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Filed Pursuant to Rule 424(b)(3)
Registration Number 333-76259
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 7, 1999)
$200,000,000
DORAL FINANCIAL CORPORATION
MEDIUM-TERM SENIOR NOTES, SERIES A
MEDIUM-TERM SUBORDINATED NOTES, SERIES A
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
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THE NOTES:
- - Doral Financial will offer notes from time to time and specify the terms and
conditions of each issue of notes in a pricing supplement.
- - The notes will be either senior or subordinated unsecured debt securities of
Doral Financial.
- - The notes will have stated maturities of nine months or more from the date
they are originally issued.
- - Doral Financial will pay amounts due on the notes in U.S. dollars or any other
consideration described in the applicable pricing supplement.
- - The notes may bear interest at fixed or floating rates or may not bear any
interest. If the notes bear interest at a floating rate, the floating rate may
be based on one or more indices or formulas plus or minus a fixed amount or
multiplied by a factor.
- - Doral Financial will specify whether the notes can be redeemed or repaid
before their maturity and whether they are subject to mandatory redemption,
redemption at the option of Doral Financial or repayment at the option of the
holder of the notes.
- - Holders of the subordinated notes may not accelerate the maturity of the
subordinated notes except upon Doral Financial's bankruptcy or insolvency.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" ON PAGE S-3 OF THIS PROSPECTUS SUPPLEMENT AND
"RISK FACTORS" ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement, the accompanying prospectus or any pricing supplement is
truthful or complete. Any representation to the contrary is a criminal offense.
The notes are not deposits or savings accounts and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency or
instrumentality.
<TABLE>
<CAPTION>
AGENT'S DISCOUNTS PROCEEDS, BEFORE EXPENSES, TO
PUBLIC OFFERING PRICE AND COMMISSIONS DORAL FINANCIAL
--------------------- ------------------- -----------------------------
<S> <C> <C> <C>
Per note......................... 100% .125%-.750% 99.875%-99.250%
Total(1)......................... $200,000,000 $250,000-$1,500,000 $199,750,000-$198,500,000
</TABLE>
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(1) Or the equivalent in one or more foreign or composite currencies.
Doral Financial may sell notes to the agents referred to below as principal
for resale at varying or fixed offering prices or through the agents as agents
using their reasonable efforts on behalf of Doral Financial. Doral Financial may
also sell notes without the assistance of the agents, whether acting as
principal or as agent.
If Doral Financial sells other securities referred to in the accompanying
prospectus, the amount of notes that Doral Financial may offer and sell under
this prospectus supplement may be reduced.
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MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
------------------------
The date of this prospectus supplement is May 14, 1999.
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
Risk Factors................................................ S-3
Description of the Notes.................................... S-4
United States Federal Income Taxation....................... S-25
Certain Puerto Rico Income Tax Consequences................. S-33
Plan of Distribution........................................ S-34
PROSPECTUS
Summary..................................................... 3
Risk Factors................................................ 6
Fluctuations in Interest Rates May Hurt Doral Financial's
Business............................................... 6
Doral Financial May Suffer Losses From Mortgage Loans It
Sells But Retains the Credit Risk...................... 7
Increases in Doral Financial's Originations of Commercial
Loans Has Increased Its Credit Risks................... 7
Doral Financial Is Exposed To Greater Risk Because Its
Business Is Concentrated In Puerto Rico................ 7
Doral Financial's Business Would Be Disrupted If Its
Computer Systems Cannot Work Properly With Year 2000
Data................................................... 7
Doral Financial............................................. 7
Use of Proceeds............................................. 8
Description of Debt Securities.............................. 9
General................................................... 9
Denominations............................................. 10
Subordination............................................. 10
Limitations on Liens and Disposition of Stock of Principal
Mortgage Banking Subsidiaries.......................... 11
Consolidation, Merger or Sale............................. 13
Modification of Indentures................................ 13
Events of Default......................................... 14
Covenants................................................. 15
Payment and Transfer...................................... 15
Global Securities......................................... 15
Defeasance................................................ 16
The Trustee............................................... 16
Description of Preferred Stock.............................. 16
General................................................... 17
Rank...................................................... 17
Dividends................................................. 17
Conversion or Exchange.................................... 18
Redemption................................................ 19
Liquidation Preference.................................... 19
Voting Rights............................................. 19
Description of Capital Stock................................ 20
Authorized Capital........................................ 20
Outstanding Serial Preferred Stock........................ 20
8% Preferred Stock........................................ 20
7% Preferred Stock........................................ 21
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Plan of Distribution........................................ 22
By Agents................................................. 23
By Underwriters........................................... 23
Direct Sales.............................................. 23
General Information....................................... 24
Where You Can Find More Information......................... 24
Legal Opinions.............................................. 25
Experts..................................................... 25
</TABLE>
References in this prospectus supplement to "Doral Financial" are to Doral
Financial Corporation.
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RISK FACTORS
Your investment in the notes involves certain risks. In consultation with
your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the notes is suitable for you. The notes are not an appropriate
investment for you if you are unsophisticated with respect to the significant
components of the notes.
YOU MAY SUFFER LOSSES ON INDEXED NOTES RESULTING FROM FLUCTUATIONS IN THE
INDICES
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated with a
conventional fixed rate or floating rate debt security. These risks include
fluctuation of the indices or formulas and the possibility that you will receive
a lower, or no, amount of principal, premium or interest and at different times
than you expected. Doral Financial has no control over a number of matters,
including economic, financial and political events, that are important in
determining the existence, magnitude and longevity of these risks and their
results. In addition, if an index or formula used to determine any amounts
payable in respect of the notes contains a multiplier or leverage factor, the
effect of any change in that index or formula will be magnified. In recent
years, values of certain indices and formulas have been volatile and volatility
in those and other indices and formulas may be expected in the future. However,
past experience is not necessarily indicative of what may occur in the future.
REDEMPTION MAY ADVERSELY AFFECT YOUR RETURN ON THE NOTES
If your notes are redeemable at the option of Doral Financial or are
otherwise subject to mandatory redemption, Doral Financial may, in the case of
optional redemption, or must, in the case of mandatory redemption, choose to
redeem your notes at times when prevailing interest rates may be relatively low.
Accordingly, you generally will not be able to reinvest the redemption proceeds
in a comparable security at an effective interest rate as high as that of the
notes.
THERE MAY BE AN UNCERTAIN TRADING MARKET FOR YOUR NOTES; MANY FACTORS AFFECT THE
TRADING VALUE OF YOUR NOTES
Doral Financial cannot assure you a trading market for your notes will ever
develop or be maintained. Many factors independent of Doral Financial's
creditworthiness may affect the trading market of your notes. These factors
include:
- the complexity and volatility of the index or formula applicable to the
notes,
- the method of calculating the principal, premium and interest in respect
of the notes,
- the time remaining to the maturity of the notes,
- the outstanding amount of the notes,
- the redemption features of the notes,
- the level, direction and volatility of market interest rates generally.
In addition, because some notes were designed for specific investment
objectives or strategies, these notes will have a more limited trading market
and experience more price volatility. There may be a limited number of buyers
for these notes. This may affect the price you receive for these notes
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or your ability to sell these notes at all. You should not purchase notes unless
you understand and know you can bear the related investment risks.
DORAL FINANCIAL'S CREDIT RATINGS MAY NOT REFLECT ALL RISKS OF AN INVESTMENT IN
THE NOTES
Doral Financial's credit ratings are an assessment of its ability to pay
its obligations. Consequently, real or anticipated changes in Doral Financial's
credit ratings will generally affect the market value of your notes. Doral
Financial's credit ratings, however, may not reflect the potential impact of
risks related to structure, market or other factors discussed above on the value
of your notes.
DESCRIPTION OF THE NOTES
The Medium-Term Senior Notes, Series A will be issued as a series of senior
debt securities under a senior indenture, dated as of May 14, 1999 (the "Senior
Indenture"), between Doral Financial and Bankers Trust Company ("Bankers
Trust"), as the senior trustee. The Medium-Term Subordinated Notes, Series A
will be issued as a series of subordinated debt securities under a subordinated
indenture, dated as of May 14, 1999 (the "Subordinated Indenture" and, together
with the Senior Indenture, the "Indentures"), between Doral Financial and
Bankers Trust, as the subordinated trustee. The terms "senior debt securities"
and "subordinated debt securities," as used in this prospectus supplement, refer
to all securities issued and issuable from time to time under the Senior
Indenture and Subordinated Indenture, respectively, and include the notes. The
term "debt securities" refers to both senior debt securities and subordinated
debt securities.
The debt securities and the Indentures are more fully described in the
accompanying prospectus. The following summary of the material provisions of the
notes and the Indentures is not complete and is qualified in its entirety by
reference to the Indentures, a copy of which has been filed as an exhibit to the
registration statement of which this prospectus supplement and the accompanying
prospectus are a part.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. Doral Financial has not authorized any other person to
provide you with different or additional information. If anyone provides you
with different or additional information, you should not rely on it. Doral
Financial is not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
contained or incorporated by reference in this prospectus supplement, the
accompanying prospectus and any pricing supplement is accurate only as of the
date on the front cover of the applicable pricing supplement.
THE FOLLOWING DESCRIPTION OF NOTES WILL APPLY UNLESS OTHERWISE SPECIFIED IN
AN APPLICABLE PRICING SUPPLEMENT.
TERMS OF THE NOTES
Senior debt securities, including the senior notes, issued and to be issued
under Doral Financial's Senior Indenture will be unsecured general obligations
of Doral Financial and will rank equally with all other unsecured and
unsubordinated indebtedness of Doral Financial from time to time outstanding.
Subordinated debt securities, including the subordinated notes, issued and to be
issued under Doral Financial's Subordinated Indenture will be subordinated in
right of payment, to the extent described in the accompanying prospectus, to all
Senior Indebtedness and Other Financial Obligations (as these terms are defined
in the accompanying prospectus), including the senior debt
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securities. Holders of the subordinated notes may not accelerate the maturity of
the subordinated notes except upon Doral Financial's bankruptcy or insolvency.
See "Description of Debt Securities -- Subordination" in the accompanying
prospectus. As of March 31, 1999, Doral Financial had approximately $1.6 billion
of Senior Indebtedness and Other Financial Obligations outstanding.
Because Doral Financial is a holding company that conducts some of its
operations through subsidiaries, holders of notes will generally have a junior
position to claims of creditors of Doral Financial's subsidiaries, including
trade creditors, debtholders, secured creditors, taxing authorities, guarantee
holders and any preferred stockholders.
The Indentures do not limit the aggregate principal amount of debt
securities which Doral Financial may issue. Doral Financial may issue its debt
securities from time to time as a single series or in two or more separate
series up to the aggregate principal amount from time to time authorized by
Doral Financial for each series. The aggregate principal amount of notes which
may be offered and sold by this prospectus supplement may be reduced by the sale
by Doral Financial of other securities under the registration statement of which
this prospectus supplement and the accompanying prospectus are a part.
The notes will be offered on a continuing basis and will mature on a day
nine months or more from the date of issue, as selected by the purchaser and
agreed to by Doral Financial. Interest-bearing notes will bear interest at
either fixed or floating rates as specified in the applicable pricing
supplement. Notes may be issued at significant discounts from their principal
amount payable at stated maturity, or on any date before the stated maturity
date on which the principal or an installment of principal of a note becomes due
and payable, whether by the declaration of acceleration, call for redemption at
the option of Doral Financial, repayment at the option of the holder or
otherwise (the stated maturity date or such prior date, as the case may be, is
referred to as, a "Maturity"). Some notes may not bear interest.
Unless otherwise indicated in a note and in the applicable pricing
supplement, the notes will be denominated in United States dollars and Doral
Financial will make payments of principal of, and premium, if any, and interest
on, the notes in United States dollars.
Interest rates, interest rate formulae and other variable terms of the
notes are subject to change by Doral Financial from time to time, but no change
will affect any note already issued or as to which Doral Financial has accepted
an offer to purchase.
Each note will be issued in fully registered book-entry form or
certificated form, in denominations of $1,000 and integral multiples of $1,000,
unless otherwise specified in the applicable pricing supplement. Notes in
book-entry form may be transferred or exchanged only through a participating
member of The Depository Trust Company, also known as DTC, or any other
depository as is identified in an applicable pricing supplement. See
"-- Book-Entry Notes". Registration of transfer of notes in certificated form
will be made at the corporate trust office of the applicable trustee. There will
be no service charge for any registration of transfer or exchange of notes, but
Doral Financial may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with any transfer or exchange,
other than exchanges pursuant to the Indentures not involving any transfer.
Doral Financial will make payments of principal of, and premium and
interest, if any, on notes in book-entry form through the applicable trustee to
the depository or its nominee. See "-- Book-Entry Notes". Unless otherwise
specified in the applicable pricing supplement, a beneficial owner of notes in
book-entry form that are denominated in a currency other than United States
dollars (a "Specified Currency") electing to receive payments of principal or
any premium or interest in that Specified Currency must notify the participant
of DTC through which its interest is held on or before the
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applicable regular record date, in the case of a payment of interest, and on or
before the sixteenth day, whether or not a Business Day, as defined below,
before its stated maturity, in the case of principal or premium, of the
beneficial owner's election to receive all or a portion of any payment in a
Specified Currency. The participant must notify the depository of any election
on or before the third Business Day after the regular record date. The
depository will notify the paying agent of the election on or before the fifth
Business Day after the regular record date. If complete instructions are
received by the participant and forwarded to the depository, and forwarded by
the depository to the paying agent, on or before the relevant dates, the
beneficial owner of the notes in book-entry form will receive payments in the
Specified Currency.
In the case of notes in certificated form, Doral Financial will make
payment of principal or premium, if any, at the Maturity of each note in
immediately available funds upon presentation of the note and, in the case of
any repayment on an optional repayment date, upon submission of a duly completed
election form if and as required by the provisions described below, at the
corporate trust office of the applicable trustee in the Borough of Manhattan,
The City of New York, or at any other place as Doral Financial may designate.
Payment of interest due at Maturity will be made to the person to whom payment
of the principal of the note in certificated form will be made. Payment of
interest due on notes in certificated form other than at Maturity will be made
at the corporate trust office of the trustee or, at the option of Doral
Financial, may be made by check mailed to the address of the person entitled to
receive payment as the address shall appear in the security register.
Notwithstanding the immediately preceding sentence, a holder of $1,000,000 or
more in aggregate principal amount of notes in certificated form, whether having
identical or different terms and provisions, having the same interest payment
dates will, at the option of Doral Financial, be entitled to receive interest
payments, other than at Maturity, by wire transfer of immediately available
funds if appropriate wire transfer instructions have been received in writing by
the trustee not less than 15 days prior to the applicable interest payment date.
Any wire instructions received by the trustee shall remain in effect until
revoked by the holder.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New York;
provided, however, that, with respect to non-United States dollar-denominated
notes, the day is also not a day on which commercial banks are authorized or
required by law, regulation or executive order to close in the Principal
Financial Center, as defined below, of the country issuing the Specified
Currency or, if the Specified Currency is Euro, the day is also a day on which
the Trans-European Automated Real-time Gross Settlement Express Transfer
(TARGET) System is open; provided, further, that, with respect to notes as to
which LIBOR is an applicable Interest Rate Basis, the day is also a London
Business Day. "London Business Day" means a day on which commercial banks are
open for business, including dealings in the Index Currency, as defined below,
in London.
"Principal Financial Center" means, unless otherwise specified in the
applicable pricing supplement,
(1) the capital city of the country issuing the Specified Currency, except
that with respect to United States dollars, Australian dollars,
Canadian dollars, Deutsche marks, Dutch guilders, South African rand
and Swiss francs, the "Principal Financial Center" will be The City of
New York, Sydney and Melbourne, Toronto, Frankfurt, Amsterdam,
Johannesburg and Zurich, respectively, or
(2) the capital city of the country to which the LIBOR Currency relates,
except that with respect to United States dollars, Canadian dollars,
Deutsche marks, Dutch guilders, Portuguese escudos, South African rand
and Swiss francs, the "Principal Financial Center"
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will be The City of New York, Toronto, Frankfurt, Amsterdam, London,
Johannesburg and Zurich, respectively.
TRANSACTION AMOUNT
Interest rates offered by Doral Financial with respect to the notes may
differ depending upon, among other things, the aggregate principal amount of
notes purchased in any transaction. Doral Financial may offer notes with similar
variable terms but different interest rates concurrently at any time. Doral
Financial may also concurrently offer notes having different variable terms to
different investors.
