Information > Financial Terms > This page Indenture A
deed or agreement under seal between two or more parties, so called because
originally a deed was indented or zigzagged along one of the margins.
Since it was issued in duplicate, proof of genuineness or falsity
of the documents was secured by comparing the indentations on the original
with those on the duplicate. If
the documents were genuine the indentations would coincide. Under
the Trust Indenture Act of 1939, an indenture means any mortgage, deed
of trust, trust, or other similar instrument or agreement under which
securities are outstanding or are to be issued, whether or not any property,
real or personal, is or is to be pledged, mortgages, assigned, or conveyed
thereunder. Indentures of
securities offered for public sale and subject to the registration requirements
of the Securities Act of 1933 must be qualified by the issuers with the
Securities and Exchange Commission.
In addition to such content as details of the issue; description
of the property pledged as a security (if any), protective provisions
etc., indentures must contain the provisions specifically directed by
the Trust Indenture Act of 1939 to be contained therein.
That act is particularly concerned with the powers and duties of
the indenture trustee(s). For
example, the indenture to be qualified shall not contain any provisions
relieving the indenture trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct ("exculpatory
clauses"), except that:
For
indentures to be qualified the act requires that they contain provisions
requiring the indenture trustee to give to the indenture security holders
notice of all defaults known to the trustee within 90 days after their
occurrence. However, the
indenture may provide, except in the case of default in payment of principal
or interest or any sinking or purchase fund installment, that the trustee
shall be protected in withholding such notice if and so long as the board
of directors, the executive committee, or a trust committee of directors
and/or responsible officers of the trustee in good faith determines that
the withholding of such notice is in the interests of the indenture security
holders. For
trustees, perhaps the most significant required content of indentures
under the Trust Indenture Act of 1939 is provision requiring the indenture
trustee to exercise in case of default (as such is defined in the indenture)
the rights and powers vested in the trustee by the indenture, and to use
the same degree of care and skill in their exercise as a "prudent
man" would exercise or use under the circumstances in the conduct
of his own affairs. Such
adoption of the prudent man rule with respect to the trustee's duties
after default was in line with the act's objective of making more effective
representation and enforcement of indenture security holders' rights. Back to Information |