STOCKHOLDERS' AGREEMENT

 

 

TABLE OF CONTENTS

 

		Page
Section 1.	Certain Definitions	2
Section 2.	Methodology for Calculations	7
Section 3.	Restrictions on Transfers of Stock; Right of First Offer	7
Section 4.	Tag-Along Rights	9
Section 5.	Drag-Along Rights	10
Section 6.	New Securities; Distributions	11
Section 7.	Corporate Governance; Management	11
Section 8.	Voting; Major Transactions	12
Section 9.	Registration Rights	12
Section 10.	Indemnification	25
Section 11.	Legend	26
Section 12.	Representations and Warranties	27
Section 13.	Management Rights	29
Section 14.	Reports to Stockholders	30
Section 15.	Expenses and Fees	31
Section 16.	Miscellaneous	31
Section 17.	Effectiveness of Agreement	34
Annex A	Form of Assumption Agreement
Annex B	Form of Management Services Agreement

 

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STOCKHOLDERS’ AGREEMENT

 

THIS AGREEMENT (this “ Agreement ”) is made as of January 23, 2007 by and among RDA Holding Co., a corporation organized under the laws of the State of Delaware (the “ Company ”), RDA Investors I, LLC, a limited liability company organized under the laws of the State of Delaware (“ Ripplewood I ”), RDA Investors II, LLC, a limited liability company organized under the laws of the State of Delaware (“ Ripplewood II ”), RDA Investors III, LLC, a limited liability company organized under the laws of the State of Delaware (together with Ripplewood I and Ripplewood II, “ Ripplewood ”), J. Rothschild Group (Guernsey) Ltd., a company organized under the laws of Guernsey, Channel Islands (“ Rothschild ”), GoldenTree Asset Management, LP, a limited partnership organized under the laws of Delaware (together with Ripplewood and Rothschild, the “ Original Stockholders ”), and the other Stockholders of the Company party hereto from time to time.

 

W I T N E S S E T H:

 

WHEREAS, the Company, Doctor Acquisition Co., a corporation organized under the laws of the State of Delaware and a wholly owned subsidiary of the Company (“ Merger Sub ”), and The Reader’s Digest Association, Inc., a corporation organized under the laws of the State of Delaware (“ RDA ”), entered into an Agreement and Plan of Merger dated as of November 16, 2006 (as such agreement may be amended, supplemented or otherwise modified from time to time, the “ Merger Agreement ”);

 

WHEREAS, pursuant to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into RDA (the “ Acquisition ”), and RDA shall continue as the surviving corporation (the “ Surviving Corporation ”) and as a wholly owned subsidiary of the Company;

 

WHEREAS, on the date hereof the Company is entering into agreements to acquire WRC Media, Inc., a corporation organized under the laws of the State of Delaware (“ WRC ”), and Direct Holdings U.S. Corp., a corporation organized under the laws of the State of Delaware (“ DHUS ”) (the potential acquisition of either or both of WRC and DHUS, the “ Combination ”); and pursuant to the applicable acquisition agreements certain investors in the WRC and DHUS businesses will receive Common Stock as consideration, which investors will be required to enter into Assumption Agreements hereto;

 

WHEREAS, for U.S. Federal income tax purposes, the parties hereto intend that (x) the contribution of capital by the Original Stockholders and the other common and preferred equity investors in the Company in connection with the Acquisition and (y) the Combination shall together constitute a transaction described under Section 351 of the U.S. Internal Revenue Code of 1986, as amended (the “ Code ”);

 

WHEREAS, pursuant to subscription agreements to be entered into as of the Closing Date by each of the Original Stockholders and each other Stockholder to become a party hereto as of the Closing Date (other than the Stockholders who receive Common Stock as consideration in the Combination), on the one hand, in form and substance reasonably satisfactory to the Company, each such Stockholder will purchase from the Company, and

 

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the Company will issue to such Stockholder, the number of shares of Common Stock set forth in Schedule I next to the name of such Stockholder (or in the case of Stockholders not set forth on Schedule I, as separately agreed), in each case for $10 in cash per share of Common Stock and on the other terms and conditions set forth in the applicable subscription agreement;

 

WHEREAS, the parties hereto deem it to be in their best interests to enter into an agreement establishing and setting forth their agreement with respect to certain rights and obligations associated with ownership of Stock; and

 

WHEREAS, this Agreement shall become effective immediately following the Closing.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

 

Section 1.               Certain Definitions .

