Document:

exv4w2

Exhibit
4.2

Portrait innovations holding company

Amended and Restated

Investors’ rights agreement

     This Amended and Restated Investors’ Rights Agreement (this “Agreement”) dated as of
June 29, 2010 is by and among (i) Portrait Innovations Holding Company, a Delaware corporation (the
“Company”), (ii) Southeastern Private Investment Fund IV, LLC (“Southeastern”),
Emergo Alpha Fund Limited (“Emergo” and together with Southeastern, the
“Investors”), (iii) HENTOM, LLC, a North Carolina limited liability company (“Hentom”), and
(iii) John Grosso, John Davis, John Grosso, III, Andrew Grosso and Garrett J. Alroy (together, the
“Management Holders”).

Background Statement

     The Company, Southeastern, Emergo and the Management Holders are parties to an Investors’
Rights Agreement dated as of April 24, 2008 (the “Prior Agreement”). The purpose of the
Prior Agreement was to establish certain rights and obligations of the parties thereto, including
registration rights, rights limiting the transfer of shares of the Company’s stock and rights with
regard to corporate governance matters. The purpose of this Agreement is provide for (i) the
amendment and restatement of the Prior Agreement subject to, and upon the completion of, the
proposed underwritten initial public offering (the “IPO”) of the Company’s common stock
contemplated by the Company’s registration statement on Form S-1 filed with the Securities and
Exchange Commission on the date hereof, as such registration statement may be amended from time to
time (the “Registration Statement”), and (ii) certain other actions in connection with the
IPO.

Statement of Agreement

     In consideration of the premises and the mutual covenants contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. Actions in Contemplation of the IPO

          1.1 Amendment of Prior Agreement. Subject to and upon the completion of the sale by
the Company of shares of its common stock to the underwriters in the IPO (the time of such sale
being referred to herein as the “Effective Time”) and without any further action by the
parties hereto, the Prior Agreement shall be amended and restated in its entirety to read as set
forth in Exhibit A attached hereto (the “Amended and Restated Agreement”). Prior to the
Effective Time, the Prior Agreement shall remain in full force and effect. In the event that (i)
the completion of the IPO has not occurred by the close of business on December 31, 2010 or (ii) if
earlier, the Company files an application with the Securities and Exchange Commission to withdraw
the Registration Statement, then the first sentence of this Section 1.1, the provisions of Section
1.3 hereof and Exhibit A hereto shall be null and void.

          1.2 Consents.

          (a) For the sole purpose of facilitating transactions in connection with the IPO, each of the
Investors, Hentom and the Management Holders hereby waives any rights or the application of any
restrictions under Section 3 of the Prior Agreement with respect to the sale of the Company’s
common stock by the Company or any selling stockholders in the IPO.

 

 

          (b) In accordance with Section B(6)(a)(xi) of Article IV of the Company’s Certificate of
Incorporation dated April 24, 2008 (the “Charter”), the Investors hereby consent to the
consummation of the IPO.

          1.3 Election to Convert. Pursuant to and in accordance with Section B(4) of Article
IV of the Charter, each of Southeastern and Emergo hereby agrees and elects to convert, subject to
the completion of the sale by the Company of shares of its Common Stock to the underwriters in the
IPO, all shares of the Company’s Series A and Series B Preferred Stock held by Southeastern and
Emergo into shares of the Company’s Common Stock, with such conversion to occur and be effective as
of the Effective Time. Each of Emergo and Southeastern agrees not to transfer any shares of the
Company’s Series A and Series B Preferred Stock prior to the Effective Time to any person unless
such person agrees to the terms hereof, including the agreement and consent to convert all shares
of the Company’s Series A and Series B Preferred Stock in accordance with this Section 1.3.

     2. Miscellaneous.

          2.1 Successors and Assigns.

          Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties. Nothing
in this Agreement, express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this Agreement.

          2.2 Governing Law.

          This Agreement shall be governed by and construed under the laws of the State of Delaware as
applied to agreements among Delaware residents entered into and to be performed entirely within
Delaware.

          2.3 Counterparts.

          This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.

          2.4 Titles and Subtitles.

          The titles and subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.

          2.5 Notices.

          All notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next
business day; or (iii) one day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All communications shall be
sent to the address as set forth on the signature page hereof or at such other address as such
party may designate by ten days advance written notice to the other parties hereto.

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          2.6 Expenses.

          If any action at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and
necessary disbursements in addition to any other relief to which such party may be entitled.

          2.7 Amendments and Waivers.

          Prior to the Effective Time, any term of this Agreement, including the Exhibit hereto, may be
amended only with the written consent of the Investors, Hentom, John Grosso and the Company. After
the Effective Time, any term the Amended and Restated Agreement may be amended in the manner set
forth in Section 2.7 thereof.

          2.8 Severability.

          If one or more provisions of this Agreement are held to be unenforceable under applicable law,
such provision shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in accordance with its
terms.

          2.9 Entire Agreement.

          This Agreement (including the Exhibit hereto) constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and thereof.

(Signatures follow on next page)

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date
first above written.

	 	 	 	 	 
	 	THE COMPANY:

Portrait Innovations Holding Company

 	 
	 	By:  	/s/ John Grosso
 	 
	 	 	John Grosso 	 
	 	 	President and Chief Executive Officer 	 
	 
	 	THE INVESTORS:

Southeastern Private Investment Fund IV, LLC

 	 
	 	By:  	/s/ Thomas B. Henson
 	 
	 	 	Thomas B. Henson 	 
	 	 	Manager 	 
	 
	 	Emergo Alpha Fund Limited

 	 
	 	By:  	/s/ Mike Balm
 	 
	 	 	Mike Balm 	 
	 	 	Director 	 
	 
	 	HENTOM, LLC

 	 
	 	By:  	/s/ Thomas B. Henson
 	 
	 	 	Thomas B. Henson 	 
	 	 	Manager 	 

Signature Page to Amended and Restated Investors’ Rights Agreement

 

 

	 	 	 	 	 
	 	THE MANAGEMENT HOLDERS:

 	 
	 	/s/ John Grosso
 	 
	 	John Grosso 	 
	 	 	 
	 
	 	 	 
	 	                                              /s/ John J. Grosso, III
 	 
	 	John J. Grosso, III 	 
	 	 	 
	 
	 	 	 