REDEMPTION AT THE OPTION OF DORAL FINANCIAL
The notes will not be subject to any sinking fund. Doral Financial may
redeem the notes at its option prior to their stated maturity only if an initial
redemption date is specified in the applicable notes and in the applicable
pricing supplement. If so indicated in the applicable pricing supplement, Doral
Financial may redeem the notes at its option on any date on and after the
applicable initial redemption date specified in the applicable pricing
supplement. On and after the initial redemption date, if any, Doral Financial
may redeem the related note at any time in whole or from time to time in part at
its option at the applicable redemption price referred to below together with
interest on the principal of the applicable note payable to the redemption date,
on notice given, unless otherwise specified in the applicable pricing
supplement, not more than 60 nor less than 30 days before the redemption date.
Doral Financial will redeem the notes in increments of $1,000, provided that any
remaining principal amount will be an authorized denomination of the applicable
note. Unless otherwise specified in the applicable pricing supplement, the
redemption price with respect to a note will initially mean a percentage, the
initial redemption percentage, of the principal amount of the note to be
redeemed specified in the applicable pricing supplement and shall decline at
each anniversary of the initial redemption date by a percentage specified in the
applicable pricing supplement, of the principal amount to be redeemed until the
redemption price is 100% of the principal amount.
REPAYMENT AT THE OPTION OF THE HOLDER
If so indicated in an applicable pricing supplement, Doral Financial will
repay the notes in whole or in part at the option of the holders of the notes on
any optional repayment date specified in the applicable pricing supplement. If
no optional repayment date is indicated with respect to a note, it will not be
repayable at the option of the holder before its stated maturity. Any repayment
in part will be in an amount equal to $1,000 or integral multiples of $1,000,
provided that any remaining principal amount will be an authorized denomination
of the applicable note. The repurchase price for any note so repurchased will be
100% of the principal amount to be repaid, together with interest on the
principal of the applicable note payable to the date of repayment. For any note
to be repaid, the applicable trustee must receive, at its office maintained for
such purpose in the Borough of Manhattan, The City of New York, currently the
corporate trust office of the applicable trustee, not more than 60 nor less than
30 days before the optional repayment date:
- in the case of a note in certificated form, the note and the form
entitled "Option to Elect Repayment" duly completed, or
- in the case of a note in book-entry form, instructions to that effect
from the applicable beneficial owner of the notes to the depository and
forwarded by the depository.
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Notices of elections from a holder to exercise the repayment option must be
received by the applicable trustee by 5:00 p.m., New York City time, on the last
day for giving such notice. Exercise of the repayment option by the holder of a
note will be irrevocable.
Only the depository may exercise the repayment option in respect of global
securities representing notes in book-entry form. Accordingly, beneficial owners
of global securities that desire to have all or any portion of the notes in
book-entry form represented by global securities repaid must instruct the
participant through which they own their interest to direct the depository to
exercise the repayment option on their behalf by forwarding the repayment
instructions to the applicable trustee as discussed above. In order to ensure
that the instructions are received by the applicable trustee on a particular
day, the applicable beneficial owner must so instruct the participant through
which it owns its interest before that participant's deadline for accepting
instructions for that day. Different firms may have different deadlines for
accepting instructions from their customers. Accordingly, beneficial owners of
notes in book-entry form should consult the participants through which they own
their interest for the respective deadlines. All instructions given to
participants from beneficial owners of notes in book-entry form relating to the
option to elect repayment will be irrevocable. In addition, at the time
instructions are given, each beneficial owner will cause the participant through
which it owns its interest to transfer its interest in the global security or
securities representing the related notes in book-entry form, on the
depository's records, to the trustee. See "-- Book-Entry Notes."
If applicable, Doral Financial will comply with the requirements of Section
14(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules promulgated thereunder and any other securities laws or
regulations in connection with any repayment at the option of the holder.
Doral Financial may at any time purchase notes at any price or prices in
the open market or otherwise. Notes so purchased by Doral Financial may, at the
discretion of Doral Financial, be held, resold or surrendered to the trustee for
cancellation.
INTEREST
Each note will bear interest from the date of issue at the rate per annum
or, in the case of a floating rate note, pursuant to the interest rate formula
stated in the applicable note and in the applicable pricing supplement until the
principal of the note is paid or made available for payment. Interest will be
payable in arrears on each interest payment date specified in the applicable
pricing supplement on which an installment of interest is due and payable and at
Maturity. The first payment of interest on any note originally issued between a
regular record date and the related interest payment date will be made on the
interest payment date immediately following the next succeeding regular record
date to the registered holder on the next succeeding regular record date. The
regular record date will be the fifteenth calendar day, whether or not a
Business Day, immediately preceding the related interest payment date.
FIXED RATE NOTES
Unless otherwise specified in an applicable pricing supplement, each fixed
rate note will bear interest from, and including, the date of issue, at the rate
per annum stated on the face of the note until the principal amount of the note
is paid or made available for payment. Interest payments on fixed rate notes
will equal the amount of interest accrued from and including the immediately
preceding interest payment date in respect of which interest has been paid or
from and including the date of issue, if no interest has been paid with respect
to the applicable fixed rate notes, to, but excluding, the related interest
payment date or Maturity, as the case may be. Unless otherwise
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specified in the applicable pricing supplement, interest on fixed rate notes
will be computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable pricing supplement, interest
on fixed rate notes will be payable semiannually on May 15 and November 15 of
each year and at Maturity. If any interest payment date or the Maturity of a
fixed rate note falls on a day that is not a Business Day, the related payment
of principal, premium, if any, or interest will be made on the next succeeding
Business Day as if made on the date the applicable payment was due, and no
interest will accrue on the amount payable for the period from and after the
interest payment date or Maturity, as the case may be.
FLOATING RATE NOTES
Interest on floating rate notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may be one or more
of:
- the CD Rate,
- the CMT Rate,
- the Commercial Paper Rate,
- the Eleventh District Cost of Funds Rate,
- the Federal Funds Rate,
- LIBOR,
- the Prime Rate,
- the Treasury Rate, or
- any other Interest Rate Basis or interest rate formula that is specified
in the applicable pricing supplement.
A floating rate note may bear interest with respect to two or more Interest
Rate Bases.
TERMS. Each applicable pricing supplement will specify the terms of the
floating rate note being delivered, including:
- whether the floating rate note is
- a "Regular Floating Rate Note,"
- a "Inverse Floating Rate Note" or
- a "Floating Rate/Fixed Rate Note,"
- the Interest Rate Basis or Bases,
- the Initial Interest Rate,
- the Interest Reset Dates,
- the interest payment dates,
- the period to maturity of the instrument or obligation with respect to
which the Interest Rate Basis or Bases will be calculated (the "Index
Maturity"),
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- the Maximum Interest Rate and Minimum Interest Rate, if any,
- the number of basis points to be added to or subtracted from the related
Interest Rate Basis or Bases (the "Spread"),
- the percentage of the related Interest Rate Basis or Bases by which the
Interest Rate Basis or Bases will be multiplied to determine the
applicable interest rate (the "Spread Multiplier"),
- if one or more of the specified Interest Rate Bases is LIBOR, the LIBOR
Currency, the Index Maturity and the Designated LIBOR Page, and
- if one or more of the specified Interest Rate Bases is the CMT Rate, the
Designated CMT Telerate Page and Designated CMT Maturity Index.
The interest rate borne by the floating rate Notes will be determined as
follows:
Regular Floating Rate Notes. Unless a floating rate note is designated as
a Floating Rate/Fixed Rate Note, an Inverse Floating Rate Note or as having an
Addendum attached or as having "Other Provisions" apply relating to a different
interest rate formula, it will be a "Regular Floating Rate Note" and, except as
described below or in an applicable pricing supplement, will bear interest at
the rate determined by reference to the applicable Interest Rate Basis or Bases:
- plus or minus the applicable Spread, if any, and/or
- multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on
the Regular Floating Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the period
from the date of issue to the first Interest Reset Date will be the Initial
Interest Rate.
Floating Rate/Fixed Rate Notes. If a floating rate note is designated as a
"Floating Rate/Fixed Rate Note," it will bear interest at the rate determined by
reference to the applicable Interest Rate Basis or Bases:
- plus or minus the applicable Spread, if any, and/or
- multiplied by the applicable Spread Multiplier, if any. Commencing on the
first Interest Reset Date, the rate at which interest on the applicable
Floating Rate/Fixed Rate Note will be payable will be reset as of each
Interest Reset Date; provided, however, that:
- the interest rate in effect for the period from the date of issue to the
first Interest Reset Date will be the Initial Interest Rate, and
- the interest rate in effect commencing on, and including, the date on
which interest begins to accrue on a fixed rate basis to Maturity will be
the Fixed Interest Rate, if the rate is specified in the applicable
pricing supplement, or if no Fixed Interest Rate is specified, the
interest rate in effect on the Floating Rate/Fixed Rate Note on the day
immediately preceding the date on which interest begins to accrue on a
fixed rate basis.
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Inverse Floating Rate Notes. If a floating rate note is designated as an
"Inverse Floating Rate Note," except as described below, it will bear interest
equal to the Fixed Interest Rate specified in the related pricing supplement
minus the rate determined by reference to the applicable Interest Rate Basis or
Bases:
- plus or minus the applicable Spread, if any, and/or
- multiplied by the applicable Spread Multiplier, if any; provided,
however, that unless otherwise specified in the applicable pricing
supplement, the interest rate on the applicable Inverse Floating Rate
Note will not be less than zero percent. Commencing on the first Interest
Reset Date, the rate at which interest on the applicable Inverse Floating
Rate Note is payable will be reset as of each Interest Reset Date;
provided, however, that the interest rate in effect for the period from
the date of issue to the first Interest Reset Date will be the Initial
Interest Rate.
Each Interest Rate Basis shall be the rate determined in accordance with
the applicable provisions below. Except as set forth above, the interest rate in
effect on each day will be:
- if the day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding
the applicable Interest Reset Date or
- if the day is not an Interest Reset Date, the interest rate determined as
of the Interest Determination Date immediately preceding the applicable
Interest Reset Date.
Interest Reset Dates. The applicable pricing supplement will specify the
dates on which the interest rate on the related floating rate note will be reset
(each, an "Interest Reset Date"). Unless otherwise specified in the applicable
pricing supplement, the Interest Reset Date will be, in the case of floating
rate notes which reset:
- daily -- each Business Day;
- weekly -- the Wednesday of each week, with the exception of weekly reset
Floating Rate Notes as to which the Treasury Rate is an applicable
Interest Rate Basis, which will reset the Tuesday of each week, except as
described below;
- monthly -- the third Wednesday of each month, with the exception of
monthly reset Floating Rate Notes as to which the Eleventh District Cost
of Funds Rate is an applicable Interest Rate Basis, which will reset on
the first calendar day of the month;
- quarterly -- the third Wednesday of March, June, September and December
of each year;
- semiannually -- the third Wednesday of the two months specified in the
applicable pricing supplement; and
- annually -- the third Wednesday of the month specified in the applicable
pricing supplement;
provided, however, that with respect to Floating Rate/Fixed Rate Notes, the rate
of interest will not reset after the applicable date on which interest on a
fixed rate basis begins to accrue.
If any Interest Reset Date for any floating rate note would otherwise be a
day that is not a Business Day, the applicable Interest Reset Date will be
postponed to the next succeeding day that is a Business Day, except that in the
case of a floating rate note as to which LIBOR is an applicable Interest Rate
Basis, if the Business Day falls in the next succeeding calendar month, then the
Interest Reset Date will be the immediately preceding Business Day. In addition,
in the case of a floating rate
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note for which the Treasury Rate is an applicable Interest Rate Basis if the
Interest Determination Date would otherwise fall on an Interest Reset Date, then
the applicable Interest Reset Date will be postponed to the next succeeding
Business Day.
Maximum and Minimum Interest Rates. A floating rate note may also have
either or both of the following:
- a maximum numerical limitation, or ceiling, on the rate at which interest
may accrue during any interest period (a "Maximum Interest Rate"), and
- a minimum numerical limitation, or floor, on the rate at which interest
may accrue during any period (a "Minimum Interest Rate").
Notwithstanding the above provisions, the interest rate on floating rate
notes will in no event be higher than the maximum rate permitted by New York law
as the same may be modified by United States law of general application. Under
present New York law, the maximum rate of interest, subject to certain
exceptions, for any loan in an amount less than $250,000, is 16%, and for any
loan in the amount of $250,000 or more but less than $2,500,000, is 25%, per
annum on a simple interest basis. These limits do not apply to loans of
$2,500,000 or more.
Interest Payments. Each applicable pricing supplement will specify the
dates on which interest will be payable. Each floating rate note will bear
interest from the date of issue at the rates specified in the applicable
floating rate note until the principal of the applicable note is paid or
otherwise made available for payment. Except as provided below or in the
applicable pricing supplement, the interest payment dates with respect to
floating rate notes will be, in the case of floating rate notes which reset:
- daily, weekly or monthly -- the third Wednesday of each month or on the
third Wednesday of March, June, September and December of each year, as
specified in the applicable pricing supplement;
- quarterly -- the third Wednesday of March, June, September and December
of each year;
- semiannually -- the third Wednesday of the two months of each year
specified in the applicable pricing supplement;
- annually -- the third Wednesday of the month of each year specified in
the applicable pricing supplement; and
- at Maturity.
If any interest payment date for any floating rate note, other than an
interest payment date at Maturity, would otherwise be a day that is not a
Business Day, the interest payment date will be postponed to the next succeeding
day that is a Business Day except that in the case of a floating rate note as to
which LIBOR is an applicable Interest Rate Basis, if the Business Day falls in
the next succeeding calendar month, the applicable interest payment date will be
the immediately preceding Business Day. If the Maturity of a floating rate note
falls on a day that is not a Business Day, the payment of principal, premium, if
any, and interest will be made on the next succeeding Business Day, and no
interest on such payment will accrue for the period from and after the Maturity.
All percentages resulting from any calculation on floating rate notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards. For example,
9.876545%, or .09876545, would be rounded to 9.87655%, or .0987655. All dollar
amounts used in or resulting from any calculation on floating rate notes will be
rounded to the nearest cent with one-half cent being rounded upward.
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Interest payments on floating rate notes will equal the amount of interest
accrued from and including the immediately preceding interest payment date in
respect of which interest has been paid or from and including the date of issue,
if no interest has been paid, to but excluding the related interest payment date
or Maturity.
With respect to each floating rate note, accrued interest is calculated by
multiplying its face amount by an accrued interest factor. The accrued interest
factor is computed by adding the interest factor calculated for each day in the
period for which accrued interest is being calculated.
- In the case of notes for which the Interest Rate Basis is the CD Rate,
the Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the
Federal Funds Rate, LIBOR or the Prime Rate, the interest factor for each
day will be computed by dividing the interest rate applicable to each day
by 360.
- In the case of notes for which the Interest Rate Basis is the CMT Rate or
the Treasury Rate, the interest factor for each day will be computed by
dividing the interest rate applicable to each day by the actual number of
days in the year.
- The interest factor for notes for which the interest rate is calculated
with reference to two or more Interest Rate Bases will be calculated in
each period in the same manner as if only one of the applicable Interest
Rate Bases applied.
Interest Determination Dates. The interest rate applicable to each
interest reset period commencing on the Interest Reset Date with respect to that
interest reset period will be the rate determined as of the applicable "Interest
Determination Date."
- The Interest Determination Date with respect to the CD Rate, the CMT Rate
and the Commercial Paper Rate will be the second Business Day preceding
each Interest Reset Date for the related note.
- The Interest Determination Date with respect to the Federal Funds Rate
and the Prime Rate will be the Business Day immediately preceding each
Interest Reset Date.
- The Interest Determination Date with respect to the Eleventh District
Cost of Funds Rate will be the last working day of the month immediately
preceding each Interest Reset Date on which the Federal Home Loan Bank of
San Francisco publishes the Index, as defined below.
- The Interest Determination Date with respect to LIBOR will be the second
London Business Day preceding each Interest Reset Date.
- The Interest Determination Date with respect to the Treasury Rate will be
the day in the week in which the related Interest Reset Date falls on
which day Treasury Bills, as defined below, are normally auctioned.
Treasury Bills are normally sold at auction on Monday of each week,
unless that day is a legal holiday, in which case the auction is normally
held on the following Tuesday, except that the auction may be held on the
preceding Friday; provided, however, that if an auction is held on the
Friday of the week preceding the related Interest Reset Date, the related
Interest Determination Date will be the preceding Friday; and provided,
further, that if an auction falls on any Interest Reset Date, then the
related Interest Reset Date will instead be the first Business Day
following the auction.
- The Interest Determination Date pertaining to a floating rate note the
interest rate of which is determined with reference to two or more
Interest Rate Bases will be the latest Business Day which is at least two
Business Days before the applicable Interest Reset Date for the
applicable floating rate note on which each Interest Reset Basis is
determinable. Each Interest
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Rate Basis will be determined on the Interest Determination Date, and the
applicable interest rate will take effect on the related Interest Reset
Date.
