<PAGE> 1
Filed Pursuant to Rule 424(b)5
Registration No. 333-76259
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND HAS BECOME
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE
SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED AUGUST 18, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 7, 1999)
1,740,000 SHARES
(DORAL FINANCIAL LOGO)
% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES B
PRICE TO PUBLIC: $25 PER SHARE
Doral Financial is offering to the public 1,740,000 shares of its %
Noncumulative Monthly Income Preferred Stock, Series B. The Series B Preferred
Stock has the following characteristics:
- Annual dividends of $ per share, payable monthly, if declared by
the board of directors. Missed dividends never have to be paid.
- Redeemable at Doral Financial's option beginning on ,
2005.
- No mandatory redemption or stated maturity.
There is currently no public market for the Series B Preferred Stock. Doral
Financial has applied to have the Series B Preferred Stock approved for
quotation on the Nasdaq National Market under the symbol "DORLO." Trading of the
Series B Preferred Stock on the Nasdaq National Market is expected to commence
approximately 30 days after the initial delivery of the Series B Preferred
Stock.
INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 6 OF THE ACCOMPANYING
PROSPECTUS.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public Offering Price................................. $ 25.00 $43,500,000
Underwriting Discounts................................ $ 0.7875 $ 1,370,250
Proceeds to Doral Financial........................... $24.2125 $42,129,750
</TABLE>
Doral Financial has also granted the underwriters an over-allotment option
to purchase up to 260,000 additional shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR
COMMONWEALTH OF PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY.
PAINEWEBBER INCORPORATED OF PUERTO RICO POPULAR SECURITIES
(JOINT LEAD MANAGERS)
DORAL SECURITIES SANTANDER SECURITIES SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT SUMMARY.............. S-3
RISK FACTORS............................... S-7
Dividends Will Not Be Paid Unless
Declared by the Board of Directors..... S-7
Missed Dividends Never Have To Be Paid... S-7
Banking Regulations May Restrict Doral
Financial's Ability to Pay Dividends... S-7
Payment of Dividends May Be Restricted by
Doral Financial's Contracts............ S-7
FORWARD-LOOKING STATEMENTS................. S-7
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
USE OF PROCEEDS............................ S-8
CAPITALIZATION............................. S-8
SELECTED FINANCIAL DATA.................... S-9
SUMMARY OF CERTAIN TERMS OF THE
SERIES B PREFERRED STOCK................. S-12
TAXATION................................... S-18
UNDERWRITING............................... S-27
LEGAL MATTERS.............................. S-29
EXPERTS.................................... S-29
</TABLE>
PROSPECTUS
<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>
---------------------
Prospective investors may rely only on the information incorporated by
reference or contained in this prospectus supplement and the accompanying
prospectus. Neither Doral Financial nor any underwriter has authorized anyone to
provide prospective investors with information different from that incorporated
by reference or contained in this prospectus supplement and the prospectus. This
prospectus supplement and the prospectus are not an offer to sell nor are they
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus supplement
and the prospectus is correct only as of their dates, regardless of the time of
the delivery of this prospectus supplement or any sale of these securities.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this prospectus
supplement. You should read the entire prospectus supplement and the
accompanying prospectus, including the information incorporated by reference
into this prospectus and the "Risk Factors" section beginning on page S-7 of
this prospectus supplement and page 6 of the accompanying prospectus.
Unless otherwise stated, all information in this prospectus supplement
assumes that the underwriters will not exercise their over-allotment option to
purchase any of the 260,000 shares subject to that option.
THE COMPANY
Doral Financial is the leading mortgage banking institution in Puerto Rico
based on the volume of origination of first mortgage loans secured by single
family residences and the size of its mortgage servicing portfolio. Doral
Financial originated and purchased $1.6 billion in mortgage loans for the six
months ended June 30, 2000 and had a mortgage servicing portfolio of $8.2
billion as of June 30, 2000.
Doral Financial is also engaged in the commercial banking, thrift and
securities businesses. As of June 30, 2000, Doral Financial had total banking
assets of $2.3 billion and deposits of $1.2 billion.
Doral Financial is a bank holding company that has elected to be treated as
a financial holding company and subject to regulation and supervision by the
Federal Reserve Board. Unlike many bank holding companies, Doral Financial has
significant operations at the holding company level. As of June 30, 2000, Doral
Financial had assets of $2.6 billion at the holding company level.
Doral Financial's principal executive offices are located at 1159 Franklin
D. Roosevelt Avenue, San Juan, Puerto Rico, and its telephone number is (787)
749-7100.
S-3
<PAGE> 4
THE OFFERING
Series B Preferred Stock
Offered..................... 1,740,000 shares; 2,000,000 shares if the
underwriters exercise their over-allotment
option in full.
Offering Price................ $25 per share.
Liquidation Preference........ If Doral Financial is liquidated or dissolved,
you will be entitled to receive $25 per share
plus accrued dividends for the current month
from any assets available for distribution. You
will be paid before any of Doral Financial's
assets are distributed to holders of common
stock or any stock ranking junior to the Series
B Preferred Stock.
Dividends..................... Dividends will be paid on the last day of each
month beginning on , 2000. The
board of directors must approve each dividend
payment and any payment it does not approve
never has to be paid. The annual dividend rate
is equal to % of the liquidation
preference per share.
No Voting Rights.............. You will not have any voting rights, except as
described on page S-15 of this prospectus
supplement.
Redemption at Doral
Financial's Option.......... Series B Preferred Stock may be redeemed
beginning on , 2005 at Doral
Financial's option. Redemption prices are
discussed on page S-14 of this prospectus
supplement.
No Maturity Date or Mandatory
Redemption.................. The Series B Preferred Stock does not have a
maturity date. Doral Financial is not required
to provide for the retirement of the Series B
Preferred Stock by mandatory redemption or
sinking fund payments.
Rank.......................... The Series B Preferred Stock ranks senior to
the common stock of Doral Financial and on an
equal basis to Doral Financial's outstanding
preferred stock for purposes of dividend rights
and the distribution of assets upon
liquidation. Doral Financial may not issue
preferred stock ranking senior to the Series B
Preferred Stock without the approval of holders
of at least two-thirds of the Series B
Preferred Stock.
Nasdaq National Market
Symbol...................... Doral Financial has applied to have the Series
B Preferred Stock approved for quotation on the
Nasdaq National Market under the symbol
"DORLO." Trading of the Series B Preferred
Stock on the Nasdaq National Market is expected
to commence approximately 30 days after the
initial delivery of the Series B Preferred
Stock.
S-4
<PAGE> 5
SUMMARY FINANCIAL AND OPERATING DATA
You should read the summary financial information presented below together
with Doral Financial's consolidated financial statements and notes which are
incorporated by reference into this prospectus supplement and the accompanying
prospectus and with the historical financial information of Doral Financial
included under "Selected Financial Data" beginning on page S-9 of this
prospectus supplement.
Net income for the year ended December 31, 1997 reflects a non-cash
extraordinary charge to earnings of $12.3 million. The charge resulted from the
issuance by Doral Financial to Popular, Inc., a bank holding company
headquartered in San Juan, Puerto Rico, of shares of convertible preferred stock
in exchange for the cancellation of $8.5 million of Doral Financial's
subordinated debentures owned by Popular, Inc. The charge was equal to the
excess of the fair value of the preferred stock on the date of the exchange over
the net carrying amount of the debentures on Doral Financial's financial
statements. For the year ended December 31, 1997, the return on average assets
ratio computed on income before this extraordinary item would have been 2.19%
and the return on average common equity ratio would have been 19.29%.
The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average common equity ratio
is computed by dividing net income less preferred stock dividends by average
common stockholders' equity for the period. Both ratios have been computed using
month end averages. These ratios for the six month periods ended June 30, 2000
and 1999, have been presented on an annualized basis.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net income............. $ 40,875 $ 32,939 $ 67,926 $ 52,832 $ 20,231 $ 27,041 $ 19,560
Cash dividends paid.... $ 10,257 $ 7,844 $ 17,269 $ 9,975 $ 7,199 $ 6,008 $ 4,374
BALANCE SHEET DATA:
Total assets........... $5,389,727 $3,279,870 $4,537,343 $2,918,113 $1,857,789 $1,106,083 $ 917,922
Stockholders' equity... $ 414,640 $ 360,562 $ 384,982 $ 269,559 $ 186,955 $ 150,531 $ 129,017
OPERATING DATA:
Mortgage loans
originated and
purchased............ $1,602,000 $1,453,000 $2,722,000 $2,313,000 $1,037,000 $ 817,000 $ 636,000
Loan servicing
portfolio............ $8,242,000 $7,000,000 $7,633,000 $6,186,000 $4,655,000 $3,068,000 $2,668,000
SELECTED RATIOS:
Return on Average
Assets............... 1.69% 2.14% 1.92% 2.17% 1.37% 2.68% 2.32%
Return on Average
Common Equity........ 23.55% 22.10% 21.92% 21.65% 11.99% 19.35% 17.82%
</TABLE>
S-5
<PAGE> 6
CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratios shown below measure Doral Financial's ability to generate
sufficient earnings to pay the fixed charges or expenses of its debt and
dividends on its preferred stock. The ratios of earnings to combined fixed
charges and preferred stock dividends were computed by dividing earnings by
combined fixed charges and preferred stock dividends.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------
JUNE 30, 2000 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
Including Interest on Deposits................. 1.29x 1.41x 1.50x 1.61x 1.67x 1.49x
Excluding Interest on Deposits................. 1.37x 1.52x 1.59x 1.72x 1.76x 1.53x
</TABLE>
For purposes of computing the consolidated ratios of earnings to combined
fixed charges and preferred stock dividends, 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.