	 	                                              /s/ John M. Davis
 	 
	 	John M. Davis 	 
	 	 	 
	 
	 	 	 
	 	                                              /s/ Andrew Grosso
 	 
	 	Andrew Grosso 	 
	 	 	 
	 
	 	 	 
	 	                                              /s/ Garrett Alroy
 	 
	 	Garrett Alroy 	 
	 	 	 

Signature Page to Amended and Restated Investors’ Rights Agreement

 

 

Exhibit A

Portrait innovations holding company

Terms of Amended and Restated

Investors’ rights agreement

     The following sets for the terms of the Amended and Restated Investors’ Rights Agreement (this
“Agreement”) by and among (i) Portrait Innovations Holding Company, a Delaware corporation
(the “Company”), (ii) Southeastern Private Investment Fund IV, LLC
(“Southeastern”), Emergo Alpha Fund Limited (“Emergo”) and HENTOM, LLC, a North
Carolina limited liability company (“Hentom”), and (iii) John Grosso, John Davis, John
Grosso, III, Andrew Grosso and Garrett J. Alroy (together, the “Management Holders”).
Capitalized terms used herein shall have the meanings assigned to such terms in Appendix A
attached hereto and incorporated herein by reference.

     The parties have agreed as follows:

     1. Registration Rights.

          1.1 Request for Registration.

          (a) In case the Company shall receive from Initiating Holders a written request that the
Company effect a registration covering at least twenty percent (20%) of the Initiating Registrable
Securities then outstanding (or a lesser percentage if the anticipated aggregate offering price,
net of underwriting discounts and commissions, would exceed $10,000,000), the Company will promptly
give written notice of the proposed registration to all other Holders so they may have an
opportunity to consider joining in such registration, which they may do (subject to the terms and
provisions of this Agreement) at their election by delivering, within ten (10) days after receipt
of the notice of the proposed registration by the Company, their written request to include
Registrable Securities in the proposed registration; and as soon as practicable, use its reasonable
best efforts to effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable regulations issued under
the Securities Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of the Initiating Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given within ten (10) days
after receipt of notice from the Company pursuant to Section 1.1; provided that the Company shall
not be obligated to take any action to effect any such registration, qualification or compliance
pursuant to this Section 1.1:

               (i) At any time prior to one hundred and eighty (180) days after the sale by the Company of
shares of its common stock to the underwriters in the IPO.

               (ii) In any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration, qualification or compliance
unless the Company is already subject to service in such jurisdiction and except as may be required
by the Securities Act.

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               (iii) After the Company has effected two (2) registrations pursuant to this Section 1.1 and
such registrations have been declared or ordered effective and have remained effective for a period
of at least ninety (90) consecutive days.

               (iv) During the period starting with the date ninety (90) days prior to the Company’s good
faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after
the effective date of, a Company-initiated registration statement subject to Section 1.3, provided
that the Company is actively employing in good faith all reasonable efforts to cause such
registration to become effective and provided further that the Company gives notice to all Holders
upon commencement of such period. The Holders shall be entitled to exercise their rights pursuant
to Section 1.3 hereof with respect to such an intended registration for equity securities. Such an
intended registration shall not be deemed to be a demand registration of the Initiating Holders
pursuant to this Section 1.1

               (v) If the Initiating Holders propose to dispose of Registrable Securities that may be
registered on Form S-3 pursuant to Section 1.2 hereof.

               (vi) Within the ninety (90) day period immediately following the effective date of a
registration, pertaining to a firm commitment underwritten public offering of Common Stock,
effected pursuant to this Section 1.1.

     Subject to the foregoing clauses (i) through (vi), the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of the Initiating Holders. The Initiating Holders may, at any time
prior to the effective date of the registration statement relating to such registration, revoke
such request, without liability (except as set forth in Section 1.6 hereof) to the Initiating
Holders or any other Holders of Registrable Securities requested to be registered pursuant to
Section 1.1 hereof, by providing a written notice to the Company revoking such request.

          (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their
request by means of an underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 1.1 and the Company shall include such information in the written notice
referred to in Section 1.1. In such event, the right of any Holder to include Registrable
Securities in such registration shall be conditioned upon such Holder’s participation in such
underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in Section 1.4(h)) enter into an
underwriting agreement in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.1, if the underwriter advises
the Initiating Holders in writing that in its good faith view marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so advise all Holders
who requested that Registrable Securities be included in the registration, and the Company will
exclude from such registration (i) first, securities held by any Person who does not have
contractual rights granted in this Agreement and (ii) second, shares held by all Holders, including
the Initiating Holders, of Registrable Securities with contractual rights granted in this
Agreement, pro rata among the Holders of such shares on the basis of the respective numbers of
shares of Common Stock requested to be included in such registration. If at least eighty percent
(80%) of the Initiating Registrable Securities requested to be registered by the Initiating Holders
are not included in such registration, then the Initiating Holders may request that the Company
effect an additional registration under the Securities Act in accordance with the provisions of
this Section 1.1, and the Company shall effect such additional registration at its sole expense.
Such additional

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registration and such registration in which at least eighty percent (80%) of the Initiating
Registrable Securities requested to be registered by the Initiating Holders were not included shall
only count as a single registration for purposes of calculating the number of registrations Holders
of Initiating Registrable Securities may initiate pursuant to this Section 1.1.

     If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn from such underwriting shall also be
withdrawn from such registration; provided, however, that, if by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held by other Holders may be
included in such registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable Securities in the
registration the right to include additional Registrable Securities in the same proportion used
above in determining the underwriter limitation.

          (c) If the Company shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board of Directors of the
Company, it would (because of the existence of, or in anticipation of, any acquisition, financing
activity, or other transaction involving the Company, or the unavailability for reasons beyond the
Company’s control of any required financial statements, disclosure of information which is in its
best interest not to publicly disclose, or any other event or condition of similar significance to
the Company) be seriously detrimental to the Company and its shareholders for such registration
statement to be filed on or before the date filing would be required and it is therefore essential
to defer the filing of such registration statement, then the Company may direct that such request
for registration be delayed for a period not in excess of: ninety (90) days, such right to delay a
request to be exercised by the Company not more than twice in any twelve (12) month period.

