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
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
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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"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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(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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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
▇▇▇▇-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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(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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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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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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(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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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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(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
-20-
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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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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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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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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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: ___________________________
COLLATERAL AGENT:
The Bank of New York,
as Collateral Agent
By ____________________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Assistant Vice President
Address for Notices:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
THE TRUST:
READER'S DIGEST AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
_______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III,
as Trustee
_______________________________________
▇▇▇▇▇ ▇. ▇'▇▇▇▇▇,
as Trustee
_______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
as Trustee
Address for Notices:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & Associates
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of ____________, 199__.
__________________________________
Name:
Title:
-2-
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.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of ____________, 199__.
________________________________
Name:
Title:
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