-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Vs7BI03ovmcgf9ioB7dAhXwr59R7liqTo15iTbs4VN4uv/Tgu/PN9ft/Zx41ioVZ Zcp4DS9EzU+G5NAnjSWDFQ== 0000950144-94-001994.txt : 19941121 0000950144-94-001994.hdr.sgml : 19941121 ACCESSION NUMBER: 0000950144-94-001994 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUERTO RICAN CEMENT CO INC CENTRAL INDEX KEY: 0000081076 STANDARD INDUSTRIAL CLASSIFICATION: 3241 IRS NUMBER: 516601895 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04753 FILM NUMBER: 94559505 BUSINESS ADDRESS: STREET 1: P.O.BOX 364487 CITY: SAN JUAN STATE: PR ZIP: 00936-4487 BUSINESS PHONE: 8097833000 MAIL ADDRESS: STREET 2: POST OFFICE BOX 364887 CITY: SAN JUAN STATE: PR ZIP: 09336-4487 10-Q 1 PUERTO RICAN CEMENT COMPANY 10-Q 9-30-94 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ TO ______________ For Quarter Ended __________________ Commission file number 1-4753 ------ PUERTO RICAN CEMENT COMPANY, INC. (Exact name of registrant as specified in its charter) COMMONWEALTH OF PUERTO RICO 51-A-66-0189525 --------------------------- --------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) PO Box 364487 - San Juan, P.R. 00936-4487 ------------------------------ ---------- (Address of principal executive offices) (Zip Code) (809) 783-3000 -------------- (Registrant's telephone number, including area code) NONE ---- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the Registrant (1) has filed reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- COMMON STOCK -$1.00 PAR VALUE 5,767,899 SHARES 2 PUERTO RICAN CEMENT COMPANY, INC. INDEX PAGE NO. Part I - Financial Information Consolidated Balance Sheet as of September 30, 1994 and December 31, 1993 1 - 2 Consolidated Statement of Income Third quarter ended on September 30, 1994 and 1993 3 Consolidated Statement of Cash Flows Nine months ended on September 30, 1994 and 1993 4 Notes to Consolidated Financial Statements 5 - 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 8 PART II - Other Information 9 Signatures 10 3 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER DECEMBER ASSETS 30, 1994 31, 1993 ------------ ------------ CURRENT ASSETS Cash $ 296,696 $ 431,293 Short-term investments 1,097,898 ------------ ------------ Cash and Cash Equivalents 1,394,594 431,293 ------------ ------------ Other short-term investments 1,594,195 520,000 ------------ ------------ Notes and accounts receivable-net of allowance for doubtful accounts of $1,094,997 in 1994 and $1,121,601 in 1993 17,150,607 13,626,159 ------------ ------------ Inventories: Finished products 1,991,966 2,127,413 Work in process 3,308,731 6,231,167 Raw materials 2,939,350 3,276,157 Maintenance & operating supplies 18,462,351 20,855,519 Land held for sale including development costs 594,666 651,580 ------------ ------------ Total inventories 27,297,064 33,141,836 ------------ ------------ Prepaid expenses 5,092,019 3,488,276 ------------ ------------ TOTAL CURRENT ASSETS 52,528,479 51,207,564 ------------ ------------ PROPERTY, PLANT & EQUIPMENT - Net of accumulated depreciation, depletion and amortization of $53,951,662 in 1994 and $48,804,646 in 1993 111,158,501 107,968,603 ------------ ------------ OTHER ASSETS Long-term investments 40,422,577 32,512,367 Other long-term assets 1,563,584 1,595,062 ------------ ------------ 41,986,161 34,107,429 ------------ ------------ TOTAL $205,673,141 $193,283,596 ============ ============
See notes to consolidated financial statements. -1- 4 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER DECEMBER LIABILITIES AND STOCKHOLDERS' EQUITY 30, 1994 31, 1993 ------------ ------------ CURRENT LIABILITIES Current portion of long-term debt $ 6,178,571 $ 7,491,735 Accounts payable 5,466,537 4,656,496 Accrued liabilities 6,681,960 4,500,812 Income taxes payable 344,823 624,263 ------------ ------------ TOTAL CURRENT LIABILITIES 18,671,891 17,273,306 LONG-TERM LIABILITIES Long-term debt, less current portion 32,492,132 26,633,080 Deferred income taxes 28,729,734 26,028,233 Postretirement benefit liability 2,574,968 2,673,947 ------------ ------------ 63,796,834 55,335,260 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, authorized 2,000,000 shares of $5.00 par value each; none issued Common stock authorized 20,000,000 shares of $1.00 par value each; issued 6,000,000 shares, outstanding 5,634,100 shares 6,000,000 6,000,000 Additional paid-in capital 14,367,927 14,367,927 Retained earnings 109,835,735 101,891,599 ------------ ------------ 130,203,662 122,259,526 Less: 365,900 (1993-192,300) shares of common stock in treasury, at cost 6,999,246 1,584,496 ------------ ------------ STOCKHOLDERS' EQUITY NET 123,204,416 120,675,030 ------------ ------------ TOTAL $205,673,141 $193,283,596 ============ ============
See notes to consolidated financial statements. -2- 5 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Net sales $23,541,842 $21,651,250 $70,816,788 $63,276,210 Revenue from real estate operations 24,273 24,273 72,821 629,447 ----------- ----------- ----------- ----------- 23,566,115 21,675,523 70,889,609 63,905,657 Cost of sales 16,570,557 13,257,982 46,551,693 40,153,566 ----------- ----------- ----------- ----------- Gross margin 6,995,558 8,417,541 24,337,916 23,752,091 Selling, general & administrative expenses 2,957,582 2,544,349 8,362,105 7,842,254 ----------- ----------- ----------- ----------- Income from operations 4,037,976 5,873,192 15,975,811 15,909,837 ----------- ----------- ----------- ----------- Other charges (credits): Interest and financial charges 592,808 702,964 1,748,300 2,152,965 Interest income (620,512) (361,455) (1,660,513) (902,782) Other income (30,068) (27,556) (91,429) (91,698) ----------- ----------- ----------- ----------- Total (57,772) 313,953 (3,642) 1,158,485 ----------- ----------- ----------- ----------- Income before income tax 4,095,748 5,559,239 15,979,453 14,751,352 Tax provision 1,235,965 2,101,105 5,455,017 4,960,874 ----------- ----------- ----------- ----------- Income before cumulative effect of changes in accounting principles 2,859,783 3,458,134 10,524,436 9,790,478 Effect of a change in accounting for postretirement benefits (net of tax - $1,020,600) (1,409,400) Cumulative effect of a change in accounting for income taxes 853,410 ----------- ----------- ----------- ----------- Net income $ 2,859,783 $ 3,458,134 $10,524,436 $9,234,488 =========== =========== =========== =========== Income (loss) per share: Income before cumulative effect of changes in accounting $0.50 $0.60 $1.82 $1.68 Effect of a change in accounting for postretirement benefits (0.24) Cumulative effect of a change in accounting for income taxes 0.15 ----------- ----------- ----------- ----------- Net income $0.50 $0.60 $1.82 $1.59 =========== =========== =========== =========== Common Shares Outstanding 5,767,899 5,807,700 5,767,899 5,807,700 =========== =========== =========== ===========
-3- 6 PUERTO RICAN CEMENT COMPANY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 1993 ----------- ----------- Cash flows from operating activities: Net income $10,524,436 $ 9,234,488 ----------- ----------- Adjustments to reconcile net income to cash flows from operating activities: Effect of a change in accounting for postretirement benefits 1,409,400 Cumulative effect of a change in accounting for income taxes (853,410) Depreciation, depletion and amortization 5,209,702 5,184,071 Provision for deferred income taxes 2,701,501 2,708,929 Postretirement benefit cost (98,979) 292,500 Changes in assets and liabilities: Increase in notes & accounts receivable (3,524,448) (4,458,061) Decrease in inventories 5,844,772 2,392,660 Increase in prepaid expenses (1,603,743) (1,583,163) Increase in accounts payable 836,111 956,055 Increase in accrued liabilities 2,181,148 1,549,342 Decrease in income taxes payable (279,440) (174,386) Decrease in other long-term assets 31,478 60,032 ----------- ----------- Total adjustments 11,298,102 7,483,969 ----------- ----------- Cash provided by operations 21,822,538 16,718,457 ----------- ----------- Cash flows from investing activities: Capital expenditures (8,399,600) (5,675,812) Increase in other short-term investments (1,074,195) (743,471) Purchase of long-term investments (7,910,210) (14,778,244) ----------- ----------- Cash used in investing activities (17,384,005) (21,197,527) ----------- ----------- Cash flows from financing activities: Payment of principal on long-term debt (10,892,859) (8,541,592) Proceeds from loan 15,438,747 10,506,015 Dividends paid (2,606,370) (1,451,925) Purchase of treasury stocks (5,414,750) ----------- ----------- Cash (used in) provided by financing activities (3,475,232) 512,498 ----------- ----------- Increase (decrease) in cash and cash equivalents $ 963,301 ($3,966,572) =========== =========== Cash and cash equivalents - beginning of year $ 431,293 $ 5,473,502 Cash and cash equivalents - end of period 1,394,594 1,506,930 ----------- ----------- Increase (decrease) in cash and cash equivalents $ 963,301 ($3,966,572) =========== ===========
