Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE PRINCETON REVIEW, INC.
...................................................................
(Name of Registrant as Specified In Its Charter)
...................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
[The Princeton Review Logo]
April 29, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
'Annual Meeting') of The Princeton Review, Inc., which will be held on Tuesday,
June 11, 2002 at 10:00 a.m. at The Kitano Hotel, located at 66 Park Avenue, New
York, New York 10016.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting of Stockholders and the attached Proxy
Statement.
Whether or not you plan to attend the Annual Meeting, please complete, sign,
date and return the enclosed proxy promptly in the accompanying reply envelope.
If you decide to attend the Annual Meeting and wish to change your proxy vote,
you may do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ John S. Katzman
John S. Katzman
Chairman and Chief Executive Officer
New York, New York
THE PRINCETON REVIEW, INC.
2315 BROADWAY
NEW YORK, NEW YORK 10024
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 2002
-------------------
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders (the
'Annual Meeting') of The Princeton Review, Inc. ('The Princeton Review,' 'we,'
'us,' or 'our') will be held on Tuesday, June 11, 2002 at 10:00 a.m. at The
Kitano Hotel, located at 66 Park Avenue, New York, New York 10016, for the
following purposes:
1. To elect three Class I directors to serve on our Board of Directors until
the 2005 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified;
2. To ratify the selection of Ernst & Young LLP as our independent auditors
for the fiscal year ending December 31, 2002; and
3. To consider and act upon any other matters that may properly be brought
before the Annual Meeting and at any adjournments or postponements
thereof.
Any action may be taken on the foregoing matters at the Annual Meeting on
the date specified above, or on any date or dates to which, by original or later
adjournment, the Annual Meeting may be adjourned or to which the Annual Meeting
may be postponed.
The Board of Directors has fixed the close of business on April 23, 2002 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and at any adjournments or postponements thereof.
Only stockholders of record of our common stock, $.01 par value per share, at
the close of business on that date will be entitled to notice of and to vote at
the Annual Meeting and at any adjournments or postponements thereof. You are
requested to fill in and sign the enclosed form of proxy, which is being
solicited by the Board of Directors, and to mail it promptly in the enclosed
postage-prepaid envelope. Any proxy may be revoked by delivery of a later dated
proxy. Stockholders of record who attend the Annual Meeting may vote in person,
even if they have previously delivered a signed proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mark Chernis
Mark Chernis
Secretary
New York, New York
April 29, 2002
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE
PROVIDED. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
THE PRINCETON REVIEW, INC.
2315 BROADWAY
NEW YORK, NEW YORK 10024
----------------------------
PROXY STATEMENT
----------------------------
FOR 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 2002
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Princeton Review, Inc. ('The Princeton
Review,' 'we,' 'us,' or 'our') for use at the 2002 Annual Meeting of
Stockholders of The Princeton Review to be held on June 11, 2002, and at any
adjournments or postponements thereof (the 'Annual Meeting'). At the Annual
Meeting, stockholders will be asked (1) to vote upon the election of three
Class I directors to our Board of Directors, (2) to ratify the selection of
Ernst & Young LLP as our independent auditors for the fiscal year ending
December 31, 2002, and (3) to act upon any other matters that may properly be
brought before the Annual Meeting and at any adjournments or postponements
thereof.
This Proxy Statement and the accompanying Notice of Annual Meeting and Proxy
Card are first being sent to stockholders on or about May 3, 2002. The Board of
Directors has fixed the close of business on April 23, 2002 as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting (the 'Record Date'). Only stockholders of record of The Princeton
Review's common stock, par value $.01 per share (the 'Common Stock'), at the
close of business on the Record Date will be entitled to notice of and to vote
at the Annual Meeting. As of the Record Date, there were 27,211,770 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. Holders of
Common Stock outstanding as of the close of business on the Record Date will be
entitled to one vote for each share held by them on the Record Date.
The presence, in person or by proxy, of holders of at least a majority of
the total number of outstanding shares of Common Stock entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. The affirmative vote of the holders of a plurality of the shares of
Common Stock cast on the matter at the Annual Meeting (assuming a quorum is
present) is required for the election of Class I directors, and the affirmative
vote of the holders of a majority of the shares of Common Stock cast on the
matter at the Annual Meeting (assuming a quorum is present) for each of the
ratification of our auditors and the approval of any other matters properly
presented at the Annual Meeting is required for stockholder approval. Under
Delaware law, abstentions and broker 'non-votes,' or proxies from brokers or
nominees indicating that such person has not received instructions from the
beneficial owner or other person entitled to vote such shares on a particular
matter with respect to which the broker or nominee does not have discretionary
voting power, will not be counted as votes cast and will have no effect on the
results of the votes.
Our stockholders are requested to complete, sign, date and promptly return
the accompanying Proxy Card in the enclosed postage-prepaid envelope. Shares
represented by a properly executed proxy received prior to the vote at the
Annual Meeting and not revoked will be voted at the Annual Meeting as directed
on the proxy. If a properly executed proxy is submitted and no instructions are
given, the proxy will be voted FOR the election of the three nominees for
Class I directors named in this Proxy Statement, and FOR ratification of the
Board of Directors' selection of Ernst & Young LLP as our independent auditors
for the fiscal year ending December 31, 2002. It is not anticipated that any
matters other than those set forth in the Proxy Statement will be presented at
the Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the discretion of the proxy holders.
A stockholder of record may revoke a proxy at any time before it has been
exercised by filing a written revocation with the Secretary of The Princeton
Review at our address set forth above, by filing a duly executed proxy bearing a
later date, or by appearing in person and voting by ballot at the Annual
Meeting. Any stockholder of record as of the Record Date attending the Annual
Meeting may vote in person whether or not a proxy has been previously given, but
the presence (without further action) of a stockholder at the Annual Meeting
will not constitute revocation of a previously given proxy.
The Princeton Review's 2001 Annual Report, including financial statements
for the fiscal year ended December 31, 2001, accompanies the proxy solicitation
materials. The Annual Report, however, is not part of the proxy solicitation
materials.
PROPOSAL 1: ELECTION OF DIRECTORS
Our Board of Directors currently consists of seven members and is divided
into three classes, Class I, Class II and Class III, with the directors in each
class serving for a term of three years and until their successors are duly
elected and qualified. The term of one class expires at each annual meeting of
stockholders.
