AGREEMENT AND PLAN OF REORGANIZATION

Exhibit 10.1

AGREEMENT AND PLAN OF REORGANIZATION

DATED AS OF JUNE 11, 2008

AMONG

THE PRINCETON REVIEW, INC.,

TPR SOCAL I, INC.,

TPR SOCAL, LLC,

THE PRINCETON REVIEW OF ORANGE COUNTY, INC.

AND

PAUL KANAREK

TABLE OF CONTENTS

(i)

(ii)

(iii)

SCHEDULES :

Disclosure Schedule pursuant to Article 2 and Article 3

Schedule 4.6

Schedule 5.2(f)

Schedule 5.2(j)

Schedule 5.2(o)

Schedule 6A.1

Schedule 6A.4

(iv)

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the “ Agreement ”), dated as of June 11, 2008, is made by and among The Princeton Review, Inc., a Delaware corporation (“ Parent ”), TPR SoCal I, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (the “ Merger Sub I ”), TPR SoCal, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“ Merger Sub II ”), The Princeton Review of Orange, Inc., a California corporation (the “ Company ”), and Paul Kanarek, an individual residing in the State of California, and the sole stockholder of the Company (the “ Stockholder ”). The foregoing parties are sometimes referred to herein each individually as a “Party” and, collectively, as the “Parties.” Capitalized terms used but not otherwise defined herein shall have the meanings set forth in Article 11.

WHEREAS, the Company operates several test preparation businesses pursuant to franchise agreements with Parent. Parent desires to acquire the entire equity interest in the Company from Stockholder and Stockholder desires to sell the entire equity interest in the Company to Parent, on the terms and conditions set forth in this Agreement.

WHEREAS, this Agreement contemplates a merger of Merger Sub I with and into the Company, with the Company surviving, followed by a merger of the surviving corporation of the foregoing merger with and into Merger Sub II, with Merger Sub II surviving (collectively, the “ Merger ”). In such Merger, the Stockholder will receive a combination of Parent Common Stock and cash in exchange for Company Common Stock.

WHEREAS, in furtherance of the Merger, (a) the Boards of Directors of each of the Merger Subs, Parent and the Company have duly adopted the plan of merger set forth in this Agreement and recommended it for approval by their respective stockholders, and have approved (i) the Certificates of Merger (the “ Certificates of Merger ”) to be filed with the Secretary of State of the State of California and the Secretary of State of the State of Delaware (each, a “ Secretary of State ,” and together, the “ Secretaries of State ”) in substantially the form of Exhibit A-1 and Exhibit A-2 , respectively, to effectuate the Merger, (ii) this Agreement and (iii) the Merger; and (b) Parent, as the sole stockholder of the Merger Subs, and Stockholder, as the sole stockholder of the Company, each have approved the plan of merger set forth in this Agreement, all in accordance with this Agreement and, as applicable, the California Corporations Code (the “ California Laws ”) and the Delaware General Corporation Law and the Delaware Limited Liability Company Act (the “ Delaware Laws ”).

WHEREAS, the Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a)(i)(A) of the Code, and this Agreement is intended to constitute a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations.

NOW, THEREFORE, in consideration of the mutual benefits to be derived from this Agreement and the representations, warranties, covenants, agreements, conditions and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows.

ARTICLE 1

THE MERGER

Section 1.1. The Merger . Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the California Laws and the Delaware Laws, at the Effective Time, (a) Merger Sub I shall be merged with and into the Company, at which time the separate corporate

existence of Merger Sub I shall cease and the Company shall continue as the surviving corporation, and, immediately thereafter, (b) the Company, as the surviving corporation in the foregoing merger, shall be merged with and into Merger Sub II, at which time the separate corporate existence of the Company shall cease and Merger Sub II shall continue as the surviving entity (the “ Surviving Company ”).

Section 1.2. Closing . The closing of the Merger (the “ Closing ”) shall be held at the offices of Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, Massachusetts, at 10:00 a.m. on a date that is as soon as practicable following satisfaction (except to the extent waived in accordance with Article 5) of all conditions to the obligations of the Parties to consummate, or cause the consummation, of the Merger and the taking of all other actions (other than those that by their terms are to be satisfied or taken, or waived, at or after the Closing) set forth in Article 5, or on such other date, and at such other time or place, as Parent and the Stockholder may mutually agree in writing.

Section 1.3. Actions at the Closing . At the Closing, the Parties shall file, or cause to be filed, the Certificates of Merger and other appropriate documents in the offices of the applicable Secretary of State and shall make all other filings or recordings required under the California Laws and the Delaware Laws, to give effect to the Merger.

Section 1.4. Effective Time . The Merger shall become effective at the time of the acceptance of the filing of the Certificates of Merger by the Secretaries of State (the “ Effective Time ”).

Section 1.5. Effects of the Merger . The Merger shall have the effects provided for in the California Laws and the Delaware Laws.

Section 1.6. Certificate of Formation and Operating Agreement . The certificate of formation and the operating agreement of the Surviving Company immediately following the Effective Time shall remain in full force and effect, except that the name of the limited liability company set forth therein shall be changed to the name of the Company.

Section 1.7. Managers of Surviving Company . From and after the Effective Time, the individuals identified on Exhibit B shall be the initial managers of the Surviving Company.

Section 1.8. Merger Consideration .

(a) Merger Consideration . By virtue of the Merger and without any action on the part of the Stockholder, Parent, the Merger Subs or the Company, or their respective stockholders, except as otherwise provided in this Section 1.8, the Stockholder shall be entitled to receive from Parent, in exchange for all shares of Company Common Stock issued and outstanding immediately prior to the Effective Time, an aggregate amount of cash and Parent Common Stock, allocated in accordance with this Section 1.8, equal to the Merger Consideration. “ Merger Consideration ” shall mean $12,246,129.

(b) Allocation of Merger Consideration . At the Effective Time, the Stockholder, after surrender of the stock certificate that represents all of the issued and outstanding shares of Company Common Stock (the “ Company Certificate ”), together with a letter of transmittal duly executed and completed in accordance with the instructions thereto shall be entitled to receive the Merger Consideration in the form of (i) 719,149 shares of Parent Common Stock, calculated based on the Price Per Share (the “ Stock Consideration ”), and cash in the amount equal to $6,646,115.74 (the “ Cash Consideration ”), reduced by the Escrow Amount. At the Effective Time, the Parent shall (y) pay to the Stockholder the Cash Consideration less the Escrow Amount, and shall issue, or cause to be issued, to and in the name of Stockholder, a stock certificate representing the Stock Consideration, and (z) pay to the Escrow Agent $2,000,000.00 in cash (the “ Escrow Amount ”), to be administered pursuant to the Escrow

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Agreement (as hereinafter defined) and the Company Certificate shall forthwith be canceled. Until so surrendered, the Company Certificate shall, upon and following the Effective Time, represent solely the right to receive the Merger Consideration, without interest. Notwithstanding anything in this Agreement to the contrary, the Parties hereto shall use commercially reasonable efforts to adjust the allocation of the Merger Consideration between cash and stock by the minimum extent necessary in order to satisfy the requirements of Treasury Regulations Section 1.368-1(e).

