(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 or underwriter, whether by agency, stock ownership or otherwise;

(4) such trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of an obligor or underwriter, except that (A) one person may be a director and/or executive officer of the trustee and of an obligor, but may not be at the same time an executive officer of both the trustee and of such obligor, and (B) one additional person may be a director and/or executive officer of the trustee and a director of such obligor, if his pecuniary interest in such obligor does not exceed such percentage of the voting securities or such percentage of all other securities, other than indenture securities, of such obligor as the Commission may deem not detrimental to the public interest and the interest of investors, such percentages and the method of calculating the same to be fixed in the indenture, but such percentages in no event to exceed 1 per centum: Provided, however, That such additional person may be a director of the trustee and such obligor only so long as the number of directors of the trustee in office is more than nine, and (C) such trustee may be designated to act as trustee under the indenture to be qualified, and in the capacities of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in other similar capacity, by any obligor or underwriter;

(5) 5 per centum or more of the voting securities of such trustee is beneficially owned, individually or collectively, by an obligor or by any director, partner, or executive officer thereof, exclusive of any such securities owned by a person described in clause (A) of paragraph (4) of this subsection in an amount not exceeding 21⁄2 per centum of such securities or owned by a person described in clause (B) of such paragraph (4); or 5 per centum or more of the voting securities of such trustee is beneficially owned, individually or collectively, by an underwriter, or by any director, partner, or executive officer thereof;

(6) such trustee [shall be or become] is a creditor, directly or indirectly, secured or unsecured, of an obligor, otherwise than by the ownership of securities, except as authorized pursuant to subsection (d) of this section, if the indenture to be qualified is not secured by the pledge or mortgage of property or if any indenture securities outstanding had a maturity at the time of issuance of less than five years;

(7) such trustee is the beneficial owner of 5 per centum or more of the voting securities or 10 per centum or more of any other class of security of an obligor (other than indenture securities and securities issued under any other indenture under which such trustee is also trustee) or of 10 per centum or more of any class of security of an underwriter;

(8) such trustee is the beneficial owner of 5 per centum or more of the voting securities of any person who to the knowledge of the trustee owns 10 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; (9) such trustee is the beneficial owner of 10 per centum or more of any class of security of any person who to the knowledge of the trustee owns 50 per centum of more of the voting securities of an obligor;

(10) such trustee owns, on May 15 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 25 per centum or more of the voting securities of any person the beneficial ownership of 5 per centum of which would have constituted a conflicting interest under paragraph (7) or (8) of this subsection, or an aggregate of 25 per centum or more of any class of security the beneficial ownership of 10 per centum of which would have constituted a conflicting interest under paragraph (7) or (9) of this subsection. Promptly after each such May 15, the trustee shall make a check of its holdings of such securities as of such May 15. If the obligor fails to make payment in full of principal or interest under the indenture to be qualified when and as the same becomes due and payable, the trustee shall make a prompt check of its holdings of such securities as of the date of such default, and all such securities held by the trustee in any of the above-mentioned capacities, with sole or joint control over such securities vested in it, shall thereafter be considered as though beneficially owned by such trustee, for the purposes of paragraphs (7), (8), and (9) of this subsection:

Provided, however, That for the purposes of paragraphs (6), (7), (8), (9), and (10) of this subsection, the term "security" shall include only such securities as are

generally known as corporate securities, and the indenture trustee shall not be deemed the owner of (A) any security which it holds as collateral security (as trustee or otherwise), so long as there is no default in the principal obligation for which such security is collateral, or (B) any security of the obligor which it holds as collateral security, under the indenture to be qualified, irrespective of any default thereunder, or (C) any security which it holds as agent for collection, or [which it holds] as custodian, escrow agent, or depositary, or in any similar representative capacity: And provided further, That the indenture to be qualified may contain provisions excluding from the operation of paragraph (10) of this subsection the ownership by the indenture trustee of not more than 25 per centum of any class of security referred to in such paragraph for a period of not more than eighteen months from the date of acquisition thereof, or until a default (as defined in the indenture) shall occur, whichever shall be the sooner, if the trustee became the owner of such security through becoming executor, administrator, or testamentary trustee of an estate which included such security.

For the purposes of this subsection, the term "underwriter" means every person who, within six years prior to the time as of which the determination is made, was an underwriter of any security of an obligor outstanding at such time, except that for the purposes of paragraph (2) of this subsection, underwritings on or before June 16,1934, shall be disregarded.

(c) The indenture to be qualified shall provide that if the indenture trustee shall be, or shall become, otherwise than by the ownership or acquisition of securities issued under an indenture, a creditor, directly or indirectly, secured or unsecured, of an obligor, within four months prior to a default in the payment of principal or interest [under the indenture] or subsequent to such a default, then. unless and until such default shall be cured, such trustee shall set apart and hold in a special account for the benefit of the trustee individually and the indenture security holders,

(1) an amount equal to any and all reductions in the amount due and owing upon any [such] claim as such creditor in respect of principal or interest, effected after the beginning of such four months' period and valid as against the obligor and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this subsection, or from the exercise of any right of set-off which the trustee could have exercised if a petition in bankruptcy had been filed by or against such obligor at the date of such default; and

(2) all property received in respect of any such claim [of its claims as such creditor, as security therefor or in satisfaction or composition thereof or otherwise, after the beginning of such four months' period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the obligor and its other creditors in such property or such proceeds:

Provided, however, That nothing herein contained shall affect the right of the trustee to retain for its own account (A) payments made on account of any such claim by persons, other than the obligor, who are liable thereon, and (B) the proceeds of the bona-fide sale of any such claim by the trustee to a third person, and (C) dividends paid on claims filed against the obligor in bankruptcy or receivership or in proceedings for reorganization pursuant to section 77B of the Bankruptcy Act: And provided further, That nothing herein contained shall affect the right of the trustee to realize, for its own account, upon any property held by it as security for any such claim [held by it] prior to the beginning of such four months' period, or to receive payment on such claim against the release of any such security, to the fair value thereof; and property substituted after the beginning of such four months' period for property held as security prior to such date shall, to the extent of the fair value of the property released, have the same status as the property [released:] released.

The indenture to be qualified shall provide that if the creditor relationship does not constitute a conflicting interest within the meaning of paragraph (6) of subsection (b) of this section, (i) the trustee shall not be required to account for any such reduction or for any property so received or the proceeds thereof, if the trustee shall sustain the burden of proving that at the time such property was received or such reduction effected, the trustee had no reasonable cause to believe that a default in the payment of principal or interest would occur within four months, and (ii) the funds and property held in such special account and the proceeds thereof shall be apportioned between the trustee and the indenture security holders in such manner that the trustee and the indenture security holders realize, as a result of payments from such special fund and payments of dividends on claims filed against the obligor in bankruptcy or receivership or in proceedings for reorganization pursuant to section 77B of the Bankruptcy Act, the same

percentage of their respective claims, figured before crediting to the claim of the trustee anything on account of the receipt by it from the obligor of the funds and property in such special account and before crediting to the claim of either party dividends on claims filed against the obligor in bankruptcy or receivership or in proceedings for reorganization pursuant to section 77B, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. The indenture to be qualified shall provide further that if the creditor relationship constitutes a conflicting interest within the meaning of paragraph (6) of subsection (b) of this section, the trustee's rights in the funds and property held in such special account and the proceeds thereof shall be subject to the prior payment in full of all sums due and owing under the indenture, but that, subject to such prior payment in full, the trustee shall be subrogated to the rights of the indenture security holders, to the extent that such funds and property are applied to such payment.

[And provided further, That if the indenture is secured by the mortgage or pledge of property, and the indenture securities outstanding had a maturity at the time of issuance of five years or more, the trustee shall not be required to account for any such reduction or for any property so received or the proceeds thereof, if the trustee shall sustain the burden of proving that at the time such property was received or such reduction effected, the trustee had no reasonable cause to believe that a default in the payment of principal or interest under the indenture would occur within four months.

The indenture to be qualified shall provide that if any securities outstanding under the indenture had a maturity at the time of issuance of less than five years, or if the indenture is not secured by the mortgage or pledge of property, the trustee's rights in the funds and property held in such special account and the proceeds thereof shall be subject to the prior payment in full of all sums due and owing under the indenture, but that, subject to such prior payment in full, the trustee shall be subrogated to the rights of the security holders, to the extent that such funds and property are applied to such payment. The indenture to be qualified shall provide further that if such indenture is secured by the mortgage or pledge of property, and the securities outstanding thereunder had a maturity at the time of issuance of five years or more, the funds and property held in such special account and the proceeds thereof shall be apportioned between the trustee and the security holders in such manner that the trustee realizes no greater percentage of his claim after deducting therefrom all credits for which he is not required to account than the security holders realize in respect of their deficiency claim against the obligor.]

An indenture trustee who has resigned or been removed shall be subject to the provisions of this subsection as though such resignation or removal had not occurred, unless such resignation or removal occurred more than four months prior to such default, and the receipt of property or reduction of claim which would have given rise to the obligation to account, if such indenture trustee had continued as trustee, occurred more than four months after such resignation or removal.

As used in this subsection the term "default" shall [include] mean any failure to make payment in full of principal or interest [under the indenture when and as the same becomes due and payable] under any indenture as to which an application for qualification is effective and under which the indenture trustee is trustee, when and as the same becomes due and payable, and the term “indenture security holder" shall mean all holders of securities outstanding under any such indenture under which an uncured default exists.

(d) The indenture to be qualified may contain provisions excluding from the operation of paragraph (6) of subsection (b) of this section and from the operation of subsection (c) of this section a creditor relationship arising from—

(1) the ownership or acquisition of indenture securities or securities issued under any other indenture under which such trustee is also trustee, or any security or securities having a maturity of one year or more at the time of acquisition by the [trustee,] trustee; or

(2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by the indenture, for the purpose of preserving the property subject to the lien of the indenture, provided that notice of such advance and of the circumstances surrounding the making thereof is given to the indenture security holders, at the time and in the manner provided in the indenture; or

(3) disbursements made in the ordinary course of business in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity; or

(4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction, as such term is defined in the indenture; or

(5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25 (a) of the Act approved December 23, 1913, known as the Federal Reserve Act, as amended, which is directly or indirectly a creditor of an obligor.

The Commission shall by rules and regulations prescribe the definition of the term "cash transaction" which shall be included in the indenture.

The indenture to be qualified may contain provisions excluding from the operation of paragraph (6) of subsection (b) of this section, or from the operation of subsection (c) of this section, or both, a creditor relationship arising from the acquisition, ownership, acceptance or negotiation of drafts, bills of exchange, acceptances, or obligations falling within the classification of self-liquidating paper, if and to the extent that the Commission shall by rules and regulations determine that the application of such paragraph (6) or such subsection (c), as the case may be, is not necessary in the public interest or for the protection of investors, having due regard to the respective purposes of such paragraph and such subsection.

Reports by Obligors

(e) The indenture to be qualified shall contain provisions which the Commission deems adequate, having due regard to the public interest and the interest of investors, requiring each obligor to file with the trustee and the Commission, and to transmit or otherwise make available to the indenture security holders, such annual and other reports, and such information with respect to the performance by such obligor of its obligations under the indenture, in such form and detail as the Commission may from time to time prescribe as necessary or appropriate in the public interest or for the protection of investors by rule or regulation adopted either before or after qualification becomes effective as to such indenture.

Bondholders' Lists

(f) The indenture to be qualified shall contain provisions which the Commission deems adequate, having due regard to the public interest and the interests of investors, requiring each obligor to furnish or cause to be furnished to the institutional trustee thereunder, at stated intervals, 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 such trustee to preserve all such information so furnished to it or received by it in the capacity of paying agent, and to make the same or the use thereof available to indenture security holders, subject only to such terms and conditions as the Commission deems not detrimental to the public interest or the interests of investors. The disclosure of any such information in accordance with such provision, regardless of the source from which such information was derived, shall not be deemed a violation of any existing law or of any law hereafter enacted which does not specifically refer to this subsection.