At the Annual Meeting, three directors will be elected to serve until the
2005 Annual Meeting and until their successors are duly elected and qualified.
The Board of Directors has nominated Mr. John S. Katzman, Dr. Frederick S.
Humphries and Mr. John C. Reid to serve as Class I directors (the 'Nominees').
Each of the Nominees is currently serving as a Class I director of The Princeton
Review. Dr. Humphries was elected by the Board of Directors in April 2002 to
fill the vacancy on the Board of Directors created when Mr. V. Frank Pottow
resigned from the Board of Directors in January 2002. The Board of Directors
anticipates that each of the Nominees will serve, if elected, as a director.
However, if any person nominated by the Board of Directors is unable to accept
election, the proxies will be voted for the election of such other person or
persons as the Board of Directors may recommend.
The Board of Directors recommends a vote FOR the Nominees.
INFORMATION REGARDING NOMINEES AND DIRECTORS
The following biographical descriptions set forth certain information with
respect to the three Nominees for election as Class I directors at the Annual
Meeting and the continuing directors whose terms expire at the annual meetings
of stockholders in 2003 and 2004, based upon information furnished to us by each
director.
Class I Nominees for Election at 2002 Annual Meeting -- Term to Expire in 2005
John S. Katzman, 42, Chairman and Chief Executive Officer, founded our
company in 1981. Mr. Katzman has served as our Chief Executive Officer and
director since our formation. Mr. Katzman served as our President from 1981
until August 2000. Mr. Katzman is the brother of Richard Katzman, one of the
other members of the Board of Directors. Mr. Katzman is also a director of
Student Advantage, Inc. Mr. Katzman received a BA from Princeton University.
Dr. Frederick S. Humphries, 66, has served as a director of our company
since April 2002. Since January 1, 2002, Dr. Humphries has been President and
Chief Executive Officer of the National Association for Equal Opportunity in
Higher Education, an association of black colleges and universities that focuses
on increasing minority student enrollment. Dr. Humphries has served as a member
of the USDA Task Force of 1890 Land-Grant Institutions in addition to being
involved in various civic and community activities. From 1985 to 2001,
Dr. Humphries was the President of Florida Agricultural and Mechanical
University in Tallahassee, Florida. Dr. Humphries is also a director of Brinker
International, Inc., a company that owns and operates restaurants.
Dr. Humphries received a Ph.D. in physical chemistry from the University of
Pittsburgh, a BS from Florida A&M University, and has been awarded honorary
degrees from Vincennes University
2
of Indiana, Thomas A. Edison State College, Atlantic College & Theological
Seminary (Nassau, Bahamas) and Shaw University.
John C. Reid, 51, has served as a director of our company since March 2000.
Since October, 2001, Mr. Reid has been Entrepreneur-in-Residence at Cedar Street
Group, a venture capital company. From August 1999 to December, 2001, Mr. Reid
was the Chief Executive Officer of CometSystems.com, a company that develops
software for the Internet. From March until June of 2001, Mr. Reid also served
as an executive consultant to LearnNow, Inc., a professional education
management company acquired by Edison Schools, Inc., a private manager of public
schools. From 1996 to 1999, Mr. Reid served as Chief Operating Officer of Edison
Schools, Inc. From 1974 to 1996, Mr. Reid served in the Executive Management of
The Coca-Cola Company, including from 1985 to 1996 as Senior Vice President,
Coca-Cola USA and Chief Environmental Officer, The Coca-Cola Company. Mr. Reid
is also a member of the boards of directors of Tutor.com, Inc. and Magnetic Data
Technologies, L.L.C. Mr. Reid received a BA from Brandeis University and an MS
from Massachusetts Institute of Technology.
Class II Continuing Directors -- Term Expires in 2003
Richard Katzman, 45, has served as a director of our company since 1985.
Since 1997, Mr. Katzman has been the Chairman of the Board and Chief Executive
Officer of Kaz, Inc., a manufacturer of humidifiers, vaporizers and other
consumer appliances. From 1987 to 1997, Mr. Katzman served as President of Kaz,
Inc. Mr. Katzman is the brother of John S. Katzman, the Chairman and Chief
Executive Officer of our company. Mr. Katzman received a BA from Brown
University.
Sheree T. Speakman, 47, has served as a director of our company since
March 2000. Since 2001, Ms. Speakman has been Vice President of Services and
Support at Edmin.com, Inc., an enterprise solutions company focusing on K-12
education. From 1998 to 2001, Ms. Speakman was President and Chief Executive
Officer of Fox River Learning, Inc., an education consulting firm acquired by
Edmin.com in 2001. From 1983 to 1998, Ms. Speakman was a principal at Coopers &
Lybrand LLP where she led their national efforts in K-12 financial analysis and
consulting. Ms. Speakman is also a director of StandardsWork, Inc., an education
consulting company that specializes in standards-driven learning. Ms. Speakman
received an AB from Albion College and an MBA from the University of Chicago.
Class III Continuing Directors -- Term Expires in 2004
Richard Sarnoff, 43, has served as a director of our company since 1998.
Since 2000, Mr. Sarnoff has been President of the Corporate Development Group of
Random House, Inc. From 1998 to 2000, Mr. Sarnoff was Executive Vice President
and Chief Financial Officer of Random House. From 1996 to 1998, Mr. Sarnoff
served as Chief Financial Officer of Bantam Doubleday Dell, a consumer book
publisher, and from 1995 to 1998, he was Senior Vice President, Corporate
Development of Bantam Doubleday Dell. Mr. Sarnoff is also a director of Audible,
Inc., a company that provides spoken audio content, and a member of the board of
the Children's Museum of Manhattan. Mr. Sarnoff received a BA from Princeton
University and an MBA from Harvard Business School. Mr. Sarnoff was elected to
our Board of Directors in accordance with the terms of our stockholders'
agreement which provided that, prior to our initial public offering, Random
House, Inc. was entitled to have one representative serve on our Board of
Directors.