(c) Membership Interests in Merger Sub II. At the Effective Time, each unit of membership interest of Merger Sub II issued and outstanding immediately prior to the Effective Time shall constitute one (1) validly issued unit of membership interest of the Surviving Company.

(d) Effect on Company Common Stock . At the Effective Time, the shares of Company Common Stock converted into the Stockholder’s right to receive the Merger Consideration shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and the Stockholder shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

Section 1.9. Release of Escrow Amount .

(a) On the date that is eighteen (18) months following the Closing Date (the “ Escrow Release Date ”), the amount by which the Escrow Amount exceeds the Escrow Release Date Indemnification Amount as of such date shall be released by the Escrow Agent to the Stockholder; provided , that in the event there is an asserted, but unresolved claim for Damages for which Parent has provided any Claim Notice to the Stockholder pursuant to the provisions of Article 8, Parent may direct the Escrow Agent in accordance with the Escrow Agreement to continue to withhold a portion of the Escrow Amount equal in value to the amount of Damages estimated in good faith by Parent and set forth in such Claim Notice(s). Notwithstanding the foregoing, on the date that is twelve (12) months following the Closing Date (the “ Partial Release Date ”) and if counsel to the Stockholder has executed and delivered to Parent the legal opinion that is attached hereto as Exhibit C , $750,000 of the Escrow Amount (or such lesser amount that is being held in escrow on such date pursuant to the Escrow Agreement) shall be released by the Escrow Agent to the Stockholder, provided , that in the event there is an asserted, but unresolved claim for Damages for which Parent has provided any Claim Notice to the Stockholder pursuant to the provisions of Article 8, Parent may direct the Escrow Agent in accordance with the Escrow Agreement to continue to withhold a portion of the Escrow Amount equal in value to the amount of Damages estimated in good faith by Parent and set forth in such Claim Notice(s).

(b) Following the Escrow Release Date, if any indemnification claim made under this Agreement but not finally resolved by the Partial Release Date or the Escrow Release Date, as the case may be, and with respect to which the Escrow Agent has withheld a portion of the Escrow Amount pursuant to Section 1.9(a) is finally resolved, unless Parent otherwise determines in good faith that the amount withheld with respect to its and the Indemnified Parties’ indemnification claims is less than the amount to which they are entitled to indemnity hereunder, then such excess amount so withheld shall be released to the Stockholder.

Section 1.10. Tax Consequences . The Parties intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a)(i)(A) of the Code, and the Parties adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations; provided , that no Party makes any representations or warranties to any other Party as to whether the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code; provided further , that each of the Parties (i) has reviewed with its own tax advisors the tax consequences of the Merger to each of them, (ii) is relying solely on such advisors and not on any

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statements or representations of the other Party or its agents, and (iii) acknowledges that each Party is responsible for its own tax consequences resulting from the Merger and any other transactions effected in connection therewith or otherwise contemplated in this Agreement.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

OF THE SELLING PARTIES

The Stockholder and the Company (each, a “ Selling Party ” or “ Seller Party ” and together, the “ Selling Parties ”), jointly and severally represent and warrant to the Buyer Parties that the statements contained in this Article 2 are true and correct as of the date of this Agreement, and will be true and correct as of the Closing Date, except as otherwise set forth in the Disclosure Schedule delivered by the Stockholder and the Company to Parent on the date hereof (the “ Disclosure Schedule ”). The Disclosure Schedule will be arranged in paragraphs corresponding to the Sections and subsections contained in this Article 2.

Section 2.1. Organization and Standing . Each of the Franchises listed on Exhibit D attached hereto (each, a “ Franchise ,” and together, the “ Franchises ”) (a) is, if such Franchise is an entity, an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation (which are listed in Section 2.1(a) of the Disclosure Schedule), (b) has all requisite corporate or other power and authority to carry on its business as now being conducted and (c) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, which jurisdictions are listed in Section 2.1(c) of the Disclosure Schedule, except where such failure to be so qualified or licensed would not reasonably be expected to result in a Material Adverse Change to a Franchise. The Seller Parties have made available to Parent and its Representatives complete and correct copies of each Franchise’s Constitutive Documents, stock record books and minute books, if applicable, each of which are true and complete.

Section 2.2. Power and Authority; Binding Agreement .

(a) Subject to the adoption of the plan of merger set forth in this Agreement by the Company’s Board of Directors and the Stockholder’s approval, as the sole stockholder of the Company, (i) the Company has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the Merger and the other transactions contemplated hereby and to perform its obligations hereunder, and (ii) the execution and delivery by the Company of this Agreement and the consummation by the Company of the Merger and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, and no other proceedings on the part of the Seller Parties shall be necessary to authorize this Agreement or to consummate the Merger and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller Parties, and assuming due execution and delivery by the other Parties, constitutes a valid and binding obligation of the Seller Parties, enforceable against the Seller Parties in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors and the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity) (collectively, the “ Bankruptcy Laws and Equitable Principles ”).

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(b) The LeComp Entities have all requisite corporate or other power and authority to execute and deliver that certain Franchise and Asset Sale Agreement by and among Parent, the Surviving Company, LeCompCo., Inc., a California corporation (“ LeComp ”) and Lloyd Eric Cotsen, the sole stockholder of LeComp (“ Cotsen ”), dated as of even date herewith (the “ LeComp Agreement ”), whereby LeComp will sell and transfer to the Surviving Company, among other things, that certain Franchise Agreement by and between Parent and LeComp (the “ LeComp Franchise Agreement ”), and to consummate the transactions contemplated by the LeComp Agreement and to perform their obligations thereunder. The execution and delivery by LeComp and Cotsen (the “ LeComp Entities ”) of the LeComp Agreement and the consummation by the LeComp Entities of the transactions contemplated by the LeComp Agreement have been duly authorized by all necessary corporate or other action on the part of the LeComp Entities, and no other proceedings on the part of the LeComp Entities shall be necessary to authorize the LeComp Agreement or to consummate the transactions contemplated thereby, including, without limitation, the transfer of the LeComp Franchise Agreement. The LeComp Agreement has been duly executed and delivered by the LeComp Entities, and assuming due execution and delivery by the other parties to the LeComp Agreement, constitutes a valid and binding obligation of the LeComp Entities, enforceable against the LeComp Entities in accordance with its terms, subject to Bankruptcy Laws and Equitable Principles.

