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Exhibit 10.1
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of April 1, 2000, by and among TPR
Holdings, Inc. (to be renamed The Princeton Review, Inc.), a Delaware
corporation (the "Company"), Xxxx X. Xxxxxxx (the "Founder"), Xxxxx Task, Xxxx
Xxxxxxx, Xxxxxx Xxxxx, Xxx Xxxxxx, Xxx Xxxxxxx, Xxxxxx X. Xxx and Xxxxxx Xxxxxx
(the "Management Stockholders"), Random House TPR, Inc., a Delaware corporation
("RH"), and all of the former holders of nonvoting limited liability company
interests in Princeton Review Publishing L.L.C. listed on Schedule A hereto
(collectively the "Converting LLC Holders"), and any subsequent stockholder
(including the Investors as defined below) of the Company who becomes a party to
this Agreement pursuant to the terms and conditions hereof (collectively, the
"Additional Stockholders," and collectively with the Founder, the Management
Stockholders, RH and the Converting LLC Holders sometimes hereinafter
collectively referred to herein as the "Stockholders" or individually as the
"Stockholder").
PREAMBLE
On the date hereof, the Founder and each of the Management Stockholders are
contributing all of their shares of common stock of the entity heretofore known
as The Princeton Review, Inc., a Delaware corporation ("Old Review"), to the
Company in exchange for an agreed upon proportionate number of shares of common
stock of the Company. In this transaction, the Founder is receiving such number
of shares of the Company's Voting Class A Common Stock, $.01 par value per share
(the "Class A Common Stock"), as is set forth on Schedule A-1 hereto and the
Management Stockholders are receiving such number of shares of Non Voting Class
B Common Stock, $.01 par value per share (the "Class B Common Stock"), as is set
forth opposite the name of each such Management Stockholder on Schedule B
hereto. The Class A Common Stock and the Class B Common are together referred to
herein as the "Common Stock").
On the date hereof, RH is contributing all of its limited liability company
interests in each of Princeton Review Management, L.L.C, Princeton Review
Products, L.L.C, Princeton Review Operations, L.L.C. and Princeton Review
Publishing, L.L.C. to the Company in exchange for such number of shares of Class
A Common Stock of the Company as is set forth on Schedule A-1 hereto.
On the date hereof, each of the Converting LLC Holders is contributing all
of its non voting limited liability company interests in Princeton Review
Publishing, L.L.C. ("Publishing") to the Company in exchange for such number of
shares of Class B Common Stock as is set forth opposite the name of such
Converting LLC Holder on Schedule A hereto.
Either contemporaneously with or shortly following the foregoing
transactions, certain investors will be listed on Schedule C to be added hereto
(the "Investors") which Investors shall
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be purchasing shares of the Company's Series A Convertible Preferred Stock, $.01
par value per share (the "Series A Preferred Stock"), pursuant to a Series A
Preferred Stock Purchase Agreement to be entered into between the Company and
the Investors (the "Stock Purchase Agreement") in the amounts that will be set
forth on Schedule C; and
One of the conditions to the Closing as defined in the Stock Purchase
Agreement is the execution of this Agreement by the holders of all of the Common
Stock;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
ELECTION OF DIRECTORS
1.1 Election of Directors. At each annual meeting of the stockholders of
the Company, or at each special meeting of the stockholders of the Company
involving the election of directors of the Company, and at any other time at
which stockholders of the Company will have the right to or will vote for or
render consent in writing regarding the election of directors of the Company,
then and in each event, the Stockholders entitled to vote for the election of
directors hereby covenant and agree to vote all shares of voting capital stock
of the Company presently owned or hereafter acquired by them (whether owned of
record or over which any person exercises voting control) in favor of the
following actions:
(a) to fix and maintain the number of directors initially at seven and at
eight upon the addition of the Investors to this Agreement which number may not
be further changed except by an amendment to this Agreement approved by the
consent of the holders of fifty-one percent (51%) or more of the outstanding
Common Stock;
(b) to cause and maintain the election to the Board of Directors of the
Company, so long as any shares of Common Stock are held by RH, one
representative designated by RH (the "RH Director") and, to the extent that the
Company establishes a "staggered board," to elect the RH Director to the
respective class of director whose initial term expires at the latest time among
all classes. The RH Director shall be nominated by RH; and
(c) to cause and maintain the election to the Board of Directors of the
Company, so long as any shares are held by SG Capital Partners, LLC ("SGCP"),
one representative designated by SGCP (the "SGCP Director"). The SGCP Director
shall be nominated by SGCP and shall be included in the Audit, Compensation and
Executive Committee.
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1.2 Removal of RH Director and SGCP Director. None of the parties
hereto, except RH in the case of a director designated or nominated by it in
accordance with Section 1(b), shall vote any voting capital stock held by it to
remove the RH Director, except for bad faith or willful misconduct. None of the
parties hereto, except for the Investors in the case of the SGCP Director, shall
vote any voting capital stock held by it to remove the SCGP Director, except for
bad faith or willful misconduct. Each of the parties hereto shall vote or cause
to be voted all shares of voting capital stock of the Company owned by them or
over which they have voting control (i) to remove from the Board of Directors
the RH Director at the request of RH or the SGCP Director at the request of a
majority of the holders of Series A Preferred Stock and (ii) to fill any vacancy
in the membership of the Board of Directors caused by the removal or resignation
of the RH Director with a designee of RH and to fill any vacancy in the
membership of the Board of Directors caused by the removal or resignation of the
SGCP Director with a designee of SGCP.
1.3 Notice. The Company shall provide to SGCP and RH seven days prior
written notice of any intended mailing of notice to stockholders for a meeting
at which directors are to be elected, and each of the Investors and RH shall
notify the Company in writing, prior to such mailing, of the person designated
by it as its nominee for election as a director. If RH or SGCP fails to give
notice to the Company as provided above, it shall be deemed that its designee
then serving as director shall be its designee for reelection as a director.
1.4 Converting LLC Holder Observer Rights. As long as any Converting LLC
Holder owns shares of Class B Common Stock, the Company shall invite one
representative of all of the Converting LLC Holders to attend all meetings in
person of its Board of Directors in a nonvoting-observer capacity (the
"Representative") and, in this respect, shall give the Representative copies of
all notices, minutes, consents and other materials it provides to its directors
("Board Materials"); provided that the Company reserves the right to withhold
any information and to exclude the Representative from any meeting or portion
thereof if, in the reasonable judgment of the Chairman of the Board of Directors
or the Board of Directors of the Company, such information or the agenda for
such meeting relate to matters concerning the business relationship between the
Company on the one hand and the Converting LLC Holders solely in their capacity
as independent franchisees of the Company on the other hand, including
discussions regarding proposed repurchases of Company franchises from the
Converting LLC Holders, other potential or ongoing transactions between the
Company and its franchisees or any other similar matters that present a conflict
of business interests between the Company and the Converting LLC Holders in
their capacities as franchisees (it being understood that discussions concerning
course operations and similar matters shall not generally present conflicts of
business interests); provided, further, that if the Company has not provided the
Representative with at least three days advance notice of a Board meeting, the
Representative may participate in the meeting by teleconference. The Converting
LLC Holders understand and agree that the Representative shall agree to hold the
Board Materials in confidence but may release them or excerpts therefrom to the
Converting LLC Holders with the prior consent of the Company, such consent not
to be unreasonably withheld. The Representative provided for in this Section 1.4
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shall initially be Xxxxxx Xxxxx, and the Representative shall be elected from
time to time by the affirmative vote of at least 51% of the shares of Class B
Common Stock then held by Converting LLC Holders, which election shall be held
at such time, but not less frequently than once per year, and in such place as
the Converting LLC Holders shall determine.
