<PAGE> 1
Exhibit 2.4
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of May 30, 2000 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. Each Seller is a party to one or more franchise agreements
with TPR's affiliate, Princeton Review Management, L.L.C. ("Management"), for
the operation of a THE PRINCETON REVIEW(R) test preparation business, as set
forth in Schedule 1 to this Agreement. Collectively, the franchise agreements
(as amended by that certain Addendum dated May 31, 1995) listed in Schedule 1
are referred to in this Agreement as the "Franchise Agreements" and the
businesses operated under them are referred to as the "Franchised Businesses."
B. The Sellers and TPR desire to provide TPR the option to
acquire the Franchised Businesses on the terms and conditions set forth in this
Agreement. Management has consented to the grant of the option and has waived
the exercise of its right of first refusal under the Franchise Agreements with
respect to the transactions contemplated by this Agreement.
Agreement
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. Grant of Option. The Sellers irrevocably grant to TPR the option to
enter into an Asset Purchase Agreement in the form of Exhibit A to this
Agreement (the "Purchase Agreement"), under which TPR or its designee shall
acquire the Assets (as defined in the Purchase Agreement) for the aggregate
Purchase Price of $12,500,000 (the "Purchase Option").
2. Exercise of Option. The Purchase Option shall become effective (i.e.,
capable of being exercised) only if an initial public offering of the common
stock of TPR's affiliate, The Princeton Review, Inc. (the "Stock") takes place
and the Stock becomes listed on the NASDAQ national stock market or another
national exchange for publicly-traded securities. TPR may exercise the Purchase
Option by giving written notice (the "Exercise Notice") to the Sellers at any
time during the period commencing on the date when the Purchase Option becomes
effective and ending at 11:59 p.m. on December 31, 2000 (the "Option Term").
<PAGE> 2
3. Financial Statements.
3.1 Within thirty (30) days after the execution of this Agreement,
the Sellers shall deliver to TPR: (i) audited balance sheets for each Seller as
of December 31, 1998 and December 31, 1999; and (ii) audited income statements
for each Seller for the fiscal years ending December 31, 1998 and December 31,
1999 (collectively, the "Audited Statements"). The audits of the Sellers'
financial statements shall be conducted by Caras and Shulman or another
independent certified public accounting firm reasonably acceptable to TPR. The
Sellers shall furnish to TPR, at the time of delivery of the Audited Statements,
a letter from the Sellers' accounting firm representing to TPR that the
accounting firm has in effect customary professional liability insurance in the
event of any claim based on the firm's audit, review, or any other services in
connection with the financial statements of the Sellers.
3.2 Upon request by TPR, the Sellers shall furnish to TPR balance
sheets as of March 31, 2000 and income statements for the three months then
ending. In addition, if TPR has not exercised the Purchase Option by June 30,
2000, the Sellers, at TPR's request, shall furnish balance sheets and income
statements for the quarter ending on that date. Further, if TPR has not
exercised the Purchase Option by September 30, 2000, the Sellers, at TPR's
request, shall furnish balance sheets and income statements for the quarter
ending on that date. Each set of quarterly financial statements furnished under
this section shall be in comparative format presenting corresponding figures for
the same period of the prior year, and shall be accompanied by a report from the
Sellers' accounting firm on the accountants' review of the quarterly statements.
3.3 The Sellers represent that the figure in the "Total" column
for 1997, 1998 and 1999 on the "Revenues" and "EBITDA" lines of Schedule 2 to
this Agreement: (1) were calculated using financial statements that were
prepared consistent with each Seller's regular past accounting policies and
practices; and (2) are not overstated by more than five percent (5%) of the
Sellers' actual revenues and actual EBITDA. The Sellers further represent that
the figures in the "Total" columns for 1997, 1998 and 1999 on the "Sum of EBITDA
and Adjustments" line are not overstated by more than five percent (5%) of
actual figures. (In any independent calculation of the "Sum of EBITDA and
Adjustments" line, TPR shall use the same line-item categories of adjustments
shown on Schedule 2.) For purposes of 1998 and 1999, "actual figures" means
figures from or based on the Audited Statements. For purposes of this Section 3,
the term "overstated" includes understatement of losses. TPR shall have the
right to terminate this Agreement under Section 12 if the Audited Statements
reveal that any of the figures from Schedule 2 identified above is overstated by
more than 5%. Sellers shall have the right to terminate this Agreement under
Section 12 if the Audited Statements reveal that the figures from Schedule 2
identified above, on average, are understated by more than 5%.
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4. Purchase Agreement. If TPR exercises the Purchase Option, the
acquisition of the Assets shall be consummated on the terms set forth in the
Purchase Agreement and its exhibits, with the schedules completed as
appropriate. The Sellers and TPR or its designee shall execute and deliver to
each other counterparts of the Purchase Agreement within thirty (30) days after
delivery of the Exercise Notice. The Sellers shall cause Matthew Rosenthal and
Rob Cohen to execute the Purchase Agreement, and Buyer shall cause Management to
execute the Purchase Agreement.
5. Closing. The Closing shall take place within ninety (90) days after
delivery of the Exercise Notice to the Sellers. The Closing may occur after
December 31, 2000 provided that the Exercise Notice was timely delivered. For
purposes of this Agreement and the Purchase Agreement, "Closing Date" means the
date on which the Closing is actually completed.
6. Method of Payment. The Purchase Price shall be paid as provided in the
Purchase Agreement.
7. Covenants. The Sellers shall comply with the following covenants from
the date of this Agreement until the end of the Option Term, unless TPR
exercises the Purchase Option, in which case the Sellers shall comply with the
following covenants through the Closing Date:
7.1 Liens. The Sellers shall keep the Assets free and clear of all
liens, claims and encumbrances of any kind, other than the Purchase Option.
7.2 Operation of the Business.
(a) The Sellers shall operate the Franchised Businesses
and keep books and accounts, records and files in the usual and ordinary manner
in which the Franchised Businesses were conducted before the date of this
Agreement. The Sellers shall operate the Franchised Businesses in substantial
compliance with the Franchise Agreements and all applicable laws, rules and
regulations.
(b) Each Seller shall deliver to TPR the Audited
Statements required under Section 3 above. The Audited Statements shall be
prepared in accordance with generally accepted accounting principles and shall
present fairly the financial position of the Franchised Businesses and the
results of operations for the period indicated. The Sellers' obligation under
this Section is in addition to financial reports required by the Franchise
Agreements.
(c) The Sellers shall use their best efforts to keep
intact the business organization of the Franchised Businesses, to retain
substantially as at present the Franchised
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Businesses' employees, consultants and agents, and to preserve the goodwill of
the Franchised Businesses' suppliers, advertisers, customers, and others having
business relations with the Sellers.
(d) The Sellers shall keep all tangible personal property
included in the Assets in good operating condition and repair (ordinary wear and
tear excepted) and shall maintain supplies of inventory, office supplies, spare
parts and other materials consistent with the Sellers' general practice before
the date of this Agreement. The Sellers shall preserve intact the Assets and
maintain in effect their current casualty and liability insurance on the Assets.
(e) The Sellers shall not sell, assign or transfer, or
agree to sell, assign or transfer, voluntarily or by operation of law, the
Franchised Businesses, the Franchise Agreements, or any interest therein, except
in full compliance with the applicable provisions of the Franchise Agreements
and only if the transferee acquires its interest subject to this Agreement and
executes a written assumption, in a form acceptable to TPR, under which the
transferee agrees to be bound by this Agreement.
(f) The Sellers shall not, without TPR's prior written
consent:
(i) sell, lease, or transfer, or agree to sell,
lease or transfer, or grant an option to purchase or lease any Assets, except
for non-material sales or leases in the ordinary course of business of items
which are being replaced by assets of comparable or superior kind, condition and
value;
(ii) except in the ordinary course of business
consistent with past practices or as may be required by applicable law, grant
any raises to employees of the Franchised Businesses or pay or agree to pay any
substantial bonuses, or enter into or renew any contract of employment with any
employee of the Franchised Businesses;
(iii) enter into, renew or amend any contract with
respect to the Franchised Businesses except in the ordinary course of business;
or
(iv) enter into any transaction (including any
contract, agreement or arrangement with respect to the purchase, sale or
exchange of property or assets or the rendering or accepting of any service)
with any affiliate of Seller, with any officer, manager, member, director or
shareholder of Seller or of any affiliate of Seller (or relative thereof), or
with anyone else who is not dealing at arm's length with Seller.
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7.3 Due Diligence.
(a) Subject to subsections (b), (c) and (d) below, at
TPR's request and upon reasonable notice, the Sellers shall give TPR, TPR's
lender(s), the underwriters for the proposed public offering by The Princeton
Review, Inc. (the "Underwriters"), and their respective employees, accountants,
counsel, agents, consultants and representatives full access during normal
business hours to all facilities, properties, accounts, books, insurance
policies, licenses, agreements, contracts, commitments, records, files,
equipment, machinery, fixtures, furniture, notes and accounts payable and
receivable of the Sellers with respect to the Franchised Businesses. The Sellers
shall furnish such other information concerning the affairs of the Franchised
Businesses as TPR and its lender(s) may reasonably request. Any due diligence
investigation or examination by TPR and/or its lender(s) shall not diminish or
obviate any representations or warranties of the Sellers made in, or in
connection with, this Agreement or the Purchase Agreement. The Sellers shall
cause their accountants and any agent of the Sellers in possession of the
Sellers' books and records with respect to the Franchised Businesses to
cooperate with TPR's requests for information pursuant to this Agreement. The
Sellers shall bear all costs of complying with reasonable due diligence requests
by TPR, TPR's lender(s), and the Underwriters.
(b) TPR shall make reasonable efforts to obtain desired
information via TPR's wide-area network before seeking such information by other
means.
(c) Before delivery of the Exercise Notice, TPR shall not
contact employees of the Sellers (other than Joel Rubin) with respect to any
matters related to the prospective purchase of the Franchised Businesses.
(d) If TPR exercises the Purchase Option, TPR shall use
best efforts to submit all due diligence requests within forty-five (45) days
after delivery of the Exercise Notice, but TPR shall not be precluded from
making reasonable requests thereafter.
7.4 Breach of Representations, Warranties and Covenants. The
Sellers shall give detailed written notice to TPR promptly upon learning of the
occurrence of any event that would cause or constitute a material breach of any
of the Sellers' representations, warranties or covenants contained in this
Agreement.
7.5 Notice of Proceedings. The Sellers will promptly notify TPR in
writing upon: (a) becoming aware of any order or decree or any complaint praying
for an order or decree restraining or enjoining the consummation of the
transactions contemplated hereunder; or (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin,
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the consummation of such transactions, or (ii) to nullify or render ineffective
this Agreement or such transactions if consummated.
7.6 Confidentiality.
(a) TPR and the Sellers shall not use for any purpose
other than the transactions contemplated by this Agreement or, except as
provided below, disclose to anyone not a party to this Agreement, any
information regarding each other's business which TPR and the Sellers may obtain
or of which they may be apprised as a result of the negotiation, preparation or
performance of this Agreement and the Purchase Agreement. TPR and the Sellers
may disclose such information to their respective employees, attorneys,
accountants, investment bankers, investors and lenders on a need-to-know basis
for the purpose of consummating the transactions contemplated by this Agreement
and the Purchase Agreement, provided that each person to whom such information
is disclosed is informed and agrees that the disclosure is subject to the
commitment of confidentiality in this section.
(b) The Sellers or TPR may disclose the existence of this
Agreement to other franchisees of TPR. Neither the Sellers nor TPR shall
disclose any of the specific terms of this Agreement or of the Purchase
Agreement to any non-party to this Agreement, except that the Sellers may
disclose the terms to their respective Stockholders, and TPR may disclose the
terms to (i) TPR's affiliates and lenders, (ii) the Underwriters, (iii)
government agencies in an SEC Form S-1 registration statement and other filings
required by the securities laws; (iv) prospective investors in The Princeton
Review, Inc., and (v) to the extent that TPR offers them similar agreements, to
other franchisees of TPR.
8. Representations and Warranties of the Sellers. Each Seller represents
and warrants to TPR as follows:
8.1 Company Status. The Seller is duly formed, validly existing
and in good standing under the laws of the state of its incorporation. The
Seller is duly qualified to do business and is in good standing in such states
in which the failure to so qualify would have a material adverse effect on any
of the Franchised Businesses. Seller has the requisite power to carry on its
Franchised Business as it is now being conducted and to own and operate the
Franchised Business, and Seller has the requisite power to enter into and
complete the transactions contemplated by this Agreement. Seller has not used
any name in the operation of the Franchised Business other than its name as
first set forth above and the name(s) licensed under the Franchise Agreements.
8.2 Authority. All company actions necessary to be taken by or on
the part of the Seller in connection with the transactions contemplated by this
Agreement have been duly and
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validly taken, and this Agreement has been duly and validly authorized,
executed, and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
8.3 No Conflict. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or violate the Seller's governing documents; (b) conflict with
or violate or result in any breach of or any default under, result in any
termination or modification of, or cause any acceleration of any obligation
under, any contract to which Seller is a party or by which it is bound, or by
which the Franchised Businesses or any of the Assets may be affected, or result
in the creation of any lien upon any of the Assets; or (c) violate any judgment,
decree, order, statute, law, rule or regulation applicable to Seller, the
Franchised Businesses, or any of the Assets.
8.4 No Breach. The Seller is not in violation or breach in any
material respect of any of the terms, conditions or provisions of any contract,
court order, judgment, arbitration award, or decree relating to or affecting the
Franchised Businesses or the Assets.
8.5 Purchase Agreement Representations. Subject to the disclosure
schedules to be delivered by the Sellers within thirty (30) days after the
execution of this Agreement, the representations and warranties to be made by
the Sellers and their stockholders in the Purchase Agreement are true in all
material respects as of the date of this Agreement. The parties acknowledge that
if TPR exercises the Purchase Option, such disclosure schedules may be updated
to allow for changes in the ordinary course of business between their initial
delivery and the execution of the Purchase Agreement.
9. Representations and Warranties of TPR. TPR represents and warrants to
the Sellers as follows:
9.1 Company Status. TPR is duly formed, validly existing and in
good standing under the laws of the state of Delaware. TPR has the requisite
power to enter into and complete the transactions contemplated by this
Agreement.
9.2 Authority. All company actions necessary to be taken by or on
the part of the TPR in connection with the transactions contemplated by this
Agreement have been duly and validly taken, and this Agreement has been duly and
validly authorized, executed, and delivered by TPR and constitutes the legal,
valid and binding obligation of TPR, enforceable against TPR in accordance with
its terms.
9.3 No Conflict. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or violate TPR's
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governing documents; (b) conflict with or violate or result in any breach of or
any default under, result in any termination or modification of, or cause any
acceleration of any obligation under, any contract to which TPR is a party or by
which it is bound; or (c) violate any judgment, decree, order, statute, law,
rule or regulation applicable to TPR.
9.4 Purchase Agreement Representations. The representations and
warranties to be made by TPR in the Purchase Agreement are true in all material
respects as of the date of this Agreement.
10. Further Assurances. Until the end of the Option Term (or until the
Closing Date, if TPR exercises the Purchase Option), the Sellers and TPR will
each, without payment of any consideration, execute such instruments and take
such actions as the other party may reasonably request to effectuate this
Agreement. Without limiting the generality of the foregoing, if TPR exercises
the Purchase Option, TPR may file (and if requested the Sellers shall execute)
UCC-1 forms in such jurisdictions as TPR deems appropriate to give notice that
the Assets are subject to this Agreement. The parties shall cooperate fully with
each other and with their respective counsel and accountants in connection with
any steps required to be taken as part of their respective obligations under
this Agreement.
11. Remedies. If any Seller breaches or threatens to breach any obligation,
representation, warranty, or covenant under this Agreement, TPR shall be
entitled, in addition to any other remedy available to it, to an injunction
restraining any such breach or threatened breach and to enforcement of this
Agreement by a decree of specific performance requiring the Seller to fulfill
its obligations under this Agreement, in each case without the necessity of
showing economic loss or other actual damage and without any bond or other
security being required.