S-6
<PAGE> 7
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus supplement and the accompanying prospectus, including the
information incorporated by reference in this prospectus, before deciding to
invest in the Series B Preferred Stock.
DIVIDENDS WILL NOT BE PAID UNLESS DECLARED BY THE BOARD OF DIRECTORS
Monthly dividends will only be paid if declared by Doral Financial's board
of directors. The board of directors is not obligated or required to declare
monthly dividends.
MISSED DIVIDENDS NEVER HAVE TO BE PAID
If the board of directors does not declare a dividend for a particular
month, those dividends never have to be paid.
BANKING REGULATIONS MAY RESTRICT DORAL FINANCIAL'S ABILITY TO PAY DIVIDENDS
Doral Financial may not be able to pay dividends in the future if it does
not earn sufficient operational income. Federal Reserve Board policy is that a
bank holding company should pay dividends only out of its current operating
earnings. Doral Financial had income from operations of $40.9 million for the
six months ended June 30, 2000.
PAYMENT OF DIVIDENDS MAY BE RESTRICTED BY DORAL FINANCIAL'S CONTRACTS
Doral Financial is a party to contracts that prevent it from paying
dividends if it does not comply with some terms of those contracts. In addition,
Doral Financial issued its 7.84% Senior Notes due 2006 under an agreement that
prohibits it from paying dividends if the aggregate amount of dividends paid on
its capital stock exceeds certain limits tied to earnings and proceeds from the
sale of capital stock. As of June 30, 2000, after giving effect to this
offering, Doral Financial could have paid up to $222.3 million in additional
dividends under that agreement.
Doral Financial has also entered into a Warehousing Loan Agreement with
Citibank, N.A. which provides that Doral Financial may not pay dividends on its
capital stock during any year in excess of 50% of Doral Financial's consolidated
net income for the preceding year. Doral Financial had consolidated net income
of $67.9 million in 1999. Doral Financial has also entered into a Credit
Agreement with FirstBank Puerto Rico which provides that Doral Financial may not
pay dividends on its capital stock in any year in excess of its consolidated
retained earnings as of the end of the immediately preceding year. Doral
Financial had consolidated retained earnings of $205.9 million as of December
31, 1999.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus, including
information incorporated in this prospectus supplement by reference, contains
certain "forward-looking statements" concerning Doral Financial's operations,
performance and financial condition, including its future economic performance,
plans and objectives and the likelihood of success in developing and expanding
its business. These statements are based upon a number of assumptions and
estimates which are subject to significant uncertainties, many of which are
beyond the control of Doral Financial. The words "would," "could," "will,"
"expect," "anticipate," "believe," "intend," "plan,"
S-7
<PAGE> 8
"estimate" and similar expressions are meant to identify these forward-looking
statements. Actual results may differ materially from those expressed or implied
by these forward-looking statements.
USE OF PROCEEDS
The net proceeds to Doral Financial after deducting expenses from the sale
of shares of Series B Preferred Stock are estimated at approximately
$41,929,750. If the underwriters' over-allotment option is exercised in full,
the net proceeds are estimated at $48,225,000. Doral Financial intends to use
the net proceeds for general corporate purposes, which may include:
- making capital contributions to its banking and non-banking subsidiaries;
- investing in mortgage servicing rights through the internal origination
of mortgage loans, the acquisition of mortgage loans with the related
servicing rights and the purchase of contracts to service mortgage loans;
- funding possible acquisitions of mortgage banking and other financial
institutions, including insurance companies; and
- increasing working capital.
CAPITALIZATION
The following table shows the unaudited indebtedness and capitalization of
Doral Financial at June 30, 2000, on an actual basis and as adjusted to give
effect to the issuance of the shares of Series B Preferred Stock offered by this
prospectus supplement. The table also assumes that the underwriters do not
exercise their over-allotment option. In addition to the indebtedness reflected
below, Doral Financial had deposits of $1.2 billion. This table should be read
together with Doral Financial's Consolidated Financial Statements and related
notes incorporated by reference into this prospectus supplement.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term borrowings
Loans payable............................................. $ 483,603 $ 483,603
Short-term portion of notes payable....................... 96,998 96,998
Short-term portion of securities sold under agreements to
repurchase............................................. 1,765,820 1,765,820
Short-term portion of advances from the Federal Home Loan
Bank................................................... 144,000 144,000
---------- ----------
Total short-term borrowings....................... $2,490,421 $2,490,421
========== ==========
Long-term borrowings
Long-term portion of notes payable........................ $ 296,035 $ 296,035
Long-term portion of securities sold under agreements to
repurchase............................................. 609,146 609,146
Long-term portion of advances from the Federal Home Loan
Bank................................................... 100,000 100,000
Senior Notes.............................................. 75,000 75,000
---------- ----------
Total long-term borrowings........................ $1,080,181 $1,080,181
========== ==========
</TABLE>
S-8
<PAGE> 9
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' Equity
Serial preferred stock, $1 par value, 10,000,000 shares
authorized; 1,495,000 shares of Series A Preferred
Stock outstanding and 1,740,000 shares of Series B
Preferred Stock, as adjusted........................... $ 1,495 $ 3,235
Common stock, $1.00 par value, 200,000,000 shares
authorized; 42,418,634 shares issued and 42,362,634
outstanding............................................ 42,419 42,419
Paid-in capital........................................... 138,896 179,086
Legal Surplus............................................. 3,596 3,596
Retained earnings......................................... 236,493 236,493
Accumulated other comprehensive income(1)................. (8,203) (8,203)
Treasury Stock at par value, 56,000 shares................ (56) (56)
---------- ----------
Total stockholder's equity........................ $ 414,640 $ 456,570
========== ==========
</TABLE>
---------------
(1) Consist of unrealized gain on securities available for sale, net of deferred
tax.
SELECTED FINANCIAL DATA
The following table shows certain selected consolidated financial and
operating data of Doral Financial on a historical basis as of and for the
six-month periods ended June 30, 2000 and 1999, and for each of the five years
in the period ended December 31, 1999. This information should be read together
with Doral Financial's Consolidated Financial Statements and the related notes
incorporated by reference in this prospectus. Financial information for the
six-month periods ended June 30, 2000 and 1999, is derived from unaudited
financial statements, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the results for those periods.
These adjustments consist only of normal recurring accruals. Results for the
six-month period ended June 30, 2000 are not necessarily indicative of results
for the full year. Doral Financial has made certain reclassifications to data
for years prior to 1998 to conform to 1998 classifications.
Net income for the year ended December 31, 1997, reflects a non-cash
extraordinary charge to earnings of $12.3 million resulting from the issuance to
Popular, Inc. of shares of convertible preferred stock in exchange for the
cancellation of $8.5 million of Doral Financial's subordinated debentures owned
by Popular, Inc. The charge represented the excess of the fair value of the
preferred stock on the date of the exchange over the net carrying amount of the
debentures on Doral Financial's financial statements. The return on average
assets computed on income before extraordinary item for the year ended December
31, 1997, would have been 2.19% and the return on average common equity would
have been 19.29%.
