
feasible; or
(b) The use of Project shall be requisitioned, seized or taken
by any governmental authority in the United States of America or the
Commonwealth or any political subdivision thereof or by any foreign governmental
authority, by condemnation or otherwise, or the title to the Project shall be
condemned, seized or confiscated by, or requisitioned or taken by, or forfeited
to, any governmental authority or person acting under color of governmental
authority, in either case to such an extent that the Borrower is thereby
prevented or, in the opinion of the Borrower, would likely be prevented from
using the Project in the Commonwealth for its normal operations for a period of
6 months or more; or
(c) As a result of any change in the Constitution or laws of
the United States of America or the Commonwealth or of legislative or
administrative action of the United States of America or the Commonwealth or any
political subdivision, or any
47
<PAGE> 52
judicial action or regulatory action or inaction, this Agreement or the Trust
Agreement, in the opinion of the Borrower, shall have become void or
unenforceable or impossible of performance in any material respect, or use or
occupancy of all or a significant part of the Project shall, in the opinion of
the Borrower, have been legally curtailed for six months or more, or, in the
opinion of the Borrower, unreasonable burdens or excessive liabilities with
respect to the Project or the Bonds shall have been imposed.
For the purpose of this Section the "opinion of the Borrower" shall be
expressed to the Authority and the Trustee by delivery of a certificate of a
Borrower Representative to the effect that the circumstances, situations or
conditions described in (a), (b) or (c) exist to the extent required for the
Borrower to exercise the option provided.
SECTION 8.04. RELATIVE POSITION OF LOAN AGREEMENT AND TRUST AGREEMENT.
The rights and the obligations of the Borrower in this Article VIII shall be and
remain prior and superior to the Trust Agreement and may be exercised or shall
be fulfilled, as the case may be, whether or not the Borrower is in default
hereunder, provided that such default will not result in nonfulfillment of any
condition to the exercise of any such right or option.
The obligations of the Borrower in Section 8.02 shall
supersede the rights and options of the Borrower in Section 8.01.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. TERMINATION. This Agreement and all obligations of the
parties thereunder, other than the obligations of the Borrower under Sections
4.05, 5.07 and 5.10 hereof, shall terminate upon (i) Payment of the Bonds, and
(ii) payment or satisfaction of all other obligations incurred by the Authority
or the Borrower
48
<PAGE> 53
under this Agreement, including (without limitation) interest, premiums and
other charges, if any, thereon. Upon such termination any amounts remaining in
the Bond Fund and any other fund or account established under the Trust
Agreement not needed for payment of the aforesaid items shall belong to and be
paid to the Borrower by the Trustee in accordance with the provisions of the
Trust Agreement.
SECTION 9.02. REFERENCE TO BONDS INEFFECTIVE AFTER BONDS PAID. Upon
Payment of the Bonds, including all fees and charges of the Trustee, all
references in this Agreement to the Bonds and the Trustee shall be ineffective,
and the Trustee, the Authority and the holders of any of the Bonds shall not
thereafter have any right hereunder, excepting those that shall have theretofore
vested.
SECTION 9.03. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event
any agreement contained in this Agreement should be breached by any party and
thereafter waived by any other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
SECTION 9.04. AUTHORITY REPRESENTATIVE. Whenever under the provisions
of this Agreement the approval of the Authority is required or the Authority is
required to take some action at the request of the Borrower or the Guarantor,
such approval shall be made or such action shall be taken by the Authority
Representative and such approval or action shall not be unreasonably denied or
delayed; and the Borrower, the Guarantor and the Trustee shall be authorized to
act on any such approval or action.
SECTION 9.05. BORROWER REPRESENTATIVE. Whenever under the provisions of
this Agreement the approval of the Borrower is required or the Borrower is
required to take some action at the request of the Authority, such approval
shall be made or such action shall be taken by the Borrower Representative and
such approval or action shall not be unreasonably denied or delayed; and
49
<PAGE> 54
the Authority and the Trustee shall be authorized to act on any such approval or
action.
SECTION 9.06. CONFIDENTIAL INFORMATION. The Borrower and the Guarantor
shall not be required to disclose, or to permit the Authority, the Trustee or
others to acquire access to, any trade secrets of the Borrower or the Guarantor
or any other processes, techniques or information deemed by the Borrower or the
Guarantor to be proprietary or confidential.
SECTION 9.07. NOTICES. All notices, certificates, requests or other
communications among the Authority, the Borrower, the Trustee and the Guarantor
required to be given hereunder or under the Trust Agreement shall be in writing
and shall be (as elected by the person giving the notice) hand-delivered by
courier service or mailed by registered mail, postage prepaid, and each such
notice shall be deemed delivered (i) if by courier service, on the date
delivered receipt is acknowledged or delivery is refused, or (ii) if mailed, on
the third Business Day following the day when mailed. All notices under this
Agreement shall be addressed as follows:
If to the Authority:
Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control
Facilities Financing Authority
c/o Government Development Bank for Puerto Rico
PO Box 42001
San Juan, Puerto Rico 00940
Attention: Executive Director
If to the Borrower:
Doral Properties, Inc.
1159 Franklin D. Roosevelt Avenue
San Juan, Puerto Rico 00920
Attention: President
50
<PAGE> 55
If to the Trustee:
Citibank, N.A.
One Citibank Drive 2 South
Rio Piedras, Puerto Rico 00926
Attention: Trust Department
If to the Guarantor:
Doral Financial Corporation
1159 Franklin D. Roosevelt Ave.
San Juan, Puerto Rico 00920
Attention: President
A duplicate copy of each notice, certificate, request or other communication
given hereunder to the Authority, the Borrower, the Trustee or the Guarantor
shall also be given to each of the others. The Borrower, the Authority, the
Trustee or the Guarantor may, by notice given hereunder, designate any further
or different addresses to which subsequent notices, certificates, requests or
other communications shall be sent.
SECTION 9.08. BINDING EFFECT. This Agreement shall inure to the benefit
of and shall be binding upon the Authority, the Borrower, the Guarantor and
their respective successors and assigns, subject, however, to the provisions
contained in Sections 5.01, 6.01, 6.02 and 6.03.
SECTION 9.09. IF PAYMENT OR PERFORMANCE DATE NOT A BUSINESS DAY. If the
date for making payment, or the last date of performance of any act or the
exercising of any right, as provided in this Agreement, shall not be a Business
Day, such payment may be made or act performed or right exercised on the next
succeeding Business Day with the same force and effect as if done on the nominal
date provided in this Agreement, and no interest shall accrue for the period
after such nominal date.
SECTION 9.10. SEVERABILITY. In the event any provision of this
Agreement shall be held invalid or unenforceable by any court
51
<PAGE> 56
of competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof.
SECTION 9.11. AMENDMENTS, CHANGES AND MODIFICATIONS. Subsequent to the
issuance of the Bonds under Section 208 of the Trust Agreement and prior to
Payment of the Bonds, this Agreement may not be effectively amended, changed,
modified, altered or terminated except in accordance with the Trust Agreement.
SECTION 9.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
SECTION 9.13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth.
SECTION 9.14. NO CHARGE AGAINST AUTHORITY CREDIT. No provision hereof
shall be construed to impose a charge against the general credit of the
Authority or shall impose any personal or pecuniary liability upon any director,
official or employee of the Authority.
SECTION 9.15. AUTHORITY NOT LIABLE. Notwithstanding any other provision
of this Agreement (a) the Authority shall not be liable to the Borrower, the
Trustee, the Guarantor, any holder of any of the Bonds, or any other person for
any failure of the Authority to take action under this Agreement unless the
Authority (i) is requested in writing by an appropriate person to take such
action and (ii) is assured of payment of or reimbursement for any expenses in
such action, and (b) except with respect to any action for specific performance
or any action in the nature of a prohibitory or mandatory injunction, neither
the Authority nor any director of the Authority or any other official or
employee of the Authority shall be liable to the Borrower, the Trustee, the
52
<PAGE> 57
Guarantor, any holder of any of the Bonds, or any other Person for any action
taken by it or by its officers, servants, agents or employees, or for any
failure to take action under this Agreement or the Trust Agreement. In acting
under this Agreement, or in refraining from acting under this Agreement, the
Authority may conclusively rely on the advice of its legal counsel.
SECTION 9.16. AGREEMENT SUPERSEDES PRIOR AGREEMENTS. This Agreement
supersedes any other prior agreements or understandings, written or oral,
between the parties with respect to the Project.
53
<PAGE> 58
IN WITNESS WHEREOF, the Authority, the Borrower and the Guarantor have
caused this Agreement to be executed in their respective legal names, all as of
the date first above written.
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL
CONTROL FACILITIES FINANCING AUTHORITY
By: /s/ VELMARIE BERLINGERI
-------------------------------------
Name: Velmarie Berlingeri
Title: Assistant Executive Director
DORAL PROPERTIES, INC.,
a Puerto Rico corporation
By: /s/ MARIO S. LEVIS
-------------------------------------
Name: Mario S. Levis
Title: Executive Vice President
and Treasurer
DORAL FINANCIAL CORPORATION,
a Puerto Rico corporation
By: /s/ SALOMON LEVIS
-------------------------------------
Name: Salomon Levis
Title: Chief Executive Officer
54
<PAGE> 59
EXHIBIT A
DESCRIPTION OF THE PROJECT
The Project will consist of a nine-floor, 193,709 square feet
commercial office building with an adjacent five and a half floor parking
structure and two buildings with approximately 27,305 square feet of space to be
used for administrative and support services, including data storage and
processing services for the Guarantor and its Subsidiaries. The office building
will be located on an approximately 7,426 square meters site in the Puerto Nuevo
ward of the municipality of San Juan, in the commercial sector of Franklin D.
Roosevelt Avenue. The other two buildings are located on adjacent parcels of
property aggregating 3,143 square meters.
<PAGE> 60
EXHIBIT B
LIST OF PENDING CONSTRUCTION PERMITS
Any construction permits and "Consulta de Ubicacion" required for the
renovation of the Minor Parcels (as defined in the Pledge Agreement).
<PAGE> 1
EXHIBIT 4.2
================================================================================
TRUST AGREEMENT
BETWEEN
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL,
MEDICAL AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY
AND
CITIBANK, N.A.
AS TRUSTEE
----------------------
DATED NOVEMBER 3, 1999
----------------------
SECURING
$44,765,000
INDUSTRIAL REVENUE BONDS,
1999 SERIES A
(DORAL FINANCIAL CENTER PROJECT)
================================================================================
<PAGE> 2
RECONCILIATION AND TIE BETWEEN
TRUST INDENTURE ACT OF 1939 AND
TRUST AGREEMENT DATED AS OF NOVEMBER 3, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE SECTION
ACT SECTION
<S> <C> <C>
ss. 310 (a)(1) .......................... 913
(a)(2) .......................... 913
(a)(3) .......................... Not Applicable
(a)(4) .......................... Not Applicable
(b) .......................... 914
915
ss. 311(a) .......................... 917
(b) .......................... 917
ss. 312(a) .......................... Not Applicable
(b) .......................... 918(a)
(c) .......................... 918(b)
ss. 313(a) .......................... 919(a)
(b) .......................... 919(a)
(c) .......................... 919(a)
(d) .......................... 919(b)
ss. 314(a) .......................... 920(a)
(a)(4) .......................... 101
920(b)
(b) .......................... 920(c)
(c)(1) .......................... 103
(c)(2) .......................... 103
(c)(3) .......................... Not Applicable
(d) .......................... 920(d)
(e) .......................... 103
ss. 315(a) .......................... 905(a)
(b) .......................... 815
(c) .......................... 905(b)
(d) .......................... 905(c)
(e) .......................... 816
ss. 316(a)(1)(A) .......................... 808
(a)(1)(B) .......................... 814
(a)(2) .......................... Not Applicable
(b) .......................... 809
ss. 317(a)(1) .......................... 804
(a)(2) .......................... 805
(b) .......................... 505
ss. 318(a) .......................... 104
</TABLE>
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - Definitions; Rules of Construction;
Conflict with Trust
Indenture Act.................................................. 8
Section 101. Meaning of Words and Terms......................................... 8
Section 102. Rules of Construction.............................................. 20
Section 103. Compliance Certificates
and Opinions. ........................................ 20
Section 104. Conflict with Trust
Indenture Act......................................... 21
ARTICLE II - Form, Execution, Authentication,
Delivery and Exchange of Bonds................................. 21
Section 201. Limitation on Issuance
of Bonds.............................................. 21
Section 202. Form of Bonds...................................................... 21
Section 203. Details of Bonds................................................... 22
Section 204. Authentication of Bonds............................................ 26
Section 205. Exchange of Bonds.................................................. 26
Section 206. Negotiability, Registration
of Transfer of Bonds.................................. 27
Section 207. Ownership of Bonds; Transfer
of Title.............................................. 28
Section 208. Authorization of Bonds.............................................. 29
Section 209. Temporary Bonds..................................................... 34
Section 210. Mutilated, Destroyed, Stolen
or Lost Bonds......................................... 35
Section 211. Book-Entry Bonds................................................... 37
ARTICLE III - Redemption of Bonds......................................................... 43
Section 301. Redemption of Bonds................................................ 43
Section 302. Redemption Notice.................................................. 47
Section 303. Effect of Calling for
Redemption............................................ 49
Section 304. Redemption of Portion
of Bond............................................... 49
Section 305. Cancellation....................................................... 50
ARTICLE IV - Construction Fund........................................................... 50
Section 401. Construction Fund.................................................. 50
Section 402. Payments from the
Construction Fund..................................... 51
Section 403. Items of Cost...................................................... 51
Section 404. Requisites for Payments
from Construction Fund................................ 53
Section 405. Reliance on Requisitions........................................... 54
Section 406. Balance in Construction Fund....................................... 54
ARTICLE V - Bond Fund................................................................... 55
Section 501. Creation of Bond Fund.............................................. 55
Section 502. Payments into Bond Fund............................................ 55
Section 503. Use of Moneys in Bond Fund......................................... 56
Section 504. Application and Pledge of
Moneys in the Bond Fund............................... 57
Section 505. Money Withdrawn from Bond
Fund Held in Trust.................................... 58
Section 506. Cancellation of Bonds Upon
Payment............................................... 59
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI - Depositaries of Moneys, Security
for Deposits and Investment
of Funds....................................................... 59
Section 601. Security for Deposits.............................................. 59
Section 602. Investment of Moneys............................................... 61
ARTICLE VII - Particular Covenants
and Provisions................................................. 62
Section 701. Covenant to Pay Bonds;
Bonds Limited Obligations
of Authority.......................................... 62
Section 702. Covenant to Perform and
Authority of the Authority............................ 63
Section 703. Covenant as to the Loan
Agreement and the
Collateral Documents.................................. 64
Section 704. Covenant to Perform Further
Acts.................................................. 65
Section 705. Trustee May Enforce
Authority's Rights under
Loan Agreement........................................ 65
ARTICLE VIII - Default and Remedies....................................................... 66
Section 801. Extension of Interest.............................................. 66
Section 802. Defaults........................................................... 66
Section 803. Acceleration of Maturities......................................... 67
Section 804. Enforcement of Remedies............................................ 69
Section 805. Trustee May File
Claim in Bankruptcy................................... 71
Section 806. Pro Rata Application
of Funds.............................................. 72
Section 807. Effect of Discontinuance
of Proceedings........................................ 75
Section 808. Holders of a Majority in
Principal Amount of Bonds
May Control Proceedings............................... 76
Section 809. Restrictions Upon Actions
by Individual Bondholder.............................. 76
Section 810. Receiver........................................................... 78
Section 811. Actions by Trustee................................................. 78
Section 812. No Remedy Exclusive................................................ 79
Section 813. No Delay or Omission Construed
to Be a Waiver........................................ 79
Section 814. Waiver of Past Defaults............................................ 79
Section 815. Notice of Default.................................................. 80
Section 816. Undertaking for Costs.............................................. 80
ARTICLE IX - Concerning the Trustee..................................................... 81
Section 901. Acceptance of Trusts............................................... 81
Section 902. Trustee Entitled to Indemnity...................................... 81
Section 903. Trustee Not Responsible
for Insurance, Taxes or
Execution of this Agreement
by the Authority...................................... 82
Section 904. Trustee Not Responsible for
Acts of the Authority
or Application of Monies
Applied in Accordance with this
Agreement............................................. 83
Section 905. Certain Duties
and Responsibilities of
the Trustee........................................... 84
Section 906. Compensation....................................................... 87
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
Section 907. Semi-Annual Statement of
Funds on Deposit...................................... 88
Section 908. Notice of Default.................................................. 89
Section 909. Trustee May Be a Bondholder........................................ 89
Section 910. Trustee Not Responsible
for Recitals.......................................... 90
Section 911. Trustee Not Responsible
for Recording......................................... 90
Section 912. Trustee May Rely on
Certificates.......................................... 91
Section 913. Qualification of the Trustee....................................... 91
Section 914. Disqualification;
Conflicting Interests................................. 92
Section 915. Resignation and Removal
of Trustee............................................ 92
Section 916. Successor Trustee.................................................. 94
Section 917. Preferential Collection of
Claims against Borrower
or Guarantor.......................................... 96
Section 918. Communication to Bondholders....................................... 96
Section 919. Reports by Trustee................................................. 98
Section 920. Reports of Borrower and
Guarantor............................................. 98
Section 921. Money Held in Trust................................................ 100
Section 922. Continuing Disclosure.............................................. 100
ARTICLE X - Execution of Instruments by
Bondholders and Proof of
Ownership of Bonds............................................. 101
Section 1001. Execution of Instruments
by Bondholders and Proof
of Ownership of Bonds................................. 101
ARTICLE XI - Supplements and Amendments to
Agreement...................................................... 103
Section 1101. Supplements and Amendments
Not Requiring Bondholder
Consent............................................... 103
Section 1102. Supplements and
Amendments Requiring Consent
of Holders of a Majority
in Principal Amount
of Bonds.............................................. 104
Section 1103. Supplements and Amendments
Deemed Part of Agreement.............................. 106
Section 1104. Discretion of Trustee in
Entering into Supplements
and Amendments........................................ 107
Section 1105. Consent of Borrower and
the Guarantor Required................................ 107
ARTICLE XII - Supplements and Amendments to
the Loan Agreement and the
Collateral Documents........................................... 108
Section 1201. Supplements and Amendments
Not Requiring Consent................................. 108
Section 1202. Supplements and
Amendments Requiring Consent
of Holders of a Majority
in Principal Amount
of Bonds.............................................. 109
Section 1203. Consent of Trustee Required........................................ 110
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE XIII - Defeasance................................................................ 110
Section 1301. Defeasance........................................................ 110
ARTICLE XIV - Miscellaneous Provisions.................................................. 113
Section 1401. Covenants of Authority
Bind Its Successors.................................. 113
Section 1402. Notices........................................................... 113
Section 1403. Substitute Mailing................................................ 115
Section 1404. Rights under Agreement............................................ 115
Section 1405. Severability...................................................... 115
Section 1406. Covenants of Authority
Not Covenants of
Officials Individually............................... 116
Section 1407. Commonwealth Law Governs.......................................... 116
Section 1408. Payments Due on Saturdays,
Sundays and Holidays................................. 117
Section 1409. Headings Not Part
of Agreement......................................... 117
</TABLE>
iv
<PAGE> 7
NUMBER FOUR (4)
TRUST AGREEMENT
In the City of San Juan, Commonwealth of Puerto Rico, on this third
(3rd) day of November, nineteen hundred ninety-nine
(1999).
BEFORE ME
JOSE ALBERTO SOSA LLORENS, Attorney-at-Law and Notary Public in and
for the Commonwealth of Puerto Rico with residence in San Juan, Puerto Rico and
offices on the 254 Munoz Rivera Avenue, Fifth (5th) Floor, BBV Tower in San
Juan, Puerto Rico.
APPEAR
AS THE PARTY OF THE FIRST PART: PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
(the "Authority"), a public corporation and governmental instrumentality of the
Commonwealth of Puerto Rico (the "Commonwealth"), Employer Identification
Number 66-0426994, represented herein by its Assistant Executive Director,
Velmarie Berlingeri, of legal age, married, executive and a resident of
Guaynabo, Puerto Rico, who has been duly authorized to appear herein on behalf
of the Authority and who agrees to produce evidence of such authority whenever
and wherever required.
AS PARTY OF THE SECOND PART: CITIBANK, N.A., a national banking
association having a corporate trust office in San Juan, Puerto Rico, which is
authorized to exercise corporate trust powers (said bank and any other bank or
trust company becoming successor trustee under this Agreement being hereinafter
sometimes called the "Trustee"), Employer Identification Number
1
<PAGE> 8
13-5266470, and represented herein by its Vice President, Kevin Szot, of legal
age, married, banker and a resident of Guaynabo, Puerto Rico, who has been duly
authorized to appear herein on behalf of the Trustee and who agrees to produce
evidence of such authority whenever and wherever required.
I, the Notary, DO HEREBY CERTIFY that I am personally acquainted with
the appearing parties herein and by their statements as to their respective
ages, civil status, professions and residences. They assure me that they have,
and in my judgment they do have, the necessary legal capacity and knowledge of
the English language to execute this public instrument. Wherefore, they freely
and voluntarily
STATE
FIRST: That by Act Number One Hundred Twenty-One (121) of the
Legislature of Puerto Rico, approved June twenty-seven (27), nineteen hundred
seventy-seven (1977), as amended (the "Act"), the Authority was created a body
corporate and politic constituting a public corporation and governmental
instrumentality of the Commonwealth.
SECOND: That the Authority is authorized under the Act to borrow money
and issue revenue bonds for the purpose of providing funds to pay all or any
part of the cost of any industrial, tourist, educational, medical and
environmental control facility, the principal of and the premium, if any, and
the interest on which bonds shall be payable solely from the funds provided by
the obligor under a loan agreement in respect of such project.
THIRD: That the Authority has determined to issue
2
<PAGE> 9
its Industrial Revenue Bonds, 1999 Series A (Doral Financial Center Project) in
the aggregate principal amount of FORTY-FOUR MILLION SEVEN HUNDRED SIXTY-FIVE
THOUSAND DOLLARS ($44,765,000) (the "Bonds") and to lend the proceeds thereof
to Doral Properties, Inc. (the "Borrower") for the purpose of providing funds,
together with other available funds, to (i) pay the cost of acquisition,
development, construction and equipping of a new building and related
facilities to be known as the Doral Financial Center, (ii) pay the interest due
on the Bonds during the construction of the Project (as herein defined) and
(iii) pay certain expenses incurred in connection with the authorization and
issuance of the Bonds by the Authority.
FOURTH: That simultaneously with the issuance of the Bonds, the
Borrower and the Authority will enter into a loan and guaranty agreement, dated
as of the Date of Issuance (as herein defined) (which loan and guaranty
agreement, together with any and all amendments and supplements thereto as
herein permitted, is herein called the "Loan Agreement"), pursuant to which the
Authority will lend the proceeds of the Bonds to the Borrower.
FIFTH: That the Authority is entering into this Agreement for the
purpose of issuing the Bonds, and securing the payment thereof by assigning
certain of its rights and interests under the Loan Agreement, including its
rights to a portion of the payments thereunder.
SIXTH: That in order to assure the full and timely payment of the
Bonds to be issued hereunder, Doral Financial Corporation has, under the Loan
Agreement,
3
<PAGE> 10
guaranteed the timely payment of principal of and interest on the Bonds when
due
SEVENTH: That in order to further secure its obligations under the
Loan Agreement, the Borrower has entered into a Pledge and Security Agreement
with the Authority, dated the date hereof, pledging in favor of the Authority a
mortgage note secured by a mortgage on the real property where the Project will
be located and the buildings and fixtures forming part thereof. To further
secure the payment of the Bonds, the Authority proposes to assign its rights
under said Pledge Agreement to the Trustee for the benefit of the bondholders.
EIGHTH: That the Authority has determined that the Bonds and the
certificate of authentication to be endorsed thereon by the Trustee shall be
substantially in the form attached hereto as Exhibit A with such variations,
omissions and insertions as are required or permitted by this Agreement.
WHEREAS, the execution and delivery of this Agreement and the Loan
Agreement have been duly authorized by resolution of the Authority;
WHEREAS, all acts, conditions and things required by the Puerto Rican
Federal Relations Act, the Constitution and laws of the Commonwealth, including
the Act, and the rules and regulations of the Authority to happen, exist and be
performed precedent to and in the execution and delivery of this Agreement have
happened, exist and have been performed as so required in order to make this
Agreement a legal, valid and binding trust agreement securing the Bonds
4
<PAGE> 11
in accordance with its terms and in order to make the Loan Agreement a legal,
valid and binding agreement in accordance with its terms; and
WHEREAS, the Trustee has accepted the trusts created by this Agreement
and in evidence thereof has joined in the execution hereof;
NOW, THEREFORE, THIS AGREEMENT WITNESSETH, that in consideration of
the foregoing, of the acceptance by the Trustee of the trusts hereby created,
and of the purchase and acceptance of the Bonds by the Holders (as hereinafter
defined) thereof, and for the purpose of fixing and declaring the terms and
conditions upon which the Bonds are to be issued, executed, authenticated,
delivered, secured and accepted by all persons who shall from time to time be
or become Holders thereof, and to secure the payment of all Bonds at any time
issued and outstanding (as hereinafter defined) under this Agreement and the
interest and the redemption premium, if any, thereon according to their tenor,
purport and effect, and to secure the performance and observance of all the
covenants, agreements and conditions, expressed or implied, therein and herein
contained, the Authority has executed and delivered this Agreement, and by this
Agreement does hereby pledge, assign and transfer unto the Trustee, and its
successor or successors, in trust:
I. All right, title and interest of the Authority in and to the
Loan Agreement (except for those certain rights that are set forth in the next
sentence of this clause) and the Collateral Documents, it being the intent and
purpose hereof that the
5
<PAGE> 12
pledge, assignment and transfer to the Trustee of the payments and other sums
due and to become due under the Loan Agreement shall be effective and operative
immediately and the Trustee shall have the right to collect and receive said
payments and other sums for application in accordance with the provisions
hereof at all times during the period from and after the date of this Agreement
until the indebtedness hereby secured shall have been fully paid and
discharged. The Authority specifically reserves from this assignment its rights
under the Loan Agreement to receive notices, reports and other statements given
both to the Authority and the Trustee, its rights under Sections 4.04, 4.05,
4.07, 5.06, 5.07 and 7.04 of the Loan Agreement to payment of certain costs and
expenses and to indemnification, and to individual and corporate rights to
exemption from liability under Sections 5.04, 9.14 and 9.15 of the Loan
Agreement; provided that the reservation of the aforementioned rights shall not
prevent the Trustee from enforcing the same on behalf of the Authority and the
Holders. The Authority is to remain liable to observe and perform all the
conditions and covenants in the Loan Agreement provided to be observed and
performed by it;
II. All money and securities held by the Trustee in all of the funds
or accounts established under this Agreement; and
III. All proceeds derived from the exercise of any remedies
hereunder;
as security for the payment of the principal of and the premium, if any, on the
Bonds and the interest
6
<PAGE> 13
thereon, and as security for the satisfaction of any other obligation assumed
by it in connection with such Bonds, and it is so mutually agreed and
covenanted by and between the parties hereto, for the equal and proportionate
benefit and security of all and each present and future Holders of the Bonds
issued under this Agreement, without preference, priority or distinction as to
lien or otherwise, except as otherwise hereinafter provided, of any one Bond
over any other Bond, by reason of priority in the issue, sale or negotiation
thereof or otherwise.
TO HAVE AND TO HOLD all the same forever, with all privileges and
appurtenances hereby pledged, assigned and transferred or agreed or intended so
to be, in trust to the Trustee and its successor or successors and to them and
their assigns forever, subject, however, to the rights of the Borrower under
the Loan Agreement and to the exceptions, reservations and matters therein and
herein recited; but IN TRUST, nevertheless, for the equal and proportionate
benefit and security of the Holders, from time to time, of the Bonds
authenticated and delivered hereunder and outstanding without preference,
priority or distinction as to lien or otherwise, except as may otherwise be
provided herein, of any one Bond over any other Bond, by reason of priority in
the issue, sale or negotiation thereof or otherwise;
PROVIDED, HOWEVER, that if the Authority, its successors or assigns,
shall well and truly pay, or cause to be paid, or provide for the payment,
pursuant to the provisions of this Agreement, of the principal of all the Bonds
and the interest and any redemption
7
<PAGE> 14
premium due or to become due thereon, at the times and in the manner mentioned
in the Bonds and this Agreement, according to the true intent and meaning
thereof and hereof, and shall cause the payments to be made into the Bond Fund
as required under this Agreement, and shall pay or cause to be paid to the
Trustee all sums of money due or to become due to it in accordance with the
terms and provisions hereof, then upon such performance and payments this
Agreement and the rights hereby granted shall cease and terminate as provided
in Article XIII hereof, and thereupon the Trustee shall cancel and discharge
this Agreement and execute and deliver to the Authority and the Borrower such
instruments as shall be required to evidence the discharge hereof; otherwise
this Agreement is to be and remain in full force and effect.
THIS AGREEMENT FURTHER WITNESSETH, and it is expressly declared, that
all Bonds issued and secured hereunder are to be issued, authenticated,
delivered, and dealt with, and the payments under the Loan Agreement and other
revenues and funds hereby pledged, assigned and transferred are to be dealt
with and disposed of under, upon and subject to the terms, conditions,
stipulations, covenants, agreements, trusts, uses and purposes as hereinafter
expressed, and the Authority has agreed and covenanted, and does hereby agree
and covenant, with the Trustee and with the respective Holders, from time to
time, of Bonds, or any part thereof, as follows, that is to say:
8
<PAGE> 15
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION;
CONFLICT WITH TRUST INDENTURE ACT
SECTION 101. MEANING OF WORDS AND TERMS. In addition to words and
terms elsewhere defined in this Agreement, the following words and terms as
used in this Agreement shall have the following meanings:
"Act" means Act Number One Hundred Twenty-One (121) of the Legislature
of Puerto Rico, approved June twenty-seven (27), nineteen hundred seventy-seven
(1977), as amended, and all future acts supplemental thereto or amendatory
thereof.
"Act of Bankruptcy" means the filing of a petition commencing a case
under the United States Bankruptcy Code by or against the Borrower or the
Guarantor.
"Administrative Fee" means the one time fee to the Authority in the
amount of one half of one percent (1/2 of 1%) of the principal amount of the
Bonds.
"Affiliate" shall have the meaning given to that term in Section 1.01
of the Loan Agreement.
"Agreement" means this Trust Agreement, together with all agreements
supplemental hereto or amendatory hereof as herein permitted.
"Amortization Requirements" means, with respect to the Term Bonds, the
principal amounts fixed initially in Exhibit B to this Agreement for the
retirement of Term Bonds by purchase or redemption on each June one (1) and
December one (1) of each year pursuant to Section 301(e) hereto, commencing on
June one (1), two thousand ten (2010), or payment at maturity in the case of
the final Amortization Requirement for each Term Bond.
9
<PAGE> 16
On or before the forty-fifth (45th) day next preceding any Interest
Payment Date on which Term Bonds are to be retired pursuant to the Amortization
Requirement therefor, the Authority or the Borrower may purchase and deliver to
the Trustee for cancellation Term Bonds required to be redeemed on such
Interest Payment Date in any aggregate principal amount desired and receive a
credit against the required Amortization Requirement on account of such Term
Bonds in the amount of one hundred percent (100%) of the principal amount of
any such Term Bonds so purchased and delivered.
If on the forty-fifth (45th) day next preceding any Interest Payment
Date on which Term Bonds are to be retired pursuant to the applicable
Amortization Requirement, the Trustee determines that the total principal
amount of Term Bonds of the same maturity date as the Term Bonds to be retired
which have already been retired by purchase or redemption (or called for
redemption under the provisions of Article III of this Agreement) prior to such
date, is greater than the aggregate amount of Amortization Requirements for
each preceding Interest Payment Date, then the Amortization Requirement for
subsequent Interest Payment Dates shall be reduced by the amount of such excess
as shall be specified in an Officer's Certificate of the Borrower delivered to,
and accepted by, the Trustee.
Prior to June one (1), two thousand ten (2010), there shall be no
Amortization Requirement. The aggregate amount of the Amortization Requirements
for the Term Bonds, together with the amount due upon the
10
<PAGE> 17
final maturity of such Term Bonds, shall be equal to the aggregate principal
amount of the Term Bonds.
"Authority" means Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority, a body
corporate and politic constituting a public corporation and governmental
instrumentality of the Commonwealth and any successor thereto.
"Authority Representative" means the Authority Representative as
defined in Section 1.01 of the Loan Agreement.
"Beneficial Owner" means, whenever used with respect to a Bond, the
person in whose name such Bond is recorded as the beneficial owner of such Bond
by a Participant on the records of such Participant.
"Bond Fund" means the "Industrial Revenue Bonds, 1999 Series A (Doral
Financial Center Project) Bond Fund," a fund created and designated by the
provisions of Section 501 of this Agreement.
"Bondholder", "Holder", or "owner" of a Bond, means a person in whose
name a Bond is registered in the registration books provided for in Section 206
of this Agreement.
"Bonds" means the Bonds issued under the provisions of Section 208 of
this Agreement.
"Borrower" means Doral Properties, Inc., a corporation organized and
existing under the laws of the Commonwealth, which has elected to be treated as
a special partnership under Subchapter K of Chapter 3 of Subtitle A of the
Puerto Rico Internal Revenue Code of 1994, as amended, and its successors and
permitted assigns and any surviving, resulting or transferee
11
<PAGE> 18
entity.
"Borrower Representative" has the meaning given to that term in
Section 1.01 of the Loan Agreement.
