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Exhibit 10.11
INVESTMENT AGREEMENT
AGREEMENT dated March 25, 1996 among Xxxxxxx X. Xxxxx, Xx., an
individual residing at 000 Xxxxxxxx Xxxxxx, Xxx. #0, Xxxxxx, XX 00000 (the
"Member"), Student Advantage LLC, a Delaware limited liability company (the
"Company"), and Princeton Review Publishing, L.L.C., a Delaware limited
liability company (jointly with any successor or assign, the "Investor").
WHEREAS, the Company is engaged in the business (the "Business") of
operating and developing a student membership organization (the "Program") for
profit, which business was previously conducted by the Member and certain others
at various times as a sole proprietorship and then as a partnership;
WHEREAS, the Member will own, after the initial investment hereunder,
4,026 Units of membership interest of the Company;
WHEREAS, the parties hereto desire for the Investor to invest in the
Company on the terms and subject to the conditions set forth herein; and
WHEREAS, the Company and the Investor desire to enter into certain
joint marketing arrangements on the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and promises herein
contained and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. ISSUE AND SALE OF SECURITIES. (a) At the Closing (as defined
in Section 2 hereof), the Company shall issue and sell to the Investor
membership interests (the "Securities") of the Company that shall constitute
upon issuance 2,479 Units out of a total of 10,000 Units of all issued and
outstanding membership interests of the Company (collectively, the "Membership
Interests"), at an aggregate purchase price of $250,000.
(b) At the Closing, the Investor shall lend to the
Company an aggregate of $75,000, to be evidenced by a Convertible Secured
Promissory Note (the "Convertible Note"), due in full on September 30, 1997.
(c) ACQUISITION LOAN. The Investor shall lend to the
Company not more than $100,000, to be evidenced by a Secured Term Acquisition
Promissory Note in the principal amount of $100,000 (the "Term Acquisition
Note") on the following terms and conditions (the "Acquisition Loan"). The
Acquisition Loan shall be made, conditioned upon the closing by the Company of
the acquisition of the business and
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assets of The Passport, Inc. ("Passport") (the "Acquisition"), on the schedule
of cash needed for the payment of the last $100,000 of purchase price in
connection therewith, provided that (i) such closing occurs on or before June
30, 1996, (ii) the Acquisition involves aggregate consideration paid by the
Company not exceeding $175,000, is pursuant to a written agreement, the terms
and conditions of which are acceptable to the Investor, (iii) the obligation to
repay the Acquisition Loan shall be evidenced a secured Term Acquisition Note,
which will provide for installment loans scheduled to coincide with the payment
of the purchase price after $50,000 of payments due from the Company to Passport
in connection with the Acquisition (provided that upon payment in full of the
purchase price of the Acquisition the balance of such $100,000 shall be advanced
under the terms of the Acquisition Loan), in form acceptable to the Investor,
which note shall provide that the principal amount of the Term Acquisition Note
shall be repaid in full on September 30, 1998 (or September 30, 1997 to the
extent that the Investor chooses to exercise its conversion option under the
Convertible Note), together with interest at the prime rate, and that the
repayment shall be secured by the same assets securing the Convertible Note
pursuant to a security agreement and a pledge agreement in form acceptable to
the Investor, (iv) no material adverse change shall have occurred in either the
business or the financial condition of the Company, and (v) all representations
and warranties contained in Section 5 herein are true and correct at the closing
of the Acquisition.
2. CLOSING. The closing (the "Closing") at which the Securities
and the Convertible Note shall be sold to the Investor pursuant to this
Agreement shall be held simultaneously with the signing of this Agreement on the
date hereof (the "Closing Date").
3. USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Securities to satisfy the working capital needs of the Company as
set forth in Schedule 3 hereto.
4. CONDITIONS. The purchase of and payment for the Securities to
be sold and delivered to the Investors at the Closing is subject to the accuracy
in all material respects of all representations and warranties by the Company
contained herein and to the performance by the Company of all the terms and
conditions on its part to be performed hereunder on or prior to the Closing Date
and to the satisfaction on or prior to the Closing Date of the following
conditions precedent:
4.1. CERTIFICATE. [Omitted.]
4.2. CO-SALE AGREEMENT. The Company and the Member shall have
entered into the Contract of Right of Co-Sale.
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4.3. SECURITY AGREEMENT AND NOTES. The Company shall have entered
into the Security Agreement and executed and delivered UCC-1 financing
statements as required by the Investor, and, prior to the advance of funds
covered thereby, the Convertible Note and the Term Acquisition Note. The Member
shall have entered into a Pledge Agreement with the Investor.
4.4. OPERATING AGREEMENT. The members of the Company including the
Investor shall have entered into an Operating Agreement in respect of the
Company (the "Operating Agreement").
4.5. EMPLOYMENT AGREEMENT. The Member shall have entered into an
Employment Agreement with the Company.
5. COMPANY'S REPRESENTATIONS AND WARRANTIES. Each of the Company
and the Member, jointly and severally, represents and warrants, each of which
representation and warranty shall be deemed material and to have been relied
upon by the Investor, that as of the date hereof:
5.1. ORGANIZATION, GOOD STANDING AND AUTHORITY. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware without limit as to the duration of its
existence, except as set forth in the Operating Agreement. The Company is
authorized and in good standing to do business in Massachusetts. The Company has
the power and adequate authority, rights and franchises to own its property and
carry on its business as now being conducted or as contemplated to be conducted
herein. The Company has the power and adequate authority to enter into and
perform this Agreement and to issue the Securities. Copies of its Certificate of
Formation, together with all amendments, as filed with the Secretary of State of
Delaware on December 5, 1995, and a Certificate of Good Standing of recent date,
all certified by the appropriate officer of the State of its organization
(Exhibit 5.1) and a copy of its Operating Agreement and consent of its members
authorizing this Agreement certified by its Manager or other appropriate officer
(Exhibit 4.4) are attached hereto.
5.2. MEMBERSHIP INTERESTS. All of the issued and outstanding
Membership Interests are, and the Securities when issued will be, duly
authorized, validly issued, fully paid and non-assessable and were, and will be,
issued in compliance with all applicable securities laws. The capitalization of
the Company including all long-term and short-term debt both prior to and as
adjusted for the transactions contemplated herein is set forth on Schedule 5.2
hereto. Except as set forth in Schedule 5.2 there are no (a) authorized or
outstanding equity securities of any class; or (b) outstanding or contingent
agreements, arrangements or commitments, warrants, options or other
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rights to subscribe for or purchase, or otherwise acquire by conversion,
exchange or otherwise, any equity securities of the Company.
5.3. FINANCIAL. (a) The Company has maintained the books of account
of the Business in accordance with applicable laws, rules and regulations,
except to the extent that a failure to do so would not have a material adverse
effect on the business, financial condition or prospects of the Business (a
"Material Adverse Effect"), and such books and records are and, during the
periods covered by the Financial Statements (as defined in Section 5.3(b)
hereof), were correct and complete in all material respects, and in all material
respects completely and accurately reflect the transactions of the Business and
the income expenses, assets and liabilities of the Business, including the
nature thereof and the transactions giving rise thereto.
(b) Included in Schedule 5.3 hereto are unaudited balance
sheets of the Business as of October 31, 1995 and as of February 23, 1996 (the
"Balance Sheet") and the related unaudited statements of operations for the
fiscal year ended December 31, 1994 and the 10-month period ended October 31,
1995 (collectively the "Financial Statements").
(c) The Financial Statements have been prepared from the
books of account of the Company and present fairly the financial position of the
Business as of the date of such statements and the results of operations of the
Business for the periods covered thereby.
(d) The Business and the Company have no liabilities
(including, without limitation, unasserted claims, whether known or unknown,
matured or unmatured, absolute, contingent or otherwise) that are not reflected
or are in excess of the amount reflected in the Balance Sheet or notes thereto
except (i) those incurred since the time of preparation of the Balance Sheet in
the ordinary course of business, consistent with past practice, in arms' length
transactions with unrelated parties, which are consistent with the cash flows
and liabilities projected in Schedule 5.10 hereto and which do not have and
cannot reasonably be expected to have, in the aggregate, a Material Adverse
Effect (ii) those specifically described on Schedule 5.3(d) hereto; and (iii)
those that have inadvertently been omitted from Schedule 5.3(d) but which do not
exceed $20,000 in the aggregate, provided any liability to a member or an
affiliate of a member shall be deemed not inadvertent.
5.4. TITLE AND CONDITION OF ASSETS. (a) Other than inventory
disposed of in the ordinary course of business (consistent with customary
practice), the Company has and will retain after Closing good and marketable
title to all of the assets reflected on the Balance Sheet or necessary to
conduct its business or used in the Business as operated during the prior year,
free and clear of liens, encumbrances, claims of third parties, security
interests, mortgages, pledges, agreements, options and rights of others
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of any kind whatsoever, whether or not filed, recorded or perfected, and
including, without limitation, any conditional sale or title retention agreement
or lease in the nature thereof or any financing statements filed in any
jurisdiction or any agreement to give any such financing statements (hereinafter
collectively referred to as "Liens"), other than rights of third parties under
leases of tangible personal property used in the ordinary course of business,
liens for taxes not due and payable, and liens granted to the Investor.
(b) Schedule 5.4(b) hereto sets forth all existing
trademarks, trademark registrations, applications for trademark registrations,
trade names and copyrights owned by the Company or used in the Business. The
Company either: (i) owns the entire right, title and interest in and to such
intellectual property free and clear of Liens; or (ii) has the perpetual,
royalty-free, worldwide right to use same.
(c) Except as set forth on Schedule 5.4(c) hereto, no
claim is pending or, to the knowledge of the Company, threatened against the
Company by any person or entity relating to (i) any of such intellectual
property, or its use, or (ii) infringement by the Company on the intellectual
property rights of any person or entity; or (iii) infringement by any person or
entity on the intellectual property rights of the Company. To the knowledge of
the Company, no valid basis exists for any claims referred to in this paragraph
5.4(c).
5.5. NO CONFLICT; BINDING AGREEMENT. (a) The execution and delivery
of this Agreement and the performance of the provisions hereof are duly
authorized by the Company and do not require the consent or approval of any
governmental body or other regulatory authority or any third party not yet
obtained. All Company action for the due execution and delivery of this
Agreement, including the creation, issuance and sale of the Securities, have
been duly and validly obtained or taken. No right of any of the Company's
members or creditors is impaired or infringed upon by this Agreement. This
Agreement constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms.
(b) The execution, delivery and performance of this
Agreement and the transactions contemplated herein will not:
(i) constitute a violation of the Certificate of
Formation or the Operating Agreement, each as amended through
the date hereof, of the Company;
(ii) conflict with, result in the breach of,
constitute a default, with or without notice and/or lapse of
time, under, result in being declared void or voidable any
provision of, or result in any right to terminate or cancel
any contract, lease, agreement, license, commitment or
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purchase order to which the Company, any subsidiary or any of
their respective properties is bound;
(iii) constitute a violation of any statute,
judgment, order, decree or regulation or rule of any court,
governmental authority or arbitrator applicable or relating to
the Company or any subsidiary, or the business of the Company
or any subsidiary; or
(iv) result in (A) the acceleration of any debt
or other obligation of the Company or any subsidiary; (B) the
creation of any Lien, charge or other encumbrance upon any of
the assets of the Company or any subsidiary, other than liens
granted to the Investor; (C) the termination or cancellation
or right to terminate or cancel any obligation owed to the
Company or any subsidiary; (D) the creation of any right
adverse to the Company or any subsidiary.
5.6. SUBSIDIARIES; OTHER INVESTMENT. Except as described on
Schedule 5.6 hereto, the Company has at the date hereof no subsidiaries or other
equity investments or other interests in any corporation, limited liability
company, partnership, joint venture or other entity.
5.7. LITIGATION. (a) Except as set forth on Schedule 5.4(c) hereto,
there are no actions, suits, claims or proceedings, whether in equity or at law,
or governmental or administrative investigations pending or, to the knowledge of
the Company, threatened (i) by, against or otherwise involving the Company, any
of the assets of the Company or any asset or property of others leased or used
by the Company or (ii) which questions or challenges the validity of this
Agreement or any action taken or to be taken pursuant to this Agreement. To the
knowledge of the Company, there is no reasonable basis for any such action,
suit, claim or proceeding.
(b) The Company is in substantial compliance with, is not
in default or violation in any material respect under, and has not been charged
with or received any notice at any time of any violation by it of, any statute,
law, ordinance, regulation, decree or order applicable to the business or
operations of the Company.
(c) Neither the Company, nor any of its assets nor the
transactions contemplated under this Agreement, is subject to any judgment,
order or decree entered in any lawsuit or proceeding applicable to the business
and operations of the Company.
(d) To the knowledge of the Company, the Company has duly
filed all reports and returns required to be filed by it with governmental
authorities and has obtained all governmental permits and licenses and other
governmental consents (a list
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of which is included in Schedule 5.7) which are required in connection with the
business and operations of the Company, with the exception of the 1994 Schedule
C and related tax return relating to the Member's involvement with the Company
when it was a sole proprietorship which Schedule C the Member plans to file with
the Internal Revenue Service of the United States (the "IRS") in the form
attached as Schedule 5.8 hereto without any material change therein. All of such
material permits, licenses and consents are in full force and effect, and no
proceedings for the suspension or cancellation of any of them is pending or, to
the best knowledge of the Company, threatened, and none of them will be affected
by the consummation of the transactions contemplated hereby.
5.8. TAXES. (a) To the knowledge of the Company, the Company has
duly filed all tax reports and returns required to be filed in respect of the
business and operations of the Company and its assets as of this date, with the
exception of the 1994 Schedule C relating to the Company when it was a sole
proprietorship which the Member plans to file with the IRS in the form attached
as Schedule 5.8 hereto without any material change therein. All such tax reports
and returns are complete, accurate and in compliance with all relevant laws and
regulations in all material respects, and none has been audited by any
governmental authority. The Company has paid and discharged all federal, state,
local (including all withheld taxes due to date hereof) and foreign taxes,
interest, penalties or other payments required, as the case may be, to be paid
and then currently due as shown on such tax reports and returns or otherwise in
respect of the assets and the business, operations and employees of the Company
as of this date. Notwithstanding the above, the predecessor of the Company has
not filed all of the Form 1099s with the IRS that it was required to file.
(b) The Company has not received notice of any tax deficiency
outstanding, proposed or assessed against it, nor does it have any knowledge of
any basis for any tax deficiency or assessment, nor has it executed any waiver
of any statute of limitations on the assessment or collection of any tax. There
are no tax liens upon, pending against or, to the knowledge of the Company,
threatened against any of the Company's assets.
5.9. BROKERAGE. No finder's fees, brokerage commissions, consulting
fees and like charges are due or to be paid in connection with the transactions
contemplated by this Agreement.
5.10. BUDGET. The Company has delivered an annual budget of cash
flows for the 1996 and 1997 calendar years, including reasonably detailed line
items of expenses and income as set forth on Schedule 5.10 attached hereto. To
the Company's knowledge and belief, the assumptions on which such budget is
based are reasonable in light of the Company's condition and its industry's
market. To the knowledge of the Company, no material change has occurred since
the preparation of such budget to the
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date hereof in any of the facts or data underlying such assumptions or upon
which such budget was based that would make the achievement of such budget by
the Company materially less likely than prior to such change.
5.11. CONTRACTS, ETC. (a) All contracts, leases, agreements,
licenses, commitments and orders to which the Company is a party or by which the
Company or any of its assets is bound ("Contracts") are listed on Schedule 5.11
hereto.
(b) Except as disclosed on Schedule 5.11 hereto, all such
Contracts have been properly assigned to the Company, constitute the legal,
valid and binding obligations of the Company and, to the knowledge of the
Company, the other parties thereto, and there are no existing defaults by the
Company, or, to the knowledge of the Company, by any other party thereto; and no
event, act or omission has occurred which (with or without notice, lapse of time
and/or the happening or occurrence of any other event) would result in a default
by the Company thereunder (or result in there arising any right adverse to the
Company) or, to the knowledge of the Company, in a default by any other party
thereto. No other party to any of such Contracts has asserted the right to
renegotiate, or cancel or terminate prior to the full term thereof, any of the
terms or conditions of any of such Contracts, and, to the Company's knowledge,
no reasonable basis for any such right exists.
5.12. MINUTE BOOKS. Prior to the date hereof, the Company has not
prepared minutes or maintained minute books.
5.13. ERISA. The Company does not and has not maintained any pension
plan or other health, welfare or benefit plan subject to ERISA.
5.14. INSURANCE. Attached hereto as Schedule 5.14 are copies of the
certificates of insurance for policies maintained by the Company. All such
insurance is in full force and effect, and the Company is current in all
premiums.
5.15. THE COMPANY AND PREDECESSORS. The Business was operated prior
to January 1, 1995 as a sole proprietorship of Xxxxxxx X. Xxxxx, Xx. and during
the 1995 calendar year as a general partnership among Xxxxxxx X. Xxxxx, Xx.,
Xxxxxx Xxxxxx, G. Xxxx Xxxxxxx, Xxxx Xxxxxx, Xxxxx Xxxxxx, and Xxx Xxxxxx. The
representations and warranties set forth in Sections 5.3, 5.4, 5.5, 5.7, 5.8,
5.11, 5.13 and 5.16 herein shall be deemed to refer, and all references to the
Company therein shall be deemed to refer, to the Company and such proprietorship
and partnership as they have operated since the inception of the Business.
5.16. DUE DILIGENCE. The information provided by the Company in the
1995-96 Northeast Directory is accurate and complete in all material respects.
The
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Company is unaware of any loss or threatened loss of any business from any
material national or local sponsor. Since January 1, 1995, the Company is not
aware of any event or other development that has occurred that could cause a
material loss or decline in sales of the Business or otherwise material
adversely affect the Business.
5.17. MEMBERSHIP LIST. Attached hereto as Schedule 5.17 is an
analysis of the approximate number of student members of the Program in each
class of membership shown thereon. To the knowledge of the Company, each such
member is a member in good standing and has paid all dues and charges currently
due in regard to his or her class of membership.
5.18. TRADEMARKS. The "Student Advantage" name and logo currently in
use are registered trademarks of the Company, and, to the knowledge of the
Company do not infringe, and are not infringed by, any trademark currently
registered with the Patent and Trademark Office of the United States or in use
in interstate commerce in the United States.
5.19. PASSPORT TRANSACTION. Attached as Schedule 5.19 hereto is a
complete copy of all written communications or parts thereof between or among
the Company, Passport, or any of their officers, directors, partners, employees,
agents or representatives that describe or refer to any claim or any basis for a
claim by Passport against the Company or any of its affiliates (a "Claim
Communication"). The Company and its officers, employees, agents and
representatives have not received any oral communication that, if in writing,
would constitute a Claim Communication, except those that are reflected in the
Claim Communication. Except as set forth in Schedule 5.19, there are no actions,
suits, claims or proceedings by Passport against the Company nor is any
contemplated.
All representations and warranties contained in this Agreement or made
by or on behalf of the Company in writing in connection with the transactions
contemplated herein shall survive the Closing for a period of two years. All
statements contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or, in connection with the transactions
contemplated herein, shall constitute representations and warranties by the
Company hereunder.
6. SECURITIES LAW MATTERS; INVESTOR'S REPRESENTATIONS.
The Investor represents and warrants to the Company as follows, and
acknowledges that the Company is relying upon such representations and
warranties in connection with the execution, delivery and performance of this
Agreement, notwithstanding any investigation made by the Company or on its
behalf.
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6.1. AUTHORIZATIONS AND BINDING EFFECT. (a) The Investor is a
limited liability company duly organized, validly existing and in good standing
under the laws of the state of its formation and is qualified to transact
business and is in good standing as a foreign limited liability company in the
jurisdictions where it is required to qualify.
(b) This Agreement has been duly executed and delivered by the
Investor and constitutes the legal, valid and binding obligation of the
Investor, enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement does not and will not:
(i) constitute a violation of the Certificate of
Formation or the Operating Agreement, each as amended through
the date hereof, of the Investor;
(ii) conflict with, result in the breach of,
constitute a default, with or without notice and/or lapse of
time, under, result in being declared void or voidable any
provision of, or result in any right to terminate or cancel
any contract, lease or agreement to which the Investor or any
of its properties is bound;
(iii) constitute a violation of any statute,
judgment, order, decree or regulation or rule of any court,
governmental authority or arbitrator applicable or relating to
the Investor; or
(iv) result in the acceleration of any debt or
other obligation of the Investor.
6.2. LITIGATION. No actions, suits, claims, proceedings or
investigations (whether or not purportedly on behalf of or against the
Investor), are pending or threatened against the Investor at law or in equity
that relate to the transactions contemplated by this Agreement or that will
prohibit the Investor from performing the obligations to be performed by it
hereunder.
6.3. SECURITIES MATTERS. The Investor is acquiring the Securities
hereunder for its own account for investment and not with a view to, or for sale
in connection with, any distribution thereof, subject at all times to any
requirement of law that disposition of its property shall at all times be within
its control. The Investor represents that its has no current intention of
distributing or reselling any of the Securities.
6.4. FINANCIAL. As of the date hereof, the Investor's net tangible
assets exceed its total liabilities, as determined from its most recent balance
sheet, which was prepared in accordance with generally accepted accounting
principles, by at least
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$1,000,000, and the Investor and its Princeton Review affiliates have current
assets/cash in excess of $1,000,000.
6.5. BROKERAGE. No finder's fees, brokerage commissions, consulting
fees and like charges are due or to be paid in connection with the transactions
contemplated by this Agreement.
7. COMPANY COVENANTS. The Company covenants and agrees that,
during the term hereof, it shall, unless the Investor shall have otherwise
consented in writing, comply with the following provisions:
7.1. MAINTAIN EXISTENCE, ETC. (a) The Company shall at all times
maintain the business described in Schedule 7.1 attached hereto, keep its and
any material subsidiaries' corporate existence, rights and franchises in full
force and effect and operate in all material respects in compliance with all
applicable laws, rules, regulations, ordinances, orders and decrees. During the
two-year period following the date hereof, the Company shall not, and shall not
allow any subsidiary to, merge or consolidate with, or engage in an equity
exchange with, or acquire the assets out of the ordinary course of business (as
described in Schedule 7.1) of any other person, corporation or other entity (a
"Merger Transaction"), except acquisitions of inventory to be used in the
ordinary course and acquisitions approved by the Board of Directors, after which
the Investor and the Member retain a majority of Membership Interests after
giving effect to such acquisition (or the Company retains a majority of the
equity interests in the case of any subsidiary). After two years following the
execution hereof, the Company shall not engage in a Merger Transaction unless
all members of the Company share ratably according to their Membership Interests
in all consideration and compensation of all kinds paid or delivered, directly
or indirectly, to the Company or any member or any of their affiliates in
connection therewith. If the Member and the Investor hold together less than a
majority interest in the surviving entity following a Merger Transaction, the
Company shall provide in all agreements in connection therewith that the
Investor shall have, at its sole discretion, the option to sell, and the Company
and the post-merger entity shall agree to purchase, the Investor's Membership
Interest in the Company, such option being exercisable by written notice to the
Company within 30 days following the consummation of such Merger Transaction at
a price equal to the Investor's Membership Interest multiplied by the fair
market value of the Company as a whole determined in accordance with the
procedure described in Section 9.2 of the Operating Agreement; provided,
however, that the minimum price shall be the greater of (i) the amount of the
Investor's equity capital contributions less cumulative cash distributions to
the Investor in excess of the Investor's allocable portion of net profits, and
(ii) the amount of the Investor's capital account in the Company. If the
Investor shall choose to exercise such option, then the Investor may also
terminate the provisions of Section 9 hereof.
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(b) The Company shall not at any time authorize, issue or
sell any equity security or right to acquire any equity security without the
approval of the Board of Directors.
(c) The Company shall not liquidate, wind up or dissolve
(or suffer any liquidation or dissolution), convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business, property or assets whether now owned or
hereafter acquired other than in the ordinary course of business as described in
Schedule 7.1 (an "Asset Transaction") PROVIDED, HOWEVER, that with the prior
approval of the Board of Directors, the Company may only engage in an Asset
Transaction during the two years from the date hereof if the Company is valued
at $2,000,000 or more, net of any debt assumed by the purchaser, subject to a
right of first refusal by the Investor, described in Section 7.1(d) hereof, and
thereafter, subject only to the right of first refusal contained in Section
7.1(d); PROVIDED FURTHER that the Company may not enter into any transaction
described in this Section 7.1(c) with Xxxxxxx X. Xxxxxx Educational Center,
Ltd., its subsidiaries, successors, assigns or affiliates or any other company
involved in the test preparation business and which holds a 10% market share of
such business.
(d) (i) If the Company receives an offer from an
unrelated third party to engage in an Asset Transaction (an "Offer"), and the
Company elects to engage in such Asset Transaction, it shall deliver notice of
such election (the "Offer Notice") in writing to the Investor. Such Offer Notice
shall state all of the economic and principal legal terms of such Offer in
detail and the identity, business address and telephone number of the offeror
("Offeror") and to whose attention inquiries regarding the Offer should be sent,
and any parent, subsidiary or affiliated person or entity involved in the Offer,
or in any way related to the Offeror, and the Offer Notice shall be deemed an
offer by the Company to engage in such Asset Transaction with the Investor on
the same terms as offered to such Offeror (which shall include any and all
consideration that is agreed in connection therewith, or at or about the same
time, to be paid in respect of services or restrictive covenants) for
consideration equal to the total consideration set forth in the Offer Notice.
(ii) Promissory notes included in the Offer as
part of the consideration offered may be made on the same terms by the Investor
exercising its option. The cash value of any consideration included in the Offer
other than cash or notes shall be finally determined based on the fair market
value of such consideration. Such cash value of such consideration shall be
deemed to be part of the Offer terms.
(iii) The Investor, upon receipt of such Offer
Notice, shall have the option to engage in such Asset Transaction with the
Company at 105% of the purchase price stated above and on the terms specified
herein, provided however, that
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if the Offeror is a Competitor (as defined in Section 9.10(a) hereof), then the
Investor shall pay only the purchase price. The option shall be exercisable by
written notice within thirty (30) days from the date of the receipt of the Offer
Notice. The Investor shall send written notice as to whether it elects to
exercise its option. The Company shall not consider a new offer from the Offeror
or from another party after notice has been sent by the Investor of its
intention to exercise its option.
iv) Notwithstanding subsection (iii) above, if
the Offer is modified or altered in any way after the Offer Notice has been sent
to the Investor, then the Company shall send another Offer Notice which shall be
deemed a new offer by the Company to engage in an Asset Transaction with the
Investor at a price and on the terms set forth in the new Offer Notice. The
Investor shall then have thirty (30) days from the date of delivery of the new
Offer Notice to send written notice as to whether it elects to exercise its
option.
(e) [OMITTED]
7.2. INSURANCE. The Company shall maintain insurance against such
risks and at least in such amounts as are now carried by the Company and in such
other amounts as are customarily carried by companies similarly situated. The
Company shall also maintain keyman term life insurance on the life of Xxxxxxx X.
Xxxxx, Xx. in the amount of $500,000. All such insurance shall be effected under
valid and enforceable policies issued by insurers of recognized responsibility.
7.3. RESTRICTIONS ON DISTRIBUTIONS, REDEMPTIONS, etc. The Company
shall, on or before April 15th of each year, distribute pro rata among its
members an aggregate amount equal to 45% of its cumulative (after January 1,
1996) post-tax profit (as shown on its tax return for the prior calendar year).
The Company may make additional distributions pro rata among its Members upon
the approval of the Board of Directors up to, in the aggregate, 75% of such
cumulative post-tax profit. The Company shall not otherwise pay any dividend or
distribution or make any payment on account of the purchase, redemption or other
retirement of any securities issued by it or of any warrants, options or similar
rights to purchase its securities, or make any other distribution in respect of
its securities, either directly or indirectly, or prepay or redeem in whole or
in part, either directly or indirectly, any equity security.
7.4. PROHIBITED INVESTMENT, CONTRACTS, ETC. (a) Except with
approval of the Board of Directors, the Company shall not, directly or
indirectly, purchase, sell or lend/borrow any securities or other property from
or to any officer, director (except a director designated by the Investor) or
employee of the Company, or any relative or any person or entity in any other
way affiliated, directly or indirectly, with any of them.
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(b) The Company shall not make any expenditure or series
of related expenditures, or agree or commit to do same: (i) for expenditures
outside of the business described on Schedule 7.1, in excess in the aggregate of
$25,000 for the first six months following the date hereof, or $50,000 per year;
or (ii) without the approval of the Board of Directors, for expenditures within
the business described on Schedule 7.1, in excess in the aggregate of $75,000
per year.
(c) Any provision herein to the contrary notwithstanding,
the Company may make loans (including to employees of the Company) in an
aggregate amount only up to $25,000 with interest at 6%, repayable in the case
of employees from salary, bonuses and distributions, if applicable.
7.5. BOARD OF DIRECTORS. The Company's Board of Directors shall be
composed of no less than three nor more than seven persons. If the number of
Directors is five or fewer, the Company shall cause to be elected to the
Company's Board of Directors one person designated by the Investor in its
discretion, and if the number of Directors is greater than five, the Company
shall cause to be elected to the Company's Board of Directors two persons
designated by the Investor in its sole discretion. Any provision in the
Operating Agreement to the contrary notwithstanding, (a) the Company shall
provide reasonable advance notice to the designated director(s) of the Investor
of each meeting, whether regular or special, of the Board of Directors of the
Company, (b) no Board Committee may be constituted without one of the designated
directors of the Investor, and (c) the Company hereby waives any bond with
respect to the Investor's designated directors that might be required under the
Operating Agreement. The Board of Directors of the Company shall hold meetings
at least semi-annually. The Investor may call meetings of the Members or the
Board as long as the Investor holds at least 10% of the issued and outstanding
Membership Interests in the Company. No meeting of the Members or the Board to
take action on behalf of the Company shall be held without the Investor's
designee in attendance, or afforded an opportunity to attend by telephone. No
meeting of the Members shall take place without advance notice being given to
the Investor or the Investor's designee.
7.6. PROHIBITED CONTRACTS. The Company shall not and shall not
allow any subsidiary to enter into any agreement, commitment, arrangement,
transaction or understanding that (i) would breach, or make impossible the
Company's compliance with any of the terms of this Agreement, or (ii) would
involve as a party thereto any person or entity affiliated in any way, directly
or indirectly, with the Company or any Member, officer or director of the
Company, on terms that impose any obligation or provision on the Company that is
not consistent with customary practice, or is not commercially fair and
reasonable and beneficial to the Company, or is in any way less favorable to the
Company than would have been obtained from an arms-length
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negotiation with an unrelated party desiring to enter into such relationship
with the Company.
7.7. FINANCIAL STATEMENTS AND NOTICES. (a) The Company shall keep,
and shall cause each of its subsidiaries to keep, true books of record and
account in which full, true and correct entries in accordance with sound
accounting practice will be made of all income, expenses, dealings and
transactions in relation to its business and activities.
(b) The Company shall deliver to the Investor:
(i) as soon as practicable, and in any event
within 45 days after the close of each interim six-month
period of the Company (75 days from the close of each fiscal
year period), (A) a balance sheet of the Company as of the end
of such period and (B) statements of operations, changes in
financial position and members' equity of the Company for such
six-month period, in each case setting forth in comparative
form the corresponding figures for the comparable period in
the preceding fiscal year, prepared from the books and records
of the Company in accordance with generally accepted
accounting principles consistently applied (in the case of an
interim six-month period, subject to normal year-end
adjustments) and in reasonable detail and (in the case of
year-end statements) reviewed (or, if the Company had in
excess of $4 million of revenues in such year, audited) by the
independent certified public accountants selected by the
Company and approved by the Investor, such approval not to be
unreasonably withheld;
(ii) as soon as practicable, and in any event
within 30 days after the close of each month, (A) an unaudited
balance sheet of the Company as of the end of such month and
(B) unaudited statements of operations and changes in
financial position of the Company for the month and the
portion of the fiscal year ended with the end of such month,
in each case setting forth in comparative form the
corresponding figures for the comparable period one year prior
thereto, if available, prepared from the books and records of
the Company in accordance with generally accepted accounting
principles for monthly financial statements consistently
applied (subject to normal year-end adjustments);
(iii) by January 15th of each year, a
month-by-month budget in reasonable line item detail for the
upcoming year, together with monthly cash flow projections for
such year, which shall be reviewed, revised if appropriate and
approved by the Board of Directors on or before January 31st
of such year; and
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(iv) as soon as practicable, such other financial
and business data as may reasonably be requested by the
Investor and available to the Company without additional
material expense (which shall not include personnel time to
compile and organize same).
(c) The Investor may require the Company to prepare
audited financial statements as reasonably needed by the Investor at Investor's
expense.
7.8. INSPECTION. The Investor may, by its designated
representative, at its expense visit and inspect any of the properties of the
Company and its subsidiaries, examine its books of account and discuss its
affairs, finances and accounts with, and be advised of the same by, its officers
and auditors, at such reasonable times and intervals as the Investor may desire.
7.9. EMPLOYMENT ARRANGEMENTS. The Company shall not, and shall not
allow any subsidiary to, enter into any arrangement or obligation, written or
oral, or otherwise agree to hire a chief operating officer or a chief financial
officer without the approval of the Board of Directors. The Company shall not
change the compensation paid to the Member or enter into a new employment,
consulting or similar agreement with the Member.
7.10. NO AMENDMENTS TO COMPANY DOCUMENTS. The Company shall not
amend its Certificate of Formation or the Operating Agreement or the Employment
Agreement or Unit Option Agreement.
7.11. ACCRUAL TO MEMBER. The accrual on the Balance Sheet in the
amount of $52,000.00 payable to the Member shall be paid no earlier than three
years from the date hereof, provided that the Company has excess cash available.
The Member agrees that such debt shall be subordinated debt, junior to the
claims of all other creditors of the Company, including other members of the
Company.
7.12. TERM OF COVENANTS. The covenants in this Section 7 will
terminate in the event that the Investor owns and has a right to acquire in the
aggregate less than 5% of the issued and outstanding Membership Interests,
PROVIDED, HOWEVER, if the Investor continues to perform its obligations under
Section 9 hereof, the Investor shall have the right to designate one director to
be elected to the Board of Directors of the Company pursuant to Section 7.5
hereof; Section 7.2 hereof shall remain in effect until all promissory notes are
repaid to the Investor; and Section 7.7 shall remain in effect as long as
Investor continues to own a Membership Interest.
8. PREEMPTIVE RIGHT AND MEMBER COVENANTS.
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8.1 PREEMPTIVE RIGHT. If the Board of Directors of the Company
approves the issuance and sale of any securities or the Company otherwise plans
to issue any securities, including, without limitation, as part of a merger,
consolidation, acquisition, Asset Transaction or similar transaction, then the
Investor shall have the right during the 20-day period after such approval to
subscribe, by sending notice of its intent to subscribe, for up to that percent
(the preemptive right percent), which shall equal the percent of membership
interests that would be owned by the Investor upon the exercise of all those
options to acquire membership interests in the Company then owned by the
Investor, of all of such securities to be issued or sold on the same terms as
they are to be sold to other purchasers. The closing of the Investor's purchase
under this Section 8.1 shall be concurrent with the closing of the sale of such
securities to other purchasers on adequate notice to the Investor. This Section
8.1 shall terminate upon the earliest to occur of: (a) the sale in a public
offering registered under the Securities Act of 1933, as amended, of Membership
Interests, either in their present form or as represented by shares of common
stock, or hereafter issued to the Investor; or (b) the listing of the Membership
Interests, either in their present form or as represented by shares of common
stock, on any national stock exchange (as described under Section 12(b) of the
Securities Exchange Act of 1934, as amended) or on the NASDAQ Stock Market.
8.2. COVENANTS BY MEMBER. The Member covenants and agrees that,
during the term hereof, he shall, unless the Investor shall have otherwise
consented in writing, comply with the following provisions:
(a) TRANSFER BY THE INVESTOR. The Member agrees to vote
his Membership Interests and all Membership Interests under his control to
consent to any proposed transfer or pledge of Membership Interests by the
Investor, to the extent such consent is required under the Operating Agreement;
provided, however, that such consent shall not be deemed a waiver of any other
provisions of the Operating Agreement, including the provisions of Section 9.4
thereof relating to rights of first refusal.
(b) RECONSTITUTION FOLLOWING DISSOLUTION. [Omitted.]
(c) ENFORCEMENT OF THIS AGREEMENT. The Member agrees to
vote his Membership Interests and all Membership Interests under his control in
accordance with, and to take all reasonable steps necessary to effect, the
provisions of this Agreement.
(d) SIMILAR HOLDINGS. The Member shall not obtain an
equity interest in or engage personally in any transaction or business
arrangement with any person or entity that supplies products or services to a
customer base of high school, college and/or graduate school students or that
transacts business with the Company, or any
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affiliate of such person or entity, nor shall the Member enter into any
transaction utilizing the Company's list of members, prospects or distribution
network, unless, in the case of an equity interest, the Investor is provided
with the opportunity to obtain a similar equity interest or a share of the
proceeds of such transaction on the same terms as the Member in an amount pro
rata with the relative percentage of Units of the Company held by the Member and
the Investor.
8.3. MASTER CARD BONUS. If, within ninety (90) days of the date
hereof, the Company completes a transaction with MasterCard International and
its affiliates ("MC"), as evidenced by the execution of a binding agreement or
the payment by MC of more than $50,000 on account and the total net cash
consideration paid by MC to the Company on or prior to March 31, 1997 in respect
of memberships that expire and other benefits that are delivered on or prior to
August 31, 1997 (the "96/97 Consideration"), in connection with such transaction
exceeds $300,000, and the Company's profit on such transaction, accounting for
all costs in connection therewith (except no allocation shall be made for the
Member's salary, and the Company's overhead shall be allocated only to the
extent an increase in overhead is attributable to such MC transaction), exceeds
25% of the total consideration paid and to be paid in connection therewith, and
the Company (together with Student Advantage Partnership) meets or exceeds,
after payment of all bonuses, the cash flow projected for the 1996 calendar
year, as indicated on Schedule 5.10 hereto, then the Company shall pay to the
Member or employees of the Company designated by the Member 10% of the
difference of the total 96/97 Consideration minus $300,000 as follows: one-half
as an advance upon receipt of the money from MC if the conditions described
above are reasonably projected to be satisfied, and one-half upon confirmation
that the conditions provided for herein have been satisfied. At least 30% of the
money due under this Section 8.3 shall be distributed as a bonus to employees
other than the Member and his spouse.
9. MARKETING.
9.1. TRANSFER OF STUDENT ACCESS. The Investor shall phase out its
Student Access membership program by sending written notice to Student Access
members to the effect that Student Access operations have been taken over by the
Company and soliciting such Student Access members to join the Company's
Program. The Investor shall use reasonable efforts to obtain the consent of its
sponsor/vendors to the assignment of sponsorship to the Company.
9.2. WEBSITE MARKETING. The Investor shall provide to the Company
space on its online electronic sites (to the extent permitted by the applicable
online service) or a link to the Investor's online electronic sites, including,
without limitation, the Investor's own internet web site, to describe in general
the benefits of the Program and how to enroll in the Program. The Company shall
provide to the Investor space on the Company's online electronic sites when
created (to the extent permitted by the
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applicable online service) or a link to the Company's online electronic sites
when created, including, without limitation, the Company's own internet web
site, when created, to describe the products and services offered by the
Investor and its affiliates and how to obtain such products and services.
9.3. BOOK INSERT MARKETING. The Investor shall, to the extent
permitted under its publishing contracts and other contracts regarding its
books, include a description, on the inside front or back cover of those books
or on an insert in such book that the Investor reasonably deems to be
appropriate among the books published by the Investor, of the general benefits
of the Program and how to enroll in the Program.
9.4. BOOK TITLES. The Investor shall as soon as reasonably
practicable change the title of those books that are listed on Schedule 9.4
hereto and which are published by the Investor and which include the phrase
"Student Access" by deleting "Student Access" and inserting "Student Advantage."
9.5. EXCLUSIVITY BY THE INVESTOR. (a) The Investor shall not offer,
sell or distribute to high school, college or university students materials that
solicit enrollment in a program that is operated as a business that is primarily
a student membership and discount service organization which offers a broad
range of products and services supplied by independent sponsors and vendors
through its membership cards and coupon books similar to the Program and which
competes with the Program as long as marketing arrangements continue under this
Section 9 plus six months thereafter, provided the Program generally provides
products and/or services approximately comparable with other
student-membership/discount-service organizations. This Section 9.5 shall not
apply to a discount or sponsorship offer submitted to the Company by the
Investor and declined by the Company, after which the Investor may make the same
offer through a competing organization. Except as set forth in this Section 9.5,
the Investor shall not be bound by Section 9.7 of the Operating Agreement.
(b) The Investor shall not, so long as the Investor
engages in the marketing arrangements with the Company as described in this
Section 9 and for a term of six months thereafter, engage in or plan or prepare
to engage in operations as a business that is operated primarily as a student
membership or discount service organization and that competes with the Program.
Provided that, after termination of the marketing arrangements in this Section
9, if the Company declines to waive the provisions of this Section 9.5 against
the Investor, the Investor shall have the option to require the Company to buy
back all of its Membership Interests in the Company at the price set forth in
Section 7.1(a).
9.6. OFFER BY THE INVESTOR. The Investor shall cause Princeton
Review Operations, L.L.C. ("Operations") to offer to members of the Program a
reasonable discount or other benefit on the products or services of the Investor
or an affiliate, such
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as a free book, in the Investor's reasonable discretion, and subject to such
conditions as the Investor shall set from time to time.
9.7. LIMITATION ON USE; COST OF MAILINGS.
(a) Subject to limitations set forth in agreements under
which the Investor shall be bound (provided that the Investor shall not enter
into any agreement that shall frustrate the purposes of, or prohibit the
achievement of, the intent of this Section 9.7(a)), the Investor shall cause
Operations to give the Company a list of its prospects, which shall be used only
for marketing membership in the Program. The Company shall reimburse the
Investor for any third-party disbursement costs incurred in providing such list
to the Company. The Company shall obtain the prior written approval of the
Investor before using the Investor's name on any of its marketing tools.
(b) The Company shall keep the list of members in the
Program derived from the Investor's promotions segregated from its full list of
members, and shall not use such segregated list or distribute any materials to
the members on such segregated list except for materials distributed to all
members in the Program that serve only to inform members of the benefits of
membership or, with the prior written approval of the Investor which shall not
be unreasonably withheld, for disclosures in the ordinary course of business (as
described in Schedule 7.1) pursuant to a written agreement restricting any
further dissemination reasonably satisfactory to the Investor, provided however,
that the Investor's members are not identified as such and are integrated into
the list of all of the Program's members.
9.8. MEMBERSHIP AT COST TO THE INVESTOR. (a) The Investor shall be
allowed to distribute memberships to students enrolled in The Princeton Review
courses, and the Investor shall pay for such memberships at the cost thereof as
determined in accordance with Schedule 9.8 attached hereto.
(b) To the extent that mailings to the Program's members
or any materials included with such mailings generate revenues for the Company,
then the Investor shall receive the portion (represented by a fraction, the
numerator of which is the number of the Investor's students to whom the mailing
was sent, the denominator of which is the total number of members to whom the
mailing was sent) of those revenues as reimbursement for the printing and
postage costs incurred by the Investor, PROVIDED THAT, to the extent that the
Investor does not pay for all materials being mailed (the "Uncovered Materials")
(either because such materials are not included in the packet of materials being
mailed to the Investor's members or otherwise), then the Investor shall receive
that portion of the revenues in excess of the variable cost of printing the
Uncovered Materials. The Investor shall not pay for the mailing if the third
party's payments are sufficient to cover the cost of a mailing to all members of
the
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Program. The Investor shall have the option to distribute such mailing to its
members at its own expense and shall have the option to print such mailing
materials at its own expense.
9.9. PROMOTION OF INVESTOR. The Company agrees to use its best
reasonable efforts to promote the Investor's products to its members through its
mailings, directory, membership cards and other materials.
9.10. EXCLUSIVITY BY THE COMPANY. (a) The Company shall not allow
any other person or entity that engages in, or is planning or preparing to
engage in, the development, production, marketing, sale or distribution of
products or services (x) for preparation for standardized tests, or (y)
competitive with Trademark (hereinafter described) labelled books or software,
or courses covering the same material (a "Competitor") to provide any benefit to
members of the Program or otherwise participate in the Program or to advertise
in the Directory or any other materials distributed to members of the Program so
long as (i) the Investor engages in the joint marketing arrangements with the
Company as described in this Section 9 or (ii) the Investor owns 5% or more of
the Membership Interests of the Company; provided that the Investor generally
provides test preparation services approximately comparable to services provided
by its competitors.
(b) Neither the Company nor the Member, so long as (i)
the Investor engages in the marketing arrangements with the Company as described
in this Section 9 or (ii) the Investor owns 5% or more of the Membership
Interests of the Company and for a period of six months thereafter, shall engage
in or plan or prepare to engage in the development, production, marketing, sale
or distribution of products or services for (x) preparation for standardized
tests, or (y) competitive with Trademark (hereinafter described) labelled books
or software, or courses covering the same material.
9.11. LICENSE. The Company hereby grants to the Investor and its
affiliates, a perpetual, worldwide, royalty-free license to use the "Student
Advantage" name and current logo, as the same may be changed from time to time
(the "Trademarks"), but only on books, software or electronic media products
directed to high school, college and university students (the "Products"). The
license granted hereunder shall be exclusive with respect to the Products so
long as (a) the Investor engages in the joint marketing arrangements with the
Company as described in this Section 9 or owns 5% or more of the Membership
Interests, and (b) for a period of one year thereafter. The Investor shall
comply with all laws pertaining to marking requirements for maintaining
trademarks. The license granted hereunder shall not be transferrable. The
Company shall indemnify and hold harmless the Investor from any Indemnifiable
Damages (as defined in Section l0.l(a)) incurred by the Investor or its
affiliates as a result of or relating to any claim that the Trademarks and/or
the use thereof infringe upon the rights of any party. The Investor may not add
or delete books, software or electronic
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media products to the book titles listed on Schedule 9.4 without the Company's
prior approval, which may not be unreasonably withheld.
9.12. TERM OF JOINT MARKETING. The provisions of this Section 9
shall continue unless (a) substantially all of the assets of the Company are
acquired pursuant to Section 7.1(c) hereof or if the Investor is required to
sell its interest in the Company together with the Member pursuant to the terms
of the Co- Sale Agreement, and (b) either Investor or the purchaser reasonably
concludes that its continued participation in joint marketing with the other
party hereunder would result in a material adverse effect on such company's
reputation.
9.13. USE OF TRADEMARKS AND LOGOS. If either party hereunder intends
to use any trademark and/or logo of the other party, then it shall submit such
proposed use in writing to such other party for review, and the submitting party
shall not use such trademark and/or logo without the written approval of such
other party, which approval shall not be unreasonably withheld and shall be
deemed given by such other party 5 business days after the submission of an
intended use unless such other party notifies the submitting party of its
objection, specifying in reasonable detail the basis therefor. Each party shall
comply with the other party's reasonable standard guidelines for the use of its
trademarks and/or logos.
9.14. USE OF MEMBERSHIP LIST. The Company shall deliver to the
Investor in a reasonably prompt manner, at the request of the Investor, a
current list of members in, and prospects for the Program, including their
addresses and phone numbers and, with the approval of the Company, not to be
unreasonably withheld, complete contents of its pertinent data base to the
extent available, in such electronic format as the Investor shall reasonably
request to enable it to conduct a direct mail campaign to members and prospects.
The Investor shall reimburse the Company for any third-party disbursement costs
incurred in providing such list to the Investor. The Investor shall use such
list only to promote books, courses, videos and software supplied by the
Investor and its business entity affiliates. The Investor shall not conduct
mailings to the list more than four times per year without the written approval
of the Company, which may not be unreasonably withheld. Such mailings are
subject to limitations set forth in agreements under which the Company shall be
bound (provided that the Company shall not enter into any agreement that shall
frustrate the purposes of, or prohibit the achievement of the intent of, this
Section 9.14). The Investor must receive permission from the Company, which
shall not be unreasonably withheld, to use the Company's name on any such
mailings.
9.15 ASSUMPTION OF MARKETING PROVISIONS. The Company shall not
enter into any Asset Transaction for the sale of a majority of the assets of the
Company in one or a series of transactions unless the purchaser shall assume all
provisions of Section 9 hereof.
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10. REMEDIES.
10.1. INDEMNIFICATION BY THE COMPANY AND THE MEMBER.
(a) The Member and the Company, subject to the
limitations expressly set forth in Sections 10.6 and 10.7 hereof, shall defend,
hold harmless and indemnify the Investor from any and all losses, liabilities,
proceedings, claims, settlements, judgments, fines, assessments, damages and
expenses (including reasonable attorneys' fees and investigation and litigation
expenses, whether arising out of a third party claim or relating to recovering
Indemnifiable Damages) (collectively, together with amounts referred to in
Section 10.3 hereof, the "Indemnifiable Damages") that the Investor suffers or
incurs in whole or in part by reason of, or which may arise out of: (i) the
inaccuracy or breach of any of the representations and/or warranties of the
Company in this Agreement and (ii) the breach by the Company and/or the Member
of any of the covenants or warranties herein.
(b) The Member and the Company shall defend, hold
harmless and indemnify the Investor from any and all Indemnifiable Damages
incurred directly by the Investor or its agents and arising out litigation
brought by Passport against the Investor or its agents. Any payment by the
Company under this Section 10.1(b) shall constitute Reduced Value (as defined in
Section 10.3 hereof). This Section 10.1(b) shall not apply to any damages
allegedly caused to the Investor by reason of claims made by Passport against
the Company.
10.2. INDEMNIFICATION BY INVESTOR. The Investor shall defend, hold
harmless and indemnify the Company from any and all Indemnifiable Damages that
the Company suffers or incurs by reason of: (i) the inaccuracy and/or breach of
any of the representations and warranties of the Investor herein; or (ii) the
breach by the Investor of any of the covenants and/or warranties herein.
10.3. CALCULATION OF DAMAGES. To the extent that a misrepresentation
or breach of warranty has occurred or occurs hereunder, and the Company's fair
market value as determined upon accounting for the true and correct facts is
less than the fair market value of the Company as determined based on the facts
as represented or warranted herein (the difference referred to herein as the
"Reduced Value"), then the Investor shall be deemed to be damaged by an amount
equal to its equity interest in such Reduced Value, and such damages, if any,
shall be deemed to be included in Indemnifiable Damages hereunder. The amount of
any payment by the Company in satisfaction of its indemnification liability
under Section 10.1 shall be deemed to constitute further "Reduced Value" under
this Section 10.3.
10.4. NOTICE AND RIGHT TO DEFEND THIRD PARTY CLAIMS.
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(a) Promptly upon receipt of notice of any third party
claim, demand or assessment or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought on account of an
indemnity agreement contained in this Section 10, the party seeking
indemnification (the "Indemnitee") shall notify in writing, within sufficient
time to respond to such claim or answer or otherwise plead in such action, the
party from whom indemnification is sought (the "Indemnitor") thereof; provided,
however, that failure or delay to supply such notice shall not relieve
Indemnitor of Indemnitor's indemnification obligation hereunder except to the
extent that Indemnitor is actually prejudiced by such failure or delay.
(b) In case any claim, demand or assessment is asserted
or suit, action or proceeding commenced against an Indemnitee (collectively a
"Claim") and it notifies the Indemnitor of the commencement thereof, if the
Indemnitor acknowledges its indemnification obligations therefor hereunder, then
the Indemnitor shall be entitled to participate therein, and, to the extent that
it may wish, to assume the defense, conduct or settlement thereof; provided,
however, that if the Indemnitee has any separate defense from those of the
Indemnitor, the Indemnitee shall have the right to be represented by its own
counsel at the Indemnitor's expense. The Indemnitee shall have the right in any
event to participate in any such defense with its own counsel at its own
expense.
(c) Anything to the contrary herein notwithstanding,
prior to finally settling any such Claim, the Indemnitor shall give to the
Indemnitee prompt notice of its intention to settle same and the terms of such
proposed settlement and acknowledging its indemnification responsibility
therefor hereunder. If the Indemnitee shall object to such proposed settlement
within 10 days, then the Indemnitee shall thereafter, at its sole expense,
assume the control and defense of such claim, suit, action, investigation or
proceeding and in such event the liability of the Indemnitor shall be limited to
the amount for which the same could have been settled as proposed by the
Indemnitor. If the Indemnitee does not object to the terms of the proposed
settlement within the aforesaid 10-day period, then the Indemnitor shall have
the right to consummate such proposed settlement upon the terms set forth in the
aforesaid notice. If Indemnitor acknowledges in writing its obligation to
indemnify Indemnitee with respect to a Claim, then Indemnitee shall not settle
such Claim without Indemnitor's prior written consent.
10.5. PAYMENT OF AMOUNTS DUE. The amount of any indemnifiable
damages conceded or determined to be due shall be paid to Indemnitee within
twenty (20) business days from the date so conceded or determined.
10.6. BASKET AND LIMITATION FOR INDEMNIFICATION. Any other provision
of this Agreement to the contrary notwithstanding, the liabilities of the
parties under this Agreement (other than pursuant to Section 10.1(b) hereof)
shall be limited in that no
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party shall have any liability to the other party hereunder that arises from any
nonwilful and nonfraudulent default, breach of warranty, misrepresentation,
omission or failure, including any liability pursuant to Section 10.2 or 10.3
hereof, unless the aggregate amount of all indemnifiable damages incurred by the
indemnitee arising from all such innocent defaults, breaches, misrepresentation,
omissions and failures by the Indemnitor, exceeds $25,000, and in such event,
the Indemnitor shall be required to pay only the amount by which such aggregate
indemnifiable damages exceed $25,000, except that such limit shall not be
applicable with respect to claims based on breach of warranty or
misrepresentation under Section 5.3(d), nor shall such claims be counted in
satisfying such $25,000 basket; PROVIDED, HOWEVER, that claims consisting of the
first $20,000 of liabilities referred to in clause 5.3(d) (iii) shall be counted
in satisfying such $25,000 basket.
10.7. LIMITATION FOR INDEMNIFICATION BY THE MEMBER. Any other
provision in this Agreement to the contrary notwithstanding, except for fraud,
the Investor shall have no recourse against the Member personally and the Member
shall not be liable for any amount under this Agreement except as to his
membership interest in the Company, which is pledged pursuant to the Pledge
Agreement. For the purposes of satisfying any such liability through transfer of
a fraction of the Member's membership interest in the Company, each 1 Unit of
membership interest of the Member (assuming 10,000 Units Outstanding at the
Closing) together with the portion of the Member's capital account associated
therewith shall be valued at $109.37 per Unit, or, if any, the purchase price
per each 1 Unit of membership interest in the most recent arms-length negotiated
sale after the date hereof of membership interests by the Company to an
unaffiliated party for a purchase price in excess of $[50,000].
10.8. AUDIT RIGHT. The Investor shall have the right, not more often
than semi-annually to conduct an audit of the Company's books and records on
reasonable advance notice at the office of the Company at the Investor's expense
to insure compliance with the terms of this Agreement; provided, however, that
if such audit uncovers any underpayment of amounts owed to the Investor in
excess of 5%, or if it uncovers any other material breach or default hereunder,
then the Company shall reimburse the Investor for the reasonable costs of such
audit.
10.9. LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. The Investor
hereby acknowledges that budgets and forecasts are inherently speculative and
that the actual future results of operations of the Company may be materially
different from those set forth in the budget attached hereto as Schedule 5.10.
The Investor further acknowledges that neither the Company nor the Member has
made or is making any representations and warranties other than as set forth in
this Agreement and the Schedules and Exhibits attached hereto.
11. ADDITIONAL PROVISIONS.
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11.1. MODIFICATION OF AGREEMENT; CONSENT. This Agreement and the
documents and instruments referred to herein constitute the entire agreement
among the parties hereto with respect to the subject matter hereof. Any
provision in this Agreement to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and/or compliance with any covenant or
condition herein set forth may be omitted, only pursuant to a written document
executed by or on behalf of the parties hereto.
11.2. STAMP, TAX AND DELIVERY COSTS. The Company shall pay all stamp
and other taxes, if any, which may be payable in respect of the issuance and
sale of any Securities to the Investor, and shall save the Investor harmless
against any loss or liability resulting from nonpayment or delay in payment of
any such tax.
11.3. EXPENSES. Except as explicitly set forth elsewhere in this
Agreement, each of the parties hereto agrees to pay its own expenses incurred in
connection with the transactions contemplated herein.
11.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective successors
and assigns, except this Agreement and the obligations hereunder may not be
assigned by the Company without the consent of the Investor.
11.5. NOTICES. All notices and communications provided for hereunder
shall be deemed to be given when personally delivered or mailed with sufficient
postage by registered or certified mail, return receipt requested, or by
receipted courier service or sent by a nationally recognized overnight courier
procuring a return receipt;
(a) if to the Company, 000 Xxxxxxxx Xxxxxx, Xxxxxx, XX
00000, or at such other address as may have been furnished to the Investor in
writing by the Company, marked "Attn: President," with a copy to Xxxxxxx X.
Xxxxxx, Esq., Shack & Siegel, P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000 or
(b) if to the Investor, 0000 Xxxxxxxx, Xxx Xxxx, XX
00000, marked "Attn: Xx. Xxxx Xxxxxxx," or at such other address as may be
furnished to the Company by the Investor in writing, with a copy to Xxxx X.
Xxxxxx, Esq., Akabas & Xxxxx, 000 Xxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxx Xxxx, XX
00000 or
(c) if to the Member, 000 Xxxxxxxx Xxxxxx, #0, Xxxxxx, XX
00000, or at such other address as may have been furnished to the Investor.
Any notice or other communication so addressed and so sent shall be
deemed to have been given when mailed.
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11.6. GOVERNING LAW. This Agreement is made in the State of New York
and shall be governed by and construed in accordance with the laws of said
State.
11.7. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
11.8. ENFORCEMENT. As a further inducement to the purchase of the
Securities, the Company, acknowledging that the Investor is relying on the
covenants in this Section 11.8, covenants and agrees that in any action or
proceeding brought on, under or in connection with or relating to this
Agreement, the Securities or any other document executed or matter Contemplated
in connection herewith or therewith, shall and does hereby expressly waive trial
by jury. The Company (i) agrees that any legal suit, action or proceeding
arising out of, under, in connection with or relating to this Agreement, the
Securities or any other document executed or matter contemplated in connection
herewith or therewith, may be instituted in any Federal or State Court in the
State of New York, City of New York; (ii) waives any objection the Company may
have now or hereafter to the laying of the venue of any such suit, action or
proceeding; (iii) irrevocably submits to the jurisdiction of any such Court in
any such suit, action or proceeding; (iv) agrees not to bring any such suit,
action or other proceeding in any other jurisdiction. and (v) consents to the
effecting of service of process in any such suit by the means provided for
notice under Section 11.5 herein.
11.9. TERM. All of the covenants and other terms of this Agreement
shall survive in full force and effect so long as the Investor owns any of the
Securities, except as specifically set forth herein.
11.10. CONSTRUCTION. (a) The descriptive headings of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(b) Any representation or warranty made to the knowledge
of any parties hereto, or as to what any such party is aware of, or statements
of similar purport, shall mean that such party has made a reasonable and
diligent investigation of the facts in connection therewith and is making such
representation or warranty based upon the results of such investigation.
(c) Each of the parties to this Agreement participated in
the drafting of this Agreement and the interpretation of any ambiguity contained
in this Agreement will not be affected by the claim that a particular party
drafted any provision hereof.
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(d) Any pronoun herein shall include all genders and/or
the plural or singular as appropriate from the context.
(e) The invalidity or unenforceability of any particular
provision of this Agreement in any jurisdiction shall not affect the other
provisions hereof or such provision in other jurisdictions, and this Agreement
shall be construed in such jurisdiction in all respects as if such invalid or
unenforceable provisions were omitted. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision in such jurisdiction there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provisions as may be possible and be
legal, valid and enforceable.
11.11. CONFIDENTIALITY. The parties hereto agree that the existence
of and contents of this Agreement and the Investor's ownership interest in the
Company shall not be disclosed other than by mutual agreement of the parties
except as necessitated by generally accepted accounting principles in financial
statements of the Investor, in connection with transactions in which the
Investor engages reasonably requiring such disclosure or as required by law.
Exhibits
--------
4.1 Form of Member's Certificate
4.2 Co-Sale Agreement
4.3(a) Security Agreement
4.3(b) Convertible Secured Promissory Note
4.3(c) Secured Term Acquisition Promissory Note
4.3(d) Pledge Agreement/Guaranty
4.4 Operating Agreement and Consent of Members
4.5 Employment Agreement
5.1 Certificate of Formation, Good Standing Certificate
Schedules
---------
3 Use of Proceeds
5.2 Capitalization Table
5.3 Financial Statements
5.3(d) Additional liabilities
5.4(b) Trademarks and Copyrights
5.4(c) Claims
5.6 Subsidiaries (Atlanta arrangements)
5.7 Permits
5.8 Form of Member's Schedule C
5.10 Budget
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5.11 Contracts
5.14 Insurance
5.17 Program Membership
5.19 Documents Relating to Arrangements with Passport
7.1 Mission Statement
9.4 List of Student Advantage Books
9.8 Method of Calculating Cost of Membership
Other Documents
---------------
UCC-1 Financing Statements
Lien and Judgment Searches
Student Advantage
Xxxxxxx Xxxxx
Passport Acquisition Documents
Credit Search Xxxxxxx Xxxxx
1994 Partnership Tax Return
Agreement with DML Enterprises
Assignment and Assumption Agreement (Partnership/LLC)
Membership Voting Agreement and Proxies
IN WITNESS WHEREOF, the Member has executed, and each of the Company
and the Investor has caused to be duly executed by its duly authorized officer
this Agreement, as of the date first written above.
PRINCETON REVIEW STUDENT ADVANTAGE LLC
PUBLISHING, L.L.C.
By: /s/ Xxxx Xxxxxxx By: /s/ Xxxxxxx X. Xxxxx, Xx.
------------------------------ ------------------------------
Name: Xxxx Xxxxxxx Name: Xxxxxxx X. Xxxxx, Xx.
Title: President Title: President
/s/ Xxxxxxx X. Xxxxx, Xx.
----------------------------------
XXXXXXX XXXXX
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