The return on average assets ratio is computed by dividing net income by
average assets for the period. The return on average common equity ratio is
computed by dividing net income less preferred stock dividends by average common
stockholders' equity for the period. The average equity to average assets ratio
is computed by dividing average assets for the period by average stockholders'
equity. All ratios have been computed using month end averages. The return on
average assets and average common equity ratios for the six-month periods ended
June 30, 2000 and 1999, have been presented
S-9
<PAGE> 10
on an annualized basis. All per share information shown in the table has been
adjusted to reflect two-for-one stock splits effected on August 28, 1997 and May
20, 1998.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............ $ 151,699 $ 89,631 $ 211,679 $ 150,051 $ 90,131 $ 66,987 $ 61,907
Interest expense........... 130,103 65,788 161,795 114,786 61,438 46,443 43,380
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income........ 21,596 23,843 49,884 35,265 28,693 20,544 18,527
Provision for loan
losses................... 1,655 753 2,626 883 792 797 352
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses................... 19,941 23,090 47,258 34,382 27,901 19,747 18,175
Non-interest income........ 76,072 59,286 126,911 86,340 45,286 40,846 29,930
Non-interest expense....... 49,741 44,446 97,556 60,883 35,390 29,314 26,045
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes and
extraordinary item....... 46,272 37,930 76,613 59,839 37,797 31,279 22,060
Income taxes............... 5,397 4,991 8,687 7,007 5,249 4,238 2,500
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary
item..................... 40,875 32,939 67,926 52,832 32,548 27,041 19,560
Extraordinary
item -- non-cash loss on
extinguishment of debt... -- -- -- -- 12,317 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income......... $ 40,875 $ 32,939 $ 67,926 $ 52,832 $ 20,231 $ 27,041 $ 19,560
=========== =========== =========== =========== =========== =========== ===========
Cash dividends
paid............. $ 10,257 $ 7,844 $ 17,269 $ 9,975 $ 7,199 $ 6,008 $ 4,374
=========== =========== =========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Mortgage loans held for
sale..................... $ 1,328,003 $ 909,983 $ 1,015,703 $ 883,048 $ 404,672 $ 260,175 $ 243,678
Securities held for trading
net...................... 1,027,841 684,673 862,698 606,918 620,288 436,125 418,348
Securities held to
maturity................. 1,551,302 937,186 1,509,060 190,778 143,534 107,222 77,945
Securities available for
sale..................... 353,471 28,862 66,325 408,888 240,876 12,007 14,579
Loans receivable, net...... 328,834 192,756 231,184 166,987 133,055 128,766 51,355
Total assets....... 5,389,727 3,279,870 4,537,343 2,918,113 1,857,789 1,106,083 917,922
Loans payable and
securities sold under
agreements to
repurchase............... 2,858,569 1,626,578 2,281,416 1,624,032 1,076,912 568,840 573,754
Notes payable.............. 468,033 207,106 461,053 199,733 164,934 152,126 51,682
Deposit accounts........... 1,180,896 760,096 1,010,424 533,113 300,494 158,902 95,740
Stockholders' equity....... 414,640 360,562 384,982 269,559 186,955 150,531 129,017
NET INCOME PER COMMON
SHARE:
BASIC:
Income before
extraordinary item..... $ 0.92 $ 0.76 $ 1.55 $ 1.31 $ 0.89 $ 0.75 $ 0.67
Extraordinary item....... -- -- -- -- (0.34) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income......... $ 0.92 $ 0.76 $ 1.55 $ 1.31 $ 0.55 $ 0.75 $ 0.67
=========== =========== =========== =========== =========== =========== ===========
DILUTED:
Income before
extraordinary item..... $ 0.92 $ 0.73 $ 1.50 $ 1.26 $ 0.85 $ 0.71 $ 0.64
Extraordinary item....... -- -- -- -- (0.32) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income......... $ 0.92 $ 0.73 $ 1.50 $ 1.26 $ 0.53 $ 0.71 $ 0.64
=========== =========== =========== =========== =========== =========== ===========
OTHER PER SHARE DATA:
Cash dividends:
Common Stock............. $ 0.18 $ 0.14 $ 0.30 $ 0.23 $ 0.195 $ 0.165 $ 0.145
7% Series A Preferred
Stock.................. $ 1.76 $ 1.24 $ 3.00 -- -- $ 0.3825 $ 1.05
8% Convertible Cumulative
Preferred Stock........ $ 20.00 $ 40.00 $ 80.00 $ 80.00 $ 15.33 -- --
</TABLE>
S-10
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average shares
outstanding:
Basic.................... 41,395,777 40,428,920 40,428,920 39,941,068 36,680,158 36,266,244 29,231,680
Diluted.................. 41,395,777 42,435,528 42,421,477 41,928,186 38,728,632 38,725,072 31,040,540
OPERATING DATA:
Loan Production.......... $ 1,602,000 $ 1,453,000 $ 2,722,000 $ 2,313,000 $ 1,037,000 $ 817,000 $ 636,000
Loan Servicing
Portfolio.............. $ 8,242,000 $ 7,000,000 $ 7,633,000 $ 6,186,000 $ 4,655,000 $ 3,068,000 $ 2,668,000
SELECTED RATIOS:
Return on Average
Assets................. 1.69% 2.14% 1.92% 2.17% 1.37% 2.68% 2.32%
Return on Average Common
Equity................. 23.55% 22.10% 21.92% 21.65% 11.99% 19.35% 17.82%
Average Equity to Average
Assets................. 8.31% 10.88% 10.04% 10.00% 11.39% 13.81% 13.02%
</TABLE>
S-11
<PAGE> 12
SUMMARY OF CERTAIN TERMS OF THE SERIES B PREFERRED STOCK
The following summary of the particular terms of the Series B Preferred
Stock supplements and, to the extent inconsistent therewith, replaces the
description of the terms of Doral Financial's preferred stock set forth under
the heading "Description of Preferred Stock" in the accompanying prospectus, to
which reference is hereby made. The Series B Preferred Stock is a series of the
preferred stock of Doral Financial covered by and described in the prospectus.
The following summary contains a description of the material terms of the
Series B Preferred Stock. The summary is subject to and qualified in its
entirety by reference to Doral Financial's Restated Certificate of Incorporation
and to the Certificate of Designation creating the Series B Preferred Stock (the
"Certificate of Designation"), copies of which are incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.
GENERAL
As of the date of this prospectus supplement, Doral Financial is authorized
to issue 200,000,000 shares of common stock, $1.00 par value, and 10,000,000
shares of serial preferred stock, $1.00 par value. The 7% Noncumulative Monthly
Income Preferred Stock, Series A described in the accompanying prospectus is the
only series of outstanding serial preferred stock designated by Doral Financial.
DIVIDENDS
If declared at the option of Doral Financial's board of directors, holders
of record of the Series B Preferred Stock will be entitled to receive cash
dividends in the amount of $ per share each year, which is equivalent
to % of the liquidation preference of $25 per share. Doral Financial is not
required to declare or pay dividends on the Series B Preferred Stock, even if it
has funds available for the payment of such dividends. Dividends may only be
paid out of funds that are legally available for this purpose.
Dividends on the Series B Preferred Stock will accrue from their date of
original issuance and will be payable on the last day of each month in United
States dollars beginning on , 2000. Payment of dividends will be made
to the holders of record of the Series B Preferred Stock as they appear on the
books of Doral Financial on the fifteenth day of the month for which the
dividends are payable. In the case of the dividend payable on , 2000,
this dividend will cover the period from the date of issuance of the Series B
Preferred Stock to , 2000. If any date on which dividends are payable
is not a Business Day, then payment of the dividend will be made on the next
Business Day without any interest or other payment in respect of the delay. If
December 31 of any year is not a Business Day, then the dividend payable on such
date will be made on the immediately preceding Business Day. A "Business Day" is
a day other than a Saturday or Sunday or a general banking holiday in San Juan,
Puerto Rico or New York, New York.
Dividends on the Series B Preferred Stock will be noncumulative. If the
board of directors does not declare a dividend for any monthly dividend period
on the Series B Preferred Stock, then the holders of Series B Preferred Stock
will not have a right to receive a dividend for that monthly dividend period,
whether or not dividends on the Series B Preferred Stock are declared for any
future monthly dividend period.
Dividends for any monthly dividend period will be paid in equal
installments in the amount of $ per share. The aggregate payment made
to each holder will be rounded to the next lowest
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<PAGE> 13
cent. The amount of dividends payable for any period shorter than a full monthly
dividend period will be computed on the basis of the actual number of days
elapsed in that period.
Dividend payments will be mailed to the record holders of the Series B
Preferred Stock at their addresses appearing on the register for the Series B
Preferred Stock.
The terms of the Series B Preferred Stock do not permit Doral Financial to
declare, set apart or pay any dividend or make any other distribution of assets
on, or redeem, purchase, set apart or otherwise acquire shares of common stock
or of any other class of stock of Doral Financial ranking junior to the Series B
Preferred Stock as to the payment of dividends or as to the distribution of
assets upon liquidation, dissolution or winding up of Doral Financial, unless
certain conditions are met. Those conditions are (1) all accrued and unpaid
dividends on the Series B Preferred Stock for the twelve monthly dividend
periods ending on the immediately preceding dividend payment date shall have
been paid or are paid contemporaneously, (2) the full monthly dividend on the
Series B Preferred Stock for the then current month has been or is
contemporaneously declared and paid or declared and set apart for payment, and
(3) Doral Financial has not defaulted in the payment of the redemption price of
any shares of Series B Preferred Stock called for redemption. See "Redemption at
the Option of Doral Financial." The above limitations do not apply to stock
dividends or other distributions made in stock of Doral Financial ranking junior
to the Series B Preferred Stock as to the payment of dividends and as to the
distribution of assets. The above limitations also do not apply to conversions
or exchanges for stock of Doral Financial ranking junior to the Series B
Preferred Stock as to the payment of dividends and as to the distribution of
assets.
