XFLT XAI Octagon Floating Rate & Alternative Income Trust

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) November 7, 2023 (November 6, 2023)

 

 

XAI Octagon Floating Rate & Alternative Income Term Trust

(Exact name of registrant as specified in its charter)

 

 

Delaware		811-23247		82-235867
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

321 North Clark Street, Suite 2430, Chicago, Illinois		60654
(Address of principal executive offices)		(Zip Code)

 

Registrants telephone number, including area code (312) 374-6930

 

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares of Beneficial Interest		XFLT		New York Stock Exchange
6.50% Series 2026 Term Preferred Shares (Liquidation Preference $25.00)		XFLTPRA		New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

☐ Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

Item 1.01. Entry into a Material Definitive Agreement.

 

Convertible Preferred Shares

 

On November 6, 2023, XAI Octagon Floating Rate & Alternative Income Term Trust (NYSE: XFLT) (the “Trust”) entered into a purchase agreement (the “Convertible Preferred Shares Purchase Agreement”) between the Trust, Eagle Point Credit Management LLC and the purchasers named therein (the “Purchasers”), in connection with the issuance and sale of up to 1,200,000 shares of the Trust’s 6.95% Series 2029 Convertible Preferred Shares, liquidation preference of $25.00 (the “Convertible Preferred Shares”), at a price equal to $23.25 per Convertible Preferred Share, in one or more transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 on or before May 6, 2025. In the event the Trust does not elect to sell to the Purchasers all of the Convertible Preferred Shares which the Purchasers have agreed to purchase by May 6, 2025, the Trust will pay to the Purchasers an amount equal to $0.75 per unissued Convertible Preferred Share.

 

The Convertible Preferred Shares have a liquidation preference of $25.00 per share. In the event of any liquidation, dissolution or winding up of the Trust’s affairs, holders of Convertible Preferred Shares will be entitled to receive a liquidating distribution per share equal to the liquidation preference, plus an amount equal to all unpaid dividends and distributions on such share accumulated to (but excluding) the date fixed for distribution or payment, whether or not earned or declared by the Trust, but excluding interest on any such distribution or payment.

 

The Convertible Preferred Shares pay a quarterly dividend at a fixed annual rate of 6.95% of the liquidation preference, or $1.7375 per share, per year. The dividend rate is subject to adjustment under certain circumstances.

 

Cumulative cash dividends or distributions on each Convertible Preferred Share are payable quarterly, when, as and if declared, or under authority granted, by the Board of Trustees of the Trust out of funds legally available for such payment. The Trust will pay dividends on the Convertible Preferred Shares every January 31, April 30, July 31 and October 31, commencing on the first such date to occur following the initial issuance of the Convertible Preferred Shares.

 

The Convertible Preferred Shares are senior securities that constitute shares of beneficial interest of the Trust. The Convertible Preferred Shares rank senior to the Trust’s common shares of beneficial interest, par value $0.01 per share (the “Common Shares”), in priority of payment of dividends and as to the distribution of assets upon dissolution, liquidation or winding up of the Trust’s affairs; equal in priority with the Trust’s 6.50% Series 2026 Term Preferred Shares, liquidation preference $25.00 (the “2026 Preferred Shares”) and the Trust’s 6.00% Series 2029 Convertible Preferred Shares, liquidation preference $25.00 (the “Existing Convertible Preferred Shares” and together with the Convertible Preferred Shares, the “Preferred Shares”) and all other future series of preferred shares the Trust may issue as to priority of payment of dividends and as to distributions of assets upon dissolution, liquidation or the winding-up of the Trust’s affairs; and subordinate in right of payment to amounts owed under the Credit Agreement, and to the holder of any future senior Indebtedness.

 

The Trust is required to redeem, out of funds legally available therefor, all outstanding Convertible Preferred Shares on June 30, 2029, or the “Term Redemption Date,” at a price equal to the liquidation preference plus an amount equal to accumulated but unpaid dividends and distributions, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the Term Redemption Date.

 

If the Trust fails to maintain asset coverage of at least 200% as of the close of business on the last Business Day of a calendar quarter, and such failure is not cured by the close of business on the date that is thirty (30) calendar days following the date of filing of the Trust’s Annual Report or Semi-Annual Report on Form N-CSR with respect to the Trust’s fourth and second fiscal quarters, respectively, and the applicable monthly report on Form N-PORT filed by the Trust with the Securities and Exchange Commission (the “SEC”) with respect to the fiscal period ending as of the last day of such calendar quarter with respect to the Trust’s first and third fiscal quarters (such date the “Asset Coverage Cure Date”), then the Trust is required to redeem, within ninety (90) calendar days of the Asset Coverage Cure Date, such number of Preferred Shares equal to the lesser of (1) the minimum number of Preferred Shares the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Asset Coverage Cure Date that will result in the Trust having an asset coverage ratio of at least 200% and (2) the maximum number of Preferred Shares that can be redeemed out of funds legally available for such redemption. In addition to Preferred Shares required to be redeemed, at the Trust’s sole discretion, the Trust may redeem such number of Preferred Shares (including Preferred Shares required to be redeemed) that will result in the Trust having an asset coverage ratio of up to and including 285%. The Preferred Shares to be redeemed may include, at the Trust’s sole option, any number or proportion of the Convertible Preferred Shares and other series of Preferred Shares. If the Convertible Preferred Shares are to be redeemed in such an event, they will be redeemed at a redemption price equal to the liquidation preference per share plus accumulated but unpaid dividends, if any, on such liquidation preference (whether or not declared, but excluding interest on accrued but unpaid dividends, if any) to, but excluding, the date fixed for such redemption.

 

 

At any time on or after the date eighteen months after the first issuance of Convertible Preferred Shares, at the Trust’s sole option, the Trust may redeem, from time to time, the Convertible Preferred Shares in whole or in part, out of funds legally available for such redemption, at a price per share equal to the sum of the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.

 

Each holder of a Convertible Preferred Share shall have the right, at such holder’s option, to convert any such Convertible Preferred Share, at any time on or after the date six months after the issuance date of the Convertible Preferred Share (the “Conversion Date”) and prior to the close of business on the business day immediately preceding the Term Redemption Date, into such number of Common Shares equal to the liquidation preference of the Convertible Preferred Share plus an amount equal to all unpaid dividends and distributions on such Share accumulated to (but excluding) the date of exercise, divided by the Conversion Price. The “Conversion Price” is the greater of (i) the market price per Common Share, represented by the arithmetic average of the volume-weighted average price (“VWAP”) per Common Share for each of the five consecutive trading days immediately preceding the date of exercise, or (ii) the Trust’s most recently reported net asset value per Common Share immediately prior to the date of exercise. If the Trust fails to fulfill its obligations to deliver Common Shares upon conversion of any Convertible Preferred Shares, the quarterly dividend rate payable on the Convertible Preferred Shares of any sub-series of which one or more shares was surrendered for conversion on such exercise date will increase to a fixed annual rate of 8.95% of the liquidation preference until the date on which the Trust fulfills its delivery obligations.

 

No holder of Convertible Preferred Shares may exercise its conversion right if upon conversion the holder would receive Common Shares that would cause funds and accounts (collectively, the “EP Accounts”) managed by Eagle Point Credit Management LLC (“Eagle Point”) and any person controlled by its direct parent company ( “Eagle Point Parent”) to beneficially own in the aggregate more than 4.9% of the Common Shares.

 

The Trust is required to redeem the Convertible Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the redemption date, if the Common Shares are no longer publicly traded on the NYSE, the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market for a period of twenty (20) consecutive trading days.