"Business Day" means any day of the year other than a Saturday, Sunday
or other day on which commercial banks in the Commonwealth or New York, New
York, are generally closed for business to the
public.
"Closing" has the meaning given to that term in Section 1.01 of the
Loan Agreement.
"Code" means the United States Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder.
"Collateral Documents" means the Mortgage, the Mortgage Note and the
Pledge Agreement, as amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Commonwealth" means the Commonwealth of Puerto Rico.
"Completion Date" means the date of completion of the construction of
the Project as that date shall be certified as provided in Section 3.05 of the
Loan Agreement.
"Construction Fund" means the "Industrial Revenue Bonds, 1999 Series A
(Doral Financial Center Project) Construction Fund," a fund created and
designated by the provisions of Section 401 of this Agreement.
"Construction Fund Transfer Date" has the meaning specified in Section
406 of this Agreement.
"Cost" has the meaning specified in Section 403 of this Agreement.
"Costs of Issuance" means all items of expense
12
<PAGE> 19
relating to the authorization, sale and issuance of the Bonds, the initial or
acceptance fee of the Trustee, legal, accounting and financial advisory fees
and expenses, underwriting fees and expenses, filing and rating agencies' fees
and printing and engraving costs incurred in connection with the authorization,
sale and issuance of the Bonds, the execution of this Agreement, the Loan
Agreement, the Collateral Documents and all other documents in connection
therewith, and payment of all fees, costs and expenses for the preparation of
the Loan Agreement, this Agreement, the Collateral Documents, the Bonds, and
any other fees and expenses necessary or incident to the issuance and sale of
the Bonds, and the documents contemplated by any of the foregoing.
"Date of Issuance" means November third (3rd), nineteen hundred
ninety-nine (1999), the date of the initial delivery and sale of the Bonds.
"Defaulted Interest" has the meaning specified in Section 203 of this
Agreement.
"Defeasance Obligations" means (i) noncallable Government Obligations
and, to the extent from time to time permitted by law, (ii) obligations issued
or guaranteed by the Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, Farm Credit System, Federal Home Loan Banks or Student
Loan Marketing Association, (iii) Defeased Municipal Obligations and (iv)
evidences of ownership of a proportionate interest in the obligations specified
in clause (ii) and in specified Defeased Municipal Obligations, which
obligations described in clause (ii) and Defeased Municipal Obligations are
held by a
13
<PAGE> 20
bank or trust company organized and existing under the laws of the United
States of America or any state or territory thereof as custodian.
"Defeased Municipal Obligations" means obligations of state, territory
or local government issuers which are rated in the highest rating category by a
Rating Agency, provision for the payment of the principal of and interest on
which shall have been made by deposit with a trustee or escrow agent of
noncallable Government Obligations, the maturing principal of and interest on
such Government Obligations, when due and payable, shall provide sufficient
money to pay the principal of and redemption premium, if any, and interest on
such obligations of state, territory or local government issuers.
"DTC" means The Depository Trust Company, a limited purpose trust
company organized under the laws of the State of New York, and its successors
and assigns.
"D&P" means Duff & Phelps, its successors and assigns.
"Event of Default" means, with respect to this Agreement, each of
those events set forth in Section 802 hereof.
"Event of Taxability" has the meaning given to that term in Section
1.01 of the Loan Agreement.
"Executive Director" shall mean the Executive Director or the
Assistant Executive Director of the Authority for the time being, or if there
is no Executive Director or Assistant Executive Director, then any person
designated by the Board of Directors of the Authority or authorized by the
by-laws of the
14
<PAGE> 21
Authority to perform the functions of the Executive Director.
"Government Obligations" means (i) direct obligations of, or
obligations the timely payment of principal of and the interest on which are
unconditionally guaranteed by, the United States of America and (ii) any
certificates or other evidences of ownership interest in obligations or in
specified portions thereof (which may consist of specified portions of the
principal thereof or the interest thereon) of the character described in clause
(i).
"Guarantor" means Doral Financial Corporation
"Independent Accountants" shall have the meaning given to that term in
Section 1.01 of the Loan Agreement.
"Interest Payment Date" means the first (1st) day of each calendar
month, commencing on December one (1), nineteen hundred ninety-nine (1999).
"Loan" shall have the meaning given to that term in Section 1.01 of
the Loan Agreement.
"Loan Agreement" means the Loan Agreement, as that term is defined in
paragraph FOURTH of the preamble to this Agreement.
"Moody's" means Moody's Investors Service, Inc., its successors and
assigns.
"Mortgage" means the first mortgage on the Property constituted by
Deed Number Fifty-Three (53) of Constitution of First Mortgage executed before
Notary Public Alfredo Alvarez Ibanez, on November three (3), nineteen hundred
ninety-nine (1999).
"Mortgage Note" means the mortgage note of the
15
<PAGE> 22
Borrower, in a principal amount of not less than the aggregate principal amount
of the Bonds, to be secured by the Mortgage.
"Officer's Certificate" means (i) with respect to the Borrower or the
Guarantor a certificate signed by any two of the following officers; the
president, chief executive officer, chief financial officer, treasurer or any
vice president of the Borrower or the Guarantor, as the context requires. One
of the officers signing an Officer's Certificate given pursuant to Section
920(b) shall be the principal executive, financial or accounting officer of the
Borrower or the Guarantor, as the case may be, and (ii) with respect to the
Authority a certificate signed by two Authorized Representatives.
"Opinion of Counsel" means an opinion in writing signed by an attorney
or firm of attorneys acceptable to the Trustee who may be counsel for the
Authority or the Borrower or other
counsel.
"Outstanding" or "outstanding" when used with reference to Bonds,
means, as of a particular date, all Bonds theretofore issued and authenticated
under this Agreement, except:
(a) Bonds theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(b) Bonds for the payment of which moneys or Defeasance
Obligations the principal of and the interest on which Defeasance
Obligations, when due, without reinvestment, will be sufficient to
pay, on the date when such Bonds are to be paid or redeemed, the
principal amount and premium, if any, and the
16
<PAGE> 23
interest accruing to such date on the Bonds to be paid or redeemed,
have been deposited with the Trustee in trust for the Holders of such
Bonds;
(c) Bonds deemed to have been paid in accordance with Section
1301 of this Agreement; or
(d) Bonds in exchange for or in lieu of which other Bonds
have been authenticated and delivered pursuant to this Agreement;
provided, however, that in determining whether the Holders of the
requisite principal amount of Bonds Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Bonds owned or
held by or for the account of the Borrower or any Affiliate thereof shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Bonds which the
Trustee knows to be so owned shall be so disregarded.
"Participant" means each broker-dealer, bank or other financial
institution for which DTC or any other Securities Depository holds securities
as a Securities Depository.
"Payment of the Bonds" means payment of the principal of and premium,
if any, and interest on all or a portion of the Bonds in accordance with their
terms, whether through payment at maturity or purchase or redemption or
provision for such payment in such a manner that such Bonds or such portion
shall be deemed to have been paid under the second paragraph of
17
<PAGE> 24
Section 1301 of this Trust Agreement.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Pledge Agreement" means the Pledge and Security Agreement, dated as
of November three (3), nineteen hundred ninety-nine (1999) by and between the
Borrower and the Authority, pursuant to which the Borrower delivers the
Mortgage Note to the Authority in pledge as security for the Borrower's
obligations under the Loan Agreement.
"Predecessor Bonds" of any particular Bond means every previous Bond
evidencing all or a portion of the same debt as that evidenced by such
particular Bond, and, for purposes of this definition, any Bond authenticated
and delivered under Section 210 hereof in lieu of a lost, destroyed, mutilated
or stolen Bond shall be deemed to evidence the same debt as the lost,
destroyed, mutilated or stolen Bond.
"principal" means, with respect to a Bond, the amount of such Bond
stated to be payable at its maturity.
"Project" has the meaning given to that term in Section 1.01 of the
Loan Agreement.
"Property" means the property identified in and encumbered by the
Mortgage.
"Rating Agency" means, initially, S&P, Moody's and D&P or, if S&P,
Moody's or D&P shall elect to discontinue the rating on the Bonds, any
nationally
18
<PAGE> 25
recognized securities rating organization designated by the Authority and the
Borrower then rating the Bonds.
"Regular Record Date" means the fifteenth (15th) day of the month
immediately preceding an Interest Payment Date.
"Representation Letter" means the Representation Letter from the
Authority, the Borrower and the Trustee to DTC with respect to the Bonds,
which, so long as DTC shall be the Securities Depository for the Bonds, shall
be deemed to be part of this Agreement and shall be a binding obligation of the
Authority and the Trustee.
"Secretary" means the Secretary or any Assistant Secretary of the
Authority, or if there is no secretary or assistant secretary, then any person
designated by the Board of Directors of the Authority or authorized by the
by-laws of the Authority to perform the functions of the Secretary.
"Securities Depository" means DTC, or any other securities depository
(or any of its designees to the Trustee) appointed for the Bonds.
"Serial Bonds" means the Bonds which are stated to mature on June one
(1) and December one (1) of each year commencing with the Bonds maturing in the
month of June contained in year two thousand three (2003) and ending in the
month of December contained in year two thousand nine (2009).
"Special Record Date" means a date fixed by the Trustee for the
payment of any Defaulted Interest on Bonds pursuant to Section 203 hereof.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., a
19
<PAGE> 26
corporation organized and existing under the laws of the State of New York, its
successors and assigns.
"Term Bonds" means the Bonds that are stated to mature on December one
(1), two thousand fourteen (2014), June one (1), two thousand twenty-six (2026)
and December one (1), two thousand twenty-nine (2029).
"Trust Indenture Act" means the Trust Indenture Act of Nineteen Hundred
Thirty-Nine (1939) as in force at the date as of which this Agreement was
executed; provided, however, that in the event the Trust Indenture Act of
Nineteen Hundred Thirty-Nine (1939) is amended after such date, "Trust Indenture
Act" means, to the extent required by such amendment, the Trust Indenture Act of
Nineteen Hundred Thirty-Nine (1939), as so amended.
"Trustee" means the Trustee acting as such under this Agreement,
whether the original or any successor trustee.
"Underwriters" means the initial purchasers of the Bonds pursuant to
the terms of that certain Bond Purchase Agreement dated October twenty-eighth
(28th), nineteen hundred ninety-nine (1999).
SECTION 102. RULES OF CONSTRUCTION. Words of the masculine gender
shall be deemed and construed to include correlative words of the feminine and
neuter genders. Unless the context shall otherwise indicate, "Bond,"
"Bondholder," "owner," "Holder" and "person" shall include the plural as well
as the singular number.
SECTION 103. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any
application or request by the Authority, the Borrower or the Guarantor to the
Trustee to take any
20
<PAGE> 27
action under any provision of this Agreement, the requesting party shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Agreement relating to the proposed
action have been complied with and an Opinion of Counsel, who may be counsel
for the Authority, the Borrower or the Guarantor and shall be appointed by
order of the Borrower or the Guarantor, stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Agreement
relating to such particular application or request, no additional certificate
or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of
21
<PAGE> 28
each such individual, such condition or covenant has been complied
with
SECTION 104. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with a provision of the Trust Indenture
Act that is required under such Act to be a part of and govern this Agreement,
the latter provision shall control. If any provision of this Agreement modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Agreement as so
modified or shall be deemed to be excluded, as the case may be.
ARTICLE II
FORM, EXECUTION, AUTHENTICATION, DELIVERY
AND EXCHANGE OF BONDS
SECTION 201. LIMITATION ON ISSUANCE OF BONDS. No Bonds may be issued
under this Agreement except in accordance with the provisions of this Article.
SECTION 202. FORM OF BONDS. The definitive Bonds are issuable as fully
registered Bonds without coupons, in denominations of not less than FIVE
THOUSAND DOLLARS ($5,000) and any integral multiple thereof. The definitive
form of Bonds shall be substantially in the form attached hereto as Exhibit A
with such appropriate variations, omissions and insertions as may be necessary
or appropriate to conform to the provisions of this Agreement. All Bonds may
have endorsed thereon such legends or text as may be necessary or appropriate
to conform to any applicable rules and regulations of any governmental
authority or of any securities exchange on which the
22
<PAGE> 29
Bonds may be listed or traded or any usage or requirement of law with respect
thereto or as may be authorized by the Authority and approved by the Trustee.
SECTION 203. DETAILS OF BONDS. The Bonds shall be dated their Date of
Issuance, shall bear interest until their payment, such interest to the
maturity or prior redemption thereof being payable monthly on the first (1st)
day of each month, and shall be stated to mature (subject to the right of prior
redemption), all as hereinafter provided.
Each Bond shall bear interest from the Interest Payment Date next
preceding the date on which it is authenticated, unless it is (a) authenticated
on an Interest Payment Date, in which case it shall bear interest from such
Interest Payment Date, or (b) authenticated prior to the first Interest Payment
Date, in which case it shall bear interest from its date; provided, however,
that if at the time of authentication of any Bond interest is in default, such
Bonds shall bear interest from the date to which interest shall have been paid
or duly provided for.
Interest on the Bonds shall be computed on the basis of a three
hundred and sixty (360) day year of twelve (12) months of thirty (30) days
each.
The Bonds shall be signed by, or bear the facsimile signatures of, the
Executive Director of the Authority and of the Secretary or any Assistant
Secretary of the Authority. A facsimile of the official seal of the Authority
shall be printed on the Bonds.
In case any officer whose signature or a facsimile of whose signature
shall appear on any Bonds shall
23
<PAGE> 30
cease to be such officer before the delivery of such Bonds, such signature or
such facsimile shall nevertheless be valid and sufficient for all purposes as
if he had remained in office until such delivery, and also any Bond may bear
the facsimile signatures of or may be signed by such persons as at the actual
time of the execution of such Bond shall be the proper officers to sign such
Bond although at the date of issue of such Bond such persons may not have been
such officers.
The principal of and premium, if any, and the interest on the Bonds
shall be payable in any coin or currency of the United States of America which
on the respective dates of payment thereof is legal tender for the payment of
public and private debts. The principal of and premium, if any, on all Bonds
shall be payable only to the registered owner or his legal representative at
the corporate trust office of the Trustee upon the presentation and surrender
of such Bonds as the same shall become due and payable. Interest on each Bond
which is payable, and is punctually paid or duly provided for on any Interest
Payment Date shall be paid to the person in whose name such Bond (or one or
more Predecessor Bonds) is registered at the close of business on the Regular
Record Date by check mailed to each such registered owner at its address as it
appears on the registration books kept by the Trustee pursuant to Section 206
hereof.
Interest on any Bond which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest")
24
<PAGE> 31
shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date solely by virtue of such Holder having been such Holder;
and such Defaulted Interest may be paid by the Authority, at its election in
each case, as provided in clause one or two
below:
one. The Authority may elect to make payment of any Defaulted
Interest to the persons in whose names the Bonds (or their respective
Predecessor Bonds) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Authority shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Bond and the date of the proposed payment (which date
shall be such as will enable the Trustee to comply with the next
sentence hereof), and at the same time the Authority shall deposit or
shall cause to be deposited with the Trustee an amount of money equal
to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix the Special Record Date for
the payment of such Defaulted Interest which shall be not more than
fifteen (15) days and not fewer than ten (10) days prior to the date
of the proposed payment and not fewer than ten (10) days after the
receipt by the Trustee of the notice of the proposed payment.
25
<PAGE> 32
The Trustee shall promptly notify the Authority and the Borrower of such Special
Record Date and, in the name and at the expense of the Borrower, shall cause
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each Holder of such
Bonds at his address as it appears in the registration books maintained by the
Trustee under Section 206 hereof not fewer than ten (10) days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the persons in whose names such Bonds (or
their respective Predecessor Bonds) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause two.
two. The Authority may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Bonds affected may
be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Authority to the Trustee of the proposed
payment pursuant to this clause, such payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Bond
delivered under this Agreement upon registration of transfer of or in exchange
for or in lieu of any other Bond shall carry the rights to interest accrued and
unpaid, and to accrue, which were
26
<PAGE> 33
carried by such other Bond.
SECTION 204. AUTHENTICATION OF BONDS. Only such of the Bonds as shall
have endorsed thereon a certificate of authentication substantially in the form
set forth in Exhibit A hereof, duly executed by the Trustee, shall be entitled
to any benefit or security under this Agreement. No Bond shall be valid or
become obligatory for any purpose unless and until such certificate of
authentication shall have been duly executed by the Trustee, and such
certificate of the Trustee upon any such Bond shall be conclusive evidence that
such Bond has been duly authenticated and delivered under this Agreement. The
Trustee's certificate of authentication on any Bond shall be deemed to have been
duly executed if signed by an authorized officer of the Trustee, but it shall
not be necessary that the same officer sign the certificate of authentication on
all of the Bonds that may be issued hereunder at any one time.
SECTION 205. EXCHANGE OF BONDS. Bonds may be exchanged at the option of
the registered owner thereof, upon surrender thereof at the corporate trust
office of the Trustee, together with an assignment duly executed by the
registered owner or his attorney or legal representative in such form as shall
be satisfactory to the Trustee, for an equal aggregate principal amount of Bonds
of the same maturity, of any denomination or denominations authorized by this
Agreement and bearing interest at the same rate, and in the same form as the
Bonds surrendered for exchange.
The Authority shall make provision for the exchange
27
<PAGE> 34
of the Bonds at the corporate trust office of the
Trustee.
SECTION 206. NEGOTIABILITY, REGISTRATION OF TRANSFER OF BONDS. The
Trustee shall keep books for the registration of transfers of Bonds as provided
in this Agreement. Said registration books shall be available at all reasonable
times for inspection by the Authority, the Borrower, the Guarantor and their
agents and representatives, and the Trustee shall provide to the Borrower and
the Guarantor and the Authority, upon their written request, an accurate copy of
the names and addresses of the Holders set forth on such books.
The transfer of any Bond may be registered only upon the books kept for
the registration and registration of transfers of Bonds upon surrender thereof
to the Trustee, together with an assignment duly executed by the registered
owner or such owner's attorney or legal representative in such form as shall be
satisfactory to the Trustee. Upon any such registration of transfer, the
Authority shall execute and the Trustee shall authenticate and deliver in
exchange for such Bond a new registered Bond or Bonds, registered in the name of
the transferee, of the same maturity, of any denomination or denominations
authorized by this Agreement in the aggregate principal amount equal to the
principal amount of such Bond and bearing interest at the same rate.
In all cases in which Bonds shall be exchanged or the transfer of Bonds
shall be registered hereunder, the Authority shall execute and the Trustee shall
authenticate and deliver at the earliest practicable
28
<PAGE> 35
time Bonds in accordance with the provisions of this Agreement. All Bonds
surrendered in any such exchange or registration of transfer shall forthwith be
cancelled by the Trustee. The Authority or the Trustee may impose a reasonable
fee or service charge for every such exchange or registration of transfer of
Bonds sufficient to reimburse it for any tax or other governmental charge
required to be paid with respect to such exchange or registration of transfer.
Neither the Authority nor the Trustee shall be required to make any such
registration of transfer or exchange of Bonds during a period beginning at the
opening of business fifteen (15) days before the day of the mailing of a notice
of redemption of Bonds and ending at the close of business on the day of such
mailing, or after any Bond has been selected for redemption in whole or in part,
except the unredeemed portion of any Bond being redeemed in part.
SECTION 207. OWNERSHIP OF BONDS; TRANSFER OF TITLE. As to any Bond, the
person in whose name such Bond is registered shall be deemed and regarded as the
absolute owner thereof for all purposes, and payment of or on account of the
principal of and the interest on any such Bond shall be made only to or upon the
order of the registered owner thereof or his legal representative. All such
payments shall be valid and effectual to satisfy and discharge the liability
upon such Bond including interest thereon, to the extent of the sum or sums so
paid.
The owner of any Bond is hereby granted the power to transfer absolute
title thereto by assignment thereof to a bona fide purchaser for value (present
or
29
<PAGE> 36
antecedent) without notice of prior defenses or equities or claims of ownership
enforceable against his assignor or any person in the chain of title and before
the maturity of such Bond. Every prior owner of any Bond shall be deemed to have
waived and renounced all of his equities or rights therein in favor of every
assignee and every assignee shall acquire absolute title thereto and to all
rights represented thereby.
SECTION 208. AUTHORIZATION OF BONDS. There shall be issued under and
secured by this Agreement Bonds of the Authority in the aggregate initial
principal amount of FORTY-FOUR MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND DOLLARS
($44,765,000) for the purpose of providing funds, together with other available
funds, to (i) pay the Cost of the Project, and (ii) pay a portion of the Costs
of Issuance. The Bonds shall be dated the Date of Issuance, shall be numbered
from RA- one (1) upwards, in the case of Serial Bonds, and RB-one (1) upwards,
in the case of Term Bonds, and shall be designated "Puerto Rico Industrial,
Tourist, Educational, Medical and Environmental Control Facilities Financing
Authority, Industrial Revenue Bonds, 1999 Series A (Doral Financial Center
Project)." The interest rate or rates, maturity dates (subject to prior
redemption), amounts of the Bonds maturing on such dates, and the Amortization
Requirements for the Term Bonds shall be as set forth in Exhibit B hereto.
The Bonds shall be executed substantially in the form and manner set
forth in Exhibit A and shall be deposited with the Trustee for authentication,
but
30
<PAGE> 37
before the Bonds shall be delivered by the Trustee, there shall be filed with
the Trustee the following:
(a) a copy, certified by the Secretary or any Assistant
Secretary of the Authority, of the resolution of the Authority
authorizing the issuance of and awarding such Bonds, specifying the
interest rate or rates for the Bonds, authorizing the execution of the
Loan Agreement and this Agreement, designating the Trustee and
directing the authentication and delivery of the Bonds to or upon the
order of the purchasers mentioned therein upon payment of the purchase
price therein set forth and the accrued interest, if any, on said
Bonds;.
(b) an executed counterpart of the Loan Agreement;
(c) the Mortgage Note, a copy of the Mortgage, and a mortgagee
title insurance policy insuring the Mortgage as a first priority
mortgage on the Property, subject to no other liens or encumbrances
other than those permitted by the Loan Agreement;
(d) an executed counterpart of the Pledge Agreement;
(e) an opinion of counsel to the Borrower and the Guarantor,
addressed to the Trustee and the Underwriters, substantially to the
effect that the execution and delivery of the Loan Agreement has been
duly authorized by the Borrower and the Guarantor, that the Collateral
Documents have been duly authorized by the Borrower, that the Loan
Agreement and the Collateral Documents are in the form so authorized
and have been duly executed by the Borrower and the Guarantor, as
applicable, and that, assuming
31
<PAGE> 38
proper authorization and the execution of the Loan Agreement and the
Collateral Documents by the Authority, the Loan Agreement is a legal,
valid and binding agreement of the Borrower and the Guarantor and the
Collateral Documents are legal, valid and binding agreements of the
Borrower, enforceable against the Borrower and the Guarantor, as the
case may be, in accordance with their terms, except to the extent that
the enforceability of the Loan Agreement and the Collateral Documents
may be limited by bankruptcy, insolvency or other laws affecting
creditors' rights generally and subject to general principles of equity
(regardless of whether said enforceability is considered in a
proceeding in equity or at law) and subject to such other standard
exceptions or qualifications as are acceptable to counsel to the
Authority and the Underwriters, the Pledge Agreement is effective to
create a valid and enforceable security interest in favor of the
Authority and the Trustee over the Mortgage Note, which security
interest will be perfected upon delivery of the Mortgage Note to the
Authority, and, upon filing of the Mortgage in the appropriate section
of the Registry of Property of Puerto Rico, the Mortgage will create a
valid and enforceable mortgage lien over the real property described
therein;
(f) an opinion of counsel, who may be counsel for the
Authority, addressed to the Trustee and the Underwriters, substantially
to the effect that: (i) the Authority has the legal right and power to
enter into this Agreement, the Loan Agreement and the Pledge Agreement,
and has duly authorized and validly
32
<PAGE> 39
executed and delivered this Agreement, the Loan Agreement and the
Pledge Agreement, and each such agreement is legally valid and binding
upon the Authority and enforceable in accordance with its terms, except
to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or other laws affecting creditors' rights
generally and subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law), (ii) this Agreement creates a legally valid and effective
pledge, assignment and transfer in trust of the moneys, securities and
funds held or set aside under this Agreement as security for the Bonds,
subject to the application thereof to the purposes and on the
conditions permitted by this Agreement, and that no filing or recording
of any document is necessary in order to make such pledge, assignment
and transfer in trust effective or to continue it in effect (or
specifying the place or places, if any, where such filing or recording
is necessary and furnishing any officially authenticated certificates,
or other documents by which such filing or recording is evidenced and
stating that such filings or recordings have been made and stating that
no other filing or recording is necessary), (iii) the issuance of the
Bonds will not violate any provision of law or of the by-laws of the
Authority or result in the breach of, or constitute a default under,
any agreement, indenture or other instrument to which the Authority is
a party or by which it may be bound, (iv) no authorization, consent or
approval or withholding of
33
<PAGE> 40
objection of any governmental body or regulatory authority is requisite
to the legal issue of said Bonds by the Authority (unless such opinion
shall show that no authorization, consent or approval or withholding of
objection is requisite to the legal issue of said Bonds, it shall
specify and furnish any officially authenticated certificates, or other
documents, by which such authorization, consent or approval or
withholding of objection is evidenced and stating that no other
authorization, consent or approval or withholding of objection is
required), (v) the Bonds are legally valid and binding direct
obligations of the Authority enforceable in accordance with their terms
and the terms of this Agreement and have been duly and validly
authorized and issued in accordance with applicable law and this
Agreement, and (vi) the conditions precedent to the delivery of the
Bonds have been fulfilled, and covering such other matters as the
Trustee or the Underwriters may reasonably request;
(g) an Officer's Certificate of the Authority that the
conditions precedent to the delivery of the Bonds has been fulfilled;
and
(h) such other opinions or certificates as the Trustee may
reasonably require or that may be required under the Trust Indenture
Act.
When the documents mentioned in clauses (a) to (h), inclusive, of this
Section shall have been filed with the Trustee and when the Bonds shall have
been executed as required by this Agreement, the Trustee shall authenticate and
deliver the Bonds to or upon the order of the Underwriters, but only upon
payment
34
<PAGE> 41
to the Trustee of the purchase price of the Bonds and the accrued interest
thereon, if any. The Trustee shall be entitled to rely upon such resolutions,
certificates and opinions as to all matters stated therein.
Simultaneously with the delivery of the Bonds, the net proceeds
(including accrued interest, if any) of the Bonds shall be deposited to the
credit of the Construction Fund.
SECTION 209. TEMPORARY BONDS. Until definitive Bonds are ready for
delivery, there may be executed, and upon request of the Authority, the Trustee
shall authenticate and deliver, in lieu of definitive Bonds and subject to the
same limitations and conditions, printed, typewritten, engraved or lithographed
temporary Bonds, in the form of fully registered Bonds without coupons in such
denominations, or in the form of a single registered Bond without coupons in a
denomination equal to the initial aggregate principal amount of such definitive
Bonds, substantially of the tenor of the Bonds set forth in this Agreement and
with such appropriate omissions, insertions and variations as may be
required.
Until definitive Bonds are ready for delivery, any temporary Bond may,
if so provided by the Authority by resolution, be exchanged at the corporate
trust office of the Trustee, without charge to the Holder thereof, for an equal
aggregate principal amount of temporary fully registered Bonds of authorized
denominations, of like tenor, of the same maturity and bearing interest at the
same rate.
If temporary Bonds are issued, the Authority shall
35
<PAGE> 42
cause the definitive Bonds to be prepared and to be executed and delivered to
the Trustee, and the Trustee, upon presentation to it at its corporate trust
office of any temporary Bond, shall cancel the same and authenticate and deliver
in exchange therefor at the place designated by the Holder, without charge to
the Holder thereof, a definitive Bond or Bonds of an equal aggregate initial
principal amount, of the same maturity and bearing interest at the same rate as
the temporary Bond surrendered. Until so exchanged the temporary Bonds shall in
all respects be entitled to the same benefit and security of this Agreement as
the definitive Bonds to be issued and authenticated hereunder.
SECTION 210. MUTILATED, DESTROYED, STOLEN OR LOST BONDS. If (a) any
mutilated Bond is surrendered to the Trustee or the Trustee receives evidence to
its satisfaction of the destruction, loss or theft of any Bond, and (b) there is
delivered to the Trustee such security or indemnity as may be required by the
Trustee to save the Trustee, the Authority, the Borrower and the Guarantor
harmless, then, in the absence of notice to the Authority, the Borrower, the
Guarantor or the Trustee that such Bond has been acquired by a bona fide
purchaser, the Authority shall execute and upon its request the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, stolen or lost Bond, a new Bond or Bonds of the same tenor, aggregate
principal amount, maturity and interest rate and bearing a number not
contemporaneously outstanding; provided, however, that if any such mutilated,
36
<PAGE> 43
destroyed, lost or stolen Bond shall have become or shall be about to become due
and payable, or shall have become subject to redemption in full, instead of
issuing a new Bond, the Authority may pay such Bond without surrender thereof,
except that any mutilated Bond shall be surrendered. If, after the delivery of
such new Bond or payment of a destroyed, lost or stolen Bond pursuant to the
proviso to the preceding sentence, a bona fide purchaser of the original Bond in
lieu of which such new Bond was issued presents for payment such original Bond,
the Authority and the Trustee shall be entitled to recover such new Bond (or
such payment) from the person to whom it was delivered or any person taking such
new Bond from such person, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the extent of any
damage, loss, cost or expenses incurred by the Authority, the Borrower, the
Guarantor or the Trustee in connection therewith.
Subject to the provisions of the first paragraph of this Section 210,
every Bond issued pursuant to the provisions of this Section in exchange or
substitution for any Bond which is mutilated, destroyed, stolen or lost shall
constitute an additional contractual obligation of the Authority, whether or not
the destroyed, stolen or lost Bond shall be found at any time, or be enforceable
by anyone, and shall be entitled to all the benefits of this Agreement equally
and proportionately with any and all other Bonds duly issued under this
Agreement. All Bonds shall be held and owned upon the express condition that the
foregoing provisions are exclusive with respect to the
37
<PAGE> 44
replacement or payment of mutilated, destroyed, stolen or lost Bonds, and shall
preclude any and all other rights or remedies, notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
Upon the issuance of any new Bond under this Section, the Trustee may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Trustee) connected therewith.
SECTION 211. BOOK-ENTRY BONDS. (a) Except as provided in subparagraph
(c) of this Section 211, the registered owner of all Bonds shall be the
Securities Depository and, as long as the Securities Depository shall be DTC,
the Bonds shall be registered in the name of Cede & Co., as nominee for DTC. All
provisions of this Article II (other than those provisions contained in Section
208), during the time the Bonds are registered in the name of the nominee of
DTC, shall be superseded by the provisions of this Section 211 and the rules of
the Securities Depository applicable thereto to the extent of any conflict
therewith. Payments of principal or interest for any Bond registered in the name
of Cede & Co. shall be made to the account of Cede & Co. at the address
indicated for Cede & Co. in the registration books kept by the Trustee. The
"Bonds" referred to in this Section 211 shall refer to the Bonds registered in
the name of Cede & Co.
38
<PAGE> 45
(b) The Bonds shall be initially issued in the form of
separate, single, authenticated fully-registered Bonds in the amount of
each separately stated maturity. Upon initial issuance, the ownership
of each such Bond shall be registered in the registration books kept by
the Trustee in the name of Cede & Co., as nominee of the Securities
Depository. As long as certificates for the Bonds are not issued
pursuant to Section 211(c) hereof, the Trustee and the Authority may
treat the Securities Depository (or its nominee) as the sole and
exclusive owner of the Bonds registered in its name for the purposes of
payment of the principal or redemption price of or interest on the
Bonds, selecting the Bonds or portions thereof to be redeemed, giving
any notice permitted or required to be given to the owners of such
Bonds hereunder, registering the transfer of Bonds, obtaining any
consent or other action to be taken by Bondholders and for all other
purposes whatsoever; and neither the Trustee nor the Authority shall
have any responsibility or obligation to any Participant, any
Beneficial Owner or any other person claiming a beneficial ownership
interest in the Bonds under or through the Securities Depository or any
Participant, or any other person which is not shown on the registration
books of the Trustee as being an owner of Bonds, with respect to the
accuracy of any records maintained by the Securities Depository or any
Participant, the payment to the Securities Depository or any
Participant of any amount in respect of the principal or redemption
price of or interest on the Bonds; any notice which is permitted or
required to be
39
<PAGE> 46
given to Bondholders under this Agreement; the selection by the
Securities Depository or any Participant of any person to receive
payment in the event of a partial redemption of the Bonds; or any
consent given or other action taken by the Securities Depository as
owner of Bonds. The Trustee shall pay all principal and redemption
price of and interest on the Bonds only to or "upon the order of" the
Securities Depository (as that term is used in the Uniform Commercial
Code as adopted in the State of New York), and all such payments shall
be valid and effective to fully satisfy and discharge the Authority's
obligations with respect to the principal or redemption price of and
interest on the Bonds to the extent of the sum or sums so paid. Except
as provided in (c) below, no person other than the Securities
Depository shall receive an authenticated Bond for each separate stated
maturity evidencing the obligation of the Authority to make payments of
the principal or redemption price of and interest on the Bonds pursuant
to this Agreement. Upon delivery by the Securities Depository to the
Trustee of written notice to the effect that the Securities Depository
has determined to substitute a new nominee in place of Cede & Co., the
Bonds will be transferable to such new nominee in accordance with
subparagraph (g) below.
