Exhibit h(1)
Form of Underwriting Agreement
Auction Rate Cumulative Preferred Shares
CNA Income Shares, Inc.
1,200 Shares, Series T
Liquidation Preference $25,000 Per Share
UNDERWRITING AGREEMENT
July ___, 2001
XXXXXXX XXXXX XXXXXX INC.
GRUNTAL & CO., L.L.C.
c/o XXXXXXX XXXXX XXXXXX INC.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
CNA Income Shares, Inc., a Maryland corporation (the "Fund"),
proposes, upon the terms and conditions set forth herein, to issue and sell an
aggregate of 1,200 shares of its Series T Auction Rate Cumulative Preferred
Shares, liquidation preference $25,000 per share (the Auction Rate Cumulative
Preferred Shares to be sold hereby are referred to herein, as the "Shares"). The
Shares will be authorized by, and subject to the terms and conditions of, the
Articles Supplementary of the Fund (the "Articles Supplementary"), in the form
filed as an exhibit to the Registration Statement referred to in Section 1 of
this Agreement. The Fund, Continental Assurance Company ("CAC" or the "Adviser")
and Highland Capital Management, L.P. ("Highland"), wish to confirm as follows
their agreement with Xxxxxxx Xxxxx Xxxxxx Inc. (the "Representative") and
Gruntal & Co., L.L.C. (together with the Representative, the "Underwriters"), in
connection with the purchase of the Shares by the Underwriters.
Collectively, the Investment Advisory Agreement, dated as of March 21,
1975, between the Fund and CAC (the "Advisory Agreement"), the Domestic Custody
Agreement, dated as of November 26, 1996, between the Fund and The Chase
Manhattan Bank, the Transfer Agency Agreement, dated as of February 19, 1986,
between the Fund and The Bank of New York (the "Transfer Agency Agreement"), the
Credit Agreement, dated as of June 2, 1997, between the Fund and the First
National Bank of Chicago (the "Credit Agreement"), the Letter Agreement, dated
as of July ___, 2001, between the Fund and The Depository Trust Company (the
"DTC Agreement") and the Auction Agency Agreement, dated as of July ___, 2001,
between the Fund and Bankers Trust Company are hereinafter referred to as the
"Fund Agreements." This Underwriting Agreement is hereinafter referred to as the
"Agreement." On April 26, 2001, CAC and Xxxxxxxx entered into a definitive
agreement (the "Purchase Agreement") whereby Highland will acquire the goodwill
and certain other assets associated with CAC's advisory and related functions
with respect to the Fund under CAC's current investment advisory agreement with
the Fund. The investment advisory agreement into which the Fund and Highland
intend to enter is hereinafter referred to as the "New Advisory Agreement."
1. REGISTRATION STATEMENT AND PROSPECTUS. The Fund has prepared and
filed with the Securities and Exchange Commission (the "Commission) in
conformity with the provisions of the Securities Act of 1933, as amended (the
"1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations of the Commission promulgated under the 1933 Act
(the "1933 Act Rules and Regulations") and the 1940 Act (the "1940 Act Rules and
Regulations" and, together with the 1933 Act Rules and Regulations, the "Rules
and Regulations") a registration statement on Form N-2 (File Nos. 333-62360 and
811-02365), under the 1933 Act and the 1940 Act (the "Registration Statement"),
including a prospectus relating to the Shares. The Fund also has filed a
notification of registration of the Fund as an investment company under the 1940
Act on Form N-8A (the "1940 Act Notification"). The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective under the 1933 Act or, if the registration statement became effective
under the 1933 Act prior to the execution of this Agreement, as amended or
supplemented at the time it became effective prior to the execution of this
Agreement, and includes any information deemed to be included by Rule 430A under
the 1933 Act Rules and Regulations. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed under the 1933 Act and must be declared effective before
the offering of the Shares may commence, the term "Registration Statement" as
used in this Agreement means the registration statement as amended by said
post-effective amendment. If the Fund has filed an abbreviated registration
statement to register an additional amount of Shares pursuant to Rule 462(b)
under the 1933 Act (the "Rule 462 Registration Statement"), then any reference
herein to the term "Registration Statement" shall include such Rule 462
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus and statement of additional information in the forms included in
the Registration Statement or, if the prospectus and statement of additional
information included in the Registration Statement omit information in reliance
on Rule 430A under the 1933 Act Rules and Regulations and such information is
included in a prospectus and statement of additional information filed with the
Commission pursuant to Rule 497(h) under the 1933 Act Rules and Regulations, the
term "Prospectus" as used in this Agreement means the prospectus and statement
of additional information in the forms included in the Registration Statement as
supplemented by the addition of the information contained in the prospectus
(including the statement of additional information) filed with the Commission
pursuant to Rule 497(h). The term "Prepricing Prospectus" as used in this
Agreement means the prospectus and statement of additional information subject
to completion in the forms included in the registration statement at the time of
the initial filing of the registration statement with the Commission on June 6,
2001, and as such prospectus and statement of additional information shall have
been amended from time to time prior to the date of the Prospectus, together
with any other prospectus and statement of additional information relating to
the Fund other than the Prospectus approved in writing by or directly or
indirectly prepared by the Fund or the Adviser; it being understood that the
definition of Prepricing Prospectus above shall not include any Prepricing
Prospectus prepared by the Underwriters unless approved in writing by the Fund
or the Adviser. The terms "Registration Statement," "Prospectus" and "Prepricing
Prospectus" shall also include any financial statements incorporated by
reference therein.
The Fund has furnished the Representative with copies of such
registration statement, each amendment to such registration statement filed with
the Commission and each Prepricing Prospectus, and the Representative has
provided the same to the other Underwriters.
2. AGREEMENTS TO SELL AND PURCHASE. The Fund hereby agrees, subject to
all the terms and conditions set forth herein, to issue and to sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Fund, CAC and Highland herein contained and subject to all the
terms and conditions set forth herein, each Underwriter agrees, severally and
not jointly, to purchase from the Fund, at a purchase price of $24,750 per
Share, the number of shares of Auction Rate Cumulative Preferred Shares set
forth opposite the name of such Underwriter in Schedule I hereto.
3. TERMS OF PUBLIC OFFERING. The Fund and the Adviser have been
advised by the Underwriters that they propose to make a public offering of the
Shares as soon after the Registration Statement and this Agreement have become
effective as in the Underwriters' judgment is advisable and initially to offer
the Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment to the Fund for the Shares and compensation of the
Underwriters with respect thereto shall be made at the office of Stroock &
Stroock & Xxxxx LLP, 000 Xxxxxx Xxxx, Xxx Xxxx, Xxx Xxxx 00000, or through the
facilities of The Depository Trust Company or another mutually
agreeable facility, at 9:30 A.M., New York City time, on July ___, 2001 (the
"Closing Date"). The place of closing for the Shares and the Closing Date may be
varied by agreement between you and the Fund.
A certificate for the Shares shall be registered in such name as the
Underwriters shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date. Such certificate shall be made
available to the Underwriters in New York City for inspection not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date.
5. AGREEMENTS OF THE FUND AND THE ADVISER. The Fund and the Adviser,
jointly and severally, agree with the Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective under the 1933 Act before the offering of the
Shares may commence, the Fund will use its reasonable best efforts to cause the
Registration Statement or such post-effective amendment to become effective
under the 1933 Act as soon as possible. If the Registration Statement has become
effective and the Prospectus contained therein omits certain information at the
time of effectiveness pursuant to Rule 430A of the 1933 Act Rules and
Regulations, the Fund will file a prospectus including such information pursuant
to Rule 497(h) of the 1933 Act Rules and Regulations, as promptly as
practicable, but no later than the second business day following the earlier of
the date of the determination of the offering price of the Shares or the date
the Prospectus is first used after the effective date of the Registration
Statement. If the Registration Statement has become effective and the Prospectus
contained therein does not so omit such information, the Fund will file a
Prospectus pursuant to Rule 497(c), (e) or (j) of the 1933 Act Rules and
Regulations as promptly as practicable, but no later than the fifth business day
following the date of the later of the effective date of the Registration
Statement or the commencement of the public offering of the Shares after the
effective date of the Registration Statement. The Fund will advise the
Underwriters promptly and, if requested by the Underwriters, will confirm such
advice in writing (i) when the Registration Statement or such post-effective
amendment has become effective, and (ii) when the Prospectus has been timely
filed pursuant to Rule 497(e) or Rule 497(h) of the 1933 Act Rules and
Regulations or the certification permitted pursuant to Rule 497(j) of the 1933
Act Rules and Regulations has been timely filed, whichever is applicable.
