Document:

Exhibit 10.32

 

[EXECUTION COPY]

 

 

STOCK PURCHASE AGREEMENT

 

 

by and among

 

THE READER’S DIGEST ASSOCIATION, INC.

 

TI CIRCULATION HOLDINGS LLC

 

and

 

1417557 ALBERTA ULC

 

Dated as of August 7, 2008

 

 

TABLE OF
CONTENTS

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
  SECTION 1.01. Certain
  Defined Terms

  	
  1

  
	
  SECTION 1.02. Definitions

  	
  8

  
	
  SECTION 1.03.
  Interpretation and Rules of Construction

  	
  11

  
	
  ARTICLE II PURCHASE AND SALE

  	
  12

  
	
  SECTION 2.01. Purchase and
  Sale of the Shares

  	
  12

  
	
  SECTION 2.02. Purchase
  Price

  	
  12

  
	
  SECTION 2.03. Closing

  	
  12

  
	
  SECTION 2.04. Delivery of
  Shares, etc

  	
  13

  
	
  SECTION 2.05. Other Closing
  Deliveries by the Seller

  	
  13

  
	
  SECTION 2.06. Closing
  Deliveries by the Purchasers

  	
  14

  
	
  SECTION 2.07. Estimated
  Purchase Price; Purchase Price Adjustment

  	
  14

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER

  	
  16

  
	
  SECTION 3.01. Organization,
  Authority and Qualification of the Seller

  	
  17

  
	
  SECTION 3.02. Organization
  and Qualification of the Companies

  	
  17

  
	
  SECTION 3.03.
  Capitalization; Ownership of Shares

  	
  17

  
	
  SECTION 3.04. Company
  Subsidiaries

  	
  19

  
	
  SECTION 3.05. No Conflict

  	
  19

  
	
  SECTION 3.06. Governmental
  Consents and Approvals; Other Consents

  	
  20

  
	
  SECTION 3.07. Financial
  Information

  	
  20

  
	
  SECTION 3.08. Absence of
  Undisclosed Material Liabilities

  	
  21

  
	
  SECTION 3.09. Conduct in
  the Ordinary Course

  	
  22

  
	
  SECTION 3.10. Litigation

  	
  22

  
	
  SECTION 3.11. Compliance;
  Governmental Licenses and Permits

  	
  23

  
	
  SECTION 3.12. Environmental
  Matters

  	
  23

  
	
  SECTION 3.13. Intellectual
  Property

  	
  24

  
	
  SECTION 3.14. Privacy and
  Security

  	
  25

  
	
  SECTION 3.15. Absence of
  Restrictions on Business Activities

  	
  26

  
	
  SECTION 3.16. Real
  Property; Personal Property

  	
  27

  
	
  SECTION 3.17. Employee
  Benefit Matters

  	
  28

  

 

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  SECTION 3.18. Labor Matters

  	
  33

  
	
  SECTION 3.19. Taxes

  	
  34

  
	
  SECTION 3.20. Material Contracts

  	
  37

  
	
  SECTION 3.21. Insurance

  	
  40

  
	
  SECTION 3.22. Bank Accounts

  	
  40

  
	
  SECTION 3.23. Sufficiency
  of Assets

  	
  40

  
	
  SECTION 3.24. Receivables

  	
  40

  
	
  SECTION 3.25. Transactions
  with Affiliates and Related Parties

  	
  41

  
	
  SECTION 3.26. Magazine
  Circulation/Distribution/Audit Bureau of Circulations Compliance

  	
  41

  
	
  SECTION 3.27. Products and
  Inventory

  	
  42

  
	
  SECTION 3.28. Product Sales

  	
  42

  
	
  SECTION 3.29. Remits;
  Publisher Arrangements

  	
  43

  
	
  SECTION 3.30.
  Customers

  	
  44

  
	
  SECTION 3.31. Certain
  Business Practices

  	
  45

  
	
  SECTION 3.32. Brokers

  	
  45

  
	
  SECTION 3.33. Residence

  	
  45

  
	
  SECTION 3.34. Competition Act (Canada)

  	
  45

  
	
  SECTION 3.35. Activities of
  QSP Canada and EFR

  	
  46

  
	
  SECTION 3.36. No Other
  Representations or Warranties; Schedules

  	
  47

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

  	
  47

  
	
  SECTION 4.01. Organization
  and Authority of the Purchasers

  	
  47

  
	
  SECTION 4.02. No Conflict

  	
  48

  
	
  SECTION 4.03. Governmental
  Consents and Approvals

  	
  48

  
	
  SECTION 4.04. Litigation

  	
  48

  
	
  SECTION 4.05. Brokers

  	
  49

  
	
  SECTION 4.06. Investment
  Intention

  	
  49

  
	
  SECTION 4.07. Seller’s
  Representations

  	
  49

  
	
  ARTICLE V ADDITIONAL AGREEMENTS

  	
  49

  
	
  SECTION 5.01. Conduct of
  Business Prior to the Closing

  	
  50

  
	
  SECTION 5.02. Access to
  Information

  	
  52

  

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  SECTION 5.03.
  Confidentiality

  	
  54

  
	
  SECTION 5.04. Regulatory
  and Other Authorizations; Notices and Consents

  	
  54

  
	
  SECTION 5.05. Notifications

  	
  55

  
	
  SECTION 5.06. Further
  Action

  	
  56

  
	
  SECTION 5.07. Insurance
  Matters

  	
  56

  
	
  SECTION 5.08. Pre-Closing
  Transfers

  	
  56

  
	
  SECTION 5.09. Exclusivity

  	
  57

  
	
  SECTION 5.10.
  Non-Competition/Non-Solicitation

  	
  57

  
	
  SECTION 5.11. Guarantees

  	
  59

  
	
  SECTION 5.12. Updates to
  Disclosure Schedule

  	
  59

  
	
  SECTION 5.13. WFC Purchases

  	
  60

  
	
  SECTION 5.14. Overdrafts

  	
  61

  
	
  SECTION 5.15. Certain
  Consents

  	
  61

  
	
  ARTICLE VI EMPLOYEE MATTERS

  	
  62

  
	
  SECTION 6.01. Continuation
  of Benefits

  	
  62

  
	
  SECTION 6.02. Pension
  Plans; 401(k) Plan

  	
  63

  
	
  SECTION 6.03. Annual
  Bonuses

  	
  64

  
	
  SECTION 6.04. General

  	
  64

  
	
  SECTION 6.05. Flex Plan

  	
  64

  
	
  SECTION 6.06. Inactive
  Employees

  	
  65

  
	
  SECTION 6.07. Transition
  Services

  	
  65

  
	
  SECTION 6.08. Retiree
  Medical Benefits

  	
  65

  
	
  SECTION 6.09. Canadian
  Employees

  	
  65

  
	
  ARTICLE VII TAX MATTERS

  	
  65

  
	
  SECTION 7.01. Tax Indemnity

  	
  65

  
	
  SECTION 7.02. Straddle
  Period

  	
  68

  
	
  SECTION 7.03.
  Responsibility for Filing Tax Returns

  	
  68

  
	
  SECTION 7.04. Tax Claims

  	
  69

  
	
  SECTION 7.05. Cooperation

  	
  70

  
	
  SECTION 7.06. Refunds

  	
  70

  
	
  SECTION 7.07. Elections,
  Amended Returns, etc.

  	
  71

  

 

iii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  SECTION 7.08. Section 338(h)(10) Election

  	
  71

  
	
  SECTION 7.09. Purchase
  Price Adjustment

  	
  72

  
	
  SECTION 7.10. Transfer
  Taxes

  	
  72

  
	
  SECTION 7.11. Tax Sharing
  Agreements

  	
  73

  
	
  SECTION 7.12. Exclusivity

  	
  73

  
	
  ARTICLE VIII CONDITIONS TO CLOSING

  	
  73

  
	
  SECTION 8.01. Conditions to
  Obligations of the Seller

  	
  73

  
	
  SECTION 8.02. Conditions to
  Obligations of the Purchasers

  	
  74

  
	
  ARTICLE IX INDEMNIFICATION

  	
  76

  
	
  SECTION 9.01. Survival
  of Representations and Warranties and Covenants

  	
  76

  
	
  SECTION 9.02.
  Indemnification by the Seller

  	
  76

  
	
  SECTION 9.03. Indemnification
  by the Purchasers

  	
  77

  
	
  SECTION 9.04. Limitations
  on Indemnification

  	
  77

  
	
  SECTION 9.05. Notice of
  Loss; Third Party Claims

  	
  78

  
	
  SECTION 9.06. Remedies

  	
  80

  
	
  SECTION 9.07. Tax Matters

  	
  80

  
	
  SECTION 9.08. General

  	
  80

  
	
  SECTION 9.09. Calculation
  of Losses

  	
  81

  
	
  SECTION 9.10. Successors
  and Assigns

  	
  81

  
	
  ARTICLE X TERMINATION, AMENDMENT AND WAIVER

  	
  81

  
	
  SECTION 10.01. Termination

  	
  81

  
	
  SECTION 10.02. Effect of
  Termination

  	
  82

  
	
  ARTICLE XI GENERAL PROVISIONS

  	
  82

  
	
  SECTION 11.01. Expenses

  	
  82

  
	
  SECTION 11.02. Notices

  	
  82

  
	
  SECTION 11.03. Public
  Announcements

  	
  83

  
	
  SECTION 11.04. Severability

  	
  84

  
	
  SECTION 11.05. Entire
  Agreement

  	
  84

  
	
  SECTION 11.06. Assignment

  	
  84

  
	
  SECTION 11.07. Amendment

  	
  84

  
	
  SECTION 11.08. Waiver

  	
  84

  

 

iv

 

TABLE OF CONTENTS

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  Page

  
	
   

  	
   

  
	
  SECTION 11.09. No Third
  Party Beneficiaries

  	
  85

  
	
  SECTION 11.10. Governing
  Law

  	
  85

  
	
  SECTION 11.11. Waiver of
  Jury Trial

  	
  85

  
	
  SECTION 11.12. Counterparts

  	
  86

  
	
  SECTION 11.13. Guarantee of
  Time

  	
  86

  
	
   

  	
   

  
	
  SCHEDULES

  	
   

  
	
  EXHIBITS

  	
   

  

 

v

 

STOCK PURCHASE AGREEMENT (this “Agreement”),
dated as of August 7, 2008, among The Reader’s Digest Association, Inc.,
a Delaware corporation (the “Seller”), TI Circulation Holdings LLC, a
Delaware limited liability company (the “US Purchaser”), and 1417557
Alberta ULC, an Alberta unlimited liability corporation (the “CA Purchaser”
and, together with the US Purchaser, the “Purchasers”, and each
individually, a “Purchaser”).

 

WHEREAS, the Seller owns
(directly or indirectly) all of the issued and outstanding shares of capital
stock (the “Shares”) of QSP, Inc., a Delaware corporation (“QSP”),
and Quality Service Programs Inc., a Canadian corporation (“QSP Canada”
and, together with QSP, the “Companies”, and each individually, a “Company”);

 

WHEREAS, the Companies and the
Company Subsidiaries (as defined below) are engaged in the Business (as defined
below);

 

WHEREAS, the Seller wishes to
sell to the Purchasers, and the Purchasers wish to purchase from the Seller,
the Shares, all upon the terms and subject to the conditions set forth herein;
and

 

WHEREAS, in connection with the
transactions contemplated hereby, certain assets and employees will be
transferred to the Companies and from the Companies prior to the Closing Date,
as set forth herein.

 

NOW, THEREFORE, in
consideration of the promises and the mutual agreements and covenants
hereinafter set forth, and intending to be legally bound, the Seller and the
Purchasers hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.01.  Certain
Defined Terms.  For purposes of this
Agreement:

 

“Action” means any
claim, action, suit, arbitration, alternative dispute resolution mechanism,
complaint, proceeding or investigation by or before or subject to any
Governmental Authority or arbitration or dispute resolution body.

 

“Affiliate” means, with
respect to any specified Person, any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such specified Person.

 

“Ancillary Agreements”
means the Transition Services Agreement and the Trademark License Agreement.

 

“Assets” means the
assets, rights and properties (including Intellectual Property) of the
Companies and the Company Subsidiaries owned after the Pre-Closing Transfers
have been completed.

 

 

“Business” means the
businesses in which the Companies and the Company Subsidiaries are engaged
(after giving effect to the Pre-Closing Transfers), including the marketing
(including on a subscription basis and through a variety of media, including
internet websites) of magazines, periodicals, music, books, food, gifts and
other products through fundraising campaigns conducted through, to or on behalf
of, schools and youth groups, fundraising, charitable or not-for-profit institutions
or organizations or otherwise for fundraising purposes through the periods
covered by the Financial Statements and through the Closing Date; provided,
however, that in no event shall the Business include any of the
business, operations or activities of the Reiman Media Group entities, whether
before or after giving effect to the Pre-Closing Transfers.

 

“Business Day” means any
day that is not a Saturday, a Sunday or other day on which banks are required
or authorized by Law to be closed in The City of New York.

 

“Canadian QSP Companies”
means QSP Canada and any other Company Subsidiary resident in Canada for
purposes of the Income Tax Act (Canada).

 

“Code” means the
Internal Revenue Code of 1986, as amended through the date hereof.

 

“Company Subsidiary”
means each subsidiary of either Company, including the Persons listed in Section 3.04
of the Disclosure Schedule, but excluding Persons to be transferred from the
Companies in the Pre-Closing Transfers.

 

“Competitive Business” means the
marketing, selling or distributing (including on a subscription basis) of
magazines, periodicals, music, books, food, gifts or other products (“Products”)
through fundraising campaigns, in all current and future media and distribution
channels (including on the internet and other electronic, online or wireless
devices) conducted through, to or on behalf of, schools and youth groups or
fundraising, charitable or not-for-profit institutions or organizations; provided,
however, that in no event shall a Competitive Business include:

 

(a)  any business substantially similar to the businesses in which
the Seller is currently engaged (other than the Business), including the
following:

 

 (i) the business of marketing, selling and distributing
Products through display marketing, shows, fairs and similar methods of
direct-to-consumer distribution, provided that the fundraising aspect of
such business is incidental to (and not a material part of) any such business (e.g., the current business of Books Are Fun, Inc.);

 

(ii) the business of marketing, selling and distributing to or
through schools supplemental educational materials (including magazines
published by the Seller or its subsidiaries) utilizing incentive-based benefits
(e.g., the “Word Power Challenge”, “Weekly
Reader”, “Reader’s Digest @ School” and “Partners In English” programs);

 

2

 

(iii) the direct-to-customer marketing and selling of Products
otherwise sold by the Seller and its subsidiaries, in connection with which the
Seller or its subsidiaries donate a portion of the sales revenue generated
thereby to a charitable or not-for-profit institution or organization or to a
charitable cause (e.g., the cause-based marketing
programs with St. Jude’s Hospital and Red Cross);

 

 (iv) any customer promotion programs that include
compensation, whether by donation or otherwise, to charitable or not-for-profit
institutions or organizations in connection with the marketing or sale of
Products otherwise sold by the Seller and its subsidiaries directly to
customers and potential customers of the Seller and its subsidiaries (e.g., list rental programs with charities or
not-for-profits); and

 

  (v) the marketing, selling or distribution of magazine
and periodical subscriptions as donations or gifts or for other similar
purposes (e.g., the Seller’s “Heroes and Soldiers”
programs);

 

(b)  any business engaged in by any unrelated third party that
acquires (directly or indirectly) all or substantially all of the stock,
business, assets or properties of the Seller;

 

(c)  subject to the terms and provisions of Section 5.10, the
business of any Person or any business acquired by the Seller or its Affiliates
after the Closing Date, if (x) such Person or business is engaged in a
business that would be a Competitive Business but for this clause (c) at
the time of its acquisition by the Seller or its Affiliates, (y) such
business is incidental to (and not a significant part of) such Person’s or
business’ assets, businesses and operations (taken as a whole) and (z) such
business is carried on substantially as conducted at the time of its
acquisition; or

 

(d)  the marketing, selling and distributing by the Seller or any
of its subsidiaries of any products or services of the Seller or its
subsidiaries to or through any third party engaged in a Competitive Business;

 

(it being agreed that the
examples provided for in this definition are for illustrative purposes, and
shall not be deemed to be an exhaustive list of the activities which are or may
be engaged in by the Seller or its subsidiaries).  Notwithstanding the foregoing, the Seller and
its subsidiaries shall not be permitted to engage in any business which is
substantially similar in all material respects to the Business by taking an
action designed to technically fall within one of the foregoing exceptions but
which is not otherwise within the spirit thereof.

 

“Contract” means any
legally binding contract, note, bond, mortgage, hypothec,  indenture,
deed of trust, lease or rental agreement, sublease, instrument or other
agreement or commitment, written or otherwise.

 

“control” (including the
terms “controlled by” and “under common control with”) means,
with respect to the relationship between or among two or more Persons, the
possession, directly or indirectly or as trustee, of the power to direct or
cause the direction of the affairs or 

 

3

 

management of
a Person, whether through the ownership of voting securities, as trustee, by
contract or otherwise.

 

“Dell PC Leases” means (a) the
Master Lease Agreement, dated as of June 6, 2006, between Dell Financial
Services L.P. and QSP, as amended, and (b) the Master Lease Agreement
Affiliate Addendum, dated October 15, 2002, between Dell Financial
Services Canada Limited and The Reader’s Digest Association (Canada)
Ltd./Selection du Reader’s Digest (Canada) Ltee, as amended March 11,
2008, in each case together with all exhibits and attachments thereto, pursuant
to which the Companies and the Company Subsidiaries lease certain personal
computers.

 

“Disclosure Schedule”
means the Disclosure Schedule attached hereto, dated as of the date
hereof, delivered by the Seller to the Purchasers in connection with this
Agreement.  The disclosures on the
Disclosure Schedule shall be disclosed for purposes only of the sections or
subsections of this Agreement to which they expressly relate, to any other
sections or subsections to which they are expressly cross-referred, and to any
other section or subsection so long as the relevance of such disclosures to
such other section or subsection is readily apparent on their face.

 

“EFR” means
eFundraising.com Corporation Incorporated.

 

“Encumbrance” means any
options, pledges, mortgages, hypothecs (legal or contractual), security
interests, liens, charges, conditional sale agreements or other title retention
agreements, leases, restrictions on voting or transfer, rights of first
refusal, tenancies or other limitations on rights of use, encroachments,
occupancies, rights of way, easements or other encumbrances of any nature
whatsoever, other than any licenses of Intellectual Property.

 

“Environmental Law”
means any Law relating to pollution, regulation or protection of the
environment, or human health or safety as affected by environmental conditions
or events.

 

“Environmental Report”
means any report, study, assessment, audit or other similar document that
addresses any issue of actual or potential noncompliance with, or actual or
potential liability under or cost arising out of, any Environmental Law.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.

 

“Estimated
Closing Statement” means a
statement prepared by the Seller setting forth: 
(a) in reasonable detail, the Seller’s good faith estimate of the
calculation of the Net Working Capital as of the Closing Date substantially in
the form of Section 1.01(a) of the Disclosure Schedule based on data
available as of the date of preparation, and (b) based upon the amount of
Net Working Capital so determined, the Estimated Purchase Price.

 

“Estimated Purchase Price” means the result of (a) $110,000,000, minus (b) the
amount (if any) by which the Minimum Amount exceeds the Net Working Capital set
forth in the Estimated Closing Statement.

 

4

 

“GAAP” means United
States generally accepted accounting principles in effect from time to time
applied consistently throughout the periods involved.

 

“Governmental Authority”
means any foreign, federal, national, state, provincial, municipal, local or
other government, governmental, regulatory or administrative authority, agency,
bureau, board, department, ministry or commission or any court, tribunal, or
judicial or arbitral body.

 

“Governmental Order”
means any order (including administrative orders), writ, judgment, injunction,
decree, stipulation, settlement or award entered or issued by any Governmental
Authority or settlement of any Action outside of a Governmental Authority and,
with respect to Canadian privacy law matters, any finding or recommendation
from a Governmental Authority.

 

“HSR Act” means the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder.

 

“Indemnified Party”
means a Purchaser Indemnified Party or a Seller Indemnified Party, as the case
may be.

 

“Indemnifying Party”
means the Seller pursuant to Section 9.02 and the Purchasers pursuant to Section 9.03,
as the case may be.

 

“Independent Accounting Firm”
means (a) PricewaterhouseCoopers or (b) an independent certified
public accounting firm in the United States of national recognition (other than
a firm that then serves as the independent auditor for the Seller or the
Purchasers or any of their respective Affiliates) mutually acceptable to the
Seller and the Purchasers.

 

“Intellectual Property”
means all United States, Canadian and foreign intellectual property, including:
(a) patents, inventions, technology, processes, know-how and improvements
thereto, (b) trademarks, service marks, trade names, corporate names,
brand names, logos, trade dress, domain names and other source indicators,
together with the goodwill of the business appurtenant thereto, (c) copyrights
and copyrightable works, including Software and Systems (and the contents
thereof), photographs, graphics, artwork, textual works and promotional and
advertising materials in any media, (d) trade secrets and confidential and
proprietary information, including data and lists of current and potential
customers, website visitors and subscribers, (e) privacy and publicity
rights, moral rights and similar rights of authorship, (f) industrial
designs and (g) all registrations, applications and reservations relating
to the foregoing.

 

“Investment Canada Act”
means the Investment Canada Act (Canada) and the rules, regulations and
policies promulgated thereunder.

 

“IRS” means the Internal
Revenue Service of the United States.

 

“Knowledge” means (i) in
the case of the Seller, the actual knowledge of the individuals listed on
Schedule 1.01(b), or such knowledge as a reasonably prudent person with
duties (with respect to the Seller or the Companies (as applicable)) similar to
the duties of such individual would be likely to have, and (ii) in the
case of each Purchaser, the actual knowledge 

 

5

 

of the
individuals listed on Schedule 1.01(c), or such knowledge as a reasonably
prudent person with duties (with respect to such Purchaser) similar to the
duties of such individual would be likely to have.

 

“Law” means any statute,
law (including common law), ordinance, regulation, rule, code, order or similar
mandate of, or binding agreement with, any Governmental Authority.

 

“Leased Real Property”
means the land, buildings, structures, fixtures and other improvements leased, or
otherwise occupied, by either Company or any of the Company Subsidiaries.

 

“Liability” means any
and all Indebtedness, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured, including those arising under any
Law, Action or Governmental Order and those arising under any Contract.

 

“Loss” means any and all
damages, losses, deficiencies, liabilities, obligations, penalties, judgments,
settlements, payments, claims, fines, interest, costs and expenses (including the
costs and expenses of any and all Actions and Governmental Orders, and the
reasonable costs and expenses of non-Affiliate attorneys, accountants,
consultants and other professionals incurred in connection therewith); it being
agreed that any costs and expenses so incurred by an Indemnifying Party in
connection with the defense or prosecution of any Third Party Claim shall be
included in determining the aggregate amount of “Losses” for which the
Indemnifying Party or Indemnified Party is responsible pursuant to Section 9.04.

 

“Material Adverse Effect”
means any fact, event, change, development, circumstance or effect (in each
case, other than an Excluded Matter) that (a) is materially adverse to the
results of operations or the condition (financial or otherwise), assets or
liabilities of the Companies and the Company Subsidiaries (after giving effect
to the Pre-Closing Transfers), taken as a whole, or (b) would materially
impair the ability of the Seller to perform its obligations hereunder,
including the consummation of the transactions contemplated hereby; provided
that any changes, events or developments that are fully and completely cured
(including, for avoidance of doubt, the cure of all adverse effects thereof)
prior to the Closing Date shall not be considered to be and shall not be
considered in determining whether or not a Material Adverse Effect has
occurred; provided  further, that any changes or effects resulting
from or related to such cure may be considered in determining whether or not
there has occurred a Material Adverse Effect. 
As used herein, “Excluded Matter” shall mean (i) any change,
event or development occurring after the date hereof in (A) general
economic conditions or the capital markets generally or (B) the
fundraising or magazine publication, circulation or distribution industries, in
each case, that do not disproportionately affect the Companies and the Company
Subsidiaries (taken as a whole), (ii) any seasonal fluctuation in the
results of the Business consistent with historical experience, in and of itself
(but not the secondary effects of any such fluctuation), or (iii) any
adverse change, effect, event, occurrence, state of facts or development
arising from any change in accounting requirements or principles or any change
in Law that does not disproportionately affect the Companies and the Company
Subsidiaries (taken as a whole).

 

“Materials of Environmental
Concern” means any gasoline or petroleum or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, 

 

6

 

pollutants,
contaminants, gas, odor, radon or other radioactivity and any other substance
or waste that is regulated pursuant to or could reasonably be expected to give
rise to liability or obligations under any Environmental Law.

 

“Minimum Amount” means
$16,500,000.

 

“Net Working Capital”
means,
for the Companies and the Company Subsidiaries as of a particular date of determination, (A) the
sum of all current
assets (excluding cash, income, franchise or similar Tax receivables and
deferred Tax assets); less (B) the sum of all current liabilities
(including liabilities accrued pursuant to Section 6.03(b), but excluding
liabilities accrued in respect of penalties due under Section 2.6 of the
WFC Agreement, deferred Tax liabilities and accrued income, franchise or
similar Taxes), determined on a combined basis (with respect only to the
Companies and the Company Subsidiaries) in accordance with GAAP, applied on a
basis consistent with past practices used in preparing the Financial
Statements.  A sample calculation
of Net Working Capital calculated as of June 30, 2008 is attached hereto
as Section 1.01(a) of the Disclosure Schedule for illustrative
purposes.

 

“Permitted Encumbrances”
means (a) statutory liens for current Taxes not yet due or delinquent (or
that may be paid without interest or penalties) or that are being contested in
good faith and for which adequate reserves have been posted or otherwise
reflected in the Financial Statements, (b) mechanics’, carriers’, workers’,
repairers’ and other similar liens arising or incurred in the ordinary course
of business relating to obligations as to which there is no default on the part
of, or payment or performance is not due from, the Companies or the Company
Subsidiaries, or the validity or amount of which is being contested in good
faith by appropriate proceedings, (c) pledges, deposits or other liens
securing the performance of bids, trade contracts, leases or statutory
obligations (including workers’ compensation, unemployment insurance or other
social security legislation), (d) pledges of the shares and assets of each
of the Companies and the Company Subsidiaries pursuant to that certain Credit
Agreement, dated as of  March 2,
2007, among, inter alia, the Seller and
JPMorgan Chase Bank, N.A., and that certain Guarantee and Collateral Agreement,
dated as of March 2, 2007, among, inter alia, the
Seller and JPMorgan Chase Bank, N.A., which pledges shall be released upon the
Closing (to be evidenced by one or more UCC Financing Statements on Form UCC-3
(or equivalent) to be filed promptly after the Closing) and (e) all other
Encumbrances that do not, individually or in the aggregate, materially impair
the ownership, occupancy or use of the property to which they relate for the
purpose for which it is currently owned, occupied or used in connection with
the Business.

 

“Person” means any
individual, partnership, sole proprietorship, firm, corporation, limited
liability company, association, trust, unincorporated organization or other
entity.

 

“Purchase Price Bank Account”
means a bank account in the United States to be designated by the Seller in a
written notice to the Purchasers at least two Business Days prior to the
Closing.

 

“QSP Canada Shares”
means the issued and outstanding shares in the capital of QSP Canada as of the
Closing Date.

 

7

 

“Real Property” means
all land, buildings, improvements and fixtures erected thereon and all
appurtenances related thereto.

 

“Regulations” means the
Treasury Regulations (including Temporary Regulations) promulgated by the
United States Department of Treasury with respect to the Code or other federal
Tax statutes.

 

“Retained Litigation”
means litigation pending on the date hereof and set forth in Section 1.01(d) of
the Disclosure Schedule.

 

“Seller Marks” means the
“Reader’s Digest” name and trademark and Pegasus logo.

 

“Software” means system, integration,
translation, development, test and application software, application server,
applications, source code, databases, database software, documentation and
similar items.

 

“Straddle Period” means
any taxable period beginning on or before the Closing Date and ending after the
Closing Date.

 

“Systems” means servers, systems, websites, circuits, networks
and other computer and telecom assets and equipment.

 

“Taxes” shall mean all
federal, provincial, state, local or foreign taxes, charges, fees, levies or
other assessments (including income, gross receipts, excise, real and personal property,
profits, estimated, severance, occupation, production, capital gains, capital
stock, goods and services, environmental, employment, withholding, stamp, value
added, alternative or add-on minimum, sales, transfer, use, license, payroll
and franchise taxes or any other similar tax, custom, duty or governmental fee,
or other like assessment or charge of any kind whatsoever, imposed by the
United States, Canada, or any state, province, county, local or foreign
government or subdivision or agency thereof) and such term shall include any
interest, penalties, fines or additions to tax attributable to such taxes,
charges, fees, levies or other assessments.

 

“Tax Returns” shall mean
any report, return, declaration, pro forma or other information required to be
supplied to any taxing authority in connection with Taxes (including any
attached schedules) whether in tangible, electronic or other form, including
any information return, claim for refund, amended return and declaration of
estimated Tax and any related or supporting information with respect to the
foregoing.

 

“Trademark License Agreement”
shall mean the Trademark License Agreement in substantially the form attached
hereto as Exhibit B, for the license to the Companies and the
Company Subsidiaries of certain trademarks of the Seller.

