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Exhibit 2.7
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of December 15,
2000 by and between PRINCETON REVIEW OPERATIONS, L.L.C., a Delaware limited
liability company ("TPR"), on the one hand, and THE PRINCETON REVIEW PENINSULA,
INC., a California corporation ("Seller"), on the other.
Recitals
A. Seller (as assignee of Xxxxxx X. Xxxxxx) is a party to a franchise
agreement with TPR's affiliate, Princeton Review Management, L.L.C.
("Management"), for the operation of a THE PRINCETON REVIEW(R) test preparation
business, as set forth in Schedule 1 to this Agreement. The franchise agreement
(as amended by that certain Addendum dated May 31, 1995) listed in Schedule 1 is
referred to in this Agreement as the "Franchise Agreement" and the business
operated under it is referred to as the "Franchised Business."
B. Seller and TPR desire to provide TPR the option to acquire the
Franchised Business on the terms and conditions set forth in this Agreement.
Management has consented to the grant of the option and has waived the exercise
of its right of first refusal under the Franchise Agreement with respect to the
transactions contemplated by this Agreement.
Agreement
NOW, THEREFORE, in consideration of their mutual undertakings
hereunder, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Grant of Option. Seller irrevocably grants to TPR the option to enter
into an Asset Purchase Agreement in the form of Exhibit A to this Agreement (the
"Purchase Agreement"), under which TPR or its designee shall acquire the Assets
(as defined in the Purchase Agreement) for the Purchase Price set forth in
Section 3 below (the "Purchase Option").
2. Exercise of Option. TPR may exercise the Purchase Option by giving
written notice (the "Exercise Notice") to Seller at any time during the period
commencing on the date of this Agreement and ending at 11:59 p.m. on May 1, 2001
(the "Option Term").
3. Purchase Price.
3.1 The Purchase Price for the acquisition of the Assets shall be
$2,800,000, provided that the Franchised Business satisfies the following
financial criteria for the calendar year ending
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December 31, 2000:
(i) an increase in Gross Course Revenue (as defined in Section 3.3
below) of seven percent (7%) over the calendar year ending
December 31, 1999 (the "Revenue Growth Benchmark"). Seller has
represented in Seller's internal accrual financial statements
for the year ended December 31, 1999 that Gross Course Revenue
for calendar year 1999 was $1,852,781;
(ii) Adjusted EBITDA (as defined in Section 3.3 below) equal to or
greater than $550,000 (the "Adjusted EBITDA Benchmark"); and
(iii) Gross Institutional Revenue (as defined in Section 3.3 below)
not exceeding eight percent (8%) of Gross Course Revenue (the
"Institutional Revenue Limit").
3.2 If the Franchised Business fails to satisfy the financial
criteria set forth in Section 3.1, TPR shall have the rights specified in
Section 6 below.
3.3 For purposes of this Agreement:
"Gross Course Revenue" means the accrual revenue from
operations of the Franchised Business relating to sales of
courses directly to students in the ordinary course of
business, plus Gross Institutional Revenue. "Gross Course
Revenue" does not include: (i) deferred revenue; (ii) customer
discounts and allowances; (iii) revenue from items which are
not subject to the royalty-service fee under the Franchise
Agreement ("Non-Royalty Items"); (iv) sales of fixed assets;
and (v) sales of marketing and course materials to purchasers
other than students. For purposes of calculating Gross Course
Revenue, net revenue per PSAT Weekend student enrollment shall
be allocated 50% to the fall term and 50% to the spring term.
"Gross Institutional Revenue" means accrual revenue from
operations of the Franchised Business relating to bulk sales
of courses to or through institutions (such as under the
California College Preparation Partnership Program).
"Adjusted EBITDA" means Seller's accrual-based net income from
current operations of the Franchised Business ("Net Income"),
adjusted for each of the
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following items to the extent such items were recognized in
calculating Net Income:
(i) interest or investment income (expense) shall be
subtracted (added back);
(ii) deductions for corporate taxes based on Seller's
income shall be added back;
(iii) gains (losses) on the sale of assets shall be
subtracted (added back);
(iv) depreciation and amortization expense shall be added
back;
(v) revenue from Non-Royalty Items shall be subtracted;
(vi) the aggregate amount of all salary, bonuses, SEP
retirement benefits, and automobile expenses paid to
or in behalf of Xxx Xxxxxx and Xxxxx Xxxxxx with
respect to calendar year 2000 shall be added back;
(vii) Seller's reasonable legal expenses incurred in
respect of The Princeton Review, Inc.'s corporate
restructuring in March 2000 shall be added back; and
(viii) If the combined base salary and bonus deduction by
Seller for Xxxx Xxxxx exceeds $75,000, the portion
which exceeds $75,000 shall be added back.
4. Financial Statements.
4.1 Within twenty (20) days after the end of each calendar
quarter, Seller shall furnish TPR with copies of Seller's internal financial
statements for such calendar quarter and for the year to date. The financial
statements shall satisfy the standards in Section 9.2(b) below.
4.2 Attached to this Agreement as Schedule 2 are figures obtained
from financial information provided by Seller to TPR for (i) Seller's calendar
year 1999 Gross Course Revenue, Gross Institutional Revenue, and Adjusted
EBITDA; and (ii) projections of Seller's Gross Course Revenue, Gross
Institutional Revenue, and Adjusted EBITDA for calendar year 2000. Seller
represents that (x) the calendar year 1999 figures in Schedule 2 are accurate to
within five percent (5%) of actual figures based upon a recomputation of
Seller's cash basis numbers on an accrual basis; and (y) the calendar year 2000
figures in Schedule 2 are Seller's reasonable
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estimates of actual operating results for calendar year 2000. The parties
acknowledge that the actual figures for calendar year 2000 will be subject to
Sections 3 and 6 of this Agreement.
4.3 If TPR reasonably deems it necessary for purposes of this
Agreement, TPR may request, and if requested Seller shall deliver to TPR,
reviewed financial statements for calendar year 2000. Such review shall be
conducted by an independent certified public accounting firm reasonably
acceptable to TPR. Seller shall furnish the reviewed statements within thirty
(30) days after receipt of TPR's request. Seller shall bear the first $30,000 of
charges from the accounting firm for the review of Seller's financial statements
and TPR shall bear any such charges in excess of $30,000. The respective
obligations of Seller and TPR for such charges shall survive termination of this
Agreement.