Howard A. Tullman, 56, has served as a director of our company since
March 2000. Since March 2000, Mr. Tullman has been the General Manager of the
Chicago High Tech Investors I, LLC, an Internet-oriented investment fund. From
September 2000 to July 2001, Mr. Tullman served as Chief Executive Officer and
director of Worldwide Xceed Group, Inc., an Internet business consulting
company. Mr. Tullman was hired by the Board of Directors of Worldwide Xceed
Group to reorganize the company. In May 2001, Worldwide Xceed Group filed a
voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code
and was purchased by a third party in July 2001. From September 1996 to
February 2000, Mr. Tullman was the Chief
3
Executive Officer of Tunes.com, Inc. and its predecessors, an Internet music
site he helped found, which was sold to EMusic.com, Inc. From October 1993 to
October 1996, Mr. Tullman was the President and Chief Executive Officer of
Imagination Pilots, Inc., a multimedia software developer he founded in 1993.
Mr. Tullman is the Chairman of the Board of The Cobalt Group, a company that
provides Internet services to automobile dealers and manufacturers, and serves
as a director of Showingtime.com, a company that provides Internet services and
software solutions to the real estate industry. Mr. Tullman received a BA from
Northwestern University and a JD from Northwestern University School of Law.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the 'Exchange Act')
requires our directors and executive officers, and persons who own more than 10%
of a registered class of our equity securities (collectively, 'Section 16
reporting persons'), to file with the Securities and Exchange Commission ('SEC')
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of The Princeton Review. Section 16 reporting
persons are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. To our knowledge, based solely on a review of the
copies of such reports furnished to us and on written representations that no
other reports were required, during the fiscal year ended December 31, 2001, the
Section 16 reporting persons complied with all Section 16(a) filing requirements
applicable to them, with one exception. On October 8, 2001, Ms. Patricia Vance
became Executive Vice President of our Admissions Services division. She filed a
late Initial Statement of Beneficial Ownership of Securities on Form 3 in
November 2001.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met seven times during 2001. Each of the members of
the Board of Directors attended at least 75% of the meetings of the Board of
Directors and of the committees on which he or she served. The Board of
Directors has two standing committees: the audit committee and the compensation
committee. The Board of Directors does not have a standing nominating committee.
During 2001, the audit committee met four times and the compensation committee
met three times.
Audit Committee. On January 18, 2001, the Board of Directors adopted a new
charter for the audit committee (the 'Charter'). A copy of the Charter is
attached to this Proxy Statement as Appendix I. The Charter contains the audit
committee's mandate, membership requirements and duties and obligations. The
audit committee oversees the company's financial accounting and reporting
processes on behalf of the Board of Directors. In accordance with the Charter,
the audit committee recommends an independent accounting firm to audit our
financial statements, reviews the scope and results of audits with our
independent auditors, considers the fees to be paid to our auditors, reviews
with management and our auditors our annual and interim operating results,
considers the adequacy of our internal accounting procedures and controls and
considers our auditors' independence. The audit committee currently consists of
John C. Reid, Sheree T. Speakman and Howard A. Tullman. Each member of the audit
committee is an 'independent director' as defined in Rule 4200 of the listing
standards of the National Association of Securities Dealers, Inc.
Compensation Committee. The primary function of the compensation committee
is to determine management and executive compensation and establish fringe
benefit and other compensation policies. The compensation committee is also
responsible for the administration of our stock incentive plan, including
reviewing management recommendations with respect to grants of awards and taking
other actions as may be required in connection with our compensation and
incentive plans. The compensation committee currently consists of John C. Reid,
Sheree T. Speakman and Howard A. Tullman.
Our by-laws prescribe an advance notice procedure with regard to the
nomination, by a stockholder, of candidates for election as directors (the
'Nomination Procedure'). The by-laws
4
provide that stockholders seeking to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice in
writing. To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 60 days nor more than
90 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders. However, in the event that the annual meeting is called
for a date that is not within 30 days before or after that anniversary date,
notice by the stockholder in order to be timely must be received not later than
the close of business on the tenth day following the date on which notice of the
date of the annual meeting was mailed to stockholders or made public, whichever
first occurs. Our by-laws also specify requirements as to the form and content
of a stockholder's notice. These provisions may preclude stockholders from
making nominations for directors at an annual meeting of stockholders. Any such
nomination should be mailed to: The Princeton Review, Inc. 2315 Broadway, New
York, New York 10024: Attn: Mark Chernis, Secretary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1, 2001 until our initial public offering on June 19, 2001, V.
Frank Pottow, Richard Sarnoff and Howard A. Tullman served as members of our
compensation committee. From the date of our initial public offering and through
the remainder of fiscal 2001, John C. Reid, Sheree T. Speakman and Howard A.
Tullman served as members of our compensation committee. None of the members of
our compensation committee is, or has been, an officer or employee of ours or
any of our subsidiaries. John Katzman, our Chairman and Chief Executive Officer,
serves as a director and member of the compensation committee of Kaz, Inc.
Richard Katzman, Chairman and Chief Executive Officer of Kaz, Inc., serves as a
director of our company.
COMPENSATION OF DIRECTORS
Each of our non-employee directors, other than Dr. Humphries, received an
award of options to purchase 16,920 shares of Common Stock in 2000 as one-time
compensation for services as a director. Richard Katzman received an additional
grant of options to purchase 25,380 shares of common stock in consideration for
past services as our director. These options have an exercise price of $7.39 and
vest as to 25% of the shares subject to the option on the first anniversary of
the date of grant and as to an additional 6.25% of such shares each quarter
thereafter until fully vested. All of the options have a term of 10 years,
subject to earlier termination in the event of termination of service as our
director. Dr. Humphries is expected to shortly receive a grant of stock options
commensurate with the grants made to our other non-employee directors, with an
exercise price equal to the fair market value of our Common Stock on the date of
grant.
Other than as described in the preceding paragraph, to date we have not paid
our directors for their service on our Board of Directors or its committees. We
reimburse our directors for reasonable expenses they incur in attending meetings
of our Board of Directors and its committees.
5
REPORT OF THE AUDIT COMMITTEE
The information contained in this report shall not be deemed to be
'soliciting material' or 'filed' or incorporated by reference in future filings
with the SEC, or subject to the liabilities of Section 18 of the Exchange Act,
except to the extent that we specifically incorporate it by reference into a
document filed under the Securities Act of 1933, as amended, or the Exchange
Act.