(c) In the event the Authority determines that it is in the
best interest of the Authority not to continue the book-entry system of
transfer for the Bonds or that the interest of the owners of the Bonds
might be adversely affected if the book-entry system of transfer is
continued, the Authority shall notify
40
<PAGE> 47
Citibank, N.A., if Citibank, N.A. is the current Trustee and Citibank,
N.A. may resign as Trustee, as provided in Section 915 of this
Agreement. The determination of the Authority not to continue the
book-entry system shall not be effective prior to the acceptance of a
successor Trustee. After such acceptance, and in all other cases in
which the Authority determines to discontinue the book-entry system as
mentioned above, the Authority shall notify the Securities Depository,
the Guarantor and the Trustee, whereupon the Securities Depository will
notify the Participants, of the availability through the Securities
Depository of certificates for the Bonds. In such event, the Trustee
shall issue, transfer and exchange certificates for the Bonds as
requested by the Securities Depository and any Participant or
Beneficial Owner in appropriate amounts in accordance with subparagraph
(g) below. The Securities Depository may determine to discontinue
providing its services with respect to the Bonds at any time by giving
notice to the Authority and the Trustee and discharging its
responsibilities with respect thereto under applicable law, or the
Authority may determine that the Securities Depository is incapable of
discharging its responsibilities and may so advise the Securities
Depository. In either such event, the Authority shall either establish
its own book-entry system or use reasonable efforts to locate another
Securities Depository. Under such circumstances (if there is no
successor Securities Depository), the Authority and the Trustee shall
be obligated to deliver certificates for the Bonds as
41
<PAGE> 48
described in subparagraph (g) below. In the event certificates for the
Bonds are so issued, the provisions of this Agreement shall apply to
such Bond certificates in all respects, including, among other things,
the printing of certificates, the transfer and exchange of such
certificates and the method of payment of principal or redemption price
of and interest on such certificates. Whenever the Securities
Depository requests the Authority and the Trustee to do so, the Trustee
and the Authority will cooperate with the Securities Depository in
taking appropriate action after reasonable notice (i) to make available
one or more separate certificates evidencing the Bonds to any
Participant having Bonds credited to its account with the Securities
Depository, in the event the book-entry system of transfer for the
Bonds is discontinued, or (ii) to arrange for another Securities
Depository to maintain custody of certificates evidencing the Bonds
(d) Notwithstanding any other provision of this Agreement to
the contrary, so long as any Bond is registered in the name of Cede &
Co., as nominee of DTC, all payments with respect to the principal or
redemption price of and interest on such Bond and all notices with
respect to such Bond shall be made and given, respectively, to DTC as
provided in the Representation Letter.
(e) In connection with any notice or other communication to be
provided to owners of Bonds pursuant to this Agreement by the Authority
or the
42
<PAGE> 49
Trustee or with respect to any consent or other action to be taken by
owners of Bonds, the Authority or the Trustee, as the case may be,
shall establish a record date for such consent or other action and give
the Securities Depository notice of such record date not less than
fifteen (15) calendar days in advance of such record date to the extent
possible. Such notice to the Securities Depository shall be given only
when the Securities Depository is the sole Bondholder.
(f) A Securities Depository that is a Holder of one or more
Bonds, may make, give or take, by a proxy or proxies duly appointed in
writing, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in this Agreement to be made,
given or taken by Holders, and a Securities Depository that is a Holder
of one or more Bonds may provide its proxy or proxies to the Beneficial
Owners of interests in any such Bonds through such Securities
Depository's standing instructions and customary practices.
(g) In the event that any transfer or exchange of Bonds is
permitted under subparagraph (b) or (c) hereof, such transfer or
exchange shall be accomplished upon receipt by the Trustee from the
registered owner thereof of the Bonds to be transferred or exchanged
and appropriate instruments of transfer to the permitted transferee,
all in accordance with the applicable provisions of this Agreement. In
the event Bond certificates are issued to owners other than Cede & Co.,
its successor as nominee for DTC as owner of all the Bonds, or another
Securities Depository as owner of all the Bonds, the provisions of this
Agreement shall also apply to, among other things, the printing of such
certificates
43
<PAGE> 50
and the methods of payment of principal or redemption price of and
interest on such certificates.
ARTICLE III.
REDEMPTION OF BONDS
SECTION 301. REDEMPTION OF BONDS. The Bonds shall be subject to
redemption prior to their maturity as provided in this Article III.
(a) The Bonds shall be called for redemption in part, to the
extent of any Bond proceeds that are required to be transferred to the
Bond Fund for the redemption of Bonds pursuant to Section 406 hereof,
at a redemption price equal to the principal amount thereof as of the
redemption date, without premium, plus accrued interest to the date
fixed for redemption, such redemption to be made on the next Interest
Payment Date occurring not less than forty-five (45) days after the
Construction Fund Transfer Date.
(b) In the event that the Authority and the Trustee shall
receive written notice pursuant to Section 8.01(b) of the Loan
Agreement that the Borrower shall have elected to prepay all or a
portion of the amounts payable under Section 4.01 of the Loan Agreement
pursuant to Section 8.01(a) of the Loan Agreement, then the Bonds at
the time outstanding shall be called for redemption in whole or in
part, as directed by the Borrower, on any date selected by the
Borrower, on or after December one (1), two thousand nine (2009) at a
redemption price equal to the principal amount of the Bonds to be
redeemed as of the date fixed for redemption (which date shall not be
less than forty-five (45) days from the date that
44
<PAGE> 51
notice of such redemption is received by the Trustee), plus accrued
interest to the date fixed for redemption plus a premium of two percent
(2%) of such principal amount if redeemed on or prior to November
thirty (30), two thousand ten (2010), one percent (1%) if redeemed on
or after December one (1), two thousand ten (2010) and on or prior to
November thirty (30), two thousand eleven (2011) and without premium if
redeemed on December one (1), two thousand eleven (2011) and
thereafter.
(c) In the event the Borrower shall have become obligated to
prepay all or a portion of the amounts payable under Section 4.01 of
the Loan Agreement in accordance with Section 8.02(c) or Section
8.02(e) of the Loan Agreement, the Bonds shall be called for redemption
in whole or in part, as applicable, at a redemption price equal to the
principal amount thereof plus accrued interest to the date fixed for
redemption, without premium, which redemption date shall be the next
Interest Payment Date occurring not less than forty-five (45) days
after the Borrower becomes obligated to make such prepayment pursuant
to Sections 8.02(c) or 8.02(e) of the Loan Agreement.
(d) In the event that the Borrower shall have become obligated
to prepay the entire amount payable under Section 4.01 of the Loan
Agreement in accordance with Section 8.02(d) of the Loan Agreement, the
Bonds shall be called for redemption in whole, on the Interest Payment
Date occurring not less than forty-five (45) days after receipt by the
Trustee of the notice delivered pursuant to Section 8.02(d) of the Loan
Agreement, at a redemption price equal to the
45
<PAGE> 52
principal amount thereof, plus interest accrued to the date fixed for
redemption, without premium.
(e) The Term Bonds maturing on December one (1), two thousand
fourteen (2014), are subject to mandatory redemption, in part,
beginning on June one (1), two thousand ten (2010), and each Interest
Payment Date thereafter at a redemption price equal to one hundred
percent (100%) of the principal amount thereof plus accrued interest to
the date of redemption, without premium, in a principal amount equal to
the Amortization Requirements specified on Exhibit B hereto (subject to
adjustments for any prior purchase or redemption of said Term Bonds).
The Term Bonds maturing on June one (1), two thousand
twenty-six (2026), are subject to mandatory redemption, in part,
beginning on June one (1), two thousand fifteen (2015), and each
Interest Payment Date thereafter at a redemption price equal to one
hundred percent (100%) of the principal amount thereof plus accrued
interest to the date of redemption, without premium, in a principal
amount equal to the Amortization Requirements specified on Exhibit B
hereto (subject to adjustments for any prior purchase or redemption of
said Term Bonds).
The Term Bonds maturing on December one (1), two thousand
twenty-nine (2029), are subject to mandatory redemption, in part,
beginning on December one (1), two thousand twenty-six (2026), and each
Interest Payment Date thereafter at a redemption price equal to one
hundred percent (100%) of the principal amount
46
<PAGE> 53
thereof plus accrued interest to the date of redemption, without
premium, in a principal amount equal to the Amortization Requirements
specified on Exhibit B hereto (subject to adjustments for any prior
purchase or redemption of said Term Bonds).
(f) In the event that the Authority and the Trustee shall
receive written notice pursuant to Section 8.03 of the Loan Agreement
that the Borrower shall have elected to prepay all or a portion of the
amounts payable under Section 4.01 of the Loan Agreement pursuant to
Section 8.03 of the Loan Agreement, then the Bonds at the time
outstanding shall be called for redemption in whole or in part, as
directed by the Borrower, at a redemption price equal to the principal
amount of the Bonds to be redeemed plus accrued interest to the date
fixed for redemption, without premium, which redemption date shall not
be less than forty-five (45) days from the date that notice of such
redemption is received by the Trustee.
(g) Except in the case of a redemption of Term Bonds under
Section 301(e), if less than all of the outstanding Bonds shall be
called for redemption, the Bonds shall be redeemed in inverse order of
maturity, unless otherwise directed by the Borrower. If fewer than all
of the particular Bonds of any one maturity shall be called for
redemption, the Bonds or portions of Bonds of any maturity to be
redeemed shall be selected by the Trustee by such method as the Trustee
shall deem fair and appropriate; provided, however, that the portion of
any Bond to be redeemed shall be in the principal amount equal to FIVE
THOUSAND DOLLARS ($5,000) or some multiple thereof, and that, in
selecting Bonds for redemption, the Trustee shall
47
<PAGE> 54
treat each Bond as representing that number of Bonds which is obtained
by dividing the principal amount of such Bond by FIVE THOUSAND DOLLARS
($5,000).
On the forty-fifth (45th) day preceding each Interest Payment
Date for which there is a Amortization Requirement, the Trustee shall
proceed to select for redemption from the Bonds outstanding of the
maturity date to be redeemed a principal amount of Bonds of such
maturity date equal to such Amortization Requirement, and shall call
such Bonds for redemption on such Interest Payment Date and give notice
of such call in accordance with Section 302 hereof.
(h) Anything in this Agreement to the contrary
notwithstanding, any amount less than FIVE THOUSAND DOLLARS ($5,000)
remaining with the Trustee after a partial redemption of Bonds pursuant
to this Section 301 shall remain deposited in the Bond Fund until the
next succeeding Interest Payment Date, at which time such funds and any
interest or income earned thereon shall be used to pay interest on the
Bonds.
(i) In the event that redemptions under Section 301(b) and
Section 301(e) occur on the same Interest Payment Date, the Trustee
shall first select the Bonds subject to redemption under Section 301(e)
and, thereafter, select the Bonds subject to redemption under Section
301(b).
SECTION 302. REDEMPTION NOTICE. Except as stated in Section 211 with
respect to notices to DTC, at least thirty (30) days before the redemption date
of any Bonds, the Trustee shall cause a notice of any such redemption, either in
whole or in part, signed by the Trustee to be mailed, first-class, postage
48
<PAGE> 55
prepaid, to all Bondholders whose Bonds are to be redeemed and to the Guarantor.
Each such notice shall set forth (a) the date fixed for redemption, (b) the
redemption price to be paid, (c) if fewer than all of the Bonds then outstanding
shall be called for redemption, the distinctive numbers and letters, if any, of
such Bonds to be redeemed and, in the case of Bonds to be redeemed in part only,
the portion of the principal amount thereof to be redeemed, (d) that on the date
fixed for redemption, such redemption price will become due and payable upon
each Bond or portion thereof called for redemption, and that interest thereon
shall cease to accrue on and after said redemption date, (e) the place where
such Bonds or portions thereof called for redemption are to be surrendered for
payment of such redemption price, and (f) such other information as may be
required to comply with the requirements of Securities Exchange Act of 1934
Release No. 34-23856, dated December three (3), nineteen hundred eighty-six
(1986) (the "Redemption Release"). In addition, the Trustee shall cause a copy
of the above notice of redemption to be sent to the persons specified in
Sections B and D of the Redemption Release at least two (2) Business Days before
notice is given in accordance with the preceding sentence. In case any Bond is
to be redeemed in part only, the notice of redemption which relates to such Bond
shall state also that on or after the redemption date, upon surrender of such
Bond, a new Bond or Bonds of the same maturity and series, bearing interest at
the same rate and in a principal amount equal to the unredeemed portion of such
Bond,
49
<PAGE> 56
will be issued. Failure to comply with the requirements of the Redemption
Release shall not affect the validity of the proceedings for the redemption of
any Bonds, and failure to mail such notice to any Holder or any defect in any
notice so mailed shall not affect the validity of the proceedings for the
redemption of the Bonds of any other Holders.
SECTION 303. EFFECT OF CALLING FOR REDEMPTION. On the date designated
for redemption, notice having been mailed in the manner and under the conditions
here inabove provided, the Bonds or portions of Bonds so called for redemption
shall become and be due and payable at the redemption price provided herein for
redemption of such Bonds or portions of Bonds on such date. If Bonds or portions
of Bonds have been duly called for redemption under the provisions of this
Article III, and if sufficient moneys for payment of the redemption price
(including premium, if any,) plus accrued interest, if any, on such Bonds, or
portions of Bonds, to the date fixed for redemption, are held in a separate
account by the Trustee in trust for the Holders of the Bonds or portions of
Bonds to be redeemed, as provided in this Agreement, then interest on the Bonds
or portions of Bonds so called for redemption shall cease to accrue, such Bonds
or portions of Bonds shall cease to be entitled to any benefit or security under
this Agreement or to be deemed outstanding, and the Holders of such Bonds or
portions of Bonds shall have no rights in respect thereof except to receive
payment of the redemption price thereof (including premium, if any,) plus
50
<PAGE> 57
accrued interest to the date of redemption, and, to the extent provided in
Section 304 hereof, to receive Bonds for any unredeemed portions of Bonds.
SECTION 304. REDEMPTION OF PORTION OF BOND. In case part but not all of
a Bond that is outstanding shall be selected for redemption, the registered
owner thereof or his attorney or legal representative shall present and
surrender such Bond to the Trustee for payment of the principal amount thereof
so called for redemption and the redemption premium, if any, on such principal
amount, and the Authority shall execute and the Trustee shall authenticate and
deliver to or upon the order of such registered owner or his attorney or legal
representative, without charge therefor, for the unredeemed portion of the
principal amount of the Bond so surrendered, either a new Bond or Bonds, at the
option of the owner or his attorney or legal representative, of the same
maturity, bearing interest at the same rate, and of any denomination or
denominations authorized by this Agreement.
SECTION 305. CANCELLATION. Upon presentation and surrender, as
hereinabove provided, Bonds redeemed under this Article III or purchased by or
on behalf of the Borrower shall be cancelled by the Trustee.
ARTICLE IV
CONSTRUCTION FUND
SECTION 401. CONSTRUCTION FUND. A special fund is hereby created and
designated the "Industrial Revenue Bonds, 1999 Series A (Doral Financial Center
Project) Construction Fund" (the "Construction Fund"), to the credit of which
such deposits shall be made as are required by the provisions of Section 208 of
this
51
<PAGE> 58
Agreement. Any moneys received by the Trustee from any other source for the
payment of Costs of the Project or the payment of Costs of Issuance shall also
be deposited to the credit of the Construction Fund.
Subject to the provisions of Sections 404, 406 and 602 of this
Agreement, the moneys in the Construction Fund shall be held by the Trustee in
trust and shall be subject to a lien and charge in favor of the Holders of the
Bonds issued and outstanding under this Agreement, and for the further security
of such Holders, until paid out or transferred as herein provided.
SECTION 402. PAYMENTS FROM THE CONSTRUCTION FUND. Payment of the Cost
of the Project shall be made from the Construction Fund. All payments from the
Construction Fund shall be subject to the provisions and restrictions set forth
in this Article IV.
SECTION 403. ITEMS OF COST. For the purposes of this Agreement, the
Cost of the Project shall embrace all costs permitted by the Act in connection
with the construction, development and equipping of the Project, including
without limitation:
(a) Payment to the Borrower, the Guarantor and the Authority,
as the case may be, of such amounts, if any, as shall be necessary to
reimburse the Borrower, the Guarantor and the Authority in full for all
advances and payments made by them or either of them or for their
accounts, with respect to the Project at any time after February eleven
(11), nineteen hundred ninety-eight (1998) for expenditures in
connection with the acquisition of any property required for the
Project, the preparation of any preliminary study or
52
<PAGE> 59
planning of the Project, or any aspect of either thereof and any
reports or analyses concerning the Project, the construction,
development and equipping of the Project, interest on the Bonds during
construction (which shall mean as to the Bonds a period beginning with
the date of delivery of the Bonds and ending on the date the
acquisition and construction of the Project shall have been completed),
and the acquisition of all real or personal property deemed necessary
in connection with the Project, or any one or more of said expenditures
(including architectural, engineering and supervisory services);
(b) Payment in full of the outstanding indebtedness secured by
a mortgage on the Project and owed to Scotiabank in the amount of TWO
MILLION ONE HUNDRED FORTY-TWO THOUSAND THREE HUNDRED THIRTY-ONE DOLLARS
AND TWENTY-TWO CENTS ($2,142,331.22), plus the costs related to the
cancellation of such mortgage;.
(c) Payment of the Administrative Fee;.
(d) Payment of the Costs of Issuance, related to the cost of
cancelling any existing mortgage lien on the Property and of executing
and recording the Mortgage, and the cost of the mortgagee title
insurance policy insuring the Mortgage, all of which may be paid from
the proceeds of the Bonds without reference to this limitation;
(e) Payment for labor, services, materials and supplies used
or furnished in site improvement and in the acquisition, construction
and equipping of the Project, payment for the cost of the acquisition,
construction and installation of utility services or
53
<PAGE> 60
other facilities, and all real and personal property deemed
necessary in connection with the Project and payment for the
miscellaneous expenses incidental to, and deposits required in
connection with, any of the foregoing items; and
(f) Payment of any other costs and expenses relating to the
development and construction of the Project or the authorization,
issuance and sale of the Bonds.
SECTION 404. REQUISITES FOR PAYMENTS FROM CONSTRUCTION FUND. (a)
Payments of Costs of the Project from the Construction Fund shall be made by the
Trustee upon the order of the Borrower in accordance with the provisions of
this Section, but no such payment shall be made unless and until the Trustee
shall receive a requisition, prepared and signed by a Borrower Representative
and, if the Authority so determines by written notice to the Trustee which the
Trustee has received prior to its making such payment, approved by an Authority
Representative; provided, however, that such approval by the Authority shall not
be withheld if the requisition is consistent with the Act, the Loan Agreement
and this Agreement, stating:
(i) the item number of each such payment,
(ii) the name of the person (including the Borrower or the
Guarantor) to whom each such payment is due,.
(iii) the respective amounts to be paid and to whom such
amounts shall be paid, and
(iv) that obligations in the stated amounts have been incurred
and are presently due and payable, or
54
<PAGE> 61
reimbursable to the Borrower or the Guarantor, and that each item
thereof is a proper charge against the Construction Fund, and has not
been previously paid from the Construction Fund.
Upon receipt of any such order and accompanying requisition, the
Trustee shall pay such obligation from the Construction Fund. If prior to
payment of any item in an order the Borrower should for any reason desire not to
pay such item, the Borrower shall give notice of such decision to the Trustee.
In making any disbursement, the Trustee shall pay each such obligation directly
to the Borrower or to any payee designated by a Borrower Representative,
including the Guarantor, as set forth in the order of the Borrower directing
such disbursement.
SECTION 405. RELIANCE ON REQUISITIONS. All requisitions and orders
received by the Trustee, as required in this Article IV as conditions of payment
from the Construction Fund, may be relied upon by the Trustee, and shall be
retained by the Trustee, subject to examination at all reasonable times by the
Borrower, the Authority, the Guarantor, any Bondholder and the agents and
representatives thereof.
SECTION 406. BALANCE IN CONSTRUCTION FUND. Upon the earlier of (i) the
Completion Date, (ii) the third anniversary of the Date of Issuance or such
later date as may be approved by the Authority and (iii) the receipt by the
Trustee of a certificate signed by a Borrower Representative and approved by an
Authority Representative to the effect that the Project will not be completed
(the earlier to occur of (i), (ii) and (iii) above being the "Construction Fund
Transfer
55
<PAGE> 62
Date"), any balance remaining in the Construction Fund (other than amounts
retained by the Trustee to pay Costs of the Project not then due and payable or
for which the liability for payment is in dispute) shall be transferred to the
Bond Fund and used to pay the redemption price of Bonds called for redemption
pursuant to Section 301(a) hereof.
(b) In the event that the Borrower exercises the option under
Section 8.01(a) of the Loan Agreement to prepay in full the amounts
payable under Section 4.01 of the Loan Agreement, the Trustee shall,
upon the direction of the Borrower, deposit in the Bond Fund, on the
date the prepayment is made, any balance remaining in the Construction
Fund.
(c) If the principal amount of all outstanding Bonds shall
have become due and payable pursuant to a declaration in accordance
with Section 803 of this Agreement or the giving of a redemption notice
pursuant to Section 301 of this Agreement, the Trustee shall transfer
to the Bond Fund any funds remaining in the Construction Fund.
ARTICLE V
BOND FUND
SECTION 501. CREATION OF BOND FUND. A special fund is hereby created
and designated "Industrial Revenue Bonds, 1999 Series A (Doral Financial Center
Project) Bond Fund." The moneys in the Bond Fund shall be held by the Trustee in
trust and applied as hereinafter provided and, pending such application, shall
be subject to a lien and charge in favor, and for the further security, of the
Holders until paid out or transferred as herein provided.
56
<PAGE> 63
SECTION 502. PAYMENTS INTO BOND FUND. There shall be deposited to the
credit of the Bond Fund:
(i) all amounts paid by the Borrower under Sections 4.01,
8.01, 8.02 and 8.03 of the Loan Agreement for the payment of principal
of, redemption premium, if any, and interest on the Bonds;
(ii) all amounts paid by the Guarantor under the Loan
Agreement, from time to time, for the payment of the principal amount
of, or interest on the Bonds;
(iii) any amount in the Construction Fund transferred to
the Bond Fund in accordance with the provisions of Section 406 of this
Agreement;
(iv) all amounts received by the Trustee from the exercise
of remedies hereunder and under the Collateral Documents (net of
expenses incurred by the Trustee); and
(v) all other moneys received by the Trustee under and
pursuant to any of the provisions of the Loan Agreement, the Pledge
Agreement or otherwise which are permitted or required, or are
accompanied by directions from the Borrower, the Guarantor or the
Authority that such moneys are to be paid into the Bond Fund
The Trustee shall establish a separate account or subaccount within the
Bond Fund corresponding to the source of moneys specified in this Section 502
for each deposit made into the Bond Fund so that the Trustee may at all times
ascertain the source and date of deposit of the funds in each such account or
subaccount.
The Trustee is authorized to receive at any time payments from the
Borrower or the Guarantor pursuant
57
<PAGE> 64
to the Loan Agreement or otherwise, for deposit in the Bond Fund.
SECTION 503. USE OF MONEYS IN BOND FUND. Except as otherwise provided
in this Agreement or the Pledge Agreement, moneys in the Bond Fund shall be used
solely for the payment of the principal (whether at maturity or upon
acceleration or redemption or otherwise) of, and premium, if any, and interest
due or to become due on the Bonds.
On each Interest Payment Date, the Trustee shall withdraw from the Bond
Fund moneys deposited to the credit of the Bond Fund pursuant to Section 502
hereof, and remit by first class mail or by wire transfer, if applicable, as
provided in Section 203 of this Agreement, to each Holder the amounts required
for paying the interest on the Bonds as such interest becomes due and payable.
On or before each Interest Payment Date on which the payment of principal, and
premium, if any, becomes due and payable, the Trustee shall withdraw from the
Bond Fund and set aside or deposit in trust sufficient moneys for paying the
principal of and redemption premium, if any, on all Bonds as such principal and
premium, if any, become due, whether at maturity, upon acceleration or
redemption or otherwise.
Any moneys received by the Trustee pursuant to the Pledge Agreement
from insurance, casualty or condemnation proceeds or otherwise, will be applied
as set forth in the Pledge Agreement.
Any provision in this Agreement to the contrary notwithstanding, no
payment of the principal of and premium, if any, and interest on Bonds held by
or on
58
<PAGE> 65
behalf of the Borrower shall be made by the Trustee.
Any profit realized from the investment of moneys deposited to the
credit of the Bond Fund may be withdrawn by the Borrower.
SECTION 504. APPLICATION AND PLEDGE OF MONEYS IN THE BOND FUND. Subject
to the terms and conditions set forth in this Agreement, and except as otherwise
provided in Section 503 hereof, moneys held for the credit of the Bond Fund
shall be held in trust and disbursed by the Trustee for (a) the payment of
interest on the Bonds issued hereunder, other than Bonds held by the Borrower,
as such interest becomes due and payable, or (b) the payment of the principal of
such Bonds, other than Bonds held by the Borrower, as such principal becomes due
and payable, or (c) the payment of the redemption price of such Bonds, other
than Bonds held by the Borrower, before their respective maturities, or (d)
subject to the prior payment in full or provision for payment in full of the
amounts described in the preceding clauses (a), (b) and (c), the payment of the
principal of or premium, if any, or interest on the Bonds issued thereunder and
held by or on behalf of the Borrower as the same becomes due and payable, and
such moneys are hereby pledged to secure, and are charged with, the payments
mentioned in this Section.
SECTION 505. MONEY WITHDRAWN FROM BOND FUND HELD IN TRUST. All money
which the Trustee shall have withdrawn from the Bond Fund or shall have received
from any other source and set aside for the purpose of paying any of the Bonds
hereby secured, either at the maturity thereof or upon call for redemption or
for
59
<PAGE> 66
the purpose of paying any interest on the Bonds hereby secured, shall be held in
trust for the respective Holders of such Bonds. Any money that is so withdrawn
or set aside and that remains unclaimed by the Holders for a period of two (2)
years after the date on which such Bonds shall have become due and payable may,
be paid by the Trustee to the Borrower, as a Borrower Representative shall
direct, and thereafter the Holders shall look only to the Borrower for payment
and then only to the extent of the amount so received without any interest
thereon, and the Authority and the Trustee shall have no responsibility with
respect to such money. Until paid to the Borrower, any moneys so withdrawn or
set aside shall remain uninvested.
SECTION 506. CANCELLATION OF BONDS UPON PAYMENT. All Bonds paid,
redeemed, or purchased by or on behalf of the Borrower, either at or before
maturity, shall be delivered to the Trustee when such payment, redemption or
purchase is made, and such Bonds shall be cancelled. All Bonds cancelled under
any of the provisions of this Agreement shall be held by the Trustee until such
time as they are destroyed by the Trustee. The Trustee shall execute a
certificate in quadruplicate describing the details of all Bonds so destroyed,
and an executed certificate shall be filed with each of the Authority, the
Guarantor and the Borrower and the other executed certificate shall be retained
by the Trustee.
ARTICLE VI
DEPOSITARIES OF MONEYS, SECURITY FOR DEPOSITS
AND INVESTMENT OF FUNDS
SECTION 601. SECURITY FOR DEPOSITS. All moneys
60
<PAGE> 67
deposited with the Trustee under the provisions of this Agreement, the Loan
Agreement or the Collateral Documents shall be held in trust and applied only in
accordance with the provisions of this Agreement and shall not, except as
otherwise provided in Section 902 of this Agreement, be subject to lien or
attachment by any creditor of the Authority or the Borrower. Such money shall be
held in trust and applied in accordance with the provisions of this Agreement.
All moneys deposited with the Trustee under this Agreement, the Loan
Agreement or the Collateral Documents in excess of the amount guaranteed by the
Federal Deposit Insurance Corporation or any successor or similar federal agency
shall be continuously secured for the benefit of the Authority and the Holders
of the Bonds, either (a) by lodging with a bank or trust company approved by the
Authority and by the Trustee, as custodian or, if then permitted by law, by
setting aside under control of the trust department of the bank holding such
deposit, as collateral security, Government Obligations or, with the approval of
the Trustee, other marketable securities eligible as security for the deposit of
trust funds under regulations of the Comptroller of the Currency of the United
States of America or applicable Commonwealth law or regulations, having a market
value (exclusive of accrued interest) not less than the amount of such deposit,
or (b) if the furnishing of security as provided in clause (a) above is not
permitted by applicable law, in such other manner as may then be required or
permitted by applicable Commonwealth or federal laws
61
<PAGE> 68
and regulations regarding the security for, or granting a preference in the case
of, the deposit of trust funds; provided, however, that it shall not be
necessary for the Trustee to give security for any moneys which shall be
represented by the investments purchased under the provisions of this Article as
an investment of such moneys.
Subject to the provisions of Section 602, all money deposited with the
Trustee shall be credited to the particular fund or account to which such money
belongs.
SECTION 602. INVESTMENT OF MONEYS. Moneys held for the credit of all
funds and accounts established hereunder, except as provided in Article XIII
hereof, shall be invested and reinvested by the Trustee in such investments,
including but not limited to deposits, investment agreements or other
obligations of the Borrower, the Guarantor or any of their respective Affiliates
or subsidiaries, as directed by a Borrower Representative, or if no such
instruction is given, such moneys shall remain uninvested. Any such investment
shall mature not later than the respective dates when the money held for the
credit of such funds or accounts will be required for the purposes intended.
Investment obligations credited to any fund or account established
under this Agreement shall be held by or under the control of the Trustee and
while so held shall be deemed at all times to be part of such fund or account,
and any interest accruing on and any profit realized therefrom shall be credited
to such fund or account and any loss resulting from such
62
<PAGE> 69
investment shall be charged to such fund or account. Neither the Trustee nor the
Authority shall be liable or responsible for any loss resulting from any such
investment, which shall be the sole responsibility of the Borrower.
The Trustee shall sell at the best price attainable or reduce to cash a
sufficient amount of such investment obligations whenever it shall be necessary
to do so in order to provide money to make any payment or transfer of money from
any such fund or account. The Trustee shall not be liable or responsible for any
loss resulting from any such investment.
Whenever a payment or transfer of money between two or more of the
funds or accounts established pursuant to Articles IV and V of this Trust
Agreement is permitted or required, such payment or transfer may be made in
whole or in part by transfer of one or more investment obligations.
ARTICLE VII
PARTICULAR COVENANTS AND PROVISIONS
SECTION 701. COVENANT TO PAY BONDS; BONDS LIMITED OBLIGATIONS OF
AUTHORITY. The Authority covenants that it will cause to be paid, when due, the
principal of, and redemption premium, if any, and interest on the Bonds on the
dates and in the manner provided herein and in said Bonds according to the true
intent and meaning thereof; provided, that it is understood that such
obligations are not general obligations of the Authority but are limited
obligations payable solely from the payments required to be made by the Borrower
and the Guarantor under the Loan Agreement,
63
<PAGE> 70
any other revenues and funds derived under the Loan Agreement and the money
attributable to proceeds of the Bonds and the income from the investment
thereof, proceeds derived from the exercise of remedies under the Collateral
Documents, and not from any other source or fund. Any amount in the Bond Fund
available for any payment of the principal of and premium, if any, or interest
on the Bonds shall be credited against any amount required to be caused by the
Authority so to be paid. Except as in this Agreement otherwise provided, such
principal, premium and interest are payable solely from the payments required to
be made by the Borrower under Section 4.01 of the Loan Agreement and from any
other revenues and funds derived under the Loan Agreement and this Agreement to
the extent provided herein, which payments under the Loan Agreement, proceeds,
revenues and funds to the extent provided in this Agreement are hereby pledged
to the payment thereof in the manner and to the extent hereinabove particularly
specified.
The Bonds issued under the provisions of this Agreement and the
premium, if any, and interest thereon shall not constitute an indebtedness of
either the Commonwealth or any of its political subdivisions, other than the
Authority, and neither the Commonwealth nor any of such political subdivisions,
other than the Authority, shall be liable thereon, but the Bonds shall be
payable solely from the revenues and proceeds provided therefor, and the
Authority is not obligated to pay the Bonds or the premium, if any, or interest
thereon except from the revenues, property and proceeds pledged therefor.
64
<PAGE> 71
SECTION 702. COVENANT TO PERFORM AND AUTHORITY OF THE AUTHORITY. The
Authority shall faithfully perform at all times all of its covenants,
undertakings, and agreements contained in this Agreement, in any Bond executed,
authenticated and delivered hereunder, or in any proceedings of the Authority
pertaining thereto and filed with the Trustee and will faithfully observe and
perform at all times any and all covenants, undertakings, stipulations and
provisions of the Loan Agreement on its part to be observed or performed. The
Authority represents that it is duly authorized under the Constitution and laws
of the Commonwealth, particularly the Act, to issue the Bonds authorized hereby,
to enter into this Agreement and the Pledge Agreement, to assign the Loan
Agreement and the Pledge Agreement and to pledge the payments, receipts,
proceeds and other funds derived from the Loan Agreement in the manner and to
the extent herein set forth as security for the Bonds; that all action on its
part for the issuance of the Bonds and the execution and delivery of this
Agreement, the Loan Agreement and the Pledge Agreement has been duly and
effectively taken; and that such Bonds in the hands of the Holders thereof are
and will be valid and enforceable limited obligations of the Authority according
to the tenor and import thereof.
