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EXHIBIT 2.6
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of October 18, 2000
by and between PRINCETON REVIEW OPERATIONS, L.L.C., a Delaware limited liability
company ("TPR"), and T.S.T.S., INC., a Texas corporation ("Seller"), ▇▇▇▇▇▇ ▇.
CASE, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.
Recitals
A. 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. Seller 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.
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. On and subject to the terms of this Agreement,
Seller irrevocably grants to TPR the option (the "Purchase 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
determined under Section 4 below (the "Purchase Price").
2. Exercise of Option.
2.1 TPR may exercise the Purchase Option by giving written notice (the
"Exercise Notice") to Seller at any time during the period commencing on the
date of this Agreement and ending at 11:59 p.m. on July 15, 2001 (the "Option
Term"). Concurrently with delivery of the Exercise Notice, TPR will calculate,
using the financial information furnished by Seller under Section 3 below, five
(5) times Seller's Adjusted EBITDA, as defined in Section 2.2 below (the
"Purchase Price Calculation").
2.2 "Adjusted EBITDA" means Seller's actual EBITDA, as defined in
Section 2.4 below, for the last four full calendar quarters before delivery of
the Exercise Notice (the "Calculation Period"), with the following adjustments:
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(a) TPR will add back the aggregate amount of all (i) salary
and bonuses of ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, (ii) retirement benefits for the
benefit of ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and (iii) all perquisites and any
other amounts provided for the personal benefit of Rob Case and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
to the extent that the amounts referenced in clauses (i), (ii) and (iii) were
deducted by Seller in calculating its EBITDA for the Calculation Period. Seller
has advised TPR that a portion of the items which have been historically paid or
provided by Seller for the personal benefit of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or Rob Case do not
have documentary evidence supporting the personal nature of such items, and TPR
agrees to work reasonably with Seller in attempting to find acceptable
alternative methods of confirming the personal nature of such items;
(b) TPR will add $50,000 over and above the adjustment in
clause (a) to cover physical overhead requirements of Case and ▇▇▇▇▇▇▇▇;
(c) If the EBITDA for Seller's Oklahoma division is less than
$0.00 for the Calculation Period after adding back the Network allocations of
Seller charged to the Oklahoma division for that period, then TPR will add the
amount by which the Oklahoma EBITDA was less than $0.00 back to the overall
EBITDA calculation.;
(d) TPR will add the legal fees incurred directly in
connection with, and amounts paid in settling, the lawsuit filed by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇ against Seller to the extent such amounts were deducted by Seller in
calculating its EBITDA for the Calculation Period (provided that no more than
$26,000 will be added back to EBITDA pursuant to this clause (d)); and
(e) Adjustments for bonuses to Seller's employees will be made
as follows:
(i) if Seller's income from operations for the
Calculation Period reflects an aggregate bonus expense for ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇▇▇ (together, the "Management
Employees") of less than twenty percent (20%) of the aggregate base salaries,
excluding bonuses, of the Management Employees in the Calculation Period, the
bonus expense for the Management Employees reflected in Seller's income from
operations shall be increased to an amount equal to 20% of the aggregate base
salaries, excluding bonuses, of the Management Employees for the Calculation
Period.
(ii) with respect to any period of service included
in the Calculation Period for which Seller's income from operations does not
reflect an expense for a bonus for non-Management Employee payroll for such
period, a deemed bonus equal to 8% of Seller's aggregate payroll expense for the
non-Management Employees for such period shall be subtracted from EBITDA.
However, the ratable portion of any non-Management Employee bonuses reflected in
Seller's income from operations in the Calculation Period which is attributable
to services performed by the non-Management Employees before the Calculation
Period shall be added back to EBITDA for the Calculation Period.
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(f) TPR will add the amount of third party professional fees
paid by Seller in connection with the negotiation, preparation, execution and
performance under this Agreement which would not have otherwise been incurred to
the extent such amounts were deducted by Seller in calculating its EBITDA for
the Calculation Period.
2.3 Attached to this Agreement as Schedule 2 are calculations of
Seller's Adjusted EBITDA for 1998 and 1999. The parties acknowledge that the
purpose of Schedule 2 is to serve as a model for the calculation of Adjusted
EBITDA under Section 2.2 above, and they agree that substantially the same form
of presentation shown in Schedule 2 will be used for such calculation.
2.4 As used herein, the term "EBITDA" shall mean, for any period of
time, the income from operations of Seller (as determined according to generally
accepted accounting principles, consistently applied) for such period of time,
(i) increased by the amount of all interest expenses deducted during such period
of time in determining Seller's income from operations, (ii) increased by the
amount of any deductions for taxes based on corporate income included in
determining Seller's income from operations for such period of time, (iii)
reduced by the amount of any credits or benefits from overpaid taxes based on
corporate income included in determining Seller's income from operations for
such period of time, and (iv) increased by the amount of all depreciation and
amortization charges deducted in calculating Seller's income from operations for
such period of time. To avoid any ambiguity or uncertainty, the parties
stipulate and agree that the Texas Franchise Tax shall be deemed to be a tax
based on corporate income.
3. Financial Statements.
3.1 Within thirty (30) days after the execution of this Agreement,
Seller shall deliver to TPR, at Seller's expense: (i) reviewed balance sheets as
of December 31, 1998 and December 31, 1999; (ii) reviewed income statements for
the fiscal years ending December 31, 1998 and December 31, 1999; and (iii)
copies of Seller's tax returns for 1998 and 1999. The reviews of Seller's
financial statements shall be conducted by PriceWaterhouse Coopers or another
independent certified public accounting firm reasonably acceptable to TPR.
Seller shall use its reasonable best efforts to furnish to TPR a letter from the
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 services in connection with Seller's financial statements. TPR's
commitment under Section 20 below to advance funds against certain expenses of
Seller shall not apply to this Section 3.1.
3.2 To enable TPR to make the Purchase Price Calculation, Seller shall
provide TPR with monthly and year-to-date financial statements (including all
information necessary to calculate the adjustments to EBITDA) within 30 days
after the end of each month. Seller shall furnish a review by Seller's
independent accounting firm of (a) Seller's financial statements relating to the
four quarters in the Calculation Period, and (b) the information furnished by
Seller for the EBITDA adjustments (other than the information on personal
expenses referred to in Section 2.2(a)) relating to the Calculation Period.
Seller will use reasonable best efforts to
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provide the reviewed financial statements and information within 30 days after
delivery of the Exercise Notice. In any case, Seller will use reasonable best
efforts to provide TPR with a review of Seller's financial statements for
calendar year 2000 by February 15, 2001. Any and all expenses of the Franchised
Businesses that have been paid or discharged on behalf of Seller by an affiliate
of Seller or any other third party shall be accurately and completely reflected
on Seller's books, records and financial statements.
4. Determination of Purchase Price. Upon delivery of an Exercise Notice (or a
deemed delivery of an Exercise Notice pursuant to Section 4.5 below) or delivery
of a Subsequent Notice (herein defined), the following provisions will apply to
determine (i) whether the parties will be obligated to enter into the Purchase
Agreement and (ii) the amount of the Purchase Price to be provided for in the
Purchase Agreement:
4.1 The Purchase Price Calculation will be compared with the
ranges set out below. The ranges vary depending on when TPR
delivers (or is deemed to have delivered) the Exercise Notice
or the Subsequent Notice, as follows:
Time Period Floor Price Ceiling Price
----------- ----------- -------------
up to 3/31/01 $6.5 million $7.2 million
4/1/01 - 6/30/01 $6.4 million $7.3 million
after 6/30/01 $6.2 million $7.5 million
4.2 If the Purchase Price Calculation is within the range (i.e.,
between the Floor Price and the Ceiling Price) for the period
indicated, both TPR and Seller will be obligated to execute
and enter into the Purchase Agreement providing for (i) a
Purchase Price equal to the Purchase Price Calculation and
(ii) a closing date no later than the Closing Deadline. For
purposes of this Agreement and the Purchase Agreement,
"Closing Deadline" means ninety (90) days following delivery
(or deemed delivery) of the Exercise Notice, Subsequent
Notice, Acceptance Notice, or Floor Price Notice (as the case
may be), but in no event earlier than twenty-one (21) days
after delivery of the reviewed financial statements and
information for the Calculation Period as required under
Section 3.2 above.
4.3 If the Purchase Price Calculation is above the Ceiling Price
for the period indicated, both TPR and Seller will be
obligated to execute and enter into the Purchase Agreement
providing for (i) a Purchase Price equal to the Ceiling Price
and (ii) a closing no later than the Closing Deadline.
4.4 If the Purchase Price Calculation is below the Floor Price for
the period indicated, then Seller shall have the option of
either accepting or rejecting a sale of the Franchised
Businesses for the Purchase Price Calculation in accordance
with the following provisions:
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(a) If, within five (5) business days following TPR's delivery of
a Purchase Price Calculation that is below the Floor Price,
Seller provides written notice to TPR advising that Seller
will sell the Franchised Businesses at a Purchase Price equal
to the Purchase Price Calculation (herein called an
"Acceptance Notice"), then both TPR and Seller will be
obligated to immediately execute and enter into the Purchase
Agreement providing for (i) a Purchase Price equal to the
Purchase Price Calculation and (ii) a closing no later than
the Closing Deadline.
(b) If, within five (5) business days following TPR's delivery of
a Purchase Price Calculation that is below the Floor Price,
Seller provides written notice to TPR advising that Seller
will not sell the Franchised Businesses at the Purchase Price
Calculation (herein called a "Rejection Notice"), then neither
party hereto will be obligated to buy or to sell the
Franchised Businesses; provided, however, TPR will have the
right for five (5) business days after receipt (or deemed
receipt) of the Rejection Notice to provide written notice to
Seller advising that TPR will purchase the Franchised
Businesses at the Floor Price (herein called the "Floor Price
Notice"). If TPR provides the Floor Price Notice pursuant to
the provisions of the immediately preceding sentence within
five (5) business days following receipt (or deemed receipt)
of a Rejection Notice, then both TPR and Seller will be
obligated to execute and enter into the Purchase Agreement
providing for (i) a Purchase Price equal to the Floor Price
and (ii) a closing no later than the Closing Deadline. For
purposes of this Section 4.4, if Seller does not deliver an
Acceptance Notice or a Rejection Notice within five (5)
business days following delivery of a Purchase Price
Calculation that is below the Floor Price, then Seller shall
be deemed to have delivered the Rejection Notice on the last
day of such five (5) business day period.
(c) If no alternative agreement is reached and TPR does not invoke
its right to purchase at the Floor Price following receipt (or
deemed receipt) of a Rejection Notice, then the Purchase
Option will remain in effect and TPR, not more than once per
calendar quarter thereafter and in no event later than July
15, 2001, may give a new notice of its intent to exercise the
Purchase Option (a "Subsequent Notice"). If TPR gives a
Subsequent Notice, all the provisions of this Section 4 will
apply, except that TPR will not be obligated to complete the
purchase of the Franchised Businesses if the Purchase Price
Calculation is below the Floor Price.
