EXHIBIT (K)(6)
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CUSTODY AGREEMENT
Between
BANKERS TRUST COMPANY,
as Custodian
and
FINANCIAL SECURITY ASSURANCE INC.
Dated as of December l, 1988
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4636f
TABLE OF CONTENTS
Page
PREAMBLE ....................................................................1
ARTICLE I
DEFINITIONS .................................................................2
ARTICLE II
CUSTODY ACCOUNT AND CUSTODY RECEIPTS
SECTION 2.01. Creation of Custody Account ...................................4
SECTION 2.02. Custody Receipts ..............................................5
SECTION 2.03. Delivery of Custody Receipts ..................................5
SECTION 2.04. Mutilated, Lost, Stolen or Destroyed Custody Receipts .........6
SECTION 2.05. Registration and Transfer of Ownership; Persons Treated
as Owners .....................................................7
SECTION 2.06. Deposits With Depository ......................................9
ARTICLE III
ADMINISTRATION OF CUSTODY ACCOUN
SECTION 3.01. Payments of Redemption Price, Liquidation Preference and
Dividends on Preferred Stock .................................10
SECTION 3.02. Notices ......................................................11
SECTION 3.03. Duties With Respect to Surety Bond ...........................11
SECTION 3.04. Defaults by Fund .............................................14
SECTION 3.05. Unclaimed Moneys .............................................16
SECTION 3.06. Obligation of Owners With Respect to Certain Taxes and
Filings ......................................................16
SECTION 3.07. Transfers of Surety Bond or Preferred Stock by Custodian .....16
SECTION 3.08. Termination of Custody Account ...............................16
SECTION 3.09. Insolvency Proceedings .......................................17
ARTICLE IV
THE CUSTODIAN
SECTION 4.01. Standard of Liability ........................................18
SECTION 4.02. Resignation and Removal of the Custodian; Appointment
of Successor .................................................18
SECTION 4.03. Charges and Expenses .........................................19
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Amendments, Etc. .............................................20
SECTION 5.02. Counterparts .................................................21
SECTION 5.03. Exclusive Benefit of Parties; Effective Date .................21
SECTION 5.04. Invalidity of Provisions .....................................21
SECTION 5.05. Notices ......................................................21
SECTION 5.06. Business Day .................................................22
SECTION 5.07. Governing Law ................................................22
SECTION 5.08. Shareholder Rights ...........................................22
SECTION 5.09. Headings .....................................................22
SIGNATURES .................................................................22
EXHIBIT 1 - Form of Custody Receipt
EXHIBIT 2 - Form of Opinion of Counsel of Issuer of Surety Bond
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT dated as of December 1, 1988 is being executed
by BANKERS TRUST COMPANY, a New York banking corporation, as custodian (the
"Custodian"), and FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance
company ("Financial Security"), for the benefit of the Owners from time to time
of Custody Receipts. (All capitalized terms used herein and not otherwise
defined shall have the meaning set forth in Article I hereof.)
WHEREAS, Financial Security and the Custodian desire to enter into this
Custody Agreement to provide for the issuance from time to time of Custody
Receipts, each such Custody Receipt to evidence (i) the Owner's beneficial
ownership of the share or shares of Preferred Stock indicated on the Custody
Receipts Register, and (ii) the Owner's rights with respect to such Custody
Receipt under this Custody Agreement and under the Surety Bond; and
WHEREAS, the parties hereto desire to establish the terms pursuant to
which the Surety Bond and the Preferred Stock are deposited with, and held in
custody by, the Custodian, the terms and conditions for the issuance, transfer
and exchange of Custody Receipts and the terms for the payment of certain fees
and expenses associated with this Custody Agreement; and
WHEREAS, the Preferred Stock represents an indirect ownership interest
in certain securities and other assets held in trust on behalf of the Fund, and
dividends, the redemption price and any liquidation preference with respect to
the Preferred Stock are payable in accordance with the Certificate from assets
owned by the Fund and the earnings therefrom; and
WHEREAS, upon any payment by Financial Security under the Surety Bond,
Financial Security will receive certain rights with respect to the Preferred
Stock which is held in trust by the Custodian for such purpose;
NOW, THEREFORE, the parties hereto do hereby agree, for the benefit of
the Owners from time to time of Custody Receipts, as follows:
ARTICLE I
DEFINITIONS
All capitalized terms used in this Custody Agreement shall have the
meanings provided in this Article I, in both singular and plural form, as
appropriate.
"Authorized Officer" means any officer or officers of the Custodian
designated as such by the Custodian in a written notice delivered by the
Custodian to Financial Security.
"Business Day" means a day on which banks are not authorized or
required by law to be closed in either the city in which the principal office of
Financial Security is located or the city in which the principal office of the
Custodian is located.
"Certificate" means the Fund's Articles of Amendment and Restatement,
as in effect on the date hereof and as subsequently amended from time to time.
"Custodian" means Bankers Trust Company, a New York banking
corporation, or any successor Custodian hereunder.
"Custody Accounts" means the account established and maintained
pursuant to Section 2.01 of this Custody Agreement.
"Custody Agreement" means this Custody Agreement, as amended or
supplemented from time to time.
"Custody Receipt" means a receipt substantially in the form set forth
in Exhibit 1 hereto and executed and delivered pursuant to Sections 2.02 and
2.03 of this Custody Agreement.
"Custody Receipts Register" means the records maintained by the
Custodian pursuant to Section 2.05 of this Custody Agreement.
"Depository" means The Depository Trust Company or any successor
thereto.
"Financial Security" means Financial Security Assurance Inc., a New
York stock insurance company, or any successor thereto, and the issuer of any
Qualified Surety Bond.
"Fund" means Prospect StreetSm High Income Portfolio Inc., a Maryland
corporation, and its successors and assigns.
"Holder" has the meaning specified in the Certificate.
"Insolvency Proceeding" means any of the events or proceedings
described in Section 5.01(g) of the Insurance Agreement.
"Insurance Agreement" means the Insurance Agreement dated as of
December 1, 1988 between Financial Security and the Fund, as amended or
supplemented from time to time.
"Mail" means mail by first-class postage to specified Owners at their
addresses set forth in the Custody Receipts Register.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto until such corporation or successor no longer rates the Preferred Stock.
"Notice of Transfer or Exchange" means the Notice of Transfer or
Exchange printed on a Custody Receipt.
"Owner" means, with respect to a Custody Receipt, the person in whose
name such Custody Receipt is registered on the Custody Receipts Register.
"Paying Agent" means Bankers Trust Company and the successors or any
other paying agent appointed by the Fund to perform the functions performed by
the Paying Agent under the Certificate.
"Preferred Stock" means the Taxable Auction Rate Preferred Stock (No
Par Value) (Liquidation Preference $100,000 per Share) of the Fund covered by
the Surety Bond.
"Principal Office" means ▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ Trust and Agency
Group, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such other office designated as such by the
Custodian in a written notice delivered by the Custodian to Financial Security
and the Fund.
"Qualified Surety Bond" means any surety bond substantially in the
form of the Surety Bond issued by an entity having a claims-paying ability
rating by Moody's and S&P no lower than that of Financial Security.
"Record Date" means, with respect to a Scheduled Payment on the
Preferred Stock, any record date established for such Scheduled Payment pursuant
to applicable law.
"Scheduled Payment" has the meaning specified in the Surety Bond.
"S&P" means Standard and Poor's Corporation, a corporation organized
and existing under the laws of the State of New York, or any successor thereto,
until such corporation or successor no longer rates the Preferred Stock.
"Stock Books" means the stock transfer books of the Fund maintained by
the Paying Agent with respect to the Preferred Stock.
"Surety Bond" means the Surety Bond delivered by Financial Security to
the Custodian pursuant to, and substantially in the form set forth in, the
Insurance Agreement and held by the Custodian in the Custody Account and any
Qualified Surety Bond.
"Surety Bond Expiration Date" means the later of (i) [ ],
1993 and (ii) any date to which the Surety Bond shall have been extended as
confirmed in an endorsement to the Surety Bond delivered by Financial Security
to the Custodian.
