-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wvi4qlS+FgV4T8Xo3VNIZZYm09Xa9s57gijUtfvmwYYZl2902nYqX1UO51On/TEp P6Jn8JJiS8GY8dgHyVaW5A== 0000950144-01-002903.txt : 20010224 0000950144-01-002903.hdr.sgml : 20010224 ACCESSION NUMBER: 0000950144-01-002903 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20010216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R&G FINANCIAL CORP CENTRAL INDEX KEY: 0001016933 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 660532217 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-55834 FILM NUMBER: 1549372 BUSINESS ADDRESS: STREET 1: 280 JESUS T. PINERO AVE CITY: HATO REY, SAN JUAN STATE: PR ZIP: 00918 MAIL ADDRESS: STREET 1: 280 JESUS T PINERO AVE CITY: HATO REY, SAN JUAN STATE: PR ZIP: 00918 S-3 1 g67104s-3.txt R&G FINANCIAL CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 2001 REGISTRATION NO. 333-_____________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ R&G FINANCIAL CORPORATION (Exact name of Registrant as specified in its charter) PUERTO RICO 66-0532217 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ------------------------ 280 JESUS T. PINERO AVENUE SAN JUAN, PUERTO RICO 00918 (787) 758-2424 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ VICTOR J. GALAN CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER R&G FINANCIAL CORPORATION 280 JESUS T. PINERO AVENUE SAN JUAN, PUERTO RICO 00918 (787) 758-2424 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ WITH COPIES TO: NORMAN B. ANTIN, ESQ. AURELIO EMANUELLI-FREESE, ESQ. JEFFREY D. HAAS, ESQ. Fiddler Gonzalez & Rodriguez LLP Kelley Drye & Warren LLP Torre BBVA 1200 19th Street, N.W., Suite 500 #254 Munoz Rivera Avenue, 8th Floor Washington, D.C. 20036-2423 San Juan, Puerto Rico 00918 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF AGGREGATE OFFERING REGISTRATION FEE TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) Noncumulative Monthly Income Preferred Stock, Series C.......... $57,500,000 $14,375.00
(1) Pursuant to Rule 457(o) under the Securities Act of 1933, as amended, the proposed maximum aggregate offering price is estimated solely for purposes of calculating the registration fee. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2001 PROSPECTUS 2,000,000 SHARES R&G FINANCIAL CORPORATION [LOGO] % NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES C PRICE TO PUBLIC: $25 PER SHARE R&G Financial Corporation is offering to the public 2,000,000 shares of its % Noncumulative Perpetual Monthly Income Preferred Stock, Series C. The Series C 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 R&G Financial's option beginning on , 2006. - No mandatory redemption or stated maturity. There is currently no public market for the Series C Preferred Stock. R&G Financial intends to apply for listing of the Series C Preferred Stock on the Nasdaq Stock Market under the symbol "RGFCN." Trading of the Series C Preferred Stock on the Nasdaq Stock Market is expected to commence not later than 30 days after the initial delivery of the Series C Preferred Stock. INVESTING IN THE SERIES C PREFERRED STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
Per Share Total Public Offering Price................................ $ 25.00 $50,000,000 Underwriting Discounts............................... $ 0.7875 $ 1,575,000 Proceeds to R&G Financial............................ $24.2125 $48,425,000
R&G Financial has also granted the underwriters an over-allotment option to purchase up to 300,000 additional shares of the Series C Preferred Stock. 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, DEPOSITS OR OBLIGATIONS OF ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING LOSS OF THE PRINCIPAL INVESTED. PAINEWEBBER INCORPORATED OF PUERTO RICO KEEFE, BRUYETTE & WOODS, INC. POPULAR SECURITIES SANTANDER SECURITIES THE DATE OF THIS PROSPECTUS IS , 2001. 3 TABLE OF CONTENTS
PAGE ---- Summary............................... 3 Risk Factors.......................... 8 Forward Looking Statements............ 11 Use of Proceeds....................... 11 Capitalization........................ 12 Recent Developments................... 13 Selected Consolidated Financial and Other Data.......................... 15 Summary of Certain Terms of the Series C Preferred Stock................... 18
PAGE ---- Description of Capital Stock.......... 25 Taxation.............................. 28 Underwriting.......................... 37 Incorporation of Certain Documents by Reference........................... 39 Where You Can Find More Information... 39 Legal Matters......................... 40 Experts............................... 40
--------------------- Prospective investors may rely only on the information incorporated by reference or contained in this prospectus. Neither R&G Financial nor any underwriter has authorized anyone to provide prospective investors with information different from that incorporated by reference or contained in this prospectus. This prospectus is not an offer to sell, nor is it seeking an offer to buy, the Series C Preferred Stock in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is complete and accurate only as of the date set forth on the front cover, regardless of the time of delivery of this prospectus or any sale of these securities. 2 4 SUMMARY This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all the information you should consider. You should also read the more detailed information set out in this prospectus or incorporated by reference into this prospectus and the "Risk Factors" section beginning on page 8. Unless otherwise stated, all information in this prospectus assumes that the underwriters will not exercise their overallotment option to purchase any of the 300,000 shares subject to that option. THE COMPANY R&G Financial is a Puerto Rico chartered financial holding company that operates R&G Mortgage Corp., the second largest mortgage company headquartered in Puerto Rico, R-G Premier Bank of Puerto Rico, a Puerto Rico commercial bank, and Home and Property Insurance Corporation, which it recently acquired. Through R&G Mortgage, R&G Financial also operates Mortgage Store of Puerto Rico, Inc., formerly Champion Mortgage Corporation, and through R-G Premier Bank, it operates Continental Capital Corporation, Huntington Station, New York mortgage banking company. With its acquisition of Continental in late 1999, R&G Financial plans to expand its mortgage banking operations in the United States, concentrating initially in New York and then into other markets to the extent that it is presented with appropriate expansion opportunities. During late 2000, Continental opened an office in Charlotte, North Carolina. R&G Financial, through its subsidiaries, is primarily engaged in a wide range of real estate secured lending activities, including the origination, servicing, purchase and sale of mortgages on single-family residences, the securitization and sale of various mortgage-backed and related securities and the holding and financing of mortgage loans and mortgage-backed and related securities for sale or investment. R&G Financial also originates for its portfolio commercial real estate loans, residential construction loans, commercial business loans and consumer loans. Finally, R&G Financial provides a variety of trust and investment services to its customers. R&G Financial has generally sought to achieve long-term financial strength and profitability by increasing the amount and stability of its net interest income and non-interest income. R&G Financial has sought to implement this strategy by (1) establishing and emphasizing the growth of its mortgage banking activities, including the origination and sale of mortgage loans and growing its loan servicing operation; (2) expanding its retail banking franchise in order to achieve increased market presence and to increase core deposits; (3) enhancing its net interest income by increasing its loans held for investment, particularly single-family residential loans and investment securities; (4) developing new business relationships through an increased emphasis on commercial real estate and commercial business lending; (5) diversifying its retail products and services, including an increase in consumer loan originations (such as credit cards); (6) meeting the banking needs of its customers through, among other things, the offering of trust and investment services and insurance products; and (7) controlled growth and the pursuit of a variety of acquisition opportunities when appropriate. R&G Financial recently promoted Ramon Prats, its Vice Chairman, to the office of President. Mr. Prats formerly was Executive Vice President of R&G Mortgage. Mr. Victor Galan continues to hold the positions of R&G Financial's Chairman of the Board and Chief Executive Officer. R&G Financial operates its business under the regulations of the Federal Deposit Insurance Corporation and the Office of the Commissioner of Financial Institutions of Puerto Rico. As of September 30, 2000, R&G Financial had consolidated total assets of approximately $3.4 billion, consolidated total deposits of approximately $1.6 billion and consolidated stockholders' equity of approximately $293.8 million. R&G Financial operated 58 mortgage banking and bank branch offices at that date. R&G Financial's principal executive offices are located at 280 Jesus T. Pinero Avenue, San Juan, Puerto Rico, 00918 and its telephone number is (787) 758-2424. 3 5 THE OFFERING Series C Preferred Stock Offered....................... 2,000,000 shares; 2,300,000 shares if the underwriters' over-allotment option is exercised in full. Offering Price................ $25 per share. Liquidation Preference........ If R&G 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 R&G Financial's assets are distributed to holders of common stock or any stock ranking junior to the Series C Preferred Stock. Dividends..................... Dividends will be paid on the first day of each month beginning on , 2001. The board of directors must approve each dividend payment and any payment it does not approve never has to be paid. The fixed 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 22 of this prospectus. Redemption at R&G Financial's Option...................... Series C Preferred Stock may be redeemed in whole or in part from time to time, beginning on , 2006 at R&G Financial's option. Redemption prices are discussed on page 20 of this prospectus. No Maturity Date or Mandatory Redemption.................. The Series C Preferred Stock does not have a maturity date. R&G Financial is not required to provide for the retirement of the Series C Preferred Stock by mandatory redemption or sinking fund payments. Rank.......................... The Series C Preferred Stock ranks senior to the common stock of R&G Financial and on an equal basis to R&G Financial's outstanding Series A Preferred Stock and Series B Preferred Stock for purposes of dividend rights and the distribution of assets upon liquidation. R&G Financial may not issue preferred stock ranking senior to the Series C Preferred Stock without the approval of holders of at least two-thirds of the Series C Preferred Stock. 4 6 Use of Proceeds............... R&G Financial is raising funds in this offering primarily to support further growth in the business of R-G Premier Bank, one of its principal operating subsidiaries. The net proceeds will increase R-G Premier Bank's regulatory capital, which will facilitate its ability to increase deposits and borrowings to fund additional investments. Some of the proceeds will be retained by R&G Financial for working capital purposes. Nasdaq Stock Market Listing... R&G Financial has filed an application with the Nasdaq Stock Market to list the Series C Preferred Stock under the symbol "RGFCN." Trading of the Series C Preferred Stock on the Nasdaq Stock Market is expected to commence not later than 30 days after the initial delivery of the Series C Preferred Stock. 5 7 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA You should read the summary consolidated financial information presented below, together with R&G Financial's consolidated financial statements and notes which are incorporated by reference into this prospectus and with R&G Financial's historical financial information included under "Selected Consolidated Financial and Other Data" beginning on page 15 of this prospectus. Per share information takes into account prior stock splits and dividends. 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. The ratios for the nine-month periods ended September 30, 2000 and 1999 have been presented on an annualized basis.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) BALANCE SHEET DATA: Total assets................. $3,409,022 $2,653,747 $2,911,993 $2,044,782 $1,510,746 $1,037,798 $ 853,206 Stockholders' equity......... 293,768 245,419 269,535 221,162 138,054 115,633 66,385 Stockholders' equity per common share............... 7.63 6.82 6.79 5.99 4.88 4.09 3.55 INCOME STATEMENT DATA: Net income................... $ 31,557 $ 33,077 $ 41,335 $ 34,034 $ 23,497 $ 13,200 $ 10,449 Diluted earnings per common share...................... 0.93 1.03 1.28 1.12 0.81 0.59 0.56 OPERATING DATA: Loan production.............. $1,263,119 $1,437,350 $1,977,322 $1,426,069 $ 906,324 $ 624,571 $ 467,675 Loan servicing portfolio..... 6,530,986 5,434,588 6,177,511 4,827,798 3,000,888 2,550,169 2,298,200 PERFORMANCE RATIOS: Return on average assets..... 1.32% 1.93% 1.72% 1.95% 1.85% 1.38% 1.47% Return on average common equity..................... 17.75 22.01 20.23 21.32 18.69 15.54 17.08 Net interest margin.......... 2.24 2.70 2.60 2.72 3.12 3.24 3.26 ASSET QUALITY RATIOS: Non-performing assets to total assets at end of period..................... 2.69% 2.13% 2.26% 2.41% 2.12% 1.90% 1.32% Non-performing loans to total loans at end of period..... 4.60 3.68 3.66 4.08 3.89 3.09 2.18 Allowance for loan losses to total loans at end of period..................... 0.61 0.64 0.55 0.74 0.87 0.55 0.72 Allowance for loan losses to total non-performing loans at end of period........... 13.24 17.26 15.11 17.92 22.34 17.64 33.19 Net charge-offs to average loans outstanding.......... 0.16 0.18 0.25 0.55 0.40 0.75 0.08
6 8 RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth R&G Financial's consolidated ratios of earnings to fixed charges and preferred stock dividends for the respective periods indicated. R&G Financial issued its Series A Preferred Stock in August 1998, and its Series B Preferred Stock in December 1999. The consolidated ratios of earnings to fixed charges and preferred stock dividends were computed by dividing earnings by fixed charges and preferred stock dividends.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, -------------- -------------------------------- 2000 1999 1999 1998 1997 1996 1995 ----- ----- ---- ---- ---- ---- ---- Earnings to fixed charges and preferred stock dividends: Including interest on deposits................... 1.29x 1.51x 1.45x 1.53x 1.52x 1.42x 1.50x Excluding interest on deposits................... 1.52 2.01 1.86 2.00 2.11 2.06 2.48
For purposes of computing the ratios of earnings to fixed charges and preferred stock dividends, earnings represent income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle plus fixed charges. Fixed charges and preferred stock dividends represent total interest expense, including and excluding interest on deposits, as applicable, as well as the amount of pre-tax earnings required to pay dividends on R&G Financial's Series A Preferred Stock and Series B Preferred Stock, together with a reasonable approximation of the interest component of rental expense. 7 9 RISK FACTORS You should carefully read the following risk factors before you decide to buy any Series C Preferred Stock. You should also consider the other information in this prospectus and the documents that are incorporated by reference. AN INVESTMENT IN THE SERIES C PREFERRED STOCK INVOLVES CERTAIN RISKS Dividends Will Not Be Paid Unless Declared by the Board of Directors. Monthly dividends will only be paid if declared by R&G Financial's Board of Directors. The Board of Directors is not obligated or required to declare any monthly dividends. Missed Dividends Never Have to Be Paid. If R&G Financial's Board of Directors does not declare a dividend for a particular month, those dividends never have to be paid. Banking Regulations May Restrict R&G Financial's Ability to Pay Dividends. R&G Financial may not be able to pay dividends in the future if it does not earn sufficient operating income. Federal Reserve Board policy states that a bank holding company should pay dividends only out of its current operating earnings. R&G Financial had net income from operations of $31.6 million for the nine months ended September 30, 2000. Payment of Dividends May Be Restricted by the Ability of R&G Financial's Subsidiaries to Pay Dividends to R&G Financial. R&G Financial is a holding company with no significant business operations of its own. R&G Financial's only significant source of cash to pay dividends on the Series C Preferred Stock will consist of distributions from its subsidiaries. There can be no assurance that the earnings from R&G Financial's subsidiaries will be sufficient to make distributions to R&G Financial to enable payment of dividends on the Series C Preferred Stock or, in the case of R-G Premier Bank, that such distributions will be permitted by applicable banking laws and regulations. The ability of R-G Premier Bank to pay dividends may, under certain circumstances, be limited by Puerto Rico and federal banking laws and regulations. R&G Mortgage is a party to certain indebtedness contracts that may limit or prevent it from paying dividends to R&G Financial if it does not comply with certain terms and conditions set forth in these contracts. There May Be No Active or Liquid Market for the Series C Preferred Stock. Prior to this offering, there has been no public market for the Series C Preferred Stock. R&G Financial has applied for listing of the Series C Preferred Stock on the Nasdaq Stock Market under the symbol "RGFCN." However, there can be no assurance that an established and liquid trading market for the Series C Preferred Stock will develop, that it will continue if it does develop, or that after the completion of this offering, the Series C Preferred Stock will trade at or above the public offering price set forth on the cover of this prospectus. FLUCTUATIONS IN INTEREST RATES MAY IMPACT R&G FINANCIAL'S BUSINESS Interest rate fluctuations are the primary market risks affecting R&G 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; 8 10 - 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 negatively impacts R&G Financial profits. Reduced demand for mortgage loans results in reduced loan originations by R&G Financial, lower mortgage origination income and lower gain on sales of loans. Demand for refinance loans is particularly sensitive to increases in interest rates. Increases in Interest Rates Reduce Net Interest Income. Increases in short-term interest rates reduce net interest income, which is an important part of R&G Financial's earnings. Net interest income is the difference between the interest received by R&G Financial on its assets and the interest paid on its borrowings. Most of R&G Financial's assets, like its mortgage loans and mortgage-backed securities are long-term assets. In contrast, most of R&G Financial's borrowings are short-term. When interest rates rise, R&G 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 R&G Financial commits to or establishes an interest rate on a mortgage loan and the time it sells the loan, R&G 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 R&G Financial's financial assets and have an adverse impact on its earnings and financial condition. R&G Financial owns a substantial portfolio of mortgages, mortgage-backed securities and other debt securities, which have both fixed and adjustable interest rates. The market value of an obligation with a fixed interest rate generally decreases when prevailing interest rates rise (which may have an adverse effect on R&G Financial's earnings and financial condition) and increases when prevailing interest rates fall (which may have a favorable impact on R&G Financial's earnings and financial condition). 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 R&G Financial's servicing asset. The servicing asset is the estimated present value of the fees R&G Financial expects to receive on the mortgages it services over their expected term. If prepayments increase above expected levels, the value of the servicing asset decreases because the amount of futures fees expected to be received by R&G Financial decreases. R&G Financial may be required to recognize this decrease in value by taking a charge against its earnings, which would cause its profits to decrease. R&G FINANCIAL'S BUSINESS OPERATIONS INVOLVE CERTAIN RISKS R&G Financial is Subject to Default and Recourse Risk in Connection with its Loan Originations. From the time that R&G Financial funds the mortgage loans it originates for third parties to the time it sells them, R&G Financial is generally at risk for any mortgage loan defaults. Once R&G Financial sells the mortgage loans, the risk of loss from mortgage loan defaults and foreclosures passes to the purchaser or insurer of the mortgage loans. However, in the ordinary course of business, R&G Financial makes certain representations and warranties to the purchasers and insurers of mortgage loans. If a mortgage loan defaults and there has been a breach of any of these representations or warranties, R&G Financial may become liable for the unpaid principal and interest on the defaulted mortgage loan and may be required to repurchase the mortgage loan and bear any subsequent loss on the mortgage loan. In addition, with respect to the non-conventional mortgage 9 11 loans originated by R&G Financial, which are subsequently securitized and sold, R&G Financial occasionally provides recourse in the event of mortgage loan defaults and/or foreclosures or certain documentation deficiencies. At September 30, 2000, there were $630.1 million of loans subject to such recourse provisions. R&G Financial Is Subject to Default Risk in Connection with R-G Premier Bank's Loan Originations. R-G Premier Bank is subject to the risk of loss from mortgage loan defaults and foreclosures with respect to the loans originated for its portfolio by R&G Mortgage. All of the loans originated for R-G Premier Bank's portfolio are based on its Board approved written underwriting policy and procedures. Notwithstanding the care with which loans are originated, industry experience indicates that a portion of R-G Premier Bank's loans will become delinquent and a portion of the loans will require partial or entire charge off. Regardless of the underwriting criteria utilized by R-G Premier Bank, losses may be experienced as a result of various factors beyond R-G Premier Bank's control, including, among others, changes in market conditions affecting the value of collateral and problems affecting the credit of the borrower. Due to the concentration of loans in Puerto Rico, adverse economic conditions in Puerto Rico could result in a decrease in the value of R-G Premier Bank's loan portfolio and underlying collateral. Although loan delinquencies have historically been higher in Puerto Rico than in the United States, loan charge-off's have historically been lower than in the United States. R-G Premier Bank establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate by management based upon an assessment of prior loss experience, the volume and type of lending being conducted, industry standards, past due loans, general economic conditions in its market area and other factors related to the collectibility of the loan portfolio. Although R-G Premier Bank's management utilizes its best judgment in providing for loan losses, there can be no assurance that R-G Premier Bank will not have to increase its provisions for loan losses in the future as a result of future increases in non-performing loans or for other reasons beyond the control of R-G Premier Bank. Any such increases in R-G Premier Bank's provisions for loan losses or any loan losses in excess of its provisions with respect thereto would have a negative impact on R&G Financial's future financial condition and/or results of operations. R&G Financial's Exposure to Larger Credit Risk Will Increase as a Consequence of the Increase in R-G Premier Bank's Commercial Banking Activities. R-G Premier Bank has increased its emphasis on residential construction, commercial real estate and commercial business lending, which is likely to increase overall credit risk. R-G Premier Bank generally charges higher interest rates on commercial and residential construction loans than on permanent residential mortgage loans, because larger loan losses are expected in this business line. Generally, commercial and construction loans are considered to be riskier than permanent residential mortgage loans because they have larger balances to a single borrower or group of related borrowers. In addition, the borrower's ability to repay a commercial loan depends on the successful operation of the business or the property securing the loan. If R-G Premier Bank experiences loan losses that exceed its allowance for loan losses, R&G Financial's profits and financial condition would be adversely affected. R&G Financial Is Subject to Risks in Servicing Loans for Others. R&G Financial is also affected by mortgage loan delinquencies and defaults on mortgage loans that it services for third parties. Under certain types of servicing contracts, the servicer must forward all or part of the scheduled payments to the owner of the mortgage loan, even when mortgage loan payments are delinquent. Also, to protect their liens on mortgaged properties, owners of mortgage loans usually require the servicer to advance mortgage and hazard insurance and tax payments on schedule even though sufficient escrow funds may not be available. The servicer will generally recover its advances from the mortgage owner or from liquidation proceeds when the mortgage loan is foreclosed. 10 12 However, in the interim, the servicer must absorb the cost of funds advanced during the time the advance is outstanding. Further, the servicer must bear the increased costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a default is not cured, the mortgage loan will be repaid as a result of foreclosure proceedings. As a consequence, R&G Financial is required to forego servicing income from the time such loan becomes delinquent, and into the future. R&G Financial's Business Is Concentrated in Puerto Rico, and Adverse Conditions in Puerto Rico Could Negatively Impact its Operations. R&G Financial's business activities and credit exposure are concentrated with customers in Puerto Rico. Accordingly, its financial condition and results of operations are dependent to a significant extent upon the economic conditions prevailing from time to time in Puerto Rico. Any significant adverse economic developments in Puerto Rico could result in a decrease in loan originations, an increase in the level of nonperforming assets and a reduction in the value of R&G Financial's loans, real estate owned and mortgage servicing portfolio. FORWARD LOOKING STATEMENTS This prospectus contains and incorporates by reference certain forward looking statements regarding R&G Financial's financial condition, results of operations and business. These statements are not historical facts and include statements about R&G 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 R&G Financial. The words "may," "would," "could," "will," "expect," "anticipate," "believe," "intend," "plan," "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 R&G Financial from the sale of the shares of Series C Preferred Stock is expected to be $48,149,375 ($55,413,125 if the underwriters' over-allotment option is exercised in full), after deducting the underwriting discounts and estimated offering expenses. See "Underwriting." R&G Financial intends to use the net proceeds primarily to support further growth in the business of R-G Premier Bank. R&G Financial anticipates contributing at least a majority of the net proceeds to R-G Premier Bank, which will increase its regulatory capital, thereby facilitating its ability to increase deposits and borrowings to fund additional investments. R&G Financial intends to retain the balance of the net proceeds, which would be used for general corporate purposes, which may include funding a passive portfolio of equity and debt investments as permitted by applicable banking laws and regulations; funding possible acquisitions of banking and other financial institutions; and increasing working capital. R&G Financial does not at present have any definitive plans to use any of the net proceeds of this offering for an acquisition. 11 13 CAPITALIZATION The following table sets forth R&G Financial's unaudited consolidated capitalization at September 30, 2000, and as adjusted to reflect the issuance of the shares of Series C Preferred Stock offered by this prospectus and the application of the net proceeds therefrom, as if the sale of the Series C Preferred Stock had been consummated on September 30, 2000. In addition to the indebtedness reflected below, R&G Financial had total deposits of $1.6 billion at September 30, 2000. The table does not give effect to any exercise of the over-allotment option granted to the underwriters. This table should be read in conjunction with R&G Financial's consolidated financial statements and related notes incorporated by reference into this prospectus.