 

As used herein, the following terms shall have the following meanings:

 

“ 1940 Act ”: The United States Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.

 

“ Acquisition ”: As defined in the recitals.

 

“ Affiliate ”: With respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such first Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; provided that no Stockholder shall be deemed to be an Affiliate of any other Stockholder solely as a result of being a party to this Agreement or the transactions contemplated hereby; provided further that none of the Company or any of its subsidiaries shall be deemed to be an Affiliate of any Stockholder and no Stockholder or any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its subsidiaries.

 

“ Affiliate Transferee ”: As defined in Section 3(a).

 

“ Agreement ”: As defined in the preamble.

 

“ Assignee ”: As defined in Section 3(a).

 

“ Assumption Agreement ”: A writing substantially in the form attached hereto as Annex A whereby a Person becomes a party to this Agreement.

 

“ Board ”: As defined in Section 7(a).

 

“ Business Day ”: A day which is not a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close.

 

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“ Closing ”: As defined in the Merger Agreement.

 

“ Closing Date ”: As defined in the Merger Agreement.

 

“ Code ”: As defined in the recitals.

 

“ Combination ”: As defined in the recitals.

 

“ Common Stock ”: The common stock, par value $1.00 per share, of the Company.

 

“ Company ”: As defined in the preamble.

 

“ Demand Notice ”: As defined in Section 9.1(a).

 

“ DHW ”: As defined in the recitals.

 

“ Director ” and “ Directors ”: As defined in Section 7(a).

 

“ Drag-Along Notice ”: As defined in Section 5(a).

 

“ Drag-Along Sale ”: As defined in Section 5(a).

 

“ Drag-Along Stockholders ”: As defined in Section 5(a).

 

“ Effective Time ”: As defined in the Merger Agreement.

 

“ Exchange Act ”: The United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“ First Offer Acceptance ”: As defined in Section 3(c)(i).

 

“ First Offer Marketing Period ”: As defined in Section 3(c)(ii).

 

“ First Offer Notice ”: As defined in Section 3(c)(i).

 

“First Offer Offeree ”: As defined in Section 3(c)(i).

 

“ First Offer Transferor ”: As defined in Section 3(c)(i).

 

“ HSR Act ”: As defined in Section 3(c)(i).

 

“ Indemnified Party ”: As defined in Section 10(a).

 

“ Initial Public Offering ”: The initial bona fide underwritten public offering and sale of Common Stock pursuant to an effective registration statement under the Securities Act that results in (i) proceeds to the Stockholders and the Company of at least $50 million and (ii) the listing of the Common Stock on a United States national securities exchange or the quotation of such Common Stock on a United States inter-dealer quotation system.

 

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“ Management Services Agreement ”: The Management Services Agreement to be entered into as of the Closing Date by and among the Company and the Original Stockholders in the form attached hereto as Annex B .

 

“ Merger Sub ” As defined in the recitals.

 

“ Merger Agreement ”: As defined in the recitals.

 

“ New Stock ”: Any Stock that is issued or otherwise created by the Company subsequent to the Closing Date; provided , however , that the term “New Stock” does not include Stock (i) issued pursuant to the acquisition of, or investment in, another Person by the Company or any of its subsidiaries, whether by merger, consolidation, purchase or exchange of stock or assets or reorganization or otherwise; (ii) issued in connection with any stock split or stock dividend of the Company; (iii) issued in connection with, or with any refinancing of, the Financing (as defined in the Merger Agreement) or any alternative Financing that includes financing for the Combination; (iv) issued pursuant to any registered public offering; (v) issued to employees of the Company or any of its subsidiaries under any incentive plan or upon exercise of options granted under any incentive stock option plan; or (vi) the issuance of which, individually or in the aggregate with any prior issuance of shares of Stock of the Company (other than any such prior issuances exempted under clauses (i) through (v) of this definition), results in a decrease to the percentage of outstanding Stock held by any Stockholder of not more than 1%.

 

“ Offer Date ”: As defined in Section 3(c)(i).

 

“ Offer Price ”: As defined in Section 3(c)(i).

