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Exhibit 2.5
OPTION AGREEMENT AMENDMENT
THIS OPTION AGREEMENT AMENDMENT (the "Amendment") is made as
of December 14, 2000 (the "Effective Date") by and between PRINCETON REVIEW
OPERATIONS, L.L.C., a Delaware limited liability company ("TPR"), on the one
hand, and PRINCETON REVIEW OF BOSTON, INC., a Massachusetts corporation; and
PRINCETON REVIEW OF NEW JERSEY, INC., a New Jersey corporation (collectively,
the "Sellers"), on the other.
Recitals
A. TPR and the Sellers are parties to an Option Agreement
dated May 30, 2000 (the "Option Agreement"), which provides TPR the option to
acquire the Franchised Businesses (as defined in the Option Agreement) operated
by Sellers if an initial public offering of the common stock (the "Stock") of
TPR's affiliate, The Princeton Review, Inc. (the "Parent"), takes place and the
Stock becomes listed on the NASDAQ national stock market or another national
exchange for publicly-traded securities.
B. The Sellers and TPR wish to amend the Option Agreement as
set forth below.
NOW, THEREFORE, in consideration of their mutual undertakings
hereunder, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the same meaning as in the Option Agreement and the
schedules and exhibits thereto.
2. Grant of Option. Section 1 of the Option Agreement is amended to
provide that the aggregate Purchase Price shall be $13,800,000.
3. Exercise of Option. Section 2 of the Option Agreement is amended to
provide that the Purchase Option may be exercised, and the Closing of the
purchase of the Franchised Businesses may occur, before an initial public
offering of the Stock takes place. The parties acknowledge that TPR is currently
negotiating for a new round of mezzanine financing. TPR agrees that the Purchase
Option shall be deemed to be automatically exercised, and the Exercise Notice
shall be deemed given, without any additional action by or on behalf of TPR or
the Sellers, upon the execution of a loan agreement (the "Closing") in
connection with a financing that will provide net proceeds to TPR of $10 million
or more (the "Financing"). TPR shall provide Sellers with notice of the Closing
of the Financing (the "Notice") pursuant to the provisions of Section 16 of the
Option Agreement. The failure of TPR to provide Sellers with the Notice or the
insufficiency or inadequacy of the Notice shall in no way alter the
effectiveness of automatic exercise of the Purchase Option. If TPR has not had
the Closing within seven (7) days after the execution of this Amendment, TPR and
the Sellers will each have the right to terminate this Amendment by written
notice to the other. If either party gives notice of termination of this
Amendment under this Paragraph 3, this Amendment shall be null and void,
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and the parties shall revert to the original terms of the Option Agreement.
Further, TPR and Sellers hereby confirm that the duration of the Option Term has
not been extended and shall end at 11:59 PM on December 31, 2000.
4. Financial Statements. Section 3.3 of the Option Agreement is amended
by adding the following new paragraph to be the second full paragraph of Section
3.3:
"The Sellers shall deliver to TPR audited financial
statements for each Seller for the year ended
December 31, 2000 (the "Y2K Financials"), on or
before March 1, 2001. The Sellers represent that for
year 2000, Revenues shall be not less than
$11,800,000 and the sum of EBITDA and Adjustments
shall be not less than $3,200,000, using all the
calculation methodologies and definition standards
that generally apply to Schedule 2 of this Agreement
and as are described in the foregoing paragraph (such
amounts being the "2000 Results"). TPR shall have the
right to terminate the Purchase Agreement without
incurring the costs to Sellers set forth in Section
13 if the Y2K Financials are not delivered to TPR on
or before March 1, 2001 or if the Y2K Financials
reveal that either of the 2000 Results is overstated
by more than 5%."
5. Exhibit B Note. The terms of the Note, attached as Exhibit B to the
Purchase Agreement, shall be amended as follows.
a. Interest Adjustment. The first paragraph of the Note
is hereby amended in its entirety to be replaced with
the following paragraph:
FOR VALUE RECEIVED, [Maker's name], a [State of Incorporation]
corporation (the "Maker"), with principal offices at [Maker's
Address], promises to pay to the order of Princeton Review of Boston,
Inc. ("PRB"), a Massachusetts corporation, for itself and as agent for
Princeton Review of New Jersey, Inc. ("PRNJ"), with principal offices
at [Lender's Address], the principal sum of Three Million One Hundred
Twenty-Five Thousand Dollars ($3,125,000), with interest on the unpaid
principal balance from time to time outstanding accruing at the rate
of eight and one-quarter percent (8.25%) per annum until maturity and
payable as set forth herein, subject to adjustment as provided in the
following sentence. In the event that the closing of the Parent's
initial public offering has not occurred within twenty-four (24)
months following the Closing Date, or the Sellers are otherwise unable
to convert the Note during the Option Period due to applicable
requirements or restrictions of federal or state securities laws
including those relating to an issuer in registration (any such period
restricting conversion, a "Blackout Period"), then the interest on the
unpaid principal balance from time to time outstanding shall increase
so that it shall thereafter accrue at the rate of eleven and
one-quarter percent (11.25%) per annum until maturity; provided that
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if the closing on the Parent's initial public offering occurs
thereafter, the interest rate shall revert back to eight and
one-quarter percent (8.25%) per annum until maturity. Upon the
occurrence of an Event of Default (as defined herein) this Note shall
bear interest at the rate of twelve percent (12%) per annum (the
"Default Rate"); provided, that the Default Rate shall be fifteen
(15%) per annum during any period of an Event of Default that this
Note would otherwise be bearing interest at the rate of eleven and
one-quarter percent (11.25%) per annum. Notwithstanding any other
provision hereof, Lender does not intend to charge and Maker shall not
be required to pay any interest or other fees or charges in excess of
the maximum permitted by applicable law; any payments in excess of
such maximum shall be credited to reduce principal hereunder or, at
Lender's option, refunded to Maker."
