EXHIBIT (k)(6)
CONTROL AGREEMENT
CONTROL AGREEMENT (this "Agreement"), dated as of October 18,
2004, among HIGHLAND FLOATING RATE ADVANTAGE FUND (together with its permitted
successors and assigns, the "Borrower"), CITICORP NORTH AMERICA, INC., as agent
on behalf of the Secured Parties (as defined below) (in such capacity, together
with its successors and assigns, the "Agent") and PFPC TRUST COMPANY ("PFPC").
RECITALS
WHEREAS, the Borrower and PFPC are parties to that certain
Custodian Services Agreement dated as of October 18, 2004 (as from time to time
amended, the "Custodial Agreement"), pursuant to which the Borrower has
appointed PFPC to act as its custodian for its securities and other assets;
WHEREAS, pursuant to that certain Amended and Restated
Revolving Credit and Security Agreement dated as of October 18, 2004 (as from
time to time amended, the "Credit Agreement") among the Borrower, the Agent, CRC
Funding, LLC (together with its successors and assigns, the "Lender") and the
other banks and financial institutions from time to time parties to the Credit
Agreement (together with their respective successors and assigns, the "Secondary
Lenders", and together with the Agent and the Lender, the "Secured Parties"),
the Lender and the Secondary Lenders have, subject to the terms and conditions
thereof, agreed to make certain advances to the Borrower and the Borrower has
granted a security interest in the Assigned Collateral in favor of the Agent for
the benefit of the Secured Parties;
WHEREAS, pursuant to the Credit Agreement, the Borrower has
agreed to (i) maintain the Assigned Collateral in the Collateral Account (as
defined below), and (ii) with respect to Assigned Collateral which constitutes
Loan Collateral (as defined below), appoint PFPC to act as agent for the benefit
of the Agent and the other Secured Parties; and
WHEREAS, the Borrower desires to provide the Agent with
control of a security entitlement (as defined in Section 8-102(17) of the UCC
(as defined below)) in respect of the Assigned Collateral held in the Collateral
Account and to perfect the Agent's security interest in the Assigned Collateral;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. As used in this Agreement, the following
terms shall have the meanings indicated:
"AGGREGATE CUSTODIAN'S ADVANCE AMOUNT" means the sum of (i)
the aggregate unpaid dollar amount of all outstanding overdraft advances made by
PFPC under the Custodial Agreement (the "Custodian's Overdraft Advances") of
cash, (ii) the aggregate Value (as defined in Section 2(a)(41) of the Investment
Company Act) of all Custodian's Overdraft Advances of securities to the extent
not reimbursed by the Borrower, and (iii) the accrued and unpaid interest, if
any, on the amounts set forth above.
"APPLICABLE LAW" means any law of any Authority, including,
without limitation, all Federal and state banking or securities laws, to which
the Person in question is subject or by which it or any of its property is
bound.
"ASSETS" means a collective reference to all items which would
be classified as an "asset" on the balance sheet of the Borrower in accordance
with GAAP.
"ASSIGNED COLLATERAL" means all of the Assets of the Borrower
subject to a security interest in favor of the Agent pursuant to the terms of
the Credit Agreement.
"AUTHORITY" means any governmental or quasi-governmental
authority, whether executive, legislative, judicial, administrative or other, or
any combination thereof, including, without limitation, any Federal, state,
territorial, county, municipal or other government or governmental or
quasi-governmental agency, arbitrator, board, body, branch, bureau, commission,
court, department, instrumentality, master, mediator, panel, referee, system or
other political unit or subdivision or other entity of any of the foregoing,
whether domestic or foreign.
"BUSINESS DAY" means any day on which banks are not authorized
or required to close in New York City or the New York Stock Exchange is not
authorized or required to close.
"GAAP" means generally accepted accounting principles in the
United States, in effect from time to time, consistently applied.
"INVESTMENT COMPANY ACT" means the Investment Company Act of
1940, as amended, and the rules and regulations of the SEC thereunder as
modified or interpreted by orders of the SEC, or other interpretive releases or
letters issued by the SEC or its staff, all as from time to time in effect, or
any successor law, rules or regulations, and any reference to any statutory or
regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
"LOAN ASSET" means any Asset that is a direct or participation
or subparticipation interest in or assignment or novation of a loan or other
extension of credit.
"LOAN DOCUMENTS" means with respect to any Loan Asset, each
loan agreement, promissory note, participation certificate, collateral security
agreement, guarantee and any other agreement or document evidencing, securing,
governing or executed in connection with such Loan Asset, including without
limitation, the agreements and instruments in respect of which the Borrower
acquired such Loan Asset.
"MOODY'S" means Xxxxx'x Investors Service, Inc., together with
its successors.
"PERSON" means an individual or a corporation (including a
business trust), partnership, trust, incorporated or unincorporated association,
joint stock company, limited liability company, government (or an agency or
political subdivision thereof) or other entity of any kind.
2
"PROCEEDS" shall have, with reference to any asset or
property, the meaning assigned to it under the UCC and, in any event, shall
include, but not be limited to, any and all amounts from time to time paid or
payable under or in connection with such asset or property.
"S&P" means Standard & Poor's Ratings Group, together with its
successors.
"SEC" means the Securities and Exchange Commission or any
other governmental authority of the United States of America at the time
administrating the Investment Company Act.