See notes to consolidated financial statements. -4- 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the opinion of the Registrant, the accompanying unaudited financial statements contain all adjustments necessary to present fairly its financial position at September 30, 1994 and December 31, 1993, and the results of operations and cash flows for the nine months period ended on September 30, 1994 and 1993. The results of operations are not necessarily indicative of the results to be expected for the full year. Cash and cash equivalents of approximately $1.4 million as of September 30, 1994 consisted principally of short-term obligations of the U.S. Federal Government or its agencies. Other short-term, and long-term investments were principally obligations of the U.S. Federal Government or its agencies with maturities ranging from over 3 months to up to 7 years. These investments resulted from excess funds generated from operations. As of September 30, 1994, notes and accounts receivable totaled $17.1 million, an increase of $3.5 million from the $13.6 million balance at December 31, 1993. The increase reflects principally the higher demand for cement we have been experiencing this year as a result of favorable weather conditions, which has permitted construction projects to maintain an uninterrupted pace. Receivables' turnover has been maintained within normal historical levels, with an average collection period below 60 days. The decrease of $5.8 million in consolidated inventories was due principally to a decline in the work-in-process (clinker) and maintenance & operating supply inventories. Clinker inventory declined, albeit a slightly higher level of production of this intermediate product, due to an increase in its consumption as more material was used in the production of cement to provide for the higher sales experienced during this period. The decrease in maintenance & operating supplies was mainly due to major maintenance and replacement of worn interchangeable machinery parts performed during this quarter. Prepaid expenses increased 46% when compared to December 1993 as the result of prepaid property tax payments scheduled for this period and an increase in the prepaid pension plan. Net property, plant & equipment increased by $3.2 million due to capital expenditures related principally to the mill conversion project of $8.4 million offset by $5.2 million in accumulated depreciation and depletion during the reporting period. -5- 8 Accounts payable increased 17% when compared to December 1993 due mostly to purchases of materials and equipment used in the mill conversion project. Accrued liabilities increased $2.2 million due mainly to the increase in property tax accrual and other accruals. Under the Puerto Rico income tax law the Registrant may exercise the option to claim accelerated depreciation to defer current income tax liability to future periods. Such depreciation, however, is limited to an amount not greater than income before taxes (determined without taking into consideration the depreciation deduction). Benefits available under this accelerated depreciation method are limited by the alternative minimum tax (AMT) provisions of the income tax law. In Management's opinion, the Registrant will be subject to the AMT provisions of the income tax law during the current year. At its September 28, 1994 meeting, the Board of Directors of the Registrant declared a 15 cents per share dividend on its common stock, payable on November 11, 1994 to stockholders of record on October 11, 1994. As of September 30, 1994, the Registrant has 5,634,100 shares of common stock issued and outstanding. This compares with 5,807,700 shares outstanding as of September 30, 1993. During the third and second quarter 133,600 and 40,000 shares, respectively, were purchased. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources At September 30, 1994 and December 31, 1993 the Company had working capital of $33.9 million for both periods, with current ratios of 2.81 to 1 and 2.96 to 1, respectively. Cash provided by operations for the period ended in September 1994 totaled $21.8 million. This cash provided by operating activities was used by the Company to purchase short and long-term investments, pay dividends, finance portions of the capital expenditure's program and reacquire outstanding shares of the Company. The Company has available credit facilities with commercial banks for short-term financing and discount of trade paper from customers in the aggregate amount of $12,600,000. At September 30, 1994 no amount was outstanding under this credit facility. -6- 9 The Company believes that its cash balance, short and long-term investments, short-term borrowing facilities and operating cash flows are sufficient to meet its operating liquidity needs in the future. Total long-term debt increased $4.5 million reflecting the net effect of proceeds of $15.4 million in new loans offset by payments of $10.9 million. During this period, some of these new borrowings were used to finance the mill conversion project. Other portions were used in the restructuring of an existing loan to take advantage of lower interest rates and its resulting interest cost savings. Approximate aggregate maturities of long-term debt for the remaining of 1994 and thereafter are as follows: 1994 $ 2,428,571 1995 10,242,132 1996 6,178,571 1997 2,821,429 1998 7,000,000 1999 10,000,000 ----------- Totals $38,670,703 =========== The above schedule of maturities of long-term debt includes as payable in 1994 and 1995, borrowing under the interim financing that are convertible to permanent financing at the completion of the mill conversion project. Loan agreements with term lenders contain certain restrictions concerning working capital, indebtedness, dividends, investments and certain advances, among others. Results of Operations Consolidated net sales for the third quarter reported an increase of 8.7% when compared to the same period of the prior year, due mainly to an increase of 569,000 bags, or 12%, in total cement sales (5,230,000 bags in 1994 - 4,671,000 in 1993). For the nine-month period ended on September 30, 1994 the value of reported net sales reached a total of $70.8 million against $63.3 million for the same period of 1993, an increase of $7.5 million. Sales of cement, in bags, went from 13,877,000 as of September 30, 1993 to 15,702,000 as of September 30, 1994, an increase of 1,825,000 bags. This responds to a 9.3% increase in local cement consumption as a result of the prevailing dry weather brought by the drought experienced on the Island over the year 1994 which has permitted the acceleration of construction projects. -7- 10 On the contrary, the drought in combination with product substitution used for water purification by the government owned Aqueducts and Sewer Authority, has caused a decline in total sales for our Florida Lime subsidiary during the nine months period ended on September 30, 1994. Sales on the lime subsidiary declined 18.3% from $3.2 million in 1993 to $2.6 million in 1994. In the paper and bag division sales decreased 4.7%. Revenue from real estate decreased because no real estate has been sold in 1994, while in 1993 a land lot was sold during the first quarter. Cost of sales for the third quarter of 1994 as well as for the year to date figure increased 25% and 16%, respectively, when compared to the prior year. The increase was due mainly to major overall maintenance and replacement work performed during the third quarter at a cost of approximately $2.3 million which was not previously anticipated. According to experts consulted in regards to operation of dry process systems, this kind of work is not recurrent on an annual basis but should be expected to take place every three to five years. This increase in cost of sales, caused a drop in gross margin from 38.8% in the third quarter of 1993 to 29.7% in the third quarter of 1994. Eliminating the impact that the $2.3 million maintenance work performed during this quarter had on cost of sales, gross margin for this quarter would have had increased to 39.5%, slightly higher than last year's third quarter figure. Selling and administrative expenses were $8.4 million for 1994 compared to $7.8 million for 1993. The 6.6% increase was