PILGRIM PRIME RATE TRUST
FORM OF CERTIFICATE OF DESIGNATION FOR PREFERRED SHARES (THE "CERTIFICATE")
Pilgrim Prime Rate Trust, a Massachusetts business trust (the "Trust"),
certifies that:
FIRST: Section I of Article III of the Trust's Declaration of Trust (which,
as hereafter restated or amended from time to time, is together with this
Certificate herein called the "Declaration") empowers the Board of Trustees of
the Trust to authorize the issuance of one or more series of a class of
preferred shares, provided that to the extent required by the Investment Company
Act of 1940, no such series shall have priority over any other series within its
class upon the distribution of assets or in respect of the payment of dividends.
SECOND: Pursuant to the authority so vested in the Board of Trustees of the
Trust, the Board of Trustees has, by resolution, authorized the creation of
18,000 Auction Rate Cumulative Preferred Shares, $.01 par value, liquidation
preference of $25,000 per share, classified as Series M, T, W, Th and F Auction
Rate Cumulative Preferred Shares (the "Preferred Shares").
THIRD: The preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of the
shares of each series of Preferred Shares are as follows:
DESIGNATION
SERIES M: A series of 3,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series M Auction Rate Cumulative
Preferred Shares" ("Series M"). Each share of Series M may be issued on a date
to be determined by the Board of Trustees of the Trust or pursuant to their
delegated authority; have an initial Dividend Rate and an initial Dividend
Payment Date as shall be determined in advance of the issuance thereof by the
Board of Trustees of the Trust or pursuant to their delegated authority; and
have such other preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption, in addition
to those required by applicable law or set forth in the Declaration applicable
to preferred shares of the Trust, as are set forth in Part I and Part II of this
Certificate. The Series M shall constitute a separate series of Preferred Shares
of the Trust.
SERIES T: A series of 3,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series T Auction Rate Cumulative
Preferred Shares" ("Series T"). Each share of Series T may be issued on a date
to be determined by the Board of Trustees of the Trust or pursuant to their
delegated authority; have an initial Dividend Rate and an initial Dividend
Payment Date as shall be determined in advance of the issuance thereof by the
Board of Trustees of the Trust or pursuant to their delegated authority; and
have such other preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption, in addition
to those required by applicable law or set forth in the Declaration applicable
to preferred shares of the Trust, as are set forth in Part I and Part II of this
Certificate. The Series T shall constitute a separate series of Preferred Shares
of the Trust.
SERIES W: A series of 3,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series W Auction Rate Cumulative
Preferred Shares" ("Series W"). Each share of Series W may be issued on a date
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
to be determined by the Board of Trustees of the Trust or pursuant to their
delegated authority; have an initial Dividend Rate and an initial Dividend
Payment Date as shall be determined in advance of the issuance thereof by the
Board of Trustees of the Trust or pursuant to their delegated authority; and
have such other preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption, in addition
to those required by applicable law or set forth in the Declaration applicable
to preferred shares of the Trust, as are set forth in Part I and Part II of this
Certificate. The Series W shall constitute a separate series of Preferred Shares
of the Trust.
SERIES TH: A series of 3,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series Th Auction Rate Cumulative
Preferred Shares" ("Series Th"). Each share of Series Th may be issued on a date
to be determined by the Board of Trustees of the Trust or pursuant to their
delegated authority; have an initial Dividend Rate and an initial Dividend
Payment Date as shall be determined in advance of the issuance thereof by the
Board of Trustees of the Trust or pursuant to their delegated authority; and
have such other preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption, in addition
to those required by applicable law or set forth in the Declaration applicable
to preferred shares of the Trust, as are set forth in Part I and Part II of this
Certificate. The Series Th shall constitute a separate series of Preferred
Shares of the Trust.
SERIES F: A series of 3,600 Preferred Shares, liquidation preference
$25,000 per share, is hereby designated "Series F Auction Rate Cumulative
Preferred Shares" ("Series F"). Each share of Series F may be issued on a date
to be determined by the Board of Trustees of the Trust or pursuant to their
delegated authority; have an initial Dividend Rate and an initial Dividend
Payment Date as shall be determined in advance of the issuance thereof by the
Board of Trustees of the Trust or pursuant to their delegated authority; and
have such other preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption, in addition
to those required by applicable law or set forth in the Declaration applicable
to preferred shares of the Trust, as are set forth in Part I and Part II of this
Certificate. The Series F shall constitute a separate series of Preferred Shares
of the Trust.
Subject to the provisions of Section 3(j) of Part I of this Certificate,
the Board of Trustees of the Trust may, in the future, authorize the issuance of
additional series of the Trust's preferred shares, including additional Series
of Preferred Shares as long as any additional series of Preferred Shares has the
same preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption and other terms
of each of the respective series herein described, except that the Applicable
Rate for its initial Dividend Period, its initial Dividend Payment Date and any
other changes in the terms herein set forth shall be as set forth in an
amendment to this Certificate.
As used in Part I and Part II of this Certificate, capitalized terms shall
have the meanings provided in Section 19 of Part I of this Certificate.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
PART I: PREFERRED SHARES TERMS
1. NUMBER OF SHARES; RANKING.
(a) The initial number of authorized shares constituting Series M is
3,600 shares. The initial number of authorized shares constituting Series T is
3,600 shares. The initial number of authorized shares constituting Series W is
3,600 shares. The initial number of authorized shares constituting Series Th is
3,600 shares. The initial number of authorized shares constituting Series F is
3,600 shares. No fractional shares of any Series shall be issued.
(b) Shares of each Series which at any time have been redeemed or
purchased by the Trust shall, after such redemption or purchase, have the status
of authorized but unissued preferred shares.
(c) Shares of each Series shall rank on a parity with shares of any
other series of preferred shares (including any other shares of Preferred
Shares) as to the payment of dividends to which such shares are entitled and the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust.
(d) No Holder of shares of any Series shall have, solely by reason of
being such a holder, any preemptive or other right to acquire, purchase or
subscribe for any shares of any Series, shares of Common Shares of the Trust or
other securities of the Trust which it may hereafter issue or sell.
2. DIVIDENDS.
(a) The Holders of shares of each Series shall be entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available therefor, cumulative cash dividends on their shares at the Applicable
Rate, determined as set forth in paragraph (c) of this Section 2, and no more,
payable on the respective dates determined as set forth in paragraph (b) of this
Section 2. Dividends on the Outstanding shares of each Series issued on the Date
of Original Issue shall accumulate from the Date of Original Issue.
(b) (i) Dividends shall be payable when, as and if declared by the
Board of Trustees following the initial Dividend Payment Date, subject to
subparagraph (b)(ii) of this Section 2, on the shares of each Series, as
follows:
(A) with respect to any Dividend Period of one year or less,
on the Business Day following the last day of such Dividend Period; provided
however, if the Dividend Period is more than 91 days then on the 91st, 181st and
271st days within such period, if applicable, and on the Business Day following
the last day of such Dividend Period; and
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(B) with respect to any Dividend Period of more than one
year, on a quarterly basis on each January 1, April 1, July 1 and October 1
within such Dividend Period and on the Business Day following the last day of
such Dividend Period.
(ii) If a day for payment of dividends resulting from the
application of subparagraph (b)(i) above is not a Business Day, then the
Dividend Payment Date shall be the first Business Day following such day for
payment of dividends.
(iii) The Trust shall pay to the Paying Agent not later than
12:00 p.m., New York City time, on the Business Day next preceding each Dividend
Payment Date for a Series, an aggregate amount of funds available on the next
Business Day in The City of New York, New York, equal to the dividends to be
paid to all Holders of such Series on such Dividend Payment Date. The Trust
shall not be required to establish any reserves for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of
dividends shall be held in trust for the payment of such dividends by the Paying
Agent for the benefit of the Holders specified in subparagraph (b)(v) of this
Section 2. Any moneys paid to the Paying Agent in accordance with the foregoing
but not applied by the Paying Agent to the payment of dividends, including
interest earned on such moneys, will, to the extent permitted by law, be repaid
to the Trust at the end of 90 days from the date on which such moneys were to
have been so applied.
(v) Each dividend on each Series shall be paid on the Dividend
Payment Date therefor to the Holders of that Series as their names appear on the
share ledger or share records of the Trust on the Business Day next preceding
such Dividend Payment Date, to the Holders as their names appear on the share
ledger or share records of the Trust on such date; provided, however, if
dividends are in arrears, they may be declared and paid at any time to Holders
as their names appear on the share ledger or share records of the Trust on such
date not exceeding 15 days preceding the payment date thereof, as may be fixed
by the Board of Trustees. No interest will be payable in respect of any dividend
payment or payments which may be in arrears.
(c) (i) The dividend rate on Outstanding shares of each Series during
the period from and after the Date of Original Issue to and including the last
day of the initial Dividend Period therefor shall be equal to the rate per annum
set forth under "Designation" above. For each subsequent Dividend Period, the
dividend rate shall be equal to the rate per annum that results from an Auction;
provided, however, that if an Auction for any subsequent Dividend Period of a
Series is not held for any reason or if Sufficient Clearing Orders have not been
made in an Auction (other than as a result of all shares of any Series being the
subject of Submitted Hold Orders), then the dividend rate on the shares of that
Series for any such Dividend Period shall be the Maximum Rate (except (i) during
a Default Period when the dividend rate shall be the Default Rate, as set forth
in Section 2(c)(ii) below) or (ii) after a Default Period and prior to the
beginning of the next Dividend Period when the dividend rate shall be the
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
Maximum Rate at the close of business on the last day of such Default Period).
The rate per annum at which dividends are payable on shares of each Series as
determined pursuant to this Section 2(c)(i) shall be the "Applicable Rate."
(ii) Subject to the cure provisions in Section 2(c)(iii) below, a
"Default Period" with respect to a particular Series will commence on any date
the Trust fails to deposit irrevocably in trust in same-day funds, with the
Paying Agent by 12:00 noon, New York City time, (A) the full amount of any
declared dividend on that Series payable on the Dividend Payment Date (a
"Dividend Default") or (B) the full amount of any redemption price (the
"Redemption Price") payable on the date fixed for redemption (the "Redemption
Date") (a "Redemption Default") and together with a Dividend Default and a
Redemption Default, hereinafter referred to as "Default").
Subject to the cure provisions of Section 2(c)(iii) below, a
Default Period with respect to a Dividend Default or a Redemption Default shall
end on the Business Day on which, by 12:00 noon, New York City time, all unpaid
dividends and any unpaid Redemption Price shall have been deposited irrevocably
in trust in same-day funds with the Paying Agent. In the case of a Dividend
Default, no Auction shall be held during a Default Period applicable to that
Series and the Applicable Rate for each Dividend Period commencing during a
Default Period will be equal to the Default Rate, and each subsequent Dividend
Period commencing after the beginning of a Default Period shall be a Standard
Rate Period; provided, however, that the commencement of a Default Period will
not by itself cause the commencement of a new Dividend Period. No Auction shall
be held during a Default Period applicable to that Series.
(iii) No Default Period with respect to a Dividend Default or
Redemption Default shall be deemed to commence if the amount of any dividend or
any Redemption Price due (if such default is not solely due to the willful
failure of the Trust) is deposited irrevocably in trust, in same-day funds with
the Paying Agent by 12:00 noon, New York City time within three Business Days
after the applicable Dividend Payment Date or Redemption Date, together with an
amount equal to the Default Rate applied to the amount of such non-payment based
on the actual number of days comprising such period divided by 360. The Default
Rate shall be equal to the Reference Rate multiplied by three (3).
(iv) The amount of dividends per share payable (if declared) on
each Dividend Payment Date of each Dividend Period of less than one (1) year (or
in respect of dividends on another date in connection with a redemption during
such Dividend Period) shall be computed by multiplying the Applicable Rate (or
the Default Rate) for such Dividend Period (or a portion thereof) by a fraction,
the numerator of which will be the number of days in such Dividend Period (or
portion thereof) that such share was Outstanding and for which the Applicable
Rate or the Default Rate was applicable and the denominator of which will be
360, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
cent. During any Dividend Period of one (1) year or more, the amount of
dividends per share payable on any Dividend Payment Date (or in respect of
dividends on another date in connection with a redemption during such Dividend
Period) shall be computed as described in the preceding sentence, except that it
will be determined on the basis of a year consisting of twelve 30-day months.
(d) Any dividend payment made on shares of any Series shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such Series.
(e) For so long as the Preferred Shares are Outstanding, except as
otherwise contemplated by Part I of this Certificate, the Trust will not
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or options, warrants or
rights to subscribe for or purchase, Common Shares or other shares, ranking
junior to the Preferred Shares as to dividends or upon liquidation) with respect
to Common Shares or any other shares of the Trust ranking junior to the
Preferred Shares as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any Common Shares or
other shares ranking junior to the Preferred Shares (except by conversion into
or exchange for shares of the Trust ranking junior to the Preferred Shares as to
dividends and upon liquidation), unless (i) immediately after such transaction,
the Trust would have Eligible Assets with an aggregate Discounted Value at least
equal to the Preferred Shares Basic Maintenance Amount and the 1940 Act
Preferred Shares Asset Coverage would be achieved, (ii) all cumulative and
unpaid dividends due on or prior to the date of the transaction have been
declared and paid in full with respect to the Trust's preferred shares,
including the Preferred Shares, and (iii) the Trust has redeemed the full number
of preferred shares required to be redeemed by any mandatory provision for
redemption including shares of the Preferred Shares required to be redeemed by
any provision for mandatory redemption contained in Section 3(a)(ii) of Part I
of this Certificate.