1.5 Investors Observer Rights. As long as the Investors own any shares of
capital stock of the Company, the Company shall invite one representative of the
Investors designated by SCGP to attend all meetings of its Board of Directors in
a nonvoting-observer capacity and, in this respect, shall give such
representative copies of all notices, minutes, consents and other materials it
provides to its directors; provided, however, that such representative shall
agree to hold such in confidence.
1.6 Termination of Rights. The rights and obligations of the Company and
the Stockholders set forth in this Article I shall terminate upon the closing of
an underwritten public offering of shares of Common Stock of the Company which
results in a listing of the Company's shares on a National Securities Exchange
or a quotation on NASDAQ (an "IPO"); provided, that if the IPO is not an IPO at
a public offering price of at least 1.5 times the per share purchase price (as
adjusted for any stock split, stock dividend or recapitalization after the date
of the first issuance of the Series A Preferred Stock) of the Series A Preferred
Stock, and resulting in gross proceeds to the Company in excess of $30,000,000
(a "Qualified IPO"), and if requested by the Investors, the Company agrees to
enter into an agreement to preserve the rights of the Investors as are currently
contemplated by this Article I.
ARTICLE II
LIMITATION ON TRANSFERS, RIGHTS OF FIRST
REFUSAL, CO-SALE AND TAKE ALONG RIGHTS
2.1 Proposed Transfer by Stockholders. The Stockholders (other than the
Investors) shall not transfer either in a single transaction or in a series of
transactions any shares of capital stock of the Company (the "Shares") or any
right or interest therein then owned by them except by a transfer that meets the
requirements of this Article II and of this Agreement generally. Until a
Qualified IPO, the Founder and the Management Stockholders may not transfer
their shares, other than a Permitted Transfer (as defined below); without the
prior consent of SGCP, which consent shall not be unreasonably withheld (the
"SGCP Transfer Consent"). Subject to the foregoing, in the event that a
Stockholder (other than an Investor) (a "Transferring Stockholder") proposes to
transfer any portion of the shares of his or its Common Stock (each, a "Shares
Transfer"), whether voluntarily or involuntarily, other than a Permitted
Transfer and a transfer effected pursuant to Section 2.8(b) below, then at least
15 days prior to any proposed Shares Transfer, such Transferring Stockholder
shall give written notice (the "TS Notice") of his or its intention to effect
the Shares Transfer to (i) the Company, if the Transferring Stockholder is
transferring shares of Class B Common Stock or (ii) the Company and the other
Stockholders, if
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the Transferring Stockholder is transferring shares of Class A Common Stock. The
TS Notice shall set forth (i) the Transferring Stockholder's bona fide intention
to offer such shares, (ii) the class, series and number of Shares to be sold by
the Transferring Stockholder (the "Sale Shares"), (iii) the date or proposed
date of the Shares Transfer and the name and address of the proposed transferee,
and (iv) the principal terms of the Shares Transfer, including the cash or other
property or consideration to be received upon such Shares Transfer (the "Offer
Price"). The term "Permitted Transfer" shall mean (a) a Shares Transfer from a
Stockholder to one or more of its "Affiliates" or "Subsidiaries" as those terms
are defined in Rule 405 ("Rule 405") promulgated pursuant to the Securities Act
of 1933, as amended, (b) a Shares Transfer to a spouse (other than pursuant to
any divorce or separation proceedings or settlement), parent, child (natural or
adopted), stepchild or grandchild or a trust or a family limited partnership for
the benefit of any one or more of such persons in the case of a Transferring
Stockholder that is an individual or (c) a Shares Transfer by one holder of
Class B Common Stock to another holder of Class B Common Stock (each recipient
pursuant to either (a), (b) or (c) being a "Permitted Transferee"); provided,
however, that prior to such Shares Transfer, the Transferring Stockholder shall
provide at least three days' advance notice to the Company and such Permitted
Transferee shall agree in writing to be bound by the obligations imposed upon
Stockholders under this Agreement as if such transferee were originally a
signatory to this Agreement in the capacity of the Transferring Stockholder who
proposes to effect such Permitted Transfer and upon such agreement shall also
have all the rights of the Transferring Stockholder who effected the Shares
Transfer.
2.2 Company's Right of First Refusal. In the event the Transferring
Stockholder desires to effect a Shares Transfer involving shares of Class B
Common Stock (a "Class B Shares Transfer"), other than a Permitted Transfer,
then, within 15 days after receipt of the TS Notice specified in Section 2.1
(the "Option Period"), the Company shall have the right (the "Company Option")
to purchase all of the Sale Shares that are the subject of such Class B Shares
Transfer, at a purchase price equal to the Offer Price and upon the terms and
conditions set forth in the TS Notice. The right of the Company to purchase all
of the Sale Shares under this Section 2.2 shall be exercisable by delivering
written notice of the exercise thereof, prior to the expiration of the 15-day
period referred to above, to the Transferring Stockholder, which notice shall
state the number of Sale Shares proposed to be purchased by the Company. The
failure of the Company to respond within such 15-day period shall be deemed to
be a waiver of the Company's rights under this Section 2.2. The Company may
waive its rights under this Section 2.2 prior to the expiration of the 15-day
period by giving written notice to the Transferring Stockholder.
2.3 Closing. The closing of the purchase of Sale Shares subscribed for by
the Company under Section 2.2 shall be held at the principal executive office of
the Company on the 30th day after the giving by the Company of the notice
contemplated by Section 2.2, or at such other time and place as the parties to
the transaction may agree. At such closing, the Transferring Stockholder shall
deliver certificates representing the Sale Shares, duly endorsed for transfer
and accompanied by all requisite transfer taxes, if any, and such Sale Shares
shall be free and clear of any liens, claims, options, charges, encumbrances or
rights ("Liens") (other than those arising
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hereunder and those attributable to actions by the purchasers) and the
Transferring Stockholder shall so represent and warrant, and shall further
represent and warrant that it is the sole beneficial and record owner of such
Sale Shares. The Company shall deliver the purchase price in full at any closing
of the Sale Shares purchased by it which purchase price shall include
immediately available funds for any cash portion thereof. At such closing, all
of the parties to the transaction shall execute such additional documents as are
otherwise necessary or appropriate. If it is inconvenient for the Transferring
Stockholder to conduct a physical closing at the offices of the Company, the
closing may be conducted by mail or messenger service if such a procedure is
feasible, so long as all documentation is provided to the Company in accordance
with the requirements of this Section 2.3 at the address of its principal
executive office in advance of the payment by the Company of the purchase price.
2.4 Sale to a Third Party Purchaser. Unless the Company elects to purchase
the Sale Shares under Section 2.2, the Transferring Stockholder may, subject to
the SGCP Transfer Consent and Section 2.5, if applicable, sell the Sale Shares
(the "Third Party Sale Shares") to a third party purchaser (a "Third Party
Purchaser") on terms and conditions no less favorable to the Transferring
Stockholder than those set forth in the TS Notice and at a purchase price per
share no less than the Offer Price; provided, however, that such sale is bona
fide and made pursuant to a contract entered into within 30 days of the earlier
to occur of (a) the waiver by the Company of its option to purchase the Third
Party Sale Shares and (b) the expiration of the Option Period (for purposes of
this Section 2.4, the earlier of such dates being referred to herein as the
"Contract Date"). If such sale is not consummated within 90 days of the Contract
Date for any reason, then the restrictions provided for herein shall again
become effective, and no transfer of such Third Party Sale Shares may be made
thereafter by the Transferring Stockholder without again offering the same to
the Company in accordance with this Article II.