(b) For a period of three years from the date hereof, unless
otherwise provided herein, the Fund will advise the Underwriters promptly and,
if requested by the Underwriters, will confirm such advice in writing: (i) of
any request made by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectus or the Prospectus (or any
amendment or supplement to any of the foregoing) or for additional information,
(ii) of the issuance by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), any state securities commission, any national
securities exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any official of any
order suspending the effectiveness of the Registration Statement, prohibiting or
suspending the use of the Prospectus or any Prepricing Prospectus, or any sales
material (as hereinafter defined), of any notice pursuant to Section 8(e) of the
1940 Act, of the suspension of qualification of the Shares for offering or sale
in any jurisdiction, or the initiation of any proceeding for any such purposes,
(iii) of receipt by the Fund, the Adviser, any affiliate of the Fund or the
Adviser or any representative or attorney of the Fund or the Adviser of any
other material communication from the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court or any
other governmental, regulatory, self-regulatory or administrative agency or any
official relating to the Fund (if such communication relating to the Fund is
received by such person within three years after the date of this Agreement),
the Registration Statement, the 1940 Act Notification, the Prospectus, any
Prepricing Prospectus, any sales material (as herein defined) (or any amendment
or supplement to any of the foregoing) or this Agreement or any of the Fund
Agreements and (iv) within the period of time referred to in paragraph (f)
below, of any material adverse change in the condition (financial or other),
business, business prospects, properties, net assets or results of operations of
the Fund or the Adviser or of the happening of any other event which makes any
statement of a material fact made in the Registration Statement or the
Prospectus, or any Prepricing Prospectus or any sales materials (as herein
defined) (or any amendment or supplement to any of the foregoing) untrue or
which requires the making of any additions to or changes in the Registration
Statement or the Prospectus, or any Prepricing Prospectus or any sales materials
(as herein defined) (or any amendment or supplement to any of the foregoing) in
order to state a material fact required by the 1933 Act, the 1940 Act or the
Rules and Regulations to be stated therein or necessary in order to make the
statements therein (in the case of the Prospectus, in light of the circumstances
under which they were made), not misleading or of the necessity to amend or
supplement the Registration Statement, the Prospectus, or any Prepricing
Prospectus or any sales material (as herein defined) (or any amendment or
supplement to any of the foregoing) to comply with the 1933 Act, the 1940 Act,
the Rules and Regulations or any other law or order of any court or regulatory
body. If at any time the Commission, the NASD, any state securities commission,
any national securities exchange, any arbitrator, any court or any other
governmental, regulatory, self-regulatory or administrative agency or any
official shall issue any order suspending the effectiveness of the Registration
Statement, prohibiting or suspending the use of the Prospectus or any sales
material (as herein defined) (or any amendment or supplement to any of the
foregoing) or suspending the qualification of the Shares for offering or sale in
any jurisdiction, the Fund will make every reasonable effort to obtain the
withdrawal of such order at the earliest possible time.
(c) The Fund will furnish to you, without charge, a signed copy
of the Registration Statement and the 1940 Act Notification as originally filed
with the Commission and of each amendment thereto, including financial
statements and all exhibits thereto, and will also furnish to you, without
charge, such number of conformed copies of the Registration Statement as
originally filed and of each amendment thereto, but without exhibits, as you may
reasonably request.
(d) The Fund will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus, any Prepricing
Prospectus, or any sales material (as herein defined), of which you shall not
previously have been advised or to which you shall reasonably object after being
so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a
Prospectus is required by the 1933 Act to be delivered in connection with sales
by the Underwriters or any dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
without delivering a copy of such information, documents or reports to you prior
to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Fund has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Fund consents
to the use, in accordance with the provisions of the 1933 Act and with the state
securities or blue sky laws of the jurisdictions in which the Shares are offered
by the Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Fund.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the 1933 Act to be
delivered in connection with sales of Shares by the Underwriters or any dealer,
the Fund will expeditiously deliver to the Underwriters and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as the Underwriters may reasonably request. The Fund consents to the
use of the Prospectus (and of any amendment or supplement thereto) in accordance
with the provisions of the 1933 Act and with the state securities or blue sky
laws of the jurisdictions in which the Shares are offered by the Underwriters
and by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the 1933 Act to be delivered in connection with sales
by the Underwriters or any dealer. If during such period of time any event shall
occur that in the judgment of the Fund or in the opinion of counsel for the
Underwriters is required to be set forth in the Registration Statement or the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading, or if it
is necessary to supplement or amend the Registration Statement or the Prospectus
to comply with the 1933 Act, the 1940 Act, the Rules and Regulations or any
other federal law, rule or regulation, or any state securities or blue sky
disclosure laws, rules or regulations, the Fund will forthwith prepare and,
subject to the provisions of paragraph (d) above, promptly file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers, without charge, a
reasonable number of copies thereof. In the event that the Fund and the
Underwriters agree that the Registration Statement or the Prospectus should be
amended or supplemented, the Fund, if requested by the Underwriters, will
promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Fund will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Fund be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Fund will make generally available to holders of the
Fund's securities, as soon as practicable but in no event later than the last
day of the 18th full calendar month following the calendar quarter in which the
effective date of the Registration Statement falls, an earnings statement, if
applicable, satisfying the provisions of Section 11(a) of the 1933 Act and Rule
158 of the 1933 Act Rules and Regulations.
(i) During the period of five years after the date of this
Agreement, the Fund will furnish to you (i) as soon as available, a copy of each
report of the Fund mailed to stockholders or filed with the Commission or
furnished to the New York Stock Exchange (the "NYSE") other than reports on Form
N-SAR, and (ii) from time to time such other information concerning the Fund as
the Underwriters may reasonably request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than by notice
given by the Underwriters terminating this Agreement pursuant to Section 13
hereof) or if this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Fund or the Adviser to comply with the
terms or fulfill any of the conditions of this Agreement, the Fund and the
Adviser, jointly and severally, agree to reimburse the Underwriters for all
out-of-pocket expenses (including reasonable fees and expenses of counsel for
the Underwriters) incurred by the Underwriters in connection herewith.
(k) The Fund will apply the net proceeds from the sale of the
Shares in accordance with the description set forth in the Prospectus and in
such a manner as to comply with the investment objectives, policies and
restrictions of the Fund as described in the Prospectus.
(l) The Fund will timely file the requisite copies of the
Prospectus with the Commission pursuant to Rule 497(c) or Rule 497(h) of the
1933 Act Rules and Regulations, whichever is applicable or, if applicable, will
timely file the certification permitted by Rule 497(j) of the 1933 Act Rules and
Regulations and will advise the Underwriters of the time and manner of such
filing.
(m) Except as provided in this Agreement or as disclosed in the
Prospectus, so long as the Shares remain outstanding, the Fund will not sell,
contract to sell, or otherwise dispose of any senior securities (as defined in
the 1940 Act) (other than senior securities sold in an underwriting lead-managed
by Xxxxxxx Xxxxx Xxxxxx Inc.) of the Fund, or grant any options or warrants to
purchase senior securities of the Fund, for a period of 120 days after the date
of the Prospectus, without the prior written consent of the Underwriters.
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, neither the Fund nor the Adviser has taken, nor
will it take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any securities issued by the Fund to facilitate the sale or resale
of the Shares.
(o) The Fund will use commercially reasonable efforts to cause
the Shares, prior to the Closing Date, to be assigned a rating of 'aaa' by
Xxxxx'x Investors Service, Inc. ("Moody's") and 'AAA' by Standard & Poor's, a
division of XxXxxx-Xxxx Companies, Inc. ("S&P" and, together with Moody's, the
"Rating Agencies").
(p) The Fund and the Adviser will use commercially reasonable
efforts to perform all of the agreements required of them and discharge all
conditions to closing as set forth in this Agreement.
(q) The Fund will comply with the undertaking set forth in
paragraph 6 of Item 33 of Part C of the Registration Statement.
6. AGREEMENTS OF HIGHLAND. Xxxxxxxx agrees with the Underwriters
as follows:
(a) If the New Advisory Agreement becomes effective, for a period
of three years from the date hereof, unless otherwise provided herein, Highland
will advise the Underwriters promptly and, if requested by the Underwriters,
will confirm such advice in writing: (i) of receipt by Highland, any affiliate
of Highland or any representative or attorney of Highland of any
material communication from the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court or any
other governmental, regulatory, self-regulatory or administrative agency or any
official relating to the Fund (if such communication relating to the Fund is
received by such person within three years after the date of this Agreement),
the Registration Statement, the 1940 Act Notification, the Prospectus, any
Prepricing Prospectus, any sales material (as herein defined) (or any amendment
or supplement to any of the foregoing) or this Agreement or any of the Fund
Agreements and (ii) within the period of time referred to in paragraph 5(f)
above, of any material adverse change in the condition (financial or other),
business, business prospects, properties, net assets or results of operations of
Highland or of the happening of any other event which makes any statement of a
material fact made in the Registration Statement or the Prospectus, or any
Prepricing Prospectus or any sales materials (as herein defined) (or any
amendment or supplement to any of the foregoing) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus, or any Prepricing Prospectus or any sales materials (as herein
defined) (or any amendment or supplement to any of the foregoing) in order to
state a material fact required by the 1933 Act, the 1940 Act or the Rules and
Regulations to be stated therein or necessary in order to make the statements
therein (in the case of the Prospectus, in light of the circumstances under
which they were made), not misleading or of the necessity to amend or supplement
the Registration Statement, the Prospectus, or any Prepricing Prospectus or any
sales material (as herein defined) (or any amendment or supplement to any of the
foregoing) to comply with the 1933 Act, the 1940 Act, the Rules and Regulations
or any other law or order of any court or regulatory body.