ARTICLE II
CUSTODY ACCOUNT AND CUSTODY RECEIPTS
Section 2.01. Creation of Custody Account. The Custodian shall
establish and maintain a separate Custody Account to be designated "Prospect
Street(SM) High Income Portfolio Inc. Taxable Auction Rate Preferred Stock
Custody Account." The Custodian shall deposit into such Custody Account the
Preferred Stock, the Surety Bond and any moneys received in connection
therewith. The Preferred Stock shall at all times be registered in the name of
the Custodian (or its nominee or its agent's nominee) on the Stock Books. The
Custody Account shall at all times be maintained as a custodial account for the
benefit of the Owners, separated and segregated from all other accounts, funds
and property in the possession of the bank or trust company acting as Custodian.
The Preferred Stock, the Surety Bond and any moneys held in the Custody Account
shall not at any time be commingled with any other assets or property held by
the Custodian. The Custodian shall maintain separate records in connection with
any moneys which it may hold, in such Custody Account or otherwise, in
connection with the Preferred Stock and the Surety Bond. To the extent
practicable, the Custodian shall arrange for payments of dividends on Preferred
Stock to be transferred by wire in immediately available funds to the Custodian.
The Preferred Stock physically held by the Custodian shall be represented by one
certificate. Without limitation of the foregoing, the Preferred Stock shall be
held in trust by the Custodian to secure the rights of Financial Security
provided in Section 3.03 of this Agreement.
Section 2.02. Custody Receipts. The Custodian shall issue the initial
Custody Receipts in the form of one Custody Receipt to the Depository, who shall
hold such certificate for the beneficial owners of the Preferred Stock until
such time as the Fund determines that such beneficial owners should receive
certificated Custody Receipts in which event the Custodian shall issue, transfer
and exchange Custody Receipts as required in appropriate amounts as indicated by
the Depository, each such Custody Receipt to evidence beneficial ownership by
the Owner named therein of the Preferred Stock represented thereby (as set forth
in the Custody Receipt Register) and the rights relating to such Custody Receipt
under this Custody Agreement and the Surety Bond. Custody Receipts shall be
substantially in the form set forth in Exhibit 1 hereto and shall be assigned
consecutive registration numbers from CR-1. Each Custody Receipt shall be
executed by the Custodian by the manual signature of an Authorized Officer and
no Custody Receipt shall be entitled to any benefits under this Custody
Agreement, or be valid or obligatory for any purpose, unless so executed by the
Custodian. In case any Authorized Officer whose signature shall appear on any
Custody Receipt shall cease to be an Authorized Officer, such signature shall
nevertheless be valid and sufficient for all purposes as if such person had
remained in office. The Custody Receipts shall not evidence any financial
obligation of the Custodian except that the Custodian shall be required, as
provided in Section 3.01 hereof, to apply all payments received in respect of
the Preferred Stock deposited hereunder to the Custody Receipts evidencing
ownership of such Preferred Stock without making any deduction whatsoever, other
than as explicitly provided in this Custody Agreement.
Section 2.03. Delivery of Custody Receipts. The Custodian shall
deliver the initial Custody Receipt as specified in Section 2.02 hereof, upon
receipt by the Custodian of the following:
(a) the original Surety Bond;
(b) a certificate representing [ ] shares of the Preferred
Stock registered in the name of the Custodian (or its nominee or its
agent's nominee) or endorsed by the registered owner thereof for
transfer to the Custodian (or its nominee or its agent's nominee) or
in blank;
(c) an opinion of counsel to Financial Security in
substantially the form set forth in Exhibit 2 hereto;
(d) a list of the names, addresses and, unless not required
to be obtained under applicable laws and regulations, taxpayer
identification numbers of the persons in whose names, and the number
of shares in which, such Custody Receipts are to be registered; and
(e) a certified copy of the Certificate.
The Custodian may accept additional shares of the Preferred Stock for
deposit in the Custody Account and deliver an initial Custody Receipt as
specified in Section 2.02 hereof upon receipt of the following:
(a) an endorsement to the Surety Bond increasing the coverage
of the Surety Bond to cover such additional shares of Preferred Stock;
(b) a certificate representing such additional shares of the
Preferred Stock registered in the name of the Custodian (or its
nominee or its agent's nominee) or endorsed by the registered owner
thereof for transfer to the Custodian (or its nominee or its agent's
nominee) or in blank;
(c) an opinion of counsel to Financial Security in
substantially the form set forth in Exhibit 2 hereto; and
(d) a list of the names, addresses and, unless not required
to be obtained under applicable laws and regulations, taxpayer
identification numbers of the persons in whose names, and the number
of shares in which, such Custody Receipts are to be registered.
The initial Custody Receipts to be executed and delivered by the
Custodian as provided in this Section 2.03 shall be delivered to or upon the
order of the Depository at a location specified by the Depository and agreed
upon by the Custodian. Such delivery shall be made on the date that the
Preferred Stock is delivered to the Custodian as provided in paragraph (b) of
this Section 2.03.
Section 2.04. Mutilated, Lost, Stolen or Destroyed Custody Receipts.
In the event a Custody Receipt is mutilated, lost, stolen or destroyed, the
Custodian shall execute and deliver in lieu thereof a new Custody Receipt,
provided that:
(a) in the case of any mutilated Custody Receipt, such
mutilated Custody Receipt shall be first surrendered to the Custodian;
and
(b) in the case of any lost, stolen or destroyed Custody
Receipt, there shall first be delivered to the Custodian evidence of
such loss, theft or destruction satisfactory to the Custodian and
Financial Security, together with indemnity satisfactory to each of
them, and neither Financial Security nor the Custodian shall have
received notice that such Custody Receipt has been acquired by a bona
fide purchaser.
In the event that any such mutilated, lost, stolen or destroyed Custody Receipt
evidences one or more shares of Preferred Stock that have been called for
redemption, the Custodian in its discretion may, if the conditions set forth in
clause (a) or (b), as applicable, have been satisfied, instead of issuing a new
Custody Receipt, remit the amount received on behalf of the Owner of such
mutilated, lost, stolen or destroyed Custody Receipt in connection with such
redemption or payment without surrender of the Custody Receipt otherwise
required by Section 3.01 hereof. All replacement Custody Receipts issued
pursuant to this Section shall be entitled to the full benefits hereunder,
whether or not, in the case of clause (b), any lost, stolen or destroyed
Custody Receipt shall be found at any time.
Section 2.05. Registration and Transfer of Ownership; Persons Treated
as Owners.
(a) The Custodian shall maintain a Custody Receipts Register
for the Custody Receipts at the Custodian's Principal Office to
provide for the registration of the Custody Receipts and the
registration of transfers of the Custody Receipts entitled to be
registered or transferred as herein provided. The Custody Receipts
Register may, at reasonable times and under reasonable regulations
established by the Custodian, be inspected and copied by Financial
Security (or its designee), the Fund or by a designated representative
of Owners of Custody Receipts evidencing more than 25% of the
outstanding shares of the Preferred Stock. The Custodian shall
maintain on the Custody Receipts Register, with respect to each such
Custody Receipt, (i) the name, address and, unless not required to be
maintained under applicable laws and regulations, taxpayer
identification number of the Owner of such Custody Receipt, (ii) the
registration number of such Custody Receipt, (iii) the liquidation
preference amount or amounts and registered number or numbers, if
available, of the Preferred Stock evidenced by such Custody Receipt
and (iv) such other information as the Custodian may deem necessary or
appropriate for the performance of its duties hereunder.