4.5 If, as of July 15, 2001, (a) the stock of The Princeton Review, Inc. or
one of its affiliates is trading on a public exchange, and (b) TPR has
not previously provided an Exercise Notice, then, for all purposes
hereof, an Exercise Notice shall be deemed to have been delivered by
TPR to Seller on July 15, 2001, in which case all of the provisions of
this Section 4 shall apply to the same extent and in the same
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manner as if an Exercise Notice had been actually delivered by TPR to
Seller on such date.
IN ALL CIRCUMSTANCES, ANY OBLIGATION OF TPR TO PURCHASE THE FRANCHISED
BUSINESSES IS EXPRESSLY CONTINGENT UPON THE STOCK OF THE PRINCETON REVIEW, INC.
OR ONE OF ITS AFFILIATES BEING LISTED ON THE NASDAQ NATIONAL STOCK MARKET OR
ANOTHER NATIONAL EXCHANGE FOR PUBLICLY-TRADED SECURITIES.
5. Purchase Agreement. If the parties are obligated to execute and enter into
the Purchase Agreement pursuant to the provisions of Section 4 hereof, then (i)
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, (ii) Seller and TPR (or its designee) shall execute and deliver to
each other counterparts of the Purchase Agreement within thirty (30) days after
determination of the Purchase Price under Section 4 above, and (iii) Seller
shall cause Rob Case and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to join in the execution of the Purchase
Agreement for the purposes set forth therein, and (iv) TPR shall cause
Management to join in the execution of the Purchase Agreement for the purposes
set forth therein.
6. Closing. The closing of the transactions contemplated by the Purchase
Agreement (the "Closing") shall take place at the date, time and place provided
for in the Purchase Agreement. For purposes of this Agreement and the Purchase
Agreement, "Closing Date" means the date on which the Closing is actually
completed.
7. Method of Payment. The Purchase Price shall be paid as provided in the
Purchase Agreement.
8. Covenants. Seller 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 Seller shall comply with the following covenants
through the Closing Date. Nothing in this Section 8 is intended to imply that
the Franchised Businesses are or are not in full compliance with the Franchise
Agreements and the TPR Method. Nothing in this Agreement precludes Management
from notifying Seller of any deficiencies with respect to meeting the standards
of the TPR Method:
8.1 Seller shall operate the Franchised Businesses in the ordinary
course until the Closing. For purposes of determining the "ordinary course" of
business:
(a) Seller agrees that it shall not permit, as of the end of
any calendar month, the amount spent for advertising and promotion (including
contributions to the TPR marketing fund) over the 12 month period ending with
such month to be less than 12.25 percent of Seller's revenue for such
twelve-month period. Further, Seller agrees that it shall not permit, as of the
end of any calendar month, the amount spent over the 12 month period ending with
such month for salaried employees (not including Rob Case, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and
the Management Employees, and not including bonuses for any salaried employees)
to be less than $814,496. Seller represents that the schedule furnished to TPR
before execution of this Agreement to
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support the foregoing dollar amount accurately and completely shows all calendar
year 1999 wages of salaried employees (not including Rob Case, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
and the Management Employees, and not including bonuses of any salaried
employees); and
(b) TPR acknowledges that Seller is operating in Oklahoma
without full-time staff, in an office consisting of three classrooms leased on a
month-to-month basis to the extent that the landlord continues to make such
lease available on its current terms. Seller shall operate the Franchised
Businesses in substantial compliance with the Franchise Agreements and all
applicable laws, rules and regulations.
8.2 Seller shall 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.
8.3 Seller shall deliver to TPR the financial statements required under
Section 3 above. The financial statements may be unaudited and prepared without
footnotes, but otherwise shall be prepared in accordance with generally accepted
accounting principles, consistently applied; shall be reviewed by Seller's
independent accounting firm when required by Section 3; and shall present fairly
the financial position of the Franchised Businesses and the results of
operations for the period indicated. Seller's obligation under this Section is
in addition to financial reports required by the Franchise Agreements.
8.4 Seller shall keep the Assets free and clear of all liens, claims
and encumbrances of any kind, other than (i) the Purchase Option, (ii) liens in
favor of Seller's existing creditors and lenders as of the date of this
Agreement, which liens shall be disclosed on a Schedule to the Purchase
Agreement and released by the lender or creditor on or before closing, and (iii)
liens created by operation of law for taxes which are not yet due and payable.
8.5 Seller shall use its reasonable best efforts to keep intact the
business organization of the Franchised Businesses, to retain substantially as
at present the Franchised Businesses' employees, consultants and agents, and to
preserve the goodwill of the Franchised Businesses' suppliers, advertisers,
customers, and others having business relations with Seller. Notwithstanding the
foregoing, if Seller reasonably believes in its good faith business judgment
that any action prohibited by this Section 8.5 would be in the best interest of
the Franchised Businesses, then Seller may take such action provided that it has
provided at least five (5) business days prior notice to TPR.
8.6 Seller shall use its reasonable best efforts to 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 Seller's
general practice before the date of this Agreement. Seller shall preserve intact
the Assets and keep in effect Seller's current casualty and liability insurance
on the Assets.
8.7 Seller 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
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a written assumption, in a form acceptable to TPR, under which the transferee
agrees to be bound by this Agreement.
8.8 Seller 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. The parties agree that the distribution of course materials to students
who have paid Seller for courses will not constitute sales of Assets for
purposes of this provision;
(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; provided, however, the
foregoing shall not prohibit Seller from continuing to employ Rob Case and ▇▇▇▇▇
▇▇▇▇▇▇▇▇ in a manner consistent with past practices.
8.9 Seller 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 Seller's representations, warranties or covenants
contained in this Agreement.
8.10 Seller shall 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, the consummation of such
transactions, or (ii) to nullify or render ineffective this Agreement or such
transactions if consummated.
9. Due Diligence.
9.1 Any obligation of TPR to purchase the Franchised Businesses is
subject to a satisfactory due diligence review of the Franchised Businesses by
TPR in accordance with the following provisions:
(a) TPR will use its reasonable best efforts to
complete its due diligence review within (i)
forty-five (45) days after delivery of the Exercise
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Notice, or (ii) ten (10) days after delivery of the
reviewed financial statements and information
required under Section 3.2, whichever period ends
later. At any time following the closing of an
initial public offering ("IPO") of the stock of The
Princeton Review, Inc. or one of its affiliates,
Seller will have the right to deliver a notice
(hereinafter called an "Accelerated Due Diligence
Notice") advising TPR that Seller is availing itself
of the option to accelerate the due diligence review
in accordance with the provisions hereof. If Seller
delivers an Accelerated Due Diligence Notice to TPR,
then (x) TPR shall use its reasonable best efforts to
complete its due diligence review within (i) 45 days
after delivery of the Accelerated Due Diligence
Notice, or (ii) 10 days after delivery of the
reviewed financial statements and information
required under Section 3.2, whichever period ends
later; and (y) Seller will be required and obligated
to reimburse up to $30,000.00 of actual out-of-pocket
costs and expenses incurred by TPR in connection with
such due diligence review if the Purchase Price
Calculation is below the Floor Price designated in
Section 4.1 hereof and the Purchase Agreement is not
executed and entered into between the parties as a
result of Seller providing (or being deemed to
provide) a Rejection Notice pursuant to the
provisions of Section 4.4 hereof.
(b) TPR's right to terminate its obligations
under this Agreement and the Purchase Agreement based
on adverse findings in its due diligence review will
be limited by the following provisions:
(i) If the reviewed financial
statements and information furnished under
Section 3.2, together with the personal
expense information furnished under Section
2.2(a), show that Seller's gross revenues or
Seller's Adjusted EBITDA for the Calculation
Period are five percent or more less than
the amounts reflected in the internal
financial information of Seller used by TPR
in making the Purchase Price Calculation,
then TPR will have the right to terminate
this Agreement and the Purchase Agreement by
notice to Seller as specified in clause
(iii) below. TPR will not have the right to
terminate this Agreement or the Purchase
Agreement pursuant to this clause for any
other findings in regard to the financial
results of Seller.
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(ii) If the reviewed financial
statements and information furnished under
Section 3.2, together with the personal
expense information furnished under Section
2.2(a), show that Seller's gross revenues or
Seller's Adjusted EBITDA for the Calculation
Period are less than the amounts reflected
in the internal financial information of
Seller used by TPR in making the Purchase
Price Calculation, then TPR will have the
right to re-do the Purchase Price
Calculation using the figures from the
reviewed financial statements and
information, and Section 4 above shall apply
as if the corrected Purchase Price
Calculation were the original Purchase Price
Calculation.
(iii) TPR will have the right to
terminate the transactions contemplated
hereby for adverse information discovered
during its due diligence review of a
non-financial nature if, but only if, such
adverse information is material to the
Franchised Businesses as a whole.
(iv) In order to terminate its
obligations under this Agreement and the
Purchase Agreement pursuant to the foregoing
provisions, TPR must provide written notice
thereof to Seller within the applicable time
period specified in Section 9.1(a). In the
event that Seller has not responded to one
or more requests by TPR made during the due
diligence process, the time period for
giving notice of termination shall be
extended until three (3) business days after
TPR's receipt of the requested information.
9.2 At TPR's request, upon reasonable notice and upon execution by all
recipients of reasonably requested confidentiality agreements, Seller 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 Seller with respect to the Franchised Businesses. Seller 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 Seller made in, or in connection
with, this Agreement or the Purchase Agreement. Likewise, the provision of
materials or information in response to due diligence inquiries will not
constitute a representation or warranty by Seller, it being expressly understood
and agreed that Seller is making no representations and warranties other than
those provided for in this Agreement and the Purchase Agreement. Seller shall
cause its accountants and any agent of Seller in possession of Seller's books
and records with respect to the Franchised Businesses to cooperate with TPR's
requests for information pursuant to this Agreement. Seller
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shall bear its own costs of complying with reasonable due diligence requests by
TPR, TPR's lender(s), and the Underwriters.
10. Confidentiality. TPR and Seller 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 Seller 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. Seller or TPR may disclose the existence
of this Agreement to other franchisees of TPR. Neither Seller 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 Seller may disclose
the terms to its stockholders, landlords, accountants, attorneys or others who
must necessarily be involved in the transaction and then only to the extent they
need to know the information, 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.
11. Representations and Warranties of Seller. Seller represents and warrants to
TPR as follows:
11.1 Company Status. Seller is duly formed, validly existing and in
good standing under the laws of the state of its incorporation. 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 the Franchised
Businesses as they are now being conducted and to own and operate the Franchised
Businesses, 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 Businesses other than its name as first set forth
above and the name(s) licensed under the Franchise Agreements.
11.2 Authority. All company actions necessary to be taken by or on the
part of Seller 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 Seller and constitutes the legal,
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms.
11.3 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 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 (except
contracts for which Seller shall obtain third party consents as indicated in the
Purchase Agreement), 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.
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11.4 No Breach. Seller is not in violation or breach 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 which violation or breach would have a material adverse effect on
the operations of the Franchised Businesses.
