FORM OF AUCTION AGENCY AGREEMENT
This Auction Agency Agreement (this "Agreement"), dated as of October __,
2000, is between Pilgrim Prime Rate Trust (the "Trust") and Bankers Trust
Company, a New York banking corporation.
The Trust proposes to issue five series of preferred shares of beneficial
interest (3,600 shares of Series M, 3,600 shares of Series T, 3,600 shares of
Series W, 3,600 shares of Series Th, and 3,600 shares of Series F), par value
$.01 per share, liquidation preference $25,000 per share, designated as Series
M, T, W, Th and F Auction Rate Cumulative Preferred Shares (cumulatively, the
"Preferred Shares"), pursuant to the Trust's Certificate (as defined below).
The Trust desires that Bankers Trust Company perform certain duties as
agent in connection with each Auction of Preferred Shares (in such capacity, the
"Auction Agent"), and as the transfer agent, registrar, dividend paying agent
and redemption agent with respect to the Preferred Shares (in such capacity, the
"Paying Agent"), upon the terms and conditions of this Agreement, and the Trust
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 Trust and the Auction Agent agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. TERMS DEFINED BY REFERENCE TO THE CERTIFICATE.
Capitalized terms not defined herein shall have the respective
meanings specified in the Certificate.
1.2. TERMS DEFINED HEREIN.
As used herein, the following terms shall have the following meanings,
unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean such Person's agent member
of the Securities Depository that will act on behalf of a Bidder.
(b) "Auction" shall have the meaning specified in Section 2.1 hereof.
(c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Part II of the Certificate.
(d) "Authorized Officer" shall mean each Managing Director, Vice
President, Assistant Vice President, Assistant Treasurer and Assistant Secretary
of the Auction Agent and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes hereof in a written
communication from the Auction Agent to the Trust.
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
(e) "Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit A.
(f) "Certificate" shall mean the Certificate of Designation for
Preferred Shares of the Trust dated October __, 2000 specifying the powers,
preferences and rights of the Preferred Shares.
(g) "Holder" shall be a holder of record of one or more Preferred
Shares, listed as such in the share register maintained by the Paying Agent
pursuant to Section 4.6 hereof.
(h) "Interest Equivalent" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.
(i) "Trust Officer" shall mean the Chairman, 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 Trust and every other
officer or employee of the Trust designated as a "Trust Officer" for purposes
hereof in a notice from the Trust to the Auction Agent.
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.
II. THE AUCTION.
2.1. PURPOSE; INCORPORATION BY REFERENCE OF AUCTION PROCEDURES.
(a) The Certificate provides that the Applicable Rate on shares of
each series of Preferred Shares, as the case may be, for each Dividend Period
therefor after the initial Dividend Period shall be the rate per annum that a
commercial bank, trust company or other financial institution appointed by the
Trust advises results from the implementation of the Auction Procedures. The
Board of Trustees of the Trust has adopted a resolution appointing Bankers Trust
Company as Auction Agent for purposes of the Auction Procedures. The Auction
2
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
Agent hereby accepts such appointment and agrees that, on each Auction Date, it
shall follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for the Preferred
Shares for the next Dividend Period. Each periodic operation of such procedures
is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction 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 set forth fully
herein.
2.2. PREPARATION FOR EACH AUCTION; MAINTENANCE OF REGISTRY OF EXISTING
HOLDERS.
(a) As of the date hereof, the Trust shall provide the Auction Agent
with a list of the Broker-Dealers previously approved by the Auction Agent and
shall cause to be delivered to the Auction Agent for execution by the Auction
Agent a Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction
Agent shall keep such list current and accurate and shall indicate thereon, or
on a separate list, the identity of each Existing Holder, if any, whose most
recent Order was submitted by a Broker-Dealer on such list and resulted in such
Existing Holder continuing to hold or purchase Preferred Shares. Not later than
five Business Days prior to any Auction Date for which any change in such list
of Broker-Dealers is to be effective, the Trust shall notify the Auction Agent
in writing of such change and, if any such change is the addition of a
Broker-Dealer to such list, the Trust shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by
such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent shall have given the notice, the Auction Agent,
by such means as the Auction Agent deems practicable, shall give notice of such
change to the Broker-Dealers 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.