2. APPOINTMENT. In addition to and in furtherance of PFPC's
duties as Custodian, the Agent and the Borrower hereby appoint PFPC as
collateral agent for the Agent on behalf of the Secured Parties pursuant to
SECTION 4 hereof (in such capacity, together with its permitted successors and
assigns, the "Collateral Agent") and PFPC hereby accepts such appointment. In
addition, PFPC agrees to act as securities intermediary pursuant to SECTION 3
hereof (in such capacity, together with its permitted successors and assigns,
the "Securities Intermediary").
3. SERVICES AND DUTIES OF THE SECURITIES INTERMEDIARY.
(a) ESTABLISHMENT OF COLLATERAL ACCOUNT. The Securities
Intermediary has established and will maintain a securities account with the
Account Number 34-34-012-0000000, pledged under the name "Highland Floating Rate
Advantage Fund: Pledged for the benefit of Citicorp North America, Inc., as
Agent" (the "Collateral Account"). Each party hereto agrees that (i) the
Collateral Account constitutes a "securities account" within the meaning of
Article 8 of the Uniform Commercial Code in effect in the State of New York (the
"UCC"), and (ii) all property now or hereafter held, credited or carried by, in
or to the credit of Collateral Account (other than cash and Loan Assets) shall
be treated as "financial assets" within the meaning of Section 8-102(a)(9) of
the UCC. The Collateral Account shall be maintained separately and apart from
any other account or sub-account of the Borrower. The Securities Intermediary
shall not change the name or the account number of the Collateral Account
without the prior written consent of the Agent.
(b) CREDIT TO COLLATERAL ACCOUNT. The Borrower agrees that all
financial assets credited to the Collateral Account shall not be registered in
the name of the Borrower, payable to the order of the Borrower or specially
indorsed to the Borrower except to the extent such financial assets have been
specially indorsed to the Securities Intermediary or in blank.
(c) NOTICE OF REGISTRATION OR ENDORSEMENT. The Securities
Intermediary agrees that it shall promptly notify the Agent and the Borrower in
writing after becoming aware (using reasonable care) that any financial asset
which constitutes Assigned Collateral is registered or endorsed in contravention
of SECTION 3(B); PROVIDED, HOWEVER, that the Securities Intermediary shall have
no liability hereunder for the failure to deliver such notice except to the
extent such failure results from its gross negligence or willful misconduct.
(d) ACKNOWLEDGEMENT OF SECURITY INTEREST. The Securities
Intermediary hereby acknowledges the Agent's security interest in the Collateral
Account, all investment property (as defined in Section 9-102(a) of the UCC)
from time to time credited to the Collateral Account and all Proceeds (as
defined in the UCC) of such assets and property including, without limitation,
all interest, dividends, stock dividends, stock splits and other money or
property of any kind distributed in respect of such assets and property
(collectively, the "Control Assets").
3
(e) ENTITLEMENT ORDERS. The Securities Intermediary
irrevocably agrees that it shall promptly and fully (and in any event no later
than the Business Day on which any entitlement order or direction originated by
the Agent is received by the Securities Intermediary) comply with "entitlement
orders" (as that term is defined in Section 8-102(a)(8) of the UCC) or
directions originated by the Agent and concerning any Control Assets without the
further consent of the Borrower, including without limitation any entitlement
order or direction originated by the Agent instructing the Securities
Intermediary to deliver any or all of the Control Assets to the Agent or its
designees. Except as provided in SECTION 3(F), below, the Securities
Intermediary also will comply with entitlement orders, directions or other
instructions concerning the Collateral Account or any Control Assets that are
originated by one or more Persons authorized to give instructions on behalf of
the Borrower under the Custodial Agreement (the "Borrower's Authorized
Representatives"). The Agent hereby covenants and agrees with the Borrower that
the Agent will not originate entitlement orders or directions to the Securities
Intermediary concerning the Control Assets unless and until there has been an
Event of Default. The foregoing covenant of the Agent is for the benefit of the
Borrower and shall not constitute a limitation on the obligation of the
Securities Intermediary to act upon and comply with any entitlement orders or
directions concerning the Control Assets that are originated by the Agent at any
time.
(f) NOTICE OF EXCLUSIVE CONTROL. The Securities Intermediary
agrees that, following its receipt from the Agent of a notice substantially in
the form of ANNEX A hereto (the "Notice of Exclusive Control"), the Securities
Intermediary shall not, unless such Notice of Exclusive Control has been revoked
in writing by the Agent, (i) sell, dispose of or encumber any Control Assets or
release any Control Assets except pursuant to an entitlement order or direction
from the Agent, or (ii) follow any entitlement order, direction or other
instruction of the Borrower in respect of any Control Assets; PROVIDED, that in
respect of any transaction involving any Control Asset which is in the process
of being executed at the time of the Securities Intermediary's receipt of a
Notice of Exclusive Control in accordance with SECTION 3(F) hereof, the
Securities Intermediary agrees to comply with this SECTION 3(F) within a
reasonable amount of time (for the avoidance of doubt, the Securities
Intermediary shall have no liability for not reversing any trade that was in
progress prior to its receipt of such Notice of Exclusive Control). The Agent
agrees on the date hereof and from time to time hereafter to provide the
Securities Intermediary with a certificate in the form of ANNEX B hereto which
sets forth the names and signatures of its representatives who are authorized to
give the Securities Intermediary instructions and entitlement orders and
directions concerning the Collateral Account and the Assigned Collateral (the
"Agent Authorized Representatives"). Until the Securities Intermediary has
received a subsequent authorized representative certificate in the form of ANNEX
B attached hereto from the Agent, the Securities Intermediary shall be entitled
to conclusively rely on the last authorized representative certificate delivered
to it by the Agent hereunder for the purpose of determining the authorized
representatives of the Agent.