11.5 Purchase Agreement Representations. Subject to the disclosure
schedules to be delivered by Seller and attached to the Purchase Agreement, the
representations and warranties to be made by Seller and its stockholders in the
Purchase Agreement are true in all material respects as of the date of this
Agreement.
12. Representations and Warranties of TPR. TPR represents and warrants to Seller
as follows:
12.1 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.
12.2 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. TPR shall furnish Seller as soon as practicable with a copy of a
board resolution confirming the representation in this Section 12.2.
12.3 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 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.
12.4 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.
12.5 Management's Waiver. 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.
13. Further Assurances. Until the end of the Option Term (or until the Closing
Date, if TPR exercises the Purchase Option), Seller 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. 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.
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14. Division of Texas Territory. Seller shall have the right after December 31,
2001 to divide the territory defined in the Franchise Agreement for its Texas
franchise into two separately defined territories unless Seller has previously
provided a Rejection Notice pursuant to Section 4.5 hereof. If Seller exercises
the right granted by this Section 14, the Texas territory shall either be
divided: (a) between Dallas/Ft. Worth and surrounding counties, on the one hand,
and the rest of the state, on the other; or (b) if both Rob Case and ▇▇▇▇▇
▇▇▇▇▇▇▇▇ remain in the business, into two territories with approximately equal
revenues. Seller shall notify TPR at least 90 days before the desired division
is to take effect, which shall not be earlier than January 1, 2002. Seller, Case
and ▇▇▇▇▇▇▇▇ shall provide TPR with all relevant information and copies of
relevant documentation relating to the proposed division of territory, including
details concerning any other parties to the transaction. If TPR so requests, TPR
and Seller shall execute an amendment to the Franchise Agreement for Texas or
other appropriate document to formalize the division of territory. At least one
of Rob Case and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall remain as principal franchise owner of at
least one of the territories, and shall personally manage the franchised
business, for at least six (6) months after the division of territory.
15. Distance Learning Agreement. Contemporaneously with the execution of this
Agreement, Seller shall execute a Distance Learning letter agreement with
Management in the form of Exhibit B to this Agreement. The Distance Learning
agreement will remain in effect until the earlier of: (a) December 31, 2002; or
(b) Management's release of any of the following THE PRINCETON REVIEW(R)
franchise territories from a Distance Learning agreement applicable to such
territory, for any reason: Anaheim, Boston, New Jersey, Westport, Denver, or any
company owned site operated by TPR. The extinguishment of a Distance Learning
letter agreement as a result of TPR's acquisition of the relevant franchised
business shall not be considered a "release" for purposes of the foregoing
clause (b).
16. Mexican Joint Venture. The parties acknowledge that Rob Case and ▇▇▇▇▇
▇▇▇▇▇▇▇▇ are shareholders in P.R. Mex Co. (such entity along with all of its
shareholders herein referred to as the "U.S. Shareholders"), which such entity
in turn is a partner in a joint venture company which operates a THE PRINCETON
REVIEW(R) business in Mexico (the "Mexican Joint Venture"). The U.S.
Shareholders intend to seek an arrangement with their joint venture partners in
the Mexican Joint Venture (the "Mexican Partner" and, together with the U.S.
Shareholders, the "Joint Venture Partners"), whereby all the Joint Venture
Partners would agree to sell their interests in the Mexican Joint Venture to TPR
at a purchase price equal to five times "Mexican EBITDA" as defined below (the
"Mexican Purchase Price"). If such an arrangement between the Joint Venture
Partners is reached, TPR will enter into an agreement with the Joint Venture
Partners evidencing TPR's agreement to purchase the interests of all of the
Joint Venture Partners in the Mexican Joint Venture for the Mexican Purchase
Price. In the alternative, if the Mexican Partner proposes to acquire the
interests of the U.S. Shareholders in the Mexican Joint Venture, then TPR will
consent to such purchase and, as of the closing of such purchase, will release
the U.S. Shareholders from any liability that they might have in connection with
the operations of the Mexican Joint Venture after the closing. The U.S.
Shareholders will remain liable with respect to the period before the closing.
"Mexico EBITDA" means the actual EBITDA of the Mexican Joint Venture for the
last four full calendar quarters before delivery (or deemed delivery) of the
Exercise Notice. Mexico EBITDA shall be determined according to generally
accepted accounting principles in Mexico, but in the event of any material
conflict between Mexico GAAP
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and the methodology for calculating Seller's EBITDA under Section 2.4 above, the
latter methodology shall be used. The purchase and sale of the Franchised
Businesses is a prerequisite to, but shall not be contingent in any way on, a
transaction with respect to the Mexican Joint Venture. Notwithstanding anything
herein to the contrary, the U.S. Shareholders shall have no obligation to
consummate either a sale of all of the interests in the Mexico Joint Venture to
TPR or a sale of the interests of the U.S. Shareholders to the Mexican Partner
if the aggregate purchase price to be received by the U.S. Shareholders in such
transaction would be less than $150,000. At TPR's option, Rob Case and ▇▇▇▇▇
▇▇▇▇▇▇▇▇ shall also cause the Mexican Joint Venture to sign a distance learning
letter agreement with Management in substantially the same form as the one
signed by Seller under Section 15 above.
17. USMLE in Mexico. As soon as practicable after the execution of this
Agreement, TPR shall execute, and Rob Case and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall cause the
Mexican Joint Venture to execute, a franchise agreement addendum under which TPR
will give permission to the Mexican Joint Venture to market and sell TPR's USMLE
course in Mexico until TPR provides reasonable prior notice of a decision to
withdraw the permission to market and sale USMLE in Mexico; provided, however,
that the withdrawal of such permission will not preclude the Mexican Joint
Venture from fulfilling any contractual obligations with regard to the USMLE
course which the Mexican Joint Venture may undertake prior to such withdrawal.
The marketing and sale of USMLE in Mexico will be subject to all of the terms of
the Franchise Agreement between TPR and the Mexican Joint Venture, including but
not limited to payment of royalty-service fees, compliance with the Book of
Standards, and adherence to the TPR Method. Seller shall supervise and support
the marketing and sale of USMLE in Mexico from Seller's office in Houston, but
TPR shall not assume this obligation if TPR purchases the Franchised Businesses.
The U.S. Shareholders shall inform the Mexican Joint Venture that TPR has no
obligation to support the marketing and sale of USMLE in Mexico, even if TPR
purchases the Franchised Businesses. If TPR purchases the Franchised Businesses,
the Mexican Joint Venture may continue to market and sell USMLE (subject to
TPR's right to withdraw permission as set forth above), provided that: (i) other
franchisees of TPR remain authorized to market and sell USMLE; (ii) the USMLE
materials used by the Mexican Joint Venture remain complete and up to date; and
(iii) TPR approves a manager nominated by the Mexican Joint Venture who shall
have personal responsibility for supporting USMLE.
18. Remedies. If either party hereto breaches or threatens to breach any
obligation, representation, warranty, or covenant under this Agreement, the
other party 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
defaulting party 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.
19. Termination. TPR shall have the right to terminate this Agreement by written
notice to Seller at any time prior to delivery of the Exercise Notice if (a) the
Securities and Exchange Commission, counsel for the Underwriters, or the initial
public offering counsel for The Princeton Review, Inc. determines that this
Agreement or the Purchase Agreement interferes with or may interfere with the
timely registration of, or the timely public offering of, the stock of The
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Princeton Review, Inc.; or (b) if at any time before the Closing anyone in
Seller's organization discloses to anyone outside of Seller's organization the
specific terms that TPR has offered. This restriction does not apply to
disclosure to Seller's landlords, accountants, or others who must necessarily be
involved in the transaction and have a need to know the information. Except as
provided in Section 20, termination by TPR shall be without liability to TPR or
Seller, and upon delivery of the notice of termination, all obligations of the
parties under this Agreement shall be null and void.
20. Expenses. Within twenty (20) days following the presentation of relevant
invoices by Seller, TPR will advance funds against the Purchase Price, not to
exceed $100,000 in the aggregate, for actual expenses that Seller incurs for
legal, accounting, and other services necessitated by the negotiation and
performance of this Agreement (other than Seller's own costs to comply with due
diligence requests, as provided in Section 9). With respect to accounting
expenses, this provision does not apply to expenses that Seller would have
incurred in the ordinary course of its business, but does apply to any extra
costs incurred to have reviews performed earlier than normal or for other
special services. If the purchase of the Franchised Businesses fails to close
for any reason other than (i) The Princeton Review Inc's failure to complete an
IPO by July 15, 2001 or (ii) TPR's default under this Agreement or the Purchase
Agreement, then Seller shall repay to TPR 66% of the advanced expenses. If the
purchase of the Franchised Businesses fails to close by reason of (i) The
Princeton Review Inc.'s failure to complete an IPO by July 15, 2001 or (ii)
TPR's default under this Agreement or the Purchase Agreement, then all advances
made by TPR to Seller pursuant to this Section 20 shall be reclassified as an
option fee and shall not be repayable to TPR.
21. Assignment. Seller may not 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
Seller, provided that the assignment does not materially increase Seller's 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
Seller and TPR and their respective successors and permitted assigns.
22. 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:
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(a) To Seller: Mr. Rob Case
T.S.T.S., Inc.
Dobie Mall ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (512)____-____
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
TSTS, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (___)____-______
with a copy to: ▇▇▇▇ ▇▇▇▇▇▇
Gardere ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) To TPR: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇
Princeton Review Management, L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (___)____-______
with a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇
Wiley, Rein & Fielding
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Fax: (_____)____________
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 Seller as
indicated above shall be effective as to all of Seller's stockholders, whether
or not they receive notice individually. Notices to counsel unaccompanied by
notices to principals shall not constitute notice.
23. Entire Agreement. This Agreement and its Schedules and Exhibits 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 Seller and TPR.
24. 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
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the Purchase Option (but not termination of this Agreement by TPR under Section
19), and shall survive the Closing to the extent provided in the Purchase
Agreement.
25. 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.
26. 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.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly-authorized representatives, effective as of the date first above written.
T.S.T.S., INC.
/s/ Rob Case
-----------------------------------------
By: Rob Case
Its: Vice President-CEO
▇▇▇▇▇▇ ▇. CASE, Individually
/s/ Rob Case
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Individually
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
PRINCETON REVIEW OPERATIONS, L.L.C.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ Chief
Operating Officer
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SCHEDULE 1
TO OPTION AGREEMENT
Management and Seller are parties to the following THE PRINCETON
REVIEW(R) Franchise Agreements:
Beginning Date of
Franchise Agreement Term Defined Territory
------------------------ -----------------
September 15, 1986 All Counties, Texas
July 1, 1986 State of Arizona
December 1, 1994 State of Oklahoma
July 1, 1988 State of Louisiana and
▇▇▇▇ ▇▇▇ County in the
State of New Mexico
The parties intend that this Schedule 1 include all of Seller's THE
PRINCETON REVIEW(R) franchise interests, other than the interests of Rob Case
and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the Mexican Joint Venture. The parties agree that this
Schedule may be corrected, if necessary, after execution of the Option
Agreement.