(b) Highland will use commercially reasonable efforts to perform
all of the agreements required of them and discharge all conditions to closing
as set forth in this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE ADVISER. The
Fund and the Adviser, jointly and severally, represent and warrant to the
Underwriters that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 497 of the 1933 Act Rules and
Regulations, complied when so filed in all material respects with the applicable
provisions of the 1933 Act, the 1940 Act and the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940 Act Notification when originally filed
with the Commission and any amendment or supplement thereto when filed with the
Commission, complied or will comply in all material respects with the provisions
of the 1933 Act, the 1940 Act and the Rules and Regulations and did not or will
not at any such times contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading, except that this representation and
warranty does not apply to statements in or omissions from the registration
statement or the Prospectus made in reliance upon and in conformity with
information relating to the Underwriters furnished to the Fund in writing by or
on behalf of the Underwriters expressly for use therein.
(c) The Proxy Statement of the Fund, dated May 11, 2001, relating
to certain amendments to the Charter in connection with the offering of the
Shares, when originally filed with the Commission and any amendment or
supplement thereto when filed with the Commission, complied or will comply in
all material respects with the provisions of the 1934 Act, the 1940 Act and the
Rules and Regulations and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
(d) All the outstanding shares of common stock of the Fund (the
"Common Shares") have been duly authorized and validly issued by the Fund, are
fully paid and nonassessable and are free of any preemptive or similar rights;
the Shares have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms hereof, will
be validly issued by the Fund, fully paid and nonassessable and free of any
preemptive or similar rights and will conform to the description thereof in the
Registration Statement and the Prospectus (and any amendment or supplement to
either of them); and the capitalization of the Fund conforms to the description
thereof in the Registration Statement and the Prospectus (and any amendment or
supplement to either of them).
(e) The Fund is a corporation duly incorporated and validly
existing under the laws of the State of Maryland with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus (and any amendment
or supplement to either of them), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, business prospects, properties, net assets or results of
operations of the Fund, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"); and the Fund has no subsidiaries.
(f) There are no legal or governmental proceedings pending or, to
the knowledge of the Fund, threatened, against the Fund, or to which the Fund or
any of its properties is subject, that are required to be described in the
Registration Statement or the Prospectus (and any amendment or supplement to
either of them) but are not described as required, and there are no agreements,
contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (and any amendment or
supplement to either of them) or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the 1933 Act, the 1940
Act or the Rules and Regulations.
(g) The Fund is not in violation of its Charter (the "Charter"),
Articles Supplementary or Bylaws (the "Bylaws"), or other organizational
documents or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Fund or of any decree of the Commission, the NASD,
any state securities commission, any national securities exchange, any
arbitrator, any court or governmental agency, body or official having
jurisdiction over the Fund, or in default in any respect in the performance of
any obligation, agreement or condition contained in any bond, debenture, note or
any other evidence of indebtedness or in any material agreement, indenture,
lease or other instrument to which the Fund is a party or by which it or any of
its properties may be bound, except where such violation does not have a
Material Adverse Effect.
(h) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement, any of the Fund Agreements or the New
Advisory Agreement by the Fund, nor the consummation by the Fund of the
transactions contemplated hereby or thereby (A) requires the Fund to obtain any
consent, approval, authorization or other order of or registration or filing
with, the Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as may have
been obtained prior to the date hereof and such as may be required for
compliance with the state securities or blue sky laws of various jurisdictions
which have been or will be effected in accordance with this Agreement) or
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the Charter, the Bylaws or other organizational documents of
the Fund or (B) conflicts or will conflict with or constitutes or will
constitute a material breach of, or a default under, any material agreement,
indenture, lease or other instrument to which the Fund is a party or by which it
or any of its properties may be bound, or violates or will violate any statute,
law, regulation or judgment, injunction, order or decree applicable to the Fund
or any of its properties, or will result in the creation or imposition of any
material lien, charge or encumbrance upon any property or assets of the Fund
pursuant to the terms of any agreement or instrument to which it is a party or
by which it may be bound or to which any of its property or assets is subject,
except for the Credit Agreement, which shall be satisfied in full prior to the
effective date of the New Advisory Agreement. The Fund is not subject to any
order of any court or of any arbitrator, governmental authority or
administrative agency.
(i) The accountants, Deloitte & Touche LLP, who have certified or
shall certify the audited financial statements included or incorporated by
reference in the Registration Statement and the Prospectus (or any amendment or
supplement to either of them) have represented to the Fund that they are
independent public accountants as required by the 1933 Act, the 1940 Act and the
Rules and Regulations.
(j) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectus (and any amendment or supplement to either of them), present
fairly in all material respects the financial position, results of operations
and changes in financial position of the Fund on the basis stated or
incorporated by reference in the Registration Statement at the respective dates
or for the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical information
and data included in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them) in all material respects are
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Fund.
(k) The Fund, subject to the Registration Statement having been
declared effective and the filing of the Prospectus under Rule 497 under the
1933 Act Rules and Regulations, has taken all required action under the 1933
Act, the 1940 Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this Agreement.
(l) The execution and delivery of, and the performance by the
Fund of its obligations under, this Agreement and the Fund Agreements have been
duly and validly authorized by the Fund, and this Agreement and the Fund
Agreements have been duly executed and delivered by the Fund and, assuming due
authorization, execution and delivery by the other parties thereto, constitute
the valid and legally binding agreements of the Fund, enforceable against the
Fund in accordance with their terms, except as rights to indemnity and
contribution hereunder and thereunder may be limited by federal or state
securities laws or principles of public policy and subject to the qualification
that the enforceability of the Fund's obligations hereunder and thereunder may
be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally
and by general equitable principles (regardless of whether enforcement is sought
in a proceeding in equity or at law).
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Fund has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Fund, and there has not been any change in the capital stock, or
material increase in the short-term debt or long-term debt, of the Fund, or any
material adverse change, or any development involving or which may reasonably be
expected to involve a Material Adverse Effect.
(n) The Fund has authorized borrowing pursuant to the Credit
Agreement as set forth in the Prospectus; the terms of the Credit Agreement
conform in all material respect to the description thereof in the Prospectus.
(o) The Fund will direct the proceeds of the offering of the
Shares as disclosed in the Prospectus under the heading "Use of Proceeds."
(p) The Fund has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the 1933
Act, the 1940 Act or the Rules and Regulations.
(q) (i) The Fund has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto), subject
to such qualifications as may be set forth in the Prospectus; (ii) the Fund has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the Fund under any such permit, subject in each case
to such qualification as may be set forth in the Prospectus (and any amendment
or supplement thereto); and (iii) except as described in the Prospectus (and any
amendment or supplement thereto), none of such permits contains any restriction
that is materially burdensome to the Fund, except where the failure of (i), (ii)
or (iii) to be accurate would not, individually or in the aggregate, have a
Material Adverse Effect on the Fund.
(r) The Fund maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions in portfolio
securities are executed in accordance with management's general or specific
authorization and with the applicable requirements of the 1940 Act, the 1940 Act
Rules and Regulations and the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to maintain accountability for assets and to maintain compliance with the
books and records requirements under the 1940 Act and the 1940 Act Rules and
Regulations; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) To the Fund's knowledge, neither the Fund nor any employee or
agent of the Fund has made any payment of funds of the Fund or received or
retained any funds, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus and that is not so
disclosed.
(t) The Fund has filed all tax returns required to be filed,
which returns are complete and correct in all material respects, and the Fund is
not in material default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto.
(u) No holder of any security of the Fund has any right to
require registration of common shares of capital stock or any other security of
the Fund because of the filing of the registration statement or consummation of
the transactions contemplated by this Agreement.
(v) Except as described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
the Fund has no agreement to issue, any shares of capital stock of the Fund or
any security convertible into or exchangeable or exercisable for shares of
capital stock of the Fund.
(w) The conduct by the Fund of its business (as described in the
Prospectus) does not, to the knowledge of the Fund or the Adviser after
reasonable inquiry, require the Fund to be the owner, possessor or licensee of
any patents, patent licenses, trademarks, service marks or trade names which it
does not own, possess or license.
(x) The Fund is registered under the 1940 Act as a closed-end,
diversified management investment company and the 1940 Act Notification has been
duly filed with the Commission and conforms in all material respects with all
applicable provisions of the 1940 Act and the Rules and Regulations. The Fund
is, and at all times through the completion of the transactions contemplated
hereby, will be, in compliance in all material respects with the terms and
conditions of the 1933 Act and the 1940 Act. No person is serving or acting as
an officer, director or investment adviser of the Fund except in accordance with
the provisions of the 1940 Act and the 1940 Act Rules and Regulations and the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules
and regulations of the Commission promulgated under the Advisers Act (the
"Advisers Act Rules and Regulations").