5. Purchase Agreement. If TPR exercises the Purchase Option, the
acquisition of the Assets shall be consummated on the terms set forth in the
Purchase Agreement and its exhibits, with the schedules completed as
appropriate. Seller and TPR or its designee shall execute and deliver to each
other counterparts of the Purchase Agreement within thirty (30) days after
delivery of the Exercise Notice. Seller shall cause Xxxxxx X. Xxxxxx, Xxxxx X.
Xxxxxx, and Xxxxxxxxx Xxxxxx to execute the Purchase Agreement, and Buyer shall
cause Management to execute the Purchase Agreement.
6. Due Diligence.
6.1 Any obligation of TPR to purchase the Franchised Business is
subject to a satisfactory due diligence review of the Franchised Business by
TPR. TPR will use its best efforts to complete its due diligence review within
(i) forty-five 45 days after delivery of the Exercise Notice, or (ii) ten (10)
days after delivery of the reviewed financial statements under Section 4.3 (if
requested by TPR), whichever period ends later.
6.2 If Seller fails to satisfy any of the financial criteria set
forth in Section 3.1, the following recalculations will be performed:
(a) If Gross Institutional Revenue exceeds the
Institutional Revenue Limit: (i) the amount of the excess shall be subtracted
from Gross Course Revenue; (ii) Seller's performance against the Revenue Growth
Benchmark shall be measured using the recalculated Gross Course Revenue, and
(iii) if applicable, TPR shall have the rights provided in clause (b) below.
(b) If Seller fails to achieve the Revenue Growth
Benchmark (after the
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recalculation specified in clause (a), if applicable): (i) the parties shall
calculate the additional amount of Gross Course Revenue which would have been
necessary to achieve the Revenue Growth Benchmark (the "Shortfall"); (ii) Net
Income shall be reduced by 60% of the Shortfall; (iii) Adjusted EBITDA shall be
recalculated using the reduced Net Income; (iv) Seller's performance against the
Adjusted EBITDA Benchmark shall be measured using the recalculated Adjusted
EBITDA; and (v) if applicable, TPR shall have the rights provided in clause (c)
below. In any case, if Gross Course Revenue for calendar year 2000 (after the
recalculation specified in clause (a), if applicable) is equal to or less than
Gross Course Revenue for calendar year 1999, TPR will have the right to
terminate the entire transaction.
(c) If Seller fails to achieve the Adjusted EBITDA
Benchmark (after the recalculation specified in clause (b), if applicable): (i)
the parties shall calculate the percentage by which Adjusted EBITDA fell short
of the Adjusted EBITDA Benchmark; and (ii) the Purchase Price shall be reduced
by the same percentage by which Adjusted EBITDA fell short of the Adjusted
EBITDA Benchmark. If the revised Purchase Price is less than $2,500,000 (the
"Floor Price"), Seller shall have the right to deliver written notice to TPR
that Seller will not sell the Franchised Business at the revised Purchase Price
(the "Rejection Notice"). TPR will have the right for five (5) business days
after TPR's receipt of the Rejection Notice to provide written notice to Seller
advising that TPR will purchase the Franchised Business at the Floor Price. If
TPR provides such notice, Seller and TPR (subject to Section 6.3 below) will be
obligated to enter into the Purchase Agreement providing for a Purchase Price
equal to the Floor Price.
6.3 In addition to its termination rights under Section 6.2, TPR
will have the right to terminate the transaction after delivery of the Exercise
Notice: (i) if Adjusted EBITDA for calendar year 2000 (after the recalculation
specified in Section 6.2(b), if applicable) is less than $500,000; (ii) if
Seller's representation in Section 4.2 with respect to the calendar year 1999
figures in Schedule 2 is inaccurate, or (ii) based on any other adverse
information which is material to the transaction as a whole.
6.4 At TPR's request and upon reasonable notice, Seller shall give
TPR, TPR's lender(s), the underwriters for the proposed public offering by The
Princeton Review, Inc. (the "Underwriters"), and their respective employees,
accountants, counsel, agents, consultants and representatives full access during
normal business hours to all facilities, properties, accounts, books, insurance
policies, licenses, agreements, contracts, commitments, records, files,
equipment, machinery, fixtures, furniture, notes and accounts payable and
receivable of Seller with respect to the Franchised Business. Seller shall
furnish such other information concerning the affairs of the Franchised Business
as TPR and its lender(s) may reasonably request. Any due diligence investigation
or examination by TPR and/or its lender(s) shall not diminish or obviate
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any representations or warranties of Seller made in, or in connection with, this
Agreement or the Purchase Agreement. Seller shall cause its accountants and any
agent of Seller in possession of Seller's books and records with respect to the
Franchised Business to cooperate with TPR's requests for information pursuant to
this Agreement. Seller shall bear its own internal and out-of-pocket costs
(including any professional fees) of complying with reasonable due diligence
requests by TPR, TPR's lender(s), and the Underwriters.
7. Closing. Subject to the terms of this Agreement and the Purchase
Agreement, the closing of the purchase of the Assets (the "Closing") shall take
place within ninety (90) days after delivery of the Exercise Notice to Seller,
but in no event earlier than January 1, 2001. The Closing may occur after May 1,
2001 provided that the Exercise Notice was timely delivered. For purposes of
this Agreement and the Purchase Agreement, "Closing Date" means the date on
which the Closing is actually completed.
8. Method of Payment. The Purchase Price shall be paid as provided in the
Purchase Agreement.
9. Covenants. Seller shall comply with the following covenants from the
date of this Agreement until the end of the Option Term, unless TPR exercises
the Purchase Option, in which case the Seller shall comply with the following
covenants through the Closing Date:
9.1 Liens. Seller shall keep the Assets free and clear of all
liens, claims and encumbrances of any kind, other than the Purchase Option.
9.2 Operation of the Business.
(a) Seller shall operate the Franchised Business in the usual
and ordinary manner in which it was conducted before the date of this Agreement.