 

In the case of a consolidation, merger or sale of all or substantially all of the Trust’s assets to another closed-end fund or business development company, the Trust must redeem the Convertible Preferred Shares at $25.00, plus any accumulated and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the redemption date unless (i) the successor entity’s common shares are publicly-traded on the NYSE, the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market and have average daily trading volume over the 90 days immediately preceding approval of the transaction by the Board of Trustees of the Trust that is equal to or greater than the average daily trading volume of the Common Shares over such period; and (ii) if the Trust is not the successor entity, the successor entity issues to the holders of Convertible Preferred Shares preferred shares with terms that are substantially identical to the terms of the Convertible Preferred Shares.

 

For so long as the Convertible Preferred Shares are outstanding, the Purchasers have agreed not to sell in any day, in the aggregate, an amount of Common Shares exceeding the greater of (i) 20% of the previous 20 trading days’ average trading volume and (ii) 20% of the current trading day’s trading volume.

 

 

Eagle Point and the Purchasers have granted to the Trust an irrevocable proxy to vote all Preferred Shares (including 2026 Preferred Shares, the Existing Convertible Preferred Shares and Convertible Preferred Shares) held by the EP Accounts in proportion to the vote of all other preferred shareholders.

 

The Convertible Preferred Shares will not be listed on any exchange and may not be transferred without the consent of the Trust.

 

The foregoing description of the Convertible Preferred Shares does not purport to be complete and is qualified in its entirety by reference to the full text of the Statement of Preferences of Term Preferred Shares, filed herewith as Exhibit 3.1 and incorporated by reference herein, and the Convertible Preferred Shares Purchase Agreement, filed herewith as Exhibit 10.1 and incorporated by reference herein.

 

Preferred Share Voting Arrangements

 

Pursuant to the Convertible Preferred Shares Purchase Agreement, the Existing Convertible Preferred Shares Purchase Agreement and a letter agreement by and among the Trust, Eagle Point and the Purchasers, the Purchasers and Eagle Point have granted the Trust an irrevocable proxy to vote at any annual meeting or special meeting of shareholders of the Trust all Convertible Preferred Shares, Existing Convertible Preferred Shares and 2026 Preferred Shares held by the Purchasers, Eagle Point, any other person controlled by Eagle Point Parent, or any other investment vehicles or accounts sponsored or managed by Eagle Point or any person controlled by Eagle Point Parent, or which Eagle Point or any person controlled by Eagle Point Parent otherwise has or shares the power to vote, or to direct the voting of, as of the record date for the applicable annual or special meeting of shareholders of the Trust in the same proportion as the vote of all other holders. The foregoing is qualified in its entirety by reference to the full text of the Convertible Preferred Shares Purchase Agreement filed herewith as Exhibit 10.1 and incorporated herein by reference and the letter agreement filed herewith as Exhibit 10.3 and incorporated herein by reference.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

On October 6, 2023, the Trust adopted Appendix C to the Statement of Preferences of Term Preferred Shares (the “Statement of Preferences”) establishing and fixing the rights and preferences of the Convertible Preferred Shares. The Statement of Preferences, as amended, authorizes 1,200,000 Convertible Preferred Shares, liquidation preference $25.00 per share. A copy of the Statement of Preferences is filed herewith as Exhibit 3.1 and incorporated herein by reference.

 

Item 7.01. Regulation FD Disclosure

 

On November 7, 2023, the Trust issued a press release, furnished as Exhibit 99.1 to this Current Report and is incorporated herein by reference.

 

The information disclosed under this Item 7.01, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific refence in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

	3.1	Statement of Preferences of Term Preferred Shares
	10.1	Convertible Preferred Shares Purchase Agreement, dated November 6, 2023, between the Trust, Eagle Point and the Purchasers
	99.1	Press Release, dated November 7, 2023

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	XAI OCTAGON FLOATING RATE & ALTERNATIVE INCOME TERM TRUST
Date: November 7, 2023	By:	/s/ Benjamin D. McCulloch
	Name:	Benjamin D. McCulloch
	Title:	Secretary and Chief Legal Officer

 

Exhibit 3.1

 

APPENDIX C

 

XAI OCTAGON FLOATING RATE & ALTERNATIVE INCOME TERM TRUST

 

TERM PREFERRED SHARES
6.95% SERIES 2029 CONVERTIBLE PREFERRED SHARES

 

This Appendix establishes a Series of Term Preferred Shares of XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”). Except as set forth below, this Appendix incorporates by reference the terms set forth with respect to all Series of such Term Preferred Shares in those “Statement of Preferences” dated March 23, 2021 (the “Statement of Preferences”). This Appendix has been adopted by resolution of the Board of Trustees or a duly authorized committee thereof on October 6, 2023. Capitalized terms used herein but not defined herein have the respective meanings set forth in the Statement of Preferences.

 

DESIGNATION

 

Term Preferred Shares, 6.95% Series 2029 Convertible Preferred Shares: A series of 1,200,000 Preferred Shares classified as Term Preferred Shares is hereby designated as the “6.95% Series 2029 Convertible Preferred Shares.” Each share of such Series shall have such preferences, voting powers, restrictions, limitations as to dividends and distributions, conversion privilege, qualifications and terms and conditions of redemption, in addition to those required by applicable law and those that are expressly set forth in the Trust’s Declaration of Trust and the Statement of Preferences (except as the Statement of Preferences may be expressly modified by this Appendix), as are set forth in this Appendix C. The 6.95% Series 2029 Convertible Preferred Shares shall constitute a separate series of Preferred Shares and of the Term Preferred Shares.

 

The following terms and conditions shall apply solely to the 6.95% Series 2029 Convertible Preferred Shares:

 

Section 1. Number of Authorized Shares of Series; Designation of Sub-Series.

 

The number of authorized shares of 6.95% Series 2029 Convertible Preferred Shares is 1,200,000.

 

The 6.95% Series 2029 Convertible Preferred Shares shall be divided into a number of sub-series (each a “Sub-Series”) as determined by the Board of Trustees of the Trust or pursuant to their delegated authority.

 

Upon each subsequent issuance date of Shares of 6.95% Series 2029 Convertible Preferred Shares, as determined by the Board of Trustees of the Trust or pursuant to their delegated authority, the shares issued on such date shall be designated as a separate Sub-Series. Each share of each Sub-Series shall be identical.

 

Each Sub-Series shall be listed on Annex I to this Appendix C, which shall be amended or supplemented in connection with each designation of a Sub-Series.

 

The shares of each Sub-Series shall rank on parity with shares of each other Sub-Series and with shares of any other series of Term Preferred Shares and any other series of Preferred Shares as to the payment of dividends and distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust.

 

Section 2. Date of Original Issue with respect to each Sub-Series.

 

The Date of Original Issue with respect to each Sub-Series shall be set forth on Annex I to this Appendix C.

 

 

Section 3. Fixed Dividend Rate Applicable to Series.

 

The Fixed Dividend Rate is 6.95%.

 

Section 4. Liquidation Preference Applicable to Series.

 

The Liquidation Preference is $25.00 per share.

 

Section 5. Term Redemption Date Applicable to Series.

 

The Term Redemption Date is June 30, 2029.

 

Section 6. Optional Redemption Premium Applicable to Series.

 

There is no optional redemption premium applicable to the Series.

 

Section 7. Dividend Payment Dates Applicable to Series.

 

The Dividend Payment Dates are January 31, April 30, July 31, and October 31 (or, if any such day is not a Business Day, then on the next succeeding Business Day).

 

Section 8. Non-Call Period Applicable to Series.

 

The Non-Call Period is the period beginning on the Date of Original Issue with respect to Sub-Series A as set forth on Annex I to this Appendix C and ending at the close of business on the date that is 18 months after the Date of Original Issue of such Sub-Series.

 

Section 9. Exceptions to Certain Definitions Applicable to the Series.

