Document:

EX-4.1

 

Exhibit
4.1

INVESTOR RIGHTS AGREEMENT

     INVESTOR RIGHTS AGREEMENT dated as of July 23, 2007 by and among The Princeton Review, Inc., a
Delaware corporation (the “Company”), the persons executing this Agreement as Purchasers (the
“Purchasers”), and the persons executing this Agreement as Common Stockholders (the
“Stockholders”).

     WHEREAS, the Company and the other parties hereto wish to provide certain arrangements with
respect to the registration of shares of common stock, $.01 par value, of the Company (the “Common
Stock”) under the Securities Act (as defined below);

     WHEREAS, the Stockholders are holders of shares of Common Stock;

     WHEREAS, the Company and the Purchasers have entered into a Series C Preferred Stock Purchase
Agreement, dated the same date as this Agreement (the “Purchase Agreement”), pursuant to which the
Company is issuing and selling to the Purchasers, and the Purchasers are purchasing from the
Company, an aggregate of up to 60,000 shares of the Company’s Series C Convertible Preferred Stock,
par value $.01 per share (the “Series C Preferred Stock”);

     WHEREAS, it is a condition to the obligations of certain of the Purchasers under the Purchase
Agreement that this Agreement be executed by the parties hereto, and the parties are willing to
execute this Agreement and to be bound by the provisions hereof; and

     NOW THEREFORE, for good and valuable consideration; the receipt and adequacy of which is
hereby acknowledged by the parties, the parties hereby agree as follows:

     1. Certain Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:

     “Certificate of Designation” shall mean the Certificate of Designation setting forth the
rights, preferences and privileges of the Series C Preferred Stock, filed in accordance with the
Purchase Agreement.

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

     “Conversion Shares” shall mean shares of Common Stock issued or issuable upon conversion of
the Series C Preferred Stock.

     “Equity Securities” shall mean any (i) Common Stock or preferred stock of the Company, (ii)
any security convertible, with or without consideration, into any Common Stock, preferred stock or
other security (including debt securities convertible into capital stock of the Company and any
option to purchase such a convertible security), (iii) any security carrying any

-1-

 

warrant or right to subscribe to or purchase any Common Stock, preferred stock or other security, or (iv) any such
warrant or right.

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

     “Fully Diluted Basis” means, for the purposes of determining the number of shares of Common
Stock outstanding, a basis of calculation which takes into account (a) shares of Common Stock
actually issued and outstanding at the time of such determination, and (b) that number of shares of
Common Stock that is then issuable upon conversion of all then outstanding shares of Series C
Preferred Stock.

     “Investors” shall mean the Stockholders and the Purchasers party to this Agreement.

     “Preferred Shares” shall mean shares of Series C Preferred Stock issued to the Purchasers
pursuant to the Purchase Agreement.

     “Pro Rata Share” of any Purchaser means the ratio of (a) the number of shares of Common Stock
beneficially owned by such Purchaser plus the number of shares of Common Stock issuable upon
conversion of the Series C Preferred Stock beneficially owned by such Purchaser immediately prior
to the issuance of any Equity Securities to (b) the total number of shares of the Company’s Common
Stock outstanding on a Fully Diluted Basis, immediately prior to the issuance of such Equity
Securities.

     “Purchaser Permitted Transferee shall mean any affiliate of a Purchaser or any entity or
investment vehicle, including a partnership, in which a Purchaser and/or its affiliates has a
majority economic interest or which is managed by a Purchaser or any of its affiliates.

     “Registrable Common Stock” shall mean shares of Common Stock (other than Conversion Shares)
held by Investors or Purchaser Permitted Transferees, excluding shares of Common Stock which (a)
have been registered under the Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration statement covering them, or (b) have
been publicly sold pursuant to Rule 144 under the Securities Act; provided,
however, that all shares of Common Stock held by any Investor shall cease to be Registrable
Common Stock when such Investor is able to sell all shares of Common Stock held by such Investor
pursuant to Rule 144 under the Securities Act in a three-month period.

     “Registration Expenses” shall mean the expenses so described in Section 5.

     “Registrable Stock” shall mean Registrable Common Stock and Restricted Stock.

-2-

 

     “Restricted Stock” shall mean the Conversion Shares, excluding Conversion Shares which have
been (a) registered under the Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration statement covering them or (b)
publicly sold pursuant to Rule 144 under the Securities Act.

     “Securities Act” shall mean the Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.

     “Selling Expenses” shall mean the expenses so described in Section 5.

     2. Demand Registration Rights. (a) At any time following the date hereof, the
holders of Restricted Stock constituting at least twenty percent (20%) of the total shares of
Restricted Stock then outstanding may request the Company to register under the Securities Act all
or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale
in the manner specified in such notice, provided that the aggregate offering price, as such
amount is determined on the cover page of the registration statement, shall not be less than
$2,500,000. Such request shall specify the intended method of disposition thereof by such holder
or holders, including whether (i) the registration requested is for an underwritten offering and
(ii) the registration statement covering such Restricted Stock shall be a “shelf” and provide for
the sale by the holder or holders thereof of the Restricted Stock from time to time on a delayed or
continuous basis under Rule 415 under the Securities Act. For purposes of this Section 2 and
Sections 5, 11(a) and 11(d), the term “Restricted Stock” shall be deemed to include the number of
shares of Restricted Stock which have been issued to or would be issuable to a holder of Preferred
Shares upon conversion of all Preferred Shares held by such holder at such time, provided,
however, that the only securities which the Company shall be required to register pursuant
hereto shall be shares of Common Stock, and provided, further, however,
that, in any underwritten public offering contemplated by this Section 2 or Section 3, the holders
of Preferred Shares shall be entitled to sell such Preferred Shares to the underwriters for
conversion and sale of the shares of Common Stock issued upon conversion thereof. In the event
that any registration pursuant to this Section 2 shall be, in whole or in part, an underwritten
public offering of Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders based upon the number of shares
of Restricted Stock beneficially owned by such holders) if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that such number
of shares of Restricted Stock shall not be reduced if any shares are to be included in such
underwriting for the account of any person other than requesting holders of Restricted Stock.

     (b) Following receipt of any notice under this Section 2, the Company shall immediately
notify all holders of Restricted Stock from whom notice has not been received and shall use its
best efforts to register under the Securities Act, for public sale in accordance with the method of
disposition specified in such notice from requesting holders, the number of shares of Restricted
Stock specified in such notice (and in all notices received by the Company from other holders

-3-

 

within 30 days after the giving of such notice by the Company). If such method of disposition
shall be an underwritten public offering, the holders of a majority of the shares of Restricted
Stock to be sold in such offering may designate the managing underwriter of such offering, subject
to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The
Purchasers shall have an unlimited number of demand registrations pursuant to this Section 2,
provided, however, that the Company shall not be obligated to effect more than two
such registrations in any twelve month period, provided, further, that such
obligation shall be deemed satisfied only when a registration statement covering all shares of
Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method
of disposition specified by the requesting holders, shall have become effective and, if such method
of disposition is a firm commitment underwritten public offering, all such shares shall have been
sold pursuant thereto.

     (c) From and after the date hereof, the Company shall use its commercially reasonable efforts
to qualify under the provisions of the Securities Act, and thereafter, to continue to qualify at
all times, for registration on Form S-3 or any successor thereto. Demand registrations pursuant to
this Section 2 shall be on Form S-3 or any similar short-form registration statement, if available.
In the event the Company fails to qualify, the Company shall be required to effect demand
registrations pursuant to this Section 2 on Form S-1 or any successor thereto to the same extent as
the Company would be required to effect demand registrations on Form S-3.

     (d) The Company may postpone for a period of up to 45 days the filing of any registration
requested pursuant to this Section 2 if the Board of Directors of the Company in good faith
determines that such registration would require the public disclosure of any plan, proposal or
agreement by the Company with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, the disclosure of which would be materially adverse
to the Company, and such determination is evidenced by a board vote included in the minutes of the
meetings of the Company’s Board of Directors; provided, however, that the Company
may not exercise such right of postponement more frequently than one time in any 12 month period
and shall not register any securities for its own account or that of any other stockholder during
such 45 day period (except with respect to registration statements on Forms S-4, S-8 or another
form not available for registering the Restricted Stock for sale to the public).

     (e) The Company shall be entitled to include in any registration statement referred to in
this Section 2, for sale in accordance with the method of disposition specified by the requesting
holders, shares of Common Stock to be sold by the Company for its own account (to the extent that
the inclusion of such shares by the Company shall not adversely affect the offering), and shall not
be entitled to include shares held by any persons other than the holders of Restricted Stock.

     3. Piggyback Registration Rights. If the Company at any time (other than pursuant to
Section 2) proposes to register any of its securities under the Securities Act for sale to the
public, whether for its own account or for the account of other security holders or both (except
with

-4-

 

respect to registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable Stock for sale to the public), each such time it will give prompt
written notice to all holders of outstanding Registrable Stock of its intention to do so. Upon the
written request of any such holder, received by the Company within 30 days after the giving of any
such notice by the Company, to register any of its Registrable Stock, the Company will use its best
efforts to cause the Registrable Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed to be filed by the
Company, all to the extent required to permit the sale or other disposition by the holder of such
Registrable Stock so registered. In the event that any registration pursuant to this Section 3
shall be, in whole or in part, an underwritten public offering of Common Stock, the number of
shares of Registrable
Stock to be included in such an underwriting may be reduced if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein. In the event that the managing
underwriter on behalf of all underwriters limits the number of shares to be included in a
registration pursuant to this Section 3, or shall otherwise require a limitation of the number of
shares to be included in the registration, then the Company will include in such registration:

	 	(i)	 	first, securities proposed by the Company to be sold for its own account;
	 
	 	(ii)	 	second, shares of Restricted Stock requested to be included by holders pursuant to this
Section 3;
	 
	 	(iii)	 	third, shares of Registrable Common Stock requested to be included by holders pursuant
to this Section 3; and
	 
	 	(iv)	 	fourth, securities requested to be included by any other holders,

provided, however, that such number of shares of Registrable Stock shall not be
reduced if any shares are to be included in such underwriting for the account of any person other
than the Company or requesting holders of Registrable Stock; and provided further,
however, that no event shall the Registrable Stock requested to be included by holders
pursuant to this Section 3 constitute less than thirty percent (30%) of all share to be registered
in such registration (in such event, the Company agrees to reduce the shares of Common Stock it
proposes to register for its own account or the account of holders initially requesting or
demanding registration in order to assure that such Registrable Stock constitute at least thirty
percent (30%) of the shares to be registered). The securities to be included in any such
registration pursuant to clause (ii) or (iii) above shall be allocated on a pro rata basis among
the requesting holders based upon the number of shares of Restricted Stock or Registrable Common
Stock, as the case may be, held by such holders. Notwithstanding the foregoing provisions, the
Company may withdraw any registration statement referred to in this Section 3 without thereby
incurring any liability to the holders of Registrable Stock.

-5-

 

     4. Registration Procedures. If and whenever the Company is required by the provisions
of Sections 2 or 3 to use its best efforts to effect the registration of any shares of Registrable
Stock under the Securities Act, the Company will, as expeditiously as possible:

          (a) prepare and promptly, and in any event within 30 days after the request for registration
has been delivered to the company, file with the Commission a registration statement with respect
to such securities and use its best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby (determined as hereinafter
provided) or in the case of a registration requested to be a “shelf”, for as long as requested to
the extent permitted by applicable law;

          (b) prepare and file with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in paragraph (a) above and comply with the provisions of the Securities Act with respect to the disposition of all
Registrable Stock covered by such registration statement in accordance with the sellers’ intended
method of disposition set forth in such registration statement for such period;

          (c) furnish to each seller of Registrable Stock and to each underwriter such number of copies
of the registration statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Stock covered by such registration statement;

          (d) use its best efforts to register or qualify the Registrable Stock covered by such
registration statement under the securities or “blue sky” laws of such jurisdictions as the sellers
of Registrable Stock or, in the case of an underwritten public offering, the managing underwriter
reasonably shall request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of process in any such
jurisdiction;

          (e) use its best efforts to list the Registrable Stock covered by such registration statement
with any securities exchange on which the Common Stock of the Company is then listed;

          (f) provide a transfer agent and registrar for all such Registrable Stock not later than the
effective date of such registration statement;

          (g) immediately notify each seller of Registrable Stock and each underwriter under such
registration statement, at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then existing, and at the
request of any such seller prepare and furnish to such seller a reasonable

-6-

 

number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Stock, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the circumstances then
existing;

          (h) if the offering is underwritten and at the request of any seller of Registrable Stock, use
its best efforts to furnish on the date that Registrable Stock is delivered to the underwriters for
sale pursuant to such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the Securities Act and that (A)
to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any
opinion as to financial statements contained therein) and (C) to such other effects as reasonably
may be requested by counsel for the underwriters or by such seller or its counsel, and (ii) a
letter dated such date from the independent public accountants retained by the Company, addressed
to the underwriters and to such seller, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such underwriters or sellers
reasonably may request;

          (i) use its best efforts to cooperate with the sellers in the disposition of the Registrable
Stock covered by such registration statement, including without limitation in the case of an
underwritten offering causing key executives of the Company and its subsidiaries to participate
under the direction of the managing underwriter in a “road show” scheduled by such managing
underwriter in such locations and of such duration as in the judgment of such managing underwriter
are appropriate for such underwritten offering;

          (j) in connection with the preparation and filing of each registration statement registering
Registrable Stock under the Securities Act, and before filing any such registration statement or
any other document in connection therewith, give the participating holders and their underwriters,
if any, and their respective counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or filed with the
Commission, each amendment thereof or supplement thereto and any related underwriting agreement or
other document to be filed, and give each of the aforementioned persons such access to its books
and records, including all financial and other records, pertinent corporate

-7-

 

documents and properties of the Company, and such opportunities to discuss the business of the Company with its
officers, directors and employees and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such holders, underwriters, counsel
or accountants, to conduct a reasonable investigation within the meaning of the Securities Act; and

          (k) otherwise use its best efforts to comply with the Securities Act, the Exchange Act and any
other applicable rules and regulations of the Commission, and make available to its securities
holders, as soon as reasonably practicable, an earning statement covering the period of at least 12
months after the effective date of such registration statement, which earning statement shall
satisfy Section 11(a) of the Securities Act and any applicable regulations thereunder, including
Rule 158.

     For purposes of Sections 4(a) and 4(b) and of Section 2(d), the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be deemed to extend until
each underwriter has completed the distribution of all securities purchased by it, and the period
of distribution of Registrable Stock in any other registration shall be deemed to extend until the earlier of the sale of all Registrable Stock covered thereby and 120 days after the
effective date thereof or in the case of a registration requested to be a “shelf”, for as long as
requested to the extent permitted by applicable law.

     In connection with each registration hereunder, the sellers of Registrable Stock will furnish
to the Company in writing such information with respect to themselves and the proposed distribution
by them as reasonably shall be necessary in order to assure compliance with federal and applicable
state securities laws.

