EXHIBIT (K)(2)
AUCTION AGENT AGREEMENT
between
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
and
BANKERS TRUST COMPANY
Dated as of May 7, 1990
Relating to
Taxable Auction Rate Preferred Stock
of
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
THIS AUCTION AGENT AGREEMENT dated as of May 7, 1990, between PROSPECT
STREET HIGH INCOME PORTFOLIO INC., a Maryland corporation (the "Company"), and
BANKERS TRUST COMPANY, a New York banking corporation.
The Company has issued and outstanding 300 shares of Taxable Auction Rate
Preferred Stock with a liquidation preference of $100,000 per share and without
par value (all such shares and, as the context requires, any other shares of the
same class subsequently issued by the Company being referred to as the
"Preferred Shares"), pursuant to its Articles of Incorporation (as defined
below). The Company desires that Bankers Trust Company perform certain duties as
agent in connection with the Auction (as defined below) of the Preferred Shares
(the "Auction Agent") and as the transfer agent, registrar, dividend disbursing
agent and redemption agent with respect to the Preferred Shares (in any such
capacity, the "Paying Agent") upon the terms and conditions of this Agreement,
and hereby appoints Bankers Trust Company as said Auction Agent and Paying Agent
in accordance with those terms and conditions (hereinafter generally referred to
as the "Auction Agent" except in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Company and the Auction Agent agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to Articles of Incorporation.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles of Incorporation.
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) "Affiliate" shall mean any Person made known to the Auction Agent
to be controlled by, in control of or under common control with, the
Company.
(b) "Agent Member" of any Person shall mean such Person's agent member
of the Securities Depository who is identified as such in such Person's
Master Purchaser's Letter.
(c) "Articles of Incorporation" shall mean the Articles of Amendment
and Restatement of the Company, filed by the Company on November 25, 1988
in the office of the Department of Assessments and Taxation of the State of
Maryland, a copy of which is attached hereto as Exhibit B and as Exhibit A
to the Broker-Dealer Agreement, as the same may be amended from time to
time.
(d) "Auction" shall have the meaning specified in Section 2.1 hereof.
(e) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Article IV(C), paragraph 8, of the Articles of Incorporation.
(f) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, 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 hereof in a communication to the
Company.
(g) "Broker-Dealer Agreement" shall mean the agreement among the
Auction Agent, the Company and Bear Xxxxxxx & Co., Inc. (sometimes referred
to as the "Broker-Dealer") of even date herewith.
(h) "Company Officer" shall mean the President, each Vice President
(whether or not designated by a number or word or words added before or
after the title "Vice President"), the Secretary, the Treasurer, each
Assistant Secretary and each Assistant Treasurer of the Company and every
other officer or employee of the Company designated as a "Company Officer"
for purposes hereof in a notice from the Company to the Auction Agent.
(i) "DTC" shall mean The Depositary Trust Company and its successors
or assigns or any other securities depository selected by the Company.
(j) "Holder" shall mean a Person [who has signed a Master Purchaser's
Letter and] who is the beneficial owner of Preferred Shares.
(k) "Master Purchaser's Letter" shall mean a letter addressed to the
Company, the Auction Agent and the Broker-Dealer, substantially in the form
attached hereto as Exhibit C.
(l) "Securities Depository" means The Depository Trust Company and its
successors and assigns or any other securities depository selected by the
Corporation which agrees to follow the procedure required to be followed by
such securities depository in connection with the shares of Preferred
Stock; provided that, at any time that the Surety Bond is in effect, any
reference herein to the Securities Depository shall be deemed to refer to
the Surety Custodian.
(m) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit D.
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.
(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.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Articles of Incorporation provide that the Applicable Rate on the
Preferred Shares for each Dividend Period after the Initial Dividend Period
shall be the rate per annum that a commercial bank, trust company, or other
financial institution appointed by the Company advises the Company results from
implementation of the Auction Procedures. The Board of Directors of the Company
has adopted a resolution appointing Bankers Trust Company as Auction Agent for
purposes of the Auction Procedures. The Auction Agent hereby accepts such
appointment and agrees to follow the procedures set forth in this Section 2 and
the Auction Procedures for the purpose of determining the Applicable Rate. 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 hereof to the same extent as if such provisions
were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial
Owners.
(a) In the event that the Auction Date for any Auction shall be changed
after the Auction Agent shall have 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 the
Broker-Dealer 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.
(b) (i) On each Auction Date, the Auction Agent shall determine the 30-day
"AA" Composite Commercial Paper Rate and the Maximum and Minimum Applicable
Rates. If the 30-day "AA" Composite Commercial Paper Rate obtained by the
Auction Agent is quoted on a discount basis the Auction Agent shall convert such
rate to an interest rate in accordance with the definition of 30-day "AA"
Composite Commercial Paper Rate set forth in the Articles of Incorporation, or
if the rate obtained by the Auction Agent is quoted on another basis the Auction
Agent shall convert the quoted rate to an interest rate after consultation with
the Company as to the method of such conversion. Not later than 9:30 A.M. on
each Auction Date the Auction Agent shall notify the Company and the
Broker-Dealer of the 30-day "AA" Composite Commercial Paper Rate so determined
and the Maximum and Minimum Applicable Rates.
(ii) If the 30-day "AA" Composite Commercial Paper Rate is to be based on
rates supplied by Commercial Paper Dealers and one or more of the Commercial
Paper Dealers shall not provide a quotation for the determination of the 30-day
"AA" Composite Commercial Paper Rate, the Auction Agent shall immediately notify
the Company so that the Company can determine whether to select an alternative
Commercial Paper Dealer to provide the quotation or quotations not being
supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The Company
shall promptly advise the Auction Agent of any such determination.
(c) (i) The Auction Agent shall maintain a current registry of the
beneficial owners of the Preferred Shares who shall constitute the Existing
Holders for purposes of an Auction. The Company shall cause Bear, Xxxxxxx & Co.
Inc. to provide the Auction Agent on the Business Day following the date hereof
with a list of the initial Existing Holders of Preferred Shares. The Auction
Agent may rely upon, as evidence of the identities of the Existing Holders, such
list, the results of each Auction and notices from any Existing Holder, the
Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder
with respect to such Existing Holder's transfer of Preferred Shares to another
Person.
(ii) In the event of any partial redemption of Preferred Shares, upon
notice by the Company to the Auction Agent of such partial redemption, the
Auction Agent shall promptly request DTC to notify the Auction Agent of the
Agent Members whose shares have been called for redemption and the person or
department at such Agent Member to contact regarding such redemption and, at
least two Business Days prior to the next Auction, the Auction Agent shall
request each such Agent member to disclose to the Auction Agent (upon selection
by such Agent Member of the Existing Holders whose Preferred Shares are to be
redeemed) the number of Preferred Shares of each such Existing Holder, if any,
to be redeemed by the Company; provided that the Auction Agent has been
furnished with the name and telephone number of a person or department at such
Agent Member from which it is to request such information. If necessary to
procure such information, the Auction Agent shall deliver to each Agent Member a
facsimile copy of the Master Purchaser's Letter of each Existing Holder
represented by such Agent Member, which authorizes and instructs such Agent
Member to release such information to the Auction Agent. In the absence of
receiving any such information with respect to an Existing Holder, from such
Existing Holder's Agent Member or otherwise, the Auction Agent may continue to
treat such Existing Holder as the beneficial owner of the number of Preferred
Shares shown in the Auction Agent's registry of beneficial owners.
(iii) The Auction Agent shall only register a transfer of the beneficial
ownership of Preferred Shares from an Existing Holder to another Person if such
transfer is made to a Person that has delivered a signed Master Purchaser's
Letter to the Auction Agent and (A) such transfer is pursuant to an Auction or
(B) if such transfer is made other than pursuant to an Auction, the Auction
Agent has been notified in writing in a notice substantially in the form of
Exhibit D to the Broker-Dealer Agreement, by such Existing Holder, the Agent
Member of such Existing Holder, or the Broker-Dealer of such Existing Holder of
such transfer. The Auction Agent is not required to accept any notice delivered
for 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. The Auction Agent shall
rescind a transfer made on the registry of the beneficial owners of the
Preferred Shares if the Auction Agent has been notified in writing in a notice
substantially in the form of Exhibit E to the Broker-Dealer Agreement by the
Agent Member or the Broker-Dealer of any Person that (A) purchased Preferred
Shares and the seller failed to deliver such Preferred Shares or (B) sold
Preferred Shares and the purchaser failed to make payment to such Person upon
delivery to the purchaser of such Preferred Shares.
(d) The Auction Agent may request that the Broker-Dealer, as set forth in
Section 2.2(c) of the Broker-Dealer Agreement, provide the Auction Agent with a
list of its respective customers that the Broker-Dealer believes are Existing
Holders of Preferred Shares. Such list shall be provided to the Company by the
Auction Agent upon written request. The Auction Agent shall keep confidential
any such information 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 the list of customers that Broker-Dealer believes are Existing
Holders of Preferred Shares 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 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.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the schedule
set forth below. Such schedule may be changed by the Auction Agent with the
consent of the Company, which consent shall not be unreasonably withheld. The
Auction Agent shall give notice of any such change to the Broker-Dealer. 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-Dealer of
30-day "AA" Composite Commercial Paper Rate and the
Maximum and Minimum Applicable Rates as set forth in
Section 2.2(c)(i) hereof.
9:30 A.M. - 12:30 P.M. Auction Agent assembles information communicated to it
by Broker-Dealer as provided in Article IV(C),
paragraph 8(c) of the Articles of Incorporation.
Submission Deadline is 12:30 P.M.
Not earlier than Auction Agent makes determination pursuant to Article
12:30 P.M. IV(C), paragraph 8(d)(i) of the Articles of
Incorporation.
By approximately Auction Agent advises Company of results of Auction as
3:00 P.M. provided in Article IV(C), paragraph 8(d)(ii) of the
Articles of Incorporation. Submitted bids and Sub
mitted Sell Orders are accepted and rejected in whole
or in part and Preferred Shares allocated as provided
in Article IV(C), paragraph 8(e) of the Articles of
Incorporation
Auction Agent gives notice of Auction results as set
forth in Section 2.4 hereof.
2.4 Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealer of the
results of the Auction held on such date by telephone as set forth in paragraph
(a) of the Settlement Procedures.
2.5 Broker-Dealers.
(a) The Auction Agent hereby confirms that it has been directed by the
Company to terminate all agreements with broker-dealers (other than the
Broker-Dealer Agreement with Bear, Xxxxxxx & Co. Inc.) entered into by the
Auction Agent prior to the date hereof and the Auction Agent further confirms
that it has terminated all such agreements with such broker-dealers pursuant to
the terms thereof.
(b) The Company shall not designate any Person to act as an Additional
Broker-Dealer without the prior written approval of each of Bear, Xxxxxxx & Co.
Inc. and the Auction Agent.
(c) The Auction Agent shall terminate the Broker-Dealer Agreement as set
forth in Section 5.1 thereof if so directed by the Company and if the Company
certifies to the Auction Agent that the provisions of Section 5.1 of the
Broker-Dealer Agreement have been satisfied.
(d) Subject to Section 2.5(b) hereof, the Auction Agent shall from time to
time enter into such agreements with Additional Broker-Dealers as the Company
shall request.
(e) The Company agrees to pay to the Auction Agent the amounts set forth in
Section 2.5(b) of the Broker-Dealer Agreement at such times and in such manner
as required by Section 2.5(b) of the Broker-Dealer Agreement and hereby directs
the Auction Agent to pay such amount to the Broker-Dealer in such manner as is
required by Section 2.5(b) of the Broker-Dealer Agreement.
2.6 Ownership of Preferred Shares and Submission of Bids by Company
and Affiliates.
Neither the Company nor any of its Affiliates may submit any Sell Order or
Bid, directly or indirectly, in any Auction. The Company shall notify the
Auction Agent if the Company or any of its respective Affiliates becomes an
Existing Holder of any Preferred Shares. The Auction Agent shall have no duty or
liability with respect to enforcement of this Section 2.6.
2.7 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Company and any of its respective
Affiliates and their agents, independent public accountants and counsel access
at reasonable times during normal business hours to review and make extracts or
copies (at the Company's sole cost and expense) of all books, records, documents
and other information concerning the conduct and results of Auctions, provided
that any such Affiliate's agent, accountant, or counsel shall furnish the
Auction Agent with a letter from the Company requesting that the Auction Agent
afford such person access. The Auction Agent shall maintain records relating to
any Auction for a period of two years after such Auction (unless requested by
the Company to maintain such records for such longer period not in excess of
four years, then for such longer period), and such records shall, in reasonable
detail, accurately and fairly reflect the actions taken by the Auction Agent
hereunder.
3. The Auction Agent as Payinq Agent.
3.1 Paying Agent.
The Board of Directors of the Company has adopted a resolution appointing
the Paying Agent, Bankers Trust Company, as transfer agent, registrar, dividend
disbursing agent and redemption agent for the Company in connection with the
Preferred Shares. The Paying Agent hereby accepts such appointment and agrees to
act in accordance with its standard procedures and the provisions of the
Articles of Incorporation which are specified herein as Paying Agent with
respect to the Preferred Shares and as set forth in this Section 3.
3.2 The Company's Notices to Paying Agent.
Whenever Preferred Shares are to be redeemed pursuant to paragraph 5(a) or
clause (i)(B) of paragraph 5(b) of Article IV(C) of the Articles of
Incorporation, the Company shall deliver to the Paying Agent the Notice of
Redemption in the form to be delivered to Holders not later than five days prior
to the date such Notice of Redemption is delivered to the Holders. In the case
of a Mandatory Redemption pursuant to clause (i)(A) of paragraph 5(b) of Article
IV(C) of the Articles of Incorporation, the Company shall deliver to the Paying
Agent the Notice of Redemption that will be delivered to Holders not later than
the close of business on the second Business Day following the related Cure
Date. In the event of a Mandatory Redemption pursuant to clause (ii) of
paragraph 5(b) of Article IV(c) of the Articles of Incorporation the Company
shall deliver to the Paying Agent the Notice of Redemption that will be
delivered to the Holders not later than the close of business on the second
business day following the related Cure Date. The Notice of Redemption shall be
substantially in the form attached hereto as Exhibit D. The Paying Agent shall
have no responsibility to confirm or verify the accuracy of notices of the
Company so delivered.
3.3 Company to Provide Funds for Dividends and Redemptions.
(a) Not later than noon, on the Business Day immediately preceding each
Dividend Payment Date, the Company shall deposit with the Paying Agent cash or
Deposit Securities constituting immediately available funds equal to the
declared dividends to be paid to Holders on such Dividend Payment Date and shall
give the Paying Agent irrevocable instructions to apply such funds and/or the
income and proceeds of such funds to the payment of such dividends on such
Dividend Payment Date.
(b) If the Company shall give the Notice of Redemption as prescribed by
Article IV(C), paragraph 5(a) or 5(b) of the Articles of Incorporation, then, by
noon of the Business Day immediately preceding the date fixed for redemption,
the Company shall deposit with the Paying Agent cash or Deposit Securities
consisting of immediately available funds sufficient to redeem the Preferred
Shares to be redeemed and eligible for redemption and shall give the Paying
Agent irrevocable instructions and authority to pay the redemption price to the
Holders of such Preferred Shares upon surrender of the certificates therefor.
(c) The Company may direct, in writing or orally with such direction
promptly confirmed in writing, the Paying Agent to invest the funds so deposited
pursuant to paragraphs (a) or (b) of this Section 3.3 in Deposit Securities
which mature on or before the opening of business on such Dividend Payment Date
or the date fixed for redemption, as the case may be, provided that the proceeds
of such investments will be available at the opening of business on the Dividend
Payment Date or the date fixed for redemption, as the case may be. The
investments made pursuant to the foregoing sentence are solely for the account
and at the risk of the Company, and the Paying Agent shall not be liable or
responsible for any loss, in whole or in part, resulting from such investments.
Upon the request of the Company the Paying Agent shall promptly transmit any
interest received on such investments to the Company.
3.4 Disbursing Dividend and Redemption Price.
After receipt of the immediately available funds and instructions from the
Company described in Sections 3.3(a) and (b) above, the Paying Agent shall pay
to the Holders (i) on each Dividend Payment Date, dividends on the Preferred
Shares and (ii) on any date fixed for redemption, the redemption price of any
Preferred Shares subject to redemption. The amount of dividends for any Dividend
Period to be paid by the Paying Agent to the Holders will be determined by the
Company as set forth in Article IV(C), paragraph 3(c) of the Articles of
Incorporation. The redemption price to be paid by the Paying Agent to the
Holders will be determined as set forth in Article IV(C), paragraph 5(a) or
paragraph 5(b), as applicable, of the Articles of Incorporation. The Company
shall notify the Paying Agent in writing of a decision to redeem Preferred
Shares on the dates specified in Section 3.2 above, and such notice by the
Company to the Paying Agent shall contain the information required to be stated
in the Notice of Redemption required to be delivered by the Company to such
Holders, as provided in Section 3.2 above. The Paying Agent shall have no duty
to determine the Redemption Price and may rely on the amount thereof set forth
in the Notice of Redemption.
3.5 Notice of Special Meeting of Holders of Preferred Shares.
With respect to the Preferred Shares, pursuant to Article IV(C), paragraph
6 of the Articles of Incorporation, during any period commencing with the
occurrence of certain conditions (the "Voting Period"), the number of directors
constituting the Board of Directors of the Company shall be automatically
increased by the smallest number that shall enable the Holders to elect a
majority of the Board of Directors as so increased and the Holders shall possess
the full voting power (to the exclusion of the holders of all other classes of
capital stock of the Company), voting as a class and on a one-vote-per-share
basis, to elect the smallest number of directors of the Company which, together
with any other incumbent directors of the Company theretofore elected by the
Holders, shall constitute a majority of the total number of directors of the
Company as so increased. If any of such conditions exists, the Paying Agent
will, upon receipt from the Company of a Notice of Special Meeting of Holders,
in substantially the form set forth in Exhibit E hereto with insertions
completed by the Company ("Notice"), mail such Notice to all Holders who were
holders of record at the close of business on the fifth Business Day prior to
the date of mailing of the Notice. The delivery by the Company of a Notice to
the Paying Agent shall be deemed a representation and warranty by the Company
that at least one of such conditions exists.
The Company shall provide a temporary chairman for any Special Meeting and
the Paying Agent shall have no obligations in connection with such meeting,
except with respect to the mailing of the Notice, pursuant to this Agreement.
4. The Paying Agent as Transfer Agent and Registrar.
4.1 Original Issue of Stock Certificate.
On the Original Issuance Date, one certificate for all of the Preferred
Shares was issued by the Company and registered in the name of Bankers Trust
Company, as Surety Custodian, and countersigned by the Paying Agent.
4.2 Registration of Transfer or Exchange of Preferred Shares.
Except as provided in this Section, the Preferred Shares shall be
registered solely in the name of the Securities Depository or its nominee. If
the Securities Depository shall give notice of its intention to resign as such,
and if the Company shall not have selected a substitute Securities Depository
acceptable to the Paying Agent prior to such resignation, then upon such
resignation, the Preferred Shares shall be registered for transfer or exchange,
and new certificates shall be issued in the name of the designated transferee or
transferees, upon surrender of the old certificates in form deemed by the Paying
Agent properly endorsed for transfer with (a) all necessary endorsers'
signatures guaranteed in such manner and form as the Paying Agent may require by
a guarantee reasonably believed by the Paying Agent to be responsible, (b) such
assurances as the Paying Agent shall deem necessary or appropriate to evidence
the genuineness and effectiveness of each necessary endorsement and (c)
satisfactory evidence of compliance with all applicable law relating to the
collection of taxes or funds necessary for the payment of such taxes.