 

The following definitions contained under the heading “Definitions” in the Statement of Preferences are hereby amended as follows:

 

Not applicable.

 

Section 10. Additional Definitions Applicable to the Series.

 

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:

 

“Closing Sale Price” of the Common Shares on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) at 4:00 p.m. (New York City time) on that date as reported in composite transactions for the principal U.S. national securities exchange on which the Common Shares are traded.

 

“Convertibility Date” means, with respect to each Sub-Series, the Convertibility Date for such Sub-Series as set forth on Annex I of this Appendix C, which shall be the date six-months after the Date of Original Issue with respect to such Sub-Series.

 

“Conversion Price” means the greater of (i) the Market Price or (ii) the Trust’s most recently reported net asset value per Common Share immediately prior to the relevant Exercise Date; provided, that the Trust shall use commercially reasonable efforts to publicly report a net asset value each Business Day; and provided, however, if as of any Exercise Date, the Common Shares are not listed or quoted on a United States securities exchange or automated quotation system, the Conversion Price shall be the Trust’s most recently reported net asset value per Common Share immediately prior to the relevant Exercise Date.

 

 

“Dividend Period” means, with respect to each Sub-Series of 6.95% Series 2029 Convertible Preferred Shares, in the case of the first Dividend Period, the period beginning on the Date of Original Issue for such Sub-Series and ending on, but excluding, the next Dividend Payment Date, and for each subsequent Dividend Period, the period beginning on and including the Dividend Payment Date for the previous Dividend Period and ending on, but excluding, the next Dividend Payment Date.

 

“Eagle Point” means Eagle Point Credit Management LLC or any Person controlled by Eagle Point Holdings LP, Eagle Point’s ultimate parent company.

 

“EP Accounts” means any funds and accounts managed by Eagle Point.

 

“Market Disruption Event” means any suspension of, or limitation imposed on, trading of the Common Shares by any exchange or quotation system on which the VWAP is determined pursuant to the definition of the term “VWAP” (the “Relevant Exchange”) during any period or periods aggregating one half-hour or longer during the regular trading session on the relevant day and whether by reason of movements in price exceeding limits permitted by the Relevant Exchange as to securities generally, or otherwise relating to the Common Shares on the Relevant Exchange.

 

“Market Price” means per Common Share, as of any Exercise Date, the arithmetic average of the VWAP per Common Share for each of the five (5) consecutive full Trading Days ending on the Trading Day immediately preceding such Exercise Date.

 

“Minimum Conversion Shares” means, as of any Exercise Date, the lesser of (i) 10,000 6.95% Series 2029 Convertible Preferred Shares or (ii) the total number of 6.95% Series 2029 Convertible Preferred Shares held by all holders exercising their option to convert on such Exercise Date and eligible for conversion on such Exercise Date.

 

“Non-Listing Event” means that the Trust’s Common Shares shall have failed to be publicly-traded on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market for a period of twenty (20) consecutive Trading Days.

 

“Qualifying Transaction” means the merger or consolidation of the Trust with a closed-end investment company or business development company or the sale or transfer of all or substantially all of the Trust’s assets to a closed-end investment company or business development company, in which (a) the Trust is the successor entity or the successor entity’s common shares are publicly traded on the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market and have an average daily trading volume that is equal to or greater than the average daily trading volume of the Common Shares over the ninety (90) Trading Days immediately preceding the approval of the transaction by the Board of Trustees of the Trust, and (b) if the Trust is not the successor entity, the successor entity issues to the holders of 6.95% Series 2029 Convertible Preferred Shares preferred shares with terms that are substantially identical to the terms of the 6.95% Series 2029 Convertible Preferred Shares.

 

“Record Date” means, with respect to each 6.95% Series 2029 Convertible Preferred Share, the close of business on the January 15, April 15, July 15 or October 15, immediately preceding the applicable Dividend Payment Date (or, if any such day is not a Business Day, then on the next succeeding Business Day).

 

 

“Relevant Exchange” has the meaning set forth in the definition of the term “Market Disruption Event.”

 

“Reorganization Transaction” means a merger or consolidation of the Trust with any other closed-end investment company or business development company or the sale or transfer of all or substantially all of the Trust’s assets to any other closed-end investment company or business development company; provided that a Qualifying Transaction shall not be a Reorganization Transaction.

 

“Trading Day” means a Business Day on which the Relevant Exchange is scheduled to be open for business and, other than with respect to determination of a Delisting Event, on which there has not occurred a Market Disruption Event.

 

“Voting Security” has the meaning set forth in Section 2(a)(42) of the 1940 Act.

 

“VWAP” per Common Share on any Trading Day means the per share volume-weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg (or, if Bloomberg ceases to publish such price, any successor service reasonably agreed by the Trust and Eagle Point; provided that reporting prepared for the Trust by the then-current Designated Market Maker for the Common Shares shall be considered reasonably agreed by both the Trust and Eagle Point) page “XFLT US<Equity>VAP” (or its equivalent successor if such page is not available) in respect of the period from the open of trading on the relevant Trading Day until the close of trading on such Trading Day (or if such volume-weighted average price is unavailable, the average Closing Sale Price for the five Trading Days immediately prior to giving notice of conversion).

 

Section 11. Amendments to Terms of Term Preferred Shares Applicable to the Series.

 

The provisions contained in Section 2.9 under the heading “Terms Applicable to all Series of Term Preferred Shares” in the Statement of Preferences are hereby amended and restated with respect to the 6.95% Series 2029 Convertible Preferred Shares as follows:

 

(a) Share Certificates. A register shall be kept at the offices of the Trust or any transfer agent duly appointed by the Trustees under the direction of the Trustees which shall contain the names and addresses of the Holders of the 6.95% Series 2029 Convertible Preferred Shares and the number of shares of each Sub-Series of 6.95% Series 2029 Convertible Preferred Shares held by them respectively and a record of all transfers thereof. Such register shall be conclusive as to who are the holders of the shares of each Sub-Series of 6.95% Series 2029 Convertible Preferred Share and who shall be entitled to receive dividends or distributions or otherwise to exercise or enjoy the rights of a Holder of the 6.95% Series 2029 Convertible Preferred Shares. No Holder of the 6.95% Series 2029 Convertible Preferred Shares shall be entitled to receive payment of any dividend or distribution, nor to have notice given to him as herein provided, until he, she or it has given his, her or its address to a transfer agent or such other officer or agent of the Trustees as shall keep the register for entry thereon.

 

Section 12. Additional Terms and Provisions Applicable to the Series.

 

The following provisions shall be incorporated into and be deemed part of the Statement of Preferences:

 

(a) Conversion of Shares.

 

(i) Conversion Privilege. Subject to and upon compliance with the provisions of this Section 12(a) each holder of a share of a Sub-Series of 6.95% Series 2029 Convertible Preferred Shares shall have the right, at such holder’s option, to convert any such share, at any time on or after the Convertibility Date applicable to such Sub-Series and prior to the close of business on the Business Day immediately preceding the Term Redemption Date, into such number of Common Shares equal to the Liquidation Preference of the 6.95% Series 2029 Convertible Preferred Share plus an amount equal to all unpaid dividends and distributions on such Share accumulated to (but excluding) the Exercise Date, divided by the Conversion Price (subject to, and in accordance with, the settlement provision of Section 12(a)(ii), the “Conversion Obligation”).

 

 

(ii) Conversion Procedures; Settlement Upon Conversion.

 

(A) In connection with the conversion of any 6.95% Series 2029 Convertible Preferred Shares, such holder shall complete, sign and deliver (including via facsimile, .pdf attachment or other electronically transmitted signature thereof (including DocuSign or Adobe Sign)) an irrevocable notice to the Trust as set forth in Annex II to this Appendix C) (a “Notice of Conversion”) and state in writing therein the number of Shares of each Sub-Series of 6.95% Series 2029 Convertible Preferred Shares to be converted.