SEPTEMBER 30, 2000 -------------------------- ACTUAL AS ADJUSTED ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Borrowings(1)............................................... $1,473,118 $1,473,118 ========== ========== Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized: 2,000,000 Series A Preferred Stock, actual............. $ 50,000 $ 50,000 1,000,000 Series B Preferred Stock, actual............. 25,000 25,000 2,000,000 Series C Preferred Stock, as adjusted........ -- 50,000 Common stock, $.01 par value: Class A shares, 40,000,000 shares authorized; 18,440,556 shares issued and outstanding.............. 184 184 Class B Shares, 30,000,000 shares authorized; 10,225,696 shares issued and outstanding.............. 102 102 Additional paid-in capital................................ 40,794 38,943 Retained earnings......................................... 179,331 179,331 Capital reserves of R-G Premier Bank...................... 5,096 5,096 Accumulated other comprehensive income.................... (6,739) (6,739) ---------- ---------- Total stockholders' equity........................ $ 293,768 $ 341,917 ========== ========== Common stockholders' equity per share............. $ 7.63 $ 7.57 ========== ==========
- --------------- (1) Includes securities sold under agreements to repurchase, notes payable and other borrowings. 12 14 RECENT DEVELOPMENTS The related consolidated financial and other data set forth below as of December 31, 1999 are derived from R&G Financial's audited consolidated financial statements. The consolidated financial and other data for the year ended December 31, 2000 is unaudited.
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA: Total assets.............................................. $3,539,444 $2,911,993 Stockholders' equity...................................... 308,836 269,535 Stockholders' equity per common share..................... 8.16 6.79 INCOME STATEMENT DATA: Net income................................................ $ 43,633 $ 41,335 Diluted earnings per common share......................... 1.30 1.28 OPERATING DATA: Loan production........................................... $1,729,373 $1,977,322 Loan servicing portfolio.................................. 6,634,059 6,177,511 PERFORMANCE RATIOS: Return on average assets.................................. 1.34% 1.72% Return on average common equity........................... 18.00 20.23 Net interest margin....................................... 2.16 2.60 ASSET QUALITY RATIOS: Non-performing assets to total assets at end of period.... 2.95% 2.26% Non-performing loans to total loans at end of period...... 5.38 3.66 Allowance for loan losses to total loans at end of period................................................. 0.66 0.55 Allowance for loan losses to total non-performing loans at end of period.......................................... 12.21 15.11 Net charge-offs to average loans outstanding.............. 0.17 0.25
RESULTS OF OPERATIONS During the year ended December 31, 2000, R&G Financial reported net income of $43.6 million or $1.30 of earnings per diluted share. Net income increased by $2.3 million or 5.6% during the year ended December 31, 2000, as compared to 1999, due to a $8.4 million increase in net interest income and a $8.5 million increase in total other income, which was partially offset by a $11.5 million increase in total operating expenses. The increase in net interest income during 2000 was due primarily to increases in R&G Financial's loan and securities portfolios (which increased in the aggregate from $2.7 billion at December 31, 1999 to $3.3 billion at December 31, 2000), which was partially offset by a decline in R&G Financial's net interest margin (from 2.60% for 1999 to 2.16% for 2000). R&G Financial was able to compensate for the increase in interest rates during the year by increasing its volume of loans and securities. The increase in total other income during 2000 reflected the increase in gains recognized on the origination and sale of loans and, to a lesser extent, continued efforts by R&G Financial to diversify its revenues. During the last quarter of 2000, R&G Financial acquired Home and Property, an insurance agency, as a wholly owned subsidiary. Home and Property offers property, casualty, credit life and title insurance. R&G Financial believes that Home and Property offers it significant opportunities to sell insurance products to its large customer base. The increases in total operating expenses during 2000 reflected additional expenses relating to the operations of Continental, Huntington Station, New York, which R&G Financial 13 15 acquired in October 1999, as well as the general growth in R&G Financial's operations. In addition, during 2000, R&G Financial opened two new branch offices which contributed to the increase in operating expenses. CHANGES IN FINANCIAL CONDITION At December 31, 2000, R&G Financial's total assets amounted to $3.5 billion, as compared to $2.9 billion at December 31, 1999. The $627.5 million or 21.6% increases in total assets during the year ended December 31, 2000 was primarily the result of a $437.4 million or 61.4% increase in mortgage-backed securities available for sale, a $110.1 million or 42.7% increase in investment securities available for sale, and a $68.3 million or 4.4% increase in net loans receivable. At December 31, 2000, R&G Financial's allowance for loan losses totaled $11.6 million, which represented a $2.6 million or 29.3% increase from the level maintained at December 31, 1999. At December 31, 2000, R&G Financial's allowance represented approximately 0.66% of the total loan portfolio and 12.21% of total non-performing loans, as compared to 0.55% and 15.11% at December 31, 1999. The increase in the allowance for loan losses reflected the increase in R&G Financial's commercial real estate and construction loan portfolio as well as the increase in R&G Financial non-performing loans during the year. While non-performing loans amounted to $95.0 million at December 31, 2000, as compared to $59.4 million at December 31, 1999, $31.8 million or 89.3% of such increase consisted of residential mortgage loans. Because of the nature of the collateral, R&G Financial has historically recognized a low level of loan charge-offs. R&G Financial's aggregate charge-offs amounted to 0.17% during 2000, as compared to 0.25% during 1999. Although loan delinquencies have historically been higher in Puerto Rico than in the United States, loan charge-offs have historically been lower than in the United States. While the ratio of non-performing loans to total loans increased from 3.66% to 5.38% from December 31, 1999 to December 31, 2000, the increase in the ratio was made larger than it would otherwise have been due to significant loan securitizations during the last two quarters of 2000, which reduced the amount of loans considered in the calculation of the ratio. Without giving effect to loan securitizations, during the years ended December 31, 2000 and 1999, the ratio of non-performing loans to total loans would have been 4.37% and 3.44%, respectively. At December 31, 2000, R&G Financial's deposits totaled $1.7 billion, as compared to $1.3 billion at December 31, 1999. In addition, at December 31, 2000, R&G Financial had $1.5 billion of borrowings (consisting of securities sold under agreements to repurchase, notes payable and FHLB advances), as compared to $1.3 billion at December 31, 1999. R&G Financial utilized deposits (primarily certificates of deposits) and FHLB advances to fund its growth during 2000. Stockholders' equity increased from $269.5 million at December 31, 1999 to $308.8 million at December 31, 2000. The $39.3 million or 14.6% increase was due primarily to net income recognized during the year, together with a decrease in unrealized losses on securities available for sale. 14 16 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The selected consolidated financial and other data below should be read in connection with the consolidated financial information included in R&G Financial's Annual Report on Form 10-K for the year ended December 31, 1999 and its Quarterly Report on Form 10-Q for the nine months ended September 30, 2000, incorporated by reference in this prospectus. The consolidated financial information for the nine month periods ended September 30, 2000 and 1999 are derived from R&G Financial's unaudited consolidated financial statements, which, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results for such periods. Results for the nine month period ended September 30, 2000 are not necessarily indicative of R&G Financial's results for the full year.
AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- SELECTED BALANCE SHEET DATA: Total assets(1)...................... $3,409,022 $2,653,747 $2,911,993 $2,044,782 $1,510,746 $1,037,798 $ 853,206 Loans receivable, net................ 1,713,641 1,370,661 1,563,007 1,073,668 765,059 603,751 473,841 Mortgage loans held for sale......... 115,144 71,600 77,277 117,126 46,885 54,450 21,318 Mortgage-backed and investment securities held for trading........ 11,901 50,232 43,564 450,546 401,039 110,267 113,809 Mortgage-backed securities available for sale........................... 940,887 684,518 712,705 95,040 46,004 50,841 61,008 Mortgage-backed securities held to maturity........................... 20,501 24,112 23,249 28,255 33,326 37,900 41,731 Investment securities available for sale............................... 375,847 224,236 258,164 59,502 75,863 30,973 3,280 Investment securities held to maturity........................... 5,432 5,939 5,438 6,344 10,693 5,270 2,046 Servicing asset...................... 90,389 71,419 84,253 58,221 21,213 12,595 8,210 Cash and cash equivalents(2)......... 46,494 76,117 65,996 103,728 68,366 98,856 104,195 Deposits............................. 1,582,358 1,270,212 1,330,506 1,007,297 722,418 615,567 518,187 Securities sold under agreements to repurchase......................... 838,202 672,882 731,341 471,422 433,135 97,444 98,483 Notes payable........................ 161,533 140,629 132,707 182,748 103,453 126,842 77,130 Other borrowings(3).................. 473,384 283,500 408,843 130,000 86,359 65,463 67,315 Subordinated notes................... -- -- -- -- 3,250 3,250 3,250 Stockholders' equity................. 293,768 245,419 269,535 221,162 138,054 115,633 66,385 Stockholders' equity per common share(4)........................... 7.63 6.82 6.79 5.99 4.88 4.09 3.55 SELECTED INCOME STATEMENT DATA: Revenues: Net interest income................ $ 49,371 $ 41,566 $ 56,578 $ 43,973 $ 36,530 $ 28,923 $ 21,273 Provision for loan losses.......... (4,350) (3,400) (4,525) (6,600) (6,370) (4,258) (950) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses.................. 45,021 38,166 52,053 37,373 30,160 24,665 20,323 Loan administration and servicing fees............................. 22,720 18,914 27,109 15,987 13,214 13,029 11,030 Net gain on sale of loans.......... 28,220 28,475 37,098 34,956 23,286 12,285 8,384 Other(5)........................... 5,209 5,009 6,604 5,527 4,605 3,938 4,028 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total revenues............... 101,170 90,564 122,864 93,843 71,265 53,917 43,765 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Expenses: Compensation and benefits.......... 19,952 16,414 24,433 17,095 13,653 10,794 8,284 Occupancy expenses................. 9,952 7,994 11,289 8,987 7,131 5,531 4,711 SAIF special assessment............ -- -- -- -- -- 2,508 -- General and administrative expenses......................... 30,381 23,529 33,568 22,687 18,252 15,424 13,731 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total expenses............... 60,285 47,937 69,290 48,769 39,036 34,257 26,726 ---------- ---------- ---------- ---------- ---------- ---------- ----------
15 17
AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before minority interest in the Bank and income taxes.......... $ 40,885 $ 42,627 $ 53,574 $ 45,074 $ 32,229 $ 19,660 $ 17,039 Minority interest in the Bank's earnings........................... -- -- -- -- -- 538 743 Income taxes......................... 9,328 9,550 12,239 11,040 8,732 5,922 5,847 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income........................... 31,557 33,077 41,335 34,034 23,497 13,200 10,449 Less: Dividends on preferred stock... (4,228) (2,775) (3,754) (1,233) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income available to common stockholders....................... $ 27,329 $ 30,302 $ 37,581 $ 32,801 $ 23,497 $ 13,200 $ 10,449 ========== ========== ========== ========== ========== ========== ========== Basic earnings per common share(4)... $ 0.95 $ 1.06 $ 1.31 $ 1.15 $ 0.83 $ 0.60 $ 0.56 ========== ========== ========== ========== ========== ========== ========== Diluted earnings per common share(4)........................... $ 0.93 $ 1.03 $ 1.28 $ 1.12 $ 0.81 $ 0.59 $ 0.56 ========== ========== ========== ========== ========== ========== ========== SELECTED OPERATING DATA(6): PERFORMANCE RATIOS AND OTHER DATA: Loan production...................... $1,263,119 $1,437,350 $1,977,322 $1,426,069 $ 906,324 $ 624,571 $ 467,675 Loan servicing portfolio............. 6,530,986 5,434,588 6,177,511 4,827,798 3,000,888 2,550,169 2,298,200 Return on average assets............. 1.32% 1.93% 1.72% 1.95% 1.85% 1.38% 1.47% Return on average common equity...... 17.75 22.01 20.23 21.32 18.69 15.54 17.08 Equity to assets at end of period.... 8.62 9.25 9.26 10.82 9.13 11.14 7.78 Interest rate spread(7).............. 2.04 2.47 2.40 2.43 2.88 3.00 2.93 Net interest margin(7)............... 2.24 2.70 2.60 2.72 3.12 3.24 3.26 Average interest-earning assets to average interest-bearing liabilities........................ 103.64 104.82 104.16 105.93 104.61 104.60 106.50 Total other expenses to average total assets............................. 2.53 2.10 2.88 2.80 3.08 3.59 3.80 Cash dividends declared per common share(4)........................... $ .146 $ .107 $ .149 $ .111 $ .065 $ .069 $ -- ASSET QUALITY RATIOS(8): Non-performing loans to total loans at end of period................... 4.60% 3.68% 3.66% 4.08% 3.89% 3.09% 2.18% Non-performing assets to total assets at end of period................... 2.69 2.13 2.26 2.41 2.12 1.90 1.32 Allowance for loan losses to total loans at end of period............. 0.61 0.64 0.55 0.74 0.87 0.55 0.72 Allowance for loan losses to total non-performing loans at end of period............................. 13.24 17.26 15.11 17.92 22.34 17.64 33.19 Net charge-offs to average loans outstanding........................ 0.16 0.18 0.25 0.55 0.40 0.75 0.08 BANK REGULATORY CAPITAL RATIOS(9): Tier 1 risk-based capital ratio...... 11.40% 11.82% 12.36% 13.41% 13.10% 13.91% 10.53% Total risk-based capital ratio....... 12.17 12.67 13.08 14.46 14.00 14.79 11.66 Tier 1 leverage capital ratio........ 6.19 6.66 7.07 8.04 7.34 8.45 6.25
- --------------- (1) At September 30, 2000, R&G Mortgage and R-G Premier Bank had total assets of $771.9 million and $2.75 billion, respectively, before consolidation. (2) Comprised of cash and due from banks, securities purchased under agreements to resell, time deposits with other banks and federal funds sold, all of which had original maturities of 90 days or less. (3) Comprised of long-term debt, advances from the Federal Home Loan Bank of New York, federal funds purchased and other secured borrowings. (4) Per share information for all periods presented takes into consideration prior stock splits and dividends. 16 18 (5) Comprised of change in provision for cost in excess of market value of loans available for sale and other miscellaneous revenue sources, including service charges, fees and other income. (6) With the exception of end of period ratios, all ratios for R&G Mortgage are based on the average of month-end balances, while all ratios for the Bank are based on average daily balances. (7) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate on interest-bearing liabilities. Net interest margin represents net interest income as a percent of average interest-earning assets. (8) Non-performing loans consist of non-accrual loans and non-performing assets consist of non-performing loans and real estate acquired by foreclosure or deed-in-lieu thereof. (9) All of such ratios were in compliance with the applicable requirements of the FDIC. 17 19 SUMMARY OF CERTAIN TERMS OF THE SERIES C PREFERRED STOCK GENERAL The following summary sets forth the material terms and provisions of the Series C Preferred Stock. The summary is qualified in its entirety by reference to the terms and provisions of R&G Financial's Certificate of Incorporation and to the Certificate of Designation creating the Series C 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. The Series C Preferred Stock constitutes an authorized series of R&G Financial's preferred stock. R&G Financial may issue preferred stock from time to time in one or more series with such rights, preferences and limitations as are determined by its Board of Directors. R&G Financial's Board of Directors has authorized the issuance of the Series C Preferred Stock offered hereby, with the designations, dividend rights, redemption and other provisions set forth in the Certificate of Designation and as described generally below. R&G Financial issued $50,000,000 of 7.40% Noncumulative Perpetual Monthly Income Preferred Stock, Series A ($25 liquidation preference per share) in August 1998 (the "Series A Preferred Stock"), and $25,000,000 of 7.75% Noncumulative Perpetual Monthly Income Preferred Stock, Series B ($25 liquidation preference per share) in December 1999 (the "Series B Preferred Stock"). The Series C Preferred Stock offered by this prospectus ranks equal (or "pari passu") with the Series A Preferred Stock and the Series B Preferred Stock as to payments of dividends and as to any preferences on the voluntary or involuntary liquidation, dissolution or winding up of R&G Financial. DIVIDENDS If declared at the option of R&G Financial's Board of Directors or an authorized committee, holders of record of the Series C 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 $25.00 per share. R&G Financial is not required to declare or pay dividends on the Series C 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 C Preferred Stock will accrue from its date of original issuance and will be payable on the first day of each month in United States dollars beginning on , 2001. Payment of dividends will be made to the holders of record of the Series C Preferred Stock as they appear on the books of R&G Financial on the fifteenth day of the month preceding the date on which the dividends are payable. In the case of the dividend payable on , 2001, this dividend will cover the period from the date of issuance of the Series C Preferred Stock to , 2001. 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. 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 C Preferred Stock will be noncumulative. If the Board of Directors does not declare a dividend for any monthly dividend period on the Series C Preferred Stock, then the holders of Series C Preferred Stock will not have a right to receive a dividend for that monthly dividend period, whether or not dividends on the Series C Preferred Stock are declared for any future monthly dividend period. 18 20 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 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 C Preferred Stock at their addresses appearing on the register for the Series C Preferred Stock. The terms of the Series C Preferred Stock do not permit R&G 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 R&G Financial ranking junior to the Series C Preferred Stock as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up of R&G Financial, unless certain conditions are met. Those conditions are (1) all accrued and unpaid dividends on the Series C 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 C Preferred Stock for the then current month has been or is contemporaneously declared and paid or declared and set apart for payment, and (3) R&G Financial has not defaulted in the payment of the redemption price of any shares of Series C Preferred Stock called for redemption. See "Redemption at the Option of R&G Financial." The above limitations do not apply to stock dividends or other distributions made in stock of R&G Financial ranking junior to the Series C 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 R&G Financial ranking junior to the Series C Preferred Stock as to the payment of dividends and as to the distribution of assets. If R&G Financial is unable to pay in full the dividends on the Series C Preferred Stock and on any other shares of stock of equal rank as to the payment of dividends with the Series C Preferred Stock, all dividends declared upon the Series C Preferred Stock and any such other shares of stock will be declared pro rata. In this event, each share of Series C Preferred Stock and of the other classes of stock of equal rank will receive dividends in the same proportion as the $25.00 per share liquidation preference of the Series C Preferred Stock bears to the per share liquidation preference of the 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 of certain potential regulatory limitations on R&G Financial's ability to pay dividends, see "Risk Factors -- Banking Regulations May Restrict R&G Financial's Ability to Pay Dividends." NO CONVERSION OR EXCHANGE RIGHTS The Series C Preferred Stock will not be convertible into, or exchangeable for any other securities of R&G Financial. 19 21 REDEMPTION AT THE OPTION OF R&G FINANCIAL R&G Financial may not redeem the shares of the Series C Preferred Stock prior to , 2006. On and after that date, R&G Financial may redeem the Series C 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 , 2006 are shown below.
