Exhibit 99.K5
==============================================================================
BROKER-DEALER AGREEMENT
between
THE BANK OF NEW YORK
and
XXXXXXX LYNCH, PIERCE, XXXXXX & XXXXX INCORPORATED
Dated as of ___________, 2003
Relating to
AUCTION MARKET PREFERRED STOCK
("AMPS"),
Series A, Series B, Series C, Series D and Series E
of
PREFERRED INCOME STRATEGIES FUND, INC.
==============================================================================
BROKER-DEALER AGREEMENT dated as of ____________, 2003, between THE BANK
OF NEW YORK, a New York banking corporation (the "Auction Agent") (not in its
individual capacity, but solely as agent of Preferred Income Strategies Fund,
Inc., a Maryland corporation (the "Company"), pursuant to authority granted to
it in the Auction Agent Agreement dated as of ___________, 2003, between the
Company and the Auction Agent (the "Auction Agent Agreement")), and XXXXXXX
LYNCH, PIERCE, XXXXXX & XXXXX INCORPORATED (together with its successors and
assigns, "BD").
The Company proposes to duly authorize and issue ________ shares of
Auction Market Preferred Stock, Series A ("Series A AMPS"), ____ shares of
Auction Market Preferred Stock, Series B ("Series B AMPS"), ____ shares of
Auction Market Preferred Stock, Series C ("Series C AMPS"), ___ shares of
Auction Market Preferred Stock, Series D ("Series D AMPS") and ____ shares
of Auction Market Preferred Stock, Series E ("Series E AMPS") all with a
par value of $.10 per share and a liquidation preference of $25,000 per share
plus accumulated but unpaid dividends (whether or not earned or declared),
each pursuant to the Company's Articles Supplementary (as defined below). The
Series A AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS
are sometimes referred to together herein as the "AMPS."
The Company's Articles Supplementary provide that the dividend rate on
each series of AMPS for each Dividend Period therefor after the Initial
Dividend Period shall be the Applicable Rate therefor, which in each case, in
general shall be the rate per annum that a commercial bank, trust company or
other financial institution appointed by the Company advises results from
implementation of the Auction Procedures (as defined below). The Board of
Directors of the Company has adopted a resolution appointing The Bank of New
York as Auction Agent for purposes of the Auction Procedures, and pursuant to
Section 2.5(d) of the Auction Agent Agreement, the Company has requested and
directed the Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
-------
(R) Registered trademark of Xxxxxxx Xxxxx & Co., Inc.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary of the Company.
1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles Supplementary,
as amended, of the Company, establishing the powers, preferences and rights of
the AMPS filed on _____________, 2003 with the State Department of Assessments
and Taxation of Maryland.
(b) "Auction" shall have the meaning specified in Section 2.1
hereof.
(c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Paragraph 10 of the Articles Supplementary.
(d) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Trust Officer, Assistant Secretary and
Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and
Agency Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to BD.
(e) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of this Agreement in a communication
to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.
1.3. Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
2
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. THE AUCTION.
2.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures
will be followed by the Auction Agent for the purpose of determining the
Applicable Rate for each series of AMPS, for the next Dividend Period
therefor. Each periodic operation of such procedures is hereinafter referred
to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part of this Agreement to the same extent
as if such provisions were set forth fully herein.
(c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this
Agreement. BD understands that other Persons meeting the requirements
specified in the definition of "Broker-Dealer" contained in Paragraph 1 of the
Articles Supplementary may execute a Broker-Dealer Agreement and participate
as Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for
their own accounts. However, the Company, by notice to BD and all other Broker
Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for
their own accounts, provided that Broker-Dealers may continue to submit Hold
Orders and Sell Orders.
2.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for each series of
AMPS, the Auction Agent shall advise BD by telephone of the Reference Rate and
the Maximum Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent has given the notice referred to in clause
(vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by
such means as the Auction Agent deems practicable, shall give notice of such
change to BD not later than the earlier of 9:15 A.M. on the new Auction Date
or 9:15 A.M. on the old Auction Date. Thereafter, BD promptly shall notify
customers of BD that BD believes are Beneficial Owners of shares of Series A
AMPS, Series B AMPS, Series C AMPS, Series D AMPS and Series E AMPS, as the
case may be, of such change in the Auction Date.
(c) The Auction Agent from time to time may request BD to provide it
with a list of the respective customers BD believes are Beneficial Owners of
shares of each series of
3
AMPS. BD shall comply with any such request, and the Auction Agent shall keep
confidential any such information, including information received as to the
identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Company; and such
information shall not be used by the Auction Agent or its officers, employees,
agents or representatives for any purpose other than such purposes as are
described herein. The Auction Agent shall transmit any list of customers BD
believes are Beneficial Owners of shares of each series of AMPS and
information related thereto only to its officers, employees, agents or
representatives in the Corporate Trust and Agency Group who need to know such
information for the purposes of acting in accordance with this Agreement, and
the Auction Agent shall prevent the transmission of such information to others
and shall cause its officers, employees, agents and representatives to abide
by the foregoing confidentiality restrictions; provided, however, that the
Auction Agent shall have no responsibility or liability for the actions of any
of its officers, employees, agents or representatives after they have left the
employ of the Auction Agent.