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SCHEDULE 2 TO OPTION AGREEMENT
CALCULATION OF ADJUSTED EBITDA
(Per Section 2.2 of the Option Agreement)
Agreement
Section Number Description 1999 1998
-------------- ----------- ---- ----
2.4 Income from operations**** ($ 141,423) $ 391,788
Adjustments:
2.4(i) Interest paid $ 0 $ 0
2.4(ii) & (iii) Taxes based on corporate income $ 13,465 $ 25,508
2.4(iv) Depreciation & amortization $ 57,533 $ 58,187
----------- -----------
EBITDA ($ 70,425) $ 475,483
2.2(a)(i) Salaries & bonuses- Case & ▇▇▇▇▇▇▇▇ $ 727,951 $ 753,052
2.2(a)(ii) Retirement benefits- Case & ▇▇▇▇▇▇▇▇ $ 8,208 $ 5,030
2.2(a)(iii) Perquisites- Case & ▇▇▇▇▇▇▇▇ $ 116,197 $ 94,497
2.2(b) Physical overhead requirements $ 50,000 $ 50,000
2.2(c) Oklahoma adjustment $ 0 $ 0
2.2(d) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ settlement n/a n/a
2.2(e)(i) Management employee bonuses n/c n/c
2.2(e)(ii) Non-Management employee bonuses n/c n/c
2.2(f) Professional fees for this agreement n/a n/a
----------- -----------
ADJUSTED EBITDA $ 831,931 $ 1,378,062
=========== ===========
**** From Price Waterhouse Coopers Review Report Statements of Operations- For
the years ended December 31, 1999 and 1998
n/a Adjustment was not applicable to the period
n/c Adjustment not calculated for this period
(The figures stated above are presented for information only and have not been
subject to due diligence or other verification by TPR.)
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ASSET PURCHASE AGREEMENT
between
T.S.T.S., INC. ("Seller") and
▇▇▇▇▇▇ ▇. CASE and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (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
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TABLE OF CONTENTS
Page
----
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 Seller and the Stockholders .....................................12
9. Representations and Warranties of Buyer ...........................................................17
10. Obligations Pending the Closing ...................................................................18
11. [Omitted] .........................................................................................18
12. Restrictions on Competition, Solicitation, and Hiring .............................................18
13. Indemnification ...................................................................................20
14. Assignment of Franchise Agreement .................................................................21
15. Post-Closing Obligations of Seller and the Stockholders ...........................................21
16. Post-Closing Obligations of Buyer .................................................................22
17. Notices ...........................................................................................23
18. Entire Agreement ..................................................................................23
19. Counterparts ......................................................................................23
20. Governing Law .....................................................................................23
21. Costs and Expenses ................................................................................23
22. Survival of Representations .......................................................................24
23. Arbitration .......................................................................................24
24. Prevailing Party Fees and Costs ...................................................................24
-i-
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SCHEDULES
Schedule 1.2 Valuation of Assets
Schedule 1.2.2 Leases
Schedule 1.2.9 Assumed Contracts
Schedule 1.3.4 Excluded Personal Items
Schedule 5.9.5 Written Computer Specifications
Schedule 6 Allocation of Purchase Price
Schedule 8.2 Stockholders of Seller
Schedule 8.5 Liens
Schedule 8.7 Material Breaches
Schedule 8.9 Legal Proceedings
Schedule 8.10 Material Changes
Schedule 8.13 Compliance with Laws
Schedule 8.17 Environmental Matters
Schedule 8.18 Employees of Seller
Schedule 8.19 Employee Benefit Plans
EXHIBITS
Exhibit A Form of Lease Assignment
Exhibit B Subordinated Promissory Note
Exhibit C Guaranty
Exhibit D ▇▇▇▇ of Sale
Exhibit E Sellers' Certificate
Exhibit F Assignment and Assumption Agreement
Exhibit G Mutual Release
- ii -
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into by and
among 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 T.S.T.S., INC., a Texas corporation
("Seller"), ▇▇▇▇▇▇ ▇. CASE, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (collectively, the
"Stockholders"), on the other.
RECITALS
A. Seller and Buyer are parties to an Option Agreement dated October
18, 2000 (the "Option Agreement") and are executing this Agreement pursuant to
the provisions thereof.
B. In accordance with the terms of the Option Agreement, and in order
to consummate the transactions contemplated thereunder, Seller, 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 Seller, 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 Seller's 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;
1.2.2 Subject to Section 7.8 below, the rights of Seller under
the leases of real property listed in Schedule 1.2.2 to this Agreement (the
"Leases");
1.2.3 As provided in Section 5.9 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;
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1.2.4 All deposits received by Seller 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, Seller shall receive credit as provided in
Section 5.9.2 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 Seller's rights in and to all telephone numbers,
telephone directory advertising, web sites, domain names, and e-mail addresses
for the Franchised Businesses;
1.2.7 All franchise rights, patents, copyrights, trade
secrets, and intellectual property rights of Seller associated with the
Franchised Businesses;
1.2.8 All goodwill of Seller associated with the Franchised
Businesses;
1.2.9 The rights of Seller under: (i) the written contracts
specifically identified in Schedule 1.2.9; (ii) any other contracts related to
the Franchised Businesses that (a) are cancellable without liability to Buyer
within 12 months after the Closing, and (b) involve less than $1,500.00 in
obligations individually and less than $25,000 in the aggregate (together,
clause (i) and (ii) constitute the "Assumed Contracts"), and (iii) any
assignable permits and business licenses relating to the ownership and operation
of the Franchised Businesses (the "Assignable Permits"); and
1.2.10 All papers and records (excluding Seller's minute
books, books of account and tax records) 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 Seller 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 Seller;
1.3.2 Security deposits of Seller related to the Franchised
Businesses, provided that, as a convenience to the parties, Seller shall leave
in place its security deposits with respect to the Leases and Buyer shall
reimburse Seller 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 Seller;
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1.3.4 Motor vehicles, cellular telephones, personal computers,
and other personal effects owned or leased by Seller and used exclusively by the
Stockholders, all as listed in Schedule 1.3.4 to this Agreement;
1.3.5 The equity interest of Seller or its shareholders in The
Princeton Review, Inc. (the "Stock"). Buyer and its affiliates shall furnish
Seller with such waivers as may be necessary to waive the operation of any
pre-existing contractual provision that would require Seller 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. Seller agrees 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 other than liens
created by operation of law for taxes which are not yet due and payable.
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 and "guarantee"
obligations for students who completed courses prior to the Closing Date or who
signed-up for 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, Seller's
obligations from the Closing Date forward under the Leases. Before the Closing,
Seller 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 Seller's efforts
to obtain the lessors' consent to assignment of the Leases. If the entity that
will assume Seller's 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 Seller's
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 Seller from the Closing Date
forward under the Assumed Contracts and the Assignable Permits.
3.4 Except as specifically provided in Sections 3.1, 3.2 and 3.3 above
and subject to the provisions of Article 5 below, Buyer has not assumed, and
shall not assume, any liability or obligation of any nature, whether known or
unknown, existing or contingent, of Seller or
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Stockholders, including but not limited to any accounts payable incurred by
Seller or Stockholders in the conduct of the Franchised Businesses. Buyer
assumes no liability in connection with any actual or alleged breach or default
by Seller 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 4 of the Option
Agreement, is ____________________________, 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 Seller, an amount equal to the lesser of the Purchase
Price or Four Million Five Hundred Thousand Dollars ($4,500,000), adjusted as
follows: (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 in lieu of Seller's delivery of such sums to Buyer; (iii) minus
the aggregate amount advanced to Seller by Buyer for expenses under Section 20
of the Option Agreement; (iv) plus the aggregate amount of the Lease deposits to
be reimbursed by Buyer under Section 1.3.2; (v) plus or minus the net amount of
the Closing adjustments between Seller and Buyer pursuant to Section 5.1, to the
extent determined by the parties as of Closing; (vi) minus any amounts paid
directly to Seller's creditors under Section 4.1.4 below.
4.1.2 To ▇▇▇▇▇▇ ▇▇▇▇, in consideration of his obligations
under Section 12 below, the sum of One Hundred Thousand Dollars ($100,000);
4.1.3 To ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, in consideration of his obligations
under Section 12 below, the sum of One Hundred Thousand Dollars ($100,000);
4.1.4 To the lien holders identified in Schedule 8.5 to this
Agreement, such amounts as may be necessary to obtain the release of any liens
identified in Schedule 8.5.
The net amount due to Seller 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 Seller 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 (i) execute and deliver to Seller a
promissory note in the form of Exhibit B to this Agreement (the "Note"), and
(ii) cause The Princeton Review Inc. (or the affiliate of Buyer whose stock is
then trading on a national stock exchange) (herein called the "Public Parent")
to execute and deliver to Seller a guaranty agreement in the form of Exhibit C
to this Agreement (the "Guaranty"). The original principal amount of the Note
will be equal to the amount (if any) by which the Purchase Price exceeds Four
Million Five Hundred Thousand Dollars ($4,500,000).
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Seller 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).
5. Closing Adjustments.
5.1 Calculation and Payment. Except as otherwise specified in Sections
5.2 through 5.10 below, all amounts owed between Seller, on the one hand, and
Buyer and its affiliates, on the other hand, under Sections 5.2 through 5.10
shall, to the extent feasible, be calculated and paid on or before the Closing
Date (with respect to amounts owed between Seller 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 Seller and Buyer
and its affiliates under Sections 5.2 through 5.10 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. Seller 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, Seller 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 Seller
before the Closing with respect to Courses In Progress, plus all remaining
amounts due from students for Courses In Progress. Seller and 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 Seller before the Closing exceed the amount
allocated to Seller 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 Seller before the Closing are less than the amount allocated to
Seller under the Transfer Policy, Buyer shall pay the amount of the shortfall to
Seller after the Closing as course revenues are collected from students.
5.2.2 One hundred and eighty (180) days after the Closing
Date, Seller shall pay to Buyer the amount by which the then-uncollected amounts
due from students for Courses In Progress exceed three percent (3%) of the Total
Course Revenues calculated by Seller 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 have the right to assist
Buyer in such collection efforts, provided that, after one hundred eighty (180)
days from the Closing Date, Seller and the Stockholders shall not contact
students without prior authorization by Buyer, which shall not be unreasonably
withheld.
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5.3 Tutoring Services. At the Closing, Seller and Buyer shall calculate
the total revenue attributable to each student who contracted with Seller 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 Seller from the student before
the Closing, plus all remaining amounts due from the student. Seller 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
Seller. 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
Seller 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 Seller and Buyer as follows: Seller 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 Seller. If the date of the test has not passed as
of the Closing, Seller 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. All other Remaining Revenue will be allocated to
Seller. If the payments collected by Seller before the Closing exceed the amount
allocated to Seller 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 Seller before the Closing are less than the amount allocated to
Seller under this Section 5.3, Buyer shall pay the amount of the shortfall to
Seller after the Closing as revenue is collected from the tutoring student.