(f) For so long as the Preferred Shares are Outstanding, except as set
forth in the next sentence, the Trust will not declare, pay or set apart for
payment on any series of shares of the Trust ranking, as to the payment of
dividends, on a parity with the Preferred Shares for any period unless full
cumulative dividends have been or contemporaneously are declared and paid on the
Preferred Shares through their most recent Dividend Payment Date. When dividends
are not paid in full upon the Preferred Shares through their most recent
Dividend Payment Date or upon any other series of shares ranking on a parity as
to the payment of dividends with Preferred Shares through their most recent
respective Dividend Payment Dates, all dividends declared upon Preferred Shares
and any other such series of shares ranking on a parity as to the payment of
dividends with Preferred Shares shall be declared pro rata so that the amount of
dividends declared per share on Preferred Shares and such other series of
preferred shares shall in all cases bear to each other the same ratio that
accumulated dividends per share on the Preferred Shares and such other series of
preferred shares bear to each other.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(g) The Trust will not declare, pay or set apart for payment any
dividend or other distribution in respect to any Series (i) if there is any
event of payment default which has occurred and is continuing under indebtedness
senior to such Series (such senior indebtedness including but not limited to
indebtedness under the Bank of America Credit Agreement and the GE Loan
Agreement) or (ii) unless immediately after such transaction, the Trust would
have Eligible Assets with an aggregate Discounted Value at least equal to the
asset coverage requirements under the indebtedness senior to such Series.
3. REDEMPTION.
(a) (i) After the initial Dividend Period, subject to the provisions
of this Section 3 and to the extent permitted under the 1940 Act and
Massachusetts law, the Trust may, at its option, redeem in whole or in part out
of funds legally available therefor shares of any Series herein designated as
(A) having a Dividend Period of one year or less, on the Business Day after the
last day of such Dividend Period by delivering a notice of redemption not less
than 15 calendar days and not more than 40 calendar days prior to the Redemption
Date, at a redemption price per share equal to $25,000, plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared) to
the Redemption Date ("Redemption Price"), or (B) having a Dividend Period of
more than one year, on any Business Day prior to the end of the relevant
Dividend Period by delivering a notice of redemption not less than 15 calendar
days and not more than 40 calendar days prior to the Redemption Date, at the
Redemption Price, plus a redemption premium, if any, determined by the Board of
Trustees after consultation with the Broker-Dealers and set forth in any
applicable Specific Redemption Provisions at the time of the designation of such
Dividend Period as set forth in Section 4 of Part I of this Certificate;
provided, however, that during a Dividend Period of more than one year no shares
of any Series will be subject to optional redemption except in accordance with
any Specific Redemption Provisions approved by the Board of Trustees after
consultation with the Broker-Dealers at the time of the designation of such
Dividend Period. Notwithstanding the foregoing, the Trust shall not give a
notice of or effect any redemption pursuant to this Section 3(a)(i) unless, on
the date on which the Trust gives such notice and on the Redemption Date (a) the
Trust has available Deposit Securities with maturity or tender dates not later
than the day preceding the applicable Redemption Date and having a value not
less than the amount (including any applicable premium) due to Holders of each
Series by reason of the redemption of each Series on the Redemption Date and (b)
the Trust would have Eligible Assets with an aggregate Discounted Value at least
equal the Preferred Shares Basic Maintenance Amount immediately subsequent to
such redemption, if such redemption were to occur on such date, it being
understood that the provisions of paragraph (d) of this Section 3 shall be
applicable in such circumstances in the event the Trust makes the deposit and
takes the other action required thereby.
(ii) If the Trust fails as of any Valuation Date to meet the
Preferred Shares Basic Maintenance Amount Test or, as of the last Business Day
of any month, the 1940 Act Preferred Shares Asset Coverage, and such failure is
not cured within five Business Days following the relevant Valuation Date in the
case of a failure to meet the Preferred Shares Basic Maintenance Amount Test or
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
the last Business Day of the following month in the case of a failure to meet
the 1940 Act Preferred Shares Asset Coverage (each an "Asset Coverage Cure
Date"), the Preferred Shares will be subject to mandatory redemption out of
funds legally available therefor. The number of Preferred Shares to be redeemed
in such circumstances will be equal to the lesser of (A) the minimum number of
Preferred Shares the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the relevant Asset Coverage Cure Date, would
result in the Trust meeting the Preferred Shares Basic Maintenance Amount Test,
and the 1940 Act Preferred Shares Asset Coverage, as the case may be, in either
case as of the relevant Asset Coverage Cure Date (provided that, if there is no
such minimum number of shares the redemption of which would have such result,
all Preferred Shares then Outstanding will be redeemed), and (B) the maximum
number of shares of Preferred Shares that can be redeemed out of funds expected
to be available therefor on the Mandatory Redemption Date at the Mandatory
Redemption Price set forth in subparagraph (a)(iv) of this Section 3.
(iii) [Reserved]
(iv) In determining the Preferred Shares required to be redeemed
in accordance with the foregoing Section 3(a)(ii), the Trust shall allocate the
number of shares required to be redeemed to satisfy the Preferred Shares Basic
Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage, as the
case may be, pro rata among the Holders of the Preferred Shares in proportion to
the number of shares they hold and shares of other preferred shares subject to
mandatory redemption provisions similar to those contained in this Section 3,
subject to the further provisions of this subparagraph (iv). The Trust shall
effect any required mandatory redemption pursuant to: (A) the Preferred Shares
Basic Maintenance Amount Test, as described in subparagraph (a)(ii) of this
Section 3, no later than 30 days after the Trust last met the Preferred Shares
Basic Maintenance Amount Test, or (B) the 1940 Act Preferred Shares Asset
Coverage, as described in subparagraph (a)(ii) of this Section 3, no later than
30 days after the Asset Coverage Cure Date (the "Mandatory Redemption Date"),
except that if the Trust does not have funds legally available for the
redemption of, or is not otherwise legally permitted to redeem, the number of
Preferred Shares which would be required to be redeemed by the Trust under
clause (A) of subparagraph (a)(ii) of this Section 3 if sufficient funds were
available, together with shares of other preferred shares which are subject to
mandatory redemption under provisions similar to those contained in this Section
3, or the Trust otherwise is unable to effect such redemption on or prior to
such Mandatory Redemption Date, the Trust shall redeem those Preferred Shares,
and shares of other preferred shares which it was unable to redeem, on the
earliest practicable date on which the Trust will have such funds available,
upon notice pursuant to Section 3(b) to record owners of shares of the Preferred
Shares to be redeemed and the Paying Agent. The Trust will deposit with the
Paying Agent funds sufficient to redeem the specified number of Preferred Shares
with respect to a redemption required under subparagraph (a)(ii) of this Section
3, by 1:00 p.m., New York City time, of the Business Day immediately preceding
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
the Mandatory Redemption Date. If fewer than all of the Outstanding Preferred
Shares are to be redeemed pursuant to this Section 3(a)(iv), the number of
shares to be redeemed shall be redeemed pro rata from the Holders of such shares
in proportion to the number of such shares held by such Holders, by lot or by
such other method as the Trust shall deem fair and equitable, subject, however,
to the terms of any applicable Specific Redemption Provisions. "Mandatory
Redemption Price" means the Redemption Price plus (in the case of a Dividend
Period of one year or more only) a redemption premium, if any, determined by the
Board of Trustees after consultation with the Broker-Dealers and set forth in
any applicable Specific Redemption Provisions.
(b) In the event of a redemption pursuant to the foregoing Section
3(a), the Trust will file a notice of its intention to redeem with the
Securities and Exchange Commission so as to provide at least the minimum notice
required under Rule 23c-2 under the 1940 Act or any successor provision. In
addition, the Trust shall deliver a notice of redemption to the Auction Agent
(the "Notice of Redemption") containing the information set forth below (i) in
the case of an optional redemption pursuant to Section 3(a)(i) above, one
Business Day prior to the giving of notice to the Holders, (ii) in the case of a
mandatory redemption pursuant to Section 3(a)(ii) above, on or prior to the 10th
day preceding the Mandatory Redemption Date. The Auction Agent will use its
reasonable efforts to provide telephonic notice to each Holder of shares of any
Series called for redemption not later than the close of business on the
Business Day immediately following the day on which the Auction Agent determines
the shares to be redeemed (or, during a Default Period with respect to such
shares, not later than the close of business on the Business Day immediately
following the day on which the Auction Agent receives Notice of Redemption from
the Trust). The Auction Agent shall confirm such telephonic notice in writing
not later than the close of business on the third Business Day preceding the
date fixed for redemption by providing the Notice of Redemption to each Holder
of shares called for redemption, the Paying Agent (if different from the Auction
Agent) and the Securities Depository. Notice of Redemption will be addressed to
the registered owners of shares of any Series at their addresses appearing on
the share records of the Trust. Such Notice of Redemption will set forth (i) the
date fixed for redemption, (ii) the number and identity of shares of each Series
to be redeemed, (iii) the redemption price (specifying the amount of accumulated
dividends to be included therein), (iv) that dividends on the shares to be
redeemed will cease to accumulate on such date fixed for redemption, and (v) the
provision under which redemption shall be made. No defect in the Notice of
Redemption or in the transmittal or mailing thereof will affect the validity of
the redemption proceedings, except as required by applicable law. If fewer than
all shares held by any Holder are to be redeemed, the Notice of Redemption
mailed to such Holder shall also specify the number of shares to be redeemed
from such Holder.
(c) Notwithstanding the provisions of paragraph (a) of this Section 3,
no preferred shares, including the Preferred Shares, may be redeemed at the
option of the Trust unless all dividends in arrears on the Outstanding Preferred
Shares and any other preferred shares have been or are being contemporaneously
paid or set aside for payment; provided, however, that the foregoing shall not
prevent the purchase or acquisition of outstanding preferred shares pursuant to
the successful completion of an otherwise lawful purchase or exchange offer made
on the same terms to Holders of all outstanding preferred shares.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(d) Upon the deposit of funds sufficient to redeem shares of any
Series with the Paying Agent and the giving of the Notice of Redemption to the
Auction Agent under paragraph (b) of this Section 3, dividends on such shares
shall cease to accumulate and such shares shall no longer be deemed to be
Outstanding for any purpose (including, without limitation, for purposes of
calculating whether the Trust has met the Preferred Shares Basic Maintenance
Amount Test or the 1940 Act Preferred Shares Asset Coverage), and all rights of
the Holders of the shares so called for redemption shall cease and terminate,
except the right of such Holder to receive the redemption price specified
herein, but without any interest or other additional amount. Such redemption
price shall be paid by the Paying Agent to the nominee of the Securities
Depository. The Trust shall be entitled to receive from the Paying Agent,
promptly after the date fixed for redemption, any cash deposited with the Paying
Agent in excess of (i) the aggregate redemption price of the shares of any
Series called for redemption on such date and (ii) such other amounts, if any,
to which Holders of shares of any Series called for redemption may be entitled.
Any funds so deposited that are unclaimed at the end of two years from such
redemption date shall, to the extent permitted by law, be paid to the Trust,
after which time the Holders of shares of each Series so called for redemption
may look only to the Trust for payment of the redemption price and all other
amounts, if any, to which they may be entitled; provided, however, that the
Paying Agent shall notify all Holders whose funds are unclaimed by placing a
notice in the Wall Street Journal concerning the availability of such funds for
three consecutive weeks. The Trust shall be entitled to receive, from time to
time after the date fixed for redemption, any interest earned on the funds so
deposited.
(e) To the extent that any redemption for which Notice of Redemption
has been given is not made by reason of the absence of legally available funds
therefor, or is otherwise prohibited, such redemption shall be made as soon as
practicable to the extent such funds become legally available or such redemption
is no longer otherwise prohibited. Failure to redeem shares of any Series shall
be deemed to exist at any time after the date specified for redemption in a
Notice of Redemption when the Trust shall have failed, for any reason
whatsoever, to deposit in trust with the Paying Agent the redemption price with
respect to any shares for which such Notice of Redemption has been given.
Notwithstanding the fact that the Trust may not have redeemed shares of each
Series for which a Notice of Redemption has been given, dividends may be
declared and paid on shares of any Series and shall include those shares of any
Series for which Notice of Redemption has been given but for which deposit of
funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the redemption
price of shares of any Series called for redemption shall be held in trust by
the Paying Agent for the benefit of holders of shares so to be redeemed.
(g) So long as any shares of any Series are held of record by the
nominee of the Securities Depository, the redemption price for such shares will
be paid on the date fixed for redemption to the nominee of the Securities
Depository for distribution to Agent Members for distribution to the persons for
whom they are acting as agent.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(h) Except for the provisions described above, nothing contained in
this Certificate limits any right of the Trust to purchase or otherwise acquire
any shares of each Series outside of an Auction at any price, whether higher or
lower than the price that would be paid in connection with an optional or
mandatory redemption, so long as, at the time of any such purchase, there is no
arrearage in the payment of dividends on, or the mandatory or optional
redemption price with respect to, any shares of each Series for which Notice of
Redemption has been given and the Trust meets the 1940 Act Preferred Shares
Asset Coverage and the Preferred Shares Basic Maintenance Amount Test after
giving effect to such purchase or acquisition on the date thereof. Any shares
which are purchased, redeemed or otherwise acquired by the Trust shall have no
voting rights. If fewer than all the Outstanding shares of any Series are
redeemed or otherwise acquired by the Trust, the Trust shall give notice of such
transaction to the Auction Agent, in accordance with the procedures agreed upon
by the Board of Trustees.