(b) The initial Custody Receipt shall be recorded on the
Custody Receipts Register in the name of Cede & Co. Thereafter, the
Custody Receipts may be transferred only on the Custody Receipts
Register. Upon surrender for transfer of any Custody Receipt to the
Custodian at its Principal Office, with the Notice of Transfer or
Exchange for such Custody Receipt fully completed, the Custodian shall
(i) execute and deliver to the transferee or transferees named in such
Notice at the address or addresses thereof set forth in such Notice a
new Custody Receipt or Receipts representing such aggregate number of
shares of Preferred Stock equal to the portion of the surrendered
Custody Receipt so transferred, registered in the name or names of
such transferee or transferees, provided that the conditions of the
Certificate with respect to beneficial owners of the Preferred Stock
are fulfilled and (ii) execute and deliver to the Owner of the
surrendered Custody Receipt at the address thereof set forth in the
Notice of Transfer or Exchange for such Custody Receipt a new Custody
Receipt or Receipts representing such aggregate number of shares of
Preferred Stock equal to the portion of the surrendered Custody
Receipt not so transferred. Each Custody Receipt issued upon such a
transfer shall bear a registration number not assigned previously and
shall represent a whole share or any integral number of shares of
Preferred Stock. The Custodian shall record in the Custody Receipts
Register the respective number of shares, aggregate liquidation
preference and stock certificate numbers, if any, of the Preferred
Stock evidenced by each Custody Receipt issued upon a transfer as
provided herein.
(c) A Custody Receipt or Receipts may be exchanged for a
Custody Receipt or Receipts representing the same aggregate number of
shares but different denominations upon surrender of such Custody
Receipt or Receipts to the Custodian at its Principal Office with the
Notice of Transfer or Exchange for such Custody Receipt fully
completed. The Custodian shall execute and deliver to the Owner of the
exchanged Custody Receipt, at the address thereof set forth in such
Notice of Transfer or Exchange, a Custody Receipt or Receipts that
such Owner making the exchange is entitled to receive, denominated in
whole shares of Preferred Stock and bearing registration numbers not
assigned previously. The Custodian shall record in the Custody
Receipts Register the respective number of shares, aggregate
liquidation preference and stock certificate numbers, if any, of the
Preferred Stock evidenced by each Custody Receipt issued upon an
exchange of Custody Receipts.
(d) The Custodian may require payment by the Owner of a
Custody Receipt of a sum sufficient to cover any tax, governmental fee
or other governmental charge that may be imposed in connection with
any registration of a transfer or exchange of such Custody Receipt,
and may require that such taxes, fees or other charges be paid prior
to the issuance of a new Custody Receipt. The Custodian shall not be
required to issue or register the transfer of any Custody Receipt
during the period when the Paying Agent would not be required to issue
or register the transfer of any Preferred Stock pursuant to the terms
of the Certificate.
(e) Financial Security and the Custodian may treat the person
in whose name a Custody Receipt is registered as the absolute owner
thereof, for all purposes whatsoever, and shall not be bound or
affected by any notice to the contrary, other than an order of a court
having jurisdiction in the premises.
(f) Whenever any Custody Receipt shall be delivered to the
Custodian for transfer, exchange or payment, upon transfer, exchange
or payment, the Custodian shall cancel and destroy such Custody
Receipt, and shall maintain a record of such cancellation and
destruction.
Section 2.06. Deposits With Depository. The Custodian is authorized to
take such actions with the Depository as will enable Custody Receipts to be
deposited with such Depository. The Depository as the Owner of the Custody
Receipt representing all the shares of Preferred Stock may take any action
pursuant to this Custody Agreement with respect to any one or more shares of
the Preferred Stock represented by the Custody Receipt as may be directed by
the beneficial owners of such Preferred Stock.
ARTICLE III
ADMINISTRATION OF CUSTODY ACCOUNT
Section 3.01. Payments of Redemption Price, Liquidation Preference and
Dividends on Preferred Stock.
(a) The Custodian shall remit to each Owner of record of a
Custody Receipt on the Record Date preceding any Scheduled Payment the
dividend component of such Scheduled Payment on Preferred Stock
represented by such Custody Receipt. The Custodian shall use its best
efforts to make such remittance immediately upon receipt of such
payment by the Custodian. Payment of such dividend to the Depository
shall be by wire transfer of immediately available funds, otherwise
such payment shall be made by bank check payable in currency of the
United States of America sent by Mail to such Owner or by such other
method requested by an Owner and consented to in writing by the Fund.
(b) The Custodian (or its agent) shall duly present (or cause
to be presented) each share of Preferred Stock for payment on or prior
to its redemption date or date fixed for payment of any liquidation
preference with respect thereto, in each case in accordance with the
provisions of the Certificate. A payment received by the Custodian of
all or a portion of the redemption price or liquidation preference of
a share of Preferred Stock upon redemption or liquidation shall be
remitted by the Custodian to the Owner of the Custody Receipt
evidencing such Preferred Stock at the Principal Office of the
Custodian immediately upon presentation of such Custody Receipt. Upon
such a presentation and remittance in connection with a payment of a
portion of the redemption price or liquidation preference of a share
of a Preferred Stock, the Custodian shall issue, in exchange for the
Custody Receipt presented, a Custody Receipt representing the
remaining liquidation preference of the Preferred Stock evidenced
thereby. Payments of such redemption price or liquidation preference
shall be made by transfer of immediately available funds to the
Depository or otherwise by bank check payable in currency of the
United States of America or by such other method requested by an Owner
and consented to in writing by the Fund.
Section 3.02. Notices.
(a) Upon receipt of any notice of redemption of, or payment
of liquidation preference with respect to, Preferred Stock, the
Custodian shall promptly transmit such notice by Mail, by hand or by
telecopy to the Owner of the Custody Receipt evidencing such Preferred
Stock. The Custodian (or its agent) shall present the Preferred Stock
so called for redemption or payment of liquidation preference on or
prior to the date of such redemption or to the Paying Agent on behalf
of such Owner for redemption payment in accordance with the terms of
the Certificate. The redemption price or liquidation preference
received by the Custodian shall be paid to such Owner in accordance
with the provisions of Section 3.01 hereof.
(b) Upon receipt from the Fund of any other notice with
respect to the Preferred Stock including specifically a notice of a
matter that requires or permits a vote by an Owner, the Custodian
shall promptly transmit such notice by Mail to each Owner of a Custody
Receipt. In the event such notice requests or requires any action by
any such Owner, the Custodian shall not take any action on behalf of
such Owner, except in accordance with written instructions from such
Owner and upon receipt of reasonable indemnity from such Owner for
resulting costs and liabilities, whether or not any action appears to
be in the best interest of such Owner, provided that the Custodian
will exercise voting rights as directed by an Owner without requiring
such indemnity and provided further that such voting rights are
subject to the rights of Financia1 Security set forth in 3.03(b)
hereof. Any record date established by such notice for purposes
specified in such notice shall be the record date for the purpose of
determining the Owners of record for such purposes. If no record date
is established by the Fund or applicable law, the Custodian may
establish an appropriate date as a record date if in its judgment such
a date is required.
Section 3.03. Duties With Respect to Surety Bond.
(a) In the event that the Custodian has received notice from
the Paying Agent for the Preferred Stock that the Fund has failed to
deposit funds with the Paying Agent by 12:00 p.m. on the third
Business Day next preceding the date the Fund is required to make all
or a portion of a Scheduled Payment, the Custodian shall promptly and
in any event prior to 4:30 p.m., New York City time, on such Business
Day file a Notice for Payment under the Surety Bond and make the
assignment required in Section 3.03(b) hereof. In the event the
Custodian receives from an Owner the Order, certificate and executed
assignment referred to in Paragraph 10 of the Endorsement to the
Surety Bond, the Custodian shall promptly file a Notice for Payment
under the Surety Bond and make the assignment required in Section
3.03(b) hereof.
(b) By acceptance of a Custody Receipt, each Owner
irrevocably designates, appoints, authorizes and directs the Custodian
to act as his attorney-in-fact as follows:
(i) if and to the extent a Shortfall (as defined in
Exhibit A to Endorsement No. 1 to the Surety Bond) exists in
amounts required to pay dividends on the Preferred Stock, to
execute and deliver an appropriate instrument of assignment
to Financial Security for each of the claims for dividend to
which such Shortfall relates contemporaneously with the
delivery to Financial Security of the notice demanding
payment under the Surety Bond;
(ii) if and to the extent a Shortfall exists in
amounts required to pay redemption price or liquidation
preference for the Preferred Stock, to execute and deliver an
appropriate instrument of assignment to Financial Security of
any of the Preferred Stock the redemption price or
liquidation preference for which has not previously been paid
or for which moneys are not held by the Custodian and
available for payment contemporaneously with the delivery to
Financial Security of the notice demanding payment under the
Surety Bond; and
(iii) if and so long as any Shortfall exists with
respect to the Preferred Stock, to appoint Financial Security
as agent for the Owner and the Custodian in any legal
proceeding with respect to the Preferred Stock including
specifically the right to vote such Preferred Stock until any
claims resulting from the assignments in (i) or (ii) above
shall have been satisfied, such appointment to be made
contemporaneously with the delivery of the notice to
Financial Security demanding payment under the Surety Bond
and to be contingent upon Financial Security's continued
performance under the Surety Bond.