5.4 Tax Reimbursement. Buyer and Seller acknowledge that the
shareholders of Seller may incur a higher tax liability if the transactions
contemplated by this Agreement occur during calendar year 2000 rather than after
the end of calendar year 2000. If the Closing does occur before the end of
calendar year 2000, at the Closing, Buyer will pay Seller an amount equal to any
additional tax liability incurred by Seller's shareholders because of the early
closing plus a gross-up for additional taxes attributable to the additional
payments due under this Section 5.4, as calculated by an independent tax expert
selected by Seller and reasonably acceptable to Buyer.
5.5 Employee Expenses. Buyer will offer to hire each of the Employees
of Seller listed in Schedule 8.18 who 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 8.18 who does not
meet Buyer's ordinary standards and conditions. Buyer will commit to retaining
each Employee hired by Buyer for not less than three (3) months unless any such
hired Employee: (i) chooses to terminate voluntarily his employment with Buyer;
or (ii) engages in egregious misconduct that justifies termination by Buyer.
With respect to Employees hired by Buyer, Buyer will have the right to treat
such three-month period as severance rather than active employment. Buyer will
credit each Employee hired by Buyer with such vacation time and sick leave as
have accrued during such person's employment by Seller and remain unused as of
the Closing Date. In addition, Buyer will credit each Employee hired by Buyer
with such Employee's time-in-service to Seller for purposes of (i) determining
the bonus plan of Buyer for which such
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Employee will be eligible, and (ii) all vesting and eligibility periods provided
for in the employee benefit plans of Buyer. Seller and Buyer shall make the
following payments in respect of Employees hired by Buyer:
5.5.1 Vacation and Sick Leave. Seller shall reimburse Buyer
for the dollar value of all vacation time and sick leave credited and paid to
Employees by Buyer as provided above. Seller 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.
5.5.2 Bonuses. Seller represents and warrants that the pages
from Seller's employee handbook attached to Schedule 8.18 to this Agreement
accurately and completely set forth Seller's bonus plans. Seller shall calculate
and pay on or before the Closing Date, in accordance with such disclosed bonus
plans, any and all Employee bonuses attributable to the period of such
Employees' employment with Seller, without regard to whether the payment of such
bonuses would otherwise have been due on or before the Closing Date in
accordance with the bonus plan created by Seller for such Employees. Buyer shall
have no responsibility for calculation or payment of any Employee bonuses
relating to the period before Closing. Nothing in this Section is intended or
shall be deemed to create any third party beneficiary rights in any Employee.
5.6 Purchased Materials. Seller and Princeton Review Products, L.L.C.
("Products") shall make good faith efforts to resolve any disputed amounts
invoiced to Seller by Products or its predecessor for course materials,
products, supplies, or other goods and services, as follows:
5.6.1 At least thirty (30) days before the Closing, Products
shall deliver to Seller 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 Seller a final statement of all amounts outstanding. Seller
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.
5.6.2 Seller shall present to Products in writing at or before
the Closing all amounts disputed by Seller (except new items appearing on the
final statement delivered by Products after the Closing). Any amounts resolved
between Seller 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 Seller has not served a formal demand for
arbitration under Section 23 shall be immediately paid to Products.
5.7 Rent. All rent paid by Seller 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 Seller
responsible for the portion which accrued prior to the Closing Date and Buyer
responsible for the portion which accrued on and after such date.
5.8 Other Business Expenses. Except as otherwise provided in Sections
5.6, 5.7, and 5.9, and subject to the terms of this Section 5.8, bills received
by Seller or by Buyer in connection
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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 Seller 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:
5.8.1 Pre-Closing Bills. All Bills received by Seller and
Buyer at least ten (10) business days 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 5.8.
5.8.2 Post-Closing Bills. Bills received by Seller and Buyer
after the Closing Date shall be presented as provided in Section 5.1. Neither
party may present any ▇▇▇▇ or group of Bills to the other party at any time
unless the aggregate amount to be allocated to such other party pursuant to the
provisions hereof with respect to such Bills will exceed the minimum amount of
$1000.00.
5.8.3 Responsibility for Calculation. Seller shall be
responsible for calculating all prorations under this Section 5.8. Buyer shall
have five (5) business days after the receipt of Seller's calculation to object
to the calculation, or the calculation shall be deemed approved.
5.9 Special Items. Buyer and Seller shall jointly calculate the amount
of the items specified below in this Section 5.9:
5.9.1 Prepaid Advertising Expenses. Buyer shall reimburse
Seller for expenses paid by Seller 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"). Seller shall furnish such documentation as Buyer may reasonably
request to verify all expenditures for which Seller seek reimbursement.
5.9.2 Basket of Goods Items. Buyer shall pay Seller an amount
equal to Seller's cost for "basket of goods" items on hand in or en route to the
Franchised Businesses as of the Closing Date, provided that the expiration date
of such items is not less than three (3) months after the Closing Date. "Basket
of goods" items delivered by Seller to students enrolled in courses that have
not started as of the Closing Date shall be treated as items on hand in the
Franchised Businesses, without regard to the previous sentence. Seller may
retain any basket of goods items not paid for by Buyer under this Section.
5.9.3 Marketing Materials. Buyer shall pay Seller an amount
equal to Seller's cost for current marketing supplies purchased from Products
and current Franchisor-approved marketing supplies purchased 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 5.9.1;
(ii) the quantity of such items is no greater than the quantity typically
maintained by Seller in the past
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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.
For purposes of this provision, marketing supplies bearing logos no longer
generally used by Franchisor shall be deemed not to be "current." Seller 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 Seller or sold to other franchisees of Franchisor, and not
made available to any other person or entity.
5.9.4 Capital Expenditures. Buyer shall reimburse Seller for
Capital Expenditures made by Seller 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
$17,500, or (b) Seller obtained Buyer's written consent for expenditures causing
Seller to exceed the $17,500 threshold and for each subsequent Capital
Expenditure for which Seller seeks 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 Seller
exceeded $1,000 (or which is integrated into an item or group of similar items
whose total cost exceeded $1,000).
5.9.5 Computer Equipment. Seller shall deliver to Buyer at the
Closing a list of computer servers and networked CPUs (the "Computers") then in
use in the Franchised Businesses (other than any items excluded under Section
1.3.4 above). The list shall include one Computer per full-time employee of
Seller and the servers in each networked office of Seller. The list shall
indicate the configuration for each Computer. The parties shall determine, by
reference to Franchisor's most recent written specifications for franchised
offices, as listed in Schedule 5.9.5, which Computers do not meet Franchisor's
specifications (i.e., are "out of spec") as of the Closing. For each "out of
spec" Computer, the parties shall determine the date of the earliest
specification date of the Franchisor which the Computer failed to meet. For each
month that such Computer has been "out of spec," Seller shall reimburse Buyer
one thirty-sixth of Buyer's cost of a replacement Computer. At Seller's request
and expense, within ninety (90) days after the Closing Date, Buyer shall ship to
Seller each "out of spec" Computer with respect to which Seller is obligated to
make a payment to Buyer under this Section 5.9.5.
5.10 Franchise Fees, Etc. Seller, Buyer and Franchisor shall calculate
and pay in accordance with Section 5.1: (i) the amount of any unpaid (or
overpaid) royalty-service fees and unpaid (or overpaid) advertising-promotion
fees due to Franchisor under the Franchise Agreements as of the Closing Date;
(ii) the amount of any undisputed monies owed by Seller 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 Seller 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 Seller to Buyer and its affiliates at
Closing on
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which Seller 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 Seller under Section 1.2.4 or this Section 5
shall be credited back to Seller at Closing; and (z) any post-Closing payments
made by Buyer to Seller under Sections 5.2 and 5.3 shall be subject to
royalty-service fees and advertising-promotion fees which shall be paid by
Seller.
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. Seller, the Stockholders, and
Buyer each covenants and warrants 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 within the time provided in
the Option Agreement, 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 Seller the amount required under Section
4.1.
7.2 Buyer shall execute and deliver the Note.
7.3 Buyer shall cause the Public Parent to execute and deliver the
Guaranty.
7.4 Seller shall execute and deliver to Buyer a ▇▇▇▇ of Sale for the
Assets in the form of Exhibit D to this Agreement.
7.5 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 Seller shall deliver to Buyer a shareholder consent authorizing
Seller's entry into and performance of this Agreement, executed by shareholders
who collectively possess at least the minimum voting power required under
Seller's governing documents and the law of the state of its incorporation to
authorize such action by the Seller.
7.7 Seller shall execute and deliver a certificate in the form of
Exhibit E to this Agreement (the "Seller's Certificate").
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7.8 With respect to each Lease, 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 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 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, Seller shall deliver evidence
acceptable to Buyer that Seller has made arrangements for Buyer to occupy
premises of equivalent quality at no higher cost to Buyer, and Seller shall
reimburse Buyer for moving costs as provided in Section 15.4 below; provided,
however, if the aggregate cost and expenses which will be incurred by Seller, as
reasonably estimated by Seller, arising from its inability to obtain consents of
landlords (including any costs of Buyer required to be reimbursed by Seller
pursuant to Section 15.4 hereof), together with any costs incurred by Seller
under Section 7.9 below, will exceed $100,000 in the aggregate, then Seller
shall have the option of terminating this Agreement and the parties' obligations
hereunder.
7.9 Seller and Buyer shall execute an Assignment and Assumption
Agreement with respect to the Assumed Contracts and other liabilities expressly
assumed by Buyer under Section 3 above (collectively, the "Assumed
Obligations"), in the form of Exhibit F to this Agreement; and Seller shall
deliver to Buyer any consents of third parties which may be necessary for the
assignment and assumption of the Assumed Obligations, to the extent such written
consents have been obtained. Seller agrees to exercise its reasonable best
efforts to obtain such third-party consents. If Seller is unable to deliver a
third-party consent to the assignment of an Assumed Contract, Seller shall
deliver evidence acceptable to Buyer that Seller has made substitute
arrangements for Buyer substantially similar to the Assumed Contract, at
Seller's expense; provided, however, that if the aggregate cost and expenses
which will be incurred by Seller, as reasonably estimated by Seller, together
with any costs of Seller incurred under Section 7.8 above, will exceed $100,000
in the aggregate, then Seller shall have the option of terminating this
Agreement and the parties' obligations hereunder.
7.10 Seller shall execute and deliver such documents as Buyer may
reasonably request to better evidence the transfer of the rights referred to in
Section 1.2.6 hereof.
7.11 Seller shall deliver the written consents of all other persons, if
any, whose approval or consent to the performance of this Agreement by Seller
and the Stockholders or to transfer of the Assets is legally or contractually
required to the extent such third party consents have been obtained (which
Seller agrees to exercise its reasonable best efforts to so obtain); provided,
however, if any such written consents, which, in the aggregate, would have a
material adverse effect on the operations of the Franchised Businesses, then
Buyer will have the option of terminating this Agreement and the parties'
obligations hereunder.
7.12 Seller, the Stockholders, Buyer and Franchisor shall execute a
Mutual Release in the form of Exhibit G to this Agreement. Buyer shall also
cause Products and any other affiliates of Buyer that Seller may reasonably
identify to execute the Mutual Release.
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7.13 Seller shall deliver certificates of insurance satisfactory to
Buyer demonstrating that Seller has the insurance coverage described in Section
8.15 below.