(i) In the case of any redemption pursuant to this Section 3, only
whole shares of each Series shall be redeemed, and in the event that any
provision of the Declaration would require redemption of a fractional share, the
Auction Agent shall be authorized to round up so that only whole shares are
redeemed.
(j) Notwithstanding anything herein to the contrary, including,
without limitation, Section 6(i) of Part I of this Certificate, the Board of
Trustees may authorize, create or issue other series of preferred shares,
including other series of Preferred Shares, series of stock ranking on a parity
with the Preferred Shares with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust, to the extent permitted by the 1940 Act, as amended, if
upon issuance, the net proceeds from the sale of such stock (or such portion
thereof needed to redeem or repurchase the Outstanding Preferred Shares) are
deposited with the Auction Agent in accordance with Section 3(d) of Part I of
this Certificate, Notice of Redemption as contemplated by Section 3(b) of Part I
of this Certificate has been delivered prior thereto or is sent promptly
thereafter, and such proceeds are used to redeem all Outstanding Preferred
Shares or if upon the issuance of any such series, the Trust would meet the 1940
Act Preferred Shares Asset Coverage, the Preferred Shares Basic Maintenance
Amount Test and the requirements of Section 12(b) of Part I of this Certificate.
(k) Notwithstanding anything herein to the contrary, redemptions of
preferred shares pursuant to this Section 3 shall comply with the terms and
covenants of the Bank of America Credit Agreement and the GE Loan Agreement and
no such redemptions shall be permitted to the extent they will cause an event of
default under such agreements.
4. DESIGNATION OF DIVIDEND PERIOD.
(a) The initial Dividend Period for each Series is as set forth under
"Designation" above. The Trust will designate the duration of subsequent
Dividend Periods of each Series; provided, however, that no such designation is
necessary for a Standard Rate Period and, provided further, that any designation
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
of a Special Rate Period shall be effective only if (i) notice thereof shall
have been given as provided herein, (ii) any failure to pay in a timely manner
to the Auction Agent the full amount of any dividend on, or the redemption price
of, each Series shall have been cured as provided above, (iii) Sufficient
Clearing Orders shall have existed in an Auction held on the Auction Date
immediately preceding the first day of such proposed Special Rate Period, (iv)
if the Trust shall have mailed a Notice of Redemption with respect to any
shares, the redemption price with respect to such shares shall have been
deposited with the Paying Agent, and (v) in the case of the designation of a
Special Rate Period, the Trust has confirmed that as of the Auction Date next
preceding the first day of such Special Rate Period, it has Eligible Assets with
an aggregate Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount, and the Trust has consulted with the Broker-Dealers and has
provided notice of such designation and a Preferred Shares Basic Maintenance
Certificate to each Rating Agency.
(b) If the Trust proposes to designate any Special Rate Period, not
fewer than 7 Business Days (or two Business Days in the event the duration of
the Dividend Period prior to such Special Rate Period is fewer than 8 days) nor
more than 30 Business Days prior to the first day of such Special Rate Period,
notice shall be (i) made by press release and (ii) communicated by the Trust by
telephonic or other means to the Auction Agent and confirmed in writing promptly
thereafter. Each such notice shall state (A) that the Trust proposes to exercise
its option to designate a succeeding Special Rate Period, specifying the first
and last days thereof and (B) that the Trust will by 3:00 p.m., New York City
time, on the second Business Day next preceding the first day of such Special
Rate Period, notify the Auction Agent, who will promptly notify the
Broker-Dealers, of either (x) its determination, subject to certain conditions,
to proceed with such Special Rate Period, subject to the terms of any Specific
Redemption Provisions, or (y) its determination not to proceed with such Special
Rate Period, in which latter event the succeeding Dividend Period shall be a
Standard Rate Period. No later than 3:00 p.m., New York City time, on the second
Business Day next preceding the first day of any proposed Special Rate Period,
the Trust shall deliver to the Auction Agent, who will promptly deliver to the
Broker- Dealers and Existing Holders, either:
(i) a notice stating (A) that the Trust has determined to
designate the next succeeding Dividend Period as an Special Rate Period,
specifying the first and last days thereof and (B) the terms of any Specific
Redemption Provisions; or
(ii) a notice stating that the Trust has determined not to
exercise its option to designate a Special Rate Period.
If the Trust fails to deliver either such notice with respect to any designation
of any proposed Special Rate Period to the Auction Agent or is unable to make
the confirmation provided in clause (v) of Paragraph (a) of this Section 4 by
3:00 p.m., New York City time, on the second Business Day next preceding the
first day of such proposed Special Rate Period, the Trust shall be deemed to
have delivered a notice to the Auction Agent with respect to such Dividend
Period to the effect set forth in clause (ii) above, thereby resulting in a
Standard Rate Period.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
5. RESTRICTIONS ON TRANSFER. Shares of each Series may be transferred only
(a) pursuant to an order placed in an Auction, (b) to or through a Broker-Dealer
or (c) to the Trust or any Affiliate. Notwithstanding the foregoing, a transfer
other than pursuant to an Auction will not be effective unless the selling
Existing Holder or the Agent Member of such Existing Holder, in the case of an
Existing Holder whose shares are listed in its own name on the books of the
Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in
the case of a transfer between persons holding shares of any Series through
different Broker-Dealers, advises the Auction Agent of such transfer. The
certificates representing the shares of each Series issued to the Securities
Depository will bear legends with respect to the restrictions described above
and stop-transfer instructions will be issued to the Transfer Agent and/or
Registrar.
6. VOTING RIGHTS.
(a) Except as otherwise provided in the Declaration or as otherwise
required by applicable law, (i) each Holder of shares of any Series shall be
entitled to one vote for each share of any Series held on each matter submitted
to a vote of shareholders of the Trust, and (ii) the holders of outstanding
shares of preferred shares, including each Series, and shares of Common Shares
shall vote together as a single class on all matters submitted to stockholders;
provided, however, that, at any meeting of the shareholders of the Trust held
for the election of trustees, the holders of outstanding shares of preferred
shares, including each Series, represented in person or by proxy at said
meeting, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of capital stock of the Trust, to elect two
trustees of the Trust, each share of preferred shares, including each Series,
entitling the holder thereof to one vote. Except as set forth in paragraph (b)
of this Section 6, the class of outstanding preferred shares, including each
Series, shall not be entitled to participate in the election of any other
trustees of the Trust.
(b) During any period in which any one or more of the conditions
described below shall exist (such period being referred to herein as a "Voting
Period"), the number of trustees constituting the Board of Trustees shall be
automatically increased by the smallest number that, when added to the two
trustees elected exclusively by the holders of shares of preferred shares,
including each Series, would constitute a majority of the Board of Trustees as
so increased by such smallest number; and the holders of shares of preferred
shares, including each Series, shall be entitled, voting as a class on a
one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of capital stock of the Trust), to elect such smallest
number of additional trustees, together with the two trustees that such holders
are in any event entitled to elect. A Voting Period shall commence:
(i) if at the close of business on any Dividend Payment Date
accumulated dividends (whether or not earned or declared) on preferred shares,
including each Series, equal to at least two full years' dividends shall be due
and unpaid; or
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(ii) if at any time holders of any other shares of preferred
shares are entitled under the 1940 Act to elect a majority of the trustees of
the Trust.
Upon the termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 6 shall cease, subject always, however, to the
revesting of such voting rights in the holders of preferred shares, including
each Series, upon the further occurrence of any of the events described in this
paragraph (b) of Section 6.
(c) As soon as practicable after the accrual of any right of the
holders of shares of preferred shares, including each Series, to elect
additional trustees as described in paragraph (b) of this Section 6, the Trust
shall notify the Auction Agent, and the Auction Agent shall call a special
meeting of such holders, by mailing a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 90 days after
the date of mailing of such notice. If the Trust fails to send such notice to
the Auction Agent or if the Auction Agent does not call such a special meeting,
it may be called by any such holder on like notice. The record date for
determining the holders 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 of holders of preferred shares, including each Series, held during a
Voting Period at which trustees are to be elected, such holders, voting together
as a class (to the exclusion of the holders of all other securities and classes
of capital stock of the Trust), shall be entitled to elect the number of
trustees prescribed in paragraph (b) of this Section 6 on a one-vote-per-share
basis.
(d) The holders of preferred shares, including each Series, may also
have such other voting rights as are contemplated by Article III of the Trust's
Declaration.
(e) For purposes of determining any rights of the holders of preferred
shares, including each Series, to vote on any matter, whether such right is
created by the Certificate, by statute or otherwise, if redemption of some or
all of the preferred shares, including each Series, is required, no holder of
preferred shares, including each Series, shall be entitled to vote and no share
of preferred shares, including each Series, 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,
sufficient Deposit Securities for the redemption of such shares have been
deposited in the case of Preferred Shares in trust with the Paying Agent for
that purpose and the requisite Notice of Redemption with respect to such shares
shall have been given as provided in Section 3(b) of Part I of this Certificate
and in the case of other preferred shares the Trust has otherwise met the
conditions for redemption applicable to such preferred shares.
(f) The terms of office of all persons who are trustees of the Trust
at the time of a special meeting of Holders of the Preferred Shares and holders
of other preferred shares to elect trustees pursuant to paragraph (b) of this
Section 6 shall continue, notwithstanding the election at such meeting by the
holders of the number of trustees that they are entitled to elect.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(g) Simultaneously with the termination of a Voting Period, the terms
of office of the additional trustees elected by the Holders of the Preferred
Shares and holders of other preferred shares pursuant to paragraph (b) of this
Section 6 shall terminate, the remaining trustees shall constitute the trustees
of the Trust and the voting rights of such holders to elect additional trustees
pursuant to paragraph (b) of this Section 6 shall cease, subject to the
provisions of the last sentence of paragraph (b) of this Section 6.
(h) Unless otherwise required by law or in the Trust's charter
documents, the Holders of Preferred Shares shall not have any relative rights or
preferences or other special rights other than those specifically set forth
herein. In the event that the Trust fails to pay any dividends on the Preferred
Shares of the Trust or fails to redeem any Preferred Shares which it is required
to redeem, or any other event occurs which requires the mandatory redemption of
Preferred Shares and the required Notice of Redemption has not been given, other
than the rights set forth in paragraph (a) of Section 3 of Part I of this
Certificate, the exclusive remedy of the Holders of Preferred Shares shall be
the right to vote for trustees pursuant to the provisions of paragraph (b) of
this Section 6. In no event shall the Holders of Preferred Shares have any right
to sue for, or bring a proceeding with respect to, such dividends or redemptions
or damages for the failure to receive the same.
(i) So long as any of the preferred shares, are outstanding, the Trust
will not, without the affirmative vote of the holders of a majority of the
outstanding preferred shares, (i) institute any proceedings to be adjudicated
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or file a petition seeking or consenting to
reorganization or relief under any applicable federal or state law relating to
bankruptcy or insolvency, or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Trust or a substantial part of its property, or make any assignment for the
benefit of creditors, or, except as may be required by applicable law, admit in
writing its inability to pay its debts generally as they become due or take any
corporate action in furtherance of any such action; (ii) 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 upon any of the Trust's assets as a
whole, except (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, pledges,
charges, security interests, security agreements or other encumbrances arising
in connection with any indebtedness senior to the Preferred Shares, (D) liens,
pledges, charges, security interests, security agreements or other encumbrances
arising in connection with any indebtedness permitted under clause (iii) below
and (E) liens to secure payment for services rendered including, without
limitation, services rendered by the Trust's Paying Agent and the Auction Agent;
or (iii) create, authorize, issue, incur or suffer to exist any indebtedness for
borrowed money or any direct or indirect guarantee of such indebtedness for
borrowed money or any direct or indirect guarantee of such indebtedness, except
the Trust may borrow as may be permitted by the Trust's investment restrictions;
provided, however, that transfers of assets by the Trust subject to an
15
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
obligation to repurchase shall not be deemed to be indebtedness for purposes of
this provision to the extent that after any such transaction the Trust has
Eligible Assets with an aggregate Discounted Value at least equal to the
Preferred Shares Basic Maintenance Amount as of the immediately preceding
Valuation Date.
(j) The affirmative vote of the holders of a majority of the
outstanding preferred shares, including each Series, voting as a separate class,
shall be required to approve any plan of reorganization (as such term is used in
the 1940 Act) adversely affecting such shares or any action requiring a vote of
security holders of the Trust under Section 13(a) of the 1940 Act. In the event
a vote of holders of preferred shares is required pursuant to the provisions of
Section 13(a) of the 1940 Act, the Trust shall, not later than ten Business Days
prior to the date on which such vote is to be taken, notify each Rating Agency
that such vote is to be taken and the nature of the action with respect to which
such vote is to be taken and shall, not later than ten Business Days after the
date on which such vote is taken, notify each Rating Agency of the results of
such vote.
(k) The affirmative vote of the holders of a majority of the
outstanding preferred shares of any series, voting separately from any other
series, shall be required with respect to any matter that materially and
adversely affects the rights, preferences, or powers of that series in a manner
different from that of other series or classes of the Trust's shares of capital
stock. For purposes of the foregoing, no matter shall be deemed to adversely
affect any right, preference or power unless such matter (i) alters or abolishes
any preferential right of such series; (ii) creates, alters or abolishes any
right in respect of redemption of such series; or (iii) creates or alters (other
than to abolish) any restriction on transfer applicable to such series. The vote
of holders of any series described in this Section 6(k) will in each case be in
addition to a separate vote of the requisite percentage of Common Shares and/or
preferred shares necessary to authorize the action in question.