4.3 Removal of Legend.
All requests for removal of legends indicating restrictions on transfer
from certificates evidencing Preferred Shares shall be accompanied by an opinion
of counsel stating that such legends may be removed and such Preferred Shares
freely transferred, said opinion to be delivered under cover of a letter from a
Company Officer authorizing the Paying Agent to remove the legend on the basis
of said opinion.
4.4 Lost Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Company
and the Paying Agent, subject at all times to provisions of law, the By-Laws of
the Company governing such matters and resolutions adopted by the Company with
respect to lost securities. The Paying Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request by
the Company to the Paying Agent to issue a replacement or new certificate
pursuant to this Section 4.4 shall be deemed to be a representation and warranty
by the Company to the Paying Agent that such issuance will comply with such
provisions of applicable law and the By-Laws and resolutions of the Company.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Paying Agent shall retain certificates which have been cancelled in
transfer or in exchange and accompanying documentation in accordance with
applicable rules and regulations of the Securities and Exchange Commission for
two calendar years from the date of such cancellation. The Paying Agent shall
afford to the Company and its agents and counsel access at reasonable times
during normal business hours to review and make extracts or copies (at the
Company's sole cost and expense) of such certificates and accompanying
documentation. Upon the expiration of this two-year period, the Paying Agent
shall deliver to the Company the cancelled certificates and accompanying
documentation. The Company shall, at its expense, retain such records for a
minimum additional period of four calendar years from the date of delivery of
records to the Company and shall make such records available during this period
at any time, or from time to time, for reasonable periodic, special, or other
examinations by representatives of the Securities and Exchange Commission. The
Company shall also undertake to furnish to the Securities and Exchange
Commission, upon demand, at either the principal office or at any regional
office, complete, correct and current hard copies of any and all such records.
Thereafter such records shall not be destroyed by the Company without the
approval of the Paying Agent, which shall not be unreasonably withheld, but will
be safely stored for possible future reference.
4.6 Stock Register.
The Paying Agent shall maintain the Stock Books, which shall contain a list
of the Holders, the number of Preferred Shares beneficially owned by each Holder
and the address of each Holder. The Paying Agent shall record in the Stock Books
any change of address of a Holder upon notice by such Holder. In case of any
request or demand for the inspection of the Stock Books or any other books of
the Company in the possession of the Paying Agent, the Paying Agent will notify
the Company and secure instructions as to permitting or refusing such
inspection. The Paying Agent reserves the right, however, to exhibit the Stock
Books or other records to any person in case it is advised by its counsel that
its failure to do so would (a) be unlawful or (b) expose it to liability, unless
the Company shall have offered indemnification satisfactory to the Paying Agent.
4.7 Return of Funds.
Any funds deposited with the Paying Agent by the Company for any reason
under this Agreement, including for the payment of dividends on or the
redemption of Preferred Shares, that remain with the Paying Agent after 35
months shall be repaid to the Company upon the written request of the Company.
5. Representations and Warranties.
(a) The Company represents and warrants to the Auction Agent that:
(i) the Company is a duly incorporated and validly existing
corporation in good standing under the laws of the State of Maryland and
has full power to execute and deliver this Agreement and to authorize,
create and issue the Preferred Shares;
(ii) this Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, subject as to such enforceability to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equitable principles;
(iii) the form of the certificate evidencing the Preferred Shares
complies with all applicable laws of the State of Maryland;
(iv) the Preferred Shares have been duly and validly authorized,
executed and delivered by the Company and are validly issued, fully paid
and nonassessable;
(v) the Preferred Shares have been registered under the Securities Act
of 1933, as amended, and no further action by or before any governmental
body or authority of the United States or of any state thereof is required
in connection with the execution and delivery of this Agreement or the
issuance of the Preferred Shares except as required by applicable state
securities laws, all of which have been taken and are in full force and
effect on the date hereof;
(vi) the execution and delivery of this Agreement and the issuance and
delivery of the Preferred Shares do not and will not conflict with,
violate, or result in a breach of, the terms, conditions or provisions of,
or constitute a default under, the Articles of Incorporation or the By-Laws
of the Company, any law or regulation applicable to the Company, any order
or decree of any court or public authority having jurisdiction over the
Company, or any mortgage, indenture, contract, agreement or undertaking to
which the Company is a party or by which it is bound; and
(vii) no taxes are payable upon or in respect of the execution of this
Agreement or the issuance of the Preferred Shares.
(b) The Auction Agent represents and warrants to the Company that the
Auction Agent is duly organized and is validly existing as a bank and trust
company in good standing under the laws of the State of New York and has the
corporate power to enter into and perform its obligations under this Agreement.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Company hereunder
and owes no fiduciary duties to any Person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth 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 or for any
error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not 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.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document reasonably believed by
it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized hereby which the Auction Agent believes in
good faith to have been given by the Company or by the Broker-Dealer. The
Auction Agent may record telephone communications with the Company or with the
Broker-Dealer or both.
(b) The Auction Agent may consult with counsel of its 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.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or adequacy of
this Agreement, the Broker-Dealer Agreement or the Preferred Shares.
6.4 Compensation, Expenses and Indemnification.
(a) The Company shall pay the Auction Agent from time to time reasonable
compensation for all services rendered by it under this Agreement and the
Broker-Dealer Agreement.
(b) The Company shall reimburse the Auction Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Auction
Agent in accordance with any provision of this Agreement and the Broker-Dealer
Agreement (including the reasonable compensation, expenses and disbursements of
its agents and counsel), except any expense, disbursement and advances
attributable to its gross negligence or bad faith.
(c) The Company shall indemnify the Auction Agent for and hold it harmless
against any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with its agency under this
Agreement and the Broker-Dealer Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with its exercise
or performance of any of its duties hereunder and thereunder, except such as may
result from its negligence or bad faith.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be terminated
as provided in this Section 7.1. The Company may terminate this Agreement at any
time by so notifying the Auction Agent, provided that the Company has entered
into an Agreement in substantially the form of this Agreement with a successor
auction agent. The Auction Agent may terminate this Agreement upon prior notice
to the Company on the date specified in such notice, which shall be no earlier
than the Business Day after the second Dividend Payment Date after delivery of
such notice. If the Auction Agent resigns, the Company shall use its best
efforts to enter into an agreement with a successor auction agent containing
substantially the same terms and conditions as this Agreement.
(b) Except as otherwise provided in this paragraph 7.1(b), the respective
rights and duties of the Company and the Auction Agent under this Agreement
shall cease upon termination of this Agreement. The Company's representations,
warranties, covenants and obligations to the Auction Agent under Sections 5 and
6.4 hereof shall survive the termination hereof. Upon termination of this
Agreement, the Auction Agent shall (i) resign as Auction Agent under the
Broker-Dealer Agreement, (ii) at the Company's request, promptly deliver to the
Company copies of all books and records maintained by it in connection with its
duties hereunder, and (iii) at the request of the Company, promptly transfer to
the Company or any successor auction agent any funds deposited by the Company
with the Auction Agent (whether in its capacity as Auction Agent or Paying
Agent) pursuant to this Agreement which have not previously been distributed by
the Auction Agent in accordance with this Agreement.
7.2 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 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) given to
such party at its address or telecopy number set forth below:
If to the Company, addressed: Prospect Street High Income Portfolio Inc.
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: President
Telephone No.: (000) 000-0000
If to the Auction Agent, addressed: Bankers Trust Company
0 Xxxxxx Xxxxxx
Corporate Trust and Agency Group
Xxx Xxxx, Xxx Xxxx 00000
Attention: Auction Rate/Remarketed
Securities
Telecopier No.: (000) 000-0000 or
250-6215
Telephone No.: (000) 000-0000
or such other address or telecopy number as such party may hereafter 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 the Company by a Company Officer and
on behalf of the Auction Agent by an Authorized Officer.
7.3 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 except for agreements
relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other than
the Company, the Auction Agent and their respective successors and assigns, any
benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged. The Company shall notify the Auction Agent of any change in the
Articles of Incorporation prior to the effective date of any such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
7.6 Successor 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 the
Company and the Auction Agent. This Agreement may not be assigned by either
party hereto absent the prior written consent of the other party, which consent
shall not be unreasonably withheld.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the validity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 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.
7.9 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
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.
PROSPECT STREET HIGH INCOME
By: /s/ Xxxx X. Xxxxxxxx
----------------------------------
Title: Vice President
BANKERS TRUST COMPANY,
As Auction Agent
By: /s/ Illegible
----------------------------------
Title: Assistant Secretary
EXHIBIT (B)
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PROSPECT STREET HIGH INCOME PORTFOLIO INC.
Prospect Street High Income Portfolio Inc. (hereinafter referred to as the
"Corporation"), a Maryland corporation having its principal office in the State
of Maryland c/o C-T Corporation System, Maryland, 00 Xxxxx Xxxxx Xxxxxx,
Xxxxxxxxx, Xxxxxxxx 00000 hereby certifies to the State Department of
Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Corporation desires to amend and restate its Charter as
currently in effect as hereinafter provided. The provisions set forth in these
Articles of Amendment and Restatement are all of the provisions of the Charter
of the Corporation (the "Charter") as in effect as of this 25th day of November
1988 (the "Restatement Date").
SECOND: The Charter of the Corporation is hereby amended and restated by
striking in their entirety Articles I through VIII inclusive, and by
substituting in lieu thereof the following:
ARTICLE I
NAME
The name of the Corporation is PROSPECT STREET HIGH INCOME PORTFOLIO INC.
ARTICLE II
PURPOSES AND POWERS
The Corporation is formed for the following purposes:
(1) To conduct and carry on the business of an investment company;
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash;
(3) To issue and sell shares of its capital stock and other securities in
such amounts and on such terms and conditions and for such purposes and for such
amount or kind of consideration as may now or hereafter be permitted by law; and
(4) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
Maryland General Corporation Law now or hereafter in force, and the enumeration
of the foregoing shall not be deemed to exclude any powers, rights or privileges
so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o THE CORPORATION TRUST INCORPORATED, 00 Xxxxx Xxxxxx,
Xxxxxxxxx, Xxxxxxxx 00000. The name of the resident agent of the Corporation in
the State of Maryland is THE CORPORATION TRUST INCORPORATED, a corporation of
this state, and the post office address of the resident agent is 00 Xxxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000.
ARTICLE IV
CAPITAL STOCK
(A) CAPITAL STOCK
1. Class and Amount Authorized
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is one hundred million, one thousand
(100,001,000) shares, of which one hundred million (100,000,000) shares shall be
Common Stock, $.01 par value per share, and one thousand (1000) shares shall be
Taxable Auction Rate Preferred Stock, no par value per share, liquidation
preference $100,000 per share (the "Preferred Stock").
2. No Preemptive Rights
No holder of any shares of any class of stock or any other securities of
the Corporation, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any shares of any class of stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or prices and
upon such other terms as the Board of Directors, in its sole discretion, may
fix; and any shares of any class of stock or other securities which the Board of
Directors may determine to offer for subscription may, as the Board of Directors
in its sole discretion shall determine, be offered to the holders of any class,
series or type of stock or other securities at the time outstanding to the
exclusion of the holders of any or all other classes, series or types of stock
or other securities at the time outstanding.
(B) COMMON STOCK
The preferences, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption in respect of the Common
Stock are as follows:
1. Ranking
The Common Stock shall rank junior to the Preferred Stock with respect to
payment of dividends (other than dividends in Common Stock) and distributions on
liquidation or dissolution and shall have such other qualifications, limitations
or restrictions as provided in the Charter.
2. Dividends
After all accumulated and unpaid dividends upon all outstanding shares of
the Preferred Stock for all past Dividend Periods (as defined below) have been
or are contemporaneously paid in full (or declared and sufficient Deposit
Securities (as defined below) have been set apart for their payment), then and
not otherwise, and subject to any other applicable provisions of the Charter, to
the extent there are funds legally available therefor, dividends or other
distributions may be declared upon and paid to the holders of shares of the
Common Stock, to the exclusion of the holders of shares of the Preferred Stock.
3. Liquidation Rights
In the event of the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, after payment in full of the
amounts required to be paid to the holders of the Preferred Stock as provided
for in the Charter, the holders of shares of the Common Stock shall be entitled,
to the exclusion of the holders of shares of the Preferred Stock, to share
ratably in all remaining assets of the Corporation.
4. Voting Rights
Each holder of Common Stock shall be entitled to one vote for each such
whole share (and a proportional vote for each fractional share) on each matter
on which the holders of shares of the Common Stock shall be entitled to vote.
Except as otherwise provided in the Charter, the holders of shares of Common
Stock and the holders of shares of Preferred Stock shall vote as a single class
on all matters coming before the stockholders.
5. Redemption
The Corporation may redeem or repurchase shares of Common Stock to the
extent now or hereafter permitted by the General laws of the State of Maryland,
by the Investment Company Act (as defined below) and by the Charter.
(C) PREFERRED STOCK
The preferences, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption in respect of the
Preferred Stock are as follows:
1. Designation
The designation of the Preferred Stock shall be "Taxable Auction Rate
Preferred Stock." Except as otherwise provided herein, each share of Preferred
Stock shall be identical and equal in all respects to every other share of
Preferred Stock.
2. Definitions
Capitalized terms not defined in this paragraph 2 shall have the respective
meanings specified in paragraph 8(a) of this Article IV(C). Unless the context
or use indicates another or different meaning, the following terms shall have
the following meanings, whether used in the singular or plural:
"Applicable Rate" has the meaning specified in paragraph 3(c)(i) below.
"Auction" means each operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Company or its successor or any other
auction agent appointed by the Corporation to perform the functions performed by
the Auction Agent.
"Auction Agent Agreement" has the meaning specified in paragraph 3(c)(i)
below.
"Auction Procedures" means the procedures for conducting Auctions set forth
in paragraph 8 below.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York, New
York, or the City of Boston, Massachusetts are authorized or obligated by law or
executive order to close.
"Cash" means such coin or currency of the United States as at the time
shall be legal tender for payment of public and private debts.
"Conventional Mortgage Pass-Through Certificates" means an instrument
issued in bearer or registered form, that is one of a class or series or by its
terms is divisible into a class or series, and that is of a type commonly dealt
in upon securities exchanges or markets or commonly recognized in any area in
which it is issued or dealt in as a medium for investment, evidencing (directly
or indirectly) a proportional undivided interest in specified pools of whole
mortgage loans that are secured by a valid first lien on each Mortgagor's fee or
leasehold interest in related mortgaged property (except for Permitted Tax Liens
and other matters to which like properties are commonly subject which neither
individually nor in the aggregate materially interfere with the benefits of the
security intended to be provided by such mortgages or deeds of trust, and
standard exceptions and exclusions in title insurance policies) on one-to
four-unit residences (including, without limitation, owner-occupied attached or
detached single-unit residences, -two- to four-unit primary residences,
condominiums, second/vacation homes and non-owner occupied residences) and with
respect to which the Required Documentation is required to be held by a trustee
or independent custodian, which mortgage loans are serviced pursuant to
servicing agreements with servicers that have either expressed the intention to
advance funds to meet deficiencies (to the extent such servicers reasonably
believe such advances are recoverable) or provided for alternative credit
enhancement in lieu thereof, and which instruments (a) have been rated "AA/Aa"
or better by the Rating Agencies or (b) do not qualify pursuant to clause (a)
above, but the inclusion of which as Eligible Portfolio Property is permitted
pursuant to the investment guidelines agreed upon by the Corporation and the
Rating Agency, provided, that a Conventional Mortgage Pass-Through Certificate
shall be eligible for inclusion in the Eligible Portfolio Property as of any
Valuation Date only if it continues to satisfy as of such Valuation Date the
requirements of at least one of clauses (a) or (b) above as the Corporation may
confirm verbally or in writing, directly or indirectly, or by reference to a
publication of the Rating Agencies, by confirmation from a nationally recognized
securities dealer having a minimum capitalization of $25 million or by such
other means as the Financial Security shall approve. The Auction Agent shall be
entitled to rely on the representations of the Corporation contained in the
Portfolio Valuation Report with respect to any Valuation Date, that as of such
Valuation Date the Corporation has confirmed that the Conventional Mortgage
Pass-Through Certificates included in the Eligible Portfolio Property are
within the scope of this paragraph.
"Corporate Debt Obligations" means debt obligations (other than Short-Term
Money Market Instruments or U.S. Government Obligations) rated from "CCC" or
higher by S&P or "Caa" or higher by Moody's (or rated as provided below in the
case of commercial paper), which corporate debt obligations (a) provide for the
periodic payment of interest thereon in cash, (b) do not provide for conversion
or exchange into equity capital at any time over their respective lives, (c)
have been registered under the Securities Act of 1933, as amended (such
requirement shall not apply with respect to commercial paper), and (d) have not
had notice given in respect thereof that any such corporate debt obligations are
the subject of an offer by the issuer thereof of exchange or tender for cash,
securities or any other type of consideration (except that corporate debt
obligations in an amount not exceeding 10% of the aggregate value of the
Corporation's assets at any time shall not be subject to the provisions of this
clause (d)). In addition, so long as the securities are rated by S&P or Moody's,
no corporate debt obligation held by the Corporation shall be deemed a Corporate
Debt Obligation (i) if it fails to meet the criteria in column (l) below or (ii)
to the extent (and only to the proportionate extent) the acquisition or holding
thereof by the Corporation causes the Corporation to exceed any applicable
limitation set forth in column (2) or (3) below as of any relevant date of
determination (provided that in the event that the Corporation shall exceed any
such limitation or any other percentage limitation set forth in this definition
of Corporate Debt Obligations, the Corporation shall designate, in its sole
discretion, the particular Corporate Debt Obligation(s) and/or portions thereof
which shall be deemed to have caused the Corporation to exceed such limitation):
Column 1 Column 2 Column 3
-------- -------- --------
Maximum Percent
Maximum Percent of Market Value
of Market Value of Eligible Port-
of Eligible Port- folio Property
Minimum Original folio Property Invested in any
Rating Agencies' Issue Size of Invested in any One Industry
Ratings (l) Each Issue One Issuer (2) Category (2)
------------------ ---------------- ----------------- -----------------
($ in millions)
"AAA"/"Aaa"., ...................... $100 10.0% 50.0%
"AA"/"Aa" .......................... 100 10.0 33.3
"A"/"A" ............................ 100 10.0 33.3
"BBB"/"Baa" ........................ 100 5.0 20.0
"BB"/"Ba" .......................... 100(3) 4.0 12.0
"B"/"B1", "B2" and "B3"
(subordinated) ................... 100(3) 3.0 8.0
"CCC"/"B3" (senior) and "Caa"
(unsecured subordinated) (4)...... 100(3) 2.0 5.0
"A-l+"/"P-1" (5).................... N/A 10.0 N/A
"A-l"/"P-l""(5)..................... N/A 10.0 33.3
"A-2"/"P-2" (5)..................... N/A 5.0 20.0
----------
(1) References to ratings by the Rating Agencies in this definition and
throughout the Charter will indicate the S&P rating followed by the
Xxxxx'x rating in the format shown. Rating designations include (+) or
(-) modifiers to the S&P rating where appropriate and (1), (2) or (3)
modifiers to the Xxxxx'x rating where appropriate, except that
corporate debt obligations rated "CCC-" will not constitute Corporate
Debt Obligations. In the event that a Corporate Debt Obligation has
received a different rating from S&P than from Moody's, the
restrictions relating to the lower rating will apply.