YEAR REDEMPTION PRICE - ---- ---------------- 2006........................................................ $25.50 2007........................................................ 25.25 2008 and thereafter......................................... 25.00
In the event that R&G Financial elects to redeem less than all of the outstanding shares of the Series C Preferred Stock, the total number of shares to be redeemed shall be allocated pro rata or by lot as may be determined by the Board of Directors or by such other method as the Board of Directors may approve and deem equitable, including any method to conform to any rule or regulation of any national or regional stock exchange or automated quotation system upon which the shares of the Series C Preferred Stock may at the time be listed or eligible for quotation. R&G Financial may redeem the Series C Preferred Stock without ever having declared or paid a dividend on such stock. Notice of any proposed redemption shall be given by R&G Financial by mailing a copy of such notice to the holders of record of the shares of Series C 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 C Preferred Stock shall specify the number of shares of Series C 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 R&G Financial redeems less than all the shares owned by a holder, the notice shall also specify the number of shares of Series C Preferred Stock of the holder which are to be redeemed and the numbers of the certificates representing such shares. Any notice which is mailed in accordance with these procedures shall be conclusively presumed to have been properly given, whether or not the stockholder receives such notice. The failure by R&G Financial to give such notice by mail, or any defect in such notice, to the holders of any stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. If the redemption notice is properly mailed and R&G Financial pays the redemption price, from and after the redemption date, all dividends on the shares of Series C Preferred Stock called for redemption shall cease to accrue and all rights of the holders of such shares being redeemed as R&G Financial stockholders shall cease on the redemption date. Holders will retain the right to receive the redemption price upon presentation of their stock certificates. If R&G 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, R&G Financial may, on or prior to the redemption date, irrevocably deposit the entire amount payable upon redemption of the shares of the Series C Preferred Stock to be redeemed with a bank or trust company designated by R&G Financial having its principal office in New York, New York, San Juan, Puerto Rico, or any other city in which R&G 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. The depositary will hold this amount in trust for payment to the holders of the shares of the Series C Preferred Stock to be redeemed. If the deposit is made and the funds 20 22 deposited are immediately available to the holders of the shares of the Series C Preferred Stock to be redeemed, R&G Financial will no longer have any obligation to make payment of the amount payable upon redemption of the shares of the Series C 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 such funds were deposited shall be returned to R&G Financial and thereafter, the holders of shares of the Series C Preferred Stock called for redemption shall look only to R&G Financial for the payment of the redemption price. Any interest accrued on any funds deposited with the depositary shall belong to R&G Financial and shall be paid to it from time to time on demand. After the redemption of any shares of Series C Preferred Stock, the redeemed shares shall have the status of authorized but unissued shares of preferred stock, without designation as to series, until such shares are once more designated as part of a particular series by the Board of Directors. Certain Regulatory Considerations Affecting Redemptions Under current regulations, R&G Financial may not redeem the Series C 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 R&G Financial's condition and circumstances warrant the reduction of a source of permanent capital. Also, under Puerto Rico law, R&G 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 In the event of any liquidation, dissolution or winding up of R&G Financial, the record holders of shares of Series C Preferred Stock will be entitled to receive out of the assets of R&G Financial available for distribution to stockholders, before any distribution is made to the holders of shares of common stock or on any other class or series of stock of R&G Financial ranking junior to the Series C Preferred Stock as to such a distribution, an amount equal to $25 per share, plus an amount equal to dividends accrued and unpaid for the then current dividend period to the date fixed for payment of such distribution. If R&G Financial is liquidated or dissolved and the amounts payable with respect to the Series C Preferred Stock and any other shares of stock of equal rank upon liquidation are not paid in full, the holders of the Series C 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 C Preferred Stock will not be entitled to any further participation in any distribution of assets of R&G Financial. A consolidation or merger of R&G Financial with or into any other corporation or corporations or the sale, lease or conveyance, whether for cash, shares of stock, securities or properties, of all or substantially all of R&G Financial assets will not be regarded as a liquidation, dissolution or winding up of R&G Financial. 21 23 VOTING RIGHTS As a holder of the Series C Preferred Stock, you will not be entitled to receive notice of or attend or vote at any meeting of R&G Financial stockholders, except as described below. If R&G Financial does not declare and pay dividends in full on the Series C Preferred Stock for eighteen monthly dividend periods, whether consecutive or not, the holders of outstanding shares of the Series C Preferred Stock, together with the holders of shares of any one or more other series of preferred stock entitled to vote for the election of directors in the event of any failure to pay dividends (such as the Series A Preferred Stock and the Series B Preferred Stock), acting as a single class, will be entitled to appoint two additional members to R&G Financial's Board of Directors or to remove any such member so appointed by them from office and to 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 R&G 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 C Preferred Stock to elect directors arises, if written notice by a majority of the holders has not been given in accordance with the preceding sentence, R&G Financial's Board of Directors or an authorized committee is required to convene a separate special meeting for the above purpose. If the Board of Directors or such authorized committee fails to convene this meeting within the 30-day period, the holders of 10% of the outstanding shares of the Series C Preferred Stock and of any such other securities will be entitled to convene the meeting. The provisions of R&G Financial's Certificate of Incorporation and Bylaws relating to the convening and conduct of general meetings of stockholders will apply with respect to any separate special meeting. Any member of the Board of Directors so appointed shall vacate office if, following the event which gave rise to such appointment, R&G Financial resumes the payment of dividends in full on the Series C Preferred Stock and each such other series of stock for twelve consecutive monthly dividend periods, subject always to the revesting of the right of holders of the Series C Preferred Stock, voting as a class with the holders of any other series of stock having the right to vote for the election of directors solely in the event of a failure to pay dividends, acting as a single class, to elect two directors as provided herein in the event of any subsequent failure on the part of R&G Financial to pay dividends at the stated rate for any eighteen full monthly dividend periods, whether or not consecutive. R&G Financial's Certificate of Incorporation provides for a minimum of 5 board members and a maximum of 15 members. As of the date of this prospectus, the Board of Directors consisted of 12 members. Any amendment, alteration or repeal of the terms of the Series C Preferred Stock contained in R&G Financial's Certificate of Incorporation, which includes the Certificate of Designation of the Series C Preferred Stock, which would materially and adversely affect the powers, preferences, or special rights of the Series C Preferred Stock will require the approval of holders of at least two thirds of the outstanding aggregate liquidation preference of the Series C Preferred Stock. This approval can be evidenced either by a consent in writing or by a resolution passed at a meeting of the holders of the Series C Preferred Stock. The authorization or issuance of any shares of R&G Financial ranking senior to the Series C Preferred Stock as to dividend rights or rights on liquidation or similar events, will be considered a change requiring the consent of the Series C 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 C Preferred Stock, will not be considered a change requiring the consent of the holders of the Series C Preferred Stock. The approval of the holders is not required if, at or prior to the act with respect to which such vote would 22 24 otherwise be required, all outstanding shares of Series C Preferred Stock shall have been redeemed or called for redemption and sufficient funds deposited in trust to effect such redemption. No vote of the holders of the Series C Preferred Stock will be required for R&G Financial to redeem or purchase and cancel the Series C Preferred Stock in accordance with its Certificate of Incorporation and the Certificate of Designation. R&G Financial will cause a notice of any meeting at which holders of Series C Preferred Stock are entitled to vote to be mailed to each record holder of the Series C Preferred Stock. Each such notice will include a statement setting forth (1) the date of such meeting, (2) a description of any resolution to be proposed for adoption at such meeting on which such holders are entitled to vote, and (3) instructions for deliveries of proxies. Certain Regulatory Issues Related to Voting Rights Under regulations adopted by the Federal Reserve Board, if the holders of shares of Series C Preferred Stock become entitled to vote for the election of directors as described above, the Series C Preferred Stock could be deemed a "class of voting securities." In this instance, a holder, other than a natural person, of 25% or more of the Series C Preferred Stock could then be subject to regulation as a bank holding company in accordance with the Bank Holding Company Act. A holder, other than a natural person, of 5% that otherwise exercises a "controlling influence" over R&G Financial could also be subject to regulation under the Bank Holding Company Act. In addition, at any time the Series C 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 Series C Preferred Stock, and (2) any person other than a bank holding company may be required to file with the Federal Reserve Board under the Change in Bank Control Act to acquire or retain 10% or more of such series. Section 12 of the Puerto Rico Banking Law requires that the 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 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 of the bank. The Commissioner has made an administrative determination that these provisions of the Banking Loan are applicable to R&G Financial. Pursuant to the Banking Law, if the Commissioner receives notice of a proposed transaction that may result in a change of control of R&G Financial, the Commissioner is required to investigate and determine whether a change of control has occurred. The Commissioner will issue an authorization for the transfer of control of R&G Financial if the results of its investigations are in its judgment satisfactory. The decision of the Commissioner is final and unreviewable. RANK The Series C 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 R&G Financial, and to all other equity securities issued by R&G Financial the terms of which specifically provide that those equity securities will rank junior to the Series C Preferred Stock; 23 25 - on a parity with R&G Financial's outstanding Series A Preferred Stock and Series B Preferred Stock, and with all other equity securities issued by R&G Financial the terms of which specifically provide that those equity securities will rank equal to the Series C Preferred Stock; and - junior to all equity securities issued by R&G Financial the terms of which specifically provide that those equity securities will rank senior to the Series C Preferred Stock. For this purpose, the term "equity securities" does not include debt securities convertible into or exchangeable for equity securities. R&G Financial may not issue shares ranking, as to dividend rights or rights on liquidation, winding up and dissolution, senior to the Series C Preferred Stock, except with the consent of the holders of at least two-thirds of the outstanding aggregate liquidation preference of the Series C Preferred Stock. See "-- Voting Rights" above. REGISTRAR AND TRANSFER AGENT The registrar and transfer agent for the Series C Preferred Stock is American Stock Transfer & Trust Co., New York, New York, or any successor thereto (the "Registrar and Transfer Agent"). The transfer of a share of Series C Preferred Stock may be registered upon the surrender of the certificate evidencing the Series C Preferred Stock to be transferred, together with the form of transfer endorsed on it duly completed and executed, at the office of the Registrar and Transfer Agent. Registration of transfers of Series C Preferred Stock will be effected without charge by or on behalf of R&G Financial but upon payment (or the giving of such indemnity as the Registrar and Transfer Agent may require) in respect of any tax or other governmental charges which may be imposed in relation to it. R&G Financial will not be required to register the transfer of Series C Preferred Stock after such Series C Preferred Stock has been called for redemption. REPLACEMENT OF LOST CERTIFICATES If any certificate for a Series C Preferred Stock is mutilated or alleged to have been lost, stolen or destroyed, a new certificate representing the same share may be issued to the holder upon request subject to delivery of the old certificate or, if alleged to have been lost, stolen or destroyed, compliance with such conditions as to evidence, indemnity and the payment of any out-of-pocket expenses in connection with the request as R&G Financial may determine. NO PREEMPTIVE OR PREFERENTIAL RIGHTS As a holder of the Series C Preferred Stock, you will have no preemptive or preferential rights to purchase any securities of R&G Financial. NO REPURCHASE AT THE OPTION OF THE HOLDERS As a holder of the Series C Preferred Stock, you will have no right to require R&G Financial to redeem or repurchase any shares of Series C Preferred Stock. 24 26 NO MANDATORY REDEMPTION OR SINKING FUND OBLIGATION The shares of Series C Preferred Stock are not subject to any mandatory redemption, sinking fund or similar obligation. PURCHASE OF SHARES BY R&G FINANCIAL R&G Financial may, at its option, purchase shares of the Series C Preferred Stock from holders thereof from time to time, by tender, in privately negotiated transactions or otherwise. DESCRIPTION OF CAPITAL STOCK GENERAL R&G Financial is authorized to issue 80,000,000 shares of capital stock, of which 70,000,000 are shares of common stock, and 10,000,000 are shares of preferred stock, par value $0.01 per share. The following is a summary of certain rights and privileges of R&G Financial's common stock and preferred stock. Statements in this summary are qualified in their entirety by reference to R&G Financial's Certificate of Incorporation and to the General Corporation Law of 1995 of Puerto Rico. COMMON STOCK R&G Financial's common stock is divided into 40,000,000 Class A Shares, of which as of September 30, 2000, 18,440,556 were owned by Mr. Victor J. Galan, Chairman of the Board and Chief Executive Officer of R&G Financial, and 30,000,000 Class B Shares, of which as of such date, 10,225,696 Class B Shares were outstanding and held by members of the general public. R&G Financial's Class B shares are listed on the Nasdaq Stock Market under the symbol "RGFC." R&G Financial's common stock does not represent non-withdrawable capital, is not an account of an insurable type, and is not insured by the FDIC. Subject to the rights of the holders of preferred stock to elect directors under certain circumstances, the holders of R&G Financial's common stock possess exclusive voting rights in R&G Financial. They elect the Board of Directors and act on such other matters as are required to be presented to them under Puerto Rico law or R&G Financial's Certificate of Incorporation or as are otherwise presented to them by the Board of Directors. Except for matters where applicable law requires the approval of one or both classes of common stock voting as separate classes, holders of Class A Shares and Class B Shares generally vote as a single class on all matters submitted to a vote of the shareholders, including the election of directors. Holders of Class A Shares are entitled to two votes per share and holders of Class B Shares are entitled to one vote per share. Each record holder of Class A Shares is entitled to convert any or all of the Class A Shares held by such holder into Class B Shares at the rate of one Class B Share for each Class A Share so converted. The Class B Shares do not carry any conversion rights and are otherwise not convertible into Class A Shares. Subject to any dividend preferences which may be established with respect to any series of preferred stock, holders of Class A Shares and Class B Shares are entitled to share ratably, as a single class, in dividends when and as declared by the Board of Directors out of funds legally available for the payment of dividends. 25 27 In the event of the liquidation, dissolution or distribution of assets of R&G Financial, the holders of its common stock would be entitled to receive all of its assets available for distribution, after payment or provision for payment of all debts and liabilities and liquidation distributions due to holders of R&G Financial's preferred stock. The Series A Preferred Stock and the Series B Preferred Stock have, and the Series C Preferred Stock will have, a priority over the holders of R&G Financial's common stock in the event of a liquidation, dissolution or distribution of assets. Holders of R&G Financial's common stock are not entitled to preemptive rights with respect to any shares which may be issued in the future. R&G Financial's common stock is not subject to redemption. PREFERRED STOCK Prior to this offering, R&G Financial had issued 2,000,000 shares of Series A Preferred Stock and 1,000,000 shares of Series B Preferred Stock, both of which rank pari passu with respect to the Series C Preferred Stock. Except with respect to the dividend rate and redemption and maturity dates, the Series A Preferred Stock and the Series B Preferred Stock each have terms which are substantially the same as the terms of the Series C Preferred Stock. R&G Financial may issue other series of preferred stock with such preferences and designations as the Board of Directors may from time to time determine. The Board of Directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights as it may deem appropriate under the circumstances. RESTRICTIONS ON ACQUISITION OF R&G FINANCIAL Restrictions in the Certificate of Incorporation and Bylaws. A number of provisions of R&G Financial's Certificate of Incorporation and Bylaws deal with matters of corporate governance and certain rights of stockholders. The following discussion is a general summary of certain provisions of the Certificate of Incorporation and Bylaws which might be deemed to have a potential "anti-takeover" effect. Reference should be made in each case to such Certificate of Incorporation and Bylaws, copies of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part. Board of Directors. R&G Financial's Certificate of Incorporation contains provisions relating to the Board of Directors and provides, among other things, that the Board of Directors shall be divided into three classes as nearly equal in number as possible with the term of office of one class expiring each year. Cumulative voting in the election of directors is prohibited. Directors may be removed with or without cause at a duly constituted meeting of stockholders called expressly for that purpose. Any vacancy occurring in the Board of Directors for any reason (including an increase in the number of authorized directors) may be filled by the affirmative vote of a majority of the directors then in office, though less than a quorum of the Board, or by the sole remaining director, and a director appointed to fill a vacancy shall serve for the remainder of the term to which the director being replaced had been elected, and until his successor has been elected and qualified. R&G Financial's Bylaws govern nominations for election to the Board, and provide that nominations for election to the Board of Directors may be made by the nominating committee of the Board of Directors or by a stockholder eligible to vote at an annual meeting of stockholders who has complied with specified notice requirements. Written notice of a stockholder nomination must be delivered to, or mailed to and received at, the principal executive offices not later than ninety days prior to the anniversary date of the mailing of the proxy materials in connection with the immediately preceding annual meeting and, with respect to an election to be held at a special meeting of 26 28 stockholders, no later than the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Limitation of Liability. R&G Financial's Certificate of Incorporation provides that the personal liability of the directors and officers for monetary damages shall be limited to the fullest extent permitted by the General Corporation Law of the Commonwealth of Puerto Rico ("Puerto Rico Corporate Law"). Indemnification of Directors, Officers, Employees and Agents. R&G Financial's Bylaws provide that R&G Financial shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding of R&G Financial, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of R&G Financial, or is or was serving at its written request as a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the fullest extent authorized by Puerto Rico Corporate Law. Notwithstanding the foregoing, R&G Financial shall not be liable for any amounts which may be due to any person in connection with a settlement of any action, suit or proceeding effected without the prior written consent of R&G Financial or any action, suit or proceeding initiated by any person seeking indemnification without the prior written consent of R&G Financial. R&G Financial's Bylaws also provide that reasonable expenses incurred by a director, officer, employee or agent of R&G Financial in defending any civil, criminal, suit or proceeding may be paid by R&G Financial in advance of the final disposition of such action, suit or proceeding. Special Meetings of Stockholders and Stockholder Proposals. R&G Financial's Bylaws provide that special meetings of stockholders, for any purpose or purposes, may be called by the Chairman of the Board, the President or by the affirmative vote of a majority of the Board of Directors then in office. Only such business as shall have been properly brought before an annual meeting of stockholders shall be conducted at the annual meeting. In order to be properly brought before an annual meeting, business must either be brought before the meeting by or at the direction of the Board of Directors or otherwise by a stockholder who has given timely notice thereof (along with specified information) in writing. For stockholder proposals to be included in our proxy materials, the stockholder must comply with all the timing and informational requirements of the Securities Exchange Act of 1934, as amended. With respect to stockholder proposals to be considered at the annual meeting of stockholders but not included in R&G Financial's proxy materials, the stockholder's notice must be delivered to or mailed and received at R&G Financial's principal executive offices not later than 90 days prior to the anniversary date of the mailing of the proxy materials in connection with the immediately preceding annual meeting. Amendment of Certificate of Incorporation and Bylaws. R&G Financial's Certificate of Incorporation generally provides that any amendment of the Certificate must be first approved by a majority of the Board of Directors and, to the extent required by law, then by the holders of a majority of the votes eligible to be cast in an election of directors, except that the approval of shares representing 75% of the votes eligible to be cast in an election of directors, as well as such additional vote of the preferred stock as may be required by the provisions of any series thereof, is required for any amendment concerning R&G Financial's directors, bylaws, limitation on liability of directors and officers and amendments, unless any such proposed amendment is approved by a vote of two-thirds of the Board of Directors then in office. R&G Financial's Bylaws may be amended by the Board or by the stockholders. Such action by the stockholders requires the affirmative vote of the holders of a majority of the votes eligible to be cast generally in an election of directors, except that the approval of shares representing 75% of the votes eligible to be cast generally in an election of directors is required for any amendment to the Bylaws which is inconsistent with the provisions in R&G 27 29 Financial's Certificate of Incorporation which address the foregoing provisions and which are not approved by the affirmative vote of two-thirds of R&G Financial's Board of Directors then in office. Other Restrictions on Acquisition of R&G Financial. Under the Change in Bank Control Act ("CIBCA"), a notice must be submitted to the Federal Reserve Board if any person, or group acting in concert, seeks to acquire 10% or more of R&G Financial's shares of common stock outstanding, unless the Federal Reserve Board finds that the acquisition will not result in a change in control of R&G Financial. Under the CIBCA, the Federal Reserve Board has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquiror, the convenience and needs of the communities served by the R&G Financial and R-G Premier Bank, and the antitrust effects of the acquisition. Under the Bank Holding Company Act, any company would be required to obtain prior approval from the Federal Reserve Board before it may obtain control of R&G Financial. Control generally is defined to mean the beneficial ownership of 25% or more of any class of R&G Financial's voting securities. Under the Puerto Rico Banking Act, a notice must be submitted to the Office of the Commissioner of Financial Institutions ("OCFI") not less than 60 days prior to the consummation of any transfer of R&G Financial stock if, after such transfer, the transferee (including any group acting in concert) will own more than 5% of R&G Financial's outstanding voting stock. Such transfer will require the approval of the OCFI if it will result in a change of control of R&G Financial. A transfer will be presumed to result in a change of control if, as a result of such transfer, a person or group that did not own more than 5% of R&G Financial's outstanding voting stock prior to such transfer owns more than 5% of such stock. In acting upon any such request for approval, the OCFI must take into consideration factors such as the experience and moral and financial responsibility of the transferee, its impact on the operations of R-G Premier Bank, whether the change of control threatens the interest of R-G Premier Bank's depositors, creditors or shareholders and any public interest considerations. TAXATION GENERAL The following is a summary of the material Puerto Rico tax and United States federal income tax considerations relating to the purchase, ownership and disposition of the Series C Preferred Stock. This summary is not a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the Series C Preferred Stock and does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than Puerto Rico and the United States. This summary is based on the tax laws of Puerto Rico and the United States Internal Revenue Code of 1986, as amended (the "Code"), as in effect on the date of this prospectus, as well as regulations, including existing and proposed regulations of the U.S. Department of the Treasury ("Treasury 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. Prospective purchasers of the Series C Preferred Stock should consult their own tax advisors as to the Puerto Rico, United States or other tax consequences of the purchase, ownership and disposition of the Series C Preferred Stock, including the application to their particular situations of the tax considerations discussed below, such as life insurance companies, special partnerships, Subchapter N corporations (under Puerto Rico law), registered investment companies, certain pension trusts, tax-exempt entities, dealers in securities, financial institutions, persons who hold Series C Preferred Stock as part of an integrated investment (including a straddle) or to persons 28 30 whose functional currency is not the U.S. dollar or who own 10% or more of R&G Financial's voting stock, as well as the application of any state, local, foreign or other tax. PUERTO RICO TAXATION For purposes of the discussion below, the term "Puerto Rico corporation" is used to refer to a corporation organized under the laws of Puerto Rico and the term "foreign corporation" is used to refer to a corporation organized under the laws of a jurisdiction other than Puerto Rico. OWNERSHIP AND DISPOSITION OF SERIES C PREFERRED STOCK TAXATION OF DIVIDENDS General. Distributions of cash or other property made by R&G Financial on the Series C Preferred Stock will be treated as dividends to the extent that R&G Financial has current or accumulated earnings and profits. To the extent that a distribution exceeds R&G Financial's current and accumulated earnings and profits, the distribution will be applied against and reduce the adjusted tax basis of the Series C 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 C Preferred Stock and will be subject to income tax as described below. The following discussion regarding the income taxation of dividends on Series C 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 paid by a Puerto Rico corporation will constitute income from sources within Puerto Rico unless the corporation has derived less than 20% of its gross income from sources within Puerto Rico for the three taxable years preceding the year of the declaration of the dividend or for such part of such period as the corporation has been in existence. R&G 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 1996. 