130-k. Exemptions from restrictions on trustees and trust indentures. The provisions of sections one hundred and twenty-six and one hundred and twenty-seven of this article shall not apply to any mortgage, deed of trust, trust indenture, or other similar instrument which has been qualified with the United States securities and exchange commission pursuant to the provisions of the trust indenture act of nineteen hundred thirty-nine, as from time to time amended and in force. In the case of a mortgage, deed of trust, trust indenture, or other similar instrument which has not been so qualified, the provisions of section one hundred twenty-seven shall not apply if such instrument (hereinafter referred to as the "indenture") contains provisions in substance to the following effect:
(a) If the trustee has or shall acquire any conflicting interest as hereinafter defined,
(1) such trustee shall, within ninety days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign, such resignation to become effective upon the appointment of a successor trustee and such successor's acceptance of such appointment; and the obligor upon the bonds, notes or other evidences of indebtedness issued under the indenture (hereinafter referred to as the "indenture securities") shall take prompt steps to have a successor appointed in the manner provided in the indenture;
(2) in the event that such trustee shall fail to comply with the provisions of subparagraph (1), such trustee shall, within ten days after the expiration of such ninety-day period, transmit notice of such failure by mail (i) to all registered holders of indenture securities, as the names and addresses of such holders appear upon the registration books of the obligor upon the indenture securities, (ii) to such holders of indenture securities as have, within the two years preceding such transmission, filed their names and addresses with the indenture trustee for the purpose of receiving notices or reports to indenture security holders, and (iii) to all holders of indenture securities whose names and addresses are contained in information currently preserved by the trustee for such purpose in accordance with provisions of the indenture requiring the obligor to furnish or cause to be furnished to the trustee at stated intervals of not more than six months, and at such other times as the trustee may request in writing, all information in the possession or control of such obligor, or of any of its paying agents, as to the names and addresses of the indenture security holders, and requiring the trustee to preserve, in as currrent a form as is reasonably practicable, all such information so furnished to it or received by it in the capacity of paying agent; and
(3) subject to any provision of the indenture to the effect that in a suit against the trustee (unless instituted by a holder or group of holders of more than ten per centum in principal amount of the indenture securities outstanding) the court may in its discretion require an undertaking for costs and may assess reasonable costs, including reasonable attorneys' fees, against any party litigant, any security holder who has been a bona fide holder of indenture securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such trustee, and the appointment of a successor, if such trustee fails, after written request therefor by such holder, to comply with the provisions of subparagraph (1).
(b) For purposes of paragraph (a), the trustee shall be deemed to have a conflicting interest if---
(1) such trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of an obligor upon the indenture securities are outstanding unless (A) the indenture securities are collateral trust notes under which the only collateral consists of securities issued under such other indenture, or (B) such other indenture is a collateral trust indenture under which the only collateral consists of indenture securities, or (C) such obligor has no substantial unmortgaged assets and is engaged primarily in the business of owning, or of owning and developing and/or operating, real estate, and the indenture to be qualified and such other indenture are secured by wholly separate and distinct parcels of real estate: Provided, that the indenture may contain a provision excluding from the operation of this subparagraph any other indenture or indentures which shall have been qualified with the United States securities and exchange commission pursuant to the provisions of the trust indenture act of nineteen hundred thirty-nine, as from time to time amended and in force;
(2) such trustee or any of its directors or executive officers is an obligor upon the indenture securities or an underwriter for such an obligor;
(3) such trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with an obligor upon the indenture securities or an underwriter for such an obligor;
(4) such trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee, or representative of an obligor upon the indenture securities, or of an underwriter (other than the trustee itself) for such an obligor who is currently engaged in the business of underwriting, except that (A) one individual may be a director and/or an executive officer of the trustee and a director and/or an executive officer of such obligor, but may not be at the same time an executive officer of both the trustee and of such obligor, and (B) if and so long as the number of directors of the trustee in office is more than nine, one additional individual may be a director and/or an executive officer of the trustee and a director of such obligor, and (C) such trustee may be designated by any such obligor or by any underwriter for any such obligor, to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in any other similar capacity, or, subject to the provisions of subparagraph (1) of this paragraph, to act as trustee, whether under an indenture or otherwise;
