On: Monday, 11/16/09, at 6:02pm ET · Effective: 11/17/09 ·Accession #: 950123-9-63219 ·File #:1-07680 ·Correction: This Filing’s “Filed as of” Date was Corrected and “Changed as of” 12/8/09 by the SEC on 12/8/09. ®
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Proxy Statement Pursuant to
Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to
§240.14a-12
VOYAGER LEARNING COMPANY
(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):
þ
No fee required.
o
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:
o
Fee paid previously with preliminary materials.
o
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.
You are cordially invited to attend a special meeting of
stockholders of Voyager Learning Company, a Delaware corporation
(“Voyager”), to be held on December 8, 2009, at
8:00 a.m. local time, at Voyager’s corporate
headquarters, 1800 Valley View Lane, Suite 400, Dallas,
Texas. At the special meeting, you will be asked to consider and
vote on a proposal to adopt the Agreement and Plan of Mergers,
dated as of June 20, 2009 (the “merger
agreement”), by and among Cambium Learning Group, Inc., a
Delaware corporation (formerly known as Cambium-Voyager
Holdings, Inc. and referred to in this document as
“Holdings”), Voyager, Vowel Acquisition Corp., a
Delaware corporation, VSS-Cambium Holdings II Corp., a
Delaware corporation (“Cambium”), Consonant
Acquisition Corp., a Delaware corporation, and Vowel
Representative, LLC, a Delaware limited liability company
(“Stockholders’ Representative”). Upon completion
of the two mergers contemplated by the merger agreement:
•
Voyager and Cambium will become wholly owned subsidiaries of
Holdings, a newly formed holding company;
•
each holder of Voyager common stock outstanding immediately
prior to the effective time of the mergers will be entitled to
receive, for each share of common stock of Voyager held, merger
consideration equal to:
•
at the election of the stockholder, either:
•
one share of Holdings common stock, or
•
$6.50 in cash, subject to proration rules described in the
accompanying proxy statement/prospectus; plus, regardless of the
election made,
•
an amount in cash equal to the amount of specified tax refunds
received by Voyager prior to the closing of the mergers (reduced
by the amount of the Voyager tax refunds contractually required
to be placed in escrow at closing), divided by the total number
of shares of Voyager common stock outstanding immediately prior
to the effective time of the mergers; plus
•
a contingent value right entitling the recipient to receive cash
in an amount equal to the aggregate amount of specified Voyager
tax refunds received after the closing of the mergers and
various other amounts deposited in escrow on or after the
closing date, as reduced by any payments to be made under an
escrow agreement to be entered into in connection with the
merger, with respect to agreed contingencies, a potential
working capital adjustment and Stockholders’ Representative
expenses, divided by the total number of shares of Voyager
common stock outstanding immediately prior to the effective time
of the mergers; and
•
the sole stockholder of Cambium will receive
20,454,312 shares of Holdings common stock, based upon the
ascribed value of $6.50 per share, and a warrant to purchase a
number of shares of Holdings common stock determined by a
formula set forth in the merger agreement; upon completion of
the mergers, the sole stockholder of Cambium will hold
24,300,466 shares of Holdings common stock, 3,846,154 of
which shares will be purchased for $25 million in cash
immediately prior to the effective time of the mergers.
A copy of an election form, by which you have the right to make
the election described above, is being mailed to you separately
by Wells Fargo Shareowner Services. You are encouraged to
read carefully the accompanying proxy statement/prospectus in
its entirety, including the section entitled “Risk
Factors” beginning on page 32.
No public market exists for Holdings common stock. Holdings has
applied to have its common stock listed on the NASDAQ Global
Market under the symbol “ABCD.”
After careful consideration, the Voyager board of directors
has determined that the transactions contemplated by the merger
agreement are in the best interests of the stockholders of
Voyager. Accordingly, the board of directors has unanimously
approved the merger agreement and recommends that all Voyager
stockholders vote for the adoption of the merger agreement. In
making that determination, the board of directors took into
account, among other things, the written opinion, dated
June 20, 2009, of Allen & Company, LLC and the
written opinion, dated June 20, 2009, of Houlihan, Smith
& Company, Inc., financial advisors to Voyager.
Whether or not you plan to attend the special meeting in person,
please be sure to complete, sign and return the enclosed proxy
card as soon as possible in the enclosed postage-paid envelope,
or submit your proxy by telephone or the Internet prior to the
special meeting, so that your shares are represented at the
special meeting and voted in accordance with your wishes. If
your shares are held in a stock brokerage account or by a bank
or other nominee, please follow the instructions that you
receive from your broker, bank or other nominee to vote your
shares. You may, of course, attend the special meeting and vote
in person, even if you have previously returned your proxy card.
Whether or not you return your election form, you must still
complete, sign and return your proxy card in the envelope
provided with it. Please donot return the proxy
card and the election form in the same envelope.
The only securities covered by the accompanying proxy
statement/prospectus are the shares of Holdings common stock to
be issued to Voyager’s stockholders pursuant to the merger
agreement. For each share of Voyager common stock that is
converted into Holdings common stock pursuant to the election
and proration rules described in the accompanying proxy
statement/prospectus, one share of, Holdings common stock will
be issued. The maximum number of shares of Holdings common stock
which may be issued to Voyager’s stockholders pursuant to
the merger agreement is 30,008,655 shares.
Sincerely,
William
E. Oberndorf
Chairman of the Board of
Directors
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued under the accompanying proxy
statement/prospectus or determined that the accompanying proxy
statement/prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
The accompanying proxy statement/prospectus is dated
November 13, 2009 and is first being mailed to the
stockholders of Voyager on or about November 16, 2009.
A special meeting of stockholders of Voyager Learning Company, a
Delaware corporation (“Voyager”), will be held on
December 8, 2009 at 8:00 a.m., at Voyager’s
corporate headquarters, 1800 Valley View Lane, Suite 400,
Dallas, Texas. Only stockholders who hold shares of Voyager
common stock at the close of business on November 4, 2009,
the record date for the special meeting, are entitled to vote at
the special meeting and any adjournments or postponements of the
special meeting.
At the special meeting, you will be asked to consider and vote
upon:
•
the adoption of the Agreement and Plan of Mergers, dated as of
June 20, 2009 (the “merger agreement”), by and
among Cambium Learning Group, Inc., a Delaware corporation
(formerly known as Cambium-Voyager Holdings, Inc. and referred
to in this document as “Holdings”), Voyager, Vowel
Acquisition Corp., a Delaware corporation (“Voyager merger
sub”), VSS-Cambium Holdings II Corp., a Delaware
corporation (“Cambium”), Consonant Acquisition Corp.,
a Delaware corporation (“Cambium merger sub”), and
Vowel Representative, LLC, a Delaware limited liability company;
and
•
the adjournment of the Voyager special meeting, if necessary, to
allow time for further solicitation of proxies if there are
insufficient votes present at the meeting, in person or by
proxy, to adopt the merger agreement.
No other business will be conducted at the special meeting.
These proposals are described more fully in the accompanying
proxy statement/prospectus.
Voyager’s board of directors has unanimously approved the
merger of Voyager merger sub with and into Voyager, the merger
agreement and the transactions contemplated thereby and
recommends that Voyager stockholders vote “FOR”
the adoption of the merger agreement and “FOR”
the proposal to adjourn the meeting if necessary to solicit
additional proxies.
The accompanying proxy statement/prospectus contains detailed
information about Voyager, Cambium, Holdings and the proposed
mergers of Voyager merger sub with and into Voyager and of
Cambium merger sub with and into Cambium. We urge you to read
the proxy statement/prospectus carefully and in its entirety.
For specific instructions on how to vote your shares, see
“THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS” on
page 49 of the accompanying proxy statement/prospectus.
The adoption of the merger agreement requires the approval of
the holders of a majority of the outstanding shares of
Voyager’s common stock entitled to vote thereon as of the
record date for the special meeting. Even if you plan to attend
the special meeting in person, we request that you complete,
sign, date and return the enclosed proxy card in the envelope
provided, or submit your proxy by telephone or the Internet
prior to the special meeting, and thus ensure that your shares
will be represented at the special meeting if you are unable to
attend. If your shares are held in a stock brokerage account or
by a bank or other nominee, please follow the instructions that
you receive from your broker, bank or other nominee to vote your
shares.
If you sign, date and mail your proxy card without indicating
how you wish to vote, your proxy will be voted in favor of the
adoption of the merger agreement and in favor of the proposal to
adjourn the meeting if necessary to solicit additional proxies.
If you fail to return your proxy card or fail to submit your
proxy by telephone or the Internet, or fail to instruct your
broker how to vote, and do not attend the special meeting in
person, the effect will be that your shares will not be counted
for purposes of determining whether a quorum is present at the
special meeting and, if a quorum is present, will have the same
effect as a vote against the
adoption of the merger agreement. If you are a stockholder of
record and you attend the special meeting and wish to vote in
person, you may withdraw your proxy and vote in person.
This proxy statement/prospectus forms a part of a registration
statement on
Form S-4
filed with the U.S. Securities and Exchange Commission by
Cambium Learning Group, Inc., which was formerly known as
Cambium-Voyager Holdings, Inc., and which we refer to as
“Holdings” or “the combined company” in this
proxy statement/prospectus. It constitutes a prospectus of
Holdings under Section 5 of the Securities Act of 1933, as
amended, and the rules thereunder, with respect to the
securities of Holdings described below to be issued or issuable
to the holders of securities of Voyager Learning Company, which
we refer to as “Voyager,” in connection with the
proposed mergers described in this proxy statement/prospectus.
In addition, it constitutes a proxy statement under
Section 14(a) of the Securities Exchange Act of 1934, as
amended, and a notice of meeting with respect to the Voyager
special meeting of stockholders, at which Voyager stockholders
will consider and vote on the merger agreement described herein.
In this proxy statement/prospectus, we generally refer to the
U.S. Securities and Exchange Commission as the SEC, the
Securities Act of 1933, as amended, as the Securities Act, the
Securities Exchange Act of 1934, as amended, as the Exchange Act
and the registration statement on Form S-4 of which this
proxy statement/prospectus is a part as the registration
statement.
The securities to be issued or issuable to the stockholders of
Voyager in the mergers are registered hereunder and consist of
up to 30,008,655 shares of Holdings common stock. This
number is calculated on the assumption that none of the Voyager
stockholders elect to receive cash pursuant to the cash election
provisions of the merger agreement, and includes all shares of
Voyager common stock subject to stock options that are
exercisable prior to the expected closing of the mergers.
The securities to be issued or issuable in the mergers to the
sole stockholder of VSS-Cambium Holdings II Corp., which we
refer to as “Cambium,” are not being registered
hereunder. These securities consist of:
(i) 3,846,154 shares of Holdings common stock that
will be purchased by the sole stockholder of Cambium immediately
prior to the effective time of the proposed mergers at a price
of $6.50 per share (for an aggregate purchase price of
$25 million); (ii) 20,454,312 shares of Holdings
common stock issuable upon completion of the Cambium merger;
(iii) a warrant for the purchase of shares of Holdings
common stock, having an exercise price of $0.01 per share, which
we sometimes refer to as the “Holdings Warrant,” to be
issued to the sole stockholder of Cambium in connection with the
Cambium merger; and (iv) the shares of Holdings common
stock for which the Holdings Warrant may be exercised. We
estimate that the number of shares of Holdings common stock that
will be issuable pursuant to the Holdings Warrant will range
between 492,268 and 894,460 shares, as more particularly
described in this proxy statement/prospectus.
Cambium has supplied all information contained in this proxy
statement/prospectus relating to Cambium and Holdings, and
Voyager has supplied all information contained in this proxy
statement/prospectus relating to Voyager. If you would like to
request documents from Cambium or Voyager, please send a request
in writing or by telephone to either Cambium or Voyager at the
following address or telephone number, as applicable:
If you are requesting
additional information regarding
Holdings, Cambium or Cambium’s subsidiaries:
If you are requesting
additional information regarding
Voyager or Voyager’s subsidiaries:
Cambium Learning, Inc.
313 Speen Street Natick, Massachusetts01760
Attn: David Cappellucci
Telephone:
(508) 647-1340
Voyager Learning Company
1800 Valley View Lane, Suite 400 Dallas, Texas75234
Attn: Todd W. Buchardt, Esq.
Telephone: (214) 932-9500
See “WHERE YOU CAN FIND MORE INFORMATION” on
page 289 for additional sources of information regarding
Voyager.
Please note that copies of the documents provided to you will
not include exhibits. To obtain timely delivery of requested
documents prior to the Voyager special meeting, you must request
them no later than December 1, 2009.
Information contained on the websites of Voyager and Cambium is
expressly not incorporated by reference into this proxy
statement/prospectus.
Note
regarding trademarks
Voyager
Passporttm,
Passport Reading
Journeystm,
Voyager
Pasaportetm,
Learning
A-Ztm,
Reading
A-Ztm,
Raz-Kidstm,
Reading-tutorstm,
Vocabulary
A-Ztm,
Writing
A-Ztm,
ExploreLearningtm,
Science A-Z
tm
and
LearningPagetm
are trademarks of Voyager. The Voyager logo and Voyager
Universal Literacy
System®,
TimeWarp®
Plus, Ticket to
Read®,
Vmath®,
VmathLive®
and
VoyagerU®
are registered trademarks of Voyager.
Language!tm,
Cambium Learning
Technologiestm,
mBooktm
and Classroom
Suitetm
are trademarks of Cambium. The Cambium logo and Cambium
Learning®,
Colleague in the
Classroom®,
The Herman
Method®,
IntelliKeys®,
IntelliTools®,
Kurzweil 3000
Learnstation®,
Kurzweil Educational
Systems®,
LANGUAGE!®,
LETRS®,
Problem Solving Step By
Step®,
Read
Well®,
Reading
Central®,
Rewards®
and Sopris
West®
are registered trademarks of Cambium.
This proxy statement/prospectus also may include trademarks and
trade names owned by other parties, and all other such
trademarks and trade names mentioned in this proxy
statement/prospectus are the property of their respective owners.
This proxy statement/prospectus contains forward-looking
statements that involve risks and uncertainties, as well as
assumptions, that, if proven incorrect or do not materialize,
could cause the results of Cambium, Voyager or the combined
company following the mergers to differ materially from those
expressed or implied by these forward-looking statements.
Forward-looking statements generally are identified by the words
“intend,”“plan,”“may,”“should,”“will,”“project,”“estimate,”“anticipate,”“believe,”“expect,”“continue,”“potential,”“opportunity” and similar
expressions, or the opposites of those words or expressions. All
statements other than statements of historical fact are
statements that could be deemed forward-looking statements. For
example, forward-looking statements include projections of
earnings, revenues, synergies, accretion or other financial
items, such as the financial projections referred to in the
description of the financial advisors’ opinions beginning
on page 81 of this proxy statement/prospectus; any
statements of the plans, strategies and objectives of management
for future operations, including the execution of integration
and restructuring plans and the anticipated timing of filings
and approvals related to the mergers or the closing of the
mergers; any statements concerning proposed new products,
services or developments; any statements regarding future
economic conditions or performance; any statements of belief;
and any statements of assumptions underlying any of the
foregoing. The risks, uncertainties and assumptions referred to
above include:
•
the risk that the transactions contemplated by the merger
agreement will not be completed, including the risk that
required stockholder approvals for the transaction may not be
obtained;
•
the possibility that expected synergies and cost savings will
not be realized;
•
the possibility that the costs of combining Cambium and Voyager
are higher than expected;
•
the possibility that Holdings may not be able to integrate
successfully the business, operations and employees of Cambium
and Voyager;
•
the possibility that revenues following the mergers are lower
than expected;
•
the possibility that competition will increase in the industries
or markets in which Cambium and Voyager operate and in which the
combined company will operate;
•
the possibility that capital market conditions, including the
recent global economic crisis, interest rate volatility and
other limitations on the availability of capital could have an
adverse effect on the combined company’s cost of capital
and its ability to access the capital markets to support
requirements for working capital and the repayment of maturing
debt;
the possibility of adverse changes in the political or
educational environments;
•
the possibility that technological changes are more difficult or
expensive to implement than anticipated;
•
the possibility of adverse changes in the securities markets;
•
the potential loss of key personnel following the mergers;
•
the possibility that Holdings’ securities may not be listed
on the NASDAQ Global Market; and
•
other risks and uncertainties described in the section entitled
“RISK FACTORS” on page 32.
If any of these risks or uncertainties materializes or any of
these assumptions prove incorrect, results of Holdings, Cambium
and Voyager could differ materially from the expectations in
these statements. The forward-looking statements included in
this proxy statement/prospectus are made only as of the date of
this proxy statement/prospectus, and neither Holdings, Cambium
nor Voyager is under any obligation to update its respective
forward-looking statements and neither Holdings, Cambium nor
Voyager intends, and expressly disclaims any obligation, to do
so.
The following are some of the questions that you, as a
stockholder of Voyager, may have regarding the proposed mergers
and the special meeting of Voyager stockholders, which we refer
to in this proxy statement/prospectus as the Voyager special
meeting, and brief answers to those questions. Please note that
the questions and answers set forth below highlight only
selected information from this proxy statement/prospectus and do
not contain all of the information that may be important to you.
Before you decide how to vote on the adoption of the merger
agreement, you are urged to read carefully the entirety of this
proxy statement/prospectus, and the annexes attached to this
proxy statement/prospectus, in order to understand the
transaction, the voting procedures for the Voyager special
meeting and the procedures for making cash and share
elections.
Q:
What is the proposed transaction upon which I am being asked
to vote?
A:
You, as a holder of Voyager common stock, are being asked to
vote to adopt a merger agreement, to which Voyager is a party.
Subject to the terms and conditions of the merger agreement,
Cambium and Voyager will enter into contemporaneous mergers with
newly formed subsidiaries of Holdings, and after the mergers
Cambium and Voyager each will be a wholly owned subsidiary of
Holdings.
Q:
Why am I receiving this proxy statement/prospectus?
A:
In order to complete the mergers, Voyager stockholders must
adopt the merger agreement and all of the other conditions to
the completion of the mergers under the merger agreement must be
satisfied or waived. Voyager will hold the Voyager special
meeting to obtain the required approval of the holders of its
common stock. This proxy statement/prospectus contains important
information about Holdings, Cambium and Voyager, the merger
agreement, the Voyager special meeting, and the Voyager merger
and the Cambium merger, which we refer to together as the
mergers. You should read this proxy statement/prospectus
carefully before deciding how to vote on the adoption of the
merger agreement.
Q:
How many votes do I have?
A:
Each holder of Voyager common stock will be entitled to one vote
for each share held as of the record date on all matters to be
voted upon at the Voyager special meeting.
Q:
What will I receive in the merger?
A:
Each holder of Voyager common stock outstanding immediately
prior to the effective time of the mergers will be entitled to
receive, for each share of common stock of Voyager held, merger
consideration equal to:
• at the election of the stockholder, either:
•
one share of Holdings common stock, or
•
$6.50 in cash, subject to proration rules referred to below;
plus, regardless of the election made,
• an amount in cash equal to the amount of specified
tax refunds received by Voyager prior to the closing of the
mergers (reduced by the amount of the Voyager tax refunds
contractually required to be placed in escrow at closing),
divided by the total number of shares of Voyager common stock
outstanding immediately prior to the effective time of the
mergers, which we estimate to be 29,874,145 shares; plus
• a contingent value right, which we sometimes refer
to as a CVR, which represents the right to receive cash in an
amount equal to the aggregate amount of specified tax refunds
received after the closing of the mergers and various other
amounts deposited in escrow on or after the closing date,
reduced by any payments to be made under an escrow agreement to
be entered into in connection with the mergers, with respect to
agreed contingencies, a potential working capital adjustment and
Stockholders’ Representative expenses, divided by the total
number of shares of Voyager common stock outstanding immediately
prior to the effective time of the mergers. The maximum value of
the CVR cannot be determined at this time. However, the total
amount of the CVR is expected to be not more than
$11 million, and may be substantially less than
$11 million depending on various factors, including events
beyond management’s control.
For more information regarding the determination of fair value
for each of the components of the CVR, please see Note 4 of
the Notes to Unaudited Pro Forma Condensed Combined Financial
Statements as presented under the caption “UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.”
The amount of cash available to satisfy cash elections by
Voyager stockholders will be determined by an agreed formula
that is primarily dependent on the cash generated by Voyager
prior to closing, but the amount of cash available for cash
elections is limited to a maximum of $67.5 million in the
aggregate. If the amount of cash available for the cash
elections is insufficient to accommodate all of the cash
elections made by the Voyager stockholders, then the
stockholders electing to exchange shares for cash will be
subject to a pro-rata reduction in accordance with agreed
procedures set forth in the merger agreement and described in
this proxy statement/prospectus. The shares of Voyager common
stock that are not exchanged for cash will be exchanged for
shares of Holdings common stock. There is no comparable limit on
the extent to which Holdings will honor stock elections. Thus,
if a Voyager stockholder elects to receive Holdings stock in
exchange for all of the stockholder’s shares of Voyager
common stock, that stockholder will not be subject to proration
under the merger agreement and will receive only Holdings common
stock.
Neither the amount of the tax refund distribution nor the
maximum value of the CVR can be determined at this time.
However, the total amount payable in respect of the pre-closing
tax refunds and the CVR, on a combined basis, is expected to be
not less than $0.52 per share and not more than $0.89 per share,
and may be substantially less than $0.89 per share depending on
various factors specified in the merger agreement. The expected
minimum amount payable of $0.52 per share is based on specified
tax refunds of $15.5 million received by Voyager prior to
signing the merger agreement. The expected maximum amount
payable of not more than $0.89 per share is based on the
$15.5 million of specified tax refunds received prior to
signing the merger agreement, plus any pre-closing tax refunds
received between the signing of the merger agreement and the
closing of the mergers to the extent such amount exceeds
$4 million, plus the anticipated maximum amount of the CVR,
which amount is primarily dependent upon Voyager’s success
in collecting tax refunds no later than 18 months after the
effective time of the mergers, the return of amounts that
Voyager is required to deposit with an escrow agent related to
potential liabilities arising under Section 280G of the
Internal Revenue Code, and amounts paid out of the CVR escrow
fund for, among other things, tax refunds that are not
ultimately collected, payment of specified tax liabilities,
third party expenses associated with collecting the tax refunds
and defending against the specified tax liabilities, working
capital adjustments, and Stockholders’ Representative
expenses. The anticipated amount of tax refunds to be received
by Voyager after the execution of the merger agreement is based
on management’s analysis of Voyager’s tax position.
Q:
What percentage of Holdings will be owned by the former
stockholders of Voyager?
A:
The answer to this question will depend upon the elections made
by Voyager stockholders and the amount of cash available for
distribution to Voyager stockholders. The following table shows
the amount of cash and stock consideration that would be
received by Voyager stockholders, in the aggregate, if the cash
available for cash elections is as set forth at the various
assumed levels in the table. The amount of cash available for
elections can not exceed the maximum level in the table, but
could be less than the minimum level in the table, depending
principally upon Voyager’s cash needs during the period
prior to the closing. The table also shows the hypothetical
percentage ownership in Holdings that would be held by the
Voyager stockholders at the specified assumed levels of cash
available for cash elections. The table does not include the
amount of cash to be paid to Voyager stockholders from specified
tax refunds received prior to closing and from the CVRs
described above. The amounts provided are based on 29,874,145
Voyager shares of common stock outstanding on September 30,2009, and 24,300,466 shares of Holdings to be held by the
sole stockholder of Cambium upon completion of the mergers,
3,846,154 of which shares will be purchased by the Cambium
stockholder immediately prior to the effective time of the
mergers for a total of $25 million in cash. These amounts
also assume that each stockholder elects to receive cash for
each share of Voyager common stock held by the stockholder and
that no stockholder exercises appraisal rights
described elsewhere in this proxy statement/prospectus. The
percentages set forth below assume that no portion of the
Holdings Warrant has been exercised.
Shares of
Percentage of
Holdings Common
Holdings Common
Stock to be
Stock to be Owned
Issued to Voyager
by Voyager
Amount of Cash Available for Cash Election
Stockholders
Stockholders
$67,500,000
19,489,530
44.5
%
$65,000,000
19,874,145
45.0
%
$62,500,000
20,258,761
45.5
%
The number of shares of Holdings common stock issuable pursuant
to the Holdings Warrant is based upon the calculation of three
separate amounts, described elsewhere herein as the Cambium
Specified Asset Recoupment Amount, the Additional Share Amount
and the Formula Amount, which are summarized as follows:
•
The Cambium Specified Asset Recoupment Amount is based upon the
net amount of recoveries that Cambium receives on and after
June 1, 2009, including periods after the effective time of
the mergers, with respect to an embezzlement matter that was
discovered by Cambium in April 2008. To date, Cambium has
received net recoveries of approximately $535,000 with respect
to this matter and, although we cannot assure you of the actual
amount of net recoveries that Cambium will receive, management
believes that it is likely that the maximum amount it will be
able to recover is $4,250,000. The Cambium Specified Asset
Recoupment Amount equals 0.45 multiplied by the quotient of the
aggregate net recoveries divided by $6.50. Thus, for purposes of
calculating the Base Amount and Likely Maximum Amount described
below, we have included 37,038 shares in the Base Amount
(correlating to a net recovery of $535,000) and
294,230 shares in the Likely Maximum Amount (correlating to
a net recovery of $4,250,000) with respect to the Cambium
Specified Asset Recoupment Amount.
•
The Additional Share Amount will be calculated over a period
commencing at the effective time of the mergers and ending two
years thereafter. The Additional Share Amount will equal the
number of shares of Voyager common stock, if any, that are
surrendered upon consummation of the Voyager merger in excess of
the sum of the 29,874,145 shares that are known to be
currently outstanding plus the number of shares of Voyager
common stock that are issued upon the exercise of options known
to be currently outstanding, provided that the maximum
Additional Share Amount is capped at a maximum of
145,000 shares. At present, we do not believe that any such
additional shares will be surrendered. Accordingly, for purposes
of calculating the Base Amount below, we have not included any
shares with respect to the Additional Share Amount. Because the
parties agreed to limit the Additional Share Amount to a maximum
of 145,000 shares, we have included 145,000 shares in
the Likely Maximum Amount with respect to the Additional Share
Amount.
•
The Formula Amount adds shares to the Holdings Warrant only if,
prior to completion of the mergers, equity cure payments are
made under Cambium’s existing credit agreements, debt is
retired under those agreements or payments are made to obtain
default-related waivers under those agreements. To date, the
only applicable event is an equity cure payment of $2,959,000
made in August 2009, as disclosed elsewhere in this proxy
statement/prospectus. Cambium does not anticipate making any
further payments covered by the Formula Amount between the date
of this proxy statement/prospectus and the completion of the
mergers. Subject to qualifications that are not relevant to the
equity cure payment that has previously been made, the Formula
Amount equals the equity cure payment of $2,959,000 divided by
$6.50, or 455,230 shares. Because the equity cure payment
has been made and Cambium does not anticipate making any
additional payments that will impact the Formula Amount, we have
included 455,230 shares in both the Base Amount described
below and the Likely Maximum Amount described below with respect
to the Formula Amount.
For the reasons set forth above, we believe that the minimum
number of shares of Holdings common stock to be covered by the
Holdings Warrant (the “Base Amount”) is
492,268 shares and the likely maximum
number of shares of Holdings common stock to be covered by the
Holdings Warrant (the “Likely Maximum Amount”) is
894,460 shares. For further information regarding the
calculation of the shares to be covered by the Holdings Warrant,
see “THE MERGER AGREEMENT — Merger
Consideration — Cambium consideration.”
The table above assumes that the Holdings Warrant is not
exercised. The table below is based on the same assumptions that
underlie the table above except that the table below shows the
percentage of Holdings common stock to be owned by Voyager
stockholders if the Holdings Warrant is exercised with respect
to the Base Amount of 492,268 shares, the Likely Maximum
Amount of 894,460 shares and the midpoint amount of
693,364 shares (the “Midpoint Amount,” which
reflects the midpoint in shares between 492,268 shares and
894,460 shares):
Amount of Cash Available for Cash Election
Percentage of Holdings Common Stock to be Owned by Voyager
Stockholders Assuming that the Holdings Warrant is exercised
for:
492,268
693,364
894,460
Shares
Shares
Shares
(Base Amount)
(Midpoint Amount)
(Likely Maximum Amount)
$67,500,000
44.0
%
43.8
%
43.6
%
$65,000,000
44.5
%
44.3
%
44.1
%
$62,500,000
45.0
%
44.8
%
44.6
%
The following table shows the amount of cash and stock
consideration that would be received by a Voyager stockholder
owning 1,000 shares of Voyager common stock if the cash
available for cash elections is as set forth at the various
assumed levels in the table. The table does not include the
amount of cash to be paid to Voyager stockholders from certain
tax refunds received prior to closing and from the CVRs
described above. The amounts shown are based on
29,874,145 shares of Voyager common stock outstanding as of
September 30, 2009. These amounts also assume that each
Voyager stockholder elects to receive cash for each share of
Voyager common stock held by the stockholder and that no
stockholder exercises appraisal rights.
Amount of Cash Available for
Shares of Holdings
Cash Elections
Cash Consideration
Common Stock
$67,500,000
$
2,255.50
653
$65,000,000
$
2,171.00
666
$62,500,000
$
2,086.50
679
Q:
How and when do I make a cash election or a share
election?
A:
Wells Fargo Shareowner Services is mailing a form of election to
Voyager stockholders separate from this proxy
statement/prospectus. You should carefully review and follow the
instructions accompanying the form of election. To make a cash
election or a share election, Voyager stockholders of record
must properly complete and sign the form of election and must
send the completed form of election to Wells Fargo Bank, N.A.,
the exchange agent, to one of the following addresses:
By U.S. Mail
to:
By Overnight Courier or
Hand-Delivery to:
Wells Fargo Shareowner Services
Corporate Actions Department
P.O. Box 64858 St. Paul, MN55164-0858
Wells Fargo Shareowner Services
Corporate Actions Department
161 North Concord Exchange South St. Paul, MN55075
The election form must be received by the exchange agent on or
before 5:00 p.m., New York City time, on December 7,2009, the business day immediately prior to the date of the
Voyager special meeting. We refer to that time and date as the
election deadline. Please do not return the election form in the
same envelope with the proxy card. Any questions regarding the
process for making cash or share elections should be directed to:
Wells Fargo Bank, N.A.
Shareholder Relations Department
1-877-262-8260
If you own Voyager shares of common stock in “street
name” through a bank, broker or other nominee and you wish
to make an election, you will receive or should seek
instructions from the financial institution holding your shares
concerning how to make your election. “Street name”
holders may be subject to an election deadline earlier than the
general deadline of the business day immediately prior to the
date of the Voyager special meeting. Therefore, you should
carefully read any materials you receive from your bank, broker
or other nominee.
The conversion of Voyager shares into the right to receive the
applicable merger consideration will occur automatically at the
effective time of the mergers. The exchange agent will, as soon
as reasonably practicable after the effective time of the
mergers, exchange Voyager shares for the applicable merger
consideration to be received in the mergers pursuant to the
terms of the merger agreement.
Q:
Can I elect to receive cash consideration for a portion of my
Voyager shares and stock consideration for my remaining Voyager
shares?
A:
Yes. The form of election allows you to make
an election for cash consideration or share consideration for
all or any portion of your shares of Voyager common stock.
Q:
Can I change my election after the form of election has been
submitted to the exchange agent?
A:
Yes. Voyager stockholders may change their
election prior to the election deadline by submitting a written
notice of revocation to the exchange agent or by submitting new
election materials bearing a later date. Revocations must
specify the name in which shares are registered on
Voyager’s stock transfer books and other information that
the exchange agent may request. If Voyager stockholders wish to
submit a new election, they must do so in accordance with the
election procedures described in this proxy statement/prospectus
and the form of election. Voyager stockholders who instruct a
broker, bank or other nominee to submit an election for their
shares must follow the directions of the broker, bank or other
nominee for changing those instructions. Whether you change
your election by submitting a written notice of revocation or by
submitting new, later-dated election materials, the notice or
materials must be received by the exchange agent by the election
deadline in order for the revocation to be valid.
Q:
Can I sell or otherwise transfer my shares of Voyager common
stock after I make an election?
A:
Yes. However, by selling or otherwise
transferring your shares, you will be deemed to have revoked
your election. The buyer or transferee will be deemed to have
made no election unless the buyer or transferee submits a form
of election prior to the election deadline.
Q:
What will happen if I do not make an election or my form of
election is not received by the exchange agent before the
election deadline?
A:
If the exchange agent does not receive a properly completed form
of election from you before the election deadline, or if you
submit an election form but do not make an election between
stock or cash, your shares will be deemed to be “No
Election Shares” and you will be treated in the same manner
as if you had elected to receive solely Holdings common stock
upon completion of the mergers in exchange for all of your
Voyager common stock.
If you are a Voyager stockholder and you do not make a valid
election with respect to Voyager shares you own of record and
have not exercised your appraisal rights, then, after completion
of the mergers, you will receive written instructions from the
exchange agent on how to exchange your Voyager stock
certificates for the shares of Holdings common stock that you
are entitled to receive in the mergers as a non-electing Voyager
stockholder.
Q:
May I submit a form of election if I vote against the
adoption of the merger agreement?
A:
Yes. Voyager stockholders may submit a form of
election even if they vote against the adoption of the merger
agreement.
If I submit my election form, do I still need to send in my
proxy card?
A:
Yes. The election form communicates to the
exchange agent the form of consideration you desire to receive
in the transaction, if the transaction is approved by the
Voyager stockholders. The completion of your proxy card casts
your vote, as a Voyager stockholder, either for, against or
abstaining from voting on, adoption of the merger agreement. The
proxy cards are received and tabulated by Voyager’s
transfer agent, which is Computershare Investor Services. The
election forms are received and processed by Wells Fargo
Shareowner Services, which is a different organization from the
transfer agent. To be sure your proxy is properly received and
counted, please be certain to complete, sign and return the
proxy card in the envelope provided with it, which will be
addressed to Computershare Investor Services.
Q:
Can I return the proxy card and the election form
together?
A:
No. Your completion of the proxy card casts
your vote, as a Voyager stockholder, either for, against or
abstaining from voting on, adoption of the merger agreement. The
proxy cards are received and tabulated by Voyager’s
transfer agent, which is Computershare Investor Services. The
election forms are received and processed by Wells Fargo
Shareowner Services, which is a different organization from the
transfer agent. To be sure your proxy card is properly received
and counted, please be certain to complete, sign and return the
proxy card in the envelope provided with it, which will be
addressed to Computershare Investor Services. Please send the
election form in the envelope that accompanied it, which will be
addressed to Wells Fargo Shareowner Services.
Q:
When do you expect the mergers to be completed?
A:
The parties are working to complete the mergers promptly after
the Voyager stockholder meeting is completed, assuming that the
requisite stockholder vote for adopting the merger agreement is
obtained. It is possible, however, that factors outside of the
control of Cambium, Voyager or Holdings could require the
parties to complete the mergers at a later time, or prevent the
parties from completing the mergers at all.
Q:
What effects will the proposed mergers have on Voyager?
A:
Upon completion of the proposed mergers, Voyager will cease to
be a publicly traded company and will be wholly owned by
Holdings, which means that Holdings will be the only stockholder
of Voyager. As a result, if you receive shares of Holdings
common stock upon completion of the Voyager merger, you will own
shares in Holdings only and will not directly own any shares in
Voyager. Following completion of the mergers, the registration
of Voyager’s common stock and its reporting obligations
with respect to its common stock under the Exchange Act will be
terminated. In addition, upon completion of the proposed
mergers, shares of Voyager common stock will no longer be quoted
on the Pink Sheets Electronic Quotation Service, which we refer
to as the Pink Sheets, or any other stock exchange or quotation
system. Although you will no longer be a stockholder of Voyager,
if you receive Holdings common stock as part of your merger
consideration, you will continue to have an indirect interest in
Voyager and you also will have an indirect interest in Cambium,
in both cases through your ownership of Holdings common stock.
If you become a Holdings stockholder, you can expect that the
value of your investment will depend upon the performance of
both Cambium and Voyager, and Holdings’ ability to
integrate the two companies.
Q:
What effects will the proposed mergers have on Holdings?
A:
Upon completion of the proposed mergers, Holdings will become
the holding company of Cambium and Voyager and will become a new
public company. Although not required as a condition to closing,
Holdings expects that the shares of Holdings common stock issued
in connection with the mergers to the stockholders of Cambium
and Voyager will be listed on the NASDAQ Global Market.
Q:
What happens if the mergers are not completed?
A:
If the merger agreement is not approved by Voyager stockholders,
or if the mergers are not completed for any other reason,
Voyager stockholders will not receive any payment for their
shares of Voyager common stock pursuant to the merger agreement
or otherwise. Instead, Voyager will remain a public company and
Voyager expects that its common stock will continue to be
registered under the Exchange Act and traded
or quoted on the Pink Sheets or other stock exchange or
automated quotation system. In specified circumstances, either
Voyager or Cambium may be required to pay to the other party a
termination fee, in each case as described in “THE MERGER
AGREEMENT — Termination and Termination Fees” on
page 141.
Q:
Where can I find information about Cambium and Voyager?
A:
You can find information about Cambium and Voyager by reading
this proxy statement/prospectus, including the sections entitled
“INFORMATION ABOUT CAMBIUM’S BUSINESS” and
“INFORMATION ABOUT VOYAGER’S BUSINESS” on
pages 205 and 248, respectively. You can also find
information about Voyager in the documents described in the
section entitled “WHERE YOU CAN FIND MORE INFORMATION”
on page 289.
Q:
What stockholder approvals are required to complete the
transaction?
A:
A majority of the outstanding shares of Voyager common stock
entitled to vote at the Voyager special meeting must vote
“FOR” the adoption of the merger agreement in order
for the transaction to be completed.
Q:
What will happen to options to acquire Voyager common
stock?
A:
Each option to purchase shares of Voyager common stock granted
under Voyager’s employee and director equity compensation
plans or otherwise that is not terminated as of the effective
time of the mergers will, upon completion of the mergers, be
converted into an option to acquire, on the same terms and
conditions (including applicable vesting provisions) as were
applicable under the Voyager stock option, that number of shares
of Holdings common stock equal to the number of shares of
Voyager common stock subject to the Voyager stock option
immediately prior to the effective time of the transaction, at a
price per share equal to the per-share exercise price applicable
to the Voyager stock option, and the converted option will be
assumed by Holdings upon completion of the transaction. For
additional information, see “THE MERGER
AGREEMENT — Treatment of Voyager Stock Options and
Stock Appreciation Rights” on page 124.
Q:
What do I need to do now?
A:
After you carefully read this proxy statement/prospectus, you
should mail your signed proxy card in the enclosed return
envelope, or submit your proxy by telephone or through the
Internet in accordance with the instructions on the proxy card.
In order to assure that your vote is recorded, please vote your
proxy as soon as possible even if you plan to attend the Voyager
special meeting in person. If you own your shares in
“street name” through a bank, broker or other nominee,
you must instruct your bank, broker or other nominee how to vote
your shares using the enclosed voting instruction card. As
mentioned, for your convenience, Internet and telephone voting
is available in accordance with the instructions on the voting
instruction card. You should also make sure that you submit your
election to receive cash and/or shares of Holdings common stock
prior to the election deadline. Please be sure to submit your
election form in the envelope that was provided with the
election form; please DO NOT return it together with your proxy
card.
Q:
How does my participation in the Voyager special meeting in
person or by proxy affect quorum requirements?
A:
The transaction of Voyager business at the Voyager special
meeting requires a quorum, which will be established by the
presence in person or by proxy of a majority of the outstanding
shares of Voyager common stock entitled to vote at the Voyager
special meeting. If you do not return your proxy card or submit
your proxy by telephone or through the Internet or vote in
person at the Voyager special meeting, it will be more difficult
for Voyager to obtain the necessary quorum to transact business
at the Voyager special meeting. In addition, your failure to
participate in the Voyager special meeting in person or by proxy
will have the same effect as a vote against the adoption of the
merger agreement.
Q:
How does the Voyager board of directors recommend I vote?
After careful consideration, Voyager’s board of directors
unanimously recommends that Voyager stockholders vote
“FOR” the proposal to adopt the merger
agreement. For a description of the reasons underlying the
recommendation of Voyager’s board of directors, see
“THE MERGERS — Voyager’s Reasons for
the Voyager Merger; Consideration of the Voyager Merger by
Voyager’s Board of Directors” on page 78.
Voyager’s board also unanimously recommends that Voyager
stockholders vote “FOR” the proposal to approve
the adjournment of the Voyager special meeting, if necessary, to
allow time for further solicitation of proxies if there are
insufficient votes present at the meeting, in person or by
proxy, to adopt the merger agreement.
Q:
How many shares of Voyager common stock are beneficially
owned by Voyager’s directors and executive officers as of
the record date?
A:
Directors and executive officers of Voyager beneficially owned
an aggregate of 3,648,117 shares of Voyager common stock on
the record date, including outstanding options to purchase
105,910 shares of common stock, all of which are
exercisable. All of these shares represent approximately 12.17%
of the total voting power of Voyager’s common stock as of
the record date.
Q:
Have any Voyager stockholders committed to vote in favor of
the merger agreement?
A:
Yes. In connection with the transactions
contemplated by the merger agreement, SPO Partners II, L.P. and
various SPO related parties and Keystone Group, L.P. and a
Keystone related party, each of which is a Voyager stockholder,
have each entered into a voting and support agreement with
Holdings and Cambium, under which each stockholder has granted a
proxy to a current and a former officer of Veronis Suhler
Stevenson, or VSS, and has undertaken to vote its shares in
favor of the Voyager merger and the merger agreement, unless the
merger agreement has been terminated. The shares of Voyager
common stock covered by these agreements represented 20.5% of
the outstanding shares of Voyager common stock as of the date
the merger agreement was signed and 20.5% as of the record date
for the Voyager special meeting.
Q:
As a Voyager stockholder, how can I vote?
A:
You may vote “FOR” or “AGAINST” or abstain
from voting for any of the proposals submitted to Voyager
stockholders. Votes will be counted by the inspector of
elections appointed for the Voyager special meeting. Registered
stockholders as of the record date may vote in person at the
Voyager special meeting or by one of the following methods:
• completing, signing and dating the enclosed proxy
card and returning it in the enclosed prepaid envelope;
• calling the toll-free telephone number on the proxy
card and following the recorded instructions; or
• through the Internet by following the instructions
provided on the proxy card.
Stockholders who hold shares of Voyager common stock in
“street name” may vote by following the instructions
provided by the bank, broker or other nominee holding their
shares, including by one of the following methods:
• Voting instruction card. Please
complete, sign, date and return the voting instruction card in
the enclosed pre-addressed envelope.
• Other methods listed on your voting instruction
card or other information forwarded by your bank, broker or
other nominee. Please consult the voting instruction card
sent to you by your bank, broker or other nominee to determine
whether you may vote by telephone or electronically through the
Internet.
• In person at the Voyager special meeting with a
legal proxy from your bank, broker or other nominee. Please
consult the voting instruction card sent to you by your bank,
broker or other nominee to determine how to obtain a legal proxy
in order to vote in person at the Voyager special meeting.
Submitting an election form does not count as a vote. You must
complete, sign and return your proxy card to Computershare
Investor Services in the envelope that was provided with the
proxy card. Please do not send your election form and proxy card
in the same envelope.
For a more detailed explanation of voting procedures, see
“THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS —
How You Can Vote” on page 49.
What does it mean if I receive more than one proxy card or
more than one e-mail instructing me to vote?
A:
If you receive more than one proxy card or more than one email
instructing you to vote, that means that your shares are
registered in more than one name or are registered in different
accounts. Please complete, date, sign and return
each proxy card, and respond to each
e-mail,
to ensure that all of your shares are voted.
Q:
What happens if I do not indicate how to vote on my proxy
card?
A:
If you sign and send in your proxy card and do not indicate how
you want to vote, your proxy will be counted as a vote
“FOR” the proposal to adopt the merger agreement and
“FOR” the proposal to adjourn the special meeting if
necessary to solicit additional proxies.
Q:
If my shares are held in “street name,” will my
broker vote my shares for me?
A:
If you provide your broker, bank or other nominee with
instructions on how to vote your “street name” shares
on a timely basis, your broker, bank or other nominee will be
permitted to vote your shares in accordance with your
instructions. If you fail to instruct your broker, bank or other
nominee to vote your shares and the broker, bank or other
nominee submits an unvoted proxy, the resulting “broker
non-votes” will be counted toward a quorum at the Voyager
special meeting, but they will not be voted on any of the
proposals and will have the same effect as a vote against the
adoption of the merger agreement.
Q:
Can I change my vote after I have mailed my proxy card?
A:
Yes. You can change your vote at any time
before your proxy is voted at the Voyager special meeting. You
can do this in one of three ways:
• timely delivery of a valid, later dated proxy by
mail, or a later dated proxy by telephone or through the
Internet;
• timely delivery of a written, dated notice to
Voyager’s Secretary before the Voyager special meeting
stating that you have revoked your proxy; or
• voting by ballot at the Voyager special meeting (but
note that your attendance at the Voyager special meeting alone
will not revoke your proxy).
If you have instructed a bank, broker or other nominee to vote
your shares by executing a voting instruction card or by using
the telephone or Internet, you must follow directions from your
bank, broker or other nominee to change those instructions.
Q:
When and where is the Voyager special meeting to be held?
A:
The Voyager special meeting will begin promptly at
8:00 a.m., local time, on December 8, 2009, at
Voyager’s corporate headquarters, 1800 Valley View Lane,
Suite 400, Dallas, Texas. For additional information, see
“THE SPECIAL MEETING OF VOYAGER STOCKHOLDERS —
Date, Time and Place of the Voyager Special Meeting” on
page 49.
Q:
Can I attend the Voyager special meeting?
A:
Yes. You are entitled to attend the Voyager
special meeting if you were a Voyager stockholder as of the
close of business on November 4, 2009, the record date for
the Voyager special meeting, or you hold a valid proxy for the
Voyager special meeting. You should be prepared to present valid
government-issued photo identification, such as a driver’s
license or passport, for admittance to the Voyager special
meeting. In addition, if you are a record holder of Voyager
common stock, your name will be verified against the list of
record holders as of the record date for the meeting prior to
being admitted to the meeting. If you are not a record holder,
but rather hold your shares through a broker, bank or other
nominee (i.e., in “street name”), you should
provide proof of beneficial ownership on the record date, such
as your most recent account statement prior to the record date
or other similar evidence of ownership. If you do not provide
valid government-issued photo identification or comply with the
other procedures outlined above upon request, you may not be
admitted to the Voyager
special meeting. For additional information, see “THE
SPECIAL MEETING OF VOYAGER STOCKHOLDERS — Admission to
the Voyager Special Meeting” on page 49.
Q:
As a Voyager stockholder, will I be able to trade any shares
of Holdings common stock that I receive as consideration in
connection with the transaction?
A:
Yes, subject to certain restrictions applicable to
affiliates of Holdings. Although not required as a condition to
closing, Holdings expects that, upon completion of the mergers,
the shares of Holdings common stock issued in connection with
the mergers will be listed on the NASDAQ Global Market.
Q:
Will I be able to trade the CVRs that I receive in connection
with the Voyager merger?
A:
No. The CVRs will not be listed on any
exchange or otherwise be freely tradeable, and Holdings will be
required to recognize transfers of CVRs only in very limited
circumstances. For additional information, see “RELATED
AGREEMENTS — Contingent Value Rights Agreement”
on page 150.
Q:
As a stockholder of Voyager, am I entitled to appraisal
rights?
A:
Yes. Under Delaware law, you have the right to
dissent from the Voyager merger and to receive payment in cash
for the fair value of your shares of Voyager common stock as
determined by the Court of Chancery of the State of Delaware,
which we refer to as the Delaware Court of Chancery, together
with a fair rate of interest, if any, to be paid on the amount
determined by the court to be the fair value of your shares, in
lieu of the consideration you would otherwise be entitled to
receive pursuant to the merger agreement. These rights are known
as appraisal rights. Voyager stockholders electing to exercise
appraisal rights must strictly comply with the provisions of
Section 262 of the Delaware General Corporation Law, which
we refer to as the DGCL, in order to perfect their rights. For
additional information, see “THE MERGERS —
Appraisal Rights” on page 109 and Section 262 of
the DGCL, a copy of which is attached as Annex B to this
proxy statement/prospectus.
Q:
What are the material federal income tax consequences of the
mergers to me?
A:
Tax matters are complicated and the tax consequences of the
transaction to you will depend on your individual circumstances.
You should consult your tax advisor to determine the specific
tax consequences of the mergers to you. For additional
information, see “THE MERGERS — Material U.S.
Federal Income Tax Consequences of the Mergers” on
page 112.
Q:
Should I send in my stock certificates now?
A:
No. Please do not send in your stock certificates
with your proxy card or your election
form. Shortly after the transaction is
completed, you will receive a letter of transmittal with
instructions informing you how to send in your stock
certificates to the exchange agent in order to receive the
merger consideration for your shares of Voyager common stock. If
you hold your shares in “street name” through a
broker, bank or other nominee, then you will receive
instructions from your broker, bank or other nominee as to how
to exchange your “street name” shares for the merger
consideration.
Q:
How can I find out the results of the vote?
A:
Voyager will publicly announce final voting results as promptly
as practicable after the Voyager special meeting is completed.
Preliminary voting results may be announced at the Voyager
special meeting.
Q:
Who is paying for this proxy solicitation?
A:
The entire cost of soliciting proxies in connection with the
Voyager special meeting will be paid by Voyager. If the mergers
are completed, that cost will be paid by Voyager to the extent
that Voyager has excess cash to pay its transaction expenses,
and may be paid by Holdings to the extent that Voyager does not
have enough excess cash to pay its and Cambium’s
transaction expenses. Voyager’s directors, officers, other
employees and any other solicitors that Voyager may retain may
solicit proxies personally, by telephone or by other means of
communication. Directors and employees will not be paid any
additional compensation for soliciting proxies. Voyager will
provide copies of its solicitation materials to banks, brokerage
houses,
fiduciaries and custodians that hold beneficially owned shares
of Voyager common stock for distribution to the beneficial
owners. Voyager has retained Georgeson Inc. to aid in
Voyager’s proxy solicitation process. Voyager estimates
that its proxy solicitor fees will be approximately $8,000 plus
out-of-pocket
expenses incurred by the proxy solicitor. Voyager also will
reimburse brokerage firms, banks and other agents for the cost
of forwarding proxy materials to beneficial owners of Voyager
common stock.