 

SECTION 1.02.  Definitions. 
The following terms have the meanings set forth in the Sections set
forth below:

 

8

 

	
  Definition

  	
   

  	
  Location

  
	
   

  	
   

  	
   

  
	
  “2008 Bonuses”

  	
   

  	
  6.03(a)

  
	
  “2009 Bonus Plans”

  	
   

  	
  6.03(b)

  
	
  “401(k) Plan Participants”

  	
   

  	
  6.02(b)

  
	
  “ABC”

  	
   

  	
  3.26(b)

  
	
  “Acquisition Proposal”

  	
   

  	
  5.09

  
	
  “Affected Employees”

  	
   

  	
  6.01(a)

  
	
  “Affiliate Arrangements”

  	
   

  	
  3.25

  
	
  “Agreement”

  	
   

  	
  Preamble

  
	
  “Applied Against the Deductible”

  	
   

  	
  9.04(b)

  
	
  “Approved Practices”

  	
   

  	
  3.26(b)

  
	
  “Balance Sheet”

  	
   

  	
  3.07(a)

  
	
  “Benefits Continuation Period”

  	
   

  	
  6.01(a)

  
	
  “BPA”

  	
   

  	
  3.26(b)

  
	
  “Business Employees”

  	
   

  	
  3.17(m)

  
	
  “CA Purchaser”

  	
   

  	
  Preamble

  
	
  “Canadian Tax Period”

  	
   

  	
  7.01(c)

  
	
  “Charter Documents”

  	
   

  	
  3.02

  
	
  “Class A Stock”

  	
   

  	
  3.03(a)

  
	
  “Class B Stock”

  	
   

  	
  3.03(a)

  
	
  “Closing”

  	
   

  	
  2.03

  
	
  “Closing Date”

  	
   

  	
  2.03

  
	
  “COBRA”

  	
   

  	
  6.01(a)

  
	
  “Common Stock”

  	
   

  	
  3.03(a)

  
	
  “Companies”

  	
   

  	
  Recitals

  
	
  “Company”

  	
   

  	
  Recitals

  
	
  “Company Claims”

  	
   

  	
  5.07

  
	
  “Company Employees”

  	
   

  	
  3.17(a)

  
	
  “Company Sponsored Plan”

  	
   

  	
  3.17(a)

  
	
  “Confidentiality Agreement”

  	
   

  	
  5.03(a)

  
	
  “Contributing Profit”

  	
   

  	
  3.07(b)

  
	
  “CRA”

  	
   

  	
  5.10(h)

  
	
  “Credited to the Deductible”

  	
   

  	
  9.04(b)

  
	
  “Customer”

  	
   

  	
  3.30

  
	
  “Deductible”

  	
   

  	
  9.04(a)

  
	
  “Disclosure Schedule Update”

  	
   

  	
  5.12

  
	
  “Dispute Notice”

  	
   

  	
  2.07(c)

  
	
  “Employee Plans”

  	
   

  	
  3.17(a)

  
	
  “Excluded Representations”

  	
   

  	
  9.04(a)

  
	
  “Financial Statement Losses”

  	
   

  	
  9.04(b)

  
	
  “Financial Statements”

  	
   

  	
  3.07(a)

  
	
  “Foreign Benefit Plans”

  	
   

  	
  3.17(b)

  
	
  “foreign official”

  	
   

  	
  3.31

  
	
  “Full Time Reps”

  	
   

  	
  3.17(n)

  
	
  “Fundraising Organizations”

  	
   

  	
  3.35(a)

  
	
  “Guarantees”

  	
   

  	
  5.11(a)

  

 

9

 

	
  Definition

  	
   

  	
  Location

  
	
   

  	
   

  	
   

  
	
  “Guarantor”

  	
   

  	
  11.13

  
	
  “Inactive Employees”

  	
   

  	
  6.06

  
	
  “Indebtedness”

  	
   

  	
  3.03(b)

  
	
  “Lease Agreements”

  	
   

  	
  5.15

  
	
  “Leases”

  	
   

  	
  3.16(b)

  
	
  “Licenses”

  	
   

  	
  3.11(b)

  
	
  “Long Term Disability Plan”

  	
   

  	
  6.06

  
	
  “Material Contracts”

  	
   

  	
  3.20(a)

  
	
  “Net Account Billings”

  	
   

  	
  3.17(n), 3.30

  
	
  “Net Revenues”

  	
   

  	
  3.07(b)

  
	
  “New Customers”

  	
   

  	
  3.30(c)

  
	
  “Operating Profit”

  	
   

  	
  3.07(b)

  
	
  “PBGC”

  	
   

  	
  3.17(i)

  
	
  “Personal Information”

  	
   

  	
  3.14(b)

  
	
  “Pre-Closing Tax Period”

  	
   

  	
  7.01(a)(i)

  
	
  “Pre-Closing Transfers”

  	
   

  	
  5.08

  
	
  “Program Agreements”

  	
   

  	
  Section 3.30 of the Disclosure Schedule

  
	
  “Promotional Privilege Commitments”

  	
   

  	
  3.29

  
	
  “Post-Closing Tax Periods”

  	
   

  	
  7.01(b)(i)

  
	
  “public international organization”

  	
   

  	
  3.31

  
	
  “Purchase”

  	
   

  	
  5.13(a)

  
	
  “Purchase Price”

  	
   

  	
  2.02(a)

  
	
  “Purchasers”

  	
   

  	
  Preamble

  
	
  “Purchaser Flexible Benefits Plan”

  	
   

  	
  6.05

  
	
  “Purchaser Indemnified Party”

  	
   

  	
  9.02

  
	
  “Purchaser Minimum Tonnage Commitment”

  	
   

  	
  5.13

  
	
  “Purchasers’ 401(k) Plan”

  	
   

  	
  6.02(b)

  
	
  “QSP”

  	
   

  	
  Recitals

  
	
  “QSP Canada”

  	
   

  	
  Recitals

  
	
  “QSP Common Stock”

  	
   

  	
  3.03(a)

  
	
  “QSP Canada Common Stock”

  	
   

  	
  3.03(a)

  
	
  “Related Losses”

  	
   

  	
  5.13(a)

  
	
  “Remuneration Rate”

  	
   

  	
  3.30

  
	
  “Restricted Activities”

  	
   

  	
  5.10(a)

  
	
  “Restricted Employees”

  	
   

  	
  5.10(c)

  
	
  “Restricted Period”

  	
   

  	
  5.10(a)

  
	
  “Retained Customers”

  	
   

  	
  3.30(b)

  
	
  “Retention Rate”

  	
   

  	
  3.30

  
	
  “Retirement Plans”

  	
   

  	
  6.02(a)

  
	
  “Section 338(h)(10) Election”

  	
   

  	
  7.08(a)

  
	
  “Section 338 Companies”

  	
   

  	
  7.08(a)

  
	
  “Securities Act”

  	
   

  	
  4.06

  
	
  “Seller”

  	
   

  	
  Preamble

  
	
  “Seller Flexible Benefits Plan”

  	
   

  	
  6.05

  

 

10

 

	
  Definition

  	
   

  	
  Location

  
	
   

  	
   

  	
   

  
	
  “Seller Guarantees”

  	
   

  	
  5.11(b)

  
	
  “Seller Indemnified Party”

  	
   

  	
  9.03

  
	
  “Seller Transaction Expenses”

  	
   

  	
  11.01

  
	
  “Seller’s 401(k) Plan”

  	
   

  	
  6.02(b)

  
	
  “Seller’s Insurance Policies”

  	
   

  	
  5.07

  
	
  “Seller’s Penalty Commitment”

  	
   

  	
  5.13

  
	
  “Seller’s Statement”

  	
   

  	
  2.07(b)

  
	
  “Shares”

  	
   

  	
  Recitals

  
	
  “Subject Action”

  	
   

  	
  3.10(a)

  
	
  “Subject Liabilities”

  	
   

  	
  5.07

  
	
  “Tax Adjustments”

  	
   

  	
  7.08(b)

  
	
  “Tax Claim”

  	
   

  	
  7.04(a)

  
	
  “Third Party Claim”

  	
   

  	
  9.05(b)

  
	
  “Tip Date”

  	
   

  	
  9.04(b)

  
	
  “Transfer Taxes”

  	
   

  	
  7.10

  
	
  “Transition Services Agreement”

  	
   

  	
  2.05(a)

  
	
  “US MMB Program”

  	
   

  	
  3.29(a)

  
	
  “US Purchaser”

  	
   

  	
  Preamble

  
	
  “WARN”

  	
   

  	
  3.18

  
	
  “WFC”

  	
   

  	
  5.13

  
	
  “WFC Agreement”

  	
   

  	
  5.13

  
	
  “WFC Certificate”

  	
   

  	
  3.28(c)

  
	
  “WFC Products”

  	
   

  	
  3.28(a)

  

 

SECTION 1.03.  Interpretation
and Rules of Construction.  In
this Agreement, except to the extent otherwise provided or that the context
otherwise requires:

 

(a)  when
a reference is made in this Agreement to an Article, Section, Exhibit or
Schedule, such reference is to an Article or Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated;

 

(b)  the
table of contents and headings for this Agreement are for reference purposes
only and do not affect in any way the meaning or interpretation of this
Agreement;

 

(c)  the
words “hereof,” “herein” and “hereunder” and words of similar import, when used
in this Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement;

 

(d)  all
terms defined in this Agreement have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto, unless
otherwise defined therein;

 

11

 

(e)  the
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms;

 

(f)  references
to a Person are also to its successors and permitted assigns;

 

(g)  the
words “including” and “includes” are deemed to be followed by the words “without
limitation”; and

 

(h)  references
to “dollars” and “$” are to United States dollars.

 

ARTICLE II

 

PURCHASE AND SALE

 

SECTION 2.01.  Purchase
and Sale of the Shares.  Upon the
terms and subject to the conditions of this Agreement, at the Closing, the
Seller shall, or shall cause its appropriate subsidiaries to, sell, convey,
assign, transfer and deliver to (i) the US Purchaser, and the US Purchaser
shall purchase and acquire, the Shares of QSP and (ii) the CA Purchaser,
and the CA Purchaser shall purchase and acquire, the Shares of QSP Canada.

 

SECTION 2.02.  Purchase
Price.  (a)  The purchase price
shall be $110,000,000, minus the amount (if any) by which the Minimum
Amount exceeds the Net Working Capital as of the Closing Date, in each case
determined pursuant to the provisions set forth in Section 2.07 (the “Purchase
Price”).  The Estimated Purchase
Price shall be payable by the Purchasers at the Closing by wire transfer of
cash in immediately available funds to the Purchase Price Bank Account.  The US Purchaser may pay the portion of the
Estimated Purchase Price allocated to the Shares of QSP Canada on behalf of the
CA Purchaser.  Such portion of the
Estimated Purchase Price allocated to the shares of QSP Canada shall be
received by the Seller on behalf of the owner of the shares of QSP Canada.

 

(b)  The
Purchase Price (determined as if the Net Working Capital as of the Closing Date
equals the Minimum Amount) shall be allocated $93,500,000 for the shares of QSP
and $16,500,000 for the shares of QSP Canada.  Any subsequent gross adjustments
to the Purchase Price shall be reflected in this allocation in a manner that
fairly reflects such adjustment.  The
parties shall work together in good faith to determine how any adjustments to
the Purchase Price under Sections 2.02 and 2.07 shall be allocated between the
shares of QSP and QSP Canada.  Unless
otherwise required by applicable Law or as consented to by the other party
(which consent shall not be unreasonably withheld), for all Tax purposes (i) the
Purchase Price shall be allocated as provided for in the foregoing sentence and
(ii) neither of the Purchasers nor the Seller will take any position
inconsistent therewith in any Tax Return, in any refund claim, in any Tax
litigation or otherwise.

 

SECTION 2.03.  Closing.  Subject to the terms and conditions of this
Agreement, the sale and purchase of the Shares contemplated by this Agreement
shall take place at a closing (the “Closing”) to be held at the offices
of 

 

12

 

Cravath,
Swaine & Moore LLP, 825 Eighth Avenue, New York, New York at 10:00 a.m.
New York time on the third Business Day following the satisfaction or waiver of
the conditions to the obligations of the parties hereto set forth in Article VIII
(other than those conditions that by their nature are intended to be measured
or fulfilled as of the Closing Date, but subject to the satisfaction or waiver
of such conditions), or at such other place or at such other time or on such
other date as the Seller and the Purchasers may mutually agree upon in writing
(the date of the Closing being herein referred to as the “Closing Date”).

 

SECTION 2.04.  Delivery
of Shares, etc.  At the Closing, the
Seller shall transfer or cause to be transferred to the Purchasers, against
payment of the Purchase Price therefor as provided in Section 2.02, good
and valid title to the Shares, free and clear of any Encumbrances, by causing
to be delivered to the Purchasers certificates for such shares in the name of
the Seller duly endorsed in blank or accompanied by a stock power separate from
the certificate duly endorsed in blank and with any required transfer tax
stamps affixed.

 

SECTION 2.05.  Other Closing Deliveries by the Seller.  At the Closing, the Seller shall deliver or
cause to be delivered to the Purchasers:

 

(a)  A duly executed transition services agreement, to be
negotiated in good faith by the Seller and the Purchasers, for the provision of
the services, and on the terms, generally described on Exhibit A
(the “Transition Services Agreement”);

 

(b)  the
Trademark License Agreement, executed by an authorized representative of the
Seller;

 

(c)  a receipt for the payment of the Estimated Purchase Price;

 

(d)  a true and complete copy, certified by the Secretary of the
Seller, of the resolutions duly and validly adopted by the Board of Directors
(or comparable governing body) of the Seller evidencing its authorization of
the execution and delivery of this Agreement and the Ancillary Agreements to
which it is a party and the consummation of the transactions contemplated
hereby and thereby;

 

(e)  all
minute books, stock books, ledgers and registers, corporate seals, if any, and
other corporate records relating to the organization, ownership and maintenance
of each of the Companies and the Company Subsidiaries, if not already located
on the premises of the Companies or the Company Subsidiaries, and Tax records
(including Tax Returns to the extent prepared on or before the Closing Date) of
the Companies and the Company Subsidiaries (excluding any portions thereof that
do not relate to the Companies and the Company Subsidiaries or any of their
assets or properties);

 

(f)  a true
and complete copy, certified by the Secretary of QSP Canada, of the resolutions
duly adopted by the Board of Directors of QSP Canada authorizing the transfer
of shares of QSP Canada as contemplated herein;

 

13

 

(g)  resignations effective as of the Closing Date from any
officers of each of the Companies and the Company Subsidiaries who are also
employees of the Seller or any of its Affiliates (other than the Companies and
the Company Subsidiaries) and all the directors of each of the Companies and
the Company Subsidiaries;

 

(h)  a certificate of a duly authorized officer of the Seller
certifying as to the matters set forth in Section 8.02(a);

 

(i)  a duly executed and acknowledged certificate, in compliance
with the Code and Treasury Regulations and substantially in the form attached
hereto as Exhibit C, certifying such facts as to establish that the
sale of the Shares and any other transactions contemplated hereby are exempt
from withholding pursuant to Section 1445 of the Code;

 

(j)  a duly signed IRS Form 8023 that allows the US Purchaser
to make a Section 338(h)(10) Election contemplated by Section 7.08;

 

(k)  evidence of the matters described in Section 8.02(f), (h) and
(i) delivered in accordance with such Sections; and

 

(l)  the WFC Certificate, executed by a duly authorized officer of
the Seller.

 

SECTION 2.06.  Closing Deliveries by the Purchasers.  At the Closing, the Purchasers shall deliver
to the Seller:

 

(a)  the
Estimated Purchase Price in the manner set forth in Section 2.02;

 

(b)  counterparts
of each Ancillary Agreement, executed by an authorized representative of the
Purchasers;

 

(c)  a true and complete copy, certified by the Secretary of each
Purchaser, of the resolutions duly and validly adopted by the Board of
Directors of each Purchaser evidencing its authorization of the execution and
delivery of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby;

 

(d)  a certificate of a duly authorized officer of each Purchaser
certifying as to the matters set forth in Section 8.01(a); and

 

(e)  a duly prepared and signed IRS Form 8023 that allows the
US Purchaser to make a Section 338(h)(10) Election contemplated by Section 7.08.

 

SECTION 2.07.  Estimated
Purchase Price; Purchase Price Adjustment. 
(a)  On the fifth Business Day before the Closing, the Seller will
deliver to the Purchasers the Estimated Closing Statement reflecting the Seller’s
calculation of the Estimated Purchase Price to be paid by the Purchasers at the
Closing.  During the five Business Day
period prior to the Closing, the Seller shall provide the Purchasers reasonable
supporting detail regarding its calculations set 

 

14

 

forth in the
Estimated Closing Statement and reasonable access to its books, records and
personnel for the purpose of evaluating such statement.  The parties shall consider in good faith any
objection by the Purchasers to such Estimated Closing Statement, and the
Estimated Closing Statement for purposes of this Section 2.07 shall be
such statement, with such adjustments, if any, as shall collectively be
reasonably acceptable to both the Seller and the Purchasers.

 

(b)  Within 60 days following the Closing Date, the Seller shall
prepare and deliver to the Purchasers a statement of Net Working Capital as of
the Closing Date and, based upon such statement of Net Working Capital, the
Purchase Price, setting forth in reasonable detail the Seller’s calculation of
such amounts (“Seller’s Statement”). 
The calculation of Net Working Capital will be prepared in accordance
with GAAP, applied on a consistent basis using the same accounting methods,
policies, practices, procedures, classifications or estimation methodologies as
were used to prepare the Balance Sheet. 
For avoidance of doubt, Net Working Capital shall be calculated as of
the Closing after giving effect to the transactions contemplated by
Sections 8.02(f) and (g).  In
preparing the Seller’s Statement, the Seller and its agents shall have
reasonable access, during normal business hours and upon reasonable notice, to
the books and records, the financial systems and finance personnel and any
other relevant information of the Companies and the Company Subsidiaries, to
the extent reasonably necessary to prepare the Seller’s Statement.  The Purchasers shall have an opportunity to
review the Seller’s Statement and all related workpapers for a period of 60
days following delivery of the Seller’s Statement, during which period the
Purchasers and their agents shall have reasonable access, during normal
business hours and upon reasonable notice, to the books and records, the
financial systems and finance personnel and any other relevant information of
the Seller necessary to review the Seller’s Statement.

 

(c)  If the Purchasers disagree with any aspect of the Seller’s
Statement, the Purchasers shall deliver written notice to the Seller prior to
the expiration of the 60 day review period, indicating in reasonable detail the
basis for such disagreement and setting forth the Purchasers’ calculation of
the item(s) in dispute (a “Dispute Notice”).  The aspects of the Net Working Capital set
forth in the Seller’s Statement as to which no Dispute Notice is delivered
shall be final and binding.

 

(d)  If the Purchasers deliver a timely Dispute Notice to the
Seller, the Purchasers shall meet and confer with the Seller and attempt in
good faith to resolve the disagreements set forth in the Dispute Notice for a
period of at least 30 days after the Seller’s receipt of the Dispute
Notice.  If and to the extent the
Purchasers and the Seller are able to resolve the disagreements set forth in
the Dispute Notice through such meetings and discussions, then they shall set
forth such resolution in writing and, when executed and delivered by both
parties, such resolution shall be final and binding.

 

(e)  If and to the extent the Seller and the Purchasers are not
able to resolve all of the disagreements set forth in the Dispute Notice within
30 days (or such longer period as they may mutually agree), the parties shall
engage the Independent 

 

15

 

Accounting
Firm to resolve the disagreements and make a final and binding determination of
the Net Working Capital as of the Closing Date in accordance with the terms hereof
within 30 Business Days of being engaged by the Purchasers and the Seller.  The parties shall allow representatives of
the Independent Accounting Firm reasonable access, during normal business hours
and upon reasonable notice, to the books and records, the financial items and
personnel and any other relevant information to review the Seller’s
Statement.  The fees and disbursements of
the Independent Accounting Firm shall be allocated between the Seller and the
Purchasers in the same proportion that the aggregate dollar amount of such
remaining disputed items so submitted to the Independent Accounting Firm that
is unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total dollar amount of such remaining
disputed items so submitted.

 

(f)  If the Purchase Price, determined based upon the Net Working
Capital as of the Closing Date, as finally determined pursuant to this Section 2.07,
exceeds the Estimated Purchase Price, the Purchasers shall pay to the Seller
the aggregate amount of such excess.  If
the Purchase Price, determined based upon the Net Working Capital as of the
Closing Date, as finally determined pursuant to this Section 2.07, is less
than the Estimated Purchase Price, the Seller shall pay to the Purchasers the
amount of such shortfall.

 

(g)  All payments pursuant to this Section 2.07 shall be made
by wire transfer of immediately available funds to the account or accounts
designated by the Purchasers or the Seller, as the case may be, within 10 days
after the final determination thereof.

 

(h)  The parties agree that any payment pursuant to this Section 2.07
shall be treated as an adjustment to the Purchase Price for Tax purposes,
unless otherwise required by applicable Law or as consented to by the other
party (which consent shall not be unreasonably withheld).

 

(i)  Any amount in respect of the Shares of QSP Canada required to
be paid under this Section 2.07 (i) by the Seller, shall be paid by
the Seller on behalf of the owner of the QSP Shares to the US Purchaser on
behalf of the CA Purchaser; and (ii) by the Purchasers, shall be paid by
the US Purchaser on behalf of the CA Purchaser to the Seller on behalf of the
owner of the shares of QSP Canada.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

OF THE SELLER

 

The Seller hereby represents
and warrants to the Purchasers, as of the date hereof and as of the Closing
Date, or, if a representation or warranty is made as of a specified date, as of
such date, as follows (but, except as otherwise specifically set forth herein
or in the Disclosure Schedule, assuming for purposes of such representations
and warranties that the Pre-Closing 

 

16

 

Transfers had
been effected immediately prior to execution of this Agreement or, in the case of
representations and warranties that relate to an earlier date or period, prior
to such date or period):

 

SECTION 3.01.  Organization,
Authority and Qualification of the Seller. 
The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby.  The execution and delivery of
this Agreement and the Ancillary Agreements by the Seller, the performance by
the Seller of its obligations hereunder and thereunder (including the
Pre-Closing Transfers) and the consummation by the Seller of the transactions
contemplated hereby and thereby (including the Pre-Closing Transfers) have been
duly authorized by all requisite action on the part of the Seller.  This Agreement has been, and upon their
execution the Ancillary Agreements shall have been, duly executed and delivered
by the Seller, and (assuming due authorization, execution and delivery by the
Purchasers) this Agreement constitutes, and upon their execution the Ancillary
Agreements to which it is a party shall constitute, legal, valid and binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms.

 

SECTION 3.02.  Organization
and Qualification of the Companies. 
QSP is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.  QSP Canada is a corporation duly organized,
validly existing and in good standing under the laws of the Province of Ontario,
Canada.  Each of the Companies has all
necessary corporate power and authority to own, operate or lease the properties
and assets owned, operated or leased by it and to carry on the Business as
currently conducted.  Each of the
Companies is duly licensed or qualified to do business and is in good standing
in each jurisdiction in which the properties owned or leased by it or the
operation of the Business makes such licensing or qualification necessary or
desirable, except to the extent that the failure to be so licensed, qualified
or in good standing, individually or in the aggregate, does not currently, and
would not reasonably be expected to, materially and adversely affect the
ability of the Seller to, directly or indirectly, own the capital stock of the
Companies and the Company Subsidiaries or the ability of the Companies or the
Company Subsidiaries to conduct the Business (taken as a whole) as currently
conducted.  True and correct copies of
the certificate of incorporation and bylaws of each of the Companies, as
modified, supplemented, amended or restated to the date hereof (the “Charter
Documents”), have been furnished by the Seller to the Purchasers.  Such certificates of incorporation and bylaws
are in full force and effect, and no other organizational documents are
applicable to or binding upon either of the Companies.

 

SECTION 3.03.  Capitalization;
Ownership of Shares.  (a)  The
authorized capital stock of QSP consists of 1,000 shares of common stock, par
value $1.00 per share (“QSP Common Stock”), of which 10 shares of QSP 

 

17

 

Common Stock
are issued and outstanding, and the authorized capital stock of QSP Canada
consists of (i) an unlimited number of shares of Class A Non-Voting
Preference Stock, without par value (“Class A Stock”), of which 0
shares of Class A Stock are issued and outstanding, (ii) an unlimited
number of shares of Class B Non-Voting Preference Stock, without par value
(“Class B Stock”), of which 0 shares of Class B Stock are
issued and outstanding, and (iii) an unlimited number of shares of common
stock, without par value (“QSP Canada Common Stock” and, together with
QSP Common Stock, the “Common Stock”), of which 10,000 shares of QSP
Canada Common Stock are issued and outstanding. 
All outstanding shares of Common Stock are validly issued, fully paid
and nonassessable and were not issued in violation of any preemptive or other
similar rights under any provision of applicable Law, the applicable Charter
Documents or any Contract to which such Company is subject.  Except for this Agreement, there are no
options, warrants, calls, convertible securities or other rights, or other
Contracts relating to dividend or voting rights or other interests in the
Common Stock or any other equity interests in either of the Companies or
obligating the Seller, any of its Affiliates or either of the Companies to
issue, sell, redeem or repurchase any shares of Common Stock or any other
equity interest and there are no shares of capital stock of either of the
Companies reserved for any purpose.  No
shares of Common Stock are subject to vesting or forfeiture conditions.  There are no outstanding stock appreciation
rights or other rights issued by either of the Companies, any of the Company
Subsidiaries, the Seller or any of its Affiliates that are linked in any way to
the price of QSP Common Stock or QSP Canada Common Stock or the value
of QSP or QSP Canada or any part thereof. 
The Shares of QSP constitute all of the issued and outstanding shares of
capital stock of QSP and, except as set forth in Section 3.03(a) of
the Disclosure Schedule, are (or at Closing will be) owned of record and
beneficially by the Seller free and clear of all Encumbrances.  The Shares of QSP Canada constitute all of
the issued and outstanding shares of capital stock of QSP Canada and, except as
set forth in Section 3.03(a) of the Disclosure Schedule, are (or at
the Closing will be) owned of record and beneficially by The Reader’s Digest
Association (Canada) ULC free and clear of all Encumbrances, and The Reader’s
Digest Association (Canada) ULC has all necessary corporate power and authority
to transfer, sell and convey the Shares of QSP Canada and to consummate the
transactions contemplated hereby.

 

(b)  Section 3.03(b) of the Disclosure
Schedule sets forth a complete and correct list, as of the date of this
Agreement, of each Contract pursuant to which any Indebtedness (as defined
below) of the Companies or any Company Subsidiary is outstanding or may be
incurred.  “Indebtedness” means (i) indebtedness
for borrowed money, whether secured or unsecured, (ii) obligations under
conditional or installment sale or other title retention contracts or
arrangements relating to the deferred purchase price of property (other than
trade payables arising in the ordinary course of business), (iii) the
principal component of capitalized lease obligations and (iv) guarantees,
assurances, co-borrowing arrangements or similar obligations with respect to
any of the foregoing of another Person; provided, however, that
in no event shall Indebtedness be deemed to include any obligations under the
Dell PC Leases.

 

18

 

SECTION 3.04.  Company
Subsidiaries.  Section 3.04 of
the Disclosure Schedule sets forth a complete and correct list of each
Company Subsidiary, and for each such Company Subsidiary: (i) its
jurisdiction of incorporation, formation or organization, as applicable, and (ii) the
number of authorized, issued and outstanding shares of each class of its
capital stock or other authorized, issued and outstanding equity interests, as
applicable, the names of the holders thereof and the number of shares or
percentage interests, as applicable, held by each such holder.  Each Company Subsidiary is duly incorporated,
formed or organized, as applicable, validly existing and, where applicable, in
good standing under the Laws of its jurisdiction of incorporation, formation or
organization, as applicable, has the requisite corporate or similar power and
authority to own, operate or lease the properties and assets owned, operated or
leased by it and to carry on the Business as currently conducted, and is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
the Business makes such licensing or qualification necessary or desirable,
except to the extent that the failure to be so licensed, qualified or in good
standing, individually or in the aggregate, does not currently, and would not
reasonably be expected to, materially and adversely affect the ability of the
Seller to, directly or indirectly, own the capital stock of the Companies and
the Company Subsidiaries or the ability of the Companies or the Company
Subsidiaries to conduct the Business (taken as a whole) as currently
conducted.  Except as set forth in Section 3.04
of the Disclosure Schedule, all the issued and outstanding capital stock or
other equity interests of the Company Subsidiaries are owned of record and
beneficially by a Company or another Company Subsidiary, free and clear of any
Encumbrances, and such Company or Company Subsidiary has good and valid title
to such shares of capital stock or other equity interests.  All of such issued and outstanding shares are
validly issued, fully paid and nonassessable and were not issued in violation
of any preemptive or other similar rights under any provision of applicable
Law, the certificate of incorporation or bylaws (or equivalent constitutive
document) of such Company Subsidiary or any Contract to which such Company
Subsidiary is subject.  Except as set
forth in Section 3.04 of the Disclosure Schedule, there are no options,
warrants, calls, convertible securities or other rights, or other Contracts
relating to dividend or voting rights or other interests in the capital stock
or any other equity interests in any of the Company Subsidiaries or obligating
the Seller, any of its Affiliates, either of the Companies or any of the
Company Subsidiaries to issue, sell, redeem or repurchase any shares of the capital
stock or other equity interest of any of the Company Subsidiaries, and there
are no shares of capital stock of any of the Company Subsidiaries reserved for
any purpose.  Except for equity interests
set forth in Section 3.04 of the Disclosure Schedule and after giving
effect to the Pre-Closing Transfers, the Companies will not own, directly or
indirectly, any equity interest in any Person other than the Company
Subsidiaries.

 

SECTION 3.05.  No
Conflict.  Assuming that all
consents, approvals, authorizations and other actions described in Section 3.06
have been obtained, all filings and notifications listed in Section 3.06
of the Disclosure 

 

19

 

Schedule have
been made and any applicable waiting period has expired or been terminated, and
except as may result from any facts or circumstances relating solely to the
Purchasers, the execution, delivery and performance by the Seller of this
Agreement and the Ancillary Agreements to which it is a party or the consummation
of the transactions contemplated hereby and thereby (including the Pre-Closing
Transfers) by the Seller do not and will not (a) violate, conflict with or
result in the breach of the certificate of incorporation or bylaws (or
equivalent constitutive document) of the Seller, either of the Companies or any
of the Company Subsidiaries, (b) conflict with or violate in any material
respect any Law or Governmental Order applicable to the Seller, the Companies
or the Company Subsidiaries or any of their respective assets, properties or
businesses, (c) except as set forth in Section 3.05(c) of the
Disclosure Schedule or as does not currently and would not reasonably be
expected to materially and adversely affect the ability of the Companies or the
Company Subsidiaries to conduct the Business (taken as a whole) as currently
conducted, conflict with, result in any breach of, constitute a default (or
event which, with the giving of notice or lapse of time, or both, would become
a default) under, require any consent under, or give to others any rights of
termination, acceleration or cancellation or increased, additional or
accelerated or guaranteed rights, obligations or entitlements of any Person,
under, any Contract to which the Seller or any of its Affiliates (solely to the
extent relating to the Business), either of the Companies or any of the Company
Subsidiaries is a party or (d) result in the creation of any Encumbrance
upon the Shares or the business, properties or assets of the Companies or the
Company Subsidiaries.

 

SECTION 3.06.  Governmental
Consents and Approvals; Other Consents. 
Neither the execution or delivery of this Agreement or the Ancillary
Agreements by the Seller, nor the performance of this Agreement and the
Ancillary Agreements or the consummation of the transactions contemplated
hereby and thereby (including the Pre-Closing Transfers) by the Seller and its
subsidiaries, requires any consent, approval, authorization or other order of,
action by, or filing with or notification to, any Governmental Authority,
except (a) as described in Section 3.06 of the Disclosure Schedule, (b) the
notification and waiting period requirements of the HSR Act or (c) the
post-Closing notification requirements of the Investment Canada Act.

 

SECTION 3.07.  Financial
Information.  (a)  Section 3.07(a)(i) of
the Disclosure Schedule sets forth the combined unaudited balance sheets
of the Companies and the Company Subsidiaries for each of the two fiscal years
ended as of June 30, 2007 and June 30, 2008 (such later balance
sheet, the “Balance Sheet”) and the related combined unaudited
statements of operations and statements of cash flows of the Companies and the
Company Subsidiaries together with the related notes thereto (collectively, the
“Financial Statements”).  The Financial
Statements (i) were prepared from the books of account and other financial
records of the Seller, the Companies and the Company Subsidiaries (except as
may be indicated in the notes thereto or set forth in Section 3.07(a)(i) of
the Disclosure Schedule), (ii) fairly present, in all material respects,
the 

 

20

 

financial
condition, results of operations and cash flows of the Companies and the
Company Subsidiaries as of the dates thereof and for the periods covered
thereby and (iii) were prepared in accordance with GAAP applied on a
consistent basis through the periods to which they relate (except for the
omission of footnotes required by GAAP). Except as set forth on Section 3.07(a)(i) of
the Disclosure Schedule, on the face of the Balance Sheet or in the notes
thereto, as of June 30, 2008, there were no Liabilities of the Companies
or the Company Subsidiaries of a type that would be required to be reflected on
or reserved against in a combined balance sheet of the Companies and the
Company Subsidiaries (or in the notes thereto) in accordance with GAAP.  Section 3.07(a)(ii) of the
Disclosure Schedule sets forth a true and good faith estimate of the current
assets and current liabilities of the Companies and the Company Subsidiaries as
of July 31, 2008.  Such calculation
was prepared using methodologies consistent with those used in the preparation
of the Balance Sheet.