b. Conversion of Principal. Section 1(d) of the Note
(attached as Exhibit B to the Purchase Agreement) is
amended to provide that the Option Period for
conversion of unpaid principal to Stock shall begin
on the first (1st) anniversary of the closing of the
initial public offering of the Stock and end on the
sixtieth (60th) day after such anniversary date;
provided that if the Note is unable to be converted
due to the pendency of a Blackout Period, then the
Option Period will be extended so that the period
during which the Note is convertible shall be not
less than 60 days.
c. Changes Requested by Institutional Lender. In
addition to the foregoing, the Note shall be amended
as follows to accommodate the request of the
institutional lender in connection with the
Financing:
(i) Section 5 of the Note is amended by adding the phrase
"or any Late Fee hereunder" after the phrase "the
payment of the principal of and interest on this
Note" in the fourth line thereof.
(ii) Section 3(a) is amended by adding the following
sentence, to be the last sentence of Section 3(a):
"Notwithstanding anything herein to the contrary, no
Event of Default shall occur (and no acceleration of
principal and interest shall occur hereunder) by
reason of, or during the periods that, suspension of
principal and interest payments on this Note have
occurred pursuant to the provisions of Section 5(b)
hereof."
(iii) Section 5(a) is amended to (i) insert the phrase "(x)
in cash or (y) with the consent of the holders of
Senior Indebtedness, in-kind or in a combination of
cash and in-kind," after the word "full" in the
second line thereof and (ii) insert the phrase "and
with substantially the same interest and payment
terms" after the word "tenor" in the ninth line
thereof.
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(iv) Section 5(b) of the Note is amended by deleting the
phrase "for a period up to ninety (90) days and
thereafter if judicial proceedings shall have been
instituted with respect to such defaulted payment, or
(if a shorter period)" in the fourth through sixth
lines thereof. Additionally, the following paragraph
is hereby added to be the second full paragraph of
Section 5(b):
"If any Event of Default (as such term, for this
paragraph only, is defined in that certain Loan
Agreement by and among The Princeton Review, Inc.,
certain of its subsidiaries, Reservoir Capital
Partners, L.P., as Administrative Agent, and certain
other lenders) occurs other than in the payment of
the principal of or interest on any Senior
Indebtedness and during the continuance of such
default for a period up to one hundred and eighty
(180) days, or (if a shorter period) until such Event
of Default has been cured or waived in writing by
such holder of Senior Indebtedness, then and during
the continuance of such event no payment of principal
or interest on this Note shall be made by the Maker
or accepted by any holder of this Note who has
received notice from the Maker or from a holder of
Senior Indebtedness of such event."
(v) Section 5(h) is amended by adding the following new
sentence, to be the last sentence of Section 5(h):
"Without limitation, the term "institutional lender"
in the Note shall include Reservoir Capital Partners,
L.P., Reservoir Capital Associates, L.P., Reservoir
Capital Master Fund, L.P., SGC Partners II, LLC,
Olympus Growth Fund III L.P., Olympus Executive Funds
L.P. and each of their successors and assigns."
d. Payments Held in Trust. Section 5(c) of the Note is
amended to add the following sentence to appear at
the end of Section 5(c): "Notwithstanding the
foregoing, the parties understand and agree that
payment of principal, interest and fees may be made
in accordance with the terms of this Note so long as
none of the events described in Section 5(b) has
occurred."
6. Exhibit B-1 Note. There shall be a new note (the "Second Note"), to
be attached as Exhibit B-1 to the Purchase Agreement, which shall have identical
terms to the Exhibit B Note as amended pursuant to Section 4 above, except that
(i) the principal sum thereunder shall be $500,000, (ii) all unpaid principal
and accrued interest (comprising interest not already paid on a quarterly basis
in accordance with Section 1(a) of the Second Note) shall be due and payable on
the last Business Day of the forty-eighth month after the issuance of the Second
Note
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and (iii) Section 1(d) shall be deleted in its entirety and Section 4.2.3
of the Purchase Agreement shall not apply to the Second Note which shall not be
convertible into Stock.