Q:
Who can help answer any questions I have as a Voyager
stockholder?
A:
If you are a Voyager stockholder and you have questions,
including questions about the mergers or any related
transactions, the Voyager special meeting or the procedures for
voting your shares, you should contact:
If you need additional copies of this proxy statement/prospectus
or voting materials, you should contact Public and Investor
Relations at Voyager, as described above, by letter, telephone
or e-mail.
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information
that is important to you. To understand the mergers and the
transactions contemplated by the merger agreement fully and for
a more complete description of the terms and conditions of these
transactions, you should read carefully this proxy
statement/prospectus in its entirety, including the merger
agreement, which is attached as Annex A to this proxy
statement/prospectus, the other annexes attached to this proxy
statement/prospectus, and the other documents to which we have
referred you. See “WHERE YOU CAN FIND MORE
INFORMATION” on page 289. Page references are included
in this summary to direct you to a more complete description of
various topics in this proxy statement/prospectus. For a
discussion of the risk factors that you should consider in
evaluating the mergers, see “RISK FACTORS” on
page 32.
Cambium is a Delaware corporation headquartered in Natick,
Massachusetts. Cambium is a leading provider of learning
intervention solutions, which include both specialized
instructional materials as well as implementation-related
services, designed specifically for the pre-kindergarten through
twelfth grade, or Pre-K-12, at-risk and special education
markets. Cambium’s research-based offerings integrate
content, services and technology to address the unique needs of
at-risk and special education student populations. From initial
concept development to continuing program sales and support,
Cambium utilizes experienced and renowned researchers and
authors as the foundation for its intervention programs and
services. The address of Cambium’s principal executive
offices is 313 Speen Street, Natick, Massachusetts, and its
telephone number is (508) 647-1340.
For additional information about Cambium and its business, see
“INFORMATION ABOUT CAMBIUM’S BUSINESS” on
page 205.
For purposes of this proxy statement/prospectus, unless the
context indicates otherwise, all references to Cambium include
Cambium and its subsidiaries assuming completion of the internal
reorganization which we refer to as the Holdings III Merger
Transactions. The Holdings III Merger Transactions will occur
prior to the effective time of the mergers. For more information
on the Holdings III Merger Transactions, see “THEMERGERS — Diagrams — Repositioning the Owner
of Cambium” on page 58.
The internal reorganization, which we also refer to as
repositioning the owner of Cambium, consists of interposing
certain newly formed holding companies as direct or indirect
equity owners of Cambium Learning and its immediate parent
entity. These steps, which will occur prior to the completion of
the mergers, were designed to enable Cambium Learning to
participate in the mergers without violating restrictions in
Cambium Learning’s senior secured credit agreement and
senior unsecured credit agreement and without the need to seek a
waiver or consent from Cambium Learning’s lenders. As
described under “MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Liquidity and Capital Resources —
Long-Term Debt” on page 235, the parties subsequently
arranged, pursuant to the terms of the amendments to the credit
agreements, for the lenders to ratify and approve the mergers
and related transactions.
Voyager is a Delaware corporation headquartered in Dallas,
Texas. Voyager is a publisher of education solutions serving the
kindergarten through twelfth grade, or K-12, education market
through three business units: Voyager Expanded Learning,
Learning A-Z
and ExploreLearning. Voyager has more than 50 years of
experience in information aggregation and dissemination, content
development and educational publishing. The address of
Voyager’s principal executive offices is 1800 Valley View
Lane, Suite 400, Dallas, Texas75234, and its telephone
number is (214) 932-9500.
For additional information about Voyager and its business, see
“WHERE YOU CAN FIND MORE INFORMATION” on page 289
and “INFORMATION ABOUT VOYAGER’S BUSINESS” on
page 248.
For purposes of this proxy statement/prospectus, unless the
context indicates otherwise, all references to Voyager include
Voyager and its subsidiaries.
Holdings was incorporated under the laws of the State of
Delaware in 2009. Holdings was originally incorporated under the
name Cambium-Voyager Holdings, Inc. In order to build on the
Cambium brand, the board of Holdings and its sole stockholder
determined to change Holdings’ name to Cambium Learning
Group, Inc., which new name became effective on October 29,2009, upon filing an amended and restated certificate of
incorporation with the Delaware Secretary of State on that date.
To date, Holdings has not conducted any business or activities
other than those incidental to its formation, the execution of
the merger agreement and related agreements and the preparation
and filing of this proxy statement/prospectus. Upon completion
of the mergers described in this proxy statement/prospectus,
Holdings will become the holding company of both Cambium and
Voyager. The address of Holdings’ principal executive
offices will be, upon completion of the mergers, 1800 Valley
View Lane, Suite 400, Dallas, Texas75234, and its
telephone number is (214) 932-9500.
For purposes of this proxy statement/prospectus, unless the
context indicates otherwise, all references to Holdings assumes
the completion of the mergers.
Holdings intends to capitalize upon potential strategic,
operational and financial synergies to generate significant cash
flow and strengthen the leadership position of Cambium and
Voyager in education solutions for the pre-K-12 market. Holdings
believes that these synergies derive from the following factors:
Strategic
Synergies
Ability to Benefit from the Complementary Nature of the
Companies’ Products. The product offerings
of Cambium and Voyager are complementary in nature for the most
part. Many school districts classify their approaches to
responding to the needs of children who are struggling with core
curriculum in terms of three tiers, with Tier 1 requiring
the least intervention and Tier 3 requiring the most
intensive intervention. Cambium’s products primarily target
Tier 1 and Tier 3 students, while Voyager’s
products primarily target Tier 2 students. Holdings
believes that in combining these two companies, there will be
little product overlap, since the core products of each company
target different tiers of intervention. Holdings believes that
the complementary nature of the combined company’s product
offerings will allow the combined company to offer its customers
expanded “one-stop shopping” and will enhance the
combined company’s ability to compete with other market
participants.
Ability to Enhance Certain Products with Minimal Development
Costs. Holdings believes that the combined
company will be able to create new offerings and enhance the
value proposition of certain existing products by repurposing
content previously developed by Cambium or Voyager. Holdings
expects that it will be able to create these new offerings and
achieve these enhancements with lower developmental cost than
either company would incur to create or enhance its products on
its own.
Ability to Leverage the Combined Implementation Services
Capabilities. The combined customer training and
implementation support services teams will enjoy a more
comprehensive geographic and product coverage, thereby enabling
greater staff utilization. The combination of Voyager’s and
Cambium’s implementation services capabilities will provide
customers with a single, dedicated organization for ongoing
training and implementation support for most of their literacy,
math and behavioral intervention needs and, by leveraging
Voyager’s underlying technology platform, will provide
enhanced data reporting on student outcomes.
Capacity to Share and Employ Robust Technological
Capabilities. Both Cambium and Voyager define
themselves in large part in terms of their abilities to employ
technology to improve student outcomes. Upon completion of the
mergers, Holdings expects to:
•
leverage the existing learning technologies of the combined
company, such as using Voyager’s Ticket to Read and VMath
Live learning technologies in Cambium’s core intervention
programs to improve student time on task and the practice
components of those programs;
•
consolidate the best of both data management systems into a
single data management and progress monitoring system for all
key intervention programs and assessments; and
•
consolidate the best of the combined company’s on-line and
distance education content and technologies to offer an enhanced
suite of education services for the educators and administrators
served by Holdings.
Ability to Achieve Critical Mass in Certain
Markets. Holdings expects that the mergers will
enable the combined company to achieve the critical mass
necessary to take advantage of certain opportunities typically
not presented to smaller market participants. Holdings believes
that its combined offerings coupled with its expanded national
sales presence will provide it with advantages in selected state
adoptions of intervention solutions, which generally reward a
larger sales presence and focus in that state during adoption
years.
Operational
Synergies
Experienced Management Team. By combining the
Voyager and Cambium management teams, the combined company will
possess enhanced leadership experience and expertise. Holdings
expects to realize additional benefits through the combination
of the respective management teams by:
•
adopting “best practices” from each of Cambium and
Voyager;
•
attracting leading authors and programs; and
•
acquiring and integrating additional product lines and
businesses as opportunities arise that provide a compelling
strategic fit and attractive economics.
Ability to Expand Sales and Marketing
Reach. As a result of the mergers, the combined
company will have an expanded sales and marketing reach.
Specifically, a combination of the two outside sales forces will
be capable of covering a larger geographical area within the
pre-K-12 grade intervention market than the area either company
could cover independently.
Ability to Facilitate the Cross-Selling of Each Other’s
Products to Established Customers. Both Cambium
and Voyager have long-standing relationships with customers in
the education market for intervention products. Holdings expects
that these valuable customer relationships will allow it to
cross-sell existing products to customers who have a
relationship with one company but not the other.
Capacity to Increase Sales into Existing and New Markets of
Certain Products through Complementary Sales
Channels. In addition to the consolidated outside
sales force, Holdings will be positioned to leverage the
complementary sales channels of Cambium and Voyager. For
example, the combined company expects to utilize Cambium’s
reseller network to market Voyager’s learning technology
products and to utilize Voyager’s inside sales force to
market Cambium’s core intervention offerings.
Continue to Invest in Certain Areas of the
Business. Holdings intends to use a portion of
the expected cost savings described below to hire additional
executive leadership, increase marketing, expand the inside
sales team and expand Cambium’s supplementary interventions
business.
Realignment of Administrative Operations. The
combined company intends to rationalize a considerable amount of
back office and administrative processes utilizing the best
processes and systems from both companies. As a result of the
complementary nature of the respective businesses, Holdings
believes these process improvement measures will pose minimal
risk and disruption to the overall business while at the same
time improving the effectiveness of these processes.
Cost Synergies. In an effort to minimize
certain costs associated with the business, the combined company
expects to be able to recognize cost synergies and eliminate
duplicative investments. The combined company has identified
areas within the combined business where it believes operating
cost reductions can be achieved without sacrificing revenue
opportunities. Cost synergies are expected to yield
approximately $10 million per year in cost savings once
fully realized in 2010.
The Voyager special meeting will be held at Voyager’s
corporate headquarters, 1800 Valley View Lane, Suite 400,
Dallas, Texas, on December 8, 2009, starting at 8:00 a.m.,
local time.
You may vote at the Voyager special meeting if you owned shares
of Voyager common stock at the close of business on
November 4, 2009, the record date for the Voyager special
meeting. On that date, 29,874,145 shares of Voyager common
stock were outstanding and entitled to vote at the Voyager
special meeting. You may cast one vote for each share of Voyager
common stock you owned as of the Voyager record date.
In connection with the execution of the merger agreement,
certain Voyager stockholders entered into voting and support
agreements with Holdings pursuant to which, among other things,
each of these stockholders has agreed to vote all of the shares
of Voyager common stock owned by the stockholder in favor of the
adoption of the merger agreement. As of the Voyager record date,
these stockholders beneficially owned 6,121,497 shares of
Voyager common stock, in the aggregate, which represent 20.5% of
the outstanding shares of Voyager common stock entitled to be
voted at the special meeting. We have attached the form of
agreement which these stockholders signed as Annex I to
this proxy statement/prospectus.
As of the Voyager record date, in addition to the shares covered
by the above-mentioned voting and support agreements, Voyager
directors and executive officers and their affiliates owned and
were entitled to vote less than 1.0% of the outstanding shares
of Voyager common stock. The directors and executive officers
who own these shares have expressed their intention to vote
these shares in favor of the merger agreement.
Holdings and its two subsidiaries, Consonant Acquisition Corp.
and Vowel Acquisition Corp., were established for the purpose of
combining the businesses of Cambium and Voyager. The
combination, structured as the simultaneous mergers of Consonant
Acquisition Corp. with and into Cambium and Vowel Acquisition
Corp. with and into Voyager, is illustrated elsewhere in this
proxy statement/prospectus. See “THE MERGER —
Diagrams — Overall Structure of the Mergers” on
page 55.
As illustrated in the diagrams appearing elsewhere in this proxy
statement/prospectus, Cambium and Voyager will be the surviving
corporations in the two mergers and each will become a direct,
wholly owned subsidiary of Holdings. The respective subsidiaries
of Cambium and Voyager will, immediately after the mergers are
completed, be direct or indirect, wholly owned subsidiaries of
Cambium or Voyager, as applicable, and will become indirect,
wholly owned subsidiaries of Holdings. See “THEMERGER — Diagrams — Transfer of
Voyager’s Subsidiaries” on page 63, “THE
MERGER AGREEMENT — Voyager Expanded Learning and
Related Matters” on page 137 and “THE MERGER
AGREEMENT — LAZEL Spinoff” on page 136.
In connection with the mergers, the sole stockholder of Cambium
will receive 24,300,466 shares of Holdings common stock,
including 3,846,154 shares issuable in exchange for a
$25 million cash capital
contribution to be made by the sole stockholder of Cambium
immediately prior to the effective time of the mergers. Each
share of Voyager common stock will be converted into merger
consideration consisting of:
•
at the election of the stockholder, either:
•
one share of Holdings common stock, or
•
$6.50 in cash, subject to proration rules referred to below;
plus, regardless of the election made,
•
an amount in cash equal to the amount of specified tax refunds
received by Voyager prior to the closing of the mergers (reduced
by the amount of the Voyager tax refunds contractually required
to be placed in escrow at closing), divided by the total number
of shares of Voyager common stock outstanding immediately prior
to the effective time of the mergers, which we estimate to be
29,874,145 shares; plus
•
a CVR to receive cash in an amount equal to the aggregate amount
of specified tax refunds received after the closing of the
mergers and various other amounts deposited in escrow on or
after the closing date, reduced by any payments to be made under
an escrow agreement to be entered into in connection with the
mergers, with respect to agreed contingencies, a potential
working capital adjustment and Stockholders’ Representative
expenses, divided by the total number of shares of Voyager
common stock outstanding immediately prior to the effective time
of the mergers.
The Stockholders’ Representative may withdraw funds from
the CVR Escrow Fund to cover its reasonable costs and expenses,
to purchase insurance to provide indemnification protection to
itself and to provide itself reasonable compensation for the
performance of its services. The indemnification insurance to be
provided to the present and former officers and directors of
Voyager as described under “THE MERGERS —
Interests of Voyager’s Directors and Officers in the
Mergers — Indemnification and Insurance” on
page 106 is also expected to cover the Stockholders’
Representative for the term of the insurance. The
Stockholders’ Representative will be compensated at a rate
of $810 per hour. The total amount of the Stockholders’
Representative’s reasonable costs and expenses and
compensation cannot be estimated because they will depend in
large part on whether the Stockholders’ Representative is
required to initiate (or defend) a dispute or to take any other
actions authorized by the merger agreement, the escrow agreement
or other transaction documents to which the Stockholders’
Representative is a party.
The amount of cash available to satisfy cash elections by
Voyager stockholders will be determined by an agreed formula
that is primarily dependent on the cash generated by Voyager
prior to closing, but the amount of cash available for cash
elections is limited to a maximum of $67.5 million in the
aggregate. If the amount of cash available for the cash
elections is insufficient to accommodate all of the cash
elections made by the Voyager stockholders, then the
stockholders electing to exchange shares for cash will be
subject to a pro rata reduction in accordance with agreed
procedures set forth in the merger agreement and described in
this proxy statement/prospectus. The shares of Voyager common
stock that are not exchanged for cash will be exchanged for
shares of Holdings common stock. There is no comparable limit on
the extent to which Holdings will honor stock elections. Thus,
if a Voyager stockholder elects to receive Holdings stock in
exchange for all of the stockholder’s shares of Voyager
common stock, that stockholder will not be subject to proration
pursuant to the merger agreement and will receive only Holdings
common stock. See “THE MERGER AGREEMENT —
Election Procedures for Voyager Stockholders” on
page 122 for a description of the procedures applicable to
the elections to be made by Voyager stockholders.
The merger agreement is attached as Annex A to this proxy
statement/prospectus. You are strongly encouraged to read
carefully the merger agreement in its entirety. For information
regarding the background leading up to the execution of the
merger agreement, see “THE MERGERS — Background
of the Mergers” on page 70.
Upon completion of the mergers, the board of directors of
Holdings is expected to consist of nine members, four of whom
have been designated by Voyager and five of whom have been or
will be designated by the sole stockholder of Cambium. To date,
Cambium’s sole stockholder has only designated three
members of the board. If the remaining positions are not filled
prior to the effective time, in addition to his own vote,
Jeffrey T. Stevenson will have one vote on the board for each
such vacant position. Mr. Stevenson is Holding’s
chairman of the board and also the Managing Partner and Co-Chief
Executive Officer of VSS. The principal executive officers of
Holdings will be:
•
Ronald Klausner, the President of Voyager Expanded Learning,
Inc., who will be Chief Executive Officer of Holdings;
•
David F. Cappellucci, the Chief Executive Officer of Cambium,
who will be President of Holdings;
•
Bradley C. Almond, the Chief Financial Officer of Voyager, who
will be Chief Financial Officer of Holdings;
•
John Campbell, the Chief Operating Officer of Voyager Expanded
Learning, Inc., who will be Senior Vice President and the
President of the Cambium Learning Technologies business unit of
Holdings and
•
George A. Logue, an Executive Vice President of Cambium, who
will be Executive Vice President and the President of the
Supplemental Solutions business unit of Holdings.
Some or all of these executive officers may also retain
executive positions with Cambium
and/or
Voyager after the effective time.
The rights of Voyager stockholders are governed by the Delaware
General Corporation Law, or DGCL, and Voyager’s certificate
of incorporation and bylaws. The rights of Cambium’s
stockholder are governed by the DGCL and Cambium’s
certificate of incorporation and bylaws. Upon completion of the
mergers, the rights of Cambium’s stockholder and the rights
of all Voyager stockholders that receive shares of Holdings
common stock in the transaction will be governed by the DGCL,
Holdings’ certificate of incorporation and bylaws and a
stockholders agreement to be entered into at the closing of the
mergers. Holdings’ certificate of incorporation and bylaws
are attached as Annex C and Annex D, respectively, to
this proxy statement/prospectus, and the stockholders agreement
is attached as Annex L to this proxy statement/prospectus.
For a description of how the rights of a Holdings stockholder
will be different than the rights of a Voyager stockholder, see
“COMPARISON OF STOCKHOLDER RIGHTS” on page 197.
Shares of Voyager common stock are quoted on the Pink Sheets
Electronic Quotation Service, which we refer to as the Pink
Sheets. The shares of Cambium common stock are privately held
and, as a result, no established trading market exists for the
Cambium shares. There currently is also no public market for the
shares of Holdings common stock.
The following table presents the last reported closing sales
price per share of Voyager common stock, as quoted on the Pink
Sheets on June 19, 2009, the last full trading day before
the public announcement of the mergers, and on November 12,2009, the last practicable date for which closing prices were
available prior to the date of this proxy statement/prospectus.
Neither Cambium nor Voyager has, during the past five fiscal
years, declared or paid any cash dividends on its capital stock.
Holdings does not anticipate paying any cash dividends on its
common stock for the foreseeable future after completion of the
mergers.
Each share of Voyager common stock that is converted into
Holdings common stock pursuant to the Voyager merger will be
converted into one share of Holdings common stock, as well as
into a cash amount and a CVR. Since both Cambium and Holdings
are private companies and there is no trading market for the
shares of either company, it is not possible to determine the
equivalent implied value of a share of Holdings common stock.
Voyager’s board of directors has unanimously approved the
merger of Voyager merger sub with and into Voyager, the merger
agreement and the transactions contemplated thereby and
recommends that Voyager stockholders vote “FOR”
the adoption of the merger agreement and “FOR”
the proposal to adjourn the meeting if necessary to solicit
additional proxies.
Each of Allen & Company LLC, which we refer to as
Allen & Company, and Houlihan Smith &
Company Inc., which we refer to as Houlihan Smith, acted as
financial advisor to Voyager in connection with the transactions
contemplated by the merger agreement. Allen & Company
has provided Voyager’s board of directors with an opinion
that concludes that the merger consideration to be received by
the Voyager stockholders is fair, from a financial point of
view, to the Voyager stockholders in the Voyager merger.
Houlihan Smith has provided Voyager’s board of directors
with an opinion that concludes that after and giving effect to
the mergers, Holdings will be a solvent entity. We have attached
a copy of the Allen & Company fairness opinion and the
Houlihan Smith solvency opinion to this proxy
statement/prospectus as Annex E and Annex F,
respectively. We have also provided a description of the
analyses undertaken by Voyager’s financial advisors on
page 81.
When considering the recommendation of the Voyager board of
directors with respect to the Voyager merger and the merger
agreement, you should be aware that some of Voyager’s
executive officers and directors have interests in the Voyager
merger that are different than, or in addition to, those of
other Voyager stockholders. These interests include:
•
the retention of some of the officers of Voyager as officers or
employees of Holdings or its subsidiaries;
•
the designation of two officers and a director of Voyager as
directors of Holdings;
•
continuation of various indemnification and insurance
obligations for the benefit of Voyager’s directors and
executive officers;
•
the treatment of stock options and stock appreciation rights
held by Voyager executive officers and directors at the
effective time of the mergers; and
•
with respect to the executive officers of Voyager, the receipt
of severance, retention, change in control or other payments,
which are expected to be in the following aggregate amounts:
Name
Title
Amount
Richard Surratt
President and Chief Executive Officer of Voyager
$
5,111,060
Ronald Klausner
President of Voyager Expanded Learning
$
1,826,056
Todd W. Buchardt
Senior Vice President and General Counsel of Voyager
$
660,059
Bradley C. Almond
Chief Financial Officer of Voyager
$
345,000
John Campbell
Chief Operating Officer of Voyager Expanded Learning
$
265,500
Please see “THE MERGERS — Interests of
Voyager’s Directors and Officers in the Mergers —
Change in Control, Severance, Retention and Other Payments”
for additional information regarding these estimated payments.
You should also be aware that the executive officers of
Cambium’s operating subsidiary, Cambium Learning, and
Cambium’s directors have interests in the Cambium merger
that are different than, or in addition to, those of the Cambium
stockholder. These interests include:
•
the retention of various officers of Cambium Learning as
officers or employees of Holdings or its subsidiaries;
•
the designation of an officer of Cambium Learning and all of the
directors of Cambium as directors of Holdings; and
•
the treatment of interests held by Cambium Learning’s
officers in a management incentive plan of one of Cambium’s
subsidiaries at the effective time of the mergers, since these
interests will terminate upon completion of the mergers and,
upon or following the closing of the mergers, the officers of
Cambium who were participants in the management incentive plan
may be granted options to purchase shares of Holdings common
stock under Holdings’ equity compensation plans.
In addition to the equity and compensation items described
above, the following table sets forth the number of options to
be granted to executive officers of Cambium and Voyager at the
effective time. The options listed below are options to acquire
Holdings common stock under the terms of the 2009 Incentive Plan
(which we describe on page 183). Other than the options
described below, the Holdings board of directors has not yet
made any determinations with respect to options to be granted to
Voyager’s or Cambium’s executive officers.
Name
Title
Options
Ronald Klausner
Chief Executive Officer
750,000
David F. Cappellucci
President
600,000
John Campbell
Senior Vice President and President of Cambium Learning
Technologies
300,000
Bradley C. Almond
Chief Financial Officer
250,000
George A. Logue
Executive Vice President and President of Supplemental Solutions
250,000
Total:
2,150,000
VSS is the principal equity owner of Cambium’s stockholder.
VSS also has certain interests that are different than, or in
addition to, the interests of Cambium’s stockholder. Upon
the completion of the mergers, Holdings will enter into a
consulting fee agreement with VSS entitling VSS to a fee equal
to 1% of the gross proceeds of any debt or equity financing
undertaken by Holdings and a fee equal to 1% of the enterprise
value of any entities acquired or disposed of by Holdings. These
fee obligations will remain in effect until the earlier of the
date on which funds managed by VSS cease to beneficially own at
least 10% of the outstanding Holdings common stock or, unless
Holdings’ audit committee renews the consulting fee
agreement, January 1, 2015. Further, an affiliate of VSS
will be entitled to receive a fee in the amount of
$3.0 million from Holdings upon completion of the mergers
in consideration of providing advisory services with respect to
the mergers. This fee will be payable $1,000,000 in cash at
closing, and the balance becomes payable if and when Cambium
Learning’s ratio of total outstanding debt to adjusted
EBITDA drops below 3.0:1. Three-quarters of this remaining
balance will be allocated pro rata among, and paid to, VSS and
certain of the other equity owners of Cambium’s
stockholder. In addition, under the terms of a stockholders
agreement to be executed at the closing, subject to specified
exempt issuances, for so long as Cambium’s stockholder and
funds managed or controlled by VSS beneficially own in the
aggregate at least 25% of the outstanding shares of Holdings
common stock, Cambium’s stockholder and funds managed or
controlled by VSS have preemptive rights to purchase common
stock of Holdings (or other securities that may be approved by
the audit committee of Holdings’ board of directors), in
connection with any proposed securities offering by Holdings.
These preemptive rights will allow Cambium’s stockholder
and funds managed by VSS to maintain their same respective
percentage ownership in Holdings following any such securities
offering. The stockholders agreement will also grant
Cambium’s stockholder and funds managed or controlled by
VSS a subscription right entitling them to purchase, at a 10%
discount to market price, at any time and from time to time at
or before the
24-month
anniversary of the effective time of the mergers, a number of
shares of Holdings common
stock equal to up to the lesser of
(i) 7,500,000 shares of common stock or (ii) the
number of shares of common stock that Cambium’s stockholder
and funds managed or controlled by VSS may purchase from time to
time during the
24-month
subscription period for an aggregate purchase price of
$20 million.
There are numerous risk factors you should carefully consider
before deciding how to cast your vote on the adoption of the
merger agreement. See “RISK FACTORS” on page 32
for a discussion of these risks and uncertainties.
The transaction of business at the Voyager special meeting
requires a quorum, which will be established by the presence in
person or by proxy of the holders of a majority of the
outstanding shares of Voyager common stock entitled to vote at
the Voyager special meeting. The affirmative vote of holders of
a majority of the outstanding shares of Voyager common stock
entitled to vote at the Voyager special meeting is required to
adopt the merger agreement. The affirmative vote of holders of a
majority of the shares of Voyager common stock present and
entitled to vote at the Voyager special meeting is required in
order to approve the proposal to adjourn the meeting if
necessary to solicit additional proxies. As of the record date
for the Voyager special meeting, Voyager’s directors,
executive officers and their affiliates, as a group,
beneficially owned and were entitled to vote an aggregate of
3,648,117 shares of Voyager common stock, or 12.17% of the
total outstanding shares of Voyager common stock.
Immediately following the Voyager merger, Cambium Learning will
acquire one of Voyager’s operating subsidiaries, Voyager
Expanded Learning, Inc., as a “Permitted Acquisition”
under Cambium Learning’s credit agreements. Cambium
Learning will deliver to Voyager aggregate consideration of
$75 million, including approximately $10 million to
$15 million in cash drawn from revolving loans under the
senior secured credit agreement, and $60 million to
$65 million of membership interests in a Holdings
subsidiary, VSS-Cambium Holdings IV, LLC. No additional
financing for this acquisition or for the mergers is presently
anticipated other than $25 million in cash which
Cambium’s sole stockholder will contribute to Holdings
immediately prior to the effective time of the mergers. Under
the terms of the recent amendments to the credit agreements, the
“Permitted Acquisition” baskets are being reset after
giving effect to the acquisition of Voyager Expanded Learning,
Inc. The “Permitted Acquisition” basket will, when the
amendment becomes effective, be reset to a cumulative
$150 million. However, any single acquisition is limited to
$20 million until the leverage ratio decreases below stated
thresholds, at which point the per acquisition threshold becomes
$100 million. See “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Liquidity and Capital Resources —
Long-Term Debt” on page 235.
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which we refer
to as the HSR Act, the mergers cannot be completed until the
companies have made required notifications and provided certain
information and materials to the Federal Trade Commission, which
we refer to as the FTC, and the Antitrust Division of the
U.S. Department of Justice, and the specified waiting
period has expired or been terminated. Cambium and Voyager filed
the required notification and report forms with the FTC and the
Antitrust Division of the U.S. Department of Justice on
July 9, 2009. The FTC announced on July 20, 2009 that
the waiting period was terminated immediately, thus completing
the FTC’s review of the mergers.
Under the terms of the merger agreement, Holdings has applied to
have its common stock listed on the NASDAQ Global Market.
Holdings common stock currently is not traded or quoted on a
stock exchange or quotation system. Listing of the shares on the
NASDAQ Global Market is not required as a condition to
completion of the mergers.
When the mergers described in this proxy statement/prospectus
are completed, the Voyager common stock currently quoted on the
Pink Sheets will cease to be quoted on the Pink Sheets and will
be deregistered under the Exchange Act.
In connection with the mergers, record holders of Voyager common
stock who comply with the procedures of Section 262 of the
DGCL, which we refer to as Section 262, will have appraisal
rights and will be entitled, in lieu of receiving the merger
consideration, to be paid in cash the “fair value” of
their shares at the effective time of the mergers as determined
by the Delaware Court of Chancery.
Stockholders of record who desire to exercise their appraisal
rights must satisfy all of the conditions of Section 262.
Among other things, a stockholder who desires to exercise
appraisal rights must not vote in favor of the adoption of the
merger agreement and must deliver a written demand for appraisal
of the stockholder’s shares to Voyager before the vote on
the adoption of the merger agreement at the Voyager special
meeting.
A copy of Section 262 of the DGCL is attached to this proxy
statement/prospectus as Annex B.
The transaction will be accounted for as a “purchase”
of Voyager by Cambium, as that term is used under
U.S. generally accepted accounting principles, or GAAP, for
accounting and financial reporting purposes. As a result, the
historical financial statements of Cambium will become the
historical financial statements of Holdings.
It is intended that the exchange of Voyager common stock for
Holdings common stock, cash and CVRs, and the exchange of
Cambium common stock for Holdings common stock and the Holdings
Warrant, pursuant to the merger agreement, taken together, will
constitute an exchange described in Section 351 of the
Internal Revenue Code. Assuming that the mergers, taken
together, constitute an exchange described in Section 351
of the Internal Revenue Code: (1) it is expected that a
Voyager stockholder who exchanges shares of Voyager common stock
for a combination of Holdings common stock, cash and CVRs will
not recognize a loss and will recognize a gain only up to an
amount equal to the sum of the amount of cash and the fair
market value of the CVRs received, and (2) it is expected
that a Voyager stockholder who exchanges shares of Voyager
common stock solely for cash and CVRs will recognize a gain or
loss equal to the difference between an amount equal to the sum
of the amount of cash and the fair market value of the CVRs
received and the stockholder’s tax basis in the shares of
Voyager common stock surrendered.
You are urged to consult with your own tax advisor for a full
understanding of the tax consequences to you of the mergers,
including the effects of U.S. federal, state and local,
foreign and other applicable tax laws.
The following financial information is provided to assist you in
your analysis of the financial aspects of the mergers. The
following tables present (1) selected historical financial
data of Cambium, (2) selected historical financial data of
Voyager, and (3) selected unaudited pro forma condensed
combined financial data of Holdings reflecting the mergers. The
historical financial data show the financial results actually
achieved by Cambium and Voyager for the periods indicated. The
unaudited pro forma condensed combined financial data
show statement of operations data as if the mergers had taken
place on January 1, 2008 and balance sheet data as if the
mergers had taken place on September 30, 2009.
Selected
Historical Financial Data of Cambium
The tables below present summary selected historical
consolidated financial data of Cambium prepared in accordance
with GAAP. You should read the information set forth below in
conjunction with Cambium’s consolidated financial
statements and related notes, Cambium’s management’s
discussion and analysis of financial condition and results of
operations and other financial information regarding Cambium
presented elsewhere in this proxy statement/prospectus.
The summary selected historical consolidated financial data for
the year ended December 31, 2006, the period from
January 1, 2007 through April 11, 2007 (the “2007
predecessor period”), the period from January 29, 2007
through December 31, 2007 (the “2007 successor
period”) and the year ended December 31, 2008 have
been derived from Cambium’s audited consolidated financial
statements. The summary selected historical consolidated
financial data for the years ended December 31, 2004 and
2005 have been derived from Cambium’s unaudited
consolidated financial statements prepared on a basis consistent
with the accounting policies used for Cambium’s audited
financial statements. The summary selected historical
consolidated financial data for the interim nine month periods
ended September 30, 2008 and 2009 have been derived from
Cambium’s unaudited interim condensed consolidated
financial statements prepared on a basis consistent with the
accounting policies used for Cambium’s audited financial
statements. In the opinion of Cambium’s management, this
unaudited interim financial information reflects all
adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results for the interim
periods. The results of operations for any interim period are
not necessarily indicative of the results that may be expected
for a full fiscal year. Cambium did not declare or pay any cash
dividends on its common stock during any of the periods
presented.
Successor
Period from
January 29,
Predecessor
2007
Period from
(Inception)
January 1,
Predecessor
Predecessor
Predecessor
Nine Months Ended:
Year Ended
through
2007 through
Year Ended
Year Ended
Year Ended
September 30,
September 30,
December 31,
December 31,
April 11,
December 31,
December 31,
December 31,
(in thousands)
2009
2008
2008
2007(1)
2007
2006
2005
2004
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Statement of Operations Data:
Product sales
$
70,331
$
73,646
$
89,207
$
71,266
$
15,238
$
92,881
$
75,430
$
36,204
Service revenues
7,410
8,409
10,524
9,581
3,176
13,542
9,726
6,852
Net sales
77,741
82,055
99,731
80,847
18,414
106,424
85,156
43,056
Total operating expenses
(75,292
)
(81,762
)
(104,648
)
(81,306
)
(32,179
)
(97,955
)
(81,017
)
(52,878
)
Acquired in-process research and development
—
—
—
(890
)
—
—
(500
)
—
Embezzlement and related expenses(2)
195
(8,684
)
(7,254
)
(5,732
)
(1,000
)
(3,261
)
(290
)
(1,913
)
Goodwill and other intangible asset impairment(3)
(9,105
)
—
(75,966
)
—
—
—
(4,132
)
(207
)
(Loss) income before interest, other income (expense), and
income taxes
(6,461
)
(8,391
)
(88,137
)
(7,081
)
(14,765
)
5,208
(783
)
(11,942
)
Gain from settlement with previous stockholders(4)
On January 29, 2007,
VSS-Cambium Holdings, LLC was formed for the purpose of
acquiring all of the capital stock of Cambium Learning. That
acquisition was completed on April 12, 2007. The Cambium
consolidated financial statements
and/or
financial data set forth in this proxy statement/prospectus
present VSS-Cambium Holdings, LLC as of September 30, 2009,
December 31, 2008 and December 31, 2007 on a successor
basis reflecting the activity of VSS-Cambium Holdings, LLC from
January 29, 2007 and the activity of Cambium Learning and
its subsidiaries from April 12, 2007 and present Cambium
Learning and its subsidiaries on a predecessor basis as of and
for the years ended December 31, 2004, 2005 and 2006 and
for the period January 1, 2007 through April 11, 2007,
representing all periods prior to the time that
VSS-Cambium
Holdings, LLC acquired Cambium Learning.
(2)
Cambium discovered in 2008 that a
former employee had perpetrated a significant misappropriation
of assets during a period beginning in 2004 and extending
through April 2008.
(3)
Reflects the non-cash effect of the
impairment write-down of goodwill and other intangible assets as
of September 30, 2009, December 31, 2008,
December 31, 2005 and December 2004 resulting from a
reduction in the fair value of assets.
(4)
For fiscal 2008, Cambium received a
settlement from previous stockholders of Cambium relating to the
embezzlement suffered by Cambium. For further information, see
Note A to Cambium’s Consolidated Financial Statements
included elsewhere in this proxy statement/prospectus.
Selected
Historical Financial Data of Voyager
The tables below present summary selected historical
consolidated financial data of Voyager prepared in accordance
with GAAP. You should read the information set forth below in
conjunction with Voyager’s consolidated financial
statements and related notes, Voyager’s management’s
discussion and analysis of financial condition and results of
operations and other financial information regarding Voyager
presented elsewhere in this proxy statement/prospectus.
The summary selected historical consolidated financial data for
fiscal years 2004, 2005, 2006, 2007 and 2008 have been derived
from Voyager’s audited consolidated financial statements.
The summary selected historical consolidated financial data for
the nine month periods ended September 30, 2008 and 2009
have been derived from Voyager’s unaudited interim
condensed consolidated financial statements prepared on a basis
consistent with the accounting policies used for Voyager’s
annual audited financial statements. In the opinion of
Voyager’s management, this unaudited financial information
reflects all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results
for the interim periods. The results of operations for any
interim period are not necessarily indicative of the results
that may be expected for a full fiscal year. Voyager did not
declare or pay any cash dividends on its common stock during any
of the periods presented.
On January 31, 2005, Voyager
acquired all the outstanding ownership interest in Voyager
Expanded Learning, Inc., or VEL. The results of VEL’s
operations subsequent to the acquisition on January 31,2005 are combined with the results of two minor acquisitions
(ExploreLearning and Learning
A-Z), one
made in 2004 and one made in 2005, to form the Voyager Education
segment reported as continuing operations in Voyager’s
consolidated financial statements.
(2)
Voyager implemented a plan to sell
its ProQuest Business Solution, or PQBS, and ProQuest
Information and Learning, or PQIL, operations during the second
quarter of 2006. The sale of PQBS was completed in November 2006
and the sale of PQIL was completed in February 2007. Results of
operations for PQBS and PQIL are excluded from results from
continuing operations for all periods presented.
(3)
In 2008, 2007 and 2006,
respectively, operating expenses include corporate costs of
$14.9 million, $34.1 million, and $46.2 million,
the majority of which are associated with the closing of
Voyager’s Ann Arbor offices, financial
restatements, and completion of the
sale of PQBS and PQIL. The transition of corporate offices from
Ann Arbor, Michigan to Dallas, Texas was completed by year-end
2008.
(4)
The required annual or interim
testing for impairment of goodwill resulted in goodwill
impairment for the Voyager Education business unit for the
second and third quarters of 2009 and for 2008, 2007 and 2006.
(5)
In 2008, Voyager entered into a
series of agreements with its landlord regarding the termination
of certain obligations in relation to the long term leases for
its facilities in Ann Arbor, Michigan. Voyager terminated and
was released from all obligations relating to these leases on
March 7, 2008, resulting in a total charge to expense in
the first quarter of 2008 for all lease termination costs.
(6)
Net loss from continuing operations
for 2004 includes a deferred tax expense of $25.1 million
to reflect the impact of establishing a valuation allowance
against deferred tax assets as a result of restatement
adjustments.
(7)
Upon closing on the sale of PQBS on
November 28, 2006, Voyager made a pro rata payment of 89%
of the principal then outstanding under Voyager’s 5.45%
senior notes due October 1, 2012, Voyager’s 5.38%
senior notes due January 31, 2015 and Voyager’s 2005
five-year unsecured revolving credit facility. Upon closing on
the sale of PQIL on February 9, 2007, Voyager paid its
remaining balances owed to its bank lenders and noteholders and
was released from all obligations under its 2002 note purchase
agreement, its 2005 note purchase agreement, and its five-year
unsecured revolving credit facility.
(8)
Shareholders’ equity for 2006
reflects the $347.7 million gain from the sale of PQBS.
Shareholders’ equity for 2007 reflects the
$46.6 million gain from the sale of PQIL.
The following selected unaudited pro forma condensed combined
financial data are intended to show how the acquisition of
Cambium and Voyager by Holdings might have affected historical
financial statements if the mergers had been completed on
September 30, 2009 for balance sheet data and on
January 1, 2008 for statement of operations data. The
following summary unaudited pro forma condensed combined
financial data were prepared based on the historical financial
results reported by Cambium and Voyager. The following should be
read in conjunction with “UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION” on page 156, and the
Cambium and Voyager consolidated financial statements which are
included in this proxy statement/prospectus.
The selected unaudited pro forma condensed combined financial
data are presented for illustrative purposes only and are not
necessarily indicative of the financial condition or results of
operations of future periods or the financial condition or
results of operations that actually would have been realized had
the entities been a single entity during these periods.
The following table reflects (1) the historical per share
loss from continuing operations and book value per share of
Cambium common stock, (2) the historical per share loss
from continuing operations and book value per share of Voyager
common stock and (3) the pro forma per share loss from
continuing operations and book value per share of Holdings
reflecting the mergers. The comparative historical and pro forma
per share data should be read in conjunction with the unaudited
pro forma condensed combined financial statements and related
notes, the historical consolidated financial statements of
Cambium and related notes, and the historical consolidated
financial statements of Voyager and related notes, all of which
information is included elsewhere in this proxy
statement/prospectus.
The pro forma condensed combined financial data are not
necessarily indicative of the operating results of future
operations or the actual results that would have occurred had
the mergers been completed at the beginning of the periods
presented.
Pro forma book value per share was computed by dividing pro
forma stockholders’ equity by the pro forma number of
shares of common stock which would have been outstanding had the
mergers been completed as of September 30, 2009.
Neither Cambium nor Voyager declared or paid any cash dividends
on its common stock during the periods presented. Holdings does
not anticipate paying dividends on its common stock in the
foreseeable future.
Cambium shares represent the number
of shares of Holdings common stock to be received by
Cambium’s sole stockholder upon completion of the mergers,
not including the 3,846,154 shares of Holdings common stock
to be purchased by the sole stockholder of Cambium immediately
prior to the effective time of the mergers or the shares
issuable upon exercise of the Holdings Warrant.
(2)
Voyager shares used for book value
per share are the number of shares outstanding as of
September 30, 2009.
(3)
Information regarding the pro forma
book value per common share at December 31, 2008 is not
available.
The historical net losses for both Cambium and Voyager as
reported on a GAAP basis include material non-recurring and
non-operational items. Holdings believes that earnings (loss)
from operations before interest and other income (expense),
income taxes, and depreciation and amortization, or EBITDA, and
adjusted EBITDA, which further excludes non-recurring and
non-operational items, referred to in this proxy
statement/prospectus as Adjusted EBITDA, provide useful
information for investors to assess the results of the ongoing
business of the combined company.
EBITDA and Adjusted EBITDA are not prepared in accordance with
GAAP and may be different from non-GAAP financial measures used
by other companies. Non-GAAP financial measures should not be
considered a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP. Holdings
believes that Adjusted EBITDA provides useful information to
investors because it reflects the underlying performance of the
ongoing operations of the combined company and provides
investors with a view of the combined company’s operations
from management’s perspective. Adjusted EBITDA excludes
items that do not reflect the underlying performance of the
combined company by removing significant
one-time or
certain non-cash items from earnings. Holdings uses Adjusted
EBITDA to monitor and evaluate the operating performance of the
combined company and as the basis to set and measure progress
towards performance targets, which directly affect compensation
for employees and executives. Holdings generally uses these
non-GAAP measures as measures of operating performance and not
as measures of Holdings’ liquidity.
Below is a reconciliation between net loss and Adjusted EBITDA
for Cambium and Voyager individually on an historical basis and
on a pro forma condensed combined basis for the nine months
ended September 30, 2009 and the year ended
December 31, 2008.
Gain from settlement with previous stockholders(6)
(30,202
)
—
—
(30,202
)
Loss on extinguishment of debt(7)
5,632
—
—
5,632
Depreciation and amortization
27,419
21,358
(11,138
)
37,639
Loss from operations before interest and other income (expense),
income taxes, depreciation and amortization (EBITDA)
(60,718
)
(61,918
)
(13,532
)
(136,168
)
Non-recurring or non-operating costs excluded from Adjusted
EBITDA:
Goodwill impairment(8)
75,966
43,141
—
119,107
Embezzlement and related expenses(1)
7,254
—
—
7,254
Lease termination costs(9)
—
11,673
—
11,673
IntelliTools office closure(2)
287
—
—
287
Merger related costs(3)
26
—
(26
)
—
Non-recurring Voyager corporate overhead costs primarily related
to Voyager’s delinquent SEC filings and transition of the
corporate office(4)
—
18,069
—
18,069
Temporary purchase accounting impact of the reduction in
Voyager’s deferred revenues and related deferred costs(5)
—
—
8,054
8,054
Non-recurring change in control payments(11)
—
—
2,690
2,690
Stock based compensation expense(10)
—
878
947
1,825
Adjusted EBITDA
$
22,815
$
11,843
$
(1,867
)
$
32,791
(1)
During 2008, Cambium discovered certain irregularities relating
to the control and use of cash and certain other general ledger
items which resulted in a substantial misappropriation of assets
over a period of more than four years. These irregularities were
perpetrated by a former employee, resulting in embezzlement
losses, net of recoveries. For further information, see
Note A to Cambium’s Consolidated Financial Statements
included in this proxy statement/prospectus.
(2)
In late 2007, Cambium decided to close its IntelliTools office
in Petaluma, California. In fiscal 2008, Cambium leased a
smaller facility in Petaluma, California, and, in fiscal 2009,
the Petaluma office was closed. The expenses added back in the
table above represent the rent and other operating costs for the
Petaluma office from January 2008 until its closure.
(3)
Adjustment is to eliminate external incremental costs incurred
by Cambium and Voyager that are directly related to the merger
transaction. In the Unaudited Pro Forma Condensed Combined
Statements of Operations included in this proxy
statement/prospectus, these costs are eliminated as a pro forma
adjustment in calculating the pro forma combined net loss.
(4)
Represents corporate overhead costs for Voyager that are
primarily related to the restatement of Voyager’s financial
statements and the related activities for Voyager to become
current with its SEC filings, costs to transition Voyager’s
corporate office from Ann Arbor, Michigan to Dallas, Texas, and
internal costs required to complete the strategic alternatives
process that culminated in the proposed merger transaction.
Going forward, Holdings expects to incur ongoing corporate
overhead and public company costs of approximately
$4 million annually. For the year ended December 31,2008, the adjustment represents the total costs of these
activities less the $4 million estimate which Holdings
considers to be ongoing. Because Voyager’s restatement
process and the relocation of Voyager’s corporate
headquarters were substantially completed by the end of fiscal
2008, non-recurring corporate costs for the nine months ended
September 30, 2009 are primarily related to internal costs
of Voyager’s strategic alternative process.
(5)
Under applicable accounting guidance for business combinations,
an acquiring entity is required to recognize all of the assets
acquired and liabilities assumed in a transaction at the
acquisition date fair value. For
purposes of the Pro Forma Unaudited Condensed Combined
Statement of Operations for the Year Ended December 31,2008 on page 159 and the Pro Forma Unaudited Condensed
Combined Statement of Operations for the Nine Months Ended
September 30, 2009 on page 160, net sales have been
reduced by $9.5 million and $0.3 million,
respectively, due to the pro forma write-down of deferred
revenue to its estimated fair value as of January 1, 2008.
The write-down was determined by estimating the cost to fulfill
the related future customer obligations plus a normal profit
margin. Related deferred costs have been written to a fair value
of zero, resulting in a partially offsetting reduction to cost
of sales of $1.4 million for the year ended
December 31, 2008 and $34,000 for the nine months ended
September 30, 2009. The net sales adjustment less the cost
of sales adjustment is presented above. The adjustment of
deferred revenue and deferred costs to fair value is required
only at the purchase accounting date; therefore, its impact on
net sales and costs of sales is non-recurring.
(6)
For fiscal 2008, Cambium received a settlement payment from
previous stockholders of Cambium relating to the embezzlement
suffered by Cambium. For further information, see Note A to
Cambium’s Consolidated Financial Statements included in
this proxy statement/prospectus.
(7)
For fiscal 2008, Cambium recorded a loss on the extinguishment
of debt related to the modification of its senior secured credit
facility and senior unsecured promissory notes resulting from
the execution of an amendment of those documents and the
delivery by the lenders of a permanent waiver. The associated
unamortized deferred financing costs and amendment fees related
to the permanent waiver are included in the loss on
extinguishment of debt. For further information, see Note G
to Cambium’s Consolidated Financial Statements included in
this proxy statement/prospectus.
(8)
For additional information on goodwill impairment charges, see
Note F to Cambium’s Consolidated Financial Statements
included in this proxy statement/prospectus, Note 5 to
Voyager’s
Year-End
Consolidated Financial Statements, and Note 8 to Voyager’s
Interim Consolidated Financial Statements included in this proxy
statement/prospectus.
(9)
Lease termination charges are for the discontinuance of office
space and other leases resulting from the transition of
Voyager’s corporate headquarters from Ann Arbor, Michigan
to Dallas, Texas. For further information, see Note 16 to
Voyager’s Consolidated Financial Statements included in
this proxy statement/prospectus.
(10)
For the period from January 1, 2007 through April 11,2007, Cambium held in escrow $0.6 million in connection
with stock-based awards. As a result of the settlement with the
former stockholders in 2008, the rights to the $0.6 million
held in escrow were foregone. This amount was recorded as income
in interest and other expenses in Cambium’s historical
statement of operations for 2008 and, accordingly, is excluded
from EBITDA. Cambium had no stock-based compensation expense for
the nine months ended September 30, 2009. Voyager’s
historical statements of operations include stock-based
compensation expense of $0.9 million for 2008 and
$0.2 million for the nine months ended September 30,2009. The Unaudited Pro Forma Condensed Consolidated Statements
of Operations include an adjustment of $0.9 million for
2008 and $0.7 million for the nine months ended
September 30, 2009 for estimated stock-based compensation
expense related to stock option grants by Holdings (which become
effective upon consummation of the mergers) to
Messrs. Klausner, Cappellucci, Almond, Campbell, and Logue.
(11)
The Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 2008 includes a
pro forma adjustment to record certain contractual obligations,
retention and other payments that become payable as a result of
the merger, subject to subsequent service requirements of up to
one year.
Cambium Learning’s senior unsecured credit agreement
contains a financial covenant regarding Cambium Learning’s
minimum adjusted EBITDA (calculated as set forth in the credit
agreements) as of the end of each fiscal quarter. All of the
adjustments shown in the Adjusted EBITDA for Cambium in the
table above are adjustments used in determining adjusted EBITDA
pursuant to Cambium Learning’s credit agreements.
Furthermore, Cambium Learning’s credit agreements allow
additional adjustments that permit the add-back of specified
non-operational expenses that, in the view of the lenders, are
reasonable adjustments to EBITDA. These are shown in the table
below. Holdings has not presented these additional adjustments
as part of the Comparative Historical and Unaudited EBITDA and
Adjusted EBITDA Data because they are adjustments that
management would not commonly make in internal use of Adjusted
EBITDA for establishing and measuring operational performance
targets. These additional adjustments are set forth in the table
below to provide a reconciliation of the adjusted EBITDA allowed
by Cambium Learning’s credit agreements to Holdings’
Adjusted EBITDA as presented in the Comparative Historical and
Unaudited EBITDA and Adjusted EBITDA Data. The calculation of
EBITDA under the credit agreements will be modified to increase
the adjustments effective as of the effective date of the
mergers pursuant to the terms of the amendments to the credit
agreements. See “MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Liquidity and Capital Resources —
Long-Term Debt” on page 235.