2.5 Right to Participate in Transfers by the Founder. Subject to the SGCP
Transfer Consent, in the event the Founder desires to effect a Shares Transfer,
other than a Permitted Transfer or a Shares Transfer contemplated by Section
2.8(b), then, upon receipt of the TS Notice specified in Section 2.1, each other
Stockholder shall have the right (by written notice to the Founder and the
Company to be sent within 15 days after such Stockholder receives the TS Notice)
to require the Founder to cause to be purchased from such Stockholder the number
of shares of Common Stock then held by such Stockholder (or, if such Stockholder
is an Investor, the number of shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred Stock then held by such Investor)
that equals (x) the number of Sale Shares that the Founder proposes to transfer,
multiplied by (y) the percentage determined by dividing (i) the number of shares
of Common Stock or Series A Preferred Stock then held by the Stockholder by (ii)
the sum of the number of shares of Series A Preferred Stock and Common Stock
then held by all of the Stockholders, including the Founder. For purposes of
this Section 2.5, the Series A Preferred Stock shall be treated as if it had
been converted into the number of shares of Common Stock then issuable upon such
conversion.
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2.6 Take Along Right. Except in the case of a transfer effected pursuant to
Section 2.8(b) and subject to the SGCP Transfer Consent, in the event the
Transferring Stockholder is the Founder and he owns greater than 40% of the
outstanding Common Stock, and he desires to effect a Shares Transfer of all, but
not less than all, of the shares of Common Stock then owned by him, other than a
Permitted Transfer or a transaction with a party affiliated or related with the
Founder, the terms of which transaction are not otherwise consistent with an
arm's length unrelated party transaction, then, upon receipt of the TS Notice
specified in Section 2.1, all Stockholders shall be required to sell all of the
shares of capital stock of the Company then owned by such Stockholder to the
party purchasing the Common Stock of the Founder.
2.7 Terms of Purchase. The purchase from the Stockholders pursuant to
Sections 2.5 and 2.6 shall be on the same terms and conditions, including per
Share price and date of Shares Transfer, as are received by the Transferring
Stockholder and stated in the TS Notice provided to the Stockholders; provided,
however, that in the event that the Founder receives a compensation arrangement
in connection with a transaction contemplated in Section 2.6 that is
substantially excessive, such amount of compensation as is substantially
excessive shall be deemed to be part of the purchase price for the Shares
transferred by the Founder and shall be taken into account for purposes of
determining the purchase price to be paid to the Class B Common Stockholders for
the Shares being transferred by them in accordance with the terms of Section
2.6; and provided further that, in all events, the Sale Shares (and any Shares
sold by Stockholders in accordance with Sections 2.5 and 2.6 above) shall
continue to be subject to the terms of this Agreement and any such transferee
shall agree in writing to be bound by the obligations imposed upon Stockholders
under this Agreement as if such transferee were originally a signatory to this
Agreement.
2.8 Special Rights Between the Founder and RH.
(a) Special Rights of First Offer. In the event that either the
Founder or RH (in either case, the "Proposing Seller") intends to
attempt to effect a Shares Transfer of 90% or more of the Shares
held by he or it (the "Subject Shares"), other than a Permitted
Transfer, then he or it shall promptly provide notice of such
intent to the other (the "First Offer Notice"). Within 10 days
after receipt of the First Offer Notice from the Proposing Seller
of his or its intent to effect a Share Transfer, the Founder or
RH (whichever is not the Proposing Seller (the "Special
Optionee")), shall have the right to designate a per share dollar
price at which such Special Optionee would be willing to purchase
the Proposing Seller's Shares or to sell to the Proposing Seller
all of the Shares held by he or it (the "Binding Sale Price").
The Proposing Seller shall then have five days to notify the
Special Optionee of his or its intention to (i) sell the Subject
Shares to the Special Optionee at the Binding Sale Price or (ii)
purchase all of the Shares held by the Special Optionee at the
Binding Sale Price (in either case, the "Purchase Sale
Election"). The Purchase Sale Election shall be binding on both
parties and shall be consummated within 30
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days of the First Offer Notice. In the event the Special Optionee
does not provide the Proposing Seller with a Binding Sale Price
within the above 10-day period, then the Proposing Seller may
proceed with a Share Transfer of the Subject Shares and, if
requested by the Proposing Seller, the Special Optionee shall be
required to sell all of the Shares owned by he or it to the party
purchasing from the Proposing Seller at the per share price to be
received by the Proposing Seller for the Subject Shares.
(b) Special Buy/Sell Rights. In the event that the Founder's
employment by the Company shall terminate for any reason
involving any criminal act or gross dereliction of duty to the
Company, RH may give notice to the Founder of a price per share
(the "Proposed Price") at which it is willing to sell to the
Founder all of the Shares then owned by RH, which Proposed Price
shall also be deemed to be the price per share at which RH is
prepared to purchase all of the Shares then owned by the Founder.
Within 15 days of the Founder's receipt of such notice the
Founder shall notify RH of his intention to sell all of his
Shares to RH or to buy all of RH's Shares, in either case at the
Proposed Price. Failure to give such notice shall give RH the
right during the ensuing three days to elect to be the seller or
the purchaser at the Proposed Price. If RH is the purchaser, RH
shall purchase all of the Founder's Shares for cash and shall
consummate the transaction within 30 days after its election to
purchase the Founder's Shares. In the event that the Founder is
the purchaser, he shall be required to consummate the purchase of
RH's Shares within nine months. If the party having the right to
purchase Shares of the other pursuant to this Section 2.8(b)
fails to complete the transaction within the allotted time
period, the other party shall have the option, exercisable in
lieu of any other rights it may then have, to deliver, within 10
days after such failure, a notice to purchase pursuant to which
it may purchase the Shares of the other as if it were the
original purchaser.
2.9 Transfers Void. Any attempted Shares Transfer by the Stockholders
in violation of the terms of this Article II shall be ineffective to vest in any
transferee any interest held by the Transferring Stockholder in the Shares.
Without limiting the foregoing, any purported Shares Transfer in violation
hereof shall be ineffective as against the Company or the other Stockholders, as
applicable, and the Company or such other Stockholders, as applicable, shall
have a continuing right and option (but not an obligation), until the
restrictions contained in this Article II terminate, to purchase the Shares
purported to be transferred by the Transferring Stockholders for a price and on
terms the same as those at which the purported Shares Transfer was effected.
2.10 Termination of Restrictions. The rights and obligations in this
Article II shall terminate upon the closing of an IPO; provided, that if the IPO
is not a Qualified IPO, and if requested by the Investors, the Founder agrees to
enter into an agreement to preserve the rights
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of the Investors in regard to the Founder and Share Transfers by the Founder as
are currently contemplated by this Article II.
ARTICLE III
PREEMPTIVE RIGHTS
3.1 Preemptive Right. Subject to the terms and conditions specified in
this Article III, the Company hereby grants to each Stockholder who holds Class
B Common Stock (a "Class B Stockholder"), RH and the Investors a preemptive
right with respect to future sales by the Company of its Shares or securities
convertible into or exercisable for any Shares (collectively, "Company
Securities"). For purposes of this Section, "Investor" includes transferees of
any Investor and any general partners, members and/or affiliates of an Investor.
For purposes of this Article III, "Class B Stockholder" shall only include the
Management Stockholders and the Converting LLC Holders and their respective
permitted transferees. An Investor shall be entitled to apportion the preemptive
right hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to issue or sell any Company Securities
(a "Company Offering"), the Company shall permit each Investor, RH and each
Class B Stockholder to exercise preemptive rights in accordance with the
following provisions:
(a) The Company shall deliver written notice (the "Sale Notice") to
each Investor, RH and Class B Stockholder stating (i) the class, series and
number of Company Securities proposed to be sold by the Company, (ii) the
proposed price and terms upon which it is selling such Company Securities and
(iii) the Company's determination of the number of shares of Company Securities
which may be purchased by such Investor, RH and Class B Stockholder if it
chooses to exercise its rights under this Section 3.1. Notwithstanding the class
of Company Securities proposed to be issued, it is understood and agreed that
(i) in the event that RH exercises its rights under this Section 3.1, it will be
purchasing Class A Common Stock, (ii) in the event that any Class B Stockholder
exercises its rights under this Section 3.1, it will be purchasing Class B
Common Stock and, (iii) in the event that any Investor exercises its rights
under this Section 3.1, it will be purchasing Series A Preferred Stock if that
is the security being offered in the Company Offering and Class A Common Stock
in all other cases.