4
(i) Until the Securities Intermediary shall have
received a Notice of Exclusive Control or if all previous
Notices of Exclusive Control have been revoked in writing by
the Agent, the Securities Intermediary shall hold and
administer the Control Assets as if no Notice of Exclusive
Control has been received. The Agent agrees that if it has
delivered a Notice of Exclusive Control to the Securities
Intermediary and thereafter it has been established by the
Borrower to the reasonable satisfaction of the Agent that no
Default or Event of Default shall be continuing, it shall
deliver to the Securities Intermediary a notice revoking such
Notice of Exclusive Control; PROVIDED, that nothing herein
shall be deemed to limit the ability of the Agent to
deliver any subsequent Notice of Exclusive Control.
(ii) The Securities Intermediary shall have no
responsibility or liability to the Agent for settling trades
of financial assets carried in the Collateral Account at the
direction of and in accordance with the instructions of a
Borrower's Authorized Representative given in accordance with
the Custodial Agreement, or for complying with entitlement
orders or directions concerning any Control Assets from a
Borrower's Authorized Representative, which is received by the
Securities Intermediary prior to receipt of a Notice of
Exclusive Control. The Securities Intermediary shall have no
responsibility or liability to the Borrower for complying with
a Notice of Exclusive Control or complying with entitlement
orders or directions concerning any Control Assets originated
by the Agent at any time. The Securities Intermediary shall
have no duty to investigate or make any determination as to
whether a Default or an Event of Default exists under the
Credit Agreement, and the Securities Intermediary shall comply
with a Notice of Exclusive Control notwithstanding that it may
believe or the Borrower may allege that no such Default or
Event of Default exists.
(g) CONFIRMATION OF ASSIGNED COLLATERAL. PFPC shall deliver to
the Agent on or before the tenth (10th) Business Day of each calendar month (or
more frequently as the Agent shall reasonably request, which may be daily), a
report in reasonable detail on the Assigned Collateral held in the Collateral
Account, including without limitation, in respect of the Assigned Collateral
maintained in securities accounts with foreign sub-custodians, the identity,
location and the specific Assigned Collateral maintained by each such foreign
sub-custodian and all Loan Collateral (as defined below) held by PFPC as
Collateral Agent pursuant to Section 4. PFPC may deliver such report to the
Agent electronically; PROVIDED that such electronic delivery is in a manner and
form reasonably satisfactory to the Agent. The Borrower hereby authorizes PFPC
to release any and all such information and data on the Collateral Account and
the Assigned Collateral to the Agent. The delivery of any such report to the
Agent shall constitute a representation and warranty by PFPC to the Agent on
behalf of the Secured Parties that PFPC has not received any written
notification purporting to establish or inform PFPC of the existence of any
security interest or other lien on or with respect to any of such Assigned
Collateral other than a lien or security interest which has been released by
written notice to PFPC by the appropriate secured party.
5
4. SERVICES AND DUTIES OF THE COLLATERAL AGENT.
(a) The Collateral Agent agrees to hold all Assigned
Collateral which constitutes (i) cash held in the Collateral Account and (ii)
Loan Assets and all Proceeds (as defined in the UCC) of such Assets, including,
without limitation, all interest, dividends and other money or property of any
kind distributed in respect of such Assets and all Loan Documents evidencing or
representing ownership in or the Borrower's interest in such Loan Asset, which
are delivered to PFPC as Custodian by the Borrower or by a third party at the
direction of the Borrower, including without limitation all loan notes,
certificates and other "instruments" within the meaning of the UCC (the "Loan
Collateral"), as agent of the Agent on behalf of the Secured Parties, and
acknowledges that this Agreement constitutes notice in accordance with
Applicable Law, of the Agent's security interest in such collateral and does
hereby consent thereto. The Collateral Agent shall maintain continuous
possession in the State of New York of all Loan Documents relating to the Loan
Collateral as agent of the Agent on behalf of the Secured Parties. The parties
hereto acknowledge that purchases and sales of Loan Collateral are not made
against delivery of such Loan Collateral, and the Collateral Agent shall have no
liability for payment made for any Loan Collateral without delivery and shall
have no liability in respect of its duties and obligations under this Agreement
until the Collateral Agent receives such Loan Collateral.
(b) The Collateral Agent shall remit all amounts received by
it in respect of the Loan Collateral and all Proceeds thereof to the Collateral
Account.
(c) Until the Collateral Agent receives a Notice of Exclusive
Control or if all previous Notices of Exclusive Control have been revoked in
writing by the Agent, the Collateral Agent shall comply with the instructions of
the Borrower in respect of the cash maintained in the Collateral Account and the
Loan Collateral. The Collateral Agent agrees that following its receipt from the
Agent of a Notice of Exclusive Control the Collateral Agent shall not, unless
such Notice of Exclusive Control has been revoked in writing by the Agent, (i)
sell, dispose of or encumber such cash maintained in the Collateral Account or
any Loan Collateral except pursuant to the instructions of the Agent (other than
in connection with the exercise by PFPC of its rights as a secured party under
the Custodial Agreement), or (ii) follow any instruction of the Borrower in
respect of any such cash maintained in the Collateral Account or any Loan
Collateral.