Seller shall operate the Franchised Business in substantial compliance with the
Franchise Agreement and all applicable laws, rules and regulations. Seller shall
keep books and accounts, records and files consistent with Seller's past
practices, except that, to the extent that Seller's past practices would not
satisfy the requirements of Section 9.2(b) below, Section 9.2(b) shall take
precedence.
(b) Seller shall deliver to TPR the financial statements
required under Section 4 above. The financial statements shall be prepared on an
accrual basis in accordance with generally accepted accounting principles,
consistently applied, and shall present fairly the financial position of the
Franchised Business and the results of Seller's operations for the periods
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indicated. Seller's obligation under this Section is in addition to financial
reports required by the Franchise Agreement.
(c) Seller shall use its best efforts to keep intact the
business organization of the Franchised Business, to retain substantially as at
present the Franchised Business' employees, consultants and agents, and to
preserve the goodwill of the Franchised Business' suppliers, advertisers,
customers, and others having business relations with Seller.
(d) Seller shall keep all tangible personal property included
in the Assets in good operating condition and repair (ordinary wear and tear
excepted) and shall maintain supplies of inventory, office supplies, spare parts
and other materials consistent with Seller's general practice before the date of
this Agreement. Seller shall preserve intact the Assets and maintain in effect
Seller's current casualty and liability insurance relating to the Franchised
Business and the Assets.
(e) Seller shall not sell, assign or transfer, or agree to
sell, assign or transfer, voluntarily or by operation of law, the Franchised
Business, the Franchise Agreement, or any interest therein, except in full
compliance with the applicable provisions of the Franchise Agreement and only if
the transferee acquires its interest subject to this Agreement and executes a
written assumption, in a form acceptable to TPR, under which the transferee
agrees to be bound by this Agreement.
(f) Seller shall not, without TPR's prior written consent
(which shall not be unreasonably withheld):
(i) sell, lease, or transfer, or agree to sell, lease
or transfer, or grant an option to purchase or lease any Assets, except for
non-material sales or leases in the ordinary course of business of items which
are being replaced by assets of comparable or superior kind, condition and
value;
(ii) except in the ordinary course of business
consistent with past practices or as may be required by applicable law, grant
any raises to employees of the Franchised Business or pay or agree to pay any
substantial bonuses, or enter into or renew any contract of employment with any
employee of the Franchised Business;
(iii) enter into, renew or amend any contract with
respect to the Franchised Business except in the ordinary course of business.
The parties acknowledge that Seller is in discussions with its landlord
concerning renewal of Seller's office lease early in 2001.
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Seller shall furnish a copy of the proposed lease extension or proposed new
lease to TPR, and TPR shall have a reasonable time, not to exceed thirty (30)
days, to review the proposed terms before deciding whether to give its consent
as required under this Section 9.2(f); or
(iv) enter into any transaction (including any
contract, agreement or arrangement with respect to the purchase, sale or
exchange of property or assets or the rendering or accepting of any service)
with any affiliate of Seller, with any officer, manager, member, director or
shareholder of Seller or of any affiliate of Seller (or relative thereof), or
with anyone else who is not dealing at arm's length with Seller.
9.3 Breach of Representations, Warranties and Covenants. Seller
shall give detailed written notice to TPR promptly upon learning of the
occurrence of any event that would cause or constitute a material breach of any
of Seller's representations, warranties or covenants.
9.4 Notice of Proceedings. Seller will promptly notify TPR in
writing upon: (a) becoming aware of any order or decree or any complaint praying
for an order or decree restraining or enjoining the consummation of the
transactions contemplated hereunder; or (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin, the consummation of such transactions, or (ii) to nullify or render
ineffective this Agreement or such transactions if consummated.
10. Confidentiality.
10.1 TPR and Seller shall not use for any purpose other than the
transactions contemplated by this Agreement or, except as provided below,
disclose to anyone not a party to this Agreement, any information regarding each
other's business which TPR and Seller may obtain or of which they may be
apprised as a result of the negotiation, preparation or performance of this
Agreement and the Purchase Agreement. TPR and Seller may disclose such
information to their respective employees, attorneys, accountants, investment
bankers, investors and lenders on a need-to-know basis for the purpose of
consummating the transactions contemplated by this Agreement and the Purchase
Agreement, provided that each person to whom such information is disclosed is
informed and agrees that the disclosure is subject to the commitment of
confidentiality in this section.
10.2 Seller or TPR may disclose the existence of this Agreement to
other franchisees of Management. Neither Seller nor TPR shall disclose any of
the specific terms of this Agreement or of the Purchase Agreement to any
non-party to this Agreement, except that Seller may disclose the terms to its
stockholders and TPR may disclose the terms to (i) TPR's affiliates and lenders,
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(ii) the Underwriters, (iii) government agencies in an SEC Form S-1 registration
statement and other filings required by the securities laws; (iv) prospective
investors in The Princeton Review, Inc., and (v) to the extent that TPR offers
them similar agreements, to other franchisees of Management.
11. Representations and Warranties of Seller. Seller represents and
warrants to TPR as follows:
11.1 Company Status. Seller is duly formed, validly existing and in
good standing under the laws of the state of its incorporation. Seller is duly
qualified to do business and is in good standing in such states in which the
failure to so qualify would have a material adverse effect on the Franchised
Business. Seller has the requisite power to carry on the Franchised Business as
it is now being conducted and to own and operate the Franchised Business, and
Seller has the requisite power to enter into and complete the transactions
contemplated by this Agreement. Seller has not used any name in the operation of
the Franchised Business other than its name as first set forth above and the
name(s) licensed under the Franchise Agreement.
11.2 Authority. All company actions necessary to be taken by or on
the part of Seller in connection with the transactions contemplated by this
Agreement have been duly and validly taken, and this Agreement has been duly and
validly authorized, executed, and delivered by Seller and constitutes the legal,
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms.
11.3 No Conflict. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or violate Seller's governing documents; (b) conflict with or
violate or result in any breach of or any default under, result in any
termination or modification of, or cause any acceleration of any obligation
under, any contract to which Seller is a party or by which it is bound, or by
which the Franchised Business or any of the Assets may be affected, or result in
the creation of any lien upon any of the Assets; or (c) violate any judgment,
decree, order, statute, law, rule or regulation applicable to Seller, the
Franchised Business, or any of the Assets.
