-----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, oMdOAXbgsrSau65ayshOpcpq+7V+5NTe4M8HLuwd2hX9jQUt2cWNf5kwCHFUD6jk dJZxURkiiTu9V3wNQ4vvGg== 0000950144-94-001344.txt : 19940720 0000950144-94-001344.hdr.sgml : 19940720 ACCESSION NUMBER: 0000950144-94-001344 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940719 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANPONCE CORP CENTRAL INDEX KEY: 0000763901 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 660416582 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-54299 FILM NUMBER: 94539281 BUSINESS ADDRESS: STREET 1: 209 MUNOZ RIVERA AVE STREET 2: POPULAR CENTER BUILDING CITY: HATO REY STATE: PR ZIP: 00918 BUSINESS PHONE: 8097659800 MAIL ADDRESS: STREET 1: P.O. BOX 362708 CITY: SAN JUAN STATE: PR ZIP: 00936-2708 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANPONCE FINANCIAL CORP CENTRAL INDEX KEY: 0000877337 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 660476353 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-54299-01 FILM NUMBER: 94539282 BUSINESS ADDRESS: STREET 1: C/O CT 1209 ORANGE ST CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 8097659800 MAIL ADDRESS: STREET 1: C/O SULLIVAN & CROMWELL STREET 2: 125 BROAD ST CITY: NEW YORK STATE: NY ZIP: 10004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POPULAR INTERNATIONAL BANK INC CENTRAL INDEX KEY: 0000896074 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: A7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-54299-02 FILM NUMBER: 94539283 BUSINESS ADDRESS: STREET 1: 209 MUNOZ RIVERA AVE CITY: HATO REY STATE: A7 ZIP: 00918 BUSINESS PHONE: 8097659800 MAIL ADDRESS: STREET 1: C/O SULLIVAN & CROMWELL STREET 2: 125 BROAD ST CITY: NEW YORK STATE: NY ZIP: 10004 S-3/A 1 BANPONCE CORPORATION - S-3 AMENDMENT #1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1994 REGISTRATION NO. 33-54299 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- BANPONCE CORPORATION (Exact name of co-registrant as specified in its charter) --------------------- PUERTO RICO 66-0416582 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 209 MUNOZ RIVERA AVENUE 00918 HATO REY, PUERTO RICO (Zip Code) (Address of principal executive offices)
(809) 765-9800 (Co-registrant's telephone number, including area code) --------------------- POPULAR INTERNATIONAL BANK INC. (Exact name of co-registrant as specified in its charter) PUERTO RICO N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 209 MUNOZ RIVERA AVENUE 00918 HATO REY, PUERTO RICO (Zip Code) (Address of principal executive offices)
(809) 765-9800 (Co-registrant's telephone number, including area code) --------------------- BANPONCE FINANCIAL CORP. (Exact name of co-registrant as specified in its charter) --------------------- DELAWARE 66-0476353 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) C/O CT CORPORATION 19801 1209 ORANGE STREET (Zip Code) WILMINGTON, DELAWARE (Address of principal executive offices)
(809) 765-9800 (Co-registrant's telephone number, including area code) DAVID H. CHAFEY, JR. 209 MUNOZ RIVERA AVENUE HATO REY, PUERTO RICO 00918 (809) 765-9800 (Name, address and telephone number, including area code, of agent for service) 2 --------------------- COPIES TO: DONALD J. TOUMEY SULLIVAN & CROMWELL 125 BROAD STREET NEW YORK, NEW YORK 10004 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement as determined by the Registrants on the basis of market conditions and other factors. If the only securities being registered on this Form are to be 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, please check the following box. /X/ - -------------------------------------------------------------------------------- 3 SUBJECT TO COMPLETION, DATED JULY 19, 1994 PROSPECTUS - ----------------- DEBT SECURITIES OF BANPONCE CORPORATION OR POPULAR INTERNATIONAL BANK INC. (UNCONDITIONALLY GUARANTEED BY BANPONCE CORPORATION) OR BANPONCE FINANCIAL CORP. (UNCONDITIONALLY GUARANTEED BY BANPONCE CORPORATION) PREFERRED STOCK OF BANPONCE CORPORATION OR POPULAR INTERNATIONAL BANK INC. (UNCONDITIONALLY GUARANTEED BY BANPONCE CORPORATION) --------------------- BanPonce Corporation (the "Corporation") intends to issue from time to time in one or more series its (i) unsecured debt securities, which may be either senior or subordinated, and (ii) shares of preferred stock. BanPonce Financial Corp. ("Financial") intends to issue from time to time in one or more series its unsecured debt securities. Popular International Bank Inc. ("PIB") intends to issue from time to time in one or more series its (i) unsecured debt securities, which may be either senior or subordinated, and (ii) shares of preferred stock. Unsecured debt securities issued by Financial or PIB will be unconditionally guaranteed as to the payment of principal, premium, if any, and interest by the Corporation. Shares of preferred stock issued by PIB will be guaranteed as to the payment of dividends, redemption price, if any, and liquidation preference, if any, by the Corporation. The foregoing debt securities and shares of preferred stock are collectively referred to herein as the "Securities." The Securities will be limited to an aggregate initial offering price not to exceed $500,000,000 or, in the case of debt securities, the equivalent thereof in one or more foreign currencies, including composite currencies. The Securities offered may be offered, separately or together, in separate series, in amounts, at prices and on terms to be determined at the time of sale and to be set forth in a supplement to this Prospectus (a "Prospectus Supplement"). The subordinated debt securities when issued will be subordinated as described herein under "Description of Debt Securities and Guarantees." Unless otherwise indicated in the Prospectus Supplement, payment of the principal of the subordinated debt securities may be accelerated only in the case of certain events involving the bankruptcy, insolvency or reorganization of the Corporation or PIB, as the case may be. There is no right of acceleration of payment of subordinated debt securities in the case of a default in the performance of any covenant of the Corporation or PIB, including the payment of principal or interest. The specific terms of the Securities in respect of which this Prospectus is being delivered, including (i) in the case of debt securities, the issuer, the specific designation, aggregate principal amount, denominations, maturity, premium, if any, rate (which may be fixed or variable) and time of payment of interest, if any, terms for redemption at the option of the Corporation, Financial, PIB or the holder, if any, currency or currencies of denomination and payment, if other than U.S. dollars, the terms, if any, for conversion into other debt securities or preferred stock and any other terms in connection with the offering and sale of the debt securities in respect of which this Prospectus is being delivered, as well as the initial public offering price, and the principal amounts, if any, to be purchased by underwriters and (ii) in the case of preferred stock, the issuer, the specific title and stated value, number of shares or fractional interests therein, any dividend, liquidation, redemption, voting and other rights, the terms, if any, for conversion into other preferred stock, the securities exchanges, if any, on which the preferred stock is to be listed, the initial public offering price, and the number of shares, if any, to be purchased by the underwriters, will be as set forth in the accompanying Prospectus Supplement. All or a portion of the debt securities may be issued in permanent global form. The Securities may be sold to underwriters for public offering pursuant to terms of offering fixed at the time of sale. In addition, the Securities may be sold by the Corporation directly or through dealers or agents designated from time to time, which agents may be affiliates of the Corporation. The Prospectus Supplement will also set forth with respect to the sale of the Securities in respect of which this Prospectus is being delivered the names of the underwriters, dealers or agents, if any, together with the terms of offering, the compensation of such underwriters and the net proceeds to the Corporation. --------------------- THE SECURITIES WILL BE UNSECURED OBLIGATIONS OF THE CORPORATION AND WILL NOT BE SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE SECURITIES OFFICE OF THE OFFICE OF THE COMMISSIONER OF FINANCIAL INSTITUTIONS OF THE COMMONWEALTH OF PUERTO RICO OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, SUCH SECURITIES OFFICE, OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Prospectus is , 1994 4 *************************************************************************** * * * INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * * REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED * * WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT * * BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * * REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * * CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * * NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH * * SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO * * REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH * * STATE. * * * *************************************************************************** 5 AVAILABLE INFORMATION The Corporation is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information concerning the Corporation can be inspected and copied at the Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices in New York (7 World Trade Center, New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661). Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. This Prospectus does not contain all of the information set forth in the Registration Statement which the Corporation has filed with the Commission under the Securities Act of 1933 (the "Act"), to which reference is hereby made. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Corporation hereby incorporates by reference into this Prospectus the following documents filed by the Corporation with the Commission: 1. The Corporation's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by the Corporation's Amendment on Form 10-K/A, dated June 22, 1994, provided however, that the information referred to in Item 402(a)(8) of Regulation S-K promulgated by the Commission shall not be deemed to be specifically incorporated by reference herein. 2. The Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 3. The Corporation's Current Report on Form 8-K, dated June 21, 1994. 4. The Corporation's Registration Statement on Form 8-A, dated August 18, 1988, filed pursuant to Section 12(g) of the Exchange Act, pursuant to which the Corporation registered its Series A Participating Cumulative Preferred Stock Purchase Rights. 5. The Corporation's Registration Statement on Form 8-A, dated June 17, 1994, as amended by the Corporation's Amendment on Form 8-A/A, dated June 21, 1994, filed pursuant to Section 12(g) of the Exchange Act, pursuant to which the Corporation registered its 8.35% Non-Cumulative Monthly Income Preferred Stock, 1994 Series A. All documents filed by the Corporation subsequent to the date of this Prospectus and prior to the termination of the offering of the Securities pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act shall be deemed to be incorporated by reference into this Prospectus and to be a part thereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Any person receiving a copy of this Prospectus, including any beneficial owner, may obtain without charge, upon oral or written request, a copy of any of the documents incorporated by reference herein, except for the exhibits to such documents. Written requests should be mailed to Mr. Orlando Berges, Senior Vice President, BanPonce Corporation, P.O. Box 362708, San Juan, Puerto Rico 00936-2708. Telephone requests may be directed to (809) 765-9800. 2 6 BANPONCE CORPORATION The Corporation is a bank holding company registered under the Bank Holding Company Act of 1956 and incorporated in 1984 under the laws of the Commonwealth of Puerto Rico ("Puerto Rico"). The Corporation is the largest financial institution in Puerto Rico, with consolidated assets of $11.5 billion, total deposits of $8.5 billion and stockholders' equity of $834.2 million as of December 31, 1993. Based on both total assets and total deposits at December 31, 1993, the Corporation was the 55th largest bank holding company in the United States. The Corporation's principal executive offices are located at 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918 and its telephone number is (809) 765-9800. The Corporation's principal subsidiary, Banco Popular de Puerto Rico ("Banco Popular" or the "Bank"), was incorporated over 100 years ago in 1893 and is Puerto Rico's largest bank with total assets of $11.0 billion, deposits of $8.5 billion and stockholders' equity of $763.3 million at December 31, 1993. The Bank accounted for 95% of the total consolidated assets of the Corporation at December 31, 1993. A consumer-oriented bank, Banco Popular has the largest retail franchise in Puerto Rico, operating 205 branches and 253 automated teller machines. The Bank also has the largest trust operation in Puerto Rico and is a leader in the mortgage banking business. In addition, it operates the largest Hispanic bank branch network in the mainland United States with 30 branches in New York, one branch in Chicago and one branch in Los Angeles. As of December 31, 1993, these branches had a total of approximately $1.4 billion in deposits. The Bank also operates seven branches in the U.S. Virgin Islands and one branch in the British Virgin Islands. The Corporation has two other principal subsidiaries: Vehicle Equipment Leasing Company, Inc. ("VELCO") and Financial. VELCO is engaged primarily in the finance leasing of passenger vehicles and is the largest leasing company in Puerto Rico. For additional information regarding Financial, see "BanPonce Financial Corp." POPULAR INTERNATIONAL BANK INC. PIB is a wholly owned subsidiary of the Corporation organized in 1992 under the laws of the Commonwealth of Puerto Rico and operating as an "international banking entity" under the International Banking Center Regulatory Act of Puerto Rico (the "IBC Act"). PIB owns all of the outstanding capital stock of Financial. Summary consolidated financial statements of PIB are included in the notes to the Corporation's consolidated financial statements. BANPONCE FINANCIAL CORP. Financial, a wholly owned subsidiary of PIB and an indirect, wholly owned subsidiary of the Corporation, was organized in 1991 under the laws of the State of Delaware. Financial acquired all of the common stock of Spring Financial Services, Inc. ("Spring") on September 30, 1991. Spring is engaged in the business of providing consumer and dealer finance loans and operates through 70 branches in 19 mid-Atlantic states. Prior to the acquisition of Spring, Financial had no significant business operations. On March 31, 1994, Financial acquired all of the common stock of Pioneer Bancorp, Inc., a Delaware corporation, and the parent company of Pioneer Bank and Trust Company ("Pioneer Bank"). Pioneer Bank is an Illinois bank with 2 branches in the Chicago area. It is expected that Pioneer Bank will acquire the Bank's existing branch in Chicago. Summary consolidated financial statements of Financial are included in the notes to the Corporation's consolidated financial statements. 3 7 CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES OF THE CORPORATION
YEAR ENDED DECEMBER 31, QUARTER ENDED ------------------------------------ MARCH 31, 1994 1993 1992 1991 1990 1989 -------------- ---- ---- ---- ---- ---- Ratio of Earnings to Fixed Charges: Excluding Interest on Deposits................ 2.9 3.0 2.9 2.1 3.6 2.4 Including Interest on Deposits................ 1.5 1.5 1.3 1.2 1.3 1.2 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends Excluding Interest on Deposits................ 2.8 3.0 2.9 2.0 3.6 2.4 Including Interest on Deposits................ 1.5 1.5 1.3 1.2 1.3 1.2
For purposes of computing these consolidated ratios, earnings represent income (loss) before income taxes, cumulative effect of a change in accounting principles and equity in undistributed income of unconsolidated subsidiaries and affiliates, plus fixed charges excluding capitalized interest. Fixed charges represent all interest expense (ratios are presented both excluding and including interest on deposits), the portion of net rental expense which is deemed representative of the interest factor, the amortization of debt issuance expense and capitalized interest. USE OF PROCEEDS The Corporation intends to use the net proceeds from the sale of the Securities for general corporate purposes, including investments in, or extensions of credit to, its existing and future subsidiaries, for the acquisition of other banking and financial institutions and repayment of outstanding borrowings. The Corporation does not at present have any plans to use the proceeds from any offering for a material acquisition or to repay outstanding borrowings. All or a substantial portion of the proceeds from the sale of Securities issued by Financial will be lent by Financial to Spring or used by Financial for general corporate purposes. The net proceeds from the sale of Securities by PIB will be lent by PIB to its affiliates or used by PIB for general corporate purposes. The precise amounts and timing of the application of proceeds will depend on various factors existing at the time of offering of the Securities, including the Corporation's subsidiaries' funding requirements and the availability of other funds. Pending such use, the proceeds may be temporarily invested in short-term obligations. CERTAIN REGULATORY MATTERS GENERAL The Corporation is a bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956 (the "BHC Act"). As a bank holding company, the Corporation's activities and those of its banking and nonbanking subsidiaries are limited to the business of banking and activities closely related or incidental to banking, and the Corporation may not directly or indirectly acquire the ownership or control of more than 5% of any class of voting shares or substantially all of the assets of any company in the United States, including a bank, without the prior approval of the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHC Act from engaging in nonbanking activities, subject to certain exceptions. Banco Popular is considered a foreign bank for purposes of the International Banking Act of 1978 (the "IBA"). Under the IBA and the BHC Act, the Corporation and Banco Popular are not permitted to operate a branch or agency, or acquire more than 5% of any class of the voting shares or substantially all the assets of, or control of, an additional bank or bank holding company that is located outside of their "home state," except that (i) the Corporation may acquire control of a bank in a state if the laws of that state explicitly authorize a bank holding company from such bank holding company's home state to do so and (ii) Banco Popular may continue to operate a "grandfathered" branch or agency. Puerto Rico is not considered a state for purposes of these geographic limitations. Banco Popular has designated the state of New York as its home state. In 4 8 addition, some states have laws prohibiting or restricting foreign banks from acquiring banks located in such states and treat Puerto Rico's banks and bank holding companies as foreign banks for such purposes. Banco Popular and Pioneer Bank are subject to supervision and examination by applicable federal and state banking agencies including, in the case of Banco Popular, the Federal Reserve Board and the Office of the Commissioner of Financial Institutions of Puerto Rico and, in the case of Pioneer Bank, the Federal Deposit Insurance Corporation (the "FDIC") and the Illinois Commissioner of Banks and Trust Companies. Banco Popular and Pioneer Bank are subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of other investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of Banco Popular and Pioneer Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. HOLDING COMPANY STRUCTURE Banco Popular and Pioneer Bank are subject to restrictions under federal law that limit the transfer of funds by them to the Corporation, Financial, PIB and the Corporation's other nonbanking subsidiaries, whether in the form of loans, other extensions of credit, investments or asset purchases. Such transfers by Banco Popular or Pioneer Bank to the Corporation or any one nonbanking subsidiary are limited in amount to 10% of Banco Popular's or Pioneer Bank's capital stock and surplus and, with respect to the Corporation and all nonbanking subsidiaries, to an aggregate of 20% of Banco Popular's or Pioneer Bank's capital stock and surplus. Furthermore, such loans and extensions of credit are required to be secured in specified amounts. Because the Corporation, PIB and Financial are holding companies, their right to participate in the assets of any subsidiary upon the latter's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors (including depositors in the case of bank subsidiaries) except to the extent that the Corporation, PIB or Financial, as the case may be, may itself be a creditor with recognized claims against the subsidiary. Under Federal Reserve Board policy, a bank holding company, such as the Corporation, is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each such subsidiary bank. This support may be required at times when, absent such policy, the bank holding company might not otherwise provide such support. In addition, any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Banco Popular and Pioneer Bank are currently the only subsidiary banks of the Corporation. Under the Federal Deposit Insurance Act (the "FDIA"), a depository institution (which term includes both banks and savings associations), the deposits of which are insured by the FDIC, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or a receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. Banco Popular and Pioneer Bank are currently the only controlled FDIC-insured depository institutions of the Corporation. CAPITAL ADEQUACY Under the Federal Reserve Board's risk-based capital guidelines for bank holding companies and member banks, the minimum guidelines for the ratio of total capital ("Total capital") to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least half of the Total 5 9 capital is to be comprised of common equity, retained earnings, minority interests in unconsolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets discussed below ("Tier 1 capital"). The remainder may consist of a limited amount of subordinated debt, other preferred stock, certain other instruments, and a limited amount of loan and lease loss reserves ("Tier 2 capital"). Effective for periods ending on or after March 15, 1993, the Federal Reserve Board adopted regulations that require most intangibles, including core deposit intangibles, to be deducted from Tier 1 capital. The regulations, however, permit the inclusion of a limited amount of intangibles related to purchased mortgage servicing rights and purchased credit card relationships and include a "grandfather" provision permitting the continued inclusion of certain pre-existing intangibles. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies and member banks. These guidelines provide for a minimum ratio of Tier 1 capital to total assets, less goodwill and certain other intangible assets discussed below (the "leverage ratio") of 3% for bank holding companies and member banks that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies and member banks will be required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "tangible Tier 1 leverage ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 capital, less all intangibles, to total assets, less all intangibles. Under the Federal Reserve Board's requirements, the Corporation's and Banco Popular's capital ratios at December 31, 1993 are set forth below:
CORPORATION BANCO POPULAR ----------- ------------- Tier 1 capital............................................. 12.29% 11.85% Total capital.............................................. 13.95% 13.72% Leverage ratio............................................. 6.95% 6.56%
Pioneer Bank is subject to similar capital requirements adopted by the FDIC. Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business, which are described below under "FDICIA." Bank regulators have in the past indicated their desire to raise capital requirements applicable to banking organizations beyond current levels. However, management is unable to predict whether and when higher capital requirements would be imposed and, if so, at what levels or on what schedule. FDICIA On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted. FDICIA substantially revises the depository institution regulatory and funding provisions of the FDIA and makes revisions to several other federal banking statutes. Among other things, FDICIA requires the federal banking regulators to take prompt corrective action in respect of depository institutions that do not meet minimum capital requirements. FDICIA and regulations thereunder establish five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." A depository institution is deemed well capitalized if it maintains a leverage ratio of at least 5%, a risk-based Tier 1 capital ratio of at least 6% and a risk-based Total capital ratio of at least 10% and is not subject to any written agreement or directive to meet a specific capital level. A depository institution is deemed adequately capitalized if it is not well capitalized but maintains a leverage ratio of at least 4% (or at least 3% if given the highest regulatory rating and not experiencing or anticipating 6 10 significant growth), a risk-based Tier 1 capital ratio of at least 4% and a risk-based Total capital ratio of at least 8%. A depository institution is deemed undercapitalized if it fails to meet the standards for adequately capitalized institutions (unless it is deemed significantly or critically undercapitalized). An institution is deemed significantly undercapitalized if it has a leverage ratio of less than 3%, a risk-based Tier 1 ratio of less than 3% or a risk-based Total capital ratio of less than 6%. An institution is deemed critically undercapitalized if it has tangible equity equal to 2% or less of total assets. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives a less than satisfactory examination rating in any one of four categories. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. A depository institution's holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator. At March 31, 1994, Banco Popular was well capitalized. Various other legislation, including proposals to revise the banking regulatory system and to limit the investments that a depository institution may make with insured funds, is from time to time introduced in Congress. DIVIDEND RESTRICTIONS The principal source of cash flow for the Corporation is dividends from Banco Popular. Various statutory provisions limit the amount of dividends Banco Popular can pay to the Corporation without regulatory approval. As a member bank subject to the regulation of the Federal Reserve Board, Banco Popular must obtain the approval of the Federal Reserve Board for any dividend if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits, as defined by the Federal Reserve Board, for that year, combined with its retained net profits for the preceding two years. In addition, a member bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts. For this purpose, bad debts are generally defined to include the principal amount of loans that are in arrears with respect to interest by six months or more unless such loans are fully secured and in the process of collection. Moreover, for purposes of this limitation, a member bank is not permitted to add the balance in its allowance for loan losses account to its undivided profits then on hand; however, it may net the sum of its bad debts as so defined against the balance in its allowance for loan losses account and deduct from undivided profits only bad debts as so defined in excess of that account. At March 31, 1994, Banco Popular could have declared a dividend of approximately $128.6 million without such approval. Illinois law contains similar limitations on the amount of dividends that Pioneer Bank can pay. The payment of dividends by Banco Popular or Pioneer Bank may also be affected by other regulatory requirements and policies, such as the maintenance of adequate capital. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (that, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The Federal Reserve Board has issued a policy statement that provides that insured banks and bank holding 7 11 companies should generally pay dividends only out of current operating earnings. In addition, all insured depository institutions are subject to the capital-based limitations described under "FDICIA." See "Certain Regulatory Matters -- Puerto Rico Regulation" for a description of certain restrictions on Banco Popular's ability to pay dividends under Puerto Rico law. FDIC INSURANCE ASSESSMENTS Banco Popular and Pioneer Bank are subject to FDIC deposit insurance assessments. Pursuant to FDICIA, the FDIC adopted, effective January 1, 1994, a risk-based assessment system, under which the assessment rate for an insured depository institution varies according to the level of risk incurred in its activities. An institution's risk category is based partly upon whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. Each insured depository institution would also be assigned to one of the following "supervisory subgroups": "A," "B" or "C". Group "A" institutions are financially sound institutions with only a few minor weaknesses; group "B" institutions are institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration; and group "C" institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness. Based on its capital and supervisory subgroups, each Bank Insurance Fund member institution is assigned an annual FDIC assessment rate varying between 0.23% and 0.31%. It remains possible that assessments will be raised to higher levels in the future. Any such increase would have an adverse effect upon the net earnings of Banco Popular and Pioneer Bank and, therefore, the Corporation. BROKERED DEPOSITS FDIC regulations adopted under FDICIA govern the receipt of brokered deposits. Under these regulations, a bank cannot accept, rollover or renew brokered deposits (which term is defined also to include any deposit with an interest rate more than 75 basis points above prevailing rates) unless (i) it is well capitalized, or (ii) it is adequately capitalized and receives a waiver from the FDIC. A bank that is adequately capitalized may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates specified by regulation. There are no such restrictions on a bank that is well capitalized. The Corporation does not believe the brokered deposits regulation has had or will have a material effect on the funding or liquidity of Banco Popular or Pioneer Bank. PUERTO RICO REGULATION General As a commercial bank organized under the laws of the Commonwealth, Banco Popular is subject to supervision, examination and regulation by the Office of the Commissioner of Financial Institutions of the Commonwealth (the "Office of the Commissioner"), pursuant to the Puerto Rico Banking Act of 1933, as amended (the "Banking Law"). Section 27 of the Banking Law requires that at least ten percent (10%) of the yearly net income of the Bank be credited annually to a reserve fund. This apportionment shall be done every year until the reserve fund shall be equal to ten percent (10%) of the total deposits or the total paid-in capital, whichever is greater. At the end of its most recent fiscal year, Banco Popular had an adequate reserve fund established. Section 27 of the Banking Law also provides that when the expenditures of a bank are greater than the receipts, the excess of the former over the latter shall be charged against the undistributed profits of the bank, and the balance, if any, shall be charged against the reserve fund, as a reduction thereof. If there is no reserve fund sufficient to cover such balance in whole or in part, the outstanding amount shall be charged against the capital account and no dividend shall be declared until said capital has been restored to its original amount and the reserve fund to 20% of the original capital. 8 12 Section 16 of the Banking Law requires every bank to maintain a legal reserve which shall not be less than 20% of its demand liabilities, except government deposits (federal, state and municipal) which are secured by actual collateral. However, if a bank becomes a member of the Federal Reserve System, the 20% legal reserve shall not be effective and the reserve requirements demanded by the Federal Reserve System shall be applicable. Pursuant to an order of the Federal Reserve Board dated November 24, 1982, the Bank has been exempted from such reserve requirements with respect to deposits payable in Puerto Rico. Section 17 of the Banking Law permits the Bank to make loans to any one person, firm, partnership or corporation, up to an aggregate amount of fifteen percent (15%) of the paid-in capital and reserve fund of the Bank. As of December 31, 1993, the legal lending limit for the Bank under this provision was approximately $83 million. If such loans are secured by collateral worth at least twenty-five percent (25%) more than the amount of the loan, the aggregate maximum amount may reach one third of the paid-in capital of the Bank, plus its reserve fund. There are no restrictions under Section 17 on the amount of loans which are wholly secured by bonds, securities and other evidences of indebtedness of the Government of the United States or the Commonwealth, or by current debt bonds, not in default, of municipalities or instrumentalities of the Commonwealth. The Finance Board, which is a part of the Office of the Commissioner, but also includes as its members the Secretary of the Treasury, the Secretary of Commerce, the Secretary of Consumer Affairs, the President of the Planning Board, and the President of the Government Development Bank for Puerto Rico, has the authority to regulate the maximum interest rates and finance charges that may be charged on loans to individuals and unincorporated businesses in the Commonwealth. In February 1992, the Finance Board approved Regulation 26-A, which provides that the applicable interest rate on loans to individuals and unincorporated businesses (including real estate development loans but excluding certain other personal and commercial loans secured by mortgages on real estate properties) is to be determined by free competition. Prior to February 1992, the applicable interest rate ceilings for consumer loans were set at 130% of the average prime rate for the previous three months, and at rates ranging from the prime rate to 3% above the prime rate (plus certain additional finance charges) for loans to unincorporated businesses. The Finance Board also has authority to regulate the maximum finance charges on retail installment sales contracts (including credit card purchases), which are currently set at 21%. There is no maximum rate set for installment sales contracts involving motor vehicles, commercial, agricultural and industrial equipment, commercial electric appliances and insurance premiums. Section 14 of the Banking Law authorizes the Bank to conduct certain financial and related activities directly or through subsidiaries, including finance leasing of personal property and operating a small loan company. Banco Popular engages in these activities through its wholly owned subsidiaries, Popular Leasing & Rental, Inc. and Popular Consumer Services, Inc., respectively, both of which are organized and operate solely in Puerto Rico. IBC Act Under the IBC Act, without the prior approval of the Office of the Commissioner, PIB may not amend its articles of incorporation or issue additional shares of capital stock or other securities convertible into additional shares of capital stock unless such shares are issued directly to the shareholders of PIB previously identified in the application to organize the international banking entity, in which case notification to the Office of the Commissioner must be given within ten business days following the date of the issue. Pursuant to the IBC Act, without the prior approval of the Office of the Commissioner, PIB may not initiate the sale, encumbrance, assignment, merger or other transfer of shares if by such transaction a person or persons acting in concert could acquire direct or indirect control of 10% or more of any class of the Company's stock. Such authorization must be requested at least 30 days prior to the transaction. PIB must submit to the Office of the Commissioner a report of its condition and results of operation on a monthly basis and its annual audited financial statement at the close of its fiscal year. Under the IBC Act, PIB may not deal with domestic persons as such term is defined in the IBC Act. Also, it may only engage in those activities authorized in the IBC Act, the regulations adopted thereunder and its license. 9 13 The IBC Act empowers the Office of the Commissioner to revoke or suspend, after a hearing, the license of an international banking entity if, among other things, it fails to comply with the IBC Act, regulations issued by the Office of the Commissioner, or the terms of its license or if the Office of the Commissioner finds that the business of the international banking entity is conducted in a manner not consistent with the public interest. DESCRIPTION OF DEBT SECURITIES AND GUARANTEES The Corporation's senior debt securities (the "Senior Debt Securities") may be issued from time to time in one or more series under an Indenture (the "Senior Indenture") between the Corporation and the trustee named in the applicable Prospectus Supplement, as trustee (the "Senior Trustee"). The Corporation's subordinated debt securities (the "Subordinated Debt Securities") may be issued from time to time in one or more series under an Indenture (the "Subordinated Indenture") between the Corporation and the trustee named in the applicable Prospectus Supplement, as trustee (the "Subordinated Trustee"). PIB's senior debt securities (the "PIB Senior Debt Securities") may be issued from time to time in one or more series under an Indenture (the "PIB Senior Indenture") among the Corporation, PIB and the trustee named in the applicable Prospectus Supplement, as trustee (the "PIB Senior Trustee"). PIB's subordinated debt securities ("PIB Subordinated Debt Securities") may be issued from time to time in one or more series under an Indenture (the "PIB Subordinated Indenture") among the Corporation, PIB and the trustee named in the applicable Prospectus Supplement, as trustee (the "PIB Subordinated Trustee"). The senior debt securities issued by Financial (the "Guaranteed Securities") may be issued from time to time in one or more series under an Indenture (the "Guaranteed Indenture") among the Corporation, Financial and the trustee named in the applicable Prospectus Supplement, as trustee (the "Guaranteed Trustee"). The Senior Debt Securities, the Subordinated Debt Securities, the PIB Senior Debt Securities, the PIB Subordinated Debt Securities, and the Guaranteed Securities are sometimes referred to collectively as the "Debt Securities." The Senior Indenture, the Subordinated Indenture, the PIB Senior Indenture, the PIB Subordinated Indenture and the Guaranteed Indenture are sometimes referred to collectively as the "Indentures," and the Senior Trustee, the Subordinated Trustee, the PIB Senior Trustee, the PIB Subordinated Trustee and the Guaranteed Trustee are sometimes referred to collectively as the "Trustees." The statements under this caption are brief summaries of material provisions contained in the Indentures, do not purport to be complete and are qualified in their entirety by reference to the Indentures, including the definition therein of certain terms, copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. GENERAL Each Indenture provides for the issuance of debt securities in one or more series, and does not limit the principal amount of debt securities which may be issued thereunder. Reference is made to the Prospectus Supplement for the following terms of the Debt Securities being offered hereby: (1) the specific title of the Debt Securities; (2) whether the Debt Securities are Senior Debt Securities, Subordinated Debt Securities, PIB Senior Debt Securities, PIB Subordinated Debt Securities or Guaranteed Securities; (3) the aggregate principal amount of the Debt Securities; (4) the percentage of their principal amount at which the Debt Securities will be issued; (5) the date or dates on which the Debt Securities will mature; (6) the rate or rates (which may be fixed or variable) per annum or the method for determining such rate or rates, if any, at which the Debt Securities will bear interest; (7) the times, if any, at which any such interest will be payable; (8) any provisions relating to optional or mandatory redemption of the Debt Securities; (9) the denominations in which the Debt Securities are authorized to be issued; (10) the extent to which Debt Securities will be issuable in global form and, if so, the identity of the Depositary for such global Debt Securities; (11) the currency or units of two or more currencies in which the Debt Securities are denominated, if other than United States dollars, and the currency in which interest is payable if other than the currency in which the Debt Securities are denominated; (12) the place or places at which the Corporation, PIB or Financial will make payments of principal (and premium, if any) and interest, if any, and the method of such payment; (13) the Person to whom any Debt Security of such series will be payable, if other than the Person in whose name that Debt Security (or one or more Predecessor Debt Securities) is 10 14 registered at the close of business on the Regular Record Date for such interest; (14) whether the Debt Securities may be issued as Original Issue Discount Securities; (15) whether the amount of payment of principal of or any premium or interest on any Debt Security may be determined with reference to an index, formula or other method and the manner in which such amount shall be determined; (16) any additional covenants and Events of Default and the remedies with respect thereto not currently set forth in the respective Indenture; and (17) any other specific terms of Debt Securities. One or more series of the Debt Securities may be issued as Discount Securities. A "Discount Security" is a debt security, including any zero-coupon security, which is issued at a price lower than the