(d) The Agent and the Borrower acknowledge that Loan Assets
are held by PFPC under the following terms and conditions:
(i) Instruments, certificates, agreements and/or other
Loan Documents which PFPC may receive in respect of Loan
Assets, if any (collectively "Financing Documents"), from time
to time, shall be held by PFPC at its offices in New York, New
York.
(ii) PFPC shall accept such Financing Documents, if
any, in respect of Loan Assets as may be delivered to it from
time to time by the Borrower. PFPC shall be under no
obligation to examine the contents or determine the
sufficiency of any such Financing Documents or to provide any
certification with respect thereto, whether received by PFPC
as original documents, photocopies, by facsimile or otherwise.
PFPC shall be entitled to assume the genuineness, sufficiency
and completeness of any Financing Documents received, and the
genuineness and due authority of any signature appearing
thereon.
6
(iii) With respect to any Loan Assets, (a) PFPC shall
be under no obligation to determine, and shall have no
liability for, the sufficiency of, or to require delivery of,
any instrument, document or agreement constituting, evidencing
or representing such Loan Asset, other than to receive such
Financing Documents, if any, as may be delivered or caused to
be delivered to it by the Borrower (or the Borrower's
investment adviser (the "Investment Adviser")), (b) without
limiting the generality of the foregoing, delivery of any such
Loan Asset may be made to PFPC by, and may be represented
solely by, delivery to PFPC of a facsimile or photocopy of an
assignment agreement (an "Assignment Agreement") or a
confirmation or certification from the Borrower (or the
Investment Adviser) to the effect that it has acquired such
Loan Asset and/or has received or will receive, and will
deliver to PFPC, appropriate Financing Documents constituting,
evidencing or representing such Loan Asset (such confirmation
or certification, together with any Assignment Agreement,
collectively, an "Assignment Agreement or Confirmation"), in
any case without delivery of any promissory note,
participation certificate or similar instrument (collectively,
an "Instrument"), (c) if an original Instrument shall be or
shall become available with respect to any such Loan Asset, it
shall be the sole responsibility of the Borrower (or the
Investment Adviser acting on its behalf) to make or cause
delivery thereof to PFPC, and PFPC shall be under no
obligation at any time or times to determine whether any such
original Instrument has been issued or made available with
respect to such Loan Asset, and shall not be under any
obligation to compel compliance by the Borrower to make or
cause delivery of such Instrument to PFPC, and (d) any
reference to Financing Documents appearing herein shall be
deemed to include, without limitation, any such Instrument
and/or Assignment Agreement or Confirmation.
(iv) PFPC shall have no responsibilities or duties
whatsoever with respect to Loan Assets or the Financing
Documents, except for such responsibilities as are expressly
set forth herein or in the Custodial Agreement. Without
limiting the generality of the foregoing, PFPC shall have no
obligation to preserve any rights against prior parties or to
exercise any right or perform any obligation in connection
with the Loan Assets or any Financing Documents (including,
without limitation, no obligation to take any action in
respect of or upon receipt of any consent solicitation, notice
of default or similar notice received from any bank agent or
obligor, except that PFPC shall undertake reasonable efforts
to forward any such notice to the Borrower or the Investment
Adviser). In case any question arises as to its duties
hereunder, PFPC may request instructions from the Borrower and
shall be entitled at all times to refrain from taking any
action unless it has received Written Instructions (as defined
in the Custodial Agreement) from the Borrower or the
Investment Adviser (or, after PFPC's receipt of a Notice of
Exclusive Control, instructions from the Agent) and PFPC shall
in all events have no liability, risk or cost for any action
taken, with respect to a Loan Asset, pursuant to and in
compliance with the Written Instructions of such parties.
7
(v) Prior to its receipt of a Notice of Exclusive
Control, PFPC shall promptly, upon the Borrower's request,
release to the Borrower's Investment Adviser or to any party
as the Borrower or the Investment Adviser may specify, any
Financing Documents being held on behalf of the Borrower.
Without limiting the foregoing, PFPC shall not be deemed to
have or be charged with knowledge of the sale of any Loan
Asset, unless and except to the extent it shall have received
written notice and instruction from the Borrower (or the
Investment Adviser on its behalf) with respect thereto, and
except to the extent it shall have received the sale proceeds
thereof.
(vi) In no event shall PFPC be under any obligation or
liability to make any advance of its own funds in respect of
any Loan Asset.
With respect to each Loan Asset held by PFPC in accordance with the
provisions hereof, the Borrower shall (a) cause the Financing Documents
evidencing such Loan Asset to be delivered to PFPC; (b) take, or cause the
Investment Adviser to take, all actions necessary to acquire good title to such
Loan Asset (or the participation therein, as the case may be), as and to the
extent intended to be acquired; and (d) cause PFPC to be named as its nominee
for payment purposes under the Financing Documents or otherwise provide for the
direct payment of the loan payments to PFPC. PFPC shall have no liability for
any delay or failure on the part of the Borrower in providing necessary Loan
Asset information to PFPC, or for any inaccuracy therein or incompleteness
thereof. With respect to each such Loan Asset, PFPC shall be entitled to rely on
any information and notices it may receive from time to time from the related
bank agent, obligor or similar party with respect to the related Loan Asset, and
shall be entitled to update its records on the basis of such information or
notices received, without any obligation on its part independently to verify,
investigate or recalculate such information.