(2) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category, except that
the calculations with respect to commercial paper investments
constituting Corporate Debt Obligations shall be made separately and
independently of, but on the same basis as, the cumulative total
guidelines applicable to other types of Corporate Debt Obligations.
(3) 20% of the aggregate Market Value of all Corporate Debt Obligations in
these rating categories may be from issues with an original issue size
greater than or equal to $50 million and less than $100 million,
(4) Corporate Debt Obligations in this rating category that are rated by
S&P must be subordinated debt of the issuer with an implied senior
debt rating by S&P of "B-" or higher. The aggregate Market Value of
Corporate Debt Obligations in this rating category in excess of 20% of
the aggregate Market Value of the Fund's assets will not be included
in the calculation of Preferred Stock Basic Maintenance Amount.
(5) Represents commercial paper investments.
In addition, the term "Corporate Debt Obligations" shall include debt
obligations satisfying such other criteria established by the Rating Agencies in
their sole discretion and designated in writing to the Corporation.
"Cure Date" means the eighth Business Day following a Valuation Date, such
date being the last day upon which the Corporation's failure to fulfill its
obligations, if any, pursuant to paragraph 7 below could be cured.
"Deposit Securities" means Cash, U.S. Government Obligations and Short-Term
Money Market Instruments; provided that at any time as of which the Surety Bond
is in effect the term "Deposit Securities" shall have the meaning provided in
the Insurance Agreement. Except for purposes of determining compliance with the
Preferred Stock Basic Maintenance Amount requirement contained in paragraph
7(a), each Deposit Security shall be deemed to have a value equal to its
principal or face amount payable at maturity plus interest payable thereon after
the delivery of such Deposit Security but only if payable on or prior to the
applicable payment date in advance of which the relevant deposit is made.
"Discount Factor Supplied By Moody's" means, for any asset held by the
Corporation, (i) the number set forth opposite such type of asset in the
following table or (ii) such other number established by Moody's in its sole
discretion and designated in writing to the Corporation (it being understood
that any asset held by the Corporation and not listed in the following table or
in such written notice shall have a Discounted Value of zero):
Discount Factor
---------------
Type I Corporate Bonds having a remaining
term to maturity of one year or less: 1.13
Type I Corporate Bonds having a remaining term to maturity
of more than one year but not more than two years: 1.20
Type I Corporate Bonds having a remaining term to maturity
of more than two years but not more than three years: 1.25
Type I Corporate Bonds having a remaining term to maturity
of more than three years but not more than four years: 1.32
Type I Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 1.37
Type I Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: 1.47
Type I Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: 1.55
Type I Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 1.61
Type I Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 1.68
Type I Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 1.70
Type II Corporate Bonds having a remaining term to maturity of
one year or less: 1.19
Type II Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: 1.26
Type II Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: 1.31
Type II Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: 1.38
Type II Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 1.44
Type II Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than seven years: 1.54
Type II Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: 1.62
Type II Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 1.69
Type II Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 1.76
Type II Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 1.78
Type III Corporate Bonds having a remaining term to maturity of
one year or less: 1.24
Type III Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: 1.32
Type III Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: 1.37
Type III Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: 1.44
Type III Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 1.50
Type III Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: 1.61
Type III Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: 1.69
Type III Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 1.76
Type III Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 1.84
Type III Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 1.86
Type IV Corporate Bonds having a remaining term to maturity of
one year or less: 1.30
Type IV Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: 1.38
Type IV Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: 1.43
Type IV Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: 1.50
Type IV Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 1.57
Type IV Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: 1.68
Type IV Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: 1.77
Type IV Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 1.84
Type IV Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 1.92
Type IV Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 1.94
Type V Corporate Bonds having a remaining term to maturity of
one year or less: 1.40
Type V Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: 1.49
Type V Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: 1.55
Type V Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: 1.63
Type V Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 1.70
Type V Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: 1.82
Type V Corporate Bonds having a remaining term to maturity of
more than seven years but not more than l0 years: 1.91
Type V Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 1.99
Type V Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 2.09
Type V Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 2.10
Type VI Corporate Bonds having a remaining term to maturity of
one year or less: 1.51
Type VI Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: 1.60
Type VI Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: 1.67
Type VI Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: 1.76
Type VI Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 1.83
Type VI Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: 1.95
Type V Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: 2.06
Type VI Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 2.15
Type VI Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 2.25
Type VI Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 2.26
Type VII Corporate Bonds having a remaining term to maturity of
one year or less: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: (1)
Type VI Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: (1)
Type VII Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: (1)
Type VII Corporate Bonds having a remaining term to maturity
of more than 20 years but not more than 30 years: (1)
Type VIII Corporate Bonds having a remaining term to maturity
of one year or less: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than one year but not more than two years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than two years but not more than three years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than three years but not more than four years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than four years but not more than five years: 2.60
Tvpe VIII Corporate Bonds having a remaining term to maturity of
more than five years but not more than seven years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than seven years but not more than 10 years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than 10 years but not more than 15 years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than 15 years but not more than 20 years: 2.60
Type VIII Corporate Bonds having a remaining term to maturity of
more than 20 years but not more than 30 years: 2.60
Discount Discount
Factor Factor
(Fixed (Adjustable
Rate Rate
FHLMC or FNMA Certificate Mortgages) Mortgages)
------------------------- ---------- ----------
FHLMC or FNMA Certificates with
interest rates less than 6% but
equal to or greater than 5%: 1.66 1.64
FHLMC or FNMA Certificates with
interest rates less than 7% but
equal to or greater than 6%: 1.62 1.64
FHLMC or FNMA Certificates with
interest rates less than 8% but
equal to or greater than 7%: 1.57 1.64
FHLMC or FNMA Certificates with
interest rates less than 9% but
equal to or greater than 8%: 1.53 1.64
FHLMC or FNMA Certificates with
interest rates less than 10% but
equal to or greater than 9%: 1.50 1.65
FHLMC or FNMA Certificates with
interest rates less than 11% but
equal to or greater than 10%: 1.46 1.64
FHLMC or FNMA Certificates with
interest rates less than 12% but
equal to or greater than 11%: 1.43 1.64
FHLMC or FNMA Certificates with
interest rates less than 13% but
equal to or greater than 12%: 1.41 1.64
FHLMC or FNMA Certificates with
interest rates equal to or
greater than 13%: 1.38 1.64
GNMA Certificates Discount Factor
----------------- ---------------
GNMA Certificates with interest rates less than 6% but equal to
or greater than 5%: 1.68
GNMA Certificates with interest rates less than 7% but equal to
or greater than 6%: 1.60
GNMA Certificates with interest rates less than 8% but equal to
or greater than 7%: 1.56
GNMA Certificates with interest rates less than 9% but equal to
or greater than 8%: 1.51
GNMA Certificates with interest rates less than 10% but equal to
or greater than 9%: 1.48
GNMA Certificates with interest rates less than 11% but equal to
or greater than 10%: 1.46
GNMA Certificates with interest rates less than 12% but equal to
or greater than 11%: 1.47
GNMA Certificates with interest rates less than 13% but equal to
or greater than 12%: 1.45
GNMA Certificates with interest rates equal to or greater than
13%: 1.43
GNMA Certificates with adjustable interest rates: 1.67
GNMA Multifamily Securities (not rated by Moody's): 0
FHLMC Multifamily Securities: 1.64
FHLMC and FNMA Certificates with variable interest rates: (2)
GNMA Graduated Payment Securities (must be seasoned): (3)
Conventional Mortgage Pass-Through Certificates: (2)
U.S. Government Obligations having a remaining term to maturity
of 90 days or less: 1.08
U.S. Government Obligations having a remaining term to maturity
of more than 90 days but not more than five years: 1.31
U.S. Government Obligations having a remaining term to maturity
of more than five years but not more than 10 years: 1.47
U.S. Government Obligations having a remaining term to maturity
of more than 10 years but not more than 15 years: 1.53
U.S. Government Obligations having a remaining term to maturity
of more than 15 years but not more than 30 years: 1.61
Cash and Short-Term Money Market Instruments: 1.00
------------
(1) Type VII Corporate Bonds rated "B-3" (subordinated) or better by
Moody's shall have a Discount Factor designated in writing to the
Corporation by Moody's equal to the factor which corresponds to Type
VI Corporate Bonds of comparable maturity. Type VII Corporate Bonds
rated "Caa" (subordinated unsecured) by Moody's or unrated by Moody's
shall have a Discount Factor Supplied by Moody's of 2.60.
(2) The Discount Factor determined therefor in writing by Moody's.
(3) The same discount factor applies in the case of GNMA Graduated Payment
Securities as applies to GNMA Certificates with fixed interest rates
determined at the point the certificates become seasoned.
"Discount Factor Supplied by S&P" means, for any asset held by the
Corporation, (i) the number set forth opposite each such type of asset in the
following table or (ii) such other number established by S&P in its sole
discretion and designated in writing to the Corporation (it being understood
that any asset held by the Corporation and not listed in the following table or
in such written notice shall have a Discounted Value of zero):
Type of Eligible Portfolio Property Discount Factor
----------------------------------- ---------------
Type I Corporate Bonds: 1.50
Type II Corporate Bonds: 1.55
Type III Corporate Bonds: 1.60
Type IV Corporate Bonds: 1.65
Type V Corporate Bonds: 1.70
Type VI Corporate Bonds: 1.80
Type VII Corporate Bonds: 1.90
Type VIII Corporate Bonds: 2.05
GNMA Certificates with fixed interest rates: 1.35
GNMA Certificates with adjustable interest rates: 1.54
FHLMC and FNMA Certificates with fixed interest rates: 1.45
FHLMC and FNMA Certificates with adjustable interest rates: l.58
FHLMC Multifamily Securities: 1.65
FHLMC and FNMA Certificates with variable interest rates: (1)
GNMA Multifamily Securities: (1)
GNMA Graduated Payment Securities: 1.55(2)
Conventional Mortgage Pass-Through Certificates: (1)
U.S. Government Obligations having a remaining term to
maturity of 90 days or less: 1.00
U.S. Government Obligations having a remaining term to
maturity of more than 90 days but not more than five years: 1.28
U.S. Government Obligations having a remaining term to
maturity of more than five years but not more than 10 years: 1.35
U.S. Government Obligations having a remaining term to
maturity of more than 10 years but not more than 15 years: 1.45
U.S. Government Obligations having a remaining term to
maturity of more than 15 years but not more than 30 years: 1.50
Cash and Short-Term Money Market Instruments: 1.00
Commercial paper having a rating of at least "A-1" but lower
than "A-1+" from S&P or "P-1" from Moody's at the time of
the Corporation's investment therein: 1.60
Commercial paper having a rating of at least "A-2" but lower
than "A-1" from S&P or "P-2" from Moody's at the time of
the Corporation's investment therein: 1.65
------------
(1) The Discount Factor determined therefor in writing by S&P.
(2) A Discount Factor of 1.55 applies in the case of GNMA Graduated Payment
Securities as to which the Fund notifies the Auction Agent that scheduled
principal payments are being made to holders; in the case of GNMA Graduated
Payment Securities as to which the Fund notifies the Auction Agent that
scheduled principal payments are not being made to holders, the Discount
Factor shall be that which is determined in writing by S&P.
"Discounted Value" with respect to any asset held by the Corporation as of
any date means the quotient of the Market Value of such asset divided by the
applicable Discount Factor Supplied by S&P or the applicable Discount Factor
Supplied by Moody's, as the case may be, provided that in no event shall the
Discounted Value of any asset constituting Eligible Portfolio Property for the
purposes of determining compliance with Paragraph 7(a) as of any date exceed the
unpaid principal balance or face amount of such asset an of that date. With
respect to the calculation of the aggregate Discounted Value of any Corporate
Debt Obligation included in the Corporation's Eligible Portfolio Property, such
calculation shall be made using the criteria set forth in the definitions of
Corporate Debt Obligations and Market Value. With respect to the calculation of
the aggregate Discounted Value of the Corporation's Eligible Portfolio Property
for comparison to the Preferred Stock Basic Maintenance Amount, such aggregate
Discounted Value shall be the aggregate Discounted Value calculated using
Discount Factors Supplied by S&P or the aggregate Discounted Value calculated
using the Discount Factors Supplied by Moody's, whichever aggregate Discounted
Value is lower. Notwithstanding any other provision hereof, any Type V, VI, VII
or VIII Corporate Debt Obligation that has a remaining term to maturity of more
than 30 years and any asset to which a Discount Factor is not assigned either
S&P or Moody's in Article IV(C) or in an amendment hereof or supplement hereto,
shall have a Discounted Value of zero.
"Dividend Payment Date" has the meaning specified in paragraph 3(b) below.
"Dividend Period" has the meaning specified in paragraph 3(b) below.
"Eligible Portfolio Property" means (i) Corporate Debt Obligations
(including without limitation commercial paper rated at the time of the
Corporation's investment therein at least "A-2"/"P-2" but lower than
"A-l+"/"P-l" by the Rating Agencies with a maturity of at least 30 days), Cash,
U.S. Government Obligations, Short-Term Money Market Instruments, FNMA
Certificates, FHLMC Certificates, FHLMC Multifamily Securities, GNMA
Certificates, GNMA Multifamily Securities, GNMA Graduated Payment Securities and
Conventional Mortgage Pass-Through Certificates; provided that, any assets of
the Corporation subject to call option obligations shall not constitute Eligible
Portfolio Property and (ii) other assets which may be established by the Rating
Agencies in their sole discretion and designated in writing to the Company.
"FHLMC" means the Federal Home Loan Mortgage Corporation created by Title
III of the Emergency Home Finance Act of 1970, and includes any successor
thereto.
"FHLMC Certificate" means a mortgage participation certificate in physical
or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences a
proportional undivided interest in, or participation interest in, specified
pools of fixed-, variable- or adjustable-rate, fully amortizing mortgage loans
secured by first-priority mortgages on one- to four-family residences.
"FHLMC Multifamily Security" means a "Plan B Multifamily Security" in
physical or book-entry form, the timely payment of interest on and the ultimate
collection of principal of which is guaranteed by FHLMC, and which evidences a
proportional undivided interest in, or participation interest in, specified
pools of fixed-, variable- or adjustable-rate mortgage loans secured by
first-priority mortgages on multifamily residences, the inclusion of which in
the Eligible Portfolio Property will not, in and of itself, impair or cause the
Preferred Stock to fail to retain, the ratings assigned to such Preferred Stock
by the Rating Agencies, as evidenced by letters to such effect from the
respective Rating Agencies.
"FNMA" means the Federal National Mortgage Association, a United States
Government-sponsored private corporation established pursuant to Title VIII of
the Housing and Urban Development Act of 1968, and includes any successor
thereto.
"FNMA Certificate" means a mortgage pass-through certificate in physical or
book-entry form, the full and timely payment of principal of and interest on
which is guaranteed by FNMA, and which evidences a proportional undivided
interest in specified pools of fixed-, variable- or adjustable-rate, fully
amortizing mortgage loans secured by first-priority mortgages on single-family
residences.
"GNMA" means the Governmental National Mortgage Association, and includes
any successor thereto.
"GNMA Certificates" means a fully modified pass-through certificate in
physical or book-entry form, the full and timely payment of principal of and
interest on which is guaranteed by GNMA and which evidences a proportional
undivided interest in specified pools of fixed-, variable or adjustable-rate,
fully amortizing mortgage loans secured by first-priority mortgages on
single-family residences.
"GNMA Graduated Payment Security" means a fully modified pass-through
certificate in physical or book-entry form, the full and timely payment of
principal of and interest on which is guaranteed by GNMA, which obligation is
backed by the full faith and credit of the United States, and which evidences a
proportional undivided interest in specified pools of graduated payment mortgage
loans with payments that increase annually at a predetermined rate for up to the
first five or ten years of the mortgage loan and that are secured by
first-priority mortgages on one- to four-unit residences.
"GNMA Multifamily Security" means a fully modified pass-through certificate
in physical or book-entry form, the full and timely payment of principal of and
interest on which is guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States, and which evidences a proportional
undivided interest in specific pools of fixed-rate mortgage loans secured by
first-priority mortgages on multifamily residences, the inclusion of which in
the Eligible Portfolio Property will not, in and of itself, impair or cause the
Preferred Stock to fail to retain the rating assigned to such Preferred Stock by
the Rating Agencies or evidenced by letters to such effect from the respective
Rating Agencies.
"Holding Election" shall have the meaning set forth in paragraph 5(b).
"Indenture" means the indenture dated as of December 1, 1988 between the
Corporation and Shawmut Bank, N.A., as trustee, pursuant to which the
Corporation's Series A Senior Notes were issued.
"Independent Accountants" means the Corporation's independent accountants,
which shall be a nationally recognized accounting firm.
"Industry Category" means, at any time the Surety Bond is not in effect, as
to any Corporate Debt Obligation, any of (i) the industry categories set forth
in the following table or (ii) such other industry categories established by the
Rating Agencies in their sole discretion and designated in writing to the
Corporation.
1. Aerospace and Defense
2. Automobile/Auto Parts/Truck Manufacturing
3. Banks/Savings and Loans/Finance Companies/Consumer Credit
4. Financial Services - Brokerage/Syndication/Leasing
5. Real Estate Development/REITS/Building/ Construction
6. Broadcasting - TV, Cable, and Radio
7. Publishing
8. Electrical Equipment/Electronics/Computers
9. Diversified/Conglomerate Services
10. Diversified/Conglomerate Manufacturing
11. Leisure/Amusement/Motion Pictures
12. Agricultural Chemicals
13. Chemicals
14. Food/Tobacco
15. Beverage
16. Retail
17. Consumer Durable Goods/Home Furnishings/Childcare/Toys
18. Grocery/Convenience Stores
19. Healthcare/Drugs/Hospital Supplies
20. Personal Care Products/Cosmetics
21. Hotel/Gaming
22. Insurance Companies
23. Machinery
24. Metals/Mining
25. Oil/Natural Gas/Oil Services
26. Packaging/Containers
27. Paper/Forest Products/Printing
28. Pollution Control/Waste Removal
29. Utilities
30. Rail/Trucking/Overnight Delivery
31. Telephone/Communications
32. Textiles/Apparel
33. Transportation
34. Agriculture/Agricultural Equipment
35. Miscellaneous
"Initial Dividend Payment Date" has the meaning set forth in paragraph
3(b) below.
"Initial Dividend Period" has the meaning specified in paragraph 3(b)
below.
"Insurance Agreement" means the Insurance Agreement, dated as of December
1, 1988, by and among the Corporation and the Surety or any other similar
insurance agreement with the Surety pursuant to which the Surety Bond is issued.
"Interest and Dividend Coverage Amount," as of any date of determination,
means the sum of:
(a) the amount of interest on the Notes, if any, due to become payable
on or prior to the next Dividend Payment Date, and
(b) the product of
(i) the number of shares of Preferred Stock outstanding on such
date multiplied by $l00,000,
(ii) the Applicable Rate in effect as of such date, and
(iii) a fraction, the numerator of which is the number of days in
the Dividend Period ending on the next Dividend Payment Date
(determined by including the first day thereof but excluding the last
day thereof) and the denominator of which is 360;
less
(c) the combined value of any Deposit Securities irrevocably
deposited by the Corporation for the payment of interest on the Notes
or dividends on the Preferred Stock.