If Doral Financial is unable to pay in full the dividends on the Series B
Preferred Stock and on any other shares of stock of equal rank as to the payment
of dividends with the Series B Preferred Stock, all dividends declared upon the
Series B Preferred Stock and any such other shares of stock will be declared pro
rata. In this event, each share of Series B Preferred Stock and of the other
classes of stock of equal rank will receive dividends in the same proportion as
the full dividends on the Series B Preferred Stock for the then current dividend
period bears to the full dividends, including required or permitted
accumulations, if any, on such other classes of equally ranked stock.
For a discussion of the tax treatment of distributions to stockholders see
"Taxation," "Puerto Rico Taxation," and "United States Taxation," and for a
discussion on certain potential regulatory limitations on Doral Financial's
ability to pay dividends, see "Risk Factors -- Banking Regulations May Restrict
Doral Financial's Ability to Pay Dividends."
NO CONVERSION OR EXCHANGE RIGHTS
The Series B Preferred Stock will not be convertible into or exchangeable
for any other securities of Doral Financial.
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<PAGE> 14
REDEMPTION AT THE OPTION OF DORAL FINANCIAL
Doral Financial may not redeem the shares of the Series B Preferred Stock
prior to , 2005. On and after that date, Doral Financial may redeem
the Series B Preferred Stock for cash, at its option, in whole or in part, at
the redemption prices shown below plus accrued and unpaid dividends for the then
current monthly dividend period to the redemption date. The redemption prices
for the twelve month periods beginning on , 2005 are shown below.
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
2005........................................................ $25.50
2006........................................................ 25.25
2007 and thereafter......................................... 25.00
</TABLE>
In the event that Doral Financial elects to redeem less than all of the
outstanding shares of the Series B Preferred Stock, the shares to be redeemed
will be allocated pro rata or by lot as may be determined by the board of
directors, or by any other method as the board of directors may consider fair.
Any method chosen by Doral Financial will conform to any rule or regulation of
any national or regional stock exchange or automated quotation system on which
the shares of the Series B Preferred Stock may at the time be listed or eligible
for quotation.
Doral Financial will mail a notice of any proposed redemption to the
holders of record of the shares of Series B Preferred Stock to be redeemed, at
their address of record, not less than 30 nor more than 60 days prior to the
redemption date. The notice of redemption to each holder of shares of Series B
Preferred Stock will specify the number of shares of Series B Preferred Stock to
be redeemed, the redemption date and the redemption price payable to the holder
upon redemption, and shall state that from and after the redemption date
dividends will cease to accrue. If Doral Financial redeems less than all the
shares owned by a holder, the notice shall also specify the number of shares of
Series B Preferred Stock of the holder which are to be redeemed and the numbers
of the certificates representing such shares. Any notice mailed in accordance
with these procedures shall be conclusively presumed to have been properly
given, whether or not the stockholder receives this notice. The failure by Doral
Financial to give this notice by mail, or any defect in the notice, to the
holders of any shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series B Preferred
Stock.
If the redemption notice is properly mailed and Doral Financial pays the
redemption price, from and after the redemption date, all dividends on the
shares of Series B Preferred Stock called for redemption shall cease to accrue
and all rights of the holders of the shares being redeemed as stockholders of
Doral Financial shall cease on the redemption date. Holders will retain the
right to receive the redemption price upon presentation of their stock
certificates. If Doral Financial redeems less than all the shares represented by
any certificate, a new certificate representing the unredeemed shares shall be
issued without cost to the holder.
At its option, Doral Financial may, on or prior to the redemption date,
irrevocably deposit the entire amount payable upon redemption of the shares of
the Series B Preferred Stock to be redeemed with a bank or trust company
designated by Doral Financial having its principal office in New York, New York,
San Juan, Puerto Rico, or any other city in which Doral Financial shall at that
time maintain a transfer agent with respect to its capital stock, and having a
combined capital and surplus of at least $50,000,000 (hereinafter referred to as
the "Depositary"). The Depositary will hold this amount in trust for payment to
the holders of the shares of the Series B Preferred Stock to be redeemed. If the
deposit is made and the funds deposited are immediately available to the holders
of the shares of the Series B Preferred Stock to be redeemed, Doral Financial
will no longer have any obligation to make payment of the amount payable upon
redemption of the shares of the Series B
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<PAGE> 15
Preferred Stock to be redeemed. Following the deposit, except as discussed in
the next paragraph, holders of these shares shall look only to the Depositary
for payment.
Any funds remaining unclaimed at the end of two years after the redemption
date for which these funds were deposited shall be returned to Doral Financial.
After the funds are returned to Doral Financial, the holders of shares called
for redemption shall look only to Doral Financial for the payment of the
redemption price. Any interest accrued on any funds deposited with the
Depositary will belong to Doral Financial and shall be paid to it on demand.
After the redemption of any shares of the Series B Preferred Stock, the
redeemed shares will have the status of authorized but unissued shares of serial
preferred stock, without designation as to series, until these shares are once
more designated as part of a particular series by the board of directors of
Doral Financial.
Certain Regulatory Considerations Affecting Redemptions
Under current regulations, Doral Financial may not redeem the Series B
Preferred Stock, without the prior approval of the Federal Reserve Board.
Ordinarily, the Federal Reserve Board will not permit a redemption unless (1)
the shares are redeemed with the proceeds of a sale of common stock or perpetual
preferred stock, or (2) the Federal Reserve Board determines that Doral
Financial's condition and circumstances warrant the reduction of a source of
permanent capital.
Also, under Puerto Rico law, Doral Financial may not redeem any shares of
its capital stock unless the assets remaining after the redemption are
sufficient to pay any debts for which payment has not otherwise been provided.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution, or winding up of Doral Financial, the
record holders of shares of Series B Preferred Stock will be entitled to receive
out of the assets of Doral Financial available for distribution to shareholders,
before any distribution is made to holders of common stock or any other equity
securities of Doral Financial ranking junior upon liquidation to the Series B
Preferred Stock, the amount of $25 per share plus an amount equal to any accrued
and unpaid dividends for the current monthly dividend period to the date of
payment.
If Doral Financial is liquidated or dissolved and the amounts payable with
respect to the Series B Preferred Stock and any other shares of stock of equal
rank upon liquidation are not paid in full, the holders of the Series B
Preferred Stock and of the other shares will share ratably in any such
distribution of assets in proportion to the full liquidation preferences to
which each would otherwise be entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of shares of
Series B Preferred Stock will not be entitled to any further participation in
any distribution of assets of Doral Financial.
A consolidation or merger of Doral Financial with any other corporation, or
any sale, lease or conveyance of all or any part of the property or business of
Doral Financial, shall not be deemed to be a liquidation, dissolution, or
winding up of Doral Financial.
VOTING RIGHTS
Holders of the Series B Preferred Stock will not be entitled to receive
notice of or attend or vote at any meeting of stockholders of Doral Financial,
except as described below.
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<PAGE> 16
If Doral Financial does not pay dividends in full on the Series B Preferred
Stock for eighteen consecutive monthly dividend periods, the holders of
outstanding shares of the Series B Preferred Stock, together with the holders of
any other shares of stock having the right to vote for the election of directors
solely in the event of any failure to pay dividends, acting as a single class,
will be entitled to appoint two additional members of the board of directors of
Doral Financial. They will also have the right to remove any member so appointed
from office and appoint another person in place of such member. To make this
appointment, the holders of a majority in liquidation preference of these shares
must send written notice to Doral Financial of the appointment or pass a
resolution adopted by a majority of holders at a separate general meeting of
those holders called for this purpose.
Not later than 30 days after the right of holders of Series B Preferred
Stock to elect directors arises, if written notice by a majority of the holders
has not been given as provided for in the preceding sentence, the board of
directors of Doral Financial or an authorized board committee is required to
call a separate general meeting for this purpose. If the board of directors
fails to convene this meeting within the 30-day period, the holders of 10% of
the outstanding shares of the Series B Preferred Stock and any such other stock
will be entitled to convene the meeting.
The provisions of the Restated Certificate of Incorporation and By-Laws of
Doral Financial relating to the convening and conduct of general meetings of
stockholders will apply to any separate general meeting of this type. Any member
of the board of directors appointed as described above shall vacate office if
Doral Financial resumes the payment of dividends in full on the Series B
Preferred Stock and each other series of stock having similar voting rights for
twelve consecutive monthly dividend periods. The By-Laws of Doral Financial
require a minimum of five members of the board of directors and a maximum of ten
members. As of the date of this prospectus supplement, Doral Financial's board
of directors consisted of eight members.
Any change or abrogation of the rights and preferences of the Series B
Preferred Stock will require the approval of holders of at least two thirds of
the outstanding aggregate liquidation preference of the Series B Preferred
Stock. This approval can by evidenced either by a consent in writing or by a
resolution passed at a meeting of the holders of the Series B Preferred Stock.
The authorization or issuance of any shares of Doral Financial ranking senior to
the Series B Preferred Stock as to dividend rights or rights on liquidation or
similar events, will be considered a change requiring the consent of the Series
B Preferred Stock. Conversely, the authorization or issuance of shares ranking,
as to dividend rights or rights on liquidation or similar events, on a parity or
junior to the Series B Preferred Stock, will not be considered a change or
abrogation of the rights of the Series B Preferred Stock and the consent of the
holders of the Series B Preferred Stock will not be required in connection with
this action.