5. STANDARD OF CARE.
(a) PFPC shall exercise the same degree of care and diligence
in performing all of its obligations hereunder as is required under the
Custodial Agreement; PROVIDED, HOWEVER, that PFPC shall not be responsible for
the creation, validity, perfection, priority or enforceability of any security
interest in favor of the Agent on behalf of the Secured Parties of any Assigned
Collateral, unless the absence thereof is the result of (i) the breach by PFPC
of any express representation, warranty or covenant set forth in this Agreement,
or (ii) the gross negligence or willful misconduct of PFPC.
(b) PFPC shall have no responsibilities, obligations or duties
other than those expressly set forth in this Agreement and the Custodial
Agreement, and no implied duties, responsibilities or obligations shall be read
into this Agreement against PFPC; without limiting the generality of the
foregoing, PFPC shall have no duty to preserve, exercise or enforce rights in
the financial assets (against prior parties or otherwise).
(c) As between the Borrower and PFPC, except as expressly
stated herein, the liabilities of each to the other shall be governed by the
provisions of the Custodial Agreement. Instructions from a Borrower's Authorized
Representative given in accordance with the terms of the Custodial Agreement to
PFPC hereunder shall also constitute Written Instructions (as defined in the
Custodial Agreement) under the Custodial Agreement.
8
(d) As between PFPC and the Agent, notwithstanding any
provision contained herein or in any other document or instrument to the
contrary, PFPC shall not be liable for any action taken or omitted to be taken
at the instruction of the Agent, or any action taken or omitted to be taken
under of in connection with this Agreement, except for PFPC's own gross
negligence or willful misconduct.
(e) In no event shall PFPC be liable for indirect, special,
punitive or consequential damages even if advised of the possibility of such
damages. Without limiting the generality of the foregoing, and notwithstanding
any provision to the contrary contained herein, PFPC:
(i) may in any instance where PFPC reasonably
determines that it lacks authority to take or refrain from
taking certain action, or as to the requirements of this
Agreement under any circumstance before it, delay or refrain
from taking action unless and until it has received
appropriate instructions hereunder; provided, however, that
under no circumstances shall this clause (i) be construed as
requiring the Securities Intermediary to obtain the consent of
the Borrower in order to comply with any entitlement order or
direction originated by the Agent hereunder;
(ii) may consult with legal counsel, independent public
accountants, or other experts selected by it in good faith,
and shall not be liable for any action taken or omitted to be
taken in good faith in accordance with the advice of such
experts, including, without limitation, taking or omitting to
take any action hereunder based upon advice of counsel that
any such action taken or omitted to be taken would violate
applicable law;
(iii) except as expressly set forth in SECTION 3(C),
will have no duty to ascertain or inquire as to the
performance or observance by the Borrower of any of the terms,
conditions or covenants of this Agreement or to inspect the
property, books or records of the Borrower;
(iv) except for the representations of PFPC set forth
in SECTION 9, will not be responsible for the due execution,
legality, validity, enforceability, genuineness, effectiveness
or sufficiency of this Agreement;
(v) will not incur any liability by acting or not
acting in reliance upon any notice, consent, certificate,
statement or other instrument or writing reasonably believed
by it to be genuine and to be signed or sent by the proper
party or parties;
(vi) will not incur liability for any notice, consent,
certificate, statement, wire instruction, telecopy, or other
writing which is delayed, canceled or changed without the
actual knowledge of PFPC;
9
(vii) shall not be deemed to have or be charged with
notice or knowledge of any fact or matter unless a written
notice thereof has been received by PFPC at the address
designated in (or as subsequently designated pursuant to) this
Agreement;
(viii) shall not be required by any provision of this
Agreement to expend or risk PFPC's own funds, or to take any
action (including but not limited to the institution or
defense of legal proceedings) which in its reasonable judgment
could cause it to incur or suffer any significant expense or
liability (including but not limited to reasonable attorneys'
fees and disbursements), unless and until security or
indemnity in form and amount reasonably satisfactory to PFPC
shall have been provided therefor;
(ix) will not incur any liability for acts or omissions
of any domestic or foreign depository or book-entry system for
the central handling of financial assets except to the extent
provided in the Custodial Agreement; and
(x) except as expressly set forth herein, shall not be
responsible for the title, validity or genuineness of any
financial asset carried in the Collateral Account.
6. INDEMNITY. In addition to the indemnity of PFPC under the
Custodial Agreement, the Borrower agrees to indemnify and hold PFPC harmless
against any losses, liabilities and damages incurred by PFPC as a consequence of
any action taken or omitted to be taken by it in the performance of its
obligations hereunder, with the exception of any losses, liabilities and damages
arising from PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard in the performance of PFPC's activities under
this Agreement.
7. COMPLIANCE WITH LEGAL PROCESS AND JUDICIAL ORDERS. PFPC
shall have no responsibility or liability to the Borrower or to the Agent or to
any other person or entity for acting in accordance with any judicial or
arbitral process, order, writ, judgment or decree relating to the financial
assets subject to this Agreement notwithstanding that such order or process is
subsequently modified, vacated or otherwise determined to have been without
legal force or effect.