"Interest and Dividend Coverage Assets," as of any date of determination,
means Deposit Securities with maturity dates not later than the day preceding
the next Dividend Payment Date; provided that if interest on the Notes shall be
due prior to such Dividend Payment Date, then a portion of such Deposit
Securities equal to the amount of such interest shall have maturity dates on or
prior to the day preceding the applicable interest payment date; and provided,
further, that if the applicable date of determination is a Dividend Payment Date
or a date on which interest on the Notes is payable, any Deposit Securities to
be applied to the dividends payable on the Preferred Stock or to interest on the
Notes on such date shall not be included in Interest and Dividend Coverage
Assets.
"Investment Company Act" means the Investment Company Act of 1940 (15 U.S.
Code {Par} 80 et seq.), as amended and in effect from time to time.
"Lien" has the meaning set forth in paragraph 3(d)(iv), below.
"Mandatory Asset Coverage Redemption" has the meaning specified in
paragraph 5(b).
"Mandatory Expiration Redemption" has the meaning specified in paragraph
5(b).
"Mandatory Redemption" means a Mandatory Asset Coverage Redemption,
Mandatory Surety Redemption or a Mandatory Expiration Redemption.
"Mandatory Surety Redemption" has the meaning specified in paragraph 5(b).
"Market Value" means the amount determined with respect to specific assets
of the Corporation in (i) the manner set forth below or (ii) such other manner
as is established by the Rating Agencies in their sole discretion and designated
in writing to the Corporation.
(a) as to any Corporate Debt Obligations, (i) the product of (A) the
unpaid principal balance of such Corporate Debt Obligation as of the
Reporting Date, and (B) the lower of two bid prices for such Corporate Debt
Obligation provided by two nationally recognized securities dealers with a
minimum capitalization of $25 million or by one such securities dealer and
any other source (provided that the utilization of such source would not
adversely affect the ratings of the Preferred Stock) to the custodian of
the Corporation's assets, at least one of which shall be provided in
writing or by telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar means, and in turn
provided to the Corporation by any such means by such custodian (provided
that evidence of the bid quotes furnished by such custodian shall be
provided to the Auction Agent by the Corporation with the related Portfolio
Valuation Report), plus (ii) accrued interest on such Corporate Debt
Obligation (unless such accrued interest is payable to the holder of such
Corporate Debt Obligation prior to the next Valuation Date), or, if two bid
prices cannot be obtained, such item of Eligible Portfolio Property shall
have a Market Value of zero;
(b) the product of (i) as to GNMA Certificates, GNMA Graduated Payment
Securities, GNMA Multifamily Securities, FNMA Certificates, FHLMC
Certificates and FHLMC Multifamily Securities, the aggregate unpaid
principal amount of the mortgage loans evidenced by each such Certificate
or security, as the case may be, as determined by the Corporation by any
method which the Corporation believes reliable, which may include amounts
shown on the most recent report related to the Certificate or security
received by the Corporation prior to the Reporting Date, and as to U.S.
Government Obligations and Short-Term Money Market Instruments (other than
demand deposits, federal funds, bankers' acceptances and next Business
Day's repurchase agreements), the face amount or aggregate principal amount
of such U.S. Government Obligations or Short-Term Money Market Instruments,
as the case may be, and (ii) the lower of the bid prices for the same kind
of Certificates, securities or instruments, as the case may be, having, as
nearly as practicable, comparable interest rates and maturities provided by
two nationally recognized securities dealers having minimum capitalization
of $25 million or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
the ratings of the Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to the
Corporation by any such means by such custodian (provided that evidence of
the bid quotes furnished by such custodian shall be delivered to the
Auction Agent with the related Portfolio Valuation Report), or, if two bid
prices cannot be obtained, such item of Eligible Portfolio Property will
have a Market Value of zero;
(c) as to Conventional Mortgage Pass-Through Certificates, the product
of (i) the outstanding aggregate principal balance of the mortgage loans
underlying the Certificates as determined by the Corporation by any method
which the Corporation believes reliable, which may include amounts based on
verbal reports of the servicers of the related mortgage loans to the
Corporation, as of the applicable Reporting Date and (ii) the dollar value
of the lower of two bid prices per dollar of outstanding principal amount
as of such applicable Reporting Date for such Certificates, provided by two
nationally recognized securities dealers having minimum capitalization of
$25 million or by one such securities dealer and any other source (provided
that the utilization of such source would not adversely affect the
then-current ratings of the Preferred Stock) to the custodian of the
Corporation's assets, at least one of which shall be provided in writing or
by telecopy, telex, other electronic transcription, computer obtained
quotation reducible to written form or similar means, and in turn provided
to the Corporation by any such means by such custodian (provided that
evidence of the bid quotes furnished by such custodian shall be delivered
to the Auction Agent with the related Portfolio Valuation Report), or, if
two bid prices cannot be obtained, such item of Eligible Portfolio Property
shall have a Market Value of zero; and
(d) as to Cash, demand deposits, federal funds, bankers' acceptances
and next Business Day's repurchase agreements included in Short-Term Money
Market Instruments, the face value thereof.
Upon any failure to obtain two bid prices as described in paragraphs (a),
(b) and (c) above, with respect to any item of Eligible Portfolio Property as of
any Valuation Date, the Corporation shall notify the Rating Agencies in writing.
As used in the definition of Market Value, "in writing" includes telecopies,
telexes or other electronic transcription, or a computer-obtained quotation
reducible to written form,
"Minimum Liquidity Level is met" means, as of any date of determination,
that the aggregate Market Value of the Interest and Dividend Coverage Assets
equals or exceeds the Interest and Dividend Coverage Amount.
"Moody's" means Xxxxx'x Investors Service, Inc. or any successor thereto.
"Notes" means collectively (i) the Corporation's Senior Extendible Notes
due 1998, Series A and (ii) any other Senior Notes issued pursuant to the
Indenture.
"Notice of Redemption" has the meaning specified in paragraph 5(c)(iv),
below.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of the Corporation.
"Officer's Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer, Assistant Secretary or Assistant Controller
of the Corporation.
"Optional Redemption" shall have the meaning specified in paragraph 5(a),
"Original Issuance Date" means the date on which the Corporation originally
issues shares of Preferred Stock.
"Paying Agent" means Bankers Trust Company and its successor or any other
paying agent appointed by the Corporation to perform the functions performed by
the Paying Agent.
"Permitted Bank" means any depository institution or trust company
incorporated or licensed to maintain a branch or agency under the laws of the
United States or any state thereof or the District of Columbia (i) the long-term
unsecured debt obligations (other than such obligations the ratings of which are
based on the credit of a Person other than such institution or trust company) of
which (or which is the principal banking subsidiary of a holding company the
long-term unsecured debt obligations of which), at the time of the Corporation's
investment therein, or at the time of a contractual commitment providing for
such investment, have ratings from the Rating Agencies of at least "AA"/"Aa" and
(ii) the commercial paper (other than such obligations the rating of which are
based on the credit of a Person other than such institution or trust company) of
which (or which is the principal banking subsidiary of a holding company the
commercial paper of which), at the time of the Corporation's investment therein,
or at the time a contractual commitment providing for such investment, has
ratings from the Rating Agencies of at least "A-1+"/"P-1".
"Permitted Tax Liens" means liens of general and special taxes and
assessments on the property in question.
"Person" means an individual, a corporation, a company, a voluntary
association, a partnership, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
"Portfolio Calculation" shall have the meaning specified in paragraph 7(b).
"Portfolio Valuation Report" means an Officer's Certificate delivered to
the Auction Agent with the respect to the Valuation of the Eligible Portfolio
Property.
"Preferred Stock Basic Maintenance Amount" means, as of any date on which
the Surety Bond is not in effect, (x) the dollar amount equal to (a) the sum of
(i) 100% of the aggregate principal amount of the Notes then outstanding; (ii)
$100,250 times the number of shares of Preferred Stock then outstanding; (iii)
the aggregate amount of accrued interest on the Notes then outstanding, from the
most recent date to which interest has been paid or duly provided for (or, for
purposes of calculating the Preferred Stock Basic Maintenance Amount prior to
June 1, 1989 then from December 1, 1988) through the next succeeding Valuation
Date, plus all interest to accrue on the Notes then outstanding during the 63
days following such Valuation Date; (iv) the aggregate amount of accumulated but
unpaid dividends with respect to the Preferred Stock to such date; (v) the
aggregate Projected Dividend Amount; (vi) the aggregate principal amount of any
then outstanding indebtedness of the Corporation for money borrowed (other than
the Notes) and (vii) the greater of $200,000 or the Corporation's current
liabilities as of such date to the extent not otherwise reflected in any of (i)
through (vi) above, less (b) the combined value of any Deposit Securities
irrevocably deposited by the Corporation for the payment of principal of or
interest on the Notes or redemptions of or dividend payments with respect to the
Preferred Stock or (y) such other dollar amount calculated by a method
established by the Rating Agencies in their sole discretion and designated in
writing to the Corporation.
"Projected Dividend Amount" for the Preferred Stock shall mean, if the date
of determination is a Valuation Date, the amount of dividends, based on the
number of shares of Preferred Stock outstanding on such Valuation Date,
projected to accumulate on such shares from such Valuation Date through the 63rd
day after such Valuation Date, at the following dividend rates.
(a) if the Valuation Date is the Original Issuance Date or a Dividend
Payment Date, (i) for the Dividend Period beginning on the Original
Issuance Date or such Dividend Payment Date and ending on (but not
including) the first following Dividend Payment Date, the Applicable Rate
in effect on such Valuation Date, and (ii) for the period beginning on (and
including) the first following Dividend Payment Date and ending on (and
including) the 63rd day following such Valuation Date, the product of 1.95
and (x) the Maximum Applicable Rate on the Original issuance Date (in the
case of the Original Issuance Date) or (y) the Maximum Applicable Rate as
of the last occurring Auction Date (in the case of any Dividend Payment
Date); and
(b) if such Valuation Date is not the Original Issue Date or a
Dividend Payment Date, (i) for the period beginning on such Valuation Date
and ending on (but not including) the first following Dividend Payment
Date, the Applicable Rate in effect on such Valuation Date, and (ii) for
the period beginning on (and including) the first following Dividend
Payment Date and ending on (but not including) the sooner of the second
following Dividend Payment Date or the 64th day following such Valuation
Date, the product of 1.95 and (x) the Maximum Applicable Rate on the
Original Issuance Date (in the case of a Valuation Date occurring prior to
the first Auction Date) or (y) the Maximum Applicable Rate on the last
occurring Auction Date (in the case of any other Valuation Date) and (iii)
for the period, if any, beginning on (and including) the second following
Dividend Payment Date and ending on (but not including) the 64th day
following such Valuation Date, the product of 2.50 and the rate specified
in clause (x) or (y) above.
If the date of determination is not a Valuation Date, then the Projected
Dividend Amount on such date of determination shall equal the Projected Dividend
Amount therefor on the immediately preceding Valuation Date, adjusted to reflect
any decrease in the number of shares of Preferred Stock outstanding.
"Quarterly Valuation Date" means, so long as any shares of Preferred Stock
are outstanding, the last Business Day of January, April, July and October of
each year, commencing January 31, 1989.
"Rating Agencies" means, collectively, S&P and Moody's for so long as S&P
and Xxxxx'x issue ratings for the Preferred Stock, and, at such time as either
no longer issue a rating for the Preferred Stock, the remaining Rating Agency.
"Reporting Date," with respect to any price referred to in the definition
of the Market Value of an item of Eligible Portfolio Property, shall mean the
date as of which the Market Value of such item of Eligible Portfolio Property is
to be determined or, if no such price is available as provided above for such
date, the next closest prior date as of which such price is so available;
provided, that no such price shall be deemed to be available as of a Reporting
Date if such price is not available as of a date within five Business Days next
preceding the date as of which the determination of such Market Value is to be
made.
"Required Documentation," with respect to a mortgage loan means:
(a) the mortgage note or other evidence of indebtedness secured by the
mortgage endorsed without recourse in blank or to the trustee or other
custodian and accompanied by an assignment thereof
(b) the mortgage, deed of trust, deed to secure debt or similar
security instruments encumbering real property or related documentation,
with evidence of recording or filing thereof, in each case accompanied by
assignments thereof, executed in blank or to the trustee or other
custodian, in recordable form as may be appropriate in the jurisdiction
where the property is located and evidence that such assignment has been
recorded in the name of the trustee or other custodian, and such trustee or
other custodian receives an opinion of counsel (containing only such
exceptions as may be permissible under the indenture or other agreement
pursuant to which the mortgage loan is pledged to the trustee in connection
with the related Conventional Mortgage Pass-Through Certificate) to the
effect that, notwithstanding that the assignment of the mortgage has not
been recorded, the actions taken with respect to the mortgage loan are
sufficient to permit the trustee or other custodian to avail itself of all
protection available under applicable law against the claims of any present
or future creditors of the issuer, and are sufficient to prevent any other
sale, transfer, assignment, pledge or hypothecation of the mortgage and the
related mortgage note by the issuer from being enforceable, or will create
a valid assignment of and a valid and perfected lien upon and security
interest in a mortgage and related mortgage note, which lien and security
interest is (except for the trustee's lien securing certain obligations of
the issuer to the trustee as provided in the indenture pursuant to which
the mortgage loan is pledged to the trustee in connection with the related
Conventional Mortgage Pass-Through Certificate) prior in right to all other
security interests therein created or perfected under the Uniform
Commercial Code (as in effect in the jurisdiction where the property is
located);
(c) in the case of mortgage notes covered by private mortgage
insurance, evidence that such mortgage notes are so insured; and
(d) a copy of the title insurance policy or an opinion or certificate
of counsel stating that the mortgage constitutes a first lien on the
premises described in such mortgage (which opinion or certificate may be
subject to exceptions for Permitted Tax Liens and other matters to which
like properties are commonly subject which neither individuals nor in the
aggregate materially interfere with the benefits of the security interest
intended to be provided by such mortgage and standard exceptions and
exclusions from mortgage title insurance policies).
"S&P" means Standard & Poor's Corporation or any successor thereto.
"Scheduled Payment Day" has the meaning specified in paragraph 3 (b) below.
"Scheduled Payments" means (i) payment of dividends on the Preferred Stock
which holders of shares of Preferred Stock would be entitled to receive on each
Dividend Payment Date during the term of the Surety Bond in accordance with the
terms of the Charter, without regard to whether the Corporation has declared any
such dividend or such dividend could have been legally declared by the
Corporation, (ii) payment of the redemption price of the Preferred Stock,
without regard to whether such redemption could have been legally made by the
Corporation, (a) on the last date on which the Corporation was to have redeemed
shares of the Preferred Stock as specified in a Surety Redemption Request in the
event that the Surety has notified the Surety Custodian that such redemption is
to be a Scheduled Payment and (b) on the date on which shares of the Preferred
Stock may be required to be redeemed pursuant to a mandatory expiration
redemption, and (III) payment of the liquidation preference on shares of the
Preferred Stock in the event of a liquidation of the Corporation during the term
of the Surety Bond on the dates fixed for payment of such liquidation preference
pursuant to the Charter and the Insurance Agreement.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any other securities depository selected by the
Corporation which agrees to follow the procedures required to be followed by
such securities depository in connection with shares of the Preferred Stock;
provided that, at any time that the Surety Bond is in effect, any reference
herein to the Securities Depository shall be deemed to refer to the Surety
Custodian.
"Short-Term Money Market Instruments" means the following kinds of
instruments, if on the date of purchase or other acquisition by the Corporation
of any such instrument the remaining term to maturity therof is not more than 30
days:
(a) demand deposits in, certificates of deposit of bankers'
acceptances issued by, or federal funds sold to, any depository
institution, the deposits of which are insured by the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance
Corporation, provided that, at the time of the Corporation's investment
therein, the commercial paper or other unsecured short-term debt
obligations of such depository institution are rated at least "A-1+" by S&P
and "P-1" by Moody's;
(b) repurchase obligations with respect to a U.S. Government
Obligation, FNMA Certificate, FHLMC Certificate or GNMA Certificate entered
into with a depository institution, the deposits of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation and the commercial paper or other unsecured
short-term debt obligations of which are rated at least "A-1+" by S&P and
"P-1" by Moody's, which must be repurchased within one Business Day from
the date such repurchase obligation was entered into; and
(c) commercial paper rated at the time of the Corporation's investment
therein at least "A-1+" by S&P and "P-1" by Moody's.
"Special Redemption Assets" has the meaning specified in paragraph 5(b)
below.
"Subsequent Dividend Period" has the meaning specified in paragraph 3(B)
below.
"Surety" means Financial Security Assurance Inc. or any successor thereto
or any other surety under the Surety Bond.
"Surety Bond" means a surety bond (including the surety bond issued
pursuant to the Insurance Agreement) which unconditionally and irrevocably
guarantees to each holder of shares of Preferred Stock the Scheduled Payments.
"Surety Custodian" means Bankers Trust Company and any successor thereto or
any other custodian under the Surety Custody Agreement.
"Surety Custody Agreement" means a custody agreement, dated as of December
1, 1988, by and between the Surety and the Surety Custodian or any other similar
agreement in effect at any time that the Surety Bond is in effect.
"Surety Redemption Request" means a written notice from the surety to the
Corporation requesting redemption of shares of the Preferred Stock pursuant to
the terms of the Insurance Agreement.
"Type I Corporate Bonds" means Corporate Bonds whose present rating is
"AAA"/"Aaa" by the Rating Agencies.
"Type II Corporate Bonds" means Corporate Bonds whose present rating is no
greater than "AA+"/"Aa1" and no less than " AA-"/"Aa3" by the Rating Agencies.
"Type III Corporate Bonds" means Corporate Bonds present rating is no
greater than "A+"/"A1" and no less than "A-"/"A3" by the Rating Agencies.
"Type IV Corporate Bonds" means Corporate Bonds whose present rating is no
greater than "BBB+"/"Baa1" and no less than "BBB-"/"Baa3" by the Rating
Agencies.
"Type V Corporate Bonds" Means Corporate Bonds whose present rating is no
greater than "BB+/"Ba1" and no less than "BB-"/"Ba3" by the Rating Agencies.
"Type VI Corporate Bonds" means Corporate Bonds whose present rating is no
greater then "B+"/"B1" and no less than "B-"/"B3 (subordinated)" by the Rating
Agencies.
"Type VII Corporate Bonds" means Corporate Bonds whose present rating is
"CCC+ (subordinated)" by S&P with an implied senior rating of "B-" or greater
and rated at least "Caa (subordinated)" by Moody's.
"Type VIII Corporate Bonds" Means Corporate Bonds whose present rating is
"CCC" by S&P with an implied senior rating of "B-" or higher and rated at least
"Caa (unsecured subordinated)" by Moody's.
"U.S. Government Obligations" means direct obligations of the United
States, provided that such direct obligations are entitled to the full faith and
credit of the United States and that any such obligations, other than United
States Treasury Bills, provide for the periodic payment of interest and the full
payment of principal at maturity or call for redemption.
"United States" means the United States of America.
"Valuation Date" means (a) the fifteenth day of each month, or if such day
is not a Business Day, the next succeeding Business Day, and (b) the last
Business Day of each month; provided, however, that the first Valuation Date may
occur on any other date established by the Corporation; provided, further,
however, that such date shall be not more than 15 days from the date on which
the Surety Bond ceases to be in effect.