(l) The Board of Trustees, without the vote or consent of any holder
of the preferred shares or any other shareholder of the Trust, may from time to
time amend, alter or repeal any or all of the definitions contained herein, add
covenants and other obligations of the Trust, or confirm the applicability of
covenants and other obligations set forth herein, all in connection with
obtaining or maintaining the rating of any Rating Agency with respect to each
Series, and any such amendment, alteration or repeal will not be deemed to
affect the preferences, rights or powers of Preferred Shares or the Holders
thereof, provided that the Board of Trustees receives written confirmation from
each relevant Rating Agency (with such confirmation in no event being required
to be obtained from a particular Rating Agency with respect to definitions or
other provisions relevant only to and adopted in connection with another Rating
Agency's rating of any Series) that any such amendment, alteration or repeal
would not adversely affect the rating then assigned by such Rating Agency.
In addition, subject to compliance with applicable law, the Board of
Trustees may amend the definition of Maximum Rate to increase the percentage
amount by which the Reference Rate is multiplied to determine the Maximum Rate
shown therein without the vote or consent of the holders of preferred shares,
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
including each Series, or any other shareholder of the Trust, and without
receiving any confirmation from any Rating Agency, after consultation with the
Broker-Dealers, provided that immediately following any such increase the Trust
would meet the Preferred Shares Basic Maintenance Amount Test.
(m) Unless otherwise required by law, Holders of shares of each Series
shall not have any relative rights or preferences or other special rights other
than those specifically set forth herein. The Holders of shares of each Series
shall have no rights to cumulative voting. In the event that the Trust fails to
pay any dividends on the shares of any Series, the exclusive remedy of the
Holders shall be the right to vote for trustees pursuant to the provisions of
this Section 6.
(n) The foregoing voting provisions will not apply with respect to any
series if, at or prior to the time when a vote is required, such shares have
been (i) redeemed or (ii) called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
7. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Trust, whether voluntary or involuntary, the Holders of Preferred
Shares, including each Series, shall be entitled to receive out of the assets of
the Trust available for distribution to stockholders, after claims of creditors
but before distribution to stockholders, after claims of creditors but before
any distribution or payment shall be made in respect of the Common Stock or any
other stock of the Trust ranking junior to the preferred shares, as to
liquidation payments, a liquidation distribution in the amount of $25,000 per
share (the "Liquidation Preference"), plus an amount equal to all unpaid
dividends accrued to and including the date fixed for such distribution or
payment (whether or not declared by the Trust, 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 Trust, whether voluntary or involuntary, the assets of the Trust
available for distribution among the holders of all outstanding preferred
shares, including each Series, 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 preferred shares,
including each Series, 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. Unless and until payment in full has been made to the
holders of preferred shares, including each Series, of the liquidation
distributions to which they are entitled, no dividends or distributions will be
made to holders of Common Stock or any stock of the Trust ranking junior to the
preferred shares as to liquidation.
(c) Neither the consolidation nor merger of the Trust with or into any
other corporation or corporations, nor the sale, lease, exchange or transfer by
the Trust of all or substantially all of its property and assets, shall be
deemed to be a liquidation, dissolution or winding up of the Trust for purposes
of this Section 7.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(d) After the payment to Holders of Preferred Shares of the full
preferential amounts provided for in this Section 7, the Holders of the
Preferred Shares as such shall have no right or claim to any of the remaining
assets of the Trust.
(e) In the event the assets of the Trust or proceeds thereof available
for distribution to the Holders of Preferred Shares, upon dissolution,
liquidation or winding up of the affairs of the Trust, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
Holders are entitled pursuant to paragraph (a) of this Section 7, no such
distribution shall be made on account of any shares of any other series of
preferred shares unless proportionate distributive amounts shall be paid on
account of the Preferred Shares, ratably, in proportion to the full
distributable amounts to which holders of all preferred shares are entitled upon
such dissolution, liquidation or winding up.
(f) Subject to the rights of the holders of other preferred shares or
after payment shall have been made in full to the Holders of Preferred Shares as
provided in paragraph (a) of this Section 7, but not prior thereto, any other
series or class of stock ranking junior to the Preferred Shares with respect to
the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust shall, subject to any respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the Holders of the Preferred Shares shall not be
entitled to share therein.
8. AUCTION AGENT. For so long as any shares of Preferred Shares are
Outstanding, the Auction Agent, duly appointed by the Trust to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Trust and its Affiliates (which, however, may engage or have
engaged in business transactions with the Trust or its Affiliates) and at no
time shall the Trust or any of its Affiliates act as the Auction Agent in
connection with the Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any shares of any
Series are Outstanding, the Trust shall use its best efforts promptly thereafter
to appoint another qualified commercial bank, trust company or financial
institution to act as the Auction Agent.
9. 1940 ACT PREFERRED SHARES ASSET COVERAGE. The Trust shall maintain, as
of the last Business Day of each month in which any Preferred Shares are
Outstanding, the 1940 Act Preferred Shares Asset Coverage; provided, however,
that Section 3(a)(ii) shall be the sole remedy in the event the Trust fails to
do so.
10. PREFERRED SHARES BASIC MAINTENANCE AMOUNT. So long as any Preferred
Shares are Outstanding and any Rating Agency so requires, the Trust shall
maintain, as of each Valuation Date, Moody's Eligible Assets and S&P Eligible
Assets, as applicable, having an aggregate Discounted Value equal to or greater
than the Preferred Shares Basic Maintenance Amount; provided, however, that
Section 3(a)(ii) shall be the sole remedy in the event the Trust fails to do so.
11. [Reserved]
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
12. CERTAIN OTHER RESTRICTIONS. (a) So long as any Preferred Shares are
Outstanding and any Rating Agency so requires, the Trust will not, unless it has
received written confirmation from such Rating Agency that any such action would
not impair the rating then assigned by such Rating Agency to the Preferred
Shares, engage in any one or more of the following transactions:
(i) purchase or sell futures contracts or options thereon with
respect to portfolio securities or write put or call options on portfolio
securities;
(ii) except in connection with a refinancing of the Preferred
Shares, issue additional shares of any series of preferred shares, including any
Series or reissue any shares of preferred shares, including any Series
previously purchased or redeemed by the Trust;
(iii) engage in any short sales of securities;
(iv) lend portfolio securities;
(v) merge or consolidate into or with any other corporation;
(vi) engage in any reverse repurchase agreement; or
(vii) change the Pricing Service to a service other than an
Approved Pricing Service.
(b) So long as any Preferred Shares are Outstanding and are rated by
S&P:
(i) the rating on each S&P Eligible Asset must be updated no less
frequently than monthly;
(ii) the prices for S&P Eligible Assets which have a Market Value
Price shall be updated as of each Valuation Date;
(iii) the prices for S&P Eligible Assets which have an Approved
Price shall be updated no less frequently than monthly;
(iv) no less frequently than semi-annually, the Trust's
independent auditors shall verify the pricing of at least 25% of the S&P
Eligible Assets and provide to S&P a letter describing the results of such
verification. For the purposes of this item (iv), "verify" shall mean that the
independent auditors agreed the prices reported by the Trust to the prices
received by the Trust from an Approved Pricing Service; and
(v) the Trust shall notify S&P if, on any Valuation Date, the
aggregate Discounted Value of the S&P Eligible Assets is less than 125% of the
Preferred Shares Basic Maintenance Amount.
13. COMPLIANCE PROCEDURES FOR ASSET MAINTENANCE TESTS. For so long as any
Preferred Shares are Outstanding and any Rating Agency so requires:
(a) As of each Valuation Date, the Trust shall determine (i) the
Market Value of each Eligible Asset owned by the Trust on that date, (ii) the
Discounted Value of each such Eligible Asset, (iii) whether the Preferred Shares
Basic Maintenance Amount Test is met as of that date, (iv) the value (as used in
the 1940 Act) of the total assets of the Trust, less all liabilities, and (v)
whether the 1940 Act Preferred Shares Asset Coverage is met as of that date.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(b) Upon any failure to meet the Preferred Shares Basic Maintenance
Amount Test or 1940 Act Preferred Shares Asset Coverage on any Valuation Date,
the Trust may use reasonable commercial efforts (including, without limitation,
altering the composition of its portfolio, purchasing shares of the Preferred
Shares outside of an Auction or, in the event of a failure to file a certificate
on a timely basis, submitting the requisite certificate), to meet (or certify in
the case of a failure to file a certificate on a timely basis, as the case may
be) the Preferred Shares Basic Maintenance Amount Test or 1940 Act Preferred
Shares Asset Coverage on or prior to the Asset Coverage Cure Date.
(c) [Reserved]
(d) The Trust shall deliver to the Auction Agent and each Rating
Agency a certificate which sets forth a determination of items (i)-(iii) of
paragraph (a) of this Section 13 (a "Preferred Shares Basic Maintenance
Certificate") as of (A) the Date of Original Issue, (B) the last Valuation Date
of each month, (C) any date requested by any Rating Agency, (D) a Business Day
on or before any Asset Coverage Cure Date relating to the Trust's cure of a
failure to meet the Preferred Shares Basic Maintenance Amount Test, and (E) any
day that Common or Preferred Shares are redeemed. Such Preferred Shares Basic
Maintenance Certificate shall be delivered in the case of clause (i)(A) on the
Date of Original Issue and in the case of all other clauses above on or before
the seventh Business Day after the relevant Valuation Date or Asset Coverage
Cure Date.
(e) The Trust shall deliver to the Auction Agent and each Rating
Agency a certificate which sets forth a determination of items (iv) and (v) of
paragraph (a) of this Section 13 (a "1940 Act Preferred Shares Asset Coverage
Certificate") (i) as of the Date of Original Issue, and (ii) as of (A) the last
Valuation Date of each quarter thereafter, and (B) as of a Business Day on or
before any Asset Coverage Cure Date relating to the failure to meet the 1940 Act
Preferred Shares Asset Coverage. Such 1940 Act Preferred Shares Asset Coverage
Certificate shall be delivered in the case of clause (i) on the Date of Original
Issue and in the case of clause (ii) on or before the seventh Business Day after
the relevant Valuation Date or the Asset Coverage Cure Date. The certificates
required by paragraphs (d) and (e) of this Section 13 may be combined into a
single certificate.
(f) [Reserved]
(g) Within ten Business Days of the Date of Original Issue, the Trust
shall deliver to the Auction Agent and each Rating Agency a letter prepared by
the Trust's independent auditors (an "Auditor's Certificate") regarding the
accuracy of the calculations made by the Trust in the Preferred Shares Basic
Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage
Certificate required to be delivered by the Trust on the Date of Original Issue.
Within ten Business Days after delivery of the Preferred Shares Basic
Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage
Certificate relating to the last Valuation Date of each fiscal quarter of the
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PREFERRED SHARES CERTIFICATE OF DESIGNATION
Trust, the Trust will deliver to the Auction Agent and each Rating Agency an
Auditor's Certificate regarding the accuracy of the calculations made by the
Trust in such Certificates and in one other Preferred Shares Basic Maintenance
Certificate randomly selected by the Trust's independent auditors during such
fiscal quarter. In addition, the Trust will deliver to the persons specified in
the preceding sentence an Auditor's Certificate regarding the accuracy of the
calculations made by the Trust on each Preferred Shares Basic Maintenance
Certificate and 1940 Act Preferred Shares Asset Coverage Certificate delivered
in relation to an Asset Coverage Cure Date within ten days after the relevant
Asset Coverage Cure Date. If an Auditor's Certificate shows that an error was
made in any such report, the calculation or determination made by the Trust's
independent auditors will be conclusive and binding on the Trust.
(h) The Auditor's Certificates referred to in paragraph (g) above will
confirm, based upon the independent auditors review of portfolio data provided
by the Trust, (i) the mathematical accuracy of the calculations reflected in the
related Preferred Shares Basic Maintenance Amount Certificates and 1940 Act
Preferred Shares Asset Coverage Certificates, (ii) that, based upon such
calculations, the Trust had, at such Valuation Date, met the Preferred Shares
Basic Maintenance Amount Test, and (iii) that the Trust met the Moody's General
Portfolio Requirements and the S&P Diversity I or S&P Diversity II requirements,
as applicable.
(i) In the event that a Preferred Shares Basic Maintenance Certificate
or 1940 Act Preferred Shares Asset Coverage Certificate with respect to an
applicable Valuation Date is not delivered within the time periods specified in
this Section 13, the Trust shall be deemed to have failed to meet the Preferred
Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset
Coverage, as the case may be, on such Valuation Date for purposes of Section
13(b) of Part I of this Certificate. In the event that a Preferred Shares Basic
Maintenance Certificate, a 1940 Act Preferred Shares Asset Coverage Certificate
or an applicable Auditor's Certificate with respect to an Asset Coverage Cure
Date is not delivered within the time periods specified herein, the Trust shall
be deemed to have failed to meet the Preferred Shares Basic Maintenance Amount
Test or the 1940 Preferred Shares Asset Coverage, as the case may be, as of the
related Valuation Date.
14. [Reserved]
15. NOTICE. All notices or communications hereunder, unless otherwise
specified in this Certificate, shall be sufficiently given if in writing and
delivered in person, by telecopier or mailed by first-class mail, postage
prepaid. Notices delivered pursuant to this Section 15 shall be deemed given on
the earlier of the date received or the date five days after which such notice
is mailed.