     In connection with each registration pursuant to Sections 2 or 3 covering an underwritten
public offering, the Company and each seller agree to enter into a written underwriting agreement
with the managing underwriter selected in the manner herein provided in such form and containing
such provisions as are customary in the securities business for such an arrangement between such
underwriter and companies of the Company’s size and investment stature; provided,
however, that (i) the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of the underwriters shall also be made to and for the
benefit of such sellers of Registrable Stock, and (ii) no seller shall be required to make, and the
Company shall use its best efforts to ensure that no underwriter requires any seller to make, any
representations and warranties, to or agreements with any underwriter in a registration effected
pursuant to Sections 2 or 3 other than customary representations, warranties and agreements
relating to such seller’s title to Registrable Stock and authority to enter into the underwriting
agreement.

     5. Expenses. All expenses incurred by the Company in complying with Sections 4 and 5,
including, without limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state securities or

-8-

 

“blue sky” laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and fees and disbursements of one counsel for
the sellers of Registrable Stock (which fees and disbursements of the one counsel to the sellers
shall not exceed $50,000), but excluding any Selling Expenses, are called “Registration Expenses.”
All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are
called “Selling Expenses.”

     The Company will pay all Registration Expenses in connection with each registration statement
under Sections 2 or 3. All Selling Expenses in connection with each registration statement under
Sections 2 or 3 shall be borne by the participating sellers in proportion to the number of shares
sold by each, or by such participating sellers as they may agree.

     6. Indemnification and Contribution. (a) In the event of a registration of any of
the Registrable Stock under the Securities Act pursuant to Sections 2 or 3, the Company will
indemnify and hold harmless each seller of Registrable Stock thereunder, each underwriter of such
Registrable Stock thereunder and each other person, if any, who controls or is alleged to control
such seller or underwriter within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which such seller, underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration statement under
which such Registrable Stock were registered under the Securities Act pursuant to Sections 2 or 3,
any preliminary prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein not
misleading, or arises out of or are based upon any violation or alleged violation of any federal,
state or other law, rule or regulation relating to any action or inaction in connection therewith,
and will reimburse each such seller, each such underwriter and each such controlling person for 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
Company will not be liable to any such indemnitee if and to the extent that any such loss, claim,
damage or liability arises solely out of or is based solely upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with information with
respect to such indemnitee furnished by such indemnitee in writing specifically for use in such
registration statement or prospectus. The indemnities of the Company contained in this Section 6
shall remain in full force and effect regardless of any investigation made by or on behalf of such
indemnified person and shall survive any transfer of Registrable Stock.

     (b) In the event of a registration of any of the Registrable Stock under the Securities Act
pursuant to Sections 2 or 3, each seller of such Registrable Stock thereunder, severally and not
jointly, will indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company who signs the

-9-

 

registration statement, each director of the Company, each underwriter and each person who controls
any underwriter within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact contained in the
registration statement under which such Registrable Stock was registered under the Securities Act
pursuant to Sections 2 or 3, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for 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 such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises solely out of or is
based solely upon an untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such seller, as such,
furnished in writing to the Company by such seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of each seller hereunder shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public offering price of the shares
sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any
event to exceed the net proceeds received by such seller from the sale of Registrable Stock covered
by such registration statement (after deduction of all underwriters’ discounts and commissions and
all other expenses paid by such seller in connection with the registration in question). Such
indemnity shall remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer, underwriter or controlling person and shall
survive any transfer of Registrable Stock.

     (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so
to notify the indemnifying party shall not relieve it from any liability which it may have to such
indemnified party other than under this Section 6 and shall only relieve it from any liability
which it may have to such indemnified party under this Section 6 if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall
wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 6 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable

-10-

 

costs of investigation and of liaison with counsel so selected, provided, however, that, if
the defendants in any such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available to the indemnifying party
or if the interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred. No indemnifying party, in
the defense of any such claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement unless such judgment or
settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to such claim or litigation,
includes only money damages (as opposed to equitable relief) and does not include any statement as
to the fault or culpability of such indemnified party.

     (d) In order to provide for just and equitable contribution to joint liability under the
Securities Act in any case in which either (i) any holder of Registrable Stock exercising rights
under this Agreement, or any controlling person of any such holder, makes a claim for
indemnification pursuant to this Section 6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is provided under this
Section 6; then, and in each such case, the Company and such holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such holder is responsible for the portion represented by
the percentage that the aggregate public offering price of its Registrable Stock offered by the
registration statement bears to the aggregate public offering price of all securities offered by
such registration statement, and the Company is responsible for the remaining portion;
provided, however, that, in any such case, (A) no such holder will be required to
contribute any amount in excess of the net proceeds received by it from the sale of all such
Restricted Stock offered by it pursuant to such registration statement (after deduction of all
underwriters’ discounts and commissions and all other damages and expenses paid by such seller in
connection with the registration in question); and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

     7. Changes in Common Stock or Preferred Stock. If, and as often as, there is any
change in the Common Stock or the Series C Preferred Stock by way of a stock split, stock dividend,
combination or reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in the provisions

-11-

 

hereof so that the rights and privileges granted hereby shall continue with respect to the Common
Stock or the Series C Preferred Stock as so changed.

     8. Rule 144 Reporting. With a view to making available the benefits of certain rules
and regulations of the Commission which may at any time permit the sale of the Restricted Stock to
the public without registration, the Company agrees to:

          (a) make and keep public information available, as those terms are understood and defined in
Rule 144 under the Securities Act;

          (b) use its best efforts to file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act; and

          (c) furnish to each holder of Restricted Stock forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of such Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing such holder to sell
any Restricted Stock without registration.

     9. Purchase Rights. The Company agrees as follows:

          (a) Subsequent Offerings. Each Purchaser shall have a right of first refusal (the
“Purchase Rights”) to purchase its Pro Rata Share of all Equity Securities other than the Equity
Securities excluded by Section 9(e) hereof.

          (b) Exercise of Rights.

               (i) If the Company proposes to issue any Equity Securities, it shall give each Purchaser
written notice of its intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the giving of such notice to agree to purchase its Pro Rata Share of the Equity
Securities for the price and upon the terms and conditions specified in the notice by giving
written notice to the Company (the “Company Notice”) and stating therein the quantity of such
Equity Securities to be purchased.

               (ii) If not all of the Purchasers elect to purchase their Pro Rata Share of the Equity
Securities, then the Company shall promptly notify in writing the Purchasers who have elected to
purchase their full Pro Rata Share of such Equity Securities and shall offer such Purchasers (the
“Purchasing Investors”) the right to acquire such unsubscribed shares. The Purchasing Investors
shall have fifteen (15) days after receipt of such notice to notify the Company (the “Purchasing
Investor Notice”) of their election to purchase all or a portion thereof of the unsubscribed
shares. If the Purchasing Investors have, in the aggregate elected to

-12-

 

purchase more than the number of unsubscribed shares being offered in such notice, then the unsubscribed shares shall be
allocated according to each Purchasing Investor’s Pro Rata Share up to the number of unsubscribed
shares set forth in the notice to the Purchasing Investors, provided that for
purposes of this Section 9(b)(ii), the numerator in clause (a) of the defined term “Pro Rata Share”
shall be the number of shares of Common Stock beneficially owned by such Purchasing Investor plus
the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock
beneficially owned by such Purchasing Investor immediately prior to the proposed issuance and the
denominator in clause (b) of the defined term “Pro Rata Share” shall be the total number of shares
of Common Stock beneficially owned by, and the number of shares of Common Stock issuable upon
conversion of the Series C Preferred Stock beneficially owned by all the Purchasing Investors
immediately prior to the proposed issuance. The Purchasing Investors shall then effect the purchase
of the Equity Securities at the closing of the issuance of Equity Securities described in the
notice delivered by the Company pursuant to Section 9(b)(i). On the date of such closing, the
Company shall deliver to the Purchasing Investors the certificates representing the Equity
Securities to be purchased by the Purchasing Investors, each certificate to be properly endorsed
for transfer, and at such time, the Purchasing Investors shall pay the purchase price for the
Equity Securities.

          (c) Issuance of Equity Securities to Other Persons. If the Purchasers fail to
exercise in full their Purchase Rights, the Company shall have sixty (60) days thereafter to sell
the Equity Securities in respect of which the Purchasers’ rights were not exercised, at a price and
upon general terms and conditions no more favorable to the purchasers thereof than specified in the
Company’s notice to the Purchasers pursuant to Section 9(b)(i) hereof. If the Company has not sold such Equity Securities within such sixty (60) days, the Company shall not thereafter
issue or sell any Equity Securities, without first again complying with this Section 9.

          (d) Transfer of Purchase Rights. The Purchase Rights of each Purchaser under this
Section 9 may be transferred to any Purchaser Permitted Transferee; provided, that any such
Purchaser Permitted Transferee shall furnish the Company a written agreement, satisfactory to the
Company, to be bound by and comply with all provisions of this Agreement as if such Purchaser
Permitted Transferee were a Purchaser.

          (e) Excluded Securities. The Purchase Rights established by this Section 9 shall have
no application to any of the following Equity Securities (collectively, the “Excluded Securities”):

               (i) any Common Stock issued upon conversion of the Series C Preferred Stock;

               (ii) shares of Common Stock (and/or options, warrants or other Common Stock purchase rights
issued pursuant to such options, warrants or other rights), as appropriately adjusted for stock
dividends, stock splits, combinations, recapitalizations or other similar events affecting the
Common Stock, issued to employees, officers or directors of, or consultants or

-13-

 

advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other equity
compensation arrangements that are approved by the Board;

               (iii) any Common Stock issued upon exercise of options, warrants or convertible securities
outstanding as of the date of this Agreement;

               (iv) any Common Stock issued as consideration in connection with or relating to any permitted
acquisitions, mergers or strategic partnership transactions (other than transactions entered into
primarily for equity financing purposes) that have been approved by the Board; or

               (v) any Equity Securities designated as Excluded Securities by holders of a majority of the
Series C Preferred Stock then outstanding; provided, however, that no holder of Series C Preferred
Stock or any of its Affiliates may purchase any such Equity Securities designated as Excluded
Securities unless all holders of Series C Preferred Stock are able to participate based on their
relative Pro Rata Share.

     10. Miscellaneous.

          (a) Successors and Assigns. All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto (including without limitation transferees of any
Preferred Shares or Restricted Stock, but not transferees of any Registrable Common Stock), whether
so expressed or not, provided, however, that the rights conferred herein on the
holders of Preferred Shares or Restricted Stock to require the registration of shares of Restricted
Stock or the rights under Section 9 above shall only inure to the benefit of a transferee of
Preferred Shares or Restricted Stock if (i) there is transferred to such transferee shares
representing at least five percent (5%) of the outstanding shares of Restricted Stock (assuming the conversion of all
Preferred Shares into Restricted Stock) or (ii) such transferee is a Purchaser Permitted Transferee
or a partner, shareholder or affiliate of a party hereto. Transfer of registration rights to a
Purchaser Permitted Transferee or to a partner, member or shareholder of any Purchaser will be
without restriction as to minimum shareholding. Any transferee to whom rights under this
Agreement are transferred shall (i) as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the obligations imposed upon
holders under this Agreement to the same extent as if such transferee were a holder under this
Agreement and (ii) be deemed to be a holder hereunder.

          (b) Notices. All notices, requests, consents and other communications hereunder shall
be in writing and shall be delivered in person, mailed by certified or registered mail, return
receipt requested, or sent by telecopier or telex, addressed as follows:

               (i) if to the Company or any Purchaser, at the address of such party set forth in the Purchase
Agreement;

-14-

 

               (ii) if to any Stockholder, at the address of such party set forth on the signature page
to this Agreement;

               (iii) if to any subsequent holder of Preferred Shares or Restricted Stock, to it at such
address as may have been furnished to the Company in writing by such holder;

or, in any case, at such other address or addresses as shall have been furnished in writing to the
Company (in the case of a holder of Preferred Shares, Restricted Stock or Registrable Common Stock)
or to the holders of Preferred Shares, Restricted Stock or Registrable Common Stock (in the case of
the Company) in accordance with the provisions of this paragraph.

          (c) Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its conflict of law principles.

          (d) Amendments, Waivers and Consents. This Agreement may not be amended or modified,
and no provision hereof may be waived, without the written consent of the Company and the holders
of at least seventy-five percent (75%) of the outstanding shares of Restricted Stock (assuming the
conversion of all Preferred Shares into Restricted Stock); provided, however, that,
without a holder’s consent, any such amendment or waiver shall not treat such holder differently
from any other holder. The Company shall deliver copies of such consent to any holders who did not
execute the same. Neither this Agreement, nor any provision hereof, may be changed, waived,
discharged or terminated orally or by course of dealing, but only by an instrument in writing.

          (e) No Waivers. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.

          (f) Headings. The headings of the Sections and paragraphs of this Agreement have been
inserted for convenience of reference only and do not constitute a part of this Agreement.

          (g) 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. Any person who, after the date hereof, acquires shares of Preferred Stock shall become
a party to this Agreement as a “Purchaser” and a holder of “Restricted Stock” for all purposes
hereunder, all upon execution by such person and the Company of a counterpart of this Agreement.

          (h) Termination of Registration Rights. The obligations of the Company to register
shares of Restricted Stock under Sections 2 or 3 shall terminate as to each holder of

- 15 -

 

Restricted Stock on the date such holder of Restricted Stock (or Preferred Shares which are convertible into
shares of Restricted Stock) may immediately sell or distribute all of the shares of Restricted
Stock (including shares of Restricted Stock issuable upon conversion of such holder’s Preferred
Shares) held by such holder pursuant to Rule 144(k) under Securities Act and such holder owns less
than one percent (1%) of the Company’s outstanding Common Stock (on an as-converted basis).

          (i) Additional Registration Rights. The Company shall not grant to any additional
registration rights after the date hereof without the consent of the Purchasers holding at least
seventy-five percent (75%) of the Restricted Stock unless such registrations rights are subordinate
in all respects to the Purchasers’ rights contained herein.

          (j) Company Registration. In the event that the registration requirements under the
Securities Act are amended or eliminated to accommodate a “Company registration” or similar
approach, this Agreement shall be deemed amended to the extent necessary to reflect such changes
and the intent of the parties hereto with respect to the benefits and obligations of the parties,
and in such connection, the Company shall use reasonable efforts to provide holders of Restricted
Stock equivalent benefits to those provided under this Agreement.

          (k) Cumulative Remedies. None of the rights, powers or remedies conferred upon the
Purchasers on the one hand or the Company on the other hand shall be mutually exclusive, and each
such right, power or remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred by this Agreement or now or hereafter available at law, in equity, by
statute or otherwise. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under this Agreement. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of obligations contained
in this Agreement and hereby agrees to waive and not to assert in any action for specific
performance of any such obligation the defense that a remedy at law would be adequate.

          (l) Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal or state court located in the State of New
York, and each of the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably
waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided in Section 10(l)
shall be deemed effective service of process on such party.