 

“ Offered Stock ”: As defined in Section 3(c)(i).

 

“ Original Stockholders ”: As defined in the preamble.

 

“ Other Stockholders ”: The Stockholders other than Ripplewood.

 

“ Permitted Transferee ”: As defined in Section 3(a).

 

“ Person ”: Any individual, partnership, corporation, limited liability company, limited company, unincorporated organization or association, trust (including the trustees thereof, in their capacity as such), joint venture, joint-stock company or other entity or organization, including a government or governmental agency.

 

“ RDA ”: As defined in the recitals.

 

“ Registrable Securities ”: At any time, (a) any shares of Stock (other than Stock Equivalents) held by a Stockholder, (b) any shares of Stock issuable upon conversion, exchange or exercise of any Stock Equivalent of the Company held by a Stockholder (whether or not so converted, exchanged or exercised, provided that the conversion, exchange or exercise occurs not later than the effectiveness of the registration) and (c) any securities of the Company issued in exchange for or in respect of any of the

 

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foregoing, whether pursuant to a merger or consolidation, as a result of any stock split or reclassification of, or share dividend on, any of the foregoing or otherwise. For purposes of this Agreement, any Registrable Securities shall cease to be Registrable Securities when (i) a registration statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective registration statement, (ii) such Registrable Securities shall have been disposed of pursuant to Rule 144, (iii) such Registrable Securities are sold by a Person in a transaction in which the rights under the provisions of this Agreement relating to registration are not assigned or (iv) such Registrable Securities shall cease to be outstanding.

 

“ Registration Expenses ”: As defined in Section 9.4(c).

 

“ Registration Indemnified Party ”: As defined in Section 9.6(c).

 

“ Registration Indemnifying Party ”: As defined in Section 9.6(c).

 

“ Requesting Demand Stockholder ”: As defined in Section 9.1(a).

 

“ Required Interest ”: As defined in Section 16(f).

 

“ Ripplewood ”: As defined in the preamble.

 

“ Ripplewood I ”: As defined in the preamble.

 

“ Ripplewood II ”: As defined in the preamble.

 

“ Rule 144 ”: Rule 144 promulgated under the Securities Act.

 

“ SEC ”: The United States Securities and Exchange Commission.

 

“ Securities Act ”: The United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“ Senior PIK Preferred Stock ”: The series of senior pay-in-kind preferred stock, par value $0.01 per share, of the Company, to be issued as of the Closing Date, in connection with the financing for the Merger Agreement.

 

“ Stock ”: (i) any Common Stock, (ii) any other capital stock of the Company that (x) has voting rights generally and not only in limited circumstances or (y) shares in the proceeds of a liquidation or dissolution of the Company on a basis that is tied to the proceeds payable with respect to Common Stock and (iii) any Stock Equivalents of the Company, in each case, whether owned on the date hereof or acquired hereafter.

 

“ Stock Equivalents ”: Securities, including options, that are, or may become, convertible into or exchangeable or exercisable for Stock, including any options, warrants or rights to acquire Stock.

 

“ Stockholder ” or “ Stockholders ”: The Original Stockholders and any other subsequent holder of Stock who agrees to be bound by the terms of this Agreement,

 

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including each Person who acquires Common Stock on the Closing Date in connection with the acquisition of Senior PIK Preferred Stock or in connection with the Combination.

 

“ Surviving Corporation ”: As defined in the recitals.

 

“ Tag-Along Notice ”: As defined in Section 4(a)(i).

 

“ Tag-Along Sale ”: As defined in Section 4(a)(i).

 

“ Tag-Along Seller ”: As defined in Section 4(a)(i).

 

“ Tagging Stockholder ”: As defined in Section 4(a)(ii).

 

“ Transfer ”: To sell, transfer, assign, distribute, pledge, encumber or otherwise dispose of any Stock, either voluntarily or involuntarily. Any sale, transfer, assignment, distribution, pledge, encumbrance or other disposition of any ownership interests in any entity that is a direct or indirect beneficial or record owner of any Stock, or any other transaction that has the economic effect of Transferring Stock, shall be deemed to be a Transfer of Stock by the Stockholder directly owning such Stock. Notwithstanding the foregoing, it is understood and agreed that a Transfer shall not include (a) any Transfer of any ownership interests in Ripplewood Partners I, L.P. or Ripplewood Partners II, L.P. (or in any of their partners) or in any entity that owns Stock among a diverse group of other assets, (b) any distribution of Stock to any direct or indirect holders of ownership interests in Ripplewood or any such entity that owns Stock among a diverse group of other assets, so long as the transferee is a Stockholder (or agrees to become a Stockholder in connection therewith), or (c) any indirect Transfer which the Company determines should not under the circumstances be treated as a Transfer.