Duties of the Trustee Prior to Default

(g) The indenture to be qualified shall contain provisions imposing upon the indenture trustee such specific duties and obligations prior to default (as such term is defined in such indenture) as the Commission deems consistent with the duties and obligations which a prudent man would assume and perform prior to such a default if he were trustee under such an indenture, including, without limitation, action in respect of the following matters:

(1) the recording, re-recording, filing, and refiling of the indenture [to the extent necessary to establish and preserve the validity and priority thereof or of any lien created or purported to be created thereby as against any person or persons;]

(2) the application of all indenture securities and the proceeds thereof to the purposes specified in the indenture;

(3) the existence of or compliance with all conditions precedent to the authentication and delivery of indenture securities, the release or substitution of any property subject to the lien of the indenture, the satisfaction and discharge of the indenture, and any other action by the trustee under the indenture; and

(4) the performance by the obligor of such of its other obligations under the indenture as the Commission deems necessary or appropriate in the public interest or for the protection of investors.

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The indenture to be qualified shall also contain provisions requiring the obligor to provide the indenture trustee with such information, such opinions and certificates of attorneys, accountants, and other experts, and such other documents as the Commission may deem necessary or appropriate to enable the trustee to perform, or to facilitate its performance of, the duties imposed upon it pursuant to this subsection.

Duties of the Trustee in Case of Default

(h) The indenture to be qualified shall contain provisions requiring the indenture trustee to exercise in case of default (as such term is defined in the indenture) such of the rights and powers vested in it by the indenture, and to use the same degree of care and skill in the exercise as a prudent man would exercise under the circumstances if he were a fiduciary and had the degree of skill which the indenture trustee has, or which, at the time of the offering of the indenture securities, the indenture trustee represents itself as having, as indenture trustee, whichever is the higher: Provided, however, That the indenture to be qualified may contain provisions

(1) authorizing the holders of not less than a majority in principal amount of the indenture securities at the time outstanding (A) to direct the method and place of conducting all proceedings at law or in equity for any remedy under the indenture to be qualified, and (B) to direct the indenture trustee to waive any default and its consequences, except that a default in the payment of the principal of any indenture security at the date of maturity specified therein shall not be waived, and except that a default in interest shall not be waived for a total period exceeding one year, nor unless payment of all arrears of interest shall have been made or provided for; and

(2) protecting the indenture trustee in respect of any action taken in good faith in accordance with any direction authorized as provided in paragraph (1) of this subsection.

In determining whether the required proportion in principal amount of the indenture securities outstanding have concurred in any such direction, indenture securities owned by any obligor or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with any obligor shall be disregarded, except that, for the purposes of paragraph (2) of this subsection, only indenture securities which the trustee knows are so owned shall be so disregarded.

Reliance Upon Certificates and Opinions

(i) The Commission shall permit the inclusion in the indenture to be qualified of one or more provisions authorizing the indenture trustee conclusively to rely as to the truth of the statements and the correctness of the opinions contained therein, in the absence of bad faith or gross negligence on the part of such trustee, upon opinions or certificates of attorneys, accountants, or other experts (subject to such requirements as to independence and qualifications and the exercise by the trustee of reasonable care in their selection, and subject to such other terms and conditions, as the Commission may deem necessary or appropriate in the public interest or for the protection of investors), if the Commission deems that such provisions do not materially conflict with the required standard of [care] conduct and are not detrimental to the public interest or the interest of investors.

Exculpatory Clauses

(j) The indenture to be qualified shall not contain any provisions relieving the trustee from liability for its own negligent action or failure to act, or for its own willful misconduct; but may contain provisions protecting the trustee from liability for any error of judgment made in good faith by a responsible officer or officers of the trustee, unless it shall be proved that the trustee was negligent in ascertaining the pertinent facts; or for any loss arising out of any act or omission in the execution of the trust so long as it acts or omits to act in good faith, unless it shall be proved that the trustee was negligent.

Notice of Defaults

(k) The indenture to be qualified shall contain provisions requiring the trustee to give to the indenture security holders, at such time and in such manner as the Commission may deem adequate, having due regard to the public interest and the protection of investors, notice of all defaults known to the trustee: Provided, however, That the indenture may provide, except in the case of defaults (to be specified in the indenture) of which the Commission deems it necessary or appro