- 16 -

 

          (m) Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT
BE WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT NEITHER THE COMPANY NOR
THE INVESTORS WILL ASSERT, ANY RIGHT TO TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER AGREEMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE
INVESTORS AND THE COMPANY HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges that it has been
informed by the Purchasers and Stockholders that the provisions of this Section 10(m) constitute a
material inducement upon which the Purchasers are relying and will rely in entering into this
Agreement. Any Purchaser, Stockholder or the Company may file an original counterpart or a copy of
this Section 10(m) with any court as written evidence of the consent of the Purchasers,
Stockholders and the Company to the waiver of the right to trial by jury.

          (n) Severability. If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render illegal, invalid or unenforceable any other
provision of this Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.

[Remainder of Page Intentionally Left Blank]

- 17 -

 

     IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be duly
executed as of the day and year first above written.

	 	 	 	 	 
	 	THE COMPANY

THE PRINCETON REVIEW, INC.

 	 
	 	By:  	/s/
Michael J. Perik	 
	 	 	Name:  	Michael J. Perik 	 
	 	 	Title:  	Chief Executive Officer 	 
	 

Signature Page to Investor Rights Agreement

 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be duly
executed as of the day and year first above written.

	 	 	 	 	 
	 	THE PURCHASERS

BAIN CAPITAL VENTURE FUND 2007, L.P.

By: Bain Capital Venture Partners, L.P., its general partner

By: Bain Capital Investors, LLC, its general partner

 	 
	 	By:  	/s/ Michael A. Krupka	 
	 	 	Name:  	Michael A. Krupka	 
	 	 	Title:  	Authorized Person 	 
	 
	 	BCIP VENTURE ASSOCIATES

By: Bain Capital Investors, LLC, its managing partner

By: Bain Capital Venture Investors, LLC,
 its Attorney-in-fact

 	 
	 	By:  	/s/ Michael A. Krupka	 
	 	 	Name:  	Michael A. Krupka	 
	 	 	Title:  	Managing Director 	 
	 
	 	BCIP VENTURE ASSOCIATES-B

By: Bain Capital Investors, LLC, its managing partner

By: Bain Capital Venture Investors, LLC,
 its Attorney-in-fact

 	 
	 	By:  	/s/ Michael A. Krupka	 
	 	 	Name:  	Michael A. Krupka	 
	 	 	Title:  	Managing Director 	 
	 
	 	RGIP, LLC

 	 
	 	By:  	/s/ Alfred O. Rose	 
	 	 	Name:  	Alfred O. Rose	 
	 	 	Title:  	Managing Member	 
	 

Signature Page to Investor Rights Agreement

 

 

	 	 	 	 	 
	 	PRIDES CAPITAL FUND I LP

By: Prides Capital Partners, L.L.C., its general partner

 	 
	 	By:  	/s/
Henry J. Lawler, Jr.	 
	 	 	Name:  	Henry J. Lawler, Jr.	 
	 	 	Title:  	Managing Member of the General Partner	 
	 

Signature Page to Investor Rights Agreement

 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be duly
executed as of the day and year first above written.

	 	 	 	 	 
	 	THE STOCKHOLDERS 

 	 
	 	By:  	/s/
Michael J. Perik 	 
	 	 	Name:  	Michael J. Perik 	 
	 	 	 	 
	 
	 	Address:

              
              
              
              
              
    

              
             
              
              
               
    

               
              
               
               
               

 	 

Signature Page to Investor Rights AgreementEX-10.1

 

Exhibit
10.1

 

 

SERIES C PREFERRED STOCK PURCHASE AGREEMENT

AMONG

THE PRINCETON REVIEW, INC.,

BAIN CAPITAL VENTURE FUND 2007, L.P.

PRIDES CAPITAL FUND I LP

AND

THE OTHER PURCHASERS NAMED ON SCHEDULE I HERETO

DATED AS OF JULY 23, 2007

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	1.

	 	Authorization of Securities
	 	 	1	 
	2.

	 	Sale and Purchase of the Series C Preferred Stock
	 	 	1	 
	3.

	 	Closing; Payment of Purchase Price; Use of Proceeds
	 	 	2	 
	3.1.

	 	Closing
	 	 	2	 
	3.2.

	 	Use of Proceeds
	 	 	2	 
	4.

	 	Representations and Warranties of the Purchasers; Register of Securities; Restrictions on Transfer
	 	 	2	 
	4.1.

	 	Organization
	 	 	2	 
	4.2.

	 	Validity
	 	 	2	 
	4.3.

	 	Brokers
	 	 	2	 
	4.4.

	 	Investment Representations and Warranties
	 	 	3	 
	4.5.

	 	Acquisition for Own Account
	 	 	3	 
	4.6.

	 	Ability to Protect Its Own Interests and Bear Economic Risks
	 	 	3	 
	4.7.

	 	Accredited Investor
	 	 	3	 
	4.8.

	 	Access to Information
	 	 	3	 
	4.9.

	 	Restricted Securities
	 	 	3	 
	4.10.

	 	Residence
	 	 	4	 
	4.11.

	 	Series B-1 Preferred Stock
	 	 	4	 
	5.

	 	Representations and Warranties by the Company
	 	 	4	 
	5.1.

	 	Capitalization
	 	 	4	 
	5.2.

	 	Due Issuance and Authorization of Capital Stock
	 	 	5	 
	5.3.

	 	Organization
	 	 	5	 
	5.4.

	 	Subsidiaries
	 	 	5	 
	5.5.

	 	Consents
	 	 	6	 
	5.6.

	 	Authorization; Enforcement
	 	 	6	 
	5.7.

	 	Issuance of Securities
	 	 	6	 
	5.8.

	 	No Conflicts
	 	 	7	 
	5.9.

	 	Material Contracts
	 	 	7	 
	5.10.

	 	Right of First Refusal; Stockholders Agreement; Voting and Registration Rights
	 	 	8	 
	5.11.

	 	Previous Issuances
	 	 	8	 
	5.12.

	 	No Integrated Offering
	 	 	8	 
	5.13.

	 	SEC Reports; Financial Statements
	 	 	8	 
	5.14.

	 	No Undisclosed Material Liabilities
	 	 	9	 
	5.15.

	 	Litigation
	 	 	10	 
	5.16.

	 	Taxes
	 	 	10	 
	5.17.

	 	Employee Matters
	 	 	10	 
	5.18.

	 	Compliance with Laws
	 	 	11	 
	5.19.

	 	Brokers
	 	 	11	 
	5.20.

	 	Environmental Matters	 	 	11	 
	5.21.

	 	Intellectual Property Matters
	 	 	12	 

 

 

	 	 	 	 	 	 	 
	5.22.

	 	Related-Party Transactions
	 	 	15	 
	5.23.

	 	Title to Property and Assets
	 	 	16	 
	5.24.

	 	Disclosure
	 	 	16	 
	5.25.

	 	Absence of Changes
	 	 	16	 
	5.26.

	 	Illegal Payments
	 	 	18	 
	5.27.

	 	Suppliers and Customers
	 	 	18	 
	5.28.

	 	Regulatory Permits
	 	 	19	 
	5.29.

	 	Insurance
	 	 	19	 
	5.30.

	 	[Reserved]
	 	 	19	 
	5.31.

	 	Investment Company
	 	 	19	 
	5.32.

	 	Listing and Maintenance Requirements
	 	 	19	 
	5.33.

	 	Accountants
	 	 	19	 
	5.34.

	 	Solvency
	 	 	20	 
	5.35.

	 	Application of Takeover Protections
	 	 	20	 
	5.36.

	 	Stock Options
	 	 	20	 
	6.

	 	Conditions of Parties’ Obligations
	 	 	21	 
	6.1.

	 	Conditions of the Purchasers’ Obligations
	 	 	21	 
	6.2.

	 	Conditions of the Company’s Obligations
	 	 	23	 
	6.3.

	 	Conditions of Each Party’s Obligations
	 	 	24	 
	7.

	 	Covenants.
	 	 	24	 
	7.1.

	 	Reporting Requirements; Access to Records
	 	 	24	 
	7.2.

	 	Integration
	 	 	24	 
	7.3.

	 	Securities Laws Disclosure; Publicity
	 	 	25	 
	7.4.

	 	Reservation of Common Stock
	 	 	25	 
	7.5.

	 	Listing of Common Stock
	 	 	25	 
	7.6.

	 	Filings
	 	 	25	 
	7.7.

	 	Board Representation
	 	 	26	 
	7.8.

	 	Board Committees
	 	 	26	 
	7.9.

	 	Board Observer Rights
	 	 	26	 
	7.10.

	 	Nomination Process
	 	 	26	 
	7.11.

	 	Standstill Agreements
	 	 	26	 
	8.

	 	Transfer Restrictions; Restrictive Legend
	 	 	27	 
	8.1.

	 	Transfer Restrictions
	 	 	27	 
	8.2.

	 	Unlegended Certificates
	 	 	27	 
	9.

	 	Registration, Transfer and Substitution of Certificates for Securities
	 	 	28	 
	9.1.

	 	Stock Register; Ownership of Securities
	 	 	28	 
	9.2.

	 	Replacement of Certificates
	 	 	28	 
	10.

	 	Definitions
	 	 	28	 
	11.

	 	Enforcement
	 	 	31	 
	11.1.

	 	Cumulative Remedies
	 	 	31	 
	11.2.

	 	No Implied Waiver
	 	 	32	 
	12.

	 	Confidentiality
	 	 	32	 
	13.

	 	Miscellaneous
	 	 	32	 
	13.1.

	 	Waivers and Amendments
	 	 	32	 

-iii-

 

	 	 	 	 	 	 	 
	13.2.

	 	Notices
	 	 	33	 
	13.3.

	 	Indemnification
	 	 	34	 
	13.4.

	 	No Waivers
	 	 	35	 
	13.5.

	 	Successors and Assigns
	 	 	35	 
	13.6.

	 	Headings
	 	 	35	 
	13.7.

	 	Governing Law
	 	 	35	 
	13.8.

	 	Independent Nature of Purchasers’ Obligations and Rights
	 	 	35	 
	13.9.

	 	Fees and Expenses
	 	 	36	 
	13.10.

	 	Jurisdiction
	 	 	37	 
	13.11.

	 	Waiver of Jury Trial
	 	 	37	 
	13.12.

	 	Counterparts; Effectiveness
	 	 	37	 
	13.13.

	 	Entire Agreement
	 	 	37	 
	13.14.

	 	Severability
	 	 	38	 

LIST OF EXHIBITS

	 	 	 
	EXHIBIT A

	 	Certificate of Designation
	EXHIBIT B

	 	Certificate of Elimination
	EXHIBIT C

	 	Form of Investor Rights Agreement
	EXHIBIT D

	 	Form of Termination and Release Agreement

-iv-

 

SERIES C PREFERRED STOCK PURCHASE AGREEMENT

          This SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into
this 23rd day of July, 2007 (the “Purchase Date”) by and among The Princeton Review, Inc., a
Delaware corporation (the “Company”), Bain Capital Venture Fund 2007, L.P., a Delaware limited
partnership (“Bain Capital”), Prides Capital Fund I LP, a Delaware limited partnership (“Prides
Capital”) and the other entities and individuals as listed on Schedule I attached hereto
(Bain Capital, Prides Capital and such other entities and individuals, the “Purchasers”). Certain
terms used and not otherwise defined in the text of this Agreement are defined in Section 10
hereof.

WITNESSETH

          WHEREAS, the Company desires to issue and to sell to the Purchasers, and the Purchasers desire
to purchase from the Company, the shares of Series C Preferred Stock set forth on the Schedule
I attached hereto in the column Shares Purchased, all in accordance with the terms and
provisions of this Agreement;

          NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties
and covenants herein contained, the parties hereto, intending to be bound, hereby agree as follows:

     1. Authorization of Securities. The Company has authorized the issuance and sale of
up to 60,000 shares of its Series C Convertible Preferred Stock, par value $0.01 per share (“Series
C Preferred Stock”), which will be convertible into shares of the Company’s common stock, par value
$0.01 per share (the “Common Stock”), and which will have the rights, preferences and privileges
set forth in the form of Certificate of Designation attached hereto as Exhibit A (the
“Certificate of Designation”). The shares of Common Stock into which the Series C Preferred Stock
is convertible are sometimes referred to herein as the “Conversion Shares” and the shares of Series
C Preferred Stock and the Conversion Shares are sometimes referred to herein collectively as the
“Securities”.

     2. Sale and Purchase of the Series C Preferred Stock. Upon the terms and subject to
the conditions herein contained, the Company agrees to sell to each Purchaser, and each Purchaser
agrees, severally and not jointly, to purchase from the Company, at the Closing, the number of
shares of Series C Preferred Stock set forth in the column “Shares Purchased” opposite such
Purchaser’s name on Schedule I attached hereto, for a purchase price per share equal to
$1,000 (the “Purchase Price”), which shall be paid in cash or a combination of cash, shares of the
Company’s Series B-1 Cumulative Convertible Preferred Stock (the “Series B-1 Preferred Stock”),
which shares shall be cancelled and retired pursuant to the certificate attached hereto as
Exhibit B and the cancellation and termination of the Fletcher Rights (as such term is
defined in the Agreement between the Company and Fletcher International, Ltd. and its

-1-

 

successors and assigns, dated as of May 28, 2004), as set forth in the column “Consideration” opposite such
Purchaser’s name on Schedule I attached hereto.

     3. Closing; Payment of Purchase Price; Use of Proceeds.

          3.1. Closing. The closing (the “Closing”) with respect to the transaction
contemplated in Section 2 hereof shall take place at the offices of Ropes & Gray LLP, One
International Place, Boston, Massachusetts at 10:00 a.m. on July 23, 2007, or at such other time
and place as the Company and Purchasers may agree (the “Closing Date”). At the Closing, the
Company shall deliver to each Purchaser a certificate representing the Series C Preferred Stock
which such Purchaser is purchasing at the Closing as set forth on Schedule I attached
hereto, registered in the name of such Purchaser, against delivery to the Company by such Purchaser
of a wire transfer or delivery of shares and rights (as the case may be) in the amount of the
Purchase Price therefor.

          3.2. Use of Proceeds. The Company shall use the proceeds from the sale of Series C
Preferred Stock hereunder for general corporate purposes, to pay Company indebtedness and to
repurchase all of the outstanding Series B-1 Preferred Stock and the cancellation and termination
of the Fletcher Rights.

     4. Representations and Warranties of the Purchasers; Register of Securities; Restrictions
on Transfer. Each Purchaser (except in the case of Section 4.11, which shall apply only to the
Purchaser named therein), severally as to itself and not jointly, represents and warrants to the
Company as follows:

          4.1. Organization. The Purchaser which is duly formed or organized, validly existing
and in good standing under the laws of its jurisdiction of organization or formation, and has all
requisite corporate, limited liability company, partnership or trust (as the case may be) power and
authority to enter into this Agreement and the other Transaction Documents and instruments referred
to herein to which it is a party and to consummate the transactions contemplated hereby and
thereby.

          4.2. Validity. The execution, delivery and performance of this Agreement and the
other Transaction Documents and instruments referred to herein, in each case to which such
Purchaser is a party, and the consummation by such Purchaser of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action on the part of such
Purchaser. This Agreement has been duly executed and delivered by such Purchaser, and the other
Transaction Documents and instruments referred to herein to which it is a party will be duly
executed and delivered by such Purchaser, and each such agreement constitutes or will constitute a
valid and binding obligation of such Purchaser enforceable against it in accordance with its terms.