 

“ United States ” or “ U . S .”: The United States of America, its territories and possessions, any State of the United States of America and the District of Columbia, as the context requires.

 

“ Unwinding Event ”: As defined in Section 3(a).

 

“ VCOC Stockholder ”: A Stockholder or any Affiliate thereof that is intended to qualify as a “venture capital operating company” within the meaning of 29 C.F.R. § 2510.3-101(d).

 

“ WRC ”: As defined in the recitals.

 

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Section 2.               Methodology for Calculations . For all purposes of this Agreement, the proposed Transfer or the Transfer of a Stock Equivalent shall be treated as the proposed Transfer or the Transfer of the shares of Stock into which such Stock Equivalent can be converted, exchanged or exercised. All holdings of Stock by Persons who are Affiliates of each other shall be aggregated for purposes of meeting any threshold tests under this Agreement; provided that equitable adjustment to the calculation of such holdings shall be made in the event that more than one class of Stock of the Company is issued.

 

Section 3.               Restrictions on Transfers of Stock; Right of First Offer.

 

(a)   Without the consent of Ripplewood acting in its sole discretion, no Stockholder may Transfer its Stock in whole or in part to any Person (an “ Assignee ”) prior to the sixth anniversary of the Closing Date, after which time a Stockholder may Transfer all or any portion of its Stock to another Person only in accordance with the terms of this Section 3, Section 4 or Section 5 (a “ Permitted Transferee ”); provided that a Stockholder may at any time and from time to time (A) Transfer all or a portion of its Stock to one or more Affiliates of such Stockholder (an “ Affiliate Transferee ”), and (B) Transfer its Stock in accordance with Section 4 as a Tagging Stockholder or Section 5 as a Drag-Along Stockholder, in each case without the consent of Ripplewood. In the event a transaction or event is contemplated in which any such Affiliate Transferee will cease to qualify as an Affiliate Transferee (an “ Unwinding Event ”), then (i) such Affiliate Transferee will promptly notify the Company of the pending occurrence of such Unwinding Event and (ii) prior to such Unwinding Event, such Affiliate Transferee will take all actions necessary to effect a transfer of all of the Stock held by such Affiliate Transferee either back to the Person who originally transferred such Stock to it or to another Affiliate of such original transferor. In the event of any purported Transfer by a Stockholder of any Stock in violation of the provisions of this Agreement, such purported Transfer will be void and of no effect, and the Company or the applicable Stockholder, as the case may be, will not give effect to such Transfer.

 

(b)   No Transfer shall be made pursuant to Section 3(a) unless:

 

(i)     such Transfer would not violate the Securities Act or other securities laws applicable to the Company or the Stock to be Transferred;

 

(ii)    such Transfer would not jeopardize the tax treatment intended by Section 16(m);

 

(iii)   such Transfer would not cause the Company to become subject to the 1940 Act;

 

(iv)   such Transfer would not require the Company to register a class of equity securities under Section 12 of the Exchange Act or any similar provision of any applicable foreign securities laws; and

 

(v)    any transferee of Stock (including Affiliate Transferees, but excluding transferees who acquire shares of Stock pursuant to Section 5 or in a registered offering pursuant to Section 9 or, following the Initial Public Offering, in a bona fide widely

 

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distributed sale either to the public or pursuant to Rule 144), at the time of and as a condition to such Transfer, becomes a party to this Agreement by executing and delivering to the Company an Assumption Agreement.

 

Upon executing and delivering an Assumption Agreement, the transferee will be treated as a Stockholder for all purposes hereof and shall succeed to the rights of the transferring Stockholder hereunder, except as otherwise provided in this Agreement or the Assumption Agreement.

