Description of Popular, Inc.s securities registered pursuant to Section 12 of the Securities Exchange Act

EX-4.10 2 d408943dex410.htm EX-4.10 EX-4.10
 
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EXHIBIT 4.10
POPULAR, INC.
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT
TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
AS OF DECEMBER 31, 2022
The following is a summary description of the
 
securities of Popular, Inc. (the “Company”) that are registered
under Section 12
 
of the Securities
 
Exchange Act
 
of 1934, as
 
amended, consisting
 
of (1) our
 
Common Stock and
 
(2)
our 6.125% Cumulative Monthly Income Trust Preferred
 
Securities.
In
 
this
 
summary,
 
when
 
we
 
refer
 
to
 
the
 
“Company,”
 
“we,”
 
“us”
 
or
 
“our”
 
or
 
when
 
we
 
otherwise
 
refer
 
to
ourselves, we mean
 
Popular, Inc.,
 
excluding the Company’s
 
subsidiaries, unless otherwise
 
expressly stated or
 
as the
context requires; all references to “common stock” refer only to common stock issued
 
by the Company and not to any
common stock issued by any subsidiary.
Description of Common Stock
The
 
following
 
description
 
of
 
the
 
Company’s
 
Common
 
Stock
 
is
 
a
 
summary
 
and
 
does
 
not
 
purport
 
to
 
be
complete.
 
It
 
is
 
subject
 
to
 
and
 
qualified
 
in
 
its
 
entirety
 
by
 
reference
 
to
 
the
 
Company’s
 
Restated
 
Certificate
 
of
Incorporation (the
 
“Charter”) and
 
the Company’s
 
Amended and
 
Restated By-laws
 
(the “Bylaws”),
 
each of
 
which is
filed as an exhibit
 
to the Annual
 
Report on Form
 
10-K of which
 
this exhibit is a
 
part. We
 
encourage you to
 
read the
Charter and
 
Bylaws and the
 
applicable provisions
 
of the General
 
Corporations Act of
 
the Commonwealth
 
of Puerto
Rico for additional information.
Authorized Capital Shares
Pursuant to the Charter,
 
the Company’s
 
authorized capital stock
 
consists of 170,000,000
 
shares of common
stock,
 
$0.01
 
par
 
value
 
per
 
share
 
(“Common
 
Stock”),
 
and
 
30,000,000
 
shares
 
of
 
preferred
 
stock
 
without
 
par
 
value
(“Preferred Stock”).
Voting
 
Rights
The holders of the Company’s Common Stock are
 
entitled to one vote
 
per share on all
 
matters brought before
the stockholders. The holders
 
of the Common Stock
 
do not have cumulative voting
 
rights. The Charter provides
 
that
the
 
approval
 
of
 
the
 
Company’s
 
merger,
 
reorganization,
 
or
 
consolidation
 
or
 
the
 
sale,
 
lease
 
or
 
hypothecation
 
of
substantially
 
all
 
of
 
the
 
Company’s
 
assets
 
or
 
the
 
approval
 
of
 
the
 
Company’s
 
voluntary
 
dissolution
 
requires
 
the
affirmative
 
vote
 
of
 
the
 
holders
 
of
 
a
 
majority
 
of
 
the
 
outstanding
 
shares
 
of
 
the
 
Common
 
Stock
 
(the
 
minimum
 
vote
standard required by
 
the Puerto Rico General
 
Corporations Act). In
 
addition, the affirmative
 
vote of the holders
 
of a
majority of the outstanding shares of Common Stock are required to amend
 
the Charter.
Dividend Rights
Subject to the rights of
 
holders of any Preferred Stock outstanding, holders
 
of the Common Stock are
 
entitled
to receive
 
ratably such
 
dividends, if
 
any,
 
as the
 
Company’s
 
Board of
 
Directors may
 
in its
 
discretion declare
 
out of
legally available funds.
Liquidation Rights
In
 
the
 
event
 
of
 
liquidation,
 
holders
 
of
 
the
 
Common
 
Stock
 
are
 
entitled
 
to
 
receive
 
pro
 
rata
 
any
 
assets
distributable to a stockholder with respect to the shares held
 
by them, after payment of liabilities and such preferential
2
amounts as may be required to be paid to the holders
 
of the Company’s outstanding
 
series of preferred stock and any
preferred stock the Company may hereafter issue.
Other Rights and Preferences
The Company’s
 
Common Stock
 
has no
 
sinking fund
 
or redemption
 
provisions or
 
preemptive, conversion,
exchange or call rights.
Classification of the Board of Directors
Until our existing classified Board of Directors structure is fully phased out
 
beginning with our 2023 annual
meeting of stockholders, the Charter provides that the members of the Company’s Board of Directors are divided into
three
 
classes.
 
At
 
the
 
2022
 
annual
 
meeting
 
of
 
stockholders,
 
two
 
of
 
the
 
three
 
classes
 
of
 
the
 
Company’s
 
Board
 
of
Directors were elected for a term expiring at the 2023 annual meeting of stockholders, and thereafter directors will be
elected annually.
The Charter
 
provides that a
 
director, or
 
the entire Board
 
of Directors, may
 
be removed by
 
the stockholders
only for cause.
The Charter and the Bylaws also
 
provide that the affirmative vote of
 
the holders of at least two-thirds
 
of the
combined
 
voting
 
power
 
of
 
the
 
outstanding
 
capital
 
stock
 
entitled
 
to
 
vote
 
generally
 
for
 
the
 
election
 
of
 
directors
 
is
required to remove a director or the entire Board of Directors from office
 
for cause.
Advance Notice Requirements
The Company’s
 
Bylaws establish advance
 
notice procedures
 
with respect to
 
shareholder proposals
 
relating
to
 
nominations
 
or
 
any
 
other
 
matter
 
to
 
be
 
brought
 
before
 
any
 
meetings
 
of
 
shareholders
 
of
 
the
 
Company.
 
These
procedures provide
 
that notice of
 
such shareholder proposals
 
must be timely
 
given in writing
 
to the Secretary
 
of the
Company prior to
 
the meeting at which
 
the action is to
 
be taken. The required
 
notice period varies
 
depending on the
timing of the
 
proposal and the
 
shareholders meeting
 
to which it
 
relates. The notice
 
must contain certain
 
information
specified in the Bylaws and must otherwise comply with the amended and
 
restated Bylaws.
“Blank Check” Preferred Stock
The Charter authorizes the
 
issuance of “blank
 
check” preferred stock,
 
which may be
 
issued by the
 
Company’s
Board
 
of
 
Directors
 
without
 
shareholder
 
approval
 
and
 
may
 
contain
 
voting,
 
liquidation,
 
dividend
 
and
 
other
 
rights
superior to the Common Stock.
Listing
The Common Stock is traded on The Nasdaq Stock Market LLC under
 
the trading symbol “BPOP”.
 
 
 
3
Description of 6.125% Cumulative Monthly Income Trust
 
Preferred Securities of Popular Capital Trust
 
II
(Fully and Unconditionally Guaranteed by Popular,
 
Inc.).
The following description of the Company’s 6.125% Cumulative Monthly Income Trust Preferred Securities
(the “Capital Securities”) is a
 
summary and does not purport to
 
be complete. It is
 
subject to and qualified in
 
its entirety
by reference to (i) the Amended and Restated Declaration of Trust and Trust Agreement, dated as of August 31, 2009
(the
 
“Trust
 
Agreement”),
 
among
 
the
 
Company,
 
as
 
depositor,
 
the
 
Property
 
Trustee,
 
the
 
Delaware
 
Trustee,
 
the
Administrative
 
Trustees
 
and
 
the
 
several
 
Holders
 
(as
 
defined
 
therein),
 
as
 
amended,
 
amended
 
and
 
restated
 
or
supplemented from time to time, and (ii) the Prospectus Supplement (to Prospectus dated November 18, 2004), dated
as
 
of
 
November
 
24,
 
2004,
 
relating
 
to
 
the
 
Capital
 
Securities
 
(the
 
“Prospectus
 
Supplement”),
 
each
 
of
 
which
 
is
incorporated
 
by
 
reference
 
as
 
an
 
exhibit
 
to
 
the
 
Annual
 
Report
 
on
 
Form
 
10-K
 
of
 
which
 
this
 
exhibit
 
is
 
a
 
part.
 
We
encourage you to read the Trust Agreement, the Prospectus Supplement and the Delaware Statutory Trust Act and the
Trust Indenture Act for more information.
The Capital Securities and the Common Securities (the “Common
 
Securities”, and together with the Capital
Securities,
 
the
 
“Trust
 
Securities”)
 
of
 
Popular
 
Capital
 
Trust
 
II
 
(the
 
“Trust”),
 
a
 
Delaware
 
statutory
 
trust,
 
represent
beneficial
 
interests
 
in
 
the
 
Trust.
 
The
 
Trust
 
holds
 
the
 
Company’s
 
6.125%
 
junior
 
subordinated
 
debentures
 
(the
“Debentures”).
Each
 
holder
 
of the
 
Capital
 
Securities
 
has
 
a
 
beneficial
 
interest
 
in
 
the
 
Trust
 
but
 
does
 
not
 
own
 
any
 
specific
Debentures
 
held by
 
the Trust.
 
However,
 
the Trust
 
Agreement under
 
which the
 
Trust
 
operates defines
 
the financial
entitlements of the
 
Capital Securities in
 
a manner that
 
causes those financial
 
entitlements to correspond to
 
the financial
entitlements of the Trust in the Debentures it holds.
The Trust
The Trust is a statutory trust formed under Delaware law pursuant to the Trust Agreement and the certificate
of trust filed with the Delaware Secretary of State.
The Trust exists for the exclusive purposes of:
●
issuing the Trust Securities;
●
investing the gross proceeds of the Trust Securities
 
in an equivalent amount of the Debentures and
holding the Debentures; and
●
engaging in only those activities convenient, necessary or incidental to the activities
 
described above.
In addition to
 
the Capital Securities, the
 
Trust Agreement
 
authorizes the Trust
 
to issue Common Securities.
All of the Common Securities are directly or indirectly owned
 
by the Company. The Common Securities rank equally
with the
 
Capital Securities
 
and
 
the Trust
 
makes payment
 
on the
 
Trust
 
Securities pro
 
rata, except
 
that upon
 
certain
events of default under the Trust
 
Agreement relating to payment defaults
 
on the Debentures, the rights of
 
the holders
of
 
the
 
Common
 
Securities
 
to
 
payment
 
in
 
respect
 
of
 
distributions
 
and
 
payments
 
upon
 
liquidation,
 
redemption
 
and
otherwise
 
are
 
subordinated
 
to the
 
rights of
 
the holders
 
of the
 
Capital
 
Securities.
 
The
 
Company
 
acquired
 
Common
Securities in an aggregate liquidation amount equal to at least three percent of
 
the total capital of the Trust.
The Trust
 
Agreement does
 
not permit
 
the Trust
 
to issue
 
any securities
 
other than
 
the Trust
 
Securities or
 
to
incur any indebtedness.
The Trust’s
 
business and
 
affairs are
 
conducted by
 
its respective
 
trustees. The
 
Property Trustee
 
acts as
 
sole
trustee under
 
the Trust
 
Agreement for
 
purposes of
 
compliance with
 
the Trust
 
Indenture Act
 
and also
 
acts as
 
trustee
under the Guarantee (as defined below).
4
The
 
Trust
 
has
 
a
 
term
 
of
 
approximately
 
30
 
years,
 
but
 
may
 
be
 
terminated
 
earlier
 
as
 
provided
 
in
 
the
 
Trust
Agreement.
The Company pays all fees and expenses related to the Trust.
DESCRIPTION OF THE CAPITAL
 
SECURITIES
General
The terms
 
of the
 
Capital Securities
 
include (i)
 
those stated
 
in the
 
Trust
 
Agreement, as
 
amended, amended
and restated, or
 
supplemented from time
 
to time,
 
and (ii)
 
those made
 
part of
 
the Trust Agreement
 
by the
 
Trust Indenture
Act and the Delaware Statutory Trust Act.
The Property
 
Trustee
 
acts as
 
indenture trustee
 
for purposes
 
of compliance
 
with the
 
provisions of
 
the Trust
Indenture Act with respect to the Trust.
 