(c) The Stockholder has all requisite power and authority to execute and deliver that certain Franchise and Asset Sale Agreement by and among Parent, the Surviving Company and the Stockholder, dated as of even date herewith (the “ Kanarek Agreement ,” and together with the LeComp Agreement, the “ Asset Sale Agreements ”), whereby the Stockholder will sell and transfer to the Surviving Company, among other things, certain Franchise Agreements by and between Parent and the Stockholder (the “ Kanarek Franchise Agreements ”) pursuant to which the Stockholder operates test preparation businesses in New Mexico, Utah and Fresno, San Luis Obispo and Kern Counties in California (each, a “ Stockholder Franchise ”), and to consummate the transactions contemplated by the Kanarek Agreement and to perform his obligations thereunder. The execution and delivery by the Stockholder of the Kanarek Agreement and the consummation by the Stockholder of the transactions contemplated by the Kanarek Agreement have been duly authorized by all necessary action on the part of the Stockholder, and no other proceedings on the part of the Stockholder shall be necessary to authorize the Kanarek Agreement or to consummate the transactions contemplated thereby, including, without limitation, the transfer of the Kanarek Franchise Agreements. The Kanarek Agreement has been duly executed and delivered by the Stockholder, and assuming due execution and delivery by the other parties to the Kanarek Agreement, constitutes a valid and binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms, subject to Bankruptcy Laws and Equitable Principles.

Section 2.3. Authorization .

(a) The Board of Directors of the Company, at a meeting duly called and held at which all directors of the Company were present, duly and unanimously adopted resolutions (i) approving the Merger, this Agreement and the other transactions contemplated hereby and adopting the plan of merger set forth in this Agreement, (ii) recommending that the Stockholder, as the sole stockholder of the Company, approve the plan of merger set forth in this Agreement, and (iii) authorizing the Company to enter into this Agreement and to consummate the Merger and the other transactions contemplated hereby, on the terms and subject to the conditions set forth in this Agreement. The Stockholder, as the sole stockholder of the Company, has approved the plan of merger set forth in this Agreement.

(b) The Board of Directors of LeComp, at a meeting duly called and held at which all directors of LeComp were present, duly and unanimously adopted resolutions (i) approving the execution by LeComp of the LeComp Agreement and consummation of the transactions contemplated thereby, on the terms and subject to the conditions set forth in the LeComp Agreement, including, without

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limitation, the transfer of the LeComp Franchise Agreement. Cotsen, as the sole stockholder of LeComp, has approved the transfer of the LeComp Franchise Agreement and has approved the LeComp Agreement and the consummation of the transactions contemplated thereby.

Section 2.4. Capitalization .

(a) The authorized Capital Stock of the Company consists of 100,000 shares of capital stock, no par value (the “ Company Common Stock ”), of which 10,000 shares are issued and outstanding and no shares are held in the treasury of the Company. The authorized Capital Stock of LeComp consists of 20,000 shares of common stock, no par value (the “ LeComp Common Stock ”), of which 100 shares are issued and outstanding and no shares are held in the treasury of LeComp.

(b) The issued and outstanding shares of Company Common Stock are owned of record and beneficially solely by the Stockholder and have been duly authorized and validly issued and are fully paid and non-assessable. The issued and outstanding shares of LeComp Common Stock are owned of record and beneficially solely by Cotsen and have been duly authorized and validly issued and are fully paid and non-assessable. All of the issued and outstanding shares of Company Common Stock and LeComp Common Stock have been offered, issued and sold by the Company and LeComp, as applicable, in compliance in all material respects with all applicable federal and state securities Laws.

(c) There are no stock plans pursuant to which shares of Company Common Stock or shares of LeComp Common Stock have been or may be issued, and no options or other rights to purchase shares of Company Common Stock or LeComp Common Stock have been or may be issued to directors, employees, consultants or any other Persons, nor, except as set forth in Section 2.4(c) of the Disclosure Schedule, are there or have there been any grants of stock appreciation rights, “phantom” or “shadow” stock or other equity incentive or compensation or similar rights entitling any Persons to share in appreciation in the equity value of any Franchise as to which a Franchise has or will have any obligation. Other than this Agreement, there is no contract or other obligation of the Franchises to issue or sell any of their securities.

(d) Except as set forth in Section 2.4(d) of the Disclosure Schedule, each Franchise has no Subsidiaries and does not own or control, directly or indirectly, any shares of capital stock of or any other equity interest in any other Person. There is no holder of Indebtedness of any Franchise having the right to vote on any matters on which stockholders or other owners of a Franchise may vote.

Section 2.5. Non Contravention .

(a) The execution and delivery by the Company of this Agreement, the consummation of the Merger and the other transactions contemplated by this Agreement and the compliance by the Company with the provisions of this Agreement do not and will not result in any violation or breach of, or default (with or without notice or lapse of time or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation, or result in the creation of any Lien other than a Permitted Lien, in or upon any of the properties or assets of the Company under any provision of (i) the Company’s Constitutive Documents, (ii) except as set forth in Section 2.5(a)(i) of the Disclosure Schedule, any loan or credit agreement, bond, debenture, note, mortgage, indenture, guarantee, lease or other Contract to which the Company is a party or by which it or its properties or assets are bound or otherwise under which the Company has rights or benefits or (iii) any Judgment specifically naming the Company or any of its Affiliates or any Law applicable to the Company or its properties or assets. The execution and delivery by LeComp of the LeComp Agreement, the consummation of the transactions contemplated by the LeComp Agreement and the compliance by LeComp with the provisions of the LeComp Agreement and the transfer of the LeComp Franchise Agreement do not and will not

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result in any violation or breach of, or default (with or without notice or lapse of time or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation, or result in the creation of any Lien other than a Permitted Lien, in or upon any of the properties or assets of LeComp under any provision of (i) LeComp’s Constitutive Documents, (ii) except as set forth in Section 2.5(a)(ii) of the Disclosure Schedule, any loan or credit agreement, bond, debenture, note, mortgage, indenture, guarantee, lease or other Contract to which LeComp is a party or by which it or its properties or assets are bound or otherwise under which LeComp has rights or benefits or (iii) any Judgment specifically naming LeComp or any of its Affiliates or any Law applicable to LeComp or its properties or assets. The execution and delivery by the Stockholder of the Kanarek Agreement, the consummation of the transactions contemplated by the Kanarek Agreement and the compliance by the Stockholder with the provisions of the Kanarek Agreement and the transfer of the Kanarek Franchise Agreements do not and will not result in any violation or breach of, or default (with or without notice or lapse of time or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation, or result in the creation of any Lien other than a Permitted Lien, in or upon any of the properties or assets of the Stockholder Franchises under any provision of (i) any Stockholder Franchise’s Constitutive Documents, (ii) except as set forth in Section 2.5(a)(iii) of the Disclosure Schedule, any loan or credit agreement, bond, debenture, note, mortgage, indenture, guarantee, lease or other Contract to which the Stockholder or a Stockholder Franchise is a party or by which it or its properties or assets are bound or otherwise under which the Stockholder or a Stockholder Franchise has rights or benefits or (iii) any Judgment specifically naming the Stockholder or any of his Affiliates or any Stockholder Franchise or any Law applicable to the Stockholder or a Stockholder Franchise or its properties or assets.

