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Exhibit
10.3
FRANCHISE AND ASSET SALE
AGREEMENT
This Franchise and Asset Sale
Agreement (this “ Agreement ”) by and among The
Princeton Review, Inc., a Delaware corporation (“
Parent ”), TPR SoCal, LLC, a Delaware limited
liability company and a wholly-owned subsidiary of Parent (“
Merger Sub II ”), and Paul Kanarek (“
Kanarek ”), an individual residing in the State of
California, is hereby made and entered into as of June 11,
2008. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in the Merger
Agreement (as hereinafter defined). The foregoing parties are
sometimes referred to herein each individually as a “
Party ” and, collectively, as the “
Parties .”
W I T N E S S E T
H
WHEREAS, Merger Sub II
desires to purchase from Kanarek, and Kanarek desires to sell to
Merger Sub II, (a) that certain The Princeton Review Franchise
Agreement governing franchises located in the California counties
of Fresno, San Luis Obispo and Kern, dated as of September 30,
2005, by and between Parent and Kanarek, as amended by and together
with the Addendum to such The Princeton Review Franchise Agreement,
dated as of September 30, 2005, and any and all addenda or
agreements related thereto among Parent and Kanarek (the “
CA Counties Franchise Agreement ”), (b) that
certain The Princeton Review Franchise Agreement governing
franchises located in New Mexico, dated as of September 30,
2005, by and between Parent and Kanarek, as amended by and together
with the Addendum to such The Princeton Review Franchise Agreement,
dated as of September 30, 2005, and any and all addenda or
agreements related thereto among Parent and Kanarek (the “
NM Franchise Agreement ”), and (c) that certain
The Princeton Review Franchise Agreement governing franchises
located in Utah, dated as of September 30, 2005, by and
between Parent and Kanarek, as amended by and together with the
Addendum to such The Princeton Review Franchise Agreement, dated as
of September 30, 2005, and any and all addenda or agreements
related thereto among Parent and Kanarek, each as amended or
supplemented to date (the “ UT Franchise Agreement
,” and together with the CA Counties Franchise Agreement and
the NM Franchise Agreement, the “ Franchise Agreements
”), in accordance with the terms and conditions set forth in
this Agreement;
WHEREAS, in connection with
the purchase of the Franchise Agreements by Merger Sub II, Merger
Sub II desires to purchase from Kanarek, and Kanarek desires to
sell to Merger Sub II, the goodwill associated with the businesses
of the franchises which exploit the Franchise Agreements
(collectively, the “ Franchise Businesses ”), in
accordance with the terms and conditions set forth in this
Agreement;
WHEREAS, in connection with
such purchase and sale of the Franchise Agreements and goodwill,
Kanarek desires to enter into a noncompetition agreement in favor
of Parent;
WHEREAS, the Parties desire
to set forth their understanding with respect to certain other
covenants and agreements of Kanarek;
WHEREAS, Parent has entered
into an Agreement and Plan of Reorganization, dated as of
June 11, 2008, by and among Parent, TPR SoCal I, Inc., a
Delaware corporation and a wholly-owned subsidiary of Parent
(“ Merger Sub I ”), Merger Sub II, The Princeton
Review of Orange County, Inc., a California corporation (“
Orange ”), and Kanarek (the “ Merger
Agreement ”), pursuant to which Merger Sub I will merge
with and into Orange, with Orange surviving the merger, followed by
a merger of the surviving corporation of the foregoing merger with
and into Merger Sub II, with Merger Sub II surviving the merger,
subject to the terms and conditions of the Merger Agreement
(collectively, the “ Merger ”);
WHEREAS, Parent, Merger Sub
II and Kanarek each desire that this Agreement (collectively, the
transactions, covenants and agreements contemplated by this
Agreement are the “ Kanarek Transactions ”) be
effective as of the Kanarek Closing (as hereinafter
defined).
NOW THEREFORE, in
consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
Section 1.
Purchase and Sale of Assets .
(a) Purchased Assets .
In accordance with the terms and conditions set forth in this
Agreement, at the Kanarek Closing, Merger Sub II shall purchase,
and Kanarek shall sell, convey, assign, transfer and deliver to
Merger Sub II, free and clear of any Liens (as hereinafter
defined), except for any Permitted Liens (as hereinafter defined),
by appropriate instruments of conveyance reasonably satisfactory to
Parent, the Franchise Agreements, all assets, properties, rights,
titles and interests of every kind or nature owned, leased,
licensed or otherwise held by Kanarek (including indirect and other
forms of beneficial ownership) as of the Kanarek Closing, and in
any case, belonging to or intended to be used in the Franchise
Businesses, whether tangible, intangible, real or personal and,
wherever located, including, but not limited to, those assets set
forth on Exhibit A hereto (the “ Purchased
Assets ”), and excluding those assets set forth in
Section 1(b), below (the “ Excluded Assets
”).
(b) Excluded Assets .
Kanarek shall retain no assets related to the Franchise
Businesses.
(c) Assumed Liabilities;
Excluded Liabilities . In accordance with the terms and
conditions set forth in this Agreement, at the Kanarek Closing,
Merger Sub II shall assume and shall agree to pay, defend,
discharge and perform as and when due and performable only the
obligations under the Franchise Agreements arising after the
Kanarek Closing (the “ Assumed Liabilities ”).
Notwithstanding the foregoing sentence, Kanarek shall retain, and
shall be responsible for paying, performing and discharging when
due, and neither Merger Sub II nor Parent or any Affiliate thereof
shall assume or have any responsibility for, all Liabilities of
Kanarek as of the Kanarek Closing other than the Assumed
Liabilities (the “ Excluded Liabilities ”). For
the avoidance of doubt, Excluded Liabilities shall include, without
limitation, (i) any and all debts, obligations and other
liabilities (whether absolute, accrued, contingent, fixed or
otherwise, or whether known or unknown, or due or to become due or
otherwise) associated with the wage and hour class action case
titled Tiu & Campbell v. The Princeton Review, Inc.
, including, but not limited to the amount to be paid by Kanarek
with respect to the Franchise Businesses in settlement of such
case, and (ii) any Tax liabilities of Kanarek, whether or not
attributable to or resulting from the transactions contemplated by
this Agreement.
(d) Franchise
Agreements . The covenants, obligations and agreements of
Kanarek set forth in the Franchise Agreements of any type which
are, by their terms, intended to survive transfer of the Franchise
Agreements shall survive and remain in full force and effect,
including, but not limited to, those set forth in
Section 10.2.2, Section 11, Section 13.3 (except
with respect to Section 13.2 of the Franchise Agreements),
Section 13.4, Section 18.1, Section 18.2,
Section 18.3, Section 18.4, Section 18.5,
Section 19.2 and Section 21.7 (collectively, the “
Franchise Agreements Surviving Provisions ”).
Notwithstanding that Section 13.2 and 18.6, by the terms of
the Franchise Agreements, survive transfer of the Franchise
Agreements, such sections of the Franchise Agreements shall not so
survive.
(e) Waiver of Consent
Requirements . Parent hereby waives the requirements of
Section 14.1 of the Franchise Agreements to the extent that
they apply to the transactions contemplated by this
Agreement.
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(f) Allocation . The
allocation of the Kanarek Purchase Price and Assumed Liabilities
(and any other amounts properly treated as additional purchase
price for Tax purposes) among the tangible and intangible assets of
Kanarek associated with the Franchise Businesses and the Noncompete
Agreement is attached hereto as Exhibit B (the “
Purchase Price Allocation ”). The Purchase Price
Allocation shall be binding on Parent and Kanarek. Parent shall
timely prepare IRS Form 8594 based on the Purchase Price Allocation
and deliver a copy of such form to Kanarek for Kanarek’s
approval, which shall not be unreasonably withheld, conditioned or
delayed. Parent and Kanarek agree to timely file the agreed upon
form with each relevant Taxing Authority and to refrain from taking
any position on a Tax Return or otherwise inconsistent with such
form and the Purchase Price Allocation; provided ,
however , that (i) nothing contained in this
Section 1(f) shall prevent Parent from settling any proposed
deficiency or adjustment by any governmental authority with respect
to any Parent Tax Return based upon or arising out of the Purchase
Price Allocation, and Parent shall not be required to litigate
before any court, any proposed deficiency or adjustment by any
governmental authority with respect to any Parent Tax Return
challenging such Purchase Price Allocation, and (ii) nothing
contained in this Section 1(f) shall prevent Kanarek from
settling any proposed deficiency or adjustment by any governmental
authority with respect to any Kanarek Tax Return based upon or
arising out of the Purchase Price Allocation, and Kanarek shall not
be required to litigate before any court, any prop
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