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 C Preferred Stock. This tax is generally required to be withheld by R&G 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 C 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 C 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 C 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 29 31 desire to file an election out of the applicable 10% Special Tax and applicable withholding tax should have their shares of Series C Preferred Stock issued and registered in their own names. Similarly, Puerto Rico corporations that own shares of Series C Preferred Stock and wish to avoid the withholding imposed on foreign corporations should have their shares issued and registered in their own names in order to ensure that no withholding is made on dividends. United States Citizens Not Residents of Puerto Rico. Dividends paid on the Series C Preferred Stock to a United States citizen who is not a resident of Puerto Rico will be subject to the 10% Special Tax which will be withheld by R&G 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%. In the event such individuals opt out of the 10% Special Tax, a separate 10% withholding tax will be required on the amount of the dividend unless the individual timely files with R&G 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 R&G Financial or its agent from individuals who have the shares of Series C Preferred Stock registered in their names. Individuals who hold shares of Series C Preferred Stock in street name will not be eligible to file with R&G 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 C 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 R&G Financial. Foreign Corporations. The income taxation of dividends paid on the Series C 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 C 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 C 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 C Preferred Stock. Partnerships. Partnerships are generally taxed in the same manner as corporations. Accordingly, the preceding discussion with respect to corporations is equally applicable in the case of most partnerships. 30 32 TAXATION OF GAINS UPON SALES OR EXCHANGES OTHER THAN REDEMPTIONS General. The sale or exchange of Series C 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 C 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 C Preferred Stock is held as a capital asset by the holder and will be a long-term capital gain or loss if the stockholder's holding period of the Series C Preferred Stock exceeds six months. Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on the sale or exchange of Series C Preferred Stock by an individual resident of Puerto Rico or a Puerto Rico corporation will generally be required to be recognized as gross income and will be subject to income tax. If the stockholder is an individual and the gain is a long-term capital gain, the gain will be taxable at a maximum rate of 20%. If the stockholder is a Puerto Rico corporation and the gain is a long-term capital gain, the gain will qualify for an alternative tax rate of 25%. United States Citizens Not Residents of Puerto Rico. A United States citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico income tax on the sale or exchange of Series C Preferred Stock if the gain resulting therefrom constitutes income from sources outside Puerto Rico. Generally, gain on the sale or exchange of Series C Preferred Stock will be considered to be income from sources outside Puerto Rico if all rights, title and interest in or to the Series C Preferred Stock are transferred outside Puerto Rico, and if the delivery or surrender of the instruments that evidence the Series C 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 C 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 C 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 C 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. 31 33 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 C Preferred Stock if the gain is from sources within Puerto Rico. Gain on the sale or exchange of Series C 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 C Preferred Stock are transferred outside Puerto Rico, and if the delivery or surrender of the instruments that evidence the Series C 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 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 corporations is equally applicable to most partnerships. TAXATION OF REDEMPTIONS A redemption of shares of the Series C Preferred Stock for cash will be treated as a distribution taxable as a dividend to the extent of R&G Financial's current or accumulated earnings and profits if the redemption 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 United States courts and the United States Internal Revenue Service under the Code, in determining whether a distribution is essentially equivalent to a dividend. The Department of the Treasury of Puerto Rico, however, is not bound by such principles and is free to adopt a different rule. If the redemption of the Series C 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 C Preferred Stock. Gain on the redemption of Series C Preferred Stock will generally be recognized and will be subject to income tax. If the stockholder of the Series C 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 C 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 C 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 provide clear rules in this area. As a result thereof, these prospective shareholders should be aware that gain realized from a redemption of the Series C Preferred Stock may be treated as income from sources within Puerto Rico or effectively connected income and subject to income tax accordingly. ESTATE AND GIFT TAXATION The transfer of Series C 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 32 34 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 C Preferred Stock by death or gift. MUNICIPAL LICENSE TAXATION Individuals and corporations that are not engaged in a trade or business in Puerto Rico will not be subject to municipal license tax on dividends paid on the Series C Preferred Stock or on any gain realized on the sale, exchange or redemption of the Series C 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 C Preferred Stock and on the gain realized on the sale, exchange or redemption of the Series C 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 range from a maximum of 1.5% for financial businesses to a maximum of 0.5% for other businesses. PROPERTY TAXATION The Series C Preferred Stock will not be subject to 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 C 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 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 C 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 C Preferred Stock that does not own directly, constructively or by attribution, 10% or more of the voting stock of the R&G Financial 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 persons (as such term is defined in the Code) have 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 "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. 33 35 OWNERSHIP AND DISPOSITION OF SERIES C PREFERRED STOCK TAXATION OF DIVIDENDS General. Dividends on the Series C Preferred Stock will constitute gross income from sources outside the United States if less than 25% of the gross income from all sources of R&G Financial for the three-year period ending with the close of the taxable year preceding the deduction of such dividends (or for such part of such period as R&G Financial has been in existence) was effectively connected with a trade or business within the United States. Since its incorporation in 1996, less than 25% of R&G Financial's gross income has been effectively connected in the conduct of a trade or business in the United States, and R&G Financial expects to satisfy such gross income test on an ongoing basis. Accordingly, dividends on the Series C Preferred Stock distributed by R&G Financial will constitute gross income from sources outside the United States so long as R&G Financial continues to meet such gross income test. 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 C 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 R&G 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 R&G Financial exceeds its current and accumulated earnings and profits as determined under United States federal income tax principles, the excess will be treated first as a tax-free return of the U.S. Holder's tax basis in the Series C Preferred Stock and thereafter as capital gain. Subject to certain conditions and limitations contained in the Code, the Puerto Rico income tax imposed on dividends distributed by R&G Financial in accordance with Puerto Rico law will be eligible for a deduction or a credit against the U.S. Holder's United States federal income tax liability. See "Puerto Rico Taxation -- Ownership and Disposition of Series C Preferred Stock -- Taxation of Dividends" above. For purposes of calculating a U.S. Holder's United States foreign tax credit limitation, dividends distributed by R&G 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 R&G Financial on the Series C 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 R&G Financial on the Series C 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. 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." 34 36 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 C Preferred Stock, including redemptions treated as sales or exchanges of the Series C 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 C 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 or loss. U.S. Holders should consult their own tax advisors concerning the treatment of capital gains and losses. Redemptions of the Series C 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 C 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 C Preferred Stock, including redemptions treated as sales or exchanges of the Series C Preferred Stock under Section 302 of the Code, by a Puerto Rico U.S. Holder that is a nonresident under Section 865(a)(2) 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 C 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 C 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. 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 C 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 noncorporate U.S. Holders may be subject to backup withholding at the rate of 31% on dividends paid or the proceeds of a sale, exchange or redemption of Series C 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"), R&G Financial believes that it has not been a PFIC for any of its prior 35 37 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 R&G Financial's expectation, the Series C 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 R&G Financial remains a PFIC, with respect to (1) any "excess distribution" by R&G Financial to the U.S. Holder and (2) any gain realized on the sale, pledge or other disposition of Series C Preferred Stock. An "excess distribution" is, generally, any distributions received by the U.S. Holder on the Series C 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 C 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 C Preferred Stock, (2) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which R&G 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 R&G 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 C Preferred Stock, provided that the Series C 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 C 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 R&G Financial is a PFIC in any year, a U.S. Holder who beneficially owns Series C Preferred Stock during that year must make an annual return on IRS Form 8621 that describes any distributions received from R&G Financial and any gain realized on the disposition of Series C Preferred Stock. ESTATE AND GIFT TAXATION The transfer of Series C 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 C Preferred Stock by death or gift. 36 38 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), R&G Financial has agreed to sell to each of the underwriters named below, and each of such underwriters has severally agreed to purchase from R&G Financial, the aggregate number of shares of Series C Preferred Stock set forth opposite its name below. The table does not include the 300,000 shares of Series C Preferred Stock subject to the over-allotment option discussed below.
UNDERWRITERS NUMBER OF SHARES - ------------ ---------------- PaineWebber Incorporated of Puerto Rico..................... Keefe, Bruyette & Woods, Inc................................ Popular Securities, Inc..................................... Santander Securities Corporation............................ --------- Total............................................. 2,000,000 =========
Under the terms and conditions of the Underwriting Agreement, R&G Financial is obligated to sell, and the underwriters are obligated to purchase, all of the shares of Series C Preferred Stock shown on the table above, if any are purchased. The underwriters propose to offer the shares of Series C Preferred Stock to the public initially at the public offering price set forth on the cover page of this prospectus, and to certain selected dealers at the public offering price less a concession not to exceed $ per share. After the shares of Series C Preferred Stock are released to the public, the public offering price and other selling terms may be changed by the underwriters. R&G Financial has granted the underwriters an option exercisable for 30 days from the date of this prospectus, to purchase up to 300,000 additional shares of Series C 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. 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 C Preferred Stock offered hereby. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by R&G Financial as well as the proceeds received by R&G Financial from the offering, before deducting expenses. The amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional 300,000 shares.
TOTAL, ASSUMING FULL EXERCISE OF OVER-ALLOTMENT PER SHARE TOTAL OPTION --------- ----------- ---------------- Public Offering Price.................................... $ 25.00 $50,000,000 $57,500,000 Underwriting Discount.................................... 0.7875 1,575,000 1,811,250 Proceeds to R&G Financial................................ 24.2125 48,425,000 55,688,750
In connection with this offering, certain underwriters may engage in passive market making transactions on the Nasdaq Stock Market immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M. Passive market making consists of displaying bids on the Nasdaq Stock Market limited by the bid prices and effect in response to order flow. Net 37 39 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 C 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 C 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 C 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 C Preferred Stock. As an exception to these rules, the underwriters may engage in certain transactions that stabilize the price of the Series C Preferred Stock. These transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Series C Preferred Stock. If the underwriters create a short position in the Series C Preferred Stock in connection with the offering, i.e., if the underwriters sell more shares of Series C Preferred Stock than are set forth on the cover page of this prospectus, they may reduce that short position by purchasing shares of Series C 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. R&G Financial estimates that the total expense of this offering, excluding underwriting discounts and commissions, will be $275,625. R&G Financial has agreed to indemnify the several underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or to contribute to payments that the underwriters may be required to make in respect thereof. Several of the underwriters have from time to time been customers of, engaged in transactions with, or performed services for, R&G Financial and its subsidiaries in the ordinary course of business. Such transactions and services are expected to continue in the future. R&G Financial has filed an application for listing of the Series C Preferred Stock on the Nasdaq Stock Market under the symbol "RGFCN." Trading of the Series C Preferred Stock is expected to commence not later than 30 days after initial delivery of the Series C Preferred Stock. R&G Financial has been advised by the underwriters that they intend to make a market in the Series C Preferred Stock prior to the commencement of trading. The underwriters will have no obligation to make a market in the Series C Preferred Stock, however, and may cease market making activities, if commenced, at any time. 38 40 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Securities and Exchange Commission allows R&G Financial to "incorporate by reference" the information it files with them, which means R&G Financial can disclose important information to you by referring to these documents. The information included in the following documents is incorporated by reference and is considered a part of this prospectus. The most recent information that R&G Financial files with the Securities Exchange Commission automatically updates and supersedes previously filed information. R&G Financial has previously filed the following documents with the Securities Exchange Commission and is incorporating them by reference into this prospectus: - Annual Report on Form 10-K for the year ended December 31, 1999; - Quarterly Report on Form 10-Q for the quarter ended March 31, 2000; - Quarterly Report on Form 10-Q for the quarter ended June 30, 2000; - Quarterly Report on Form 10-Q for the quarter ended September 30, 2000; and - Current Report on Form 8-K dated as of February 16, 2001. R&G Financial also incorporates by reference all documents filed by it pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the date of this prospectus and until all the shares being offered by this prospectus are sold. R&G Financial will provide, at no cost, to each person, including a beneficial owner, to whom this prospectus is delivered, upon written or oral request, a copy of any or all of the documents incorporated herein by reference, other than exhibits to these documents unless such exhibits are specifically incorporated by reference into such documents. Requests for copies should be directed to R&G Financial, Attention: Enrique Umpierre-Suarez, Secretary, 280 Jesus T. Pinero Avenue, San Juan, Puerto Rico 00918; telephone number: (787) 729-8200. WHERE YOU CAN FIND MORE INFORMATION R&G Financial files annual, quarterly and current reports, proxy statements and other information with the Securities Exchange Commission. R&G Financial has also filed with the Securities Exchange Commission a Registration Statement on Form S-3, to register the Series C Preferred Stock being offered in this prospectus. This prospectus, which forms part of the Registration Statement, does not contain all of the information included in the Registration Statement. For further information about R&G Financial and the shares of Series C Preferred Stock offered in this prospectus, you should refer to the Registration Statement and its exhibits. You may read and copy any document filed by R&G Financial with the Securities Exchange Commission at the Securities Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. R&G Financial files its Securities Exchange Commission materials electronically with the Securities Exchange Commission, so you can also review R&G Financial's filings by accessing the web site maintained by the Securities Exchange Commission at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the Securities Exchange Commission. 39 41 LEGAL MATTERS The validity of the Series C Preferred Stock will be passed upon for R&G Financial by Kelley Drye & Warren LLP, Washington, D.C. The validity of the Series C Preferred Stock will be passed upon as to matters of Puerto Rico law for R&G Financial by McConnell Valdes, San Juan, Puerto Rico. Kelley Drye & Warren LLP will rely as to all matters of the laws of the Commonwealth of Puerto Rico upon the opinion of McConnell Vales. The discussion of Puerto Rico and U.S. tax issues arising in connection with the Series C Preferred Stock has been provided by McConnell Valdes, San Juan, Puerto Rico, and by Kelley Drye & Warren LLP, Washington, D.C., respectively. As of the date of this prospectus, certain members of Kelley Drye & Warren LLP owned in the aggregate approximately Class B Shares of R&G Financial's common stock. Certain legal matters will be passed upon for the underwriters by Fiddler Gonzalez & Rodriguez, LLP, San Juan, Puerto Rico. EXPERTS The consolidated financial statements incorporated in this prospectus by reference to the Annual Report on Form 10-K of R&G Financial Corporation 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. 40 42 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2,000,000 SHARES (R&G FINANCIAL LOGO) % NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES C PRICE TO PUBLIC: $25 PER SHARE ------------------------ PROSPECTUS ------------------------ PAINEWEBBER INCORPORATED OF PUERTO RICO ------------------------ KEEFE, BRUYETTE & WOODS, INC. POPULAR SECURITIES SANTANDER SECURITIES , 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 43 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC registration fee........................................................ $ 14,375.00 Nasdaq listing fee.......................................................... 35,000.00 NASD filing fee............................................................. 6,250.00 Legal fees and expenses..................................................... 95,000.00* Accounting fees and expenses................................................ 65,000.00* Printing.................................................................... 35,000.00* Miscellaneous expenses...................................................... 25,000.00* ----------- Total.................................................................... $275,625.00* ===========
* Estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article VI of the Registrant's Bylaws provide as follows: 6.1 INDEMNIFICATION. (a) The Company shall indemnify, to the fullest extent authorized by the General Corporation Law of the Commonwealth of Puerto Rico, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee, or agent of the Company, or is or was serving at the written request of the Company as a director, officer, employer or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a matter he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, provided that the Company shall not be liable for any amounts which may be due to any person in connection with a settlement of any action, suit or proceeding effected without our prior written consent or any action, suit or proceeding initiated by any person seeking indemnification hereunder without our prior written consent. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or our equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, that such person had reasonable cause to believe that his conduct was unlawful. (b) The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in our favor by reason of the fact that he is or was a director, officer, employee, or agent of the Company, or is or was serving at the written request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall II-1 44 be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expense which such court shall deem proper. (c) To the extent that a director, officer, employee, or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 6.1(a) or Section 6.1(b) of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under Section 6.1(a) or Section 6.1(b) of this Article VI (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth therein. Such determination shall be made (a) by our Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. (e) The Company shall not be liable for any amounts which may be due to any person in connection with a settlement of any action, suit or proceeding initiated by any person seeking indemnification under this Article VI without our prior written consent. 6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding described in Section 6.1 may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by our Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Article VI. 6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 6.4 INSURANCE. By action of our Board of Directors, notwithstanding any interest of the directors in the action, the Company may purchase and maintain insurance, in such amounts as our Board of Directors deems appropriate, on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the written request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power or would be required to indemnify him against such liability under the provisions of this Article VI or of the General Corporation Law of the Commonwealth of Puerto Rico, or of the laws of any other State or political dependency of the United States or foreign country as may be applicable. II-2 45 6.5 MODIFICATION. The duties of the Company to indemnify and to advance expenses to a director, officer, employee or agent provided in this Article VI shall be in the nature of a contract between the Company and each such person, and no amendment or repeal of any provision of this Article VI shall alter, to the detriment of such person, the right of such person to the advance of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment or repeal. An unofficial English translation of Article 4.08 of the General Corporation Law of 1996 of the Commonwealth of Puerto Rico provides: A. A corporation may indemnify any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that said person was or is a director, officer employee, or agent of the corporation, or was or is serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnification may include expenses reasonably incurred, including attorneys' fees, awards or judgments, fines and amounts paid in settlement of such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any legal action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith or in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, that the person did not have reasonable cause to believe that his conduct was unlawful. B. A corporation may indemnify any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to protect the interests of the corporation to procure a judgment in our favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnification may include expenses reasonably incurred, including attorneys' fees, in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, and not opposed to, the best interests of the corporation. No indemnification shall be made in respect of any claim, matter or issue as to which such person shall have been adjudged to be liable to the corporation unless, upon application therefor, the court in which such action or suit was brought shall determine that, despite the adjudication of liability and in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which such court shall deem proper, and only to the extent to which said court shall determine. C. To the extent that a director, officer, employee, or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections A and B or in defense of any claim, matter or issue related thereto, he shall be indemnified against expenses reasonably incurred by him (including attorneys' fees) by reason of such action, suit or proceeding. D. Any indemnification under subsections A and B (except that ordered by a court) shall be made by the corporation, only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections A and B of this article. Such determination shall be made: II-3 46 1. by our Board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, even if said directors constitute less than a quorum; or 2. if there shall not be any such directors, or if such directors shall so determine by an independent legal counsel in a written opinion to such effect; or 3. by the stockholders. E. Prior to the final disposition of such action, suit or proceeding, the corporation may pay in advance expenses incurred by an officer or director defending a civil or criminal action, suit or proceeding. Upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to such indemnification by the corporation, as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as our Board of directors deems convenient. F. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement (of expenses) may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding such office. G. Every corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. H. For purposes of this Article, "the corporation" shall be deemed to include, in addition to the resulting corporations, any corporation which is a party to any consolidation or merger that is absorbed in a consolidation or merger which, if its separate legal existence had continued, would have had the power and authority to indemnify our directors, officers, and employees or agents. So that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate legal existence had continued. I. For purposes of this Article, the term "other enterprises" shall include employee benefit plans. The term "fines" shall include any taxes assessed on a person with respect to any benefit or employee plan. The term "serving at the request of the corporation" shall include any service as a director, officer, employee, or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee pension plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee pension plan shall further be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article. II-4 47 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The exhibits and financial statement schedules filed as a part of this Registration Statement are as follows: (a) List of Exhibits:
EXHIBIT NO. EXHIBIT - ---------- ------- 1 Form of Underwriting Agreement 3 Form of Certificate of Designations with respect to the terms of the Series C Preferred Stock 4.1* Form of Common Stock Certificate of R&G Financial 4.2 Form of Series C Preferred Stock Certificate of R&G Financial 5 Opinion of Kelley Drye & Warren LLP re: legality of Series C Preferred Stock issuance 5.1 Opinion of McConnell Valdes re: legality of Series C Preferred Stock issuance (as to matters of Puerto Rico Law) 8 Opinion of McConnell Valdes re: certain Puerto Rico income tax consequences 8.1 Opinion of Kelley Drye & Warren LLP re: certain federal income tax consequences 12 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends 23.1.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.0 and 8.1) 23.1.2 Consent of McConnell Valdes (included in Exhibit 5.1 and 8.0) 23.2 Consent of PricewaterhouseCoopers LLP 24.0 Power of Attorney (included in Signature Page of the Registration Statement) 27.0** Financial Data Schedule (for SEC use only)
- ------------------- * Incorporated by reference to the Form S-1 Registration Statement (Reg. No. 333-06245), filed by R&G Financial with the Commission on June 18, 1996, as amended. ** Incorporated by reference to the Form 10-Q for the quarter ended September 30, 2000 (File No. 000-21137) filed by R&G Financial with the Commission on November 14, 1999. (b) Financial Statement Schedules. II-5 48 No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-6 49 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Juan, Commonwealth of Puerto Rico on the 15th day of February 2001. R&G FINANCIAL CORPORATION By: /s/ Victor J. Galan ---------------------------------------- Victor J. Galan Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each of the directors and/or officers of the Registrant whose signature appears below hereby appoints Victor J. Galan, Ramon Prats and Joseph R. Sandoval, and each of them severally, as his or her attorney-in-fact to sign in his or her name and behalf, in any and all capacities stated below and to file with the Securities and Exchange Commission any and all amendments, including post-effective amendments, to this Registration Statement on Form S-3, and any Registration Statement relating to the same Offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, making such changes in the Registration Statement as appropriate, and generally to do all such things in their behalf in their capacities as directors and/or officers to enable the Registrant to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission.