(d) The provisions contained in paragraph 2 of the Articles
Supplementary concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.
2.3. Auction Schedule; Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct Auctions for
each series of AMPS in accordance with the schedule set forth below. Such
schedule may be changed at any time by the Auction Agent with the consent of
the Company, which consent shall not be withheld unreasonably. The Auction
Agent shall give notice of any such change to BD. Such notice shall be
received prior to the first Auction Date on which any such change shall be
effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the Company and
Broker-Dealers of the Reference Rate and
the Maximum Applicable Rate as set forth in
Section 2.2(a) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker- Dealers as
provided in Paragraph 10(c)(i) of the
Articles Supplementary. Submission Deadline
is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determinations pursuant
to Paragraph 10(d)(i) of the Articles
Supplementary.
By approximately 3:00 P.M. Auction Agent advises the Company of the
results of the Auction as provided in
Paragraph 10(d)(ii) of the Articles
Supplementary.
4
Submitted Bids and Submitted Sell Orders
are accepted and rejected in whole or in
part and shares of AMPS are allocated as
provided in Paragraph 10(e) of the Articles
Supplementary.
Auction Agent gives notice of the Auction
results as set forth in Section 2.4(a)
hereof.
(b) BD agrees to maintain a list of Potential Beneficial Owners and
to contact the Potential Beneficial Owners on such list on or prior to each
Auction Date for the purposes set forth in Paragraph 10 of the Articles
Supplementary.
(c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of any series of AMPS, made through BD by an Existing Holder to another Person
other than pursuant to an Auction, and (ii) a written notice, substantially in
the form attached hereto as Exhibit D, of the failure of shares of any series
of AMPS to be transferred to or by any Person that purchased or sold shares of
any series of AMPS through BD pursuant to an Auction. The Auction Agent is not
required to accept any notice delivered pursuant to the terms of the foregoing
sentence with respect to an Auction unless it is received by the Auction Agent
by 3:00 P.M. on the Business Day next preceding the applicable Auction Date.
2.4. Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take
such other action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner or Existing Holder selling shares of any series
of AMPS in an Auction fails to deliver such shares, the BD of any Person that
was to have purchased shares of such series of AMPS in such Auction may
deliver to such Person a number of whole shares of such series of AMPS that is
less than the number of shares that otherwise was to be purchased by such
Person. In such event, the number of shares of such series of AMPS to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 2.3(d)(ii) hereof. Notwithstanding the foregoing
5
terms of this Section 2.4(b), any delivery or non-delivery of shares of any
series of AMPS which represents any departure from the results of an Auction,
as determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the terms of Section 2.3(d) hereof. The Auction Agent shall
have no duty or liability with respect to enforcement of this Section 2.4(b).
2.5. Service Charge to Be Paid to BD. On the Business Day next succeeding
each Auction Date, the Auction Agent shall pay to BD from moneys received from
the Company an amount equal to: (a) in the case of any Auction Date
immediately preceding a 7-Day Dividend Period or 28-Day Dividend Period, the
product of (i) a fraction the numerator of which is the number of days in such
Dividend Period (calculated by counting the first day of such Dividend Period
but excluding the last day thereof) and the denominator of which is 360, times
(ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of (A) the aggregate
number of AMPS placed by BD in the applicable Auction that were (x) the
subject of a Submitted Bid of a Beneficial Owner submitted by BD and continued
to be held as a result of such submission and (y) the subject of a Submitted
Bid of a Potential Beneficial Owner submitted by BD and were purchased as a
result of such submission plus (B) the aggregate number of AMPS subject to
valid Hold Orders (determined in accordance with Paragraph 10 of the Articles
Supplementary) submitted to the Auction Agent by BD plus (C) the number of
AMPS deemed to be subject to Hold Orders by Beneficial Owners pursuant to
Paragraph 10 of the Articles Supplementary that were acquired by such
Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Dividend Period, that amount as mutually
agreed upon by the Company and BD, based on the selling concession that would
be applicable to an underwriting of fixed or variable rate preferred shares
with a similar final maturity or variable rate dividend period, at the
commencement of such Special Dividend Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of any series of AMPS through BD
transfers those shares to another Person other than pursuant to an Auction,
then the Broker-Dealer for the shares so transferred shall continue to be BD,
provided, however, that if the transfer was effected by, or if the transferee
is, a Broker-Dealer other than BD, then such Broker-Dealer shall be the
Broker-Dealer for such shares.
III. THE AUCTION AGENT.
3.1. Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Company
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it, or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not
6
be liable for any error of judgment made in good faith unless the Auction
Agent shall have been negligent in ascertaining (or failing to ascertain) the
pertinent facts.