The audit committee has, among other activities, (i) reviewed and discussed
with management our audited annual financial statements for the fiscal year
ended December 31, 2001 and interim quarterly results, (ii) discussed with Ernst
& Young LLP, our independent auditors, the matters required to be discussed by
American Institute of Certified Public Accountants Auditing Standards Board on
Auditing Standards No. 61 'Communications with Audit Committees,' and (iii)
considered the independence of Ernst & Young LLP, by having discussions with
representatives of Ernst & Young LLP, and received a letter from them including
disclosures required by the Independence Standards Board Standard No. 1
'Independence Discussions with Audit Committees.' On the basis of the above, the
audit committee has recommended to the Board of Directors that our audited
financial statements for the fiscal year ended December 31, 2001 be included in
our Annual Report on Form 10-K for the year ended December 31, 2001.
SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Sheree T. Speakman, Chairperson
John C. Reid
Howard A. Tullman
6
EXECUTIVE COMPENSATION
The following table shows the total compensation paid for the last three
fiscal years to our Chief Executive Officer and the other four most highly
compensated executive officers whose annual salary and bonus exceeded $100,000
in 2001. The individuals included in the following table are collectively
referred to as the 'Named Executive Officers.'
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------- ------------
John S. Katzman ........................ 2001 $400,000 $ 25,000 -- --
Chairman and Chief Executive Officer 2000 381,181 200,000 -- --
1999 368,433 -- -- --
Mark Chernis ........................... 2001 265,225 75,000 -- --
President, Chief Operating Officer and 2000 255,462 140,125 277,513 $4,654,550(1)
Secretary 1999 228,462 47,273 -- 5,000,000(2)
Stephen Quattrociocchi ................. 2001 252,350 50,000 -- --
Executive Vice President, Test 2000 232,885 57,476 117,285 1,792,164(1)
Preparation Services Division 1999 200,000 -- -- 1,250,000(2)
Bruce Task ............................. 2001 257,300 60,000 -- --
Executive Vice President, Princeton 2000 236,538 86,700 64,549 1,143,873(1)
Review Ventures 1999 196,250 25,000 -- 625,000(2)
Stephen Melvin ......................... 2001 210,000 55,000 100,000 --
Chief Financial Officer and Treasurer 2000 195,000 63,000 143,820 603,539(1)
1999 165,096 30,000 -- 625,000(2)
</Table>
- ---------
(1) Represents the value of shares of our Common Stock, shares of common stock
of Student Advantage, Inc. and cash, all of which were issued to the
executives listed in the above table in exchange for outstanding phantom
stock units ('PSUs') and stock appreciation rights in connection with the
termination of our phantom stock unit and stock appreciation rights plans
and the adoption of our 2000 Stock Incentive Plan as part of our
restructuring.
(2) Represents the value, as of December 31, 1999, of PSUs awarded to each of
the executives listed in the table above during the year then ended. All of
these PSUs were relinquished in connection with the termination of the
phantom stock unit plan and the adoption of our 2000 Stock Incentive Plan as
part of our restructuring.
OPTION GRANTS IN 2001
The following table shows grants of stock options to our Chief Executive
Officer and to the other Named Executive Officers during 2001. The exercise
price per share of each option was not less than the fair market value of the
Common Stock on the date of grant. All options shown in the following table vest
as to 6.25% of the total grant each quarter following the grant date until fully
vested. All of the options have a term of 10 years, subject to earlier
termination in the event of a termination of employment.
Potential realizable values are net of exercise price before taxes and are
based on the assumption that our Common Stock appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
10-year term. These numbers are calculated based on the requirements of the SEC
and do not reflect our estimate of future stock price growth. Unless the market
price of the Common Stock appreciates over the option term, no value will be
realized from the option grants shown in the table below.
7
<Table>
<Caption>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ------- ----------- --------- ---- -- ---
John S. Katzman................... -- -- -- -- -- --
Mark Chernis...................... -- -- -- -- -- --
Stephen Melvin.................... 100,000 21.0% $5.20 10/15/11 $726,104 $1,464,213
Stephen Quattrociocchi............ -- -- -- -- -- --
Bruce Task........................ -- -- -- -- -- --
</Table>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides information on options exercised during 2001,
and options held at year end, by the Named Executive Officers.
<Table>
<Caption>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 2001 YEAR-END AT 2001 YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
John S. Katzman............... -- -- -- -- -- --
Mark Chernis.................. -- -- 134,751 142,762 $168,083 $37,118
Stephen Melvin................ -- -- 62,921 180,899 16,359 266,034
Stephen Quattrociocchi........ -- -- 75,409 41,876 108,070 10,888
Bruce Task.................... -- -- 41,946 22,603 147,456 5,877
</Table>
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of our Named Executive
Officers. The specific material terms of each of these employment agreements are
set forth in the table below. Each of the agreements provides for an annual base
salary that increases by 3% each year and includes a performance bonus
calculated as a percentage of annual base salary. Each agreement provides for an
initial term ending February 14, 2004 with automatic renewal for additional
two-year periods on each termination date of the preceding term of the agreement
until the executive voluntarily terminates employment or until we give written
notice of non-renewal at least six months prior to the anniversary date of the
agreement.
Certain of the employment agreements grant the executive stock options to
purchase shares of our Common Stock at a price equal to the fair market value of
our Common Stock on the grant date. These stock options are subject to the
provisions of our stock incentive plan. The stock options granted to each
executive vest in equal quarterly installments until the fourth anniversary of
the date of the option grant. Regardless of these vesting provisions, the stock
options become 100% exercisable upon the occurrence of a 'change in control,' as
defined in our stock incentive plan.
Under these agreements, if we terminate the executive's employment without
cause or if we do not renew the agreement, we have agreed to pay the executive
his annual base salary, and, in certain cases, to reimburse the executive for
any payments he makes to maintain medical and dental insurance, for a specified
amount of time following termination.
Each executive has agreed not to compete with us in the business of
providing assistance with respect to preparation for standardized examinations
or the college, professional school, or graduate school admissions process for
18 months following the expiration or termination of his agreement. Each
executive has also agreed that for 18 months after the expiration or termination
of his agreement, he will not solicit the services of any of our employees or
our franchisees' employees, and he will not take any action that results, or
might reasonably result, in any employee ceasing to perform services for us or
any of our franchisees and then commencing services for the executive.
