Document:

Asset Purchase Agreement

 

Exhibit 10.1

ASSET PURCHASE AGREEMENT

     This Asset Purchase Agreement (the “Agreement”) dated this 4th day of June
2004, by and between VT Roxboro LLC, a Delaware limited liability company
(“Seller”) and Flue-Cured Tobacco Cooperative Stabilization Corporation, a
North Carolina corporation (“Purchaser”).

WITNESSETH:

     WHEREAS, Seller owns a tobacco processing and manufacturing facility in
Timberlake, North Carolina (“Timberlake Facility”); and

     WHEREAS, Seller desires to transfer, sell, convey, assign and deliver to
Purchaser, and Purchaser desires to acquire and accept from Seller, certain
assets of Seller relating to the Timberlake Facility, upon the terms and
conditions hereinafter set forth.

     NOW, THEREFORE, for and in consideration of the premises, mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:

     1. Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, at the consummation of the transactions contemplated by this
Agreement (the “Closing”) on the Closing Date (as defined below), Seller shall
transfer to Purchaser, and Purchaser shall acquire and accept from Seller, all
of Seller’s right, title and interest in, to and under all of the real
property, furniture, fixtures, equipment (including the rights under any leases
that encumber such equipment, to the extent transferable) and other assets,
used or located at the Timberlake Facility, less and except the Excluded Assets
(as defined below) (after giving effect to the exclusion of the Excluded
Assets, such assets being hereinafter collectively referred to as the
“Transferred Assets”), free and clear of any and all liens, mortgages, pledges,
security interests, charges, or other encumbrances whatsoever (“Liens”) except
Permitted Encumbrances (as defined below), such Transferred Assets to include,
without limitation:

	 	(a)	 	the real property and all buildings, structures,
fixtures, easements and improvements (except for the
greenhouse) situated thereon, identified on Schedule 1(a)
(“Property”);

	 	(b)	 	the equipment and machinery consisting of and
relating to primary tobacco processing, puffed stem processing,
and cigarette making and packing, and spare parts and supplies,
including the “twin track” king size (85mm) hard pack box
packing machine and foreign-type tax stamp application unit,
all as identified on Schedule 1(b), (“Plant Equipment”);

	 	(c)	 	the leased equipment and all rights under the
equipment leases that encumber any of the Transferred Assets
(the “Equipment Leases”), identified on Schedule 1(c), if
Purchaser agrees to assume such Equipment Leases and to the
extent transferable;

 

 

	 	(d)	 	furniture, furnishings and fixtures identified on
Schedule 1(d);

	 	(e)	 	computer hardware and computer software
documentation, to the extent transferable (collectively, the
“Software Licenses”), with all fees to be paid by Purchaser,
(subject to applicable license agreements) utilized at the
Timberlake Facility, including source code and systems
documentation, if available, described on Schedule 1(e);
provided, however, if any such computer software is not
transferable without the consent or waiver of the licensor
thereof, the Seller shall use all reasonable efforts, and the
Purchaser shall cooperate with the Seller, to obtain the
consent or waiver necessary to convey to the Purchaser such
software license;

	 	(f)	 	all licenses and permits to the extent
transferable, as identified on Schedule 1(f);

	 	(g)	 	all rights of the Seller under the Service
Contracts (as defined below) and Software Licenses, to the
extent assignable, that Purchaser chooses to accept (pursuant
to an Assignment and Assumption Agreement); and

	 	(h)	 	all Stemmery Equipment identified on Schedule 1(h)
(the “Stemmery Equipment”).

	 	 
	 	Notwithstanding anything to the contrary contained herein, the Purchaser
will not assume any liability or obligation of any kind of the Seller,
other than the Permitted Encumbrances and any liability under any lease,
the Equipment Leases, the Service Contracts and Software Licenses that
the Purchaser expressly assumes pursuant to an Assignment and Assumption
Agreement.

     2. Excluded Assets. Notwithstanding anything in Section 1 to the
contrary, Seller shall retain all of its right, title and interest in, to and
under all, and shall not transfer to Purchaser any of, the following assets,
rights or properties (the “Excluded Assets”):

	 	(a)	 	the greenhouse, as more particularly described on
Schedule 2(a); provided, however, that Seller and Purchaser
shall enter into a ground lease substantially in the form of
Exhibit A hereto, for a period of thirty-six (36) months
following the Closing for a monthly lease payment of $1,000.00;

	 	(b)	 	all palladium-related equipment identified on
Schedule 2(b); and

	 	(c)	 	all tobacco inventory, all manufactured tobacco
goods, and all non-tobacco production materials, including,
without limitation, cigarette paper, filter materials, glue,
and packaging materials.

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     3. Purchase Price.

	 	(a)	 	The aggregate purchase price for the Transferred
Assets (the “Purchase Price”) is $25,800,000.00.

	 	(b)	 	The Purchase Price shall be allocated as set
forth on Schedule 3(b). The allocation of the Purchase Price
is intended to comply with the requirements of Section 1060 of
the Internal Revenue Code (the “Code”). Purchaser and Seller
shall file Form 8594, Asset Acquisition Statement Under
Section 1060 of the Code, if applicable, with their respective
income tax returns for the taxable year that includes the
Closing Date, in a manner consistent with the allocation of
the Purchase Price set forth herein. Purchaser and Seller
agree to satisfy all of the reporting requirements of Section
1060 of the Code. If either Purchaser or Seller, in a
subsequent taxable year, makes any allocation of an increase
or decrease in the Purchase Price for any asset, Purchaser or
Seller, as applicable, agrees to file a supplemental Form 8594
as required.

     4. Payment of Purchase Price. The Purchase Price is payable by Purchaser
as follows:

	 	(a)	 	Two Million Five Hundred Eighty Thousand Dollars
($2,580,000.00) upon execution of this Agreement, by wire
transfer of immediately available funds, to be paid to
Commonwealth Land Title Insurance Company (the “Escrow Agent”)
and applied in the manner described in Section 11 (together
with any interest accrued thereon, the “Deposit”); and

	 	(b)	 	The balance of the Purchase Price on the Closing
Date, by wire transfer of immediately available funds to an
account in a U.S. bank specified by Seller.