(c) The provisions contained in Section 4 of Part I of the Certificate
concerning Special Rate Periods and the notification of a Special Rate Period
will be followed by the Trust and, to the extent applicable, the Auction Agent,
and the provisions contained therein are incorporated herein by reference in
their entirety and shall be deemed to be a part of this Agreement to the same
extent as if such provisions were set forth fully herein.
(d) (i) On each Auction Date, the Auction Agent shall determine the
initial dividend rate and the Maximum Rate. If the initial dividend rate is not
quoted on an interest basis but is quoted on a discount basis, the Auction Agent
shall convert the quoted rate to an Interest Equivalent; or, if the rate
obtained by the Auction Agent is not quoted on an interest or discount basis,
the Auction Agent shall convert the quoted rate to an interest rate after
consultation with the Trust as to the method of such conversion. Not later than
9:30 A.M. on each Auction Date, the Auction Agent shall notify the Trust and the
Broker-Dealers of the initial dividend rate so determined and of the Maximum
Rate.
(ii) If the initial dividend rate is the applicable "AA"
Financial Composite Commercial Paper Rate and such rate is to be based on rates
supplied by Commercial Paper Dealers and one or more of the Commercial Paper
3
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
Dealers shall not provide a quotation for the determination of the applicable
"AA" Financial Composite Commercial Paper Rate, the Auction Agent immediately
shall notify the Trust so that the Trust can determine whether to select a
substitute Commercial Paper Dealer or substitute Commercial Paper Dealers to
provide the quotation or quotations not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers. The Trust promptly shall advise the Auction
Agent of any such selection. If the Trust does not select any such substitute
Commercial Paper Dealer or substitute Commercial Paper Dealers, then the rates
shall be supplied by the remaining Commercial Paper Dealer or Commercial Paper
Dealers.
(e) (i) The Auction Agent shall maintain a current registry of the
Existing Holders of the Preferred Shares for purposes of each individual
Auction. The Trust shall use commercially reasonable efforts to provide or cause
to be provided to the Auction Agent within ten Business Days following the date
of the Closing a list of the initial Existing Holders of Preferred Shares, and
the Broker-Dealer of each such Existing Holder through which such Existing
Holder purchased such 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 or
Holder's transfer of any Preferred Shares to another Person.
(ii) In the event of any partial redemption of Preferred Shares,
upon notice by the Trust to the Auction Agent of such partial redemption, the
Auction Agent promptly shall request the Securities Depository to notify the
Auction Agent of the identities of the Agent Members (and the respective numbers
of shares) from the accounts of which shares have been called for redemption and
the person or department at such Agent Member to contact regarding such
redemption. At least two Business Days prior to the Auction preceding the date
of redemption, the Auction Agent shall request each Agent Member so identified
to disclose to the Auction Agent (upon selection by such Agent Member of the
Existing Holders whose shares are to be redeemed) the number of Preferred Shares
of each such Existing Holder, if any, to be redeemed by the Trust, 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. 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 having ownership of
the number of Preferred Shares shown in the Auction Agent's registry of Existing
Holders.
(iii) The Auction Agent shall register a transfer of the
ownership of Preferred Shares from an Existing Holder to another Existing
Holder, or to another Person if permitted by the Trust, only if (A) such
transfer is made pursuant to an Auction or (B) if such transfer is made other
than pursuant to an Auction, the Auction Agent has been notified of such
transfer in writing, in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreements, by such Existing Holder or by the Agent Member of such
Existing Holder. The Auction Agent is not required to accept any notice of
transfer 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 Existing
4
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
Holders of any Preferred Shares if the Auction Agent has been notified in
writing, in a notice substantially in the form of Exhibit D to the Broker-Dealer
Agreement, by the Agent Member or the Broker-Dealer of any Person that (i)
purchased any Preferred Shares and the seller failed to deliver such shares or
(ii) sold any Preferred Shares and the purchaser failed to make payment to such
Person upon delivery to the purchaser of such shares.