 

(b)  Section 3.07(b) of the Disclosure
Schedule sets forth for the fiscal years ended June 30, 2007 and June 30,
2008, the Operating Profit for the Companies and the Company Subsidiaries,
taken as a whole, and a list, by product category, of the Net Revenue and
Contributing Profit generated in the conduct and operation of the Business for
each of (i) magazines, (ii) gifts, (iii) food products and (iv) other,
in each case, sold by the Companies and the Company Subsidiaries during such
periods, broken down into Net Revenue and Contributing Profit generated in
respect of each of the United States, Canada and EFR entities.  Such schedule was prepared from the books of
account and other financial records of the Companies and the Company
Subsidiaries and the Net Revenues, Contributing Profit and Operating Profit set
forth for the periods reflected therein are true and correct in all material
respects.  As used herein, “Net
Revenues” means, for any period, the net revenues of the Companies and the
Company Subsidiaries, calculated in accordance with GAAP applied on a basis
consistent with the Financial Statements. 
As used herein, “Contributing Profit” means, for any period, the
Operating Profit of the Companies and the Company Subsidiaries, calculated in
accordance with GAAP applied on a basis consistent with the Financial
Statements but without taking the following into account:  general and administrative costs, indirect
selling costs and corporate managed general and administrative expenses.  As used herein, “Operating Profit”
means, for any period, the net income of the Companies and the Company Subsidiaries,
calculated in accordance with GAAP applied on a basis consistent with the
Financial Statements but without taking the following into account: (A) income
Taxes, (B) goodwill and intangible amortization (other than WFC
amortization), (C) other operating items (including restructuring reserves
held at the Seller level and impairments), and (D) other income/expense
(including third party and intercompany interest income/expense, intercompany
dividend income/expenses, intercompany fees, gain/loss on foreign exchange,
donations, equity in subsidiaries, unrealized gain/loss, gain/loss on sale of
investments, and minority interest expenses).

 

SECTION 3.08.  Absence of
Undisclosed Material Liabilities. 
There are no Liabilities of the Companies or the Company Subsidiaries,
other than (a) Liabilities reflected or reserved against on the Balance
Sheet, 

 

21

 

(b) Liabilities
set forth in Section 3.08 of the Disclosure Schedule, (c) Liabilities
incurred since the date of the Balance Sheet in the ordinary course of business
of the Companies and the Company Subsidiaries and (d) Liabilities that are
not material to the Companies and the Company Subsidiaries in the aggregate.

 

SECTION 3.09.  Conduct in
the Ordinary Course.  Since June 30,
2008, except as set forth in Section 3.09 of the Disclosure Schedule, (i) the
Business has been conducted only in the ordinary course, (ii) there has
not been any change, development, circumstance, condition, event, occurrence,
damage, destruction or loss that has had or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect and (iii) through
the date hereof, none of the Companies or the Company Subsidiaries have taken
any action that, if taken after the date hereof, would require the consent of
the Purchasers under Section 5.01(a)-(s).

 

SECTION 3.10.  Litigation.  (a)  Except as set forth in Section 3.10(a)(i) of
the Disclosure Schedule and except for ordinary course unemployment,
workers’ compensation and disability claims by individual claimants, there are
no Actions pending or, to the Knowledge of the Seller, threatened by or against
(x) either of the Companies or any of the Company Subsidiaries or any of
their respective properties, rights or assets or (y) the Seller or any of
its Affiliates (other than the Companies or the Company Subsidiaries) or any of
their respective properties, rights or assets, in each case under this clause
(y), relating to the Companies or the Company Subsidiaries or the Business
(each a “Subject Action”).  Section 3.10(a)(i) of
the Disclosure Schedule sets forth a list of all Subject Actions,
including the disposition thereof, that have been commenced or settled since July 1,
2005.  Except as set forth in Section 3.10(a)(ii) of
the Disclosure Schedule, none of the Companies or the Company Subsidiaries is,
or since July 1, 2005 has been, subject to or in default under any
Governmental Order (excluding any stipulation or settlement with respect to any
ordinary course Action relating to unemployment, workers’ compensation,
disability or insurance claims by an individual claimant that does not affect a
class or group of similarly-situated claimants or potential claimants).

 

(b)  Section 3.10(b) of the Disclosure Schedule sets
forth a list of each letter or other written communication which, to the
Knowledge of the Seller, has been received by either of the Companies, any of
the Company Subsidiaries or, with
respect to the Companies, the Company Subsidiaries or the Business, the Seller
or its Affiliates, since July 1, 2005 (i) from the Federal Trade
Commission or the Competition Bureau of Canada, (ii) from any state or
provincial attorney general’s office alleging a material violation by the
Companies or the Company Subsidiaries, or with respect to the Business, the
Seller or its Affiliates, of any applicable privacy, trade practice or consumer
protection Laws or (iii) from any Governmental Authority making a request for
information relating to a potential violation of any privacy, trade practice or
consumer protection Laws (the foregoing clauses (i), (ii) and (iii) are
not intended to include routine letters of the Federal Trade Commission, the
Competition Bureau of Canada or attorneys generals’ offices that transmit
individual complaints 

 

22

 

from consumers
and do not relate to any potential violation of such Laws and general mailings
by such Governmental Authorities that are not targeted to the Companies, any of
the Company Subsidiaries or, with
respect to the Companies, the Company Subsidiaries or the Business, the Seller
or its Affiliates).

 

SECTION 3.11.  Compliance;
Governmental Licenses and Permits.  (a) 
Each of the Companies and the Company Subsidiaries is and immediately prior to
the Closing will be in compliance with and not in default or violation of its
certificate of incorporation or bylaws (or equivalent constitutive
document).  Except as described in
Sections 3.14(a), 3.14(b) and 3.18 of the Disclosure Schedule, each of
the Companies, the Company Subsidiaries and the Business, and with respect to
the Companies, the Company Subsidiaries and the Business, the Seller and each
of its Affiliates, is and since July 1, 2005 has been in compliance, in
all material respects, with, and not in material default or violation of, any
applicable Law or Governmental Order (excluding any stipulation or settlement
with respect to any ordinary course Action relating to unemployment, workers’
compensation, disability or insurance claims by an individual claimant that
does not affect a class or group of similarly-situated claimants or potential
claimants) or the rules and regulations of any issuer of credit cards used
in connection with the Business.

 

(b)  Except as described in Section 3.11(b) of the
Disclosure Schedule, the Companies and the Company Subsidiaries have all
material licenses, permits, authorizations, franchises, consents,
qualifications and approvals from all Governmental Authorities (collectively, “Licenses”)
necessary to carry on the Business as currently conducted and are in compliance
in all material respects with, and have complied in all material respects with,
all such Licenses, and neither the Seller, any of its Affiliates, either of the
Companies nor any of the Company Subsidiaries has received any notification
from any Governmental Authority that it intends to revoke, suspend or
materially and adversely limit any such License.

 

SECTION 3.12.  Environmental
Matters.  (a)   Except as set forth on Section 3.12 of
the Disclosure Schedule (i) none of the Companies nor any of the Company
Subsidiaries is in material violation of any applicable Environmental Law, nor,
since July 1, 2005, has any of them been in material violation of any
applicable Environmental Law; (ii) to the Knowledge of the Seller,
Materials of Environmental Concern are not present at any property now or
formerly owned, operated, occupied or otherwise used in connection with the
Business by any of the Companies or the Company Subsidiaries, or at any other location,
under conditions or circumstances that would reasonably be expected to result
in material liability to any of the Companies or Company Subsidiaries under any
applicable Environmental Law; and (iii) none of the Companies nor any of
the Company Subsidiaries has assumed or retained by Contract or, to the
Knowledge of the Seller, operation of Law, any liabilities under Environmental
Law or regarding Materials of Environmental Concern, that would reasonably be
expected to result in material liability to any of the Companies or the Company
Subsidiaries.

 

23

 

(b)  Except as set forth on Section 3.12 of the Disclosure
Schedule, the Seller has provided to the Purchasers true and complete copies of
all Environmental Reports (or, if privileged, a true and accurate summary or
description of all material issues discussed therein) in the possession or
control of the Seller or its Affiliates or either of the Companies or any of
the Company Subsidiaries regarding any matter concerning, and that could
reasonably be expected to be material to, any of the Companies or the Company
Subsidiaries.

 

(c)  Notwithstanding any provision of this agreement, Sections
3.06, 3.08, 3.10, 3.11(b) and 3.12 set forth the Seller’s sole and exclusive
representations and warranties with respect to Materials of Environmental
Concern, Environmental Laws or other environmental matters.

 

SECTION 3.13.  Intellectual
Property.  (a)  Section 3.13(a) of
the Disclosure Schedule sets forth a list of the Intellectual Property
registrations and applications and material unregistered Intellectual Property
that is (i) owned or exclusively licensed by the Companies or the Company
Subsidiaries (and specifying whether such Intellectual Property is owned or
licensed) or (ii) owned by the Seller or its Affiliates and held for use
or used primarily by the Companies or the Company Subsidiaries.  Except as set forth on Section 3.13(a) of
the Disclosure Schedule, all registrations and applications set forth on Section 3.13(a) of
the Disclosure Schedule are unexpired and subsisting and have not been
abandoned.  Except as set forth on Section 3.13(a) of
the Disclosure Schedule, all Intellectual Property registrations (other than
domain names) set forth on Section 3.13(a) of the Disclosure Schedule
have not be invalidated, are not invalid and are not unenforceable.  Except as set forth on Section 3.13(a) of
the Disclosure Schedule, each Company or Company Subsidiary (and the Seller,
with respect to Intellectual Property used by the Companies or the Company
Subsidiaries) owns or has the valid right to use (and after the Closing Date,
shall have the same ownership of and same rights to use) all material
Intellectual Property that is used in the operation of the Business as currently
conducted and/or contemplated to be conducted, free and clear of all
Encumbrances, except for Permitted Encumbrances (and with respect to all owned
Intellectual Property, any obligation to or interest of any other Person).

 

(b)  Except as
set forth on Section 3.13(b) of the Disclosure Schedule, (i) the
operation of the Business as currently conducted and/or contemplated to be
conducted (including all uses of Intellectual Property in connection therewith)
does not infringe, misappropriate or violate the rights of any Person in any
material respect in the United States or Canada or, to the Knowledge of the
Seller, elsewhere; (ii) to the Knowledge of the Seller, the Intellectual
Property used in the Business is not being infringed, misappropriated or violated,
in any material respect, by any Person; and (iii) the Seller, the
Companies and the Company Subsidiaries have not received any written (or, to
the Knowledge of the Seller, oral) notice, claim or challenge with respect to
Intellectual Property used in the operation of the Business by the Companies or
the Company Subsidiaries, except for any of same that have since been
satisfactorily resolved.

 

24

 

(c)  The
Seller, the Companies and the Company Subsidiaries in good faith believe that
they take reasonable actions to protect the material Intellectual Property used
in the Business as currently conducted.

 

(d)  Neither
of the Companies nor any of the Company Subsidiaries within the past 12 months
have suffered any failure in Software or Systems owned or used by them that has
had or could reasonably be expected to have a Material Adverse Effect.  Except as set forth on Section 3.13(d) of
the Disclosure Schedule, neither Company nor any of the Company Subsidiaries
distributes any material Software subject to the terms of any “open source,” “copyleft,”
shareware or similar agreement that requires, as a condition of such
distribution, that modifications made by or for the Companies or the Company
Subsidiaries be licensed at no charge to third parties.

 

SECTION 3.14.  Privacy
and Security.  (a)  Except as
set forth on Section 3.14(a)(i) of the Disclosure Schedule, the
Seller and each of the Companies and the Company Subsidiaries have taken such
actions as are reasonably necessary to protect the confidentiality, integrity
and security of all Systems (and all information and transactions stored or
contained therein or transmitted or processed thereby) used in the Business as
currently conducted against any unauthorized use, access, disclosure, copying,
interruption, modification or corruption, in all material respects, and except
as set forth on Section 3.14(a)(ii) of the Disclosure Schedule, there
has been no occurrence of any of same.

 

(b)  Except as set forth on Section 3.14(b) of the
Disclosure Schedule, the Seller and each of the Companies and the Company
Subsidiaries has obtained all consents to the collection, use and disclosure of
personal information of identifiable individuals collected by the Companies or
the Company Subsidiaries (“Personal Information”) necessary to conduct
the Business as currently conducted.

 

(c)  The Companies and the Company Subsidiaries have all necessary
backup, archival and disaster recovery plans and Systems as are reasonably
necessary to protect against interruption of the Business.

 

(d)  Each of the Companies, the Company Subsidiaries and the
Business, and with respect to the Companies, the Company Subsidiaries and the
Business, the Seller and each of its Affiliates, is and since July 1, 2005
has been, in compliance, in all material respects, with, and is not in material
default or violation of, any posted policies of the Companies or the Company
Subsidiaries regarding privacy, data security and Personal Information.

 

(e)  There are no restrictions on the Companies’ or the Company
Subsidiaries’ collection, use, disclosure and retention of Personal Information
except as provided by privacy Laws and the Companies’ and the Company Subsidiaries’
own privacy policies.

 

25

 

(f)  There are no inquiries or Actions, whether statutory or
otherwise, pending or, to the Knowledge of the Seller, threatened with respect
to the Companies’ or the Company Subsidiaries’ collection, use, disclosure or
retention of personal information.

 

(g)  Section 3.14(g) of the Disclosure Schedule sets
forth:

 

  (i) all current privacy policies of the Companies and
the Company Subsidiaries and copies of all publications of the Companies and
the Company Subsidiaries describing such privacy policies;

 

 (ii) copies of all privacy audits conducted by or on behalf
of the Companies and the Company Subsidiaries and a description of any
investigations or audits of the Companies and the Company Subsidiaries that, to
the Knowledge of the Seller, were performed by any Governmental Authority under
any privacy Law and a copy of any report or Contract related to such
investigations or audits where the Seller was provided a copy of such report or
Contract by such Governmental Authority;

 

(iii) a list of the types, by category, of Personal Information
collected by or on behalf of the Companies or the Company Subsidiaries since July 1,
2006;

 

 (iv) a list of all countries in which the Companies and the
Company Subsidiaries collect, store and use Personal Information and a
description of the internal use made by the Companies and the Company
Subsidiaries of such Personal Information;

 

  (v) a description of the use made by third parties of
Personal Information collected by the Companies or the Company Subsidiaries and
a list of all (A) third parties to whom such Personal Information is
disclosed, and (B) related Contracts with such third parties (including
non-disclosure agreements);

 

 (vi) a copy of all forms of consent currently used by the
Companies and the Company Subsidiaries in respect of Personal Information; and

 

(vii) a list or description of all letters or other written
communications received by either of the Companies or any of the Company
Subsidiaries since July 1, 2007 from any Governmental Authority
or individual making a request for information relating to any alleged
unauthorized use or disclosure of Personal Information (it being understood
that this clause (vii) is not intended to include routine letters or
general mailings by such Governmental Authorities that are not targeted to the
Companies or any of the Company
Subsidiaries).

 

SECTION 3.15.  Absence of
Restrictions on Business Activities. 
Except as set forth in Section 3.15 of the Disclosure Schedule,
there is no Contract or Governmental Order binding upon the Companies, the
Company Subsidiaries or any of their respective properties, rights or assets
which has the 

 

26

 

effect of
prohibiting or materially restricting the ability of either Company or any
Company Subsidiary to engage in any material line of Business.

 

SECTION 3.16.  Real
Property; Personal Property.  (a) 
Neither of the Companies nor any of the Company Subsidiaries owns any Real
Property or any options to acquire any Real Property.

 

(b)  Section 3.16(b) of the Disclosure Schedule (i) contains
a true and complete list of all Contracts with respect to the lease, use or
occupancy (together with any amendments, modifications or supplements thereto,
collectively, the “Leases”) of the Leased Real Property, (ii) lists
the street address of each parcel of Leased Real Property, the identity of the
lessor and lessee and all current occupants (if different from the lessee) of
each such parcel of Leased Real Property and (iii) describes the amount
and kind of space occupied by the Companies or the Company Subsidiaries at each
Leased Real Property.  With respect to
each Lease, except as set forth in Section 3.16(b) of the Disclosure
Schedule, (A) each Lease is a valid and subsisting agreement in full force
and effect and constitutes a valid and binding obligation of, and is legally
enforceable against, the Company party thereto (and to the Knowledge of the
Seller, the other party or parties thereto), (B) neither the Companies nor
the Company Subsidiaries have received any written notice from the other party
to such Lease of the termination thereof, of any outstanding work orders,
deficiency notices or other non-compliance issues relating to the Leased Real
Property or of any potential or proposed expropriation of any Leased Real
Property, (C) there is no default of any material term of any Lease or
event which, with the giving of notice or lapse of time or both, would constitute
a default of any material term of any Lease by the Company party thereto (or,
to the Knowledge of the Seller, on the part of any other party thereto), (D) the
Company party to each Lease has a valid leasehold interest in the applicable
Leased Real Property and (E) the current uses of the Leased Real Property
are permitted under the applicable Leases. 
Except as set forth on Section 3.16(b) of the Disclosure
Schedule, the Seller has heretofore provided to the Purchasers complete and
correct copies of all of such Leases and none of the Companies or the Company
Subsidiaries has assigned or subleased any of its interests in respect of any
Lease.  Copies of Leases marked with an
asterisk (*) in Section 3.16(b) of the Disclosure Schedule have not
been delivered to the Purchasers by the Seller.

 

(c)  Except as disclosed in Section 3.16(c)(i) of the
Disclosure Schedule and except for obsolete assets and assets disposed of
in the ordinary course of business consistent with past practice, since the
date of the Balance Sheet, each of the Companies and the Company Subsidiaries
has (or at Closing will have) good and valid title to the equipment and other
tangible personal property, and all other tangible assets reflected in the Balance
Sheet as being owned by it, free and clear of all Encumbrances, other than
Permitted Encumbrances.  Except as
disclosed in Section 3.16(c)(ii) of the Disclosure Schedule, each of the Companies and the
Company Subsidiaries has (or at Closing will have) good and valid title to the
leasehold estate pertaining to the equipment and tangible personal property
purported to be granted by the capitalized leases reflected in the Balance
Sheet, if any.

 

27

 

SECTION 3.17.  Employee
Benefit Matters.  (a)  Section 3.17(a) of
the Disclosure Schedule contains a true and complete list of each “employee
benefit plan” (within the meaning of Section 3(3) of ERISA), and all
equity compensation, stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation, supplemental retirement, pension, profit sharing,
retirement, thrift, savings, cafeteria, vacation, termination, retention,
medical or other welfare benefit and all other material employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in
the future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or
not, under which (x) any current or former employee, officer, contractor,
consultant or director of either of the Companies or any of the Company
Subsidiaries (the “Company Employees”) has any present or future right
to benefits which are contributed to, sponsored by or maintained by the Seller,
any of its Affiliates, either of the Companies or any of the Company
Subsidiaries or (y) either of the Companies or any of the Company
Subsidiaries has any present or future liability and all equity awards,
including stock options, restricted stock, restricted stock units, phantom
stock and stock appreciation rights, granted by the Seller, any of its
Affiliates, either of the Companies or any of the Company Subsidiaries in
securities of the Seller or any of its Affiliates to any Company
Employees.  All such plans, agreements,
programs, policies, awards and arrangements shall be collectively referred to
as “Employee Plans.”  Each Employee
Plan that is sponsored or maintained by either of the Companies or any of the
Company Subsidiaries (rather than by the Seller or any of its Affiliates (other
than the Companies and the Company Subsidiaries)) is designated with an
asterisk (*) on Section 3.17(a) of the Disclosure Schedule (each
such Employee Plan, a “Company Sponsored Plan”).  Each of the Company Sponsored Plans is either
a Bonus Plan or a Foreign Benefit Plan.

 

(b)  Except as set forth in Section 3.17(b) of the
Disclosure Schedule, no Employee Plan is maintained outside the jurisdiction of
the United States, or covers any employee residing or working outside the
United States (any such Employee Plans set forth in Section 3.17(b) of
the Disclosure Schedule, collectively, “Foreign Benefit Plans”).  With respect to any Foreign Benefit Plans,
without limiting the generality of any other provision of this Agreement, (i) all
Foreign Benefit Plans have been established, maintained, invested and
administered in compliance in all material respects with their terms and all
applicable Laws of any controlling Governmental Authority, (ii) all
Foreign Benefit Plans which are Company Sponsored Plans that are required to be
funded are fully funded based on reasonable actuarial assumptions disclosed in
the most recent actuarial reports filed with applicable Governmental
Authorities (where required) and applicable Law on a solvency and a
going-concern basis, and with respect to all other Foreign Benefit Plans which
are Company Sponsored Plans, adequate reserves therefor have been established
on the accounting statements of the applicable Company or Company Subsidiary
where such reserve is required, (iii) no material liability or obligation
of either of the Companies or any of the Company Subsidiaries exists with
respect to such Foreign Benefit Plans that has 

 

28

 

not been
disclosed in Section 3.17(b)(iii) of the Disclosure Schedule, (iv) no
Foreign Benefit Plan is a plan to which more than one employer makes contributions
or is under any obligation to make contributions (other than plans where all
such employers are Affiliates), (v) where any Foreign Benefit Plan which is a Company Sponsored
Plan that is a pension plan registered under the Income Tax Act (Canada) has
been partially or fully wound-up, all assets, including any surplus,
attributable to such partial or full wind-up have been fully distributed in
accordance with all applicable Laws or where such distribution of assets is pending, the amount of the
surplus attributable to such partial or full wind-up together with the date as
of which such amount is determined is disclosed in Section 3.17(b)(v) of
the Disclosure Schedule, (vi) any payments, distributions or withdrawals
from or transfers of assets to or from any Foreign Benefit Plan which is a
Company Sponsored Plan have been made in accordance with the terms of such
Foreign Benefit Plan and all applicable Laws and occurred with the consent of
any applicable Governmental Authority (where required), (vii) no event has
occurred and no condition or circumstance exists respecting any Foreign Benefit
Plan which is a Company Sponsored Plan that is a pension plan registered under
the Income Tax Act (Canada) which would entitle any Person (without the consent
of the Company or any of the Company Subsidiaries) to wind-up or terminate any
Foreign Benefit Plan, in whole or in part, or have its registration under
applicable Laws refused or revoked or being placed under the administration of
any Governmental Authority or other Person and (viii) no Foreign Benefit
Plan is a non-pension post-retirement benefit plan, except in each case as
otherwise disclosed in Section 3.17(b) of the Disclosure Schedule.

 

(c)  None of the Employee Plans is a “multiemployer plan” as
defined in Section 3(37) of ERISA or under other applicable Law and
neither the Seller, any of its Affiliates, the Companies, the Company
Subsidiaries or any members of their respective “Controlled Groups” (defined as
any organization which is a member of a controlled group of organizations
within the meaning of Sections 414(b), (c), (m) or (o) of the
Code) has at any time within the past six years sponsored or contributed to, or
has or had any liability or obligation (other than with respect to
contributions that have been finally paid) in respect of, any multiemployer
plan.

 

(d)  All Employee Plans have been established, maintained and
administered in all material respects in accordance with their terms and in
compliance in all material respects with the requirements prescribed by
applicable Law, including ERISA, the Code and other applicable Laws, orders or
governmental rules or regulations, and the Seller, the Companies and the
Company Subsidiaries have performed in all material respects all obligations
required to be performed by them under, and are not in any material respect in
default under or in violation of, any of the Employee Plans.

 

(e)  Each Employee Plan and corresponding trust intended to be
qualified under Sections 401(a) and 501(a) of the Code is so qualified
and has received a favorable determination letter from the IRS (or an
application is pending) as to its qualification, and, nothing has occurred that
would reasonably be expected to cause 

 

29

 

any such
Employee Plan or trust to fail to qualify under Section 401(a) or 501(a) of
the Code.

 

(f)  Neither the Seller, the Companies, the Company Subsidiaries
nor the members of their respective Controlled Groups has incurred any
liability to the Pension Benefit Guaranty Corporation (other than for premiums)
that remains unsatisfied.

 

(g)  With respect to each Employee Plan which is a Company
Sponsored Plan, the Seller has provided or made available to the Purchasers a
current, accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable:  (i) any related trust agreement, other
funding instrument, insurance Contract or policy, (ii) the most recent
determination letter, if applicable, (iii) any summary plan description
and other written communications (or a description of any oral communications)
by the Seller, any of its Affiliates, either of the Companies or any of the
Company Subsidiaries to the Company Employees concerning the extent of the benefits
provided under an Employee Plan, (iv)  for the most recent year (A) the
Form 5500 and attached schedules, (B) audited financial statements
and (C) actuarial valuation reports, (v) with respect to the Foreign
Benefit Plans, all annual information returns or other returns filed with, and
significant correspondence with, any Governmental Authority within the last
3 years, (vi) a complete and accurate list of all Company Employees
participating in any equity or equity-based plan and all outstanding awards
thereunder and (vii) a complete and accurate list of all Company Employees
participating in any non-qualified or unregistered retirement plan of either of
the Companies or any of the Company Subsidiaries and the amount of each Company
Employee’s benefit thereunder.  With
respect to each Employee Plan which is not a Company Sponsored Plan, the Seller
has provided or made available to the Purchasers a current, accurate and
complete copy (or, to the extent no such copy exists, an accurate description)
thereof and, to the extent applicable:  (x) the
most recent determination letter, if applicable, (y) any summary plan
description and other material written communications (or a description of any
oral communications) by the Seller, any of its Affiliates, either of the
Companies or any of the Company Subsidiaries to the Company Employees
concerning the extent of the benefits provided under an Employee Plan and (z) a
complete and accurate list of all Company Employees participating in any equity
or equity-based plan and all outstanding awards thereunder (and estimated
valuations thereof).

 

(h)  No event has occurred and no condition exists that could
reasonably be expected to subject the Seller, any of its Affiliates, either of
the Companies or any of the Company Subsidiaries by reason of their affiliation
with any member of their Controlled Group, to any Tax, fine, lien, penalty or
other liability imposed by ERISA, the Code or other applicable Laws.  No Employee Plan provides retiree welfare
benefits and neither of the Companies nor any of the Company Subsidiaries has
any obligation to provide any retiree welfare benefits other than as required
by Section 4980B of the Code. 
Neither the Seller, any of its Affiliates, the Companies, the Company
Subsidiaries nor any member of their respective Controlled Groups has 

 

30

 

engaged in, or
is a successor or parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4204 of ERISA.  No “reportable event” (as such term is
defined in Section 4043 of ERISA) that has not been waived or could
reasonably be expected to result in material liability, no non-exempt “prohibited
transaction” (as such term is defined in Section 406 of ERISA and Section 4975
of the Code), “accumulated funding deficiency” (as such term is defined in Section 302
of ERISA and Section 412 of the Code (whether or not waived)) or failure
to satisfy the minimum funding standard (within the meaning of Section 412
of the Code or Section 302 of ERISA) has occurred with respect to any
Employee Plan.  No Employee Plan has
been, or is expected to be, in “at risk” status (as defined in Section 303(i)(4) or
Section 430(i)(4) of the Code).

 

(i)  With respect to any Employee Plan which is a Company
Sponsored Plan, (i) no actions, suits or claims (other than routine claims
for benefits in the ordinary course) are pending or threatened, (ii) no
facts or circumstances exist that could give rise to any such actions, suits or
claims, (iii) no written or oral communication has been received from the
Pension Benefit Guaranty Corporation (the “PBGC”) in respect of any
Employee Plan subject to Title IV of ERISA concerning the funded status of
any such plan or any transfer of assets and liabilities from any such plan in
connection with the transactions contemplated herein and (iv) no
administrative investigation, audit or other administrative proceeding by the
Department of Labor, the PBGC, the IRS or other Governmental Authorities are
pending, threatened or in progress (including any routine requests for
information from the PBGC).

 

(j)  Except as set forth in Section 3.17(j) of the
Disclosure Schedule, no Employee Plan exists that could result in the payment
to any Company Employee of any money or other property (including severance
benefits) or accelerate or provide any other rights or benefits to any Company
Employee as a result of the transactions contemplated by this Agreement
(including any “stay” bonuses payable in connection therewith).  There is no contract, plan or arrangement
(written or otherwise) covering any Company Employee that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.

 

(k)  Each individual who renders services to either of the
Companies or any of the Company Subsidiaries who is classified as having the
status of an independent contractor or other non-employee status for any
purpose (including for purposes of taxation and Tax reporting and under
Employee Plans) is properly so characterized.

 

(l)  All contributions, premiums and other amounts required to be
paid under the Employee Plans which are Company Sponsored Plans or by
applicable Law have been paid on a timely basis in accordance with such
applicable Law and the terms of such Employee Plans.  Except as fully accrued or reserved against
on the Financial Statements or required to be accrued or reserved thereafter in
the ordinary course of business consistent with past practice in an amount that
could not reasonably be expected to be material to the Companies and the
Company Subsidiaries taken as a whole, there are no unfunded liabilities with
respect to any Company Sponsored Plan.

 

31

 

(m)  Section 3.17(m) of the Disclosure Schedule contains a true and complete list (i) of
all current directors and officers of each of the Companies and the Company
Subsidiaries and (ii) of all current employees engaged solely in the
Business, whether or not employed by either of the Companies (the “Business
Employees”), other than the Full Time Reps and, for each such Business
Employee, such Business Employee’s title, date of hire, employer, current base salary or hourly rate of
pay, bonus to be paid for the most recent completed fiscal year and most recent raise and fiscal year
2009 base salary.  The Companies
maintain in their books and records, for all current Business Employees other
than Full-Time Reps which are subject to Section 3.17(n), such Business
Employees’ name, address, work location and bonus target for the current fiscal
year.  As of the Closing Date, the
Affected Employees will (A) be employed by the Companies or the Company
Subsidiaries, and (B) be the only individuals employed by the Companies
and the Company Subsidiaries.  The
Business Employees constitute all of the employees reasonably necessary to
conduct the Business in substantially the same manner as conducted by the
Seller on the date hereof.

 

(n)  (i) Except as set forth on Section 3.17(n)(i)(A) of
the Disclosure Schedule, all of the sales representatives of the Business are
full time employees of the Companies (“Full Time Reps”).  Section 3.17(n)(i)(B) of the
Disclosure Schedule contains a true and complete list of all of the Full
Time Reps, and each such Full Time Rep’s title, date of hire, state or province
where he or she resides, current base salary or hourly rate of pay, bonus
actually paid for the most recent completed fiscal year, commission income for
the most recently completed fiscal year and Net Account Billings for the each
of the fiscal years ended June 30, 2007 and June 30, 2008.  For purposes of this Section 3.17(n), “Net
Account Billings” as defined for the U.S. Business means, with respect to
any Person, for any period, actual net commissionable sales (actual invoiced
sales currently outstanding less than 180 days and actual sales invoiced and
paid within 180 days from invoice) from all sales of products of the Companies
and the Company Subsidiaries generated by such Person during such period.  The Companies and the Company Subsidiaries
maintain in their books and records, for each Full Time Rep, such Full Time Rep’s
name, address, phone number, work location, territory covered, benefits in
kind, most recent raise and type of contract such Full Time Rep is subject to
(if any) (i.e., fixed-term, indefinite term,
part-time, full time).  For purposes of
this Section 3.17(n), “Net Account Billings” as defined for the QSP
Canada Business means, with respect to any Person, for any period, actual
invoiced sales from all sales of products generated by such Person during such
period.