(b) Within 15 days (or five business days in the case of the Investors
pursuant to a Business Issuance as defined in Section 3.1(d)(iii) below) after
receipt of the Sale Notice, each Investor, RH and Class B Stockholder may, by
giving notice thereof to the Company (a "Preemptive Notice"), elect to purchase,
at the price paid by the purchaser in the Company Offering and on the terms of
the Company Offering, up to that Investor's Proportional Number of shares of
Company Securities. As used herein, the term "Proportional Number" shall mean
(i) the total number of shares of Company Securities being issued or sold by the
Company in the Company Offering multiplied by (ii) a fraction, the numerator of
which shall be the number of shares of Common Stock then issued and held, or
issuable upon conversion of the Series A Preferred Stock, Class A Common Stock
or Class B Common Stock then held, by such Investor, RH or Class B Stockholder,
as the case may be, and the denominator of which shall be the total number of
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shares of Common Stock of the Company (assuming full conversion and exercise of
all securities convertible or exercisable for shares of Common Stock) held by
all the Company's Stockholders immediately prior to the Company Offering.
(c) The closing of the purchases of any shares of Company Securities
with respect to which the Investors, RH or Class B Stockholders have given a
Preemptive Notice shall be held at the principal executive office of the Company
on the 30th day after the giving by the Company of the Sale Notice contemplated
by Section 3.1(a), or at such other time and place as the parties to the
transaction may agree. At such closing, the Company shall deliver certificates
representing the Company Securities to be sold to the Stockholders. Each
Investor, RH and Class B Stockholder shall deliver at the closing payment of the
purchase price in full in immediately available funds or by certified bank check
for the Company Securities purchased by him or it pursuant to this Section 3.1.
At such closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate. If it is
inconvenient for any Stockholder to conduct a physical closing at the offices of
the Company, the closing may be conducted by mail or messenger service if such a
procedure is feasible, so long as payment for the shares of Company Securities
is made to the Company in accordance with the requirements of this Section
3.1(c) at the address of its principal executive office in advance of the
delivery by the Company of the Company Securities required to be delivered by it
hereunder.
(d) Notwithstanding anything to the contrary contained herein, the
preemptive rights contained in this Article III shall not be applicable to (i)
the issuance by the Company of options to employees, directors or unaffiliated
consultants (or to the exercise of such options) pursuant to option plans
adopted by the Board of Directors; (ii) the issuance of securities pursuant to
the conversion or exercise of convertible or exercisable securities; (iii) in
the case of the Stockholders except for the Investors, the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise (a "Business Issuance"); (iv) the issuance by the Company of
up to an aggregate of $30,000,000 of the Series A Preferred Stock to third party
investors within 320 days of the date of this Agreement; and (v) the issuance of
securities pursuant to an IPO.
3.2 Termination of Rights. Except in the case of rights and obligations
that have been exercised but not been fulfilled, the rights and obligations of
the Company and Stockholders set forth in this Article III shall terminate upon
the closing of an IPO; provided, that if the IPO is not a Qualified IPO, and if
requested by the Investors, the Company agrees to enter into an agreement to
preserve the rights of the Investors as are currently contemplated in this
Article III.
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ARTICLE IV
CALL AND PUT RIGHTS APPLICABLE TO CLASS B COMMON STOCK
4.1 Company Call Rights. In the event that a Class B Stockholder who is
an employee, consultant or member of the Board of Directors of the Company,
ceases to hold such position with the Company or a subsidiary or affiliate
thereof (whether due to cause, without cause or for any other reason), the
Company may, by written notice (the "Call Notice") to such Class B Stockholder
delivered (i) prior to the expiration of 30 days after such Class B Stockholder
ceases to be an employee, consultant or member of the Board of Directors of the
Company or a subsidiary or affiliate of the Company (the "Termination Date") or
(ii) prior to the expiration of 30 days after each annual anniversary of the
Termination Date, require such Class B Stockholder to sell to the Company all
(but not less than all) of the shares of Class B Common Stock held by such
Stockholder at a price per share equal to the Agreed Value thereof (as
hereinafter defined). The purchase and sale of shares of Class B Common Stock
pursuant to this Section 4.1 shall take place at the time, date and location,
and in the manner, specified in Section 4.4 hereof. If (i) a Management
Stockholder ceases to be an employee or consultant of the Company or an
affiliate or subsidiary thereof, and he or she was not terminated for "cause"
(as such term is defined in the "Glossary of Terms" adopted by the Company from
time to time), (ii) the Company has exercised its right to purchase such
Management Stockholder's Class B Common Stock pursuant to this Section 4.1 (the
"Purchase Transaction") and (iii) within twelve months after the closing of the
Purchase Transaction the Founder enters into a transaction (the "Sale
Transaction") which, but for such purchase, would have entitled such Management
Stockholder to exercise its right pursuant to Section 2.5, the Founder shall pay
to such Management Stockholder, upon the closing of the Sale Transaction, as
additional consideration for each share of Class B Common Stock purchased in the
Purchase Transaction, an amount equal to the per share sale price in the Sale
Transaction, minus the per share purchase price in the Purchase Transaction,
multiplied by the number of shares which such Management Stockholder would have
been entitled to sell upon exercise of such rights under Section 2.5. In no
event shall this Section 4.1 apply to the Converting LLC Holders.
4.2 Class B Stockholder Put Rights. At any time after the earlier of
(i) the redemption of at least one-half of the outstanding shares of Series A
Preferred Stock, (ii) the expiration of five years from (a) the first issuance
of any shares of Series A Preferred Stock or (b) if the Series A Preferred Stock
is not issued within 320 days from the date of this Agreement, then from the
first issuance of any shares of Class B Common Stock (or any options in respect
of shares of Class B Common Stock) to any Class B Stockholder, any Class B
Stockholder may, by written notice to the Company, require the Company to
purchase all or a portion (but if less than all, in no event less than an amount
of shares of the capital stock of the Company having an aggregate value of
$20,000) of the shares of Class B Common Stock held by such Class B Stockholder
at a price per share equal to the Agreed Value thereof. The rights provided for
in this Section 4.2 may be exercised by any one Class B Stockholder no more
frequently then twice during any 12 month period. Notwithstanding anything
contained herein to the contrary, the rights of the Class B
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Stockholders to require the Company to purchase their shares of Class B Common
Stock shall, in all cases, be subject to the prior rights of the holders of
Series A Preferred Stock to require the Company to redeem all or a portion of
such Series A Preferred Stock. In the event the Company receives notice from a
Class B Stockholder (a "Put Notice") in accordance with this Section 4.2, it
shall, within 10 days thereof, give notice to the holders of the Series A
Preferred Stock of a request by a Class B Stockholder for the purchase by the
Company of its Class B Common Stock hereunder. The holders of the Series A
Preferred Stock will then have 30 days to give notice to the Company (a
"Redemption Notice") requiring the Company to redeem all or a portion of their
Series A Preferred Stock in accordance with the terms thereof. If, within 20
days of its receipt of the Redemption Notice, the Company fails to redeem all of
the shares of Series A Preferred Stock with respect to which the Redemption
Notice applies, the Company shall not be obligated to effect any repurchase of
Class B Common Stock pursuant to the requirements of this Section 4.2, until it
effects the redemption of all shares of Series A Preferred Stock that are the
subject of the Redemption Notice. The purchase and sale of shares of Class B
Common Stock pursuant to this Section 4.2 shall take place at the time, date and
location, and in the manner, specified in Section 4.4 hereof.