principally the result of general inflationary increases in salaries, wages and related fringe benefits. For the third quarter of 1994 as well as for the nine months period ended on September 30, 1994, interest and financial charges decreased 15.7% and 18.8%, respectively. This decline was due mainly to the capitalization of interest related to the financing of the mills' conversion project plus lower average interest rates on term debt. Interest income for the period reflects an increase of $758,000 over the 1993 figure. A higher balance in long-term investments, which totaled $40.4 million at September 30, 1994, was the principal reason of this increase. -8- 11 Part II. OTHER INFORMATION. Item 2. NONE Item 5. The 1994 Puerto Rico Tax Reform Bill has been approved by both the Houses of Representatives and the Senate, and signed by the Governor. The effective date of this Legislation is June 30, 1995, with the full effect of the changes taking place in taxable years 1996 and thereafter. The new bill, among its many changes, provides for a reduction in the tax rate for corporations and a new accelerated method of depreciation. It also repeals the reserve method for bad debts as well as the deduction for flexible depreciation for property acquired after December 31, 1995. Management estimates that the enactment of this new law will probably result in a reduction in the deferred income tax liability principally from the reduction in the maximum tax rate from 42% to 39%. No immediate impact is expected from the elimination of the flexible depreciation deduction since the Company has sufficient property available to be flexibly depreciated for various years. But in the long-term, the Company believes that the new accelerated depreciation method may bring an increase in total cash payments for income tax. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10. Material Contracts 10.1 Loan agreement between the Registrant and Banco Popular de Puerto Rico for the amount of $7,000,000, dated September 15, 1994, used to refinance the outstanding balance of another loan. As provided in the loan agreement, securities with a face value of $3.8 million has been pledged as collateral. 10.2 Letter from Banco Popular de Puerto Rico dated July 11, 1994 whereby sections of the loan agreements dated August 20, 1993 and December 8, 1993 were amended. Both loan agreements were filed as exhibits to Form 10-K for the year ended on December 31, 1993. 27. Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K NONE -9- 12 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PUERTO RICAN CEMENT COMPANY, INC. --------------------------------- (Registrant) Date: 10/28/94 By: /s/ Angel Amaral --------------- ----------------------------- Angel Amaral Vice President & Controller Date: 10/28/94 By: /s/ Jose O. Torres --------------- ----------------------------- Jose O. Torres Vice President of Finance & Treasurer -10- EX-10.1 2 LOAN AGREEMENT 1 Exhibit 10.1 CREDIT AGREEMENT $7,000,000.00 by and between PUERTO RICAN CEMENT CO., INC. and BANCO POPULAR DE PUERTO RICO September 15, 1994 2 PROMISSORY NOTE $7,000,000.00 San Juan, Puerto Rico Date: September 15, 1994 FOR VALUE RECEIVED, PUERTO RICAN CEMENT COMPANY, INC., a corporation duly organized and existing under the laws of the Commonwealth of Puerto Rico (hereinafter referred to as the "Borrower"), promises to pay to the order of Banco Popular de Puerto Rico (hereinafter referred to as the "Bank"), at its office or branch located at Hato Rey, San Juan, Puerto Rico, IN FULL, on August 12, 1999, the principal sum of SEVEN MILLION DOLLARS ($7,000,000.00), hereinafter referred to as the "term loan", or, if less, the aggregate unpaid principal amount of the term loan hereunder outstanding and due for payment on the date this Note is presented for payment by the Bank to the Borrower. The terms and conditions upon which the Bank shall make the term loan to the Borrower hereunder are the following: 1. Purpose of the Term Loan 1.1. The Borrower has requested from the Bank a term loan to be used to refinance the outstanding balance of a loan of Scotiabank de Puerto Rico originally granted for the dry process conversion of cement manufacturing. 3 -2- 1.2. The Bank agrees, subject to the terms and conditions hereinafter set forth, to make the term loan available to the Borrower in the principal amount of USD SEVEN MILLION DOLLARS ($7,000,000.00). 1.3. The obligation of the Bank to make the term loan shall be subject to the condition precedent that: 1.3.1. The Borrower shall have executed the Master Pledge Agreement and shall have delivered to the Bank all the securities required to be delivered thereunder; and, 1.3.2. The Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request. 2. Term Loan 2.1. The Borrower shall pay interest on the unpaid principal amount from this date and until the maturity date thereof at an interest rate equal to 7.300% per annum. Notwithstanding anything else contained herein, the interest rate applicable to any outstanding principal balance after the maturity date thereof shall be equal to 8.300% per annum. Interest due shall be payable in arrears on the first day of each month and on the date of payment in full thereof, for the actual number of days elapsed. 4 -3- 2.2. The Borrower hereby acknowledges that the Bank intends to fund the term loan made hereunder with 936 Funds. If at any time (i) the Bank, in its sole discretion, or any governmental authority determines that the term loan funded with 936 Funds does not constitute an Eligible Activity for any reason (including, without limitation, as a result of any change in any applicable law or regulation, or in the interpretation thereof); (ii) the Borrower does not permit the Bank to discharge or fulfill its duties and obligations under Regulation 3582 or the Borrower fails to comply with the 936 Covenants; or (iii) the Bank, in its sole discretion, determines that it may suffer any adverse consequence due to the fact that this term loan funded with 936 Funds is outstanding; then, upon five (5) Business Days, notice to the Borrower specifying the reason(s) therefor, the term loan funded with 936 Funds shall be automatically converted to a term loan that bear interest at a rate equal to 7.300% per annum. In the event that such conversion is made necessary as a result of any act or omission of the Borrower and the Bank suffers any loss or expense as a result of such conversion, including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Bank to fund the term loan so converted, the Borrower, upon demand by the Bank, shall pay to the Bank additional amounts sufficient to indemnify the Bank against such loss or expense. A certificate in reasonable detail as to the amount of such loss or expense submitted to the Borrower by the Bank, audited by certified public accountants satisfactory to both parties at the option of Borrower 5 -4- and at its sole cost and expense, absent manifest error, shall be conclusive and binding for all purposes. 2.3. The Borrower may not prepay the term loan funded with 936 Funds in whole or in part, unless the Borrower notifies the Bank in writing at least five (5) Business Days' prior to the date of the proposed prepayment, specifying the date of the proposed prepayment and the amount thereof. At the time of making each such prepayment pursuant to the provisions hereof, the Borrower shall pay to the Bank accrued interest thereon to the date of such prepayment and will compensate the Bank for any funding loss on such prepayment. 2.4. All computations of interest shall be made by the Bank on the basis of a year of 360 days for the actual number of days elapsed. 3. Representations and Warranties. 3.1. The Borrower represents and warrants as follows: 3.1.1. The Borrower is a corporation duly organized and existing and in good standing under the laws of the Commonwealth of Puerto Rico. 3.1.2. The Borrower has power and authority to execute, deliver and carry out this Note, the Master Pledge 6 -5- Agreement, and each other instrument to be executed pursuant thereto, and each such document has been duly authorized by all necessary action of Borrower's Board of Directors (and of its stockholders, if required). 3.1.3. Each of this Note, the Master Pledge Agreement and each other instrument to be executed pursuant thereto, when delivered, will be legal, valid, binding and enforceable against the Borrower in accordance with its respective terms. 3.1.4. The proceeds of the term loan shall be used by the Borrower solely for the purposes set forth in Section 1.1 hereof. 4. Covenants. 