16. WAIVER. To the extent permitted by Massachusetts Law, holders of at
least two-thirds of the Outstanding Preferred Shares, acting collectively, or
each Series, acting as a separate series, may waive any provision hereof
intended for their respective benefit in accordance with such procedures as may
from time to time be established by the Board of Trustees.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
17. TERMINATION. In the event that no shares of the Preferred Shares are
Outstanding, all rights and preferences of such shares established and
designated hereunder shall cease and terminate, and all obligations of the Trust
under this Certificate shall terminate.
18. AMENDMENT. Subject to the provisions of this Certificate, the Board of
Trustees may, by resolution duly adopted without shareholder approval (except as
otherwise provided by this Certificate or required by applicable law), amend
this Certificate to (1) reflect any amendments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of Section 6(l) of Part I of
this Certificate without shareholder approval or (2) add additional shares of
each Series (and terms relating thereto). All such additional shares shall be
governed by the terms of this Certificate. To the extent permitted by applicable
law, the Board of Trustees may interpret, amend or adjust the provisions of this
Certificate to resolve any inconsistency or ambiguity or to remedy any patent
defect.
19. DEFINITIONS. As used in Part I and Part II of this Certificate, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"'AA' Financial Composite Commercial Paper Rate" on any date means (i)
the interest equivalent of the 7-day rate, in the case of a Dividend Period
which is a Standard Rate Period or shorter; for Dividend Periods greater than 7
days but fewer than or equal to 31 days, the 30-day rate; for Dividend Periods
greater than 31 days but fewer than or equal to 61 days, the 60-day rate; for
Dividend Periods greater than 61 days but fewer than or equal to 91 days, the 90
day rate; for Dividend Periods greater than 91 days but fewer than or equal to
270 days, the rate described in (ii); for Dividend Periods greater than 270
days, the Treasury Index 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 such 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 "AA" Financial
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,
by the Auction Agent. For Dividend Periods greater than 360 days, the Treasury
Index Rate. For
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PREFERRED SHARES CERTIFICATE OF DESIGNATION
purposes of this definition, (A) "Commercial Paper Dealers" shall mean (1)
Salomon Smith Barney Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Goldman Sachs & Co.; (2) in lieu of any thereof, its
respective Affiliate or successor; and (3) in the event that any of the
foregoing shall cease to quote rates for commercial paper of issuers of the sort
described above, in substitution therefor, a nationally recognized dealer in
commercial paper of such issuers then making such quotations selected by the
Trust, and (B) "interest equivalent" of a rate stated on a discount basis for
commercial paper of a given number of days' maturity shall mean a number equal
to the quotient (rounded upward to the next higher one-thousandth of 1%) of (1)
such rate expressed as a decimal, divided by (2) the difference between (x) 1.00
and (y) a fraction, the numerator of which shall be the product of such rate
expressed as a decimal, multiplied by the number of days in which such
commercial paper shall mature and the denominator of which shall be 360.
"Advance Rate" means the Moody's Advance Rate (if Moody's is then
rating the Preferred Shares) and the S&P Advance Rate (if S&P is then rating the
Preferred Shares), whichever is applicable.
"Affiliate" means any person known to the Auction Agent to be
controlled by, in control of or under common control with the Trust; provided
that ING Pilgrim Investments, Inc. shall not be deemed to be an Affiliate nor
shall any corporation or any person controlled by, in control of or under common
control with such corporation, one of the trustees, directors or executive
officers of which is also a trustee, director or executive officer of the Trust,
be deemed to be an Affiliate.
"Agent Member" means a member of or a participant in the Securities
Depository that will act on behalf of a Bidder.
"All Hold Rate" means 80% of the "AA" Financial Composite Commercial
Paper Rate.
"Applicable Rate" means, with respect to each Series for each Dividend
Period (i) if Sufficient Clearing Orders exist for the Auction in respect
thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist
for the Auction in respect thereof, the Maximum Rate.
"Approved Dealer" means any Broker-Dealer listed in Exhibit A to this
Certificate or any other broker-dealer designated in writing by the Trust
provided that no Rating Agency, in its reasonable discretion, has objected to
such designated broker-dealer in writing to the Trust within ten business days
of receipt of the Trust's written notice of such designation.
"Approved Price" means the "fair value" as determined by the Trust in
accordance with the valuation procedures adopted from time to time by the Board
of Trustees and for which the Trust receives a mark-to-market price (which, for
the purpose of clarity, shall not mean a Market Value Price) from an independent
source at least semi-annually.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
"Approved Pricing Service" means Loan Pricing Corporation or any other
quotation service designated in writing by the Trust provided that no Rating
Agency has objected, in its reasonable discretion, in writing to the Trust
within ten business days of receipt of the Trust's written notice of the
designation of such quotation service.
"Asset Coverage Cure Date" has the meaning set forth in Section
3(a)(ii) of this Certificate.
"Auction" means each periodic operation of the procedures set forth
under "Auction Procedures."
"Auction Agent" means Bankers Trust Company unless and until another
commercial bank, trust company, or other financial institution appointed by a
resolution of the Board of Trustees enters into an agreement with the Trust to
follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"Auction Date" means the first Business Day next preceding the first
day of a Dividend Period for each Series.
"Auction Procedures" means the procedures for conducting Auctions set
forth in Part II hereof.
"Auditor's Certificate" has the meaning set forth in Section 13(g) of
Part I of this Certificate.
"Bank of America Credit Agreement" means that certain Second Amended
and Restated Credit Agreement dated as of September 2, 1998 (as amended or
supplemented thereafter) among Pilgrim Prime Rate Trust, a Massachusetts
business trust, various financial institutions party to the Credit Agreement,
Bank of America, N.A., a national banking association, State Street Bank and
Trust Company, Deutsche Bank AG, and Commerzbank AG.
"Beneficial Owner," with respect to shares of each Series, means a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
(or, if applicable, the Auction Agent) as a holder of shares of such series.
"Bid" has the meaning set forth in Section 2(a)(ii) of Part II of this
Certificate.
"Bidder" has the meaning set forth in Section 2(a)(ii) of Part II of
this Certificate; provided, however, that neither the Trust nor any Affiliate
shall be permitted to be a Bidder in an Auction.
"Board of Trustees" means the Board of Trustees of the Trust or any
duly authorized committee thereof as permitted by applicable law.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
"Broker-Dealer" means any broker-dealer or broker-dealers, or other
entity permitted by law to perform the functions required of a Broker-Dealer by
the Auction Procedures, that has been selected by the Trust and has entered into
a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the
Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is
open for trading and which is not a Saturday, Sunday or other day on which banks
in The City of New York, New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" has the meaning set forth in the definition
of "AA" Financial Composite Commercial Paper Rate.
"Commission" means the Securities and Exchange Commission.
"Common Share" means the shares of beneficial interest, par value $.01
per share, of the Trust.
"Date of Original Issue" means the date on which a Series is
originally issued by the Trust.
"Default Period" has the meaning set forth in Sections 2(c) (ii) or
(iii) of Part I of this Certificate.
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Securities" means cash and any obligations or securities,
including Short Term Money Market Instruments that are Eligible Assets, rated at
least AAA, A-1+ or SP-1+ by S&P, except that, for purposes of optional
redemption such obligations or securities shall be considered "Deposit
Securities" only if they are also rated at least P-1 by Moody's.
"Discounted Value" means the product of the Market Value (plus accrued
interest) of an Eligible Asset multiplied by the applicable Advance Rate.
"Dividend Default" has the meaning set forth in Section 2(c)(iii) of
Part I of this Certificate.
"Dividend Payment Date" means (i) with respect to any Dividend Period
of one year or less, the Business Day next succeeding the last day thereof and,
if any, the 91st, 181st and 271st days thereof, and (ii) with respect to any
Dividend Period of more than one year, on a quarterly basis on each January 1,
April 1, July 1 and October 1 and on the Business Day following the last day of
such Dividend Period.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
"Dividend Period" means, with respect to each Series, the period
commencing on the Date of Original Issue thereof and ending on the date
specified for such series on the Date of Original Issue thereof and thereafter,
as to such Series, the period commencing on the day following each Dividend
Period for such Series and ending on the day established for such Series by the
Trust.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then
rating the Preferred Shares) and S&P Eligible Assets (if S&P is then rating the
Preferred Shares), whichever is applicable.
"Existing Holder," has the meaning set forth in Section 1(d) of Part
II of this Certificate.
"GE Loan Agreement" means that certain Revolving Loan Agreement dated
as of July 16, 1998 (as the same may be amended, supplemented, restated or
otherwise modified from time to time) and is entered into among Pilgrim Prime
Rate Trust (f/k/a Pilgrim America Prime Rate Trust), a Delaware corporation, ING
Pilgrim Investments, Inc. (f/k/a Pilgrim America Investments, Inc.), a Delaware
corporation, Edison Asset Securitization, L.L.C., a Delaware limited liability
company and General Electric Capital Corporation, a New York Corporation.
"Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II
of this Certificate.
"Holder" means, with respect to Preferred Shares, the registered
holder of shares of each Series as the same appears on the share ledger or share
records of the Trust.
"Loan" means any assignment of or participation in any bank loan
denominated in U.S. dollars including term loans, the funded and unfunded
portions of revolving credit lines (provided that the Trust shall place in
reserve an amount equal to any unfunded portion of any revolving credit line)
and debtor-in possession financings; provided that such loan (a) is not extended
for the purpose of purchasing or carrying any margin stock and (b) is similar to
those typically made, syndicated, purchased or participated by a commercial bank
in the ordinary course of business.
"Mandatory Redemption Date" has the meaning set forth in Section
3(a)(iv) of Part I of this Certificate.
"Mandatory Redemption Price" has the meaning set forth in Section
3(a)(iv) of Part I of this Certificate.
"Market Value" means the Market Value Price or, if a Market Value
Price is not readily available, the Approved Price of each Eligible Asset held
by the Trust.
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PRIME RATE TRUST
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"Market Value Price" means the price of an Eligible Asset which is the
price obtained from an Approved Pricing Service or, if such price is not
available, the lower of the bid prices quoted by two Approved Dealers.
"Maximum Rate" means, on any date on which the Applicable Rate is
determined, the applicable percentage of the "AA" Financial Composite Commercial
Paper Rate on the date of such Auction determined as set forth below based on
the lower of the credit ratings assigned to the Preferred Shares by Moody's and
S&P subject to upward but not downward adjustment in the discretion of the Board
of Trustees after consultation with the Broker-Dealers; provided that
immediately following any such increase the Trust would be in compliance with
the Preferred Shares Basic Maintenance Amount.
Moody's S&P Applicable
Credit Rating Credit Rating Percentage
------------- ------------- ----------
aa3 or Above AA- or Above 150%
a3 or a1 A- to A+ 160%
baa3 to baa1 BBB- to BBB+ 250%
Below baa3 Below BBB- 275%
"Moody's" means Moody's Investors Service, Inc. and its successors at
law.
"Moody's Advance Rate" means, so long as the Trust's portfolio
complies with the Moody's General Portfolio Requirements, the percentage
determined below:
(i) Loans: for each Moody's Asset Category, the percentage
specified in the table below opposite such Moody's Asset Category.
Moody's Asset Category Advance Rate
---------------------- ------------
A 84.5%
B 73%
C 62%
D 45%
E 45%
(ii) Short Term Money Market Instruments: (A) 97%, so long as
such investments mature or have a demand feature at par exercisable within 30
days, (B) 90%, so long as such investments mature or have a demand feature at
par not exercisable within 30 days, and (C) 83%, if such securities are not
rated by Moody's, so long as such investments are rated at least A-2/AA or
SP-2/AA by S&P and mature or have a demand feature at par exercisable within 30
days.
(iii) Cash; 100%.
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"Moody's Asset Category" means the following five categories (and, for
purposes of this categorization, the Market Value Price of a Moody's Eligible
Asset trading at par is equal to $ 1.00).
"Moody's Asset Category A" means Performing Senior Loans which have a
Market Value Price or an Approved Price greater than or equal to $.90.
"Moody's Asset Category B" means:
(i) Performing Senior Loans which have a Market Value Price or an
Approved Price of greater than or equal to $.80 but less than $.90; and
(ii) non-Performing Senior Loans which have a Market Value Price
or an Approved Price greater than or equal to $.85.
"Moody's Asset Category C" means:
(i) Performing Senior Loans which have a Market Value Price or an
Approved Price greater than or equal to $.70 but less than $.80; and
(ii) non-Performing Senior Loans which have a Market Value Price
or an Approved Price greater than or equal to $.75 but less than $.85.
"Moody's Asset Category D" means Senior Loans which have a Market
Value Price or an Approved price less than $.75.
"Moody's Asset Category E" means Non-Senior Loans which have a Market
Value Price or an Approved Price.
Notwithstanding any other provision contained above, for purposes of
determining whether a Moody's Eligible Asset falls within a specific Moody's
Asset Category, to the extent that any Moody's Eligible Asset would fall in more
than one of the Moody's Asset Categories, such Moody's Eligible Asset shall be
deemed to fall into the Moody's Asset Category with the highest applicable
Moody's Advance Rate.
"Moody's Eligible Assets" means:
(i) Senior Loans; provided, however, that (a) Senior Loans with
an Approved Price will qualify as Moody's Eligible Assets only up to a maximum
of 10% of the Trust's total assets; and (b) Senior Loans under Moody's Asset
Category D will qualify as Moody's Eligible Assets only up to a maximum of 20%
of the Trust's total assets.