No vote of the holders of the Series B Preferred Stock will be required for
Doral Financial to redeem or purchase and cancel the Series B Preferred Stock in
accordance with the Restated Certificate of Incorporation or the Certificate of
Designation for the Series B Preferred Stock.
Doral Financial will cause a notice of any meeting at which holders of the
Series B Preferred Stock are entitled to vote to be mailed to each record holder
of the Series B Preferred Stock. Each notice will contain (1) the date of the
meeting, (2) a description of any resolution to be proposed for adoption at the
meeting, and (3) instructions for deliveries of proxies.
For a discussion of certain regulatory considerations related to voting
rights, see "Voting rights" on page 19 of the accompanying prospectus.
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<PAGE> 17
RANK
The Series B Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank:
- senior to all classes of common stock of Doral Financial, and to all
other equity securities issued by Doral Financial the terms of which
specifically provide that those equity securities will rank junior to the
Series B Preferred Stock;
- on a parity with Doral Financial's outstanding 7% Noncumulative Monthly
Income Preferred Stock, Series A, and with all other equity securities
issued by Doral Financial the terms of which specifically provide that
those equity securities will have equal rank as the Series B Preferred
Stock; and
- junior to all equity securities issued by Doral Financial the terms of
which specifically provide that those equity securities will rank senior
to the Series B Preferred Stock.
For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.
Doral Financial may not issue shares ranking, as to dividend rights or
rights on liquidation, winding up and dissolution, senior to the Series B
Preferred Stock, except with the consent of the holders of at least two-thirds
of the outstanding aggregate liquidation preference of the Series B Preferred
Stock. See "Voting Rights" above.
TRANSFER AGENT; DIVIDEND DISBURSING AGENT; REGISTRAR
ChaseMellon Shareholder Services, LLC will initially act as the transfer
agent, dividend disbursing agent and registrar for the Series B Preferred Stock.
Holders of the Series B Preferred Stock may contact ChaseMellon, at the
following address: ChaseMellon Shareholder Services, LLC, P.O. Box 3315, So.
Hackensack, NJ 07606, toll-free telephone number 1-800-851-9677.
The transfer of a share of Series B Preferred Stock may be registered upon
the surrender of the certificate evidencing the share of Series B Preferred
Stock to be transferred, together with the form of transfer endorsed on it duly
completed and executed, at the office of the transfer agent and registrar.
Registration of transfers of shares of Series B Preferred Stock will be
effected without charge by or on behalf of Doral Financial, but upon payment of
any tax or other governmental charges which may be imposed in relation to it or
the giving of an indemnity as the transfer agent and registrar may require.
Doral Financial will not be required to register the transfer of a share of
Series B Preferred Stock after the share has been called for redemption.
REPLACEMENT OF LOST CERTIFICATES
If any certificate for a share of Series B Preferred Stock is mutilated or
alleged to have been lost, stolen or destroyed, the holder may request a new
certificate representing the same share. Doral Financial will issue a new
certificate subject to delivery of the old certificate or, if alleged to have
been lost, stolen or destroyed, compliance with the conditions as to evidence of
ownership, indemnity and the payment of out-of-pocket expenses of Doral
Financial as Doral Financial may determine.
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<PAGE> 18
NO PREFERENTIAL RIGHTS TO PURCHASE ADDITIONAL SECURITIES
Holders of the Series B Preferred Stock will have no preemptive or
preferential rights to purchase or subscribe for any securities of Doral
Financial.
NO REPURCHASE AT THE OPTION OF THE HOLDERS
Holders of the Series B Preferred Stock will have no right to require Doral
Financial to redeem or repurchase any shares of Series B Preferred Stock.
NO MANDATORY REDEMPTION OR SINKING FUNDING OBLIGATION
The shares of Series B Preferred Stock are not subject to any mandatory
redemption, sinking fund or similar obligation.
PURCHASE OF SHARES BY DORAL FINANCIAL
Doral Financial may, at its option, purchase shares of the Series B
Preferred Stock from holders thereof from time to time, by tender, in privately
negotiated transactions or otherwise.
TAXATION
GENERAL
In the opinion of Pietrantoni Mendez & Alvarez LLP, counsel to Doral
Financial, the following discussion summarizes the material Puerto Rico and
United States tax considerations relating to the purchase, ownership and
disposition of Series B Preferred Stock. This discussion does not intend to
describe all of the tax considerations that may be relevant to a particular
investor in light of that person's particular circumstances and does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than Puerto Rico and the United States.
This discussion is based on the tax laws of Puerto Rico and the United
States as in effect on the date of this prospectus supplement, as well as
regulations, administrative pronouncements and judicial decisions available on
or before such date and now in effect. All of the foregoing are subject to
change, which change could apply retroactively and could affect the continued
validity of this summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE APPLICATION TO YOUR
PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE
APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX.
PUERTO RICO TAXATION
The following discussion does not intend to cover all aspects of Puerto
Rico taxation that may be relevant to a purchaser of Series B Preferred Stock in
light of the purchaser's particular circumstances, or to purchasers subject to
special rules of taxation, such as life insurance companies, "Special
Partnerships," "Subchapter N Corporations," registered investment companies, and
certain pension trusts.
S-18
<PAGE> 19
For purposes of the discussion below, a "Puerto Rico corporation" is a
corporation organized under the laws of Puerto Rico and a "foreign corporation"
is a corporation organized under the laws of a jurisdiction other than Puerto
Rico.
OWNERSHIP AND DISPOSITION OF SERIES B PREFERRED STOCK
Taxation of Dividends
General. Distributions of cash or other property made by Doral Financial
on the Series B Preferred Stock will be treated as dividends to the extent that
Doral Financial has current or accumulated earnings and profits. To the extent
that a distribution exceeds Doral Financial's current and accumulated earnings
and profits, the distribution will be applied against and reduce the adjusted
tax basis of the Series B Preferred Stock in the hands of the holder. The excess
of any distribution of this type over the adjusted tax basis will be treated as
gain on the sale or exchange of the Series B Preferred Stock and will be subject
to income tax as described below.
The following discussion regarding the income taxation of dividends on
Series B Preferred Stock received by individuals not residents of Puerto Rico
and foreign corporations not engaged in a trade or business in Puerto Rico
assumes that dividends will constitute income from sources within Puerto Rico.
Generally, a dividend declared by a Puerto Rico corporation will constitute
income from sources within Puerto Rico unless the corporation derived less than
20% of its gross income from sources within Puerto Rico for the three taxable
years preceding the year of the declaration. Doral Financial has represented
that it has derived more than 20% of its gross income from Puerto Rico sources
on an annual basis since its incorporation in 1972.
Individual Residents of Puerto Rico and Puerto Rico Corporations. In
general, individuals who are residents of Puerto Rico will be subject to a
special 10% income tax (the "10% Special Tax") on dividends paid on the Series B
Preferred Stock. This tax is generally required to be withheld by Doral
Financial. An individual may elect for this withholding not to apply, and in
that case he or she will be required to include the amount of the dividend as
ordinary income and will be subject to income tax thereon at the normal income
tax rates, which may be up to 33%.
Puerto Rico corporations will be subject to income tax on dividends paid on
the Series B Preferred Stock at the normal corporate income tax rates, subject
to the dividend received deduction discussed below. In the case of a Puerto Rico
corporation, no withholding will be imposed on dividends paid on the Series B
Preferred Stock. The dividend received deduction will be equal to 85% of the
dividend received, but the deduction may not exceed 85% of the corporation's net
taxable income. Based on the applicable maximum Puerto Rico normal corporate
income tax rate of 39%, the maximum effective income tax rate on these dividends
will be 5.85% after accounting for the dividend received deduction.
As a practical matter, dividends on the Series B Preferred Stock held in
"street name" through foreign financial institutions or other securities
intermediaries not engaged in trade or business in Puerto Rico will generally be
subject to a separate 10% withholding tax imposed on foreign corporations. See
"-- Foreign Corporations." Accordingly, individuals resident of Puerto Rico who
desire to file an election out of the applicable 10% Special Tax and applicable
withholding tax should have their shares of Series B Preferred Stock issued and
registered in their own name. Similarly, Puerto Rico corporations that own any
shares of Series B Preferred Stock and wish to avoid the withholding imposed on
foreign corporations should have their shares issued and registered in their own
name in order to ensure that no withholding is made on dividends.
