the time of filing such registration statement, and any excess shall be refunded to the applicant. If an amendment to an application is filed prior to the effective date of such application, the application shall be deemed to have been filed when such amendment was filed; except that an amendment filed with the consent of the Commission, prior to the effective date of the application, or filed pursuant to an order of the Commission, shall be treated as a part of the application. Amendments after the effective date of an application may be made upon such terms and conditions as the Commission may prescribe.

(c) The effective date of an application shall be the twentieth day after the filing thereof, unless the Commission prior to such time shall have issued an order to the issuer to show cause why such application should become effective. If an order to show cause under this subsection has been issued, such application shall become effective within such reasonable period of time after an opportunity for hearing upon such order as the Commission shall fix by rules and regulations unless the Commission prior to the expiration of such period shall have issued an order pursuant to section 6 refusing to permit such application to become effective. Whenever the Commission shall issue an order to show cause, it shall cause the same to be served upon the issuer in such manner as the Commission may by rules and regulations prescribe, and accord an opportunity for hearing thereon (at a time fixed by the Commission) within 10 days after such service. An application may be withdrawn by the applicant at any time prior to the effective date thereof.

(d) Except as otherwise expressly provided in this Act the making, amendment or rescission of a rule, regulation or order under the provisions of this Act shall not affect the form or interpretation of any indenture as to which qualification became effective prior to the making, amendment or rescission of such rule, regulation or order.

(e) The Commission is hereby empowered to make an investigation in any case in order to determine whether a refusal order should issue under section 6. If the issuer, or any obligor, [underwriter or trustee, including prospective obligors, underwriters and trustees] or any underwriter, or prospective underwriter, of the securities in respect of which the application is filed, or any trustee or prospective trustee under the indenture to be qualified, shall fail to cooperate, or shall obstruct or refuse to permit the making of such investigation, such conduct shall be proper ground for the issuance of a refusal order.

REFUSAL ORDERS

SEC. 6. The Commission shall issue an order refusing to permit an application filed pursuant to section 5 to become effective if it finds that

(1) such application does not conform to the requirements of this Act and the rules and regulations thereunder;

(2) the application includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(3) any person designated as trustee under the indenture is not eligible to act as such under subsection (a) of section 7 or has any conflicting interest as defined in subsection (b) of section 7;

(4) the indenture does not conform to the requirements of section 7 and the rules and regulations thereunder; or

(5) the indenture or any security to be issued thereunder contains any provision which limits, qualifies or conflicts with a provision required to be contained in the indenture by this Act or the rules and regulations thereunder; or any provision the inclusion of which is prohibited by this Act or the rules and regulations thereunder; or any provision which is misleading or [deceptive;] deceptive, or the elimination of which is necessary or appropriate in the public interest or for the protection of investors [or] to prevent the circumvention or evasion of this Act.

If and when the Commission deems that the objections on which such order was based have been met, the Commission shall enter an order rescinding such refusal order, and the application shall become effective at the date fixed pursuant to subsection (c) of section 5 or upon the date of such rescission, whichever shall be the later.

CONTENTS OF INDENTURE

Persons Eligible for Appointment as Trustee

SEC. 7. (a) (1) The indenture to be qualified shall require that there shall at all times be one or more trustees thereunder, at least one of whom shall at all times be an institution incorporated and doing business under the laws of the

United States or of any State or Territory or of the District of Columbia, which (A) is authorized under such laws to exercise corporate trust powers, and (B) is subject to supervision or examination by Federal, State, Territorial or District authority.

(2) If the Commission deems it necessary or appropriate in the public interest or for the protection of investors, in view of the type of indenture, the amount of securities outstanding and thereafter issuable thereunder, and the duties and responsibilities imposed thereby on the trustee or trustees, the indenture to be qualified shall require that such institutional trustee have at all times a combined capital and surplus of such specified minimum amount as the Commission deems adequate, having due regard to the public interest and the interests of investors. If such institutional trustee publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, the indenture may provide that for the purposes of this paragraph, the combined capital and surplus of such trustee shall be deemed to be its combined capital and surplus as set forth in its most recent [published] report of condition so published. (3) If the indenture to be qualified requires or permits the appointment of one or more co-trustees in addition to such institutional trustee, such indenture shall provide that the rights, powers, duties and obligations conferred or imposed upon the trustees or any of them shall be conferred or imposed upon and exercised or performed by such institutional trustee, or such institutional trustee and such co-trustees jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, such institutional trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustees.

(4) In the case of certificates of interest or participation, the indenture to be qualified shall require that the indenture trustee or trustees have the legal power to exercise all of the rights, powers and privileges of a holder of the security or securities in which such certificates evidence an interest or participation.

[DISQUALIFICATION OF TRUSTEE]

Disqualification of Trustee

(b) The indenture to be qualified shall provide that if the indenture trustee has or shall acquire any conflicting interest as hereinafter defined, (i) such trustee shall, within 90 days after ascertainment of 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 shall take prompt steps to have a successor appointed in the manner provided in the indenture, and (ii) subject to the provisions of subsection (1) of this section, any security holder who has been a bona-fide holder of indenture securities for at least six months (on failure of such trustee on the written request of such holder either to resign or to eliminate such conflicting interest, as required by clause (i) of this subsection) 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 trustee. For the purposes of this subsection, an indenture trustee shall be deemed to have a conflicting interest if

(1) such trustee is trustee under [an] another indenture under which any other securities, or certificates of interest or participation in any other securities, of an obligor are outstanding, [other than the indenture to be qualified, unless (A) the indenture securities are collateral trust notes secured exclusively by securities issued under such other indenture, or (B) such other indenture is a collateral trust indenture secured exclusively by 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, or (D) such trustee shall sustain the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under the indenture to be qualified and such other indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify such trustee from acting as such under one of such indentures;

(2) such trustee or any of its directors or executive officers is an obligor or underwriter;

(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 Cheld 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