12. Termination. TPR shall have the right to terminate this Agreement by
written notice to the Sellers at any time prior to delivery of the Exercise
Notice: (i) as provided in Section 3.3; or (ii) if counsel for the Underwriters
or the initial public offering counsel for The Princeton Review, Inc. determines
that this Agreement interferes with or may interfere with the registration of,
or the public offering of, the stock of The Princeton Review, Inc. Sellers shall
have the right, as provided in Section 3.3, to terminate this Agreement by
written notice to TPR at any time prior to delivery of the Exercise Notice.
Except as provided in Section 13, termination by TPR or the Sellers shall be
without liability to TPR and the Sellers, and upon delivery of the notice of
termination, all obligations of the parties under this Agreement shall be null
and void.
13. Expense Reimbursement. If, but only if, TPR either does not exercise
the Purchase Option by the end of the Option Term or TPR terminates this
Agreement under clause (ii) of Section 12, TPR shall (a) pay the Sellers a
cancellation fee of $80,000, and (b) shall reimburse
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the Sellers for their reasonable out-of-pocket expenses (including reasonable
legal and accounting fees and travel expenses, but excluding costs related to
due diligence, as provided in Section 7.3(a)) incurred in connection with the
negotiation and performance of this Agreement through the end of the Option
Term, but such reimbursement shall not exceed $100,000 and shall be subject to
presentation by the Sellers of suitable documentation to verify the expenses for
which reimbursement is sought.
14. Assignment. No Seller may assign or delegate any of its rights or
duties under this Agreement. TPR may assign its rights under this Agreement and
the Purchase Agreement to one or more affiliated parties without the consent of
any Seller, provided that the assignment does not materially increase the
Sellers' risk of nonperformance of the Purchase Agreement and the documents to
be executed thereunder. This Agreement shall be binding upon and inure to the
benefit of the Sellers and TPR and their respective successors and permitted
assigns.
15. Restriction on Other Acquisitions.
15.1 For one (1) year from the date of this Agreement (unless
specifically relieved from the operation of this provision as provided below or
elsewhere in this Agreement or in the Purchase Agreement), TPR shall not close
on the acquisition of a Major Franchisee (as defined below) unless TPR has
consummated the acquisition of the Franchised Businesses. This provision does
not restrict TPR during such one-year period from entering into option
agreements or other arrangements with respect to the acquisition of a Major
Franchisee or its business. For purposes of this provision, "Major Franchisee"
means an entity holding the The Princeton Review(R) franchise for Los Angeles,
California; Denver, Colorado; Westport, Connecticut; or the state of Texas.
15.2 TPR shall be relieved from the restriction in subsection 15.1
in the following circumstances (in addition to any other circumstances specified
in the Purchase Agreement):
(a) If the Option Term expires and TPR has not exercised
the Purchase Option, but TPR thereafter offers to purchase the Franchised
Businesses on the same terms set forth in this Agreement and the Purchase
Agreement and the Sellers fail to accept the offer within ten (10) business
days. If TPR makes such an offer, then wherever this Agreement and the Purchase
Agreement relate time periods to the delivery of the Exercise Notice, the date
of the offer shall be substituted for the date of delivery of the Exercise
Notice.
(b) If TPR discovers, through due diligence or otherwise,
that any of the representations by the Sellers with respect to Schedule 2, as
specified in Section 3.3 of this Agreement, is untrue.
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(c) If the Sellers terminate this Agreement as provided
in Section 3.3.
(d) If either party terminates the Purchase Agreement
under Section 4.2.2 of that agreement.
(e) If TPR exercises the Purchase Option but TPR
subsequently discovers, through due diligence or otherwise, that the Sellers
have made any material misrepresentation or engaged in other wrongful conduct
that excuses TPR from closing the acquisition of the Franchised Businesses.
(f) If the Sellers commit a material breach of this
Agreement or the Purchase Agreement that permits termination by TPR under the
terms of this Agreement and the Purchase Agreement or under general principles
of contract law.
(g) If TPR is acquiring a Major Franchisee pursuant to
the exercise of TPR's right of first refusal under its franchise agreement with
the Major Franchisee.
16. Notices. All notices pursuant to this Agreement shall be in writing and
shall be deemed given when delivered by hand, by overnight courier, or by
facsimile transmission, or on the third day after mailing if mailed by express
mail or its equivalent, postage prepaid, return-receipt requested, if available,
as follows:
(a) To the Sellers: Mr. Rob Cohen
Princeton Review of New Jersey, Inc.
252 Nassau Street
Princeton, New Jersey 08542
with a copy to: Greg White
Chappell White LLP
268 Summer Street
Boston, Massachusetts 02110
(b) To TPR: Mr. Mark Chernis
Princeton Review Management, L.L.C.
2315 Broadway
New York, New York 10024
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with a copy to: David W. Koch
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
or to such other address as any party shall have designated by a notice in
writing so delivered to the other parties. Notices directed to the Sellers as
indicated above shall be effective as to all of the Sellers and their respective
stockholders, whether or not they receive notice individually. Notices to
counsel unaccompanied by notices to principals shall not constitute notice.
17. Entire Agreement. This Agreement and its Schedules and Exhibit
constitute the entire agreement of the parties with respect to the subject
matter hereof, and supersede all prior negotiations, correspondence,
representations, and agreements of the parties, oral and written, with respect
to same subject matter. This Agreement may be amended or modified only by an
agreement in writing executed by the Sellers and TPR.
18. Survival. All representations, warranties, covenants and agreements
made herein or in any certificate to be delivered hereunder or made in writing
in connection with the transactions contemplated herein shall survive the
execution and delivery of this Agreement and the exercise of the Purchase Option
(but not termination of this Agreement by TPR under Section 12), and shall
survive the Closing to the extent provided in the Purchase Agreement.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of New York, without giving effect to New York principles
of conflicts of laws.
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/ Robert Cohen
-----------------------------
Its: VP
-----------------------------
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PRINCETON REVIEW OF NEW JERSEY, INC.
By: /s/ Robert Cohen
-----------------------------
Its: President
-----------------------------
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PRINCETON REVIEW OPERATIONS, L.L.C.
By: /s/ Mark Chernis
-----------------------------
Mark Chernis
Chief Operating Officer
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SCHEDULE 1
TO OPTION AGREEMENT
Management and the Sellers are parties to the following The Princeton
Review(R) Franchise Agreements:
<TABLE>
<CAPTION>
Date(s) of
Franchise
Franchisee Agreement(s) Defined Territory Office Address
<S> <C> <C> <C>
PRINCETON REVIEW OF BOSTON, INC. June 1, 1986 Counties of Essex, 57 Union Street
Middlesex, Norfolk, Suffolk, Suite 1
Plymouth, Bristol, Newton, MA 02159
Worcester, Dukes, Nantucket,
and Barnstable
(Massachusetts)
April 24, 1995 Counties of Addison, 57 Union Street
Bennington, Caledonia, Suite 1
Chittendon, Franklin, Newton, MA 02159
Washington, Windham, and
Windsor
(Vermont)
June 6, 1986 State of New Hampshire and 57 Union Street
State of Maine Suite 1
Newton, MA 02159
PRINCETON REVIEW OF NEW JERSEY, INC. June 1, 1986 Counties of Mercer, Ocean, 252 Nassau Street
Monmouth, Middlesex, Princeton, NJ 08542
Somerset, Union, Essex,
Morris, Hudson, Bergen,
Passaic, and Hunterdon
(New Jersey)
</TABLE>
<PAGE> 15
SCHEDULE 2
TO OPTION AGREEMENT
<TABLE>
<CAPTION>
1997 1998
NJ Boston TOTAL NJ Boston TOTAL
<S> <C> <C> <C> <C> <C> <C>
REVENUES 5,558,491 2,738,641 8,297,132 6,016,148 3,026,550 9,042,698
Income before income tax expense 551,654 279,583 831,237 541,730 494,032 1,035,762
Depreciation and Amortization 36,982 28,799 65,781 44,386 29,196 73,582
EBITDA 588,636 308,382 897,018 586,116 523,228 1,109,344
Executive Salary 917,225 44,200 961,425 970,000 74,000 1,044,000
Medicare Taxes on Executive 13,300 641 13,941 14,065 1,073 15,138
Salary
Profit Sharing 31,426 7,664 39,090 31,088 8,388 39,476
Joel's Stock 13,200 13,200 18,880 18,880
Tax adjustment 0 61,970 61,970
C-Expenses 13,160 17,405 30,565 9,960 19,107 29,067
TPR Pub add back 67,623 34,868 102,491 -51,189 -26,393 -77,582
SUM OF EBITDA AND ADJUSTMENTS 1,644,570 413,160 2,057,730 1,640,890 599,403 2,240,293
</TABLE>
SCHEDULE 2
TO OPTION AGREEMENT
<TABLE>
<CAPTION>
1999
NJ Boston TOTAL
<S> <C> <C> <C>
REVENUES 6,882,041 3,518,708 10,400,749
Income before income tax expense 934,846 702,828 1,637,674
Depreciation and Amortization 35,361 27,412 62,773
EBITDA 970,207 730,240 1,700,447
Executive Salary 862,400 65,242 927,642
Medicare Taxes on Executive 12,505 946 13,451
Salary
Profit Sharing 39,988 10,560 50,548
Joel's Stock 26,800 26,800
Tax adjustment 0
C-Expenses 6,439 20,681 27,120
TPR Pub add back 0
SUM OF EBITDA AND ADJUSTMENTS 1,918,339 827,669 2,746,008
</TABLE>
<PAGE> 16
Revenues, Income before income tax expense and Depreciation and
Amortization are off 1999, 1998 and 1997 financial statements. 1997 Boston
reflects a consolidation of TPR Boston and TPR NH/Maine.
Executive Salary -- Salary amounts paid to Matt and Rob
Profit Sharing -- Profit Sharing (401k) contributions
Joel's Stock -- Non-cash expense associated with transfer of TPR NJ
stock to Joel.
Tax adjustment -- One time charge related to settlement of NJ sales tax
audit for period 1995-1998
C-Expense -- Expenses related to meals, auto, and computer equipment
taken by Matt and Rob
TPR Pub add back -- Non-cash expense related to ownership of TPR Pub
stock
Note 1: Boston's 1997 TPR PUB ADD BACK includes the sum of amounts from
TPR Boston and TPR NH/Maine.
Note 2: There are other perqs taken by Matt and Rob that are not
reflected above. They include cell phones, and professional memberships totaling
about $10,000 per year
2
<PAGE> 17
Note 3: EBITDA and Revenues above includes interest income. Our
accountants believe that since the interest is earned by way of cash management
of operational revenues and not off cash reserves it is appropriately included
in EBITDA. For full disclosure
<TABLE>
<CAPTION>
1997 1998 1999
NJ Boston TOTAL NJ Boston TOTAL NJ Boston TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income 25,124 7,314 32,438 22,227 9,889 32,116 34,834 21,158 55,992
</TABLE>
3
<PAGE> 18
ASSET PURCHASE AGREEMENT
between
PRINCETON REVIEW OF BOSTON, INC. and
PRINCETON REVIEW OF NEW JERSEY, INC.
(the "Sellers") and ROBERT L. COHEN and
MATTHEW ROSENTHAL
(the "Stockholders"),
on the one hand
and
PRINCETON REVIEW OPERATIONS, L.L.C. ("Buyer") and
PRINCETON REVIEW MANAGEMENT, L.L.C. ("Franchisor"),
on the other
<PAGE> 19
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions.................................................................... 1
2. Sale and Transfer of Assets.................................................... 3
3. Assumed Obligations; No Other Assumption of Liabilities or Obligations......... 3
4. Payment of Purchase Price...................................................... 4
5. Closing Adjustments............................................................ 5
6. Allocation of Purchase Price................................................... 10
7. Closing Deliveries............................................................. 10
8. Representations and Warranties of the Sellers and the Stockholders............. 11
9. Representations and Warranties of Buyer........................................ 15
10. Obligations Pending the Closing................................................ 16
11. [Omitted]...................................................................... 16
12. Restrictions on Competition, Solicitation, and Hiring.......................... 16
13. Indemnification................................................................ 17
14. Assignment of Franchise Agreements............................................. 18
15. Post-Closing Obligations of the Sellers and the Stockholders................... 18
16. Post-Closing Obligations of Buyer.............................................. 19
17. Notices........................................................................ 20
18. Entire Agreement............................................................... 21
19. Counterparts................................................................... 21
20. Governing Law.................................................................. 21
21. Costs and Expenses............................................................. 21
22. Survival of Representations.................................................... 21
23. Arbitration.................................................................... 21
</TABLE>
-i-
<PAGE> 20
<TABLE>
<S> <C>
24. Prevailing Party Fees and Costs................................................ 22
</TABLE>
SCHEDULES
Schedule 1.2 Valuation of Assets
Schedule 1.2.2 Leases
Schedule 1.2.9 Assumed Contracts
Schedule 6 Allocation of Purchase Price
Schedule 8.2 Stockholders of the Sellers
Schedule 8.17 Employees of the Sellers
Schedule 8.18 Employee Benefit Plans
EXHIBITS
Exhibit A Form of Lease Assignment
Exhibit B Subordinated Promissory Note
Exhibit C Guaranty
Exhibit D Bill of Sale
Exhibit E Sellers' Certificate
Exhibit F Assignment and Assumption of
Certain Agreements
Exhibit G Mutual Release
-ii-
<PAGE> 21
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into by and
between PRINCETON REVIEW OPERATIONS, L.L.C., a Delaware limited liability
company ("Buyer"), and PRINCETON REVIEW MANAGEMENT, L.L.C., a Delaware limited
liability company ("Franchisor"), on the one hand, and the following entities
(collectively, the "Sellers") and individuals (collectively, the
"Stockholders"), on the other:
PRINCETON REVIEW OF BOSTON, INC., a Massachusetts corporation;
PRINCETON REVIEW OF NEW JERSEY, INC., a New Jersey corporation;
ROBERT L. COHEN; and
MATTHEW ROSENTHAL.
RECITALS
A. The Sellers and Buyer are parties to an Option Agreement dated
May 30, 2000 (the "Option Agreement"), under which Buyer was granted the right
to acquire certain assets from each Seller. Buyer exercised the Purchase Option
by written notice to the Sellers dated ________________.
B. In accordance with the terms of the Option Agreement, and in
order to consummate the transactions contemplated thereunder, the Sellers, the
Stockholders, Buyer, and Franchisor are entering into this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
covenants hereinafter set forth, the parties agree as follows:
1. Definitions.
1.1 Capitalized terms used but not defined in this Agreement shall
have the same meaning as in the Option Agreement.
1.2 As used in this Agreement, "Assets" shall mean all of the
rights and assets of the Sellers, whether real, personal, tangible, or
intangible, which are used or usable in, or relate to, the ownership or
operation of the Franchised Businesses (other than the Excluded Assets, as
defined in Section 1.3 below), without regard to whether reflected on the
Sellers' financial statements or books, including but not limited to the
following:
1.2.1 All leasehold improvements, furnishings, fixtures,
equipment, signs, and other personal property used in the Franchised Businesses,
except as specifically excluded by agreement of the parties;
<PAGE> 22
1.2.2 Subject to Section 7.8 below, the rights of the
Sellers under the leases of real property listed in Schedule 1.2.2 to this
Agreement (the "Leases");
1.2.3 As provided in Section 5.8 below, and subject to the
Closing adjustments provided therein, course materials, promotional materials,
books, manuals, workbooks, practice tests, diagnostic tests, and other inventory
and supplies on hand in or en route to the Franchised Businesses as of the
Closing Date;
1.2.4 All deposits received by the Sellers and all accounts
receivable for course purchases, tutoring service packages, and any other
products or services of the Franchised Businesses that have not yet started as
of the Closing Date, provided that, the Sellers shall receive credit as provided
in Section 5.8.2 for "basket of goods" items delivered to students who have paid
deposits for course purchases (not tutoring packages) that have not yet started
as of the Closing Date;
1.2.5 The right to a portion of Total Course Revenues and
Tutoring Revenues, as defined in and calculated under Sections 5.2 and 5.3
below;
1.2.6 The Sellers' rights in and to all telephone numbers,
telephone directory advertising, web sites, domain names, and (subject to
Section 16.3 below) e-mail addresses for the Franchised Businesses;
1.2.7 All franchise rights, patents, copyrights, trade
secrets, and intellectual property rights of the Sellers associated with the
Franchised Businesses;
1.2.8 All goodwill of the Sellers associated with the
Franchised Businesses;
1.2.9 The rights of the Sellers under the written contracts
specifically identified in Schedule 1.2.9 (the "Assumed Contracts") and under
any assignable permits and business licenses relating to the ownership and
operation of the Franchised Businesses;
1.2.10 Certain benefits, as specified in Section 15.8 below,
in respect of Princeton Review of Boston, Inc.'s I-17 authorization by the U.S.