If the Custodian delivers to Financial Security any such
instrument of assignment with respect to a Scheduled Payment and
Financial Security fails to make full payment with respect to such
Scheduled Payment pursuant to the Surety Bond, such instrument of
assignment shall be without effect and shall be canceled and returned,
on the date such payment is due, by Financial Security to the
Custodian. In each case in which the Custodian shall receive, in
accordance with the Surety Bond, payment from Financial Security with
respect to the claims for dividend so assigned or, with respect to
redemption price or liquidation preference, the assignment of
Preferred Stock, whichever is applicable, the Custodian shall disburse
such sums to the Owner in accordance with Section 3.01 of this Custody
Agreement. Payments disbursed by the Custodian from proceeds of the
Surety Bond shall not be considered to be made by the Fund, and
Financial Security shall become the owner of such rights to dividends
or redemption price or liquidation preference in accordance with the
tenor of the assignment made to it. Irrespective of whether any
assignment is executed and delivered, the Custodian and each Owner
hereby agree for the benefit of Financial Security that (a) they
recognize that, to the extent Financial Security pays the amount of
any Shortfall with respect to the Preferred Stock to the Owners,
Financial Security will be subrogated to the rights of such Owners to
receive from the Fund the redemption price, liquidation preference or
dividend to which such Shortfall relates, as provided in this Section
and (b) the Custodian will accordingly pay to Financial Security such
redemption price, liquidation preference and dividend as shall be
received by it, but only from sources and in the manner provided
herein, and will otherwise treat Financial Security as the owner of
the rights to such redemption price, liquidation preference and
dividend.
(c) To the extent the Custodian shall hold funds drawn under
the Surety Bond, it shall hold such funds for the benefit of Financial
Security until the required instruments of assignment are presented to
Financial Security in accordance with the Surety Bond. Such funds
shall not be invested by the Custodian. Except for the actions set
forth in (a) and (b) of this Section 3.03, the Custodian shall not
take any action with respect to the Surety Bond on behalf of any Owner
other than in accordance with written instructions from such Owner and
upon receipt of reasonable indemnity from such Owner for resulting
costs and liabilities, whether or not such action appears to be in the
best interest of such Owner.
(d) Upon default by Financial Security in the payment of any
amounts due under the Surety Bond, each Owner, as the real party in
interest, shall have the right to proceed directly and individually
against Financial Security, in whatever manner such Owner deems to be
appropriate. In such event, such Owner shall not be required to act in
concert with other Owners or with the Custodian.
(e) In the event the Custodian has received written notice
from S&P, if the Preferred Stock is rated by S&P, and from ▇▇▇▇▇'▇, if
the Preferred Stock is rated by ▇▇▇▇▇'▇, that the claims-paying
ability of Financial Security is rated by such rating agency "AA+" or
less with respect to S&P, and "Aal" or less with respect to ▇▇▇▇▇'▇,
and the Custodian (i) has received (A) a Qualified Surety Bond and
written evidence from S&P, if the Preferred Stock is then rated by
S&P, and from ▇▇▇▇▇'▇, if the Preferred Stock is then rated by
▇▇▇▇▇'▇, that the substitution of such Qualified Surety Bond for the
Surety Bond then held would not, of itself, result in a reduction or
withdrawal of the ratings then applicable to the Preferred Stock, (B)
an opinion of counsel to the issuer of the Qualified Surety Bond in
substantially the form set forth in Exhibit 2 hereto and (C) an
agreement by the issuer of the Qualified Surety Bond in form
acceptable to the Custodian agreeing to and assuming the obligations
of Financial Security hereunder or (ii) has received written evidence
from S&P, if the Preferred Stock is then rated by S&P, and from
▇▇▇▇▇'▇, if the Preferred Stock is then rated by ▇▇▇▇▇'▇, that the
termination of the Surety Bond then held would not, of itself, result
in a reduction or withdrawal of the ratings then applicable to the
Preferred Stock, then the Custodian shall upon and as of the Surety
Bond Expiration Date, in the case of (i) above, accept the Qualified
Surety Bond and deposit it into the Custody Account and, in the case
of either (i) or (ii) above, shall surrender the Surety Bond then held
to the issuer thereof.
Section 3.04. Defaults by Fund.
(a) The Fund is the obligor with respect to payment of
redemption price, liquidation preference and declared dividends for
the Preferred Stock and with respect to the performance of all other
obligations set forth or implied in the Preferred Stock and the
Certificate. The Custodian is not authorized hereunder to proceed
against the Fund in the event of a default under the Preferred Stock
and the Certificate, and has no power or obligation hereunder to
assert any of the rights and privileges of the Owners.
(b) In the event of any default in payment by the Fund and by
Financial Security, each Owner will have the right to proceed directly
and individually against the Fund in whatever manner is deemed
appropriate by such Owner either by withdrawing the Preferred Stock
evidenced by such Owner's Custody Receipt from the Custody Account or
by directing the Custodian to take specific actions on behalf of such
Owner pursuant to Section 3.04(c) of this Custody Agreement, and such
Owner will not be required to act in concert with the Custodian
(unless such Owner so directs) or other Owners. The issuance of a
Custody Receipt shall not in any manner: (i) alter, modify or increase
the rights of the Owner of such Custody Receipt with respect to the
Preferred Stock evidenced by such Custody Receipt (provided that
payments of dividends on and redemption price or liquidation
preference for such Preferred Stock and proceeds of the Surety Bond
held by the Custodian shall be paid to such Owner as provided herein),
(ii) grant to any Owners of other Custody Receipts rights with respect
to such Custody Receipt or the Preferred Stock evidenced thereby or
(iii) grant to such Owner, through ownership of such Custody Receipt,
any rights with respect to any other Custody Receipt or the Preferred
Stock evidenced thereby. The parties hereto understand and agree that
each Owner of a Custody Receipt is the sole beneficial owner (subject
to any obligations to the beneficial holders on whose behalf the
Custody Receipt is held) of the Preferred Stock evidenced thereby (but
shall have no interest in any Preferred Stock evidenced by Custody
Receipts held by any other Owner) and that the Custodian shall hold
Preferred Stock as custodian for the Owners of Custody Receipts
evidencing such Preferred Stock.
(c) Notwithstanding anything in this Section 3.04 to the
contrary, the Custodian will proceed promptly pursuant to Section 3.03
hereof to demand payment pursuant to the Surety Bond in the
circumstances specified in Section 3.03(a) hereof and, upon receipt of
indemnity satisfactory to it for resulting costs and liability, if
any, will undertake to perform such other ministerial acts as may be
reasonably necessary to assist the Owners in proceeding against
Financial Security, if necessary, or for enforcing rights hereunder or
under the Certificate.
Section 3.05. Unclaimed Moneys. In the event any moneys constituting
payment of redemption price, liquidation preference or dividend for any
Preferred Stock (including any proceeds from a draw on a Surety Bond) are not
claimed by the Owner of the Custody Receipt evidencing such Preferred Stock (or,
in the case of Surety Bond proceeds, are required to be held by the Custodian
and not released to the Owner), the Custodian shall segregate and hold such
moneys in a subaccount within the Custody Account, without liability for
interest thereon, for the account of the Owner entitled thereto. Such moneys
shall not be invested by the Custodian, but shall be held in trust for the
benefit of such Owner. All such moneys that remain in any such subaccount on the
date that is two (2) years and eleven (11) months after the date on which such
moneys were originally due, and as to which such Owner has not indicated an
interest as evidenced by a memorandum on file with the Custodian, shall be
disbursed to Financial Security, if such moneys were provided by Financial
Security, or to the Fund, if such moneys were provided by the Fund, and such
Owner shall thereafter look only to such respective party for payment.