          4.3. Brokers. There is no broker, investment banker, financial advisor, finder or
other person which has been retained by or is authorized to act on behalf of such Purchaser

-2-

 

who might be entitled to any fee or commission for which the Company will be liable in connection with
the execution of this Agreement and the consummation of the transactions contemplated hereby.

          4.4. Investment Representations and Warranties. Such Purchaser understands that the
offering and sale of the Securities have not been registered under the Securities Act and
are being made in reliance upon federal and state exemptions for transactions not involving a
public offering which depend upon, among other things, the bona fide nature of the investment
intent and the accuracy of Purchaser’s representations as expressed herein. The Purchaser
acknowledges that, except as set forth in the Investor Rights Agreement, the Company has no
obligation to register or qualify the Securities for resale.

          4.5. Acquisition for Own Account. Such Purchaser is acquiring the Securities for its
own account for investment and not with a view toward distribution in a manner which would violate
the Securities Act.

          4.6. Ability to Protect Its Own Interests and Bear Economic Risks. Such Purchaser, by
reason of the business and financial experience of its management, has the capacity to protect its
own interests in connection with the transactions contemplated by this Agreement and the other
Transaction Documents. Such Purchaser is able to bear the economic risk of an investment in the
Securities and is able to sustain a loss of all of its investment in the Securities without
economic hardship if such a loss should occur.

          4.7. Accredited Investor. Such Purchaser is an “accredited investor” as that term is
defined in Regulation D promulgated under the Securities Act.

          4.8. Access to Information. Such Purchaser has been given access to all Company
documents, records, and other information, and has had adequate opportunity to ask questions of,
and receive answers from, the Company’s officers, employees, agents, accountants, and
representatives concerning the Company’s business, operations, financial condition, assets,
liabilities, and all other matters relevant to its investment in the Securities. The
representations of Purchasers contained in this Section 4.8 shall not affect the ability of the
Purchasers to rely on the representations and warranties made by the Company pursuant to Section 5
of this Agreement.

          4.9. Restricted Securities.

          (a) Such Purchaser understands that the Securities will be characterized as “restricted
securities” under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under the
Securities Act only in certain limited circumstances.

-3-

 

          (b) Such Purchaser acknowledges that the Securities must be held indefinitely unless
subsequently registered under the Securities Act and under applicable state securities laws
or an exemption from such registration is available.

          (c) Such Purchaser is aware of the provisions of Rule 144 under the Securities Act
which permit limited resale of securities purchased in a private placement.

          4.10. Residence. The office or offices of such Purchaser in which its investment
decision was made, and which is its principal place of business, in the case of a corporation,
limited liability company, partnership or other entity, or is its residence, in the case of an
individual, is located at the address or addresses of such Purchaser set forth on Schedule
I hereto.

          4.11. Series B-1 Preferred Stock. Prides Capital is the beneficial owner of the
shares of B-1 Preferred Stock as set forth in the column “Consideration” opposite such Purchaser’s
name on Schedule I attached hereto, and has good and valid title to such shares. Upon the
Closing, Prides Capital will have no rights in connection with such shares other than its rights
pursuant to this Agreement and the Transaction Documents.

     5. Representations and Warranties by the Company. Except as disclosed by the Company
in a written Disclosure Schedule provided by the Company to the Purchasers dated the date hereof
(the “Disclosure Schedule”), the Company represents and warrants to each Purchaser that the
statements contained in this Section 5 are complete and accurate as of the date of this Agreement.
The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered
sections and subsections contained in this Section 5, and the disclosures in any section or
subsection of the Disclosure Schedule shall qualify other sections and subsections in this Section
5 only to the extent it is readily apparent from a reasonable reading of the disclosure that such
disclosure is applicable to such other sections and subsections.

          5.1. Capitalization.

          (a) As of the date hereof, and after giving effect to the filing of the Certificate of
Designation and the Closing, the authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, par value $0.01 per share, and 5,000,000 shares of
preferred stock, par value $0.01 per share, of which 60,000 shares are designated Series C
Preferred Stock. As of the date hereof, and after giving effect to the filing of the
Certificate of Designation and the Closing, there are 28,252,216 outstanding shares of
Common Stock, 60,000 shares of Series C Preferred Stock outstanding, 2,957,457 shares of
Common Stock are available for issuance upon the exercise of outstanding stock options,
warrants, or other convertible rights and 1,308,843 shares of Common Stock are reserved for
issuance under the Company’s 2000 Stock Incentive Plan (the “Benefit Plan”). As of the date
hereof, and after giving effect to the filing of the Certificate of Designation and the
Closing, the Company has no other shares of capital stock authorized, issued or outstanding.
Except for the shares of Series B-1 Preferred Stock held by Prides Capital as set forth in
the column “Consideration”

-4-

 

opposite such Purchaser’s name on Schedule I attached
hereto, there are no other shares of Series B-1 Preferred Stock outstanding. A
capitalization table presenting the capitalization of the Company after giving effect to the
filing of the Certificate of Designation and the Closing is set forth on Schedule
5.1(a) hereto.

               (b) As of the date hereof, except as set forth on the SEC Reports or on Schedule
5.1(b) and except as may be granted or required by this Agreement or the other
Transaction Documents, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of capital stock of
the Company, or arrangements by which the Company is or may become bound to issue additional
shares of capital stock, nor are any such issuances or arrangements contemplated; (ii) there
are no agreements or arrangements under which the Company is or may become obligated to
register the sale of any of its securities under the Securities Act; (iii) the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any distribution
in respect thereof; and (iv) the Company has not reserved any shares of capital stock for
issuance pursuant to any stock option plan or similar arrangement.

          5.2. Due Issuance and Authorization of Capital Stock. All of the outstanding shares
of capital stock of the Company have been validly issued and are fully paid and non-assessable.
The sale and delivery of the shares of Series C Preferred Stock to the Purchasers, when issued,
sold and delivered in accordance with the terms and for the consideration hereof, and the issuance
of the Conversion Shares upon conversion of the shares of Series C Preferred Stock will vest in the
holders thereof legal and valid title to such Securities, free and clear of any lien, claim,
judgment, charge, mortgage, security interest, pledge, escrow, equity or other encumbrance
(collectively, “Encumbrances”).

          5.3. Organization. The Company and each of its Subsidiaries (a) is duly incorporated
or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of
its formation, except, in the case of its Subsidiaries, where the failure to be so incorporated or
organized would not have a Material Adverse Effect, (b) is duly qualified to do business as a
foreign entity and is in good standing in each jurisdiction where the nature of the property owned
or leased by it or the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse Effect, and (c) has
all requisite corporate power and authority to own or lease and operate its assets and carry on its
business as presently being conducted. The Company has its principal place of business and chief
executive office in New York, New York.

          5.4. Subsidiaries. All of the direct and indirect Subsidiaries of the Company are set
forth on Schedule 5.4. The Company owns, directly or indirectly, all of the capital stock
or other equity interests of each Subsidiary free and clear of any Encumbrances, and all of the

-5-

 

issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase
securities.

          5.5. Consents. Assuming the accuracy of the representations made by the Purchasers in
Section 4 of this Agreement and except as set forth on Schedule 5.5, neither the
execution, delivery or performance of the Certificate of Designation, this Agreement or the other
Transaction Documents by the Company, nor the consummation by it of the obligations and
transactions contemplated hereby or thereby (including, without limitation, the issuance, the
reservation for issuance and the delivery of the Series C Preferred Stock or the issuance and
delivery of the Conversion Shares) requires any consent of, authorization by, exemption from,
filing with or notice to any Governmental Entity or any other Person, other than (a) the filing of
the Certificate of Designation with the Secretary of State of the State of Delaware, (b) the
filings required to comply with the Company’s registration obligations under the Investor Rights
Agreement and (c) filings required under applicable U.S. federal and state securities laws.

          5.6. Authorization; Enforcement. The Company has all requisite corporate power and
has taken all necessary corporate action required for the due authorization, execution, delivery
and performance by the Company of this Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Securities and the provision to the Purchasers of the rights contemplated by
the Transaction Documents) and no action on the part of the stockholders of the Company is
required. The execution, delivery and performance by the Company of each of the Transaction
Documents, the execution and filing of the Certificate of Designation, and the consummation by the
Company of the transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement has been duly executed and
delivered by the Company, and the other Transaction Documents and instruments referred to herein to
which it is a party will be duly executed and delivered by the Company, and each such agreement
constitutes or will constitute a valid and binding obligation of the Company enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or other
similar laws affecting creditors’ rights generally and to general equitable principles.

          5.7. Issuance of Securities. The Securities, when issued, sold and delivered in
accordance with the terms and for the consideration set forth in this Agreement, will be duly
authorized and a sufficient number of shares of authorized but unissued shares of Common Stock have
been reserved for issuance upon conversion of the Series C Preferred Stock, and upon such issuance
or conversion in accordance with the terms of this Agreement or the Certificate of Designation, as
the case may be, all such Securities will be duly authorized, validly issued, fully paid and
non-assessable, and free from all taxes and Encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company, and the issuance of such shares will
not impose personal liability upon the holder thereof.

-6-

 

          5.8. No Conflicts. Except as set forth on Schedule 5.8, the execution,
delivery and performance of each of the Transaction Documents, the execution and filing of the
Certificate of Designation, and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for issuance, as applicable,
of the Series C Preferred Shares and the Conversion Shares) will not (a) result in a violation of
the amended and restated certificate of incorporation and by-laws of the Company (the “Charter
Documents”) or the certificates of formation, operating agreements, certificates of incorporation
or by-laws of its Subsidiaries, (b) conflict with or result in the breach of the terms, conditions
or provisions of or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give rise to any right of termination, acceleration or
cancellation under, any agreement, lease, mortgage, license, indenture, instrument or other
contract to which the Company or any Subsidiary is a party, (c) result in a material violation of
any law, rule, regulation, order, judgment or decree (including, without limitation, U.S. federal
and state securities laws and regulations) applicable to the Company or any Subsidiary or by which
any property or asset of the Company or any Subsidiary is bound or affected, (d) result in a
material violation of any rule or regulation of the NASD or its Trading Markets, or (e) result in
the creation of any Encumbrance upon any of the Company’s or any Subsidiary’s assets, except, in
the case of clauses (b) or (e), for any such conflicts, violations, breaches, defaults or other
occurrences that would not have, individually or in the aggregate, a Material Adverse Effect. The
Company is not in material violation of its Charter Documents and neither the Company nor any
Subsidiary is in material default (and no event has occurred which, with notice or lapse of time or
both, would cause the Company to be in material default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any Material Contract. The business of the Company and its
Subsidiaries is not being conducted in violation in any material respect of any law, ordinance or
regulation of any Governmental Entity except for such violations that would not have a Material
Adverse Effect.

          5.9. Material Contracts. Each Material Contract of the Company is listed on
Schedule 5.9 hereof. Each Material Contract is the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms, except to the extent
that enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or other
similar laws affecting creditors’ rights generally and by general equitable principles. There has
not occurred any breach, violation or default or any event that, with the lapse of time, the giving
of notice or the election of any Person, or any combination thereof, would constitute a breach,
violation or default by the Company under any such Material Contract or, to the knowledge of the
Company, by any other Person to any such contract, except for such violations or defaults that
would not have a Material Adverse Effect. To the knowledge of the Company, it has not been
notified that any party to any Material Contract intends to cancel, terminate, not renew or
exercise an option under any Material Contract, whether in connection with the transactions
contemplated hereby or otherwise.

-7-

 

          5.10. Right of First Refusal; Stockholders Agreement; Voting and Registration Rights.
Except pursuant to any agreement listed as an exhibit to an SEC Report, this Agreement or the other
Transaction Documents, no party has any right of first refusal, right of first offer, right of
co-sale, preemptive right or other similar right regarding the securities of the Company. Except
pursuant to any agreement listed as an exhibit to an SEC Report or Schedule 5.10, there are
no provisions of the Charter Documents, no Material Contracts other than the Certificate of
Designation, this Agreement or the other Transaction Documents, which (a) may affect or restrict
the voting rights of the Purchasers with respect to the Securities in their capacity as
stockholders of the Company, (b) restrict the ability of the Purchasers, or any successor thereto
or assignee or transferee thereof, to transfer the Securities, (c) would adversely affect the
Company’s or any Purchaser’s right or ability to consummate the transactions contemplated by
this Agreement or comply with the terms of the other Transaction Documents or the Certificate
of Designation and the transactions contemplated hereby or thereby, (d) require the vote of more
than a majority of the Company’s issued and outstanding Common Stock, voting together as a single
class, to take or prevent any corporate action, other than those matters requiring a different vote
under Delaware law, or (e) entitle any party to nominate or elect any director of the Company or
require any of the Company’s stockholders to vote for any such nominee or other person as a
director of the Company in each case above.

          5.11. Previous Issuances. Except as disclosed on Schedule 5.11, all shares of
capital stock and other securities issued by the Company prior to the Closing Date have been issued
in transactions registered under or exempt from the registration requirements under the Securities
Act and all applicable state securities or “blue sky” laws, and in compliance with all applicable
corporate laws. The Company has not violated the Securities Act or any applicable state securities
or “blue sky” laws in connection with the issuance of any shares of capital stock or other
securities prior to the Closing Date.

          5.12. No Integrated Offering. Neither the Company, nor any of its Affiliates or any
other Person acting on the Company’s behalf, has directly or indirectly engaged in any form of
general solicitation or general advertising with respect to the Securities nor have any of such
Persons made any offers or sales of any security of the Company or its Affiliates or solicited any
offers to buy any security of the Company or its Affiliates under circumstances that would require
registration of the Securities under the Securities Act or cause this offering of Securities to be
integrated with any prior offering of securities of the Company for purposes of the Securities Act
or any applicable shareholder approval provisions of any Trading Market on which any of the
securities of the Company are listed or designated.

          5.13. SEC Reports; Financial Statements.

          (a) Except as disclosed on the SEC Reports or Schedule 5.13, the Company has
filed all reports, schedules, forms, statements and other documents required to be filed by
the Company under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof

-8-

 

(the foregoing materials, including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “SEC Reports”) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. All Material Contracts to which
the Company is a party or to which the property or assets of the Company are subject are
required to be included as part of or specifically identified in the SEC Reports are so
included or specifically identified. Except as disclosed to the Purchasers in
writing, the Company has filed all SEC Reports required to be filed with the SEC since
December 31, 2004 (the “Post-2004 SEC Reports”); provided that, if the Company amends any of
its Post-2004 SEC Reports, such amendment shall not mean or imply that any representation or
warranty in this Agreement was not true and correct when made or became untrue thereafter.

          (b) The financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and regulations of
the Commission with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with GAAP, except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.