     5. State of Title; Permitted Encumbrances. The Transferred Assets are to
be conveyed, and Purchaser agrees to purchase the same, free and clear of all
Liens, except for the matters identified in Schedule 5(a) (the “Permitted
Encumbrances”). Within fifteen (15) days from execution of this Agreement, the
Purchaser may obtain, at the Purchaser’s expense, a boundary and topographical
survey of the Property (the “Survey”), and a title insurance commitment for the
Property from the Escrow Agent (the “Commitment”). Within such fifteen (15)
day period, Purchaser will deliver a copy of the Commitment to Seller with a
notice of any objections to title contained therein. Such objections shall not
include any Permitted Encumbrances. Seller shall then have until the Closing
Date, or such later date as the parties agree, to cure.

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     6. Condition of Transferred Assets. Purchaser agrees that neither Seller
nor any agent or representative of Seller has made or is hereby making any
representation or warranty as to the physical condition, fitness for any
purpose, operation, or compliance with legal requirements of the Transferred
Assets, or the legal requirements applicable to the Transferred Assets, except
as may be specifically set forth in this Agreement.

     7. Representations and Warranties.

	 	7.1	 	Seller

	 	(a)	 	Seller represents and warrants to Purchaser, that
as of the date hereof (which representations and warranties
shall be repeated as if made as of the Closing Date and shall
survive the Closing) that: (i) this Agreement and all
agreements and instruments to be executed and delivered by
Seller pursuant to this Agreement (collectively, the
“Ancillary Agreements”) have been duly authorized, and have
been or will be, duly executed and delivered by Seller and
will constitute the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with their
terms (subject to applicable bankruptcy, insolvency and
similar laws affecting creditors’ rights generally and
subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding
in equity or at law)), and (ii) Seller is a limited liability
company duly organized and in good standing in the state of
its organization and is qualified to do business and in good
standing in North Carolina.

	 	(b)	 	Seller represents and warrants to Purchaser as of
the date hereof (which representations and warranties shall be
repeated as if made as of the Closing Date and shall survive
the Closing to the extent provided in Section 14) as follows:

	 	(i)	 	No action, suit, arbitration
or proceeding is pending or, to the best of
Seller’s knowledge is threatened, against Seller
in or by any court, administrative or arbitral
tribunal or government body, whether in respect
of eminent domain powers or otherwise, which
asserts rights of any person other than Seller to
the Transferred Assets, which asserts that
Seller’s present or past use of the Transferred
Assets has violated any provision of applicable
law, in any material respect, or which seeks to
delay or prevent the transactions contemplated by
this Agreement.

	 	(ii)	 	The Seller is in compliance in
all material respects with all laws, material
regulations, rules, decrees and ordinances of any
court or governmental body or agency applicable
to the Seller, where the failure to comply would
have a material
adverse effect on Seller’s ability to convey the
Transferred Assets.

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	 	(iii)	 	A list of those service,
maintenance, and utility contracts (the “Service
Contracts”) currently in force with respect to
the Transferred Assets is provided in Schedule
7.1(b)(iii); true and complete copies of the
Service Contracts, if available, have been or
will be made available by Seller to Purchaser.
The Service Contracts are in full force and
effect, and to the best of Seller’s knowledge, no
party is in default thereunder except as may be
set forth in Schedule 7.1(b)(iii). Seller shall
not modify or terminate any Service Contracts nor
enter into any new service, maintenance or
utility contracts with respect to the Transferred
Assets without Purchaser’s prior written consent,
other than contracts which will be terminated at
Closing (as set forth on Schedule 7.1(b)(iii)).
Seller makes no warranty or representation,
however, that any party providing services to
Seller under any Service Contract will be willing
or able to continue providing the same or similar
services to Purchaser on the same or similar
terms and conditions.

	 	(iv)	 	There are no leases, licenses,
occupancy agreements or other agreements or
contracts by which any party other than Purchaser
may purchase any portion of the Property or Plant
Equipment or by which any party other than Seller
is entitled to occupy any portion of the Property
and Seller shall not hereafter enter into or
permit any leases, licenses or other occupancy
agreements or contracts for the purchase or
occupancy of any portion of the Property, except
for the tenancy of Vector Tobacco (USA) Ltd.
(n/k/a Vector Tobacco Inc.) (“VT”), which will be
terminated at Closing.

	 	(v)	 	The facilities, computer
equipment, Plant Equipment, furniture, fixtures,
buildings and other tangible assets which are
included in the Transferred Assets are in good
operating condition and repair and are adequate
for the uses to which they have been put by
Seller in the ordinary course of the business of
the Timberlake Facility, except for ordinary wear
and tear, and are free from known defects, except
such as require routine maintenance and except
such minor defects as do not substantially
interfere with the continued use thereof in the
conduct of Seller’s business. All of the Plant
Equipment necessary for the sustained,
uninterrupted operation of the Timberlake

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	 	 	 	Facility complies, and during Seller’s operation
of the Timberlake Facility, the Plant Equipment
has complied, in all material respects, with all
applicable laws, including the Occupational
Safety and Health Act, as amended (“OSHA”). To
the best of Seller’s knowledge, the Seller has
no liability (and to Seller’s knowledge there is
no basis for any present or future charge,
complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the
Seller giving rise to any liability) under OSHA
or any other law (or rule or regulation
thereunder) of any federal, state or local
government (or agency thereof) concerning
employee health and safety.

	 	(vi)	 	The Transferred Assets
constitute all of the property and assets
adequate for the operation of the Timberlake
Facility as a tobacco processing and cigarette
manufacturing facility, substantially as the same
was conducted by Seller or VT prior to December
31, 2003.

	 	(vii)	 	No bankruptcy petition has
been filed by or against Seller, nor has Seller
made an assignment for the benefit of creditors.

	 	(viii)	 	To the best of Seller’s knowledge, no tax
deficiencies have been proposed or assessed
against the Seller.

	 	(ix)	 	Neither the execution and the
delivery of this Agreement nor the Ancillary
Agreements, nor the consummation of the
transactions contemplated hereby and thereby,
will (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction,
charge, or other restriction of any government,
governmental agency, or court to which the Seller
or the Transferred Assets is subject or any
provision of the charter or limited liability
company agreement of the Seller; or (B) conflict
with, result in a breach of, constitute a default
under, result in the acceleration of, create in
any party the right to accelerate, terminate,
modify, or cancel, or require any notice or third
party consent under any contract, lease,
sublease, license, sublicense, permit,
indenture, instrument of indebtedness, Lien, or
other agreement or arrangement to which the
Seller is a party or by which it is bound or to
which any of the Transferred Assets is subject
(or result in the imposition of any Lien upon any
of its assets), except for any such violations,
defaults or other events as would not have a
material adverse effect on Seller’s ability to
convey the

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	 	 	 	Transferred Assets. The Seller does not need to
give any notice to, make any filing with, or
obtain any consent, or approval of any court or
government or governmental agency in order to
enter into this Agreement or the Ancillary
Agreements or to consummate the transactions
contemplated by this Agreement or the Ancillary
Agreements.