 

In its reasonable discretion, the Company may condition any Transfer to be made pursuant to this Section 3 upon receipt of an opinion of counsel (who may be counsel for the Company and who with respect to Section 3(b)(ii) must be tax counsel) to the effect that such Transfer complies with this Section 3, which opinion and counsel shall be reasonably satisfactory to the Company; provided that if the Transfer is conditioned on an opinion of tax counsel relating to Section 3(b)(ii), the Company may impose such condition only during the six months following the Closing Date.

 

(c)    Right of First Offer . (i) Subject to the provisions of Section 9.5(b), if at any time any or all of the Stock held by any Other Stockholder (each such Other Stockholder, a “ First Offer Transferor ”) is proposed to be Transferred to any Person in a Transfer permitted pursuant to Section 3(a) (other than to an Affiliate of such First Offer Transferor or in accordance with Section 4 as a Tagging Stockholder or Section 5 as a Drag-Along Stockholder), the First Offer Transferor shall give Ripplewood (the “ First Offer Offeree ”) written notice (the “ First Offer Notice ”) of its bona fide intention to Transfer such Stock indicating the number of shares of Stock to be offered for Transfer (the “ Offered Stock ”), the price in cash at which the First Offer Transferor proposes to Transfer the Offered Stock (the “ Offer Price ”) and all other material terms and conditions on which the First Offer Transferor proposes to Transfer the Offered Stock (including the identity of the proposed Transferee). Delivery of a First Offer Notice shall constitute an offer by the First Offer Transferor, irrevocable through and including the Offer Date (as defined below) to Transfer to the First Offer Offeree, subject to the terms of this Section 3(c), all (but not less than all) of the Offered Stock at the Offer Price. During the 15 days following the receipt of such First Offer Notice (such 15th day, for the purposes of this Section 3(c), the “ Offer Date ”), the First Offer Offeree shall have the right to exercise the right to purchase, at the Offer Price, the Offered Stock by delivery of a reply notice (a “ First Offer Acceptance ”) to the First Offer Transferor setting forth (x) its irrevocable election to purchase from the First Offer Transferor all of the Offered Stock, (y) closing arrangements and (z) a closing date not less than 30 nor more than 60 days following the Offer Date (unless a longer period of time is necessary to comply with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), or to obtain any other consent required to effect such purchase and sale, in which case such longer period). The First Offer Acceptance shall constitute a binding commitment of the First Offer Offeree to purchase, and a binding commitment of the First Offer Transferor to Transfer, all of the Offered Stock at the Offer Price. The First Offer Transferor shall transfer to the First Offer Offeree the Offered Stock, free and clear of all liens, and shall deliver to the First Offer Offeree such other documents and instruments of transfer as the First Offer Offeree reasonably may request.

 

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(ii) In the event there has not been a timely election by the First Offer Offeree to purchase the Offered Stock in accordance with Section 3(c)(i), then for a period of 60 days immediately following the Offer Date (unless a longer period of time is necessary to comply with the requirements of the HSR Act or to obtain any other consent required to effect such purchase and sale, in which case such longer period) (the “ First Offer Marketing Period ”), the First Offer Transferor may Transfer, subject to the terms and provisions of this Agreement, the Offered Stock at a price not less than the Offer Price and on the same terms and conditions as provided in the First Offer Notice to the First Offer Offeree. If such Transfer is not made within the First Offer Marketing Period or is proposed to be made at a price that is less than the Offer Price or not on the same terms and conditions as provided in the First Offer Notice to the First Offer Offeree, (x) no Transfer of Stock shall be made unless and until a further application of the procedure set forth in Section 3(c)(i) shall have been made with respect to any such prospective Transfer of Stock and (y) the First Offer Transferor may not offer to Transfer its Stock to any Person (including the First Offer Offeree pursuant to this Section 3(c)) until the date that is six months after the last day of the First Offer Marketing Period.

 

Section 4.               Tag-Along Rights .