NAME TITLE DATE ---- ----- ---- Chairman of the Board, and Chief Executive Officer February 15, 2001 /s/ Victor J. Galan (principal executive officer) - -------------------------------------------- Victor J. Galan /s/ Ramon Prats President and Director February 15, 2001 - ---------------------------------------- Ramon Prats Senior Vice President and Chief February 15, 2001 Financial Officer (Principal /s/ Joseph R. Sandoval financial and accounting officer) - ---------------------------------------- Joseph R. Sandoval /s/ Ana M. Armendariz Director and Treasurer February 15, 2001 - ---------------------------------------- Ana M. Armendariz /s/ Enrique Umpierre-Suarez Director and Secretary February 15, 2001 - ---------------------------------------- Enrique Umpierre-Suarez /s/ Victor L. Galan Fundora Director February 15, 2001 - ---------------------------------------- Victor L. Galan Fundora
II-7 50 /s/ PEDRO RAMIREZ Director February 15, 2001 - ---------------------------------------- Pedro Ramirez /s/ LAURENO CARUS ABARCA Director February 15, 2001 - ---------------------------------------- Laureno Carus Abarca /s/ EDUARDO MCCORMACK Director February 15, 2001 - ---------------------------------------- Eduardo McCormack /s/ GILBERTO RIVERA-ARREAGA Director February 15, 2001 - ---------------------------------------- Gilberto Rivera-Arreaga /s/ BENIGNO R. FERNANDEZ Director February 15, 2001 - ---------------------------------------- Benigno R. Fernandez /s/ ILEANA M. CARLO Director February 15, 2001 - ---------------------------------------- Ileana M. Carlo /s/ ROBERTO GORBEA Director February 15, 2001 - ---------------------------------------- Roberto Gorbea
II-8 EX-1 2 g67104ex1.txt FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 2,000,000 SHARES R&G FINANCIAL CORPORATION ___% NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES C UNDERWRITING AGREEMENT ____________ __, 2001 PAINEWEBBER INCORPORATED OF PUERTO RICO As lead underwriter of the several Underwriters named in Schedule 1 American International Plaza, Penthouse Floor 250 Munoz Rivera Avenue Hato Rey, Puerto Rico 00918 Ladies and Gentlemen: R&G FINANCIAL CORPORATION, a Puerto Rico corporation (the "Company"), proposes to sell an aggregate of 2,000,000 Shares (the "Firm Shares") of the Company's ___% Noncumulative Perpetual Monthly Income Preferred Stock, Series C (the "Preferred Stock"), which are to be issued and sold by the Company to you and the other underwriters named in Schedule 1 hereto (collectively, the "Underwriters"), for whom you are acting as representative (the "Representative"). The Company also has agreed to grant to you and the other Underwriters an option (the "Option") to purchase up to an additional 300,000 Shares of Preferred Stock (the "Option Shares") on the terms and for the purposes set forth in Section 1(b) hereto. The Firm Shares and the Option Shares are hereinafter collectively referred to as the "Shares." The Company hereby confirms as follows its agreements with the Representative and the several other Underwriters. 1. AGREEMENT TO SELL AND PURCHASE. (a) On the basis of the representations, warranties, and agreements of the Company herein contained and subject to all the terms and conditions of this Agreement, the Company agrees to sell to each Underwriter and each Underwriter, severally and not jointly, agrees to purchase from the Company at a purchase price of $24.2125 per Share, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule 1 hereto, plus such additional number of Firm Shares which such Underwriter may become obligated to purchase pursuant to Section 9 hereof. (b) Subject to all the terms and conditions of this Agreement, the Company grants the Option to the several Underwriters to purchase, severally and not jointly, the Option Shares at the same price per Share as the Underwriters shall pay for the Firm Shares. The Option may be exercised only to cover overallotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time and from time to time on or before the thirtieth (30th) day after the date of this Agreement (or on the next business day if the thirtieth (30th) day is not a business day), upon notice (the "Option Shares Notice") in writing or by telephone (confirmed in writing) by the Representative to the Company no later than 5:00 p.m., New York City time, at least two (2) and no more than five (5) business days before the date specified for closing in the Option Shares Notice (the "Option Closing Date") setting forth the aggregate number of Option Shares to be purchased and the time and date for such purchase. On the Option Closing Date, the Company will issue and sell to the Underwriters the number of Option Shares set forth in the Option Shares Notice and each Underwriter will purchase such percentage of the Option Shares as is equal to the percentage of Firm Shares that such Underwriter is purchasing hereunder, as adjusted by the Representative in such manner as it deems advisable to avoid fractional Shares. 2 2. DELIVERY AND PAYMENT. Delivery of the Firm Shares shall be made to the Representative for the accounts of the Underwriters at the office of Fiddler Gonzalez & Rodriguez, LLP, counsel to the Underwriters, Torre BBVA, #254 Munoz Rivera Avenue, 6th Floor, San Juan, Puerto Rico 00918, against payment of the purchase price by wire transfer of immediately available funds to the bank account designated by the Company. Such payment shall be made at 10:00 a.m., New York City time, on the third full business day following the date of this Agreement, or at such other time on such other date, not later than seven (7) business days after the date of this Agreement, as may be agreed upon by the Company and the Representative (such date is hereinafter referred to as the "Closing Date"). Time shall be of the essence and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder. The Firm Shares to be purchased by each Underwriter hereunder will be represented by one or more definitive certificates registered in the name of Cede & Co., which will be deposited by or on behalf of the Company with the Depository Trust Company ("DTC") or its designated custodian. To the extent the Option is exercised, delivery of the Option Shares against payment by the Underwriters (in the manner specified above) will take place at the offices specified above for the Closing Date at the time and date (which may be the Closing Date) specified in the Option Shares Notice. Certificates evidencing the Shares shall be in definitive form and shall be registered in such names and in such denominations as the Representative shall request at least two (2) business days prior to the Closing Date or the Option Closing Date, as the case may be, by written notice to the Company. For the purpose of expediting the checking and packaging of certificates for the Shares, the Company agrees to make such certificates available for inspection at least twenty-four (24) hours prior to the Closing Date or the Option Closing Date, as the case may be, at the office of DTC or its designated custodian. The cost of original issue tax stamps, if any, in connection with the issuance, sale, and delivery of the Firm Shares and Option Shares by the Company to the respective Underwriters shall be borne by the Company. The Company will pay and save each Underwriter and any subsequent holder of the Shares harmless from any and all liabilities with respect to or resulting from any failure or delay in paying federal, state, or Commonwealth of Puerto Rico stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the original issuance, sale, or delivery to such Underwriter of the Firm Shares and Option Shares. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents, warrants, and covenants to each Underwriter that: (a) A registration statement on Form S-3 (Registration No. 333-_____) relating to the Shares, including a preliminary prospectus relating to the Shares and such amendments to such registration statement as may have been required to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (collectively referred to as the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission. The Commission has not issued any order preventing or suspending the use of the Prospectus (as defined below) or any Preliminary Prospectus (as defined below) or instituted or, to the knowledge of the Company, threatened any proceeding for that purpose. The term "Preliminary Prospectus" as used herein means a preliminary prospectus relating to the Shares included at any time as part of the foregoing registration statement or any amendment thereto before it became effective under the Act and any prospectus filed with the Commission by the Company pursuant to Rule 424(a) of the Rules and Regulations. Copies of such registration statement and amendments and of each related Preliminary Prospectus have been delivered to the Representative. If such registration statement has not become effective, a further amendment to such 2 3 registration statement, including a form of final prospectus, necessary to permit such registration statement to become effective will be filed promptly by the Company with the Commission. If such registration statement has become effective, a final prospectus relating to the Shares containing information permitted to be omitted at the time of effectiveness by Rule 430A will be filed by the Company with the Commission in accordance with Rule 424(b) of the Rules and Regulations promptly after execution and delivery of this Agreement. The term "Registration Statement" means the registration statement as amended at the time it becomes or became effective, including all financial statements and schedules and all exhibits, documents incorporated therein by reference, and all information contained in any final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or in a term sheet described in Rule 434 of the Rules and Regulations in accordance with Section 4 hereof and deemed to be included therein as of the effective date by Rule 430A of the Rules and Regulations and including any registration statement filed pursuant to Rule 462(b) of the Rules and Regulations (a "Rule 462 Registration Statement") increasing the size of the offering. The term "Prospectus" means the prospectus relating to the Shares as first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is required, the form of final prospectus relating to the Shares included in the Registration Statement at the effective date. References herein to any document or other information incorporated by reference in the Registration Statement shall include documents or other information incorporated by reference in the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). References herein to any Preliminary Prospectus or the Prospectus shall be deemed to include all documents and information incorporated by reference therein and shall be deemed to refer to and include any documents and information filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, and so incorporated by reference, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) At the respective times the Registration Statement, any Rule 462 Registration Statement and any post-effective amendments thereto became effective and at the Closing Date (and, if any Option Shares are purchased, at the Option Closing Date), the Registration Statement, the Rule 462 Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the Act and the Rules and Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Date (and, if any Option Shares are purchased, at the Option Closing Date), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or Prospectus. Each Preliminary Prospectus and the Prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Rules and Regulations and each Preliminary Prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"), except to the extent permitted by Regulation S-T. There are no contracts or other documents required to be filed as exhibits to the Registration Statement by the Act or the Rules and Regulations that have not been so filed. The documents which are incorporated by reference in any Preliminary Prospectus or the Prospectus or from 3 4 which information is so incorporated by reference, when they became effective or were filed with the Commission, as the case may be, complied in all material respects with the requirements of the Act and the Rules and Regulations or the Exchange Act and the rules and regulations thereunder, as applicable, and did not, when such documents were so filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statement shall, when they are filed with the Commission, conform in all material respects with the requirements of the Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, as applicable. (c) The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the Act and the Rules and Regulations. (d) The consolidated financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus), together with the related schedules and notes, present fairly the financial position of the Company and its Subsidiaries (as defined in Section 3(g) hereof) at the dates indicated and the consolidated statement of operations, stockholders' equity and cash flows of the Company and its Subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown and have been compiled on a basis consistent with that of the audited financial statements included or incorporated by reference in the Registration Statement. (e) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company or any of its Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) except for regular quarterly dividends on the Company's Class A common stock, par value $.01 per share (the "Class A common stock"), for regular quarterly dividends on the Company's Class B common stock, par value $.01 per share (the "Class B common stock", and collectively with the Class A common stock, the "common stock") and for the regular monthly dividends on the Company's 7.4% Noncumulative Monthly Income Preferred Stock, Series A ("Series A Preferred Stock") and 7.75% Noncumulative Monthly Income Preferred Stock, Series B ("Series B Preferred Stock"); since December 31, 1999, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (f) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Puerto Rico with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the conduct of its business or ownership or leasing of its properties requires such qualification and where the failure to be so qualified would, individually or in the aggregate, have a Material Adverse Effect. The Company is registered as a financial holding company under the Bank Holding Company Act 4 5 of 1956, as amended (the "BHCA") in good standing with the Board of Governors of the Federal Reserve System (the "Federal Reserve"). (g) The only subsidiaries of the Company (each a "Subsidiary and collectively the "Subsidiaries") are those listed on Exhibit A hereto. Except as set forth in the Prospectus (or if the Prospectus is not in existence, in the most recent Preliminary Prospectus) or as required in connection with the exercise of its rights as a creditor, or pursuant to a bona fide collateral pledge arrangement, neither the Company nor any Subsidiary owns, nor at the Closing Date or the Option Closing Date (if any Option Shares are purchased), will own an interest in any corporation, partnership, trust, joint venture or other business entity. Each Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus, and is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the conduct of its business or ownership or leasing of its properties requires such qualification and where the failure to be so qualified would, individually or in the aggregate, have a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding Shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. (h) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, described therein and the issuance of the Shares pursuant to this Agreement). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding Shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. The description of the securities of the Company in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent preliminary prospectus) is, and at the Closing Date and, if later, as of each Option Closing Date, will be, complete and accurate in all material respects. (i) This Agreement has been duly authorized, executed and delivered by the Company. (j) The description of the common stock of the Company contained in the Prospectus conforms in all material respects to the rights set forth in the instruments defining the same. (k) The Shares have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement, and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein will be validly issued and fully paid and non-assessable Shares of capital stock of the Company; the description of the Shares contained in the Prospectus conforms in all material respects to the rights set forth in the instruments defining the same; no holder of the Shares will be subject to personal liability solely by reason of being such a holder; and the issuance of the Shares is not subject to the preemptive or other similar rights of any security holder of the Company. (l) Neither the Company nor any of its Subsidiaries is in violation of its articles of incorporation, charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or 5 6 credit agreement, note, lease or other agreement or instrument to which the Company or any of its Shares is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale of the Shares and the use of the proceeds from the sale of the Shares as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any Subsidiary. (m) No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent. Neither the Company nor any Subsidiary is a party to a collective bargaining agreement. (n) There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (o) There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus (or if the Prospectus is not in existence, in the most recent Preliminary Prospectus) or to be filed as exhibits thereto which have not been so described and filed as required. (p) The Company and its Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its Subsidiaries has received any actual notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable 6 7 decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (q) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Shares hereunder or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the Act or the Rules and Regulations, state securities laws or the bylaws and rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution by the Underwriters of the Shares to be sold hereby and the filing of the Certificate of Designation (as defined below) with respect to the Shares with the Secretary of State of the Commonwealth of Puerto Rico. (r) The Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies ("Governmental Bodies") necessary go conduct the business now operated by them, except where the lack of such Governmental Licenses would not, singly or in the aggregate, have a Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (s) The Company and its Subsidiaries have good and marketable title to all real property owned by the Company and its Subsidiaries and good title to all other properties and assets owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) would not, singly or in the aggregate, have a Material Adverse Effect; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (t) The Company is not, and upon the issuance and sale of the Shares as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (u) The Company meets the requirements for use of Form S-3 under the Rules and Regulations. (v) To the knowledge of the Company, except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or foreign 7 8 statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its Subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its Subsidiaries and (D) there are no events or circumstances known to the Company that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any Environmental Laws. (w) There are no persons with registration rights or other similar rights to have any securities included in the offering described in the Registration Statement. (x) No court, supervisory or regulatory authority or arbitrator has, by order or otherwise, prohibited or suspended, or, to the knowledge of the Company, threatened to prohibit or suspend, the use of the Prospectus. (y) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (z) Except as set forth in the Registration Statement and Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to Closing Date and, if later, each Option Closing Date, (i) there has not been, and will not have been, any Material Adverse Effect, (ii) neither the Company nor any of its Subsidiaries has entered into, or will have entered into any material transactions other than pursuant to this Agreement or in the ordinary course of its business, and (iii) the Company has not, and will not have, paid or declared any dividends or other distributions of any kind on any class of its capital stock, except for the payment or declaration of quarterly dividends, on the Company's common stock and its Series A Preferred Stock and Series B Preferred Stock, each in the ordinary course of its business. (aa) No statement, representation, or warranty made by the Company in this Agreement or made in any certificate or document required by this Agreement to be delivered to the Representative was or will be, when made, inaccurate, untrue or incorrect in any material respect. Each certificate signed by an officer of the Company and delivered to the Representative or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters covered thereby. 8 9 (bb) Neither the Company, its Subsidiaries nor any of their respective directors or officers has taken, nor will he, she or it take, directly or indirectly, any action designed, or which might reasonably be expected in the future, to cause or result in, under the Act or otherwise, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or otherwise. (cc) The Shares have been approved for quotation on the Nasdaq Stock Market, subject only to notice of issuance. (dd) Neither the Company nor any of its Subsidiaries nor, to the Company's best knowledge, any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds of the Company or any Subsidiary in violation of any law, rule or regulation which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus (or, if the Prospectus is not in existence, in the most recent Preliminary Prospectus). (ee) Each of the Company and its Subsidiaries has filed all foreign, federal, Puerto Rico and local tax returns that are required to be filed or has requested extensions thereof and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable. (ff) The deposit accounts of R-G Premier Bank of Puerto Rico, a Subsidiary of the Company (the "Bank") are insured by the Federal Deposit Insurance Corporation ("FDIC") to the legal maximum, and no proceeding for the termination or revocation of such insurance is pending or threatened. The Bank is a member in good standing of the Federal Home Loan Bank of New York. (gg) None of the Company or its Subsidiaries or any of their respective directors or officers is subject to any order or directive of, or party to any agreement with, any regulatory agency having jurisdiction with respect to its business or operations except as disclosed in the Prospectus (or if the Prospectus is not in existence, in the most recent Preliminary Prospectus). 4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with each of the several Underwriters as follows: (a) The Company will not, either prior to the effective date or thereafter during such period as the Prospectus is required by law to be delivered in connection with sales of the Shares by an Underwriter or dealer, file any amendment or supplement to the Registration Statement or the Prospectus, unless a copy thereof shall first have been submitted to the Representative within a reasonable period of time prior to the filing thereof and the Representative shall not have objected thereto in good faith. (b) If the Registration Statement is not yet effective, the Company will use its best efforts to cause the Registration Statement to become effective not later than the time indicated in Section 6(a) hereof. The Company will notify the Representative promptly, and will confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof; (iv) of the happening of any event during the period mentioned in the first sentence of Section 4(g) that in the judgment of the Company makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order 9 10 to make the statements therein, in light of the circumstances in which they are made, not misleading; and (v) of receipt by the Company or any representative or attorney of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any Preliminary Prospectus, or the Prospectus. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. The Company will prepare the Prospectus in a form approved by the Representative and will file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act. If the Company has omitted any information from the Registration Statement pursuant to Rule 430A, the Company will use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to said Rule 430A and to notify the Representative promptly of all such filings. (c) If the Company elects to rely upon Rule 462(b) of the Rules and Regulations, the Company shall file the Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) of the Rules and Regulations by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing, either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) of the Rules and Regulations. (d) If, at any time when a Prospectus relating to the Shares is required to be delivered under the Act, any event occurs as a result of which, in the judgment of the Company or in the opinion of counsel for the Underwriters, the Registration Statement or the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Registration Statement or the Prospectus to comply with the Act or the Rules and Regulations, the Company will promptly notify the Representative thereof and, subject to Section 4(b) hereof, will prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance. (e) The Company will furnish to the Representative, without charge, two (2) signed copies of the Registration Statement and of any post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto and will furnish to the Representative, without charge, for transmittal to each of the other Underwriters, copies of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules but without exhibits. (f) The Company will comply with all the provisions of all undertakings contained in the Registration Statement. (g) On the effective date, and thereafter from time to time for such period as the Prospectus is required by the Act to be delivered, the Company will deliver to each of the Underwriters, without charge, as many copies of the Prospectus or any amendment or supplement thereto as the Representative may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the several Underwriters and by all dealers to whom the Shares may be sold, both in connection with the offering or sale of the Shares and for any period of time thereafter during which the Prospectus is required by law to be delivered in connection therewith. If during such period of time any event shall occur which in the judgment of the Company or counsel to the Underwriters should be set forth in the Registration Statement or the Prospectus in order to make any 10 11 statement therein, in the light of the circumstances under which it was made, not misleading, or if it is necessary to supplement or amend the Registration Statement or the Prospectus to comply with law, the Company will forthwith prepare and duly file with the Commission an appropriate supplement or amendment thereto, and deliver to each of the Underwriters, without charge, such number of copies thereof as the Representative may reasonably request. (h) Prior to any public offering of the Shares by the Underwriters, the Company will cooperate with the Representative and its counsel in connection with the registration or qualification of the Shares for offer and sale under the securities or blue sky laws of such jurisdictions as the Representative may reasonably request; provided, however, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (i) During the period of five (5) years commencing on the effective date, the Company will furnish to the Representative and each other Underwriter who may so request copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to the Representative and each other Underwriter who may so request a copy of each annual or other report it shall be required to file with the Commission. (j) The Company will make generally available to holders of its securities, as soon as may be practicable, but in no event later than the last day of the fifteenth (15th) full calendar month following the calendar quarter in which the effective date falls, a consolidated earnings statement (which need not be audited but shall be in reasonable detail) for a period of twelve (12) months commencing after the effective date, and satisfying the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations). (k) The Company will apply the net proceeds from the offering and sale of the Shares in the manner set forth in the Prospectus under "Use of Proceeds." (l) The Company will not at any time, directly or indirectly, take any action intended, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of the shares of common stock to facilitate the sale or resale of any of the Shares. (m) The Company will use its best efforts to effect and maintain the quotation of the Shares on the Nasdaq National Market and will file with the Nasdaq Stock Market all documents and notices required by the Nasdaq Stock Market of companies that have securities that are traded in the over-the-counter market and quotations which are reported by the Nasdaq National Market. (n) The Company, during the period when the Prospectus is required to be delivered under the Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the periods required by the 1934 Act and the rules and regulations of the Commission thereunder. 