 

(ii) Except as set forth in Section 3.17(n)(ii) of the
Disclosure Schedule, each Full Time Rep is party to the standard sales
representative agreement (which includes non-competition obligations upon the
Full Time Rep party thereto), a true and correct copy of which has been
provided to the Purchasers.

 

(iii) Except as otherwise disclosed in Section 3.17(n)(iii) of
the Disclosure Schedule, no Full Time Rep has given written or, to the
Knowledge of the Seller, oral notice of its intent to change status from
full-time to part-time or terminate its 

 

32

 

relationship
with the Companies or any of the Company Subsidiaries and Section 3.17(n)(iii) of
the Disclosure Schedule sets forth the effective date of any such termination
or reduction.

 

(o)  All current assessments under applicable Laws regarding
workers’ compensation in relation to the Companies and the Company Subsidiaries
have been paid or accrued and the Companies and the Company Subsidiaries have
not been or are not subject to any additional or penalty assessment under such
Laws which has not been paid.

 

(p)  Except
as disclosed in Section 3.17(p) of
the Disclosure Schedule, the Companies
and the Company Subsidiaries have no formal plan and have made no promise or
commitment, whether legally binding or not, to create any additional Employee
Plan or to improve or change the benefits in any material respects provided
under any such Employee Plan.

 

(q)  All
employee data necessary to administer each Company Sponsored Plan is in the
possession of the Companies or the Company Subsidiaries and is in a form which
is sufficient for the proper administration of the Company Sponsored Plan in
accordance with its terms and all Laws and such data is complete and correct.

 

(r)  All Employee Plans have been operated and maintained in good
faith compliance with Section 409A of the Code and the guidance promulgated
thereunder since January 1, 2005.

 

SECTION 3.18.  Labor
Matters.  Neither of the Companies
nor any of the Company Subsidiaries is a party to any effective collective
bargaining or other labor contract or convention, subject to any legal duty to
bargain with any labor organization on behalf of employees or operating under
an expired collective bargaining or other labor contract or convention.  Except as set forth on Section 3.18 of
the Disclosure Schedule, the Companies and the Company Subsidiaries are in compliance
in all material respects with all applicable Laws, Contracts and policies
relating to employment, employment practices, wages, hours and terms and
conditions of employment, including human rights, pay equity, employment
standards, immigration, labor relations, occupational health and safety,
workers’ compensation and the obligations of the Worker Adjustment and
Retraining Notification Act of 1988, as amended (“WARN”), and all other
notification obligations arising under any applicable Law or otherwise.  There are currently no (a) unfair labor
practice complaints or other labor controversies pending, or, to the Knowledge
of the Seller, threatened, against either of the Companies or any of the
Company Subsidiaries which could reasonably be expected to result in a material
Liability, (b) current or, to the Knowledge of the Seller, threatened
activities or proceedings to organize any unorganized employees of either of
the Companies or any of the Company Subsidiaries for the purpose of authorizing
representation of such employees by any labor organization or any such similar
group, nor have there been any within the past three years, or (c) strikes,
slowdowns, work stoppages, lockouts, or threats 

 

33

 

thereof, by or
with respect to either of the Companies or any of the Company
Subsidiaries.  None of the Companies nor
any of the Company Subsidiaries is delinquent in payments to any of its
employees or consultants for any wages, salaries, commissions, bonuses,
benefits or other compensation for any services or otherwise arising under any
policy, practice, Contract, plan, program or Law.  There is no pending or, to the Knowledge of
the Seller, threatened Action, unfair labor practice charge or other charge or
inquiry against either of the Companies or any of the Company Subsidiaries
brought by or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of such Company or Company
Subsidiary’s employee, or other individual or any Governmental Authority with
respect to employment or employment practices brought by or before any
Governmental Authority.

 

SECTION 3.19.  Taxes. 
Except as set forth in Section 3.19 of the Disclosure Schedule:

 

(a)  All income, franchise and other material Tax Returns required
to be filed by or with respect to the Companies and the Company Subsidiaries
have been timely filed, and all such Tax Returns are complete and correct in
all material respects.  The Companies and
the Company Subsidiaries have timely paid in full all income, franchise and
other material Taxes due and payable, including all installments on account of
Taxes for the current year that are due and payable, whether or not shown on
such Tax Returns, or have made adequate provision for all Taxes on the latest
balance sheet included in the Financial Statements.  No waivers of statutes of limitations with
respect to income, franchise and other material Tax Returns have been given by
or with respect to any of the Companies or Company Subsidiaries.

 

(b)  There are no Tax liens upon any of the assets or properties
of the Companies or the Company Subsidiaries, other than with respect to Taxes
not yet due and payable.

 

(c)  No examination or audit of any Tax Return relating to any
income, franchise or other material Taxes of the Companies or the Company
Subsidiaries or with respect to any income, franchise or other material Taxes
due from or with respect to the Companies or the Company Subsidiaries by any
Governmental Authority is currently in progress or, to the Knowledge of the
Seller, threatened or contemplated.  No
assessment of a material amount of Tax has been proposed in writing against the
Companies or the Company Subsidiaries or any of their respective assets or
properties.  There are no outstanding
agreements, waivers or arrangements extending the statutory period of
limitation applicable to any claim for, or the period for the collection or
assessment of, Taxes due from or with respect to the Companies or the Company Subsidiaries
for any taxable period.

 

(d)  No power of attorney granted by or with respect to the
Companies or the Company Subsidiaries relating to material Taxes is currently
in force.  No closing agreement pursuant
to Section 7121 of the Code (or any similar provision of any state,
provincial, local or foreign law) has been entered into by or with respect to
the 

 

34

 

Companies or
the Company Subsidiaries with respect to material Taxes.  The Seller has delivered or made available to
the Purchasers for inspection (i) complete and correct copies of all
income Tax Returns for the fiscal years ended June 30, 2002 through June 30,
2007 and (ii) complete and correct copies of all private letter rulings,
revenue agent reports, closing agreements, settlement agreements, deficiency
notices and any similar documents submitted by, received by or agreed to by or
on behalf of the Companies or the Company Subsidiaries and relating to material
Taxes for such taxable periods in each case, to the extent principally related
to either Company or any Company Subsidiary.

 

(e)  Neither of the Companies nor any of the Company Subsidiaries (i) is
or has ever been a member of an affiliated group of corporations filing a
consolidated federal income Tax Return (other than the group to which they are
currently members and the common parent of which is the Seller), or (ii) has
any liability for the Taxes of any Person (other than the group to which they
are currently members and the common parent of which is the Seller) under
Treasury Regulations Section 1.1502-6 (or any similar provision of any
state, local, or foreign Law), as a transferee or successor, by contract, or
otherwise.

 

(f)  The Companies and the Company Subsidiaries have duly and
timely withheld from employee salaries, wages and other compensation and paid
over to the appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods under all applicable Laws and
regulations.

 

(g)  The Companies and the Company Subsidiaries have collected all
material amounts of sales and use Taxes required to be collected, and have
remitted, or will remit on a timely basis, such amounts to the appropriate
Governmental Authorities, or have been furnished properly completed exemption
certificates and have maintained all such records and supporting documents in
the manner required by all applicable sales and use Tax statutes and
regulations in all material respects.

 

(h)  Neither of the Companies nor any of the Company Subsidiaries
is a party to, or bound by, or has any obligation under, any Tax allocation,
Tax indemnity or Tax sharing Contract or similar Contract or arrangement or any
agreement that obligates it to make any payment computed by reference to the
income, franchise or other material Taxes, taxable income or taxable losses of
any other Person.

 

(i)  Neither of the Companies nor any of the Company Subsidiaries
will be required to include any material item of income in, or exclude any
material item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any (i) change
in method of accounting for a taxable period ending on or prior to the Closing
Date, (ii) “closing agreement” as described in Section 7121 of the
Code (or any corresponding or similar provision of state or local income Tax
Law) executed on or prior to the Closing Date, (iii) intercompany
transactions or any excess loss account described in Treasury Regulations under
Section 1502 of the Code (or any corresponding or similar provision of
foreign, state or local income Tax Law), (iv) installment sale or open 

 

35

 

transaction
disposition made on or prior to the Closing Date, or (v) prepaid amount
received on or prior to the Closing Date.

 

(j)  Neither of the Companies nor any of the Company Subsidiaries
has been either a “distributing corporation” or a “controlled corporation” in a
distribution which the parties to such distribution treated the distribution as
one to which Section 355 of the Code is applicable.

 

(k)  Neither of the Companies nor any of the Company Subsidiaries
has been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code.

 

(l)  None of the Canadian QSP Companies is a passive foreign
investment company as defined under Sections 1291 and 1298 of the Code and
none of the Canadian QSP Companies has recognized a material amount of Subpart
F income as defined in Section 952 of the Code during the portion of the
Straddle Period ending on the Closing Date.

 

(m)  Neither of the Companies nor any of the Company Subsidiaries
has engaged in any reportable transaction as defined in Treasury Regulation Section 1.6011-4(b).

 

(n)  Neither of the Companies nor any of the Company Subsidiaries
has elected the method of accounting described in Section 455 of the Code
(or any similar provision of state, local or foreign Law).

 

(o)  Except pursuant to this Agreement, for purposes of the Income
Tax Act (Canada) or any other applicable Tax statute, no Person or group of
Persons has or had the right to acquire control of QSP Canada or the Canadian
QSP Companies.

 

(p)  None of sections 78, 80, 80.01, 80.02, 80.03 or 80.04 of the
Income Tax Act (Canada), or any equivalent provision of the Tax legislation of
any Canadian province or any Governmental Authority, have applied, nor will
they apply, to QSP Canada or the Canadian QSP Companies at any time up to and
including the Closing Date.

 

(q)  None of QSP Canada or the Canadian QSP Companies have
acquired property from a non-arm’s length Person, within the meaning of the
Income Tax Act (Canada), for consideration, the value of which is less than the
fair market value of the property acquired in circumstances which could subject
it to a liability under section 160 of the Income Tax Act (Canada).

 

(r)  For all transactions between QSP Canada or the Canadian QSP
Companies and any Person not resident in Canada with whom QSP Canada or the
Canadian QSP Companies was not dealing at arm’s length during a taxation year
commencing after 1998 and ending on or before the Closing Date, QSP Canada and
the Canadian QSP 

 

36

 

Companies have
made or obtained records or documents that meet the requirements of paragraphs
247(3) and (4) of the Income Tax Act (Canada).

 

(s)  QSP Canada and the Canadian QSP Companies are duly registered
under subdivision (d) of Division V of Part IX of the Excise Tax Act
(Canada) with respect to the goods and services Tax and harmonized sales Tax
and under Division I of Chapter VIII of Title I of the Quebec Sales Tax Act
with respect to the Quebec sales Tax and the registration numbers of each of
them are set forth on Section 3.19(s) of the Disclosure Schedule.

 

(t)  The only reserves under the Income Tax Act (Canada) or any
equivalent provincial or territorial statute to be claimed by QSP Canada and
the Canadian QSP Companies for the taxation year ended immediately prior to the
acquisition of control by the CA Purchaser are disclosed in Section 3.19(t) of
the Disclosure Schedule.

 

(u)  The Shares of QSP are not “taxable Canadian property” for
purposes of the Income Tax Act (Canada) or   “taxable
Quebec property” for purposes of Title III of the Taxation Act (Quebec).

 

(v)  The Reader’s Digest Association (Canada) ULC is not a
non-resident of Canada for purposes of the Income Tax Act (Canada).

 

(w)  A section 338(h)(10) Election may be made in relation to
QSP and each of the Company Subsidiaries directly or indirectly owned by QSP (provided
that the US Purchaser would otherwise be able to make a Section 338(h)(10) Election
in relation to the same).

 

SECTION 3.20.  Material Contracts.  (a)  Section 3.20(a) of the
Disclosure Schedule lists each of the following Contracts to which (x) either
of the Companies or any of the Company Subsidiaries is a party or by which any
of their respective properties or rights are bound or (y) the Seller or
any of its Affiliates (other than the Companies or the Company Subsidiaries) is
bound on behalf of or for the benefit of the Companies or the Company
Subsidiaries or otherwise material to the Business (other than Contracts of
general applicability to Affiliates of the Seller), in each case as of the date
hereof (other than in the case of purchase orders, which shall be as of July 31,
2008) (such Contracts being “Material Contracts”):

 

(i) all Contracts (other than Contracts with publishers) involving
payments in fiscal year 2008, or which, to the Knowledge of the Seller, are
reasonably likely to involve payments in fiscal year 2009, of $150,000 or more,
or $375,000 or more in the aggregate over the remaining term of the Contract
and, in each case, which are not otherwise required to be disclosed pursuant to
this Section 3.20;

 

(ii) all Contracts (other than Contracts with publishers) which
would be reasonably likely to result in the Companies or the Company
Subsidiaries (or the Seller or its Affiliates (solely with respect to their
conduct of the operations of the Business)) receiving consideration in fiscal
year 2008, or to the Knowledge of the Seller, are reasonably likely to result
in the Companies or the Company Subsidiaries (or the Seller or its Affiliates
(solely with respect to their conduct of 

 

37

 

the operations
of the Business)) receiving consideration in fiscal year 2009, of $150,000 or
more;

 

(iii) all Contracts relating to Indebtedness, other than
Indebtedness that shall be cancelled, discharged or released in full prior to
the Closing;

 

(iv) all Contracts between either of the Companies or any of the
Company Subsidiaries, on the one hand, and the Seller or any Affiliate of the
Seller (other than a Company or a Company Subsidiary), on the other hand, other
than those that shall be cancelled or terminated at or prior to Closing or
those that are expressly contemplated to be entered into in connection with
this Agreement;

 

(v) all Contracts (other than Contracts with publishers) relating
to (i) trademarks, service marks, trade names, corporate names, brand
names, logos, trade dress, domain names and other source indicators (and
goodwill related thereto) used or licensed to or by the Companies or the Company
Subsidiaries (excluding licenses by the Seller of Intellectual Property, other
than Intellectual Property owned by or registered in the name of any Company or
Company Subsidiary, to third parties other than in connection with the Business
and immaterial licenses ancillary to the subject matter of the Contract), (ii) Software
used or licensed to or by the Companies or the Company Subsidiaries in the
conduct of the Business and involving annual consideration in excess of $50,000
or any non-annual payments in excess of $150,000 and (iii) other
Intellectual Property licensed or used in the conduct of the Business
involving, in the case of this clause (iii), aggregate annual
consideration in excess of $150,000 or any non-annual payments in excess of
$375,000;

 

(vi) all Contracts for the acquisition of the capital stock or
business of any Person, or of assets or properties involving aggregate
consideration in excess of $375,000, by either of the Companies or any of the
Company Subsidiaries, under which any of the Companies or Company Subsidiaries
has significant continuing obligations or rights (other than confidentiality or
indemnification obligations in effect for more than 36 months as of the date
hereof and with no claims made thereunder during such period), other than
purchases of inventory and office equipment and supplies in the ordinary course
of business;

 

(vii) all Contracts for the disposition of any capital stock or
business of, or assets or properties of, either of the Companies or any of the
Company Subsidiaries to any Person involving aggregate consideration in excess
of $375,000, under which any of the Companies or Company Subsidiaries has
significant continuing obligations or rights (other than confidentiality or
indemnification obligations in existence for more than 36 months as of the
date hereof and with no claims made thereunder during such period), other than
the disposition of inventory and obsolete or excess equipment sold or disposed
of in the ordinary course of business;

 

38

 

(viii) all Contracts not otherwise covered in this Section 3.20
providing for indemnification of any Person other than indemnification in the
ordinary course of business;

 

(ix) any partnership, joint venture, limited liability company,
shareholders agreement or other similar Contract;

 

(x) all Contracts containing terms which impose (i) non-competition
obligations upon the Companies or the Company Subsidiaries, or with respect to
the Business, the Seller or its Affiliates, or (ii) exclusivity
obligations or limitations in any geographic area or during any period of time,
but excluding (x) Contracts that will not be applicable to the Companies
or the Company Subsidiaries after the Closing and (y) Contracts with sales
representatives and Full Time Reps entered into in the ordinary course of
business;

 

(xi) all guarantees or other similar undertakings with respect to
contractual performance (including Indebtedness) extended by either of the
Companies or any of the Company Subsidiaries;

 

(xii) all Contracts that are material to the conduct of the Business
and pursuant to which a right to termination exists or a change in terms occurs
upon a change of control of the Companies; and

 

(xiii) all Contracts, authorizations or other arrangements (including
remit arrangements) with any publisher which (a) have terms which extend
past June 30, 2009 or (b) contain terms with respect to remit
arrangements, offers, featuring, advertising, duration or exclusivity which
deviate in any material respect from the terms of the Contracts, authorizations
or other arrangements with such publisher with respect to the Fall 2008 selling
campaign.

 

True and complete copies of all
Material Contracts have been delivered to the Purchasers by the Seller (other
than those marked with an asterisk (*) in Section 3.20 of the Disclosure
Schedule, for which true and accurate summaries have been delivered to the
Purchasers by the Seller).  Section 3.20(a) of
the Disclosure Schedule separately sets forth a true and complete list of all
Contracts that (x) would purport to impose a financial obligation on the
Purchasers or any of their Affiliates (other than the Companies and the Company
Subsidiaries) following the consummation of the transactions contemplated by
this Agreement, or (y) by their terms would restrict the Purchasers or any
of their Affiliates (other than the Companies and the Company Subsidiaries)
from engaging in any line of business in any geographic area following the
consummation of the transactions contemplated by this Agreement.

 

(b)  Each Material Contract is a valid and binding obligation of
the Company or Company Subsidiary party thereto and, to the Knowledge of the
Seller, of each other party thereto, and is enforceable, in all material
respects, in accordance with its terms, against such Company or Company
Subsidiary and, to the Knowledge of the Seller, against each other party
thereto.  Neither of the Companies nor
any of the Company Subsidiaries is and, to the Knowledge of the Seller, except
as set forth on

 

39

 

Section 3.20(b) of
the Disclosure Schedule, no other party is, in material default under, or in
material breach or violation of, any Material Contract (or, as of the Closing Date, any Contract entered into
following the date hereof and prior to the Closing that would be a Material
Contract or a Contract described in the last sentence of Section 3.20(a) if
it had been in effect on the date hereof) and, to the Knowledge of
the Seller, no event has occurred which, with the giving of notice or lapse of
time or both, would constitute such a material default, breach or violation.

 

SECTION 3.21.  Insurance.  Section 3.21 of the Disclosure
Schedule sets forth a description of all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, consultants, officers and directors of either of the Companies or
any of the Company Subsidiaries.  There
is no material claim by either of the Companies or any of the Company
Subsidiaries pending under any of such policies or bonds as to which coverage
has been denied or disputed by the underwriters of such policies or bonds.  All premiums payable under all such policies
and bonds have been paid and the Companies and the Company Subsidiaries are
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance
coverage).  To the Knowledge of the
Seller, there is not any threatened termination of or material premium increase
with respect to any of such policies or bonds.

 

SECTION 3.22.  Bank Accounts.  Section 3.22 of the Disclosure
Schedule sets forth by account the name of each bank, address, account
number, type of account and signatory parties for each bank account of the
Companies and the Company Subsidiaries.

 

SECTION 3.23.  Sufficiency of Assets.

 

(a) 
The assets reflected on the 2008 Financial Statements (together with the assets
to be transferred to the Companies in connection with the Pre-Closing Transfers
and the services contemplated by the Ancillary Agreements, but excluding any
assets to be transferred from the Companies in connection with the Pre-Closing
Transfers) are sufficient in all respects to enable the Companies and the
Company Subsidiaries to conduct or operate the Business, in all material
respects, as it is conducted as of the date hereof.

 

(b) 
As of the Closing Date (and after giving effect to the Pre-Closing Transfers),
all assets required or necessary to conduct or operate the Business, in all
material respects, as it was conducted during the period covered by the 2008
Financial Statements will be owned or held by the Companies and the Company
Subsidiaries or made available to the Companies and the Company Subsidiaries
pursuant to the Ancillary Agreements.

 

SECTION 3.24.  Receivables.  The accounts receivable on the Balance Sheet
arose in bona fide arms-length transactions for cash and exclude receivables
(other than those receivables set forth in Section 8.02(f) of the
Disclosure Schedule) generated in transactions between either of the Companies
or any of the Company Subsidiaries, on the one hand, and the Seller or its
Affiliates (excluding the Companies and Company Subsidiaries), on the other 

 

40

 

hand, and such receivables,
together with the related reserves for bad debt specifically set forth on such
Balance Sheet, have been calculated in accordance with GAAP applied on a
consistent basis with the past practices of the Companies.  Since the date of the Balance Sheet, there have
not been any write-offs as uncollectible of, or any increases in reserves with
respect to, any customer accounts receivable of the Companies or the Company
Subsidiaries, except for write-offs in the ordinary course of business of the
Companies consistent with past practice in amounts that are not materially
inconsistent with write-offs taken in prior periods.  The accounts receivable of the Companies and
the Company Subsidiaries represent valid and binding obligations.

 

SECTION 3.25.  Transactions with Affiliates and Related
Parties.  Except (a) as
disclosed in Section 3.25 of the Disclosure Schedule or (b) as
contemplated in Section 5.08 in connection with the Pre-Closing Transfers,
there are no existing, and since June 30, 2007, there has been no, Contract,
transaction, Indebtedness or other arrangement (“Affiliate Arrangements”),
or any related series thereof, between either of the Companies or any of the
Company Subsidiaries, on the one hand, and any of the directors or officers of
the Companies or the Company Subsidiaries or their family members or the Seller
or any of its Affiliates or any of their respective directors or officers or
their family members, on the other hand (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses in the ordinary
course of business consistent with past practice).  Except as set forth on Section 8.02(f) of
the Disclosure Schedule and except for the transactions contemplated by this
Agreement or any of the Ancillary Agreements, prior to the Closing, all such
Affiliate Arrangements shall be terminated (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses consistent with
past practice) without any liability or obligation of the applicable Company or
Company Subsidiary.  None of the Seller
nor any of its Affiliates (other than the Companies and the Company
Subsidiaries) nor any of their respective directors or officers or their family
members (i) owns or has any interest in any property (real or personal,
tangible or intangible), Intellectual Property, Contract or other material
asset used in or pertaining to the Business or (ii) has any claim or cause
of action against either of the Companies or any of the Company Subsidiaries.

 

SECTION 3.26.  Magazine Circulation/Distribution/Audit
Bureau of Circulations Compliance.  (a) 
The Companies’ and the Company Subsidiaries’ revenue from the sale of magazine
subscriptions through non-Affiliate distributors in each of the fiscal years
ended June 30, 2006 through June 30, 2008 has not exceeded 2% of
their total magazine revenue for such year. 
Section 3.26(a)(i) of the Disclosure Schedule sets forth a
true and complete list of all non-Affiliate distributors through which the
Companies or the Company Subsidiaries have sold magazine subscriptions from July 1,
2005 through June 30, 2008.  Section 3.26(a)(ii) of
the Disclosure Schedule sets forth the total sales by quantity and dollar
amount of magazines (broken down into Time Inc. magazines, Reader’s Digest magazines
and all other magazines) for each of the fiscal years ended June 30, 2006
through June 30, 2008.

 

(b) 
Except as set forth in Section 3.26(b)(i) of the Disclosure Schedule,
since July 1, 2006, the Companies and the Company Subsidiaries and, with
respect to the Business, the Seller and its Affiliates, have each been in
material compliance with all policies, rules and regulations of the Audit
Bureau of Circulations (“ABC”) and BPA 

 

41

 

Worldwide (“BPA”).  During 2006, the Companies had a series of
communications with ABC whereby ABC affirmed that the selling and collection
practices of the Companies and the Company Subsidiaries result in the
classification of magazine subscriptions as “individual net paid circulation”
for purposes of the rules and regulations of ABC (the “Approved
Practices”).  The Companies and
Company Subsidiaries maintain the Approved Practices and retain all material
information necessary with respect to sales of magazine subscriptions to permit
ABC and BPA to conduct audits in accordance with ABC’s and BPA’s requirements,
respectively.  Except as set forth in Section 3.26(b)(ii) of
the Disclosure Schedule, there are no audits, inquiries or investigations by
ABC or BPA pending, or to the Knowledge of the Seller, threatened or imminent,
and neither the Seller, its Affiliates, the Companies nor any of the Company
Subsidiaries has received any written or, to the Knowledge of the Seller, oral
communication from ABC or BPA that alleges any discrepancies with any audit
relating to the Business or that either of the Companies or any of the Company
Subsidiaries is not in compliance with the policies, rules or regulations
of ABC or BPA with respect to the Business.

 

(c) 
Each of the Companies and the Company Subsidiaries does not, and after the
Closing will not be obligated to, provide subscription clearing services for
non-Affiliate subscription entities.

 

SECTION 3.27.  Products and Inventory.   Except as set forth in Section 3.27 of
the Disclosure Schedule, since July 1, 2005, neither of the Companies nor
any of the Company Subsidiaries has, and, with respect to the Business, none of
the Seller or any of its Affiliates has, received any written notice or, to the
Knowledge of the Seller, any oral notice, relating to any claim involving use
of or exposure to any of the products (or any part or component thereof) sold
or services performed by the Business or either of the Companies or any of the
Company Subsidiaries, including for negligence, strict liability, design or
manufacturing defect, conspiracy, failure to warn, breach of express or implied
warranties of merchantability or fitness for any purpose or use, or from any
alleged breach of implied warranties or representations or any alleged noncompliance
with any applicable Laws pertaining to products liability matters, other than
non-recurring claims, events and complaints that are addressed by manufacturers
or suppliers to the Companies and the Company Subsidiaries.

 

SECTION 3.28.  Product Sales.

 

(a) 
Section 3.28(a) of the Disclosure Schedule sets forth for each of the
calendar years ended December 31, 2006 and 2007 and for the six-month
period ended June 30, 2008, (i) the total purchases and total sales
by volume by or on behalf of the Companies and their Affiliates (broken down by
channels of distribution (as described below)) of products (“WFC Products”)
supplied by WFC or its Affiliates, successors or predecessors and (ii) the
reconciliation of minimum tonnage commitments under the WFC Agreement and
resulting surplus or shortfall along with associated minimum tonnage commitment
penalty payment due to WFC or its Affiliates. 
Section 3.28(a) of the Disclosure Schedule also sets forth the
total sales (by volume) of WFC Products by or on behalf of the Companies and
their Affiliates for the Fall 2007 selling campaign.  For purposes hereof, the “channels of 

 

42

 

distribution” are U.S. field
sales (through the regular food program and gift program, each broken out), EFR
sales, Canadian sales and other fundraising channels not described in the
foregoing and sales outside the fundraising channel.

 

(b) 
Section 3.28(b) of the Disclosure Schedule sets forth, as of June 30,
2008, a true and correct schedule of all WFC Products in inventory broken down
by item number and indicates the month of expiration and the weight and the
cost with respect to each such product.

 

(c) 
Section 3.28(c) of the Disclosure Schedule sets forth, from January 1,
2008 through June 30, 2008, the net purchases in tonnage of WFC Products
under the WFC Agreement.  The aggregate
amount of net purchases of WFC Products made by the Companies and the Company
Subsidiaries for the period from July 1, 2008 through the Closing Date
will on the Closing Date be as set forth on a certification of QSP (the “WFC
Certificate”) delivered to the Purchasers on the Closing Date.

 

SECTION 3.29.  Remits; Publisher Arrangements.  (a)  Section 3.29(a) of the
Disclosure Schedule sets forth for each of the fiscal years ended June 30,
2006 through June 30, 2008, (i) the average percentage remit or other
monies paid to publishers and distributors for each of the following product
lines of the Business (and for each subcategory): (A) (1) magazines
sold through the Business’ operations in the United States (broken down into
Time Inc. magazines, Reader’s Digest magazines and all other magazines sold
through the United States “magazine music book” program (the “US MMB Program”),
magazines sold through the gift program and magazines sold through EFR
entities), (2) magazines sold by Fundraising Organizations in Canada, (B) books
and (C) music by the Seller, its Affiliates, the Companies and the Company
Subsidiaries, (ii) the actual remits or other monies paid by the Companies
or the Company Subsidiaries or otherwise in connection with the US MMB Program
(broken down into Time Inc. magazines, Reader’s Digest magazines and all other
magazines), magazines sold through the gift program and magazines sold through
EFR entities, (iii) the sales volume of each publication owned by the
Seller and its Affiliates (through the Companies and the Company Subsidiaries)
in the United States and (iv) the total number of magazine subscriptions
sold through the Companies and the Company Subsidiaries.  The Companies and the Company Subsidiaries
have not entered into any agreements or arrangements regarding pricing or remit
with magazine publishers for the fiscal year ending June 30, 2009 that,
assuming the mix and volume of magazine purchases was the same as it were for
the fiscal year ending June 30, 2008, would materially affect remits paid
as a percentage of gross revenue in the fiscal year ending June 30, 2009.

 

(b) 
Section 3.29(b) of the Disclosure Schedule sets forth Promotional
Privilege Commitments of the Business in the United States for each of the
fiscal years ended June 30, 2006 through June 30, 2008, broken down
into Time Inc. magazines, Reader’s Digest magazines, certain other major
publishing companies (as indicated in the schedule) and all other
magazines.  The terms of the Promotional
Privilege Commitments of the Business for the period commencing on the date
hereof and ending on June 30, 2009 are, in the aggregate, substantially
similar to such prior periods, and there are no Promotional Privilege
Commitments of the Business 

 

43

 

extending past June 30,
2009, except as described in Section 3.29(b) of the Disclosure
Schedule.

 

“Promotional Privilege Commitments”
means any Contracts between the Seller, any of its Affiliates, either of the
Companies or any of the Company Subsidiaries, on the one hand, and any third
party, on the other hand, pursuant to which any of the Seller, any of its
Affiliates, either of the Companies or any of the Company Subsidiaries has
committed any advertising or promotional privilege, including commitments
regarding the placement or cost of advertising.

 

SECTION 3.30.  Customers.  (a)  Section 3.30(a) of the
Disclosure Schedule sets forth the average Remuneration Rate of Customers
and the average Retention Rate of magazine Customers for each of the three
fiscal years ended June 30, 2006 through June 30, 2008.

 

(b)  Section 3.30(b) of
the Disclosure Schedule sets forth, subject to the qualifications and disclaimers
set forth therein, certain estimates made in good faith by QSP based on the
Program Agreements in QSP’s possession relating to Fall 2008, for Customers who
were Customers in Fall 2007 (“Retained Customers”).

 

(c)  Section 3.30(c) of
the Disclosure Schedule sets forth, subject to the qualifications and
disclaimers set forth therein, certain estimates made in good faith by QSP
based on the Program Agreements in QSP’s possession relating to Fall 2008, for
Customers who were not Customers in Fall 2007 (“New Customers”).

 

(d)  The Companies
maintain in their books and records the name, address, phone number, contact
person and Net Account Billings for each Customer in a readily accessible,
centralized format.

 

For purposes of this Section 3.30:

 

“Customer” means any school, group,
institution, organization or other Person to whom or to which either of the
Companies, any of the Company Subsidiaries, the Seller or any of its Affiliates
sells any products of the Business.

 

“Net Account Billings” means, with
respect to any Person for any period, actual invoiced amounts from all sales of
all products of the Companies and the Company Subsidiaries generated by such
Person during such period reduced by the aggregate amount of (i) invoiced
sales previously generated by such Person relating to products returned during
such period and (ii) accounts receivable from previously invoiced sales
that are more than 180 days past due on the last day of such period.