"Vote of a Majority of the Outstanding Voting Securities" (for
purposes of the Investment Company Act) means the vote, at the annual or a
special meeting of the stockholders of the Corporation duly called, of the
lesser of (A) 67% or more of the voting securities present at such meeting, if
the holders of more than 50% of the outstanding voting securities of the
Corporation are present or represented by proxy; or (B) more than 50% of the
outstanding voting securities of the Corporation.
"Voting Period" has the meaning specified in paragraph 6(b) below.
2A. Registration of Preferred Stock and Issuance of Custody Receipts
(a) Except as otherwise provided by applicable law, at any time that the
Surety Bond is in effect pursuant to the Insurance Agreement, all outstanding
shares of Preferred Stock shall be represented by a stock certificate registered
in the name of the Surety Custodian and held by the Surety Custodian in a
custody account on behalf of the beneficial holders of such Preferred Stock, and
no person acquiring beneficial ownership of shares of Preferred Stock shall be
entitled to receive a certificate representing such shares of Preferred Stock.
In such event, the Surety Custodian shall issue to the Securities Depository
custody receipts evidencing the beneficial holders' ownership of the Preferred
Stock, which the Securities Depository will hold of record on behalf of the
beneficial holders of shares of Preferred Stock, all pursuant to the Surety
Custody Agreement.
(b) At any such time that the Surety Bond is not in effect, all outstanding
shares of Preferred Stock shall be represented by a stock certificate registered
in the name of the Securities Depository or its nominee, to be held on behalf of
the beneficial holders of shares of Preferred Stock.
3. Dividends
(a) Holders of shares of Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors, out of funds legally
available therefor, cumulative cash dividends at the Applicable Rate per annum
(determined as set forth below) payable on the respective dates set forth below
to the holders of record of shares of Preferred Stock as of the Business Day
next preceding the payment date.
(b) Dividends on the shares of Preferred Stock shall accumulate from and
including the Original Issuance Date. Accrued dividends shall be payable
commencing on the date next succeeding the last day of the 45-day period
commencing on the Original Issuance Date (the "Initial Dividend Payment Date")
and on each day thereafter which is the date next succeeding the last day of the
successive 30-day periods after such date. If any date next succeeding such last
day (the "Scheduled Payment Day") is not a Business Day or (if the Paying Agent
does not make payments in same-day funds) the day succeeding the Scheduled
Payment Day is not a Business Day, dividends payable on such Scheduled Payment
Day shall be paid on the first Business Day succeeding such Scheduled Payment
Day that is next succeeded by a day which is also a Business Day. Any date on
which a dividend on the Preferred Stock is payable pursuant to this paragraph
3(b) is herein called a "Dividend Payment Date." The period beginning on and
including the Original Issuance Date and ending on (but not including) the
Initial Dividend Payment Date is referred to herein as the "Initial Dividend
Period." Each successive period commencing on, and including, the Dividend
Payment Date for the preceding Dividend Period and ending on (and including) the
day preceding the next succeeding Dividend Payment Date is referred to herein as
a "Subsequent Dividend Period" and the Initial Dividend Period and each
Subsequent Dividend Period together are sometimes referred to herein as
"Dividend Periods."
(c) (i) The Applicable Rate for the Initial Dividend Period shall be the
rate per annum for the Initial Dividend Period set forth in the Corporation's
Prospectus covering the initial offering of the Preferred Stock. For the purpose
of calculating the rate of dividends per annum payable on shares of Preferred
Stock (the "Applicable Rate") for each Subsequent Dividend Period the
Corporation shall enter into an agreement with the Auction Agent (the "Auction
Agent Agreement"). The Applicable Rate on the shares of Preferred Stock for each
Subsequent Dividend Period shall be determined by the Auction Agent in
accordance with the Auction Agent Agreement, which shall provide that the
Auction Agent will follow the Auction Procedures described in paragraph 8 hereof
to determine the Applicable Rate. In the event there is no Auction Agent on the
Business Day prior to the first day of a Dividend Period, the Applicable Rate
for such Dividend Period shall be equal to the Maximum Applicable Rate (as
defined in paragraph 8(a) hereof) that could have resulted pursuant to the
Auction Procedures, as determined by the Corporation, on such Business Day. The
Corporation shall exercise its best efforts to maintain an Auction Agent
pursuant to an agreement containing terms no less favorable to the Corporation
than the terms of the Auction Agent Agreement. If, due to the issuance of a
Notice of Redemption, no shares of Preferred Stock are deemed outstanding on any
Auction Date, or if no Auction is held on such date for any other reason, the
Applicable Rate for the Dividend Period beginning on the Business Day following
such Auction Date shall be equal to the Maximum Applicable Rate that could have
resulted pursuant to the Auction Procedures, as determined by the Auction Agent
(or, if there is no Auction Agent, by the Corporation), on such Business Day.
(ii) The amount of dividends per share payable on shares of Preferred Stock
for each Dividend Period or part thereof shall be determined by the Auction
Agent and shall be an amount equal to $100,000 per share of Preferred Stock
multiplied by the product of (1) the Applicable Rate for such Dividend Period
and (2) a fraction, the numerator of which shall be the actual number of days in
such Dividend Period or part thereof and the denominator of which shall be 360.
All dollar amounts used in or resulting from such calculations will be rounded
to the nearest cent (with one-half (0.5) cent being rounded up).
(d) (i) The Corporation will not issue any series of any class of stock
which is senior to or on a parity with the Preferred Stock. No holders of shares
of Preferred Stock shall be entitled to any dividends, whether payable in cash,
property or stock, in excess of full cumulative dividends, as provided in this
paragraph 3, on shares of Preferred Stock. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payments on any shares
of the Preferred Stock that may be in arrears.
(ii) For so long as shares of Preferred Stock are outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend or
other distribution in respect of the Common Stock or any other stock of the
Corporation ranking junior to the shares of Preferred Stock as to dividends or
upon liquidation, or call for redemption, redeem, purchase or otherwise acquire
for consideration any shares of the Common Stock or any other stock of the
Corporation ranking junior to the shares of Preferred Stock as to dividends or
upon liquidation (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of Preferred Stock as to dividends and
upon liquidation), unless, in each case, (A) immediately thereafter, the
Preferred Stock Basic Maintenance Amount would be achieved, if at such time the
Surety Bond is not in effect, (B) such transaction is on a Dividend Payment
Date, (C) such transaction would not violate applicable law (including, without
limitation, Section 18(a) of the Investment Company Act and Maryland law) and
(D) full cumulative dividends on all shares of Preferred Stock for all Dividend
Periods ending on or prior to such Dividend Payment Date have been declared and
paid (or sufficient Deposit Securities shall have been set apart for their
payment).
If on any Dividend Payment Date as of which the Surety Bond is in effect,
the Corporation defaults in making dividend payments on shares of Preferred
Stock and the Surety makes such payments to the holders of shares of Preferred
Stock, the Surety thereafter shall be subrogated to all rights of the holders of
shares of Preferred Stock to receive such dividend payments.
(iii) Any dividend payment made on the shares of Preferred Stock shall
first be credited against the dividends accumulated with respect to the earliest
Dividend Period for which dividends have not been paid.
(iv) At any time that shares of Preferred Stock are outstanding and the
Surety Bond is not in effect, the Corporation shall not create, incur or suffer
to exist, or agree to create, incur or suffer to exist, or consent to cause or
permit in the future (upon the happening of a contingency or otherwise) the
creation, incurrence or existence of any material lien, mortgage, pledge,
charge, security interest, security agreement, conditional sale or trust receipt
or other material encumbrance of any kind (collectively "Liens") upon any of its
Eligible Portfolio Property, except for (A) Liens the validity of which are
being contested in good faith by appropriate proceedings, (B) Liens for taxes
that are not then due and payable or that can be paid thereafter without
penalty, (C) Liens to secure payment for services rendered by the Auction Agent
or the Trustee with respect to the Notes in connection with the Preferred Stock
or the Notes and (D) Liens otherwise incurred in connection with borrowings made
in the ordinary course of business in accordance with the Corporation's stated
investment objective, policies and restrictions,
(e) Not later than noon on the Business Day next preceding each Dividend
Payment Date, the Corporation shall deposit with the Paying Agent Deposit
Securities consituting immediately available funds in an amount sufficient to
pay the dividends that are payable on such Dividend Payment Date. The
Corporation may direct the Paying Agent with respect to the investment of any
such Deposit Securities, provided that the proceeds of any such investment will
be available at the opening of business on such Dividend Payment Date.
(f) Dividends in arrears for any past Dividend Period may be declared and
paid to the holders of shares of Preferred Stock at any time, without reference
to any regular Dividend Payment Date.
4. Liquidation Rights
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, after satisfying claims
of creditors (including the holders of Notes) but before any distribution or
payment shall be made in respect of the Common Stock or any other stock of the
Corporation ranking junior to the Preferred Stock as to liquidation payments, a
liquidation distribution in the amount of $100,000 per share, plus an amount
equal to all accumulated and unpaid dividends accrued to and including the date
fixed for such distribution or payment (whether or not earned or declared by the
Corporation, but excluding interest thereon), but such holders shall be entitled
to no further participation in any distribution or payment in connection with
any such liquidation, dissolution or winding up.
(b) If, upon any such liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the holders of all outstanding
shares of Preferred Stock shall be insufficient to permit the payment in full to
such holders of the amounts to which they are entitled, then such available
assets shall be distributed among the holders of shares of Preferred Stock
ratably in any such distribution of assets according to the respective amounts
which would be payable on all such shares if all amounts thereon were paid in
full.
(c) Neither the consolidation or merger of the Corporation with or into any
other corporation or corporations, nor the sale, lease, exchange or transfer by
the Corporation of all or substantially all of its property and assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this paragraph 4.
5. Redemption
Shares of the Preferred Stock shall be redeemable by the Corporation as
provided below:
(a) Optional Redemption. At its option, the Corporation may, out of funds
legally available therefor (giving consideration to all applicable legal
restraints, including, without limitation, the restraints imposed by Section
18(a) of the Investment Company Act and Maryland Law), upon at least 15 but not
more, than 30 days notice, or such longer notice period as is required by
applicable law, pursuant to a Notice of Redemption (as defined below), redeem
shares of Preferred Stock, in whole or in part (an "Optional Redemption"), at
$100,000 per share plus an amount equal to the accrued and unpaid dividends on
such shares (whether or not earned or declared by the Corporation, but excluding
interest thereon) to the redemption date; provided, however, it such redemption
is not made on a Dividend Payment Date, it will be made at a price equal to
$100,250 plus an amount equal to all accumumulated and unpaid dividends through
the date of redemption.
(b) Mandatory Redemption. (i) If the Surety Bond is then in effect, the
Corporation shall be obligated (A) to redeem, out of funds legally available
therefor, no later than the last day specified for redemption of shares of
Preferred Stock pursuant to a Surety Redemption Request, the number of shares of
Preferred Stock specified in such Surety Redemption Request (a "Mandatory Surety
Redemption") and (B) to redeem, out of funds legally available therefor, all
shares of Preferred Stock at least one full Business Day prior to any expiration
date of the Surety Bond if, 190 days prior to such expiration date, the
Corporation shall have failed to obtain from the Surety an extension of the term
of the Surety Bond pursuant to its terms (a "Mandatory Expiration Redemption");
provided that, subject to the terms of the Insurance Agreement, no Mandatory
Expiration Redemption shall be required if the Corporation shall have obtained
notice in writing from the respective Rating Agencies that such expiration of
the Surety Bond will not adversely affect the then-current ratings of the
Preferred Stock whether through obtaining a substitute Surety Bond or otherwise.
A Notice of Redemption shall be given to the holders of shares of Preferred
Stock being redeemed at least 15 but not more than 30 days (or such longer
notice period as is required by applicable law) prior to the date of any
Mandatory Redemption. A holder of shares of Preferred Stock may elect not to
have its shares redeemed pursuant to a Mandatory Expiration Redemption by
giving notice to the Corporation or the Paying Agent at least five days prior
to the redemption date of such Holder's election to continue to hold its shares
of Preferred Stock (the "Holding Election").
(ii) If, at any such time as the Surety Bond is not in effect, the
Corporation shall default in the performance or observance of any covenant
contained in paragraph 7(a)(i) through (iii) hereof, and such default shall not
have been cured prior to the close of business on the Cure Date, then the
Corporation shall (A) redeem, out of funds legally available therefor (giving
consideration to all applicable legal restraints, including, without limitation,
the restraints imposed by Section 18(a) of the Investment Company Act and
Maryland law), the minimum number of shares the redemption of which, if deemed
to have occurred on the Valuation Date with respect to which the requirements of
Section 7(a)(i) through (iii) were not met, could have been effected using the
proceeds from the deemed sale of "Special Redemption Assets," (B) notify the
Paying Agent in writing by the close of business on the second Business Day
following the Cure Date of its intention to redeem the number of whole shares of
Preferred Stock calculated in clause (A) above (a "Mandatory Asset Coverage
Redemption") and (C) give to the holders of such shares of Preferred Stock at
least 15 but not more than 30 days (or such longer notice period as is required
by applicable laws prior to the redemption date, a Notice of Redemption (which
shall specify a mandatory redemption date not more than 45 days after the
Valuation Date on which the Corporation defaulted in the performance or
observance of such covenant) with respect to the redemption of such shares. The
Corporation need not liquidate the Special Redemption Assets; however, assets
liquidated to effect the redemption must have the same respective Discounted
Values as the Special Redemption Assets. For purposes hereof, "Special
Redemption Assets" shall mean such portfolio holdings as are identified by the
Corporation in its sole discretion, the deemed sale of which for Cash on the
applicable Valuation Date on which the requirements of paragraph 7(a)(i) through
(iii) were not met would have caused the requirements of paragraph 7(a)(i) to
have been satisfied on a pro forma basis as of such Valuation Date.
(iii) Any Mandatory Redemption will be made at a price equal to S100,000
per share plus accumulated and unpaid dividends through the date of redemption
(whether or not earned or declared by the Corporation), except that if any such
redemption is not made on a Dividend Payment date, it will be made at a price
equal to $100,250 plus accumulated and unpaid dividends through the date of
redemption (whether or not earned or declared by the Corporation). Such
redemptions may only be made by the Corporation to the extent permitted under
the Securities Exchange Act and Maryland law and provided neither principal nor
interest payments with respect to the Notes are then in default.
(c) General Provisions for Redemptions. (i) Notwithstanding the other
provisions of this paragraph 5, the Corporation may redeem shares of Preferred
Stock only to the extent permitted under the Investment Company Act, Maryland
law and the Indenture.
(ii) Notwithstanding the other provisions of this paragraph 5, no shares of
Preferred Stock may be redeemed other than as specified in the following proviso
unless all accumulated and unpaid dividends on all outstanding shares of
Preferred Stock for all past Dividend Periods shall have been or are
contemporaneously paid or declared and Deposit Securities maturing on or prior
to the date fixed for redemption are set apart for the payment of such
dividends; provided, however, that the Corporation may, without regard to such
limitations, redeem, purchase or otherwise acquire shares of Preferred Stock (A)
as a whole, pursuant to a Mandatory Redemption or an Optional Redemption or (B)
pursuant to a purchase or exchange offer made for all of the outstanding shares
of Preferred Stock to the extent permitted under the Investment Company Act,
Maryland law and the Charter.
(iii) If fewer than all the outstanding shares of Preferred Stock are to be
redeemed by Mandatory Redemption or Optional Redemption, the shares to be
redeemed shall be identified by the Board of Directors of the Corporation by lot
or by such other method as the Corporation shall deem fair and equitable.
(iv) Whenever shares of the Preferred Stock are to be redeemed, the
Corporation shall mail, within the time periods specified in paragraphs 5(a) and
5(b), a written notice of redemption by first-class mail, postage prepaid, to
each holder of shares of Preferred Stock to be redeemed (a "Notice of
Redemption"), as its name and address appear on the Stock Books, and to the
Auction Agent. The Notice of Redemption shall also be published on or about the
date thereof in The Wall Street Journal (National Edition) or, if such notice
cannot be published therein, then in a comparable newspaper printed in the
English language and of general circulation in New York City). Each Notice of
Redemption shall state (A) the redemption date, (B) the redemption price, (C)
the number of shares of Preferred Stock to be redeemed, (D) the place or places
where such shares of Preferred Shares are to be redeemed, (E) that dividends on
the shares to be redeemed will cease to accumulate on such redemption date, (F)
the provision of the Charter under which the redemption is being made and (G) if
such redemption is a Mandatory Expiration Redemption, that any holder of shares
of Preferred Stock may elect not to have its shares redeemed by giving notice
thereof to the Corporation or the Paying Agent at least five days prior to the
redemption date. No defect in the Notice of Redemption or in the mailing or
publication thereof shall affect the validity of the redemption proceedings,
except an required by applicable law.
(v) Following delivery of notice to the Paying Agent of the Corporation's
intention to redeem shares of Preferred Stock pursuant to paragraph 5(a), (A)
such shares of Preferred Stock and (B) Special Redemption Assets identified by
the Corporation with respect to such shares of Preferred Stock shall thereafter
be excluded from the calculation of Preferred Stock Basic Maintenance Amount and
Portfolio Calculation if the provisions of paragraph 7 hereof are in effect at
such time.
(vi) On each redemption date, the Securities Depository shall surrender the
certificate evidencing the shares of Preferred Stock. Each holder of shares of
Preferred Stock that were called for redemption, and who did not exercise the
Holding Election, shall then be entitled to receive payment of the redemption
price for each such share. If less than all of the shares represented by such
certificates are to be redeemed, the Corporation shall issue a new certificate
for the shares not redeemed.
(vii) Should the Corporation give a Notice of Redemption, then no later
than the Business Day next preceding the date fixed for redemption, the
Corporation shall deposit with the Paying Agent Deposit Securities constituting
immediately available funds in an amount sufficient to redeem the shares of
Preferred Stock to be redeemed. In such event the Corporation shall give the
Paying Agent irrevocable instructions and authority to pay the redemption price
to the holders of shares of Preferred Stock called for redemption, and who did
not exercise a Holding Election, upon the redemption date. The Corporation may
direct the Paying Agent with respect to the investment of any Deposit Securities
so deposited provided that the proceeds of any such investment will be available
at the opening of business on such redemption date. The Deposit Securities
deposited with the Paying Agent pursuant to the immediately preceding sentence
and the shares of Preferred Stock to be redeemed shall be excluded from the
calculation of Preferred Stock Basic Maintenance Amount and Portfolio
Calculation (if applicable at such time). Upon the date of such deposit, or if
no such deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making payment of the redemption price), all rights
of the holders of the shares of Preferred Stock so called for redemption shall
cease and terminate except the right of the holders thereof to receive the
redemption price thereof (inclusive of accumulated but unpaid dividends, but
without any interest) against delivery by book entry of such shares of Preferred
Stock, and such shares shall no longer be deemed outstanding for any purpose;
provided, however, this sentence shall not apply to holders of shares of
Preferred Stock who have exercised the Holding Election and who shall retain all
rights granted to holders pursuant to the Charter. The Corporation shall be
entitled to receive, promptly after the date fixed for redemption, any cash in
excess of the aggregate redemption price of the shares of Preferred Stock called
for redemption and for which the Holding Election was not exercised, on such
date and any remaining Deposit Securities. Any assets so deposited which are
unclaimed at the end of two years from such redemption date shall, to the extent
permitted by law, be repaid to the Corporation, after which the holders of the
shares of Preferred Stock so called for redemption, who did not exercise the
Holding Election, may look only to the Corporation for payment thereof. The
Corporation shall be entitled to receive, from time to time after the date fixed
for redemption, any interest on the Deposit Securities so deposited.