United States Citizens Not Residents of Puerto Rico. Dividends paid on the
Series B Preferred Stock to a United States citizen who is not a resident of
Puerto Rico will be subject to the 10%
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<PAGE> 20
Special Tax which will be withheld by Doral Financial. These individuals may
elect for the withholding not to apply, and in that case he or she will be
required to include the amount of the dividend as ordinary income and will be
subject to income tax thereon at the normal income tax rates, which may be up to
33%. Notwithstanding the making of this election, a separate 10% withholding tax
will be required on the amount of the dividend unless the individual timely
files with Doral Financial a withholding exemption certificate to the effect
that the individual's gross income from sources within Puerto Rico during the
taxable year does not exceed $1,300 if single or $3,000 if married. Withholding
exemption certificates will only be accepted by Doral Financial or its agent
from individuals who have the shares of Series B Preferred Stock registered in
their names. Individuals who hold shares of Series B Preferred Stock in "street
name" will not be eligible to file with Doral Financial or its agent withholding
exemption certificates.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. Dividends paid on the Series B Preferred Stock to any individual who is
not a citizen of the United States and who is not a resident of Puerto Rico will
generally be subject to a 10% tax which will be withheld at source by Doral
Financial.
Foreign Corporations. The income taxation of dividends paid on the Series
B Preferred Stock to a foreign corporation will depend on whether or not the
corporation is engaged in a trade or business in Puerto Rico.
A foreign corporation that is engaged in a trade or business in Puerto Rico
will be subject to the normal corporate income tax rates applicable to Puerto
Rico corporations on their net income that is effectively connected with the
trade or business in Puerto Rico. This income will include net income from
sources within Puerto Rico and certain items of net income from sources outside
Puerto Rico that are effectively connected with the trade or business in Puerto
Rico. Net income from sources within Puerto Rico will include dividends on the
Series B Preferred Stock. A foreign corporation that is engaged in a trade or
business in Puerto Rico will be entitled to claim the 85% dividend received
deduction discussed above in connection with Puerto Rico corporations.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico are also subject to a 10% branch profits tax. However, dividends on
the Series B Preferred Stock received by these corporations will be excluded
from the computation of the branch profits tax liability of these corporations.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the
Series B Preferred Stock.
Partnerships. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to Puerto Rico
and foreign corporations is equally applicable in the case of most Puerto Rico
and foreign partnerships, respectively.
Taxation of Gains upon Sales or Exchanges Other Than Redemptions
General. The sale or exchange of Series B Preferred Stock will give rise
to gain or loss equal to the difference between the amount realized on the sale
or exchange and the tax basis of the Series B Preferred Stock in the hands of
the holder. Any gain or loss that is required to be recognized will be a capital
gain or loss if the Series B Preferred Stock is held as a capital asset by the
holder and will be a long-term capital gain or loss if the stockholders' holding
period of the Series B Preferred Stock exceeds six months.
Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on
the sale or exchange of Series B Preferred Stock by an individual resident of
Puerto Rico or a Puerto Rico
S-20
<PAGE> 21
corporation will generally be required to be recognized as gross income and will
be subject to income tax. If the stockholder is an individual and the gain is a
long-term capital gain, the gain will be taxable at a maximum rate of 20%.
If the stockholder is a Puerto Rico corporation and the gain is a long-term
capital gain, the gain will qualify for an alternative tax rate of 25%.
United States Citizens Not Residents of Puerto Rico. A United States
citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico
income tax on the sale or exchange of Series B Preferred Stock if the gain
resulting therefrom constitutes income from sources outside Puerto Rico.
Generally, gain on the sale or exchange of Series B Preferred Stock will be
considered to be income from sources outside Puerto Rico if all rights, title
and interest in or to the Series B Preferred Stock are transferred outside
Puerto Rico, and if the delivery or surrender of the instruments that evidence
the Series B Preferred Stock is made to an office of a paying or exchange agent
located outside Puerto Rico. If the gain resulting from the sale or exchange
constitutes income from sources within Puerto Rico, an amount equal to 20% of
the payments received will be withheld at the source; and if the gain
constitutes a long-term capital gain, it will be subject to a tax at a maximum
rate of 20%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described above under
"-- United States Citizens Not Residents of Puerto Rico." However, if the gain
resulting from the sale or exchange of Series B Preferred Stock constitutes
income from sources within Puerto Rico, an amount equal to 25% of the payments
received will be withheld at the source; provided, that if the gain resulting
from the sale or exchange represents a capital gain from sources within Puerto
Rico, the individual will generally be subject to tax on this gain at a fixed
rate of 29%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.
Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to Puerto Rico corporate
income tax on any gain realized on the sale or exchange of Series B Preferred
Stock if the gain is (1) from sources within Puerto Rico or (2) from sources
outside Puerto Rico and effectively connected with a trade or business in Puerto
Rico. Any such gain will qualify for an alternative tax of 25% if it qualifies
as a long-term capital gain.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax. In the computation
of this tax, any gain realized by these corporations on the sale or exchange of
Series B Preferred Stock and that is subject to Puerto Rico income tax will be
taken into account. However, a deduction will be allowed in the computation for
any income tax paid on the gain realized on the sale or exchange.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Series B Preferred Stock if the
gain is from sources within Puerto Rico. Gain on the sale or exchange of Series
B Preferred Stock will generally not be considered to be from sources within
Puerto Rico if all rights, title and interest in or to the Series B Preferred
Stock are transferred outside Puerto Rico, and if the delivery or surrender of
the instruments that evidence the Series B Preferred Stock is made to an office
of a paying or exchange agent located outside Puerto Rico. If the gain resulting
from the sale or exchange constitutes income from sources within Puerto Rico, an
amount equal to 25% of the payments received will be withheld at the source and
be creditable against the shareholder's Puerto
S-21
<PAGE> 22
Rico income tax liability. In the case of such foreign corporation, no income
tax will be imposed if the gain constitutes income from sources outside Puerto
Rico.
Partnerships. Partnerships are generally taxed as corporations.
Accordingly, the discussion with respect to Puerto Rico and foreign corporations
is equally applicable to most Puerto Rico and foreign partnerships,
respectively.
Taxation of Redemptions
A redemption of shares of the Series B Preferred Stock for cash will be
treated as a distribution taxable as a dividend to the extent of Doral
Financial's current or accumulated earnings and profits if it is "essentially
equivalent to a dividend." Under regulations issued by the Department of the
Treasury of Puerto Rico (1) a redemption of stock that completely terminates a
shareholder's interest in a corporation does not constitute a dividend, and (2)
certain pro rata redemptions among all the shareholders will be treated as a
dividend. In situations not described by these regulations, the Department of
the Treasury of Puerto Rico will generally follow principles applied by the
United States Internal Revenue Service under the United States Internal Revenue
Code of 1986, in determining whether a distribution is essentially equivalent to
a dividend. The Department of the Treasury of Puerto Rico, however, is not bound
by IRS determinations on this issue and is free to adopt a different rule.
If the redemption of the Series B Preferred Stock is not treated as a
dividend, it will generally generate gain or loss that will be measured as
provided above under "-- Taxation of Gains upon Sales or Exchanges Other Than
Redemptions" for a sale or exchange of Series B Preferred Stock. Gain on the
redemption of Series B Preferred Stock will generally be recognized and will be
subject to income tax. If the stockholder of the Series B Preferred Stock is an
individual resident of Puerto Rico and the gain is a long-term capital gain, the
gain will be taxable at a maximum rate of 20%. If the stockholder is a Puerto
Rico corporation and the gain is a long-term capital gain, the gain will qualify
for the alternative tax rate of 25%.
If the stockholder of the Series B Preferred Stock is an individual who is
not a resident of Puerto Rico or a foreign corporation or foreign partnership,
any gain realized by the holder on the redemption of the Series B Preferred
Stock that is not taxable as a dividend may be subject to Puerto Rico income tax
if the gain constitutes income from sources within Puerto Rico or is effectively
connected with a trade or business conducted by the holder in Puerto Rico. The
Puerto Rico income tax law does not clearly provide a source of income rule for
a gain of this nature. As a result thereof, these prospective shareholders
should be aware that a gain realized from a redemption of the Series B Preferred
Stock may be subject to Puerto Rico income tax.
ESTATE AND GIFT TAXATION
The transfer of Series B Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to estate and gift tax if the
individual is a citizen of the United States who acquired his or her citizenship
solely by reason of birth or residence in Puerto Rico. Other individuals should
consult their own tax advisors in order to determine the appropriate treatment
for Puerto Rico estate and gift tax purposes of the transfer of the Series B
Preferred Stock by death or gift.
S-22
<PAGE> 23
MUNICIPAL LICENSE TAXATION
Individuals and corporations that are not engaged in a trade or business in
Puerto Rico will not be subject to municipal license tax on dividends paid on
the Series B Preferred Stock or on any gain realized on the sale, exchange or
redemption of the Series B Preferred Stock.
A corporation or partnership, Puerto Rico or foreign, that is engaged in a
trade or business in Puerto Rico will generally be subject to municipal license
tax on dividends paid on the Series B Preferred Stock and on the gain realized
on the sale, exchange or redemption of the Series B Preferred Stock if the
dividends or gain are attributable to that trade or business. The municipal
license tax is imposed on the volume of business of the taxpayer, and the tax
rates vary by municipalities and range from a maximum of 1.5% for financial
businesses to a maximum of 0.5% for other businesses.