 

“Remuneration Rate” means the
percentage of Net Account Billings from the Companies retained by Customers.

 

“Retention Rate” means the percentage
of Customers for one period who were customers in the prior period.

 

44

 

SECTION 3.31.  Certain Business Practices.  To the Knowledge of the Seller, no payment of
money, loan, gift or anything of value has been offered, promised, paid or
given, directly or indirectly, by either of the Companies or any of the Company
Subsidiaries or any of their respective directors, officers, employees,
consultants or agents, to or for the use of any foreign official, foreign
political party or official thereof, or any candidate for foreign political
office, for the purpose of (a) influencing any act or decision of such
foreign official, political party, party official or candidate in his or its
capacity, (b) inducing such foreign official, political party, party
official or candidate in his or its official capacity to do or omit to do any
act in violation of the lawful duty of such official, political party, party
official or candidate, (c) securing improper advantage or (d) inducing
any such foreign official, political party, party official or candidate to use
his or its influence with a foreign Governmental Authority to affect or
influence any act or decision of such Governmental Authority, in order to
assist the Companies, any of the Company Subsidiaries or, with respect to the
Companies, the Company Subsidiaries or the Business, the Seller or its
Affiliates, in any manner.

 

For purposes of this Section 3.31:

 

“foreign official” means any officer
or employee of a Governmental Authority other than the United States
Government, or any department, agency or instrumentality thereof, or of a
public international organization, or any Person acting in an official capacity
for or on behalf of any such foreign Governmental Authority, or for or on
behalf of any such public international organization; and

 

“public international organization”
means an organization designated by executive order pursuant to the International
Organization Immunities Act (22 U.S.C. 288), the Foreign Corrupt Practices Act
(15 U.S.C. 78dd-1) or the Corruption of Foreign Public Officials Act (Canada).

 

SECTION 3.32.  Brokers.  No broker, finder or investment banker or
similar agent is entitled to any brokerage, investment banking, consulting or
finder’s or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
either of the Companies, any of the Company Subsidiaries, the Seller or any of
their Affiliates.

 

SECTION 3.33.  Residence.  The subsidiary of the Seller that owns the
QSP Canada Shares and that will sell such shares pursuant to this Agreement is
not a non-resident of Canada for purposes of the Income Tax Act (Canada).

 

SECTION 3.34. 
Competition Act (Canada).  For the purposes of determining the
application of the pre-merger filing requirements of the Competition Act
(Canada), the aggregate value of the assets in Canada being acquired and the
gross revenues from sales in and from Canada generated from the assets in
Canada being acquired, determined in each case as prescribed in the Competition
Act (Canada), are less than CDN$50 million and CDN$50 million, respectively.

 

45

 

SECTION 3.35.  Activities of QSP Canada and EFR.  (a)  QSP Canada is currently engaged in a fundraising business which
facilitates the marketing of magazines and books by schools and youth groups,
fundraising or charitable or not-for-profit institutions or organizations
(collectively, “Fundraising Organizations”) in Canada.  This activity involves (i) entering into
contracts with publishers pursuant to which QSP Canada agrees to advertise the
publishers’ magazines and books in its catalog and to remit to the publishers a
percentage of the revenues generated from the sales of magazines and books made
by the Fundraising Organizations, and the publishers agree to be exclusively
responsible for order fulfillment and for delivery of any magazines or books
sold; (ii) entering into agreements with Fundraising Organizations
pursuant to which the Fundraising Organizations agree to solicit and make sales
of the magazines and books contained in the QSP Canada catalog, in exchange for
a percentage of the sales revenues generated by the Fundraising Organizations;
and (iii) forwarding orders for magazines and books generated by such
Fundraising Organizations to such publishers. 
The respective roles of QSP Canada, the publishers and the Fundraising
Organizations in this activity have not materially changed since July, 1995,
being the date when Reader’s Digest Association (Canada) Ltd. acquired the
interest in QSP Canada previously held by Maclean Hunter Ltd.

 

(b) 
EFR engages in a fundraising business which facilitates the marketing of
products which are principally non-publishing products primarily in the United
States and, to a de minimus extent, in Canada. 
From time to time, EFR facilitates the marketing of magazines published
in the United States.

 

(c) 
As of the Closing Date, neither QSP Canada
nor EFR (to the extent any of the following is applicable to the business
activities of EFR) will (i) take or hold title to or in any magazine or
book that is the subject of its fundraising activities; (ii) transfer
title to subscribers or buyers of any of the magazines or books that are the
subject of such fundraising activities; (iii) take physical possession of
any of the magazines or books that are the subject of such fundraising
activities; (iv) deliver, or arrange for the delivery of, any of the
magazines or books that are the subject of such fundraising activities; (v) take
financial responsibility for any failure by a publisher to deliver any
magazines or books sold by a Fundraising Organization, or for any defects or
problems with the quality of a magazine or book (except that QSP Canada may
reimburse a purchaser in such circumstances, subject to receiving an indemnity
from the publisher); (vi) publish any magazines or books; (vii) represent
itself as the publisher or seller of any of the magazines or books that are the
subject of such fundraising activities; or (viii) produce, distribute or
sell, in Canada, any books,  periodicals,
magazines, newspapers, film or video recordings, audio or video music recordings
or print music.

 

(d) 
Notwithstanding
any other terms hereof including the definition of “Business” in Section 1.01,
the description of the activities and the nature of the businesses of QSP
Canada and EFR as set forth in this Section 3.35 are accurate, true and
complete as they relate to any activities of the QSP Canada or EFR,
respectively, involving magazines, books, periodicals, newspapers, film, video,
radio, music and broadcast activities.

 

46

 

(e) 
No Company or
Company Subsidiary other than QSP Canada or EFR conducts any business or
operations in Canada.

 

SECTION 3.36.  No Other Representations or Warranties;
Schedules.  EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE III (AS MODIFIED
BY THE DISCLOSURE SCHEDULE, AS UPDATED IN ACCORDANCE WITH SECTION 5.12)
AND IN THE ANCILLARY AGREEMENTS, NEITHER THE SELLER NOR ANY OTHER PERSON MAKES
ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT THE
COMPANIES, THE COMPANY SUBSIDIARIES, THE BUSINESS OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, AND THE SELLER DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES, WHETHER MADE BY THE SELLER OR ANY OF ITS
AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES.  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS ARTICLE III (AS MODIFIED BY THE DISCLOSURE SCHEDULE, AS
UPDATED IN ACCORDANCE WITH SECTION 5.12) OR IN THE ANCILLARY AGREEMENTS,
THE SELLER HEREBY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY
REPRESENTATION, WARRANTY, PROJECTION, FORECAST, STATEMENT OR INFORMATION MADE,
COMMUNICATED, OR FURNISHED (ORALLY OR IN WRITING) TO THE PURCHASERS OR THEIR
AFFILIATES OR REPRESENTATIVES (INCLUDING ANY OPINION, INFORMATION, PROJECTION
OR ADVICE THAT MAY HAVE BEEN OR MAY BE PROVIDED TO THE PURCHASERS BY
ANY DIRECTOR, OFFICER, EMPLOYEE, AGENT, CONSULTANT OR REPRESENTATIVE OF THE
SELLER OR ANY OF ITS AFFILIATES).  THE
SELLER MAKES NO REPRESENTATIONS OR WARRANTIES TO THE PURCHASERS REGARDING THE
PROBABLE SUCCESS OR PROFITABILITY OF THE COMPANIES OR THE COMPANY SUBSIDIARIES.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

OF THE PURCHASERS

 

Each Purchaser hereby
represents and warrants to the Seller, jointly and severally, as of the date of
this Agreement and as of the Closing Date, as follows:

 

SECTION 4.01.  Organization and Authority of the
Purchasers.  The US Purchaser is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and the CA Purchaser is an Alberta
unlimited liability corporation duly organized, validly existing and in good
standing under the laws of Alberta, Canada, and each Purchaser has all
necessary power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby.  Each Purchaser is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the properties owned or leased by it or the operation of its business
makes such licensing or qualification necessary, except to the extent that the
failure to be so licensed, qualified or in good standing would not reasonably
be expected to materially and adversely 

 

47

 

affect the ability of such Purchaser to carry out its obligations
under, and to consummate the transactions contemplated by, this Agreement and
the Ancillary Agreements to which it is a party.  The execution and delivery by each Purchaser
of this Agreement and the Ancillary Agreements to which it is a party, the
performance by each Purchaser of its obligations hereunder and thereunder and
the consummation by each Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action on the part
of such Purchaser.  This Agreement has
been, and upon their execution the Ancillary Agreements to which it is a party
shall have been, duly executed and delivered by each Purchaser, and (assuming
due authorization, execution and delivery by the Seller or its Affiliates, as
applicable) this Agreement constitutes, and upon their execution the Ancillary
Agreements to which it is a party shall constitute, legal, valid and binding
obligations of such Purchaser, enforceable against such Purchaser in accordance
with their respective terms.

 

SECTION 4.02.  No Conflict.  Assuming compliance with the notification and
waiting period requirements of the HSR Act, the post-Closing notification
requirements of the Investment Canada Act and the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 4.03, the execution, delivery and performance by
each Purchaser of this Agreement and the Ancillary Agreements to which it is a
party or the consummation of the transactions contemplated hereby and thereby
by each Purchaser do not and will not (a) violate, conflict with or result
in the breach of any provision of the certificate of incorporation or bylaws
(or comparable constitutive documents) of such Purchaser, (b) conflict
with or violate in any material respect any Law or Governmental Order
applicable to such Purchaser or its assets, properties or businesses, (c) conflict
with, result in any material breach of, constitute a material default (or event
which with the giving of notice or lapse of time, or both, would become a
material default) under, require any consent under, or give to others any rights
of termination, amendment, acceleration or cancellation or increased,
additional or accelerated or guaranteed rights or entitlements of any Person
under, any Contract to which such Purchaser is a party or (d) result in
the creation of any Encumbrance upon the business, properties or assets of such
Purchaser except, in the case of each of clauses (b), (c) and (d), as
would not reasonably be expected to materially and adversely affect the ability
of such Purchaser to carry out its obligations under, and to consummate the
transactions contemplated by, this Agreement and the Ancillary Agreements to
which it is a party.

 

SECTION 4.03.  Governmental Consents and Approvals.  The execution, delivery and performance by
each Purchaser of this Agreement and each Ancillary Agreement to which it is a
party do not and will not require any consent, approval, authorization or other
order of, action by, filing with or notification to, any Governmental
Authority, except (a) the notification and waiting period requirements of
the HSR Act, (b) the post-Closing notification requirements of the
Investment Canada Act and (c) where failure to obtain such consent,
approval, authorization or action, or to make such filing or notification,
would not prevent the consummation by such Purchaser of the transactions
contemplated by this Agreement and the Ancillary Agreements.

 

SECTION 4.04.  Litigation.  As of the date hereof, no material Action by
or against either Purchaser is pending or, to the Knowledge of the Purchasers,
threatened, which would affect the legality, validity or enforceability of this
Agreement, any Ancillary Agreement or the consummation of the transactions
contemplated hereby or thereby.

 

48

 

SECTION 4.05.  Brokers.  No broker, finder or investment banker or
similar agent is entitled to any brokerage, investment banking, consulting or
finder’s or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Purchasers.

 

SECTION 4.06.  Investment Intention.  The Purchasers are acquiring the Shares for
their own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act
of 1933, as amended (the “Securities Act”)) thereof.  The Purchasers understand that the Shares
have not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such registration
is available.

 

SECTION 4.07.  Seller’s Representations.  The Purchasers acknowledge and agree that,
except as set forth in Article III (as modified by the Disclosure
Schedule) or in any Ancillary Agreement, the Seller has made no other representations
or warranties, express or implied, oral or written, in connection with the
transactions contemplated hereby, and the Purchasers acknowledge and agree
that, except for such representations and warranties contained therein or as
otherwise expressly provided by this Agreement, the Shares and the assets and
the business of the Companies and the Company Subsidiaries are being
transferred on a “where is” and, as to condition, “as is” basis.  Any claims the Purchasers may have for breach
of representation or warranty shall be based solely on the representations and
warranties of the Seller set forth in Article III (as modified by the
Disclosure Schedule) or in any Ancillary Agreement.  The Purchasers further acknowledge that
neither the Seller nor any of its Affiliates nor any other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Companies or any of the Companies
Subsidiaries, the Business or the transactions contemplated by this Agreement
not expressly set forth in this Agreement or in an Ancillary Agreement, and
none of the Seller, any of its Affiliates or any other Person will have or be
subject to any liability to the Purchasers or any of their Affiliates resulting
from the distribution to the Purchasers or their representatives or the
Purchasers’ use of, any such information, including any memoranda or materials
distributed on behalf of the Seller relating to the Companies or any of the
Company Subsidiaries or other publications or data room information provided to
the Purchasers or their representatives, or any other document or information
in any form provided to the Purchasers or their representatives in connection
with the sale of the Companies and the Company Subsidiaries and the
transactions contemplated hereby, in each case other than for fraud.  Accordingly, the Purchasers represent and
warrant that they are relying on no representations, warranties or disclosures
by the Seller, any of its Affiliates or any other Person as an inducement to
enter into this Agreement or to consummate the transactions contemplated
herein, other than as provided in Article III (as modified by the
Disclosure Schedule) or in the Ancillary Agreements.

 

ARTICLE V

 

ADDITIONAL AGREEMENTS

 

Each
of the parties acknowledges and agrees that, except with respect to the
covenants contained in Sections 5.06 and 5.08, nothing in this Article V
shall be deemed to require from the Seller, or restrict or limit the Seller
from taking, any action or failing to take any 

 

49

 

action
solely with respect to any of the assets, properties or liabilities to be
transferred to the Seller in connection with the Pre-Closing Transfers.

 

SECTION 5.01.  Conduct of Business Prior to the Closing.  The Seller covenants and agrees that, except
as expressly contemplated herein or described in Section 5.01 of the
Disclosure Schedule, and except as required by applicable Law, between the date
hereof and the Closing, the Seller shall cause each of the Companies and the
Company Subsidiaries to (i) conduct the Business in the ordinary course
(including with respect to marketing, promotions, capital expenditures and
inventory levels) consistent with past practice, (ii) pay and discharge
the debts and liabilities of such Company or Company Subsidiary as they become
due, (iii) maintain in full force and effect all insurance covering the
assets, business, equipment, properties, operations, employees, consultants,
officers and directors of the Companies and the Company Subsidiaries, (iv) manage
working capital in the ordinary course of business consistent with past
practice, including with respect to generation and collection of payables and
receivables, and (v) use its commercially reasonable efforts to preserve
in all material respects and consistent with past practices, the Business,
including its relationships with employees, customers, suppliers, licensors,
creditors and distributors.  Except as described
in Section 5.01 of the Disclosure Schedule or as required by applicable
Law, the Seller covenants and agrees that, between the date hereof and the
Closing, without the prior written consent of the Purchasers, each of the
Companies and the Company Subsidiaries will not and, with respect to the
Companies, the Company Subsidiaries or the Business, the Seller and its
Affiliates will not:

 

(a) 
(i) issue or sell any capital stock, notes, bonds or other securities of
such Company or Company Subsidiary (or any option, warrant or other right to acquire
the same), (ii) redeem any of the capital stock of such Company or Company
Subsidiary or (iii) declare, set aside, make or pay any non-cash dividends
or distributions to the holders of capital stock of such Company or Company
Subsidiary or declare any cash dividend or distribution payable after the
Closing;

 

(b) 
amend or restate any of the Charter Documents (or similar organizational
documents of any Company Subsidiary);

 

(c)  incur, assume, guarantee
or otherwise become liable for any Indebtedness (other than Indebtedness
incurred in the ordinary course of business which shall be discharged or from
which the Company and the Company Subsidiaries will be released at or prior to
Closing);

 

(d) 
subject any of the Assets to any Encumbrance, other than Permitted Encumbrances
or Encumbrances to be discharged at Closing;

 

(e) 
(i) increase the compensation or fringe benefits of any Business Employee
(except for increases in salary or wages in the ordinary course of business
consistent with past practice (and not in excess of 3% per annum, in the
aggregate) or the payment of accrued or earned but unpaid bonuses), (ii) hire
any new employee with an annualized salary in excess of $150,000, (iii) grant
or increase any severance or termination pay to any present or former Company
Employee (except, in the case of grants and payments, for grants or payments in
the ordinary course of business 

 

50

 

consistent with past
practice pursuant to severance plans of the Seller, the Companies or the
Company Subsidiaries existing as of the date hereof), (iv) loan or advance
any money or other property to any Business Employee other than commission and
promotion advances to sales representatives in the ordinary course of business pursuant
to the 12-Pay Program, (v) change any commission or incentive structure
for inside or outside sales personnel, (vi) change the status of any
Business Employee from Business Employee to independent contractor or other
non-employee status or the status of any independent contractor or non-employee
to Business Employee, (vii) establish, adopt, enter into, amend or
terminate (or grant any waiver or consent under) any Employee Plan or any plan,
agreement, program, policy, trust, fund or other arrangement that would be an
Employee Plan if it were in existence as of the date of this Agreement, other
than Employee Plans applicable or to be applicable to the employees of the
Seller and its Affiliates generally, or (viii) grant any equity or
equity-based awards with respect to the capital stock of any of the Companies
or the Company Subsidiaries;

 

(f) 
transfer to the Companies or the Company Subsidiaries any employee or
independent contractor of the Seller or its Affiliates from another division or
line of business of the Seller or its Affiliates, or transfer any Business
Employee from the Companies or the Company Subsidiaries to another subsidiary,
division or line of business of the Seller or its Affiliates;

 

(g) 
for financial accounting purposes, change any method of accounting or
accounting practice or policy used by such Company or Company Subsidiary, other
than such changes required by GAAP, or change the fiscal year of such Company
or Company Subsidiary;

 

(h) 
enter into, terminate or materially amend or modify, or assign, any Lease with
respect to any Leased Real Property (other than termination of any existing
warehouse Leases and replacement thereof (provided that any such
replacement is on terms not materially less favorable, taken as a whole, than the
Lease being replaced));

 

(i) 
compromise or settle any Action in a manner that would result in a restriction
on the business of such Company or Company Subsidiary or that would require any
payment subsequent to the Closing by such Company or Company Subsidiary, or
compromise or waive any material claims or rights of such Company or Company
Subsidiary other than any Retained Litigation (and consistent with the
provisions of Section 9.05(b));

 

(j) 
make, incur or commit to incur any capital expenditure, other than capital
expenditures not in excess of $75,000 in the aggregate;

 

(k) 
acquire or agree to acquire by merging or consolidating with, or by purchasing
all or substantially all of the assets or capital stock of, or by any other
manner, any other Person (or division thereof);

 

51

 

(l) 
subject to clause (m) below, other than short term purchase orders for
inventory in the ordinary course of business consistent with past practices, (i) enter
into or renew any Contract that would be a Material Contract or a Contract
described in the last sentence of Section 3.20(a) if it had been in
effect on the date hereof or (ii) amend, waive, terminate, cancel, fail to
renew or extend (in accordance with its terms contemplating a renewal or
extension) any provision of any Material Contract;

 

(m) 
renew any Material Contract described in Section 3.20(a)(xiii) or enter
into any Contract that would be a Material Contract described in Section 3.20(a)(xiii)
if it had been in effect on the date hereof;

 

(n) 
take any action (or omit to take any action) if such action (or omission) will
or is reasonably likely to result in any of the conditions to the obligation of
the Purchasers to consummate the transactions contemplated by this Agreement
set forth in Article VIII not being satisfied;

 

(o) 
sell, assign, lease, license, transfer or otherwise dispose of Assets having a
value of $50,000 in the aggregate, except the sale of inventory and obsolete or
excess equipment sold or disposed of in the ordinary course of business;

 

(p) 
make or change any material Tax election, change an annual accounting period,
adopt or change any accounting method with respect to material Taxes except as
may be required by applicable Law, enter into any Tax sharing Contract, Tax
indemnity or Tax allocation Contract, file any material amended Tax Return,
enter into any closing agreement, settle or compromise any proceeding with
respect to any material Tax claim or assessment relating to either of the Companies
or any of the Company Subsidiaries, surrender any right to claim a refund of
material Taxes, consent to any extension or waiver of the limitation period
applicable to any material Tax claim or assessment relating to either of the
Companies or any of the Company Subsidiaries;

 

(q) 
acquire, launch or discontinue any product line;

 

(r) 
pay, loan or advance any amount to, or sell, transfer or lease any Assets to,
the Seller or any of its Affiliates, except for (A) transactions among the
Companies and the Company Subsidiaries, (B) dividends and distributions
permitted under clause (a)(iii) above, (C) the Pre-Closing Transfers
and (D) intercompany transactions in the ordinary course of business; or

 

(s) 
authorize, commit or agree, whether in writing or otherwise, to take any of the
actions specified in Sections 5.01(a)-(r), except as expressly
contemplated by this Agreement and the Ancillary Agreements.

 

SECTION 5.02.  Access to Information.  (a)  From the date hereof until the
Closing, (i) upon reasonable notice, the Seller shall cause each of the
Companies and the Company Subsidiaries and their respective officers,
directors, employees and agents to afford the Purchasers and their authorized
representatives (including their accountants, counsel and financial advisors)
reasonable access to (A) the offices, executive officers and key personnel
who 

 

52

 

are identified on Schedule 1.01(b), properties and books and
records of such Company or Company Subsidiary and (B) upon reasonable
notice to, and approval (not to be unreasonably withheld) from, the Seller, the
Business Employees; provided, however, that, in each case, any
such access shall be conducted during normal business hours and in such a
manner as not to interfere, in any material respect, with the normal operations
of the Business, and (ii) the Seller shall furnish to the Purchasers
management reports regarding the Business (or copies thereof) to the extent
such reports are provided to management of the Companies or the Company
Subsidiaries in the ordinary course of business after the date hereof.

 

(b) 
For a period of seven years after the Closing (and for records relating to
Taxes, for a period that continues until the expiration of the relevant statute
of limitations) and for any reasonable additional time requested by the
Purchasers for a reasonable purpose, the Seller and its Affiliates shall (i) retain
the books and records relating to the Business and the Companies and the
Company Subsidiaries relating to periods prior to the Closing which shall not
otherwise have been delivered to the Purchasers or the applicable Company or
Company Subsidiary and (ii) upon reasonable notice, afford the officers,
employees, agents and representatives of the Purchasers reasonable access
(including the right to make, at the Purchasers’ expense, photocopies), during
normal business hours, to such books and records (other than books and records
the disclosure of which would waive any attorney-client or other privilege); provided,
however, that (x) any such access or furnishing of information
shall be conducted during normal business hours and in such a manner as not to
interfere, in any material respect, with the normal operations of the Seller’s
business and (y) the Seller may take appropriate measures to protect the
secrecy and confidentiality of information of the Seller that is not related to
the Business or the Companies or the Company Subsidiaries.

 

(c) 
For a period of seven years after the Closing (and for records relating to
Taxes, for a period that continues until the expiration of the relevant statute
of limitations) and for any reasonable additional time requested by the Seller
for a reasonable purpose, the Purchasers and their Affiliates (including, after
the Closing, the Companies and the Company Subsidiaries) shall (i) retain
the books and records relating to the Business and the Companies and the
Company Subsidiaries relating to periods prior to the Closing delivered to the
Purchasers or the applicable Company or Company Subsidiary and (ii) upon
reasonable notice, afford the officers, employees, agents and representatives
of the Seller reasonable access (including the right to make, at the Seller’s
expense, photocopies), during normal business hours, to such books and records
(other than books and records the disclosure of which would waive any
attorney-client or other privilege) solely for the purpose of defending or
asserting claims in connection with any Action (other than any Action against
the Purchasers or their Affiliates) or in connection with any filing with
(including normal forms and returns), or audit or other proceeding before, any
Tax, accounting or Governmental Authority; provided, however,
that (x) any such access or furnishing of information shall be conducted
during normal business hours and in such a manner as not to interfere, in any
material respect, with the normal operations of the Purchasers’ business and (y) the
Purchasers may take appropriate measures to protect the secrecy and
confidentiality of information of the Purchasers that is not related to the
Business 

 

53

 

or the Companies or the
Company Subsidiaries in respect of the Seller’s period of ownership thereof.

 

SECTION 5.03.  Confidentiality.  (a)  The terms of the letter agreement
dated as of April 17, 2008 (the “Confidentiality Agreement”)
between the Seller and Time Inc. are hereby incorporated herein by reference
and shall continue in full force and effect until the Closing, at which time
the obligations set forth in the Confidentiality Agreement to the extent
related to the non-disclosure of information relating to the Companies and the
Company Subsidiaries shall terminate.

 

(b) 
The Seller and its Affiliates shall not divulge, furnish or make available to
anyone (other than the Purchasers) any proprietary information of the Companies
and the Company Subsidiaries or related to the Business; provided that
the foregoing shall not restrict the Seller and its Affiliates from disclosing
information prior to the Closing in the ordinary course of business consistent
with past practice.  This Section 5.03(b) shall
not apply to any such proprietary information which (i) shall have entered
the public domain or become available through no breach of this Section 5.03(b) by
the Seller or any of its Affiliates, (ii) shall have become available to
the Seller or any of its Affiliates from a third party whom the Seller or such
Affiliate does not know is under a duty or obligation to any of the Seller, the
Companies, the Company Subsidiaries or the Purchasers to keep such proprietary
information confidential or (iii) shall be required by Law or the rules or
regulations of any stock exchange on which the securities of the disclosing
party or its Affiliates are traded to be disclosed, provided that the
Seller shall give prompt notice of such requirement to the Purchasers and
cooperate with the Purchasers, at the Purchasers’ sole cost and expense, as
reasonably requested to seek a protective order with respect to, or otherwise
prevent, the disclosure of such information.

 

SECTION 5.04.  Regulatory and Other Authorizations;
Notices and Consents.  (a)  The
Purchasers and the Seller agree to use their commercially reasonable best
efforts to promptly obtain all authorizations, consents, orders and approvals
of all Governmental Authorities set forth on Section 5.04 of the
Disclosure Schedule and will cooperate fully with each other in promptly
seeking to obtain all such authorizations, consents, orders and approvals.  In furtherance of the foregoing, each party
hereto agrees to make its respective filing pursuant to the HSR Act with
respect to the transactions contemplated by this Agreement as promptly as
practicable and, in any event, within three Business Days after the execution
of this Agreement, and to supply as promptly as practicable to the appropriate
Governmental Authorities any additional information and documentary material
that may be requested pursuant to the HSR Act.

 

(b) 
Each party shall promptly notify the other party of any communication it or any
of its Affiliates receives from any Governmental Authority relating to the
matters that are the subject of this Agreement and permit the other party to
review in advance any proposed communication by such party to any Governmental
Authority (other than any confidential business information of such party
included in a filing that is not required to be agreed upon by the Purchasers
and the Seller for purposes of the submission thereof).  Each party shall have the right to
participate in any meeting with any Governmental Authority relating to the
matters that are the subject of this

 

54

 

Agreement with the other
party’s prior consent (which consent shall not be unreasonably withheld) and to
the extent permitted by such Governmental Authority.  Each party will provide the other with copies
of all correspondence, filings or communications between them or any of their
representatives, on the one hand, and any Governmental Authority or members of
its staff, on the other hand, with respect to this Agreement and the
transactions contemplated by this Agreement (other than any confidential business
information of such party included in a filing that is not required to be
agreed upon by the Purchasers and the Seller for purposes of the submission
thereof), such correspondence, filings and communications to be subject to the
Confidentiality Agreement.

 

(c) 
Each of the Purchasers and the Seller shall use commercially reasonable best
efforts to take such action as may be required to cause the expiration of the
waiting period under the HSR Act with respect to the transactions contemplated
hereby as promptly as reasonably practicable after their respective filings
under the HSR Act.  Each of the
Purchasers and the Seller shall use commercially reasonable best efforts to
resolve such objections, if any, as may be asserted by any Governmental
Authority with respect to the transactions contemplated by this Agreement under
the HSR Act.

 

(d) 
Notwithstanding anything to the contrary contained in this Agreement (including
Section 5.04(a)-(c)), neither the Seller (with respect to itself or the
Companies, the Company Subsidiaries or the Business) nor the Purchasers or any
of their Affiliates shall be obligated to: (i) institute any Action, (ii) agree
to the imposition of limitations on the ability of either Purchaser or any
Affiliate of the Purchasers to hold, or exercise full rights of ownership of,
the Shares, the Business, the Companies and the Company Subsidiaries, (iii) agree
to prohibit either Purchaser or any of their Affiliates from effectively
controlling in any respect the Business or operations of the Companies and the
Company Subsidiaries, (iv) agree to any consent decree, divestiture, hold
separate order or comparable arrangement, or any sale, transfer, license,
divestiture or other disposition of any assets of either Purchaser, the
Companies or the Company Subsidiaries or any of their respective Affiliates, or
any limitation on either Purchaser’s acquisition, ownership, operation,
effective control or exercise of full rights of ownership, or the termination
or amendment of any existing relationships and contractual rights or (v) agree
or commit to any other limitation or restriction with respect to the Companies,
the Company Subsidiaries, the Business or the Purchasers or their Affiliates or
any of their respective businesses or operations.  In the event that the Purchasers grant such
written consent, the Seller shall cause the Companies to agree to the matters
as directed by the Purchasers (which agreement may be conditioned upon the
consummation of the Closing).

 

SECTION 5.05.  Notifications.  Until the Closing, each party hereto shall
promptly notify the other party in writing of any fact, change, condition,
circumstance or occurrence or nonoccurrence of any event of which it is aware
that will or is reasonably likely to result in any of the conditions set forth
in Article VIII of this Agreement becoming incapable of being satisfied; provided,
however, that the delivery of any notice pursuant to this Section 5.05

 

55

 

shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.

 

SECTION 5.06.  Further Action.  The parties hereto shall use commercially
reasonable efforts to take, or cause to be taken, all appropriate action, to do
or cause to be done all things necessary, proper or advisable under applicable
Law, and to execute and deliver such documents and other papers, as may be
required to carry out the provisions of this Agreement and consummate and make
effective the transactions contemplated by this Agreement.  From time to time after the Closing, at the
request of the Purchasers, the Seller will execute and deliver any further
instruments and take such other action as the Purchasers may reasonably request
to carry out the transactions contemplated hereby.

 

SECTION 5.07.  Insurance Matters.  The Seller or its Affiliates shall keep, or
cause to be kept, any insurance policies of the Seller or its Affiliates
(including the Company and the Company Subsidiaries) that cover any loss,
liability, claim, damage or expense relating to the Companies, the Company
Subsidiaries, the Assets or the Business (the “Subject Liabilities”), in
full force and effect through the close of business on the Closing Date.  Following the Closing, to the extent that (i) any
insurance policies owned or controlled by the Seller or any of its Affiliates
(other than the Company or any Company Subsidiary) (collectively, the “Seller’s
Insurance Policies”) cover any Subject Liabilities resulting from, arising
out of, based on or relating to, occurrences prior to the Closing and (ii) Seller’s
Insurance Policies permit claims to be made thereunder with respect to Subject
Liabilities resulting from, arising out of, based on or relating to,
occurrences prior to the Closing (the “Company Claims”), the Seller
shall cooperate and shall cause its Affiliates to cooperate with the Purchasers
or, as applicable, either Company or any Company Subsidiary, in submitting
Company Claims (or pursuing Company Claims previously made) on behalf of either
Purchaser, either Company or a Company Subsidiary, as applicable, under any
Seller’s Insurance Policies.