 

On any single Exercise Date, converting holders must surrender for conversion an aggregate number of 6.95% Series 2029 Convertible Preferred Shares equal to or greater than the Minimum Conversion Shares. If more than one 6.95% Series 2029 Convertible Preferred Share shall be surrendered for conversion at one time by the same holder on a single Exercise Date, the Conversion Obligation with respect to such shares shall be computed on the basis of the aggregate Liquidation Preference plus an amount equal to all unpaid dividends and distributions on such shares accumulated to (but excluding) the Exercise Date, so surrendered on such Exercise Date by such holder.

 

(B) A share shall be deemed to have been converted immediately prior to the close of business on the Business Day (the “Exercise Date”) that the holder has complied with the requirements set forth in subsection (A) above. By the close of business on the second Business Day immediately following the Exercise Date, the Trust shall (1) update the register maintained by the Trust pursuant to Section 11(a) to reflect the change in the number of shares of each applicable Sub-Series outstanding and held by such holder as a result of the conversion and (2) issue or cause to be issued, and deliver to such holder of converted 6.95% Series 2029 Convertible Preferred Shares a book-entry transfer through the Depository Trust Company for the full number of Common Shares to which such holder shall be entitled in satisfaction of the Conversion Obligation; provided that if the Trust shall fail to fulfill the obligations in clauses (1) and (2) above by the close of business on the second Business Day immediately following the Exercise Date, the dividends payable on the Convertible Preferred Shares of any Sub-Series of which one or more Shares was surrendered for conversion on such Exercise Date shall increase to a rate per annum that is 2.00% above the Fixed Dividend Rate stated in Section 3 until the date on which the obligations set forth in clauses (1) and (2) above have been satisfied. All Common Shares to be issued upon conversion of 6.95% Series 2029 Convertible Preferred Shares shall be fully paid and nonassessable by the Trust and free from all taxes, liens and charges with respect to the issue thereof.

 

(D) No fractional Common Shares or scrip representing fractional Common Shares shall be issued upon conversion of any 6.95% Series 2029 Convertible Preferred Shares into Common Shares. In lieu of fractional shares otherwise issuable, the converting holder will be entitled to receive an amount in cash equal to the fraction of Common Share multiplied by the applicable Conversion Price. In order to determine whether the number of Common Shares to be delivered to a holder upon the conversion of such holder’s 6.95% Series 2029 Convertible Preferred Shares will include a fractional share, such determination shall be based on the aggregate number of 6.95% Series 2029 Convertible Preferred Shares of such holder that are being converted on any single Exercise Date.

 

 

(D) If a holder submits a 6.95% Series 2029 Convertible Preferred Share for conversion, the Trust shall pay any documentary, stamp or similar issue or transfer tax due on the issue of the Common Shares upon conversion.

 

(E) The Person in whose name the certificate for any Common Shares delivered upon conversion is registered shall be treated as a shareholder of record as of the close of business on the relevant Exercise Date. Upon a conversion of 6.95% Series 2029 Convertible Preferred Shares, the rights of the converting holder with respect to the 6.95% Series 2029 Convertible Preferred Shares being converted shall cease, except that the holder thereof shall thereafter have and retain (i) the right to receive Common Shares in respect of the converted 6.95% Series 2029 Convertible Preferred Shares and cash in lieu of fractional shares, and (ii) the right to vote such 6.95% Series 2029 Convertible Preferred Shares in connection with any matters submitted to a vote of Shareholders or to receive distributions with respect to such 6.95% Series 2029 Convertible Preferred Share, in each case as to which the applicable record date established by the Board of Trustees for determining Shareholders entitled to vote on such matter or entitled to receive distributions, as the case may be, shall occur prior to the Exercise Date.

 

(H) Notwithstanding anything to the contrary herein, no holder shall exercise its conversion privilege or be entitled to receive Common Shares upon the exercise of its conversion privilege to the extent (but only to the extent) that the receipt of such Common Shares would cause EP Accounts, in the aggregate, to become, directly or indirectly, “beneficial owners” (within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than 4.9% of the Common Shares outstanding at such time (the “EP Account Ownership Limitation”). In addition, notwithstanding anything to the contrary herein, no holder that is an investment company (as defined in the 1940 Act) or would be an investment company but for Section 3(c)(1) or 3(c)(7) of the 1940 Act shall exercise its conversion privilege or be entitled to receive Common Shares upon the exercise of its conversion privilege, to the extent (but only to the extent) that the receipt of such Common Shares would cause such holder to become, directly or indirectly, a beneficial owner of more than 3% of the Voting Securities of the Trust (together with the EP Account Ownership Limitation, the “Ownership Limitations”). Any purported conversion of 6.95% Series 2029 Convertible Preferred Shares shall be void and have no effect to the extent (but only to the extent) that delivery of Common Shares upon such conversion would result in the converting holder or the EP Accounts becoming the beneficial owner of Common Shares in excess of an Ownership Limitation.

 

(b) Mandatory Redemption.

 

(i) Non-Listing Event Mandatory Redemption. Upon the occurrence of a Non-Listing Event, the Trust shall, to the extent permitted by the 1940 Act and Delaware law, by the close of business on the next Business Day immediately following the occurrence of a Non-Listing Date, fix a redemption date (which date shall be no later than 30 days after the occurrence of the Non-Listing Event) and proceed to redeem all of the outstanding 6.95% Series 2029 Convertible Preferred Shares in accordance with the procedures for redemption set forth in Sections 2.5(d) – (f) of the Statement of Preferences and at a price per share equal to the Liquidation Preference per share plus an amount equal to all unpaid dividends and distributions on such share accumulated to (but excluding) the date fixed for such redemption by the Board of Trustees (whether or not earned or declared by the Trust, but excluding interest thereon).

 

 

(ii) Reorganization Transaction Mandatory Redemption. In the case of a Reorganization Transaction, the Trust shall, prior to the closing of the Reorganization Transaction, fix a redemption date and proceed to redeem all of the outstanding 6.95% Series 2029 Convertible Preferred Shares in accordance with the procedures for redemption set forth in Sections 2.5(d) – (f) of the Statement of Preferences prior to such closing and at a price per share equal to the Liquidation Preference per share plus an amount equal to all unpaid dividends and distributions on such share accumulated to (but excluding) the date fixed for such redemption by the Board of Trustees (whether or not earned or declared by the Trust, but excluding interest thereon).

 

(c) Irrevocable Proxy. To the fullest extent permitted by applicable law, each holder may in its discretion grant an irrevocable proxy.

 

(d) Transfer. Unless approved in writing by the Trust, a holder may not sell, transfer, convey, assign or otherwise dispose of 6.95% Series 2029 Convertible Preferred Shares. Any transfer in violation of the foregoing restrictions shall be void ab initio and any transferee of 6.95% Series 2029 Convertible Preferred Shares transferred in violation of the foregoing restrictions shall be deemed to agree to hold all payments it received on any such improperly transferred 6.95% Series 2029 Convertible Preferred Shares in trust for the benefit of the transferor of such 6.95% Series 2029 Convertible Preferred Shares.

 

(e) Status of Redeemed, Converted or Repurchased Shares. 6.95% Series 2029 Convertible Preferred Shares that at any time have been converted into Common Shares as provided herein or redeemed or repurchased by the Trust shall, after such conversion, redemption or purchase, have the status of authorized but unissued shares of beneficial interest of the Trust.