4.3 Determination of Agreed Value. The price which shall be paid for
each share of Class B Common Stock purchased by the Company pursuant to Sections
4.1 and 4.2 shall be the "Agreed Value" per share of Class B Common Stock. For
purposes of this Agreement, the "Agreed Value" per share of Class B Common Stock
of the Company shall initially be $6.25 and shall be adjusted from time to time
as of the date that the applicable Put Notice or Call Notice, as applicable, is
given, by the unanimous determination of a committee (the "Valuation Committee")
which shall be composed of three members. In no event will the Valuation
Committee establish an Agreed Value for the Class B Common Stock that is less
than the Agreed Value for the Class A Common Stock. Notwithstanding the
foregoing, if a determination of Agreed Value has been made by an independent
appraiser within one year of the relevant Put or Call Notice and there has not
been a material change in the financial condition of the Company since such
determination, the Valuation Committee shall rely on such prior appraisal to
establish the Agreed Value. One member of the Valuation Committee shall be
nominated by the Founder, one member shall be nominated by the Management
Stockholders and one member shall be the observer elected by the Converting LLC
Holders pursuant to Section 1.4. The Valuation Committee will meet to establish
the Agreed Value (i) on August 14th and each anniversary thereof during the term
of this Agreement and (ii) if the shares subject to a Put Notice have an
aggregate value of at least $200,000 (based upon the last Agreed Value) and the
Company shall have had a material change in value or have engaged in a material
transaction (for purposes of this Section 4.3 a material transaction shall be a
transaction which the Company would report in the notes to its financial
statements or in a registration statement or report filed under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended),
then the Valuation Committee shall meet and shall determine, if necessary, a new
Agreed Value for purchases and sales of the Class B Common Stock (the revised
Agreed Value pursuant to subpart (ii) of this sentence, the "Revised Value"). If
the Valuation Committee is unable to agree on the Agreed Value within 10 days,
the Valuation Committee shall, within five days of such failure,
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appoint an independent third party appraiser acceptable to all the members of
the Valuation Committee. The appraiser so appointed shall be experienced in the
valuation of corporations engaged in the business conducted by the Company or
similar businesses. The appraiser shall be instructed to render its
determination as soon as possible after its appointment. The determination of
the appraiser shall be final and binding on the Valuation Committee. If the
applicable Class B Stockholder is not in agreement with the Agreed Value
determined by the Valuation Committee in accordance with the procedures set
forth above, such Class B Stockholder and the Valuation Committee shall jointly
appoint an independent appraiser with the qualifications described above, whose
determination shall be final and binding upon the Company and such Class B
Stockholder. If such Class B Stockholder and the Company are unable to agree on
the selection of an appraiser, the issue of determining the Agreed Value shall
be submitted to arbitration by arbitrators who shall be selected, and who shall
arbitrate, in accordance with the rules of the American Arbitration Association.
Either the Class B Stockholder or the Company may submit the final arbitration
award to the New York State Supreme Court, New York County, for confirmation. No
appeal shall be taken from any order confirming such award. The cost of any
appraisal conducted by an appraiser appointed by the selling Class B Stockholder
and the Company shall be borne by the Company, unless the appraiser shall
determine that the fair market value is less than 90% of the value asserted by
the Company, in which case the cost of such appraisal shall be borne by the
Class B Stockholder. Costs of any arbitration shall be borne equally by the
parties thereto; provided, that each party shall be solely responsible for the
payment of the fees and disbursements of its counsel. The time periods set forth
in Section 4.4 for effecting the purchases of the Shares by the Company pursuant
to Sections 4.1 and 4.2 shall be temporarily suspended for the duration of the
period required for the final determination to be made, whether by appraiser or
arbitration.
4.4 Procedures Governing Purchases and Sales Pursuant to this Section.
If the Valuation Committee determines a Revised Value, and any Class B
Stockholder who has tendered a Put Notice disagrees with the Revised Value, such
Class B Stockholder may, within 3 days of its receipt of notice of the Revised
Value, withdraw their Put Notice. The closing of the purchases and sales of the
Class B Common Stock in accordance with Sections 4.1 and 4.2 shall be held at
the principal executive office of the Company, on the 15th day after the giving
by the Company of the notice contemplated by Section 4.1 or (subject to the
provisions of Section 4.2 applicable to redemption of Series A Preferred Stock)
the 30th day after the receipt by the Company of the Put Notice contemplated by
Section 4.2, or at such other time and place as the parties to the transaction
may agree. At such closing, the applicable Class B Stockholder shall deliver
certificates representing the subject Shares, duly endorsed for transfer and
accompanied by all requisite transfer taxes, if any, and such Shares shall be
free and clear of any Liens (other than those arising hereunder and those
attributable to actions by the purchasers) and the applicable Class B
Stockholder shall so represent and warrant, and shall further represent and
warrant that it is the sole beneficial and record owner of such Shares. The
Company shall deliver at the closing either (i) payment of the purchase price in
full in immediately available funds for the Shares purchased by it or (ii)
payment of no less than 25% of the purchase price in immediately available funds
and delivery of a promissory in the amount of the remainder of the purchase
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price. Any such promissory note shall be secured by the Shares (which Shares
shall be incrementally released from pledge as the promissory note is paid),
shall initially bear interest equal to the prime rate plus one percent as
published in The Wall Street Journal, New York Edition, at time of issuance
(which interest shall be adjusted on each anniversary of the date of issuance to
reflect the prime rate plus one percent at such anniversary and which interest
shall accrue and be payable on each June 1 and January 1 until paid in full),
shall have a term no longer than 3 years and shall have principal due in three
equal annual installments. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate. If it is inconvenient for the applicable Class B Stockholder to
conduct a physical closing at the offices of the Company, the closing may be
conducted by mail or messenger service if such a procedure is feasible, so long
as all documentation is provided to the Company in accordance with the
requirements of this Section 4.4 at the address of its principal executive
office in advance of the payment by the Company of the purchase price.
4.5 Termination of Provisions. The provisions of this Article IV shall
terminate upon the closing of an IPO.
ARTICLE V
MANAGEMENT AND CONTROL
5.1 General. The business and affairs of the Company shall be managed,
controlled and operated in accordance with its Certificate of Incorporation and
By-laws, as the same may be amended from time to time, except that neither the
Certificate of Incorporation nor the By-laws shall be amended in any manner that
would conflict with, or be inconsistent with, the provisions of this Agreement.
5.2 Disability of Founder. In the event that the Founder is disabled
during his tenure as Chief Executive Officer of the Company, which disability
results in his failure to perform the duties of such position for a consecutive
90-day period, on the business day following such 90-day period the Company's
Board of Directors shall appoint a successor as Chief Executive Officer.
5.3 The rights and obligations set forth in this Article V shall
terminate upon the closing of an IPO.
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ARTICLE VI
REGISTRATION RIGHTS
6.1 Definitions. As used in this Article VI, the following terms shall
have the following meanings:
(a) "Commission" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(c) "Holder" shall mean any holder of outstanding Registrable
Securities or anyone who holds outstanding Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with this Agreement.
(d) "Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement, and compliance with applicable
state securities laws of such states in which Holders notify the Company of
their intention to offer Registrable Securities.