Calculation Date. Unless otherwise provided in the applicable pricing
supplement, the trustee under the applicable indenture will be the calculation
agent. Upon the request of the holder of any floating rate note, the calculation
agent will provide the interest rate then in effect and, if determined, the
interest rate that will become effective as a result of a determination made for
the next Interest Reset Date with respect to that floating rate note. Unless
otherwise specified in the applicable pricing supplement, the calculation date,
if applicable, pertaining to any Interest Determination Date will be the earlier
of:
- the tenth calendar day after the applicable Interest Determination Date,
or, if the tenth calendar day is not a Business Day, the next succeeding
Business Day or
- the Business Day preceding the applicable Interest Payment Date or
Maturity, as the case may be.
CD RATE. CD Rate Notes will bear interest at the rates, calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any,
specified in the applicable CD Rate Notes and in any applicable pricing
supplement.
"CD Rate" means:
(1) the rate on the applicable Interest Determination Date for negotiable
United States dollar certificates of deposit having the Index Maturity
specified in the applicable pricing supplement published in H.15(519)
under the heading "CDs (secondary market)," or
(2) if the rate referred to in clause (1) above is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on
the applicable Interest Determination Date for negotiable United States
dollar certificates of deposit of the Index Maturity specified in the
applicable pricing supplement as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "CDs (secondary market)," or
(3) if the rate referred to in clause (2) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the rate on the
applicable Interest Determination Date calculated by the calculation
agent as the arithmetic mean of the secondary market offered rates as
of 10:00 A.M., New York City time, on the applicable Interest
Determination Date, of three leading non-bank dealers in negotiable
United States dollar certificates of deposit in The City of New York
selected by the calculation agent for negotiable United States dollar
certificates of deposit of major United States money center banks for
negotiable certificates of deposit with a remaining maturity closest to
the Index Maturity specified in the applicable pricing supplement in an
amount that is representative for a single transaction in that market
at that time, or
(4) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (3) above, the CD rate in effect on the applicable
Interest Determination Date.
"H.15(519)" means the weekly statistical release designated as H.15(519),
or any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication.
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CMT RATE. CMT Rate Notes will bear interest at the rates, calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any,
specified in the applicable CMT Rate Notes and in any applicable pricing
supplement.
"CMT Rate" means:
(1) the rate displayed on the Designated CMT Telerate Page under the
caption "...Treasury Constant Maturities... Federal Reserve Board
Release H.15... Mondays Approximately 3:45 P.M.," under the column for
the Designated CMT Maturity Index for:
(a) if the Designated CMT Telerate Page is 7051, the rate on the
applicable Interest Determination Date, and
(b) if the Designated CMT Telerate Page is 7052, the weekly or the
monthly average, as specified in the applicable pricing supplement,
for the week or the month, as applicable, ended immediately
preceding the week or the month, as applicable, in which the related
Interest Determination Date falls, or
(2) if the rate referred to in clause (1) is no longer displayed on the
relevant page or is not so displayed by 3:00 P.M., New York City time,
on the related calculation date, the treasury constant maturity rate
for the Designated CMT Maturity Index published in H.15(519), or
(3) if the rate referred to in clause (2) is no longer published or is not
published by 3:00 P.M., New York City time, on the related calculation
date, the treasury constant maturity rate for the Designated CMT
Maturity Index, or other United States Treasury rate for the Designated
CMT Maturity Index, for the applicable Interest Determination Date with
respect to the applicable Interest Reset Date as may then be published
by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the calculation agent
determines to be comparable to the rate formerly displayed on the
Designated CMT Telerate Page and published in H.15(519), or
(4) if the rate referred to in clause (3) is not so published by 3:00 P.M.,
New York City time, on the applicable calculation date, the rate on the
applicable Interest Determination Date calculated by the calculation
agent as a yield to maturity, based on the arithmetic mean of the
secondary market offered rates as of approximately 3:30 P.M., New York
City time, on the applicable Interest Determination Date reported,
according to their written records, by three leading primary United
States government securities dealers in The City of New York, which may
include the agent or its affiliates (each, a "Reference Dealer"),
selected by the calculation agent from five Reference Dealers selected
by the calculation agent after eliminating the highest quotation, or,
in the event of equality, one of the highest, and the lowest quotation
or, in the event of equality, one of the lowest, for the most recently
issued direct noncallable fixed rate obligations of the United States
("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not
less than such Designated CMT Maturity Index minus one year, or
(5) if the calculation agent is unable to obtain three applicable Treasury
Note quotations as referred to in clause (4), the rate on the
applicable Interest Determination Date calculated by the calculation
agent as a yield to maturity based on the arithmetic mean of the
secondary market offered rates as of approximately 3:30 P.M., New York
City time, on the applicable Interest Determination Date of three
Reference Dealers in The City of New York selected by the calculation
agent from five Reference Dealers selected by the calculation agent
after eliminating the highest quotation or, in the event of equality,
one of the highest and the lowest quotation or, in the event of
equality, one of the lowest, for
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Treasury Notes with an original maturity of the number of years that is
the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an
amount of at least $100 million, or
(6) if three or four and not five of Reference Dealers are quoting as
referred to in clause (5) above, the rate will be calculated by the
calculation agent as the arithmetic mean of the offered rates obtained
and neither the highest nor the lowest of quotes will be eliminated, or
(7) if fewer than three Reference Dealers selected by the calculation agent
are quoting as mentioned in clause (6), the rate in effect on the
applicable Interest Determination Date.
If two Treasury Notes with an original maturity as described in clause
(5) have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the calculation agent will obtain from five Reference
Dealers quotations for the Treasury Notes with the shorter remaining term
to maturity.
"Designated CMT Telerate Page" means the display on Bridge Telerate, Inc.
or any successor service on the page specified in the applicable pricing
supplement or any other page as may replace the specified page on that service
for the purpose of displaying Treasury Constant Maturities as reported in
H.15(519), or, if no page is specified in the applicable pricing supplement,
page 7052.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities, either 1, 2, 3, 5, 7, 10, 20 or 30 years,
specified in the applicable pricing supplement with respect to which the CMT
Rate will be calculated or, if no maturity is specified in the applicable
pricing supplement, 2 years.
COMMERCIAL PAPER RATE. Commercial Paper Rate Notes will bear interest at
the rates, calculated with reference to the Commercial Paper Rate and the Spread
and/or Spread Multiplier, if any, specified in the applicable Commercial Paper
Rate Notes and in any applicable pricing supplement.
"Commercial Paper Rate" means:
(1) the Money Market Yield on the applicable Interest Determination Date of
the rate for commercial paper having the Index Maturity specified in
the applicable pricing supplement published in H.15(519) under the
caption "Commercial Paper-Nonfinancial," or
(2) if the rate described in clause (1) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the rate on the
applicable Interest Determination Date for commercial paper having the
Index Maturity specified in the applicable pricing supplement published
in H.15 Daily Update, or other recognized electronic source used for
the purpose of displaying the applicable rate, under the caption
"Commercial Paper-Nonfinancial," or
(3) if the rate is referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on
the applicable Interest Determination Date calculated by the
calculation agent as the Money Market Yield of the arithmetic mean of
the offered rates at approximately 11:00 A.M., New York City time, on
the applicable Interest Determination Date of three leading dealers of
United States dollar commercial paper in The City of New York, which
may include the agent and its affiliates, selected by the calculation
agent for commercial paper having the Index Maturity specified in the
applicable pricing supplement placed for industrial issuers whose bond
rating is "Aa," or the equivalent, from a nationally recognized
statistical rating organization, or
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(4) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (3), the rate in effect on the applicable Interest
Determination Date.
"Money Market Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
<TABLE>
<C> <C> <C> <C> <S>
Money Market Yield = D X 360 X 100
--------------
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
ELEVENTH DISTRICT COST OF FUNDS RATE. Eleventh District Cost of Funds Rate
Notes will bear interest at the rates, calculated with reference to the Eleventh
District Cost of Funds Rate and the Spread and/or Spread Multiplier, if any,
specified in the applicable Eleventh District Cost of Funds Rate Notes and in
any applicable pricing supplement.
"Eleventh District Cost of Funds Rate" means:
(1) the rate equal to the monthly weighted average cost of funds for the
calendar month immediately preceding the month in which the applicable
Interest Determination Date falls as set forth under the caption "11th
District" on the display on Bridge Telerate, Inc. or any successor
service on page 7058 or any other page as may replace the specified
page on that service ("Telerate Page 7058") as of 11:00 A.M., San
Francisco time, on the applicable Interest Determination Date, or
(2) if the rate referred to in clause (1) does not appear on Telerate Page
7058 on the related Interest Determination Date, the monthly weighted
average cost of funds paid by member institutions of the Eleventh
Federal Home Loan Bank District that was most recently announced (the
"Index") by the Federal Home Loan Bank of San Francisco as the cost of
funds for the calendar month immediately preceding the applicable
Interest Determination Date, or
(3) if the Federal Home Loan Bank of San Francisco fails to announce the
Index on or before the applicable Interest Determination Date for the
calendar month immediately preceding the applicable Interest
Determination Date, the rate in effect on the applicable Interest
Determination Date.
FEDERAL FUNDS RATE. Federal Funds Rate Notes will bear interest at the
rates, calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, specified in the applicable Federal Funds Rate Notes
and in any applicable pricing supplement.
"Federal Funds Rate" means:
(1) the rate on the applicable Interest Determination Date for United
States dollar federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," as displayed on Bridge Telerate, Inc. or
any successor service on page 120 or any other page as may replace the
applicable page on that service ("Telerate Page 120"), or
(2) if the rate referred to in clause (1) does not appear on Telerate Page
120 or is not so published by 3:00 P.M., New York City time, on the
related calculation date, the rate on the applicable Interest
Determination Date for United States dollar federal funds published
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in H.15 Daily Update, or other recognized electronic source used for
the purpose of displaying the applicable rate, under the caption
"Federal Funds/Effective Rate," or
(3) if the rate referred to in clause (2) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the rate on the
applicable Interest Determination Date calculated by the calculation
agent as the arithmetic mean of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading
brokers of United States dollar federal funds transactions in The City
of New York, which may include the agent or its affiliates, selected by
the calculation agent before 9:00 A.M., New York City time, on the
applicable Interest Determination Date, or
(4) if the brokers selected by the calculation agent are not quoting as
mentioned in clause (3), the rate in effect on the applicable Interest
Determination Date.
LIBOR. LIBOR Notes will bear interest at the rates, calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, specified in
the applicable LIBOR Notes and in any applicable pricing supplement.
"LIBOR" means:
(1) if "LIBOR Telerate" is specified in the applicable pricing supplement
or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable pricing supplement as the method for calculating LIBOR,
LIBOR will be the rate for deposits in the LIBOR Currency, as defined
below, having the Index Maturity specified in the applicable pricing
supplement, commencing on the second London Business Day immediately
following that Interest Determination Date that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on the applicable
Interest Determination Date, or
(2) if "LIBOR Reuters" is specified in the applicable pricing supplement,
LIBOR will be the arithmetic mean of the offered rates for deposits in
the LIBOR Currency having the Index Maturity specified in the
applicable pricing supplement, commencing on the second London Business
Day immediately following that Interest Determination Date, that
appear, on the Designated LIBOR Page specified in the applicable
pricing supplement as of 11:00 A.M., London time, on the applicable
Interest Determination Date; provided that if the Designated LIBOR Page
by its terms provides only for a single rate, then the single rate will
be used, or
(3) with respect to a LIBOR Interest Determination Date on which fewer than
two offered rates appear, in the case of clause (1), or no rate
appears, in the case of clause (2), on the designated LIBOR Page, the
rate calculated by the calculation agent as the arithmetic mean of at
least two quotations obtained by the calculation agent after requesting
the principal London offices of each of four major reference banks,
which may include affiliates of an agent, in the London interbank
market to provide the calculation agent with its offered quotation for
deposits in the LIBOR Currency for the period of the Index Maturity
specified in the applicable pricing supplement, commencing on the
second London Business Day immediately following the applicable
Interest Determination Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on the applicable
Interest Determination Date and in a principal amount that is
representative for a single transaction in the applicable LIBOR
Currency in that market at that time, or
(4) if fewer than two quotations referred to in clause (3) are so provided,
the rate on the applicable Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the rates quoted at
approximately 11:00 A.M., in the applicable Principal Financial
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Center(s), on the applicable Interest Determination Date by three major
banks, which may include affiliates of the agent, in the applicable
Principal Financial Center selected by the calculation agent for loans
in the LIBOR Currency to leading European banks, having the Index
Maturity specified designated in the applicable pricing supplement and
in a principal amount that is representative for a single transaction
in the applicable LIBOR Currency in that market at that time, or
(5) if the banks so selected by the calculation agent are not quoting as
mentioned in clause (4), the rate in effect on the applicable Interest
Determination Date.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR will be calculated or, if no currency is
specified in the applicable pricing supplement, United States dollars.
"Designated LIBOR Page" means either:
- if "LIBOR Telerate" is designated in the applicable pricing supplement or
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable pricing supplement as the method for calculating LIBOR, the
display on Bridge Telerate, Inc. or any successor service on the page
specified in such pricing supplement or any page as may replace the
specified page on that service for the purpose of displaying the London
interbank rates of major banks for the applicable LIBOR Currency, or
- if "LIBOR Reuters" is specified in the applicable pricing supplement, the
display on the Reuter Monitor Money Rates Service or any successor
service on the page specified in the applicable pricing supplement or any
other page as may replace the specified page on that service for the
purpose of displaying the London interbank rates of major banks for the
applicable LIBOR Currency.
PRIME RATE. Prime Rate Notes will bear interest at the rates, calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any, specified in the applicable Prime Rate Notes and any applicable pricing
supplement.
"Prime Rate" means:
(1) the rate on the applicable Interest Determination Date as published in
H.15(519) under the heading "Bank Prime Loan," or
(2) if the rate referred to in clause (1) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the rate on the
applicable Interest Determination Date published in H.15 Daily Update,
or such other recognized electronic source used for the purpose of
displaying the applicable rate under the caption "Bank Prime Loan," or
(3) if the rate referred to in clause (2) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the rate
calculated by the calculation agent as the arithmetic mean of the rates
of interest publicly announced by at least four banks that appear on
the Reuters Screen US PRIME 1 Page as the particular bank's prime rate
or base lending rate as of 11:00 A.M., New York City time, on the
applicable Interest Determination Date, or
(4) if fewer than four rates described in clause (3) are shown on Reuters
Screen US PRIME 1 Page by 3:00 P.M., New York City time, on the related
calculation date, the rate on the applicable Interest Determination
Date calculated by the calculation agent as the arithmetic mean of the
prime rates or base lending rates quoted on the basis of the actual
number of days in the year divided by a 360-day year as of the close of
business on the applicable
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Interest Determination Date by three major banks, which may include
affiliates of the agent, in The City of New York selected by the
calculation agent, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), the rate in effect on the applicable Interest
Determination Date.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service or any successor service on the "US PRIME 1" Page or other
page as may replace the US PRIME 1 Page on such service for the purpose of
displaying prime rates or base lending rates of major United States banks.
TREASURY RATE. Treasury Rate Notes will bear interest at the rates,
calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any, specified in the applicable Treasury Rate Notes and in any
applicable pricing supplement.
"Treasury Rate" means:
(1) the rate from the auction held on the applicable Interest Determination
Date (the "Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the
applicable pricing supplement under the caption "INVESTMENT RATE" on
the display on Bridge Telerate, Inc. or any successor service on page
56 or any other page as may replace page 56 on that service ("Telerate
Page 56") or page 57 or any other page as may replace page 57 on that
service ("Telerate Page 57"), or
(2) if the rate described in clause (1) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the Bond
Equivalent Yield of the rate for the applicable Treasury Bills as
published in H.15 Daily Update, or other recognized electronic source
used for the purpose of displaying the applicable rate, under the
caption "U.S. Government Securities/Treasury Bills/Auction High," or
(3) if the rate described in clause (2) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the Bond
Equivalent Yield of the auction rate of the applicable Treasury Bills
announced by the United States Department of the Treasury, or
(4) in the event that the rate referred to in clause (3) is not announced
by the United States Department of the Treasury, or if the Auction is
not held, the Bond Equivalent Yield of the rate on the applicable
Interest Determination Date of Treasury Bills having the Index Maturity
specified in the applicable Pricing Supplement published in H.15(519)
under the caption "U.S. Government Securities/Treasury Bills/Secondary
Market," or
(5) if the rate referred to in clause (4) is not so published by 3:00 P.M.,
New York City time, on the related calculation date, the rate on the
applicable Interest Determination Date of the applicable Treasury Bills
as published in H.15 Daily Update, or other recognized electronic
source used for the purpose of displaying the applicable rate, under
the caption "U.S. Government Securities/Treasury Bills/Secondary
Market," or
(6) if the rate referred to in clause (5) is not so published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on the
applicable Interest Determination Date calculated by the calculation
agent as the Bond Equivalent Yield of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York
City time, on the applicable Interest Determination Date, of three
primary United States government securities dealers, which may include
the agent or its affiliates, selected by the calculation agent, for the
issue of Treasury Bills with a remaining maturity closest to the Index
Maturity specified in the applicable pricing supplement, or
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(7) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (6), the rate in effect on the applicable Interest
Determination Date.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
Bond Equivalent Yield = D x N x 100
-------------
360 - (D x M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis, "N" refers to 365 or 366, as the case may be, and "M"
refers to the actual number of days in the interest period for which interest is
being calculated.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to an issue of notes, including the
determination of one or more Interest Rate Bases, the specification of one or
more Interest Rate Bases, the calculation of the interest rate applicable to a
floating rate note, the applicable interest payment dates, the stated maturity
date, any redemption or repayment provisions or any other matter relating to the
applicable notes may be modified by the terms as specified under "Other
Provisions" on the face of the applicable notes or in an Addendum relating to
the applicable notes, if so specified on the face of the applicable notes and in
the applicable pricing supplement.