7. Purchase Price.
a. Purchase Price. Section 4.1 of the Purchase Agreement
is amended to delete "Twelve Million Five Hundred
Thousand Dollars ($12,500,000)" and to substitute
"Thirteen Million Eight Hundred Thousand Dollars
($13,800,000)".
b. Payment on Closing. Section 4.1.1 of the Purchase
Agreement is amended to read as follows:
"4.1.1 To the Sellers, an amount equal to
the Purchase Price (i) minus the original principal
amount of the Notes as provided in Section 4.2 below;
(ii) minus the amounts paid to the Stockholders under
Sections 4.1.2 and 4.1.3 below; (iii) minus the
aggregate amount of the student deposits referred to
in Section 1.2.4; (iv) plus the aggregate amount of
the Lease deposits to be reimbursed by Buyer under
Section 1.3.2; (v) plus or minus the net amount of
the Closing adjustments between the Sellers and Buyer
pursuant to Section 5.1, to the extent determined by
the parties as of Closing; (vi) plus the aggregate
amount of Seller's documented out-of-pocket expenses
for SAT teacher hiring and training in January and
February 2001, such amount not to exceed $75,000;
(vii) plus (a) 100% of the prepaid advertising and
marketing expenses incurred by the Sellers to third
parties in connection with the Spring 2001 SAT
courses if the date of the Closing occurs prior to
February 6, 2001 or (b) 50% of such expenses if the
date of the Closing occurs on or after February 6,
2001 and prior to March 12, 2001; (viii) plus an
amount equal to all fees that have been paid by
Seller to Buyer or its affiliates in the fourth
quarter of 2000 in connection with GEPA course
materials;"
c. Noncompete Payment. Section 4.1.2 of the Purchase
Agreement is amended in its entirety to be replaced
with the following sentence: "To Rob Cohen, in
consideration of his obligations under Section 12
below, the sum of Two Hundred Thousand Dollars
($200,000)." Section 4.1.3 of the Purchase Agreement
is amended in its entirety to be replaced with the
following sentence: "To Matthew Rosenthal, in
consideration of his obligations under Section 12
below, the sum of Four Hundred Thousand Dollars
($400,000)."
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d. Notes. The introductory portion of Section 4.2 of the
Purchase Agreement is amended to read as follows:
"4.2 At the Closing, Buyer shall execute and
deliver to the Sellers promissory notes in the forms
of Exhibit B and Exhibit B-1 to this Agreement (each,
a "Note"). The original principal amount of the
Exhibit B Note will be Three Million One Hundred
Twenty-five Thousand Dollars ($3,125,000) and the
original principal amount of the Exhibit B-1 Note
will be Five Hundred Thousand Dollars ($500,000)."
The Purchase Agreement is amended to substitute the
phrase "each Note" for the phrase "the Note" in every
instance except in Section 4.2.3 which shall be
amended to read in its entirety as follows: "The
Sellers shall have a one-time right to convert the
principal due under the Note attached as Exhibit B to
additional Stock, as provided in the Note attached as
Exhibit B."
8. Employment Agreement. Section 7 of the Purchase Agreement is hereby
amended to add a new subparagraph 7.14 which shall be:
"7.14 Rob Cohen shall execute and deliver an
employment agreement with Buyer, or an affiliate of
Buyer, in substantially the same form as was provided
to Rob Cohen by Buyer on December 14, 2000 (the
"Proposed Agreement"), the final form of which shall
have the same compensation, noncompete, term and
confidentiality provisions as set forth in the
Proposed Agreement."
9. Fee Waiver. TPR agrees to waive all fees that may otherwise be due
to it from Sellers in connection with the MCAS course materials.
10. Good Faith Negotiations. TPR acknowledges that the Sellers have
acted in good faith in agreeing to the terms and conditions set forth in
Subsection 5(c) above in regard to the subordination provisions of the Note, and
each of TPR and Sellers agree that they have no basis to terminate the Purchase
Agreement pursuant to Section 4.2.2 thereof.
11. Termination. This Amendment may be terminated together with or
separately from the Option Agreement under Section 12 of the Option Agreement;
provided, that the termination of this Amendment pursuant to Paragraph 3 hereof
will not terminate the Option Agreement unless the Option Agreement is also
being terminated by its terms at the same time.
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12. Good Standing. At the request of Sellers, TPR will provide the
Sellers with a certificate from the State of Delaware demonstrating that TPR is
duly organized and in good standing.
13. Effect of Amendment. Subject to nullification as provided in
Paragraph 3 above, this Amendment shall constitute an integral part of the
Option Agreement. Except as expressly modified and supplemented by Paragraphs 2
through 10 above, the terms and conditions of the Option Agreement and the
schedules and exhibits thereto are hereby ratified and confirmed.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each Seller and TPR have executed this
Agreement by their duly-authorized representatives, effective as of the date
first above written.
PRINCETON REVIEW OF BOSTON, INC.
By: /s/ Rob Cohen
Its: Vice President
PRINCETON REVIEW OF NEW JERSEY, INC.
By: /s/ Rob Cohen
Its: President
PRINCETON REVIEW OPERATIONS, L.L.C.
By: /s/ Mark Chernis
Mark Chernis
Chief Operating Officer
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