4.1 So long as this Note shall remain unpaid, the Borrower will, unless the Bank shall otherwise consent in writing: 4.1.1. Maintain proper books of record and account in accordance with generally accepted accounting principles in which full, true and correct entries shall be made of its dealings and business affairs, and cause such books to be audited at the end of each fiscal year by certified public accountants satisfactory to both parties. 4.1.2. Furnish to the Bank, within one hundred twenty 7 -6- (120) days after the end of each fiscal year of the Borrower, a balance sheet and statement of profit and loss and surplus of the Borrower for such fiscal year audited by certified public accountants of recognized standing satisfactory to the Bank. 4.1.3. Permit any officers or qualified employees or representatives of the Bank designated by it to visit and inspect any and all properties of the Borrower and examine its books and discuss its affairs, finances and accounts with the officers thereof, all at such reasonable times and as often as the Bank may reasonably request. 4.1.4. Maintain, preserve and renew its corporate existence and going-concern status and all rights, powers, privileges and franchises possessed by it insofar as in the bona fide opinion of the Board of Directors of the Borrower, such rights, privileges and franchises continue to be advantageous to the Borrower. 4.1.5. Comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying and discharging all taxes, assessments and governmental charges upon the Borrower or against its properties. 4.1.6. Maintain, preserve and keep all of its properties in proper repair, working order and condition. 8 -7- 4.1.7. With respect to the term loan funded at any time with 936 Funds; (i) conduct its business in such a manner that, insofar as the term loan made hereunder is funded with 936 Funds, the requirements of Regulation 3582 as to the proper use of the proceeds thereof for an Eligible Activity by the "ultimate recipient" of such proceeds will be complied with; and (ii) submit to the Bank promptly upon demand such information as the Bank shall reasonably request from time to time in order to verify that the proceeds of the term loan have been, are being or will be properly applied in accordance with the Regulation, and such other information, statements, reports, certificates and documents as may be reasonably requested by the Bank to comply with Regulation 3582. 4.2 The Borrower covenants that from the date hereof and until the term loan hereunder, with interest thereon, shall not have been fully paid, it will not, without the prior written consent of the Bank, which consent shall not be unreasonably withheld: 4.2.1. Make loans or advances to any of its officers, 9 -8- directors, stockholders, affiliated companies, employees or any other person, except in the ordinary course of business. 4.2.2. Become liable, either directly or indirectly, for obligations of others, except in the ordinary course of business. 4.2.3. Further encumber its assets or incur indebtedness, except for: (i) unsecured current indebtedness in excess of $15,000,000.00 outstanding at any time and for liens in the form of purchase money obligations not in excess of $10,000,000.00 in the aggregate on any real property acquired by the Borrower and created contemporaneously with such acquisition which secure only borrowings made to finance the purchase of such property, provided that such lien extends only to the property acquired and that the aggregate principal amount of indebtedness secured by such lien and all other indebtedness secured by any other lien on such property does not exceed in the aggregate 80% of the fair market value thereof at the time of incurrence; or (ii) additional funded indebtedness (as hereinafter defined) of Borrower, provided that at the time of the issuance thereof and after giving effect thereto, funded indebtedness shall not exceed 50% of "consolidated capitalization", which shall mean the sum of funded indebtedness (as hereinafter defined) and "tangible net worth", which shall mean the capital and surplus of Borrower, less the net book value of any intangibles, both determined in accordance with generally accepted accounting principles, arising 10 -9- subsequent to June 30, 1994. For these purposes, "funded indebtedness" shall mean and include, as of any date as of which the amount thereof is to be determined, (i) all indebtedness of Borrower that matures more than one year from the date of creation thereof; (ii) all capital lease obligations; (iii) all indebtedness of Borrower (not included in clause (i) above) that is extendible or renewable at the option of any party thereto to a date more than one year from the date of creation thereof (whether or not theretofore renewed or extended), including any such indebtedness renewable or extendible under or payable from the proceeds of other indebtedness that may be incurred pursuant to the provisions of any revolving credit agreement or similar agreement, excluding, however, in all cases any portion of such indebtedness which is due and payable within one year from the date on which funded indebtedness is to be determined; and (iv) all guarantee of indebtedness described in (i) to (iii) above. 4.2.4. Pay any dividends or make any other distribution on its capital stock (other than dividends payable solely in stock), make any investment in any subsidiary or affiliate, acquire any of its capital stock or make any investment, loan or advance if the sum of all such payments subsequent to December 31, 1986 would exceed the sum of: (a) $500,000 plus (b) 50% of Borrower's consolidated net income less 100% of all consolidated net losses, computed 11 -10- on a cumulative basis subsequent to December 31, 1986 and after immediately giving effect to such payments Borrower is able to incur at least $1.00 of addition funded indebtedness as permitted under Section 4, Paragraph 4.2.3, clause (ii) above. 4.2.5. Sell or transfer all or an amount in excess of 10% of Borrower's consolidated net assets, excluding investments in money markets or maketable securities, sales transfers of real estate assets held for commercial and industrial development and not used in the manufacture of cement, multiwall paper bags, or hydrated lime, except those usually sold in the ordinary course of business. 4.2.6. Incur long-term leases or lease-purchase obligation in addition to that now existing or that provided hereunder, except those leases which are required to be capitalized under generally accepted accounting principles, if the total rents payable by Borrower in accordance with such leases shall exceed 5% of consolidated "tangible net worth" on any of the Borrower's fiscal years. 4.2.7. Merge with, or be consolidated with any other corporation or business entity, unless the Borrower is the surviving corporate entity. 12 -11- 4.2.8. Pay annual compensation (including gifts and bonuses) to its officers and directors exceeding in the aggregate and on an individual basis, such amounts which are customarily paid to officers and directors of corporation engaged in similar business or comparatively situated. 4.3 In the event of an irreconciliable controversy regarding this Section 4, the Borrower shall have the option of pledging to the Bank additional Securities provided that the Fair Market Value (as hereinafter defined) of the Securities shall not at any time be less than (i) with respect to Securities consisting of United States Treasury bills or notes, 105% of the aggregate outstanding principal amount of the Loan (the "Outstanding Principal Amount") secured thereby, plus (ii) with respect to Securities other than United States Treasury bills or notes, 110% of the Outstanding Principal Amount secured thereby and in that event this Section 4 would be considered deleted. The term "Fair Market Value" as used herein shall mean, as of any date, the bid price on such date of the Securities being valued, as obtained from a generally recognized source selected by the Bank or the most recent closing bid quotation for such securities from such source. 5. Events of Default. 