(e) "Registrable Securities" shall mean all of the following to the
extent the same have not been sold to the public (i) any and all shares of
Common Stock of the Company at any time owned by the Founder, RH, the Management
Stockholders and the Converting LLC Holders; or (ii) stock issued in respect of
stock referred to in (i) above in any reorganization or stock issued in respect
of the stock referred to in (i) as a result of a stock split, stock dividend,
recapitalization or combination. Notwithstanding the foregoing, Registrable
Securities shall not include otherwise Registrable Securities (i) sold by a
person in a transaction in which his rights under this Agreement are not
properly assigned; (ii) (A) sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale; or (iii) if they are held by a Holder who can sell
all Registrable Securities held by such holder in any three-month period without
registration pursuant to Rule 144.
(f) "Rule 144" shall mean Rule 144 under the Securities Act or any
successor or similar rule as may be enacted by the Commission from time to time,
but shall not include Rule 144A.
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(g) "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations thereunder, all as
the same shall be in effect at the time.
6.2 Piggyback Registration.
(a) If at any time or from time to time, the Company shall determine to
register any of its securities for its own account, other than an IPO, a
registration relating solely to employee benefit plans, a registration on Form
S-4 (or a successor form) or otherwise relating solely to a transaction pursuant
to Rule 145 under the Securities Act, or a transaction relating solely to the
sale of debt or convertible debt instruments or a registration on any form
(other than Form X-0, X-0 or S-3, or their successor forms) which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Securities, the
Company will:
i. give to each Holder written notice thereof as soon as
practicable prior to filing the registration statement; and
ii. include in such registration and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 15 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in subsection (b) below.
(b) If the registration is for a registered public offering involving
an underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to this Section 6.2. In such event, the right of
any Holder to registration pursuant to Section 6.2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
6.2, if the managing underwriter advises the Company in writing that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the number of Registrable Securities to be
included in the registration and underwriting to an amount that is not less than
25% of all the securities included in such registration. The Company shall so
advise all Holders, and the number of shares of Registrable Securities that may
be included in the registration and underwriting shall be allocated pro rata
among (i) all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities requested to be registered by such Holders and
(ii) the holders of piggyback registration rights not contained in this
Agreement. If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. If, by the withdrawal of such Registrable Securities, a
greater number of Registrable Securities held by
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other Holders may be included in such registration (up to the limit imposed by
the underwriters), the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities. Any Registrable Securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
(c) The registration rights granted to the Holders under this Section
6.2 shall be exercisable only with respect to the first registration of its
securities initiated by the Company after its Qualified IPO, unless Registrable
Securities are excluded from such registration as a result of the underwriters'
cutback referred to in Section 6.2 (b), in which case any Registrable Securities
so excluded shall be entitled to one additional Piggyback Registration on the
terms set forth in this Article VI.
6.3 Expenses of Registration. In addition to the fees and expenses
contemplated by Section 6.4 hereof, all expenses incurred in connection with
registrations pursuant to Section 6.2, hereof, including without limitation all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of any special audits of
the Company's financial statements incidental to or required by such
registration, shall be borne by the Company, except that the Company shall not
be required to pay underwriters' fees, discounts or commissions relating to
Registrable Securities or fees of a separate legal counsel of a Holder.
6.4 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense the Company will:
(a) keep such registration continuously effective for periods of 120
days, or, in each case, such lesser period as is necessary to permit the Holder
or Holders to complete the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) promptly 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 comply with the provisions of the Securities
Act, and to keep such registration statement effective for that period of time
specified in Subsection 6.4(a) above;
(c) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(d) use reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment;
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(e) register or qualify such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as any Holder or
underwriter reasonably requires (except that the Company shall not be required
to register or qualify such Registrable Securities for sale in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration or qualification), and keep
such registration or qualification effective during the period set forth in
Subsection 6.4(a) above;
(f) cause all Registrable Securities covered by such registrations to
be listed on each securities exchange, including NASDAQ, on which similar
securities issued by the Company are then listed or, if no such listing exists,
use reasonable best efforts to list all Registrable Securities on one of the New
York Stock Exchange, the American Stock Exchange or NASDAQ;
(g) cause its accountants to issue to the underwriter, if any, or the
Holders, if there is no underwriter, comfort letters and updates thereof, in
customary form and covering matters of the type customarily covered in such
letters with respect to underwritten offerings;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, such financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply such
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) if the offering is underwritten, at the request of any Holder of
Registrable Securities to furnish on the date that Registrable Securities are
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 Holder, 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 or other financial data contained therein) and (C) to such
other effects as reasonably may be requested by counsel for the underwriters or
by such Holder or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the
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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 reasonably may
request; and
(k) notify each Holder, at any time a prospectus covered by such
registration statement is required to be delivered under the Securities Act, of
the happening of any event of which it has knowledge as a result of which the
prospectus included 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 the light of the circumstances then existing.
6.5 Indemnification.
(a) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 6.2, the Company will indemnify,
defend and hold harmless each Holder of such Registrable Securities thereunder,
each underwriter of such Registrable Securities thereunder and each other
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such Holder, 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 Securities
were registered under the Securities Act, 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 any violation by the Company of any rule or
regulation promulgated under the Securities Act or any state securities law
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, and will indemnify each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any reasonable legal and any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage or liability arises
out of or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter specifically for use therein; provided, further, that the
Company shall not be liable if any such omission or statement of material fact
is corrected in a later prospectus
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that was provided to the Investors in a timely manner by the Company and the
Investors did not deliver such updated prospectus.
(b) Each Holder will, if Registrable Securities held by or issuable to
such Holder are included in the securities as to which such registration is
being effected, indemnify and hold harmless the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company and each
underwriter within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any 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, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; provided, however, the total amount for which any
Holder, its officers, directors and partners, and any person controlling such
Holder, shall be liable under this Section 6.5 shall not in any event exceed the
aggregate proceeds received by such Holder from the sale of Registrable
Securities sold by such Holder in such registration.
(c) Each party entitled to indemnification under this Section 6.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has written notice of any claims as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in actual detriment to
the Indemnifying Party. Additionally, if the named parties to any action
resulting from such claims include both the Indemnified Party and the
Indemnifying Party, and the Indemnified Party is advised in writing by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party, then the
Indemnified Party (or parties if more than one) shall have the right to appoint
one counsel for purposes of such defense whose reasonable fees and expenses
shall be paid by the Company. 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 which
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does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the provisions on
indemnification contained in the underwriting agreements entered into among the
selling Holders, the Company and the underwriters in connection with the
underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall be controlling as to the
Registrable Securities included in the public offering; provided, however, that
if, as a result of this Subsection 6.5(d), any Holder, its officers, directors,
and partners and any person controlling such Holder is held liable for an amount
which exceeds the aggregate proceeds received by such Holder from the sale of
Registrable Securities included in a registration, as provided in Subsection
6.5(b) above, pursuant to such underwriting agreement (the "Excess Liability"),
the Company shall reimburse any such Holder for such Excess Liability.
(e) If the indemnification provided for in this Section 6.5 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, the amount any Holder
shall be obligated to contribute pursuant to this Subsection 6.5(e) shall be
limited to an amount equal to the proceeds to such Holder of the Restricted
Securities sold pursuant to the registration statement which gives rise to such
obligation to contribute (less the aggregate amount of any damages which the
Holder has otherwise been required to pay in respect of such loss, claim,
damage, liability or action or any substantially similar loss, claim, damage,
liability or action arising from the sale of such Restricted Securities).
(f) Survival of Indemnity. The indemnification provided by this Section
6.5 shall be a continuing right to indemnification and shall survive the
registration and sale of any securities by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
6.6 Lockup Agreement. In consideration for the Company agreeing to its
obligations under this Agreement, each Holder agrees in connection with any
registration of the Company's securities (whether or not such Holder is
participating in such registration) upon the request of
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the Company and the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days in the case of the Company's initial public
offering and 90 days in any other public offering) from the effective date of
such registration as the Company and the underwriters may specify, so long as
all Holders or stockholders holding more than one percent (1%) of the
outstanding common stock and all officers and directors of the Company are, and
continue to be, bound by a comparable obligation.