 

SECTION 5.08.  Pre-Closing Transfers.  At or prior to the Closing, the Seller (a) shall
cause the applicable Company or Company Subsidiary to assign, transfer, convey
and deliver all right, title and interest in and to the assets and liabilities
set forth in Section 5.08(a) of the Disclosure Schedule to an
Affiliate of the Seller (other than either Company or any Company Subsidiary), (b) shall
transfer to the payroll of either Company or a Company Subsidiary each Business
Employee that is not currently a Company Employee, which employees are set
forth in Section 5.08(b) of the Disclosure Schedule, (c) shall
transfer or shall cause the applicable Affiliate to transfer from the payroll
of either Company or any Company Subsidiary each Company Employee that is not
currently a Business Employee, which employees are set forth in Section 5.08(c) of
the Disclosure Schedule, (d) shall, or shall cause the applicable
Affiliate to, assign, transfer, convey and deliver all right, title and
interest in and to the assets and liabilities set forth in Section 5.08(d) of
the Disclosure Schedule to QSP or QSP Canada, as applicable, free and clear of
all Encumbrances, and (e) shall cause EFR to redeem or repurchase all
outstanding preference shares of EFR (the parties agreeing to act in good faith
such that the redemption or repurchase transactions are carried out in a manner
reasonably acceptable to each of the parties), each in a manner and pursuant to
documentation reasonably satisfactory to the Purchasers (collectively, the “Pre-Closing
Transfers”).

 

56

 

SECTION 5.09.  Exclusivity.  As an inducement to the Purchasers to enter
into this Agreement, and in consideration of the time and expense which they
have devoted and will devote to the transactions contemplated hereby during
such period, until the earlier of (i) the Closing Date and (ii) termination
of this Agreement in accordance with Section 10.01 hereof, the Seller
shall not, and the Seller shall cause its Affiliates, officers, directors,
employees, agents and representatives (including any investment banker,
attorney or accountant retained or acting on behalf of such party or any director,
officer or employee of such party) not to directly or indirectly (x) initiate,
solicit, encourage or entertain proposals, inquiries, indications of interest
or offers to purchase the Shares or the Business or all or substantially all of
the Assets (an “Acquisition Proposal”), or (y) enter into any
discussions, negotiations, agreements, arrangements or commitments with respect
to an Acquisition Proposal with any Person who has made an Acquisition
Proposal; provided, however, that the foregoing shall not restrict
the Seller from dispositions in the ordinary course of business of inventory
and obsolete or excess equipment.  The
Seller will immediately cease any existing discussions with any Persons
concerning any Acquisition Proposal.

 

SECTION 5.10.  Non-Competition/Non-Solicitation.  (a)  From the Closing Date until December 31,
2013 (the “Restricted Period”), the Seller shall not, and shall cause
its direct and indirect subsidiaries not to, directly or indirectly, engage in,
or acquire or hold any ownership interest in any other Person engaging in, the
ownership, management, operation or control of (or sharing of profits or
revenues in) any Competitive Business (the “Restricted Activities”) in
the United States, Canada or Mexico, or license or otherwise make available any
Seller Marks or other Business-related Intellectual Property to any Competitive
Business for a use substantially similar to the manner in which any such Seller
Marks or other Business-related Intellectual Property were used by the Companies
or the Company Subsidiaries in the 12 months prior to the Closing; provided,
however, that the foregoing shall not prevent the Seller or any of its
subsidiaries from allowing any third party to use any Seller Marks or other
Business-related Intellectual Property solely for purposes of the marketing,
selling and distributing by the Seller or any of its subsidiaries of any
products or services of the Seller or its subsidiaries to or through any third
party engaged in a Competitive Business.

 

(b) 
From the date hereof until the Closing, the Seller shall not, and shall cause
its direct and indirect subsidiaries not to, directly or indirectly, (i) solicit
for employment, hire or attempt to hire any Business Employee employed by
either Company or any Company Subsidiary or (ii) induce or otherwise
counsel, advise or encourage any Restricted Employee to leave the employment of
the applicable Company or Company Subsidiary, other than, in each case,
pursuant to the Pre-Closing Transfers as contemplated in Section 5.08.

 

(c) 
From the Closing until the end of the Restricted Period, the Seller shall not,
and shall cause its direct and indirect subsidiaries not to, directly or
indirectly, (i) solicit for employment, hire or attempt to hire (A) any
Business Employee or (B) any executive officer or key employee of either
Company or any Company Subsidiary, in the case of this clause (B),
regardless of whether such person is hired before or after the Closing
(collectively, “Restricted Employees”) or (ii) induce or otherwise
counsel, advise or encourage any Restricted Employee to leave the employment of
such Company or Company Subsidiary, as applicable; provided, 

 

57

 

however, that the
foregoing will not prohibit a general solicitation to the public through
general advertising not targeted at Restricted Employees; and provided, further,
however, that the foregoing shall not prohibit the solicitation or
hiring of any Restricted Employee that has ceased to be an employee of either
Company or any Company Subsidiary after the Closing for a period of not less
than four months, provided that the four-month waiting period shall not
apply to any Restricted Employee whose employment with the applicable Company
or Company Subsidiary is terminated without cause by such Company or Company
Subsidiary.

 

(d) 
For purposes of the covenants contained in this Section 5.10, the
Restricted Period with respect to any particular covenant shall be tolled
during any period of violation of such covenant by the Seller or its
Affiliates.

 

(e) 
In the event that any of the covenants contained in this Section 5.10
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too long a period of time or over too large a
geographical area or by reason of being too extensive in any other respect, the
covenants contained in this Section 5.10 shall be interpreted to extend
only over the longest period of time for which they may be enforceable, and/or
over the largest geographical area as to which they may be enforceable and/or
to the maximum extent in all other aspects as to which they may be enforceable,
all as determined by such court in such action.

 

(f) 
The restrictive covenants contained in this Section 5.10 are each
covenants independent of any other provision of this Agreement, and the
existence of any claim which a party may allege against any other party to this
Agreement, whether based on this Agreement or otherwise, shall not prevent the
enforcement of these covenants.  The
parties hereto agree that a breach by any other party hereto of this Section 5.10
may cause irreparable harm and that the remedies at law for any breach or
threat of breach of the provisions of this Section 5.10 may be inadequate,
and that such party shall be entitled to an injunction or injunctions to
prevent breaches of this Section 5.10 and to enforce specifically the
terms and provisions hereof, in addition to any other remedy to which such
party may be entitled at law.

 

(g) 
The Seller acknowledges that the covenants of the Seller set forth in this Section 5.10
are an essential element of this Agreement and that, but for the agreement of
the Seller to comply with these covenants, the Purchasers would not have
entered into this Agreement.  The Seller
has independently consulted with its counsel and after such consultation agrees
that the covenants set forth in this Section 5.10 are reasonable and
proper.

 

(h) 
The Purchasers and the Seller agree that no portion of the Purchase Price is
allocated to a restrictive covenant, as that expression is defined under
proposed section 56.4 of the Income Tax Act (Canada).  If any portion of the Purchase Price is
determined by the Canada Revenue Agency or a provincial Tax authority to be in
respect of such a restrictive covenant, then the parties agree to cooperate in
good faith, which cooperation shall include the making of appropriate Tax
elections under 

 

58

 

that proposed provision, to
achieve a Tax result that is efficient for each of them in the circumstances.

 

SECTION 5.11.  Guarantees.  (a)  The Seller shall use its
commercially reasonable efforts to obtain the release of each guarantee,
assurance, letter of credit, co-borrowing arrangement or similar obligation of
the Companies or the Company Subsidiaries for the benefit of the Seller or any
of its Affiliates (other than the Companies and the Company Subsidiaries) (the “Guarantees”)
on or prior to the Closing Date, including the Guarantees listed on Section 5.11(a) of
the Disclosure Schedule.  Such efforts
shall include offering its own guarantee in substitution for, and on at least
substantially the same terms of, any Guarantee. 
The Seller shall indemnify, defend and hold harmless the Purchasers and
their Affiliates (including, after the Closing, the Companies and the Company
Subsidiaries) against and reimburse the Purchasers and their Affiliates
(including, after the Closing, the Companies and the Company Subsidiaries) to
the extent any Guarantee is called upon and the Purchasers or any of their
Affiliates (including, after the Closing, the Companies and the Company
Subsidiaries) make any payment or are obligated to reimburse, in each case
after the Closing, the party issuing the Guarantee.

 

(b) 
The Purchasers shall use their commercially reasonable efforts to obtain the
release of each guarantee, assurance, letter of credit, co-borrowing
arrangement or similar obligation of the Seller for the benefit of the
Companies and the Company Subsidiaries listed on Section 5.11(b) of
the Disclosure Schedule (the “Seller Guarantees”) on or prior to the
Closing Date.  Such efforts shall include
offering their own guarantee in substitution for, and on at least substantially
the same terms of, any Seller Guarantee.  Except with respect to liabilities allocated
to the Seller pursuant to Section 5.13, the Purchasers shall indemnify,
defend and hold harmless the Seller and its Affiliates (other than the
Companies and the Company Subsidiaries) against and reimburse the Seller and
its Affiliates (other than the Companies and the Company Subsidiaries) to the
extent any Seller Guarantee is called upon and the Seller or any of its
Affiliates (other than the Companies and the Company Subsidiaries) makes any
payment or is obligated to reimburse, in each case after the Closing, the party
issuing the Seller Guarantee.

 

SECTION 5.12.  Updates to Disclosure Schedule.  The Seller may modify, change, update or
supplement the Disclosure Schedule by written delivery to the Purchasers
prior to the Closing Date for circumstances arising or events occurring after
the date hereof that are not in contravention of Section 5.01 (a “Disclosure
Schedule Update”).  Other than
any updates to any applicable subsection of Sections 3.17(m)(i), 3.17(m)(ii),
3.17(n)(i) and 3.17(n)(iii) of the Disclosure Schedule solely to
reflect (x) actions taken by the Seller subsequent to the date hereof as
permitted under Section 5.01 or (y) the voluntary resignation or
change in status from full-time to part-time of any employee or sales
representative subsequent to the date hereof, (a) (i) the conditions
to the Purchasers’ obligation to effect the Closing pursuant to Section 8.02,
(ii) the Purchasers’ right to terminate this Agreement pursuant to Section 10.01
and (iii) the Purchasers’ right to indemnification pursuant to
Sections 7.01 and 9.02 shall in no way be prejudiced by the delivery of
such Disclosure Schedule Update and (b) if the Purchasers and the
Seller thereafter close the transactions contemplated herein in accordance
herewith, the Disclosure 

 

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Schedule Update shall not modify the Disclosure Schedule or
the representations and warranties related thereto for purposes of the
Purchasers’ rights under Articles VII and IX.

 

SECTION 5.13.  WFC Purchases.  (a)  
The Purchasers shall be required to cause QSP to Purchase, in any
applicable period following the Closing Date, pursuant to and in accordance
with the terms of the Amended and Restated Master Relationship Agreement, dated
May 22, 2007, among QSP, the Seller, World’s Finest Chocolate, Inc. (“WFC”)
and certain of its Affiliates (the “WFC Agreement”), no more than an
aggregate amount of WFC Products (as defined in the WFC Agreement for purposes
of this Section 5.13) in calendar year 2008 equal to 1,500 tons, and an
aggregate amount of WFC Products in calendar year 2009 equal to 3,000 tons (provided
that, (i) in the event that any sales representatives are transferred from
QSP to WFC after June 30, 2008, then the tonnage amounts for calendar
years 2008 and 2009 set forth above shall each be reduced by the same amount as any reduction in the
Minimum Tonnage Volume Commitment (as defined in Section 2.6 of the WFC
Agreement) resulting from the transfer of such sales representatives, in
accordance with the terms of the WFC Agreement or as otherwise agreed to by
WFC, and (ii) the tonnage amount for calendar year 2008 set forth above
shall be reduced ton-for-ton by the amount of WFC Products Purchased by the
Companies and the Company Subsidiaries from June 30, 2008 through the
Closing Date) (such minimum amount for any period for the Purchasers, as
reduced in accordance with the foregoing proviso, the “Purchaser Minimum
Tonnage Commitment”).  With respect
to the amount of products to be Purchased thereunder, the Purchasers shall have
no liability pursuant to the WFC Agreement to purchase WFC Products in excess
of the Purchaser Minimum Tonnage Commitment, and any and all liabilities
arising under Section 2.6 of the WFC Agreement in respect of Purchase
requirements in excess of such Purchaser Minimum Tonnage Commitment shall be
directly paid by the Seller as provided below. 
In furtherance of the foregoing, the Seller shall pay to WFC on behalf
of QSP (or, in the case of Related Losses, to QSP), upon demand of QSP and
receipt of reasonable backup documentation (including invoices and reasonable
substantiation for the invoices), any and all penalties or Losses arising
solely from the Seller’s failure to pay such penalties or to any other action
or inaction on the Seller’s or its Affiliates’ part (such Losses, “Related
Losses”) that are imposed upon QSP or any of its Affiliates as a result of
any failure of QSP to Purchase an amount in excess of the Purchaser Minimum
Tonnage Commitment in calendar years 2008 and 2009 (“Seller’s Penalty
Commitment”).  Penalties resulting
from the failure of QSP to Purchase the Purchaser Minimum Tonnage Commitment
shall be paid by QSP directly to WFC. 
The Purchasers and the Seller acknowledge and agree that the Purchasers
may elect to, but shall not be obligated to, cause QSP to Purchase amounts of
WFC Products in excess of the Purchaser Minimum Tonnage Commitment in any
period, and that such Purchases shall correspondingly reduce Seller’s Penalty
Commitment.  For purposes of this
Section, “Purchase” shall mean all purchases of WFC Products by or on
behalf of the Companies and the Companies Subsidiaries in any particular
calendar year that count toward the Minimum Tonnage Volume Commitment for such
year, as determined in accordance with the terms of the WFC Agreement. For
purposes of clarity, returns of purchased WFC Products and samples purchased at
a discount during such calendar year are either deducted from, or not included
in, the determination of whether Minimum Tonnage Volume Commitment has been met
under the WFC Agreement, and accordingly shall not count toward the Purchaser
Minimum Tonnage Commitment.  In the event
that the Minimum Tonnage Volume Commitment is reduced in accordance with the
WFC Agreement as a result of events that occur after the Closing, such
reduction shall first reduce the calculation of the Purchaser Minimum Tonnage
Commitment for 

 

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the applicable year until fully satisfied and in the event of any
excess, shall then reduce Seller’s Penalty Commitment.

 

(b) 
QSP may not enter into any amendments to the WFC Agreement that increase in any
manner the liability of the Seller hereunder without the prior written consent
of the Seller, in its sole discretion. 
In addition, QSP shall use commercially reasonable efforts to contest
invoices as if the Purchasers were the parties responsible for payment of all
such penalties or amounts, if in QSP’s good faith judgment the invoices are not
accurate and/or at the Seller’s request if the Seller has a reasonable basis
(and provides reasonable documentation to QSP in support of such position) for
contesting such invoice.  In addition,
within three months of receipt of a demand of QSP that Seller pay penalties or
Related Losses to or on behalf of QSP pursuant to clause (a) above, the
Seller shall have the right, at reasonable times and upon reasonable advance
notice, to review the books and records of QSP solely related to the WFC
Agreement and sales of WFC Products (including invoices, purchase orders and
receiving documentation, sales returns and documentation related to
representative transfers to WFC) in the period to which such penalties or
Related Losses relate, to the extent reasonably necessary to verify all
applicable purchase and tonnage calculations; provided that the Seller
shall be limited to one such review per payment demand from the Purchaser.

 

(c) 
In furtherance and not in limitation of clause (a) above, the Seller shall
pay to WFC, on behalf of QSP, as and when due in accordance with the terms of
the WFC Agreement, all payments required pursuant to Section 1.3 thereof
(including the $3,000,000 payment due on February 16, 2009 pursuant
thereto) and any and all other Losses incurred in respect of or otherwise
attributable to periods ending on or prior to the Closing Date.

 

(d) 
Upon making any payments on behalf of QSP in accordance with this Section 5.13,
the Seller shall promptly provide written notice thereof to QSP.

 

(e) 
The Seller shall use reasonable efforts to obtain the written consent of WFC
with respect to the matters set forth on Section 5.13(e) of the
Disclosure Schedule.

 

SECTION 5.14.  Overdrafts.  Prior to the Closing, the Seller shall
deposit with the Companies and the Company Subsidiaries cash in an amount
sufficient such that the Companies and the Company Subsidiaries, taken as a
whole, have no overdraft liability or other negative cash balance as of the
Closing Date.

 

SECTION 5.15.  Certain Consents.  The Seller shall use commercially reasonable
best efforts to obtain written consents to the transactions contemplated by
this Agreement under the agreements set forth in Section 5.15 of the
Disclosure Schedule (the “Lease Agreements”).  In connection therewith, the Purchasers and
their Affiliates shall fully cooperate with the Seller, including by providing
information reasonably requested by the third parties to the Lease
Agreements.  In the event the Seller is
unable to obtain any such consent, the Seller shall have the option to arrange
(with the applicable landlord or as permitted under the applicable Lease 

 

61

 

Agreement) for the Companies and the Company Subsidiaries, as
applicable, to remain in occupancy (on substantially the same terms provided in
the applicable Lease Agreement) at such premises (at no additional cost to the
Companies and the Company Subsidiaries other than as explicitly contemplated by
the applicable Lease Agreement (e.g.,
regular rent increases)), as subtenant or otherwise.

 

ARTICLE VI

 

EMPLOYEE MATTERS

 

SECTION 6.01.  Continuation of Benefits.  (a)  The Purchasers agree that, for the
six-month period beginning on the first day following the Closing Date (the “Benefits
Continuation Period”), the Purchasers shall (or shall cause the Companies,
the Company Subsidiaries or Affiliates of the Purchasers to) provide the
Business Employees who are employed as of the Closing Date (the “Affected
Employees”) with (i) the same level of base wages or base salary and (ii) incentive
compensation, retirement and welfare plan benefits (including medical and life
insurance benefits but excluding any equity-based plan) that are comparable, in
the aggregate, to similarly situated employees of the Purchasers.  Notwithstanding the above, during the
Benefits Continuation Period, the Purchasers shall provide the Affected
Employees with severance benefits which are not less favorable than the current
severance plan benefits provided under the Employee Plans as described in Section 6.01(a) of
the Disclosure Schedule.  The Seller
shall retain responsibility for and shall indemnify and hold harmless the
Purchasers, the Companies, the Company Subsidiaries and Affiliates of the
Purchasers for any severance benefits that become due as a result of a claim by
an employee of the Seller or its Affiliates of termination or deemed
termination (or constructive termination) of employment from the Seller and its
Affiliates as a result of the consummation of the transactions contemplated by
this Agreement or any transfer of employment among the Seller and its
Affiliates in contemplation of such transactions.  Nothing in this Section 6.01 shall be
construed in any way to increase or extend the obligations of the Purchasers,
the Companies or the Company Subsidiaries under the terms of such Employee
Plans or to restrict existing rights of the Companies or the Company
Subsidiaries to terminate or modify such Employee Plans.  On and after the first day following the
Closing Date, the Purchasers shall be responsible for providing continuation
coverage as required by Section 4980B of the Code, Part 6 of Title I
of ERISA or applicable Law (“COBRA”), under a group health plan
maintained by the Purchasers, to those Affected Employees and any other beneficiaries
under COBRA with respect to such employees, who have a COBRA qualifying event
(due to termination of employment with the Companies, the Company Subsidiaries
or otherwise) after the Closing Date and the Seller and its Affiliates shall
retain responsibility for providing continuation coverage as required by COBRA
for Company Employees who have a COBRA qualifying event on or prior to the
Closing Date.

 

(b) 
With respect to any benefit plans of the Purchasers or Affiliates of the
Purchasers in which Affected Employees may be eligible to participate after the
Closing Date, the Purchasers shall (or shall cause Affiliates of the Purchasers
to):  (i) waive any limitations as
to pre-existing conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Affected Employees to
the extent it would not have prevented coverage under the Employee Plans, (ii) provide
each Affected Employee with credit for any co-payments and 

 

62

 

deductibles paid on or prior
to the Closing Date during the year in which the Closing Date occurs in
satisfying any applicable deductible or out-of-pocket requirements to the
extent it would be recognized under the Employee Plans and (iii) recognize
all service of the Affected Employees with the Seller, the Companies, the
Company Subsidiaries or any Affiliate or predecessor thereof for purposes of
eligibility to participate and vesting credit (and not for retiree medical
subsidies or benefit accruals, except with respect to calculation of severance
benefits), except to the extent such treatment would result in duplicative
benefits.

 

(c) 
On and after the first day following the Closing Date, the Purchasers shall
assume from the Seller and shall be responsible for, and shall indemnify and
hold harmless the Seller and its Affiliates against, the actual cost of all
hospital, medical, disability, workers’ compensation, unemployment compensation
and other welfare expenses and benefits for each Affected Employee with respect
to claims incurred by Affected Employees or their covered dependents on and
after the first day following the Closing Date, provided such expenses
and benefits are not insured by a third party. 
The Seller and its Affiliates shall retain responsibility for and
continue to pay such expenses and benefits for each Company Employee with
respect to, and shall indemnify and hold harmless the Purchasers, the
Companies, the Company Subsidiaries and Affiliates of the Purchasers against, such
claims incurred by such Company Employees or their covered dependents on or
prior to the Closing Date.  For purposes
of this Section 6.01(c), a claim is deemed incurred when the services that
are the subject of the claim are performed; in the case of life insurance, when
the death occurs; in the case of disability or workers’ compensation benefits,
the date that the event giving rise to the disability or injury occurs; and in
the case of a hospital stay, when the employee or covered dependent first enters
the hospital.  The Seller and the
Purchasers agree to cooperate in good faith following the Closing with each
other and, where applicable, with the third-party administrator of the Seller’s
plans to ensure the fair and accurate administration of this Section 6.01(c).

 

SECTION 6.02.  Pension Plans; 401(k) Plan.  (a)  Effective as of the Closing Date,
the Affected Employees shall be considered terminated participants under the
defined contribution and defined benefit plans (both qualified and
non-qualified) (collectively referred to as the “Retirement Plans”) of
the Seller and its Affiliates in which they participate and shall cease to
accrue benefits thereunder.  The Seller
and its Affiliates shall cause the Affected Employees to be fully vested under
the Retirement Plans as of the Closing. 
The Seller and its Affiliates shall amend or shall effect such other
modifications as may be appropriate to each such plan to provide that,
effective as of the Closing Date, neither of the Companies nor any of the Company
Subsidiaries shall be a contributing sponsor thereto.

 

(b) 
With respect to the 401(k) Plan of the Seller (the “Seller’s 401(k) Plan”),
as soon as administratively practicable following the Closing Date, the Seller
shall advise the Affected Employees who participate in the Seller’s 401(k) Plan
(the “401(k) Plan Participants”) of their right to elect to receive
a distribution of, or to rollover, their individual account balances from the
Seller’s 401(k) Plan.  The Seller
shall cause the 401(k) Plan Participants to be fully vested in their
individual account balances under the Seller’s 401(k) Plan as of the
Closing.  To the extent permitted by 

 

63

 

Law, the Seller and the
Purchasers agree, as soon as practicable following the Closing Date, that such
account balances (excluding outstanding loans) may be transferred by the 401(k) Plan
Participants to a 401(k) plan maintained by the Purchasers (the “Purchasers’
401(k) Plan”) in a direct rollover. 
Notwithstanding the foregoing, the Seller shall in no event require
distributions of the individual accounts of employees prior to the date upon
which the Purchasers’ 401(k) Plan can accept such distributions.  As soon as practicable following the Closing
Date, the Purchasers shall amend the Purchasers’ 401(k) Plan to the extent
necessary to enable 401(k) Plan Participants to make rollover
distributions to the Purchasers’ 401(k) Plan.

 

SECTION 6.03.  Annual Bonuses.  (a)  Section 6.03(a) of the
Disclosure Schedule sets forth the total bonuses payable to Business Employees
in respect of the 2008 fiscal year (collectively, the “2008 Bonuses”).  All amounts due in respect of the 2008
Bonuses shall be paid by the Seller prior to the Closing.

 

(b) 
Section 6.03(b) of the Disclosure Schedule sets forth (i) the
annual bonus and incentive compensation bonus arrangements covering Business
Employees in respect of the 2009 fiscal year or any portion thereof
(collectively, the “2009 Bonus Plans”) and (ii) the annual
target bonus amounts for each Business Employee entitled to receive a bonus
payment under such 2009 Bonus Plans. 
Following the Closing Date, the Purchasers shall pay amounts with
respect to the 2009 Bonus Plans that are unpaid as of the Closing Date at such
times and to the extent that the Affected Employees would otherwise have become
entitled to such amounts under the applicable 2009 Bonus Plans for the fiscal
year ending June 30, 2009; provided that all amounts accrued under
such 2009 Bonus Plans (with such accrual being no less than the target bonus
amounts payable under the 2009 Bonus Plans multiplied by a fraction, the
numerator of which is the number of days elapsed from the beginning of such
2009 Bonus Plan fiscal year and the denominator being 365) for the period commencing
July 1, 2008 (or the beginning of the current 2009 Bonus Plan fiscal year,
if applicable) through the Closing Date shall be reflected as a current
liability for the purposes of calculating Net Working Capital.

 

SECTION 6.04.  General.  Notwithstanding the foregoing, nothing in
this Article VI is intended to or shall (i) confer upon any Affected
Employee any legal or equitable right, benefit or remedy of any nature
whatsoever, including any rights of employment for any specified period or (ii) constitute
an amendment to any of the compensation and benefits plans maintained for or
provided to any Affected Employee prior to or following the Closing.

 

SECTION 6.05.  Flex Plan.  Effective as of the Closing Date, the Seller
shall transfer, or cause to be transferred, to the Purchasers an amount, in
cash, representing the aggregate 2008 contributions of each Affected Employee
then participating in the Seller’s Flexible Benefits Plan (the “Seller
Flexible Benefits Plan”), net of reimbursements (but not less than
zero).  The Purchasers shall cause such
amounts to be credited to each such employee’s accounts under the Purchasers’
(or one of their Affiliate’s) corresponding flexible benefits plan (the “Purchaser
Flexible Benefits Plan”) which shall be established and in effect for such
employees as of the Closing Date, and all claims for reimbursement which have
not been paid as of the date of the transfer to the Purchasers and credited
under the Purchasers Flexible Benefits 

 

64

 

Plan shall be paid pursuant to and under the terms of the Purchasers
Flexible Benefits Plan.  In connection
with such transfer, the Purchasers shall deem that such Affected Employees’
deferral elections made under the Seller Flexible Benefits Plan for the 2008
calendar year shall continue in effect under the Purchaser Flexible Benefits
Plan for the remainder of the 2008 calendar year following the Closing
Date.  The Purchasers and the Seller
shall cooperate and provide each other with information reasonably necessary to
effectuate the terms of this Section 6.05.

 

SECTION 6.06.  Inactive Employees.  With respect to any Business Employee that is
on disability leave or otherwise not actively employed as of the Closing Date
(an “Inactive Employee”) who is entitled to receive benefits from an
Employee Plan other than a Company Sponsored Plan, the Seller shall cause its
Employee Plans to continue to provide coverage to such Inactive Employee
following the Closing Date pursuant to the terms of such Employee Plan until
such time (if any) as the Inactive Employee returns to active status with the
Purchasers.  The Purchasers agree to
continue an Inactive Employee’s employment subject to the Purchasers’
employment policies and employee benefit plans and, in the event of an Inactive
Employee’s return to active employment with the Companies or the Company
Subsidiaries, such employee shall be treated as if he or she had been an
Affected Employee on the Closing Date, except where there would be a
duplication of benefits.

 

SECTION 6.07.  Transition Services.  Following the Closing Date, the Seller shall
provide the Purchasers with certain transition services related to payroll and
employee benefit plan administration with respect to the Affected Employees
pursuant to terms to be provided under the Transition Services Agreement.

 

SECTION 6.08.  Retiree Medical Benefits.  From and after the Closing Date, the Seller
shall cause its retiree medical plan to provide retiree medical coverage to any
Affected Employee who, as of the Closing Date, is “retirement eligible” under
the terms of such plan as in effect on the Closing Date; provided that
the Seller agrees that up to 24 months of an Affected Employee’s post-Closing
service with the Purchasers and their Affiliates shall be recognized under the
Seller’s retiree medical plan for purposes of determining whether the Affected
Employee has satisfied the age and service requirements for being deemed “retirement
eligible” as of the Closing Date.

 

SECTION 6.09.  Canadian Employees.  None of the provisions of Article VI
(including but not limited to Sections 6.02 and 6.05) apply to the Affected
Employees employed in Canada to the extent that the context or applicable Law
makes such provisions inapplicable; provided, however, that for
the six-month period following the Closing Date, any Affected Employees
employed in Canada shall be entitled to receive benefits that are substantially
comparable, in the aggregate, to the benefits received by such Affected
Employees immediately prior to the Closing.

 

ARTICLE VII

 

TAX MATTERS

 

SECTION 7.01.  Tax Indemnity.  (a)  The Seller shall indemnify and hold
harmless the Purchasers and their Affiliates (including the Companies and the
Company 

 

65

 

Subsidiaries) and each of their respective officers, directors,
employees, stockholders, agents and other representatives and their successors
and assigns from:

 

(i) any
and all liability for Taxes of the Companies or the Company Subsidiaries (or
any predecessors) for all taxable periods ending on or before the Closing Date
(“Pre-Closing Tax Period”) and with respect to any Straddle Period, for
the portion thereof ending on the Closing Date;

 

(ii) any
and all liability (as a result of Treasury Regulation Section 1.1502-6 or
otherwise) for Taxes of the Seller or any other Person (other than the
Companies and the Company Subsidiaries) (x) that is or has ever been
affiliated with either of the Companies or any of the Company Subsidiaries or
with which either of the Companies or any of the Company Subsidiaries otherwise
joins or has ever joined (or is or has ever been required to join) in filing
any consolidated, combined, unitary or aggregate Tax Return, prior to the
Closing Date or (y) imposed on either Company or any of the Company
Subsidiaries, as a transferee or successor, by Contract or pursuant to any Law,
rule or regulation;

 

(iii) any
loss, liability, claim, damage or expense attributable to any breach of (A) any
representation or warranty contained in Section 3.19 (relating to Taxes),
without regard to materiality qualifiers and taking into account any items
listed in Section 3.19 of the Disclosure Schedule or (B) any
covenant set forth in Section 5.01(p) without regard to materiality
qualifiers;

 

(iv) all
liability for Taxes arising (directly or indirectly) as a result of the sale of
the Shares (except for Transfer Taxes for which the Purchasers are liable under
Section 7.10 but including Transfer Taxes for which the Seller is liable
under Section 7.10), the transfers described in Sections 5.08 and
8.02(g), or the other transactions contemplated hereby (including any Taxes
arising as a result of the elimination of intercompany transactions described
in Section 8.02(f) or the recognition by the Seller, the Companies or
any of the Company Subsidiaries of any “deferred intercompany gain” or “excess
loss account”);

 

(v) any
payments with respect to Taxes required to be made after the Closing Date under
any Tax sharing, Tax indemnity, Tax allocation Contract or similar Contracts or
arrangements (whether or not written) to which either Company or any of the
Company Subsidiaries was obligated, bound by, or was a party, on or prior to
the Closing Date;

 

(vi) any
breach by the Seller or the failure by the Seller to fully and properly perform
any of the covenants made by it or agreements entered into or contained in this
Article VII;

 

(vii) all
liability for Taxes resulting from the Section 338(h)(10) Election
(defined below) (or any comparable elections under state or local Law)
contemplated by Section 7.08; and

 

66

 

(viii) all
liability for reasonable costs and expenses (including reasonable attorneys’
fees and disbursements) incurred by the Purchasers or any of their Affiliates
in connection with any action, suit, proceeding, demand, assessment or judgment
incident to any of the matters indemnified against in this Section 7.01;

 

provided, however,
the Seller shall not be required to indemnify the Purchasers to the extent such
Taxes are reflected as an accrued Tax liability on the Financial Statements and
have been taken into account in determining the Purchase Price Adjustment
pursuant to Section 2.07.