(b) No consent, approval, order or authorization of, registration, declaration or filing with, or notice to, any Governmental Entity is required by or with respect to the Company in connection with the execution and delivery by the Company of this Agreement, the consummation by the Company of the Merger and the other transactions contemplated hereby or the compliance by the Company with the provisions of this Agreement, except for (i) the filing of the Certificates of Merger with the Secretaries of State of the State of Delaware and the State of California and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (ii) such other consents, approvals, orders, authorizations, registrations, declarations, filings and notices, the failure of which to be obtained or made, individually or in the aggregate, would not impair in any material respect the ability of the Company to perform its obligations under this Agreement or prevent or materially impede or delay the consummation of the Merger or any of the other transactions contemplated hereby or cause a Material Adverse Change to the Company or the Surviving Company. No consent, approval, order or authorization of, registration, declaration or filing with, or notice to, any Governmental Entity is required by or with respect to LeComp in connection with the execution and delivery by LeComp of the LeComp Agreement, the consummation by LeComp of the transactions contemplated by the LeComp Agreement or the compliance by LeComp with the provisions of the LeComp Agreement, except for such consents, approvals, orders, authorizations, registrations, declarations, filings and notices, the failure of which to be obtained or made, individually or in the aggregate, would not impair in any material respect the ability of LeComp to perform its obligations under the LeComp Agreement or prevent or materially impede or delay the consummation of the transactions contemplated by the LeComp Agreement or cause a Material Adverse Change to LeComp. No consent, approval, order or authorization of, registration, declaration or filing with, or notice to, any Governmental Entity is required by or with respect to the Stockholder or any Stockholder Franchise in connection with the execution and delivery by the Stockholder of the Kanarek Agreement, the consummation by the Stockholder of the transactions contemplated by the Kanarek Agreement or the compliance by the Stockholder with the provisions of the Kanarek Agreement, except for such consents, approvals, orders, authorizations, registrations, declarations, filings and notices, the failure of which to be obtained or made, individually or in the aggregate, would not impair in any material respect the ability of the Stockholder to perform its obligations under the Kanarek Agreement or prevent or materially impede or delay the consummation of the transactions contemplated by the Kanarek Agreement or cause a Material Adverse Change to the Stockholder or any Stockholder Franchise.

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Section 2.6. Compliance with Law . Except as set forth in Section 2.6(a) of the Disclosure Schedule, each of the Franchises is, and since inception has been, in compliance in all material respects with all applicable Laws and Judgments of any Governmental Entity applicable to the businesses or operations of such Franchise. Except as set forth in Section 2.6(b) of the Disclosure Schedule, there is no pending, or to the Seller Parties’ knowledge, threatened claim, demand or investigation alleging a violation by a Franchise of any applicable Law or Judgment of any Governmental Entity applicable to the businesses or operations of the Franchises as of the date hereof.

Section 2.7. Permits . Each of the Franchises validly holds and has in full force and effect all Permits necessary for it to own, lease or operate its properties and assets and to carry on its businesses as now conducted, and there has occurred no material violation of, or default (with or without notice or lapse of time or both) under, or event giving to any other Person any right of termination, amendment or cancellation of, any such Permit. Each of the Franchises has complied in all material respects with the terms and conditions of all Permits issued to or held by it and, to the Seller Parties’ knowledge, such Permits will not be subject to suspension, modification, revocation or non-renewal as a result of the execution and delivery of this Agreement, the Asset Sale Agreements, or the consummation of the Merger or any of the other transactions contemplated hereby or by the Asset Sale Agreements. Section 2.7(a) of the Disclosure Schedule lists each Permit issued or granted to or held by the Company, the failure of which to be obtained would reasonably be expected to impair in any material respect the ability of the Company to perform its obligations under this Agreement or prevent or materially impede or delay the consummation of the Merger or any of the other transactions contemplated hereby or cause a Material Adverse Change. All of the Permits listed in Section 2.7(a) of the Disclosure Schedule are held in the name of the Company, and none are held in the name of any Personnel or agent or otherwise on behalf of the Company. Section 2.7(b) of the Disclosure Schedule lists each Permit issued or granted to or held by LeComp, the failure of which to be obtained would reasonably be expected to impair in any material respect the ability of LeComp to perform its obligations under the LeComp Agreement or prevent or materially impede or delay the consummation of the transactions contemplated thereby or cause a Material Adverse Change. All of the Permits listed in Section 2.7(b) of the Disclosure Schedule are held in the name of LeComp, and none are held in the name of any Personnel or agent or otherwise on behalf of LeComp. Section 2.7(c) of the Disclosure Schedule lists each Permit issued or granted to or held by the Stockholder, the failure of which to be obtained would reasonably be expected to impair in any material respect the ability of the Stockholder to perform its obligations under the Kanarek Agreement or prevent or materially impede or delay the consummation of the transactions contemplated thereby or cause a Material Adverse Change. All of the Permits listed in Section 2.7(c) of the Disclosure Schedule are held in the name of the Stockholder, and none are held in the name of anyone else on behalf of the Stockholder or the Stockholder Franchises.

Section 2.8. Financial Statements .

(a) Attached to Section 2.8 of the Disclosure Schedule are the unaudited statements of income of each of the Franchises as of and for the twelve (12) month periods ended on November 30, 2006 and November 30, 2007 (together, the “ Financial Statements ”). The Financial Statements (a) are consistent with the books and records of the Franchises, as applicable, and (b) present fairly the financial condition and results of operations of each of the Franchises as of the respective dates thereof and for the periods referred to therein.

(b) All accounts receivable of each of the Franchises are current and arose from valid transactions in the Ordinary Course with unrelated third parties. To the Seller Parties’ knowledge, except

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to the extent of reserves for doubtful accounts described in Section 2.8(b) of the Disclosure Schedule, each of the Franchise’s accounts receivable are collectible in full, net of any reserves described in Section 2.8(b) of the Disclosure Schedule.

Section 2.9. Absence of Changes or Events . Since the Most Recent Year End Financials Date, (a) each of the Franchises has conducted its businesses only in the Ordinary Course, (b) except as set forth in Section 2.9 of the Disclosure Schedule, there has occurred no Material Adverse Change with respect to any Franchise, nor any change, circumstance, development, state of facts, event or effect that would reasonably be expected to result in a Material Adverse Change to any Franchise, (c) each of the Franchises has not taken any of the actions that, if taken after the date of this Agreement, would constitute a breach of any of the covenants set forth in Articles 6 or 7, and (d) no Franchise has experienced a decline in revenue of greater than ten percent (10%) during any twelve (12) month trailing period measured against any other trailing twelve (12) month period since the Most Recent Year End Financials Date (in each case, calculated as of the last day of each month).

Section 2.10. Undisclosed Liabilities . No Franchise has any liabilities or obligations of any nature (whether known or unknown, absolute or contingent, liquidated, due, accrued or not, or otherwise), except for such liabilities and obligations (a) disclosed in Section 2.10(a) of the Disclosure Schedule, (b) that are incurred in the Ordinary Course since the Most Recent Year End Financials Date, (c) that are not required to be reflected on a balance sheet prepared in accordance with GAAP, (d) that will be fully satisfied at or before Closing, (e) that are “Excluded Liabilities” as defined in the Asset Sale Agreements or (f) that are set forth in Contracts listed in Section 2.13(a) of the Disclosure Schedule, other than contingent obligations due to any breaches or non-performance thereunder.