(y) Except as stated in this Agreement and in the Prospectus (and
any amendment or supplement thereto), the Fund has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
securities issued by the Fund to facilitate the sale or resale of the Shares,
and the Fund is not aware of any such action taken or to be taken by any
affiliates of the Fund.
(z) The Fund has filed in a timely manner each document or report
required to be filed by it pursuant to the 1934 Act and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act Rules and
Regulations"); each such document or report at the time it was filed conformed
to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and
none of such documents or reports contained an untrue statement of any material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(aa) All advertising, sales literature or other promotional
material (including "prospectus wrappers," "broker kits," "road show slides" and
"road show scripts") authorized in writing by or prepared by the Fund or the
Adviser for use in connection with the offering and sale of the Shares
(collectively, "sales material") complied and comply in all material respects
with the applicable requirements of the 1933 Act, the 1940 Act, the Rules and
Regulations and the rules and interpretations of the NASD and no such sales
material contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(bb) Each of the Fund Agreements complies, and the New Advisory
Agreement will comply, in all material respects with all applicable provisions
of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the
Advisers Act Rules and Regulations, except as to rights of indemnity and
contribution hereunder.
(cc) As required by Subchapter M of the Code, the Fund is in
compliance with the requirements to qualify as a regulated investment company
under the Code; the Fund intends to direct the investment of the proceeds of the
offering in such a manner as to comply with the requirements of Subchapter M of
the Code.
(dd) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), no director of
the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or
an "affiliated person" (as defined in the 1940 Act) of any Underwriter listed in
Schedule I hereto.
8. REPRESENTATIONS AND WARRANTIES OF THE ADVISER. CAC represents and
warrants to the Underwriters as follows:
(a) CAC is an insurance company duly organized and authorized to
transact its appropriate business under the laws of Illinois, with full power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or to
qualify does not have a material adverse effect on the condition (financial or
other), business, business prospects, properties, net assets or results of
operations of CAC or on the ability of CAC to perform its obligations under this
Agreement, the Purchase Agreement or the Advisory Agreement (an "Adviser
Material Adverse Effect").
(b) CAC is duly registered with the Commission as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act, the
Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules and
Regulations from acting under the Advisory Agreement for the Fund as
contemplated by the Prospectus (or any amendment or supplement thereto). There
does not exist, to the best knowledge of the Adviser, after reasonable
investigation, any proceeding or any facts or circumstances the existence of
which could lead to any proceeding which might adversely affect the registration
of CAC with the Commission.
(c) There are no legal or governmental proceedings pending or, to
the knowledge of CAC, threatened against CAC, or to which CAC or any of its
properties is subject, that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement to either of them)
but are not described as required or that may reasonably be expected to involve
a prospective material adverse change in the condition (financial or other),
business, business prospects, properties, net assets or results of operations of
CAC or on the ability of CAC to perform its obligations under this Agreement,
the Purchase Agreement or the Advisory Agreement.
(d) Neither the execution, delivery or performance of this
Agreement, the Purchase Agreement or the Advisory Agreement by CAC, nor the
consummation by CAC of the transactions contemplated hereby or thereby (A)
requires CAC to obtain any consent, approval, authorization or other order of or
registration or filing with, the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court,
regulatory body, administrative agency or other governmental body, agency or
official or conflicts or will conflict with or constitutes or will constitute a
material breach of or a default under the Articles of Incorporation, or other
organizational documents, of CAC, except where the failure to obtain consents,
approvals, authorizations, orders, registrations or filings does not have an
Adviser Material Adverse Effect or (B) conflicts or will conflict with or
constitutes or will constitute a breach of or a default under, any material
agreement, indenture, lease or other instrument to which CAC is a party or by
which it or any of its properties may be bound, or violates or will violate any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to CAC or any of its properties or will result in the creation or
imposition of any material lien, charge or encumbrance upon any property or
assets of CAC pursuant to the terms of any agreement or instrument to which it
is a party or by which it may be bound or to which any of the property or assets
of CAC is subject that would individually or in the aggregate have an Adviser
Material Adverse Effect. CAC is not subject to any order of any court or of any
arbitrator, governmental authority or administrative agency.
(e) The execution and delivery of, and the performance by CAC of
its obligations under, this Agreement, the Purchase Agreement and the Advisory
Agreement have been duly and validly authorized by CAC, and this Agreement, the
Purchase Agreement and the Advisory Agreement have been duly executed and
delivered by CAC and, assuming due authorization, execution and delivery by the
other parties thereto, each constitutes the valid and legally binding agreement
of CAC, enforceable against CAC in accordance with its terms except as rights to
indemnity and contribution hereunder or thereunder may be limited by federal or
state securities laws or principles of public policy and subject to the
qualification that the enforceability of CAC's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(f) CAC has the financial resources available to it necessary for
the performance of its services and obligations as contemplated in the
Prospectus (or any amendment or supplement thereto) and under this Agreement,
the Purchase Agreement and the Advisory Agreement.
(g) The description of CAC in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) complied and comply in all
material respects with the provisions of the 1933 Act, the 1940 Act, the
Advisers Act, the Rules and Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading.
(h) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
CAC has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to CAC or the Fund and that is required to be disclosed in the
Registration Statement or the Prospectus and there has not been any material
adverse change, or any development involving or which may reasonably be expected
to involve, a prospective material adverse change, in the condition (financial
or other), business, business prospects, properties, net assets or results of
operations of CAC, whether or not arising in the ordinary course of business, or
which, in each case, could have a material adverse effect on the ability of CAC
to perform its obligations under this Agreement, the Purchase Agreement or the
Advisory Agreement.
(i) (i) CAC has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto); (ii) CAC
has fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of CAC under any such permit; and (iii), except as
described in the Prospectus (and any amendment or supplement thereto), none of
such permits contains any restriction that is materially burdensome to CAC,
except where the failures of (i), (ii) or (iii) to be accurate would not,
individually or in the aggregate, have an Adviser Material Adverse Effect.
(j) Except as stated in this Agreement and in the Prospectus (and
in any amendment or supplement thereto), CAC has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any securities issued by the Fund to facilitate the sale or resale of the
Shares, and CAC is not aware of any such action taken or to be taken by any
affiliates of CAC.
(k) In the event that the Fund or CAC makes available any
promotional materials intended for use only by qualified broker-dealers and
registered representatives thereof by means of an Internet web site or similar
electronic means, CAC will install and maintain pre-qualification and
password-protection or similar procedures which are reasonably designed to
effectively prohibit access to such promotional materials by persons other than
qualified broker-dealers and registered representatives thereof.
9. REPRESENTATIONS AND WARRANTIES OF HIGHLAND. Highland represents \
and warrants to the Underwriters as follows:
(a) Highland is a limited partnership duly organized and validly
existing in good standing under the laws of the State of Delaware, with full
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus (and any
amendment or supplement to either of them), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or to
qualify does not have a material adverse effect on the condition (financial or
other), business, business prospects, properties, net assets or results of
operations of Highland or on the ability of Highland to perform its obligations
under this Agreement, the Purchase Agreement or the New Advisory Agreement (a
"Highland Material Adverse Effect").
(b) Highland is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers
Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the New Advisory Agreement for the Fund as
contemplated by the Prospectus (or any amendment or supplement thereto). There
does not exist, to the best knowledge of Highland, after reasonable
investigation, any proceeding or any facts or circumstances the existence of
which could lead to any proceeding which might adversely affect the registration
of Highland with the Commission.
(c) There are no legal or governmental proceedings pending or, to
the knowledge of Highland, threatened against Highland, or to which Highland or
any of its properties is subject, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement to
either of them) but are not described as required or that may reasonably be
expected to involve a prospective material adverse change in the condition
(financial or other), business, business prospects, properties, net assets or
results of operations of Highland or on the ability of Highland to perform its
obligations under this Agreement, the Purchase Agreement or the New Advisory
Agreement.
(d) Neither the execution, delivery or performance of this
Agreement, the Purchase Agreement or the New Advisory Agreement by Highland, nor
the consummation by Highland of the transactions contemplated hereby or thereby
(A) requires Highland to obtain any consent, approval, authorization or other
order of or registration or filing with, the Commission, the NASD, any state
securities commission, any national securities exchange, any arbitrator, any
court, regulatory body, administrative agency or other governmental body, agency
or official or conflicts or will conflict with or constitutes or will constitute
a material breach of or a default under the limited partnership agreement, or
other organizational documents, of Highland, except where the failure to obtain
consents, approvals, authorizations, orders, registrations or filings does not
have a Highland Material Adverse Effect or (B) conflicts or will conflict with
or constitutes or will constitute a breach of or a default under, any material
agreement, indenture, lease or other instrument to which Highland is a party or
by which it or any of its properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to Highland or any of its properties or will result in the creation
or imposition of any material lien, charge or encumbrance upon any property or
assets of Highland pursuant to the terms of any agreement or instrument to which
it is a party or by which it may be bound or to which any of the property or
assets of Highland is subject that would individually or in the aggregate have a
Highland Material Adverse Effect. Highland is not subject to any order of any
court or of any arbitrator, governmental authority or administrative agency.