          (d) A demand registration requested pursuant to this Section 1.1 shall not be deemed to have
been effected unless the registration statement relating thereto (i) has become effective under the
Securities Act and any of the Initiating Registrable Securities of the Initiating Holders included
in such registration have actually been sold thereunder, and (ii) has remained effective for a
period of at least ninety (90) days (or such shorter period in which all Initiating Registrable
Securities included in such registration have actually been sold thereunder).

          1.2 S-3 Registration.

          (a) In case the Company shall receive from Initiating Holders a written request or requests
that the Company effect a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company
will promptly give written notice of the proposed registration, and any related qualification or
compliance, to all other Holders; and as soon as practicable, and in any event within 30 days of
the receipt of such notice, file a registration statement on Form S-3 and effect all other
qualifications and compliances as may be so requested and as would permit or facilitate the sale,
distribution, transfer or hedging (through market transactions using brokers, in a firm commitment
underwriting, in negotiated transactions or otherwise) of, subject to the provisions of Section
1.7, all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of any other Holder
or Holders joining in such request as are specified in a written request given within 15 days after
receipt of such written notice from the Company; provided, that the Company shall not be
obligated to effect any such registration, qualification or
compliance pursuant to this Section 1.2:

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               (i) if Form S-3 is not available for such offering by the Holders.

               (ii) if the Holders, together with the holders of any other securities of the Company entitled
to inclusion in such registration, propose to register Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or
commissions) of less than $5 million.

               (iii) if the Company has, within the twelve (12) month period preceding the date of such
request, already effected three (3) registrations pursuant to this Section 1.2.

               (iv) in any particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such registration,
qualification or compliance.

     Subject to the foregoing and the provisions of Section 1.7 hereof, the Company shall file a
registration statement covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of the Holders and shall
keep it continuously effective until such Registrable Securities have been sold pursuant thereto.

          (b) Notwithstanding the other provisions of this Section 1.2, the Company shall have the right
to delay the filing of any registration statement on Form S-3 (an “S-3 Registration”)
otherwise required to be prepared and filed by the Company pursuant to this Section 1.2, or to
suspend the use of any S-3 Registration, for a period not in excess of 60 days (a “S-3 Blackout
Period”) if the Company, in the good faith judgment of its Board of Directors, determines
(because of the existence of, or in anticipation of, any acquisition, financing activity, or other
transaction involving the Company, or the unavailability for reasons beyond the Company’s control
of any required financial statements, disclosure of information which is in its best interest not
to publicly disclose, or any other event or condition of similar significance to the Company) that
the registration and distribution of the Registrable Securities to be covered by such S-3
Registration would be seriously detrimental to the Company and its stockholders, provided
that the S-3 Blackout Period shall earlier terminate on the second business day following the
completion or abandonment of the relevant financing, acquisition or other transaction or upon
public disclosure by the Company or public admission by the Company of such material nonpublic
information or such time as such material nonpublic information shall be publicly disclosed; and
provided further, that the Company shall furnish to the Holders a certificate of an
executive officer of the Company to the effect that an event permitting a S-3 Blackout Period has
occurred (and no other reason need be given). The Company will promptly give the Holders written
notice of such determination and an approximation of the period of the anticipated delay;
provided, however, that the aggregate number of days included in all S-3 Blackout
Periods during any consecutive 12 months shall not exceed 180 days. Each Holder agrees to cease
all disposition efforts under such S-3 Registration with respect to Registrable Securities held by
such Holder immediately upon receipt of notice of the beginning of any S-3 Blackout Period. The
Company shall provide written notice to the Holders of the end of each S-3 Blackout Period.

          1.3 Company Registration.

          If the Company shall determine to register for sale for cash any of its Common Stock, for its
own account or for the account of others (other than the Holders) (other than a registration
statement relating either to the sale of securities to employees of the Company. pursuant to a
stock option, stock purchase or similar plan or a transaction under Rule 145 of the

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Securities Act, a registration on any form which does not include substantially the same
information as would be required to be included in a registration statement covering the sale of
the Registrable Securities, or a registration in which the only Common Stock being registered is
Common Stock issuable upon conversion of debt securities which are also being registered), the
Company promptly will give to each Holder written notice of such registration. Upon the written
request of each Holder given within ten (10) days after notice by the Company, the Company shall,
subject to the provisions of Section 1.7, cause to be registered under the Securities Act all of
the Registrable Securities that each such Holder has requested to be registered. Notwithstanding
the foregoing, the Company has no obligation to register any shares pursuant to this Section 1.3
and may withdraw any such registration at any time.

          1.4 Obligations of the Company.

          In the case of each registration by the Company pursuant to Section 1, the Company will use
its reasonable best efforts to:

          (a) Prepare and file with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable best efforts to cause such registration statement to become
effective, and, keep such registration statement effective for a period of up to ninety (90) days
or until the distribution contemplated in the Registration Statement has been completed;
provided, however, that (i) such 90-day period shall be extended for a period of
time equal to the period the Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other securities) of the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended
to be offered on a continuous or delayed basis, such 90-day period shall be extended, if necessary,
to keep the registration statement effective until all such Registrable Securities are sold,
provided that Rule 415 of the Securities Act, or any successor rule under the Securities Act,
permits an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (I) includes any prospectus
required by Section 10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement;

          (b) Prepare and file with the SEC such amendments, supplements and post effective amendments
to such registration statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;

          (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other documents as
they may reasonably request in order to facilitate the disposition of Registrable Securities owned
by them;

          (d) Use its reasonable best efforts to register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such jurisdictions as shall
be reasonably requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions, and do any and all other acts
and things which may be necessary or advisable to enable such Holders or underwriter to consummate
the disposition in each such jurisdiction of such Registrable Securities;

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          (e) Use its reasonable best efforts to cause the Registrable Securities covered by such
registration statement to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the Company to enable
the Holder or Holders thereof to consummate the disposition of such Registrable Securities;

          (f) Immediately notify the managing underwriter, if any, and each Holder of such Registrable
Securities at any time when a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event which comes to the Company’s attention if as a result
of such event the prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and the Company shall promptly prepare and furnish to
such Holder a supplement or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;

          (g) Use its reasonable best efforts to cause all such Registrable Securities covered by the
registration statement to be listed on a national securities exchange and on each securities
exchange on which similar securities issued by the Company are then listed, and enter into such
customary agreements including a listing application and indemnification agreement in customary
form (provided that the applicable listing requirements are satisfied), and to provide a
transfer agent and registrar for such Registrable Securities covered by such registration statement
no later than the effective date of such registration statement;