 

(f) Withholding. If any amount of withholding tax is payable with respect to any distribution or other amount paid or deemed paid with respect to the 6.95% Series 2029 Convertible Preferred Shares (including constructive distributions), the Trust may withhold such amount from any cash, property or Common Shares otherwise deliverable (whether presently or in the future) to the holder upon a distribution, redemption, conversion, or otherwise.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, XAI Octagon Floating Rate & Alternative Income Term Trust has caused these presents to be signed as of the date first written above in its name and on its behalf by its Chief Financial Officer and Treasurer and attested by its Secretary. Said officers of the Trust have executed this Appendix as officers and not individually, and the obligations and rights set forth in this Appendix 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.

 

XAI OCTAGON FLOATING RATE &
ALTERNATIVE INCOME TERM TRUST

 

	By:	/s/ Benjamin D. McCulloch
		Name:	Benjamin D. McCulloch
		Title:	Chief Legal Officer and Secretary

 

ATTEST:
/s/ Kimberly A. Flynn
Name:	Kimberly A. Flynn
Title:	Vice President

 

[Appendix C to Statement of Preferences | Signature Page]

 

 

Annex I

 

6.95% Series 2029 Convertible Preferred Shares
(Effective as of November 6, 2023)

 

Sub-Series	Date of Original Issue	Convertibility Date
Sub-Series A

 

[Annex I to Appendix C to Statement of Preferences]

 

 

FORM OF NOTICE OF CONVERSION

 

XAI Octagon Floating Rate & Alternative Income Term Trust

321 North Clark Street, Suite 2430

Chicago, IL 60654

Attention: [   ]

 

The undersigned registered owner of 6.95% Series 2029 Convertible Preferred Shares issued by XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) hereby exercises the option to convert the number of shares of each such Sub-Series below designated into Common Shares (and cash in lieu of fractional Common Shares, if applicable), in accordance with the terms of the Trust’s Statement of Preferences.

 

The undersigned represents that the Common Shares are being acquired for the holder’s own account and not as a nominee for any other party. The undersigned represents and warrants that all offers and sales by the undersigned of the Common Shares shall be made pursuant to either an effective registration statement or an exemption from registration under the Securities Act of 1933, as amended.

 

If the aggregate number of 6.95% Series 2029 Convertible Preferred Shares being converted by all holders thereof on the date hereof is less than 10,000 shares, the undersigned represents that the 6.95% Series 2029 Convertible Preferred Shares set forth below represents all 6.95% Series 2029 Convertible Preferred Shares held by the holder as of the date hereof that are eligible for conversion.

 

Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Trust’s Statement of Preferences.

 

Sub-Series		Number of Shares

 

Holder:

 

______________________________________________

(Print Legal Name of Holder)

 

______________________________________________

(Signature of Duly Authorized Representative of Holder)

 

Address of Holder:

 

[Annex I to Appendix C to Statement of Preferences]

 

Exhibit 10.1

 

Execution Version

 

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (this “Agreement”) is entered into as of November 6, 2023, by and among XAI Octagon Floating Rate & Alternative Income Term Trust, a Delaware statutory trust (the “Trust”), Eagle Point Credit Management LLC (“Eagle Point”) and each purchaser identified on Appendix A hereto (each, a “Purchaser” and collectively the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, the Trust desires to issue, and each Purchaser, severally and not jointly, desires to purchase shares of the Trust’s 6.95% Series 2029 Convertible Preferred Shares, liquidation preference $25.00 per share (the “Convertible Preferred Shares”), a series of the Trust’s preferred shares of beneficial interest (the “Preferred Shares”), upon the terms and conditions as more particularly provided herein; and

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Trust and each Purchaser hereby agree as follows:

 

ARTICLE I
PURCHASE AND SALE; CLOSINGS

 

1.1       Purchase and Sale of the Shares. At the Initial Closing (as defined in Section 1.2) and any Subsequent Closings (as defined in Section 1.4), the Trust shall sell to each Purchaser, and each Purchaser, severally and not jointly, shall buy from the Trust, upon the terms and conditions hereinafter set forth, all or a portion of the number of Convertible Preferred Shares as specified on Appendix A to this Agreement as determined by the Trust, in its discretion (such Convertible Preferred Shares purchased in the Initial Closing, the “Initial Shares”), and at the purchase price of $23.25 per share. The total purchase commitment of the Purchasers, severally and not jointly, whether purchased in the Initial Closing or Subsequent Closings, shall be 1,200,000 Convertible Preferred Shares.

 

1.2       The Initial Closing. Upon the purchase and sale of the Initial Shares (the “Initial Closing”) (a) the purchase price for the Initial Shares being purchased by each Purchaser (the “Purchase Price”) shall be delivered by or on behalf of such Purchaser to the Trust as more particularly provided in Section 1.5 and (b) the Trust shall cause Equiniti Trust Company, LLC, the Trust’s transfer agent (the “Transfer Agent”), to deliver to each Purchaser the number of Initial Shares as more particularly provided in Section 1.6.

 

1.3       Purchases and Sales of Additional Shares. (a) Each Purchaser, severally and not jointly, hereby agrees to purchase an additional number of Convertible Preferred Shares as determined by the Trust, in its discretion, up to the number of Convertible Preferred Shares specified on Appendix A to this Agreement less the number of Initial Shares purchased by such Purchaser (such additional Convertible Preferred Shares, the “Additional Shares” and, together with the Initial Shares, the “Shares”) at the purchase price of $23.25 per Additional Share. Each Purchaser, severally and not jointly, shall purchase Additional Shares in the same proportion as the number of Shares purchased by each Purchaser at the Initial Closing at such times, dates and locations as determined by the Trust in its discretion on or before May 6, 2025 (each such purchase of Additional Shares, a “Subsequent Closing” and, together with the Initial Closing, each a “Closing”).

 

 

(b) At each Subsequent Closing, (a) the purchase price for the Additional Shares being purchased by each Purchaser (the “Additional Shares Purchase Price”) shall be delivered by or on behalf of such Purchaser to the Trust as more particularly provided in Section 1.5 and (b) the Trust shall cause the Transfer Agent to deliver to each Purchaser the number of Additional Shares to be purchased by each Purchaser, as more particularly provided in Section 1.6. The Additional Shares sold by the Trust to the Purchasers at each Subsequent Closing will be designated as a separate sub-series of the Preferred Shares.

 

1.4       Notice of Closings. The Trust shall provide notice of each Closing to each Purchaser no fewer than six (6) business days prior to such Closing which shall specify the time, date and location of such Closing and the number of Initial Shares or Additional Shares, as applicable, to be purchased by such Purchaser, and the corresponding Purchase Price or Additional Shares Purchase Price, as applicable.

 

1.5       Delivery of the Purchase Price. At each Closing, each Purchaser shall remit by wire transfer the amount of funds equal to the Purchase Price or Additional Share Purchase Price, as applicable, with respect to the Shares being purchased by it to the account designated by the Trust.

 

1.6       Delivery of the Shares. On the date of the Initial Closing and the date of each Subsequent Closing (each, a “Closing Date”), the Transfer Agent shall update the share register for the Convertible Preferred Shares to reflect the names and addresses of each Purchaser and the number of shares of each sub-series of Convertible Preferred Shares held by each Purchaser.

 

1.7       Conditions to the Trust’s Obligations. The Trust’s obligation to sell and issue the Shares to each Purchaser will be subject to the receipt by the Trust of the respective Purchase Price or Additional Share Purchase Price, as applicable, from such Purchaser as set forth in Section 1.5 and the accuracy of the representations and warranties made by such Purchaser and the fulfillment of those undertakings of such Purchaser to be fulfilled prior to the applicable Closing Date.

 

1.8       Conditions to Purchaser’s Obligations. Each Purchaser’s obligation to purchase the respective Shares to be purchased by it hereunder is subject to the fulfillment to each such Purchaser’s reasonable satisfaction, prior to or at such Closing, of the following conditions:

 

(a)       The representations and warranties of the Trust in this Agreement shall be correct when made and at such Closing.