(f) The Auction Agent may request that the Broker Dealers, as set
forth in Section 3.2(b) of the Broker-Dealer Agreements, provide the Auction
Agent with a list of their respective customers that such Broker-Dealers believe
are Beneficial Owners of Preferred Shares. The Auction Agent shall keep
confidential any such information and shall not disclose any such information so
provided to any Person other than the relevant Broker-Dealer and the Trust,
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would be
unlawful.
2.3. AUCTION SCHEDULE.
The Auction Agent shall conduct Auctions every Monday, Tuesday,
Wednesday, Thursday and Friday in accordance with the schedule set forth below.
Such schedule may be changed by the Auction Agent with the consent of the Trust,
which consent shall not be withheld unreasonably. The Auction Agent shall give
notice of any such change to each 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 shall advise the Trust and the
Broker-Dealers of the initial dividend rate
and the Maximum Rate as set forth in Section
2.2(e)(i) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent shall assemble information
communicated to it by Broker-Dealers as
provided in Section 3(a) of Part II of the
Certificate. Submission deadline is 1:00 P.M.
Not earlier than 1:30 P.M. Auction Agent shall make determinations
pursuant to Section 4(a) of Part II of the
Certificate.
By approximately 3:00 P.M. Auction Agent shall advise the Trust of the
results of the Auction as provided in Section
4(b) of Part II of the Certificate.
Submitted Bids and Submitted Sell Orders will
be accepted and rejected in whole or in part
and Preferred Shares will be allocated as
provided in Section 5 of Part II of the
Certificate. Auction Agent shall give notice
of the 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-Dealers of
the results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System.
5
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
2.5. BROKER-DEALERS.
(a) Not later than 12:00 noon on each Auction Date, the Trust shall
pay to the Auction Agent in Federal Funds or similar same-day funds an amount in
cash equal to (i) in the case of any Auction Date immediately preceding a 7-day
Dividend Period, the product of (A) a fraction the numerator of which is the
number of days in such Dividend Period (calculated by counting the first day of
such Dividend Period but excluding the last day thereof) and the denominator of
which is 360, times (B) 1/4 of 1%, times (C) $25,000 times (D) the sum of the
aggregate number of outstanding Preferred Shares for which the Auction is
conducted and (ii) in the case of any Special Rate Period, the amount determined
by mutual consent of the Trust and the Broker-Dealers pursuant to Section 3.5 of
the Broker-Dealer Agreements. The Auction Agent shall apply such moneys as set
forth in Section 3.5 of the Broker-Dealer Agreements and shall thereafter remit
to the Trust any remaining funds paid to the Auction Agent pursuant to this
Section 2.5(a).
(b) The Trust shall not designate any Person to act as a
Broker-Dealer, or permit an Existing Holder or a Potential Beneficial Owner to
participate in Auctions through any Person other than a Broker-Dealer, without
the prior written approval of the Auction Agent, which approval shall not be
withheld unreasonably. The Trust may designate an Affiliate or Xxxxxxx Xxxxx
Xxxxxx Inc. to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein if so directed by the Trust.
(d) Subject to Section 2.5(b) hereof, the Auction Agent from time to
time shall enter into such Broker-Dealer Agreements as the Trust shall request.
(e) The Auction Agent shall maintain a list of Broker-Dealers.
2.6. OWNERSHIP OF PREFERRED SHARES AND SUBMISSION OF BIDS BY THE TRUST AND
ITS AFFILIATES.