Immigration and Naturalization Service to enroll non-immigrant aliens in The
Princeton Review(R) courses; and
1.2.11 All papers and records (excluding the Sellers' minute
books and books of account) pertaining to and necessary for the continued
operation of the Franchised Businesses, including but not limited to student
information, prospect information, and the personnel records (including payroll
records) concerning each employee of the Sellers who will become employed by
Buyer after the Closing.
1.3 The Assets do not include any of the following items (the
"Excluded Assets"):
1.3.1 Except as provided in Sections 1.2.4 and 1.2.5 above,
any cash, cash equivalents, receivables, or bank accounts of the Sellers;
2
<PAGE> 23
1.3.2 Security deposits of the Sellers related to the
Franchised Businesses, provided that, as a convenience to the parties, the
Sellers shall leave in place their security deposits with respect to the Leases
and Buyer shall reimburse the Sellers for such amounts at Closing as provided in
Section 4.1 below;
1.3.3 Life insurance policies on the life of any
Stockholder and/or other officers and directors of the Sellers;
1.3.4 Motor vehicles and cellular telephones owned or
leased by the Sellers;
1.3.5 The equity interest of the Sellers in The Princeton
Review, Inc. (the "Stock"). Buyer and its affiliates shall furnish the Sellers
with such waivers as may be necessary to waive the operation of any pre-existing
contractual provision that would require the Sellers or the Stockholders to sell
the Stock concurrently with the sale of the Franchised Businesses and/or
termination of the Franchise Agreements.
2. Sale and Transfer of Assets. The Sellers agree to sell, convey and
deliver the Assets to Buyer at the Closing (as defined in Section 7 below), free
and clear of all liens, security interests, pledges, and encumbrances.
3. Assumed Obligations; No Other Assumption of Liabilities or Obligations.
3.1 Effective as of the Closing Date, and subject to the
allocations described in Sections 5.2 and 5.3 below, Buyer shall assume
responsibility for, and the cost to fulfill, all course and tutoring service
sign-ups by students, schools, and corporations to be serviced by the Franchised
Businesses on or after the Closing Date, including "refresher" courses for
students who completed courses prior to the Closing Date.
3.2 Subject to Section 7.8 below, effective as of the Closing
Date, Buyer shall assume responsibility for, and the cost to fulfill, the
Sellers' obligations from the Closing Date forward under the Leases. Before the
Closing, the Sellers shall present to the lessor under each Lease a proposed
lease assignment in the form of Exhibit A to this Agreement (the "Lease
Assignment"). Buyer shall furnish to the lessors such financial and other
information as is customary for similar lease transactions, and shall otherwise
cooperate with the Sellers' efforts to obtain the lessors' consent to assignment
of the Leases. If the entity that will assume the Sellers' obligations under the
Leases is not Buyer or a successor owner of the TPR Business (as defined in
Section 4.2.1 below), and if necessary to obtain the lessor's consent to the
assignment of a Lease or the release of a Stockholder's obligations under a
guarantee of a Lease, Buyer (or the affiliate of Buyer that then owns the TPR
Business) shall offer a guaranty of the lessee's financial obligations under the
Lease. Except as specifically provided in the preceding sentence, Buyer shall
have no obligation to take any action designed to obtain the release of any
person or entity from any guarantee of the Sellers' obligations under the
Leases.
3.3 Effective as of the Closing Date, Buyer shall assume
responsibility for, and the cost to fulfill, the obligations of the Sellers from
the Closing Date forward under the Assumed Contracts.
3
<PAGE> 24
3.4 Except as specifically provided in Sections 3.1, 3.2 and 3.3
above, Buyer has not assumed, and shall not assume, any liability or obligation
of any nature, whether known or unknown, existing or contingent, of the Sellers
or Stockholders, including but not limited to any accounts payable incurred by
the Sellers or Stockholders in the conduct of the Franchised Businesses. Buyer
assumes no liability in connection with any actual or alleged breach or default
by the Sellers or Stockholders occurring at any time before the Closing Date
with respect to the Leases, the Assumed Contracts, or any other matters referred
to in Sections 3.1, 3.2 and 3.3.
4. Payment of Purchase Price.
4.1 The Purchase Price for the Assets and for the covenants not to
compete in Section 12 below, as determined pursuant to Section 3 of the Option
Agreement, is Twelve Million Five Hundred Thousand Dollars ($12,500,000),
subject to any Purchase Price adjustments that may be provided for in this
Agreement. Subject to the terms of the Option Agreement, Buyer shall pay the
following amounts on the Closing Date:
4.1.1 To the Sellers, an amount equal to seventy-five
percent (75%) of the Purchase Price (i) minus the amounts paid to the
Stockholders under Sections 4.1.2 and 4.1.3 below; (ii) minus the aggregate
amount of the student deposits referred to in Section 1.2.4; (iii) plus the
aggregate amount of the Lease deposits to be reimbursed by Buyer under Section
1.3.2; (iv) 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;
4.1.2 To Rob Cohen, in consideration of his obligations
under Section 12 below, the sum of Four Hundred Fifty Thousand Dollars
($450,000); and
4.1.3 To Matthew Rosenthal, in consideration of his
obligations under Section 12 below, the sum of Four Hundred Fifty Thousand
Dollars ($450,000).
The net amount due to the Sellers under Section 4.1.1, and the amounts due to
the Stockholders under Sections 4.1.2 and 4.1.3, shall be paid by wire transfer
to one or more bank accounts designated by the Sellers and the Stockholders,
respectively, on the Closing Date if possible but otherwise on the next business
day after the Closing Date.
4.2 At the Closing, Buyer shall execute and deliver to the Sellers
a promissory note in the form of Exhibit B to this Agreement (the "Note"). The
original principal amount of the Note will be twenty-five percent (25%) of the
Purchase Price.
4.2.1 If Buyer at any time (whether before or after the
Closing) reorganizes its corporate structure, transfers or sells the assets
associated with the TPR Business (as defined below), or creates or acquires
wholly-owned subsidiaries to operate all or a portion of the TPR Business, Buyer
shall cause the successor to Buyer's interest in the TPR Business to assume the
Note or to execute a guaranty of the Note in the form of Exhibit C to this
Agreement (the "Guaranty"). If any such change occurs before the Closing, Buyer
shall furnish the Guaranty (or the successor shall execute the Note) at Closing.
If the TPR Business is divided among multiple entities, each of them shall be
deemed a successor for purposes of this provision and shall execute the Guaranty
(or assume the Note). The Sellers agree that, if requested by the successor,
4
<PAGE> 25
the Guaranty shall include subordination provisions substantially similar to
those contained in the Note. For purposes of this Section, "TPR Business" means
the set of business activities that Franchisor authorizes its franchisees to
conduct under the TPR Method, as that term is defined in the Franchise
Agreements and further defined in the Addendum to Franchise Agreement dated May
31, 1995. The Sellers and Buyer agree that "TPR Business" shall not include any
interactive teaching system not requiring the attendance of students at any
fixed premises ("Distance Learning"). If any entity that becomes a guarantor
under this Section (a "Guarantor") reorganizes its corporate structure,
transfers or sells the assets associated with the TPR Business, or creates or
acquires wholly-owned subsidiaries to operate all or a portion of the TPR
Business, Buyer and the Guarantor shall cause the successor to the Guarantor's
interest in the TPR Business to execute the Guaranty or to assume the Note.
4.2.2 The Sellers and Buyer each acknowledge that the other
has negotiated the proposed terms of subordination of the Note and Guaranty in
good faith, and they agree to continue to act in good faith with respect to any
further negotiations of the subordination provisions with Buyer's and/or a
Guarantor's senior lender(s). However, before the Closing, if the Sellers and
Buyer are unable to reach agreement on the terms and conditions relating to the
subordination of the Note and Guaranty to the rights of the senior lenders, the
Sellers or Buyer may terminate this Agreement by giving written notice to the
other, and such termination will be without liability of or recourse to any
party.
4.2.3 The Sellers shall have a one-time right to convert
the principal due under the Note to additional Stock, as provided in the Note.
5. Closing Adjustments.
5.1 Calculation and Payment. Except as otherwise specified in
Sections 5.2 through 5.9 below, all amounts owed between the Sellers and Buyer
and its affiliates under Sections 5.2 through 5.9 shall, to the extent feasible,
be calculated and paid on or before the Closing Date (with respect to amounts
owed between the Sellers and Buyer only, such amounts shall be paid by adding
appropriate amounts to or subtracting them from the Closing Date payment under
Section 4.1). Except as otherwise specified, to the extent not calculated and
paid at Closing, amounts owed between the Sellers and Buyer and its affiliates
under Sections 5.2 through 5.9 shall be presented at the end of each month to
the party from which payment is sought and, unless disputed in good faith, paid
by such party within thirty (30) days after presentment. The parties hereby
confirm their intention to avoid double-counting with respect to calculations
under this Agreement and agree to adjust any overpayment or underpayment shown
to result from such double-counting.
5.2 Courses In Progress. The Sellers and/or Buyer, as applicable,
shall make the following calculations in respect of the obligations incurred by
students who are enrolled in courses that are in progress as of the Closing Date
("Courses In Progress"):
5.2.1 At the Closing, the Sellers and Buyer shall calculate
the total course revenues attributable to Courses In Progress ("Total Course
Revenues"). Total Course Revenues shall include all payments collected by the
Sellers before the Closing with respect to Courses In Progress, plus all
remaining amounts due from students for Courses In Progress. The Sellers and
5
<PAGE> 26
Buyer shall allocate the Total Course Revenues in accordance with Franchisor's
Statement of Inter-Franchise Transfer Policy (the "Transfer Policy"), as if the
students enrolled in Courses In Progress were "transfer students" under the
Transfer Policy. If the payments collected by the Sellers before the Closing
exceed the amount allocated to the Sellers under the Transfer Policy, the amount
of the excess shall be deducted from the Closing Date payment under Section 4.1.
If the payments collected by the Sellers before the Closing are less than the
amount allocated to the Sellers under the Transfer Policy, Buyer shall pay the
amount of the shortfall to the Sellers after the Closing as course revenues are
collected from students.
5.2.2 On [DATE SIX MONTHS FROM CLOSING DATE], the Sellers
shall pay to Buyer the amount by which the then-uncollected amounts due from
students for Courses In Progress exceed two percent (2%) of the Total Course
Revenues calculated by the Sellers and Buyer at Closing under Section 5.2.1.
Buyer shall use commercially reasonable efforts after the Closing to attempt to
collect all course revenues. The Stockholders shall assist Buyer in such
collection efforts, provided that, after [DATE SIX MONTHS FROM THE CLOSING
DATE], the Sellers and the Stockholders shall not contact students without prior
authorization by Buyer, which shall not be unreasonably withheld.
5.3 Tutoring Services. At the Closing, the Sellers and Buyer shall
calculate the total revenue attributable to each student who contracted with the
Sellers for a specified quantity of tutoring services before the Closing Date
but who has unused tutoring hours as of the Closing Date ("Tutoring Revenue").
Tutoring Revenue shall include all payments collected by the Sellers from the
student before the Closing, plus all remaining amounts due from the student. The
Sellers and Buyer shall allocate the Tutoring Revenue from each tutoring student
as follows: (i) If the student has used any portion of the contracted tutoring
hours before the Closing, the up-front materials fee from the student shall be
allocated to the Sellers. If the student has not used any portion of the
contracted tutoring hours before the Closing, one-half of the up-front materials
fee shall be allocated to the Sellers and one-half shall be allocated to Buyer.
(ii) The Tutoring Revenue remaining after allocation of the up-front materials
fee (the "Remaining Revenue") shall be divided between the Sellers and Buyer as
follows: The Sellers and Buyer shall determine whether the date of the test for
which the student was preparing has passed as of the Closing. If the date of the
test has passed, the student will be deemed to have ended his or her tutoring
package and the Remaining Revenue shall be allocated to the Sellers. If the date
of the test has not passed as of the Closing, the Sellers and Buyer shall
calculate the ratio of the student's unused tutoring hours to the total hours
contracted for by the student. That ratio shall be multiplied by the Remaining
Revenue, and the resulting amount shall be allocated to Buyer. If the payments
collected by the Sellers before the Closing exceed the amount allocated to the
Sellers under this Section 5.3, the amount of the excess shall be deducted from
the Closing Date payment under Section 4.1. If the payments collected by the
Sellers before the Closing are less than the amount allocated to the Sellers
under this Section 5.3, Buyer shall pay the amount of the shortfall to the
Sellers after the Closing as revenue is collected from the tutoring student.
5.4 Employee Expenses. Buyer will offer to hire the Employees of
the Sellers listed in Schedule 8.17 whom Buyer deems to meet Buyer's ordinary
pre-employment and post-employment standards and conditions. Buyer shall have no
obligation to offer employment to any specific individual listed in Schedule
8.17 who does not meet Buyer's ordinary standards and
6
<PAGE> 27
conditions. Buyer will credit each Employee hired by Buyer with such vacation
time and sick leave as have accrued during such person's employment by the
Sellers and remain unused as of the Closing Date, or, at Buyer's option, Buyer
will pay such Employee for any accrued vacation time or sick leave. In addition,
Buyer will credit each Employee hired by Buyer with such Employee's
time-in-service to the Sellers for purposes of calculating any bonuses for which
such Employee may be eligible. The Sellers and Buyer shall make the following
payments to each other in respect of Employees hired by Buyer:
5.4.1 Vacation and Sick Leave. The Sellers shall reimburse
Buyer for the dollar value of all vacation time and sick leave credited and paid
to Employees by Buyer as provided above. The Sellers may deduct from such
reimbursement the dollar value of any vacation time taken by an Employee before
the Closing Date in excess of the actual vacation time accrued by such Employee
before the Closing Date.
5.4.2 Bonuses. With respect to work performed before the
Closing, Buyer shall calculate and pay bonuses to Employees hired by Buyer in
accordance with the bonus plans created by the Sellers for such Employees. Any
bonuses paid by Buyer to Employees which relate to periods both before and after
the Closing Date shall be prorated as of the Closing Date based on the number of
months that the Employee was employed by the Sellers and by Buyer, respectively,
during the period to which the bonus relates. Within thirty (30) days after
payment of the bonus to the Employee, the Sellers shall pay Buyer an amount
equal to the pre-Closing portion of the bonus, as determined according to this
Section. Buyer shall have no obligation to pay any Employee any amount that is
in excess of Sellers' bonus plans as disclosed to Buyer. If Buyer voluntarily
elects to pay a bonus in excess of the Sellers' disclosed bonus plans, the
Sellers' obligation to reimburse Buyer for the pre-Closing portion of the bonus
shall be limited to the bonus calculated in accordance with the Sellers'
disclosed bonus plans. Nothing in this Section is intended or shall be deemed to
create any third party beneficiary rights in any Employee.