ORIGINAL ISSUE DISCOUNT NOTES
Doral Financial may from time to time offer notes at a price less than
their stated redemption price at Maturity. If the difference between the issue
price of the notes and their stated redemption price at maturity exceeds a de
minimus amount, the notes will be treated as if they were issued with original
issue discount for federal income tax purposes ("Original Issue Discount
Notes"). Original Issue Discount Notes may currently pay no interest or interest
at a rate which at the time of issuance is below market rates. Additional
considerations relating to any Original Issue Discount Notes will be described
in the applicable pricing supplement.
AMORTIZING NOTES
Doral Financial may from time to time offer notes ("Amortizing Notes"),
with amounts of principal and interest payable in installments over the term of
the notes. Unless otherwise specified in the applicable pricing supplement,
interest on each Amortizing Note will be computed on the basis of a 360-day year
of twelve 30-day months. Payments with respect to Amortizing Notes will be
applied first to interest due and payable on the Amortizing Notes and then to
the reduction of the unpaid principal amount of the Amortizing Notes. Further
information concerning additional terms and conditions of any issue of
Amortizing Notes will be provided in the applicable pricing supplement. A table
setting forth repayment information in respect of each Amortizing Note will be
included in the applicable note and the applicable pricing supplement.
BOOK-ENTRY NOTES
DESCRIPTION OF THE GLOBAL SECURITIES
Upon issuance, all notes in book-entry form having the same date of issue,
Maturity and otherwise having identical terms and provisions will be represented
by one or more fully registered global notes (the "Global Notes"). Each Global
Note will be deposited with, or on behalf of, The
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Depository Trust Company as depository registered in the name of the depository
or a nominee of the depository. Unless and until it is exchanged in whole or in
part for notes in certificated form, no Global Note may be transferred except as
a whole by the depository to a nominee of the depository or by a nominee of the
depository to the depository or another nominee of the depository or by the
depository or any such nominee to a successor of the depository or a nominee of
the successor.
DTC PROCEDURES
The following is based on information furnished by the depository:
The depository will act as securities depository for the notes in
book-entry form. The notes in book-entry form will be issued as fully registered
securities registered in the name of Cede & Co., the depository's partnership
nominee. One fully registered Global Note will be issued for each issue of notes
in book-entry form, each in the aggregate principal amount of the issue, and
will be deposited with the depository. If, however, the aggregate principal
amount of any issue exceeds $200,000,000, one Global Note will be issued with
respect to each $200,000,000 of principal amount and an additional Global Note
will be issued with respect to any remaining principal amount of the issue.
The depository is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The depository holds securities that its participants deposit with the
depository. The depository also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of the depository include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The depository is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the depository's system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to the
depository and its participants are on file with the SEC.
Purchasers of notes in book-entry form under the depository's system must
be made by or through direct participants, which will receive a credit for those
notes in book-entry form on the depository's records. The ownership interest of
each actual purchaser of each note in book-entry form represented by a Global
Note is, in turn, to be recorded on the records of direct participants and
indirect participants. Beneficial owners in book-entry form will not receive
written confirmation from the depository of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in a Global Note
representing notes in book-entry form are to be accomplished by entries made on
the books of participants acting on behalf of beneficial owners. Beneficial
owners of a Global Note representing notes in book-entry form will not receive
notes in certificated form representing their ownership interests therein,
except in the event that use of the book-entry system for such notes in
book-entry form is discontinued.
To facilitate subsequent transfers, all Global Notes representing notes in
book-entry form which are deposited with, or on behalf of, the depository are
registered in the name of the depository's nominee, Cede & Co. The deposit of
Global Notes with, or on behalf of, the depository and their registration in the
name of Cede & Co. effect no change in beneficial ownership. The depository has
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no knowledge of the actual beneficial owners of the Global Notes representing
the notes in book-entry form; the depository's records reflect only the identity
of the direct participants to whose accounts such notes in book-entry form are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the depository to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the depository nor Cede & Co. will consent or vote with respect to
the Global Notes representing the notes in book-entry form. Under its usual
procedures, the depository mails an omnibus proxy to Doral Financial as soon as
possible after the applicable record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants, identified in a
listing attached to the omnibus proxy, to whose accounts the notes in book-entry
form are credited on the applicable record date.
Doral Financial will make principal, premium, if any, and/or interest, if
any, payments on the Global Notes representing the notes in book-entry form in
immediately available funds to the depository. The depository's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depository's records
unless the depository has reason to believe that it will not receive payment on
the applicable payment date. Payments by participants to beneficial owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of the applicable participant
and not of the depository, the trustee or Doral Financial, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal, premium, if any, and/or interest, if any, to the
depository is the responsibility of Doral Financial and the trustee,
disbursement of payments to direct participants will be the responsibility of
the depository, and disbursement of payments to the beneficial owners will be
the responsibility of direct participants and indirect participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the notes in book-entry form of like tenor and terms are being redeemed,
the depository's practice is to determine by lot the amount of the interest of
each direct participant in the issue to be redeemed.
A beneficial owner will give notice of any option to elect to have its
notes in book-entry form repaid by Doral Financial, through its participant, to
the applicable trustee, and will effect delivery of the applicable notes in
book-entry form by causing the direct participant to transfer the participant's
interest in the Global Note notes in book-entry form, on the depository's
records, to the trustee.
The depository may discontinue providing its services as securities
depository with respect to the notes in book-entry form at any time by giving
reasonable notice to Doral Financial or the applicable trustee. In the event
that a successor securities depository is not obtained, notes in certificated
form are required to be printed and delivered.
Doral Financial may decide to discontinue use of the system of book-entry
transfers through the depository or a successor securities depository. In that
event, notes in certificated form will be printed and delivered.
The laws of some states may require that certain purchasers of securities
take physical delivery of securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
Global Notes.
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So long as the depository, or its nominee, is the registered owner of a
Global Note, the depository or its nominee, as the case may be, will be
considered the sole owner or holder of the notes represented by such Global Note
for all purposes under the Indentures. Except as provided below, beneficial
owners of a Global Note will not be entitled to have the notes represented by a
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of the notes in definitive form and will not be
considered the owners or holders thereof under the applicable indenture.
Accordingly, each person owning a beneficial interest in a Global Note must rely
on the procedures of the depository and, if that person is not a participant, on
the procedures of the participant through which that person owns its interest,
to exercise any rights of a holder under the applicable indenture. Doral
Financial understands that under existing industry practices, in the event that
Doral Financial requests any action of holders or that an owner of a beneficial
interest in a Global Note desires to give or take any action which a holder is
entitled to give or take under the applicable indenture, the depository would
authorize the participants holding the relevant beneficial interests to give or
take the desired action, and the participants would authorize beneficial owners
owning through the participants to give or take the desired action or would
otherwise act upon the instructions of beneficial owners.
The depository's management is aware that some computer applications,
systems, and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." The depository has informed its participants and
other members of the financial community (the "Industry") that it has developed
and is implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within the
depository continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally, the
depository's plan includes a testing phase, which is expected to be completed
within appropriate time frames.
However, the depository's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as the depository's direct and indirect participants, third
party vendors from whom the depository licenses software and hardware, and third
party vendors on whom the depository relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. The depository has informed the Industry that it is contacting
(and will continue to contact) third party vendors from whom the depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the depository is in the process of developing such contingency plans
as it deems appropriate.
EXCHANGE FOR NOTES IN CERTIFICATED FORM
If:
(a) the depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by Doral
Financial within 90 days,
(b) Doral Financial executes and delivers to the trustee a company order to
the effect that the Global Notes shall be exchangeable, or
(c) an Event of Default has occurred and is continuing with respect to the
notes,
the Global Note or Global Notes will be exchangeable for notes in certificated
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The certificated notes will be
registered in the name or names as the depository instructs the
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applicable trustee. It is expected that instructions may be based upon
directions received by the depository from participants with respect to
ownership of beneficial interests in Global Notes.
The information in this section concerning the depository and the
depository's system has been obtained from sources that Doral Financial believes
to be reliable, but Doral Financial takes no responsibility for the accuracy of
the information.
UNITED STATES FEDERAL INCOME TAXATION
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change, including changes in effective dates, or possible differing
interpretations. It deals only with notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers, except where otherwise specifically
noted. Persons considering the purchase of the notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the notes arising under the laws of any other
taxing jurisdiction.
As used in this prospectus, the term "U.S. Holder" means a beneficial owner
of a note that is for United States Federal income tax purposes:
(1) a citizen or resident of the United States,
(2) a corporation or a partnership (including an entity treated as a
corporation or a partnership for United States Federal income tax
purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide
otherwise),
(3) an estate whose income is subject to United States Federal income tax
regardless of its source,
(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust, or
(5) any other person whose income or gain in respect of a note is
effectively connected with the conduct of a United States trade or
business.
Certain trusts not described in clause (4) above in existence on August 20, 1996
that elect to be treated as a United States person will also be a U.S. Holder
for purposes of the following discussion. As used herein, the term "non-U.S.
Holder" means a beneficial owner of a note that is not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Payments of interest on a note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular method
of tax accounting).
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ORIGINAL ISSUE DISCOUNT. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of notes issued with original issue discount
("Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service on
January 27, 1994, as amended on June 11, 1996, under the original issue discount
provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a note
providing for the payment of any amount other than qualified stated interest (as
defined below) prior to maturity, multiplied by the weighted average maturity of
the note). The issue price of each note of an issue of notes equals the first
price at which a substantial amount of the notes has been sold (ignoring sales
to bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers). The stated
redemption price at maturity of a note is the sum of all payments provided by
the note other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally payable
in cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate. In addition, under the OID Regulations, if a
note bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of the note (e.g., notes with teaser rates or
interest holidays), and if the greater of either the resulting foregone interest
on the note or any "true" discount on the note (i.e., the excess of the note's
stated principal amount over its issue price) equals or exceeds a specified de
minimis amount, then the stated interest on the note would be treated as
original issue discount rather than qualified stated interest.
Payments of qualified stated interest on a note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of the U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is the
sum of the daily portions of original issue discount with respect to the
Discount Note for each day during the taxable year (or portion of the taxable
year) on which the U.S. Holder held the Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. The amount of original issue
discount allocable to each accrual period is generally equal to the difference
between
- the product of the Discount Note's adjusted issue price at the beginning
of such accrual period and its yield to maturity (determined on the basis
of compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual
period) and
- the amount of any qualified stated interest payments allocable to such
accrual period.
The "adjusted issue price" of a Discount Note at the beginning of any accrual
period is the sum of the issue price of the Discount Note plus the amount of
original issue discount allocable to all prior
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accrual periods minus the amount of any prior payments on the Discount Note that
were not qualified stated interest payments. Under these rules, U.S. Holders
generally will have to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium". Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
(hereinafter "Variable Notes") are subject to special rules whereby a Variable
Note will qualify as a "variable rate debt instrument" if
- its issue price does not exceed the total noncontingent principal
payments due under the Variable Note by more than a specified de minimis
amount and
- it provides for stated interest, paid or compounded at least annually, at
current values of:
- one or more qualified floating rates,
- a single fixed rate and one or more qualified floating rates,
- a single objective rate, or
- a single fixed rate and a single objective rate that is a qualified
inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation (i.e., a cap) or a minimum numerical limitation (i.e., a
floor) may, under certain circumstances, fail to be treated as a qualified
floating rate under the OID Regulations unless such cap or floor is fixed
throughout the term of the note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula that is based on objective financial or economic information. A rate
will not qualify as an objective rate if it is based on information that is
within the control of the issuer (or a related party) or that is unique to the
circumstances of the issuer (or a related party), such as dividends, profits, or
the value of the issuer's stock (although a rate does not fail to be an
objective rate merely because it is based on the credit quality of the issuer).
A "qualified inverse floating rate" is any objective rate where such rate is
equal to a fixed rate minus a qualified floating rate, as long as variations in
the rate can reasonably be expected to inversely reflect contemporaneous
variations in the qualified floating rate. The OID
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Regulations also provide that if a Variable Note provides for stated interest at
a fixed rate for an initial period of one year or less followed by a variable
rate that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Note's issue date is intended to approximate the
fixed rate (e.g., the value of the variable rate on the issue date does not
differ from the value of the fixed rate by more than 25 basis points), then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, and if
the interest on a Variable Note is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually, then all stated
interest on the Variable Note will constitute qualified stated interest and will
be taxed accordingly. Thus, a Variable Note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a "variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the Variable Note is issued at a "true" discount
(i.e., at a price below the Variable Note's stated principal amount) in excess
of a specified de minimis amount. The amount of qualified stated interest and
the amount of original issue discount, if any, that accrues during an accrual
period on such a Variable Note is determined under the rules applicable to fixed
rate debt instruments by assuming that the variable rate is a fixed rate equal
to
(1) in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or
(2) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Variable Note.
The qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or is
less than) the interest assumed to be paid during the accrual period pursuant to
the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
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Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. On June 11, 1996, the Treasury Department
issued final regulations (the "CPDI Regulations") concerning the proper United
States Federal income tax treatment of contingent payment debt instruments. In
general, the CPDI Regulations would cause the timing and character of income,
gain or loss reported on a contingent payment debt instrument to substantially
differ from the timing and character of income, gain or loss reported on a
contingent payment debt instrument under general principles of current United
States Federal income tax law. Specifically, the CPDI Regulations generally
require a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as such interest accrues based upon a
projected payment schedule. Moreover, in general, under the CPDI Regulations,
any gain recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument will be treated as ordinary income and all or
a portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The CPDI Regulations apply to
debt instruments issued on or after August 13, 1996. The proper United States
Federal income tax treatment of Variable Notes that are treated as contingent
payment debt obligations will be more fully described in the applicable pricing
supplement. Furthermore, any other special United States Federal income tax
considerations, not otherwise discussed herein, which are applicable to any
particular issue of notes will be discussed in the applicable pricing
supplement.
Doral Financial may issue notes which:
- may be redeemable at the option of Doral Financial prior to their stated
maturity (a "call option") and/or
- may be repayable at the option of the holder prior to their stated
maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and features
of the purchased notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
FOREIGN-CURRENCY NOTES. The United States Federal income tax consequences
of the purchase, ownership and disposition of notes providing for payments
denominated in a currency other than U.S. dollars will be more fully described
in the applicable pricing supplement.
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<PAGE> 31
SHORT-TERM NOTES. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects to
do so. If such an election is not made, any gain recognized by the U.S. Holder
on the sale, exchange or maturity of the Short-Term Note will be ordinary income
to the extent of the original issue discount accrued on a straight-line basis,
or upon election under the constant yield method (based on daily compounding),
through the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the Short-
Term Note will be deferred until a corresponding amount of income is realized.
U.S. Holders who report income for United States Federal income tax purposes
under the accrual method, and certain other holders including banks and dealers
in securities, are required to accrue original issue discount on a Short-Term
Note on a straight-line basis unless an election is made to accrue the original
issue discount under a constant yield method (based on daily compounding).
MARKET DISCOUNT. If a U.S. Holder purchases a note, other than a Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of a Discount Note, for an amount that is less than its adjusted issue price as
of the purchase date, such U.S. Holder will be treated as having purchased the
note at a "market discount," unless such market discount is less than a
specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized on
the sale, exchange, retirement or other disposition of, a note as ordinary
income to the extent of the lesser of:
- the amount of such payment or realized gain or
- the market discount which has not previously been included in income and
is treated as having accrued on the note at the time of such payment or
disposition.