5. EXPENSES. (a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay, or reimburse if paid by the Representative, all costs and expenses incidental to the performance of the obligations of the Company 11 12 under this Agreement, including, but not limited to, costs and expenses of or relating to (i) the preparation, printing, and filing by the Company of the Registration Statement and amendments and exhibits thereto, each Preliminary Prospectus prior to or during the period specified in the first sentence of Section 4(g) but not exceeding nine (9) months after the effective date, the Prospectus and amendments or supplements; (ii) the preparation and delivery of certificates representing the Shares; (iii) the furnishing (including costs of shipping and mailing) of such copies of the Registration Statement, the Prospectus, and any Preliminary Prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold; (iv) the filing fees incident to, and the disbursements of counsel to the Underwriters in connection with, the review by the NASD of the terms of the sale of the Shares and the fees and expenses incurred in connection with the inclusion of the Shares in the Nasdaq Stock Market; (v) the fees and disbursements of the Company's counsel, accountants and other advisers (vi) the registration or qualification of the Shares for offer and sale under the securities or blue sky laws of such jurisdictions designated pursuant to Section 4(h) and the preparation and printing of preliminary, supplemental, and final blue sky memoranda; and (vii) the fees and expenses of any transfer agent or registrar for the Shares. (b) If the transactions contemplated by this Agreement are not consummated or if this Agreement is terminated by the Company pursuant to any of the provisions hereof, the Company will reimburse the Representative for all of their accountable out-of-pocket fees and expenses (including the fees, disbursements, and other charges of their counsel) incurred by them in connection herewith. 6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of each Underwriter hereunder are subject to the following conditions: (a) Notification that the Registration Statement has become effective shall be received by the Representative not later than 3:00 p.m., New York City time, on the date of this Agreement or at such later date and time as shall be consented to in writing by the Representative and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made. If the Company has elected to rely upon Rule 462(b) of the Rules and Regulations, the Company has filed the Rule 462(b) Registration Statement by 10:00 p.m., Washington D.C. time, on the date of this Agreement. (b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or threatened by the Commission; (ii) no order suspending the effectiveness of the Registration Statement or the qualification or registration of the Shares under the securities or blue sky laws of any jurisdiction shall be in effect, and no proceeding for such purpose shall be pending before or threatened or contemplated by the Commission or the authorities of any such jurisdiction; (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities; and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Representative and the Representative did not object thereto in good faith. (c) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) there shall not have been a Material Adverse Effect, and (ii) the Company shall not have sustained any material loss or interference with its business, assets, or properties from fire, explosion, flood, or other casualty, or from any labor dispute or any court or legislative or other governmental action, order, or decree, which is not set forth in the Registration Statement, including the documents incorporated be reference therein, and the Prospectus. 12 13 (d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company or any of its officers, directors, or Shareholders in their capacities as such, or any of its assets or properties, before or by any Governmental Body in which litigation or proceeding an unfavorable ruling, decision, or finding would have a Material Adverse Effect. (e) Each of the representations and warranties of the Company contained herein shall be true and correct at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, as if made on such date, and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date and, with respect to the Option Shares, at or prior to the Option Closing Date, shall have been fully performed, fulfilled, or complied with. (f) The Representative shall have received an opinion, dated the Closing Date and Option Closing Date, from Kelley Drye & Warren LLP, special counsel for the Company, to the following effect: (i) The Company is registered as a financial holding company under the BHCA. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (iii) The Company is duly qualified as a foreign corporation to transact business in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of options referred to in the Prospectus); the Shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-accessible; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any security holder of the Company granted by applicable law or the Company's Certificate of Incorporation. (v) The Shares have been duly authorized for issuance and sale to the Underwriters pursuant to the Agreement and, when issued and delivered by the Company pursuant to the Agreement against payment of the consideration set forth in the Agreement, will be validly issued and fully paid and non-assessable; no holder of the Shares is or will be subject to personal liability for obligations of the Company solely by reason of being such a holder; the Shares conform to the provisions of the certificate of designation of the Company creating the Shares (the "Certificate of Designation") and the rights, preferences and other terms of the Shares are as set forth in the Certificate of Designation relating thereto, and all such provisions are valid under the laws of the Commonwealth of Puerto Rico. (vi) the issuance of the Shares is not subject to the preemptive or other similar rights of any security holder of the Company. (vii) Each of the Subsidiaries has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, each of the Subsidiaries is 13 14 duly qualified as a foreign corporation to transact business in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not result in a Material Adverse Effect; to the best of such counsel's knowledge, all of the issued and outstanding capital stock of each Subsidiary is owned by the Company, directly or through a Subsidiary, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the outstanding Shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any security holder of any Subsidiary granted by applicable law or such Subsidiary's articles of incorporation. (viii) The Company has full legal right, power, and authority to enter into the Agreement and to consummate the transactions provided for therein; the Agreement has been duly authorized, executed and delivered by the Company, and assuming due authorization, execution and delivery by each other party thereto, is a valid and binding agreement of the Company, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or affecting creditors' rights generally or by general principles of equity relating to the availability of remedies and except as rights to indemnify and contribution may be limited by federal or state securities laws or the public policy underlying such laws. (ix) The Registration Statement has been declared effective under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement, or any amendment thereto, and no order directed at any document incorporated by reference in the Registration Statement has been issued under the Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (x) The Registration Statement, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus, and the documents incorporated therein by reference, as of their respective effective or issue dates (other than the financial statements, notes to the financial statements, financial tables and other financial information and supporting schedules included therein or omitted therefrom or contained in the documents incorporated by reference therein, as to which such counsel need express no opinion) complied in all materials respects with the requirements of the Act and the Rules and Regulations. (xi) The form of certificate used to evidence the Shares complies in all material respects with all applicable Commonwealth of Puerto Rico statutory requirements and with any applicable requirements of the Certificate of Incorporation and Bylaws of the Company. The Shares have been duly authorized for quotation on the Nasdaq Stock Market. (xii) To the best of such counsel's knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any Subsidiary is a party, or to which the property or assets of the Company or any Subsidiary is subject, before or brought by any court or governmental agency or body, domestic or foreign of a character required to be disclosed in the Registration Statement or in the Prospectus which is not so disclosed therein, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Agreement or the performance by the Company of its obligations thereunder. (xiii) The information in the Prospectus under "Risk Factors -- Banking Regulations May Restrict R&G Financials Ability to Pay Dividends; "Risk-Factors - Payment of 14 15 Dividends May be Restricted by the Ability of R&G Financials Subsidiaries to Pay Dividends to R&G Financial," "Summary of Certain Terms of the Series C Preferred Stock," "Description of Capital Stock", "Taxation-United States Taxation" and in the Registration Statement under Item 15, to the extent that it constitutes a discussion of federal law, summaries of legal matters involving federal law, the Company's Certificate of Incorporation and Bylaws or legal proceedings, or legal conclusions, has been reviewed by such counsel and is accurate and complete in all material respects. (xiv) To the best of such counsel's knowledge, there are no statutes or regulations that are required to be described in the Prospectus that are not described as required. (xv) All descriptions in the Registration Statement of contracts and other documents to which the Company or its subsidiaries are a party are accurate in all material respects; to the best of such counsel's knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases, or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto. (xvi) To the best of such counsel's knowledge, neither the Company nor any Subsidiary is in violation of its articles of incorporation or by-laws and no default by the Company or any Subsidiary exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (xvii) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than under the Act and the Rules and Regulations, which have been obtained, the filing of the Certificate of Designation with the Puerto Rico Department of State which has been made, or as may be required under the securities or blue sky laws of the various states, as to which such counsel need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Agreement or for the offering, issuance, sale or delivery of the Shares. (xviii) The execution, delivery and performance of the Agreement and the consummation of the transactions contemplated in the Agreement and in the Registration Statement (including the issuance and sale of the Shares and the use of the proceeds from the sale of the Shares as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations under the Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 3(l) of the Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreements or instrument, known to such counsel to which the Company or any Subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (except for such conflicts, breaches, or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the articles of incorporation or by-laws of the Company or any Subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to such counsel, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties, assets or operations. 15 16 (xix) To the best of such counsel's knowledge, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Act. (xx) The Company is not, and upon the issuance and sale of the Shares as contemplated in the Agreement and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in 1940 Act. (xxi) The deposit accounts of the Bank are insured by the FDIC to the legal maximum, and to the best of such counsel's knowledge, no proceeding for the termination or revocation of such insurance is pending or threatened. The Bank is a member of the Federal Home Loan Bank of New York. (xxii) To the best of such counsel's knowledge, none of the Company, its Subsidiaries, or any of their respective directors or officers is subject to any order or directive of, or is a party to any agreement with, any federal banking or mortgage banking regulatory agency having jurisdiction with respect to its business or operations, except as disclosed in the Registration Statement or the Prospectus or which would not have a Material Adverse Effect. (xxiii) To the best of such counsel's knowledge, the conduct of the respective businesses of the Company and its Subsidiaries is not in violation of any federal banking, mortgage banking or securities laws, which violation is likely to have a Material Adverse Effect. Each of the Company and the Subsidiaries has obtained and, to such counsel's knowledge, is operating in compliance with, all authorizations, licenses, orders and directives required by federal banking, mortgage banking or securities laws which are material to the conduct of their respective businesses. To such counsel's knowledge, all such authorizations, licenses, orders or directives are valid and in full force and effect and neither the Company nor the Subsidiaries have received any notice of any proceeding relating to the revocation or modification of any such license, authorization or order. Nothing has come to such counsel's attention that would lead such counsel to believe that the Registration Statement or any amendment thereto, including the documents incorporated therein by reference (except for financial statements notes to the financial statements, financial tables and other financial information and schedules and other financial data included therein or omitted therefrom or contained in the documents incorporated therein by reference, as to which such counsel need make no statement), at the time of such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statement therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements, notes to the financial statements, financial tables and other financial information and schedules and other financial data included therein or omitted therefrom or contained in the documents therein incorporated by reference, as to which such counsel need make no statement, at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Date, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to the matters et forth in paragraph (v), the first clause of paragraph (vii), paragraph (viii), the first sentence of paragraph (xi), and as to matters involving the application of the laws of the Commonwealth of Puerto Rico in paragraphs (xiv), (xvii), (xviii) and (xxiii), upon the opinion of the McConnell Valdez, special Puerto Rico counsel to the Company and its Subsidiaries (which opinion shall be dated and furnished to the Representatives at 16 17 the Closing Date, shall be satisfactory in form and substance to counsel for the Underwriters and shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them), provided that Kelley Dry and Warren LLP shall state in their opinion that they believe that they and the Underwriters are justified in relying upon such opinion of special Puerto Rico counsel, and (B), as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treaties, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). (g) The Representative shall have received an opinion, dated the Closing Date and the Option Closing Date, from the McConnell Valdes, special Puerto Rico counsel for the Company and its Subsidiaries to the following effect: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Puerto Rico, and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (ii) The Shares have been duly authorized for issuance and sale to the Underwriters pursuant to the Agreement and, when issued and delivered by the Company pursuant to the Agreement against payment of the consideration set forth in the Underwriting Agreement, will be validly issued and fully paid and non-assessable. No holder of the Shares is or will be subject to personal liability for obligations of the Company solely by reason of being such a holder. The Shares conform to the provisions of the Certificate of Designation. The rights, preferences and other terms of the Shares are as set forth in the Certificate of Designation, and all such provisions are valid under the laws of the Commonwealth of Puerto Rico. (iii) Each of the Subsidiaries (other than Continental Capital Corporation, as to which no opinion need be given) has been duly incorporated and is validly existing as a corporation (and in the case of the Bank as a commercial bank) in good standing under the laws of the Commonwealth of Puerto Rico, and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (iv) Except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of the Company has been duly authorized and validly issued. To the best of such counsel's knowledge, all of the issued and outstanding capital stock of the Subsidiaries (other than Continental Capital Corporation, as to which no opinion need be given) is owned by the Company, directly or through a Subsidiary, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding Shares of capital stock of the Company or any Subsidiary (other than Continental Capital Corporation, as to which no opinion need be given) were issued in violation of the preemptive or similar rights of any security holder of the Company or such Subsidiary granted by applicable law or the Company's or such Subsidiary's Certificate or Articles of Incorporation. (v) The form of certificate used to evidence the Shares complies in all material respects with all applicable Commonwealth of Puerto Rico statutory requirements and with any applicable requirements of the Certificate of Incorporation and By-laws of the Company. (vi) The information in the Prospectus under "Risk Factors -- Banking Regulations May Restrict R&G Financial's Ability to Pay Dividends; "Risk-Factors - Payment of 17 18 Dividends May be Restricted by the Ability of R&G Financial's Subsidiaries to Pay Dividends to R&G Financial," "Summary of Certain Terms of the Series C Preferred Stock," "Description of Capital Stock", "Taxation-Puerto Rico Taxation" and in the Registration Statement under Item 15, to the extent that it constitutes a discussion of Puerto Rico law, summaries of legal matters involving Puerto Rico law, the Company's Certificate of Incorporation and Bylaws or legal proceedings, or legal conclusions, has been reviewed by such counsel and is accurate and complete in all material respects. (vii) To the best of such counsel's knowledge, none of the Company or its Subsidiaries ( other than Continental Capital Corporation, as to which no opinion need be given) or any of their respective directors or officers is subject to any order or directive of, or is a party to any agreement with, any Commonwealth of Puerto Rico securities, banking or mortgage banking regulatory agency having jurisdiction with respect to the business or operations of the Company or the Subsidiaries, except as disclosed in the Registration Statement or the Prospectus, and except for any such order, directive or agreement which would not have a Material Adverse Effect. (viii) Each of the Company and the Subsidiaries (other than Continental Capital Corporation, as to which no opinion need be given) has obtained and, to the best of such counsel's knowledge, is operating in compliance with all authorizations, licenses, directives and orders required by Puerto Rico banking, mortgage banking or securities laws which are material to the conduct of their respective businesses. All of such authorizations, licenses, directives and orders are valid and in full force and effect. To the best of such counsel's knowledge, neither the Company nor the Subsidiaries (other than Continental Capital Corporation, as to which no opinion need be given) have received any notice of proceeding relating to the revocation or modification of any such license, authorization, directive or order. (ix) The Company has full legal right, power, and authority to enter into the Agreement and to consummate the transactions provided for therein. The Agreement has been duly authorized, executed and delivered by the Company, and assuming due authorization, execution and delivery by each other party thereto, is a valid and binding agreement of the Company, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws now or hereafter in effect relating to or affecting creditors; rights generally or by general principles of equity relating to the availability of remedies and except as rights to indemnity and contribution may be limited by federal, state or Puerto Rico securities laws or the public policy underlying such laws. (x) No filing with or authorization, approval, consent, license, order, registration, qualification or decree of, any Puerto Rico court or governmental authority or agency is necessary or required in connection with the due authorization, execution and delivery of the Agreement for the offering, issuance, sale or delivery of the Shares, other than the filing of the Certificate of Designation with the Secretary of State of the Commonwealth of Puerto Rico which has been made. (xi) The execution, delivery and performance of the Agreement and the consummation of the transactions contemplated in the Agreement and in the Registration Statement (including the issuance and sale of the Shares and the use of the proceeds from the sale of the Shares as described in the Prospectus under the caption "Use of Proceeds") and compliance with the Company with its obligations under the Agreement do not and will not result in any violation of the provisions of the Certificate of Articles of Incorporation or By-laws of the Company or any Subsidiary (other than Continental Capital Corporation, as to which no opinion need be given), or any applicable law, statute, rule, regulations, judgment, order, directive, writ or decree known to such counsel, of any Puerto Rico government, government instrumentality or court having jurisdiction over the Company or any Subsidiary (other than Continental Capital Corporation, as to which no opinion need be given) or any of their respective properties, assets or operations. 18 19 (xii) To the best of such counsel's knowledge, there are no statutes or regulations that are required to be described in the Prospectus that are not described as required. (h) The Representative shall have received an opinion, dated the Closing Date and Option Closing Date, from Fiddler Gonzalez & Rodriguez, LLP, counsel to the Underwriters, which opinion shall be satisfactory in all respects to the Representative. (i) Concurrently with the execution and delivery of this Agreement, or, if the Company elects to rely on Rule 430A, on the date of the Prospectus, the Company's independent financial accountants shall have furnished to the Representative a letter, dated the date of its delivery (the "Original Letter"), addressed to the Representative and in form and substance satisfactory to the Representative to the following effect: (i) They are independent accountants within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the consolidated financial statements of the Company and its Subsidiaries audited by them and incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act, the Exchange Act, and the published rules and regulations thereunder with respect to registration statements on Form S-3; (iii) On the basis of procedures (but not an audit in accordance with generally accepted auditing standards) consisting of (A) reading the minutes of meetings of the stockholders and the Board of Directors of the Company and its Subsidiaries since December 31, 1999 as set forth in the minute books through a specified date not more than five (5) business days prior to the date of delivery of the Original Letter; (B) performing the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in SAS No. 71, "Interim Financial Information," on the unaudited consolidated interim financial statements of the Company and its Subsidiaries included in the Registration Statement and reading the unaudited interim financial data for the period from the date of the latest balance sheet incorporated by reference in the Registration Statement to the date of the latest available interim financial data; and (C) making inquiries of certain officials of the Company who have responsibility for financial and accounting matters regarding the specific items for which representations are requested below; nothing has come to their attention (as of a date not more than five (5) business days prior to the date of the delivery of such letter) as a result of the foregoing procedures that caused them to believe that: (1) the unaudited consolidated interim financial statements, if any, incorporated by reference in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and the published rules and regulations thereunder; (2) any material modifications should be made to the unaudited consolidated interim financial statements, if any, incorporated by reference in the Registration Statement for them to be in conformity with GAAP; (3) (i) at the date of the latest available interim financial data and at a specified date not more than five (5) business days prior to the date of delivery of the Original Letter there was any change in the capital stock, notes payable, advances from the Federal Home Loan Bank, Federal Funds purchased and securities sold under repurchase agreements, and other short term borrowings or any decreases in the consolidated stockholders' equity (only as to the latest interim financial data) of the Company and its Subsidiaries as compared with amounts shown in the September 30, 2000 statement of financial condition incorporated by reference in the Registration Statement and (ii) for the period from the latest interim financial statements incorporated by reference in the Registration Statement, to the latest interim financial data available which should be no later than forty (40) days prior to the date of delivery of the Original Letter, there were any decreases, as compared with the corresponding period in the preceding year, in consolidated net interest income, non-interest 19 20 income, income before taxes, or in the total or per share amounts of net income, except in all instances for changes or decreases which the Registration Statement discloses have occurred or may occur, or they shall state any specific changes or decreases; and (iv) The information set forth under the captions "Summary - Summary Consolidated Financial and Other Data," "Summary - Ratios of Earnings to Fixed Charges and Preferred Stock Dividends," "Recent Developments," "Capitalization," "Selected Consolidated Financial and Other Data," and "Description of Capital Stock," which is expressed in dollars (or percentages derived from such dollar amounts) and has been obtained from accounting records which are subject to the internal controls of the Company's accounting system or which has been derived directly from such accounting records and analysis or computations, is in agreement with such records or computations made therefrom. At the Closing Date and, as to the Option Shares, the Option Closing Date, the Company's independent financial accountants shall have furnished to the Representative a letter, dated the date of its delivery, which shall confirm, on the basis of a review in accordance with the procedures set forth in the Original Letter, that nothing has come to their attention during the period from the date of the Original Letter referred to in the prior sentence to a date (specified in the letter) not more than five (5) business days prior to the Closing Date or Option Closing Date, as the case may be, which would require any change in the Original Letter if it were required to be dated and delivered at the Closing Date or the Option Closing Date, as the case may be. In the event that the letters referred to above set forth any such changes, decreases, or increases, it shall be a further condition to the obligations of the Underwriters that (A) such letters shall be accompanied by a written explanation of the Company as to the significance thereof, unless the Representative deems such explanation unnecessary, and (B) such changes, decreases, or increases do not, in the sole judgment of the Representative, make it impractical or inadvisable to proceed with the purchase and delivery of the Shares as contemplated by the Registration Statement, as amended as of the date hereof. (j) At the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representative an accurate certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Representative, to the effect that to the best of their knowledge: (i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, (x) the Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (y) the Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (B) since the effective date no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading, in any material respect; (ii) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all respects; each of the covenants required herein to be performed by the Company on or prior to the date of such certificate has been duly, timely, and fully performed and each condition herein required to be complied with by the Company on or prior to the delivery of such certificate has been duly, timely, and fully complied with; and 20 21 (iii) No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto and no order directed at any document incorporated by reference in the Registration Statement or any amendment thereto or the Prospectus has been issued, and no proceedings for that purpose have been instituted or threatened or, to the best of the Company's knowledge, are contemplated by the Commission. (k) The Shares shall be qualified for sale in such states and jurisdictions as the Representative may reasonably request, each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date and the Option Closing Date. (l) Prior to the Closing Date, the Shares shall have been accepted for listing on the Nasdaq Stock Market. (m) All filings required to be made with the NASD shall have been made and the NASD shall have raised no objections to the terms and arrangements presented in such filings. (n) The Company shall have furnished to the Representative such certificates, letters, and other documents, in addition to those specifically mentioned herein, as the Representative may have reasonably requested as to the accuracy and completeness at the Closing Date and Option Closing Date of any statement in the Registration Statement or the Prospectus, as to the accuracy at the Closing Date and Option Closing Date of the representations and warranties of the Company, as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Underwriters. All such opinions, certificates, letters, and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you. The Company will furnish you with such conformed copies of such opinions, certificates, letters, and other documents as you shall reasonably request. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, and employees of each Underwriter, and each person, if any, who controls each Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, or liabilities, joint or several (and actions in respect thereof), to which they, or any of them, may become subject under the Act or other federal, state, or Commonwealth of Puerto Rico statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement made by the Company in Section 3 of this Agreement; (ii) any untrue statement or alleged untrue statement of any material fact contained in (A) any Preliminary Prospectus, the Registration Statement, the Prospectus, or any amendment or supplement to the Registration Statement or the Prospectus, or (B) any application or other document, or any amendment or supplement thereto, executed by the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Shares under the securities or blue sky laws thereof or filed with the Commission or any securities association or securities exchange (each, an "Application"); or (iii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement, the Prospectus, any amendment or supplement to the Registration Statement or the Prospectus, or any Application a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, each Underwriter and each such other person for any legal or other expenses reasonably incurred by such Underwriter or such other person in connection with investigating defending or appearing as a third-party witness in connection with any such 21 22 loss, claim, damage, liability, or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability based solely upon an untrue statement or omission or alleged untrue statement or omission in any of such documents made in reliance upon and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representative on behalf of any Underwriter expressly for inclusion therein; and provided, further, that such indemnity with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or any such other person) from whom the person asserting any such loss, claim, damage, liability, or action purchased Shares which are the subject thereof to the extent that any such loss, claim, damage, or liability (A) results from the fact that such Underwriter failed to send or give a copy of the Prospectus (as amended or supplemented) to such person at or prior to the confirmation of the sale of such Shares to such person in any case where such delivery is required by the Act, and (B) arises out of or is based upon an untrue statement or omission of a material fact contained in such Preliminary Prospectus that was corrected in the Prospectus (or any amendment or supplement thereto), unless such failure to deliver the Prospectus (as amended or supplemented) was the result of noncompliance by the Company with Section 4(g) of this Agreement. This indemnity agreement will be in addition to any liability that the Company might otherwise have. The Company will not, without the prior written consent of each Underwriter, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit, or proceeding in respect of which indemnification may be sought hereunder (whether or not such Underwriter or any person who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to each claim, action, suit, or proceeding), unless such settlement, compromise, or consent includes an unconditional release of each Underwriter and each such other person from all liability arising out of such claim, action, suit, or proceeding. (b) Each Underwriter will indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each director of the Company, and each officer of the Company who signed the Registration Statement against any losses, claims, damages, or liabilities (or actions in respect thereof) to which the Company and any such director, officer, or controlling person may become subject under the Act or other federal, state, or Commonwealth of Puerto Rico statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement, the Prospectus, any amendment or supplement to the Registration Statement or the Prospectus, or any Application, or material fact required to be stated therein, or (ii) the omission or the alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus, any amendment or supplement to the Registration Statement or the Prospectus, or any Application, a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representative expressly for use therein; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses reasonably incurred by the Company and any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or any action in respect thereof. The Company acknowledges that, for all purposes under this Agreement, the statements set forth under the heading "Underwriting" constitute the only information relating to any Underwriter furnished in writing to the Company by the Representative on behalf of the Underwriters expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus. This indemnity agreement will be in addition to any liability that each Underwriter might otherwise have. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made 22 23 against an indemnifying party or parties under this Section 7, notify such indemnifying party or parties of the commencement thereof, but the omission so to notify the indemnifying party or parties will not relieve it or them from any liability which it or they may have to any indemnified party under the foregoing provisions of this Section 7 or otherwise unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against an indemnified party and it notifies an indemnifying party or parties of its commencement, the indemnifying party or parties against which a claim is made will be entitled to participate therein and, to the extent that it or they may wish, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses other than reasonable costs of investigation subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the reasonable fees and expenses of more than one separate counsel (in addition to the fees and expenses of local counsel necessary in connection with any such proceedings) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Representative in the case of paragraph (a) of this Section 7, representing the indemnified parties under paragraph (a) who are parties to such action or actions), or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the written consent of the indemnifying party, unless such indemnified party waived its rights under this Section 7 in which case the indemnified party may effect such a settlement without such consent. (d) If the indemnification provided for in the foregoing paragraphs of this Section 7 is unavailable or insufficient to hold harmless an indemnified party under paragraph (a) or (b) above in respect of any losses, claims, damages, or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, or liabilities (or actions in respect thereof) (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties, on the one hand, and the indemnified party, on the other, from the offering of the Shares, or (ii) if, but only if, the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand, and the indemnified party, on the other, in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages, or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total proceeds from the offering of the Shares (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. Relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material 23 24 fact relates to information supplied by the Company or the Representative on behalf of the Underwriters, the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, and liabilities (or actions in respect thereof) referred to above in this Section 7(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Underwriter shall be required to contribute any amount in excess of the total underwriting discounts received by it with respect to the Shares purchased by such Underwriter under this Agreement, less the aggregate amount of any damages that such Underwriter has otherwise been required to pay in respect of the same or any substantially similar claim. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 7(d) are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section 7(d), each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act will have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, will have the same rights to contribution as the Company, subject in each case to the provisions of this paragraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit, or proceeding against such party in respect of which a claim for contribution may be made under this Section 7(d), notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation(s) it or they may have hereunder or otherwise than under this paragraph (d) or to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may otherwise have. No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld). (e) The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Underwriters, (ii) acceptance of any of the Shares and payment therefor, or (iii) any termination of this Agreement. 8. TERMINATION. The obligations of the several Underwriters under this Agreement may be terminated at any time prior to the Closing Date (or, with respect to the Option Shares, on or prior to the Option Closing Date), by notice to the Company from the Representative, without liability on the part of any Underwriter to the Company if, prior to delivery and payment for the Firm Shares (or the Option Shares, as the case may be), in the sole judgment of the Representative, (i) trading in the Common Stock or the Preferred Stock shall have been suspended or materially limited by the Commission or by the Nasdaq Stock Market, or if trading on the New York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") generally has been suspended or materially limited; (ii) minimum or maximum prices shall have been established for the Common Stock or the Preferred Stock on the Nasdaq Stock Market or securities generally on the NYSE or AMEX, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by any of such market or exchange or by order of the Commission or any court or other Governmental Body; (iii) a general banking moratorium shall have been declared by the United States, State of New York, or Commonwealth of Puerto Rico authorities; (iv) any material adverse change in 24 25 the financial or securities markets in the United States or any outbreak or material escalation of hostilities or declaration by the United States of a national emergency or war or other calamity or crisis shall have occurred, the effect of any of which is such as to make it, in the sole judgment of the Representative, impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus; or (v) if there has been, since the date of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business. Any termination pursuant to Section 8 shall be without liability of any party to any other party except as provided in Sections 5(a) and 7. 9. DEFAULT OF UNDERWRITERS. If one or more Underwriters default in their obligations to purchase Firm Shares or Option Shares hereunder and the aggregate number of such Shares that such defaulting Underwriter or Underwriters agreed but failed to purchase is ten percent (10%) or less of the aggregate number of Firm Shares or Option Shares to be purchased by all of the Underwriters at such time hereunder, the other Underwriters may make arrangements satisfactory to the Representative for the purchase of such Shares by other persons (who may include one or more of the nondefaulting Underwriters, including the Representative), but if no such arrangements are made by the Closing Date or the related Option Closing Date, as the case may be, the other Underwriters shall be obligated severally in proportion to their respective commitments hereunder to purchase the Firm Shares or Option Shares that such defaulting Underwriter or Underwriters agreed but failed to purchase. If one or more Underwriters so default with respect to an aggregate number of Shares that is more than ten percent (10%) of the aggregate number of Firm Shares or Option Shares, as the case may be, to be purchased by all of the Underwriters at such time hereunder, and if arrangements satisfactory to the Representative are not made within thirty-six (36) hours after such default for the purchase by other persons (who may include one or more of the nondefaulting Underwriters, including the Representative) of the Shares with respect to which such default occurs, this Agreement will terminate without liability on the part of any nondefaulting Underwriter and the Company other than as provided in Section 10 hereof. In the event of any default by one or more Underwriters as described in this Section 9, the Representative shall have the right to postpone the Closing Date or Option Closing Date, as the case may be, established as provided in Section 9 hereof for not more than seven (7) business days in order that any necessary changes may be made in the arrangements or documents for the purchase and delivery of the Firm Shares or Option Shares, as the case may be. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 9. Nothing herein shall relieve any defaulting Underwriter from liability for its default. 10. SURVIVAL. The respective representations, warranties, agreements, covenants, indemnities, and other statements of the Company, its officers, and the several Underwriters set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, any Underwriter, or any controlling person referred to in Section 7 hereof, and (ii) delivery of and payment for the Shares. The respective agreements, covenants, indemnities, and other statements set forth in Sections 5 and 7 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. NOTICES. Notices given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered: 25 26 (a) if to the Company, to: R&G Financial Corporation 280 Jesus T. Pinero Avenue San Juan, Puerto Rico 00918 Attention: Victor J. Galan Chairman and Chief Executive Officer (b) if to the Underwriters, to: Paine Webber Incorporated of Puerto Rico American International Plaza, Penthouse Floor 250 Munoz Rivera Avenue Hato Rey, Puerto Rico 00918 Attention: Jose G. Arias, First Vice President Any such notice shall be effective only upon receipt. Any notice under Section 7 or 8 may be made by telex or telephone, but if so made shall be subsequently confirmed in writing. 12. SUCCESSORS. This Agreement shall inure to the benefit of and shall be binding upon the several Underwriters, the Company, and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy, or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (a) the indemnities of the Company contained in Section 7 of this Agreement shall also be for the benefit of any person or persons who control any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and (b) the indemnities of the Underwriters contained in Section 7 of this Agreement shall also be for the benefit of the directors of the Company, the officers of the Company who have signed the Registration Statement, and any person or persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Shares from any Underwriter shall be deemed a successor because of such purchase. This Agreement shall not be assignable by either party hereto without the prior written consent of the other party. 13. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PUERTO RICO, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. 14. COUNTERPARTS. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 26 27 Please confirm that the foregoing correctly sets forth the agreement among the Company and the several Underwriters. Very truly yours, R&G Financial Corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Confirmed as of the date first above mentioned: PAINEWEBBER INCORPORATED OF PUERTO RICO By: ------------------------------ Name: ---------------------------- Title: --------------------------- Acting on its behalf and as lead underwriter of the several Underwriters named in Schedule 1 hereof. 27 28 SCHEDULE 1 UNDERWRITERS
Aggregate Number of Shares to be Purchased PaineWebber Incorporated of Puerto Rico........................................ Keefe, Bruyette & Woods, Inc................................................... Popular Securities, Inc........................................................ Santander Securities Corporation............................................... ---------------------- Total ======================
28 29 EXHIBIT A LIST OF SUBSIDIARIES 1. R&G Mortgage Corp. 2. R-G Premier Bank of Puerto Rico 3. Money Store of Puerto Rico, Inc. 4. Continental Capital Corporation 5. Home and Property Insurance Corporation 29 EX-3 3 g67104ex3.txt FORM OF CERTIFICATE OF DESIGNATIONS 1 EXHIBIT 3.0 CERTIFICATE OF RESOLUTION OF THE BOARD OF DIRECTORS OF R&G FINANCIAL CORPORATION ____% NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES C I, Enrique Umpierre-Suarez, the duly appointed Secretary of R&G Financial Corporation (the "Corporation"), a corporation organized and existing under the laws of the Commonwealth of Puerto Rico, hereby certify that the following resolutions were duly adopted by the Board of Directors of the Corporation pursuant to authority conferred by the Corporation's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), at a meeting thereof duly held on February 15, 2001 and by the Pricing Committee of the Board of Directors, pursuant to authority conferred by the Board of Directors, at a meeting thereof duly held on ______ __, 2001: RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of the Corporation by Article IV of its Certificate of Incorporation, the Board of Directors hereby authorizes the issuance of up to 2,300,000 shares of its preferred stock, par value $0.01, liquidation preference $25.00 per share, to be designated as R&G Financial Corporation Noncumulative Perpetual Monthly Income Preferred Stock, Series C (the "Series C Preferred Stock"). The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of the Series C Preferred Stock are as follows: A. DESIGNATION AND AMOUNT The shares of such series of Preferred Stock shall be designated as the "__% Noncumulative Perpetual Monthly Income Preferred Stock, Series C" (hereinafter called the "Series C Preferred Stock"), and the number of authorized shares constituting such series shall be 2,300,000. B. DIVIDENDS 1. Holders of record of the Series C Preferred Stock ("Holders") will be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or an authorized committee thereof (the "Board of Directors"), out of funds of the Corporation legally available therefor, noncumulative cash dividends at the annual rate per share of __% of their liquidation preferences, or $____ per share per month, with each aggregate payment made to each record holder of the Series C Preferred Stock being rounded to the next lowest cent. 2. Dividends on the Series C Preferred Stock will accrue from their date of original issuance and will be payable (when, as and if declared by the Board of Directors of the Corporation out of funds of the Corporation legally available therefor) monthly in arrears in United States dollars commencing on _____________, 2001, and on the first 2 day of each calendar month of each year thereafter to the holders of record of the Series C Preferred Stock as they appear on the books of the Corporation on the fifteenth (15th) day of the month preceding the date on which dividends are payable. In the case of the dividend payable on __________, 2001, such dividend shall cover the period from the date of issuance of the Series C Preferred Stock to __________, 2001. In the event that any date on which dividends are payable is not a Business Day, then payment of the dividend payable on such date will be made on the next succeeding Business Day without any interest or other payment in respect of any such delay, except that, if such Business Day is in the next succeeding calendar year, such payment will be made on the Business Day immediately preceding the relevant date of payment, in each case with the same force and effect as if made on such date. A "Business Day" is a day other than a Saturday, Sunday or a general bank holiday in San Juan, Puerto Rico or New York, New York. 3. Dividends on the Series C Preferred Stock will be noncumulative. The Corporation is not obligated or required to declare or pay dividends on the Series C Preferred Stock, even if it has funds available for the payment of such dividends. If the Board of Directors of the Corporation does not declare a dividend payable on a dividend payment date in respect of the Series C Preferred Stock, then the holders of such Series C Preferred Stock shall have no right to receive a dividend in respect of the monthly dividend period ending on such dividend payment date and the Company will have no obligation to pay the dividend accrued for such monthly dividend period or to pay any interest thereon, whether or not dividends on such Series C Preferred Stock are declared for any future monthly dividend period. 4. The amount of dividends payable for any monthly dividend period will be computed on the basis of twelve 30-day months and a 360-day year. The amount of dividends payable for any period shorter than a full monthly dividend period will be computed on the basis of the actual number of days elapsed in such period. 5. Subject to any applicable fiscal or other laws and regulations, each dividend payment will be made by dollar check drawn on a bank in New York, New York or San Juan, Puerto Rico and mailed to the record holder thereof at such holder's address as it appears on the register for such Series C Preferred Stock. 6. So long as any shares of the Series C Preferred Stock remain outstanding, the Corporation shall not declare, set apart or pay any dividend or make any other distribution of assets (other than dividends paid or other distributions made in stock of the Corporation ranking junior to the Series C Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Corporation) on, or redeem, purchase, set apart or otherwise acquire (except upon conversion or exchange for stock of the Corporation ranking junior to the Series C Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Corporation), shares of common stock or of any other class of stock of the Corporation ranking junior to the Series C Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation, unless (i) all accrued and unpaid dividends on the Series C Preferred Stock for the twelve monthly dividend periods ending on the immediately preceding dividend payment date shall have been paid or are paid contemporaneously and the full monthly dividend on the Series C Preferred Stock for the then current month has been or is contemporaneously declared and paid or declared and set apart for payment, and (ii) the Corporation has not defaulted in the payment of the 2 3 redemption price of any shares of Series C Preferred Stock called for redemption. 7. When dividends are not paid in full on the Series C Preferred Stock and any other shares of stock of the Corporation ranking on a parity as to the payment of dividends with the Series C Preferred Stock, all dividends declared upon the Series C Preferred Stock and any such other shares of stock of the Corporation will be declared pro rata so that the amount of dividends declared per share on the Series C Preferred Stock and any such other shares of stock will in all cases bear to each other the same ratio that the liquidation preference per share of the Series C Preferred Stock and any such other shares of stock bear to each other. 8. Holders of record of the Series C Preferred Stock will not be entitled to any dividend, whether payable in cash, property or stock, in excess of the dividends provided for herein on the shares of Series C Preferred Stock. C. CONVERSION 1. The Series C Preferred stock will not be convertible into or exchangeable for any other securities of the Corporation. D. REDEMPTION AT THE OPTION OF THE CORPORATION 1. The shares of the Series C Preferred Stock are not redeemable prior to ______, 2006. On and after that date, the shares of the Series C Preferred Stock will be redeemable in whole or in part from time to time at the option of the Corporation, with the consent of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to the extent required by D.8 below, upon not less than thirty nor more than sixty days' notice by mail, at the redemption prices set forth below, during the twelve-month periods beginning on ___________ of the years set forth below, plus accrued and unpaid dividends from the dividend payment date immediately preceding the redemption date (without any cumulation for unpaid dividends for prior dividend periods on the Series C Preferred Stock) to the date fixed for redemption.