5.1. If any of the following events ("Events of Default") shall occur and be continuing: 13 -12- 5.1.1. The Borrower shall fail to pay principal or interest on the term loan within ten (10) business days after the same becomes due and payable; or 5.1.2. Any representation or warranty made by the Borrower (or any of its officers) hereunder or under the Master Pledge Agreement shall prove to have been incorrect in any material respect when made; or 5.1.3. The Borrower shall fail to perform or observe any other term, covenant or agreement contained herein on its part to be performed or observed if such failure shall remain unremedied for ten (10) business days after written notice thereof shall have been given to the Borrower by the Bank; or 5.1.4. The Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debt under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or the Borrower shall take action to authorize any of the 14 -13- actions set forth above in this subsection 5.1.4; or 5.1.5. An Event of Default (as defined in the Master Pledge Agreement) shall occur under the Master Pledge Agreement; or 5.1.6. The Master Pledge Agreement shall for any reason, except to the extent permitted by the terms thereof, cease to create a valid and perfected first-priority security interest in any of the Collateral purported to be covered thereby; then, and in any such event, the Bank may, by notice to the Borrower, (i) declare the obligation of the Bank to make the term loan hereunder to be terminated, whereupon the same shall forthwith terminate, and (ii) declare this Note and all interest thereon to be forthwith due and payable, whereupon this Note and all such interest shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that upon the occurrence of any of the events described in subsection 5.1.4 above, this Note and all such interest, plus an additional amount equal to two percent (2%) of the then outstanding principal amount of the term loan, shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. 15 -14- 6. Miscellaneous. 6.1. The Borrower agrees, upon demand, to indemnify and hold harmless the Bank against and from all "1936 Indemnity Losses" (as defined hereinbelow) arising at any time now or hereafter by reason of any of the following: (i) any act of commission or omission by the Borrower; (ii) any breach of any covenant, representation, warranty, acknowledgment or statement by the Borrower contained in this Note or in any certificate or other written statement provided to the Bank in connection herewith; (iii) any adverse determination made by the Commissioner or any governmental authority in the United States or the Commonwealth as to the qualification of the term loan or any transactions related thereto as an Eligible Activity; (iv) any failure by the Borrower to permit the Bank to discharge or fulfill the Bank's duties or obligations under Regulation 3582; or (v) any change in any relevant law or regulation, or in the interpretation thereof, that results in any adverse 16 -15- consequence to the Bank due to the term loan funded with 936 Funds being outstanding. For purposes of this Section 6.1, "936 Indemnity Losses" shall mean and include any loss (including any funding loss), cost, damage (whether general, punitive or otherwise), liability, fine, penalty, indebtedness, claim, cause of action, judgment, court cost and legal or other expense, including attorneys' fees, relating directly or indirectly to Section 936 of the United States Internal Revenue Code or Regulation 3582. In addition, all "936 Indemnity Losses" shall be audited, at the option of Borrower and at its sole cost and expense, by certified public accountants satisfactory to both parties. The obligations set forth in this Section 6.1 shall survive the repayment in full of the term loan. 6.2. This Note shall be governed by, and construed in accordance with, the laws of the Commonwealth. 6.3. The term loan made by the Bank to the Borrower pursuant hereto, and all payments made on account of principal hereof, shall be recorded by the Bank. 6.4. As used in this Note, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined): 17 -16- "Business Day" means a day of the year in which banks in San Juan, Puerto Rico are not required or authorized to close or are not otherwise closed to the public. "Commissioner" means the Commissioner of Financial Institutions of the Commonwealth. "Commonwealth" means the Commonwealth of Puerto Rico. "Eligible Activity" has the meaning given such term in the Regulation. "Eligible Funds" has the meaning given such term in Regulation 3582. "Master Pledge Agreement" means that certain Master Pledge and Assignment Agreement, dated the date hereof, executed by the Borrower in favor of the Bank to secure the repayment of the term loan. "936 Covenants" means the covenants set forth in Section 4.1.7 hereof. "936 Funds" means deposits of Eligible Funds received by Banco Popular de Puerto Rico in San Juan, Puerto Rico. "Prime Rate" means the rate of interest designated and 18 -17- quoted by the Bank from time to time as its prime rate. The Prime Rate does not necessarily represent, and no such representation is hereby made, that such rate is the lowest, the best or the most favored rate quoted by the Bank. "Regulation 3582", means Regulation Number 3582 issued by the Commissioner on January 29, 1988, as such regulation may be amended from time to time, or any successor regulation issued by said official or by any successor governmental agency. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its officer thereunto duly authorized, as of the date first above written. PUERTO RICAN CEMENT COMPANY, INC. By: /s/ Jose O. Torres ---------------------------- Jose Osvaldo Torres AGREED AND ACCEPTED: BANCO POPULAR DE PUERTO RICO By: /s/ Pedro Jose Pena Lopez -------------------------- Pedro Jose Pena Lopez Vice President 19 EXHIBIT A MASTER PLEDGE AND ASSIGNMENT AGREEMENT MASTER PLEDGE AND ASSIGNMENT AGREEMENT, dated as of September 15, 1994, made by PUERTO RICAN CEMENT COMPANY, INC., a corporation duly organized and existing under the laws of the Commonwealth of Puerto Rico (the "Pledgor"), to BANCO POPULAR DE PUERTO RICO, a bank duly organized and existing under the laws of the Commonwealth of Puerto Rico (the "Bank"). WITNESSETH: WHEREAS, on the date hereof the Pledgor have issued a certain Promissory Note (the "Note; all terms used herein which are defined in the Note and not otherwise defined herein shall have the meanings set forth in the Note"), payable to the order of the Bank, in the principal sum of SEVEN MILLION DOLLARS ($7,000,000.00), hereinafter referred to as the "Loan". WHEREAS, it is a condition precedent to the making of the Loan to the Pledgor by the Bank that the Pledgor pledge and assign certain securities in favor of the Bank. NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Bank to make the Loan to the Pledgor, the Pledgor hereby agrees with the Bank as follows: SECTION 1. Pledge. In order to secure the Obligations (as 20 -2- hereinafter defined), the Pledgor hereby pledges, assigns and grants to the Bank a security interest in the securities described in Schedule I hereto and any other securities pledged and assigned to the Bank pursuant to Section 4 hereto (collectively the "Securities"), and any certificates or other evidence of ownership thereof, if any, and all interest (except to the extent that such interest is permitted to be paid to the Pledgor pursuant to Section 11 (a) hereof), cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Securities (collectively, the "Pledge Collateral"). SECTION 2. Security for Obligations. This Agreement secures the payment in full of the Loan of the Pledgor with the Bank, including principal, interest, fees, expenses or otherwise (all such obligations of the Pledgor referred to herein as the "Obligations"). SECTION 3. Delivery of Pledged Collateral. (a) All certificates or instruments representing or evidencing the Securities, if any, shall be delivered to and held by the Bank pursuant hereto. All Securities delivered to the Bank shall be endorsed in blank or as otherwise required by the Bank. (b) If any of the Securities are uncertificated securities or certificated securities whose ownership interest is recorded in a book-entry system, the Pledgor shall provide written 21 -3- notice in the form attached hereto as Exhibit "A" of the security interest created hereunder in favor of the Bank to the financial intermediary on whose books the Pledgor's ownership interest in said Securities appears recorded and the Pledgor shall take such further action as may be required in order to perfect the Bank's security interest in such Securities. SECTION 4. Mark to Market. (a) If at any time the Fair Market Value (as hereinafter defined) of the Securities shall at any time be less than (i) with respect to Securities consisting of United States Treasury bills or notes, 52.5% of the aggregate outstanding principal amount of the Loan (the "Outstanding Principal Amount") secured thereby, plus (ii) with respect to securities other than United States Treasury bills or notes, 55% of the Outstanding Principal Amount secured thereby, the Pledgor, upon written notice from