          (h) Enter into such customary agreements (including an underwriting agreement in customary
form) and take all such other actions as the Initiating Holders or the underwriters retained by
such Holders, if any, reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities, including customary indemnification;

          (i) Make available for inspection during normal business hours by any Holder of Registrable
Securities covered by such registration statement, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other agent retained by
any such Holder or underwriter (collectively, the “Inspectors”), all financial and other
records, pertinent corporate documents and properties of the Company and its subsidiaries
(collectively, “Records”), if any, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company’s and its subsidiaries’
officers, directors and employees to supply all information and respond to all inquiries reasonably
requested by any such Inspector in connection with such registration statement. Notwithstanding
the foregoing, the Company shall have no obligation to disclose any Records to the Inspectors in
the event the Company determines that such disclosure is reasonably likely to have an adverse
effect on the Company’s ability to assert the existence of an attorney-client privilege with
respect thereto;

          (j) Use its reasonable best efforts to obtain a “comfort” letter from the Company’s
independent public accountants in customary form and covering such matters of the type customarily
covered by “comfort” letters as the Holders of a majority (by number of shares) of the
Registrable Securities being sold reasonably request, and provided that such request is
reasonable in the underwriter’s point of view;

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          (k) Use its reasonable best efforts to obtain an opinion of counsel from the Company’s counsel
in customary form and covering such matters of the type customarily covered in opinions of counsel
in connection with such transactions; and

          (l) Comply, and continue to comply during the period that such registration statement is
effective under the Securities Act, in all material respects with the Securities Act and the 1934
Act and with all applicable rules and regulations of the SEC with respect to the disposition of all
securities covered by such registration statement, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at least twelve (12)
months, but not more than eighteen (18) months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such
registration statement or prospectus to which Holder shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all material respects with the requirements of
the Securities Act, having been furnished with a copy thereof at least five (5) business days prior
to the filing thereof.

          Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 1.4(f) hereof, such Holder shall
discontinue disposition of Registrable Securities pursuant to the registration statement covering
such Registrable Securities until such Holder’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 1.4(f) hereof, and, if so directed by the Company, such
Holder shall deliver to the Company (at the Company’s expense) all copies (including, without
limitation, any and all drafts), other than permanent file copies, then in such Holder’s
possession, of the prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event the Company shall give any such notice, the period mentioned in
Section 1.4(a) hereof shall be extended by the greater of (i) ten (10) business days or (ii) the
number of days during the period from and including the date of the giving of such notice pursuant
to Section 1.4(f) hereof to and including the date when each Holder of Registrable Securities
covered by such registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 1.4(f) hereof.

          1.5 Furnish Information.

          (a) It shall be a condition precedent to the obligations of the Company to take any action
pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder’s Registrable Securities.

          (b) The Company shall have no obligation with respect to any registration requested pursuant
to Section 1.1 or Section 1.2 if, due to the operation of Section 1.5(a), the number of shares or
the anticipated aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated aggregate offering
price required to originally trigger the Company’s obligation to initiate such registration as
specified in Section 1.1 or Section 1.2, as applicable; provided further, in the
event the Company shall elect to not proceed with respect to a registration pursuant to this
Section 1.5(b), such discontinued registration shall not count as a registration for purposes of
calculating the number of registrations Holders of Registrable Securities may initiate pursuant to
1.1.

A-7 

 

          1.6 Expenses of Registration.

          All (i) expenses incurred by the Company in connection with any registration pursuant to
Sections 1.1, 1.2 and 1.3, including (without limitation) all registration, filing and
qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the
Company and (ii) reasonable expenses (other than underwriting discounts and commissions) incurred
by Holders in connection with any registration pursuant to Sections 1.1, 1.2 and 1.3, including
(without limitation) all registration, filing and qualification fees, printers’ and accounting
fees, and fees and disbursements of one counsel for the selling Holders, shall be borne by the
Company. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses
of any registration proceeding begun pursuant to Section 1.1 or Section 1.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case such withdrawing Holders shall bear such expenses pro
rata based upon the number of Registrable Securities held by such withdrawing Holders that were
requested to be registered in the withdrawn registration), unless, in the case of a registration
requested under Section 1.1, the Holders of a majority of the Initiating Registrable Securities
agree to forfeit their right to one demand registration pursuant to Section 1.1, provided,
however, that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that known to the
Holders at the time of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to Section 1.1 or 1.2.

          1.7 Underwriting Requirements.

          In the event that any offering of Common Stock to be registered pursuant to Sections 1.2 and
1.3 hereof is intended to be effected by means of an underwriting, the right of any Holder to
include Registrable Securities in such registration shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the
underwriting (unless otherwise mutually agreed (i) in the case of a registration effected pursuant
to Section 1.2, by a majority in interest of the Initiating Holders and such Holder or (ii) in the
case of a registration effected pursuant to Section 1.3, by the Company and such Holder) to the
extent provided herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in Section 1.4(h)) enter into an
underwriting agreement in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.7, if the underwriter advises
the Initiating Holders (in the case of a registration effected pursuant to Section 1.2) or the
Company (in the case of a registration effected pursuant to Section 1.3) in writing that in its
good faith view marketing factors require a limitation of the number of shares to be underwritten,
then the Company shall so advise all Holders who requested that Registrable Securities be included
in the registration, and the Company will exclude from such registration (i) first, securities held
by any Person who does not have any contractual rights granted in this Agreement and (ii) second,
shares held by all Holders, including any Initiating Holders, of Registrable Securities with
contractual rights granted in this Agreement, pro rata among the Holders of such shares on the
basis of the respective numbers of shares of Common Stock requested to be included in such
registration.

     If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and, in the case of a registration
pursuant to Section 1.2, the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such registration;
provided, however, that, if by the withdrawal of such Registrable Securities a
greater

A-8 

 

number of Registrable Securities held by other Holders may be included in such registration
(up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to
all Holders who have included Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used above in determining the underwriter
limitation.

          1.8 Delay of Registration.

          No Holder shall have any right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.

          1.9 Indemnification.

          In the event any Registrable Securities are included in a registration statement under this
Section 1:

          (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder,
its directors, officers and partners, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages, liabilities (joint or several)
or expenses to which they may become subject under the Securities Act or the 1934 Act, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations (collectively a
“Violation”): (i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, or any rule or regulation promulgated under the Securities Act or the
1934 Act; and the Company will pay to each such Holder, director, officer, partner, underwriter or
controlling person, any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 1.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.