Section 2.11. Assets other than Real Property .

(a) Each of the Franchises is the true and lawful owner and has good and valid title to all assets (tangible or intangible) used in the businesses of the Franchises, or, in the case of the Franchises other than the Company, has the right to use assets that are owned or leased by the Company, except those sold or otherwise disposed of for fair value in the Ordinary Course or as a distribution since the Most Recent Year End Financials Date and not in violation of this Agreement, in each case free and clear of all Liens (other than Permitted Liens).

(b) Each of the Franchises owns, leases or has available to it from the Company all tangible assets sufficient for the conduct of its businesses as presently conducted and as presently proposed to be conducted.

(c) The Purchased Assets (as defined in the Asset Sale Agreements) and the assets owned by the Company at the Effective Time together constitute all of the assets and services used by the Franchises as currently operated. The Purchased Assets (as defined in the Asset Sale Agreements) and the assets owned by the Company at the Effective Time are sufficient to enable Merger Sub II and Parent and its Affiliates to operate the Franchises after the Closing in the same manner as operated prior to the Closing.

Section 2.12. Real Property .

(a) Except as set forth in Section 2.12(a) of the Disclosure Schedule, each of the Franchises owns no real property or interests (other than leasehold interests) in real property.

(b) Section 2.12(b) of the Disclosure Schedule lists all real property and interests in real property leased by each of the Franchises (each, a “ Leased Property ”) and lists the term of such lease,

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any extension or expansion options and the rent payable thereunder. The Seller Parties have delivered to Parent complete and accurate copies of all such leases, and any operating agreements relating thereto. With respect to each Leased Property, (i) the applicable Franchise has good and valid title to the leasehold estate relating thereto, free and clear of all Liens, leases, assignments, subleases, easements, covenants, rights-of-way and other material restrictions of any nature whatsoever, other than Permitted Liens, (ii) the lease relating to such Leased Property is in writing and is legal, valid, binding, in full force and effect and enforceable in accordance with its terms, (iii) except as set forth in Section 2.12(b) of the Disclosure Schedule, the lease relating to such Leased Property will, immediately following the Effective Time, continue to be legal, valid, binding, in full force and effect and enforceable in accordance with its terms as in effect on the date hereof, (iv) the applicable Franchise is not and, to the Seller Parties’ knowledge, no other party to the lease relating to such Leased Property is, in material breach or violation of, or in material default under, such lease, (v) no event, occurrence, condition or act has occurred, is pending or, to the Seller Parties’ knowledge is threatened, which, with the giving of notice, lapse of time, or the happening of any further event, occurrence, condition or act, would constitute a material breach or default by the applicable Franchise, or, to the Seller Parties’ knowledge, any other party to such lease, under such lease, or give rise to a right of termination or cancellation under any such leases, (vi) there are no material disputes, oral agreements or forbearance programs in effect as to the lease relating to such Leased Property, (vii) all facilities included in such Leased Property are supplied with utilities and other services adequate for the operation of such facilities as presently operated, (viii) there is no Lien, easement, covenant or other restriction (other than Permitted Liens) applicable to such Leased Property which would reasonably be expected to materially impair the current uses or the occupancy by the Franchise of such Leased Property, (ix) all rents and additional rents due on the lease relating to such Leased Property have been paid, and (x) except as set forth in Section 2.6(a) of the Disclosure Schedule the current use by the applicable Franchise of the facilities located on such Leased Property does not violate any local zoning or similar land use requirement or other Law in any material respect.

Section 2.13. Contracts .

(a) Section 2.13(a) of the Disclosure Schedule lists the following Contracts to which a Franchise is a party or is bound (each such Contract, whether or not set forth in such section of the Disclosure Schedule, a “ Material Contract ”), except for any Contract between Parent and any Franchise:

(i) any employment or consulting Contract, or any employee collective bargaining agreement or other Contract with any labor union or any Personnel;

(ii) any Contract not to compete or otherwise materially restricting the development, manufacture, marketing, distribution or sale of any products of the Company and/or LeComp and, to the extent applicable, products under development (collectively, the “ Products ”) or services;

(iii) any Contract (A) between the Company and the Stockholder, any former holder of Company Common Stock or any Personnel, (B) between LeComp and the Stockholder or the Company, any former holder of capital stock of LeComp or any Personnel and (C) between a Stockholder Franchise and the Stockholder, any former holder of capital stock of a Stockholder Franchise or any Personnel;

(iv) any lease, sublease or similar Contract with any Person under which a Franchise is a lessor or sublessor of, or makes available for use to any Person, (A) any Leased Property or (B) any portion of any premises otherwise occupied by the Franchise, as applicable;

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(v) any lease or similar Contract with any Person under which (A) a Franchise is lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any Person, where the annual payments under any such lease or such Contract exceeds $10,000 or (B) a Franchise is a lessor or sublessor of, or makes available for use by any Person, any tangible personal property owned or leased by the Franchise, other than in those entered into in the Ordinary Course;

(vi) any Contract for the purchase or sale of Products or the furnishing or receipt of services (A) calling for performance over a period of more than one year and which is not terminable by the applicable Franchise, with ninety (90) days’ notice or less, without payment of a termination fee or similar payment, (B) requiring or otherwise involving payment by or to the applicable Franchise of more than an aggregate of $10,000, (C) in which the applicable Franchise has granted manufacturing rights, “most favored nation” pricing provisions or marketing or distribution rights relating to any Products, services or territory and which is not terminable by the applicable Franchise with ninety (90) days notice or less, without payment of a termination fee or similar payment or (D) in which the applicable Franchise has agreed to purchase a minimum quantity of goods or services or has agreed to purchase goods or services exclusively from a certain party;

(vii) any Contract for the disposition of any significant portion of the assets or business of a Franchise or any agreement for the acquisition, directly or indirectly, of the assets or business of any other Person involving payment by or to the Franchise of more than an aggregate of $10,000;

(viii) any Contract for any joint venture or partnership;

(ix) any Contract granting a third party any license to or option on any Franchise Intellectual Property other than in the Ordinary Course, or pursuant to which a Franchise has been granted by a third party any license to any Intellectual Property which would reasonably be expected to require payment in excess of $10,000 a year;

(x) any Contract (other than trade debt incurred in the Ordinary Course) under which a Franchise has borrowed any money from, or issued any note, bond, debenture or other evidence of Indebtedness to, any Person or any note, bond, debenture or other evidence of Indebtedness issued by a Franchise or any of its Affiliates to any Person;

(xi) any Contract (including so-called take-or-pay or “keep well” agreements) under which (A) any Person (including a Franchise) has, directly or indirectly, guaranteed Indebtedness, liabilities or obligations of a Franchise or (B) a Franchise has, directly or indirectly, guaranteed Indebtedness, liabilities or obligations of any Person (in each case other than endorsements for the purpose of collection in the Ordinary Course);

(xii) any Contract under which a Franchise has, directly or indirectly, made any advance, loan, extension of credit or capital contribution to, or other investment in, any Person other than in the Ordinary Course;

(xiii) any Contract providing for indemnification of any Person by a Franchise, other than express indemnities included in standard form sales or service contracts, or license agreements, entered into by a Franchise in the Ordinary Course; and

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(xiv) any Contract under which the consequences of a default or termination would reasonably be expected to result in a Material Adverse Change to a Franchise or the Surviving Company.