(viii) Shares of Preferred Stock that have been redeemed, purchased or
otherwise acquired by the Corporation may not be reissued, shall not be deemed
outstanding, and shall be retired and cancelled. In no event shall such shares
of Preferred Stock have any voting rights. Shares of Preferred Stock with
respect to which a Notice of Redemption has been given as provided in paragraph
5(c)(iv) and whose holders have not elected to retain their shares pursuant to
the last sentence of Paragraph 5(b)(i) (if applicable) shall not be deemed
outstanding for purposes of the Auction Procedures set forth in paragraph 8
hereof.
(ix) In addition to redemption rights expressly established under the
Charter, the Corporation may redeem or repurchase shares of Common Stock to the
extent now or hereafter permitted by the laws of the State of Maryland, by the
Investment Company Act and by the Charter,
(x) If the Corporation shall not have funds legally available for the
redemption of all the shares of the Preferred Stock to be redeemed on any
redemption date (or is otherwise legally unable to effect such redemption), the
corporation shall redeem on such redemption date the number of shares of
Preferred Stock as it shall have legally available funds to redeem, ratably from
each holder of shares of Preferred Stock whose shares are to be redeemed and the
remainder of the shares of the Preferred Stock required to be redeemed shall be
redeemed on the earliest practicable date on which the Corporation shall first
have funds legally available for the redemption of such shares pursuant to a
Notice of Redemption given to the holders of such shares of Preferred Stock at
least 15 but not more than 30 days (or such longer notice period as is required
by applicable law) prior the redemption date.
(xi) If on any date on which the payment of the redemption price would
constitute a Scheduled Payment and the Surety Bond is in effect, the Corporation
defaults in making payment of such redemption price and the Surety makes such
Scheduled Payments to holders of shares of Preferred Stock called for
redemption, the Surety, thereafter, shall be subrogated to all the rights of
such holders with respect to their shares of Preferred Stock.
6. Voting Rights
(a) General. Each holder of shares of Preferred Stock shall be entitled to
one vote per S1000 of liquidation preference of each share of Preferred Stock
without regard to any liquidation preference related to accumulated and unpaid
dividends (i.e., 100 votes per share); provided that all the votes represented
by a single share of Preferred Stock must be voted together, on each matter
submitted to a vote of stockholders of the Corporation and, except as otherwise
provided in the Charter or by Maryland law, the holders of Preferred Stock and
the holders of Common Stock of the Corporation shall vote together as one class
on all matters submitted to the stockholders; provided, however, that at any
meeting of the stockholders of the Corporation held for the election of
directors, the holders of Preferred Stock shall be entitled as a class, to the
exclusion of the holders of the Common Stock, to elect two directors of the
Corporation; provided, further, that the identity of the two directors
representing the holders of Preferred Stock on and after the Restatement Date
until the first meeting of the Corporation's stockholders following the
Restatement Date may be designated by the Board of Directors. Subject to
paragraph 6(b) hereof, the holders of the shares of Common Stock and Preferred
Stock shall vote as a single class for the election of the balance of the
directors.
(b) Right to Elect Majority of Board of Directors. (i) During any period
commencing with the Corporation's failure to pay dividends on shares of the
Preferred Stock in an amount equal to two full years of dividends (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the number of directors then constituting
the Board of Directors, shall (together with the two directors elected by the
holders pursuant to paragraph 6(a)) constitute a majority of the total number of
the directors of the Corporation as increased, and the holders of shares of
Preferred Stock shall be entitled, voting as a single class on a
100-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation), to elect the
smallest number of additional directors of the Corporation that shall constitute
a majority of the total number of directors of the Corporation so increased.
(ii) The Voting Period and the voting rights so created upon the occurrence
of the conditions set forth in this paragraph 6(b) shall continue unless and
until all accumulated and unpaid dividends on the then outstanding shares of
Preferred Stock including the accumulated and unpaid dividends as of the last
preceding Dividend Payment Date shall have been paid or declared and sufficient
funds set apart for the payment of such dividends. Upon the termination of a
Voting Period, the voting rights described in paragraph 6(b)(i) shall cease,
subject always, however, to the revesting of such voting rights in the holders
of shares of Preferred Stock upon the further occurrence of the event described
in such paragraph 6(b)(i).
(c) Voting Procedures. (i) As soon as practicable after the accrual of any
right of the holders of shares of Preferred Stock to elect directors pursuant to
paragraph 6(b)(i), the Corporation shall notify the Auction Agent and the
Auction Agent shall call a special meeting of the holders of shares of Preferred
Stock by mailing a notice of such special meeting to the holders of shares of
Preferred Stock not less than 10 nor more than 20 days after the date of mailing
of such notice. If the Corporation fails to send such notice to the Auction
Agent or if the Auction Agent does not call such a special meeting (as provided
above), it may be called by any holder of shares of Preferred Stock on like
notice. The record date for determining the holders of shares of Preferred Stock
entitled to notice of and to vote at such special meeting shall be the close of
business on the fifth Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each meeting at which directors are
elected held during a Voting Period, the holders of shares of Preferred Stock,
voting together as a class (to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation), shall be entitled
to elect the number of directors prescribed in paragraph 6(b)(i) above on a
100-vote-per-share basis. At any such meeting or adjournment thereof in the
absence of a quorum, a majority of the holders of shares of Preferred Stock
present in person or by proxy shall have the power to adjourn the meeting
without notice, other than an announcement at the meeting, until a quorum is
present.
(ii) For purposes of determining any rights of the holders of shares of
Preferred Stock to vote on any matter, whether such right is created by the
Charter, by statute or otherwise, no holder of shares of Preferred Stock shall
be entitled to vote and no share of Preferred Stock shall be deemed to be
"outstanding" for the purpose of voting or determining the number of shares
required to constitute a quorum, if prior to or concurrently with the time of
determination of shares entitled to vote or shares deemed outstanding for quorum
purposes, as the case may be, sufficient funds for the redemption of such shares
have been deposited in trust with the Paying Agent for that purpose, the
requisite Notice of Redemption with respect to such shares shall have been given
as provided in paragraph 5(c)(iv) and such holder shall not have exercised the
Holding Election.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of shares of Preferred
Stock to elect directors pursuant to paragraph 6(b) shall continue,
notwithstanding the election at such meeting by the holders of shares of
Preferred Stock of the number of directors that they are entitled to elect, and
the persons so elected by the holders of shares of Preferred Stock, together
with the incumbent directors, shall constitute the duly elected directors of the
Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the terms of
office of the directors elected by the holders of shares of Preferred Stock
pursuant to paragraph 6(b)(i) shall terminate, the persons who shall have been
serving as directors immediately prior to such voting period and who are
incumbent shall constitute the directors of the Corporation and the voting
rights of the holders of shares of Preferred Stock to elect directors pursuant
to paragraph 6(b)(i) shall cease.
(v) The directors elected by the holders of shares of Preferred Stock
pursuant to paragraphs 6(a) and 6(b)(i) shall (subject to the provisions of any
applicable law) be subject to removal only by the vote of the holders of a
majority of outstanding shares of the Preferred Stock. Any vacancy on the Board
of Directors occurring by reason of such removal or otherwise (in the case of
directors subject to election by the holders of Preferred Stock) may be filled
only by vote of the holders of Preferred Stock outstanding or (subject to the
provisions of any applicable law) by a majority of the remaining directors (or
the remaining director) who were elected by the holders of shares of Preferred
Stock. Any other vacancy on the Board of Directors during a Voting Period shall,
to the extent permitted by applicable law, be filled by a vote of the remaining
directors or the holder or holders of the Corporation's outstanding Common Stock
and Preferred Stock, voting as a single class.
(d) Surety Voting. At any time that the Preferred Stock is held by the
Surety Custodian pursuant to paragraph 2A hereof and the Surety Custody
Agreement, voting rights with respect to shares of Preferred Stock will be
exercised by the Surety Custodian in accordance with instructions given by the
beneficial holders of the shares of Preferred Stock; provided, however, that at
any time that the Surety Custodian has made a claim for payment under, and the
Surety has made Scheduled Payments pursuant to, the Surety Bond, the Surety
Custodian will vote the Preferred Shares with respect to which such Scheduled
Payments have been made under the Surety Bond in accordance with instructions
given by the Surety. The right of the Surety to instruct the Surety Custodian
with respect to voting such shares of Preferred Stock shall terminate when the
Corporation has made payments on the shares of Preferred Stock with respect to
which the Scheduled Payments were made by the Surety or the Corporation has
reimbursed the Surety for such Scheduled Payments and shall be reinstated if the
Surety makes additional Scheduled Payments pursuant to the Surety Bond.
(e) Exclusive Remedy. Unless otherwise required by law, the holders of
shares of Preferred Stock shall not have any relative rights or preferences or
other special rights other than those specifically set forth herein. In the
event that the Corporation fails to pay any dividends on the shares of Preferred
Stock, the exclusive remedy of the holders of shares of Preferred Stock shall be
the right to vote for directors pursuant to the provisions of this paragraph 6.
In no event shall the holders of shares of Preferred Stock have any right to xxx
for, or bring a proceeding with respect to, such dividends or damages for the
failure to receive the same.
7. Asset and Liability Coverage
(a) Preferred Stock Basic Maintenance Amount Required Under Certain
Circumstances. (i) At any such time as the Surety Bond is not in effect and any
of the shares of Preferred Stock are outstanding, the Corporation will maintain,
on each Valuation Date, Eligible Portfolio Property having an aggregate
Discounted Value at least equal to the Preferred Stock Basic Maintenance Amount,
each as of such Valuation Date.
(ii) To the extent that this paragraph 7(a) is applicable at any such time,
on or before 5:00 P.M., Boston time, on the third Business Day after each
Valuation Date, the Corporation shall complete and deliver to the Auction Agent
a Portfolio Valuation Report, which will be deemed to have been delivered to the
Auction Agent (A) if the Auction Agent receives a copy or telecopy, telex or
other electronic transcription thereof, or (B) if the Auction Agent receives a
telecopy, telex or other electronic transcription setting forth at least the
applicable Discounted Value of the aggregate of all Eligible Portfolio Property
(the "Portfolio Calculation") and the Preferred Stock Basic Maintenance Amount
each as of the relevant Valuation Date and on the same day the Corporation mails
to the Auction Agent for delivery on the next Business Day the full Portfolio
Valuation Report. A failure by the Corporation to deliver a Portfolio Valuation
Report under this paragraph 7(a)(ii) shall be deemed to be delivery of a
Portfolio Valuation Report indicating a value for all Eligible Portfolio
Property of less than the Preferred Stock Basic Maintenance Amount, as of the
relevant Valuation Date.
(iii) To the extent that this paragraph 7(a) is applicable at any such
time, within three Business Days after the date of delivery to the Auction
Agent of a Portfolio Valuation Report in accordance with paragraph 7(a)(ii)
above relating to a Quarterly Valuation Date, the Corporation shall deliver to
the Auction Agent a letter reviewing the Portfolio Calculation, prepared by the
Corporation's Independent Accountants, relating to such Portfolio Valuation
Report substantially to the effect that (A) the Independent Accountants have
read the Portfolio Valuation Report for the current Quarterly Valuation Date
(the "Report"); (3) with respect to the issue size compliance, issuer
diversification and industry diversification calculations, such calculations and
the resulting eligible portfolio market value are numerically correct; (C) with
respect to the Preferred Stock Basic Maintenance Amount, the results of the
calculation set forth in the Report have been recalculated and are numerically
correct; (D) with respect to the excess or deficiency of the Discounted Value
amount when compared to the Preferred Stock Basic Maintenance Amount, the
results of the calculation set forth in the Report have been recalculated and
are numerically correct; (E) with respect to the Rating Agencies, ratings on
Corporate Debt Obligations, issuer name, issue size and coupon rate listed in
the Report, that information has been traced and agrees with the information
listed in The Standard & Poor's Bond Guide (in the event such information does
not agree or such information is not listed in The Standard & Poor's Bond Guide,
the Independent Accountants will inquire of the Rating Agencies what such
information is, and provide a listing in their letter of such differences, if
any); and (F) with respect to the lower of two bid prices (or alternative
permissible factors used in calculating the Market Value) provided by the
custodian of the Corporation's assets to the Corporation for purposes of valuing
securities in the portfolio, the Independent Accountants have traced the price
used in the Report to the lower of the two bid prices listed in the report
provided by such custodian and verified that such information agrees (in the
event such information does not agree, the Independent Accountants will provide
a listing in their letter of such differences). If any letter reviewing the
Portfolio Calculation delivered pursuant to this paragraph shows that an error
was made in the Portfolio Valuation Report for such Quarterly Valuation Date, or
shows that a lower aggregate Discounted Value for the aggregate of all Eligible
Portfolio Property was determined by the Independent Accountants, the
calculation or determination made by such Independent Accountants shall be final
and conclusive and shall be binding on the Corporation, and the Corporation
shall promptly amend the Portfolio Valuation Report and deliver the amended
Portfolio Valuation Report to the Auction Agent.
(iv) To the extent that this paragraph 7(a) is applicable at any such time,
the Corporation shall deliver an Officers' Certificate to the Auction Agent as
of the fifteenth of each month (and if such day is not a Business Day, then the
next succeeding Business Day) and the last Business Day of each month
certifying, to the best knowledge of the Officers signing such Officers'
Certificate, the Portfolio Calculation as of such Business Day and the Preferred
Stock Basic Maintenance Amount as of such Business Day.
(b) Liquidity Coverage. (i) At any such time as the Surety Bond is not in
effect and any shares of Preferred Stock are outstanding, the Corporation shall
determine as of each Valuation Date (A) the Market Value of the Interest and
Dividend Coverage Assets owned by the Corporation as of that Valuation Date, (B)
the Interest and Dividend Coverage Amount on that Valuation Date, and (C)
whether the Minimum Liquidity Level is met as of that Valuation Date. The
calculations of the Interest and Dividend Coverage Assets, the Interest and
Dividend Coverage Amount and whether the Minimum Liquidity Level is met shall be
set forth in a certificate (a "Certificate of Minimum Liquidity") dated as of
the Valuation Date. The Portfolio Valuation Report and the Certificate of
Minimum Liquidity may be combined in one certificate. To the extent that this
paragraph 7(b) shall be applicable at any such time, the Corporation shall cause
the Certificate of Minimum Liquidity to be delivered to the Auction Agent not
later than the close of business on the third Business Day after the Valuation
Date. The Minimum Liquidity Level shall be deemed to be met as of any date of
determination if the Corporation has timely delivered a Certificate of Minimum
Liquidity relating to such date, which states that the same has been met and
which is not manifestly inaccurate. In the event that a Certificate of Minimum
Liquidity is not delivered to the Auction Agent when required pursuant to this
paragraph 7(b), the Minimum Liquidity Level shall be deemed not to have been met
as of the applicable date.
(ii) To the extent that this paragraph 7(b) shall be applicable at any such
time, if the Minimum Liquidity Level is not met as of any Valuation Date, then
the Corporation shall purchase or otherwise acquire Interest and Dividend
Coverage Assets (with the proceeds from the Liquidation of Eligible Portfolio
Property or otherwise) to the extent necessary so that the Minimum Liquidity
Level is met as of the fifth Business Day following such Valuation Date. The
Corporation shall, by such fifth Business Day, provide to the Auction Agent a
Certificate of Minimum Liquidity setting forth the calculations of the Interest
and Dividend Coverage Assets and the Interest and Dividend Coverage Amount and
showing that the Minimum Liquidity Level is met as of such fifth Business Day
together with a report of the custodian of the Corporation's assets confirming
the amount of the Corporation's Interest and Dividend Coverage Assets as of such
fifth Business Day.
8. Auction Procedures
(a) Certain Definitions. Capitalized terms not defined in this paragraph
8(a) shall have the respective meanings specified in paragraph 2. As used in
this paragraph 8, the following terms shall have the following meanings, unless
the context otherwise requires:
(i) "Affiliate" shall mean any Person known to the Auction Agent to be
controlled by, in control of or under common control with the Corporation.
(ii) "Agent Members" shall mean the member of the Securities Depository
that will act on behalf of a Bidder and is identified as such in such Bidder's
Purchaser's Letter.
(iii) "Auction" shall mean the periodic operation of the procedures set
forth in this paragraph 8.
(iv) "Auction Date" shall mean the first Business Day preceding the first
day of the next Dividend Period.
(v) "Available Preferred Stock" shall have the meaning specified in
paragraph 8(d)(i)(A) below.
(vi) "Bid" and "Bids" shall have the respective meanings specified in
paragraph 8(b)(i) below.
(vii) "Bidder" and "Bidders" shall have the respective meanings specified
in paragraph 8(b)(i) below.
(viii) "Broker-Dealer" shall mean Xxxxxx Xxxxxxx Xxxxxxx Incorporated and
any other broker-dealer, or other entity permitted by law to perform the
functions required of a Broker-Dealer in this paragraph 8, that has been
selected by the Corporation and has entered into a Broker-Dealer Agreement with
the Auction Agent that remains effective.
(ix) "Broker-Dealer Agreements" shall mean agreements between the Auction
Agent and Xxxxxx Xxxxxxx Xxxxxxx Incorporated and similar agreements with one or
more other Broker-Dealers pursuant to which such Broker-Dealer agrees to follow
the procedures specified in this paragraph 8.
(x) "Commercial Paper Dealers" means Xxxxxx Xxxxxxx Xxxxxxx Incorporated
and any of its Affiliates or any of their respective successors.
(xi) "Existing Holder," when used with respect to shares of Preferred
Stock, shall mean a Person who has signed a Master Purchaser's Letter and is
listed as the beneficial owner of such shares of Preferred Stock in the records
of the Auction Agent.
(xii) "Hold Order" and "Hold Orders" shall have the respective meanings
specified in paragraph 8(b)(i) below.
(xiii) "Master Purchaser's Letter" shall mean a letter addressed to the
Corporation, the Auction Agent and a Broker-Dealer in which a Person agrees,
among other things, to offer to purchase, purchase, offer to sell and/or sell
auction rate securities as set forth in this paragraph 8.
(xiv) "Maximum Applicable Rate" and "Minimum Applicable Rate" on any
Auction Date shall be 175% and 90%, respectively, of the 30-day "AA" Composite
Commercial Paper Rate at the close of business on the Business Day next
preceding the Auction Date.
(xv) "Potential Holder" shall mean any Person, including any Existing
Holder, (A) who shall have executed a Purchaser's Letter and (B) who may be
interested in acquiring shares of Preferred Stock (or, in the case of an
Existing Holder, additional shares of Preferred Stock).
(xvi) "Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph 8(b)(i) below.
(xvii) "Submission Deadline" shall mean 12:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date (as specified by the
Auction Agent from time to time) by which Broker-Dealers are required to submit
Orders to the Auction Agent.
(xviii) "Submitted Bid" and "Submitted Bids" shall have the respective
meanings specified in paragraph 8(d)(i) below.
(xix) "Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragaph 8(d)(i) below.
(xx) "Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph 8(d)(i) below.
(xxi) "Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph 8(d)(i) below,
(xxii) "Sufficient Clearing Bids" shall have the meaning specified in
paragraph 8(d)(i) below.