Neither the Trust nor any Affiliate of the Trust may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Trust that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Trust shall notify the
Auction Agent if the Trust or, to the best of the Trust's knowledge, any
Affiliate of the Trust becomes a Beneficial Owner of any Preferred Shares. Any
Preferred Shares redeemed, purchased or otherwise acquired (i) by the Trust
shall not be reissued, except in accordance with the requirements of the
Securities Act of 1933, as amended, or (ii) by its Affiliates shall not be
transferred (other than to the Trust). 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 Trust, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Trust's sole cost
and expense) of all books, records, documents and other information concerning
6
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
the conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Trust requesting
that the Auction Agent afford such person access. The Auction Agent shall
maintain records relating to any Auction for a period of at least two years
after such Auction (unless requested by the Trust to maintain such records for
such longer period not in excess of four years, then for such longer period),
and such records, in reasonable detail, shall accurately and fairly reflect the
actions taken by the Auction Agent hereunder. The Trust agrees to keep
confidential any information regarding the customers of any Broker-Dealer
received from the Auction Agent in connection with this Agreement or any
Auction, and shall not disclose such information or permit the disclosure of
such information without the prior written consent of the applicable
Broker-Dealer to anyone except such agent, accountant or counsel engaged to
audit or review the results of Auctions as permitted by this Section 2.7. The
Trust reserves the right to disclose any such information if it is advised by
its counsel that its failure to do so would (i) be unlawful or (ii) expose it to
liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to the Trust. Any such agent, accountant or counsel, before having
access to such information, shall agree to keep such information confidential
and not to disclose such information or permit disclosure of such information
without the prior written consent of the applicable Broker-Dealer, provided that
such agent, accountant or counsel may reserve the right to disclose any such
information if it is advised by its counsel that its failure to do so would (i)
be unlawful or (ii) expose it to liability, unless the Broker-Dealer shall have
offered indemnification satisfactory to such agent, accountant or counsel.
III. THE AUCTION AGENT AS PAYING AGENT.
3.1. THE PAYING AGENT.
The Board of Trustees of the Trust has adopted another resolution
appointing Bankers Trust Company as auction agent, transfer agent, dividend
paying agent and registrar for the Trust in connection with any Preferred Shares
(in such capacity, the "Paying Agent"). The Paying Agent hereby accepts such
appointment and agrees to act in accordance with its standard procedures and the
provisions of the Certificate which are specified herein with respect to the
Preferred Shares and as set forth in this Section 3.
3.2. THE TRUST'S NOTICES TO THE PAYING AGENT.
Whenever any Preferred Shares are to be redeemed, the Trust promptly
shall deliver to the Paying Agent a Notice of Redemption, which will be mailed
by the Paying Agent to each Holder at least five Business Days prior to the date
such Notice of Redemption is required to be mailed pursuant to the Certificate.
The Paying Agent shall have no responsibility to confirm or verify the accuracy
of any such Notice.
3.3. THE TRUST TO PROVIDE FUNDS FOR DIVIDENDS AND REDEMPTIONS.
(a) Not later than noon on each Dividend Payment Date, the Trust shall
deposit with the Paying Agent an aggregate amount of Federal Funds or similar
same-day 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 to the payment of such dividends on such Dividend Payment
Date.
7
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
(b) If the Trust shall give a Notice of Redemption, then by noon of
the date fixed for redemption, the Trust shall deposit in trust with the Paying
Agent an aggregate amount of Federal Funds or similar same-day funds sufficient
to redeem such Preferred Shares called for redemption and shall give the Paying
Agent irrevocable instructions and authority to pay the redemption price to the
Holders of Preferred Shares called for redemption upon surrender of the
certificate or certificates therefor.