          5.14. No Undisclosed Material Liabilities. As of the date of this Agreement, there
are no liabilities of the Company, of any kind whatsoever, whether interest-bearing indebtedness,
or liabilities accrued, contingent, absolute, determined, determinable or otherwise, other than
liabilities:

          (a) reflected in the financial statements included in the SEC Reports;

          (b) disclosed on Schedule 5.14 hereto;

          (c) incurred in the ordinary course of business, consistent with past practice;

          (d) created under, or incurred in connection with, this Agreement, the other
Transaction Documents or the Certificate of Designation; or

-9-

 

          (e) which would not in the aggregate be material to the Company.

          5.15. Litigation. There is no action, suit, investigation or other proceeding pending
against, or to the knowledge of the Company, threatened against or affecting, the Company or any of
its Subsidiaries or any of their properties or to the knowledge of the Company any of its or their
officers or directors before any court or arbitrator or any Governmental Entity that could cause a
Material Adverse Effect, except as disclosed in the SEC Reports or as set forth on Schedule
5.15. To the knowledge of the Company, there are no facts that would cause a reasonable person
to believe that such a proceeding would likely result.

          5.16. Taxes. The Company and each of its Subsidiaries has properly filed all federal,
foreign, state, local, and other tax returns and reports which are required to be filed, which
returns and reports were properly completed and are true and correct in all respects, and
all taxes, interest, and penalties due and owing have been timely paid, except for those
taxes, interest or penalties which would not have a Material Adverse Effect. There are no
outstanding waivers or extensions of time with respect to the period for assessing or auditing any
tax or tax return of the Company or any Subsidiary, or claims now pending or matters under
discussion between the Company or any Subsidiary and any taxing authority in respect of any tax of
the Company or any Subsidiary.

          5.17. Employee Matters.

          (a) The Company has listed any “employee benefit plan” subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), that it maintains for
employees on any agreement listed as an exhibit to an SEC Report or Schedule
5.17(a).

          (b) Except as set forth on Schedule 5.17(b), (i) no director or officer or
other employee of the Company will become entitled to any retirement, severance or similar
benefit or enhanced or accelerated benefit (including any acceleration of vesting) or lapse
of repurchase rights or obligations with respect to any employee benefit plan subject to
ERISA or other benefit under any compensation plan or arrangement of the Company (each, an
“Employee Benefit Plan”)) solely as a result of the transactions contemplated in this
Agreement; and (ii) no payment made or to be made to any current or former employee or
director of the Company, or any of its Affiliates by reason of the transactions contemplated
hereby (whether alone or in connection with any other event, including, but not limited to,
a termination of employment) will constitute an “excess parachute payment” within the
meaning of Section 280G of the Code.

          (c) No executive officer, to the knowledge of the Company, is, or is now expected to
be, in violation of any term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and, to the knowledge of the Company, the continued
employment of each such executive officer does not subject the

-10-

 

Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters, except for such
violations which would not have a Material Adverse Effect.

          (d) The Company and its Subsidiaries are in compliance with all applicable federal,
state, local and foreign statutes, laws (including, without limitation, common law),
judicial decisions, regulations, ordinances, rules, judgments, orders and codes respecting
employment, employment practices, labor, terms and conditions of employment and wages and
hours, and no work stoppage or labor strike against the Company or any Subsidiary is pending
or, to their knowledge, threatened, nor is the Company or any Subsidiary involved in or, to
their knowledge, threatened with any labor dispute, grievance or litigation relating to
labor matters involving any employees of the Company or any Subsidiary, except for any of
the foregoing which would not have a Material Adverse Effect. To the Company’s knowledge,
there are no suits, actions, disputes, claims (other than routine claims for benefits), investigations or audits
pending or, to the knowledge of the Company, threatened in connection with any Employee
Benefit Plan.

          5.18. Compliance with Laws. The Company and its Subsidiaries have, and are in
compliance with the terms of, all franchises, permits, licenses and other rights and privileges
necessary to conduct the Company’s present and proposed business and are in compliance with and
have not violated, in any respect, any applicable provisions of any laws, statutes, ordinances or
regulations or the terms of any judgments, orders, decrees, injunctions or writs, except for any of
the foregoing which would not have a Material Adverse Effect..

          5.19. Brokers. Except as disclosed on Schedule 5.19, there is no investment
banker, broker, finder, financial advisor or other person which has been retained by or is
authorized to act on behalf of the Company who is entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.

          5.20. Environmental Matters.

          (a) (i) No written notice, notification, demand, request for information, citation,
summons, complaint or order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, threatened by any
Person against the Company or any of its Subsidiaries and no penalty has been assessed
against the Company or any of its Subsidiaries, in each case, with respect to any matters
relating to or arising out of any Environmental Law; (ii) the Company and its Subsidiaries
are in material compliance with all applicable Environmental Laws; and (iii) to the
knowledge of the Company, there are no material liabilities of or relating to the Company
and its Subsidiaries relating to or arising out of any Environmental Law, and there is no
existing condition, situation or set of circumstances which could reasonably be expected to
result in a such a liability.

-11-

 

          (b) For purposes of this Agreement, the term “Environmental Laws” means federal, state,
local and foreign statutes, laws, binding judicial decisions, regulations, ordinances,
rules, binding judgments, binding orders, codes, binding injunctions and permits relating to
human health and the environment, including, but not limited to, Hazardous Materials; and
the term “Hazardous Material” means all substances or materials regulated as hazardous,
toxic, explosive, dangerous, flammable or radioactive under any Environmental Law including,
but not limited to: (i) petroleum, asbestos, or polychlorinated biphenyls and (ii) in the
United States, all substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan.

          5.21. Intellectual Property Matters.

          (a) “Intellectual Property” means any and all of the following arising under the laws
of the United States, any other jurisdiction or any treaty regime: (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice),
all improvements thereon, and all patents, patent applications and patent disclosures and
all reissuances, continuations, continuations-in-part, divisionals, revisions, extensions
and reexaminations thereof, (ii) all trademarks, service marks, trade dress, logos, trade
names and corporate names and all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications, registrations
and renewals in connection therewith, (iii) all copyrightable works, mask works or moral
rights, all copyrights and all applications, registrations and renewals in connection
therewith, (iv) all trade secrets and confidential business information (including, without
limitation, ideas, research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information and business and marketing plans
and proposals), (v) all computer software (including, without limitation, data and related
documentation and except for any commercial “shrink-wrapped” software) and source codes,
(vi) all other proprietary rights, (vii) all copies and tangible embodiments of the
foregoing (in whatever form or medium) and (viii) all licenses or agreements in connection
with the foregoing. “Company Intellectual Property” means all Intellectual Property which is
used in connection with, and is material to, the business of the Company and its
Subsidiaries and all Intellectual Property owned by the Company and its Subsidiaries,
provided that any Intellectual Property that is licensed by the Company or any of its
Subsidiaries shall be included within the meaning of Company Intellectual Property only
within the scope of use by the Company and its Subsidiaries or in connection with the
Company’s business.

          (b) Except as set forth on Schedule 5.21(b), with respect to each item of
Company Intellectual Property:

-12-

 

     (1) the Company or its Subsidiary possesses all rights, titles and interests in
and to the item if owned by the Company or its Subsidiary, free and clear of any
Encumbrance, license or other restriction, and possesses all rights necessary in the
case of a licensed item to use such item in the manner in which it presently uses
the item or reasonably contemplates using such item, and the Company has taken or
caused to be taken reasonable and prudent steps to protect its rights in and to, and
the validity and enforceability of, the item owned by the Company or its Subsidiary;

     (2) the item, if owned by the Company or its Subsidiary, is not, and if
licensed, to the knowledge of the Company is not, subject to any outstanding
injunction, judgment, order, decree, ruling or charge naming the Company or a
Subsidiary;

     (3) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand is pending or, to the knowledge of the Company, has
been or is being threatened which challenges the legality, validity,
enforceability, use or ownership of the item;

     (4) to the knowledge of the Company, the Company or its Subsidiary has
sufficient right, title and interest to use or own the item without infringement
upon any Intellectual Property Right or other right of any third party, except for
such failure which would not have a Material Adverse Effect;

     (5) except in the ordinary course of business and to the knowledge of the
Company, the Company and its Subsidiaries have not agreed to indemnify any person
for or against any interference, infringement, misappropriation or other conflict
with respect to the item;

     (6) neither the Company nor any Subsidiary is bound by or a party to any
option, license, sublicense, agreement or permission of any kind with respect to the
item;

     (7) to the knowledge of the Company, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with the Company
Intellectual Property, except for such interference, infringement or
misappropriation which would not have a Material Adverse Effect;

     (8) neither the Company nor any Subsidiary is party to any option, license,
sublicense or agreement or permission of any kind covering the item that it is in
breach or default thereunder, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit termination, modification or
acceleration thereunder, except for such breach or default which would not have a
Material Adverse Effect; and

-13-

 

     (9) to the knowledge of the Company, each option, license, sublicense,
agreement or permission of any kind covering the item is legal, valid, binding,
enforceable against the Company or its Subsidiary, as the case may be, and in full
force and effect.

     All applications for, pending or registered patents, copyrights, trademarks, and
service marks in the United States and any other jurisdiction (x) if owned by the Company or
a Subsidiary, and (y) if licensed, to the knowledge of the Company, are valid and subsisting
and in full force and effect or are currently pending and are not subject to any claims,
Encumbrances, taxes or other fees except for periodic filing and maintenance fees. Except
as set forth on Schedule 5.21(b) and except for such infringement or
misappropriation which would not have a Material Adverse Effect, the Company and its
Subsidiaries have not, to the knowledge of the Company, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property rights of third parties, and
there is no pending or, to the knowledge of the Company, threatened claim or litigation
against the Company or any Subsidiary contesting the right to use any
third party’s Intellectual Property rights, asserting the misuse of any thereof, or
asserting the infringement or other violation thereof.

          (c) All domain names owned by the Company or its Subsidiaries and material to the
business of the Company and its Subsidiaries (the “Domain Names”) have been and are duly
registered with Network Solutions, Inc. (“NSI”) through NSI’s registration procedures, and
are operating, accessible domain names. The Company or a Subsidiary owns and, to the best
of the Company’s knowledge, has not waived, forfeited or granted to any third parties, any
rights, title or interest in or to the Domain Names including, without limitation, any
benefits, entitlements or rights of renewal with respect to the Domain Names. NSI has not
notified the Company or any Subsidiary that any of the Domain Names have been placed on
“hold” or are otherwise subject to a dispute or potential dispute pursuant to NSI’s dispute
resolution policy.

          (d) To the knowledge of the Company, none of the key employees of the Company or any
Subsidiary are obligated under any contract (including, without limitation, licenses,
covenants, or commitments of any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that would interfere with the use of
his or her reasonable diligence to promote the interests of the Company or that would
conflict with the Company’s businesses as presently conducted. Neither the execution,
delivery or performance of this Agreement, nor the carrying on of the Company’s businesses
by the employees of the Company and its Subsidiaries, nor the conduct of the Company’s
businesses as presently conducted, will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract, covenant, or
instrument under which any such key employee is obligated, and which conflict, breach or
default would have a Material Adverse Effect.

-14-

 

          (e) The Company has entered into reasonable non-compete, confidentiality and
proprietary information and assignment of inventions and other Intellectual Property
agreements with the executive officers of the Company and its Subsidiaries seeking to
protect, among other things, the confidentiality of all Company Intellectual Property and to
ensure full and unencumbered ownership by the Company or a Subsidiary of all Company
Intellectual Property. The Company is not aware of any violation by any such employees of
such agreements.

          (f) Except as set forth on Schedule 5.21(f), no stockholder, member, director,
officer or employee of the Company or any subsidiary has any interest, right, title or
interest in any of the Company Intellectual Property.

          (g) The Company Intellectual Property comprises all Intellectual Property necessary to
the Company’s business as presently conducted or proposed to be conducted by it. The
Company does not believe it is or will be necessary to utilize any inventions, trade secrets
or proprietary information of any of its employees made prior to
their employment by the Company or a Subsidiary, except for inventions, trade secrets
or proprietary information that have been assigned to the Company or a Subsidiary.

          (h) The Company and its Subsidiaries are not subject to any “open source” or “copyleft”
obligations or otherwise required to make generally available, or make any public disclosure
of, any source code either used or developed by the Company or any Subsidiary.

          (i) All material databases, hardware, technology and software used by the Company and
its Subsidiaries perform in substantial compliance with applicable specifications.

          (j) The Company and its Subsidiaries maintain policies and procedures regarding data
security, privacy and data use that are commercially reasonable and, in any event, comply
with the Company’s obligations to its customers and applicable laws, rules and regulations.
To the knowledge of the Company, there have not been, and the transaction contemplated under
this Agreement will not result in, any security breaches of any security policy, data use
restriction or privacy breach under any such policies or any applicable laws, rules or
regulations.

          5.22. Related-Party Transactions. Except as set forth in the SEC Reports or on
Schedule 5.22, no stockholder who beneficially owns 5% or more (on a fully-diluted basis)
of any class of equity securities, officer or director of the Company or any Subsidiary or member
of his or her immediate family is currently indebted to the Company or any Subsidiary, nor is the
Company or any Subsidiary indebted (or committed to make loans or extend or guarantee credit) to
any of such individuals. Except as set forth in the SEC Reports or on Schedule 5.22
hereto, as of the date hereof, no stockholder who beneficially owns 5% or more (on a fully-diluted
basis) of any class of equity securities, officer or director of the Company and no member of the

-15-

 

immediate family of any stockholder who beneficially owns 5% or more (on a fully-diluted basis) of
any class of equity securities, officer or director of the Company is directly or indirectly
interested in any contract with the Company.

          5.23. Title to Property and Assets. Neither the Company nor any Subsidiary owns any
real property. Except as set forth on the SEC Reports, on Schedule 5.23 hereto or as would
not have a Material Adverse Effect, the Company and its Subsidiaries own or have legally
enforceable rights to use or hold for use their personal property and assets free and clear of all
Encumbrances except liens for taxes not yet due and payable, purchase-money security interests
entered into in the ordinary course of business and such other Encumbrances, if any, that
individually or in the aggregate, do not and would not detract from the value of any asset or
property of the Company and its Subsidiaries or interfere with the use or contemplated use of any
personal property of the Company and its Subsidiaries. With respect to any real property, neither
the Company nor any Subsidiary is in violation in any material respect of any of its leases. All
machinery, equipment, furniture, fixtures and other personal property and all buildings, structures
and other facilities, if any, including, without limitation, office or other space used by
the Company and its Subsidiaries in the conduct of their business, are in good operating
condition and fit for operation in the ordinary course of business (subject to normal wear and
tear) except for any defects which will not interfere with the conduct of normal operations of the
Company and its Subsidiaries. The Company has delivered to the Purchaser true and complete copies
of any leases related to the real property used by the Company and its Subsidiaries in the conduct
of their business.

          5.24. Disclosure. The Company understands and confirms that the Purchasers will rely
on the foregoing representation in effecting transactions in securities of the Company. No
representation or warranty by the Company contained in this Agreement contains any untrue statement
of a material fact or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in Section 4 hereof. Except for the representations and warranties contained in this Section
5, neither the Company nor any other person or entity acting on behalf of the Company, makes any
representation or warranty, express or implied.