Market discount will be considered to accrue ratably during the period from the
date of acquisition to the maturity date of the note, unless the U.S. Holder
elects to accrue market discount on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues (on either a ratable or semiannual compounding basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies and may be revoked only with the consent of
the IRS.
PREMIUM. If a U.S. Holder purchases a note for an amount that is greater
than the sum of all amounts payable on the note after the purchase date other
than payments of qualified stated interest, the U.S. Holder will be considered
to have purchased the note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the note and may offset interest
otherwise required to be included in respect of the note during any taxable year
by the amortized amount of such excess for
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the taxable year. However, if the note may be optionally redeemed after the U.S.
Holder acquires it at a price in excess of its stated redemption price at
maturity, special rules would apply which could result in a deferral of the
amortization of some bond premium until later in the term of the note. Any
election to amortize bond premium applies to all taxable debt obligations then
owned and thereafter acquired by the U.S. Holder and may be revoked only with
the consent of the IRS.
DISPOSITION OF A NOTE. Except as discussed above, upon the sale, exchange
or retirement of a note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
the U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax
basis in a note generally will equal the U.S. Holder's initial investment in the
note increased by any original issue discount included in income (and accrued
market discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
the note. Such gain or loss generally will be long-term capital gain or loss if
the note were held for more than one year. Long-term capital gains of
individuals are subject to reduced capital gain rates while short-term capital
gains are subject to ordinary income rates. The deductibility of capital losses
is subject to certain limitations. Prospective investors should consult their
own tax advisors concerning these tax law provisions.
NON-U.S. HOLDERS
Subject to the discussion of "back-up" withholding below, interest on the
notes is currently exempt from United States Federal income taxes, including
withholding taxes, if paid to a "non-U.S. Holder", whether or not such non-U.S.
Holder is engaged in a trade or business in the United States, unless:
(i) the corporation is an insurance company carrying on a United States
insurance business to which the interest is attributable, within
the meaning of the Code, or
(ii) the individual or corporation has an office or other fixed place of
business in the United States to which the interest is attributable
and the interest is derived in the active conduct of a banking,
financing or similar business within the United States.
Subject to the discussion of back-up withholding below, a non-U.S. Holder
will not be subject to United States Federal income tax on any gain realized on
the sale or exchange of a Note, provided that such gain is not effectively
connected with the conduct by the holder of a United States trade or business
and, in the case of a non-U.S. Holder who is an individual, such holder is not
present in the United States for a total of 183 days or more during the taxable
year in which such gain is realized and certain other conditions are met. The
notes are deemed to be situated outside the United States for purposes of the
United States federal estate tax and are not includible in the gross estate for
purposes of such tax in the case of a nonresident in the United States who was
not a citizen of the United States at the time of death.
BACKUP WITHHOLDING. A 31% "back-up" withholding tax and certain
information reporting requirements may apply to payments of principal and
interest on the notes made to certain non-corporate holders if such payments are
made or are considered made in the United States (including payments on notes
made by wire transfer from outside the United States to an account maintained by
the holder with the paying agent in the United States). If such payments are
considered to have been made in the United States, non-U.S Holders are generally
exempt from these withholding and reporting requirements (assuming that the gain
or income is otherwise exempt from United States Federal income tax) but may be
required to comply with certification and identification procedures in
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<PAGE> 33
order to prove their exemption from the requirements. Similar rules requiring
reporting and withholding with respect to gross sale proceeds will apply to a
non-U.S. Holder who sells a Note through a United States branch of a broker and
information reporting (but not back-up withholding) will apply to a non-U.S.
Holder who sells a Note through (a) a non-United States branch of a United
States broker, or (b) a non-United States office of a broker that is a
controlled foreign corporation for United States tax purposes or that is a
person 50% or more of whose income is effectively connected with a United States
trade or business for a specified period ("US Connected Broker"), in either case
unless the holder proves an exemption from the requirement.
On October 6, 1997, the Treasury Department released new Treasury
Regulations governing these backup withholding and information reporting
requirements. The new regulations would not generally alter the treatment of
non-U.S. Holders described above. The new regulations are generally effective
for payments made after December 31, 2000.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information,
such as the registered owner's taxpayer identification number, in the required
manner.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in respect
of the notes to a U.S. Holder must be reported to the IRS, unless the U.S.
Holder is an exempt recipient or establishes an exemption. Compliance with the
identification procedures described in the preceding section would establish an
exemption from backup withholding for those non-U.S. Holders who are not exempt
recipients.
In addition, upon the sale of a note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either:
- the broker determines that the seller is a corporation or other exempt
recipient or
- the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such
seller is a non-U.S. Holder (and certain other conditions are met).
Such a sale must also be reported by the broker to the IRS, unless either:
- the broker determines that the seller is an exempt recipient or
- the seller certifies its non-U.S. status (and certain other conditions
are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8 under penalties of perjury, although in certain cases it may
be possible to submit other documentary evidence. In addition, prospective U.S.
Holders are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations. See " United States Federal Income Taxation --
Non-U.S. Holders".
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
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<PAGE> 34
CERTAIN PUERTO RICO INCOME TAX CONSEQUENCES
The following discussion of certain Puerto Rico income tax consequences to
holders of notes with respect to the acquisition, ownership and disposition of
the notes is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below does not purport to
deal with all aspects of Puerto Rico income taxation that may be relevant to
particular investors. Prospective investors are advised to consult their own tax
advisors regarding the Puerto Rico income tax consequences of the acquisition,
ownership and disposition of the notes and the applicability of the income and
withholding tax provisions described below.
INTEREST ON THE NOTES
Foreign Corporations, Foreign Partnerships and Nonresident Aliens. Under
the Puerto Rico Internal Revenue Code of 1994, as amended (the "PR Code"),
interest on the notes received by a holder of the notes who is (i) not a citizen
of the United States and not a resident of Puerto Rico, or (ii) a foreign
corporation or partnership (i.e., not organized under the laws of Puerto Rico)
not engaged in a trade or business in Puerto Rico (each, a "Non-Resident Foreign
Holder") will be exempt from Puerto Rico income and withholding tax, provided
that (a) such Non-Resident Holder is not a "related person" with respect to
Doral Financial and (b) the interest on the note is not treated as income
effectively connected with a trade or business in Puerto Rico of the
Non-Resident Foreign Holder. For this purpose, a "related person" generally will
be one that directly or indirectly owns 50% or more in value of the stock of
Doral Financial.
United States Citizens not Residents of Puerto Rico. Interest on the notes
received by United States citizens non-residents of Puerto Rico ("Non-Resident
U.S. Citizen") is exempt from Puerto Rico income and withholding taxes.
Treatment of Original Issue Discount under the PR Code. The PR Code does
not provide any rules with respect to the treatment to be accorded to the
excess, if any, of the amount due at maturity of a note over the initial
offering price to the public of such note (the "Excess"). The administrative
practice of the Department of the Treasury of Puerto Rico has been to treat the
Excess as interest.
SALE, EXCHANGE OR RETIREMENT OF NOTES
A gain realized by a Non-Resident Foreign Holder from the sale, exchange or
retirement of the notes (excluding any part of such gain attributable to an
Excess) will not be subject to Puerto Rico income tax if such gain constitutes
income from sources outside Puerto Rico and it does not constitute income
effectively connected with the conduct of a trade or business in Puerto Rico.
A gain realized by a Non-Resident U.S. Citizen from the sale, exchange or
retirement of the notes (excluding any part of such gain attributable to an
Excess) will not be subject to Puerto Rico income tax under the PR Code if such
gain constitutes income from sources outside Puerto Rico.
A gain derived by a holder of the notes from the sale, exchange or
retirement of the notes (excluding any part of such gain attributable to an
Excess) will constitute income from sources outside Puerto Rico if all rights,
title and interest in the notes are transferred outside Puerto Rico and the
delivery or surrender of the notes are made to an office of a paying or exchange
agent located outside Puerto Rico.
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<PAGE> 35
PLAN OF DISTRIBUTION
Doral Financial is offering the notes for sale on a continuing basis
through the agents, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Bear, Stearns & Co. Inc., who will purchase the notes, as
principal, from Doral Financial, for resale to investors and other purchasers at
varying prices relating to prevailing market prices at the time of resale as
determined by the applicable agent, or, if so specified in an applicable pricing
supplement, for resale at a fixed public offering price. Unless otherwise
specified in an applicable pricing supplement, any note sold to an agent as
principal will be purchased by that agent at a price equal to 100% of the
principal amount of the note less a percentage of the principal amount equal to
the commission applicable to an agency sale as described below of a note of
identical maturity. If agreed to by Doral Financial and an agent, that agents
may utilize its reasonable efforts on an agency basis to solicit offers to
purchase the notes at 100% of the principal amount of the notes, unless
otherwise specified in an applicable pricing supplement. Doral Financial will
pay a commission to the each agent, ranging from .125% to .750% of the principal
amount of a note, depending upon its stated maturity or, with respect to a note
for which the stated maturity is in excess of 30 years, a commission as agreed
upon by Doral Financial and each agent at the time of sale, sold through that
agent.
The agents may sell notes they have purchased from Doral Financial as
principal to other dealers for resale to investors, and may allow any portion of
the discount received in connection with such purchases from Doral Financial to
such dealers. After the initial public offering of notes, the public offering
price, in the case of notes to be resold at a fixed public offering price, the
concession and the discount allowed to dealers may be changed.
Doral Financial reserves the right to withdraw, cancel or modify the offer
made by this prospectus supplement without notice and may reject orders, in
whole or in part, whether placed directly with Doral Financial or through an
agent. Each agent will have the right, in its discretion reasonably exercised,
to reject in whole or in part any offer to purchase notes received by the agent.
Unless otherwise specified in an applicable pricing supplement, payment of
the purchase price of the notes will be required to be made in immediately
available funds in U.S. dollars or the Specified Currency, as the case may be,
in New York City on the date of settlement.
No Note will have an established trading market when issued. Unless
specified in the applicable pricing supplement, Doral Financial will not list
the notes on any securities exchange. The agents may from time to time purchase
and sell notes in the secondary market, but the agents are not obligated to do
so, and there can be no assurance that there will be a secondary market for the
notes or liquidity in the secondary market if one develops. From time to time,
the agents may make a market in the notes.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended. Doral Financial has agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments the
agents may be required to make in respect thereof. Doral Financial has agreed to
reimburse the agents for certain expenses.
From time to time, Doral Financial may issue and sell other securities
described in the accompanying prospectus, and the amount of notes that Doral
Financial may offer and sell under this prospectus supplement may be reduced as
a result of such sales.
In connection with the offering of notes purchased by the agents as
principal on a fixed price basis, the agents are permitted to engage in certain
transactions that stabilize the price of the notes. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
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<PAGE> 36
the price of the notes. If the agents create a short position in the notes in
connection with the offering, i.e., if they sell notes in an aggregate principal
amount exceeding that set forth in the applicable pricing supplement, then the
agents may reduce that short position by purchasing notes in the open market. In
general, purchases of notes for the purpose of stabilization or to reduce a
short position could cause the price of the notes to be higher than in the
absence of these purchases.
Neither Doral Financial nor the agents make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the notes. In addition, neither Doral
Financial nor the agents make any representation that the agent will engage in
any such transactions or that such transactions, once commenced, will not be
discontinued without notice.
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<PAGE> 37
PROSPECTUS
DORAL FINANCIAL CORPORATION
(DORAL FINANCIAL LOGO)
MAY OFFER
$250,000,000
Debt Securities
Preferred Stock
- --------------------------------------------------------------------------------
Doral Financial will provide the specific terms of these securities in
supplements to this prospectus. You should read this prospectus and the
accompanying prospectus supplement carefully before you invest.
INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR
COMMONWEALTH OF PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR
ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS OR SAVINGS ACCOUNTS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
This prospectus is dated May 7, 1999
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................... 3
RISK FACTORS............................... 6
Fluctuations in Interest Rates May Hurt
Doral Financial's Business............. 6
Doral Financial May Suffer Losses From
Mortgage Loans It Sells But Retains the
Credit Risk............................ 7
Increases in Doral Financial's
Originations of Commercial Loans Has
Increased Its Credit Risks............. 7
Doral Financial Is Exposed To Greater
Risk Because Its Business Is
Concentrated In Puerto Rico............ 7
Doral Financial's Business Would Be
Disrupted If Its Computer Systems
Cannot Work Properly With Year 2000
Data................................... 7
DORAL FINANCIAL............................ 7
USE OF PROCEEDS............................ 8
DESCRIPTION OF DEBT SECURITIES............. 9
General.................................. 9
Denominations............................ 10
Subordination............................ 10
Limitations on Liens and Disposition of
Stock of Principal Mortgage Banking
Subsidiaries........................... 11
Consolidation, Merger or Sale............ 13
Modification of Indentures............... 13
Events of Default........................ 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Covenants................................ 15
Payment and Transfer..................... 15
Global Securities........................ 15
Defeasance............................... 16
The Trustee.............................. 16
DESCRIPTION OF PREFERRED STOCK............. 16
General.................................. 17
Rank..................................... 17
Dividends................................ 17
Conversion or Exchange................... 18
Redemption............................... 19
Liquidation Preference................... 19
Voting rights............................ 19
DESCRIPTION OF CAPITAL STOCK............... 20
Authorized Capital....................... 20
Outstanding Serial Preferred Stock....... 20
8% Preferred Stock....................... 20
7% Preferred Stock....................... 21
PLAN OF DISTRIBUTION....................... 22
By Agents................................ 23
By Underwriters.......................... 23
Direct Sales............................. 23
General Information...................... 24
WHERE YOU CAN FIND MORE
INFORMATION................................ 24
LEGAL OPINIONS............................. 25
EXPERTS.................................... 25
</TABLE>
2
<PAGE> 39
SUMMARY
This summary provides a brief overview of the key aspects of Doral
Financial and the most significant terms of the offered securities. For a more
complete understanding of the terms of the offered securities, before making
your investment decision, you should carefully read:
- this prospectus, which explains the general terms of the securities that
Doral Financial may offer;
- the accompanying prospectus supplement, which (1) explains the specific
terms of the securities being offered and (2) updates and changes
information in this prospectus; and
- the documents referred to in "Where You Can Find More Information" on page
24 for information on Doral Financial, including its financial statements.
DORAL FINANCIAL
Doral Financial is a bank holding company engaged in the mortgage banking,
banking and securities businesses.
Doral Financial's principal executive offices are located at 1159 Franklin
D. Roosevelt Avenue, San Juan, Puerto Rico, and its telephone number is (787)
749-7100.
THE SECURITIES DORAL
FINANCIAL MAY OFFER
Doral Financial may use this prospectus to offer up to $250,000,000 of:
- debt securities; and
- preferred stock.
A prospectus supplement will describe the specific types, amounts, prices, and
detailed terms of any of these offered securities.
DEBT SECURITIES
The debt securities are unsecured general obligations of Doral Financial in
the form of senior or subordinated debt. The senior debt will have the same rank
as all of Doral Financial's other unsecured and unsubordinated debt. The
subordinated debt will be subordinated to all Senior Indebtedness and Other
Financial Obligations, as these terms are defined below under "Description of
Debt Securities -- Subordination."
The senior and subordinated debt will be issued under separate indentures
between Doral Financial and Bankers Trust Company, as trustee. Below are
summaries of the general features of the debt securities from these indentures.
For a more detailed description of these features, see "Description of Debt
Securities" below. You are also encouraged to read the indentures, which are
filed as exhibits to the registration statement of which this prospectus is a
part. You can receive copies of these documents by following the directions on
page 24.
GENERAL INDENTURE PROVISIONS
THAT APPLY TO SENIOR AND
SUBORDINATED DEBT SECURITIES
- The indentures do not limit the amount of debt that Doral Financial may
issue or provide holders any protection should there be a highly leveraged
transaction, recapitalization or restructuring involving Doral Financial.
However, the senior debt indenture does limit Doral Financial's ability to
sell, transfer or pledge the stock of any mortgage banking subsidiary that
meets the financial thresholds in the indenture. These thresholds are
described below under "Description of Debt Securities."
- Each indenture allows for different types of debt securities, including
indexed securities, to be issued in series.
- The indentures allow Doral Financial to merge or to consolidate with
another company, or sell all or substantially all of
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<PAGE> 40
its assets to another company. If any of these events occur, the other
company would be required to assume Doral Financial's responsibilities for
the debt securities. Unless the transaction results in an event of
default, Doral Financial will be released from all liabilities and
obligations under the debt securities when the successor company assumes
Doral Financial's responsibilities.
- The indentures provide that holders of a majority of the principal amount
of the senior debt securities and holders of a majority of the total
principal amount of the subordinated debt securities outstanding in any
series may vote to change Doral Financial's obligations or your rights
concerning those securities. However, some changes to the financial terms
of a security, including changes in the payment of principal or interest
on that security or the currency of payment, cannot be made unless every
holder of that security consents to the change.