 

(a)    Transfer of Stock . (i) Subject to the provisions of Section 9.5(b), if at any time Stock held by any Stockholder (the “ Tag-Along Seller ”) is proposed to be Transferred to any Person (other than to an Affiliate of such Tag-Along Seller, to Ripplewood pursuant to Section 3(c) or in accordance with Section 4 as a Tagging Stockholder or Section 5 as a Drag-Along Stockholder) in an amount that, together with any related Transfers of Stock by such Tag-Along Seller and any of its Affiliates, exceeds either (x) 10% of the Stock originally acquired by such Tag-Along Seller and its Affiliates, provided that such amount also exceeds $2.5 million (based on the proposed Transfer price), or (y) $20 million (based on the proposed Transfer price), and such Transfer shall otherwise be permitted in accordance with Section 3 (each a “ Tag-Along Sale ”), then at least 20 days prior to the date proposed for such Tag-Along Sale, the Tag-Along Seller shall provide to all other Stockholders a notice (the “ Tag-Along Notice ”) stating the material terms and conditions of such proposed Tag-Along Sale (including the amount of Stock to be Transferred, the consideration to be paid for such Stock and the name of the proposed purchaser) and offer to all other Stockholders the opportunity to participate in such Tag-Along Sale in accordance with this Section 4 on the same terms and conditions as the Tag-Along Seller (with appropriate adjustments as may be determined by the Company in the case of an indirect Transfer of Stock; provided that any indemnities shall be made by the Stockholders severally and not jointly.

 

(ii)   Within 10 Business Days of its receipt of the Tag-Along Notice, each Stockholder that has elected (each such electing Stockholder, a “ Tagging Stockholder ”) to participate in the Tag-Along Sale shall notify the Tag-Along Seller and the Company of its election. Each Tagging Stockholder shall have the right (without the consent of Ripplewood) to Transfer to the proposed purchaser its pro rata share (based on its relative Stock ownership as compared to all other Stockholders) of the Stock being sold in the Tag-Along Sale.

 

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(b)   Any notification by a Tagging Stockholder pursuant to Section 4(a) shall be a final and binding commitment of such Tagging Stockholder to participate in such Tag-Along Sale; provided , however , that in the event there is a material change in the terms and conditions (including the consideration) of the Tag-Along Sale, the Tag-Along Seller shall give written notice of such change to each Tagging Stockholder, and each Tagging Stockholder shall thereafter have the right to revoke its election to participate in the Tag-Along Sale by providing written notice to the Tag-Along Seller within two Business Days of receiving the notice of such change.

 

(c)   Notwithstanding anything contained in this Section 4, there shall be no liability on the part of the Tag-Along Seller to the Tagging Stockholders if the transfer of the Stock of the Tag-Along Seller pursuant to this Section 4 is not consummated for any reason. Whether to effect a transfer of Stock, or to terminate any such transaction prior to its consummation, is in the sole discretion of such Tag-Along Seller.

 

Section 5.               Drag-Along Rights .

 

(a)   If at any time Ripplewood and/or any of its Affiliates proposes to Transfer at least 50% of the Stock then held by Ripplewood and its Affiliates to any Person (other than Affiliates of Ripplewood) (a “ Drag-Along Sale ”), then Ripplewood may cause to be included in such Drag-Along Sale a proportionate amount of the Stock held by each of the Other Stockholders (the “ Drag-Along Stockholders ”) and shall provide notice at least 15 days prior to the date proposed for such Drag-Along Sale (the “ Drag-Along Notice ”) to the Drag-Along Stockholders stating the material terms and conditions of such Drag-Along Sale (including the kind and amount of consideration to be paid for such Stock and the name of the proposed purchaser).

 

(b)   In the event Ripplewood provides a Drag-Along Notice in accordance with this Section 5, each Drag-Along Stockholder shall (i) be obligated to Transfer to the proposed purchaser its Stock for the same consideration per Share and otherwise on the same terms and conditions as Ripplewood and/or its Affiliates, as applicable (with appropriate adjustments as may be determined by Ripplewood in the case of an indirect Transfer of Stock), as such terms and conditions are set forth in such Drag-Along Notice and (ii) execute and deliver such instruments of conveyance and transfer and take such other actions as Ripplewood or the proposed purchaser may reasonably require in order to carry out the terms of this Section 5.