the Bank, shall pledge, assign and deliver to the Bank, within ten (10) business days of such notice, additional Securities consisting of Eligible Collateral so that such deficiency no longer exists. The term "Fair Market Value" as used herein shall mean, as of any date, the bid price on such date of the Securities being valued, as obtained from a generally recognized source selected by the Bank or the most recent closing bid quotation for such Securities from such source. (b) With respect to any Securities that the Pledgor is required to pledge, assign and deliver to the Bank after the date of this Agreement pursuant to subsection (a) above, the Pledgor shall: 22 -4- (i) describe such additional Securities upon a Confirmation of Pledge, substantially in the form of Exhibit "B" hereto (the "Confirmation of Pledge"), that has been duly executed by the Pledgor and authenticated before an attesting notary of the Commonwealth of Puerto Rico. Such Confirmation of Pledge shall be delivered to the Bank at the time of such delivery or other transfer of the Securities; (ii) in the case of additional Securities that are evidenced by certificates or instruments, deliver to the Bank such certificates or instruments, endorsed in blank, or as otherwise required by the Bank; or, in the case of additional Securities that are uncertificated, or securities whose ownership interest is maintained in a book-entry system, provide written notice (in the form attached hereto as Exhibit "A") of the security interest created hereunder in favor of the Bank to the financial institution or intermediary on whose books the Pledgor's ownership interest in said additional Securities appear recorded; and (iii) deliver such other documents, certificates, or assignments, in form and substance acceptable to the Bank, as the Bank may reasonably require to ensure that the pledge of the additional Securities constitutes a first priority security interest in favor of the Bank. (c) "Eligible Collateral" shall mean any of the following: (i) direct obligations of, or obligations the principal of and the interest on which are unconditionally guaranteed by, the United States of America; (ii) any certificates or other evidences of an ownership in obligations or in specified portions thereof (which may consist of specified portions of the principal thereof or the interest thereon) of the character described in clause (i); (iii) bonds, debentures or notes issued by any of the following United States Government agencies: Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan 23 -5- Bank, Export-Import Bank of the United States, Government National Mortgage Association, Federal Land Banks, the Federal National Mortgage Association (including participation certificates issued by such Association) or the Tennessee Valley Authority; and (iv) all other obligations issued or unconditionally guaranteed as to principal and interest by a United States Government agency or person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the United States Congress; provided, however, that Eligible Collateral shall include only such securities as have been purchased by the Pledgor more than sixty (60) days prior to the date of the Note and as will be held for more that fifteen (15) days after the date of payment in full of the Note. SECTION 5. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Securities have been duly authorized and validly issued and are fully paid. (b) The Pledgor is the sole holder of record of the Securities and legal and beneficial owner of the Securities, free and clear of any liens, encumbrances, security interests, options, warrants or other charges or rights of third parties whatsoever, except for the security interest created in favor of the Bank by this Agreement. (c) This Agreement constitutes a legal, valid and binding obligation of the Pledgor, enforceable in accordance with its terms. 24 -6- (d) The pledge of the Pledged Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment in full of the Obligations. All action necessary or desirable to perfect and protect such security interest has been duly taken. (e) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the due execution, delivery or performance of this Agreement by the Pledgor or (ii) for the exercise by the Bank of its rights hereunder or the remedies granted to it in respect of the Securities pursuant to this Agreement, except for the notices provided in subsections 3(b) and 4(b) (ii) hereof with respect to uncertificated Securities. (f) The exercise by the Bank of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or affecting the Pledgor or any of its properties. (g) The execution, delivery and performance by the Pledgor of this Agreement do not contravene any law or contractual restriction binding on or affecting the Pledgor. (h) Each of the Securities pledged to the Bank pursuant hereto constitutes, or in the case of Securities to be pledged hereunder after the date hereof will constitute, Eligible Collateral. 25 -7- SECTION 6. Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Bank may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Bank to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. SECTION 7. Transfers and other Liens. The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral; or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest created under this Agreement. However, in the event that one of the Securities in the Pledged Collateral reaches maturity and provided no Event of Default exists hereunder, the Pledgor shall have the right to replace the one that reached maturity with substitute Securities of the same quality and value. SECTION 8. Bank Appointed Attorney-in-Fact. The Pledgor hereby appoints the Group Head of the Bank's Corporate Banking Group, or any other person which said Group Head may designate to substitute him, or any other person designated by the Bank, as the Pledgor's attorney-in-fact, with full authority in the place and 26 -8- stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in his discretion, upon the occurrence of an Event of Default, to take any action and to execute any instrument that he may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. This power, being coupled with an interest, is irrevocable so long as the Obligations remain unpaid. SECTION 9. Bank May Perform. If the Pledgor fails to perform any agreement contained herein, the Bank may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Bank incurred in connection therewith shall be payable by the Pledgor as provided under Section 14. SECTION 10. Reasonable Care. The Bank shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in the Bank's possession if the Pledged Collateral is accorded treatment substantially equal to that which the Bank accords its own property. It is hereby understood that the Bank shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, redemptions, tenders or other matters relative to any Pledged Collateral, whether or not the Bank has or is deemed to 27 -9- have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. SECTION 11. Interest. (a) So long as no Event of Default hereunder shall have occurred and be continuing, the Pledgor shall be entitled to receive and retain any and all interest paid in respect of the Pledged Collateral. (b) Upon the occurrence and continuance of an Event of Default: (i) All rights of the Pledgor to receive the interest that it would otherwise be authorized to receive and retain pursuant to Section 11(a) shall immediately cease, and all such rights shall thereupon become vested in the Bank which shall thereupon have the sole right to receive and hold such interest as Pledged Collateral. (ii) All interest that is thereafter received by the Pledgor contrary to the provisions of paragraph (i)of this Section 11(b) and any other payments or distributions received by the Pledgor on account of the Pledged Collateral shall be received by the Pledgor in trust for the benefit of the Bank, shall be segregated from other funds of the Pledgor and shall be promptly paid over to the Bank as Pledged Collateral in the same form as received (with any necessary endorsement). SECTION 12. Events of Default. Any one of the following shall be an Event of Default hereunder: (a) Any representation or warranty herein made or any certificate or statement furnished pursuant to the provisions of this Agreement or pursuant to the provisions of the Note by the Pledgor or by any other person shall prove to be false or 28 -10- misleading in any material respect as of the time made; or (b) The Pledgor shall default in the performance of any covenant, condition or