5.5 Purchased Materials. The Sellers and Princeton Review
Products, L.L.C. ("Products") shall make good faith efforts to resolve any
disputed amounts invoiced to the Sellers by Products or its predecessor for
course materials, products, supplies, or other goods and services, as follows:
5.5.1 At least thirty (30) days before the Closing,
Products shall deliver to the Sellers a statement of all amounts outstanding
that are more than ninety (90) days old. Within thirty (30) days after the
Closing, Products shall deliver to the Sellers a final statement of all amounts
outstanding. The Sellers shall have no liability for any amounts claimed by
Products that do not appear on at least one of the statements delivered under
this provision.
5.5.2 The Sellers shall present to Products in writing at
or before the Closing all amounts disputed by the Sellers (except new items
appearing on the final statement delivered by Products after the Closing). Any
amounts resolved between the Sellers and Products as of the Closing shall be
paid at Closing, as provided in Section 5.1. Any amounts that remain in dispute
as of six months after the Closing and for which the Sellers have not served a
formal demand for arbitration under Section 23 shall be immediately paid to
Buyer.
7
<PAGE> 28
5.6 Rent. All rent paid by the Sellers and Buyer under Leases
assigned pursuant to Section 7.8 shall, if the rent relates to periods both
before and after the Closing Date, be prorated as of the Closing Date, with the
Sellers responsible for the portion which accrued prior to the Closing Date and
Buyer responsible for the portion which accrued on and after such date.
5.7 Other Business Expenses. Except as otherwise provided in
Sections 5.5, 5.6, and 5.8, and subject to the terms of this Section 5.7, bills
received by the Sellers or by Buyer in connection with the operation of the
Franchised Businesses and/or ownership of the Assets (including, but not limited
to, invoices for real estate taxes, personal property taxes, equipment rental,
telephone charges, and utilities) (collectively, "Bills") shall, if they relate
to periods both before and after the Closing Date, be prorated as of the Closing
Date, with the Sellers responsible for the portion which accrued prior to the
Closing Date and Buyer responsible for the portion which accrued on and after
such date. The Bills shall be prorated and settled in accordance with the
following:
5.7.1 Pre-Closing Bills. All Bills received by the Sellers
and Buyer before the Closing Date must be presented at or before the Closing.
Any such Bills not presented at or before Closing shall be excluded from
proration under this Section 5.7.
5.7.2 Post-Closing Bills. Bills received by the Sellers and
Buyer after the Closing Date shall be presented as provided in Section 5.1. A
Bill received after the Closing shall be excluded from proration under this
Section 5.7 unless the Bill exceeds five hundred dollars ($500).
5.7.3 Responsibility for Calculation. The Sellers shall be
responsible for calculating all prorations under this Section 5.7. Buyer shall
have five (5) business days after the receipt of the Sellers' calculation to
object to the calculation, or the calculation shall be deemed approved.
5.8 Special Items. Buyer and the Sellers shall jointly calculate
the amount of the items specified below in this Section 5.8:
5.8.1 Prepaid Advertising Expenses. Buyer shall reimburse
the Sellers for expenses paid by the Sellers in the ordinary course of business
before the Closing Date for print, direct mail, and all other advertising and
promotion that specifically refers to, and that is clearly and primarily
designed to promote, courses starting after the Closing Date ("Prepaid
Advertising Expenses"). The Sellers shall furnish such documentation as Buyer
may reasonably request to verify all expenditures for which the Sellers seek
reimbursement.
5.8.2 Basket of Goods Items. Buyer shall pay the Sellers an
amount equal to the Sellers' cost for "basket of goods" items on hand in or en
route to the Franchised Businesses as of the Closing Date, provided that: (i)
such items are in their original, unbroken shipping containers; and (ii) the
expiration date of such items is not less than three (3) months after the
Closing Date. "Basket of goods" items delivered by the Sellers to students
enrolled in courses that have not started as of the Closing Date shall be
treated as items on hand in the Franchised
8
<PAGE> 29
Businesses, without regard to clauses (i) and (ii) above. The Sellers may retain
any basket of goods items not paid for by Buyer under this Section.
5.8.3 Marketing Materials. Buyer shall pay the Sellers an
amount equal to the Sellers' cost for current marketing supplies purchased from
Products or from third parties (including, but not limited to, brochures and
course schedules) that remain on hand in or en route to the Franchised
Businesses as of the Closing Date, provided that (i) such items have not been
accounted for under Section 5.8.1; (ii) the quantity of such items is no greater
than the quantity typically maintained by the Sellers in the past or reasonably
required for increased business; (iii) Buyer shall have no obligation to pay for
any items that would not ordinarily and reasonably be used within six (6) months
after the Closing Date; and (iv) such items are in their original, unbroken
packages or other containers reasonably acceptable to Buyer. The Sellers may
retain any marketing supplies not paid for by Buyer under this Section, provided
that, any such items bearing any proprietary marks of Franchisor shall only be
used internally by the Sellers or sold to other franchisees of Franchisor, and
not made available to any other person or entity.
5.8.4 Capital Expenditures. Buyer shall reimburse the
Sellers for Capital Expenditures made by the Sellers in the ordinary course of
operating the Franchised Businesses after the date of the Option Agreement but
before the Closing, provided that: (i) such Capital Expenditures were not
reflected on any balance sheet delivered to Buyer or its affiliates before
execution of the Option Agreement, and (ii) either: (a) such Capital
Expenditures do not exceed $25,000, or (b) the Sellers obtained Buyer's written
consent for expenditures causing the Sellers to exceed the $25,000 threshold and
for each subsequent Capital Expenditure for which the Sellers seek
reimbursement. For purposes of this Section, "Capital Expenditure" means the
book value of any furniture, equipment, or other item (i) that is depreciable
under GAAP, and (ii) whose original cost to the Sellers exceeded $1,000 (or
which is integrated into an item or group of similar items whose total cost
exceeded $1,000).
5.9 Franchise Fees, Etc. The Sellers, Buyer and Franchisor shall
calculate and pay in accordance with Section 5.1: (i) the amount of any unpaid
royalty-service fees and unpaid advertising-promotion fees due to Franchisor
under the Franchise Agreements as of the Closing Date; (ii) the amount of any
undisputed monies owed by the Sellers to Franchisor or its affiliates (other
than Products, as provided in Section 5.5) as of the Closing Date for course
materials, products, supplies, or other goods or services purchased for use or
resale in the Franchised Businesses; and (iii) the amount of any undisputed
transfer fees or other undisputed amounts owed to the Sellers by Franchisor and
its affiliates under the Franchise Agreements as of the Closing Date. With
respect to clause (i) above: (x) the deposits referred to in Section 1.2.4 and
any other funds transferred by the Sellers to Buyer and its affiliates at
Closing on which the Sellers have not previously paid royalty-service fees and
advertising-promotion fees shall not be subject to such fees; (y) any
royalty-service fees and advertising-promotion fees previously paid to
Franchisor on amounts payable by the Sellers under Section 1.2.4 or this Section
5 shall be credited back to the Sellers at Closing; and (z) any post-Closing
payments made by Buyer to the Sellers under Sections 5.2 and 5.3 shall be
subject to royalty-service fees and advertising-promotion fees which shall be
paid by the Sellers.
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6. Allocation of Purchase Price. In accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, the Purchase Price shall be allocated
in the manner set forth in Schedule 6 to this Agreement. The Sellers, the
Stockholders, and Buyer each covenant and warrant that: (i) in no tax return
filed by it or any of its respective successors or assigns shall the allocation
of the Purchase Price be treated or reported inconsistently with or differently
from the allocation of the Purchase Price set forth in Schedule 6, unless such
change in allocation is the result of a determination by a taxing authority for
that year or a preceding year; and (ii) in no tax audit, tax examination, tax or
compliance review or tax litigation, will it or any of its respective successors
or assigns claim or assert that the allocation of the Purchase Price is or
should be inconsistent with or different from that set forth in Schedule 6,
unless as a result of a determination made by a taxing authority in a preceding
year. The parties agree to file all appropriate Internal Revenue Service forms
with their respective Federal income tax returns for their respective tax year
in which the Closing Date occurs.
7. Closing Deliveries. The Closing shall take place on [DATE TO BE
DETERMINED WHEN ASSET PURCHASE AGREEMENT IS SIGNED], or such other date as may
be mutually agreed upon by the parties. The following events shall occur at the
Closing:
7.1. Buyer shall deliver to the Sellers the amount required under
Section 4.1.
7.2 Buyer shall execute and deliver the Note.
7.3 If applicable, Buyer shall cause its affiliate to execute and
deliver the Guaranty.
7.4 The Sellers shall execute and deliver to Buyer a Bill of Sale
for the Assets in the form of Exhibit D to this Agreement.
7.5 Each Seller shall deliver to Buyer a good standing certificate
from its state of incorporation and from each state in which the Seller has
qualified to do business, each current as of a date not more than five days
before the Closing Date.
7.6 Each Seller shall deliver to Buyer a shareholder consent
authorizing the Seller's entry into and performance of this Agreement, executed
by shareholders who collectively possess at least the minimum voting power
required under the Seller's governing documents and the law of the state of its
incorporation to authorize such action by the Seller.
7.7 The Sellers shall execute and deliver a certificate in the
form of Exhibit E to this Agreement (the "Sellers' Certificate").
7.8 With respect to each Lease, the appropriate Seller shall
execute and deliver a Lease Assignment, signed by the lessor; and if applicable,
Buyer and/or an affiliate of Buyer shall execute and deliver a guaranty of the
lessee's obligations under the Lease. If the Seller is unable to obtain the
lessor's consent to a lease assignment after diligent effort as provided in
Section 3.2, the Seller shall execute and deliver at the Closing a sublease for
the premises on the same terms as the Seller's lease, in a form mutually
acceptable to the parties. If the Seller is unable to deliver either the
lessor's consent to the Lease Assignment or a sublease for the premises, the
Seller shall deliver evidence acceptable to Buyer that the Seller has made
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arrangements for Buyer to occupy premises of equivalent quality at no higher
cost to Buyer, and the Seller shall reimburse Buyer for moving costs as provided
in Section 15.7 below.
7.9 The Sellers and Buyer shall execute an Assignment and
Assumption Agreement with respect to the Assumed Contracts, in the form of
Exhibit F to this Agreement; and, if applicable, the Sellers shall deliver to
Buyer the written consents of third parties to the assignment and assumption of
the Assumed Contracts.
7.10 The Sellers shall deliver suitable evidence of transfer of the
rights referred to in Section 1.2.6.
7.11 The Sellers shall deliver the written consents of all other
persons, if any, whose approval or consent to the performance of this Agreement
by the Sellers and the Stockholders or to transfer of the Assets is legally or
contractually required.
7.12 The Sellers, the Stockholders, Buyer and Franchisor shall
execute a Mutual Release in the form of Exhibit G to this Agreement. The Sellers
shall also cause Joel Rubin to execute the Mutual Release, and Buyer shall also
cause Products to execute the Mutual Release.
7.13 The Sellers shall deliver certificates of insurance
satisfactory to Buyer demonstrating that the Sellers have the insurance coverage
described in Section 8.15 below.
8. Representations and Warranties of the Sellers and the Stockholders. The
Sellers and the Stockholders, jointly and severally, represent and warrant to
Buyer and Franchisor that:
8.1 Each Seller has been duly organized and is validly existing
and in good standing under the laws of the state of its incorporation. Each
Seller has qualified to do business in each jurisdiction where it is carrying on
the Franchised Businesses, except where the failure to qualify to do business
would not have a material adverse effect on the Franchised Businesses.
8.2 The issued and outstanding stock of each Seller is owned of
record and beneficially by the persons and entities shown on Schedule 8.2, and
there are no other shareholders. The execution, delivery, and performance of
this Agreement has been duly authorized by the board of directors of each
Seller, and all necessary stockholder action under each Seller's bylaws and
state law has been taken for approval of the execution and delivery of this
Agreement by the Seller, performance of the terms of this Agreement by the
Seller, and the consummation by the Seller of the transactions contemplated
hereunder. No filing with, notices to, or approvals of any governmental or
regulatory body or agency or any other person are required to be made or
obtained by any Seller or Stockholder in connection with the consummation of the
transactions contemplated hereunder.
8.3 The execution and delivery of this Agreement, the Sellers'
performance hereunder, and the consummation of the transactions herein
contemplated do not, and to the best of the Sellers' and the Stockholders'
knowledge will not, immediately or with the passage of time, the giving of
notice or otherwise, result in the breach of, constitute a default or violation
under, or accelerate any obligation under any agreement or other instrument to
which any Seller or Stockholder is a party, or by which any Seller or
Stockholder may be bound.
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8.4 This Agreement and the other agreements and transactions
contemplated herein to which any Seller or Stockholder is or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation of the Seller or Stockholder, enforceable in accordance with its
terms.
8.5 The Sellers own the Assets free and clear of any and all liens,
security interests, claims and encumbrances.
8.6 All furniture, fixtures and equipment that the Sellers were using
in the Franchised Businesses as of the date of execution of the Option Agreement
remain in operation in the Franchised Businesses. Otherwise, the Sellers make no
representation as to such furniture, fixtures and equipment, which are
transferred to Buyer "as is."
8.7 The Sellers and the Stockholders are not in material breach or
default of any contract or other commitment to Buyer, Franchisor, or third
parties, including without limitation the Franchise Agreements and the Option
Agreement.
8.8 The Sellers have not engaged a broker in connection with any
transaction represented by this Agreement.
8.9 There is no material claim, investigation, litigation, arbitration,
or enforcement proceeding pending or, to the knowledge of any Seller or
Stockholder, threatened against any Seller or the Franchised Businesses.
8.10. The Sellers have previously delivered to Buyer copies of their
federal income tax returns for calendar years 1997 and 1998, their audited
balance sheets dated December 31, 1998 and December 31, 1999, and their audited
profit-and-loss statements for the years ending December 31, 1998 and December
31, 1999 [NOTE: ADD 2000 Q1/ Q2/Q3 QUARTERLY STATEMENTS, AS APPLICABLE]
(collectively, the "Financial Statements"). To the best of the Sellers' and the
Stockholders' knowledge, the Financial Statements reflect or provide for all
material claims against, and all material debts and liabilities relating to, the
Franchised Businesses, fixed or contingent, as of the dates of the Financial
Statements and for the periods covered by them, as determined in accordance with
generally accepted accounting principles, consistently applied. To the best of
Sellers' and the Stockholders' knowledge, there has not been any change since
the date of the latest balance sheet which has materially and adversely affected
the Franchised Businesses or the Assets or the financial condition or results of
operation of any Seller. Buyer acknowledges the Sellers' right to update the
disclosure schedules attached to this Agreement as provided in the Option
Agreement, provided that the updates reflect no material adverse change in the
Franchised Businesses, the Assets, or the financial condition or results of
operation of the Sellers. The Financial Statements are true, correct, and
complete in all material respects.
8.11 The Sellers have timely filed all federal, state, local, and
foreign income, franchise, payroll, sales, property, and other tax returns which
were required to be filed prior to the date of this Agreement, and have made
payment of all taxes shown by those returns to be due
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and payable. Each such return was prepared in compliance with all applicable
laws and regulations, and all such returns are true and accurate in all material
respects.
8.12 To the best of the Sellers' and the Stockholders' knowledge, each
Seller has all requisite power and all necessary permits, certificates,
contracts, approvals and other authorizations required by federal, state, city,
county or other municipal bodies to own, lease, and use the Assets and to
operate its Franchised Business in the manner in which it is presently operated.
8.13 No Seller or Stockholder has received any notice or is aware of
any allegation of any failure to comply with applicable local, state, or federal
laws, regulations, ordinances, administrative orders, or judicial orders in
connection with the operation of the Franchised Businesses and ownership and use
of the Assets. To the best of the Sellers' and the Stockholders' knowledge,
there are not now and have not been any material failures to comply with such
laws or orders.