	 	(x)	 	Other than the Permitted
Encumbrances, the Seller has, or will have, prior
to the Closing, good and marketable title to all
of the Transferred Assets, free and clear of any
Liens or restrictions on transfer other than the
Equipment Leases.

	 	(xi)	 	The Seller has received no
notice and has no knowledge of any condemnation
proceedings affecting the Transferred Assets, any
proceedings to change the zoning of the Property,
or any pending liens or assessments for
governmental improvements with respect to the
Property.

	 	(xii)	 	With respect to the operation
of the Timberlake Facility and the Property, the
Seller is, and at all times during the Seller’s
ownership has been, in compliance in all material
respects with all Environmental Laws (as defined
below). To the best of Seller’s knowledge,
Seller has no liability (and to Seller’s
knowledge there is no basis related to the past
or present operations of the Seller or its
predecessors for any present or future liability)
under any Environmental Law. “Environmental
Laws” means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of
1976, the Federal Water Pollution Control Act of
1972, the Clean Air Act of 1970, the Safe
Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Refuse Act of 1899, or
the Emergency Planning and Community
Right-to-Know Act of 1986 (each as amended), or
any other law of any federal, state or local
government or agency thereof (including rules,
regulations, codes, judgments, orders, decrees,
stipulations, injunctions, and charges
thereunder) relating to public health and safety,
or pollution or protection of the environment,
including, without limitation, laws relating to
emissions, discharges, or releases of pollutants,
contaminants, or chemical, industrial, hazardous
or toxic materials or wastes into ambient air,
surface water, ground water, or lands or
otherwise relating to the manufacture,
processing, distribution, use, treatment,
storage, disposal, transport, or
handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic
materials or wastes.

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	 	(xiii)	 	The Seller has not received any notice alleging
or notifying it that it is in violation of any
Environmental Law.

	 	(xiv)	 	To the best of Seller’s
knowledge, no Hazardous Material (as defined
below) has been released, disposed of or placed
on the Property or the Transferred Assets in a
manner that could give rise to liability to the
owner or operator of the Property of the
Transferred Assets under any Environmental Law.
To the best of Seller’s knowledge, no above
ground or underground storage tanks have ever
been located at, on or under the Property, except
as set forth on Schedule 7.1(b)(xiv). The Seller
has delivered to the Purchaser a complete copy of
all environmental claims, reports, studies,
compliance actions or the like of the Seller or
which are available to the Seller with respect to
any of the Property or any of the Transferred
Assets. “Hazardous Materials” means any
substance which, under any Environmental Law,
requires special handling or notification of any
federal, state or local governmental entity in
its collection, storage, treatment or disposal.

	 	(xv)	 	There are no outstanding
judgments against Seller that would have a
material adverse effect on Seller’s ability to
convey the Transferred Assets.

	 	(c)	 	As used in this Agreement, the phrase “to the best
of Seller’s knowledge” shall mean and shall be limited to the
best of the actual, current knowledge of Mr. Timothy Jackson,
Manager of Seller, Mr. William Marks, Chief Financial Officer
of Seller, and Mr. John Schmelzer, Vice President – Operations
of VT.

	 	(d)	 	Prior to Closing, Seller will use commercially
reasonable efforts to clean the Timberlake Facility to remove
genetically-modified tobacco with the understanding that such
removal would be deemed accomplished if samples from test runs
of non-genetically modified tobacco processed at the Timberlake
Facility failed to show evidence of genetically modified
tobacco above established detection levels utilizing the
polymerase chain reaction (“PCR”) method of detection. The
method of sampling, testing and the established detection
levels shall be as set forth on Schedule 7.1(d).

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	 	(e)	 	Seller will promptly notify Purchaser by Closing
of any state of facts arising after the date hereof which
would render materially untrue any of the representations and
warranties contained in subsection 7.1(b).

     7.2 Purchaser

	 	(a)	 	Purchaser represents and warrants to Seller, that
as of the date hereof (which representations and warranties
shall be repeated as if made as of the Closing) that: (i) this
Agreement and the Ancillary Agreements have been duly
authorized, and have been or will be, duly executed and
delivered by Purchaser and will constitute the legal, valid,
and binding obligation of Purchaser, enforceable against
Purchaser in accordance with their terms (subject to
applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights generally and subject, as to enforceability,
to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law),
and (ii) Purchaser is a corporation duly organized and in good
standing in the state of its organization.

	 	(b)	 	Purchaser has available resources or financing
necessary to complete the Closing.

	 	(c)	 	Neither the execution and the delivery of this
Agreement nor the Ancillary Agreements, nor the consummation
of the transactions contemplated hereby and thereby, will (A)
violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which the
Purchaser is subject or any provision of the charter or
limited liability company agreement of the Purchaser; or (B)
conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require
any notice or third party consent under any contract, lease,
sublease, license, sublicense, permit, indenture, instrument
of indebtedness, Lien, or other agreement or arrangement to
which the Purchaser is a party or by which it is bound.

     8. The Closing; Apportionments.

	 	(a)	 	The Closing shall take place at 10:00 a.m.
eastern time on or before July 15, 2004 (unless extended by
agreement of the parties or for any cure period under this
Agreement in which case Closing shall occur on the second
business day following such cure) (the “Closing Date”) at the
offices of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P., 2500 Wachovia Capitol Center, Raleigh, North
Carolina. TIME IS OF THE ESSENCE as to Seller’s and
Purchaser’s obligations to consummate the Closing on the
Closing Date.