11.4 No Breach. Seller is not in violation or breach in any
material respect of any of the terms, conditions or provisions of any contract,
court order, judgment, arbitration award, or decree relating to or affecting the
Franchised Business or the Assets.
11.5 Purchase Agreement Representations. Subject to the disclosure
schedules to be delivered by Seller, the representations and warranties to be
made by Seller and its stockholders in the Purchase Agreement are true in all
material respects as of the date of this Agreement.
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12. Representations and Warranties of TPR. TPR represents and warrants to
Seller as follows:
12.1 Company Status. TPR is duly formed, validly existing and in
good standing under the laws of the state of Delaware. TPR has the requisite
power to enter into and complete the transactions contemplated by this
Agreement.
12.2 Authority. All company actions necessary to be taken by or on
the part of the TPR in connection with the transactions contemplated by this
Agreement have been duly and validly taken, and this Agreement has been duly and
validly authorized, executed, and delivered by TPR and constitutes the legal,
valid and binding obligation of TPR, enforceable against TPR in accordance with
its terms.
12.3 No Conflict. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or violate TPR's governing documents; (b) conflict with or
violate or result in any breach of or any default under, result in any
termination or modification of, or cause any acceleration of any obligation
under, any contract to which TPR is a party or by which it is bound; or (c)
violate any judgment, decree, order, statute, law, rule or regulation applicable
to TPR.
12.4 Purchase Agreement Representations. The representations and
warranties to be made by TPR in the Purchase Agreement are true in all material
respects as of the date of this Agreement.
13. Further Assurances. Until the end of the Option Term (or until the
Closing Date, if TPR exercises the Purchase Option), Seller and TPR will each,
without payment of any consideration, execute such instruments and take such
actions as the other party may reasonably request to effectuate this Agreement.
Without limiting the generality of the foregoing, if TPR exercises the Purchase
Option, TPR may file (and if requested Seller shall execute) UCC-1 forms in such
jurisdictions as TPR deems appropriate to give notice that the Assets are
subject to this Agreement. The parties shall cooperate fully with each other and
with their respective counsel and accountants in connection with any steps
required to be taken as part of their respective obligations under this
Agreement.
14. Remedies. If Seller breaches or threatens to breach any obligation,
representation, warranty, or covenant under this Agreement, TPR shall be
entitled, in addition to any other remedy available to it, to an injunction
restraining any such breach or threatened breach and to enforcement of this
Agreement by a decree of specific performance requiring Seller to fulfill its
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obligations under this Agreement, in each case without the necessity of showing
economic loss or other actual damage and without any bond or other security
being required.
15. Termination. TPR shall have the right, at any time before or after
delivery of the Exercise Notice, to terminate this Agreement by written notice
to Seller if counsel for the Underwriters or the initial public offering counsel
for The Princeton Review, Inc. determines that this Agreement interferes with or
may interfere with the registration of, or the public offering of, the stock of
The Princeton Review, Inc. Except as provided in Sections 4.3 and 16,
termination by TPR or the Seller shall be without liability to TPR and Seller,
and upon delivery of the notice of termination, all obligations of the parties
under this Agreement shall be null and void.
16. Cancellation Fee and Expense Reimbursement. If TPR does not exercise
the Purchase Option by the end of the Option Term, and TPR's decision not to
exercise the Purchase Option is not based on Seller's default, unsatisfactory
due diligence, or Seller's failure to meet any of the financial criteria
specified in Section 3.1, TPR shall (a) pay Seller a cancellation fee of
$18,000, and (b) reimburse Seller for its reasonable attorneys' fees and
expenses incurred in connection with the negotiation of this Agreement, but such
reimbursement shall not exceed $15,000 and shall be subject to presentation by
Seller of suitable documentation to verify the expenses for which reimbursement
is sought.
17. Assignment. Seller may not assign or delegate any of its rights or
duties under this Agreement. TPR may assign its rights under this Agreement and
the Purchase Agreement to one or more affiliated parties without the consent of
Seller, provided that the assignment does not materially increase Seller's risk
of nonperformance of the Purchase Agreement and the documents to be executed
thereunder. This Agreement shall be binding upon and inure to the benefit of
Seller and TPR and their respective successors and permitted assigns.
18. 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: Xx. Xxxxxx X. Xxxxxx
0000 Xxxxxxxxxx Xxxxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
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with a copy to: Xxxxxx X. Xxxxxx
Xxxxxxxx Xxxx
00 X. Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(b) To TPR: Xx. Xxxx Xxxxxxx
Princeton Review Management, L.L.C.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
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 as
indicated above shall be effective as to Seller and its stockholders, whether or
not they receive notice individually. Notices to counsel unaccompanied by
notices to principals shall not constitute notice.
19. Entire Agreement. This Agreement and its Schedules and Exhibit
constitute the entire agreement of the parties with respect to the subject
matter hereof, and supersede all prior negotiations, correspondence,
representations, and agreements of the parties, oral and written, with respect
to same subject matter. This Agreement may be amended or modified only by an
agreement in writing executed by Seller and TPR.
20. Survival. All representations, warranties, covenants and agreements
made herein or in any certificate to be delivered hereunder or made in writing
in connection with the transactions contemplated herein shall survive the
execution and delivery of this Agreement and the exercise of the Purchase Option
(but not termination of this Agreement by TPR under Section 15), and shall
survive the Closing to the extent provided in the Purchase Agreement.
21. 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.
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22. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of New York, without giving effect to New York principles
of conflicts of laws.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Seller and TPR have executed this Agreement by
their duly-authorized representatives, effective as of the date first above
written.
THE PRINCETON REVIEW PENINSULA, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Its: President
-----------------------------
PRINCETON REVIEW OPERATIONS, L.L.C.