 

(b) 
The Purchasers shall, jointly and severally, indemnify and hold harmless the
Seller and its Affiliates, and each of their respective officers, directors,
officers, employees, stockholders, agents and other representatives and their
successors and assigns from:

 

(i) except
to the extent otherwise provided for in Section 7.01(a), all Taxes imposed
on either Company or any Company Subsidiary with respect to periods beginning
after the Closing Date (“Post-Closing Tax Periods”) and, with respect to
any Straddle Period, the portion of such Straddle Period deemed to begin on the
day following the Closing Date (in the manner determined pursuant to Section 7.02);

 

(ii) any
breach by the Purchasers or the failure by the Purchasers to fully and properly
perform any of the covenants made by it or agreements entered into or contained
in this Article VII;

 

(iii) all
liability for reasonable costs and expenses (including reasonable attorneys’
fees and disbursements) incurred by the Seller or any of its Affiliates in
connection with any action, suit, proceeding, demand, assessment or judgment
incident to any matters indemnified against in this Section 7.01; and

 

(iv) any
Transfer Taxes for which the Purchasers are liable under 7.10.

 

(c) 
Notwithstanding any provision in this Agreement to the contrary, the
obligations of a party to indemnify and hold harmless another party pursuant to
this Section 7.01 shall terminate at the close of business on the 90th day
following the expiration of the applicable statute of limitations with respect
to the Tax liabilities in question (giving effect to any waiver, mitigation or
extension thereof); provided that in respect of Canadian Taxes (federal,
provincial, territory), such obligations shall terminate 90 days after the
relevant Governmental Authority shall no longer be entitled to assess or
reassess liability for Taxes against any Canadian QSP Company (the “Canadian
Tax Period”).

 

(d) 
Payment by the indemnifying party of the amount due under this Section 7.01
shall be made within the later of (i) 10 days following written notice by
the indemnified party that payment of such amounts to the appropriate
Governmental Authority is due and (ii) 10 days prior to the payment date
for such amount.

 

67

 

SECTION 7.02.  Straddle Period.  (a)  In the case of any Straddle Period,
the amount of Taxes allocable to the portion of the Straddle Period ending on
the Closing Date shall be deemed to be:

 

(i) In
the case of Taxes imposed on a periodic basis (such as real or personal
property Taxes), the amount of such Taxes for the entire period (or, in the
case of such Taxes determined on an arrears basis, the amount of such Taxes for
the immediately preceding period) multiplied by a fraction, the numerator of
which is the number of calendar days in the Straddle Period ending on and
including the Closing Date and the denominator of which is the number of
calendar days in the entire relevant Straddle Period; and

 

(ii) In
the case of Taxes not described in subclause (i) above (such as franchise
Taxes, Taxes that are based upon or related to income or receipts, based upon
occupancy or imposed in connection with any sale or other transfer or
assignment of property (real or personal, tangible or intangible)), the amount
of any such Taxes shall be determined by means of a closing of the books as of
the close of business on the Closing Date.

 

(b) 
In the case of any Straddle Period, the amount of Taxes allocable to the
portion of the Straddle Period beginning after the Closing Date shall be any
Taxes of that Straddle Period not covered in Section 7.02(a).

 

SECTION 7.03.  Responsibility for Filing Tax Returns.  (a)  For any Pre-Closing Tax Period of
the Companies or the Company Subsidiaries, the Seller shall prepare, or cause
to be prepared (in a manner consistent with past practices, except to the
extent required by applicable Law or as consented to by the other party, which
consent will not be unreasonably withheld) all Tax Returns required to be
filed, and shall pay all Taxes due with respect to such Tax Returns.  The Seller shall cause copies of such Tax
Returns to be provided to the Purchasers no less than 30 days prior to
filing and accept all reasonable comments of the Purchasers provided to the
Seller within 20 days of receiving such Tax Returns from the Seller.  The Seller shall file, or cause to be filed,
with the appropriate taxing authorities all such Tax Returns required to be
filed on or before the Closing Date.  The
Purchasers shall file, or cause to be filed, with the appropriate taxing authorities
all such Tax Returns required to be filed after the Closing Date.

 

(b) 
For any Straddle Period of either Company or any of the Company Subsidiaries,
the Seller shall timely prepare or cause to be prepared, and file or cause to
be filed (in a manner consistent with past practices) with the appropriate
taxing authorities all such Tax Returns required to be filed on or before the
Closing Date and shall pay all Taxes due with respect to such Tax Returns.  The Seller shall cause copies of such Tax Returns
to be provided to the Purchasers no less than 30 days prior to filing,
including a detailed computation of the amount owed by the Purchasers, and
accept all reasonable comments of the Purchasers provided to the Seller within
20 days of receiving such Tax Returns from the Seller.  The Purchasers shall pay to the Seller all
Taxes for which the Purchasers are liable pursuant to Section 7.01 but
which are payable with respect to any Tax Return to be filed by the Seller
pursuant to 

 

68

 

Section 7.03(a) or
this Section 7.03(b) promptly upon the written request of the Seller.

 

(c) 
The Purchasers shall prepare (or cause to be prepared) and file or cause to be
filed when due all Tax Returns that are required to be filed by or with respect
to the Companies or the Company Subsidiaries for Post-Closing Tax Periods and
shall remit any Taxes due in respect of such Tax Returns.

 

(d) 
For any Straddle Period of either Company or any of the Company Subsidiaries,
the Purchasers shall timely prepare or cause to be prepared, and timely file or
cause to be filed in a manner consistent with past practices (except to the
extent required by applicable Law or as consented to by the other party, which
consent will not be unreasonably withheld), all such Tax Returns required to be
filed after the Closing Date and shall pay all Taxes due with respect to such
Tax Returns.  The Purchasers shall cause
copies of such Tax Returns to be provided to the Seller no less than 30 days
prior to filing, including a detailed computation of the amount owed by the
Seller, and accept all reasonable comments of the Seller provided to the
Purchasers within 20 days of receiving such Tax Returns from the
Purchasers.  The Seller shall pay to the
applicable Purchaser all Taxes for which the Seller is liable pursuant to Section 7.01
but which are payable with respect to any Tax Return to be filed by the
Purchasers pursuant to Section 7.03(c) or this Section 7.03(d) promptly
upon the written request of the Purchasers.

 

(e) 
For the avoidance of doubt, the requirement of any party to pay any Taxes under
this Section 7.03 shall not limit that party’s rights under the indemnity
in Section 7.01.

 

SECTION 7.04.  Tax Claims.  (a)  If a claim shall be made by any
Governmental Authority or any third party that, if successful, might result in
an indemnity payment to an indemnified party pursuant to Section 7.01,
then such indemnified party shall give notice to the indemnifying party in
writing of such claim and of any counterclaim the indemnified party proposes to
assert (a “Tax Claim”); provided, however, the failure to
give such notice shall not affect the indemnification provided hereunder except
to the extent the indemnifying party has been materially prejudiced as a result
of such failure.

 

(b) 
With respect to any Tax Claim relating to a Pre-Closing Tax Period, the Seller
shall, solely at its own cost and expense, control all proceedings and may make
all decisions taken in connection with such Tax Claim (including selection of
counsel) and, without limiting the foregoing, may in its sole discretion pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with any taxing authority with respect thereto, and may, in its
sole discretion, either pay the Tax claimed and sue for a refund where
applicable law permits such refund suits or contest the Tax Claim in any
permissible manner; provided, however, that the Seller must first
consult in good faith with the Purchasers before taking any action with respect
to the conduct of such Tax Claim. 
Notwithstanding the foregoing, the Seller shall not settle such Tax
Claim without the prior written consent of the Purchasers, which consent shall
not be unreasonably withheld, unless such settlement

 

69

 

would not materially
increase the Tax liability of the Purchasers under Section 7.01(b).  The Purchasers and counsel of their own
choosing shall have the right to participate fully in all aspects of the
prosecution or defense of such Tax Claim, provided that the Purchasers
reasonably determine that such Tax Claim could materially increase the Tax
liability of the Purchasers under Section 7.01(b).

 

(c) 
The Seller and the Purchasers shall jointly control and participate in all
proceedings taken in connection with any Tax Claim relating to Taxes of either
Company or any of the Company Subsidiaries for a Straddle Period, and shall
bear their own respective costs and expenses. 
Neither the Seller nor the Purchasers shall settle any such Tax Claim
without the prior written consent of the other (which consent will not be
unreasonably withheld or denied).

 

(d) 
The Purchasers shall control all proceedings with respect to any Tax Claim
relating to a taxable period or portion thereof beginning after the Closing
Date.  The Seller shall have no right to
participate in the conduct of any such proceeding.  Notwithstanding the foregoing, to the extent
that the Tax Claim could give rise to a liability of the Seller under Section 7.01(a),
(i) the Purchasers must first consult in good faith in writing with the
Seller before taking any action with respect to the conduct of such Tax Claim,
and (ii) the Purchasers shall not settle such Tax Claim without the prior
written consent of the Seller, which consent shall not be unreasonably
withheld.

 

SECTION 7.05.  Cooperation.  The Seller, each of the Companies, the
Company Subsidiaries and the Purchasers shall reasonably cooperate, and shall
cause their respective Affiliates, officers, employees, agents, auditors and
other representatives to reasonably cooperate, in preparing and filing all Tax
Returns and in resolving all disputes and audits with respect to all taxable
periods relating to Taxes, including by maintaining and making available to
each other all records necessary in connection with Taxes and making employees
available on a mutually convenient basis to provide additional information or
explanation of any material provided hereunder or to testify at proceedings
relating to such Tax Claim.

 

SECTION 7.06.  Refunds.  The amount of any refunds, credits or offsets
of Taxes of either of the Companies or any of the Company Subsidiaries for any
Pre-Closing Tax Period shall be for the account of the Seller except to the
extent that such refunds, credits or offsets of Taxes are reflected as a Tax
receivable on the Financial Statements and have been taken into account in
determining the Purchase Price Adjustment pursuant to Section 2.07, in
which case such refunds, credits or offsets of Taxes shall be for the account
of the Purchasers.  Notwithstanding the
foregoing, any such refunds, credits or offsets of Taxes shall be for the
account of the Purchasers to the extent such refunds, credits or offsets of
Taxes are attributable (determined on a marginal basis) to the carryback from a
Post-Closing Tax Period or the portion of a Straddle Period beginning after the
Closing Date of items of loss, deduction or credit, or other Tax items, of
either of the Companies or any of the Company Subsidiaries (or any of their
respective Affiliates, including the Purchasers); provided, however,
the Purchasers may not file an amended Tax Return or claim for refund of Taxes
for any Pre-Closing Tax Period or portion of a Straddle Period ending on the
Closing Date (except as required by Law) without the written consent of the
Seller (which consent shall not be unreasonably withheld).  The amount of any 

 

70

 

refunds, credits or offsets of Taxes of either of the Companies or any
of the Company Subsidiaries for any Post-Closing Tax Period shall be for the
account of the Purchasers.  The amount of
any refunds, credits or offsets of Taxes of either of the Companies or any of
the Company Subsidiaries for any Straddle Period shall be equitably apportioned
between the Seller and the Purchasers in accordance with the principles of Section 7.02
except to the extent such refunds, credits or offsets of Taxes are reflected as
a Tax receivable on the Financial Statements and have been taken into account
in determining the Purchase Price Adjustment pursuant to Section 2.07, in
which case such refunds, credits or offsets of Taxes shall be for the account
of the Purchasers.  Each party shall
forward, and shall cause its Affiliates to forward, to the party entitled to
receive the amount of a refund, credit or offset to Tax the amount of such
refund, credit or offset to Tax, within 10 days after such refund is
received or after such credit or offset is allowed or applied against another
Tax liability, as the case may be.

 

SECTION 7.07.  Elections, Amended Returns, etc..  Except as required by applicable Law or as
consented to by the Seller (which consent shall not be unreasonably withheld),
none of the Purchasers, either Company, any Company Subsidiary or any Affiliate
of the Purchasers shall, to the extent the effect would be to increase the
indemnification obligations of the Seller or increase the amount recoverable by
the Purchasers with respect to Taxes before the Closing, file any amended Tax
Return or carryback claim or propose or agree to any adjustment of any item
with the IRS or any other taxing authority with respect to any taxable period
ending on or before the Closing Date.

 

SECTION 7.08.  Section 338(h)(10) Election.  (a)  At the discretion of the US
Purchaser, the Seller shall join the US Purchaser in making an election under Section 338(h)(10) of
the Code (and any corresponding elections under state, local, or foreign Tax
Law) (collectively, a “Section 338(h)(10) Election”) with
respect to the purchase and sale of the stock of QSP or any of the Company
Subsidiaries eligible for such election (the “Section 338 Companies”),
and the US Purchaser and the Seller shall cooperate in the completion and
timely filing of such elections in accordance with the provisions of Treasury
Regulation Section 1.338(h)(10)-1 (or any comparable provisions of state,
local or foreign Tax law) or any successor provision.  The Seller and the US Purchaser shall
determine the fair market value of the assets of the Section 338
Companies, as applicable, and the allocation of Purchase Price (as required
pursuant to section 338(h)(10) of the Code and regulations promulgated
thereunder), together with applicable liabilities, among such assets in
accordance with the principles set forth in the Code.  Each party agrees to cooperate with the other
in the preparation of IRS Forms 8023 and 8883 and to furnish the other
party with copies of such forms prepared in draft form within a reasonable
period before their filing due date. 
Neither the Seller nor the US Purchaser shall take any position on any
Tax Return or with any taxing authority that is inconsistent with such
allocation.  Except as otherwise
specifically provided in this Section 7.08, the US Purchaser shall be
responsible for the preparation and timely filing of all forms necessary to
effectuate the Section 338(h)(10) Election as prescribed by Treasury
Regulation §1.338(h)(10)-1 (as in effect and as it may hereafter be amended) or
the corresponding provisions of state or local income or franchise Tax Law.

 

(b) 
If the US Purchaser decides to make a Section 338(h)(10) Election, as
promptly as possible following the Closing, the Seller shall deliver to the US
Purchaser a completed IRS Form 8883, allocating adjusted grossed-up basis
(as 

 

71

 

defined in Treasury
Regulation Section 1.338-5) among the assets of the Section 338
Companies which shall be consistent with the principles set forth in the
Code.  Said Form 8883 shall be
prepared by the Seller in accordance with the provisions of Section 338 of
the Code and the Treasury Regulations thereunder.  The US Purchaser shall have the right to
review the Form 8883 delivered pursuant to this subsection. If within 30
days after receipt of such Form 8883 the US Purchaser notifies the Sellers
in writing that it disagrees with the allocation of one or more items contained
on such Form 8883, the US Purchaser and the Seller shall negotiate in good
faith to resolve such dispute. If the US Purchaser and the Seller fail to
resolve such dispute within 30 days, the dispute shall be resolved by the
Independent Accounting Firm.  The
decision of the Independent Accounting Firm as to any disputed items shall be
binding on the US Purchaser and the Seller. 
If the US Purchaser does not respond within 30 days of receipt of the Form 8883
from the Seller, or upon resolution of any disputed items, the allocation
reflected on the Form 8883 shall be binding on the parties hereto. The US
Purchaser and the Seller agree that they shall file (and shall cause the Section 338
Companies to file with respect to its income Tax Returns for its Tax Period
ending on the Closing Date) all federal, state, local and foreign Tax Returns
consistent with the effectiveness of the Section 338(h)(10) Election
and with said Form 8883, and they further agree that they shall not,
unless otherwise required by applicable Law or as consented to in writing by
the other party (which consent shall not be unreasonably withheld), take (and
the US Purchaser shall not permit the Companies to take) any action that would
be inconsistent with or would prejudice the Section 338(h)(10) Election.

 

(c) 
The Purchasers shall be permitted to make any election under Section 338(g) of
the Code or any comparable provision under applicable law.

 

(d) 
As the Section 338(h)(10) Election results in a deemed complete
liquidation of QSP under Section 332 of the Code, if the US Purchaser
decides to make a Section 338(h)(10) Election, this Agreement shall
serve as a “plan of liquidation”.

 

SECTION 7.09.  Purchase Price Adjustment.  The parties agree that any indemnification
payment made pursuant to this Agreement shall be treated as an adjustment to
the Purchase Price for Tax purposes, unless otherwise required by applicable
Law or as consented to by the Seller (which consent shall not be unreasonably
withheld).

 

SECTION 7.10.  Transfer Taxes.  All sales (including bulk sales), use, value
added, documentary, stamp, gross receipts, registration, transfer, conveyance,
excise, recording, license, stock transfer stamps and other similar Taxes (in
no event including Taxes computed on the basis of income) and fees arising out
of or in connection with or attributable to the transactions effected pursuant
to this Agreement, other than any Taxes arising from the Pre-Closing Transfers
(which are solely the responsibility of the Seller) (“Transfer Taxes”),
shall be borne equally by the Seller and by the Purchasers.  The Purchasers and the Seller shall cooperate
in preparing and timely filing all Tax Returns required to be filed in respect
of Transfer Taxes (including all notices required to be given with respect to
bulk sales Taxes).  Notwithstanding
anything herein to the contrary, any Tax Returns that must be filed in
connection with Transfer 

 

72

 

Taxes shall be prepared and filed when due by the party primarily or
customarily responsible under the applicable local Law for filing such Tax
Returns.

 

SECTION 7.11.  Tax Sharing Agreements.  The Seller shall cause all Tax allocation
Contracts, Tax indemnities or Tax sharing Contracts with respect to either of
the Companies or any of the Company Subsidiaries to be terminated as of the
Closing Date, and shall ensure that such agreements are of no further force or
effect as to either of the Companies or any of the Company Subsidiaries on and
after the Closing Date and that there shall be no further liabilities or
obligations imposed on either of the Companies or any of the Company
Subsidiaries under any such agreements.

 

SECTION 7.12.  Exclusivity.  Notwithstanding any other provision of this
Agreement, any matter related to Taxes shall be governed solely by this Article VII.

 

ARTICLE VIII

 

CONDITIONS TO CLOSING

 

SECTION 8.01.  Conditions to Obligations of the Seller.  The obligations of the Seller to consummate
the transactions contemplated by this Agreement shall be subject to the
fulfillment or written waiver, at or prior to the Closing, of each of the
following conditions:

 

(a) 
Representations, Warranties and Covenants.  (i) The representations and warranties
of the Purchasers set forth in this Agreement shall be true and correct in all
respects (determined without regard to any qualifications or limitations
therein as to materiality or material adverse effect) on the date hereof and at
and as of the Closing Date (except to the extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all respects on and
as of such earlier dates), except where the failure of such representations and
warranties to be so true and correct has not had and would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on the Purchasers’ ability to consummate the transactions contemplated by this
Agreement, and (ii) the covenants, obligations and agreements contained in
this Agreement to be complied with by the Purchasers on or before the Closing
shall have been complied with in all material respects;

 

(b) 
Governmental Approvals.  Any
waiting period (and any extension thereof) under the HSR Act applicable to the
purchase of the Shares contemplated by this Agreement shall have expired or
shall have been terminated and all consents, approvals or authorizations of Governmental
Authorities necessary for the consummation of the transactions contemplated
hereby shall have been obtained;

 

(c) 
No Orders; Litigation.  No
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any Law or Governmental Order (whether temporary, preliminary or
permanent) that has the effect of making the transactions contemplated by this
Agreement or the Ancillary Agreements illegal or otherwise restraining or
prohibiting the consummation of such transactions and no Action shall 

 

73

 

be pending by or before any
Governmental Authority seeking to restrain, prohibit or enjoin the consummation
of the transactions contemplated by this Agreement or the Ancillary Agreements;
and

 

(d) 
Closing Deliveries.  The Seller
shall have received all deliveries, instruments and documents to be delivered
at or prior to the Closing by the Purchasers pursuant to Section 2.06.

 

SECTION 8.02.  Conditions to Obligations of the
Purchasers.  The obligations of the
Purchasers to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or written waiver, at or prior to the Closing, of
each of the following conditions:

 

(a) 
Representations, Warranties and Covenants.  (i) The representations and warranties
of the Seller set forth (A) in Section 3.03 and the third, fourth and
fifth sentences of Section 3.04 of this Agreement shall be true and
correct in all respects on the date hereof and at and as of the Closing Date
(except to the extent such representations and warranties expressly relate to
an earlier date, in which case such representations and warranties shall be
true and correct in all respects on and as of such earlier dates) and (B) in
this Agreement (other than those representations and warranties described in
clause (i)(A) of this Section 8.02(a)) shall be true and correct in
all respects (determined without regard to any qualifications or limitations
therein as to materiality or Material Adverse Effect) on the date hereof and at
and as of the Closing Date (except to the extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all respects on and
as of such earlier dates), except where the failure of such representations and
warranties to be so true and correct has not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
and (ii) the covenants, obligations and agreements contained in this
Agreement to be complied with by the Seller at or before the Closing shall have
been complied with in all material respects; except
that the Seller shall have complied in all respects with its obligations under
Sections 2.04 and 2.05 hereof;

 

(b)  Governmental
Approvals.  Any waiting
period (and any extension thereof) under the HSR Act applicable to the purchase
of the Shares contemplated by this Agreement shall have expired or shall have
been terminated and all consents, approvals or authorizations of Governmental
Authorities necessary for the consummation of the transactions contemplated
hereby shall have been obtained;

 

(c)  No Orders;
Litigation.  No
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any Law or Governmental Order (whether temporary, preliminary or
permanent) that has the effect of making the transactions contemplated by this
Agreement or the Ancillary Agreements illegal or otherwise restraining or
prohibiting the consummation of such transactions and no Action shall be
pending by or before any Governmental Authority seeking to restrain, prohibit
or enjoin the consummation of the transactions contemplated by this Agreement
or the Ancillary Agreements;

 

74

 

(d) 
Third Party Consents.  All
consents to the transactions contemplated hereby set forth in Section 8.02(d) of
the Disclosure Schedule shall have been obtained and all conditions
relating to such consents shall have been satisfied;

 

(e) 
No Material Adverse Effect.  Since June 30, 2008, there shall not
have occurred any fact, event, change, development, circumstance or effect
which, individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect on the Companies, the Company
Subsidiaries or the Business;

 

(f)  Intercompany
Transactions.  (x) All
outstanding Indebtedness, accounts and other amounts owed between either of the
Companies or any of the Company Subsidiaries, on the one hand, and the Seller
or any of its Affiliates (other than the Companies and the Company
Subsidiaries), on the other hand, shall have been repaid or settled and the
Seller shall have delivered to the Purchasers evidence thereof in form and
substance reasonably satisfactory to the Purchasers and (y) except as set
forth in Section 8.02(f) of the Disclosure Schedule, all Affiliate
Arrangements shall have been terminated and the Seller shall have delivered to
the Purchasers evidence thereof in form and substance reasonably satisfactory
to the Purchasers, in each case without any further obligations on behalf of
any party;

 

(g)  Pre-Closing
Transfers.  The
Pre-Closing Transfers contemplated by Section 5.08 shall have occurred in
accordance with the terms thereof;

 

(h) 
Repayment of Indebtedness.  All
outstanding Indebtedness of the Companies and the Company Subsidiaries and any
prepayment penalties payable in connection with the repayment of Indebtedness
shall have been paid by the Companies or the Company Subsidiaries prior to
Closing; all notes, loan contracts and other Contracts relating to Indebtedness
of the Companies or the Company Subsidiaries, whether or not any Indebtedness
is outstanding thereunder, shall have been terminated and released; all
Encumbrances and security interests related thereto or to any Indebtedness of
the Seller or its other Affiliates, and to which the shares of capital stock or
the Assets are subject, shall have been terminated and released and the Seller
shall have delivered to the Purchasers evidence of the foregoing in form and
substance reasonably satisfactory to the Purchasers, it being understood that
the filing of UCC Financing Statements on Form UCC-3 (or equivalent)
recording the release of Encumbrances may be filed promptly after the Closing;

 

(i) 
Guarantees.  The Guarantees set forth in Section 8.02(i) of
the Disclosure Schedule shall have been terminated and released and the
Seller shall have delivered to the Purchasers evidence thereof in form and
substance reasonably satisfactory to the Purchasers, it being understood that
the filing of UCC Financing Statements on Form UCC-3 (or equivalent)
recording the release of any Encumbrances thereunder, if applicable, may be
filed promptly after the Closing;

 

75

 

(j)  Closing
Deliveries.  The
Purchasers shall have received all deliveries, instruments and documents to be
delivered at or prior to the Closing by the Seller pursuant to
Sections 2.04 and 2.05; and

 

(k)  Employment
Agreements. The Purchasers shall have received executed
employment agreements in form reasonably satisfactory to the Purchasers from
the individuals listed in Section 8.02(k) of the Disclosure Schedule.

 

ARTICLE IX

 

INDEMNIFICATION

 

SECTION 9.01.  Survival
of Representations and Warranties and Covenants.  The representations and warranties of the
parties hereto contained in this Agreement shall survive the Closing until the
date that is 18 months after the Closing Date, other than the
representations and warranties set forth in (a) Section 3.07(a),
which shall survive until June 30, 2010, and (b) Sections 3.01,
3.02, 3.03, 3.19, 3.32, 3.34, 3.35, 4.01 and 4.05, which shall survive until 90
days after the term of the applicable statute of limitations or the Canadian
Tax Period, as applicable; provided, however, that any claim made
by the party seeking to be indemnified within the time periods set forth in
this Section 9.01 shall survive until such claim is finally and fully
resolved.  The covenants and agreements
contained in Sections 5.01, 5.02(a), 5.04, 5.05 and 5.09 shall survive the
Closing until June 30, 2010, and all other covenants and agreements
contained in this Agreement shall survive the Closing until 90 days after the
term of the applicable statute of limitations or the Canadian Tax Period, as
applicable; provided that claims as to willful breach of any covenants
or agreements shall not be limited by expiration of the applicable survival
period.

 

SECTION 9.02.  Indemnification by the Seller.  The Purchasers, their Affiliates, the
Companies, the Company Subsidiaries and their respective officers, members,
partners, directors, employees, agents and representatives and their respective
successors and assigns (each, a “Purchaser Indemnified Party”) shall be
indemnified and held harmless by the Seller (and its respective successors and
assigns) for and against all Losses arising out of or resulting from: (i) any
breach as of the date of this Agreement or the Closing Date of any
representations and warranties made by the Seller in this Agreement or in any
certificate delivered by the Seller at the Closing in accordance herewith
(other than any breach of any representations or warranties set forth in Section 3.19,
which shall be governed by Article VII), in each case, without regard to
materiality qualifiers (including Material Adverse Effect); (ii) any
failure by the Seller to perform any of its covenants or agreements contained
in this Agreement; (iii) any Indebtedness of the Companies and the Company
Subsidiaries outstanding immediately after the Closing; (iv) the amount of
all Seller Transaction Expenses which have not been paid prior to Closing and
which the Companies and the Company Subsidiaries are required to pay following
the Closing; (v) the Retained Litigation; (vi) amounts for which the
Seller is liable pursuant to Section 5.13; (vii) Losses arising out
of the Pre-Closing Transfers and liabilities to be transferred from the
Companies and the Company Subsidiaries in accordance with Section 5.08; (viii) Losses
arising from the failure of the Seller to obtain any consents contemplated by Section 5.15;
(ix) Losses of the Companies and the Company Subsidiaries in respect of
amounts of the 2008 Bonuses that are unpaid as of the Closing; and (x) any
overdraft liabilities or negative cash balances as of the 

 

76

 

Closing Date; provided, however, that, in each case, the
Seller shall not be required to indemnify any Purchaser Indemnified Party to
the extent any such Loss has been taken into account in determining the
Purchase Price Adjustment pursuant to Section 2.07.

 

SECTION 9.03.  Indemnification by the Purchasers.  The Seller and their Affiliates, and their
respective officers, members, partners, directors, employees, agents and
representatives and their successors and assigns (each, a “Seller
Indemnified Party”) shall be indemnified and held harmless by the
Purchasers, jointly and severally, for and against any and all Losses arising
out of or resulting from:  (i) the
breach as of the date of this Agreement or the Closing Date of any
representations and warranties made by the Purchasers in this Agreement or in
any certificate delivered by the Purchasers at the Closing in accordance
herewith, in each case, without regard to materiality qualifiers (including
material adverse effect) or (ii) any failure by the Purchasers to perform
any of their covenants or agreements contained in this Agreement.

 

SECTION 9.04.  Limitations on Indemnification.  (a)  Notwithstanding anything to the
contrary contained in this Agreement:  (i) except
as set forth in Section 9.04(b) below, an Indemnifying Party shall
not be liable for any claim for indemnification pursuant to Section 9.02(i) or
Section 9.03(i), as applicable, unless and until the aggregate amount of
indemnifiable Losses which may be recovered from the Indemnifying Party
exceeds, after giving effect to payments credited pursuant to Section 9.04(b),
if any, $500,000 (the “Deductible”), after which the Indemnifying Party
shall be liable for all Losses only to the extent of such excess; (ii) the
maximum amount of indemnifiable Losses which may be recovered from an
Indemnifying Party arising out of or resulting from the causes set forth in Section 9.02(i) or
Section 9.03(i) shall be an amount equal to $30,000,000; and (iii) no
Indemnifying Party shall be liable under Section 9.02(i) and Section 9.03(i) for
any breach, or any breaches arising out of the same or a series of related
facts, circumstances, events or conditions which results in Losses which are
less than $30,000; provided, however, that (A) the
limitations set forth in clause (i) of this Section 9.04(a) shall
not apply with respect to Losses resulting from a breach of the representations
and warranties contained in Sections 3.01 (Organization of Seller), 3.02
(Organization of Companies), 3.03 (Capitalization), the third, fourth and fifth
sentences of 3.04 (Company Subsidiaries), 3.19 (Taxes), 3.32 (Brokers), 3.34
(Competition Act (Canada)), 3.35 (Activities of QSP Canada), 4.01 (Organization
of Purchasers), 4.05 (Brokers) and 4.06 (Investment Intention) (such
representations and warranties, the “Excluded Representations”), (B) the
limitations set forth in clause (ii) of this Section 9.04(a) shall
not apply with respect to Losses resulting from a breach of the Excluded
Representations other than Section 3.34 (Competition Act (Canada) and Section 3.35
(Activities of QSP Canada)), but no party shall be entitled to recover such
Losses in an aggregate amount in excess of the Purchase Price, and (C) the
limitations set forth in clause (iii) of this Section 9.04(a) shall
not apply with respect to Losses resulting from a breach of the Excluded
Representations; and (iv) no Indemnifying Party shall be liable under Section 9.02
or 9.03 for any Losses in the nature of punitive, special, consequential or
incidental damages, except to
the extent such damages are recovered by a third party against an Indemnified
Party.