8.14 Except for the liabilities expressly assumed by Buyer under
Section 3, the Sellers and the Stockholders have no knowledge of any agreements,
leases, contracts, charges, encumbrances or restrictions which would restrict
Buyer's use or right to use any of the Assets or will create obligations for
which Buyer will be liable.
8.15 The Sellers have maintained liability insurance coverage equal to
or exceeding Franchisor's minimum requirements for any claims which may have
arisen or causes of action which may have accrued during the Sellers' ownership
and/or operation of the Assets and the Franchised Businesses. Such liability
insurance is of the "occurrence" type, so that if the policies are discontinued
by the Sellers after the Closing, coverage will nevertheless continue at the
same policy limits (subject to the terms and conditions of such policies) with
respect to such claims and causes of action.
8.16 To the best of the Sellers' and the Stockholders' knowledge,
neither this Agreement, nor any Schedule or Exhibit hereto, nor any certificate
or other information or document furnished to Buyer or Franchisor by or on
behalf of any Seller or Stockholder in connection with the transactions
contemplated hereunder, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
8.17 Schedule 8.17 is a list of all persons currently employed full
time by the Sellers in the Franchised Businesses (the "Employees"). Schedule
8.17 accurately and completely shows the Employees' current rates of
compensation, including bonuses. The Sellers have no oral or written
understandings with any Employee that permit the Employee to be employed for a
term or that otherwise relate to terms or conditions of such Employee's
employment which Buyer will be required to assume. Except to the extent
consistent with Section 5.4, the Sellers and the Stockholders have made no
promises or representations to any of the Employees that Buyer would employ them
or would continue in effect any benefit to which they may now be entitled or
believe themselves to be entitled, or would pay or grant any bonus or benefit
which any Employee may have accrued during his or her employment by Seller. The
Sellers and the
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Stockholders have made no promises or representations to any of the Employees
concerning bonuses that are inconsistent with the bonus plans disclosed by the
Sellers to Buyer.
8.18 Schedule 8.18 lists all Employee Pension Benefit Plans, as that
term is defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and all Employee Welfare Benefit Plans, as that
term is defined in Section 3(1) of ERISA, which the Sellers have maintained or
contributed to for the benefit of any current or former employee of the Sellers
(collectively, the "Employee Benefit Plans"). The Sellers and the Stockholders
represent with respect to the Employee Benefit Plans:
8.18.1 None of the Employee Benefit Plans is a "multi-employer
plan," as that term is defined in Section 3(37) of ERISA. No Seller has ever
contributed to or been required to contribute to any multi-employer plan.
8.18.2 Each Employee Benefit Plan (and each related trust or
insurance contract) complies in form and in operation with the applicable
requirements of ERISA and the Internal Revenue Code of 1986, as amended (the
"IRC"). All required reports and descriptions (including without limitation Form
5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed or distributed with respect to each
Employee Benefit Plan.
8.18.3 All employer contributions and employee salary
reduction contributions which were due prior to the date of this Agreement have
been paid to each Employee Pension Benefit Plan, and the Sellers have made
provision for payment of all such contributions which relate to the period up to
the Closing Date. All premiums and other payments for all periods ending on or
before the Closing Date have been paid with respect to each Employee Welfare
Benefit Plan.
8.18.4 Each Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under IRC Section 401(a). The Sellers'
third-party administrator has received a favorable opinion letter from the
Internal Revenue Service with respect to a prototype of the Employee Pension
Benefit Plan adopted by the Sellers. The Sellers have not been refused a
favorable determination letter from the IRS as to the Employee Pension Benefit
Plan as adopted by the Sellers.
8.18.5 There have been no Prohibited Transactions (as that
term is defined in ERISA Section 406 and IRC Section 4975) with respect to any
Employee Benefit Plan, and no Fiduciary (as that term is defined in ERISA
Section 3(21)) is liable for breach of fiduciary duty or any other failure to
comply in connection with the administration or investment of the assets of any
Employee Benefit Plan. No claim, proceeding, or investigation (other than
routine claims for benefits) with respect to the administration or investment of
the assets of an Employee Benefit Plan is pending or has been threatened, and
the Sellers and the Stockholders are not aware of any basis for any such claim,
proceeding, or investigation.
8.18.6 Except as disclosed in Schedule 8.18, the Sellers have
no current obligation to make group medical coverage available to employees,
former employees, or any of
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their beneficiaries under Part 6 of Subtitle B of Title I of ERISA or IRC
Section 4980B. No Seller has ever maintained or contributed to any Employee
Welfare Benefit Plan providing health, accident, or life insurance benefits to
former employees or their beneficiaries, other than in accordance with Part 6 of
Subtitle B of Title I of ERISA or IRC Section 4980B.
8.19 Except for sales tax obligations specifically disclosed by the
Sellers to Buyer and paid or otherwise discharged by the Sellers, no sales tax,
use tax, excise tax, transfer tax, recording fee or other tax or fee of a
material nature (other than income taxes due and owing by the Sellers) will be
payable by the Sellers or Buyer to any governmental agency based on the transfer
of the Assets from the Sellers to Buyer.
THE ABOVE REPRESENTATIONS AND WARRANTIES SHALL SURVIVE THE CLOSING FOR
TWO YEARS AS PROVIDED IN SECTION 12 AND SECTION 23 BELOW, EXCEPT THAT SECTIONS
8.11 AND 8.13 SHALL SURVIVE FOR TWO YEARS OR UNTIL EXPIRATION OF THE STATUTE(S)
OF LIMITATIONS APPLICABLE TO THE MATTERS REFERRED TO IN THOSE SECTIONS,
WHICHEVER IS LONGER.
9. Representations and Warranties of Buyer. Buyer represents and warrants to the
Sellers and the Stockholders that:
9.1 Buyer has been duly organized and is validly existing and in good
standing under the laws of the state of Delaware.
9.2 The execution, delivery, and performance of this Agreement has been
duly authorized by the members of Buyer, and all necessary member action under
Buyer's operating agreement and state law has been taken for approval of the
execution and delivery of this Agreement by Buyer, performance of the terms of
this Agreement by Buyer, and the consummation by Buyer of the transactions
contemplated hereunder. No filing with, notices to, or approvals of any
governmental or regulatory body or agency or any other person are required to be
made or obtained by Buyer in connection with the consummation of the
transactions contemplated hereunder.
9.3 The execution and delivery of this Agreement, Buyers' performance
hereunder, and the consummation of the transactions herein contemplated do not,
and to the best of Buyer's knowledge will not, immediately or with the passage
of time, the giving of notice or otherwise, result in the breach of, constitute
a default or violation under, or accelerate any obligation under any agreement
or other instrument to which Buyer is a party, or by which Buyer may be bound.
9.4 This Agreement and the other agreements and transactions
contemplated herein to which Buyer is or will be a party will each, upon
execution and delivery, be a legal, valid, and binding obligation of Buyer,
enforceable in accordance with its terms.
9.5 Buyer has not engaged a broker in connection with any transaction
represented by this Agreement.
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THE ABOVE REPRESENTATIONS AND WARRANTIES SHALL SURVIVE THE CLOSING FOR
TWO YEARS AS PROVIDED IN SECTION 12 AND SECTION 23 BELOW. In the event Buyer
assigns its rights under this Agreement to a subsidiary formed for the purpose
of carrying out the transactions contemplated hereunder, the above
representations and warranties shall be deemed to have been made jointly and
severally by Buyer and such subsidiary.
10. Obligations Pending the Closing. The Sellers and the Stockholders shall
comply with all of the covenants in Section 7 of the Option Agreement through
the Closing DATE. In addition, the Sellers shall not: (i) increase the
compensation or employee benefits of any employee of the Franchised Businesses
without the written consent of Buyer, which shall not be unreasonably withheld,
or (ii) except in the ordinary course of business consistent with the Sellers'
past practices, offer or permit any special inducements for course sign-ups. The
Sellers shall promptly notify Buyer of any material adverse change in the
Franchised Businesses that occurs prior to the Closing Date.
11. [Omitted]
12. Restrictions on Competition, Solicitation, and Hiring. The Sellers and the
Stockholders shall not, either directly or indirectly through any other person
or entity, without Buyer's prior written consent:
12.1 For a period of four (4) years from the Closing Date, become
engaged or involved in any business or activity which relates to, involves, or
is competitive with the TPR Method (as defined in, and modified by Franchisor
pursuant to, the Franchise Agreements), within one hundred (100) miles of the
primary site location of any company-owned or franchised business operated under
the TPR Method. This provision does not prohibit Rob Cohen from entering into an
employment or consulting arrangement with any independent franchisee of
Franchisor that is operating under the TPR Method, provided that (i) Mr. Cohen
neither holds nor obtains any ownership interest in such independent franchisee
or the business operated under the TPR Method, and (ii) such arrangement shall
cease if the independent franchisee ceases to operate under the TPR Method for
any reason. Buyer agrees that neither Mr. Cohen's existing 1% ownership interest
in Princeton Review of Taiwan nor the direct or indirect interest of the Sellers
and the Stockholders in the Stock shall be deemed to violate this Section.
12.2 For a period of four (4) years from the Closing Date, solicit any
individuals, businesses, or organizations that were customers of the Sellers
prior to the Closing or disclose any information about such customers to any
person, company or other legal entity. This Section does not prohibit
solicitation of any individual or entity whose identity was obtained from a
source in the public domain, provided that such solicitation is not for a
purpose that would be contrary to the first sentence of Section 12.1 above.
12.3 Except as permitted under the last sentence of this Section 12.3,
for a period of two (2) years from the Closing Date, hire any person who worked
for Buyer, its affiliates, or the Franchised Businesses as of the Closing Date
or at any time within six (6) months before the Closing Date, and for two
additional years after the expiration of such two-year period, hire any such
person without complying with Franchisor's employee transfer policy as it
existed on the
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Closing Date. Notwithstanding the previous sentence, the Sellers and the
Stockholders may hire (i) any person who voluntarily left his or her employment
with Buyer or its affiliates at least six (6) months before being contacted by
the Sellers and the Stockholders for the purpose of discussing possible
employment; and (ii) any person whose employment was terminated by Buyer or its
affiliates before the person was contacted by the Sellers and the Stockholders
for the purpose of discussing possible employment.
12.4 For a period of four (4) years from the Closing Date, directly or
indirectly induce, or attempt to influence, any employee of Franchisor, Buyer,
or their affiliates to terminate his or her employment. This provision shall not
be construed as a waiver of any rights or claims that Buyer, Franchisor, and
their affiliates may have against the Sellers or the Stockholders as a result of
a breach by any person of an employment or other agreement with Franchisor,
Buyer, or their affiliates after the end of such four-year period. Any hiring of
an employee or former employee of Franchisor, Buyer, or their affiliates that
complies with Section 12.3 above shall not be deemed to violate this Section
12.4.
12.5 If in any dispute over this Section 12 an arbitrator or court
deems any provision of this Section 12, as written, to be unreasonable and
unenforceable under applicable law, the parties agree that the arbitrator or
court shall reduce the scope of the provision or strike the provision from this
Agreement in order that this Section 12 may impose the maximum duty permitted by
applicable law. The Sellers and the Stockholders agree that they will remain
bound by this Section 12 as so modified by the arbitrator or court.
13. Indemnification.
13.1 Without limiting any of their other obligations under this
Agreement, the Sellers and the Stockholders, jointly and severally, agree to
indemnify and hold harmless Buyer, Franchisor, their affiliates, and their
respective officers, directors, shareholders and employees against and from any
loss, liability, damages, cost or expense (including, but not limited to,
reasonable attorneys' and accounting fees and expenses) based upon, arising out
of, or relating to: (i) any materially inaccurate, materially untruthful, or
materially erroneous representation of any Seller or Stockholder set forth in
the Option Agreement, this Agreement, or any certificate or document delivered
pursuant to this Agreement; (ii) any material failure to perform with respect to
any of the covenants, conditions or agreements of any Seller or Stockholder set
forth in the Option Agreement, this Agreement, or any certificate or document
delivered pursuant to this Agreement; or (iii) the ownership or operation of the
Franchised Businesses up to the Closing Date.
13.2 Buyer agrees to indemnify and hold harmless the Sellers and the
Stockholders against and from any loss, liability, damages, cost or expense
(including but not limited to reasonable attorneys' and accounting fees and
expenses) based upon, arising out of, or relating to: (i) any materially
inaccurate, materially untruthful, or materially erroneous representation of
Buyer, Franchisor, and their affiliates set forth in the Option Agreement, this
Agreement, or any certificate or document delivered pursuant to this Agreement;
(ii) any material failure to perform with respect to any of the covenants,
conditions or agreements of Buyer set forth in the Option Agreement, this
Agreement or any certificate or document delivered pursuant to this Agreement;
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or (iii) the ownership or operation of the Franchised Businesses by Buyer on and
after the Closing Date.
13.3 All claims for indemnification under Sections 13.1 and 13.2 above
must be submitted within two (2) years after the Closing, except that a claim by
Buyer with respect to the representations and warranties in Sections 8.11 and
8.13 may be submitted at any time before the expiration of the statute(s) of
limitations applicable to the matters referred to in Sections 8.11 and 8.13. If
any party becomes aware of any claim in respect to which it believes it is
entitled to indemnification pursuant to this Agreement (a "Claim"), such party
(the "Claiming Party") shall give written notice of the Claim to the Sellers and
the Stockholders or to Buyer, as appropriate (the "Indemnifying Party"), within
ninety (90) days after the Claiming Party becomes aware of the Claim. In the
case of a Claim based on a loss or liability asserted against the Claiming Party
by a third party, the Indemnifying Party shall have thirty (30) days from its
receipt of notice of the Claim to assume defense of the Claim, and if the
Indemnifying Party fails to assume the defense within such thirty-day period the
Claiming Party shall have the right to contest, settle, or pay the claim, in the
Claiming Party's sole discretion. Failure to provide timely notice of a Claim:
(i) will not prohibit the Claiming Party from conducting its own defense
(including hiring its own legal counsel); and (ii) will relieve the Indemnifying
Party from any obligation to indemnify for that particular Claim, to the extent
the Indemnifying Party is prejudiced by failure to receive notice. The Claiming
Party and the Indemnifying Party shall cooperate fully with each other with
respect to all Claims subject to indemnification, and shall keep each other
fully advised with respect thereto, including supplying copies of all relevant
documentation promptly as it becomes available.
13.4 Notwithstanding anything to the contrary in this Section 13,
payment of a Claim to the Indemnified Party shall not be due until such time as
the aggregate amount of all pending Claims made by the Indemnified Party exceeds
$10,000. Any Claims that remain unpaid solely on account of this provision as of
the expiration of the two-year period specified in Section 13.3 shall be deemed
waived.
14. Assignment of Franchise Agreements. The Sellers and Franchisor agree that
upon consummation of this transaction, the Sellers' and Stockholders' interest
in the Franchise Agreements will be deemed assigned to Buyer. The Sellers and
the Stockholders will have no further rights or obligations thereunder, except
for the post-term covenant not to compete and the post-term obligations of the
Sellers and the Stockholders to: (i) return all materials containing
confidential information about Franchisor or the TPR Method; (ii) discontinue
use of such confidential information; and (iii) cease all use of the Proprietary
Marks and the TPR Method licensed under the Franchise Agreements.
15. Post-Closing Obligations of the Sellers and the Stockholders. In addition to
any other post-Closing obligations of the Sellers and the Stockholders set out
in this Agreement:
15.1 The Sellers and the Stockholders shall retain and carry out all
responsibility for the administration, reporting, continuation, and termination
of the Employee Benefit Plans. The parties acknowledge that a Buyer is acquiring
no liability with respect to the Employee Benefit Plans and no interest in any
profit-sharing plan funds or similar funds held for the benefit of Sellers'
employees under the Employee Benefit Plans.