          5.25. Absence of Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed
prior to the date hereof or as set forth on Schedule 5.25 or as contemplated by this
Agreement, or in connection with the Certificate of Designation, this Agreement or the other
Transaction Documents, there has not been:

          (1) other than with respect to the Series B-1 Preferred Stock in accordance
with its terms, any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the

-16-

 

Company or any repurchase, redemption or other acquisition by the Company of any outstanding shares
of its capital stock of the Company;

     (2) any amendment of any term of any outstanding security of the Company;

     (3) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the Company
relating to its assets or business (including the acquisition or disposition of any
material amount of assets) or any relinquishment by the Company or any Subsidiary of
any contract or other right, other than transactions, commitments, contracts,
agreements or settlements (excluding settlements of litigation and tax proceedings)
in the ordinary course of business;

     (4) any (A) grant of any severance or termination pay to (or amendment to any
such existing arrangement with) any director, officer or employee of the Company or
any Subsidiary, (B) entering into of any employment, deferred compensation,
supplemental retirement or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any Subsidiary, (C) increase in, or
accelerated vesting and/or payment of, benefits under any existing severance or
termination pay policies or employment agreements or (D) increase in or enhancement
of any rights or features related to compensation, bonus or other benefits payable
to directors, officers or senior employees of the Company or any Subsidiary, in each
case, other than in the ordinary course of business consistent with past practice;
or

     (5) any material tax election made or changed, any audit settled or any amended
tax returns filed;

     (6) any Material Adverse Effect or any event or events that individually or in
the aggregate would have a Material Adverse Effect;

     (7) any damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the Company’s and its Subsidiaries’ properties or
assets when taken as a whole;

     (8) any sale, assignment or transfer, or any agreement to sell, assign or
transfer, any material asset, liability, property, obligation or right of the
Company to any Person, including, without limitation, the Purchasers and their
respective Affiliates, in each case, other than in the ordinary course of business
and consistent with past practice;

-17-

 

     (9) any obligation or liability incurred, or any loans or advances made, by the
Company to any of its Affiliates, other than expenses allowable in the ordinary
course of business of the Company;

     (10) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any material property, rights or assets other than in the
ordinary course of business of the Company;

     (11) any assignment, lease or other transfer or disposition, or any other
agreement or arrangement therefor by the Company or any Subsidiary of any property
or equipment having a value in excess of $50,000 except in the ordinary course of
business;

     (12) other than in the ordinary course of business and consistent with past
practice, any expenditure by the Company or any Subsidiary (or series of related
expenditures) involving more than $50,000 singly or $100,000 in the aggregate;

     (13) any waiver of any rights or claims of the Company or any Subsidiary,
except for such waivers which would not have a Material Adverse Effect;

     (14) any agreement or commitment by the Company or any Subsidiary to do any of
the foregoing or any transaction by the Company or any Subsidiary outside the
ordinary course of business of the Company; or

     (15) any lien upon, or adversely affecting, any property or other assets of the
Company or any Subsidiary, except for such liens which would not have a Material
Adverse Effect.

          5.26. Illegal Payments. Neither the Company nor any Subsidiary has, nor, to the
knowledge of the Company, has any director, officer, agent or employee of the Company or any
Subsidiary, paid, caused to be paid, or agreed to pay, directly or indirectly, in connection with
the business of the Company: (a) to any government or agency thereof, any agent or any supplier or
customer, any bribe, kickback or other similar payment; (b) any contribution to any political party
or candidate (other than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law); or (c) intentionally
established or maintained any unrecorded fund or asset or made any false entries on any books or
records for any purpose.

          5.27. Suppliers and Customers. The Company does not have any knowledge of any
termination, cancellation or threatened termination or cancellation or limitation of, or any
dissatisfaction with, the business relationship between the Company or any Subsidiary and any

-18-

 

supplier, customer, vendor, customer or client, except for any of the foregoing which would
not have a Material Adverse Effect or as set forth on Schedule 5.27 hereto.

          5.28. Regulatory Permits. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or reasonably be expected to result
in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or modification of any Material
Permit.

          5.29. Insurance. The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
customary in the businesses in which the Company and the Subsidiaries are engaged. The Company
carries directors and officers insurance coverage in the amount set forth on Schedule 5.29.
Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business without a significant increase
in cost.

          5.30. Reserved.

          5.31. Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the shares of Series C Preferred Stock, will not be or be
an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended.

          5.32. Listing and Maintenance Requirements. The Common Stock is registered pursuant
to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or
which to its knowledge is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. Except as set forth on Schedule 5.32, the
Company has not, in the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.

          5.33. Accountants. Ernst & Young LLP, who expressed their opinion with respect to the
consolidated financial statements included in the SEC Reports, are independent accountants as
required by the Securities Act and the rules and regulations promulgated thereunder. There are no
disagreements of any kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the independent registered public

-19-

 

accounting firm formerly or presently employed by the Company and the Company is current with
respect to any fees owed to such accounting firm.

          5.34. Solvency. The sum of the assets of the Company, both at a fair valuation and at
present fair salable value, exceeds its liabilities, including contingent liabilities, and the
Company has sufficient capital with which to conduct its business as presently conducted and as
proposed to be conducted. The Company has not incurred debt, and does not intend to incur debt,
beyond its ability to pay such debt as it matures. For purposes of this paragraph, “debt” means
any liability on a claim, and “claim” means (x) a right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured. With respect to any such contingent liabilities, such
liabilities are computed at the amount which, in light of all the facts and circumstances existing
at the time, represents the amount which can reasonably be expected to become an actual or matured
liability.

          5.35. Application of Takeover Protections. The Company and its board of directors
have taken all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s certificate or articles of
incorporation, bylaws (or other organizational or charter documents) or the laws of its state of
incorporation (including Section 203 of the Delaware General Corporation Law) that is or could
become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents, including without
limitation as a result of the Company’s issuance of the Series C Preferred Stock or the issuance
and delivery of the Conversion Shares and the Purchasers’ ownership of the Series C Preferred Stock
and the Conversion Shares.

          5.36. Stock Options. With respect to stock options issued pursuant to the Company’s
Employee Benefit Plans (i) each stock option designated by the Company at the time of grant as an
“incentive stock option” under Section 422 of the Code so qualifies, (ii) except as disclosed in
the SEC Reports, including the financial statements included therein, or as set forth on
Schedule 5.36 hereto, each grant of a stock option was duly authorized no later than the
date on which the grant of such stock option was by its terms to be effective by all necessary
corporate action, including, as applicable, approval by the board of directors of the Company (or a
duly constituted and authorized committee thereof) and any required stockholder approval by the
necessary number of votes or written consents, (iii) each such grant was made in accordance with
the material terms of the Employee Benefit Plans, the Securities Act and all other applicable laws
and regulatory rules or requirements, and (iv) each such grant was or has now been properly
accounted for in accordance with GAAP in the financial statements (including the related notes)

-20-

 

of the Company and disclosed in the SEC Reports in accordance with the Exchange Act and all
other applicable laws.

     6. Conditions of Parties’ Obligations.

          6.1. Conditions of the Purchasers’ Obligations. The obligations of each of the
Purchasers to purchase the shares of Series C Preferred Stock set forth on Schedule I attached
hereto at the Closing are subject to the fulfillment prior to the Closing Date of all of the
following conditions, any of which may be waived in whole or in part by such Purchaser severally in
its absolute discretion.

               (a) Representations and Warranties. The representations and warranties of the
Company contained in this Agreement and in any certificate, if any, or other writing, if
any, delivered by the Company pursuant hereto shall be true and correct in all material
respects on and as of the Closing Date except those representations and warranties qualified
by materiality or Material Adverse Effect, which shall be true and correct in all respects,
with the same effect as though such representations and warranties had been made on and as
of the Closing Date.

               (b) Performance. The Company shall have performed and complied in all material
respects with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with it on or before the Closing.

               (c) Certificate of Designation. Prior to the Closing, (i) the Certificate of
Designation shall have been filed with the Secretary of State of the State of Delaware, and
(ii) the Purchasers shall have received confirmation from the Secretary of State of the
State of Delaware reasonably satisfactory to them that such filing has occurred.

               (d) Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals, if any, required to be obtained prior to the Closing
under applicable state securities laws shall have been obtained for the lawful execution,
delivery and performance of this Agreement or the other Transaction Documents, including,
without limitation, the offer and sale of the Securities.

               (e) Investor Rights Agreement. The Investor Rights Agreement shall have been
executed and delivered by (i) Company and (ii) the Investors (as defined therein).

               (f) No Stockholder Approval Required. No approval on the part of the
stockholders of the Company shall be required in connection with the execution and delivery
by the Company of the Certificate of Designation, this Agreement and the other Transaction
Documents and the consummation of the transactions to be performed by the Company
contemplated by the Transaction Documents.

-21-

 

               (g) Supporting Documents. The Purchasers at the Closing shall have received
the following:

          (1) A good standing certificate of the Company and each Subsidiary;

          (2) An opinion from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., counsel
to the Company, dated as of the Closing Date, in a form satisfactory to the
Purchasers;

          (3) Copies of resolutions of the Board of Directors of the Company (the
“Board”), certified by the Secretary of the Company, authorizing and approving the
filing of the Certificate of Designation, the execution, delivery and performance of
the Transaction Documents and all other documents and instruments to be delivered
pursuant hereto and thereto;

          (4) Copy of the Amended and Restated Certificate of Incorporation and By-laws
of the Company, certified by the Secretary of the Company; and

          (5) A certificate of incumbency executed by the Secretary of the Company (A)
certifying the names, titles and signatures of the officers authorized to execute
the documents referred to in subparagraphs (3) and (4) above and (B) further
certifying that the Certificate of Designation delivered to the Purchasers at the
time of the execution of this Agreement has been validly adopted and has not been
amended or modified.

               (h) Consents and Waivers The Company shall have obtained all consents or
waivers necessary to execute and perform its obligations under the Certificate of
Designation, this Agreement and the other Transaction Documents (including consents and
waivers listed on Schedule 5.5), to issue the Series C Preferred Stock and the
Conversion Shares, and to carry out the transactions contemplated hereby and thereby. All
corporate and other action and governmental filings necessary to effectuate the terms of the
Certificate of Designation, this Agreement, the other Transaction Documents, the Series C
Preferred Stock and the Conversion Shares, and other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.

               (i) Non-Compete and Confidentiality Agreements. Each of John Katzman, Mark
Chernis and any chief executive officer of the Company shall have signed non-compete,
confidentiality and proprietary information and inventions agreements acceptable to the
Purchasers.

               (j) Employment Agreements. The Purchasers shall be satisfied with the terms of
the Company’s employment agreements, including, but not limited to, the Company’s agreement
with its Chief Executive Officer.

-22-

 

               (k) Repurchase of Series B-1 Preferred Stock. Prides Capital and Company shall
have entered into a termination and release agreement in the form attached hereto as
Exhibit D with respect to arrangements relating to the Series B-1 Preferred Stock
and the Fletcher Rights.

               (l) No Effect on Nasdaq Listing. The Purchasers shall be satisfied that the
transactions contemplated hereby will not adversely impact the Company’s continued listing
on the Nasdaq Global Market.

               (m) No Material Adverse Effect. There shall have been no Material Adverse
Effect with respect to the Company since the date hereof.

               (n) Fees of Purchaser’s Counsel and Consultants. The Company shall have paid,
in accordance with Section 13.9, the fees, expenses and disbursements of the Purchasers.

               (o) By-laws. The Company shall have amended its by-laws to provide for the
director nomination process as set forth on Schedule 6.1(o) hereto.

               (p) Standstill Agreements. Each Purchaser and John Katzman shall have entered
into an agreement with the Company satisfactory to the Purchasers not to engage in any
director nomination process that is inconsistent with the director nomination process as set
forth on Schedule 6.1(o) hereto, for so long as shares of Series C Preferred Stock
representing at least 5% of the Company’s fully-diluted equity remain outstanding (such
agreement with John Katzman, the “Katzman Nomination Agreement”).

               (q) Compliance Certificate. The Company shall have delivered to the Purchasers
a Compliance Certificate, executed by the Chief Executive Officer of the Company, dated as
of the Closing Date to the effect that the conditions specified in subsections (a), (b),
(c)(i), (d), (e)(i), (f), (h), and (m) of this Section 6.1 have been satisfied.

          6.2. Conditions of the Company’s Obligations. The obligations of the Company under
Section 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the
following conditions, any of which may be waived in whole or in part by the Company.

               (a) Covenants; Representations and Warranties. (i) Each of the Purchasers at
the Closing Date shall have performed in all material respects all of its obligations and
conditions hereunder required to be performed or complied by it at or prior to the Closing
Date and (ii) the representations and warranties of each of the Purchasers at the Closing
Date contained in this Agreement shall be true and correct in all material respects at and
as of the Closing Date as if made at and as of the Closing Date

-23-

 

  (except to the extent expressly made as of an earlier date, in which case as of such
earlier date).

               (b) Investor Rights Agreement. Each Purchaser shall have executed and
delivered the Investor Rights Agreement.

          6.3. Conditions of Each Party’s Obligations. The respective obligations of each party
to consummate the transactions at the Closing contemplated hereunder are subject to the parties
being reasonably satisfied as to the absence of (a) litigation challenging or seeking damages in
connection with the transactions contemplated by this Agreement, any of the Transaction Documents
or the Certificate of Designation, in which there has been issued any order or injunction delaying
or preventing the consummation of the transactions contemplated hereby, and (b) any statute, rule,
regulation, injunction, order or decree, enacted, enforced, promulgated, entered, issued or deemed
applicable to this Agreement or the transactions contemplated hereby by any court, government or
governmental authority or agency or legislative body, domestic, foreign or supranational
prohibiting or enjoining the transactions contemplated by this Agreement.

      7. Covenants.

          7.1. Reporting Requirements; Access to Records. As long as any Purchaser holds at
least five percent (5%) of its originally issued Series C Preferred Stock and the Company remains
subject to the requirements of the Exchange Act, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all reports required to
be filed by the Company after the date hereof pursuant to the Exchange Act. The Company further
agrees to make available to each of Bain Capital and Prides Capital for so long as it holds at
least five percent (5%) of its originally issued Series C Preferred Stock and any other Purchaser
that holds Series C Preferred Stock representing at least five percent (5%) of the issued and
outstanding shares of Common Stock on an as-converted basis, (i) such information as the Company is
required to file or furnish to the Commission, within the time periods required by applicable law
and regulations for filing or furnishing such information with the Commission, (ii) such
information as it furnishes to its other shareholders, (iii) unless otherwise requested by Bain
Capital, Prides Capital or such Purchaser, such information as it furnishes to its Board and
committee members, and (iv) reasonable access during normal business hours, upon reasonable advance
notice, to all of the books, records and properties of the Company and its Subsidiaries, if any,
and to all officers and employees of the Company and such Subsidiaries (which access shall be given
to Bain Capital, Prides Capital and any such Purchaser’s respective officers, employees, advisors,
counsel and other authorized representatives).

