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Agreement#: AG-112081
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Form Of Custodial Agreement

Effective Date: June 12, 2002
Parties:

Nortel Networks

Sectors: Telecommunications
Governing Law:  New York
COMPUTERSHARE TRUST COMPANY OF CANADA,
AS PURCHASE CONTRACT AGENT,


CITIBANK, N.A.,
AS CUSTODIAN,


AND


HOLDERS (AS DEFINED HEREIN)
FROM TIME TO TIME


--------------------------


CUSTODIAL AGREEMENT


--------------------------


DATED AS OF JUNE 12, 2002
TABLE OF CONTENTS


PAGE PARTIES ....................................................................... 1 RECITALS ...................................................................... 1


ARTICLE ONE


DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION


Section 1.01. Interpretation ................................................. 1 Section 1.02. Definitions .................................................... 2
"Affiliate" .................................................... 2
"Agent" ........................................................ 2
"Agreement" .................................................... 2
"Authorized Person" ............................................ 2
"Clearing Agency" .............................................. 2
"Corporate Trust Office" ....................................... 2
"Custodian" .................................................... 2
"Custody Account" .............................................. 3
"Force Majeure Event" .......................................... 3
"Holder" ....................................................... 3
"Instructions" ................................................. 3
"Outstanding Units" ............................................ 3
"Outstanding Unit Certificates" ................................ 3
"Person" ....................................................... 4
"Predecessor Unit Certificate" ................................. 4
"Purchase Contract Agreement" .................................. 4
"Responsible Officer" .......................................... 4
"Settlement System" ............................................ 4
"TIA" .......................................................... 4
"Treasury Strips" .............................................. 4
"Underwriting Agreement" .......................................
"Unit" ......................................................... 4 Section 1.03. Effect of Headings and Table of Contents ....................... 4 Section 1.04. Successors and Assigns ......................................... 5 Section 1.05. Severability Clause ............................................ 5 Section 1.06. Benefits of Agreement .......................................... 5 Section 1.07. Governing Law .................................................. 5 Section 1.08. Appointment of Affiliate for Service of Process ................ 5 Section 1.09. Legal Holidays ................................................. 5 Section 1.10. Counterparts ................................................... 6 Section 1.11. Inspection of Agreement ........................................ 6 Section 1.12. Indemnification and Limitation of Liability..................... 6


ARTICLE TWO


THE TREASURY STRIPS


Section 2.01. Delivery of Treasury Strips to the Custodian ................... 7 Section 2.02. Acceptance by Custodian ........................................ 7 Section 2.03. Payment of Amounts Received Upon Maturity of Treasury Strips ... 8


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TABLE OF CONTENTS
(CONTINUED)


PAGE Section 2.04. Establishment of Custody Account ............................... 8 Section 2.05. Collection of Payments on Treasury Strips ...................... 8 Section 2.06. Delivery of Treasury Strips to Holders ......................... 8


ARTICLE THREE


THE CUSTODIAN


Section 3.01. Certain Duties and Responsibilities ............................ 10 Section 3.02. Certain Rights of Custodian .................................... 11 Section 3.03. Use of Third Parties and Limitations on Custodian's Liability .. 11 Section 3.04. Money Held by Custodian ........................................ 12 Section 3.05. Compensation and Expense ....................................... 13 Section 3.06. Corporate Agent Required; Eligibility .......................... 13 Section 3.07. Resignation and Removal; Appointment of Successor .............. 13 Section 3.08. Acceptance of Appointment by Successor ......................... 15 Section 3.09. Merger, Conversion, Consolidation or Succession to Business .... 15 Section 3.10. No Obligations of Custodian .................................... 15 Section 3.11. Tax Compliance ................................................. 15


ARTICLE FOUR


THE AGENT


Section 4.01. Agent's Direct Liability ....................................... 16 Section 4.02. Force Majeure .................................................. 16


ARTICLE FIVE


SUPPLEMENTAL AGREEMENTS


Section 5.01. Supplemental Agreements without Consent of Holders ............. 16 Section 5.02. Supplemental Agreements with Consent of Holders ................ 17 Section 5.03. Effect of Supplemental Agreements .............................. 17


ARTICLE SIX


COVENANTS


Section 6.01. Performance Under this Agreement ............................... 17


ARTICLE SEVEN


GENERAL CONDITIONS


Section 7.01. Entire Agreement ............................................... 17


ii
PARTIES


CUSTODIAL AGREEMENT, dated as of June 12, 2002, among COMPUTERSHARE TRUST COMPANY OF CANADA, acting as purchase contract agent (the "Agent"), CITIBANK, N.A., acting as custodian (the "Custodian"), and HOLDERS (as defined herein) from time to time.


RECITALS


WHEREAS, on and from the date hereof the Holders and the Company have entered into the Purchase Contracts pursuant to the Purchase Contract and Unit Agreement, dated as of June 12, 2002 (the "Purchase Contract Agreement"), under which the Company has agreed to issue and deliver Common Shares to the Holders on (i) the Settlement Date, (ii) at a Holder's option, on an Early Settlement Date or Early Settlement Upon Cash Merger Date or (iii) upon an Acceleration Event in consideration of the purchase price of the Purchase Contracts paid by the initial Holders to the Company on the closing date of the Underwriting Agreement; and


WHEREAS, simultaneously with entering into the Purchase Contracts with the Company, the initial Holders have acquired from Credit Suisse First Boston Corporation, one of the representatives of the underwriters named in the Underwriting Agreement, Treasury Strips; and


WHEREAS, for the convenience of the Holders, the Holders wish to appoint the Custodian as their custodian to hold the Treasury Strips for them and on their behalf and to forward to the Holders all payments of the Treasury Strips as and when they mature and to deliver the Treasury Strips to the Holders under certain circumstances as set forth herein;


NOW THEREFORE, in consideration of the premises and the purchase of the Units by the Holders thereof, it is mutually agreed as follows:


ARTICLE ONE


Definitions and Other Provisions
of General Application


Section 1.01. Interpretation.


For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:


(1) capitalized terms used but not defined herein have those
meanings ascribed to them in the Purchase Contract Agreement;


(2) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;


1
(3) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and


(4) all references to "$" herein means United States dollars.


Section 1.02. Definitions.


"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing.


"Agent" means the Person named as the "Agent" in the first paragraph of this Agreement until a successor Agent has become such pursuant to the applicable provisions of the Purchase Contract Agreement, and thereafter "Agent" means the Person who is then the Agent hereunder.


"Agreement" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more agreements supplemental hereto entered into pursuant to the applicable provisions hereof.


"Authorized Person" means the Agent or any person (including any individual or entity) authorized by the Agent to act on its behalf in the performance of any act, discretion or duty under this Agreement (including, for the avoidance of doubt, any officer or employee of such person) in a notice reasonably acceptable to the Custodian.


"Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as a depositary for the Units and in whose name, or in the name of a nominee of that organization, a Global Unit Certificate is registered in the Unit Register.


"Corporate Trust Office" means, for identification only, the principal office of the Custodian in New York, New York, at which at any particular time the Custodian's corporate trust business is administered, which office at the date hereof is located at 111 Wall Street, New York, New York. Nothing in this definition requires the Custodian to perform this Agreement as fiduciary or within its corporate trust operations.


"Custodian" means the Person named as the "Custodian" in the first paragraph of this Agreement until a successor Custodian has become such pursuant to the applicable provisions of this Agreement, and thereafter "Custodian" means the Person who is then the Custodian hereunder.


"Custody Account" has the meaning set forth in Section 2.04.


2
"Force Majeure Event" means any event due to any cause beyond the reasonable control of any party to this Agreement, such as restrictions on convertibility or transferability, requisitions, involuntary transfers, unavailability of communications systems, sabotage, fire, flood, explosion, acts of God, civil commotion, strikes or industrial action of any kind, riots, insurrection, war or acts of government.


"Holder" means a Person in whose name the Unit evidenced by such Unit Certificate (or the Unit Certificate evidencing such Unit) is registered in the Unit Register. For purposes of this Agreement, Holder shall mean a Clearing Agency unless the Custodian shall agree otherwise.


"Instructions" means any and all instructions (including approvals, consents and notices) received by the Custodian from, or reasonably believed by the Custodian to be from, any Authorized Person, including any instructions communicated through any manual or electronic medium or system agreed between the Agent and the Custodian.


"Outstanding Units" means, as of the date of determination, all Units evidenced by then Outstanding Unit Certificates, except on and after any applicable Early Settlement Date or Early Settlement Upon Cash Merger Date, Units as to which the Holder has elected to effect Early Settlement or Early Settlement Upon Cash Merger, as the case may be, of the related Purchase Contracts; provided, however, that in determining whether the Holders of the requisite number of Units have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Units owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be outstanding, except that, in determining whether the Agent shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Units which the Agent knows to be so owned shall be so disregarded. Units so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Agent the pledgee's right so to act with respect to such Units and that the pledgee is not the Company or any Affiliate of the Company.


"Outstanding Unit Certificates" means, as of the date of determination, all Unit Certificates theretofore executed and delivered under the Purchase Contract Agreement, except:


(i) Unit Certificates theretofore cancelled by the Agent or
delivered to the Agent for cancellation; and


(ii) Unit Certificates in exchange for or in lieu of which other
Unit Certificates have been authenticated, executed on behalf of the
Holder and delivered pursuant to this Agreement, other than any such Unit
Certificate in respect of which there shall have been presented to the
Agent proof satisfactory to it that such Unit Certificate is held by a
bona fide purchaser.


"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.


"Predecessor Unit Certificate" of any particular Unit Certificate means every previous Unit Certificate evidencing all or a portion of the rights and obligations of the Holder


3 under the Units evidenced thereby; and, for the purposes of this definition, any Unit Certificate authenticated and delivered under Section 11.06 of the Purchase Contract Agreement in exchange for or in lieu of a mutilated, destroyed, lost or stolen Unit Certificate shall be deemed to evidence the same rights and obligations of the Holder as the mutilated, destroyed, lost or stolen Unit Certificate.


"Purchase Contract Agreement" has the meaning specified in the recitals to this Agreement.


"Responsible Officer", when used with respect to the Custodian, means any officer or officers of the Custodian assigned by the Custodian to administer its custodial services.


"Settlement System" means any clearing agency, settlement system or depository (including any entity that acts as a system for the central handling of securities in the country where it is incorporated or organized or that acts as a transactional system for the central handling of securities) used in connection with transactions relating to securities and any nominee of the foregoing.


"TIA" means the United States Trust Indenture Act of 1939, as amended, or any successor statute.


"Treasury Strips" means the zero-coupon United States Treasury securities in the face amounts, and with the maturity dates, specified in Schedule 1 hereto.


"Underwriting Agreement" means the underwriting agreement relating to the Units dated June 6, 2002 between the Company and the several underwriters named therein.


"Unit" means and evidences the ownership by a Holder of (i) one Purchase Contract and (ii) six Treasury Strips of $1,000 denomination each that mature from February 15, 2003 through August 15, 2005 and a pro rata portion of Treasury Strips maturing on August 15, 2002, as specified in Schedule 1 hereto.


Section 1.03. Effect of Headings and Table of Contents.


The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. The parties hereto do not assume any responsibility for the correctness of the recitals contained herein.


Section 1.04. Successors and Assigns.


All covenants and agreements in this Agreement by the Custodian shall bind its successors and assigns, whether so expressed or not.


Section 1.05. Severability Clause.


In case any provision in this Agreement or in the Units shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof and thereof shall not in any way be affected or impaired thereby.


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Section 1.06. Benefits of Agreement.


Nothing in this Agreement or in the Units, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefits or any legal or equitable right, remedy or claim under this Agreement. The Holders from time to time shall be beneficiaries of this Agreement and shall be bound by all of the terms and conditions hereof and of the Units as evidenced by their Unit Certificates, by their acceptance of delivery thereof.


Section 1.07. Governing Law.


This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

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Agreement#: AG-112081
Pages: 38 pages
Format: MS Word MS Word Compatible
Price: $35.00
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