By: /s/ Xxxx Xxxxxxx
-----------------------------
Xxxx Xxxxxxx
Chief Operating Officer
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SCHEDULE 1
TO OPTION AGREEMENT
Management and Seller (as assignee of Xxxxxx X. Xxxxxx) are parties to
the following The Princeton Review(R) Franchise Agreement:
Date of Franchise Agreement Defined Territory Office Address
September 11, 1986 Counties of San 2390 El Camino Real
Mateo and Santa Suite 210
Xxxxx; Xxxx Xxxx, Xxxxxxxxxx 00000
County of Santa
Xxxx (added
pursuant to option
agreement executed
in July 1993)
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SCHEDULE 2
TO OPTION AGREEMENT
CALENDAR YEAR PROJECTED YEAR
1999 2000
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Total Revenue $ 1,885,103 $ 2,123,634
Less: Non-Royalty Items $ (32,322) $ (20,564)
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GROSS COURSE REVENUE $ 1,852,781 $ 2,103,070
=========== ===========
GROSS INSTITUTIONAL REVENUE $ 30,900 $ 163,675
=========== ===========
Net Income (A) $ 222,632 $ 431,363
(i) interest or investment income (expense) $ 3,352
(ii) corporate taxes based on Seller's income $ 4,290 $ 5,044
(iii) gains (losses) on sale of assets
(iv) depreciation and amortization expense (B) $ 9,729 $ 2,331
(v) revenue from Non-Royalty Items $ (32,322) $ (20,564)
(vi) expenses paid to or in behalf of Xxx or Xxxxx Xxxxxx
-salary and bonus $ 96,600 $ 100,200
-retirement benefits $ 27,130 $ 27,130
-automobile expenses $ 8,309 $ 7,073
(vii) certain legal expenses $ 6,052
(viii) Xxxx Xxxxx salary and bonus adjustment (C) $ 12,454 $ 45,729
----------- -----------
ADJUSTED EBITDA $ 352,174 $ 604,358
=========== ===========
NOTES:
(A) Seller's interest in Princeton Review Publishing, LLC was not
recorded in the financial statements used to obtain the
information on this schedule. Since Seller's interest in that
company is not included in this transaction, there is no
effect on this schedule.
(B) Depreciation and amortization expense was not recorded in the
financial statements used to obtain the information on this
schedule. Asset acquisitions of $9,729 were deducted in 1999
and were taken as Sec. 179 expense on the 1120S Tax Return and
asset acquisitions of $2,331 are projected for 2000. Since
depreciation and amortization expense are an add-back in the
calculation anyway, the cost of the acquisitions were used as
the add-back.
(C) The adjustment for Xxxx Xxxxx in 1999 was not due to excess
base salary and bonus deduction. The add-back was due to
moving expenses incurred by Seller in relocating Xxxx to Palo
Alto. Both parties agreed that this is a one time expense and
should be adjusted. This adjustment line was used to make the
necessary add-back.
17
EXHIBIT A TO
OPTION AGREEMENT
ASSET PURCHASE AGREEMENT
between
THE PRINCETON REVIEW PENINSULA, INC.
("Seller") and XXXXXX X. XXXXXX, XXXXX X. XXXXXX, and
XXXXXXXXX XXXXXX
(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
18
TABLE OF CONTENTS
Page
1. Definitions ................................................................................ 1
2. Sale and Transfer of Assets ................................................................ 3
3. Assumed Obligations; No Other Assumption of Liabilities or Obligations ..................... 3
4. Payment of Purchase Price .................................................................. 4
5. Closing Adjustments ........................................................................ 4
6. Allocation of Purchase Price ............................................................... 8
7. Closing Deliveries ......................................................................... 9
8. Representations and Warranties of Seller and the Stockholders .............................. 10
9. Representations and Warranties of Buyer .................................................... 14
10. Obligations Pending the Closing ............................................................ 14
11. Restrictions on Competition, Solicitation, and Hiring ...................................... 15
12. Indemnification ............................................................................ 16
13. Assignment of Franchise Agreement .......................................................... 17
14. Post-Closing Obligations of Seller and the Stockholders .................................... 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 ................................................................ 19
22. Arbitration ................................................................................ 19
23. Prevailing Party Fees and Costs ............................................................ 00
-x-
00
XXXXXXXXX
Xxxxxxxx 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
Exhibit A Form of Lease Assignment
Exhibit B Xxxx of Sale
Exhibit C Seller's Certificate
Exhibit D Assignment and Assumption of Certain Agreements
Exhibit E Mutual Release
-ii-
20
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into by and
among PRINCETON REVIEW OPERATIONS, L.L.C., a Delaware limited liability company
("Buyer"), and PRINCETON REVIEW MANAGEMENT, L.L.C., a Delaware limited liability
company ("Franchisor"), on the one hand, and THE PRINCETON REVIEW PENINSULA,
INC. ("Seller") and XXXXXX X. XXXXXX, XXXXX X. XXXXXX, and XXXXXXXXX XXXXXX
(collectively, the "Stockholders"), on the other:
RECITALS
A. Seller and Buyer are parties to an Option Agreement dated _________
(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 ________________.
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
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 tests, diagnostic tests, and other inventory
and supplies on hand in or en route to the Franchised Business as of the Closing
Date;
21
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
and/or other officers and directors of Seller;
1.3.4 Motor vehicles and cellular telephones owned or leased
by Seller for the benefit of the Stockholders;
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22
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 the Stockholders 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 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 Business on or after
the Closing Date, including "refresher" courses for students who completed
courses prior to the Closing Date.
3.2 Subject to Section 7.8 below, effective as of the Closing Date,
Buyer shall assume responsibility for, and the cost to fulfill, 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 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 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.
3.4 Except as specifically provided in Sections 3.1, 3.2 and 3.3 above,
Buyer has not assumed, and shall not assume, any liability or obligation of any
nature, whether known or unknown, existing or contingent, of Seller or the
Stockholders, including but not limited to any accounts payable incurred by
Seller or the Stockholders in the conduct of the Franchised Business. Buyer
assumes no liability in connection with any actual or alleged breach or default
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by Seller or the 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. The Purchase Price for the Assets and for the
covenants not to compete in Section 11 below is Two Million Eight Hundred
Thousand Dollars ($2,800,000), 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) minus the
amounts paid to the Stockholders under Sections 4.2 and 4.3 below; (ii) minus
the aggregate amount of the student deposits referred to in Section 1.2.4; (iii)
plus the aggregate amount of the Lease deposits to be reimbursed by Buyer under
Section 1.3.2; (iv) plus or minus the net amount of the Closing adjustments
between Seller and Buyer pursuant to Section 5.1, to the extent determined by
the parties as of Closing;
4.2 To Xxx Xxxxxx, in consideration of her obligations under Section 11
below, the sum of Seventy Thousand Dollars ($70,000); and
4.3 To Xxxxx Xxxxxx, 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 the
Stockholders under Sections 4.2 and 4.3, shall be paid by wire transfer to one
or more bank accounts designated by Seller and the Stockholders, respectively,
on the Closing Date.