          (b) To the extent permitted by law, each selling Holder, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls the Company within the meaning of the
Securities Act,’ any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Securities Act or the 1934 Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use in connection with
such registration; and each such Holder will pay any legal or other expenses reasonably

A-9 

 

incurred by any person intended to be indemnified pursuant to this Section 1.9(b), in
connection with investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 1.9(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnity under this Section
1.9(b) exceed the gross proceeds from the offering received by such Holder.

          (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the
commencement of any action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this Section 1.9,
deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party represented by such counsel
in such proceeding. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement-of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise than under this
Section 1.9.

          (d) If the indemnification provided for in this Section 1.9 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties’ relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

          (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.

          (f) The obligations of the Company and Holders under this Section 1.9 shall survive the
completion of any offering of Registrable Securities in a registration statement under this Section
1, and otherwise.

A-10 

 

          1.10 Reports Under Securities Exchange Act of 1934.

          With a view to making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:

          (a) make and keep public information available, as those terms are understood and defined in
Rule 144 promulgated under the Securities Act, at all times after ninety (90) days after the
effective date of the first registration statement filed by the Company for the offering of its
securities to the general public;

          (b) file with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act; and

          (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith
upon request (i) a written statement by the Company that it has complied with the reporting
requirements of Rule 144 promulgated under the Securities Act (at any time after ninety (90) days
after the effective date of the first registration statement filed by the Company), the Securities
Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii) such other information as
may be reasonably requested in availing any Holder of any rule or regulation of the SEC (including
Rule 144A) which permits the selling of any such securities without registration or pursuant to
such form.

          1.11 Assignment of Registration Rights.

          The rights to cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of
such securities, provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of
this Agreement, including without limitation the provisions of Section 1.13 below; and (c) such
assignment shall be effective only if immediately following such transfer either (x) the Common
Stock is not listed on a national securities exchange or (y) the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.

          1.12 Limitations on Subsequent Registration Rights.

          From and after the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company which would allow
such holder or prospective holder (a) registration rights which are superior to the registration
rights granted pursuant to this Agreement, (b) registration rights which are pari passu with the
registration rights granted pursuant to Sections 1.1, 1.2 and 1.3 of this Agreement, (c) to include
such securities in any registration filed under Section 1.1 or Section 1.2, unless under the terms
of such agreement, such holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such securities will not reduce the amount of
the Registrable Securities included by the Holders in such registration, or (d) to make a

A-11 

 

demand registration which could result in such registration statement being declared effective
prior to the earlier of six months after either of the dates set forth in Section 1.1(a) or within
one hundred eighty (180) days of the effective date of any registration effected pursuant to
Section 1.1.

          1.13 “Market Stand-Off” Agreement.

          Each Investor hereby agrees that during the period of duration specified by the managing
underwriter of Common Stock or other equity securities of the Company, following the date of the
first sale of such securities to the public pursuant to a registration statement of the Company
filed under the Securities Act, it shall not, to the extent requested by such underwriter, directly
or indirectly (i) offer, loan, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any securities of the Company held by
it (the “Subject Stock”) or any securities convertible into or exercisable or exchangeable
for the Subject Stock (including, without limitation, shares of the Subject Stock or securities
convertible into or exercisable or exchangeable for the Subject Stock which may be deemed to be
beneficially owned by such holder in accordance with the rules and regulations of the SEC) or (ii)
enter into any swap or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Subject Stock (regardless of whether any of the
transactions described in clause (i) or clause (ii) is to be settled by the delivery of Subject
Stock, or such other securities, in cash or otherwise), except Common Stock included in such
registration; provided, however, that such market stand-off time period shall not
exceed one hundred eighty (180) days in the case of the IPO or ninety (90) days in any subsequent
registration; provided further, all officers, directors and 5% stockholders shall
be bound by similar market standoff provisions. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the foregoing restriction)
until the end of such period. Notwithstanding the foregoing, the obligations described in this
Section 1.13 shall not apply to a registration relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar plan or a
transaction under Rule 145 of the Securities Act.

          1.14 Termination of Registration Rights.

          The right of any Holder to request registration or inclusion in any registration pursuant to
this Agreement shall terminate on the first date following the IPO on which both (i) all shares of
Registrable Securities held by such Holder (and any affiliate of the Holder with whom such Holder
must aggregate its sales under Rule 144 of-the Securities Act) can be sold in any 3-month period
without registration in compliance with Rule 144 of the Securities Act and (ii) the Common Stock is
listed on a national securities exchange.

     2. Miscellaneous.

          2.1 Successors and Assigns.

          Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

A-12 

 

          2.2 Governing Law.

          This Agreement shall be governed by and construed under the laws of the State of Delaware as
applied to agreements among Delaware residents entered into and to be performed entirely within
Delaware.

          2.3 Counterparts.

          This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.

          2.4 Titles and Subtitles.

          The titles and subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.

          2.5 Notices.

          All notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next
business day; or (iii) one day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All communications shall be
sent to the address as set forth on the signature page hereof or at such other address as such
party may designate by ten days advance written notice to the other parties hereto.

          2.6 Expenses.

          If any action at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and
necessary disbursements in addition to any other relief to which such party may be entitled.

          2.7 Amendments and Waivers.

          Any term of this Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively or prospectively),
only with the written consent of the Company, the holders of at least a majority of the Registrable
Securities and, in the event that any such amendment or waiver adversely affects the rights of the
Management Holders, John Grosso or his designee.

          2.8 Severability.

          If one or more provisions of this Agreement are held to be unenforceable under applicable law,
such provision shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in accordance with its
terms.

A-13 

 

          2.9 Aggregation of Stock.

          All shares of Registrable Securities held or acquired by affiliated Persons shall be
aggregated together for the purpose of determining the availability of any rights under this
Agreement.

          2.10 Entire Agreement.

          This Agreement (including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects hereof and thereof, and
all parties acknowledge and agree that, as of the Effective Time, the Prior Agreement shall be
superseded and replaced in its entirety by this Agreement and that such Prior Agreement shall be
deemed terminated and of no further force or effect.