(e) The execution and delivery of, and the performance by
Highland of its obligations under this Agreement and the Purchase Agreement has
been duly and validly authorized by Highland, and this Agreement has been duly
executed and delivered by Highland and, assuming due authorization, execution
and delivery by the other parties thereto, this Agreement constitutes the valid
and legally binding agreements of Highland, enforceable against Highland in
accordance with their terms except as rights to indemnity and contribution
hereunder or thereunder may be limited by federal or state securities laws or
principles of public policy and subject to the qualification that the
enforceability of Highland's obligations hereunder and thereunder may be limited
by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and by general
equitable principles (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(f) Highland has the financial resources available to it
necessary for the performance of its services and obligations as contemplated in
the Prospectus (or any amendment or supplement thereto) and under this
Agreement, the Purchase Agreement and the New Advisory Agreement.
(g) The description of Highland in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) complied and comply in
all material respects with the provisions of the 1933 Act, the 1940 Act, the
Advisers Act, the Rules and Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading.
(h) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
Highland has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to Highland and that is required to be disclosed in the Registration
Statement or the Prospectus and there has not been any material adverse change,
or any development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, business prospects, properties, net assets or results of operations of
Highland, whether or not arising in the ordinary course of business, or which,
in each case, could have a material adverse effect on the ability of Highland to
perform its obligations under this Agreement, the Purchase Agreement or the New
Advisory Agreement.
(i) (i) Highland has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto); (ii)
Highland has fulfilled and performed all its material obligations with respect
to such permits and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in any other
material impairment of the rights of Highland under any such permit; and (iii),
except as described in the Prospectus (and any amendment or supplement thereto),
none of such permits contains any restriction that is materially burdensome to
Highland, except where the failures of (i), (ii) or (iii) to be accurate would
not, individually or in the aggregate, have a Highland Material Adverse Effect.
(j) Except as stated in this Agreement and in the Prospectus (and
in any amendment or supplement thereto), Highland has not taken, nor will it
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities issued by the Fund to facilitate the sale or resale of the
Shares, and Highland is not aware of any such action taken or to be taken by any
affiliates of Highland.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) (i) The Fund and the Adviser, jointly and severally, agree to
indemnify and hold harmless each of the Underwriters and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation), joint or
several, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Prepricing Prospectus or in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information furnished in writing to the Fund by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent by the Underwriters as required to such person
within the time required by the 1933 Act and the 1933 Act Rules and Regulations,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in such Prospectus, provided that the Fund has delivered such
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Fund or the Adviser may otherwise have.
(ii) Highland agrees to indemnify and hold harmless each of the
Underwriters and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they were made) not
misleading, but only to the extent that such untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom concerns the description of Highland and its business or its intended
management of the Fund; provided, however, that the indemnification contained in
this paragraph (a)(ii) with respect to any Prepricing Prospectus shall not inure
to the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of the Shares by such Underwriter to any person if
a copy of the Prospectus shall not have been delivered or sent by the
Underwriters as required to such person within the time required by the 1933 Act
and the 1933 Act Rules and Regulations, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such Prepricing Prospectus was corrected in such Prospectus, provided that the
Fund has delivered such Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which Highland may
otherwise have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Fund, CAC or Highland, respectively, such
Underwriter or such controlling person shall promptly notify the Fund, CAC or
Highland, and the Fund, CAC or Highland shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses. Such
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action, suit or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) the Fund, CAC
or Highland has agreed in writing to pay such fees and expenses, (ii) the Fund,
CAC and Highland have failed to assume the defense and employ counsel, or (iii)
the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
the Fund, CAC or Highland and such Underwriter or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and the Fund, CAC or Highland, as the case may be, by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Fund, CAC or
Highland, as the case may be, shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Fund, CAC or Highland,
as the case may be, shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be designated
in writing by the Underwriters, and that all such fees and expenses shall be
reimbursed as they are incurred. The Fund, CAC or Highland, as the case may be,
shall not be liable for any settlement of any such action, suit or proceeding
effected without their written consent, but if settled with such written
consent, or if there is a final judgment for the plaintiff in any such action,
suit or proceeding, the Fund, CAC or Highland, as the case may be, agree to
indemnify and hold harmless any Underwriter, to the extent provided in the
preceding relevant subparagraph, and any such controlling person from and
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees to indemnify and hold harmless the
Fund, CAC and Highland, any directors or officers who sign the Registration
Statement, and any person who controls the Fund, CAC or Highland within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the same
extent as the foregoing indemnity from the Fund, CAC and Highland to each
Underwriter, but only with respect to information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Fund, CAC or Highland, any of their directors, any such
officer, or any such controlling person based on the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto,
and in respect of which indemnity may be sought against any Underwriter pursuant
to this paragraph (c), such Underwriter shall have the rights and duties given
to the Fund, CAC and Highland by paragraph (b) above (except that if the Fund,
CAC or Highland shall have assumed the defense thereof such Underwriter shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Underwriter's expense), and the Fund, CAC and Highland, their
directors, any such officer, and any such controlling person shall have the
rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 10 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Fund, CAC or Highland, as the case may be, on the one hand (treated jointly for
this purpose as one person) and the Underwriters on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Fund, CAC or Highland, as the case may be, on the one
hand (treated jointly for this purpose as one person) and the Underwriters on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Fund, CAC and,
if the New Advisory Agreement becomes effective, Highland on the one hand
(treated jointly for this purpose as one person) and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Fund bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Fund and CAC (treated jointly for this purpose as one
person), Highland and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Fund and CAC (treated jointly for this purpose as
one person), Highland or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Fund, CAC, Highland and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 10 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 10, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 10 are several
in proportion to the respective numbers of Shares set forth opposite their names
in Schedule I hereto (or such numbers of Shares increased as set forth in
Section 13 hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 10 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 10 and the
representations and warranties of the Fund, CAC and Highland set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, CAC, Highland, directors or officers, or
any person controlling the Fund, CAC or Highland, (ii) acceptance of any Shares
and payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter or any person controlling any Underwriter, or to
the Fund, CAC, Highland, directors or officers, or any person controlling the
Fund, CAC or Highland, shall be entitled to the benefits of the indemnity,
contribution, and reimbursement agreements contained in this Section 10.
(h) Any indemnification by the Fund shall be subject to the
requirements and limitations of Section 17(i) of the 1940 Act.
11. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by the
Underwriters, and all filings, if any, required by Rules 497 and 430A under the
1933 Act and the 1933 Act Rules and Regulations shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement or order
pursuant to Section 8(e) of the 1940 Act shall have been issued and no
proceeding for those purposes shall have been instituted or, to the knowledge of
the Fund, CAC, Highland or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to the Underwriters' reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change or any development involving a
prospective change in or affecting the condition (financial or other), business,
business prospects, properties, net assets, or results of operations of the
Fund, CAC or Highland not contemplated by the Prospectus, which in the
Underwriters' opinion would materially, adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the Fund, CAC
or Highland or any officer, or director of the Fund, CAC or Highland which makes
any statement made in the Prospectus untrue or which, in the opinion of the Fund
and its counsel or the Underwriters and their counsel, requires the making of
any addition to or change in the Prospectus in order to state a material fact
required by the 1933 Act, the 1940 Act or the Rules and Regulations or any other
law to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading, if
amending or supplementing the Prospectus to reflect such event or development
would, in the Underwriters' opinion, materially adversely affect the market for
the Shares.
(c) The Fund shall have furnished to you a report showing
compliance with the asset coverage requirements of the 1940 Act and a Preferred
Shares Basic Maintenance Certificate (as defined in the Certificate), each dated
the Closing Date and in form and substance satisfactory to you. Each such report
may use portfolio holdings and valuations as of the close of business of any day
not more than six business days preceding the Closing Date, provided, however,
that the Fund represents in such report that its total net assets as of the
Closing Date have not declined by 5% or more from such valuation date.
