Exhibit 2.k.(iii)
PURCHASE AGREEMENT
THIS AGREEMENT is made as of this ____ day of ________, 1998 between
__________________, a ____________ ("Seller") and Reader's Digest Automatic
Common Exchange Security Trust, a trust organized under the laws of the State of
New York under and by virtue of an Amended and Restated Trust Agreement, dated
as of _________, 1998 (the "Trust Agreement") (such trust and the trustees
thereof acting in their capacity as such being referred to herein as
"Purchaser").
WHEREAS, Seller owns shares of Class A Nonvoting Common Stock, par
value $0.01 per share ("Common Stock"), of The Reader's Digest Association,
Inc., a Delaware corporation (the "Company");
WHEREAS, Purchaser has filed with the Securities and Exchange
Commission a registration statement contemplating the offering of up to
___________ Trust Automatic Common Exchange Securities (the "Securities"), the
terms of which contemplate delivery by Purchaser to the holders thereof of a
number of shares of Common Stock on the Exchange Date referred to herein;
WHEREAS, Seller has agreed, pursuant to the Collateral Agreement (the
"Collateral Agreement") dated as of __________, 1998, among Purchaser, Seller
and _____________________, as collateral agent (the "Collateral Agent"), to
grant Purchaser a security interest in shares of Common Stock and in certain
other circumstances certain other collateral to secure the obligations of Seller
hereunder;
WHEREAS, Purchaser has agreed, pursuant to an underwriting agreement,
dated __________, 1998 (the "Underwriting Agreement"), among Purchaser, the
Sellers named therein, the Company and Xxxxxxx Xxxxx & Co. and Lazard Freres &
Co. LLC, as representatives of the several underwriters named therein (the
"Underwriters"), to issue and sell to the Underwriters an aggregate of
_____________ Securities (the "Firm Securities") and, at the Underwriters'
option, up to ____________ additional Securities (the "Optional Securities") to
cover overallotments;
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
DEFINITIONS
As used herein, the following words and phrases shall have the
following meanings:
"Additional Purchase Price" has the meaning provided in Section 1.2(b).
"Additional Share Base Amount" means a number equal to the number of
Optional Securities that the Underwriters elect to purchase under the
Underwriting Agreement multiplied by a fraction, the numerator of which is the
Firm Share Base Amount and the denominator of which is the number of Firm
Securities purchased by the Underwriters under the Underwriting Agreement.
"Additional Shares" has the meaning provided in Section 1.1(b).
"Additional STRIPS" means the U.S. Treasury obligations purchased by
Purchaser for settlement at the Second Time of Delivery.
"Administrator" means The Bank of New York, administrator for Purchaser
under the Administration Agreement dated as of ___________, 1998, or any
successor thereto.
"Applicable Portion" has the meaning provided in Section 6.2.
"Appreciation Threshold Price" has the meaning provided in Section
1.1(c).
"Average Market Price" per share of Common Stock means the average
Closing Price per share of Common Stock on the 20 Trading Days immediately prior
to, but not including, the Exchange Date.
"Business Day" means any day on which commercial banks are open for
business in New York City and the New York Stock Exchange is not closed.
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"Calculation Period" means any period of Trading Days for which an
average security price must be determined pursuant to this Agreement.
"Closing Price" of any common equity security (including the Common
Stock or any Marketable Securities) on any date of determination means the daily
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such common equity security as reported on the NYSE Consolidated
Tape on such date of determination or, if such common equity security is not
listed for trading on the NYSE on any such date, as reported in the composite
transactions for the principal United States securities exchange on which such
common equity security is so listed, or if such common equity security is not so
listed on a United States national or regional securities exchange, as reported
by The NASDAQ National Market or, if such common equity security is not so
reported, the last quoted bid price for such common equity security in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization.
"common equity security" means any security of any class of capital
stock which has no preference in respect of dividends or of amounts payable in
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the issuer thereof and which is not subject to redemption by the issuer
thereof.
"Contract Shares" has the meaning provided in Section 1.1(b).
"Custodian" means The Bank of New York, custodian for Purchaser under
the Custodian Agreement dated as of ____________, 1998, or any successor
thereto.
"Dilution Adjustment" means any fraction or number by which the
Exchange Rate shall be multiplied pursuant to Section 6.1(a), (b), (c) or (d).
"Event of Default" has the meaning provided in Article VII.
"Excess Purchase Payment" has the meaning provided in Section 6.1(d).
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"Exchange Date" means ____________, _____.
"Exchange Rate" has the meaning provided in Section 1.1(c).
"Firm Purchase Price" has the meaning provided in Section 1.2(a).
"Firm Share Base Amount" has the meaning provided in Section 1.1(a).
"Firm Securities" has the meaning provided in the recitals to this
Agreement.
"Firm Shares" has the meaning provided in Section 1.1(a).
"First Time of Delivery" has the meaning provided in Section 1.3(a).
"Initial Price" has the meaning provided in Section 1.1(c).
"Marketable Securities" has the meaning provided in Section 6.2.
"Non-Marketable Securities" has the meaning provided in Section 6.2.
"NYSE" means the New York Stock Exchange, Inc.
"Optional Securities" has the meaning provided in the recitals to this
Agreement.
"Permitted Dividend" has the meaning provided in Section 6.1(d).
"Reorganization Event" has the meaning provided in Section 6.2.
"Second Time of Delivery" has the meaning provided in Section 1.1(b).
"Then-Current Market Price" of the Common Stock, for the purpose of
applying any adjustment pursuant to Section 6.1,
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means the average Closing Price per share of the Common Stock for the
Calculation Period of 5 Trading Days immediately prior to the time such
adjustment is effected (or, in the case of an adjustment effected at the opening
of business on the Business Day next following a record date as described in
Section 6.1(f)(i), immediately prior to the earlier of the time such adjustment
is effected and the related ex-date); provided that if no Closing Price for the
Common Stock is determined for one or more (but not all) of such Trading Days,
such Trading Day shall be disregarded in the calculation of the Then-Current
Market Price (but no additional trading days shall be added to the Calculation
Period). If no Closing Price for the Common Stock may be determined for any of
such Trading Days, the Then-Current Market Price shall be the Closing Price for
the Common Stock for the most recent Trading Day prior to such 5 Trading Days
for which a Closing Price for the Common Stock may be determined pursuant to the
"Closing Price" definition. The "ex-date" with respect to any dividend,
distribution or issuance shall mean the first date on which the shares of Common
Stock trade regular way on their principal market without the right to receive
such dividend, distribution or issuance.
"Trading Day" means, in respect of any common equity security
(including the Common Stock or any Marketable Securities), a day on which such
common equity security (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such security.
"Transaction Value" has the meaning provided in Section 6.2.
"Trust Agreement" means the Amended and Restated Trust Agreement
constituting Readers' Digest Automatic Common Exchange Security Trust, dated as
of ________ __, 1998.
"U.S. Government Securities" has the meaning provided in the Collateral
Agreement.
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I.
SALE AND PURCHASE
1.1 Sale and Purchase. (a) Firm Shares. Upon the terms and subject to
the conditions of this Agreement, Seller agrees to sell to Purchaser on the
Exchange Date, and Purchaser agrees to purchase and acquire from Seller on the
Exchange Date, the number of shares of Common Stock (the "Firm Shares") equal to
the product of ________ (the "Firm Share Base Amount") and the Exchange Rate.
(b) Additional Shares. Upon the terms and subject to the conditions of
this Agreement, Seller agrees to sell to Purchaser on the Exchange Date, and
Purchaser shall have a right to purchase on the Exchange Date, a number of
additional shares of Common Stock (the "Additional Shares") equal to the product
of the Exchange Rate and the Additional Share Base Amount. If the Underwriters
exercise their option to purchase Optional Securities pursuant to the
Underwriting Agreement, Purchaser shall notify Seller in writing that Purchaser
will purchase the Additional Shares on the Exchange Date, which notice shall
specify the Additional Share Base Amount and the date on which Purchaser shall
deliver the purchase price for the Additional Shares, which shall be the Second
Time of Delivery specified pursuant to Section 2 of the Underwriting Agreement
(the "Second Time of Delivery"). The Firm Shares and the Additional Shares (if
any) are collectively referred to herein as the "Contract Shares".
(c) Exchange Rate. The "Exchange Rate" shall be determined in
accordance with the following formula, subject to adjustment as a result of
certain events as provided in Article VI: (i) if the Average Market Price is
less than $_____ (the "Appreciation Threshold Price") but equal to or greater
than $_______ (the "Initial Price"), a fraction (rounded upward or downward to
the nearest 1/10,000th or, if there is not a nearest 1/10,000th, to the next
lower 1/10,000th) equal to the Initial Price divided by the Average Market
Price; (ii) if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, _______ and (iii) if the Average Market Price is
less than the Initial Price, 1.
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1.2 Purchase Price. (a) Firm Purchase Price. The purchase price for the
Firm Shares (the "Firm Purchase Price") shall be $_________________ in cash.
(b) Additional Purchase Price. The purchase price for the Additional
Shares (the "Additional Purchase Price") shall be an amount equal to (i) the
difference between (1) the aggregate proceeds to Purchaser from the sale of the
Optional Securities and (2) the aggregate cost to Purchaser, as notified by
Purchaser to Seller at the Second Time of Delivery, of the Additional STRIPS,
multiplied by (ii) a fraction, the numerator of which is the Firm Share Base
Amount and the denominator of which is the number of Firm Securities.
1.3 Payment for and Delivery of Contract Shares. (a) First Time of
Delivery. Upon the terms and subject to the conditions of this Agreement,
Purchaser shall deliver to Seller the Firm Purchase Price on ________ __, 1998
(the "First Time of Delivery") at the offices of Xxxxxxxx & Xxxxxxxx, 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other place as shall be agreed upon
by Purchaser and Seller, paid by wire transfer to an account designated by
Seller, in Federal (immediately available) funds.
(b) Second Time of Delivery. Upon the terms and subject to the
conditions of this Agreement, Purchaser shall deliver to Seller the Additional
Purchase Price at the Second Time of Delivery at the offices of Xxxxxxxx &
Xxxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other place as
shall be agreed upon by Purchaser and Seller, paid by wire transfer to an
account designated by Seller, in Federal (immediately available) funds.
(c) Sale and Delivery of Contract Shares. On the Exchange Date, Seller
agrees to sell and deliver the Contract Shares to Purchaser. Sale and Delivery
shall be effected by delivery by the Collateral Agent to the Custodian, for the
account of Purchaser, of shares of Common Stock then held by the Collateral
Agent as collateral under the Collateral Agreement, in an amount equal to the
number of Contract Shares, rounded down to the nearest whole number. Instead of
any fractional shares of Common Stock that would otherwise be deliverable to
Purchaser at the Exchange Date, Seller agrees to make a cash payment in respect
of such fractional shares of Common Stock in an amount equal to the value
thereof at the Average Market Price.
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Notwithstanding the foregoing, if a Reorganization Event shall have occurred
prior to the Exchange Date then, in lieu of the foregoing, delivery shall be
effected as follows: (i) in the case of any cash required to be delivered on the
Exchange Date as provided in Section 6.2, by wire transfer of immediately
available funds to an account designated by Purchaser; or (ii) in the case of
any Marketable Securities to be delivered in lieu of cash as provided in Section
6.2, by instruction to the Collateral Agent to deliver to the Custodian, for the
account of Purchaser, a specified number of Marketable Securities then held as
collateral under the Collateral Agreement, as provided in Section 6(g) of the
Collateral Agreement.
II.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that each representation
and warranty made by Seller pursuant to Section 1(b) of the Underwriting
Agreement is true and correct on the date hereof.
III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that each representation
and warranty made by Purchaser pursuant to Section 1(a) of the Underwriting
Agreement is true and correct on the date hereof.
IV.
CONDITIONS TO PURCHASER'S OBLIGATIONS
(a) The obligation of Purchaser to deliver the Firm Purchase Price at
the First Time of Delivery is subject to the condition that the purchase by the
Underwriters of the Firm Securities pursuant to the Underwriting Agreement shall
have been consummated as contemplated under the Underwriting Agreement.
(b) The obligation of Purchaser to deliver the Additional Purchase
Price at the Second Time of Delivery is
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subject to the condition that the purchase by the Underwriters of the Optional
Securities shall have been consummated as contemplated under the Underwriting
Agreement.
V.
COVENANTS
5.1 Taxes. Seller shall pay any and all documentary, stamp, transfer or
similar taxes and charges that may be payable in respect of the entry into this
Agreement and the transfer and delivery of the Contract Shares pursuant hereto.
5.2 Forward Contract. Seller hereby agrees that: (i) it will not treat
this Agreement, any portion of this Agreement, or any obligation hereunder as
giving rise to any interest income or other inclusions of ordinary income; (ii)
it will not treat the delivery of any portion of the Contract Shares, cash or
Marketable Securities to be delivered pursuant to this Agreement as the payment
of interest or ordinary income; (iii) it will treat this Agreement in its
entirety as a forward contract for the delivery of such Contract Shares, cash or
Marketable Securities; and (iv) it will not take any action (including filing
any tax return or form or taking any position in any tax proceeding) that is
inconsistent with the obligations contained in clause (i) through (iii).
Notwithstanding the preceding sentence, (1) Seller may take any action or
position required by law, provided that Seller delivers to Purchaser an opinion
of counsel, nationally recognized as expert in Federal tax matters, to the
effect that such action or position is required by a statutory change, Treasury
regulation, or applicable court decision published after the date of this
Agreement. Notwithstanding the first sentence of this paragraph, if in any tax
audit or other tax proceeding it is asserted that Seller, by reason of
performance or payments made or received under this Agreement, has derived
unrelated business taxable income ("UBTI"). Seller in opposition shall be free
to assert, in addition to Forward Contract characterization, any
characterization of the transaction under which UBTI is avoided.
5.3 Limitations on Trading During Certain Days. Seller hereby agrees
that it will not buy shares of Common Stock for its own account during the 60
days prior to the Exchange Date.
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5.4 Notices. Seller will cause to be delivered to Purchaser:
(a) Immediately upon the occurrence of any Event of Default hereunder
or under the Collateral Agreement, or upon Seller's obtaining knowledge that any
of the conditions or events described in paragraph (a) or (b) of Article VII
shall have occurred with respect to the Company, notice of such occurrence; and
(b) In case at any time prior to the Exchange Date Seller receives
notice, or otherwise obtains knowledge, that any event requiring that an
adjustment be effected pursuant to Article VI hereof shall have occurred or be
pending, then Seller shall promptly cause to be delivered to Purchaser a notice
identifying such event and stating, if known to Seller, the date on which such
event is to occur and, if applicable, the record date relating to such event.
Seller shall cause further notices to be delivered to Purchaser if Seller shall
subsequently receive notice, or otherwise obtain knowledge, of any further or
revised information regarding the terms or timing of such event or any record
date relating thereto.
5.5 Further Assurances. From time to time on and after the date hereof
through the Exchange Date, each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper and advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement in accordance with the terms and conditions hereof, including (i)
using reasonable best efforts to remove any legal impediment to the consummation
of such transactions and (ii) the execution and delivery of all such deeds,
agreements, assignments and further instruments of transfer and conveyance
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Agreement in accordance with the terms and conditions
hereof.
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VI.
ADJUSTMENT OF EXCHANGE RATE, APPRECIATION THRESHOLD PRICE,
INITIAL PRICE AND CLOSING PRICE
6.1 Dilution Adjustments. The Exchange Rate, Appreciation Threshold
Price and Initial Price shall be subject to adjustment from time to time as
follows:
(a) Stock Dividends, Splits, Reclassifications, Etc. If the Company
shall, after the date hereof,
(i) pay a stock dividend or make a distribution with respect
to Common Stock in shares of such stock;
(ii) subdivide or split the outstanding shares of Common Stock
into a greater number of shares of Common Stock;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issue by reclassification of shares of its Common Stock
any shares of other common stock of the Company;
then, in each such case, the Exchange Rate shall be multiplied by a Dilution
Adjustment equal to the number of shares of Common Stock (or in the case of a
reclassification referred to in clause (iv) above, the number of shares of other
common stock of the Company issued pursuant thereto), or the fraction thereof,
that a holder who held one share of Common Stock immediately prior to such event
would be entitled solely by reason of such event to hold immediately after such
event. The Appreciation Threshold Price and Initial Price shall also be adjusted
in the manner described in paragraph (e).
(b) Right or Warrant Issuances. If the Company shall, after the date
hereof, issue, or declare a record date in respect of an issuance of, rights or
warrants to all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Then-Current
Market Price of the Common Stock (other than rights to purchase Common Stock
pursuant to a plan for the reinvestment of dividends or interest), then, in each
such case, the Exchange Rate shall be multiplied by a Dilution Adjustment equal
to a fraction of which
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the numerator shall be the number of shares of Common Stock outstanding
immediately prior to the time the adjustment is effected by reason of the
issuance of such rights or warrants, plus the number of additional shares of
Common Stock offered for subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the time the adjustment is effected, plus
the number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered for subscription
or purchase pursuant to such rights or warrants would purchase at the
Then-Current Market Price of the Common Stock, which shall be determined by
multiplying the total number of shares so offered for subscription or purchase
by the exercise price of such rights or warrants and dividing the product so
obtained by such Then-Current Market Price. To the extent that, after the
expiration of such rights or warrants, the shares of Common Stock offered
thereby shall not have been delivered, the Exchange Rate shall be further
adjusted to equal the Exchange Rate which would have been in effect had such
adjustment for the issuance of such rights or warrants been made upon the basis
of delivery of only the number of shares of Common Stock actually delivered. The
Appreciation Threshold Price and Initial Price shall also be adjusted in the
manner described in paragraph (e).
(c) Distributions of Other Assets. If the Company shall, after the date
hereof, declare or pay a dividend or make a distribution to all holders of
Common Stock, in either case, of evidences of its indebtedness or other non-cash
assets (excluding any dividends or distributions referred to in paragraph (a)
above) or shall issue to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in paragraph (b) above), then, in each such case, the Exchange Rate
shall be multiplied by a Dilution Adjustment equal to a fraction, of which the
numerator shall be the Then-Current Market Price per share of the Common Stock,
and of which the denominator shall be such Then-Current Market Price per share
less the fair market value (as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Administrator) as of
the time the adjustment is effected of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or warrants
applicable to one share of Common Stock. The Appreciation Threshold Price and
Initial Price shall also be adjusted in the manner described in subparagraph
(e).
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(d) Cash Dividends; Excess Purchase Payments. If, after the date
hereof, the Company declares a record date in respect of a distribution of cash
(other than any Permitted Dividend, any cash distributed in consideration of
fractional shares of Common Stock and any cash distributed in a Reorganization
Event), by dividend or otherwise, to all holders of Common Stock, or makes an
Excess Purchase Payment, then the Exchange Rate will be multiplied by a Dilution
Adjustment equal to a fraction, of which the numerator shall be the Then-Current
Market Price of the Common Stock on such record date, and of which the
denominator shall be such Then-Current Market Price less the amount of such
distribution applicable to one share of Common Stock which would not be a
Permitted Dividend (or in the case of an Excess Purchase Payment, less the
aggregate amount of such Excess Purchase Payment for which adjustment is being
made at such time divided by the number of shares of Common Stock outstanding on
such record date). For purposes of these adjustments, (A) "Permitted Dividend"
means any quarterly cash dividend in respect of the Common Stock, other than a
quarterly cash dividend that exceeds the immediately preceding quarterly cash
dividend, and then only to the extent that the per share amount of such dividend
results in an annualized dividend yield on the Common Stock in excess of 10% and
(B) "Excess Purchase Payment" means the excess, if any, of (x) the cash and the
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Administrator, whose determination shall
be final) of all other consideration paid by the Company with respect to one
share of Common Stock acquired in a tender offer or exchange offer by the
Company, over (y) the Then-Current Market Price of the Common Stock. The
Appreciation Threshold Price and Initial Price shall also be adjusted in the
manner described in subparagraph (e).
(e) Corresponding Adjustments to Initial Price, Appreciation Threshold
Price and Closing Price; Change in Principal Market. (i) If any adjustment is
made to the Exchange Rate pursuant to paragraph (a), (b), (c) or (d) of this
Section 6.1, an adjustment shall also be made to the Appreciation Threshold
Price and the Initial Price. The required adjustment shall be made by dividing
each of the Appreciation Threshold Price and the Initial Price by the relevant
Dilution Adjustment.
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(ii) If, during any Calculation Period used in calculating the
Average Market Price, the Then-Current Market Price or the Transaction Value,
there shall occur any event requiring an adjustment to be effected pursuant to
this Section 6.1, then the Closing Price for each Trading Day in the Calculation
Period occurring prior to the day on which such adjustment is effected shall be
adjusted by being divided by the relevant Dilution Adjustment.
(f) Timing of Dilution Adjustments. Each Dilution Adjustment shall be
effected:
(i) in the case of any dividend, distribution or issuance, at
the opening of business on the Business Day next following the record
date for determination of holders of Common Stock entitled to receive
such dividend, distribution or issuance or, if the announcement of any
such dividend, distribution or issuance is after such record date, at
the time such dividend, distribution or issuance shall be announced by
the Company;
(ii) in the case of any subdivision, split, combination or
reclassification, on the effective date of such transaction;
(iii) in the case of any Excess Purchase Payment for which the
Company shall announce, at or prior to the time it commences the
relevant share repurchase, the repurchase price per share for shares
proposed to be repurchased, on the date of such announcement; and
(iv) in the case of any other Excess Purchase Payment, on the
date that the holders of the repurchased shares become entitled to
payment in respect thereof.
(g) General; Failure of Dilution Event to Occur. All Dilution
Adjustments shall be rounded upward or downward to the nearest 1/10,000th (or if
there is not a nearest 1/10,000th to the next lower 1/10,000th). No adjustment
in the Exchange Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided, however, that
any adjustments which by reason of this sentence are not required to be made
shall be carried forward and taken into account in any subsequent adjustment. If
any announcement or declaration of a record date in respect of a dividend,
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distribution, issuance or repurchase requiring an adjustment pursuant to this
Section 6.1 shall subsequently be cancelled by the Company, or such dividend,
distribution, issuance or repurchase shall fail to receive requisite approvals
or shall fail to occur for any other reason, then, upon such cancellation,
failure of approval or failure to occur, the Exchange Rate shall be further
adjusted to the Exchange Rate which would then have been in effect had
adjustment for such event not been made. If after an announcement of a share
repurchase requiring an adjustment pursuant to this Section 6.1, the Company
reduces the repurchase price or repurchases fewer shares than announced, then
upon completion of such share repurchase the Exchange Rate shall be further
adjusted to equal the Exchange Rate that would have been in effect had the
adjustment for such repurchase been based on the actual price and amount
repurchased. If a Reorganization Event shall occur after the occurrence of one
or more events requiring an adjustment pursuant to this Section 6.1, the
Dilution Adjustments previously applied to the Exchange Rate in respect of such
events shall not be rescinded but shall be applied to the new Exchange Rate
provided for under Section 6.2.
6.2 Adjustment for Consolidation, Merger or Other Reorganization Event.
In the event of (i) any consolidation or merger of the Company, or any surviving
entity or subsequent surviving entity of the Company (a "Company Successor"),
with or into another entity (other than a merger or consolidation in which the
Company is the continuing corporation and in which the Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged for cash,
securities or other property of the Company or another corporation), (ii) any
sale, transfer, lease or conveyance to another corporation of the property of
the Company or any Company Successor as an entirety or substantially as an
entirety, (iii) any statutory exchange of securities of the Company or any
Company Successor with another corporation (other than in connection with a
merger or acquisition) or (iv) any liquidation, dissolution or winding up of the
Company or any Company Successor (any such event described in clause (i), (ii),
(iii) or (iv), a "Reorganization Event"), the Exchange Rate shall be adjusted so
that on the Exchange Date Purchaser shall receive, in lieu of the Contract
Shares, cash in an amount equal to the product of (x) the Firm Share Base Amount
plus the Additional Share Base Amount (if any) and (y)(i) if the Transaction
Value is less than the Appreciation Threshold Price but equal to or greater than
the Initial Price, the Initial Price, (ii) if the Transaction Value is equal to
or greater than
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the Appreciation Threshold Price, 0.______ multiplied by the
Transaction Value, and (iii) if the Transaction Value is less than the Initial
Price, the Transaction Value; provided, however, that if the consideration
received by holders of Common Stock in such Reorganization Event includes
Non-Marketable Securities, then Seller may, at its option (by notice delivered
to the Administrator not later than the date of consummation of such
Reorganization Event (which notice shall only be effective if joined in by
Sellers named in the Underwriting Agreement representing a Majority in Interest
of the Sellers)), elect to accelerate this Contract by delivering to the Trust
(as promptly as practicable after receipt thereof by the Seller) the
Applicable Portion of the total consideration received in such Reorganization
Event in respect of the Contract Shares. Notwithstanding the foregoing, if any
Marketable Securities are received by holders of Common Stock in such
Reorganization Event, Seller shall, in lieu of delivering cash as described
above, deliver an equivalent amount (based on the value determined in accordance
with clause (z) of the following paragraph) of Marketable Securities, but not
exceeding, as a percentage of the total consideration required to be delivered,
the percentage of the total Transaction Value attributable to such Marketable
Securities.
"Transaction Value" means the sum of: (x) for any cash received in any
such Reorganization Event, the amount of cash received per share of Common
Stock; (y) for any property other than cash or Marketable Securities received in
any such Reorganization Event, an amount equal to the market value on the date
the Reorganization Event is consummated of such property received per share of
Common Stock, as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator; and (z) for any
Marketable Securities received in any such Reorganization Event, an amount equal
to the average Closing Price per share of such Marketable Securities for the
Calculation Period of 20 Trading Days immediately prior to the Exchange Date
multiplied by the number of such Marketable Securities received for each share
of Common Stock; provided that if no Closing Price for such Marketable
Securities may be determined for one or more (but not all) of such Trading Days,
such Trading Day shall be disregarded in the calculation of such average Closing
Price (but no additional trading days shall be added to the Calculation Period).
If no Closing Price for the Marketable Securities may be determined for all such
Trading Days, the calculation in the preceding clause
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(z) shall be based on the most recently available Closing Price for the
Marketable Securities prior to such 20 Trading Days.
"Majority in Interest of the Sellers" means Sellers named in the
Underwriting Agreement that have entered into Purchase Agreements with the
Purchaser substantially in the form of this Agreement in respect of Contract
Shares (as defined in such purchase agreements) representing a majority of the
Contract Shares subject to the purchase agreements of all such Sellers named in
the Underwriting Agreement.
Notwithstanding the foregoing, if the consideration received by holders
of Common Stock in a Reorganization Event includes Non-Marketable Securities for
which a bona fide trading market exists, then at the close of business on the
20th Trading Day after consummation of such Reorganization Event, the
Transaction Value shall be recomputed (and a corresponding adjustment shall be
effected to the Exchange Rate) on the basis of such Non-Marketable Securities'
having a market value equal to the average of the high and low sale prices of
such Non-Marketable Securities (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) on each of the 20 Trading Days to and including such 20th Trading
Day.
"Applicable Portion", as applied to each type of consideration received
by holders of Common Stock in a Reorganization Event, means that portion of such
type of consideration determined by multiplying the total amount of such
consideration by a fraction, the numerator of which is the cash amount
determined to be payable as a result of such Reorganization Event pursuant to
the first sentence of the first paragraph of this Section 6.2, and the
denominator of which is the Transaction Value.
"Marketable Securities" means any common equity securities, whether
voting or non-voting, listed on a U.S. national securities exchange or reported
by The Nasdaq National Market that are received by holders of Common Stock in a
Reorganization Event. The number of shares of any Marketable Securities included
in the calculation of Transaction Value pursuant to the preceding clause (z)
shall be subject to adjustment if any event that would, had it occurred with
respect to the Common Stock or the Company, have required an adjustment pursuant
to Section 6.1, shall occur with respect to such
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Marketable Securities or the issuer thereof between the time of the
Reorganization Event and the Exchange Date. Adjustment for such subsequent
events shall be as nearly equivalent as practicable to the adjustments provided
for in Section 6.1.
"Non-Marketable Securities" means any securities or other property that
are received by holders of Common Stock in a Reorganization Event, other than
Marketable Securities.
VII.
ACCELERATION
If one or more of the following events (each an "Event of Default")
shall occur:
(a) Seller shall commence a voluntary case or other proceeding seeking
a liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it, or shall take any action to authorize any of the foregoing;
(b) an involuntary case or other proceeding shall be commenced against
the Seller seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief shall
be entered against the Seller under the federal bankruptcy laws as now or
hereafter in effect; or
(c) a Collateral Event of Default within the meaning of the Collateral
Agreement;
then, upon the occurrence of any such event, Seller shall become obligated to
deliver the Contract Shares (or, after a
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Reorganization Event, the Marketable Securities or cash or a combination thereof
deliverable in respect thereof, or any U.S. Government Securities then pledged
under the Collateral Agreement in respect thereof). Purchaser and Seller agree
that such amount is a reasonable pre-estimate of loss and not a penalty. Such
amount is payable for the loss of bargain and Purchaser will not be entitled to
recover additional damage as a consequence of loss resulting from an Event of
Default.
VIII.
MISCELLANEOUS
8.1 Adjustments of Exchange Rate; Selection of Independent Investment
Banking Firm. Purchaser shall be responsible for the effectuation and
calculation of any adjustment pursuant to Article VI hereof and shall furnish
Seller notice of any such adjustment and shall provide Seller reasonable
opportunity to review the calculations pertaining to any such adjustment. If,
pursuant to the terms and conditions hereof, the Administrator shall be required
to retain a nationally recognized independent investment banking firm for any
purpose provided herein, such nationally recognized independent investment
banking firm shall be selected and retained by the Administrator only with the
consent of the Seller, such consent not to be unreasonably withheld.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard forms of telecommunication. Notices to Purchaser shall be directed
to it in care of the Administrator for Purchaser, ____________________, at
_____________________________________________, Telecopy No. _____________,
attention _________________; notices to Seller shall be directed to it at
_______________________________, Telecopy No. ______________.
8.3 Governing Law; Severability. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to the conflict of laws provisions thereof. To the extent permitted by
law, the unenforceability or invalidity of any provision or provisions of this
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
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8.4 Entire Agreement. Except as expressly set forth herein, this
Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, among the parties with respect to the
subject matter of this Agreement.
8.5 Amendments; Waivers. Any provision of this Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by Purchaser and Seller or, in the case of a waiver,
by the party against whom the waiver is to be effective. No failure or delay by
either party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
8.6 No Third Party Rights; Successors and Permitted Assigns. This
Agreement is not intended and shall not be construed to create any rights in any
person other than Seller and Purchaser and their respective successors and
permitted assigns and no person shall assert any rights as third party
beneficiary hereunder. Whenever any of the parties hereto is referred to, such
reference shall be deemed to include the successors and permitted assigns of
such party. All the covenants and agreements herein contained by or on behalf of
the Seller and Purchaser shall bind, and inure to the benefit of, their
respective successors and permitted assigns whether so expressed or not, and
shall be enforceable by and inure to the benefit of Purchaser and its successors
and permitted assigns.
8.7 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
SELLER:
_______________________________________
PURCHASER:
Xxxxxxx X. Xxxxxx III, as trustee,
Xxxxx X. X'Xxxxx, as trustee,
Xxxxxx X. Xxxxxxx, as trustee,
each as trustee of Reader's Digest
Automatic Common Exchange Security
Trust