A-14 

 

APPENDIX A

DEFINED TERMS

          For purposes of this Agreement, the following terms shall have the following meanings (such
meanings to be equally applicable to the singular and the plural forms thereof):

          “1934 Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar
federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the time.

          “Agreement” has the meaning given to it in the introductory paragraph.

          “Common Stock” means shares of the Company’s Common Stock, $0.01 par value.

          “Company” has the meaning given to it in the introductory paragraph.

          “Emergo” has the meaning given to it in the introductory paragraph.

          “Form S-3” shall mean such form under the Securities Act as in effect on the date
hereof or any registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to other documents filed
by the Company with the SEC.

          “Holder” shall mean any person owning or having the right to acquire Registrable
Securities or any assignee thereof in accordance with Section 1.11 hereof.

          “Initiating Holders” shall mean one or more holders of Initiating Registrable
Securities representing not less than 50% of the Initiating Registrable Securities then
outstanding.

          “Initiating Registrable Securities” shall mean the Registrable Securities listed in
clauses (i) and (ii) of the definition of “Registrable Securities,” below, as well as any other
Registrable Securities issued as (or issuable upon the conversion or exercise of any warrant, right
or other security which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, any Initiating Registrable Securities.

          “IPO” shall mean the initial public offering of the Company’s common stock
contemplated by the Company’s registration statement on Form S-1 filed with the Securities and
Exchange Commission on June 29, 2010, as such registration statement may be amended from time to
time.

          “Management Holders” has the meaning given to it in the introductory paragraph.

          “Person” shall mean a natural person, partnership, limited liability company,
corporation, trust, or unincorporated organization or association, company, firm, joint venture or
other business entity, or a government or governmental agency or instrumentality or political
subdivision thereof.

A-15 

 

          “Preferred Stock” shall mean, collectively, (i) shares of the Company’s Series A
Preferred Stock, $0.01 par value and (ii) shares of the Company’s Series B Preferred Stock, $0.01
par value.

          “Prior Agreement” has the meaning given to it in the background statement.

          “Register”, “registered,” and “registration” refer to a registration
effected by preparing and filing a registration statement or similar document in compliance with
the Securities Act, and the declaration or ordering of effectiveness of such registration statement
or document.

          “Registrable Securities” shall mean (i) the shares of the Company’s Common Stock
issued upon conversion of the Preferred Stock, (ii) the shares of the Company’s Common Stock issued
upon exercise of the Warrants, (iii) the 1,527,000 shares of Common Stock held by John Grosso, John
Davis, John Grosso, III, Andrew Grosso and Garrett J. Alroy on the date hereof, (iv) the 75,748
shares of Common Stock acquired in April 2009 by Hentom from John Grosso and John Davis, (v) the
203,252 shares of Common Stock acquired in April 2009 by Southeastern from John Davis, Garrett
Alroy, Andrew Grosso and John Grosso, III and (vi) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in replacement of, the shares referenced
in (i) through (v) above, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his rights under this Agreement are not assigned. Any Registrable
Securities that are transferred pursuant to (x) an effective registration under the Securities Act
or (y) in an open-market transaction under Rule 144 of the Securities Act, shall cease to be
Registrable Securities.

          “SEC” shall mean the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act.

          “Securities Act” shall mean the Securities Act of 1933, as amended, including all
rules and regulations adopted thereunder.

          “Subject Stock” has the meaning given to it in Section 1.13.

          “Warrants” shall mean (i) the warrant initially issued by Portrait Innovations, Inc.
on April 7, 2002 to Emergo Capital Finance Ltd and subsequently assigned to Emergo, which was
exercised by Emergo and pursuant to which the Company issued 94,500 shares of the Company’s Common
Stock to Emergo and (ii) the warrant initially issued by Portrait Innovations, Inc. on April 7,
2002 to Southeastern and subsequently assigned to Hentom, which was exercised by Hentom and
pursuant to which the Company issued 94,500 shares of the Company’s Common Stock to Hentom.

A-16exv10w1

Exhibit 10.1

2004 PORTRAIT INNOVATIONS, INC. STOCK OPTION PLAN

(AS AMENDED)

     SECTION 1. Establishment and Purpose. Portrait Innovations, Inc., a corporation
organized and existing under the laws of the State of Delaware, hereby establishes this Stock
Option Plan for selected officers and key employees of the Company. The purpose of the Plan is to
induce officers and key employees of the Company who are in a position to contribute materially to
the prosperity thereof to remain in the employ of the Company, to offer them incentives and reward
in recognition of their contribution to the Company’s progress, and to encourage them to continue
to promote the best interests of the Company. This Plan will also aid the Company in competing
with other enterprises for the services of new key personnel.

     SECTION 2. Definitions and Rules of Construction.

     (a) “Affiliate” means any corporation (or other business entity) controlling, controlled by,
or under common control with the Company.

     (b) “Board of Directors” or “Board” means the Board of Directors of the Company.

     (c) “Cause” means:

     (i) Conduct or activity of the Participant materially detrimental to the Company’s
reputation or business (including financial) operations;

     (ii) Gross or habitual neglect or breach of duty or misconduct of the Participant in
discharging the duties of his position; or

     (iii) Prolonged absence by the Participant from his duties (other than on account of
illness or disability) without the consent of the Company.

     (d) A “Change of Control” shall be deemed to have occurred if (i) any Person (other than a
Person who is a shareholder of the Company as of the effective date of the Plan) becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company’s then outstanding securities ordinarily (apart
from rights accruing under special circumstances) having the right to vote at elections of
directors (“Voting Securities”), (ii) individuals who constitute the Incumbent Board cease for any
reason to constitute at least a majority thereof, or (iii) a liquidation or dissolution of the
Company or of the sale of all or substantially all of the assets of the Company. For purposes of
this Plan, the term “Person” shall mean and include any individual, corporation, partnership,
group, association or other “person,” as such term is used in Section 14(d) of the Exchange Act,
other than the Company, any Affiliate of the Company or any employee benefit plans) sponsored or
maintained by the Company or any Affiliate thereof.

     (e) “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to
time.

 

 

     (f) “Committee” or “Stock Option Committee” means the Stock Option Committee provided for in
Section 3 hereof.

     (g) “Company” means Portrait Innovations, Inc.