Additional adjustments allowed to EBITDA per the Cambium credit
agreement:
Certain operating taxes
703
—
—
703
Management fees
199
—
(51
)
148
Employee severance
604
—
—
604
Certain legal costs
292
—
—
292
Restructuring expense
507
—
—
507
Interest income
86
—
—
86
Other
183
—
—
183
Adjusted EBITDA per the Cambium credit agreement
$
25,389
$
11,843
$
(1,918
)
$
35,314
Cambium Learning’s senior secured and senior unsecured
credit agreements are material to Cambium, with
$166.7 million in borrowings outstanding as of
September 30, 2009. The senior secured credit agreement
contains a financial covenant requiring a total leverage ratio
of 6.5:1 or less as of the end of each fiscal quarter. Cambium
Learning’s senior unsecured credit agreement contains a
financial covenant requiring minimum adjusted EBITDA (calculated
as set forth in the credit agreements) for the trailing four
fiscal quarters to be at least $25.0 million. As of
August 14, 2009, Cambium was in non-compliance with both of
these covenants. On August 14, 2009, Cambium notified both
its senior secured lenders and senior unsecured debt holders
that Cambium’s stockholder intended to cure the
non-compliance. On August 17, 2009, $3.0 million of
capital was contributed to Cambium Learning by its stockholder
to fund the cure. On August 20, 2009, the $3.0 million
was paid by Cambium Learning to the senior secured lenders and
the principal amount outstanding under Cambium’s senior
secured credit agreement was reduced by a corresponding amount.
Cambium Learning is permitted one such cure right in each fiscal
year. An uncured default with respect to either of these
financial covenants could, if not waived by the lenders and the
noteholders, result in acceleration of the indebtedness under
Cambium Learning’s credit facilities. Cambium Learning may
not have sufficient funds to repay the indebtedness, and there
may not be equity or debt financing opportunities available to
Cambium Learning on acceptable terms, or at all. Cambium
Learning was in compliance with its financial covenants for the
quarter ended September 30, 2009. Based on Cambium
Learning’s performance to date, Cambium Learning expects to
be in compliance with its financial covenants for the quarter
ending December 31, 2009.
You should carefully read and consider the following risk
factors before deciding how to vote on the adoption of the
merger agreement. These factors should be considered in
conjunction with the other information included in, and found in
the annexes attached to, this proxy statement/prospectus,
including the matters addressed in the section entitled
“CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS” on page vii. These risks and uncertainties
relate to the mergers and the combined company after completion
of the mergers, as well as to Cambium and Voyager as the
constituent companies in the mergers. All of the risk factors
set forth below are important and the occurrence of any of these
risks could materially and adversely affect the business,
operating results, financial condition or liquidity of any or
all of Holdings, Cambium or Voyager. Please note that, as
indicated elsewhere in this proxy statement/prospectus, Holdings
has not conducted any business to date but, if the transaction
is completed, Holdings’ business immediately following the
mergers will combine the businesses conducted by Cambium and
Voyager immediately prior to the mergers. As a result, the risks
described below under “— Risks Related to
Holdings and Its Business” reflect the material risks to
which the businesses of Cambium and Voyager currently are or may
be subject.
Because
the exchange ratio is fixed, the market value of Holdings common
stock issued to you if you receive Holdings common stock in the
mergers may be less than the value of your shares of Voyager
common stock.
Voyager stockholders who receive shares of Holdings common stock
in the mergers will receive a fixed number of shares of common
stock of Holdings, rather than a number of shares with a
particular fixed market value, as determined by the 1:1 exchange
ratio set forth in the merger agreement. The market value of
Voyager common stock at the time of the closing of the mergers
may vary significantly from its price on the date the merger
agreement was executed, the date of this proxy
statement/prospectus or the date on which Voyager stockholders
vote on the merger agreement. Because the exchange ratio will
not be adjusted to reflect any changes in the market value of
Voyager common stock, the market value of Holdings common stock
issued in the mergers may be higher or lower than the value of
the shares of Voyager common stock surrendered in the
transaction, and may be higher or lower than the $6.50 per share
of Voyager common stock to be paid to Voyager stockholders that
receive cash merger consideration with respect to all or a
portion of their shares of Voyager common stock. Stock price
changes may result from a variety of factors that are beyond the
control of Voyager or Holdings, including changes in business,
operations and prospects, regulatory considerations and general
and industry specific market and economic conditions. Voyager is
not permitted to terminate the merger agreement solely because
of changes in the market price of its common stock.
Voyager’s
obligation to pay a termination fee under specified
circumstances, which fee may be greater than termination fees
payable by Cambium, and the restrictions on Voyager’s
ability to solicit other acquisition proposals may discourage
other companies from attempting to acquire
Voyager.
Until the mergers are completed or the merger agreement is
terminated, subject to limited exceptions, the merger agreement
prohibits Voyager from entering into or soliciting any
acquisition proposal or offer for a merger or other business
combination with a party other than Cambium. In addition,
Voyager has agreed to pay Cambium a termination fee of up to
$7.5 million in specified circumstances, including upon
termination of the merger agreement following a failure by
Voyager’s board to recommend adoption of the merger
agreement or upon termination by Voyager to accept a superior
acquisition proposal. These provisions could discourage other
parties from attempting to acquire Voyager for a higher price.
Although Voyager would, under specified circumstances, have the
right to terminate the merger agreement to accept a superior
proposal prior to a stockholder vote on the merger agreement, it
may only do so if it pays the $7.5 million termination fee,
first receives the proposal after the SEC declares the
registration statement effective and complies with other
detailed requirements contained in the merger agreement.
In addition, although Cambium also may be required to pay a
termination fee under the merger agreement in specified
circumstances, its termination fee obligations generally are
lower than the $7.5 million fee referred to above. In most
instances where Cambium is required to pay a termination fee,
the termination fee is limited
to a maximum of $4.5 million. Moreover, Cambium has the
right to terminate the merger agreement at any time, for any
reason not otherwise specified in the merger agreement, subject
only to its obligation to pay to Voyager this amount. Voyager
has no comparable right to terminate. For additional information
regarding termination fees that may be payable by Voyager and
Cambium under the merger agreement, see “THE MERGER
AGREEMENT — Termination and Termination Fees” on
page 141.
Some
directors and officers of Cambium and Voyager have interests in
the mergers that may conflict with, or be different from or in
addition to, the interests of the stockholders of their
respective companies.
Executive officers of Cambium and Voyager negotiated the terms
of the merger agreement and the boards of directors of Cambium
and Voyager approved the merger agreement and unanimously
recommend that their respective stockholders vote in favor of
the mergers. Some directors and officers of Cambium and Voyager
have interests in the mergers that may be different from or in
addition to, or could be perceived as being in conflict with,
the interests of their respective stockholders.
Voyager stockholders should be aware of these interests when
they consider the recommendation of Voyager’s board of
directors to vote in favor of the adoption of the merger
agreement and when they make their decisions as to how to vote.
See “THE MERGERS — Interests of Voyager’s
Directors and Officers in the Mergers” on page 101 and
“THE MERGERS — Interests of Cambium’s
Directors and Officers in the Mergers” on page 107.
VSS is the principal equity owner of Cambium’s stockholder.
For information regarding interests that VSS may have in the
mergers, see “MANAGEMENT OF HOLDINGS FOLLOWING THE
MERGERS — Related Party Transactions” on
page 188.
The
combined company may never realize the anticipated benefits from
the mergers.
The mergers involves the integration of two companies that have
previously operated independently and are geographically remote
from each other. Although the parties believe that the
combination of Cambium and Voyager has the potential to result
in substantial financial and operating benefits, including
increased revenues, cost savings (which Holdings estimates to be
approximately $10 million per year) and other benefits,
Holdings does not assure you regarding when, whether or the
extent to which the combined company will be able to realize
increased revenues, cost savings or other benefits, if at all.
In this regard, see also the additional risk factors set forth
under “RISK FACTORS — Risks Related to Holdings
and Its Business” below.
Voyager
stockholders will have a reduced ownership and voting interest
after the mergers and will exercise less influence over
management of the combined company.
After the completion of the transaction, Voyager stockholders
will own a smaller percentage of the combined company than they
currently own of Voyager. Upon completion of the mergers,
assuming that the maximum amount of cash payable in the mergers
is paid to Voyager stockholders and assuming no exercise of
appraisal rights, the former stockholder of Cambium will own
approximately 55.5%, and former Voyager stockholders (excluding
the effect of stock options and excluding the effect of the
Holdings Warrant) will own approximately 44.5%, of Holdings
common stock issued and outstanding at the time of completion of
the mergers. Consequently, Voyager stockholders, as a group,
will have significantly reduced ownership and voting power in
the combined company compared to their ownership and voting
power in Voyager prior to the completion of the transactions. In
particular, Voyager stockholders, as a group, will have less
than a majority of the ownership and voting power of Holdings
and, therefore, will be able to exercise significantly less
influence over the management and policies of the combined
company than they currently exercise over the management and
policies of Voyager.
The
Cambium stockholder and the Voyager stockholders may not realize
a benefit from the mergers commensurate with the ownership
dilution they will experience in connection with the
mergers.
Cambium and Voyager anticipate that the market value of the
percentage of common stock of Holdings owned by the
companies’ respective existing stockholders following
completion of the mergers will be roughly equivalent to the
market value of the aggregate common stock of each respective
company prior to completion of the transaction, after giving
effect to the payment of cash and the distribution of CVRs as
part of the merger consideration payable to Voyager
stockholders. However, if Holdings is unable to realize the
strategic financial benefits currently anticipated from the
mergers, the stockholders of Cambium and Voyager will have
experienced substantial dilution of their respective ownership
interests without receiving the commensurate benefit.
The
proposed transaction may not be completed, which may
significantly harm the market price of Voyager’s common
stock and its future business and financial
results.
Although Cambium and Voyager have signed the merger agreement in
furtherance of the proposed mergers of Cambium and Voyager with
and into newly formed subsidiaries of Holdings, the completion
of the transaction is subject to stockholder and regulatory
approvals and other closing conditions, and there is no
assurance that all of the conditions to closing will be met or
that the mergers will be completed on a timely basis or at all.
In addition, Cambium and Voyager each may unilaterally terminate
the merger agreement without the payment of a fee if the mergers
are not completed on or before December 31, 2009, and
Cambium has the right to terminate the merger agreement at any
time, for any reason not otherwise specified in the merger
agreement, subject only to its obligation to pay to Voyager a
termination fee of $4.5 million. The merger agreement may
also be terminated for several other reasons, all as more fully
described under “THE MERGER AGREEMENT —
Termination and Termination Fees” on page 141.
Although Voyager expects to continue operations if the
transaction is not completed for any reason, it may be harmed in
a number of ways, including the following:
•
to the extent that the current market price of Voyager common
stock reflects an increase resulting from a market assumption
that the transaction will be completed, the market price of
Voyager common stock may decline by the value attributed to this
assumption, or could decline even more;
•
Voyager may be required to pay a termination fee of up to
$7.5 million if the mergers are terminated under specified
circumstances, and if any of this fee were to be paid, Voyager
would experience a material negative effect on its financial
condition and results of operations;
•
an adverse reaction from Voyager’s investors and potential
investors may reduce future opportunities for financings or
business combinations;
•
the pendency of the mergers, as well as customary covenants in
the merger agreement that limit each party’s ability to
take specified actions without the other party’s consent,
may cause Voyager to defer or potentially lose business
opportunities that it might have otherwise pursued;
•
matters relating to the mergers require substantial commitments
of time and resources by Voyager’s management, which could
otherwise have been devoted to other opportunities that may have
been beneficial to Voyager; and
•
Voyager’s costs and expenses related to the transaction,
including legal and accounting fees and fees payable to
Voyager’s financial advisors, as well as expenses relating
to printing of proxy materials and solicitation of proxies, must
be paid even if the mergers are not completed.
In addition, Voyager could be subject to litigation related to
any failure to complete the mergers. If the mergers are not
completed, any of these risks may materialize and may materially
and adversely affect the stock price of Voyager and its
financial results and ongoing business.
The
Holdings common stock may not be listed for trading on NASDAQ,
or on any other national securities exchange, at the time that
the mergers are completed. Even if the Holdings common stock is
listed upon completion of the mergers, the absence of a
historical trading market for Holdings common stock creates
uncertainty about future trading prices of its common
stock.
Holdings has applied to list its common stock on the NASDAQ
Global Market. However, under the terms of the merger agreement,
the listing of Holdings common stock on NASDAQ is not a
condition to completion of the mergers. It is possible that upon
completion of the mergers, the Holdings common stock will not be
listed for trading on the NASDAQ Global Market or any other
national securities exchange. If the Holdings common stock is
not listed for trading upon completion of the mergers, Holdings
cannot predict when, if ever, the shares will be listed. If,
upon completion of the mergers or later, the Holdings common
stock is listed on NASDAQ, or another national securities
exchange or automated quotation system, Holdings common stock
will begin trading publicly for the first time. Although this
proxy statement/prospectus contains information regarding the
historical market prices of Voyager’s common stock, those
prices are not necessarily relevant to the market prices at
which Holdings common stock may trade, since Holdings will
combine the operations of both Cambium and Voyager. Holdings
cannot predict the extent to which a trading market will develop
in its common stock after completion of the mergers, whether
that market will be active or how liquid that market might
become, since its common stock may or may not be listed on
NASDAQ or another national securities exchange or automated
quotation system and has no independent trading history.
The
combined company’s stock price may be volatile, and the
market price of the Holdings common stock may decline in value
following the transaction.
There may be significant fluctuations in the market price of
Holdings common stock, both initially before an orderly trading
market develops and after that time. Historically, the market
price of Voyager’s common stock has fluctuated, and the
common stock of Cambium never has been publicly traded, listed
on a stock exchange or quoted on a quotation system. Any price
fluctuations of Holdings common stock may be unrelated or
disproportionate to the actual operating performance of the
combined company, and may be due to factors beyond
Holdings’ control. Moreover, if the market price of the
combined company’s common stock becomes subject to
significant fluctuations following the mergers, the value of the
shares of Holdings’ common stock at any given point in time
could be less than the value of Holdings common stock
immediately after completion of the transaction.
Broad market and industry factors, as well as factors
specifically relating to Holdings and its business, may
adversely affect the market price of Holdings common stock. Some
of the factors that may cause the market price of the combined
company’s common stock to fluctuate include:
•
actual or anticipated variations in Holdings’ financial
results;
•
changes in estimates or recommendations by securities analysts,
if any, covering Holdings’ common stock;
•
the failure of the combined company to meet analysts’
expectations;
•
conditions or trends in the industry in which Cambium and
Voyager operate, including governmental or regulatory changes
affecting education;
•
announcements by Holdings or its competitors of significant
acquisitions, strategic partnerships or divestitures;
•
additions or departures of key personnel of the combined company;
•
the entry into, or termination of, key agreements or
arrangements affecting Holdings’ business or
operations; and
•
future sales of Holdings’ securities, including sales of
common stock by its directors and officers or its strategic
investors.
The factors that affect the price of Holdings common stock may
be different from the factors that have affected the price of
Voyager common stock to the extent the business of the combined
company differs from Voyager’s business.
Moreover, the stock markets in general have experienced
substantial and unprecedented volatility in recent years, which
volatility generally has been unrelated to the operating
performance of individual companies. Should this market
volatility continue, these broad market fluctuations could
materially and adversely affect the trading price of Holdings
common stock. In the past, companies that have experienced
significant volatility in the market price of their stock have
been the objects of securities class action litigation. If
Holdings were to become the object of securities class action
litigation, it could result in substantial costs and a diversion
of its management’s attention and resources.
Holdings
does not expect to pay dividends on its common stock in the
short term.
Holdings has not yet determined its dividend policy, but it is
unlikely that Holdings will pay any dividends to holders of its
common stock in the short term, and it may never pay any
dividends. The combined company anticipates that it will retain
its earnings, if any, for future growth. Any determination to
pay
dividends in the future will be at the discretion of
Holdings’ board of directors and will depend upon
Holdings’ results of operations, financial condition,
contractual limitations, restrictions imposed by applicable law,
business and investment strategy and any other factors that
Holdings’ board of directors deems relevant. As a result,
the appreciation, if any, of the price of Holdings’ common
stock may be the only source of a return to stockholders.
The
existence of a majority stockholder may adversely affect the
market price of Holdings’ common stock and could delay,
hinder or prevent a change in corporate control or result in the
entrenchment of management and the board of directors, and
Holdings’ majority stockholder will have a contractual
right to maintain or increase its percentage ownership in
Holdings following the closing.
While the precise percentage of Holdings common stock that will
be controlled by Cambium’s sole stockholder cannot be
determined until the amount of cash available for distribution
in the Voyager merger and the amount of cash elected by Voyager
stockholders is ascertained, it is expected that the sole
stockholder of Cambium, VSS-Cambium Holdings III, LLC, will own
a majority of Holdings’ outstanding common stock upon
completion of the mergers. As a result, VSS-Cambium Holdings
III, LLC will likely have the ability to determine the outcome
of matters submitted to Holdings’ stockholders for
approval, including the election and removal of directors and
any merger, consolidation or sale of all or substantially all of
the combined company’s assets. In addition, VSS-Cambium
Holdings III, LLC will likely have the ability to control the
management, affairs and operations of Holdings. Accordingly,
this concentration of ownership may harm the market price of
Holdings common stock by delaying, deferring or preventing a
change in control or impeding a merger, consolidation, takeover
or other business combination involving the combined company.
The ownership of a large block of stock by a single stockholder
may also reduce liquidity in the market for Holdings common
stock. Should VSS-Cambium Holdings III, LLC determine to sell
any of its position in the future, sales of substantial amounts
of Holdings common stock on the market, or even the possibility
of these sales, may adversely affect the market price of its
common stock. These sales, or even the possibility of these
sales, also may make it more difficult for Holdings to raise
capital through the issuance of equity securities at a time and
at a price it deems appropriate.
Moreover, VSS-Cambium Holdings III, LLC will have a contractual
right to maintain or increase its percentage ownership in
Holdings following the mergers. Specifically, under the terms of
a stockholders agreement that Holdings will enter into at the
closing of the mergers, if Holdings were to engage in a new
issuance of its securities following the closing, VSS-Cambium
Holdings III, LLC and funds managed or controlled by VSS would
have preemptive rights to purchase an amount of Holdings
securities that would enable them to maintain their same
collective percentage ownership in Holdings following the new
issuance. VSS-Cambium Holdings III, LLC and funds managed or
controlled by VSS would have these preemptive rights for so long
as those entities collectively beneficially own, in the
aggregate, at least 25% of the outstanding shares of Holdings
common stock. Thus, while other holders of Holdings securities
would risk suffering a reduction in percentage ownership in
connection with a new issuance of securities by Holdings,
VSS-Cambium Holdings III, LLC and funds managed or controlled by
VSS would have the opportunity to avoid a reduction in
percentage ownership.
VSS-Cambium Holdings III, LLC and funds managed or controlled by
VSS also will have the opportunity to increase their percentage
ownership in Holdings at a discount from market price following
completion of the mergers. Under the stockholders agreement, at
any time and from time to time at or prior to the
24-month
anniversary of the effective time of the mergers, VSS-Cambium
Holdings III, LLC and funds managed or controlled by VSS have
the right to purchase from Holdings, in cash, at a 10% discount
from market price, up to the lesser of 7,500,000 shares of
Holdings common stock or shares of Holdings common stock with an
aggregate purchase price of $20 million. Any purchases of
stock by these entities may dilute the ownership percentage of
all other Holdings stockholders.
Holdings
may be a “controlled company” within the meaning of
the NASDAQ rules and, as a result, may qualify for, and rely on,
exemptions from various corporate governance standards, which
may limit the presence of independent directors on the board of
directors or board committees of Holdings.
As we have described above, it is expected that VSS-Cambium
Holdings III, LLC will own a majority of Holdings’
outstanding common stock upon completion of the mergers. As a
result, Holdings may be deemed to be a “controlled
company” for purposes of NASDAQ Rule 5615(c)(2). Under
this rule, a company of which more than 50% of the voting power
for the election of directors is held by an individual, a group
or another company is a “controlled company” and is
exempt from certain NASDAQ corporate governance requirements,
including requirements that a majority of the board of directors
consist of independent directors, that compensation of officers
be determined or recommended to the board of directors by a
majority of its independent directors or by a compensation
committee that is composed entirely of independent directors and
that director nominees be selected or recommended for selection
by a majority of the independent directors or by a nominating
committee composed solely of independent directors. Holdings
intends to rely upon these exemptions. Accordingly,
Holdings’ stockholders may not have the same protections
afforded to stockholders of other companies that are required to
comply fully with the NASDAQ rules.
Holdings’ board of directors has adopted an audit committee
charter which will govern its audit committee. Since the
“controlled company” exemption does not extend to the
composition of audit committees, Holdings is required to have an
audit committee that consists of at least three directors, each
of whom must be “independent” based on independence
criteria set forth in
Rule 10A-3
of the Exchange Act. These three directors must also satisfy the
requirements set forth in NASDAQ Market Rule 5605(a) and
(c).
Rule 10A-3
of the Exchange Act allows Holdings to “phase in” the
independence requirements applicable to audit committees.
Accordingly, the board of directors expects to establish an
audit committee composed of three independent directors within
the phase-in rule described above.
The
failure of the original Cambium Learning investors to own at
least 35% of Holdings common stock or the sale by the VSS Funds
of more than 15% of their Holdings common stock would constitute
an event of default under the Cambium Learning credit
agreements, entitling the lenders to accelerate the repayment of
all outstanding indebtedness.
Cambium Learning’s senior secured and senior unsecured
credit agreements contain various restrictions on changes in the
direct or indirect ownership or control of Cambium Learning.
These restrictions are embodied in the credit agreements’
“Change in Control” definition and under their
“Events of Default” provisions. In addition to
customary ownership and control changes, a “Change in
Control” would occur if at least 35% of Holdings’
common stock were not owned by at least one of the original
investors in Cambium Learning or if the VSS Funds sold more than
15% of the Holdings common stock owned by them (through
VSS-Cambium Holdings III, LLC). Immediately following the
mergers, the original Cambium Learning investors, through
VSS-Cambium Holdings III, LLC, are expected to own approximately
55.5% of Holdings’ common stock. Future issuances of common
or other capital stock by Holdings could dilute the original
Cambium Learning investors’ ownership percentage below the
requisite 35% amount.
However, the investment funds controlled by VSS which were among
the original Cambium Learning investors, have the contractual
right (but not the obligation) to subscribe for additional
shares of Holdings’ common stock in order to preserve their
ownership level and thereby prevent unwanted dilution. This
contractual right requires these investment funds to pay
consideration to acquire any such additional shares. Holdings
does not assure you that these funds will at any time elect to
exercise their subscription right. For additional information
regarding these subscription agreements, see “RELATED
AGREEMENTS — Stockholders Agreement.”
The occurrence of a “Change in Control” would
constitute an “Event of Default” under the credit
agreements. Either the administrative agent or a majority of the
lenders have the right, upon the occurrence of an “Event of
Default,” to terminate all commitments to make revolving
loans, and to accelerate all outstanding revolving and term
loans by declaring them immediately due and payable. Holdings
and its subsidiaries are not expected to have sufficient cash on
hand to repay these loans in full upon such an acceleration.
Holdings
may seek to raise additional funds, finance additional
acquisitions or develop strategic relationships by issuing
additional securities, including capital stock.
In the future, Holdings may seek to raise additional funds,
finance additional acquisitions or develop or engage in
strategic relationships by issuing equity or debt securities.
The issuance of equity securities, including debt securities
that are convertible into equity, would reduce the percentage
ownership of Holdings’ existing stockholders. Furthermore,
any newly issued equity securities could have rights,
preferences and privileges senior to those of the holders of
Holdings common stock. The issuance of new debt securities could
subject Holdings and its subsidiaries to covenants which
constrain Holdings’ ability to grow or otherwise take steps
that may be favored by holders of Holdings common stock.
Under the terms of a stockholders agreement that Holdings will
sign at the closing, so long as Cambium’s stockholder and
funds controlled by VSS beneficially own in the aggregate at
least 25% of the outstanding shares of Holdings common stock,
they will have preemptive rights which generally give them the
opportunity to purchase an amount of Holdings securities in a
new issuance of securities by Holdings that would enable them to
maintain their same collective percentage ownership in Holdings
following the new issuance. Thus, while other stockholders risk
suffering a reduction in percentage ownership in connection with
an issuance of securities by Holdings, Cambium’s sole
stockholder and funds managed or controlled by VSS will have the
opportunity to avoid a reduction in percentage ownership. In
addition, under the stockholders agreement, until the 24 month
anniversary of the effective time, Cambium’s stockholder
and funds managed or controlled by VSS will have the right to
purchase from Holdings, in cash, at a 10% discount from market
price, up to the lesser of 7,500,000 shares of Holdings
common stock or shares of Holdings common stock with a
discounted purchase price of $20 million. Any purchases of
stock at a discount from the market price may dilute the
ownership percentage and equity ownership of all other Holdings
stockholders.
Provisions
of Holdings’ organizational documents and Delaware law may
delay or deter a change of control of Holdings.
Following the mergers, Holdings’ organizational documents
will contain provisions that may have the effect of
discouraging, delaying or preventing a change of control of, or
unsolicited acquisition proposals for, the combined company.
These include provisions that:
•
vest Holdings’ board of directors with the sole power to
set the number of directors of the combined company;
•
provide that Holdings’ board of directors will be elected
on a staggered term basis, so that generally only one-third of
the board will be elected at each annual meeting of stockholders;
•
limit the persons that may call special meetings of stockholders;
•
establish advance notice requirements for stockholder proposals
and director nominations; and
•
limit stockholder action by written consent.
For a more detailed description of these provisions, see
“DESCRIPTION OF HOLDINGS’ CAPITAL STOCK” on
page 192, as well as the certificate of incorporation and
bylaws of Holdings attached as Annexes C and D,
respectively, to this proxy statement/prospectus.
Also, Holdings’ board of directors has the authority to
issue shares of preferred stock in one or more series and to fix
the rights and preferences of these shares, all without
stockholder approval. Any series of preferred stock of Holdings
is likely to be senior to its common stock with respect to
dividends, liquidation rights and, possibly, voting rights. The
ability of Holdings’ board of directors to issue preferred
stock also could have the effect of discouraging unsolicited
acquisition proposals, thus adversely affecting the market price
of Holdings common stock.
In addition, Delaware corporate law makes it difficult for
stockholders that recently have acquired a large interest in a
corporation to cause the merger or acquisition of the
corporation against the directors’ wishes. Under
Section 203 of the DGCL, a Delaware corporation such as
Holdings may not engage in any merger or
other business combination with an interested stockholder or
such stockholder’s affiliates or associates for a period of
three years following the date that such stockholder became an
interested stockholder, except in limited circumstances,
including by approval of the corporation’s board of
directors. See “COMPARISON OF STOCKHOLDER RIGHTS” on
page 197.
Cambium
Learning has a significant amount of senior secured and senior
unsecured debt and will have the obligation to make principal
and interest payments on that debt, and to comply with
restrictions contained in credit agreements with its senior
secured and senior unsecured lenders.
Cambium Learning has an aggregate of $166.7 million of
outstanding senior secured and senior unsecured debt as of
September 30, 2009, consisting of $97.7 million under
senior secured term loans, $54.0 million under senior
unsecured notes, and $15.0 million drawn under a revolving
credit facility. The amount of leverage could have important
consequences for holders of Holdings’ securities, including:
•
a substantial portion of the cash provided from operations will
be committed to the payment of Cambium Learning’s debt
service and will not be available for other purposes;
•
the combined company’s ability to obtain additional
financing in the future for working capital, capital
expenditures or acquisitions may be limited; and
•
the level of indebtedness of the combined company may limit its
flexibility in reacting to changes in the combined
company’s business environment.
Cambium Learning’s senior secured and senior unsecured term
loan facilities mature on April 11, 2013 and April 11,2014, respectively, and must be either repaid, refinanced or
extended on those respective dates. Cambium Learning may not be
able to extend the debt at that time (or prior thereto in the
case of acceleration) and equity or debt financing may not be
available to Cambium Learning to replace some or all of the
maturing debt on acceptable terms, if at all.
It is expected that, after giving effect to the merger
transactions, a certain amount of Voyager’s earnings will
be included in Cambium Learning’s adjusted EBITDA for
purposes of calculating compliance with the financial covenants
under the credit agreements. This contribution is expected to
increase Cambium Learning’s adjusted EBITDA and, therefore,
increase the likelihood that such financial covenants will be
satisfied.
Upon
completion of the mergers, Voyager will be part of a company
that has substantial credit obligations, in contrast to its
current position where its exposure to long-term indebtedness is
immaterial.
As of September 30, 2009, Voyager reported $85,325,000 in
cash and cash equivalents, and no long-term debt for borrowed
money other than capital lease obligations of $215,000. Of these
cash and cash equivalents, Voyager will use $42.5 million
to fund a portion of the merger consideration, approximately
$22 million to fund certain pension, benefit and severance
liabilities at or before the effective time, and the balance to
fund transaction expenses. Following completion of the mergers,
Voyager’s operating subsidiary will become a subsidiary of
Cambium Learning, and a guarantor of its indebtedness. As of
September 30, 2009, this indebtedness consisted of
$166.7 million of outstanding senior secured and senior
unsecured debt, which consisted of $97.7 million under the
senior secured term loans, $54.0 million under the senior
secured notes, and $15.0 million drawn under the revolving
credit facility. Voyager’s operating subsidiary will rely
upon Cambium Learning’s revolving credit facility, in
addition to cash generated from combined operations, to fund its
working capital needs and provide liquidity. If the revolving
credit facility or cash generated from combined operations is
not sufficient to fund the working capital needs and liquidity
of Voyager’s operating subsidiary, as well as the interest
expense under Cambium Learning’s indebtedness, Voyager will
not have other readily available sources of capital.
Cambium
was in non-compliance with the financial covenants in its senior
secured and senior unsecured credit facilities for the period
ended June 30, 2009 and made a $3.0 million cure
payment.
Cambium Learning’s senior secured credit agreement contains
a financial covenant regarding Cambium Learning’s total
leverage ratio as of the end of each fiscal quarter. Cambium
Learning’s senior unsecured credit
agreement contains a financial covenant regarding Cambium
Learning’s minimum adjusted EBITDA (calculated as set forth
in the credit agreements) as of the end of each fiscal quarter.
For the fiscal quarter ended June 30, 2009, Cambium
Learning’s total leverage ratio was greater than the
maximum permitted 6.5:1, and Cambium Learning’s adjusted
EBITDA was less than the minimum required $25 million. On
August 14, 2009, Cambium notified both its senior secured
lenders and its senior unsecured debt holders that VSS-Cambium
Holdings intended to cure the non-compliance. On August 17,2009, $3.0 million of capital was contributed to Cambium
Learning by its stockholder to fund the cure. On August 20,2009, the $3.0 million was paid by Cambium Learning to the
senior secured lenders and the principal amount outstanding on
Cambium Learning’s senior secured credit agreement was
reduced by a corresponding amount. For purposes of calculating
covenant compliance, the amount of the capital contribution is
added to the adjusted EBITDA for the four fiscal quarters ended
September 30, 2009 and the cure payment amount will be
included in the adjusted EBITDA calculations through the quarter
ending March 31, 2010. Cambium Learning is permitted one
such cure right in each fiscal year. Therefore, under the
existing credit agreements, Cambium Learning is not entitled to
any additional cure right with respect to future quarterly tests
in this fiscal year. If such a default were to occur, Cambium
Learning’s lenders may accelerate the indebtedness under
the credit agreements and, upon any such acceleration, Cambium
Learning would be required to repay or refinance all of such
indebtedness. Cambium Learning may not have sufficient funds to
repay the indebtedness, and there may not be equity or debt
financing opportunities available to Cambium Learning on
acceptable terms, or at all. Cambium was in compliance with its
financial covenants for the quarter ended September 30,2009. Based on Cambium Learning’s performance to date,
Cambium Learning expects to be in compliance with its financial
covenants for the quarter ending December 31, 2009.
In the event of such a default, Voyager would not be obligated
to close the mergers. See “THE MERGER AGREEMENT —
Conditions to the Voyager Merger and the Cambium Merger.”
Holdings has presented elsewhere in this proxy
statement/prospectus a reconciliation among net loss, EBITDA,
adjusted EBITDA as calculated by Holdings for purposes of
measuring operating performance and adjusted EBITDA as
calculated for purposes of Cambium Learning’s senior
unsecured credit agreement. See “SUMMARY —
Comparative Historical and Unaudited EBITDA and Adjusted EBITDA
Data.” The calculation of adjusted EBITDA used for purposes
of the senior unsecured credit agreement supplements the
adjustments to EBITDA used by Holdings for purposes of measuring
operating performance with additional adjustments to EBITDA
recognized by Cambium Learning’s lenders. Under the credit
agreements the method for calculating EBITDA was modified in the
amendments. These modifications will become effective upon
closing of the mergers. See “MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR CAMBIUM — Liquidity and Capital
Resources — Long-Term Debt” on page 235.
Cambium Learning’s ability to satisfy its debt service and
maintain compliance with loan covenants in the future will
depend in part on the operating performance of the combined
company, which will in turn be affected in part by prevailing
economic conditions in the markets Cambium Learning and Voyager
serve and other factors, many of which are beyond Cambium’s
or Voyager’s control.
For a more detailed discussion of Cambium Learning’s credit
facilities, see “MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Liquidity and Capital Resources —
Long-Term Debt.”
If
Holdings is unable to favorably assess the effectiveness of its
internal control over financial reporting, or if its auditors
are unable to provide an unqualified attestation report on
Holdings’ internal control over financial reporting, the
stock price of Holdings’ common stock could be adversely
affected.
Pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act
of 2002, Holdings’ management will be required to certify
to and report on, and Holdings’ auditors will be required
to attest to, the effectiveness of the combined company’s
internal control over financial reporting. The rules governing
the standards that must be met for management to assess
Holdings’ internal control over financial reporting are
complex, and require significant documentation, testing and
possible remediation. Holdings’ management is not required
to perform an assessment of internal control over financial
reporting for the fiscal year ending December 31, 2009.
Holdings’ management expects to complete an assessment and
certification on, and for its auditors to attest to,
the effectiveness of internal control over financial reporting
beginning with Holdings’ annual report on
Form 10-K
for the fiscal year ending December 31, 2010.
Compliance with regulatory requirements relating to internal
controls is expensive and may cause Holdings to focus a
significant amount of management time and other internal
resources on these matters. Holdings also may encounter problems
or delays in completing the implementation of any changes
necessary to make a favorable assessment of its internal control
over financial reporting. In addition, in connection with the
attestation process by its auditors, Holdings may encounter
problems or delays in completing the implementation of any
identified improvements or receiving a favorable attestation. If
Holdings cannot favorably assess the effectiveness of its
internal control over financial reporting, or if its auditors
are unable to provide an unqualified attestation report on
internal control over financial reporting, investor confidence
and the market price of Holdings common stock could be adversely
affected.
This
proxy statement/prospectus contains forward-looking statements
that may not be accurate indicators of future
performance.
Some statements under the captions “SUMMARY —
Strategy,”“THE MERGERS — Cambium’s and
Holdings’ Reasons for the Mergers; Consideration of the
Mergers by Cambium’s Board of Directors and Holdings’
Board of Directors,”“THE MERGERS —
Voyager’s Reasons for the Voyager Merger; Consideration of
the Voyager Merger by Voyager’s Board of Directors,”“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR CAMBIUM,”“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR VOYAGER” and
elsewhere in this proxy statement/prospectus are forward-looking
statements. These forward-looking statements include, but are
not limited to, statements about Holdings’ plans,
objectives, expectations and intentions and other statements
contained in this proxy statement/prospectus that are not
historical facts. When used in this proxy statement/prospectus,
the words “expects,”“anticipates,”“intends,”“plans,”“believes,”“seeks” and “estimates” and similar
expressions, and the negatives of those words and expressions,
are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or
implied by these forward-looking statements, including
Holdings’ plans, objectives, expectations and intentions
and other factors discussed in this proxy statement/prospectus.
Changes
in funding for public schools could cause the demand for
Holdings’ products to decrease.
Holdings will derive a significant portion of its revenues from
public schools, which are heavily dependent on federal, state
and local government funding. In addition, the school
appropriations process is often slow, unpredictable and subject
to many factors outside of Holdings’ control. Budget cuts,
curtailments, delays, changes in leadership, shifts in
priorities or general reductions in funding could reduce or
delay Holdings’ revenues. Funding difficulties experienced
by schools, which have been exacerbated by the current economic
downturn and state budget deficits, could also cause those
institutions to demand price reductions and could slow or reduce
purchases of intervention products, which in turn could
materially harm Holdings’ business.
Holdings’ business may be adversely affected by changes in
state educational funding, resulting from changes in
legislation, both at the federal and state levels, changes in
the state procurement process, changes in government leadership,
emergence of other priorities and changes in the condition of
the local, state or U.S. economy. While in the past few
years the availability of state and federal funding for
elementary and high school education has increased as a result
of legislation such as the No Child Left Behind Act and its
“Reading First” initiative, recent reductions in
related appropriations and other declines in budgeted revenues
in states that have traditionally purchased products and
services from Cambium and Voyager have caused some school
districts to reduce spending on the types of products and
services that Cambium and Voyager sell, and both Cambium and
Voyager have been affected by these reductions. Moreover, future
reductions in federal funding and the state and local tax bases
could create an unfavorable environment, leading to budget
shortfalls resulting in further decreases in educational
funding. Any decreased funding for public schools may harm
Holdings’ recurring and new business materially if its
customers are not able to find and obtain alternative sources of
funding.
Both
Voyager and Cambium receive significant sales from certain
states and reductions in public school education spending in
those states could cause the demand for Holdings’ products
to decrease.
In 2008, Voyager derived more than 10% of its sales from the
following three states in the following approximate percentages:
California — 12%; Florida — 17%; and
Texas — 16%. Cambium derived more than 10% of its
sales in 2008 from the following two states in the following
approximate percentages: California — 12%; and
Florida — 10%. California and Florida have
specifically experienced significant budget problems in 2009 as
a result of the current economic downturn and have announced
that they anticipate reductions in their 2009/2010 spending for
education relative to fiscal 2008/2009 levels. To the extent
that the economic situation in any of these states causes
reductions in public school spending, Holdings’ sales to
these states could be materially reduced which could harm
Holdings’ business and financial condition.
Both
Voyager and Cambium participate in state adoptions and sales may
be materially reduced if the businesses are not able to replace
sales in years subsequent to the first year of adoption or if
states elect to defer or eliminate adoption
purchases.
Both Voyager and Cambium participate in state-wide adoptions for
education products, as well as intervention products when states
issue specific adoption calls for intervention products. The
cost of participating in such adoptions is high, with no
guarantee of future sales. In addition, sales are traditionally
high in the first year of adoption but decline in subsequent
years, making it difficult to replace first year sales. After an
adoption has occurred, states may elect to allow school
districts to use adoption funds for alternative purposes other
than the purposes stated in the initial adoption, as has
occurred in Florida in 2009. Postponements of district-level
adoptions could also limit market potential in other states,
notably California, where the state has withheld more than
$4 billion in scheduled allocations to school districts
year-to-date in 2009 pending enactment of a budget for the
fiscal year that began on July 1, 2009. Holdings may not be
able to recover costs it incurs for participating in adoptions
and sales may be materially reduced if it is not able to replace
sales in years subsequent to adoption years or if states elect
to defer or eliminate adoption purchases.
Changes
in school procurement policies may adversely affect
Holdings’ business.
Many school districts have de-centralized their purchasing of
educational products. Increasingly, purchasing decisions are
being made at the school or classroom level, rather than at the
school district level. This change has caused some educational
product manufacturers to market through catalogs or other direct
sales channels, rather than through distributors and sales
representatives. Additionally, educational products are marketed
over the Internet. If Holdings is not able to respond to these
new and evolving marketing techniques, its sales could suffer
materially.
Holdings’
failure to expand its customer base could diminish incremental
revenues from certain products.
Both Cambium and Voyager sell products that may be purchased by
their customers for use over multiple school years. Repeat sales
to these customers during the use cycle typically consist of
replenishing consumables and replacements which are typically
considerably less than the initial sale. Therefore,
Holdings’ ability to maintain and grow sales and
profitability will depend significantly upon the ability to
acquire new customers or increase sales to existing customers.
Acquiring new customers or expanding student use within existing
customers could prove challenging as a result of competition
from larger competitors, reductions in state and local funding,
customer preferences and any requirement to provide enhancements
to product capabilities. Holdings may also be adversely affected
by existing customers who reduce or discontinue use of Cambium
or Voyager products and services, which may occur if the
combined company’s product offering is less competitive
with those of the combined company’s competitors, or a
result of budgetary constraints which have become increasingly
acute in the current economic downturn. If the combined company
is not successful
in continuing to acquire additional customers or expanding
business from the existing customers, Holdings’ earnings
may be adversely affected.
Holdings’
sales growth and profitability will depend, in part, on its
ability to attract and retain productive
resellers.
Historically, Cambium has used resellers as a sales channel for
certain products, and Voyager may use resellers as a means to
grow market share. Entities that resell Cambium or Voyager
products may discontinue selling the products or choose to
substitute a competing product, or they may not dedicate
sufficient attention and resources to Cambium or Voyager
products that they are selling. Should any of Cambium’s or
Voyager’s current or future resellers perform below
expectations, or should Cambium lose one or more relationships
with its current resellers, or fail to establish relationships
with additional or replacement resellers, sales and
profitability of the combined company could be adversely
affected.
Following
the mergers, the combined company may be unable to integrate
successfully the businesses of Cambium and Voyager and realize
the anticipated benefits of the mergers.
The mergers involve the combination of two companies which
currently operate as independent companies. The combined company
will be required to devote significant management attention and
resources to integrating its business practices and operations.
Potential difficulties the combined company may encounter in the
integration process include the following:
•
the inability to successfully combine the businesses of Cambium
and Voyager in a manner that permits the combined company to
achieve the cost savings (which Holdings estimates to be
approximately $10 million per year) and revenue synergies
anticipated to result from the mergers, which would result in
the anticipated benefits of the mergers not being realized
partly or wholly in the time frame currently anticipated or at
all;
•
lost sales and customers as a result of certain customers of
either of the two companies deciding not to do business with the
combined company;
•
complexities associated with managing the combined businesses;
•
integrating personnel from the two companies while maintaining
focus on providing consistent, high quality products and
customer service;
•
potential unknown liabilities and unforeseen increased expenses,
delays or regulatory conditions associated with the
mergers; and
•
performance shortfalls at one or both of the two companies as a
result of the diversion of management’s attention caused by
completing the mergers.
In addition, Cambium and Voyager have operated and, until the
completion of the mergers, will continue to operate,
independently. It is possible that the integration process could
result in the diversion of each company’s management’s
attention, the disruption or interruption of, or the loss of
momentum in, each company’s ongoing businesses or
inconsistencies in products, services, standards, controls,
procedures and policies, any of which could adversely affect the
ability of the combined company to maintain relationships with
customers and employees or its ability to achieve the
anticipated benefits of the mergers, or could reduce the
earnings or otherwise adversely affect the business and
financial results of the combined company. The integration
process may be difficult, unpredictable and subject to
substantial delay because the businesses of Cambium and Voyager
are complex, were developed independently and were designed
without regard to such integration. Moreover, Cambium and
Voyager are presently headquartered in different geographical
regions, which may further complicate integration efforts and
make integration of the two companies more challenging. In some
instances, Cambium and Voyager serve the same customers, and
some of these customers may decide that it is desirable to seek
out additional or different vendors in order to keep Holdings
competitive with other companies. If Holdings cannot
successfully integrate these businesses and continue to provide
customers with products, services and new features on a timely
basis in the future, Holdings may lose customers and its
business and results of operations may be harmed materially.
Future
results of Holdings may differ materially from the pro forma
financial statements presented in this proxy
statement/prospectus.
Future results of Holdings may be materially different from
those shown in the pro forma financial statements, which are
designed to show a combination of the historical results of
Cambium and Voyager. The combined company will incur various
charges, including acquisition-related charges and purchase
accounting adjustments. These charges may be higher or lower
than Holdings has estimated, depending upon how costly or
difficult it is to integrate the combined company. Furthermore,
these charges may decrease the capital of the combined company
that could be used for profitable, income-earning activities in
the future.
Holdings
will incur significant transaction and merger-related costs in
connection with the mergers.
Cambium and Voyager will incur legal, accounting and other
transaction fees and other costs related to the mergers,
anticipated to equal an aggregate of between $18 million
and $20 million. All but approximately $5.5 million of
these costs are payable regardless of whether the mergers are
completed. Moreover, under specified circumstances, Cambium or
Voyager may be required to pay termination fees or to reimburse
expenses in connection with the termination of the merger
agreement. See “THE MERGER AGREEMENT —
Termination and Termination Fees.” Additional unanticipated
costs may be incurred in the integration of the businesses of
Cambium and Voyager.
Although the parties expect that the elimination of duplicative
costs, as well as the realization of other efficiencies related
to the integration of the businesses, may offset these
transaction and merger-related costs over time, this net benefit
may not be achieved in the near term, or at all.
Holdings’
sales and profitability will depend on its ability to continue
to develop new products and services that appeal to customers
and end users and respond to changing customer
preferences.
Both Voyager and Cambium operate in markets that are
characterized by continuous and rapid change, including product
introductions and enhancements, changes in customer demands and
evolving industry standards. In a period of rapid change, the
technological and curriculum life cycles of Cambium’s and
Voyager’s products are difficult to estimate. The demand
for some of the more “mature” products and services of
both Cambium and Voyager has begun to migrate to other, newer
products and services. As a result, Holdings will need to
continuously reassess its product and service offerings.
Holdings could make investments in new products and services
that may not be profitable, or whose profitability may be
significantly lower than Cambium or Voyager have experienced
historically. If it is unable to anticipate trends and develop
new products or services responding to changing customer
preferences, Holdings’ revenues and profitability could be
adversely affected. Holdings’ business could be harmed if
it is unable to develop new products and invest in existing
products in an appropriate balance to keep the combined company
competitive in the marketplace.
Holdings’
business is anticipated to be seasonal and its operating results
are anticipated to fluctuate seasonally.
Holdings’ business is likely to be subject to seasonal
fluctuations. Historically, revenue and income from operations
for Cambium and Voyager have been higher during the second and
third calendar quarters. In addition, the quarterly results of
operations of Cambium and Voyager have fluctuated in the past,
and Holdings’ quarterly results of operations can be
expected to continue to fluctuate in the future, as a result of
many factors, including:
•
general economic trends;
•
state and local budgets for education;
•
the traditional cyclical nature of educational material sales;
•
school, library and consumer purchasing decisions;
•
unpredictable funding of schools and libraries by federal, state
and local governments;
•
consumer preferences and spending trends;
•
the need to increase inventories in advance of the primary
selling season; and
•
the timing of introductions of new products and services.
If
Holdings is unable to compete effectively, Holdings may be
unable to successfully attract and retain customers and its
profitability could be materially harmed.
The market for Cambium and Voyager products and services is
highly competitive and is characterized by frequent product
developments and enhancements of existing products. Holdings
does not assure you that products or services introduced by
others will not be harmful to the combined company and its
business.
Many companies, both privately and publicly owned, develop
products and services similar to the combined company’s
products. These competitors include both basal suppliers, such
as Houghton Mifflin/Harcourt (Riverdeep), Scott Foresman
(Pearson), and McGraw-Hill, which offer, often as part of their
core reading programs, intervention products, and supplemental
suppliers, such as Scientific Learning Corporation and
Scholastic Corporation. Several of the combined company’s
competitors have substantially greater financial, research and
development, manufacturing and marketing resources than the
combined company as well as greater name recognition and larger
customer bases. Accordingly, the combined company’s
competitors may be able to respond more quickly to new
technologies and changes in customer requirements, have more
favorable access to suppliers and devote greater resources to
the development and sale of their products and services. These
competitors may be successful in developing products and
services that are more effective or less costly than any
products or services that the combined company may provide
currently or may develop in the future. Any incursions by
competitors could materially and adversely affect the combined
company’s ability to attract and retain customers and thus
may materially harm its business.
Holdings’
intellectual property protection may be inadequate, which may
allow others to use its technologies and thereby reduce its
ability to compete.
The technology underlying Holdings’ services and products
may be vulnerable to attack by its competitors. Holdings will
rely on a combination of trademark, copyright and trade secret
laws, employee and third party nondisclosure agreements and
other contracts to establish and protect its technology and
other intellectual property rights. The steps that Cambium and
Voyager have taken prior to the mergers, and that Holdings will
take after the mergers, in order to protect their proprietary
technology may not be adequate to prevent misappropriation of
their technology or to prevent third parties from developing
similar technology independently.
Technology
content licensed from third parties may not continue to be
available.
Cambium and Voyager license from third parties technology
content upon which they rely to deliver products and services to
customers. This technology may not continue to be available to
Holdings on commercially reasonable terms or at all. Moreover,
Holdings may face claims from persons who claim that
Holdings’ licensed technologies infringe upon or violate
those persons’ proprietary rights. These types of claims,
regardless of the outcome, may be costly to defend and may
divert management’s efforts and resources.
Holdings’
products could infringe on the intellectual property of others,
which may cause it to engage in costly litigation and to pay
substantial damages or restrict or prohibit Holdings from
selling its products.
Third parties may assert infringement or other intellectual
property claims against Holdings based on their intellectual
property rights. If any of these claims are successful, Holdings
may be required to pay substantial damages, possibly including
treble damages, for past infringement on the part of Cambium or
Voyager. Holdings also may be prohibited from selling its
products or providing certain content without first obtaining a
license from the third party, which, if available at all, may
require Holdings to pay additional fees or royalties to the
third party. Even if infringement claims against Holdings are
without merit, defending a lawsuit takes significant time, is
often expensive and may divert management attention away from
other business concerns.
Holdings’
success will depend in part on its ability to attract and retain
key personnel.