(ii) Non-Senior Loans; provided, however, that Non-Senior Loans
will qualify as Moody's Eligible Assets only up to a maximum of 10% of the
Trust's total assets.
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PRIME RATE TRUST
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(iii) Short-Term Money Market Instruments so long as (a) such
securities are rated at least P-2, (b) in the case of demand deposits, time
deposits, banker's acceptances and certificate of deposit and overnight funds,
the supporting entity is rated at least A2, (c) such securities are U.S.
Government Securities, or (d) in all other cases, the supporting entity (1) is
rated A2 and the security matures within one month, (2) is rated A2 and the
security matures within three months or (3) is rated at least Aa3 and the
security matures within six months.
(iv) Cash.
( ) "Moody's General Portfolio Requirements" means that the
Trust's portfolio must meet the following diversification requirements: (a) no
more than 25% by par value of the Trust's total assets can be invested in the
securities of borrowers and other issuers having their principal business
activities in the same Moody's Industry Classification; provided, that this
limitation shall not apply with respect to U.S. Government Securities and
provided further that for purposes of this subsection (a), the term "issuer"
shall not include a lender selling a participation to the Trust or any other
person interpositioned between such lender and the Trust with respect to a
participation and (b) no more than 10% by par value of the Trust's total assets
can be invested in securities of a single issuer, and provided further that for
purposes of this subsection (b), the term "issuer" includes both the borrower
under a loan agreement and the lender selling a participation to the Trust
together with any other persons interpositioned between such lender and the
Trust with respect to such participation.
"Moody's Industry Classification" means, for the purposes of
determining Moody's Eligible Assets, each of the following industry
classifications (or such other classifications as Moody's may from time to time
approve for application to the Preferred Shares:
1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn
Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged
Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars,
Leaf/Snuff, Vegetable Oil
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PREFERRED SHARES CERTIFICATE OF DESIGNATION
5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
Engineering, Construction, Hardware, Forest Products (building-related only),
Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land
Development
6. Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial
Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints,
Varnish, Fabricating
7. Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood or Fiberglass
8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
9. Diversified/Conglomerate Manufacturing
10. Diversified/Conglomerate Service
11. Diversified Natural Resources, Precious Metals and Minerals: Fabricating,
Distribution, Mining and Sales
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste
Disposal
13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers,
Motors, Household Appliances, Information Service Communicating Systems, Radios,
TVs, Tape Machines, Speakers, Printers, Drivers, Technology
14. Finance: Investment Brokerage, Leasing, Syndication, Securities
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals,
Agricultural Equipment, Fertilizers
16. Grocery: Grocery Stores, Convenience Food Stores
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment
18. Home and Office Furnishings, Housewares, and Durable Consumer Products:
Carpets, Floor Coverings, Furniture, Cooking, Ranges
19. Hotels, Motels, Inns and Gaming
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety
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PREFERRED SHARES CERTIFICATE OF DESIGNATION
21. Leisure, Amusement, Entertainment: Boating, Bowling, Billiards, Musical
Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment
(Camping), Tourism, Resorts, Games, Toy Manufacturing
22. Machinery (Non-Agriculture, Non-Construction, Non-Electronic): Industrial,
Machine Tools, Steam Generators
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium,
Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories,
Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling
25. Personal, Food and Miscellaneous
26. Printing and Publishing: Graphic Arts, Paper, Paper Products, Business
Forms, Magazines, Books, Periodicals, Newspapers, Textbooks
27. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck
Manufacturing, Trailer Manufacturing, Air Cargo, Transport
28. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog,
Showroom
29. North American Cellular and North American Cable
30. Data and Internet Services
31. Satellite
32. Telecommunications Equipment
33. Other Telecommunications
34. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
35. Utilities: Electric, Water, Hydro Power, Gas, Diversified
36. Radio and TV Broadcasting
37. Foreign Cellular, Foreign Cable, Foreign TV, Foreign Radio and Equipment
38. Other Broadcasting and Entertainment
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PREFERRED SHARES CERTIFICATE OF DESIGNATION
"1940 Act" means the Investment Company Act of 1940, as amended.
"1940 Act Preferred Shares Asset Coverage" means asset coverage, as
determined in accordance with Section 18(h) of the 1940 Act, of at least 200%
with respect to all outstanding senior securities of the Trust which are stock,
including all Outstanding Preferred Shares (or such other asset coverage as may
in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of declaring dividends on its common shares), determined
on the basis of values calculated as of a time within 48 hours (not including
Sundays or holidays) next preceding the time of such determination.
"1940 Act Preferred Shares Asset Coverage Certificate" means the
certificate required to be delivered by the Trust pursuant to Section 13(e) of
Part I of this Certificate.
"Non-Senior Loan" means a Loan that is a hybrid loan, a subordinated
loan or an unsecured loan.
"Notice of Redemption" means any notice with respect to the redemption
of Preferred Shares pursuant to Section 3 of Part I of this Certificate.
"Order" has the meaning set forth in Section 2(a)(ii) of Part II of
this Certificate.
"Outstanding" means, as of any date, Preferred Shares theretofore
issued by the Trust except, without duplication, (i) Preferred Shares
theretofore canceled, redeemed or repurchased by the Trust, or delivered to the
Auction Agent for cancellation or with respect to which the Trust has given
notice of redemption and irrevocably deposited with the Paying Agent sufficient
funds to redeem such Preferred Shares and (ii) any Preferred Shares represented
by any certificate in lieu of which a new certificate has been executed and
delivered by the Trust. Notwithstanding the foregoing, (A) for purposes of
voting rights (including the determination of the number of shares required to
constitute a quorum), any Preferred Shares as to which the Trust or any
Affiliate shall be the Existing Holder shall be disregarded and not deemed
Outstanding; (B) in connection with any Auction, any Preferred Shares as to
which the Trust or any person known to the Auction Agent to be an Affiliate
shall be the Existing Holder shall be disregarded and not deemed Outstanding;
and (C) for purposes of determining the Preferred Shares Basic Maintenance
Amount, Preferred Shares held by the Trust shall be disregarded and not deemed
Outstanding, but shares held by any Affiliate shall be deemed Outstanding.
"Paying Agent" means Bankers Trust Company unless and until another
entity appointed by a resolution of the Board of Trustees enters into an
agreement with the Trust to serve as paying agent, which paying agent may be the
same as the Auction Agent.
"Performing" means that no default as to the payment of principal or
interest has occurred and is continuing.
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"Person" or "person" means and includes an individual, a partnership,
the Trust, a trust, a corporation, a limited liability company, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Potential Beneficial Owner," has the meaning set forth in Section 1
of Part II of this Certificate.
"Preferred Shares" has the meaning set forth in paragraph SECOND of
this Certificate.
"Preferred Shares Basic Maintenance Amount" as of any Valuation Date
means the dollar amount equal to the sum of
(i) (A) the sum of the products resulting from multiplying the
number of Outstanding shares of each Series of Preferred Shares on such date by
the Liquidation Preference (and redemption premium, if any) per share of such
Series; (B) the aggregate amount of dividends that will have accumulated at the
Applicable Rate (whether or not earned or declared) to and including the first
Dividend Payment Date for each Outstanding Preferred Share that follows such
Valuation Date (or to the 30th day after such Valuation Date, if such 30th day
occurs before the first following Dividend Payment Date); (C) the amount of
anticipated Trust non-interest expenses for the 90 days subsequent to such
Valuation Date; (D) the amount of the current outstanding balances of any
indebtedness which is senior to the Preferred Shares plus interest actually
accrued together with 30 days additional interest on the current outstanding
balances calculated at the current rate multiplied by 1.93 and (E) any other
current liabilities payable during the 30 days subsequent to such Valuation
Date, including, without limitation, any indebtedness service to the Preferred
Shares and indebtedness due within one year and any redemption premium due with
respect to Preferred Shares for which a Notice of Redemption has been given, as
of such Valuation Date to the extent not reflected in any of (i)(A) through
(i)(D): less
(ii) the sum of any cash plus the value of any Trust assets
irrevocably deposited by the Trust for the payment of any (i)(B) through (i)(E)
(except that if the security matures prior to the relevant redemption payment
date and is either fully guaranteed by the U.S. Government or is rated P2 by
Moody's and A2 by S&P, it will be valued at its face value).
"Preferred Shares Basic Maintenance Amount Test" means a test which is
met if the lower of the aggregate Discounted Values of the Moody's Eligible
Assets or the S&P Eligible Assets meets or exceeds the Preferred Shares Basic
Maintenance Amount.
"Preferred Shares Basic Maintenance Certificate" has the meaning set
forth in Section 13(d) of Part I of this Certificate.
"Rate Period" means either a Standard Rate Period or a Special Rate
Period.
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"Rating Agency" means Moody's and S&P as long as such rating agency is
then rating the Preferred Shares.
"Redemption Date" has the meaning set forth in Section 2(c)(ii) of
Part I of this Certificate.
"Redemption Default" has the meaning set forth in Section 2(c)(ii) of
Part I of this Certificate.
"Redemption Price" has the meaning set forth in Section 3(a)(i) of
Part I of this Certificate.
"Reference Rate" means, with respect to the determination of the
Default Rate, the applicable "AA" Financial Composite Commercial Paper Rate (for
a Dividend Period of fewer than 184 days) or the applicable Treasury Index Rate
(for a Dividend Period of 184 days or more).
"Registrar" means Bankers Trust Company unless and until another
entity appointed by a resolution of the Board of Trustees enters into an
agreement with the Trust to serve as transfer agent.
"S&P" means Standard & Poor's and its successors at law.
"S&P Advance Rate" means the rate set forth below for each type of S&P
Eligible Asset:
(i) Loans: depending upon whether the Trust's portfolio meets the
requirements of either S&P Diversity I or S&P Diversity II, for each S&P Asset
Category, the applicable percentage specified in the table below opposite such
S&P Asset Category.
S&P Diversity I S&P Diversity II
S&P Asset Category Advance Rate Advance Rate
------------------ ------------ ------------
A 80% 86%
B 74% 82%
C 57% 68%
D 47% 60%
E 47% 49%
(ii) Short Term Money Market Instruments: (A) 97%, so long as
such investments mature or have a demand feature at par exercisable within 30
days, and (B) 90%, so long as such investments mature or have a demand feature
at par not exercisable within the 30 days but exercisable within one year.
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(iii) Cash; 100%.
"S&P Asset Category" means the following five categories (and, for
purposes of this categorization, the Market Value Price of an S&P Eligible Asset
trading at par is equal to $ 1.00).
"S&P Asset Category A" means Performing Senior Loans which have a
Market Value Price or an Approved Price greater than $.90.
"S&P Asset Category B" means Performing Senior Loans which have a
Market Value Price or an Approved Price greater than or equal to $.85 but equal
to or less than $.90.
"S&P Asset Category C" means non-Performing Senior Loans which have a
Market Value Price or an Approved Price greater than $.85.
"S&P Asset Category D" means:
(i) Performing Senior Loans which have a Market Value Price or an
Approved Price less than $.85; and
(ii) Non-Performing Senior Loans which have a Market Value Price
or an Approved Price less than or equal to $.85.
"S&P Asset Category E" means (i) Senior Loans whose total syndication
is less than $150 million (to the extent such loans exceed 15% of the Trust's
total assets), (ii) Senior Loans which are rated below B- by S&P or are unrated
(to the extent such loans exceed 15% of the Trust's total assets), and (iii)
Non-Senior Loans.
Notwithstanding any other provision contained above, for purposes of
determining whether an S&P Eligible Asset falls within a specific S&P Asset
Category, to the extent that any S&P Eligible Asset would fall in more than one
of the five S&P Asset Categories, such S&P Eligible Asset shall be deemed to
fall into the S&P Asset Category with the highest applicable S&P Advance Rate.
"S&P Diversity I" means that the Trust's portfolio meets the following
requirements:
(1) the Trust's total assets must be invested in the securities
of borrowers and other issuers having their principal business activities in at
least four S&P Industry Classifications (the electric, gas, water and telephone
utility industries, commercial banks, thrift institutions and finance companies
being treated as separate industries for purposes of this restriction);
provided, that this limitation shall not apply with respect to U.S. Government
Securities and provided further that for purposes of this subsection (1), the
term "issuer" shall not include a lender selling a participation to the Trust or
any other person interpositioned between such lender and the Trust with respect
to a participation; and (2) the Trust's total assets must be invested in
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securities of at least 20 different issuers, provided that for purposes of this
subsection (2), the term "issuer" includes both the borrower under a loan
agreement and the lender selling a participation to the Trust together with any
other persons interpositioned between such lender and the Trust with respect to
a participation.
"S&P Diversity II" means that the Trust's portfolio meets the
following requirements:
(1) the Trust's total assets must be invested in the securities
of borrowers and other issuers having their principal business activities in at
least 10 S&P Industry Classifications (the electric, gas, water and telephone
utility industries, commercial banks, thrift institutions and finance companies
being treated as separate industries for purposes of this restriction);
provided, that this limitation shall not apply with respect to U.S. Government
Securities and provided further that for purposes of this subsection (1), the
term "issuer" shall not include a lender selling a participation to the Trust or
any other person interpositioned between such lender and the Trust with respect
to a participation; and (2) the Trust's total assets must be invested in
securities of at least 30 different issuers, provided that for purposes of this
subsection (2), the term "issuer" includes both the borrower under a loan
agreement and the lender selling a participation to the Trust together with any
other persons interpositioned between such lender and the Trust with respect to
a participation.