provision, or in the performance of any other obligation that may exist between it and the Bank, whether now existing or arising in the future, and any such default is not remedied within ten (10) business days after written notice thereof shall have been given to the Pledgor by the Bank; or (c) An Event of Default shall occur under the Note and such default is not remedied by the Pledgor within fifteen (15) business days after written notice thereof shall have been given to the Pledgor by the Bank. SECTION 13. Remedies upon Default. If any Event of Default shall have occurred and be continuing: (a) The Bank may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a pledgee on default under the laws of the Commonwealth of Puerto Rico at the time, and the Bank may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at the Bank's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Bank may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least fifteen (15) business days' written notice to the Pledgor of the time and place of any public sale or the time after 29 -11- which any private sale is to be made shall constitute reasonable notification. The Bank shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Bank may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Bank as Pledged Collateral and all cash proceeds received by the Bank in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Bank, be held by the Bank as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Bank pursuant to Section 14) in whole or in part by the Bank against, all or any part of the Obligations in such order as the Bank shall elect. Any surplus of such cash or cash proceeds held by the Bank and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to a court of competent jurisdiction for its determination as to who may be lawfully entitled to receive such surplus. SECTION 14. Expenses. The Pledgor shall upon demand pay to the Bank the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Bank may incur in connection with (i) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (ii) the 30 -12- exercise or enforcement of any of the rights of the Bank hereunder or under the Note, and (iii) the failure by the Pledgor to perform or observe any of the provisions hereof. The above mentioned fees and expenses shall be equivalent to those charged by other professionals for such services. SECTION 15. Security Interest Absolute. All rights of the Bank and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Note or any agreement between the Pledgor and the Bank, or any other agreement or instrument relating thereto; (b) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (c) any other circumstances that might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Obligations. SECTION 16. Amendments. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Bank and then such waiver or 31 -13- consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 17. Notices. (a) All notices, requests, consents and other communications required or permitted under this Agreement shall be in writing and shall be (as elected by the person giving the notice) hand delivered by messenger or courier service or mailed (airmail if international) by registered or certified mail (postage prepaid), return receipt requested, addressed to: If to the Pledgor: PUERTO RICAN CEMENT CO., INC. PO BOX 364487 SAN JUAN, PR 00936-4487 If to the Bank: BANCO POPULAR DE PUERTO RICO GPO BOX 362708 SAN JUAN, PR 00936-2708 (b) Each such notice shall be deemed delivered (i) on the date delivered, receipt acknowledged if by personal delivery, or (ii) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed. (c) By giving to the other party at least fifteen (15) business days prior written notice thereof, such party and its successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses. SECTION 18. Continuing Security Interest. This Agreement shall create a continuing security interest in the Pledged 32 -14- Collateral and shall (i) remain in full force and effect until payment in full of the Obligations, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure to the benefit of the Bank and its successors, transferees and assigns. SECTION 19. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Puerto Rico. IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. PUERTO RICAN CEMENT COMPANY By: /s/ Jose O Torres -------------------------- Jose Osvaldo Torres ACCEPTED AND AGREED TO, as of the date first above indicated: BANCO POPULAR DE PUERTO RICO By: /s/ PEDRO JOSE PENA LOPEZ ----------------------------- PEDRO JOSE PENA LOPEZ VICE PRESIDENT 33 SCHEDULE I DESCRIPTION OF SECURITIES
U.S. TREASURY NOTES: FACE MARKET CUSIP NO. SECURITY PURCHASED MATURITY VALUE PRICE VALUE 912827K27 U.S. TREASURY 03-31-93 03-31-95 670,000 0.993000 665,31 912827K27 U.S. TREASURY 04-07-93 03-31-95 645,000 0.993000 640,48 OTHER SECURITIES: FACE MARKET CUSIP NO. SECURITY PURCHASED MATURITY VALUE PRICE VALUE 880591BX9 TVA 12-23-93 12-15-96 1,650,000 0.955000 1,575,7 88059IBT8 TVA 11-19-93 03-04-98 640,000 0.938400 600,5 31339KAU6 FHLB STRIP 09-28-93 08-25-98 235,000 0.763303 179,3 /s/ Jose Osvaldo Torres ------------------------------ BY: JOSE OSVALDO TORRES PUERTO RICAN CEMENT CO. INC.
34 September 15, 1994 The Chase Manhattan Bank, N.A. Custody Division - P O Box 361990 San Juan, PR 00936-1990 Re: Account No. ______________ Ladies and Gentlemen: Reference is made to those certain uncertificated securities or certificated securities whose record ownership is maintained in the book-entry system, described on Schedule I hereto (the "Securities"), which Securities are held in the above-referenced account of the undersigned. This is to notify you that the Securities have been pledged and assigned and a security interest therein has been granted by the undersigned to Banco Popular de Puerto Rico ("the Bank"), with mailing address at GPO BOX 362708, SAN JUAN, PUERTO RICO 00936-2708, pursuant to a Master Pledge and Assignment Agreement dated as of September 15, 1994 between the undersigned and the Bank. Therefore, please make the necessary transfers and/or notations to reflect the Bank's interest in the Securities. Kindly execute and return the enclosed copy of this letter as your acknowledgement that you have received this notice and that 35 the necessary transfers and/or notations have been made in your records to reflect the Bank's interest in the Securities. Sincerely yours, PUERTO RICAN CEMENT CO., INC. By: /s/ Jose Osvaldo Torres ---------------------------- JOSE OSVALDO TORRES Affidavit No. -184- Vol. XIV ----- Subscribed before me on this 15th day of September, 1994 in San Juan, Puerto Rico, by the following person who is personally known to me: Mr. Jose Osvaldo Torres, of legal age, married, executive, and resident of Guaynabo, Puerto Rico, on behalf of PUERTO RICAN CEMENT COMPANY, INC. ---------------------------- Notary Public ACKNOWLEDGED AND CONFIRMED: (FINANCIAL INTERMEDIARY) By:______________________ Name: Title: Date: ___________________ 36 EXHIBIT "B" CONFIRMATION OF PLEDGE This document confirms and effects the pledge and assignment of certain collateral, consisting of the securities described in Schedule I hereto and made a part hereof (the "Securities"), pursuant to the terms of that certain Master Pledge and Assignment Agreement (as amended, modified or supplemented from time to time, the "Master Pledge Agreement") entered into as of September 15, 1994 by and among the undersigned and Banco Popular de Puerto Rico (the "Bank"). Under the terms of the Master Pledge Agreement, the undersigned agreed to effect a pledge and assignment of such further collateral, pursuant to a document in form and substance equivalent to this Confirmation of Pledge, in order to pledge and assign additional Securities to the Bank. Pursuant to such Master Pledge Agreement, the undersigned hereby pledges, assigns and grants to the Bank a security interest in the Securities. This pledge, assignment and grant of a security interest is effected pursuant and subject to the terms of the Master Pledge Agreement and the representations and warranties contained in the Master Pledge Agreement are hereby made by the undersigned with respect to the Securities pledged hereunder. 