(xxiii) "30-day AA Composite Commercial Paper Rate" on any date, means (i)
the interest equivalent of the 30-day rate on commercial paper on behalf of
issuers whose corporate bonds are rated "AA" by S&P, or the equivalent of such
rating by another nationally recognized rating agency, as announced by the
Federal Reserve Bank of New York for the close of business on the Business Day
immediately preceding such date; or (ii) if the Federal Reserve Bank of New York
does not make available such a rate, then the arithmetic average of the interest
equivalent of the 30-day rates on commercial paper placed on behalf of such
issuers, as quoted on a discount basis or otherwise by the Commercial Paper
Dealers to the Auction Agent for the close of business on the Business Day
immediately preceding such date (rounded to the next highest .001 of 1%). If any
Commercial Paper Dealer does not quote a rate required to determine the 30-day
"AA" Composite Commercial Paper Rate, such rate shall be determined on the basis
of the quotations (or quotation) furnished by the remaining Commercial Paper
Dealers (or Dealer), if any, or, if there are no such Commercial Paper Dealers,
the Auction Agent will retain a dealer to provide such quotations.
(xxiv) "Winning Bid Rate" shall have the meaning specified in paragraph
8(d)(i) below.
(b) Orders by Existing Holders and Potential Holders. (i) On or prior to
the Submission Deadline on each Auction Date:
(A) each Existing Holder, with respect to shares of Preferred Stock it
then holds, may submit to a Broker-Dealer by telephone or otherwise
information as to:
(1) the number of shares, if any, of Preferred Stock held by such
Existing Holder which such existing Holder desires to continue to hold
without regard to the Applicable Rate for the next Dividend Period;
(2) the number of shares, if any, of Preferred Stock which such
Existing Holder desires to continue to hold if the Applicable Rate for
the next Dividend Period shall not be less than the rate per annum
then specified by such Existing Holder;
(3) the number of shares, if any, of Preferred Stock held by such
Existing Holder which such Existing Holder offers to sell without
regard to the Applicable Rate for the next succeeding Dividend Period;
and
(B) Each Broker-Dealer, using a list of Potential Holders that shall
be maintained by such Broker-Dealer in good faith for the purposes of
conducting a competitive Auction, shall contact Potential Holders on such
lists to determine the number of shares, if any, of Preferred Stock which
such Potential Holders offer to purchase if the Applicable Rate for the
next succeeding Dividend Period shall not be less than the rate per annum
specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in this paragraph 8(b) is hereinafter referred to as an
"Order" and collectively as "Orders" and each Existing Holder and each Potential
Holder placing an Order is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (A)(l) of this paragraph 8(b) is hereinafter referred to as a "Hold
Order" and collectively as "Hold Orders"; an Order containing the information
referred to in Clause (A)(2) or (B) of this paragraph 8(b) is hereinafter
referred to as "Bid" and collectively as "Bids"; and an Order containing the
information referred to in clause (A)(3) of this paragraph 8(b) is hereinafter
referred to as a "Sell Order" and collectively as "Sell Orders."
(ii) As a condition to participating in any Auction, each prospective
purchaser of shares of Preferred Stock shall be required to sign and deliver two
copies to the Auction Agent, and one copy to a Broker-Dealer, of a Master
Purchaser's Letter, in which such prospective purchaser will agree, among other
things, that:
(A) A Bid by an Existing Holder shall constitute an irrevocable offer
to sell:
(1) the number of shares of Preferred Stock specified in such Bid
if the Applicable Rate determined on such Auction Date shall be less
than the rate specified therein;
(2) such specified number or a lesser number of shares of
Preferred Stock to be determined as set forth in clause (D) of
paragraph 8(e)(i) if the Applicable Rate determined on such Auction
Date shall be equal to the rate specified therein; or
(3) such specified number or a lesser number of shares of
Preferred Stock to be determined as set forth in clause (C) of
paragraph 8(e)(ii) if the rate specified therein shall be higher than
the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of shares of Preferred Stock specified in such
Sell Order; or
(2) such specified number or a lesser number of shares of
Preferred Stock as set forth in clause (C) of paragraph 8(e)(ii) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of shares of Preferred Stock specified in such Bid
if the Applicable Rate determined on such Auction Date shall be higher
than the rate therein; or
(2) such specified number or a lesser number of shares of
Preferred Stock as set forth in clause (E) of paragraph 8(e)(i) of the
Applicable Rate determined on such Auction Date shall be equal to the
rate specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent. (i) Each
Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer for the Auction to be conducted on such Auction Date and shall
specify with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of shares of Preferred Stock that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder the number of
shares, if any, of Preferred Stock subject to any:
(1) Hold Order placed by such Existing Holder;
(2) Bid placed by such Existing Holder and the rate specified in
such Bid; and
(3) Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder the rate specified
in such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001 of 1%).
(iii) If an Order or Orders covering all of the shares of Preferred Stock
held by an Existing Holder is not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order to have been
submitted on behalf of such Existing Holder covering the number of shares of
Preferred Stock held by such Existing Holder and not subject to Orders submitted
to the Auction Agent.
(iv) If one or more Orders covering in the aggregate more than the number
of shares of Preferred Stock held by an Existing Holder are submitted to the
Auction Agent, such Orders shall be considered valid as follows and in the
following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of outstanding shares of
Preferred Stock held by such Existing Holder; provided that if more than
one Hold Order is submitted on behalf of such Existing Holder and the
number of shares of Preferred Stock subject to such Hold Orders exceeds the
number of shares of Preferred Stock held by such Existing Holder, the
number of shares of Preferred Stock subject to each such Hold Order shall
be reduced pro rata so that such Hold Order shall cover the number of
shares of Preferred Stock held by such Existing Holder;
(B) (1) any Bid shall be considered valid up to and including the
excess of the number of shares of Preferred Stock held by such Existing
Holder over the number of shares of Preferred Stock subject to any Hold
Orders referred to in clause (iv)(A) of paragraph 8(c);
(2) subject to subclause (1), if more than one Bid with the same
rate is submitted on behalf of such Existing Holder and the number of
shares of Preferred Stock subject to such Bids is greater than the
excess described in subclause (1), the number of shares of Preferred
Stock subject to such Bids shall be reduced pro rata so that such Bids
shall cover the number of shares of Preferred Stock equal to such
excess;
(3) subject to subclause (1), if more than one Bid with
different rates is submitted on behalf of such Existing Holder, such
Bids shall be considered valid in the ascending order of their
respective rates; and
(4) the number, if any, of such shares of Preferred Stock subject
to Bids not valid under this clause (B) shall be treated as the
subject of a Bid by a Potential Holder at the rate therein specified;
and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of shares of Preferred Stock held by such Existing
Holder over the sum of the shares of Preferred Stock subject to valid Hold
Orders referred to in clause (iv)(A) of paragraph 8(c) and valid Bids by
such Existing Holder referred to in clause (iv)(B) of paragraph 8(c),
provided that if more than one Sell Order is submitted on behalf of any
Existing Holder and the number of shares of Preferred Stock subject to such
Sell Orders is greater than such excess, the number of shares of Preferred
Stock subject to such Sell Orders shall be reduced Pro rata so that such
Sell Orders shall cover the number of shares of Preferred Stock equal to
such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate and number of shares of
Preferred Stock therein specified.
(vi) If any rate specified in any Bid is lower than the Minimum Applicable
Rate for the Dividend Period with respect to which such Bid is made, such Bid
shall be deemed to be a Bid specifying a rate equal to such Minimum Applicable
Rate.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate. (i) Not earlier than the Submission Deadline, the Auction Agent
shall assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to as a "Submitted Hold Order," a
"Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a
"Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids"
or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and
shall determine:
(A) the excess of the total number of shares of Preferred Stock over
the number of shares of Preferred Stock that are the subject of Submitted
Hold Orders (such excess being hereinafter referred to as the "Available
Preferred Stocks");
(B) from the Submitted Orders whether the number of shares of
Preferred Stock that are subject of Submitted Bids by Potential Holders
specifying one or more rates equal to or lower than the Maximum Applicable
Rate exceeds or is equal to the sum of:
(1) the number of shares of Preferred Stock that are the subject
of Submitted Bids by Existing Holders specifying one or more rates
higher than the Maximum Rate; and
(2) the number of shares of Preferred Stock that are subject to
Submitted Sell Orders;
in the event of such excess or such equality (other than because all
of the shares of Preferred Stock are the subject of Submitted Hold Orders),
such Submitted Bids are hereinafter referred to collectively as "Sufficient
Clearing Bids"; and
(C) if Sufficient Clearing Bids exist, the lowest rate specified in
the Submitted Bids (the "Winning Bid Rate") which if:
(1) each Submitted Bid from Existing Holders specifying such
lowest rate and all other Submitted Bids from Existing Holders
specifying lower rates were accepted, thus entitling such Existing
Holders to continue to hold the shares of Preferred Stock that are the
subject of such Submitted Bids; and
(2) each Submitted Bid from Potential Holders specifying such
lowest rate and all other Submitted Bids from Potential Holders
specifying lower rates were accepted, thus entitling those Potential
Holders to purchase the shares of Preferred Stock that are the subject
of such Submitted Bids, would result in such Existing Holders
described in subclause (1) above continuing to hold an aggregate
number of shares of Preferred Stock which, when added to the number of
shares of Preferred Stock to be purchased by such Potential Holders
described in subclause (2) above, would equal not less than the
Available Preferred Stock.
(ii) Promptly after the Auction Agent has made the determination pursuant
to paragraph 8(d)(i) the Auction Agent shall advise the Corporation of the
Maximum Applicable Rate and the Minimum Applicable Rate and, based on all such
determinations, the Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the outstanding shares of Preferred Stock are the subject of Submitted
Hold Orders), that the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Maximum Applicable Rate; or
(C) if all the shares of Preferred Stock are the subject of Submitted
Hold Orders, that the Applicable Rate for Preferred Stock for the next
succeeding Dividend Period shall be equal to the Minimum Applicable Rate.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocations of Shares. Existing Holders shall continue to hold the shares of
Preferred Stock that are the subject of Submitted Hold Orders, and, based on the
determination made pursuant to paragraph 8(d)(i), the Submitted Bids and
Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall
take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the provisions
of paragraph 8(e)(iii), Submitted Bids and Submitted Sell Orders shall be
accepted or rejected in the following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each Existing Holder specifying any rate that is
higher than the Winning Bid Rate shall be rejected, thus requiring each
such Existing Holder to sell the shares of Preferred Stock that are the
subject of such Submitted Sell Orders or Submitted Bids;
(B) the Submitted Bid of each Existing Holder specifying any rate that
is lower than the Winning Bid Rate shall be accepted thus entitling each
such Exisiting Holder to continue to hold the shares of Preferred Stock
that are the subject of such Submitted Bid;
(C) the Submitted Bid of each Potential Holder specifying any rate
that is lower than the Winning Bid Rate shall be accepted and such
Potential Holder shall purchase the number of shares of Preferred Stock
subject to such Submitted Bid;
(D) the Submitted Bid of each Existing Holder specifying a rate that
is equal to the Winning Bid Rate shall be accepted, thus entitling such
Existing Holder to continue to hold the shares of Preferred Stock that are
subject of such Submitted Bid, unless the number of shares of Preferred
Stock subject to all such Submitted Bids shall be greater than the number
of shares of Preferred Stock equal to the excess of the Available Preferred
Stock over the number of shares of Preferred Stock subject to Submitted
Bids described in clauses (B) and (C) of this paragraph 8(e)(i) (the
"Remaining Shares"). In such event such Existing Holder shall be required
to sell shares of Preferred Stock subject to such Submitted Bid, but only
in an amount equal to the difference between (x) the number of shares of
Preferred Stock then held by such Existing Holder subject to such Submitted
Bid and (y) the number of shares of Preferred Stock obtained by multiplying
the number of Remaining Shares by a fraction the numerator of which shall
be the number of shares of Preferred Stock held by such Existing Holder
subject to such Submitted Bid and the denominator of which shall be the sum
of the number of shares of Preferred Stock subject to such Submitted Bids
made by all such Existing Holders that specified a rate equal to the
Winning Bid Rate; and
(E) the Submitted Bid of each Potential Holder specifying a rate that
is equal to the Winning Bid Rate shall be accepted, but only in an amount
equal to the number of shares of Preferred Stock obtained by multiplying
the difference between the Available Preferred Stock and the number of
shares of Preferred Stock subject to Submitted Bids described in clauses
(B), (C) and (D) of this paragraph 8(e)(i) by a fraction the numerator of
which shall be the number of shares of Preferred Stock subject to such
Submitted Bid and the denominator of which shall be the sum of the number
of shares of Preferred Stock subject to such Submitted Bids made by all
such Potential Holders that specified a rate equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because all
of the outstanding shares of Preferred Stock are the subject of Submitted Hold
Orders), subject to the provisions of paragraph 8(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate that
is equal to or lower than the Maximum Rate shall be accepted, thus
entitling such Existing Holders to continue to hold the shares of Preferred
Stock that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
that is equal to or lower than the Maximum Applicable Rate shall be
accepted and such Potential Holder shall purchase the number of shares of
Preferred Stock subject to such Submitted Bid; and
(C) the Submitted Bid of each Existing Holder specifying any rate that
is higher than the Maximum Applicable Rate shall be rejected, thus
requiring each such Existing Holder to sell the shares of Preferred Stock
that are the subject of such Submitted Bid, and the Submitted Sell Order of
each Existing Holder shall be accepted, in both cases only in an amount
equal to the difference between (x) the number of shares of Preferred Stock
then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (y) the number of shares of Preferred Stock
obtained by multiplying the difference between the Available Preferred
Stock and the aggregate number of shares of Preferred Stock subject to
Submitted Bids described in clauses (A) and (B) of this paragraph 8(e)(ii)
by a fraction the numerator of which shall be the number of shares of
Preferred Stock held by such Existing Holder subject to such Submitted Bid
or Submitted Sell Order and the denominator of which shall be the aggregate
number of shares of Preferred Stock subject to all such Submitted Bids and
Submitted Sell orders.
(iii) If, as a result of the procedures described in paragraphs 8(e)(i) or
8(e)(ii), any Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a fraction of a
share of Preferred Stock on any Auction Date, the Auction Agent shall, in such
manner as it shall determine, round up or down the number of shares of Preferred
Stock to be purchased or sold by any Existing Holder or Potential Holder on such
Auction Date so that the number of shares purchased or sold by each Existing
Holder or Potential Holder on such Auction Date shall be whole shares of
Preferred Stock, even if such allocation results in one or more of such
Potential Holders not purchasing shares of Preferred Stock on such Auction Date
or any Existing Holder not selling shares of Preferred Stock on such Auction
Date.
(iv) Based on the results of each Auction, the Auction Agent shall
determine the aggregate number of shares of Preferred Stock to be purchased and
the aggregate number of shares of Preferred Stock to be sold by Potential
Holders and Existing Holders on whose behalf each Broker-Dealer submitted Bids
or Sell Orders and, with respect to each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such aggregate number of shares
to be sold differ, determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, shares of Preferred Stock.
(f) Participation in Auctions. Neither the Corporation nor any Affiliate of
the Corporation may submit an Order in any Auction.
(g) Miscellaneous. (i) The Board of Directors of the Corporation may
interpret the provisions of this paragraph 8 to resolve any inconsistency or
ambiguity, remedy any formal defect or make any other change or modification
which does not adversely affect the rights of Existing Holders of Preferred
Stock. If such inconsistency, ambiguity or defect reflects an inaccurate
provision hereof, the Board of Directors may, in appropriate circumstances as
permitted by law, authorize the filing of a Certificate of Correction.
(ii) (A) An Existing Holder may sell, transfer or otherwise dispose of
shares of Preferred Stock only (1) pursuant to a Bid or a Sell Order placed
in an Auction in accordance with the procedures set forth in this paragraph
8, (2) to or through a Broker-Dealer or (3) to a Person that has delivered
a signed Master Purchaser's Letter to the Auction Agent, provided that as a
condition to such transfer (in the case of all transfers other than those
pursuant to Auctions), such Existing Holder, the transferee or the
transferee's Broker-Dealer or Agent Member of the Securities Depository
shall advise the Auction Agent of such transfer; and
(B) Except as otherwise provided by law, all of the outstanding
shares of Preferred Stock shall be represented by a separate
certificate or certificates registered in the name of the nominee of
the Securities Depository, and no Person acquiring shares of Preferred
Stock shall be entitled to receive a certificate representing such
shares.
(iii) The Corporation shall exercise its best efforts to maintain an
Auction Agent pursuant to an agreement containing terms not materially less
favorable to the Corporation than the terms of the Auction Agent Agreement
first entered into by the Corporation pursuant to the resolutions adopted
by the Board of Directors of the Corporation on November 11, 1988.
(h) Headings of Subdivisions. The headings of the various subdivisions of
this paragraph 8 are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
ARTICLE V
BOARD OF DIRECTORS
(A) All corporate powers and authority of the Corporation (except as
otherwise provided by statute, by the Charter or by the Corporation's By-laws)
shall be vested in and exercised by the Board of Directors. Except as may be
required to give effect to paragraph 6(b) of Article IV(C), the number of
directors constituting the Board of Directors shall be no less than three (3)
nor more than fifteen (15), with the exact number to be fixed pursuant to the
By-laws provided that the number of directors shall at no time be less than the
minimum number required under the Maryland General Corporation Law or, as long
as any shares of Preferred Stock are outstanding, the Investment Company Act.
The current number of directors is six (6) and the persons who are currently
acting as directors are Xxxxxxx X. Xxxxxxxxx, Xx., Xxxx X. Xxxxxxxx, C. Xxxxxxx
Xxxxx, Xxxxxx X. Xxxx, Xxxxxx X. Meyohas and Xxxxxx X. Xxxxx.
At any time when the Holders of Preferred Stock of the Corporation become
entitled to elect additional directors pursuant to paragraph 6(b) of Article
IV(C), the exact number of directors fixed by the By-laws of the Corporation or
otherwise shall automatically be increased by the number of such additional
directors and the maximum number of directors of the Corporation specified by
the Charter shall be increased accordingly, if required; and at such time as the
holders of Preferred Stock shall no longer be entitled to elect directors
pursuant to paragraph 6(b) of Article IV(C), such exact number shall
automatically be decreased by the number by which they were increased by reason
of this provision.
(B) In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Maryland, but subject to the other provisions of the
Charter, the Board of Directors is expressly authorized:
1. To make, alter or repeal the By-laws of the Corporation, except
where such power is reserved by the By-laws to the stockholders, and except
as otherwise required by the Investment Company Act.
2. From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the books
and accounts of the corporation, or any of them other than the stock
ledger, shall be open to the inspection of the stockholders. No stockholder
shall have any right to inspect any account or book or documents of the
Corporation, except as conferred by law or authorized by resolution of the
Board of Directors or of the stockholders.
3. Without the assent or vote of the stockholders, to authorize the
issuance from time to time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, and securities
convertible into shares of stock of the Corporation of any class or
classes, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable.
4. Without the assent or vote of the stockholders, to authorize and
issue obligations of the Corporation, secured and unsecured, as the Board
of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the real or personal property of the Corporation.
5. To establish the basis or method for determining the value of the
assets belonging to any class, the value of the liabilities belonging to
any class and the net asset value of each share of any class of the
Corporation's stock.
6. To determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to determine what accounting periods
shall be used by the Corporation for any purpose to the extent consistent
with the By-laws of the Corporation; to set apart out of any funds of the
Corporation reserves for such purposes as it shall determine and to abolish
the same; to declare and pay any dividends and distributions in cash,
securities or other property from surplus or any funds legally available
therefor, at such intervals as it shall determine and by means of a formula
or other method of determination; and to establish payment dates for
dividends or any other distributions on any basis.