Holdings’ success depends in part on its ability to attract
and retain highly qualified executives and management, as well
as creative and technical personnel. Members of Holdings’
senior management team have substantial industry experience that
is critical to the execution of Holdings’ business plan. If
they or other key
employees were to leave the combined company, and Holdings were
unable to find qualified and affordable replacements for these
individuals, Holdings’ business could be harmed materially.
Holdings’
customer contracts are not likely to insulate Holdings from
potential reductions in revenues.
Cambium and Voyager provide products and services to several
governmental agencies, school districts and educational
facilities under contractual arrangements that, in most cases,
are terminable at-will. The combined company may have no
recourse in the event of a customer’s cancellation of a
contract that is terminable at-will. In addition, contracts
awarded pursuant to a procurement process are subject to
challenge by competitors and other parties during and after that
process. The termination or successful challenge of significant
contracts could materially and adversely affect Holdings’
business, financial condition, results of operations and
liquidity.
Increases
in operating costs and expenses, many of which are beyond
Holdings’ control, could materially and adversely affect
Holdings’ operating performance.
Holdings must control its employee compensation expenses and its
printing, paper and distribution (such as postage, shipping and
fuel) costs in order to be profitable. Holdings’ ability to
control compensation expenses is limited by its need to offer
its employees competitive salaries and benefit packages in order
to attract and retain the quality of employees required to grow
and expand its business. Holdings’ ability to control
compensation expenses is also limited by general economic
factors, including those affecting costs of health insurance, as
well as by trends specific to the employee skills that Holdings
requires.
Paper prices fluctuate based on worldwide demand and supply for
paper, in general, as well as for the specific types of paper
used by Holdings. If there is a significant disruption in the
supply of paper or a significant increase in paper costs, which
would generally be beyond the control of Holdings, or if
Holdings’ strategies to manage these costs are ineffective,
Holdings’ results of operations could be materially and
adversely affected.
Acquisitions,
if completed, could adversely affect Holdings’
operations.
Holdings may seek potential acquisitions of products,
technologies and businesses in the education industry that could
complement or expand Cambium’s and Voyager’s current
product and service offerings and businesses. In the event that
Holdings identifies appropriate acquisition candidates, Holdings
may not be able to successfully negotiate, finance or integrate
the acquired products, technologies or businesses. Furthermore,
such an acquisition could cause a diversion of management’s
time and resources. Any particular acquisition, when completed,
may materially and adversely affect Holdings’ business,
results of operations, financial condition or liquidity.
The
failure to manage growth properly could have a material adverse
effect upon Holdings’ business, results of operations,
financial condition or liquidity.
The educational products industry is a fragmented industry. If
this industry becomes more concentrated over time, it will be
important for Holdings to grow and to manage its growth
effectively. Holdings’ ability to manage its growth, if
any, will require it to expand its management team and assure
that its systems and controls are designed to support this
growth. Any measurable growth in business will result in
additional demands on customer support, sales, marketing,
administrative and technical resources, and upon Holdings’
systems and controls. Holdings may not be able to successfully
address these additional demands, and Holdings’ operating
and financial control systems may not be adequate to support its
future operations and anticipated growth.
Holdings
will use the Internet extensively, and federal or state
governments may adopt laws or regulations that could expose it
to substantial liability and/or taxation in connection with
these activities.
As a result of increasing usage of the Internet, federal and
state governments may adopt laws or regulations regarding
commercial online services, the Internet, user privacy,
intellectual property rights, content and taxation of online
communications. Laws and regulations directly applicable to
online commerce or
Internet communications are becoming more prevalent and could
expose Holdings to substantial liability. Furthermore, various
proposals at the federal, state and local levels could impose
additional taxes on Internet sales. These laws, regulations and
proposals could decrease Internet commerce and other Internet
uses and adversely affect the success of the combined
company’s online products and business.
Holdings
could experience system failures, software errors or capacity
constraints, any of which would cause interruptions in the
delivery of electronic content to customers and ultimately may
cause Holdings to lose customers.
Any significant delays, disruptions or failures in the systems,
or errors in the software, that Holdings will use for the
technology-based component of its products, as well as for
internal operations, could harm its business materially. Voyager
and Cambium have occasionally suffered computer and
telecommunication outages or related problems in the past. The
growth of Holdings’ customer base, as well as the number of
websites it may provide, could strain its systems in the future
and will likely magnify the consequences of any computer and
telecommunications problems that Holdings may experience.
Many of the systems that Holdings will use to deliver its
services to customers are located in multiple facilities across
several states. However, destruction or disruption at a single
site can cause a system-wide failure. Although Holdings will
maintain property insurance on these premises, claims for any
system failure could exceed its coverage. In addition, its
products could be affected by failures associated with third
party hosting providers or by failures of third party technology
used in its products, and Holdings may have no control over
remedying these failures.
Any failures or problems with its systems or software could
force Holdings to incur significant costs to remedy the failure
or problem, decrease customer demand for its products, tarnish
its reputation and harm its business materially.
Holdings’
systems will face security risks and Holdings needs to ensure
the privacy of its customers.
Holdings’ systems and websites may be vulnerable to
unauthorized access by hackers, computer viruses and other
disruptive problems. Any security breaches or problems could
lead to misappropriation of its customers’ information, its
websites, its intellectual property and other rights, as well as
disruption in the use of its systems and websites. Any security
breach related to Holdings’ websites could tarnish its
reputation and expose the combined company to damages and
litigation. Holdings also may incur significant costs to
maintain its security precautions or to correct problems caused
by security breaches. Furthermore, to maintain these security
measures, Holdings may be required to monitor its
customers’ access to its websites, which may cause
disruption to customers’ use of Holdings’ systems and
websites. These disruptions and interruptions could harm
Holdings’ business materially.
Holdings
may be adversely affected either by a determination to combine
Voyager’s and Cambium’s distribution centers into a
single facility or by a determination to operate two separate
distribution centers.
At present, Voyager and Cambium each operate a separate
warehouse, one in Dallas, Texas and one in Frederick, Colorado,
to store and distribute the majority of their printed materials.
It is anticipated that, initially, Holdings will continue to
maintain the two separate facilities until it has determined the
best way to optimize operations. After that review has been
completed, Holdings may decide to continue to operate two
separate facilities, in which case the combined company may
incur duplicative costs. Alternatively, if Holdings decides to
consolidate into a single warehouse and if that warehouse were
damaged or destroyed, Holdings would likely experience
significant delays in responding to customer requests. Customers
often purchase materials very close to the beginning of the
school year, and any delivery delays could cause Holdings’
customers to turn to competitors for products that they need
immediately. Although Holdings believes that it will maintain
adequate property insurance on its distribution center or
centers, the loss of customers could have a long-term,
detrimental impact on its reputation and business.
The
complexity of Holdings’ distribution operations may subject
them to technological risk.
Cambium’s and Voyager’s distribution centers are
highly automated, which means that their operations are
complicated and may be subject to a number of risks related to
computer viruses, the proper operation of software and hardware,
electronic or power interruptions and other system failures.
Risks associated with upgrading or expanding these centers may
significantly disrupt or increase the cost of operating these
centers.
Holdings’
business may not grow as anticipated if it is not able to
maintain and enhance its brands.
Holdings believes that maintaining and enhancing its brands is
important to attracting and retaining customers. Its success in
growing brand awareness will depend in part on its ability to
continually provide high quality programs and solutions that
enhance the learning process. Competitors may offer goods and
services similar to those offered by the combined company, which
may diminish the value of its brand. In addition, some of
Holdings’ brand names are new, or have changed or may be
changed, and Holdings may not successfully maintain and grow its
brand equity.
Failure
to efficiently manage its direct marketing initiatives could
negatively affect Holdings’ business.
Holdings will use various direct marketing strategies to market
its products, including direct mailings, catalogs, online
marketing and telemarketing. In each case, Holdings will rely on
its customer list, which is a database containing information
about its current and prospective customers. Holdings will use
this database to develop and implement its direct marketing
campaigns. Managing the frequency of its direct marketing
campaigns and delivering appropriately tailored products in
these campaigns is crucial to maintaining and increasing
Holdings’ customer base and achieving adequate results from
its direct marketing efforts. Holdings also faces the risk of
unauthorized access to its customer database or the corruption
of its database as a result of technology failure or otherwise.
Enhancing and refreshing the database, maintaining the ability
to use the information available from the database, and properly
using the available information will be vital to the success of
Holdings’ business, and its failure to do so could lead to
decreased sales and could materially and adversely affect its
results of operations, financial condition and liquidity.
Both
Cambium and Voyager have been subjected to material accounting
irregularities in recent years, which could result in enhanced
regulatory scrutiny in the future and could undermine the
confidence that some investors may have in the integrity of
Holdings’ financial statements.
During 2008, Cambium discovered certain irregularities relating
to the control and use of cash and certain other general ledger
items which revealed a substantial misappropriation of assets
spanning fiscal 2004 through fiscal 2008. These irregularities
were perpetrated by a former employee, resulting in embezzlement
losses, before the effect of income taxes, amounting to
$14.0 million. See “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Embezzlement Loss” on page 211. In
early 2006, Voyager (then known as ProQuest Company) announced
that it had identified potential material irregularities in its
accounting that were to be investigated by Voyager’s audit
committee, with the assistance of outside experts. In July 2006,
Voyager announced that its audit committee had completed its
investigation and issued a statement that detailed the key
findings, including that the evidence indicated that a single
individual was responsible for the misstatements. After
completion of that investigation, Voyager restated certain of
its previously filed financial statements. See Note 18 of the
Notes to Voyager’s Year-End Consolidated Financial
Statements included elsewhere in this proxy
statement/prospectus. The fact that both Cambium and Voyager
have experienced material accounting irregularities within the
past six years could result in enhanced regulatory scrutiny and
could impair the confidence of investors and potential acquirers
in the integrity of Holdings’ financial statements.
Voyager is furnishing this proxy statement/prospectus to Voyager
stockholders in connection with the solicitation of proxies by
the Voyager board of directors for use at the Voyager special
meeting, including any adjournment or postponement of the
Voyager special meeting.
Voyager will hold the Voyager special meeting on
December 8, 2009, promptly at 8:00 a.m., local time,
at Voyager’s corporate headquarters, 1800 Valley View Lane,
Suite 400, Dallas, Texas75234.
At the Voyager special meeting, including any adjournment or
postponement of the special meeting, Voyager stockholders will
be asked to consider and vote upon the following proposals:
•
the adoption of the merger agreement; and
•
the adjournment of the Voyager special meeting, if necessary, to
allow time for further solicitation of proxies if there are
insufficient votes present at the meeting, in person or by
proxy, to adopt the merger agreement.
The Voyager stockholders must approve the adoption of the merger
agreement for the mergers to occur. If the Voyager stockholders
fail to approve the adoption of the merger agreement, the
mergers will not occur. A copy of the merger agreement is
attached as Annex A to this proxy statement/prospectus.
Voyager stockholders are encouraged to read the merger agreement
in its entirety.
The matters to be considered at the Voyager special meeting
are important to Voyager stockholders. Accordingly, Voyager
stockholders are urged to read and carefully consider the
information presented in this proxy statement/prospectus and to
complete, date, sign and promptly return the enclosed proxy card
in the enclosed pre-addressed, postage-paid envelope or to
follow the instructions described in the enclosed proxy card or
in other materials that have been provided to you regarding
voting by telephone or over the Internet.
After careful consideration, the Voyager board of directors has
determined that the mergers, the merger agreement and the
transactions contemplated by the merger agreement are advisable
and in the best interests of Voyager and its stockholders, and
has unanimously approved the merger agreement and the
transactions contemplated thereby. The Voyager board of
directors unanimously recommends that the Voyager stockholders
vote “FOR” the proposal to adopt the merger
agreement and “FOR” the proposal to adjourn the
meeting if necessary to solicit additional proxies.
In considering this recommendation, Voyager stockholders should
be aware that some Voyager directors and officers have interests
in the mergers that are different from, or in addition to, those
of Voyager stockholders generally. See “THEMERGER — Interests of Voyager’s Directors and
Officers in the Mergers” on page 101.
If your submitted proxy card is signed, but does not specify how
you want to vote your shares, your shares will be voted
“FOR” the proposal to adopt the merger
agreement and “FOR” the proposal to adjourn the
meeting if necessary to solicit additional proxies.
Voyager stockholders as of the close of business on
November 4, 2009, the Voyager record date, and other
persons holding valid proxies for the Voyager special meeting
are entitled to attend the Voyager special
meeting. Voyager stockholders and their proxies should be
prepared to present valid government-issued photo identification
at the Voyager special meeting. Voyager stockholders who are not
record holders but hold shares through a bank, broker or other
nominee (i.e., in “street name”) should also be
prepared to provide proof of beneficial ownership as of the
record date for the Voyager special meeting. Anyone who does not
upon request provide valid government-issued photo
identification or comply with the other procedures outlined
above may not be admitted to the Voyager special meeting.
Record holders of Voyager common stock at the close of business
on November 4, 2009, the Voyager record date, may vote at
the Voyager special meeting. On the Voyager record date, Voyager
had 29,874,145 outstanding shares of common stock, which were
held by approximately 750 record holders.
Registered
Stockholders
If your shares are registered directly in your name with
Voyager’s transfer agent, Computershare Investor Services,
you are considered, with respect to those shares, the
stockholder of record, and this proxy statement/prospectus is
being sent to you by Voyager. As a stockholder of record, you
have the right to grant your voting proxy directly to Voyager or
to vote in person at the Voyager special meeting.
“Street
Name” Stockholders
If your shares are held in a stock brokerage account or by a
bank or other nominee, you are considered the beneficial owner
of shares held in “street name.” These proxy materials
are being forwarded to you by your bank, broker or other
nominee, who is considered, with respect to those shares, the
record holder. As a beneficial owner of shares, you have the
right to direct your bank, broker or other nominee how to vote
the shares, and you are also invited to attend the Voyager
special meeting. Your bank, broker or other nominee has enclosed
a voting instruction card for you to use. Since you are not the
record holder, you may not vote these shares in person at the
Voyager special meeting unless you follow your bank’s,
broker’s or other nominee’s procedures for obtaining a
legal proxy.
A complete list of the stockholders entitled to vote at the
Voyager special meeting will be available for examination by any
stockholder for any purpose relevant to the Voyager special
meeting, during ordinary business hours for a period of at least
10 days prior to the Voyager special meeting, at the
offices of Voyager, located at 1800 Valley View Lane,
Suite 400, Dallas, Texas75234. This list will also be
available for examination at the Voyager special meeting.
You can only vote your shares if you are either represented by a
proxy or eligible to vote your shares in person at the Voyager
special meeting. You may vote by proxy in any of the following
ways:
•
on the Internet, as described on the proxy card;
•
by telephone, as described on the proxy card; or
•
by mail, by completing and returning the enclosed proxy card.
If you return a properly signed proxy card, the proxies named on
the card will vote your shares as you direct.
If you hold shares through a bank, broker or other nominee,
please provide your voting instructions by Internet, telephone
or mail in accordance with the instructions contained on your
voting instruction card.
Stockholders may receive more than one set of voting materials,
including multiple copies of this proxy statement/prospectus and
multiple proxy cards or voting instruction cards. For example,
stockholders who hold
shares in more than one brokerage account may receive a separate
voting instruction card for each brokerage account in which
shares are held. Stockholders of record whose shares are
registered in more than one name will receive more than one
proxy card. Therefore, the Voyager board of directors urges
Voyager stockholders to complete, sign, date and return each
proxy card and voting instruction card they receive for the
Voyager special meeting.
Please be sure to return your proxy card, after completing and
signing it, in the envelope that accompanied it. Please do not
return the proxy card in the same envelope with the election
form. Whether or not you complete the election form, you must
still complete, sign and return the proxy card in the envelope
that accompanied it.
Voyager’s bylaws provide that, in the absence of a quorum,
any meeting of the stockholders may be adjourned from time to
time by the vote of a majority of the shares represented at the
meeting. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time
and place of the adjourned meeting are announced at the meeting
at which the adjournment is taken. At the adjourned meeting at
which a quorum is present or represented, Voyager may transact
any business which might have been transacted at the original
meeting. If the adjournment is for more than 30 days or if
after the adjournment a new record date is fixed for the
adjourned Voyager special meeting, a notice of the adjourned
Voyager special meeting will be given to each stockholder of
record entitled to vote at the Voyager special meeting.
The transaction of business at the Voyager special meeting
requires a quorum, which will be established by the presence in
person or by proxy of the holders of a majority of the
outstanding shares of Voyager common stock entitled to vote at
the Voyager special meeting. The affirmative vote by the holders
of record of a majority of the outstanding shares of Voyager
common stock is required to adopt the merger agreement. The
affirmative vote of holders of a majority of the shares of
Voyager common stock present and entitled to vote is required to
approve the proposal to adjourn the meeting to allow time for
further solicitation of proxies if there are insufficient votes
present at the meeting, in person or by proxy, to adopt the
merger agreement. On the Voyager record date,
29,874,145 shares of Voyager common stock were outstanding
and entitled to vote at the Voyager special meeting.
In determining whether the adoption of the merger agreement has
received the requisite number of affirmative votes, abstentions
and broker non-votes will have the same effect as a vote AGAINST
the merger agreement. Abstentions will count as shares present
and entitled to vote on the proposal to adjourn the meeting.
Broker non-votes, however, will not count as shares entitled to
vote on the proposal to adjourn the meeting. As a result,
abstentions will have the same effect as a vote against the
proposal to adjourn the meeting and broker non-votes will have
no effect on the vote to adjourn the special meeting.
Votes cast by proxy or in person at the Voyager special meeting
will be counted by the person appointed by Voyager to act as
inspector of elections for the meeting. The inspector of
elections will treat broker non-votes as shares that are present
and entitled to vote for purposes of determining the presence of
a quorum. However, for purposes of determining the outcome of
any matter as to which the broker has indicated in writing on
the proxy card that it does not have discretionary authority to
vote, the shares represented by that proxy will be treated as
not present and not entitled to vote with respect to that matter
(even though those shares may be entitled to vote on other
matters).
As of the Voyager record date, Voyager’s directors and
executive officers, as a group, beneficially owned and were
entitled to vote 3,648,117 shares of Voyager common
stock, or 12.17% of the total outstanding shares of Voyager
common stock. Voyager’s directors and executive officers
have advised us that they intend to vote in favor of the merger
agreement.
In connection with the execution of the merger agreement, some
Voyager stockholders entered into voting and support agreements
with Holdings pursuant to which, among other things, each of
these stockholders has agreed to vote all of the
stockholder’s shares of Voyager common stock in favor of
the adoption of the merger agreement. On the date the merger
agreement was signed, these stockholders beneficially owned and
were entitled to vote 6,121,497 shares of Voyager common
stock, in the aggregate, which represented the power to vote
20.5% of the outstanding shares of Voyager common stock on the
date the merger agreement was signed. As of the Voyager record
date, these stockholders beneficially owned
6,121,497 shares of Voyager common stock, in the aggregate,
which represent the power to vote 20.5% of the outstanding
shares of Voyager common stock at the special meeting. These
shares include 3,521,612 shares beneficially owned by
Voyager’s directors and executive officers.
You can change your vote or revoke your proxy at any time before
the final vote at the Voyager special meeting. To do so, if you
are the record holder, you may:
•
send a written, dated notice to the Secretary of Voyager at
Voyager’s principal executive offices stating that you are
revoking your proxy;
•
complete, date and submit a new later-dated proxy card;
•
vote at a later date by telephone or by using the
Internet; or
•
vote in person at the Voyager special meeting. However, your
attendance alone will not revoke your proxy.
Written notices of revocation to the Secretary of Voyager should
be addressed to:
Todd W.
Buchardt, Corporate Secretary
Voyager Learning Company
1800 Valley View Lane, Suite 400 Dallas, Texas75234
If you hold shares through a bank, broker or other nominee, you
must contact your bank, broker or other nominee for information
on how to revoke your proxy or change your vote. Attendance at
the meeting will not cause your previously granted proxy to be
revoked unless you specifically so request.
Any Voyager stockholder who has a question about the mergers,
the adoption of the merger agreement or the transactions
contemplated by the merger agreement, or how to vote or revoke a
proxy, or who wishes to obtain additional copies of this proxy
statement/prospectus, should contact:
Shannan
Overbeck
Voyager Learning Company
Public and Investor Relations
1800 Valley View Lane, Suite 400 Dallas, TX75234
Telephone:
214-932-9476
Email: soverbeck@voyagerlearning.com
Please do not send in your stock certificates with your
proxy card. If the transaction is completed, a separate
letter of transmittal will be mailed to you if you are a
stockholder of record that will enable you to receive the merger
consideration in exchange for your Voyager stock certificates.
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers, banks or other nominees)
to satisfy the delivery requirements for proxy statements and
annual reports with respect to two or more stockholders sharing
the same address by delivering a single proxy statement
addressed to those
stockholders. This process, which is commonly referred to as
householding, potentially means extra convenience for
stockholders and cost savings for companies.
A number of brokers with account holders who are Voyager
stockholders will be householding Voyager’s proxy
materials. A single proxy statement/prospectus will be delivered
to multiple Voyager stockholders sharing an address unless
contrary instructions have been received from the affected
stockholders. If you are a Voyager stockholder, once you have
received notice from your broker that it will be householding
communications to your address, householding will continue until
you are notified otherwise or until you revoke your consent. If
you no longer wish to participate in householding and would
prefer to receive a separate proxy statement/prospectus, please
notify Voyager. Direct your written request to the attention of
Shannan Overbeck at the address, telephone number or e-mail
address noted above. Voyager stockholders who receive multiple
copies of this proxy statement/prospectus at their addresses and
would like to request householding of their communications
should contact their respective brokers or Voyager at the
address set forth above.
Other than the proposals described in this proxy
statement/prospectus, the Voyager board of directors knows of no
other matters to be acted upon at the Voyager special meeting.
If any other matters should be duly presented at the Voyager
special meeting upon which a vote properly may be taken, shares
represented by all proxies received by Voyager will be voted
with respect thereto in accordance with the judgment of the
persons named as representatives in the proxies.
The entire cost of soliciting proxies in connection with the
Voyager special meeting will be paid by Voyager. If the Voyager
merger is completed, that cost will be paid by Voyager to the
extent that Voyager has excess cash to pay its transaction
expenses, and may be paid by Holdings to the extent that Voyager
does not have enough excess cash to pay its and Cambium’s
transaction expenses. The directors, officers, employees and
agents of Voyager may solicit proxies from Voyager stockholders
by telephone, Internet, facsimile transmission, in person or by
mail. Some of these individuals may have interests in the
mergers that are different from, or in addition to, the
interests of Voyager stockholders generally. See “THEMERGER — Interests of Voyager’s Directors and
Officers in the Mergers” on page 101. Brokerage houses
and other custodians, nominees and fiduciaries will be requested
to forward soliciting materials to the beneficial owners of
shares held of record by these persons, and Voyager will
reimburse them for their reasonable
out-of-pocket
expenses incurred in sending proxy materials to beneficial
owners. Voyager may use several of its regular employees, who
will not be specially compensated, to solicit proxies from
Voyager stockholders, either in person or by telephone,
Internet, facsimile or mail. For further information regarding
the payment of transaction expenses upon completion of the
mergers, see “THE MERGER AGREEMENT — Termination
and Termination Fees.”
The following is a description of the material aspects of the
proposed mergers and related transactions. The following
description may not contain all of the information that is
important to you. You should read carefully this entire proxy
statement/prospectus, including the section entitled “RISK
FACTORS” on page 32, and the other documents we refer
to in this proxy statement/prospectus for a more complete
understanding of the mergers and related transactions and the
material risks related to the mergers.
As discussed more fully elsewhere in this proxy
statement/prospectus, Cambium and Voyager have entered into a
merger agreement that provides that they will combine their
businesses through a series of mergers under a single holding
company, Holdings. The net effect of the mergers will be that
Cambium and Voyager will become wholly owned subsidiaries of
Holdings, and the respective subsidiaries of Cambium and Voyager
will become indirect, wholly owned subsidiaries of Holdings.
In connection with the mergers, each share of Cambium common
stock will be converted into the right to receive 0.8448961 of a
share of Holdings common stock and a prorated portion of the
Holdings Warrant. Each share of Voyager common stock will be
converted into the right to receive:
•
at the holder’s election, either:
•
one share of Holdings common stock, or
•
$6.50 in cash, subject to proration rules referred to below;
plus, regardless of the election made,
•
an amount in cash equal to the amount of specified tax refunds
received by Voyager prior to the closing of the mergers (as
reduced by the amount of the Voyager tax refunds contractually
required to be placed in escrow at closing), divided by the
total number of shares of Voyager common stock outstanding
immediately prior to the effective time of the mergers; plus
•
a CVR, which represents the right to receive cash in an amount
equal to the aggregate amount of specified tax refunds received
after the closing of the mergers and various other amounts
deposited in escrow on or after the closing date, as reduced by
any payments to be made under the escrow agreement with respect
to agreed contingencies, a working capital adjustment and
Stockholders’ Representative expenses, divided by the total
number of shares of Voyager common stock outstanding immediately
prior to the effective time of the mergers.
The amount of cash available to satisfy cash elections by
Voyager stockholders will be determined by an agreed formula
that is dependent on, among other things, the cash generated by
Voyager prior to closing, but the amount of cash available for
cash elections is limited to a maximum of $67.5 million in
the aggregate. If the amount of cash available for the cash
elections is insufficient to accommodate all of the aggregate
cash elections made by the Voyager stockholders, then the
stockholders electing to exchange shares for cash will be
subject to a pro rata reduction in accordance with agreed
procedures set forth in the merger agreement and described in
this proxy statement/prospectus. The shares of Voyager common
stock that are subject to this pro rata reduction and therefore
are not exchanged for cash will be exchanged for shares of
Holdings common stock. There is no comparable limit on the
extent to which Holdings will honor stock elections. Thus, if a
Voyager stockholder elects to receive Holdings stock in exchange
for all of the stockholder’s shares of Voyager common
stock, that stockholder will not be subject to proration
pursuant to the merger agreement and will receive only Holdings
common stock.
Neither the amount of the tax refund distribution nor the
maximum value of the CVR can be determined at this time.
However, the total amount payable in respect of these two forms
of consideration on a combined basis is not expected to be less
than $0.52 per share or greater than $0.89 per share and may be
substantially less than $0.89 per share, depending on various
factors specified in the merger agreement.
The merger agreement is described in greater detail under
“THE MERGER AGREEMENT” on page 117, and a copy of
the merger agreement is attached as Annex A to this proxy
statement/prospectus.
Cambium and Voyager stockholders who receive Holdings common
stock in the mergers will become Holdings stockholders and their
rights as stockholders will be governed by the certificate of
incorporation and bylaws of Holdings (copies of which are
attached as Annex C and Annex D, respectively, to this
proxy statement/prospectus), Delaware law and a stockholders
agreement to be entered into at the closing of the mergers (a
copy of which is attached as Annex L to this proxy
statement/prospectus). The rights of holders of Holdings common
stock will be different in certain respects from the rights of
holders of Cambium common stock and holders of Voyager common
stock. The rights pertaining to Holdings’ common stock and
Holdings’ certificate of incorporation and bylaws are
described under “DESCRIPTION OF HOLDINGS’ CAPITAL
STOCK” on page 192. For information regarding the
material differences between the rights of holders of Voyager
common stock prior to the mergers and the rights of holders of
Holdings common stock after the mergers, see “COMPARISON OF
STOCKHOLDER RIGHTS” on page 197.
We have set forth below a series of diagrams designed to depict
several steps that will be taken in connection with the mergers.
Overall
Structure of the Mergers
The first set of diagrams reflects the overall structure of the
merger agreement:
• In step 1A, an investor associated with VSS formed
Holdings.
• In step 1B, Holdings formed two wholly owned
subsidiaries, Voyager merger sub and Cambium merger sub.
• In step 1C, a step that will be taken after all
conditions to closing have been satisfied or waived, Voyager
merger sub will merge with and into Voyager and Cambium merger
sub will merge with and into Cambium. As a result of step 1C,
Voyager and Cambium will each become wholly owned subsidiaries
of Holdings upon completion of these mergers.
• In step 1D, upon completion of the mergers:
• Holdings will issue common stock and the Holdings
Warrant to VSS-Cambium Holdings III, LLC, which will become the
sole stockholder of Cambium pursuant to the transactions
described below under “— Repositioning the Owner
of Cambium,” in exchange for all of the outstanding capital
stock of Cambium; and
• Holdings will issue common stock
and/or cash,
as elected, additional cash and a CVR to the stockholders of
Voyager in exchange for all of the outstanding capital stock of
Voyager.
• Step 1E reflects the ownership structure of Holdings
following the completion of the mergers (excluding any
subsidiaries of Cambium or Voyager).
In 2007, Cambium Learning, Inc., which we refer to as Cambium
Learning, and which is to be distinguished from Cambium Learning
Group, Inc., which we refer to as “Holdings,” was
acquired in a leveraged buy-out transaction by, and became a
subsidiary of, VSS-Cambium Holdings, LLC. As described elsewhere
in this proxy statement/prospectus, Cambium Learning is a party
to senior secured and senior unsecured credit agreements entered
into in connection with the leveraged buy-out transaction. These
credit agreements contain specified restrictions on Cambium
Learning’s operations, including its ability to participate
in merger transactions similar to the mergers. In order for
Cambium Learning to be able to participate in the mergers
without violating the credit agreements’ restrictions and
without the need to seek a waiver or consent from its lenders,
it became necessary to reposition Cambium Learning and its
immediate parent entity. Generally, the credit agreements’
restrictions do not apply to the equity owners of VSS-Cambium
Holdings, LLC; thus, by interposing additional holding companies
as direct or indirect equity owners of VSS-Cambium Holdings,
LLC, and having those holding companies act as the direct
participants in the mergers, the credit agreements were not
affected. However, the credit agreements do prohibit various
changes in the ownership of VSS-Cambium Holdings, LLC and
Cambium Learning through customary change in control
restrictions. In summary, the change in control restrictions
require the original owners of VSS-Cambium Holdings, LLC to
continue to own at least 35% of its outstanding equity and
control a majority of its board of managers. The original owners
of VSS-Cambium Holdings, LLC will continue to own a majority of
the outstanding equity and control the board of directors of
VSS-Cambium Holdings, LLC upon completion of the mergers.
During the course of the merger transaction process, counsel for
Holdings and Cambium Learning periodically consulted with
counsel to the administrative agents under both credit
agreements, and representatives of Cambium periodically
consulted with representatives of the agents, and in each case,
obtained their verbal concurrence that the completion of the
mergers, as structured, and Cambium Learning, as re-positioned,
did not violate the credit agreements’ restrictions or
require a waiver or consent from the agents or lenders.
This repositioning also resulted in the creation of VSS-Cambium
Holdings III, LLC, the vehicle through which VSS will own equity
in and control Holdings after the mergers, and through which VSS
owns equity in and controls Cambium and its subsidiaries prior
to the mergers. Prior to the mergers, VSS-Cambium
Holdings III, LLC is the sole stockholder of Cambium, and,
as such and as a result of negotiations with Voyager, entered
into the Cambium voting and support agreement with Voyager
pursuant to which it agreed to vote all of its shares of Cambium
common stock in favor of the mergers. After the mergers,
VSS-Cambium Holdings III, LLC will be the majority stockholder
of Holdings, and since VSS-Cambium Holdings III, LLC is managed
by VSS, VSS will thereby control Holdings. This pre- and
post-merger ownership and control of Cambium and its
subsidiaries is intended to comply with the change in control
restrictions under Cambium’s credit agreements. In
addition, the requisite lenders have, pursuant to the
amendments, ratified and approved the mergers and the related
transactions. See “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Liquidity and Capital Resources —
Long-Term Debt” on page 235.
In connection with the execution of the merger agreement, the
steps described below will occur in sequence to implement the
re-positioning. The sequencing is dictated by the organizational
documents of each of the entities and the credit agreements.
• In step 2A, VSS-Cambium Holdings, LLC contributed
the capital stock of Cambium Learning to
VSS-Cambium
Holdings, IV, LLC, a newly formed, wholly owned subsidiary of
VSS-Cambium Holdings, LLC; concurrently, VSS-Cambium Holdings
IV, LLC assumed the obligations of VSS-Cambium Holdings, LLC
under Cambium Learning’s senior secured and senior
unsecured credit agreements.
• In step 2B, VSS formed a wholly owned subsidiary,
VSS-Cambium Holdings III, LLC, which in turn formed two wholly
owned subsidiaries, VSS-Cambium Holdings III Acquisition,
LLC and VSS-Cambium Holdings II Corp.
• In step 2C, VSS-Cambium Holdings III, LLC entered
into an agreement providing for VSS-Cambium Holdings, LLC to
merge into VSS-Cambium Holdings III Acquisition, LLC, with
VSS-Cambium
Holdings, LLC being the surviving entity; upon completion of
that merger, VSS-Cambium Holdings III, LLC will own, directly or
indirectly, 100% of VSS-Cambium Holdings, LLC, VSS-Cambium
Holdings IV, LLC, Cambium Learning and its subsidiaries, and
VSS-Cambium
Holdings II Corp.
• In step 2D, VSS-Cambium Holdings III, LLC entered
into a contribution agreement pursuant to which it has agreed to
transfer its interests in VSS-Cambium Holdings, LLC (acquired
upon completion of the merger described in step 2C) to
VSS-Cambium Holdings II Corp., which will, upon completion
of this contribution, own, directly or indirectly, 100% of
VSS-Cambium Holdings, LLC, VSS-Cambium Holdings IV, LLC, and
Cambium Learning and its subsidiaries, as illustrated in step
2E. The merger described in step 2C and the contribution
described in section 2D must take place prior to the
effective time.
• Step 2E reflects the ownership structure of
VSS-Cambium Holdings II Corp. immediately prior to the
completion of the mergers.
We have set forth below diagrams outlining these steps. For
purposes of this proxy statement/prospectus, we have utilized
the term “Cambium” to refer to VSS-Cambium Holdings,
LLC before steps 2A, 2B, 2C and 2D are taken and VSS-Cambium
Holdings II Corp. after these steps are taken.
VSS-Cambium
Holdings II Corp. will become a direct, wholly owned
subsidiary of Holdings upon completion of the mergers.
The merger agreement contemplates that Voyager’s
subsidiaries will be repositioned through the following steps:
• In step 3A, immediately prior to the completion of
the mergers, Voyager’s operating company, Voyager Expanded
Learning, Inc., will contribute its Learning
A-Z and
ExploreLearning business units to a newly formed, wholly owned
subsidiary named LAZEL, Inc.
• In step 3B, also immediately prior to the completion
of the mergers, Voyager Expanded Learning, Inc. will transfer
all of the capital stock of LAZEL, Inc. to Voyager.
• Step 3C reflects the ownership structure of
Voyager’s subsidiaries immediately following the
contribution of LAZEL, Inc.’s common stock to Voyager.
• In step 3D, contemporaneously with the completion of
the mergers, VSS-Cambium Holdings IV, LLC, a wholly owned
subsidiary of VSS-Cambium Holdings, LLC, will contribute to
Cambium Learning approximately $60 million to
$65 million of membership interests in VSS-Cambium Holdings
IV, LLC.
• In step 3E, Cambium Learning will buy 100% of the
outstanding capital stock of Voyager Expanded Learning, Inc., in
exchange for $75 million, consisting of approximately
$10 million to $15 million of cash and the balance in
membership interests of VSS-Cambium Holdings IV, LLC.
• Step 3F reflects the ownership structure of Holdings
following the purchase by Cambium Learning of Voyager Expanded
Learning, Inc.
• Step 3G reflects the LAZEL, Inc. dropdown, as
required by the amendments to the credit agreements.
We have set forth below diagrams outlining these steps. Upon
completion of these steps, Voyager Expanded Learning, Inc. and
LAZEL, Inc. each will be a wholly owned subsidiary of Cambium
Learning and Voyager will not have any subsidiaries.
As early as 2004, when Voyager Expanded Learning, Inc., which we
refer to as VEL, was engaged in a process that ultimately
resulted in VEL’s acquisition by Voyager (then known as
ProQuest Company), Cambium Learning had expressed an interest in
combining with VEL at that time. Nevertheless, meaningful
discussions between the parties regarding a potential business
combination did not occur until late in the 2007 calendar year.
In the second half of 2007, the Voyager board of directors
determined that Voyager would benefit from the resources and
analysis provided by financial advisors familiar with the
company and the businesses in which it is engaged. In October
2007, Voyager engaged Allen & Company as
Voyager’s financial advisor to assess Voyager’s
business, and to assist in the evaluation of strategic
alternatives, including assisting management and the board of
directors in reviewing and analyzing potential inquiries from
parties interested in acquiring all or a portion of the company.
In October 2007, at the direction of the Voyager board of
directors, Allen & Company began contacting potential
strategic buyers and financial investors who might be interested
in a potential transaction with Voyager. During the period from
October 2007 through April 2008, Allen & Company
contacted more than 80 potential acquirers, of which Voyager
engaged in management meetings with fourteen.
In December 2007, representatives of Allen & Company
approached Cambium Learning’s principal equity owner,
private equity firm VSS, to discuss a potential strategic
business combination transaction involving Cambium Learning and
Voyager. The parties acknowledged the manner in which the
product lines of the two companies complemented each other and
the benefits that could be available to both businesses if they
joined in a company having greater size than either Cambium
Learning or Voyager enjoyed on its own.
On December 17, 2007, Voyager entered into a
confidentiality agreement with Cambium Learning and VSS, which
we refer to as the first confidentiality agreement, covering the
communication of certain limited confidential information by
Voyager to Cambium Learning and VSS. Following the execution of
the first confidentiality agreement, Allen & Company
delivered a copy of Voyager’s confidential information
memorandum to Cambium Learning and VSS and a process letter
requiring any preliminary proposal to be submitted to
Allen & Company no later than 5:00 p.m. on
December 19, 2007.
In response, on December 19, 2007, VSS submitted a written
preliminary non-binding proposal to Allen & Company on
behalf of Cambium Learning to acquire all of the stock of
Voyager in a tender offer transaction for $275 million to
$290 million in cash.
In early 2008, Voyager provided VSS with limited business and
financial due diligence materials. With this information, VSS
and Cambium Learning pursued their business and financial due
diligence examination of Voyager.
On March 1, 2008, Voyager entered into negotiations with
VSS and Cambium Learning regarding the terms of a new
confidentiality agreement, expanding the scope of confidential
information and relating to a possible strategic transaction
between the parties, which would replace the first
confidentiality agreement. On March 11, 2008, Voyager, VSS
and Cambium Learning entered into a confidentiality agreement
which superseded in its entirety the first confidentiality
agreement.
On March 29, 2008, Voyager began providing additional due
diligence materials to VSS and Cambium Learning.
On April 2, 2008, Ronald Klausner, Bradley Almond and John
Campbell, respectively, the President of VEL, the Chief
Financial Officer of VEL (and, as of January 1, 2009, the
Chief Financial Officer of Voyager) and the Chief Operating
Officer of VEL, made a presentation with respect to the business
of Voyager at the offices of Allen & Company in New
York to David Cappellucci, Cambium Learning’s President and
Chief Executive Officer, David Caron, Cambium Learning’s
former Chief Financial Officer, Steve Zukowski, Cambium
Learning’s former Chief Operating Officer, Scott Troeller,
a partner of VSS, Eric Van Ert, formerly a Managing Director of
VSS, and representatives of Barclays and Credit Suisse.
Representatives of Allen & Company also attended the
presentation.
During the week of April 14, 2008, Voyager provided
additional due diligence materials to VSS and Cambium Learning
in response to due diligence requests made by VSS and Cambium
Learning. On April 14, 2008, Allen & Company
hosted a teleconference among Mr. Almond of Voyager,
Mr. Van Ert and Ankeet Kansupada, of VSS, and
Mr. Cappellucci and Mr. Caron of Cambium Learning,
during which Voyager financial due diligence matters were
discussed. Following the call, Allen & Company sent
VSS a letter outlining the next steps in the process, which
required further proposals to be submitted to Allen &
Company no later than 5:00 p.m. on April 21, 2008.
On April 18, 2008, Allen & Company received
indications of interest from four potential bidders, other than
VSS.
On April 20, 2008, Mr. Troeller, Mr. Van Ert,
Mr. Cappellucci and Mr. Caron discussed via
teleconference their business and financial due diligence
findings with respect to Voyager and the proposed purchase price
range to be contained in any proposal submitted to
Allen & Company. Based on their knowledge of the
industry, the economic environment and the results of their due
diligence review, they concluded that such price range would be
materially reduced from the $275 million to
$290 million cash price range set forth in VSS’
December 19, 2007 proposal, to $175 million to
$200 million cash, excluding excess cash and corporate
liabilities of Voyager.
On April 21, 2008, a representative of VSS communicated to
representatives of Allen & Company that VSS would
submit a second written preliminary non-binding proposal to
Allen & Company which, based upon its business and
financial due diligence review and the value it assigned to
Voyager, would reflect a material reduction to the proposed
purchase price from its December 19, 2007 proposal. Later
that day, VSS submitted its second written preliminary
non-binding proposal to Allen & Company on behalf of
Cambium Learning to acquire all of the outstanding stock of
Voyager in a tender offer transaction for $175 million to
$200 million in cash, excluding cash and corporate
liabilities of Voyager.
On April 25, 2008, the Voyager board of directors convened
for a telephonic board meeting. Allen & Company
provided an update on the sale process and the second round of
bids received for Voyager, all of which had materially declined
from the initial valuation indications in December 2007. Reasons
for the decline in valuation included the deteriorating economic
environment, weakness in the education sector, and concern
regarding the ability to complete a transaction given that
Voyager was not current with its periodic filings with the SEC.
Allen & Company recommended inviting five parties,
including VSS, to continue with due diligence of Voyager and
recommended inviting one additional party back into the process.
Perkins Coie LLP, Voyager’s legal counsel, which we refer
to as Perkins Coie, provided an overview of alternative
structures that Voyager might consider in pursuing a business
combination transaction.
Following the Voyager board meeting on April 25, 2008, of
the four parties, other than VSS, participating in the process,
two parties declined to continue their participation shortly
following their bid submissions. Of the remaining two parties,
one party continued to communicate with Allen &
Company regarding due diligence and other matters through May
2008, at which point that party opted to end its participation
in the process. The remaining party continued to conduct due
diligence on Voyager, including review of the dataroom materials
and conference calls to discuss the diligence materials
provided. This party also attended a management meeting at the
Voyager offices in June 2008. Additionally, in August, 2008,
another party contacted Allen & Company to express
interest in Voyager. This party signed a confidentiality
agreement in August 2008 and began reviewing diligence materials
regarding Voyager. Allen & Company communicated with
both parties regarding financial and business diligence and
transaction structure through the third and early fourth quarter
of 2008. However, both parties expressed significant concerns
over the uncertain market environment in general and with the
education sector specifically. In November 2008,
Allen & Company recommended to the board of directors
of Voyager that it continue to negotiate with all three parties
(including VSS). However, in early December 2008, negotiations
with the two parties other than VSS ceased after the two parties
provided revised valuation indications that, because they were
significantly lower than the valuation proposed in the
transaction contemplated with VSS, were not competitive. As
reasons for the reduced valuations, each party cited continued
weakness and uncertainty in the overall market and in the
education market specifically, which affected the party’s
ability to finance a proposed transaction, as well as
declining equity market valuations across all industries. In
addition, one party expressed discomfort with proceeding on a
timely basis, even at the reduced valuation indications, due to
these market uncertainties and the potential effect on the
Voyager near-term financial results.
On May 7, 2008, Mr. Troeller informed representatives
of Allen & Company that VSS and Cambium Learning would
not be continuing with the proposed transaction because Cambium
Learning and VSS needed to focus on Cambium Learning’s
internal matters. At that time, Cambium Learning was engaged in
an internal investigation which ultimately revealed that Cambium
Learning had suffered a material embezzlement. Given the
pendency of that investigation, VSS and Cambium Learning
concluded that it was an inopportune time to negotiate a
business combination. See “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Embezzlement Loss” on page 212.
After discussions with VSS were terminated in May 2008, Allen
& Company continued negotiations with the two other parties
until, as discussed above, negotiations terminated in December
2008.
On August 18, 2008, after the matters underlying Cambium
Learning’s internal investigation had been resolved,
Mr. Troeller contacted Allen & Company and
proposed a resumption of discussions regarding evaluating a
potential transaction with Voyager. Mr. Troeller indicated
that VSS and Cambium Learning would be willing to discuss a
transaction with Voyager which would be structured as a merger
as opposed to a tender offer, and requested an opportunity to
discuss a possible transaction at a meeting. On the call,
Mr. Troeller outlined a few key investment/merger theses
which were further developed in the October 16, 2008
presentation described below. A merger structure was favored
over a tender by VSS and Cambium Learning primarily because,
having just negotiated concessions from its lenders with respect
to its own internal financial investigation, Cambium Learning
did not want to seek a further amendment to its credit
agreements to increase the size of its permitted acquisition
basket, which would have been required under a tender offer
structure, but which would not be required under a merger
structure.
On August 22, 2008, as a condition to scheduling the
meeting on October 16, 2008 and potentially re-engaging in the
negotiation process to evaluate a potential transaction with
Voyager, VSS and Cambium Learning entered into an amendment to
the March 11, 2008 confidentiality agreement. The amendment
extended the employee non-solicitation period. A second, similar
amendment was executed on September 25, 2008.
On October 16, 2008, Mr. Cappellucci of Cambium
Learning presented the proposed merger of Cambium Learning and
Voyager and a description and financial overview of Cambium
Learning to representatives of Allen & Company and
Richard Surratt, Chief Executive Officer of Voyager, at the VSS
offices in New York. Messrs. Troeller, Van Ert and
Kansupada of VSS were also present at that meeting. On
October 21, 2008, representatives of Allen &
Company indicated to Mr. Troeller that Voyager was
interested in exploring a potential merger transaction with
Cambium Learning.
During the week of October 22, 2008, Voyager and Cambium
Learning exchanged financial due diligence materials.
On November 5, 2008, the Voyager board of directors met for
a regularly scheduled board meeting in Dallas. At the meeting,
representatives of Allen & Company provided the
Voyager board with an update on discussions with three parties
concerning a possible transaction, including a possible business
combination with Cambium Learning.
Between November 10, 2008 and November 24, 2008,
Allen & Company and VSS discussed a number of
potential structures for a possible transaction, including
discussions regarding valuation, amount of cash contributed by
VSS and treatment of Voyager liabilities. The primary issues
negotiated were the amount of cash to be received by Voyager
stockholders, including both cash available on the Voyager
balance sheet at closing and the amount of cash to be
contributed by VSS, and the price per share to be received by
Voyager stockholders. Although Allen & Company
represented Voyager in the company’s negotiations with VSS
and Cambium, Voyager determined the amount of consideration to
accept. In the end, Allen & Company and Voyager
management negotiated to obtain the greatest amount of cash per
share, while Cambium sought to ensure that the combined company
would commence operations at the effective time with sufficient
cash to
service ongoing contracts for the 2009/2010 school year. As a
result of these discussions, VSS agreed to contribute
$25 million in cash to Holdings, which in turn would
distribute the cash to Voyager stockholders in connection with
the Voyager merger, and Voyager agreed to fix the maximum cash
distributed from the Voyager balance sheet at
$42.5 million, which amount was generally consistent with
Voyager’s expectations of cash on hand at the expected
effective time, leaving sufficient working capital to service
future contracts. On November 24, 2008, representatives of
VSS made a presentation to VSS’ investment committee
relating to the merits of pursuing a transaction with Voyager.
Thereafter, on November 25, 2008, VSS sent
Allen & Company a proposed exclusivity agreement and a
draft Heads of Agreement setting forth potential terms of a
proposed transaction in which, upon completion of a series of
mergers followed by a partial cash tender offer to
Voyager’s former stockholders of $67.5 million
(comprised of the estimated Voyager cash on hand, net of
liabilities, on December 31, 2008 plus $25 million to
be contributed by entities managed or controlled by VSS), each
of Voyager and Cambium Learning would be a wholly owned
subsidiary of a newly formed holding company, of which the
owners of Cambium Learning would own, directly or indirectly,
greater than 50% of the outstanding shares. The following day,
VSS sent to Allen & Company a proposed work plan for
conducting initial due diligence meetings at each company’s
offices.
On December 9, 2008, Voyager entered into an exclusivity
agreement with Cambium Learning for a period expiring on
January 30, 2009. During that period, Voyager agreed not to
negotiate with any third party other than Cambium Learning and
VSS. Voyager also entered into a confidentiality agreement with
Cambium Learning covering the exchange of confidential
information of Cambium Learning to Voyager. Additionally, on
December 9, 2008, Voyager and Cambium Learning agreed to
again extend the employee non-solicitation period set forth in
Voyager’s confidentiality agreement. Numerous conversations
between Lowenstein Sandler PC, Cambium Learning’s and
VSS’s legal counsel, which we refer to as Lowenstein
Sandler, and Perkins Coie regarding various transaction
structures and their corresponding timing transpired throughout
the balance of December 2008.
From December 9, 2008 through December 11, 2008,
Messrs. Surratt, Klausner, Almond, Campbell, Buchardt and
other members of the Voyager operations team met with
Messrs. Cappellucci and Caron, George Logue, Executive Vice
President of Cambium Learning, and other members of Cambium
Learning’s operations team at Cambium Learning’s
offices in Longmont, Colorado, to present product overviews and
product technology for Voyager and Cambium Learning. A
representative of Allen & Company,
Messrs. Troeller and Van Ert and other representatives of
VSS were also in attendance. These discussions continued on
December 18 and 19, 2008, at Voyager’s offices in
Dallas, where the parties met to discuss sales, marketing and
implementation considerations for Voyager and Cambium Learning,
as well as Voyager’s operations.
From December 18, 2008 through mid-February 2009,
representatives of Voyager and Cambium Learning and their
respective advisors conducted detailed due diligence on the
other party’s assets and businesses and engaged in multiple
discussions with respect to the form and structure of a
potential business combination between Voyager and Cambium
Learning.
On January 9, 2009, the Voyager board of directors convened
for a telephonic board meeting. At the meeting, Mr. Surratt
updated the Voyager board on the status of the discussions with
Cambium Learning and VSS regarding a possible business
combination with Voyager. Perkins Coie advised the Voyager board
on the current transaction structures being contemplated by the
parties, including that the transaction was being structured
partly to accommodate the terms of the existing debt facility
between Cambium Learning and its lenders.