"S&P Eligible Assets" means:
(i) Senior Loans; provided, however, that (a) Senior Loan
Participations and Non-Senior Loans will qualify as S&P Eligible Assets only up
to an aggregate maximum of 15% of the Trust's total assets, (b) Senior Loans
whose total syndication is less than $150 million will qualify as S&P Eligible
Assets only up to a maximum of 35% of the Trust's total assets, (c) Senior Loans
and Non-Senior Loans rated below B- by S&P or unrated will qualify as S&P
Eligible Assets only up to an aggregate maximum of 50% of the Trust's total
assets, (d) Senior Loans and Non-Senior Loans with an Approved Price will
qualify as S&P Eligible Assets only up to an aggregate maximum of 5% of the
Trust's total assets, (e) a Senior Loan or a Non-Senior Loan to a single issuer,
plus any other investment in the securities of such issuer, will qualify as an
S&P Eligible Asset only up to an aggregate maximum of 5% (for the S&P Diversity
I Advance Rate) or 3.33% (for the S&P Diversity II Advance Rate) of the Trust's
total assets, provided that, for purposes of this subsection (e), the term
"issuer" includes both the borrower under a loan agreement and the lender
selling a participation to the Trust together with any other persons
interpositioned between such lender and the Trust with respect to a
participation, (f) Senior Loans and Non-Senior Loans to borrowers and other
issuers having their principal business activities in the same S&P Industry
Classification will qualify as S&P Eligible Assets only up to an aggregate
maximum of 25% (for the S&P Diversity I Advance Rate) or 10% (for the S&P
Diversity II Advance Rate) of the Trust's total assets, provided that this
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limitation shall not apply with respect to U.S. Government Securities and
provided further that, for purposes of this subsection (f), the term "issuer"
shall not include a lender selling a participation to the Trust or any other
person interpositioned between such lender and the Trust with respect to a
participation.
(ii) Non-Senior Loans; provided, however, that (a) unsecured
Non-Senior Loans will qualify as S&P Eligible Assets only up to a maximum of 3%
of the Trust's total assets, (b) Senior Loan Participations and Non-Senior Loans
will qualify as S&P Eligible Assets only up to an aggregate maximum of 15% of
the Trust's total assets, (c) Senior Loans and Non-Senior Loans rated below B-
by S&P or unrated will qualify as S&P Eligible Assets only up to an aggregate
maximum of 50% of the Trust's total assets, (d) Senior Loans and Non-Senior
Loans with an Approved Price will qualify as S&P Eligible Assets only up to an
aggregate maximum of 5% of the Trust's total assets, (e) a Senior Loan or a
Non-Senior Loan to a single issuer, plus any other investment in the securities
of such issuer, will qualify as an S&P Eligible Asset only up to an aggregate
maximum of 5% (for the S&P Diversity I Advance Rate) or 3.33% (for the S&P
Diversity I Advance Rate) of the Trust's total assets, provided that, for
purposes of this subsection (e), the term "issuer" includes both the borrower
under a loan agreement and the lender selling a participation to the Trust
together with any other persons interpositioned between such lender and the
Trust with respect to a participation, (f) Senior Loans and Non-Senior Loans to
borrowers and other issuers having their principal business activities in the
same S&P Industry Classification will qualify as S&P Eligible Assets only up to
an aggregate maximum of 25% (for the S&P Diversity I Advance Rate) or 10% (for
the S&P Diversity I Advance Rate) of the Trust's total assets, provided that
this limitation shall not apply with respect to U.S. Government Securities and
provided further that, for purposes of this subsection (f), the term "issuer"
shall not include a lender selling a participation to the Trust or any other
person interpositioned between such lender and the Trust with respect to a
participation.
(iii) Short-Term Money Market Instruments provided that (a) such
securities are rated at least A-1 and mature within 30 days or are rated at
least A-1+ and mature within one year, and provided further that such securities
rated A-1 will qualify as S&P Eligible Assets only up to a maximum of 20% of the
Trust's total assets, (b) in the case of demand deposits, time deposits,
banker's acceptances, certificates of deposit and overnight funds, the
supporting entity is rated at least A+, (c) such securities are U.S. Government
Securities or (d) in all other cases, the supporting entity is rated at least
A+.
(iv) Cash.
"S&P Industry Classification" means, for the purposes of determining
S&P Eligible Assets, each of the following industry classifications (or such
other classifications as S&P may from time to time approve for application to
the Preferred Shares:
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1. Aerospace and Defense: Aircraft manufacturer/components, Arms and
ammunition
2. Air transport
3. Automotive: Manufacturers, Parts and Equipment, Tire and Rubber
4. Beverage and Tobacco
5. Broadcast Radio and Television
6. Brokers/Dealers/Investment Houses
7. Building and Development: Builders, Land Development/Real Estate,
REITs
8. Business Equipment and Services: Graphic Arts, Office
Equipment/Computers, Data Processing Service Bureaus, Computer
Software
9. Cable and Satellite Television
10. Chemical/Plastics: Coatings/Paints/Varnishes
11. Clothing/Textiles
12. Conglomerates
13. Containers and Glass Products
14. Cosmetic/Toiletries
15. Drugs
16. Ecological Services and Equipment: Waste Disposal Services and
Equipment
17. Electronics/Electric
18. Equipment Leasing: Auto Leasing/Rentals, Commercial Equipment Leasing,
Data Processing Equipment Service/Leasing
19. Farming/Agriculture: Agricultural Products and Equipment, Fertilizers
20. Financial Intermediaries: Bank/Thrifts, Finance Companies
21. Food/Drug Retailers
22. Food Products
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23. Food Service: Food Service/Restaurants, Vending
24. Forest Products: Building Materials, Paper Products/Containers
25. Health Care
26. Home Furnishings: Appliances, Furniture and Fixtures, Housewares
27. Lodging and Casinos
28. Industrial Equipment: Machinery, Manufacturing/Industrial, Specialty
Instruments
29. Insurance
30. Leisure Goods/Activities/Movies
31. Nonferrous Metals/Minerals: Aluminum Producers, Mining (including
coal), Other Metal/Mineral Producers
32. Oil and Gas: Producers/Refiners, Gas Pipelines
33. Publishing
34. Rail Industries: Railroads, Rail Equipment
35. Retailers (except food and drug)
36. Steel
37. Surface Transport: Shipping/Shipbuilding, Trucking
38. Telecommunications/Cellular Communications
39. Utilities: Electric, Local Gas, Water
The Trust shall use its discretion in determining which industry
classification is applicable to a particular investment.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Trust that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of each Series.
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"Sell Order" has the meaning set forth in Section 2(b) of Part II of
this Certificate.
"Senior Loan" means any secured Loan that is not subordinated by its
terms to any other indebtedness of the borrower.
"Senior Loan Participations" means participations by the Trust in a
lender's portion of a Senior Loan where the Trust has a contractual relationship
with such lender and not the borrower, and such lender is rated at least A-1/A-.
"Series" means any of the series of Preferred Shares issued by the
Trust.
"Series F" means the shares of Series F of the Preferred Shares or any
other shares of preferred stock hereinafter designated as shares of Series F of
the Preferred Shares.
"Series M" means the shares of Series M of the Preferred Shares or any
other shares of preferred stock hereinafter designated as shares of Series M of
the Preferred Shares.
"Series T" means the shares of Series T of the Preferred Shares or any
other shares of preferred stock hereinafter designated as shares of Series T of
the Preferred Shares.
"Series Th" means the shares of Series Th of the Preferred Shares or
any other shares of preferred stock hereinafter designated as shares of Series
Th of the Preferred Shares.
"Series W" means the shares of Series W of the Preferred Shares or any
other shares of preferred stock hereinafter designated as shares of Series W of
the Preferred Shares.
"Short-Term Money Market Instrument" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Trust, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures
in 30 days or A-1+ if such commercial paper matures in over 30 days;
(ii) demand or time deposits in, and banker's acceptances and
certificates of deposit of (A) a depository institution or trust company
incorporated under the laws of the United States of America or any state thereof
or the District of Columbia or (B) a United States branch office or agency of a
foreign depository institution (provided that such branch office or agency is
subject to banking regulation under the laws of the United States, any state
thereof or the District of Columbia);
(iii) overnight funds; and
(iv) U.S. Government Securities.
"Special Rate Period" means a Dividend Period that is not a Standard
Rate Period.
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"Specific Redemption Provisions" means, with respect to any Special
Rate Period of more than one year, either, or any combination of (i) a period (a
"Non-Call Period") determined by the Board of Trustees after consultation with
the Broker-Dealers, during which the shares subject to such Special Rate Period
are not subject to redemption at the option of the Trust pursuant to Section
3(a)(i) and/or Section 3(a)(ii) and/or 3(a)(iii) of Part I of this Certificate
and (ii) a period (a "Premium Call Period"), consisting of a number of whole
years as determined by the Board of Trustees after consultation with the
Broker-Dealers, during each year of which the shares subject to such Special
Rate Period shall be redeemable at the Trust's option pursuant to Section
3(a)(i) and/or in connection with any mandatory redemption pursuant to Section
3(a)(ii) and/or 3(a)(iii) at a price per share equal to the Liquidation Value
plus accumulated but unpaid dividends (whether or not earned or declared) plus a
premium expressed as a percentage or percentages of the Liquidation Value or
expressed as a formula using specified variables as determined by the Board of
Trustees after consultation with the Broker-Dealers.
"Standard Rate Period" means a Dividend Period of 7 days, unless such
7th day is not a Business Day, then the number of days ending on the Business
Day next preceding such 7th day.
"Submission Deadline" means 1:00 P.M., New York City time, on any
Auction Date or such other time on any Auction Date by which Broker-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.
"Transfer Agent" means Bankers Trust Company, unless and until another
entity appointed by a resolution of the Board of Trustees enters into an
agreement with the Trust to serve as Transfer Agent.
"Treasury Index Rate" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities having the same
number of 30-day periods to maturity as the length of the applicable Dividend
Period, determined, to the extent necessary, by linear interpolation based upon
the yield for such securities having the next shorter and next longer number of
30-day periods to maturity treating all Dividend Periods with a length greater
than the longest maturity for such securities as having a length equal to such
longest maturity, in all cases based upon data set forth in the most recent
weekly statistical release published by the Board of Governors of the Federal
Reserve System (currently in H.15 (519)); provided, however, if the most recent
such statistical release shall not have been published during the 15 days
preceding the date of computation, the foregoing computations shall be based
upon the average of comparable data as quoted to the Trust by at least three
recognized dealers in U.S. Government securities selected by the Trust.
"U.S. Government Securities" means direct obligations of the United
States or by its agencies or instrumentalities that are entitled to the full
faith and credit of the United States and that, 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.
"Valuation Date" means each Business Day of each week.
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" Voting Period" has the meaning set forth in Section 6(b) of Part I
of this Certificate.
"Winning Bid Rate" has the meaning set forth in Section 4(a)(iii) of
Part II of this Certificate.
20. INTERPRETATION. References to sections, subsections, clauses,
sub-clauses, paragraphs and subparagraphs are to such sections, subsections,
clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I or
Part II hereof, as the case may be, unless specifically identified otherwise.
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PART II: AUCTION PROCEDURES
1. Certain Definitions. As used in Part II of this Certificate, the following
terms shall have the following meanings, unless the context otherwise
requires and all section references below are to Part II of this
Certificate except as otherwise indicated: Capitalized terms not defined in
Section 1 of Part II of this Certificate shall have the respective meanings
specified in Part I of this Certificate.
"Agent Member" means a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
"Available Preferred Shares" has the meaning set forth in Section
4(a)(i) of Part II of this Certificate.
"Existing Holder" means (a) a person who has signed a Master
Purchaser's Letter and beneficially owns those Preferred Shares listed
in that person's name in the records of the Auction Agent or (b) the
beneficial owner of those Preferred Shares which are listed under such
person's Broker-Dealer's name in the records of the Auction Agent,
which Broker-Dealer shall have signed a Master Purchaser's Letter.
"Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II
of this Certificate.
"Master Purchaser's Letter" means a letter which is required to be
executed by each prospective purchaser of Preferred Shares or the
Broker-Dealer through whom such shares will be held.
"Order" has the meaning set forth in Section 2(a)(ii) of Part II of
this Certificate.
"Potential Holder," means (1) any Existing Holder who may be
interested in acquiring additional Preferred Shares or (ii) any other
person who may be interested in acquiring Preferred Shares and who has
signed a Master Purchaser's letter or whose shares will be listed
under such person's Broker-Dealer's name on the records of the Auction
Agent which Broker-Dealer shall have executed a Master Purchaser's
letter.
"Sell Order" has the meaning set forth in Section 2(b) of Part II of
this Certificate.
"Submitted Bid Order" has the meaning set forth in Section 4(a) of
Part II of this Certificate.
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"Submitted Hold Order" has the meaning set forth in Section 4(a) of
Part II of this Certificate.
"Submitted Order" has the meaning set forth in Section 4(a) of Part II
of this Certificate.
"Submitted Sell Order" has the meaning set forth in Section 4(a) of
Part II of this Certificate.
"Sufficient Clearing Orders" means that all Preferred Shares are the
subject of Submitted Hold Orders or that the number of Preferred
Shares that are the subject of Submitted Buy Orders by Potential
Holders specifying one or more rates equal to or less than the Maximum
Rate exceeds or equals the sum of (A) the number of Preferred Shares
that are subject of Submitted Hold/Sell Orders by Existing Holders
specifying one or more rates higher than the Maximum Applicable Rate
and (B) the number of Preferred Shares that are subject to Submitted
Sell Orders.