          7.2. Integration. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Series C Preferred Stock in a manner

-24-

 

that would require the registration under the Securities Act of the sale of the Series C
Preferred Stock to the Purchasers or that would be integrated with the offer or sale of the Series
C Preferred Stock for purposes of the rules and regulations of any Trading Market such that it
would require shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent transaction.

          7.3. Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York
City time) on the fourth business day immediately following the date hereof, issue a Current Report
on Form 8-K, disclosing the material terms of the transactions contemplated hereby and filing the
Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except (i) as required by federal securities law in connection with (A)
any registration statement contemplated by the Investor Rights Agreement, (B) the Current Report on
Form 8-K required by this Section 7.3, (C) any filing required by the Commission and (D) the filing
of final Transaction Documents (including signature pages thereto) with the Commission and (ii) to
the extent such disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure permitted under this
clause (ii).

          7.4. Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, free of preemptive rights, a
sufficient number of shares of Common Stock for the purpose of enabling the Company to issue shares
of Common Stock upon conversion of the Series C Preferred Stock.

          7.5. Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing of the Common Stock on a Trading Market. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market
and will comply in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Trading Market.

          7.6. Filings. The Company shall make all filings with the Commission and its Trading
Markets as required by the transactions contemplated hereby. If at any time a Purchaser determines
that a filing under the Hart Scott-Rodino Antitrust Improvements Act of 1976, as amended, is
desirable or necessary and makes such a request of the Company, the Company will

-25-

 

cooperate in making such filing and will pay for any and all filing fees and out-of-pocket
expenses incurred by such Purchaser in connection with any such filing.

          7.7. Board Representation; Nomination of Chief Executive Officer. Immediately
following the Closing, the Company covenants and agrees that it will increase the size of its Board
to eight directors and, in accordance with the Certificate of Designation, take all steps necessary
to appoint two representatives of the holders of Series C Preferred Stock to the Board (the “Series
C Directors”), who will initially be Michael Krupka and Jeffrey Crisan. The Company agrees that it
will reimburse the Series C Directors for costs and expenses in attending Board meetings. For so
long as any shares of Series C Preferred Stock remain outstanding, the Company shall take all
reasonable measures to cause the Company’s Chief Executive Officer to be nominated and supported by
the Company for election as a director, unless the holders of a majority of the shares of Series C
Preferred Stock then outstanding determine otherwise and so notify the Company in writing.

          7.8. Board Committees. The Company covenants and agrees that it will adjust the
membership on its Board committees so that at least one of the Series C Directors is a member of
all committees of the Board, including the Compensation Committee and the Nominating Committee, but
excluding the Audit Committee.

          7.9. Board Observer Rights. So long as Prides Capital and its Affiliates collectively
own at least ten percent (10%) of the number of shares of Series C Preferred Stock originally
purchased by Prides Capital, the Company covenants and agrees that it will provide to Prides
Capital the privilege to appoint one observer to the Board and all committees of the Board,
provided that such observer shall be Stephen Cootey, or such other individual designated by Prides
Capital as may be reasonably satisfactory to the Company. Once Prides Capital and its Affiliates
collectively own less than ten percent (10%) of the number of shares of Series C Preferred Stock
originally purchased by them, and so long as Bain Capital owns at least ten percent (10%) of the
number of shares of Series C Preferred Stock originally purchased by Bain Capital, the Company
covenants and agrees that it will provide to Bain Capital the privilege to appoint one observer to
the Board and all committees of the Board, provided that such observer designated by Bain Capital
shall be reasonably satisfactory to the Company. Subject to customary confidentiality
restrictions, such observer will be provided with all information and materials provided to the
directors and committee members, will be reimbursed for costs and expenses incurred in attending
meetings and will receive any other compensation paid by the Company to the directors appointed by
the holders of Series C Preferred Stock.

          7.10. Nomination Process. The Company covenants and agrees that it will follow the
director nomination process as set forth on Schedule 6.1(o) hereto.

          7.11. Standstill Agreements. None of the agreements specified in Section 6.1(p)
hereto shall be amended or terminated without the approval of the Board, including the

-26-

 

unanimous approval of the directors who are not affiliated with the party that entered into
the agreement with the Company proposed to be amended or terminated.

          7.12. Standstill on Change of Control. So long as Bain Capital holds shares of Series
C Preferred Stock, Bain Capital agrees that if, pursuant to Section 7 of the Certificate of
Designation, the Required Holders (as defined in the Certificate of Designation), if requested by
the Board do not consent to a bona fide offer by a third party to consummate a Change of Control
(as defined in the Certificate of Designation) transaction approved by the Board, then Bain Capital
shall not, within twelve months of such request, present the Company with a Change of Control
transaction in which a Bain Fund (as defined in the Certificate of Designation) will participate as
a buyer.

     8. Transfer Restrictions; Restrictive Legend.

          8.1. Transfer Restrictions. Each Purchaser understands that the Company may, as a
condition to the transfer of any of the Securities, require that the request for transfer be
accompanied by an opinion of counsel reasonably satisfactory to the Company, to the effect that the
proposed transfer does not result in a violation of the Securities Act, unless such transfer is
covered by an effective registration statement or by Rule 144 or Rule 144A under the Securities
Act; provided, however, that an opinion of counsel shall not be required for a
transfer by a Purchaser that is (A) a partnership transferring to its partners or former partners
in accordance with partnership interests, (B) a corporation transferring to a wholly owned
subsidiary or a parent corporation that owns all of the capital stock of the Purchaser, (C) a
limited liability company transferring to its members or former members in accordance with their
interest in the limited liability company, (D) an individual transferring to the Purchaser’s family
member or trust for the benefit of an individual Purchaser, or (E) transferring its Securities to
any Affiliate of the Purchaser, in the case of an institutional investor, or other Person under
common management with such Purchaser; and provided, further, that the transferee
in each case agrees to be subject to the restrictions in this Section 8. It is understood that the
certificates evidencing the Securities may bear substantially the following legends:

          “THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT.”

          8.2. Unlegended Certificates. The Company shall be obligated to promptly reissue
unlegended certificates upon the request of any holder thereof at such time as (i) a registration
statement relating to the Securities is effective, or (ii) the holding period under Rule

-27-

 

144 or another applicable exemption from the registration requirements of the Securities Act
has been satisfied. The Company is entitled to request from any holder requesting unlegended
certificates under (ii) above an opinion of counsel reasonably acceptable to the Company to the
effect that the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.

     9. Registration, Transfer and Substitution of Certificates for Securities.

          9.1. Stock Register; Ownership of Securities. The Company will keep at its principal
office a register in which the Company will provide for the registration of transfers of the
Securities. The Company may treat the Person in whose name any of the Securities are registered on
such register as the owner thereof and the Company shall not be affected by any notice to the
contrary. All references in this Agreement to a “holder” of any Securities shall mean the Person
in whose name such Securities are at the time registered on such register.

          9.2. Replacement of Certificates. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of any certificate representing
Securities, and, in the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory to the Company or, in the case of any such mutilation, upon
surrender of such certificate for cancellation at the office of the Company maintained pursuant to
Section 9.1 hereof, the Company at its expense will execute and deliver, in lieu thereof, a new
certificate representing Securities of like tenor.

     10. Definitions. Unless the context otherwise requires, the terms defined in this
Section 10 shall have the meanings specified for all purposes of this Agreement.

     Except as otherwise expressly provided, all accounting terms used in this Agreement, whether
or not defined in this Section 10, shall be construed in accordance with GAAP. If and so long as
the Company has one or more Subsidiaries, such accounting terms shall be determined on a
consolidated basis for the Company and each of its Subsidiaries, and the financial statements and
other financial information to be furnished by the Company pursuant to this Agreement shall be
consolidated and presented with consolidating financial statements of the Company and each of its
Subsidiaries.

          “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act; provided, that with respect to Bain Capital, the term
Affiliate shall also be deemed to include any Person under common management with Bain Capital,
LLC.

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

          “Bain Capital” had the meaning assigned to it in the introductory paragraph hereof.

-28-

 

          “Board” has the meaning assigned in it in Section 6.1(g)(3) hereof.

          “Certificate of Designation” has the meaning assigned to it in Section 1 hereof.

          “Charter Documents” has the meaning assigned to it in Section 5.8 hereof.

          “Closing” has the meaning assigned to it in Section 3.1 hereof.

          “Closing Date” has the meaning assigned to it in Section 3.1 hereof.

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

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” has the meaning assigned to it in Section 1 hereof.

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

          “Company Intellectual Property” has the meaning assigned to it in Section 5.21(a) hereof.

          “Conversion Shares” has the meaning assigned to it in Section 1 hereof.

          “Disclosure Schedule” has the meaning assigned to it in Section 5 hereof.

          “Domain Names” has the meaning assigned to it in Section 5.21(c) hereof.

          “Employee Benefit Plan” has the meaning assigned to it in Section 5.16(c) hereof.

          “Encumbrances” has the meaning assigned to it in Section 5.2 hereof.

          “Environmental Law” has the meaning assigned to it in Section 5.20(b) hereof.

          “ERISA” has the meaning assigned to it in Section 5.16(b) hereof.

          “Evaluation Date” has the meaning assigned to it in Section 5.30 hereof.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          “GAAP” means U.S. generally accepted accounting principles consistently applied.

-29-

 

          “Governmental Entity” means any national, federal, state, municipal, local, territorial,
foreign or other government or any department, commission, board, bureau, agency, regulatory
authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or
public or private tribunal.

          “Hazardous Material” has the meaning assigned to it in Section 5.20(b) hereof.

          “Intellectual Property” has the meaning assigned to it in Section 5.21(a) hereof.

          “Investor Rights Agreement” means the Investor Rights Agreement in the form attached hereto as
Exhibit C.

          “Katzman Nomination Agreement” has the meaning assigned to it in Section 6.1(p) hereof.

          “Material Adverse Effect” means (i) any material adverse effect on the issuance or validity of
the Securities or the transactions contemplated hereby or the enforceability or validity of the
Certificate of Designation or on the ability of the Company to perform its obligations under this
Agreement and the other Transaction Documents or (ii) any material adverse effect on the condition
(financial or otherwise), properties, assets, liabilities, business or operations of the Company
and its Subsidiaries, taken as a whole.

          “Material Contract” means all written and oral contracts, agreements, deeds, mortgages,
leases, subleases, licenses, instruments, notes, commitments, commissions, undertakings,
arrangements and understandings (i) which by their terms involve, or would reasonably be expected
to involve, aggregate payments by or to the Company in excess of $1,000,000, (ii) the breach of
which by the Company or any of its Subsidiaries would reasonably be expected to have a Material
Adverse Effect, (iii) which are required to be filed as exhibits by the Company with the SEC
pursuant to Items 601(b)(4) and 601(b)(10) of Regulation S-K promulgated by the SEC, or (iv)
principal contracts or arrangements with the Company’s franchisees.

          “Material Permit” has the meaning assigned to it in Section 5.28 hereof.

          “NSI” has the meaning assigned to it in Section 5.21(c) hereof.

          “Person” means and includes all natural persons, corporations, business trusts, associations,
companies, partnerships, joint ventures, limited liability companies and other entities and
governments and agencies and political subdivisions.

          “Prides Capital” has the meaning assigned to it in the introductory paragraph hereof.

-30-

 

          “Purchase Date” has the meaning assigned to it in the introductory paragraph hereof.

          “Purchase Price” has the meaning assigned it in Section 2 hereof.

          “Purchaser” and “Purchasers” have the meaning assigned to them in the introductory paragraph
of this Agreement and shall include any Affiliates of the Purchasers.

          “SEC Reports” has the meaning assigned to it in Section 5.13(a) hereof.

          “Securities” has the meaning assigned to it in Section 1 hereof.

          “Securities Act” or “Act” means the Securities Act of 1933, as amended.

          “Series B-1 Preferred Stock” has the meaning assigned to such term in Section 3.2 hereof.

          “Series C Preferred Stock” has the meaning assigned to such term in Section 1 hereof.

          “Subsidiary” means any corporation, association trust, limited liability company, partnership,
joint venture or other business association or entity (i) at least 50% of the outstanding voting
securities of which are at the time owned or controlled directly or indirectly by the Company or
(ii) with respect to which the Company possesses, directly or indirectly, the power to direct or
cause the direction of the affairs or management of such Person.

          “Trading Market” means the following markets or exchanges on which the Common Stock is listed
or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or
the OTC Bulletin Board.

          “Transaction Documents” means this Agreement and the Investor Rights Agreement.

     11. Enforcement.

          11.1. Cumulative Remedies. None of the rights, powers or remedies conferred upon the
Purchasers on the one hand or the Company on the other hand shall be mutually exclusive, and each
such right, power or remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred by this Agreement, any of the other Transaction Documents or the
Certificate of Designation or now or hereafter available at law, in equity, by statute or
otherwise. In addition to being entitled to exercise all rights provided herein or granted

-31-

 

by law, including recovery of damages, each of the Purchasers and the Company will be entitled
to specific performance under the Transaction Documents. The parties agree that monetary damages
may not be adequate compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law would be adequate.

          11.2. No Implied Waiver. Except as expressly provided in this Agreement, no course of
dealing between the Company and the Purchasers or any other holder of shares of Series C Preferred
Stock and no delay in exercising any such right, power or remedy conferred hereby or by the
Certificate of Designation, or by any of the other Transaction Documents or now or hereafter
existing at law in equity, by statute or otherwise, shall operate as a waiver of, or otherwise
prejudice, any such right, power or remedy.

     12. Confidentiality. Except as otherwise agreed in writing by the Company, each
Purchaser agrees that it will use reasonable care to keep confidential and not disclose, divulge,
or use for any purpose (other than to monitor its investment in the Company) any confidential
information obtained from the Company pursuant to the terms of the Transaction Documents (including
notice of the Company’s intention to file a registration statement), unless such confidential
information (a) is known or becomes known to the public in general (other than as a result of a
breach of this Section 12 by such Purchaser), (b) is or has been independently developed or
conceived by the Purchaser without use of the Company’s confidential information, (c) is or has
been made known or disclosed to the Purchaser by a third party without a breach of any obligation
of confidentiality such third party may have to the Company or (d) was known to the Purchaser prior
to disclosure to the Purchaser by the Company; provided, however, that a Purchaser
may disclose confidential information (i) to its attorneys, accountants, consultants, and other
professionals to the extent necessary to obtain their services in connection with monitoring its
investment in the Company; (ii) to any prospective purchaser of any Securities from such Purchaser,
if such prospective purchaser agrees to be bound by the provisions of this Section 12; (iii) to any
Affiliate, partner, member, stockholder or advisor of such Purchaser in the ordinary course of
business, provided that such Purchaser informs such person that such information is confidential
and directs such person to maintain the confidentiality of such information; or (iv) as may
otherwise be required by law, provided that the Purchaser promptly notifies the Company of such
disclosure and, if requested by the Company, reasonably cooperates with the Company at the
Company’s expense to minimize the extent of any such required disclosure. Notwithstanding anything
to the contrary herein, the confidentiality obligations of this Section 12 shall survive the
termination of this Agreement.