     (h) “Disinterested Director” means any member of the Board of Directors who is an “outside
director” for purposes of Section 162(m) of the Code and is a “non-employee director” for purposes
of Rule 16b-3 under the Securities Exchange Act of 1934.

     (i) “Fair Market Value” means the fair market value of a share of the Company’s Common Stock,
as determined by the Committee.

     (j) “Grant Date” means the date on which the Committee approves the granting of an option
hereunder.

     (k) “Incumbent Board” means the individuals who constitute the Board on the effective date of
the Plan; provided that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was approved by a vote of the
directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for director, without objection
to such nomination) shall, for purposes of this Plan, be deemed a member of the Incumbent Board.

     (l) “Optionee” means any employee to whom an option is granted under this Plan.

     (m) “Participant” means an employee selected by the Committee for participation in the Plan.

     (n) “Permanent and Total Disability” means a disability described in Section 22(e)(3) of the
Code.

     (o) “Plan” means this 2004 Portrait Innovations, Inc. Stock Option Plan, together with any
amendments thereto.

     (p) “Stock Option Notice” means a written notice from the Company to a Participant that
establishes the terms, conditions, restrictions, and limitations applicable to the grant of a stock
option in addition to those established by this Plan and by the Committee.

     (q) It is intended that none of the options granted under the Plan be treated as an “incentive
stock option” as defined in Section 422 of the Code. In all respects the Plan shall be interpreted
and construed in a manner consistent with this intention.

     SECTION 3. Administration of the Plan. The Plan shall be administered by a Stock
Option Committee consisting of one or more directors. From time to time the Board may appoint
members of the Committee in substitution of members previously appointed; fill vacancies, however
caused, in the Committee; and appoint alternate members of the Committee to act when a regular
member is absent; provided, however, that any members of the Committee so appointed shall be
Disinterested Directors if so required at such time.

2

 

     The Committee shall select one of its members as chairman, and shall hold meetings at such
time and place as the chairman shall determine. A majority of the Committee shall constitute a
quorum at any meeting, and the acts of a majority of the members present at such meeting, or acts ·
approved in writing by a majority of the Committee, shall be deemed to be acts of the Committee.

     Subject to the terms and conditions of the Plan, the Committee shall have the power:

     (i) (i) To select those key employees of the Company to whom options will be granted;

     (ii) To determine the number of shares to be optioned to such employee;

     (iii) To determine the time or times when options shall be granted or exercised;

     (iv) To prescribe the form and content of options to be granted under the Plan;

     (v) To cancel options previously granted under the Plan;

     (vi) To impose such other terms and conditions to the grant or exercise of the options
as it may deem necessary or desirable;

     (vii) To adopt rules and regulations for implementing the Plan; and

     (viii) To interpret and construe the Plan where necessary, which interpretations and
constructions shall be final and conclusive upon Participants.

     SECTION 4. Shares Subject to the Plan.

     (a) The aggregate number of shares that may be delivered upon exercise of options granted
under this Plan is ninety thousand (90,000) shares of the Company’s common stock. The class of
stock and number of shares shall be subject to adjustment as provided in subsection (b) of this
paragraph. The shares delivered pursuant to the exercise of any option granted under the Plan may
be either treasury shares, or authorized and unissued shares, or both. Only shares of common
stock, if any, actually delivered to the Participant or beneficiary on an unrestricted basis with
respect to an option shall be treated as delivered for purposes of the determination under this
paragraph (a). Consistent with the foregoing:

(i) To the extent any shares of common stock covered by an option are not delivered
to a Participant or beneficiary because the option is forfeited or
canceled, or the shares of common stock are not delivered on an unrestricted basis (including,
without limitation, by reason of the option being settled in cash or used to satisfy
the applicable tax withholding obligation), such shares shall not be deemed to have
been delivered for purposes of the determination under this paragraph (a).

(ii) If the exercise price of any option granted under the Plan or any prior plan,
or the tax withholding obligation with respect to any award granted under the Plan

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or any prior plan, is satisfied by tendering shares of common stock to the Company
(by either actual delivery or by attestation), only the number of shares of common
stock issued net of the shares of common stock tendered shall be deemed delivered
for purposes of determining the number of shares of common stock available for
delivery under the Plan.

     (b) In the event any stock dividend is declared upon the common stock of the Company, or in
the event the outstanding shares of such stock shall be changed into or exchanged for a different
number or kind of shares of stock of the Company or of another corporation, whether by reason of
split up or combination of shares, recapitalization, reclassification, reorganization, merger,
consolidation, or otherwise, the number or kind of shares available for option and the shares
subject to any outstanding option shall be appropriately adjusted by the Committee to prevent
dilution or enlargement of the Optionee’s potential stock interest in relation to other holders of
the Company’s common stock. With respect to outstanding options, the total price applicable to the
unexercised portion of such option shall not change, but a corresponding adjustment in the price
for each share covered by the unexercised portion of such option shall be made.

     SECTION 5. Eligibility. Options shall be granted only to officers and key employees
of the Company who perform services of special importance to the management, operation and
development of the business of the Company. In determining the officers and key employees to be
granted options, the Committee may take into consideration the value of the services rendered by
the respective individuals, their present and potential contributions to the success of the
Company, and such other factors as the Committee may deem relevant in accomplishing the purposes of
the Plan.

     SECTION 6. Terms of Option. Each option granted under the Plan shall be subject to
the following terms and conditions:

     (a) Option Price. The price at which each share of common stock covered by such option may be
purchased shall be established by the Committee, but shall not be less than the Fair Market Value
as of the date of grant.

     (b) Limitation on Transfer. The option by its terms shall not be transferable by the Optionee
otherwise than by his will or by the laws of descent and distribution and may be exercised, during
his lifetime, only by the Optionee. No option may be pledged or hypothecated, nor shall any option
be subject to execution, garnishment, attachment, or similar process.

     (c) Limitation on Exercise of Option.

     (i) General Rule. Any option granted hereunder shall, except as otherwise provided in
this Section 6(c), be exercisable at such times and under such conditions as determined by
the Committee in its full discretion.

     (ii) Exception for Retirement, Disability or Death. If the Optionee (i) retires from
his employment with the Company under the terms of any pension or retirement plan now
existing or hereafter adopted by the Company or any Affiliate or (ii) terminates employment
with the Company due to Permanent and Total Disability or death,

4

 

notwithstanding any limitations on the right of exercise imposed by the Committee, any
options held by the Optionee shall become exercisable in full by the Optionee or his estate
or beneficiary during the period commencing on the date of such termination of employment
and ending twelve (12) months thereafter; provided, however, that the Committee shall have
the discretion to extend the period during which such options may be exercised.