 

(b)       The Trust shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at such Closing.

 

(c)       The Trust shall have delivered to each such Purchaser an officer’s certificate from the Trust’s President, Vice President or other senior officer, dated the date of such Closing, certifying that the conditions specified in Sections 1.8(a) and 1.8(b) have been fulfilled.

 

(d)       The Trust shall have delivered to each such Purchaser a certificate of its Secretary, dated the date of such Closing, certifying as to (i) the resolutions attached thereto and other trust proceedings relating to the authorization, issuance and sale of the Shares and the authorization, execution and delivery of this Agreement and (ii) the Trust’s organizational documents as then in effect.

 

 

(e)       At least three Business Days prior to the date of the applicable Closing, each Purchaser shall have received written instructions signed by an officer of the Trust on letterhead of the Trust specifying (i) the name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into which the Purchase Price or Additional Share Purchase Price, as applicable, for the Shares is to be deposited.

 

(f)       Such Purchaser shall have received an opinion, dated as of the date of the Initial Closing, from Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Trust, as to the validity of the Shares.

 

ARTICLE II
REPRESENTATIONS AND WARRANTIES

 

2.1       Purchaser Representations and Warranties. In connection with the purchase and sale of the Shares, each Purchaser represents and warrants, severally and not jointly, to the Trust that:

 

(a)       Such Purchaser understands that the Shares are “restricted securities” and have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any applicable state securities laws and such Purchaser is acquiring the Shares as principal for its own account and not with a view to or for the purpose of distributing or reselling such securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Shares in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Shares in violation of the Securities Act or any applicable state securities law.

 

(b)       Each Purchaser severally represents that it (a) is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, (b) either alone or together with its representatives has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this investment and make an informed decision to so invest, and has so evaluated the risks and merits of such investment and made such informed decision to so invest, (c) has the ability to bear the economic risks of this investment and can afford a complete loss of such investment, (d) understands the terms of and risks associated with the purchase of the Shares, including a lack of liquidity, pricing availability and risks associated with the industry in which the Trust operates, (e) has had the opportunity to review the Disclosure Documents (as defined below) and such other disclosure regarding the Trust, its business and its financial condition as such Purchaser has determined to be necessary or relevant in connection with the purchase of the Shares, and has carefully reviewed such disclosure and (f) has had a full opportunity to ask such questions and make such inquiries concerning the Trust, its business and its financial condition as such Purchaser has deemed appropriate in connection with such purchase and to receive satisfactory answers to such questions and inquiries.

 

(c)       Such Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement. Eagle Point, in its capacity as agent and/or investment manager of each Purchaser, is duly authorized and empowered to execute this Agreement on behalf of each Purchaser. This Agreement has been duly and validly authorized, executed and delivered by or on behalf of each Purchaser and this Agreement constitutes a valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with its terms.

 

(d)       Such Purchaser understands that nothing in this Agreement or any other materials presented to Purchaser in connection with the purchase and sale of the Shares constitutes legal, tax or investment advice. Such Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Shares.

 

 

(e)       Such Purchaser is not (i) currently subject to any sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”), the European Union, the United Kingdom, or the United Nations or any other relevant sanctions authority or (ii) located, organized or resident in a country or territory that is subject to sanctions by OFAC or any other relevant sanctions authority; and such Purchaser will knowingly use funds from any payment made pursuant to the terms of the Shares, or lend, contribute or otherwise make available such funds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC or any other relevant sanctions authority.

 

2.2       Trust Representations and Warranties. In connection with the purchase and sale of the Shares, the Trust represents and warrants to each Purchaser that:

 

(a)       The Trust (i) has been duly formed and has legal existence as a statutory trust and is in good standing under the laws of the State of Delaware; (ii) has full power and authority to own, lease and operate its properties and assets, and conduct its business as currently conducted; (iii) is duly licensed and qualified to transact business and is in good standing in each jurisdiction where it owns or leases property or in which the conduct of its business or other activity requires such qualification, except where the failure to so qualify or to be in good standing would not have a material adverse effect on the Trust.

 

(b)       The Trust has full power and authority to enter into this Agreement and to perform all of the terms and provisions hereof to be carried out by it. This Agreement has been duly and validly authorized, executed and delivered by or on behalf of the Trust. Assuming due authorization, execution and delivery by the other parties thereto, this Agreement constitutes a legal, valid and binding obligation of the Trust enforceable in accordance with its terms, subject to the qualification that the enforceability of the Trust’s obligations thereunder may be limited by U.S. bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors’ rights generally, whether statutory or decisional, and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law), and except as enforcement of rights to indemnity or contribution thereunder may be limited by federal or state securities laws.

 

(c)       The Shares to be issued and delivered to and paid for by the Purchasers in accordance with this Agreement have been duly authorized and when issued and delivered to the Purchasers against payment therefor as provided by this Agreement will have been validly issued and will be fully paid and nonassessable.

 

(d)       The Trust’s Annual Report on Form N-CSR for the fiscal year ended September 30, 2022, as filed with the SEC on December 1, 2022, and the Trust’s Semi-Annual Report on Form N-CSRS for the period ended March 31, 2023, as filed with the SEC on May 24, 2023 (collectively, the “Disclosure Documents”), do not contain any untrue statement of a material fact, except to the extent updated or corrected in a subsequent filing by the Trust with the SEC. The Disclosure Documents and all other applicable reports filed by the Trust with the SEC fairly describe, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in the Disclosure Documents, since March 31, 2023, there has been no material adverse change in the condition (financial or otherwise), business prospects, management, net assets or results of operations of the Trust, whether or not arising in the ordinary course of business (other than changes resulting from changes in securities markets generally).

 

(e)       The financial statements, including the statement of assets and liabilities, together with any related notes or schedules thereto, included in the Disclosure Documents present fairly the financial position of the Trust as of the dates and for the periods indicated and such statements were prepared in accordance with generally accepted accounting principles in the United States applied on a consistent basis.

 

 

(e)       None of (i) the execution and delivery by the Trust of this Agreement, (ii) the issuance and sale by the Trust of the Shares as contemplated by this Agreement and (iii) the performance by the Trust of its obligations under this Agreement (A) conflicts with or will conflict with, or results in or will result in a breach or violation of the declaration of trust (as amended and restated from time to time), Statement of Preferences of Term Preferred Shares, as amended through the date hereof (“Statement of Preferences”), bylaws or similar organizational documents of the Trust, (B) conflicts with or will conflict with, results in or will result in a breach or violation of, or constitutes or will constitute a default or an event of default under, or results in or will result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Trust under the terms and provisions of any agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument to which the Trust is a party or by which it may be bound or to which any of the property or assets of the Trust is subject, except which breach, violation, default, lien, charge or encumbrance would not have a material adverse effect on the Trust, or (C) results in or will result in any violation of any order, law, rule or regulation of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to the Trust or having jurisdiction over the Trust’s properties, except which violation would not have a material adverse effect on the Trust.

 

(f)       No consent, approval, authorization, notification or order of, or filing with, or the issuance of any license or permit by, any federal, state, local or foreign court or governmental or regulatory agency, commission, board, authority or body or with any self-regulatory organization, other non-governmental regulatory authority, securities exchange or association, whether foreign or domestic, is required by the Trust for the consummation by the Trust of the transactions to be performed by the Trust or the performance by the Trust of all the terms and provisions to be performed by or on behalf of it in each case as contemplated in this Agreement, except such as (i) may be required and have been obtained under the Securities Act; the Securities Exchange Act of 1934, as amended; the Investment Company Act of 1940, as amended (the “Investment Company Act”); or the Investment Advisors Act of 1940, as amended or (ii) which failure to obtain would not have a material adverse effect on the Trust.