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.
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
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24
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 [DATE SIX MONTHS FROM 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. The Stockholders shall assist Buyer in such collection efforts,
provided that, after [DATE SIX MONTHS 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. 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
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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 Closing Date, or, at Buyer's option, Buyer
will pay such Employee for any accrued vacation time or sick leave. In addition,
Buyer will credit each Employee hired by Buyer with such Employee's
time-in-service to 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 Closing
Date in excess of the actual vacation time accrued by such Employee before the
Closing 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 Closing 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.
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
6
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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 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.
5.7 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 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 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
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 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 Closing Date, provided that: (i) such items are in
their original, unbroken shipping containers; and (ii) the expiration date of
such items is not less than three (3) months after the Closing Date. "Basket of
goods" items delivered by 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 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 course schedules) that remain on
hand in or en route to the Franchised Business as of the Closing Date, provided
that (i) such items have not been accounted for under Section 5.8.1; (ii) the
quantity of such items is no greater than the quantity typically maintained by
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
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27
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 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 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 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 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 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
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or assigns claim or assert that the allocation of the Purchase Price is or
should be inconsistent with or different from that set forth in Schedule 6,
unless as a result of a determination made by a taxing authority in a preceding
year. The parties agree to file all appropriate Internal Revenue Service forms
with their respective Federal income tax returns for their respective tax year
in which the Closing Date occurs.
7. Closing Deliveries. The Closing shall take place on [DATE TO BE DETERMINED
WHEN ASSET PURCHASE AGREEMENT IS SIGNED], or such other date as may be mutually
agreed upon by the parties. The following events shall occur at the Closing:
7.1. Buyer shall deliver to Seller and the Stockholders the amounts
required under Section 4.
7.3 Seller shall execute and deliver to Buyer a Xxxx of Sale for the
Assets in the form of Exhibit B to this Agreement.
7.5 Seller shall deliver to Buyer a good standing certificate from its
state of incorporation and from each state in which 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 Seller.
7.7 Seller shall execute and deliver a certificate in the form of
Exhibit C 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, 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.
7.9 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, Seller shall deliver to Buyer the written
consents of third parties to the assignment and assumption of the Assumed
Contracts.
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7.10 Seller shall deliver suitable evidence of transfer of the rights
referred to in Section 1.2.6.
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.
7.12 Seller, each of the Stockholders, 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.
7.13 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 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
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 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 any
Stockholder is a party, or by which Seller or any Stockholder may be bound.
8.4 This Agreement and the other agreements and transactions
contemplated herein to which Seller or any Stockholder is or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation of Seller or the Stockholder, enforceable in accordance with its
terms.
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8.5 Seller owns the Assets free and clear of any and all liens,
security interests, claims and encumbrances.
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 Neither Seller nor the Stockholders are 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 Seller has not engaged a broker in connection with any transaction
represented by this Agreement.
8.9 There is no material claim, investigation, litigation, arbitration,
or enforcement proceeding pending or, to the knowledge of Seller or any
Stockholder, threatened against any Seller or the Franchised Business.
8.10. Seller has previously delivered to Buyer copies of Seller's
federal income tax returns for calendar years _____ and _____; Seller's
unaudited balance sheet dated ________________; and Seller's unaudited
profit-and-loss statement(s) on an accrual basis for the periods ending
______________ and ______________ (collectively, the "Financial Statements"). To
the best of Seller's and the Stockholders' knowledge, the Financial Statements
reflect or provide for all material claims against, and all material debts and
liabilities relating to, the Franchised 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, 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 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 its
Franchised Business in the manner in which it is presently operated.
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
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Franchised Business and ownership and use of the Assets. To the best of Seller's
and the Stockholders' knowledge, there are not now and have not been any
material failures to comply with such laws or orders.
8.14 Except for the liabilities expressly assumed by Buyer under
Section 3, Seller and the Stockholders have no knowledge of any agreements,
leases, contracts, charges, encumbrances or restrictions which would restrict
Buyer's use or right to use any of the Assets or will create obligations for
which Buyer will be liable.
8.15 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 Seller's and the Stockholders' knowledge, neither
this Agreement, nor any Schedule or Exhibit hereto, nor any certificate or other
information or document furnished to Buyer or Franchisor by or on behalf of
Seller or any Stockholder in connection with the transactions contemplated
hereunder, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
8.17 Schedule 8.17 is a list of all persons currently employed by
Seller in the Franchised Business (the "Employees"). Schedule 8.17 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, 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 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"). Seller and the Stockholders
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
Closing Date. All premiums and other payments for all periods ending on or
before the Closing Date have been paid with respect to each Employee Welfare
Benefit Plan.
8.18.4 Each Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under IRC Section 401(a). 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
Seller and the Stockholders are not aware of any basis for any such claim,
proceeding, or investigation.
8.18.6 Except as disclosed in Schedule 8.18, 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.
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, EXCEPT THAT (i) SECTIONS 8.11 AND 8.13 SHALL SURVIVE FOR TWO YEARS OR
UNTIL EXPIRATION OF THE STATUTE(S) OF LIMITATIONS APPLICABLE TO THE MATTERS
REFERRED TO IN THOSE SECTIONS, WHICHEVER IS LONGER; AND (ii) SECTION 8.18 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
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 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 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. Seller and the Stockholders shall comply
with all of the covenants in Section 9 of the Option Agreement through the
Closing Date. In addition, Seller
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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 Closing Date.
11. Restrictions on Competition, Solicitation, and Hiring. Seller and the
Stockholders 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 Closing Date, become
engaged or involved in any business or activity which relates to, involves, or
is competitive with the TPR Method (as defined in, and modified by Franchisor
pursuant to, the Franchise 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 Closing Date, solicit any
individuals, businesses, or organizations that were customers of Seller 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 Closing Date, hire any person who worked
for Buyer, its affiliates, or the Franchised Business 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.