8
Certain Material Terms of Employment Agreements with Named Executive Officers
<Table>
<Caption>
PERFORMANCE BONUS
INITIAL AS PERCENTAGE OF NUMBER OF DURATION OF
DATE OF ANNUAL BASE ANNUAL BASE OPTIONS SEVERANCE
EXECUTIVE AGREEMENT SALARY SALARY GRANTED PAYMENTS
--------- --------- ------ ------ ------- --------
John S. Katzman.............. 4/11/02 $400,000 Up to 100% -- 18 months(3)
Mark Chernis................. 4/10/02 320,000 Up to 50% 100,000(1) 18 months(3)
Stephen Melvin............... 10/15/01 250,000 Up to 50% 100,000(2) 10 months
Steve Quattrociocchi......... 4/10/02 275,000 Up to 50% 50,000(1) 12 months
Bruce Task................... 4/15/02 265,225 7.5 - 60% 40,000(1) 12 months(4)
</Table>
- ---------
(1) Stock option exercise price of $7.65 per share.
(2) Stock option exercise price of $5.20 per share.
(3) Severance to be paid on termination also includes reimbursement for medical
and dental insurance payments for the duration of the specified period.
(4) Severance to be paid on termination also includes reimbursement for medical
and dental insurance payments for the number of weeks equal to twice the
number of years Mr. Task was employed by us. Additionally, if Mr. Task
voluntarily terminates his employment, we have agreed to pay him his base
salary for six months following such termination.
REPORT ON EXECUTIVE COMPENSATION
The compensation committee (the 'Committee') of the Board of Directors sets
the compensation of the Chief Executive Officer, considers the design and
effectiveness of the compensation program for the other executive officers of
the company and approves the final compensation package, employment agreements
and stock option grants for all executive officers. The Committee is composed
entirely of outside directors who have never served as officers of The Princeton
Review.
Executive Compensation Objectives and Philosophy. The objective of The
Princeton Review's executive compensation program is to attract, retain and
motivate talented executives who are critical for the continued growth and
success of the company and to align the interests of these executives with those
of our stockholders. In order to achieve this objective, in addition to annual
base salaries, the executive compensation program utilizes a combination of
annual incentives through cash bonuses and long-term incentives through
equity-based compensation. In establishing overall executive compensation
levels, the Committee considers a number of criteria, including the executive's
scope of responsibilities, prior and current period performance, compensation
levels for similar positions at companies in our industry and attainment of
individual and overall company performance objectives. The Princeton Review's
policy is to enter into employment agreements with all executive officers. These
employment agreements are typically for an initial term of two years, renewing
automatically for additional two-year periods, and set forth initial base salary
levels and bonus ranges, with minimum increases provided for within a specified
range.
Base Salary. In establishing base salaries, the Committee primarily
considers prior and current period performance, scope of responsibilities and
compensation levels for similar positions at companies similar to The Princeton
Review. Base salaries are generally specified under employment agreements with
executive officers, providing for minimum yearly increases within a specified
range. Each executive officer's base salary is reviewed annually and adjusted
based upon the specific terms of his or her employment agreement and overall
company and individual performance.
Annual Incentives. In addition to base salaries, executive officers are
eligible to receive annual cash bonuses. Cash bonuses payable to executives are
based primarily upon achievement of specified individual and company performance
objectives. Minimum annual bonus eligibility is generally set forth in the
executive's employment agreement and is expressed as a percentage of base
salary. For the 2001 fiscal year, each executive officer of the company received
a cash bonus,
9
which was determined after an evaluation of the level of attainment of specified
individual and company wide performance goals. The cash bonuses earned by the
Named Executive Officers in fiscal 2001 are discussed above under 'Summary
Compensation Table.'
Long-Term Equity-Based Incentive Awards. Long-term equity-based incentives
are provided by the company to executive officers through the granting of stock
options. Stock option grants are designed to align the executive's interests
with those of the stockholders and provide each executive officer with a
significant incentive to manage the company in a manner which maximizes
stockholder value. Stock options are granted pursuant to The Princeton Review
2000 Stock Incentive Plan, which also authorizes grants of restricted and
deferred stock awards. The Committee determines the size of the stock option
grants according to each executive's position with, and contribution to, the
company and sets a level it considers appropriate to create a meaningful
opportunity for stock ownership. In addition, the Committee takes into account
each individual's potential for future responsibility and promotion, the levels
of equity ownership of executives in similar positions at comparable companies
and the number of options held by that individual at the time of the new grant.
The only executive officer who received an option grant during the fiscal year
2001 was Mr. Melvin. The material terms of the stock options granted to Mr.
Melvin are described above in 'Option Grants in 2001.'
Chief Executive Officer Compensation. The principal factors considered by
the Committee for Mr. Katzman's compensation package are generally the same as
those considered by the Committee in relation to the compensation of the other
executive officers, with the exception that Mr. Katzman's compensation does not
have a long term equity-based incentive component, since Mr. Katzman already
holds a large percentage of the company's stock. Mr. Katzman's base salary for
the fiscal year 2001 was $400,000, which was consistent with the terms of his
then effective employment agreement and was set by the Committee after an
evaluation of the company's performance for the 2000 fiscal year. Mr. Katzman's
employment agreement also provided that his bonus amount for 2001 was to be
between 10% and 100% of his salary for 2001, with the final amount to be
determined by the Board of Directors in its discretion. Notwithstanding the
provisions of his employment agreement, Mr. Katzman accepted a bonus of $25,000
for the 2001 fiscal year in order to maintain total company bonus payments for
the 2001 fiscal year within the budgeted levels. In April 2002, The Princeton
Review entered into a new employment agreement with Mr. Katzman. Mr. Katzman's
new employment agreement, covering his compensation for the 2002 and 2003 fiscal
years, provides that his bonus for those periods is to be calculated utilizing a
formula that takes into account the company's success in achieving certain
statement of operations-based performance objectives and the company's stock
price. The material terms of Mr. Katzman's current employment agreement are
described above under 'Employment Agreements.'