SECTION 703. COVENANT AS TO THE LOAN AGREEMENT AND THE COLLATERAL
DOCUMENTS. The Authority covenants that it will fulfill its obligations, and
that it will require the Borrower to perform its duties and obligations under
the Loan Agreement and the Collateral Documents. The Authority shall promptly
65
<PAGE> 72
notify the Trustee, the Guarantor and the Borrower of any actual or alleged
Event of Default of which it has knowledge and shall not execute or agree to any
change, amendment, modification or supplement to this Agreement, the Collateral
Documents or the Loan Agreement, except as is provided in the Loan Agreement and
this Agreement. The Authority shall administer the Loan Agreement and the
Collateral Documents in accordance with their terms and shall not agree to any
reduction, abrogation, waiver, diminution or other modification in any manner
and to any extent whatsoever of the obligation of the Borrower or the Guarantor
to make the payments required under Section 4.01 of the Loan Agreement and
otherwise as provided in the Loan Agreement.
SECTION 704. COVENANT TO PERFORM FURTHER ACTS. The Authority covenants
that it will do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered, such agreements supplemental hereto and such further
acts, instruments and transfers as the Trustee may reasonably require for the
better pledging unto the Trustee all and singular the payments and any other
revenues and other funds pledged hereby to the payment of the principal of and
premium, if any, and interest on the Bonds.
SECTION 705. TRUSTEE MAY ENFORCE AUTHORITY'S RIGHTS UNDER LOAN
AGREEMENT. The Loan Agreement, a duly executed counterpart of which has been
filed with the Trustee, sets forth the covenants and obligations of the
Authority, the Borrower and the Guarantor, including a provision in Section 9.11
thereof that subsequent to the issuance of the Bonds and prior to
66
<PAGE> 73
Payment of the Bonds, the Loan Agreement may not be effectively amended,
changed, modified, altered or terminated except in accordance with this
Agreement, and reference is hereby made to the Loan Agreement for a detailed
statement of said covenants and obligations of the Borrower and the Guarantor
under the Loan Agreement, and the Authority agrees that the Trustee, subject to
the provisions of the Loan Agreement and this Agreement reserving certain rights
to the Authority and respecting actions by the Trustee in its name or in the
name of the Authority, may enforce all rights of the Authority and all
obligations of the Borrower and the Guarantor under and pursuant to the Loan
Agreement and the Collateral Documents for and on behalf of the Bondholders
whether or not the Authority is in default hereunder.
ARTICLE VIII
DEFAULT AND REMEDIES
SECTION 801. EXTENSION OF INTEREST. In case the time for the payment of
the interest on any Bond shall be extended, whether or not such extension be by
or with the consent of the Authority, such interest shall not be entitled in
case of default hereunder to the benefit or security of this Agreement except
subject to the prior payment in full of the principal of all Bonds then
outstanding and of all interest the time for the payment of which shall not have
been extended.
SECTION 802. DEFAULTS. Each of the following events is hereby declared
an Event of Default:
(a) payment of the principal of any of the Bonds shall
not be made when the same shall become due and payable, whether at
maturity or by proceedings for
67
<PAGE> 74
redemption, acceleration or pursuant to an Amortization Requirement or
otherwise; or
(b) payment of any installment of interest on any of the
Bonds shall not be made when the same shall become due and payable and
such failure to pay interest shall continue for a period of five (5)
days; or
(c) the Borrower or the Guarantor shall commence a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or shall consent to the entry
of an order for relief in an involuntary case under any such law, or
shall consent to the appointment of or taking possession by a receiver,
custodian, liquidator, assignee, trustee or sequestrator (or other
similar official) of itself or of any substantial part of its property,
or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any action in furtherance of any of the foregoing; or
(d) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Borrower or the
Guarantor in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
appointing a receiver, custodian, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Borrower or the
Guarantor or of any substantial part of its properties, or ordering the
winding up or liquidation of its affairs, and the continuance of such
decree or order unstayed and in effect for a period of sixty (60)
consecutive days; or
68
<PAGE> 75
(e) an event of default under the Loan Agreement as
defined in Section 7.01 thereof (other than an event of default
described in clauses (a), (b), (c) or (d) above) shall have occurred,
and such event of default shall not have been remedied or waived.
SECTION 803. ACCELERATION OF MATURITIES. (a) Upon the happening and
continuance of any Event of Default, the Trustee may, and upon the written
request of the Holders of not less than twenty-five percent (25%) in aggregate
principal amount of the Bonds then outstanding shall, by a notice in writing to
the Authority, the Borrower and the Guarantor, declare the principal of all of
the Bonds then outstanding (if not then due and payable), to be immediately due
and payable, and upon such declaration the same shall become and be immediately
due and payable after the date of such notice, anything contained in the Bonds
or in this Agreement to the contrary notwithstanding.
(b) If at any time after the principal of Bonds shall
have been so declared to be due and payable, and before the entry of
final judgment or decree in any suit, action or proceeding instituted
on account of such default, or before the completion of the enforcement
of any other remedy under this Agreement, moneys shall have accumulated
in the Bond Fund sufficient to pay the principal of all Bonds then
outstanding (except the principal of any Bonds then due and payable
only because of a declaration under this Section 803 and the interest
accrued on such Bonds since the last Interest Payment Date to which
interest shall have been paid or duly provided for), interest on
overdue installments of interest (to the extent
69
<PAGE> 76
permitted by law) at the rate or rates then borne by the Bonds, and the
charges, compensation, expenses, disbursements, advances and
liabilities of the Trustee and all other amounts then payable by the
Authority hereunder shall have been paid or a sum sufficient to pay the
same shall have been deposited with the Trustee, and every other
default known to the Trustee in the observance or performance of any
covenant, condition, agreement or provision contained in the Bonds or
in this Agreement (other than a default in the payment of the principal
of such Bonds then due and payable only because of a declaration under
this Section 803), shall have been cured or waived as provided in
Section 814 of this Agreement, then and in every such case the Trustee,
upon the written direction of the Holders of not less than a majority
in aggregate principal amount of the Bonds then outstanding, by a
notice in writing to the Authority, the Guarantor and the Borrower,
rescind and annul such declaration and its consequences, but no such
rescission or annulment shall extend to or affect any subsequent
default or impair any right consequent thereon. Promptly after any such
declaration under subsection (a) of this Section 803, the Trustee shall
cause a notice thereof to be mailed, first class, postage prepaid to
all Bondholders. Failure to mail any such notice, or any defect in any
notice so mailed, shall not affect the proceedings for such
declaration.
SECTION 804. ENFORCEMENT OF REMEDIES. Upon the happening and
continuance of any Event of Default specified in Section 802 hereof and the
acceleration
70
<PAGE> 77
of the Bonds as provided in Section 803 hereof, then and in every such case the
Trustee may, and upon the written direction of the Holders of not less than
twenty-five percent (25%) in aggregate principal amount of the Bonds then
outstanding hereunder, shall proceed, subject to the provisions of Section 902
hereof, to protect and enforce its rights and the rights of the Bondholders
under applicable laws, under the Loan Agreement, the Collateral Documents and
this Agreement by such suits, actions or special proceedings in equity or at
law, or by proceedings in the office of any board or officer having
jurisdiction, either for the specific performance of any covenant or agreement
contained therein or herein or in aid or execution of any power therein or
herein granted or for the enforcement of any proper legal or equitable remedy,
as the Trustee, being advised by counsel, shall deem most effectual to protect
and enforce such rights.
In the enforcement of any remedy under this Agreement, the Trustee in
its own name and as trustee of an express trust shall be entitled to sue for,
enforce payment of and recover judgment for, any and all amounts then or after
any default becoming, and at any time remaining, due from the Authority for
principal, premium, if any, interest or otherwise under any of the provisions of
this Agreement or of the Bonds and unpaid, with interest, to the extent
permitted by law, on overdue payments of principal, premium, if any, and
interest at the rate or rates of interest specified in the Bonds, together with
any and all costs and expenses of collection and of all
71
<PAGE> 78
proceedings hereunder and under the Bonds, without prejudice to any other right
or remedy of the Trustee or of the Bondholders, and to recover and enforce any
judgment or decree against the Authority, but solely as provided herein and in
the Bonds, for any portion of such amounts remaining unpaid, and interest, costs
and expenses as above provided, and to collect (but solely from moneys in the
Bond Fund and any other moneys available for such purpose), in any manner
provided by law, the moneys adjudged or decreed to be payable.
SECTION 805. TRUSTEE MAY FILE CLAIM IN BANKRUPTCY. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Authority, the Borrower or the Guarantor or to
property of the Authority, the Borrower or the Guarantor or the creditors of any
of them, the Trustee (irrespective of whether the principal of the Bonds shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Borrower
for the payments equal to overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in
respect of the Bonds and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation,
72
<PAGE> 79
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Bondholders allowed in such judicial proceeding;
and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, custodian, assignee, trustee, liquidator,
sequestrator (or other similar official) in any such judicial
proceeding is hereby authorized by each Bondholder to make such
payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Bondholders, to
pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section
902 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Bondholder any plan
of reorganization, arrangement, adjustment or composition affecting the Bonds
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Bondholder in any such proceeding.
SECTION 806. PRO RATA APPLICATION OF FUNDS. Anything in this Agreement
to the contrary notwithstanding, if at any time the moneys in the Bond Fund to
the extent Bondholders have a right to such funds under this Agreement, shall
not be sufficient to pay the principal amount of or interest on the Bonds as the
same shall become due and payable (either by their terms or by acceleration
under the provisions of
73
<PAGE> 80
Section 803 of this Article) such moneys, together with any moneys then
available or thereafter becoming available for such purpose, whether through the
exercise of the remedies provided for in this Article or otherwise, shall be
applied, following the satisfaction of any payments due to the Trustee under the
provisions of Sections 902 and 906 of this Agreement, as follows:
(a) If the principal amount of all the Bonds shall not
have become due and payable or shall not have been declared due and
payable, all such moneys shall be applied:
first: to the payment to the persons entitled thereto
of all installments of interest then due and payable in the
order in which such installments became due and payable, with
interest on such installments of interest, to the extent
permitted by law, at the rate of such interest from the
respective dates upon which such installments became due and
payable, and, if the amount available shall not be sufficient
to pay in full any particular installment, together with
interest thereon, then to the payment first of the interest on
such installment, ratably, according to the amount of such
interest due on such date, and then to the payment of such
installment, ratably, according to the amounts due on such
installment, to the persons entitled thereto, without any
discrimination or preference except as to any difference in
the respective rates of interest specified in the Bonds;
second: to the payment to the persons entitled
thereto of the unpaid principal of any Bonds which shall have
become due and payable (other than Bonds
74
<PAGE> 81
deemed to have been paid in accordance with Article XIII
hereof) in the order of their due dates, with interest on the
principal amount of such Bonds at the respective rates
specified therein from the respective dates upon which such
Bonds became due and payable, and, if the amount available
shall not be sufficient to pay in full the principal of the
Bonds due and payable on any particular date, together with
such interest, then to the payment first of such interest,
ratably, according to the amount of such interest due on such
date, and then to the payment of such principal ratably,
according to the amount of such principal due on such date, to
the persons entitled thereto without any discrimination or
preference except as to any difference in the respective rates
of interest specified in the Bonds; and
third: to the payment of the interest on and the
principal of the Bonds, and to the redemption of Bonds, all in
accordance with the provisions of this Agreement.
(b) If the principal of all the Bonds shall have become
due and payable or shall have been declared due and payable, all such
moneys shall be applied to the payment of the principal, premium, if
any, and interest (including interest on any overdue installment of
interest to the extent permitted by law) then due upon the Bonds
without preference or priority of principal over interest or of
interest over principal or of any installment of interest over any
other installment of interest, or of any Bond over any other Bond,
ratably, according to the amounts due respectively for principal,
interest and premium, if
75
<PAGE> 82
any, to the persons entitled thereto without any discrimination or
privilege except as to any difference in the respective rates of
interest specified in the Bonds.
The provisions of subsections (a) and (b) of this Section are in all
respects subject to the provisions of Section 801 hereof.
Whenever moneys are to be applied by the Trustee pursuant to the
provisions of this Section, such moneys shall be applied by the Trustee at such
times, and from time to time, as the Trustee in its sole discretion shall
determine, having due regard to the amount of such moneys available for
application and the likelihood of additional moneys becoming available for such
application in the future; the setting aside of such moneys in trust for the
proper purpose shall constitute proper application by the Trustee; and the
Trustee shall incur no liability whatsoever to the Authority, to any Bondholder
or to any other person for any delay in applying any such moneys, so long as the
Trustee acts diligently, having due regard to the circumstances, and ultimately
applies the same in accordance with such provisions of this Agreement as may be
applicable at the time of application by the Trustee. Whenever the Trustee shall
exercise such discretion in applying such moneys, it shall fix the date (which
shall be an Interest Payment Date unless the Trustee shall deem another date
more suitable) upon which such application is to be made and upon such date
interest on the amounts of principal to be paid on such date shall cease to
accrue. The Trustee shall give such notice as it may deem appropriate of
76
<PAGE> 83
the fixing of any such date, and shall not be required to make payment to the
Holder of any Bond until such Bond shall be surrendered to the Trustee for
appropriate endorsement, or for cancellation if fully paid.
SECTION 807. EFFECT OF DISCONTINUANCE OF PROCEEDINGS. In case any
proceeding taken by the Trustee on account of any default shall have been
discontinued or abandoned for any reason, then, and in every such case, the
Authority, the Trustee, the Guarantor, the Borrower and the Bondholders shall be
restored to their former positions and rights hereunder, respectively, and all
rights, remedies, powers and duties of the Trustee shall continue as though no
proceeding had been taken.
SECTION 808. HOLDERS OF A MAJORITY IN PRINCIPAL AMOUNT OF BONDS MAY
CONTROL PROCEEDINGS. Anything in this Agreement to the contrary notwithstanding
(but subject, however, to Sections 803 and 804 hereof), the Holders of a
majority in aggregate principal amount of the Bonds then outstanding hereunder
shall have the right, subject to the provisions of Sections 902 and 906 hereof,
by an instrument or concurrent instruments in writing executed and delivered to
the Trustee, to direct the time, method and place of conducting all remedial
proceedings to be taken by the Trustee hereunder or exercising any trust or
power conferred upon the Trustee, provided that (i) such direction shall not be
otherwise than in accordance with law and the provisions of this Agreement, and
(ii) subject to the provisions of Section 901 hereof, the Trustee may take any
other action deemed proper by the Trustee
77
<PAGE> 84
which is not inconsistent with such direction.
SECTION 809. RESTRICTIONS UPON ACTIONS BY INDIVIDUAL BONDHOLDER. No
Holder of any of the Bonds shall have any right to institute any suit, action or
proceeding in equity or at law on any Bond or for the execution of any trust
hereunder or for any other remedy hereunder unless such Holder previously shall
have given to the Trustee written notice of the event of default on account of
which such suit, action or proceeding is to be instituted, and unless also the
Holders of not less than twenty-five percent (25%) in aggregate principal amount
of the Bonds then outstanding shall have made written request of the Trustee
after the right to exercise such powers or right of action, as the case may be,
shall have accrued, and shall have afforded the Trustee a reasonable opportunity
either to proceed to exercise the powers hereinabove granted or to institute
such action, suit or proceeding in its or their name, and unless, also, there
shall have been offered to the Trustee reasonable security and indemnity against
the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee shall have refused or neglected to comply with such request within a
reasonable time; and such notification, request and offer of indemnity are
hereby declared in every such case, at the option of the Trustee, to be
conditions precedent to the execution of the powers and trusts of this Agreement
or to any other remedy hereunder provided that no such indemnity shall be
required by the Trustee to exercise the remedy set forth in Section 803. It is
understood and intended that,
78
<PAGE> 85
except as otherwise above provided or provided in the immediately succeeding
paragraph, no one or more Holders of the Bonds hereby secured shall have any
right in any manner whatever by his or their action to affect, disturb or
prejudice the security of this Agreement, or to enforce any right hereunder
except in the manner herein provided, that all suits, actions and proceedings at
law or in equity shall be instituted, had and maintained in the manner herein
provided and for the benefit of all Holders of such outstanding Bonds, and that
any individual right of action or other right given to one or more of such
Holders by law is restricted by this Agreement to the rights and remedies herein
provided.
Notwithstanding any other provision in this Agreement, the owner of any
Bond shall have the right which is absolute and unconditional to receive payment
of the principal of and premium, if any, and interest on such Bond when due
(whether at maturity, upon redemption or otherwise), and to institute suit for
the enforcement of any such payment, and such right shall not be impaired
without the consent of such owner.
SECTION 810. RECEIVER. Upon the occurrence of an Event of Default and
upon the filing of a suit or other commencement of judicial proceedings to
enforce the rights of the Trustee and of the Bondholders under this Agreement,
the Trustee shall be entitled, as a matter of right, to the appointment of a
receiver or receivers of the payments under the Loan Agreement pending such
proceedings, with such powers as the court making such appointment shall confer,
whether or
79
<PAGE> 86
not any such amounts payable shall be deemed sufficient ultimately to satisfy
the Bonds outstanding hereunder.
SECTION 811. ACTIONS BY TRUSTEE. All rights of action and claims under
this Agreement or under any of the Bonds secured hereby, enforceable by the
Trustee, may be prosecuted and enforced by it without the possession of any of
the Bonds or the production thereof in the trial or other proceeding relative
thereto, and any such suit, action or proceeding instituted by the Trustee shall
be brought in its name for the benefit of all of the Holders of such Bonds,
subject to the provisions of this Agreement.
SECTION 812. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to the Trustee, or to the Holders of the Bonds, is intended to be
exclusive of any other remedy or remedies herein provided, and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or by law.
SECTION 813. NO DELAY OR OMISSION CONSTRUED TO BE A WAIVER. No delay or
omission of the Trustee, or of any Holder of the Bonds to exercise any right or
power accruing upon any default shall impair any such right or power or shall be
construed to be a waiver of any such default or any acquiescence therein; and
every power and remedy given by this Agreement to the Trustee and the Holders of
the Bonds, respectively, may be exercised from time to time and as often as may
be deemed expedient.
SECTION 814. WAIVER OF PAST DEFAULTS. The Holders of not less than a
majority in aggregate principal
80
<PAGE> 87
amount of the Bonds then outstanding may on behalf of the Holders of all the
Bonds then outstanding waive any past default under Section 802(e) hereof and
its consequences except a default in respect of a covenant or provision of the
Loan Agreement which under Article XII hereof cannot be modified or amended
without the consent of the Holder of each outstanding Bond affected.
Upon such waiver, such default shall cease to exist, and any event of
default arising therefrom shall be deemed to have been cured, for every purpose
of this Agreement; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 815. NOTICE OF DEFAULT. If a default occurs hereunder and a
trust officer of the Trustee has actual knowledge of such default, the Trustee
shall give the Holders of the Bonds, the Borrower, the Guarantor and each Rating
Agency notice of such default as and to the extent provided in the Trust
Indenture Act; provided, however, that in the case of any default of the
character specified in Section 801(e) which in turn is due to any default
specified in 7.01(c) or (d) of the Loan Agreement, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 816. UNDERTAKING FOR COSTS. All parties to this Agreement
agree, and each Holder of any Bond by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require,
81
<PAGE> 88
in any suit for the enforcement of any right or remedy under this Agreement, or
in any suit against the Trustee for any action taken or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Bondholder, or group of Bondholders, holding in the aggregate
more than 10% in principal amount of the Bonds then outstanding, or to any suit
instituted by any Bondholder for the enforcement of the payment of the principal
of or interest on any Bond on or after the respective payment dates therefor
expressed in such Bond (or, in the case of redemption, on or after the
applicable redemption date).
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 901. ACCEPTANCE OF TRUSTS. The Trustee accepts and agrees to
execute the trusts imposed upon it by this Agreement, but only upon the terms
and conditions set forth in this Article and subject to the provisions of this
Agreement, to all of which the parties hereto and the respective Holders of the
Bonds agree. The Trustee also accepts, and agrees to do and perform, the duties
and obligations imposed upon it by and under the Loan Agreement, but only upon
the terms and conditions set forth in the Loan Agreement and
82
<PAGE> 89
this Agreement.
SECTION 902. TRUSTEE ENTITLED TO INDEMNITY. With the exception of
Section 803 hereof, the Trustee shall be under no obligation to institute any
suit, or to take any remedial proceedings under this Agreement, the Collateral
Documents or under the Loan Agreement, or to enter any appearance in or in any
way defend against any suit, in which it may be made a defendant, or to take any
steps in the execution of the trusts hereby created or in the enforcement of any
rights and powers hereunder or under the Collateral Documents or the Loan
Agreement until it shall be indemnified to its satisfaction against any and all
costs and expenses, outlays and counsel fees and other reasonable disbursements,
and against all liability; the Trustee may, nevertheless, begin suit, or appear
in and defend suit, or do anything else in its judgment proper to be done by it
as such Trustee, without prior indemnity, and in such case the Authority shall
reimburse and indemnify the Trustee from funds available therefor under the
Collateral Documents or the Loan Agreement for all liabilities, costs and
expenses, outlays and counsel fees and other reasonable disbursements properly
incurred in connection therewith. The Trustee shall be paid interest on any
funds advanced hereunder, at rates customarily charged by the Trustee, which
rates shall in no event be less than the prime rate charged by the Trustee to
commercial customers. Except as otherwise provided in Section 803 hereof, if the
Authority shall fail to make such reimbursement or indemnification, the Trustee
may reimburse or indemnify itself from any
83
<PAGE> 90
monies in its possession under the provisions of this Agreement and shall be
entitled to a preference over any of the Bonds outstanding hereunder.
SECTION 903. TRUSTEE NOT RESPONSIBLE FOR INSURANCE, TAXES OR EXECUTION
OF THIS AGREEMENT BY THE AUTHORITY. The Trustee shall not be under any
obligation to effect or maintain insurance or to renew any policies of insurance
or to inquire as to the sufficiency of any policies of insurance carried by the
Borrower, or to report, or make or file claims or proof of loss for, any loss or
damage insured against or which may occur, or to keep itself informed or advised
as to the payment of any taxes or assessments, or to require any such payment to
be made. The Trustee shall have no responsibility in respect of the validity,
sufficiency, due execution or acknowledgment of this Agreement by the Authority
or the validity or sufficiency of the security provided hereunder or, except as
to the authentication thereof, in respect of the validity of the Bonds or the
due execution or issuance thereof. The Trustee shall not be under any obligation
to see that any duties herein imposed upon any party other than itself, or any
covenants herein contained on the part of any party other than itself to be
performed, shall be done or performed, and the Trustee shall be under no
obligation for failure to see that any such duties or covenants are so done or
performed.
SECTION 904. TRUSTEE NOT RESPONSIBLE FOR ACTS OF THE AUTHORITY OR
APPLICATION OF MONIES APPLIED IN ACCORDANCE WITH THIS AGREEMENT. The Trustee
shall not be liable or responsible because of the failure of the
84
<PAGE> 91
Authority or the Borrower or of any of their employees or agents to make any
collections or deposits or to perform any act herein required of the Authority
or the Borrower or because of the loss of any monies arising through the
insolvency or the act or default or omission of any other depositary in which
such monies shall have been deposited under the provisions of this Agreement.
The Trustee shall not be responsible for the application of any of the proceeds
of the Bonds or any other monies deposited with it and paid out, withdrawn or
transferred hereunder if such applications, payment, withdrawal or transfer
shall be made in accordance with the provisions of this Agreement. The
immunities and exemptions from liability of the Trustee hereunder shall extend
to its directors, officers, employees and agents.
SECTION 905. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (a)
Except during the continuance of an Event of Default specified in Section 802 of
this Agreement,
One. The Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be
read into this Agreement or the Loan Agreement against the
Trustee; and
Two. In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement
or the Loan Agreement; but in the case of any such
certificates or opinions
85
<PAGE> 92
which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Agreement or the Loan Agreement.
(b) In case an event of default specified in Section 802
of this Agreement has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement,
and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) None of the provisions of this Agreement shall be
construed to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that
One. This subsection shall not be construed to limit
the effect of subsection (a) of this Section;
Two. The Trustee shall not be liable for any error of
judgment made in good faith by a responsible officer or
officers of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
Three. The Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less
than a majority in aggregate Principal amount of the Bonds
then outstanding relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred
86
<PAGE> 93
upon the Trustee, under the provisions of this Agreement; and
Four. No provision of this Agreement, the Loan
Agreement or the Collateral Documents shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Agreement or the Loan Agreement relating to
the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions
of this Section.
(e) Except as otherwise above provided in this Section:
One. The Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, Bond, or other paper or
document believed by it to be genuine and to be signed or
presented by the proper party or parties;
Two. Whenever in the administration of this
Agreement, prior to the occurrence of an event of default
specified in Section 802 hereof, the Trustee shall deem it
desirable that a matter be proved or established prior to
taking or suffering any action hereunder, such matters (unless
other evidence in respect thereof be herein specifically
prescribed) may
87
<PAGE> 94
be deemed to be conclusively proved and established by a
certificate of a Borrower Representative and such certificate,
in the absence of bad faith on the part of the Trustee, shall
be full warrant to the Trustee for any action taken or
suffered by it under the provisions of this Agreement upon the
faith thereof;
Three. The Trustee may consult with counsel of its
choice and at cost to the Borrower, and the advice of such
counsel or any written opinion of counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in reliance thereon;
Four. The Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, Bond, or
other paper or document but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts
or matters as it may see fit, and if the Trustee shall
determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises
of the Borrower, personally or by agent or attorney; provided,
however, that the aforesaid right of examination shall be
exercised only upon such reasonable and necessary terms and
conditions as the Borrower shall prescribe, which conditions
shall be deemed to include, but not be limited to, reasonable
notice and those conditions necessary to protect the
Borrower's trade secrets and proprietary rights; and
Five. The Trustee may execute any of the trusts
88
<PAGE> 95
or powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys and the Trustee
shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by
it hereunder or under the Loan Agreement.
(f) So long as the Trustee shall be responsible for the payment of
Principal and interest on the Bonds, including payments incidental to a
redemption pursuant to Article III of this Agreement, it shall comply with any
and all withholding or information reporting requirements imposed by the
applicable tax laws.
SECTION 906. COMPENSATION. The Authority shall cause the Borrower to
pay to the Trustee its reasonable fees and expenses in accordance with Section
4.04(a) of the Loan Agreement. The Trustee reserves the right to charge
additional reasonable fees for additional services not contemplated in this
Agreement as well as extraordinary services upon the occurrence and during the
continuance of an Event of Default. Such additional fees will be reasonable and
calculated based on the costs and expenses incurred by the Trustee and on the
number of hours, employees and internal and external resources dedicated by the
Trustee to such services. If the Borrower shall fail to make any payment
required by this Section 906, the Trustee may, but shall be under no obligation
to, make such payment from any monies in its possession under the provisions of
this Agreement and shall be entitled to a preference therefor over any of the
Bonds outstanding hereunder.
89
<PAGE> 96
SECTION 907. SEMI-ANNUAL STATEMENT OF FUNDS ON DEPOSIT. It shall be the
duty of the Trustee, on or before July one (1), two thousand (2000), and
semiannually thereafter, to file with the Authority, the Guarantor and the
Borrower a statement setting forth in respect of the six (6) calendar months
preceding the last Interest Payment Date:
(a) the amount withdrawn or transferred by it and the amount deposited
with it on account of each fund held by it under the provisions of this
Agreement,
(b) the amount on deposit with it at the end of such period to the
credit of each such fund,
(c) a brief description of all the obligations held by it as an
investment of monies in each such fund,
(d) the amounts applied to the payment, purchase or redemption of Bonds
and a description of the Bonds so paid, purchased, or redeemed,
(e) the amount applied to the payment of interest on the Bonds, and
(f) any other information which the Authority, the Guarantor or the
Borrower may reasonably request from time to time.
All records and files pertaining to the Project and the trusts
hereunder in the custody of the Trustee shall be open at all reasonable times to
the inspection of the Authority, the Guarantor and the Borrower and their agents
and representatives.
SECTION 908. NOTICE OF DEFAULT. Except upon the happening of any event
of default specified in clause (a) or (b) of Section 802, the Trustee shall not
be obliged to take notice or be deemed to have notice of
90
<PAGE> 97
any event of default hereunder or under the Loan Agreement, unless specifically
notified in writing of such event of default by the Holders of not less than
twenty-five percent (25%) in aggregate Principal amount of the Bonds hereby
secured and then out standing.
SECTION 909. TRUSTEE MAY BE A BONDHOLDER. The bank, national banking
association, or trust company acting as Trustee under this Agreement, and its
directors, officers, employees or agents, may in good faith buy, sell, own, hold
and deal in any of the Bonds, and may join in the capacity of a Bondholder in
any action which any Bondholder may be entitled to take with like effect as if
such bank or trust company were not the Trustee under this Agreement, may
engage, as principal or agent, or be interested in any financial or other
transaction with the Authority or the Borrower, may maintain any and all other
general banking and business relations with the Authority with like effect and
in the same manner as if the Trustee were not a party to this Agreement, and may
act as depository, trustee or agent for any committee or body of Holders of the
Bonds issued under and secured by this Agreement or other obligations of the
Authority with like effect and in the same manner as if the Trustee
were not a party to this Agreement; and no implied covenant shall be read into
this Agreement against the Trustee in respect of such matters.
SECTION 910. TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals,
statements and representations contained herein and in the Bonds (excluding the
Trustee's certificates of authentication on the Bonds) shall be
91
<PAGE> 98
taken and construed as made by and on the part of the Authority and not by the
Trustee, and the Trustee shall not be under any responsibility for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement, the Loan Agreement, the Collateral Documents
or of the Bonds. The Trustee shall not be accountable for the use or
application, other than as herein provided, of any of the proceeds of the Bonds.
SECTION 911. TRUSTEE NOT RESPONSIBLE FOR RECORDING. The Trustee shall
not be under any obligation to see to the recording or filing of this Agreement,
the Loan Agreement, the Collateral Documents or any other instrument or
otherwise to the giving to any person of notice of the provisions hereof or
thereof.
SECTION 912. TRUSTEE MAY RELY ON CERTIFICATES. The Trustee shall be
protected and shall incur no liability in acting or proceeding, or in not acting
or not proceeding, in good faith, reasonably and in accordance with the terms of
this Agreement, upon any resolution, order, notice, request, consent, waiver,
certificate, statement, affidavit, requisition, Bond or other paper or document
which it shall in good faith reasonably believe to be genuine and to have
been adopted or signed by the proper board or person or to have been prepared
and furnished pursuant to and in accordance with the provisions of the Loan
Agree ment, or upon the written opinion of any attorney, engineer, accountant or
other expert believed by it to be qualified in relation to the subject matter,
and the Trustee shall not be under any duty to make any investigation or inquiry
as to any statement contained
92
<PAGE> 99
or matters referred to in any such instrument.
SECTION 913. QUALIFICATION OF THE TRUSTEE. There shall at all times be
a Trustee hereunder which shall be a corporation organized and doing business
under the laws of the United States of America, the Commonwealth or any state,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least FIFTY MILLION DOLLARS ($50,000,000), subject to
supervision or examination by federal, Commonwealth or state authority, and
having its principal trust office in the Commonwealth or in one of the states of
the United States of America. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect specified in Section 914 hereof.
SECTION 914. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee
has or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Agreement.
SECTION 915. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) No resignation or removal of the Trustee and
93
<PAGE> 100
no appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee under Section 916 hereof.
(b) The Trustee may resign at any time by giving written
notice thereof to the Authority, the Borrower and the Guarantor. If an
instrument of acceptance by a successor Trustee shall not have been
delivered to the Trustee within thirty (30) days after the giving of
such notice of resignation, the retiring Trustee may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by demand of
the Holders of a majority in Principal amount of the Bonds then
outstanding, signed in person by such Holders or by their attorneys,
legal representatives or agents and delivered to the Trustee, the
Authority, the Guarantor and the Borrower (such demand to be effective
only when received by the Trustee, the Authority, the Guarantor and the
Borrower).
(d) If at any time:
one. The Trustee shall fail to comply with
Section 914(a) hereof and shall fail to resign after written
request therefor by the Borrower or by any Bondholder who
shall have been a bona fide Bondholder for at least six (6)
months, or
two. The Trustee shall cease to be eligible under
Section 913 hereof and shall fail to resign after written
request therefor by the Borrower, the Guarantor or by any
Bondholder who shall have been a bona fide Bondholder for at
least six months, or
94
<PAGE> 101
three. The Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Authority, the Guarantor or
the Borrower may remove the Trustee, or (ii) subject to
Section 802 hereof, any Bondholder who has been a bona fide
Bondholder for at least six months may, on behalf of himself
and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Authority with the approval of the Borrower
and the Guarantor shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by
an instrument or concurrent instruments in writing executed by the
Holders of a majority in Principal amount of the Bonds then outstanding
delivered to the Authority, the Borrower, the Guarantor and the
retiring Trustee, the successor Trustee so appointed shall, forthwith,
but only upon receipt of the written approval of such proposed
successor Trustee by the Guarantor and upon its acceptance of such
appointment, become the successor Trustee and supersede the successor
Trustee
95
<PAGE> 102
appointed by the Authority and approved by the Borrower and the
Guarantor. If no successor Trustee shall have been so appointed by the
Authority and approved by the Borrower or the Bondholders and accepted
appointment in the manner hereinafter provided, any Bondholder who has
been a bona fide Holder of a Bond for at least six (6) months may, on
behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee.
(f) The Authority shall give written notice by first
class mail, postage prepaid, of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all
Bondholders. Each notice shall include the name and address of the
corporate trust office of the successor Trustee.