- Doral Financial may satisfy its obligations under the senior debt
securities or be released from its obligation to comply with the
limitations discussed above at any time by depositing sufficient amounts
of cash or U.S. government securities with the trustee to pay Doral
Financial's obligations under the particular senior debt securities when
due.
- The indentures govern the actions of the trustee with regard to the debt
securities, including when the trustee is required to give notices to
holders of the securities and when lost or stolen debt securities may be
replaced.
EVENTS OF DEFAULT THAT
APPLY TO SENIOR DEBT
The events of default specified in the senior debt indenture include:
- failure to pay required interest for 30 days;
- failure to pay principal when due;
- failure to make a required sinking fund payment when due;
- failure to perform other covenants for 90 days after notice;
- acceleration of the senior debt securities of any other series or any
indebtedness for borrowed money of Doral Financial and certain
subsidiaries, in each case exceeding $5,000,000 in an aggregate principal
amount; and
- certain events of insolvency, bankruptcy or reorganization involving Doral
Financial and certain subsidiaries, whether voluntary or not.
EVENTS OF DEFAULT THAT
APPLY TO SUBORDINATED DEBT
The only events of default specified in the subordinated debt indenture are
certain events of insolvency, bankruptcy or reorganization involving Doral
Financial.
REMEDIES
If there were an event of default, the trustee or holders of 25% of the
principal amount of debt securities outstanding in a series could demand that
the principal be paid immediately. However, holders of a majority in principal
amount of the securities in that series could rescind that acceleration of the
debt securities.
The subordinated debt indenture does not provide for any right of
acceleration of the payment of principal of a series of subordinated debt
securities upon a default in the payment of principal or interest or in the
performance of any covenant or agreement in the subordinated debt securities or
in the subordinated debt indenture. However, in the event of a default in the
payment of principal or interest, the holder of any debt security shall have the
right to institute a suit for the collection of such overdue payment.
4
<PAGE> 41
PREFERRED STOCK
Doral Financial may issue preferred stock with various terms to be
established by its board of directors or a committee designated by the board.
Each series of preferred stock will be more fully described in the particular
prospectus supplement that will accompany this prospectus, including redemption
provisions, rights in the event of liquidation, dissolution or winding up of
Doral Financial, voting rights and conversion rights.
Generally, each series of preferred stock will rank on an equal basis with
each other series of preferred stock and will rank prior to Doral Financial's
common stock. The prospectus supplement will also describe how and when
dividends will be paid on the series of preferred stock.
RATIO OF EARNINGS TO FIXED
CHARGES AND RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table shows (1) the ratio of earnings to fixed charges and
(2) the ratio of earnings to combined fixed charges and preferred stock
dividends of Doral Financial for each of the five most recent fiscal years. The
ratio of earnings to fixed charges is a measure of Doral Financial's ability to
generate earnings to pay the fixed expenses of its debt. The ratio of earnings
to combined fixed charges and preferred stock dividends is a measure of Doral
Financial's ability to generate earnings to pay the fixed expenses of its debt
and dividends on its preferred stock.
These computations include Doral Financial and its subsidiaries. For
purposes of computing these ratios, earnings consist of pre-tax income from
continuing operations plus fixed charges and amortization of capitalized
interest, less interest capitalized. Fixed charges consist of interest expensed
and capitalized, amortization of debt issuance costs, and Doral Financial's
estimate of the interest component of rental expense. Ratios are presented both
including and excluding interest on deposits. The term "preferred stock
dividends" is the amount of pre-tax earnings that is required to pay dividends
on Doral Financial's outstanding preferred stock.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DEC. 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
Including Interest on Deposits............................ 1.51x 1.61x 1.66x 1.50x 1.78x
Excluding Interest on Deposits............................ 1.61 1.72 1.75 1.54 1.82
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
Including Interest on Deposits............................ 1.50x 1.61x 1.67x 1.49x 1.76x
Excluding Interest on Deposits............................ 1.59 1.72 1.76 1.53 1.79
</TABLE>
5
<PAGE> 42
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus, including the information incorporated by reference in this
prospectus, before deciding to invest in any of the offered securities.
FLUCTUATIONS IN INTEREST RATES MAY HURT DORAL FINANCIAL'S BUSINESS
Interest rate fluctuations is the primary market risk affecting Doral
Financial. Changes in interest rates affect the following areas of its business:
- the number of mortgage loans originated and purchased;
- the interest income earned on loans and securities;
- gain on sale of loans;
- the value of securities holdings; and
- the value of its servicing asset.
Increases in Interest Rates Reduce Demand for Mortgage Loans. Higher
interest rates increase the cost of mortgage loans to consumers and reduce
demand for mortgage loans, which hurts Doral Financial's profits. Reduced demand
for mortgage loans results in reduced loan originations by Doral Financial and
lower mortgage origination income. Demand for refinance loans is particularly
sensitive to increases in interest rates. Doral Financial has for many years
relied on refinance loans for a large portion of its mortgage loan production.
Increases in Interest Rates Reduce Net Interest Income. Increases in
short-term interest rates reduce net interest income, which is an important part
of Doral Financial's earnings. Net interest income is the difference between the
interest received by Doral Financial on its assets and the interest paid on its
borrowings. Most of Doral Financial's assets, like its mortgage loans and
mortgage-backed securities are long-term assets with fixed interest rates. In
contrast, most of Doral Financial's borrowings are short-term. When interest
rates rise, Doral Financial must pay more in interest while interest earned on
its assets does not rise as quickly. This causes profits to decrease.
Increases in Interest Rates May Reduce or Eliminate Gain on Sale of
Mortgage Loans. If long-term interest rates increase between the time Doral
Financial commits to or establishes an interest rate on a mortgage loan and the
time it sells the loan, Doral Financial may realize a reduced gain or a loss on
such sale.
Increases in Interest Rates May Reduce the Value of Mortgage Loans and
Securities' Holdings. Increases in interest rates may reduce the value of Doral
Financial's financial assets and have an adverse impact on its earnings and
financial condition. Doral Financial owns a substantial portfolio of mortgage
loans, mortgage-backed securities and other debt securities with fixed interest
rates. The market value of an obligation with a fixed interest rate generally
decreases when prevailing interest rates rise.
Decreases in Interest Rates May Adversely Affect Value of Servicing
Asset. Decreases in interest rates lead to increases in the prepayment of
mortgages by borrowers, which may reduce the value of Doral Financial's
servicing asset. The servicing asset is the estimated present value of the fees
Doral Financial expects to receive on the mortgages it services over their
expected term. Doral Financial assigns this value based on what other persons
have paid for similar servicing rights in recent transactions. If prepayments
increase above expected levels, the value of the servicing asset decreases
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because the amount of future fees expected to be received by Doral Financial
decreases. Doral Financial may be required to recognize this decrease in value
by taking a charge against its earnings, which causes its profits to decrease.
DORAL FINANCIAL MAY SUFFER LOSSES FROM MORTGAGE LOANS IT SELLS BUT RETAINS THE
CREDIT RISK
Doral Financial often retains all or part of the credit risk on sales of
mortgage loans that do not qualify for the sale or exchange programs of GNMA,
FNMA or FHLMC and may suffer losses on these loans. Doral Financial suffers
losses on these arrangements when foreclosure sale proceeds of the property
underlying a defaulted mortgage loan are less than the outstanding principal
balance of these loans and the costs of holding and disposing of the related
property.
INCREASES IN DORAL FINANCIAL'S ORIGINATIONS OF COMMERCIAL LOANS HAS INCREASED
ITS CREDIT RISKS
Doral Financial's recent increase in originations of mortgage loans secured
by income producing residential buildings and commercial properties has
increased its credit risks. These loans involve greater credit risks than
residential mortgage loans because they are larger in size and more risk is
concentrated in a single borrower. The properties securing these loans are also
harder to dispose of in foreclosure.
DORAL FINANCIAL IS EXPOSED TO GREATER RISK BECAUSE ITS BUSINESS IS CONCENTRATED
IN PUERTO RICO
Because most of Doral Financial's mortgage loans are secured by properties
located in Puerto Rico, Doral Financial is exposed to a greater risk of
delinquency or default on these mortgage loans resulting from adverse economic,
political or business developments and natural hazard risks, such as hurricanes,
that affect Puerto Rico. If Puerto Rico's real estate market experiences an
overall decline in property values, the rates of foreclosure loss on the
mortgage loans would probably increase substantially. This would cause Doral
Financial's profitability to decrease.
DORAL FINANCIAL'S BUSINESS WOULD BE DISRUPTED IF ITS COMPUTER SYSTEMS CANNOT
WORK PROPERLY WITH YEAR 2000 DATA
Doral Financial could experience a significant disruption to its business
operations that could have an adverse effect on its profitability if its
computer systems and the computer systems provided by third party vendors on
which it relies are not able to properly use date calculations in the year 2000.
Doral Financial is taking steps that it believes are adequate to make sure this
does not happen. However, Doral Financial cannot assure you that these efforts
will be completely successful. Problems suffered by providers of basic services
such as telephone, water, sewer and electricity could also have an adverse
impact on Doral Financial's daily operations. Doral Financial is in the process
of revising its existing business interruption contingency plans to address any
disruptions of these basic services.
DORAL FINANCIAL
Doral Financial Corporation is a bank holding company organized under the
laws of the Commonwealth of Puerto Rico. Its main lines of business are
described below.
- Mortgage banking -- Doral Financial is the leading mortgage banking
institution in Puerto Rico based on the volume of origination of first
mortgage loans secured by single family residences and the size of its
mortgage servicing portfolio. Doral Financial conducts this business
in Puerto Rico primarily through a division of Doral Financial, HF
Mortgage
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Bankers, and its subsidiaries, Doral Mortgage Corporation and Centro
Hipotecario, Inc. Doral Financial also conducts mortgage banking
activities in the mainland United States through Doral Mortgage and
its indirect subsidiary, Doral Money, Inc.
- Banking services -- Doral Financial conducts this business in Puerto
Rico through its subsidiary, Doral Bank. Doral Financial is in the
process of opening a new federal savings bank subsidiary in the New
York City metropolitan area which it expects will commence operations
during the third quarter of 1999.
- Securities services -- Doral Financial conducts this business in
Puerto Rico through its broker-dealer subsidiary, Doral Securities,
Inc.
Because Doral Financial is a holding company, the claims of creditors and
any preferred stockholders of Doral Financial's subsidiaries will have a
priority over Doral Financial's equity rights and the rights of Doral
Financial's creditors, including the holders of debt securities, and preferred
stockholders to participate in the assets of the subsidiary upon the
subsidiary's liquidation.
Doral Financial's subsidiaries that operate in the banking and securities
business can only pay dividends if they are in compliance with the applicable
regulatory requirements of federal and state bank regulatory authorities and
securities regulators. Doral Financial must also maintain the required capital
levels of a bank holding company before it may pay dividends on its stock.
There are various statutory and regulatory limitations on the extent to
which Doral Bank or any other banking subsidiary (including a federal savings
association) can finance or otherwise transfer funds to Doral Financial or its
nonbanking subsidiaries, either in the form of loans, extensions of credit,
investments or asset purchases.
- Such transfers by Doral Bank or any other banking subsidiary to Doral
Financial or any nonbanking subsidiary are limited to 10% of the
banking subsidiary's capital and surplus, and with respect to Doral
Financial and all such nonbanking subsidiaries, to an aggregate of 20%
of the banking subsidiary's capital and surplus.
- Furthermore, loans and extensions of credit are required to be secured
in specified amounts and are required to be on terms and conditions
consistent with safe and sound banking practices.
In addition, there are regulatory limitations on the payment of dividends
directly or indirectly to Doral Financial. Federal and Puerto Rico authorities
also have the right to further limit Doral Bank's payment of dividends.
Under the policy of the Board of Governors of the Federal Reserve System, a
bank holding company is required to act as a source of strength to its
subsidiary banks and to commit resources to support such banks. As a result of
that policy, Doral Financial may be required to commit resources to Doral Bank
or any other banking subsidiary created in the future in circumstances in which
it might not do so absent such policy. Further, federal bankruptcy law provides
that in the event of the bankruptcy of Doral Financial, any commitment by Doral
Financial to regulators to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to priority of payment.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, Doral
Financial will use the net proceeds from the sale of the offered securities for
general corporate purposes, including
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(1) funding its mortgage banking activities, (2) making capital contributions or
extensions of credit to its existing and future banking and non-banking
subsidiaries, (3) funding possible acquisitions of mortgage banking and other
financial institutions, and (4) repayment of outstanding borrowings. Doral
Financial does not at present have any plans to use the proceeds from any
offering for an acquisition.
DESCRIPTION OF DEBT SECURITIES
The debt securities will be direct unsecured general obligations of Doral
Financial and will be either senior or subordinated debt. The debt securities
will be issued under separate indentures between Doral Financial and Bankers
Trust Company. Senior debt securities will be issued under a senior debt
indenture and subordinated debt securities will be issued under a subordinated
debt indenture. The senior debt indenture and the subordinated debt indenture
are sometimes referred to in this prospectus individually as an "indenture" and
collectively as the "indentures." The forms of the indentures have been filed
with the SEC as exhibits to the registration statement of which this prospectus
forms a part.
The following briefly summarizes the material provisions of the indentures
and the debt securities, other than pricing and related terms disclosed in the
accompanying prospectus supplement. The summary is not complete. You should read
the more detailed provisions of the applicable indenture for provisions that may
be important to you. So that you can easily locate these provisions, the numbers
in parenthesis below refer to sections in the applicable indenture or, if no
indenture is specified, to sections in each of the indentures. Whenever
particular sections or defined terms of the applicable indenture are referred
to, such sections or defined terms are incorporated into this prospectus by
reference, and the statement in this prospectus is qualified by that reference.
GENERAL
The senior debt securities will be unsecured and rank equally with all of
Doral Financial's other senior and unsubordinated debt. The subordinated debt
securities will be unsecured and will be subordinated to all of Doral
Financial's Senior Indebtedness (as defined below under "-- Subordination"). In
certain events of insolvency, the subordinated debt securities will also be
subordinated to all of Doral Financial's Other Financial Obligations (as defined
below under "-- Subordination"). As of March 31, 1999, Doral Financial had
approximately $1.6 billion of Senior Indebtedness and Other Obligations
outstanding.
A prospectus supplement relating to any series of debt securities being
offered will include specific terms relating to the offering. These terms will
include some or all of the following:
- The title of the debt securities and whether the debt securities will be
senior or subordinated debt;
- The total principal amount of the debt securities;
- The percentage of the principal amount at which the debt securities will
be issued and any payments due if the maturity of the debt securities is
accelerated;
- The dates on which the principal of the debt securities will be payable;
- The interest rate which the debt securities will bear, or the method for
determining the rate, and the interest payment dates for the debt
securities;
- Any mandatory or optional redemption provisions;
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- Any sinking fund or other provisions that would obligate Doral Financial
to repurchase or otherwise redeem the debt securities;
- Any provisions granting special rights to holders when a specified event
occurs;
- Any changes to or additional events of defaults or covenants;
- Any special tax implications of the debt securities, including provisions
for original issue discount securities, if offered; and
- Any other terms of the debt securities.
The indentures do not limit the amount of debt securities that may be
issued. Each indenture allows debt securities to be issued up to the principal
amount that may be authorized by Doral Financial and may be in any currency or
currency unit designated by Doral Financial. (Sections 3.01 and 3.03.)
DENOMINATIONS
Unless otherwise provided in the accompanying prospectus supplement, debt
securities will be issued in registered form in denominations of $1,000 each and
any multiples thereof. (Section 3.02.)
SUBORDINATION
Under the subordinated indenture, payment of the principal, interest and
any premium on the subordinated debt securities will generally be subordinated
and junior in right of payment to the prior payment in full of all Senior
Indebtedness (as defined below). The subordinated indenture provides that no
payment of principal, interest or any premium on the subordinated debt
securities may be made unless Doral Financial pays in full the principal,
interest, any premium or any other amounts on any Senior Indebtedness then due.
Also, no payment of principal, interest or any premium on the subordinated debt
securities may be made if there shall have occurred and be continuing an event
of default with respect to any Senior Indebtedness permitting the holders
thereof to accelerate the maturity thereof, or if any judicial proceeding shall
be pending with respect to any such default.
If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to Doral Financial, then all Senior Indebtedness must be
paid in full before any payment may be made to any holders of subordinated debt
securities. If after payment of the Senior Indebtedness there remains any
amounts available for distribution and any person entitled to payment pursuant
to the terms of Other Financial Obligations has not been paid in full all
amounts due or to become due on the Other Financial Obligations, then these
remaining amounts shall first be used to pay in full the Other Financial
Obligations before any payment may be made to the holders of subordinated debt
securities. Holders of subordinated debt securities must deliver any payments
received by them to the holders of Senior Indebtedness and Other Financial
Obligations until all Senior Indebtedness and Other Financial Obligations are
paid in full. (Subordinated debt indenture, Section 16.02.)