Section 3.06. Obligation of Owners With Respect to Certain Taxes and
Filings. If any tax or other governmental charge shall become payable by or on
behalf of the Custodian, including any tax or charge required to be withheld
from any payment to or by the Custodian under the provisions of any applicable
law or regulation, with respect to any Custody Receipt or any Preferred Stock
evidenced thereby, such tax or charge shall be payable by the Owner of such
Custody Receipt and may, following written notice from the Custodian to such
Owner, be withheld by the Custodian.
Section 3.07. Transfers of Surety Bond or Preferred Stock by
Custodian. The Custodian shall hold the Preferred Stock and the Surety Bond in
custody only and shall not assign, transfer, pledge, set off or otherwise
dispose of the Surety Bond, Preferred Stock or interest therein except as
specifically provided hereunder or as required by an order of a court having
jurisdiction in the premises.
Section 3.08. Termination of Custody Account. During the term of this
Custody Agreement, the Custodian shall have the following obligations:
(a) The Custodian shall maintain in the Custody Account each
share of Preferred Stock until the earliest to occur of: (i)
redemption of such Preferred Stock in full, including all accrued
dividends, by the Fund and/or payments of amounts with respect
thereto by Financial Security pursuant to the Surety Bond, (ii)
payment of the full liquidation preference of such Preferred Stock,
including all accrued dividends, by the Fund and/or payments of
amounts with respect thereto by Financial Security pursuant to the
Surety Bond upon redemption in whole or liquidation of such Preferred
Stock, (iii) the Surety Bond Expiration Date and (iv) the receipt of
the written evidence from ▇▇▇▇▇'▇ and S&P referred to in Section
3.03(e)(ii) hereof. Upon termination of the Custody Account pursuant
to clause (iii) above, any shares of Preferred Stock shall be
delivered to or at the direction of the Owner thereof. The Custodian
hereby disclaims any equitable or beneficial interest in the Preferred
Stock. No Preferred Stock will be available to the Custodian for its
own use or profit, nor will any Preferred Stock be deemed to be part
of the general assets of the Custodian. The Preferred Stock will not
be subject to any right, charge, security interest, lien or claim of
any kind in favor of the Custodian.
(b) The Custodian shall maintain the Surety Bond in the
Custody Account until the earlier of (a) the Term of the Surety Bond
(as defined therein) shall have expired or (b) receipt of those items
required by Section 3.03(e)(i) or Section 3.03(e)(ii), whereupon such
Surety Bond shall be returned to Financial Security.
Section 3.09. Insolvency Proceedings. The Custodian shall promptly
notify Financial Security of (i) the commencement of any Insolvency Proceeding
by the Fund known to the Custodian and (ii) the making of any claim in
connection with any Insolvency Proceeding seeking the avoidance as a
preferential transfer (a "Preference Claim") of any payment of any redemption
price, liquidation preference or dividend with respect to any Preferred Stock.
Financial Security may at any time during the continuation of an Insolvency
Proceeding direct all matters relating to such Insolvency Proceeding, including
(i) all matters relating to any Preference Claim, (ii) the direction of any
appeal of any order relating to Preference Claim and (iii) the posting of any
surety, supersedeas or performance bond pending any such appeal. Financial
Security shall be subrogated to the rights of the Custodian and each Owner in
the conduct of any Insolvency Proceeding, including all rights of any party to
an adversary proceeding action with respect to any court order issued in
connection with any such Insolvency Proceeding so long as any action so taken is
not adverse to such Owner's right to payment pursuant to the Surety Bond.
ARTICLE IV
THE CUSTODIAN
Section 4.01. Standard of Liability. The Custodian shall not be liable
under this Custody Agreement other than by reason of bad faith or gross
negligence in the performance of such duties as are specifically set forth in
this Custody Agreement. The Custodian undertakes to perform such duties and only
such duties as are set forth in the Custody Agreement and no implied covenants
or obligations shall be read into this Custody Agreement against the Custodian.
The Custodian shall not be liable for any damages resulting from any
distribution from the Custody Account to an Owner at the address of record of
such Owner in the Custody Receipts Register. The Custodian shall not be liable
for any action or inaction by it done in reasonable reliance upon the
unqualified written opinion of its legal counsel or the written advice of its
accountants. The Custodian may rely and shall be protected in acting upon any
written notice, request, direction or other document reasonably believed by it
to be genuine and to have been signed or presented by the proper party or
parties.
The Custodian shall not incur any liability to any Owner if by reason
of any provision of any present or future law, or regulation thereunder, of any
governmental authority, or by court order or by reason of any act of God or war
or other circumstance beyond the control of the Custodian, the Custodian shall
be prevented or forbidden from doing or performing any act or thing which the
terms of this Custody Agreement provide shall be done or performed, and the
Custodian shall not incur any liability to any Owner by reason of any
nonperformance or delay, caused as aforesaid, in the performance of any act or
thing which the terms of this Custody Agreement provide shall or may be done or
performed.
Section 4.02. Resignation and Removal of the Custodian; Appointment of
Successor. The Custodian may resign with respect to all of its duties hereunder
at any time by written notice thereof delivered to Financial Security and given
by Mail to each Owner, such resignation to take effect upon the appointment of a
successor Custodian and its acceptance of such appointment as hereinafter
provided.
Financial Security or the Owners of Custody Receipts evidencing a
majority of outstanding shares of the Preferred Stock may, upon 30 days' written
notice to the Custodian, remove the Custodian and appoint a successor Custodian
meet ing the qualifications set forth in the succeeding paragraph. In the event
of such removal, the Custodian shall pay over to its successor Custodian any
fees or charges previously paid to the Custodian with respect to such Custody
Receipts in respect of duties not yet performed under this Custody Agreement
which remain to be performed by a successor Custodian.
In case at any time the Custodian acting hereunder shall resign,
Financial Security shall, within 90 days after the delivery of the notice of
resignation, appoint a successor Custodian. Any successor Custodian shall be a
bank or trust company having its principal office in the United States of
America and having a combined capital and surplus of at least $50,000,000. If no
successor Custodian has been appointed within such 90 days, the resigning
Custodian may petition any court of competent jurisdiction for the appointment
of a successor Custodian.
Any successor Custodian shall execute and deliver to its predecessor
and to Financial Security an instrument in writing accepting its appointment
hereunder, and thereupon such successor Custodian, without any further act or
deed, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor and for all purposes shall be the Custodian under
this Custody Agreement, and such predecessor, upon payment of all sums due it
and on the written request of Financial Security, shall execute and deliver an
instrument transferring to such successor all rights, obligations and powers of
such predecessor hereunder, and shall duly assign, transfer and deliver all
right, title and interest in the Custody Account and all records relating
thereto to such successor. Any successor Custodian shall promptly give notice of
its appointment to the Owners by Mail and to ▇▇▇▇▇'▇ and S&P by first-class mail
or hand delivery.
Any corporation into or with which the Custodian may be merged,
consolidated or converted shall be the successor of such Custodian without the
execution or filing of any document or any further act. Notice of such merger,
consolidation or conversion shall be given by first-class mail or hand delivery
to ▇▇▇▇▇'▇ and S&P.
Section 4.03. Charges and Expenses. Except as expressly provided in
this Custody Agreement, no charges or expenses of the Custodian or any other
person shall be payable by or withheld from any Owner. The Fund shall be
responsible for the payment of all other charges and expenses of the Custodian
(including, in each case, reasonable fees and expenses of counsel) incidental to
the performance of its obligations hereunder.