amount payable at the Stated Maturity thereof and which provides that upon redemption or acceleration of the Maturity thereof an amount less than the amount payable upon the Stated Maturity thereof and determined in accordance with the terms thereof shall become due and payable. Unless otherwise indicated in the applicable Prospectus Supplement, the covenants contained in the Indentures and the Debt Securities will not afford holders of the Debt Securities protection in the event of a sudden decline in credit rating that might result from a recapitalization, restructuring, or other highly leveraged transaction. FORM, EXCHANGE, REGISTRATION AND TRANSFER Debt Securities of a series may be issuable in certificated or global form. Debt Securities in certificated form may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed), at the office of the Security Registrar or at the office of any transfer agent designated by the Corporation, PIB or Financial, as the case may be, for such purpose with respect to any series of Debt Securities and referred to in an applicable Prospectus Supplement, without service charge and upon payment of any taxes and other governmental charges as described in the relevant Indenture. Such transfer or exchange will be effected upon the Security Registrar being satisfied with the documents of title and identity of the Person making the request. The Security Registrar with respect to the Debt Securities will be designated in the applicable Prospectus Supplement. If a Prospectus Supplement refers to any transfer agents (in addition to the Security Registrar) initially designated by the Corporation, PIB or Financial with respect to any series of Debt Securities, the Corporation, PIB or Financial, as the case may be, may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that the Corporation, PIB or Financial, as the case may be, will be required to maintain a transfer agent in each Place of Payment for such series. The Corporation, PIB or Financial, as the case may be, may at any time designate additional transfer agents with respect to any series of Debt Securities. In the event of any redemption in part, the Corporation, PIB or Financial, as the case may be, shall not be required to (i) issue, register the transfer of or exchange any Debt Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Debt Securities of like tenor and of the series of which such Debt Security is a part and ending at the close of business on the day of such mailing and (ii) register the transfer of or exchange any Debt Security so selected for redemption, in whole or in part, except the unredeemed portion of any Debt Security being redeemed in part. PAYMENT AND PAYING AGENT Unless otherwise indicated in an applicable Prospectus Supplement, payment of principal of and premium (if any) on any Debt Security will be made only against surrender to the Paying Agent of such Debt Security. Unless otherwise indicated in an applicable Prospectus Supplement, principal of and any premium and interest on the Debt Securities will be payable, subject to any applicable laws and regulations, at the office of such Paying Agent or Paying Agents as the Corporation, PIB or Financial, as the case may be, may designate from time to time, except that at the option of the Corporation, PIB or Financial, as the case may be, payment of any interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register with respect to such Debt Securities. Unless otherwise indicated in an applicable Prospectus Supplement, payment of interest on a Debt Security on any Interest Payment 11 15 Date will be made to the Person in whose name such Debt Security (or Predecessor Debt Security) is registered at the close of business on the Regular Record Date for such interest. The Paying Agent for payments with respect to Debt Securities of each series will be specified in the applicable Prospectus Supplement. The Corporation, PIB or Financial, as the case may be, may at any time designate additional Paying Agents or rescind the designation of any Paying Agent or approve a change in the office through which any Paying Agent acts, except that the Corporation, PIB or Financial, as the case may be, will be required to maintain a Paying Agent in each Place of Payment for each series of Debt Securities. All moneys paid by the Corporation, PIB or Financial, as the case may be, to a Paying Agent for the payment of the principal of and any premium or interest on any Debt Security which remain unclaimed at the end of two years after such principal, premium or interest shall have become due and payable will be repaid to the Corporation, PIB or Financial, as the case may be, and the Holder of such Debt Security will thereafter look only to the Corporation, PIB or Financial, as the case may be, for payment thereof. CERTAIN COVENANTS Each of the Senior Indenture, PIB Senior Indenture and the Guaranteed Indenture provides that the Corporation, subject to the provisions described under "Consolidation, Merger, Sale or Conveyance," will not sell, assign, transfer, or otherwise dispose of, or permit Banco Popular to issue, sell, assign, transfer or otherwise dispose of any shares of, or securities convertible into or options to subscribe for, Voting Stock of Banco Popular unless Banco Popular remains a Controlled Subsidiary (as defined below) of the Corporation, and will not permit Banco Popular to merge or consolidate or convey, transfer, lease or sell its properties substantially as an entirety, unless the surviving corporation or transferee, as the case may be, is a Controlled Subsidiary of the Corporation. There is no similar restriction in the Subordinated Indenture or the PIB Subordinated Indenture. Each of the Senior Indenture, PIB Senior Indenture and the Guaranteed Indenture also provides that the Corporation will not, and it will not permit any Material Banking Subsidiary (as defined below) at any time directly or indirectly to, create, assume, incur or permit to exist any indebtedness for borrowed money secured by a pledge, lien or other encumbrance on the Voting Stock of any Material Banking Subsidiary without making effective provision whereby the Debt Securities and the Guarantees (and, if the Corporation so elects, any other indebtedness ranking on a parity with the Debt Securities and the Guarantees) shall be secured equally and ratably with such secured indebtedness so long as such other indebtedness shall be so secured; provided, however, that the foregoing covenant shall not be applicable to liens for taxes or assessments or governmental charges or levies not then due and delinquent or the validity of which is being contested in good faith or which are less than $10,000,000 in amount, liens created by or resulting from any litigation or legal proceeding which is currently being contested in good faith by appropriate proceedings or which involve claims of less than $10,000,000, or deposits to secure (or in lieu of) surety, stay, appeal or customs bonds. There is no similar restriction in the Subordinated Indenture or the PIB Subordinated Indenture. For the purpose of the foregoing provisions, "Material Banking Subsidiary" means any Controlled Subsidiary chartered as a banking corporation under federal, state or Puerto Rican law which is a significant subsidiary of the Corporation as defined in Rule 1-02 of Regulation S-X of the Rules and Regulations of the Commission. "Controlled Subsidiary" means any corporation more than 80% of the outstanding Voting Stock of which is owned by the Corporation. As of the date of this Prospectus, Banco Popular is the only "Material Banking Subsidiary" of the Corporation. REDEMPTION General If the Debt Securities of a series provide for mandatory redemption by the Corporation, PIB or Financial, as the case may be, or redemption at the election of the Corporation, PIB or Financial, as the case may be, unless otherwise provided in the applicable Prospectus Supplement, such redemption shall be on not less than 30 nor more than 60 days' notice and, in the event of redemption of Debt Securities of a series of like tenor in 12 16 part, the Debt Securities to be redeemed will be selected by the Trustee in such usual manner as it shall deem fair and appropriate. Notice of such redemption will be mailed to Holders of Debt Securities of such series to their last addresses as they appear on the register of the Debt Securities of such series. For Taxation Should the Corporation or PIB, on the occasion of the next payment in respect of any series of the Debt Securities, be obliged to pay any Additional Amounts as are referenced in "Taxation by the Commonwealth of Puerto Rico" below, due to a change in law, regulation or interpretation, the Corporation, PIB or Financial, as the case may be, may, at its option, on the giving of not less than 30 nor more than 60 days' notice to the Holders of the Debt Securities of each series, redeem such series of the Debt Securities as a whole at a redemption price of 100% of the principal amount thereof with the accrued interest to the date fixed for redemption or such other redemption price as set forth in the applicable Prospectus Supplement. Global Securities The Debt Securities may be issued in whole or in part in the form of one or more Global Securities that will be deposited with, or on behalf of, a depositary (the "Depositary") identified in the Prospectus Supplement relating to such Debt Securities. Unless and until it is exchangeable in whole or in part for Debt Securities in definitive form, a Global Security may not be transferred except as a whole by the Depositary for such Global Security to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor of such Depositary or a nominee of such successor. The specific terms of the depositary arrangement, if any, with respect to a series of Debt Securities will be described in the Prospectus Supplement relating to such series. The Corporation, PIB and Financial anticipate that the following provisions will apply to all depositary arrangements. Ownership of beneficial interests in a Global Security will be limited to persons that have accounts with the Depositary for such Global Security or its nominee ("Participant") or persons that may hold interests through Participants. Such accounts shall be designated by the underwriters or agents with respect to the Debt Securities underwritten or solicited by them or by the Corporation, PIB or Financial in the case of Debt Securities offered and sold directly by the Corporation, PIB or Financial, as the case may be. The Corporation, PIB or Financial, as the case may be, will obtain confirmation from the Depositary that upon the issuance of a Global Security the Depositary for such Global Security will credit, on its book-entry registration and transfer system, the Participants' accounts with the respective principal amounts of the Debt Securities represented by such Global Security. Ownership of beneficial interests in such Global Security will be shown on, and the transfer of such ownership interests will be effected only through, records maintained by the Depositary (with respect to interests of Participants) and on the records of Participants (with respect to interests of persons held through Participants). The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to own, transfer or pledge beneficial interests in a Global Security. So long as the Depositary for a Global Security, or its nominee, is the registered owner of such Global Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or Holder of the Debt Securities represented by such Global Security for all purposes under the Indentures. Except as provided below, owners of beneficial interests in a Global Security will not be entitled to have the Debt Securities represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of the Debt Securities in definitive form and will not be considered the owners or Holders thereof under the Indentures. Accordingly, each person owning a beneficial interest in such a Global Security must rely on the procedures of the Depositary and, if such person is not a Participant, on the procedures of the Participant through which such person owns its interests, to exercise any rights of a Holder under the applicable Indenture. The Corporation, PIB and Financial understand that under existing industry practices, in the event that the Corporation, PIB or Financial, as the case may be, requests any action of Holders or that an owner of a beneficial interest in such a Global Security desires to give or take any action 13 17 which a Holder is entitled to give or take under the applicable Indenture, the Depositary would authorize the Participants holding the relevant beneficial interests to give or take such action, and such Participants would authorize beneficial owners owning through such Participants to give or take such action or would otherwise act upon the instructions of beneficial owners owning through them. Payment of principal of, and premium and interest, if any, on Debt Securities registered in the name of a Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner of the Global Security representing such Debt Securities. None of the Corporation, Financial, the Trustee, any Paying Agent or any other agent of the Corporation, PIB, Financial or the Trustee will have any responsibility or liability for any aspect of the records relating to payments made on account of beneficial ownership interests in the Global Security for such Debt Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Corporation, PIB or Financial, as the case may be, will obtain confirmation from the Depositary that upon receipt of any payment of principal of, or premium or interest on, a Global Security, the Depositary will immediately credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security as shown on the records of the Depositary. Payments by Participants to owners of beneficial interests in such Global Security held through such Participants will be the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in "street names." If the Depositary for any Debt Securities represented by a Global Security notifies the Corporation, PIB or Financial, as the case may be, that it is unwilling or unable to continue as Depositary or ceases to be a clearing agency registered under the Exchange Act and a successor Depositary is not appointed by the Corporation, PIB or Financial, as the case may be, then within ninety days after receiving such notice or becoming aware that Depositary is no longer so registered, the Corporation, PIB or Financial, as the case may be, will issue such Debt Securities in definitive form in exchange for such Global Security. In addition, if an event of default, or an event which with notice or the lapse of time or both would become an event of default, with respect to the Debt Securities of a series has occurred and is continuing or either the Corporation, PIB or Financial, as the case may be, at any time and in its sole discretion determines not to have the Debt Securities represented by one or more Global Securities, the Corporation, PIB or Financial, as the case may be, will issue Debt Securities in definitive form in exchange for all of the Global Securities representing such Debt Securities. TAXATION BY THE COMMONWEALTH OF PUERTO RICO All payments of, or in respect of, principal of, and any premium or interest on, the Debt Securities and all payments pursuant to the Guarantees will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of Puerto Rico or by or with any district, municipality or other political subdivision thereof or authority therein having power to tax unless such taxes, duties, assessments or governmental charges are required by law to be withheld or deducted. In the event that the Corporation or PIB is required by law to deduct or withhold any amounts in respect of taxes, duties, assessments or governmental charges, the Corporation or PIB, as the case may be, will pay such additional amounts of, or in respect of, principal, premium and interest as will result (after deduction of the said taxes, duties, assessments or governmental charges) in the payment to the Holders of the Debt Securities, of the amounts which would otherwise have been payable in respect to the Debt Securities in the absence of such deduction or withholding ("Additional Amounts"), except that no such Additional Amounts shall be payable: (i) to any Holder of a Debt Security or any interest therein or rights in respect thereof where such deduction or withholding is required by reason of such Holder having some connection with Puerto Rico or any political subdivision or taxing authority thereof or therein other than the mere holding of and payment in respect of such Debt Security; 14 18 (ii) in respect of any deduction or withholding that would not have been required but for the presentation by the Holder of a Debt Security for payment on a date more than 30 days after Maturity or the date on which payment thereof is duly provided for, whichever occurs later; or (iii) in respect of any deduction or withholding that would not have been required but for the failure to comply with any certification, identification or other reporting requirements concerning the nationality, residence, identity or connection with Puerto Rico, or any political subdivision or taxing authority thereof or therein, of the Holder of a Debt Security or any interest therein or rights in respect thereof, if compliance is required by Puerto Rico, or any political subdivision or taxing authority thereof or therein, as a precondition to exemption from such deduction or withholding. GOVERNING LAW The Indentures, the Debt Securities and the Guarantees will be governed by, and construed in accordance with, the laws of the State of New York. TERMS APPLICABLE TO THE SENIOR DEBT SECURITIES OR SUBORDINATED DEBT SECURITIES MODIFICATION OF THE SENIOR AND SUBORDINATED INDENTURES The Senior and Subordinated Indentures contain provisions permitting the Corporation and the respective Trustees, with the consent of Holders of not less than a majority in principal amount of the Senior Debt Securities or Subordinated Debt Securities which are affected by the modification, to modify the particular Indenture or any supplemental indenture or the rights of the Holders of the Senior Debt Securities or Subordinated Debt Securities issued under such Indenture; provided that no such modification may, without the consent of the Holder of each Outstanding Senior Debt Security or Subordinated Debt Security affected thereby, (a) change the stated maturity date of the principal of, or any installment of principal of or interest, if any, on, any Senior Debt Security or Subordinated Debt Security, (b) reduce the principal amount of, or premium or rate of interest, if any, on, any Senior Debt Security or Subordinated Debt Security, (c) reduce the amount of principal of an Original Issue Discount Security payable upon acceleration of the maturity thereof, (d) change the place or coin or currency of payment of principal of, or premium or interest, if any, on, any Senior Debt Security or Subordinated Debt Security, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any Senior Debt Security or Subordinated Debt Security, (f) reduce the percentage in principal amount of Outstanding Senior Debt Securities or Subordinated Debt Securities of any series, the consent of whose Holders is required for modification or amendment of the Indenture or for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (g) modify (with certain exceptions) any provision of the Indenture which requires the consent of the Holder of each Outstanding Senior Debt Security or Subordinated Debt Security affected thereby or (h) with respect to the Subordinated Indenture, modify the subordination provisions in a manner adverse to Holders of Outstanding Subordinated Debt Securities. SUBORDINATION Unless otherwise indicated in the applicable Prospectus Supplement, the following provisions shall apply to the Subordinated Debt Securities. The payment of the principal of, premium, if any, and interest on the Subordinated Debt Securities will, to the extent set forth in the Subordinated Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined below) of the Corporation. In certain events of insolvency, the payment of the principal of, premium, if any, and interest on the Subordinated Debt Securities will, to the extent set forth in the Subordinated Indenture, also be effectively subordinated in right of payment to the prior payment in full of all Other Financial Obligations (as defined below) of the Corporation. As of March 31, 1994, $1,072.3 million aggregate principal amount of Senior Indebtedness and no Other Financial Obligations of the Corporation were outstanding. Upon any payment or distribution of assets to creditors upon any 15 19 liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or any bankruptcy, insolvency or similar proceedings of the Corporation, the holders of all Senior Indebtedness of the Corporation will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Subordinated Debt Securities will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Subordinated Debt Securities. If, upon any such payment or distribution of assets to creditors, there remain, after giving effect to such subordination provisions in favor of the holders of Senior Indebtedness of the Corporation, any amounts of cash, property or securities available for payment or distribution in respect of Subordinated Debt Securities (as defined in the Subordinated Indenture, "Corporation Excess Proceeds") and if, at such time, any person entitled to payment pursuant to the terms of Other Financial Obligations of the Corporation has not received payment in full of all amounts due or to become due on or in respect of such Other Financial Obligations of the Corporation, then such Corporation Excess Proceeds shall first be applied to pay or provide for the payment in full of such Other Financial Obligations of the Corporation before any payment or distribution may be made in respect of the Subordinated Debt Securities. In the event of the acceleration of the maturity of any Subordinated Debt Securities, the holders of all Senior Indebtedness of the Corporation will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Subordinated Debt Securities will be entitled to receive any payment of the principal of, premium, if any, or interest on the Subordinated Debt Securities. Accordingly, in case of such an acceleration, all Senior Indebtedness of the Corporation would have to be repaid before any payment could be made in respect of the Subordinated Debt Securities. No payments on account of principal, premium, if any, or interest in respect of the Subordinated Debt Securities may be made if there shall have occurred and be continuing a default in any payment with respect to any Senior Indebtedness of the Corporation, or an event of default with respect to any Senior Indebtedness of the Corporation permitting the holders thereof to accelerate the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default. By reason of such subordination, in the event of the insolvency of the Corporation, creditors of the Corporation who are not holders of Senior Indebtedness of the Corporation or the Subordinated Debt Securities may recover less, ratably, than holders of Senior Indebtedness of the Corporation and may recover more, ratably, than Holders of the Subordinated Debt Securities. "Senior Indebtedness" of the Corporation is defined in the Subordinated Indenture to mean the principal of, premium, if any, and interest on (i) all indebtedness of the Corporation for money borrowed (including indebtedness of others guaranteed by the Corporation) other than the Subordinated Debt Securities, whether outstanding on the date of the Subordinated Indenture or thereafter created, assumed or incurred and (ii) any amendments, renewals, extensions, modifications and refundings of any such indebtedness, unless in either case in the instrument creating or evidencing any such indebtedness or pursuant to which it is outstanding it is provided that such indebtedness is not superior in right of payment to the Subordinated Debt Securities. For the purposes of this definition, "indebtedness for money borrowed" is defined as (i) any obligation of, or any obligation guaranteed by, the Corporation for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any deferred payment obligation of, or any such obligation guaranteed by, the Corporation for the payment of the purchase price of property or assets evidenced by a note or similar instrument, and (iii) any obligation of, or any such obligation guaranteed by, the Corporation for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of the Corporation under generally accepted accounting principles. "Other Financial Obligations" of the Corporation is defined in the Subordinated Indenture to mean all obligations of the Corporation to make payment pursuant to the terms of financial instruments, such as (i) securities contracts and foreign currency exchange contracts, (ii) derivative instruments, such as swap agreements (including interest rate and currency and foreign exchange rate swap agreements), cap agreements, floor agreements, collar agreements, interest rate agreements, foreign exchange agreements, options, commodity futures contracts, commodity options contracts and (iii) similar financial instruments; provided that the term Other Financial Obligations shall not include (x) obligations on account of Senior Indebtedness 16 20 of the Corporation and (y) obligations on account of indebtedness for money borrowed ranking pari passu with or subordinate to the Subordinated Debt Securities. EVENTS OF DEFAULT Senior Indenture An Event of Default with respect to Senior Debt Securities of any series is defined in the Senior Indenture as being: default for 30 days in payment of any interest on Senior Debt Securities of such series; default in payment of principal of, or premium, if any, any Senior Debt Securities of such series; default in deposit of any mandatory sinking fund payment required by the Senior Debt Securities of such series; default for 60 days after notice, in performance or breach of any other covenant or warranty in the Senior Indenture (except for a covenant expressly relating to a series of Senior Debt Securities other than that series of Senior Debt Securities) or in the Senior Debt Securities of such series; acceleration of the Senior Debt Securities of any other series or any other indebtedness for borrowed money of the Corporation or any Material Banking Subsidiary, in each case exceeding $10,000,000 in an aggregate principal amount, as a result of a default under the terms of the instrument or instruments under which such indebtedness is issued or secured, unless such acceleration is annulled within 30 days after written notice as provided in the Indenture, provided that if such default is remedied or cured by the Corporation or any Material Banking Subsidiary or waived by holders of such indebtedness, the Event of Default by reason thereof shall be deemed to have been thereupon remedied, cured or waived; certain events of bankruptcy, insolvency or reorganization with respect to the Corporation or any Material Banking Subsidiary; or any other Event of Default specified in the applicable Prospectus Supplement. In case an Event of Default with respect to Senior Debt Securities of any series shall occur and be continuing, the Senior Trustee or the Holders of not less than 25% in principal amount of the Senior Debt Securities of such series then outstanding may declare the principal of all such Senior Debt Securities of such series to be due and payable. The Corporation is required to furnish to the Senior Trustee annually a statement as to the performance by the Corporation of its obligations under the Senior Indenture and as to any default in such performance. Under certain circumstances any declaration of acceleration with respect to Senior Debt Securities of any series may be rescinded and past defaults (except a default in the payment of principal of or interest on the Senior Debt Securities) may be waived by the Holders of a majority in aggregate principal amount of the Senior Debt Securities of such series then outstanding. The Senior Indenture provides that the Senior Trustee may withhold notice to the Holders of Senior Debt Securities of any series of any continuing default (except in the payment of the principal of (or premium, if any) or interest on any Senior Debt Securities of such series) if such Senior Trustee considers it in the interest of Holders of such series of Senior Debt Securities to do so. Subordinated Indenture An Event of Default with respect to the Subordinated Debt Securities of any series is defined in the Subordinated Indenture as being certain events involving a bankruptcy, insolvency or reorganization of the Corporation. If an Event of Default with respect to Subordinated Debt Securities of any series shall have occurred and be continuing, either the Subordinated Trustee or the Holders of not less than 25% in aggregate principal amount of the Subordinated Debt Securities of such series then outstanding may declare the principal of the Subordinated Debt Securities of such series to be due and payable immediately. The Corporation is required to furnish to the Subordinated Trustee annually a statement as to the performance by the Corporation of its obligations under the Subordinated Indenture and as to any default in such performance. Under certain circumstances, any declaration of acceleration with respect to Subordinated Debt Securities of any series may be rescinded and past defaults (except a default in the payment of principal of or interest on the Subordinated Debt Securities) may be waived by the Holders of a majority in aggregate principal amount of the Subordinated Debt Securities of such series then outstanding. The Subordinated Indenture provides that the Subordinated Trustee may withhold notice to the Holders of the Subordinated Debt Securities of any series of any continuing default (except in the payment of the principal of (or premium, if any) or interest on any Subordinated Debt Securities of such series) if the Subordinated Trustee considers it in the interest of the Holders of such series of Subordinated Debt Securities to do so. 17 21 The Subordinated Indenture does not provide for any right of acceleration of the payment of principal of a series of Subordinated Debt Securities upon a default in the payment of principal or interest or in the performance of any covenant or agreement in the Subordinated Debt Securities of the particular series or in the Subordinated Indenture. CONSOLIDATION, MERGER, SALE OR CONVEYANCE The Corporation has covenanted in the Senior and Subordinated Indentures that it will not merge or consolidate with any other corporation or sell, convey, transfer or lease all or substantially all of its assets to any person, firm or corporation unless the Corporation is the continuing corporation or the successor corporation expressly assumes the obligations under any outstanding Senior Debt Securities and Subordinated Debt Securities and the respective Senior and Subordinated Indentures and the Corporation or such successor corporation is not, immediately after such merger, consolidation, sale or conveyance, in default in the performance of any of the covenants or conditions of the respective Indenture. The Indentures do not contain any other covenant which restricts the Corporation's ability to merge or consolidate with any other corporation, sell, convey, transfer or lease all or substantially all of its assets to any persons, firm or corporation or otherwise engage in restructuring transactions. TERMS APPLICABLE TO GUARANTEED SECURITIES MODIFICATION OF THE INDENTURE The Guaranteed Indenture contains provisions permitting Financial, the Corporation and the Guaranteed Trustee, with the consent of Holders of not less than a majority in principal amount of the Guaranteed Securities which are affected by the modification, to modify the Guaranteed Indenture or any supplemental indenture or the rights of the Holders of the Guaranteed Securities issued under such Indenture, provided that no such modification may, without the consent of the Holder of each Outstanding Guaranteed Security affected thereby, (a) change the stated maturity date of the principal of, or any installment of principal of or interest, if any, on, any Guaranteed Security, (b) reduce the principal amount of, or premium or rate of interest, if any, on, any Guaranteed Security, (c) reduce the amount of principal of an Original Issue Discount Guaranteed Security payable upon acceleration of the maturity thereof, (d) change the place or coin or currency of payment of principal of, or premium or interest, if any, on, any Guaranteed Security, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any Guaranteed Security, (f) modify or affect in any manner adverse to Holders the terms and conditions of the obligations of the Guarantor in respect of the due and punctual payment of principal or any premium and interest, sinking fund payment or Additional Amounts in respect of the Guaranteed Securities, (g) reduce the percentage in principal amount of Outstanding Guaranteed Securities of any series the consent of whose Holders is required for modification or amendment of the Guaranteed Indenture or for waiver of compliance with certain provisions of the Guaranteed Indenture or for waiver of certain defaults, or (h) modify (with certain exceptions) any provisions of the Guaranteed Indenture which require the consent of the Holder of each Outstanding Guaranteed Security affected thereby. EVENTS OF DEFAULT An Event of Default with respect to Guaranteed Securities of any series is defined in the Guaranteed Indenture as being: default for 30 days in payment of any interest on Guaranteed Securities of such series; default in payment of principal of (or premium, if any) on any Guaranteed Security of such series; default in deposit of any mandatory sinking fund payment required by the Guaranteed Securities of such series; default for 60 days, after notice, in performance or breach of any other covenant or warranty in the Guaranteed Indenture (except for a covenant expressly relating to a series of Guaranteed Securities other than that series of Guaranteed Securities) or in the Guaranteed Securities of such series; acceleration of the Guaranteed Securities of any other series or any other indebtedness for borrowed money of the Corporation, Financial or any Material Banking Subsidiary, in each case exceeding $10,000,000 in an aggregate principal amount, as a result of a default under the terms of the instrument or instruments under which such indebtedness is issued or 18 22 secured, unless such acceleration is annulled within 30 days after written notice as provided in the Indenture, provided that if such default is remedied or cured by the Corporation, Financial or any Material Banking Subsidiary or waived by the holders of such indebtedness, the Event of Default by reason thereof shall be deemed to have been thereupon remedied, cured or waived; certain events of bankruptcy, insolvency or reorganization of the Corporation, any Material Banking Subsidiary or Financial; or any other Event of Default specified in the applicable Prospectus Supplement. In case an Event of Default with respect to Guaranteed Securities of any series shall occur and be continuing, the Guaranteed Trustee or the Holders of not less than 25% in principal amount of the Guaranteed Securities of such series then outstanding may declare the principal of all the Guaranteed Securities of such series to be due and payable. Financial and the Corporation are required to furnish to the Guaranteed Trustee annually a statement or statements as to the performance by Financial and the Corporation of their respective obligations under the Guaranteed Indenture of such series and as to any default in such performance. Under certain circumstances any declaration of acceleration with respect to Guaranteed Securities of any series may be rescinded and past defaults (except a default in the payment of principal of or interest on the Guaranteed Securities) may be waived by the Holders of a majority in aggregate principal amount of the Guaranteed Securities of such series then outstanding. The Guaranteed Indenture provides that the Guaranteed Trustee may withhold notice to the Holders of Guaranteed Securities of any series of any continuing default (except in the payment of the principal of (or premium, if any) or interest on any Guaranteed Securities of such series) if such Guaranteed Trustee considers it in the interest of Holders of such series of Guaranteed Securities to do so. CONSOLIDATION, MERGER, SALE OR CONVEYANCE Each of the Corporation and Financial has covenanted in the Guaranteed Indenture that it will not merge or consolidate with any other corporation or sell, convey, transfer or lease all or substantially all of its assets to any person, firm or corporation unless the Corporation or Financial, as the case may be, is the continuing corporation or the successor corporation expressly assumes, in the case of Financial, or guarantees, in the case of the Corporation, the obligations under the Guaranteed Securities and the Guaranteed Indenture and the Corporation or Financial, as the case may be, or such successor corporation is not, immediately after such merger, consolidation, sale or conveyance, in default in the performance of any of the covenants or conditions of the Guaranteed Indenture. The Guaranteed Indenture does not contain any other covenant which restricts the Corporation's or Financial's ability to merge or consolidate with any other corporation, sell, convey, transfer or lease all or substantially all of its assets to any person, firm or corporation or otherwise engage in restructuring transactions. GUARANTEE The Corporation will guarantee the punctual payment of the principal of, premium, if any, and interest on the Guaranteed Securities, when and as the same are due and payable. The guarantee is absolute and unconditional, irrespective of any circumstance that might otherwise constitute a legal or equitable discharge of a surety or guarantor. To evidence the guarantee, a Guarantee, executed by the Corporation, will be endorsed on each Guaranteed Security. Holders of the Guaranteed Securities may proceed directly against the Corporation in the event of default under the Guaranteed Securities without first proceeding against Financial. The Guarantees will rank pari passu with all other unsecured and unsubordinated obligations of the Corporation. TERMS APPLICABLE TO THE PIB SENIOR DEBT SECURITIES OR PIB SUBORDINATED DEBT SECURITIES MODIFICATION OF THE PIB SENIOR AND PIB SUBORDINATED INDENTURES The PIB Senior and PIB Subordinated Indentures contain provisions permitting the Corporation, PIB and the respective PIB Trustees, with the consent of Holders of not less than a majority in principal amount of the PIB Senior Debt Securities or PIB Subordinated Debt Securities which are affected by the modification, to modify the particular Indenture or any supplemental indenture or the rights of the Holders of the PIB 19 23 Senior Debt Securities or PIB Subordinated Debt Securities issued under such Indenture; provided that no such modification may, without the consent of the Holder of each outstanding PIB Senior Debt Security or PIB Subordinated Debt Security affected thereby, (a) change the stated maturity date of the principal of, or any installment of principal of or interest, if any, on, any PIB Senior Debt Security or PIB Subordinated Debt Security, (b) reduce the principal amount of, or premium or rate of interest, if any, on, any PIB Senior Debt Security or PIB Subordinated Debt Security, (c) reduce the amount of principal of an Original Issue Discount Security payable upon acceleration of the maturity thereof, (d) change the place or coin or currency of payment of principal of, or premium or interest, if any, on, any PIB Senior Debt Security or PIB Subordinated Debt Security, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any PIB Senior Debt Security or PIB Subordinated Debt Security, (f) reduce the percentage in principal amount of Outstanding PIB Senior Debt Security or PIB Subordinated Debt Securities of any series, the consent of whose Holders is required for modification or amendment of the Indenture or for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (g) modify (with certain exceptions) any provision of the Indenture which requires the consent of Holders of each Outstanding PIB Senior Debt Security or PIB Subordinated Debt Security affected thereby or (h) with respect to the PIB Subordinated Indenture, modify the subordination provisions in a manner adverse to Holders of Outstanding PIB Subordinated Debt Securities. SUBORDINATION Unless otherwise indicated in the applicable Prospectus Supplement, the following provisions shall apply to the PIB Subordinated Debt Securities and the guarantee of them by the Corporation. The payment of the principal of, premium, if any, and interest on the PIB Subordinated Debt Securities and the Corporation's Guarantees thereof (the "Subordinated Guarantees") will, to the extent set forth in the PIB Subordinated Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined below) of PIB or the Corporation, as the case may be. In certain events of insolvency, the payment of the principal of, premium, if any, and interest on the PIB Subordinated Debt Securities and any payments with respect to the Subordinated Guarantees will, to the extent set forth in the PIB Subordinated Indenture, also be effectively subordinated in right of payment to the prior payment in full of all Other Financial Obligations (as defined below) of PIB or the Corporation, as the case may be. As of May 31, 1994, no Senior Indebtedness and no Other Financial Obligations of PIB were outstanding. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or any bankruptcy, insolvency or similar proceedings of PIB or the Corporation, the holders of all Senior Indebtedness thereof will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the PIB Subordinated Debt Securities or the Subordinated Guarantees will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the PIB Subordinated Debt Securities or the Subordinated Guarantees, as the case may be. If, upon any such payment or distribution of assets to creditors, there remain, after giving effect to such subordination provisions in favor of the holders of Senior Indebtedness of PIB and the Corporation, any amounts of cash, property or securities available for payment or distribution in respect of PIB Subordinated Debt Securities or the Subordinated Guarantees (as defined in the PIB Subordinated Indenture, "PIB Excess Proceeds") and if, at such time, any person entitled to payment pursuant to the terms of Other Financial Obligations of PIB or the Corporation (as defined in the PIB Subordinated Indenture, "PIB Entitled Person") has not received payment in full of all amounts due or to become due on or in respect of such Other Financial Obligations of PIB or the Corporation, then such PIB Excess Proceeds shall first be applied to pay or provide for the payment in full of such Other Financial Obligations of PIB or the Corporation, as the case may be, before any payment or distribution may be made in respect of the PIB Subordinated Debt Securities or the Subordinated Guarantees. In the event of the acceleration of the maturity of any PIB Subordinated Debt Securities, the holders of all Senior Indebtedness of PIB or the Corporation, as the case may be, will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the PIB Subordinated Debt Securities or the Subordinated Guarantees will be entitled to receive any payment of the principal of, premium, if any, or interest on the PIB Subordinated Debt Securities or the Subordinated Guarantees, as the case may be. 20 24 Accordingly, in case of such an acceleration, all Senior Indebtedness of PIB or the Corporation would have to be repaid before any payment could be made in respect of the PIB Subordinated Debt Securities or the Subordinated Guarantees, as the case may be. No payments on account of principal, premium, if any, or interest in respect of the PIB Subordinated Debt Securities or the Subordinated Guarantees may be made if there shall have occurred and be continuing a default in any payment with respect to any Senior Indebtedness of PIB or the Corporation, an event of default with respect to any Senior Indebtedness of PIB or the Corporation permitting the holders thereof to accelerate the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default. By reason of such subordination, in the event of the insolvency of PIB or the Corporation, creditors of PIB or the Corporation who are not holders of Senior Indebtedness, the PIB Subordinated Debt Securities or the Subordinated Guarantees may recover less, ratably, than holders of Senior Indebtedness of PIB or the Corporation, as the case may be, and may recover more, ratably, than Holders of the PIB Subordinated Debt Securities or the Subordinated Guarantees. "Senior Indebtedness" of PIB is defined in the PIB Subordinated Indenture to mean the principal of, premium, if any, and interest on (i) all indebtedness of PIB for money borrowed (including indebtedness of others guaranteed by PIB) other than the PIB Subordinated Debt Securities, whether outstanding on the date of the PIB Subordinated Indenture or thereafter created, assumed or incurred and (ii) any amendments, renewals, extensions, modifications and refundings of any such indebtedness, unless in either case in the instrument creating or evidencing any such indebtedness or pursuant to which it is outstanding it is provided that such indebtedness is not superior in right of payment to the PIB Subordinated Debt Securities. For the purposes of this definition, "indebtedness for money borrowed" is defined as (i) any obligation of, or any obligation guaranteed by, PIB for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any deferred payment obligation of, or any such obligation guaranteed by, PIB for the payment of the purchase price of property or assets evidenced by a note or similar instrument, and (iii) any obligation of, or any such obligation guaranteed by, PIB for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of PIB under generally accepted accounting principles. "Other Financial Obligations" of PIB is defined in the PIB Subordinated Indenture to mean all obligations of PIB to make payment pursuant to the terms of financial instruments, such as (i) securities contracts and foreign currency exchange contracts, (ii) derivative instruments, such as swap agreements (including interest rate and currency and foreign exchange rate swap agreements), cap agreements, floor agreements, collar agreements, interest rate agreements, foreign exchange agreements, options, commodity futures contracts, commodity options contracts and (iii) similar financial instruments; provided that the term Other Financial Obligations shall not include (x) obligations on account of Senior Indebtedness of PIB and (y) obligations on account of indebtedness for money borrowed ranking pari passu with or subordinate to the PIB Subordinated Debt Securities. "Senior Indebtedness" of the Corporation is defined in the PIB Subordinated Indenture to mean the principal of, premium, if any, and interest on (i) all indebtedness of the Corporation for money borrowed (including indebtedness of others guaranteed by the Corporation other than the Subordinated Guarantees), whether outstanding on the date of the PIB Subordinated Indenture or thereafter created, assumed or incurred and (ii) any amendments, renewals, extensions, modifications and refundings of any such indebtedness, unless in either case in the instrument creating or evidencing any such indebtedness or pursuant to which it is outstanding it is provided that such indebtedness is not superior in right of payment to the Subordinated Guarantees. For the purposes of this definition, "indebtedness for money borrowed" is defined as (i) any obligation of, or any obligation guaranteed by, the Corporation for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any deferred payment obligation of, or any such obligation guaranteed by, the Corporation for the payment of the purchase price of property or assets evidenced by a note or similar instrument, and (iii) any obligation of, or any such obligation guaranteed by, the Corporation for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of the Corporation under generally accepted accounting principles. 21 25 "Other Financial Obligations" of the Corporation is defined in the PIB Subordinated Indenture to mean all obligations of the Corporation to make payment pursuant to the terms of financial instruments, such as (i) securities contracts and foreign currency exchange contracts, (ii) derivative instruments, such as swap agreements (including interest rate and currency and foreign exchange rate swap agreements), cap agreements, floor agreements, collar agreements, interest rate agreements, foreign exchange agreements, options, commodity futures contracts, commodity options contracts and (iii) similar financial instruments; provided that the term Other Financial Obligations shall not include (x) obligations on account of Senior Indebtedness and (y) obligations on account of indebtedness for money borrowed ranking pari passu with or subordinate to the Subordinated Guarantees. EVENTS OF DEFAULT PIB Senior Indenture An Event of Default with respect to PIB Senior Debt Securities of any series is defined in the PIB Senior Indenture as being: default for 30 days in payment of any interest on PIB Senior Debt Securities of such series; default in payment of principal of (or premium on, if any) any PIB Senior Debt Securities of such series; default in deposit of any mandatory sinking fund payment required by the PIB Senior Debt Securities of such series; default for 60 days, after notice, in performance or breach of any other covenant or warranty in the PIB Senior Indenture (except for a covenant expressly relating to a series of PIB Senior Debt Securities other than that series of PIB Senior Debt Securities) or in the PIB Senior Debt Securities of such series; acceleration of the PIB Senior Debt Securities of any other series or any other indebtedness for borrowed money, of the Corporation, PIB or any Material Banking Subsidiary, in each case in an aggregate principal amount exceeding $10,000,000, as a result of a default under the terms of the instrument or instruments under which such indebtedness is issued or secured, unless such acceleration is annulled within 30 days after written notice as provided in the Indenture, provided that if such default is remedied or cured by the Corporation, PIB or any Material Banking Subsidiary or waived by holders of such indebtedness, the Event of Default by reason thereof shall be deemed to have been thereupon remedied, cured or waived; certain events of bankruptcy, insolvency or reorganization with respect to the Corporation, PIB or any Material Banking Subsidiary; or any other Event of Default specified in the applicable Prospectus Supplement. In case an Event of Default with respect to PIB Senior Debt Securities of any series shall occur and be continuing, the PIB Senior Trustee or the Holders of not less than 25% in principal amount of the PIB Senior Debt Securities of such series then outstanding may declare the principal of all the PIB Senior Debt Securities of such series to be due and payable. The Corporation and PIB are required to furnish to the PIB Senior Trustee annually a statement as to the performance by the Corporation and PIB of their respective obligations under the PIB Senior Indenture and as to any default in such performance. Under certain circumstances any declaration of acceleration with respect to PIB Senior Debt Securities of any series may be rescinded and past defaults (except a default in the payment of principal of or interest on the PIB Senior Debt Securities) may be waived by the Holders of a majority in aggregate principal amount of the PIB Senior Debt Securities of such series then outstanding. The PIB Senior Indenture provides that the PIB Senior Trustee may withhold notice to the Holders of PIB Senior Debt Securities of any series of any continuing default (except in the payment of the principal of (or premium, if any) or interest on any PIB Senior Debt Securities of such series) if such PIB Senior Trustee considers it in the interest of Holders of such series of PIB Senior Debt Securities to do so. PIB Subordinated Indenture An Event of Default with respect to the PIB Subordinated Debt Securities of any series is defined in the PIB Subordinated Indenture as being certain events involving a bankruptcy, insolvency or reorganization of the Corporation or PIB. If an Event of Default with respect to PIB Subordinated Debt Securities of any series shall have occurred and be continuing, either the PIB Subordinated Trustee or the Holders of not less than 25% in aggregate principal amount of the PIB Subordinated Debt Securities of such series then outstanding may declare the principal of the PIB Subordinated Debt Securities of such series to be due and payable immediately. The Corporation and PIB are required to furnish to the PIB Subordinated Trustee annually a statement as to the performance by the Corporation and PIB of their respective obligations under the PIB 22 26 Subordinated Indenture and as to any default in such performance. Under certain circumstances, any declaration of acceleration with respect to PIB Subordinated Debt Securities of any series may be rescinded and past defaults (except a default in the payment of principal of or interest on the PIB Subordinated Debt Securities) may be waived by the Holders of a majority in aggregate principal amount of the PIB Subordinated Debt Securities of such series then outstanding. The PIB Subordinated Indenture provides that the PIB Subordinated Trustee may withhold notice to the Holders of the PIB Subordinated Debt Securities of any series of any continuing default (except in the payment of the principal of (or premium, if any) or interest on any PIB Subordinated Debt Securities of such series) if the PIB Subordinated Trustee considers it in the interest of the Holders of such series of PIB Subordinated Debt Securities to do so. The PIB Subordinated Indenture does not provide for any right of acceleration of the payment of principal of a series of PIB Subordinated Debt Securities upon a default in the payment of principal or interest or in the performance of any covenant or agreement in the PIB Subordinated Debt Securities of the particular series, in the PIB Subordinated Indenture or in the Subordinated Guarantees. CONSOLIDATION, MERGER, SALE OR CONVEYANCE The Corporation and PIB have each covenanted in the PIB Senior and PIB Subordinated Indentures that it will not merge or consolidate with any other corporation or sell, convey, transfer or lease all or substantially all of its assets to any person, firm or corporation unless the Corporation or PIB, as the case may be, is the continuing corporation or the successor corporation expressly assumes the obligations under any outstanding PIB Senior Debt Securities and Subordinated Debt Securities and the Subordinated Guarantees and the respective PIB Senior and PIB Subordinated Indentures and the Corporation, or PIB, as the case may be, or such successor corporation is not, immediately after such merger, consolidation, sale or conveyance, in default in the performance of any of the covenants or conditions of the respective Indenture. The Indentures do not contain any other covenant which restricts the Corporation's or PIB's ability to merge or consolidate with any other corporation, sell, convey, transfer or lease all or substantially all of its assets to any persons, firm or corporation or otherwise engage in restructuring transactions. GUARANTEE PIB Senior Debt Securities The Corporation will guarantee the punctual payment of the principal of, premium, if any, and interest on the PIB Senior Debt Securities, when and as the same are due and payable. The guarantee is absolute and unconditional, irrespective of any circumstance that might otherwise constitute a legal or equitable discharge of a surety or guarantor. To evidence the guarantee, a Guarantee, executed by the Corporation, will be endorsed on each PIB Senior Debt Security. Holders of the PIB Senior Debt Securities may proceed directly against the Corporation in the event of default under the PIB Senior Debt Securities without first proceeding against PIB. The Guarantees will rank pari passu with all other unsecured and unsubordinated obligations of the Corporation. PIB Subordinated Debt Securities The Corporation will guarantee the punctual payment of the principal of, premium, if any, and interest on the PIB Subordinated Debt Securities, when and as the same are due and payable. The guarantee is absolute and unconditional, irrespective of any circumstance that might otherwise constitute a legal or equitable discharge of a surety or guarantor. To evidence the guarantee, a Guarantee, executed by the Corporation, will be endorsed on each PIB Subordinated Debt Security. Holders of the PIB Subordinated Debt Securities may proceed directly against the Corporation in the event of default under the PIB Subordinated Debt Securities without first proceeding against PIB. The Subordinated Guarantees will rank pari passu with all other unsecured and subordinated obligations of the Corporation. See "Subordination." 23 27 DESCRIPTION OF PREFERRED STOCK OF THE CORPORATION The following summary contains a description of certain general terms of the Corporation's preferred stock (the "Preferred Stock") to which any Prospectus Supplement may relate. Certain terms of any series of the Preferred Stock offered by any Prospectus Supplement will be described in the Prospectus Supplement relating thereto. If so indicated in the Prospectus Supplement, the terms of any series may differ from the terms set forth below. The description of certain provisions of the Preferred Stock does not purport to be complete and is subject to and qualified in its entirety by reference to the provisions of the Corporation's Restated Certificate of Incorporation, as amended, the Certificates of Designation describing the Corporation's 8.35% Non-Cumulative Monthly Income Preferred Stock, 1994 Series A (the "Series A Preferred Stock") and the Corporation's Series A Participating Preferred Stock (the "Series A Participating Preferred Stock"), respectively, and the Certificate of Resolution (the "Certificate of Resolution") relating to each particular series of the Preferred Stock, each of which will be filed or incorporated by reference, as the case may be, as an exhibit to the Registration Statement of which this Prospectus is a part at or prior to the time of the issuance of such Preferred Stock. GENERAL Under the Corporation's Restated Certificate of Incorporation, the Board of Directors of the Corporation is authorized, without further stockholder action, to provide for the issuance of up to 10,000,000 shares of preferred stock (of which 4,000,000 shares have been designated and issued as Series A Preferred Stock and 350,000 shares have been authorized and designated but not issued for the Series A Participating Preferred Stock), without par value, in one or more series, with such designations of titles; dividend rates; special or relative rights in the event of a liquidation, distribution or sale of assets or dissolution or winding up of the Corporation; sinking fund provisions; redemption or purchase account provisions; conversion provisions; and voting rights, as shall be set forth as and when established by the Board of Directors of the Corporation. The shares of any series of Preferred Stock will be, when issued, fully paid and non-assessable and holders thereof shall have no preemptive rights in connection therewith. The liquidation preference of any series of the Preferred Stock is not necessarily indicative of the price at which shares of such series of Preferred Stock will actually trade at or after the time of their issuance. The market price of any series of Preferred Stock can be expected to fluctuate with changes in market and economic conditions, the financial condition and prospects of the Corporation and other factors that generally influence the market prices of securities. RANK Any series of 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 with all equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank junior to the Preferred Stock (collectively referred to as the "Junior Securities"); (ii) on a parity with all equity securities issued by the Corporation the terms of which specifically provide that such equity securities will rank on a parity with the Preferred Stock (collectively referred to as the "Parity Securities"); 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 Preferred Stock. As used in any Certificate of Resolution for these purposes, the term "equity securities" will not include debt securities convertible into or exchangeable for equity securities. DIVIDENDS Holders of each series of Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors of the Corporation out of funds legally available therefor, cash dividends at such rates and on such dates as are set forth in the Prospectus Supplement relating to such series of Preferred Stock. Dividends will be payable to holders of record of the Preferred Stock as they appear on the books of the Corporation on such record dates as shall be fixed by the Board of Directors. Dividends on any series of Preferred Stock may be 24 28 cumulative or non-cumulative. The Corporation's ability to pay dividends on its Preferred Stock is subject to policies established by the Federal Reserve Board. See "Certain Regulatory Matters -- Dividend Restrictions." No full dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Securities unless dividends shall have been paid or set apart for such payment on the Preferred Stock. If full dividends are not so paid, the Preferred Stock shall share dividends pro rata with the Parity Securities. The holders of any series of shares of Preferred Stock at the close of business on a dividend payment record date will be entitled to receive the dividend payable on such shares (except that holders of shares called for redemption on a redemption date occurring between such record date and the dividend payment date shall not be entitled to receive such dividend on such dividend payment date but instead will receive accrued and unpaid dividends to such redemption date) on the corresponding dividend payment date notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due. Except as provided above, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of preferred stock or issued upon conversion. CONVERSION The Prospectus Supplement for any series of Preferred Stock will state the terms, if any, on which shares of that series are convertible into shares of another series of preferred stock of the Corporation. For any series of Preferred Stock which is convertible, the Corporation shall at all times reserve and keep available, out of the aggregate of its authorized but unissued preferred stock or preferred stock held in its treasury or both, for the purpose of effecting the conversion of the shares of such series of Preferred Stock, the full number of shares of preferred stock then deliverable upon the conversion of all outstanding shares of such series. No fractional shares or scrip representing fractional shares of preferred stock will be issued upon the conversion of shares of any series of convertible Preferred Stock. Each holder to whom fractional shares would otherwise be issued will instead be entitled to receive, at the Corporation's election, either (a) a cash payment equal to the current market price of such holder's fractional interest or (b) a cash payment equal to such holder's proportionate interest in the net proceeds (following the deduction of applicable transaction costs) from the sale promptly by an agent, on behalf of such holders, of shares of preferred stock representing the aggregate of such fractional shares. EXCHANGEABILITY If so determined by the Board of Directors of the Corporation, the holders of shares of Preferred Stock of any series may be obligated at any time or at maturity to exchange such shares for preferred stock or debt securities of the Corporation. The terms of any such exchange and any such preferred stock or debt securities will be described in the Prospectus Supplement relating to such series of Preferred Stock. REDEMPTION A series of Preferred Stock may be redeemable at any time, in whole or in part, at the option of the Corporation or the holder thereof upon terms and at the redemption prices set forth in the Prospectus Supplement relating to such series. In the event of partial redemptions of Preferred Stock, whether by mandatory or optional redemption, the shares to be redeemed will be determined by lot or pro rata, as may be determined by the Board of Directors of the Corporation or by any other method determined to be equitable by the Board of Directors. On or after a redemption date, unless the Corporation defaults in the payment of the redemption price, dividends will cease to accrue on shares of Preferred Stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price. 25 29 Under current regulations, bank holding companies may not exercise any option to redeem shares of preferred stock included as Tier 1 capital, or exchange such preferred stock for debt securities, without the prior approval of the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not permit such a redemption unless (1) the shares are redeemed with the proceeds of a sale by the bank holding company of common stock or perpetual preferred stock or (2) the Federal Reserve Board determines that the bank holding company's condition and circumstances warrant the reduction of a source of permanent capital. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, holders of each series of Preferred Stock that ranks senior to the Junior Securities will be entitled to receive out of assets of the Corporation available for distribution to shareholders, before any distribution is made on any Junior Securities, including Common Stock, distributions upon liquidation in the amount set forth in the Prospectus Supplement relating to such series of Preferred Stock, plus an amount equal to any accrued and unpaid dividends. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to the Preferred Stock of any series and any other Parity Securities are not paid in full, the holders of the Preferred Stock of such series and the Parity Securities 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 are entitled, the holders of such series of Preferred Stock will not be entitled to any further participation in any distribution of assets of the Corporation. VOTING RIGHTS Except as indicated in the Prospectus Supplement relating to a particular series of Preferred Stock, or except as expressly required by applicable law, the holders of the Preferred Stock will have no voting rights. Under regulations adopted by the Federal Reserve Board, if the holders of shares of any series of Preferred Stock of the Corporation became entitled to vote for the election of directors, such series may then be deemed a "class of voting securities" and a holder of 25% or more of such series (or a holder of 5% if it otherwise exercises a "controlling influence" over the Corporation) may then be subject to regulation as a bank holding company in accordance with the BHC Act. In addition, at such time as such series is deemed a class of voting securities, (i) 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 such series, and (ii) 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 Banking Law requires the prior approval of the Office of the Commissioner to obtain control of any bank organized under the Banking Law. The Banking Law requires that in any transfer of voting and outstanding capital stock of any bank organized under the laws of Puerto Rico to any person or entity that, upon consummation of the transfer, will become the owner, directly or indirectly, of more than 5% of the voting and outstanding capital stock of said bank, the parties to the transfer shall inform the Office of the Commissioner of the proposed transfer at least 60 days prior to the date such transfer is to be effected. The Banking Law does not contain any provision allowing for the extension of such 60-day time period. The transfer requires the approval of the Office of the Commissioner if it results in a change of control of the bank. For the purposes of Section 12 of the Banking Law, the term "control" means the power to, directly or indirectly, direct or influence decisively the administration or the norms of the bank. The Department of the Treasury (predecessor to the Office of the Commissioner) made a determination that the foregoing provisions of the Banking Law are applicable to a change in control of the Corporation in a letter dated April 9, 1985. Pursuant to Section 12(d) of the Banking Law, as soon as the Office of the Commissioner receives notice of a proposed transaction that may result in the control or in a change of control of a bank, the Office of the Commissioner shall have the duty to make the necessary investigations. The Office of the Commissioner shall issue authorization for the transfer of control of the bank if the results of his investigations are in his judgment satisfactory. The decision of the Office of the Commissioner is final and unreviewable. 26 30 DESCRIPTION OF PREFERRED STOCK OF PIB The following summary contains a description of certain general terms of the PIB Preferred Stock to which any Prospectus Supplement may relate. Certain terms of any series of the Preferred Stock offered by any Prospectus Supplement will be described in the Prospectus Supplement relating thereto. If so indicated in the Prospectus Supplement, the terms of any series may differ from the terms set forth below. The description of certain provisions of the PIB Preferred Stock does not purport to be complete and is subject to and qualified in its entirety by reference to the provisions of the PIB's Certificate of Incorporation, as amended, and the Certificate of Amendment relating to each particular series of the PIB Preferred Stock, each of which will be filed or incorporated by reference, as the case may be, as an exhibit to the Registration Statement of which this Prospectus is a part at or prior to the time of the issuance of such PIB Preferred Stock. The authorized capital stock of PIB consists of 1,000,000 shares of Common Stock, par value $5.00 per share, and 25,000,000 shares of preferred stock, par value $25.00 per share. The preferred stock is issuable in one or more series, with such terms, and at such times and for such consideration as the Board of Directors of PIB determines. As of the date of this Prospectus, there were issued and outstanding no shares of preferred stock. All of the common stock of PIB is owned by the Corporation. GENERAL Under the PIB's Certificate of Incorporation, the Board of Directors of the Corporation is authorized, without further stockholder action, to provide for the issuance of up to 25,000,000 shares of preferred stock, par value $25.00 per share, in one or more series, with such designations of titles; dividend rates; special or relative rights in the event of a liquidation, distribution or sale of assets or dissolution or winding up of PIB; sinking fund provisions; any redemption or purchase account provisions; conversion provisions; and voting rights, as shall be set forth as and when established by the Board of Directors of PIB. The shares of any series of PIB Preferred Stock will be, when issued, fully paid and nonassessable and holders thereof shall have no preemptive rights in connection therewith. The liquidation preference of any series of the PIB Preferred Stock is not necessarily indicative of the price at which shares of such series of PIB Preferred Stock will actually trade at or after the time of their issuance. The market price of any series of PIB Preferred Stock can be expected to fluctuate with changes in market and economic conditions, the financial condition and prospects of the Corporation and other factors that generally influence the market prices of securities. RANK Any series of PIB 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 PIB and with all equity securities issued by PIB the terms of which specifically provide that such equity securities will rank junior to the PIB Preferred Stock (collectively referred to as the "PIB Junior Securities"); (ii) on a parity with all equity securities issued by PIB, the terms of which specifically provide that such equity securities will rank on a parity with the PIB Preferred Stock (collectively referred to as the "PIB Parity Securities"); and (iii) junior to all equity securities issued by PIB, the terms of which specifically provide that such equity securities will rank senior to the PIB Preferred Stock (collectively referred to as the "PIB Senior Securities"). As used in any Certificate of Amendment for these purposes, the term "equity securities" will not include debt securities convertible into or exchangeable for equity securities. DIVIDENDS Holders of each series of PIB Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors of PIB out of funds legally available therefor, cash dividends at such rates and on such dates as are set forth in the Prospectus Supplement relating to such series of the PIB Preferred Stock. Dividends will be payable to holders of record of the PIB Preferred Stock as they appear on the books of PIB on such record dates as shall be fixed by the Board of Directors. Dividends on any series of PIB Preferred Stock may be cumulative or non-cumulative. PIB's ability to pay dividends on its Preferred Stock is subject to 27 31 policies established by the Federal Reserve Board. See "Certain Regulatory Matters -- Dividend Restrictions." No full dividends may be declared or paid or funds set apart for the payment of dividends on any PIB Parity Securities unless dividends shall have been paid or set apart for such payment on the PIB Preferred Stock. If full dividends are not so paid, the PIB Preferred Stock shall share dividends pro rata with the PIB Parity Securities. The holders of any series of shares of PIB Preferred Stock at the close of business on a dividend payment record date will be entitled to receive the dividend payable on such shares (except that holders of shares called for redemption on a redemption date occurring between such record date and the dividend payment date shall not be entitled to receive such dividend on such dividend payment date but instead will receive accrued and unpaid dividends to such redemption date) on the corresponding dividend payment date notwithstanding the conversion thereof or PIB's default in payment of the dividend due. Except as provided above, PIB will make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of preferred stock issued upon conversion. CONVERSION The Prospectus Supplement for any series of the PIB Preferred Stock will state the terms, if any, on which shares of that series are convertible into shares of another series of preferred stock of PIB. For any series of PIB Preferred Stock which is convertible, PIB shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued preferred stock or shares of preferred stock held in its treasury or both, for the purpose of effecting the conversion of the shares of such series of PIB Preferred Stock, the full number of shares of preferred stock then deliverable upon the conversion of all outstanding shares of such series. No fractional shares or scrip representing fractional shares of preferred stock will be issued upon the conversion of shares of any series of convertible PIB Preferred Stock. Each holder to whom fractional shares would otherwise be issued will instead be entitled to receive, at PIB's election, either (a) a cash payment equal to the current market price of such holder's fractional interest or (b) a cash payment equal to such holder's proportionate interest in the net proceeds (following the deduction of applicable transaction costs) from the sale promptly by an agent, on behalf of such holders, of shares of preferred stock representing the aggregate of such fractional shares. EXCHANGEABILITY If so determined by the Board of Directors of PIB, the holders of shares of PIB Preferred Stock of any series may be obligated at any time or at maturity to exchange such shares for preferred stock or debt securities of PIB. The terms of any such exchange and any such preferred stock or debt securities will be described in the Prospectus Supplement relating to such series of PIB Preferred Stock. REDEMPTION A series of PIB Preferred Stock may be redeemable at any time, in whole or in part, at the option of PIB or the holder thereof upon terms and at the redemption prices set forth in the Prospectus Supplement relating to such series. In the event of partial redemptions of PIB Preferred Stock, whether by mandatory or optional redemption, the shares to be redeemed will be determined by lot or pro rata, as may be determined by the Board of Directors of PIB or by any other method determined to be equitable by the Board of Directors. On or after a redemption date, unless PIB defaults in the payment of the redemption price, dividends will cease to accrue on shares of PIB Preferred Stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price. 28 32 Under current regulations, bank holding companies may not exercise any option to redeem shares of preferred stock included as Tier 1 capital, or exchange such preferred stock for debt securities, without the prior approval of the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not permit such a redemption unless (1) the shares are redeemed with the proceeds of a sale by the bank holding company of common stock or perpetual preferred stock or (2) the Federal Reserve Board determines that the bank holding company's condition and circumstances warrant the reduction of a source of permanent capital. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of PIB, holders of each series of PIB Preferred Stock that ranks senior to the PIB Junior Securities will be entitled to receive out of assets of PIB available for distribution to shareholders, before any distribution is made on any PIB Junior Securities, including common stock, distributions upon liquidation in the amount set forth in the Prospectus Supplement relating to such series of Preferred Stock, plus an amount equal to any accrued and unpaid dividends. If upon any voluntary or involuntary liquidation, dissolution or winding up of PIB the amounts payable with respect to the PIB Preferred Stock of any series and any other PIB Parity Securities are not paid in full, the holders of the PIB Preferred Stock of such series and the PIB Parity Securities will share ratably in any such distribution of assets of PIB 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 are entitled, the holders of such series of PIB Preferred Stock will not be entitled to any further participation in any distribution of assets of PIB. VOTING RIGHTS Except as indicated in the Prospectus Supplement relating to a particular series of PIB Preferred Stock, or except as expressly required by applicable law, the holders of the PIB Preferred Stock will have no voting rights. GUARANTEE Unless otherwise specified in the applicable Prospectus Supplement, the Corporation will guarantee the punctual payment of (i) any accrued and unpaid dividends, whether or not declared, on the PIB Preferred Stock of any series, (ii) the redemption price for any shares of PIB Preferred Stock called or redemption at the option of PIB or the holder thereof in accordance with the terms of such series of PIB Preferred Stock, (iii) the liquidation preference of PIB Preferred Stock and (iv) any additional amounts with respect to a series of PIB Preferred Stock. The Guarantee of the PIB Preferred Stock shall constitute an unsecured obligation of the Corporation and will rank junior to all liabilities of the Corporation. The Guarantee will rank senior to the Corporation's common stock and shall have such rank relative to the preferred stock of the Corporation as shall be specified in the applicable Prospectus Supplement. VALIDITY OF OFFERED SECURITIES The validity of the Preferred Stock and the PIB Preferred Stock will be passed upon for the Corporation and PIB by Brunilda Santos de Alvarez, counsel to the Corporation. The validity of the Senior Securities, the Subordinated Securities, the PIB Senior Debt Securities, the PIB Subordinated Debt Securities and the Guarantees will be passed upon for the Corporation and PIB by Ms. Alvarez as to matters of the laws of the Commonwealth of Puerto Rico and by Sullivan & Cromwell as to matters of New York law. The validity of the Guaranteed Securities will be passed upon for Financial by Sullivan & Cromwell. The validity of the Securities will be passed upon for any underwriters or agents by counsel named in the Prospectus Supplement. EXPERTS The financial statements incorporated in this Prospectus by reference from the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993 have been so incorporated in reliance on the 29 33 report of Price Waterhouse, independent public accountants, given upon the authority of said firm as experts in auditing and accounting. PLAN OF DISTRIBUTION The Corporation, PIB or Financial, as the case may be, may sell Securities to or through underwriting syndicates represented by managing underwriters, or through one or more underwriters without a syndicate for public offering and sale by them or may sell Securities to investors directly or through agents. Any such underwriter or agent involved in the offer and sale of the Securities will be named in the Prospectus Supplement. Underwriters may offer and sell the Securities at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of the Securities, underwriters may be deemed to have received compensation from the Corporation, PIB or Financial, as the case may be, in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the Securities for whom they may act as agent. Underwriters may sell the Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agent. Any compensation paid by the Corporation, PIB or Financial, as the case may be, to underwriters or agents in connection with the offering of the Securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the Prospectus Supplement. Underwriters, dealers and agents participating in the distribution of the Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Securities may be deemed to be underwriting discounts and commissions under the Securities Act of 1933. Underwriters, dealers and agents may be entitled, under agreements entered into with Corporation, PIB or Financial, as the case may be, to indemnification against certain civil liabilities, including liabilities under the Securities Act of 1933. All Securities will be a new issue of securities with no established trading market. Any underwriters to whom Securities are sold by the Corporation, PIB or Financial, as the case may be, for public offering and sale may make a market in such Securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of the trading market for any Securities. Certain of the underwriters and their associates may be customers of, engage in transactions with, and perform services for, the Corporation or its subsidiaries in the ordinary course of business. 30 34 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPRESSED OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with the issuance and distribution of the securities being registered are: Registration Fee.......................................................... $172,415 Fees and Expenses of Accountants.......................................... 20,000 Fees and Expenses of Counsel.............................................. 100,000 Blue Sky Fees and Expenses................................................ 22,500 Printing and Engraving Expenses........................................... 16,000 Rating Agency Fees........................................................ 125,000 Trustee's Fees............................................................ 25,000 Miscellaneous............................................................. 10,085 -------- Total........................................................... $491,000 ========
- --------------- * To be completed by Amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The Corporation and PIB are Puerto Rico corporations. (1) Article ELEVENTH of the Restated Certificate of Incorporation of the Corporation provides the following: (1) The Corporation 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, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) 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 written request of the Corporation as a director, officer, employee 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 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 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 and 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, had reasonable cause to believe that his conduct was unlawful. (2) The Corporation 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 Corporation to procure a judgment in its 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 written request of the Corporation 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 Corporation, except that no indemnification shall 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 Corporation unless and only to the extent that the court in which such II-1 35 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 expenses which such court shall deem proper. (3) 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 paragraph 1 or 2 of this Article ELEVENTH, 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. (4) Any indemnification under paragraph 1 or 2 of this Article ELEVENTH (unless 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 therein. Such determination shall be made (a) by the 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. (5) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article ELEVENTH. (6) The indemnification provided by this Article ELEVENTH shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action 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. (7) By action of its Board of Directors, notwithstanding any interest of the directors in the action, the Corporation may purchase and maintain insurance, in such amounts as the Board of Directors deems appropriate, 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 written 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 and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or would be required to indemnify him against such liability under the provisions of this Article ELEVENTH or of the General Corporation Law of the Commonwealth of Puerto Rico or of any other state of the United States or foreign country as may be applicable. (2) Article ELEVENTH of the Certificate of Incorporation of PIB provides the following: (1) PIB 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, whether civil, criminal, administrative or investigative, with the exception of an action brought by or in right of PIB, by reason that such person is or was serving at the written request of PIB as a director, officer, employee 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 manner he reasonably believed to be in or not opposed to the best interests of PIB, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any 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 II-2 36 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 PIB and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (2) PIB 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 PIB to procure a judgment in its favor by reason of the fact that said person is or was a director, officer, employee or agent of PIB, or is or was serving at the written request of PIB 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 PIB, except that no indemnification shall be made in respect of any claim, issue or manner as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to PIB 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 expenses which such court shall deem proper. (3) To the extent that a director, officer, employee or agent of PIB has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph 1 or 2 of this Article ELEVENTH, 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. (4) Any indemnification under paragraph 1 or 2 of this Article ELEVENTH (unless ordered by a court) shall be made by PIB only as authorized in the specific cases 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 the 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. (5) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by PIB in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by PIB as authorized in this Article ELEVENTH. (6) The indemnification provided by this Article ELEVENTH shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action 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. (7) By action of its Board of Directors, notwithstanding any interest of the directors in the action, PIB may purchase and maintain insurance, in such amounts as the Board of Directors deems appropriate, on behalf of any person who is or was a director, officer, employee or agent of PIB, or is or was serving at the written request of PIB 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 PIB would have the power or would be required to indemnify him against such liability under the provisions of this Article ELEVENTH or of the General Corporation Law of the Commonwealth of Puerto Rico or of any other state of the United States or foreign country as may be applicable. II-3 37 (b) Financial is a Delaware corporation. (1) Section 102 of the Delaware General Corporation Law allows a corporation to eliminate the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except in cases where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowing violation of law, authorized the unlawful payment of a dividend or approved an unlawful stock repurchase or obtained an improper personal benefit. Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any person who was or is a party or is threatened to be 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 right of the Corporation, 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 its request in such capacity in another corporation or business association against expenses (including attorneys' fees), judgements, 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 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. (2) Section 6.4 of the By-laws of Financial provides the following: Section 6.4. Indemnification of Directors, Officers and Employees. The Corporation shall indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director, officer or employee of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer or employee. Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is so entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this by-law, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. ITEM 16. EXHIBITS. (1) -- Form of Underwriting Agreement. (Incorporated by reference from Registration Statement No. 33-57038) (4)(a) -- Restated Certificate of Incorporation of BanPonce Corporation, as amended (English translation)* (4)(b) -- Certificate of Incorporation of Popular International Bank Inc. (English translation)* (4)(c) -- Form of Senior Indenture of BanPonce Corporation. (Incorporated by reference from Registration Statement No. 33-41686)
II-4 38 (4)(d) -- Form of Subordinated Indenture of BanPonce Corporation (Incorporated by reference from Registration Statement No. 33-57038) (4)(e) -- Form of Guaranteed Indenture of BanPonce Financial Corp. (Incorporated by reference from Registration Statement No. 33-41686) (4)(f) -- Form of Senior Indenture of Popular International Bank Inc. (Incorporated by reference from Registration Statement No. 33-57038) (4)(g) -- Form of Subordinated Indenture of Popular International Bank Inc. (Incorporated by reference from Registration Statement No. 33-57038) (4)(h) -- Rights Agreement, dated as of August 11, 1988, between BanPonce Corporation and Manufacturers Hanover Trust Company (Incorporated by reference from Registration Statement No. 33-39028) (4)(i) -- Amendment to Rights Agreement, dated as of December 11, 1990, between BanPonce Corporation and Manufacturers Hanover Trust Company (Incorporated by reference from Registration Statement No. 33-39028) (5)(a) -- Opinion of Brunilda Santos de Alvarez (5)(b) -- Opinion of Sullivan & Cromwell (12) -- Computation of Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed Charges and Preferred Stock Dividends* (23)(a) -- Consent of Independent Auditors (23)(b) -- Consent of Counsel (included in Exhibit(5)(a) and (b)) (24) -- Powers of attorney* (25) -- Statement of Eligibility on Form T-1 of Citibank, N.A., as Guaranteed Trustee for the Guaranteed Securities
- --------------- * Previously filed. ITEM 17. UNDERTAKINGS. The undersigned Co-registrants hereby undertake: (a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Co-registrants pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such 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. II-5 39 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Corporation's annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this 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. (c) That, 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 any Co-registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. The Corporation and PIB hereby undertake to file an application for the purpose of determining the eligibility of the Senior Trustee, Subordinated Trustee, PIB Senior Trustee and PIB Subordinated Trustee to act under Subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of such Act. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Co-registrants pursuant to the provisions referred to in Item 15 of this Registration Statement, or otherwise, the Co-registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Co-registrants of expenses incurred or paid by a director, officer or controlling person of the Co-registrants 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 Co-registrants will, unless in the opinion of their 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 Act and will be goverened by the final adjudication of such issue. II-6 40 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the undersigned Co-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 amendment to 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 19th day of July, 1994. BANPONCE CORPORATION (Registrant) By /s/ DAVID H. CHAFEY, JR. ------------------------------------ Name: David H. Chafey, Jr. Title: Executive Vice President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed on July 19, 1994 by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- * Chairman and President (Principal Executive - --------------------------------------------- Officer) Richard L. Carrion * Director - --------------------------------------------- Alfonso F. Ballester * Director - --------------------------------------------- Juan J. Bermudez * Director - --------------------------------------------- Sila Maria Calderon * Director - --------------------------------------------- Francisco J. Carreras * Director - --------------------------------------------- Manuel Luis Del Valle * Director - --------------------------------------------- Waldemar Del Valle * Director - --------------------------------------------- Luis E. Dubon, Jr. * Director - --------------------------------------------- Antonio Luis Ferre * Director - --------------------------------------------- Hector R. Gonzalez * Executive Vice President and Director - --------------------------------------------- Jorge A. Junquera * Director - --------------------------------------------- Franklin A. Mathias
II-7 41
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- * Director - --------------------------------------------- Manuel Morales, Jr. * Director - --------------------------------------------- Alberto M. Paracchini * Director - --------------------------------------------- Francisco Perez, Jr. * Director - --------------------------------------------- Francisco M. Rexach, Jr. * Director - --------------------------------------------- Felix J. Serralles Nevares * Director - --------------------------------------------- Julio E. Vizcarrondo, Jr. /s/ DAVID H. CHAFEY, JR. Executive Vice President (Principal Financial - --------------------------------------------- Officer) David H. Chafey, Jr. * Senior Vice President (Principal Accounting - --------------------------------------------- Officer) Orlando Berges
*By: /s/ DAVID H. CHAFEY, JR., ----------------------------------------- David H. Chafey, Jr., as attorney-in-fact for each of the persons indicated II-8 42 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the undersigned Co-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 amendment to 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 19th day of July, 1994. POPULAR INTERNATIONAL BANK INC. By: /s/ DAVID H. CHAFEY, JR. ------------------------------------ Name: David H. Chafey, Jr. Title: Executive Vice President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed on July 19, 1994 by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- * Chairman and President (Principal Executive - --------------------------------------------- Officer) Richard L. Carrion * Director - --------------------------------------------- Alfonso F. Ballester /s/ DAVID H. CHAFEY, JR. Executive Vice President and Director - --------------------------------------------- (Principal Financial Officer) David H. Chafey, Jr. * Director - --------------------------------------------- Manuel L. del Valle * Executive Vice President and Director - --------------------------------------------- Jorge A. Junquera * Senior Vice President (Principal Accounting - --------------------------------------------- Officer) Orlando Berges
*By: /s/ DAVID H. CHAFEY, JR. ----------------------------------------- David H. Chafey, Jr., as attorney-in-fact for each of the persons indicated II-9 43 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the undersigned Co-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 amendment to 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 19th day of July, 1994. BANPONCE FINANCIAL CORP. By: /s/ DAVID H. CHAFEY, JR. ------------------------------------ Name: David H. Chafey, Jr. Title: Executive Vice President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed on July 19, 1994 by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE - --------------------------------------------- ---------------------------------------------- * Chairman and President (Principal Executive - --------------------------------------------- Officer) Richard L. Carrion * Director - --------------------------------------------- Alfonso F. Ballester /s/ DAVID H. CHAFEY, JR. Executive Vice President and Director - --------------------------------------------- (Principal Financial Officer and Principal David H. Chafey, Jr. Accounting Officer) * Director - --------------------------------------------- Manuel L. del Valle * Director - --------------------------------------------- Thomas J. Fitzpatrick * Executive Vice President and - --------------------------------------------- Director Larry B. Kesler * Senior Vice President and Director - --------------------------------------------- Roberto R. Herencia
*By: /s/ DAVID H. CHAFEY, JR. ----------------------------------------- David H. Chafey, Jr., as attorney-in-fact for each of the persons indicated II-10 EX-5.A 2 OPINION OF BRUNILDA SANTOS 1 EXHIBIT 5(a) July 19, 1994 The Board of Directors BanPonce Corporation 209 Munoz Rivera Avenue Hato Rey, Puerto Rico 00918 The Board of Directors Popular International Bank Inc. c/o BanPonce Corporation 209 Munoz Rivera Avenue Hato Rey, Puerto Rico 00918 The Board of Directors BanPonce Financial Corp. c/o CT Corporation 1209 Orange Street Wilmington, Delaware 19801 Ladies and Gentlemen: This opinion is delivered in connection with the registration under the Securities Act of 1933 (the "Act") of (i) senior debt securities (the "BanPonce Senior Debt Securities"), subordinated debt securities (the "BanPonce Subordinated Debt Securities") and preferred stock, without par value (the "BanPonce Preferred Stock"), of BanPonce Corporation, a Puerto Rico corporation (the "Corporation"), (ii) senior debt securities (the "BanPonce Financial Debt Securities") of BanPonce Financial Corp. ("Financial"), a Delaware corporation, bearing the unconditional guarantees (the "BanPonce Financial Guarantees") of the Corporation, and (iii) senior debt securities (the "PIB Senior Debt Securities") bearing the unconditional guarantees (the "PIB Senior Debt Securities Guarantees") of the Corporation, subordinated debt securities (the "PIB Subordinated Debt 2 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -2- Securities") bearing the unconditional guarantees (the "PIB Subordinated Debt Securities Guarantees") of the Corporation and preferred stock, par value $25.00 per share (the "PIB Preferred Stock"), bearing the unconditional guarantees (the "PIB Preferred Stock Guarantees") of the Corporation, of Popular International Bank Inc. ("PIB"), a Puerto Rico corporation (the BanPonce Senior Debt Securities, the BanPonce Subordinated Debt Securities, the BanPonce Financial Debt Securities, the PIB Senior Debt Securities and the PIB Subordinated Debt Securities are sometimes collectively referred to herein as the "Debt Securities", the BanPonce Financial Guarantees, the PIB Senior Debt Securities Guarantees, the PIB Subordinated Debt Securities Guarantees and the PIB Preferred Stock Guarantees are sometimes collectively referred to herein as the "Guarantees", and the Debt Securities, the BanPonce Preferred Stock and the PIB Preferred Stock are sometimes collectively referred to herein as the "Securities"). The Securities are limited to an aggregate initial offering price not to exceed $500,000,000. I, as Counsel to the Corporation, have examined such corporate records, certificates and other documents, and such questions of law, as I have considered necessary or appropriate for the purposes of this opinion. On the basis of such examination, I advise you that, in my opinion: (i) Each of the Corporation and PIB has been duly incorporated and is an existing corporation in good standing under the laws of the Commonwealth of Puerto Rico. (ii) When the registration statement relating to the Securities and the Guarantees (the "Registration Statement") has become effective under the Act, the indenture relating to the BanPonce Senior Debt Securities (the "BanPonce Senior Indenture") has been duly executed and delivered, the terms of the BanPonce Senior Debt Securities and of their issuance and sale have been duly established in conformity with the BanPonce Senior Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the 3 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -3- Corporation, and the BanPonce Senior Debt Securities have been duly executed and authenticated in accordance with the BanPonce Senior Indenture and issued and sold as contemplated in the Registration Statement, the BanPonce Senior Debt Securities will constitute valid and legally binding obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iii) When the Registration Statement has become effective under the Act, the indenture relating to the BanPonce Subordinated Debt Securities (the "BanPonce Subordinated Indenture") has been duly executed and delivered, the terms of the BanPonce Subordinated Debt Securities and of their issuance and sale have been duly established in conformity with the BanPonce Subordinated Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Corporation, and the BanPonce Subordinated Debt Securities have been duly executed and authenticated in accordance with the BanPonce Subordinated Indenture and issued and sold as contemplated in the Registration Statement, the BanPonce Subordinated Debt Securities will constitute valid and legally binding obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) When the Registration Statement has become effective under the Act, the indenture relating to the BanPonce Financial Debt Securities (the "BanPonce Financial Indenture") has been duly executed and delivered, the terms of the BanPonce Financial Debt Securities and of their issuance and sale have been duly established in conformity with the BanPonce Financial Indenture so as not to violate any applicable law or result in a default under or breach of 4 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -4- any agreement or instrument binding upon Financial or the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over Financial or the Corporation, the BanPonce Financial Debt Securities have been duly executed and authenticated, and the BanPonce Financial Guarantees have been duly executed, each in accordance with the BanPonce Financial Indenture, and the BanPonce Financial Debt Securities have been issued and sold as contemplated in the Registration Statement, the BanPonce Financial Debt Securities will constitute valid and legally binding obligations of Financial and the BanPonce Financial Guarantees will constitute valid and legally binding obligations of the Corporation, in each case subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (v) When the Registration Statement has become effective under the Act, the indenture relating to the PIB Senior Debt Securities (the "PIB Senior Indenture") has been duly executed and delivered, the terms of the PIB Senior Debt Securities and of their issuance and sale have been duly established in conformity with the PIB Senior Indenture so as not violate any applicable law or result in a default under or breach of any agreement or instrument binding upon PIB or the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over PIB or the Corporation, the PIB Senior Debt Securities have been duly executed and authenticated and the PIB Senior Debt Securities Guarantees have been duly executed, each in accordance with the PIB Senior Indenture, and the PIB Senior Debt Securities have been issued and sold as contemplated in the Registration Statement, the PIB Senior Debt Securities will constitute valid and legally binding obligations of PIB and the PIB Senior Debt Securities Guarantees will constitute valid and legally binding obligations of the Corporation, in each case subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general 5 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -5- applicability relating to or affecting creditors' rights and to general equity principles. (vi) When the Registration Statement has become effective under the Act, the indenture relating to the PIB Subordinated Debt Securities (the "PIB Subordinated Indenture") has been duly executed and delivered, the terms of the PIB Subordinated Debt Securities and of their issuance and sale have been duly established in conformity with the PIB Subordinated Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon PIB or the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over PIB or the Corporation, and the PIB Subordinated Debt Securities have been duly executed and authenticated and the PIB Subordinated Debt Securities Guarantees have been duly executed, each in accordance with the PIB Subordinated Indenture, and the PIB Subordinated Debt Securities have been issued and sold as contemplated in the Registration Statement, the PIB Subordinated Debt Securities will constitute valid and legally binding obligations of PIB and the PIB Subordinated Debt Securities Guarantees will constitute valid and legally binding obligations of the Corporation, in each case subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (vii) When the Registration Statement has become effective under the Act, a certificate with respect to the BanPonce Preferred Stock has been duly filed and recorded with the Department of State of the Commonwealth of Puerto Rico as required by the General Corporation Law of the Commonwealth of Puerto Rico, the terms of the BanPonce Preferred Stock and of its issue and sale have been duly established in conformity with the Corporation's restated certificate of incorporation so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Corporation and so as to comply with any requirement or restriction imposed by 6 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -6- any court or governmental body having jurisdiction over the Corporation, all regulatory consents or approvals for the issuance and sale of the BanPonce Preferred Stock have been obtained and the BanPonce Preferred Stock has been duly issued and sold as contemplated by the Registration Statement, the BanPonce Preferred Stock will be validly issued, fully paid, and nonassessable. (viii) When the Registration Statement has become effective under the Act, a certificate with respect to the PIB Preferred Stock has been duly filed and recorded with the Department of State of the Commonwealth of Puerto Rico as required by the General Corporation Law of the Commonwealth of Puerto Rico, the terms of the PIB Preferred Stock and of its issue and sale have been duly established in conformity with PIB's certificate of incorporation so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon PIB or the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over PIB or the Corporation, all regulatory consents or approvals for the issuance and sale of the PIB Preferred Stock and for the issuance of the PIB Preferred Stock Guarantees have been obtained, and the PIB Preferred Stock has been duly issued and sold as contemplated by the Registration Statement, the PIB Preferred Stock will be validly issued, fully paid and nonassessable, and when the PIB Preferred Stock Guarantees have been duly executed, the PIB Preferred Stock Guarantees will constitute valid and legally binding obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. I note that, as of the date of this opinion, a judgment for money in an action based on a Debt Security denominated in a foreign currency or currency unit, or on a related Guarantee, in a Federal or state court in the United States ordinarily would be enforced in the United States only in United States dollars. The date used to determine the rate of conversion of the foreign currency or currency unit in 7 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -7- which a particular Debt Security is denominated into United States dollars will depend on various factors, including which court renders the judgment. In the case of a Debt Security denominated in a foreign currency, or a related Guarantee, a state court in the State of New York rendering a judgment on a Debt Security, or on a related Guarantee, would be required under Section 27 of the New York Judiciary Law to render such judgment in the foreign currency in which the Debt Security is denominated, and such judgement would be converted into United States dollars at the exchange rate prevailing on the date of entry of the judgment. The foregoing opinion is limited to the Federal laws of the United States, the General Corporation Law of the State of Delaware, the laws of the State of New York and the Commonwealth of Puerto Rico, and I am expressing no opinion as to the effect of the laws of any other jurisdiction. With respect to all matters of the laws of the State of New York, I have relied upon the opinion, dated the date hereof, of Sullivan & Cromwell, and my opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in such opinion of Sullivan & Cromwell. Also, I have relied as to certain matters on information obtained from public officials, officers of the Corporation, Financial and PIB, and other sources believed by me to be responsible. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to me under the heading "Validity of Offered Securities" in the Prospectus contained in the Registration Statement. In 8 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -8- giving such consent, I do not thereby admit that I am in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ BRUNILDA SANTOS DE ALVAREZ ------------------------------ Brunilda Santos de Alvarez EX-5.B 3 OPINION OF SULLIVAN & CROMWELL 1 EXHIBIT 5(b) July 19, 1994 BanPonce Corporation, 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918. Popular International Bank Inc., c/o BanPonce Corporation, 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918. BanPonce Financial Corp., c/o CT Corporation, 1209 Orange Street, Wilmington, Delaware 19801. Ladies and Gentlemen: This opinion is delivered in connection with the registration under the Securities Act of 1933 (the "Act") of (i) senior debt securities (the "BanPonce Senior Debt Securities"), subordinated debt securities (the "BanPonce Subordinated Debt Securities") and preferred stock, without par value (the "BanPonce Preferred Stock"), of BanPonce Corporation, a Puerto Rico corporation (the "Corporation"), (ii) senior debt securities (the "BanPonce Financial Debt Securities") of BanPonce Financial Corp. ("Financial"), a 2 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -2- Delaware corporation, bearing the unconditional guarantees (the "BanPonce Financial Guarantees") of the Corporation, and (iii) senior debt securities (the "PIB Senior Debt Securities") bearing the unconditional guarantees (the "PIB Senior Debt Securities Guarantees") of the Corporation, subordinated debt securities (the "PIB Subordinated Debt Securities") bearing the unconditional guarantees (the "PIB Subordinated Debt Securities Guarantees") of the Corporation and preferred stock, par value $25.00 per share (the "PIB Preferred Stock"), bearing the unconditional guarantees (the "PIB Preferred Stock Guarantees") of the Corporation, of Popular Bank International Inc. ("PIB"), a Puerto Rico corporation (the BanPonce Senior Debt Securities, the BanPonce Subordinated Debt Securities, the BanPonce Financial Debt Securities, the PIB Senior Debt Securities and the PIB Subordinated Debt Securities are sometimes collectively referred to herein as the "Debt Securities"; the BanPonce Financial Guarantees, the PIB Senior Debt Securities Guarantees, the PIB Subordinated Debt Securities Guarantees and the PIB Preferred Stock Guarantees are sometimes collectively referred to herein as the 3 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -3- "Guarantees"; and the Debt Securities, the BanPonce Preferred Stock and the PIB Preferred Stock are sometimes collectively referred to herein as the "Securities"). The Securities are limited to an aggregate initial offering price not to exceed $500,000,000. We, as your counsel, 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. On the basis of such examination, we advise you that, in our opinion: (i) When the registration statement relating to the Securities and the Guarantees (the "Registration Statement") has become effective under the Act, the indenture relating to the BanPonce Senior Debt Securities (the "BanPonce Senior Indenture") has been duly executed and delivered, the terms of the BanPonce Senior Debt Securities and of their issuance and sale have been duly established in conformity with the BanPonce Senior Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Corporation and so as to comply with any requirement or 4 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -4- restriction imposed by any court or governmental body having jurisdiction over the Corporation, and the BanPonce Senior Debt Securities have been duly executed and authenticated in accordance with the BanPonce Senior Indenture and issued and sold as contemplated in the Registration Statement, the BanPonce Senior Debt Securities will constitute valid and legally binding obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (ii) When the Registration Statement has become effective under the Act, the indenture relating to the BanPonce Subordinated Debt Securities (the "BanPonce Subordinated Indenture") has been duly executed and delivered, the terms of the BanPonce Subordinated Debt Securities and of their issuance and sale have been duly established in conformity with the BanPonce Subordinated Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Corporation and so as to comply with any requirement or 5 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -5- restriction imposed by any court or governmental body having jurisdiction over the Corporation, and the BanPonce Subordinated Debt Securities have been duly executed and authenticated in accordance with the BanPonce Subordinated Indenture and issued and sold as contemplated in the Registration Statement, the Banponce Subordinated Debt Securities will constitute valid and legally binding obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iii) When the Registration Statement has become effective under the Act, the indenture relating to the BanPonce Financial Debt Securities (the "BanPonce Financial Indenture") has been duly executed and delivered, the terms of the BanPonce Financial Debt Securities and of their issuance and sale have been duly established in conformity with the BanPonce Financial Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon Financial or the 6 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -6- Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over Financial or the Corporation, the BanPonce Financial Debt Securities have been duly executed and authenticated, and the BanPonce Financial Guarantees have been duly executed, each in accordance with the BanPonce Financial Indenture, and the BanPonce Financial Debt Securities have been issued and sold as contemplated in the Registration Statement, the BanPonce Financial Debt Securities will constitute valid and legally binding obligations of Financial and the BanPonce Financial Guarantees will constitute valid and legally binding obligations of the Corporation, in each case subject to the bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) When the Registration Statement has become effective under the Act, the indenture relating to the PIB Senior Debt Securities (the "PIB Senior Indenture") has been duly executed and delivered, the terms of the PIB Senior 7 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -7- Debt Securities and of their issuance and sale have been duly established in conformity with the PIB Senior Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon PIB or the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over PIB or the Corporation, the PIB Senior Debt Securities have been duly executed and authenticated and the PIB Senior Debt Securities Guarantees have been duly executed, each in accordance with the PIB Senior Indenture, and the PIB Senior Debt Securities have been issued and sold as contemplated in the Registration Statement, the PIB Senior Debt Securities will constitute valid and legally binding obligations of PIB and the PIB Senior Debt Securities Guarantees will constitute valid and legally binding obligations of the Corporation, in each case subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 8 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -8- (v) When the Registration Statement has become effective under the Act, the indenture relating to the PIB Subordinated Debt Securities (the "PIB Subordinated Indenture") has been duly executed and delivered, the terms of the PIB Subordinated Debt Securities and of their issuance and sale have been duly established in conformity with the PIB Subordinated Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon PIB or the Corporation and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over PIB or the Corporation, the PIB Subordinated Debt Securities have been duly executed and authenticated and the PIB Subordinated Debt Securities Guarantees have been duly executed, each in accordance with the PIB Subordinated Indenture, and the PIB Subordinated Debt Securities have been issued and sold as contemplated in the Registration Statement, the PIB Subordinated Debt Securities will constitute valid and legally binding obligations of PIB and the PIB Subordinated Debt Securities Guarantees will constitute valid and legally binding 9 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -9- obligations of the Corporation, in each case subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. We note that, as of the date of this opinion, a judgment for money in an action based on a Debt Security denominated in a foreign currency or currency unit, or on a related Guarantee, in a Federal or state court in the United States ordinarily would be enforced in the United States only in United States dollars. The date used to determine the rate of conversion of the foreign currency or currency unit in which a particular Debt Security is denominated into United States dollars will depend on various factors, including which court renders the judgment. In the case of a Debt Security denominated in a foreign currency, or a related Guarantee, a state court in the State of New York rendering a judgment on a Debt Security, or on a related Guarantee, would be required under Section 27 of the New York Judiciary Law to render such judgment in the foreign currency in which the Debt Security is denominated, and such 10 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -10- judgment would be converted into United States dollars at the exchange rate prevailing on the date of entry of the judgment. The foregoing opinion is limited to the Federal laws of the United States, the laws of the State of New York and the Commonwealth of Puerto Rico, and the General Corporation Law of the State of Delaware, and we are expressing no opinion as to the effect of the laws of any other jurisdiction. With respect to all matters of the laws of the Commonwealth of Puerto Rico, we have relied upon the opinion, dated the date hereof, of Brunilda Santos de Alvarez, Counsel to the Corporation, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in such opinion of Brunilda Santos de Alvarez. Also, we have relied as to certain matters on information obtained from public officials, officers of the Corporation, Financial and PIB, and other sources believed by us to be responsible. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the 11 BanPonce Corporation Popular International Bank Inc. BanPonce Financial Corp. -11- references to us under the heading "Validity of Offered Securities" in the Prospectus contained 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, /s/ SULLIVAN & CROMWELL EX-23.A 4 PRICE WATERHOUSE CONSENT 1 EXHIBIT (23)(a) CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors BanPonce Corporation We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement No. 33-54299 on Form S-3 of our report dated January 28, 1994 which appears on page 28 of the 1993 Annual Report to Shareholders of BanPonce Corporation, which is incorporated by reference in BanPonce Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PRICE WATERHOUSE - -------------------- Price Waterhouse San Juan, Puerto Rico July 15, 1994 EX-25 5 T-1 1 Securities Act of 1993 File No: 33-54299 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an application to determine eligibility of a Trustee pursuant to Section 305(b)(2)_____ __________________________________ CITIBANK, N.A. (Exact name of trustee as specified in its charter) 13-5266470 (I.R.S. employer identification no.) 399 Park Avenue, New York, New York 10043 (Address of principal executive office) (Zip Code) ____________________________________ BANPONCE CORPORATION (Exact name of obligor as specified in its charter) Puerto Rico 66-0416582 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 209 Munoz Rivera Avenue Hato Rey, Puerto Rico 00918 (Address of Principal Executive Offices) (Zip Code) BANPONCE FINANCIAL CORP. (Exact name of obligor as specified in its charter) Delaware 66-0476353 (State or other jurisdiction of (I.R.S. employer incorporation or organization identification no.) c/o CT Corporation 19801 1209 Orange Street (Zip Code) Wilmington, Delaware (Address of principal executive office) __________________________________ Guaranteed Securities (Title of the indenture securities) 2 Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject.
Name Address ----- ------- Comptroller of the Currency Washington, D.C. Federal Reserve Bank of New York New York, NY Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. Item 16. List of Exhibits. Exhibit 1 - Copy of Articles of Association of the Trustee, as now in effect. (Exhibit 1 to T-1 to Registration Statement No. 2-79983) Exhibit 2 - Copy of certificate of authority of the Trustee to commence business. (Exhibit 2 to T-1 to Registration Statement No. 2-29577). Exhibit 3 - Copy of authorization of the Trustee to exercise corporate trust powers. (Exhibit 3 to T-1 to Registration Statement No. 2-55519) Exhibit 4 - Copy of existing By-Laws of the Trustee. (Exhibit 4 to T-1 to Registration Statement No. 33-34988) Exhibit 5 - Not applicable. Exhibit 6 - The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939. (Exhibit 6 to T-1 to Registration Statement No. 33-19227.) Exhibit 7 - Copy of the latest Report of Condition of Citibank, N.A. (as of March 31, 1994 - attached) Exhibit 8 - Not applicable. Exhibit 9 - Not applicable. __________________________ SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, Citibank, N.A., a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York and State of New York, on the 13th day of July, 1994. CITIBANK, N.A. By /s/ JOHN J. BYRNES ------------------ John J. Byrnes Vice President 3 EXHIBIT 7 Charter No. 1461 Comptroller of the Currency Northeastern District REPORT OF CONDITION CONSOLIDATING DOMESTIC AND FOREIGN SUBSIDIARIES OF CITIBANK, N.A. of New York in the State of New York, at the close of business on March 31, 1994, published in response to call made by Comptroller of the Currency, under Title 12. United States Code, Section 161. Charter Number 1461 Comptroller of the Currency Northeastern District. ASSETS Thousands of Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin $ 6,452,000 Interest-bearing balances 7,339,000 Securities: Held-to-maturity securities 3,923,000 Available-for-sale securities 9,604,000 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds sold 1,416,000 Securities purchased under agreements to resell 3,128,000 Loans and lease financing receivables: Loans and leases, net of unearned income- $116,456,000 LESS: Allowance for loan and lease losses- 3,578,000 ------------ Loans and leases, net of unearned income and allowance 112,878,000 Assets held in trading accounts 38,412,000 Premises and fixed assets (including capitalized leases) 3,107,000 Other real estate owned 3,170,000 Investments in unconsolidated subsidiaries and associated companies 1,008,000 Customers' liability to this bank on acceptances outstanding 1,368,000 Intangible assets 15,000 Other assets 7,397,000 ------------ TOTAL ASSETS $199,217,000 ============ LIABILITIES Deposits: In domestic offices $ 34,936,000 Noninterest-bearing $12,668,000 Interest-bearing 22,268,000 ----------- In foreign offices, Edge and Agreement subsidiaries and IBFs 100,380,000 Noninterest-bearing 6,932,000 Interest-bearing 93,448,000 ----------- Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds purchased 2,556,000 Securities sold under agreements to repurchase 1,568,000 Trading liabilities 21,074,000 Other borrowed money: With original maturity of one year or less 7,837,000 With original maturity of more than one year 3,844,000 Mortgage indebtedness and obligations under capitalized leases 220,000 Bank's liability on acceptances executed and outstanding 1,386,000 Notes and debentures subordinated to deposits 4,700,000 Other liabilities 9,121,000 ------------ TOTAL LIALIBITIES $187,622,000 ------------ EQUITY CAPITAL Common stock $ 751,000 Surplus 5,928,000 Undivided profits and capital reserves 5,373,000 Net unrealized holding gains (losses) on available-for-sale securities 191,000 Cumulative foreign currency translation adjustments (648,000) ------------ TOTAL EQUITY CAPITAL $ 11,595,000 ------------ TOTAL LIABILITIES AND EQUITY CAPITAL $199,217,000 ============ 4 I, Roger W. Trupin, Controller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief. ROGER W. TRUPIN We, the undersigned directors, attest to the correctness of this Report of Condition. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. PAUL J. COLLINS ) PEI-YUAN CHIA ) Directors CHRISTOPHER J. STEFFEN ) -----END PRIVACY-ENHANCED MESSAGE-----