11.4 For a period of four (4) years from the Closing Date, directly or
indirectly induce, or attempt to influence, any employee of Franchisor, Buyer,
or their affiliates to terminate his or her employment. This provision shall not
be construed as a waiver of any rights or claims that Buyer, Franchisor, and
their affiliates may have against 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 11.3 above shall not be deemed to violate this Section
11.4.
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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 the Stockholders 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, 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 Seller or any 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 any 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 Business up to the Closing Date.
12.2 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 Business by Buyer on and
after the Closing 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 the representations and warranties in Sections 8.11, 8.13
and 8.18 may be submitted at any time before the expiration of the time provided
in the boldface statement at the end of Section 8. If any party becomes aware of
any claim in respect to which it believes it is entitled to indemnification
pursuant to this Agreement (a "Claim"), such party (the "Claiming Party") shall
give written notice of the Claim to Seller and the Stockholders or to Buyer, as
appropriate (the "Indemnifying Party"), within ninety (90) days after the
Claiming Party becomes aware of the Claim. In the case of a Claim based on a
loss or liability asserted against the Claiming Party by a third party, the
Indemnifying Party shall have thirty (30) days from its receipt of notice of the
Claim to assume defense of the Claim, and if the Indemnifying Party fails to
assume the defense within such thirty-day period the Claiming Party shall have
the right to contest, settle, or pay the claim, in the Claiming Party's sole
discretion. Failure to provide timely notice of a Claim:
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(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. Any Claims that remain unpaid solely on account of this provision 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.
13. Assignment of Franchise Agreement. Seller and Franchisor agree that upon
consummation of this transaction, Seller's and the 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 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.
14. 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:
14.1 Seller and the Stockholders shall retain and carry out all
responsibility for the administration, reporting, continuation, and termination
of the Employee Benefit Plans. The parties acknowledge that Buyer is acquiring
no liability with respect to the Employee Benefit Plans and no interest in any
profit-sharing plan funds or similar funds held for the benefit of Seller's
employees under the Employee Benefit Plans.
14.2 Seller shall timely file all federal, state, and local income,
franchise, payroll, sales, property, and other tax returns relating to Seller or
the Franchised Business 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 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, 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.
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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:
(a) To Seller and Xx. Xxxxxx X. Xxxxxx
the Stockholders: 0000 Xxxxxxxxxx Xxxxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
with a copy to: Xxxxxx X. Xxxxxx
Xxxxxxxx Xxxx
00 X. Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(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 Seller and all of the
Stockholders, whether or not they receive notice individually. Notices to
counsel unaccompanied by notices to principals shall not constitute notice.
17. Entire Agreement. This Agreement, 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. 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.
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
and 8.18 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
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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.]
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IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives.
THE PRINCETON REVIEW PENINSULA, INC.
By: _____________________________________
Its: _____________________________________
XXXXXX X. XXXXXX, Individually
__________________________________________
XXXXX X. XXXXXX, Individually
__________________________________________
XXXXXXXXX XXXXXX, Individually
__________________________________________
[SIGNATURES CONTINUED ON FOLLOWING PAGE.]
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PRINCETON REVIEW OPERATIONS, L.L.C.
By: _____________________________
Xxxx Xxxxxxx
Chief Operating Officer
PRINCETON REVIEW MANAGEMENT, L.L.C.
By: _____________________________
Xxxx Xxxxxxx
Chief Operating Officer
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SCHEDULE 1.2
VALUATION OF ASSETS
ALLOCATION WITHIN
AGREEMENT PURCHASE PRICE CLOSING
PROVISION ASSET/RIGHT (SEE SCHEDULE 6) ADJUSTMENT
1.2.1 Leasehold improvements, FF&E, signs, etc. Seller's book value Section 5.8.4
1.2.2 Leases Zero allocation None
1.2.3 Course materials, promotional materials, books, etc. Zero allocation Section 5.8.2, 5.8.3
1.2.4 Deposits and accounts receivable Zero allocation 1.2.4
1.2.5 Revenues for courses/tutoring in progress Zero allocation Section 5.2, 5.3
1.2.6 Rights to telephone numbers, web sites, etc. $7,500 None
1.2.7 Franchise rights, patents, copyrights, trade secrets, etc. Seller's book value None
1.2.8 Goodwill All residual amounts None
1.2.9 Permits and businesses licenses Seller's book value None
1.2.11 All papers and records $25,000 None
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SCHEDULE 1.2.2
LEASES
Landlord:
Date of Lease:
Expiration of Current Lease Term:
Renewal Options:
Current Base Monthly Rent:
44
SCHEDULE 1.2.9
ASSUMED CONTRACTS
I. Contracts for Office Equipment and Services
II. Written Customer Contracts
45
SCHEDULE 6
ALLOCATION OF PURCHASE PRICE
Agreement
Provision Asset/Right
1.2.1 Leasehold improvements, FF&E, signs, etc. See Schedule 1.2
1.2.6 Rights to telephone numbers, web sites, etc. $7,500
1.2.7 Franchise rights, patents, copyrights, trade secrets, etc. See Schedule 1.2
1.2.8 Goodwill See Schedule 1.2
1.2.9 Permits and business licenses See Schedule 1.2
1.2.11 All papers and records $25,000
11 Covenant Not to Compete--Seller** $25,000
----------------
11 Covenant Not to Compete -- Xxx Xxxxxx** $70,000
----------------
11 Covenant Not to Compete -- Xxxxx Xxxxxx** $20,000
----------------
[TO BE INSERTED
WHEN PURCHASE
AGREEMENT IS
EXECUTED]
TOTAL PURCHASE PRICE** ----------------
** Seller and the Stockholders acknowledge and agree that the amounts allocated
to the Covenants Not to Compete under Section 11 of the Agreement are not
intended to be a limitation of the damages arising from a breach of Section 11
by Seller or the Stockholders or to preclude Buyer from seeking injunctive
relief against such a breach.
46
SCHEDULE 8.2
STOCKHOLDERS OF SELLER
XXXXXX X. XXXXXX __%
XXXXX X. XXXXXX __%
XXXXXXXXX XXXXXX 1%
47
SCHEDULE 8.17
EMPLOYEES OF SELLER
48
SCHEDULE 8.18
EMPLOYEE BENEFIT PLANS
49
EXHIBIT A
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 0000 Xx Xxxxxx Xxxx, Xxxxx 000,
Xxxx Xxxx, XX 00000 (hereinafter called "Assignor"), and Princeton Review
Operations, L.L.C., a Delaware limited liability company having a usual place of
business at 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, (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, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxxxxxxx Xxxxxx, 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.