ARTICLE V
MISCELLANEOUS
Section 5.01. Amendments, Etc. Without notice to or consent of any
Owners, any provisions of this Custody Agreement may be amended (i) to cure any
formal defect, omission, inconsistency or ambiguity in this Custody Agreement,
(ii) to add to the covenants and agreements of the Custodian or Financial
Security or to surrender any right or power herein conferred upon the Custodian,
the Fund or Financial Security, (iii) to effectuate the assignment of the
Custodian's rights and duties hereunder to a qualified successor as provided
herein, (iv) to comply with the Trust Indenture Act of 1939, as from time to
time amended, or the Investment Company Act of 1940, as from time to time
amended, (v) to increase the number of shares of Preferred Stock held in custody
under this Custody Agreement or (vi) to modify, alter, amend or supplement this
Custody Agreement in any other respect not inconsistent herewith which, in the
opinion of counsel acceptable to the Custodian, is not adverse to the Custodian
or any of the Owners. Except for amendments made pursuant to clause (i), (ii),
(iii), (iv), (v) or (vi) above, no amendment affecting the Owners of Custody
Receipts may be made to this Custody Agreement without the consent of Owners of
Custody Receipts evidencing 66-2/3% of the outstanding shares of the Preferred
Stock, provided that no amendment may be made which would directly or indirectly
have the effect of interfering with the rights of any Owner to make a claim
under the Surety Bond without the consent of such Owner or which would modify
any of the provisions of this Section 5.01 except to increase the 66-2/3%
percentage figure referred to above (or any percentage substituted therefor
pursuant to a prior amendment) or to provide that certain other provisions of
this Custody Agreement cannot be modified without the consent of any Owner
affected thereby. No amendment or waiver of any provision of this Custody
Agreement nor consent to any departure herefrom shall in any event be effective
unless the same shall be in writing and signed by the Custodian and Financial
Security, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. Notice of any
such amendment and a copy thereof shall be given by first-class mail or hand
delivery to ▇▇▇▇▇'▇ and S&P.
Section 5.02. Counterparts. This Custody Agreement may be executed in
any number of counterparts by the parties thereto on separate counterparts, each
of which, when so executed and delivered, shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument. Copies
of this Custody Agreement shall be filed with the Custodian and shall be open to
inspection during business hours at the Custodian's Principal Office by any
Owner.
Section 5.03. Exclusive Benefit of Parties; Effective Date. This
Custody Agreement is for the exclusive benefit of the Custodian, the Fund,
Financial Security and the Owners of the Custody Receipts from time to time, and
their respective successors hereunder, and shall not be deemed to give any legal
or equitable right, remedy or claim to any other person whatsoever.
The Owners shall be the beneficiaries of this Custody Agreement and,
pursuant to the terms of the Custody Receipts, shall acknowledge and accept all
of the terms and conditions and agree to be bound by all of the provisions
hereof and of the Custody Receipts by acceptance of delivery of the Custody
Receipts without the necessity of any written acknowledgement or signature. This
Custody Agreement shall become effective as to the Custodian with respect to any
Custody Receipts upon execution of this Custody Agreement and the receipt by the
Custodian of the items specified in Section 2.03 hereof with respect to such
Custody Receipts.
Section 5.04. Invalidity of Provisions. In case any one or more of the
provisions contained in this Custody Agreement or in the Custody Receipts should
be or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall in no way be affected, prejudiced or disturbed thereby.
Section 5.05. Notices. Notices given Owners shall be given by Mail and
shall be effective two Business Days following the date so marked. All other
communications shall be mailed, sent or delivered, if to Financial Security, to
Financial Security Assurance Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Surveillance, and if to the Custodian, to Bankers Trust Company, ▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ Trust and Agency Group, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or as
to each party at such other address as shall be designated by such party in a
written notice to the other parties.
Any communication so addressed and mailed to Financial Security or the
Custodian shall be deemed to be given when received, and any notice sent by
rapid transmission shall be deemed to be given when receipt of such transmission
is acknowledged, and any communication delivered in person shall be deemed to be
given when receipted for or actually received by an authorized officer of the
recipient.
Section 5.06. Business Day. In any case where the date on which any
action is required to be taken hereunder shall not be a Business Day (as defined
in Exhibit 1 hereto), then such action shall be taken on the next succeeding
Business Day with the same force and effect as if made on the date that such
action is otherwise required to be taken hereunder.
Section 5.07. Governing Law. This Custody Agreement and the Custody
Receipts shall be governed by and construed in accordance with the laws of the
State of New York.
Section 5.08. Shareholder Rights. Any rights to be made available to a
shareholder under applicable law shall be deemed incorporated in this Custody
Agreement and made available to the Owners as the beneficial owners of the
Preferred Stock.
Section 5.09. Headings. The headings of articles and sections in this
Custody Agreement have been inserted and the table of contents has been provided
for convenience only and are not to be regarded as a part of this Custody
Agreement or to have any bearing upon the meaning or interpretation of any
provision contained herein.
DATED as of December 1, 1988.
FINANCIAL SECURITY ASSURANCE INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
Senior Vice President
BANKERS TRUST COMPANY
By /s/ ▇▇▇▇▇▇ ▇. Mahrie
---------------------------
Vice President
THIS CUSTODY RECEIPT IS ISSUED SUBJECT TO THE SAME PROVISIONS
RESTRICTING TRANSFERS OF SHARES OF TAXABLE AUCTION RATE PREFERRED STOCK ISSUED
BY PROSPECT STREETSM HIGH INCOME PORTFOLIO INC. (THE "FUND") CONTAINED IN
ARTICLE IV OF THE FUND'S ARTICLES OF INCORPORATION, AS AMENDED AND RESTATED (THE
"ARTICLES OF INCORPORATION") AND IN THE MASTER PURCHASER'S LETTER REQUIRED TO BE
EXECUTED BY EACH PERSON WHO ACQUIRES ANY OF THE SHARES REPRESENTED BY THIS
CUSTODY RECEIPT. A COPY OF EACH SUCH MASTER PURCHASER'S LETTER, WHICH ALSO
AFFECTS OTHER RIGHTS OF EACH OWNER OF THIS CUSTODY RECEIPT, IS ON FILE WITH THE
CUSTODIAN. A COPY OF ARTICLE IV OF THE ARTICLES OF INCORPORATION AND A COPY OF
THE MASTER PURCHASER'S LETTER SETTING FORTH THE RESTRICTIONS ON TRANSFER WILL BE
FURNISHED TO THE OWNER UPON REQUEST AND WITHOUT CHARGE.
EXHIBIT 1
FORM OF CUSTODY RECEIPT
CR-[ ] Evidencing Shares
of Preferred Stock
Liquidation Value $100,000/Share
CUSTODY RECEIPT CUSIP: [ ]
CUSTODY RECEIPT EVIDENCING OWNERSHIP OF
SHARES OF PROSPECT STREET(SM) HIGH INCOME
PORTFOLIO INC.
TAXABLE AUCTION RATE PREFERRED STOCK
Registered Owner:
General. Pursuant to a Custody Agreement dated as of December 1, 1988,
as from time to time amended (the "Custody Agreement"), between Bankers Trust
Company (the "Custodian") and Financial Security Assurance Inc. ("Financial
Security"), the Custodian holds as custodian (i) the amount specified above of
the above-referenced Preferred Stock (the "Preferred Stock"), on behalf of the
registered holder of this Custody Receipt (the "Owner") and (ii) a surety bond
(the "Surety Bond") of Financial Security guaranteeing Scheduled Payments (as
defined in the Surety Bond) of redemption price, liquidation preference and
dividends on the Preferred Stock.
THE FOLLOWING INFORMATION CONCERNING THE PREFERRED STOCK, THE SURETY
BOND AND THE CUSTODY AGREEMENT IS MERELY DESCRIPTIVE OF CERTAIN PROVISIONS OF
THOSE INSTRUMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THOSE
INSTRUMENTS, COPIES OF WHICH ARE AVAILABLE AT THE PRINCIPAL OFFICE OF THE
CUSTODIAN.
The Preferred Stock has been issued by Prospect Street(SM) High Income
Portfolio Inc. (the "Fund") pursuant to its Articles of Incorporation (the
"Certificate") and the sole obligor with respect to the Surety Bond is Financial
Security. If the Fund fails to make a Scheduled Payment on the Preferred Stock,
the Custodian has no right or obligation to take any action for the Owner with
respect to the Preferred Stock referred to above except (i) to proceed to make a
demand for payment pursuant to the Surety Bond, or (ii) in accordance with
written instructions from such Owner and upon receipt of reasonable indemnity
for resulting costs and liabilities, whether or not such action appears to be in
the best interest of such Owner. If Financial Security defaults with respect to
a payment on the Surety Bond, the Custodian has no right or obligation to take
any action for the Owner except in accordance with written instructions from
such Owner and upon receipt of reasonable indemnity for resulting costs and
liabilities, whether or not any action appears to be in the best interest of
such Owner.