(d) The Underwriters shall have received on the Closing Date an
opinion of Xxxxxxx & Xxxxxxx & Xxxxx LLP, counsel for the Fund, dated the
Closing Date and addressed to you, in form and substance satisfactory to you and
to the effect that:
(i) The Fund (A) is a corporation duly incorporated and
validly existing under the laws of the State of
Maryland with full corporate power and authority to
own, lease and operate its properties and to conduct
its business as described in the Registration Statement
and the Prospectus (and any amendment or supplement to
either of them), and (B) is duly registered and
qualified to conduct its business and is in good
standing in each jurisdiction in which such
qualification is required, except where the failure to
be so qualified or in good standing would not have a
Material Adverse Effect on the Fund;
(ii) The Fund has no subsidiaries;
(iii) The authorized and outstanding capital stock of the
Fund is as set forth under the caption "Capitalization"
in the Prospectus; and the authorized capital stock of
the Fund conforms in all material respects as to legal
matters to the description thereof contained in the
Prospectus under the captions "Description of Preferred
Shares" and "Description of Common Stock" which
conforms in all legal material respects as to legal
matters to the terms thereof contained in the Fund's
Charter;
(iv) All outstanding shares of capital stock of the Fund
have been duly authorized and validly issued by the
Fund, and are fully paid and nonassessable;
(v) The Shares have been duly authorized and, when issued
and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be
validly issued by the Fund, fully paid and
nonassessable and free of any preemptive, or to the
knowledge of such counsel after reasonable inquiry,
similar rights that entitle or will entitle any person
to acquire any Shares upon the issuance thereof by the
Fund, and will conform to the description thereof
contained in the Prospectus under the caption
"Description of Preferred Shares";
(vi) The form of the certificate for the Shares conforms to
the requirements of Maryland law;
(vii) The Registration Statement and all post-effective
amendments, if any, have become effective under the
1933 Act and the 1933 Act Rules and Regulations and, to
the best knowledge of such counsel after reasonable
inquiry, no stop order suspending the effectiveness of
the Registration Statement or order pursuant to Section
8(e) of the 1940 Act has been issued and no proceedings
for that purpose are pending before or contemplated by
the Commission; and any required filing of the
Prospectus pursuant to Rule 497 of the 1933 Act Rules
and Regulations has been made in accordance with Rule
497;
(viii) The Fund has corporate power and authority to enter
into this Agreement and each of the Fund Agreements and
to issue, sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement and
each of the Fund Agreements have been duly authorized,
executed and delivered by the Fund and each is a valid,
legal and binding agreement of the Fund, enforceable
against the Fund in accordance with its terms, except
as enforcement of rights to indemnity and contribution
hereunder or thereunder may be limited by Federal or
state securities laws or principles of public policy
and subject to the qualification that the
enforceability of the Fund's obligations hereunder or
thereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights
generally and by general equitable principles
(regardless of whether enforcement is sought in a
proceeding in equity or at law);
(ix) (A) The Fund is not in violation of the Charter, the
Articles Supplementary, the By-laws, or other
organizational documents, and (B) based upon a
certificate executed by officers of the Fund delivered
to us, is not in default in the performance of any
material obligation, agreement or condition contained
in any bond, debenture, note or other evidence of
indebtedness, except as may be disclosed in the
Prospectus;
(x) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement
and the Fund Agreements by the Fund, compliance by the
Fund with the provisions hereof or thereof nor
consummation by the Fund of the transactions
contemplated hereby and the Fund Agreements constitutes
or will constitute a breach of, or a default under, the
Charter, the Articles Supplementary, or Bylaws, or
other organizational documents, of the Fund or any
agreement, indenture, lease or other instrument to
which the Fund is a party or by which it or any of its
properties is bound that is an exhibit to the
Registration Statement, nor will any such action result
in any violation of any existing law, regulation,
ruling (assuming compliance with all applicable state
securities or blue sky laws), judgment, injunction,
order or decree known to such counsel after reasonable
inquiry, applicable to the Fund or any of its
properties;
(xi) No consent, approval, authorization or other order of,
or registration or filing with, the Commission, the
NASD, any national securities exchange, or, to
counsel's knowledge, any state securities commission,
any arbitrator, any court, regulatory body,
administrative agency or other governmental body,
agency, or official is required on the part of the Fund
(except such as may have been obtained prior to the
date hereof and such as may be required for compliance
with the state securities or blue sky laws of various
jurisdictions) for the valid issuance and sale of the
Shares to the Underwriters as contemplated by this
Agreement, the execution, delivery and performance by
the Fund of this Agreement and the Fund Agreements or
the consummation of the transactions contemplated
hereby and thereby;
(xii) The Registration Statement, the Prospectus and any
supplements or amendments thereto (except for the
financial statements and the notes thereto and the
schedules and other financial and statistical data
included therein, as to which such counsel need not
express any opinion) comply as to form in all material
respects with the requirements of the 1933 Act, the
1940 Act, and the Rules and Regulations;
(xiii) To the knowledge of such counsel based, as to the
existence thereof, solely on reasonable inquiry of
appropriate officers and representatives of the Fund
and not on any docket search or any other independent
inquiry, (A) other than as described or contemplated in
the Registration Statement or Prospectus (or any
amendment or supplement thereto), there are no legal or
governmental proceedings pending or threatened against
the Fund, or to which the Fund or any of its properties
is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment
or supplement to either of them) and (B) there are no
agreements, contracts, indentures, leases or other
instruments that are required to be described in the
Registration Statement or the Prospectus (or any
amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not
described or filed as required, as the case may be;
(xiv) The statements in the Registration Statement and
Prospectus, insofar as they (A) are descriptions of
contracts, agreements or other legal documents, or (B)
refer to statements of law or legal conclusions, are
accurate and present fairly the information required to
be shown;
(xv) Each of the Fund Agreements complies in all material
respects with all applicable provisions of the 1933
Act, the 1940 Act, the Advisers Act, the Rules and
Regulations and the Advisers Act Rules and Regulations,
except as to rights of indemnity and contribution as to
which we express no opinion;
(xvi) The Fund is duly registered with the Commission under
the 1940 Act and the 1940 Act Rules and Regulations as
a closed-end, diversified management investment company
and, to such counsel's knowledge after reasonable
inquiry, no order of suspension or revocation of such
registration under the 1940 Act and the 1940 Act Rules
and Regulations has been issued or proceedings therefor
initiated or threatened by the Commission; the
provisions of the Charter, the Articles Supplementary,
and Bylaws comply as to form in all material respects
with the applicable provisions of the 1940 Act and the
1940 Act Rules and Regulations, the provisions of the
Charter, the Articles Supplementary, and the Bylaws and
the investment policies and restrictions described in
the Registration Statement and the Prospectus (in the
Prospectus and the statement of additional information)
comply in all material respects with the requirements
of the 1940 Act, and all action has been taken by the
Fund as is required of the Fund by the 1933 Act and the
1940 Act and the Rules and Regulations in connection
with the issuance and sale of the Shares to make the
public offering and consummate the sale of the Shares
as contemplated by this Agreement;
(xvii) Except as described in the Prospectus, to such
counsel's knowledge there are no outstanding options,
warrants or other rights calling for the issuance of,
and since April 26, 2001, the Board of Directors of the
Fund has not approved the issuance of (other than in
connection with the reinvestment of dividends) any
shares of capital stock of the Fund or any security
convertible into or exchangeable or exercisable for
shares of capital stock of the Fund;
(xviii) Except as described in the Prospectus, such counsel
does not know of any holder of any security of the Fund
or any other person who has the right, contractual or
otherwise, to cause the Fund to sell or otherwise issue
to them, or to permit them to underwrite the sale of,
the Shares or the right to have any securities of the
Fund included in the Registration Statement or the
right, as a result of the filing of the Registration
Statement, to require registration under the 1933 Act
of any securities of the Fund;
(xix) The Fund does not require any tax or other rulings to
enable it to qualify as a regulated investment company
under Subchapter M of the Code;
(xx) The Credit Agreement conforms in all material respects
to the description thereof in the Prospectus under the
heading "Description of Credit Facility";
(xxi) Such counsel shall also state that, while they have
not themselves checked the accuracy and completeness of
or otherwise verified, and are not passing upon and
assume no responsibility for the accuracy or
completeness of, the statements contained in the
Registration Statement or the Prospectus, except to the
limited extent stated in paragraphs (iii), (xiv) and
(xx) above, in the course of their review and
discussion of the contents of the Registration
Statement and Prospectus with certain officers and
employees of the Fund and its independent accountants
(relying as to materiality to a large extent on the
opinions of officers and other representatives of the
Fund, CAC and Highland), no facts have come to their
attention which cause them to believe that the
Registration Statement or any amendment or supplement
thereto (except as to any financial statements or other
financial data included in the Registration Statement
or any such amendment or supplement, as to which they
express no belief), as of its effective date, contained
an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading or that the Prospectus or any amendment or
supplement thereto (except as to any financial
statements or other financial data included in the
Prospectus or any such amendment or supplement, as to
which they express no belief), as of its issue date and
as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements contained therein, in the light of the
circumstances under which they were made, not
misleading.
Insofar as the opinions expressed above relate to or are
dependent upon matters governed by Maryland law, Stroock & Stroock & Xxxxx LLP
will be permitted to rely on the opinion of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx,
LLP.