3.4. DISBURSING DIVIDENDS AND REDEMPTION PRICE.
After receipt of the Federal Funds or similar same-day funds and
instructions from the Trust described in Section 3.3 above, the Paying Agent
shall pay to the Holders (or former Holders) entitled thereto (i) on each
corresponding Dividend Payment Date, dividends on the Preferred Shares, and (ii)
on any date fixed for redemption, the redemption price of any Preferred Shares
called for redemption. The amount of dividends for any Dividend Period to be
paid by the Paying Agent to Holders will be determined by the Trust as set forth
in Section 2 of Part I of the Certificate. The redemption price to be paid by
the Paying Agent to the Holders of any Preferred Shares called for redemption
will be determined as set forth in Section 3 of Part I of the Certificate. The
Paying Agent shall have no duty to determine the redemption price and may rely
on the amount thereof set forth in a Notice of Redemption.
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
4.1. ORIGINAL ISSUE OF STOCK CERTIFICATES.
On the Date of Original Issue for any share of Preferred Shares, one
certificate for each series of Preferred Shares shall be issued by the Trust and
registered in the name of Cede & Co., as nominee of the Securities Depository,
and countersigned by the Paying Agent.
4.2. REGISTRATION OF TRANSFER OR EXCHANGE OF SHARES.
Except as provided in this Section 4.2, the shares of each series of
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 Trust shall not have selected a
substitute Securities Depository acceptable to the Paying Agent prior to such
resignation, then upon such resignation the shares of each Series of Preferred
Shares, at the Trust's request, may be registered for transfer or exchange, and
new certificates thereupon shall be issued in the name of the designated
transferee or transferees, upon surrender of the old certificate in form deemed
by the Paying Agent to be properly endorsed for transfer with (a) all necessary
endorsers' signatures guaranteed in such manner and form and by such guarantor
as the Paying Agent may reasonably require, (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 laws relating to the collection of taxes in
connection with any registration of transfer or exchange or funds necessary for
the payment of such taxes. If the certificate or certificates for Preferred
Shares are not held by the Securities Depository or its nominee, payments upon
transfer of shares in an Auction shall be made in Federal Funds or similar
same-day funds to the Auction Agent against delivery of certificates therefor.
8
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
4.3. REMOVAL OF LEGEND.
Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing Preferred Shares shall be accompanied by
an opinion of counsel stating that such legend may be removed and such shares
may be transferred free of the restriction described in such legend, said
opinion to be delivered under cover of a letter from a Trust Officer authorizing
the Paying Agent to remove the legend on the basis of said opinion.
4.4. LOST, STOLEN OR DESTROYED STOCK 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 Trust and
by the Paying Agent, subject at all times to provisions of law, the Certificate
governing such matters and resolutions adopted by the Trust with respect to
lost, stolen or destroyed securities. The Paying Agent may issue new
certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Trust 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 Trust to the Paying Agent that such
issuance will comply with provisions of applicable law and the Certificate and
resolutions of the Trust.
4.5. DISPOSITION OF CANCELED CERTIFICATES; RECORD RETENTION.
The Paying Agent shall retain stock certificates which have been
canceled in transfer or in exchange and accompanying documentation in accordance
with applicable rules and regulations of the Securities and Exchange Commission
(the "SEC") for at least two calendar years from the date of such cancellation.
The Paying Agent, upon written request by the Trust, shall afford to the Trust,
its agents and counsel access at reasonable times during normal business hours
to review and make extracts or copies (at the Trust's sole cost and expense) of
such certificates and accompanying documentation. Upon request by the Trust at
any time after the expiration of this two-year period, the Paying Agent shall
deliver to the Trust the canceled certificates and accompanying documentation.
The Trust, at its expense, shall retain such records for a minimum additional
period of at least four calendar years from the date of delivery of the records
to the Trust 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 SEC. The Trust also shall undertake to
furnish to the SEC, upon demand, either at its 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 Trust without
the approval of the Paying Agent, which approval shall not be withheld
unreasonably, but will be safely stored for possible future reference.
