July 7, 1997
(as amended August 30, 1997 and
November 18, 1997)
Phoenix Preschool Holdings, Inc.
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Plan of Reorganization between and among
Phoenix Preschool Holdings, Inc., Phoenix
Preschool Education Centers, Inc. and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("Plan of Reorganization")
Gentlemen:
This letter agreement is intended to constitute a legally binding Plan
of Reorganization and to express our legally binding agreement with respect to
those matters addressed in the Plan of Reorganization including the contemplated
underwritten public offering of the common stock of Phoenix Preschool Holdings,
Inc., a Pennsylvania corporation ("Holdings"), the successor by merger to the
Delaware corporation of the same name. The parties to this Plan of
Reorganization are Holdings, Phoenix Preschool Education Centers, Inc., a
Delaware corporation ("Education Centers, Inc."), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇"), who owns all of the outstanding common stock of Education Centers,
Inc. At or before the effective date (the "Effective Date")for the contemplated
firm-commitment underwritten initial public offering of the common stock of
Holdings, ▇▇▇▇▇▇▇ will contribute to Holdings all of his common stock of
Education Centers, Inc. and $500,000 of principal amount of indebtedness owed to
▇▇▇▇▇▇▇ by Education Centers, Inc. in a transaction (hereafter called the
"Section 351 Transaction") effectuated pursuant to Section 351 of the Internal
Revenue Code of 1986, as amended, and Holdings will thereupon own all of the
outstanding common stock of Education Centers, Inc.
Phoenix Preschool Education Centers, Inc.
July 3, 1997
Page -2-
▇▇▇▇▇▇▇ hereby warrants and represents to Holdings that he is, as of
the date hereof, the sole owner of record and beneficially (as such term is
defined in Rule 13d-3 of the Securities Exchange Act of 1934) of all of the
outstanding shares of the common stock of Education Centers, Inc. To the best of
▇▇▇▇▇▇▇'▇ knowledge, there are no other shareholders of Education Centers, Inc.
and that, and no person has the right to acquire shares of Education Centers,
Inc. except for certain employees, consultants, bridge note holders, and the
holders of the ▇▇▇▇▇▇▇▇ warrants.
Prior to the Effective Date, Education Centers, Inc. shall declare a
dividend to ▇▇▇▇▇▇▇ equal to the undistributed Subchapter S income (if any) of
Education Centers, Inc. for periods prior to the Effective Date. Holdings hereby
guarantees all payments to be made by Education Centers, Inc. pursuant hereto
and agrees to contribute to Education Centers, Inc. a sufficient amount of cash
to fund all payments due to ▇▇▇▇▇▇▇ hereunder.
▇▇▇▇▇▇▇ hereby agrees that he will contribute to Holdings all of his
shares of common stock of Education Centers, Inc., and $500,000 of the principal
amount of indebtedness owed by Education Centers, Inc. to ▇▇▇▇▇▇▇, on either the
Effective Date of the registration statement of the contemplated public offering
of Holdings common stock or at such later date, but not later than the First
Closing Date (as defined in the underwriting agreement entered into with Duke &
Co., Inc. and Briarwood Investment Counsel in connection with the offering
contemplated hereby), as is requested by Holdings. ▇▇▇▇▇▇▇ agrees not to convert
the Convertible Promissory Note, dated as of January 1, 1996, of which Education
Centers, Inc. is the maker and ▇▇▇▇▇▇▇ is the payee (the "Note"), prior to the
First Closing Date, assuming that the First Closing Date occurs by March, 1998.
In exchange, ▇▇▇▇▇▇▇ will receive 810,890 shares of the common stock of
Holdings and 500,000 shares of Series A Preferred Stock of Holdings. ▇▇▇▇▇▇▇'▇
shares in Holdings issued upon incorporation will be cancelled. Education
Centers, Inc. will pay to ▇▇▇▇▇▇▇ any excess of the indebtedness due to ▇▇▇▇▇▇▇
from Education Centers, Inc. over and above the $500,000 in principal amount of
indebtedness contributed by ▇▇▇▇▇▇▇ to Holdings. It is agreed that, as of March
31, 1997, Education Centers, Inc. owes ▇▇▇▇▇▇▇ $747,831, and that the due date
of such indebtedness (which is evidenced in part by the Note) is hereby extended
until July 1, 1998.
Phoenix Preschool Education Centers, Inc.
July 3, 1997
Page -3-
Holdings agrees to assume, effective as of the Effective Date, the
obligations of Education Centers, Inc. under all outstanding warrants and
options of Education Centers, Inc. and, subsequent to the Effective Date, these
warrants and options shall relate solely to the common stock of Holdings.
It is understood that the consent of holders of warrants and options to
purchase common stock of Education Centers, Inc. may be required by Holdings in
order to confirm that their sole rights under the warrants and options are to
receive common stock of Holdings, rather than common stock of Education Centers,
Inc. If for any reason these consents are not obtained prior to the Effective
Date, Holdings may require the transaction to be structured as a merger in which
a subsidiary of Holdings is merged into Education Centers, Inc., rather than a
Section 351 Transaction.
This letter agreement shall automatically become null and void if for
any reason there is no closing of the underwriting agreement for the
contemplated public offering of Holdings common stock within four months from
the date hereof or if there are substantial changes from the proposed initial
public offering described in this letter agreement. Any Section 351 Transaction
consummated hereunder shall become null and void, and automatically rescinded,
if the First Closing Date does not occur.
This letter agreement represents the entire understanding of the
parties with respect to the subject matter, may not be amended, supplemented,
terminated or waived except by written instrument signed by all parties hereto,
may be executed in one or more counterparts, each of which shall be deemed an
original against any party whose signature appears thereon, and shall be
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed solely in Delaware. This agreement shall be
binding upon and inure to the benefit of the signatories hereto and their heirs,
legal and other personal representatives (similar or dissimilar), estates,
executors, administrators, successors and assigns. The signatories hereto,
intend to be legally bound hereby.
Very truly yours,
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
PHOENIX PRESCHOOL EDUCATION CENTERS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Agreed:
PHOENIX PRESCHOOL HOLDINGS, INC., a
Pennsylvania corporation
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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