Tax Deductibility of Executive Compensation. Section 162(m) of the Internal
Revenue Code of 1986, as amended, limits the deductibility on The Princeton
Review's tax return of compensation over $1 million to any of the Named
Executive Officers unless, in general, the compensation is paid pursuant to a
plan which is performance-related, non-discretionary and has been approved by
the company's stockholders. The Committee's policy with respect to section
162(m) is to make every reasonable effort to ensure that compensation is
deductible to the extent permitted while simultaneously providing the company's
executives with appropriate compensation for their performance. The Princeton
Review did not pay any compensation during 2001 that would be subject to the
limitations set forth in section 162(m).
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Howard A. Tullman, Chairman
John C. Reid
Sheree T. Speakman
10
STOCK PERFORMANCE GRAPH
The following graph provides a comparison of the cumulative total
stockholder return on our Common Stock for the period from June 19, 2001 (the
date upon which our Common Stock commenced trading on the Nasdaq National
Market) to December 31, 2001 with the cumulative total return for (i) the Nasdaq
Stock Market Composite Index (the 'NASDAQ Index') and (ii) a peer group that we
selected that consists of companies that provide various educational services.
The peer group is composed of Lightspan, Inc. (LSPN), PLATO Learning, Inc.
(TUTR), Renaissance Learning, Inc. (RLRN), Riverdeep Group plc (RVDP), and
Sylvan Learning Systems, Inc. (SLVN) (the 'Peer Index'). Total return values
were calculated based on cumulative total return assuming the investment, at the
closing price on June 19, 2001, of $100 in each of the Common Stock, the NASDAQ
Index and the Peer Index.
[PERFORMANCE GRAPH SHOWING THE FOLLOWING INFORMATION HAS BEEN OMITTED:
6/19/01 12/31/01
------- --------
The Princeton Review, Inc. .............. $100 $80.53
NASDAQ Index............................. $100 $97.88
Peer Index............................... $100 $76.33]
Notwithstanding anything to the contrary set forth in any of our previous
filings under the Securities Act of 1933 or the Exchange Act that might
incorporate future filings made by us under those statutes, the preceding
Compensation Committee Report on Executive Compensation and the Stock
Performance Graph will not be incorporated by reference into any of those prior
filings, nor will such report or graph be incorporated by reference into any
future filings made by us under those statutes.
11
OWNERSHIP OF SECURITIES
The following table shows, as of March 31, 2002, information with respect to
the beneficial ownership of shares of our Common Stock by each of our current
directors or Nominees, each of our Named Executive Officers, each person known
by us to beneficially own more than 5% of our Common Stock, and all of our
directors and executive officers as a group. Beneficial ownership is determined
under the rules of the SEC and includes voting or investment power with respect
to the securities.
Unless indicated otherwise below, the address for each listed director and
officer is The Princeton Review, Inc., 2315 Broadway, New York, New York 10024.
Except as indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them. The number of shares of Common Stock outstanding
used in calculating the percentage for each listed person includes the shares of
Common Stock underlying options held by that person that are exercisable within
60 days following March 31, 2002, but excludes shares of Common Stock underlying
options held by any other person. Percentage of beneficial ownership is based on
27,194,751 shares of Common Stock outstanding as of March 31, 2002.
<Table>
<Caption>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED
------------------------ ----- -----
John S. Katzman(1).......................................... 9,655,835 35.51%
Random House TPR, Inc.(2) .................................. 2,586,631 9.51
1540 Broadway
New York, NY 10036
SGC Partners II, LLC(3) .................................... 3,428,061 12.61
1221 Avenue of the Americas
New York, NY 10020
Mazama Capital Management, Inc.(4) ......................... 1,683,150 6.19
One S.W. Columbia, Suite 1860
Portland, OR 97258
Mark Chernis(5)............................................. 579,461 2.12
Bruce Task(6)............................................... 300,511 1.10
Stephen Melvin(7)........................................... 127,688 *
Stephen Quattrociocchi(8)................................... 208,993 *
Frederick S. Humphries...................................... -- --
Richard Katzman(9).......................................... 28,768 *
John C. Reid(10)............................................ 8,460 *
Richard Sarnoff(11)......................................... 7,403 *
Sheree T. Speakman(10)...................................... 8,460 *
Howard A. Tullman(10)....................................... 19,148 *
All executive officers and directors as a group
(15 persons)(12).......................................... 11,322,943 40.88%
</Table>
- ---------
* Less than one percent.
(1) Includes 102,160 shares held by Mr. Katzman's wife. Mr. Katzman disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest. Also includes 1,369,735 shares held by Katzman Business Holdings,
L.P. and 7 shares held by Katzman Management, Inc. Katzman Management, Inc.
is the general partner of Katzman Business Holdings, L.P. and is wholly
owned by Mr. Katzman.
(2) Random House TPR, Inc. is a wholly-owned subsidiary of Random House, Inc.
(footnotes continued on next page)
12
(footnotes continued from previous page)
(3) SGC Partners II is a wholly-owned subsidiary of SG Merchant Banking Fund,
L.P. The general partner of SG Merchant Banking Fund is SG Capital
Partners, LLC. The managing member of SG Capital Partners is SG Cowen
Securities Corporation. As a result of these relationships, SG Merchant
Banking Fund, SG Capital Partners and SG Cowen Securities Corporation may
each be deemed to share beneficial ownership of these shares. Each of these
entities disclaims beneficial ownership.
(4) Mazama Capital Management, Inc. has sole voting power with respect to
1,454,150 shares and sole power to dispose of or direct the disposition of
1,683,150 shares.
(5) Includes 150,614 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(6) Includes 44,457 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(7) Includes 84,410 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(8) Includes 83,785 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(9) Includes 21,150 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(10) Includes 8,460 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(11) Includes 7,403 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
(12) Includes 501,142 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH RANDOM HOUSE, INC.
During 2001, we derived a total of approximately $2,485,000 in revenue from
royalties, marketing fees, advances, copy editing fees and other fees from
Random House, Inc. under a number of publication agreements. Random House,
through its subsidiary Random House TPR, Inc., beneficially owned approximately
9.5% of our Common Stock, as of March 31, 2002. Richard Sarnoff, President of
the Corporate Development Group of Random House, also serves on our Board of
Directors.
We believe that our transactions with Random House were in our best
interests and were made on terms no less favorable to us than could have been
obtained from unaffiliated third parties.
ACQUISITION OF PRINCETON REVIEW OF BOSTON, INC. AND PRINCETON REVIEW OF NEW
JERSEY, INC.
On March 2, 2001, we acquired the assets comprising the businesses of two of
our former franchisees, Princeton Review of Boston, Inc. and Princeton Review of
New Jersey, Inc. Robert L. Cohen, who became our Executive Vice President, K-12
Services division immediately following this transaction, is co-founder and 50%
owner of Princeton Review of Boston and co-founder and 47.5% owner of Princeton
Review of New Jersey. Upon the consummation of this acquisition, Mr. Cohen
executed an employment agreement with us. In addition, Joel Rubin, the spouse of
Linda Nessim-Rubin, our Executive Vice President, Communications, is an employee
and 5% owner of Princeton Review of New Jersey and is an employee of Princeton
Review of Boston.
The total purchase price paid by us in connection with this acquisition was
approximately $13.8 million and was determined through arm's length negotiations
between us and the sellers,
13
including Mr. Cohen. Approximately $10,175,000 of the purchase price was paid in
cash at the time of the closing and the remaining $3,625,000 was paid by
delivery of two subordinated promissory notes. Mr. Cohen's interest in the
consideration paid by us for the assets of these businesses corresponds to his
percentage ownership in Princeton Review of Boston and Princeton Review of New
Jersey. Mr. Cohen also received a payment from us in the amount of $200,000 in
consideration for the non-competition and non-solicitation restrictions set
forth in the asset purchase agreement relating to the transaction.
Mr. Rubin's interest in the consideration paid by us for the assets of
Princeton Review of New Jersey corresponds to his 5% equity interest in that
company. Mr. Rubin's interest in the consideration paid by us for the assets of
Princeton Review of Boston is governed by a long-term employment agreement that
gives him a right to a bonus equal to 5% of the proceeds from the sale of the
assets of Princeton Review of Boston.
OTHER TRANSACTIONS
Under an employment agreement with Mark Chernis, our President and Chief
Operating Officer, we agreed to lend Mr. Chernis on a fully non-recourse basis
up to an aggregate principal amount of $500,000. The loan is payable in four
consecutive, equal annual installments with the first payment to be made on the
earlier of the fourth anniversary of the loan or 60 days after termination of
employment, subject to earlier prepayment upon the occurrence of specified
events. The loan accrues interest at 7.3% per year and is secured by 178,316
shares of our Common Stock owned by Mr. Chernis. The loan is evidenced by a
promissory note and a pledge and security agreement entered into on November 27,
2001, and a second promissory note entered into on March 7, 2002. As of
March 31, 2002, $500,000 had been advanced and was outstanding under the loan,
and $500,000 is the largest principal amount outstanding since the loan was
made.
Under an employment agreement with Bruce Task, our Executive Vice President,
Princeton Review Ventures, we agreed to lend Mr. Task on a fully non-recourse
basis up to an aggregate principal amount of $500,000. The loan is payable in
four consecutive, equal annual installments with the first payment to be made on
the earlier of the fourth anniversary of the loan or 60 days after termination
of employment, subject to earlier prepayment upon the occurrence of specified
events. The loan accrues interest at 7.3% per year and is secured by 120,750
shares of our Common Stock owned by Mr. Task. The loan is evidenced by a
promissory note and a pledge and security agreement entered into on August 15,
2001. As of March 31, 2002, $500,000 had been advanced and was outstanding under
the loan, and $500,000 is the largest principal amount outstanding since the
loan was made.
Under an employment agreement with Steven Hodas, our Executive Vice
President, Strategic Development, we agreed to lend Mr. Hodas on a fully
non-recourse basis up to an aggregate principal amount of $250,000 for a
purchase of real estate. The loan is for a three-year term subject to earlier
prepayment upon the occurrence of specified events, and accrues interest at 7.3%
per year. The loan does not require Mr. Hodas to pay principal or interest
during the term of the loan and is secured by 53,001 shares of our Common Stock
owned by Mr. Hodas. The loan is evidenced by a promissory note and security
agreement entered into on September 19, 2000. As of March 31, 2002,
approximately $85,000 had been advanced and was outstanding under the loan, and
$85,000 is the largest principal amount outstanding since the loan was made.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of the audit committee of the Board of Directors, the
Board of Directors has appointed Ernst & Young LLP as our independent auditors
for the year ending December 31, 2002 and hereby requests that the stockholders
ratify such appointment.
AUDIT FEES
The aggregate fees billed by Ernst & Young LLP for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended December 31, 2001 and for the
14
reviews of the financial statements included in our Quarterly Reports on Form
10-Q for that year were approximately $250,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Ernst & Young LLP for professional services
rendered for information technology services relating to financial information
systems design and implementation for the fiscal year ended December 31, 2001.
ALL OTHER FEES
The aggregate fees billed by Ernst & Young LLP for services rendered to us,
other than the services described above under 'Audit Fees' and 'Financial
Information Systems Design and Implementation Fees,' for the fiscal year ended
December 31, 2001 were approximately $715,000. These other services consisted
primarily of (i) services rendered in connection with acquisitions made by us
and (ii) services rendered in connection with our initial public offering of
Common Stock in June, 2001, including services provided in the preparation of
our registration statement on Form S-1 filed with the SEC. The audit committee
has considered whether the provision of the non-audit services described herein
is compatible with maintaining the independence of Ernst & Young LLP.
Representatives of Ernst & Young LLP are not expected to be present at the
Annual Meeting.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Ernst & Young LLP as independent auditors.
OTHER MATTERS
SOLICITATION OF PROXIES
The cost of solicitation of proxies in the form enclosed herewith will be
paid by The Princeton Review. In addition to the solicitation of proxies by
mail, our directors, officers and employees may also solicit proxies personally
or by telephone without additional compensation for such activities. We will
also request persons, firms and corporations holding shares in their names or in
the names of their nominees, which are beneficially owned by others, to send
proxy materials to and obtain proxies from such beneficial owners. We will
reimburse such holders for their reasonable expenses.
STOCKHOLDER PROPOSALS
For stockholder proposals to be included in our proxy materials relating to
our Annual Meeting of Stockholders to be held in 2003 (the '2003 Annual
Meeting'), all applicable requirements of Rule 14a-8 promulgated under the
Exchange Act ('Rule 14a-8') must be satisfied and such proposals must be
received by us at our principal executive offices no later than Friday, January
3, 2003.
Stockholders who do not wish to submit a proposal for inclusion in our proxy
materials relating to our 2003 Annual Meeting in accordance with Rule 14a-8 may
submit a proposal for consideration at the 2003 Annual Meeting in accordance
with our bylaws. Such stockholders must provide timely notice in writing. To be
timely, a stockholder's notice must be delivered to or mailed and received at
our principal executive offices not less than 60 days nor more than 90 days
prior to the anniversary date of the Annual Meeting. Accordingly, for our 2003
Annual Meeting, proposals must be received at our principal executive offices
not earlier than Wednesday, March 13, 2003 and not later than Friday, April 12,
2003. However, in the event that the 2003 Annual Meeting is called for a date
that is not within 30 days before or after the anniversary date of the Annual
Meeting, notice by the stockholder in order to be timely must be received not
later than the close of business on the tenth day following the date on which
notice of the date of the 2003 Annual Meeting is mailed to stockholders or made
public, whichever first occurs. Our bylaws also specify requirements as to the
form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders.
15
All notices of proposals by stockholders, whether or not to be included in
our proxy materials, should be mailed to: The Princeton Review, Inc. 2315
Broadway, New York, New York 10024, Attn: Mark Chernis, Secretary.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement that will be presented for action at the
Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mark Chernis
Mark Chernis
Secretary
Dated: April 29, 2002
16
APPENDIX I
THE PRINCETON REVIEW, INC.
AUDIT COMMITTEE CHARTER
(I) ORGANIZATION OF AUDIT COMMITTEE
The operations of the audit committee shall be governed by this charter. The
committee shall review and reassess this charter at least annually and obtain
the approval of the board of directors. The members of the committee shall be
appointed by the board of directors and shall comprise at least three directors,
each of whom are independent of the management and the Company. Members of the
committee shall be considered independent if they have no relationship that, in
the opinion of the board of directors, would interfere with the exercise of
their independent judgement in carrying out the responsibilities of a director.
All committee members shall have a working familiarity with basic financial and
accounting practices and at least one member shall have accounting or related
financial management experience.
(II) POLICY STATEMENT OF THE AUDIT COMMITTEE
The audit committee shall provide assistance to the board of directors in
fulfilling its oversight responsibility to the shareholders, potential
shareholders, the investment community and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs as
established by management and the board of directors. In so doing, it is the
responsibility of the committee to maintain free and open communication between
the committee, independent auditors and management of the Company. In
discharging its oversight role, the committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company and the power to retain outside counsel,
or other experts for this purpose.
(III) RESPONSIBILITIES AND PROCESSES OF THE AUDIT COMMITTEE
The primary responsibilities of the audit committee are to oversee the
Company's financial reporting process on behalf of the board of directors and
report the results of their activities to the board of directors. Management is
responsible for preparing the Company's financial statements, and the
independent auditors are responsible for auditing or reviewing those financial
statements. The committee in carrying out its responsibilities believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and circumstances. The committee should take the appropriate
actions to set the overall corporate 'tone' for quality financial reporting,
sound business risk practices, and ethical behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
1) The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board of directors and the audit committee, as
representatives of the Company's shareholders. The committee shall have
the ultimate authority and responsibility to evaluate and, where
appropriate, replace the independent auditors. The committee shall
discuss with the auditors their independence from management and the
Company and the matters included in the written disclosures required by
the Independence Standards Board. Annually, the committee shall review
and recommend to the board of directors the selection of the Company's
independent auditors, subject to shareholders' approval.
2) The committee shall discuss with the independent auditors the overall
scope and plans for their audit including the adequacy of staffing and
compensation. Also, the committee shall
I-1
discuss with management and the independent auditors the adequacy and
effectiveness of the accounting and financial controls, including the
Company's system to monitor and manage business risk, and legal and
ethical compliance programs. Further, the committee shall meet separately
with the independent auditors, with and without management present, to
discuss the results of their examination.
3) The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purpose of this review.
4) The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgement about the quality,
not just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee shall discuss the results of
the annual audit, the independent auditors' report and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards.
I-2
Appendix II
THE PRINCETON REVIEW, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of The Princeton Review, Inc. (the 'Company')
hereby appoints John S. Katzman, Mark Chernis and Stephen Melvin and each of
them, with power of substitution to each, true and lawful Proxies of the
undersigned and hereby authorizes them to represent and vote, as specified
herein, all shares of common stock of the Company held of record by the
undersigned as of the close of business on April 23, 2002 at the Annual Meeting
of Stockholders of the Company to be held on Tuesday, June 11, 2002 at
10:00 a.m., local time, at The Kitano Hotel, located at 66 Park Avenue, New
York, New York 10016 (the 'Annual Meeting'), and any adjournments or
postponements thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IF NO
DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE THREE NOMINEES OF THE BOARD
OF DIRECTORS LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2. IN THEIR DISCRETION, THE
PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
PROPOSAL 1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD authority to vote
for all nominees listed below
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
John S. Katzman John C. Reid Frederick S. Humphries
Our Board of Directors unanimously recommends a vote FOR each of the
nominees named above.
PROPOSAL 2. To ratify and approve the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending
December 31, 2002.
[ ] FOR PROPOSAL 2 [ ] AGAINST PROPOSAL 2 [ ] ABSTAIN ON PROPOSAL 2
Our Board of Directors unanimously recommends a vote FOR the
approval of Proposal 2.
(see reverse side)
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated April 29, 2002.
Date: _______________________
Signature: __________________
Signature: __________________
(This Proxy should be marked,
dated, signed by the
stockholder(s) exactly as his
or her name appears hereon,
and returned promptly in the
enclosed envelope. Persons
signing in a fiduciary
capacity should so indicate.
If shares are held by joint
tenants or as community
property, both should sign.)
PLEASE SIGN, DATE AND RETURN IMMEDIATELY