The Capital Securities have a liquidation amount of $25.
The payment of distributions out
 
of money held by the Trust,
 
and payments upon redemption
 
of the Capital
Securities or
 
liquidation of
 
the Trust,
 
are guaranteed
 
by the Company
 
to the
 
extent described
 
under “Description
 
of
the
 
Guarantee”.
 
The
 
Guarantee,
 
when
 
taken
 
together
 
with
 
the
 
Company’s
 
obligations
 
under
 
the
 
Trust
 
Agreement,
including the Company’s
 
obligations to pay costs, expenses, debts and liabilities of the
 
Trust, other than with respect
to the Trust
 
Securities, has the
 
effect of
 
providing a
 
full and unconditional
 
guarantee of amounts
 
due on the
 
Capital
Securities. The Property Trustee,
 
in its role as the guarantee trustee with respect to the Trust,
 
holds the Guarantee for
the benefit of the holders of the Capital Securities. The
 
Guarantee does not cover payment of distributions or amounts
payable on redemption
 
or liquidation of the Capital
 
Securities when the Trust
 
does not have funds
 
on hand available
to make such payments.
The Capital Securities
 
were issued in
 
the form of
 
one or more
 
global securities deposited with
 
The Depository
Trust Company (“DTC”).
The Capital Securities are
 
securities of the Trust
 
and are issued pursuant
 
to the Trust
 
Agreement. Under the
Trust
 
Agreement, the
 
Trust
 
holds the
 
Debentures for
 
the benefit
 
of the
 
holders of
 
the Trust
 
Securities. The
 
Capital
Securities are limited to $130,000,000 aggregate liquidation amount. The Capital
 
Securities are traded on The Nasdaq
Stock Market LLC under the trading symbol “BPOPM”.
Distributions
Distributions on the Capital Securities are fixed at an annual rate of 6.125% of the stated liquidation amount
of $25 per Capital Security.
 
Distributions under the Trust Agreement are cumulative.
Distributions under
 
the currently
 
effective Trust
 
Agreement are
 
payable monthly
 
in arrears on
 
the first
 
day
of each
 
month, commencing
 
on September
 
1, 2009.
 
Distributions under
 
the Amended
 
and Restated
 
Declaration of
Trust and Trust
 
Agreement dated as of November
 
30, 2004 (the “Initial Trust
 
Agreement”) were payable monthly
 
in
arrears on the first day of each month commencing on January 1, 2005. Funds available for distributions
 
with respect
to the Capital Securities are limited to payments received from the Company
 
on the Debentures.
If the Trust is terminated and
 
its assets distributed, for
 
each Capital Security, each holder is
 
entitled to receive
a
 
like
 
amount
 
of
 
the
 
Debentures
 
held
 
by
 
the
 
Trust
 
or
 
the
 
liquidation
 
amount
 
of
 
$25
 
plus accumulated
 
but
 
unpaid
distributions from
 
the assets
 
of the
 
Trust
 
available for
 
distribution, after
 
it has
 
paid liabilities
 
owed to
 
its creditors,
subject to the rights of the holders of the Common Securities to receive a pro rata distribution. Distributions
 
to which
holders of the Capital Securities are
 
entitled and that are past
 
due will accumulate additional distributions to the
 
extent
permitted by applicable law,
 
at an annual rate of 6.125% of the unpaid distributions, compounded monthly.
 
The term
“distribution” includes any additional distributions payable unless otherwise
 
stated.
The term “like amount” as used in this description means:
●
with respect to a redemption
 
of any Trust Securities,
 
Capital Securities or Common
 
Securities having a
liquidation amount equal
 
to that portion
 
of the principal amount
 
of the Debentures held
 
by the Trust
 
to
5
be contemporaneously
 
redeemed in
 
accordance with
 
the Indenture,
 
the proceeds
 
of which
 
are used
 
to
pay the redemption price of the Capital Securities or Common Securities; and
●
with respect to a distribution of
 
the Debentures held by the Trust
 
to holders of any Capital Securities or
Common
 
Securities in
 
exchange therefor
 
in connection
 
with a
 
dissolution or
 
liquidation of
 
the Trust,
Debentures held
 
by the Trust
 
having a
 
principal amount
 
equal to the
 
liquidation amount
 
of the Capital
Securities or Common Securities of the holder to whom the Debentures
 
would be distributed.
Under the
 
Trust Agreement,
 
the amount of
 
distributions payable
 
for any period
 
less than a
 
full distribution
period is computed on the basis of a 360-day year of twelve 30- day months and the actual number of days elapsed in
a partial month in
 
that period. Under the Trust Agreement, the
 
amount of distributions payable for
 
any full distribution
period is computed by dividing the rate per annum by twelve.
Payment of Distributions
The Trust pays
 
distributions on its Capital Securities
 
to DTC, which credits
 
the applicable accounts at
 
DTC
on the
 
applicable payment
 
dates, or
 
if the
 
securities certificate
 
for the
 
Capital Securities
 
is no
 
longer held
 
by or
 
on
behalf of DTC,
 
the Trust
 
will make the
 
payments by
 
check mailed to
 
the addresses of
 
the holders as
 
such addresses
appear on the books and records of the Trust on the
 
applicable record dates. However, a holder of $1
 
million or more
in aggregate liquidation
 
amount of the
 
Capital Securities may receive
 
distribution payments, other
 
than distributions
payable at
 
maturity,
 
by wire transfer
 
of immediately
 
available funds
 
upon written
 
request to the
 
Trust not
 
later than
15 calendar days prior to the date on which the
 
distribution is payable. The record date for distributions on the Capital
Securities is the fifteenth day of the month preceding the distribution
 
date, whether or not a business day.
The Trust pays distributions
 
through the Property
 
Trustee. The Property Trustee holds
 
amounts received from
the Debentures in the payment account for the benefit of the holders of the Trust
 
Securities.
If a
 
distribution
 
is payable
 
pursuant
 
to the
 
Trust
 
Agreement
 
on a
 
day that
 
is not
 
a business
 
day,
 
then that
distribution is to be paid
 
on the next day that
 
is a business day, and without any interest
 
or other payment for any
 
delay
with the same force and effect as if made on the payment date.
The Trust
 
Agreement defines
 
a business
 
day as
 
a day
 
other than
 
a Saturday,
 
a Sunday
 
or any
 
other day
 
on
which banking institutions in
 
New York,
 
New York,
 
San Juan, Puerto Rico or
 
Wilmington, Delaware
 
are authorized
or required by law,
 
regulation or executive order to remain closed or are customarily closed.
Deferral of Distributions
As long as there is no event of default under the Debentures, the Company has the right
 
to defer payments of
interest on the Debentures at any time and from time to
 
time by extending the interest payment period for a period (an
“Extension Period”) of up to 60 consecutive months, but not beyond the maturity
 
of the Debentures.
As a consequence, during an Extension
 
Period, the Trust will defer payment
 
of the monthly distributions on
the Capital Securities. The accumulated but unpaid
 
distributions will continue to accumulate additional distributions,
as permitted by applicable law,
 
at an annual rate of 6.125% compounded monthly.
While the Company defers interest payments on the Debentures, it will be restricted
 
from:
●
declaring
 
or
 
paying
 
any
 
dividends
 
or
 
distributions
 
on,
 
or
 
redeeming,
 
purchasing,
 
acquiring
 
or
making a liquidation payment on, any shares of its capital stock; and
●
making
 
payments
 
on
 
or
 
repaying,
 
repurchasing
 
or
 
redeeming
 
any
 
of
 
its
 
debt
 
securities
 
that
 
rank
equal or junior to the Debentures.
If the
 
Trust
 
defers distributions,
 
the deferred
 
distributions,
 
including
 
accumulated
 
additional distributions,
are to
 
be paid
 
on the
 
distribution payment
 
date following
 
the last
 
day of
 
the Extension
 
Period to
 
the holders
 
on the
record date for
 
that distribution payment
 
date. Upon termination
 
of an Extension Period
 
and payment of all
 
amounts
6
due on the Capital Securities, the
 
Company may elect to begin a
 
new Extension Period with respect to
 
the Debentures,
subject to the above conditions.
Redemption
Repayment or Redemption of the Debentures
When the Company
 
repays or redeems
 
the Debentures, whether at
 
stated maturity or
 
upon earlier redemption,
the Property Trustee
 
will apply the
 
proceeds from the
 
repayment or redemption
 
to redeem Capital
 
Securities having
an aggregate liquidation amount equal
 
to that portion of
 
the principal amount of
 
Debentures being repaid or redeemed.
The
 
redemption
 
price
 
per
 
security
 
is the
 
$25
 
liquidation
 
amount,
 
plus
 
accumulated
 
but unpaid
 
distributions
 
to
 
the
redemption date.
If less than all of
 
the Debentures are to
 
be repaid or redeemed,
 
then the aggregate liquidation
 
amount of the
Trust Securities to be redeemed will be allocated approximately 3% to the
 
Common Securities and 97% to the Capital
Securities, except in the case of an event of default as a result of any failure by the Company to make
 
any principal or
interest payments under the Debentures when due.
The Company
 
has the
 
right,
 
subject to
 
any
 
required
 
prior
 
approval of
 
the Federal
 
Reserve, to
 
redeem
 
the
Debentures at a redemption price equal to 100%
 
of the principal amount, plus accrued and unpaid
 
interest to the date
of redemption:
●
on or after December 1, 2009, in whole or in part, on one or more occasions,
 
at any time; and
●
in
 
whole,
 
but not
 
in part,
 
at
 
any
 
time within
 
90 days
 
following
 
the occurrence
 
and
 
continuation
 
of a
 
Tax
Event, an Investment Company Event or a Capital Treatment
 
Event, each as described below.
If less than all of the Debentures
 
are to be repaid or redeemed on
 
the date of redemption, then the proceeds
 
from
such repayment or redemption will be allocated to the redemption of Trust
 
Securities proportionately.
A redemption of the Debentures will cause a mandatory redemption of the Trust
 
Securities.
Tax Event; Investment
 
Company Event; Capital Treatment Event
A “Tax Event”,
 
under the Trust Agreement, means the
 
receipt by the Trust of an opinion
 
of counsel experienced
in such matters to the effect that as a result of:
●
any amendment to,
 
or change, including any
 
announced prospective change,
 
in the laws, or
 
any regulations
thereunder, of
 
the United States or
 
any political subdivision
 
thereof or Puerto
 
Rico, or a taxing
 
authority of
the United States or Puerto Rico, affecting taxation; or
●
any official or administrative pronouncement or
 
action or judicial decision
 
interpreting or applying such laws
or regulations;
there is more than an insubstantial risk that:
(1)
the
 
Trust
 
is, or
 
will be
 
within 90
 
days of
 
the delivery
 
of
 
the opinion
 
of
 
counsel,
 
subject to
 
United
 
States
federal or Puerto Rico income tax with respect to income received
 
or accrued on the Debentures held by the
Trust;
(2)
interest payable by the Company to the Trust on the
 