The Subordinated Indenture will not limit the amount of Senior Indebtedness
and Other Financial Obligations that Doral Financial may incur.
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"Senior Indebtedness" means any of the following, whether incurred before
or after the execution of the subordinated debt indenture:
(1) all obligations of Doral Financial for the repayment of borrowed money,
(2) all obligations of Doral Financial for the deferred purchase price of
property, but excluding trade accounts payable in the ordinary course
of business,
(3) all capital lease obligations of Doral Financial, and
(4) all obligations of the type referred to in clauses (1) through (3) of
other persons that Doral Financial has guaranteed or that is otherwise
its legal liability;
but Senior Indebtedness does not include:
(a) the subordinated debt securities; and
(b) indebtedness that by its terms is subordinated to, or ranks on an
equal basis with, the subordinated debt securities.
"Other Financial Obligations" means all obligations of Doral Financial to
make payment pursuant to the terms of financial instruments, such as:
(1) securities contracts and foreign currency exchange contracts,
(2) derivative instruments, like swap agreements, cap agreements, floor
agreements, collar agreements, interest rate agreements, foreign
exchange agreements, options, commodity futures contracts, and
commodity option contracts, and
(3) similar financial instruments;
but Other Financial Obligations does not include:
(a) Senior Indebtedness, and
(b) indebtedness that by its terms is subordinated to, or ranks on an
equal basis with, the subordinated debt securities.
LIMITATIONS ON LIENS AND DISPOSITION OF STOCK OF PRINCIPAL MORTGAGE BANKING
SUBSIDIARIES
The senior debt indenture provides that Doral Financial will not, and will
not permit any Subsidiary to, incur, issue, assume or guarantee any indebtedness
for money borrowed if such indebtedness is secured by a pledge of, lien on, or
security interest in any shares of Voting Stock of any Principal Mortgage
Banking Subsidiary, without providing that each series of senior debt securities
and, at Doral Financial's option, any other senior indebtedness ranking equally
with the senior debt securities, shall be secured equally and ratably with such
indebtedness. This limitation shall not apply to 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.
(Senior debt indenture, Section 12.06.)
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The senior debt indenture also provides that Doral Financial 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 Doral Financial) 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:
are for fair market value on the date thereof, as determined by the
Board of Directors of Doral Financial (which determination shall be
conclusive) and, after giving effect to such disposition and to any
possible dilution, Doral Financial 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;
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 by Doral Financial, 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;
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 debt securities; or
are made to Doral Financial or any wholly-owned subsidiary if such
wholly-owned subsidiary agrees to be bound by this covenant and Doral
Financial 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 if, after giving effect to such merger or consolidation, Doral
Financial 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 the senior debt
indenture, 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 under the senior debt
indenture, has occurred and is continuing.
The subordinated debt indenture does not contain any of the foregoing
limitations on the creation of liens or disposition of Principal Mortgage
Banking Subsidiaries and these limitations are not for the benefit of any series
of subordinated debt securities.
"Principal Mortgage Banking Subsidiary" means a Subsidiary, including its
Subsidiaries, that is principally engaged in the mortgage banking business and
meets any of the following conditions:
- Doral Financial's and its other Subsidiaries' investments in and advances
to the Subsidiary exceed 30 percent of the total assets of Doral
Financial and its Subsidiaries consolidated as of the end of the most
recently completed fiscal year;
- Doral Financial's and its other Subsidiaries' proportionate share of the
total assets of the Subsidiary after intercompany eliminations exceeds 30
percent of the total assets of Doral Financial and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
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- Doral Financial'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 Doral Financial and
its Subsidiaries consolidated for the most recently completed fiscal
year.
"Principal Mortgage Banking Subsidiary" does not include, however, any
Subsidiary that is a bank or savings association unless Doral Financial
transfers to such bank or savings association the mortgage banking business
conducted by Doral Mortgage Corporation or Doral Financial's HF Mortgage Bankers
Division as of the date of this prospectus.
"Subsidiary" means any corporation of which securities entitled to elect at
least a majority of the corporation's directors shall at the time be owned,
directly or indirectly, by Doral Financial, and/or one or more Subsidiaries.
"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, except capital stock that carries only the right to
vote conditioned on the happening of an event regardless of whether such event
shall have happened. (Senior debt indenture, Sections 1.01, 12.06 and 12.07.)
CONSOLIDATION, MERGER OR SALE
Each indenture generally permits a consolidation or merger between Doral
Financial and another corporation. They also permit Doral Financial to sell all
or substantially all of its property and assets. If this happens, the remaining
or acquiring corporation shall assume all of Doral Financial's responsibilities
and liabilities under the indentures including the payment of all amounts due on
the debt securities and performance of the covenants in the indentures.
However, Doral Financial will only consolidate or merge with or into any
other corporation or sell all or substantially all of its assets according to
the terms and conditions of the indentures. The remaining or acquiring
corporation will be substituted for Doral Financial in the indentures with the
same effect as if it had been an original party to the indenture. Thereafter,
the successor corporation may exercise Doral Financial's rights and powers under
any indenture, in Doral Financial's name or in its own name. Any act or
proceeding required or permitted to be done by Doral Financial's board of
directors or any of its officers may be done by the board or officers of the
successor corporation. If Doral Financial merges with or into any other
corporation or sells all or substantially all of its assets, it shall be
released from all liabilities and obligations under the indentures and under the
debt securities. (Sections 10.01 and 10.02.)
MODIFICATION OF INDENTURES
Under each indenture, Doral Financial's rights and obligations and the
rights of the holders may be modified with the consent of the holders of a
majority in aggregate principal amount of the outstanding Debt Securities of
each series affected by the modification. No modification of the principal or
interest payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. (Sections
11.01 and 11.02.)
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EVENTS OF DEFAULT
The senior debt indenture provides that an "event of default" regarding any
series of senior debt securities will be any of the following:
- failure to pay interest on any debt security of such series for 30 days;
- failure to pay the principal or any premium on any debt security of such
series when due;
- failure to deposit any sinking fund payment when due by the terms of a
debt security of such series;
- failure to perform any other covenant in the indenture that continues for
90 days after being given written notice;
- acceleration of the senior debt securities of any other series or any
other indebtedness for borrowed money of Doral Financial or any
Significant Subsidiary (as defined below), in each case exceeding
$5,000,000 in an aggregate principal amount;
- certain events involving bankruptcy, insolvency or reorganization of
Doral Financial or any Significant Subsidiary; or
- any other event of default included in any indenture or supplemental
indenture. (Section 5.01.)
"Significant Subsidiary" means a Subsidiary, including its Subsidiaries,
that meets any of the following conditions:
- Doral Financial's and its other Subsidiaries' investments in and advances
to the Subsidiary exceed 10 percent of the total assets of Doral
Financial and its Subsidiaries consolidated as of the end of the most
recently completed fiscal year;
- Doral Financial's and its other Subsidiaries' proportionate share of the
total assets of the Subsidiary after intercompany eliminations exceeds 10
percent of the total assets of Doral Financial and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
- Doral Financial'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 Doral Financial and its Subsidiaries
consolidated for the most recently completed fiscal year.
The subordinated debt indenture provides that an "event of default"
regarding any series of subordinated debt securities will occur only upon
certain events involving bankruptcy, insolvency or reorganization of Doral
Financial. A default in the payment of principal or interest or in the
performance of any covenant or agreement in the subordinated debt securities of
any series or in the subordinated indenture is not an event of default under the
subordinated debt indenture and does not provide for any right of acceleration
of the payment of principal of a series of subordinated debt securities.
However, in the event of a default in the payment of principal or interest, the
holder of any debt security shall have the right to institute a suit for the
collection of such overdue payment.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture. The Trustee may withhold notice to the
holders of Debt Securities of any default (except in the payment of principal
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or interest) if it considers such withholding of notice to be in the best
interests of the holders. (Section 6.02.)
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% in aggregate principal
amount of the debt securities of the series may declare the entire principal of
all the debt securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can void the
declaration. (Section 5.02.)
Other than its duties in case of a default, a trustee is not obligated to
exercise any of its rights or powers under any Indenture at the request, order
or direction of any holders, unless the holders offer the trustee reasonable
indemnity. (Section 6.01.) If they provide this reasonable indemnification, the
holders of a majority in principal amount of any series of debt securities may
direct the time, method and place of conducting any proceeding or any remedy
available to the trustee, or exercising any power conferred upon the trustee,
for any series of debt securities. (Section 5.12.)
COVENANTS
Under the indentures, Doral Financial will agree to:
- pay the principal, interest and any premium on the debt securities
when due;
- maintain a place of payment;
- deliver a report to the trustee at the end of each fiscal year
certifying as to the absence of events of default and to Doral
Financial's compliance with the terms of the indentures; and
- deposit sufficient funds with any paying agent on or before the due
date for any principal, interest or any premium.
PAYMENT AND TRANSFER
Principal, interest and any premium on fully registered securities will be
paid at designated places. Payment will be made by check mailed to the persons
in whose names the debt securities are registered on days specified in the
indentures or any prospectus supplement. Debt securities payments in other forms
will be paid at a place designated by Doral Financial and specified in a
prospectus supplement. (Section 3.07.)
Fully registered securities may be transferred or exchanged at the
corporate trust office of the Trustee or at any other office or agency
maintained by Doral Financial for such purposes, without the payment of any
service charge except for any tax or governmental charge. (Section 3.05.)
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a prospectus supplement. Unless it is exchanged in whole or in
part for debt securities in definitive form, a global certificate may generally
be transferred only as a whole unless it is being transferred to certain
nominees of the depositary. (Section 2.03.)
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Beneficial interests
in global certificates will be
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shown on, and transfers of global certificates will be effected only through
records maintained by DTC and its participants.
DEFEASANCE
Doral Financial will be discharged from its obligations on the senior debt
securities of any series at any time if it deposits with the trustee sufficient
cash or government securities to pay the principal, interest, any premium and
any other sums due to the stated maturity date or a redemption date of the
senior debt securities of the series. Doral Financial must also deliver to the
trustee an opinion of counsel to the effect that the holders of the senior debt
securities of that series will have no federal income tax consequences as a
result of such deposit. If this happens, the holders of the senior debt
securities of the series will not be entitled to the benefits of the senior debt
indenture except for registration of transfer and exchange of senior debt
securities and replacement of lost, stolen or mutilated senior debt securities.
(Senior debt indenture, Section 15.02.)
The subordinated debt indenture does not contain provisions for the
defeasance and discharge of Doral Financial's obligations on the subordinated
debt securities and the subordinated indenture.
THE TRUSTEE
Bankers Trust Company will be the trustee under the indentures. It is also
trustee under another indenture with Doral Financial pursuant to which Doral
Financial's 7.84% Senior Notes due 2006 were issued. In addition, it is the
administrative and syndicate agent and a lender under syndicated credit
agreements which provide for credit facilities to Doral Financial. The trustee
and its affiliates may have other relations with Doral Financial in the ordinary
course of business.
The occurrence of any default under either the senior debt indenture or the
indenture relating to the 7.84% Senior Notes and the subordinated debt indenture
could create a conflicting interest for the trustee under the Trust Indenture
Act. If such default has not been cured or waived within 90 days after the
trustee has or acquired a conflicting interest, the trustee would generally be
required by the Trust Indenture Act to eliminate such conflicting interest or
resign as trustee with respect to both the 7.84% Senior Notes and the debt
securities issued under the senior indenture or with respect to the subordinated
debt securities issued under the subordinated indenture. In the event of the
trustee's resignation, Doral Financial shall promptly appoint a successor
trustee with respect to the affected securities.
The Trust Indenture Act also imposes certain limitations on the right of
the trustee, as a creditor of Doral Financial, to obtain payment of claims in
certain cases, or to realize on certain property received in respect to any such
claim or otherwise. The trustee will be permitted to engage in other
transactions with Doral Financial, provided that if it acquires a conflicting
interest within the meaning of Section 310 of the Trust Indenture Act, it must
generally either eliminate such conflict or resign.
DESCRIPTION OF PREFERRED STOCK
The following briefly summarizes the material terms of Doral Financial's
preferred stock, other than pricing and related terms which will be disclosed in
a prospectus supplement. You should read the particular terms of any series of
preferred stock offered by Doral Financial which will be described in more
detail in any prospectus supplement relating to such series, together with the
more detailed provisions of Doral Financial's restated certificate of
incorporation and the certificate of designation relating to each particular
series of preferred stock for provisions that may be important to you. The
restated certificate of incorporation is filed as an exhibit to the registration
statement of
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which this prospectus forms a part. The certificate of designation with respect
to any series of preferred stock will be filed with the SEC as an exhibit to a
document incorporated by reference in this prospectus concurrently with the
offering of such preferred stock. The prospectus supplement will also state
whether any of the terms summarized below do not apply to the series of
preferred stock being offered. For a description of Doral Financial's
outstanding preferred stock, see "Description of Capital Stock."
GENERAL
Under Doral Financial's restated certificate of incorporation, the board of
directors of Doral Financial is authorized to issue shares of preferred stock in
one or more series, and to establish from time to time a series of preferred
stock with the following terms specified:
- the number of shares to be included in the series;
- the designation, powers, preferences and rights of the shares of the
series; and
- the qualifications, limitations or restrictions of such series, except
as otherwise stated in the restated certificate of incorporation.
Prior to the issuance of any series of preferred stock, the board of
directors of Doral Financial will adopt resolutions creating and designating the
series as a series of preferred stock and the resolutions will be filed in a
certificate of designation as an amendment to the restated certificate of
incorporation. The term "board of directors of Doral Financial" includes any
duly authorized committee.
The preferred stock will be, when issued, fully paid and nonassessable.
Holders of preferred stock will not have any preemptive or subscription rights
to acquire more stock of Doral Financial.
The transfer agent, registrar, dividend disbursing agent and redemption
agent for shares of each series of preferred stock will be named in the
prospectus supplement relating to such series.
The rights of holders of the preferred stock offered may be adversely
affected by the rights of holders of any shares of preferred stock that may be
issued in the future. The board of directors may cause shares of preferred stock
to be issued in public or private transactions for any proper corporate purpose.
Examples of proper corporate purposes include issuances to obtain additional
financing in connection with acquisitions or otherwise, and issuances to
officers, directors and employees of Doral Financial and its subsidiaries
pursuant to benefit plans or otherwise. Shares of preferred stock issued by
Doral Financial may have the effect of rendering more difficult or discouraging
an acquisition of Doral Financial deemed undesirable by the board of directors
of Doral Financial.
RANK
Unless otherwise specified in the prospectus supplement relating to the
shares of any series of preferred stock, such shares will rank on an equal basis
with each other series of preferred stock and prior to the common stock as to
dividends and distributions of assets.
DIVIDENDS
Holders of each series of preferred stock will be entitled to receive cash
dividends, when, as and if declared by the board of directors of Doral Financial
out of funds legally available for dividends. The rates and dates of payment of
dividends will be set forth in the prospectus supplement relating to each series
of preferred stock. Dividends will be payable to holders of record of preferred
stock as
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they appear on the books of Doral Financial on the record dates fixed by the
board of directors. Dividends on any series of preferred stock may be cumulative
or noncumulative.
Doral Financial is a party to contracts that prevent it from paying
dividends if it does not comply with some terms of those contracts. The
agreement pursuant to which Doral Financial issued its 7.84% Senior Notes due
2006, prohibits Doral Financial from paying dividends if the aggregate amount of
dividends paid on its capital stock, including all series of preferred stock,
would exceed the sum of the following:
- 50% of consolidated net income earned since October 1, 1996, and prior
to the end of the fiscal quarter ending not less than 45 days prior to
the proposed dividend payment date;
- $15 million; and
- the net proceeds of any sale of capital stock after October 1, 1996.
A warehousing loan agreement entered into with Citibank, N.A. limits the
aggregate amount of cash dividends that Doral Financial may pay on its capital
stock during a fiscal year to 50% of consolidated net income for the immediately
preceding fiscal year.
Doral Financial may not declare, pay or set apart for payment dividends on
the preferred stock unless full dividends on any other series of preferred stock
that ranks on an equal or senior basis have been paid or sufficient funds have
been set apart for payment for
- all prior dividend periods of the other series of preferred stock that
pay dividends on a cumulative basis; or
- the immediately preceding dividend period of the other series of
preferred stock that pay dividends on a noncumulative basis.
Partial dividends declared on shares of preferred stock and any other
series of preferred stock ranking on an equal basis as to dividends will be
declared pro rata. A pro rata declaration means that the ratio of dividends
declared per share to accrued dividends per share will be the same for both
series of preferred stock.