 

(g)       Except as otherwise disclosed by the Trust to the Purchasers, there is no action, suit, claim, inquiry, investigation or proceeding affecting the Trust or to which the Trust is a party before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, whether foreign or domestic, now pending or, to the knowledge of the Trust, threatened against the Trust, except which would not have a material adverse effect on the Trust.

 

(h)       The operations of the Trust are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the Money Laundering Control Act of 1986, as amended, the Bank Secrecy Act, as amended, the United and Strengthening of America by Providing Appropriate tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2011, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Trust with respect to the Money Laundering Laws is pending or, to the knowledge of the Trust after reasonable inquiry, threatened.

 

(i)       The Trust intends to direct the investment of the proceeds of the offering of the Shares in such a manner as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and has qualified and intends to continue to operate in compliance with the requirements to maintain its qualification as a regulated investment company under Subchapter M of the Code.

 

(j)       Neither the Trust, nor to the knowledge of the Trust, after reasonable inquiry, any trustee, officer, agent, employee or affiliate of the Trust is (i) currently subject to any sanctions administered by OFAC, the European Union, the United Kingdom, or the United Nations or any other relevant sanctions authority or (ii) located, organized or resident in a country or territory that is subject to sanctions by OFAC or any other relevant sanctions authority; and the Trust will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC or any other relevant sanctions authority.

 

(k)       The Trust is duly registered with the Commission under the Investment Company Act as a diversified, closed-end management investment company; the provisions of the Trust’s declaration of trust (as amended and restated from time to time), Statement of Preferences and bylaws comply in all material respects with the requirements of the Investment Company Act.

 

 

(l)       Private Placement of Shares.

 

(i)       Neither the Trust nor any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”)) has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) that is or will be integrated with the sale of the Shares in a manner that would require registration of the Shares under the Securities Act.

 

(ii)       None of the Trust or any of its affiliates (as defined in Rule 501(b) of Regulation D) or any other person acting on its or their behalf has solicited offers for, or offered or sold, the Shares by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act.

 

(iii)       Neither the Trust nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Shares to the registration requirements of section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction. Assuming the accuracy of the representations and warranties of the Purchasers contained herein, it is not necessary, in connection with the issuance and sale of the Shares to the Purchasers to register the Shares under the Securities Act.

 

ARTICLE III
OTHER AGREEMENTS OF THE PARTIES

 

3.1       Unissued Shares Payment. In the event the Trust does not sell to each Purchaser all Convertible Preferred Shares which such Purchaser has agreed to purchase by May 6, 2025 the Trust will pay to each Purchaser an amount equal to $0.75 per unissued Share.

 

3.2       Restrictions on Transfer. For so long as the Convertible Preferred Shares are outstanding, Eagle Point and any successor investment adviser responsible for managing an investment in the Shares, shall not and shall not cause any EP Account to, or in the event that no investment adviser is responsible for managing the Shares, each Purchaser shall not, sell, offer, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, otherwise transfer or dispose of or enter into any swap or other agreement, arrangement, hedge or transaction that transfers into another, in whole or in part, directly or indirectly, and of the economic consequences of ownership of any Convertible Preferred Shares or shares of any other series of Preferred Shares that the EP Accounts or Purchasers, as applicable, hold; provided, that the foregoing shall in no way restrict (i) the redemption of Preferred Shares by the Trust pursuant to the Statement of Preferences or (ii) the exercise of the Purchasers’ option to convert the Shares into common shares of beneficial interest of the Trust (“Common Shares”) pursuant to the terms of the Statement of Preferences.

 

3.4       Voting. Each Purchaser hereby grants to the Trust an irrevocable proxy to vote at any annual or special meeting of shareholders of the Trust all of the Convertible Preferred Shares that such Purchaser holds in the same proportion as the vote of all other holders of Preferred Shares of the Trust.

 

 

3.5       Beneficial Ownership of Common Shares Information. For so long as the Convertible Preferred Shares are outstanding, in connection with the limitation on beneficial ownership provided in Section 12(a)(ii)(G) of Appendix B to the Statement of Preferences and upon written request of the Trust, Eagle Point will provide the Trust, within five (5) business days of such request, a report regarding the aggregate Common Share ownership of any funds or accounts managed by Eagle Point (the “EP Accounts”) as of the most recent quarter end.

 

3.6       Limitation on Sale of Common Shares. For so long as the Convertible Preferred Shares are outstanding, Eagle Point and any successor investment adviser responsible for managing an investment in the Shares, shall not and shall not cause any Purchaser to, or in the event that no investment adviser is responsible for managing the Shares, each Purchaser shall not, sell, offer, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, otherwise transfer or dispose of or enter into any swap or other agreement, arrangement, hedge or transaction that transfers into another, in whole or in part, directly or indirectly, and of the economic consequences of ownership of any Common Shares of the Trust that they hold, whether now owned or hereafter acquired (including pursuant to the conversion of the Convertible Preferred Shares), to the extent (but only to the extent) that the aggregate number of Common Shares so sold, transferred or otherwise disposed of by the holders of Convertible Preferred shares, in the aggregate, on any one day would exceed the greater of (i) 20% of the average daily trading volume of the Common Shares over the twenty (20) Trading Days immediate preceding such day and (ii) 20% of the current Trading Day’s trading volume of the Common Shares.

 

3.7       Tax Information. On the date of the Initial Closing, each Purchaser shall deliver to the Trust a properly completed and executed IRS Form W-9, dated as of the date of the Initial Closing, and shall update or replace such form from time to time upon any subsequent obsolescence, inaccuracy, or other invalidity thereof.

 

3.8       Listing of Common Stock. The Trust covenants and agrees that the Trust shall list and keep listed, so long as the Common Shares shall be so listed on such exchange or automated quotation system, any Common Shares issuable upon conversion of the Shares.

 

ARTICLE IV
GENERAL PROVISIONS

 

4.1       Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Trust and each Purchaser hereby will survive the execution of this Agreement, the delivery to such Purchaser of the Shares and the payment by such Purchaser of the Purchase Price or Additional Shares Purchase Price, as applicable, therefor for a period of one year.

 

4.2       Entire Agreement. This Agreement represents the entire agreement among the parties with respect to the transactions contemplated herein and supersedes all prior agreements, written or oral, with respect thereto.

 

 

4.3       Amendment and Waiver. The provisions of this Agreement may be amended only with the prior written consent of the Trust and each Purchaser. The failure of any party to insist upon strict adherence to any one or more of the covenants and restrictions in this Agreement, on one or more occasion, shall not be construed as a waiver, nor deprive such party of the right to require strict compliance thereafter with the same. All waivers must be in writing and signed by the waiving party.

 

4.4       Expenses. The Trust will pay all expenses, including attorneys’ fees, in connection with the negotiation of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated by this Agreement; provided that the maximum amount of fees, costs and expenses incurred by the Purchasers that the Trust shall be required to pay shall be $50,000.

 

4.5       Successors and Assigns. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party without the prior written consent of each other party, except that the Shares may be transferred by each Purchaser without the consent of the Trust.

 

4.6       Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to the choice of law principles thereof.

 

4.7       Counterparts. This Agreement may be executed in counterparts, each of which shall be an original and all of which shall constitute a single agreement. Delivery of an executed signature page of this Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart hereof.

 

4.8       Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

 

4.9       Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any person, or which such person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such person, whether or not expressly specified in such provision. The construction of this Agreement shall not be affected by which party drafted this Agreement.

 

4.10      Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

 

4.11      Further Assurances. In connection with this Agreement and the transactions contemplated herein, the parties to this Agreement shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and such transactions.

 

[signature page follows]

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Purchase Agreement on the date first written above.