8. FORCE MAJEURE. As between the Borrower and PFPC, the force
majeure provisions of the Custodial Agreement shall govern this Agreement. As
between the Agent and PFPC, PFPC shall in no event be liable for any delay or
failure to perform its obligations hereunder resulting from causes beyond its
control, including, without limitation, acts of God, strikes, lockouts, riots,
acts of war or terrorism, epidemics, nationalization, expropriation, currency
restrictions, governmental regulations superimposed after the fact, fire,
communication line failures, power failures, earthquakes or other disasters.
9. REPRESENTATIONS AND WARRANTIES; COVENANTS.
(a) Each of the parties to this Agreement represents and
warrants to the other parties to this Agreement as follows:
10
(i) it is duly organized and existing under the laws of the
jurisdiction of its organization with full power and authority
to execute and deliver this Agreement and to perform all of
the duties and obligations to be performed by it under this
Agreement; and
(ii) this Agreement has been duly authorized, executed and
delivered by it, and constitutes its valid, legal and binding
obligation enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws of general application
relating to or affecting the enforcement of creditors' rights
in general or by general principles of equity whether
considered in a proceeding at law or equity.
(b) PFPC represents, warrants, covenants, agrees and confirms
that as of the date hereof, and at all times until the termination of the
Collateral Account with the consent of the Agent:
(i) it shall be a "securities intermediary" (as defined
in Section 8-102(a)(14) of the UCC) and shall be acting in
that capacity with respect to the Collateral Account;
(ii) with respect to the Collateral Account, PFPC's
"jurisdiction" for purposes of the UCC is the State of New
York;
(iii) PFPC shall be a "Securities Intermediary" and a
"Participant" within the meaning of the United States
Regulations. "United States Regulations" means 31 C.F.R. Part
357; 12 C.F.R. Part 615, Subpart O; 12 C.F.R. Part 912; 12
C.F.R. Part 1511; 24 C.F.R. Part 81; 31 C.F.R. Part 354; and
18 C.F.R. Part 1314;
(iv) there are no other agreements entered into between
PFPC and the Borrower with respect to the Collateral Account
except for this Agreement, the Custodial Agreement and the
related fee agreement, funds transfer agreement and data
access agreement;
(v) PFPC has not entered into, and until the
termination of this Agreement will not enter into, any
agreement (other than the Custodial Agreement) with any other
person or entity relating to the Collateral Account and/or any
Control Assets under which it has agreed to comply with
entitlement orders (as defined in Section 8-102(a)(8) of the
UCC) or directions of such other person or entity; and
(vi) PFPC has not entered into, and until the
termination of this Agreement will not enter into, any
agreement with the Borrower, the Agent or any other person or
entity purporting to limit or condition the obligation of PFPC
to comply with entitlement orders or directions as set forth
in this Agreement.
(c) Except for the claims and interest of the Borrower and
Secured Parties in the Collateral Account, PFPC does not have actual knowledge
of any claim to, or interest in, the Collateral Account or in any of the
Assigned Collateral other than as referenced in SECTION 10 below. If any person
or entity asserts any lien, encumbrance or adverse claim (including any writ,
garnishment, judgment, warrant of attachment, execution or similar process)
against the Collateral Account or any of the Assigned Collateral, PFPC will
promptly notify the Agent and the Borrower thereof.
11
(d) PFPC agrees that it shall promptly upon the reasonable
request of the Agent make available to the Agent copies of its books, records
and accounts to the extent relating to the Assigned Collateral and shall permit
the officers, partners, employees and accountants of PFPC to discuss the
foregoing with the Agent during normal business hours upon reasonable notice.
(e) Upon the reasonable request of the Agent, PFPC will use
its best efforts to make available to the Agent or its designees during normal
business hours upon reasonable notice copies of the books and records of any
foreign banking institution employed as a foreign sub-custodian under the
Custodial Agreement to the extent such books and records relate to the Assigned
Collateral.
(f) The Borrower agrees that the Aggregate Custodian's Advance
Amount shall at no time exceed fifteen percent (15%) of the net asset value of
the Borrower; PROVIDED, that there shall be no implied or express obligation on
the part of PFPC to monitor the Aggregate Custodian's Advance Amount and the
limitations set forth in this CLAUSE (F) shall not affect PFPC's rights under
SECTION 10.
(g) Each of the representations and warranties made hereunder
and in any document, certificate or statement delivered pursuant hereto or
thereto or in connection herewith or therewith shall survive the execution and
delivery of this Agreement.
10. SUBORDINATION OF LIEN. The Borrower and the Agent each
acknowledge and agree that PFPC has a security interest in the Assigned
Collateral. PFPC (as Securities Intermediary, Collateral Agent, Custodian or
otherwise) hereby agrees that such security interest securing the Borrower's
obligations to pay all fees, expenses and other amounts owing to it (other than
amounts owing by the Borrower in respect of Custodian's Overdraft Advances to
the extent not made to pay any fee, expense or other amount owing to PFPC (as
Securities Intermediary, Collateral Agent, Custodian or otherwise)) is
subordinate to the security interest of the Agent on behalf of the Secured
Parties; PROVIDED, HOWEVER, that after PFPC receives a Notice of Exclusive
Control from the Agent, PFPC may set-off amounts in or to the credit of the
Collateral Account in an aggregate amount not to exceed $100,000 solely for the
purpose of satisfying the indemnification obligations of the Borrower to PFPC
under Section 6 of this Agreement and Section 11 of the Custodial Agreement (the
"Permitted Expenses"). PFPC agrees that it shall promptly notify the Borrower
and the Agent of any such set-off for a Permitted Expense.