37 This document shall constitute an integral part of the Master Pledge Agreement and shall be subject to the terms and conditions thereof for all purposes. In case of a conflict between the terms hereof and the terms of the Master Pledge Agreement, the latter shall prevail unless otherwise expressly agreed to the contrary in writing. PUERTO RICAN CEMENT CO., INC. By: -------------------------- JOSE OSVALDO TORRES 38 BORROWER'S CERTIFICATE IN CONFORMITY WITH SECTION 6.4.3. OF REGULATION 3582 WITH RESPECT TO 936 FUNDS The undersigned hereby acknowledges that, prior to the granting of this loan, it was aware that the loan would be reported to the Office of the Commissioner of Financial Institutions as an Eligible Activity for the use of 936 Funds. Date: September 15, 1994 PUERTO RICAN CEMENT CO., INC. BY: /s/ Jose O. Torres -------------------------- Jose O. Torres The following sections should be filled out by the Financial Institution: 1. Purpose of the loan: To refinance the outstanding balance of a loan of Scotiabank de Puerto Rico originally granted for the dry process conversion of cement manufacturing. 2. Collateral: A pledge of United States Treasury obligations or other investments acceptable to the Bank; provided, however, that with respect to any such pledged investment which does not constitute an Eligible Activity under applicable regulations, such investment must have been purchased by the Borrower more than 60 days from the date of the loan and must be held for more than 15 days after the date of payment in full of the loan. 3. Amount: $7,000,000.00 Date: September 15, 1994 BANCO POPULAR DE PUERTO RICO By: /s/ Pedro Jose Pena Lopez ------------------------- Pedro Jose Pena Lopez Vice President 39 MAIN OFFICE PO BOX 364487 SAN JUAN PR 00936-4487 TELEPHONES: Main Off. 764-6000 Catano Off. 783-3000 ------------------------- PONCE OFFICE P.O. BOX 1349 PONCE, PUERTO RICO 00731 Plant Off. Ponce 842-3000 PUERTO RICAN CEMENT COMPANY, INC. SAN JUAN, PUERTO RICO September 15, 1994 Banco Popular de Puerto Rico Comercial Banking Popular Center Hato Rey, Puerto Rico 00918 Re: Term Loan for the principal amount of $7,000,000.00 (the "Term Loan") pursuant to the Promissory Note dated as September 15, 1994 (the "Note") Gentlemen: In order to induce you to make the term loan to us under Regulation No. 3582 issued by the Commissioner of Financial Institutions, as amended, or any substitute regulations therefore ("Regulation 3582"), we represent, warrant and agree that: 1. We will use the term loan funded with Eligible Funds in our business activities in Puerto Rico only for purposes which are "Eligible Activities" as defined in Regulation 3582. 2. Except as may be permitted by the terms of the Note, we will not repay any obligation that you may hold evidencing the delivery of the term loan funded with Eligible Funds to us prior to maturity. 3. We will not re-deposit or otherwise place or transfer, through any mechanism, the term loan funded with Eligible Funds with a depositary institution, or with an institution engaged the securities, brokerage and/or underwriting and security credit lending business; nor will we use or permit the use of the proceeds of the term loan funded with Eligible Funds for consumer loans, or outside of Puerto Rico. We understand that this prohibition does not apply to demand deposits maintained by us for current operating purposes. 4. It is our intention to use the term loan funded with Eligible Funds for the purpose of refinancing the outstanding balance of a loan of Scotiabank de Puerto Rico originally granted for the dry process conversion of cement manufacturing. 40 5. In the event of a determination by you that the use of the proceeds of the term loan funded with Eligible Funds does not qualify as an "Eligible Activity", you shall have the option to require prepayment of any obligation that you may hold evidencing delivery of such proceeds to us in accordance with the terms of the Note. 6. We understand that if we utilize the proceeds of the term loan funded with Eligible Funds for any purpose that is not an "Eligible Activity", the Commissioner of Financial Institutions may disqualify us from further eligibility to borrow "Eligible Funds". Very truly yours, PUERTO RICAN CEMENT CO., INC. BY: /s/ Jose Osvaldo Torres - - - --------------------------- Jose Osvaldo Torres AGREED AND ACCEPTED: BANCO POPULAR DE PUERTO RICO BY: /s/ Pedro Jose Pena Lopez ---------------------------- Pedro Jose Pena Lopez Vice President EX-10.2 3 LETTER OF LOAN AGREEMENT 1 Exhibit 10.2 July 11, 1994 Mr. Jose 0. Torres Vice President and Treasurer Puerto Rican Cement Company, Inc. PO Box 364487 San Juan, Puerto Rico 00936-4487 Dear Mr. Torres: Reference is made to your request for certain modifications to the Loan Agreements executed by and between Puerto Rican Cement Company (the Borrower) and Banco Popular de Puerto Rico (the Bank) on August 20, 1993 and December 8, 1993 respectively. We are pleased to inform you that the Bank is hereby amending the following section of said loan agreements, to read as follows: August 20, 1993 Loan Agreement: Section 1. Term Loan: Item C. Principal on the term loan shall be paid by BORROWER to the BANK in (I) four (4) equal and consecutive annual installments of Seven Hundred and Fifty Thousand Dollars ($750,000.00) each, due and payable on the first (1st) day of August of the years 1994, 1995, 1996, 1997 and a balloon payment of Three Million Dollars ($3,000,000.00) or 50% of the total amount loaned to Borrower due and payable on August 1, 1998, or (II) in one (1) bullet payment due on the first (1st.) day of August of the year nineteen hundred ninety eight (1998), subject to the creation by the BORROWER of a sinking fund, with a Trustee acceptable to the BANK, to increase annually by a present value equivalent to ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00) until reaching the principal sum of SIX MILLION DOLLARS ($6,000,000.00) on or before the first (1st) day of August of the year nineteen hundred ninety eight (1998) or (III) in five (5) equal and consecutive annual installments of one million Two Hundred Thousand Dollars ($1,200,000.00) each, 2 Mr. Jose 0. Torres July 11, 1994 Page 2 due and payable on the first (1st) day of August of the years 1994, 1995, 1996, 1997 and 1998. The outstanding principal balance shall accrue interest from this date and until payment in full, even after maturity, at a fixed annual rate of SIX AND ONE FOURTH PERCENT (6 1/4%) based on a 360 days- year. Interest on the decreasing balance of the principal sum of the term loan at the rate specified shall be paid by BORROWER monthly on the last day of each and every month. December 8. 1993 Loan Agreement: Section 1. Loan Item C Principal on the loan shall be paid by borrower to the Bank, in one of the following terms (I) five (5) equal and consecutive annual installments of One Million Six Hundred Thousand dollars ($1,600,000.00) each, due and payable on the tenth (10th) day of November of the years 1994, 1995, 1996, 1997 and 1998 or (II) in four (4) equal and consecutive annual installments of 12.5% each of the total principal amount loaned to Borrower, due and payable on the tenth (10th) day of November of the years 1994, 1995, 1996, 1997 and a balloon payment of Four Million Dollars ($4,000,000.00) or 50% of the total principal amount loaned to borrower, due and payable on November 10, 1998, or (III) in one (1) bullet payment due on the tenth (10th) day of November of the year nineteen hundred ninety eight (1998), subject to the creation by the Borrower of a sinking fund, duly pledged in favor of the Bank, with a Trustee acceptable to the bank, to increase annually by a present value equivalent to One Million Six Hundred Thousand Dollars ($1,600,000.00) or by 20% of the total loaned to Borrower until reaching the principal sum of Eight Million Dollars ($8,000,000.00) on or before the tenth (10th) day of November of the year nineteen hundred ninety eight (1998). The outstanding principal balance shall accrue interest from this date and until payment in full, even after maturity, at a fixed annual rate of Six and One Fourth Percent (6 1/4%) based on a 360 days year. Interest on the decreasing balance of the principal sum of the loan, at the rate specified, shall be paid by borrower monthly on the last day of each month. 3 Mr. Jose 0. Torres July 11, 1994 Page 3 All other terms and conditions on said agreements will remain in full force and effect. Cordially yours. /s/ Pedro J. Pena Pedro J. Pena Vice President Corporate Banking Division EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENT OF PUERTO RICAN CEMENT CO., INC. FOR NINE MONTHS ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1994 SEP-30-1994 1,394,594 1,594,195 18,245,604 1,094,997 27,297,064 52,528,479 165,110,163 53,951,662 205,673,141 18,671,891 32,492,132 6,000,000 0 0 117,204,416 205,673,141 0 70,889,609 46,651,693 54,913,798 (3,642) 0 0 15,979,453 5,455,017 0 0 0 0 10,524,436 1.82 0
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