 

(c)   The instruments of conveyance and transfer for a Drag-Along Sale shall not include any representations and warranties of any Drag-Along Stockholder except such representations and warranties as are ordinarily given by a seller of securities, including with respect to such seller’s authority to sell, enforceability of agreements against such seller, such seller’s good title in such securities and good title in such securities to be acquired by the purchaser at the closing of such sale; provided , however , that all representations and warranties, covenants, indemnities and agreements shall be made by Ripplewood and/or its Affiliates, on the one hand, and each Drag-Along Stockholder, on the other hand, thereunder severally and not jointly and that any liability of Ripplewood and/or its Affiliates, as the case may be, and each Drag-Along Stockholder thereunder

 

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shall be borne by each of them on a pro rata basis based on the relative number of shares of Stock being sold by it.

 

Section 6.               New Securities; Distributions .

 

(a)   When and to the extent the Company determines that it will issue shares of New Stock, the Company shall offer to each Stockholder its pro rata share of the New Stock to be issued (based on its pro rata Stock ownership as compared to all Stock issued and outstanding prior to the issuance of such New Stock), which offer shall be made by written notice from the Company to the Stockholders. Within 10 Business Days of its receipt of such notice, each Stockholder shall notify the Company of the number of shares of New Stock the Stockholder requests to purchase, subject to a maximum of such Stockholder’s pro rata share of such New Stock as described in the immediately preceding sentence (it being understood and agreed that the Company may make provision for Stockholders (on a pro rata basis) to request to purchase more than their respective pro rata shares of such New Stock, to the extent other Stockholders decline to purchase such New Stock). Any request by a Stockholder pursuant to the immediately preceding sentence shall be a final and binding commitment by such Stockholder to purchase the shares of New Stock so requested.

 

Section 7.               Corporate Governance; Management .

 

(a)   The Board of Directors of the Company (the “ Board ”) shall be composed of the number of directors (each a “ Director ” and collectively the “ Directors ”) determined by Ripplewood in its discretion from time to time, which shall be at least three Directors. Ripplewood shall be entitled to propose the appointment of the Directors (including the Chairman of the Board and independent Directors). At least one Director shall be “independent” for purposes of Rule 10A-3 promulgated under the Exchange Act. The Company and each of the Stockholders hereby agree to take all action necessary to effect the appointment to the Board of each Director appointee of Ripplewood.

 

(b)   Any Director may resign upon delivery of written notice from such Director to the Company and shall be removed by action of the Company or the Stockholders at the request of Ripplewood.

 

(c)   Except as otherwise required by law or regulation, the Company and each of the Stockholders shall use commercially reasonable best efforts to cause the charter, by-laws or other comparable organizational documents of the Company (and, to the extent necessary, the charter, by-laws or other comparable organizational documents of any subsidiary of the Company) to contain limitations on the liability of Directors to the fullest extent permissible under the laws of the State of Delaware.

 

(d)   The Company shall use commercially reasonable best efforts to procure and maintain during the term of this Agreement directors’ and officers’ liability insurance for each of the Directors (at the Company’s reasonable expense) which is comparable to that provided by other companies similar to the Company.

 

(e)   The Stockholders acknowledge that the holders of Senior PIK Preferred Stock (voting as a class) shall have the right to appoint two observers to the Board;

 

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Registrable Securities covered by such Demand Notice, subject to any “cutbacks” imposed in accordance with Section 9.3(d).

 

(b)  The maximum number of registrations that the Company is required to effect in response to Demand Notices given by Requesting Demand Stockholders is four with respect to Ripplewood and one with respect to each other Original Stockholder. A registration requested by a Demand Notice shall not be deemed to have been effected on behalf of a Requesting Demand Stockholder unless (i) the related registration statement has been declared effective by the SEC, (ii) such registration statement has remained effective for the period set forth in Section 9.4(b) plus such longer period as, in the opinion of counsel for the underwriter or underwriters, a prospectus is required by law to be delivered in connection with the sale of Registrable Securities by an underwriter or dealer, (iii) the offering of Registrable Securities pursuant to such registration is not subject to any stop order, injunction or other similar order or requirement of the SEC during such period and (iv) in the event of an underwritten offering, the conditions to closing specified in the underwriting agreement entered into in connection with such registration are satisfied pursuant to the terms of such underwriting agreement. However, notwithstanding the requirement of clause (i), if the Requesting Demand Stockholder withdraws its request prior to the related registration statement being declared effective by the SEC, then such registration will be deemed to have been effected for purposes of this Section 9.1(b) unless (A) the Requesting Demand Stockholder pays the Registration Expenses incurred by the Company through the date of such withdrawal or (B) the withdrawal is due to the disclosure of material adverse information relating specifically to the Company that the Requesting Demand Stockholder did not know prior to submitting its Demand Notice. Furthermore, if in a registered offering requested by a Requesting Demand Stockholder such Requesting Demand Stockholder is subject to a cutback imposed in accordance with Section 9.3(d) of more than 50% of the Registrable Securities as to which it has requested registration, such Requesting Demand Stockholder shall not be deemed to have used one of its “demand rights” in connection with such offering.