(e) The Underwriters shall have received on the Closing Date an
opinion of Xxxxx Xxxxxxxxx, Deputy General Counsel for CAC, dated the Closing
Date and addressed to you, in form and substance satisfactory to you and to the
effect that:
(i) CAC is an insurance company duly organized and
authorized to transact its appropriate business under
the laws of Illinois, with full power and authority to
own, lease and operate its properties and to conduct
its business as described in the Registration Statement
and the Prospectus (and any amendment or supplement to
either of them), and is duly registered and qualified
to conduct its business and is in good standing in each
jurisdiction or place where the nature of its
properties or the conduct of its business requires such
registration or qualification, except where the failure
to so register or qualify does not have a material
adverse effect on the condition (financial or other),
business, business prospects, properties, net assets or
results of operations of CAC and its subsidiaries,
taken as a whole, or on the ability of CAC to perform
its obligations under this Agreement and the Advisory
Agreement;
(ii) CAC is duly registered with the Commission as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act, the Advisers Act Rules
and Regulations, the 1940 Act or the 1940 Act Rules and
Regulations from acting under the Advisory Agreement
for the Fund as contemplated by the Prospectus (or any
amendment or supplement thereto); and, to such
counsel's knowledge after reasonable inquiry, no order
of suspension or revocation of such registration under
the Advisers Act and the Advisers Act Rules and
Regulations has been issued or proceedings therefor
initiated or threatened by the Commission;
(iii) CAC has full power and authority to enter into this
Agreement and the Advisory Agreement, and this
Agreement and the Advisory Agreement have been duly
authorized, executed and delivered by CAC and each is a
valid, legal and binding agreement of CAC, enforceable
against CAC in accordance with its terms except as
enforcement of rights to indemnity and contribution
hereunder or thereunder may be limited by Federal or
state securities laws or principles of public policy
and subject to the qualification that the
enforceability of CAC's obligations hereunder or
thereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights
generally and by general equitable principles
(regardless of whether enforcement is sought in a
proceeding in equity or at law);
(iv) Except for the Credit Agreement, neither the execution,
delivery or performance of this Agreement, the Purchase
Agreement or the Advisory Agreement by CAC, compliance
by CAC with the provisions hereof or thereof nor
consummation by CAC of the transactions contemplated by
this Agreement, the Purchase Agreement and the Advisory
Agreement conflicts or will conflict with, or
constitutes or will constitute a breach of or default
under, the Articles of Incorporation, or other
organizational documents, of CAC or any agreement,
indenture, lease or other instrument to which CAC is a
party or by which it or any of its properties is bound
that is known to such counsel after reasonable inquiry
of appropriate officers and representatives of CAC, or
will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of
CAC, nor will any such action result in any violation
of any existing law, regulation, ruling, judgment,
injunction, order or decree known to such counsel after
reasonable inquiry, applicable to CAC or any of its
properties;
(v) No consent, approval, authorization or other order of,
or registration or filing with, the Commission, the
NASD, or, to such counsel's knowledge, any national
securities exchange, any state securities commission,
any arbitrator, any court, regulatory body,
administrative agency or other governmental body,
agency, or official is required on the part of CAC
(except such as have been obtained prior to the date
hereof) for the execution, delivery and performance by
it of this Agreement, the Purchase Agreement and the
Fund Agreements to which it is a party or the
consummation by it of the transactions contemplated
hereby and thereby;
(vi) To the knowledge of such counsel after reasonable
inquiry, there are no legal or governmental proceedings
pending or threatened against CAC or to which CAC or
any of its properties is subject, which are required to
be described in the Registration Statement or the
Prospectus (or any amendment or supplement to either of
them) but are not described as required or which may
reasonably be expected to involve a prospective
material adverse change on the ability of CAC to
perform its obligations under this Agreement and the
Advisory Agreement;
(vii) The obligations of CAC under this Agreement and the
Advisory Agreement comply in all material respects with
all applicable provisions of the 1940 Act, the 1940 Act
Rules and Regulations, the Advisers Act and the
Advisers Act Rules and Regulations;
(viii) CAC has full power and authority, and, to such
counsel's knowledge, all necessary governmental
authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental regulatory officials and bodies (except
where the failure so to have any such authorizations,
approvals, orders, licenses, certificates, franchises
or permits, individually or in the aggregate, would not
have a material adverse effect on the business,
properties, operations or financial condition of CAC
and its subsidiaries, taken as a whole), to own its
properties and to conduct business as now being
conducted, as described in the Prospectus, and to
perform its obligations under the Advisory Agreement;
and
(ix) Such counsel shall also state that, while they have not
themselves checked the accuracy and completeness of or
otherwise verified, and are not passing upon and assume
no responsibility for the accuracy or completeness of,
the statements contained in the Registration Statement
or the Prospectus, in the course of their review and
discussion of the contents of the Registration
Statement and Prospectus with certain officers and
employees of the Advisor, no facts have come to their
attention which cause them to believe that the
description of CAC contained in the Registration
Statement (and any amendment or supplement thereto), as
of its effective date, contains an untrue statement of
a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements contained therein not misleading or that the
description of CAC contained in the Prospectus or any
amendment or supplement thereto, as of its issue date
and as of the Closing Date, contains an untrue
statement of a material fact or omits to state a
material fact required to be stated therein or
necessary to make the statements contained therein, in
the light of the circumstances under which they were
made, not misleading.
(f) The Underwriters shall have received on the Closing Date an
opinion of Xxxxxxx & Xxxxxxx & Xxxxx LLP, counsel for the Highland, dated the
Closing Date and addressed to you, in form and substance satisfactory to you and
to the effect that:
(i) Highland is a limited partnership duly organized and
validly existing in good standing under the laws of the
State of Delaware with full partnership power and
authority to own, lease and operate its properties and
to conduct its business as described in the
Registration Statement and the Prospectus (and any
amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its
business requires such registration or qualification,
except where the failure to so register or qualify does
not have a material adverse effect on the condition
(financial or other), business, business prospects,
properties, net assets or results of operations of
Highland and its subsidiaries, taken as a whole, or on
the ability of Highland to perform its obligations
under this Agreement and the New Advisory Agreement;
(ii) Highland is duly registered with the Commission as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act, the Advisers Act Rules
and Regulations, the 1940 Act or the 1940 Act Rules and
Regulations from acting under the New Advisory
Agreement as contemplated by the Prospectus (or any
amendment or supplement thereto); and, to such
counsel's knowledge after reasonable inquiry, no order
of suspension or revocation of such registration under
the Advisers Act and the Advisers Act Rules and
Regulations has been issued or proceedings therefor
initiated or threatened by the Commission;
(iii) Highland has full power and authority to enter into
this Agreement and the New Advisory Agreement, and this
Agreement has been duly authorized, executed and
delivered by Highland and is a valid, legal and binding
agreement of Highland, enforceable against Highland in
accordance with its terms except as enforcement of
rights to indemnity and contribution hereunder may be
limited by Federal or state securities laws or
principles of public policy and subject to the
qualification that the enforceability of Highland's
obligations hereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable
principles (regardless of whether enforcement is sought
in a proceeding in equity or at law);
(iv) Neither the execution, delivery or performance of this
Agreement or the New Advisory Agreement by Highland,
compliance by Highland with the provisions hereof or
thereof nor consummation by Highland of the
transactions contemplated by this Agreement and the New
Advisory Agreement conflicts or will conflict with, or
constitutes or will constitute a breach of or default
under, the limited partnership agreement, or other
organizational documents, of Highland or any agreement,
indenture, lease or other instrument to which Highland
is a party or by which it or any of its properties is
bound that is known to such counsel after reasonable
inquiry of appropriate officers and representatives of
Highland, or will result in the creation or imposition
of any lien, charge or encumbrance upon any property or
assets of Highland, nor will any such action result in
any violation of any existing law, regulation, ruling,
judgment, injunction, order or decree known to such
counsel after reasonable inquiry, applicable to
Highland or any of its properties;
(v) No consent, approval, authorization or other order of,
or registration or filing with, the Commission, the
NASD, or, to such counsel's knowledge, any national
securities exchange, any state securities commission,
any arbitrator, any court, regulatory body,
administrative agency or other governmental body,
agency, or official is required on the part of Highland
(except such as have been obtained prior to the date
hereof) for the execution, delivery and performance by
it of this Agreement or the New Advisory Agreement or
the consummation by it of the transactions contemplated
hereby and thereby;
(vi) To the knowledge of such counsel after reasonable
inquiry, there are no legal or governmental proceedings
pending or threatened against Highland or to which
Highland or any of its properties is subject, which are
required to be described in the Registration Statement
or the Prospectus (or any amendment or supplement to
either of them) but are not described as required or
which may reasonably be expected to involve a
prospective material adverse change on the ability of
Highland to perform its obligations under this
Agreement and the New Advisory Agreement;
(vii) The obligations of Highland under this Agreement and
the New Advisory Agreement comply in all material
respects with all applicable provisions of the 1940
Act, the 1940 Act Rules and Regulations, the Advisers
Act and the Advisers Act Rules and Regulations;
(viii) Highland has full power and authority, and, to such
counsel's knowledge, all necessary governmental
authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental regulatory officials and bodies (except
where the failure so to have any such authorizations,
approvals, orders, licenses, certificates, franchises
or permits, individually or in the aggregate, would not
have a material adverse effect on the business,
properties, operations or financial condition of
Highland and its subsidiaries, taken as a whole), to
own its properties and to conduct business as now being
conducted, as described in the Prospectus, and to
perform its obligations under the New Advisory
Agreement
(ix) Such counsel shall also state that, while they have not
themselves checked the accuracy and completeness of or
otherwise verified, and are not passing upon and assume
no responsibility for the accuracy or completeness of,
the statements contained in the Registration Statement
or the Prospectus, in the course of their review and
discussion of the contents of the Registration
Statement and Prospectus with certain officers and
employees of Highland, no facts have come to their
attention which cause them to believe that the
description of Highland contained in the Registration
Statement (and any amendment or supplement thereto), as
of its effective date, contains an untrue statement of
a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements contained therein not misleading or that the
description of Highland contained in the Prospectus or
any amendment or supplement thereto, as of its issue
date and as of the Closing Date, contains an untrue
statement of a material fact or omits to state a
material fact required to be stated therein or
necessary to make the statements contained therein, in
the light of the circumstances under which they were
made, not misleading.