 

	XAI OCTAGON FLOATING RATE & ALTERNATIVE INCOME TERM TRUST
	/s/ Benjamin D. McCulloch
	Name: Benjamin D. McCulloch
	Title: Chief Legal Officer & Secretary
	EAGLE POINT CREDIT MANAGEMENT LLC (solely with respect to Sections 3.2, 3.5 and 3.6)
	/s/ Kenneth Onorio
	Name: Kenneth Onorio
	Title: CFO
	PURCHASERS:

 

By:

EAGLE POINT CREDIT MANAGEMENT LLC

 

		On behalf of each Purchaser listed on Appendix A hereto
		/s/ Kenneth Onorio
		Name: Kenneth Onorio
		Title: CFO

 

 

Exhibit 99.1

 

XAI Octagon Floating Rate & Alternative Income Term Trust Announces Private Placement of Convertible Preferred Shares

 

CHICAGO, Illinois – November 7, 2023 – XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) (NYSE: XFLT), a diversified, closed-end management investment company with an investment objective to seek attractive total return with an emphasis on income generation across multiple stages of the credit cycle, has entered into a Purchase Agreement with certain institutional investors for the purchase and sale of 1,200,000 shares of the Trust’s 6.95% Series 2029 Convertible Preferred Shares due June 2029 (the “Convertible Preferred Shares”), liquidation preference $25.00 per share. The Trust expects to receive net proceeds (before expenses) from the sale of the Convertible Preferred Shares of approximately $27.9 million. Pursuant to the Purchase Agreement, the investors have agreed to purchase the Convertible Preferred Shares, at one or more closings on or before May 6, 2025, as determined by the Trust in its discretion.

 

The Convertible Preferred Shares pay a quarterly dividend at a fixed annual rate of 6.95% of the liquidation preference, or $1.7375 per share, per year.

 

The Trust is required to redeem, out of funds legally available therefor, all outstanding Convertible Preferred Shares on June 30, 2029, or the “Term Redemption Date,” at a price equal to the liquidation preference plus an amount equal to accumulated but unpaid dividends and distributions, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the Term Redemption Date.

 

At any time on or after the date eighteen months after the first issuance of Convertible Preferred Shares, at the Trust’s sole option, the Trust may redeem, from time to time, the Convertible Preferred Shares in whole or in part, out of funds legally available for such redemption, at a price per share equal to the sum of the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.

 

Each holder of a Convertible Preferred Share shall have the right, at such holder’s option, to convert any such Convertible Preferred Share, at any time on or after the date six months after the issuance date of the Convertible Preferred Share (the “Convertibility Date”) and prior to the close of business on the business day immediately preceding the Term Redemption Date, into such number of common shares of beneficial interest (“Common Shares”) equal to the liquidation preference of the Convertible Preferred Share plus an amount equal to all unpaid dividends and distributions on such Share accumulated to (but excluding) the date of exercise, divided by the Conversion Price. The “Conversion Price” is the greater of (i) the market price per Common Share, represented by the five-day volume-weighted average price (“VWAP”) per Common Share ending on the trading day immediately preceding the date of exercise, or (ii) the Trust’s most recently reported net asset value per Common Share immediately prior to the date of exercise.

 

The Convertible Preferred Shares will not be listed on any exchange and may not be transferred without the consent of the Trust.

 

Additional information regarding the Convertible Preferred Shares are included in a Current Report on Form 8-K to be filed with the U.S. Securities and Exchange Commission (“SEC”).

 

 

The Convertible Preferred Shares were offered directly to the purchasers without a placement agent, underwriter, broker or dealer.

 

The Convertible Preferred Shares and the Common Shares into which the Convertible Preferred Shares are convertible are being issued in reliance upon an exemption from registration under the Securities Act of 1933 (the “Securities Act”) and have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements.

 

This press release shall not constitute an offer to sell or a solicitation of an offer to buy the Convertible Preferred Shares, nor shall there be any sale of Convertible Preferred Shares in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of such jurisdiction.

 

About XA Investments

 

XA Investments LLC (“XAI”) serves as the Trust’s investment adviser. XAI is a Chicago-based firm founded by XMS Capital Partners in April, 2016. In addition to investment advisory services, the firm also provides investment fund structuring and consulting services focused on registered closed-end funds to meet institutional client needs. XAI offers custom product build and consulting services, including development and market research, sales, marketing, fund management and administration. XAI believes that the investing public can benefit from new vehicles to access a broad range of alternative investment strategies and managers. XAI provides individual investors with access to institutional-caliber alternative managers. For more information, please visit www.xainvestments.com.

 

About XMS Capital Partners

 

XMS Capital Partners, LLC, established in 2006, is a global, independent financial services firm providing M&A, corporate advisory and asset management services to clients. It has offices in Chicago, Boston and London. For more information, please visit www.xmscapital.com.

 

About Octagon Credit Investors

 

Octagon Credit Investors, LLC (“Octagon”) serves as the Trust’s investment sub-adviser. Octagon is a 25+ year old, $32.1B below-investment grade corporate credit investment adviser focused on leveraged loan, high yield bond and structured credit (CLO debt and equity) investments. Through fundamental credit analysis and active portfolio management, Octagon’s investment team identifies attractive relative value opportunities across below-investment grade asset classes, sectors and issuers. Octagon’s investment philosophy and methodology encourage and rely upon dynamic internal communication to manage portfolio risk. Over its history, the firm has applied a disciplined, repeatable and scalable approach in its effort to generate attractive risk-adjusted returns for its investors. For more information, please visit www.octagoncredit.com.

 

* * *

 

The Trust, XAI and Octagon do not provide tax advice; consult a professional tax advisor regarding your specific tax situation. Income may be subject to state and local taxes, as well as the federal alternative minimum tax.

 

 

This press release contains certain statements that may include “forward-looking statements.” Forward-looking statements can be identified by the words “may,” “will,” “intend,” “expect,” “estimate,” “continue,” “plan,” “anticipate,” and similar terms and the negatives of such terms. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Many factors that could materially affect the Trust’s actual results are the performance of the portfolio of securities held by the Trust, the conditions in the U.S. and international financial and other markets, the price at which Preferred Shares trade in the public markets and other factors discussed in the Trust’s prospectus supplement and accompanying base prospectus and to be discussed in the Trust’s periodic filings with the SEC.

 

Although the Trust believes that the expectations expressed in such forward-looking statements are reasonable, actual results could differ materially from those expressed or implied in such forward-looking statements. The Trust’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties. You are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date of this press release. Except for the Trust’s ongoing obligations under the federal securities laws, the Trust does not intend, and the Trust undertakes no obligation, to update any forward-looking statement.

 

NOT FDIC INSURED

NO BANK GUARANTEE

MAY LOSE VALUE

 

Company Contact:

Kimberly Flynn, Managing Director

XA Investments LLC

Phone: 1-888-903-3358

Email: info@xainvestments.com

www.xainvestments.com

 

 

 

v3.23.3

Cover	Nov. 06, 2023
Document Type	8-K
Amendment Flag	false
Document Period End Date	Nov. 06, 2023
Current Fiscal Year End Date	--09-30
Entity File Number	811-23247
Entity Registrant Name	XAI Octagon Floating Rate & Alternative Income Term Trust
Entity Central Index Key	0001703079
Entity Tax Identification Number	82-2305867
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	321 North Clark Street
Entity Address, Address Line Two	Suite 2430
Entity Address, City or Town	Chicago
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60654
City Area Code	312
Local Phone Number	374-6930
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Common Shares Of Beneficial Interest [Member]
Title of 12(b) Security	Common Shares of Beneficial Interest
Trading Symbol	XFLT
Security Exchange Name	NYSE
Sec 6. 50 Series 2026 [Member]
Title of 12(b) Security	6.50% Series 2026
Trading Symbol	XFLTPRA
Security Exchange Name	NYSE

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