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15.2 The Sellers shall timely file all federal, state, and local
income, franchise, payroll, sales, property, and other tax returns relating to
the Sellers or the Franchised Businesses for the period through the Closing
which become due on or after the Closing; shall timely pay all taxes shown by
such returns to be due and payable, together with any interest or penalties
which may be assessed by taxing authorities on any taxes which were not timely
paid; and, upon Buyer's request, shall deliver to Buyer copies of all tax
clearance letters and closing notices received from government authorities which
relate to the Sellers or the Franchised Businesses. Buyer shall cooperate with
the Sellers in satisfying their obligations under this Section 15.2 by providing
such copies, documents and information as are reasonably necessary.
15.3 At Buyer's request, without further consideration, the Sellers and
the Stockholders will execute and deliver such further instruments of conveyance
and transfer and take such other action as Buyer may reasonably require for the
transfer of the Assets.
15.4 At Buyer's request, Rob Cohen shall devote his full time for the
first three (3) months after the Closing, and not fewer than four (4) hours per
week for the following three (3) months, to assisting Buyer with the transition
of the Franchised Businesses to Buyer. Buyer agrees to pay Mr. Cohen $2,000 per
week for his services under this Section, provided that Buyer shall have the
unrestricted right to terminate Mr. Cohen's services at any time and without
obligation to make any further payments hereunder.
15.5 [Omitted.]
15.6 Each Seller shall change its corporate name to delete the words
"Princeton Review" and shall cancel or transfer to Buyer all business name and
fictitious name registrations containing the words "Princeton Review." The
Sellers shall furnish evidence of such actions to Buyer upon reasonable request.
15.7 As provided in Section 7.8, if the Sellers fail to deliver at
Closing a fully-executed lease assignment or a sublease with respect to any of
the existing business premises of the Franchised Businesses, then without
limiting the obligations of the Sellers and the Stockholders under Section 13.1,
the Sellers shall promptly reimburse Buyer (i) for any and all out-of-pocket
costs that Buyer may incur as a result of relocating to comparable premises, and
(ii) for any loss of business suffered by Buyer due to an interruption in the
Franchised Business in order to relocate.
15.8 The Sellers and the Stockholders shall use their best efforts to
assist Buyer in obtaining either: (a) a transfer of the I-17 authorization of
Princeton Review of Boston, Inc. referred to in Section 1.2.9, or (b) a new I-17
authorization of Buyer to enroll non-immigrant aliens, equivalent to the
authorization held by Princeton Review of Boston, Inc. The Sellers and the
Stockholders shall bear the first $4,500 of legal fees incurred in connection
with this Section.
16. Post-Closing Obligations of Buyer. In addition to any other post-Closing
obligations of Buyer set out in this Agreement:
19
<PAGE> 40
16.1 Buyer shall furnish copies or permit access by the Sellers and
their accountants and legal counsel, upon reasonable notice and during regular
business hours, to any of the Sellers' records delivered to Buyer as a part of
the Assets.
16.2 At the Sellers' request, without further consideration, Buyer will
execute and deliver such further evidence as the Sellers may reasonably require
of Buyer's assumption of responsibility for the items specified in clauses (i)
and (ii) of Section 3.
16.3 Buyer shall permit Rob Cohen to continue to use the email address
[email protected] and shall permit Matthew Rosenthal to continue to use the email
address [email protected] during the four-year period of the covenant not to
compete in Section 12, provided that they are not in default under that Section.
Messrs. Cohen and Rosenthal agree that such email accounts shall be used solely
for purposes consistent with the letter and spirit of this Agreement and that
Buyer and its affiliates shall have no liability to them for any interruption of
service caused by circumstances beyond Buyer's reasonable control.
16.4 If required under Section 4.2.1, Buyer or the Guarantor shall
cause the entity or entities succeeding to its or their interest in the TPR
Business to execute and deliver the Guaranty or to assume the Note.
17. Notices. All notices pursuant to this Agreement shall be in writing and
shall be deemed given when delivered by hand, by overnight courier, or by
facsimile transmission, or on the third day after mailing if mailed by express
mail or its equivalent, postage prepaid, return-receipt requested, if available,
as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) To the Sellers and Mr. Rob Cohen
the Stockholders: 34 Baker Circle
Somerville, New Jersey 08876
with a copy to: Greg White
Chappell White LLP
268 Summer Street
Boston, Massachusetts 02110
(b) To Buyer and/or Franchisor: Mr. Mark Chernis
Princeton Review Management, L.L.C.
2315 Broadway
New York, New York 10024
with a copy to: David W. Koch
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
</TABLE>
or to such other address as any party shall have designated by a notice in
writing so delivered to the other parties. Notices directed to the Sellers and
the Stockholders as indicated above shall be effective as to all of the Sellers
and the Stockholders, whether or not they receive notice
20
<PAGE> 41
individually. Notices to counsel unaccompanied by notices to principals shall
not constitute notice.
18. Entire Agreement. This Agreement, together with its Schedules and Exhibits
and the Option Agreement, constitute the entire agreement of the parties with
respect to the subject matter hereof, and all prior negotiations, understandings
and agreements between the parties concerning the same subject matter, other
than the Option Agreement, are merged herein. This Agreement may not be modified
or rescinded except in a written instrument signed by all of the parties hereto.
19. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. Governing Law. This Agreement shall be governed by and construed under the
laws of the State of New York, without giving effect to New York principles of
conflicts of laws.
21. Costs and Expenses. Except as specified in Section 13 of the Option
Agreement, each party shall bear its own legal and other costs and expenses in
connection with the negotiation, preparation, and execution of this Agreement
and the performance of the transactions contemplated hereby. The Sellers and the
Stockholders agree to indemnify and hold Buyer and Franchisor harmless from any
broker's or finder's fee or alleged broker's or finder's fee incurred by or
claimed against the Sellers and the Stockholders. Buyer agrees to indemnify and
hold the Sellers and the Stockholders harmless from any broker's or finder's fee
or alleged broker's or finder's fee incurred by or claimed against Buyer or
Franchisor.
22. Survival of Representations. The parties agree that no action or arbitration
may be brought based on the alleged breach of any representation or warranty set
forth in Sections 8 and 9 of this Agreement unless such action or arbitration is
commenced within two (2) years after the Closing Date, except that an action by
Buyer with respect to the representations and warranties in Sections 8.11 and
8.13 may be brought at any time before the expiration of the statute(s) of
limitations applicable to the matters referred to in Sections 8.11 and 8.13.
23. Arbitration. Any dispute involving a monetary obligation under this
Agreement, and certain disputes under the Note (as provided therein) shall, if
the amount in dispute is less than $250,000, be resolved by arbitration under
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). The arbitration proceeding shall be conducted in New York City. All
matters within the scope of the Federal Arbitration Act of the United States (9
U.S.C. sec. 1 et seq.) shall be governed by the Act. The parties shall jointly
select a neutral person to serve as the arbitrator, but if the parties have not
agreed on the arbitrator within 30 days after the date of the demand for
arbitration, the arbitrator shall be appointed in accordance with AAA rules. The
arbitrator shall have no authority to award exemplary, punitive, or special
damages, and each party shall be limited to the recovery of any actual damages
sustained by it (and costs and attorneys' fees, as provided below). The award of
the arbitrator shall be conclusive and binding on all parties to this Agreement,
and judgment on the award may be entered in any court of competent jurisdiction.
Nothing herein shall be construed or interpreted to prevent any party
21
<PAGE> 42
from commencing appropriate litigation in any court of competent jurisdiction to
secure specific performance or equitable relief of any kind for breach of this
Agreement.
24. Prevailing Party Fees and Costs. The prevailing party or parties in any
arbitration or litigation involving this Agreement will be entitled to recover
from the losing party or parties its or their reasonable costs and expenses
arising out of or incurred by reason of the action or arbitration, including but
not limited to reasonable attorneys fees, AAA administrative fees, and
arbitrators fees.
[SIGNATURE PAGES FOLLOW.]
22
<PAGE> 43
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives.
PRINCETON REVIEW OF BOSTON, INC.
By:
-----------------------------
Its:
-----------------------------
PRINCETON REVIEW OF NEW JERSEY, INC.
By:
-----------------------------
Its:
-----------------------------
ROBERT L. COHEN, Individually
----------------------------------
MATTHEW ROSENTHAL, Individually
----------------------------------
PRINCETON REVIEW OPERATIONS, L.L.C.
By: ---------------------------
Mark Chernis
Chief Operating Officer
PRINCETON REVIEW MANAGEMENT, L.L.C.
By: ---------------------------
Mark Chernis
Chief Operating Officer
23
<PAGE> 44
SCHEDULE 1.2
VALUATION OF ASSETS
<TABLE>
<CAPTION>
AGREEMENT ALLOCATION WITHIN CLOSING
PROVISION ASSET/RIGHT PURCHASE PRICE ADJUSTMENT
(SEE SCHEDULE 6)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.2.1 Leasehold improvements, Seller's book value Section 5.8.4
FF&E, signs, etc.
--------------------------------------------------------------------------------------------------------------------
1.2.2 Leases Zero allocation None
--------------------------------------------------------------------------------------------------------------------
1.2.3 Course materials, promotional materials, Zero allocation Section 5.8.2, 5.8.3
books, etc.
--------------------------------------------------------------------------------------------------------------------
1.2.4 Deposits and accounts receivable Zero allocation 1.2.4
--------------------------------------------------------------------------------------------------------------------
1.2.5 Revenues for courses/tutoring in progress Zero allocation Section 5.2, 5.3
--------------------------------------------------------------------------------------------------------------------
1.2.6 Rights to telephone numbers, web sites, $25,000 None
etc.
--------------------------------------------------------------------------------------------------------------------
1.2.7 Franchise rights, patents, copyrights, Sellers' book value None
trade secrets, etc.
-------------------------------------------------------------------------------------------------------------------
1.2.8 Goodwill All residual amounts None
--------------------------------------------------------------------------------------------------------------------
1.2.9 Permits and businesses licenses Sellers' book value None
--------------------------------------------------------------------------------------------------------------------
1.2.10 I-17 authorization Sellers' book value None
--------------------------------------------------------------------------------------------------------------------
1.2.11 All papers and records $100,000 None
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 45
SCHEDULE 1.2.2
LEASES
[TO BE COMPLETED WITHIN 30 DAYS AFTER EXECUTION OF OPTION AGREEMENT]
Landlord:
Date of Lease:
Expiration of Current
Lease Term:
Renewal Options:
Current Base Monthly Rent:
<PAGE> 46
SCHEDULE 1.2.9
ASSUMED CONTRACTS
[TO BE COMPLETED WITHIN 30 DAYS AFTER EXECUTION OF OPTION AGREEMENT]
I. Contracts for Office Services
II. Written Customer Contracts
<PAGE> 47
SCHEDULE 6
ALLOCATION OF PURCHASE PRICE
<TABLE>
<CAPTION>
Agreement
Provision Asset/Right New Jersey Boston
--------- ----------- ---------- ------
<S> <C> <C> <C>
1.2.1 Leasehold improvements, FF&E, signs, etc. See Schedule 1.2 See Schedule 1.2
1.2.6 Rights to telephone numbers, web sites, etc. $ 16,500 $ 8,500
1.2.7 Franchise rights, patents, copyrights, trade secrets, See Schedule 1.2 See Schedule 1.2
etc.
1.2.8 Goodwill See Schedule 1.2 See Schedule 1.2
1.2.9 Permits and business licenses See Schedule 1.2 See Schedule 1.2
1.2.10 I-17 Authorization Not Applicable See Schedule 1.2
1.2.11 All papers and records $ 65,000 $ 35,000
12 Covenant Not to Compete--Sellers** $ 65,000 $ 30,000
------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
[TO BE INSERTED WHEN [TO BE INSERTED WHEN
PURCHASE AGREEMENT IS PURCHASE AGREEMENT IS
EXECUTED] EXECUTED]
<S> <C> <C>
TOTAL PURCHASE PRICE**
======================= =======================
</TABLE>
** The Purchase Price does not include the amounts paid to
the Stockholders for their individual Covenants Not to
Compete under Section 12 of the Agreement. Neither
the amount allocated to the Sellers' Covenant Not to
Compete nor the amounts paid to the Stockholders under
Section 4.1. of the Agreement is intended to be a limitation
of the damages arising from a breach by the Sellers or the
Stockholders.
<PAGE> 48
SCHEDULE 8.2
STOCKHOLDERS OF THE SELLERS
[TO BE COMPLETED WITHIN 30 DAYS AFTER EXECUTION OF OPTION AGREEMENT]
<PAGE> 49
SCHEDULE 8.17
EMPLOYEES OF THE SELLERS
[TO BE COMPLETED WITHIN 30 DAYS AFTER EXECUTION OF OPTION AGREEMENT]
<PAGE> 50
SCHEDULE 8.18
EMPLOYEE BENEFIT PLANS
[TO BE COMPLETED WITHIN 30 DAYS AFTER EXECUTION OF OPTION AGREEMENT]
<PAGE> 51
EXHIBIT A
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE made as of the date set forth
below by and between [Princeton Review of Boston, Inc., a Massachusetts
corporation having a usual place of business at 57 Union Street, Suite 1,
Newton, MA 02159] [or other Seller entity] (hereinafter called "Assignor"), and
Princeton Review Operations, L.L.C., a Delaware limited liability company having
a usual place of business at 2315 Broadway, New York, New York 10024,
(hereinafter called "Assignee").
WHEREAS, Assignee is purchasing substantially all of the assets of
Assignor pursuant to the terms of that certain Asset Purchase Agreement between
the Assignor, Assignee, Rob Cohen, Matt Rosenthal, and Princeton Review
Management, L.L.C.;
WHEREAS, in connection with the purchase and sale of the business,
Assignor desires to assign to Assignee, and Assignee desires to accept from
Assignor an assignment of that certain lease agreement set forth in Exhibit A
(hereinafter called the "Lease") between the Assignor and the lessor described
therein (hereinafter called "Landlord").
NOW, THEREFORE, in consideration of ONE ($1.00) DOLLAR and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignor hereby assigns to Assignee all of Assignor's interest
in the Lease, effective as of the Effective Date, subject,
however, to the respective terms, covenants and conditions
contained therein.
2. Assignee accepts such assignment, effective as of the
Effective Date, and agrees to assume all of the obligations
and liabilities of the Assignor accruing or arising under the
Lease from and after the Effective Date. Assignee does not
assume any liability in connection with any actual or alleged
breach or default by Assignor occurring before the Effective
Date.
3. This Assignment and Assumption of Lease shall be binding upon
and shall inure to the benefit of Assignor and Assignee and
their respective successors and assigns.
4. The Landlord hereby consents to the within assignment by
Assignor of its interest under the Lease to the Assignee and
agrees that Assignor (and all guarantors of Assignor's
obligations) shall have no further liability under the Lease.
5. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 52
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment and
Assumption of Lease to be duly executed and delivered under seal as of the
effective date set forth below.
Effective Date: As of the date of transfer of all or substantially all
of the Assignor's assets to Assignee, but not later than _____________. Assignor
and Assignee shall hold this instrument in escrow until a copy hereof, with the
effective date marked hereon, shall be faxed or delivered to the Landlord.
PRINCETON REVIEW OF BOSTON, INC.
By:
----------------------
Name:
--------------------
Title:
-------------------
PRINCETON REVIEW OPERATIONS, L.L.C.
By:
----------------------
Name:
--------------------
Title:
-------------------
Consented to by:
[Name of Landlord]
------------------
By:
----------------------
Name:
--------------------
Title:
-------------------
2
<PAGE> 53
A.
B. COMMONWEALTH OF MASSACHUSETTS
____________, ss. [DATE]
Then personally appeared the above-named ____________________, the
___________ of [Princeton Review of Boston, Inc.], and acknowledged the
foregoing instrument to be his/her free act and deed, the free act and deed of
[Princeton Review of Boston, Inc.], before me,
--------------------------
Notary Public
My Commission Expires:_________
3
<PAGE> 54
EXHIBIT B TO
ASSET PURCHASE AGREEMENT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, UNLESS THE MAKER HAS RECEIVED THE WRITTEN OPINION OF COUNSEL
SATISFACTORY TO THE LENDER TO THE EFFECT THAT SUCH SALE, ASSIGNMENT OR TRANSFER
DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.