SECTION 916. SUCCESSOR TRUSTEE. Every successor Trustee appointed
hereunder shall execute, acknowledge and deliver to its predecessor, and also to
the Authority and the Borrower, an instrument in writing accepting such
appointment hereunder, and thereupon such successor Trustee without any further
act, shall become fully vested with all the rights, immunities, powers and
trusts, and subject to all the duties and obligations, of its predecessors; but
such predecessor shall, nevertheless, on the written request of its successor or
of the Authority and upon payment of the expenses, charges and other
disbursements of such predecessor which are payable pursuant to the provisions
of Section 906 hereof, execute and deliver an instrument transferring to such
successor Trustee all the rights, immunities, powers and trusts of such
96
<PAGE> 103
predecessor hereunder; and every predecessor Trustee shall deliver all
property and monies held by it hereunder to its successor, subject,
nevertheless, to its preference, if any, provided for in Sections 902
and 906 hereof. Should any instrument in writing from the Authority be
required by any successor Trustee for more fully and certainly vesting
in such Trustee the rights, immunities, powers and trusts hereby vested
or intended to be vested in the predecessor Trustee, any such
instrument in writing shall and will, on request, be executed,
acknowledged and delivered by the Authority.
Notwithstanding any of the foregoing provisions of this Article, any
bank or trust company having power to perform the duties and execute
the trusts of this Agreement and otherwise qualified to act as Trustee
hereunder with or into which the bank or trust company acting as
Trustee, may be converted, merged or consolidated, or to which the
corporate trust business assets as a whole or substantially as a whole
of such bank or trust company may be sold, shall be deemed the
successor of the Trustee without the execution or filing of any paper
or any further act on the part of any of the parties hereto.
SECTION 917. PREFERENTIAL COLLECTION OF CLAIMS AGAINST BORROWER OR
GUARANTOR. If and when the Trustee shall be or become a creditor of the Borrower
or the Guarantor (or any other obligor upon the Bonds), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Borrower or the Guarantor (or any such other obligor).
97
<PAGE> 104
SECTION 918. COMMUNICATION TO BONDHOLDERS. (a) If three (3) or more
Holders of Bonds (hereinafter referred to as "applicants") apply in writing to
the Trustee, and furnish to the Trustee reasonable proof that each such
applicant has owned a Bond for a period of at least six (6) months preceding the
date of such application, and such application states that the applicants desire
to communicate with other Holders of Bonds with respect to their rights under
this Agreement or under the Bonds and is accompanied by a copy of the form of
proxy or other communication which such applicants propose to transmit, then the
Trustee shall, within five (5) Business Days after receipt of such application,
at its election, either
(i) afford such applicants access to the registration
books kept by the Trustee under the provisions of Section 206
hereof, or
(ii) inform such applicants as to the approximate number
of Holders of Bonds whose names and addresses appear in said
registration books, and as to the approximate cost of mailing
to such Bondholders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to said
registration books, the Trustee shall, upon the written request of such
applicants, mail to each Bondholder a copy of the form of proxy or other
communication which is specified in such request, with reasonable promptness
after a tender to the Trustee of the material to be mailed and of payment, or
provision for the payment, of the reasonable expenses of mailing, unless within
five (5)
98
<PAGE> 105
days after such tender, the Trustee shall mail to such applicants and
file with the Commission together with a copy of the material to be mailed, a
written statement to the effect that, in the opinion of the Trustee, such
mailing would be contrary to the best interests of the Holders of Bonds or would
be in violation of applicable law. Such written statement shall specify the
basis of such opinion. If the Commission, after opportunity for a hearing on the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all Bondholders with reasonable promptness after the entry of
such order and the renewal of such tender; otherwise the Trustee shall be
relieved of any obligation or duty to such applicants respecting their
application.
(b) Each and every Bondholder, by receiving and holding
the same, agrees with the Authority and the Trustee that neither
Authority nor the Trustee shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
Bondholders in accordance with Section 918(a), regardless of the source
from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a
request made under Section 918(a).
99
<PAGE> 106
SECTION 919. REPORTS BY TRUSTEE. (a) The Trustee shall transmit to the
Bondholders such reports concerning the Trustee and its actions under this
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Bondholders, be filed by the Trustee with each stock exchange
upon which the Bonds are listed, if any, and also with the Commission. The
Authority will cause the Borrower to notify the Trustee when the bonds are
listed on any stock exchange.
SECTION 920. REPORTS OF BORROWER AND GUARANTOR. (a) The Authority will
cause the Borrower and the Guarantor to file with the Trustee and the
Commission, and transmit to Bondholders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 shall be filed with the Trustee within fifteen (15) days after the
same is so required to be filed with the Commission.
(b) The Borrower and the Guarantor will deliver to the
Trustee, within one hundred twenty (120) days after the end of each
fiscal year of the Borrower and the Guarantor ending after the date
hereof, an Officer's Certificate, stating whether or not to the best
knowledge of the signers thereof the Borrower or
100
<PAGE> 107
the Guarantor is in default in the performance and observance of any of
the terms, provisions and conditions of this Agreement (without regard
to any period of grace or requirement of notice provided hereunder)
and, if the Borrower or the Guarantor shall be in default, specifying
all such defaults and the nature and status thereof of which they may
have knowledge.
(c) Promptly after the execution and delivery of this
Agreement and of each supplement to this Agreement, the Borrower and
the Guarantor will furnish the Trustee with an Opinion of Counsel,
stating that in the opinion of such counsel this Agreement or such
supplement, as the case may be, has been properly recorded or filed for
record so as to make effective of record the lien intended to be
created and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to make such lien
effective, and on or before November three (3) in each subsequent year
the Borrower and the Guarantor will furnish the Trustee with an Opinion
of Counsel, either stating that in the opinion of such counsel such
action has been taken with respect to the recording or filing or
rerecording or refiling of this Agreement and of each supplement as is
necessary to maintain the lien of this Agreement of record, and
reciting the details of such action, or stating that in the opinion of
such counsel no such action is necessary to maintain such lien.
(d) To the extent applicable, the Authority shall cause
the Borrower and the Guarantor to furnish to the Trustee such
certificates or opinions of an engineer,
101
<PAGE> 108
appraiser or other expert as shall be required by the Trust Indenture
Act in connection with any release of Property from the lien of the
Mortgage in accordance with the Pledge Agreement.
SECTION 921. MONEY HELD IN TRUST. Money held by the Trustee in trust
under this Agreement need not be segregated from other funds except to the
extent required by law. Subject to the provisions of Section 602 hereof, the
Trustee shall be under no liability for interest on any money received by it
under this Agreement except as otherwise agreed with the Authority or the
Borrower.
SECTION 922. CONTINUING DISCLOSURE. If the Guarantor fails to comply
with any of the provisions of the Continuing Disclosure Agreement (as defined in
Section 1.01 of the Loan Agreement), the Trustee may (and, at the request of the
Underwriters or the Holders of at least twenty-five percent (25%) aggregate
principal amount of Bonds, shall) or (if such Holder stipulates that no
challenge is made to the adequacy of any information provided) any Holder (or if
the Holder of any Bond is not the beneficial owner, the beneficial owner of any
Bond) may take actions as may be necessary and appropriate, including seeking
specific performance by court order, to cause the Guarantor to comply with its
obligations under Section 1.01 of the Loan Agreement.
102
<PAGE> 109
ARTICLE X
EXECUTION OF INSTRUMENTS BY BONDHOLDERS AND
PROOF OF OWNERSHIP OF BONDS
SECTION 1001. EXECUTION OF INSTRUMENTS BY BONDHOLDERS AND PROOF OF
OWNERSHIP OF BONDS. (a) Any request, direction, consent or other instrument in
writing required or permitted by this Agreement to be signed or executed by
Bondholders may be in any number of concurrent instruments of similar tenor and
may be signed or executed by such Bondholders or their attorneys or legal
representatives. Proof of the execution of any such instrument and of the
ownership of Bonds shall be sufficient for any purpose of this Agreement and
shall be conclusive in favor of the Trustee with regard to any action taken by
it under such instrument if made in the following manner:
(i) The fact and date of the execution by any person
of any such instrument may be proved by the verification of
any officer in any jurisdiction who, by the laws thereof, has
power to take affidavits within such jurisdiction, to the
effect that such instrument was subscribed and sworn to before
him, or by an affidavit of a witness to such execution. Where
such execution is by a person other than an individual such
verification or affidavit shall also constitute sufficient
proof of the authority of the signer.
(ii) The ownership of Bonds shall be proved by the
registration books kept under the provisions of Section 206
hereof.
Nothing contained in this Section shall be construed as
limiting the Trustee to such proof, it being intended that the Trustee
may accept any other evidence of the matters herein stated which may be
sufficient. Any request or consent of the Holder of any Bond shall bind
every future Holder of the same Bond or any Bond issued in place of
such Bond in relation to anything done by the Trustee in pursuance of
such request or consent.
103
<PAGE> 110
(b) If the Authority shall solicit from the Holders any
request, direction, consent or other instrument in writing required or
permitted by this Agreement to be signed or executed by Bondholders,
the Authority may, at its option, fix in advance a record date for the
determination of Holders entitled to give such request, direction,
consent or other instrument, but the Authority shall have no obligation
to do so. If such a record date is fixed, such request, direction,
consent or other instrument may be given before or after such record
date, but only the Holders of record at the close of business on such
record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Bonds have
authorized or agreed or consented to such request, direction, consent
or other instrument, and for that purpose the Bonds shall be computed
as of such record date; provided that no such consent by the Holders on
such record date shall be deemed effective unless such consent shall
become effective pursuant to the provisions of this Agreement not later
than six (6) months after the record date.
ARTICLE XI
SUPPLEMENTS AND AMENDMENTS TO AGREEMENT
SECTION 1101. SUPPLEMENTS AND AMENDMENTS NOT REQUIRING BONDHOLDER
CONSENT. The Authority and the Trustee may, without the consent or approval of,
or notice to, any of the Bondholders, at any time and from time to time, enter
into such supplements and amendments to this Agreement, in form satisfactory to
the Trustee, as shall not, in the opinion of the
104
<PAGE> 111
Trustee, be detrimental to the interests of the Bondholders (which
supplements and amendments shall thereafter form a part hereof):
(a) to cure any ambiguity or formal defect or omission or
to make any other changes with respect to matters or questions arising
under this Agreement which shall not be inconsistent with the
provisions of this Agreement, or
(b) to grant to or confer upon the Trustee for the
benefit of the Bondholders, any additional rights, remedies, powers,
authority or security that may lawfully be granted to or conferred upon
the Bondholders or the Trustee, or
(c) to add to the covenants of the Authority for the
benefit of the Bondholders or to surrender any right or power herein
conferred upon the Authority, or
(d) to add to this Agreement or any supplement or
amendment hereto such other terms, conditions and provisions as may be
required by the Trust Indenture Act or similar federal statute.
SECTION 1102. SUPPLEMENTS AND AMENDMENTS REQUIRING CONSENT OF HOLDERS
OF A MAJORITY IN PRINCIPAL AMOUNT OF BONDS. With the consent of the Holders of
not less than a majority in aggregate principal amount of the Bonds at the time
outstanding, the Authority and the Trustee may, from time to time and at any
time, enter into supplements and amendments to this Agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of any supplement or amendment to this Agreement
or of modifying in any manner the
105
<PAGE> 112
rights of the Holders of the Bonds; provided, however, that nothing herein
contained shall permit, or be construed as permitting, without the consent of
each Bondholder affected, (a) an extension of the time for the payment of the
principal of and premium, if any, or the interest on any Bond, or (b) a
reduction in the principal amount of any Bond or the redemption premium or the
rate of interest thereon, or (c) the creation of any lien or security interest
with respect to the Loan Agreement or the payments thereunder, other than the
lien created by this Agreement, or (d) a preference or priority of any Bond or
Bonds over any other Bond or Bonds, or (e) a reduction in the aggregate
principal amount of the Bonds required for consent to such supplement or
amendment or any waiver hereunder. Nothing herein contained, however, shall be
construed as making the approval by Bondholders of the execution of any
supplemental agreement as authorized in Section 1001 hereof.
It shall not be necessary for the consent of the Holders of Bonds under
this Section to approve the particular form of any proposed supplement or
amendment but it shall be sufficient if such consent shall approve the substance
thereof.
If at any time the Authority shall request the Trustee to enter into
any supplement or amendment to this Agreement for any of the permitted purposes
of this Section, the Trustee shall, at the expense of the Authority, cause
notice of the proposed execution of such supplement or amendment to be mailed,
postage prepaid, to all Bondholders. Such notice shall briefly set forth the
nature of the proposed
106
<PAGE> 113
supplement or amendment and shall state that copies thereof are on file at the
corporate trust office of the Trustee for inspection by all Bondholders. The
Trustee shall not, however, be subject to any liability to any Bondholder by
reason of its failure to mail the notice required by this Section, and any such
failure or any defect in such notice shall not affect the validity of such
supplement or amendment when consented to as provided in this Section.
Whenever, at any time within one (1) year after the date of the mailing
of such notice, the Authority shall deliver to the Trustee an instrument or
instruments in writing purporting to be executed by the Holders of not less than
a majority in aggregate principal amount of the Bonds then outstanding, which
instrument or instruments shall refer to the proposed supplement or amendment
described in such notice and shall specifically consent to and approve the
execution thereof in substantially the form of the copy thereof referred to in
such notice, thereupon, but not otherwise, the Trustee may execute such
supplement or amendment in substantially such form, without liability or
responsibility to any Holder of any Bond, whether or not such Holder shall have
consented thereto.
If the Holders of not less than a majority in aggregate principal
amount of the Bonds outstanding at the time of the execution of such supplement
or amendment or any record date established in connection therewith pursuant to
Section 1001(b) hereof shall have consented to and approved the execution as
herein provided, no Holder of any Bond shall have any right
107
<PAGE> 114
to object to the execution of such supplement or amendment, or to object to any
of the terms and provisions contained therein or the operation thereof or in any
manner to question the propriety of the execution thereof, or to enjoin or
restrain the Trustee or the Authority from executing the same or from taking any
action pursuant to the provisions thereof.
SECTION 1103. SUPPLEMENTS AND AMENDMENTS DEEMED PART OF AGREEMENT. The
Trustee is authorized to join with the Authority in the execution of any
supplement or amendment herein provided. Any supplement or amendment to this
Agreement executed in accordance with the provisions of this Article shall
thereafter form a part of this Agreement, and all of the terms and conditions
contained in any such supplement or amendment as to any provision authorized to
be contained therein shall be and shall be deemed to be part of the terms and
conditions of this Agreement for any and all purposes. Upon the execution of any
supplement or amendment to this Agreement pursuant to the provisions of this
Article, this Agreement shall be and be deemed to be modified and amended in
accordance therewith, and the respective rights, duties and obligations under
this Agreement of the Authority, the Trustee and all Holders of Bonds then
outstanding shall thereafter be determined, exercised and enforced hereunder,
subject in all respects to such modifications and amendments. In case of the
execution and delivery of any supplement or amendment, express reference may be
made thereto in the text of any Bonds issued thereafter, if deemed necessary or
108
<PAGE> 115
desirable by the Trustee.
SECTION 1104. DISCRETION OF TRUSTEE IN ENTERING INTO SUPPLEMENTS AND
AMENDMENTS. In each and every case provided for in this Article, the Trustee
shall not be obligated to execute any proposed supplement or amendment, if the
rights, obligations and interests of the Trustee would be thereby affected, and
the Trustee shall not be under any responsibility or liability to the Authority,
the Borrower or to any Bondholder or to anyone whomsoever for its refusal in
good faith to enter into any such supplement or amendment if such supplement or
amendment is deemed by it to be contrary to the provisions of this Article.
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an opinion of any counsel, as conclusive evidence that any such
proposed supplement or amendment does or does not comply with the provisions of
this Agreement, and that it is or is not proper for it, under the provisions of
this Article, to join in the execution of such supplement or
amendment.
SECTION 1105. CONSENT OF BORROWER AND THE GUARANTOR REQUIRED. Anything
herein to the contrary notwithstanding, any amendment, modification or
supplement to this Agreement pursuant to this Article XI shall not become
effective unless and until the Borrower and the Guarantor shall have consented
thereto in writing.
109
<PAGE> 116
ARTICLE XII
SUPPLEMENTS AND AMENDMENTS TO
THE LOAN AGREEMENT AND THE COLLATERAL DOCUMENTS
SECTION 1201. SUPPLEMENTS AND AMENDMENTS NOT REQUIRING CONSENT. The
Authority, the Borrower and the Guarantor may enter into, and the Trustee may
consent to, from time to time and at any time, such amendments and supplements
to the Loan Agreement and the Collateral Documents, in form satisfactory to the
Trustee, as shall not be inconsistent with the terms and provisions thereof and,
in the opinion of the Trustee shall not be detrimental to the interests of the
Bondholders (which supplements and amendments shall thereafter form a part
thereof),
(a) to identify more precisely the Project, or
(b) to cure any ambiguity or formal defect or omission in
the Loan Agreement or the Collateral Documents or in any supplement
thereto, or
(c) to grant to or confer upon the Authority or Trustee
for the benefit of the Bondholders any additional rights, remedies,
powers, authority or security that may lawfully be granted to or
conferred upon the Authority, the Bondholders or the Trustee, or
(d) to add to the covenants of the Borrower or the
Guarantor, for the benefit of the Bondholders or to surrender any right
or power therein conferred upon the Borrower or the Guarantor, or
(e) to make any other change to the Loan Agreement which,
in the judgment of the Trustee, will not restrict, limit or reduce the
obligation of the Borrower or the Guarantor to make the payments under
the Loan Agreement required to pay the principal of or interest on the
Bonds, or otherwise impair the security of the Bondholders under this
Agreement or the Collateral Documents, provided such action shall not
materially adversely affect the interests of the
110
<PAGE> 117
Bondholders, or
(f) to implement the provisions of Section 5 of the
Pledge Agreement, including by executing such consents and releases as
shall be required by the Borrower and contemplated in such Section 5.
SECTION 1202. SUPPLEMENTS AND AMENDMENTS REQUIRING CONSENT OF HOLDERS
OF A MAJORITY IN PRINCIPAL AMOUNT OF BONDS. Except for supplements or amendments
provided for in Section 1201, the Authority shall not enter into and the Trustee
shall not consent to any supplement or amendment to the Loan Agreement or the
Collateral Documents unless notice of the proposed execution of such supplement
or amendment shall have been given to the Holders and the Holders of not less
than a majority in aggregate principal amount of the Bonds then outstanding
shall have consented to and approved the execution thereof, all as provided for
in Section 1102 hereof in the case of supplements and amendments to this
Agreement and with the same effect as provided in Section 1103; provided that
the Trustee shall be entitled to exercise its discretion in consenting or not
consenting to any such supplement or amendment, and to rely on an Opinion of
Counsel, in the same manner as provided for in Section 1104 hereof in the case
of supplements and amendments to this Agreement.
SECTION 1203. CONSENT OF TRUSTEE REQUIRED. Anything herein to the
contrary notwithstanding, any such supplement or amendment pursuant to this
Article XII shall not become effective unless and until the Trustee shall have
consented thereto in writing.
111
<PAGE> 118
ARTICLE XIII
DEFEASANCE
SECTION 1301. DEFEASANCE. If there is paid or caused to be paid from
the Bond Fund to the Holders of all of the Bonds secured hereby the principal
of, premium, if any, and interest which is and shall thereafter become due and
payable thereon, together with all other sums payable hereunder by the
Authority, then and in that case the rights, title and interest of the Trustee
hereunder shall cease and terminate, and such Bonds shall cease to be entitled
to any lien, benefit or security under this Agreement. In such event, the
Trustee shall transfer and assign to the Borrower all property then held by the
Trustee, shall execute such documents as may be reasonably required by the
Authority or the Borrower to evidence such transfer and assignment and shall
turn over to the Borrower any surplus in the Bond Fund and any balance remaining
in the Construction Fund. If the Authority shall pay or cause to be paid to the
Holders of less than all of the outstanding Bonds the principal of, premium, if
any, and interest which is and shall thereafter become due and payable upon such
Bonds, such Bonds, or portions thereof, shall cease to be entitled to any lien,
benefit or security under this Agreement.
Any outstanding Bond, or any portion thereof in the principal amount of
FIVE THOUSAND DOLLARS ($5,000) or any multiple thereof, shall be deemed to have
been paid within the meaning and with the effect expressed in this Section 1301
when the whole amount of the principal of, premium, if any, and interest on such
Bond shall have been paid or when (a) in case said
112
<PAGE> 119
Bonds or portions thereof have been selected for redemption in accordance with
Section 301 hereof prior to their maturity, the Borrower shall have given to the
Trustee irrevocable instructions to give in accordance with the provisions of
Section 302 hereof notice of redemption of such Bonds, or portions thereof, (b)
there shall be on deposit with the Trustee moneys or Defeasance Obligations
which shall not contain provisions permitting the redemption thereof other than
at the option of the holder, the principal of and the interest on which when
due, and without any reinvestment thereof, will provide moneys which shall be
sufficient to pay when due the principal of and interest due and to become due
on said Bonds or portions thereof on or prior to the redemption date or maturity
date thereof, as the case may be, (c) in the event said Bonds, or portions
thereof, do not mature and are not to be redeemed within the next succeeding
sixty (60) days, the Borrower shall have given the Trustee irrevocable
instructions to give notice, as soon as practicable in the same manner as a
notice of redemption is given pursuant to Section 302 hereof, to the Holders of
said Bonds, or portions thereof, stating that the deposit of moneys or
Defeasance Obligations required by clause (b) of this paragraph has been made
with the Trustee and that said Bonds are deemed to have been paid in accordance
with this Section and stating such maturity or redemption date upon which moneys
are to be available for the payment of the principal of and interest on said
Bonds, or portions thereof, (d) the Trustee shall have received an opinion of
counsel
113
<PAGE> 120
experienced in bankruptcy matters, satisfactory to the Trustee, the Guarantor
and the Authority, to the effect that the payment to the Bondholders of the
moneys described in clause (b) of this paragraph would not constitute a voidable
preference under the provisions of the United States Bankruptcy Code in the
event of an Act of Bankruptcy, and (e) the Trustee shall have received an
Opinion of Counsel experienced in federal tax matters satisfactory to the
Trustee and the Authority, to the effect that the deposit of the moneys or
Defeasance Obligations described in clause (b) of this paragraph would not
adversely affect the treatment of the interest received by Bondholders as income
from sources within the Commonwealth for purposes of the Code or otherwise would
not result in an Event of Taxability (assuming continuing compliance by the
Borrower with the source of income covenants set forth in the Loan Agreement).
Neither the moneys nor the Defeasance Obligations deposited with the Trustee
pursuant to this Section nor principal or interest payments on any such
obligations shall be withdrawn or used for any purpose other than, and shall be
held in trust for, the payment of the principal of and interest on said Bonds,
or portions thereof. If the Defeasance Obligations deposited with the Trustee
pursuant to this Section are purchased with proceeds of refunding bonds issued
by the Authority, such Defeasance Obligations must meet the requirements of the
Act. If payment of less than all of the Bonds is to be provided for in the
manner and with the effect expressed in this Section, the Trustee shall select
such Bonds, or portions thereof, in the
114
<PAGE> 121
manner specified in Section 301 hereof for selection for redemption of less
than all of the Bonds in the principal amounts designated to the Trustee by the
Borrower.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
SECTION 1401. COVENANTS OF AUTHORITY BIND ITS SUCCESSORS. In the event
of the dissolution of the Authority, all of the covenants, stipulations,
obligations and agreements contained in this Agreement by or on behalf of or for
the benefit of the Authority shall bind or inure to the benefit of the successor
or successors of the Authority from time to time and any officer, board,
commission, authority, agency or instrumentality to whom or to which any power
or duty affecting such covenants, stipulations, obligations and agreements shall
be transferred by or in accordance with law.
SECTION 1402. NOTICES. Any notice, demand, direction, request or other
instrument authorized or required by this Agreement to be given to or filed with
the Authority, the Trustee, the Borrower or the Guarantor shall be in writing
and shall be deemed to have been sufficiently given or filed for all purposes of
this Agreement if mailed, by registered mail, return receipt requested, postage
prepaid, or if delivered by hand or by telecopier, with verification of receipt
by the addressee, addressed as follows:
If to the Authority: Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority, c/o Government
Development Bank for Puerto Rico, Minillas Government
115
<PAGE> 122
Center, De Diego Avenue and Baldorioty de Castro, Stop 22, Santurce, Puerto Rico
00911, Attention: Executive Director.
If to the Borrower: Doral Properties, Inc., 1159 Franklin D. Roosevelt
Ave., San Juan, Puerto Rico 00920, Attention: Chief Executive Officer.
If to the Trustee: Citibank, N.A., 252 Ponce de Leon Avenue, 2nd Floor,
Hato Rey, Puerto Rico, 00918, Attention: Trust/Custody Department Head.
If to the Guarantor: Doral Financial Corporation, 1159 Franklin D.
Roosevelt Ave., San Juan, Puerto Rico 00920, Attention: Chief Executive Officer.
With a copy in each case to: Standard & Poor's Ratings Service, 55
Water Street, New York, New York 10041, Moody's Investors Services, 99 Church
Street, New York, New York 10007, and Duff & Phelps, 55 East Monroe Street,
Chicago, Illinois, 60608.
All documents received by the Trustee under the provisions of this
Agreement, or photographic copies thereof, shall be retained in its possession
until this Agreement shall be released in accordance with the provisions of the
Agreement, subject at all reasonable times, during regular business hours and
upon reasonable prior notice to the Trustee, to the inspection of the Authority
and the Bondholders and the agents and representatives thereof.
A duplicate copy of each notice, certificate, request or other
communication given hereunder to the Authority, the Borrower, the Trustee or the
Guarantor, shall also be given to each of the others. The Authority, the
Trustee, the Borrower and the Guarantor may, by notice given hereunder,
designate any further
116
<PAGE> 123
or different addresses to which subsequent notices, certificates or other
communications shall be sent.
SECTION 1403. SUBSTITUTE MAILING. In case, by reason of the suspension
of regular mail service as a result of a strike, work stoppage or similar
activity, it shall be impractical to mail notice of any event to Bondholders
when such notice is required to be given pursuant to any provision of this
Agreement, any manner of giving notice as shall be satisfactory to the Trustee
and the Authority shall be deemed to be a sufficient giving of such notice.
SECTION 1404. RIGHTS UNDER AGREEMENT. Except as herein otherwise
expressly provided, nothing in this Agreement expressed or implied is intended
or shall be construed to confer upon any person other than the parties hereto,
the Borrower, the Guarantor and the Holders of the Bonds any right, remedy or
claim, legal or equitable, under or by reason of this Agreement or any provision
hereof, this Agreement and all its provisions being intended to be and being for
the sole and exclusive benefit of the parties hereto, the Borrower, the
Guarantor and the Holders from time to time of the Bonds issued hereunder.
SECTION 1405. SEVERABILITY. In case any one or more of the provisions
of this Agreement or of the Bonds issued hereunder shall for any reason be held
to be illegal or invalid, such illegality or invalidity shall not affect any
other provision of this Agreement or of the Bonds, but this Agreement and the
Bonds shall be construed and enforced as if such illegal or invalid provision
had not been contained therein. In case any covenant, stipulation, obligation or
117
<PAGE> 124
agreement contained in the Bonds or in this Agreement shall for any reason be
held to be in violation of law, then such covenant, stipulation, obligation or
agreement shall be deemed to be the covenant, stipulation, obligation or
agreement of the Authority to the full extent permitted by law.
SECTION 1406. COVENANTS OF AUTHORITY NOT COVENANTS OF OFFICIALS
INDIVIDUALLY. No covenant, stipulation, obligation or agreement contained herein
or in the Bonds shall be deemed to be a covenant, stipulation, obligation or
agreement of any present or future member, agent or employee of the Authority in
his individual capacity, and neither the members of the Board of Directors of
the Authority nor any other officer of the Board of Directors of the Authority
or the Authority executing the Bonds shall be liable personally on the Bonds or
be subject to any personal liability or accountability by reason of the issuance
thereof. No member of the Board of the Authority and no officer, agent or
employee of the Board of the Authority shall incur any personal liability in
acting or proceeding or in not acting or not proceeding, in good faith,
reasonably and in accordance with the terms of this Agreement.
SECTION 1407. COMMONWEALTH LAW GOVERNS. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth.
SECTION 1408. PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. In any
case where the date of maturity of interest on or principal of the Bonds or the
date fixed for redemption of any Bonds shall be any day other than a Business
Day, then payment of interest or
118
<PAGE> 125
principal need not be made on such date but may be made on the next succeeding
Business Day with the same force and effect as if made on the date of maturity
or the date fixed for redemption and no interest on such payment shall accrue
for the period after such date.
SECTION 1409. HEADINGS NOT PART OF AGREEMENT. Any headings preceding
the text of the several articles hereof, and any table of contents or marginal
notes appended to copies hereof, shall be solely for convenience of reference
and shall not constitute a part of this Agreement, and they shall not affect its
meaning, construction or effect.
ACCEPTANCE
The appearing parties accept this Deed as drafted and confirm that the same has
been drawn in accordance with their instructions.
I, the Notary, hereby certify that the appearing parties read this
Deed, and that I advised the appearing parties of their right to have witnesses
present at its execution, which right they waived, and that I advised them of
the legal effect of this Deed; and they acknowledged that they understood the
contents of this Deed and such legal effect, and thereupon they signed this Deed
before me, affixing their initials to each and every page thereof.
I, the Notary, DO HEREBY ATTEST.
(signed) Velmarie Berlingeri
(signed) Kevin Szot
(signed, sealed, marked and flourished) Jose Alberto Sosa Llorens
119
<PAGE> 126
EXHIBIT A
[FORM OF SERIAL AND TERM BONDS]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE AUTHORITY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
No. [RA--for Serial Bonds] $
[RB--for Term Bonds]
UNITED STATES OF AMERICA
COMMONWEALTH OF PUERTO RICO
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL
AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
INDUSTRIAL REVENUE BOND
1999 SERIES A
(DORAL FINANCIAL CENTER PROJECT)
INTEREST RATE MATURITY DATE CUSIP NO.
------------------------------------------------------------------------------
Date of Issuance: November 3, 1999
Principal Amount: DOLLARS ($ )
Registered Owner: Cede & Co.
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority (the "Authority"), a body
corporate and politic constituting a public corporation and governmental
instrumentality of the Commonwealth of Puerto Rico (the "Commonwealth"), for
value received, hereby promises to pay, solely from the special fund provided
therefor as hereinafter set forth, to the Registered Owner mentioned above, or
registered assigns or legal representatives, on the Maturity Date set forth
above (or earlier as hereinafter referred to), upon the presentation and
surrender hereof at the corporate trust office of the Trustee (hereinafter
mentioned), in the Municipality of San Juan, Puerto Rico, the Principal Amount
set forth above in any coin or currency of the United States of America which on
the date of payment thereof is legal tender for the payment of public and
private debts, and to pay, solely from said special fund, to the person (the
"Holder") in whose name this Bond (or one or more Predecessor Bonds, as defined
in the Trust Agreement hereinafter mentioned)
<PAGE> 127
is registered at the close of business on the fifteenth (15th) day (whether or
not a Business Day) of the month immediately preceding an Interest Payment Date
(hereinafter defined), by check mailed to the Registered Owner at his address as
it appears on the registration books kept by the Trustee, interest on such
Principal Amount from the Interest Payment Date next preceding the date of
authentication to which interest shall have been paid, unless such date of
authentication is an Interest Payment Date to which interest shall have been
paid, in which case it shall bear interest from such date or unless
authenticated prior to December 1, 1999, in which case this Bond shall bear
interest from the Date of Issuance referred to above, monthly on the first
(1st) day of each month (each such date, an "Interest Payment Date"),
commencing December 1, 1999, in like coin or currency, at the Interest Rate set
forth above until payment of said Principal Amount. Interest is computed on the
basis of a 360-day year of twelve 30-day months. As used herein, "Business Day"
means any day of the year other than a Saturday, Sunday or other day in which
commercial banks in the Commonwealth are generally closed for business to the
public.
This Bond and the interest thereon shall not be deemed to constitute
an indebtedness of either the Commonwealth or any of its political
subdivisions, other than the Authority, and neither the Commonwealth nor any
such political subdivisions, other than the Authority, shall be liable thereon,
but this Bond shall be payable as to principal, redemption premium, if any, and
interest solely from the special fund provided therefor as hereinafter set
forth.
This [Serial or Term] Bond is one of a duly authorized issue of
industrial revenue bonds of the Authority in the aggregate principal amount of
$44,765,000 , designated as "Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority Industrial
Revenue Bonds, 1999 Series A (Doral Financial Center Project)" (the "Bonds"),
consisting of $5,345,000 aggregate principal amount of Serial Bonds (the
"Serial Bonds") and $39,420,000 aggregate principal amount of Term Bonds (the
"Term Bonds" and collectively with the Serial Bonds, the "Bonds"). The Bonds
are being issued for the purpose of providing funds, together with other
available funds, to (i) pay a portion of the Costs of the Project (as defined
in the Loan Agreement hereinafter referred to), (ii) pay certain expenses
incurred in connection with the authorization and issuance of the Bonds and
(iii) pay interest due on the Bonds during the first twenty-three Interest
Payment Dates.
The Bonds are parity obligations, except for differences in interest
rates and, in certain instances, order of redemption, and are issued under and
pursuant to a trust agreement, dated the Date of Issuance (said trust agreement
together with all supplements and amendments thereto as therein permitted being
hereinafter referred to as the "Trust Agreement"), between the Authority and
Citibank, N.A., as trustee (said bank and any bank, banking association or
trust company becoming successor trustee under the Trust Agreement being herein
called the "Trustee"), a copy of which Trust Agreement is on file at the
corporate trust office of the Trustee. Reference is hereby made to the Trust
Agreement for the provisions, among others, with respect to the custody and
application of the proceeds of the Bonds, the collection and disposition of
payments under the Loan Agreement (hereinafter mentioned) and other revenues, a
description of the funds charged with and pledged to the payment of the
principal of, premium, if any, and interest on the Bonds, the nature and extent
of the security for the Bonds, the terms and conditions
<PAGE> 128
under which the Bonds are or may be issued, the rights, duties and obligations
of the Authority and of the Trustee and the rights of the Holders of the Bonds
and by the acceptance of this Bond, the Holder hereof assents to all of the
provisions of the Trust Agreement and the Loan Agreement. All capitalized terms
not defined herein shall have the meanings assigned to such terms in the Trust
Agreement.