11. CONFLICT WITH OTHER AGREEMENTS. With respect to the rights
and remedies of the Agent under this Agreement and the obligations of PFPC and
the Borrower under this Agreement in favor of or for the benefit of the Agent
hereunder, in the event of a conflict between this Agreement and the Custodial
Agreement or any other agreement now existing or hereafter entered into, the
terms of this Agreement shall prevail. Except as otherwise expressly provided
herein (including without limitation, the immediately preceding sentence) as
between the Borrower and PFPC, nothing in this Agreement shall be construed to
modify or supercede any provision of the Custodial Agreement.
12
12. FURTHER AGREEMENTS.
(a) The Borrower agrees that assets of the Borrower shall not
be placed or held in the Collateral Account until such assets have been fully
paid by the Borrower.
(b) After the Agent has delivered a Notice of Exclusive
Control to PFPC, unless such Notice of Exclusive Control is revoked in writing
by the Agent, the Borrower agrees that it shall not give any instruction to PFPC
in respect of the Assigned Collateral without the prior written consent of the
Agent.
(c) The Agent agrees that it shall, promptly after becoming
aware of PFPC's failure to perform or observe any term, covenant or agreement on
its part to be performed or observed hereunder, deliver to the Borrower and PFPC
notice thereof setting forth in reasonable detail the circumstances of such
failure.
13. EXPENSES. All reasonable expenses (including reasonable
attorneys' fees and expenses) incurred by PFPC in connection with this Agreement
shall be paid by the Borrower.
14. NOTICES; COMMUNICATIONS. Unless otherwise provided herein,
all notices or other communications called for by this Agreement shall be given
in writing, or by facsimile transmission. Until notice is given to the contrary
in accordance with this SECTION 14, all notices or other communications to the
respective parties shall be directed to:
If to PFPC:
PFPC TRUST COMPANY
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Borrower:
Highland Floating Rate Advantage Fund
Two Galleria Tower
00000 Xxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Treasurer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to the Agent:
Citicorp North America, Inc.
U.S. Securitization
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: U.S. Securitization
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
13
With a copy to:
Citibank, N.A.
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Portfolio Management Unit
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
15. ASSIGNMENT. All of the terms of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns; PROVIDED, that neither the
Borrower nor PFPC may assign or transfer any of its rights or obligations
hereunder without the prior written consent of the other parties hereto.
16. COUNTERPARTS. This Agreement may be executed
simultaneously in any number of counterparts each of which when so executed and
delivered shall be an original but all of which shall constitute but one and the
same document.
17. GOVERNING LAW. This Agreement and the rights and
obligations of the parties with respect to the Collateral Account shall be
governed by and construed in accordance with the laws of the State of New York,
including applicable provisions of the UCC. The Borrower hereby submits to the
jurisdiction of any New York State or United States Federal court sitting in New
York County over any action or proceeding arising out of or relating to this
Agreement, and the Borrower hereby agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State or
Federal court.
18. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
19. AMENDMENT. This Agreement may not be amended, waived,
modified or terminated except by an instrument in writing signed by each of the
parties hereto. The Agent shall give written notice to each of S&P and Xxxxx'x
prior to the effectiveness of any material amendment or modification of this
Agreement.
20. NO PROCEEDINGS; NO RECOURSE.
14
(a) Each of the Borrower, the Agent and PFPC hereby agrees
that it will not institute against the Lender any bankruptcy, insolvency or
other similar proceeding until there shall have elapsed at least one year plus
one day since the last day on which any promissory note or other debt security
of the Lender shall be outstanding.
(b) The obligations of the Lender under and in connection with
this Agreement are solely the obligations of the Lender. It is expressly agreed
that no recourse shall be had for the payment of any amount owing in respect of
this Agreement or for any other obligation or claim arising out of or based upon
this Agreement, against any member, stockholder, employee, officer, manager,
director, organizer or incorporator of any Lender or against any member,
stockholder, employee, officer, manager, director, organizer or incorporator of
any such member, stockholder or manager.
21. TERMINATION OF AGREEMENT; REPLACEMENT OF CUSTODIAN.
(a) The Agent may terminate this Agreement at any time upon
written notice to the Borrower and PFPC after (i) receipt of notice from the
Borrower under SECTION 5.01(D)(IV) of the Credit Agreement that PFPC has failed
to perform or observe its obligations under the Custodial Agreement, (ii) the
Agent shall have delivered a Notice of Exclusive Control to PFPC that is not
revoked in writing by the Agent, (iii) any Event of Default under SECTION
6.01(F) of the Credit Agreement shall have occurred and is continuing or (iv)
PFPC shall fail to perform or observe any term, covenant or agreement on its
part to be performed or observed (a) under SECTION 3(A), (E) or (f), SECTION
4(A) or (C), or SECTION 10, or (b) under any other provision of this Agreement
and such failure described in this CLAUSE (A) shall continue for thirty (30)
days. No such termination shall be effective until the appointment of and
acceptance by a replacement custodian in accordance with the following CLAUSE
(C). PFPC may terminate this Agreement upon thirty (30) days' prior written
notice to each of the other parties hereto.