(5) ten per centum or more of the voting securities of such trustee is beneficially owned either by an obligor upon the indenture securities or by any director, partner, or executive officer thereof, or twenty per centum or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or ten per centum or more of the voting securities of such trustee is beneficially owned either by an underwriter for any such obligor or by any director, partner, or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons;
(6) such trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default as hereinafter defined, (A) five per centum or more of the voting securities, or ten per centum or more of any other class of security, of an obligor upon the indenture securities, not including indenture securities and securities issued under any other indenture under which such trustee is also such trustee, or (B) ten per centum or more of any class of security of an underwriter for any such obligor;
(7) such trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default as hereinafter defined, five per centum or more of the voting securities of any person who, to the knowledge of the trustee, owns ten per centum or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, an obligor upon the indenture securities;
(8) such trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default as hereinafter defined, ten per centum or more of any class of security of any person who, to the knowledge of the trustee, owns fifty per centum or more of the voting securities of an obligor upon the indenture securities; or
(9) such trustee owns, on May fifteenth in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of twenty-five per centum or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under subparagraph (6), (7) or (8) of this paragraph. The indenture may provide, as to any such securities of which the trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, that the provisions of the preceding sentence shall not apply, for a period of not more than two years from the date of such acquisition, to the extent that such securities included in such estate do not exceed twenty-five per centum of such voting securities or twenty-five per centum of any such class of security. The indenture shall provide that promptly after May fifteenth in each calendar year, the trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such May fifteenth. Such indenture shall also provide that if the obligor upon the indenture securities fails to make payment in full of principal or interest under such indenture when and as the same becomes due and payable, and such failure continues for thirty days thereafter, the trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such thirty-day period, and after such date, notwithstanding the foregoing provisions of this subparagraph, all such securities so held by the trustee, with sole or joint control over such securities vested in it, shall be considered as though beneficially owned by such trustee, for the purposes of subparagraphs (6), (7) and (8) of this paragraph.
(c) The indenture shall provide that the specification of percentages in subparagraphs (5) to (9), inclusive, of paragraph (b) shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of subparagraph (3) or (7) of paragraph (b).
(d) For the purposes of subparagraphs (6), (7), (8) and (9) of paragraph (b), (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies, or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (B) an obligation shall be deemed to be in default when a default in payment of principal shall have continued for thirty days or more, and shall not have been cured; and (C) the trustee shall not be deemed the owner or holder of (i) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as above defined, or (ii) any security which it holds as collateral security under the indenture, irrespective of any default thereunder, or (iii) any security which it holds as agent for collection, or as custodian, escrow agent, or depositary, or in any similar representative capacity.
(e) For the purposes of paragraph (b), the term "underwriter" when used with reference to an obligor upon the indenture securities means every person who, within three years prior to the time as of which the determination is made, was an underwriter of any security of such obligor outstanding at such time.
(f) When used in paragraphs (b) to (e), inclusive, unless the context otherewise requires---
(1) The term "underwriter" means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission.
(2) The term "director" means any director of a corporation, or any individual performing similar functions with respect to any organization whether incorporated or unincorporated.
(3) The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors.
(4) The term "obligor", when used with respect to any indenture security, means every person who is liable thereon, and, if such security is a certificate of interest or participation, such term means also every person who is liable upon the security or securities in which such certificate evidences an interest or participation; but such term shall not include the trustee under an indenture under which certificates of interest or participation, equipment trust certificates, or like securities are outstanding.
(5) The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement, or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person; and a specified percentage of the voting securities of a person means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person.
Last modified: February 3, 2019