6.7 Rule 144. With a view to making available to Holders of Registrable
Securities the benefits of certain rules and regulations of the Commission which
may permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times after ninety (90) days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144; and
(b) use its reasonable 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.
6.8 Transfer of Registration Rights. The rights to cause the Company to
register Registrable Securities of a Holder and other rights under this Article
VI may be assigned by a Holder to any partner or stockholder of such Holder, to
any other Holder, or to a transferee or assignee who receives at least 50,000
shares of Registrable Securities (as adjusted for any stock split, stock
dividend or recapitalization after the date of the first issuance of the Series
A Preferred Stock); provided, that the Company is given written notice by the
Holder at the time of or within a reasonable time after said transfer, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being assigned.
6.9 Other Registration Rights. The Company will not grant additional
registration rights to the Founder without granting similar rights to the
Holders. The Stockholders understand and agree that the Investors shall have
registration rights set forth in an agreement separate from this Agreement.
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ARTICLE VII
MISCELLANEOUS
7.1 Information Rights. For so long as the Company is not subject to
the periodic reporting requirements of Section 12 of the Exchange Act (or in the
case of the Investors, until a Qualified IPO, if later), the Stockholders, as
set forth below, shall have the right to receive the information stated in this
Section 7.1 from the Company:
(a) Periodic Financial and Other Information.
(i) within 90 days after the end of each fiscal year of the
Company, commencing with the year ending December 31, 2000; the Company will
provide each Stockholder with audited financial statements of the Company for
such fiscal year, consisting of an income statement, balance sheet and statement
of changes in financial position, and prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP"); and
(ii) within 30 days after the end of each quarterly accounting
period of each fiscal year of the Company, commencing with the quarter ending
March 31, 2000, the Company will provide each Stockholder with an unaudited
income statement, balance sheet and statement of cash flow, prepared in
accordance with GAAP, but without any requirement to include notes thereto;
(b) Additional Information. The Company will permit each Stockholder or
any representative of such Stockholder to visit and inspect the Company's
premises and properties, including its books and records of account, from time
to time, and to discuss the Company's business, finances and accounts with the
Company's officers at reasonable times during the Company's regular business
hours, upon reasonable advance written notice to the Company and in a manner
that will not unreasonably interfere with the normal business operations of the
Company, provided, that access by any Converting LLC Holder to any of the items
referred to above shall be subject to the same restrictions that may be imposed
upon the observer elected by the Converting LLC Holders in accordance with
Section 1.4; and
7.2 Transfer of Stock. Except as otherwise expressly provided by this
Agreement, each Stockholder agrees not to transfer any of his or its shares of
capital stock of the Company unless the transferee agrees in writing to be bound
by the terms and conditions of this Agreement and executes a counterpart of this
Agreement, and unless such Stockholder has complied with applicable law and all
provisions of this Agreement in connection with such transfer.
7.3 Duration of Agreement. Except for those provisions that, by their
terms, terminate sooner, the rights and obligations of the Company and each
Stockholder under this Agreement shall terminate as to such Stockholder on the
earliest to occur of the following: (a) the transfer in accordance with this
Agreement of all Shares held by such Stockholder or (b) upon the written
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consent of the Company, RH, Stockholders holding at least a majority of the
Class A Common Stock, Stockholders holding at least 75% of the Class B Common
Stock and Stockholders holding at least a majority of the Series A Preferred
Stock.
7.4 Legend. In addition to any legends which the Company determines to
be reasonably necessary at the time of issuance to comply with restrictions or
requirements imposed by Federal or state securities laws or by General
Corporation Law of the State of Delaware, each certificate representing shares
of Series A Preferred Stock and Common Stock shall bear the following legend,
until such time as the shares of Series A Preferred Stock and Common Stock
represented thereby are no longer subject to the provisions hereof:
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN STOCKHOLDERS AGREEMENT WHICH INCLUDES A VOTING
AGREEMENT. COPIES OF THE STOCKHOLDERS AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE COMPANY'S SECRETARY."
7.5 Severability; Governing Law. If any provisions of this Agreement
shall be determined to be illegal or unenforceable by any court of law, the
remaining provisions shall be severable and enforceable in accordance with their
terms. This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York.
7.6 Injunctive Relief. It is acknowledged that it will be impossible to
measure the damages that would be suffered by the nonbreaching party if any
party fails to comply with the provisions of this Agreement and that in the
event of any such failure, the nonbreaching parties will not have an adequate
remedy at law. The non-breaching parties shall, therefore, be entitled to obtain
specific performance of the breaching party's obligations hereunder and to
obtain immediate injunctive relief. The breaching party shall not urge, as a
defense to any proceeding for such specific performance or injunctive relief,
that the nonbreaching parties have an adequate remedy at law. If any action at
law or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
7.7 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective permitted successors and
assignees, legal representatives and heirs. Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. The administrator, executor or legal representative of any
deceased or incapacitated Stockholder shall have the right to execute and
deliver all documents and perform all acts necessary to exercise and perform the
rights and obligations of such Stockholder under the terms of this Agreement.
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7.8 Additional Stockholders. Until the effective date of the
registration statement in respect of an IPO at which time the terms of this
Section 7.8 shall terminate, prior to being issued Shares, all future
stockholders of the Company during the term of this Agreement shall agree to be
Additional Stockholders and to be bound by the terms and provisions of this
Agreement, including, without limitation, those who obtain Shares through the
exercise of the options described in Section 3.1(d). The Company shall add
Additional Stockholders by joinder whereby the Additional Stockholders shall
sign a counterpart to this Agreement and the appropriate Schedule hereto shall
be amended to reflect the Shares issued to the Additional Stockholder. The
joinder of an Additional Stockholder as contemplated by the preceding sentence
shall not constitute an amendment to this Agreement requiring the consent of the
existing Stockholders except as may otherwise be required by this Agreement in
connection with the issuance of such Shares. Promptly following the addition of
an Additional Stockholder, the Company shall distribute to all Stockholders
copies of this Agreement executed by the Additional Stockholder together with
the appropriate revised Schedule.
7.9 Modification or Amendment. Neither this Agreement nor any
provisions hereof can be modified, amended, changed, discharged or terminated
except by an instrument in writing, signed by the holders of at least a majority
of the Class A Common Stock, 75% of the Class B Common Stock and a majority of
the Series A Preferred Stock voting. Additionally, to the extent that any such
proposed amendments would detrimentally affect the rights of RH under this
Agreement, such amendment shall require the prior approval of RH.
Notwithstanding the foregoing, this Agreement shall in no event be amended to
distinguish the rights of the Class B Common Stock between the Management
Stockholders, on the one hand, and the Converting LLC Holders on the other hand.
7.10 Further Issuances of the Class B Common Stock. The Company agrees
that it will not issue additional shares of Class B Common Stock except to
employees, consultants or directors of the Company (other than the Founder) and
to former holders of non-voting limited liability company interests in Princeton
Review Publishing L.L.C. and to the Company's franchisees.
7.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
7.12 Notices. All notices to be given or otherwise made to any party to
this Agreement shall be deemed to be sufficient if contained in a written
instrument, delivered by hand in person, or by express overnight courier
service, or by electronic facsimile transmission (with a copy sent by
first-class mail, postage prepaid), or by registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth on the signature page hereof or at such other address as may hereafter be
designated in writing by the addressee to the addressor listing all parties. All
such notices shall, when mailed or transmitted, be effective when received or
when attempted delivery is refused.