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	 	(b)	 	At the Closing:

	 	(i)	 	Seller will deliver to Purchaser
vacant possession of the Property and a Special Warranty
Deed in customary form for commercial real estate
transactions in North Carolina as well as a bill of sale
conveying the Transferred Assets to Purchaser subject to
the Permitted Encumbrances and any title defects waived
by Purchaser;

	 	(ii)	 	the Escrow Agent will deliver the
Deposit to Seller;

	 	(iii)	 	Purchaser will deliver the balance
of the Purchase Price to Seller as provided in Section
4(b);

	 	(iv)	 	the following items will be
apportioned between Seller and Purchaser as of midnight
of the day before the Closing Date: real and personal
property taxes (if a current rate has not been fixed for
any tax, the tax will be apportioned on the basis of the
previous year’s rate, and readjusted post-Closing),
fuel, if any (on the basis of tank readings obtained by
Seller), charges under the Declaration of Covenants,
Conditions and Restrictions identified in Schedule 5(a)
and any other items customarily apportioned in similar
commercial real estate transactions in the county in
which the Property is located. Any errors in
apportionments shall be corrected after the Closing, but
only if notice of such defect is delivered by the
aggrieved party to the other party within thirty (30)
days after information from which such defect could be
ascertained becomes available to the aggrieved party.
The parties’ respective obligations under the
immediately preceding sentence and under this clause
(iv) of this Section 8(b) shall survive the Closing for
a period of one (1) year; and

	 	(v)	 	Purchaser and Seller shall have
entered into an agreement pursuant to which Seller will
provide, or cause to be provided, advice and assistance
to Purchaser for up to three months following the
Closing Date, (for which Purchaser will pay Seller the
sum of Four Hundred Thousand Dollars ($400,000))
regarding materials procurement; blend and product
development; product testing and analysis; applying for
the necessary permits from Alcohol and Tobacco Tax and
Trade Bureau (“TTB”) (formerly the Bureau of Alcohol,
Tobacco, and Firearms) and developing procedures to
comply with applicable TTB requirements; and applying to
become a participating manufacturer under the Master
Settlement Agreement (“MSA”) and developing procedures
to comply with applicable MSA reporting and operating
requirements.

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	 	(c)	 	Also at the Closing:

	 	(i)	 	Seller shall by an Assignment and
Assumption Agreement reasonably satisfactory to
Purchaser assign to Purchaser, subject to the terms of
the respective agreements, all of Seller’s rights under
those Equipment Leases, Service Contracts and Software
Licenses which Purchaser elects to assume and Purchaser
shall by such Assignment and Assumption Agreement
reasonably satisfactory to Seller assume the obligations
of Seller thereunder, in each case to the extent such
rights or obligations accrue from and after the Closing
Date (it being further understood that Seller shall
retain responsibility for those of the Service Contracts
and Software Licenses that Purchaser does not assume);

	 	(ii)	 	Seller shall assign to Purchaser any
licenses and permits, to the extent assignable to
Purchaser in accordance with the provisions thereof and
applicable law;

	 	(iii)	 	Seller shall deliver to the Escrow
Agent such certificates and affidavits as shall be
reasonable and customary for comparable transactions in
order to permit issuance to Purchaser of a title
insurance policy in customary form;

	 	(iv)	 	Seller shall deliver to Purchaser
copies of such plans and specifications, licenses and
permits and other material records relating to the
construction, operation and maintenance of the Property
and as shall be in Seller’s possession, custody or
control;

	 	(v)	 	Seller shall deliver to Purchaser the
keys to the building;

	 	(vi)	 	Seller and Purchaser shall execute
such transfer tax returns, FIRPTA affidavits and other
documents as may be customary or required under
applicable law in connection with the conveyance of the
Property and the building thereon to Purchaser
hereunder; and

	 	(vii)	 	Seller shall deliver to Purchaser a
certificate certifying that each of the conditions
specified above and in Section 9(a) below is satisfied
in all material respects.

	 	(d)	 	Any installments of any assessments affecting the
Property which are or which could become a Lien on the
Property will be apportioned as follows: if such assessments
are due prior to the Closing Date, they will be paid by
Seller; otherwise, they will be paid by Purchaser.

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     9. Conditions of Closing.

	 	(a)	 	Purchaser’s obligation to consummate the Closing
will be subject to the following:

	 	(i)	 	the Property being conveyed to
Purchaser vacant, in reasonably clean condition and free
of all tenancies, occupants and rights of occupancy;

	 	(ii)	 	no title defect existing, other than
Permitted Encumbrances, unless waived by Purchaser;

	 	(iii)	 	test runs of tobacco at the
Timberlake facility shall show no evidence of
genetically modified tobacco above established detection
levels using the PCR method of detection, in accordance
with the methods of sampling, testing and detection
levels set forth in Schedule 7.1(d);

	 	(iv)	 	Seller not being in default of any of
its obligations or in breach of any of its covenants,
representations or warranties under this Agreement
except such default or breach which would:

	 	(1)	 	result in reasonably
foreseeable direct and/or consequential damages or
losses to Purchaser in an amount, in the
aggregate, less than $100,000.00, or

	 	(2)	 	not materially interfere
with Purchaser’s intended use of the Property as a
tobacco processing, cigarette manufacturing,
warehouse and distribution facility;

	 	(v)	 	no order of any court or governmental
authority which seeks to restrain, enjoin or otherwise
prohibit consummation of the transactions contemplated
by this Agreement shall be in effect.

	 	 
	 	Seller will be given written notice by Purchaser of, and an
opportunity to cure (for up to ninety (90) days from the date
on which Seller receives such written notice, or any
extensions thereof as may be agreed to by the parties),
failure of any condition in Section 9(a) or any breach or
default by Seller under this Agreement.

	 	(b)	 	Seller’s obligation to consummate the Closing
will be subject to receipt of the Purchase Price as provided
herein, and Purchaser’s execution and delivery of all
Ancillary Agreements and Purchaser not being in default of its
representations and warranties.

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     10. Brokerage. Seller and Purchaser each represents to the other that
such representing party has not dealt with any broker, finder or similar person
in connection with the transactions contemplated by this Agreement. Each of
Seller and Purchaser will defend, indemnify and hold harmless the other from
all liability, costs and expenses (including, without limitation, reasonable
attorney’s fees) suffered by the indemnified party as a result of any breach of
the foregoing representation by the indemnifying party. The provisions of this
Section will survive the Closing.

     11. Escrow.

	 	(a)	 	In the event of termination of this Agreement
pursuant to the provisions of Section 12 or 19 hereof, the
Escrow Agent shall disburse the Deposit to the party entitled
thereto within three (3) business days thereafter.

	 	(b)	 	Purchaser, Seller and the Escrow Agent shall
enter into an Escrow Agreement, substantially in the form of
Exhibit B hereto.

	 	(c)	 	Purchaser will pay any escrow fee charged by the
Escrow Agent for its escrow services hereunder.