(b) Upon termination of this Agreement by the Agent in
accordance with CLAUSE (A) above, the Borrower hereby agrees that it will give
to PFPC immediate notice of termination of its Custodial Agreement with PFPC in
accordance with the terms thereof, it being understood that such termination
shall not affect the Custodial Agreement as it applies between PFPC and any
Person other than the Borrower which may be a party thereto. No such termination
shall be effective until the appointment of and acceptance by a replacement
custodian in accordance with the following CLAUSE (C).
(c) Upon the termination of PFPC as Custodian for the Borrower
pursuant to this Agreement, the Custodial Agreement or otherwise, the Borrower
will as soon as practicable appoint a replacement custodian in compliance with
the requirements of the Investment Company Act, and subject to the approval of
the Agent, which approval may not be unreasonably withheld. In the event that
the Borrower has not appointed a replacement custodian by the close of business
on the day thirty (30) days following written notice of termination from the
Agent, the Borrower shall appoint the replacement custodian recommended by the
Agent, provided that such custodian meets the requirements of the Investment
Company Act. PFPC agrees that it will use commercially reasonable efforts to
assist in the transfer of custodial duties to the replacement custodian.
15
(d) If the Agent notifies PFPC in writing that the Agent's
security interest in the Assigned Collateral has terminated, this Agreement will
immediately terminate.
(e) The provisions of SECTIONS 5 and 6 shall survive the
termination of this Agreement.
22. BUSINESS TRUST NOTICE.
It is expressly agreed that the obligations of the Borrower
under this Agreement shall not be binding upon any past, present or future
trustee, nominee, officer, shareholder, employee or agent of the Borrower
individually, and shall only be binding upon the Borrower and its assets, as
provided in the Borrower's Amended and Restated Agreement and Declaration of
Trust, a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and at the principal offices of the Borrower. This
Agreement was executed on behalf of the Borrower by an officer of the Borrower
in such capacity, and shall not be deemed to have been executed by such officer
individually or to impose any liability on such officer, or the shareholders of
the Borrower, personally, but shall bind only the assets and property of the
Borrower.
23. CUSTOMER IDENTIFICATION PROGRAM NOTICE.
To help the U.S. government fight the funding of terrorism and
money laundering activities, U.S. Federal law requires each financial
institution to obtain, verify, and record certain information that identifies
each person who initially opens an account with that financial institution on or
after October 1, 2003. Consistent with this requirement, PFPC will request (or
already has requested) the Borrower's name, address and taxpayer identification
number or other government-issued identification number, and, if such party is a
natural person, that party's date of birth. PFPC may also ask (and may have
already asked) for additional identifying information, and PFPC may take steps
(and may have already taken steps) to verify the authenticity and accuracy of
these data elements.
16
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as an instrument under seal by its duly authorized
officer as of the date written above.
PFPC TRUST COMPANY, as Securities Intermediary and as
Collateral Agent
By:_______________________________
Name:
Title:
CITICORP NORTH AMERICA, INC.,
as Agent for the Secured Parties
By:_______________________________
Name:
Title:
HIGHLAND FLOATING RATE ADVANTAGE FUND,
as Borrower
By:_______________________________
Name:
Title:
ANNEX A
CITICORP NORTH AMERICA, INC.
U.S. Securitization
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
PFPC TRUST COMPANY
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Mr. Xx Xxxxx
NOTICE OF EXCLUSIVE CONTROL
We hereby instruct you pursuant to the terms of that certain
Control Agreement dated as of October 18, 2004 (as from time to time amended and
supplemented, the "Control Agreement") among the undersigned, you and Highland
Floating Rate Advantage Fund (together with its successors and assigns, the
"Borrower") that you (i) shall not follow any instructions, entitlement orders
or directions of the Borrower in respect of the Assigned Collateral (as defined
in the Control Agreement), and (ii) shall exclusively follow the entitlement
orders, directions and instructions of the undersigned in respect of the
Assigned Collateral.
Very truly yours,
CITICORP NORTH AMERICA, INC.,
as Agent
By:________________________________
Authorized Signatory
ANNEX B
AUTHORIZED REPRESENTATIVE CERTIFICATE
(AGENT)
I, the undersigned authorized signatory on behalf of Citicorp
North America, Inc. (the "Agent"), DO HEREBY CERTIFY that:
1. This Authorized Representative Certificate is furnished
pursuant to SECTION 3(F) of that certain Control Agreement dated as of October
18, 2004 (as from time to time amended, restated, supplemented or otherwise
modified, the "Control Agreement") among Highland Floating Rate Advantage Fund,
the Agent and PFPC TRUST COMPANY (the "Securities Intermediary").
2. The below-named persons are each hereby designated as an
Agent Authorized Representative, and each is hereby authorized to execute on
behalf of the Agent and deliver to the Securities Intermediary written notice,
instructions, entitlement orders and directions concerning the Collateral
Account and the Assigned Collateral, as such terms are defined in the Control
Agreement.
Name Office or Signature
Capacity
-------------- ------------- --------------------
-------------- ------------- --------------------
-------------- ------------- --------------------
-------------- ------------- --------------------
WITNESS my hand as of this 18th day of
October, 2004.
CITICORP NORTH AMERICA, INC.,
By:________________________________
Name:
Title: