Just 10 days after Kaplan Educational Centers filed a lawsuit against Princeton Review for using false promotional claims to sell books and software, the two parties reached a settlement after a day-long hearing.

The settlement, reached yesterday and effective immediately, mandates that Princeton Review immediately, send all distributors and book retailers corrective stickers, to be placed over all false claims, as well as a letter acknowledging the misstatements.

There are two items which need to be corrected by sticker. The cover of Princeton Review's book Cracking the GMAT CAT 1998 Edition with CD ROM trumpets-in three places-that the CD ROM contains four complete computer adapted practice tests. In reality, the book contains only one test on CD ROM.

The second misstatement is on the box of Princeton Review's software Inside the SAT & ACT 1998 Deluxe Edition Software, which promises two new special features: "Video Feedback that tracks your progress on practice test," as well as the ability to "print the 'Hit Parade' list of the 300 most commonly tested words on the SAT." In actuality, neither feature is included in the product.

"These were clearly not innocent mistakes," said Andy Rosen, chief operating officer for Kaplan Educational Centers.

According to court testimony, although Princeton Review discovered false claims on the cover of its book at the beginning of August, it still decided to continue shipping the remaining half of the inventory to book sellers and distributors.

Similarly, misstatements on the software box were discovered in mid-August, and shipment continued until Kaplan filed the law suit.

Reed Talada, executive director of Princeton Review of Boston, defended his company yesterday.

"The errors were discovered six weeks ago," he said, referring to a phone call from a customer which brought the misstatement to their attention. "We had actually taken steps to correct the error[s] when the lawsuit hit the streets.

"When we received notification from Kaplan, we were not surprised, because we were in the process of fixing them," he added.

According to Talada, part of the Princeton Review's solution was to send out stickers to bookstores and software distributors to correct errors.

Nonetheless, Kaplan said it remains firm in its belief that the Princeton Review did not make a good-faith effort until Kaplan filed a lawsuit.

Kaplan contacted Princeton Review by letter on Sept. 9, shortly after discovering the false claims, said Seppy Basili, Kaplan's educational program director.

Following the letter, the two companies corresponded via telephone, all to no avail. On Sept. 16, Kaplan filed suit.

Princeton Review spokesperson Paul Cohen, in a previous interview, stated that "[this suit] is nothing more than a public relations ploy to stem sales of Princeton Review products."

Kaplan's Basili strongly rejects this claim, nothing that law suits are costly and time-consuming.

"They take a lot of time, so we wouldn't want to do this," he said. "It's a distraction from what we're really here to do." He claims that the law suit was filed to protect customers.

Kaplan and Princeton Review are the two largest educational test preparation companies in the U.S., and law suits between the two are nothing new.

Princeton Review has sued Kaplan several times in the 1990s. Most suits between them center around false advertising, and all of them usually get settled outside of court, Basili said.

Regardless of Kaplan's motives for filing this suit, Princeton Review said it is happy with the settlement reached.

"I'm feeling great," Cohen said. "The settlement puts this silly lawsuit behind us. The settlement did not involve any product recall or liability. We did not intentionally lie to customers-we made an honest mistake, so we're fixing it.

"We are holding shipment pending the new book cover and software packaging, because that's the right thing to do-not because the court told us to do that," he added.

Kaplan's book revenue is expected to double to $8 million this year. At the same time, Princeton Review is convinced that it will not lose customers due to this lawsuit.

"Honestly, I don't expect our sales to change at all," Cohen said. "People buy Princeton Review books or software because they recognize that Princeton Review is the leader in the test preparation industry. Today's decision does not change that. There's a terrific amount of publicity and I think that that actually help sales.