7.14 Seller shall deliver signed releases for each of the liens listed
in Schedule 8.5 to this Agreement (or payoff letters from the respective lien
holders, addressed to and in a form acceptable to Buyer, confirming the amount
due from Seller as of Closing and committing to release the liens upon payment
of such amount).
7.15 Buyer shall execute and deliver a certificate in substantially the
form of Exhibit E to the Agreement to confirm the continued accuracy of its
representations and warranties contained herein as of the Closing Date.
8. Representations and Warranties of Seller and the Stockholders. Seller and the
Stockholders, jointly and severally, represent and warrant to Buyer and
Franchisor that:
8.1 Seller has been duly organized and is validly existing and in good
standing under the laws of the state of its incorporation. 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 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
and the other documents and instruments to be executed and delivered by Seller
pursuant to this Agreement has been duly authorized by the board of directors of
Seller, and all necessary stockholder action under 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 Seller or either
Stockholder in connection with the consummation of the transactions contemplated
hereunder.
8.3 Except for the requirement to obtain consents to assignment of the
Leases, the execution and delivery of this Agreement, Seller's performance
hereunder, and the consummation of the transactions herein contemplated do not,
and to the best of Seller's 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 Seller or either
Stockholder is a party, or by which Seller or either Stockholder may be bound,
which breach, default or violation would have a material adverse effect on the
Franchised Businesses.
8.4 This Agreement and the other agreements and transactions
contemplated herein to which Seller or either Stockholder is or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation of Seller or the Stockholder, enforceable in accordance with its
terms.
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8.5 Seller owns the Assets free and clear of any and all liens,
security interests, claims and encumbrances other than (i) the liens in favor of
existing lenders and creditors of Seller listed in Schedule 8.5 to this
Agreement; and (ii) liens created by operation of law for taxes which are not
yet due and payable.
8.6 All furniture, fixtures and equipment that Seller was using in the
Franchised Businesses as of the date of execution of the Option Agreement remain
in operation in the Franchised Businesses. Otherwise, Seller makes no
representation as to such furniture, fixtures and equipment, which are
transferred to Buyer "as is."
8.7 Except as reflected on Schedule 8.7, Seller and the Stockholders
are not in 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, which would have a material adverse effect
on the Franchised Businesses.
8.8 Seller has not engaged a broker in connection with any transaction
represented by this Agreement.
8.9 Except as reflected in Schedule 8.9, there is no material claim,
investigation, litigation, arbitration, or enforcement proceeding pending or, to
the knowledge of Seller or either Stockholder, threatened against any Seller or
the Franchised Businesses.
8.10. Seller has previously delivered to Buyer copies of its federal
income tax returns for calendar years_____ and______, its unaudited, reviewed
balance sheets dated__________ and ___________, and its unaudited, reviewed
profit-and-loss statements for the years ending __________ and____________
(collectively, the "Financial Statements"). To the best of Seller's 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, to the extent to be required to
be reflected in accordance with generally accepted accounting principles,
consistently applied. Except as reflected in Schedule 8.10, to the best of
Seller's 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 Seller.
8.11 Seller has 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 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 Seller's and the Stockholders' knowledge, 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 the
Franchised Businesses in the manner in which it is presently operated.
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8.13 Except as reflected on Schedule 8.13, neither Seller nor any
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.
Except as reflected on Schedule 8.13, to the best of Seller's and the
Stockholders' knowledge, there are not now and have not been any failures to
comply with such laws or orders.
8.14 Except for the liabilities expressly assumed by Buyer under
Section 3, Seller and the Stockholders have no knowledge of any agreements,
leases, contracts, charges, encumbrances or restrictions applicable to Seller or
the Assets on or before the Closing Date 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 Seller has 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 Seller's 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 Seller
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 Schedules 1.2.2 and 1.2.9 together constitute a complete and
accurate list of all written and oral contracts, agreements, leases, or other
commitments (including the Franchise Agreement, the Leases, and the Assumed
Contracts) relating to the Franchised Businesses as of the date of this
Agreement (the "Contracts"), other than the contracts described in clause (ii)
of Section 1.2.9. All of the Contracts have been entered into in the ordinary
course of business. Except as otherwise disclosed in Schedules 1.22 and 1.2.9,
each of the Contracts: (i) constitutes a valid and binding obligation of Seller
and, to the best of Seller's and each Stockholder's knowledge, of the other
parties thereto (subject to bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting the enforcement of creditors' rights
generally); (ii) is in full force and effect; and (iii) will remain in effect
until the Closing Date, except for those Contracts which by their terms will
expire prior to the Closing Date. Seller has performed its obligations under
each of the Contracts, and to the best of Seller's and each Stockholder's
knowledge, no other party to any of the Contracts has breached or defaulted
thereunder, and no event has occurred and no condition or state of facts exists
which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by Seller or, to the best of Seller's and
each Stockholder's knowledge, by any such other party. Complete and correct
copies of each of the Contracts, together with all amendments thereto, have been
made available to Buyer for its due diligence review.
8.17 To the best of Seller's and each Stockholder's knowledge, the real
property subject to the Leases (the "Offices") has not been used for the
disposal of any hazardous substances. Seller has not transported, caused to be
transported, stored or caused to be stored at the Offices, in any buildings,
containers, on the surface or underground, any solid, liquid, semi-
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solid or gaseous hazardous substances. Except as disclosed in Schedule 8.17,
during the ▇▇▇▇ ▇▇▇▇▇▇ has operated the Franchised Businesses, there have been
no material discharges, releases, leaks, emissions, injections, escapes, dumping
or spills of hazardous substances onto the premises of the Offices, or the soil
or groundwater associated with such premises.
8.18 Schedule 8.18 is a list of all persons currently employed by
Seller in the Franchised Businesses (the "Employees"). Except as indicated in
Schedule 8.18 hereto, Seller and the Stockholders represent and warrant the
following:
8.18.1 Schedule 8.18 accurately and completely shows the
Employees' current rates of compensation, including bonuses. Seller has 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 5.5, Seller 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.
Seller and the Stockholders have made no promises or representations to any of
the Employees concerning bonuses that are inconsistent with the bonus plans
disclosed by Seller to Buyer.
8.18.2 Seller is not a party to or otherwise bound by any
consent decree with, or citation by, any government authority relating to
present or former employees or employment practices, wages, hours, and terms and
conditions of employment. Except as otherwise provided in Section 5.5, Seller
has paid in full to all of its present and former employees, or accrued in its
financial books and records, all wages, salaries, commissions, bonuses,
benefits, and other compensation due to such employees or otherwise arising
under any policy, practice, agreement, plan, program, statute or other law.
Seller is not liable for any notice of termination, severance pay or other
payments to any present or former employee arising from the termination of
employment nor to any ex-employee in respect of any right to reinstatement, and
Seller will not have liability under any benefit or severance policy, practice,
agreement, plan or program which exists or arises, or may be deemed to exist or
arise, and under any applicable law or otherwise, as a result of or in
connection with the transactions contemplated hereunder or as a result of the
termination by Seller of any persons employed by Seller on or prior to the date
hereof.
8.18.3 Seller has not made any agreements with any labor union
or employee association or made commitments to or conducted negotiations with
any labor union or employee association with respect to any future agreements,
and Seller is not aware of any current attempts to organize or establish any
labor union or employee association relating to the Franchised Business or of
any such attempt in the past.
8.18.4 There are no unfair labor practice, successor employer
or related employer applications, charges or complaints pending or, to the best
of Seller's knowledge, threatened against or otherwise affecting Seller.
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8.18.5 There is no labor strike, work slow-down, work
stoppage, dispute, lockout or other labor controversy in effect or threatened
against or otherwise affecting Seller, and Seller has not ever experienced any
such labor controversy.
8.18.6 Seller and the Stockholders have received no notice of
and are not aware of any employee grievance or any allegations of sexual
harassment, wrongful termination, or unlawful discrimination by any employee or
former employee of Seller. Seller has made due inquiry of its management
personnel of the existence of any such matters.
8.18.7 No action, suit, complaint, charge, arbitration,
inquiry, prosecution, proceeding or investigation by or before any court,
administrative agency, commission or tribunal brought by or on behalf of any
employee, labor organization or other representative of the Employees of Seller
is pending or threatened against Seller including, without limitation, any labor
relations board.
8.19 Schedule 8.19 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 Seller has maintained or
contributed to for the benefit of any current or former employees of Seller
(collectively, the "Employee Benefit Plans"). Seller and the Stockholders
represent, except as indicated in Schedule 8.19, with respect to the Employee
Benefit Plans:
8.19.1 None of the Employee Benefit Plans is a "defined
benefit pension plan," as that term is defined in Section 3(35) of ERISA. Seller
has never contributed to or been required to contribute to any such plan.
8.19.2 Each Employee Benefit Plan (and each related trust or
insurance contract) substantially complies with the applicable requirements of
ERISA and the Internal Revenue Code of 1986, as amended (the "IRC"). All reports
and plan descriptions required to be filed or distributed prior to the Closing
Date have been timely filed or distributed.
8.19.3 Each Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under IRC Section 401(a).
8.19.4 Seller has no current obligation to make group medical
coverage available to employees, former employees, or any of their beneficiaries
under Part 6 of Subtitle B of Title I of ERISA or IRC Section 4980B.
8.19.5 Seller's board of directors adopted a resolution before
Closing to terminate the Employee Benefit Plans, and Seller will take steps as
soon as administratively feasible after the Closing to formalize such
termination.
8.19.6 No action or failure to take action by Seller prior to
the Closing, including the consummation of the transactions contemplated hereby,
has created or will create (i) any lien in favor of the Pension Benefit Guaranty
Corporation or any other person upon any of the Assets
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or (ii) any obligation or liability to any employee of the Franchised Businesses
in respect of any Employee Benefit Plan.
8.20 Except for sales tax obligations specifically disclosed by Seller
to Buyer and paid or otherwise discharged by Seller, 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 Seller) will be payable by Seller or
Buyer to any governmental agency based on the transfer of the Assets from Seller
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 (i)
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; AND (ii) SECTION 8.19 SHALL SURVIVE FOR TWO YEARS
OR UNTIL ONE YEAR AFTER SELLER'S RECEIPT OF A FAVORABLE DETERMINATION LETTER
FROM THE INTERNAL REVENUE SERVICE AS TO TERMINATION OF THE EMPLOYEE BENEFIT
PLANS, WHICHEVER IS LONGER.
9. Representations and Warranties of Buyer. Buyer represents and warrants to
Seller 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 and the
other documents and instruments to be executed and delivered by Buyer pursuant
to 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, Buyer's 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.
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9.5 Buyer has not engaged a broker in connection with any transaction
represented by this Agreement.
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. Seller and the Stockholders shall comply
with all of the covenants in Section 8 of the Option Agreement through the
Closing Date. In addition, Seller 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 Seller's past
practices, offer or permit any special inducements for course sign-ups. Seller
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.