     13. Miscellaneous.

          13.1. Waivers and Amendments. Upon the approval of the Company and the written
consent of the Purchasers holding seventy-five percent (75%) of the then outstanding Series C
Preferred Stock, (i) the obligations of the Company and the rights of the Purchasers

-32-

 

under this Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or indefinitely), and (ii)
the Company may enter into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement, or of any
supplemental agreement or modifying in any manner the rights and obligations hereunder or
thereunder of the Purchasers and/or the Company; provided, however, that, without a
Purchaser’s consent, any such amendment or waiver shall not treat such Purchaser differently from
any other Purchaser. The Company shall deliver copies of such consent to any Purchasers who did
not execute the same.

          The foregoing notwithstanding, no such waiver or supplemental agreement shall affect any of
the rights of any holder of any Securities created by (1) the Certificate of Designation or by the
Delaware General Corporation Law without compliance with all applicable provisions of the
Certificate of Designation and the Delaware General Corporation Law or (2) any Transaction Document
other than this Agreement without compliance with all applicable provisions of such Transaction
Document.

          Neither this Agreement, nor any provision hereof, may be changed, waived, discharged or
terminated orally or by course of dealing, but only by an instrument in writing.

          13.2. Notices. All notices, requests, consents, and other communications under this
Agreement shall be in writing and shall be deemed delivered (a) three business days after being
sent by registered or certified mail, return receipt requested, postage prepaid or (b) one business
day after being sent via a reputable nationwide overnight courier service guaranteeing next
business day delivery, in each case to the intended recipient as set forth below:

If to a Purchaser at its address set forth on Schedule I

hereto.

with a copy to:

Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Joel F. Freedman, Esq.

Facsimile No.: (617) 951-7050

and

Simpson Thacher & Bartlett LLP

2550 Hanover Street

Palo Alto, CA 94304

-33-

 

Attention: Michael J. Nooney, Esq.

Facsimile No.: (650) 251-5002

If to the Company:

The Princeton Review, Inc.

2315 Broadway

New York, New York 10024

Attention: Chief Executive Officer

Facsimile No.: (212) 874-0775

with a copy to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.

One Financial Center

Boston, MA 02111

Attention: Richard R. Kelly

Facsimile No.: (617) 542-2241

or at such other address as the Company or the Purchasers each may specify by written notice to the
other parties hereto. Any party may give any notice, request, consent or other communication under
this Agreement using any other means (including, without limitation, personal delivery, messenger
service, telecopy, first class mail or electronic mail), but no such notice, request, consent or
other communication shall be deemed to have been duly given unless and until it is actually
received by the party for whom it is intended. Any party may change the address to which notices,
requests, consents or other communications hereunder are to be delivered by giving the other
parties notice in the manner set forth in this Section 13.2.

          13.3. Indemnification; Survival. The Company shall indemnify, save and hold harmless
each Purchaser, its directors, officers, employees, partners, representatives and agents (each, a
“Purchaser Indemnified Party”) from and against (and shall promptly reimburse such indemnified
persons for) any and all liability, loss, cost, damage, reasonable attorneys’ and accountants’ fees
and expenses, court costs and all other out-of-pocket expenses incurred (collectively, “Losses”) in
connection with or arising from claims, actions, suits, proceedings or similar claims by any person
or entity (other than such Purchaser) associated, arising out of or relating to (i) the execution,
delivery and performance of this Agreement, any of the other Transaction Documents or the
Certificate of Designation, (ii) the transactions contemplated hereby or thereby, (iii) the
ownership by such Purchaser of the Securities or (iv) the rights of the Purchasers to elect
directors to the Company’s Board. This indemnification provision shall be in addition to the
rights of the Purchasers to bring an action against the Company for breach of any term of this
Agreement, the other Transaction Documents or the Certificate of Designation. Notwithstanding
anything herein to the contrary, (i) the Company shall not be obligated to indemnify any Purchaser
Indemnified Party under this Section 13.3 with respect to Losses

-34-

 

arising out of, relating to, or resulting from any breach of a representation or warranty
contained in this Agreement or the Transaction Documents unless the aggregate of all such Losses
for such Purchaser Indemnified Party exceeds $100,000 (the “Basket”), in which case such Purchaser
Indemnified Party shall be entitled to recover all Losses in excess of the Basket, and (ii) the
aggregate liability of the Company hereunder in respect of Losses arising out of, relating to, or
resulting from any breach of a representation or warranty contained in this Agreement or the
Transaction Documents for any Purchaser Indemnified Party shall not exceed the total Purchase Price
paid by such Purchaser Indemnified Party. For purposes of the foregoing sentence only, the term
“Purchase Price” shall mean $1,000 per share in cash (regardless of whether the actual
consideration paid by any Purchaser Indemnified Party included cash, securities or any rights).
All representations and warranties in this Agreement or the Transaction Documents shall survive the
Closing (unless a different period is specifically assigned thereto) except the representations and
warranties contained in this Agreement and the Transaction Documents shall survive the Closing only
until the date that is eighteen months after the Closing Date.

          13.4. No Waivers. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.

          13.5. Successors and Assigns. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective parties hereto, the
successors and permitted assigns of each Purchaser and the successors of the Company, whether so
expressed or not. None of the parties hereto may assign its rights or obligations under Section 2
hereof without the prior written consent of the Company, except that each Purchaser may, without
the prior consent of the Company, assign its rights to purchase the shares of Series C Preferred
Stock hereunder to any of its Affiliates. This Agreement shall not inure to the benefit of or be
enforceable by any other Person.

          13.6. Headings. The headings of the Sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part of this Agreement.

          13.7. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its conflict of law principles.

          13.8. Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken

-35-

 

by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Purchasers are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation, the rights arising out
of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review and negotiation of
the Transaction Documents. Each Purchaser acknowledges that Ropes & Gray LLP has only acted as
counsel for Bain Capital Simpson Thacher & Bartlett LLP has only acted as counsel for Prides
Capital and in each case not any other Purchaser. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.

          13.9. Fees and Expenses. The Company agrees to pay, reimburse and hold the Purchasers
harmless from liability for the payment of all out-of-pocket fees and expenses incurred by it in
connection with its diligence investigation of the Company, the preparation and negotiation of this
Agreement and the consummation of the transactions contemplated hereby, regardless of whether the
purchase of shares of Series C Preferred Stock by the Purchasers pursuant to this Agreement is
consummated. An estimate of the fees and expenses of third parties may be paid by checks delivered
or wire transfers to such parties at the Closing by the Purchasers, the amount of such checks or
wire transfers being deducted from the aggregate amount to be paid by such Purchasers at the
Closing for the shares of Series C Preferred Stock to be purchased by them hereunder. The
reasonable fees and expenses of the Purchasers may include, without limitation:

               (a) the fees and expenses of counsel, consultants and accountants and out of pocket
expenses, including diligence and travel expenses, of the Purchasers, arising in connection
with the preparation, negotiation and execution of the Certificate of Designation and the
Transaction Documents and the consummation of the transactions contemplated thereby,

               (b) all costs of the Company’s performance and compliance with the Certificate of
Designation or the Transaction Documents, and

               (c) stamp and other taxes, excluding income taxes, which may be payable with respect to
the execution and delivery of the Certificate of Designation or the Transaction Documents,
or the issuance, delivery or acquisition of the shares of Series C Preferred Stock or upon
the conversion of the shares of Series C Preferred Stock.

In addition, the Company agrees to pay (i) Bain Capital a transaction fee equal to $200,000 and
(ii) Prides Capital Partners, L.L.C. a transaction fee equal to $100,000. Such fees may be paid by
checks delivered or wire transfers to such parties at the Closing by the Purchasers, the amount

-36-

 

of such checks or wire transfers being deducted from the aggregate amount to be paid by such
Purchasers at the Closing for the shares of Series C Preferred Stock to be purchased by them
hereunder.

          13.10. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal or state court located in the State of New
York, and each of the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably
waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided in Section 13.2
shall be deemed effective service of process on such party.

          13.11. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH
CANNOT BE WAIVED, THE PURCHASERS AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT NEITHER THE
COMPANY NOR THE PURCHASERS WILL ASSERT, ANY RIGHT TO TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING,
WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PURCHASERS AND THE COMPANY HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges that it has been
informed by the Purchasers that the provisions of this Section 13.11 constitute a material
inducement upon which the Purchasers are relying and will rely in entering into this Agreement.
Any Purchaser or the Company may file an original counterpart or a copy of this Section 13.11 with
any court as written evidence of the consent of the Purchasers and the Company to the waiver of the
right to trial by jury.

          13.12. Counterparts; Effectiveness. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be deemed an original, shall
be construed together and shall constitute one and the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts hereof signed by all of
the other parties hereto.

          13.13. Entire Agreement. The Certificate of Designation and the Transaction Documents
contain the entire agreement among the parties hereto with respect to the subject matter hereof and
thereof and such agreements supersede and replace all other prior agreements,

-37-

 

written or oral, among the parties hereto with respect to the subject matter hereof and
thereof, including, without limitation, the letter agreement dated April 30, 2007 between the
Company and Bain Capital and the letter agreement dated June 22, 2007 between the Company and
Prides Capital Partners, L.L.C., which are hereby terminated.

          13.14. Severability. If any provision of this Agreement shall be found by any court
of competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision
to the extent that it is found to be invalid or unenforceable. Such provision shall, to the
maximum extent allowable by law, be modified by such court so that it becomes enforceable, and, as
modified, shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.

[Remainder of Page Intentionally Left Blank]

-38-

 

     IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be
duly executed as of the day and year first above written.

	 	 	 	 	 
	 	THE COMPANY

THE PRINCETON REVIEW, INC.

 	 
	 	By:  	/s/
Michael J. Perik 	 
	 	 	Name:  	Michael J. Perik 	 
	 	 	Title:  	Chief Executive Officer 	 
	 

Signature Page to Series C Preferred Stock Purchase Agreement

 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be duly
executed as of the day and year first above written.

	 	 	 	 	 
	 	THE PURCHASERS

BAIN CAPITAL VENTURE FUND 2007, L.P.

By: Bain Capital Venture Partners, L.P., its general partner

By: Bain Capital Investors, LLC, its general partner

 	 
	 	By:  	/s/ Michael A. Krupka	 
	 	 	Name:  	Michael A. Krupka	 
	 	 	Title:  	Authorized Person 	 
	 

	 	 	 	 	 
	 	BCIP VENTURE ASSOCIATES

By: Bain Capital Investors, LLC, its managing partner

By: Bain Capital Venture Investors, LLC, its Attorney-in-fact

	 
	 	By:  	/s/ Michael A. Krupka	 
	 	 	Name:  	Michael A. Krupka	 
	 	 	Title:  	Managing Director 	 
	 

	 	 	 	 	 
	 	BCIP VENTURE ASSOCIATES-B

By: Bain Capital Investors, LLC, its managing partner

By: Bain Capital Venture Investors, LLC, its Attorney-in-fact

	 
	 	By:  	/s/ Michael A. Krupka	 
	 	 	Name:  	Michael A. Krupka	 
	 	 	Title:  	Managing Director 	 
	 

	 	 	 	 	 
	 	RGIP, LLC

 	 
	 	By:  	/s/ Alfred O. Rose	 
	 	 	Name:  	Alfred O. Rose	 
	 	 	Title:  	Managing Member	 
	 

Signature Page to Series C Preferred Stock Purchase Agreement

 

 

	 	 	 	 	 
	 	PRIDES CAPITAL FUND I LP

By: Prides Capital Partners, L.L.C., its general partner

 	 
	 	By:  	/s/ Henry J. Lawler, Jr.	 
	 	 	Name:  	Henry J. Lawler, Jr.
	 	 	Title:  Managing member of the General
Partner	 
	 

Signature Page to Series C Preferred Stock Purchase Agreement

 

 

SCHEDULE I

	 	 	 	 	 	 	 
	 	 	 	 	Total	 	 
	Purchaser	 	Shares Purchased	 	Purchase Price	 	Consideration
	Bain Capital Venture Fund 2007, L.P.

c/o Bain Capital, LLC

111 Huntington Avenue

Boston, MA 02199

Facsimile No: (617) 516-2010
	 	34,615	 	$34,615,000	 	Cash
	 
	 	 	 	 	 	 
	BCIP Venture Associates

c/o Bain Capital, LLC

111 Huntington Avenue

Boston, MA 02199

Facsimile No: (617) 516-2010
	 	4,893	 	$4,893,000	 	Cash
	 
	 	 	 	 	 	 
	BCIP Venture Associates-B

c/o Bain Capital, LLC

111 Huntington Avenue

Boston, MA 02199

Facsimile No: (617) 516-2010
	 	92	 	$92,000	 	Cash
	 
	 	 	 	 	 	 
	Prides Capital Fund I LP
	 	20,000	 	$20,000,000	 	6,000 shares of Series
	c/o Prides Capital Partners, L.L.C.
	 	 	 	 	 	B-1 Preferred Stock;
	200 High Street, Suite 700
	 	 	 	 	 	cancellation of Fletcher
	Boston, MA 02110
	 	 	 	 	 	Rights and
	Facsimile No: (617) 778-9299
	 	 	 	 	 	Cash of $6,177,603
	 
	 	 	 	 	 	 
	RGIP, LLC

c/o Ropes & Gray LLP

One International Place

Boston, MA 02110

Attn: Joel F. Freedman, Esq.

Facsimile No: (617) 951-7050
	 	400	 	$400,000	 	Cash
	 
	 	 	 	 	 	 

 

 

EXHIBIT A

CERTIFICATE OF DESIGNATION

 

 

EXHIBIT B

CERTIFICATE OF ELIMINATION

 

 

EXHIBIT C

INVESTOR RIGHTS AGREEMENT

 

 

EXHIBIT D

FORM OF TERMINATION AND RELEASE AGREEMENT

 

 

Schedule 6.1(o)

The Nominating Committee of the Company’s board of directors, on which the holders of the Series C
Preferred Stock shall be entitled to have a representative, shall nominate 5 persons to be elected
as directors by the holders of the Company’s Common Stock and may nominate the Company’s Chief
Executive Officer as a 6th nominee to be so elected. The Company’s bylaws shall provide that, in
addition to the directors elected by the holders of the Series C Preferred Stock, the Company’s
board of directors shall have, and the nominees of the Nominating Committee shall include, three
persons who qualify as “independent” directors under the rules of the Nasdaq Global Market (or any
exchange on which the Company’s shares are listed) and whose nominations by the Nominating
Committee shall require majority approval of the full Nominating Committee for the first twelve
months following the closing of the sale of the Series C Preferred Stock and unanimity of the full
Nominating Committee thereafter; provided that such provisions of the Company’s bylaws and the
provision thereof fixing the number of directors shall not be amended or rescinded without the
approving vote or consent of the holders of a majority of the Series C Preferred Stock. The
Nominating Committee will ensure nominations will permit the Company to remain in compliance with
applicable Nasdaq and SEC requirements for directors. Removals and the filling of vacancies shall
be subject to provisions to carry out the intent and effect of the foregoing.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00126-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00126-of-00352.parquet"}]]