SUBORDINATED PROMISSORY NOTE
New York, New York
$3,125,000 _________________, ____
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"), a New Jersey corporation (PRB and PRNJ are referred to collectively
herein as the "Lender"), 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. 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"). 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
refunded to Maker or credited to reduce principal hereunder.
This is the Note referred to in that certain Asset Purchase Agreement dated as
of__________ (the "Asset Purchase Agreement"), by and among the Maker, the
Lender and the other parties named therein and is subject to all of the terms
thereof. This reference shall not impair the rights of the holder of this Note
to receive payments as set forth herein. Capitalized terms used but not
otherwise defined in this Note shall have the same meaning as in the Asset
Purchase Agreement.
<PAGE> 55
1. Payment.
(a) Payment Schedule. The principal sum of this Note and
interest due thereon shall be paid as follows:
(i) Interest accrued on the principal balance
outstanding shall be due and payable on the first Business Day (as defined
herein) of each calendar quarter.
(ii) The principal sum of this Note shall be paid in
equal, quarterly installments, each in the sum of $_____________, which shall be
due and payable on the first Business Day of each calendar quarter commencing on
[date which is the first Business day of the seventeenth full calendar quarter
following the date of issuance of this Note] and on the first Business Day of
each of the next succeeding nineteen calendar quarters until and including the
Maturity Date (as defined herein), or sooner upon the occurrence of an Event of
Default. Payments otherwise due on a day other than a Business Day shall be due
and payable on the next Business Day. If Lender exercises the Conversion Option
under Section 1(d) below and any portion of the unpaid principal is not
converted, the quarterly payments required by this section shall be recalculated
by dividing the unconverted principal amount by twenty (the number of quarterly
payments contemplated by this section).
(iii) In all events, and under all circumstances, all
unpaid principal and accrued interest shall be due and payable on the first
Business day of the thirty-sixth quarter after the issuance of this Note (the
"Maturity Date").
(b) Manner of Payments. Except as provided in Section 1(d)
below, principal and all accrued interest shall be payable in lawful money of
the United States of America, by wire transfer to a bank account designated by
the legal holder of this Note, or in such other manner as the legal holder may
designate from time to time in writing to the Maker. Maker shall have no
responsibility to see to the application of any payment made as provided herein
as between any persons comprising the Lender. The application of any payment
under this Note shall not affect the allocation made pursuant to Section 6 of
the Asset Purchase Agreement.
(c) Prepayment. The Maker may prepay this Note in whole or in
part, without premium or penalty, at any time after expiration of the Option
Period, as defined in Section 1(d) below. All payments received shall first be
applied to interest then due, and any balance thereafter remaining to reduction
of principal.
(d) Conversion Option. Lender shall have a one-time right to
convert either 100% or any percentage between 0% and 33% of the unpaid principal
due under this Note to common stock of The Princeton Review, Inc. ("Stock") at
the initial public offering price of the Stock. Lender may exercise this right
by delivering written notice (the "Conversion Notice") to Maker and The
Princeton Review, Inc. during the period beginning on the first anniversary of
the Closing Date under the Asset Purchase Agreement and ending on the sixtieth
day after such anniversary date (the "Option Period"). The
2
<PAGE> 56
Conversion Notice shall include a calculation of accrued interest due under this
Note through the anticipated date of issuance of the shares of Stock to Lender
as provided below. Subject to any applicable requirements or restrictions of
federal and state securities laws, if Lender timely delivers the Conversion
Notice, Maker shall promptly cause The Princeton Review, Inc. to issue to Lender
the number of shares of Stock determined by dividing the amount of unpaid
principal to be converted by the initial offering price of the Stock.
Concurrently with the issuance of the shares to Lender, Maker shall pay to
Lender any accrued interest due for the period through the date of issuance of
the shares. If Lender converts 100% of the unpaid principal to Stock, upon
issuance of the appropriate number of shares of Stock to Lender and payment of
the accrued interest, Lender shall deliver the original of this Note to Maker
stamped "Paid" or with other acknowledgment that this Note has been paid and
discharged in full.
2. Late Payment Fee. If the entire amount of any required payment of
principal and/or interest is not paid in full within one (1) Business Day after
notice thereof from the Lender, the Maker shall pay to the Lender a late fee
equal to one and one-half (1-1/2%) percent of the required payment (the "Late
Fee").
3. Event of Default.
(a) Defined. This Note shall become due and payable upon the
occurrence of any of the following events (each an "Event of Default"):
(i) A default by the Maker in the making of any
required payment of principal and/or interest under Section 1(a) of this Note
continuing uncured for more than ten (10) calendar days after the giving of
notice to the Maker of such default; or
(ii) If the Maker or any Guarantor is adjudicated
bankrupt or has a trustee or receiver appointed for all or a substantial part of
the Maker's or Guarantor's property in any involuntary proceeding, or if any
court shall have taken jurisdiction of all or a substantial part of the Maker's
or Guarantor's property in any involuntary proceeding for the reorganization,
dissolution, liquidation or winding up of the Maker or such Guarantor; or
(iii) If the Maker or any Guarantor files a petition
in voluntary bankruptcy or a petition under Chapter XI of the Federal Bankruptcy
Code or any similar state or federal law, whether now existing or hereafter
enacted, or if the Maker or any Guarantor files an answer not denying
jurisdiction of the court or admitting the material allegations in any such
proceeding filed against it, or if any such proceeding shall be approved and not
vacated or stayed within 60 days of commencement; or
(iv) If the Maker or any Guarantor makes an
assignment for the benefit of its creditors or admits in writing an inability to
pay its debts generally as they become due or consents to the appointment of a
receiver, trustee or liquidator of all of its property or a substantial part
thereof; or
3
<PAGE> 57
(v) If the Maker or any Guarantor terminates its
existence, except that it is not an Event of Default if the Maker or Guarantor
terminates its existence in connection with a reorganization of the corporate
structure of the Maker or Guarantor; or
(vi) If the Maker or any Guarantor defaults with
respect to, or with the giving of notice or the passage of time would default
with respect to, the Senior Indebtedness (as defined herein); provided, however,
that upon the cure of such default with respect to the Senior Indebtedness, the
Maker or any Guarantor shall be deemed to have cured the Event of Default under
this Section 3(a)(vii); or
(vii) If the Maker defaults in the making of any Fee
Payment (as defined in Section 3(d)) on the applicable Fee Payment Due Date; or
(viii) If the Maker or any Guarantor consummates a
sale or transfer of all or substantially all of its assets or capital stock or a
merger or consolidation with another entity without complying with Section 3(b)
below.
(b) Sale or Merger.
(i) It shall be an Event of Default under Section
3(a)(viii) if the Maker or a Guarantor:
(A) sells or transfers all or substantially
all of its assets or capital stock (excluding the issuance and sale of the
Maker's or a Guarantor's capital stock in connection with a public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, or any successor statute); or
(B) merges or consolidates with any other
entity, without first satisfying the requirements of clause (ii) or (iii) below
(whichever applies).
(ii) Transaction with Affiliate. If the purchaser,
transferee, or entity with which the Maker or Guarantor is merging or
consolidating (the "Transferee") is an entity controlling, controlled by, or
under common control with the Maker or Guarantor (an "Affiliate"), then before
consummating the transaction, the Maker or Guarantor shall deliver to the Lender
an executed Guaranty from the Transferee, as required under Section 4.2.1 of the
Purchase Agreement. No consent of the Lender is required.
(iii) Transaction with Unaffiliated Third Party. If
the Transferee is not an Affiliate, then in addition to delivering an executed
Guaranty from the Transferee, the Maker or Guarantor shall obtain the Lender's
consent as to the financial creditworthiness of the Transferee and, in the case
of a merger, of the surviving entity. The Lender's consent shall not be
unreasonably withheld or unduly delayed.
4
<PAGE> 58
(iv) It is not an Event of Default under Section
3(a)(v) if the Maker or any Guarantor terminates its existence in connection
with a merger or consolidation that complies with this Section 3(b).
(c) Opportunity to Cure Payment Default. If there shall be an
Event of Default under Section 3(a)(i) of this Note, the Maker may, at any time
prior to the entry of a judgment by a court in favor of the Lender for all
amounts due and payable hereunder, cure such Event of Default by paying the
entire amount of any overdue scheduled payments of principal and/or interest
required to be paid under Section 1(a) hereof (including interest at the Default
Rate, as applicable) and the Late Fee (collectively, the "Overdue Amount"), plus
an amount equal to fifteen percent (15%) of the Overdue Amount (the "Cure Fee"),
plus any and all costs of collection (as set forth in Section 4 hereof) incurred
by the Lender in connection with such Event of Default, provided, that there
shall be no Event of Default other than the one pursuant to Section 3(a)(i)
hereof. Upon such cure by payment of all amounts required to be paid pursuant to
this Section 3(b), interest on the principal sum of this Note shall again bear
interest at the rate of eight and one-quarter percent (8.25%) per annum, unless
and until a further Event of Default shall have occurred and remain uncured.
(d) Fee Payment Disputes. If at any time the Lender asserts,
in a notice to the Maker, that the Maker has failed to make any payment (by way
of non-payment or underpayment) of any Late Fee or of any Cure Fee under Section
3(c) hereof (any such amount being a "Fee"), then the Lender shall give notice
of such deficiency to the Maker. Either the Maker or the Lender may submit any
Fee dispute for binding arbitration under the terms of the Asset Purchase
Agreement at any time. No dispute as to a Fee payment shall give rise to a
default hereunder until non-payment of a Fee after the applicable Fee Payment
Due Date. The term "Fee Payment Due Date" shall mean the earlier to occur of (1)
the date on which an arbitration panel determines that a Fee is due to the
Lender or (2) the failure of the Maker to either pay a disputed Fee or to submit
any dispute with respect to such Fee to binding arbitration in accordance with
the terms of the Asset Purchase Agreement within thirty (30) days of the date of
notice from the Lender of such Fee dispute if the amount in dispute, together
with the amount of any other Fees then in dispute, as stated in the Lender's
notice(s) hereunder, exceeds the Threshold Amount (as defined below). The term
"Threshold Amount" shall mean $15,000 prior to the due date of the seventeenth
principal installment due hereunder and $30,000 thereafter. The existence of a
Fee dispute shall not affect any accrual of the amount of any Fee hereunder or
alter the obligations of the Maker under any provision of this Note. Prior to
the Fee Payment Due Date with respect to a Fee, the arbitration provisions of
the Asset Purchase Agreement shall govern any dispute with respect to such Fee.
4. Costs of Collection. The Maker hereby waives presentment, demand,
protest and notices of every kind and description (except as expressly required
hereby) and agrees to pay all costs and expenses, including reasonable
attorneys' fees in connection with the collection, protection, preservation,
defense or enforcement of this Note or any Guaranty of this Note after the
occurrence of an Event of Default, whether or not suit shall be instituted.
5
<PAGE> 59
5. Subordination. The Maker, for itself, its successors and assigns,
covenants and agrees, and the holder of this Note and each successor holder of
this Note by such holder's acceptance hereof, likewise covenants and agrees,
that notwithstanding any other provision of this Note, the payment of the
principal of and interest on this Note shall be subordinated in right of
payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full of all Senior Indebtedness (as hereinafter defined) at any time
outstanding. The provisions concerning subordination contained herein shall
constitute a continuing representation to all Persons who, in reliance upon such
provisions, become the holders of or continue to hold Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are hereby made obligees hereunder the same as if their names
were written herein as such, and they or any of them may proceed to enforce such
provisions against the Maker or against the holder of this Note without the
necessity of joining the Maker as a party.
(a) Payment of Senior Indebtedness. All Senior Indebtedness
shall be paid in full before any payment or distribution (whether in cash,
securities or other property) is made on account of this Note in any insolvency
or bankruptcy proceedings, receivership, liquidation, reorganization or other
similar proceedings involving the Maker or its property, or in any proceedings
for voluntary liquidation, dissolution or other winding up of the Maker or
distribution or marshaling of its assets or any composition with creditors of
the Maker, whether or not involving insolvency or bankruptcy. Any payment or
distribution (except securities which are subordinated and junior in right of
payment to the payment of all Senior Indebtedness then outstanding in terms of
substantially the same tenor as set forth herein) which would, but for the
foregoing sentence, be payable or deliverable in respect of this Note shall be
paid or delivered directly to the holders of Senior Indebtedness in the
proportions in which they hold the Senior Indebtedness, until all Senior
Indebtedness has been paid in full. Every holder of this Note, by becoming a
holder, designates the holder or holders of Senior Indebtedness as his or its
agents and attorney-in-fact to (i) demand, sue for, collect and receive the
Senior Indebtedness holder's share of payments and distributions referred to
above, and (ii) to file any necessary proof of claim therefor and to take all
such other action (including the right to vote such Senior Indebtedness holder's
share of this Note), in the name of the holder of this Note or otherwise, as the
Senior Indebtedness holders may determine to be necessary or appropriate for the
enforcement of this section. The holder and each successor holder of this Note,
by its or his acceptance thereof, agrees to execute, at the request of the
Maker, a separate agreement with any holder of Senior Indebtedness on the terms
set forth herein, and to take all such other action as the holder of Senior
Indebtedness may request in order to enable such holder to enforce this section.
(b) No Payment on Note Under Certain Conditions. If any
default occurs in the payment of the principal of or interest on any Senior
Indebtedness (whether as a result of acceleration thereof by the holders of such
Senior Indebtedness or otherwise) and during the continuance of such default 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) until such payment has been made or such default has been cured or
waived in writing by such holder of Senior Indebtedness, then and during the
continuance
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<PAGE> 60
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.
(c) Payments Held in Trust. In case any payment or
distribution shall be paid or delivered to any holder of this Note before all
Senior Indebtedness shall have been paid in full, despite or in violation or
contravention of the terms of this subordination, such payment or distribution
shall be held in trust for and paid and delivered ratably to the holders of
Senior Indebtedness (or their duly authorized representatives), until all Senior
Indebtedness shall have been paid in full.
(d) Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the holder of this Note
shall be subrogated to the rights of the holders of Senior Indebtedness (to the
extent of payments or distributions previously made to such holders of Senior
Indebtedness pursuant to the provisions of subparagraphs (a) and (c) above) to
receive payments or distributions of assets of the Maker applicable to the
Senior Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between the Maker and its creditors, other than the
holders of Senior Indebtedness and the holder of this Note, be deemed to be a
payment by the Maker to or on account of this Note; and for the purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
to which the holder of this Note would be entitled except for the provisions set
forth herein shall, as between the Maker and its creditors, other than the
holders of Senior Indebtedness and the holder of this Note, be deemed to be a
payment by the Maker to or on account of the Senior Indebtedness.
(e) Scope of Section. The provisions set forth herein are
intended solely for the purpose of defining the relative rights of the holder of
this Note, on the one hand, and the holders of the Senior Indebtedness, on the
other hand. Nothing contained herein or elsewhere in this Note is intended to or
shall impair, as between the Maker, its creditors other than the holders of
Senior Indebtedness, and the holder of this Note, the obligation of the Maker,
which is unconditional and absolute, to pay to the holder of this Note the
principal of and interest on the Note as and when the same shall become due and
payable in accordance with the terms thereof, or to affect the relative rights
of the holder of this Note and creditors of the Maker other than the holders of
the Senior Indebtedness, or to benefit any other creditors of the Maker other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the holder of this Note from accepting any payment with respect
to this Note or exercising all remedies otherwise permitted by applicable law
upon default under this Note, subject to the rights, if any, under this Note of
the holders of Senior Indebtedness in respect of cash, property or securities of
the Maker received by the holder of this Note.