12.1 Seller and the Stockholders shall not, either directly or
indirectly through any other person or entity, without Buyer's prior written
consent:
12.1.1 For a period of four (4) years from the Closing Date,
own, manage, operate, be employed by, or provide advice or assistance to any
person or organization engaged in test preparation, tutoring, counseling, or any
other business activity in which Buyer or its affiliates has engaged, is
engaged, or is actively developing as of the Closing.
12.1.2 For a period of one (1) year from the Closing Date,
own, manage, operate, be employed by, or provide advice or assistance to any
person or organization engaged in any business activity which Franchisor
designates after the Closing as part of the TPR Method but which Buyer and its
affiliates were not engaged in or actively developing as of the Closing.
12.2 Sections 12.1.1 and 12.1.2 shall apply within one hundred (100)
miles of the primary site location of any company-owned or franchised business
operated under the TPR Method. Sections 12.1.1 and 12.1.2 shall apply to any
means that may be used to engage in the activities prohibited under Sections
12.1.1 and 12.1.2, including but not limited to live instruction or other
in-person services, synchronous or asynchronous online instruction or services,
and paper or electronic publishing.
12.3 Section 12.1 does not prohibit the Stockholders from entering into
an employment or consulting arrangement with any independent franchisee of
Franchisor that is operating under the TPR Method, provided that (i) such
Stockholder neither holds nor obtains any ownership interest in such independent
franchisee or the business operated under the TPR Method, and (ii)
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such arrangement shall cease if the independent franchisee ceases to operate
under the TPR Method for any reason. Buyer agrees that neither Stockholders'
existing ownership interest in the Mexican Joint Venture nor the direct or
indirect interest of the Stockholders in Princeton Review, Inc. shall be deemed
to violate the provisions of this Section 12.
12.4 Neither Seller nor the Stockholders shall retain, copy, or use
after the Closing any customer list, prospect list, or instructor list related
to the Franchised Businesses or the TPR Method to which any of them had access
prior to the Closing. For a period of four (4) years from the Closing Date, no
advertising or promotional materials published or broadcast in any third party
media or disseminated by mass mailing for any other business or organization in
which Seller or the Stockholders may be involved after the Closing shall
identify Seller or the Stockholders as a former "The Princeton Review"
franchisee or otherwise refer to the Franchised Businesses or the relationship
with Franchisor before the Closing. This Section 12.4 does not prohibit either
Stockholder from including in any non-promotional biographical profile the fact
that he is a former owner of a THE PRINCETON REVIEW(R) franchise.
12.5 Except as permitted under the last sentence of this Section 12.5,
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 Closing Date. Notwithstanding the previous sentence, Seller 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 Seller 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 Seller and the Stockholders for
the purpose of discussing possible employment.
12.6 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 Seller 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 12.5 above shall not be deemed to violate this Section
12.6.
12.7 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. Seller and the Stockholders agree that they will remain bound by
this Section 12 as so modified by the arbitrator or court.
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12.8 Notwithstanding anything to the contrary contained herein, if
Buyer should default on any payment obligation in respect to the Note and such
default shall remain uncured for a period of one (1) year after written notice
of default is provided to Buyer, then the provisions of Section 12.1 shall
immediately terminate and be of no further force or effect at anytime
thereafter.
13. Indemnification.
13.1 Without limiting any of their other obligations under this
Agreement, Seller 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 either 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 Seller or either 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 Seller 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;
or (iii) the ownership or operation of the Franchised Businesses by Buyer on and
after the Closing Date (including performance by Buyer after the Closing Date of
the obligations of Seller expressly assumed by Buyer pursuant to this
Agreement).
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, 8.13,
and 8.19 may be submitted at any time before the expiration of the time provided
in the boldface statement at the end of Section 8. 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 Seller 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
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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. In addition, the aggregate amount of Claims shall be subject to an
indemnification maximum in an amount equal to the greater of (i) eighty percent
(80%) of the original principal amount of the Note ; or (ii) One Million Dollars
($1,000,000). To the extent that any Claim arises out of a failure of Seller to
list all of the contracts required to be listed in Schedule 1.2.9 pursuant to
the provisions of Section 1.2.9 hereof, the first sentence of this Section 13.4
shall not apply.
14. Assignment of Franchise Agreement. Seller and Franchisor agree that upon
consummation of this transaction, Seller's and Stockholders' interest in the
Franchise Agreement will be deemed assigned to Buyer. Seller 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 Seller
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 Agreement.
15. Post-Closing Obligations of Seller and the Stockholders. In addition to any
other post-Closing obligations of Seller and the Stockholders set out in this
Agreement:
15.1 Seller 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 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.
15.2 Seller shall timely file all federal, state, and local income,
franchise, payroll, sales, property, and other tax returns relating to Seller 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 Seller or the
Franchised Businesses. Buyer shall cooperate with Seller in satisfying its
obligations under this Section 15.2 by providing such copies, documents and
information as are reasonably necessary.
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15.3 At Buyer's request, without further consideration, Seller 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 As provided in Section 7.8, if Seller fails 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 Seller and the Stockholders under Section 13.1, Seller 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 Businesses
in order to relocate.
15.5 As provided in Section 7.9, if Seller fails to deliver at Closing
a third-party consent required for assignment of an Assumed Contract, then
without limiting the obligations of Seller and the Stockholders under Section
13.1, Seller shall promptly reimburse Buyer (i) for any and all out-of-pocket
costs that Buyer may incur to obtain substitute arrangements for the
non-assignable Assumed Contract, and (ii) for any loss of business suffered by
Buyer due to an interruption in the Franchised Businesses caused by the
non-assignability of the Assumed Contract.
16. Post-Closing Obligations of Buyer. In addition to any other post-Closing
obligations of Buyer set out in this Agreement:
16.1 Buyer shall retain ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as consultants
for three (3) months from the Closing. In consideration of their services under
this Section 16.1, Buyer agrees to pay to each Mr. Case and ▇▇. ▇▇▇▇▇▇▇▇
proportional compensation for the consulting period based on an annual salary of
One Hundred Thousand Dollars ($100,000).
16.2 Buyer shall furnish copies or permit access by Seller and its
accountants and legal counsel, upon reasonable notice and during regular
business hours, to any of Seller's records delivered to Buyer as a part of the
Assets.
16.3 At Seller's request, without further consideration, Buyer will
execute and deliver such further evidence as Seller may reasonably require of
Buyer's assumption of responsibility for the items specified in clauses (i) and
(ii) of Section 3.
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.
16.5 For a period of two years following the closing, Buyer shall
permit each of the Stockholders to continue to use their respective e-mail
addresses, ▇▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇ and ▇▇▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇, provided that they
are not in default of any of the provisions under Section 12 hereof. The
Stockholders agree that such e-mail 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.
22
46
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:
(a) To Seller and Mr. Rob Case the
Stockholders: T.S.T.S., Inc.
Dobie Mall 2025 Guadalupe-Suite 148
Austin, TX 78705
with a copy to: ▇▇▇▇ ▇▇▇▇▇▇
Gardere ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(b) To Buyer and/or Franchisor: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇
Princeton Review Management, L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
with a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇
Wiley, Rein & Fielding
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
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 Seller and the
Stockholders as indicated above shall be effective as to all of Seller and the
Stockholders, whether or not they receive notice 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 20 of the Option
Agreement, each party shall bear its own legal and other costs and expenses in
connection with the negotiation,
23
47
preparation, and execution of this Agreement and the performance of the
transactions contemplated hereby. Seller 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 Seller and the
Stockholders. Buyer agrees to indemnify and hold Seller 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 relating to this Agreement or the Note 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 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 PAGE FOLLOWS.]
24
48
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives.
T.S.T.S., INC.
By:_______________________________________
Its:______________________________________
▇▇▇▇▇▇ ▇. CASE, Individually
__________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Individually
__________________________________________
PRINCETON REVIEW OPERATIONS, L.L.C.
By: _____________________________
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
PRINCETON REVIEW MANAGEMENT, L.L.C.
By: _____________________________
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
25
49
SCHEDULE 1.2
VALUATION OF ASSETS
ALLOCATION WITHIN
AGREEMENT PURCHASE PRICE CLOSING
PROVISION ASSET/RIGHT (SEE SCHEDULE 6) ADJUSTMENT
--------- ----------- ---------------- ----------
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, 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 All papers and records None
50
SCHEDULE 1.2.2
LEASES
Landlord:
Date of Lease:
Expiration of Current Lease Term:
Renewal Options:
Current Base Monthly Rent:
51
SCHEDULE 1.2.9
ASSUMED CONTRACTS
I. Contracts for Office Services
II. Written Customer Contracts
52
SCHEDULE 5.9.5
WRITTEN COMPUTER SPECIFICATIONS
PROCESSOR LIFE CHART
PROCESSOR MEMORY DATE EXPIRES
--------- ------ ------------
Pentium 133 16meg 12/31/1998
Pentium 166 16meg 3/31/1999
Pentium Pro 200 32meg 9/30/1999
Pentium 200 MMX 32meg 9/30/1999
Pentium 233 MMX 32meg 12/31/1999
Pentium II 233 32meg 3/31/2000
Pentium II 266 32meg 3/31/2000
Pentium II 300 48meg 9/30/2000
Celeron 333 64meg 6/30/2001
Pentium II 350 64meg 6/30/2001
Pentium II 400 64meg 9/30/2001
Pentium II 450 64meg 12/31/2001
53
SCHEDULE 6
ALLOCATION OF PURCHASE PRICE
Agreement
Provision Asset/Right Reference
--------- ----------- ---------
1.2.1 Leasehold improvements, FF&E, signs, etc. See Schedule 1.2
1.2.6 Rights to telephone numbers, web sites, etc. $
1.2.7 Franchise rights, patents, copyrights, trade See Schedule 1.2
secrets, etc.
1.2.8 Goodwill See Schedule 1.2
1.2.9 Permits and business licenses See Schedule 1.2
1.2.10 All papers and records $
12 Covenant Not to Compete - Seller**
-----------------
[TO BE INSERTED
WHEN PURCHASE
AGREEMENT IS
EXECUTED]
=================
TOTAL PURCHASE PRICE**
** 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 Seller's
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 Seller or the Stockholders.
54
SCHEDULE 8.2
STOCKHOLDERS OF SELLER
55
SCHEDULE 8.5
LIENS
2
56
SCHEDULE 8.7
MATERIAL BREACHES
3
57
SCHEDULE 8.9
LEGAL PROCEEDINGS
4
58
SCHEDULE 8.10
MATERIAL CHANGES
5
59
SCHEDULE 8.13
COMPLIANCE WITH LAWS
6
60
SCHEDULE 8.17
ENVIRONMENTAL MATTERS
7
61
SCHEDULE 8.18
EMPLOYEES OF SELLER
62
SCHEDULE 8.19
EMPLOYEE BENEFIT PLANS
63
EXHIBIT A
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE made as of the date set forth below
by and between T.S.T.S., Inc., a Texas corporation having a usual place of
business at [ ] ("Assignor"), and Princeton Review Operations, L.L.C., a
Delaware limited liability company having a usual place of business at ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Assignee").
WHEREAS, Assignee is purchasing substantially all of the assets of Assignor
pursuant to the terms of that certain Purchase Agreement between the Assignor,
Assignee, ▇▇▇▇▇▇ ▇. Case, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, 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.