Year Redemption Price ---- ---------------- 2006............................. $25.50 2007............................. $25.25 2008............................. $25.00
2. In the event that less than all of the outstanding shares of the Series C Preferred Stock are to be redeemed in any redemption at the option of the Corporation, the total number of shares to be redeemed in such redemption shall be determined by the Board of Directors and the shares to be redeemed shall be allocated pro rata or by lot as may be determined by the Board of Directors or by such other method as the Board of Directors may approve and deem equitable, including any method to conform to any rule or regulation of any national or regional stock exchange or automated quotation system upon which the shares of the Series C Preferred Stock may at the time be listed or eligible for quotation. 3. Notice of any proposed redemption shall be given by the Corporation by mailing a copy of such notice to the holders of record of the shares of Series C Preferred Stock to be redeemed, at their address of record, not more than sixty nor less than thirty 3 4 days prior to the redemption date. The notice of redemption to each holder of shares of Series C Preferred Stock shall specify the number of shares of Series C Preferred Stock to be redeemed, the redemption date and the redemption price payable to such holder upon redemption, and shall state that from and after said date dividends thereon will cease to accrue. If less than all the shares owned by a holder are then to be redeemed at the option of the Corporation, the notice shall also specify the number of shares of Series C Preferred Stock which are to be redeemed and the numbers of the certificates representing such shares. Any notice which is mailed as herein provided shall be conclusively presumed to have been duly given, whether or not the stockholder receives such notice; and failure duly to give such notice by mail, or any defect in such notice, to the holders of any stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. 4. Notice having been mailed as aforesaid, from and after the redemption date (unless default be made in the payment of the redemption price for any shares to be redeemed), all dividends on the shares of Series C Preferred Stock called for redemption shall cease to accrue and all rights of the holders of such shares as stockholders of the Corporation by reason of the ownership of such shares (except the right to receive the redemption price, on presentation and surrender of the respective certificates representing the redeemed shares), shall cease on the redemption date, and such shares shall not after the redemption date be deemed to be outstanding. In case less than all the shares represented by such certificate are redeemed, a new certificate shall be issued without cost to the holder thereof representing the unredeemed shares. 5. At its option, the Corporation may, on or prior to the redemption date, irrevocably deposit the aggregate amount payable upon redemption of the shares of the Series C Preferred Stock to be redeemed with a bank or trust company designated by the Board of Directors having its principal office in New York, New York, San Juan, Puerto Rico, or any other city in which the Corporation shall at that time maintain a transfer agency with respect to its capital stock, and having a combined capital and surplus (as shown by its latest published statement) of at least $50,000,000 (hereinafter referred to as the "Depositary"), to be held in trust by the Depositary for payment to the holders of the shares of the Series C Preferred Stock then to be redeemed. If such deposit is made and the funds so deposited are made immediately available to the holders of the shares of the Series C Preferred Stock to be redeemed, the Corporation shall thereupon be released and discharged (subject to the provisions of Section D.6) from any obligation to make payment of the amount payable upon redemption of the shares of the Series C Preferred Stock to be redeemed, and the holders of such shares shall look only to the Depositary for such payment. 6. Any funds remaining unclaimed at the end of two years from and after the redemption date in respect of which such funds were deposited shall be returned to the Corporation forthwith and thereafter the holders of shares of the Series C Preferred Stock called for redemption with respect to which such funds were deposited shall look only to the Corporation for the payment of the redemption price thereof. Any interest accrued on any funds deposited with the Depositary shall belong to the Corporation and shall be paid to it from time to time on demand. 7. Any shares of the Series C Preferred Stock which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of Preferred Stock, without designation as to series, until such shares are once 4 5 more designated as part of a particular Series C the Board of Directors. 8. To the extent required to have the Series C Preferred Stock treated as Tier 1 capital for bank regulatory purposes or otherwise required by applicable regulations of the Federal Reserve Board, the shares of Series C Preferred Stock may not be redeemed by the Company without the prior consent of the Federal Reserve Board. E. LIQUIDATION PREFERENCE 1. Upon any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the then record holders of shares of Series C Preferred Stock will be entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution is made to holders of common stock or any other equity securities of the Corporation ranking junior upon liquidation to the Series C Preferred Stock, distributions upon liquidation in the amount of $25.00 per share plus an amount equal to any accrued and unpaid dividends (without any cumulation for unpaid dividends for prior dividend periods on the Series C Preferred Stock) for the current monthly dividend period to the date of payment. Such amount shall be paid to the holders of the Series C Preferred Stock prior to any payment or distribution to the holders of the common stock of the Corporation or any other class of stock or series thereof of the Corporation ranking junior to the Series C Preferred Stock in respect of dividends or as to the distribution of assets upon liquidation. 2. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Series C Preferred Stock and any other shares of stock of the Corporation ranking as to any such distribution on a parity with the Series C Preferred Stock are not paid in full, the holders of the Series C Preferred Stock and of such other shares will share ratably in any such distribution of assets of the Corporation in proportion to the full liquidation preferences to which each is entitled. After payment of the full amount of the liquidation preference to which they would otherwise be entitled, the holders of shares of Series C Preferred Stock will not be entitled to any further participation in any distribution of assets of the Corporation. 3. Neither the consolidation or merger of the Corporation with any other corporation, nor any sale, lease or conveyance of all or any part of the property or business of the Corporation, shall be deemed to be a liquidation, dissolution, or winding up of the Corporation. F. VOTING RIGHTS 1. Except as described in this Section F, or except as required by applicable law, holders of the Series C Preferred Stock will not be entitled to receive notice of or attend or vote at any meeting of stockholders of the Corporation. 2. If the Corporation does not pay dividends in full on the Series C Preferred Stock for eighteen monthly dividend periods (whether consecutive or not), the holders of outstanding shares of the Series C Preferred Stock, together with the holders of any other shares of stock of the Corporation having the right to vote for the election of directors solely in the event of any failure to pay dividends, acting as a single class without regard to series, will be entitled, by written notice to the Corporation given by the holders of a majority in liquidation preference of such shares or by ordinary resolution 5 6 passed by the holders of a majority in liquidation preference of such shares present in person or by proxy at a separate general meeting of such holders convened for the purpose, to appoint two additional members of the Board of Directors of the Corporation, to remove any such member from office and to appoint another person in place of such member. Not later than 30 days after such entitlement arises, if written notice by a majority of the holders of such shares has not been given as provided for in the preceding sentence, the Board of Directors or an authorized committee thereof will convene a separate general meeting for the above purpose. If the Board of Directors or such authorized committee fails to convene such meeting within such 30-day period, the holders of 10% of the outstanding shares of the Series C Preferred Stock and any such other stock will be entitled to convene such meeting. The provisions of the Certificate of Incorporation and By-laws of the Corporation relating to the convening and conduct of general meetings of stockholders will apply with respect to any such separate general meeting. Any member of the Board of Directors so appointed shall vacate office if, following the event which gave rise to such appointment, the Corporation shall have resumed the payment of dividends in full on the Series C Preferred Stock and each such other series of stock for twelve consecutive monthly dividend periods. 3. Any amendment, alteration or repeal of the rights, preferences and privileges of the Series C Preferred Stock by way of amendment of the Corporation's Certificate of Incorporation or otherwise (including, without limitation, the authorization or issuance of any shares of the Corporation ranking, as to dividend rights or rights on liquidation, winding up and dissolution, senior to the Series C Preferred Stock) which would materially and adversely affect the powers, preferences or special rights of the Series C Preferred Stock shall not be effective (unless otherwise required by applicable law) except with the consent in writing of the holders of at least two thirds of the outstanding aggregate liquidation preference of the outstanding shares of the Series C Preferred Stock or with the sanction of a special resolution passed at a separate general meeting by the holders of at least two thirds of the aggregate liquidation preference of the outstanding shares of the Series C Preferred Stock. Notwithstanding the foregoing, the Corporation may, without the consent or sanction of the holders of the Series C Preferred Stock, authorize and issue shares of the Corporation ranking, as to dividend rights and rights on liquidation, winding up and dissolution, on a parity with or junior to the Series C Preferred Stock. The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of the Series C Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. 4. No vote of the holders of the Series C Preferred Stock will be required for the Corporation to redeem or purchase and cancel the Series C Preferred Stock in accordance with the Certificate of Incorporation of the Corporation. 5. The Corporation will cause a notice of any meeting at which holders of any series of Preferred Stock are entitled to vote to be mailed to each record holder of such series of Preferred Stock. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution to be proposed for adoption at such meeting on which such holders are entitled to vote and (iii) instructions for deliveries of proxies. 6 7 6. Except as set forth in this Section F, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth herein) for taking any corporate action. G. RANK The Series C Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank (i) senior to all classes of common stock of the Corporation and to all other equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank junior to the Series C Preferred Stock (or to a number of series of Preferred Stock which includes the Series C Preferred Stock); (ii) on a parity with the Corporation's 7.4% Noncumulative Perpetual Monthly Income Preferred Stock, Series A, the Corporation's 7.75% Noncumulative Perpetual Monthly Income Preferred Stock, Series B, and with all other equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank on a parity with the Series C Preferred Stock (or with a number of series of Preferred Stock which includes the Series C Preferred Stock); and (iii) junior to all equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank senior to the Series C Preferred Stock (or to a number of series of Preferred Stock which includes the Series C Preferred Stock). For this purpose, the term "equity securities" does not include debt securities convertible into or exchangeable for equity securities. H. FORM OF CERTIFICATE FOR SERIES C PREFERRED STOCK; TRANSFER AND REGISTRATION 1. The Series C Preferred Stock shall be issued in registered form only. The Corporation may treat the record holder of a share of Series C Preferred Stock, including the Depository Trust Company and its nominee and any other holder that holds such share on behalf of any other person, as such record holder appears on the books of the registrar for the Series C Preferred Stock, as the sole owner of such share for all purposes. 2. The transfer of a share of Series C Preferred Stock may be registered upon the surrender of the certificate evidencing the share of Series C Preferred Stock to be transferred, together with the form of transfer endorsed on it duly completed and executed, at the office of the transfer agent and registrar. 3. Registration of transfers of shares of Series C Preferred Stock will be effected without charge by or on behalf of the Corporation, but upon payment (or the giving of such indemnity as the transfer agent and registrar may require) in respect of any tax or other governmental charges which may be imposed in relation to it. 4. The corporation will not be required to register the transfer of a share of Series C Preferred Stock after such share has been called for redemption. I. REPLACEMENT OF LOST CERTIFICATES If any certificate for a share of Series C Preferred Stock is mutilated or alleged to have been lost, stolen or destroyed, a new certificate representing the same share shall be issued to the holder upon request subject to delivery of the old certificate or, if alleged to 7 8 have been lost, stolen or destroyed, compliance with such conditions as to evidence, indemnity and the payment of out-of-pocket expenses of the Corporation in connection with the request as the Board of Directors of the Corporation may determine. J. NO PREEMPTIVE RIGHTS Holders of the Series C Preferred Stock will have no preemptive or preferential rights to purchase any securities of the Corporation. K. NO REPURCHASE AT THE OPTION OF HOLDERS; MISCELLANEOUS Holders of Series C Preferred Stock will have no right to require the Corporation to redeem or repurchase any shares of Series C Preferred Stock, and the shares of Series C Preferred Stock are not subject to any sinking fund or similar obligation. The Corporation may, at its option, purchase shares of the Series C Preferred Stock from holders thereof from time to time, by tender, in privately negotiated transactions or otherwise. The undersigned hereby certify that the capital of the Corporation will not be reduced under or by reason of the adoption of the above resolutions providing for the creation of the above described series of Preferred Stock. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Victor J. Galan, its Chief Executive Officer, and Enrique Umpierre-Suarez, its Secretary, this __ day of ______, 2001. R&G FINANCIAL CORPORATION By: ------------------------------------- Victor J. Galan [CORPORATE SEAL] By: ------------------------------------- Enrique Umpierre-Suarez 8 EX-4.2 4 g67104ex4-2.txt FORM OF SERIES C PERFERRED STOCK CERTIFICATE 1 EXHIBIT 4.2 [FORM OF PREFERRED STOCK CERTIFICATE] R&G FINANCIAL CORPORATION SAN JUAN, PUERTO RICO PREFERRED STOCK ________ SHARES CERTIFICATE NO. ______ SEE REVERSE FOR CERTAIN DEFINITIONS AND LIMITATIONS CUSIP No. ____________ THIS CERTIFIES THAT ________________________________________________, is the owner of ____________ FULLY PAID AND NON-ASSESSABLE SHARES OF ____% NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES C OF R&G FINANCIAL CORPORATION, a corporation organized under the laws of the Commonwealth of Puerto Rico (the "Corporation"). The shares evidenced by this Certificate are transferable on the books of the Corporation by the holder of record hereof, in person or by a duly authorized attorney or legal representative, upon surrender of this Certificate properly endorsed. Such shares are not insured by the Federal Deposit Insurance Corporation. This Certificate and the shares represented hereby are subject to all the provisions of the Corporation's Certificate of Incorporation and Bylaws and all amendments thereto. This Certificate is not valid unless countersigned and registered by the Corporation's transfer agent and registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by the facsimile signatures of its duly authorized officers and has caused its facsimile seal to be affixed hereto. Dated: CORPORATE SEAL - ------------------------------------- ------------------------------------- Secretary Chief Executive Officer Countersigned and Registered: - ------------------------------------- American Stock Transfer and Company By: ---------------------------------- Authorized Signature
2 R&G FINANCIAL CORPORATION The shares represented by this Certificate are subject to limitations and restrictions as set forth in the Certificate of Incorporation and Bylaws of R&G Financial Corporation ("R&G Financial") as from time to time amended. The Certificate of Incorporation is on file in the office of the Secretary of State for the Commonwealth of Puerto Rico, San Juan, Puerto Rico, and the Certificate of Incorporation and the Bylaws are on file with the Secretary of R&G Financial at R&G Financial's executive offices. The Certificate of Incorporation of R&G Financial authorizes R&G Financial to issue more than one class of stock, including classes of preferred stock, which may be issued in one or more series. R&G Financial will furnish to any stockholder upon request and without charge a full statement of the powers, designations, preferences and relative participating, optional or other special rights of the ___% Noncumulative Perpetual Monthly Income Preferred Stock, Series C ($25 liquidation preference per share) and of each other class of stock or shares which R&G Financial is authorized to issue and the qualifications, limitations or restrictions of such preferences and or rights. Any request should be made with the Secretary of R&G Financial. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT ____ Custodian _______ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act____________________________________ in common (State)
Additional abbreviations may also be used though not in the above list. For value received, __________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [______________] ____________________________________________________ Please Print or Typewrite Name and Address including Postal Zip Code of Assignee __________ Shares of the Preferred Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated:________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ENLARGEMENT OR ANY CHANGE WHATEVER - -------------------------------------- Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange. 2 EX-5 5 g67104ex5.txt OPINION OF KELLEY DRYE & WARREN LLP 1 EXHIBIT 5.0 Law Offices KELLEY DRYE & WARREN LLP 1200 19TH Street, N.W. Suite 500 Washington, D.C. 20036 Telephone (202) 955-9600 February 16, 2001 Board of Directors R&G Financial Corporation 280 Jesus T. Pinero Avenue Hato Rey, Puerto Rico 00918 Re: Registration Statement on Form S-3 Ladies and Gentlemen: In connection with the registration under the Securities Act of 1933, as amended (the "Act"), of up to 2,300,000 shares of Noncumulative Perpetual Monthly Income Preferred Stock, Series C ($25 liquidation preference per share) ("Series C Preferred Stock") of R&G Financial Corporation, a Puerto Rico corporation (the "Corporation"), we have been requested to render our opinion as your special counsel as to the validity of the Series C Preferred Stock. In connection with this opinion, we have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. We have relied as to all matters of fact upon written or oral representations of certificates of officers of the Corporation and public officials, and we have assumed the accuracy of all statements of fact therein without any independent investigation thereof. The opinion which we render herein is limited to those matters governed by the federal laws of the United States as of the date hereof. We assume no obligation to revise or supplement the opinions rendered herein should the above-referenced laws be changed by legislative or regulatory action, judicial decision or otherwise. We are members of the District of Columbia bar and do not express any opinion as to the laws of any other jurisdiction. In rendering the opinion herein, we have relied with your permission on the opinion of McConnell Valdes of even date herewith with respect to the corporation laws of the Commonwealth of Puerto Rico. We express no opinion as to compliance with Puerto Rico securities or "blue sky" laws and the opinions set forth herein are qualified in that respect. Based on the foregoing, and subject to the assumptions, qualifications and limitations set forth herein, as of the date hereof we are of the opinion that, when the Registration Statement has become effective under the Act, the certificate of resolution containing the designation of the relative rights and preferences of the Series C Preferred Stock has been duly filed with the Department of State of the Commonwealth of Puerto Rico, and the Series C Preferred Stock has been issued and delivered as contemplated in the Registration Statement, the shares of the Series C Preferred Stock will have been duly authorized and validly issued and will be fully paid and non-assessable when delivered against payment therefore. 2 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to us under the heading "Legal Matters" in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, KELLEY DRYE & WARREN LLP By /s/ Norman B. Antin -------------------------------------- Norman B. Antin, a Partner 2 EX-5.1 6 g67104ex5-1.txt OPINION OF MCCONNELL VALDES 1 [Letterhead of McConnell Valdes] EXHIBIT 5.1 February 16, 2001 Board of Directors R&G Financial Corporation 280 Jesus T. Pinero Avenue Hato Rey, Puerto Rico 00918 Re: Registration Statement on Form S-3 Ladies and Gentlemen: In connection with the above-referenced registration statement on Form S-3 (the "Registration Statement") which we understand will be filed by R&G Financial Corporation, a Puerto Rico corporation (the "Corporation"), with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), for the registration under the Act of up to 2,300,000 shares of Noncumulative Perpetual Monthly Income Preferred Stock, Series C (par value $.01 per share, $25 liquidation preference per share) (the "Series C Preferred Stock") of the Corporation, we have been requested to render our opinion to you as your special Puerto Rico counsel as to the validity of the Series C Preferred Stock. In connection with this opinion, we have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. We have relied as to all matters of fact upon written or oral representations or certifications of officers of the Corporation and public officials, and we have assumed the accuracy of all statements of fact therein without any independent investigation thereof. While we have received the portion of the prospectus included in the Registration Statement entitled "Summary of Certain Terms of the Series C Preferred Stock" and Exhibits 3.0 and 4.2 of the Registration Statement, we have not participated in the preparation of the Registration Statement or any other offering materials in connection with the sale of the Series C Preferred Stock. The opinion which we render herein is limited to those matters governed by the corporation laws of the Commonwealth of Puerto Rico as of the date hereof. We assume no obligation to revise or supplement the opinions rendered herein should the above-referenced laws be changed by legislative or regulatory action, judicial laws be changed by legislative or regulatory action, judicial decision or otherwise. We are members of the Puerto Rico bar and do not express any opinion as to the laws of any other jurisdiction. We express no opinion as to compliance with Puerto Rico securities or "blue sky" laws and the opinions set forth herein are qualified in that respect. Based on the foregoing, and subject to the assumptions, qualifications and limitations set forth herein, as of the date hereof we are of the opinion that, when the Registration Statement has become effective under the Act, the certificate of resolution containing the designation of the relative rights and preferences of the Series C Preferred Stock has been duly filed with the Department of State of the Commonwealth of Puerto Rico, and the Series C Preferred Stock has been issued and delivered as contemplated in the Registration Statement, the shares of the Series C Preferred Stock will have been duly authorized and validly issued and will be fully paid and non-assessable when delivered against payment therefor. 2 We hereby consent to the law firm of Kelley Drye & Warren LLP relying on this opinion solely as to matters of Puerto Rico law in the opinion they are delivering to you in connection with the filing of the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to us under the heading "Legal Matters" in the prospectus forming part of the Registration Statement. In giving such consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ MCCONNELL VALDES -------------------------- MCCONNELL VALDES 2 EX-8 7 g67104ex8.txt OPINION MCCONNELL VALDES 1 [Letterhead of McConnell Valdes] EXHIBIT 8.0 February 16, 2001 Board of Directors R&G Financial Corporation 280 Jesus T. Pinero Avenue Hato Rey, Puerto Rico 00918 Re: Registration Statement on Form S-3 Ladies and Gentlemen: As special Puerto Rico tax counsel to R&G Financial Corporation (the "Issuer") in connection with the issuance by the Issuer of up to 2,300,000 shares of ___% Noncumulative Perpetual Monthly Income Preferred Stock, Series C Preferred Stock pursuant to the prospectus (the "Prospectus") contained in the Registration Statement, we hereby confirm to you that our opinion set forth under the heading "Puerto Rico Taxation" in the Prospectus, subject to the limitations set forth therein, is an accurate discussion of the principal Puerto Rico tax consequences to the investors who purchase the securities in the offering described in the Prospectus. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to any reference to us under the heading "Legal Matters" in the Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ MCCONNELL VALDES ----------------------------- McCONNELL VALDES EX-8.1 8 g67104ex8-1.txt OPINION OF KELLEY DRYE & WARREN LLP 1 EXHIBIT 8.1 Law Offices KELLEY DRYE & WARREN LLP 1200 19TH Street, N.W. Suite 500 Washington, D.C. 20036 Telephone (202) 955-9600 February 16, 2001 Board of Directors R&G Financial Corporation 280 Jesus T. Pinero Avenue Hato Rey, Puerto Rico 00918 Re: Registration Statement on Form S-3 Ladies and Gentlemen: In connection with the registration under the Securities Act of 1933, as amended (the "Act"), of up to 2,300,000 shares of Noncumulative Perpetual Monthly Income Preferred Stock, Series C ($25 liquidation preference per share) ("Series C Preferred Stock") of R&G Financial Corporation, a Puerto Rico corporation (the "Corporation"), we hereby confirm to you that the disclosure set forth under the heading "Taxation - United States Taxation" and "-Passive Foreign Investment Company Rules" in the prospectus included in the Registration Statement, subject to the limitations set forth therein, is an accurate discussion of the principal federal tax consequences to the investors who purchase such securities in the offering described in such prospectus. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to us under the heading "Legal Matters" in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, KELLEY DRYE & WARREN LLP By /s/ Norman B. Antin -------------------------------- Norman B. Antin, a Partner EX-12 9 g67104ex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 R&G Financial Corporation Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
Formula 9/30/00 9/30/99 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95 ----------- -------- -------- -------- -------- -------- -------- -------- (Dollars in Thousands) A. Pre-Tax Net Income $ 40,885 $ 42,627 $ 53,574 $ 45,074 $32,229 $19,122 $16,296 ======== ======== ======== ======== ======= ======= ======= Plus: B. Interest Expense Total 122,524 74,202 106,564 80,324 60,805 44,863 32,239 C. Rental Expense(1) 1,130 883 1,224 929 745 651 574 -------- -------- -------- -------- ------- ------- ------- D. Fixed Charges (including 123,654 75,085 107,788 81,253 61,550 45,514 32,813 interest on deposits) B+C E. Less: Interest on Deposits 57,496 38,273 53,643 38,439 32,435 27,518 21,829 -------- -------- -------- -------- ------- ------- ------- F. Fixed Charges (excluding interest on deposits) D-E 66,158 36,812 54,145 42,814 29,115 17,996 10,984 -------- -------- -------- -------- ------- ------- ------- G. Earnings A+D $164,539 $117,712 $161,362 $126,327 $93,779 $64,636 $49,109 ======== ======== ======== ======== ======= ======= ======= H. Dividends on Preferred Stock 4,228 2,775 3,754 1,233 -- -- -- Historical Ratio of Earnings to Fixed Charges: Including interest on deposits G/(D+H) 1.29% 1.51% 1.45% 1.53% 1.52% 1.42% 1.50% Excluding interest on deposits (G-E)/(F+H) 1.52 2.01 1.86 2.00 2.11 2.06 2.48 (1) Only portion attributable to interest: Rental expense 3,767 2,942 4,081 3,097 2,483 2,171 1,914 Estimated Interest Factor 30% 30% 30% 30% 30% 30% 30%
EX-23.2 10 g67104ex23-2.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated February 10, 2000 relating to the financial statements, which appears in the 1999 Annual Report to Shareholders which is incorporated by reference in R&G Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP - ------------------------------------ PricewaterhouseCoopers LLP San Juan, Puerto Rico February 16, 2001 -----END PRIVACY-ENHANCED MESSAGE-----