(f) Survival of Rights. The right of any present or future
holder of Senior Indebtedness to enforce subordination of this Note pursuant to
the provisions of this Note shall not at any time be prejudiced or impaired by
any act or failure to act on the part of the Maker or any such holder of Senior
Indebtedness, including, without limitation, any
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<PAGE> 61
forbearance, waiver, consent, compromise, amendment, extension, renewal, or
taking or release of security of or in respect of any Senior Indebtedness or by
noncompliance by the Maker with the terms of such subordination regardless of
any knowledge thereof the holder may have or otherwise be charged with.
(g) Amendment or Waiver. The provisions of this paragraph may
not be amended or waived in any manner which is detrimental to any Senior
Indebtedness without the consent of the holders of a majority of the then
existing Senior Indebtedness.
(h) Senior Indebtedness Defined. For purposes hereof, "Senior
Indebtedness" shall mean any and all loans, advances and extensions of credit by
any institutional lender to the Maker, and all other indebtedness, liabilities
and obligations, direct or contingent, of the Maker to such institutional
lender, outstanding from time to time (including without limitation any and all
indebtedness to such institutional lender in respect of future loans or advances
or extensions of credit make to the Maker by such institutional lender prior to,
during or following any proceeding in respect of any Reorganization), together
with interest thereon and all fees, expenses and other amounts owing to such
institutional lender (regardless of the extent to which such amounts are allowed
as claims against the Maker in any Reorganization and including any interest
thereon accruing after the commencement of any reorganization and any other
interest that would have accrued thereon but for the commencement of such
reorganization) including reasonable attorneys' fees and disbursements and all
other costs incurred to enforce such institutional lender's loan documents. For
purposes hereof, any institutional lender shall also include its successor and
assigns.
6. Certain Defined Terms. As used herein, "Business Day" shall mean any
day other than a Saturday, Sunday or other day on which commercial banks in the
State of New York are authorized or required to close under the laws of the
State of New York.
7. Notices. Except as otherwise expressly provided herein, all notices,
requests, consents and other communications hereunder shall be in writing and
shall be deemed delivered (i) two Business Days after being sent by registered
or certified mail, return receipt requested, postage prepaid or (ii) one
Business Day after being sent via a reputable nationwide overnight courier
service guaranteeing next Business Day delivery, in each case to the intended
recipient at their principal business addresses or at such other address as the
addressee shall have specified by written notice given to the remaining parties.
Except as otherwise expressly provided herein, any party may give any notice,
request, consent or other communication hereunder using any other means
(including, without limitation, personal delivery, messenger service, telecopy,
first class mail or electronic mail), but no such notice, request, consent or
other communication shall be deemed to have been duly given unless and until it
is actually received by the party for whom it is intended. Notices hereunder
shall be addressed to a party which is a party to the Asset Purchase Agreement
at the address of such party as provided in the Asset Purchase Agreement or at
such other address as any such party shall have given notice to the other as
provided therein or herein. Notices to any other party shall be addressed to
such party at such address as such party shall have given notice as provided
herein. Notwithstanding any other provision of this
8
<PAGE> 62
Note, any notice under Section 3(a)(i) shall be effective when given by
telecopier with machine confirmation of transmission to the Maker, if a copy of
such notice is also sent to the Maker via a reputable nationwide overnight
courier service guaranteeing next Business Day delivery. Maker's telecopier
number is [to be provided].
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the law of the State of New York.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
9
<PAGE> 63
Executed as an instrument under seal as of the date first written
above.
[Maker]
By:____________________________
Name:
Title:
Attest:
____________________________
Clerk
10
<PAGE> 64
EXHIBIT C TO
ASSET PURCHASE AGREEMENT
11
<PAGE> 65
GUARANTY
FOR VALUE RECEIVED, the undersigned hereby unconditionally guarantees
to Princeton Review of Boston, Inc. ("PRB"), a Massachusetts corporation, for
itself and as agent for Princeton Review of New Jersey, Inc. ("PRNJ"), a New
Jersey corporation (PRB and PRNJ are referred to collectively herein as the
"Payee"), and Payee's successors and assigns, and to each subsequent holder of
the Subordinated Promissory Note dated [DATE], payable to the Payee in the
original principal amount of $3,125,000 (the "Note"), that the unpaid principal
of and interest (if any) on the Note will be promptly paid when due in
accordance with the terms thereof and agrees that the time for payment of the
Note may be extended or waived or the Note may be renewed, all without affecting
the liability of the undersigned hereunder and without notice to the
undersigned.
The undersigned hereby agrees that its obligations hereunder shall be
unconditional irrespective of the genuineness, validity, legality or
enforceability of the Note or any other circumstances which might otherwise
constitute a legal or equitable discharge of a surety or guarantor and
regardless of any law, rule, regulation, decree or order now or hereafter in
effect in any jurisdiction purporting to affect in any manner any of the terms
of the Note or the rights of the Payee or any holder thereof with respect
thereto.
The liability of the undersigned hereunder shall be reinstated or
revived, and the rights of the Payee and of each subsequent holder of the Note
shall continue, with respect to any amount (or portion thereof) at any time paid
on the Note which shall thereafter be required to be restored or returned by the
Payee or such holder, as the case may be, upon the bankruptcy, insolvency or
reorganization of the Maker of the Note or for any other reason, all as though
such amount (or portion thereof) had not been paid.
The undersigned hereby waives presentment, protest, all notices
(whether of nonpayment, dishonor, protest or otherwise) other than the notice of
nonpayment of the Note which the Payee has agreed to provide solely to the Maker
of the Note, with respect to the Note, acceptance of this Guaranty and all
demands whatsoever.
If the undersigned completes a transaction under Section 3(b) of the
Note and complies with the requirements of that Section, then upon delivery of
the executed Guaranty of the Transferee to the Payee, this Guaranty shall be
void except as to any amounts demanded by Payee from the undersigned before the
delivery of the Guaranty of the Transferee.
12
<PAGE> 66
This Guaranty, and the liability of the undersigned hereunder, shall be
construed in accordance with and governed by the laws of the State of New York.
[NAME OF PARENT/AFFILIATE]
______________________________ By:___________________________
WITNESS Title:
13
<PAGE> 67
EXHIBIT D TO
ASSET PURCHASE AGREEMENT
BILL OF SALE
Princeton Review of Boston, Inc., a Massachusetts corporation, and
Princeton Review of New Jersey, Inc., a New Jersey corporation (together, the
"Sellers"), in consideration of $1.00 and other valuable consideration paid to
them by Princeton Review Operations, L.L.C., a Delaware limited liability
company ("Buyer"), the receipt and adequacy of which are hereby acknowledged,
hereby grant, sell, transfer, and deliver to Buyer title to all of the Assets
(as that term is defined in that certain Asset Purchase Agreement dated
___________ by and between the Sellers, Robert L. Cohen, Matthew Rosenthal,
Buyer, and Princeton Review Management, L.L.C., a Delaware limited liability
company (the "Asset Purchase Agreement") pertaining to the The Princeton
Review(R) businesses operated by the Sellers.
Buyer shall have all right and title to the Assets in itself and in its
designees, successors, and assigns.
The Sellers are the lawful owners of the Assets, and the Assets are
free of all encumbrances. Each Seller has good right to sell the Assets and will
warrant and defend that right against all claims and demands on all persons as
provided in the Asset Purchase Agreement.
IN WITNESS WHEREOF, each Seller has executed this Bill of Sale,
intending to be legally bound, effective as of _____________, _______.
PRINCETON REVIEW OF BOSTON, INC.
By:_________________________________________
President
PRINCETON REVIEW OF NEW JERSEY, INC.
By:_________________________________________
President
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<PAGE> 68
EXHIBIT E TO
ASSET PURCHASE AGREEMENT
SELLERS' CERTIFICATE
THE UNDERSIGNED, the Presidents of Princeton Review of Boston, Inc., a
Massachusetts corporation, and Princeton Review of New Jersey, Inc., a New
Jersey corporation (together, the "Sellers"), in accordance with Section 7.7 of
that certain Asset Purchase Agreement dated ___________ by and between the
Sellers, Robert L. Cohen, Matthew Rosenthal, Princeton Review Operations,
L.L.C., a Delaware limited liability company, and Princeton Review Management,
L.L.C., a Delaware limited liability company (the "Asset Purchase Agreement"),
hereby certify and warrant that:
1. All representations and warranties of the Sellers and the
Stockholders contained in the Asset Purchase Agreement are true as of the date
of execution of this Certificate.
2. Each Seller has performed all agreements on its part required under
the Asset Purchase Agreement to be performed on or before the Closing Date (as
defined in the Asset Purchase Agreement).
3. Neither Seller is in default under any of the provisions of the
Asset Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate under
seal this ___ day of __________,_______.
PRINCETON REVIEW OF BOSTON, INC.
By:__________________________________ (Seal)
President
PRINCETON REVIEW OF NEW JERSEY, INC.
By:__________________________________ (Seal)
President
<PAGE> 69
EXHIBIT F TO
ASSET PURCHASE AGREEMENT
ASSIGNMENT AND ASSUMPTION OF CERTAIN AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is entered
into effective as of ________________ by and between Princeton Review of Boston,
Inc. and Princeton Review of New Jersey, Inc. (together, the "Assignors"), and
Princeton Review Operations, L.L.C. ("Assignee").
RECITAL
This Agreement is entered into pursuant to the terms of that certain
Asset Purchase Agreement dated ______________ by and among the Assignors,
Assignee, Robert L. Cohen, Matthew Rosenthal, and Princeton Review Management,
L.L.C. (the "Purchase Agreement"). For purposes of this Agreement, the term
"Assumed Contracts" shall mean the agreements listed in Schedule 1.2.9 to the
Purchase Agreement.
1. Assignment. For good and valuable consideration received by the
Assignors, the receipt and sufficiency of which are hereby acknowledged, the
Assignors hereby grant, transfer, and assign to Assignee all of the Assignors'
right, title and interest in and to each of the Assumed Contracts.
2. Assumption. Assignee hereby assumes, and agrees to be bound by, all
of the covenants, agreements, and obligations of the Assignors under the Assumed
Contracts which arise or are incurred, or are to be performed, on and after the
date of this Agreement.
3. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon each of the parties and their respective successors and assigns.
4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 70
IN WITNESS WHEREOF, the Assignors and Assignee have executed this
Agreement, intending to be bound legally.
PRINCETON REVIEW OF BOSTON, INC.
By:
----------------------------------
President
PRINCETON REVIEW OF NEW JERSEY, INC.
By:
----------------------------------
President
PRINCETON REVIEW OPERATIONS, L.L.C.
By:
----------------------------------
Mark Chernis
Chief Operating Officer
2
<PAGE> 71
EXHIBIT G TO
ASSET PURCHASE AGREEMENT
MUTUAL RELEASE
THIS MUTUAL RELEASE is entered into effective as of ______________,
____ by and between Princeton Review of Boston, Inc. and Princeton Review of New
Jersey, Inc. (together, the "Sellers"), and Robert L. Cohen, Matthew Rosenthal,
and Joel Rubin (together, the "Stockholders"), on the one hand; and Princeton
Review Management, L.L.C. ("Franchisor"), Princeton Review Operations, L.L.C.
("Buyer"), and Princeton Review Products, L.L.C. ("Products"), on the other
hand.
WHEREAS the Sellers, Robert L. Cohen, Matthew Rosenthal, Buyer, and
Franchisor are parties to an Asset Purchase Agreement dated ___________ (the
"Asset Purchase Agreement") pursuant to which Buyer is acquiring substantially
all of the assets of the The Princeton Review(R) businesses operated by the
Sellers (the "Franchised Businesses");
WHEREAS, pursuant to the Asset Purchase Agreement, the parties are
obligated to execute and deliver this Mutual Release as a condition of closing
of the purchase and sale of the Businesses;
NOW, THEREFORE, the parties agree as follows:
1. Release by the Sellers and the Stockholders. Except as provided in
Paragraph 3 below, the Sellers and the Stockholders, for themselves and their
respective successors, assigns, heirs, personal representatives, and all other
persons acting on their behalf or claiming under them, hereby release
Franchisor, Buyer, Products, and their respective past, present, and future
officers, directors, members, agents, employees, attorneys, insurers,
successors, and assigns from any and all actions, causes of action, suits,
claims, damages, expenses, judgments, or demands, which any Seller or
Stockholder may have ever had, now has, or may ever have based on any
transaction, event, or circumstance prior to the effective date of this Mutual
Release.
2. Release by Franchisor, Buyer, and Products. Except as provided in
Paragraph 3 below, Franchisor, Buyer, and Products, for themselves and their
respective successors and assigns and all other persons acting on their behalf
or claiming under them, hereby release each Seller and Stockholder, their
affiliates, and their respective past, present, and future officers, directors,
shareholders, agents, employees, attorneys, insurers, successors, assigns, heirs
and personal representatives from any and all actions, causes of action, suits,
claims, damages, expenses, judgments or demands, which Franchisor, Buyer, or
Products may have ever had, now has, or may ever have based on any transaction,
event, or circumstance prior to the effective date of this Mutual Release.
<PAGE> 72
3. Exceptions.
a. Paragraphs 1 and 2 do not release any person or entity
from: (i) any of their representations or obligations under the Option
Agreement, the Asset Purchase Agreement, the Note, the Guaranty, or any other
documents executed in connection with the Asset Purchase Agreement, including
but not limited to the parties' respective indemnification obligations under the
Asset Purchase Agreement and such of their obligations under the Franchise
Agreements as are specified in the Asset Purchase Agreement to survive the
Closing; or (ii) any claim or liability arising from a breach of the
representations and obligations referred to in clause (i).
b. Paragraphs 1 and 2 do not release any person or entity
from: (i) any obligation under the Conversion and Contribution Agreement dated
April ____, 2000, the Stockholders Agreement dated _____________, or any other
contractual arrangement or statutory provision relating to the ownership of the
Stock; or (ii) any claim that a person or entity may have by virtue of its
status as a direct or indirect owner of Stock, provided that, each of the
Sellers and the Stockholders covenants that he or it will not assert any claim
alleging that an act or decision by Franchisor, Buyer, or Products (or by any
person controlling Franchisor, Buyer, or Products) was adverse to his or its
former interest in The Princeton Review Publishing Company, L.L.C. if such act
or decision was made in the good faith judgment that the act or decision was in
the best overall business interests of The Princeton Review(R) franchisees,
separately or as a group.
4. No prior assignment. The Sellers, the Stockholders, Franchisor,
Buyer and Products each represent and warrant that they are the sole owners of
all claims and rights released by each of them hereunder and that they have not
assigned or transferred, or purported to assign or transfer, to any person or
entity, any claim, demand, suit, action, or cause of action released by each of
them under Paragraphs 1 or 2 above.
5. Complete defense. The parties to this Mutual Release acknowledge
that this Mutual Release will be a complete defense to any claim released under
Paragraphs 1 or 2 above; and hereby consent to the entry of a temporary or
permanent injunction to prevent or end the assertion of any such claim.
6. Successors and Assigns. This Mutual Release will inure to the
benefit of and bind the successors and assigns of each party to this Mutual
Release.
7. Applicable law. This Mutual Release shall be governed by and
construed under the laws of the State of New York, without giving effect to New
York conflict of law principles.
[Signature pages follow.]
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<PAGE> 73
IN WITNESS WHEREOF, the parties have executed this Mutual Release by
their duly authorized representatives.
PRINCETON REVIEW OF BOSTON, INC.
By:_____________________________________
President
PRINCETON REVIEW OF NEW JERSEY, INC.
By:_____________________________________
President
ROBERT L. COHEN, Individually
________________________________________
MATTHEW ROSENTHAL, Individually
________________________________________
JOEL RUBIN, Individually
________________________________________
[Signatures continued on following page.]
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<PAGE> 74
PRINCETON REVIEW MANAGEMENT, L.L.C.
By:_____________________________________
Mark Chernis
Chief Operating Officer
PRINCETON REVIEW OPERATIONS, L.L.C.
By:_____________________________________
Mark Chernis
Chief Operating Officer
PRINCETON REVIEW PRODUCTS, L.L.C.
By:_____________________________________
Mark Chernis
Chief Operating Officer
4