50
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
51
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
52
EXHIBIT B TO
ASSET PURCHASE AGREEMENT
XXXX 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 ___________
by and between Seller, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxxxxxxx Xxxxxx,
Buyer, and Princeton Review Management, L.L.C., a Delaware limited liability
company (the "Asset Purchase Agreement") pertaining to the The Princeton
Review(R) businesses operated by 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 Xxxx of Sale, intending to
be legally bound, effective as of_____________,_______.
THE PRINCETON REVIEW PENINSULA, INC.
By:____________________________________________
President
53
EXHIBIT C TO
ASSET PURCHASE AGREEMENT
SELLER'S CERTIFICATE
THE UNDERSIGNED, the President of The Princeton Review Peninsula, Inc.,
a California corporation, in accordance with Section ____ of that certain Asset
Purchase Agreement dated ___________ by and between Seller, Xxxxxx X. Xxxxxx,
Xxxxx X. Xxxxxx, Xxxxxxxxx Xxxxxx, 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 Seller and the Stockholders
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 ___ day of__________,_______.
THE PRINCETON REVIEW PENINSULA, INC.
By:______________________________________ (Seal)
President
54
EXHIBIT D TO
ASSET PURCHASE AGREEMENT
ASSIGNMENT AND ASSUMPTION OF CERTAIN AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is entered
into effective as of________________ by and between 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 ______________ by and among the Assignor,
Assignee, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxxxxxxx Xxxxxx, 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.
55
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: ________________________________________
Xxxx Xxxxxxx
Chief Operating Officer
2
56
EXHIBIT E TO
ASSET PURCHASE AGREEMENT
MUTUAL RELEASE
THIS MUTUAL RELEASE is entered into effective as of______________,____
by and between The Princeton Review Peninsula, Inc. ("Seller") and Xxxxxx X.
Xxxxxx, Xxxxx X. Xxxxxx, and Xxxxxxxxx Xxxxxx (together, the "Stockholders"), on
the one hand; and Princeton Review Management, L.L.C. ("Franchisor"), Princeton
Review Operations, L.L.C. ("Buyer"), and Princeton Review Products, L.L.C.
("Products"), on the other hand.
WHEREAS Seller, the Stockholders, Buyer, and Franchisor are parties to
an Asset Purchase Agreement dated___________ (the "Asset Purchase Agreement")
pursuant to which Buyer is acquiring substantially all of the assets of the The
Princeton Review(R) businesses operated by 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 Seller and the Stockholders. Except as provided in
Paragraph 3 below, Seller and the Stockholders, for themselves and their
respective successors, assigns, heirs, personal representatives, and all other
persons acting on their behalf or claiming under them, hereby release
Franchisor, Buyer, Products, and their respective past, present, and future
officers, directors, members, agents, employees, attorneys, insurers,
successors, and assigns from any and all actions, causes of action, suits,
claims, damages, expenses, judgments, or demands, which Seller or any
Stockholder may have ever had, now has, or may ever have based on any
transaction, event, or circumstance prior to the effective date of this Mutual
Release.
2. Release by Franchisor, Buyer, and Products. Except as provided in
Paragraph 3 below, Franchisor, Buyer, and Products, for themselves and their
respective successors and assigns and all other persons acting on their behalf
or claiming under them, hereby release Seller and Stockholder, their affiliates,
and their respective past, present, and future officers, directors,
shareholders, agents, employees, attorneys, insurers, successors, assigns, heirs
and personal representatives from any and all actions, causes of action, suits,
claims, damages, expenses, judgments or demands, which Franchisor, Buyer, or
Products may have ever had, now has, or may ever have based on any transaction,
event, or circumstance prior to the effective date of this Mutual Release.
57
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
April ____, 2000, the Stockholders Agreement dated _____________, or any other
contractual arrangement or statutory provision relating to the ownership of the
Stock; or (ii) any claim that a person or entity may have by virtue of its
status as a direct or indirect owner of Stock, provided that, Seller and each of
the Stockholders covenants that she or it will not assert any claim alleging
that an act or decision by Franchisor, Buyer, or Products (or by any person
controlling Franchisor, Buyer, or Products) was adverse to 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. Seller, the Stockholders, Franchisor, Buyer and
Products each represent and warrant that they are the sole owners of all claims
and rights released by each of them hereunder and that they have not assigned or
transferred, or purported to assign or transfer, to any person or entity, any
claim, demand, suit, action, or cause of action released by each of them under
Paragraphs 1 or 2 above.
5. Complete defense. The parties to this Mutual Release acknowledge
that this Mutual Release will be a complete defense to any claim released under
Paragraphs 1 or 2 above; and hereby consent to the entry of a temporary or
permanent injunction to prevent or end the assertion of any such claim.
6. Successors and Assigns. This Mutual Release will inure to the
benefit of and bind the successors and assigns of each party to this Mutual
Release.
7. Applicable law. This Mutual Release shall be governed by and
construed under the laws of the State of New York, without giving effect to New
York conflict of law principles.
[SIGNATURE PAGES FOLLOW.]
2
58
IN WITNESS WHEREOF, the parties have executed this Mutual Release by
their duly authorized representatives.
THE PRINCETON REVIEW PENINSULA, INC.
By:______________________________________
President
XXXXXX X. XXXXXX, Individually
_________________________________________
XXXXX X. XXXXXX, Individually
_________________________________________
XXXXXXXXX XXXXXX, Individually
_________________________________________
[SIGNATURES CONTINUED ON FOLLOWING PAGE.]
3
59
PRINCETON REVIEW MANAGEMENT, L.L.C.
By: __________________________________________
Xxxx Xxxxxxx
Chief Operating Officer
PRINCETON REVIEW OPERATIONS, L.L.C.
By: __________________________________________
Xxxx Xxxxxxx
Chief Operating Officer
PRINCETON REVIEW PRODUCTS, L.L.C.
By: __________________________________________
Xxxx Xxxxxxx
Chief Operating Officer
4