7. In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized
to exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the laws of the State of
Maryland, the Charter and the By-laws of the Corporation.
(C) Any determination made in good faith, and in accordance with the
Charter and generally accepted accounting practices, if applicable, by or
pursuant to the direction of the Board of Directors, with respect to the amount
of assets, obligations or liability of the Corporation, as to the amount of net
income of the Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose of creating reserves or as to the use, alteration or cancellation of any
reserves or charges (whether or not any obligations or liability for which the
reserves or charges have been created has been paid or discharged or is then or
thereafter required to be paid or discharged), as to the value of any security
owned by the Corporation, the determination of the net asset value of shares of
any class of the Corporation's capital stock, or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Corporation, shall be final and
conclusive, and shall be binding upon the Corporation and all holders of its
capital stock, past, present and future, and shares of the capital stock of the
Corporation are issued and sold on the condition and understanding, evidenced by
the purchase of shares of capital stock or acceptance of share certificates,
that any and all such determinations shall be binding as aforesaid, No provision
of the Charter shall be effective to require a waiver of compliance with any
provisions of the Securities Exchange Act of 1933, as amended, or the Investment
Company Act, or of any valid rule or regulation of the Securities and Exchange
Commission under those Acts.
(D) The Corporation shall indemnify (1) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (2) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Corporation's
By-Laws and be permitted by law; provided, however, that nothing herein shall be
construed to provide indemnification to any director or officer of the
Corporation against any liability to which such director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be entitled. The Board
of Directors may take such action as is necessary to carry out these indemnifi-
cation provisions and is expressly empowered to adopt, approve and amend from
time to time such By-laws, resolutions or contracts implementing such provisions
or such further indemnification arrangements as may be Permitted by law. No
amendment of the Charter shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
(E) To the fullest extent permitted by Maryland statutory and decisional
law and the Investment Company Act, as amended or interpreted, no director or
officer of the Corporation shall be personally liable to the Corporation or its
stockholders for money damages; provided, however, that nothing herein shall be
construed to protect any director or officer of the Corporation against any
liability to which such director or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office. No amendment, modification or
repeal of this Article (V), Section (E) shall adversely affect any right or
protection of a director or officer that exists at the time of such amendment,
modification or repeal,
ARTICLE VI
AMENDMENTS; CLASS VOTING
(A) The Corporation reserves the right from time to time to amend, alter,
change or repeal any provision contained in the Charter, now or hereafter
authorized by law, including any amendment that alters the contract rights, as
expressly set forth in the Charter, of any outstanding stock.
(B) In addition to any other vote required by the Charter or applicable
law, as long as any shares of Preferred Stock are outstanding (i) the
Corporation may not be voluntarily liquidated, dissolved or wound up, or merged
into or consolidated with any other entity in a transaction pursuant to which it
is not the successor entity, or converted to open-end status, and may not sell
all or substantially all of its assets and may not engage in a statutory share
exchange in which it is not the successor entity, without the approval of at
least a majority of the outstanding shares of Preferred Stock and a majority of
the outstanding shares of Common Stock, each voting as a separate class; (ii)
the Corporation may not adopt any plan of reorganization adversely affecting
either the Preferred Stock or the Common Stock without the approval of a
majority of the outstanding shares of such class so affected; (iii) no amendment
to the Charter that would adversely affect the contract rights of the Common
Stock or the Preferred Stock as expressly set forth in the Charter, including
any amendment, alteration or repeal of the express preferences, rights or powers
of holders of the Preferred Stock as set forth in the Charter, May be adopted
without the approval of majority of the outstanding shares of each such class so
affected; (iv) no increase or decrease in the number of shares of Preferred
Stock authorized by the Charter to be issued may be made without the approval of
a majority of the outstanding shares of Preferred Stock; (v) the holders of the
Preferred Stock and the Common Stock shall vote in connection with the election
of directors as provided in paragraph 6 of Article IV(c); and (vi) the Common
Stock and the Preferred Stock will vote as separate classes to the extent
otherwise required under Maryland law or the Investment Company Act (it being
understood that any action requiring a vote of security holders under the
Investment Company Act shall require the vote of a Majority of the Outstanding
Voting Securities of Preferred Stock and the Vote of a Majority of the
Outstanding Voting Securities of Common Stock, each voting as a separate class).
Except to the extent otherwise required by applicable law or the Charter, as to
any matter which requires for approval the separate vote of a class of capital
stock, only the holders of the affected class of capital stock shall be entitled
to vote.
(C) Notwithstanding any provision of law requiring the authorization of any
action by a proportion greater than a simple majority of the total number of
shares of all classes or series of capital stock or of the total number of
shares of any class or series of capital stock entitled to vote as a separate
class or series, such action shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total number of shares of
all classes or series outstanding and entitled to vote thereon or of the class
or series entitled to vote thereon as a separate class or series, as the case
may be, except as otherwise provided in the Charter.
THIRD: At a meeting held on November 21, 1988 the Board of Directors of the
Corporation duly advised and approved the foregoing Articles of Amendment and
Restatement, and by written informal action unanimously taken by the sole
stockholder of the Corporation in accordance with Section 2-505 of the
Corporations and Associations Article of the Annotated Code of Maryland, the
sole stockholder of the Corporation duly adopted and approved said Articles of
Amendment and Restatement.
FOURTH: Immediately prior to the adoption of the foregoing Articles of
Amendment and Restatement, the Corporation had authority to issue one hundred
million (100,000,000) shares of capital stock, $.01 par value per share, for an
aggregate par value of $1,000,000. Immediately following the adoption of the
Articles of Amendment and Restatement, the Corporation has authority to issue an
aggregate of one hundred million one thousand (100,001,000) shares of capital
stock, of which one hundred million (100,000,000) shares shall be Common Stock,
$.01 par value per share, and one thousand (1,000) shares shall be Taxable
Auction Rate Preferred Stock, no par value per share, for an aggregate par value
of $1,000,000 for all shares with par value. The foregoing Articles of Amendment
and Restatement include a description of each class of capital stock, including
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
IN WITNESS WHEREOF, PROSPECT STREET HIGH INCOME PORTFOLIO INC. has caused
these presents to be signed in its name and on its behalf by its President and
its corporate seal to be hereunder affixed and attested by its Secretary on this
25th day of November, 1988, and its President acknowledges that these Articles
of Amendment and Restatement are the act and deed of Prospect Street High Income
Portfolio Inc., and, under the penalties of perjury, that the matters and facts
set forth herein with respect to authorization and approval are true in all
material respects to the best of his knowledge, information, and belief.
PROSPECT STREET HIGH
INCOME PORTFOLIO INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx, Xx.
-----------------------------------
ATTEST:
/s/ Xxxx X. Xxxxxxxx
-------------------------------------
EXHIBIT (C)
TO BE SUBMITTED TO THE BROKER-DEALER LISTED BELOW, WHO WILL THEN
DELIVER COPIES ON YOUR BEHALF TO THE AUCTION AGENT.
Bear, Xxxxxxx & Co. Inc.
Preferred Stock Sales and Trading Desk
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone number (000) 000-0000
Facsimile (000) 000-0000
MASTER PURCHASER'S LETTER
RELATING TO
SECURITIES INVOLVING RATE SETTINGS
THROUGH AUCTIONS
To: The Company
The Auction Agent
A Broker-Dealer
An Agent Member
Other Persons
1. This letter is designed to apply to auctions for publicly or
privately offered debt or equity securities ("Securities") of any issuer
("Company") which are described in any final prospectus or other offering
materials relating to such Securities as the same may be amended or supplemented
(collectively, with respect to the particular Securities concerned, the
"Prospectus") and which involve periodic rate settings through auctions
("Auctions"). This letter shall be for the benefit of any Company and of any
trust company or auction agent (collectively, "trust company"), broker-dealer,
agent member, securities depository or other interested person in connection
with any Securities and related Auctions (it being understood that such persons
may be required to execute specified agreements and nothing herein shall alter
such requirements). The terminology used herein is intended to be general in its
application and not exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to sell
and/or sell Securities of any Company as described in the Prospectus relating
thereto. We agree that this letter shall apply to all such purchases, sales and
offers and to Securities owned by us. We understand that the dividend/interest
rate on Securities may be based from time to time on the results of Auctions as
set forth in the Prospectus.
3. We agree that any bid or sell order placed by us shall constitute an
irrevocable offer by us to purchase or sell the Securities subject to such bid
or sell order, of such lesser amount of Securities as we shall be required to
sell or purchase as a result of such Auction, at the applicable price, all as
set forth in the Prospectus, and that if we fail to place a bid or sell order
with respect to Securities owned by us with a broker-dealer on any auction date,
or a brokerdealer to which we communicate a bid or sell order fails to submit
such bid or sell order to the trust company concerned, we shall be deemed to
have placed a hold order with respect to such Securities as described in the
Prospectus. We authorize any broker-dealer that submits a bid or sell order as
our agent in Auctions to execute contracts for the sale of Securities covered by
such bid or sell order. We recognize that the payment by such brokerdealer for
Securities purchased on our behalf shall not relieve us of any liability to such
broker-dealer for payment for such Securities.
4. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the denominations set
forth in the Prospectus and we will sell, transfer or otherwise dispose of any
Securities held by us from time to time only pursuant to a bid or sell order
placed in an Auction, to or through a broker-dealer or, when permitted in the
Prospectus, to a person that has signed and delivered, or caused to be delivered
on its behalf, to the applicable trust company a letter substantially in the
form of this letter (or other applicable purchaser's letter), provided that in
the case of all transfers other than pursuant to Auctions we or our
broker-dealer or agent member shall advise such trust company of such transfer.
We understand that a restrictive legend will be placed on certificates
representing the Securities and stop-transfer instructions will be issued to the
transfer agent and/or registrar, all as set forth in the Prospectus. We agree to
comply with any other transfer restrictions or other related procedures as
described in the Prospectus.
5. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by a global certificate
registered in the name of the applicable securities depository or its nominee,
that we will not be entitled to receive any certificate representing the
Securities and that our ownership of any Securities will be maintained in book
entry form by the securities depository for the account of our agent member,
which in turn will maintain records of our beneficial ownership. We authorize
and instruct our agent member to disclose to the applicable trust company such
information concerning our beneficial ownership of Securities as such trust
company shall request.
6. We acknowledge that partial deliveries of Securities purchased in
Auctions may be made to us and such deliveries shall constitute good delivery as
set forth in the Prospectus.
7. This letter is not a commitment by us to purchase any Securities.
8. This letter supersedes any prior-dated version of this Master
Purchaser's Letter, and supplements any prior- or post-dated purchaser's letter
specific to particular Securities; any recipient of this letter may rely upon it
until such recipient has received a signed writing amending or revoking this
letter.
9. The descriptions of Auction Procedures set forth in each applicable
Prospectus are incorporated by reference herein and, in case of any conflict
between this letter and any such description, such description shall control.
10. Any xerographic or other copy of this letter shall be deemed of
equal effect as a signed original.
11. Our agent member of the securities depository currently is .
12. Our personnel authorized to place orders in Auctions with
broker-dealers for the purposes set forth in the Prospectus currently is/are
, telephone number ( ) - .
13. Our taxpayer identification number is .
14. In the case of each offer to purchase, purchase, offer to sell or
sale by us of Securities not registered under the Securities Act of 1933, as
amended (the "Act"), we represent and agree as follows:
A. We understand and expressly acknowledge that the Securities have not
been and will not be registered under the Act and, accordingly, that the
Securities may not be reoffered, resold or otherwise pledged, hypothecated
or transferred unless an applicable exemption from the registration
requirements of the Act is available.
B. We hereby confirm that any purchase of Securities made by us will be
for our own account, or for the account of one or more parties for which we
are acting as trustee or agent with complete investment discretion and with
authority to bind such parties, and not with a view to any public resale or
distribution thereof. We and each other party for which we are acting which
will acquire Securities will be "accredited investors" within the meaning of
Regulation D under the Act with respect to the Securities to be purchased by
us or such party, as the case may be, will have previously invested in
similar types of instruments and will be able and prepared to bear the
economic risk of investing in and holding such Securities.
C. We acknowledge that prior to purchasing any Securities we shall have
received a Prospectus (private placement memorandum) with respect thereto
and acknowledge that we will have had access to such financial and other
information, and have been afforded the opportunity to ask such questions of
representatives of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase Securities.
D. We recognize that the Company and broker-dealers will rely upon the
truth and accuracy of the foregoing investment representations and
agreements, and we agree that each of our purchases of Securities now or in
the future shall be deemed to constitute our concurrence in all of the
foregoing which shall be binding on us and each party for which we are
acting as set forth in Subparagraph B above.
15. The Purchaser consents to the use of custody arrangements for the
Securities, if any, on such terms as shall be necessary or appropriate in
connection with insurance arrangements, if any, for the Securities or otherwise
and agrees that custody receipts issued in connection with any such arrangements
shall be treated in the same manner as and be deemed Securities for all purposes
hereunder and under the Company's governing documents and in Auctions. Copies of
relevant documents in connection with any such arrangements may be obtained upon
request to the address or telephone number set forth above. Receipt of any such
custody receipts shall constitute acceptance of the terms thereof.
16. The Purchaser acknowledges that, pursuant to the terms of any
custody arrangement with respect to the Purchaser's Securities, to the extent
that Financial Security Assurance Inc. or any other surety under a surety bond
unconditionally and irrevocably guaranteeing scheduled payments on the
Securities (the "Surety"), makes scheduled payments on the Purchaser's
Securities, may exercise such Surety the Purchaser's voting rights with respect
to the Securities and hereby assigns the Purchaser's right to receive from the
Company any payments on the Purchaser's Securities to which such scheduled
payments made by the Surety relates; and further acknowledges that the Surety
shall be subrogated to the Purchaser's rights with respect to the Securities
until the Company makes such payments on the Purchaser's Securities to which
such scheduled payments made by the Surety relate or the Company otherwise
reimburses the Surety for any scheduled payments so made by the Surety.
------------------------------------
(Name of Purchaser)
Dated:
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Mailing Address of Purchaser
By:
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Printed Name:
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Title:
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EXHIBIT (D)
SETTLEMENT PROCEDURES
The following procedures are expected to be followed in connection with the
settlement of each Auction and will be incorporated by reference in the Auction
Agent Agreement and each Broker-Dealer Agreement. Capitalized terms used herein
and not otherwise defined shall have the meanings specified in this Prospectus
or Appendix E hereto, as the case may be. Nothing contained in these procedures
constitutes a representation by the Corporation that in each Auction each party
referred to herein will actually perform the procedures described therein to be
performed by such party.
(a) On each Auction Date, the Auction Agent shall notify by telephone the
Broker-Dealers that participated in the Auction held on such Auction Date and
submitted an Order on behalf of any Existing Holder or Potential Holder of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination of
the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a Bid
or a Sell Order on behalf of an Existing Holder, the number of Preferred
Shares, if any, then outstanding to be sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid
on behalf of a Potential Holder, the number of Preferred Shares, if any, to
be purchased by such Potential Holder;
(v) if the aggregate number of Preferred Shares to be sold by all
Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order exceeds the aggregate number of Preferred Shares to be purchased
by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid,
the name or names of one or more Buyer's Broker-Dealers (and the Agent
Member, if any, of each such Buyer's Broker-Dealer) acting for one or more
purchasers of such excess number of Preferred Shares and the number of such
shares to be purchased from one or more Existing Holders on whose behalf
such Broker-Dealer acted by one or more Existing Holders on whose behalf
each of such Seller's Broker-Dealers acted;
(vi) if the aggregate number of Preferred Shares to be purchased by all
Potential Holders on whose behalf such Broker-Dealer submitted a Bid exceeds
the aggregate number of Preferred Shares to be sold by all Existing Holders
on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name
or names of one or more Seller's Broker-Dealers (and the name of the Agent
Member, if any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess number of Preferred Shares and the number of such
shares to be sold to one or more Potential Holders on whose behalf such
Broker-Dealer acted by one or more Existing Holders on whose behalf each of
such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder on whose behalf
such Broker-Dealer submitted a Bid or Sell Order whether such Bid or Sell
Order was accepted or rejected;
(ii) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Holder on whose behalf such Broker-Dealer submitted
a Bid that was accepted, in whole or in part, to instruct such Potential
Holder's Agent Member to pay to such Broker-Dealer (or its Agent Member)
through the Securities Depository the amount necessary to purchase the
number of Preferred Shares to be purchased pursuant to such Bid against
receipt of such shares and advise such Potential Holder of the Applicable
Rate for the next succeeding Dividend Period;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer,
instruct each Existing Holder on whose behalf such Broker-Dealer submitted a
Sell Order that was accepted, in whole or in part or a Bid that was
rejected, in whole or in part, to instruct such Existing Holder's Agent
Member to deliver to such Broker-Dealer (or its Agent Member) through the
Securities Depository the number of Preferred Shares to be sold pursuant to
such order against payment therefor and advise any such Existing Holder that
will continue to hold Preferred Shares of the Applicable Rate for the next
succeeding Dividend Period;
(iv) advise each Existing Holder on whose behalf such Broker-Dealer
submitted a Hold Order of the Applicable Rate for the next succeeding
Dividend Period;
(v) advise each Existing Holder on whose behalf such Broker-Dealer
submitted an Order of the Auction Date of the next succeeding Auction; and
(vi) advise each Potential Holder on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, of the Auction Date
of the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a
Potential Holder or an Existing Holder shall, in such manner and at such time or
times as in its sole discretion it may determine, allocate any funds received by
it pursuant to (b)(ii) above and any Preferred Shares received by it
pursuant to (b)(iii) above among the Potential Holders, if any, on whose
behalf such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose
behalf such Broker-Dealer submitted Bids that were rejected or Sell Orders, and
any Broker-Dealer or Broker-Dealers identified to it by the Auction Agent
pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder shall instruct its Agent
Member as provided in (b)(ii) or (iii) above, as the case may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to the Agent Member of the Existing Holder delivering
Preferred Shares to such Broker-Dealer pursuant to (b)(iii) above the amount
necessary to purchase such shares against receipt of such shares, and (B)
deliver such shares through the Securities Depository to a Buyer's
Broker-Dealer (or its Agent Member) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to a Seller's Broker-Dealer (or its Agent Member )
identified pursuant to (a)(ii) above against receipt of such shares, and (B)
deliver such shares through the Securities Depository to the Agent Member of
the purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described
under (b)(ii) or (iii) above, and the Securities Depository shall execute
such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct the
Securities Depository to execute the transactions described in (d)(ii)
above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct the
Securities Depository to execute the transactions described in
(d)(iii) above, and the Securities Depository shall execute such
transactions.
(f) If an Existing Holder selling Preferred Shares in an Auction fails to
deliver such shares, a Broker-Dealer may deliver to the Potential Holder on
behalf of which it submitted a Bid that was accepted a number of whole Preferred
Shares that is less than the number of Preferred Shares that otherwise was to be
purchased by such Potential Holder. In such event, the number of Preferred
Shares to be so delivered shall be determined solely by such Broker-Dealer.
Delivery of such lesser number of Preferred Shares shall constitute good
delivery. Notwithstanding the foregoing terms of this section (f), any delivery
or non-delivery of Preferred Shares which shall represent 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 provisions of the Auction Agent Agreement
and the Broker-Dealer Agreement.