This Bond is issued, and the Trust Agreement and the Loan Agreement
were made and entered into, under and pursuant to the Puerto Rican Federal
Relations Act and the Constitution and laws of the Commonwealth, including Act
No. 121 of the Legislature of Puerto Rico, approved June 27, 1977, as amended
(the "Act"), and under and pursuant to resolutions duly adopted by the
Authority.
The Authority has entered into a loan and guaranty agreement, dated
the Date of Issuance (said loan and guaranty agreement together with all
supplements and amendments thereto as permitted by the Trust Agreement being
hereinafter referred to as the "Loan Agreement"), with Doral Properties, Inc.
(the "Borrower"), a Puerto Rico corporation, and Doral Financial Corporation
(the "Guarantor"), a Puerto Rico corporation, under which the Authority has
agreed to lend to the Borrower the proceeds of the Bonds, and, in consideration
of the loan, the Borrower has agreed, among other things, to make payments to
the Trustee in such amounts and at such times as are required to provide for
timely payment of the principal of, redemption premium, if any, and interest on
the Bonds and certain fees and expenses of the Authority and the Trustee. The
Loan Agreement further obligates the Borrower to perform, observe and comply,
or cause performance, observance and compliance, with certain covenants,
conditions and agreements set forth in the Loan Agreement, including certain
obligations respecting the use and operation of the Project for the purposes
stated therein. The Loan Agreement provides that any payments in respect of the
Bonds shall be made directly to the Trustee for the account of the Authority,
and that the Borrower's obligation to make such payments shall be absolute and
unconditional, without right of set-off for any reason. Under the Loan
Agreement, the Guarantor has unconditionally guaranteed the Borrower's
obligations thereunder, including the Borrower's payment obligations.
Pursuant to the Trust Agreement, the Authority has, for the benefit of
the owners of the Bonds, assigned and conveyed to the Trustee in trust the
Authority's rights, title and interest in the Loan Agreement (subject to the
reservation of certain rights of the Authority, including its rights to payment
of certain expenses and to indemnity) and the payments thereunder and other
revenues derived therefrom. The Trust Agreement further provides that any
payments under the Loan Agreement are to be deposited with the Trustee to the
credit of a special fund designated "Industrial Revenue Bonds, 1999 Series A
(Doral Financial Center Project) Bond Fund," which special fund is equally and
ratably pledged to and charged with the payment of the principal of and
interest all Bonds.
The Bonds are additionally secured by the assignment by the Authority
to the Trustee of its rights under a pledge of a mortgage note secured by a
first mortgage on all of the real property where the Project will be located.
The Bonds maturing on and after December 1, 2009 are subject to
redemption prior to maturity, at the option of the Borrower, in whole or in part
(as
<PAGE> 129
directed by the Borrower) on any date selected by the Borrower, on or after
December 1, 2009, at a redemption price equal to the principal amount thereof
plus accrued and unpaid interest up to the redemption date (the "Redemption
Price"), plus a premium of 2% of such principal amount if redeemed on or prior
to November 30, 2010, 1% if redeemed on or after December 1, 2010 and on or
prior to November 30, 2011 and without premium if redeemed on December 1, 2011
and thereafter.
The Bonds are subject to mandatory redemption in part, prior to
maturity, to the extent of any Bond proceeds remaining in the Construction
Fund, at a redemption price equal to the principal amount thereof as of the
redemption date, plus accrued and unpaid interest up to the redemption date,
without premium, which redemption date shall be the next Interest Payment Date
occurring not less than forty-five days (45) days after the earlier of (i) the
third anniversary of the Date of Issuance or such later date as may be
approved by the Authority, (ii) the date of completion of the construction of
the Project as that date is certified pursuant to the Loan Agreement, and
(iii) the receipt by the Trustee of a certificate signed by a Borrower
Representative and approved by an Authority Representative to the effect that
the Project will not be completed.
The Bonds are subject to mandatory redemption in whole or in part to
the extent required under the pledge agreement mentioned above upon the
occurrence of an eminent domain, damage to or the destruction of the Project, at
a redemption price equal to the principal amount thereof plus accrued and unpaid
interest up to the redemption date, without premium, which redemption date shall
be the next Interest Payment Date occurring not less than forty-five (45) days
after receipt by the Trustee of the notice delivered pursuant to Section 8.02(e)
of the Loan Agreement and sufficient moneys to effect such redemption.
The Bonds are subject to mandatory redemption in whole upon the
occurrence of an Event of Taxability, at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest up to the redemption
date, without premium, which redemption date shall be the next Interest Payment
Date occurring not less than forty-five (45) days after receipt by the Trustee
of the notice delivered pursuant to Section 8.02(d) of the Loan Agreement.
The Bonds are subject to mandatory redemption in whole upon the
cessation of operations of the Project as an Industrial Facility within the
meaning of the Act, at a redemption price equal to the principal amount thereof
plus accrued and unpaid interest up to the redemption date, without premium,
which redemption date shall be the next Interest Payment Date occurring not
less than forty-five (45) days after receipt by the Trustee of the notice
delivered pursuant to Section 8.02(d) of the Loan Agreement.
The Term Bonds maturing on December 1, 2014, are subject to mandatory
redemption, in part, to the extent of the Amortization Requirements therefor
set forth in the Trust Agreement, beginning on June 1, 2010, and each
December 1 and June 1 thereafter at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest up to the redemption
date, without premium.
The Term Bonds maturing on June 1, 2026, are subject to mandatory
redemption, in part, to the extent of the Amortization Requirements therefor
set forth in the Trust Agreement, beginning on June 1, 2015, and each
December 1 and June 1 thereafter at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest up to the redemption
date, without premium.
The Term Bonds maturing on December 1, 2029, are subject to mandatory
redemption, in part, to the extent of the Amortization Requirements therefor
set forth in the Trust Agreement, beginning on December 1, 2026, and each
June 1 and December 1 thereafter at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest up to the redemption
date, without premium.
<PAGE> 130
The Bonds are subject to extraordinary optional redemption in whole or
in part, at the option of the Borrower, upon the damage, destruction or taking
of the Project or a change in law or judicial action curtailing the use of the
Project or imposing unreasonable burdens thereon or voiding or making
impossible of performance the Loan Agreement or the Trust Agreement, in the
circumstances and as otherwise provided in the Loan Agreement, at a redemption
price equal to the principal amount thereof plus accrued and unpaid interest up
to the redemption date, without premium, which redemption date shall be the
next Interest Payment Date occurring not less than forty-five (45) days after
receipt by the Trustee of the notice delivered pursuant to Section 8.03 of the
Loan Agreement.
Except with respect to the mandatory redemption of the Term Bonds as
described above, if less than all of the outstanding Bonds are to be redeemed,
the Bonds shall be redeemed in inverse order of maturity, unless otherwise
requested by the Borrower. If less than all of the particular Bonds of any one
maturity shall be called for redemption, the particular Bonds or portions of
Bonds of any maturity to be redeemed shall be selected by the Trustee in such
manner as the Trustee shall deem fair and appropriate; provided, however, that
the portion of any Bond to be redeemed shall be in the principal amount equal
to FIVE THOUSAND DOLLARS ($5,000) or some multiple thereof, and that, in
selecting Bonds for redemption, the Trustee shall treat each Bond as
representing that number of Bonds which is obtained by dividing the principal
amount of such Bond by FIVE THOUSAND DOLLARS ($5,000). If a Bond is delivered
for partial redemption, the Trustee shall deliver to or upon the order of the
Holder, without charge therefor, for the unredeemed portion of such Bond, a new
Bond or Bonds in principal amount equal to the unredeemed portion thereof.
At least thirty (30) days before the redemption date of any Bonds,
either in whole or in part, the Trustee shall cause a notice of any such
redemption, signed by the Trustee, to be mailed, first-class, postage prepaid,
to all Bondholders whose Bonds are to be redeemed, but failure to mail any such
notice to any Holder or any defect in any notice so mailed shall not affect the
validity of the proceedings for the redemption of any Bonds, nor the validity
of the proceedings for the redemption of the Bonds of any other Holders.
If any Bonds are not properly presented for payment at their
redemption date, or if any Bonds are not presented for payment when due
(whether at their respective scheduled maturity dates, upon acceleration, upon
call for redemption or otherwise), the Holders thereof shall look only to the
moneys set aside for such purpose by the Trustee. Any moneys unclaimed by such
Holders after a period of two (2) years may be paid to the Borrower, and
thereafter the Holders of such Bonds shall look only to the Borrower for
payment thereof.
The Holder of this Bond shall have no right to enforce the provisions
of the Trust Agreement or to institute any action to enforce the covenants
therein, or to take any action with respect to any Event of Default under the
Trust Agreement, or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in Section 809 of the Trust
Agreement. The Trustee is not required to enforce the Trust Agreement unless it
receives indemnity satisfactory to it.
Upon the occurrence of certain Events of Default, and on the
conditions, in the manner and with the effect set forth in Section 803 of the
Trust Agreement, the principal of all Bonds then outstanding under the Trust
Agreement may be declared to be immediately due and payable before the stated
<PAGE> 131
maturities thereof, together with the interest accrued thereon. The Trustee may
withhold notice of certain Events of Default if it determines that to give such
notice would not be in the best interest of the Bondholders.
Modifications or alterations of the Trust Agreement or any trust
agreement supplemental thereto, or the Loan Agreement or any loan agreement
supplemental thereto, may be made only to the extent and in the circumstances
permitted by the Trust Agreement.
The Bonds are issuable as fully registered Bonds without coupons, in
denominations of not less than $5,000 principal amount and integral multiples
thereof.
The transfer of this Bond is registrable by the Registered Owner
hereof in person or by his attorney or legal representative at the corporate
trust office of the Trustee, but only in the manner and subject to the
limitations and conditions provided in the Trust Agreement and upon surrender
and cancellation of this Bond. Upon any such registration of transfer, the
Authority shall execute and the Trustee shall authenticate and deliver in
exchange for this Bond a new Bond or Bonds for an equal aggregate principal
amount, of authorized denominations, of the same maturity and interest rate,
registered in the name of the transferee. The Authority or the Trustee may
impose a reasonable fee or service charge for every exchange or registration of
transfer of Bonds sufficient to reimburse it for any tax or other governmental
charge required to be paid with respect to such exchange or registration of
transfer. Neither the Authority nor the Trustee shall be required to make any
such exchange or registration of transfer of Bonds during the fifteen (15) days
prior to the date of first giving of notice of redemption or exchange or after
such Bond has been selected for redemption.
The Bonds shall be deemed to have been paid if, among other things,
there shall have been deposited with the Trustee sufficient moneys or
Defeasance Obligations the principal of and the interest on which when due, and
without any reinvestment thereof, will provide sufficient moneys to pay when
due the principal of and interest on the Bonds. Thereafter, the Holder of the
Bonds must look only to such moneys or Defeasance Obligations for payment.
Subject to the provisions for registration stated herein and contained
in the Trust Agreement, nothing contained in this Bond or in the Trust
Agreement shall affect or impair the negotiability of this Bond. As declared by
the Act, this Bond shall at all times be, and shall be understood to be, a
negotiable instrument under the laws of the Commonwealth.
Pursuant to the Act, the Authority, as agent for the Commonwealth,
hereby includes said Commonwealth's pledge to and agreement with the Holder of
the Bonds and with those persons or entities who may enter into contracts with
the Authority pursuant to the Act that the Commonwealth shall not limit or
alter the rights vested in the Authority pursuant to the Act until the Bonds
and interest thereon are fully met and discharged and such contracts are fully
performed and fulfilled on the part of the Authority; provided, however, that
nothing contained in this pledge shall affect or alter such limitation if
adequate measures are provided by law for the protection of the Holder of the
Bonds or those who have entered into such contracts with the Authority.
<PAGE> 132
This Bond is issued with the intent that the laws of the Commonwealth
shall govern its construction, except that the rights, limitations of rights,
immunities, duties and obligations of the Trustee shall be governed by and
construed in accordance with the laws of the jurisdiction under which it is
organized.
All acts, conditions and things required by the Puerto Rican Federal
Relations Act, the Constitution and laws of the Commonwealth and the rules and
regulations of the Authority to happen, exist and be performed precedent to and
in connection with the issuance of this Bond and the execution and delivery of
the Trust Agreement and the Loan Agreement have happened, exist and have been
performed as so required.
This Bond shall not be valid or become obligatory for any purpose or
be entitled to any benefit or security under the Trust Agreement until this
Bond shall have been authenticated by the execution by the Trustee of the
certificate of authentication endorsed hereon.
IN WITNESS WHEREOF, Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority has caused
this Bond to bear the facsimile signatures of the Executive Director of the
Authority and the Secretary of the Authority, and a facsimile of its corporate
seal to be imprinted hereon, all as of the Date of Issuance.
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL
CONTROL FACILITIES FINANCING AUTHORITY
By:
-----------------------------------
[Assistant] Executive Director
By:
----------------------------------
Secretary
[SEAL]
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds issued under the provisions of the
within-mentioned Trust Agreement.
CITIBANK, N.A., as Trustee
By:
-----------------------------------
Authorized Officer
Date of authentication:
---------------------
<PAGE> 133
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ____________________________ [please print or typewrite
name and address of transferee] the within Bond and all rights
thereunder, and hereby irrevocably constitutes and appoints
__________________ attorney to register the transfer of the within
Bond on the books kept for registration thereof, with full power of
substitution in the premises.
Date: Signature:
-------------------- ------------------------------
NOTICE: The signature to this
assignment must correspond with
the name as it appears upon the
face of the within Bond in every
particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed by:*
-----------------------------------------
- ---------------------------
*Signatures must be guaranteed by a commercial bank or trust company having an
office or correspondent in San Juan, Puerto Rico, or by a member firm of the
New York Stock Exchange.
<PAGE> 134
EXHIBIT B
1. $5,345,000 Serial Bonds:
<TABLE>
<CAPTION>
Maturity Date Principal Amount Interest Rate
---------------- ---------------- -------------
<S> <C> <C>
June 1, 2003 $310,000 6.10%
December 1, 2003 320,000 6.10%
June 1, 2004 330,000 6.15%
December 1, 2004 340,000 6.15%
June 1, 2005 350,000 6.20%
December 1, 2005 360,000 6.20%
June 1, 2006 375,000 6.25%
December 1, 2006 385,000 6.25%
June 1, 2007 395,000 6.30%
December 1, 2007 410,000 6.30%
June 1, 2008 420,000 6.35%
December 1, 2008 435,000 6.35%
June 1, 2009 450,000 6.40%
December 1, 2009 465,000 6.40%
</TABLE>
2. $39,420,000 Term Bonds:
<TABLE>
<CAPTION>
Maturity Date Principal Amount Interest Rate
---------------- ---------------- -------------
<S> <C> <C>
December 1, 2014 $ 5,585,000 6.75%
June 1, 2026 22,835,000 6.90%
December 1, 2029 11,000,000 6.90%
</TABLE>
3. Amortization Requirements for the Term Bonds:
(a) Term Bond Due 2014:
<TABLE>
<CAPTION>
Amortization
Date Requirement
---------------- ------------
<S> <C>
June 1, 2010 $480,000
December 1, 2010 495,000
June 1, 2011 510,000
December 1, 2011 530,000
June 1, 2012 545,000
December 1, 2012 565,000
June 1, 2013 585,000
December 1, 2013 605,000
June 1, 2014 625,000
December 1, 2014 645,000
</TABLE>
(b) Term Bond Due 2026:
<TABLE>
<CAPTION>
Amortization
Date Requirement
---------------- ------------
<S> <C>
June 1, 2015 $ 665,000
December 1, 2015 690,000
June 1, 2016 715,000
December 1, 2016 740,000
June 1, 2017 765,000
December 1, 2017 790,000
June 1, 2018 815,000
December 1, 2018 845,000
June 1, 2019 875,000
December 1, 2019 905,000
June 1, 2020 935,000
December 1, 2020 970,000
June 1, 2021 1,000,000
December 1, 2021 1,035,000
June 1, 2022 1,070,000
December 1, 2022 1,110,000
June 1, 2023 1,145,000
December 1, 2023 1,185,000
June 1, 2024 1,230,000
December 1, 2024 1,270,000
June 1, 2025 1,315,000
December 1, 2025 1,360,000
June 1, 2026 1,405,000
</TABLE>
(c) Term Bond Due 2029:
<TABLE>
<CAPTION>
Amortization
Date Requirement
---------------- ------------
<S> <C>
December 1, 2026 $1,415,000
June 1, 2027 1,465,000
December 1, 2027 1,515,000
June 1, 2028 1,570,000
December 1, 2028 1,625,000
June 1, 2029 1,680,000
December 1, 2029 1,730,000
</TABLE>
<PAGE> 1
EXHIBIT 4.4
DEED NUMBER FIFTY-THREE (53)
DEED OF CONSTITUTION OF FIRST MORTGAGE
In the City of San Juan, Commonwealth of Puerto Rico, this third (3rd)
day of November, nineteen hundred ninety nine (1999).
BEFORE ME
ALFREDO ALVAREZ IBANEZ, Attorney-at-Law and Notary Public in and for
the Commonwealth of Puerto Rico with offices located on the Eighth Floor of the
American International Plaza in Hato Rey, Puerto Rico, and residence in San
Juan, Puerto Rico.
APPEARS
AS THE SOLE APPEARING PARTY: DORAL PROPERTIES, INC., employer
identification number 66-0572283, a corporation organized and existing under the
laws of the Commonwealth of Puerto Rico (hereinafter called the "Mortgagor"),
herein represented by its Vice President, Ernesto Carattini, also known as
Ernesto Carattini Alvarado, of legal age, single, business executive and
resident of San Juan, Puerto Rico, whose authority to appear herein is evidenced
pursuant to a Certificate of Resolution executed by Mortgagor's Secretary
executed before Notary Public Eduardo J. Arias Rodriguez on November third
(3rd), nineteen hundred ninety-nine (1999).
I, the Notary, hereby certify that I personally know the person
appearing herein and from his statements I also attest as to his age, civil
status, occupation and residence. The person appearing herein assures me that he
has, and in my
<PAGE> 2
judgment he does have, the legal capacity necessary for this act, and for that
purposes he freely and voluntarily
STATES
FIRST: The Property: The Mortgagor is the owner of record with valid,
good, insurable and marketable fee simple title ("pleno dominio") of the three
(3) real properties described in paragraph TWENTY SECOND of this Deed,
hereinafter collectively referred to as the "Property".
SECOND: The Mortgage Note: Simultaneously herewith Mortgagor has
subscribed before the undersigned Notary a Mortgage Note payable to the order of
the bearer (hereinafter called the "Mortgage Note"), which is literally
transcribed in paragraph THIRTEENTH hereof.
THIRD: Creation of the Mortgage: In order to guarantee and secure:
(i) The full and complete payment of the principal of the
Mortgage Note and the interest accruing thereon, as herein established.
(ii) The performance and observance of the terms and
conditions contained herein and in the Mortgage Note.
(iii) An additional credit in the amount set forth in
paragraph FOURTEENTH hereof to cover interest in addition to that
secured by law (hereinafter called the "Interest Credit").
(iv) An additional credit in the amount set forth in paragraph
FOURTEENTH hereof to cover any amounts that may be paid by or advanced
by the Mortgagee (as hereinafter defined) hereunder, together with
interest thereon (hereinafter called
-2-
<PAGE> 3
the "Credit for Additional Advances").
(v) An additional credit which Mortgagor undertakes to pay as
a liquidated amount (hereinafter called the "Credit for Collection
Costs and Fees"), in the amount set forth in paragraph FOURTEENTH
hereof, to cover costs and expenses (including attorney's fees) of the
Mortgagee in the event that such Mortgagee shall have to take recourse
to the courts, including bankruptcy proceedings, or to any other
governmental agency in order to collect all or any part of the
principal thereof or any interest thereon (by foreclosure or other
proceedings or action).
(The Interest Credit, the Credit for Additional Advances and the
Credit for Collection Costs and Fees shall be hereinafter collectively referred
to as the "Additional Credits").
Mortgagor hereby constitutes and creates a voluntary first priority
mortgage (the "Mortgage") in favor of the bearer or any future holder or
transferee of the Mortgage Note (hereinafter referred to as the "Mortgagee") on
the following property (hereinafter collectively referred to as the "Mortgaged
Property"):
(a) the Property described in Paragraph TWENTY SECOND of this
Deed;
(b) all of Mortgagor's buildings, structures, additions,
fixtures, and improvements, appurtenances and facilities now located
thereon and those new buildings and structures, additions, fixtures,
and improvements hereafter erected or placed or constructed on said
Property and all
-3-
<PAGE> 4
materials intended for the construction, reconstruction, alteration and
repair of such buildings or improvements now or hereafter erected
thereon or hereafter constructed, all of which materials shall be
deemed to be included within the Mortgaged Property immediately upon
the delivery thereof to the Property;
(c) all of the rights, title and interest of the Mortgagor, in
and to, all and singular, the tenements, hereditaments, rights of way,
easements, appendages and appurtenances, licenses, passages, waters,
water rights, riparian rights, and other rights, liberties and
privileges thereof or in any way or hereafter appertaining, including
any other claim at law or in equity, franchise or license and the
reversion and reversions, and remainder and remainders thereof and any
other property belonging or appertaining to the Property, and all of
the right, title and interest of the Mortgagor in and to any streets,
ways, alleys, strips or gores of the Property or any part thereof;
(d) all of the Mortgagor's rights, title and interest (but
none of its obligations) as landlord, whether named as such therein or
by assignment or otherwise, to receive payments of money under all
leases or similar agreements of all or part of the Property or of space
therein, or at any time hereafter made and any and all amendments,
modifications, supplements, renewals and extensions thereof, including
without limitation all rents, additional rents, revenues, earnings,
profits and income, payments incident to any assignment, sublease or
surrender of any lease, claims for
-4-
<PAGE> 5
forfeited deposits and claims for damages, now due or hereafter to
become due with respect to any such lease or similar agreement;
(e) all awards, compensations and payments in respect of
taking by condemnation or eminent domain of any of the foregoing,
subject to the terms of paragraph FIFTH hereof;
(f) all indemnities to which Mortgagor and the Mortgagee may
be entitled under any policy of insurance covering the Mortgaged
Property or any part thereof, subject to the terms of paragraph FOURTH
(Five) hereof;
(g) all of the Mortgagor's rights, title and interest to all
furniture, furnishings, fixtures, machinery, apparatus and equipment,
now or hereafter located on the Property, or located in, or used, or
procured for use, in connection with the operation, maintenance or
protection of any of the buildings, structures, improvements or
facilities located or to be located in the Property, including, without
limitation, lighting, plumbing, sanitary, air conditioning equipment
and fire protection systems, now owned or hereafter acquired by the
Mortgagor, which under the Civil Code of Puerto Rico may properly be
characterized or classified as real or immovable property either by
nature or by destination; and
(h) all renewals and replacements of, substitutions for and
additions to the Property, and all other property, real personal or
mixed now owned or hereafter acquired by Mortgagor or in any way
appertaining to such Property or any part thereof, as well as all lands
which may be
-5-
<PAGE> 6
consolidated or grouped with the Property.
FOURTH: Obligations of Mortgagor: For the consideration heretofore set
forth the Mortgagor is obliged and undertakes as follows:
One: To satisfy the debt as set forth in the Mortgage Note.
Two: To pay prior to delinquency and without requiring any
notice from Mortgagee, all Impositions (as defined below) and satisfy
any claim, lien or encumbrance against the Mortgaged Property which may
be or become superior to this Mortgage, and to permit no default or
delinquency on any other lien, encumbrance or charge against the
Mortgaged Property, unless and to the extent only that any such item is
being contested in good faith by appropriate proceedings and
appropriate reserves have been set aside with respect thereto in
conformity with generally accepted accounting principles in effect from
time to time in the United States of America.
Three: To maintain the Mortgaged Property as required under
any pledge agreement or other instrument under which the Mortgage Note
is assigned or pledged. In the event the Mortgagor fails to care for
and maintain in good condition the buildings existing upon or that may
in the future be constructed on the Mortgaged Property or the
improvements to the same, the Mortgagee, after giving reasonable prior
written notice to Mortgagor and reasonable time to remedy, may make
such repairs as in its judgment may be necessary for the preservation
of the Mortgaged Property and its appurtenances, and the total sum thus
invested
-6-
<PAGE> 7
shall be considered as due and demandable and shall be considered as
secured by the Mortgage herein constituted.
Four: To pay all reasonable costs, expenses and disbursements
including a reasonable amount for attorney's fees, as well as all
reasonable expenses incurred or satisfied by the Mortgagee at any time
for perfection of title of the Mortgaged Property, and all such costs,
expenses and disbursements of Mortgagee, if satisfied by Mortgagee,
shall be considered secured in their entirety by the Mortgage herein
constituted.
Five: To keep the Mortgaged Property insured against such
hazards and with such coverage, as may be required under any pledge
agreement or other instrument under which the Mortgage Note is assigned
or pledged.
Six: To furnish Mortgagee within ten (10) business days after
request in person, or within twenty (20) business days after request by
mail, a written statement duly acknowledging the amount due on or
secured by, whether for principal or interest, this Mortgage or the
Mortgage Note, and whether any offsets or defenses exist against such
debt.
Seven: To comply with all laws, ordinances, regulations,
covenants, conditions and restrictions affecting the Mortgaged Property
and the operation thereof.
Eight: To deliver to Mortgagee with reasonable promptness such
information with respect to the Mortgaged Property as Mortgagee may
reasonably request from time to time.
-7-
<PAGE> 8
FIFTH: Condemnation. In the event of a taking of all or any part of the
Mortgaged Property as a result of or in lieu of condemnation or eminent domain,
all awards and payments made on account of such taking shall be distributed and
applied as may be required under any pledge agreement or other instrument under
which the Mortgage Note is assigned or pledged.
SIXTH: Additional Advances. If Mortgagor should fail to make punctual
payment of any Impositions, or should fail to maintain insurance coverage on the
Mortgaged Property as required from time to time by the Mortgagee, or should
fail to discharge any mortgage lien, encumbrance or charge upon the Mortgaged
Property, or any part thereof, which is prohibited herein or by the terms of a
pledge agreement or other instrument under which the Mortgage Note is assigned
or pledged, or should fail to maintain the Mortgaged Property in good condition,
or should fail to perform any other term or covenant of such pledge agreement or
other instrument, then Mortgagee, after giving prior notice to Mortgagor, but
without consent of or demand upon Mortgagor and without waiving or releasing any
obligation or default, may (but shall be under no obligation to) advance such
funds as may in Mortgagee's judgment be needed for the purpose of performing
such terms or covenants and Mortgagee may, in such event, take such other and
further action as it may consider necessary or appropriate for such purposes.
All sums so advanced or paid by Mortgagee and all reasonable costs and expenses
(including reasonable attorney's
-8
<PAGE> 9
fees and expenses) so incurred, together with interest thereon at the interest
rate set forth in the Mortgage Note from the date of payment or incurring, shall
constitute additional Indebtedness (as defined below) secured by this Mortgage
and shall be paid by Mortgagor to Mortgagee on demand.
SEVENTH: Further Assurances; Additional Security: Mortgagor, at its
expense, will execute, acknowledge, deliver and record all such instruments and
take all such action as Mortgagee for time to time may reasonably request for
better assuring to Mortgagee the property and rights hereby mortgaged and
assigned or intended so to be. Without notice to or consent of Mortgagor, and
without impairment of the lien of, and rights under this Mortgage, Mortgagee may
take (but Mortgagor shall not be obligated to furnish) from Mortgagor or from
any other person or persons additional security for the Mortgage Note or for the
obligations of the Mortgagor secured by the assignment or pledge of the Mortgage
Note; and neither the giving of this Mortgage nor the acceptance of any such
additional security shall prevent Mortgagee from resorting first to such
additional security, or to the security created by this Mortgage, in either case
without affecting Mortgagee's lien and rights under this Mortgage.
EIGHTH: Foreclosure Valuation: In compliance with Article One Hundred
Seventy Nine (179) of the Mortgage Law of Puerto Rico (Act Number One Hundred
Ninety Eight (198) of August eighth (8th), nineteen hundred seventy nine (1979),
Mortgagor hereby declares and agrees that the value of the Mortgaged
-9-
<PAGE> 10
Property is as set forth in Paragraph FOURTEENTH hereof under the title
"Foreclosure Valuation".
NINTH: Foreclosure: In the event that the Mortgage Note is assigned or
pledged or otherwise encumbered as collateral security for the payment of any
other note or debt, the Mortgagor agrees:
(a) That Mortgagee may foreclose this Mortgage and may
exercise all other rights, remedies, powers and privileges provided
herein or now or hereafter existing at law, in equity, by statute, or
otherwise, without first foreclosing the pledge or other lien so
constituted upon the Mortgage Note, to the same extent and with the
same force and effect as if the Mortgage Note had been assigned or
transferred directly to Mortgagee rather than assigned or pledged as
collateral security, provided nothing contained in this Paragraph NINTH
shall relieve Mortgagee from the obligation to comply with the terms of
the pledge agreement or other instrument under which the Mortgage Note
is assigned or pledged.
(b) The Mortgagee may in any action to foreclose this Mortgage
or the Mortgage Note, or upon the occurrence of a default under this
Mortgage or under any obligation secured by a lien upon the Mortgage
Note, petition the court having jurisdiction in the premises to appoint
a receiver for the Mortgaged Property, including all rents, issues and
profits therefrom, and said receiver shall have the broadest powers and
faculties usually granted to a receiver by a court and his appointment
shall be made by the court as a matter of absolute right granted to the
Mortgagee without
-10-
<PAGE> 11
taking into consideration the value of the Mortgaged Property or the
solvency of the Mortgagor or of any other party to the action, and the
Mortgagor hereby consents to the appointment of such a receiver and
agrees not to oppose the same.
TENTH: Expenses of Deed; Recording Fees. All costs and expenses
relating to the drafting, preparation and execution of this Deed and the
cancellation of any liens or encumbrances affecting the Property shall be for
the account of the Mortgagor.
ELEVENTH: Definitions. As used in this Mortgage, the following terms
are defined as follows: (a) "Impositions" shall mean all real estate and other
taxes, all assessments made (including, without limitation, all assessments for
public improvements or benefits, whether or not commenced or completed prior to
the date hereof or while this Mortgage is in force), water, sewer, electricity,
utility and other rents, rates and charges, excises, levies, license fees,
permit fees, inspection fees and other authorization fees and other charges, in
each case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen of every character (including all penalties or interest thereon)
which at any time are assessed, levied, confirmed or imposed on or in respect of
or be a lien upon (i) the Mortgaged Property or any part thereof or any rents,
issues, income, profits or earnings therefrom or any estate, right or interest
therein or (ii) any occupancy, use or possession of or sales from the Mortgaged
Property or any part thereof or (iii) this Mortgage, any interest hereon
-11-
<PAGE> 12
or any other payments due from the Mortgagor under the terms of this Mortgage;
excepting, however, the income taxes now or hereafter imposed by the United
States under the Internal Revenue Code of Nineteen hundred eighty six (1986) as
amended, and by the Commonwealth of Puerto Rico under the Income Tax Act of
Nineteen hundred fifty-four (1954) as amended, The Internal Revenue Code of
Puerto Rico of Nineteen hundred ninety-four (1994), as amended, the Municipal
License Tax Act of Nineteen hundred seventy-four (1974), as amended, or under
any other Act of Congress or Act of the Legislature of Puerto Rico of the same
nature, modifying, amending, or substituting the statutes above mentioned, as
long as they do not become a lien on the Mortgaged Property; (b) "Indebtedness"
shall mean (i) the Impositions; (ii) principal and interest of the Mortgage
Note; (iii) the Additional Credits referenced in paragraph FOURTEENTH of this
Deed; and (iv) any and all payments which Mortgagor is or may be obliged to make
under this Deed of Mortgage.
TWELFTH: Successors and Assigns: All the terms of this Mortgage shall
apply to and be binding upon the successors and assigns of Mortgagor and all
persons claiming under or through Mortgagor or any such successor or assign, and
shall inure to the benefit of Mortgagee. Neither this Mortgage nor any term
hereof may be changed, waived, discharged or terminated verbally, but only by an
instrument in writing signed by the Mortgagee, notice of which is endorsed on
the Mortgage Note.
THIRTEENTH: The Mortgage Note: The Mortgage Note referred to in
paragraph SECOND of this Deed is
-12-
<PAGE> 13
literally transcribed herein as follows:
"MORTGAGE NOTE"
VALUE: $44,765,000.00
DUE DATE: December 1, 2029
FOR VALUE RECEIVED, the undersigned promises to pay to the BEARER
(the "Mortgagee") the principal sum of FORTY-FOUR MILLION SEVEN HUNDRED
SIXTY-FIVE THOUSAND DOLLARS ($44,765,000.00). The unpaid balance of this
obligation shall bear interest from the date of this Mortgage Note until full
payment hereof, at an annual rate equal to seven percent (7%). Payments of
interest and principal shall be made at the office or domicile of the Mortgagee
within or without the Commonwealth of Puerto Rico, or at such other place as the
Mortgagee may from time to time designate in writing.