(b) Each Material Contract is in full force and effect, and is legal, valid, binding and enforceable in accordance with its terms, subject to Bankruptcy Laws and Equitable Principles. True and complete copies of each Material Contract have been delivered to Parent. There is no material violation, breach or default under any Material Contract by a Franchise or, to the Seller Parties’ knowledge, by any other party thereto, and no event has occurred or condition exists that with the lapse of time or the giving of notice or both would constitute a material default thereunder by the applicable Franchise or, to the Seller Parties’ knowledge, any other party thereto. No notice, waiver, consent or approval is required (or the lack of which would give rise to a right of termination, cancellation or acceleration of, or entitle any party to accelerate, whether after the giving of notice or lapse of time or both, any obligation under the Material Contracts) under or relating to any Material Contract in connection with the execution, delivery and performance of this Agreement or the consummation of the Merger or any of the other transactions contemplated hereby. Immediately following the Effective Time, each Material Contract will continue to be in full force and effect, and valid, binding and enforceable in accordance with its terms subject to Bankruptcy Laws and Equitable Principles.

Section 2.14. Intellectual Property .

(a) Section 2.14(a)(i) of the Disclosure Schedule sets forth a true and complete list of all Intellectual Property of the Company, other than any item that is solely Intellectual Property pursuant to clause (iv) or (v) of the definition of such Intellectual Property or Intellectual Property licensed from Parent. Section 2.14(a)(ii) of the Disclosure Schedule sets forth a true and complete list of all Intellectual Property of LeComp, other than any item that is solely Intellectual Property pursuant to clause (iv) or (v) of the definition of such Intellectual Property or Intellectual Property licensed from Parent. Section 2.14(a)(iii) of the Disclosure Schedule sets forth a true and complete list of all Intellectual Property of the Stockholder Franchises, other than any item that is solely Intellectual Property pursuant to clause (iv) or (v) of the definition of such Intellectual Property or Intellectual Property licensed from Parent.

(b) Each Franchise owns or possesses adequate licenses or other valid rights to use (in each case, free and clear of any Liens) all Intellectual Property used in connection with the business of such Franchise as currently conducted and as conducted since inception.

(c) Except as set forth in Section 2.14(c) of the Disclosure Schedule, all employees of the Franchises, and all contractors involved in the creation or use of Franchise Intellectual Property, have signed nondisclosure and invention assignment agreements. The use by each Franchise of any Intellectual Property owned by any other person is in accordance in all material respects with any applicable license granted by such person (or any person authorized by such person) pursuant to which the Franchise acquired the right to use such Intellectual Property.

(d) Except as set forth in Section 2.14(d) of the Disclosure Schedule, the Franchises do not pay to or receive any royalty from anyone with respect to any Intellectual Property, nor has a Franchise licensed anyone to use any of the Franchise Intellectual Property, other than in connection with the sale of services in the Ordinary Course or pursuant to a license with Parent.

(e) The Franchises have not given or received any notice of any pending violation or infringement of the rights of others with respect to, any Intellectual Property or with respect to any license of the Franchise Intellectual Property.

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(f) No Franchise is subject to any Judgment or settlement which restricts or impairs the use of any Franchise Intellectual Property. No Franchise Intellectual Property, and no services sold or contemplated for sale by a Franchise, violates or infringes upon any Intellectual Property of any third party.

(g) No Franchise has entered into any consent, indemnification, forbearance to sue or settlement agreement with respect to Intellectual Property and no claims have been asserted by any Person with respect to the validity or enforceability of, or a Franchise’s ownership of or right to use, the Franchise Intellectual Property, and to the Seller Parties’ knowledge there is no basis for any such claim.

(h) Each item of Franchise Intellectual Property is valid, has not lapsed and is enforceable. No application, patent or registration relating to the Franchise Intellectual Property has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceeding of which a Franchise has received notice, and all pending applications are in good standing and, to the Seller Parties’ knowledge, not opposed.

(i) The Franchise Intellectual Property is sufficient in all material respects to permit the continued lawful conduct of the business of the Franchises and the Surviving Company in the manner now conducted.

(j) The Company has treated and protected all trade secrets, confidential information or know-how of any Franchise and/or used by any Franchise in its business in the same manner as it has treated and protected its most valuable confidential information, including personal confidential information of the Stockholder.

Section 2.15. Litigation . Except as set forth in Section 2.15 of the Disclosure Schedule, there is no Legal Proceeding pending or, to the Seller Parties’ knowledge, threatened against any Franchise or any of its Affiliates. There are no Judgments outstanding against any of the Franchises or any of their properties or assets, including by or before any Governmental Entity. There is no claim, demand or investigation pending or, to the Seller Parties’ knowledge, threatened against any Franchise, or any Affiliate thereof, or any of their respective properties or assets, including by or before any Governmental Entity, which (a) does or would reasonably be expected to result in a Material Adverse Change to the Franchise, or (b) as of the date hereof, questions the validity of this Agreement or any action to be taken by Parent, the Merger Subs, the Company, LeComp or the Stockholder in connection with the consummation of the transactions contemplated hereby, by the Asset Sale Agreements or could otherwise prevent or delay the consummation of the Merger or the other transactions contemplated by this Agreement or the Asset Sale Agreements.

Section 2.16. Taxes .

(a) All Tax Returns required to be filed by any Franchise have been timely filed and all Taxes owed by any Franchise have been timely paid (whether or not shown as due on a Tax Return).

(b) All Tax Returns filed by any Franchise are true, correct and complete. The charges, accruals and reserves for current Taxes with respect to each Franchise set forth in Section 2.16(b) of the Disclosure Schedule are adequate to cover all Tax liabilities payable or anticipated to be payable in respect of all periods or portions thereof ending on or before the Most Recent Year End Financials Date and such charges, accruals and reserves, as adjusted in accordance with the past custom and practice of the Franchise will be adequate to cover all Tax liabilities payable or anticipated to be payable in respect of all periods or portions thereof ending on or before the Closing Date. All deficiencies resulting from audit examinations of the Tax Returns of any Franchise or otherwise have been paid in full. No Liens for Taxes exist against any Franchise.

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(c) No property of a Franchise is “tax exempt use property” within the meaning of Section 168(h) of the Code.

(d) Section 2.16(d)(i) of the Disclosure Schedule (i) lists all federal, state, local, and foreign income Tax Returns filed with respect to the Company for tax years ending after December 31, 2003, (ii) indicates those Tax Returns that have been audited and (iii) indicates those Tax Returns that currently are the subject of audit. Section 2.16(d)(ii) of the Disclosure Schedule (i) lists all federal, state, local, and foreign income Tax Returns filed with respect to LeComp for tax years ending after October 31, 2003, (ii) indicates those Tax Returns that have been audited and (iii) indicates those Tax Returns that currently are the subject of audit. Section 2.16(d)(iii) of the Disclosure Schedule (i) lists all federal, state, local, and foreign income Tax Returns filed with respect to the Stockholder Franchises for tax years ending after December 31, 2003, (ii) indicates those Tax Returns that have been audited and (iii) indicates those Tax Returns that currently are the subject of audit. There are no actions, suits, proceedings, audits, investigations or claims now proposed or pending against a Franchise concerning the Tax liability of such Franchise. No issue has been raised in any examination by any Governmental Entity with respect to a Franchise which, by application of similar principles, reasonably could be expected to result in a proposed deficiency or increase in Taxes for any other period not so examined.

(e) There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax assessment or deficiency with respect to a Franchise, and, except as set forth in Section 2.16(e) of the Disclosure Schedule, no Franchise has requested any extension of time within which to file any Tax Return, which Tax Return has not yet been filed.

(f) The Franchises have withheld and paid all Taxes required by Law to have been withheld and paid and has complied in all respects with all rules and regulations relating to the withholding or remittance of Taxes (including, without limitation, employee-related Taxes).

(g) No Franchise is a party to any Contract that, individually or collectively, would give rise to any payment (whether in cash or property) that would not be deductible pursuant to Sections 162(a)(1), 162(m), or 280G of the Code.

(h) Except as set forth in Section 2.16(h) of the Disclosure Schedule, no Franchise will be required to recognize for income Tax purposes in a taxable year beginning on or after the Closing Date any amount of income or gain which it would have been required to recognize under the accrual method of accounting in a taxable period ending on or before the close of business on the Closing Date as a result of the installment method of accounting, the completed contract method of accounting, the cash method of accounting or a change in method of accounting.

(i) Since each Franchise’s formation, such Franchise has not constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution qualifying for tax-free treatment under Section 355(a) of the Code.

(j) No Franchise is a real property holding company within the meaning of Section 897 of the Code.

(k) Since each Franchise’s formation, no claim has ever been made by an authority in a jurisdiction where such Franchise does not file Tax Returns that such Franchise is or may be subject to Tax in that jurisdiction.

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(l) No Franchise is a party to any Tax allocation, indemnity or sharing Contract. No Franchise has any liability for Taxes of any Person (i) under Treasury Regulations Section 1.1502-6, (ii) as transferee or successor, (iii) by Contract, or (iv) otherwise. No Franchise has been a member of an “affiliated group” (as that term is defined in the Code) filing a consolidated federal income Tax Return or a California franchise tax return.

(m) No Franchise has participated in a “reportable transaction” within the meaning of Section 1.6011-4(b)(1) of the Treasury Regulations.

(n) Each of the Company and LeComp has made a valid and effective election to be treated as an “S” corporation for federal income Tax purposes and such election has been continuously in effect with respect to all Tax years of each of the Company and LeComp since such entity’s inception as a corporation and remains in effect. There exists no reasonable basis upon which the Internal Revenue Service would be expected to challenge the status of either of the Company or LeComp prior to the Closing as an “S” corporation as that term is defined in Section 1361(a)(1) of the Code. Except as set forth in Section 2.16(n) of the Disclosure Schedule, all states in which any Franchise files Tax Returns based on income recognize such Franchise’s “S” status or provide for an equivalent status for Tax purposes.

Section 2.17. Insurance . The insurance policies owned and maintained by the Franchises and the coverage amounts thereunder are listed in Section 2.17 of the Disclosure Schedule. All such policies are in full force and effect, all premiums due and payable thereon have been paid. No Franchise is liable for retroactive premiums or similar payments related thereto and the Franchises are in compliance with the terms of such policies. There is no claim pending under any such policy as to which coverage has been questioned, denied or disputed by the underwriter of such policy. To the Seller Parties’ knowledge, there has been no notice of cancellation or termination (or any other threatened termination) of, or premium increase with respect to, any such policy. Each such policy will continue to be enforceable and in full force and effect immediately following the Effective Time in accordance with the terms thereof as in effect as of the date hereof.

Section 2.18. Benefit Plans .

(a) Section 2.18(a) of the Disclosure Schedule contains a list and brief description of all Benefit Plans. Except as set forth on Section 2.18(a) of the Disclosure Schedule, no Franchise has established or maintained and has not been and is not obligated to make any contribution to or under or otherwise participate in any Benefit Plan, nor has any Franchise committed or proposed to do so. All Benefit Plans have been established, maintained and sponsored by the applicable Franchise, which has been and is solely responsible for making all employer contributions required to be made to or under any Benefit Plans, if and to the extent any employer contributions are required to be made. No Franchise has any unfunded obligation with respect to any Benefit Plan that has not been accrued.

(b) Each Benefit Plan has been operated and administered in accordance with its terms and applicable Law in all material respects (including but not limited to Laws specifically mentioned in this Section 2.18). All of the Benefit Plans are in compliance in all material respects with the applicable provisions of ERISA, the Code, and other applicable Laws. All reports, returns and similar documents with respect to the Benefit Plans required to be filed with any Governmental Entity or distributed to any Benefit Plan participant, beneficiary, or alternate payee have been duly and timely filed or distributed. There are no lawsuits, actions, termination proceedings or other proceedings pending, or, to the Seller Parties’ knowledge, threatened against or involving any Benefit Plan that, if adversely determined would reasonably be anticipated to result in any liability or obligation on the part of a Franchise and there are no investigations by any Governmental Entity or other claims (except claims for

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benefits payable in the normal operation of the Benefit Plans) pending or, to the Seller Parties’ knowledge, threatened against or involving any Benefit Plan or asserting any rights to benefits under any Benefit Plan for which a Franchise would reasonably be anticipated to be liable. To the Seller Parties’ knowledge, there are no unasserted claims that, if pending or threatened, would be of the type described in this Section 2.18(b) for which it would be reasonably anticipated that a Franchise would have liability. No Franchise has any liability to the IRS with respect to any Benefit Plan, including any liability imposed under Chapter 43 of the Code.

(c) No transaction prohibited by Section 406 of ERISA and no “prohibited transaction” (as defined in Section 4975 of the Code) has occurred with respect to any Benefit Plan (without regard to whether an exemption is available). No Benefit Plan which is also a Pension Plan has been terminated and there have been no “reportable events” (as defined in Section 4043 of ERISA) with respect thereto. No Benefit Plan which is also a Pension Plan is a multiemployer plan (as defined in Section 3(37) of ERISA) or subject to Title IV of ERISA.

(d) No Franchise has offered to provide health or life insurance coverage to any individual, or to the family members of any individual, for any period extending beyond the termination of the individual’s employment by the Franchise, except to the extent required by the health care continuation provisions of ERISA and the Code or similar state benefit continuation Laws. Each Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code, complies in all respects with Sections 601 et seq. and 701 et seq. of ERISA and Section 4980B and Subtitle K of the Code.