Debentures held by the Trust is not, or
 
will not be within
90 days of the delivery of the opinion of counsel, deductible by the Company, in whole or in part, for Puerto
Rico income tax purposes or for U.S. income tax purposes, to the extent applicable
 
to the Company; or
(3)
the
 
Trust
 
is, or
 
will be
 
within
 
90
 
days
 
of
 
the delivery
 
of
 
the opinion
 
of
 
counsel,
 
subject
 
to
 
more
 
than
 
an
immaterial amount of taxes, duties or other governmental charges.
7
If a Tax Event
 
has occurred and is continuing with respect to the Trust
 
Agreement, and the Trust is the holder of
all the Debentures, the Company
 
will pay any additional sums required
 
so that distributions on the Capital
 
Securities
will
 
not
 
be
 
reduced
 
by
 
any
 
additional
 
taxes
 
(other
 
than
 
withholding
 
taxes),
 
duties
 
or
 
other
 
governmental
 
charges
payable by the Trust as a result of the Tax
 
Event.
An “Investment
 
Company Event”,
 
under the
 
Trust
 
Agreement, means
 
the receipt
 
by the
 
Trust
 
of an
 
opinion of
counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or
a written change, including any announced prospective change, in
 
interpretation or application of law or
 
regulation by
any legislative body,
 
court, governmental agency or regulatory
 
authority, there
 
is more than an insubstantial risk that
the
 
Trust
 
is or
 
will be
 
considered
 
an “investment
 
company”
 
that
 
is required
 
to be
 
registered
 
under the
 
Investment
Company Act.
A “Capital Treatment
 
Event”, under the
 
Trust Agreement,
 
means the reasonable
 
determination of
 
the Company
that,
 
as
 
a
 
result
 
of
 
any
 
amendment
 
to,
 
or
 
change
 
in,
 
including
 
any
 
announced
 
proposed
 
change
 
in,
 
the
 
laws
 
or
regulations
 
of
 
the
 
United
 
States
 
or
 
any
 
political
 
subdivision
 
thereof
 
or
 
therein,
 
or
 
as
 
a
 
result
 
of
 
any
 
official
 
or
administrative
 
pronouncement
 
or action
 
or judicial
 
decision interpreting
 
or applying
 
such laws
 
or regulations,
 
that
there is more than
 
an insubstantial risk that
 
the Company will not
 
be entitled to treat
 
an amount equal to
 
the liquidation
amount of
 
the Capital
 
Securities as
 
Tier
 
1 capital,
 
or the
 
then-equivalent thereof,
 
for purposes
 
of capital
 
adequacy
guidelines of the Federal Reserve, as then in effect and applicable
 
to the Company.
Redemption Procedures
The Trust may redeem the Capital Securities only in an amount equal to the funds it has on hand and legally
available to pay the redemption price.
The Property
 
Trustee
 
will mail
 
written notice
 
of the
 
redemption of
 
the Capital
 
Securities to
 
the registered
holders
 
at
 
least
 
30
 
but
 
not
 
more
 
than
 
60
 
days
 
before
 
the
 
date
 
fixed
 
for
 
redemption.
 
If
 
the
 
Trust
 
gives
 
a
 
notice
 
of
redemption,
 
then,
 
by
 
12:00
 
noon,
 
New
 
York
 
City
 
time,
 
on
 
the
 
date
 
of
 
redemption,
 
if
 
the
 
funds
 
are
 
available
 
for
payment, the Property Trustee will, for Capital Securities
 
held in book-entry form:
●
irrevocably deposit with DTC funds sufficient to pay the redemption
 
price; and
●
give
 
DTC irrevocable
 
instructions and
 
authority
 
to pay
 
the redemption
 
price
 
to the
 
holders of
 
the Capital
Securities.
With respect to the Capital
 
Securities not held in
 
book-entry form, if funds
 
are available for
 
payment, the Property
Trustee will:
●
irrevocably deposit with the paying agent funds sufficient
 
to pay the redemption price; and
●
give the paying agent irrevocable instructions and authority to pay the redemption price to the holders of the
Capital Securities upon surrender of the certificates evidencing the
 
Capital Securities.
Notwithstanding the above,
 
distributions payable on
 
or prior to
 
the date of
 
redemption for Capital
 
Securities called
for redemption are payable to the holders of the Capital Securities on
 
the applicable record dates.
Once notice
 
of redemption
 
pursuant to
 
the Trust
 
Agreement is
 
given and
 
funds are
 
deposited, then
 
all rights
 
of
the holders of the Capital Securities called for redemption terminate, except the right to receive the
 
redemption price,
but without any interest or other payment for any
 
delay in receiving it. If such notice
 
of redemption is given and funds
deposited as required, the Capital Securities then will cease to be outstanding.
If
 
payment
 
of the
 
redemption
 
price
 
for
 
the Capital
 
Securities
 
called
 
for
 
redemption
 
is improperly
 
withheld
 
or
refused and not
 
paid either by the
 
Trust or
 
by the Company
 
under the Guarantee,
 
then distributions on
 
those Capital
Securities will
 
continue to
 
accumulate at
 
the then-applicable
 
rate, from
 
the date
 
of redemption
 
to the
 
date of
 
actual
8
payment. In
 
this case,
 
the actual
 
payment date
 
will be
 
the date
 
fixed for
 
redemption for
 
purposes of
 
calculating the
redemption
 
price.
If less than all of the Trust Securities are redeemed, then the aggregate liquidation amount of the Trust
 
Securities
to
 
be
 
redeemed
 
normally
 
will
 
be
 
allocated
 
approximately
 
3%
 
to
 
the
 
Common
 
Securities
 
and
 
97%
 
to
 
the
 
Capital
Securities. However, if an
 
event of default
 
has occurred as
 
a result
 
of any failure
 
by the Company
 
to make any
 
principal
or interest payments under
 
the Debentures when due,
 
holders of the Capital Securities
 
will be paid in
 
full before any
payments are made to
 
holders of the Common
 
Securities. The Property Trustee selects
 
the particular Capital Securities
to be
 
redeemed on
 
the pro
 
rata basis
 
described above
 
not more
 
than 60
 
days before
 
the date
 
of redemption
 
by any
method the Property Trustee deems fair and appropriate or,
 
if the Capital Securities are then held in book-entry form,
in accordance with DTC’s customary
 
procedures.
Under the Trust Agreement,
 
if any
 
date fixed for
 
redemption is not
 
a business
 
day, then payment of the
 
redemption
price will be made on the next day that is a business day,
 
without any interest or other payment for the delay.
Subject
 
to
 
the
 
above
 
and
 
applicable
 
law
 
and
 
regulations,
 
including
 
United
 
States
 
federal
 
securities
 
laws
 
and
banking laws
 
and regulations,
 
the Company
 
or its
 
affiliates
 
may,
 
under the
 
Trust Agreement,
 
at any
 
time and
 
from
time to time purchase
 
outstanding Capital Securities by
 
tender, in the
 
open market or by private
 
agreement, and may
resell the Capital Securities.
Ranking of Capital Securities
Payment of distributions on, and the redemption price of
 
and the liquidation distribution in respect of
 
Capital
Securities and
 
Common Securities,
 
as applicable,
 
are made
 
pro rata
 
based on
 
the relative
 
liquidation amount
 
of the
Capital
 
Securities
 
and
 
Common
 
Securities,
 
except
 
that
 
upon
 
certain
 
events
 
of
 
default
 
under
 
the
 
Trust
 
Agreement
relating to payment defaults on Debentures, the rights of the holders of the Common
 
Securities to payment in respect
of distributions and payments upon liquidation, redemption and
 
otherwise are subordinated to the rights of
 
the holders
of the Capital Securities.
In the
 
case of
 
any event
 
of default
 
under the
 
Trust Agreement
 
resulting from
 
an event
 
of default
 
under the
Indenture, the
 
Company,
 
as holder
 
of the
 
Common Securities,
 
will be
 
deemed to
 
have waived
 
any right
 
to act
 
with
respect to any
 
such event of default
 
under the Trust Agreement until
 
all such events
 
of default have been
 
cured, waived
or otherwise eliminated. Until
 
all events of
 
default under the
 
Trust Agreement have been
 
so cured, waived
 
or otherwise
eliminated,
 
the
 
Property
 
Trustee
 
will
 
act
 
solely
 
on
 
behalf
 
of
 
the
 
holders
 
of
 
the
 
Capital
 
Securities
 
and
 
not
 
on
 
the
Company’s behalf,
 
and only the holders
 
of the Capital Securities
 
will have the right
 
to direct the Property
 
Trustee to
act on their behalf.
Liquidation Distribution Upon Dissolution
The amount
 
payable on
 
the Capital
 
Securities in
 
the event
 
of any
 
liquidation of
 
the Trust
 
is the
 
liquidation
amount of
 
$25 per
 
Capital Security
 
plus accumulated
 
but unpaid
 
distributions, subject
 
to certain
 
exceptions, which
may be paid in the form of a distribution of Debentures.
The Company can at any time dissolve the Trust. If the Trust
 
dissolves and it has paid the liabilities owed to
its creditors, the Debentures will be distributed to the holders of the Trust
 
Securities.
Any distributions of the Debentures may require approval of the Federal
 
Reserve.
The Trust Agreement states that the Trust
 
will dissolve automatically on December 1, 2035 or earlier upon:
(1)
the bankruptcy, dissolution
 
or liquidation of the Company;
(2)
the
 
distribution
 
of
 
Debentures
 
having
 
a
 
principal
 
amount
 
equal
 
to
 
the
 
liquidation
 
amount
 
of
 
the
 
Trust
Securities of the holders to whom the Debentures are distributed, if the Company has given written direction
to the Property Trustee to dissolve the
 
Trust, which direction, subject to the foregoing restrictions,
 
is optional
and wholly within the discretion of the Company;
9
(3)
the redemption of all Capital Securities in connection with the redemption of all the Debentures or the stated
maturity of the Debentures; or
(4)
the entry of an order for the dissolution of the Trust
 
by a court of competent jurisdiction.
If the
 
Trust
 
dissolves as
 
described in
 
clauses (1),
 
(2) or
 
(4) in
 
the preceding
 
paragraph, after
 
the Trust
 
pays all
amounts owed to creditors,
 
holders of the Capital Securities
 
and holders of its Common
 
Securities will be entitled to
receive Debentures having a principal amount equal to the liquidation
 
amount of the Trust Securities of the holders.
If the Trust cannot pay the full amount due
 
on the Trust Securities because it has insufficient
 
assets for payment,
then the amounts the Trust
 
owes on the Capital Securities will
 
be proportionately allocated. The
 
holders of Common
Securities are entitled to receive
 
distributions upon any liquidation
 
on a pro rata basis
 
with the holders of the
 
Capital
Securities, except
 
that if
 
an event
 
of default
 
under the
 
Debentures has
 
occurred and
 
is continuing
 
as a
 
result of
 
any
failure by the Company to make any principal or interest payments
 
in respect of Debentures when due, the Trust will
pay the total amounts due on the Capital Securities before making any distribution
 
on the Common Securities.
After the liquidation date is fixed for any distribution of Debentures, upon dissolution
 
the Trust:
●
the Trust Securities will no longer be deemed to be outstanding;
●
DTC
 
or
 
its
 
nominee,
 
as
 
the
 
registered
 
holder
 
of
 
the
 
Capital
 
Securities,
 
will
 
receive
 
a
 
registered
 
global
certificate
 
or certificates
 
representing the
 
Debentures to
 
be delivered
 
upon distribution
 
with respect
 
to the
Capital Securities held by DTC or its nominee; and
●
any
 
certificates
 
representing
 
the Capital
 
Securities
 
will
 
be
 
deemed
 
to
 
represent
 
the
 
Debentures
 
having
 
an
aggregate principal amount equal to the
 
liquidation amount of the Capital Securities,
 
and bearing accrued but
unpaid interest equal to accumulated
 
but unpaid distributions on Capital
 
Securities, until the holder of
 
those
certificates presents them to the security registrar for Capital Securities for transfer
 
or reissuance.
Exchanges
If
 
at
 
any
 
time
 
a
 
Depositor
 
Affiliated
 
Owner
 
is
 
the
 
owner
 
of
 
Capital
 
Securities,
 
such
 
Depositor
 
Affiliated
Owner will have the right to deliver to the Property Trustee all or such portion of its Capital Securities as it elects and
receive,
 
in
 
exchange
 
therefore,
 
a
 
like
 
amount
 
of
 
Debentures.
 
After
 
the
 
exchange,
 
the
 
Capital
 
Securities
 
will
 
be
cancelled and will no longer
 
be deemed to be
 
outstanding and all rights of
 
the Depositor Affiliated Owner with
 
respect
to the Capital Securities will cease.
In the case of an exchange described in the previous paragraph, the Trust will, on the date of such exchange,
exchange Debentures having
 
a principal amount
 
equal to a proportional
 
amount of the
 
aggregate liquidation amount
of its outstanding Common Securities, based on the ratio of the aggregate liquidation
 
amount of its Capital Securities
exchanged divided by the aggregate
 
liquidation amount of its Capital
 
Securities outstanding immediately prior to such
exchange, for
 
such proportional amount
 
of its Common
 
Securities held by
 
the Company (which
 
contemporaneously
will be cancelled and no longer be deemed to be outstanding).
Events of Default; Notice
Any one of the following events constitutes an event of default
 
of the Trust, regardless of the reason for such
event of default and whether
 
it will be voluntary or involuntary
 
or be effected by operation
 
of law or pursuant to any
judgment, decree or order of any court or any order,
 
rule or regulation of any administrative or governmental body:
●
the occurrence of an event of default under the Indenture with
 
respect to the Debentures held by the Trust; or
10
●
the default by the
 
Property Trustee in
 
the payment of any
 
distribution on the Capital
 
Securities or Common
Securities when such distribution becomes due and payable, and
 
continuation of such default for a period of
30 days; or
●
the default by the Property Trustee in the payment of any redemption price of Capital Securities or Common
Securities when such redemption price becomes due and payable; or
●
the failure to perform or the breach, in any material respect,
 
of any other covenant or warranty of the trustees
of the Trust in
 
the Trust Agreement
 
for 90 days after the defaulting
 
trustee or trustees have received
 
written
notice of the failure to perform
 
or breach of warranty in the manner specified in the Trust
 
Agreement; or
●
the occurrence
 
of certain
 
events of
 
bankruptcy
 
or insolvency
 
with respect
 
to the
 
Property Trustee
 
and the
Company’s failure to appoint a successor
 
property trustee within 90 days.
Within ten days after any event
 
of default of the Trust actually
 
known to the Property Trustee occurs, the
 
Property
Trustee will transmit notice of such event of default to
 
the holders of the Capital Securities or Common Securities
 
and
to
 
the
 
Administrative
 
Trustees,
 
unless
 
such
 
event
 
of
 
default
 
shall
 
have
 
been
 
cured
 
or
 
waived.
 
The
 
Company,
 
as
depositor,
 
and the
 
Administrative Trustees
 
are required
 
to file
 
annually with
 
the Property
 
Trustee
 
a certificate
 
as to
whether or not
 
the Company or
 
the Administrative Trustees
 
are in compliance
 
with all the conditions
 
and covenants
applicable to the Company and the Administrative Trustees
 
under the Trust Agreement.
The existence
 
of an event
 
of default under
 
the Trust
 
Agreement, in and
 
of itself, with
 
respect to the
 
Debentures
does not entitle the holders of the Capital Securities to accelerate the maturity of
 
the Debentures.
Removal of Trustees
Unless an event
 
of default under the
 
Indenture has occurred
 
and is continuing,
 
the Property Trustee
 
and the
Delaware Trustee may be removed at any time by the holder of the Common Securities. The Property Trustee and the
Delaware
 
Trustee
 
may
 
be
 
removed
 
by
 
the
 
holders
 
of
 
a
 
majority
 
in
 
liquidation
 
amount
 
of
 
the
 
outstanding
 
Capital
Securities for cause
 
or if an event
 
of default under the
 
Indenture has occurred
 
and is continuing. In
 
no event will the
holders
 
of the
 
Capital
 
Securities have
 
the
 
right
 
to vote
 
to
 
appoint,
 
remove
 
or replace
 
the Administrative
 
Trustees,
which voting
 
rights are vested
 
exclusively in the
 
Company,
 
as the holder
 
of the Common
 
Securities. No resignation
or removal of a trustee and
 
no appointment of a successor trustee will
 
be effective until the acceptance of appointment
by the successor trustee in accordance with the provisions of the Trust
 
Agreement.
Co-Trustees and Separate
 
Property Trustee
Unless an event of default under
 
the Debentures has occurred and
 
is continuing, at any time or
 
from time to
time, for the purpose of meeting the legal requirements of the Trust
 
Indenture Act or of any jurisdiction in which any
part of the
 
trust property may
 
at the time
 
be located, the
 
Company,
 
as the holder
 
of the Common
 
Securities, and the
Administrative Trustees have the power to
 
appoint one or more
 
persons either to act
 
as a co-trustee of
 
the Trust, jointly
with the Property
 
Trustee, of all
 
or any part
 
of such trust property,
 
or to act as
 
separate trustee of
 
any such property,
in either
 
case with such
 
powers as
 
may be provided
 
in the
 
instrument of
 
appointment, and
 
to vest in
 
such person or
persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of
the Trust
 
Agreement. If an
 
event of default
 
under the Indenture
 
has occurred and
 
is continuing, the Property
 
Trustee
alone shall have power to make such appointment.
Mergers or Consolidation of Trustees
Any person into which the Property Trustee or the Delaware Trustee, if not a natural person, may be merged
or
 
converted
 
or
 
with
 
which
 
it
 
may
 
be
 
consolidated,
 
or
 
any
 
person
 
resulting
 
from
 
any
 
merger,
 
conversion
 
or
consolidation to
 
which such trustee
 
is a party,
 
or any person
 
succeeding to
 
all or substantially
 
all the corporate
 
trust
business of
 
such trustee,
 
will be
 
the successor
 
of such
 
trustee under
 
the Trust
 
Agreement, provided
 
such person
 
is
otherwise qualified and eligible.
11
Mergers, Consolidations, Amalgamations or Replacements of the Trusts
The Trust
 
may not
 
merge
 
with or
 
into, consolidate,
 
amalgamate, or
 
be replaced
 
by,
 
or convey,
 
transfer or
lease its
 
properties
 
and assets
 
substantially as
 
an entirety
 
to the
 
Company or
 
any other
 
person, except
 
as described
below or as otherwise described
 
in the Trust
 
Agreement. The Trust
 
may, at
 
the Company’s
 
request, with the consent
of the Administrative
 
Trustees but
 
without the
 
consent of
 
the holders
 
of the Capital
 
Securities, the Property
 
Trustee
or the Delaware Trustee, merge
 
with or into, consolidate, amalgamate, or be
 
replaced by, or convey,
 
transfer or lease
its properties and assets
 
substantially as an entirety
 
to, a trust
 
organized as such under the
 
laws of any
 
state, the District
of Columbia or the Commonwealth of Puerto Rico if:
●
such successor entity either:
o
expressly assumes all of the obligations of the Trust
 
with respect to the Capital Securities, or
o
substitutes
 
for
 
the
 
Capital
 
Securities
 
other
 
securities
 
having
 
substantially
 
the
 
same
 
terms
 
as
 
the
Capital Securities, or the “Successor
 
Securities”, so long as the
 
Successor Securities rank the same
as
 
the
 
substituted
 
Capital
 
Securities
 
in
 
priority
 
with
 
respect
 
to
 
distributions
 
and
 
payments
 
upon
liquidation, redemption and otherwise;
●
the Company expressly appoints a trustee of such successor entity possessing the same powers and duties as
the Property Trustee as the holder of the Debentures;
●
such
 
merger,
 
consolidation,
 
amalgamation,
 
replacement,
 
conveyance,
 
transfer
 
or
 
lease
 
does not
 
cause
 
the
Capital
 
Securities,
 
including
 
any
 
Successor
 
Securities,
 
to
 
be
 
downgraded
 
by
 
any
 
nationally
 
recognized
statistical rating organization;
●
such
 
merger,
 
consolidation,
 
amalgamation,
 
replacement,
 
conveyance,
 
transfer
 
or
 
lease
 
does not
 
adversely
affect the rights, preferences and privileges
 
of the holders of the Capital Securities, including any
 
Successor
Securities, in any material respect;
●
such successor entity has a purpose substantially identical to that of the Trust;
●
prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company
has received an opinion from independent counsel to the Trust experienced in such matters to the effect that:
o
such
 
merger,
 
consolidation,
 
amalgamation,
 
replacement,
 
conveyance,
 
transfer
 
or
 
lease
 
does
 
not
adversely
 
affect
 
the
 
rights,
 
preferences
 
and
 
privileges
 
of
 
the
 
holders
 
of
 
the
 
Capital
 
Securities,
including any Successor Securities, in any material respect, and
o
following
 
such merger,
 
consolidation,
 
amalgamation,
 
replacement,
 
conveyance,
 
transfer or
 
lease,
neither the
 
Trust
 
nor such
 
successor entity
 
will be
 
required to
 
register as
 
an investment
 
company
under the Investment Company Act; and
●
the Company
 
or any permitted
 
successor or assignee
 
owns all of
 
the Common
 
Securities of such
 
successor
entity and
 
guarantees the
 
obligations of
 
such successor
 
entity under
 
the Successor
 
Securities at least
 
to the
extent provided by the Guarantee.
Notwithstanding
 
the
 
foregoing,
 
the
 
Trust
 
may
 
not,
 
except
 
with
 
the
 
consent
 
of
 
holders
 
of
 
100%
 
in
 
liquidation
amount of the
 
Capital Securities, consolidate,
 
amalgamate, merge
 
with or into, or
 
be replaced by
 
or convey,
 
transfer
or lease its
 
properties and assets
 
substantially as an
 
entirety to any
 
other entity or
 
permit any other
 
entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement,
 
conveyance,
transfer or lease would
 
cause the Trust
 
or the successor entity
 
to be classified as other
 
than a grantor trust
 
for United
States federal or Puerto Rico income tax purposes.
12
Voting
 
Rights; Amendment of the Trust
 
Agreement
Except as otherwise provided below
 
and as otherwise required by law
 
and the Trust Agreement,
 
the holders
of the Capital Securities have no voting rights.
The Company and
 
the Administrative Trustees
 
may amend the
 
Trust Agreement
 
without the consent
 
of the
holders
 
of
 
the
 
Capital
 
Securities,
 
unless
 
such
 
amendment
 
will
 
materially
 
and
 
adversely
 
affect
 
the
 
interests
 
of
 
any
holder of the Capital Securities, to:
●
cure any
 
ambiguity,
 
correct or supplement
 
any provisions
 
in the
 
Trust Agreement
 
that may be
 
inconsistent
with any other provision,
 
or to make any other
 
provisions with respect to matters
 
or questions arising under
the Trust Agreement, which may not be inconsistent
 
with the other provisions of the Trust Agreement;
 
or
●
modify,
 
eliminate
 
or add
 
to any
 
provisions
 
of the
 
Trust
 
Agreement
 
to such
 
extent as
 
will be
 
necessary
 
to
ensure
 
that the
 
Trust
 
will be
 
classified for
 
United
 
States federal
 
or Puerto
 
Rico income
 
tax purposes
 
as a
grantor trust at all times that any Capital Securities and Common Securities are outstanding or to ensure that
the Trust will not be required to register as an “investment
 
company” under the Investment Company Act.
The Company,
 
the Administrative Trustees
 
and the Property Trustee
 
may generally amend the
 
Trust Agreement
with:
●
the
 
consent
 
of
 
holders
 
representing
 
not
 
less
 
than
 
a
 
majority,
 
based
 
upon
 
liquidation
 
amounts,
 
of
 
the
outstanding Capital Securities; and
●
receipt by the
 
trustees of an
 
opinion of counsel
 
to the effect that
 
such amendment or the
 
exercise of any
 
power
granted to the trustees in accordance with such amendment will not affect the Trust’s status as a grantor trust
for
 
United
 
States
 
federal
 
or
 
Puerto
 
Rico
 
income
 
tax
 
purposes
 
or
 
the
 
Trust’s
 
exemption
 
from
 
status
 
as
 
an
“investment company” under the Investment Company Act.
However, without the consent of each holder
 
of Trust Securities, the Trust
 
Agreement may not be amended to:
●
change the amount or timing of any distribution required to be made in respect of the Trust Securities as of a
specified date; or
●
restrict the right of a holder of Trust Securities to institute a suit for the enforcement of any such payment on
or after such date.
So long
 
as the
 
Property Trustee
 
holds any
 
Debentures, the
 
trustees of
 
the Trust
 
may not,
 
without obtaining
 
the
prior approval of the holders of a majority in aggregate liquidation amount
 
of all outstanding Capital Securities:
●
direct
 
the
 
time,
 
method
 
and
 
place
 
of
 
conducting
 
any
 
proceeding
 
for
 
any
 
remedy
 
available
 
to
 
the
 
junior
subordinated trustee, or
 
executing any trust
 
or power conferred
 
on the junior
 
subordinated trustee with
 
respect
to the Debentures;
●
waive any past default that is waivable under the Indenture;
●
exercise any right to rescind
 
or annul a declaration that
 
the principal of all the
 
Debentures is due and payable;
or
●
consent
 
to
 
any
 
amendment,
 
modification
 
or
 
termination
 
of
 
the
 
Indenture
 
or
 
the
 
Debentures,
 
where
 
such
consent will be required.
If a consent under the Indenture
 
would require the consent of
 
each holder of Debentures affected thereby, no such
consent may be given by
 
the Property Trustee without
 
the prior consent of each
 
holder of the Capital Securities. The
Property Trustee may not revoke any action previously authorized or approved by a vote of the holders of the Capital
Securities except
 
by subsequent
 
vote of
 
the holders
 
of the
 
Capital Securities.
 
The Property
 
Trustee will
 
notify each
13
holder
 
of
 
Capital
 
Securities
 
of
 
any
 
notice
 
of
 
default
 
with
 
respect
 
to
 
the
 
Debentures.
 
In
 
addition
 
to
 
obtaining
 
the
foregoing approvals
 
of the
 
holders of
 
the Capital
 
Securities, before
 
taking any
 
of the
 
foregoing actions,
 
the trustees
will obtain an opinion of counsel experienced in such
 
matters to the effect that such action would
 
not cause the Trust
to be classified as other than a grantor trust for United States federal or Puerto Rico income tax
 
purposes.
Any required approval of holders of Capital Securities may be given at a meeting of holders of Capital Securities
convened for such purpose or pursuant to written consent. The Property Trustee
 
will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon which action by written
 
consent of such
holders is
 
to be taken,
 
to be given
 
to each holder
 
of record of
 
Capital Securities
 
in the manner
 
set forth
 
in the Trust
Agreement.
Notwithstanding that holders of
 
Capital Securities are entitled to
 
vote or consent under any of
 
the circumstances
described above, any of the Capital Securities that are owned by the Company or its affiliates or the trustees or any of
their affiliates, will, for purposes of such vote or consent, be treated as if they
 
were not outstanding.
Payment and Paying Agent
Payments on
 
the Capital
 
Securities are made
 
to DTC, which
 
credits the applicable
 
accounts at DTC
 
on the
applicable distribution dates. If any Capital Securities are not held by DTC, such payments are made by check mailed
to the address of the holder as such address appears on the register.
The paying agent
 
for the Trust
 
is Banco Popular
 
de Puerto Rico. The
 
paying agent is
 
permitted to resign
 
as
paying agent of the Trust
 
upon 30 days’ written notice
 
to the Administrative Trustees
 
and to the Property Trustee.
 
In
the event
 
that Banco
 
Popular de
 
Puerto Rico
 
is no
 
longer be
 
the paying
 
agent, the
 
Property Trustee
 
will appoint
 
a
successor to act as paying agent, which will be a
 
bank or trust company acceptable to the Administrative Trustees and
to the Company.
Registrar and Transfer
 
Agent
Banco Popular de Puerto Rico Trust Division acts as registrar
 
and transfer agent for the Capital Securities.
Registrations of
 
transfers of Capital
 
Securities are effected
 
without charge
 
by or on
 
behalf of the
 
Trust, but
upon
 
payment
 
of
 
any
 
tax
 
or
 
other
 
governmental
 
charges
 
that
 
may
 
be
 
imposed
 
in
 
connection
 
with
 
any
 
transfer
 
or
exchange. The Trust is
 
not required to register or cause to be
 
registered the transfer of the Capital Securities
 
after the
Capital Securities have been called for redemption.
Information Concerning the Property Trustee
Other
 
than
 
during
 
the
 
occurrence
 
and
 
continuance
 
of
 
an
 
event
 
of
 
default
 
under
 
the
 
Trust
 
Agreement,
 
the
Property Trustee undertakes to perform only the duties that are specifically set forth in the Trust
 
Agreement. After an
event of default under the Trust Agreement, the Property Trustee
 
must exercise the same degree of care and skill as a
prudent individual would exercise
 
or use in
 
the conduct of
 
his or her
 
own affairs. Subject to
 
this provision, the
 
Property
Trustee is under no obligation to exercise
 
any of the powers vested in it by the Trust
 
Agreement at the request of any
holder
 
of
 
the
 
Capital
 
Securities
 
unless
 
it
 
is
 
offered
 
indemnity
 
satisfactory
 
to
 
it
 
by
 
such
 
holder
 
against
 
the
 
costs,
expenses and liabilities
 
that might be
 
incurred. If no event
 
of default under
 
the Trust Agreement
 
has occurred and
 
is
continuing and the
 
Property Trustee
 
is required to
 
decide between alternative
 
courses of action,
 
construe ambiguous
provisions the Trust Agreement or is
 
unsure of the application
 
of any provision of
 
the Trust Agreement, and the
 
matter
is
 
not
 
one
 
upon
 
which
 
holders
 
of
 
the
 
Capital
 
Securities
 
are
 
entitled
 
under
 
the
 
Trust
 
Agreement
 
to
 
vote,
 
then
 
the
Property
 
Trustee
 
will
 
take
 
any
 
action
 
that
 
the
 
Company
 
directs.
 
If
 
the
 
Company
 
does
 
not
 
provide
 
direction,
 
the
Property
 
Trustee
 
may
 
take
 
any
 
action
 
that
 
it deems
 
advisable
 
and
 
in
 
the
 
best
 
interests
 
of
 
the
 
holders
 
of
 
the
 
Trust
Securities and will have no liability except for its own bad faith, negligence
 
or willful misconduct.
The Company and
 
its affiliates maintain
 
certain accounts and
 
other banking relationships
 
with the Property
Trustee and its affiliates in the ordinary
 
course of business.
Trust Expenses
14
Pursuant to the Trust Agreement, the Company,
 
as depositor, has agreed to pay:
●
all debts and other obligations of the Trust (other
 
than with respect the Capital Securities);
●
all costs and expenses of the Trust, including costs and expenses relating to the organization of the Trust, the
fees and expenses of the trustees of the Trust and the cost and expenses relating to the
 
operation of the Trust;
and
●
any
 
and
 
all taxes
 
and
 
costs and
 
expenses
 
with respect
 
thereto,
 
other
 
than
 
withholding
 
taxes, to
 
which
 
the
Trust might become subject.
Governing Law
The Trust Agreement is governed by and construed
 
in accordance with the laws of Delaware.
Miscellaneous
The Administrative Trustees are authorized
 
and directed to conduct the affairs of and to operate
 
the Trust in
such a way that it will not be required to register
 
as an “investment company” under the Investment Company
 
Act or
characterized
 
as
 
other
 
than
 
a
 
grantor
 
trust
 
for
 
United
 
States
 
federal
 
or
 
Puerto
 
Rico
 
income
 
tax
 
purposes.
 
The
Administrative Trustees
 
are authorized and
 
directed to conduct
 
their affairs so
 
that the Debentures
 
will be treated
 
as
indebtedness of the Company for Puerto Rico income tax purposes.
In
 
this
 
regard,
 
the
 
Company
 
and
 
the
 
Administrative
 
Trustees
 
are
 
authorized
 
to
 
take
 
any
 
action,
 
not
inconsistent with applicable law, the certificate of trust of the Trust or the Trust Agreement, that the Company and the
Administrative Trustees
 
determine to
 
be necessary
 
or desirable to
 
achieve such
 
end, as long
 
as such action
 
does not
materially and adversely affect the interests of the holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Trust may not borrow money or issue debt
 
or mortgage or pledge any of its assets.
DESCRIPTION OF THE GUARANTEE
The following description of the terms of the guarantee (the
 
“Guarantee”) is a summary and does not purport
to be
 
complete. It
 
is subject
 
to and qualified
 
in its
 
entirety by
 
reference to
 
(i) the
 
Guarantee Agreement,
 
dated as
 
of
August 31, 2009 (the “Guarantee Agreements”) and (ii) the Prospectus Supplement, each of which is incorporated by
reference as an exhibit to
 
the Annual Report on Form 10-K of
 
which this exhibit is a part. We
 
encourage you to read
the Guarantee Agreement and Prospectus Supplement for more information.
General
The Company’s obligation to make a Guarantee Payment (as defined below) to the Trust may be satisfied by
direct payment
 
of the
 
required amounts
 
to the
 
holders of
 
the Capital
 
Securities or
 
by causing
 
the Trust
 
to pay
 
such
amounts to such holders.
The Guarantee does not apply to any payment of distributions by the Trust except to the extent the Trust has
funds available
 
for such
 
payments. If
 
the Company
 
does not make
 
interest payments
 
on the Debentures
 
held by
 
the
Trust, the Trust will
 
not pay distributions
 
on the Capital
 
Securities and will
 
not have funds
 
available for such
 
payments.
See “— Status of the Guarantee”. Because the Company is a holding company, the Company’s rights to participate in
the assets
 
of any
 
of the
 
Company’s
 
subsidiaries upon
 
the subsidiary’s
 
liquidation or
 
reorganization is
 
subject to
 
the
prior claims of
 
the subsidiary’s creditors except to
 
the extent that
 
the Company may
 
itself be a
 
creditor with recognized
claims against the
 
subsidiary. Except as otherwise described
 
in this exhibit,
 
the Guarantee does
 
not limit the
 
incurrence
or issuance by the Company of other secured or unsecured debt.
The Guarantee,
 
when taken
 
together with
 
the Company’s
 
obligations
 
under the
 
Debentures,
 
the Indenture
and
 
the
 
Trust
 
Agreement,
 
including
 
the
 
Company’s
 
obligations
 
to
 
pay
 
costs,
 
expenses,
 
debts
 
and
 
liabilities
 
of
 
the
15
Trust, other than
 
those relating
 
to Capital
 
Securities or Common
 
Securities, provides a
 
full and
 
unconditional guarantee
on a subordinated basis of payments due on the Capital Securities issued by the Trust.
Under the
 
Guarantee Agreement,
 
the Company
 
irrevocably and
 
unconditionally agrees
 
to pay in
 
full to the
holders of
 
the Trust
 
Securities, except
 
to the
 
extent paid
 
by the
 
Trust,
 
as and
 
when due,
 
regardless of
 
any defense,
right of set-off or counterclaim which the Trust
 
may have or assert, the Guarantee Payments without duplication:
●
any accrued and
 
unpaid distributions that
 
are required to
 
be paid on
 
the Capital Securities,
 
to the extent
 
the
Trust has funds available for distributions;
●
the redemption
 
price, plus
 
all accrued
 
and unpaid
 
distributions relating
 
to any
 
Capital Securities
 
called for
redemption by the Trust, to the extent the Trust
 
has funds available for redemptions; and
●
upon a voluntary or involuntary dissolution, winding-up or termination of the
 
Trust, other than in connection
with the distribution of Debentures to the holders of Capital Securities or the redemption
 
of all of its Capital
Securities, the lesser of:
●
the aggregate of the liquidation
 
amount and all accrued and unpaid
 
distributions on the Capital Securities
 
to
the date of payment to the extent the Trust has funds available;
 
and
●
the amount of assets of
 
the Trust remaining
 
for distribution to holders of
 
Capital Securities in liquidation of
the Trust.
Status of the Guarantee
The Guarantee is unsecured and ranks:
●
subordinate and
 
junior in right
 
of payment
 
to all the
 
Company’s
 
other liabilities in
 
the same
 
manner as
 
the
Debentures as set forth in the Indenture; and
●
equally with all other Guarantees that the Company issues.
The Guarantee
 
constitutes a guarantee
 
of payment and
 
not of collection,
 
which means that
 
the guaranteed party
may sue the
 
guarantor to enforce
 
its rights
 
under the Guarantee
 
without suing any
 
other person or
 
entity. The Guarantee
is held by the guarantee trustee for the benefit of the
 
holders of the Trust Securities. The Guarantee will be discharged
only
 
by payment
 
of the
 
Guarantee Payments
 
in full
 
to the
 
extent
 
not paid
 
by the
 
Trust
 
or upon
 
the distribution
 
of
Debentures.
Amendments and Assignment
The Guarantee
 
may be
 
amended only
 
with the
 
prior approval
 
of the
 
holders of
 
not less
 
than a
 
majority in
aggregate liquidation amount of the outstanding Capital Securities.
 
No vote is required, however, for any changes that
do
 
not
 
adversely
 
affect
 
the
 
rights
 
of
 
holders
 
of
 
the
 
Capital
 
Securities
 
in
 
any
 
material
 
respect.
 
All
 
guarantees
 
and
agreements
 
contained
 
in
 
the
 
Guarantee
 
bind
 
the
 
Company’s
 
successors,
 
assignees,
 
receivers,
 
trustees
 
and
representatives and will be for the benefit of the holders of the Capital Securities then
 
outstanding.
Termination
 
of the Guarantee
The Guarantee will
 
terminate (1) upon full
 
payment of the
 
redemption price of all
 
Capital Securities, (2) upon
distribution of the
 
Debentures to the holders
 
of the Trust
 
Securities or (3) upon
 
full payment of the
 
amounts payable
in accordance with the Trust Agreement upon
 
liquidation of the Trust. The Guarantee will continue
 
to be effective or
will be reinstated, as the
 
case may be, if at
 
any time any holder of
 
Capital Securities must restore payment of
 
any sums
paid under the Capital Securities or the Guarantee.
Events of Default
16
Under the Guarantee, an event of default will occur if the Company fails to perform
 
any payment obligation
or other obligation under the Guarantee.
With respect to the Guarantee, the holders
 
of a majority in liquidation amount of the Capital Securities have
the right to direct the time, method and place of conducting any proceeding for any remedy available to the guarantee
trustee or to
 
direct the exercise
 
of any trust
 
or power conferred
 
upon the guarantee
 
trustee under the
 
Guarantee. Holders
of
 
the
 
Capital
 
Securities
 
may
 
institute
 
a
 
legal
 
proceeding
 
directly
 
against
 
the
 
Company
 
to
 
enforce
 
the
 
guarantee
trustee’s rights and the Company’s obligations under the Guarantee,
 
without first instituting a
 
legal proceeding against
the Trust, the guarantee trustee or any other person
 
or entity.
As
 
guarantor
 
under
 
the
 
Guarantee,
 
the
 
Company
 
is
 
required
 
to
 
file
 
annually
 
with
 
the
 
guarantee
 
a
 
trustee
certificate pursuant to the Guarantee,
 
as to whether or
 
not the Company is
 
in compliance with all
 
applicable conditions
and covenants under the Guarantee.
Information Concerning the Guarantee Trustee
With
 
respect to
 
the Guarantee,
 
prior to
 
the occurrence
 
of an
 
event of
 
default relating
 
to the
 
Guarantee, the
guarantee trustee is required
 
to perform only the duties
 
that are specifically set forth
 
in the Guarantee. Following
 
the
occurrence of an
 
event of default, the
 
guarantee trustee will exercise
 
the same degree
 
of care as a
 
prudent individual
would exercise in the
 
conduct of his or her
 
own affairs. Provided that
 
the foregoing requirements have
 
been met, the
guarantee trustee
 
is under no
 
obligation to
 
exercise any of
 
the powers vested
 
in it by
 
the Guarantee at
 
the request of
any holder
 
of Capital
 
Securities unless
 
offered indemnity
 
satisfactory to
 
it against the
 
costs, expenses
 
and liabilities
which might be incurred thereby.
The Company and its affiliates maintain certain accounts and other banking relationships with the guarantee
trustee and its affiliates in the ordinary course of business.
Governing Law
The Guarantee is
 
governed by and
 
construed in accordance with
 
the internal laws
 
of the Commonwealth
 
of
Puerto Rico.
DESCRIPTION OF THE DEBENTURES
The following is a brief description
 
of the terms of the Debentures held
 
by the Trust. This summary
 
does not purport
to be
 
complete and
 
is subject
 
to and
 
qualified in
 
its entirety
 
by reference
 
to the
 
Junior Subordinated
 
Indenture (the
“Base Indenture”), dated
 
as of
 
October 31, 2003,
 
as supplemented by
 
the Second Supplemental
 
Indenture (the “Second
Supplemental Indenture”, and together with the Base
 
Indenture, the “Indenture”), as supplemented by the Supplement
to Second Supplemental Indenture, dated as of August 31, 2009; and (ii) the Prospectus Supplement, each of which is
incorporated by
 
reference to
 
the Annual
 
Report on
 
Form 10-K
 
of which
 
this exhibit
 
is a part.
 
We
 
encourage you
 
to
read the Indenture and the Prospectus Supplement for more information.
General
The
 
Debentures
 
are
 
unsecured,
 
junior
 
subordinated
 
obligations
 
of
 
the
 
Company.
 
The
 
Debentures
 
are
 
limited
 
in
aggregate principal amount to $134,021,000. The
 
aggregate principal amount of the Debentures is limited to the
 
sum
of:
●
the aggregate stated liquidation amount of the Capital Securities; and
●
the amount of capital contributed by the Company in exchange for the Common Securities.
The Debentures ranks junior to the Company’s senior debt, including the subordinated debt of the Company.
 
For
information on the subordination of the Debentures, see “Description of
 
the Debentures — Subordination”.
The entire principal amount of
 
the Debentures will become due
 
and payable, with any accrued
 
and unpaid interest
thereon, on December 1, 2034. There is no sinking fund for the Debentures.
17
The Company
 
does not
 
pay any
 
additional amounts
 
on the
 
Debentures to
 
compensate any
 
holder or
 
beneficial
owner for any Puerto Rico tax withheld from payments of principal or interest
 
on the Debentures.
The Debentures are registered in the name
 
of the Trust. The Property Trustee holds the Debentures in trust
 
for the
benefit of the holders of the Trust Securities.
Interest
The Debentures bear interest
 
at an annual rate of
 
6.125%,from and including their
 
date of issuance until the
principal becomes
 
due and payable.
 
Interest is payable
 
monthly in arrears
 
on the first
 
day of each
 
month, beginning
January 1,
 
2005. Interest
 
payments not
 
paid when
 
due accrue,
 
to the
 
extent permitted
 
by applicable
 
law,
 
additional
interest, compounded
 
monthly, at
 
the annual rate
 
of 6.125%, computed
 
on the basis
 
of a 360-day
 
year of twelve
 
30-
day months and the actual number of days elapsed in a partial month in such period.
The Company
 
pays interest
 
on the
 
Debentures to
 
the holders
 
of record
 
on the
 
applicable record
 
date. The
record date
 
for interest
 
payments on
 
the Debentures
 
is the
 
fifteenth
 
day of
 
the month
 
preceding the
 
payment
 
date,
whether or not a business day.
The amount
 
of interest
 
payable for
 
any period
 
less than
 
a full interest
 
period is
 
computed on
 
the basis of
 
a
360-day year
 
of twelve
 
30-day months
 
and the
 
actual days elapsed
 
in a partial
 
month in
 
that period.
 
The amount
 
of
interest payable for any full interest period is computed by dividing the
 
annual rate by twelve.
If any date on which interest is payable on the Debentures is not a business day, then payment of the interest
payable
 
on that
 
date will
 
be made
 
on the
 
next succeeding
 
day
 
that is
 
a business
 
day,
 
without
 
any interest
 
or other
payment in
 
respect of
 
the delay,
 
with the
 
same force
 
and effect
 
as if
 
made on
 
the date
 
that payment
 
was originally
payable.
The amount of additional interest payable for any full interest period is
 
computed by dividing the annual rate
by twelve.
 
The term
 
“interest” as
 
used in
 
this description
 
includes
 
monthly
 
interest payments,
 
interest on
 
monthly
interest payments not
 
paid when due,
 
compounded interest and
 
additional sums, as
 
applicable. The interest
 
payment
provisions for the Debentures correspond to the distribution provisions for the Capital Securities. See “Description of
the Capital Securities — Payment of Distributions” in this description.
Option to Extend Interest Payment Period
As long as the
 
Company is not in default
 
under the Debentures, the
 
Company has the right,
 
at any time and
from time to time, to
 
defer payments of interest
 
during an Extension Period,
 
of up to 60 consecutive
 
months, but not
beyond the maturity
 
date of the Debentures.
 
During an Extension
 
Period, interest continues
 
to accrue and
 
holders of
the Debentures,
 
or holders
 
of Capital
 
Securities using
 
the accrual
 
method of
 
accounting to
 
determine
 
their taxable
income, are required to accrue interest income for Puerto Rico income tax purposes.
On the interest
 
payment date following
 
the last day of
 
any Extension Period,
 
the Company pays
 
all interest
then accrued and unpaid, together with additional interest
 
on the accrued and unpaid interest
 
to the extent as permitted
by law, compounded monthly,
 
at the annual rate of 6.125%, plus any additional sums, as described below.
Before termination of an
 
Extension Period for
 
the Debentures, the
 
Company may further
 
extend the payments
of interest. However,
 
no Extension Period, including all
 
previous and further extensions, may
 
exceed 60 consecutive
months or extend beyond
 
the maturity of the Debentures.
 
If any Debentures are called
 
for redemption before the end
of an Extension Period relating
 
to the Debentures, such
 
Extension Period will end
 
on that redemption date
 
or an earlier
date as determined by the Company. After the termination of an Extension Period for
 
the Debentures and the payment
of all
 
amounts due,
 
the Company
 
may begin
 
a new
 
Extension Period,
 
as described
 
above. There
 
is no
 
limitation on
the number of times the
 
Company may elect to begin
 
an Extension Period for the
 
Debentures. Interest is not payable
during
 
an
 
Extension
 
Period
 
for
 
the
 
Debentures,
 
only
 
at
 
the
 
end
 
of
 
the
 
Extension
 
Period
 
for
 
the
 
Debentures.
 
The
Company may,
 
however, prepay,
 
on any interest
 
payment date, at
 
any time all
 
or any portion
 
of the interest
 
accrued
during an Extension Period for the Debentures.
18
If the Property Trustee is the sole holder of the Debentures, the Company
 
will give the Property Trustee and
the Delaware Trustee written notice of its election of an Extension Period for the Debentures
 
at least one business day
before the earlier of:
●
the next succeeding date on which the distributions on the Capital Securities are payable;
 
and
●
the date
 
the Property
 
Trustee is
 
required to
 
give notice
 
to holders
 
of the
 
Capital Securities
 
of the
 
record or
payment date for the applicable distribution.
The Property Trustee will give notice of the Company’s election of an Extension Period for the Debentures to the
holders of the Capital Securities.
With
 
respect
 
to
 
either
 
Trust,
 
if
 
the
 
Property
 
Trustee
 
is
 
not
 
the
 
sole
 
holder,
 
or
 
is
 
not
 
itself
 
the
 
holder,
 
of
 
the
Debentures, the Company
 
will give
 
the holders of
 
the Debentures and
 
the indenture trustee
 
written notice of
 
its election
of
 
an
 
Extension
 
Period
 
for
 
the
 
Debentures
 
at
 
least
 
one
 
business
 
day
 
before
 
the
 
next
 
interest
 
payment
 
date
 
for
 
the
Debentures.
Additional Sums
If, at
 
any time
 
while the
 
Property Trustee
 
is the
 
holder of
 
the Debentures,
 
the Trust
 
is required
 
to pay
 
any
additional taxes (other
 
than withholding taxes), duties
 
or other governmental
 
charges as a result
 
of a Tax
 
Event with
respect to
 
the Trust,
 
the Company
 
will pay
 
as additional
 
interest on
 
the Debentures
 
any additional
 
amounts that
 
are
required
 
so
 
that
 
the
 
distributions
 
paid
 
by the
 
Trust
 
will not
 
be
 
reduced
 
as a
 
result
 
of any
 
of
 
those taxes,
 
duties
 
or
governmental charges.
Redemption
The Company
 
has the
 
right,
 
subject to
 
any
 
required
 
prior
 
approval of
 
the Federal
 
Reserve, to
 
redeem
 
the
Debentures at a redemption price equal to 100%
 
of the principal amount, plus accrued and unpaid
 
interest to the date
of redemption:
●
on or after December 1, 2009, in whole or in part, on one or more occasions,
 
at any time; and
●
in
 
whole,
 
but not
 
in part,
 
at
 
any
 
time within
 
90 days
 
following
 
the occurrence
 
and
 
continuation
 
of a
 
Tax
Event, an Investment Company Event or a Capital Treatment
 
Event, each as described above.
Notice of any
 
redemption will be
 
mailed at least 45
 
days but not
 
more than 75 days
 
before the redemption
 
date.
Unless the Company defaults in payment of the redemption price,
 
on and after the redemption date, interest will
 
cease
to accrue on the Debentures
 
or portions thereof called for
 
redemption. The Debentures are not
 
subject to any sinking
fund and are not redeemable at the option of the holder.
Restrictions on Certain Payments; Certain Covenants of the Company
Any money that the Company pays to a paying agent for the purpose of making
 
payments on the Debentures
and
 
that
 
remains
 
unclaimed
 
two
 
years
 
after
 
the
 
payments
 
were
 
due
 
under
 
the
 
Debentures,
 
will,
 
at
 
the
 
Company’s
request, be returned
 
to the Company and
 
after that time any
 
holder of the
 
Debentures can only
 
look to the Company
for the payments on the Debentures.
With respect to the Debentures, the Company
 
may not:
●
declare or
 
pay any
 
dividends or distributions,
 
or redeem,
 
purchase, acquire,
 
or make
 
a liquidation
 
payment
on any of its capital stock; or
●
make
 
any payment
 
of principal
 
of or
 
interest or
 
premium, if
 
any,
 
on or
 
repay,
 
repurchase or
 
redeem debt
securities of the Company that rank equal or junior to the Debentures,
if at such time:
19
●
there has
 
occurred any
 
event of
 
default under
 
the Debentures
 
resulting from
 
a failure
 
to make
 
principal or
interest payments
 
on the
 
Debentures or
 
from certain
 
events in
 
bankruptcy,
 
insolvency or
 
reorganization
 
of
the Company;
●
the
 
Debentures
 
are
 
held
 
by
 
the
 
Trust
 
and
 
the
 
Company
 
is
 
in
 
default
 
with
 
respect
 
to
 
its
 
payment
 
of
 
any
obligations under the Guarantee; or
●
the Company has given
 
notice of its election of
 
an Extension Period with
 
respect to the Debentures
 
and has
not rescinded that notice, and such Extension Period, or any extension thereof,
 
is continuing.
The restrictions listed above do not apply to:
●
repurchases, redemptions or other acquisitions of shares of
 
capital stock of the Company in connection with
(1) any employment contract, benefit plan
 
or other similar arrangement with or for
 
the benefit of any one or
more employees,
 
officers, directors,
 
consultants or
 
independent contractors,
 
(2) a dividend
 
reinvestment or
stockholder stock purchase plan, or
 
(3) the issuance of
 
capital stock of the
 
Company, or securities convertible
into or exercisable
 
for such capital stock,
 
as consideration in an
 
acquisition transaction entered
 
into prior to
the Extension Period for the Debentures;
●
an exchange, redemption or
 
conversion of any class or
 
series of the Company’s
 
capital stock, or any capital
stock of a subsidiary of the Company,
 
for any other class or series of the Company’s
 
capital stock, or of any
class or series of the Company’s indebtedness
 
for any class or series of the Company’s capital stock;
●
the purchase of
 
fractional interests in
 
shares of the
 
Company’s capital stock under the
 
conversion or exchange
provisions of the capital stock or the security being converted or exchanged;
●
any declaration of a
 
dividend in connection with
 
any stockholder’s rights plan, or
 
the issuance of rights,
 
stock
or other property
 
under any stockholder’s
 
rights plan, or
 
the redemption or
 
repurchase of rights
 
pursuant to
the plan;
●
payments by the Company under the Guarantee; or
●
any dividend
 
in the
 
form of
 
stock, warrants,
 
options or
 
other rights
 
where the
 
dividend stock
 
or the
 
stock
issuable upon exercise
 
of such
 
warrants, options or
 
other rights
 
is the same
 
stock as
 
that on which
 
the dividend
is being paid or ranks equal or junior to that stock.
In addition, as long as the Trust holds the Debentures,
 
the Company agrees, with respect to the Debentures:
●
to continue to hold, directly or
 
indirectly, 100%
 
of the Common Securities, provided
 
that certain successors
that are permitted
 
under the Indenture may
 
succeed to the
 
Company’s ownership of such Common
 
Securities;
●
as holder of the Common Securities, not to
 
voluntarily dissolve, wind up or liquidate the Trust, other than
 
(a)
as part
 
of the
 
distribution of
 
the Debentures
 
to the
 
holders of
 
the Capital
 
Securities in
 
accordance with
 
the
terms of the Capital Securities
 
or (b) as part of
 
a merger,
 
consolidation or amalgamation which
 
is permitted
under the Trust Agreement; and
●
to use
 
its reasonable
 
efforts, consistent
 
with the
 
terms and
 
provisions of
 
the Trust
 
Agreement, to
 
cause the
Trust
 
to
 
continue
 
not
 
to
 
be
 
taxable
 
as
 
a
 
corporation
 
for
 
United
 
States
 
federal
 
or
 
Puerto
 
Rico
 
income
 
tax
purposes.
Registration, Denomination and Transfer
20
The
 
Company
 
registered
 
the Debentures
 
in
 
the
 
name
 
of
 
the Property
 
Trustee
 
on
 
behalf of
 
the
 
Trust.
 
The
Property Trustee
 
holds the Debentures
 
in trust for
 
the benefit of
 
the holders
 
of the Trust
 
Securities. The
 
Debentures
are issued in denominations of $1,000 and integral multiples of $1,000.
DTC acts as securities depositary for the Debentures.
With respect to the Debentures, if the Debentures are in certificated form, payments of principal and interest
will be
 
payable, the
 
transfer of
 
the Debentures
 
will be
 
registrable, and
 
the Debentures
 
will be
 
exchangeable for
 
the
Debentures of other authorized denominations of a like aggregate principal amount. In such case, payment of interest
may also be made at the option of the Company by
 
check mailed to the address of the holder entitled to the payment.
Upon written request to the paying agent not less than 15 calendar days prior to the date on which
 
interest is payable,
a holder
 
of $1,000,000
 
or more
 
in aggregate
 
principal amount
 
of the
 
Debentures may
 
receive payment
 
of interest,
other than payments of interest payable at maturity,
 
by wire transfer of immediately available funds.
The Debentures may be presented for registration of transfer or exchange with an endorsed form
 
of transfer,
or a duly executed and satisfactory written instrument of transfer, at the security registrar’s
 
office in San Juan, Puerto
Rico or
 
the office
 
of any
 
transfer agent
 
selected by
 
the Company
 
without service
 
charge and
 
upon payment
 
of any
taxes and other
 
governmental charges
 
as described
 
in the Indenture.
 
The Company has
 
appointed Banco
 
Popular de
Puerto
 
Rico
 
as transfer
 
agent
 
and
 
security
 
registrar
 
under
 
the Indenture.
 
The Company
 
may
 
at
 
any
 
time designate
additional transfer agents with respect to the Debentures.
With respect
 
to the Debentures,
 
in the event
 
of any
 
redemption, the
 
Company and
 
the indenture
 
trustee for
the Debentures will not be required to:
●
issue, register the transfer of or exchange the
 
Debentures during a period beginning 15 calendar days
 
before
the first mailing of the notice of redemption; or
●
register the
 
transfer of
 
or exchange
 
the Debentures
 
selected for
 
redemption, except,
 
in the
 
case of
 
any the
Debentures being redeemed in part, any portion not to be redeemed.
At
 
the
 
request
 
of
 
the
 
Company,
 
funds
 
deposited
 
with
 
the
 
indenture
 
trustee
 
or
 
any
 
paying
 
agent
 
held
 
for
 
the
Company for the payment
 
of principal, interest, and premium,
 
if any,
 
on any Debenture which remain
 
unclaimed for
two years
 
after the
 
principal, interest,
 
and premium,
 
if any,
 
has become
 
payable will
 
be repaid
 
to the
 
Company and
the holder of the Debentures will, as a general unsecured creditor,
 
look only to the Company for payment thereof.
Limitation on Mergers and Sales of Assets
The Indenture generally
 
permit a consolidation
 
or merger between
 
the Company and
 
another entity. The Indenture
also permits the sale or transfer by the Company of all or substantially all of its property and assets.
 
Such transactions
are permitted if:
●
the resulting or
 
acquiring entity,
 
if other than
 
the Company,
 
is organized
 
and existing under
 
the laws of the
United States or any state, the District of Columbia or the Commonwealth of Puerto Rico and assumes all of
the Company’s responsibilities and liabilities under
 
the Indenture, including the payment of all amounts due
on the Debentures and performance of the covenants in the Indenture; and
●
immediately after the transaction, and giving
 
effect to the transaction, no event
 
of default under the Indenture
exists.
If the Company consolidates or merges with or into any other entity or sells or leases all or substantially all of its
assets according to
 
the terms and conditions
 
of the Indenture,
 
the resulting or
 
acquiring entity will be
 
substituted for
the Company in the Indenture with the
 
same effect as if it had been
 
an original party to the
 
Indenture. As a result, such
successor entity
 
may exercise
 
the Company’s
 
rights and
 
powers under
 
the Indenture,
 
in the
 
Company’s
 
name and,
except in the case of a lease
 
of all or substantially all of
 
the Company’s properties, the Company will be released from
all the Company’s liabilities and
 
obligations under the Indenture and under the Debentures.
21
Modification of Indenture
With respect to the Capital Securities, if any of the
 
Capital Securities are outstanding:
●
no modification
 
may be
 
made to
 
the Indenture
 
that materially
 
adversely affects
 
the holders
 
of the
 
Capital
Securities;
●
no termination of the Indenture may occur; and
●
no waiver of any event of
 
default under the Debentures or compliance with any
 
covenant under the Indenture
may be effective,
 
without the prior
 
consent of the
 
holders of at
 
least a majority
 
of the aggregate
 
liquidation
amount of
 
such outstanding Capital
 
Securities unless and
 
until the principal
 
of and premium,
 
if any,
 
on the
Debentures and
 
all accrued
 
and unpaid
 
interest thereon
 
have been
 
paid in
 
full and
 
certain other
 
conditions
are satisfied.
In addition,
 
with respect to
 
the Capital Securities,
 
if any of
 
the Capital Securities
 
are outstanding, all
 
holders of
the Capital Securities must consent if the Company wants to amend the Indenture
 
to:
●
remove the rights of holders of the Capital Securities to institute a Direct Action (as defined
 
below); or
●
modify a provision of the
 
Indenture that requires the consent
 
of all the holders of
 
the outstanding Debentures.
Events of Default and the Rights of Capital Securities Holders
 
to Take
 
Action Against the Company
An event of default under the Indenture means any of the following, with
 
respect to the Debentures:
●
failure to pay
 
interest on the Debentures
 
for 30 days after
 
the payment is due
 
(subject to the deferral
 
of any
due date in the case of an Extension Period with respect to the Debentures);
●
failure to pay the principal of or any premium on any the Debentures when due;
●
failure to
 
perform any
 
other covenant
 
in the
 
Indenture for
 
90 days
 
after the
 
Company has
 
received written
notice of the failure to perform in the manner specified in the Indenture;
●
certain events relating to a bankruptcy,
 
insolvency or reorganization of the Company; or
●
any other event of default that may be specified for the Debentures in the
 
Indenture.
With
 
respect
 
to
 
the
 
Trust,
 
so
 
long
 
as the
 
Trust
 
holds
 
Debentures,
 
the
 
Property
 
Trustee
 
and
 
the
 
holders
 
of
 
the
Capital Securities will have the following rights under the Indenture upon
 
the occurrence of an event of default:
●
the
 
Property
 
Trustee
 
and
 
the holders
 
of not
 
less than
 
25% in
 
aggregate
 
liquidation
 
amount
 
of the
 
Capital
Securities may declare the principal of and interest accrued on the Debentures due and payable immediately;
●
if all defaults have been cured, the consent of the holders of more than 50% in aggregate liquidation amount
of the Capital
 
Securities is required
 
to annul a
 
declaration by the
 
indenture trustee,
 
the Trust
 
or the holders
of Capital Securities that the principal of the Debentures is due and payable
 
immediately;
●
unless the default
 
is cured, the consent
 
of each holder
 
of Capital Securities
 
is required to
 
waive a default
 
in
the
 
payment
 
of
 
principal,
 
premium
 
or
 
interest
 
with
 
respect
 
to
 
the
 
Debentures
 
or
 
a
 
default
 
in
 
respect
 
of
 
a
covenant
 
or
 
provision
 
that
 
cannot
 
be
 
modified
 
or
 
amended
 
without
 
the
 
consent
 
of
 
the
 
holder
 
of
 
each
outstanding Debenture; and
●
unless the default
 
is cured, the
 
consent of the
 
holders of more
 
than 50% in
 
aggregate liquidation amount
 
of
the Capital Securities is required to waive any other default.
22
If the event
 
of default under
 
the Debentures is
 
the failure of
 
the Company to
 
make payments of
 
principal or interest
on
 
the
 
Debentures
 
when
 
due,
 
then
 
a
 
registered
 
holder
 
of
 
Capital
 
Securities
 
may
 
bring
 
a
 
legal
 
action
 
against
 
the
Company directly
 
for enforcement of
 
payment to such
 
registered holder of
 
amounts owed on
 
the Debentures
 
with a
principal amount
 
equal to
 
the aggregate
 
liquidation amount
 
of such
 
registered holder’s
 
Capital Securities
 
(a “Direct
Action”). The Company may not amend the Debentures to
 
remove this right to bring a
 
Direct Action without the prior
written consent of the registered holders of all the
 
Capital Securities. The Company can offset against
 
payments then
due
 
under
 
the
 
Debentures
 
any
 
corresponding
 
payments
 
made
 
to
 
holders
 
of
 
Capital
 
Securities
 
by
 
the
 
Company
 
in
connection with a Direct Action.
The holders of the Capital Securities are not able to exercise directly any remedies available to the holders of the
Debentures except under the circumstance described in the preceding
 
paragraph.
The Indenture Does Not Restrict the Company’s Ability to Take
 
Certain Actions that may Affect the Debentures
The Indenture does not contain restrictions on the Company’s
 
ability to:
●
incur, assume or become liable for any type of debt
 
or other obligation;
●
create liens on the Company’s property
 
for any purpose; or
●
pay dividends or make distributions on the Company’s capital stock or repurchase or redeem the Company’s
capital stock, except as set forth under “— Restrictions on Certain Payments”
 
above.
The Indenture does not
 
require the maintenance of
 
any financial ratios or
 
specified levels of
 
net worth or liquidity.
In addition, the Indenture does contain
 
any provisions which would require
 
the Company to repurchase or redeem
 
or
modify the terms of any of the
 
Debentures upon a change of control or
 
other event involving the Company which may
adversely affect the creditworthiness of such debt securities.
Subordination
The Debentures are subordinated to all of the Company’s existing and
 
future Senior Debt, as defined below.
The Company’s “Senior Debt” includes
 
its senior debt securities and its subordinated debt securities and means:
●
any of the Company’s
 
indebtedness for borrowed or
 
purchased money,
 
whether or not evidenced
 
by bonds,
debt securities, notes or other written instruments,
●
the Company’s obligations
 
under letters of credit,
●
any of
 
the Company’s
 
indebtedness or
 
other obligations
 
with respect
 
to commodity
 
contracts, interest
 
rate
and currency
 
swap agreements,
 
cap, floor
 
and collar
 
agreements, currency
 
spot and
 
forward contracts,
 
and
other similar
 
agreements or
 
arrangements designed
 
to protect
 
against fluctuations
 
in currency
 
exchange or
interest rates, and
●
any
 
guarantees,
 
endorsements
 
(other
 
than
 
by
 
endorsement
 
of
 
negotiable
 
instruments
 
for
 
collection
 
in
 
the
ordinary course
 
of business)
 
or other
 
similar contingent
 
obligations in
 
respect of
 
obligations of
 
others of
 
a
type described
 
above, whether or
 
not such obligation
 
is classified as
 
a liability on
 
a balance sheet
 
prepared
in accordance with generally accepted accounting principles,
whether outstanding on the date
 
of execution of the Indenture
 
or thereafter incurred, other than
 
obligations expressly
on a parity with or junior to the Debentures. The
 
Debentures rank on a parity with obligations evidenced
 
by any debt
securities, and
 
guarantees in
 
respect of
 
those debt
 
securities, initially
 
issued to
 
any trust,
 
partnership or
 
other entity
affiliated with
 
the Company,
 
that is,
 
directly or
 
indirectly,
 
the Company’s
 
financing vehicle
 
in connection
 
with the
issuance by such entity of capital securities or other similar securities.
23
If certain events relating to a bankruptcy,
 
insolvency or reorganization of the Company occur,
 
the Company
will first pay all Senior Debt, including any interest accrued after the events occur, in full before the Company makes
any payment or distribution, whether in cash, securities or other property, on account of the principal of or interest on
the Debentures. In such an event, the Company will pay or deliver directly to the holders of Senior Debt any payment
or distribution
 
otherwise payable
 
or deliverable
 
to holders
 
of the Debentures.
 
The Company
 
makes the payments
 
to
the holders of Senior Debt according to priorities existing among those holders until the Company has paid all Senior
Debt, including accrued interest, in
 
full. Notwithstanding the subordination provisions discussed in
 
this paragraph, the
Company may make payments or distributions on the Debentures so
 
long as:
●
the payments or distributions consist of securities issued by the Company or another company in connection
with a plan of reorganization or readjustment; and
●
payment on those securities is subordinate to outstanding Senior
 
Debt and any securities issued with respect
to Senior Debt under
 
such plan of reorganization
 
or readjustment at least to
 
the same extent provided
 
in the
subordination provisions of the Debentures.
If such
 
events relating
 
to a bankruptcy,
 
insolvency or
 
reorganization of
 
the Company
 
occur,
 
after it
 
has paid
 
in
full all
 
amounts owed on
 
Senior Debt, the
 
holders of the
 
Debentures, together with
 
the holders
 
of any of
 
the Company’s
other obligations ranking equal with the Debentures, will be entitled to receive from the Company’s
 
remaining assets
any principal, premium or interest due at that time on the Debentures and such other
 
obligations before the Company
makes any
 
payment
 
or other
 
distribution
 
on account
 
of
 
any of
 
the Company’s
 
capital stock
 
or obligations
 
ranking
junior to the Debentures.
If the Company violates the Indenture by making a payment or distribution to holders of the Debentures before it
has paid all the Senior Debt in full, then the holders
 
of the Debentures will be deemed to have received the payments
or distributions in trust for the benefit of, and will have to pay or transfer the payments or distributions to, the holders
of the
 
Senior Debt
 
outstanding at
 
the time.
 
The payment
 
or transfer
 
to the
 
holders of
 
the Senior
 
Debt will
 
be made
according to
 
the priorities
 
existing among
 
those holders.
 
Notwithstanding the
 
subordination provisions
 
discussed in
this paragraph, holders
 
of the Debentures are
 
not required to pay,
 
or transfer payments
 
or distributions to, holders
 
of
Senior Debt so long as:
●
the payments or distributions consist of securities issued by the Company or another company in connection
with a plan of reorganization or readjustment; and
●
payment on those securities is subordinate to outstanding Senior
 
Debt and any securities issued with respect
to Senior Debt under
 
such plan of reorganization
 
or readjustment at least to
 
the same extent provided
 
in the
subordination provisions of those Debentures.
Because
 
of
 
the
 
subordination,
 
if
 
the
 
Company
 
becomes
 
insolvent,
 
holders
 
of
 
Senior
 
Debt
 
may
 
receive
 
more,
ratably,
 
and holders
 
of the
 
Debentures may
 
receive
 
less, ratably,
 
than
 
the Company’s
 
other
 
creditors.
 
This type
 
of
subordination
 
will
 
not
 
prevent
 
an
 
event
 
of
 
default
 
from
 
occurring
 
under
 
the
 
Indenture
 
in
 
connection
 
with
 
the
Debentures.
Any modification or amendment
 
of the Indenture may
 
not, without the consent
 
of the holders of all
 
Senior Debt
outstanding,
 
modify
 
any
 
of
 
the
 
provisions
 
of
 
the
 
Debentures
 
relating
 
to
 
the
 
subordination
 
of
 
the
 
Debentures
 
in
 
a
manner that would adversely affect the holders of Senior Debt.
The Indenture does not place a limitation on the amount of Senior Debt that
 
the Company may incur.
Concerning the Indenture Trustee
The indenture
 
trustee has
 
all the
 
duties and
 
responsibilities specified
 
under the
 
Trust
 
Indenture Act.
 
Other
than its duties in case of a default, the indenture trustee is under no obligation to exercise any of the powers under the
Indenture at the request, order or direction of any holders of Debentures unless
 
offered reasonable indemnification.
24
From time to time, the Company
 
and certain of its subsidiaries maintain
 
deposit accounts and conduct other
banking transactions, including lending transactions, with the indenture
 
trustee in the ordinary course of business.
Governing Law
The Indenture
 
and the
 
Debentures are
 
governed by,
 
and construed
 
in accordance
 
with, the
 
internal laws
 
of
the Commonwealth of Puerto Rico.