9
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
4.6. STOCK REGISTER.
The Paying Agent shall maintain the stock register, which shall
contain a list of the Holders, the number of shares held by each Holder and the
address of each Holder. The Paying Agent shall record in the stock register any
change of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the stock register or any other books of
the Trust in the possession of the Paying Agent, the Paying Agent will notify
the Trust and secure instructions as to permitting or refusing such inspection.
The Paying Agent reserves the right, however, to exhibit the stock register or
other records to any person in case it is advised by its counsel that its
failure to do so would (i) be unlawful or (ii) expose it to liability, unless
the Trust shall have offered indemnification satisfactory to the Paying Agent.
4.7. RETURN OF FUNDS.
Any funds deposited with the Paying Agent by the Trust for any reason
under this Agreement, including for the payment of dividends or the redemption
of Preferred Shares, that remain with the Paying Agent after 12 months shall be
repaid to the Trust upon written request by the Trust.
V. REPRESENTATIONS AND WARRANTIES.
5.1. REPRESENTATIONS AND WARRANTIES OF THE TRUST.
The Trust represents and warrants to the Auction Agent that:
(i) the Trust is duly organized and is validly existing as a
business trust under the laws of the Commonwealth of Massachusetts, and has full
power to execute and deliver this Agreement and to authorize, create and issue
the Preferred Shares;
(ii) the Trust is registered with the SEC under the Investment
Company Act of 1940, as amended, as a closed-end, diversified, management
investment company;
(iii) this Agreement has been duly and validly authorized,
executed and delivered by the Trust and constitutes the legal, valid and binding
obligation of the Trust, enforceable against the Trust 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;
(iv) the form of the certificates evidencing the Preferred Shares
comply with all applicable laws of the Commonwealth of Massachusetts;
(v) the Preferred Shares have been duly and validly authorized by
the Trust and, upon completion of the initial sale of the Preferred Shares and
receipt of payment therefor, will be validly issued by the Trust, fully paid and
nonassessable;
(vi) at the time of the offering of the Preferred Shares, the
shares offered will be 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
10
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
execution and delivery of this Agreement or will be required in connection with
the issuance of the Preferred Shares, except such action as required by
applicable state securities laws;
(vii) 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 Trust's Declaration of Trust, as amended, or the
Certificate, any order or decree of any court or public authority having
jurisdiction over the Trust, or any mortgage, indenture, contract, agreement or
undertaking to which the Trust is a party or by which it is bound; and
(viii) no taxes are payable upon or in respect of the execution
of this Agreement or will be payable upon or in respect of the issuance of the
Preferred Shares.
5.2. REPRESENTATIONS AND WARRANTIES OF THE AUCTION AGENT.
The Auction Agent represents and warrants to the Trust that:
(i) the Auction Agent is duly organized and is validly existing
as a banking corporation 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; and
(ii) this Agreement has been duly and validly authorized,
executed and delivered by the Auction Agent and constitutes the legal, valid and
binding obligation of the Auction Agent, enforceable against the Auction Agent
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.
VI. THE AUCTION AGENT.
6.1. DUTIES AND RESPONSIBILITIES.
(a) The Auction Agent is acting solely as agent for the Trust
hereunder and owes no fiduciary duties to any Person except as provided by this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are set forth specifically in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered or omitted by it or for
any error of judgment made by it in the performance of its duties under this
Agreement.
6.2. RIGHTS OF THE AUCTION AGENT.
(a) The Auction Agent may rely upon, and shall be protected in acting
or refraining from acting upon, any communication authorized hereby and any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document reasonably believed by
11
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized hereby which the Auction Agent reasonably
believes in good faith to have been given by the Trust or by a Broker-Dealer.
The Auction Agent may record telephone communications with the Trust or with the
Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice, and the
written 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 reasonable 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. The Auction Agent shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Trust.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.
