AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997
SECURITIES ACT FILE NO. 333-28245
INVESTMENT COMPANY ACT FILE NO. 811-08237
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
PRE-EFFECTIVE AMENDMENT NO. 2 |X|
POST-EFFECTIVE AMENDMENT NO. |_|
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 2 |X|
------------------
READER'S DIGEST AUTOMATIC
COMMON EXCHANGE SECURITY TRUST
(Exact Name of Registrant as Specified in its Charter)
C/O GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 902-1000
KENNETH L. JOSSELYN, ESQ.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(Name and Address of Agent for Service)
COPIES TO:
Robert E. Buckholz, Jr., Esq. Donald B. Brant, Jr., Esq.
Sullivan & Cromwell Milbank, Tweed, Hadley & McCloy
125 Broad Street One Chase Manhattan Plaza
New York, New York 10004 New York, New York 10005
------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. |_|
|_| This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333- .
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
Title of Securities Proposed Maximum Amount of
Being Registered Aggregate Offering Price(1) Registration Fee
Trust Automatic Common
Exchange Securities $277,839,750.00 $81,963.00(2)
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of which $3,030.31 was previously paid by the Registrant in connection with
the initial filing of this registration statement on June 2, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST
CROSS-REFERENCE SHEET
(PURSUANT TO RULE 404(C) UNDER THE SECURITIES ACT OF 1933)
PART A & B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ ------- ----------------------
<S> <C> <C>
1. Outside Front Cover................................. Front Cover Page
2. Inside Front and Outside Back Cover Page............ Front Cover Page; Inside Front Cover Page;
Outside Back Cover Page
3. Fee Table and Synopsis.............................. Prospectus Summary; Fee Table
4. Financial Highlights................................ Not Applicable
5. Plan of Distribution................................ Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders................................ Not Applicable
7. Use of Proceeds..................................... Use of Proceeds; Investment Objective and Policies
8. General Description of the Registrant............... Front Cover Page; Prospectus Summary;
The Trust; Investment Objective and Policies;
Risk Factors
9. Management.......................................... Management and Administration of the Trust
10. Capital Stock, Long-Term Debt and Other
Securities......................................... Investment Objective and Policies; Description of
the Securities; Certain Federal Income Tax
Considerations
11. Defaults and Arrears on Senior Securities........... Not Applicable
12. Legal Proceedings................................... Not Applicable
13. Table of Contents of the Statement
of Additional Information.......................... Not Applicable
14. Cover Page.......................................... Not Applicable
15. Table of Contents................................... Not Applicable
16. General Information and History..................... The Trust
17. Investment Objective and Policies................... Investment Objective and Policies
18. Management.......................................... Management and Administration of the Trust
19. Control Persons and Principal Holders of
Securities......................................... Management and Administration of the Trust
20 Investment Advisory and Other Services.............. Management and Administration of the Trust
21. Brokerage Allocation and Other Practices............ Investment Objective and Policies
22. Tax Status.......................................... Certain Federal Income Tax Considerations
23. Financial Statements................................ Statement of Assets and Liabilities
<FN>
- ---------------------------
* Pursuant to the General Instructions to Form N-2, all information
required to be set forth in Part B: Statement of Additional Information
has been included in Part A: The Prospectus. Information required to be
included in Part C is set forth under the appropriate item so numbered
in Part C of this Registration Statement.
</FN>
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997
_______ Shares
Reader's Digest Automatic
Common Exchange Security Trust
$ . Trust Automatic Common Exchange Securities (TRACES (TM)/(sm))
(Subject to exchange into Shares of Common Stock of
The Reader's Digest Association, Inc.)
------------------
Each of the $ . Trust Automatic Common Exchange Securities (the
"Securities") of Reader's Digest Automatic Common Exchange Security Trust (the
"Trust") represents the right to receive an annual distribution of $ . , and
will be exchanged for between 0. shares and one share of Class A Nonvoting
Common Stock, par value $0.01 per share (the "Common Stock"), of The Reader's
Digest Association, Inc. (the "Company") on ____________, ____ (the "Exchange
Date").
The Trust is a finite-term Trust the sole purpose of which is to acquire
and hold a portfolio of stripped U.S. Treasury securities maturing on a
quarterly basis through the Exchange Date, and forward purchase contracts (the
"Contracts") with one or more existing shareholders of the Company (the
"Sellers") relating to the Common Stock. The Trust's investment objective is to
provide each holder of Securities with a quarterly distribution of $ . per
Security and, on the Exchange Date, a number of shares of Common Stock per
Security equal to the Exchange Rate.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Common Stock on the Exchange
Date:
- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange
Rate will be the number of shares of Common Stock having a value
(determined at the Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0. shares of
Common Stock; and
- if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Common Stock.
For purposes of this formula, the Appreciation Threshold Price is $ and
the Initial Price is $ . The formula will be subject to adjustment in certain
events. Holders otherwise entitled to receive fractional shares in respect of
their aggregate holdings of Securities will receive cash in lieu thereof.
Holders of Securities will receive distributions at a higher annual rate
than the current annual dividends paid on the Common Stock. There is no
assurance, however, that the yield on the Securities will be higher than the
dividend yield on the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in the Securities
is less than that afforded by an investment in the Common Stock because holders
of Securities will realize no equity appreciation if, on the Exchange Date, the
Average Market Price of the Common Stock is below the Appreciation Threshold
Price, and less than all of the appreciation if at that time the Average Market
Price is above the Appreciation Threshold Price. Holders of Securities will
realize the entire decline in equity value if the Average Market Price is less
than the Initial Price, which is equal to the price to public per Security shown
below.
The Company is not affiliated with the Trust.
Application will be made to list the Securities on the New York Stock
Exchange under the symbol ____. Prior to this offering there has been no public
market for the Securities. The last reported sale price of the Common Stock on
the New York Stock Exchange on December 16, 1997, was $23.625 per share.
(continued on next page)
SEE "RISK FACTORS" ON PAGE 17 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
PRICE TO PUBLIC SALES LOAD (1) PROCEEDS TO THE
TRUST(2)
Per Security............ $ $ (4) $
Total(3)................ $ $ (4) $
- ------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Expenses of the offering, which are payable by Goldman, Sachs & Co. and the
Sellers, are estimated to be $ .
(3) The Trust has granted to the Underwriters an option for 30 days to purchase
up to an additional Securities at the price to the public per
Security, solely to cover over-allotments. If the option is exercised in
full, the total Price to Public, Sales Load and Proceeds to the Trust will
be $ , $ , $ , respectively. See
"Underwriting".
(4) In light of the fact that the proceeds of the sale of the Securities will
be used in part by the Trust to purchase the Contracts from the Sellers,
the Underwriting Agreement provides that the Sellers will pay to the
Underwriters as compensation ("Underwriters' Compensation") $ . per
Security. See "Underwriting".
---------------------------
The Securities are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates for the
Securities will be ready for delivery in book entry form only through the
facilities of The Depository Trust Company, on or about ______ , 1998, against
payment in immediately available funds.
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
---------------------------
The date of this Prospectus is ______ , 1998
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
<PAGE>
The Trust has adopted a policy that the Contracts may not be disposed of
during the term of the Trust. The Trust will continue to hold the Contracts
despite any significant decline in the market price of the Common Stock or
adverse changes in the financial condition of the Company.
This Prospectus sets forth concisely information about the Trust that a
prospective investor ought to know before investing. Potential investors are
advised to read this Prospectus and to retain it for future reference.
The Securities may be a suitable investment for those investors who are
able to understand the unique nature of the Trust and the economic
characteristics of the Contracts and the U.S. Treasury securities held by the
Trust.
The Trust will be a grantor trust for federal income tax purposes and each
holder of Securities will be treated as the owner of its pro rata portions of
the stripped U.S. Treasury securities and the Contracts. For a discussion of the
principal United States federal income tax consequences of ownership of
Securities, see "Certain Federal Income Tax Considerations".
THE TRUST IS A SPECIAL-PURPOSE CLOSED-END INVESTMENT COMPANY WITH NO
PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END FUND SHARES FREQUENTLY
TRADE AT A DISCOUNT FROM NET ASSET VALUE. THIS CHARACTERISTIC OF INVESTMENTS IN
A CLOSED-END INVESTMENT COMPANY IS A RISK SEPARATE AND DISTINCT FROM THE RISK
THAT THE TRUST'S NET ASSET VALUE WILL DECREASE. THE TRUST CANNOT PREDICT WHETHER
ITS SHARES WILL TRADE AT, BELOW OR ABOVE NET ASSET VALUE. THE RISK OF PURCHASING
INVESTMENTS IN A CLOSED-END COMPANY THAT MIGHT TRADE AT A DISCOUNT MAY BE
GREATER FOR INVESTORS WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER COMPLETION
OF AN INITIAL PUBLIC OFFERING.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
-2-
<PAGE>
PROSPECTUS SUMMARY
This summary of the provisions relating to the Securities does not purport
to be complete and is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus. Certain terms used in this summary are
defined elsewhere in this Prospectus.
THE TRUST
GENERAL. The Trust is a special-purpose, finite-term trust. The Trust will
be registered as a non-diversified closed-end management investment company
under the Investment Company Act of 1940 (the "Investment Company Act"). Under
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the power to vary the
investments held by the Trust.
INVESTMENT OBJECTIVE AND POLICIES. The Trust will acquire and hold a
portfolio of stripped U.S. Treasury securities maturing on a quarterly basis
through the Exchange Date, and the Contracts with the Sellers obligating each
Seller, on the Exchange Date, to deliver to the Trust a number of shares of
Common Stock equal to the product of the Exchange Rate times the initial number
of shares subject to such Seller's Contract. The Trust's investment objective is
to provide the holders of Securities ("Holders") with a quarterly distribution
of $. per Security (which amount equals the pro rata portion of the fixed
quarterly cash distributions from the proceeds of the maturing U.S. Treasury
securities held by the Trust) and, on the Exchange Date, a number of shares of
Common Stock per Security equal to the Exchange Rate.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Common Stock on the Exchange
Date:
- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange
Rate will be the number of shares of Common Stock having a value
(determined at the Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0. shares
of Common Stock; and
- if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Common Stock.
For purposes of this formula, the Appreciation Threshold Price is $ and the
Initial Price is $ . The "Average Market Price" on any date means the average
Closing Price (as defined herein) per share of Common Stock for the 20 Trading
Days (as defined herein) immediately prior to, but not including, such date. The
formula will be subject to adjustment in certain events.
The Exchange Rate formula provides the Trust with the potential for a
portion of any capital appreciation above the Appreciation Threshold Price on
the Common Stock, but no protection from depreciation of the Common Stock.
Holders otherwise entitled to receive fractional shares in respect of their
aggregate holdings of Securities will receive cash in lieu thereof. See
"Investment Objective and Policies -- Trust Termination".
STRUCTURE. The purchase price under the Contracts is equal to $ per share
of Common Stock initially subject thereto and $ (_________ shares of
Common Stock) in the aggregate (assuming no exercise of the Underwriters'
over-allotment option) and is payable to the Sellers by the Trust at the closing
of the offering of the Securities. The obligations of the Sellers under the
Contracts will be secured by a pledge of the Common Stock. See "Investment
Objective and Policies -- The Contracts -- Collateral Arrangements;
Acceleration".
-3-
<PAGE>
THE OFFERING
The Trust is offering _________ Securities to the public at a purchase
price of $ per Security (which is equal to the last reported sale price of
the Common Stock on the date of this Prospectus) through Underwriters for whom
Goldman, Sachs & Co. and Lazard Freres & Co. LLC are acting as representatives
(the "Underwriters"). In addition, the Underwriters have been granted options to
purchase up to _______ additional Securities solely for the purpose of covering
over-allotments. See "Underwriting".
THE SECURITIES
GENERAL. The Securities are designed to provide investors with a higher
distribution per Security than the dividend currently paid per share on the
Common Stock. The annual distribution per Security is $ . Based on the
current annual dividend rate of $.90 per share of Common Stock, the annual per
share distribution per Security is $ greater than the current annual per
share dividend rate on the Common Stock. Future declarations of dividends on the
Common Stock by the Company and the amount of such dividends are discretionary
with its Board of Directors and subject to legal and other factors. Such further
declarations will necessarily depend on the Company's future earnings, financial
condition, capital requirements and other factors. Quarterly distributions on
the Securities will consist solely of the cash received from the U.S. Treasury
securities. The Trust will not be entitled to any dividends that may be declared
on the Common Stock because the Common Stock will only be transferred to the
Trust on the Exchange Date.
Holders will receive distributions at a higher annual rate than the
current annual dividends paid on the Common Stock. There is no assurance,
however, that the yield on the Securities will be higher than the dividend yield
on the Common Stock over the term of the Trust. In addition, the opportunity for
equity appreciation afforded by an investment in the Securities is less than
that afforded by an investment in the Common Stock because Holders will realize
no equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is below the Appreciation Threshold Price (which represents an
appreciation of % of the Initial Price). Moreover, because a Holder will
only receive 0. shares of Common Stock per Security if the Average Market Price
exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange % of any appreciation of the value of the Common Stock in
excess of the Appreciation Threshold Price. Holders of Securities will realize
the entire decline in equity value if the Average Market Price on the Exchange
Date is less than the Initial Price, which is equal to the price to public per
Security shown on the cover page hereof.
DISTRIBUTIONS. Holders are entitled to receive distributions at the rate
per Security of $ per annum or $ per quarter, payable quarterly
on each , , and or, if any such date is not a
business day, on the next succeeding business day, to Holders of record as of
each , , and , respectively. The first
distribution will be payable on , 1998 to Holders of record as of
, 1998. See "Investment Objective and Policies -- General".
MANDATORY EXCHANGE. On the Exchange Date, each outstanding Security will
be exchanged automatically for between 0.__ shares and one share of Common
Stock, subject to adjustment in the event of certain dividends or distributions,
subdivisions, splits, combinations, issuances of certain rights or warrants or
distributions of certain assets with respect to the Common Stock.
However, in the event of a merger of the Company with another entity, or
the liquidation of the Company, or certain related events, Holders would receive
consideration in the form of cash or Marketable Securities (as defined below
under the caption "Investment Objective and Policies -- The Contracts --
Dilution Adjustments") rather than shares of Common Stock. In addition, the
occurrence of certain defaults by the Sellers under the Contracts or the
collateral arrangements would cause the acceleration of the Contracts and the
exchange of each Security for an amount of shares of Common Stock (or, after a
Reorganization Event, the Marketable Securities or cash or a combination
-4-
<PAGE>
thereof deliverable in respect thereof). See "Investment Objective and Policies
- --The Contracts -- Collateral Arrangements; Acceleration"; and "-- Trust
Termination".
VOTING RIGHTS. Holders will have the right to vote on matters affecting
the Trust, as described below under the caption "Description of the Securities".
Holders of Common Stock have no voting power for any purpose whatsoever, except
as otherwise provided by law. See "Investment Objective and Policies -- The
Company" and "Description of the Securities".
THE COMPANY
The Company is a preeminent global leader in publishing and direct
marketing, creating and delivering products, including magazines, books,
recorded music collections, home videos and other products, that inform, enrich,
entertain and inspire.
Reference is made to the accompanying prospectus of the Company (pages A-1
through A-_ hereto) (the "Company Prospectus") which describes the Company and
the shares of Common Stock of the Company deliverable to the Holders upon
mandatory exchange of the Securities on the Exchange Date. The Company is not
affiliated with the Trust and will not receive any of the proceeds from the sale
of the Securities. The Company Prospectus relates to an aggregate of _________
shares of Common Stock (plus an additional _______ shares that may be delivered
upon exercise of the Underwriters' over-allotment option).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust for federal income tax
purposes. Accordingly, each Holder will be treated for federal income tax
purposes as the owner of its pro rata portion of the U.S. Treasury securities
and the Contracts, and income received (including original issue discount
treated as received) by the Trust will generally be treated as income of the
Holders. The U.S. Treasury securities will be treated for federal income tax
purposes as having "original issue discount" that will accrue over the term of
such U.S. Treasury securities. Actual receipts of cash in respect of U.S.
Treasury securities will not be included in income, however, but rather will
reduce the aggregate tax basis of the Securities. See "Certain Federal Income
Tax Considerations".
MANAGEMENT AND ADMINISTRATION OF THE TRUST
The Trust will be internally managed and will not have an investment
adviser. The administration of the Trust will be overseen by three Trustees. The
day-to-day administration of the Trust will be carried out by The Bank of New
York (or its successor) as trust administrator (the "Administrator"). The Bank
of New York (or its successor) will also act as custodian (the "Custodian") for
the Trust's assets and as paying agent (the "Paying Agent"), registrar and
transfer agent with respect to the Securities. Except as aforesaid, The Bank of
New York has no other affiliation with, and is not engaged in any other
transaction with, the Trust. See "Management and Administration of the Trust".
LIFE OF THE TRUST
The Trust will terminate automatically on or shortly after the Exchange
Date. Promptly after the Exchange Date the shares of Common Stock to be
exchanged for the Securities and other remaining Trust assets, if any, will be
distributed pro rata to Holders. See "Investment Objective and Policies -- Trust
Termination".
-5-
<PAGE>
RISK FACTORS
The Trust will not be managed in the traditional sense. The Trust has
adopted a policy that the Contracts may not be disposed of during the term of
the Trust and that the U.S. Treasury securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities and the
termination of the Trust. The Trust will continue to hold the Contracts despite
any significant decline in the market price of the Common Stock or adverse
changes in the financial condition of the Company. See "Risk Factors -- Internal
Management; No Portfolio Management" and "Management and Administration of the
Trust -- Trustees".
Holders will receive distributions at a higher annual rate than the
current annual dividends paid on the Common Stock. There is no assurance,
however, that the yield on the Securities will be higher than the dividend yield
on the Common Stock over the term of the Trust. In addition, the opportunity for
equity appreciation afforded by an investment in the Securities is less than
that afforded by an investment in the Common Stock because Holders will realize
no equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is below the Appreciation Threshold Price (which represents an
appreciation of % of the Initial Price). Moreover, because a Holder will
only receive 0. shares of Common Stock per Security if the Average Market Price
exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange % of any appreciation of the value of the Common
Stock in excess of the Appreciation Threshold Price. Holders of Securities will
realize the entire decline in equity value if the Average Market Price on the
Exchange Date is less than the price to public per Security shown on the cover
page hereof.
The Trust is classified as a "non-diversified" investment company under
the Investment Company Act. Consequently, the Trust is not limited by the
Investment Company Act in the proportion of its assets that may be invested in
the securities of a single issuer. Since the only assets held by the Trust will
be the U.S. Treasury securities and the Contracts, the Trust will be subject to
greater risk than would be the case for an investment company with diversified
investments. See "Investment Objective and Policies" and "Risk Factors --
Non-Diversified Status".
The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Common Stock in the secondary
market. Trading prices of Common Stock will be influenced by the Company's
operating results and prospects and by economic, financial and other factors and
market conditions.
HOLDERS OF THE SECURITIES WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT
TO THE COMMON STOCK (INCLUDING, WITHOUT LIMITATION, RIGHTS TO RECEIVE ANY
DIVIDENDS OR OTHER DISTRIBUTIONS IN RESPECT THEREOF) UNLESS AND UNTIL SUCH TIME,
IF ANY, AS THE SELLERS SHALL HAVE DELIVERED SHARES OF COMMON STOCK PURSUANT TO
THE CONTRACTS.
LISTING
Application will be made to list the Securities on the New York Stock
Exchange (the "NYSE") under the symbol ---.
FEES AND EXPENSES
In light of the fact that the proceeds of the sale of the Securities will
be used in part by the Trust to purchase the Contracts from the Sellers, the
Underwriting Agreement provides that the Sellers will pay Underwriters'
Compensation to the Underwriters of $ . per Security. See "Underwriting".
Estimated organization costs of the Trust in the amount of $10,000 and estimated
costs of the Trust in connection with the initial registration and public
offering of the Securities in the amount of $ will be paid by the Underwriters.
Other estimated costs of the Trust in connection with the public offering of the
Securities, in the amount of $ , will be paid by the Sellers. Each of the
Administrator, the Custodian and the Paying Agent, and each Trustee, will be
paid by the Underwriters at the closing of the offering of the Securities a
one-time, up-front amount in respect of its ongoing fees and, in the case of the
Administrator, anticipated expenses of the Trust (estimated to be $ in the
aggregate), over the term of the Trust.
-6-
<PAGE>
The Underwriters have agreed to pay any on-going expenses of the Trust in excess
of these estimated amounts and to reimburse the Trust for any amounts it may be
required to pay as indemnification to any Trustee, the Administrator, the
Custodian or the Paying Agent. See "Management and Administration of the Trust
- -- Estimated Expenses".
Regulations of the Securities and Exchange Commission ("SEC") applicable
to closed-end investment companies designed to assist investors in understanding
the costs and expenses that an investor will bear directly or indirectly require
the presentation of Trust expenses in the following format. Because the Trust
will not bear any fees or expenses, investors will not bear any direct expenses.
The only expenses that an investor might be considered to be bearing indirectly
are (i) the Underwriters' Compensation payable by the Sellers with respect to
such investor's Securities and (ii) the ongoing expenses of the Trust (including
fees of the Administrator, Custodian, Paying Agent and Trustees), estimated at $
per year, payable by Goldman Sachs at the closing of the offering. See
"Investment Objective and Policies -- General".
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)......................... %
Dividend Reinvestment and Cash Purchase Plan Fees...................... N/A
ANNUAL EXPENSES
Management Fees........................................................ 0%
Other Expenses (after reimbursement by the Underwriters)*.............. %
Total Annual Expenses (after reimbursement by the Underwriters)*.... %
- ----------------
* Absent the reimbursement, the Trust's "total annual expenses" would be equal
to approximately % of the Trust's average net assets. The Underwriters
are paying expenses on behalf of the Trust out of its normal underwriting
compensation.
SEC regulations also require that closed-end investment companies present
an illustration of cumulative expenses (both direct and indirect) that an
investor would bear. The example is required to factor in the applicable Sales
Load and to assume, in addition to a 5% annual return, the reinvestment of all
distributions at net asset value. INVESTORS SHOULD NOTE THAT THE ASSUMPTION OF A
5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE FINANCIAL TERMS OF THE TRUST.
SEE "INVESTMENT OBJECTIVE AND POLICIES -- GENERAL". ADDITIONALLY, THE TRUST DOES
NOT PERMIT THE REINVESTMENT OF DISTRIBUTIONS.
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
You would bear the following expenses (i.e., the
applicable sales load and allocable portion
of ongoing expenses paid by the Underwriters
and the Sellers) on a $1,000 investment,
assuming a 5% annual return................. $ $
-7-
<PAGE>
THE TRUST
The Trust is a special-purpose New York trust and is registered as a
closed-end investment company under the Investment Company Act. The Trust was
formed on June 2, 1997 pursuant to a trust agreement dated as of such date and
amended and restated as of , 1998. The address of the Trust is 85 Broad
Street, New York, New York 10004 (telephone no. (212) 902-1000).
USE OF PROCEEDS
The net proceeds of this offering will be used immediately upon the
closing of this offering (a) to purchase a fixed portfolio comprised of stripped
U.S. Treasury securities with face amounts and maturities corresponding to the
quarterly distributions payable with respect to the Securities and the payment
dates thereof, and (b) to pay the purchase price under the Contracts to the
Sellers.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust will acquire and hold a portfolio of stripped U.S. Treasury
securities maturing on a quarterly basis through the Exchange Date and the
Contracts relating to the Common Stock of the Company. The Trust's investment
objective is to provide each Holder with a quarterly cash distribution of $ .
per Security (which amount equals the pro rata portion of the fixed quarterly
distributions from the proceeds of the maturing U.S. Treasury securities held by
the Trust) and, on the Exchange Date, a number of shares of Common Stock per
Security equal to the Exchange Rate.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price of the Common Stock on the Exchange Date:
- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange
Rate will be the number of shares of Common Stock having a value
(determined at the Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0. shares
of Common Stock; and
- if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Common Stock.
The "Average Market Price" per share of Common Stock on any date means the
average Closing Price (as defined below) of a share of Common Stock on the 20
Trading Days (as defined below) immediately prior to but not including such
date. The formula will be subject to adjustment in certain events. See "-- The
Contracts -- Dilution Adjustments". For purposes of the first part of the
formula, the Exchange Rate will be rounded upward or downward to the nearest
1/10,000 (or if there is not a nearest 1/10,000, to the next lower 1/10,000).
Holders otherwise entitled to receive fractional shares in respect of their
aggregate holdings of Securities will receive cash in lieu thereof. See "--
Trust Termination".
The "Closing Price" of the Common Stock 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 the Common Stock as reported on the NYSE Consolidated
Tape on such date of determination or, if the Common Stock 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 the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ National Market or,
if the Common Stock is not so reported, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, provided that if any event that results in an
adjustment to the number of shares of Common Stock deliverable under the
Contracts as described under " -- The Contracts -- Dilution Adjustments" occurs
prior to the Exchange Date, the Closing Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.
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<PAGE>
A "Trading Day" means a day on which the Common Stock (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.
A fundamental policy of the Trust is to invest at least [70]% of its total
assets in the Contracts. The Trust has also adopted a fundamental policy that
the Contracts may not be disposed of during the term of the Trust and that the
U.S. Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust. The
foregoing investment objective and policies are fundamental policies of the
Trust that may not be changed without the approval of a majority of the Trust's
outstanding Securities. A "majority of the Trust's outstanding Securities" means
the lesser of (i) 67% of the Securities represented at a meeting at which more
than 50% of the outstanding Securities are represented, and (ii) more than 50%
of the outstanding Securities.
The value of the Common Stock (or, after a Reorganization Event, the
Marketable Securities or cash or a combination thereof deliverable in respect
thereof) that will be received by Holders in respect of the Securities on the
Exchange Date may be more or less than the amount paid for the Securities
offered hereby.
For illustrative purposes only, the following chart shows the number of
shares of Common Stock that a Holder would receive for each Security at various
Average Market Prices. The chart assumes that there would be no adjustments to
the number of shares of Common Stock deliverable under the Contracts by reason
of the occurrence of any of the events described under " -- The Contracts --
Dilution Adjustments". There can be no assurance that the Average Market Price
on the Exchange Date will be within the range set forth below. Given the Initial
Price of $ per Security and the Appreciation Threshold Price of $ , a Holder
would receive in connection with the exchange of Securities on the Exchange Date
the following number of shares of Common Stock:
AVERAGE MARKET PRICE NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
- ------------------------------- -------------------------------
The following table sets forth information regarding the distributions to
be received on the U.S. Treasuries to be acquired by the Trust with a portion of
the proceeds of the Offering (assuming no exercise of the Underwriters'
over-allotment option), the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax purposes and the
amount of original issue discount accruing (assuming a yield-to-maturity accrual
election in respect of any short-term U.S. Treasury securities) on such U.S.
Treasuries with respect to a Holder who acquires its Securities at the issue
price from an Underwriter pursuant to the original offering. See "Certain
Federal Income Tax Considerations -- Recognition of Interest on the U.S.
Treasury Securities".
<TABLE>
<CAPTION>
ANNUAL GROSS
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ANNUAL INCLUSION OF
DISTRIBUTIONS FROM U.S. TREASURIES CAPITAL PER ORIGINAL ISSUE DISCOUNT
U.S. TREASURIES PER SECURITY SECURITY IN INCOME PER SECURITY
YEAR ----------------- ------------------- ---------------- ----------------------
- ----
<S> <C> <C> <C> <C>
1998...........
1999...........
2000...........
2001...........
</TABLE>
The annual distribution of $ per Security is payable quarterly on each
___________, ______, _________ and ___________, commencing ___________, 1998.
Quarterly distributions on the Securities will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Common Stock. See "Management and
Administration of the Trust -- Distributions".
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<PAGE>
ENHANCED YIELD; LESS EQUITY APPRECIATION THAN COMMON STOCK; NO
DEPRECIATION PROTECTION
Holders will receive distributions at a higher annual rate than the
current annual dividends paid on the Common Stock. However, there is no
assurance that the yield on the Securities will be higher than the dividend
yield on the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in the Securities
is less than that afforded by an investment in the Common Stock because Holders
will realize no equity appreciation if, on the Exchange Date, the Average Market
Price of the Common Stock is below the Appreciation Threshold Price (which
represents an appreciation of % of the Initial Price). Moreover, because Holders
will only receive 0. shares of Common Stock per Security if the Average Market
Price exceeds the Appreciation Threshold Price, Holders will only be entitled to
receive upon exchange % (the percentage equal to the Initial Price divided
by the Appreciation Threshold Price) of any appreciation of the value of the
Common Stock in excess of the Appreciation Threshold Price. Holders of
Securities will realize the entire decline in value if the Average Market Price
on the Exchange Date is less than the Initial Price, which is equal to the price
to public per Security shown on the cover page hereof.
THE COMPANY
The Company is a preeminent global leader in publishing and direct
marketing, creating and delivering products, including magazines, books,
recorded music collections, home videos and other products, that inform, enrich,
entertain and inspire.
The shares of Common Stock are traded on the New York Stock Exchange. The
following table sets forth, for the periods indicated, the reported high and low
sales prices of the shares of Common Stock on the New York Stock Exchange
Composite Tape and the cash dividends per share of Common Stock. As of ,
1997, there were record holders of the Common Stock, including The Depository
Trust Company, which holds shares of Common Stock on behalf of an indeterminate
number of beneficial owners.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW PER SHARE
-------- -------- ---------
<S> <C> <C> <C>
Fiscal Year ended June 30, 1996
1st Quarter..................................... $47 7/8 $43 7/8 $ 0.40
2nd Quarter..................................... 52 46 3/4 0.45
3rd Quarter..................................... 51 3/8 45 1/4 0.45
4th Quarter..................................... 47 3/4 40 1/2 0.45
Fiscal Year ended June 30, 1997
1st Quarter..................................... $43 1/2 $38 1/2 $0.45
2nd Quarter..................................... 41 1/4 34 0.45
3rd Quarter..................................... 41 28 3/4 0.45
4th Quarter..................................... 30 22 1/8 0.45
Fiscal Year ending June 30, 1998
1st Quarter..................................... $30 9/16 $24 1/2 $0.225
2nd Quarter (through December 15, 1997)......... $31 1/2 $20 7/8 --
</TABLE>
- ---------------------------
Holders will not be entitled to rights with respect to the Common Stock
(including, without limitation, rights to receive dividends or other
distributions in respect thereof) until receipt of shares of Common Stock by the
Holders as a result of the exchange of the Securities for the Common Stock on
the Exchange Date.
Reference is made to the Company Prospectus (pages A-1 through A-_ hereto)
which describes the Company and the shares of Common Stock deliverable to the
Holders upon mandatory exchange of the Securities on the Exchange Date. The
Company is not affiliated with the Trust and will not receive any of the
proceeds from the sale of the Securities. The Company Prospectus relates to an
aggregate of _________ shares of Common Stock (plus an additional _______ shares
that may be delivered upon exercise of the Underwriters' over-allotment option).
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<PAGE>
THE CONTRACTS
GENERAL. The Trust will enter into a Contract with each Seller obligating
that Seller to deliver to the Trust on the Exchange Date a number of shares of
Common Stock equal to the product of the Exchange Rate times the initial number
of shares of Common Stock subject to such Contract. The aggregate initial number
of shares of Common Stock under the Contracts will equal the aggregate number of
Securities offered hereby (subject to increase in the event the Underwriters
exercise their over-allotment option).
The purchase price of the Contracts was arrived at by arm's-length
negotiation between the Trust and the Sellers taking into consideration factors
including the price, expected dividend level and volatility of the Common Stock,
current interest rates, the term of the Contracts, current market volatility
generally, the collateral security pledged by the Sellers, the value of other
similar instruments and the costs and anticipated proceeds of the offering of
the Securities. All matters relating to the administration of the Contracts will
be the responsibility of either the Administrator or the Custodian.
DILUTION ADJUSTMENTS. The Exchange Rate is subject to adjustment if the
Company (i) pays a stock dividend or makes a distribution with respect to the
Common Stock in shares of such stock, (ii) subdivides or splits its outstanding
shares of Common Stock, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issues by reclassification of its
shares of Common Stock any shares of other common stock of the Company. In any
such event, the Exchange Rate shall be adjusted as follows: for each share of
Common Stock that would have been issuable upon exchange prior to the
adjustment, the Holder will receive 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
fraction thereof, that a shareholder 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.
In addition, if the Company issues 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
(as defined below) (other than rights to purchase Common Stock pursuant to a
plan for the reinvestment of dividends or interest), then the Exchange Rate
shall be adjusted pursuant to the following formula:
A = ER x OS + AS
--------
OS + PS
where
ER = the Exchange Rate prior to the adjustment;
OS = the number of shares of Common Stock outstanding immediately
prior to the time (determined as described below) the adjustment is
calculated by reason of the issuance of such rights or warrants;
AS = the number of additional shares offered for subscription or
purchase pursuant to such rights or warrants; and
PS = the number of additional shares that the aggregate offering price
of the shares so offered for subscription or purchase would purchase
at the Then-Current Market Price.
To the extent that, after expiration of such rights or warrants, the shares
offered thereby shall not have been delivered, the Exchange Rate shall be
further adjusted to equal the Exchange Rate that would have been in effect had
the foregoing adjustment been made upon the basis of delivery of only the number
of shares of Common Stock actually delivered.
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<PAGE>
The "Then-Current Market Price" of the Common Stock means the average
Closing Price per share of Common Stock for a Calculation Period (defined below)
of five 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 following a record date, as described below, immediately prior to
the earlier of the time such adjustment is effected and the related "ex-date" on
which the shares of Common Stock first trade regular way on their principal
market without the right to receive the relevant dividend, distribution or
issuance); 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 is determined for any of such Trading Days, the most
recently available Closing Price for the Common Stock prior to such five Trading
Days shall be the Then-Current Market Price. "Calculation Period" means any
period of Trading Days for which an average security price must be determined
pursuant to the Contracts.
In addition, if the Company pays a dividend or makes a distribution to all
holders of Common Stock, in either case, of evidences of its indebtedness or
other non-cash assets (excluding any stock dividends or distributions in shares
of Common Stock) or 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 the second paragraph of this subsection), then the Exchange Rate
shall be adjusted pursuant to the following formula:
A = ER x T
-----
T - V
where
ER = the Exchange Rate prior to adjustment;
T = the Then-Current Market Price per share of Common Stock; and
V = 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 calculated of the
portion of such evidences of indebtedness, non-cash assets or rights
or warrants payable in respect of one share of Common Stock.
In addition, if the Company distributes cash (other than an Excluded
Distribution ), by dividend or otherwise, to all holders of Common Stock or
makes an Excess Purchase Payment, then the Exchange Rate shall be adjusted
pursuant to the following formula:
A = ER x T
-----
T - D
where
ER = the Exchange Rate prior to adjustment;
T = the Then-Current Market Price on the record date in respect of such
distribution; and
D = the amount of such distribution applicable to one share of Common
Stock that would not be a Permitted Dividend (or in the case of an
Excess Purchase Payment, the aggregate amount of such Excess Purchase
Payment divided by the number of outstanding shares of Common Stock
on such record date).
For purposes of these adjustments,
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<PAGE>
(a) the term "Excluded Distribution" means any Permitted Dividend, any
cash distributed in consideration of fractional shares of Common
Stock and any cash distributed in a Reorganization Event;
(b) the term "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
(c) the term "Excess Purchase Payment" means the excess, if any, of (i)
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 conclusive) 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 (ii) the Then-Current Market Price per share of Common Stock.
* If any adjustment in the Exchange Rate is required to be calculated as
described above, corresponding proportionate adjustments to the Initial Price
and the Appreciation Threshold Price shall be calculated.
Dilution adjustments shall be effected: (i) in the case of any dividend,
distribution or issuance described above, at the opening of business on the
business day 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 described above, 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 for such shares 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 Common Stock become entitled to payment with respect
thereto. There will be no adjustment under the Contracts in respect of any
dividends, distributions, issuances or repurchases that may be declared or
announced after the Exchange Date. If any announcement or declaration of a
record date in respect of a dividend, distribution, issuance or repurchase shall
subsequently be canceled 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 the Exchange Rate shall be further adjusted
to equal the Exchange Rate that would have been in effect had the adjustment for
such dividend, distribution, issuance or repurchase not been made. If after an
announcement of a share repurchase, the Company reduces the repurchase price or
repurchases fewer shares than announced, 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. All adjustments described
herein shall be rounded upward or downward to the nearest 1/10,000 (or if there
is not a nearest 1/10,000, to the next lower 1/10,000). 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 the foregoing are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
In the event of a Reorganization Event, the Exchange Rate will be adjusted
such that, on the Exchange Date, each Holder will receive for each Security cash
in an amount equal to:
(i) if the Transaction Value (as defined below) 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 greater than or equal to 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;
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<PAGE>
provided, however, that if the consideration received by holders of Common Stock
in such Reorganization Event includes securities or other property (other than
Marketable Securities), then a majority in interest of the Sellers may, at their
option (by joint notice delivered to the Administrator not later than the date
of consummation of such Reorganization Event), elect to accelerate the Contracts
by delivering to the Trust (as promptly as practicable after receipt thereof by
the Sellers) the Applicable Portion of the total consideration received in such
Reorganization Event in respect of the maximum number of shares of Common Stock
subject to the Contracts. In such event the Custodian will liquidate the U.S.
Treasury securities acquired by the Trust at closing of the Contracts and then
held by the Trust, and the proceeds of such liquidation, together with the total
consideration received by the Trust from the Sellers, will be distributed to the
Holders. "Applicable Portion", as applied to each type of consideration received
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 this paragraph,
and the denominator of which is the Transaction Value.
In addition, to the extent that any Marketable Securities (as defined
below) are received by holders of Common Stock in such Reorganization Event,
then in lieu of delivering cash as provided above, the Sellers shall deliver a
proportional amount of such Marketable Securities on the Exchange Date. If the
Sellers deliver Marketable Securities on the Exchange Date, Holders will be
responsible for the payment of any and all brokerage and other transaction costs
upon the sale of such securities.
"Reorganization Event" means (A) 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), (B) 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, (C) 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 (D) any liquidation, dissolution or
winding up of the Company or any Company Successor.
"Transaction Value" means (i) for any cash received in any such
Reorganization Event, the amount of cash received per share of Common Stock,
(ii) 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 (which determination
shall separately identify the value ascribed to each different type of
consideration received) and (iii) for any Marketable Securities received in any
such Reorganization Event, an amount equal to the average Closing Price per
share of such securities on the 20 Trading Days immediately prior to the
Exchange Date multiplied by the number of such securities received for each
share of Common Stock; provided that if no Closing Price for such Marketable
Securities is determined for one or more (but not all) of such Trading Days,
such Trading Days 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 is determined for all
such Trading Days, the calculation in the preceding clause (iii) shall be based
on the most recently available Closing Price for the Marketable Securities prior
to such 20 Trading Days. The number of shares of Marketable Securities included
in the calculation of Transaction Value for purposes of the preceding clause
(iii) shall be subject to adjustment if a dilution event of the type described
above shall occur with respect to the issuer of the Marketable Securities
between the time of the Reorganization Event and the Exchange Date.
Notwithstanding the foregoing, if the consideration received by holders of
Common Stock in a Reorganization Event includes securities (other than
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 securities' having a market value equal to the average of the high and low
sale prices of such securities (as determined
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<PAGE>
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.
For purposes of determining Transaction Value, the term "Trading Day" and
"Closing Price" will have the same meaning, as applied to the Marketable
Securities, as these terms have as applied to the Common Stock for purposes of
determining the Average Market Price.
"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 the holders of Common Stock in a
Reorganization Event.
No dilution adjustments will be made for events, other than those
described above, such as offerings of Common Stock (other than through the
issuance of rights or warrants described above) for cash or in connection with
acquisitions.
COLLATERAL ARRANGEMENTS; ACCELERATION. Each Seller's obligations under the
Contract between such Seller and the Trust initially will be secured by a
security interest in the maximum number of shares of Common Stock subject to
such Contract (subject to adjustment in accordance with the dilution adjustment
provisions of such Contract, described above), pursuant to a Collateral
Agreement between such Sellers and The Bank of New York, as collateral agent
(the "Collateral Agent"). The Collateral Agreements will provide that, in the
event of a Reorganization Event, each Seller will pledge as alternative
collateral any Marketable Securities received by it in respect of the maximum
number of shares of Common Stock subject to its Contract at the time of the
Reorganization Event, plus cash in an amount equal to 100% of such Seller's Cash
Delivery Obligations (or U.S. Government obligations having an aggregate market
value when pledged and at daily mark-to-market valuations thereafter of not less
than 105% thereof). The Collateral Agent will be required, under the Collateral
Agreements, to invest any such cash in U.S. Treasury securities maturing on or
before ___________, ______. A Seller's "Cash Delivery Obligations" shall be the
Transaction Value of any consideration other than Marketable Securities received
by such Seller in respect of the maximum number of shares subject to its
Contract at the time of the Reorganization Event. The number of shares of
Marketable Securities required to be pledged shall be subject to adjustment if
any event requiring a dilution adjustment under the Contracts shall occur. The
Collateral Agent will promptly pay over to each Seller any dividends, interest,
principal or other payments received by the Collateral Agent in respect of any
collateral pledged by such Seller, unless such Seller is in default of its
obligations under its Collateral Agreement, or unless the payment of such amount
to such Seller would cause the collateral to become insufficient under its
Collateral Agreement. Each Seller shall have the right to vote any pledged
shares of Marketable Securities for so long as such shares are owned by it and
pledged under its Collateral Agreement, including after an event of default
under such Seller's Contract or Collateral Agreement.
A "Collateral Event of Default" under such Seller's Collateral Agreement
shall mean, at any time, (A) failure of the collateral to consist of at least
the maximum number of shares of Common Stock subject to such Seller's Contract
at such time (or, if a Reorganization Event shall have occurred at or prior to
such time, failure of the collateral to include the maximum number of shares of
any Marketable Securities required to be pledged as described above); and (B) at
any time after a Reorganization Event in which consideration other than
Marketable Securities shall have been delivered, failure of any U.S. Government
obligations pledged in respect of Cash Delivery Obligations to have a market
value at such time of at least 105% of such Cash Delivery Obligations, if such
failure shall not be cured within one business day after notice thereof is
delivered to such Seller.
The occurrence of a Collateral Event of Default under a Collateral
Agreement, or the bankruptcy or insolvency of a Seller, will cause an automatic
acceleration of such Seller's obligations under its Contract. In any such event,
such Seller will become obligated to deliver the initial number of shares of
Common Stock (or, after a Reorganization Event, the Marketable Securities or
cash or a combination thereof deliverable in respect thereof) subject to such
Seller's Contract.
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<PAGE>
Upon any acceleration under a Collateral Agreement, (i) the Collateral
Agent will distribute to the Trust, for distribution pro rata to the Holders,
the shares of Common Stock then pledged by the Defaulting Seller (or, after a
Reorganization Event, the Marketable Securities then pledged by the Defaulting
Seller, cash generated from the liquidation of U.S. Government obligations then
pledged by the Defaulting Seller, or a combination thereof) and (ii) the
Custodian will liquidate a proportionate amount of the U.S. Treasury securities
acquired by the Trust at closing and then held by the Trust and distribute the
proceeds pro rata to the Holders. Following any distributions upon acceleration
and liquidation in accordance with the foregoing sentence, the number of shares
of Common Stock or Marketable Securities, as applicable, deliverable to Holders
on the Exchange Date will be proportionately reduced.
See "-- Trust Termination".
DESCRIPTION OF THE SELLERS. The Sellers are Lila Acheson and Dewitt
Wallace Fund for Lincoln Center, Dewitt Wallace Fund for Macalester College,
Community Funds, Inc., Lila Acheson and Dewitt Wallace Fund for Hudson
Highlands, Lila Acheson Wallace Fund for the New York Zoological Society, and
Dewitt Wallace Fund for Memorial Sloan-Kettering Cancer Center. Reference is
made to the caption "Principal and Selling Stockholders" in the Company
Prospectus for information about the Sellers.
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon ("stripped") U.S.
Treasury securities with face amounts and maturities corresponding to the
distributions payable with respect to the Securities and the payment dates
thereof. Up to [30]% of the Trust's total assets may be invested in these U.S.
Treasury Securities. In the event that any Contract is accelerated, then a
proportionate amount of such U.S. Treasury securities then held in the Trust
shall be liquidated by the Administrator and the proceeds thereof distributed
pro rata to the Holders, together with the amounts distributed upon
acceleration. See "--Collateral Arrangements; Acceleration" and "-- Trust
Termination".
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the proceeds of the
U.S. Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
preceding the next following distribution date. Not more than 5% of the Trust's
total assets will be invested in such short-term obligations or held in cash at
any one time.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Trust may not purchase any
securities or instruments other than the U.S. Treasury securities, the Contracts
and the Common Stock or other assets received pursuant to the Contracts and, for
cash management purposes, short-term obligations of the U.S. Government; issue
any securities or instruments except for the Securities; make short sales or
purchase securities on margin; write put or call options; borrow money;
underwrite securities; purchase or sell real estate, commodities or commodities
contracts including futures contracts; or make loans (other than the purchase of
stripped U.S. Treasury securities as described in this Prospectus). The Trust
also has adopted a fundamental policy that the Contracts may not be disposed of
during the term of the Trust and that the U.S. Treasury securities held by the
Trust may not be disposed of prior to the earlier of their respective maturities
and the termination of the Trust.
Because of the foregoing limitations, the Trust's investments will be
concentrated in the publishing and direct marketing industries, which are the
industries in which the Company operates. The Trust is not permitted to purchase
restricted securities.
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<PAGE>
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the Exchange
Date. Alternatively, in the event that all Contracts are accelerated, then any
U.S. Treasury securities then held in the Trust shall be liquidated by the
Administrator and the proceeds distributed pro rata to the Holders, together
with the amounts distributed upon acceleration, and the Trust shall be
terminated. See "-- Collateral Arrangements; Acceleration" and "-- The U.S.
Treasury Securities".
RISK FACTORS
INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT
The Trust will be internally managed by its Trustees and will not have any
separate investment adviser. It is a fundamental policy of the Trust that the
Contracts may not be disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust. As a
result, the Trust will continue to hold the Contracts despite significant
declines in the market price of the Common Stock or adverse changes in the
financial condition of the Company (or, after a Reorganization Event, comparable
developments affecting any Marketable Securities or the issuer thereof). The
Trust will not be managed like a typical closed-end investment company.
LIMITED APPRECIATION POTENTIAL; COMMON STOCK DEPRECIATION RISK
The Trust anticipates that on the Exchange Date, it will receive the
Common Stock deliverable pursuant to the Contracts, which it will then
distribute to Holders. Although the yield on the Securities is higher than the
current dividend yield on the Common Stock, there is no assurance that the yield
on the Securities will be higher than the dividend yield on the Common Stock
over the term of the Trust. In addition, because the Contracts call for the
Sellers to deliver less than the full number of shares of Common Stock subject
to the Contracts where the Average Market Price exceeds the Initial Price (and
therefore less than one full share of Common Stock for each outstanding
Security), the Securities have more limited appreciation potential than the
Common Stock. Therefore, the Securities may trade below the value of the Common
Stock if the Common Stock appreciates in value. The value of the Common Stock to
be received by Holders on the Exchange Date may be less than the amount paid for
the Securities. Holders of Securities will realize the entire decline in value
if the Average Market Price is less than the Initial Price, which is equal to
the price to public per Security shown on the cover page hereof.
DILUTION ADJUSTMENTS; SHAREHOLDER RIGHTS
The number of shares of Common Stock that Holders are entitled to receive
at the termination of the Trust is subject to adjustment for certain events
arising from stock splits and combinations, stock dividends and certain other
actions of the Company that modify its capital structure. See "Investment
Objective and Policies -- The Contracts -- Dilution Adjustments". The number of
shares to be received by Holders may not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions, that may
adversely affect the price of the Common Stock and, because of the relationship
of the amount to be received pursuant to the Contracts to the price of the
Common Stock, such other events may adversely affect the trading price of the
Securities. There can be no assurance that the Company will not take any of the
foregoing actions, or that it will not make offerings of, or that major
shareholders will not sell any, Common Stock in the future, or as to the amount
of any such offerings or sales. In addition, until the receipt of the Common
Stock by Holders as a result of the exchange of the Securities for the Common
Stock, Holders will not be entitled to any rights with respect to the Common
Stock (including without limitation the right to receive any dividends or other
distributions in respect thereof).
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<PAGE>
TRADING VALUE; LISTING
The Trust is a special-purpose closed-end investment company with no
previous operating history and the Securities are innovative securities. It is
not possible to predict how the Securities will trade in the secondary market.
The trading price of the Securities may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the Common Stock
(which may occur due to changes in the Company's financial condition, results of
operations or prospects, or because of complex and interrelated political,
economic, financial and other factors that can affect the capital markets
generally, the stock exchanges or quotation systems on which the Common Stock is
traded and the market segment of which the Company is a part) and fluctuations
in interest rates and other factors that are difficult to predict and beyond the
Trust's control. The Trust believes, however, that because of the yield on the
Securities and the formula for determining the number of shares of Common Stock
to be delivered on the Exchange Date, the Securities will tend to trade at a
premium to the market value of the Common Stock to the extent the Common Stock
price falls and at a discount to the market value of the Common Stock to the
extent the Common Stock price rises. There can, however, be no assurance that
the Securities will trade at a premium to the market value of the Common Stock.
Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of investments in a closed-end
investment company is a risk separate and distinct from the risk that the
Trust's net asset value will decrease. The Trust cannot predict whether its
shares will trade at, below or above net asset value. The risk of purchasing
investments in a closed-end investment company that might trade at a discount
may be greater for investors who wish to sell their investments soon after
completion of an initial public offering because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.
The representatives of the Underwriters currently intend, but are not
obligated, to make a market in the Securities. There can be no assurance that a
secondary market will develop or, if a secondary market does develop, that it
will provide the Holders with liquidity of investment or that it will continue
for the life of the Securities. The representatives of the Underwriters may
cease to make a market in the Securities at any time without notice. Application
will be made to list the Securities on the NYSE. Assuming the acceptance of such
application, there can be no assurance that the Securities will not later be
delisted or that trading in the Securities on the NYSE will not be suspended. In
the event of a delisting or suspension of trading on such exchange, the Trust
will apply for listing of the Securities on another national securities exchange
or for quotation on another trading market. If the Securities are not listed or
traded on any securities exchange or trading market, or if trading of the
Securities is suspended, pricing information for the Securities may be more
difficult to obtain, and the price and liquidity of the Securities may be
adversely affected.
NON-DIVERSIFIED STATUS
The Trust is considered non-diversified under the Investment Company Act,
which means that the Trust is not limited in the proportion of its assets that
may be invested in the obligations of a single issuer. Since the only assets
held or received by the Trust will be U.S. Treasury securities and the Contracts
or other assets consistent with the terms of the Contracts, the Trust will be
subject to greater risk than would be the case for an investment company with
diversified investments.
DESCRIPTION OF THE SECURITIES
Each Security represents an equal proportional interest in the Trust, and
a total of _______ Securities will be issued (assuming no exercise of the
Underwriters' overallotment option). Upon liquidation of the Trust, Holders are
entitled to share pro rata in the net assets of the Trust available for
distribution. The Securities have no preemptive, redemption or conversion
rights. Securities are fully paid and nonassessable by the Trust. The only
securities that the Trust is authorized to issue are the Securities offered
hereby and those sold to the initial Holder referred to below.
See "Underwriting".
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<PAGE>
Holders are entitled to a full vote for each Security held on all matters
to be voted on by Holders and are not able to cumulate their votes in the
election of Trustees. The Trustees of the Trust have been selected initially by
Goldman Sachs, as the initial Holder of Securities of the Trust. The Trust
intends to hold annual meetings as required by the rules of the NYSE. The
Trustees may call special meetings of Holders for action by Holder vote as may
be required by either the Investment Company Act or the Amended and Restated
Trust Agreement. The Holders have the right, upon the declaration in writing or
vote of more than two-thirds of the outstanding Securities, to remove a Trustee.
The Trustees will call a meeting of Holders to vote on the removal of a Trustee
upon the written request of the Holders of record of 10% of the Securities or to
vote on other matters upon the written request of the Holders of record of 51%
of the Securities (unless substantially the same matter was voted on during the
preceding 12 months). The Trustees shall establish, and notify the Holders in
writing of, the record date for each such meeting which shall be not less than
10 nor more than 50 days before the meeting date. Holders at the close of
business on the record date will be entitled to vote at the meeting. The Trust
will also assist in communications with other Holders as required by the
Investment Company Act.
In calculating the net asset value of the Trust as required by the
Investment Company Act, the Amended and Restated Trust Agreement provides that
(i) the Treasury Securities will be valued at the mean between the last current
bid and asked prices or, if quotations are not available, as determined in good
faith by the Trustees, (ii) short-term investments having a maturity of 60 days
or less will be valued at cost with accrued interest or discount earned included
in interest receivable and (iii) the Contracts will be valued on the basis of
the bid price received by the Trust in respect of the Contracts, or any portion
thereof covering not less than 1,000 shares, from an independent broker-dealer
firm unaffiliated with the Trust to be named by the Trustees who is in the
business of making bids on financial instruments similar to the Contracts and
with terms comparable thereto, or if such a bid quotation is not available, as
determined in good faith by the Trustee.
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ("DTC") will act as securities depository for
the Securities. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
offered hereby will be issued only as fully-registered securities registered in
the name of Cede & Co. (as nominee for DTC). One or more fully-registered global
Security certificates will be issued, representing in the aggregate the total
number of Securities, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilities the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). Access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants").
Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of a Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except upon a resignation of DTC.
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<PAGE>
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payments on the Securities will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Trust, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a global
Security will not be entitled to receive physical delivery of Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, certificates representing the Securities will be printed and
delivered.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three Trustees, none of which is
an "interested person" of the Trust as defined in the Investment Company Act.
Under the provisions of the Code applicable to grantor trusts, the Trustees will
not have the power to vary the investments held by the Trust. It is a
fundamental policy of the Trust that the Contracts may not be disposed of during
the term of the Trust and that the U.S. Treasury Securities held by the Trust
may not be disposed of prior to the earlier of their respective maturities and
termination of the Trust.
The names of the persons who have been elected by Goldman Sachs, the
initial Holder of securities of the Trust, and who will serve as the Trustees
are set forth below. The positions and the principal occupations of the
individual Trustees during the past five years are also set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- --------------------- ----- ----------------------
<S> <C> <C>
Donald J. Puglisi, 50.................. MANAGING TRUSTEE Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51.............. TRUSTEE Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
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<PAGE>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- --------------------- ----- ----------------------
James B. O'Neill, 57.... .................... TRUSTEE Professor of Economics
Center for Education & University of Delaware
Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
Each Trustee who is not a director, officer or employee of any Underwriter
or the Administrator, or of any affiliate thereof, will be paid by the Sellers,
on behalf of the Trust, in respect of its annual fee and anticipated
out-of-pocket expenses, a one-time, up-front fee of $ . The Trust's Managing
Trustee will also receive an additional up-front fee of $ for serving in that
capacity. The Trustees will not receive, either directly or indirectly, any
other compensation, including any pension or retirement benefits, from the
Trust. None of the Trustees receives any compensation for serving as a trustee
or director of any other affiliated investment company.
ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by The Bank of New
York as Trust Administrator pursuant to an Administration Agreement. Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, the duties to: (i)
receive invoices for expenses incurred by the Trust; (ii) with the approval of
the Trustees, engage legal and other professional advisors (other than the
independent public accountants for the Trust); (iii) instruct the Paying Agent
to pay distributions on Securities as described herein; (iv) prepare and mail,
file or publish all notices, proxies, reports, tax returns and other
communications and documents, and keep all books and records, for the Trust; (v)
at the direction of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce the rights and remedies of the Trust; and
(vi) make all necessary arrangements with respect to meetings of Trustees and
any meetings of Holders. The Administrator, however, will not select the
independent public accountants for the Trust or sell or otherwise dispose of the
Trust assets (except in connection with an acceleration of a Contract or the
settlement of the Contracts and upon termination of the Trust).
The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days' prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
Except for its roles as Administrator, Custodian, Paying Agent, registrar
and transfer agent for the Trust, The Bank of New York has no other affiliation
with, and is not engaged in any other transactions with, the Trust.
The address of the Administrator is 101 Barclay Street, New York, New York
10286.
CUSTODIAN
The Trust's custodian (the "Custodian") is The Bank of New York pursuant
to a custodian agreement (the "Custodian Agreement"). In the event of any
termination of the Custodian Agreement by the Trust or the resignation of the
Custodian, the Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by the Custodian
in short-term U.S. Treasury securities maturing on or shortly before the next
quarterly distribution date. The Custodian will also act as collateral agent
under the Collateral Agreements and will hold a perfected security interest in
the Common Stock or other assets consistent with the terms of the Contracts.
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<PAGE>
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying Agent") for
the Securities is The Bank of New York pursuant to a paying agent agreement (the
"Paying Agent Agreement"). In the event of any termination of the Paying Agent
Agreement by the Trust or the resignation of the Paying Agent, the Trust will
use its best efforts to engage a new Paying Agent to carry out the duties of the
Paying Agent.
INDEMNIFICATION
The Trust will indemnify each Trustee, the Paying Agent, the Administrator
and the Custodian, with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
that it may incur in acting as Trustee, Paying Agent, Administrator or
Custodian, as the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits such indemnification. Goldman Sachs has agreed to
reimburse the Trust for any amounts it may be required to pay as indemnification
to any Trustee, the Administrator, the Custodian or the Paying Agent.
DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis an amount
equal to $ . per Security (which amount equals the pro rata portion of the fixed
quarterly cash distributions from the proceeds of the maturing U.S. Treasury
securities held by the Trust). The first distribution, reflecting the Trust's
operations from the date of this offering, will be made on ___________, 1998 to
Holders of record as of __________, 1998. Thereafter, distributions will be made
on ___________, ______, _________ and ___________ of each year to Holders of
record as of each __________, _____, ________ and __________, respectively. A
portion of each such distribution should be treated as a tax-free return of the
Holder's investment. See "Investment Objective and Policies -- General" and
"Certain Federal Income Tax Considerations -- Recognition of Interest on the
U.S. Treasury Securities".
Upon termination of the Trust, as described under the caption "Investment
Objective and Policies -- Trust Termination", each Holder will receive any
remaining net assets of the Trust.
The Trust does not permit the reinvestment of distributions.
ESTIMATED EXPENSES
At the closing of this offering the Underwriters will pay to each of the
Administrator, the Custodian and the Paying Agent, and to each Trustee, a
one-time, up-front amount in respect of its fee and, in the case of the
Administrator, anticipated expenses of the Trust over the term of the Trust. The
anticipated Trust expenses to be borne by the Administrator include, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, Securities certificates and Holder reports, expenses of the
Trustees, fidelity bond coverage, stock exchange listing fees and expenses of
qualifying the Securities for sale in the various states. Organization costs of
the Trust in the amount of $10,000 and estimated costs of the Trust in
connection with the initial registration and public offering of the Securities
in the amount of $ will be paid by the Underwriters. Other estimated costs of
the Trust in connection with the public offering of the Securities in the amount
of $ will be paid by the Sellers.
The amount payable to the Administrator in respect of ongoing expenses of
the Trust was determined based on estimates made in good faith on the basis of
information currently available to the Trust, including estimates furnished by
the Trust's agents. There cannot, however, be any assurance that actual
operating expenses of the Trust will not be substantially more than this amount.
Any excess expenses will be paid by the Underwriters or, in the event of failure
by the Underwriters to pay such amounts, the Trust (which would reduce the
amount available for distributions to Holders of Securities).
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the principal United States federal income
tax consequences of ownership of Securities is based upon the opinion of
Sullivan & Cromwell, counsel to the Trust. It deals only with Securities held as
capital assets by a Holder who acquires its Securities at the issue price from
an Underwriter pursuant to the original offering, and not with special classes
of Holders, such as dealers in securities or currencies, banks, life insurance
companies, persons who are not United States Holders (as defined below), persons
that hold Securities that are part of a hedging transaction, straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.
Prospective purchasers of Securities should consult their own tax
advisors concerning the consequences, in their particular circumstances, under
the Code and the laws of any other taxing jurisdiction, of ownership of
Securities.
A United States Holder is a beneficial owner who or that is (i) a
citizen or resident of the United States, (ii) a domestic corporation or (iii)
otherwise subject to United States federal income taxation on a net income basis
in respect of Securities.
Sullivan & Cromwell believes the Contracts should be treated for
federal income tax purposes as prepaid forward contracts for the purchase of a
variable number of shares of Common Stock. Holders should be aware that there
are alternative characterizations of the Contracts which could result in
different federal income tax consequences, including that the Contracts
represent a current purchase by Holders of the Common Stock. While Sullivan &
Cromwell does not believe that any alternative characterizations should apply
for federal income tax purposes, Holders should consult their tax advisors in
this regard. The following discussion is based on treatment of the Contracts as
prepaid forward contracts:
TAX STATUS OF THE TRUST. The Trust will be treated as a grantor trust
for federal income tax purposes, and each Holder will be considered the owner of
its pro rata portions of the stripped U.S. Treasury securities and the Contracts
in the Trust under the grantor trust rules of the Code. Income received by the
Trust will be treated as income of the Holders in the manner set forth below.
RECOGNITION OF INTEREST ON THE U.S. TREASURY SECURITIES. The U.S.
Treasury securities in the Trust will consist of stripped U.S. Treasury
securities. A Holder will be required to treat its pro rata portion of each U.S.
Treasury security in the Trust as a bond that was originally issued on the date
the Holder purchased its Securities at an original issue discount equal to the
excess of the Holder's pro rata portion of the amounts payable on such U.S.
Treasury security over the Holder's tax basis therefor (determined as described
below). The amount of such excess, however, will constitute only a portion of
the total amounts payable in respect of U.S. Treasury securities held by the
Trust and, consequently, a substantial portion of each quarterly cash
distribution to the Holders will be treated as a tax-free return of the Holders'
investment in the U.S. Treasury securities and will not be considered current
income for federal income tax purposes. See "Investment Objective and Policies
- -- General".
A Holder (whether on the cash or accrual method of tax accounting)
will be required to include original issue discount (other than original issue
discount on short-term U.S. Treasury securities as defined below) in income for
federal income tax purposes as it accrues on a constant yield basis. The Trust
expects that more than 20% of the Holders will be accrual basis taxpayers, in
which case original issue discount on any short-term U.S. Treasury security
(i.e., any U.S. Treasury security with a maturity of one year or less from the
date it is purchased) held by the Trust also will be required to be included in
income by the Holders as it is accrued. Unless a Holder elects to accrue the
original issue discount on a short-term U.S. Treasury security according to a
constant yield method based on daily compounding, such original issue discount
will be accrued on a straight-line basis. The Holder's tax basis in a U.S.
Treasury security will be increased by the amounts of any original issue
discount included in income by the Holder with respect to such U.S. Treasury
security.
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<PAGE>
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACTS. A
Holder's tax basis in the Contracts and the U.S. Treasury securities,
respectively, will equal its pro rata portion of the amounts paid for them by
the Trust. It is currently anticipated that % and % of the proceeds of the
offering will be used by the Trust to purchase the U.S. Treasury securities and
as payments for the Contracts, respectively.
TREATMENT OF THE CONTRACTS. Each Holder will be treated as having
entered into a pro rata portion of the Contracts and, at the Exchange Date, as
having received a pro rata portion of the Common Stock delivered to the Trust.
DISTRIBUTION OF THE COMMON STOCK. The delivery of Common Stock
pursuant to the Contracts will not be taxable to the Holders. Each Holder's
basis in its Common Stock will be equal to its basis in its pro rata portion of
the Contracts, less the portion of such basis allocable to any fractional shares
of Common Stock for which cash is received. A Holder will recognize capital gain
or loss upon receipt by the Trust of cash in lieu of fractional shares of Common
Stock equal to the difference between the Holder's allocable portion of the
amount of cash received and the Holder's basis in such fractional shares. The
holding period for the Common Stock will begin on the day after it is acquired
by the Trust.
DISTRIBUTION OF CASH FOLLOWING A REORGANIZATION EVENT. To the extent
the Trust receives cash following the occurrence of a Reorganization Event, a
Holder will recognize gain or loss equal to the difference between the Holder's
allocable portion of the amount of cash received and the Holder's aggregate tax
basis in its pro rata portion of the Contracts exchanged for such cash. Any gain
or loss will be long-term capital gain or loss if the Holder has held the
Securities for more than one year. Long-term capital gain of an individual
Holder will be subject to a maximum tax rate of 28% in respect of Securities
held for more than one year. The maximum rate is reduced to 20% in respect of
Securities held in excess of 18 months.
SALE OF SECURITIES. Upon a sale of all or some of a Holder's
Securities, a Holder will be treated as having sold its pro rata portions of the
U.S. Treasury securities and the Contracts underlying the Securities. The
selling Holder will recognize gain or loss equal to the difference between the
amount realized and the Holder's aggregate tax bases in its pro rata portions of
the U.S. Treasury securities and the Contracts. Any gain or loss will be
long-term capital gain or loss if the Holder has held the Securities for more
than one year. Long-term capital gain of an individual Holder will be subject to
a maximum tax rate of 28% in respect of Securities held for more than one year.
The maximum rate is reduced to 20% in respect of Securities held in excess of 18
months.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The payments of
principal and interest (including original issue discount) on, and the proceeds
received from the sale of, Securities may be subject to U.S. backup withholding
tax at the rate of 31% if the Holder thereof fails to supply an accurate
taxpayer identification number or otherwise to comply with applicable U.S.
information reporting or certification requirements. Any amounts so withheld
will be allowed as a credit against such Holder's U.S. federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
After the end of each calendar year, the Trust will furnish to each
record Holder of Securities an annual statement containing information relating
to the payments on the U.S. Treasury securities received by the Trust. The Trust
will also furnish annual information returns to each record Holder of the
Securities and to the Internal Revenue Service.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell to each Underwriter named below, for whom Goldman,
Sachs & Co. and Lazard Freres & Co. LLC are acting as representatives, and each
Underwriter has agreed to purchase from the Trust, the number of Securities set
forth opposite its name below:
-24-
<PAGE>
NUMBER OF
UNDERWRITERS SECURITIES
Goldman, Sachs & Co..........................................
Lazard Freres & Co. LLC......................................
---------
Total................................................... =========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Securities offered
hereby, if any are taken.
The Underwriters propose to offer the Securities in part directly to the
public at the price to the public set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of $
per Security. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per Security to certain brokers and dealers. After
the Securities are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Underwriters. The sales
load of $ per Security is equal to % of the initial public offering price.
Investors must pay for any Securities purchased in the initial public offering
on or before , 1998.
In connection with the offering, the Underwriters may purchase and sell
the Securities and the Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the securities or the Common
Stock; and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of Securities than they are required to
purchase from the Trust in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Securities sold in the offering may be
reclaimed by the syndicate if such securities are repurchased by the syndicate
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Securities which may be
higher than the price that might otherwise prevail in the open market, and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the NYSE, in the over-the-counter market or otherwise.
In light of the fact that proceeds from the sale of the Securities will be
used by the Trust to purchase the Contracts from the Sellers, the Underwriting
Agreement provides that the Sellers will pay to the Underwriters the
Underwriters' Compensation of $ per Security.
The Trust has granted the Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of _______ additional Securities solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, they will receive the
Underwriters' Compensation referred to above for each Security so purchased.
The Sellers and the Company have agreed that, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any Common Stock or other securities of the Company
(other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the Common Stock
or which are convertible or exchangeable into Common Stock or other securities
which are substantially similar to the Common Stock, without the prior written
consent of Goldman Sachs.
-25-
<PAGE>
The Securities will be a new issue of securities with no established
trading market. Application has been made to list the Securities on the NYSE.
The representatives of the Underwriters have advised the Company that they
intend to make a market in the Securities, but they are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Securities.
The Underwriters have informed the Trust that they will not confirm sales
to any accounts over which they exercise discretionary authority without
specific written approval of such transactions by the customer.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933.
One Security has been subscribed for by Goldman Sachs at an aggregate
purchase price of $100.00. No Securities will be sold to the public until the
Securities subscribed for have been purchased and the purchase price thereof
paid in full to the Trust.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Trust by
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, and for the
Underwriters by Milbank, Tweed, Hadley & McCloy, One Chase Manhattan Plaza, New
York, New York 10005. Frederic C. Rich, a member of Sullivan & Cromwell, is a
member and director of the Lila Acheson and Dewitt Wallace Fund for Hudson
Highlands, one of the Sellers.
EXPERTS
The financial statement included in this Prospectus has been audited by
_______________, independent accountants, as stated in their opinion appearing
herein, and has been so included in reliance upon such opinion given upon the
authority of that firm as experts in accounting and auditing.
FURTHER INFORMATION
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form N-2 under the
Securities Act of 1933, as amended, with respect to the Securities offered
hereby. Further information concerning the Securities and the Trust may be found
in the Registration Statement of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by the
Commission. Such Registration Statement is also available on the Commission's
website (http://www.sec.gov).
-26-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Securityholders of Reader's Digest Automatic
Common Exchange Security Trust:
We have audited the accompanying statement of assets and liabilities of
Reader's Digest Automatic Common Exchange Security Trust as of ________, 1997.
This financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by the Trust's management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the financial
statement provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Reader's Digest Automatic
Common Exchange Security Trust, as of ________, 1997 in conformity with
generally accepted accounting principles.
New York, New York
________, 1997
-27-
<PAGE>
READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
________, 1997
ASSETS
Cash............................................................... $ 100
-----
Total assets....................................................... $ 100
=====
LIABILITIES
................................................................... $ 0
-----
NET ASSETS
Balance applicable to 1 Security outstanding....................... $ 100
-----
Net asset value per Security....................................... $ 100
=====
- -----------------
(1) Reader's Digest Automatic Common Exchange Security Trust (the "Trust") was
established on June 2, 1997 and has had no operations to date other than
matters relating to its organization and registration as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940. Costs incurred in connection with the
organization of the Trust will be paid by the Underwriters.
(2) The Trust proposes to sell Trust Automatic Common Exchange Securities
(the "Securities") to the public pursuant to a Registration Statement on
Form N-2 under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended. The Trust is a special-purpose,
finite-term trust established to purchase and hold a portfolio of
stripped U.S. treasury securities and a forward purchase contract with
existing shareholders of The Reader's Digest Association, Inc. (the
"Company") relating to the Class A Nonvoting Common Stock, par value
$0.01 per share of the Company. The trust will be internally managed and
will not have an investment adviser. The administration of the trust,
which will be overseen by the trustees, will be carried out by __________
as trust administrator. ____________ will also serve as custodian, paying
agent, registrar and transfer agent with respect to the Securities.
Ongoing fees and anticipated expenses for the term of the trust will be
paid for by the Underwriters.
(3) The Trust issued one Security on ________, 1997 to Goldman, Sachs & Co.
in consideration for the aggregate purchase price of $100. The Amended
and Restated Trust Agreement provides that prior to the offering, the
Trust will split the outstanding Security to be effected on the date that
the price and underwriting discount of the Securities being offered to
the public is determined, but prior to the sale of the Securities to the
Underwriters. The initial Security will be split into the smallest whole
number of Securities that would result in the per Security amount
recorded as shareholders' equity after effecting the split not exceeding
the Public Offering price per Security.
-28-
<PAGE>
GLOSSARY
"Administration Agreement" means the Administration Agreement between the
Trust and The Bank of New York, as Trust Administrator.
"Administrator" means The Bank of New York, in such capacity under the
Administrative Agreement.
"Appreciation Threshold Price" means $_________.
"Average Market Price" on any date means the average Closing Price (as
defined herein) per share of Common Stock for the 20 Trading Days (as defined
herein) immediately prior to, but not including, such date.
"Calculation Period" means any period of Trading Days for which an average
security price must be determined pursuant to the Contracts.
"Cash Delivery Obligation," in respect of any Seller after a
Reorganization Event, means the Transaction Value of any consideration other
than Marketable Securities received by such Seller in respect of the maximum
number of shares subject to its Contract at the time of the Reorganization
Event.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means The Bank of New York, acting in such capacity
under the Collateral Agreements.
"Collateral Agreements" means the Collateral Agreements between the
Sellers and The Bank of New York, as Collateral Agent, securing the Sellers'
obligations under their respective Contracts.
"Common Stock" means the Class A Nonvoting Common Stock, par value $0.01
per share, of the Company.
"Closing Price" of the Common Stock 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 the Common Stock as reported on the NYSE Consolidated
Tape on such date of determination or, if the Common Stock 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 the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ National Market or,
if the Common Stock is not so reported, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, provided that if any event that results in an
adjustment to the number of shares of Common Stock deliverable under the
Contracts as described under " -- The Contracts -- Dilution Adjustments" occurs
prior to the Exchange Date, the Closing Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.
"Collateral Event of Default" means, in respect of any Seller's Collateral
Agreement, (A) failure of the collateral to consist of at least the maximum
number of shares of Common Stock subject to such Seller's Contract at such time
(or, if a Reorganization Event shall have occurred at or prior to such time,
failure of the collateral to include the maximum number of shares of any
Marketable Securities required
-29-
<PAGE>
to be pledged as described above); and (B) at any time after a Reorganization
Event in which consideration other than Marketable Securities shall have been
delivered, failure of any U.S. Government obligations pledged in respect of Cash
Delivery Obligations to have a market value at such time of at least 105% of
such Cash Delivery Obligations, if such failure shall not be cured within one
business day after notice thereof is delivered to such Seller.
"Company" means The Reader's Digest Association, Inc., a Delaware
corporation.
"Contracts" means the forward purchase contracts between the Sellers and
the Trust relating to the Common Stock.
"Custodian" means The Bank of New York, in such capacity under the
Custodian Agreement.
"Custodian Agreement" means Custodian Agreement between the Trust and The
Bank of New York, as Custodian.
"DTC" means The Depositary Trust Company.
"Excess Purchase Payment" means the excess, if any, of (i) 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 conclusive) 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 (ii) the Then-Current Market Price per share of Common Stock.
"Exchange Date means _______________, ____.
"Exchange Rate" means the rate of exchange of Common Stock for Securities
on the Exchange Date, and shall be determined as follows (subject to adjustment
in certain events):
- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange
Rate will be the number of shares of Common Stock having a value
(determined at the Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0. shares
of Common Stock; and
- if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Common Stock.
"Excluded Distribution" means any Permitted Dividend, any cash distributed
in consideration of fractional shares of Common Stock and any cash distributed
in a Reorganization Event.
"Holders" means holders of Securities.
"Initial Price" means $_________.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"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 the holders of Common Stock in a
Reorganization Event.
-30-
<PAGE>
"NYSE" means the New York Stock Exchange.
"Paying Agent" means the Bank of New York, acting as transfer agent,
registrar and paying agent pursuant to the Paying Agent Agreement.
"Paying Agent Agreement" means the Paying Agent Agreement between The
Trust and the Bank of New York, as Paying Agent.
"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%.
"Reorganization Event" means (A) 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), (B) 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, (C) 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 (D) any liquidation, dissolution or
winding up of the Company or any Company Successor.
"SEC" means the Securities and Exchange Commission.
"Securities" means the $__________ Trust Automatic Common Exchange
Securities of the Trust.
"Sellers" means Lila Acheson Wallace Fund for the Metropolitan Museum of
Art, Lila Acheson and Dewitt Wallace Fund for Lincoln Center, Dewitt Wallace
Fund for Macalester College, Community Funds, Inc., Lila Acheson and Dewitt
Wallace Fund for Hudson Highlands, Dewitt Wallace Fund for Colonial
Williamsburg, Lila Acheson Wallace Fund for the New York Zoological Society, and
Dewitt Wallace Fund for Memorial Sloan-Kettering Cancer Center.
"Then-Current Market Price" of the Common Stock means the average Closing
Price per share of Common Stock for a Calculation Period of five 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 following a
record date, immediately prior to the earlier of the time such adjustment is
effected and the related "ex-date" on which the shares of Common Stock first
trade regular way on their principal market without the right to receive the
relevant dividend, distribution or issuance); 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 is determined for
any of such Trading Days, the most recently available Closing Price for the
Common Stock prior to such five Trading Days shall be the Then-Current Market
Price.
"Trading Day" means a day on which the Common Stock (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.
-31-
<PAGE>
"Transaction Value" means (i) for any cash received in any such
Reorganization Event, the amount of cash received per share of Common Stock,
(ii) 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 (which determination
shall separately identify the value ascribed to each different type of
consideration received) and (iii) for any Marketable Securities received in any
such Reorganization Event, an amount equal to the average Closing Price per
share of such securities on the 20 Trading Days immediately prior to the
Exchange Date multiplied by the number of such securities received for each
share of Common Stock; provided that if no Closing Price for such Marketable
Securities is determined for one or more (but not all) of such Trading Days,
such Trading Days 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 is determined for all
such Trading Days, the calculation in the preceding clause (iii) shall be based
on the most recently available Closing Price for the Marketable Securities prior
to such 20 Trading Days. The number of shares of Marketable Securities included
in the calculation of Transaction Value for purposes of the preceding clause
(iii) shall be subject to adjustment if a dilution event of the type described
above shall occur with respect to the issuer of the Marketable Securities
between the time of the Reorganization Event and the Exchange Date.
"Trust" means the Reader's Digest Automatic Common Exchange Security
Trust.
"Underwriters" means the Underwriters of the Securities.
-32-
<PAGE>
====================================== =======================================
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF _________ SHARES
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY SECURITIES OTHER THAN READER'S DIGEST
THE SECURITIES TO WHICH IT RELATES OR AUTOMATIC
ANY OFFER TO SELL OR THE SOLICITATION COMMON EXCHANGE
OF ANY OFFER TO BUY SUCH SECURITIES IN SECURITY TRUST
ANY CIRCUMSTANCES IN WHICH SUCH OFFER
OR SOLICITATION IS UNLAWFUL.
------------
TABLE OF CONTENTS $ . TRUST-AUTOMATIC-COMMON
EXCHANGE SECURITIES
PAGE (TRACES(TM)/(SM))
Prospectus Summary................... 3
The Trust............................ 8
Use of Proceeds...................... 8 ------------
Investment Objective and Policies.... 8
Risk Factors......................... 17 PROSPECTUS
Description of the Securities........ 18
Management and Administration of the ------------
Trust.............................. 20
Certain Federal Income Tax
Considerations..................... 23
Underwriting......................... 24
Validity of Securities............... 26
Experts.............................. 26
Further Information.................. 26
Report of Independent Accountants.... 27
Statement of Assets and Liabilities.. 28
Glossary............................. 29
UNTIL , 1998 (25 DAYS AFTER
PROSPECTUS) ALL DEALERS EFFECTING GOLDMAN, SACHS & CO.
TRANSACTIONS IN THE SECURITIES, WHETHER LAZARD FRERES & CO. LLC
OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF Representatives of the
DEALERS TO DELIVER A PROSPECTUS WHEN Underwriters
ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
====================================== =======================================
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Part A -- Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B -- None.
(b) Exhibits
2.a.(i) Trust Agreement*
2.a.(ii) Form of Amended and Restated Trust Agreement
2.d Form of Specimen Certificate of Trust Automatic Common
Exchange Security (included in Exhibit 2.a.(ii))**
2.h Form of Underwriting Agreement
2.j Form of Custodian Agreement
2.k.(i) Form of Administration Agreement
2.k.(ii) Form of Paying Agent Agreement
2.k.(iii) Form of Purchase Agreement
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement
2.k.(vi) Form of Fund Indemnity Agreement
2.l Opinion and Consent of Counsel to the Trust**
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained
in Exhibit 2.n.(i))**
2.n.(iii) Consent of Independent Public Accountants**
2.n.(iv) Consents to Being Named as Trustee
2.p Form of Subscription Agreement**
2.r Financial Data Schedule**
- -----------------
* Previously filed.
** To be Filed by Amendment.
ITEM 25. MARKETING ARRANGEMENTS
See the Form of Underwriting Agreement to be filed as Exhibit 2.h to this
Registration Statement.
C-1
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Registration fees.................................................. $81,963.00
New York Stock Exchange listing fee................................ *
Printing (other than certificates)................................. *
Fees and expenses of qualification under state securities laws *
(excluding fees of counsel)...................................... *
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
NASD fees.......................................................... *
Miscellaneous...................................................... *
Total.............................................................. $ *
----------
- ---------------
* To be filed by Amendment.
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Prior to June 2, 1997 the Trust had no existence. As of the effective
date, the Trust will have entered into a Subscription Agreement for one Security
with Goldman, Sachs & Co. and an Underwriting Agreement with respect to
_________ Securities with Goldman, Sachs & Co. and Lazard Freres & Co. LLC, as
representatives of the Underwriters named therein.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
Trust Automatic Common Exchange Securities..................... 1
ITEM 29. INDEMNIFICATION
The Underwriting Agreement, to be filed as Exhibit 2.h to this
Registration Statement, provides for indemnification to the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
The Amended and Restated Trust Agreement filed as Exhibit 2.a.(ii) to this
Registration Statement provides for indemnification to each Trustee against any
claim or liability incurred in acting as Trustee of the Trust, except in the
case of willful misfeasance, bad faith, gross negligence or reckless disregard
of the Trustee's duties. The Custodian Agreement, Administration Agreement and
Paying Agent Agreement filed as Exhibits 2.j, 2.k.(i) and 2.k.(iii) to this
Registration Statement provide for indemnification to the Custodian,
Administrator and Paying Agent against any loss or expense incurred in the
performance of their obligations under the respective agreements, unless such
loss or expense is due to willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations. The Fund Indemnity Agreement filed as
Exhibit 2.k.(vi) to this Registration Statement provides that Goldman Sachs will
indemnify the Trust for certain indemnification expenses incurred under the
Amended and Restated Trust Agreement, the Custodian Agreement, the
Administration Agreement and the Paying Agent Agreement.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in
C-2
<PAGE>
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not Applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Trust's accounts, books and other documents are currently located at
the offices of the Registrant, c/o Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004 and at the offices of ______________, the Registrant's
Administrator, Custodian, paying agent, transfer agent and registrar.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The Registrant hereby undertakes to suspend offering of its units
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; (ii) for the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of the securities at that time shall be deemed to be the initial
bona fide offering thereof.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, State of New York, on the 18th
day of December, 1997.
READER'S DIGEST AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
By: /s/ Eric S. Schwartz
Eric S. Schwartz
Trustee
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following person, in
the capacities and on the date indicated.
NAME TITLE DATE
Principal Executive Officer,
/s/ Eric S. Schwartz Principal Financial Officer,
Eric S. Schwartz Principal Accounting Officer December 18, 1997
and Trustee
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ----------
2.a.(i) Trust Agreement*
2.a.(ii) Form of Amended and Restated Trust Agreement
2.d Form of Specimen Certificate of Trust Automatic
Common Exchange Security (included in
Exhibit 2.a.(ii))**
2.h Form of Underwriting Agreement
2.j Form of Custodian Agreement
2.k.(i) Form of Administration Agreement
2.k.(ii) Form of Paying Agent Agreement
2.k.(iii) Form of Purchase Contract
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement
2.k.(vi) Form of Fund Indemnity Agreement
2.l Opinion and Consent of Counsel to the Trust**
2.n.(i) Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2.n.(i))**
2.n.(iii) Consent of Independent Public Accountants**
2.n.(iv) Consents to Being Named as Trustee
2.p Form of Subscription Agreement**
2.r Financial Data Schedule**
- ------------------
* Previously filed.
** To be Filed by Amendment.
Exhibit 2.a.(ii)
AMENDED AND RESTATED
TRUST AGREEMENT
CONSTITUTING
READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST
Dated as of ___________ __, 1998
<PAGE>
Table of Contents
Page
ARTICLE I
DEFINITIONS
ARTICLE II
TRUST DECLARATION; PURPOSES, POWERS
AND DUTIES OF THE TRUSTEES; ADMINISTRATION
SECTION 2.1 Declaration of Trust; Purposes of the
Trust.......................................................... 5
SECTION 2.2 General Powers and Duties of the
Trustees....................................................... 6
SECTION 2.3 Portfolio Acquisition.......................................... 8
SECTION 2.4 Portfolio Administration....................................... 8
SECTION 2.5 Manner of Sales................................................ 11
SECTION 2.6 Limitations on Trustees' Powers................................ 11
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 The Trust Account.............................................. 12
SECTION 3.2 Payment of Fees and Expenses................................... 12
SECTION 3.3 Distributions to Holders....................................... 12
SECTION 3.4 Segregation.................................................... 12
SECTION 3.5 Temporary Investments.......................................... 13
ARTICLE IV
REDEMPTION
SECTION 4.1 Redemption..................................................... 13
ARTICLE V
ISSUANCE OF CERTIFICATES;
REGISTRY; TRANSFER OF SECURITIES
SECTION 5.1 Form of Certificate............................................ 13
SECTION 5.2 Transfer of Securities; Issuance,
Transfer and Interchange of
Certificates................................................... 15
SECTION 5.3 Replacement of Certificates.................................... 16
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Table of Contents
Page
ARTICLE VI
ISSUANCE OF THE CONTRACTS
SECTION 6.1 Execution of the Contracts..................................... 16
ARTICLE VII
TRUSTEES
SECTION 7.1 Trustees....................................................... 16
SECTION 7.2 Vacancies...................................................... 17
SECTION 7.3 Powers......................................................... 17
SECTION 7.4 Meetings....................................................... 18
SECTION 7.5 Resignation and Removal........................................ 18
SECTION 7.6 Liability...................................................... 18
SECTION 7.7 Compensation................................................... 19
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Meetings of Holders............................................ 19
SECTION 8.2 Books and Records; Reports..................................... 20
SECTION 8.3 Termination.................................................... 21
SECTION 8.4 Amendment and Waiver........................................... 22
SECTION 8.5 Accountants.................................................... 23
SECTION 8.6 Nature of Holder's Interest.................................... 24
SECTION 8.7 New York Law to Govern......................................... 25
SECTION 8.8 Notices........................................................ 25
SECTION 8.9 Severability................................................... 25
SECTION 8.10 Counterparts................................................... 25
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AMENDED AND RESTATED TRUST AGREEMENT
This Amended and Restated Trust Agreement, dated as of __________ __,
1998 (the "Trust Agreement"), by and between Goldman Sachs & Co., as sponsor
(the "Sponsor"), and William R. Latham III, James B. O'Neill and Donald J.
Puglisi as trustees (the "Trustees"), constituting Reader's Digest Automatic
Common Exchange Security Trust (the "Trust").
W I T N E S S E T H:
WHEREAS, the Sponsor and Eric S. Schwartz, as trustee, have previously
entered into a Declaration of Trust dated as of June 2, 1997 (the "Original
Agreement"), creating Third Automatic Common Exchange Security Trust;
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in certain respects; and
WHEREAS, the Trust has previously issued to the Sponsor one Security in
consideration of the aggregate purchase price therefor of $100.00;
NOW, THEREFORE, the parties hereto agree to amend and restate the
Original Agreement as provided herein. Upon the execution and delivery of copies
hereof by the parties hereto, the Original Agreement will be automatically
amended and restated in its entirety to read as provided herein.
ARTICLE I
DEFINITIONS
Whenever used in this Trust Agreement, the following words and phrases
shall have the meanings listed below. Any reference to any agreement shall be a
reference to such agreement as supplemented or amended from time to time.
"Additional Purchase Price" - The Additional Purchase Price as defined
in the Contracts.
"Administration Agreement" - The Administration Agreement, dated as of
the date hereof, between the Administrator and the Trustees, and any substitute
agreement therefor entered into pursuant to Section 2.2(a) hereof.
"Administrator" - The Bank of New York or its successor as permitted
under Section 6.1 of the
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Administration Agreement or appointed pursuant to Section 2.2(a) hereof.
"Average Market Price" - Average Market Price as defined in the
Contracts.
"Business Day" - A day on which the New York Stock Exchange, Inc. is
open for trading that is not a day on which banks in The City of New York are
authorized or obligated by law to close.
"Certificate" - Any certificate evidencing the ownership of Securities
substantially in the form of Exhibit A hereto.
"Code" - The Internal Revenue Code of 1986, as amended from time to
time; each reference herein to any section of the Code or any regulation
thereunder shall constitute a reference to any successor provision thereto.
"Collateral Agent" - ____________________, or its successor as
permitted under the Collateral Agreements.
"Collateral Agreements" - The Collateral Agreements between the
Collateral Agent and each of the Sellers, securing the Sellers' obligations
under the Contracts, substantially in the form of Exhibit B hereto.
"Commencement Date" - The day on which the Underwriting Agreement is
executed.
"Commission" - The United States Securities and Exchange Commission.
"Common Stock" - Class A Nonvoting Common Stock, par value $0.01 per
share, of the Company.
"Company" - The Reader's Digest Association, Inc., a Delaware
corporation.
"Contracts" - The forward purchase contracts entered into by the
Trustees with one or more existing shareholders of the Company, substantially in
the form of Exhibit C hereto.
"Custodian" - The Bank of New York, or its successor as permitted under
paragraph 11 of the Custodian Agreement or appointed pursuant to Section 2.2(a)
hereof.
"Custodian Agreement" - The Custodian Agreement, dated as of the date
hereof, between the Custodian and the
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Trustees, and any substitute agreement therefor entered into pursuant to Section
2.2(a) hereof.
"Depositary" - The Depository Trust Company, or any successor thereto.
"Distribution Date" - Each ___________, ______, _________ and
___________ of each year commencing _________, 1998, to and including ______,
____ or if any such date is not a Business Day, then the first Business Day
thereafter.
"Excess Purchase Payment" - Excess Purchase Payment as defined under
the Contracts.
"Event of Default" - An Event of Default as defined in the Contracts.
"Exchange" - The delivery of Shares by the Trustees to the Holders,
subject to the adjustments and exceptions set forth in the Contracts, in
mandatory exchange for the Securities on the Exchange Date.
"Exchange Date" - The Exchange Date as defined in the Contracts.
"Exchange Rate" - The Exchange Rate as defined in the Contracts.
"Firm Purchase Price" - The Firm Purchase Price as defined in the
Contracts.
"First Time of Delivery" - The First Time of Delivery as defined in the
Underwriting Agreement.
"Holder" - The registered owner of any Security as recorded on the
books of the Paying Agent.
"Indemnity Agreement" - The Fund Indemnity Agreement dated as of the
date hereof between the Trustees and the Sponsor substantially in the form of
Exhibit D hereto.
"Investment Company" - Investment Company as defined in Section 3 of
the Investment Company Act.
"Investment Company Act" - The Investment Company Act of 1940, as
amended from time to time; each reference herein to any section of such Act or
any rule or regulation thereunder shall constitute a reference to any successor
provision thereto.
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"Managing Trustee" - The Trustee designated the Managing Trustee by
resolution of the Trustees.
"Marketable Securities" - Marketable Securities as defined in the
Contracts.
"Original Agreement" - The meaning specified in the recitals hereof.
"Participant" - A Person having a book-entry only system account with
the Depositary.
"Paying Agent" - The Bank of New York, or its successor as permitted
under Section 6.6 of the Paying Agent Agreement or appointed pursuant to Section
2.2(a) hereof.
"Paying Agent Agreement" - The Paying Agent Agreement, dated as of the
date hereof, between the Paying Agent and the Trustees, and any substitute
agreement therefor entered into pursuant to Section 2.2(a) hereof.
"Person" - An individual, a partnership, a corporation, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Prospectus" - The prospectus relating to the Trust constituting a part
of the Registration Statement, as first filed with the Commission pursuant to
Rule 497(b) or (h) under the Securities Act, and as subsequently amended or
supplemented by the Trust.
"Quarterly Distribution" - $______ per Security paid to each Holder on
each Distribution Date.
"Record Date" - Each __________, _____, ________, and __________ of
each year commencing ________, 1998.
"Registration Statement" - Registration Statement on Form N-2
(Registration No. 333-28245) of the Trust, as amended.
"Reorganization Event" - A Reorganization Event as defined in the
Contracts.
"Second Time of Delivery" - The Second Time of Delivery as defined in
the Underwriting Agreement.
"Securities Act" - The Securities Act of 1933, as amended from time to
time.
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"Security" - $____ Trust Automatic Common Exchange Security of the
Trust evidencing a Holder's undivided interest in the Trust and right to receive
a pro rata distribution upon liquidation of the Trust Estate.
"Sellers" - The persons named as Sellers in the Contracts.
"Shares" - Shares of Common Stock to be exchanged by the Trustees for
the Securities on the Exchange Date.
"Sponsor" - Goldman, Sachs & Co., in its capacity as sponsor of the
Trustee.
"Temporary Investments" - Direct short-term U.S. government
obligations, as specified from time to time by the Trustees or through standing
instructions from the Trustees to the Administrator or the Paying Agent.
"Transfer Agent and Registrar" - The Bank of New York, as Transfer
Agent and Registrar for the Common Stock.
"Treasury Securities" - The meaning specified in Section 2.3(b) hereof.
"Trust Account" - The account created pursuant to Section 3.1 hereof.
"Trust Estate" - The Contracts and the Treasury Securities held at any
time by the Trust, together with any Temporary Investments held at any time
pursuant to Section 3.5 hereof, and any proceeds thereof or therefrom and any
other moneys held at any time in the Trust Account.
"Underwriters" - The Underwriters named in the Underwriting Agreement.
"Underwriting Agreement" - The Underwriting Agreement as described in
the Prospectus.
ARTICLE II
TRUST DECLARATION; PURPOSES, POWERS
AND DUTIES OF THE TRUSTEES; ADMINISTRATION
SECTION 2.1 Declaration of Trust; Purposes of the Trust. The Sponsor
hereby creates the Trust in order that it may acquire the Treasury Securities,
enter into the Contracts, issue and sell to the Sponsor and the Under-
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writers the Securities, hold the Trust Estate in trust for the use and benefit
of all present and future Holders and otherwise carry out the terms and
conditions of this Trust Agreement, all for the purpose of achieving the
investment objectives set forth in the Prospectus. The Trustees hereby declare
that they will accept and hold the Trust Estate in trust for the use and benefit
of all present and future Holders. The Sponsor has heretofore deposited with the
Trustees the sum of $10 to accept and hold in trust hereunder until the issuance
and sale of the Securities to the Underwriters, whereupon such sum shall be
donated to an organization satisfying the requirements of Section 170(c)(2) of
the Code selected by unanimous consent of the Trustees.
SECTION 2.2 General Powers and Duties of the Trustees. In furtherance
of the provisions of Section 2.1 hereof, the Sponsor authorizes and directs the
Trustees:
(a) to enter into and perform (and, in accordance with Section
8.4(a) hereof, amend), the Contracts, the Collateral Agreements, the
Underwriting Agreement, the Indemnity Agreement, the Custodian
Agreement, the Administration Agreement and the Paying Agent Agreement
and to perform all obligations of the Trustees (including the
obligation to provide indemnity hereunder and thereunder) and enforce
all rights and remedies of the Trust under each of such agreements; and
if any of the Custodian Agreement, the Administration Agreement, the
Collateral Agreements and the Paying Agent Agreement terminates, or the
agent of the Trust thereunder resigns or is discharged, to appoint a
substitute agent and enter into a new agreement with such substitute
agent containing provisions substantially similar to those contained in
the agreement being terminated; provided that in any such new agreement
(i) the Custodian and the Paying Agent shall each be a commercial bank
or trust company organized and existing under the laws of the United
States of America or any state therein, shall have full trust powers
and shall have minimum capital, surplus and retained earnings of not
less than $100,000,000; and (ii) the Administrator and the Collateral
Agent shall each be a reputable financial institution qualified in all
respects to carry out its obligations under the Administration
Agreement or the Collateral Agreements, as the case may be;
(b) to hold the Trust Estate in trust, to create and
administer the Trust Account, to direct payments received by the Trust
to the Trust Account and to make
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payments out of the Trust Account as set forth in Article III hereof;
(c) to issue and sell to the Underwriters an aggregate of up
to _________ Securities (including those Securities subject to the
over-allotment option of the Underwriters provided for in the
Underwriting Agreement) pursuant to the Underwriting Agreement and as
contemplated by the Prospectus; provided, however, that subsequent to
the determination of the public offering price per Security and related
underwriting discount for the Securities to be sold to the Underwriters
but prior to the sale of the Securities to the Underwriters, the
Securities originally issued to the Sponsor shall be split into a
greater number of Securities so that immediately following such split
the value of each Security held by the Sponsor will equal the aforesaid
public offering price;
(d) to select independent public accountants and, subject to the
provisions of Section 8.5 hereof, to engage such independent public
accountants;
(e) to engage legal counsel and, to the extent required by
Section 2.4 hereof, to engage professional advisors and pay reasonable
compensation thereto;
(f) to defend any action commenced against the Trustees or the
Trust and to prosecute any action which the Trustees deem necessary to
protect the Trust and the rights and interests of Holders, and to pay
the costs thereof;
(g) to arrange for the bonding of officers and employees of
the Trust as required by Section 17(g) of the Investment Company Act
and the rules and regulations thereunder;
(h) to delegate any and all of its powers and duties hereunder
as contemplated by the Custodian Agreement, the Paying Agent Agreement
and the Administration Agreement, to the extent permitted by applicable
law; and
(i) to adopt and amend bylaws, and take any and all such other
actions as necessary or advisable to carry out the purposes of the
Trust, subject to the provisions hereof and applicable law, including,
without limitation, the Investment Company Act.
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SECTION 2.3 Portfolio Acquisition. In furtherance of the provisions of
Section 2.1 hereof, the Sponsor further specifically authorizes and directs the
Trustees:
(a) to enter into the Contracts with respect to the Shares
subject thereto with the Sellers on the Commencement Date for
settlement on the date or dates provided thereunder and, subject to
satisfaction of the conditions set forth in the Contracts, to pay the
Firm Purchase Price and the Additional Purchase Price, if any,
thereunder with the proceeds of the sale of the Securities, net of
expenses payable in connection with the public offering of the
Securities as described in Section 3.2 hereof and net of the purchase
price paid for the Treasury Securities as provided in paragraph (b)
below; and, subject to the adjustments and exceptions set forth in the
Contracts, the Contracts shall entitle the Trust to receive from each
of the Sellers on the Exchange Date the Shares subject thereto so that
the Trust may execute the Exchange with the Holders; and
(b) to purchase for settlement at the First Time of Delivery,
and at the Second Time of Delivery, as appropriate, with the proceeds
of the sale of the Securities, net of expenses payable in connection
with the public offering of the Securities, U.S. Treasury securities
from such brokers or dealers as the Trustees shall designate in writing
to the Administrator having the terms set forth on Schedule I hereto
("Treasury Securities").
SECTION 2.4 Portfolio Administration. In furtherance of the provisions
of Section 2.1 hereof, the Sponsor further specifically authorizes and directs
the Trustees:
(a) Determination of Dilution, Merger or Acceleration Adjustments.
Upon receipt of any notice pursuant to Section 5.4(b) of the Contracts
of an event requiring an adjustment to the Exchange Rate, or upon
otherwise acquiring knowledge of such an event, to calculate the required
adjustment and furnish notice thereof to the Collateral Agent and the
Sellers, or to request from the Sellers such further information as may
be necessary to calculate or effect the required adjustment;
(b) Selection of Independent Investment Bank. Upon receipt of notice
of (i) the occurrence of a
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Reorganization Event in which property other than cash or Marketable
Securities is to be received in respect of the Common Stock as
described in Section 6.2 of the Contracts or (ii) an Excess Purchase
Payment in which the Company has paid or will pay consideration other
than cash as described in Section 6.1(d) of the Contracts, to select
and retain a nationally recognized investment banking firm to determine
the market value of such property as provided in the Contracts, and to
deliver to the Sellers notice pursuant to Section 8.1 of the Contracts
identifying the firm proposed to be selected and retained, and to
obtain the consent of the Sellers to such selection and retention as
provided in such Section 8.1;
(c) Acceleration. In the event an acceleration of a Contract
shall occur due to an Event of Default as provided in Article VII of
the Contracts, following a Reorganization Event or an election of the
Sellers to accelerate the Contracts pursuant to Section 6.2 of the
Contracts, to liquidate a proportionate amount of Treasury Securities
and distribute the proceeds thereof pro rata to each of the Holders of
Securities, together with any shares of Common Stock or other amounts
or other consideration to be distributed to the Holders of Securities,
in each case in accordance with the Contracts and the Collateral
Agreements;
(d) Determination of Exchange Date Amounts. To calculate, on
the Exchange Date, the number of Shares required to be delivered by
each of the Sellers under Section 1.1 of the Contracts or, if a
Reorganization Event shall have occurred, the amount of cash and the
number of Marketable Securities required to be delivered by the
Sellers, all as provided in Section 6.2 of the Contracts, and to
furnish notice of the amounts so determined to the Collateral Agent and
the Sellers;
(e) Distribution of Exchange Consideration. Unless a
Reorganization Event shall have occurred (in which event distribution
of proceeds shall be governed by Section 8.3 below):
(i) Determination of Fractional Shares. To determine, on the
Exchange Date: (A) for each Holder of Securities, such Holder's pro
rata share of the total number of Shares delivered to the Trustees
under the Contracts on the Exchange Date; and (B) the number of
fractional Shares allocable to each Holder (including, in the case
of the
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Depositary, fractional shares allocable to beneficial owners
of Securities who own through Participants) and the number of
Shares comprising such fractional Shares in the aggregate;
(ii) Cash for Fractional Shares. To sell, in the principal
market therefor, on the Exchange Date, a number of Shares equal
to the aggregate number of fractional Shares determined pursuant
to clause (i) (B) above, rounded down to the nearest integral
number; and to determine the difference between (A) the aggregate
proceeds of such sale (net of any brokerage or related expenses) and
(B) the product of the number of Shares so sold and the Average Market
Price; and, in accordance with the Indemnity Agreement, to pay such
difference, if positive, to Goldman, Sachs & Co., or to request payment
of such difference, if negative, from Goldman, Sachs & Co.;
(iii) Delivery of Shares. To deliver the remaining Shares to the
Transfer Agent and Registrar on the Exchange Date, with instructions
that such Shares be re-registered and re-issued as follows: (A) for and
in the name of each Holder (other than the Depositary) who holds
Securities in definitive form, the Transfer Agent and Registrar shall
be instructed to issue definitive certificates representing a number of
Shares equal to such Holder's pro rata share of the total delivered to
the Trustees under the Contracts, rounded down to the nearest integral
number; (B) the Transfer Agent and Registrar shall be instructed to
transfer all remaining Shares to the account of the Custodian held
through the Depositary, who shall then be instructed to transfer and
credit such Shares to each Participant who holds Securities, with each
Participant receiving its pro rata share of the total Shares delivered
to the Trust on the Exchange Date, reduced by the aggregate fractional
shares allocable to such Participant; and
(iv) Distribution of Cash in Respect of Fractional Shares. To
distribute to each Holder of Securities cash in the amount of: (A) the
fraction of a Share, if any, allocable to such Holder as determined
pursuant to clause (i) (B) above; times (B) the Average Market Price.
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(v) Record Date. The distributions described in this paragraph (e)
shall be made to Holders of record as of the close of business on the
Business Day preceding the Exchange Date.
SECTION 2.5 Manner of Sales. Any sale of Trust property permitted under
Section 8.3(c) hereof shall be made through such executing brokers or to such
dealers as the Trustees, seeking best price and execution for the Trust, shall
designate in writing to the Paying Agent, taking into account such factors as
price, commission, size of order, difficulty of execution and brokerage skill
required.
SECTION 2.6 Limitations on Trustees' Powers. The Trustees are not
permitted:
(a) to purchase or hold any securities or instruments except for
the Shares, the Contracts, the Treasury Securities, the Temporary
Investments contemplated by Section 3.5 hereof and, in the event of a
Reorganization Event, Marketable Securities (it being understood that,
except as provided in Sections 2.3 and 3.5 hereof, the Trust shall
distribute any cash received by it to Holders of Securities as soon as
reasonably practicable following such receipt, without reinvestment of
such cash in any securities or other investments of any kind);
(b) to dispose of the Contracts prior to the Exchange Date;
(c) to issue any securities or instruments except for the
Securities, or to issue any Securities other than the Securities sold
to the Sponsor and the Securities to be sold pursuant to the
Underwriting Agreement and until such Securities have been so purchased
and paid for in full;
(d) to make short sales or purchases on margin;
(e) to write put or call options;
(f) to borrow money;
(g) to underwrite securities;
(h) to purchase or sell real estate, commodities or commodities
contracts;
(i) to purchase restricted securities;
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(j) to make loans; or
(k) to take any action, or direct or permit the Administrator, the
Paying Agent or the Custodian to take any action, that would vary the
investment of the Holders within the meaning of Treasury Regulation
Section 301.7701-4(c), or otherwise take any action or direct or permit
any action to be taken that would or could cause the Trust not to be a
"grantor trust" under the Code.
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 The Trust Account. The Trustees shall, upon issuance of the
Securities, establish with the Paying Agent an account to be called the "Trust
Account". All moneys received by the Trustees in respect of the Contracts, the
Treasury Securities and any Temporary Investments held pursuant to Section 3.5
hereof, all moneys received from the sale of the Securities to the Sponsor, and
any proceeds from the sale to the Underwriters of the Securities after the
purchase of the Contracts and the Treasury Securities and the payment of the
Trust's expenses described in Section 3.2 hereof shall be credited to the Trust
Account.
SECTION 3.2 Payment of Fees and Expenses. If so directed by the
Sellers, the Administrator is authorized to pay, from the amounts payable to the
Sellers pursuant to the Contracts, the fees and expenses of the Trust incurred
in connection with the offering of the Securities and the costs and expenses
incurred in the organization of the Trust.
SECTION 3.3 Distributions to Holders. On or shortly after each
Distribution Date the Trustees shall distribute to each Holder of record at the
close of business on the preceding Record Date, at the post office address of
the Holder appearing on the books of the Trust or Paying Agent or by any other
means mutually agreed upon by the Holder and the Trustees, an amount equal to
such Holder's pro rata share of the Quarterly Distribution computed as of the
close of business on such Distribution Date.
SECTION 3.4 Segregation. All moneys and other assets deposited or
received by the Trustees hereunder shall be held by them in trust as part of the
Trust Estate until required to be disbursed or otherwise disposed of in
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accordance with the provisions of this Trust Agreement, and the Trustees shall
handle such moneys and other assets in such manner as shall constitute the
segregation and holding in trust within the meaning of the Investment Company
Act.
SECTION 3.5 Temporary Investments. To the extent necessary to enable
the Paying Agent to make the next succeeding Quarterly Distribution, any moneys
deposited with or received by the Trustees in the Trust Account shall be
invested as soon as possible by the Paying Agent in Temporary Investments
maturing no later than the Business Day preceding the next following
Distribution Date. Except as otherwise specifically provided herein or in the
Paying Agent Agreement, the Paying Agent shall not have the power to sell,
transfer or otherwise dispose of any Temporary Investment prior to the maturity
thereof, or to acquire additional Temporary Investments. The Paying Agent shall
hold any Temporary Investments to its maturity and shall apply the proceeds
thereof upon maturity to the payment of the next succeeding Quarterly
Distribution. All such Temporary Investments shall be selected from time to time
by the Trustees or pursuant to standing instructions from the Trustees to the
Administrator, and the Administrator and/or Paying Agent shall have no liability
to the Trust or any Holder or any other Person with respect to any such Tempo-
rary Investment. Any interest or other income received on any moneys in the
Trust Account shall, upon receipt thereof, be deposited into the Trust Account.
Notwithstanding the foregoing, not more than 5% of the assets of the Trust may
be held at any time in the form of cash and Temporary Investments, and the
Trustees shall distribute cash, or liquidate Temporary Investments and
distribute the proceeds thereof, if, when and to the extent needed to maintain
compliance with the foregoing restriction.
ARTICLE IV
REDEMPTION
SECTION 4.1 Redemption. The Trustees shall have no right or obligation
to redeem Securities.
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ARTICLE V
ISSUANCE OF CERTIFICATES; REGISTRY; TRANSFER OF SECURITIES
SECTION 5.1 Form of Certificate. Each Certificate evidencing
Securities shall be countersigned manually or in facsimile by the Managing
Trustee and executed manually by the Paying Agent in substantially the form of
Exhibit A hereto with the blanks appropriately filled in, shall be dated the
date of execution and delivery by the Paying Agent and shall represent a
fractional undivided interest in the Trust, the numerator of which fraction
shall be the number of Securities set forth on the face of such Certificate and
the denominator of which shall be the total number of Securities outstanding at
that time. All Securities shall be issued in registered form and shall be
numbered serially.
The Certificates delivered to the Underwriters at the First Time of
Delivery and the Second Time of Delivery (if any) will be issued in the form of
a global Certificate or Certificates representing the Securities issued to the
Underwriters, to be delivered to The Depository Trust Company, as depositary
("DTC"), by or on behalf of the Trust. Such Certificate or Certificates shall
initially be registered on the books and records of the Trust in the name of
Cede & Co., the nominee of DTC, and no beneficial owner of such Securities will
receive a definitive Certificate representing such beneficial owner's interest
in such Securities, except as provided in the next paragraph. Unless and until
definitive, fully registered Certificates have been issued pursuant to the next
paragraph, the Trust shall be entitled to deal with DTC for all purposes of this
Agreement as the Holder and the sole holder of the Certificates and shall have
no obligation to the beneficial owners thereof, and none of the Trust, the
Trustees, or any agent of the Trust or the Trustees shall have any liability
with respect to or responsibility for the records of DTC.
If DTC elects to discontinue its services as securities depository, and
no successor securities depositary reasonably satisfactory to the Trustees
succeeds to the business of DTC, then definitive Certificates shall be prepared
by the Trust. Upon surrender of the global Certificate or Certificates
accompanied by registration instructions, the Trustees shall cause definitive
Certificates to be delivered to the beneficial owners in accordance with the
instructions of DTC. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such
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instructions and may conclusively rely on, and shall be protected in relying
on, such instructions.
Pending the preparation of definitive Certificates, the Trustees may
execute and the Paying Agent shall authenticate and deliver temporary
Certificates (printed, lithographed, typewritten or otherwise reproduced, in
each case in form satisfactory to the Paying Agent). Temporary Certificates
shall be issuable as registered Certificates substantially in the form of the
definitive Certificates but with such omissions, insertions and variations as
may be appropriate for temporary Certificates, all as may be determined by the
Trustees with the concurrence of the Paying Agent. Every temporary Certificate
shall be executed by the Managing Trustee and be authenticated by the Paying
Agent upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Certifi- cates. Without unreasonable delay the
Managing Trustee shall execute and shall furnish definitive Certificates and
thereupon temporary Certificates may be surrendered in exchange therefor without
charge at each office or agency of the Paying Agent and the Paying Agent shall
authenticate and deliver in exchange for such temporary Certificates definitive
Certificates for a like aggregate number of Securities. Until so exchanged, the
temporary Certificates shall be entitled to the same benefits hereunder as
definitive Certificates.
SECTION 5.2 Transfer of Securities; Issuance, Transfer and Interchange
of Certificates. Securities may be transferred by the Holder thereof by
presentation and surrender of properly endorsed Certificates at the office of
the Paying Agent, accompanied by such documents executed by the Holder or his
authorized attorney as the Paying Agent deems necessary to evidence the
authority of the person making the transfer. Certificates issued pursuant to
this Trust Agreement are interchangeable for one or more other Certificates in
an equal aggregate number of Securities and all Certificates issued as may be
requested by the Holder and deemed appropriate by the Paying Agent shall be
issued in denominations of one Security or any multiple thereof. The Paying
Agent may deem and treat the person in whose name any Security shall be
registered upon the books of the Paying Agent as the owner of such Security for
all purposes hereunder and the Paying Agent shall not be affected by any notice
to the contrary. The transfer books maintained by the Paying Agent for the
purposes of this Section 5.2 hereof shall include the name and address of the
record owners of the Securities and shall be closed in connection with the
termination of the Trust pursuant to Section 8.3 hereof.
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A sum sufficient to cover any tax or other governmental charge that may
be imposed in connection with any such transfer shall be paid to the Paying
Agent by the Holder. A Holder may be required to pay a fee for each new
Certificate to be issued pursuant to the preceding paragraph in such amount as
may be specified by the Paying Agent and approved by the Trustees.
All Certificates cancelled pursuant to this Trust Agreement may be
voided by the Paying Agent in accordance with the usual practice of the Paying
Agent or in accordance with the instructions of the Trustees; provided, however,
that the Paying Agent shall not be required to destroy cancelled Certificates.
The Paying Agent may adopt other reasonable rules and regulations for
the registration, transfer and tender of Securities as it may, in its
discretion, deem necessary.
SECTION 5.3 Replacement of Certificates. In case any Certificate shall
become mutilated or be destroyed, stolen or lost, the Paying Agent shall execute
and deliver a new Certificate in exchange and substitution therefor upon the
Holder's furnishing the Paying Agent with proper identification and
satisfactory indemnity, complying with such other reasonable regulations and
conditions as the Paying Agent may prescribe and paying such expenses and
charges, including any bonding fee, as the Paying Agent may incur or reasonably
impose; provided that if the Trust has terminated or is in the process of
terminating, the Paying Agent, in lieu of issuing such new Certificate, may,
upon the terms and conditions set forth herein, make the distributions set forth
in Section 8.3(c) hereof. Any mutilated Certificate shall be duly surrendered
and cancelled before any duplicate Certificate shall be issued in exchange and
substitution therefor. Upon issuance of any duplicate Certificate pursuant to
this Section 5.3 hereof, the original Certificate claimed to have been lost,
stolen or destroyed shall become null and void and of no effect, and any bona
fide purchaser thereof shall have only such rights as are afforded under Article
8 of the Uniform Commercial Code to a Holder presenting a Certificate for
transfer in the case of an overissue.
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<PAGE>
ARTICLE VI
ISSUANCE OF THE CONTRACTS
SECTION 6.1 Execution of the Contracts. The Contracts shall be
countersigned manually or in facsimile by the Managing Trustee and executed
manually by each of the Sellers and shall be dated the date of execution and
delivery by each of the Sellers.
ARTICLE VII
TRUSTEES
SECTION 7.1 Trustees. The Trust shall have three Trustees who shall
initially be elected by the Sponsor. One Trustee shall be the Managing Trustee
and, as such, is authorized to execute documents and instruments on behalf of
the Trust. The Managing Trustee will be appointed by resolution of the Trustees.
Each Trustee shall serve until the next regular annual or special meeting of
Holders called for the purpose of electing Trustees and, then, until such
Trustee's successor is duly elected and qualified. Holders may not cumulate
their votes in the election of Trustees. Each Trustee shall not be considered to
have qualified for the office unless such Trustee shall agree to be bound by the
terms of this Trust Agreement and shall evidence his consent by executing this
Trust Agreement or a supplement hereto.
SECTION 7.2 Vacancies. Any vacancy in the office of a Trustee may be
filled in compliance with Sections 10 and 16 of the Investment Company Act by
the vote, within thirty days, of the remaining Trustees; provided that if
required by Section 16 of the Investment Company Act, the Trustees shall
forthwith cause to be held as promptly as possible and in any event within sixty
days (unless the Commission by order shall extend such period) a meeting of
Holders for the purpose of electing Trustees in compliance with Sections 10 and
16 of the Investment Company Act. Until a vacancy in the office of any Trustee
is filled as provided above, the remaining Trustees in office, regardless of
their number, shall have the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Trust Agreement. Election shall
be by the affirmative vote of Holders of a majority of the Securities entitled
to vote present in person or by proxy at a special meeting of Holders called for
the purpose of electing any Trustee. Each individual Trustee shall be at least
21 years
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of age and shall not be under any legal disability. No Trustee who is
an "interested person", as defined in the Investment Company Act, may assume
office if it would cause the composition of the Trustees of the Trust not to be
in compliance with the percentage limitations on interested persons in Section
10 of the Investment Company Act. Trustees need not be Holders. Notice of the
appointment or election of a successor Trustee shall be mailed promptly after
acceptance of such appointment by the successor Trustee to each Holder.
SECTION 7.3 Powers. The Trust will be managed solely by the Trustees,
who will, subject to the provisions of Article II hereof, have complete and
exclusive control over the management, conduct and operation of the Trust's
business, and shall have the rights, powers and authority of a board of
directors of a corporation organized under New York law. The Trustees shall have
fiduciary responsibility for the safekeeping and use of all funds and assets of
the Trust and shall not employ, or permit another to employ, such funds or
assets in any manner except for the exclusive benefit of the Trust and except in
accordance with the terms of this Trust Agreement. Subject to the continuing
supervision of the Trustees and as permitted by applicable law, the functions of
the Trust shall be performed by the Custodian, the Paying Agent, the
Administrator and such other entities engaged to perform such functions as the
Trustees may determine, including, without limitation, any or all administrative
functions.
SECTION 7.4 Meetings. Meetings of the Trustees shall be held from time
to time upon the call of any Trustee on not less than 48 hours' notice (which
may be waived by any or all of the Trustees in writing either before or after
such meeting or by attendance at the meeting unless the Trustee attends the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting has not been lawfully called or convened). The
Trustees shall act either by majority vote of the Trustees present at a meeting
at which at least a majority of the Trustees then in office are present or by a
unanimous written consent of the Trustees without a meeting. Except as otherwise
required under the Investment Company Act, all or any of the Trustees may
participate in a meeting of the Trustees by means of a conference telephone call
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
such communications equipment shall constitute presence in person at such
meeting.
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<PAGE>
SECTION 7.5 Resignation and Removal. Any Trustee may resign and be
discharged of the trust created by the Trust Agreement by executing an
instrument in writing resigning as Trustee, filing the same with the
Administrator and sending notice thereof to the remaining Trustees, and such
resignation shall become effective immediately unless otherwise specified
therein. Any Trustee may be removed in the event of incapacity by vote of the
remaining Trustees and for any reason by written declaration or vote of the
Holders of more than 66 2/3% of the outstanding Securities, notice of which vote
shall be given to the remaining Trustees and the Administrator. The resignation,
removal or failure to reelect any Trustee shall not cause the termination of the
Trust.
SECTION 7.6 Liability. The Trustees shall not be liable to the Trust or
any Holder for any action taken or for refraining from taking any action except
in the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties of their office. Specifically, without limitation, the
Trustees shall not be responsible for or in respect of the recitals herein or
the validity or sufficiency of this Trust Agreement or for the due execution
hereof by any other Person, or for or in respect of the validity or sufficiency
of Securities or certificates representing Securities and shall in no event
assume or incur any liability, duty or obligation to any Holder or to any other
Person, other than as expressly provided for herein. The Trustees may employ
agents, attorneys, administrators, accountants and auditors, and shall not be
answerable for the default or misconduct of any such Persons if such Persons
shall have been selected with reasonable care. Action in good faith may include
action taken in good faith in accordance with an opinion of counsel. In no event
shall any Trustee be personally liable for any expenses with respect to the
Trust. Each Trustee shall be indemnified from the Trust Account with respect to
any claim, liability, loss or expense incurred in acting as Trustee of the
Trust, including the costs and expenses of the defense against any such claim or
liability, except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties of his office.
SECTION 7.7 Compensation. Each Trustee, other than a Trustee who is a
director, officer or employee of the Sponsor, any Underwriter, or the
Administrator or any affiliate thereof, shall receive a one-time, up-front fee
of $______, in respect of its annual fee and anticipated out-of-pocket expenses.
In addition, the Managing Trustee (provided he is not a director, officer or
employee of the Sponsor, any Underwriter, or the Administrator or any
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<PAGE>
affiliate thereof) shall receive an additional one-time, up-front fee of $_____
for serving in such capacity. The Trustees will not receive any pension or
retirement benefits or other fringe benefits. In the event of the resignation or
removal of a Trustee, such Trustee shall remit to the Trust the portion of its
fee ratable for the period from the day of such resignation or removal through
the Exchange Date.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Meetings of Holders. The Trustees shall not hold annual or
regular meetings of Holders except as set forth herein. A special meeting may be
called at any time by the Trustees or upon petition of Holders of not less than
51% of the Securities outstanding (unless substantially the same matter was
voted on during the preceding 12 months), and shall be called as provided in
Section 7.2 hereof (or as otherwise required by the Investment Company Act and
the rules and regulations thereunder, including, without limitation, when
requested by the Holders of not less than 10% of the Securities outstanding for
the purposes of voting upon the question of the removal of any Trustee or
Trustees). The Trustees shall establish, and notify the Holders in writing of,
the record date for each such meeting which shall be not less than 10 nor more
than 50 days before the meeting date. Holders at the close of business on the
record date will be entitled to vote at the meeting. The Administrator shall, as
soon as possible after any such record date (or prior to such record date if
appropriate), mail by first class mail to each Holder a notice of meeting and a
proxy statement and form of proxy in the form approved by the Trustees and
complying with the Investment Company Act and the rules and regulations
thereunder. Except as otherwise specified herein or in any provision of the
Investment Company Act and the rules and regulations thereunder, any action may
be taken by vote of Holders of a majority of the Securities outstanding present
in person or by proxy if Holders of a majority of Securities outstanding on the
record date are so represented. Each Security shall have one vote and may be
voted in person or by duly executed proxy. Any proxy may be revoked by notice in
writing, by a subsequently dated proxy or by voting in person at the meeting,
and no proxy shall be valid after eleven months following the date of its
execution. Any Investment Company owning Securities in excess of the limits
imposed by Sections 12(d)(1)(A)(i) and 12(d)(1)(C) of the Investment
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Company Act will be required to vote its Securities in proportion to the votes
of all other Holders.
SECTION 8.2 Books and Records; Reports. (a) The Trustees shall keep a
certified copy or duplicate original of this Trust Agreement on file at the
office of the Trust and the office of the Administrator available for inspection
at all reasonable times during its usual business hours by any Holder. The
Trustees shall keep proper books of record and account for all the transactions
under this Trust Agreement at the office of the Trust and the office of the
Administrator, and such books and records shall be open to inspection by any
Holder at all reasonable times during usual business hours. The Trustees shall
retain all books and records in compliance with Section 31 of the Investment
Company Act and the rules and regulations thereunder.
(b) With each payment to Holders the Paying Agent shall set forth,
either in the instruments by means of which payment is made or in a separate
statement, the amount being paid from the Trust Account expressed as a dollar
amount per Security and the other information required under Section 19 of the
Investment Company Act and the rules and regulations thereunder. The Trustees
shall prepare and file or distribute reports as required by Section 30 of the
Investment Company Act and the rules and regulations thereunder. The Trustees
shall prepare and file such reports as may from time to time be required to be
filed or distributed to Holders under any applicable state or Federal statute or
rule or regulation thereunder, and shall file such tax returns as may from time
to time be required under any applicable state or Federal statute or rule or
regulation thereunder. One of the Trustees shall be designated by resolution of
the Trustees to make the filings and give the notices required by Rule 17g-1
under the Investment Company Act.
(c) In calculating the net asset value of the Trust as required by the
Investment Company Act, (i) the Treasury Securities will be valued at the mean
between the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees, (ii) short-term
investments having a maturity of 60 days or less will be valued at cost with
accrued interest or discount earned included in interest receivable and (iii)
the Contracts will be valued on the basis of the bid price received by the Trust
in respect of the Contracts, or any portion thereof covering not less than 1000
shares, from an independent broker-dealer firm unaffiliated with the Trust to be
named by the Trustees who is in the business of
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<PAGE>
making bids on financial instruments similar to the Contracts and with terms
comparable thereto.
SECTION 8.3 Termination. (a) This Trust Agreement and the Trust created
hereby shall terminate upon the earliest of (i) the date 90 days after the
execution of this Trust Agreement if (x) the Securities have not theretofore
been issued or (y) the net worth of the Trust is not at least $100.00 at such
time, (ii) the date of the repayment, sale or other disposition, as the case may
be, of all of the Contracts, the Treasury Securities and any other securities
held hereunder, (iii) the date 10 Business Days after the Exchange Date (or, if
the Contracts shall be accelerated pursuant to Article VII thereof or in
accordance with Section 6.2 thereof, 10 Business Days after the date on which
the Trust shall receive the Shares or other consideration then required to be
delivered by each of the Sellers, or the proceeds of any sale of collateral
pursuant to Section 8(c) of the Collateral Agreements), and (iv) the date which
is 21 years less 91 days after the death of the last survivor of all of the
descendants of Joseph P. Kennedy living on the date hereof. The Trust is
irrevocable, the Sponsor has no right to withdraw any assets constituting a
portion of the Trust Estate, and the dissolution of the Sponsor shall not
operate to terminate the Trust. The death or incapacity of any Holder shall not
operate to terminate this Trust Agreement, nor entitle his legal representatives
or heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of the Trust, and shall not otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) Written notice of any termination shall be sent to Holders
specifying the record date for any distribution to Holders and the time of
termination as determined by the Trustees, upon which the books maintained by
the Paying Agent pursuant to Section 5.2 hereof shall be closed.
(c) For purposes of termination under Sections 8.3(a)(ii), (iii) and
(iv) hereof, within five Business Days after such termination, the Trustees
shall, subject to any applicable provisions of law, effect the sale of any
remaining property of the Trust, and the Paying Agent shall distribute pro rata
as soon as practicable thereafter to each Holder, upon surrender for
cancellation of its Certificates, its interest in the Trust Estate. Together
with the distribution to the Holders, the Trustees shall furnish the Holders
with a final statement as of the date of the distribution of the amount
distributable with respect to each Security.
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SECTION 8.4 Amendment and Waiver. (a) This Trust Agreement, and any of
the agreements referred to in Section 2.2(a) hereof, may be amended from time to
time by the Trustees for any purpose prior to the issuance and sale to the
Underwriters of the Securities and thereafter without the consent of any of the
Holders (i) to cure any ambiguity or to correct or supplement any provision
contained herein or therein which may be defective or inconsistent with any
other provision contained herein or therein; (ii) to change any provision hereof
or thereof as may be required by applicable law or the Commission or any
successor govern mental agency exercising similar authority; or (iii) to make
such other provisions in regard to matters or questions arising hereunder or
thereunder as shall not materially adversely affect the interests of the Holders
(as determined in good faith by the Trustees, who may rely on an opinion of
counsel).
(b) This Trust Agreement may also be amended from time to time by the
Trustees (or the performance of any of the provisions of the Trust Agreement may
be waived) with the consent by the required vote of the Holders in accordance
with Section 8.1 hereof; provided that this Trust Agreement may not be amended,
without the consent by vote of the Holders of all Securities then outstanding,
(i) to increase the number of Securities issuable hereunder above the number of
Securities specified in Section 2.2(c) hereof or such lesser number as may be
outstanding at any time during the term of this Trust Agreement, (ii) to reduce
the interest in the Trust represented by Securities without the consent of the
Holders of such Securities, (iii) if such amendment is prohibited by the
Investment Company Act or other applicable law, (iv) without the consent by vote
of the Holders of all Securities then outstanding, if such amendment would
effect a change in the voting requirements set forth in Section 8.1 hereof or
this Section 8.4, or (v) without the consent by vote of the Holders of the
lesser of (x) 67% or more of the Securities represented at a special meeting of
Holders, if more than 50% of the Securities outstanding are represented at such
meeting, and (y) more than 50% of the Securities outstanding, if such amendment
would effect a change in Section 2.1 or 2.6 hereof.
(c) Promptly after the execution of any amendment, the Trustees shall
furnish written notification of the substance of such amendment to each Holder.
(d) Notwithstanding subsections (a) and (b) of this Section 8.4 no
amendment hereof shall permit the Trust, the Trustees, the Administrator, the
Paying Agent or the Custodian to take any action or direct or permit any Person
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to take any action that (i) would vary the investment of Holders within the
meaning of Treasury Regulation Section 301.7701-4(c), or (ii) would or could
cause the Trust, or direct or permit any action to be taken that would or could
cause the Trust, not to be a "grantor trust" under the Code.
SECTION 8.5 Accountants.
(a) The Trustees shall, in accordance with Section 30 of the Investment
Company Act, file annually with the Commission such information, documents and
reports as investment companies having securities registered on a national
securities exchange are required to file annually pursuant to Section 13(a) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
issued thereunder. The Trustees shall transmit to the Holders, at least
semi-annually, the reports required by Section 30(d) of the Investment Company
Act and the rules and regulations thereunder, including, without limitation, a
balance sheet accompanied by a statement of the aggregate value of investments
on the date of such balance sheet, a list showing the amounts and values of such
investments owned on the date of such balance sheet, and a statement of income
for the period covered by the report. Financial statements contained in such
annual reports shall be accompanied by a certificate of independent public
accounts based upon an audit not less in scope or procedures than that which
independent public accountants would ordinarily make for the purpose of
presenting comprehensive and dependable financial statements and shall contain
such information as the Commission may prescribe. Each such report shall state
that such independent public accountants have verified investments owned, either
by actual examination or by receipt of a certificate from the Custodian.
(b) The independent public accountants referred to in subsection (a)
above shall be selected at a meeting held within thirty days before or after the
beginning of the fiscal year by the vote, cast in person, of a majority of the
Trustees who are not "interested persons" as defined in the Investment Company
Act and such selection shall be submitted for ratification at the first meeting
of Holders to be held as set forth in Section 8.1 hereof, and thereafter as
required by the Investment Company Act and the rules and regulations thereunder.
The employment of any independent public accountant for the Trust shall be
conditioned upon the right of the Holders by a vote of the lesser of (i) 67% or
more of the Securities present at a special meeting of Holders, if Holders of
more than 50% of Securities outstanding are present or represented by proxy at
such meeting or (ii) more than 50% of the Securities
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outstanding to terminate such employment at any time without penalty.
(c) The foregoing provisions of this Section 8.5 are in addition to any
applicable requirements of the Investment Company Act and the rules and
regulations thereunder.
SECTION 8.6 Nature of Holder's Interest. Each Holder holds at any given
time a beneficial interest in the Trust Estate, but does not have any right to
take title or possession of any portion of the Trust Estate. Each Holder
expressly waives any right he may have under any rule of law, or the provisions
of any statute, or otherwise, to require the Trustees at any time to account,
in any manner other than as expressly provided in this Trust Agreement, for the
Shares, the Contracts, the Treasury Securities or other assets or monies from
time to time received, held and applied by the Trustees hereunder. No Holder
shall have any right except as provided herein to control or determine the
operation and management of the Trust or the obligations of the parties hereto.
Nothing set forth herein or in the certificates representing Securities shall be
construed to constitute the Holders from time to time as partners or members of
an association.
SECTION 8.7 New York Law to Govern. This Trust Agreement is executed
and delivered in the State of New York, without reference to the conflict of
laws provisions thereof, and all laws or rules of construction of the State of
New York shall govern the rights of the parties hereto and the Holders and the
construction, validity and effect of the provisions hereof.
SECTION 8.8 Notices. Any notice, demand, direction or instruction to be
given to the Sponsor hereunder shall be in writing and shall be duly given if
mailed or delivered to Goldman, Sachs & Co., 85 Broad Street, New York, New York
10004, Attention: Registration Department, or at such other address as shall be
specified by the Sponsor to the other parties hereto in writing. Any notice,
demand, direction or instruction to be given to the Trust and the Trustees
hereunder shall be in writing and shall be duly given if mailed or delivered to
the Trust at 101 Barclay Street, New York, New York 10286 and to each Trustee at
such Trustee's address set forth beneath its signature below, or such other
address as shall be specified to the other parties hereto by such party in
writing. Any notice to be given to a Holder shall be duly given if mailed, first
class postage prepaid, or by such other substantially equivalent means as the
Trustees may deem
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appropriate, or delivered to such Holder at the address of such Holder appearing
on the registry of the Paying Agent.
SECTION 8.9 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Trust Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
and terms of this Trust Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Trust Agreement or of the
Certificates, or the rights of the Holders thereof.
SECTION 8.10 Counterparts. This Trust Agreement may be executed in
counterparts, and as so executed will constitute one agreement, binding on all
of the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed.
GOLDMAN, SACHS & CO.
By:____________________________________
TRUSTEES:
_______________________________________
Name: William R. Latham III
Address: Department of Economics
University of Delaware
Newark, Delaware 19716
_______________________________________
Name: James B. O'Neill
Address: Center for Economic
Education and
Entrepreneurship
University of Delaware
Newark, Delaware 19716
_______________________________________
Name: Donald J. Puglisi
Address: Department of Finance
University of Delaware
Newark, Delaware 19716
<PAGE>
Schedule I
TREASURY SECURITIES
All terms specified are for stripped principal or
interest components of U.S. Treasury debt
obligations.
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FIRST TIME OF DELIVERY
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PAR ZERO-COUPON STRIP RATE PRICE COST
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
SETTLEMENT DATE:
<PAGE>
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SECOND TIME OF DELIVERY
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PAR ZERO-COUPON STRIP RATE PRICE COST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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================================================================================
SETTLEMENT DATE:
<PAGE>
Exhibit A
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Reader's
Digest Automatic Common Exchange Security Trust or its agent for
registration of transfer, exchange, or payment, and any certificate issued
is registered in the name of Cede & Co. (or in such other name as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein. This certificate may be exchanged by an authorized representative
of DTC in whole or in part for securities in definitive form, registered
in the names of such holders as such representative of DTC shall specify,
in which case, a new certificate will be issued in the name of Cede & Co.
(or in such other name as is requested by such authorized representative
of DTC) representing the securities not issued in definitive form.
THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE TERMS, PROVISIONS AND
CONDITIONS OF THE TRUST AGREEMENT REFERRED TO BELOW TO WHICH THE HOLDER OF THIS
CERTIFICATE BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS BOUND.
$____ TRUST AUTOMATIC COMMON EXCHANGE SECURITIES
READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST
CUSIP NO. ___________
NO. _________ ____________ SHARES
THIS CERTIFIES THAT CEDE & CO. IS THE RECORD OWNER OF ____________ $____ TRUST
AUTOMATIC COMMON EXCHANGE SECURITIES OF READER'S DIGEST AUTOMATIC COMMON
EXCHANGE SECURITY TRUST CONSTITUTING FRACTIONAL UNDIVIDED INTERESTS IN READER'S
DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST, A TRUST CREATED UNDER THE LAWS
OF THE STATE OF NEW YORK PURSUANT TO A TRUST AGREEMENT BETWEEN GOLDMAN, SACHS &
CO. AND THE TRUSTEES NAMED THEREIN. THIS CERTIFICATE IS ISSUED UNDER AND IS
SUBJECT TO THE TERMS, PROVISIONS AND CONDITIONS OF THE TRUST AGREEMENT TO WHICH
THE HOLDER OF THIS CERTIFICATE BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS
BOUND, A COPY OF WHICH TRUST AGREEMENT IS AVAILABLE AT THE OFFICE OF THE TRUST'S
ADMINISTRATOR AND PAYING AGENT, __________________, NEW YORK, NEW YORK _____.
THIS CERTIFICATE IS TRANSFERABLE AND INTERCHANGEABLE BY THE REGISTERED OWNER IN
PERSON OR BY HIS DULY AUTHORIZED ATTORNEY AT THE OFFICE OF THE PAYING AGENT UPON
SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR ACCOMPANIED BY A WRITTEN
INSTRUMENT OF TRANSFER AND ANY OTHER
<PAGE>
DOCUMENTS THAT THE PAYING AGENT MAY REQUIRE FOR TRANSFER, IN FORM SATISFACTORY
TO THE PAYING AGENT AND PAYMENT OF THE FEES AND EXPENSES PROVIDED IN THE TRUST
AGREEMENT.
THIS CERTIFICATE IS NOT VALID UNLESS MANUALLY COUNTERSIGNED BY THE
PAYING AGENT.
WITNESS THE FACSIMILE SIGNATURE OF THE MANAGING TRUSTEE.
Reader's Digest Automatic Common
Exchange Security Trust
DATED: _________ __, 1998
By _____________________________
Managing Trustee
COUNTERSIGNED:
______________________,
as Paying Agent
By __________________________
Authorized Signature
-2-
Exhibit 2.h
READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST
(subject to exchange into shares of Class A Nonvoting Common Stock of
The Reader's Digest Association, Inc.)
$ TRUST AUTOMATIC COMMON EXCHANGE SECURITIES
Underwriting Agreement
, 1998
Goldman, Sachs & Co.,
Lazard Freres & Co. LLC,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Reader's Digest Automatic Common Exchange Security Trust, a trust duly
created under the laws of the State of New York (such trust and the trustees
thereof acting in their capacities as such being referred to herein as the
"Trust"), proposes, subject to the terms and conditions stated herein, to issue
and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of shares of the $ Automatic Common Exchange Securities of the
Trust specified above (the "Firm Securities") and, at the election of the
Underwriters, up to an aggregate of additional shares of the $ Automatic
Common Exchange Securities (the "Optional Securities") (the Firm Securities and
the Optional Securities which the Underwriters elect to purchase pursuant to
Section 2 hereof are herein collectively called the "Securities").
The $ Automatic Common Exchange Securities of the Trust to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
called the "Automatic Common Exchange Securities". Each Automatic Common
Exchange Security will be exchanged for one or fewer shares of Class A Nonvoting
Common Stock, par value $.01 per share ("Stock"), of The Reader's Digest
Association, Inc., a Delaware corporation (the "Company"), on , 2001 (the
"Exchange Date") to be delivered pursuant to forward purchase contracts (the
"Contracts"), dated , 1998, between the Trust and certain existing
stockholders of the Company (collectively, the "Selling Stockholders"). The
Trust has entered into a Contract with each Selling Stockholder obligating that
Selling Stockholder to deliver to the Trust on the Exchange Date a number of
shares of Stock equal to the product of the Exchange Rate (as such term is
defined in the Trust Prospectus (as defined in Section 1(c)(i))) times the
initial number of shares of Stock subject to such Contract. Each Selling
Stockholder's obligations under such Contract will be secured by a pledge of
shares of Stock and, if applicable, other collateral pursuant to the terms of
collateral agreements, dated , 1998, between such Selling Stockholders,
The Bank of New York ("BONY"), as collateral agent (in such capacity, the
"Collateral Agent"), and the Trust (the "Collateral Agreements").
<PAGE>
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters, the Trust and the Selling Stockholders that:
(i) A registration statement on Form S-3 (File No. 333- )
(the "Initial Company Registration Statement") in respect of the shares of
Stock deliverable pursuant to the Contracts has been filed with the
Securities and Exchange Commission (the "Commission"); the Initial Company
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto but
including all documents incorporated by reference in the prospectus
contained therein, to you for delivery to each of the other Underwriters,
have been declared effective by, or have been filed with, as the case may
be, the Commission in such form; no other document with respect to the
Initial Company Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Company Registration Statement or any post-effective amendment thereto has
been issued and no notice has been received from the Commission by the
Company that any proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the
Initial Company Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Securities Act of 1933, as amended (the "Act"), is hereinafter
called a "Company Preliminary Prospectus"; the various parts of the Initial
Company Registration Statement, including all exhibits thereto and
including (A) the information contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under
the Act to be part of the Initial Company Registration Statement at the
time it was declared effective and (B) the documents incorporated by
reference in the prospectus contained in the Initial Company Registration
Statement at the time such part of the Initial Company Registration
Statement became effective as amended at the time such part of the Initial
Company Registration Statement became effective, are hereinafter
collectively called the "Company Registration Statement"; such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act,
is hereinafter called the "Company Prospectus"; the Trust Registration
Statement (as defined in Section 1(c)(i) hereof) and the Company
Registration Statement are hereinafter collectively called the
"Registration Statements" and the Trust Prospectus and the Company
Prospectus are hereinafter collectively called the "Prospectuses"; any
reference herein to any Company Preliminary Prospectus or the Company
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act, as of the date of such Company Preliminary Prospectus or Company
Prospectus, as the case may be; any reference to any amendment or
supplement to any Company Preliminary Prospectus or the Company Prospectus
shall be deemed to refer to and include any documents filed after the date
of such Company Preliminary Prospectus or Company Prospectus, as the case
may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Company Preliminary
Prospectus or Company Prospectus, as the case may be; and any reference to
any amendment to the Company Registration Statement shall be deemed to
refer to and include any annual report of the Company filed pursuant to
Section 13(a) or 15(d) of the Exchange Act after the effective date of the
Initial Company Registration Statement that is incorporated by reference in
the Company Registration Statement);
(ii) No order preventing or suspending the use of any Company
Preliminary Prospectus has been issued by the Commission, and each Company
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement
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of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. or by a Selling Stockholder expressly for use therein;
(iii) The documents incorporated by reference in the Company
Prospectus, when they became effective or were filed with the Commission,
as the case may be, conformed in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed and
incorporated by reference in the Company Prospectus or any further
amendment or supplement thereto, when such documents become effective or
are filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through Goldman, Sachs & Co. or by
a Selling Stockholder expressly for use therein;
(iv) The Company Registration Statement conforms, and the
Company Prospectus and any further amendments or supplements to the Company
Registration Statement or the Company Prospectus, when they become
effective or are filed with the Commission, will conform, in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder and do not and will not, as of the applicable
effective date as to the Company Registration Statement and any amendment
thereto, and as of the applicable filing date as to the Company Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. or by a Selling Stockholder expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Company Prospectus any loss or
interference, material to the Company and its subsidiaries taken as a
whole, with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
incorporated by reference in the Company Prospectus; and, since the
respective dates as of which information is given in the Company
Registration Statement and the Company Prospectus, there has not been any
change in the capital stock of the Company (other than in connection with
the issuance of Stock in the ordinary course of business pursuant to the
Company's 1989 Key Employee Long Term Incentive Plan, the 1994 Key Employee
Long Term Incentive Plan, the Profit-Sharing Plan and the Employee Stock
Purchase Plan described in the Prospectus) or any of its subsidiaries, any
change in the short-term debt or long-term debt of
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the Company or any of its subsidiaries, which change is material to the
Company and its subsidiaries, taken as a whole, or any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated
in the Company Prospectus;
(vi) The Company has good and marketable title in fee simple to
its headquarters and principal operating facilities in Westchester County,
New York, and a subsidiary of the Company has good and marketable title in
fee simple, or the substantive equivalent thereto, to such subsidiary's
facility in Swindon, United Kingdom, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Company
Prospectus or such as do not materially affect the value of either of such
properties and do not materially interfere with the use made and proposed
to be made of either of such properties by the Company and its
subsidiaries; and the land underlying the Swindon, United Kingdom facility
is held by a subsidiary of the Company under valid, subsisting and
enforceable lease with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries; and the Company
or a subsidiary of the Company has good and marketable title in fee simple,
or, in jurisdictions outside of the United States, the substantive
equivalent thereto, to all other real property and good and marketable
title to all personal property owned by the Company or a subsidiary of the
Company, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not in the
aggregate materially affect the business or financial condition of the
Company and its subsidiaries, taken as a whole; and any real property and
buildings held under lease by the Company or a subsidiary of the Company
are held by the Company or a subsidiary of the Company under valid,
subsisting and enforceable leases with such exceptions as do not, in the
aggregate, materially adversely affect the business or financial condition
of the Company and its subsidiaries, taken as a whole;
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority to own its properties and conduct its
business as described in the Company Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified or in good standing in any such
jurisdiction; and each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, or, in jurisdictions outside of the
United States, the substantive equivalent thereto, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus;
(viii) The Company has an authorized capitalization as set forth
in the Company Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description of the Stock
contained in the Company Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable, or the
substantive equivalent thereto, and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
4
<PAGE>
(ix) The compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the consummation by the Company of transactions contemplated
by this Agreement, except the registration under the Act of the shares of
Stock and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the shares of Stock by
the Trust pursuant to the Contracts;
(x) Neither the Company nor any of its subsidiaries is in
violation of its certificate of incorporation or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or its properties may be bound other than any violation or
default which would not have a material adverse effect on the Company and
its subsidiaries taken as a whole;
(xi) The statements set forth in the Company Prospectus under
the caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, present fairly the
information disclosed therein in all material respects;
(xii) Other than as set forth in the Company Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which the Company has reasonable
cause to believe would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(xiii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act"
and, together with the Act, the "Acts");
(xiv) The Stock is listed on the New York Stock Exchange;
(xv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
5
<PAGE>
(xvi) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and its subsidiaries, are independent
public accountants as required by the Act and the rules and regulations of
the Commission thereunder;
(xvii) The Company owns all the patents, trademarks, service
marks, trade names and copyrights or licenses rights with respect to the
foregoing necessary for the present and planned future conduct of its
business, except where the failure to own or license the same would not
have a material adverse effect on the business or condition, financial or
otherwise, of the Company and its subsidiaries, taken as a whole, without
any known conflict with the rights of others, the result of which conflict
could materially and adversely affect the business or condition, financial
or otherwise, of the Company and its subsidiaries, taken as a whole, and to
the knowledge of the Company there is no infringement of such patents,
trademarks, service marks, trade names and copyrights by others, the result
of which infringement could materially and adversely affect the business or
condition, financial or otherwise, of the Company and its subsidiaries,
taken as a whole; and
(xviii) The Company has obtained from each of the Funds, the Lila
Acheson Wallace Fund for the Metropolitan Museum of Art and the Dewitt
Wallace Fund for Colonial Williamsburg and the Selling Stockholders, a
letter agreement to the Underwriters in which each signatory agrees
substantially to the effect of (b) (v) below (including with respect to the
voting stock); each such letter agreement has been delivered to the
Underwriters and is in full force and effect and the terms thereof have
been complied with on and as of the date hereof.
(b) Each Selling Stockholder represents and warrants to, and agrees
with, each of the Underwriters, the Company and the Trust that:
(i) The compliance by such Selling Stockholder with all of the
provisions of this Agreement, and the Contract, the power of attorney in
connection with this transaction (the "Power of Attorney"), the Custody
Agreement in connection with this transaction (the "Custody Agreement") and
the Collateral Agreement, each to which such Selling Stockholder is a
party, and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of such Selling Stockholder, or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or any of the property of such Selling
Stockholder; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body
is required for the execution and delivery of or compliance by such Selling
Stockholder with or the consummation by such Selling Stockholder of the
transactions contemplated by this Agreement, the Contract to which such
Selling Stockholder is a party, the Collateral Agreement to which such
Selling Stockholder is a party, the Power of Attorney to which such Selling
Stockholder is a party or the Custody Agreement to which such Selling
Stockholder is a party, except the registration under the Act of the Stock
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Stock by the Trust
pursuant to the Contracts;
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(ii) This Agreement has been duly authorized, executed and
delivered by such Selling Stockholder. The Contract, the Collateral
Agreement, the Power of Attorney and the Custody Agreement, each to which
such Selling Stockholder is a party, have been duly authorized, executed
and delivered by such Selling Stockholder and, assuming due authorization,
execution and delivery by the other parties thereto, constitute valid and
legally binding agreements of such Selling Stockholder, enforceable in
accordance with their respective terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4(a) hereof) such Selling
Stockholder will have, good and valid title to the shares of Stock to be
pledged and assigned by it under the Collateral Agreement to which such
Selling Stockholder is a party, free and clear of all liens, encumbrances,
equities or claims other than those created pursuant to such Collateral
Agreement; all consents, approvals, authorizations and orders necessary for
such Selling Stockholder to pledge and assign the shares of Stock to be
pledged and assigned by such Selling Stockholder pursuant to such
Collateral Agreement have been obtained; such Selling Stockholder has full
right, power and authority to pledge and assign the shares of Stock to be
pledged and assigned by such Selling Stockholder pursuant to such
Collateral Agreement to which such Selling Stockholder is a party; and upon
delivery of such shares of Stock to the Collateral Agent, as defined in the
Collateral Agreement, for the benefit of the Trust and payment therefor
pursuant to the Contracts to which such Selling Stockholder is a party,
good and valid title to such shares of Stock, free and clear of all liens,
encumbrances, equities or claims, will pass to the Trust;
(iv) The representations and warranties of such Selling
Stockholder set forth in Section 3 of such Collateral Agreement are true
and correct on and as of the date hereof with the same effect as though
such representations and warranties had been set forth in full in this
Agreement;
(v) During the period beginning from the date hereof and
continuing to and including the date 180 days after the First Time of
Delivery (as defined herein), such Selling Stockholder will not offer,
sell, contract to sell or otherwise dispose of any Stock or any securities
of the Company that are substantially similar to the Stock, including but
not limited to any securities that are convertible into or exchangeable
for, or that represent the right to receive, Stock or any such
substantially similar securities without prior written consent of you, as
the representatives of the Underwriters, except as provided hereunder or
pursuant to bona fide grants to persons who agree in writing with you to be
bound by the provisions of this clause; provided, however, that in the
event the Company enters into a definitive business combination agreement
providing for the acquisition of the Company by, or the merger of the
Company with, a third party in which substantially all of the outstanding
shares of Stock or assets of the Company are acquired by such third party,
this provision shall not prohibit such Selling Stockholder from tendering
its shares of Stock into any tender offer or exchange offer, or from voting
its shares of Stock in favor of any transaction, contemplated by such
agreement;
(vi) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities; and
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(vii) To the extent that any statements or omissions made in the
Registration Statements, any Preliminary Prospectus, the Prospectuses or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company or the Trust,
as the case may be, by such Selling Stockholder expressly for use therein,
such Preliminary Prospectus and the Registration Statements did, and the
Prospectuses and any further amendments or supplements to the Registration
Statements and the Prospectuses, when they become effective or are filed
with the Commission, as the case may be, will conform in all material
respects to the requirements of the Acts and the rules and regulations of
the Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or at the First Time of Delivery
(as hereinafter defined) a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
Each of the Selling Stockholders represents and warrants that
certificates in negotiable form representing all of the shares of Stock to be
pledged and assigned by such Selling Stockholder hereunder have been placed in
custody under a Custodial Agreement, in the form heretofore furnished to you,
duly executed and delivered by such Selling Stockholder to The Bank of New York,
as custodian (the "POA Custodian"), and that such Selling Stockholder has duly
executed and delivered a Power of Attorney, in the form heretofore furnished to
you, appointing the persons indicated in Schedule II hereto, and each of them,
as such Selling Stockholder's attorneys-in-fact (the "Attorneys- in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to execute and deliver the Contract to which such Selling
Stockholder is a party and the Collateral Agreement to which such Selling
Stockholder is a party, to authorize the delivery of the shares of Stock to be
pledged and assigned by such Selling Stockholder hereunder and otherwise to act
on behalf of such Selling Stockholder in connection with the transactions
contemplated by this Agreement, the Custody Agreement, the Contract and the
Collateral Agreement.
Each of the Selling Stockholders specifically agrees that the shares of
Stock represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interests of the
Collateral Agent for the benefit of the Trust hereunder, and that the
arrangements made by such Selling Stockholder for such custody, and the
appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of
Attorney, are to that extent irrevocable. Each of the Selling Stockholders
specifically agrees that the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the dissolution of any
Selling Stockholder, or by the occurrence of any other event. If any Selling
Stockholder should be dissolved, or if any other such event should occur, before
the delivery of the shares of Stock hereunder, certificates representing the
shares of Stock shall be delivered by or on behalf of the Selling Stockholders
in accordance with the terms and conditions of this Agreement, of the Contracts,
of the Collateral Agreements and of the Custody Agreements, as appropriate, and
actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall
be as valid as if such dissolution or other event had not occurred, regardless
of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such dissolution or other event.
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(c) The Trust represents and warrants to, and agrees with, each of the
Underwriters, the Selling Stockholders and the Company that:
(i) A notification on Form N-8A (the "Notification") of
registration of the Trust as an investment company has been filed with the
Commission; a registration statement on Form N-2 (File No. 333- and File
No. 811- ) (the "Initial Trust Registration Statement") in respect of the
Securities has been filed with the Commission; the Initial Trust
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, to
you for delivery to each of the other Underwriters, have been declared
effective by the Commission in such form; no other document with respect to
the Initial Trust Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Trust Registration Statement, or any post-effective amendment thereto has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the
Initial Trust Registration Statement or filed with the Commission pursuant
to Rule 424(a) of the rules and regulations of the Commission under the
Act, is hereinafter called a "Trust Preliminary Prospectus"; the various
parts of the Initial Trust Registration Statement including all exhibits
thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Trust Registration Statement at the
time it was declared effective, as amended at the time such part of the
registration statement became effective, are hereinafter collectively
called the "Trust Registration Statement"; and such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Trust Prospectus");
(ii) No order preventing or suspending the use of any Trust
Preliminary Prospectus has been issued by the Commission, and each Trust
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Acts, and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Trust by an Underwriter through
Goldman, Sachs & Co. or by a Selling Stockholder expressly for use therein;
(iii) The Notification and the Trust Registration Statement
conform, and the Trust Prospectus and any further amendments or supplements
to the Notification, the Trust Registration Statement or the Trust
Prospectus will conform, in all material respects to the requirements of
the Acts and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the Trust
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Trust Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Trust by an Underwriter through Goldman, Sachs & Co. or by a
Selling Stockholder expressly for use therein;
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(iv) Since the respective dates as of which information is given
in the Trust Registration Statement and the Trust Prospectus, there has not
been any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, results of operations, prospects,
investment objectives, investment policies, or liabilities of the Trust,
otherwise than as set forth or contemplated in the Trust Prospectus, and
there have been no transactions entered into by the Trust which are
material to the Trust other than those in the ordinary course of its
business or as described in the Trust Prospectus;
(v) The Trust has been duly created, is validly existing as a
trust under the laws of the State of New York, with power and authority to
own its properties and conduct its business as described in the Trust
Prospectus and to enter into and perform its obligations under this
Agreement and the Fundamental Agreements (as defined in Section 1(c)(vii)
hereof); the Trust has all necessary consents, approvals, authorizations,
orders, registrations or qualifications, of and from, and has made all
declarations and filings with, all courts and governmental agencies and
bodies, to own and use its assets and to conduct its business in the manner
described in the Trust Prospectus, except to the extent that the failure to
obtain or file the foregoing would not have a material adverse effect on
the Trust and except the registration under the Act of the Securities and
such consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Securities by the Underwriters;
the Trust has no subsidiaries;
(vi) The Trust is registered with the Commission as a non-
diversified, closed-end management investment company under the Investment
Company Act and no order of suspension or revocation of such registration
has been issued or proceedings therefor initiated or, to the knowledge of
the Trust, threatened by the Commission; no person is serving or acting as
an officer or trustee of the Trust except in accordance with the provisions
of the Investment Company Act;
(vii) Each of the Contracts, the Collateral Agreements, the
Administration Agreement between BONY and the Trust (the "Administration
Agreement"), the Custodian Agreement between BONY and the Trust (the
"Custodian Agreement"), the Paying Agent Agreement between BONY and the
Trust (the "Paying Agent Agreement"), the Fund Expense Agreement between
Goldman, Sachs & Co. and BONY (the "Fund Expense Agreement") and the Fund
Indemnity Agreement between Goldman, Sachs & Co. and the Trust (the "Fund
Indemnity Agreement") (the Contracts, the Collateral Agreements, the
Administration Agreement, the Custodian Agreement, the Paying Agent
Agreement, the Fund Expense Agreement and the Fund Indemnity Agreement are
herein collectively called the "Fundamental Agreements") has been duly
authorized, executed and delivered by the Trust and, assuming due
authorization, execution and delivery by the other parties thereto,
constitutes a valid and legally binding agreement of the Trust, enforceable
in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles;
(viii) The Amended and Restated Trust Agreement dated , 1998 (the
"Trust Agreement") and the Fundamental Agreements comply with all
applicable provisions of the Acts, and all approvals of such agreements
required under the Investment Company Act by the holders of the Automatic
Common Exchange Securities and the trustees have been obtained and are in
full force and effect;
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(ix) All of the outstanding Automatic Common Exchange Securities
have been duly and validly authorized and issued and are fully paid and
non-assessable, and the form of certificates used to evidence the Automatic
Common Exchange Securities is in due and proper form and complies with all
provisions of applicable law; the Trust Agreement and the Fundamental
Agreements conform to the descriptions thereof contained in the Trust
Prospectus;
(x) The Securities have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be validly issued, fully paid
and nonassessable; the Securities will conform to the description thereof
in the Trust Prospectus; no person has rights to registration of any
securities because of the filing of the Trust Registration Statement;
(xi) The issue and sale of the Securities and the compliance by
the Trust with all of the provisions of the Securities, this Agreement and
each Fundamental Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, the Trust Agreement or any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Trust is a party or
by which the Trust is bound or to which any of the property or assets of
the Trust is subject, nor will such action result in any violation of any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Trust or any of its properties;
and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities or the consummation by
the Trust of the transactions contemplated by this Agreement or the
Fundamental Agreements, other than the registration under the Act of the
Securities and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Securities by the
Underwriters;
(xii) Assuming due authorization, execution and delivery by the
parties other than the Trust, the Fundamental Agreements are in full force
and effect and the Trust is not in default in the performance or observance
of any obligation, covenant or condition thereunder and, to the knowledge
of the Trust, no event has occurred which with the passage of time or the
giving of notice or both would constitute a default thereunder; the Trust
is not in default in the performance or observance of any obligation,
covenant or condition contained in any other agreement or instrument to
which it is a party or by which it or any of its properties may be bound;
(xiii) The statements set forth in the Trust Prospectus under the
caption "Description of the Securities", insofar as they purport to
constitute a summary of the terms of the Securities, under the caption
"Certain Federal Income Tax Considerations", and under the caption
"Underwriting", insofar as they purport to describe the provisions of the
laws and agreements referred to therein, are accurate, complete and fair in
all material respects;
(xiv) Other than as set forth in the Trust Prospectus, there are
no legal or governmental proceedings pending to which the Trust is a party
or of which any property of the Trust is the subject which, if determined
adversely to the Trust, would individually or in the aggregate have a
material adverse effect on the current or future financial position, or
results of operations of the Trust; and, to the best of the Trust's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
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(xv) There are no material restrictions, limitations or
regulations with respect to the ability of the Trust to invest its assets
as described in the Trust Prospectus, other than as described therein;
(xvi) The Automatic Common Exchange Securities outstanding prior
to the issuance of the Securities and the Securities have been approved for
listing on the New York Stock Exchange subject to notice of issuance; the
Trust's Registration Statement on Form 8-A under the Exchange Act is
effective; and
(xvii) Coopers & Lybrand L.L.P., who have certified certain
financial statements included in the Trust Registration Statement, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder.
2. Subject to the terms and conditions herein set forth, (a) the Trust
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Trust, at a
purchase price of $ per Security, the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Securities as provided below, the Trust agrees to issue and sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Trust, at the same purchase price set forth in
clause (a) of this Section 2, that portion of the aggregate number of Optional
Securities as to which such election shall have been exercised (to be adjusted
by you so as to eliminate fractional securities) determined by multiplying such
number of Optional Securities by a fraction, the numerator of which is the
maximum aggregate number of Optional Securities which such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum aggregate number
of Optional Securities that all of the Underwriters are entitled to purchase
hereunder. The agreements in this Section made by the Trust are for the benefit
of and enforceable by the Underwriters and the Selling Stockholders. The
agreements in this Section made by the Underwriters are for the benefit of and
are enforceable by the Selling Stockholders and the Trust.
The Trust hereby grants to the Underwriters the right to purchase at
their election up to Optional Securities, at the purchase price set forth in
clause (a) of the first paragraph of this Section 2, for the sole purpose of
covering overallotments in the sale of the Firm Securities. Any such election to
purchase Optional Securities may be exercised only by written notice from you to
the Trust (with copies to ), given
within a period of 30 calendar days after the date of this Agreement, setting
forth the aggregate principal amount of Optional Securities to be purchased and
the date on which such Optional Securities are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4(a) hereof) or, unless you and the Trust otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
As compensation to the Underwriters for their commitments hereunder,
and in view of the fact that the proceeds of the sale of the Securities will be
used by the Trust as specified in the Contracts, the Selling Stockholders at
each Time of Delivery will pay to Goldman, Sachs & Co., for the accounts of the
several Underwriters, an amount equal to $ per Security for the Securities
to be delivered at such Time of Delivery; provided that the aggregate amount
payable to Goldman, Sachs & Co. by the Selling Stockholders shall be paid by the
Selling Stockholders on a pro rata basis according to the number of shares of
Stock pledged by each Selling Stockholder pursuant to the Collateral Agreement
to which such Selling Stockholder is a party. Alternatively, as a matter of
convenience, Goldman, Sachs & Co. may
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deduct such amount from the purchase price of the Securities, and in such event
the Selling Stockholders shall be deemed to have paid the same.
3. Upon the authorization by you of the release of the Firm Securities,
the several Underwriters propose to offer the Firm Securities for sale upon the
terms and conditions set forth in the Trust Prospectus.
4. (a) The Securities to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Trust, shall be delivered by or on behalf of the Trust to Goldman,
Sachs & Co., for the account of such Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by wire transfer or
certified or official bank check or checks, payable to the order of the Trust in
Federal (same day) funds. The Trust will cause the certificates representing the
Securities to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) at the office of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Securities, 9:30 a.m., New York City time, on , 1998 or such
other time and date as Goldman, Sachs & Co. and the Trust may agree upon in
writing, and, with respect to the Optional Securities, 9:30 a.m., New York City
time, on the date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Securities, or such other time and date as Goldman, Sachs & Co. and the Trust
may agree upon in writing. Such time and date for delivery of the Firm
Securities is herein called the "First Time of Delivery", such time and date for
delivery of the Optional Securities, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Underwriters pursuant to Section 7(p) hereof, will be delivered at the offices
of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York
10005 (the "Closing Location"), and the Securities will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location at 3:30 p.m., New York City time, on the New York Business Day
next preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City are generally
authorized or obligated by law or executive order to close.
5. (a) The Trust agrees with each of the Underwriters:
(i) To prepare the Trust Prospectus in a form approved by you and
to file such Trust Prospectus pursuant to Rule 497(h) under the Act not
later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if applicable,
such earlier time as may be required by Rule 430A(a)(3) under the Act; to
make no further amendment or any supplement to the Trust Registration
Statement or Trust Prospectus prior to the last Time of Delivery which
shall be disapproved by you promptly after reasonable notice thereof; to
advise you, promptly after it receives notice thereof, of the time when any
amendment to the Trust Registration Statement has been filed or becomes
effective or any supplement to the Trust Prospectus or any amended
prospectus has been filed
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and to furnish you with copies thereof; to file promptly all reports and
any definitive proxy or information statements required to be filed by the
Trust with the Commission pursuant to the Acts and the Exchange Act
subsequent to the date of the Trust Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the Securities; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Trust Preliminary Prospectus
or prospectus or any order pursuant to Section 8(e) of the Investment
Company Act, of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Trust Registration Statement or
Trust Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the use
of any Trust Preliminary Prospectus or prospectus or suspending any such
qualification or order pursuant to Section 8(e) of the Investment Company
Act, promptly to use its best efforts to obtain the withdrawal of such
order;
(ii) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities for offering and sale under
the securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Securities, provided that in connection therewith
the Trust shall not be required to qualify as a foreign trust or
association or to file a general consent to service of process in any
jurisdiction;
(iii) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time, at the expense of the Selling Stockholders, to furnish the
Underwriters with copies of the Trust Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Trust Prospectus in connection with the
offering or sale of the Securities and if at such time any event shall have
occurred as a result of which the Trust Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Trust Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Trust Prospectus in order to comply with the Act, to notify you and upon
your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Trust Prospectus or a supplement to the
Trust Prospectus which will correct such statement or omission or effect
such compliance; and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Securities at any time
nine months or more after the time of issue of the Trust Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver
to such Underwriter as many copies as you may request of an amended or
supplemented Trust Prospectus complying with Section 10(a)(3) of the Act;
(iv) To make generally available to the Trust's security holders
as soon as practicable, but in any event not later than eighteen months
after the effective date of the Trust Registration Statement (as defined in
Rule 158(c) under the Act), an earnings statement of the Trust (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Trust, Rule 158);
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(v) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Trust
Prospectus under the caption "Use of Proceeds"; and
(vi) To use its best efforts to maintain the listing of the
Automatic Common Exchange Securities and the Securities on the New York
Stock Exchange.
(b) The Company agrees with each of the Underwriters:
(i) To prepare the Company Prospectus in a form approved by you
and to file such Company Prospectus pursuant to Rule 424(b) under the Act
not later than the Commission's close of business on the second business
day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under
the Act; to make no further amendment or any supplement to the Company
Registration Statement or Company Prospectus prior to the last Time of
Delivery which shall be disapproved by you promptly after reasonable notice
thereof, such disapproval not to be unreasonably exercised; to advise you,
promptly after it receives notice thereof, of the time when any amendment
to the Company Registration Statement has been filed or becomes effective
or any supplement to the Company Prospectus or any amended Company
Prospectus has been filed and to furnish you with copies thereof; to file
promptly all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Company Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Securities; to
advise you, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending
the use of any Company Preliminary Prospectus or prospectus, of the
suspension of the qualification of the shares of Stock to be delivered
pursuant to the Contracts for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Company
Registration Statement or Company Prospectus or for additional information;
and, in the event of the issuance of any stop order or any order preventing
or suspending the use of any Company Preliminary Prospectus or prospectus
or suspending any such qualification, to promptly use its best efforts to
obtain the withdrawal of such order;
(ii) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(iii) Prior to 10:00 a.m. New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time to furnish the Underwriters with copies of the Company Prospectus in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Company Prospectus in connection with the
offering or sale of the Securities and if at such time any events shall
have occurred as a result of which the Company Prospectus as then amended
or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the
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light of the circumstances under which they were made when such Company
Prospectus is delivered, not misleading, or, if for any other reason it
shall be necessary during such same period to amend or supplement the
Company Prospectus or to file under the Exchange Act any document
incorporated by reference in the Company Prospectus in order to comply with
the Act or the Exchange Act, to notify you and upon your request to file
such document and to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Company Prospectus or a supplement to the
Company Prospectus which will correct such statement or omission or effect
such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Securities at any time
nine months or more after the time of issue of the Company Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver
to such Underwriter as many copies as you may request of an amended or
supplemented Company Prospectus complying with Section 10(a)(3) of the Act;
(iv) To make generally available to its security- holders as soon
as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earning statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(v) During the period beginning from the date hereof and
continuing to and including the date 180 days after the First Time of
Delivery, not to offer, sell, contract to sell or otherwise dispose of any
Stock or any securities of the Company (other than pursuant to employee
plans described in the Prospectus) which are substantially similar to the
Stock, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, Stock or
such substantially similar securities without your prior written consent;
(vi) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(vii) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and deliver
to you as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is
listed. Such financial statements will be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission; and
(viii) To use its best efforts to maintain the listing of the
Stock on the New York Stock Exchange.
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6. The Trust, the Company and the Selling Stockholders covenant and
agree with the several Underwriters that (a) the Selling Stockholders will pay
or cause to be paid a pro rata share (based on the number of shares of Stock to
be sold by each such Selling Stockholder pursuant to the Contracts) of the
following: (i) the fees, disbursements and expenses of the Company's outside
accountants and of the Company's outside counsel in connection with the
registration of the Securities and the Stock under the Act and all other
expenses in connection with the preparation, printing and filing of the
Notification, the Trust Registration Statement, the Company Registration
Statement, any Trust Preliminary Prospectus or Company Preliminary Prospectus,
the Trust Prospectus and the Company Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement and Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities and the Stock; (iii)
all expenses in connection with the qualification of the Securities and the
Stock for offering and sale under state securities laws as provided in Section
5(b)(ii) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the NASD of the terms of the sale of the Stock and the
Securities; (v) all fees and expenses in connection with the preparation and
filing of a registration statement under the Exchange Act relating to the
Securities and all costs and expenses incident to the listing of the Securities
on the New York Stock Exchange or other national or regional exchange; (vi) the
cost of preparing certificates representing the Securities; (vii) the cost and
charges of any transfer agent or registrar for the Securities; (viii) all
expenses and taxes incident to the sale and delivery of the shares of Stock to
be sold or pledged by the Selling Stockholders; (ix) all fees, expenses and
costs in connection with the marketing of the Securities; and (x) all other
costs and expenses incident to the performance of all obligations hereunder
which are not otherwise specifically provided for in this Section; (b) the
Company will pay or cause to be paid (i) the cost of preparing Stock
certificates; and (ii) the cost and charges of any transfer agent or registrar
for the Stock; (c) each Selling Stockholder will pay or cause to be paid all
costs and expenses incident to the performance of such Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in this
Section, including (i) any fees and expenses of counsel for such Selling
Stockholder, (ii) such Selling Stockholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and the POA Custodian, and (iii) all expenses
and taxes incident to the sale and delivery of the shares of Stock to be sold or
pledged by such Selling Stockholder; and (d) the Underwriters will severally pay
or cause to be paid the organizational expenses and the ongoing expenses of the
Trust and all fees, disbursements and expenses of the Trust's counsel and the
Trust's accountants in connection with the registration of the Securities under
the Acts. In connection with Clause (c)(iii) of the preceding sentence, Goldman,
Sachs & Co. agrees to pay New York State stock transfer tax, and the Selling
Stockholders agree to reimburse Goldman, Sachs & Co. for associated carrying
costs if such tax payment is not rebated on the day of payment and for any
portion of such tax payment not rebated. It is understood, however, that the
Company shall bear, and the Selling Stockholders shall not be required to pay or
to reimburse the Company for, the cost of any other matters not directly
relating to the sale and purchase of the Shares pursuant to this Agreement, and
that, except as provided in this Section, Section 8 and Section 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, transfer taxes on resale of any of the Securities by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Securities
to be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties of the Trust, the
Company and the Selling Stockholders herein are, at and as of such Time of
Delivery, true and correct, the condition that the Trust, the Company and the
Selling Stockholders shall
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have performed all of its and their obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectuses shall have been filed with the Commission pursuant
to Rule 424(b) or Rule 497(h), as applicable, within the applicable time period
prescribed for such filing by the rules and regulations under the Act and in
accordance with Sections 5(a)(i) and 5(b)(i) hereof; no stop order suspending
the effectiveness of the Registration Statements or any part thereof, and no
order pursuant to Section 8(e) of the Investment Company Act affecting this
transaction, shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Milbank, Tweed, Hadley & McCloy, counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to paragraphs (i), (ii), (iii), (v), (vi) and (viii) of
subsection (c) below and paragraphs (i), (ii) and (vi) of subsection (e) below,
as well as a statement to the effect of the text following paragraph (x) of
subsection (e) below, and such other related matters as you may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(c) Sullivan & Cromwell, counsel for the Trust, shall have furnished to
you their written opinion or opinions, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Trust (x) has been duly formed and is validly existing as
a trust under the laws of the State of New York and (y) is registered with
the Commission under the Investment Company Act as a non-diversified,
closed-end management investment company;
(ii) The Securities have been duly authorized and validly issued
and are fully paid and non-assessable and are entitled to the benefits
provided by the Trust Agreement;
(iii) The Securities will be exchanged for shares of Stock in
accordance with the terms of the Trust Agreement and the Contracts (unless
a Reorganization Event (as such term is defined in the Contracts) occurs),
subject to bankruptcy, insolvency, reorganization and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles;
(iv) All regulatory consents, authorizations, approvals and
filings required to be obtained or made by the Trust under the Federal laws
of the United States and the laws of the State of New York for the
issuance, sale and delivery of the Securities by the Trust to you have been
obtained or made;
(v) This Agreement has been duly authorized, executed and
delivered by the Trust;
(vi) Each Fundamental Agreement has been duly authorized,
executed and delivered by the Trust and, assuming due authorization,
execution and delivery by the other parties thereto, constitutes a valid
and legally binding agreement of the Trust, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
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(vii) The statements in the Trust Prospectus under the caption
"Certain Federal Income Tax Considerations", to the extent that such
statements constitute summaries of the legal matters referred to therein,
fairly represent their opinion as to such matters;
(viii) On the basis of information which was reviewed in the
course of the performance of the services referred to in their opinion
considered in the light of their understanding of the applicable law
(including the requirements of Form N-2 and the character of the Prospectus
contemplated thereby) and the experience they have gained through their
practice under the Acts, such counsel are of the opinion that the Trust
Registration Statement, as of its effective date, and the Trust Prospectus,
as of the date of the Trust Prospectus, appeared on their face to be
appropriately responsive in all material respects to the requirements of
the Acts and the applicable rules and regulations of the Commission
thereunder; and that nothing that came to their attention in the course of
such review has caused them to believe that the Trust Registration
Statement, as of its effective date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Trust Prospectus, as of the date of the Trust Prospectus, contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; also, nothing
that has come to such counsel's attention in the course of certain
procedures (as described in such opinion) has caused such counsel to
believe that the Trust Prospectus, as of the date and time of delivery of
such opinion, contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that such opinion may state that the
limitations inherent in the independent verification of factual matters and
the character of determinations involved in the registration process are
such, however, that such counsel do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Trust
Registration Statement or the Trust Prospectus except for those made under
the captions "Underwriting", "Investment Objective and Policies", and
"Description of the Securities" in the Trust Prospectus insofar as they
relate to provisions of documents therein described, and such counsel need
not express any opinion or belief as to the financial statements or other
financial data; and provided further that such counsel may state that they
have not participated in the preparation of the Company Registration
Statement or the Company Prospectus, and need not express any opinion or
belief with respect thereto or with respect to information relating to the
Company contained in the Trust Prospectus under the captions "Prospectus
Summary--The Company", "Investment Objectives and Policies--The Company"
and "Risk Factors--Risks Relating to the Company and the Company's
Industry";
(d) Sullivan & Cromwell, counsel for the Trust, shall have furnished to
the Selling Stockholders their written opinion, dated such Time of Delivery,
with respect to paragraphs (i)(y), (iv) and (vii) of subsection (c) above and,
in addition, to the effect that the statements in the Trust Prospectus under the
captions "Underwriting", "Investment Objective and Policies" and "Description of
the Securities", insofar as such statements summarize provisions of documents
referred to therein, are accurate in all material respects and fairly summarize
the matters referred to therein;
(e) Fried, Frank, Harris, Shriver & Jacobson, special counsel for the
Company, shall have furnished to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
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(i) The Company has been incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority necessary to own its properties and
conduct its business as described in the Company Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Company Prospectus, and all of the issued shares of capital stock of
the Company issued since June 17, 1991 and the shares of Stock to be
pledged under the Collateral Agreements have been duly and validly
authorized and issued and are fully paid and non-assessable;
(iii) Each of QSP, Inc., and R.D. Manufacturing Corporation (each
a "Designated Subsidiary" and collectively, the "Designated Subsidiaries")
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware with corporate power and
authority necessary to own its properties and conduct its business as
described in the Company Prospectus; and all of the issued shares of
capital stock of each such Designated Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except for
directors' qualifying shares) are owned of record directly or indirectly by
the Company;
(iv) This Agreement has been duly authorized, executed and
delivered by the Company;
(v) The compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, (i) any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, (ii) the
provisions of the Certificate of Incorporation or By-laws of the Company,
(iii) the Delaware General Corporation Law or any present law, or present
regulation of any government agency or authority, of the State of New York
or the United States of America known by us to be applicable to the Company
or any of its subsidiaries or their respective properties or (iv) any court
decree or order binding upon the Company or any of its subsidiaries or
their respective properties (it being understood that (A) with respect to
the opinions in clauses (i) and (iv) of this paragraph, (w) such opinions
are limited to the indentures, mortgages, deeds of trust, loan agreements,
other agreements, instruments or court decrees or orders (the "Identified
Documents") which have been identified to such counsel in a certificate
provided by an officer of the Company as material to the Company and its
subsidiaries, taken as a whole, (x) such counsel is not required to express
any opinion with respect to any violation not readily ascertainable from
the face thereof or arising under or based upon any cross-default provision
insofar as it relates to a default under an Identified Document not listed
on such certificate, (y) in rendering its opinion with respect to any
covenant of a financial or numerical nature or requiring computation such
counsel may rely as to matters of fact on an officers' certificate of the
Company and (z) such counsel is not required to make any independent
investigation as to whether the Identified Documents which are governed by
the laws of any jurisdiction other than the State of New York, will be
enforced as written under the laws of such jurisdiction and (B) the opinion
in clause (iii) of this paragraph is limited (x) to our review of only
those laws and regulations that, in our experience, are normally applicable
to transactions of the type contemplated by this Agreement, and (y) in that
such counsel is not required to express
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any opinion with respect to the application of, or compliance with, Federal
or state securities or Blue Sky laws or any rules or regulations
thereunder);
(vi) No consent, approval, authorization, order, registration or
qualification of or with any United States or New York, or with respect to
matters arising under the Delaware General Corporation Law, Delaware court
or governmental agency or body is required by or of the Company for the
sale of the shares of Stock or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the shares of Stock, and such consents, approvals,
authorizations, orders, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws, rules and regulations
in connection with the purchase and distribution of the shares of Stock by
the Trust pursuant to the Contracts (it being understood that this opinion
is limited to those consents, approvals, authorizations, orders,
registrations or qualifications that, in our experience, are normally
applicable to transactions of the type contemplated by this Agreement);
(vii) The statements set forth in the Company Prospectus under
the caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock (including shares of Stock
subject to the Contracts), present fairly the information disclosed therein
in all material respects;
(viii) Neither the Company nor either of the Funds (as defined in
the Company Registration Statement) is an "investment company", as such
term is defined in the Investment Company Act;
(ix) The documents incorporated by reference in the Company
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial statements
and related schedules, and other financial data derived from the financial
statements or accounting records of the Company therein, as to which such
counsel need express no opinion), when they were filed with the Commission
appear on their face to be responsive as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations of
the Commission thereunder;
(x) The Company Registration Statement and the Company Prospectus
and or any amendments or supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules, and other financial data derived from the financial statements
or accounting records of the Company, therein, as to which such counsel
need express no opinion), appear on their face to be responsive as to form
in all material respects with the requirements of the Act and the rules and
regulations thereunder.
In addition, in the course of the preparation by the Company of the
Company Registration Statement and any amendment thereto and the Company
Prospectus and any amendment or supplement thereto, such counsel has
participated in conferences with certain of the officers and other
representatives of the Company, representatives of the independent certified
public accountants for the Company and representatives of the Underwriters, at
which the contents of the Company Registration Statement and the Company
Prospectus were discussed. Between the date of effectiveness of the Company
Registration Statement and any such amendment thereto and the time of delivery
of this letter, such counsel attended additional conferences with certain of the
officers and representatives of the Company, at which the contents of the
Company Registration Statement and any such amendment thereto and the Company
Prospectus and any such amendment or supplement thereto were discussed to a
limited extent. Given the
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limitations inherent in the independent verification of factual matters and the
character of determinations involved in the registration process, such counsel
may state that they are not passing upon or assuming any responsibility for the
accuracy, completeness or fairness of the statements contained in the Company
Registration Statement and any such amendment thereto or the Company Prospectus
and any such amendment or supplement thereto except as specified in paragraph
(vii) above. Subject to the foregoing and on the basis of the information gained
in the performance of the services referred to above, including information
obtained from officers and other representatives of, and the independent public
accountants for, the Company, no facts have come to their attention to cause
them to believe that as of its effective date, the Company Registration
Statement or any amendment thereto made by the Company prior to such Time of
Delivery contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Company Prospectus or any
amendment or supplement thereto made by the Company prior to such Time of
Delivery contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. Also, subject to the
foregoing, no facts have come to such counsel's attention in the course of the
procedures described in the second paragraph of this section that have caused
such counsel to believe that, as of such Time of Delivery, the Company
Prospectus as amended or supplemented contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading. Such
counsel may state that they express no view or belief, however, with respect to
the financial statements and related schedules included in, and other financial
data derived from the financial statements or accounting records of the Company
excluded or omitted from, the Company Registration Statement or Company
Prospectus.
In rendering such opinion, such counsel may rely, in respect to matters
of fact, and to the extent not specifically set forth above, upon certificates
of officers of the Company and its subsidiaries and certificates of public
officials. In rendering such opinion, such counsel may state that they express
no opinion as to the laws of any jurisdiction other than the laws of the State
of New York, the Federal law of the United States and, to the extent relevant
for the opinions expressed, the General Corporation Law of the State of
Delaware;
(f) Clifford H.R. DuPree, Vice President and Associate General Counsel
of the Company, shall have furnished to you his written opinion, dated such Time
of Delivery, in form and substance satisfactory to you, to the effect that:
(i) The Company has been incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority and all governmental licenses, permits,
approvals, franchises, consents and authorizations necessary to own its
properties and conduct its business as described in the Company Prospectus
other than any such license, permit, approval, franchise, consent or
authorization the failure to possess which would not have a material
adverse effect on the business or financial condition of the Company and
its subsidiaries, taken as a whole;
(ii) The Company has an authorized capitalization as set forth in
the Company Prospectus, and all of the issued shares of capital stock of
the Company (including the shares of Stock to be pledged and assigned under
the Collateral Agreements have been duly and validly authorized and issued
and are fully paid and non-assessable; and the shares of Stock conform to
the description of the Stock contained in the Company Prospectus;
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(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, or is
subject to no material liability or disability by reason of failure to be
so qualified or in good standing in any such jurisdiction;
(iv) Each of QSP, Inc., R.D. Manufacturing Corporation, The
Reader's Digest Association Proprietary Limited, The Reader's Digest
Association (Canada) Ltd., Selection du Reader's Digest S.A., Verlag Das
Beste G.m.b.H., The Reader's Digest Association Limited and Selezione Dal
Reader's Digest S.p.A. (each an "Indicated Subsidiary" and collectively,
the "Indicated Subsidiaries") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation or, in jurisdictions outside of the United
States, the substantive equivalent thereto, with corporate power and
authority and all governmental licenses, permits, approvals, franchises,
consents and authorizations necessary to own its properties and conduct its
business as described in the Company Prospectus, other than any such
license, permit, approval, franchise, consent or authorization the failure
to possess which would not have a material adverse effect on the business
or financial condition of the Company and its subsidiaries, taken as a
whole; and all of the issued shares of capital stock of each such Indicated
Subsidiary have been duly and validly authorized and issued, are fully paid
and non-assessable, and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(v) Other than as set forth or incorporated by reference in the
Company Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries; and, to the
knowledge of such counsel, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) The compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, except for
any such conflict, breach, violation or default which individually or in
the aggregate would not have a material adverse effect on the Company and
its subsidiaries taken as a whole or which would not have an adverse effect
on the transactions contemplated hereby, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws
of the Company or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties;
(vii) Neither the Company nor any of the Designated Subsidiaries
is in violation of its certificate of incorporation or by-laws;
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(viii) The documents incorporated by reference in the Company
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial statements
and related schedules, and other financial data derived from the financial
statements or accounting records of the Company therein, as to which such
counsel need express no opinion), when they were filed with the Commission
complied as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder;
and he has no reason to believe that any of such documents, when such
documents were so filed contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such documents were so filed, not misleading;
(ix) To the knowledge of such counsel, the Company owns all the
patents, trademarks, service marks, trade names and copyrights, or licenses
rights with respect to the foregoing necessary for the present and planned
future conduct of its business as described in the Company Prospectus,
except where the failure to own or license the same would not have a
material adverse effect on the business or condition, financial or
otherwise, of the Company and its subsidiaries, taken as a whole, without
any conflict known to such counsel with the rights of others, the result of
which conflict could materially and adversely affect the business or
condition, financial or otherwise, of the Company and its subsidiaries,
taken as a whole, and, to the knowledge of such counsel, there is no
infringement on such patents, trademarks, service marks, trade names and
copyrights by others, the result of which infringement could materially and
adversely affect the business or condition, financial or otherwise, of the
Company and its subsidiaries, taken as a whole; and
(x) The Company Registration Statement and the Company Prospectus
and or any amendments or supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules, and other financial data derived from the financial statements
or accounting records of the Company, therein, as to which such counsel
need express no opinion), appear on their face to be responsive as to form
in all material respects with the requirements of the Act and the rules and
regulations thereunder.
In addition, in the course of the preparation by the Company of the
Company Registration Statement and any amendment thereto and the Company
Prospectus and any amendment or supplement thereto, such counsel has
participated in conferences with certain of the officers and other
representatives of the Company, representatives of the independent certified
public accountants for the Company and representatives of the Underwriters, at
which the contents of the Company Registration Statement and the Company
Prospectus were discussed. Between the date of effectiveness of the Company
Registration Statement and any such amendment thereto and the time of delivery
of this letter, such counsel attended additional conferences with certain of the
officers and representatives of the Company, at which the contents of the
Company Registration Statement and any such amendment thereto and the Company
Prospectus and any such amendment or supplement thereto were discussed to a
limited extent. Given the limitations inherent in the independent verification
of factual matters and the character of determinations involved in the
registration process, such counsel may state that they are not passing upon or
assuming any responsibility for the accuracy, completeness or fairness of the
statements contained in the Company Registration Statement and any such
amendment thereto or the Company Prospectus and any such amendment or supplement
thereto. Subject to the foregoing and on the basis of the information gained in
the performance of the services referred to above, including information
obtained from officers and other representatives of, and the independent public
accountants for, the Company, no facts have come to their
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<PAGE>
attention to cause them to believe that as of its effective date, the Company
Registration Statement or any amendment thereto made by the Company prior to
such Time of Delivery contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date, the Company
Prospectus or any amendment or supplement thereto made by the Company prior to
such Time of Delivery contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. Also,
subject to the foregoing, no facts have come to such counsel's attention in the
course of the procedures described in the second paragraph of this section that
have caused such counsel to believe that, as of such Time of Delivery, the
Company Prospectus as amended or supplemented contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Such counsel may state that they express no view or belief, however, with
respect to the financial statements and related schedules therein, and other
financial data derived from the financial statements or accounting records of
the Company excluded or omitted from the Company Registration Statement or
Company Prospectus. Further, based upon such participation and subject to such
limitations and qualifications described above, he does not know of any
amendment to the Company Registration Statement required to be filed or of any
contracts or other documents of a character required to be filed as an exhibit
to the Company Registration Statement or required to be incorporated by
reference into the Company Prospectus or required to be described in the Company
Registration Statement or the Prospectus which are not filed or incorporated by
reference or described as required.
In rendering such opinion, such counsel may rely, (A) in respect to
matters of fact, and to the extent not specifically set forth above, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials, and (B) as to matters of law other than New York and Federal
law and the General Corporation Law of Delaware, on the opinions of local
counsel, provided that such counsel shall state that they believe that both you
and he is justified in relying upon such opinions and certificates and provided
further that true and complete copies of such opinions and certificates shall be
delivered to you. In lieu of delivering such opinion as to matters governed by
the laws of jurisdictions outside of the United States, such counsel shall cause
to be delivered to you opinions of local counsel reasonably satisfactory to you,
provided that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions;
(g) Fried, Frank, Harris, Shriver & Jacobson, special counsel for each
of the Selling Stockholders, shall have furnished to you their written opinion
with respect to each of the Selling Stockholders, dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder enforceable in accordance
with their terms, subject to customary bankruptcy and equitable principles
qualifications;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; each of the Contracts and the
Collateral Agreements to which a Selling Stockholder is a party has been
duly executed and delivered by or on behalf of such Selling Stockholder and
constitutes a valid and binding agreement of such Selling Stockholder
enforceable in accordance with its terms, subject to customary bankruptcy
and equitable principles qualifications;
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(iii) The compliance by each Selling Stockholder with all of the
provisions of this Agreement and the Power of Attorney, Custody Agreement,
Contract and Collateral Agreement to which such Selling Stockholder is a
party and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of,
or constitute a default under, (i) any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound, or to
which any of the property or assets of such Selling Stockholder is subject,
(ii) the provisions of the Certificate of Incorporation or By-laws of such
Selling Stockholder, (iii) any present law, or present regulation of any
government agency or authority, of the State of New York or the United
States of America known by us to be applicable to the Selling Stockholder
or their respective properties or (iv) any court decree or order binding
upon the Selling Stockholder or their respective properties (it being
understood that (A) with respect to the opinions in clauses (i) and (iv) of
this paragraph, (w) such opinions are limited to the indentures, mortgages,
deeds of trust, loan agreements, or other agreements, instruments or court
decrees or orders (the "Specified Documents") which have been identified to
such counsel in a certificate provided by an officer of the Selling
Stockholder as material to the Selling Stockholder and its subsidiaries,
taken as a whole, (x) such counsel is not required to express any opinion
with respect to any violation not readily ascertainable from the face
thereof or arising under or based upon any cross-default provision insofar
as it relates to a default under a Specified Document not listed on such
certificate, (y) in rendering its opinion with respect to any covenant of a
financial or numerical nature or requiring computation such counsel may
rely as to matters of fact on an officers' certificate of the Company and
(z) such counsel is not required to make any independent investigation as
to whether the Specified Documents which are governed by the laws of any
jurisdiction other than the State of New York, will be enforced as written
under the laws of such jurisdiction and (B) the opinion in clause (iii) of
this paragraph is limited (x) to our review of only those laws and
regulations that, in our experience, are normally applicable to
transactions of the type contemplated by this Agreement, and (y) in that
such counsel is not required to express any opinion with respect to the
application of, or compliance with, Federal or state securities or Blue Sky
laws or any rules or regulations thereunder);
(iv) No consent, approval, authorization or order of any United
States or New York court or governmental agency or body is required by or
of such Selling Stockholder for the consummation of the transactions
contemplated by this Agreement, the Contract to which such Selling
Stockholder is a party and the Collateral Agreement to which such Selling
Stockholder is a party, except for the registration of the Securities and
the Stock, under the Acts and such as may be required under state or
foreign securities or Blue Sky laws, rules or regulations in connection
with the purchase and distribution of the Securities and the Stock (it
being understood that this opinion is limited to those consents, approvals,
authorizations, orders, registrations or qualifications that, in our
experience, are normally applicable to transactions of the type
contemplated by this Agreement);
(v) Assuming due authorization, execution and delivery thereof in
the State of New York by the Trust and the Collateral Agent, each
Collateral Agreement, together with the delivery of (x) the certificates in
registered form representing the Stock pledged thereunder by the Selling
Stockholder party thereto and (y) undated stock powers with respect thereto
effectively endorsed in blank, to the Collateral Agent for the benefit of
the Trust, creates in favor of the Collateral Agent for the benefit of the
Trust a perfected security interest in such Stock under the Uniform
Commercial Code as in effect in the State of New York (the "New York
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UCC"); upon such delivery, at the First Time of Delivery, assuming that (A)
the Collateral Agent and the Trust will acquire the security interest in
such shares without notice of any adverse claim (within the meaning of the
New York UCC) and (B) such Selling Stockholder has rights in the shares of
Stock subject to such Collateral Agreement, the Collateral Agent will
acquire such security interest in such shares of Stock for the benefit of
the Trust free of any adverse claim (within the meaning of the New York
UCC); and
(vi) Assuming (A) due authorization, execution and delivery of
the Contract and the Collateral Agreement by the Trust and each Collateral
Agreement by the Collateral Agent, (B) each Selling Stockholder continues
to be the sole registered owner of the shares of Stock to be sold by it,
(C) the certificates representing such shares do not contain any notation
of liens or restrictions, (D) the holders of Securities acquire such shares
of Stock without notice of any adverse claim (within the meaning of the New
York UCC) and (E) undated stock powers with respect to the certificates
representing such shares of Stock effectively endorsed in blank are
delivered to the holders of Securities, upon payment for and delivery to
the holders of Securities of the shares of Stock in accordance with the
Contract and Collateral Agreement to which each Selling Stockholder is a
party, the holders of Securities will acquire all of the rights of such
Selling Stockholder in such shares of Stock and will also acquire their
interest in such shares of Stock free of any adverse claim (within the
meaning of the New York UCC).
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the Federal laws of the United States.
(h) On the date of the Trust Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Trust Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery,
Coopers & Lybrand L.L.P. shall have furnished to you a letter or letters, dated
the respective dates of delivery thereof, in form and substance satisfactory to
you;
(i) On the date of the Company Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Company Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery, the
accounting firm listed in Section 1(a)(xvi) hereof shall have furnished to you a
letter or letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I hereto;
(j) (i) Since the respective dates as of which information is given in
the Trust Registration Statement and the Trust Prospectus, there shall not have
been any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position, results of
operations, prospects, investment objectives, investment policies or liabilities
of the Trust, otherwise than as set forth or contemplated in the Trust
Prospectus, (ii) neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Company Prospectus or incorporated by reference therein any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Company Prospectus, and (iii) since the respective dates as
of which information is given in the Company Prospectus there shall not have
been any change in the capital stock short-term debt or long-term debt of the
Company or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position,
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stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated in
the Company Prospectus, the effect of which, in any such case described in
clause (i), (ii) or (iii), is in your judgment so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities being issued at such Time of Delivery on the terms
and in the manner contemplated in the Trust Prospectus;
(k) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a suspension or material
limitation in trading in the securities of the Company or the Trust on the New
York Stock Exchange; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State authorities; or (iv) the outbreak
or material escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this clause (iv) in your judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities being issued at such Time of Delivery on the terms and in the
manner contemplated in the Trust Prospectus;
(l) The Securities shall have been duly listed, subject to notice of
issuance, on the New York Stock Exchange;
(m) Each Fundamental Agreement shall have been executed and delivered
by all parties thereto and each Selling Stockholder shall have delivered to the
Collateral Agent the number of shares of Stock required by the Collateral
Agreement to which such Selling Stockholder is a party to be initially pledged
thereunder in accordance with the requirements of such Collateral Agreement;
(n) The Trust and the Company shall have complied with the provisions
of Section 5(a)(iii) and 5(b)(iii) hereof with respect to the furnishing of
prospectuses on the New York Business Day next succeeding the date of this
Agreement; and
(o) The Trust, the Company and the Selling Stockholders shall have
furnished or caused to be furnished to you at such Time of Delivery certificates
of officers of the Trust, the Company and the Selling Stockholders,
respectively, satisfactory to you as to the accuracy of the representations and
warranties of the Trust, the Company and the Selling Stockholders, respectively,
herein and in the Contracts and Collateral Agreements at and as of such Time of
Delivery, as to the satisfaction and performance by the Trust, the Company and
the Selling Stockholders of all of their respective obligations hereunder and
thereunder to be performed at or prior to such Time of Delivery, as to the
matters set forth in subsections (a) and (i) of this Section (except in the case
of the Selling Stockholders) and as to such other matters relating to the
transactions contemplated herein and therein as you may reasonably request.
8. (a) The Company will indemnify and hold harmless the Trust and each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Trust or such Underwriter may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Company
Preliminary Prospectus or Trust Preliminary Prospectus, either of the
Registration Statements or either of the Prospectuses, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Trust and each Underwriter for any legal or other expenses reasonably incurred
by the Trust or such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however, that
the Company shall not be liable in any such case to the
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extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Company Preliminary Prospectus or Trust Preliminary
Prospectus, either of the Registration Statements or either of the Prospectuses,
or any such amendment or supplement thereto, in reliance upon and in conformity
with written information furnished to the Company by any Underwriter through
Goldman, Sachs & Co. expressly for use therein, and provided, further, that the
Company shall not be liable to any Underwriter under the indemnity agreement in
this subsection (a) with respect to any Company Preliminary Prospectus or Trust
Preliminary Prospectus to the extent that any such loss, claim, damage or
liability results from the fact such Underwriter sold Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Company Prospectus or the Trust Prospectus, as the case
may be (or of the Company Prospectus or the Trust Prospectus, as the case may
be, as then amended or supplemented) in any case where such delivery is required
by the Act if the Company or the Trust, as the case may be, has previously
furnished copies thereof to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or omission of a
material fact contained in the Company Preliminary Prospectus or the Trust
Preliminary Prospectus which was corrected in the Company Prospectus or the
Trust Prospectus, as the case may be (or the Company Prospectus or the Trust
Prospectus, as the case may be, as amended or supplemented).
(b) Each Selling Stockholder, severally, and not jointly, in proportion
to the number of shares of Stock to be sold by each such Selling Stockholder
pursuant to the Contracts will indemnify and hold harmless the Trust and each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Trust or such Underwriter may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Company
Preliminary Prospectus or Trust Preliminary Prospectus, either of the
Registration Statements or either of the Prospectuses, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Company Preliminary
Prospectus or Trust Preliminary Prospectus, either of the Registration
Statements or either of the Prospectuses or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company or the Trust, as the case may be, by such Selling Stockholder expressly
for use therein, and will reimburse the Trust and each Underwriter for any legal
or other expenses reasonably incurred by the Trust or such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Selling Stockholder shall not
be liable to any Underwriter under the indemnity agreement in this subsection
(b) with respect to any Company Preliminary Prospectus or Trust Preliminary
Prospectus to the extent that any such loss, claim, damage or liability of such
Underwriter results from the fact such Underwriter sold Securities to a person
to whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Company Prospectus or the Trust Prospectus, as the case
may be, or of the Company Prospectus or the Trust Prospectus, as the case may
be, as then amended or supplemented in any case where such delivery is required
by the Act if the Company or the Trust, as the case may be, has previously
furnished copies thereof to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or omission of a
material fact contained in the Company Preliminary Prospectus or Trust
Preliminary Prospectus, as the case may be, which was corrected in the Company
Prospectus or the Trust Prospectus (or the Company Prospectus or the Trust
Prospectus as amended or supplemented).
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(c) Each Underwriter will indemnify and hold harmless the Company, the
Trust and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company, the Trust or such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Company Preliminary Prospectus or Trust Preliminary Prospectus,
either of the Registration Statements or either of the Prospectuses, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Company
Preliminary Prospectus or Trust Preliminary Prospectus, either of the
Registration Statements or either of the Prospectuses, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Trust or the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company, the Trust and
each Selling Stockholder for any legal or other expenses reasonably incurred by
the Company, the Trust or such Selling Stockholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have been advised by its
counsel that representation of such indemnified party and the indemnifying party
by the same counsel would be inappropriate (whether or not such representation
by the same counsel has been proposed) under applicable standards of
professional conduct due to actual or potential differing interests between
them, the indemnified party or parties shall have the right to select one
separate counsel to participate in the defense of such action on behalf of all
such indemnified parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation unless the indemnified party shall have
employed separate counsel in accordance with the proviso to the next preceding
sentence. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses,
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<PAGE>
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company, the Trust and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Securities. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (d) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company, the Trust and
the Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company, the Trust and the Selling Stockholders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company, the Trust and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Trust Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Trust or the Selling Stockholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Trust, the Selling Stockholders and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this subsection (e) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in subsection (c) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(e) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company or the Selling Stockholders, to each trustee
of the Trust and to each person, if any, who controls the Company, the Trust or
any Selling Stockholder within the meaning of the Act.
(g) Notwithstanding the foregoing provisions of this Section 8, in no
event shall any Selling Stockholder be liable under this Section 8 for an amount
in excess of the pro rata share (based on
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the number of shares of Stock to be sold by each Selling Stockholder pursuant to
the Contracts) of the gross proceeds from the transactions contemplated by this
Agreement and the Fundamental Agreements received by such Selling Stockholder
from the sale of the Shares.
9. (a) If any Underwriter shall default in its obligation to purchase
the Securities which it has agreed to purchase hereunder, you may in your
discretion arrange for you or another party or other parties to purchase such
Securities on the terms contained herein at a Time of Delivery. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Securities, then the Company, the Trust and the Selling
Stockholders shall be entitled to a further period of thirty-six hours within
which to procure another party or other parties satisfactory to you to purchase
such Securities on such terms. In the event that, within the respective
prescribed periods, you notify the Company, the Trust and the Selling
Stockholders that you have so arranged for the purchase of such Securities, or
the Company, the Trust and the Selling Stockholders notify you that they have so
arranged for the purchase of such Securities, you or the Company, the Trust and
the Selling Stockholders shall have the right to postpone such Time of Delivery
for a period of not more than seven days, in order to effect whatever changes
may thereby be made necessary in the Registration Statements or the
Prospectuses, or in any other documents or arrangements, and the Company, the
Trust and the Selling Stockholders agree to file promptly any amendments to the
Registration Statements or the Prospectuses which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company,
the Trust and the Selling Stockholders as provided in subsection (a) above, the
aggregate principal amount of such Securities which remains unpurchased does not
exceed one-eleventh of the aggregate principal amount of all the Securities to
be purchased at such Time of Delivery, then the Company, the Trust and the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the principal amount of Securities which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the principal amount of Securities which such Underwriter agreed
to purchase hereunder) of the Securities of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company,
the Trust and the Selling Stockholders as provided in subsection (a) above, the
aggregate principal amount of such Securities which remains unpurchased exceeds
one-eleventh of the aggregate principal amount of all the Securities to be
purchased at such Time of Delivery, or if the Company, the Trust and the Selling
Stockholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Securities of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Trust to sell the Optional Securities) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company, the
Trust and the Selling Stockholders, except for the expenses to be borne by the
Company, the Trust, the Selling Stockholders and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
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<PAGE>
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Trust, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, the Trust or the Selling Stockholders or any
officer or director or controlling person of the Company, the Trust or the
Selling Stockholders and shall survive delivery of and payment for the
Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company, the Trust nor the Selling Stockholders shall then be under
any liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason, any Securities are not delivered by or on behalf
of the Trust as provided herein, the Selling Stockholders, pro rata (based on
the number of shares of Stock to be sold by each such Selling Stockholder
pursuant to the Contracts), will reimburse the Underwriters through you for all
out-of-pocket expenses approved in writing by you, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Securities not so
delivered, but the Company, the Trust and the Selling Stockholders shall then be
under no further liability to any Underwriter in respect of the Securities not
so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder,
you, the Trust and the Company shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of such Selling Stockholder
made or given by any or all of the Attorneys-in-Fact for such Selling
Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to the Trust shall be delivered or sent by mail, telex or
facsimile transmission in care of Donald J. Puglisi, Puglisi & Associates, 850
Library Avenue, Suite 204, Newark, Delaware 19711; if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; and if to
any Selling Stockholder shall be delivered or sent by mail, telex or facsimile
transmission to counsel for such Selling Stockholder at its address set forth in
Schedule II hereto; provided, however, that any notice to an Underwriter
pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company or the Selling Stockholders by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company, the Trust, the Selling Stockholders
and, to the extent provided in Sections 8 and 10 hereof, the officers and
directors of the Company, the Trust, the Selling Stockholders and each person
who controls the Company, any Selling Stockholder or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Securities from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
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<PAGE>
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us eight counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters,
the Trust, the Company and the Selling Stockholders. It is understood that your
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<PAGE>
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters, the form of
which shall be submitted to the Company and the Selling Stockholders for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
THE READER'S DIGEST ASSOCIATION, INC.
By: ________________________________________
Name:
Title:
READER'S DIGEST AUTOMATIC COMMON EXCHANGE
SECURITY TRUST
By: ________________________________________
Name:
Title:
By: ________________________________________
Name:
Title:
By: ________________________________________
Name:
Title:
each a trustee of Reader's Digest
Automatic Common Exchange Security
Trust
[OTHERS]
By: ________________________________________
As Attorney-in-Fact acting on behalf of
each Selling Stockholder named in
Schedule II to this Agreement
Accepted as of the date hereof:
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
By:______________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
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SCHEDULE I
NUMBER OF OPTIONAL
SECURITIES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SECURITIES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
Total ======= =======
<PAGE>
SCHEDULE II
[TO COME]
_____________________
(a) Each Selling Stockholder is represented by Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004 and
has appointed George V. Grune and M. Christine DeVita, and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
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ANNEX I
Pursuant to Section 7(i) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and
any supplementary financial information and schedules (and, if
applicable, financial forecasts and/or pro forma financial information)
examined by them and included or incorporated by reference in the
Registration Statement or the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the
Act or the Exchange Act, as applicable, and the related published rules
and regulations thereunder; and, if applicable, they have made a review
in accordance with standards established by the American Institute of
Certified Public Accountants of the consolidated interim financial
statements, selected financial data, pro forma financial information,
financial forecasts and/or condensed financial statements derived from
audited financial statements of the Company for the periods specified
in such letter, as indicated in their reports thereon, copies of which
have been furnished to the representatives of the Underwriters (the
"Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included in the Company's quarterly
report on Form 10-Q incorporated by reference into the Prospectus as
indicated in their reports thereon copies of which are attached hereto;
and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Exchange
Act and the related published rules and regulations;
(iv) The unaudited selected financial information with
respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years included
in the Prospectus and included or incorporated by reference in Item 6
of the Company's Annual Report on Form 10-K for the most recent fiscal
year agrees with the corresponding amounts (after restatement where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation
S-K and on the basis of limited
1
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procedures specified in such letter nothing came to their attention as
a result of the foregoing procedures that caused them to believe that
this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, inquiries of officials of
the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused
them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements
of cash flows included in the Prospectus and/or included or
incorporated by reference in the Company's Quarterly Reports on
Form 10-Q incorporated by reference in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Exchange Act as it applies to Form
10-Q and the related published rules and regulations, or (ii) any
material modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the
Prospectus or included in the Company's Quarterly Reports on Form
10-Q incorporated by reference in the Prospectus, for them to be
in conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
or incorporated by reference in the Company's Annual Report on
Form 10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived the unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included
in the Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the basis for
the audited financial statements included or incorporated by
reference in the Company's Annual Report on Form 10-K for the
most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the
Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
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(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest balance sheet included or incorporated by
reference in the Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or stockholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each
case as compared with amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus, except
in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the
Prospectus to the specified date referred to in Clause (E) there
were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each
case as compared with the comparable period of the preceding year
and with any other period of corresponding length specified by
the Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (vi) above, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear in
the Prospectus (excluding documents incorporated by reference) or in
Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives or in documents incorporated by
reference in the Prospectus specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
3
Exhibit 2.j
CUSTODIAN AGREEMENT
This CUSTODIAN AGREEMENT dated as of this ____ day of ___ 1997 by and
between The Bank of New York, a New York banking corporation (the "Custodian"),
and William R. Latham III, James B. O'Neill and Donald J. Puglisi (collectively,
the "Trustees"), not in their individual capacities but solely as Trustees of
Reader's Digest Automatic Common Exchange Security Trust (the "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 ___ __, 1997 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold certain U.S. treasury
securities (the "Treasury Securities"), to enter into and hold forward purchase
contracts (the "Contracts") with one or more existing shareholders of The
Reader's Digest Association, Inc. (the "Company"), and to issue Trust Automatic
Common Exchange Securities (the "Securities") in accordance with the terms and
conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the Custodian to
perform certain custodial duties for the Trust; and
WHEREAS, the Custodian is qualified and willing to assume such duties,
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
2. Appointment of Custodian; Transfer of Assets. The Trustees hereby
constitute and appoint the Custodian, and the Custodian accepts such
appointment, as custodian of all of the property, including but not limited to,
the Contracts, the Treasury Securities, the Temporary Investments, any cash and
any other property at any time owned or held by the Trust (collectively, the
"Assets"). The
<PAGE>
Trustees hereby deposit the Assets with the Custodian and the Custodian hereby
accepts such into its custody and the Trustees shall deliver to the Custodian
all of the Assets, including all monies, securities and other property received
by the Trust at any time during the period of this Agreement, subject to the
following terms and conditions. The Custodian hereby agrees that it shall hold
the Assets in a segregated custody account, separate and distinct from all other
accounts, in accordance with Section 17(f) of, and in such manner as shall
constitute the segregation and holding in trust within the meaning of, the
Investment Company Act and the rules and regulations thereunder. The Trustees
authorize the Custodian, for any Assets held hereunder, to use the services of
any United States securities depository permitted to perform such services for
registered investment companies and their custodians under Rule 17f-4 under the
Investment Company Act and which have been approved by the Trustees, including
but not limited to, the Depository Trust Company and the Federal Reserve Book
Entry System. The Custodian shall invest monies on deposit in such custody
account in the Temporary Investments in accordance with Section 3.5 of the Trust
Agreement. Except as otherwise specifically provided in the Trust Agreement, the
Custodian shall not have the power to sell, transfer or otherwise dispose of any
Temporary Investments prior to the maturity thereof, or to acquire additional
Temporary Investments. The Custodian shall hold any Temporary Investments to
maturity and shall apply (or cause to be applied) the proceeds thereof paid upon
maturity to the payment of the next succeeding Quarterly Distribution. All such
Temporary Investments shall be selected by the Trustee from time to time or
pursuant to standing instructions from the Trustees, and the Custodian shall
have no liability to the Trust or any Holder or any other Person with respect to
any such Temporary Investments.
3. Asset Disposition; Examinations. The Custodian shall have no power
or authority to assign, hypothecate, pledge or otherwise dispose of the Assets,
except pursuant to a written direction in accordance with paragraph 4 below and
then only for the account of the Trust. The Assets shall be subject to no lien
or charge of any kind in favor of the Custodian for itself or for any other
Person claiming through the Custodian. The Custodian shall permit actual
examination of the Assets by the Trust's independent public accountant at the
end of each annual and semi-annual fiscal period of the Trust and at least one
other time during the fiscal year of the Trust chosen by such independent public
accountant and shall permit the inspection of the Assets by the Commission
through its employees or agents during the
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<PAGE>
normal business hours of the Custodian upon reasonable request.
4. Authorized Actions. The Custodian shall take such actions with
respect to the Assets as directed in writing by the Trustees or by any officer
of the Administrator as may be received by the Custodian from time to time.
5. Custodian's Actions Taken In Good Faith. In connection with the
performance of its duties under this Agreement, the Custodian shall be under no
liability to the Trust or any Holder for any action taken in good faith in
reliance on any paper, order, certification, list, demand, request, consent,
affidavit, notice, opinion, direction, endorsement, assignment, resolution,
draft or other document, prima facie properly executed, or for the disposition
of the Assets pursuant to the Trust Agreement or in respect of any action taken
or suffered under the Trust Agreement in good faith, in accordance with an
opinion of counsel or at the direction of the Trustees pursuant hereto; provided
that this provision shall not protect the Custodian against any liability to
which it would otherwise be subject by reason of its reckless disregard of its
obligations and duties hereunder. Notwithstanding any other provision of this
Agreement, the Custodian shall under no circumstances be liable for any indirect
or consequential damages.
6. Trust Agreement Validity. The Custodian shall not be responsible for
the validity or sufficiency of the Trust Agreement or the due execution thereof,
or for the form, character, genuineness, sufficiency, value or validity of any
of the Assets and the Custodian shall in no event assume or incur any liability,
duty or obligation to any Holder or to the Trustees, other than as expressly
provided for herein. The Custodian shall not be responsible for or in respect of
the validity of any signature by or on behalf of the Trustees.
7. Litigation Obligations, Costs and Indemnity. The Custodian shall not
be under any obligation to appear in, prosecute or defend any action which in
its opinion may involve it in expense or liability, unless it shall be furnished
with such reasonable security and indemnity against such expense or liability as
it may require, and any pecuniary costs of the Custodian from such actions shall
be expenses which are reimbursable pursuant to paragraph 13 hereof.
8. Taxes; Trust Expenses. In no event shall the Custodian be personally
liable for any taxes or other
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<PAGE>
governmental charges imposed upon or in respect of the Assets or upon the
monies, securities or other properties included therein. The Custodian shall be
reimbursed and indemnified by the Trustees for all such taxes and charges, for
any tax or charge imposed against the Trust and for any expenses, including
counsel fees, interest, penalties and additions to tax which the Custodian may
sustain or incur with respect to such taxes or charges.
9. Custodian Resignation, Succession. (a) The Custodian may resign by
executing an instrument in writing resigning as Custodian and delivering the
same to the Trustees, not less than 60 days before the date specified in such
instrument when, subject to clause (b) of this paragraph 9, such resignation is
to take effect. Upon receiving such notice of resignation, the Trustees shall
use their reasonable efforts promptly to appoint a successor Custodian in the
manner and meeting the qualifications provided in the Trust Agreement, by
written instrument or instruments delivered to the resigning Custodian and the
successor Custodian.
(b) In case no successor Custodian shall have been appointed within 30
days after notice of resignation has been received by the Trustees, the
resigning Custodian may forthwith apply to a court of competent jurisdiction for
the appointment of a successor Custodian. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribed, appoint a successor
Custodian.
10. Custodian Removal. The Trustees may remove the Custodian upon 60
days' prior written notice to the Custodian and appoint a successor Custodian.
In case at any time the Custodian shall not meet the requirements set forth in
the Trust Agreement or shall become incapable of acting or if a court having
jurisdiction shall enter a decree or order for relief in respect of the
Custodian in an involuntary case, or the Custodian shall commence a voluntary
case, under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or any receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) for the Custodian or for any substantial part
of its property shall be appointed, or the Custodian shall make any general
assignment for the benefit of creditors, or shall generally fail to pay its
debts as they become due, the Trustees may remove the Custodian immediately and
appoint a successor Custodian. The termination of the Administration Agreement
or the Paying Agent Agreement shall cause the removal of the Custodian
simultaneously therewith.
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<PAGE>
11. Transfers to Successor Custodian. Upon the request of any successor
Custodian, the Custodian hereunder shall, upon payment of all amounts due it,
execute and deliver an instrument acknowledged by it transferring to such
successor Custodian all the rights and powers of the resigning Custodian; and
the resigning Custodian shall transfer, deliver and pay over to the successor
Custodian the Assets at the time held by it hereunder, if any, together with all
necessary instruments of transfer and assignment or other documents properly
executed necessary to effect such transfer and such of the records or copies
thereof maintained by the resigning Custodian in the administration hereof as
may be requested by the successor Custodian, and shall thereupon be discharged
from all duties and responsibilities hereunder. Any resignation or removal of
the Custodian shall become effective upon such acceptance of appointment by the
successor Custodian. The indemnification of the resigning Custodian provided for
hereunder shall survive any resignation, discharge or removal of the Custodian
hereunder.
12. Custodian Merger, Consolidation. Any corporation into which the
Custodian may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Custodian shall be a party, shall be the successor Custodian hereunder and
under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement
and provided further that the Trust has given its prior written consent to the
Custodian with respect to any such merger, conversion or consolidation.
13. Compensation; Expenses. The Custodian shall receive compensation
for performing the usual, ordinary, normal and recurring services under this
Custodian Agreement and, with the prior written approval of the Trustees,
reimbursement for any and all expenses and disbursements incurred hereunder, as
provided in Section 3.1 of the Administration Agreement.
14. Section 17(f) Qualification. The Custodian hereby represents that
it is qualified to act as a custodian under Section 17(f) of the Investment
Company Act.
15. Custodian's Limited Liability. The Trustees shall indemnify and
hold the Custodian harmless from and against any loss, damages, cost or expense
(including the costs of investigation, preparation for and defense of legal
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<PAGE>
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements), liability or claim incurred by reason of any
inaccuracy in information furnished to the Custodian by the Trustees, or any act
or omission in the course of, connected with or arising out of any services to
be rendered hereunder, provided that the Custodian shall not be indemnified and
held harmless from and against any such loss, damages, cost, expense, liability
or claim arising from its willful misfeasance, bad faith or gross negligence in
the performance of its duties, or its reckless disregard of its duties and
obligations hereunder. Neither the Federal Reserve Book Entry System nor the
Depository Trust Company shall be deemed to be agents of the Custodian.
16. Rights of Set-Off; Banker's Lien. The Custodian hereby waives all
rights of set-off or banker's lien it may have with respect to the Assets held
by it as Custodian hereunder.
17. Termination. This Agreement shall terminate upon the earlier of the
termination of the Trust or the appointment of a successor Custodian.
18. Choice of Law. This Agreement is executed and delivered in the
State of New York, and all laws or rules of construction of the State of New
York shall govern the right of the parties hereto and the interpretation of the
provisions hereof.
19. Notices. Any notice to be given to the Trust hereunder shall be in
writing and shall be duly given if mailed or delivered to Reader's Digest
Automatic Common Exchange Security Trust, c/o Donald J. Puglisi, Managing
Trustee, Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware
19711, and to the Custodian if mailed or delivered to The Bank of New York, 101
Barclay Street, New York, New York 10286, Attention: Mark G. Walsh or at such
other address as shall be specified by the addressee to the other party hereto
in writing.
20. No Third Party Beneficiaries. Nothing herein, express or implied,
shall give to any Person, other than the Trustees, the Custodian and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder.
21. Amendments; Trust Agreement Changes; Waiver. This Agreement shall
not be deemed or construed to be modified, amended, rescinded, cancelled or
waived, in whole or in part, except by a written instrument signed by a duly
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<PAGE>
authorized representative of the party to be charged. The Trustees shall notify
the Custodian of any change in the Trust Agreement prior to the effective date
of any such change. Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
22. Counterparts. This Agreement may be signed in counterparts with all
counterparts constituting one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Custodian
Agreement to be duly executed as of the day and year first above written.
TRUSTEES
__________________________
William R. Latham III,
as Trustee
__________________________
James B. O'Neill,
as Trustee
__________________________
Donald J. Puglisi,
as Trustee
THE BANK OF NEW YORK
By ______________________
Name:
Title:
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Exhibit 2.k.(i)
ADMINISTRATION AGREEMENT
This ADMINISTRATION AGREEMENT, dated as of this ____ day of ___, 1997,
by and between The Bank of New York, a New York banking corporation (the
"Administrator"), and William R. Latham III, James B. O'Neill and Donald J.
Puglisi (collectively, the "Trustees"), not in their individual capacities but
solely as Trustees of Reader's Digest Automatic Common Exchange Security Trust
(the "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 ___ __,
1997 (the "Trust Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold certain U.S. treasury
securities (the "Treasury Securities"), to enter into and hold forward purchase
contracts (the "Contracts") with one or more existing shareholders of The
Reader's Digest Association, Inc. (the "Company") and to issue Trust Automatic
Common Exchange Securities (the "Securities") in accordance with the terms and
conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the
Administrator to assume certain duties and responsibilities of the Trustees
under the Trust Agreement and the Investment Company Act and to undertake
certain services on behalf of and subject to the supervision of the Trustees as
provided herein; and
WHEREAS, the Administrator is qualified and willing to assume such
duties and responsibilities and to undertake to render such services, subject to
the supervision of the Trustees, on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
ARTICLE II
ENGAGEMENT OF ADMINISTRATOR
2.1 Engagement. The Trustees hereby engage the Administrator, and the
Administrator hereby agrees to be so engaged, to provide the services
hereinafter enumerated.
2.2 Services of Administrator. Subject to the supervision of the
Trustees, the Administrator shall effect the matters set forth further in
Sections 2.3, 2.4 and 2.5 of the Trust Agreement, to the extent such
responsibilities can lawfully be delegated to the Administrator; provided,
however, that the Administrator shall not (i) render investment advisory
services to the Trust as defined in the Investment Company Act or the Investment
Advisers Act of 1940; (ii) have the power of the Trustees to sell the Contract
or the Treasury Securities except as provided in Sections 2.5 of the Trust
Agreement; or (iii) have the power to select the independent public accountants
for the Trust. Additionally, the Administrator shall be responsible for
rendering the following services:
(a) instruct the Paying Agent to pay out of the net proceeds
of the sale of the Securities the fees and expenses of the Trust
incurred in connection with the offering of the Securities as specified
in Schedule I to the Fund Expense Agreement;
(b) instruct the Paying Agent to pay out of the net proceeds
of the sale of the Securities the fees and expenses of the Trust
incurred in connection with the organization of the Trust as specified
in Schedule I to the Fund Expense Agreement;
(c) instruct the Paying Agent to effect the transactions set
forth in Sections 2.3, 2.4 and 2.5 of the Trust Agreement and to
otherwise perform the duties of the Paying Agent referred to in the
Trust Agreement;
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<PAGE>
(d) with the approval of the Trustees, engage legal and other
professional advisors, subject to clause 2.2 (iii) above;
(e) receive all demands, bills and invoices for expenses
incurred by or on behalf of the Trust, and pay the same, or cause the
Paying Agent to pay the same, out of moneys paid to the Administrator
pursuant to the Fund Expense Agreement dated the date hereof between
Goldman, Sachs & Co., and The Bank of New York (the "Fund Expense
Agreement") but in no event out of any assets of the Trust except, as
provided in paragraphs (a) and (b) hereof, and give notice to Goldman,
Sachs & Co. pursuant to the Fund Indemnity Agreement dated the date
hereof between Goldman, Sachs & Co. and the Trustees (the "Fund
Indemnity Agreement") of any claim for Indemnification Expenses (as
defined in the Fund Indemnity Agreement) or any threatened claim for
Indemnification Expenses;
(f) (i) prepare and mail, file or publish, or, as appropriate,
direct the Paying Agent to prepare and mail, file or publish, any
notices, proxies, reports and other communications required to be
mailed or published pursuant to the Trust Agreement and the Investment
Company Act, (ii) keep (or cause to be kept) all the books and records
of the Trust (other than those to be kept by the Paying Agent), and
(iii) prepare (or cause to be prepared) and, as necessary, file (or
cause to be filed) any and all reports, returns and other documents as
required under the Investment Company Act, the Securities Exchange Act
of 1934, or the Code, or, as reasonably requested by the Trustees,
under any other applicable laws, rules or regulations or otherwise;
provided, however, that responsibility for the adequacy and accuracy of
any such reports, returns, etc. shall be that of the Trustees and
provided, further, that the Administrator shall have no liability for
the adequacy or accuracy of such reports, returns, etc.;
(g) at the request of the Trustees and upon being furnished
with such reasonable security and indemnity against any related expense
or liability as the Administrator may require, institute and prosecute,
in accordance with the instructions of the Trustees, legal or other
appropriate proceedings to enforce any and all rights and remedies of
the Trust;
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<PAGE>
(h) receive and review on behalf of the Trust all notices,
reports, certificates and other documents regarding the Contract and
the Treasury Securities;
(i) make all necessary arrangements with respect to meetings
of Trustees and meetings of Holders, including, without limitation, the
preparation of notices, proxies and minutes, subject to the approval of
Trustees; and
(j) in conjunction with the Trustees, determine and publish,
in such manner as the Trustees shall direct in writing, the Trust's net
asset value in accordance with the Trust's policy as set forth in the
Prospectus.
2.3 Certain Rights of the Administrator. In connection with the
performance of its duties under this Agreement, the Administrator shall not be
liable to the Trust, the Trustees or any Holder (i) for any action taken or for
refraining from taking any action hereunder except in the case of its willful
misfeasance, bad faith, gross negligence or the reckless disregard of its duties
hereunder, (ii) with respect to any action taken or omitted to be taken by it in
good faith in accordance with the directions of the Trustees or of any Trustee
or (iii) in connection with the performance of its duties under Section 2.2(j)
hereof, for good faith reliance upon information furnished by third parties
selected by the Administrator with due care. The Administrator shall under no
circumstances be liable for any indirect or consequential damages. The
Administrator may consult with counsel and the written advice of such counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon. The Administrator may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys appointed with
due care by it but shall be liable for the acts and omissions of such persons to
the same extent as if the functions had been performed by the Administrator
itself. Without limiting the generality of the preceding sentence, the
Administrator (i) at its own cost, may select and employ independent accountants
acceptable to the Trustees (other than the independent public accountants
referred to in clause (iii) of Section 2.2 of this Agreement and Section 2.2(d)
of the Trust Agreement) to keep the financial books and records of the Trust, to
prepare the financial statements of the Trust and to prepare Trust tax returns,
and (ii) should the Trustees fail to do so, may select and engage attorneys
acceptable to the Trustees to prepare annual, semiannual and
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<PAGE>
periodical reports, notices of meetings and proxy statements, annual reports to
holders of the Securities and other documents required under the Investment
Company Act or the Securities Exchange Act of 1934, as amended.
2.4 Power of Attorney. The Trust hereby appoints the Administrator,
acting through any duly appointed officer, its attorney-in-fact and agent for
the purpose of performing the duties prescribed in Section 2.2(f)(iii) and
2.2(i).
2.5 Delivery of Certain Documents. The Trust will deliver to the
Administrator, promptly following the execution hereof: (a) a complete conformed
copy of the registration statement of the Trust under the Securities Act of
1933, as amended, and the Investment Company Act, including all amendments,
exhibits and schedules thereto and (b) the EDGAR access codes (Central Index
Key, CIK Confirmation Code, Password and Password Modification Access Code)
employed to file such registration statement.
ARTICLE III
COMPENSATION OF ADMINISTRATOR
3.1 Compensation. For services to be rendered by the Administrator
pursuant to this Agreement, and for the payment of Trust expenses pursuant to
Section 2.2(e) hereof, the Administrator shall receive only such fees and
expenses as shall be paid to it pursuant to the terms of the Fund Expense
Agreement and shall have no recourse to the assets of the Trust for the payment
of any such amounts. No provision of this Administration Agreement shall require
the Administrator to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
3.2 Additional Services. If and to the extent that the Trustees shall
request the Administrator to render services for the Trust, other than those to
be rendered by the Administrator hereunder, and if the Administrator agrees to
render such services, such additional services shall be compensated separately
on terms to be agreed upon between the Administrator and the Trustees from time
to time.
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<PAGE>
ARTICLE IV
TERMINATION
4.1 Termination.
(a) This Agreement shall terminate immediately upon written notice of
termination from the Trustees to the Administrator if any of the following
events shall occur:
(i) If the Administrator shall violate any provision
of this Agreement, the Trust Agreement, or the Investment Company Act,
and after notice of such violation, shall not cure such default within
30 days; or
(ii) If the Administrator shall be adjudged bankrupt or
insolvent by a court of competent juris diction, or an order shall be
made by a court of competent jurisdiction for the appointment of a
receiver, liquidator, or trustee of the Administrator, or of all or
substantially all of its property by reason of the foregoing, or
approving any petition filed against the Administrator for its
reorganization, and such adjudication or order shall remain in force or
unstayed for a period of 30 days; or
(iii) If the Administrator shall institute proceedings for
voluntary bankruptcy, or shall file a petition seeking reorganization
under the Federal bankruptcy laws, or for relief under any law for the
relief of debtors, or shall consent to the appointment of a receiver of
the Administrator or of all or substantially all of its property, or
shall make a general assignment for the benefit of its creditors, or
shall admit in writing its inability to pay its debts generally as they
become due; or
(iv) Upon the voluntary or involuntary dissolution of the
Administrator, or unless the Trust shall have given its prior written
consent thereto, the merger or consolidation of the Administrator with
any other entity.
If any of the events specified in clauses (ii), (iii) or (iv) of this
Section 4.1(a) shall occur, the Administrator shall give immediate written
notice thereof to the Trustees.
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<PAGE>
(b) Notwithstanding anything to the contrary contained herein, this
Agreement shall terminate immediately (i) upon termination of the Trust
Agreement, (ii) upon termination of the Paying Agent Agreement, (iii) upon
termination of the Collateral Agreement, (iv) upon termination of the Custodian
Agreement or (v) upon the resignation or removal of the Custodian.
(c) This Agreement may be terminated by either party hereto without
penalty upon 60 days' prior written notice to the other party hereto; provided
that neither party hereto may terminate this Agreement pursuant to this Section
4.1(c) unless a successor Administrator shall have been appointed and shall have
accepted the duties of the Administrator. If, within 30 days after notice by the
Administrator to the Trustees of termination of this Agreement, no successor
Administrator shall have been selected and accepted the duties of the
Administrator, the Administrator may apply to a court of competent jurisdiction
for the appointment of a successor Administrator.
4.2 Effect of Termination. The Administrator shall forthwith upon
termination of this Agreement deliver to the Trustees any records or other
property of the Trust then in the possession or custody of the Administrator.
Any obligation to indemnify the Administrator pursuant to Section 6.6 shall
survive the termination of this Agreement.
ARTICLE V
RECORDS AND REPORTS
5.1 Books and Records; Inspection and Copying. The Administrator shall
keep (or cause to be kept) appropriate, and reasonably detailed and accurate,
books and records of all its activities pursuant to this Agreement. The Trustees
shall have the right to inspect such books and records during the
Administrator's normal business hours upon reasonable request, and to make
copies of the same at the expense of the Trust.
5.2 Access to Information. The Administrator shall make available to
each of the Trustees all information it receives and compiles with respect to
the Contracts and the Treasury Securities, the monies available to the Trust,
the financial condition of the Trust and all other relevant matters concerning
the Trust.
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<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 Binding Effect. Any corporation into which the Administrator may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the
Administrator shall be a party, shall be the successor Administrator hereunder
and under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement
and provided further that the Trustees have given their prior written consent to
the Administrator with respect to any such merger, conversion or consolidation.
This Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
6.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the matters contained herein and supersedes
all prior agreements or understandings, whether oral or written. This Agreement
shall not be amended, changed, modified, or discharged, in whole or in part,
except by an instrument in writing signed by both parties hereto, or their
respective successors or permitted assigns.
6.3 Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing, and shall, unless some
other method of giving such notice, report or other communication is accepted by
the party to whom it is to be given or is required by the Trust Agreement or the
Investment Company Act, be given by being mailed by U.S. first class mail,
certified or registered, return receipt requested, postage prepaid, to the
following addresses of the parties hereto:
The Trust: Reader's Digest Automatic Common
Exchange Security Trust
c/o Donald J. Puglisi, Managing
Trustee
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
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<PAGE>
The Administrator: The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Mark G. Walsh
Telephone: (212) 815-5228
Telecopier: (212) 815-7183
Any party may at any time give written notice to the other party that
it wishes to change its address for the purposes of this Section 6.3.
6.4 Applicable Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
time in effect except to the extent such law is preempted by federal law.
6.5 Non-assignability. This Agreement and the rights and obligations of
the parties hereunder may not be assigned or delegated by either party without
the prior written consent of the other party.
6.6 Indemnification. The Trustees shall indemnify and hold the
Administrator harmless from and against any loss, damages, cost or expense
(including the costs of investigation, preparation for and defense of legal
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements), liability or claim incurred by reason of any
inaccuracy in information furnished to the Administrator by the Trustees, or any
act or omission in the course of, connected with or arising out of any services
to be rendered hereunder, provided that the Administrator shall not be
indemnified and held harmless from and against any such loss, damages, cost,
expense, liability or claim incurred by reason of its willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or its reckless
disregard of its duties and obligations hereunder.
6.7. Provisions of Law to Control. This Agreement shall be subject to
the applicable provisions of the Investment Company Act and the rules and
regulations of the Commission thereunder. To the extent that any provisions
herein contained conflict with any applicable provisions of the Investment
Company Act or such rules and regulations, the latter shall control.
6.8. Counterparts. This Agreement may be signed in counterparts with
all counterparts constituting one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF the parties have hereunto executed this
Administration Agreement as of the day and year first above written.
TRUSTEES
_______________________________________
William R. Latham III,
as Trustee
_______________________________________
James B. O'Neill,
as Trustee
_______________________________________
Donald J. Puglisi,
as Trustee
THE BANK OF NEW YORK
By_____________________________________
Name:
Title:
-10-
Exhibit 2.k.(ii)
PAYING AGENT AGREEMENT
This PAYING AGENT AGREEMENT, dated as of this ____ day of ___, 1997, by
and between The Bank of New York, a New York banking corporation (the "Paying
Agent"), and William R. Latham III, James B. O'Neill and Donald J. Puglisi
(collectively, the "Trustees"), not in their individual capacities but solely as
Trustees of Reader's Digest Automatic Common Exchange Security Trust (the
"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 ______, 1997 (the
"Trust Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold the U.S. treasury
securities (the "Treasury Securities"), to enter into and hold forward purchase
contracts (the "Contracts") with one or more existing shareholders of The
Reader's Digest Association, Inc. (the "Company") and to issue Trust Automatic
Common Exchange Securities (the "Securities") to the public in accordance with
the terms and conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the Paying Agent
to assume certain responsibilities and to perform certain duties as the transfer
agent, registrar and paying agent with respect to the Securities upon the terms
and conditions of this Agreement; and
WHEREAS, the Paying Agent is qualified and willing to assume such
responsibilities and to perform such duties, subject to the supervision of the
Trustees, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
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<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
ARTICLE II
PAYING AGENT
2.1 Appointment of Paying Agent and Acceptance. The Trust Agreement
provides that The Bank of New York shall act as the initial Paying Agent. The
Bank of New York accepts such appointment and agrees to act in accordance with
its standard procedures and the provisions of the Trust Agreement and the
provisions set forth in this Article 2 as Paying Agent with respect to the
Securities. Without limiting the generality of the foregoing, The Bank of New
York, as Paying Agent, agrees that it shall establish and maintain the Trust
Account, subject to the provisions of Section 2.3 hereof.
2.2 Certificates and Notices. The Trustees shall deliver to the Paying
Agent the certificates and notices required to be delivered to the Paying Agent
pursuant to the Trust Agreement, and the Paying Agent shall mail or publish such
certificates or notices as required by the Trust Agreement, but the Paying Agent
shall have no responsibility to confirm or verify the accuracy of certificates
or notices of the Trustees so delivered.
2.3 Payments and Investments. The Paying Agent shall make payments out
of the Trust Account as provided for in Section 3.2 of the Trust Agreement. The
Paying Agent shall effect the transactions set forth in Sections 2.3, 2.4, 2.5
and 8.3 of the Trust Agreement upon instructions to do so from the Administrator
(except that with respect to its obligations under Section 8.3 of the Trust
Agreement, the Paying Agent shall act without instructions from the
Administrator) and shall invest monies on deposit in the Trust Account in
Temporary Investments in accordance with Section 3.5 of the Trust Agreement.
Except as otherwise specifically provided herein or in the Trust Agreement, the
Paying Agent shall not have the power to sell, transfer or otherwise dispose of
any Temporary Investment prior to the maturity thereof, or to acquire additional
Temporary Investments. The Paying Agent shall hold any Temporary Investment to
its maturity and shall apply the proceeds
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<PAGE>
thereof paid upon maturity to the payment of the next succeeding Quarterly
Distribution. All such Temporary Investments shall be selected by the Trustees
from time to time or pursuant to standing instructions from the Trustees, and
the Paying Agent shall have no liability to the Trust or any Holder or any other
Person with respect to any such Temporary Investment.
2.4 Instructions from Administrator. The Paying Agent shall receive and
execute all instructions from the Administrator, except to the extent they
conflict with or are contrary to the terms of the Trust Agreement or this
Agreement.
ARTICLE III
TRANSFER AGENT AND REGISTRAR
3.1 Original Issue of Certificates. On the date Securities sold
pursuant to the Underwriting Agreement are originally issued, certificates for
the Securities shall be issued by the Trust, and, at the request of the
Trustees, registered in such names and such denominations as the underwriters
shall have previously requested of the Trustees, executed manually or in
facsimile by the Managing Trustee and countersigned by the Paying Agent. At no
time shall the aggregate number of Securities represented by such countersigned
certificates exceed the number of then outstanding Securities.
3.2 Registry of Holders. The Paying Agent shall maintain a registry of
the Holders of the Securities.
3.3 Registration of Transfer of the Securities. The Securities shall be
registered for transfer or exchange, and new certificates shall be issued, in
the name of the designated transferee or transferees, upon surrender of the old
certificates in form deemed by the Paying Agent properly endorsed for transfer
with (a) all necessary endorsers' signatures guaranteed in such manner and form
as the Paying Agent may require by a guarantor reasonably believed by the Paying
Agent to be responsible, (b) such assurances as the Paying Agent shall deem
necessary or appropriate to evidence the genuineness and effectiveness of each
necessary endorsement and (c) satisfactory evidence of compliance with all
applicable laws relating to the collection of taxes or funds necessary for the
payment of such taxes.
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<PAGE>
3.4 Lost Certificates. The Paying Agent shall issue and register
replacement certificates for certificates represented to have been lost, stolen
or destroyed, upon the fulfillment of such requirements as shall be deemed
appropriate by the Trustees and the Paying Agent, subject at all times to
provisions of law, the Trust Agreement and resolutions adopted by the Trustees
with respect to lost securities. The Paying Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request by
the Trustees to the Paying Agent to issue a replacement or new certificate
pursuant to this Section 3.4 shall be deemed to be a representation and warranty
by the Trustees to the Paying Agent that such issuance will comply with such
provisions of law and the Trust Agreement and resolutions of the Trustees.
3.5 Transfer Books. The Paying Agent shall maintain the transfer books
listing the Holders of the Securities. In case of any written request or demand
for the inspection of the transfer books of the Trust or any other books in the
possession of the Paying Agent, the Paying Agent will notify the Trustees and
secure instructions as to permitting or refusing such inspection. The Paying
Agent reserves the right, however, to exhibit the transfer books or other books
to any person in case it is advised by its counsel that its failure to do so
would be unlawful.
3.6 Disposition of Cancelled Certificates; Records. The Paying Agent
shall retain certificates which have been cancelled in transfer or in exchange
and accompanying documentation in accordance with applicable rules and
regulations of the Commission for six calendar years from the date of such
cancellation, and shall make such records available during this period at any
time, or from time to time, for reasonable periodic, special, or other
examinations by representatives of the Commission and the Board of Governors of
the Federal Reserve System. Thereafter such records shall not be destroyed by
the Paying Agent but will be safely stored for possible future reference. In
case of any request or demand for the inspection of the register of the Trust or
any other books in the possession of the Paying Agent, the Paying Agent will
notify the Trustees and seek to secure instructions as to permitting or refusing
such inspection. The Paying Agent reserves the right, however, to exhibit the
register or other records to any person in case it is advised by its counsel
that its failure to do so would (i) be unlawful, or (ii) expose it to liability,
unless the Trustees shall have offered indemnification satisfactory to the
Paying Agent.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEES
The Trustees represent and warrant to the Paying Agent that:
(a) the Trust is a validly existing trust under the laws of
the State of New York and the Trustees have full power under the Trust
Agreement to execute and deliver this Agreement and to authorize,
create and issue the Securities;
(b) this Agreement has been duly and validly authorized,
executed and delivered by the Trustees and constitutes the valid and
binding agreement of the Trustees, enforceable against the Trustees in
accordance with its terms, subject as to such enforceability to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles;
(c) the form of the certificate evidencing the Securities
complies with all applicable laws of the State of New York;
(d) the Securities have been duly and validly authorized,
executed and delivered by the Trustees and are validly issued;
(e) the offer and sale of the Securities has been registered
under the Securities Act of 1933 and the Trust has been registered
under the Investment Company Act and no further action by or before any
governmental body or authority of the United States or of any state
thereof is required in connection with the execution and delivery of
this Agreement or the issuance of the Securities;
(f) the execution and delivery of this Agreement and the
issuance and delivery of the Securities do not and will not conflict
with, violate, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, the Trust Agreement, any
law or regulation, any order or decree of any court or public authority
having jurisdiction over the Trust, or any mortgage, indenture,
contract, agreement or undertaking to which the Trustees are a party or
by which any of them are bound; and
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<PAGE>
(g) no taxes are payable upon or in respect of the execution
of this Agreement or the issuance of the Securities.
ARTICLE V
DUTIES AND RIGHTS
5.1 Duties. (a) The Paying Agent is acting solely as agent for the
Trustees hereunder and owes no fiduciary duties to any other Person by reason of
this Agreement.
(b) In the absence of bad faith, gross negligence or willful
misfeasance on its part in the performance of its duties hereunder or its
reckless disregard of its duties and obligations hereunder, the Paying Agent
shall not be liable for any action taken, suffered, or omitted in the
performance of its duties under this Agreement. The Paying Agent shall under no
circumstances be liable for any indirect or consequential damages hereunder.
5.2 Rights. (a) The Paying Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document reasonably
believed by it to be genuine. The Paying Agent shall not be liable for acting
upon any telephone communication authorized hereby which the Paying Agent
believes in good faith to have been given by the Trustees.
(b) The Paying Agent may consult with legal counsel and the advice of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Paying Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Paying Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys appointed with
due care by it hereunder.
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<PAGE>
5.3 Disclaimer. The Paying Agent makes no representation as to (a) the
first two recitals of this Agreement or (b) the validity or adequacy of the
Securities.
5.4 Compensation, Expenses and Indemnification. (a) The Paying Agent
shall receive for all services rendered by it under this Agreement and, upon the
prior written approval of the Trustees, for all expenses, disbursements and
advances incurred or made by the Paying Agent in accordance with any provision
of this Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), the compensation set forth in Section
3.1 of the Administration Agreement.
(b) The Trustees shall indemnify the Paying Agent for and hold it
harmless against any loss, liability, claim or expense (including the costs of
investigation, preparation for and defense of legal and/or administrative
proceedings relating to a claim against it and reasonable attorneys' fees and
disbursements) arising out of or in connection with the performance of its
obligations under this Agreement, provided such loss, liability or expense is
not the result of gross negligence, willful misfeasance or bad faith on its part
in the performance of its duties hereunder or its reckless disregard of its
duties or obligations hereunder, including the costs and expenses of defending
itself against any claim or liability in connection with its exercise or
performance of any of its duties or obligations hereunder and thereunder. The
indemnification provided by this Section 5.4(b) shall survive the termination of
this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Term of Agreement. (a) The term of this Agreement is unlimited
unless terminated as provided in this Section 6.1 or unless the Trust is
terminated, in which case this Agreement shall terminate ten days after the date
of termination of the Trust. This Agreement may be terminated by either party
hereto without penalty upon 60 days' prior written notice to the other party
hereto; provided that neither party hereto may terminate this Agreement pursuant
to this Section 6.1(a) unless a successor Paying Agent shall have been appointed
and shall have accepted the duties of the Paying Agent. The termination of the
Trust Agreement, the Collateral Agreement, the Administration Agreement or the
Custodian Agreement or the resignation or removal of the Custodian shall cause
the termination of this Agreement
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<PAGE>
simultaneously therewith. If, within 30 days after notice by the Paying Agent of
termination of this Agreement, no successor Paying Agent shall have been
selected and accepted the duties of the Paying Agent, the Paying Agent may apply
to a court of competent jurisdiction for the appointment of a successor Paying
Agent.
(b) Except as otherwise provided in this paragraph (b), the respective
rights and duties of the Trustees and the Paying Agent under this Agreement
shall cease upon termination of this Agreement. The Trustees' representations,
warranties, covenants and obligations to the Paying Agent under Article IV and
Section 5.4 hereof shall survive the termination hereof. Upon termination of
this Agreement, the Paying Agent shall, at the Trustees' request, promptly
deliver to the Trustees or to any successor Paying Agent as requested by the
Trustees (i) copies of all books and records maintained by it and (ii) any funds
deposited with the Paying Agent by the Trustees.
6.2 Communications. Except for communications authorized to be made by
telephone pursuant to this Agreement, all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and given to such person at its address or telecopy number set
forth below:
If to the Trust,
addressed: Reader's Digest Automatic Common
Exchange Security Trust
c/o Donald J. Puglisi, Managing
Trustee
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
with a copy to the Administrator if the duties of the Administrator are being
performed by a Person other than the Person performing the obligations of the
Paying Agent.
If to the Paying Agent,
addressed: The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Mark G. Walsh
Telephone: (212) 571-5228
Telecopier: (212) 571-7183
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<PAGE>
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by the Trustees (or by the
Administrator, provided that the Trustees shall not have delivered to the Paying
Agent an instrument in writing revoking the authorization of the Administrator
to act for it pursuant hereto) and on behalf of the Paying Agent by a Senior
Vice President or Vice President of the Paying Agent assigned to its Corporate
Trust Department.
6.3 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
6.4 No Third Party Beneficiaries. Nothing herein, express or implied,
shall give to any Person, other than the Trustees, the Paying Agent and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder.
6.5 Amendment; Waiver. (a) This Agreement shall not be deemed or
construed to be modified, amended, rescinded, cancelled or waived, in whole or
in part, except by a written instrument signed by a duly authorized
representative of the party to be charged. The Trustees shall notify the Paying
Agent of any change in the Trust Agreement prior to the effective date of any
such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
6.6 Successors and Assigns. Any corporation into which the Paying Agent
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Paying Agent shall be a party, shall be the successor Paying Agent hereunder and
under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement,
provided further that the Trustees have given their prior written consent to the
Paying Agent with
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<PAGE>
respect to any such merger, conversion or consolidation. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the respective
successors of each of the Trust and the Paying Agent. This Agreement shall not
be assignable by either the Trustees or the Paying Agent, without the prior
written consent of the other party.
6.7 Severability. If any clause, provision or section hereof shall be
ruled invalid or unenforceable by any court of competent jurisdiction, the
invalidity or unenforceability of such clause, provision or section shall not
affect any of the remaining clauses, provisions or sections hereof.
6.8 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
6.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Paying Agent
Agreement to be duly executed and delivered as of the date first above written.
TRUSTEES
------------------------------
William R. Latham III,
as Trustee
------------------------------
James B. O'Neill,
as Trustee
------------------------------
Donald J. Puglisi,
as Trustee
THE BANK OF NEW YORK
By: __________________________
Name:
Title:
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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 Goldman Sachs & 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;
<PAGE>
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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<PAGE>
"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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<PAGE>
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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<PAGE>
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 Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004, 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 Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004, 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:
William R. Latham III, as trustee,
James B. O'Neill, as trustee,
Donald J. Puglisi, as trustee,
each as trustee of Reader's Digest
Automatic Common Exchange Security
Trust
Exhibit 2.k.(iv)
COLLATERAL AGREEMENT
Among
---------------------,
As Pledgor,
The Bank of New York, As Collateral Agent
and
READER'S DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST
Dated as of
________ __, 1998
<PAGE>
The following Table of Contents has been inserted for convenience of
reference only and does not constitute a part of the Collateral Agreement.
TABLE OF CONTENTS
SECTION PAGE
1. The Security Interests.................................................. 1
2. Definitions............................................................. 2
3. Representations and Warranties of the Pledgor........................... 7
4. Representations and Warranties of the Collateral
Agent................................................................... 8
5. Certain Covenants of the Pledgor........................................ 9
6. Administration of the Collateral and Valuation of
the Securities.......................................................... 10
7. Income and Voting Rights on Collateral.................................. 14
8. Remedies upon Events of Default......................................... 15
9. The Collateral Agent.................................................... 19
10. Miscellaneous........................................................... 22
11. Termination of Collateral Agreement..................................... 24
12. No Personal Liability of Trustees....................................... 24
Exhibit A - Certificate for Substituted Collateral
Exhibit B - Certificate for Additional Collateral
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COLLATERAL AGREEMENT
THIS COLLATERAL AGREEMENT (the "Agreement"), dated as of ________ __,
1998, among _____________________ (the "Pledgor"), The Bank of New York, a New
York banking corporation, as collateral agent (the "Collateral Agent") hereunder
for the benefit of Reader's Digest Automatic Common Exchange Security Trust, a
trust duly created under the laws of the State of New York (such trust and the
trustees thereof acting in their capacity as such being referred to herein as
the "Trust" or "Purchaser");
WITNESSETH:
WHEREAS, pursuant to the Purchase Agreement (the "Purchase Agreement"),
dated as of ______________, 1998, between the Pledgor and Purchaser, the Pledgor
has agreed to sell and Purchaser has agreed to purchase Class A Nonvoting Common
Stock, par value $0.01 per share (the "Common Stock"), of The Reader's Digest
Association, Inc., a Delaware corporation (the "Company"), subject to the terms
and conditions of the Purchase Agreement; and
NOW, THEREFORE, to secure the performance by the Pledgor of its
obligations under the Purchase Agreement and to secure the observance and
performance of the covenants and agreements contained herein and in the Purchase
Agreement, the parties hereto agree as follows:
1. The Security Interests.
In order to secure the observance and performance of the covenants and
agreements contained herein and in the Purchase Agreement:
(a) Security Interests. Effective upon and subject to the receipt by
Pledgor of the Firm Purchase Price at the First Time of Delivery, but subject to
Section 7 hereof, the Pledgor hereby grants, sells, conveys, assigns, transfers
and pledges unto the Collateral Agent, as agent of and for the benefit of the
Trust, a security interest in and to, and a lien upon and right of set-off
against, all of his right, title and interest in and to (i) the Pledged Items
described in paragraphs (b) and (c); (ii) all additions to
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and substitutions for such Pledged Items; (iii) all income, proceeds and
collections received or to be received, or derived or to be derived, now or any
time hereafter from or in connection with the Pledged Items; and (iv) all powers
and rights now owned or hereafter acquired under or with respect to the Pledged
Items (such Pledged Items, additions, substitutions, proceeds, collections,
powers and rights being herein collectively called the "Collateral"). The
Collateral Agent shall have all of the rights, remedies and recourses with
respect to the Collateral afforded a secured party by the New York Uniform
Commercial Code, in addition to, and not in limitation of, the other rights,
remedies and recourses afforded to the Collateral Agent by this Agreement.
(b) First Time of Delivery. At the First Time of Delivery, the Pledgor
shall deliver to the Collateral Agent in pledge hereunder one or more
certificates in registered form representing in the aggregate __________ shares
of the Common Stock, together with undated stock powers with respect thereto
duly endorsed in blank.
(c) Second Time of Delivery. Effective upon and subject to the receipt
by the Pledgor of the Additional Purchase Price, at the Second Time of Delivery,
the Pledgor shall deliver to the Collateral Agent in pledge hereunder one or
more certificates in registered form representing in the aggregate Common Stock
representing the Additional Share Base Amount of Common Stock, together with
undated stock powers with respect thereto duly endorsed in blank.
2. Definitions.
(a) Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Purchase Agreement. Capitalized terms used
herein shall have the meanings as follows:
"Authorized Representative" of the Pledgor means any trustee or other
representative as to whom Pledgor shall have delivered notice to the Collateral
Agent that such trustee or other representative is authorized to act hereunder
on behalf of Pledgor.
"Business Day" means any day except a Saturday, Sunday or other day on
which banking institutions in New York City are authorized or obligated by law
or regulation
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to close or a day on which the New York Stock Exchange, Inc. is closed.
"Cash Delivery Obligations" means, at any time (A) if no Reorganization
Event shall have occurred prior to such time, zero, and (B) from and after any
Reorganization Event, the Dilution Adjustment (or successive Dilution
Adjustments) that shall have been applied to the Exchange Rate pursuant to
Section 6.1 of the Purchase Agreement at or prior to the Reorganization Event,
times the product of: (i) the Firm Share Base Amount plus the Additional Share
Base Amount (if any); and (ii) the Transaction Value of any property other than
Marketable Securities received by the Pledgor in such Reorganization Event.
"Collateral" has the meaning specified in Section 1(a).
"Collateral Agent" means the financial institution identified as such
in the preliminary paragraph hereof, or any successor appointed in accordance
with Section 9.
"Collateral Agreement" means this Collateral Agreement and any exhibits
hereto.
"Collateral Event of Default" means, at any time, the occurrence of any
of the following: (A) failure of the aggregate Market Value of the Collateral to
equal or exceed the Pledge Value Requirement; or (B) from and after any
Reorganization Event in which consideration other than Marketable Securities
shall have been delivered, failure of any U.S. Government Securities pledged in
respect of Cash Delivery Obligations to have an aggregate Market Value at least
equal to 105% of the Cash Delivery Obligations at such time, if, in the case of
a failure described in this clause (B), such failure shall continue to be in
effect at 4:00 p.m., New York City time, on the next Business Day following the
day on which telephonic notice in respect thereof shall have been given pursuant
to Section 6(e).
"Collateral Requirement" means, as of any date and with respect to: (i)
any Common Stock, 100%; (ii) any Marketable Securities, 100%; and (iii) any U.S.
Government Securities pledged in respect of Cash Delivery Obligations, an
aggregate market value at 4:00 p.m., New York City time, on the date of delivery
hereunder and at 4:00 p.m., New York
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City time, on each Business Day thereafter of not less than 105%.
"Distribution Date" has the meaning specified in the Trust Agreement.
"Eligible Collateral" means (i) Common Stock and (ii) from and after
any Reorganization Event, Marketable Securities and U.S. Government Securities,
provided, in each case, that the Pledgor has good and marketable title thereto,
free of all Liens (other than the Liens created by this Collateral Agreement)
and Transfer Restrictions and that the Collateral Agent has a valid, first
priority perfected security interest therein and first lien thereon, and
provided further that to the extent (x) the number of shares of Marketable
Securities pledged hereunder exceeds at any time the Maximum Deliverable Number
thereof, such excess shares shall not be Eligible Collateral.
"Event of Default" means the occurrence of: (i) an event described in
clause (a) or (b) of Article VII of the Purchase Agreement, (ii) a Collateral
Event of Default, (iii) a failure by Pledgor to have caused the Collateral to
meet the requirements described in Section 5(d) on the Exchange Date or (iv) if
a Reorganization Event shall have occurred prior to the Exchange Date, failure
by Pledgor to cause to be delivered to Purchaser on the Exchange Date the
consideration then required to be delivered pursuant to Section 6.2 of the
Purchase Agreement.
"Ineligible Collateral" means Collateral that does not constitute
"Eligible Collateral".
"Lien" means any lien, mortgage, security interest, pledge, charge or
encumbrance of any kind.
"Market Value" means, as of any date: (a) with respect to any Common
Stock, the Closing Price on such date; (b) with respect to any U.S. Government
Security, the product of (x)(i) the average unit bid price for such security as
published on the Trading Day prior to such date in the New York edition of The
Wall Street Journal or The New York Times or, if not so published, (ii) the
lower bid price quoted (which quotation shall be evidenced in writing) on the
Trading Day prior to such date by either of two nationally recognized dealers
making a market in such security which are members of the National Association
of
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Securities Dealers, Inc. and (y) the number of such units comprised in the
outstanding principal amount of such security; and (c) with respect to any share
of Marketable Securities, the Closing Price thereof on the Trading Day prior to
such date; provided that the "Market Value" of any Ineligible Collateral shall
be zero.
"Maximum Deliverable Number" means, on any date, with respect to the
Common Stock, the product of the Firm Share Base Amount plus the Additional
Share Base Amount (if any), multiplied successively by each number by which the
Exchange Rate shall have been multiplied on or prior to such date pursuant to
the adjustments provided for under Section 6.1 of the Purchase Agreement. The
Maximum Deliverable Number of Marketable Securities means, on any date, the
product of (i) the Firm Share Base Amount plus the Additional Share Base Amount
(if any) and (ii) the number of Marketable Securities received by the Pledgor in
the Reorganization Event for each share of Common Stock, multiplied successively
by each number by which the Exchange Rate shall have been multiplied on or prior
to such date and after the date of such Reorganization Event pursuant to the
adjustments provided for under Article VI of the Purchase Agreement.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Pledge Value" means, as of any date and with respect to any particular
type of Collateral, an amount equal to the aggregate Market Value of such
Collateral divided by the Collateral Requirement for such Collateral.
"Pledge Value Requirement" means, as of any date, (a) the aggregate
Market Value on such date of the Maximum Deliverable Number of shares of Common
Stock on such date or, from and after a Reorganization Event, Marketable
Securities, plus (b) from and after a Reorganization Event, the Cash Delivery
Obligations.
"Pledged Items" means, as of any date, any and all securities and
instruments delivered by the Pledgor to be held by the Collateral Agent under
this Collateral Agreement as Collateral, whether Eligible Collateral or
Ineligible Collateral.
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<PAGE>
"Prior Collateral" has the meaning specified in Section 6(b)(1).
"Responsible Officer" means, when used with respect to the Collateral
Agent, any vice president, assistant vice president, assistant treasurer or
assistant secretary located in the division or department of the Collateral
Agent responsible for performing the obligations of the Collateral Agent under
this Collateral Agreement, or in any other division or department of the
Collateral Agent performing operations substantially equivalent to those
performed by such division or department pursuant hereto, or any other officer
of the Collateral Agent or any successor Collateral Agent customarily performing
functions similar to those performed by any of the aforesaid officers, and also
means, with respect to any matter relating to this Collateral Agreement or the
Collateral, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Transfer Restriction" means, with respect to any item of Collateral,
any condition to or restriction on the ability of the holder thereof to sell,
assign or otherwise transfer such item of Collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of Collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such item of Collateral be consented to or approved by any
Person, including, without limitation, the issuer thereof or any other obligor
thereon, (ii) any limitations on the type or status, financial or otherwise, of
any purchaser, pledgee, assignee or transferee of such item of Collateral, (iii)
any requirement of the delivery of any certificate, consent, agreement, opinion
of counsel, notice or any other document of any Person to the issuer of, any
other obligor on or any registrar or transfer agent for, such item of
Collateral, prior to the sale, pledge, assignment or other transfer or
enforcement of such item of Collateral and (iv) any registration or
qualification requirement for such item of Collateral pursuant to any federal or
state securities law that has not been satisfied; provided that the required
delivery of any assignment from the seller, pledgor, assignor or transferor of
such item of Collateral, together with any evidence of the corporate or other
authority of such Person, shall not constitute a "Transfer Restriction."
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"Trustee" or "Trustees" means any trustee or trustees of the Trust
identified on the signature pages hereto, or any successor as such trustee or
trustees.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
"U.S. Government Securities" means direct obligations of the United
States of America that mature on a date that is one year or less from the date
such obligations are pledged hereunder, but in any event prior to the Exchange
Date.
(b) If (i) there is a Reorganization Event in which the consideration
received by holders of Common Stock includes Non-Marketable Securities, and (ii)
Seller delivers such Non-Marketable Securities to the Collateral Agent pursuant
to Section 6(d) hereof, then the following provisions shall apply during the
period (x) commencing on the later of the consummation of such Reorganization
Event and the date of such delivery of Non-Marketable Securities, and (y) ending
on the earlier of the 20th Trading Day after consummation of such Reorganization
Event and the Trading Day prior to the Exchange Date:
(1) such Non-Marketable Securities shall constitute Eligible
Collateral, provided that to the extent the amount of
Non-Marketable Securities pledged hereunder exceeds at any
time the amount thereof received in respect of the Contract
Shares, such excess amount shall not be Eligible Collateral;
(2) the Market Value of such Non-Marketable Securities shall equal
to value thereof as determined by the investment banking firm
selected by the Administrator for purposes of Section 6.2 of
the Purchase Agreement; and
(3) the Collateral Requirement in respect of such Non-Marketable
Securities shall be 100%.
3. Representations and Warranties of the Pledgor.
The Pledgor hereby represents and warrants to the Collateral Agent and
the Trust that:
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<PAGE>
(a) No Transfer Restrictions. [Except for the legend with respect to
restrictions pursuant to applicable federal and state securities laws on
transfer of the Common Stock pledged by the Pledgor hereunder which, as of the
date hereof, appears on the face of the stock certificates representing such
Common Stock,] no Transfer Restrictions exist with respect to or otherwise apply
to the assignment of, or transfer by the Pledgor of possession of, any items of
Collateral to the Collateral Agent hereunder, or the subsequent sale or transfer
of such items of Collateral by the Collateral Agent pursuant to the terms
hereof.
(b) Title to Collateral; Perfected Security Interest. The Pledgor has
good and marketable title to the Pledged Items, free of all Liens (other than
the Lien created by this Collateral Agreement) and Transfer Restrictions. Upon
delivery of the Pledged Items described in paragraphs (b) and (c) of Section 1
to the Collateral Agent hereunder, the Collateral Agent will obtain a valid,
first priority perfected security interest in, and a first lien upon, such
Pledged Items subject to no other Lien. None of the Collateral is or shall be
pledged by the Pledgor as collateral for any other purpose.
4. Representations and Warranties of the Collateral Agent.
The Collateral Agent represents and warrants to the Pledgor and the
Trust that:
(a) Corporate Existence and Power. The Collateral Agent is a banking
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to enter into, and perform its obligations under, this Collateral
Agreement.
(b) Authorization and Non-Contravention. The execution, delivery and
performance by the Collateral Agent of this Collateral Agreement have been duly
authorized by all necessary corporate action on the part of the Collateral Agent
(no action by the shareholders of the Collateral Agent being required) and do
not and will not violate, contravene or constitute a default under any provision
of applicable law or regulation or of the charter or by-laws of the
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<PAGE>
Collateral Agent or of any material agreement, judgment, injunction, order,
decree or other instrument binding upon the Collateral Agent.
(c) Binding Effect. This Collateral Agreement constitutes a valid and
binding agreement of the Collateral Agent enforceable against the Collateral
Agent in accordance with its terms.
5. Certain Covenants of the Pledgor.
The Pledgor agrees that, so long as any of its obligations under the
Purchase Agreement remain outstanding:
(a) Title to Collateral. The Pledgor shall at all times hereafter have
good and marketable title to the Collateral pledged by it, free of all Liens
(other than the Liens created by this Collateral Agreement) and Transfer
Restrictions, and, subject to the terms of this Collateral Agreement, will at
all times hereafter have the right and lawful authority to assign, transfer and
pledge such Collateral and all such additions thereto and substitutions therefor
under this Collateral Agreement.
(b) Pledge Value Requirement. The Pledgor shall cause the aggregate
Pledge Value of the Collateral to be equal to or greater than the Pledge Value
Requirement at all times, and shall pledge additional Collateral in the manner
described in Section 6(d) as necessary to cause such requirement to be met.
(c) Pledge upon Reorganization Event. Upon the occurrence of a
Reorganization Event, the Pledgor shall immediately cause to be delivered to the
Collateral Agent, in the manner provided in Section 6(d): (i) cash in an amount
equal to 100% of Pledgor's Cash Delivery Obligations (or U.S. Government
Securities having an aggregate Market Value when pledged and at daily
mark-to-market valuations thereafter at least equal to 105% of the Cash Delivery
Obligations), less the Market Value of any Non-Marketable Securities
simultaneously delivered to the Collateral Agent as contemplated by Section 2(b)
hereof; and (ii) Marketable Securities in an amount at least equal to the
Maximum Deliverable Number thereof, to be held as substitute Collateral
hereunder.
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<PAGE>
(d) Pledge of Purchase Agreement Consideration. The Pledgor shall cause
the Collateral to include, on the Exchange Date, unless a Reorganization Event
shall have occurred, a number of shares of Common Stock at least equal to the
number of shares of Common Stock required to be delivered under the Purchase
Agreement on the Exchange Date.
(e) Further Assurances. The Pledgor shall, at its expense and in such
manner and form as the Trust or the Collateral Agent may reasonably require,
give, execute, deliver, file and record any financing statement, notice,
instrument, document, agreement or other papers that may be necessary or
desirable in order to create, preserve, perfect, substantiate or validate any
security interest granted pursuant hereto or to enable the Collateral Agent to
exercise and enforce its rights and the rights of the Trust hereunder with
respect to such security interest. To the extent permitted by applicable law,
the Pledgor hereby authorizes the Collateral Agent to execute and file, in the
name of the Pledgor or otherwise, UCC financing or continuation statements
(which may be carbon, photographic, photostatic or other reproductions of this
Agreement or of a financing statement relating to this Agreement) which the
Collateral Agent may reasonably deem necessary or appropriate to further
perfect, or maintain the perfection of, the security interests granted hereby.
6. Administration of the Collateral and Valuation of the Securities.
(a) Valuation of Collateral. The Collateral Agent shall determine at
4:00 p.m., New York City time, on each Business Day whether the Pledge Value is
at least equal to the Pledge Value Requirement and whether an Insufficiency
Determination or Collateral Event of Default shall have occurred.
(b) Substitution of Collateral. The Pledgor may substitute Collateral
in accordance with the following provisions:
(1) Unless an Event of Default or a failure by the Pledgor to
meet any of its obligations under Section 5(b) or (c) hereof has
occurred and is continuing, the Pledgor shall have the right at any
time and from time to time to deposit Eligible Collateral with the
Collateral Agent in substitution
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<PAGE>
for Pledged Items previously deposited hereunder ("Prior Collateral")
and to obtain the release from the Lien hereof of such Prior
Collateral.
(2) If a Pledgor wishes to deposit Eligible Collateral with
the Collateral Agent in substitution for Prior Collateral, he shall (i)
give written notice to the Collateral Agent identifying the Prior
Collateral to be released from the Lien hereof, (ii) deliver to the
Collateral Agent concurrently with such Eligible Collateral a
certificate of the Pledgor substantially in the form of Exhibit A
hereto and dated the date of such delivery, (A) identifying the items
of Eligible Collateral being substituted for the Prior Collateral and
the Prior Collateral that is to be transferred to the Pledgor and (B)
certifying that the representations and warranties contained in such
Exhibit A hereto are true and correct on and as of the date thereof and
(iii) deliver to the Collateral Agent concurrently with such Eligible
Collateral an opinion (dated the date of such delivery) of counsel
addressed to the Collateral Agent confirming the representations
contained in the second sentence of paragraph 3(b) of Exhibit A hereto.
The Pledgor hereby covenants and agrees to take all actions required
under Section 6(d) and any other actions necessary to create for the
benefit of the Collateral Agent a valid, first priority perfected
security interest in, and a first lien upon, such Eligible Collateral
deposited with the Collateral Agent in substitution for Prior
Collateral.
(3) No such substitution shall be made unless and until the
Collateral Agent shall have determined that the aggregate Pledge Value
of all of the Collateral at the time of such proposed substitution,
after giving effect to the proposed substitution, shall at least equal
the Pledge Value Requirement.
(c) Additional Collateral. The Pledgor may pledge additional Collateral
hereunder at any time. Concurrently with the delivery of any additional Eligible
Collateral, the Pledgor shall deliver (i) a certificate of the Pledgor
substantially in the form of Exhibit B hereto and dated the date of such
delivery, (A) identifying the
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additional items of Eligible Collateral being pledged and (B) certifying that
with respect to such items of additional Eligible Collateral the representations
and warranties contained in such Exhibit B hereto are true and correct on and as
of the date thereof and (ii) an opinion, dated the date of such delivery, of
counsel addressed to the Collateral Agent confirming the representations
contained in the second sentence of paragraph 2(b) of Exhibit B hereto. The
Pledgor hereby covenants and agrees to take all actions required under Section
6(d) and any other actions necessary to create for the benefit of the Collateral
Agent a valid, first priority perfected security interest in, and a first lien
upon, such additional Eligible Collateral.
(d) Delivery of Collateral. The Pledgor shall deliver the Collateral to
the Collateral Agent in accordance with the following provisions:
(1) Pledged Common Stock. In the case of Collateral consisting of
Common Stock, by delivery to the Collateral Agent of Common Stock,
registered in the name of the Collateral Agent or its nominee;
(2) Pledged U.S. Government Securities. In the case of
Collateral consisting of U.S. Government Securities, by transfer
thereof through the Book Entry System of the Federal Reserve System to
the account of the Collateral Agent or to an account (other than an
account of the Pledgor) designated by the Collateral Agent; and
(3) Pledged Marketable Securities. In the case of Collateral
consisting of Marketable Securities, by delivery of certificates
evidencing such Marketable Securities, registered in the name of the
Collateral Agent or its nominee or, if such Marketable Securities are
not issuable in certificated form but are held in book entry form by
The Depository Trust Company or other comparable depositary, by
transfer to an account of the Collateral Agent or to an account (other
than an account of the Pledgor) designated by the Collateral Agent with
The Depository Trust Company or such other depositary, as applicable.
Each such delivery of Marketable Securities shall be accompanied by an
opinion of counsel satisfactory to the Collateral Agent
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that the Collateral Agent has obtained a valid, first priority
perfected security interest in, and a first lien upon, such Marketable
Securities.
(4) Pledged Non-Marketable Securities. In the case of
Collateral consisting of Non-Marketable Securities, by delivery of
certificates evidencing such Non-Marketable Securities, registered in
the name of the Collateral Agent or its nominee or, if such Non-
Marketable Securities are not issuable in certificated form but are
held in book entry form by The Depository Trust Company or other
comparable depositary, by transfer to an account of the Collateral
Agent or to an account (other than an account of the Pledgor)
designated by the Collateral Agent with The Depository Trust Company or
such other depositary, as applicable. Each such delivery of
Non-Marketable Securities shall be accompanied by an opinion of counsel
satisfactory to the Collateral Agent that the Collateral Agent has
obtained a valid, first priority perfected security interest in, and a
first lien upon, such Non-Marketable Securities.
Upon delivery of any Pledged Item under this Collateral Agreement, the
Collateral Agent shall examine such Pledged Item and any opinions and
certificates delivered pursuant to Sections 6(b) or (c) or otherwise pursuant to
the terms hereof in connection therewith to determine that they comply as to
form with the requirements for Eligible Collateral. The Pledgor hereby
designates the Collateral Agent as the person in whose name any Collateral held
in book entry form in the Federal Reserve System shall be registered.
(e) Insufficiency Determination. If at 4:00 p.m., New York City time,
on any Business Day the Collateral Agent determines that the aggregate Pledge
Value of the Collateral is less than the Pledge Value Requirement, the
Collateral Agent shall promptly notify the Pledgor of such determination by
telephone call to an Authorized Representative of the Pledgor followed by a
written confirmation of such call.
(f) Release of Excess Collateral. If on any Business Day the Collateral
Agent determines that the aggregate Pledge Value of the Pledgor's Eligible
Collateral exceeds the Pledge Value Requirement and no Event of Default or
failure by the Pledgor to meet any of its obligations
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under Sections 5 or 6 hereof has occurred and is continuing, the Pledgor may
obtain the release from the Lien hereof of any Collateral having an aggregate
Pledge Value on such Business Day less than or equal to such excess, upon
delivery to the Collateral Agent of a written notice from an Authorized
Representative of the Pledgor indicating the items of Collateral to be released.
Such Collateral shall be released only after the Collateral Agent shall have
determined that the aggregate Pledge Value of all of the Collateral remaining
after such release as determined on such Business Day is at least equal to the
Pledge Value Requirement.
(g) Delivery of Purchase Agreement Consideration. On the Exchange Date,
unless a Reorganization Event shall have occurred prior thereto, the Collateral
Agent shall deliver to the Trust Common Stock then held by it hereunder
representing the number of shares of Common Stock then required to be delivered
under the Purchase Agreement. If a Reorganization Event shall have occurred
prior to the Exchange Date, then the Collateral Agent shall deliver to the Trust
Marketable Securities then held by the Collateral Agent hereunder representing
the number of shares of Marketable Securities then required to be delivered
under Section 6.2 of the Purchase Agreement. Upon such delivery, the Trust shall
hold such Common Stock or Marketable Securities, as the case may be, absolutely
and free from any claim or right whatsoever.
(h) Investment of Cash Collateral. The Collateral Agent shall invest
any cash received by it pursuant to Section 6.2 of the Purchase Agreement in
U.S. Treasury Securities maturing on or before __________, _____.
7. Income and Voting Rights on Collateral.
(a) Unless an Event of Default or failure by the Pledgor to meet any of
its obligations under Section 5(b) or (c) hereof has occurred and is continuing,
the Pledgor shall be entitled to receive for its own account all dividends,
interest and, if any, principal and premium relating to all of the Collateral,
unless the payment thereof to the Pledgor would reduce the aggregate Pledge
Value of the Collateral below the Pledge Value Requirement. The Collateral Agent
agrees to remit to the Pledgor on the Business Day received or the first
Business Day thereafter all such payments received by it. If an Event of Default
or failure by the
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Pledgor to meet any of its obligations under Section 5(b) or (c) hereof has
occurred and is continuing, all such payments made or accrued after and during
the continuance of such default or failure shall be retained by the Collateral
Agent, and any such payments which are received by the Pledgor shall be received
in trust for the benefit of the Trust, shall be segregated from other funds of
the Pledgor and shall forthwith be paid over to the Collateral Agent. Any such
payments so retained by, or paid over to, the Collateral Agent shall be held by
the Collateral Agent as Collateral hereunder.
(b) Unless an Event of Default has occurred and is continuing, the
Pledgor shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the Collateral, and the Collateral
Agent shall, upon receiving a written request from the Pledgor, deliver to the
Pledgor or as specified in such request such proxies, powers of attorney,
consents, ratifications and waivers in respect of any of the Collateral which is
registered in the name of the Collateral Agent or its nominee as shall be
specified in such request and be in form and substance satisfactory to the
Collateral Agent.
If an Event of Default shall have occurred and be continuing, the
Collateral Agent shall have the right to the extent permitted by law, and the
Pledgor shall take all such action as may be necessary or appropriate to give
effect to such right, to vote and to give consents, ratifications and waivers,
and take any other action with respect to any or all of the Collateral with the
same force and effect as if the Collateral Agent were the absolute and sole
owner thereof.
8. Remedies upon Events of Default.
(a) If any Event of Default shall have occurred and be continuing, the
Collateral Agent may exercise on behalf of the Trust all the rights of a secured
party under the UCC (whether or not in effect in the jurisdiction where such
rights are exercised) and, in addition, without being required to give any
notice, except as herein provided or as may be required by mandatory provisions
of law, shall: (i) deliver all Collateral consisting of Common Stock or
Marketable Securities (but not, in either case, in excess of the number of
shares thereof deliverable under the Purchase
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Agreement at such time) to the Trust on the date of the Acceleration Notice
relating to such Event of Default (or, in the case of an Event of Default
described in clause (iii) or (iv) of the definition thereof, on the Exchange
Date) (in either case, the "Delivery Date"), whereupon the Trust shall hold such
Common Stock or Marketable Securities absolutely free from any claim or right of
whatsoever kind, including any equity or right of redemption of the Pledgor
which may be waived, and the Pledgor, to the extent permitted by law, hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter adopted; and (ii) if such
delivery shall be insufficient to satisfy in full all of the obligations of
Pledgor under the Purchase Agreement, sell all of the remaining Collateral, or
such lesser portion thereof as may be necessary to generate proceeds sufficient
to satisfy in full all of the obligations of Pledgor under the Purchase
Agreement, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery, and at such
price or prices as the Collateral Agent may deem satisfactory. The Pledgor
covenants and agrees that it will execute and deliver such documents and take
such other action as the Collateral Agent reasonably deems necessary or
advisable in order that any such sale may be made in compliance with law. Upon
any such sale the Collateral Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely and free from any claim
or right of whatsoever kind, including any equity or right of redemption of the
Pledgor which may be waived, and the Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter adopted. The notice (if
any) of such sale required by Article 9 of the UCC shall (1) in case of a public
sale, state the time and place fixed for such sale, (2) in case of sale at a
broker's board or on a securities exchange, state the board or exchange at which
such sale is to be made and the day on which the Collateral, or the portion
thereof so being sold, will first be offered for sale at such board or exchange,
and (3) in the case of a private sale, state the day after which such sale may
be consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix in the notice of such sale. At any such sale the Collateral may be sold in
one lot as an
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<PAGE>
entirety or in separate parcels, as the Collateral Agent may determine. The
Collateral Agent shall not be obligated to make any such sale pursuant to any
such notice. The Collateral Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the same may be so adjourned. In case of any
sale of all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by the Collateral Agent until the selling
price is paid by the purchaser thereof, but the Collateral Agent shall not incur
any liability in case of the failure of such purchaser to take up and pay for
the Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Collateral Agent, instead of exercising the
power of sale herein conferred upon it, may proceed by a suit or suits at law or
in equity to foreclose the security interests and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(b) Power of Attorney. Upon any delivery or sale of all or any part of
any Collateral made either under the power of delivery or sale given hereunder
or under judgment or decree in any judicial proceedings for foreclosure or
otherwise for the enforcement of this Collateral Agreement, the Collateral Agent
is hereby irrevocably appointed the true and lawful attorney of the Pledgor, in
the name and stead of the Pledgor, to make all necessary deeds, bills of sale
and instruments of assignment, transfer or conveyance of the property thus
delivered or sold. For that purpose the Collateral Agent may execute all such
documents and instruments. This power of attorney shall be deemed coupled with
an interest, and the Pledgor hereby ratifies and confirms all that its attorneys
acting under such power, or such attorneys' successors or agents, shall lawfully
do by virtue of this Collateral Agreement. If so requested by the Collateral
Agent, by the Trustees or by any purchaser of the Collateral or a portion
thereof, the Pledgor shall further ratify and confirm any such delivery or sale
by executing and delivering to the Collateral Agent, to the Trustees or to such
purchaser or purchasers at the expense of the Pledgor all proper deeds, bills of
sale, instruments of assignment, conveyance of transfer and releases as may be
designated in any such request.
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<PAGE>
(c) Application of Collateral and Proceeds. In the case of an Event of
Default, the Collateral Agent may proceed to realize upon the security interest
in the Collateral against any one or more of the types of Collateral, at any one
time, as the Collateral Agent shall determine in its sole discretion subject to
the foregoing provisions of this Section 8. The proceeds of any sale of, or
other realization upon, or other receipt from, any of the remaining Collateral
shall be applied by the Collateral Agent in the following order of priorities:
first, to the payment to the Trust of an amount equal to: (A)
the aggregate Market Value of a number of shares of Common Stock equal
to (1) the number of shares of Common Stock required to be delivered
under the Purchase Agreement on the Delivery Date minus (2) the number
of shares of Common Stock delivered by the Collateral Agent to the
Trust on the Delivery Date as described above; or (B) from and after a
Reorganization Event, the sum of (1) the Cash Delivery Obligations on
the Delivery Date and (2) the aggregate Market Value on the Delivery
Date of a number of Marketable Securities equal to (x) the number
thereof required to be delivered on the Delivery Date under Section
6(b) of the Purchase Agreement minus (y) the number thereof delivered
by the Collateral Agent to the Trust on the Delivery Date as described
above;
second, to the payment to the Collateral Agent of the expenses
of such sale or other realization, including reasonable compensation to
the Collateral Agent and its agents and counsel, and all expenses,
liabilities and advances incurred or made by the Collateral Agent in
connection therewith, including brokerage fees in connection with the
sale by the Collateral Agent of any Pledged Item; and
finally, if all of the obligations of the Pledgor hereunder
and under the Purchase Agreement have been fully discharged or
sufficient funds have been set aside by the Collateral Agent at the
request of the Pledgor for the discharge thereof, any remaining
proceeds shall be released to the Pledgor.
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<PAGE>
9. The Collateral Agent.
The Collateral Agent accepts its duties and responsibilities hereunder
as agent for the Trust, on and subject to the following terms and conditions:
(a) Performance of Duties. The Collateral Agent undertakes to perform
such duties and only such duties as are expressly set forth herein and, beyond
the exercise of reasonable care in the performance of such duties, no implied
covenants or obligations shall be read into this Collateral Agreement against
the Collateral Agent. No provision hereof shall be construed to relieve the
Collateral Agent from liability for its own grossly negligent action, grossly
negligent failure to act or its own wilful misconduct, subject to the following:
(1) The Collateral Agent may consult with counsel, and the
advice or opinion of such counsel shall be full and complete
authorization and protection in respect of an action taken or suffered
hereunder in good faith and in accordance with such advice or opinion
of counsel.
(2) The Collateral Agent shall not be liable with respect to
any action taken, suffered or omitted by it in good faith (i)
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred on it by this Collateral Agreement or (ii)
in accordance with any direction or request of the Trustees.
(3) The Collateral Agent shall not be liable for any error of
judgment made in good faith by any of its officers, unless the
Collateral Agent was grossly negligent in ascertaining the pertinent
facts.
(4) In the absence of bad faith on its part, the Collateral
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any note, notice,
resolution, consent, certificate, affidavit, letter, telegram, teletype
message, statement, order or other document believed by it to be
genuine and correct and to have been signed or sent by the proper
Person or Persons.
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<PAGE>
(5) No provision of this Collateral Agreement shall require
the Collateral Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(6) The Collateral Agent may perform any duties hereunder
either directly or by or through agents or attorneys, and the
Collateral Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder. In furtherance thereof, any subsidiary owned or
controlled by the Collateral Agent, or its successors, as agent for the
Collateral Agent, may perform any or all of the duties of the
Collateral Agent relating to the valuation of securities and other
instruments constituting Collateral hereunder.
(7) In no event shall the Collateral Agent be personally
liable for any taxes or other governmental charges imposed upon or in
respect of (i) the collateral or (ii) the income or other distributions
thereon.
(8) Unless and until the Collateral Agent shall have received
notice from the Pledgor, or unless and until a Responsible Officer of
the Collateral Agent shall have actual knowledge to the contrary, the
Collateral Agent shall be entitled to deem and treat all Collateral
delivered to it hereunder as Eligible Collateral hereunder, provided
that the Collateral Agent has carried out the duties specified in
Section 6 with respect to such Collateral at the time of delivery
thereof.
The Collateral Agent shall not be responsible for the correctness of the
recitals and statements herein which are made by the Pledgor or for any
statement or certificate delivered by the Pledgor pursuant hereto. Except as
specifically provided herein, the Collateral Agent shall not be responsible for
the validity, sufficiency, collectibility or marketability of any Collateral
given to or held by it hereunder or for the validity or sufficiency of the
Purchase
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<PAGE>
Agreement or the Lien on the Collateral purported to be created hereby.
(b) Knowledge. The Collateral Agent shall not be deemed to have
knowledge of any Event of Default (except a Collateral Event of Default), unless
and until a Responsible Officer of the Collateral Agent shall have actual
knowledge thereof or shall have received written notice thereof.
(c) Merger. Any corporation or association into which the Collateral
Agent may be converted or merged, or with which it may be consolidated, or to
which it may sell or transfer its agency business and assets as a whole or
substantially as a whole, or any corporation or association resulting from any
such conversion, sale, merger, consolidation or transfer to which it is a party,
shall, subject to the prior written consent of the Trust, be and become a
successor Collateral Agent hereunder and vested with all of the title to the
Collateral and all of the powers, discretions, immunities, privileges and other
matters as was its predecessor without, except as provided above, the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
(d) Resignation. The Collateral Agent and any successor Collateral
Agent may at any time resign by giving thirty days' written notice by registered
or certified mail to the Pledgor and notice to the Trust in accordance with the
provisions of Section 10(d) hereof. Such resignation shall take effect upon the
appointment of a successor Collateral Agent by the Trust.
(e) Removal. The Collateral Agent may be removed at any time by an
instrument or concurrent instruments in writing delivered to the Collateral
Agent and to the Pledgor and signed by the Trust.
(f) Appointment of Successor. (1) If the Collateral Agent hereunder
shall resign or be removed, or be dissolved or shall be in the course of
dissolution or liquidation or otherwise become incapable of action hereunder, or
if it shall be taken under the control of any public officer or officers or of a
receiver appointed by a court, a successor may be appointed by the Trust by an
instrument or concurrent instruments in writing signed by
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<PAGE>
the Trust or by its attorneys in fact fully authorized. A copy of such
instrument or concurrent instruments shall be sent by registered mail to the
Pledgor.
(2) Every such temporary or permanent successor Collateral Agent
appointed pursuant to the provisions hereof shall be a trust company or bank in
good standing, having a reported capital and surplus of not less than
$100,000,000 and capable of holding the Collateral in the State of New York, if
there be such an institution willing, qualified and able to accept the duties of
the Collateral Agent hereunder upon customary terms.
(g) Acceptance by Successor. Every temporary or permanent successor
Collateral Agent appointed hereunder shall execute, acknowledge and deliver to
its predecessor and also to the Pledgor an instrument in writing accepting such
appointment hereunder, whereupon such successor, without any further act, deed
or conveyance, shall become fully vested with all the estates, properties,
rights, powers, duties and obligations of its predecessors. Such predecessor
shall, nevertheless, on the written request of its successor or the Pledgor,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor hereunder. Every
predecessor Collateral Agent shall deliver all Collateral held by it as the
Collateral Agent hereunder to its successor. Should any instrument in writing
from the Pledgor be required by a successor Collateral Agent for more fully and
certainly vesting in such successor the estates, properties, rights, powers,
duties and obligations hereby vested or intended to be vested in the
predecessor, any and all such instruments in writing shall, at the request of
the temporary or permanent successor Collateral Agent, be forthwith executed,
acknowledged and delivered by the Pledgor.
10. Miscellaneous.
(a) Benefit of Agreement; Successors and Permitted Assigns. 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 Pledgor and the
Collateral Agent shall bind, and inure to the benefit of, their respective
successors and permitted assigns whether so expressed or not, and shall be
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<PAGE>
enforceable by and inure to the benefit of the Trust and its successors and
permitted assigns.
(b) Separability. To the extent permitted by law, the unenforceability
or invalidity of any provision or provisions of this Collateral Agreement shall
not render any other provision or provisions herein contained unenforceable or
invalid.
(c) Amendments and Waivers. Any term, covenant, agreement or condition
of this Collateral Agreement may be amended or compliance therewith may be
waived (either generally or in a particular instance and either retrospectively
or prospectively) but only by a writing signed by the Collateral Agent, the
Pledgor and the Trust.
(d) Notices. (1) Any notice provided for herein, unless otherwise
specified, shall be in writing (including transmittals by telex or telecopier)
and shall be given to a party at the address set forth opposite such party's
name on the signature pages hereto or at such other address as may be designated
by notice duly given in accordance with this Section 10(d) to each other party
hereto.
(2) Each such notice given pursuant to paragraph (1) shall be effective
(i) if sent by certified mail (return receipt requested), 72 hours after being
deposited in the United States mail, postage prepaid; (ii) if given by telex or
telecopier, when such telex or telecopied notice is transmitted; or (iii) if
given by any other means, when delivered at the address specified in this
Section 10(d).
(e) Governing Law. This Collateral Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of New York,
without reference to the conflict of laws provisions thereof; provided that as
to Pledged Items located in any jurisdiction other than the State of New York,
the Collateral Agent on behalf of the Trust shall have all of the rights to
which a secured party is entitled under the laws of such other jurisdiction.
(f) Counterparts. This Collateral Agreement may be executed,
acknowledged and delivered in any number of counterparts and such counterparts
taken together shall constitute one and the same instrument.
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<PAGE>
11. Termination of Collateral Agreement.
This Collateral Agreement and the rights hereby granted by the Pledgor
in the Collateral shall cease, terminate and be void upon fulfillment of all of
the obligations of the Pledgor under the Purchase Agreement, and the Pledgor
shall have no further liability hereunder upon such termination. Any Collateral
remaining at the time of such termination shall be fully released and discharged
from the Lien hereof and delivered to the Pledgor by the Collateral Agent, all
at the expense of the Pledgor.
12. No Personal Liability of Trustees.
By executing this Collateral Agreement none of the Trustees assumes any
personal liability hereunder.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Collateral Agreement to
be duly executed on its behalf, and the Collateral Agent has caused this
Collateral Agreement to be duly executed on its behalf, as of the date hereof.
PLEDGOR:
______________________________
By ____________________________________
Name:
Title:
Address for Notices:
_______________________________________
Attention: ___________________________
<PAGE>
COLLATERAL AGENT:
The Bank of New York,
as Collateral Agent
By ____________________________________
Name: Mark G. Walsh
Title: Assistant Vice President
Address for Notices:
101 Barclay Street
New York, New York 10286
Attention: Sandra Whalen
<PAGE>
THE TRUST:
READER'S DIGEST AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
_______________________________________
William R. Latham III,
as Trustee
_______________________________________
James B. O'Neill,
as Trustee
_______________________________________
Donald J. Puglisi,
as Trustee
Address for Notices:
Donald J. Puglisi
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Attention: Donald J. Puglisi
<PAGE>
Exhibit A
to
Collateral Agreement
CERTIFICATE FOR SUBSTITUTED COLLATERAL
The undersigned, _____________ (the "Pledgor"), hereby certifies,
pursuant to Section 6(b) of the Collateral Agreement dated as of ________ __,
1998 among the Pledgor, The Bank of New York, as Collateral Agent, and READER'S
DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST (the "Collateral Agreement";
terms defined in the Collateral Agreement being used herein as defined therein),
that:
1. The Pledgor is delivering the following securities to the Collateral
Agent to be held by the Collateral Agent as substituted Collateral (the
"Substituted Collateral"):
2. The Pledgor requests that the Collateral Agent transfer to the
Pledgor the following Prior Collateral, pursuant to Section 6(b) of the
Collateral Agreement:
3. The Pledgor hereby represents and warrants to the Collateral Agent
and the Trust that:
(a) Consents to Transfer. No Transfer Restrictions exist with respect
to or otherwise apply to the assignment of, or transfer by the Pledgor of
possession of, any items of Substituted Collateral to the Collateral Agent under
the Collateral Agreement, or the subsequent sale or transfer of such items of
Substituted Collateral by the Collateral Agent pursuant to the terms of the
Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The Pledgor has
good and marketable title to the Substituted Collateral, free of all Liens
(other than the Lien created by the Collateral Agreement) and Transfer
Restrictions. Upon delivery of the Collateral to the Collateral Agent, the
Collateral Agent will obtain a valid, first priority perfected security interest
in, and a first lien upon, such Substituted Collateral subject to no other Lien.
None of such Substituted Collateral is or shall be pledged by the Pledgor as
collateral for any other purpose.
This Certificate may be relied upon by the Trust as fully and to the
same extent as if this Certificate had been specifically addressed to the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of ____________, 199__.
__________________________________
Name:
Title:
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<PAGE>
Exhibit B
to
Collateral Agreement
CERTIFICATE FOR ADDITIONAL COLLATERAL
The undersigned, __________________ (the "Pledgor"), hereby certifies,
pursuant to Section 6(c) of the Collateral Agreement, dated as of ________ __,
1998, among the Pledgor, The Bank of New York, as Collateral Agent and READER'S
DIGEST AUTOMATIC COMMON EXCHANGE SECURITY TRUST (the "Collateral Agreement";
terms defined in the Collateral Agreement being used herein as defined therein),
that:
1. The Pledgor is delivering the following securities to the Collateral
Agent to be held by the Collateral Agent as additional Collateral (the
"Additional Collateral"):
2. The Pledgor hereby represents and warrants to the Collateral Agent
that:
(a) Consents to Transfer. No Transfer Restrictions exist with respect
to or otherwise apply to the assignment of, or transfer by the Pledgor of
possession of, any items of Additional Collateral to the Collateral Agent under
the Collateral Agreement, or the subsequent sale or transfer of such items of
Additional Collateral by the Collateral Agent pursuant to the terms of the
Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The Pledgor has
good and marketable title to the Additional Collateral, free of all Liens (other
than the Lien created by the Collateral Agreement) and Transfer Restrictions.
Upon delivery of the Collateral to the Collateral Agent, the Collateral Agent
will obtain a valid, first priority perfected security interest in, and a first
lien upon, such additional Collateral subject to no other Lien. None of such
Additional Collateral is or shall be pledged by the Pledgor as collateral for
any other purpose.
This Certificate may be relied upon by the Trust as fully and to the
same extent as if this Certificate had been specifically addressed to the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of ____________, 199__.
________________________________
Name:
Title:
-2-
Exhibit 2.k.(v)
FUND EXPENSE AGREEMENT
FUND EXPENSE AGREEMENT, dated as of ___ __, 1997, between Goldman,
Sachs & Co. ("Goldman Sachs") and The Bank of New York (the "Service Provider"),
in its capacities as custodian, paying agent and collateral agent for Reader's
Digest Automatic Common Exchange Security Trust (the "Trust").
WHEREAS the Trust is a trust formed under the laws of the State of New
York pursuant to a Trust Agreement, as amended and restated as of ___ __, 1997
(the "Trust Agreement"); and
WHEREAS, Goldman Sachs, as sponsor under the Trust Agreement, desires
to make provisions for the payment of certain initial and on-going expenses of
the Trust;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties agree as follows:
1. Definitions. (a) Capitalized terms used herein and not defined
herein shall have the meanings ascribed thereto in the Trust Agreement.
(b) The following terms shall have the following meanings:
"Additional Expense" means the Ordinary Expense the incurring of which
will require the Service Provider to provide the Additional Expense Notice
pursuant to Section 3(a) hereof and any Ordinary Expense incurred thereafter.
"Additional Expense Notice" means the notice required to be given by
the Service Provider to Goldman Sachs pursuant to Section 3(a)(i) hereof.
"First Time of Delivery" shall have the meaning ascribed thereto in the
Underwriting Agreement.
"Ordinary Expense" of the Trust means any expense of the Trust other
than any expense of the Trust arising under Section 6.6 of the Administration
Agreement, Section 15 of the Custodian Agreement, Section 5.4(b) of the Paying
Agent Agreement, or Section 7.6 of the Trust Agreement.
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<PAGE>
"Up-front Fee Amount" means the amount set forth as such on Schedule I
hereto payable as a one-time payment to the Service Provider in respect of its
collective services as Administrator, Custodian, Paying Agent and Collateral
Agent for the entire term of the Trust.
"Up-front Expense Amount" means the amount set forth as such on
Schedule I hereto payable as a one-time payment to the Service Provider in
respect of Ordinary Expenses anticipated to be incurred by the Administrator on
behalf of the Trust, pursuant to the Administration Agreement, during the term
of the Trust.
2. Agreement to Pay Up-front Fees and Expenses. Goldman Sachs agrees to
pay to the Service Provider in Federal (same day) funds at the First Time of
Delivery the Up-front Fee Amount and the Up-front Expense Amount.
3. Agreement to Pay Additional Expenses. (a) Prior to incurring any
Ordinary Expense on behalf of the Trust that, together with all prior Ordinary
Expenses incurred by the Administrator on behalf of the Trust, would cause the
aggregate amount of Ordinary Expenses of the Trust to exceed the Up-front
Expense Amount, the Administrator shall provide to Goldman Sachs (i) prompt
written notice to the effect that the aggregate amount of Ordinary Expenses of
the Trust will exceed the Up-front Expense Amount, and (ii) an accounting, in
such detail as shall be reasonably acceptable to Goldman Sachs, of all Ordinary
Expenses incurred on behalf of the Trust through the date of the Additional
Expense Notice.
(b) From and after the date of the Additional Expense Notice, the
Service Provider agrees that it will not, without the prior written consent of
Goldman Sachs, incur on behalf of the Trust (i) any single expense in excess of
$_____ or (ii) in any calendar period, expenses aggregating in excess of $_____.
Subject to the foregoing, the Service Provider shall give notice to Goldman
Sachs in writing promptly following the incurring of any Additional Expense.
Such notice shall be accompanied by any demand, bill, invoice or other similar
document in respect of such Additional Expense.
(c) Subject to the first sentence of paragraph (b) of this Section 3,
Goldman Sachs agrees to pay to the Service Provider from time to time the amount
of any Additional Expense. Payment by Goldman Sachs of any Additional Expense
shall be made in New York Clearing House funds by the later of (i) five Business
Days after the receipt by Goldman Sachs from the Service Provider of notice
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<PAGE>
of the incurring thereof or (ii) the due date for the payment of such Additional
Expense.
(d) Goldman Sachs may contest in good faith the reasonableness of any
Additional Expense and the parties shall attempt to resolve amicably the
disagreement; provided that if the parties cannot resolve the dispute by the due
date hereunder with respect to such Additional Expense, subject to the first
sentence of paragraph (b) of this Section 3, Goldman Sachs shall pay the amount
of such Additional Expense subject to later adjustment and credit if such
dispute is resolved in favor of Goldman Sachs.
4. Condition to Payment. Goldman Sachs' obligations under paragraphs 2
and 3 hereof shall be subject to the condition that the Trust's Automatic Common
Exchange Securities shall have been issued and paid for at the First Time of
Delivery.
5. Trust Termination; Refund of Unused Expense Funds. If at the
termination of the Trust in accordance with Section 8.3 of the Trust Agreement
the aggregate amount of Ordinary Expenses incurred by the Service Provider on
behalf of the Trust through the date of termination shall be less than the
Up-front Expenses Amount, the Service Provider shall, promptly following the
date of such termination, pay to Goldman Sachs in New York Clearing House funds
the amount of such excess.
6. Termination of Administration Agreement. In the event of the
termination of the Administration Agreement in accordance with Section 4.1
thereof, the Service Provider shall promptly pay to Goldman Sachs the portion of
its Up- front Fee Amount ratable for the period from the date of the termination
of the Administration Agreement to the Exchange Date together with any
unexpended portion of the Up-front Expense Amount.
7. Statements and Reports. The Service Provider shall collect and
safekeep all demands, bills, invoices or other written communications received
from third parties in connection with any Ordinary Expenses and Additional
Expenses and shall prepare and maintain adequate books and records showing all
receipts and disbursements of funds in connection therewith. Goldman Sachs shall
have the right to inspect and to copy, at its expense, all such documents, books
and records at all reasonable times and from time to time during the term of
this Agreement.
8. Term of Contract. This Agreement shall continue in effect until the
termination of the Trust in accordance with Section 8.3 of the Trust Agreement.
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<PAGE>
9. No Assignment. No party to this Agreement may assign its rights or
delegate its duties hereunder without the prior written consent of the other
party.
10. Amendments. The Service Provider agrees that it will not consent to
any amendment of the Administration Agreement, the Custodian Agreement, the
Paying Agent Agreement or the Collateral Agreement without the prior written
consent of Goldman Sachs.
11. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the matters contained herein and supersedes
all prior agreements or understandings. No amendment or modification of this
Agreement shall be valid unless the amendment or modification is in writing and
is signed by all the parties to this Agreement.
12. Notices. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be in writing and shall
be delivered in person or by telecopy or other facsimile communication or sent
by first-class U.S. mail, registered or certified, postage prepaid, to the
appropriate party at its address on the signature pages hereof or at such other
address subsequently notified to the other parties hereto. Any party may change
its address for purposes hereof by delivering a written notice of the change to
the other parties. All notices given under this Agreement shall be deemed
received (a) in the case of hand delivery, on the day of delivery, (b) in the
case of telecopy or other facsimile communication, on the day of transmission,
and (c) in the case of mailing, on the third day after such notice was deposited
in the mail.
13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
14. Governing Law. This Agreement shall be governed by and be construed
in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in counterparts with all
of such counterparts constituting one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Fund Expense Agreement
to be executed by their authorized representatives the date first above written.
GOLDMAN, SACHS & CO.
By____________________________
Address:
85 Broad Street
New York, New York 10004
THE BANK OF NEW YORK
By____________________________
Address:
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SCHEDULE I
Directors & Officers Insurance $
Fidelity Bond $
Tax on Directors & Officers
Insurance and Fidelity Bond $
Trustees Fees $
The Bank of New York
Acceptance Fee $
Annual Administrative Fee $
External Counsel Fees $
Accounting Fees $____________
Total $____________
Exhibit 2.k.(vi)
FUND INDEMNITY AGREEMENT
FUND INDEMNITY AGREEMENT, dated as of ___ __, 1997, between Goldman,
Sachs & Co. ("Goldman Sachs") and William R. Latham III, James B. O'Neill and
Donald J. Puglisi (collectively, the "Trustees"), not in their individual
capacities but solely as trustees of Reader's Digest Automatic Common Exchange
Security Trust (the "Trust").
WHEREAS the Trust is a trust formed under the laws of the State of New
York pursuant to a Trust Agreement, as amended and restated as of ___ __, 1997
(the "Trust Agreement"); and
WHEREAS, Goldman Sachs, as sponsor under the Trust Agreement, desires
to make provision for the payment of certain indemnification expenses of the
Trust;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Definitions. Capitalized terms used herein and not defined herein
shall have the meanings ascribed thereto in the Trust Agreement.
2. Agreement to Pay Expenses. Goldman Sachs agrees to pay to the Trust,
and hold the Trust harmless from, any expenses of the Trust arising under
Sections 2.2(e) and 6.6 of the Administration Agreement, Section 15 of the
Custodian Agreement, Section 5.4(b) of the Paying Agent Agreement and Section
7.6 of the Trust Agreement (collectively, "Indemnification Expenses"). Subject
to paragraph 4 hereof, payment hereunder by Goldman Sachs shall be made in New
York Clearing House funds no later than five Business Days after the receipt by
Goldman Sachs, pursuant to paragraph 3 hereof, of written notice of any claim
for Indemnification Expenses.
3. Notice of Receipt of Claim. The Trustees shall give notice to, or
cause notice to be given to, Goldman Sachs in writing of any claim for
Indemnification Expenses or any threatened claim for Indemnification Expenses
immediately upon their acquiring knowledge thereof. Such written notice shall be
accompanied by any demand, bill, invoice or other communication received from
any third party claimant (a "Claimant") in respect of such Indemnification
Expense.
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4. Right to Contest. The Trustees agree that Goldman Sachs may, and
Goldman Sachs is authorized on behalf of the Trustees and the Trust to, contest
in good faith with any Claimant any amount contained in any claim for
Indemnification Expense, provided, that if, within such time period as Goldman
Sachs shall determine to be reasonable, Goldman Sachs and such Claimant are
unable to resolve amicably any disagreement regarding such claim for
Indemnification Expense, Goldman Sachs shall retain counsel reasonably
satisfactory to the Trustees to represent the Trustees in any resulting
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. It is understood that Goldman Sachs shall not, in respect of
the legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel).
Goldman Sachs shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there be a
final judgment for the Claimant, Goldman Sachs agrees to indemnify the Trustees
and the Trust from and against any loss or liability by reason of such
settlement or judgment.
5. Statements and Reports. The Trustees shall collect and safekeep all
demands, bills, invoices or other written communications received from third
parties in connection with any claim for Indemnification Expenses and shall
prepare and maintain adequate books and records showing all receipts and
disbursements of funds in connection therewith. Goldman Sachs shall have the
right to inspect and to copy, at its expense, all such documents, books and
records at all reasonable times and from time to time during the term of this
Agreement.
6. Term of Contract. This Agreement shall continue in effect until the
termination of the Trust in accordance with Section 8.3 of the Trust Agreement.
7. No Assignment. No party to this Agreement may assign its rights or
delegate its duties hereunder without the prior written consent of the other
parties, except that the Trust may delegate any and all duties hereunder to the
Administrator to the extent permitted by law.
8. Entire Agreement. This Agreement contains the entire agreement among
the parties with respect to the matters contained herein and supersedes all
prior agreements or understandings. No amendment or modification of this
Agreement shall be valid unless the amendment or
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modification is in writing and is signed by all the parties to this
Agreement.
9. Notices. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be in writing and shall
be delivered in person or by telecopy or other facsimile communication or sent
by first-class U.S. mail, registered or certified, postage prepaid, to the
appropriate party at its address on the signature pages hereof or at such other
address subsequently notified to the other parties hereto. A copy of any
communication to Goldman Sachs shall be furnished to Goldman, Sachs & Co., 85
Broad Street, New York, New York 10004, attention: Registration Department,
provided that the failure to furnish such copy shall not affect the
effectiveness of any such communication. Any party may change its address for
purposes hereof by delivering a written notice of the change to the other
parties. All notices, given under this Agreement shall be deemed received (a) in
the case of hand delivery, on the day of delivery, (b) in the case of telecopy
or other facsimile communication, on the day of transmission, and (c) in the
case of mailing, on the third day after such notice was deposited in the mail.
10. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
11. Governing Law. This Agreement shall be governed by and be construed
in accordance with the laws of the State of New York.
12. Counterparts. This Agreement may be signed in counterparts with all
of such counterparts constituting one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Fund Indemnity
Agreement to be executed by their authorized representatives the date first
above written.
GOLDMAN, SACHS & CO.
By______________________________
Address:
85 Broad Street
New York, NY 10004
TRUSTEES
__________________________________
Name: William R. Latham III
Address: Department of Economics
University of Delaware
Newark, Delaware 19716
__________________________________
Name: James B. O'Neill
Address: Center for Economic
Education and
Entrepreneurship
University of Delaware
Newark, Delaware 19716
__________________________________
Name: Donald J. Puglisi
Address: Department of Finance
University of Delaware
Newark, Delaware 19716
Exhibit 2.n.(iv)
CONSENT TO BEING NAMED AS TRUSTEE
The undersigned hereby consents to being named in the Registration
Statement on Form N-2 of Reader's Digest Automatic Common Exchange Security
Trust (the "Trust") and any amendments thereto, as a person about to become a
Trustee of the Trust.
Dated: December 15, 1997
/s/ Donald J. Puglisi
Donald J. Puglisi
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CONSENT TO BEING NAMED AS TRUSTEE
The undersigned hereby consents to being named in the Registration
Statement on Form N-2 of Reader's Digest Automatic Common Exchange Security
Trust (the "Trust") and any amendments thereto, as a person about to become a
Trustee of the Trust.
Dated: December 15, 1997
/s/ William R. Latham III
William R. Latham III
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CONSENT TO BEING NAMED AS TRUSTEE
The undersigned hereby consents to being named in the Registration
Statement on Form N-2 of Reader's Digest Automatic Common Exchange Security
Trust (the "Trust") and any amendments thereto, as a person about to become a
Trustee of the Trust.
Dated: December 15, 1997
/s/ James B. O'Neill
James B. O'Neill