The Preferred Stock has been delivered to the Custodian or its nominee
to be held in a custody account (the "Custody Account") established pursuant to
the Custody Agreement. The Preferred Stock has been registered on the stock
books of the Fund maintained by the paying agent (the "Paying Agent") appointed
by the Fund under the Certificate in the name of the Custodian (or its nominee
or its agent's nominee) and not in the name of the Owner. This Custody Receipt
and all other custody receipts issued from time to time to evidence the
Preferred Stock which have been deposited in the Custody Account will be
referred to herein as "Custody Receipts."
THE SURETY BOND
Financial Security has issued the Surety Bond, consisting of a surety
bond and certain endorsements thereto, and the Surety Bond may not be cancelled
or revoked during its term. The Surety Bond unconditionally and irrevocably
guarantees to the Owner, as beneficial owner of the Preferred Stock as indicated
on the registration books maintained by the Custodian (other than the Fund and
any affiliates or successors thereof), (i) the full and complete payment of
Scheduled Payments ("Scheduled Payments" as defined in the Surety Bond) on the
dates on which such Scheduled Payments are guaranteed pursuant to the Surety
Bond in accordance with such Surety Bond and the terms of the Certificate as
amended and in effect as of the date of the issuance of the Surety Bond and
subsequently amended from time to time with the written consent of Financial
Security including the date on which the Preferred Stock is paid in full and
(ii) payment of any such amount that is subsequently avoided in whole or in part
as a preference payment under applicable federal bankruptcy law. As set forth in
the Surety Bond, the Preferred Stock shall be "paid in full" when all payments
guaranteed by the Surety Bond have been paid and any period during which any
such payment could have been avoided in whole or in part as a preference payment
under applicable federal bankruptcy law shall have expired before any
bankruptcy, insolvency or similar proceeding requisite to such avoidance shall
have been commenced.
Payment of amounts under the Surety Bond by Financial Security as
described in clause (i) above shall be made on the later of (a) the second
Business Day following receipt on a Business Day by Financial Security of a
notice and certificate from the Custodian in the form set forth as Exhibit A to
Endorsement No. I of the Surety Bond or (b) the date such Scheduled Payment is
scheduled to be made pursuant to the terms of the Surety Bond. Such payments
will be disbursed by Financial Security to the Custodian by wire transfer of
immediately available funds. Financial Security's obligation under the Surety
Bond is discharged to the extent funds are so transferred to the Custodian
whether or not such funds are properly applied by the Custodian.
Financial Security will pay any amount payable under the Surety Bond
as described in clause (ii) above on the earlier of (a) the fourth Business Day
following receipt by Financial Security from the Custodian of (x) a certified
copy of the order (the "Order") of the court which exercised jurisdiction to the
effect that the Owner is required to return scheduled payments of redemption
price, liquidation preference or dividends paid on the Preferred Stock which
were guaranteed by the Surety Bond because such payments were avoidable
preferences under applicable federal bankruptcy law, (y) a certificate of the
Owner that the Order has been entered and is not subject to any stay and (z) an
assignment duly executed by the Owner in such form as is reasonably required by
Financial Security, irrevocably assigning to Financial Security all rights and
claims of the Owner relating to or arising under the Preferred Stock against the
estate of the Fund, provided that if such notice and certificate are received on
a day that is not a Business Day or after 12:00 noon, New York City time, on any
Business Day, Financial Security shall make such payment on the fifth Business
Day following such date, and (b) the date of receipt by Financial Security of
the items referred to in clauses (x), (y) and (z) above, if at least four
Business Days prior to the date of such receipt, Financial Security shall have
received written notice from the Custodian that such items were to be delivered
on such date of receipt and such date of receipt was specified in such notice
(provided that if such notice is received on a day that is not a Business Day or
after 12:00 noon, New York City time, on any Business Day, such notice shall be
deemed to have been received on the next succeeding Business Day). Such payment
shall be disbursed to the receiver, conservator, debtor in possession or trustee
in bankruptcy named in the Order and not to the Owner directly unless the Owner
has been required previously to disgorge all or a part of such payment, as
demonstrated to the satisfaction of Financial Security, in which event such
payment shall to such extent be paid directly to the Custodian or the Holder, as
the case may be.
The Owner agrees, in consideration of the issuance of the Surety Bond,
that in the event that the Fund does not make Scheduled Payments on the
Preferred Stock covered by this Custody Receipt, the Custodian shall make a
claim for payment under the Surety Bond with respect to the Preferred Stock
covered by this Custody Receipt. In order to obtain payments under the Surety
Bond with respect to payment of dividends on the Preferred Stock, the Custodian,
as attorney-in-fact of said Owner, shall execute and deliver an appropriate
instrument of assignment to Financial Security of each scheduled dividend on the
Preferred Stock to be paid by Financial Security. In order to obtain payments
under the Surety Bond with respect to payment of redemption price or liquidation
preference for the Preferred Stock, the Custodian, as attorney-in-fact of said
Owner, shall execute and deliver an appropriate instrument of assignment to
Financial Security of each share of Preferred Stock, the redemption price or
liquidation preference for which is to be paid by Financial Security. The
Custodian, as attorney-in-fact of said Owner, shall also appoint Financial
Security as agent for the Owner and the Custodian in any legal proceeding with
respect to the Preferred Stock (including specifically any proceedings involving
the right of any Owners to vote such Preferred Stock represented by such Owner's
Custody Receipt) until any claims resulting from the above assignments shall
have been satisfied, such appointment to be contingent upon Financial Security's
continued performance under the Surety Bond. Upon any such payment of redemption
price or liquidation preference by Financial Security, Financial Security shall
become the owner of the Preferred Stock or right to payment of redemption price
or liquidation preference for such Preferred Stock so paid and the Owner hereof
shall have no further rights with respect to such Preferred Stock or such right
to payment.
Upon any default by Financial Security in the payment of any amounts
due under the Surety Bond, the Owner shall have the right to proceed directly
and individually against Financial Security in whatever manner the Owner deems
appropriate and shall not be required to act in concert with other Owners or
with the Custodian.
THE CUSTODY AGREEMENT
Custody Account. The Custody Agreement creates the Custody Account
into which the Preferred Stock, the Surety Bond and any moneys held in
connection therewith will be deposited. The Custody Account will be maintained
by the Custodian as a custodial account, separate and segregated, whose contents
may not be commingled with any other assets or property held by the Custodian.
The Custodian will maintain separate records in connection with any moneys which
it may hold in connection with the Preferred Stock and the Surety Bond.
The Owner is liable for payment of taxes or other governmental charges
with regard to registrations of transfers or exchanges of this Custody Receipt,
and the Custodian may require payment of such amounts prior to the issuance of a
new Custody Receipt. Moreover, under current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), unless the Owner completes a Form W-9,
Payer's Request for Taxpayer Identification Number and Certification, or
provides the Custodian with evidence that it is an Exempt Payee within the
meaning of the Code, the Custodian will deduct 20% of certain payments to the
Owner from the Custody Account pursuant to Section 3406 of the Code. The
Custodian will forward by Mail to the Owner of record of this Custody Receipt on
the Record Date preceding any Scheduled Payment the dividend component of such
Scheduled Payment on the Preferred Stock promptly upon receipt by the Custodian.
The Custodian will remit payments of redemption price or liquidation preference
on the Preferred Stock upon presentation of the Custody Receipt by the Owner at
the principal office of the Custodian.
Ministerial Duties. The Custodian will take such actions as are
expressly required under the Surety Bond to make a drawing under the Surety
Bond, including transmitting notices to the Owner, making a demand for payment
pursuant to the Surety Bond and delivering Preferred Stock or assignments to
Financial Security. Notices with respect to the Preferred Stock that are
received by the Custodian from the Fund will be promptly forwarded to the Owner.