 

(b) 
Notwithstanding Section 9.04(a)(i) above, following such time as
indemnifiable Losses first exceed the Deductible (and before any payments are
Credited to the Deductible as provided below) (such time, the “Tip Date”),
all Losses resulting from a breach of the representations and warranties
contained in

 

77

 

Section 3.07(a) (Financial
Information) (such Losses, “Financial Statement Losses”), whether
arising before or after the Tip Date, and including all Financial Statement
Losses theretofore Applied Against the Deductible, shall be payable from the
first dollar of such losses (subject to clauses (ii), (iii) and (iv) of
Section 9.04(a)). At such time as an Indemnifying Party has paid to an
Indemnified Party or Parties any Financial Statement Losses that were Applied
Against the Deductible as of the Tip Date, such payments shall be Credited to
the Deductible on a dollar-for-dollar basis to the extent (and solely to the
extent) that the Financial Statement Losses in respect of which such payments
were made had previously been Applied Against the Deductible. From and after
the Tip Date and the payment and credit, if any, of the amounts described in
the immediately preceding sentence, no Financial Statement Losses shall be
Applied Against the Deductible and no payments in respect thereof shall be
Credited to the Deductible. For purposes of this Section 9.04(b), (A) Losses
that are “Applied Against the Deductible” count toward satisfaction of
the Deductible, and (B) amounts that are “Credited to the Deductible”
decrease the amount of the Losses previously Applied Against the Deductible for
purposes of determining the unsatisfied amount of the Deductible.

 

SECTION 9.05.  Notice of Loss; Third Party Claims.  (a)  In order to make a claim for
indemnification hereunder, an Indemnified Party shall give the Indemnifying
Party notice of the matter which an Indemnified Party has determined gives rise
to a right of indemnification under this Agreement, which notice shall describe
the claim in reasonable detail.  The Indemnifying
Party shall notify the Indemnified Party within 30 days following its receipt
of such notice whether the Indemnifying Party disputes its liability to the
Indemnified Party under Section 9.02 or 9.03, as applicable.  If the Indemnifying Party does not dispute
its liability, such claim specified by the Indemnified Party in such notice
shall be conclusively deemed a liability of the Indemnifying Party under such
section and the Indemnifying Party shall pay the amount of such liability to
the Indemnified Party on demand or, in the case of any notice in which the
amount of the Loss (or any portion thereof) is estimated, on such later date
when the amount of such Loss (or portion thereof) becomes finally determined.

 

(b) 
If an Indemnified Party shall receive notice of any Action (a “Third Party
Claim”) commenced against it which may give rise to a claim for Loss under
this Article IX, within 30 days of the receipt of such notice, the
Indemnified Party shall give the Indemnifying Party notice of such Third Party
Claim; provided, however, that the failure to provide such notice
shall not release the Indemnifying Party from any of its obligations under this
Article IX except to the extent the Indemnifying Party shall have actually
been prejudiced as a result of such failure. 
The Indemnifying Party (i) shall be entitled to assume the defense
of such Third Party Claim at its expense and through counsel of its choice
(reasonably acceptable to the Indemnified Party) if (x) it provides an
irrevocable notice of its intention to do so and acknowledges in writing its
obligation to indemnify the Indemnified Party hereunder for all Losses
(including Losses incurred prior to the exercise of its rights under this Section 9.05(b) that
may result from such Third Party Claim) within 60 days of the receipt of notice
from the Indemnified Party (but in any event prior to the commencement of
trial), (y) in the case of a Third Party Claim against a Purchaser
Indemnified Party, the settlement of, or an adverse judgment with respect to,
the 

 

78

 

Third Party Claim could not
reasonably be expected to have a material and adverse effect on the Business or
the Companies or the Company Subsidiaries and (z) no equitable remedy is
sought as a primary remedy under such Third Party Claim.  The Indemnifying Party shall assume the
defense of all Third Party Claims with respect to the Retained Litigation, at
its expense and with counsel of its choice. 
If the Indemnifying Party elects to undertake any such defense against a
Third Party Claim other than the Retained Litigation, the Indemnified Party may
participate in such defense and employ counsel, at its own expense, separate
from the counsel employed by the Indemnifying Party, it being understood that
the Indemnifying Party shall control such defense (except that if the named
parties to such action include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party has been advised in writing by counsel that
representation of both parties by the same counsel, or conduct by the
Indemnifying Party of the defense of the Indemnified Party, would be
inappropriate due to a conflict of interests between the Indemnifying Party and
the Indemnified Party, in which event the Indemnified Party shall be entitled,
at the Indemnifying Party’s cost, to separate counsel of its own
choosing).  In no event shall any
Indemnified Party be entitled to separate counsel in connection with, or to
participate in, any Retained Litigation. 
The Indemnified Party shall cooperate with the Indemnifying Party in
such defense and make available to the Indemnifying Party, at the Indemnifying
Party’s expense, all witnesses, pertinent records, materials and information in
the Indemnified Party’s possession or under the Indemnified Party’s control
relating thereto as is reasonably required by the Indemnifying Party.  If the Indemnifying Party elects to direct
the defense of any such claim or proceeding other than a Retained Litigation,
the Indemnified Party shall not pay, or permit to be paid, any part of such
Third Party Claim unless the Indemnifying Party consents in writing to such
payment (which consent shall not be unreasonably withheld) or unless the
Indemnifying Party withdraws from the defense of such Third Party Claim or
unless a final judgment from which no appeal may be taken by or on behalf of
the Indemnifying Party is entered against the Indemnified Party for such Third
Party Claim.  No Indemnified Party shall
pay or permit to be paid any part of a Third Party Claim relating to Retained
Litigation without the consent of the Indemnifying Party, unless the failure to
do so would be in violation of any applicable Law or Governmental Order.  The Indemnifying Party will not consent to
the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld, delayed or conditioned if the
judgment or proposed settlement involves only the payment of money damages by
one or more of the Indemnifying Parties, contains a full and complete release
in favor of all Indemnified Parties and no admission of wrongdoing on their
part and, in the case of a Third Party Claim against a Purchaser Indemnified
Party, could not reasonably be expected to have a material and adverse effect
on the Business or the Companies or the Company Subsidiaries.  If the Indemnifying Party refuses or fails to
assume the defense of any such claims or proceeding pursuant to this Section 9.05,
the Indemnifying Party may nevertheless participate in such defense and employ
counsel at its own expense, separate from the counsel employed by the
Indemnified Party.  The Indemnified Party
shall cooperate with the Indemnifying Party in such defense and make available
to the Indemnifying 

 

79

 

Party (at the Indemnifying
Party’s expense) all witnesses, pertinent records, materials and information in
the Indemnified Parties’ possession or under the Indemnified Party’s control
relating thereto as is reasonably required by the Indemnifying Party.  However, the Indemnified Party shall control
the defense and shall have the right to contest, settle or otherwise dispose of
such Third Party Claim in the exercise of its reasonable discretion; provided,
however, that following such time as the Indemnifying Party irrevocably
acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder for all Losses (including Losses incurred prior to the delivery of
such acknowledgment) that may result from such Third Party Claim, the
Indemnified Party shall not have the right to settle or otherwise dispose of
(other than through the applicable court or administrative proceedings) such
Third Party Claim without the Indemnifying Party’s prior written consent, which
consent shall not be unreasonably withheld or delayed.  Notwithstanding the foregoing, the
Indemnifying Party shall not be entitled to assume the defense of any
Third-Party Claim (other than any Retained Litigation) if the Third Party Claim
seeks an order, injunction or other equitable relief or relief for other than
money damages against the Indemnified Party as a primary remedy.  If the Indemnifying Party makes any payment
on any indemnification claim under this Article IX, including any Retained
Litigation or other Third Party Claim, the Indemnifying Party shall be
subrogated, to the extent of such payment, to all rights and remedies of the
Indemnified Party to any claims or rights of the Indemnified Party (other than
any claims or rights with respect to insurance or insurance benefits) with
respect to such claim.

 

SECTION 9.06.  Remedies.  The Purchasers and the Seller acknowledge and
agree that following the Closing, other than with respect to fraud, the
indemnification provisions of Section 9.02 and Section 9.03 shall be
the sole and exclusive remedies of the Purchaser Indemnified Parties and the
Seller Indemnified Parties for any breach by the other party of the
representations and warranties in this Agreement and for any failure by the
other party or its Affiliates, as applicable, to perform and comply with any
covenants and agreements in this Agreement, except that if any of the
provisions of this Agreement are not performed in accordance with their
respective terms or are otherwise breached, the parties shall be entitled to
specific performance of the terms thereof in addition to any other remedy at
law or equity.  The parties agree that
the allocation of the Purchase Price in accordance with Section 2.02(b) shall
not be construed as indicative or determinative, or be raised as evidence, for
any breach or Loss subject to indemnification under Article IX or
otherwise, the satisfaction of any closing condition under Article VIII,
damages or remedies for the breach of the obligations under any covenant,
including Section 5.10, or for any other purpose hereunder other than Section 2.02(b).

 

SECTION 9.07.  Tax Matters.  Anything in this Article IX to the
contrary notwithstanding, the rights and obligations of the parties with respect
to indemnification for any and all Tax matters shall be solely governed by Article VII
and shall not be subject to the provisions of this Article IX.

 

SECTION 9.08.  General.  The indemnification provisions of this Article IX
(a) shall apply without regard to, and shall not be subject to, any
limitation by reason of set-off, limitation or otherwise and (b) are
intended to be comprehensive and not to be limited by any requirements of Law
concerning prominence of language or waiver of any legal right under any 

 

80

 

Law (including rights under any workers’ compensation statute or
similar statute conferring immunity from suit).

 

SECTION 9.09.  Calculation of Losses.  Any qualification as to materiality and/or Material
Adverse Effect contained in the representations and warranties set forth herein
shall be disregarded for purposes of calculating the amount of Losses under
this Agreement.  The amount of any Losses
for which indemnification is provided under Article VII and this Article IX
shall be net of any amounts actually recovered by the Indemnified Party under
insurance policies of the Seller or otherwise with respect to such Losses (net
of any Tax or expenses incurred in connection with such recovery, and it being
understood that such Indemnified Party shall not have any obligation to seek
any such recoveries).

 

SECTION 9.10.  Successors and Assigns.  If the Seller, either Purchaser or any of
such party’s respective successors or assigns (i) consolidates with or
merges with or into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii) transfers
or conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, to the extent necessary, proper provision shall be
made so that the successors and assigns of such party shall assume the
obligations set forth in this Article IX.

 

ARTICLE X

 

TERMINATION, AMENDMENT AND WAIVER

 

SECTION 10.01.  Termination.  This Agreement may be terminated at any time
prior to the Closing:

 

(a) 
by either the Seller or the Purchasers if the Closing shall not have occurred
by September 30, 2008; provided, however, that the right to
terminate this Agreement under this Section 10.01(a) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing to occur on or prior to such date;

 

(b) 
by either the Purchasers or the Seller in the event that any Governmental Order
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement shall have become final and nonappealable;

 

(c) 
by the Seller if the
Purchasers shall have breached any of their representations, warranties,
covenants or agreements contained in this Agreement which would give rise to
the failure of a condition set forth in Article VIII, which breach cannot
be or has not been cured within 30 days after the giving of written notice by
the Seller to the Purchasers specifying such breach;

 

(d)  by the Purchasers if (i) the
Seller shall have breached any of its representations, warranties, covenants or
agreements contained in this Agreement which would give rise to the failure of
a condition set forth in Article VIII, which breach cannot be or has not
been cured within 30 days after the giving of written notice by the
Purchasers to the Seller specifying such breach, or (ii) there occurred an

 

81

 

event,
change, occurrence or circumstance that, individually or in the aggregate with
any such other events, changes, occurrences or circumstances, has had or would
reasonably be expected to have a Material Adverse Effect; and

 

(e)  by the mutual
written consent of the Seller and the Purchasers.

 

SECTION 10.02.  Effect of Termination.  In the event of termination of this Agreement
as provided in Section 10.01, this Agreement shall forthwith become void
and there shall be no liability on the part of either party hereto except (a) as
set forth in Section 5.03 and Article XI and (b) that nothing
herein shall relieve either party from liability for any willful or intentional
breach of this Agreement occurring prior to such termination.

 

ARTICLE XI

 

GENERAL PROVISIONS

 

SECTION 11.01.  Expenses.  The Purchasers shall bear their expenses
incurred in connection with this Agreement and the Ancillary Agreements and the
transactions contemplated hereby and thereby (other than filing fees incurred
in connection with filings and submissions made pursuant to the HSR Act, which
shall be borne equally by the Purchasers and the Seller), including all fees
and expenses of the Purchasers’ agents, representatives, financial advisors,
counsel and accountants.  The Seller
shall bear the expenses incurred by the Seller, the Companies and the Company
Subsidiaries in connection with this Agreement and the Ancillary Agreements and
the transactions contemplated hereby and thereby through the Closing, including
all fees and expenses of the respective agents, representatives, financial
advisors, counsel and accountants of the Seller, the Companies and the Company
Subsidiaries (the “Seller Transaction Expenses”).

 

SECTION 11.02.  Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
in person, by overnight courier service, by facsimile (with confirmation notice
delivered by another method of delivery hereunder) or by certified mail and
shall be deemed to have been duly given or made on delivery if given in person,
one day after deposit with an internationally recognized overnight courier
service, on delivery and confirmation as aforesaid by facsimile or by three
Business Days after deposited in the mails for registered or certified mail
(postage prepaid, return receipt requested) to the respective parties hereto at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 11.02):

 

(a)   if to the
Seller:

 

The Reader’s Digest Association, Inc.

1 Reader’s Digest Road

Pleasantville, NY 10570

Telecopy:  914-224-5644

Attention:  Senior Vice President and
General Counsel

 

82

 

with a copy to:

 

Hogan & Hartson LLP

875 Third Avenue

New York, NY 10022

Telecopy:  212-918-3000

Attention:  Deborah R. Wolfe, Esq.

 

(b)  if to the Purchasers:

 

TI Circulation Holdings LLC

1271 Avenue of the
Americas

New York, NY 10020-1393

Telecopy:  212-467-2923

Attention:  President

 

and

 

1417557 Alberta ULC

1271 Avenue of the Americas

New York, NY 10020-1393

Telecopy:  212-467-0660

Attention:  President

 

with a copy to:

 

Time Inc.
 1271 Avenue of the Americas

New York, NY 10020-1393

Telecopy:  212-467-0905

Attention:  General Counsel

 

and

 

Cravath, Swaine & Moore LLP 

825 Eighth Avenue 

New York, NY 10019

Telecopy:  212-474-3700

Attention:  Eric Schiele, Esq.

 

SECTION 11.03.  Public Announcements.  Promptly following the execution of this
Agreement, the parties agree to issue a joint press release in respect of this
Agreement and the transactions contemplated hereby, the substance of which
shall be reasonably satisfactory to such parties.  Each party shall keep this Agreement strictly
confidential and neither party shall make, or cause to be made, any disclosure,
press release or public announcement of any kind in respect of this Agreement
or the transactions contemplated by this Agreement or otherwise communicate
with any news media in respect of this Agreement without the prior written 

 

83

 

consent of the other party, except (i) to the extent such
disclosure, press release, public announcement or communication is required by
order of a court of competent jurisdiction, subpoena, applicable Law or any
applicable stock exchange rule or regulation, provided that such
required party shall, if reasonably practicable, before responding to such
requirement, provide the other party with a prompt written notice thereof so
that the other party may seek a protective order and/or other appropriate
remedy or waive compliance with the confidentiality obligations set forth in
this Agreement, (ii) in the case of the Purchasers, disclosures in
accordance with the customary practices of the Purchasers and their Affiliates
with respect to public company disclosure filings, in which case the Purchasers
shall, to the extent practicable, allow the Seller reasonable time to comment
on such release or announcement in advance of such issuance, (iii) in the
case of the Seller, disclosures in accordance with the customary practices of
the Seller and its Affiliates with respect to public company disclosure
filings, in which case the Seller shall, to the extent practicable, allow the
Purchasers reasonable time to comment on such release or announcement in
advance of such issuance, and (iv) the parties to this Agreement shall
cooperate as to the timing and contents of any disclosure, press release,
public announcement or communication not contemplated by clause (i), (ii) or
(iii) above.

 

SECTION 11.04.  Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect for so long as the economic or
legal substance of the transactions contemplated by this Agreement is not
affected in any manner materially adverse to either party hereto.  Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated by this Agreement are
consummated as originally contemplated to the greatest extent possible.

 

SECTION 11.05.  Entire Agreement.  This Agreement, the Ancillary Agreements and
the Confidentiality Agreement constitute the entire agreement of the parties
hereto with respect to the subject matter hereof and thereof and supersede all
prior agreements and undertakings, both written and oral, between the Seller
and the Purchasers with respect to the subject matter hereof and thereof.

 

SECTION 11.06.  Assignment.  This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the Seller
or the Purchasers (which consent may be granted or withheld in the sole
discretion of the Seller or the Purchasers), as the case may be; provided,
however, that the Purchasers shall have the right to assign any of their
rights (but none of their obligations) hereunder to one or more of their
Affiliates without the consent of the Seller. 
Any attempted assignment in violation of this Section 11.06 shall
be null and void.

 

SECTION 11.07.  Amendment.  This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the
Seller and the Purchasers or (b) by a waiver in accordance with Section 11.08.

 

SECTION 11.08.  Waiver.  Either party to this Agreement may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any

 

84

 

inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant
hereto or (c) waive compliance with any of the agreements of the other
party or conditions to such party’s obligations contained herein.  Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby.  Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other term
or condition of this Agreement.  The
failure of either party hereto to assert any of its rights hereunder shall not
constitute a waiver of any of such rights.

 

SECTION 11.09.  No Third Party Beneficiaries.  This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective
successors and permitted assigns and nothing herein, express or implied
(excluding the provisions of Article IX relating to indemnified parties),
is intended to or shall confer upon any other Person any legal or equitable
right, benefit or remedy of any nature whatsoever, including any rights of
employment for any specified period, under or by reason of this Agreement.

 

SECTION 11.10.  Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.  All Actions arising out of or relating to
this Agreement shall be heard and determined exclusively in any New York
federal court sitting in the Borough of Manhattan of The City of New York; provided,
however, that if such federal court does not have jurisdiction over such
Action, such Action shall be heard and determined exclusively in any New York
state court sitting in the Borough of Manhattan of The City of New York.  Consistent with the preceding sentence, the
parties hereto hereby (i) submit to the exclusive jurisdiction of any
federal or state court sitting in the Borough of Manhattan of The City of New
York for the purpose of any Action arising out of or relating to this Agreement
brought by any party hereto and (ii) irrevocably waive, and agree not to
assert by way of motion, defense, or otherwise, in any such Action, any claim
that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that the Action is brought in an inconvenient forum, that the venue of the
Action is improper, or that this Agreement or the transactions contemplated by
this Agreement may not be enforced in or by any of the above-named courts.

 

SECTION 11.11.  Waiver of Jury Trial.  EACH OF THE PARTIES HERETO HEREBY WAIVES TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.  EACH OF THE PARTIES
HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.11.

 

85

 

SECTION 11.12.  Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.

 

SECTION 11.13.  Guarantee of Time.  Time Inc. (the “Guarantor”) hereby
guarantees the due and punctual performance and payment (and not merely
collection) in full of all obligations and liabilities of the Purchasers under
this Agreement and the Ancillary Agreements, as and when due and payable or
required to be performed pursuant to any provision of this Agreement and the
Ancillary Agreements.  To the fullest
extent permitted by applicable Law, the Guarantor waives presentment to, demand
of payment from and protest to any other Person of any of the guaranteed
obligations and liabilities, and also waives notice of acceptance of its
guarantee and notice of protest for nonpayment. 
Without limiting in any way the foregoing guarantee, the Guarantor
covenants and agrees to take all actions to enable the Purchasers to adhere to
each provision of this Agreement and the Ancillary Agreements.  Notwithstanding any of the foregoing, nothing
herein shall be deemed to waive or limit the Guarantor’s ability to assert any
claims, defenses or other rights that the Purchasers may have under this
Agreement, other than any claims, defenses or other rights that the Purchasers
may possess relating to (i) lack of validity or enforceability of this
Agreement against either Purchaser arising from such Purchaser’s defective
incorporation or lack of qualification to do business in any applicable
jurisdiction, (ii) either Purchaser’s lack of corporate authority to enter
into or perform this Agreement or the due execution and delivery hereof, or (iii) the
termination of existence, dissolution, liquidation, insolvency, bankruptcy,
receivership or other reorganization of either Purchaser.  If the Guarantor (A) consolidates with
or merges with or into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (B) transfers
or conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, to the extent necessary, proper provision shall be
made so that the successors and assigns of the Guarantor shall assume the
obligations set forth in this Section 11.13.  Except as otherwise set forth herein, the
rights, duties and obligations of the Guarantor may not be assigned, transferred,
conveyed or delegated in whole or in part without the consent of the Seller,
which consent may be withheld or conditioned in the Seller’s sole discretion.

 

(remainder
of page intentionally left blank)

 

86

 

IN WITNESS WHEREOF, the Seller and the
Purchasers have caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly authorized.

 

	
   

  	
  THE READER’S DIGEST ASSOCIATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harris Williams

  
	
   

  	
   

  	
  Name:

  	
  Harris Williams

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TI CIRCULATION HOLDINGS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Maurice F. Edelson

  
	
   

  	
   

  	
  Name:

  	
  Maurice F. Edelson

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  1417557 ALBERTA ULC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Maurice F. Edelson

  
	
   

  	
   

  	
  Name:

  	
  Maurice F. Edelson

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

 

For purposes of Section 11.13 of this Agreement
only:

 

TIME INC.

 

 

	
  By:

  	
  /s/ Maurice F. Edelson

  	
   

  
	
   

  	
  Name:

  	
  Maurice F. Edelson

  
	
   

  	
  Title:

  	
  SVP, Corporate Development

  
				

 

87Promissory Note

Exhibit 10.1

PROMISSORY NOTE FOR MULTIPLE ADVANCES

	$400,000                                                                                            

	September 23, 2008

	 
	Spokane, Washington

FOR VALUE RECEIVED, Globetech Environmental, Inc., a Washington corporation and Donald Sampson (jointly and severally, the “Maker”), jointly and severally promise to pay to the order of Globe-Tek, LLC., a Washington limited liability company (the "Holder"), on December 31, 2008 (the “Maturity Date”), without demand, the principal amount of all loans made by the Holder to the Maker  under the terms of this Note (each an “Advance” and collectively the “Advances”) plus simple interest on the unpaid Advances at an annual rate of six percent (6%) per annum together with any and all costs, expenses, and other charges due and payable on this Promissory Note for Multiple Advances (“Note”). The aggregate principal amount of all Advances outstanding hereunder shall not exceed Four Hundred Thousand Dollars ($400,000), and no Advance shall be made after the Maturity Date. 

The unpaid principal shall be the total amount advanced hereunder, less the amount of the principal payments made hereon.  The Maker warrants that this loan and all funds advanced hereunder are exclusively for commercial or business purposes related to the business of Maker.  This Note is given to avoid the execution of an individual Note for each advance made by Holder.  

It is anticipated that Advances shall be made on the following schedule for the following purposes:

A.  On or about September 24, 2008 Holder shall make an advance in the  amount of Fifty Thousand Dollars ($50,000). Maker represents and warrants that the entire amount of this Advance shall be forwarded to Logmed GmbH for payment to  Maschinen-Anlagenbau u. Services (“MAS”) for the benefit of Maker’s account. The proceeds of this Advance shall be forwarded by Maker to Logmed GmbH no later than the next business day after receipt. It shall be a condition precedent to this Advance that the Holder shall have received notice, written in the English language, from MAS,  addressed to Maker, Holder and Tech-Rock, LLC, in form satisfactory to Holder and Tech-Rock, LLC, that upon receipt of this payment of $50,000, MAS shall release any and all claims, liens and interest in the Utrecht machine (Logmend Model 200SL, machine number 926) and the Logmed II-100, serial number K-NR.57.801, which machine is currently located in Spokane, Washington. The notice shall further authorize Tech-Rock, LLC, or its agent, to take possession of and remove the Utrecht machine from the MAS facility.

B.  Holder may, at its sole and absolute discretion and not being under a compulsion to do so, make additional one or more additional Advances of up to an additional Three Hundred   Fifty Thousand Dollars ($350,000). Holder may place such terms and conditions upon such additional Advances as shall be solely satisfactory to Holder.  

C.  Upon receipt of confirmation from MAS, written in the English language, that it has received the $50,000 and any additional Advance (if such written confirmation is a term or condition of such additional Advance), Holder shall release Donald Sampson as a Maker of this Note.

1. Definitions.

(a) Cure Period. The term "Cure Period" means a period of ten (10) days from the time the Maker receives notice of a Default.

(b) Default. The term "Default" means any of the following events:

(i) the Maker at any time fails to pay, when due, any sum owing on this Note; or

(ii) the Maker breaches or fails to perform any obligation under this Note or any other agreement between the Maker and the Holder; or

(iii) the Maker files or is served with any petition for relief under the 11 U.S. C. § 1 et seq. or any similar federal or state statute, or a proceeding is instituted against the Maker seeking a readjustment of the Maker's indebtedness; or

(iv) the Maker assigns any of its assets for the benefit of its creditors; or

(v) an action is commenced to appoint, or the Maker consents to the appointment of a receiver or trustee for all or any part of the Maker's property; or

(vi) the Maker admits, in writing, its inability to pay its debts as they become due; or

(vii) the Maker becomes insolvent; or

(viii) a court of competent jurisdiction enters an order approving a petition seeking a reorganization of the Maker or appointing a receiver, trustee, or other similar official of substantially all of Maker's assets.

(c) Default Rate. The term "Default Rate" means the rate of interest otherwise payable on this Note plus seven percent (7%).

2. Interest. All sums owing on this Note shall bear interest from the date of  this Note until paid, at a fixed rate of six  percent (6%) per annum. Should the Maker default on any of the obligations specified in this Note, all sums owing on the Note shall bear interest at the Default Rate.

3. Maturity . On or before the 31st  day of December, 2008, the Maker shall pay all unpaid principal and interest remaining due on the Note, and shall pay any and all costs, expenses, and other charges due and payable on this Note. All payments shall be made in the lawful currency of the United States of America. All payments shall be made to the Holder at 

Globe-Tek, LLC. 

5312 N. Vista Ct.

Spokane, WA 99212

 or at such other place as the Holder may specify in writing.

4. Prepayment. The Maker may prepay any amount owing on this Note without incurring any additional charge. 

5. Authorization. Prior to execution this Note shall have been duly authorized by Maker’s Board of Directors. Upon request Maker shall deliver to Holder a copy of the minutes of the meeting of the Board of Directors or a copy of the consent of directors authorizing the Maker to enter into this Note and grant security interests in all of Makers assets and authorizing the undersigned to execute the Note and all necessary security agreements and financing statements on behalf of Maker.

6. Security. The payment of all sums owing on this Note shall be secured by a first priority lien upon all of the Maker's assets, evidenced by a security agreement between the Maker and the Holder in the forms attached hereto and by this reference incorporated herein.

7. Notice of Default; Cure. Upon a Default, the Holder shall deliver written notice of the Default to the Maker. The Maker shall have the right to cure, within the Cure Period, any Default described in Section l(b)(i) or (ii) of this Note. The Maker may not cure a Default described in Section l (b)(iii) through (viii) of this Note. If the Maker fails to cure a Default within the Cure Period, or is prohibited from curing the Default, the Holder may accelerate all amounts owing on the Note. Such accelerated amounts shall become immediately due and payable. If the Holder accelerates the amounts due under this Note, the Holder shall have the right to pursue any or all of the remedies provided in this Note, including, but not limited to, the right to bring suit on the Note.

8. Remedies. Upon a Default and expiration of any applicable Cure Period, the Holder shall have all rights available to it at law or in equity, including all rights available under the Washington Uniform Commercial Code. Any unpaid balance outstanding at the time of a Default, and any costs or other expenses incurred by the Holder in realizing on this Note, shall bear interest at the Default Rate. All rights and remedies granted under this Note shall be deemed cumulative and not exclusive of any other right or remedy available to the Holder.

9. Attorneys' Fees, Costs, and Other Expenses. Maker agrees to pay all costs and expenses which the Holder may incur by reason of any Default, including, but not limited to, reasonable attorneys' fees, expenses, and costs incurred in any action undertaken with respect to this Note, or any appeal of such an action. Any judgment recovered by the Holder shall bear interest at the Default Rate.

10. Transfer; Obligations Binding on Successors. The Maker may not transfer any of its rights, duties, or obligations under this Note without the prior written consent of the Holder. This Note, and the duties set forth in the Note, shall bind the Maker and its successors and assigns. All rights and powers established in this Note shall benefit the Holder and its successors and assigns.

11. Notices. Any notice, consent, or other communication required or permitted under this Note shall be in writing and shall be deemed to have been duly given or made either (1) when delivered personally to the party to whom it is directed (or any officer or agent of such party), or (2) three days after being deposited in the United States' certified or registered mail, postage prepaid, return receipt requested, and properly addressed to the party. A communication will be deemed to be properly addressed if sent to the Maker at:

Globetech Environmental, Inc.

7716 W. Rutter Parkway

Spokane, WA  99208

or if sent to the Holder at: 

Globe-Tek, LLC. 

5312 N. Vista Ct.

Spokane, WA 99212

With copies to:

Gregory B. Lipsker, PLLC

601 W. Main Ave., Suite 1012

Spokane, WA 99201

The Maker or the Holder may at any time during the term of this Note change the address to which notices and other communications must be sent by providing written notice of a new address within the United States to the other party. Any change of address will be effective ten (10) days after notice is given.

12. Governing Law. This Note will be construed and the rights, duties, and obligations of the parties will be determined in accordance with the laws of the State of Washington.

13. Headings. Headings used in this Note have been included for convenience and ease of reference only, and will not in any manner influence the construction or interpretation of any provision of this Note.

14. Entire Agreement. This Note represents the entire understanding of the parties with respect to the subject matter of the Note. There are no other prior or contemporaneous agreements, either written or oral between the parties with respect to this subject.

15. Waiver. No right or obligation under this Note will be deemed to have been waived unless evidenced by a writing signed by the party against whom the waiver is asserted, or by its duly authorized representative. Any waiver will be effective only with respect to the specific instance involved, and will not impair or limit the right of the 

waiving party to insist upon strict performance of the right or obligation in any other instance, in any other respect, or at any other time.

16. Severability. The parties intend that this Note be enforced to the greatest extent permitted by applicable law. Therefore, if any provision of this Note, on its face or as applied to any person or circumstance, is or becomes unenforceable to any extent, the remainder of this Note and the application of that provision to other persons, circumstances, or extent, will not be impaired.

17. References. Except as otherwise specifically indicated, all references in this Note to numbered or lettered sections or subsections refer to sections or subsections of this Note. All references to this Note include any subsequent amendments to the Note.

18. Venue. The Maker agrees that any action on this Note must be brought in a court of appropriate jurisdiction in Spokane County, Washington.

19. Maximum Interest. Notwithstanding any other provisions of this Note, any interest, fees, or charges payable by reason of the indebtedness evidenced by this Note shall not exceed the maximum permitted by law.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

MAKER:

Globetech Environmental, Inc.  

/s/ Donald Sampson

__________________________           

By:    Donald Sampson  

Its:      President 

/s/ Donald Sampson

___________________________      

Donald Sampson, Individually

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