     (iii) Exception for Change of Control.

Notwithstanding any limitations on the right of exercise imposed by the Committee, in the event of
a Change of Control, any options held by an Optionee shall immediately be exercisable in full.

     (d) Termination of Employment.

     (i) Except as provided in Section 6(c)(ii) and Section 6(c)(iii) hereof, if any
Optionee shall terminate his employment (either voluntarily or involuntarily) with the
Company and its Affiliates prior to the time at which under the terms of the grant an option
becomes exercisable with respect to 100% of the shares covered by the option, then the
portion of the option that is not currently exercisable shall forthwith terminate and be
forfeited unless the Committee determines otherwise. If at any time the Optionee’s
employment is terminated for Cause, then any option held by him, to the extent not
theretofore exercised, shall forthwith terminate and be forfeited.

     (ii) Except as provided in Section 6(c)(ii) hereof, any outstanding options held by the
Optionee and not forfeited as provided above shall be exercisable during the period ending
on the earlier of (A) the end of the three (3) month period following termination of
employment, or (B) the expiration of the period during which the Optionee would have been
entitled to exercise the option if he had not terminated employment; provided, however, that
the Committee shall have the discretion to extend the period during which such options may
be exercised.

     (e) Vesting of Options. Subject to the terms of the immediately preceding paragraphs,
the stock options granted pursuant to this Plan shall be vested and exercisable over a ten (10)
year period as follows:

     (i) 20% of the shares covered by the Stock Option Notice shall be vested and
exercisable at any time after the first (1st) anniversary of the date of grant;

     (ii) 40% of the shares covered by the Stock Option Notice shall be vested and
exercisable at any time after the second (2nd) anniversary of the date of grant;

     (iii) 60% of the shares covered by the Stock Option Notice shall be vested and
exercisable at any time after the third (3rd) anniversary of the date of grant;

     (iv) 80% of the shares covered by the Stock Option Notice shall be vested and
exercisable at any time after the fourth (4th) anniversary of the date of grant;

5

 

     (v) 100% of the shares covered by the Stock Option Notice shall be vested and
exercisable at any time after the fifth (5th) anniversary of the date of grant.

     SECTION 7. Employment. Nothing contained in the Plan, or in any option granted
pursuant to the Plan, shall confer upon any Participant or Optionee any right with respect to the
continuance of his employment with the Company or any of its Affiliates, nor shall it interfere in
any way with the right of the Company or any of its Affiliates to terminate the Optionee’s
employment or change his compensation at any time.

     SECTION 8. Manner of Exercise; Proceeds. Options shall be exercised by the Optionee
or his estate or beneficiary by executing an Employee Shareholder Agreement in a form to be
provided by the Company, or if the Company’s common stock to be issued upon such exercise is
registered with the Securities and Exchange Commission under the Securities Act of 1933, by giving
written notice to the Company of the intention to exercise the option, accompanied in either case
by full payment of the purchase price of the shares with respect to which the option is exercised.
Such full payment shall be tendered by the Optionee either (a) in cash or (b) to the extent
authorized by the Committee, in shares of the Company’s common stock (provided that the Optionee
purchased such shares in the open market, or the Optionee has held such shares for more than six
months), with a certificate representing such shares duly endorsed for transfer or with any other
documents that may be reasonably required by the Company to effectuate the transfer of the shares.
Ownership of the shares acquired upon exercise of the option shall vest when the Company’s
secretary or transfer agent (as the case may be) records the transfer of such shares to the
Optionee on the permanent books of the Company. The proceeds derived by the Company upon the
exercise of any options will be used for general corporate purposes.

     SECTION 9. Securities Matters. The Committee, if it deems it appropriate, may
condition the grant of any option, or the delivery of shares upon the exercise of any option, upon
receipt of an appropriate investment representation from the Optionee. The Company, in its
discretion, may postpone the issuance and delivery of shares upon any exercise of an option until
completion of registration or other qualification of the shares under any state or federal law,
rule, or regulation as the Company may consider appropriate. The Company may further require any
person exercising an option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance of the shares in compliance with applicable
law.

     SECTION 10. Amendment and Termination. The Board of Directors may at any time amend
or terminate the Plan; provided, however, that (a) no such action shall modify the terms of Section
6(c)(iii), providing that options shall become fully exercisable in the event of a Change of
Control, or shall adversely affect or impair the rights of an Optionee in any outstanding options
held by him without his consent, (b) unless the shareholders of the Company shall have first given
their approval, no amendment shall increase the total number of shares available for options under
the Plan, except by operation of the adjustment provisions of Section 4(b), and (c) if the Company
has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934
at the time of such revision or amendment, the following revisions or amendments shall require
approval of the shareholders of the Company:

6

 

     (i) any change in the designation of the class of persons eligible to be granted
Options; or

     (ii) any material increase in the benefit accruing to Participants under the Plan.

     SECTION 11. Tax Withholding. Upon the exercise of any stock option hereunder, the
Company shall have the right to require the Optionee to remit to the Company an amount sufficient
to satisfy all federal, state, and local withholding tax requirements prior to the transfer of any
shares of stock to the Optionee on the permanent books of the Company or the delivery of any shares
of stock to the Optionee.

     SECTION 12. Beneficiary Designation. Each Participant in the Plan may, from time to
time, name a beneficiary to whom any rights under Section 6(c)(ii) of the Plan shall be transferred
in the event of his death. Each designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and shall be effective only when filed
by the Participant in writing with the Committee during his lifetime. In the absence of any such
designation, in the event of the Participant’s death any rights pursuant to Section 6(c)(ii)
hereunder shall be exercisable by his estate, subject to the terms of the Plan.

     SECTION 13. Governing Law. The Plan, and all options hereunder, shall be construed in
accordance with and governed by the laws of the State of North Carolina.

     SECTION 14. Effective Date of the Plan. The Plan is effective as of April 1, 2003.

[Reflects amendments adopted through April 20, 2010. As a result of stock splits effected after
adoption of this plan through April 20, 2010, the number of shares referred to in Section 4(a) has
been increased to 540,000.]

7

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