(g) The Underwriters shall have received on the Closing Date an
opinion of Xxxxxxx, Arps, Slate Xxxxxxx and Xxxx LLP, counsel for the
Underwriters, dated the Closing Date and addressed to the Underwriters, with
respect to such matters as the Underwriters may reasonably request and the Fund,
and the Adviser and their respective counsels shall have furnished to such
counsel such documents as they may request for the purpose of enabling them to
pass upon such matters. It is agreed that Xxxxxxx, Arps, Slate Xxxxxxx and Xxxx
LLP may rely on the opinions of Stroock & Stroock & Xxxxx LLP (or those of
Maryland counsel, if applicable) to the extent those opinions relate to or are
dependent upon matters governed by the laws of the State of Maryland.
(h) The Underwriters shall have received letters addressed to
you, dated the date hereof and the Closing Date, from Deloitte & Touche LLP,
independent certified public accountants, substantially in the forms heretofore
approved by you.
(i) (i) No order suspending the effectiveness of the registration
statement or the Registration Statement or prohibiting or suspending the use of
the Prospectus (or any amendment or supplement thereto) or any Prepricing
Prospectus or any sales material shall have been issued and no proceedings for
such purpose or for the purpose of commencing an enforcement action against the
Fund, CAC, Highland or, with respect to the transactions contemplated by the
Prospectus (or any amendment or supplement thereto) and this Agreement, the
Underwriters, may be pending before or, to the knowledge of the Fund, CAC,
Highland or the Underwriters or in the reasonable view of counsel to the
Underwriters, shall be threatened or contemplated by the Commission or any court
or other regulatory or self-regulatory body having jurisdiction at or prior to
the Closing Date and that any request for additional information on the part of
the Commission or such court or other body (to be included in the Registration
Statement, the Prospectus or otherwise) be complied with to the satisfaction of
the Underwriters; (ii) there shall not have been any change in the capital stock
of the Fund nor any material increase in the short-term or long-term debt of the
Fund (other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, business prospects, properties, net assets or
results of operations of the Fund, CAC or Highland; (iv) the Fund shall not have
any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Fund, other than those
reflected in the Registration Statement or the Prospectus (or any amendment or
supplement to either of them); and (v) all the representations and warranties of
the Fund and the Advisers contained in this Agreement shall be true and correct
on and as of the date hereof and on and as of the Closing Date as if made on and
as of the Closing Date, and the Underwriters shall have received a certificate
of each of the Fund, CAC and Highland, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of each of the Fund, CAC
and Highland (or such other officers as are acceptable to the Underwriters), to
the effect set forth in this Section 11(i) and in Section 11(j) hereof.
(j) None of the Fund, CAC or Highland shall have failed at or
prior to the Closing Date to have performed or complied in all material respects
with any of its agreements herein contained and required to be performed or
complied with by it hereunder at or prior to the Closing Date.
(k) The Fund shall have delivered and the Underwriters shall have
received evidence satisfactory to the Underwriters that the Shares are rated
'aaa' by Xxxxx'x and 'AAA' by S&P as of the Closing Date, and there shall not
have been given any notice of any intended or potential downgrading, or of any
review for a potential downgrading, in the rating accorded to the Shares by
either Rating Agency.
(l) The Fund, CAC and Highland shall have furnished or caused to
be furnished to you such further certificates and documents as you shall have
reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to the Underwriters and the Underwriters' counsel.
Any certificate or document signed by any officer of the Fund, CAC or
Highland and delivered to the Underwriters, or to counsel for the Underwriters,
shall be deemed a representation and warranty by the Fund, CAC or Highland, as
the case may be, to the Underwriters as to the statements made therein.
12. EXPENSES. The Fund agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus and
each amendment or supplement to any of them (including, without limitation, the
filing fees prescribed by the 1933 Act, the 1940 Act and the Rules and
Regulations); (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the Registration Statement, each Prepricing Prospectus, the
Prospectus, any sales material and all amendments or supplements to any of them
as may be reasonably requested for use in connection with the offering and sale
of the Shares; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp taxes in connection
with the original issuance and sale of the Shares; (iv) the reproduction and
delivery of this Agreement, any dealer agreements, the preliminary blue sky
memorandum, if any, and all other agreements or documents reproduced and
delivered in connection with the offering of the Shares; (v) the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating to
blue sky matters; (vi) fees paid to the Rating Agencies; (vii) the
transportation and other expenses incurred by or on behalf of Fund
representatives in connection with presentations to prospective purchasers of
the Shares; and (viii) the fees and expenses of the Fund's accountants and the
fees and expenses of counsel (including local and special counsel) for the Fund.
13. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Fund, by
notifying the Underwriters, or by the Underwriters, by notifying the Fund.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Shares set forth
opposite its name in Schedule I hereto bears to the aggregate number of Shares
set forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify, to purchase the Shares which such defaulting
Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they are obligated to purchase on the Closing Date and the aggregate
number of Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date and arrangements satisfactory to you and the
Fund for the purchase of such Shares by one or more non-defaulting Underwriters
or other party or parties approved by you and the Fund are not made within 36
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter, the Fund, CAC or Highland. In any such
case which does not result in termination of this Agreement, either you or the
Fund shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Fund,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 13 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
14. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in the Underwriters' absolute discretion, without liability on the
part of any Underwriter to the Fund, CAC or Highland, by notice to the Fund, CAC
or Highland, if prior to the Closing Date (i) trading in the Common Shares or
securities generally on the NYSE, American Stock Exchange, Nasdaq National
Market or Nasdaq Stock Market shall have been suspended or materially limited
(ii) a general moratorium on commercial banking activities shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war, or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which is to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Shares at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts for
the resale of the Shares by the Underwriters. Notice of such termination may be
given to the Fund by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
15. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the third paragraph under the caption "Underwriting" relating to dealer
concessions and reallowances in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.
16. MISCELLANEOUS. Except as otherwise provided in Sections 5, 6, 13
and 14 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Fund and/or CAC, if CAC is the
Fund's investment adviser, to CNA Plaza, 00X, Xxxxxxx, Xxxxxxxx 00000,
Attention: Xxxxx Xxxxxxxxx; (ii) if to the Fund and/or Highland, if Highland is
the Fund's investment adviser, to 00000 Xxxx Xxxx, Xxxxx 0000, Xxxxxx, Xxxxx
00000, Attention: X. Xxxxxx Xxxxxxxxx, or (iii) if to the Underwriters, to
Xxxxxxx Xxxxx Xxxxxx Inc., 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Syndicate Department.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Fund, the Adviser, Highland directors and officers, and the
other controlling persons referred to in Section 10 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from the Underwriters of any of the Shares in his
status as such purchaser.
17. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
This Agreement may be signed in various counterparts, which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement
among the Fund, the Adviser, Highland and the several Underwriters.
Very truly yours,
CNA INCOME SHARES, INC.
By:
Title:
CONTINENTAL ASSURANCE COMPANY
By:
Title:
HIGHLAND CAPITAL MANAGEMENT, L.P.
By: Strand Advisors, Inc., its general partner
By:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I hereto.
XXXXXXX XXXXX XXXXXX INC.
GRUNTAL & CO. L.L.C.
As the Representative for the Underwriters
By: XXXXXXX XXXXX XXXXXX INC.
By:
----------------------------------
SCHEDULE I
CNA Income Shares, Inc.
Underwriter Number of Shares
----------- ----------------
Xxxxxxx Xxxxx Xxxxxx Inc......................
Xxxxxxx & Co., L.L.C..........................
Total.........................................