The undersigned hereby waives presentment, protest, demand and notice
of non-payment.
Payments of both principal and interest are to be made in lawful money
of the United States of America.
The following shall be events of default hereunder:
(a) if default shall be made in the due and punctual payment
of any principal of and/or interest on this Mortgage Note when and as
the same shall become due and payable; or
(b) if default shall be made by the undersigned in the due
performance of or compliance with any of the terms of the Deed of
Mortgage (as hereinafter defined) which secures this Mortgage Note; or
(c) if an event of default shall exist under any document or
agreement pursuant to which this Mortgage Note is pledged, assigned, or
otherwise encumbered; or
(d) if any material representation or warranty of the
undersigned made in the Deed of Mortgage or in any agreement pursuant
to which this Mortgage Note is pledged or assigned shall be false in
any material respect on the date when made.
Upon the occurrence of any event of default described above and in
addition to any other remedies for which the holder of this Mortgage Note may be
entitled under the Deed of Mortgage, then, upon expiration of any applicable
notice, grace and cure period, the entire principal amount of this Mortgage Note
at the time outstanding shall, at the option of the holder of this Mortgage
Note, become immediately due and payable without notice or demand. Failure to
exercise this option shall not constitute a waiver of the right to exercise such
option in the event of any subsequent default.
-13-
<PAGE> 14
This Mortgage Note is secured by a mortgage constituted pursuant to the
terms of Deed Number Fifty-Three (53) of Constitution of First Mortgage,
executed on the date hereof before the undersigned Notary Public ("Deed of
Mortgage"), and the Mortgagee is entitled to the benefit and security provided
for in the Deed of Mortgage and in any agreement executed by the undersigned
assigning, pledging, or otherwise encumbering this Mortgage Note as security for
the obligations described therein, and may enforce the agreements of the
undersigned contained in the Deed of Mortgage and in each of said agreements or
instruments, and may exercise the remedies provided thereby or otherwise in
respect thereof without being required first to foreclosure on the pledge or
other lien or encumbrances so constituted upon this Mortgage Note, all in
accordance with the terms of the Deed of Mortgage and said agreements or
instruments. No reference herein to instruments and no provision of this
Mortgage Note or of said agreements or instruments shall alter or impair the
obligations of the undersigned hereunder, which are continuing, absolute and
unconditional, nor shall such reference affect the negotiability hereof under
the Commercial Transactions Act of Puerto Rico, or any other applicable law.
In case the Mortgagee shall take recourse to foreclosure or other
judicial proceedings for the collection of all or any of the principal hereof or
any interest hereon, the undersigned hereby agrees to pay an additional amount
of FOUR MILLION FOUR HUNDRED SEVENTY-SIX THOUSAND FIVE HUNDRED DOLLARS
($4,476,500.00) as a liquidated amount without necessity of further liquidation
or approval by the Court to cover costs and expenses (including attorney's fees
and expenses) of such foreclosure or judicial proceedings.
In San Juan, Puerto Rico, this 3rd day of November, 1999.
DORAL PROPERTIES, INC.
(Signed)
-------------------
By: Ernesto Carattini
Title: Vice President
Affidavit Number: 742
Acknowledged and subscribed to before me by Ernesto Carattini, of legal
age, single, business executive and resident of San Juan, Puerto Rico, as
Vice-President of Doral Properties, Inc., to me personally known. In San Juan,
Puerto Rico, this 3rd day of November, 1999.
By: (Signed) Alfredo Alvarez Ibanez
- -----------------------------------
Notary Public
"(Notarial Seal)"
FOURTEENTH: Various Sums:
------------
(i) The amount of the mortgage credit
-14-
<PAGE> 15
constituted and created to secure payment of the Mortgage Note is FORTY
FOUR MILLION SEVEN HUNDRED SIXTY FIVE THOUSAND DOLLARS
($44,765,000.00), distributed as follows: FORTY-TWO MILLION FIVE
HUNDRED FORTY-ONE THOUSAND SEVEN HUNDRED SIXTEEN DOLLARS
($42,541,716.00) over Parcel A; EIGHT HUNDRED FIFTY FOUR THOUSAND THREE
HUNDRED THIRTY FOUR DOLLARS ($854,334.00) over Parcel B; ONE MILLION
THREE HUNDRED SIXTY-EIGHT THOUSAND NINE HUNDRED FIFTY DOLLARS
($1,368,950.00) over Parcel C.
(ii) The `Interest Credit' is in the amount equivalent to five
(5) annuities of interest on the secured principal amount as permitted
by the provisions of Article 166 of the Mortgage and Registry of
Property Act of Puerto Rico of ninteen hundred seventy-nine (1979), as
amended, to cover interest in addition to that secured by law,
distributed as follows: an amount equal to ninety-four percent (94%) of
such credit over Parcel A; an amount equal to one percent (1%) of such
credit over Parcel B; and an amount equal to five percent (5%) of such
credit over Parcel C.
(iii) The `Credit for Additional Advances' is FOUR MILLION
FOUR HUNDRED SEVENTY-SIX THOUSAND FIVE HUNDRED DOLLARS ($4,476,500.00),
distributed as follows: FOUR MILLION TWO HUNDRED FIFTY-FOUR THOUSAND
ONE HUNDRED SEVENTY-ONE DOLLARS AND SIXTY CENTS ($4,254,171.60) over
Parcel A; EIGHTY-FIVE THOUSAND FOUR HUNDRED THIRTY-THREE DOLLARS AND
FORTY CENTS ($85,433.40) over Parcel B; and ONE HUNDRED THIRTY-SIX
THOUSAND EIGHT HUNDRED NINETY-FIVE DOLLARS ($136,895.00) over parcel C.
(iv) The `Credit for Collection Costs and
-15-
<PAGE> 16
Fees' is FOUR MILLION FOUR HUNDRED SEVENTY-SIX THOUSAND FIVE HUNDRED
DOLLARS ($4,476,500.00,) distributed as follows: FOUR MILLION TWO
HUNDRED FIFTY-FOUR THOUSAND ONE HUNDRED SEVENTY-ONE DOLLARS AND SIXTY
CENTS ($4,254,171.60) over Parcel A; EIGHTY FIVE THOUSAND FOUR HUNDRED
THIRTY-THREE DOLLARS AND FORTY CENTS ($85,433.40) over Parcel B; and
ONE HUNDRED THIRTY-SIX THOUSAND EIGHT HUNDRED NINETY-FIVE DOLLARS
($136,895.00) over Parcel C.
(v) The `Foreclosure Valuation' is FORTY-FOUR MILLION SEVEN
HUNDRED SIXTY-FIVE THOUSAND DOLLARS ($44,765,000.00) distributed as
follows: FORTY TWO MILLION FIVE HUNDRED FORTY-ONE THOUSAND SEVEN
HUNDRED SIXTEEN DOLLARS ($42,541,716.00) over Parcel A; EIGHT HUNDRED
FIFTY FOUR THOUSAND THREE HUNDRED THIRTY FOUR DOLLARS ($854,334.00)
over Parcel B; ONE MILLION THREE HUNDRED SIXTY-EIGHT THOUSAND NINE
HUNDRED FIFTY DOLLARS ($1,368,950.00) over Parcel C.
FIFTEENTH: Mortgagor Warranties and Represen-ations: Mortgagor
represents and warrants that:
(i) It is the owner with valid, good, marketable, insurable
and fee simple title ("pleno dominio") to the Mortgaged Property and to
all rights and titles appertaining thereto.
(ii) It has good and lawful authority to mortgage the
Mortgaged Property and all rights appertaining thereto, in the manner
and form hereby mortgaged.
(iii) The Mortgaged Property is free and clear of all liens
and encumbrances whatsoever on a parity with or superior to the liens
of this Mortgage, except for those set forth in paragraph
-16-
<PAGE> 17
TWENTY-SECOND of this Deed.
(iv) The Mortgaged Property is free from unpaid taxes and
assessments.
(v) It will warrant and defend said Mortgaged Property and the
validity and priority of this Mortgage against all and every person or
persons claiming the same or any part thereof.
(vi) It will execute whatever additional documents or
instruments that may be necessary to record this document as a first
mortgage in the Registry of Property as required by Mortgagee.
SIXTEENTH: Notice: All notices or demands in writing sent by registered
or certified mail, return receipt requested, through the United States mail,
addressed to the owner of record of the Mortgaged Property shall constitute
sufficient notice and demand upon the Mortgagor in any of the cases required by
this instrument or by the relevant provisions of law. The Mortgagor will give
immediate notice by mail to the Mortgagee of any proposed condemnation
proceedings and of any fire, damage, or other casualty to the Mortgaged Property
or of any conveyance transfer or change of ownership of the fee. The holder of
the Mortgage Note, its agents or servants shall have the right to inspect the
Mortgaged Property from time to time during normal business hours and as often
as the Mortgagee may reasonably request.
SEVENTEENTH: Waiver of Moratorium and Redemption: The Mortgagor, to the
full extent that it may lawfully do so, agrees that it will not at any time
insist upon or plead or in any way take advantage of and waives any redemption,
or
-17-
<PAGE> 18
moratorium law now or hereafter in force and effect which would prevent or
hinder the enforcement of the provisions of this Deed or any rights or remedies
the Mortgagee may have hereunder or by law.
EIGHTEENTH: Rights of Way, Easements and the like: The Mortgagor will
maintain, preserve and renew all rights of way, easements, apparent signs,
grants, privileges, licenses and franchises reasonably necessary for the use of
the Mortgaged Property from time to time and will not, without the prior written
consent of the Mortgagee, initiate, join in or consent to any private
restrictive covenant, zoning ordinance, or other public or private restriction
as to the use of the Mortgaged Property which could have a material adverse
effect on the Mortgaged Property.
NINETEENTH: Mortgage Interest Not Usurious: The Mortgagor warrants and
represents to Mortgagee that no interest to be accrued and payable under the
Mortgage is or will be usurious under Puerto Rican laws and regulations or other
applicable laws and regulations.
Anything herein to the contrary notwithstanding, the obligations of the
Mortgagor under this Mortgage, shall be subject to the limitation that payments
of interest shall not be required to the extent that receipt of any such payment
by the Mortgagee would be contrary to provisions of law applicable to the
Mortgagee limiting the maximum rate of interest which may be charged or
collected by the Mortgagee.
TWENTY: Indemnification: Mortgagor will protect,
-18-
<PAGE> 19
indemnify and save harmless Mortgagee from and against any liabilities,
obligations, damages, penalties, claims, causes of action, costs, charges and
expenses (including, without limitation, attorney's fees and expenses) which may
be imposed, upon or incurred by or asserted against Mortgagee, except those
caused by Mortgagee, its agents or employees, by reason of (a) any accident,
injury or damage to any person or property occurring on or about the Mortgaged
Property or any part thereof; (b) any use, or condition of the Mortgaged
Property or any part thereof; (c) any failure of the Mortgagor to perform or
comply with any of the provisions hereof including, without limitation, the
provisions of paragraph TWENTY-FOURTH hereunder; or (d) any necessity to defend
any of the rights, title or interest conveyed or created by this Mortgage.
Upon receipt by Mortgagee of a notice of any claim or of the
commencement of any action against Mortgagee, in respect to the above indemnity
or to any indemnity or contribution agreement contained herein, Mortgagee will
promptly give written notice of the claim or commencement of action to
Mortgagor. In case such notice or any such claim or action shall be given,
Mortgagor may assume the defense of such claim or action, including the
employment of counsel and payment of expenses. Mortgagee shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of Mortgagee unless the employment of such
counsel shall have been authorized in writing by the
-19-
<PAGE> 20
Mortgagor or if Mortgagor shall not promptly have employed counsel to have
charge of the defense of such claim or action or Mortgagee shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to Mortgagor (in which case, Mortgagor shall not
have the right to direct the defense of such claim or action on behalf of the
Mortgagee), in any of which events such fees and expenses shall be borne by the
Mortgagor, but the Mortgagor shall not be responsible for the fees and expenses
of more than one counsel for Mortgagee. Mortgagor shall not be liable to
indemnify Mortgagee for any settlement of such claim or action effected without
Mortgagor's consent.
Any amounts payable to Mortgagee under this paragraph TWENTY which are
not paid within ten (10) days after written demand therefor by Mortgagee shall
bear interest at the rate set forth in the Mortgage Note from the date of such
demand, and such amounts, together with interest, shall be deemed to be
indebtedness secured by this Mortgage.
TWENTY-FIRST: Limitations on Liens: Except with the prior written
consent of Mortgagee, Mortgagor shall not create, assume, incur or suffer to
exist any mortgage, pledge, lien, charge or other security interest or
encumbrance on the Mortgaged Property or any part thereof other than the
following:
(a) the lien of the first mortgage constituted pursuant to the
terms of this Deed;
-20-
<PAGE> 21
(b) those set forth in paragraph TWENTY-SECOND of this Deed;
(c) those permitted under any pledge agreement or other
instrument under which the Mortgage Note is pledged or assigned or
under any trust agreement or loan agreement secured thereby.
TWENTY-SECOND: Description of the Property: The Properties are
described as follows:
PARCEL A: "RUSTICA: Predio de terreno radicado en el Barrio San
Patricio (antes Monacillos) del termino municipal de San Juan, Puerto Rico,
marcado en el plano de inscripcion con el numero siete guion B (7-B), con una
cabida superficial de siete mil cuatrocientos veintinueve punto cero
tres-cientos veinticuatro (7,429.0324) metros cuadrados, equivalentes a uno
punto ocho mil novecientos uno (1.8901) cuerdas en lindes por el Norte, en dos
alineaciones de cuarenta y seis punto siete mil novecientos siete (46.7907)
metros con terrenos de Arco Supply Inc. y doce punto cinco mil ochocientos doce
(12.5812) metros con Camino Municipal; por el Sur, en cincuenta y cuatro punto
cero doscientos cincuenta y tres (54.0253) metros con Calle Marginal; por el
Este, en cien punto nueve mil ciento treinta y cinco (100.9135) metros y en
catorce punto nueve mil trescientos setenta y cinco metros (14.9375) con
terrenos de Triple S de Puerto Rico y en catorce punto seis mil doscientos
ochenta y cinco (14.6285) metros, con Camino Municipal y por el Oeste, en ciento
treinta y siete punto cero trescientos noventa y un metros (137.0391) con el
Lote Siete guion A (7-A) propiedad de CLEMA INVESTMENT L.L.P., S.E."
This property was segregated from a parcel of land of approximately
three point eight hundred eighty-two (3.882) cuerdas, which was in turn
segregated from property number 24,742, recorded at page 15 of volume 822 of
Monacillos (hereinafter referred to as "Parcel A").
Mortgagor acquired Parcel A from Doral Financial Corporation pursuant
to Deed Number Three (3) executed on even date hereof before Notary Public Jaime
E. Santos, Jr., a certified copy of which shall be filed in the Registry prior
to the first certified copy of this Deed. Doral Financial Corporation acquired
Parcel A pursuant to Deed
-21-
<PAGE> 22
Number Thirty-Eight (38) executed on December thirteenth (13th), nineteen
hundred ninety-six (1996), in San Juan, Puerto Rico, before Notary Public Miguel
Garcia Suarez, which is filed and pending recordation at entry 282 of volume 531
of the Book of Daily Entries of the Registry of the Property of San Juan, Third
Section (hereinafter referred to as the "Registry"). Parcel A is subject to the
following liens and encumbrances:
One. By its origin:
(a) Easement as servient tenement ("predio sirviente") in
favor of the parcel of land owned by Seguros de Servicio de Salud de
Puerto Rico;
(b) Easement in favor of the Electric Power Authority;
(c) Temporary right of way easement as servient tenement
("predio sirviente") in favor of the parcel of land owned by
Cooperativa de Ahorro y Credito de Empleados Postales.
(d) Conditions of sale, pursuant to deed number fourteen (14)
executed on December ninth (9th), nineteen hundred forty-six (1946)
before Notary Public Tomas I. Nido.
(e) Sewer line easement.
By itself it is subject to (i) a mortgage in the principal amount of
TWO MILLION ONE HUNDRED THIRTY-FIVE THOUSAND DOLLARS ($2,135,000.00) with
interest at the rate of twelve percent (12%) and due on demand, securing payment
of a promissory note in favor of Scotiabank de Puerto Rico, or to its order,
constituted pursuant to Deed number Thirty (30), executed in San Juan, Puerto
Rico on December thirteenth (13th), nineteen hundred ninety six (1996) before
Notary Public Pedro Morell Losada, filed and pending recordation at entry 283
-22-
<PAGE> 23
of volume number 531 of the Book of Daily Entries of the Registry. Mortgagor
shall withdraw from the Registry said Mortgage or cancel the same at its sole
cost and expense; and (ii) a reciprocal easement constituted pursuant to Deed
Number Thirty-Six (36) executed in San Juan, Puerto Rico, on February nineteenth
(19th), nineteen hundred ninety-eight (1998) before Notary Public Orlando
Maldonado Rivera, which is filed and pending recordation at entry number 60 of
volume number 552 of the Book of Daily Entries of the Registry.
PARCEL B: "URBANA: Solar identificado con el numero diez (10) del
bloque marcado con la letra "B" del Desarrollo Industrial Constitucion compuesto
de una cabida superficial de mil setenta y tres metros con veinticinco
centesimas de otro (1073.25 m.c.) cuadrados, colindante por el Norte, en
veintitres (23.00) metros con la calle marcada con la letra "B" del Desarrollo
Industrial Constitucion; por el Sur, en veinticuatro metros con setenta
centesimas de otro (24.70) con terrenos propiedad de West India Machinery and
Supply Company; por el Este, en cuarenta y cinco metros con veintinueve
centesimas de otra (45.29) con la calle A del Desarrollo Industrial
Constitucion; y por el Oeste, en cuarenta y cinco (45.00) metros con el solar
"B-11" del Desarrollo Industrial Constitucion. Contiene un edificio de acero
reforzado."
This property is recorded in the Registry at page 189 of volume 466 of
Monacillos, property number 16,696 (hereinafter referred to as "Parcel B").
Parcel B was acquired by the Mortgagor pursuant to Deed Number Fourteen
(14) executed in San Juan, Puerto Rico on October twenty-second (22nd), nineteen
hundred ninety-nine (1999) before Notary Public Francisco Janer Martinez, which
is filed and pending recordation at entry 135 of volume number 583 of the Book
of Daily Entries of the Registry.
Parcel B is subject to the following liens and encumbrances:
One. By its origin:
-23-
<PAGE> 24
(i) Easement in favor of the Puerto Rico Electric and
Power Authority;
(ii) Easement in favor of the Municipality of San
Juan; and
(iii) Restrictive covenants.
Two. By itself, it is free and clear of liens and
encumbrances.
PARCEL C: "URBANA: Solar identificado con los numeros ONCE y DOCE (11 y
12) del bloque marcado con la letra "B" del Desarrollo Industrial Constitucion
situado en el Barrio Jesus T. Pinero, Rio Piedras, San Juan, Puerto Rico;
compuesto de una cabida superficial de DOS MIL SETENTA (2,070) METROS CUADRADOS;
colindante por el Norte, en cuarenta y seis (46.00) metros, con la Calle "B" del
Desarrollo Industrial Constitucion; por el Sur, en cuarenta y seis (46.00)
metros, con la West India Machinery & Supply Company; por el Este, en cuarenta y
cinco (45.00) metros, con el solar B-Diez (B-10) del Desarrollo Industrial
Constitucion; y por el Oeste, en cuarenta y cinco (45.00) metros, con el solar
B-Trece (B-13) del Desarrollo Industrial Constitucion.
En el mencionado solar ubica hoy un edificio de acero y concreto de
aproximadamente diez y seis mil seiscientos cincuenta y cinco (16,655) pies
cuadrados (sin incluir segundo piso de una oficina) que incluye un area
refrigerada ("freezer-cooler") de aproximadamente seis mil seiscientos cincuenta
(6,650) pies cuadrados, un area de oficinas, tres cuartos de bano y un "locker
room"."
This property is recorded in the Registry at the overleaf of page 6 of
volume 466 of Monacillos, property number 17,301 (hereinafter referred to as
"Parcel C").
Mortgagor acquired Parcel C pursuant to Deed Number Fifteen (15)
executed in San Juan, Puerto Rico on October twenty-second (22nd), nineteen
hundred ninety-nine (1999) before Notary Public Francisco Janer Martinez, which
is filed and pending recordation at entry 253 of volume number 583 of the Book
of Daily Entries of the Registry.
Parcel C is subject to the following liens and encumbrances:
One. By its origin:
(i) Restrictive covenants;
-24-
<PAGE> 25
(ii) Easement in favor of the Puerto Rico Electric
Power Authority; and
(iii) Easement in favor of the Municipality of San
Juan.
Two. By itself:
Mortgage securing payment of a mortgage note payable
to bearer in the principal amount of THREE HUNDRED THOUSAND DOLLARS ($300,000)
at an interest rate of twelve percent (12%) per annum constituted pursuant to
Deed Number Six (6) executed in San Juan, Puerto Rico on December thirty-one
(31), nineteen hundred seventy-nine (1979) before Notary Public Enrique Cardona
Diaz, which is recorded in the Registry at the overleaf of page 6 of volume 466
of Monacillos, property number 17,301. The foregoing mortgage was cancelled
pursuant to Deed Number Five (5) executed on October twenty-second (22nd),
nineteen hundred ninety-nine (1999), in San Juan, Puerto Rico, before Notary
Public Hector Saldana Egozcue, a certified copy of which is filed and pending
recordation at entry 133 of volume number 583 of the Book of Daily Entries of
the Registry.
TWENTY-THIRD: Miscellaneous:
(a) The headings of the clauses of this Mortgage have been
inserted for convenience or reference only and shall in no way define,
modify or restrict any of the provisions hereof;
(b) If any one or more of the provisions contained herein or
in the Mortgage Note shall be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof or thereof, but each shall be
-25-
<PAGE> 26
considered as if such illegal, invalid or unenforceable provision had
never been included;
(c) No failure or delay on the part of the Mortgagee in
exercising any power or right hereunder shall operate as a waiver
thereof or a waiver of any other term, provision or condition hereof
(no single or partial exercise of any such right or power shall
preclude any other or further exercise thereof or the exercise of any
other right or power hereunder) and all rights and remedies of the
Mortgagee hereunder are cumulative and shall not be deemed exclusive of
any rights or remedies provided by law;
(d) Should the Mortgagor satisfy the Mortgage Note and the
obligations for which the Mortgage Note is pledged or assigned as
collateral security in the time and manner heretofore set forth, and
respectively, comply with, and diligently execute all agreements and
stipulations herein set forth, then the Mortgagee shall execute in its
favor the corresponding release and cancellation of this Mortgage.
(e) No change, amendment, modification, cancellation or
discharge of this Mortgage, or any part hereof, shall be valid unless
contained in a public instrument signed by Mortgagor and Mortgagee
hereto or their respective successors and assigns.
TWENTY-FOURTH: Environmental Matters:
(a) Hazardous Substances. Except to the extent that failure to
comply would not have a material adverse effect on the Mortgagor or the
Mortgaged Property and/or would not result in or create an encumbrance,
charge or claim of any kind upon the
-26-
<PAGE> 27
Mortgaged Property, the Mortgagor shall:
(i) not store (except in compliance with all laws,
ordinances, and regulations pertaining thereto), dispose of,
release or allow the release of any hazardous substance, solid
waste or oil, as defined in forty-two (42) United States Code
("USC") Sections nine six zero one (9601) et sequitur,
forty-two (42) USC Sections six nine zero one (6901) et
sequitur, fifteen (15) USC sections two six zero one (2601) et
sequitur, and the regulations promulgated thereunder, and all
applicable federal, state and local laws, rules and
regulations, on the Mortgaged Property;
(ii) neither directly nor indirectly transport or
arrange for the transport of any hazardous substance or oil
(except in compliance with all laws, ordinances and
regulations pertaining thereto);
(iii) in the event of any change in the laws
governing the assessment, release or removal of hazardous
substances, which change would lead a prudent lender to
require additional testing to avail itself of any statutory
insurance or limited liability, take all such action
(including, without limitation, the conducting of engineering
tests at the sole expense of the Mortgagor) to confirm that no
hazardous substance or oil is or ever was stored, released or
disposed of on the Mortgaged Property; and
(iv) provide the Mortgagee with written notice: (aa)
upon the Mortgagor obtaining knowledge of the release of any
hazardous substance or oil at or from the Mortgaged Property;
(bb) upon the
-27-
<PAGE> 28
Mortgagor's receipt of any notice to such effect from any
federal, state, or other governmental authority making an
assessment of any expense incurred in connection with the
containment, removal or remediation of any hazardous substance
or oil at or from the Mortgaged Property, for which the
Mortgagor may be liable or for which expense a lien may be
imposed on the Mortgaged Property.
For purposes of this section, the terms "hazardous substance"
and "release" shall have the meanings specified in the Comprehensive
Environmental Response, Compensation and Liability Act of nineteen
hundred eighty (1980), forty two (42) USC Sections nine six zero one
(9601) et sequitur, ("CERCLA") and the terms "solid waste" and
"disposal" (or "disposed") shall have the meanings specified in the
Resource Conservation and Recovery Act of nineteen hundred seventy six
(1976), forty two (42) USC Sections six nine zero one (6901) et
sequitur, ("RCRA") and regulations promulgated thereunder; provided, in
the event either CERCLA or RCRA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply as of the
effective date of such amendment and provided further, to the extent
that the laws of the jurisdiction where the Mortgaged Property is
located establish a meaning for "hazardous substance", "release",
"solid waste", or "disposal" which is broader than specified in either
CERCLA and RCRA, such broader meaning shall apply.
(b) Environmental Assessment. In addition to the Mortgagee's rights
under Section (a) (iii), the
-28-
<PAGE> 29
Mortgagee may, if it has reasonable basis for such request, without regard to
whether Mortgagor is in default hereunder or under the Mortgage Note, require
that Mortgagor obtain one or more environmental assessments of the Mortgaged
Property prepared by a geohydrologist, an independent engineer or other
qualified consultant or expert approved by the Mortgagee evaluating or
confirming (i) whether any hazardous substances or other toxic substances are
present in the soil or water at or adjacent to the Mortgaged Property and (ii)
whether the use and operation of the Mortgaged Property comply with all
applicable federal, state and local laws, rules and regulations (herein called
"Environmental Laws") relating to air quality, environmental control, release of
oil, hazardous material, hazardous wastes and hazardous substances, and any and
all other applicable environmental laws. Environmental assessments may include
detailed visual inspections of the Mortgaged Property including, without
limitation, any and all storage area, and the taking of soil samples, surface
water samples and ground water samples, as well as such other investigations or
analyses as are necessary or appropriate for a complete determination of the
compliance of the Mortgaged Property and the use and operation thereof with all
applicable Environmental Laws.
ACCEPTANCE
The appearing party ratifies, confirms and accepts this Deed because
the same has been drawn in accordance with its instructions.
I, the Notary, do hereby certify that this
-29-
<PAGE> 30
document was read by the appearing party; that I, the Notary, and the said
appearing party can read and understand the English language; that I the Notary,
advised the appearing party of the legal effects of this document in particular
to the following: (a) that title reports were prepared by an independent third
party and not by the undersigned Notary; (b) that a certified copy of this deed
must be presented for recordation in the corresponding section of the Registry
of the Property; (c) of the possibility that other documents affecting the
rights herein created are presented for recordation prior to the execution
and/or presentation of a certified copy of this deed and of the preference or
seniority that said intervening liens, encumbrances and/or rights may gain by
such prior execution or earlier presentation to the Registry of the Property;
(d) of the desirability of verifying the status of liens and encumbrances on the
Property as may appear from the Registry of the Property on this date and of the
adverse consequences which may result from the failure to do so; and (e) of the
possible existence and pendency of additional unrecorded statutory liens and
real property taxes (including the statutory legal mortgage in favor of the
Commonwealth of Puerto Rico).
I, the Notary, do hereby certify that the appearing party after reading
this Deed, signed the same, and initialed every page hereof in my presence; that
this document was executed by the party before me, the Notary, after waiving his
right to request the presence of witnesses of which
-30-
<PAGE> 31
right I appraised him.
I, the Notary, do hereby ATTEST.
(signed) Ernesto Carattini.
(signed, sealed, marked and flourished) Alfredo Alvarez Ibanez.
-31-
<PAGE> 1
EXHIBIT 4.6
===============================================================================
PLEDGE AND SECURITY AGREEMENT
BETWEEN
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY
AND
DORAL PROPERTIES, INC.
DATED NOVEMBER 3, 1999
===============================================================================
This Pledge and Security Agreement has been assigned to Citibank,
N.A., as Trustee under a Trust Agreement dated the date hereof, as amended or
supplemented from time to time, from Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority
to such Trustee. A copy of such Trust Agreement may be inspected at the
corporate trust office of the Trustee at 252 Ponce de Leon Avenue, Second
Floor, Hato Rey, Puerto Rico.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Defined Terms....................................................... 1
Section 2. Grant of Security; Pledge of Mortgage
Note................................................................ 2
Section 3. Rights of the Authority and the Trustee............................. 3
Section 4. Application of Funds................................................ 5
Section 5. Releases from Lien of Mortgage in Connection
with Sale of Minor Parcels.......................................... 5
Section 6. Representations and Warranties...................................... 7
Section 7. Maintenance of Property............................................. 8
Section 8. Compliance with Laws................................................ 9
Section 9. Insurance........................................................... 10
Section 10. Damage, Destruction and Condemnation................................ 12
Section 11. Redemption Upon Occurrence of a Casualty
Or a Taking......................................................... 19
Section 12. Right of Entry...................................................... 19
Section 13. Headings, etc....................................................... 19
Section 14. Usury Laws.......................................................... 20
Section 15. Further Assurances.................................................. 20
Section 16. No Waiver; Cumulative Remedies...................................... 20
Section 17. Amendments, etc. ................................................... 21
Section 18. Addresses for Notices, etc. ........................................ 21
Section 19. Binding Effect...................................................... 22
Section 20. Severability of Provisions.......................................... 22
Section 21. Governing Law....................................................... 23
Section 22. Offsets............................................................. 23
Section 23. Sole Discretion of the Authority.................................... 23
Section 24. Actions and Proceedings............................................. 23
Section 25. Transfer and Assignments............................................ 24
Section 26. Responsibility and Indemnification of the Authority and
the Trustee ........................................................ 24
</TABLE>
<PAGE> 3
PLEDGE AND SECURITY AGREEMENT
Pledge Agreement dated this 3rd day of November, 1999, by and between
DORAL PROPERTIES, INC., a Puerto Rico corporation (the "Borrower"), and PUERTO
RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY, a public corporation and government
instrumentality of the Commonwealth of Puerto Rico (the "Authority").
The Authority and Citibank, N.A. (the "Trustee") are entering into a
Trust Agreement dated as of the date hereof (the "Trust Agreement") pursuant to
which the Authority is issuing its Industrial Revenue Bonds, 1999 Series A
(Doral Financial Center Project) (the "Bonds") for the purpose of providing
funds to make a loan to the Borrower under a Loan and Guaranty Agreement to be
dated the date hereof (the "Loan Agreement"). Pursuant to the Loan Agreement
and the Trust Agreement the Borrower will pay the amounts it is required to pay
under the Loan Agreement directly to the Trustee and the Trustee will make all
payments of principal, premium, if any, and interest due on the Bonds. As a
condition to the making of such loan, the Authority has requested the Borrower
to enter into this Agreement. Pursuant to the Trust Agreement, the Authority is
assigning to the Trustee, as security for the payment of the Bonds, its rights
under the Loan Agreement and under this Agreement, other than certain reserved
rights.
NOW, THEREFORE, in consideration of the premises and the benefits to
be received by the Borrower from the issuance of the Bonds, and in order to
induce the Authority to issue the Bonds, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, all terms
used herein shall have the meanings assigned to such
<PAGE> 4
terms in the Trust Agreement or in the Loan Agreement. For purposes of this
Agreement, the following terms shall have the following meanings:
"EVENT OF DEFAULT" shall mean and include any one or more of the
Events of Default specified in the Loan Agreement or the Trust Agreement.
"MINOR PARCELS" means the parcels identified as Parcel B and Parcel C
in the Mortgage.
SECTION 2. GRANT OF SECURITY; PLEDGE OF MORTGAGE NOTE.
(a) As security for the payment and performance of all the
obligations of the Borrower and Guarantor under the Loan Agreement and the
Collateral Documents, whether matured or unmatured, contingent or liquidated
(collectively, the "Secured Obligations"), the Borrower hereby pledges and
assigns, and grants to the Authority and the Trustee, for their benefit and the
benefit of the Bondholders, a continuing lien on and security interest in, all
of the Borrower's rights, title and interest in and to (i) the Mortgage Note,
(ii) all interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
the Mortgage Note, and (iii) all proceeds of any and all of the foregoing
(collectively, the "Pledged Collateral").
(b) This Agreement shall constitute a formal pledge and security
agreement, and the Authority, the Trustee and the other beneficiaries hereunder
shall have all the rights, powers and remedies of a pledgee and secured party
provided by the laws of the Commonwealth of Puerto Rico in addition to the
rights and remedies
2
<PAGE> 5
provided in this Agreement and under the Mortgage and the Mortgage Note.
(c) The Authority and the Trustee shall each, individually, be
entitled to hold the Mortgage Note in pledge until payment in full of all of
the obligations secured hereby.
(d) Without limiting the generality of the foregoing, this Agreement
secures the payment of all amounts that constitute part of the Secured
Obligations but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar case or proceeding
involving the Borrower.
SECTION 3. RIGHTS OF THE AUTHORITY AND THE TRUSTEE.