6.3. COMPENSATION, EXPENSES AND INDEMNIFICATION.
(a) The Trust shall pay to the Auction Agent from time to time
reasonable compensation for all services rendered by it under this Agreement and
under the Broker-Dealer Agreements as shall be set forth in a separate writing
signed by the Trust and the Auction Agent, subject to adjustments if the
Preferred Shares no longer are held of record by the Securities Depository or
its nominee or if there shall be such other change as shall increase or decrease
materially the Auction Agent's obligations hereunder or under the Broker-Dealer
Agreements.
(b) The Trust 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 of the
Broker-Dealer Agreements (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any expense, disbursement or
advance attributable to its negligence or bad faith.
(c) The Trust shall indemnify the Auction Agent for, and hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on the part of the Auction Agent arising out of or in connection with
its agency under this Agreement and under the Broker-Dealer Agreements,
including the costs and expenses of defending itself against any claim of
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.
VII. 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 Trust may terminate this
Agreement at any time by so notifying the Auction Agent, provided that, if any
Preferred Shares remain outstanding, the Trust shall have entered into an
12
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
agreement with a successor auction agent. The Auction Agent may terminate this
Agreement upon prior notice to the Trust on the date specified in such notice,
which date shall be no earlier than 60 days after delivery of such notice. If
the Auction Agent terminates this Agreement while any Preferred Shares remain
outstanding, the Trust shall use commercially reasonable efforts to enter into
an agreement with a successor auction agent.
(b) Except as otherwise provided in this Section 7.1(b), the
respective rights and duties of the Trust and the Auction Agent under this
Agreement shall cease upon termination of this Agreement. The Trust's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5 and 6.3 hereof shall survive the termination hereof. Upon
termination of this Agreement, the Auction Agent shall (i) resign as Auction
Agent under the Broker-Dealer Agreements, (ii) at the Trust's request, deliver
promptly to the Trust copies of all books and records maintained by it in
connection with its duties hereunder, and (iii) at the request of the Trust,
transfer promptly to the Trust or to any successor auction agent any funds
deposited by the Trust with the Auction Agent (whether in its capacity as
Auction Agent or as Paying Agent) pursuant to this Agreement which have not been
distributed previously 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) and shall be given to such
party at its address or telecopier number set forth below:
If to the Trust, Pilgrim Prime Rate Trust
addressed to: 0000 X. Xxxxxxxxxx Xxxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to the Auction Agent, Bankers Trust Company
addressed to: Corporate Trust and Agency Group
0 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Auction Rate Securities
Telecopier No.: (212) ___-____
Telephone No.: (212) ___-____
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by a Trust Officer and on
behalf of the Auction Agent by an Authorized Officer.
13
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
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 implied,
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 Trust, 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, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. The Trust shall notify the Auction Agent of any change in the
Certificate prior to the effective date of any such change. If any such change
in the Certificate materially increases the Auction Agent's obligations
hereunder, the Trust shall obtain the written consent of the Auction Agent prior
to the effective date of 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. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Trust 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 withheld unreasonably.
7.7. SEVERABILITY.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any 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.
14
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
7.9. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said state.
7.10. LIMITATION OF LIABILITY.
The name Pilgrim Prime Rate Trust refers to the Trust and the Trustees
of the Trust, as trustees but not individually or personally, acting from time
to time under the Trust's Agreement and Declaration of Trust dated August 25,
2000, as amended, which is hereby referred to and a copy of which is on file at
the office of the Secretary of the Commonwealth of Massachusetts and the
principal office of the Trust. The obligations of the Trust entered into in the
name or on behalf thereof by any of the Trustees, representatives or agents of
the Trust are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, holders of shares of beneficial interest of
the Trust or representatives of the Trustees personally, but bind only the Trust
assets, and all persons dealing with the Trust must look solely to the Trust
property for the enforcement of any claims against the Trust.
15
PILGRIM PRIME RATE TRUST
AUCTION AGENCY AGREEMENT
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.
PILGRIM PRIME RATE TRUST
----------------------------------------
By:
Title:
BANKERS TRUST COMPANY
----------------------------------------
By:
Title:
16