 

(c)  As soon as reasonably practicable, but in no event later than 30 days, after receiving a valid Demand Notice, the Company shall file with the SEC a registration statement covering all of the Registrable Securities covered by such Demand Notice as well as any other Registrable Securities as to which registration is properly requested in accordance with Section 9.2 (which other Registrable Securities may be included by means of a pre-effective amendment), but subject in both cases to any cutbacks imposed in accordance with Section 9.3(d). However, if this filing deadline would otherwise occur within 120 days following the effective date of any other registration statement with respect to which the Stockholders have been entitled to join pursuant to Section 9.2 (180 days in the case of the registration statement for the Initial Public Offering), then the Company may defer the filing date until after such 120th day (or 180th day in the case of the registration statement for the Initial Public Offering).

 

(d)  In the case of a shelf registration statement, the Company shall not be required to keep such registration statement effective for longer than (i) one year following the effectiveness of the registration statement or, if earlier, (ii) the date on which (x) all of the Registrable Securities covered by the registration statement have been sold pursuant

 

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thereto and (y) the date on which all Registrable Securities held by the Requesting Demand Stockholder are eligible for sale without volume restrictions pursuant to Rule 144.

 

(e)  In the event that, following the receipt of a Demand Notice, (i) the Company is in possession of material non-public information the disclosure of which the Board determines, in its reasonable judgment and in good faith, would be materially adverse to the Company and would not otherwise be required under any applicable law to be publicly disclosed and (ii) the Company gives the Requesting Demand Stockholder written notice of such determination, the Company shall, notwithstanding the provisions of Section 9.1 hereof, be entitled to postpone for up to an aggregate of 120 days in any 12-month period the filing of any registration statement otherwise required to be prepared and filed by it pursuant to Section 9.1 hereof. In the event the Company postpones the filing of any registration statement pursuant to the preceding sentence, the Requesting Demand stockholder may withdraw its Demand Notice prior to the filing of the registration statement and shall not be deemed to have used one of its “demand rights”.

 

9.2           Piggyback Registration .

 

(a)  If at any time following the consummation of the Initial Public Offering the Company intends to file a registration statement under the Securities Act (other than a registration statement on Form S-4 or S-8 or any successor or similar forms) covering a primary or secondary offering of any Stock, whether in response to a valid Demand Notice or otherwise, the Company shall promptly give each Stockholder written notice specifying the date on which the Company anticipates filing such registration statement and advising each such party of its right to have its Registrable Securities included in such registration in accordance with this Section 9. Each Stockholder will then have the opportunity, by written notice received by the Company no later than 10 Business Days after such Stockholder’s receipt of the Company’s notice of such proposed filing, to request that all or a portion of such Stockholder’s Registrable Securities be included in such registration statement.

 

(b)  Following receipt of any such timely request, the Company shall include in such registration statement (including by means of a pre-effective amendment if the registration statement has already been filed) all of the Registrable Securities that such Stockholder requests for inclusion in such registration statement, subject to any cutbacks imposed in accordance with Section 9.3(d), and the Company shall use commercially reasonable efforts in accordance with Section 9.4 to effect the registration of all such Registrable Securities. However, if at any time after giving written notice of its intention to file such a registration statement and prior to the effective date of such registration statement, the Company decides for any reason not to proceed with the proposed registration (including because the Requesting Demand Stockholder withdraws its request pursuant to Section 9.1), then the Company shall give written notice of such decision to the parties holding Registrable Securities, at which point the Company will be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the related Registration Expenses); provided that this right on the part of the Company shall not affect the Company’s obligation to proceed with a registration validly requested under Section 9.1 and to include in such registration the

 

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Registrable Securities requested for inclusion by any Stockholder