Except as expressly provided by the Custody Agreement, the Custodian will not
take any action on behalf of the Owner with respect to the Preferred Stock or
the Surety Bond, except in accordance with written instructions from the Owner
and upon receipt of reasonable indemnity from the Owner for resulting costs and
liabilities as provided in the Custody Agreement, whether or not such action
appears to be in the best interest of the Owner. The Custodian may resign
pursuant to the Custody Agreement upon appointment of a successor Custodian and
its acceptance of such appointment as provided in the Custody Agreement. Either
Financial Security or the registered owners of Custody Receipts evidencing a
majority in aggregate amount of the Preferred Stock deposited in the Custody
Account may remove the Custodian and appoint a successor thereto pursuant to the
provisions of the Custody Agreement.
Miscellaneous. Except as otherwise provided in the Custody Agreement,
no amendment affecting the registered owners of custody receipts as this Custody
Receipt may be made to the Custody Agreement without the consent of the
registered owners of the Custody Receipts evidencing 66-2/3% in of the shares of
Preferred Stock deposited in the Custody Account. The Custodian will not have
any right or obligation to enforce any rights of the Owner with respect to the
Preferred Stock under the Certificate. By acceptance of delivery of the
Preferred Stock evidenced by this Custody Receipt, the Owner acknowledges and
accepts all of the terms and conditions and agrees to be bound by all of the
provisions of the Custody Agreement. This Custody Receipt is transferable by the
Owner in person, or by an attorney duly authorized in writing, at the principal
office of the Custodian, upon surrender and cancellation of this Custody Receipt
and due execution of the Notice of Transfer or Exchange attached to this Custody
Receipt, except that such a registration of transfer is not required to be made
either during any period when the Fund would not be required to issue or
register the transfer of any shares of Preferred Stock pursuant to the terms of
the Certificate and the conditions specified in the Certificate as to the
transfer of beneficial ownership of the Preferred Stock is satisfied. Upon any
such registration of transfer, a new Custody Receipt or Receipts in authorized
denominations will be issued to the transferee or transferees in exchange for
this Custody Receipt.
Certain Definitions. For purposes hereof, the following terms shall
have the meanings set forth below:
"Business Day" means a day on which banks are not required or
authorized by law to be closed in either the city in which the principal office
of Financial Security is located or the city in which the principal office of
the Custodian is located.
"Mail" means first-class mail to the Owner at the address shown in the
registration books maintained by the Custodian pursuant to the Custody
Agreement.
This Custody Receipt shall not be valid for any purpose unless
executed by the Custodian by the manual signature of its authorized officer.
IN WITNESS WHEREOF, the Custodian has caused this Custody Receipt to
be executed.
Dated:
BANKERS TRUST COMPANY,
as Custodian
By
----------------------------
NOTICE OF TRANSFER OR EXCHANGE
Please be advised, pursuant to the terms of the Custody Agreement
between Bankers Trust Company and Financial Security Assurance Inc. with respect
to the Custody Receipt on which this Notice of Transfer or Exchange is printed,
that the undersigned hereby notifies you, as of the date received by you, of the
following transaction(s) and requests you to process the transaction(s) as
required by the Custody Agreement. This notice may also be used for exchanges of
Custody Receipts or in connection with the redemption of or payment of the
liquidation preference with respect to a portion of such Preferred Stock in
which event the Transferee should be noted to be the same as the Transferor.
Name of Transferor: _____________________________________________________
Registration Number of Custody Receipt: _________________________________
Aggregate Liquidation Preference and Number of Shares of Preferred Stock:
$ _________________ ____________________ Shares
Aggregate Liquidation Preference and Number of Shares of Preferred Stock To Be
Retained: $ _____________ ___________________ Shares
Aggregate Liquidation Preference and Number of Shares of Preferred Stock To Be
Transferred: $ ________________ __________________ Shares
1. Name of Transferee: __________________________________________________
Address of such Transferee: _____________________________________________
_________________________________________________________________________
Aggregate Liquidation Preference and Number of Shares of Preferred Stock To Be
Transferred to Such Transferee: $ _________________ _________________ Shares
2. Name of Transferee: __________________________________________________
Address of such Transferee: _____________________________________________
_________________________________________________________________________
Aggregate Liquidation Preference and Number of Shares of Preferred Stock To Be
Transferred to Such Transferee: $ _____________ _________________ Shares
(Add additional page if more than two Transferees.)
In making this notice, I am aware of, among others, the following
requirements for and limitations upon my exercise of transfer rights imposed by
said Custody Agreement:
(1) all transfers must be made in authorized denominations as
permitted by the Custody Agreement;
(2) the transferee must sign a Master Purchaser's Letter as
specified in the Certificate (as defined in the Custody Agreement);
(3) dividend payments on the Preferred Stock due on a
particular dividend payment date accrue to the benefit of the Owner of
record of the related Custody Receipt on the Record Date (as defined
in the Custody Agreement) preceding such dividend payment date;
(4) any notice of transfer not made in accordance with the
above requirements and other terms and conditions of the Custody
Agreement will be returned to me accompanied by an explanation of the
variance; and
(5) this Notice of Transfer or Exchange must be accompanied
by the Custody Receipt to be transferred.
Dated:
By ________________________
Its _______________________
GUARANTY OF SIGNATURE
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and
transfers this Custody Receipt to the person or persons indicated on the Notice
of Transfer or Exchange printed on this Custody Receipt. In the case of a
transfer to a third party, the undersigned hereby authorizes and instructs the
Custodian to immediately record the transferees listed on the Notice of
Transfer or Exchange as the Owner of such Custody Receipt.
Dated:
______________________________
(Authorized Signature)
Notice: The signature on this
assignment must correspond with
the name of the registered owner
as it appears on the Custody
Receipt in every particular and
must be guaranteed by an officer
of a national or state commercial
bank or trust company or a member
of a registered national
securities exchange or the
National Association of
Securities Dealers, Inc.
GUARANTY OF SIGNATURE
EXHIBIT 2
FORM OF OPINION OF
COUNSEL OF ISSUER OF SURETY BOND
Dear Sirs:
I am the General Counsel of Financial Security Assurance Inc., a New
York stock insurance company ("Financial Security"). You have requested my
opinion in such capacity as to the matters set forth below in connection with
the issuance by Financial Security of its surety bond no. (the "Surety
Bond") with respect to the above-referenced securities issued by Prospect
Street(SM) High Income Portfolio, Inc. (the "Fund"). The Surety Bond is issued
pursuant to the Insurance Agreement dated as of December 1, 1988 (the
"Insurance Agreement") between Financial Security and the Fund.
In that regard, and for purposes of this opinion, I have examined such
corporate records, documents and proceedings as I have deemed necessary and
appropriate, including (i) the Surety Bond and (ii) the Insurance Agreement.
Based upon the foregoing, I am of the opinion that:
1. Financial Security is a stock insurance company duly
organized, validly existing and authorized to transact financial
guarantee insurance business under the laws of the State of New York.
2. Each of the Surety Bond and the Insurance Agreement has
been duly authorized, executed and delivered by Financial Security.
3. Each of the Surety Bond and the Insurance Agreement
constitutes the legal, valid and binding obligation of Financial
Security, enforceable against Financial Security in accordance with
its terms, subject, as to the enforcement of remedies, to bankruptcy,
insolvency, reorganization, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable
in the event of the bankruptcy or insolvency of Financial Security and
by the application of general principles of equity.
4. The Surety Bond is exempt from registration under the
Securities Act of 1933, as amended.
5. Neither the execution or delivery by Financial Security of
the Surety Bond or the Insurance Agreement, nor the performance by
Financial Security of its obligations thereunder, will conflict with
any provision of the certificate of incorporation or the bylaws of
Financial Security nor, to the best of my knowledge, result in a
breach of, or constitute a default under, any agreement or other
instrument to which Financial Security is a party or by which any of
its property is bound nor, to the best of my knowledge violate any
judgment, order or decree applicable to Financial Security of any
governmental or regulatory body, administrative agency, court or
arbitrator having jurisdiction over Financial Security.