     12. Casualty and Condemnation.

	 	(a)	 	If, prior to the Closing, all or any portion of
the Timberlake Facility is damaged by casualty and the
restoration costs are reasonably expected to exceed
$1,000,000.00, as estimated by a reputable contractor licensed
in the State of North Carolina, or, the operation of the
facility is reasonably expected to be interrupted beyond
September 1, 2004, then Purchaser may elect either (i) to
terminate this Agreement, whereupon the Deposit will be
returned to Purchaser and neither party will have any further
liability or obligation to the other; or (ii) to consummate
the Closing as provided herein, except that Seller will
additionally convey and assign to Purchaser at Closing all
proceeds of Seller’s casualty insurance in respect of such
casualty and the Purchase Price shall be reduced by the amount
of any deductibles payable and other amounts not covered under
such insurance policies, to the extent that Seller does not
expend sums up to the amount of the deductible repairing the
casualty. In the event of any casualty in respect of which
the restoration costs are not reasonably expected to exceed
$1,000,000.00, as estimated by a reputable contractor licensed
in the State of North Carolina, or operations are not expected
to be interrupted beyond September 1, 2004, the Closing will
be consummated as provided herein, except that Seller will
additionally convey and assign to Purchaser at Closing all
proceeds of Seller’s casualty insurance in respect of such
casualty and the Purchase Price shall be reduced by the amount
of any deductibles payable and other amounts not covered under
such insurance policies, to the extent that Seller does not
expend sums up to the amount of the deductible repairing the
casualty.

-13-

 

	 	(b)	 	If, prior to the Closing, a proceeding in eminent
domain is instituted against the Timberlake Facility which
contemplates the taking of any portion of the buildings
included in the Timberlake Facility or any portion of the land
included therein which would in any way materially interfere
with or increase the costs of Purchaser’s intended use of the
Property and Timberlake Facility as a tobacco processing,
cigarette manufacturing, warehouse and distribution facility,
then Purchaser may elect either (i) to terminate this
Agreement, whereupon the Deposit will be returned to Purchaser
and neither party will have any further liability or
obligation under this Agreement (except for obligations
specified in this Agreement to survive termination of this
Agreement); or (ii) to consummate the Closing as provided
herein, except that Seller will additionally convey and assign
to Purchaser any rights Seller may have to the condemnation
award in respect of the Property.

     13. Covenants. During the period of time from the execution of this
Agreement through the Closing Date: (a) Upon reasonable notice, Seller will
give the Purchaser and its authorized representatives reasonable access during
regular business hours to the Timberlake Facility as they may reasonably
request (including for the purpose of conducting an environmental analysis on
the Property) and shall provide Purchaser with copies of any and all documents
relating to the operation of the Timberlake Facility and the Transferred Assets
as Purchaser may reasonably request, at Purchaser’s sole cost and expense, (b)
Seller will not enter into any transaction relating to the Transferred Assets
which would interfere with Seller’s ability to convey the Transferred Assets,
and (c) Seller will keep the Timberlake Facility and the Transferred Assets and
properties substantially intact. Following the Closing, the Seller shall have
one hundred eighty (180) days to remove from the Property, in its entirety and
at Seller’s sole cost and expense, the Excluded Assets other than the
greenhouse, which is subject to the terms of a lease agreement. The Seller
shall reimburse the Purchaser in full for any damage to the Property caused by
the removal of the Excluded Assets.

     14. Survival of Representations and Warranties. The representations and
warranties contained in Sections 7.1(a), 7.1(b)(ix) and 7.1(b)(x) hereof and
Sections 7.2(a) and 7.2(c) shall survive the Closing and continue in full force
and effect forever thereafter. The other representations and warranties of
Seller contained in Section 7.1(b) shall survive the Closing and continue in
full force and effect for a period of twelve (12) months thereafter.

     15. Indemnification.

	 	(a)	 	The Seller agrees to indemnify the Purchaser from
and against the entirety of any and all charges, complaints,
actions, suits, proceedings, hearings, investigations, claims,
demands, judgments, orders, decrees, stipulations,
injunctions, damages, dues, penalties, fines, costs, amounts
paid in settlement, liabilities, obligations, Taxes, Liens,
losses, expenses, and fees, including all attorneys’ fees and
court costs (“Adverse
Consequences”) the Purchaser may suffer resulting from,
arising out of, relating to, in the nature of, or caused by:

-14-

 

	 	(i)	 	any breach or non-fulfillment
of any of the Seller’s representations,
warranties or covenants contained in this
Agreement or in any Ancillary Agreement executed
and/or delivered by the Seller; or

	 	(ii)	 	any liability or obligation of
the Seller that was not expressly assumed by
Purchaser hereunder or under an Ancillary
Agreement.

	 	(b)	 	The Purchaser agrees to indemnify the Seller from
and against the entirety of any Adverse Consequences the
Seller may suffer resulting from, arising out of, relating to,
in the nature of, or caused by:

	 	(i)	 	any misrepresentation, breach
or non-fulfillment of any of the Purchaser’s
representations, warranties or covenants
contained in this Agreement or in any Ancillary
Agreement executed and/or delivered by the
Purchaser; or

	 	(ii)	 	any liability or obligation of
the Seller expressly assumed by Purchaser
hereunder or under an Ancillary Agreement.

	 	(c)	 	If any third party shall notify either Seller or
Purchaser (the “Indemnified Party”) with respect to any matter
which may give rise to a claim for indemnification against any
other party (the “Indemnifying Party”) under this Section 15,
then the Indemnified Party shall notify the Indemnifying Party
thereof promptly; provided, however, that no delay on the part
of the Indemnified Party in notifying the Indemnifying Party
shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent)
the Indemnifying Party thereby is damaged as a result of such
failure. In the event any Indemnifying Party notifies the
Indemnified Party within fifteen (15) days after the
Indemnified Party has given notice of the matter, that the
Indemnifying Party is assuming the defense thereof, (i) the
Indemnifying Party will defend the Indemnified Party against
the matter with counsel of the Indemnifying Party’s choice
reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole
cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate
co-counsel to the extent the Indemnified Party reasonably
concludes that the counsel the Indemnifying Party has selected
has a conflict of interest), (iii) the Indemnified Party will
not consent to the entry of any judgment or enter into any
settlement with respect to the matter without the written
consent of the Indemnifying Party (not to be withheld
unreasonably), and (iv) the Indemnifying Party will not
consent

-15-

 

	 	 	 	to the entry of any judgment with respect to the matter, or
enter into any settlement which does not include a provision
whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto,
without the written consent of the Indemnified Party (not to
be withheld unreasonably). In the event the Indemnifying
Party does not notify the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the
matter, that the Indemnifying Party is assuming the defense
thereof, and/or in the event the Indemnifying Party shall
fail to defend such claim actively and in good faith, then
the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it
reasonably may deem appropriate.

	 	(d)	 	Purchaser shall not be entitled to make any claim
against Seller under Section 15(a) unless and until the
aggregate amount of Adverse Consequences with respect to all
such claims exceeds $100,000.00 in which event, Purchaser may
assert its right to indemnification to the extent of Adverse
Consequences for all such claims.

	 	(e)	 	Notwithstanding anything to the contrary in this
Agreement, the maximum amount of indemnifiable losses which
may be recovered from the Seller shall be an amount equal to
$5,000,000.00, except for claims made with regard to Section
7.1(b)(x) (after any recovery under policies of title
insurance), which shall be limited to an amount equal to the
Purchase Price. Notwithstanding the foregoing, Seller’s
aggregate obligations under this Section shall not exceed the
Purchase Price and shall be net of any recovery under policies
of title insurance.

	 	(f)	 	VT has executed this Agreement for the limited
purpose of guaranteeing Seller’s indemnification obligations
herein.

     16. Cooperation.

     The parties shall use their best efforts to cause the transactions
contemplated by this Agreement to be consummated, and Seller will assist
Purchaser in obtaining any licenses and approvals necessary to operate the
Timberlake Facility.

     17. Miscellaneous.

	 	(a)	 	North Carolina documentary transfer taxes in
connection with the Closing will be borne by Seller. North
Carolina sales tax, if any, on the Plant Equipment will be
borne by Purchaser. Except as explicitly set forth herein to
the contrary, all expenses for title search, title insurance,
survey and deed recordation will be paid by Purchaser. Both
parties agree that bulk sale or bulk transfer laws are not
applicable to the transactions contemplated by this Agreement.

-16-

 

	 	(b)	 	For a period of three (3) years from and after
the Closing, neither party nor any of their respective
affiliates will, directly or indirectly, seek to hire any
employee then in the employment of the other party or the
other party’s respective affiliates or attempt to induce any
such employee to terminate such employment, without the prior
written consent of the other party, except with respect to the
individuals listed on Schedule 17(b).

	 	(c)	 	The proceeds of any tax certiorari or similar
property tax reduction proceeding or claim for any tax year or
portion thereof ending prior to the Closing will belong to
Seller and Seller will have the right to pursue any such
proceeding or claim. The proceeds of all other such
proceedings and claims will belong to Purchaser which shall
have the right to pursue same.

	 	(d)	 	All notices under this Agreement will be in
writing, addressed as follows:

If to Seller:

VT Roxboro LLC

One Park Drive

Suite 150

Research Triangle Park, NC 27709

Attention: Timothy Jackson

                    Manager

With a copy to:

Vector Group Ltd.

100 SE 2nd Street

32nd Floor

Miami, FL 33131

Attention: Marc N. Bell, Esquire

If to Purchaser:

Flue-Cured Tobacco Cooperative Stabilization Corporation

1304 Annapolis Drive

Raleigh, North Carolina 27605

Attention: Lioniel Edwards

-17-

 

With a copy to:

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P

2500 Wachovia Capitol Center

Post Office Box 2611

Raleigh, North Carolina 27602-2611

Attention: R. Marks Arnold, Esquire

Notices will be deemed given upon receipt. All notices must be sent via
Federal Express overnight delivery. Either, party may change the address
for notices hereunder, by notice to the other party. Notices given by the
attorneys for any party shall be deemed given by such party.

	 	(e)	 	The Exhibits and Schedules to this Agreement are
incorporated herein and are part of this Agreement.

	 	(f)	 	This Agreement shall be binding on the parties
and their respective successors and assigns; provided,
however, that prior to the Closing, Purchaser may not assign
its rights hereunder without the consent of Seller, except to
a subsidiary formed by Purchaser, but such assignment shall
not relieve Purchaser of its obligations hereunder.

	 	(g)	 	This Agreement may be executed in any number of
facsimile counterparts, with the same effect as if the parties
hereto had executed the same document.

	 	(h)	 	The parties hereto agree to make, execute and
deliver all such further instruments and documents, and to
perform all such further acts, reasonably necessary to
consummate the transactions contemplated by this Agreement
(provided that neither party shall be obligated to incur any
out-of-pocket expenses under this Section). This Section will
survive the Closing.

	 	(i)	 	This Agreement contains the entire agreement of
the parties in relation to the subject matter hereof, and
supersedes all prior agreements (whether written or oral).
This Agreement may only be amended by a written instrument
executed and delivered by the parties.

	 	(j)	 	No waiver by any party of any default, breach of
warranty or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder
or affect in any way any rights arising by virtue of any prior
or subsequent such occurrence.

	 	(k)	 	This Agreement shall be governed by the laws of
the State of North Carolina, without regard to principles of
conflicts of laws.

-18-

 

	 	(l)	 	If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law
or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect
for so long as the economic or legal substance of the
transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the
transactions contemplated by this Agreement are consummated as
originally contemplated to the greatest extent possible.

     18. Confidentiality.

	 	(a)	 	Purchaser agrees to treat all information
supplied by Seller as confidential, subject to the
requirements of law, and except that this obligation will not
apply to publicly-available information. Purchaser may,
however, share such confidential information with its
employees, directors, advisors, consultants and prospective
lenders on a need-to-know basis or as otherwise may be
required in furtherance of Purchaser’s due diligence. Neither
party will make any disclosure or release to the public
pertaining to the existence of this Agreement or the subject
matter contained herein without the consent of the other party
hereto; provided, however, that each party shall be permitted
to make such disclosures to the public, governmental agencies
or courts of competent jurisdiction, as its counsel shall deem
necessary to comply with any applicable laws.

	 	(b)	 	The provisions of subsection (a) above shall
survive the termination of this Agreement (but not the
Closing).

     19. Termination.

               This agreement may be terminated:

	 	(a)	 	by the mutual written consent of Seller and
Purchaser at any time;

	 	(b)	 	by Seller, if, prior to the Closing Date, the
condition set forth in Section 9(a)(iii) or (v) has not been
satisfied, or waived by Purchaser;

	 	(c)	 	by Purchaser, (i) pursuant to Section 12, or (ii)
if on the Closing Date or any extension thereof, any of the
conditions to Closing set forth in Section 9(a) have not been
satisfied or cured within any applicable cure period and
Seller is not in default hereunder;

-19-

 

	 	(d)	 	by Seller, if Purchaser defaults under this
Agreement by failing to consummate the Closing, other than
pursuant to Section 19(c), and upon such termination Seller’s
sole remedy shall be to obtain as liquidated damages the
Deposit, it being understood and agreed that Seller’s damages
in the event of such default by Purchaser will be impossible
to ascertain, and such liquidated damages provide a fair and
reasonable estimate of damages under such circumstances; or

	 	(e)	 	by Purchaser, if Seller defaults under this
Agreement, and upon such termination Purchaser shall be
entitled to receive the Deposit, and proceed against Seller to
recover actual damages incurred by Purchaser, including,
without limitation, fees, expenses and costs associated with
the negotiation of this Agreement and conducting due diligence
in connection therewith, such damages not to exceed
$2,580,000.00.

     20. Effect of Termination; Specific Performance.

     In the event of the termination of this Agreement pursuant to Section
19(a), (b) or (c), such termination shall be the sole remedy, this Agreement
shall forthwith become void (except for Section 18), and the Deposit shall be
returned to Purchaser. In the event of termination of this Agreement pursuant
to Section 19(d) or (e), the rights and obligations of the parties shall be as
set forth in such sections.

     Notwithstanding the foregoing, if Seller defaults under this Agreement,
Purchaser shall be entitled to seek specific performance as an alternative to
the remedies set forth in Section 19(e).

21. WAIVER OF JURY TRIAL

     EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. Each of the
parties hereto (a) certifies that no representative, agent or attorney of the
other party has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce the foregoing waiver and
(b) acknowledges that it and the other party hereto have been induced to enter
into this Agreement and the transactions contemplated by this Agreement, as
applicable, by, among other things, the mutual waivers and certifications in
this Section.

[Signature Page Follows]

-20-

 

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above, the Escrow Agent has executed this
Agreement solely for purposes of Section 11 and Exhibit A, and VT has executed
this Agreement to acknowledge its guarantee of Seller’s indemnification
obligations herein.

	 	 	 	 	 
	 	Seller:

VT Roxboro LLC

 	 
	 	By:  	/s/ Timothy Jackson
 	 
	 	 	Name:  	Timothy Jackson 	 
	 	 	Title:  	Manager 	 
	 

	 	 	 	 	 
	 	Purchaser:

Flue-Cured Tobacco Cooperative

Stabilization Corporation

 	 
	 	By:  	/s/ Lioniel Edwards
 	 
	 	 	Name:  	Lioniel Edwards 	 
	 	 	Title:  	General Manager & Secretary 	 
	 

Escrow Agent:

Commonwealth Land Title Insurance Company

	 	 
	By:

	
 

	Name:

Title:

Vector Tobacco Inc.

	 	 
	By: /s/ Marc N. Bell

	
 

	Name: Marc N. Bell

Title: Senior Vice President and General Counsel

-21-<PAGE>
                                                                     Exhibit 4.1

      THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY, UNLESS AND UNTIL
THIS NOTE IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM.

      UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO DORAL FINANCIAL
CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR
IN LIEU OF, THIS CERTIFICATE IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

      THIS NOTE IS A DIRECT, UNCONDITIONAL AND UNSECURED OBLIGATION OF DORAL
FINANCIAL CORPORATION, IS NOT A SAVINGS ACCOUNT, DEPOSIT OR OTHER OBLIGATION OF
ANY BANK OR NONBANK SUBSIDIARY OF DORAL FINANCIAL CORPORATION, AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.

CUSIP NO. 25811P AJ 9                             PRINCIPAL AMOUNT: $115,000,000
No. 1

                            DORAL FINANCIAL CORPORATION

                 Floating Rate Senior Notes Due December 7, 2005

      DORAL FINANCIAL CORPORATION, a corporation duly organized and existing
under the laws of the Commonwealth of Puerto Rico (herein called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of U.S. One Hundred Fifteen Million
Dollars ($115,000,000) on December 7, 2005, and to pay interest thereon from
June 7, 2004 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, quarterly on

<PAGE>

March 7, June 7, September 7 and December 7 of each year, commencing September
7, 2004, at the rate per annum for each Interest Period of three-month LIBOR
plus 0.625%, determined as provided herein, until the principal hereof is paid
or made available for payment. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the 15th day of the month of the
related Interest Payment Date (whether or not a Business Day). Any such interest
not so punctually paid or duly provided for will forthwith cease to be payable
to the Holder on such Regular Record Date and may either be paid to the Person
in whose name this Note (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Debt Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.

      Interest hereon will be calculated on the basis of the actual number of
days elapsed in an Interest Period and a 360-day year. Dollar amounts resulting
from such calculation will be rounded to the nearest cent, with one-half cent
being rounded upward. An "Interest Period" shall be the period from and
including an Interest Payment Date (or from June 7, 2004 in the case of the
first Interest Payment Date) to and including the day immediately preceding the
next Interest Payment Date.

      If any Interest Payment Date falls on a day that is not a Business Day,
other than an Interest Payment Date that is also the date of Maturity, such
Interest Payment Date will be postponed to the next succeeding Business Day
except that if such next Business Day is in a different month, then that
Interest Payment Date will be the immediately preceding day that is a Business
Day. If the Maturity of the Notes falls on a day that is not a Business Day, the
payment due on Maturity will be postponed to the next succeeding Business Day,
and no further interest will accrue with respect to the period from and after
Maturity.

      For these purposes, "Business Day" means a day other than a Saturday, a
Sunday or any other day on which banking institutions

                                       2
<PAGE>

in San Juan, Puerto Rico or New York, New York are authorized or required by
law, regulation or executive order to remain closed.

      Payment of interest on this Note due on any Interest Payment Date (other
than interest on this Note due to the Holder hereof at Maturity) shall be paid
by check mailed to the Person entitled thereto at his last address as it appears
on the Security Register or, if a U.S. Depositary with respect to this Note is
specified above or if $10,000,000 aggregate principal amount of Debt Securities
of this series are registered in the name of the Holder hereof, in immediately
available funds by wire transfer to such account as may have been designated by
the Person entitled thereto as set forth herein in time for the Paying Agent
under the Indenture to make such payments in accordance with its normal
procedures. Payment of the principal of (and premium, if any) and interest on
this Note due to the Holder hereof at Maturity shall be paid in immediately
available funds upon presentation of this Note for surrender at the office or
agency of the Paying Agent in the Borough of Manhattan, The City of New York,
provided that this Note is presented for surrender in time for the Paying Agent
to make such payment in such funds in accordance with its normal procedures.

      Any such designation for wire transfer purposes shall be made by filing
the appropriate information with the Trustee at its Corporate Trust Office in
the Borough of Manhattan, The City of New York and, unless revoked by written
notice to the Trustee received on or prior to the Regular Record Date
immediately preceding the applicable Interest Payment Date or the fifteenth
calendar day preceding Maturity, shall remain in effect with respect to any
further payments with respect to this Note payable to such Holder.

      This Note is one of a duly authorized issue of Debt Securities of the
Company (together herein called the "Securities")issued and to be issued in one
or more series under a senior indenture, dated as of May 14, 1999, as
supplemented by a First Supplemental Indenture, dated as of March 30, 2001
(herein called the "Indenture"), between the Company and Deutsche Bank Trust
Company Americas (formerly known as Bankers Trust Company), as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee and the Holders of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Note is one of the series designated Floating
Rate Senior Notes due December 7, 2005 (herein

                                       3
<PAGE>

called the "Notes"), limited in aggregate principal amount to U.S. $115,000,000.
This Note is issued subject to the provisions of the Indenture with respect
thereto.

      This Note will bear interest for each Interest Period at a rate determined
by the Calculation Agent. Deutsche Bank Trust Company Americas will initially
act as Calculation Agent for the Notes. The interest rate on this Note for a
particular Interest Period will be a per annum rate equal to LIBOR as determined
on the related Determination Date plus 0.625%. The Determination Date for an
Interest Period will be the second London Banking Day preceding such Interest
Period. The Determination Date with respect to Interest Period was June 3, 2004.
Promptly upon determination, the Calculation Agent will inform the Trustee and
the Company of the interest rate for the next Interest Period. Absent manifest
error, the determination of the interest rate by the Calculation Agent shall be
binding and conclusive on the holders of Notes, the Trustee and the Company.

      A London Banking Day is any day on which dealings in U.S. dollars are
transacted or, with respect to any future date, are expected to be transacted in
the London interbank market.

      With respect to any Interest Period, LIBOR shall be the rate (expressed as
a percentage per annum) equal to the offered rate for deposits in U.S. dollars
for a three-month period beginning on the second London Banking Day after the
Determination Date, as such rate appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on such Determination Date.

      If Telerate Page 3750 does not include this rate or is unavailable on the
Determination Date, the Calculation Agent will request the principal London
office of each of four major banks in the London interbank market, as selected
by the Calculation Agent, to provide that bank's offered quotation (expressed as
a percentage per annum) as of approximately 11:00 a.m., London time, on the
Determination Date to prime banks in the London interbank market for deposits in
a Representative Amount (as defined below) in U.S. dollars for a three-month
period beginning on the second London Banking Day after the Determination Date.
If at least two offered quotations are so provided, LIBOR for the Interest
Period will be the arithmetic mean of those quotations. If fewer than two
quotations are so provided, the Calculation Agent will request each of three
major banks in New York City, as selected by the Calculation Agent, to provide
that bank's rate (expressed as a percentage per annum), as of approximately
11:00 a.m., New York City time, on the Determination Date for loans in a
Representative

                                       4
<PAGE>

Amount in U.S. dollars to leading European banks for a three-month period
beginning on the second London Banking Day after the Determination Date. If at
least two rates are so provided, LIBOR for the Interest Period will be the
arithmetic mean of those rates. If fewer than two rates are so provided, then
LIBOR for the Interest Period will be LIBOR in effect with respect to the
immediately preceding Interest Period.

      Representative Amount means a principal amount that is representative for
a single transaction in the relevant market at the relevant time.

      If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.

      The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of not less than a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The Indenture
also contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Note shall be conclusive and binding upon such Holder and upon
all future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.

      No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the times, place and rate, and in the coin or currency, herein
prescribed.

      The Notes may not be redeemed prior to maturity.

      As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is

                                       5
<PAGE>

registerable in the Security Register, upon surrender of this Note for
registration of transfer at the office or agency of the Company in any place
where the principal of and any premium and interest on this Note are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

      The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes and of like tenor of
a different authorized denomination, as requested by the Holder surrendering the
same.

      No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

      Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

      Unless the certificate of authentication hereon has been executed by the
Trustee referred to below by manual signature, this Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.

      All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.

      This Note shall be governed by and construed in accordance with the laws
of the State of New York.

                                       6
<PAGE>

      IN WITNESS WHEREOF, DORAL FINANCIAL CORPORATION has caused this instrument
to be signed by its duly authorized officer, and has caused its corporate seal
or a facsimile thereof to be affixed herein or imprinted hereon.

Dated: June 7, 2004

                                       DORAL FINANCIAL CORPORATION

                                       By: /s/ Ricardo Melendez
                                           -------------------------------
                                           Name:  Ricardo Melendez
                                           Title: Executive Vice President
                                                  and Chief Financial
                                                      Officer

Attest:

By: /s/ Sonia Arroyo
    --------------------------
    Name: Sonia Arroyo
    Title: Assistant Secretary

                                       7
<PAGE>

                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

      This is one of the Debt Securities of the series designated therein issued
under the within-mentioned indenture.

                                    Deutsche Bank Trust Company Americas,
                                          as Trustee

Dated: June 7, 2004                 By: /s/ Susan Johnson
                                        ------------------------
                                        Name:  Susan Johnson
                                        Title: Vice President

                                       8
<PAGE>

                                  -------------

                                  ABBREVIATIONS

      The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                       <C>
TEN COM -- as tenants in common           UNIF GIFT MIN ACT -- ________ Custodian _________
TEN ENT -- as tenants by the entireties                        (Cust)             (Minor)
JT TEN  -- as joint tenants with right             Under Uniform Gifts to Minors Act
           of survivorship and not as
           tenants in common                       __________________________________________
                                                                  (State)
</TABLE>

      Additional abbreviations may also be used though not in the above list.

      FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto

Please Insert Social Security or

Other Identifying Number of Assignee

--------------------------------------------------------------------------------
                   PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
                     INCLUDING POSTAL ZIP CODE OF ASSIGNEE

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

the within Note of DORAL FINANCIAL CORPORATION and does hereby irrevocably
constitute and appoint
__________________________________________________________________________
attorney to transfer the said Note on the books of the Company, with full power
of substitution in the premises.

Dated:________________________              ____________________________________

                                            ____________________________________

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatsoever.

                                       9

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