(a) The Authority or the Trustee shall each be entitled, in its sole
and absolute discretion, to take such action or refrain from taking such
action, and to exercise the rights and remedies available to the Authority,
under this Agreement, the Mortgage and the Mortgage Note as the Authority or
the Trustee from time to time may deem appropriate. The Trustee may, upon the
occurrence of an Event of Default, at its option exercise any one or more of
the following rights: foreclose the pledge of the Mortgage Note, foreclose the
Mortgage, and exercise those remedies provided under the Mortgage or under
applicable law, including the remedies available to a secured party under Act
No. 108 of August 17, 1995, of the Legislature of Puerto Rico, as amended,
including, without limitation:
(i) Without notice to or demand upon Borrower, make such
payments and do such acts as the Authority or the Trustee may deem necessary to
protects its security interest in the Pledged Collateral, including, without
limitation, paying, purchasing,
3
<PAGE> 6
contesting, or compromising any encumbrance, charge, mortgage, lien or security
interest which is prior to or superior to the security interest granted
hereunder or under the Mortgage, and in exercising any such powers or authority
to pay all expenses, for the account of Borrower, incurred by the Authority or
the Trustee in connection therewith (and all such expenses paid by the
Authority or the Trustee for the account of Borrower shall be secured by the
Collateral Documents); and
(ii) Sell, lease or otherwise dispose of the Pledged
Collateral at public sale, with or without having the Pledged Collateral at the
place of sale, and upon such terms and in such manner as the Authority or the
Trustee may determine, at which sale each of the Authority and the Trustee may
be a purchaser.
(b) The Borrower agrees that, to the extent notice of sale of the
Pledged Collateral shall be required prior to the exercise of any rights of the
Authority or the Trustee under this Section 3, at least thirty (30) days' prior
written notice to the Borrower of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notice.
(c) The rights of the Authority or the Trustee under the Collateral
Documents shall be separate, distinct and cumulative, and none of them shall be
in exclusion of the others.
(d) The Borrower agrees that the Authority or the Trustee may, from
time to time, exercise any and all rights and remedies under the Loan
Agreement, the Trust Agreement and the Collateral Documents, including without
limitation commencement of actions against the Borrower to recover sums owing
thereunder and to obtain injunctive relief and specific enforcement of the
covenants hereof and thereof.
4
<PAGE> 7
(e) Upon full satisfaction by the Borrower of the Secured
Obligations, the Authority will promptly endorse the Mortgage Note to the order
of the Borrower, without recourse, and deliver the Mortgage Note to the
Borrower.
SECTION 4. APPLICATION OF FUNDS. Any amounts realized from the
exercise of the remedies available to the Authority or the Trustee hereunder
shall be applied in the following order: first, to the payment of all taxes or
assessments on the Property which are liens prior in rank to the Mortgage and
that the Authority or the Trustee may consider necessary or desirable to pay,
except those taxes or assessments subject to which any sale of the Pledged
Collateral shall have been made, second to the payment of the costs and
expenses (including fees and disbursements of counsel) incurred in enforcing
the provisions of the Collateral Documents, which costs and expenses shall be
secured by the Collateral Documents, third, to the payment of any of the
Secured Obligations, as set forth in the Trust Agreement, and fourth, any
excess to be paid to the Borrower, to whomever may be lawfully entitled to
receive the same or as a court may direct.
SECTION 5. RELEASES FROM LIEN OF MORTGAGE IN CONNECTION WITH
SALE OF MINOR PARCELS AND IN CONNECTION WITH REDUCTION OF PRINCIPAL
AMOUNT OF BONDS.
(a) In connection with any sale of a Minor Parcel, the Borrower
shall be entitled, subject to compliance with the conditions set forth in this
Section 5, to release such Minor Parcel from the lien of the Mortgage.
(b) As a condition to any release from the Mortgage described in
clause (a), the Borrower shall be required to deliver to the Trustee the
following:
5
<PAGE> 8
(i) an appraisal from a real estate appraiser of recognized
standing acceptable to the Trustee that shall show an appraised value for the
property subject to the Mortgage after such release equal to or exceeding the
outstanding principal amount of the Bonds;
(ii) an opinion of counsel to the effect that (A) the sale of
the Minor Parcel and the execution by the Trustee of the release being
requested by the Borrower is permitted by the Trust Agreement, the Loan
Agreement and the Collateral Documents, and that all conditions to such
execution have been satisfied, (B) such proposed sale and release described in
clause (a) proposed to be taken by the Borrower do not conflict with or would
cause a default under the Collateral Documents, and (C) the execution by the
Borrower of the agreements proposed to be executed have been duly authorized by
the Borrower;
(iii) such mortgage notes, mortgage deeds or other documents
as shall be required to cause the amount secured by the Mortgage to be not less
than the principal outstanding amount of the Bonds; and
(iv) any other documents required by the Trust Indenture Act,
including but not limited to such documents as may be required under Section
314(d) of the Trust Indenture Act.
(c) The Borrower shall be entitled to release the Minor Parcel
identified as Parcel B from the lien of the Mortgage when the outstanding
principal amount of the Bonds is reduced by $854,334, and shall be entitled to
release the Minor Parcel identified as Parcel C from the lien of the Mortgage
when the outstanding principal amount of the Bonds is reduced by an additional
$1,368,950, in the order elected by the Borrower, in
6
<PAGE> 9
each case upon delivery to the Trustee of an opinion of counsel to the effect
that (A) the Borrower is entitled to the release of such Minor Parcel and (B)
the release of such Minor Parcel is permitted by the Trust Agreement, the Loan
Agreement and the Collateral Documents.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Authority as follows:
(a) That all of the representations and warranties made by the
Borrower in the Mortgage, the Loan Agreement and in any other Related Document
are true and correct as of the date hereof and Borrower hereby repeats and
restates each such representation and warranty herein with the same force and
effect as if originally set forth herein at length;
(b) The Borrower is a corporation duly organized and existing under
the laws of the Commonwealth of Puerto Rico;
(c) The execution, delivery and performance by the Borrower of this
Agreement, the Loan Agreement, the Mortgage Note and the Mortgage are within
the Borrower's powers, have been duly authorized by all necessary action on the
part of the Borrower, do not require any governmental approval, or any other
approval, and do not contravene any statute, regulation, decree or other
governmental restriction in Puerto Rico or in the United States applicable to
the Borrower or contravene any contractual restriction binding on the Borrower
or its property;
(d) This Agreement, the Loan Agreement, the Mortgage Note and the
Mortgage constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms,
except as enforcement may be limited by
7
<PAGE> 10
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights;
(e) The Borrower has good, marketable and insurable title in fee
simple absolute ("pleno dominio") to all of the Property, free and clear of all
mortgages, pledges, assignments, liens, encumbrances, charges, claims, leases
or rights of others of any kind, except Permitted Liens;
(f) The Mortgage is in proper form for recordation in accordance
with Puerto Rico law and, upon its recordation, will constitute a duly
perfected first priority lien on the Property in accordance with Puerto Rico
law, subject only to Permitted Liens;
(g) All mortgage recording taxes, notary fees, and similar related
taxes, stamps, fees and expenses required to be paid in connection with the
execution, recordation or filing of the Mortgage have been paid in full;
(h) This Agreement creates a valid and perfected first priority
security interest in the Mortgage Note securing the payment of the Secured
Obligations upon possession thereof being taken by the Authority or the
Trustee; and
(i) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
either (i) for the pledge of the Mortgage Note pursuant to this Agreement, or
(ii) for the exercise by the Authority or the Trustee of any of its rights and
remedies hereunder.
SECTION 7. MAINTENANCE OF PROPERTY. The Borrower will at all times
maintain, preserve and keep all and each part of the Property as required under
the Loan Agreement.
8
<PAGE> 11
SECTION 8. COMPLIANCE WITH LAWS. The Borrower will at all times:
(i) comply with all laws, regulations, decrees, ordinances
and other requirements of any governmental authority having jurisdiction over
the Property relating to permits, licenses, leases, franchises and rights of
the Borrower to conduct its business and the erection, repair and use of the
buildings, structures, machinery, plant and other property covered by the
Mortgage;
(ii) make adequate reserves for, and pay and discharge, all
taxes, assessments and municipal and governmental fees, rates and charges
lawfully required to be paid by the Borrower, as well as all lawful claims for
labor, materials and supplies, and other debts, liabilities and charges which,
if unpaid, may by law become a lien or charge upon the property of the Borrower
or lead to a suspension of its business, and will exhibit to the Authority,
upon its request, receipts for, or other satisfactory evidence of, each such
payment; and
(iii) maintain a valid and perfected first priority security
interest in the Mortgage Note securing the payment of the Secured Obligations,
and for such purposes the Borrower covenants that it will undertake the
recording or filing of this Agreement or any other instrument or document
necessary for the creation, perfection or renewal of any lien created herein,
and will assume the responsibility for the payment of the costs and expenses of
any such recording or filing, if any; provided, further, that the Borrower
shall maintain on file with the Authority and the Trustee such evidence of the
creation, perfection or renewal of any lien created herein.
9
<PAGE> 12
SECTION 9. INSURANCE
(a) The Borrower at its expense will keep the Property and all
structures and improvements erected thereon insured against loss or damage by
fire, flood, earthquake, explosion, smoke damage, windstorm and hurricane,
standard extended coverage perils, business interruption, and such other
hazards, and in such amounts, as are normally carried by entities engaged in
the same or a similar business in Puerto Rico.
(b) All policies of insurance shall be issued by an insurer
acceptable to the Authority (or the Trustee, as the Authority's assignee) duly
licensed to do business in the Commonwealth of Puerto Rico and (except for
public liability insurance) shall contain the standard mortgagee
non-contribution clause endorsement or an equivalent endorsement satisfactory
to the Authority (or the Trustee, as the Authority's assignee) naming the
Trustee as loss payee. The public liability policies will name the Trustee as
additional insured. The Borrower shall pay the premiums for the policies as the
same become due and payable. Not later than thirty (30) days prior to the
expiration date of each of the policies, the Borrower will deliver to the
Authority and the Trustee a renewal policy or policies marked "premium paid" or
accompanied by other evidence of payment of premium satisfactory to the
Authority and the Trustee.
(c) In addition to the foregoing requirements, each policy of
insurance required to be carried hereunder shall contain a provision whereby
the insurer (i) agrees that such policy shall not be canceled, modified or
denied renewal without at least thirty (30) days prior written notice to the
Authority and the Trustee, (ii) waives any right to claim any premiums or
commissions against the Authority and the Trustee, and (iii) provides that the
Authority and the Trustee are permitted to make payments to effect
10
<PAGE> 13
the confirmation of such policy upon notice of cancellation due to nonpayment
of premiums. In the event any such policy shall contain breach of warranty
provisions, such policy shall provide that in respect of the interests of the
Authority or the Trustee such policy shall not be invalidated by any action or
inaction of the Borrower or any other Person and shall insure the Authority and
the Trustee regardless of any breach or violation of any warranty, declarations
or conditions contained in such policy by the Borrower or any other Person. The
Borrower will not violate or permit to be violated any of the conditions,
provisions, or requirements of any insurance policy required hereunder.
(d) If at any time the Authority or the Trustee is not in receipt of
written evidence that all insurance required hereunder is in force and effect,
the Authority and the Trustee shall have the right, but not the obligation,
with prior written notice to the Borrower, to take such action as the Authority
or the Trustee deems necessary to protect its interest in the Property,
including, without limitation, the obtaining of such insurance coverage as the
Authority or the Trustee deems appropriate, and all expenses incurred by the
Authority and the Trustee in connection with such action or in obtaining such
insurance and keeping it in effect shall be paid by Borrower upon demand and be
secured by the Collateral Documents.
(e) If the Property shall be damaged or destroyed, in whole or in
part, by fire or other casualty, the Borrower shall give prompt notice thereof
to the Authority and the Trustee, and the Authority and the Trustee may make
proof of loss if not promptly made or diligently pursued by the Borrower.
Notwithstanding any damage or destruction to the Property or any part thereof,
the Borrower shall continue to pay all amounts required to be paid under the
Loan Agreement at the time and in the manner provided in the Loan Agreement.
11
<PAGE> 14
SECTION 10. DAMAGE, DESTRUCTION AND CONDEMNATION. (a) Unless the
Borrower shall have exercised its option to prepay the amounts payable under
the Loan Agreement pursuant to the provisions of Article VIII thereof, if prior
to full Payment of the Bonds (i) the Property or any portion thereof is
destroyed (totally or partially) or is damaged by fire or other casualty (a
"Casualty"), or (ii) title to any interest in, or the temporary use of, the
Property or any part thereof shall be taken under the exercise of the power of
eminent domain (or any proceedings in lieu thereof) by any governmental body or
by any Person acting under governmental authority (a "Taking"), the Borrower
shall be subject to the provisions of this Section with respect to the
application of insurance, condemnation or other proceeds to which the Borrower
would be entitled by reason of such damage, casualty or taking.
(b) In the event of any Casualty, the Borrower shall give notice
thereof in writing to the Authority and the Trustee, which shall describe the
nature and extent of such damage or destruction, and shall set forth the
Borrower's best estimate at that time of the cost of repair, restoration or
rebuilding (the "Restoration") of the damaged Property and the period of time
required to complete such Restoration. Any amounts received or payable as a
result of a Casualty shall be paid and delivered directly to the Authority or
the Trustee, as the Authority's assignee, by the concerned insurance companies.
The insurance proceeds, net of all the costs, fees and expenses incurred by the
Authority, the Trustee and the Borrower in the collection thereof (the "Net
Insurance Proceeds"), received or payable on account of a Casualty shall be
applied as herein stated.
(i) If the estimated cost of the Restoration does not exceed
$100,000, the Authority or the Trustee shall make available
12
<PAGE> 15
to the Borrower the Net Insurance Proceeds with no further requirement or
restriction of any nature, and the Borrower shall be free either to undertake
the Restoration or not to undertake the Restoration.
(ii) If the estimated cost of the Restoration exceeds $100,000
and but does not exceed $20,000,000, and if no default under this Agreement,
the Loan Agreement, the Mortgage, the Mortgage Note or the Trust Agreement
exists, and no event shall have occurred which, with the giving of notice or
the passage of time, or both, would constitute such default, the Net Insurance
Proceeds shall be delivered by the Authority or the Trustee to the Borrower,
who shall promptly and diligently apply the same exclusively to the Restoration
of the Property. In the event the costs and expenses of the Restoration exceed
the Net Insurance Proceeds, the Borrower will pay the difference.
(iii) If the estimated cost of the Restoration exceeds
$20,000,000 or the provisions of clause (i) or (ii) above are otherwise
inapplicable, the Authority, the Trustee, and the Borrower will cause the Net
Insurance Proceeds resulting from any event described in Section 10(a)(i) above
to be deposited with the Trustee, in trust for the benefit of the Bondholders,
until disbursed as provided herein. All Net Insurance Proceeds so deposited
shall be applied as follows:
(A) In the event (1) of a Casualty of all or substantially all of
the Property which, in the judgment of the Borrower, renders the Property
remaining after such Casualty physically or economically not suitable for the
restoration, replacement or rebuilding of such Property to substantially its
condition, character and value immediately prior to the occurrence of such
13
<PAGE> 16
Casualty (any such Casualty hereinafter referred to as a "Total Casualty") or
(2) that the Borrower does not elect to or cannot apply the Net Insurance
Proceeds as provided in, or cannot otherwise comply with the conditions of,
Section 10(b)(iii)(B), then the Net Insurance Proceeds shall be applied to the
redemption of Bonds in whole or in part in accordance with Section 8.02(e) of
the Loan Agreement.
(B) In cases other than upon the occurrence of a Total Casualty, the
Borrower may elect to apply the Net Insurance Proceeds toward the cost of the
Restoration of the damaged Property by giving written notice of its intention
as promptly as possible after the occurrence of such Casualty to the Authority
and the Trustee. The Authority or the Trustee shall make available the Net
Insurance Proceeds to the Borrower (to the extent the Authority or the Trustee
has such proceeds available), who shall promptly and diligently apply the same
exclusively to the Restoration of the Property. The Net Insurance Proceeds
shall be disbursed by the Authority or the Trustee to the Borrower from time to
time as the work progresses, pursuant to certifications issued by the Borrower;
provided that prior to the commencement of any work on the Restoration of the
damaged Property and to any disbursement of Net Insurance Proceeds to, or upon
the order of, the Borrower, the Borrower shall submit, deliver or otherwise
deposit with the Authority and the Trustee:
(1) an estimate of the cost of the Restoration of the damaged
Property approved by an architect or engineer licensed in Puerto Rico;
14
<PAGE> 17
(2) the plans and specifications for the Restoration of the
damaged Property prepared by an architect or engineer licensed in Puerto Rico;
(3) evidence of insurance coverage which the Borrower
represents to be adequate during the Restoration; and
(4) evidence that the contemplated Restoration of the damaged
Property shall be of a character and nature such that the Property shall return
to the same or similar function than the one they had immediately prior to the
occurrence of the Casualty.
In addition to the foregoing, the following conditions shall be
complied with:
(i) There shall exist no uncured Event of Default under this
Agreement, the Loan Agreement, the Mortgage, the Mortgage Note, or the Trust
Agreement, and no event shall have occurred which, with the giving of notice or
the passage of time, or both, would constitute such an Event of Default.
(ii) The Restoration of the damaged Property shall be done and
completed by the Borrower in an expeditious and diligent fashion, in compliance
with all applicable laws, statutes, ordinances, regulations, orders, rules and
covenants.
(iii) All costs and expenses incurred by the Authority or the
Trustee in connection with making the Net Insurance Proceeds and the funds
deposited by the Borrower pursuant to the provisions hereof available to the
Borrower for the Restoration of the damaged Property, including, without
limitation, counsel fees, shall be paid by the Borrower.
15
<PAGE> 18
(iv) In the event that the Borrower fails to comply with any
of the foregoing, the Net Insurance Proceeds on account of a Casualty shall be
applied by the Authority as provided in Section 10(b)(iii)(A) above.
(v) In the event the costs and expenses of the Restoration
exceed the Net Insurance Proceeds, the Borrower will pay the difference.
(c) In the event of a Taking of all or any part of the Property, or
the commencement of any proceedings or negotiations which might result in such
Taking, the Borrower will promptly give written notice thereof to the Authority
and the Trustee generally describing the nature and extent of such Taking or
the nature and extent of the Taking which might result therefrom. The Authority
and the Trustee may each participate jointly with the Borrower in said
proceedings or negotiations, and the Borrower shall deliver to the Authority
and the Trustee all instruments and necessary documents to permit such
participation. The Borrower shall file and prosecute its claim or claims for
any such award or payment in good faith and with due diligence. The Borrower
will pay all reasonable costs, fees, and expenses incurred by the Authority and
the Trustee in connection with any Taking and seeking and obtaining any award
or payment on account thereof, including, without limitation, attorney's fees.
All awards and payments on account of a Taking shall be delivered to
the Authority or the Trustee, as the Authority's assignee. The Borrower shall
execute and deliver any and all assignments, endorsements or other instruments
necessary to assign
16
<PAGE> 19
and transfer to the Authority and the Trustee all such awards and payments free
and clear of all liens and encumbrances. The awards and payments on account of
a Taking, net of all the costs, fees and expenses incurred by the Authority,
the Trustee and the Borrower in the collection thereof (the "Net Condemnation
Proceeds"), shall be applied as stated herein. The Authority, the Trustee, and
the Borrower will cause the Net Condemnation Proceeds resulting from any event
described in Section 10(a)(ii) above involving amounts in excess of $20,000,000
to be deposited with the Trustees AS described above. All Net Condemnation
Proceeds so deposited shall be applied as follows:
(i) In the case of a Taking of all or substantially all of
the Property which in the judgment of the Borrower renders the Property
remaining after such Taking physically or economically not feasible or suitable
for the Restoration of such property to substantially its condition, character
and value immediately prior to the occurrence of such Taking (any such Taking
hereinafter referred to as a "Total Taking"), the Net Condemnation Proceeds
shall be applied to the redemption of the Bonds in accordance to Section
8.02(e) of the Loan Agreement.
(ii) In all cases other than upon the occurrence of a Total
Taking, if the Net Condemnation Proceeds do not exceed $100,000, the Trustee
shall make available to the Borrower the Net Condemnation Proceeds with no
further requirements or restriction of any nature.
(iii) In all cases other than upon the occurrence of a Total
Taking, if the Net Condemnation Proceeds exceed $100,000 but
17
<PAGE> 20
do not exceed $20,000,000, and if no default under this Agreement, the Loan
Agreement, the Mortgage, the Mortgage Note or the Trust Agreement exists, and
no event shall have occurred which, with the giving of notice or passage of
time, or both, would constitute such default, the Net Insurance Proceeds shall
be delivered by the Authority or the Trustee to the Borrower who shall promptly
and diligently apply the same exclusively to the Restoration of the Property.
In the event such costs and expenses exceed the Net Condemnation Proceeds, the
Borrower will pay the difference.
(iv) In all cases other than upon the occurrence of a Total
Taking, if the Net Condemnation Proceeds shall exceed $20,000,000, the Borrower
may elect to apply the Net Condemnation Proceeds toward the cost of the
Restoration of the Property in the same manner and subject to the same terms
and conditions established for cases other than a Total Casualty in Section
10(b) above.
(d) The Authority shall cooperate fully with Borrower, at the
expense of Borrower, in filing any proof of loss with respect to any insurance
policy covering the casualties described in Section 10(a) hereof and in the
prosecution or defense of any prospective or pending condemnation proceeding
with respect to the Property or any part thereof, or any property of Borrower
in connection with which the Property is used and may, with the prior written
consent of the Authority, litigate in any proceeding resulting therefrom and in
the name and on behalf of the Authority. In no event will the Authority
voluntarily settle, or consent to the settlement of, any proceeding arising out
of any insurance claim or any prospective or pending condemnation proceeding
with respect to the Property or any part
18
<PAGE> 21
thereof without the written consent of an Authorized Borrower Representative.
SECTION 11. REDEMPTION UPON OCCURRENCE OF A CASUALTY OR A TAKING. In
the event the Trustee shall, pursuant to the provisions of Section 10 hereof,
be entitled to retain and apply the Net Insurance Proceeds or the Net
Condemnation Proceeds to the redemption of Bonds, the Trustee shall direct the
mandatory redemption of Bonds in accordance with the Loan Agreement and the
Trust Agreement (i) in whole in the event of a Total Taking or a Total Casualty
or (ii) in whole or in part, to the extent of such Net Insurance Proceeds or
Net Condemnation Proceeds, in the event of a Casualty other than a Total
Casualty or a Taking other than a Total Taking. The Trustee shall also apply
the Net Insurance Proceeds or Net Condemnation Proceeds to the redemption of
Bonds to the extent the Borrower exercises its option to prepay the Loan
pursuant to Section 8.03 of the Loan Agreement.
SECTION 12. RIGHT OF ENTRY. The Authority and the Trustee and their
agents shall have the right, after reasonable prior notice to the Borrower, to
enter and inspect the Property during normal business hours.
SECTION 13. HEADINGS, ETC. The headings and captions of the various
Sections of this Agreement are for convenience of reference only and are not to
be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
19
<PAGE> 22
SECTION 14. USURY LAWS. This Agreement, the Mortgage, the Loan
Agreement and the Mortgage Note are subject to the express condition that at no
time shall the Borrower be obligated or required to pay interest on the
obligations secured thereby and hereby at a rate which could subject the holder
of the Mortgage Note or beneficiary of the above documents to either civil or
criminal liability as a result of being in excess of the maximum interest rate
which the Borrower is permitted by law to contract or agree to pay. If by the
terms of this Agreement, the Loan Agreement, the Mortgage or the Mortgage Note,
the Borrower is at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payments in excess of
such maximum rate shall be applied and shall be deemed to have been payments in
reduction of principal.
SECTION 15. FURTHER ASSURANCES. The Borrower hereby agrees to promptly
execute and deliver such additional agreements and instruments and to promptly
take such additional action as the Authority or the Trustee may at any time and
form time to time request in writing in order for the Authority or the Trustee
to obtain the full benefits and rights granted or purported to be granted by
this Agreement and to fully and continually perfect the security interests
created hereby.
SECTION 16. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Authority or the Trustee in exercising any right, power or remedy
hereunder or under or in connection with the Mortgage Note or the Mortgage
shall operate as a waiver thereof; nor
20
<PAGE> 23
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy hereunder or under or in connection with the Mortgage
Note or the Mortgage. The remedies herein and in the Mortgage provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 17. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of this Agreement, the Mortgage Note or the Mortgage
nor consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be in writing and signed by the Authority and
the Trustee, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.
SECTION 18. ADDRESSES FOR NOTICES, ETC. All notices requests, demands,
directions and other communications hereunder or in connection with the
Mortgage Note or the Mortgage shall be in writing (including telegraphic
communication) and mailed by certified or registered mail, return receipt
requested, or confirmed telecopier or delivered to the applicable party at the
address indicated below:
If to the Borrower:
Doral Financial Corporation, Inc.
1159 Franklin D. Roosevelt Ave.
San Juan, Puerto Rico 00920
Attention: President
Telecopier: 749-8267
21
<PAGE> 24
If to the Authority:
Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities
Financing Authority
c/o Government Development Bank for Puerto Rico
G.P.O. Box 42001
San Juan, Puerto Rico 00940
Attention: Executive Director
Telecopier: 726-1440
If to the Trustee:
Citibank, N.A.
252 Ponce de Leon Avenue, Second Floor
Hato Rey, Puerto Rico 00918
Attention: Hector Fonseca
Custody/Trust Department
Telecopier: 766-4548
or, as to each party, at such other or additional address as shall be
designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section. All such notices, requests,
demands, directions and other communications shall, when mailed or telecopied,
be effective when deposited in the mail or dispatched by telecopier,
respectively, addressed as aforesaid.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Authority and their respective
successors and assigns.
SECTION 20. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement, the Mortgage Note or the Mortgage which is prohibited or
unenforceable in the Commonwealth of Puerto Rico shall be ineffective
22
<PAGE> 25
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
SECTION 21. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Puerto Rico.
SECTION 22. OFFSETS. The Authority and its assignees shall take the
Mortgage, the Mortgage Note and this Agreement, to the extent permitted by law,
free and clear of all offsets of any nature whatsoever which Borrower may have
against the Authority or its assignees and no such offset shall be interposed
or asserted by the Borrower in any action or proceeding brought by the
Authority or any such assignee and any such right to interpose or assert any
such offset in any such action or proceeding is hereby expressly waived by the
Borrower.
SECTION 23. SOLE DISCRETION OF THE AUTHORITY. Unless expressly stated
to the contrary herein, wherever pursuant to this Agreement, the Mortgage Note
or the Mortgage, the Authority may exercise any right given to it to approve or
disapprove, or any arrangement or term is to be satisfactory to the Authority,
the decision of the Authority to approve or disapprove or to decide that
arrangements or terms are satisfactory or not satisfactory shall be in the sole
discretion of the Authority and shall be final and conclusive.
SECTION 24. ACTIONS AND PROCEEDINGS. The Authority shall have the
right to appear in and defend any action or proceeding brought with respect to
the Property and to bring any action or
23
<PAGE> 26
proceeding, in the name or on behalf of the Borrower, which the Authority in
its discretion, feels should be brought to protect its interest in the
Property, and shall proceed in accordance with the Mortgage.
SECTION 25. TRANSFER AND ASSIGNMENTS. The Borrower hereby acknowledges
and consents to the transfer and assignment by the Authority to the Trustee,
pursuant to the terms of the Trust Agreement, of all of the Authority's rights
and interest under the Loan Agreement, the Mortgage, the Mortgage Note and this
Agreement, and acknowledge that upon such transfer and assignment the Trustee
shall be entitled to all of the benefits and security thereof and hereof. The
Authority acknowledges and consents to the transfer and assignment of the
Borrower's interest in this Agreement and the other Collateral Documents in
accordance with and subject to compliance with the terms of the Loan Agreement.
SECTION 26. RESPONSIBILITY AND INDEMNIFICATION OF THE AUTHORITY AND
THE TRUSTEE.
(a) The Authority and the Trustee shall not be under any
obligation to see to the recording or filing of this Agreement or any other
instrument or document necessary for the creation, perfection or renewal of any
lien created herein, and shall not be responsible for the costs and expenses of
any such recording or filing, if any.
(b) The Authority and the Trustee shall not be responsible
for any loss resulting from the sale, lease or disposition of the Pledged
Collateral.
24
<PAGE> 27
(c) No provision of this Agreement shall require the
Authority or the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers.
(d) Except as otherwise provided in the Trust Agreement, the
Trustee shall be under no obligation to perform any action under this
Agreement, and shall not be responsible for any loss or liability resulting
from the performance or the omission to perform any action established herein,
including without limitation any environmental liabilities upon the foreclosure
of the Mortgage Note and the Mortgage; provided further that the Trustee shall
be indemnified by the Borrower against any and all costs and expenses, and
against all liability, of the Trustee derived from this Agreement.
(e) The Authority and the Trustee shall not be under any
obligation to pay the costs and expenses of any Restoration exceeding the Net
Insurance Proceeds in connection with such Restoration.
25
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this
Pledge and Security Agreement to be duly executed by their respective officers
thereunto duly authorized on the date first above written, in San Juan, Puerto
Rico.
DORAL PROPERTIES, INC.
By: /s/ Mario S. Levis
----------------------------------
Mario S. Levis
Executive Vice-President
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL FACILITIES
FINANCING AUTHORITY
By: /s/ Carlos Colon de Armas
----------------------------------
Carlos Colon de Armas
Executive Director
Acknowledged:
CITIBANK, N.A.,
as Trustee under the Trust
Agreement
By: /s/ Kevin M. Szot
--------------------------------
Kevin M. Szot
Vice President
AGREED AND ACCEPTED:
DORAL FINANCIAL CORPORATION
as Guarantor of the obligations
of the Borrower under this
Agreement
By: /s/ Salomon Levis
--------------------------------
Salomon Levis
Chairman of the
Board of Directors and
Chief Executive Officer
26
<PAGE> 1
EXHIBIT 12(a)
DORAL FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED SEPTEMBER 30,
-------------------------------------
1999
<S> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 56,931
Plus:
Fixed Charges (excluding capitalized interest) 109,288
--------
TOTAL EARNINGS $166,219
========
FIXED CHARGES:
Interest expensed and capitalized $107,166
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 1,156
An estimate of the interest component within rental expense 1,079
--------
TOTAL FIXED CHARGES $109,401
========
RATIO OF EARNINGS TO FIXED CHARGES 1.52
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 56,931
Plus:
Fixed Charges (excluding capitalized interest) 85,061
--------
TOTAL EARNINGS $141,992
========
FIXED CHARGES:
Interest expensed and capitalized $ 82,939
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 1,156
An estimate of the interest component within rental expense 1,079
--------
TOTAL FIXED CHARGES $ 85,174
========
RATIO OF EARNINGS TO FIXED CHARGES 1.67
</TABLE>
<PAGE> 1
EXHIBIT 12(b)
DORAL FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY
DIVIDENDS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED SEPTEMBER 30,
-------------------------------------
1999
<S> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 56,931
Plus:
Fixed Charges (excluding capitalized interest) 109,288
--------
TOTAL EARNINGS $166,219
========
FIXED CHARGES:
Interest expensed and capitalized $107,166
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 1,156
An estimate of the interest component within rental expense 1,079
--------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 109,401
--------
Preferred dividend requirements 3662
Ratio of pre tax income to net income 1.134
--------
PREFERRED DIVIDEND FACTOR 4,152
--------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $113,553
========
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.46
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $56,931
Plus:
Fixed Charges (excluding capitalized interest) 85,061
--------
TOTAL EARNINGS $141,992
========
FIXED CHARGES:
Interest expensed and capitalized $ 82,939
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 1,156
An estimate of the interest component within rental expense 1,079
--------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 85,174
--------
Preferred dividend requirements 3662
Ratio of pre tax income to net income 1.134
--------
PREFERRED DIVIDEND FACTOR 4,152
--------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $ 89,326
========
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DORAL FINANCIAL CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,152
<INT-BEARING-DEPOSITS> 134,201
<FED-FUNDS-SOLD> 61,108
<TRADING-ASSETS> 770,931
<INVESTMENTS-HELD-FOR-SALE> 67,906
<INVESTMENTS-CARRYING> 1,255,142
<INVESTMENTS-MARKET> 1,219,155
<LOANS> 1,187,978
<ALLOWANCE> 5,607
<TOTAL-ASSETS> 3,823,375
<DEPOSITS> 844,583
<SHORT-TERM> 1,785,865
<LIABILITIES-OTHER> 202,042
<LONG-TERM> 617,967
0
1,503
<COMMON> 40,485
<OTHER-SE> 330,930
<TOTAL-LIABILITIES-AND-EQUITY> 3,823,375
<INTEREST-LOAN> 55,661
<INTEREST-INVEST> 77,084
<INTEREST-OTHER> 9,714
<INTEREST-TOTAL> 142,459
<INTEREST-DEPOSIT> 24,227
<INTEREST-EXPENSE> 83,982
<INTEREST-INCOME-NET> 34,250
<LOAN-LOSSES> 1,631
<SECURITIES-GAINS> 69,654
<EXPENSE-OTHER> 70,992
<INCOME-PRETAX> 56,931
<INCOME-PRE-EXTRAORDINARY> 56,931
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,217
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 1.41
<LOANS-NON> 3,163
<LOANS-PAST> 67,702
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,166
<CHARGE-OFFS> 1,505
<RECOVERIES> 315
<ALLOWANCE-CLOSE> 5,607
<ALLOWANCE-DOMESTIC> 5,607
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
