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Exhibit 2.11
ASSET PURCHASE AGREEMENT
between
THE PRINCETON REVIEW-PENINSULA, INC.
("Seller"), the ▇▇▇▇▇▇ LIVING TRUST, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
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
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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.......................................................4
6. Allocation of Purchase Price..............................................8
7. Closing Deliveries........................................................9
8. Representations and Warranties of the Seller Parties.....................10
9. Representations and Warranties of Buyer..................................14
10. Obligations Pending the Closing..........................................15
11. Restrictions on Competition, Solicitation, and Hiring....................15
12. Indemnification..........................................................16
13. Assignment of Franchise Agreement........................................17
14. Post-Closing Obligations of the Seller Parties...........................17
15. Post-Closing Obligations of Buyer........................................18
16. Notices..................................................................18
17. Entire Agreement.........................................................19
18. Counterparts.............................................................19
19. Governing Law............................................................19
20. Costs and Expenses.......................................................19
21. Survival of Representations..............................................20
22. Arbitration..............................................................20
23. Prevailing Party Fees and Costs..........................................20
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SCHEDULES
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Schedule 1.2 Valuation of Assets
Schedule 1.2.2 Leases
Schedule 1.2.9 Assumed Contracts
Schedule 6 Allocation of Purchase Price
Schedule 8.2 Stockholders of Seller
Schedule 8.17 Employees of Seller
Schedule 8.18 Employee Benefit Plans
EXHIBITS
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Exhibit A Form of Lease Assignment
Exhibit B ▇▇▇▇ of Sale
Exhibit C Seller's Certificate
Exhibit D Assignment and Assumption of Certain Agreements
Exhibit E Mutual Release
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into on March
6, 2001 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 THE PRINCETON
REVIEW-PENINSULA, INC., a California corporation ("Seller"), the ▇▇▇▇▇▇ LIVING
TRUST, a revocable trust established under a Declaration of Trust dated August
4, 1994 (the "Trust"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, individually and as
co-trustees of the Trust, and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, on the other. For convenience,
Seller, the Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ are
referred to collectively as the "Seller Parties."
RECITALS
A. Seller and Buyer are parties to an Option Agreement dated
December 14, 2000 (the "Option Agreement"), under which Buyer was granted the
right to acquire certain assets from Seller. Buyer exercised the Purchase Option
by written notice to Seller dated January 18, 2001.
B. In accordance with the terms of the Option Agreement, and in
order to consummate the transactions contemplated thereunder, Buyer, Franchisor,
and the Seller Parties 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
Business (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 Business,
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 5.8 below, and subject to the
Closing adjustments provided therein, course materials, promotional materials,
books, manuals, workbooks, practice
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tests, diagnostic tests, and other inventory and supplies on hand in or en route
to the Franchised Business as of the Closing Date;
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 Business that have not yet started as of
the Closing Date, provided that, Seller shall receive credit as provided in
Section 5.8.2 for "basket of goods" items delivered to students who have paid
deposits for course purchases (not tutoring packages) that have not yet started
as of the Closing Date;
1.2.5 The right to a portion of Total Course Revenues and
Tutoring Revenues, as defined in and calculated under Sections 5.2 and 5.3
below;
1.2.6 Seller's rights in and to all telephone numbers,
telephone directory advertising, web sites, domain names, and e-mail addresses
for the Franchised Business;
1.2.7 All franchise rights, patents, copyrights, trade
secrets, and intellectual property rights of Seller associated with the
Franchised Business;
1.2.8 All goodwill of Seller associated with the Franchised
Business;
1.2.9 The rights of Seller under the written contracts
specifically identified in Schedule 1.2.9 (the "Assumed Contracts") and under
any assignable permits and business licenses relating to the ownership and
operation of the Franchised Business; and
1.2.10 All papers and records (excluding Seller's minute books
and books of account) pertaining to and necessary for the continued operation of
the Franchised Business, 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
Business, 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,
officer or director of Seller;
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1.3.4 Motor vehicles and cellular telephones owned or leased
by Seller for the benefit of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇;
1.3.5 The equity interest of Seller 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 any Seller Party to sell the
Stock concurrently with the sale of the Franchised Business and/or termination
of the Franchise Agreement.
2. Sale and Transfer of Assets. Seller agrees to sell, convey and deliver
the Assets to Buyer at the Closing, free and clear of all liens, security
interests, pledges, and encumbrances.
3. Assumed Obligations; No Other Assumption of Liabilities or Obligations.
3.1 Effective as of the close of business on March 2, 2001 (the
"Effective 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 Business on or after the Effective Date, including
"refresher" courses for students who completed courses prior to the Effective
Date.
3.2 Subject to Section 7.8 below, as of the Effective Date, Buyer
shall assume responsibility for, and the cost to fulfill, Seller's obligations
from the Effective 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 Course Business (as defined 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 Course 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. For purposes of this Section 3.2, "Course Business" means the
set of business activities that Franchisor authorizes its franchisees to conduct
under the TPR Method, as that term is defined in the Franchise Agreement and
further defined in the Addendum to Franchise Agreement dated May 31, 1995.
Seller and Buyer agree that "Course Business" does not include any interactive
teaching system not requiring the attendance of students at any fixed premises
("Distance Learning").
3.3 As of the Effective Date, Buyer shall assume responsibility for,
and the cost to fulfill, the obligations of Seller from the Effective Date
forward under the Assumed Contracts.
3.4 Except as specifically provided in Sections 3.1, 3.2 and 3.3
above, Buyer has not assumed, and shall not assume, any liability or obligation
of any nature, whether known or
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unknown, existing or contingent, of the Seller Parties, including but not
limited to any accounts payable incurred by the Seller Parties in the conduct of
the Franchised Business. Buyer assumes no liability in connection with any
actual or alleged breach or default by any of the Seller Parties occurring at
any time before the Effective 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. The Purchase Price for the Assets and for the
covenants not to compete in Section 11 below is Two Million Six Hundred Fifty
Thousand Dollars ($2,650,000), subject to Sections 3 and 6 of the Option
Agreement and 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. To Seller, an amount equal to the Purchase Price (i) plus
interest computed daily on the Purchase Price at an annual rate of 8.5% from
March 2, 2001 until the date of payment; (ii) minus the amounts paid to ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under Sections 4.2 and 4.3 below; (iii) minus the
aggregate amount of the student deposits referred to in Section 1.2.4; (iv) plus
the aggregate amount of the Lease deposits to be reimbursed by Buyer under
Section 1.3.2; (v) plus or minus the net amount of the Closing adjustments
between Seller and Buyer pursuant to Section 5.1, to the extent determined by
the parties as of Closing;
4.2 To ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, in consideration of her obligations under
Section 11 below, the sum of Seventy Thousand Dollars ($70,000); and
4.3 To ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, in consideration of his obligations under
Section 11 below, the sum of Twenty Thousand Dollars ($20,000).
The net amount due to Seller under Section 4.1, and the amounts due to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under Sections 4.2 and 4.3, shall be paid by wire
transfer to one or more bank accounts designated by Seller.
5. Closing Adjustments.
5.1 Calculation and Payment. Except as otherwise specified in
Sections 5.2 through 5.9 below, all amounts owed between Seller and Buyer and
its affiliates under Sections 5.2 through 5.9 shall 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 5.9 shall
be presented at the end of each month to the party from which payment is sought
and, unless disputed in good faith, paid by such party within thirty (30) days
after presentment. The parties hereby confirm their intention to avoid
double-counting with respect to calculations under this Agreement and agree to
adjust any overpayment or underpayment shown to result from such
double-counting.
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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 Effective
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. Except as provided in Section
5.2.2, 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 For purposes of Section 5.2.1, net revenue per PSAT
Weekend student enrollment shall be allocated 50% to the fall term and 50% to
the spring term.
5.2.3 On the date which is six months from the Closing Date,
Seller shall pay to Buyer the amount by which the then-uncollected amounts due
from students for Courses In Progress exceed two percent (2%) of the Total
Course Revenues calculated by 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. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall assist
Buyer in such collection efforts, provided that, after the date which is six
months from the Closing Date, the Seller Parties shall not contact students
without prior authorization by Buyer, which shall not be unreasonably withheld.
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 Effective Date
but who has unused tutoring hours as of the Effective 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
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for by the student. That ratio shall be multiplied by the Remaining Revenue, and
the resulting amount shall be allocated to Buyer. If the payments collected by
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 Employee Expenses. Buyer will offer to hire the Employees of
Seller listed in Schedule 8.17 who meet Buyer's ordinary pre-employment and
post-employment standards and conditions and who agree to Buyer's employment
terms. Buyer shall have no obligation to offer employment to any specific
individual listed in Schedule 8.17 who does not meet Buyer's ordinary standards
and conditions. Buyer will credit each Employee hired by Buyer with such
vacation time and sick leave as have accrued during such person's employment by
Seller and remain unused as of the Effective Date, or, at Buyer's option, Buyer
will pay such Employee for any accrued vacation time or sick leave. In addition,
Buyer will credit each Employee hired by Buyer with such Employee's
time-in-service to Seller for purposes of (i) determining the bonus plan of
Buyer for which such Employee may be eligible, and (ii) vesting and eligibility
periods provided for in Buyer's employee benefits plans. Seller and Buyer shall
make the following payments to each other in respect of Employees hired by
Buyer:
5.4.1 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 Effective
Date in excess of the actual vacation time accrued by such Employee before the
Effective Date.
5.4.2 Bonuses. Seller represents and warrants that the
calendar year 2000 and 2001 employee bonus plan information furnished by Seller
to Buyer before execution of this Agreement accurately and completely sets forth
Seller's bonus plans for such calendar years. Seller shall calculate and pay
employee bonuses on or before the Effective Date in accordance with such
disclosed bonus plans. Buyer shall have no responsibility for calculation or
payment of any amount relating to Seller's employee bonus plans, nor any
obligation to assume or continue such bonus plans. Nothing in this Section is
intended or shall be deemed to create any third party beneficiary rights in any
employee of Seller.
5.5 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:
5.5.1 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.
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5.5.2 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 22 shall be immediately paid to Buyer.
5.6 Rent. All rent paid by Seller and Buyer under Leases and Assumed
Contracts assigned pursuant to Section 7.8 shall, if the rent relates to periods
both before and after the Effective Date, be prorated as of the Effective Date,
with Seller responsible for the portion which accrued prior to the Effective
Date and Buyer responsible for the portion which accrued on and after such date.
5.7 Other Business Expenses. Except as otherwise provided in Sections
5.5, 5.6, and 5.8, bills received by Seller or by Buyer in connection with the
operation of the Franchised Business 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 Effective Date, be
prorated as of the Effective Date, with Seller responsible for the portion which
accrued prior to the Effective Date and Buyer responsible for the portion which
accrued on and after such date. The Bills shall be prorated and settled in
accordance with Section 5.1.
5.8 Special Items. Buyer and Seller shall jointly calculate the
amount of the items specified below in this Section 5.8:
5.8.1 Prepaid Advertising Expenses. Buyer shall reimburse
Seller for expenses paid by Seller in the ordinary course of business before the
Effective 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 Effective Date ("Prepaid Advertising
Expenses"). Seller shall furnish such documentation as Buyer may reasonably
request to verify all expenditures for which Seller seeks reimbursement.
5.8.2 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 Business as of the Effective Date, provided that: (i) such items are
in their original, unbroken shipping containers; and (ii) the expiration date of
such items is not less than three (3) months after the Effective Date. "Basket
of goods" items delivered by Seller to students enrolled in courses that have
not started as of the Effective Date shall be treated as items on hand in the
Franchised Business, without regard to clauses (i) and (ii) above. Seller may
retain any basket of goods items not paid for by Buyer under this Section.
5.8.3 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
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course schedules) that remain on hand in or en route to the Franchised Business
as of the Effective Date, provided that (i) such items have not been accounted
for under Section 5.8.1; (ii) the quantity of such items is no greater than the
quantity typically maintained by Seller in the past or reasonably required for
increased business; (iii) Buyer shall have no obligation to pay for any items
that would not ordinarily and reasonably be used within six (6) months after the
Effective 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.
5.8.4 Capital Expenditures. Buyer shall reimburse Seller for
Capital Expenditures made by Seller in the ordinary course of operating the
Franchised Business 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; (ii) Buyer shall have no obligation to reimburse Seller for
any portion of Capital Expenditures made to cure deficiencies of Seller with
respect to the standards required under the TPR Method, and (iii) 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 Franchise Fees, Etc. Seller, Buyer and Franchisor shall calculate
and pay in accordance with Section 5.1: (i) the amount of any unpaid
royalty-service fees and unpaid advertising-promotion fees due to Franchisor
under the Franchise Agreements as of the Effective 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 Effective Date for course
materials, products, supplies, or other goods or services purchased for use or
resale in the Franchised Business; and (iii) the amount of any undisputed
transfer fees or other undisputed amounts owed to Seller by Franchisor and its
affiliates under the Franchise Agreement as of the Effective 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 which
Seller has 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
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that: (i) in no tax return filed by it or any of its successors or assigns shall
the allocation of the Purchase Price be treated or reported inconsistently with
or differently from the allocation of the Purchase Price set forth in Schedule
6, unless such change in allocation is the result of a determination by a taxing
authority for that year or a preceding year; and (ii) in no tax audit, tax
examination, tax or compliance review or tax litigation, will it or any of its
respective successors or assigns claim or assert that the allocation of the
Purchase Price is or should be inconsistent with or different from that set
forth in Schedule 6, unless as a result of a determination made by a taxing
authority in a preceding year. The parties agree to file all appropriate
Internal Revenue Service forms with their respective Federal income tax returns
for their respective tax year in which the Closing Date occurs.
7. Closing Deliveries. The Closing shall take place on March 6, 2001 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, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ the amounts required under Section 4.
7.2 Seller shall execute and deliver to Buyer a ▇▇▇▇ of Sale for the
Assets in the form of Exhibit B to this Agreement.
7.3 Seller shall deliver to Buyer a good standing certificate from
its state of incorporation and from each state in which Seller has qualified to
do business, each current as of a date not more than five days before the
Closing Date.
7.4 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 Seller.
7.5 Seller shall execute and deliver a certificate in the form of
Exhibit C to this Agreement (the "Seller's Certificate").
7.6 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, 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 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 14.5 below.
7.7 Seller and Buyer shall execute an Assignment and Assumption
Agreement with respect to the Assumed Contracts, in the form of Exhibit D to
this Agreement; and, if applicable,
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Seller shall deliver to Buyer the written consents of third parties to the
assignment and assumption of the Assumed Contracts.
7.8 Seller shall deliver suitable evidence of transfer of the rights
referred to in Section 1.2.6.
7.9 Seller shall deliver the written consents of all other persons,
if any, whose approval or consent to the performance of this Agreement by the
Seller Parties or to transfer of the Assets is legally or contractually
required.
7.10 The Seller Parties, Buyer and Franchisor shall execute a Mutual
Release in the form of Exhibit E to this Agreement. Buyer shall cause Products
to execute the Mutual Release.
7.11 Seller shall deliver certificates of insurance satisfactory to
Buyer demonstrating that Seller has the insurance coverage described in Section
8.15 below.
8. Representations and Warranties of the Seller Parties. The Seller
Parties, 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 Business, except where the failure to qualify to do business would
not have a material adverse effect on the Franchised Business.
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
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 Seller, performance
of the terms of this Agreement by Seller, and the consummation by 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 any stockholder in connection with the
consummation of the transactions contemplated hereunder.
8.3 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 the Seller Parties' knowledge will not,
immediately or with the passage of time, the giving of notice or otherwise,
result in the breach of, constitute a default or violation under, or accelerate
any obligation under any agreement or other instrument to which any of the
Seller Parties is a party, or by which any of the Seller Parties may be bound.
8.4 This Agreement and the other agreements and transactions
contemplated herein to which any of the Seller Parties is or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation, 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.
8.6 All furniture, fixtures and equipment that Seller was using in
the Franchised Business as of the date of execution of the Option Agreement
remain in operation in the Franchised Business. Otherwise, Seller makes no
representation as to such furniture, fixtures and equipment, which are
transferred to Buyer "as is."
8.7 No Seller Party is in material breach or default of any contract
or other commitment to Buyer, Franchisor, or third parties, including without
limitation the Franchise Agreement and the Option Agreement.
8.8 No Seller Party has engaged a broker in connection with any
transaction represented by this Agreement.
8.9 There is no material claim, investigation, litigation,
arbitration, or enforcement proceeding pending or, to the knowledge of the
Seller Parties, threatened against any of the Seller Parties or the Franchised
Business.
8.10. Seller has previously delivered to Buyer copies of Seller's
federal income tax returns for calendar years 1997, 1998, and 1999 and Seller's
unaudited profit-and-loss statements on an accrual basis for the periods ending
December 31, 1999 and December 31, 2000 (collectively, the "Financial
Statements"). To the best of the Seller Parties knowledge, the Financial
Statements reflect or provide for all material claims against, and all material
debts and liabilities relating to, the Franchised Business, fixed or contingent,
as of the dates of the Financial Statements and for the periods covered by them,
as determined in accordance with generally accepted accounting principles,
consistently applied. There has not been any change since the date of the latest
balance sheet which has materially and adversely affected the Franchised
Business 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, use, property, and other tax returns which
were required to be filed prior to the date of this Agreement, and has 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 the Seller Parties' 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 its Franchised
Business in the manner in which it is presently operated.
8.13 No Seller Party 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 Business and
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ownership and use of the Assets. To the best of the Seller Parties' knowledge,
there are not now and have not been any material failures to comply with such
laws or orders.
8.14 Except for the liabilities expressly assumed by Buyer under
Section 3, the Seller Parties have no knowledge of any agreements, leases,
contracts, charges, encumbrances or restrictions which would restrict Buyer's
use or right to use any of the Assets or will create obligations for which Buyer
will be liable.
8.15 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 Business. 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 To the best of the Seller Parties' knowledge, neither this
Agreement, nor any Schedule or Exhibit hereto, nor any certificate or other
information or document furnished to Buyer or Franchisor by or on behalf of any
Seller Party in connection with the transactions contemplated hereunder,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
8.17 Schedule 8.17 is a list of all persons currently employed by
Seller in the Franchised Business (the "Employees"). The Seller Parties have
previously furnished information to Buyer that 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 5.4, the Seller Parties have made no promises or
representations to any of the Employees that Buyer would employ them or would
continue in effect any benefit to which they may now be entitled or believe
themselves to be entitled, or would pay or grant any bonus or benefit which any
Employee may have accrued during his or her employment by Seller. The Seller
Parties 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 Schedule 8.18 lists all Employee Pension Benefit Plans, as that
term is defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and all Employee Welfare Benefit Plans, as that
term is defined in Section 3(1) of ERISA, which Seller has maintained or
contributed to for the benefit of any current or former employee of Seller
(collectively, the "Employee Benefit Plans"). The Seller Parties represent with
respect to the Employee Benefit Plans:
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8.18.1 None of the Employee Benefit Plans is a "multi-employer
plan," as that term is defined in Section 3(37) of ERISA. Seller has never
contributed to or been required to contribute to any multi-employer plan.
8.18.2 Each Employee Benefit Plan (and each related trust or
insurance contract) complies in form and in operation with the applicable
requirements of ERISA and the Internal Revenue Code of 1986, as amended (the
"IRC"). All required reports and descriptions (including without limitation Form
5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed or distributed with respect to each
Employee Benefit Plan.
8.18.3 All employer contributions and employee salary reduction
contributions which were due prior to the date of this Agreement have been paid
to each Employee Pension Benefit Plan, and Seller has made provision for payment
of all such contributions which relate to the period up to the Effective Date.
All premiums and other payments for all periods ending on or before the
Effective Date have been paid with respect to each Employee Welfare Benefit
Plan.
8.18.4 Each Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under IRC Section 401(a). Seller's
third-party administrator has received a favorable opinion letter from the
Internal Revenue Service with respect to a prototype of the Employee Pension
Benefit Plan adopted by Seller. Seller has not been refused a favorable
determination letter from the IRS as to the Employee Pension Benefit Plan as
adopted by Seller.
8.18.5 There have been no Prohibited Transactions (as that term
is defined in ERISA Section 406 and IRC Section 4975) with respect to any
Employee Benefit Plan, and no Fiduciary (as that term is defined in ERISA
Section 3(21)) is liable for breach of fiduciary duty or any other failure to
comply in connection with the administration or investment of the assets of any
Employee Benefit Plan. No claim, proceeding, or investigation (other than
routine claims for benefits) with respect to the administration or investment of
the assets of an Employee Benefit Plan is pending or has been threatened, and
the Seller Parties are not aware of any basis for any such claim, proceeding, or
investigation.
8.18.6 Except as disclosed in Schedule 8.18, 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. Seller has never maintained or contributed to any
Employee Welfare Benefit Plan providing health, accident, or life insurance
benefits to former employees or their beneficiaries, other than in accordance
with Part 6 of Subtitle B of Title I of ERISA or IRC Section 4980B.
8.19 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.
8.20 The copy of the Declaration of Trust dated August 4, 1994
furnished by the Seller Parties to Buyer is a true and complete copy. The Trust
is in full force and effect, and there have
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been no amendments to the Declaration of Trust. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ have the power under the Declaration of Trust and California law to cause
the Trust to enter into and to perform all of its obligations under this
Agreement. The Trust owns 99% of the issued and outstanding stock of Seller.
THE ABOVE REPRESENTATIONS AND WARRANTIES SHALL SURVIVE THE CLOSING FOR
TWO YEARS AS PROVIDED IN SECTION 12 AND SECTION 21 BELOW, EXCEPT THAT (i)
SECTIONS 8.11, 8.13 AND 8.19 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 8.18 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 the Seller Parties that:
9.1 Buyer has been duly organized and is validly existing and in good
standing under the laws of the state of Delaware.
9.2 The execution, delivery, and performance of this Agreement has
been duly authorized by the members of Buyer, and all necessary member action
under Buyer's operating agreement and state law has been taken for approval of
the execution and delivery of this Agreement by Buyer, performance of the terms
of this Agreement by Buyer, and the consummation by Buyer of the transactions
contemplated hereunder. No filing with, notices to, or approvals of any
governmental or regulatory body or agency or any other person are required to be
made or obtained by Buyer in connection with the consummation of the
transactions contemplated hereunder.
9.3 The execution and delivery of this Agreement, Buyers' performance
hereunder, and the consummation of the transactions herein contemplated do not,
and to the best of Buyer's knowledge will not, immediately or with the passage
of time, the giving of notice or otherwise, result in the breach of, constitute
a default or violation under, or accelerate any obligation under any agreement
or other instrument to which Buyer is a party, or by which Buyer may be bound.
9.4 This Agreement and the other agreements and transactions
contemplated herein to which Buyer is or will be a party will each, upon
execution and delivery, be a legal, valid, and binding obligation of Buyer,
enforceable in accordance with its terms.
9.5 Buyer has not engaged a broker in connection with any transaction
represented by this Agreement.
THE ABOVE REPRESENTATIONS AND WARRANTIES SHALL SURVIVE THE CLOSING FOR
TWO YEARS AS PROVIDED IN SECTION 12 AND SECTION 21
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BELOW. In the event Buyer assigns its rights under this Agreement to an
affiliate 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 affiliate.
10. Obligations Pending the Closing. The Seller Parties shall comply with
all of the covenants in Section 9 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 Business 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 Business that occurs
prior to the Effective Date.
11. Restrictions on Competition, Solicitation, and Hiring. Seller, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall not, either directly or indirectly through
any other person or entity, without Buyer's prior written consent:
11.1 For a period of four (4) years from the Effective Date, become
engaged or involved in any business or activity which relates to, involves, or
is competitive with the TPR Method (as defined in, and modified by Franchisor
pursuant to, the Franchise Agreement), (i) within the geographic territory
defined in the Franchise Agreement, or (ii) within one hundred (100) miles of
the primary site location of any company-owned or franchised business operated
under the TPR Method.
11.2 For a period of four (4) years from the Effective Date, solicit
any individuals, businesses, or organizations that were customers of the
Franchised Business prior to the Closing or disclose any information about such
customers to any person, company or other legal entity. This Section does not
prohibit solicitation of any individual or entity whose identity was obtained
from the public domain, provided that such solicitation is not for a purpose
prohibited under Section 11.1 above.
11.3 Except as permitted under the last sentence of this Section 11.3,
for a period of two (2) years from the Effective Date, hire any person who
worked for Buyer, its affiliates, or the Franchised Business as of the Effective
Date or at any time within six (6) months before the Effective 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 Effective Date. Notwithstanding the previous sentence, the Seller
Parties may hire (i) any person who voluntarily left his or her employment with
Buyer or its affiliates at least six (6) months before being contacted by the
Seller Parties for the purpose of discussing possible employment; and (ii) any
person whose employment was terminated by Buyer or its affiliates before the
person was contacted by the Seller Parties for the purpose of discussing
possible employment.
11.4 For a period of four (4) years from the Effective Date, directly
or indirectly induce, or attempt to influence, any employee of Franchisor,
Buyer, or their affiliates to terminate his or her employment. This provision
shall not be construed as a waiver of any rights or claims that Buyer,
Franchisor, and their affiliates may have against the Seller Parties as a result
of a
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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 11.3 above shall not be deemed to violate this Section
11.4.
11.5 If in any dispute over this Section 11 an arbitrator or court
deems any provision of this Section 11, 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 11 may impose the maximum duty permitted by
applicable law. Seller, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ agree that they
will remain bound by this Section 11 as so modified by the arbitrator or court.
12. Indemnification.
12.1 Without limiting any of their other obligations under this
Agreement, the Seller Parties, jointly and severally, agree to indemnify and
hold harmless Buyer, Franchisor, their affiliates, and their respective
officers, directors, shareholders and employees against and from any loss,
liability, damages, cost or expense (including, but not limited to, reasonable
attorneys' and accounting fees and expenses) based upon, arising out of, or
relating to: (i) any materially inaccurate, materially untruthful, or materially
erroneous representation of any of the Seller Parties set forth in the Option
Agreement, this Agreement, or any certificate or document delivered pursuant to
this Agreement; (ii) any material failure to perform with respect to any of the
covenants, conditions or agreements of any of the Seller Parties 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 Business through the Effective Date.
12.2 Buyer agrees to indemnify and hold harmless the Seller Parties
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 Business by Buyer after the Effective
Date.
12.3 All claims for indemnification under Sections 12.1 and 12.2 above
must be submitted within two (2) years after the Closing, except that a claim by
Buyer with respect to Sections 8.11, 8.13, 8.18, 8.19, 14.1 and 14.2 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 the Seller Parties 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
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thirty (30) days from its receipt of notice of the Claim to assume defense of
the Claim, and if the Indemnifying Party fails to assume the defense within such
thirty-day period the Claiming Party shall have the right to contest, settle, or
pay the claim, in the Claiming Party's sole discretion. Failure to provide
timely notice of a Claim: (i) will not prohibit the Claiming Party from
conducting its own defense (including hiring its own legal counsel); and (ii)
will relieve the Indemnifying Party from any obligation to indemnify for that
particular Claim, to the extent the Indemnifying Party is prejudiced by failure
to receive notice. The Claiming Party and the Indemnifying Party shall cooperate
fully with each other with respect to all Claims subject to indemnification, and
shall keep each other fully advised with respect thereto, including supplying
copies of all relevant documentation promptly as it becomes available.
12.4 Notwithstanding anything to the contrary in this Section 12,
payment of a Claim to the Claiming Party shall not be due until such time as the
aggregate amount of all pending Claims made by the Claiming Party exceeds
$10,000. However, claims with respect to Sections 8.11, 8.13, 8.18, 8.19, 14.1
and 14.2 shall not be subject to the foregoing sentence. Any Claims that remain
unpaid solely on account of this Section 12.4 as of the expiration of the time
periods specified in Section 12.3 shall be deemed waived. In addition, the
aggregate liability of the Indemnifying Party under this Section 12 shall be
subject to an indemnification maximum in an amount equal to One Million Dollars
($1,000,000) plus the aggregate amount of such party's Claims as a Claiming
Party.
12.5 The Seller Parties acknowledge that any claims against them for
indemnification with respect to tax matters related to the Franchised Business,
which are referred to in Sections 8.11, 8.13, 8.19, and 14.2, shall be subject
to Section 12.1 regardless of the Claiming Party's actual knowledge at the time
of Closing.
13. Assignment of Franchise Agreement. Seller and Franchisor agree that upon
consummation of this transaction, Seller's interest in the Franchise Agreement
will be deemed assigned to Buyer. Seller will have no further rights or
obligations thereunder, except for the obligations of the Seller Parties 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.
14. Post-Closing Obligations of the Seller Parties. In addition to any other
post-Closing obligations of the Seller Parties set out in this Agreement:
14.1 The Seller Parties 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 Seller's employees under the
Employee Benefit Plans.
14.2 Seller shall timely file all federal, state, and local income,
franchise, payroll, sales, use, property, and other tax returns relating to
Seller or the Franchised Business for the period through the Closing which
become due on or after the Closing; shall timely pay all taxes shown
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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 Business. Buyer shall cooperate with Seller
in satisfying its obligations under this Section 14.2 by providing such copies,
documents and information as are reasonably necessary.
14.3 At Buyer's request, without further consideration, the Seller
Parties 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.
14.4 Seller shall change its corporate name to delete the words
"Princeton Review" and shall cancel or transfer to Buyer all business name and
fictitious name registrations containing the words "Princeton Review." Seller
shall furnish evidence of such actions to Buyer upon reasonable request.
14.5 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 Business, then without limiting the
obligations of Seller and the Stockholders under Section 11.1, 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 Business in
order to relocate.
15. Post-Closing Obligations of Buyer. In addition to any other post-Closing
obligations of Buyer set out in this Agreement:
15.1 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.
15.2 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 Section 3.
16. Notices. All notices pursuant to this Agreement shall be in writing and
shall be deemed given when delivered by hand, by overnight courier, or by
facsimile transmission, or on the third day after mailing if mailed by express
mail or its equivalent, postage prepaid, return-receipt requested, if available,
as follows:
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(a) To the Seller Parties: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
as indicated above shall be effective as to all of the Seller Parties, whether
or not they receive notice individually. Notices to counsel unaccompanied by
notices to principals shall not constitute notice.
17. 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.
18. 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.
19. 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.
20. Costs and Expenses. Except as specified in Section 15 of the Option
Agreement, each party shall bear its own legal and other costs and expenses in
connection with the negotiation, preparation, and execution of this Agreement
and the performance of the transactions contemplated hereby. The Seller Parties
agree to indemnify and hold Buyer and Franchisor harmless from any broker's or
finder's fee or alleged broker's or finder's fee incurred by or claimed against
the Seller Parties. Buyer agrees to indemnify and hold the Seller Parties
19
23
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.
21. 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, 8.13, 8.18 and 8.19 may be brought at any time before the
expiration of the time provided in the boldface statement at the end of Section
8.
22. Arbitration. Any dispute arising under or related to this Agreement
shall 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.
23. Prevailing Party Fees and Costs. The prevailing party or parties in any
arbitration or litigation involving this Agreement will be entitled to recover
from the losing party or parties its or their reasonable costs and expenses
arising out of or incurred by reason of the action or arbitration, including but
not limited to reasonable attorneys fees, AAA administrative fees, and
arbitrators fees.
[SIGNATURE PAGES FOLLOW.]
20
24
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives.
THE PRINCETON REVIEW-PENINSULA, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
President
THE ▇▇▇▇▇▇ LIVING TRUST
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
Co-Trustee
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
Co-Trustee
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Individually
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Individually
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Individually
/s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE.]
21
25
PRINCETON REVIEW MANAGEMENT, L.L.C.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
PRINCETON REVIEW OPERATIONS, L.L.C.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
PRINCETON REVIEW PRODUCTS, L.L.C.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
22
26
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE made as of the date set forth
below by and between The Princeton Review-Peninsula, Inc., a California
corporation having a usual place of business at ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereinafter called "Assignor"), and Princeton Review
Operations, L.L.C., a Delaware limited liability company having a usual place of
business at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (hereinafter called
"Assignee").
WHEREAS, Assignee is purchasing substantially all of the assets of
Assignor pursuant to the terms of that certain Asset Purchase Agreement between
the Assignor, Assignee, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, 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 (as defined below),
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.
27
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
and Assumption of Lease to be duly executed and delivered under seal as of the
effective date set forth below.
Effective Date: As of the date of transfer of all or substantially all
of the Assignor's assets to Assignee, but not later than _____________. Assignor
and Assignee shall hold this instrument in escrow until a copy hereof, with the
effective date marked hereon, shall be faxed or delivered to the Landlord.
THE PRINCETON REVIEW-PENINSULA INC.
By:_______________________
Name:_____________________
Title:____________________
PRINCETON REVIEW OPERATIONS, L.L.C.
By:_______________________
Name:_____________________
Title:____________________
Consented to by:
[Name of Landlord]
By:_______________________
Name:_____________________
Title:____________________
2
28
A.
B. STATE OF CALIFORNIA
____________, ss. [DATE]
Then personally appeared the above-named ____________________, the
___________ of The Princeton Review-Peninsula, Inc., and acknowledged the
foregoing instrument to be his/her free act and deed, the free act and deed of
The Princeton Review-Peninsula, Inc., before me,
__________________________
Notary Public
My Commission Expires:_________
3
29
▇▇▇▇ OF SALE
The Princeton Review-Peninsula, Inc., a California 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 March 6,
2001 by and between Seller, the ▇▇▇▇▇▇ Living Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Buyer, and Princeton Review Management, L.L.C., a
Delaware limited liability company (the "Asset Purchase Agreement") pertaining
to the The Princeton Review(R) business 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 owners 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 as provided in
the Asset Purchase Agreement.
IN WITNESS WHEREOF, Seller has executed this ▇▇▇▇ of Sale, intending to
be legally bound, effective as of March 2, 2001.
THE PRINCETON REVIEW-PENINSULA, INC.
By: ___________________________________________
President
30
SELLER'S CERTIFICATE
THE UNDERSIGNED, the President of The Princeton Review-Peninsula, Inc.,
a California corporation, in accordance with Section 7.5 of that certain Asset
Purchase Agreement dated March 6, 2001 by and between Seller, the ▇▇▇▇▇▇ Living
Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Princeton Review
Operations, L.L.C., a Delaware limited liability company, and Princeton Review
Management, L.L.C., a Delaware limited liability company (the "Asset Purchase
Agreement"), hereby certifies and warrants that:
1. All representations and warranties of the Seller Parties
contained in the Asset 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 Asset Purchase Agreement to be performed on or before the Closing Date (as
defined in the Asset Purchase Agreement).
3. Seller is not in default under any of the provisions of the Asset
Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate under
seal this 6th day of March, 2001.
THE PRINCETON REVIEW-PENINSULA, INC.
By: _____________________________________ (Seal)
President
31
ASSIGNMENT AND ASSUMPTION OF CERTAIN AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is entered
into effective as of March 2, 2001 by and between The Princeton
Review-Peninsula, 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 March 6, 2001 by and among the Assignor,
Assignee, the ▇▇▇▇▇▇ Living Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, and Princeton Review Management, L.L.C. (the "Purchase Agreement"). For
purposes of this Agreement, the term "Assumed Contracts" shall mean the
agreements listed in Schedule 1.2.9 to the Purchase Agreement.
1. Assignment. For good and valuable consideration received by
Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor
hereby grants, transfers, and assigns to Assignee all of Assignor's right, title
and interest in and to each of the Assumed Contracts.
2. Assumption. Assignee hereby assumes, and agrees to be bound by,
all of the covenants, agreements, and obligations of Assignor under the Assumed
Contracts which arise or are incurred, or are to be performed, on and after the
date of this Agreement.
3. Binding Effect. This Agreement shall inure to the benefit of and
be binding upon each of the parties and their respective successors and assigns.
4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
32
IN WITNESS WHEREOF, the Assignor and Assignee have executed this
Agreement, intending to be bound legally.
THE PRINCETON REVIEW-PENINSULA, INC.
By: _______________________________________________
President
PRINCETON REVIEW OPERATIONS, L.L.C.
By: _______________________________________________
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Operating Officer
-2-
33
MUTUAL RELEASE
THIS MUTUAL RELEASE is entered into effective as of March 6, 2001 by and
between The Princeton Review-Peninsula, Inc. ("Seller"), the ▇▇▇▇▇▇ Living
Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (individually and as co-trustees of
the ▇▇▇▇▇▇ Living Trust), and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (collectively the "Seller
Parties"), on the one hand; and Princeton Review Management, L.L.C.
("Franchisor"), Princeton Review Operations, L.L.C. ("Buyer"), and Princeton
Review Products, L.L.C. ("Products"), on the other hand.
WHEREAS the Seller Parties, Buyer, and Franchisor are parties to an
Asset Purchase Agreement dated March 6, 2001 (the "Asset Purchase Agreement")
pursuant to which Buyer is acquiring substantially all of the assets of the The
Princeton Review(R) business operated by Seller (the "Franchised Business");
WHEREAS, pursuant to the Asset Purchase Agreement, the parties are
obligated to execute and deliver this Mutual Release as a condition of closing
of the purchase and sale of the Businesses;
NOW, THEREFORE, the parties agree as follows:
1. Release by the Seller Parties. Except as provided in Paragraph 3
below, each of the Seller Parties, for itself and his, her, or its respective
successors, assigns, heirs, personal representatives, and all other persons
acting on their behalf or claiming under them, hereby releases 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 the Seller Parties may have ever had, now
has, or may ever have based on any transaction, event, or circumstance prior to
the effective date of this Mutual Release.
2. Release by Franchisor, Buyer, and Products. Except as provided in
Paragraph 3 below, Franchisor, Buyer, and Products, for themselves and their
respective successors and assigns and all other persons acting on their behalf
or claiming under them, hereby release each of the Seller Parties, 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.
34
3. Exceptions.
a. Paragraphs 1 and 2 do not release any person or entity
from: (i) any of their representations or obligations under the Option
Agreement, the Asset Purchase Agreement, or any other documents executed in
connection with the Asset Purchase Agreement, including but not limited to the
parties' respective indemnification obligations under the Asset Purchase
Agreement and such of their obligations under the Franchise Agreement as are
specified in the Asset Purchase Agreement to survive the Closing; or (ii) any
claim or liability arising from a breach of the representations and obligations
referred to in clause (i).
b. Paragraphs 1 and 2 do not release any person or entity
from: (i) any obligation under the Conversion and Contribution Agreement dated
March 31, 2000, the Stockholders Agreement dated April 1, 2000, or any other
contractual arrangement or statutory provision relating to the ownership of the
Stock; or (ii) any claim that a person or entity may have by virtue of its
status as a direct or indirect owner of Stock, provided that, the Seller Parties
covenant that none of them will 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, her or its former interest
in The Princeton Review Publishing Company, L.L.C. if such act or decision was
made in the good faith judgment that the act or decision was in the best overall
business interests of The Princeton Review(R) franchisees, separately or as a
group.
4. No prior assignment. The Seller Parties, Franchisor, Buyer and
Products each represent and warrant that they are the sole owners of all claims
and rights released by each of them hereunder and that they have not assigned or
transferred, or purported to assign or transfer, to any person or entity, any
claim, demand, suit, action, or cause of action released by each of them under
Paragraphs 1 or 2 above.
5. Complete defense. The parties to this Mutual Release acknowledge
that this Mutual Release will be a complete defense to any claim released under
Paragraphs 1 or 2 above; and hereby consent to the entry of a temporary or
permanent injunction to prevent or end the assertion of any such claim.
6. Successors and Assigns. This Mutual Release will inure to the
benefit of and bind the successors and assigns of each party to this Mutual
Release.
7. Applicable law. This Mutual Release shall be governed by and
construed under the laws of the State of New York, without giving effect to New
York conflict of law principles.
[SIGNATURE PAGES FOLLOW.]
-2-
35
IN WITNESS WHEREOF, the parties have executed this Mutual Release by
their duly authorized representatives.
THE PRINCETON REVIEW-PENINSULA, INC.
By:_________________________________________
President
THE ▇▇▇▇▇▇ LIVING TRUST
By:________________________________________
Co-Trustee
By:________________________________________
Co-Trustee
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Individually
____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Individually
____________________________________________
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Individually
____________________________________________
[SIGNATURES CONTINUED ON FOLLOWING PAGE.]
-3-
36
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-