"Winning Bid Rate" means the lowest rate specified in the Submitted
Orders which, if (A) each Submitted Hold/Sell Order from Existing
Holders specifying such lowest rate and all other Submitted Hold/Sell
Orders from Existing Holders specifying lower rates were accepted and
(B) each Submitted Buy Order from Potential Holders specifying such
lowest rate and all other Submitted Buy Orders from Potential Holders
specifying lower rates were accepted, would result in the Existing
Holders described in clause (A) above continuing to hold an aggregate
number of Preferred Shares which, when added to the number of
Preferred Shares to be purchased by the Potential Holders described in
clause (B) above and the number of Preferred Shares subject to
Submitted Hold Orders, would be equal to the number of Preferred
Shares.
2. ORDERS
(a) On or prior to the Submission Deadline on each Auction Date for shares
of a series of Preferred Shares:
(i) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner desires to continue to hold
without regard to the Applicable Rate for shares of such series for the next
succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell if the
Applicable Rate for shares of such series for the next succeeding Rate Period of
shares of such series shall be less than the rate per annum specified by such
Beneficial Owner; and/or
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(C) the number of Outstanding shares, if any, of such series held
by such Beneficial Owner which such Beneficial Owner offers to sell without
regard to the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series; and
(ii) each Broker-Dealer, using lists of Potential Beneficial Owners
shall in good faith for the purpose of conducting a competitive Auction in a
commercially reasonable manner, contact Potential Beneficial Owners (by
telephone or otherwise), including Persons that are not Beneficial Owners, on
such lists to determine the number of shares, if any, of such series which each
such Potential Beneficial Owner offers to purchase if the Applicable Rate for
shares of such series for the next succeeding Rate Period of shares of such
series shall not be less than the rate per annum specified by such Potential
Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or
(ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the Auction Agent, is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders"; an Order containing the information referred
to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of
a series of Preferred Shares subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such series
determined on such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of
such series to be determined as set forth in clause (iv) of paragraph (a) of
Section 5 of this Part II if the Applicable Rate for shares of such series
determined on such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding shares of such series
specified in such Bid if the rate specified therein shall be higher than the
Maximum Rate for shares of such series, or such number or a lesser number of
Outstanding shares of such series to be determined as set forth in clause (iii)
of paragraph (b) of Section 5 of this Part II if the rate specified therein
shall be higher than the Maximum Rate for shares of such series and Sufficient
Clearing Bids for shares of such series do not exist.
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(ii) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of a series of Preferred Shares subject to an Auction on any Auction Date
shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (iii) of paragraph (b) of Section 5 of this
Part II if Sufficient Clearing Bids for shares of such series do not exist;
provided however, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of Preferred Shares shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 3 of this Part II if (1) such shares were transferred
by the Beneficial Owner thereof without compliance by such Beneficial Owner or
its transferee Broker-Dealer (or other transferee person, if permitted by the
Trust) with the provisions of Section 6 of this Part II or (2) such
Broker-Dealer has informed the Auction Agent pursuant to the terms of its
Broker-Dealer Agreement that, according to such Broker-Dealer's records, such
Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Holder of shares of a series of
Preferred Shares subject to an Auction on any Auction Date shall constitute an
irrevocable offer to purchase:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such series
determined on such Auction Date shall be higher than the rate specified therein;
or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (v) of paragraph (a) of Section 5 of this
Part II if the Applicable Rate for shares of such series determined on such
Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of Preferred Shares other than whole
shares shall be valid.
3. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
(a) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date all Orders for Preferred
Shares of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Trust) as
an Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
shall specify with respect to each Order for such shares:
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(i) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Trust);
(ii) the aggregate number of shares of such series that are the
subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series subject to
any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to
any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to
any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of
such series, the rate and number of shares of such series specified in such
Potential Holder's Bid.
(b) 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%.
(c) If an Order or Orders covering all of the Outstanding Preferred
Shares of a series held by any 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 by or on behalf of such Existing Holder covering
the number of Outstanding shares of such series held by such Existing Holder and
not subject to Orders submitted to the Auction Agent; provided, however, that if
an Order or Orders covering all of the Outstanding shares of such series held by
any Existing Holder is not submitted to the Auction Agent prior to the
Submission Deadline for an Auction relating to a Special Rate Period consisting
of more than 7 Rate Period days, the Auction Agent shall deem a Sell Order to
have been submitted by or on behalf of such Existing Holder covering the number
of outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
Preferred Shares of a series subject to an Auction held by such Existing Holder,
such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of Outstanding
shares of such series held by such Existing Holder, and if the number of shares
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
of such series subject to such Hold Orders exceeds the number of Outstanding
shares of such series held by such Existing Holder, the number of shares subject
to each such Hold Order shall be reduced pro rata to cover the number of
Outstanding shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares of such series
subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction Agent with
the same rate and the number of Outstanding shares of such series subject to
such Bids is greater than such excess, such Bids shall be considered valid up to
and including the amount of such excess, and the number of shares of such series
subject to each Bid with the same rate shall be reduced pro rata to cover the
number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid
of an Existing Holder for shares of such series is submitted to the Auction
Agent with different rates, such Bids shall be considered valid in the ascending
order of their respective rates up to and including the amount of such excess;
and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids considered not
valid in whole or in part under this clause (ii) shall be treated as the subject
of a Bid for shares of such series by or on behalf of a Potential Holder at the
rate therein specified; and
(iii) all Sell Orders for shares of such series shall be
considered valid up to and including the excess of the number of Outstanding
shares of such series held by such Existing Holder over the sum of shares of
such series subject to valid Hold Orders referred to in clause (i) above and
valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
Preferred Shares is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date, shall be
irrevocable.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
4. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND &
APPLICABLE RATE
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Preferred Shares, the Auction Agent shall assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually 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 for such series:
(i) the excess of the number of Outstanding shares of such series
over the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available Preferred
Shares" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject
to Submitted Bids of Potential Holders specifying one or more rates equal to or
lower than the Maximum Rate (for all Rate Periods) for shares of such series;
exceeds or is equal to the sum of
(B) the number of Outstanding shares of such series subject
to Submitted Bids of Existing Holders specifying one or more rates higher than
the Maximum Rate (for all Rate Periods) for shares of such series; and
(C) the number of Outstanding shares of such series subject
to Submitted Sell Orders (in the event such excess or such equality exists
(other than because the number of shares of such series in subclauses (B) and
(C) above is zero because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), such Submitted Bids in subclause (A) above
being hereinafter referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series
exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate"
for shares of such series) which if: (A) (I) each such Submitted Bid of Existing
Holders specifying such lowest rate and (II) all other such Submitted Bids of
Existing Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of such series that are subject
to such Submitted Bids; and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted; would result in such Existing
Holders described in subclause (A) above continuing to hold an aggregate number
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
of Outstanding shares of such series which, when added to the number of
Outstanding shares of such series to be purchased by such Potential Holders
described in subclause (B) above, would equal not less than the Available
Preferred Shares of such series.
(b) Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 4, the Auction Agent shall advise the
Trust of the Maximum Rate for shares of the series of Preferred Shares for which
an Auction is being held on the Auction Date and, based on such determination,
the Applicable Rate for shares of such series for the next succeeding Rate
Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist,
that the Applicable Rate for all shares of such series for the next succeeding
Rate Period thereof shall be equal to the Winning Bid Rate for shares of such
series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares of
such series for the next succeeding Rate Period thereof shall be equal to the
Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject
to Submitted Hold Orders, that the Applicable Rate for all shares of such series
for the next succeeding Rate Period thereof shall be All Hold Rate.
5. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION
Existing Holders shall continue to hold the Preferred Shares that are
subject to Submitted Hold Orders, and, based on the determinations made pursuant
to paragraph (a) of Section 4 of this Part II, the Submitted Bids and Submitted
Sell Orders shall be accepted or rejected by the Auction Agent and the Auction
Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of Preferred
Shares have been made, all Submitted Sell Orders with respect to shares of such
series shall be accepted and, subject to the provisions of paragraphs (d) and
(e) of this Section 5, Submitted Bids with respect to shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids with respect to shares of such series shall be
rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of such
series shall be accepted, thus requiring each such Existing Holder to sell the
Preferred Shares subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of such
series shall be rejected, thus entitling each such Existing Holder to continue
to hold the Preferred Shares subject to such Submitted Bids;
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of such
series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to continue
to hold the Preferred Shares subject to such Submitted Bid, unless the number of
Outstanding Preferred Shares subject to all such Submitted Bids shall be greater
than the number of Preferred Shares ("remaining shares") in the excess of the
Available Preferred Shares of such series over the number of Preferred Shares
subject to Submitted Bids described in clauses (ii) and (iii) of this paragraph
(a), in which event such Submitted Bid of such Existing Holder shall be rejected
in part, and such Existing Holder shall be entitled to continue to hold
Preferred Shares subject to such Submitted Bid, but only in an amount equal to
the Preferred Shares of such series obtained by multiplying the number of
remaining shares by a fraction, the numerator of which shall be the number of
Outstanding Preferred Shares held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate number of
Outstanding Preferred Shares subject to such Submitted Bids made by all such
Existing Holders that specified a rate equal to the Winning Bid Rate for shares
of such series; and
(v) each Potential Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the excess
of the Available Preferred Shares of such series over the number of Preferred
Shares subject to Submitted Bids described in clauses (ii) through (iv) of this
paragraph (a) by a fraction, the numerator of which shall be the number of
Outstanding Preferred Shares subject to such Submitted Bid and the denominator
of which shall be the aggregate number of Outstanding Preferred Shares subject
to such Submitted Bids made by all such Potential Holders that specified a rate
equal to the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of Preferred
Shares have not been made (other than because all of the Outstanding shares of
such series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 5, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for shares
of such series shall be rejected, thus entitling such Existing Holders to
continue to hold the Preferred Shares subject to such Submitted Bids;
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PREFERRED SHARES CERTIFICATE OF DESIGNATION
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for shares
of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for shares of
such series and the Submitted Sell Orders for shares of such series of each
Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or Submitted
Sell Order to sell the shares of such series subject to such Submitted Bid or
Submitted Sell Order, but in both cases only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares of such
series subject to Submitted Bids described in clause (ii) of this paragraph (b)
by a fraction, the numerator of which shall be the number of Outstanding shares
of such series 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 Outstanding shares of such series subject to all such Submitted Bids and
Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of Preferred Shares
are subject to Submitted Hold Orders, all Submitted Bids for shares of such
series shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v)
of paragraph (a) or clause (iii) of paragraph (b) of this Section 5, 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 a series of
Preferred Shares on any Auction Date, the Auction Agent shall, in such manner as
it shall determine in its sole discretion, round up or down the number of
Preferred Shares of such series to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date as a result of such procedures so that
the number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of a series of Preferred
Shares.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 5 any Potential Holder would be entitled or
required to purchase less than a whole share of a series of Preferred Shares on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate Preferred Shares of such series for purchase
among Potential Holders so that only whole shares of Preferred Shares of such
series are purchased on such Auction Date as a result of such procedures by any
Potential Holder, even if such allocation results in one or more Potential
Holders not purchasing Preferred Shares of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
Preferred Shares, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
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number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, Preferred Shares of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of Preferred Shares with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of Preferred
Shares that have been made in respect of Potential Holders' or Potential
Beneficial Owners' Submitted Bids for shares of such series that have been
accepted in whole or in part shall constitute good delivery to such Potential
Holders and Potential Beneficial Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of
either shall have any responsibility or liability with respect to the failure of
an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential
Beneficial Owner or its respective Agent Member to deliver Preferred Shares of
any series or to pay for Preferred Shares of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
6. TRANSFER OF PREFERRED SHARES
Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing
Holder may sell, transfer or otherwise dispose of Preferred Shares only in whole
shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in
accordance with the procedures described in this Part II or to a Broker-Dealer;
provided, however, that (a) a sale, transfer or other disposition of Preferred
Shares from a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such shares to that Broker-Dealer or another
customer of that Broker-Dealer shall not be deemed to be a sale, transfer or
other disposition for purposes of this Section 6 if such Broker-Dealer remains
the Existing Holder of the shares so sold, transferred or disposed of
immediately after such sale, transfer or disposition and (b) in the case of all
transfers other than pursuant to Auctions, the Broker-Dealer (or other Person,
if permitted by the Trust) to whom such transfer is made shall advise the
Auction Agent of such transfer.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
EXHIBIT A
APPROVED BROKER-DEALERS
Salomon Smith Barney Inc.
PaineWebber Incorporated
Lehman Brothers Inc.
Gruntal & Co., L.L.C.
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PRIME RATE TRUST
PREFERRED SHARES CERTIFICATE OF DESIGNATION
IN WITNESS WHEREOF, the Trust has caused these representations to be signed in
its name and on its behalf by its Senior Executive Vice-President and attested
by its Assistant Secretary this ___ day of October, 2000. The Trust's
Declaration of Trust, as amended, is on file with the Secretary of State of the
Commonwealth of Massachusetts, and the said officers of the Trust have executed
this Certificate as officers and not individually, and the obligations and
rights set forth in this Certificate are not binding upon any such officers, or
the Trustees or shareholders of the Trust, individually, but are binding only
upon the assets and property of the Trust.
PILGRIM PRIME RATE TRUST
By:
-------------------------------------
Senior Executive Vice President
ATTEST:
By:
--------------------------------------
Assistant Secretary
55