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.
64
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.
T.S.T.S., INC.
By:__________________
Name:________________
Title:_________________
PRINCETON REVIEW OPERATIONS, L.L.C.
By:__________________
Name:________________
Title:_________________
Consented to by:
[Name of Landlord]
By:__________________
Name:________________
Title:_________________
2
▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇
____________, ss. [DATE]
Then personally appeared the above-named ____________________, the
___________ of T.S.T.S, Inc., and acknowledged the foregoing instrument to be
his/her free act and deed, the free act and deed of T.S.T.S., Inc., before me,
_______________________________
Notary Public
My Commission Expires:_________
3
66
EXHIBIT B TO
ASSET PURCHASE AGREEMENT
SUBORDINATED PROMISSORY NOTE
New York, New York
$
------------------- ------------------ ,----
FOR VALUE RECEIVED,[MAKER'S NAME], a [DELAWARE] [LIMITED LIABILITY COMPANY]
(the "Maker"), with principal offices at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, promises to pay to the order of T.S.T.S., Inc., a Texas corporation
("Lender"), with principal offices at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, the principal sum of_________________ Dollars ($______________),
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 a Payment
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 Note is made pursuant to that certain Asset Purchase Agreement dated
as of _________ (the "Purchase Agreement"), by and among the Maker, the Lender
and certain other parties. Capitalized terms used but not otherwise defined in
this Note shall have the same meaning as in the Asset Purchase Agreement.
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 twenty (20)
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 [INSERT DATE WHICH IS THE FIRST
BUSINESS DAY OF THE FIRST FULL CALENDAR QUARTER FOLLOWING THE DATE OF
THIS NOTE] and ending on [INSERT DATE WHICH IS THE FIRST BUSINESS DAY
OF THE 20TH FULL CALENDAR QUARTER AFTER THE DATE OF THIS NOTE].
67
(iii) In all events, and under all circumstances, all unpaid
principal and accrued interest shall be due and payable on[INSERT DATE
WHICH IS THE FIRST BUSINESS DAY OF THE 20TH FULL CALENDAR QUARTER
AFTER THE DATE OF THIS NOTE] (the "Maturity Date").
(b) Manner of Payments. 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 Lender, or in such other manner as Lender may
designate from time to time in writing. Lender will have the express right to
require, by prior notice to Maker, that payments hereunder be made in designated
percentages to no more than two separate assignees of Lender; provided, however,
if Lender should assign its right to receive payments hereunder to two separate
assignees, then such assignees will be deemed to have agreed that they will not
file separate legal proceedings to seek remedies for any default by Maker
hereunder but must instead act together in filing a single legal proceeding to
jointly seek any available remedies.
(c) Prepayment. The Maker may prepay this Note in whole or in part,
without premium or penalty. All payments received shall first be applied to
interest then due, and any balance thereafter remaining to reduction of
principal.
2. Payment Default. As used herein, "Payment Default" means a failure by
Maker to make any payment due hereunder which continues uncured for ten (10)
days after the receipt of written notice to Maker of such default. In the event
of a Payment Default: (a) Lender may declare all amounts then remaining unpaid
on this Note to be immediately due and payable; and (b) Maker shall pay all of
Lender's reasonable costs and expenses of collection incurred as a result of the
Payment Default, including, without limitation, reasonable attorneys' fees,
court costs and disbursements.
3. Waiver of Presentment. The Maker hereby waives presentment, demand,
protest and all other notices.
4. Subordination. 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 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. 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
Lender 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
2
68
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. Lender designates the holder or holders of Senior Indebtedness as its
agents and attorney-in-fact to (i) demand, ▇▇▇ 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 Lender or otherwise, as the Senior
Indebtedness holders may determine to be necessary or appropriate for the
enforcement of this Section. Lender 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
of such event no payment of principal or interest on this Note shall be made by
the Maker or accepted by Lender.
(c) Payments Held in Trust. In case any payment or distribution shall
be paid or delivered to Lender before all Senior Indebtedness shall have been
paid in full, 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, Lender 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 Lender, 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
Lender 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 Lender, be deemed to be a payment by the Maker to or on account
of the Senior Indebtedness.
3
69
(e) Scope of Section. The provisions set forth herein are intended
solely for the purpose of defining the relative rights of Lender, 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 Lender, the obligation of the Maker, which is unconditional and absolute, to
pay to Lender 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 Lender 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 Lender 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 Lender.
(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 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 its affiliates, and all other
indebtedness, liabilities and obligations, direct or contingent, of the Maker
and its affiliates to such institutional lender, outstanding from time to time,
together with interest thereon and all fees, expenses and other amounts owing to
such institutional lender, 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.
5. 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.
6. 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
4
70
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.
7. Governing Law. This Note shall be governed by and construed and enforced
in accordance with the law of the State of New York.
5
71
Executed as an instrument under seal as of the date first written above.
[Maker]
By:__________________
Name:
Title:
Attest:
_______________________
Clerk
6
72
EXHIBIT C TO
ASSET PURCHASE AGREEMENT
GUARANTY
FOR VALUE RECEIVED, the undersigned ("Guarantor") hereby unconditionally
guarantees to T.S.T.S., Inc., a Texas corporation ("Payee"), and Payee's
successors and assigns, that the unpaid principal of and interest (if any) on
the Subordinated Promissory Note dated [DATE], payable to the Payee in the
original principal amount of $__________ (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 Guarantor and without notice to Guarantor.
The liability of Guarantor hereunder shall be reinstated or revived, and
the rights of the Payee 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 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.
Guarantor waives presentment, protest, all notices (whether of non-payment,
dishonor, protest or otherwise) with respect to the Note, acceptance of this
Guaranty and all demands whatsoever.
This Guaranty shall be construed in accordance with and governed by the
laws of the State of New York.
[NAME OF PARENT/AFFILIATE]
By:_______________________________
Title:
73
EXHIBIT D TO
ASSET PURCHASE AGREEMENT
▇▇▇▇ OF SALE
T.S.T.S., Inc., a Texas corporation ("Seller"), in consideration of $1.00
and other valuable consideration paid to it by Princeton Review Operations,
L.L.C., a Delaware limited liability company ("Buyer"), the receipt and adequacy
of which are hereby acknowledged, hereby grants, sells, transfers, and delivers
to Buyer title to all of the Assets (as that term is defined in that certain
Asset Purchase Agreement dated ___________ by and between Seller, ▇▇▇▇▇▇ ▇.
Case, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Buyer, and Princeton Review Management, L.L.C., a
Delaware limited liability company) pertaining to the THE PRINCETON REVIEW(R)
businesses operated by Seller.
Buyer shall have all right and title to the Assets in itself and in its
designees, successors, and assigns.
Seller is the lawful owner of the Assets, and the Assets are free of all
encumbrances. Seller has good right to sell the Assets and will warrant and
defend that right against all claims and demands on all persons.
IN WITNESS WHEREOF, Seller has executed this ▇▇▇▇ of Sale, intending to be
legally bound, effective as of_____________,_______.
T.S.T.S., INC.
By:____________________________________________
President
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EXHIBIT E TO
ASSET PURCHASE AGREEMENT
SELLERS' CERTIFICATE
THE UNDERSIGNED, the President of T.S.T.S., Inc. (the "Seller"), in
accordance with Section 7.7 of that certain Asset Purchase Agreement
dated___________ by and between Seller, ▇▇▇▇▇▇ ▇. Case, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Princeton Review Operations, L.L.C., a Delaware limited liability company, and
Princeton Review Management, L.L.C., a Delaware limited liability company (the
"Purchase Agreement"), hereby certifies and warrants that:
1. All representations and warranties of Seller and the Stockholders
contained in the Purchase Agreement are true as of the date of execution of this
Certificate.
2. Seller has performed all agreements on its part required under the
Purchase Agreement to be performed on or before the Closing Date (as defined in
the Purchase Agreement).
3. Seller is not in default under any of the provisions of the Purchase
Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate under
seal this ___ day of__________,_______.
T.S.T.S., INC.
By:_____________________________________ (Seal)
President
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EXHIBIT F TO
PURCHASE AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is entered into
effective as of________________ by and between T.S.T.S., Inc. ("Assignor"), 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 Assignor, Assignee,
▇▇▇▇▇▇ ▇. Case, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and Princeton Review Management, L.L.C. (the
"Purchase Agreement"). For purposes of this Agreement, the term "Assumed
Obligations" shall mean the obligations referred to in Section 7.9 of the
Purchase Agreement.
1. Assignment. For good and valuable consideration received by the
Assignor, the receipt and sufficiency of which are hereby acknowledged, the
Assignor hereby grant, transfer, and assigns to Assignee all of the Assignor's
right, title and interest in and to each of the Assumed Obligations.
2. Assumption. Assignee hereby assumes, and agrees to be bound by, all of
the covenants, agreements, and obligations of the Assignor under the Assumed
Obligations 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.
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IN WITNESS WHEREOF, the Assignor and Assignee have executed this Agreement,
intending to be bound legally.
T.S.T.S., INC.
By:
-------------------------------
President
PRINCETON REVIEW OPERATIONS, L.L.C.
By:
-------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
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EXHIBIT G TO
PURCHASE AGREEMENT
MUTUAL RELEASE
THIS MUTUAL RELEASE is entered into effective as of______________,____ by
and among T.S.T.S., Inc. ("Seller"), and ▇▇▇▇▇▇ ▇. Case and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(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, Seller, Stockholders, Buyer, and Franchisor are parties to an
Option Agreement dated October 18, 2000 (the "Option Agreement") and an Asset
Purchase Agreement dated ___________ (the "Purchase Agreement") pursuant to
which Buyer is acquiring substantially all of the assets of the THE PRINCETON
REVIEW(R) businesses operated by Seller (the "Franchised Businesses");
WHEREAS, pursuant to the 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 Franchised Businesses;
NOW, THEREFORE, the parties agree as follows:
1. Release by Seller and the Stockholders. Except as provided in Paragraph
3 below, Seller 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 Seller or either 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 Seller and each 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.
78
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 Purchase
Agreement, the Note, the Guaranty, or any other documents executed in connection
with the Purchase Agreement, including but not limited to the parties'
respective indemnification obligations under the Purchase Agreement and such of
their obligations under the Franchise Agreements as are specified in the
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 shares of stock
of The Princeton Review, Inc. (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, Seller and each of 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.
c. Paragraphs 1 and 2 do not release any person or entity from any
claim or obligation relating to the Mexican Joint Venture (as defined in the
Option Agreement).
4. No prior assignment. Seller, 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.
2
79
IN WITNESS WHEREOF, the parties have executed this Mutual Release by their
duly authorized representatives.
T.S.T.S., INC.
By:
--------------------------------------
President
▇▇▇▇▇▇ ▇. CASE, Individually
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Individually
-----------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE.]
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80
PRINCETON REVIEW MANAGEMENT, L.L.C.
By:
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
PRINCETON REVIEW OPERATIONS, L.L.C.
By:
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
PRINCETON REVIEW PRODUCTS, L.L.C.
By:
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
4