PROPERTY TAXATION
The Series B Preferred Stock will not be subject to Puerto Rico property
tax.
UNITED STATES TAXATION
The following discussion is limited to the United States federal tax
consequences of the ownership and disposition of the Series B Preferred Stock by
U.S. Holders, as defined below, and corporations organized under the laws of
Puerto Rico ("PR Corporations"). This discussion is based on the United States
Internal Revenue Code of 1986 (the "Code"), existing and proposed regulations of
the U.S. Department of the Treasury promulgated thereunder, administrative
pronouncements and judicial decisions, all of which are subject to change, even
with retroactive effect. This discussion deals only with Series B Preferred
Stock held by initial purchasers as capital assets within the meaning of Section
1221 of the Code. It does not discuss all of the tax consequences that may be
relevant to a purchaser in light of that person's particular circumstances or to
purchasers subject to special rules, such as entities that are taxed under the
Code as partnerships, "Subchapter S Corporations," life insurance companies, tax
exempt entities, dealers in securities, financial institutions, or to persons
whose functional currency is not the U.S. dollar.
As used herein, the term "U.S. Holder" means a beneficial owner of Series B
Preferred Stock that does not own directly, constructively or by attribution 10%
or more of the voting stock of the Company and is, for United States federal
income tax purposes:
- a citizen or resident of the United States,
- a corporation organized under the laws of a state of the United States,
- a corporation organized under the laws of the United States or of any
political subdivision thereof,
- an estate the income of which is subject to United States federal income
taxation regardless of its source, or
- a trust if a court within the United States is able to exercise primary
supervision over its administration and one or more United States
citizens or residents or a corporation or partnership organized under the
laws of the United States or any of its states have the authority to
control all substantial decisions of the trust.
The term "U.S. Holder" does not include individual Puerto Rico residents
who are not citizens or residents of the United States nor does it include PR
Corporations. As used herein, the term
S-23
<PAGE> 24
"Puerto Rico U.S. Holder" means an Individual U.S. Holder who is a bona fide
resident of Puerto Rico during the entire taxable year (or, in certain cases, a
portion thereof).
OWNERSHIP AND DISPOSITION OF SERIES B PREFERRED STOCK
Taxation of Dividends
General. Under the source of income rules of the Code, dividends on the
Series B Preferred Stock will constitute gross income from sources outside the
United States if less than 25% of Doral Financial's gross income on an ongoing
basis is effectively connected with a trade or business in the United States.
Since its incorporation in 1972, Doral Financial has not, nor does it expect in
the future, that 25% or more of its gross income will be effectively connected
with a trade or business in the United States. Accordingly, dividends on the
Series B Preferred Stock distributed by Doral Financial will constitute gross
income from sources outside the United States so long as Doral Financial
continues to meet the gross income test described above.
U.S. Holders other than Puerto Rico U.S. Holders. Subject to the
discussion under "-- Passive Foreign Investment Company Rules" below,
distributions made with respect to the Series B Preferred Stock, including the
amount of any Puerto Rico taxes withheld on the distribution, will be includable
in the gross income of a U.S. Holder, other than a Puerto Rico U.S. Holder, as
foreign source gross income to the extent the distributions are paid out of
current or accumulated earnings and profits of Doral Financial as determined for
United States federal income tax purposes. These dividends will not be eligible
for the dividends received deduction generally allowed to U.S. Holders that are
corporations. To the extent, if any, that the amount of any distribution by
Doral Financial exceeds its current and accumulated earnings and profits as
determined under United States federal income tax principles, it will be treated
first as a tax-free return of the U.S. Holder's tax basis in the Series B
Preferred Stock and thereafter as capital gain.
Subject to certain conditions and limitations contained in the Code, any
Puerto Rico income tax imposed on dividends distributed by Doral Financial in
accordance with Puerto Rico income tax law will be eligible for credit against
the U.S. Holder's United States federal income tax liability. See "Puerto Rico
Taxation -- Ownership and Disposition of Series B Preferred Stock -- Taxation of
Dividends" above. For purposes of calculating a U.S. Holder's United States
foreign tax credit limitation, dividends distributed by Doral Financial will
generally constitute foreign source "passive income" or, in the case of certain
U.S. Holders (those predominantly engaged in the active conduct of a banking,
financing or similar business), foreign source "financial services income."
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, distributions of dividends
made by Doral Financial on the Series B Preferred Stock to a Puerto Rico U.S.
Holder will constitute gross income from sources within Puerto Rico, will not be
includable in the stockholder's gross income and will be exempt from United
States federal income taxation. In addition, for United States federal income
tax purposes, no deduction or credit will be allowed that is allocable to or
chargeable against amounts so excluded from the Puerto Rico U.S. Holder's gross
income.
PR Corporations. In general, distributions of dividends made by Doral
Financial on the Series B Preferred Stock to a PR Corporation will not, in the
hands of the PR Corporation, be subject to United States income tax if the
dividends are not effectively connected with a United States trade or business
of the PR Corporation and the PR Corporation is not treated as a domestic
corporation for purposes of the Code. The Code provides special rules for PR
Corporations that are "Controlled Foreign Corporations," "Personal Holding
Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment
Companies."
S-24
<PAGE> 25
Taxation of Capital Gains
U.S. Holders other than Puerto Rico U.S. Holders. A U.S. Holder, other
than a Puerto Rico U.S. Holder, will recognize gain or loss on the sale or other
disposition of Series B Preferred Stock, including redemptions treated as sales
or exchanges of the Series B Preferred Stock under Section 302 of the Code, in
an amount equal to the difference between the U.S. Holder's adjusted tax basis
in the Series B Preferred Stock and the amount realized on the sale or other
disposition. Subject to the discussion under "-- Passive Foreign Investment
Company Rules" below, the gain or loss will be a capital gain of loss. U.S.
Holders should consult their own tax advisors concerning the treatment of
capital gains and losses. Redemptions of the Series B Preferred Stock that are
not treated as sales or exchanges under Section 302 of the Code will generally
be subject to income tax under the Code as dividends.
Gain recognized by a U.S. Holder on the sale or other disposition of Series
B Preferred Stock generally will be treated as United States source income.
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, gain from the sale or
exchange of the Series B Preferred Stock, including redemptions treated as sales
or exchanges of the Series B Preferred Stock under Section 302 of the Code, by a
Puerto Rico U.S. Holder that is a resident of Puerto Rico for purposes of
Section 865(g)(1) of the Code (1) will constitute income from sources within
Puerto Rico, (2) will not be includable in the stockholder's gross income and
(3) will be exempt from United States federal income taxation. Also, no
deduction or credit will be allowed that is allocable to or chargeable against
amounts so excluded from the Puerto Rico U.S. Holder's gross income. Redemptions
of the Series B Preferred Stock that are not treated as sales or exchanges under
Section 302 of the Code will generally be subject to income tax under the Code
as dividends.
PR Corporations. In general, any gain derived by a PR Corporation from the
sale or exchange of the Series B Preferred Stock will not, in the hands of the
PR Corporation, be subject to United States income tax if the gain is not
effectively connected with a United States trade or business of the PR
Corporation and the PR Corporation is not treated as a domestic corporation for
purposes of the Code. The Code provides special rules for PR Corporations that
are "Controlled Foreign Corporations," "Personal Holding Companies," "Foreign
Personal Holding Companies," or "-- Passive Foreign Investment Companies."
Redemptions of the Series B Preferred Stock that are not treated as sales or
exchanges under Section 302 of the Code will generally be subject to income tax
under the Code as dividends.
Backup Withholding. Certain corporate U.S. Holders may be subject to
back-up withholding at the rate of 31% on dividends paid or the proceeds of a
sale, exchange or redemption of Series B Preferred Stock. Generally, backup
withholding applies only when the taxpayer fails to furnish or certify a proper
taxpayer identification number or when the payor is notified by the IRS that the
taxpayer has failed to report payments of interest and dividends properly. U.S.
Holders should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any applicable
exemption.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Code provides special rules for distributions received by U.S. Holders
on stock of a Passive Foreign Investment Company ("PFIC") as well as amounts
received from the sale or other disposition of PFIC stock. For purposes of these
rules pledges are considered dispositions.
Based upon certain proposed Treasury Regulations under the PFIC provisions
of the Code (the "Proposed Regulations"), Doral Financial believes that it has
not been a PFIC for any of its prior
S-25
<PAGE> 26
taxable years and expects to conduct its affairs in a manner so that it will not
meet the criteria to be considered a PFIC in the foreseeable future. If,
contrary to Doral Financial's expectation, the Series B Preferred Stock were
considered to be shares of a PFIC for any fiscal year, a U.S. Holder would
generally be subject to special rules, regardless of whether Doral Financial
remains a PFIC, with respect to (1) any "excess distribution" by Doral Financial
to the U.S. Holder and (2) any gain realized on the sale, pledge or other
disposition of Series B Preferred Stock. An "excess distribution" is, generally,
any distributions received by the U.S. Holder on the Series B Preferred Stock in
a taxable year that are greater than 125% of the average annual distributions
received by the U.S. Holder in the three preceding taxable years, or the U.S.