(e) Each Benefit Plan (including any such plan covering retirees or other former employees) may be discontinued or terminated without liability on the part of any Franchise, before, on or at any time after the Effective Time.

(f) Except as set forth in Section 2.18(f) of the Disclosure Schedule, neither the execution and delivery of this Agreement, nor the consummation of the Merger or the other transactions contemplated hereby or by the Asset Sale Agreements will result in the payment, vesting, or acceleration of any bonus, stock option or other equity-based award, retirement, severance, job security or similar benefit or any enhanced benefit to any Person.

Section 2.19. Employee and Labor Matters .

(a) There is not, and since the Franchises’ formation there has not been, any labor strike, dispute, work stoppage, slowdown or lockout pending, nor, to the Seller Parties’ knowledge, has any such event been threatened, against any Franchise. No Franchise is a party to any collective bargaining or other labor Contracts with respect to any Personnel and, to the Seller Parties’ knowledge, no union organizational campaign or petition for certification is in progress with respect to the Personnel and no question concerning representation exists respecting such Personnel. No Franchise has any duty to bargain with any union or labor organization or other person purporting to act as the exclusive bargaining representative of any Personnel. Each of the Franchises is not engaged in and has not engaged in or committed any unfair labor practice, and there is no unfair labor practice charge or complaint against any Franchise pending, or, to the knowledge of the Seller Parties, threatened, before the National Labor Relations Board. There are no, and within the last three (3) years there have been no, formal or informal union grievances pending, or, to the Seller Parties’ knowledge, threatened, against any Franchise. There are no, and within the last three (3) years there have been no, pending or, to the Seller Parties’ knowledge, threatened, formal or informal grievances, complaints, lawsuits, actions or charges against any Franchise or any current or former Personnel with respect to labor or employment matters (including, but not limited to, involving allegations of employment discrimination, retaliation, harassment, or wage and hour

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violations) in or before any judicial, regulatory or administrative forum, before the Equal Employment Opportunity Commission or any other Governmental Entity responsible for the investigation, remediation, or prevention of unlawful, unfair or discriminatory employment practices or the enforcement of any labor or employment Laws, under any private dispute resolution procedure or internally. Since each Franchise’s formation, it has not received notice of the intent of any Governmental Entity responsible for the enforcement of any labor or employment Laws to conduct an investigation of the Franchise or of any of their respective labor or employment related policies, practices or procedures or any of the terms and conditions of employment therewith and, to the knowledge of the Seller Parties, no such investigation is in progress, imminent or threatened. Each of the Franchises is not, and within the last three (3) years has not been, subject to any Judgment or injunction by any Governmental Authority or private settlement contract in respect of any labor or employment matters.

(b) Except as set forth in Section 2.19(b) of the Disclosure Schedule, the Franchises have complied with all applicable Laws relating to or governing labor and employment, including, without limitation, all applicable Laws relating to fair employment practices, work place safety and health, mass layoffs and plant closings, terms and conditions of employment, wages and hours, payment of minimum wages and overtime rates, the classification of employees as exempt or non-exempt for wage and hour purposes, the withholding and payment of Taxes from compensation of employees and the payment of premiums and/or benefits under applicable worker compensation Laws, unemployment insurance, employment related record keeping, the classification and treatment of workers as employees or independent contractors, and immigration.

(c) No officer or director of any Franchise is, and, to the Seller Parties’ knowledge, no other employee or Contingent Worker (as hereinafter defined) of any Franchise is, a party to or bound by any Contract, license, covenant or Contract of any nature, or subject to any Judgment of any Governmental Entity, that may interfere with the use of such Person’s efforts to promote the interests of such Franchise, conflict with the business of such Franchise, or the Merger and the other transactions contemplated hereby or the transactions contemplated by the Asset Sale Agreements, or that could reasonably be expected to result in a Material Adverse Change to any Franchise. To the Seller Parties’ knowledge, no activity of any employee or Contingent Worker of a Franchise as or while an employee or Contingent Worker of such Franchise has caused a violation of any employment or consulting Contract, confidentiality agreement, patent disclosure agreement, or other Contract. To the Seller Parties’ knowledge, neither the execution and delivery of this Agreement, nor the conduct of the business of the Franchises by the Personnel, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default (with or without notice or lapse of time or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to a loss of a material benefit under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under any covenant or instrument under which any such employees are now employed.

(d) The Seller Parties have heretofore provided to Parent, and attached hereto in Section 2.19(d)(i) of the Disclosure Schedule is, a true and complete list of the names, positions and rates of compensation of all directors, officers, employees and Contingent Workers of the Franchises, as of the date hereof, showing or describing (as applicable) for each such person’s name, position(s), whether classified as exempt or non-exempt for wage and hour purposes, date of hire, business location, annual remuneration, whether paid on a salary, hourly or commission basis and the actual rates of compensation, average scheduled hours per week, bonuses (and bonus potential) and fringe benefits for the current fiscal year and the most recently completed fiscal year, status (i.e., active or inactive and, if inactive, the type of leave and estimated duration and return to work date), and total amount of bonus, severance or other amounts to be paid to such employee or Contingent Workers at or as a result of the Closing of, or otherwise in connection with, the transactions contemplated hereby. Section 2.19(d)(ii) of the Disclosure Schedule contains a complete and accurate list of all of the independent contractors, consultants,

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temporary employees, leased employees or other servants or agents employed or used with respect to the operation of the business of any Franchise and classified by such Franchise as other than employees or compensated other than through wages paid by the Franchise through its or their payroll department and reported on a form W-4 (“ Contingent Workers ”), showing for each Contingent Worker such individual’s role in the business, fee or compensation arrangement and other material contractual terms with the Franchise. Except as set forth in Section 2.19(d)(iii) of the Disclosure Schedule, (i) all employees are employed on an “at-will” basis and their employment can be terminated at any time for any reason without any amounts being owed to such individual other than with respect to wages accrued before the termination, (ii) all Contingent Workers can be terminated at any time for any reason without any amounts being owed to such individual other than with respect to compensation or payments accrued before the termination and (iii) no employee is on disability or other leave of absence. Each of the Franchises has complied, in all material respects, with all immigration and naturalization Laws governing the employment of personnel by U.S. companies and the employment of non-U.S. nationals in the United States, including the Immigration and Nationality Act 8 U.S.C. Sections 1101 et seq. and its implementing regulations, the Immigration Reform and Control Act of 1986, as amended, and all rules and regulations of the Bureau of Citizenship and Immigration Services of the U.S. Department of Homeland Security (previously the U.S. Immigration and Naturalization Service). Except as set forth in Section 2.19(d)(iv) of the Disclosure Schedule, no Franchise has sponsored any employee for, or otherwise engaged any employee working pursuant to, a non-immigrant visa.

(e) To the extent that any Contingent Workers are employed, used or engaged by a Franchise, such Franchise has properly classified and treated them in accordance with applicable Laws and for purposes of all employee benefit plans and perquisites.

(f) No Franchise is subject to any affirmative action obligations under a