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7.13 No Other Agreements. Each Stockholder represents that he has not
granted and is not a party to any proxy, voting trust or other agreement which
is inconsistent with or conflicts with the provisions of this Agreement, and no
holder of Shares shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement. To the extent of conflicts or inconsistencies between the
Company's Bylaws and this Agreement, the terms of this Agreement shall be
controlling.
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IN WITNESS WHEREOF, the Company, the Founder, the Management
Stockholders, RH and the Converting LLC Holders have executed this agreement in
counterparts as of the date first above specified.
TPR HOLDINGS, INC.
By: /s/ Xxxx Xxxxxxx
Name: Xxxx X. Xxxxxxx
Title: President and Chief Executive Officer
Address: 0000 Xxxxxxxx, Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
FOUNDER:
By: /s/ Xxxx Xxxxxxx
Name: Xxxx X. Xxxxxxx
Address: 0000 Xxxxxxxx, Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
RANDOM HOUSE TPR, INC.
By: /s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx Xxxxxxx
Title: Executive Vice President and Chief Financial Officer
Address: 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
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MANAGEMENT STOCKHOLDERS:
/s/ Xxxxx Task
Name: Xxxxx Task
Title:
Address:
Fax No.:
/s/ Xxxxxx Xxxxx
Name: Xxxxxx Xxxxx
Title:
Address:
Fax No.:
/s/ Xxx Xxxxxxx
Name: Xxx Xxxxxxx
Title:
Address: 0 Xxxxxxxxxxx Xx., Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
/s/ Xxxxxx Xxxxxx
Name: Xxxxxx Xxxxxx
Title:
Address: 0000 Xxxxxxx Xx., Xxxxxxx, XX 00000
Fax No.: (000) 000-0000
/s/ Xxxx Xxxxxxx
Name: Xxxx Xxxxxxx
Title: Chief Operating Officer
Address: 000 Xxxx 00xx, XX, XX
Fax No.:
/s/ Xxx Xxxxxx
Name: Xxx Xxxxxx
Title:
Address:
Fax No.:
/s/ Xxxxxx X. Xxx
Name: Xxxxxx X. Xxx
Title:
Address: 0000 Xxxx Xxxxxx #0
Xxxxxxx, XX 00000
Fax No.:
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
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CONVERTING LLC HOLDERS:
Xxxxxxx Xxxxxx & Xxxxxxx Xxxxxx Xx. Jointly
By: /s/ Xxxxxxx X. Xxxxxx, Xx.
Name: Xxxxxxx X. Xxxxxx, Xx.
Title: Treasurer
Address: 00 Xxx Xxxxxx, Xxxxxxxx, XX 00000
Fax No.: (000) 000-0000
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title: President
Address: 0000 Xx. Xxx 00, Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
The Princeton Review of Orange County, Inc.
By: /s/ Xxxx Xxxxxxx
Name: Xxxx Xxxxxxx
Title: President
Address: 0000 Xxxxxxxxx #000, Xxxxxx, XX 00000
Fax No.: (000) 000-0000
The Princeton Review of North Carolina , Inc.
By: /s/ Xxxxxxxx Xxxxx
Name: Xxxxxxxx Xxxxx
Title: President
Address: 0000 X. Xxxxxxxx Xxxxxx, Xxxxxx Xxxx, XX 00000
Fax No.: ((000) 000-0000
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
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Lecomp Company, Inc.
By: /s/ Xxxxx Xxxx Xxxxxx
Name: Xxxxx Xxxx Xxxxxx
Title: Mindless Cretin
Address: 0000 Xxxxxxx Xxx (#000), Xxx Xxxxxxx, XX 00000
Fax No.: (000) 000-0000
The Princeton Review of Pittsburgh, Inc.
By: /s/ Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx
Title: President
Address: 000 Xxxxxxx Xxx., Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
The Princeton Review of Rhode Island, Inc.
By: /s/ Xxxx Xxxxxxx
Name: Xxxx Xxxxxxx
Title: President
Address: 000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
/s/ Xxxxx Xxxxxx
Name: Xxxxx Xxxxxx
Title: Director
Address: 0000 Xxxxxxx Xx., Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
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The Princeton Review of Peninsula, Inc.
By: /s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: Owner
Address: 0000 Xxxxxxxxxx Xxxxxx Xxxx, Xxx Xxxxxxx, XX 00000
Fax No.: (000) 000-0000
The Princeton Review of St. Louis, Inc.
By: /s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title:
Address:
Fax No.:
The Kafiristan Blokes
By: /s/ F. Xxxx XxXxxxxx, /s/ Xxxxxxx X. Xxxxx
Name: F. Xxxx XxXxxxxx, Xxxxxxx X. Xxxxx
Title: Owners
Address: 000 00xx Xxx X. #000, Xxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
/s/ Xxxxxx Xxxxxx
Name: Xxxxxx Xxxxxx
Title: Consultant
Address: 0000 Xxxxx Xx.
Fax No.: (000) 000-0000
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
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The Princeton Review of Boston, Inc.
By: /s/ Xxx Xxxxx
Name: Xxxxxx Xxxxx
Title: Secretary
Address: 00 Xxxxx Xxxxxx, Xxxxxx, XX 00000
Fax No.: (000) 000-0000
The Princeton Review of New Jersey, Inc.
By: : /s/ Xxx Xxxxx
Name: Xxxxxx Xxxxx
Title: President
Address: 000 Xxxxxx Xxxxxx, Xxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
TSTS, Inc.
By: /s/ Rob Case
Name: Rob Case
Title: Chief Executive Officer
Address: 000 X. Xxxx Xxx Xx. #0, Xxxxxxx, XX 00000
Fax No.: (000) 000-0000, (000) 000-0000
Test Services, Inc.
By: /s/ Xxxxx Xxxxxxx
Name: Xxxxx Dinneed
Title: President
Address: 0000 X. Xxxxxxxx, Xxxxxx, XX 00000
Fax No.: (000) 000-0000
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
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SCHEDULE A
CONVERTING LLC HOLDERS
NUMBER OF SHARES OF NON-VOTING
NAME OF STOCKHOLDER CLASS B COMMON STOCK
Xxxxxxx Xxxxxx & Xxxxxxx Xxxxxx Xx. (joint) 24,431
The Princeton Review of Orange County, Inc. 97,277
The Princeton Review of North Carolina, Inc. 22,722
Lecomp Company, Inc. 169,614
The Princeton Review of Pittsburgh, Inc. 18,594
The Princeton Review of Rhode Island, Inc. 17,099
Xxxxx Xxxxxx 3,498
The Princeton Review of Penninsula, Inc. 61,062
The Princeton Review of St. Louis, Inc. 25,844
The Kafiristan Blokes 7,325
Xxxxxx Xxxxxx 3,465
The Princeton Review of Boston, Inc. 150,456
The Princeton Review of New Jersey, Inc. 291,791
TSTS, Inc. 191,300
Test Services, Inc. 239,114
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SCHEDULE B
MANAGEMENT STOCKHOLDERS
Number of Shares of Non-Voting
Name of Stockholder Class B Common Stock
Xxxxx Task 204,928
Xxxx Xxxxxxx 120,756
Xxxxxx Xxxxx 120,756
Xxx Xxxxxx 120,756
Xxx Xxxxxxx 85,244
Xxxxxx X. Xxx 77,069
Xxxxxx Xxxxxx 98,216
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THIS SCHEDULE IS SUBJECT TO REVISIONS
PENDING CALCULATION OF FINAL SHARE NUMBERS
SCHEDULE C
INVESTORS
Number of Shares of
Name of Stockholder Series A Preferred Stock
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SCHEDULE A-1
Name of Stockholder Number of Shares of Class A Common Stock
Xxxx X. Xxxxxxx 11,470,063
Random House TPR, Inc. 3,378,618
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