Holder's holding period for the Series B Preferred Stock if shorter.
Under these rules, (1) the excess distribution or gain would be allocated
ratably over the U.S. Holder's holding period for the Series B Preferred Stock,
(2) the amount allocated to the current taxable year and any taxable year prior
to the first taxable year in which Doral Financial is a PFIC would be taxed as
ordinary income, and (3) the amount allocated to each of the other taxable years
would be subject to tax at the highest rate of tax in effect for the applicable
class of taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed on the resulting tax attributable to each such year.
As an alternative to these rules, if Doral Financial were a PFIC and
effective for taxable years of U.S. Holders beginning after December 31, 1997,
U.S. Holders may, in certain circumstances, elect a mark-to-market treatment
with respect to their Series B Preferred Stock, provided that the Series B
Preferred Stock will constitute "marketable stock" for purposes of these rules.
In general, the Proposed Regulations provide that Puerto Rico U.S. Holders
would be subject to the rule described in (3) above only to the extent that any
excess distribution or gain is allocated to a taxable year during which the
individual held the Series B Preferred Stock and was not a bona fide resident of
Puerto Rico during the entire taxable year or, in certain cases, a portion
thereof.
Under current law, if Doral Financial is a PFIC in any year, a U.S. Holder
who beneficially owns Series B Preferred Stock during that year must make an
annual return on IRS Form 8621 that describes any distributions received from
Doral Financial and any gain realized on the disposition of Series B Preferred
Stock.
ESTATE AND GIFT TAXATION
The transfer of Series B Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to U.S. federal estate and gift tax
if the individual is a citizen of the United States who acquired his or her
citizenship solely by reason of birth or residence in Puerto Rico. Other
individuals should consult their own tax advisors in order to determine the
appropriate treatment for U.S. federal estate and gift tax purposes of the
transfer of the Series B Preferred Stock by death or gift.
S-26
<PAGE> 27
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), Doral Financial has agreed to sell to each of
the underwriters named below, and each of the underwriters severally has agreed
to purchase from Doral Financial, the aggregate number of shares of Series B
Preferred Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES(1)
------------ ---------
<S> <C>
PaineWebber Incorporated of Puerto Rico.....................
Popular Securities, Inc.....................................
Doral Securities, Inc.......................................
Santander Securities Corporation of Puerto Rico.............
Salomon Smith Barney Inc....................................
---------
Total............................................. 1,740,000
=========
</TABLE>
---------------
(1) Assumes no exercise of the underwriters' over-allotment option.
Under the terms and conditions of the Underwriting Agreement, Doral
Financial is obligated to sell, and the underwriters are obligated to purchase,
all of the shares of Series B Preferred Stock shown in the table above, if any
of the shares of Series B Preferred Stock are purchased.
The underwriters propose to offer the shares of Series B Preferred Stock to
the public initially at the public offering price set forth on the cover page of
this prospectus supplement and to certain selected dealers at the public
offering price less a concession not to exceed $ per share. After the
offering to the public, the public offering price and the concession to selected
dealers may be changed by the underwriters.
Doral Financial has granted the underwriters an option exercisable for 30
days from the date of this prospectus supplement, to purchase up to 260,000
additional shares of Series B Preferred Stock to cover over-allotments, if any,
at the initial public offering price, less the underwriting discounts, as shown
on the cover page of this prospectus supplement. If the underwriters exercise
this option, then each of the underwriters will have a firm commitment, subject
to certain conditions contained in the Underwriting Agreement, to purchase a
number of option shares proportionate to the underwriter's initial commitment as
indicated in the table above. The underwriters may exercise this option only to
cover over-allotments made in connection with the sale of the shares of Series B
Preferred Stock offered hereby.
The offering of the Series B Preferred Stock is being conducted pursuant to
Rule 2720(d) of the Conduct Rules of the National Association of Securities
Dealers, Inc. because Doral Securities, Inc., a wholly-owned subsidiary of Doral
Financial and registered broker-dealer, will participate as an underwriter for
the initial public offering of the Series B Preferred Stock. In accordance with
Rule 2720(d), PaineWebber Incorporated of Puerto Rico has acted as "qualified
independent underwriter" and the price of the Series B Preferred Stock was no
higher than that recommended by PaineWebber Incorporated of Puerto Rico as
qualified independent underwriter. PaineWebber Incorporated of Puerto Rico, in
its role as qualified independent underwriter, has performed due diligence
investigations and reviewed and participated in the preparation of this
prospectus supplement.
S-27
<PAGE> 28
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Doral Financial as well as the
proceeds received by Doral Financial from the offering, before deducting
expenses. The amounts are shown assuming no exercise and full exercise of the
underwriters' option to purchase up to an additional 260,000 shares.
<TABLE>
<CAPTION>
TOTAL,
ASSUMING
FULL EXERCISE OF
OVER-ALLOTMENT
PER SHARE TOTAL OPTION
--------- ----------- ----------------
<S> <C> <C> <C>
Public Offering Price............................... $ 25.00 $43,500,000 $50,000,000
Underwriting Discount............................... 0.7875 1,370,250 1,575,000
Proceeds to Doral Financial......................... 24.2125 42,129,750 48,425,000
</TABLE>
In connection with this offering, certain underwriters may engage in
passive market making transactions on the Nasdaq Stock Market's National Market
System immediately prior to the commencement of sales in this offering, in
accordance with Rule 103 of Regulation M. Passive market making consists of
displaying bids on the Nasdaq Stock Market limited by the bid prices and effect
in response to order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market maker's average
daily trading volume in the Series B Preferred Stock during a specified period
and must be discontinued when that limit is reached. Passive market making may
stabilize the market price of the Series B Preferred Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
Until the distribution of the Series B Preferred Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for and purchase the Series B Preferred Stock. As an
exception to these rules, the underwriters may engage in certain transactions
that stabilize the price of the Series B Preferred Stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Series B Preferred Stock.
If the underwriters create a short position in the Series B Preferred Stock
in connection with the offering, i.e., if the underwriters sell more shares of
Series B Preferred Stock than are set forth on the cover page of this prospectus
supplement, they may reduce that short position by purchasing shares of Series B
Preferred Stock in the open market. The underwriters may also elect to reduce
any short position by purchasing all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases.
The underwriters have informed Doral Financial that, in accordance with
Rule 2720(l) of the NASD, they will not sell shares of Series B Preferred Stock
to accounts over which they exercise discretionary authority without the prior
specific written authorization of the customer.
Doral Financial estimates that the total expenses of this offering,
excluding underwriting discounts and commissions, will be $200,000.
In connection with this offering, Doral Financial has agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect thereof.
Doral Financial has applied to have the Series B Preferred Stock approved
for quotation on the Nasdaq Stock Market under the symbol "DORLO." Trading of
the Series B Preferred Stock is expected to commence approximately 30 days after
the initial delivery of the Series B Preferred Stock. We have been advised by
the underwriters that they intend to make a market in the Series B
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<PAGE> 29
Preferred Stock prior to the commencement of trading. The underwriters will have
no obligation to make a market in the Series B Preferred Stock, however, and may
cease market making activities, if commenced, at any time.
Several of the underwriters have from time to time been customers of,
engaged in transactions with, or performed services for, Doral Financial and its
subsidiaries in the ordinary course of business. The underwriters may continue
to do so in the future. In addition, Popular, Inc., the parent company of
Popular Securities, Inc., one of the underwriters, owns shares of common stock
of Doral Financial that equal approximately 4.9% of Doral Financial's
outstanding common stock.
LEGAL MATTERS
The validity of the shares of Series B Preferred Stock offered hereby will
be passed upon for Doral Financial by Pietrantoni Mendez & Alvarez LLP, San
Juan, Puerto Rico. Certain legal matters will be passed upon for the
underwriters by Fiddler Gonzalez & Rodriguez, LLP, San Juan, Puerto Rico.
EXPERTS
The consolidated financial statements of Doral Financial as of December 31,
1999 and 1998, and for each of the three years in the period ended December 31,
1999, incorporated by reference into this prospectus from Doral Financial's
Annual Report on Form 10-K for the year ended December 31, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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<PAGE> 30
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> 31
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> 32
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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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.
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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>
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<PAGE> 35
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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<PAGE> 36
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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<PAGE> 38
(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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<PAGE> 39
- 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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<PAGE> 41
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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<PAGE> 42
- 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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<PAGE> 54
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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<PAGE> 55
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1,740,000 SHARES
[DORAL FINANCIAL LOGO)
% NONCUMULATIVE
MONTHLY INCOME
PREFERRED STOCK, SERIES B
PRICE TO PUBLIC: $25 PER SHARE
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
PAINEWEBBER INCORPORATED
OF PUERTO RICO
POPULAR SECURITIES
(JOINT LEAD MANAGERS)
------------------------
DORAL SECURITIES
SANTANDER SECURITIES
SALOMON SMITH BARNEY
, 2000
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