Similarly, Doral Financial may not declare, pay or set apart for payment
non-stock dividends or make other payments on the common stock or any other
stock of Doral Financial ranking junior to the preferred stock until full
dividends on the preferred stock have been paid or set apart for payment for
- all prior dividend periods if the preferred stock pays dividends on a
cumulative basis; or
- the dividend period established in the certificate of designation for
each series of preferred stock if the preferred stock pays dividends
on a noncumulative basis.
CONVERSION OR EXCHANGE
The prospectus supplement for any series of preferred stock will state the
terms, if any, on which shares of that series are convertible into shares of
another series of preferred stock of Doral Financial. The preferred stock will
not be convertible into or exchangeable for shares of Doral Financial's common
stock.
If so determined by the board of directors of Doral Financial, the holders
of shares of preferred stock of any series may be obligated at any time or at
maturity to exchange such shares for preferred stock or debt securities of Doral
Financial. The terms of any such exchange and any such preferred
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stock or debt securities will be described in the prospectus supplement relating
to such series of preferred stock.
REDEMPTION
If so specified in the applicable prospectus supplement, a series of
preferred stock may be redeemable at any time, in whole or in part, at the
option of Doral Financial or the holder thereof and may be mandatorily redeemed.
Any partial redemptions of preferred stock will be made in a way that the
board of directors decides is equitable.
Unless Doral Financial defaults in the payment of the redemption price,
dividends will cease to accrue after the redemption date on shares of preferred
stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Doral Financial, holders of each series of preferred stock will be entitled to
receive distributions upon liquidation in the amount set forth in the prospectus
supplement relating to such series of preferred stock. Such distributions will
be made before any distribution is made on any securities ranking junior
relating to liquidation, including common stock.
If the liquidation amounts payable relating to the preferred stock of any
series and any other securities ranking on a parity regarding liquidation rights
are not paid in full, the holders of the preferred stock of such series and such
other securities will share in any such distribution of available assets of
Doral Financial on a ratable basis in proportion to the full liquidation
preferences. Holders of such series of preferred stock will not be entitled to
any other amounts from Doral Financial after they have received their full
liquidation preference.
VOTING RIGHTS
The holders of shares of preferred stock will have no voting rights,
except:
- as otherwise stated in the prospectus supplement;
- as otherwise stated in the certificate of designation establishing
such series; or
- as required by applicable law.
Under regulations adopted by the Federal Reserve Board, if the holders of
the preferred stock of any series become entitled to vote for the election of
directors because dividends on the preferred stock of such series are in
arrears, preferred stock of such series could be deemed a "class of voting
securities." In this instance, a holder of 25% or more of the preferred stock of
such series could then be subject to regulation as a bank holding company in
accordance with the Bank Holding Company Act. A holder of 5% or more of such
series that otherwise exercises a "controlling influence" over Doral Financial
could also be subject to regulation under the Bank Holding Company Act. In
addition, at any time a series of the preferred stock is deemed a class of
voting securities, (1) any other bank holding company may be required to obtain
the approval of the Federal Reserve Board to acquire or retain 5% or more of the
outstanding shares of such series of preferred stock, and (2) any person other
than a bank holding company may be required to file with the Federal Reserve
Board under the Change in Bank Control Act to acquire or retain 10% or more of
such series.
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Section 12 of the Puerto Rico Banking Law requires that the Office of the
Commissioner of Financial Institutions of Puerto Rico approve any change of
control involving a bank organized under the Banking Law. The Banking Law
requires that the Office of the Commissioner be informed not less than 60 days
prior to any transfer of voting stock of a Puerto Rico bank that results in any
person owning, directly or indirectly, more than 5% of the outstanding voting
stock of the bank. For the purposes of Section 12 of the Banking Law, the term
"control" means the power to, directly or indirectly, direct or influence
decisively the administration or the norms of the bank. The Office of the
Commissioner has made an administrative determination that these provisions of
the Banking Law are applicable to a change in control of Doral Financial.
Pursuant to the Banking Law, if the Office of the Commissioner receives
notice of a proposed transaction that may result in a change of control of Doral
Financial, the Office of the Commissioner is required to investigate and
determine whether a change of control has occurred. The Office of the
Commissioner will issue an authorization for the transfer of control of Doral
Financial if the results of its investigations are in its judgment satisfactory.
The decision of the Office of the Commissioner is final and unreviewable.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL
As of the date of this prospectus, Doral Financial is authorized to issue
50,000,000 shares of common stock, $1.00 par value, and 2,000,000 shares of
serial preferred stock, $1.00 par value. The following is a summary of certain
rights and privileges of the common stock and outstanding serial preferred
stock. You should read the more detailed provisions of Doral Financial's
restated certificate of incorporation, as amended, and the certificate of
designation relating to any series of preferred stock for provisions that may be
important to you.
OUTSTANDING SERIAL PREFERRED STOCK
The general terms of Doral Financial's preferred stock are described above
under "DESCRIPTION OF PREFERRED STOCK." As of the date of this prospectus, the
8% Convertible Cumulative Preferred Stock (the "8% Preferred Stock") and the 7%
Noncumulative Monthly Income Preferred Stock, Series A (the "7% Preferred
Stock") described below are only two series of outstanding serial preferred
stock designated by Doral Financial.
8% PREFERRED STOCK
Doral Financial has outstanding 8,460 shares of 8% Preferred Stock. All
shares of 8% Preferred Stock are held by Popular, Inc. Popular acquired the 8%
Preferred Stock in a private transaction with Doral Financial, in which Popular
exchanged convertible debentures of Doral Financial in the principal amount of
$8.46 million it had previously acquired. Doral Financial entered into the
exchange because the 8% Preferred Stock qualified as Tier I capital for purposes
of compliance with the regulatory requirements applicable to bank holding
companies while the convertible debentures did not qualify for this treatment.
Dividend Rights and Limitations. The holders of the shares of 8% Preferred
Stock are entitled to receive cumulative cash dividends when, as and if declared
by the board of directors, at the annual rate of 8% of the $1,000 liquidation
preference thereof payable monthly. The holders of the 8% Preferred Stock are
entitled to receive such dividends prior to any payment of dividends or
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distribution of assets to holders of the common stock and to any other class of
capital stock ranking junior to the 8% Preferred Stock with respect to the
payment of dividends.
Liquidation Rights. Upon the liquidation, dissolution or winding up of
Doral Financial, whether voluntary or involuntary, the holders of the 8%
Preferred Stock are entitled to receive out of the assets of Doral Financial an
amount in cash equal to $1,000 per share plus accrued and unpaid dividends
thereon to the date of the distribution. This distribution must be made before
any payment may be made to the holders of common stock or any other securities
of Doral Financial ranking junior to the 8% Preferred Stock as to the
distribution of assets upon liquidation. No distribution of this type or payment
on account of liquidation, dissolution or winding up of Doral Financial may be
made to the holders of the shares of any class or series of stock ranking on a
parity with the 8% Preferred Stock as to the distribution of assets upon
liquidation, unless the holders of the 8% Preferred Stock receive like amounts
ratably in accordance with the full distributive amounts which they and the
holders of parity stock are respectively entitled to receive upon this
preferential distribution.
After the payment to the holders of the 8% Preferred Stock of the full
preferential amounts provided for above, the holders of the 8% Preferred Stock
will have no right or claim to any of the remaining assets of Doral Financial.
Conversion Rights. The holders of shares of 8% Preferred Stock have the
right, at their option, to convert such shares for shares of common stock of
Doral Financial at any time on or before December 1, 2005, at a conversion price
of $4.375 per share, subject to adjustment from time to time upon the occurrence
of certain events. As of April 1, 1999, the 8,460 shares of 8% Preferred Stock
held by Popular were convertible into 1,933,714 shares of common stock, or
approximately 4.6% of the outstanding common stock.
Redemption. The 8% Preferred Stock is subject to redemption in whole or in
part, at the option of Doral Financial with the consent of the Federal Reserve
on or after January 1, 2001, and on or prior to December 31, 2002, at a price of
$1,020 per share and after this period at redemption prices declining to a price
of $1,000 per share on or after January 1, 2005. There is no mandatory
redemption or sinking fund obligation with respect to the 8% Preferred Stock.
Voting Rights. The holders of shares of 8% Preferred Stock are not
entitled to any voting rights except as required by law or in connection with
any changes of the terms or rights of the 8% Preferred Stock.
Rank vis-a-vis 7% Preferred Stock. The 8% Preferred Stock will have the
same rank as the 7% Preferred Stock as to the payment of dividends and as to the
distribution of assets upon liquidation, dissolution or winding up of Doral
Financial.
7% PREFERRED STOCK
Doral Financial has outstanding 1,495,000 shares of 7% Preferred Stock.
Dividend Rights and Limitations. The holders of the shares of 7% Preferred
Stock are entitled to receive noncumulative cash dividends when, as and if
declared by the Board of Directors, at the annual rate of 7% of the $50
liquidation preference thereof payable monthly. The holders of the 7% Preferred
Stock are entitled to receive such dividends prior to any payment of dividends
or distribution of assets to holders of the common stock and to any other class
of capital stock ranking junior to the 7% Preferred Stock with respect to the
payment of dividends.
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Liquidation Rights. Upon the liquidation, dissolution or winding up of
Doral Financial, whether voluntary or involuntary, the holders of the 7%
Preferred Stock are entitled to receive out of the assets of Doral Financial an
amount in cash equal to $50 per share plus accrued and unpaid dividends thereon
for the current monthly dividend period to the date of the distribution. This
distribution must be made before any payment may be made to the holders of
common stock or any other securities of Doral Financial ranking junior to the 7%
Preferred Stock as to the distribution of assets upon liquidation. No
distribution of this type or payment on account of liquidation, dissolution or
winding up of Doral Financial may be made to the holders of the shares of any
class or series of stock ranking on a parity with the 7% Preferred Stock as to
the distribution of assets upon liquidation, unless the holders of the 7%
Preferred Stock receive like amounts ratably in accordance with the full
distributive amounts which they and the holders of parity stock are respectively
entitled to receive upon this preferential distribution.
After the payment to the holders of the 7% Preferred Stock of the full
preferential amounts provided for above, the holders of the 7% Preferred Stock
will have no right or claim to any of the remaining assets of Doral Financial.
Conversion Rights. The shares of 7% Preferred Stock are not convertible
into or exchangeable for any other securities of Doral Financial.
Redemption. The 7% Preferred Stock is subject to redemption in whole or in
part, at the option of Doral Financial with the consent of the Federal Reserve
on or after February 28, 2004 and on or prior to February 27, 2005, at a price
of $51 per share and after this period at redemption prices declining to a price
of $50 per share on or after February 28, 2006. There is no mandatory redemption
or sinking fund obligation with respect to the 7% Preferred Stock.
Voting Rights. The holders of shares of 7% Preferred Stock are not
entitled to any voting rights except (1) if Doral Financial does not pay
dividends in full on the 7% Preferred Stock for 18 consecutive monthly dividend
periods, (2) as required by law or (3) in connection with any changes of the
terms or rights of the 7% Preferred Stock.
Rank vis-a-vis Series A Preferred Stock. The 7% Preferred Stock will have
the same rank as the 8% Preferred Stock as to the payment of dividends and as to
the distribution of assets upon liquidation, dissolution or winding up of Doral
Financial.
PLAN OF DISTRIBUTION
Doral Financial may sell the offered securities (1) through agents; (2) to
or through underwriters or dealers; (3) directly to one or more purchasers; or
(4) through a combination of any of these methods of sale.
The prospectus supplement relating to an offering of offered securities
will set forth the terms of such offering, including:
- the name or names of any underwriters, dealers or agents;
- the purchase price of the offered securities and the proceeds to Doral
Financial from such sale;
- any underwriting discounts and commissions or agency fees and other
items constituting underwriters' or agents' compensation;
- the initial public offering price;
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- any discounts or concessions to be allowed or reallowed or paid to
dealers; and
- any securities exchanges on which such offered securities may be listed.
Any initial public offering prices, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
BY AGENTS
Offered securities may be sold through agents designated by Doral
Financial. Any agent involved in the offer or sale of the offered securities in
respect of which this prospectus is delivered will be named, and any commissions
payable by Doral Financial to such agent will be set forth, in the prospectus
supplement relating to that offering. Unless otherwise indicated in such
prospectus supplement, the agents will agree to use their reasonable best
efforts to solicit purchases for the period of their appointment.
BY UNDERWRITERS
If underwriters are used in the offering, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The securities may be either offered to the
public through underwriting syndicates represented by one or more managing
underwriters or by one or more underwriters without a syndicate. The obligations
of the underwriters to purchase the securities will be subject to certain
conditions. The underwriters will be obligated to purchase all the securities of
the series offered if any of the securities are purchased. Any initial public
offering price and any discounts or concessions allowed or re-allowed or paid to
dealers may be changed from time to time.
In connection with underwritten offerings of the offered securities and in
accordance with applicable law and industry practice, underwriters may
over-allot or effect transactions that stabilize, maintain or otherwise affect
the market price of the offered securities at levels above those that might
otherwise prevail in the open market, including by entering stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids, each of
which is described below.
- A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of
a security.
- A syndicate covering transaction means the placing of any bid on behalf
of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering.
- A penalty bid means an arrangement that permits the managing underwriter
to reclaim a selling concession from a syndicate member in connection
with the offering when offered securities originally sold by the
syndicate member are purchased in syndicate covering transactions.
These transactions may be effected in the over-the-counter market, or
otherwise. Underwriters are not required to engage in any of these activities,
or to continue such activities if commenced.
DIRECT SALES
Offered securities may also be sold directly by Doral Financial. In this
case, no underwriters or agents would be involved.
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GENERAL INFORMATION
Doral Financial may have agreements with the underwriters, dealers and
agents to indemnify them against certain civil liabilities, including
liabilities under the Securities Act of 1933, or to contribute with respect to
payments which the underwriters, dealers or agents may be required to make.
Each series of offered securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom offered
securities are sold for public offering and sale may make a market in such
offered securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given that there will be a market for the offered securities.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, Doral Financial or its subsidiaries in the ordinary course
of their businesses.
WHERE YOU CAN FIND MORE INFORMATION
Doral Financial files annual, quarterly and current reports, proxy
statements and other information with the SEC. Doral Financial has also filed
with the SEC a registration statement on Form S-3, to register the securities
being offered by this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information included in the
registration statement. For further information about Doral Financial and the
securities offered in this prospectus, you should refer to the registration
statement and its exhibits.
You may read and copy any document filed by Doral Financial with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Doral Financial files its SEC materials
electronically with the SEC, so you can also review Doral Financial's filings by
accessing the web site maintained by the SEC at http://www.sec.gov. This site
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
The SEC allows Doral Financial to "incorporate by reference" the
information it files with them, which means that it can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus.
Information that Doral Financial files later with the SEC will automatically
update and supersede information in this prospectus. In all cases, you should
rely on the later information over different information included in this
prospectus or the prospectus supplement. Doral Financial has previously filed
the following documents with the SEC and is incorporating them by reference into
this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1998;
and
- Current Reports on Form 8-K, dated January 12, 1999, February 22,
1999 and April 13, 1999.
Doral Financial also incorporates by reference, from the date of the
initial filing of the registration statement, all documents filed by it with the
SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 after the date of this prospectus and until Doral Financial sells all of
the securities being offered by this prospectus.
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You may request a copy of these filings at no cost, by writing or
telephoning Doral Financial at the following address:
Doral Financial Corporation
Attn.: Mario S. Levis, Executive
Vice President & Treasurer
1159 Franklin D. Roosevelt Ave.
San Juan, Puerto Rico 00920
(787) 749-7108
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. Doral Financial has
not authorized anyone else to provide you with different information. Doral
Financial is not making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or any prospectus supplement is accurate as of any date other than
the date on the front of those documents.
LEGAL OPINIONS
Unless otherwise specified in the applicable prospectus supplement,
Pietrantoni Mendez & Alvarez LLP, will issue an opinion about the legality of
the offered securities for Doral Financial. Unless otherwise specified in the
applicable prospectus supplement, any underwriters will be advised about certain
issues relating to any offering by Brown & Wood LLP.
EXPERTS
PricewaterhouseCoopers LLP, independent accountants, audited Doral
Financial's financial statements incorporated by reference in this prospectus
and elsewhere in the registration statement. These financial statements are
incorporated by reference herein in reliance on the report of
PricewaterhouseCoopers LLP given on the authority as experts in auditing and
accounting in giving the report.
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(DORAL FINANCIAL LOGO)
$200,000,000
DORAL FINANCIAL CORPORATION
MEDIUM-TERM SENIOR NOTES, SERIES A
MEDIUM-TERM SUBORDINATED NOTES, SERIES A
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
MAY 14, 1999
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