3.2. Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized by this
Agreement and any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized by this Agreement which the
Auction Agent believes in good faith to have been given by the Company or by
BD. The Auction Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.
3.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the AMPS.
IV. MISCELLANEOUS.
4.1. Termination. Any party may terminate this Agreement at any time upon
five days' prior written notice to the other party; provided, however, that if
BD is Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, neither BD nor the
Auction Agent may terminate this Agreement without first obtaining the prior
written consent of the Company to such termination, which consent shall not be
withheld unreasonably.
4.2. Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a member
of, or a participant in, the Securities Depository (or an affiliate of such a
member or participant).
(b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the AMPS available
in same-day funds on each Dividend Payment Date to customers that use BD (or
its affiliate) as Agent Member.
4.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
7
4.4. Communications. Except for (i) communications authorized to be made
by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given to such party at its address or telecopier number
set forth below:
If to BD, addressed to: Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated
World Financial Center, Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx Xxxxxxxx
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to the Auction Agent, addressed to: The Bank of New York
000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Auction Desk
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified
herein. Communications shall be given on behalf of BD by a BD Officer and on
behalf of the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
4.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
4.6. Benefits. Nothing in this Agreement, express or implied, shall give
to any person, other than the Company, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim under this Agreement.
4.7. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to
be charged.
8
(b) Failure of either party to this Agreement to exercise any right
or remedy hereunder in the event of a breach of this Agreement by the other
party shall not constitute a waiver of any such right or remedy with respect
to any subsequent breach.
4.8. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not
be assigned by either party hereto absent the prior written consent of the
other party;
provided, however, that this Agreement may be assigned by the Auction Agent to
a successor Auction Agent selected by the Company without the consent of BD.
4.9. Severability. If any clause, provision or section of this Agreement
shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.
4.10. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
4.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
made and to be performed in said State.
9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
THE BANK OF NEW YORK
-----------------------------------------
By:
Title:
XXXXXXX LYNCH, PIERCE, XXXXXX & XXXXX
INCORPORATED
-----------------------------------------
By:
Title:
10
EXHIBIT A
---------
SETTLEMENT PROCEDURES
---------------------
[From Prospectus]
EXHIBIT B
---------
THE BANK OF NEW YORK
AUCTION BID FORM
--------------------
Submit To: The Bank of New York Issue: Preferred Income Strategies Fund, Inc.
Securities Transfer Department
000 Xxxxxx Xxxxxx, 0xx Xxxxx Series: _______________________
Xxx Xxxx, Xxx Xxxx 00000 Auction Date:__________________
Attention: Auction Desk
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder:
-----------------------------
BENEFICIAL OWNER
Shares now held: HOLD
---------------------------- ---------------------
BID at rate of
--------------------
SELL
-------------------------------
POTENTIAL BENEFICIAL OWNER
# of shares bid
------------------
BID at rate of
--------------------
Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction
Bid Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid
shall be considered valid in the order of priority set forth in the
Auction Procedures on the above issue.
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must
specify a rate. If more than one Bid is submitted on behalf of any
Potential Beneficial Owner, each Bid submitted shall be a separate Bid
with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%). Fractions will not be accepted.
NAME OF BROKER-DEALER
----------------------------------
Authorized Signature
-----------------------------------
EXHIBIT C
---------
(Note: To be used only for transfers made
other than pursuant to an Auction)
TRANSFER FORM
-------------
Re: Preferred Income Strategies Fund, Inc.
Auction Market Preferred Stock(R),
Series ___ ("AMPS"(R))
We are (check one):
|_| the Existing Holder named below;
|_| the Broker-Dealer for such Existing Holder; or
|_| the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred ____________
shares of Series ___ AMPS to __________________.
-------------------------------
(Name of Existing Holder)
-------------------------------
(Name of Broker-Dealer)
-------------------------------
(Name of Agent Member)
By
-----------------------------
Printed Name:
Title:
EXHIBIT D
---------
(Note: To be used only for failures to deliver
AMPS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
------------------------------
Complete either I or II
-----------------------
I. We are a Broker-Dealer for ___________ (the "Purchaser"), which
purchased ___________ shares of Auction Market Preferred Stock(R)
("AMPS"(R)), Series _____, of Preferred Income Strategies Fund, Inc.
in the Auction held on ___________ from the seller of such shares.
II. We are a Broker-Dealer for ___________ (the "Seller"), which sold
_______ shares of AMPS, Series ____, of Preferred Income Strategies
Fund, Inc. in the Auction held on ___________ to the Purchaser of
such shares.
We hereby notify you that (check one):
____________ the Seller failed to deliver such shares to the Purchaser
____________ the Purchaser failed to make payment to the Seller upon delivery
of such shares
Name:
---------------------------------------
(Name of Broker-Dealer)
By:
----------------------------------------
Printed Name:
Title:
