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Exhibit 10.1
ASSET PURCHASE AGREEMENT
between
T.S.T.S., INC. ("Seller") and
XXXXXX X. CASE and XXXXX X. XXXXXXXX (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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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 Xxxx of Sale
Exhibit E Sellers' Certificate
Exhibit F Assignment and Assumption Agreement
Exhibit G Mutual Release
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into on June
18, 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 T.S.T.S., INC., a
Texas corporation ("Seller"), XXXXXX X. CASE, and XXXXX X. XXXXXXXX
(collectively, the "Stockholders"), on the other.
RECITALS
A. Seller and Buyer are parties to an Option Agreement dated
October 18, 2000 and a Conditional Exercise Notice dated May 23, 2001 (together
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");
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.
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3.4 Buyer acknowledges receiving from Seller a spreadsheet entitled
"SxSW Marketing and Sales Agreements - Non-Binding" dated June 15, 2001 listing
discount offers and similar promotions made by Seller which Seller believes to
be good business practice but which Seller represents to Buyer are not binding
obligations. Buyer will exercise its reasonable business judgment in determining
whether to honor, renew, or continue the items on the list after the Closing.
3.5 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 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 the Option Agreement, is
Six Million Two Hundred Seventy-Five Thousand Dollars ($6,275,000), subject to
any Purchase Price adjustments that may be provided for in this Agreement.
Subject to the terms of the Option Agreement, Buyer shall pay the following
amounts on the Closing Date:
4.1.1 To Seller, an amount equal to Four Million Eight Hundred
Thousand Dollars ($4,800,000), 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 Xxxxxx Xxxx, in consideration of his obligations
under Section 12 below, the sum of One Hundred Thousand Dollars ($90,000);
4.1.3 To Xxxxx Xxxxxxxx, in consideration of his obligations
under Section 12 below, the sum of One Hundred Thousand Dollars ($90,000);
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
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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 Eight Hundred Thousand Dollars ($4,800,000).
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,
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Buyer shall pay the amount of the shortfall to Seller after the Closing as
course revenues are collected from students.
5.2.2 Any MCAT courses for the August 2001 term that have not yet
started as of the Closing Date will nevertheless be treated as Courses in
Progress. With respect to such MCAT courses, the Total Course Revenues shall be
allocated in accordance with Paragraph 2.3 (instead of Paragraph 2.2) of the
Transfer Policy, with the result that the "Originator" (Seller) will retain the
"Materials Fee" and the "Receiver" (Buyer) will receive 100% of the remaining
balance. Deposits received by Seller for such MCAT courses will be treated as an
asset under Section 1.2.5 rather than Section 1.2.4 above.
5.2.3 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.
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.
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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 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:
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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 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 Presentation. Bills received by Seller and Buyer shall be
presented to the other party as provided in Section 5.1. Neither party may
present any Xxxx 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.
5.8.2 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.
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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 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. Seller represents and warrants to Buyer that
the list contains at least eleven (11) personal computers purchased by Seller
for the Franchised Business after October 18, 2000. 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. If more than eight
(8) Computers are "out of spec" as of the Closing, Seller shall replace
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(or reimburse Buyer 100% of the cost of replacing) a sufficient number of
Computers so that no more than eight (8) Computers are "out of spec." The
foregoing obligation is Seller's sole obligation with respect to "out of spec"
Computers.
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 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 as of 2:00 p.m. on June
18, 2001. 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 Xxxx of Sale for the Assets
in the form of Exhibit D to this Agreement.
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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").
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.
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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.
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.
7.16 Seller shall deliver to Buyer a copy of the executed board resolution
referred to in Section 8.19.8 with respect to pre-Closing termination of
Seller's 401(k) plan.
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
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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.
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 1997, 1998 and 1999; its unaudited, reviewed
balance sheets dated December 31, 1998, December 31, 1999,and December 31, 2000;
its unaudited, reviewed profit-and-loss statements for the periods ending on
those dates; an unaudited balance sheet dated April 30, 2001;, and its unaudited
year-to-date profit-and-loss statement for the period ending on April 30,
2001(collectively, the "Financial Statements"). To the best of Seller's and the
Stockholders'
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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.
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
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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-solid or
gaseous hazardous substances. Except as disclosed in Schedule 8.17, during the
xxxx Xxxxxx 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 (other than the Shareholders)
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'
hire dates and current positions. 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
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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.
8.18.5 There is no labor strike, work slow-down, work stoppage,
dispute, lock-out 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 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
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distributed. The Employee Welfare Benefit Plans are fully insured and cover
fewer than 100 participants and, accordingly, are not required to file Form 5500
reports.
8.19.3 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 Closing Date. All
premiums and other payments for all periods ending on or before the Closing Date
have been paid with respect to each Employee Welfare Benefit Plan.
8.19.4 Each Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under IRC Section 401(a). Seller obtained a favorable
determination letter dated February 22, 1995 from the Internal Revenue Service
with respect to Seller's 401(k) plan.
8.19.5 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 and
the Stockholders are not aware of any basis for any such claim, proceeding, or
investigation.
8.19.6 Except as disclosed in Schedule 8.19, there are no participant
loans outstanding under the Employee Pension Benefit Plans.
8.19.7 Except as disclosed in Schedule 8.19, 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.
8.19.8 Seller's board of directors will adopt a resolution before
Closing to terminate the Employee Benefit Plans before the Closing, and Seller
will take steps as soon as administratively feasible after the Closing to
formalize such termination.
8.19.9 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 or (ii) any obligation or
liability to any employee of the Franchised Businesses in respect of any
Employee Benefit Plan.
8.19.10 Seller does not maintain, and has never maintained, a "Section
125" plan under Section 125 of the Internal Revenue Code.
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8.19.11 Seller's affiliate, PR Mex/Co., has no employees, no assets
other than a 50% ownership interest in a joint venture in Mexico and cash
attributable to distributions by the joint venture, and no Employee Benefit
Plans.
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 13 AND SECTION 22 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) THE REPRESENTATIONS IN SECTION 8.19
RELATING TO EMPLOYEE PENSION BENEFIT PLANS 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.
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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 13 AND SECTION 22 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.
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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) 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
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applicable law. Seller and the Stockholders agree that they will remain bound by
this Section 12 as so modified by the arbitrator or court.
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,
8.19, 15.1 and 15.2 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 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
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claim, in the Claiming Party's sole discretion. Failure to provide timely notice
of a Claim: (i) will not prohibit the Claiming Party from conducting its own
defense (including hiring its own legal counsel); and (ii) will relieve the
Indemnifying Party from any obligation to indemnify for that particular Claim,
to the extent the Indemnifying Party is prejudiced by failure to receive notice.
The Claiming Party and the Indemnifying Party shall cooperate fully with each
other with respect to all Claims subject to indemnification, and shall keep each
other fully advised with respect thereto, including supplying copies of all
relevant documentation promptly as it becomes available.
13.4 Notwithstanding anything to the contrary in this Section 13,
payment of a Claim to the Indemnified Party shall not be due until such time as
the aggregate amount of all pending Claims made by the Indemnified Party exceeds
$10,000. Any Claims that remain unpaid solely on account of this provision as of
the expiration of the two-year period specified in Section 13.3 shall be deemed
waived. 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.
13.5 Seller and the Stockholders 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, 15.1 and 15.2, shall be
subject to Section 13.1 regardless of the Claiming Party's actual knowledge at
the time of Closing.
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. Seller shall take steps as soon as
administratively feasible to formalize the pre-Closing termination of Seller's
401(k) plan, and shall seek a favorable determination letter from the Internal
Revenue Service with respect to such termination. Seller acknowledges that Buyer
will not accept any transfer of assets from Seller's 401(k) plan to Buyer's plan
before receipt of a favorable determination letter. Seller and Buyer shall
cooperate as necessary to permit participants to continue repaying loans
outstanding under the Employee Pension Benefit Plans before transfer of the plan
assets, and to transfer such loans at the time of transfer of the plan assets.
Seller and the
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Stockholders shall take all actions necessary to ensure that Seller and P.R.
Mex/Co. do not establish, maintain, or contribute to any qualified defined
contribution plan (other than an employee stock ownership plan) before the first
anniversary of the Closing Date. The parties acknowledge that Buyer is acquiring
no liability under this Agreement 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.
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.
15.6 Seller and the Stockholders shall use reasonable efforts to assist Buyer
in obtaining either: (a) a transfer of Seller's I-17 authorization by the U.S.
Immigration and Naturalization Service to enroll non-immigrant aliens in
courses, or (b) a new I-17 authorization of Buyer to enroll non-immigrant
aliens, equivalent to the authorization held by Seller.
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 Xxxxxx Xxxx and Xxxxx Xxxxxxxx as consultants for not
less than three (3) months from the Closing and until terminated by Buyer. In
consideration of their services
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under this Section 16.1, Buyer agrees to pay to each of Mr. Case and Xx.
Xxxxxxxx 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,
xxxxxxx@xxxxxx.xxx and xxxxxxxxxxxxx@xxxxxx.xxx, 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.
16.6 The parties acknowledge that they will remain responsible after
execution of this Agreement to fulfill their respective obligations under
Section 17 of the Option Agreement to the extent they may not have previously
fulfilled such obligations.
16.7 If the U.S. Shareholders should hereafter reach an agreement to sell
their interests in the Mexican Joint Venture to one or more of the individual
signatories of the original Mexican franchise agreement (other than the U.S.
Shareholders) (the "Mexican Investor(s)"), then (i) Buyer agrees that the
Mexican Investor(s) will be approved as a successor franchisee and (ii) Buyer
will have the right to review and approve the terms of the purchase of the U.S.
Shareholders' interests by the Mexican Joint Venture to confirm that it will
not impair the continued viability of the Mexican franchise. If the transaction
is approved by Buyer pursuant to clause (ii) of the immediately preceding
sentence, then TPR 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 of the sale of the U.S. Shareholders' interests to the
Mexican Investor(s). The capitalized terms used but not defined in this Section
16.7 will have the meanings assigned thereto pursuant to the provisions of
Section 16 of the Option Agreement.
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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 0000 Xxxxxxxxx - Xxxxx 000
Xxxxxx, XX 00000
with a copy to: Xxxx Xxxxxx
Gardere Xxxxx Xxxxxx & Xxxxx, L.L.P.
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
(b) To Buyer and/or Franchisor: Xx. Xxxx Xxxxxxx
Princeton Review Management, L.L.C.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
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with a copy to: Xxxxx X. Xxxx
Wiley, Rein & Fielding
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
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, 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: (i) 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; and (ii) the representations in Section 8.19 relating to Employee
Pension Benefit Plans shall survive for two years or until one year after
Seller's receipt of a favorable determination letter from the IRS as to
termination of the Employee Benefit Plans, whichever is longer.
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
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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.
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IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.
T.S.T.S., INC.
By: /s/ Xxxxxx X. Case
------------------------------------
Its: Vice President, Secretary
------------------------------------
XXXXXX X. CASE, Individually
/s/ Xxxxxx X. Case
--------------------------------------------
XXXXX X. XXXXXXXX, Individually
/s/ Xxxxx X. Xxxxxxxx
--------------------------------------------
PRINCETON REVIEW OPERATIONS, L.L.C.
By: /s/ Xxxx Xxxxxxx
------------------------------------
Xxxx Xxxxxxx
Chief Operating Officer
PRINCETON REVIEW MANAGEMENT, L.L.C.
By: /s/ Xxxx Xxxxxxx
------------------------------------
Xxxx Xxxxxxx
Chief Operating Officer
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