On January 28, 2009, VSS and Voyager signed a client
agreement formally retaining ghSMART & Company, Inc.,
which we refer to as ghSmart, to assist VSS and Voyager in the
assessment of key Voyager and Cambium Learning management
personnel. From late January through March 2009, representatives
of ghSmart conducted various meetings with the management of
Voyager and Cambium Learning to assist VSS in its diligence
regarding management of Voyager and Cambium Learning on a
combined basis.
On February 4, 2009, the Voyager board of directors
convened for a telephonic board meeting. At the meeting,
Mr. Surratt updated the board on the status of the
discussions with VSS regarding a possible business combination
with Voyager.
From that time up through and including the time when the merger
agreement was signed in June 2009, representatives of the two
law firms circulated numerous drafts of the merger agreement and
the ancillary documents and participated in numerous telephone
conversations and several in-person meetings to negotiate the
specific terms of the transactions. Throughout that period, each
of Voyager and Cambium Learning continued both legal and
financial due diligence of the other party.
On February 25, 2009, the Voyager board of directors met
for a regularly scheduled board meeting in Dallas. At the
meeting, Mr. Surratt provided the board with an overview of
VSS and Cambium Learning and an overview of the expected
benefits of combining the companies, the proposed operations of
a combined company, and the synergies of approximately
$10 million in cost savings per year expected to be
realized by the combined company. The cost synergies presented
to the Board were consistent with the expected cost synergies
described on page 15 of this proxy statement/prospectus
under the caption “SUMMARY — Financial
Synergies”. Representatives of Allen & Company
discussed Voyager’s strategic alternatives, the proposed
terms of the potential transaction with Cambium Learning, the
proposed timeline for completing the transaction and key open
issues in the merger agreement. Representatives of Perkins Coie
discussed the proposed timeline for completion of the
transaction, the transaction structure and the terms of the then
current draft of the merger agreement. Perkins Coie also
summarized for the board the risks associated with the proposed
transaction and the fiduciary duties of the board in considering
the proposed transaction and presented a summary of the possible
tax consequences of the proposed transaction prepared by
representatives of McDermott, Will & Emery LLP, tax
counsel to Voyager.
On February 26, 2009, Voyager engaged Houlihan
Smith & Company to advise Voyager on the solvency of
the combined company following the transaction. Because Voyager
is expected to have no long-term debt immediately prior to the
completion of the mergers, but following the mergers Voyager
would become part of a combined company with a significant
amount of long-term debt, the Voyager board of directors sought
a solvency opinion to provide comfort that the combined company
would be able to service its debt and pay its obligations as
they become due.
On March 26, 2009, the Voyager board of directors convened
for a telephonic board meeting to discuss the proposed
transaction and an update of the negotiations of the merger
agreement.
On or about April 1, 2009, representatives of VSS began
discussions with Mr. Klausner regarding post-closing
employment arrangements.
On April 21, 2009, the Voyager board of directors met for a
telephonic board meeting to discuss the proposed transaction. At
the meeting, Allen & Company updated the board on the
status of the transaction, including the material terms of the
merger agreement, open issues in the merger agreement, the
status of key due diligence items and the financial impact of
the proposed transaction. On the same day, representatives of
Allen & Company spoke with VSS regarding the open
issues and resolved several of these issues.
On April 24, 2009, based on the progress being made in
negotiations of the open issues, Voyager reinstated its
exclusivity agreement with Cambium Learning until May 7,2009.
On May 6, 2009 and May 7, 2009, representatives of
Perkins Coie and Mr. Buchardt of Voyager met with
representatives of Lowenstein Sandler at Lowenstein
Sandler’s offices in New York to discuss the terms of the
merger agreement. Following the meetings at Lowenstein
Sandler’s office, Voyager extended its exclusivity
agreement with Cambium Learning until May 22, 2009.
On May 26, 2009, the Voyager board of directors convened
for a telephonic board meeting to discuss the merger agreement
and the proposed transaction. Following the board meeting on
May 26, 2009 and continuing through the week of
June 15, 2009, representatives of Voyager, Cambium, VSS,
Allen & Company, Perkins Coie and Lowenstein Sandler
continued to negotiate the remaining open issues related to the
merger agreement, related schedules, various ancillary documents
and post-closing employment arrangements.
On or about June 2, 2009, representatives of VSS began
discussions with Mr. Cappellucci regarding post-closing
employment arrangements.
On June 20, 2009, the Voyager board of directors met for a
telephonic board meeting to review the terms of the proposed
transaction and a substantially final draft of the merger
agreement, and to receive a report from Perkins Coie of the
legal aspects of the transaction. A representative of Perkins
Coie again reviewed for the board of directors its fiduciary
duties applicable to the proposed transaction. Representatives
of Allen & Company presented its financial analysis
and delivered to the Voyager board of directors an oral opinion,
which opinion was confirmed by delivery of a written opinion,
dated June 20, 2009, to the effect that, as of that date
and based on and subject to various assumptions, matters
considered and limitations described in its written opinion, the
consideration in the Voyager merger was fair, from a financial
point of view, to the holders of Voyager common stock. The full
text of the written opinion of Allen & Company, which
sets forth the assumptions made, procedures followed, matters
considered and limitations on the review undertaken in
connection with such opinion, is attached to this proxy
statement/prospectus as Annex E. Representatives of
Houlihan Smith presented its analysis and delivered to the
Voyager board of directors an oral opinion, which opinion was
confirmed by delivery of a written opinion, dated June 20,2009, to the effect that, as of that date and based on and
subject to various assumptions, matters considered and
limitations described in its opinion, upon completion of the
mergers, the combined company would be a solvent entity. The
full text of the written opinion of Houlihan Smith, which sets
forth the assumptions made, procedures followed, matters
considered and limitations on the review undertaken in
connection with such opinion, is attached to this proxy
statement/prospectus as Annex F. The Voyager board of
directors then unanimously approved the Voyager merger, the
merger agreement and the transactions contemplated thereby and
recommended that the Voyager stockholders approve the merger
agreement.
Following the board meeting on June 20, 2009, up until the
time that the merger agreement was signed, representatives of
Voyager, VSS, Perkins Coie, and Lowenstein Sandler held multiple
teleconferences to finalize the merger agreement, the disclosure
schedules, the ancillary agreements and outstanding due
diligence issues.
Effective as of June 20, 2009, each of Voyager and Cambium
executed the merger agreement, and the sole stockholder of
Cambium and certain stockholders of Voyager executed voting and
support agreements attached to this proxy statement/prospectus
as Annex H and Annex I, respectively. On the morning
of Monday, June 22, 2009, Voyager and Cambium issued a
joint press release announcing the transaction.
Since Holdings was created for the purpose of effecting the
business combination of Cambium and Voyager, the Cambium board
of directors and the Holdings board of directors presently
consist of the same persons. For information regarding the
composition of the Holdings board after the effective time, see
“MANAGEMENT OF HOLDINGS FOLLOWING THE MERGERS” on
page 177.
Following a review and discussion of all relevant information
regarding the mergers and prior to the execution of the merger
agreement:
•
Cambium’s board of directors determined that the Cambium
merger, the merger agreement and the transactions contemplated
thereby are advisable and in the best interests of Cambium and
its stockholder;
•
Holdings’ board of directors determined that the mergers,
the merger agreement and the transactions contemplated thereby
are advisable and in the best interests of Holdings and its
stockholder; and
•
both the Cambium board of directors and the Holdings board of
directors unanimously approved the merger agreement and the
transactions contemplated thereby prior to the execution of the
merger agreement.
In reaching their conclusions, the members of Cambium’s and
Holdings’ boards relied on their personal knowledge of
Cambium and the markets that it serves, the advice of management
of Cambium and VSS and the advice of Cambium’s financial
and legal advisors.
Cambium’s and Holdings’ boards considered many factors
which, when taken as a whole, supported their respective
decisions, including the following material considerations, the
order of which does not necessarily reflect their relative
significance:
•
the complementary nature of the product offerings of Cambium and
Voyager and the minimal level of overlap in the two
companies’ offerings, primarily resulting from the fact
that the two companies target different tiers of intervention;
•
the scale efficiencies achievable to the combined companies by
substantially expanding the size of their combined business,
since Cambium and Voyager had combined 2008 revenues in excess
of $198 million;
•
the likelihood that the combination would improve the combined
companies’ ability to compete with other market
participants, several of which are substantially larger and have
access to substantially more resources than either Cambium or
Voyager alone;
•
the operational synergies achievable through:
•
a larger inside and outside sales force with a national reach,
capable of covering an expanded geographical scope within the
pre-K-12 grade intervention market;
•
the ability to expand the business’ marketing reach across
substantially all products and services sold by either Cambium
or Voyager;
•
the ability to leverage the two companies’ respective
strengths in math programs;
•
the ability of Voyager and Cambium to leverage each other’s
sales channels, creating opportunities:
•
to increase the inside sales force and thereby help Cambium
products reach smaller school districts;
•
to sell certain Voyager products through Cambium’s
supplemental catalog; and
•
to sell Voyager products through Cambium Learning
Technologies’ resellers;
•
the current and historical market prices of Voyager’s
common stock, which demonstrated to Cambium’s board that
the current price was depressed, making the acquisition a better
value than it would have been had Voyager been trading at higher
market prices;
•
the value of the Holdings common stock to be received by
Cambium’s stockholder in the Cambium merger and to be
received in exchange for a $25 million capital contribution
to be made by Cambium’s stockholder immediately prior to
the effective time, including the possibility that the value of
Holdings common stock may increase after the completion of the
mergers; in this regard, the boards of directors considered:
•
the expected combined earnings of Voyager and Cambium;
•
the potential cost savings of approximately $10 million per
year that could result from the mergers, as described on
page 15 of this proxy statement/prospectus under the
caption “SUMMARY — Financial
Synergies.”
•
Holdings’ expected financial position after the mergers and
its ability to create future growth opportunities; and
•
that the $25 million capital contribution was required in
order to achieve a relative valuation between Voyager and
Cambium to enable Cambium’s stockholder to own
approximately 55% of Holdings common stock immediately after the
mergers;
•
the alternative of seeking to grow Cambium internally as opposed
to combining with Voyager and the potential increased risks,
costs and expenses associated with seeking benefits through
internal growth comparable to the benefits which the boards of
directors of Cambium and Holdings expect to realize through the
combination of Cambium and Voyager;
the state of the education market and limitations on the sources
of funding for customers, including the significant financial
constraints on customers as a result of current macroeconomic
difficulties, and the benefits associated with dealing with
these challenges as a combined company;
•
the stimulus moneys to be made available pursuant to the
American Recovery and Reinvestment Act and the opportunities
that may be available to the combined company under that Act,
since the combined company will be able to offer a wider variety
of products and services, and thus will have the potential to
receive a greater amount of stimulus funds than Cambium alone;
•
the fact that Voyager’s management team has resolved
several significant issues that absorbed significant management
attention in the past, namely the restatement of its financial
statements and the settlement of class action litigation, and
the fact that Voyager’s management team has demonstrated
the type of leadership necessary to manage the combined company;
•
the ability and likelihood of Cambium and Voyager to complete
the mergers, including their ability to obtain necessary
regulatory approvals and the obligations to attempt to obtain
those approvals, and measures taken by Cambium and Voyager to
provide reasonable assurance to each other that the mergers will
occur, including the provisions of the merger agreement that
require Voyager or Cambium to compensate the other in some
circumstances if the mergers do not occur;
•
the restrictions under the credit agreements and that the
transactions had been structured as a merger in order to comply
with those restrictions, supported by the confirmation from the
administrative agents and their respective counsel that a
lenders’ consent or waiver was not required in order to
complete the mergers and the Holdings III Merger
Transactions in light of the manner in which they were
structured;
•
the ability of Cambium and Holdings to require Voyager to
perform its obligations under the merger agreement, including
the obligation to close the mergers if the applicable conditions
to closing have been satisfied or waived, through the specific
performance provision in the merger agreement, and
Cambium’s right to terminate the merger agreement at any
time, for any reason not otherwise specified in the merger
agreement, subject only to its obligation to pay to Voyager a
termination fee of $4.5 million; and
•
other terms of the merger agreement, including the
representations, warranties and covenants, and the conditions to
each party’s obligation to complete the mergers.
As noted above, business combinations, including the mergers,
typically include some potential risks and potential
disadvantages. The material potential risks and disadvantages to
Holdings and Cambium include the following material matters, the
order of which does not necessarily reflect their relative
significance:
•
the risk that the mergers might not be completed in a timely
manner or at all, and the expenses that have been and will be
incurred even if the mergers are not completed;
•
Voyager’s ability to entertain a subsequent acquisition
proposal if various conditions are satisfied, including that the
proposal was not solicited by Voyager and Voyager’s board
of directors determines that the proposal could reasonably be
expected to lead to a superior proposal;
•
Voyager’s right to terminate the merger agreement, in
specified circumstances before stockholder approval of the
adoption of the merger agreement, in order to enter into an
acquisition transaction with a third party that Voyager’s
board of directors determines to be a superior proposal, if
Voyager pays a termination fee of $7.5 million to Cambium;
•
the risk of diverting Cambium management’s focus from other
strategic opportunities and operational matters to implementing
the Cambium merger;
•
the difficulties associated with integrating Voyager and Cambium
and the risk that anticipated operating synergies and cost
savings (as described on page 15 under the caption
“SUMMARY — Financial Synergies.”) will
not be achieved;
•
the risk that the steps to be taken to achieve certain cost
savings, such as the elimination of certain jobs, could
adversely affect operating results; and
the interests that the managements of both Voyager and Cambium
have in the proposed transaction, including offers of future
employment with the combined company that may involve increased
cash compensation and incentive compensation awards, and the
possibility that potential conflicts of interest may affect
their judgment.
The discussion above describes the material factors considered
by the Cambium and Holdings boards in reaching their
determinations to approve the merger agreement and authorize the
transactions contemplated thereby. Because of the variety of
factors considered, the boards did not find it practicable to
quantify or otherwise assign relative weights to the specific
factors considered in reaching their determinations and did not
make specific assessments of such relative weights. The
determinations were made after consideration of all of the
factors together. In addition, individual members of the Cambium
and Holdings boards may have given different weights to
different factors.
There can be no certainty that the above benefits of the mergers
anticipated by the Cambium and Holdings boards will occur.
Actual results may vary materially from those anticipated. For
more information on the factors that could affect actual
results, see “RISK FACTORS” on page 32 and
“CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS” on page vii.
After careful consideration, and based on the analysis described
above, the Cambium board of directors determined that the
Cambium merger, the merger agreement and the transactions
contemplated thereby are advisable and in the best interests of
Cambium and its stockholder, and unanimously approved the
Cambium merger, the merger agreement and the transactions
contemplated thereby. Likewise, after careful consideration, and
based on the foregoing analysis, the Holdings board of directors
determined that the mergers, the merger agreement and the
transactions contemplated thereby are advisable and in the best
interests of Holdings and its stockholder, and unanimously
approved the mergers, the merger agreement and the transactions
contemplated thereby. The Cambium board of directors recommended
to its stockholder that the stockholder approve the Cambium
merger and the merger agreement and the Holdings board of
directors recommended to its stockholder that the stockholder
approve the mergers and the merger agreement.
Following a review and discussion of all relevant information
regarding the mergers, at a meeting on June 20, 2009,
Voyager’s board of directors determined that the Voyager
merger, the merger agreement and the transactions contemplated
thereby are advisable and in the best interests of Voyager and
its stockholders, and unanimously approved the Voyager merger,
the merger agreement and the transactions contemplated thereby.
In reaching this conclusion, the members of Voyager’s board
of directors relied on their personal knowledge of Voyager and
the markets that it serves and the advice of management and
Voyager’s financial and legal advisors.
Voyager’s board of directors considered many factors that,
when taken as a whole, supported its decision, including the
following material considerations:
•
the historical market prices and trading information with
respect to Voyager common stock, and that the implied merger
consideration of $5.20 per share to $6.76 per share, based on
the assumed maximum available cash of $67.5 million to be
distributed to Voyager stockholders (excluding any cash from tax
refunds to be distributed to Voyager stockholders) and assumed
Holdings cash net income trading multiples ranging from 8.0x to
14.0x, the range of cash net income trading multiples identified
by Allen & Company as the lower end of the multiple
range among comparable public companies reviewed by
Allen & Company for purposes of valuation, and applied
by Allen & Company to calculate an implied Holdings
equity value of between approximately $140 million and
$245 million, represented a premium of approximately:
•
126% to 194%, based on the closing price of Voyager common stock
on June 15, 2009;
146% to 221%, based on the average closing price of Voyager
common stock for the month ended June 15, 2009; and
•
243% to 346%, based on the average closing price of Voyager
common stock for the six months ended June 15, 2009;
•
the value of the merger consideration to be received by Voyager
stockholders in the Voyager merger, including the fact that
stockholders may receive a portion of the consideration in cash,
which provides more certainty of value to stockholders than
all-stock consideration;
•
the financial presentation of Allen & Company and its
opinion dated June 20, 2009 to Voyager’s board of
directors as to the fairness, from a financial point of view and
as of that date, of the consideration to be received by Voyager
stockholders in the Voyager merger, as more fully described
below in “— Opinion of Voyager’s Financial
Advisors” on page 81 and in the written opinion of
Allen & Company attached to this proxy
statement/prospectus as Annex E;
•
the presentation of Houlihan Smith and its opinion dated
June 20, 2009 to Voyager’s board of directors as to
the solvency of Holdings after and giving effect to the mergers,
as more fully described in “— Opinion of
Voyager’s Financial Advisors” on page 81 and in
the written opinion of Houlihan Smith attached to this proxy
statement/prospectus as Annex F;
•
the value of the merger consideration in light of the current
and historical market value of Voyager, as measured by the
trading prices of its common stock, which Voyager’s board
of directors believed was undervalued in part due to the
persisting effects of material accounting irregularities
identified in 2006, compared to those of its competitors;
•
the potential that the value of Holdings common stock would
increase after the completion of the mergers and that Voyager
stockholders would share in any increase in that value. In this
regard, the board of directors considered:
•
the expected combined earnings of Voyager and Cambium;
•
the potential cost savings of approximately $10 million per
year that could result from the mergers, as described on
page 15 of this proxy statement/prospectus under the
caption “SUMMARY — Financial
Synergies”; and
•
Holdings’ expected financial position after the mergers and
its ability to create future growth opportunities;
•
various alternatives to the Voyager merger, including continuing
to operate as an independent enterprise, and the risks
associated with those alternatives, including Voyager’s
size, financial resources and product lines compared to the
size, financial resources and product lines of its competitors;
•
the lack of competitive solicitations of interest from other
entities to engage in an acquisition transaction with Voyager
received during the sale process;
•
the value of the merger consideration in light of the state of
the education market and sources of funding, including the
significant financial constraints on customers as a result of
current macroeconomic difficulties;
•
the ability of Voyager and Cambium to use the companies’
complementary strengths not only to remedy the deficiencies that
contributed to recent declines in each of Voyager’s and
Cambium’s net sales and profitability in 2008 and 2007, but
also to grow the combined company, including:
•
the ability to leverage the position of Cambium and its products
and services in the education market together with
Voyager’s established products, services and market
position to expand the overall scope of product offerings and
market presence for the combined company, and
•
the ability to integrate the Cambium and Voyager management
teams to create a team capable of successfully leading the
combined company from its inception;
the ability and likelihood of Voyager and Cambium to complete
the mergers, including their ability to obtain necessary
regulatory approvals and the obligations to attempt to obtain
those approvals, and measures taken by Voyager and Cambium to
provide reasonable assurance to each other that the mergers will
occur, including the provisions of the merger agreement that
require Voyager or Cambium to compensate the other in some
circumstances if the mergers do not occur;
•
Voyager’s ability to entertain subsequent acquisition
proposals if various conditions are satisfied, including that
the proposal was not solicited by Voyager and Voyager’s
board of directors determines that the proposal could reasonably
be expected to lead to a superior proposal;
•
Voyager’s right to terminate the merger agreement, in
specified circumstances before stockholder approval of the
adoption of the merger agreement, in order to enter into an
acquisition transaction with a third party that Voyager’s
board of directors determines to be a superior proposal, if
Voyager pays a termination fee of $7.5 million to Cambium;
•
the fact that the Voyager merger is not subject to any financing
condition other than the absence of a default under
Cambium’s credit agreements;
•
the relative benefits to Voyager stockholders of structuring the
transaction as an exchange under Section 351 of the
Internal Revenue Code for U.S. federal income tax purposes;
•
the fact that Voyager stockholders who receive Holdings common
stock pursuant to the Voyager merger will receive registered
shares of common stock;
•
the fact that the Stockholders’ Representative will act as
the representative of the former Voyager stockholders to enforce
obligations under the escrow agreement and other post-closing
obligations of Holdings, Cambium and their respective
subsidiaries;
•
the effect of the mergers on Voyager’s customers and
employees, including the compatibility of the parties’
cultures and the funding of post-closing benefits to be paid to
specified employees; and
•
other terms of the merger agreement, including the
representations, warranties and covenants, and the conditions to
each party’s obligation to complete the mergers.
The board of directors also considered a variety of risks and
other potentially negative factors concerning the Voyager
merger. These included the following:
•
the risk that the mergers might not be completed in a timely
manner or at all, in which case Voyager will have expended
significant human and financial resources on a failed
transaction;
•
the merger agreement provides that:
•
the amount of cash available for cash elections is limited to a
maximum of $67.5 million, including a maximum of
$42.5 million to be made available by Voyager, even though
Voyager’s available cash at the time of the closing may
exceed that amount; and
•
if the cash elections would result in a payment of cash in
excess of the maximum amount available for cash elections at the
effective time of the mergers (i.e., if there is a cash
oversubscription), the cash elections will be subject to
proration so that, in the aggregate, the cash consideration
payable to holders of Voyager common stock will not exceed the
maximum cash consideration amounts;
•
the fact that the Publicly Traded Education Comparables analysis
and the Comparable Precedent Transactions analysis performed by
Allen & Company revealed that a portion of the range
of EBITDA multiples implied by the merger consideration were in
some cases lower than the range of EBITDA multiples for
comparable publicly-traded education publishing companies and
transaction multiples from education publishing companies,
respectively;
•
the restrictions on Voyager’s ability to solicit or engage
in discussions with a third party about an alternative
transaction and the requirement that Voyager pay Cambium a
termination fee of $7.5 million in order for Voyager’s
board of directors to accept a superior proposal;
Cambium’s right to terminate the merger agreement at any
time, for any reason not otherwise specified in the merger
agreement, subject only to its obligation to pay to Voyager a
termination fee of $4.5 million;
•
the potential difficulty of collecting any termination fees from
Cambium, VSS or their respective affiliates and the resulting
inability to receive the negotiated remedy if the merger
agreement is terminated under circumstances in which Voyager is
entitled to a termination fee and cannot recoup any of its costs;
•
the risk of diverting Voyager management’s focus from other
strategic opportunities and operational matters to implementing
the Voyager merger;
•
the potential conflicts of interest of some Voyager executive
officers related to future employment and compensation
(including equity compensation), and potential conflicts of
interest of some Voyager executive officers and directors
related to continuation of indemnification obligations, all as
more fully discussed in “THE MERGERS — Interests
of Voyager’s Directors and Officers in the Mergers” on
page 101;
•
the fact that the Stockholders’ Representative will have a
contractually limited capacity to protect the interests of the
former Voyager stockholders after the closing of the Voyager
merger;
•
the possibility of customer, supplier, management and employee
disruption associated with the mergers;
•
the possibility that the treatment of the mergers under
Cambium’s credit agreements could cause a default under the
credit agreements and the possibility that Cambium could be
required to repay debt outstanding under those agreements;
•
the possibility that Cambium might, prior to the closing of the
mergers, default under its credit agreements;
•
the fact that Holdings’ indebtedness following the mergers
could reduce Holdings’ ability to respond to changing
business conditions; and
•
the difficulties in combining Voyager and Cambium and the risk
that expected cost savings (as described on page 15 under
the caption “SUMMARY — Financial
Synergies”) will not be achieved.
The discussion above describes the material factors considered
by Voyager’s board of directors in reaching its decision to
approve the merger agreement and authorize the transactions
contemplated thereby. Because of the variety of factors
considered, the board of directors did not find it practicable
to, and did not make specific assessments of, quantify or
otherwise assign relative weights to the specific factors
considered in reaching its determination. The determination was
made after consideration of all of the factors together. In
addition, individual members of Voyager’s board of
directors may have given different weights to different factors.
After careful consideration, and based on the foregoing analysis
at a meeting of the Voyager board of directors held on
June 20, 2009, the Voyager board of directors determined
that the Voyager merger, the merger agreement and the
transactions contemplated thereby are advisable and in the best
interests of Voyager and its stockholders, and unanimously
approved the Voyager merger, the merger agreement and the
transactions contemplated thereby. The Voyager board of
directors unanimously recommends that the Voyager stockholders
vote “FOR” the proposal to adopt the merger agreement
and “FOR” the proposal to adjourn the meeting if
necessary to solicit additional proxies.
Each of Allen & Company and Houlihan Smith acted as
financial advisor to Voyager in connection with the transactions
contemplated by the merger agreement.
Voyager provided each of Allen & Company and Houlihan
Smith, its financial advisors, with various financial
projections prepared by Voyager’s management that were used
by those financial advisors for the purpose of preparing the
analyses used in rendering Allen & Company’s fairness
opinion and Houlihan Smith’s solvency opinion. Allen &
Company received financial projections covering the period
through calendar year 2009, and Houlihan Smith received
financial projections covering the period through calendar year
2012. The information reviewed and the analyses performed by
Allen & Company and Houlihan Smith for purposes of their
respective opinions are described under “Fairness
Opinion” and “Solvency Opinion,” respectively,
below. Notwithstanding having delivered these projections to its
financial advisors and including them in this proxy
statement/prospectus, Voyager does not, and Holdings does not
intend to, generally disclose publicly estimates as to either
Voyager’s or Holdings’ longer-term future operating
performance or earnings.
Although these financial projections, which are referred to as
the Voyager management projections, were prepared in good faith,
no assurance can be made regarding future events. The estimates
and assumptions underlying the Voyager management projections
involve judgments with respect to future economic, competitive,
regulatory and financial market conditions, the speed and extent
to which integration of the two businesses occurs, and future
business decisions that may or may not be realized and that are
inherently subject to significant business, economic,
competitive and regulatory uncertainties and contingencies, all
of which are difficult to predict and many of which are beyond
the control of Voyager and/or Cambium Learning and will be
beyond the control of the combined company. The underlying
assumptions may prove to be inaccurate and the projected results
may not be realized. Actual results likely will differ, and may
differ materially, from those reflected in the Voyager
management projections, whether or not the mergers are
completed. For examples of the risks and uncertainties to which
the projections are subject, please refer to the “RISK
FACTORS” beginning on page 32 and the “CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS” beginning
on page vii.
The inclusion of the Voyager management projections in this
proxy statement/prospectus should not be regarded as an
indication that Voyager’s board of directors,
Cambium’s board of directors or any other recipient of the
information then considered, or now considers, them to be a
reliable prediction of future results. The Voyager management
projections summarized in this section were prepared solely for
internal use by Voyager and not with a view toward public
disclosure or with a view toward complying with the guidelines
established by the American Institute of Certified Public
Accountants for preparation and presentation of prospective
financial data, published guidelines of the SEC regarding
forward-looking statements or GAAP as established by the
Financial Accounting Standards Board and other authoritative
organizations. At the time the projections were prepared, the
Voyager management projections represented the best assumptions,
estimates and judgments of Voyager’s management and, to the
best of Voyager management’s knowledge and belief, the
future consolidated financial performance of Holdings. None of
the Voyager management projections reflects the pro forma
adjustments included in the historical pro forma financial
statements included elsewhere in this proxy statement/prospectus.
All of the Voyager management projections summarized in this
section were prepared by and are the responsibility of the
management of Voyager, as indicated. None of the accounting
firms identified in this proxy statement/prospectus has
examined, compiled or otherwise performed any procedures with
respect to the prospective financial information contained in
these financial projections, and their respective reports do not
extend to the projections and should not be read to do so.
By including in this proxy statement/prospectus a summary of
certain Holdings financial projections, neither Voyager nor any
of its representatives has made or makes any representation to
any person regarding the ultimate performance of Voyager,
Cambium or Holdings compared to the information contained in the
financial projections. The Voyager management projections
summarized in this section were prepared in May 2009, and have
not been updated to reflect any changes, or the actual results
of operations of Voyager and Cambium since May 2009. Neither
Voyager, Cambium nor, after completion of the mergers, Holdings,
undertakes any obligation, to update or otherwise revise the
financial forecasts or financial information to reflect
circumstances existing since their preparation or to reflect the
occurrence of unanticipated events, even
in the event that any or all of the underlying assumptions are
shown to be in error, or to reflect changes in general economic
or industry conditions.
The summary of the financial projections is not included in this
proxy statement/prospectus in order to induce any Voyager
stockholder to vote in favor of the Voyager merger or any of the
other proposals to be voted on at the Voyager special meeting of
stockholders.
Fairness
Opinion
Pursuant to an engagement letter dated October 10, 2007, as
amended on October 10, 2008 and June 20, 2009, Voyager
engaged Allen & Company to serve as Voyager’s
financial advisor and to render an opinion as to the fairness,
from a financial point of view, of the merger consideration to
be received by Voyager stockholders in the Voyager merger.
Allen & Company represented Voyager in the
company’s negotiations with VSS and Cambium; however,
Voyager determined the amount of consideration to accept. On
June 20, 2009, Allen & Company delivered its oral
opinion to Voyager’s board of directors subsequently
confirmed in writing later the same day, to the effect that, as
of the date of its opinion and based upon and subject to the
qualifications, limitations and assumptions set forth therein,
the merger consideration to be received by Voyager stockholders
in the Voyager merger was fair, from a financial point of view,
to Voyager stockholders.
Allen & Company has consented to the inclusion of its
written opinion, dated June 20, 2009, in this proxy
statement/prospectus. This summary of Allen &
Company’s written opinion is qualified in its entirety by
reference to the full text of Allen & Company’s
written opinion, dated June 20, 2009, attached as
Annex E to this proxy statement/prospectus. You are urged
to, and should, read Allen & Company’s written
opinion carefully and in its entirety. Allen &
Company’s written opinion addresses only the fairness, from
a financial point of view, of the merger consideration to be
received by Voyager stockholders in the Voyager merger, as of
the date of Allen & Company’s written opinion.
The opinion of Allen & Company was provided for the
information and assistance of Voyager’s board in connection
with its consideration of the Voyager merger and the merger
agreement and does not constitute a recommendation to any
Voyager stockholder as to how to vote or act on the proposed
transaction or any other matter to be considered at the Voyager
special meeting. The form and amount of merger consideration
payable in the Voyager merger was determined through
negotiations between Voyager and Cambium and were approved by
the Voyager board. The Allen & Company opinion and
presentation to the Voyager board was one of many factors that
the Voyager board took into consideration in making its
determination to approve the Voyager merger.
In arriving at its opinion, Allen & Company, among
other things:
(i) reviewed and analyzed the terms and conditions of the
merger agreement and related documents;
(ii) reviewed and analyzed the financial aspects of the
mergers;
(iii) reviewed and analyzed the trends in the K-12
supplemental education market;
(iv) reviewed and analyzed publicly available information
regarding Voyager;
(v) reviewed and analyzed the present financial and
business condition and prospects of each of Voyager and Cambium
based on information provided by the management of each company;
(vi) reviewed and analyzed the historical results of each
of Voyager and Cambium provided by management of each company;
(vii) reviewed and analyzed the projections of
Voyager’s financial performance for the year ending
December 31, 2009 provided to Allen & Company by
the management of Voyager and the projections of Cambium’s
financial performance for the year ending December 31,2009, which we refer to as the 2009 Cambium projections,
provided to Allen & Company by VSS;
(viii) reviewed and analyzed the information obtained from
discussions with the management of each of Voyager and Cambium
and with VSS, the financial sponsor that owns an indirect
controlling interest in Cambium;
(ix) reviewed and analyzed the publicly available financial
information of comparable companies in the K-12 education sector;
(x) reviewed and analyzed the publicly available financial
information related to comparable transactions;
(xi) reviewed and analyzed valuation trends in the
U.S. equity market;
(xii) reviewed and analyzed the auction sale process
Voyager undertook to sell itself;
(xiii) reviewed and analyzed the cash consideration
received per each share of Voyager common stock;
(xiv) reviewed and analyzed the implied trading value of
Holdings based on publicly traded comparable companies;
(xv) reviewed and analyzed the premiums paid in certain
precedent transactions; and
(xvi) reviewed and analyzed the current macroeconomic
environment and its relevance to previous comparable
transactions in the K-12 sector.
The 2009 Cambium projections used by Allen & Company
in its analyses consisted of the following:
2009P
(in thousands)
Revenue
$
107,485
Expenses
(101,800
)
Gross Margin
$
5,684
Depreciation and Amortization
24,363
Other Adjustments
977
EBITDA(1)
$
31,024
EBITDA Margin(1)
28.9
%
(1)
Calculated in accordance with the definition of Consolidated
EBITDA set forth in Cambium’s senior secured credit
agreement.
In connection with its review, Allen & Company did not
assume any responsibility for independent verification of any of
the information utilized in its analyses and relied upon and
assumed the accuracy and completeness of all of the financial,
accounting, tax and other information that was available to
Allen & Company from public sources or that was
provided to it by Voyager
and/or
Cambium or their respective representatives. The information
described herein comprises all of the information considered by
Allen & Company in connection with its fairness opinion.
With respect to the financial projections provided to
Allen & Company by Voyager and VSS, Allen &
Company assumed that such financial projections were reasonably
prepared in good faith reflecting the best currently available
estimates and judgments of the management of Voyager and VSS, as
to the future operating and financial performance of Voyager and
Cambium, respectively. Allen & Company assumed no
responsibility for and expressed no view or opinion as to such
forecasts or the assumptions on which they are based.
Allen & Company also assumed, with Voyager’s
consent, that the mergers would be completed in accordance with
the terms and conditions set forth in the merger agreement and
certain related documents that it reviewed. Allen &
Company neither conducted a physical inspection of the
properties and facilities of Voyager or Cambium nor, except as
specifically set forth in the opinion, made or obtained any
evaluations or appraisals of the assets or liabilities of
Voyager or Cambium. In addition, Allen & Company did
not conduct any analysis concerning the solvency of Voyager or
Cambium. Allen & Company’s opinion addressed only
the fairness, from a financial point of view, of the merger
consideration to be received by the Voyager stockholders in the
Voyager merger, and did not address any other aspect or
implication of the Voyager merger or any other agreement,
arrangement or understanding entered into in connection with the
Voyager merger or otherwise. Allen & Company’s
opinion is necessarily based upon information made available to
it as of the date of its
opinion, and upon financial, economic, market and other
conditions as they existed and could be evaluated on the date of
Allen & Company’s opinion. Allen &
Company’s opinion did not address the relative merits of
the Voyager merger as compared to other business strategies that
might be available to Voyager, nor did it address Voyager’s
underlying business decision to proceed with the transactions
contemplated by the merger agreement. Allen & Company
did not express an opinion about the fairness of any
compensation payable to any of Voyager’s officers,
directors or employees in connection with the Voyager merger,
relative to the compensation payable to the Voyager
stockholders. In addition, Allen & Company’s
opinion did not express any opinion as to any tax or other
consequences that might result from the Voyager merger, nor did
its opinion address any legal, tax, regulatory or accounting
matters. No limitations were imposed by Voyager on the scope of
the investigation by Allen & Company.
In preparing its opinion, Allen & Company performed a
number of financial and comparative analyses, all of which are
described below. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial
analysis or summary description. Allen & Company
believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors,
could create a misleading view of the processes underlying its
opinion. No company or transaction used in the analyses
performed by Allen & Company as a comparison is
identical to Voyager or the contemplated transaction. In
addition, Allen & Company may have given some analyses
more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other
assumptions, so that the range of valuation resulting from any
particular analysis described below should not be taken to be
Allen & Company’s view of the actual value of
Voyager. The analyses performed by Allen & Company are
not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to
the value of businesses or assets do not purport to be
appraisals or to necessarily reflect the prices at which
businesses or assets may actually be sold. The analyses
performed were prepared solely as part of Allen &
Company’s analysis of the fairness, from a financial point
of view, of the merger consideration to be received by Voyager
stockholders in the Voyager merger, and were provided to
Voyager’s board in connection with the delivery of
Allen & Company’s opinion.
Valuation
Methods and Analyses
The following is a summary of material financial analyses
performed by Allen & Company in connection with the
preparation of its opinion, and reviewed with Voyager’s
board at its meeting held on June 20, 2009 and subsequently
confirmed in writing later the same day. Certain of the
following summaries of financial analyses that were performed by
Allen & Company include information presented in
tabular format. In order to understand fully the material
financial analyses that were performed by Allen &
Company, the tables should be read together with the text of
each summary. The tables alone do not constitute a complete
description of the material financial analyses.
Valuation of the Merger Consideration. In
determining the value of the consideration to be received by
each Voyager stockholder in the Voyager merger,
Allen & Company assumed that (i) the Voyager
merger would close at approximately the end of the third quarter
of 2009, (ii) Voyager stockholders would receive cash in
the following amounts: $42.5 million of Voyager operating
cash, the maximum amount available, $25 million in cash
from the Cambium stockholder, and $15.2 million in cash
from specified tax refunds received prior to the closing of the
mergers, (iii) each Voyager stockholder would receive a pro
rata amount of cash and Holdings common stock, and
(iv) 29,874,145 shares of Voyager common stock would
be outstanding immediately prior to the closing of the mergers.
The amounts used by Allen & Company for the value of
the specified tax refunds were based on information provided to
Allen & Company by Voyager management and its tax
advisors.
For purposes of determining the pro rata amount of cash to be
distributed per share of Voyager common stock, Allen &
Company divided each of (a) the Voyager operating cash,
(b) the cash from the Cambium stockholder and (c) the
cash from certain specified tax refunds received prior to the
closing of the mergers, by the number of shares of Voyager
common stock outstanding. Based on this calculation,
Allen & Company determined that each Voyager
stockholder would receive up to $2.26 in cash from the cash
election, and up to
$0.51 in cash at closing from the specified tax refunds received
prior to the closing of the mergers. Allen & Company
determined that each Voyager stockholder would receive
additional cash in an amount up to $0.34 for each CVR held by
the Voyager stockholder, resulting in aggregate cash
consideration of up to $3.11 per share of Voyager common stock,
which we refer to solely for purposes of this section of the
proxy statement/prospectus as the cash consideration.
In order to value the Holdings common stock, Allen &
Company analyzed multiples of EBITDA and cash net income for
comparable companies in the K-12 supplemental education sector
(see “Publicly-Traded Education Comparables,” below).
Allen & Company believed that cash net income was a more
appropriate measure to value Holdings because the EBITDA for
Holdings did not take into account the cash impact of amortized
curriculum costs, and Allen & Company believed that a
valuation based on EBITDA would be less conservative and would
have the effect of overstating the value of Holdings. The cash
net income multiple range for the companies included in the K-12
supplemental education sector was from 10.7x to 34.9x.
Although no company within the comparable group is directly
comparable to Voyager and Holdings, Allen & Company
focused on companies that sell similar products targeted at a
similar market and have a similar growth profile to Voyager to
determine the range of 8.0x to 14.0x, which Allen & Company
believed was conservative as it was below or at the low end of
the comparable company trading statistics. Allen & Company
believed that it was appropriate to use a conservative range in
order to avoid overstating the value of Holdings common stock in
performing its analysis given the following considerations:
(i) the range reflected in Voyager’s current cash net
income trading multiples; (ii) Cambium had no trading
history to rely on; and (iii) recent volatility in the
equity markets indicated potential for multiple contraction.
Based on its review of these various financial measures,
Allen & Company applied a range of multiples between
8.0x and 14.0x to Holdings’ 2009 pro forma cash net income
of $17.5 million to derive an implied Holdings equity value
of between approximately $140 million and
$245 million. Voyager stockholders’ anticipated
approximate 44.5% ownership stake in Holdings equals a pro rata
equity interest in Holdings of between approximately
$62.2 million and $108.9 million, resulting in a pro
rata price per share of Holdings common stock between $2.09 and
$3.65, which we refer to solely for purposes of this section of
the proxy statement/prospectus as the stock consideration.
Allen & Company then added the value of the cash
consideration to the range of implied values of the stock
consideration to calculate a range of implied pro rata
consideration between $5.20 and $6.76 per share of Voyager
common stock, which we refer to solely for purposes of this
section of the proxy statement/prospectus as the merger
consideration.
Fairness Analysis. In considering the
fairness, from a financial point of view, of the merger
consideration to be received by Voyager stockholders in the
Voyager merger, Allen & Company used the publicly
traded education comparables analysis; the comparable precedent
transactions analysis; and the comparable company premiums
analysis. In addition, Allen & Company reviewed the
broad, publicly announced sales process undertaken by Voyager in
2007 and 2008. Allen & Company believed, based on the
fact that Voyager undertook a broad, publicly announced auction
process that made potential buyers aware of the opportunity to
enter into a business transaction with Voyager and received no
bids that were competitive with the merger consideration offered
by Cambium, that other potential buyers were unwilling to pay a
greater premium for Voyager.
Publicly-Traded Education
Comparables. Allen & Company analyzed
the common stock prices and market multiples of the following
comparable publicly-traded education companies:
Enterprise Value/ EBITDA(1)
Equity Value / Cash Net Income(1)
Company
LTM
2009E
LTM
2009E
Scholastic
5.4x
5.9x
42.3
x
13.6
x
K12
13.0x
10.6x
31.8
x
34.9
x
School Specialty
6.6x
6.5x
11.3
x
10.7
x
Renaissance Learning
9.4x
9.9x
19.2
x
20.4
x
Princeton Review
9.7x
9.6x
37.7
x
20.2
x
Plato Learning
5.6x
7.1x
NM
NM
Scientific Learning
12.5x
9.5x
NM
NM
(1)
Enterprise value and equity value were calculated as of
June 19, 2009.
For this analysis, Allen & Company selected companies
whose stock was publicly traded, that shared similar business
characteristics with Voyager’s business, and for which
relevant financial information was available publicly.
Specifically, Allen & Company selected publicly traded
companies that operated primarily in the
K-12
supplemental education sector. The selected publicly-traded
education companies had enterprise values ranging from
$36 million to $1.2 billion. Revenue and EBITDA for
the comparable companies for the last twelve months was
$47 million to $1.9 billion and $3 million to
$208 million, respectively. Allen & Company noted
that the implied enterprise value of Voyager, based on the
merger consideration, was within the range of enterprise values
for the comparable publicly-traded education companies and
Voyager’s financial results, including revenue and EBITDA,
also fell within the range of the financial results for the
comparable publicly-traded education companies.
Allen & Company excluded companies that may have
offered services similar to Voyager, but that also derived a
large part of their revenues from businesses dissimilar to
Voyager. Specifically, Allen & Company excluded the
large basal textbook publishers because these companies derive a
large portion of their total revenue from operations outside the
K-12 supplemental education sector.
Utilizing the numbers obtained from publicly available
information, Wall Street research and company press releases,
for each company listed above, Allen & Company
calculated the ratio of enterprise value to EBITDA and the ratio
of equity value to cash net income, in each case, for the last
twelve months and on a projected calendar year basis for 2009.
As set forth in the table below, Allen & Company found
that the range of implied pro forma merger consideration implied
(i) EBITDA multiples for the last twelve months to be
within the range of selected multiples from comparable
companies, (ii) EBITDA multiples on a projected calendar
year basis for 2009 to be below or within the range of selected
multiples from comparable companies, (iii) cash net income
multiples for the last twelve months to be within or slightly
above the range of selected multiples from comparable companies
and (iv) cash net income multiples on a projected calendar
year basis for 2009 to be within the range of selected multiples
from comparable companies.
Comparable Precedent Transactions
Analysis. Allen & Company reviewed all
of the precedent transactions of which it was aware that were
within the education publishing sector that had announcement
dates between June 2000 and September 2008 and for which
publicly available filings, Wall Street research and company
press releases existed from which purchase price multiples could
be derived. For each transaction, Allen & Company
analyzed the enterprise value, or EV, of the acquired company
compared to the EBITDA of such company for the last twelve
months, or LTM, where available. Transactions analyzed included:
EV/LTM
LTM
EBITDA
Target
Acquiror
Sales
EBITDA
Multiple
Abrams & Company Publishers
Learning Trends
NA
NA
NA
Sundance/Newbridge Publishing
Rowman & Littlefield
0.3x
NM
NA
Thomson Learning Inc
Investor Group & Others
4.6x
15.0x
14.5x
Harcourt Education
Houghton Mifflin Co. / Pearson Plc
3.0x
17.5x
16.9x
Learning Horizons Inc
Learning Horizons Holding Corp.
NA
NA
NA
JIST Publishing Inc
EMC Corp.
NA
NA
NA
Roxbury Publishing Co.
Oxford University Press Inc.
NA
NA
NA
Cambium Learning Inc.
Veronis Suhler Stevenson
3.0x
11.2x
11.2x
Von Hoffmann Corpz
RR Donnelley & Sons Co.
0.8x
NA
NA
Scientific Explorer
Elmers Products Inc.
NA
NA
NA
Houghton Mifflin, Inc.
Riverdeep Interactive Learning
2.6x
11.0x
11.2x
Delta Education Inc.
School Specialty Inc.
3.5x
15.9x
15.2x
American Guidance Services
Pearson Education
3.6x
9.1x
8.4x
Voyager Expanded Learning
ProQuest
4.0x
9.8x
8.6x
Options Publishing, Inc.
Haights Cross Communications
2.7x
16.5x
14.7x
Malmberg Investments BV
SanomaWSOY
2.6x
9.4x
7.5x
Editis (Vivendi Publishing)
Wendel
1.9x
NA
NA
Marcel Dekker
Taylor & Francis
3.3x
NA
NA
Cinar
Investor Group
1.6x
8.9x
6.2x
Houghton Mifflin Co.
Investor Consortium
1.4x
9.5x
6.0x
Editis (Vivendi Publishing)
Lagardere
1.2x
10.0x
6.2x
Houghton Mifflin Co.
Vivendi Universal
2.2x
9.0x
6.4x
Harcourt General Higher Education
Thomson Corporation
2.3x
11.0x
7.7x
Harcourt General
Reed Elsevier
2.4x
9.2x
6.4x
Tribune Education Co. & Landoll
McGraw-Hill
2.0x
11.0x
6.9x
In addition, Allen & Company indicated that because
the comparable transactions occurred prior to the recent decline
in equity markets, they were less relevant to the analysis and
had such transactions occurred in the present economic
environment, the multiples would have been discounted to reflect
such declines. In order to review the precedent transactions in
a manner to reflect the changed economic environment,
Allen & Company analyzed the average
price / earnings multiple of the Standard &
Poor’s 500 Index, which is referred to in this section as
the S&P 500, at the announcement date of each of the
precedent transactions and compared it to the current S&P
500 price / earnings multiple. Of the precedent
transactions reviewed in the education industry, 93% of the
listed transactions occurred between 2000 and 2007, a period of
substantially higher multiples and greater liquidity than the
current environment. Using the S&P 500
price / earnings multiple as a proxy for general
economic valuations, Allen & Company adjusted the
precedent transaction multiples by multiplying each transaction
multiple by the percentage change in the S&P 500 from the
announcement date of each transaction to the current date. Using
both the unadjusted and adjusted multiples for the precedent
transactions,
Allen & Company determined that the EBITDA multiples
for Voyager were slightly below or within the range of such
multiples paid in comparable transactions.
Range of Selected Transaction
Range of Multiples implied
Multiples from Education
by the Merger Consideration
Publishing Companies
Enterprise Value/LTM EBITDA
7.1x - 10.6x
8.9x - 17.5x
Adjusted Enterprise Value/LTM EBITDA
7.1x - 10.6x
6.0x - 16.9x
Comparable Company Premiums
Analysis. Allen & Company analyzed and
examined the transaction premiums paid in completed acquisitions
of companies, excluding financial institutions, which were
acquired between January 1, 2006 to June 20, 2009 with
an implied enterprise value between $100 million and
$500 million. Allen & Company compared the range
of implied pro forma merger consideration to (a) the
closing price of Voyager common stock on June 15, 2009,
which we refer to as the “Current Share Price,”
(b) the four week average closing price of Voyager common
stock, which we refer to as the “Four Week Average Share
Price” and (c) the six month average closing price of
Voyager common stock, which we refer to as the “Six Month
Average Share Price.” As indicated in the table below,
Allen & Company determined that the merger
consideration represented a premium of between 126% and 194%
over the Current Share Price, a premium of between 146% and 221%
over the Four Week Average Share Price and a premium of between
243% and 346% over the Sixth Month Average Share Price.
Allen & Company found that the range of implied pro
forma merger consideration represented a premium to
Voyager’s market price that was greater than 96% of the
premiums paid in comparable transactions which had a one-day
median premium of 27% and a four-week median premium of 32%.
Four Week
Six Month
Range of Merger
Average
Average
Consideration per Share
Current Share Price
Share Price
Share Price
$2.30
$2.11
$1.51
$5.20 - $6.76
126% - 194%
146% - 221%
243% - 346%
In addition to the review of premiums paid in precedent
transactions, Allen & Company also reviewed the
premiums implied by comparing the range of merger consideration
per share to an implied value per share for Voyager on a
standalone basis. As previously discussed, Allen &
Company used a cash net income multiple range of 8.0x to 14.0x
to determine a range of merger consideration per share.
Allen & Company applied the same range of cash net
income multiples to the Voyager estimated 2009 cash net income
of $7.8 million to determine an implied trading price for
Voyager were it to trade at that range of multiples. Across the
range, the merger consideration represents a significant premium
to the implied standalone trading values for Voyager at the same
multiples. Based on the cash net income multiple range of 8.0x
to 14.0x, the implied premiums for Voyager, on a standalone
basis, ranged from 84% to 148%. This range is significantly
higher than the premiums paid in transactions across multiple
industries with a transaction value between $100 and
$500 million, which had a
one-day
median premium of 27% and a four-week median premium of 32%.
Range of Merger
Voyager
Implied
Consideration per Share
Value per Share
Premium
$5.20 - $6.76
$2.10 - $3.67
84% - 148%
General
Pursuant to Allen & Company’s engagement letter
with Voyager, the Voyager board engaged Allen &
Company as its financial advisor and to deliver its opinion as
to the fairness, from a financial point of view, of the merger
consideration to be received by the Voyager stockholders in the
Voyager merger. Allen & Company was selected by the
Voyager board based on Allen & Company’s
qualifications and reputation. Allen & Company, as
part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection
with mergers and acquisitions, private placements and related
financings, bankruptcy reorganizations and similar
recapitalizations, negotiated underwritings, secondary
distributions of listed and unlisted securities, and valuations
for corporate and other purposes. Except as described herein,
Allen & Company and its affiliates do not have and
have not had any material relationships involving the
payment or receipt of compensation between Allen &
Company or any of its affiliates and Voyager, Cambium or any of
their respective affiliates during the last two years.
Allen & Company has previously served as financial
advisor to Voyager in connection with its acquisition of Voyager
Expanded Learning in January of 2005 and its disposition of
ProQuest Business Solutions and ProQuest Information Learning in
November of 2006 and February of 2007, respectively. In
addition, prior to the transactions in 2004 and 2006,
Allen & Company was engaged by ProQuest to provide
general financial advisory services. In addition, in the
ordinary course of its business as a broker-dealer and market
maker, Allen & Company or its affiliates may have long
or short positions, either on a discretionary or
nondiscretionary basis, for its or its affiliates’ own
account or for those of its clients, in the debt and equity
securities (or related derivative securities) of Voyager. The
opinion was approved by Allen & Company’s
fairness opinion committee.
Pursuant to the terms of the engagement letter between
Allen & Company and Voyager, a success fee, in the
amount of $3,000,000, is contingent upon the consummation of the
Voyager merger. The fee is payable by Voyager to
Allen & Company upon the sale, transfer or other
disposition of Voyager
and/or its
principal business, Voyager Expanded Learning, in the form of a
sale or exchange of capital stock or assets, a merger or
consolidation or a tender offer, to VSS
and/or
Cambium or any affiliate of VSS or Cambium. Allen &
Company is due $500,000 for the delivery of its opinion to the
Voyager board. The latter $500,000 fee is creditable against any
success fee payable to Allen & Company upon the
closing of the Voyager merger. No portion of the $500,000 fee is
contingent upon either the conclusion expressed in the opinion
or whether the Voyager merger is successfully completed. Voyager
has also agreed to reimburse Allen & Company’s
reasonable
out-of-pocket
expenses and to indemnify Allen & Company against
certain liabilities arising out of the engagement.
Solvency
Opinion
Pursuant to an engagement letter dated February 26, 2009,
Voyager engaged Houlihan Smith to serve as Voyager’s
financial advisor and to render an opinion as to whether, after
and giving effect to the mergers:
•
on a pro forma basis, the Fair Value and Present Fair Saleable
Value (as defined in the solvency opinion and described below)
of the assets of Holdings, as applicable, would exceed the sum
of its respective probable liabilities, including all contingent
and other liabilities (as defined in the solvency opinion and
described below), on its respective existing debts as such debts
become absolute and matured;
•
Holdings and its subsidiaries will be able to pay their
respective debts as they become due in the ordinary course of
their respective businesses on a consolidated basis;
•
the capital remaining in Holdings and its subsidiaries after the
mergers would not be unreasonably small for the respective
business in which it is engaged, as Voyager’s management
has indicated it is as of the date of the opinion and is
proposed to be conducted following the consummation of the
mergers;
•
the Fair Value of Holdings’ assets exceeds the value of its
liabilities, including all contingent and other liabilities, by
an amount that is greater than its stated capital
amount; and
•
the sum of the assets of Holdings, as applicable, at fair value
is greater than all its respective debts at fair valuation.
As background for its analysis, Houlihan Smith:
(i) reviewed the merger agreement, the structure of the
transaction and Cambium Learning’s credit agreements;
(ii) discussed with key members of Voyager management, in
detail, the transaction, the pro forma historical performance
and pro forma financial projections for Holdings for the years
ending December 31, 2009, 2010, 2011 and 2012,
respectively, provided to Houlihan Smith by Voyager’s
management, which we refer to as the Voyager management
projections, and the status of outstanding legal claims and any
potential financial liability in connection with these claims;
(iii) reviewed and analyzed information relating to the
historical and current operations of each of Voyager and Cambium
Learning, and the future outlook for Holdings;
(iv) reviewed various documents related to the
organization, corporate proceedings, assets and liabilities of
Voyager and Cambium Learning; (v) reviewed the status of
outstanding legal claims and any potential financial liability
in connection with these claims as identified by key members of
Voyager management; (vi) discussed with Voyager’s
legal counsel the status of outstanding legal claims and any
potential financial liability in connection with these claims;
and (vii) reviewed
other publicly available economic, industry and company
information. No limitations were imposed by Voyager on the scope
of the investigation by Houlihan Smith.
For the purposes of Houlihan Smith’s solvency opinion, the
term (i) “Fair Value” means the amount at which
the equity of Holdings would change hands between a willing
buyer and a willing seller, each having reasonable knowledge of
the relevant facts, neither being under any compulsion to act
with equity to both, (ii) “Present Fair Saleable
Value” means the amount that may be realized if Holdings
and its subsidiaries’ assets on a consolidated basis are
sold as an entirety with reasonable promptness, not to exceed
one year, in an arm’s length transaction under present
conditions for the sale of comparable business enterprises, as
those conditions could be reasonably evaluated by Houlihan
Smith, (iii) “Contingent and Other Liabilities”
means the stated amount of those contingent liabilities
identified to Houlihan Smith by officers of Holdings, and
(iv) “would not be unreasonably small amount of
capital for the respective businesses in which it is
engaged” and “required to pay its respective probable
liabilities, including all ‘Contingent and Other
Liabilities’, on its respective existing debt, as such
debts become absolute and matured” means that Holdings, as
applicable, will be able to generate enough cash from
operations, financing or a combination thereof to meet its
respective obligations (including all Contingent and Other
Liabilities) as they become due.
In arriving at its opinion, Houlihan Smith relied upon and
assumed, without independent verification, the accuracy,
completeness and reasonableness of the financial, legal and tax
information provided by Voyager in addition to information
provided by Voyager pertaining to the operations, financial
liabilities, and the educational services, publishing and
printing, and for-profit higher education services elements of
Holdings’ business discussed with or reviewed by Houlihan
Smith and assumed such accuracy and completeness for purposes of
rendering its opinion. In addition, Houlihan Smith did not make
any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Holdings, nor was
Houlihan Smith furnished with any such evaluation or appraisal.
In addition, Houlihan Smith did not attempt to confirm whether
Holdings had good title to its assets. Further, Houlihan Smith
relied upon the assurance of Voyager’s management that it
was not aware of any facts or circumstances that would make any
such information inaccurate or misleading. With respect to the
financial information and projections utilized, Houlihan Smith
assumed that such information has been reasonably prepared on a
basis reflecting the best currently available estimates and
judgments, and that such information provides a reasonable basis
upon which it could make an analysis and form an opinion. The
Voyager management projections were prepared by Voyager’s
management (although some of the data in the Voyager management
projections were derived from data regarding Cambium provided to
Voyager by VSS) and are not to be interpreted as projections of
future performance (or “guidance”) by Holding’s
management. Houlihan Smith did not use any data provided by VSS
to Voyager (other than the data derived by Voyager from
VSS’ data) in performing its analyses, nor did Houlihan
Smith interview or otherwise interact with VSS or management of
Cambium Learning.
Houlihan Smith performed sensitivity analyses by using Voyager
management’s financial projections of revenue, operating
margin, EBITDA margin, capital expenditures (as a percentage of
sales) and working capital (as a percentage of sales) as a basis
from which to derive a low case, base case and high case of
values that Houlihan Smith considered as part of its opinion.
Houlihan Smith utilized the Voyager management projections as
the base case. Houlihan Smith derived the low case and high case
values by adjusting the Voyager management projections upward to
create the high case and downward to create the low case.
Specifically, Houlihan’s sensitivity analyses for
developing high case projections consisted of increasing base
case projected revenue growth rates, operating margins and
EBITDA margins, and decreasing capital expenditures and working
capital assumptions. Houlihan’s sensitivity analyses for
developing low case projections consisted of decreasing base
case projected revenue growth rates, operating margins and
EBITDA margins, and increasing capital expenditures and working
capital assumptions. Based upon the revenue, operating margin
and EBITDA margin adjustments, each of the low case, base case
and high case scenarios were considered in the solvency analyses.
The following sets forth the base case projections provided by
Voyager’s management to Houlihan Smith (representing the
Voyager management projections) and the low case and high case
adjustments made by Houlihan Smith to develop the base case, low
case, and high case models used in Houlihan Smith’s
solvency analysis.
Year 1, Year 2, Year 3 and Year 4 (the “Projected
Period”) are intended to be the four annual periods
directly following the date on which Houlihan Smith delivered
its solvency opinion. The Voyager management projections
utilized for the years in the Projected Period are projections
for each of the years ending December 31, 2009, 2010, 2011
and 2012, respectively.
For purposes of preparing its opinion, Houlihan Smith conducted
three tests to analyze Holdings’ ability to sustain the
burden of debt and Holdings’ going-concern status quo:
(i) the balance sheet test; (ii) the cash flow test;
and (iii) the capital adequacy test.
Balance
Sheet Test
The balance sheet test requires an analysis of Holdings’
enterprise value as a going concern. Houlihan Smith considered
the following in the balance sheet test: the extent to which
assets exceed liabilities, a comparison of Holdings’ total
invested capital to total liabilities after the mergers, and the
determination of the Present Fair Saleable Value and Fair Value
of Holdings. To determine the Present Fair Saleable Value and
Fair Value of Holdings, Houlihan Smith used the following
methodologies: discounted cash flow analysis, an analysis of the
trading multiples for selected public companies (identified
below) and an analysis of companies
involved in merger and acquisition transactions (identified
below). We refer to the second method as the guideline public
company method and the third method as the comparable
transactions method.
The guideline public company method applies the trading
multiples of publicly listed companies to the subject company to
derive an indication of value. In utilizing this method,
Houlihan Smith searched for guideline public companies in
industries similar to Holdings’ industry with operating
structures and target customers as similar to Holdings as
possible. Specifically, Houlihan Smith searched for companies
within similar lines of business as Holdings and considered the
following factors in selecting the guideline public companies:
structure, size, growth, leverage, profitability, and turnover.
All companies that met these criteria were included without
exception. Houlihan Smith found 20 companies, including
Voyager, that met the criteria for guideline public companies.
Houlihan Smith segregated these companies into educational
services, publishing and printing, and for-profit higher
education services industry sectors and calculated blended
statistics. Houlihan Smith determined that Holdings is slightly
larger than the median of the guideline public companies in
terms of revenue and EBITDA and generally has higher margins
than the guideline public companies. Houlihan Smith determined
that the valuations derived from pro forma projected 2009
revenue and EBITDA multiples of the guideline public companies
would provide the most meaningful indications of value.
The following table sets forth the 20 companies identified
above (the “Guideline Public Companies”) and the
ratios of total enterprise value to 2009 revenues and to 2009
EBITDA. The “Total Enterprise Value” of a company is
equal to the sum of the company’s total equity and
interest-bearing debt less the company’s excess cash.
The blended statistics were calculated as the arithmetic average
of the mean and median statistics for the Educational Services,
Printing and Publishing, and For-Profit Higher Education sectors.
Houlihan Smith multiplied Holdings’ pro forma projected
2009 revenue and EBITDA by the blended median multiples set
forth above, and then added the present value of the cash taxes
saved as a result of net operating loss carry forwards, to
conclude an indicated range of enterprise values of
$277.1 million to $456.2 million based upon the
guideline public company method.
Next, Houlihan Smith applied the comparable transactions method
to ascertain the enterprise value applied in the balance sheet
test. The comparable transactions method is a market approach
which required Houlihan Smith to analyze merger and acquisition
transactions involving target companies operating in industries
similar to Holdings. Although no two companies are exactly
alike, nor are any two transactions structured exactly the same,
consideration is given to the similarity in capital structure,
operations, size and profitability, as well as other operating
characteristics of the target companies. Therefore, Houlihan
Smith searched for comparable transactions with targets
comparable to Holdings based upon the following factors:
structure, size, growth, leverage, profitability and turnover.
All comparable transactions with targets that met these criteria
were included without exception.
Houlihan Smith found 21 comparable transactions (including the
2007 acquisition of Cambium Learning) and segregated these
transactions into educational services, publishing and printing,
and for-profit higher education services industry sectors and
calculated blended statistics, as shown in the following table:
Reed Elsevier plc, Harcourt US Schools Education Business
2.4x
NA
Pearson plc (LSE: PSON)
Reed Elsevier Group Plc, Harcourt Assessment, Inc. and Harcourt
Education Ltd.
1.8x
NA
Boston Ventures Management, Inc.
Oakstone Publishing, LLC
1.4x
NA
Triumph Learning, LLC
Buckle Down Publishing Company
2.5x
9.9x
Mean
2.1x
10.8x
Median
2.3x
10.8x
For-Profit Higher Education:
DeVry, Inc. (NYSE:DV)
U.S. Education Corporation
2.0x
11.7x
CMP Technology
Think Services, Inc.
2.0x
NA
Liberty Partners
Concorde Career Colleges Inc.
1.1x
12.2x
Capella Education Co.
Various
0.5x
3.8x
MindLeaders.com
ThirdForce plc (ISE: QPO)
0.6x
4.7x
Mean
1.2x
8.1x
Median
1.1x
8.2x
Blended Statistics:
Mean
2.3x
9.6x
Median
2.0x
9.8x
The blended statistics were calculated as the arithmetic average
of the mean and median statistics for the Educational Services,
Printing and Publishing, and For-Profit Higher Education
segments.
Houlihan Smith applied the blended median enterprise value to
revenue and blended median enterprise value to EBITDA multiples
of the targets involved in the comparable transactions to
Holdings’ range of projected 2009 revenue and EBITDA values
to determine an enterprise value for Holdings. Houlihan Smith
then discounted the indicated enterprise values to the present
and added to these values the cash taxes saved as a result of
net operating losses, to conclude an indicated range of
enterprise values of $302.0 million to $485.5 million
based upon the comparable transactions method.
Houlihan Smith also considered the discounted cash flow method
to ascertain the enterprise value under the balance sheet test.
Houlihan Smith applied the Voyager management projections to
determine the enterprise cash flows of Holdings over the four
year Projected Period. Voyager management projections account
for synergies that are anticipated to be realized over the
Projected Period as a result of an aggregate of approximately
$10 million per year of cost savings related to “Other
Cost of Sales”, which affects gross profit
margins, and “Curriculum & Evaluation” and
“Selling, General & Administration”
(including marketing expenses), which affect operating expense
margins. The amounts of these expected cost savings are
management’s estimates for achieving the strategic and
operational synergies described under the caption
“SUMMARY — Strategies.”
Houlihan Smith determined the reasonableness of the Voyager
management projections of Holdings by reviewing the historical
performance of Voyager and Cambium Learning on a standalone
basis, in addition to the past performance and expected future
financial performance of the Guideline Public Companies referred
to above. Generally, Voyager and Cambium Learning have
historically maintained positive EBITDA as well as earnings
before interest and taxes. The two companies, however, have
witnessed fluctuations in profits as a result of the industry
and economic environments in which each participates, and
Houlihan Smith also took into account particular historical
non-operating charges, such as goodwill impairment, lawsuit
settlements, and embezzlement charges.
Houlihan Smith performed sensitivity analyses on the cash flows
of Holdings and analyzed the underlying assumptions of the
Voyager management projections by considering a high case, base
case, and low case scenario for Voyager’s management’s
pro forma projected cash flows. The base case financial
projections represent the Voyager management projections for
Holdings. The low case financial projections adjust the base
case projections downward assuming both projected revenue growth
and profit margins are lower than in the base case. The high
case financial projections adjust the base case financial
projections upward assuming both projected revenue growth and
profit margins that are higher than in the base case. Although
the financial projections were prepared by Voyager’s
management, some of the data in the financial projections
provided by Voyager’s management were derived from data
provided to Voyager by VSS. Such financial projections are not
to be interpreted as projections of future performance (or
“guidance”) by Holding’s management. Houlihan
Smith did not use any data provided by VSS to Voyager (other
than the data derived by Voyager from VSS’ data) in
performing its analyses, nor did Houlihan Smith interview or
otherwise interact with VSS or management of Cambium Learning.
The financial projections utilized for the base case and
adjusted for the low case and the high case in Houlihan
Smith’s analysis are provided in the following table:
To calculate the enterprise value of Holdings applying the
discounted cash flow method, Houlihan Smith determined the
present value of Holdings’ enterprise net cash flows by
applying a discount rate of 13% to the enterprise net cash flows
for each year in the Projected Period as well as to a terminal
enterprise net cash flow value.
Houlihan Smith used a discount rate based on the weighted
average cost of capital for Holdings, which was determined by
Houlihan Smith by taking into consideration Holdings’
targeted capital structure, the risk-free rate of return for
long term United States Treasury securities, rates for the
outstanding debt of Holdings, and specific industry and company
risks as they relate to Holdings. Houlihan Smith used a
build-up
method to determine the cost of equity. The
30-year
U.S. Treasury Coupon Bond yield of 4.28% was added to the
equity risk premium of 5.25% (based on the 2009 Ibbotson Stocks,
Bonds, Bills and Inflation Valuation Yearbook), the industry
risk premium of -1.81% (based on the 2009 Ibbotson Stocks,
Bonds, Bills and Inflation Valuation Yearbook), a size premium
of 5.81% (based on the 2009 Ibbotson Stocks, Bonds, Bills and
Inflation Valuation Yearbook) and company specific risk of 5.00%
(to account for the risk of the future quality of earnings of
Holdings). These items result in a cost of equity of 18.53%.
Houlihan Smith assumed a cost of debt of 9.64% (based upon the
weighted average interest rate of the total debt to be held by
Holdings) and a tax rate of 33%, resulting in an after-tax cost
of debt of 6.46%. Assuming a capital structure of 55% equity and
45% debt based upon the anticipated capital structure of
Holdings, Houlihan Smith determined the weighted average cost of
capital was approximately 13.0%.
Voyager management projections included projected revenue, and
operating expenses in order to calculate EBITDA. After
subtracting estimated taxes using a 33% effective tax rate,
depreciation was added back and capital expenditures were
subtracted in order to calculate net cash flows. To determine an
indicated enterprise value based upon the discounted cash flow
method, for each case, Houlihan Smith summed the present value
of the net cash flows and the present value of the terminal
enterprise net cash flow. To these values, Houlihan Smith
applied the present value of cash taxes saved based upon a net
operating loss carry forward analysis. Based upon the discounted
cash flow method, Houlihan Smith concluded an indicated range of
enterprise values of $476.9 million to $720.5 million.
Houlihan Smith averaged the indicated enterprise values based
upon the guideline public company method, comparable transaction
method and discounted cash flow method, for the low, base and
high case, to conclude the fair value of Holdings’
enterprise value. Houlihan Smith then added back cash to the
enterprise value and reduced the enterprise value by interest
bearing debt, on a pro forma basis, to determine excess capital.
The calculation for excess capital is shown in the table below:
Holdings
Balance Sheet Test
Low Case
Base Case
High Case
$ in thousands
Market Approach — Guideline Public Company Method
$
277,130
$
379,666
$
456,226
Market Approach — Comparable Transactions Method
$
301,996
$
407,160
$
485,498
Income Approach — DCF Method
$
476,900
$
623,900
$
720,500
Average Fair Value — Enterprise
$
352,009
$
470,242
$
554,075
Add: Cash(1)
4,279
4,279
4,279
Deduct: Interest Bearing Debt(1)
(166,500
)
(166,500
)
(166,500
)
Excess Capital(2)
$
189,788
$
308,021
$
391,854
Balance Sheet Test
Pass
Pass
Pass
(1)
Per March 31, 2009 pro forma consolidated balance sheet, as
provided by Voyager’s management
(2)
Excess capital indicates solvent, a deficit would indicate
insolvent
The balance sheet test is passed if a company has excess or
positive capital after adding back cash and deducting interest
bearing debt from a company’s enterprise value. As part of
its preliminary conclusions, Houlihan Smith determined, assuming
that the mergers will be completed as proposed, on a pro forma
basis, after and giving effect to the mergers, that Holdings
passed the balance sheet test because the balance sheet test
concluded a positive value for the excess capital in each case
(low, base and high) analyzed.
Capital
Adequacy and Cash Flow Tests
Houlihan Smith utilized a “capital adequacy test” to
determine whether, on a pro forma basis, after and giving effect
to the mergers, Holdings would have an unreasonably small amount
of capital for the business in which it is engaged. The capital
adequacy test examines whether as of the date of Houlihan
Smith’s opinion, immediately after and giving effect to the
completion of the mergers, Holdings has sufficient capital to
continue normal business operations. This test is often combined
with the cash flow test by assuming reasonable business
fluctuations from the base case scenario. As part of this
analysis, Houlihan Smith considered the following: (i) the
extent to which assets exceed liabilities and whether there is
sufficient margin to provide an adequate equity cushion; and
(ii) the adequacy of Holdings’ capital to provide a
safety margin to protect against unplanned asset sales,
operational changes or debt restructuring.
The capital adequacy test involved the preparation of cash flow
projections for Holdings and an analysis of the debt capacity of
Holdings to estimate projected sources of capital to operate its
business and an analysis of future capital needs of Holdings. As
part of the capital adequacy test, Houlihan Smith compared the
future sources of capital to Holdings to the future needs of
capital of Holdings. Houlihan Smith also considered the adequacy
of Holdings’ capital to provide a safety margin (as defined
below) to protect against unplanned asset sales, operational
changes or debt restructuring.
Houlihan Smith conducted a “cash flow test” to
determine whether, on a pro forma basis, after and giving effect
to the mergers, Holdings would be able to pay its respective
liabilities as they become due. As part of the cash flow test,
Houlihan Smith relied upon Voyager’s management prepared
cash flow projections of the repayment of principal by Holdings
and analyzed the ability of Holdings to produce free cash flow
to meet its respective liabilities. The cash flow test involved
a multi-step analysis of Holdings’ financial projections
consisting of the following: (i) an examination of the
consistency of the projections with the historical performance
of both Voyager and Cambium Learning along with any proposed
synergies, current operational
and marketing strategies, and the expected operating cost
structure and capital structure of Holdings; (ii) a test of
the sensitivity of the projections to changes in key variables,
including, but not limited to, revenue growth, EBITDA margins,
and operating margins; and (iii) a test of the impact on
Holdings’ cash flow resulting from possible violations of
certain debt covenants. In testing cash flows, Houlihan Smith
performed a sensitivity analysis (described below) to determine
the “safety margin” available to deal with unexpected
downturns in Holdings’ ability to generate operating cash
flows. The “safety margin” indicated by both the cash
flow and capital adequacy test represents an estimate of the
ending cash of Holdings over the Projected Period. Ending cash
is equal to beginning cash plus available operating cash flow
less scheduled principal repayments of debt.
Houlihan Smith performed cash flow and capital adequacy tests,
and adjusted the projections downward in its sensitivity
analyses to test Holdings’ ability to meet its debt
obligations as they mature. The tests as applied to the base and
low cases (which represent the base and low cases set forth on
pages 193 and 194) are as follows:
Holdings
Cash Flow & Capital Adequacy Test — Low
Case
Year 1
Year 2
Year 3
Year 4
Cash Flow From Operations:
EBITDA
$
26,193
$
37,867
$
45,019
$
52,639
Cash Taxes
—
—
—
—
Cash Interest Expense
(15,688
)
(15,269
)
(15,389
)
(15,520
)
Change in Working Capital
333
(196
)
(299
)
(389
)
Operating Cash Flow
10,838
22,402
29,330
36,730
Capital Expenditures
(5,958
)
(6,288
)
(6,830
)
(7,064
)
Operating Cash Flow Available for Principal Repayment
$
4,880
$
16,114
$
22,500
$
29,666
Cash Flow From Financing:
Scheduled Principal Repayments
(2,445
)
(2,404
)
(2,317
)
(2,372
)
Net Cash Flow
2,435
13,709
20,183
27,294
Beginning Cash
4,279
6,714
20,423
40,606
Ending Cash
$
6,714
$
20,423
$
40,606
$
67,900
Holdings
Cash Flow & Capital Adequacy Test — Base
Case
Year 1
Year 2
Year 3
Year 4
Cash Flow From Operations:
EBITDA
$
47,530
$
61,097
$
69,180
$
74,079
Cash Taxes
—
—
(1,211
)
(5,372
)
Cash Interest Expense
(15,688
)
(15,269
)
(15,389
)
(15,520
)
Change in Working Capital
(53
)
(517
)
(617
)
(618
)
Operating Cash Flow
31,790
45,311
51,963
52,569
Capital Expenditures
(9,265
)
(10,069
)
(10,579
)
(11,194
)
Operating Cash Flow Available for Principal Repayment
Houlihan Smith concluded from these tests that Holdings has the
ability to meet its debt obligations as they mature.
As part of both the cash flow and capital adequacy tests,
Houlihan Smith conducted a sensitivity analysis on certain debt
covenants. Specifically, Houlihan Smith evaluated the impact on
Holdings’ cash flow resulting from possible violations of
certain debt covenants. Houlihan Smith performed sensitivity
analyses to the pro forma cash flow projections of Holdings to
determine if Holdings would meet requirements of an EBITDA test
and leverage ratio test as required by the credit agreements.
The sensitivity analyses illustrate that in both the base case
and the low case, certain covenants are anticipated to be met.
Houlihan Smith noted that, pursuant to the credit agreements,
EBITDA for Holdings must meet a minimum value of
$25 million on a consolidated basis. As indicated by the
low case and base case, Holdings is anticipated to meet the
EBITDA requirements of the debt covenants. Houlihan Smith also
noted that, pursuant to the credit agreements, a maximum
leverage ratio ranging between 6.5 and 4.0 is required to be
maintained for 2009 and beyond. Both the low case and base case
indicate that Holdings is anticipated to meet the leverage ratio
requirements of the debt covenants.
As part of its opinion, Houlihan Smith determined, on a pro
forma basis, after and giving effect to the mergers, that
Holdings passed the capital adequacy and cash flow tests.
Houlihan Smith employed several analytical methodologies and
applied its own experience and judgment in its analysis to
arrive at its conclusions as to the solvency of Holdings on a
post-transaction basis. On June 20, 2009, Houlihan Smith
delivered its oral opinion to Voyager’s board of directors,
and subsequently confirmed in writing, to the effect that, as of
the date of its opinion, assuming that the mergers will be
consummated as proposed, on a pro forma basis, after and giving
effect to the mergers:
•
On a pro forma basis, the Fair Value and Present Fair Saleable
Value of the assets of Holdings, as applicable, would exceed the
sum of its respective probable liabilities, including all
Contingent and Other Liabilities, on its respective existing
debts as such debts become absolute and matured, following the
consummation of the mergers;
•
Holdings and its subsidiaries will be able to pay their
respective debts as they become due in the ordinary course of
their respective businesses on a consolidated basis;
•
The capital remaining in Holdings and its subsidiaries after the
mergers would not be unreasonably small for the respective
business in which it is engaged, as Holdings’ management
has indicated it is as of the date of the opinion and is
proposed to be conducted following the consummation of the
mergers;
•
The Fair Value of Holdings’ assets exceeds the value of its
liabilities, including all Contingent and other liabilities, by
an amount that is greater than its stated capital
amount; and
•
The sum of the assets of Holdings, as applicable, at fair value
is greater than all its respective debts at fair valuation.
This summary of Houlihan Smith’s written opinion is
qualified in its entirety by reference to the full text of
Houlihan Smith’s written opinion, dated June 20, 2009,
attached as Annex F to this proxy statement/prospectus. You
are urged to, and should, read Houlihan Smith’s written
opinion carefully and in its entirety. Houlihan Smith’s
written opinion addresses only the solvency of Holdings on a
post-transaction basis. The opinion of Houlihan Smith was
provided for the information and assistance of Voyager’s
board in connection with its consideration of the Voyager merger
and the merger agreement and does not constitute a
recommendation to any Voyager stockholder as to how to vote or
act on the proposed transaction or any other matter to be
considered at the Voyager special meeting. The Houlihan Smith
opinion and presentation to the Voyager board was one of many
factors that the Voyager board took into consideration in making
its determination to approve the Voyager merger.
Houlihan Smith is an investment banking firm that, as part of
its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with
mergers, acquisitions, corporate restructurings, private
placements, and for other purposes. Voyager’s board of
directors determined to use the services of Houlihan Smith
because it is a recognized investment banking firm that has
substantial
experience in similar matters. Pursuant to the terms of
Houlihan Smith’s engagement letter, Houlihan Smith received
a cash fee of $90,000 that is not contingent upon the completion
of the proposed mergers. In addition, Voyager agreed to
indemnify Houlihan Smith, and any of its employees, agents,
officers, directors, shareholders or any other person who
controls Houlihan Smith from and against any and all losses,
claims, damages and liabilities related to or arising out of the
mergers or Houlihan Smith’s performance of services under
the engagement letter. Houlihan Smith does not beneficially own
any interest in Voyager, Cambium Learning or Holdings and has
not provided any such company with any other services.
When considering the recommendation of Voyager’s board of
directors with respect to the Voyager merger, you should be
aware that some Voyager directors and executive officers have
interests that are different from, or in addition to, those of
other Voyager stockholders. These interests may present actual
or potential conflicts of interest, and these interests, to the
extent material, are described below. Voyager’s board of
directors was aware of these interests and considered them,
among other matters, in approving the Voyager merger and
approving and adopting the merger agreement. These potential
conflicts of interest include:
•
with respect to the executive officers of Voyager, the receipt
of severance, retention, change in control and other payments;
•
the retention of some of the officers of Voyager as officers or
employees of Holdings or its subsidiaries;
•
the designation of two officers and one director of Voyager as
directors of Holdings;
•
continuation of various indemnification and insurance
obligations;
•
the treatment of stock options and stock appreciation rights
held by Voyager executive officers and directors at the
effective time; and
•
the grant of options to purchase 750,000, 250,000 and
300,000 shares of Holdings common stock under the Holdings
2009 Equity Incentive Plan to Mr. Klausner, Mr. Almond
and Mr. Campbell, respectively, at the effective time of
the mergers.
Change
in Control, Severance, Retention and Other
Payments
Surratt Employment Terms. The employment terms
letter, dated May 8, 2009, between Voyager and Richard
Surratt, the President and Chief Executive Officer of Voyager,
amends and restates the agreement dated February 1, 2007,
between Mr. Surratt and Voyager and provides for payments
and other benefits if a change in control occurs and if
Mr. Surratt’s employment is terminated at any time by
Voyager without cause or by Mr. Surratt for good reason.
Under the terms of Mr. Surratt’s employment letter, he
is entitled to receive:
•
2009 Bonus: If a change in control occurs, and
Mr. Surratt is terminated without cause, or terminates his
employment for good reason, a pro rata portion of his guaranteed
2009 target annual bonus;
•
Change in Control Payment: If a change in
control of Voyager occurs, a change in control payment in an
amount equal to 50% of his base salary as in effect immediately
prior to the date the payment is made, payable at the earliest
of a change in control, termination of employment or
December 31, 2009;
•
Severance Benefits: If Mr. Surratt is
terminated without cause or resigns for good reason:
•
a lump sum severance payment in an amount equal to the sum of
150% of his then current base salary and an amount equal to
accrued but unused vacation days; and
•
until the earlier of two years from the date of termination and
the date on which Mr. Surratt commences other employment
which offers benefits substantially similar to, or better than,
those provided by Voyager to its active employees, continuation
in Voyager’s medical, dental and vision plans;
•
SERP Replacement Payment: Payment in lieu of
participation in Voyager’s prior supplemental executive
retirement plan in an amount equal to 15% of base salary and
management bonus; provided
that, if Mr. Surratt is terminated for any reason other
than by Voyager with cause prior to the end of a calendar year,
the payment will be adjusted to reflect his pro-rated salary for
the portion of the year employed, and if a change in control
occurs, the payment with respect to salary and bonus earned
through the date of the change in control will be paid upon the
change in control; and
•
280G Payment: If any “golden
parachute” excise taxes are triggered by payments made by
Voyager to Mr. Surratt in connection with the change in
control, a
“gross-up”
payment to make Mr. Surratt whole for any federal excise
tax imposed on any change in control or severance payments or
benefits received by Mr. Surratt.
The Voyager merger constitutes a change in control under the
terms of Mr. Surratt’s employment letter. It is
expected that Mr. Surratt’s employment will terminate
upon completion of the mergers, in which case Mr. Surratt
will be entitled to receive each of the benefits described above
in the following amounts:
Payment
Amount
2009 Bonus(1)
$
573,750
Change in Control Payment
337,500
Severance Benefits(2)
1,012,500
SERP Replacement Payment(1)
187,310
280G Payment(3)
3,000,000
Total
$
5,111,060
(1)
This amount will be prorated if termination occurs prior to
December 31, 2009.
(2)
Represents lump sum severance payment only.
(3)
Estimated potential maximum amount. This amount will be placed
in escrow pursuant to the terms of an escrow agreement to be
executed at the closing. See “RELATED
AGREEMENTS — Escrow Agreement.”
Buchardt Employment Terms. The employment
terms letter, dated May 8, 2009, between Voyager and Todd
W. Buchardt, Senior Vice President and General Counsel of
Voyager, amends the terms of the letter agreement dated
July 13, 2006, between Mr. Buchardt and Voyager.
Mr. Buchardt’s employment letter provides that
Mr. Buchardt will remain employed by Voyager from the date
of the employment letter until the earlier of: (i) the date
of Mr. Buchardt’s resignation; and (ii) the date
that Voyager terminates Mr. Buchardt’s employment.
Mr. Buchardt’s employment agreement provides for
payments and other benefits if Mr. Buchardt’s
employment is terminated by Voyager without cause or if
Mr. Buchardt resigns, which resignation will be deemed to
be a resignation for good reason. Under the terms of
Mr. Buchardt’s employment terms letter, he is entitled
to receive:
•
Severance Benefits: If Mr. Buchardt is
terminated without cause or resigns:
•
a lump sum severance payment in an amount equal to 100% of his
then current base salary;
•
continuation in Voyager’s medical, dental and vision plans
for a period of 18 months; and
•
a
“gross-up”
payment to cover any taxes imposed on the continuation of
benefits, if any, including the tax reimbursement itself;
•
2009 Bonus Payment: If a change in control
occurs in 2009 prior to or in connection with
Mr. Buchardt’s termination of employment and
Mr. Buchardt is not terminated for cause, a lump sum
payment equal to the amount of his 2009 target annual bonus,
which amount will be pro-rated if Mr. Buchardt resigns
without good reason prior to December 31, 2009;
•
Transition Services Payment: If
Mr. Buchardt is not terminated for cause, a transition
services payment in an amount equal to 50% of his annualized
base salary as in effect immediately prior to the date the
payment is made, payable at the earlier of termination of
employment other than for cause or December 31, 2009;
SERP Replacement Payment: Payment in lieu of
participation in Voyager’s prior supplemental executive
retirement plan in an amount equal to 15% of base salary and
management bonus; provided that, if Mr. Buchardt is
terminated for any reason other than by Voyager with cause prior
to the end of the calendar year, the payment will be adjusted to
reflect his pro-rated salary for the portion of the year
employed; and
•
280G Payment: If any “golden
parachute” excise taxes are triggered by payments made by
Voyager to Mr. Buchardt, a
“gross-up”
payment to make Mr. Buchardt whole for any federal excise
tax imposed on any change in control or severance payments or
benefits received by Mr. Buchardt.
The Voyager merger constitutes a change in control under the
terms of Mr. Buchardt’s employment letter.
Mr. Buchardt will be entitled to receive the Severance
Benefits, Transition Services Payment and SERP Replacement
Payment as described above and, if a change in control occurs in
2009, the 2009 Bonus Payment described above, each in the
following amount:
Payment
Amount
Severance Benefits(1)
$
296,656
2009 Bonus Payment
148,328
Transition Services Payment
148,328
SERP Replacement Payment(2)
66,747
Total
$
660,059
(1)
Represents lump sum severance payment only.
(2)
This amount will be prorated if termination occurs prior to
December 31, 2009.
Klausner Employment Terms. The employment
agreement, dated April 9, 2009, between Voyager and Ronald
Klausner, President of Voyager Expanded Learning, was amended on
August 13, 2009, by an amendment dated as of August 7,2009, to, among other things, assign such agreement to Holdings
at the effective time, and provide for payments and other
benefits upon a change in control or if Mr. Klausner’s
employment is terminated by the employer without cause or by
Mr. Klausner for good reason. Under the terms of
Mr. Klausner’s employment letter, as amended, he is
entitled to receive:
•
2009 Change in Control Bonus Payment: If the
mergers are completed and Mr. Klausner has not been
terminated for cause or resigned other than for good reason for
a period of six months following the effective time, a payment
in an amount equal to $751,906;
•
Change in Control Payment: If the mergers are
completed and Mr. Klausner has not been terminated for
cause or resigned other than for good reason for a period of six
months following the effective time, a payment in an amount
equal to $805,612;
•
Retention Bonus: If the mergers are completed
and Mr. Klausner has not been terminated for cause or
resigned other than for good reason for a period of one year
following the effective time, a payment in an amount equal to
$268,538;
•
Regular Severance Benefits: If
Mr. Klausner is terminated without cause or resigns for
good reason:
•
after the effective time and prior to December 31, 2010, a
payment equal to the greater of (i) 100% of his base salary
or (ii) his target bonus for 2010; plus until the earlier
of 18 months from the date of termination and the date on
which Mr. Klausner commences other employment which offers
benefits substantially similar to, or better than, those
provided by Voyager to its active employees, continuation in
Voyager’s medical, dental and vision plans; or
•
on or after January 1, 2011, salary continuation for a
period of one year plus a pro rata portion of his annual bonus;
plus, for 18 months from the date of termination,
continuation in Voyager’s medical, dental and vision plans;
280G Payment: If any “golden
parachute” excise taxes are triggered by payments made to
Mr. Klausner in connection with the change in control, a
“gross-up”
payment to make Mr. Klausner whole for any federal excise
tax imposed on any change in control or severance payments or
benefits received by Mr. Klausner;
•
Conversion of SARs: Mr. Klausner holds
stock appreciation rights, or SARs, relating to
300,000 shares of Voyager. At the effective time, 100,000
of Mr. Klausner’s SARs will be terminated and 200,000
SARs, all of which were vested as of April 24, 2009, will
be equitably adjusted to become fully vested SARs of
Holdings; and
•
Award under Holdings 2009 Equity Incentive
Plan: At the closing of the mergers,
Mr. Klausner will be granted options to purchase
750,000 shares of Holdings common stock under
Holdings’ 2009 equity incentive plan, which we refer to as
the 2009 Incentive Plan. For more information, see
“MANAGEMENT OF HOLDINGS FOLLOWING THE MERGERS —
Holdings Employment Agreements.”
If the mergers are completed and Mr. Klausner has not been
terminated for cause or resigned other than for good reason for
a period of six months following the effective time, he will be
entitled to receive the 2009 Change in Control Bonus Payment and
the Change in Control Payment and, in the case of the Retention
Bonus, if Mr. Klausner has not been terminated for cause or
resigned other than for good reason for a period of one year
following the effective time, in each case as described above
and in the following amounts:
Payment
Amount
2009 Change in Control Bonus Payment
$
751,906
Retention Bonus
268,538
Change in Control Payment
805,612
Total
$
1,826,056
Almond Employment Terms. The employment terms
letter, dated June 19, 2009, between Voyager and Bradley C.
Almond, Chief Financial Officer of Voyager, provides for
payments and other benefits upon a change in control or if
Mr. Almond’s employment is terminated by the company
without cause or by Mr. Almond for good reason at any other
time. Under the terms of Mr. Almond’s employment
letter, he is entitled to receive:
•
Acceleration of Long-Term Incentive Plan
Awards: Mr. Almond’s employment terms
letter provides for a cash Long Term Incentive Plan, or LTIP,
award equal to $100,000 payable November 14, 2009 and
$45,000 payable November 14, 2010, provided that he does
not voluntarily terminate his employment without good reason
prior to such payment dates;
•
Termination Without Cause LTIP Payment: If
Mr. Almond is terminated without cause, any unpaid amounts
under the LTIP will become immediately payable; and
•
Change in Control LTIP Payment: If a change in
control occurs, all outstanding LTIP payment awards will
accelerate and become due upon a change in control;
•
Regular Severance Benefits: If Mr. Almond
is terminated without cause or resigns for good reason at any
time:
•
salary continuation in an amount equal to the sum of his then
current base salary for 12 months and an amount equal to
accrued but unused vacation days; and
•
until the earlier of 12 months from the date of termination
and the date on which Mr. Almond commences other employment
which offers benefits substantially similar to, or better than,
those provided by Voyager to its active employees, continuation
in Voyager’s medical, dental and vision plans; and
•
Change in Control Bonus Payment: If a change
in control occurs in 2009 and (i) Mr. Almond continues
employment with Voyager, a successor or an affiliate through
March 1, 2010; or
(ii) Mr. Almond is terminated without cause or resigns
for good reason prior to March 1, 2010, a change in control
bonus payment in the amount of $200,000 is payable on
March 1, 2010.
The Voyager merger constitutes a change in control under the
terms of Mr. Almond’s employment letter. If a change
in control occurs and Mr. Almond is employed by Voyager,
Mr. Almond will be entitled to any LTIP Payment not yet
made, and if a change in control occurs on or before
December 31, 2009, and Mr. Almond either continues
employment with Holdings through March 1, 2010 or is
terminated without cause or resigns for good reason prior to
that date, he will be entitled to receive the Change in Control
Bonus Payment described above, each in the following amount:
Payment
Amount
LTIP Payment(1)
$
145,000
Change in Control Bonus Payment
200,000
Total
$
345,000
(1)
Represents amount to be paid if a change in control occurs prior
to November 14, 2009 and no LTIP payment has previously
been made.
Campbell Employment Terms. The employment
terms letter, dated March 3, 2009, between Voyager Expanded
Learning and John Campbell, Chief Operating Officer of Voyager
Expanded Learning, provides for payments and other benefits upon
a change in control or if Mr. Campbell’s employment is
terminated by the company without cause prior to
December 31, 2009. Under the terms of
Mr. Campbell’s employment letter, he is entitled to
receive:
•
Change in Control Bonus Payment: If a change
in control occurs in 2009 and (i) Mr. Campbell
continues employment with Voyager, a successor or an affiliate
through March 1, 2010; or (ii) Mr. Campbell is
terminated without cause prior to March 1, 2010, a change
in control bonus payment in the amount of $265,000; and
•
Enhanced Severance Benefits: If
Mr. Campbell is terminated without cause prior to
December 31, 2009:
•
continuation of his then current base salary for one
year; and
•
until the earlier of 12 months from the date of termination
and the date on which Mr. Campbell commences other
employment which offers benefits substantially similar to, or
better than, those provided by Voyager to its active employees,
continuation in Voyager’s medical, dental and vision plans.
The Voyager merger constitutes a change in control under the
terms of Mr. Campbell’s employment letter. If a change
in control occurs on or before December 31, 2009, and
Mr. Campbell either continues employment through
March 1, 2010 or is terminated without cause prior to that
date, he will be entitled to receive the Change in Control Bonus
Payment in the amount of $265,500.
Employment
Following the Mergers
Following the mergers, Mr. Klausner will serve as Chief
Executive Officer of Holdings, Mr. Almond will serve as
Chief Financial Officer of Holdings, Mr. Campbell will
serve as Senior Vice President and the President of the Cambium
Learning Technologies business unit of Holdings and
Mr. Buchardt will serve as General Counsel of Holdings. No
executive officer of Voyager other than Mr. Klausner has
entered into a separate employment agreement with Holdings.
Holdings
Directors
Pursuant to the terms of the merger agreement, Voyager will
designate four members of the Holdings board of directors, three
of whom will be Richard Surratt, Ronald Klausner and Frederick
J. Schwab. Mr. Surratt and Mr. Klausner are currently
executive officers of Voyager and Mr. Schwab is currently a
director of Voyager. Directors who serve on the board of
directors of Holdings are expected to be compensated for their
service in that capacity in accordance with a customary director
compensation policy. For more information, see “MANAGEMENT
OF HOLDINGS FOLLOWING THE MERGERS.”
Indemnification
and Insurance
For a period that extends until the statute of limitations
expires with respect to claims against the present and former
officers and directors of Voyager and its subsidiaries, Holdings
is required to indemnify those persons against all liabilities
and costs (including attorneys’ fees) arising out of
actions or omissions occurring at or before the effective time
(including the execution of the merger agreement) to the full
extent permitted by Delaware law and the certificates of
incorporation and by-laws of Voyager and its subsidiaries.
Subject to various limitations described in the merger
agreement, Holdings and Cambium have also agreed, on behalf of
themselves and certain of their subsidiaries, to accept the
contractual obligations of Voyager and its subsidiaries (to the
extent that these obligations exist) under their respective
certificates of incorporation and by-laws to provide exculpation
from liability, indemnification and advancement of expenses with
respect to their officers, directors, employees and agents.
The merger agreement contemplates that before the effective
time, Voyager will purchase a six-year prepaid tail policy to
cover claims under its then-existing directors’ and
officers’ insurance policies and its then existing
fiduciary liability insurance policies arising out of or
pertaining to any action or omission occurring on or before the
effective time, all on terms which, subject to various
exceptions set forth in the merger agreement, will be no less
favorable than the insurance then maintained in effect by
Voyager. Excess insurance policies to be provided by Voyager may
be used to provide coverage in place of any insolvent underlying
insurer.
Stock
Option and Stock Appreciation Rights Ownership
In addition to the interests of Voyager’s directors and
officers described above, which may be different from, or in
addition to, the interests of other Voyager stockholders, many
of the directors and officers of Voyager own options to purchase
Voyager common stock. Under the merger agreement, Voyager will
make reasonable efforts to terminate all outstanding options to
acquire Voyager common stock prior to completion of the mergers.
Any options to purchase Voyager common stock that have not been
terminated will, upon completion of the mergers, be converted
into options to acquire shares of Holdings common stock, on the
same terms and conditions that applied to the Voyager stock
options including the exercise price, specified in the related
Voyager equity awards. Voyager directors and executive officers
will be entitled to the same rights as other option holders with
respect to these ownership interests. Mr. Klausner holds
SARs relating to 300,000 shares of Voyager common stock. No
other director, officer or employee of Voyager holds any SARs.
Pursuant to the terms of Mr. Klausner’s SAR, vesting
of his SAR will fully accelerate on occurrence of a change in
control of Voyager if Mr. Klausner remains continuously
employed until the change in control occurs. Pursuant to
Mr. Klausner’s employment agreement, as amended, at
the effective time, 100,000 of Mr. Klausner’s SARs
will terminate and 200,000 of Mr. Klausner’s Voyager
SARs, all of which were vested as of April 24, 2009, will
convert into fully vested SARs relating to 200,000 shares of
Holdings common stock.
In addition, certain executive officers of Voyager who will be
serving as executive officers of Holdings following the mergers
are expected to be granted, at the effective time, options to
purchase shares of Holdings common stock under the 2009
Incentive Plan. Specifically, (i) Ronald Klausner,
President of Voyager Expanded Learning, Inc., is expected to be
granted options to purchase 750,000 shares of Holdings
common stock, (ii) John Campbell, Chief Operating Officer
of Voyager Expanded Learning, Inc., is expected to be granted
options to purchase 300,000 shares of Holdings common
stock, and (iii) Bradley C. Almond, Chief Financial Officer
of Voyager, is expected to be granted options to purchase
250,000 shares of Holdings common stock. Other than these
option awards, the Holdings board of directors has not yet made
any determinations with respect to options to be granted to
executive officers of Voyager, although the board may grant
additional options in the future.
When considering the recommendation of the Cambium board of
directors with respect to the Cambium merger, you should be
aware that the executive officers of Cambium’s operating
subsidiary, Cambium Learning, and Cambium’s directors have
interests that are different from, or in addition to, those of
the Cambium stockholder. These interests may present actual or
potential conflicts of interest, and these interests, to the
extent material, are described below. Cambium’s board of
directors was aware of these interests and considered them,
among other matters, in approving the Cambium merger and
approving and adopting the merger agreement. These potential
conflicts of interest include:
•
the retention of some of the officers of Cambium Learning as
officers or employees of Holdings or its subsidiaries;
•
the designation of an officer of Cambium Learning and all of the
directors of Cambium as directors of Holdings; and
•
the treatment of interests held by Cambium Learning’s
officers in the Cambium Learning management incentive plan at
the effective time of the mergers.
Employment
Following the Mergers
Following the mergers, David Cappellucci, Cambium
Learning’s Chief Executive Officer, will serve as President
of Holdings, George Logue, Cambium Learning’s Executive
Vice President, will serve as an Executive Vice President and
the President of the Supplemental Solutions business unit of
Holdings, and Alex Saltonstall, the General Manager of Cambium
Learning Technologies, will continue to serve in that capacity.
None of Mr. Cappellucci, Mr. Logue or
Mr. Saltonstall are entitled to receive any payment upon
the completion of the mergers. For more information, see
“CAMBIUM EXECUTIVE COMPENSATION — 2008 Potential
Payments Upon Termination or a Change in Control” on
page 246.
Mr. Cappellucci is currently employed by Cambium Learning
pursuant to an employment agreement dated April 12, 2007.
In connection with the transactions contemplated by the mergers,
on June 26, 2009, Mr. Cappellucci entered into an
amendment to his employment agreement with Holdings and Cambium
Learning pursuant to which, among other things, at the effective
time of the mergers, he agreed to assign his employment
agreement, as amended, to Holdings. Pursuant to the terms of
this amendment, Mr. Cappellucci will serve as the President
of Holdings. For more information see “MANAGEMENT OF
HOLDINGS FOLLOWING THE MERGERS — Holdings Employment
Agreements” on page 177. No executive officer of
Cambium, other than Mr. Cappellucci, has entered into a
separate employment agreement with Holdings. Mr. Logue is
currently party to an employment agreement with Cambium
Learning. Mr. Saltonstall and Mr. Logue may enter into
agreements with Holdings in the future that provide for
compensation, severance and other benefits commensurate with
their new positions, as determined by the board of directors of
Holdings. For more information, see “CAMBIUM EXECUTIVE
COMPENSATION” on page 247.
Holdings
Directors
Pursuant to the terms of the merger agreement, Cambium will
designate five members of the Holdings board of directors, two
of which will be Jeffrey T. Stevenson and Scott J.
Troeller, current directors of Cambium, one of which will be
Mr. Cappellucci and the remainder of which will be
designated by Cambium. Pursuant to Mr. Cappellucci’s
employment agreement, as amended, for so long as
Mr. Cappellucci remains employed by Holdings as President
or Vice Chairman, as the case may be, he will be nominated for
election to the Holdings board of directors; provided, that,
continuing service as a director will remain subject to election
by the stockholders of Holdings and in accordance with
Holdings’ governance policies and applicable law.
Non-employee directors who serve on the board of directors
of Holdings are expected to be compensated for their service in
that capacity in accordance with a customary director
compensation policy. For more information, see “MANAGEMENT
OF HOLDINGS FOLLOWING THE MERGERS” on page 177.
In addition to the interests of Cambium’s directors and
certain executive officers of Cambium Learning described above,
which may be different from, or in addition to, the interests of
the Cambium stockholder, certain employees of Cambium Learning,
including Mr. Cappellucci, own interests in
VSS-Cambium
Management, LLC that were previously granted to such persons as
part of a management incentive program, which we refer to as the
MIP.
VSS-Cambium
Management, LLC currently owns a profits-only interest in
VSS-Cambium
Holdings, LLC. It is contemplated that prior to the effective
time of the mergers,
VSS-Cambium
Management, LLC will cease to be a member of
VSS-Consonant
Holdings, LLC and will become a member of
VSS-Cambium
Holdings III, LLC, after which
VSS-Cambium
Management, LLC and the participants in the MIP will only own a
profits-only interest in
VSS-Cambium
Holdings III, LLC and will no longer have a profits
interest in, or any right to allocations or distributions from,
VSS-Cambium
Holdings, LLC. It is further contemplated that upon closing of
the mergers, the interests of plan participants in the MIP will
terminate. In connection with the closing of the mergers, in
order to provide certain of such participants with equity
incentive compensation in the combined company, these
participants may be granted stock options under the 2009
Incentive Plan.
In addition, certain executive officers of Cambium Learning who
will be serving as executive officers of Holdings following the
mergers are expected to be granted options to purchase shares of
Holdings common stock under the 2009 Incentive Plan at the
effective time. Specifically, (i) David Cappellucci, Chief
Executive Officer of Cambium Learning, is expected to be granted
options to purchase 600,000 shares of Holdings common
stock, and (ii) George Logue, Executive Vice President of
Cambium Learning, is expected to be granted options to purchase
250,000 shares of Holdings common stock. Other than these
option awards, the Holdings board of directors has not yet made
any determinations with respect to options to be granted to
executive officers of Cambium Learning, although the board may
grant additional options in the future.
Immediately following the Voyager merger, Cambium Learning will
acquire one of Voyager’s operating subsidiaries, Voyager
Expanded Learning, Inc., as a “Permitted Acquisition”
under Cambium Learning’s senior secured and senior
unsecured credit agreements. Cambium Learning will acquire all
of the capital stock of Voyager Expanded Learning, thereby
making it a wholly owned subsidiary of Cambium Learning and, as
such, it will become a subsidiary guarantor pursuant to the
credit agreement. Cambium Learning will pay to Voyager aggregate
consideration of $75 million, consisting of approximately
$10 million to $15 million in cash drawn from the revolving
loans under the senior secured credit agreement and the issuance
of approximately $60 million to $65 million in equity
by VSS-Cambium Holdings IV, LLC, an indirect wholly owned
subsidiary of Cambium. See “THE MERGERS —
Diagrams — Transfer of Voyagers Subsidiaries.”
Holdings believes that this acquisition is structured within the
credit agreement’s “Permitted Acquisition” rules,
and no additional financing for this acquisition or for the
mergers is presently anticipated other than $25 million in
cash which Cambium’s sole stockholder will contribute to
Holdings immediately prior to the effective time. The lenders
under both credit agreements have ratified and approved this
acquisition pursuant to the amendments. See
“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR CAMBIUM —
Liquidity and Capital Resources — Long-Term Debt”
on page 235.
Under the HSR Act and the rules promulgated under the HSR Act by
the Federal Trade Commission, the mergers cannot be completed
until the companies have made required notifications, provided
certain information and materials to the Federal Trade
Commission, or FTC, and the Antitrust Division of the
U.S. Department of Justice and the specified waiting period
requirements have expired or been terminated. Cambium and
Voyager filed the required notification and report forms with
the Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice on July 9, 2009. The FTC
announced on July 20, 2009 that the waiting period was
terminated, effective immediately, thus completing the HSR
review of the mergers.
In connection with the Voyager merger, record holders of Voyager
common stock who comply with the requirements of
Section 262 of the DGCL, which we refer to as
Section 262, will be entitled to appraisal rights if the
Voyager merger is completed. Under Section 262, as a result
of completion of the Voyager merger, holders of shares of
Voyager common stock with respect to which appraisal rights are
properly demanded and perfected and not withdrawn or lost are
entitled, in lieu of receiving the Voyager merger consideration,
to have the fair value of their shares at the effective time of
the Voyager merger (exclusive of any element of value arising
from the accomplishment or expectation of the mergers), together
with a fair rate of interest, if any, determined by the Delaware
Court of Chancery and paid to them in cash by complying with the
provisions of Section 262. Voyager is required to send a
notice to that effect to each stockholder not less than
20 days prior to the Voyager special meeting. A copy of
Section 262 must be included with the notice. This proxy
statement/prospectus constitutes notice to you of the
availability of appraisal rights in connection with the Voyager
merger, and a copy of Section 262 is attached as
Annex B to this proxy statement/prospectus.
The following is a brief summary of the material provisions of
Section 262, which sets forth the procedures for demanding
appraisal rights. This summary is qualified in its entirety by
reference to Section 262. Failure to precisely follow any
of the statutory procedures set forth in
Section 262 may result in a loss of your appraisal
rights.
Stockholders of record who desire to exercise their appraisal
rights must satisfy all of the conditions set forth in
Section 262 and described below.
A stockholder who desires to exercise appraisal rights must
(1) not vote in favor of the adoption of the merger
agreement and (2) deliver a written demand for appraisal of
the stockholder’s shares to Voyager before the vote on the
adoption of the merger agreement at the Voyager special meeting.
A demand for appraisal must be executed by or for the
stockholder of record, fully and correctly, as the
stockholder’s name appears on the certificates representing
shares of Voyager common stock. Beneficial owners who do not
also hold the shares of record may not directly make appraisal
demands to Voyager. The beneficial holder must, in these cases,
have the stockholder of record, such as a broker, bank or other
nominee, submit the required demand in respect of those shares.
If shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, the demand must be
executed by the fiduciary. If shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the
demand must be executed by all joint owners. An authorized
agent, including an agent of two or more joint owners, may
execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly
disclose that, in exercising the demand, the agent is acting as
agent for the record owner. In addition, the stockholder must
continuously hold the shares of record from the date of making
the demand through the effective time of the Voyager merger.
A record owner, such as a broker, who holds shares as a nominee
for others may exercise appraisal rights with respect to the
shares held for all or less than all beneficial owners of shares
as to which the holder is the record owner. In that case, the
written demand must set forth the number of shares covered by
the demand. Where the number of shares is not expressly stated,
the demand will be presumed to cover all shares outstanding in
the name of the record owner.
Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to
comply strictly with the statutory requirements with respect to
the exercise of appraisal rights before the vote on the adoption
of the merger agreement at the Voyager special meeting. A holder
of shares held in “street name” who desires appraisal
rights with respect to those shares must take all actions that
may be necessary to ensure that a timely and proper demand for
appraisal is made by the record owner of the shares. Shares held
through brokerage firms, banks and other financial institutions
are frequently deposited with and held of record in the name of
a nominee of a central security depositary. Any holder of shares
desiring appraisal rights with respect to shares held through a
brokerage firm, bank or other financial institution is
responsible for ensuring that the demand for appraisal is made
by the record holder. The
stockholder should instruct the firm, bank or institution that
the demand for appraisal must be made by the record holder of
the shares, which might be the nominee of a central security
depositary if the shares have been so deposited.
If you hold your shares of Voyager common stock in a
brokerage account or in other nominee form and you wish to
exercise appraisal rights, you should consult with your broker
or the other nominee to determine the appropriate procedures for
the making of a demand for appraisal by the broker or other
nominee.
As required by Section 262, a demand for appraisal must be
in writing and must reasonably inform Voyager of the identity of
the record holder (which might be a nominee as described above)
and of the holder’s intention to seek appraisal of the
holder’s shares.
Stockholders of record who elect to demand appraisal of their
shares must mail or deliver their written demand to: Voyager
Learning Company, 1800 Valley View Lane, Suite 400, Dallas,
Texas, 75234, Attention: Public and Investor Relations. The
written demand for appraisal should specify the
stockholder’s name and mailing address and that the
stockholder is demanding appraisal of the stockholder’s
shares. The written demand must be received by Voyager prior to
the Voyager special meeting. Neither voting (in person or by
proxy) against, abstaining from voting on or failing to vote on
the proposal to adopt the merger agreement will alone suffice to
constitute a written demand for appraisal within the meaning of
Section 262. In addition, the stockholder must not vote the
stockholder’s shares of common stock in favor of the
adoption of the merger agreement. Because a signed proxy that
does not contain voting instructions will, unless revoked, be
voted in favor of the adoption of the merger agreement, a
stockholder who votes by proxy and who wishes to exercise
appraisal rights must vote against the adoption of the merger
agreement or abstain from voting on the adoption of the merger
agreement.
Within 120 days after the effective time of the Voyager
merger, but not thereafter, either the surviving corporation in
the Voyager merger or any stockholder who has timely and
properly demanded appraisal of the stockholder’s shares and
who has complied with the requirements of Section 262 and
is otherwise entitled to appraisal rights may file a petition in
the Delaware Court of Chancery demanding a determination of the
fair value of the shares of all stockholders who have properly
demanded appraisal.
Within 120 days after the effective time of the Voyager
merger, any stockholder who has complied with Section 262
will, upon written request to the surviving corporation, be
entitled to receive a written statement setting forth the
aggregate number of shares not voted in favor of the merger
agreement and with respect to which demands for appraisal rights
have been received and the aggregate number of holders of those
shares. The written statement will be mailed to the requesting
stockholder within ten days after the written request is
received by the surviving corporation or within ten days
after expiration of the period for delivery of demands for
appraisal, whichever is later. Notwithstanding the foregoing, a
person who is the beneficial owner of shares of common stock
held either in a voting trust or by a nominee on behalf of the
person may, in the person’s own name, file a petition or
request from the surviving corporation the written statement
described in this paragraph.
Upon the filing of a petition for appraisal by a stockholder,
service of a copy of the petition will be made upon the
surviving corporation. If a petition for appraisal is duly filed
by a stockholder and a copy of the petition is delivered to the
surviving corporation, the surviving corporation will then be
obligated, within 20 days after receiving service of a copy
of the petition, to file in the office of the Register in
Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements
as to the value of their shares have not been reached by the
surviving corporation. After notice is provided to dissenting
stockholders who demanded appraisal of their shares, the
Delaware Court of Chancery is empowered to conduct a hearing
upon the petition, and to determine those stockholders who have
complied with Section 262 and who have become entitled to
the appraisal rights provided thereby. The Delaware Court of
Chancery may require the stockholders who have demanded
appraisal for their shares to submit their stock certificates to
the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to
comply with that direction, the Court of Chancery may dismiss
the proceedings as to that stockholder.
After the Court of Chancery determines the stockholders entitled
to appraisal, the appraisal proceeding will be conducted in
accordance with the rules of the Court of Chancery, including
any rules specifically governing appraisal proceedings. Through
the proceeding, the Court of Chancery will determine the
“fair value” of the shares of common stock, exclusive
of any element of value arising from the accomplishment or
expectation of the mergers, together with interest, if any, to
be paid on the amount determined to be the fair value. Unless
the Delaware Court of Chancery in its discretion determines
otherwise for good cause shown, interest from the effective time
of the Voyager merger through the date of payment of the
judgment will be compounded quarterly and will accrue at five
percent over the Federal Reserve discount rate (including any
surcharge) as established from time to time during the period
between the effective time of the Voyager merger and the date of
payment of the judgment.
In determining fair value, the Delaware Court of Chancery is to
take into account all relevant factors. In Weinberger v.
UOP, Inc., the Delaware Supreme Court discussed the factors
that could be considered in determining fair value in an
appraisal proceeding, stating that “proof of value by any
techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in
court” should be considered and that “[f]air price
obviously requires consideration of all relevant factors
involving the value of a company.” The Delaware Supreme
Court stated that in making this determination of fair value the
court must consider “market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other
facts which were known or which could be ascertained as of the
date of merger which throw any light on future prospects of the
merged corporation.” The Delaware Supreme Court construed
Section 262 to mean that “elements of future value,
including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the
product of speculation, may be considered.” However, the
Delaware Supreme Court noted that Section 262 provides that
fair value is to be determined “exclusive of any element of
value arising from the accomplishment or expectation of the
merger.”
Stockholders considering seeking appraisal should bear in
mind that the fair value of their shares determined under
Section 262 could be more than, the same as, or less than
the Voyager merger consideration they are entitled to receive
pursuant to the merger agreement if they do not seek appraisal
of their shares, and that opinions of investment banking firms
as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262.
The cost of the appraisal proceeding may be determined by the
Delaware Court of Chancery and assessed among the parties as the
Delaware Court of Chancery deems equitable in the circumstances.
Upon application of a stockholder seeking appraisal rights, the
Delaware Court of Chancery may order that all or a portion of
the expenses incurred by the stockholder in connection with the
appraisal proceeding, including, reasonable attorneys’ fees
and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal. In the
absence of such a determination of assessment, each party bears
its own expenses.
No petition timely filed in the Delaware Court of Chancery
demanding appraisal will be dismissed as to any stockholders
without the approval of the Delaware Court of Chancery, and that
approval may be conditioned upon any terms the Delaware Court of
Chancery deems just; provided, however, that at any time within
60 days after the effective time of the Voyager merger, any
stockholder who has not commenced an appraisal proceeding or
joined that proceeding as a named party has the right to
withdraw the stockholder’s demand for appraisal and to
accept the Voyager merger consideration to which the stockholder
is entitled pursuant to the merger agreement by delivering to
the surviving corporation a written withdrawal of the demand for
appraisal. However, any attempt to withdraw the demand for
appraisal made more than 60 days after the effective time
of the Voyager merger will require written approval of the
surviving corporation. If the surviving corporation does not
approve a request to withdraw a demand for appraisal when that
approval is required, or, except with respect to any stockholder
who withdraws the stockholder’s right to appraisal in
accordance with the proviso above regarding the withdrawal of
the demand for appraisal, if the Delaware Court of Chancery does
not approve the dismissal of an appraisal proceeding, the
stockholder will be entitled to receive only the appraised value
determined in any appraisal proceeding, which value could be
less than, equal to or more than the Voyager merger
consideration being offered pursuant to the merger agreement.
If no petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the effective time of the
Voyager merger, stockholders’ rights to appraisal will
cease and all stockholders will be entitled only to receive the
Voyager merger consideration provided for in the merger
agreement. Inasmuch as the parties to the merger agreement have
no obligation to file such a petition, and have no present
intention to do so, any stockholder who desires that a petition
be filed is advised to file it on a timely basis.
The foregoing is a brief summary of Section 262 that sets
forth the procedures for demanding statutory appraisal rights.
This summary is qualified in its entirety by reference to
Section 262, a copy of the text of which is attached as
Annex B to this proxy statement/prospectus. Failure to
timely and properly comply with all the procedures set forth in
Section 262 will result in the loss of a stockholder’s
statutory appraisal rights. For more information about
stockholder voting, see “THE SPECIAL MEETING OF VOYAGER
STOCKHOLDERS” on page 49.
In view of the complexity of Section 262, stockholders
who may wish to dissent from the Voyager merger and pursue
appraisal rights should consult their legal advisors.
Under the terms of the merger agreement, Holdings has applied to
have its common stock, including those shares to be issued in
connection with the mergers, listed on the NASDAQ Global Market.
However, the listing of Holdings’ common stock on the
NASDAQ Global Market is not a condition to the completion of the
mergers. Holdings’ common stock currently is not traded or
quoted on a stock exchange or quotation system.
Voyager common stock is quoted on the Pink Sheets under the
symbol “VLCY.PK.” When the mergers described in this
proxy statement/prospectus are completed, the Voyager common
stock currently quoted on the Pink Sheets will cease to be
quoted on the Pink Sheets and will be deregistered under the
Exchange Act.
The following discussion of the U.S. federal income tax
consequences of the mergers represents the opinions of
Lowenstein Sandler PC and McDermott Will & Emery LLP
as to the material U.S. federal income tax consequences of the
mergers to U.S. Holders (as defined below) of Voyager common
stock who hold such stock as a capital asset. The discussion is
based on the Internal Revenue Code of 1986, as amended, which we
refer to as the Code or as the Internal Revenue Code, the
Treasury Regulations thereunder, and administrative rulings and
court decisions in effect as of the date hereof, all of which
are subject to change at any time, possibly with retroactive
effect.
For purposes of this discussion, the term
“U.S. Holder” means:
•
a citizen or resident of the United States;
•
a corporation, or other entity taxable as a corporation, created
or organized under the laws of the United States or any of
its political subdivisions;
•
a trust that (1) is subject to the primary supervision of a
court within the United States and the control of one or more
United States persons or (2) has a valid election in effect
under applicable United States Treasury Regulations to be
treated as a United States person; or
•
an estate that is subject to U.S. federal income tax on its
income regardless of its source.
If a partnership holds Voyager common stock, the tax treatment
of a partner in such partnership will generally depend on the
status of the partner and the activities of the partnership. A
partnership, or a U.S. Holder that is a partner in a
partnership, holding Voyager common stock should consult its tax
advisor regarding the tax treatment of the mergers.
This discussion is not a complete description of all of the tax
consequences of the mergers and, in particular, may not address
U.S. federal income tax considerations applicable to
stockholders who are subject
to special treatment under U.S. federal income tax
law — including, for example, persons who are not
U.S. Holders, expatriates or other former long-term
residents of the U.S., financial institutions, dealers in
securities, traders of securities that elect the
mark-to-market
method of accounting for their securities, insurance companies
or tax-exempt entities, 401(k) and other tax-free qualified
plans, holders who acquired Voyager common stock pursuant to the
exercise of an employee stock option or right or otherwise as
compensation, holders who hold Voyager common stock as part of a
hedge, straddle, conversion or constructive sale transaction,
holders whose functional currency is not the U.S. dollar,
and holders who are subject to the alternative minimum tax. This
discussion does not address the tax consequences to any person
who actually or constructively owns 5% or more of Voyager common
stock or any person who actually or constructively owns both
Voyager common stock and Cambium common stock. Also, this
discussion does not address U.S. federal income tax
considerations applicable to holders of options or warrants to
purchase Voyager or Holdings common stock, or holders of debt
instruments convertible into Voyager common stock. In addition,
no information is provided herein with respect to the tax
consequences of the mergers under applicable state, local or
non-U.S. laws,
U.S. law other than income tax laws, or under any proposed
Treasury Regulations that have not taken effect as of the date
of this proxy statement/prospectus.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS ARE
COMPLEX. HOLDERS OF VOYAGER COMMON STOCK ARE URGED TO CONSULT
WITH THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF
THE MERGERS TO THEM AND THE OWNERSHIP OF THE CONTINGENT VALUE
RIGHTS ISSUED PURSUANT TO THE MERGERS, INCLUDING THE APPLICATION
AND EFFECT OF U.S. FEDERAL, STATE AND LOCAL, FOREIGN AND
OTHER TAX LAWS.
The obligation of Cambium to complete the mergers is conditioned
on the receipt of an opinion from its tax counsel, Lowenstein
Sandler PC, dated the effective date of the mergers, that the
mergers, taken together, will be treated for U.S. income
tax purposes as a transaction described in Section 351 of
the Code. The obligation of Voyager to complete the mergers is
conditioned on the receipt of an opinion from its tax counsel,
McDermott Will & Emery, LLP, dated the effective date
of the mergers, that the mergers, taken together, will be
treated for U.S. income tax purposes as a transaction
described in Section 351 of the Code. In addition, in
connection with the mailing of this document to
U.S. Holders of Voyager common stock, each of Lowenstein
Sandler PC and McDermott Will & Emery, LLP has
delivered an opinion to the same effect as the opinions
described above, which opinions are executed and filed with the
SEC as Exhibit 8.1 and Exhibit 8.2, respectively, to
the registration statement. These opinions, which we refer to as
the tax opinions, are subject to customary qualifications and
assumptions, including that the mergers will be completed
according to the terms of the merger agreement. In rendering the
tax opinions, each counsel has required and will rely upon
factual representations and covenants, including those contained
in the certificates of officers of Cambium, Voyager and Holdings
and others, which factual representations and covenants must
remain true and accurate as of the effective time of the
mergers. If any of the factual representations, covenants or
assumptions upon which the tax opinions are based is inaccurate,
the U.S. federal income tax consequences of the mergers
could differ from those described in the tax opinions. The tax
opinions are not binding on the IRS or the courts, and the
parties have not and do not intend to request a ruling from the
IRS with respect to the mergers. Accordingly, there can be no
assurance that the IRS will not challenge any of the conclusions
reflected in the tax opinions or that a court will not sustain
such a challenge.
Federal
Income Tax Consequences to U.S. Holders of Voyager Common
Stock
As a result of the mergers, taken together, being treated as an
exchange described in Section 351 of the Code, U.S. Holders
of Voyager common stock will be subject to the following tax
consequences:
Exchange of Voyager Common Stock Solely for Cash and
CVRs. A U.S. Holder of Voyager common stock
who exchanges Voyager common stock solely for cash and CVRs will
generally recognize gain or loss equal to the difference between
(i) the sum of (x) the total amount of cash received
pursuant to the merger agreement and (y) the fair market
value of the CVRs received, and (ii) the
U.S. Holder’s adjusted tax basis in the Voyager common
stock surrendered.
Exchange of Voyager Common Stock for a Combination of
Holdings Common Stock, Cash and CVRs. The
material U.S. federal income tax consequences to
U.S. Holders of Voyager common stock who receive Holdings
common stock, cash and CVRs pursuant to the merger agreement are
determined under Section 351 of the Code which, in general,
results in the following:
•
gain will be recognized on the exchange of Voyager common stock
for Holdings common stock, CVRs and cash pursuant to the merger
agreement equal to the lesser of:
•
the excess of the sum of the fair market value of the Holdings
common stock, the cash and the fair market value of the CVRs
received pursuant to the merger agreement by such
U.S. Holder over the U.S. Holder’s adjusted tax
basis in the Voyager common stock surrendered pursuant to the
merger agreement, and
•
the sum of the fair market value of the CVRs and the amount of
cash received by the U.S. Holder pursuant to the merger
agreement;
•
no loss will be recognized by a U.S. Holder of Voyager
common stock who receives Holdings common stock pursuant to the
merger agreement;
•
the aggregate adjusted basis of the Holdings common stock
received pursuant to the merger agreement by a U.S. Holder
of Voyager common stock will be equal to the aggregate adjusted
basis of the Voyager common stock surrendered by a
U.S. Holder of Voyager common stock, reduced by the fair
market value of the CVRs and the amount of cash received
pursuant to the merger agreement and increased by any amount of
gain that the U.S. Holder of Voyager common stock
recognizes with respect to the transaction;
•
the holding period of the Holdings common stock received
pursuant to the merger agreement by a U.S. Holder of
Voyager common stock will include the holding period of the
Voyager common stock exchanged for that Holdings common
stock; and
•
in the case of a U.S. Holder who acquired different blocks
of Voyager common stock at different times and at different
prices, any gain or loss will be determined separately with
respect to each block of Voyager common stock, and the sum of
the fair market value of the CVRs and the amount of cash
received will be allocated pro rata to each such block of stock;
any such U.S. Holder should consult with its tax advisor
regarding the manner in which the above rules would apply to
such U.S. Holder.
Federal
Income Tax Consequences Associated with the CVRs
There is substantial uncertainty as to the tax treatment of the
CVRs and U.S. Holders of Voyager common stock are urged to
consult with their tax advisors as to the particular tax
consequences to them of the receipt and ownership of the CVRs.
This analysis and the analysis above assumes that the CVRs are
not eligible for “open transaction” treatment or the
installment method of reporting and, accordingly, that the fair
market value of the CVRs must be included as part of the merger
consideration on the date on which the mergers are completed.
Consistent with that treatment, a U.S. Holder’s
initial tax basis in a CVR received pursuant to the merger
agreement will equal the fair market value of the CVR on the
date of the mergers, and the holding period for the CVR will
begin on the day following the date of the mergers. Although not
entirely clear, as payments are received with respect to the
CVRs, a portion of each payment will likely be characterized for
U.S. federal income tax purposes as “interest”
which will be taxable to the U.S. Holder of the CVR as
ordinary income. The portion treated as interest will equal the
excess of the total amount of the payment received over its
present value at the effective time of the mergers, calculated
using the applicable federal rate as the discount rate. The
applicable federal rate is a rate reflecting an average of
market yields on Treasury debt obligations for different ranges
of maturities that is published monthly by the Internal Revenue
Service. The relevant applicable federal rate will be the lower
of the lowest applicable federal rate in effect during the
period from April 1, 2009 through June 30, 2009 or the
lowest applicable federal rate in effect during the
3-month
period ending with the month that includes the date of the
completion of the mergers. The portion of each payment received
that is not treated as interest will be treated as
“principal” and applied against the
U.S. Holder’s tax basis in the CVR, with any amount in
excess of basis taxable to the holder as capital gain. To the
extent that
the ultimate amount paid with respect to the CVR that is treated
as principal is less than the U.S. Holder’s tax basis
in the CVR, the U.S. Holder will treat the difference as a
capital loss.
Although less likely, it is possible that cash method holders of
Voyager common stock may be permitted to treat the receipt of
the CVRs as pursuant to an “open transaction.” In that
case, a U.S. Holder would not take into account the fair
market value of the CVRs in determining such
U.S. Holder’s taxable gain, as described above, but
rather would recognize gain, if at all, only as payments with
respect to the CVRs are made. A portion of each payment received
by a U.S. Holder would be characterized as interest as
described in the preceding paragraph. However, because, under
this approach, a U.S. Holder would not have a tax basis in
the CVRs, the portion of each payment received that is not
characterized as interest would be treated as capital gain.
Due to the substantial uncertainty regarding the tax
treatment of the CVRs, U.S. Holders of Voyager common stock
should consult their tax advisors concerning the recognition of
gain, if any, resulting from the receipt and ownership of the
CVRs.
Cash
Instead of Fractional Shares
Holdings intends to take the position that receipt of cash
instead of a fractional share of Holdings common stock by a
U.S. Holder of Voyager common stock may be treated as cash
received in exchange for Voyager common stock as described
above. It is possible, however, that the receipt of cash instead
of fractional shares may be treated as if the U.S. Holder
received the fractional shares pursuant to the merger agreement
and then received the cash in a redemption of the fractional
shares, in which case such U.S. Holder should generally
recognize gain or loss equal to the difference between the
amount of the cash received instead of the fractional shares and
such U.S. Holder’s tax basis allocable to such
fractional shares.
Taxation
of Capital Gain or Loss
Gain or loss recognized by a U.S. Holder pursuant to the
merger agreement will generally constitute capital gain or loss,
and any such capital gain or loss will constitute long-term
capital gain or loss if such U.S. Holder’s holding
period is greater than one year as of the date of the completion
of the mergers. For non-corporate U.S. Holders, this
long-term capital gain generally will be taxed at a maximum
U.S. federal income tax rate of 15%. The deductibility of
capital losses is subject to limits.
Loss
Limitations
In general, the rules of Section 382 of the Code apply to
limit a corporation’s ability to utilize existing net
operating loss (“NOL”) carryovers once the corporation
experiences an “ownership change.” An “ownership
change” occurs when the percentage of stock held by
five-percent shareholders increases by more than fifty
percentage points during a prescribed testing period.
As a result of the mergers, the stock ownership of Voyager will
change to such an extent as to cause its NOL carryovers to be
subject to limitation under Section 382 of the Code. It is
not expected that the mergers alone will cause the NOL
carryovers of Cambium to be subject to limitation under
Section 382 of the Code. However, the mergers, in
combination with other transactions involving Cambium during the
prescribed testing period, could cause the NOL carryovers of
Cambium to be subject to limitation under Section 382 of
the Code.
Backup
Withholding
Backup withholding (at a current rate of 28%) may apply with
respect to the cash consideration received by a U.S. Holder
of Voyager common stock (including cash received pursuant to the
CVRs), unless such U.S. Holder:
•
is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact; or
provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding and that such
U.S. Holder is a U.S. person (including a
U.S. resident alien) and otherwise complies with applicable
requirements of the backup withholding rules.
A U.S. Holder of Voyager common stock who does not provide
Holdings (or the exchange agent) with its correct taxpayer
identification number in the required manner may be subject to
penalties imposed by the IRS. Any amounts withheld under the
backup withholding rules may be allowed as a refund or a credit
against such U.S. Holder’s U.S. federal income
tax liability, provided that such U.S. Holder furnishes
certain required information to the IRS.
Reporting
Requirements
U.S. Holders of Voyager common stock receiving Holdings
common stock as a result of the transaction will be required to
attach to their U.S. federal income tax returns for the
taxable year in which the closing of the transaction occurs, and
maintain a permanent record of, a complete statement of all the
facts relating to the exchange of stock in connection with the
transaction. The facts to be disclosed by a U.S. Holder of
Voyager common stock include the U.S. Holder’s basis
in the Voyager common stock transferred to Holdings and the
number of shares of Holdings common stock received pursuant to
the merger agreement.
This discussion under “Material U.S. Federal Income
Tax Consequences of the Transaction” does not address tax
consequences that may vary with, or are contingent on,
individual circumstances. Moreover, it does not address any
non-income tax or any foreign, state or local tax consequences
of the mergers. Tax matters are very complicated, and the tax
consequences of the transaction to you will depend upon the
facts of your particular situation. Accordingly, you are
strongly urged to consult with a tax advisor to determine the
particular U.S. federal, state, local or foreign income or
other tax consequences to you of the transaction.
The transaction will be accounted for as a “purchase”
of Voyager by Cambium, as the term “purchase” is used
under U.S. generally accepted accounting principles, for
accounting and financial reporting purposes. As a result, the
historical financial statements of Cambium will become the
historical financial statements of Holdings.
Under applicable accounting guidance for business combinations,
an acquiring entity is required to recognize all of the assets
acquired and liabilities assumed in a transaction at the
acquisition-date fair value, with limited exceptions.
Acquisition-related costs are required to be recognized
separately from the acquisition and expensed as incurred,
restructuring costs generally be expensed in periods subsequent
to the acquisition date, and changes in accounting for deferred
tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a
component of provision for income taxes. In addition, acquired
in-process research and development is capitalized as an
indefinite-lived intangible asset until completed or abandoned
and then amortized over its estimated useful life as a
definite-lived asset.
In accordance with business combination accounting, Cambium will
allocate the purchase price of the acquired company to the
tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. The assets, including
identifiable intangible assets, and liabilities (including
executory contracts and other commitments) of Voyager will be
recorded at their respective fair values and added to those of
Cambium. Any excess of the purchase price over the net fair
values of Voyager’s tangible and identifiable intangible
assets will be recorded as goodwill. Financial statements of
Holdings issued after the mergers will reflect these fair values
and will not be restated retroactively to reflect the historical
financial position or results of operations of Voyager. The
results of operations of Voyager will be included in the results
of operations of Holdings beginning on the effective date of the
mergers. See “UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION” on page 156.
We have summarized below material provisions of the merger
agreement. We have attached a copy of the merger agreement to
this proxy statement/prospectus as Annex A, and we
incorporate that Annex by reference into this document. This
summary does not purport to be complete and may not contain all
of the information about the merger agreement that is important
to you. We encourage you to read the merger agreement carefully
and in its entirety, since the rights and obligations of the
parties are governed by the express terms of the merger
agreement and not by this summary or any other information
contained in this proxy statement/prospectus.
The description of the merger agreement in this proxy statement
is included to provide investors and security holders with
information regarding its terms. It is not intended to provide
any other factual information about Voyager or the other parties
thereto. In particular, the assertions embodied in
Voyager’s and Cambium’s representations and warranties
contained in the merger agreement are qualified by information
in the disclosure schedules provided by Voyager and Cambium in
connection with the signing of the merger agreement. The
disclosure schedules contain information that modifies,
qualifies and creates exceptions to the representations and
warranties set forth in the merger agreement. Moreover, certain
representations and warranties in the merger agreement were used
for the purpose of allocating risk between Voyager and Cambium,
rather than establishing matters as facts. Accordingly,
investors and security holders should not rely on the
representations and warranties in the merger agreement as
characterizations of the actual state of facts about Voyager or
Cambium.
The following parties have executed the merger agreement:
•
Holdings;
•
Voyager;
•
VSS Cambium Holdings II Corp., which, prior to the
effective time of the mergers, will be the indirect owner of all
of the outstanding capital stock of Cambium Learning;
•
Voyager merger sub, which was formed solely for the purpose of
enabling Holdings to acquire Voyager;
•
Cambium merger sub, which was formed solely for the purpose of
enabling Holdings to acquire Cambium; and
•
the Stockholders’ Representative, which was formed solely
for the purpose of representing the Voyager stockholders after
the mergers described below are completed.
Voyager and Cambium determined to combine their businesses
through the execution, delivery and performance of the merger
agreement. The merger agreement provides that, after the closing
of the mergers is completed and the certificates of merger are
filed with the Secretary of State of the State of Delaware, the
following steps will occur:
•
Voyager merger sub will merge with and into
Voyager. As a result of this merger, which we
refer to as the “Voyager merger,” Voyager will become
a wholly owned subsidiary of Holdings. By virtue of the
completion of the Voyager merger, the stockholders of Voyager
will cease to be stockholders of Voyager and their shares of
Voyager stock will automatically be converted into the right to
receive the merger consideration payable to Voyager stockholders
pursuant to the merger agreement or, if they properly exercise
their appraisal rights, the right to receive the consideration
payable to dissenting stockholders pursuant to Section 262.
•
Cambium merger sub will merge with and into
Cambium. As a result of this merger, which we
refer to as the “Cambium merger,” Cambium will become
a wholly owned subsidiary of Holdings. By virtue of the
completion of the Cambium merger, the sole stockholder of
Cambium will cease to be a stockholder of Cambium and its
Cambium stock will automatically be converted into the right to
receive the merger consideration payable to Cambium’s sole
stockholder pursuant to the merger agreement.
We refer to the first time at which both the Voyager merger and
the Cambium merger are fully effective as the “effective
time” or the “effective time of the mergers.”
Upon completion of the Voyager merger, the stockholders of
Voyager immediately prior to the effective time will be entitled
to receive, for each share of Voyager common stock that they
owned of record immediately prior to the effective time, the
following consideration (which we refer to as the “Voyager
consideration”):
•
subject to the election procedures described under
“— Voyager Consideration — Stock or
Cash Election” and “— Election Procedures
for Voyager Stockholders,” either one share of Holdings
common stock or $6.50 in cash, without interest;
•
a portion of certain agreed upon tax refunds that Voyager
receives prior to the completion of the closing, which portion
we refer to as the “Voyager Per Share Pre-closing Tax
Refund Consideration” in this proxy
statement/prospectus; and
•
a contingent value right, which we sometimes refer to as a
“CVR” and which is described in additional detail
below.
Upon completion of the Cambium merger, Cambium’s sole
stockholder will be entitled to receive, for each share of
Cambium common stock it owned of record immediately prior to the
effective time, the following consideration (which we refer to
as the “Cambium consideration”):
•
0.8448961 of a share of Holdings common stock; and
•
the right to purchase additional shares of Holdings common stock
pursuant to a warrant, which we refer to in this proxy
statement/prospectus as the “Holdings Warrant” and
which is described in additional detail below.
Voyager
consideration
We provide below further information regarding the three
elements of the Voyager consideration:
Stock or Cash Election. Under the election
procedures described elsewhere in this proxy
statement/prospectus:
•
Voyager stockholders who elect to convert some or all of their
Voyager common stock into Holdings common stock pursuant to the
Voyager merger will be entitled to receive one share of Holdings
common stock for each share of Voyager common stock subject to
that election which is owned by them immediately prior to the
effective time of the Voyager merger;
•
Voyager stockholders who fail to submit their election form at
or before the election deadline described elsewhere herein will
be entitled to receive one share of Holdings common stock for
each share of Voyager common stock owned by them immediately
prior to the effective time of the Voyager merger;
•
Voyager stockholders who exercise their appraisal rights
pursuant to the procedures described elsewhere in this proxy
statement/prospectus, but abandon their efforts to exercise such
rights before receiving cash in accordance with such procedures,
will be entitled to receive one share of Holdings common stock
for each share of Voyager common stock owned by them immediately
prior to the effective time of the Voyager merger; and
•
Voyager stockholders who elect to convert some or all of their
Voyager common stock into cash pursuant to the Voyager merger
will be entitled to receive $6.50 in cash for each share of
Voyager
common stock that they elect to convert into cash and that is
owned by them immediately prior to the effective time of the
Voyager merger, subject to proration rules set forth in the
merger agreement in the event that the cash payable pursuant to
these elections exceeds a sum which we refer to in this proxy
statement/prospectus as the “Total Cash for Cash
Election.” The Total Cash for Cash Election equals
$25 million plus a formula amount which we refer to in this
proxy statement/prospectus as the “Available Voyager Cash
for Cash Election.” To the extent that these proration
rules preclude a Voyager stockholder from having all of the
stockholder’s shares of Voyager common stock for which a
cash election has been made converted into cash, the portion of
the shares which are not converted into cash, which we refer to
in this proxy statement/prospectus as the
“Re-Designated
Shares,” will be converted into Holdings common stock as if
the stockholder had elected to have the Re-Designated Shares
converted into Holdings common stock.
The parties have designated Wells Fargo Bank, N.A., to serve as
the exchange agent in connection with the Voyager merger and the
Cambium merger. If the Voyager stockholders elect to receive an
aggregate amount of cash in excess of the Total Cash for Cash
Election, then the exchange agent will denominate a portion of
the shares of Voyager common stock that such stockholders elect
to convert into cash as “Re-Designated Shares,” which
means that those shares will be converted into Holdings common
stock notwithstanding the fact that such stockholders elected to
have such shares converted into cash. For each such affected
stockholder, the number of such shares that will be treated as
Re-Designated Shares will equal the “Cutback Number”
described below, multiplied by a fraction, the numerator of
which is the number of shares that such stockholder elected to
have converted into cash and the denominator of which is the
number of shares that all of the Voyager stockholders elected to
have converted into cash. The Cutback Number constitutes the
number of shares of Voyager common stock that all of the Voyager
stockholders elect to have converted into cash minus the maximum
number of shares of Voyager common stock that may be converted
into cash pursuant to the merger agreement. That maximum number
equals the Total Cash for Cash Election divided by the ascribed
value of $6.50 per share. Thus, if the Total Cash for Cash
Election is $65,000,000, the maximum number of shares of Voyager
common stock that may be converted into cash pursuant to the
merger agreement is 10,000,000 shares. In that instance, if
Voyager stockholders elect to have 12,500,000 shares of
Voyager common stock converted into cash, the Cutback Number
would be 2,500,000 (that is, 12,500,000 minus the maximum number
of shares of Voyager common stock that can be converted into
cash, or 10,000,000).
The following table shows the amount of cash and stock
consideration that would be received by a Voyager stockholder
owning 1,000 shares of Voyager common stock if the cash
available for cash elections is as set forth at the various
assumed levels in the table. The amount of cash available for
elections can not exceed the maximum level in the table, but
could be less than the minimum level in the table, depending
primarily upon Voyager’s cash needs during the period prior
to the closing. The table does not include the amount of cash to
be paid to Voyager stockholders from certain tax refunds
received prior to closing and from the contingent value rights
described below. The amounts shown are based on
29,874,145 shares of common stock outstanding as of
September 30, 2009. These amounts also assume that each
Voyager stockholder elects to receive cash for each share of
Voyager common stock held by such stockholder and that no
stockholder exercises its appraisal rights.
Amount of Cash Available for
Cash Elections (the “Total
Shares of Holdings
Cash for Cash Election”)
Cash Consideration
Common Stock
$62,500,000
$2,086.50
679
$65,000,000
$2,171.00
666
$67,500,000
$2,255.50
653
As noted above, the amount of cash available for cash elections
by Voyager stockholders will equal $25,000,000 plus the
Available Voyager Cash for Cash Election. The Available Voyager
Cash for Cash Election equals the lesser of:
•
$42,500,000; and
•
the formula amount described below under the caption
“— Closing Calculations.”
Voyager Per Share Pre-closing Tax Refund
Consideration. Voyager expects that it and its
subsidiaries will receive specified tax refunds between
June 20, 2009 and the eighteen month anniversary of the
effective time; we refer to those tax refunds, together with
$15.2 million of tax refunds received by Voyager and its
subsidiaries prior to June 20, 2009, as “Voyager Tax
Refunds.” As part of the merger consideration, the former
Voyager stockholders will be entitled to receive, on a pro rata
basis, the aggregate amount of Voyager Tax Refunds received
prior to the closing less a holdback amount, which we refer to
as the Voyager Tax Refund Holdback Amount, equal to the lesser
of $4,000,000 and the amount of Voyager Tax Refunds received
during the period from June 21, 2009 through the date of
the closing. Because we are unable to determine the dollar
amount of Voyager Tax Refunds that will be received prior to the
closing, we do not yet know the dollar amount of the Voyager Per
Share Pre-closing Tax Refund Consideration.
Contingent Value Rights (CVRs). As part of the
merger consideration, Voyager stockholders will be entitled to
receive one CVR for each share of Voyager common stock owned by
the Voyager stockholder immediately prior to the effective time.
A CVR is a right to receive the quotient of:
•
the aggregate proceeds, if any, payable under the contingent
value rights agreement described below, which represents the
right to receive certain Voyager Tax Refunds received by Voyager
or Holdings within the first 18 months after the effective
time, the Voyager Tax Refund Holdback Amount, the remaining
amount, if any, reserved under the escrow agreement described
below with respect to certain liabilities under
Section 280G of the Internal Revenue Code and certain other
amounts contemplated in the escrow agreement, in each case net
of certain agreed upon liabilities, all as further described in
the contingent value rights agreement and the escrow agreement;
divided by
•
the aggregate number of shares of Voyager common stock
outstanding immediately prior to the effective time.
The dollar value of the CVRs cannot be determined at present.
See “RELATED AGREEMENTS” on page 150 for
descriptions of the contingent value rights agreement and the
escrow agreement.
Cambium
consideration
VSS-Cambium Holdings III, LLC, which will be the sole
stockholder of Cambium immediately prior to the effective time,
and which we sometimes refer to as the Cambium stockholder in
this proxy statement/prospectus, will receive a total of
20,454,312 shares of Holdings common stock in the Cambium
merger. Those shares, together with the 3,846,154 shares of
Holdings common stock that Holdings will issue to the Cambium
stockholder in exchange for a $25,000,000 capital contribution
to be made by the Cambium stockholder to Holdings prior to the
effective time, will represent approximately 55.5%, of the total
number of shares of Holdings common stock that will be
outstanding upon completion of the Voyager merger and the
Cambium merger, assuming no exercise of any portion of the
Holdings Warrant, assuming no exercise of appraisal rights by
Voyager’s stockholders and assuming that the maximum amount
of cash payable in the mergers is payable to the Voyager
stockholders. The number of shares of Holdings common stock
issuable to the Cambium stockholder in the Cambium merger and in
connection with the $25,000,000 capital contribution assumes
that there will be 29,874,145 shares of Voyager common
stock outstanding immediately prior to the effective time. To
the extent that the number of shares of Voyager common
stock outstanding immediately prior to the effective time is
greater or less than 29,874,145, the number of shares of
Holdings common stock issued to the Cambium stockholder above
will be increased or decreased, respectively, so that the shares
of Cambium common stock owned by the Cambium stockholder will
convert into the same percentage of shares of Holdings common
stock immediately after the effective time as would have been
the case had the number of shares of Voyager common stock
outstanding immediately prior to the effective time been
29,874,145.
The Cambium stockholder will also receive a Holdings Warrant.
The Holdings Warrant will entitle the Cambium stockholder to
purchase shares of Holdings common stock at an exercise price of
$0.01 per share (subject to adjustment). The aggregate number of
shares of Holdings common stock issuable upon exercise of the
Holdings Warrant will equal the sum of (i) a recoupment
amount, which we refer to as the “Cambium Specified Asset
Recoupment Amount” in this proxy statement/prospectus,
(ii) an additional issuance amount, which we refer to as
the “Additional Share Amount” in this proxy
statement/prospectus, and (iii) a formula
amount to be determined at the closing of the mergers, which we
refer to as the “Formula Amount.” The Cambium
Specified Asset Recoupment Amount, the Additional Share Amount
and the Formula Amount will be determined as follows:
•
Cambium Specified Asset Recoupment Amount. On
or about April 26, 2008, prior to the issuance of Cambium
Learning’s 2007 year-end financial statements, Cambium
Learning undertook an internal investigation that revealed
irregularities involving the control and use of cash and certain
other general ledger accounts, resulting from a misappropriation
of assets. These irregularities were perpetrated by a former
employee over more than a three-year period beginning in 2004
and continuing through April 2008. For purposes of this proxy
statement/prospectus:
•
The phrase “Net Windle Proceeds” means the difference
between: (i) the cash proceeds received by Cambium and its
subsidiaries from and after June 1, 2009 from any indemnity
payment, insurance payment or any other payment or recovery
arising from or related to any judgment, arbitration, order,
decree, settlement negotiation or other proceeding, whether
criminal or civil in nature, in connection with the theft,
fraud, malfeasance and other conduct committed by the former
Cambium employee or any other person involved in such conduct
with the former employee against Cambium and its subsidiaries,
but only to the extent such cash proceeds are used to retire or
extinguish indebtedness under Cambium’s existing credit
agreements, minus (ii) any
out-of-pocket
costs and expenses
and/or tax
liabilities directly incurred from and after the closing in
connection with the collection or recovery of the amounts
described in the preceding clause, including, without
limitation, any attorney, accountant, investigator and other
professional fees.
•
To date, Cambium has recovered approximately $535,000 of Net
Windle Proceeds. Cambium believes that the likely maximum amount
of Net Windle Proceeds is $4,250,000, although Cambium cannot
assure you that it will recover any more than it has recovered
to date. Accordingly, Cambium believes that the Cambium Special
Asset Recoupment Amount will be in the range of 37,038 to
294,230 shares.
•
The phrase “Cambium Specified Asset Recoupment Amount”
equals 0.45, multiplied by the quotient of the Net Windle
Proceeds divided by $6.50.
•
Additional Share Amount. The phrase
“Additional Share Amount” equals the lesser of:
•
145,000; and
•
the number of shares of Voyager common stock in excess of
29,874,145 which are outstanding immediately prior to the
effective time and which (i) do not otherwise result in an
adjustment, at or prior to the effective time, to the number of
shares of Holdings common stock to be issued under the merger
agreement and (ii) are surrendered for exchange pursuant to
the merger agreement on or prior to the second anniversary of
the closing.
•
We expect that the Additional Share amount will be zero,
although it could be up to 145,000 shares.
•
Formula Amount. As described below under
“— Cambium’s Credit Agreements,” there
are instances in which Cambium may be required by the merger
agreement to make equity cure payments to cure defaults under
Cambium Learning’s existing senior secured and senior
unsecured credit agreements prior to the closing. There are also
instances in which VSS or related entities may:
•
acquire and then retire indebtedness outstanding under Cambium
Learning’s credit agreements (with a balance of
$166.7 million as of September 30, 2009);
•
make equity contributions which result in the retirement of
indebtedness outstanding under Cambium Learning’s credit
agreements; or
•
make limited payments to obtain waivers under Cambium
Learnings’ credit agreements.
If Cambium makes such equity cure payments, or if such
indebtedness is retired or if such limited payments are made,
the Formula Amount will equal the sum of (i) the dollar
amount of such equity cure
payments, (ii) the dollar amount by which such debt is
retired and (iii) the dollar amount (up to $1,000,000) of
such limited payments, divided in each case by $6.50.
To date, $2,959,000 of such equity contributions have been made.
We do not expect any further equity contributions to be made
prior to the completion of the mergers, nor do we expect any
other payments to be made that would increase the Formula
Amount. Thus, we expect that the Formula Amount will equal
455,230 shares.
The Holdings Warrant is subject to customary registration rights
in favor of the holder of the Holdings Warrant and its permitted
successors and assigns. The Holdings Warrant will expire five
years after the closing.
Wells Fargo Shareowner Services is mailing an election form to
Voyager stockholders of record separately from this proxy
statement/prospectus. The election form enables each Voyager
stockholder to elect to receive cash for some or all of such
stockholder’s shares of Voyager common stock, to elect to
receive Holdings common stock for some or all of such
stockholder’s shares of Voyager common stock or to make no
election with respect to some or all of such stockholder’s
shares of Voyager common stock. If a Voyager stockholder does
not submit an election form on a timely basis, such stockholder
will be deemed to have made no election with respect to all of
such stockholder’s shares of Voyager common stock.
Except with respect to shares subject to the exercise of
appraisal rights, which we refer to as Dissenting Shares, each
share of Voyager common stock for which a stock election is
made, or for which no election is made, or which is treated as a
Re-Designated Share under the allocation procedures described
above, will be converted into the right to receive, upon
completion of the Voyager merger, one share of Holdings common
stock, the Voyager Per Share Pre-closing Tax Refund
Consideration and one CVR.
Except with respect to Dissenting Shares, each share of Voyager
common stock for which a valid and timely cash election is made,
other than those shares which are treated as Re-Designated
Shares pursuant to the allocation procedures described above,
will be converted into the right to receive, upon completion of
the Voyager merger, $6.50 in cash, the Voyager Per Share
Pre-closing Tax Refund Consideration and one CVR.
To make a cash election or a share election, Voyager
stockholders of record must properly complete and sign the form
of election and must send the completed form of election to
Wells Fargo Bank, National Association, the exchange agent, at
the following addresses:
Any questions regarding the cash or share elections should be
directed to:
Wells Fargo
Bank, N.A.
Shareholder Relations Department
1-877-262-8260
The exchange agent must receive, by the election deadline, the
completed and signed election form with respect to your Voyager
shares. The election deadline will be 5:00 p.m., New York
City time, on December 7, 2009, the business day
immediately prior to the date of the special meeting at which
Voyager stockholders will vote on the Voyager merger. Please DO
NOT return the election form in the same envelope with your
proxy card; please use the envelope that was provided with the
election form to ensure it is returned timely to Wells Fargo
Shareowner Services.
If you own shares of Voyager common stock in “street
name” through a bank, broker or other nominee and you wish
to make an election, you will receive or should seek
instructions from the financial institution holding your shares
concerning how to make your election. “Street name”
holders may be subject to an
election deadline earlier than the general deadline of the
business day immediately prior to the date of the Voyager
special meeting. Therefore, you should carefully read any
materials you receive from your bank, broker or other nominee.
If you submit your election form to your bank, broker or other
nominee prior to the election deadline but your bank, broker or
other nominee does not submit your election form to the exchange
agent prior to the election deadline, you will be treated as if
you made no election.
Voyager stockholders may change their election prior to the
election deadline by submitting a written notice of revocation
to the exchange agent or by submitting new election materials
bearing a later date. Revocations must specify the name in which
shares are registered on Voyager’s stock transfer books and
other information that the exchange agent may request. If
Voyager stockholders wish to submit a new election, they must do
so in accordance with the election procedures described in this
proxy statement/prospectus and the form of election. Voyager
stockholders who instruct a broker, bank or other nominee to
submit an election for their shares must follow the directions
of the broker, bank or other nominee for changing those
instructions. Whether you change your election by submitting
a written notice of revocation or by submitting new, later-dated
election materials, the notice or materials must be received by
the exchange agent by the election deadline in order for the
revocation to be valid.
The merger agreement requires us to conduct the closing on or
before the fifth business day after all conditions to the
closing, including approval of Voyager stockholders and receipt
of all necessary regulatory approvals, have either been
satisfied or, where permitted by law, waived. Upon completion of
the closing, we will file certificates of merger relating to the
Voyager merger and the Cambium merger with the Secretary of
State of the State of Delaware. The effective time will occur at
the first time when both of the certificates of merger have been
filed.
The parties currently expect to conduct the closing promptly
after the Voyager stockholder meeting is completed.
The exchange agent will mail letters of transmittal to all
holders of record of Voyager common stock and Cambium common
stock promptly after the effective time. In order to receive the
merger consideration, a former Voyager stockholder must either
(i) surrender to the exchange agent its Voyager stock
certificates, together with a properly completed letter of
transmittal, or (ii) in the case of Voyager shares held in
book-entry form, cause the exchange agent to receive an
“agent’s message” (or such other evidence, if
any, of transfer as the exchange agent may reasonably request)
with respect to such shares. Upon receipt of such surrendered
materials or agent’s message from a former Voyager
stockholder, the exchange agent will transmit to such
stockholder the following:
•
a certificate representing any shares of Holdings common stock
that such stockholder is entitled to receive as merger
consideration;
•
a check or wire transfer representing any cash that such
stockholder is entitled to receive as merger
consideration; and
•
a contingent value right.
The Cambium stockholder will receive from the exchange agent,
upon receipt of its Cambium stock certificates endorsed for
transfer, the following:
•
a certificate representing the shares of Holdings common stock
that the Cambium stockholder is entitled to receive as merger
consideration; and
•
the Holdings Warrant that the Cambium stockholder is entitled to
receive as merger consideration.
No interest will be paid on any of the cash payable pursuant to
the Voyager merger. Stockholders should not submit their
stock certificates to the exchange agent with the enclosed proxy
card or with the separately
Voyager has agreed to use commercially reasonable efforts to
terminate all outstanding Voyager stock options and stock
appreciation rights at an expense not to exceed $25,000. To the
extent any such stock options or stock appreciation rights
remain outstanding as of the closing date, such stock options
will be converted, at the effective time, into options to
acquire, on the same terms and conditions (including applicable
vesting provisions) as were applicable prior to the closing,
that number of shares of Holdings common stock equal to the
number of shares subject to such Voyager stock options
immediately prior to the effective time, at a price per share
equal to the per share exercise price specified in such Voyager
stock options immediately prior to the effective time, and such
converted options will be assumed by Holdings. Similarly, the
stock appreciation rights relating to Voyager common stock which
have not been terminated as of the effective time will be
converted, as of the effective time, into stock appreciation
rights relating to, on the same terms and conditions (including
applicable vesting provisions) as were applicable under the
Voyager stock appreciation rights, that number of shares of
Holdings common stock equal to the number of shares of Voyager
common stock subject to such Voyager stock appreciation rights
immediately prior to the effective time, at an exercise price
equal to the per share exercise price specified in such Voyager
stock appreciation rights immediately prior to the effective
time, and such converted stock appreciation rights will be
assumed by Holdings.
Holdings has agreed to register the shares of Holdings common
stock covered by the Holdings stock options that replace these
Voyager stock options and has agreed to maintain the
effectiveness of the registration for so long as such options
remain outstanding.
Voyager has made various representations and warranties in the
merger agreement that are subject, in some cases, to specified
exceptions and qualifications contained in the merger agreement
or in the disclosure schedules delivered in connection with the
execution of the merger agreement. Voyager’s
representations and warranties relate to, among other things,
the following:
•
Voyager’s and its subsidiaries’ proper organization,
good standing and qualification to do business, Voyager’s
ownership of its subsidiaries and Voyager’s governing
instruments;
•
Voyager’s capitalization, including, in particular, the
number of shares of Voyager common stock, stock options and
stock appreciation rights outstanding;
•
Voyager’s corporate power and authority to enter into the
merger agreement and other agreements referenced in the merger
agreement and, subject to stockholder approval, to complete the
transactions contemplated by these agreements;
•
the approval and recommendation by Voyager’s board of
directors of the merger agreement and other agreements
referenced in the merger agreement and the completion of the
transactions contemplated by the merger agreement, including the
Voyager merger;
•
the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
•
the absence of violations of or conflicts with Voyager’s
and Voyager’s subsidiaries’ governing documents,
applicable law or certain agreements as a result of entering
into the merger agreement and other agreements referenced in the
merger agreement and consummating the Voyager merger;
•
Voyager’s SEC filings since December 31, 2005,
including the financial statements contained or incorporated
therein and Voyager’s internal controls and disclosure
controls and procedures;
actions that could affect the tax treatment of the transactions
contemplated by the merger agreement;
•
the fairness opinion provided by Allen & Company to
Voyager;
•
the vote required by Voyager stockholders to approve the Voyager
merger;
•
accuracy and compliance as to form with applicable securities
laws of this proxy statement/prospectus and the registration
statement;
•
the inapplicability of certain anti-takeover statutes and plans;
•
bank accounts; and
•
transaction expenses.
Many of the representations and warranties that Voyager made in
the merger agreement are qualified by a “material adverse
effect” standard (that is, they will not be deemed to be
untrue or incorrect unless their failure to be true or correct,
individually or in the aggregate, would have a material adverse
effect on Voyager and its subsidiaries, taken as a whole) or by
knowledge. For the purposes of the merger agreement, a
“Voyager material adverse effect” means any change,
effect, event, occurrence, state of facts, non-occurrence or
omission (or any development that has had or is reasonably
likely to have any effect) (i) that is materially adverse
to the business, financial condition or results of operations of
Voyager and its subsidiaries, taken as a whole, or
(ii) would prevent or materially delay the completion of
the Voyager merger.
A “Voyager material adverse effect” will not have
occurred, however, as a result of any change, effect, event,
occurrence, state of facts, non-occurrence, omission or
development involving:
•
a disruption in financial, credit, banking or securities markets
(including any disruption thereof and any decline in the price
of any security or market index) or any interest rate or
exchange rate changes, generally, which does not
disproportionately affect Voyager and its subsidiaries, taken as
a whole;
•
any material downturn in general business or economic condition
to the extent it does not disproportionately affect Voyager and
its subsidiaries, taken as a whole, compared to other
participants in the industries in which Voyager and its
subsidiaries operate;
any change attributable to the announcement or pendency of the
transactions contemplated by the merger agreement, including any
cancellations of or delays in customer agreements, any reduction
in sales, any disruption in supplier, distributor, partner or
similar relationships or any loss of employees, or resulting
from or relating to compliance with the terms of, or the taking
of any action required by, the merger agreement;
•
any change arising from or relating to any change after
June 20, 2009 in generally accepted accounting principles
as consistently applied by Voyager;
•
any change resulting from or relating to political or economic
conditions, including acts of terrorism or war, to the extent it
does not disproportionately affect Voyager and its subsidiaries,
taken as a whole, compared to other participants in the
industries in which Voyager and its subsidiaries operate;
•
any change arising from or relating to laws issued by any
governmental authority after June 20, 2009 applicable to
Voyager, Cambium and Holdings to the extent it does not
disproportionately affect Voyager and its subsidiaries, taken as
a whole, compared to other participants in the industries in
which Voyager and its subsidiaries operate;
•
any change, in and of itself, in the market price or trading
volume of Voyager common stock, provided that this factor will
not exclude the underlying event or occurrence which may have
caused such change in market price or trading volume;
•
the failure, in and of itself, by Voyager to meet or exceed any
internal or public projections, forecasts or earnings
predictions, provided that this factor will not exclude any
event or occurrence which caused such failure; and
•
the taking of any action, or failure to take action, to which
Cambium has expressly consented or approved in writing.
For the purposes of the merger agreement, a knowledge
qualification with respect to a representation made by Voyager
limits the representation to the actual knowledge after due
inquiry of various senior executive officers of Voyager.
You should be aware that these representations and warranties
are made by Voyager to Holdings and Cambium, may be subject to
important limitations and qualifications agreed to by Holdings
and Cambium, may be qualified by disclosures made to Holdings
and Cambium that are not necessarily reflected in the merger
agreement, may be used by the parties as a means of allocating
risk to one of the parties if the statements prove to be
inaccurate, may be qualified by materiality standards that are
different than what may be viewed as material by you or other
investors, and were made only as of the date of the merger
agreement, or other date as specified in the agreement.
Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were
made or at any other time.
Cambium also made various representations and warranties in the
merger agreement that are subject, in some cases, to specified
exceptions and qualifications contained in the merger agreement
or in the disclosure schedules it delivered in connection with
the execution of the merger agreement. Cambium’s
representations and warranties, which in large part are similar
to Voyager’s representations and warranties, relate to,
among other things, the following:
•
Cambium’s and its subsidiaries’ proper organization,
good standing and qualification to do business, Cambium’s
ownership of its subsidiaries and Cambium’s governing
instruments;
•
Cambium’s capitalization including, in particular, the
number of shares of Cambium common stock outstanding;
•
Cambium’s corporate power and authority to enter into the
merger agreement and other agreements referenced in the merger
agreement and to complete the transactions contemplated by these
agreements;
the approval and recommendation by Cambium’s board of
directors of the merger agreement and other agreements
referenced in the merger agreement and the completion of the
transactions contemplated by the merger agreement, including the
Cambium merger;
•
the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
•
the absence of violations of or conflicts with Cambium’s
and Cambium’s subsidiaries’ governing documents,
applicable law or certain agreements as a result of entering
into the merger agreement and other agreements referenced in the
merger agreement and completing the Cambium merger;
•
Cambium’s financial statements and accounting/auditing
practices, procedures and methodologies;
Many of the representations and warranties that Cambium made in
the merger agreement are, like the representations and
warranties made by Voyager, qualified by a “material
adverse effect” standard (that is, they will not be deemed
to be untrue or incorrect unless their failure to be true or
correct, individually or in the aggregate, would have a material
adverse effect on Cambium and its subsidiaries, taken as a
whole) or by knowledge. For purposes of the merger agreement, a
“Cambium material adverse effect” means any change,
effect, event, occurrence, state of facts, non-occurrence,
omission or development (i) that is materially adverse to
the business, financial condition or results of operations of
Cambium and its subsidiaries, taken as a whole, or
(ii) which would prevent or materially delay the completion
of the Cambium merger.
A “Cambium material adverse effect” will not have
occurred, however, as a result of any change, effect, event,
occurrence, state of facts, non-occurrence, omission or
development involving:
•
a disruption in financial, credit, banking or securities markets
or any interest rate or exchange rate changes, generally, which
does not disproportionately affect Cambium and its subsidiaries,
taken as a whole, compared to other companies with indebtedness
similar to Cambium and its subsidiaries;
•
any material downturn in general business or economic conditions
to the extent it does not disproportionately affect Cambium and
its subsidiaries, taken as a whole, compared to other
participants in the industries in which Cambium and its
subsidiaries operate;
•
any change attributable to the announcement or pendency of the
transactions contemplated by the merger agreement, including any
cancellations of or delays in customer agreements, any reduction
in sales, any disruption in supplier, distributor, partner or
similar relationships or any loss of employees, or resulting
from or relating to compliance with the terms of, or the taking
of any action required by, the merger agreement;
•
any change arising from or relating to any change after
June 20, 2009 in generally accepted accounting principles
as consistently applied by Cambium;
•
any change resulting from or relating to political or economic
conditions, including acts of terrorism or war to the extent it
does not disproportionately affect Cambium and its subsidiaries,
taken as a whole, as compared with other participants in the
industries in which Cambium and its subsidiaries operate;
•
any change arising from or relating to laws issued by any
governmental authority after June 20, 2009 applicable to
Cambium, Voyager and Holdings to the extent it does not
disproportionately affect Cambium and its subsidiaries, taken as
a whole, compared to other participants in the industries in
which Cambium and its subsidiaries operate;
•
the failure, in and of itself, by Cambium to meet or exceed any
internal projections, forecasts or earnings predictions,
provided that this factor will not exclude any event or
occurrence which caused such failure; and
•
the taking of any action, or failure to take action, to which
Voyager has expressly consented or approved in writing.
For the purposes of the merger agreement, a knowledge
qualification with respect to a representation made by Cambium
limits the representation to the actual knowledge after due
inquiry of various senior executive officers of Cambium Learning
and various employees of VSS.
You should be aware that these representations and warranties
are made by Cambium to Voyager and Holdings, may be subject to
important limitations and qualifications agreed to by Holdings
and Voyager, may be qualified by disclosures made to Holdings
and Voyager and are not necessarily reflected in the merger
agreement, may be used by the parties as a means of allocating
risk to one of the parties if the statements prove to be
inaccurate, may be qualified by materiality standards that are
different than what may be viewed as material by you or other
investors, and were made only as of the date of the merger
agreement, or other date as specified in the agreement.
Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were
made or at any other time.
Further, Holdings made certain limited representations and
warranties in the merger agreement that are subject, in some
cases, to specified exceptions and qualifications contained in
the merger agreement. Holdings’ representations and
warranties relate to, among other things, the following:
•
Holdings’ formation, proper organization, good standing and
qualification to do business and its governing documents;
•
Holdings’ capitalization, including, in particular, the
number of shares of Holdings common stock outstanding;
•
Holdings’ corporate power and authority to enter into the
merger agreement and other agreements referenced in the merger
agreement and to complete the transactions contemplated by these
agreements;
•
the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
•
the absence of violations of or conflicts with Holdings’
governing documents, applicable law or certain agreements as a
result of entering into the merger agreement; and
•
accuracy and compliance as to form with applicable securities
laws of this proxy statement/prospectus and the registration
statement;
These representations and warranties are made by Holdings to
Voyager and Cambium, may be subject to important limitations and
qualifications agreed to by Voyager and Cambium, may be
qualified by disclosures made to Voyager and Cambium and are not
necessarily reflected in the merger agreement, may be used by
the parties as a means of allocating risk to one of the parties
if the statements prove to be inaccurate, may be qualified by
materiality standards that are different than what may be viewed
as material by you or other investors, and were made only as of
the date of the merger agreement, or other date as specified in
the agreement. Accordingly, these representations and warranties
may not describe the actual state of affairs as of the date they
were made or at any other time.
Under the merger agreement, Voyager and Cambium (on their own
behalf and on behalf of their respective subsidiaries) have
agreed that, subject to certain
agreed-upon
exceptions or unless the other gives its prior written consent
(which consent will not be unreasonably withheld, conditioned or
delayed), from June 20, 2009 through and including the
effective time:
•
each will conduct business in the ordinary course of business
consistent with past practice in all material respects;
•
each will use reasonable best efforts to maintain and preserve
its respective business organizations and to retain the services
of its respective officers and key employees and maintain its
respective relationships with customers, suppliers, lessees,
licensees and other third parties; and
•
Holdings will not conduct business or incur any material
liabilities.
Voyager and Cambium each has also agreed that during the same
time period, and again subject to certain
agreed-upon
exceptions or unless the other gives its prior written consent
(which consent will not be unreasonably withheld, conditioned or
delayed), that it will not, and will not cause its respective
subsidiaries, to:
•
pay any dividends or distribution with respect to its
outstanding shares of capital stock other than dividends and
distributions paid to it by its respective subsidiaries;
•
split, combine or reclassify its capital stock or issue any
other securities in respect of, in lieu of or in substitution
for shares of its capital stock, other than any such transaction
by a wholly owned subsidiary;
•
purchase, redeem or otherwise acquire any shares of its capital
stock or other securities;
increase the compensation or other benefits payable or provided
to its executive officers
and/or
directors; increase the compensation or other benefits payable
or provided to its other employees, other than in the ordinary
course of business consistent with past practice; enter into or
amend in any material respect any employment or similar
agreement with any of its employees, directors or officers,
except for certain severance agreements entered into with
employees (other than executive officers) in the ordinary course
of business; or enter into or amend any collective bargaining
agreement, plan, trust, fund, policy or arrangement for the
benefit of any of its current or former directors, officers or
employees;
•
make any loans to its employees, officers or directors;
issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any
shares of its capital stock, other than in connection with its
outstanding stock options, stock appreciation rights and other
contractual commitments;
•
sell, lease, license, transfer, exchange or swap, mortgage or
otherwise encumber or otherwise dispose of any material portion
of its properties or assets, including the capital stock of
subsidiaries;
•
make unbudgeted capital expenditures;
•
acquire or make any investment in any business;
•
incur indebtedness for borrowed money, except
(i) transactions with or among its direct or indirect
wholly owned subsidiaries, (ii) indebtedness to replace,
renew, extend, refinance or refund any existing indebtedness on
materially no less favorable terms and in a principal amount no
greater than the outstanding principal amount of the
indebtedness being replaced, renewed, extended, refinanced or
refunded and (iii) indebtedness incurred pursuant to
agreements in effect on June 20, 2009;
•
enter into specified related party transactions;
•
enter into, or materially amend, modify or fail to renew, any
material contract or waive, release or transfer any material
rights or claims under any such contracts, except that Voyager,
Cambium and their respective subsidiaries will not be prohibited
from (i) entering into multi-year contracts reflecting
discounts and gross profitability that are consistent in all
material respects with other similarly sized single-year and
multi-year transactions entered into by Voyager prior to
June 20, 2009 or (ii) taking other actions in the
ordinary course of business consistent with past practice;
•
settle, compromise, pay or satisfy any claim, action or
proceeding, other than actions involving monetary damages of not
more than $2,500,000 in the aggregate since June 20, 2009;
•
make any material change in any financial accounting method or
make any material tax election, other than changes and elections
required by generally accepted accounting principles or
applicable law;
•
purchase, sell or grant a security interest in real property, or
enter into any material lease, sublease or other occupancy
agreement with respect to real property or materially modify or
terminate any real property lease;
•
adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other corporate
reorganization;
•
in the case of Cambium, modify or obtain a waiver of any of the
material terms of Cambium Learning’s senior secured or
senior unsecured credit agreements or take (or omit to take) any
other action under such agreements, to the extent described in a
schedule agreed upon by the parties or to the extent such
modification, waiver or other action would be reasonably likely
to result in a Cambium material adverse effect;
•
knowingly take any action that will likely result in its
representations and warranties in the merger agreement becoming
false or inaccurate in any material respect; or
Subject to exceptions described in the merger agreement, Voyager
has agreed that it will not:
•
initiate, solicit, encourage or facilitate any inquiry, proposal
or offer that will lead to or would constitute, or that is
reasonably likely to lead to, a Voyager alternative proposal (as
described below);
•
engage in any negotiations concerning, or provide information
relating to Voyager in connection with, or have any discussions
with any third party relating to, or that is reasonably likely
to lead to, a Voyager alternative proposal;
•
approve, endorse or recommend, or propose publicly to approve,
endorse or recommend, any Voyager alternative proposal or a
Voyager superior proposal (as described below); or
•
enter into a letter of intent, agreement in principle or
agreement relating to any Voyager alternative proposal or a
Voyager superior proposal.
Notwithstanding the restrictions described above, at any time
prior to the approval of the merger agreement by Voyager
stockholders, Voyager may provide non-public information
regarding Voyager and its subsidiaries to a third party making a
Voyager alternative proposal and to its debt and equity
financing sources and may participate in negotiations with such
third party regarding its Voyager alternative proposal, provided
that:
•
Voyager receives the Voyager alternative proposal on an
unsolicited basis;
•
Voyager’s board of directors determines in good faith,
after consultation with its financial advisors, that the Voyager
alternative proposal constitutes or is reasonably expected to
lead to a Voyager superior proposal; and
•
Voyager’s board of directors determines in good faith,
after consultation with its outside legal counsel, that such
action is required in order for the Voyager board to comply with
its fiduciary obligations to Voyager stockholders under
applicable law.
In these cases, Voyager has agreed that it (i) will not
disclose any non-public information to any person without
entering into a confidentiality agreement containing customary
limitations on the use and disclosure of all non-public
information furnished to the third party that is no less
favorable to Voyager than the confidentiality agreement that
Voyager entered into with Cambium, and (ii) will
contemporaneously provide to Cambium any non-public information
concerning Voyager or its subsidiaries provided to the third
party which was not previously provided to Cambium.
Furthermore, the Voyager board will have the right to
(i) withdraw or modify in a manner adverse to Cambium or
publicly propose to withdraw or modify in a manner adverse to
Cambium its recommendation that Voyager stockholders approve the
merger agreement, or to otherwise not make the recommendation,
(ii) approve or recommend any Voyager alternative proposal
or (iii) approve, recommend or cause Voyager to enter into
any letter of intent, agreement in principle or other agreement
constituting or relating to any Voyager alternative proposal or
a Voyager superior proposal, but only if:
•
Voyager receives the Voyager alternative proposal on an
unsolicited basis;
•
the Voyager board determines in good faith, after consultation
with its financial advisors, that the proposal constitutes a
Voyager superior proposal;
•
the Voyager board determines in good faith, after consultation
with its outside legal counsel, that the action is required in
order for the board to comply with its fiduciary obligations to
Voyager stockholders under applicable law;
Voyager gives Cambium and Holdings prior written notice that
Voyager has received a Voyager superior proposal and the
material terms of the Voyager superior proposal and the identity
of the third party making the Voyager superior proposal;
•
during the four business day period following receipt by Cambium
and Holdings of the notice, Voyager negotiates in good faith
with Cambium
and/or
Holdings with respect to any adjustments that Cambium and
Holdings would be willing to make to the terms and conditions of
the merger agreement;
•
following the end of the four business day period,
Voyager’s board determines, in good faith, after
consultation with its financial advisors, taking into account
any adjustments proposed by Cambium
and/or
Holdings to the terms of the merger agreement, that the proposal
giving rise to the notice continues to constitute a Voyager
superior proposal; and
•
if Voyager terminates the merger agreement in order to enter
into a definitive agreement reflecting the Voyager superior
proposal, Voyager pays Cambium the $7,500,000 termination fee
payable in connection with the termination.
Voyager’s right to terminate the merger agreement in order
to enter into a definitive agreement reflecting a Voyager
superior proposal may only be exercised during the period
between the date on which the registration statement becomes
effective and the business day immediately preceding the special
meeting of stockholders, and may only be exercised with respect
to a Voyager alternative proposal that is first received by
Voyager after the date on which the registration statement
becomes effective. If Voyager is not permitted to terminate the
merger agreement in accordance with the agreed upon conditions,
then it must submit the merger agreement to its stockholders for
approval at the Voyager special meeting.
Voyager has also agreed that it will:
•
notify Cambium within 24 hours of any inquiries or
proposals that are reasonably expected to lead to a Voyager
alternative proposal, any request for information relating
thereto and any request for negotiations relating thereto;
•
keep Cambium and Holdings reasonably informed on a reasonably
current basis of the status and details of any material
negotiations regarding, or reasonably likely to lead to, any
Voyager alternative proposal; and
•
provide Cambium and Holdings with copies of all written material
communications and other material documents that reflect the
terms of, or are reasonably likely to lead to, any Voyager
alternative proposal.
For purposes of the merger agreement, a “Voyager
alternative proposal” means, with respect to Voyager,
(a) any proposal made by a third party (i) for a
merger, reorganization, share exchange, exchange offer,
consolidation, business combination, joint venture, sale of
substantially all of the assets, recapitalization, dissolution,
liquidation or similar transaction involving Voyager or any of
its subsidiaries, (ii) for the acquisition by the third
party of 20% or more of the consolidated total assets of Voyager
and/or any
of its subsidiaries, in a single transaction or series of
related transactions, (iii) for the acquisition by the
third party of 20% or more of the outstanding shares of capital
stock of Voyager or any of its subsidiaries, in a single
transaction or series of related transactions or (iv) to
appoint or replace at least a majority of the board of Voyager
or any of its subsidiaries or (b) any inquiry that might
reasonably be expected to lead to any such proposal, in each
case, other than the Voyager merger.
For purposes of the merger agreement, a “Voyager superior
proposal” means a Voyager alternative proposal that the
Voyager board determines in good faith, after consultation with
its financial and legal advisors, and considering such factors
as the board considers to be appropriate, (i) to be more
favorable to Voyager and its stockholders from a financial point
of view than the transactions contemplated by the merger
agreement, (ii) is reasonably capable of being completed on
the terms proposed, and (iii) is of such a nature that the
failure to accept the Voyager alternative proposal would be a
breach of the fiduciary duties of the Voyager board; provided
that for purposes of the definition of “Voyager superior
proposal,” the references to “20%” in the
definition of Voyager alternative proposal are deemed to be
references to “80%.”
The merger agreement requires Voyager, except in the limited
circumstances described above when Voyager is permitted to
terminate the merger agreement in order to enter into a
definitive agreement reflecting a Voyager superior proposal, as
promptly as reasonably practicable after this proxy
statement/prospectus is mailed to its stockholders, to hold a
special meeting of Voyager stockholders to adopt the merger
agreement. Voyager is required to use reasonable best efforts to
mail this proxy statement/prospectus to its stockholders not
later than ten days after the SEC declares the registration
statement effective. Except in the limited circumstances
described above when the Voyager board is permitted to change
its recommendation, the Voyager board is required to recommend
that Voyager stockholders vote in favor of adoption of the
merger agreement.
Cambium has agreed that if Voyager has not received sufficient
proxies to adopt the merger agreement at the special meeting
scheduled to be held on December 8, 2009, Voyager will have
the right to postpone or adjourn the special meeting to a date
which is not more than 45 days after December 8, 2009.
Cambium has further agreed that if Voyager continues not to
receive sufficient proxies to adopt the merger agreement,
Voyager may make one or more successive postponements or
adjournments of the special meeting as long as the date of the
special meeting is not postponed or adjourned more than an
aggregate of 45 days from December 8, 2009. For
information regarding a proposal to be submitted to Voyager
stockholders to adjourn the meeting, see “PROPOSAL TO
ADJOURN THE SPECIAL MEETING.”
For a period of one year after the closing of the mergers,
Holdings has agreed that, subject to certain possible
determinations by Holdings’ board and certain agreed upon
exceptions, Holdings will not make any material modifications to
the base compensation and incentive compensation of
Voyager’s active employees or to the employee benefit plans
provided to such employees immediately prior to the effective
time, unless the modifications are also applicable to similarly
situated employees of Cambium. For a period of one year after
the closing, any active Voyager employees who are terminated
without cause will be entitled to severance in an amount which
is no less than what they would have received under Voyager
severance plans as in effect prior to the mergers. Voyager may
not amend certain of its benefits plans prior to the effective
time without the prior written consent of Holdings, and after
the effective time, Voyager and Holdings may not amend those
plans without the prior written consent of the
Stockholders’ Representative.
Holdings has agreed to credit service of Voyager employees prior
to the closing under any 401(k) savings plans, welfare benefit
plans and employment policies maintained by Holdings and its
subsidiaries for purposes of vesting, eligibility and benefit
entitlements, other than pension plan accruals, and to waive all
eligibility limitations with respect to pre-existing and at-work
conditions.
Pursuant to the terms of the merger agreement, Holdings and
Cambium are obligated to notify Voyager if any default or event
of default occurs under Cambium Learning’s senior secured
credit agreement or senior unsecured credit agreement, both
dated as of April 12, 2007, as amended. As of
September 30, 2009, Cambium Learning had an aggregate
outstanding principal balance under its credit agreements of
$166.7 million. If, at any time at or prior to the
effective time, Cambium Learning breaches its total leverage
ratio covenant under the senior secured credit agreement or the
minimum EBITDA covenant under the senior unsecured credit
agreement, Cambium has agreed in the merger agreement to use
commercially reasonable efforts to cure the breach within the
time periods permitted under these agreements by issuing equity
securities or taking such other action (other than issuing debt
securities) that is permitted by the credit agreements (we refer
to such cure or other action as an “equity cure”), but
the obligation to effect an equity cure exists under the merger
agreement only if:
•
the default or event of default may be cured under the credit
agreements’ equity cure provisions;
the amount required to be invested or paid directly to the
lenders to effect the equity cure, together with any other
equity cures effected by Cambium between June 20, 2009 and
the effective time, does not exceed $3,000,000; and
•
at the time of the equity cure, no default or event of default
exists that (i) arises under a provision of the credit
agreements other than the financial default provisions (we refer
to such other defaults as “general defaults”) and
(ii) gives rise to a failure of any condition to
Voyager’s obligation to complete the closing (as opposed to
a condition jointly applicable to Voyager and Cambium or a
condition applicable to Cambium) unless the condition, if
disclosed to Voyager, is waived by Voyager.
Under the merger agreement, Cambium is also obligated to use its
commercially reasonable efforts to cure or obtain a waiver of
general defaults. However, Cambium is not obligated to pay any
penalties, fees or other amounts to cure or obtain a waiver of
general defaults and any failure by Cambium to cure or obtain a
waiver of general defaults will not give rise to the payment of
any termination fee under the merger agreement. On the other
hand, if (i) a financial default occurs under the credit
agreements under the criteria described above, (ii) Cambium
is obligated to effect an equity cure and fails to do so and
(iii) all but specified conditions to Cambium’s
obligation to complete the closing (as opposed to a condition
jointly applicable to Voyager and Cambium or a condition solely
applicable to Voyager) have been satisfied, then Voyager will
have the right to terminate the merger agreement and obtain a
$9,000,000 termination fee, as described under
“— Termination and Termination Fees.”
The financial covenant under Cambium Learning’s senior
unsecured credit agreement requires minimum adjusted EBITDA
(calculated as set forth in the credit agreements) for the
trailing four fiscal quarters to be at least $25.0 million.
The financial covenant under Cambium Learning’s senior
secured credit agreement requires a total leverage ratio of
6.5:1 or less as of the end of each fiscal quarter. As of
August 14, 2009, Cambium was in non-compliance with both of
these covenants. On August 14, 2009, Cambium notified both
its senior secured lenders and senior unsecured debt holders
that Cambium’s stockholder intended to cure the
non-compliance. On August 17, 2009, $3.0 million of
capital was contributed to Cambium Learning by its stockholder
to fund the cure. On August 20, 2009, the $3.0 million
was paid by Cambium Learning to the senior secured lenders and
reduced the principal amount outstanding under Cambium’s
senior secured credit agreement by a corresponding amount.
Cambium Learning is permitted one such cure right in each fiscal
year. An uncured default with respect to either of these
financial covenants could, if not waived by the lenders and the
noteholders, result in acceleration of the indebtedness under
Cambium Learning’s credit facilities. Cambium Learning may
not have sufficient funds to repay the indebtedness, and there
may not be equity or debt financing opportunities available to
Cambium Learning on acceptable terms, or at all. Based on
Cambium Learning’s performance to date, Cambium Learning
is, with respect to the quarter ended September 30, 2009, and
expects to be, with respect to the quarter ending December 31,2009, in compliance with its financial covenants. Holdings has
presented elsewhere in this proxy statement/prospectus a
reconciliation among net loss, EBITDA, adjusted EBITDA as
calculated by Holdings for purposes of measuring operating
performance and adjusted EBITDA as calculated for purposes of
Cambium Learning’s senior unsecured credit agreement. See
“SUMMARY — Comparative Historical and Unaudited
EBITDA and Adjusted EBITDA Data.” The calculation of
adjusted EBITDA used for purposes of the senior unsecured credit
agreement supplements the adjustments to EBITDA used by Holdings
for purposes of measuring operating performance with additional
adjustments to EBITDA recognized by Cambium Learning’s
lenders. The method for calculating EBITDA under the credit
agreements was modified pursuant to the recent amendments to the
credit agreements, to permit additional add-backs that
previously were not included in the calculation. These
modifications will become effective upon the closing of the
mergers. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
CAMBIUM — Liquidity and Capital Resources —
Long-Term Debt” on page 235.
Subject to specified exceptions, if, at or prior to the
effective time, (i) Cambium pays any equity cure,
(ii) Veronis Suhler Stevenson or any of the ultimate equity
owners of Cambium acquires (and subsequently retires or
extinguishes) any of the debt outstanding under Cambium
Learning’s credit agreements without Cambium losing any
equity interest in its wholly owned subsidiaries,
(iii) funds owned, controlled or managed by Veronis Suhler
Stevenson or any of the ultimate equity owners of Cambium make a
capital contribution to
Holdings, Cambium or its subsidiaries that is used to reduce or
retire any such outstanding debt without Cambium losing any
equity interest in its wholly owned subsidiaries, or
(iv) any of the ultimate equity owners of Cambium makes any
other payments (up to $1,000,000) to cure or obtain waivers of
any defaults under the credit agreements, then the number of
shares covered by the Holdings Warrant will be increased by a
number of shares of Holdings common stock equal to the aggregate
amount so paid divided by $6.50. Based upon events that have
occurred through October 15, 2009, including the
above-mentioned cure payment, the number of shares of Holdings
common stock issuable pursuant to the Holdings Warrant will not
be less than 492,268 shares and is not expected to exceed
894,460 shares.
At or prior to the effective time, Voyager is required to
deposit with Wells Fargo Bank, N.A., as escrow agent under the
escrow agreement described elsewhere in this proxy
statement/prospectus, cash in an amount equal to the lesser of
$4,000,000 and the amount of tax refunds received by Voyager
after June 20, 2009 and on or prior to the date of the
closing. We refer to that lesser amount as the “Voyager Tax
Refund Holdback Amount” in this proxy statement/prospectus.
Such amount will be deposited into the “CVR Escrow
Account” under the escrow agreement. From the effective
time until the earlier of the
18-month
anniversary of the effective time and the date when all amounts
payable under the contingent value rights agreement are paid,
Holdings will also deposit (or cause to be deposited) in the CVR
Escrow Account any tax refunds received by Voyager or its
subsidiaries on or after the date of the closing and certain
other amounts set forth in the escrow agreement. Holdings will
be entitled to withdraw from the CVR Escrow Account all expenses
incurred in obtaining such refunds and the portion of the
“agreed contingencies” (as defined below) for which
Voyager is responsible under the merger agreement. To secure the
obligations to make the required deposits into the CVR Escrow
Account, at the closing Holdings and Voyager will enter into a
security agreement granting to the Stockholders’
Representative, on behalf of the former Voyager stockholders, a
security interest in the Voyager tax refunds to be deposited in
the CVR Escrow Account.
Unless covered by insurance or discharged prior to the closing,
Voyager is also required to deposit with the escrow agent an
additional $3,000,000 relating to potential liabilities arising
under Section 280G of the Internal Revenue Code, as more
fully described under “THE MERGERS — Interests of
Voyager’s Directors and Officers in the Mergers” in
this proxy statement/prospectus. Such amount will be deposited
into the “280G Escrow Account” under the escrow
agreement.
We have attached to the merger agreement a schedule setting
forth certain potential tax liabilities. We refer to such
liabilities, together with reasonable, documented
out-of-pocket
expenses incurred subsequent to the closing with respect to such
liabilities and the related tax returns, as the “agreed
contingencies.” The parties have agreed to two sharing
arrangements with respect to those agreed contingencies that are
paid during the period from the effective time until the
18-month
anniversary of the closing. One sharing arrangement relates to
the so-called “Designated Tax Liability,” which is a
potential tax indemnification claim identified on the schedule
of agreed contingencies. The other sharing arrangement applies
in the case of all of the other agreed contingencies.
With respect to all of the agreed contingencies other than the
Designated Tax Liability, the amounts payable under the
contingent value rights agreement will be reduced by 50% of the
aggregate amount by which agreed contingencies paid by Holdings
or its subsidiaries prior to the
18-month
anniversary exceed a $250,000 deductible. To the extent that
amounts paid on or before such anniversary in respect of the
Designated Tax Liability exceeds $1,400,000 plus the then-unused
portion of such $250,000 deductible, such excess shall reduce
the aggregate amount payable under the contingent value rights
agreement. With respect to each agreed contingency paid on or
before such
18-month
anniversary, Holdings is required to use commercially reasonable
efforts to seek to have the agreed contingency reduced by the
amount of any tax refund or credit arising from such payment
and, where no such reduction is possible, to include such credit
in a refund claim, tax return or amended tax return, as
applicable, in each case which Holdings is required to file as
soon as reasonably practicable. In general, to the extent that
any such reduction is not obtained within such
18-month
period, Holdings will deposit in the CVR Escrow Account 50% (or
100% in the case of the
Designated Tax Liability) of the cash amounts realized by
Voyager or its subsidiaries from refunds, credits or reductions
in taxes resulting from the payment of any agreed contingencies.
The amounts deposited in the CVR Escrow Account will be paid out
to holders of the CVRs in accordance with the terms of the CVR
agreement, as more fully described in “RELATED
AGREEMENTS — Contingent Value Rights Agreement.”
We have also attached to the merger agreement a schedule
describing certain contractual liabilities of Voyager, which we
refer to as “Voyager closing liabilities,” and the
amounts required to fund such liabilities, which we refer to as
“Voyager closing funding amounts.” The merger
agreement provides that Voyager will: (i) either pay in
cash, retain in cash or fund into rabbi trusts the Voyager
closing funding amounts, and (ii) fund $3,000,000 into the 280G
Escrow Account, which amount we refer to as the 280G Returned
Amount, and that Holdings and Voyager will take specified steps
to assure that the Voyager closing liabilities are paid in
accordance with the related Voyager contracts.
The merger agreement contemplates that immediately prior to the
effective time, Voyager Expanded Learning, Inc., a wholly owned
subsidiary of Voyager, will transfer to a newly formed
subsidiary, LAZEL, Inc., the businesses referred to as
LearningA-Z.com and ExploreLearning. LearningA-Z.com provides
online supplemental science, reading, writing and vocabulary
lessons, books and other resources for students and teachers
through a group of related websites. Explore Learning operates a
subscription-based online library of interactive simulations in
math and science for grades 3-12. Immediately after that
transfer but prior to the effective time, Voyager Expanded
Learning, Inc. will transfer, by way of a dividend, all of the
capital stock of LAZEL, Inc. to Voyager, so that, immediately
prior to the effective time, LAZEL, Inc. and Voyager Expanded
Learning, Inc. will each be wholly owned subsidiaries of
Voyager. See “THE MERGERS — Diagrams —
Transfer of Voyager Subsidiaries” on page 63.
The contemplated spinoff will separate the online businesses
conducted by Learning
A-Z.com and
ExploreLearning from the publishing business conducted by
Voyager Expanded Learning, Inc. The separation is intended to
achieve efficiencies in administration and management of these
distinct business operations. The spinoff also is intended to
provide Holdings greater flexibility to use cash flow generated
from LAZEL, Inc.’s operations for any matters it determines
from time to time, since LAZEL, Inc. will not, after the
combination of Voyager Expanded Learning, Inc. with Cambium
Learning described under “— Voyager Expanded
Learning and Related Matters” below, be subject to the
restrictions and covenants in Cambium Learning’s credit
agreements.
The merger agreement provides that after the effective time, the
stock or material assets of LAZEL, Inc. may be transferred to
Holdings or a subsidiary of Holdings, including Cambium and its
subsidiaries, but only if:
•
the transfer complies with Cambium Learning’s credit
agreements;
•
all Voyager transaction fees are paid in full;
•
Holdings receives a solvency opinion in form and substance
reasonably satisfactory to certain members of the Holdings board
of directors; and
•
Holdings provides an unconditional guaranty of payment with
respect to the remaining Voyager closing liabilities.
•
Pursuant to the terms of the amendments to the credit
agreements, this spinoff has been approved by the lenders and is
required to be completed on or before February 19, 2010.
A transfer of LAZEL, Inc. to Cambium Learning also will have the
effect of deleveraging Cambium Learning under its credit
agreements, because the contribution of the additional cash flow
of an unleveraged LAZEL, Inc. to the cash flow of Cambium
Learning will decrease the total leverage ratio of the combined
entity. The credit agreements provide for a reduction in the
interest rates charged thereunder upon a deleveraging of Cambium
Learning.
Under the terms of the recent credit agreement amendments,
Cambium Learning is required to effect this transfer to Cambium
Learning by February 19, 2010; otherwise, the failure to
complete the drop down by that date, absent a further amendment
or waiver, would constitute an event of default under the credit
agreements which could result in an acceleration of the
indebtedness thereunder. We do not assure you that a further
amendment or a waiver could be obtained.
Contemporaneously with the closing, Voyager may, through a
series of transactions, transfer 100% of the equity of Voyager
Expanded Learning, Inc. from Voyager to Cambium Learning. Upon
completion of that transfer, Voyager Expanded Learning, Inc.
would be a wholly owned subsidiary of Cambium Learning. Upon the
completion of the transactions resulting in the transfer of
Voyager Expanded Learning, Inc. to Cambium Learning, the
corporate organizational structure of Holdings would be as set
forth under “THE MERGERS — Diagrams —
Transfer of Voyager’s Subsidiaries.”
This contemplated transfer is being effected in order to combine
the publishing businesses conducted by Voyager Expanded
Learning, Inc. with the publishing business conducted by Cambium
Learning. This combination also will have the effect of
deleveraging Cambium Learning under its credit agreements,
because the contribution of the additional cash flow of an
unleveraged Voyager Expanded Learning, Inc. to the cash flow of
Cambium Learning will decrease the total leverage ratio of the
combined entity. The credit agreements provide for a reduction
in the interest rates charged thereunder upon a deleveraging of
the borrower.
Until the Voyager closing liabilities are paid in full,
Voyager’s operations are limited. It may not conduct any
material business operations or incur any material liabilities
or, except as expressly set forth in the merger agreement or any
related document, transfer, pledge or otherwise dispose of any
of its assets.
During the period from June 20, 2009 through the effective
time, unless expressly permitted by specific provisions of the
merger agreement, Voyager and its subsidiaries must manage
working capital in the ordinary course of business consistent
with past practices, in order to maintain a level of working
capital consistent with past practices. If Voyager or its
subsidiaries breach this covenant, payments under the contingent
value rights agreement will be reduced by the amount by which
the Available Voyager Cash for Cash Election at closing
increased as a result of the breach, subject to a $400,000
deductible. The merger agreement contains procedures by which
the Stockholders’ Representative may challenge any asserted
breach of this requirement and by which an independent
accounting firm would be retained in the event that Holdings and
the Stockholders’ Representative are unable to resolve any
dispute regarding whether any such breach has occurred and any
dispute regarding the dollar impact of any such breach. Subject
to restrictions set forth in the merger agreement with respect
to the independent accounting firm’s scope of authority,
the determinations of that firm will be final and binding upon
Holdings, the Stockholders’ Representative and the former
stockholders of Voyager.
The merger agreement contains additional agreements among the
parties relating to, among other things, the following:
•
providing and continuing indemnification, insurance and
comparable benefits to the present and former officers and
directors of Voyager as described under “ THEMERGERS — Interests of Voyager’s Directors and
Officers in the Mergers” on page 101;
•
the filing with the SEC of this proxy statement/prospectus and
the registration statement, and cooperation in preparing this
proxy statement/prospectus and the registration statement and in
responding to any comments received from the SEC on those
documents;
•
giving access to each other’s employees, facilities and
books and records;
cooperating with respect to press releases and other public
statements;
•
taking such actions as are reasonably necessary to eliminate or
minimize the effect of any anti-takeover statutes and
regulations that may become applicable to the transactions
contemplated by the merger agreement;
•
adopting the Holdings equity incentive plan described elsewhere
in this proxy statement/prospectus and registering with the SEC
the Holdings common stock issuable pursuant to that plan;
•
promptly notifying each other of certain enumerated matters;
•
contesting any suits brought by any governmental entity or
private party challenging any of the transactions contemplated
by the merger agreement as being in violation of any law;
•
using reasonable efforts to list on the NASDAQ Global Market, or
on such other national securities exchange as Holdings may
determine, the shares of Holdings common stock issuable pursuant
to the merger agreement, although the failure to affect this
listing does not provide a basis for terminating the merger
agreement; and
•
using reasonable efforts to cause the Voyager merger and the
Cambium merger to be treated for tax purposes in the manner
described in this proxy statement/prospectus under the caption
“THE MERGERS — Material U.S. Federal Income
Tax Consequences of the Transaction.”
The obligations of the parties to complete the merger are
subject to the satisfaction or waiver of the following mutual
conditions:
•
Stockholder approval. Holders of a majority of
the outstanding shares of Voyager common stock must approve the
merger agreement.
•
No laws or orders. No law will have been
adopted, and no order, injunction or other judgment issued by
any governmental authority will be in effect which has the
effect of making any of the transactions which we describe
elsewhere in this proxy statement/prospectus as the
“Holdings III Merger Transactions,” the Voyager
merger or the Cambium merger illegal or otherwise enjoining or
prohibiting the completion of any of the Holdings III
Merger Transactions, the Voyager merger or the Cambium merger.
•
Regulatory Approvals. The waiting periods
under the HSR Act and under any similar laws have expired or
been earlier terminated. The FTC announced on July 20, 2009
that the HSR waiting period was terminated.
•
Registration Statement. The registration
statement has been declared effective by the SEC (as it was on
November 13, 2009), the SEC shall not have issued any stop
order relating to the registration statement, and no legal
proceedings have been threatened or commenced to suspend the
effectiveness of the registration statement.
The obligation of Voyager to complete the Voyager merger is also
subject to the satisfaction or waiver of the following
additional conditions:
•
Representations and Warranties. The
representations and warranties made by Holdings and Cambium must
be true and correct in all material respects (or in all respects
if they are qualified by materiality) as of the closing or as of
the date made if expressly made as of a specified date, except
that:
•
this condition will be satisfied if the failure of
Holdings’ and Cambium’s representations and warranties
in the aggregate to be true and correct in all (or all material,
as the case may be) respects would not have a material adverse
effect; and
any event or circumstance under Cambium’s Learning senior
secured and senior unsecured credit agreements will not be
considered for purposes of determining whether this condition
has been satisfied.
•
Compliance with Covenants. Cambium and
Holdings have performed, in all material respects, all covenants
required to be performed by them under the merger agreement;
provided, however, that no event or circumstance under the
credit agreements will cause a failure of this condition.
•
No Material Adverse Effect. No Cambium
material adverse effect has occurred.
•
Credit Agreements Default. No
“default” or “event of default” is ongoing
under Cambium Learning’s credit agreements.
•
Certificate. Cambium and Holdings have
executed a certificate confirming that the conditions set forth
above have been satisfied.
•
Tax Opinion. Voyager has received an opinion
from its tax counsel that the mergers, taken together, will be
treated as a transaction described in Section 351 of the
Internal Revenue Code. See “THE MERGERS —
Material U.S. Federal Income Tax Consequences of the
Transaction.”
•
Merger Consideration. Holdings or Cambium has
deposited with the exchange agent all portions of the merger
consideration which they are obligated to deposit.
•
Holdings III Merger Transactions. The
Holdings III Merger Transactions have been completed.
•
Documentation. Holdings, Cambium and the
Veronis Suhler Stevenson funds which control Cambium have
executed the transaction documents that they are required to
execute.
The obligation of Cambium to complete the Cambium merger is also
subject to the satisfaction or waiver of the following
additional conditions:
•
Representations and Warranties. The
representations and warranties made by Voyager must be true and
correct in all material respects (or in all respects if they are
qualified by materiality) as of the closing or as of the date
made if expressly made as of a specified date, except that this
condition will be satisfied if the failure of Voyager’s
representations and warranties in the aggregate to be true and
correct in all (or all material, as the case may be) respects
would not have a Voyager material adverse effect.
•
Compliance with Covenants. Voyager has
performed, in all material respects, all covenants required to
be performed by it under the merger agreement.
•
No Material Adverse Effect. No Voyager
material adverse effect has occurred.
•
Certificate. Voyager has executed a
certificate confirming that the conditions set forth above have
been satisfied.
•
Tax Opinion. Cambium has received an opinion
from its tax counsel that the mergers, taken together, will be
treated as a transaction described in Section 351 of the
Internal Revenue Code. See “THE MERGERS —
Material U.S. Federal Income Tax Consequences of the
Transaction.”
•
LAZEL. The LAZEL Spinoff has been completed in
accordance with the applicable documentation.
•
Cash. There is at least $12,000,000 in
Available Voyager Cash for Cash Election.
•
Dissenters. The number of Dissenters’
Shares does not exceed 7.5% of the total number of shares of
Voyager common stock outstanding.
•
Control. After taking into account the full
effect of the Voyager merger and the Cambium merger, Cambium
Learning’s original investors own at least 51% of the
shares of Holdings common stock outstanding (including the
shares reserved for issuance under Holdings’ new equity
incentive plan).
•
Documentation. Voyager has executed the
transaction documents that it is required to execute.
Other than the conditions pertaining to the approval of Voyager
stockholders, the absence of governmental orders and the
expiration or termination of the HSR Act and the waiting periods
under any similar statutes, either Voyager, on the one hand, or
Cambium and Holdings, on the other hand, may elect to waive
conditions to their respective performance and complete the
Voyager merger and the Cambium merger.
At present, Cambium Learning is indirectly wholly owned by
VSS-Cambium Holdings, LLC, which is in turn owned in part by
several funds and entities owned, controlled or managed by VSS,
as well as by certain other unrelated co-investors. Prior to the
closing, through a series of internal reorganizations,
VSS-Cambium Holdings, LLC will become a wholly owned subsidiary
of VSS-Cambium Holdings III, LLC, the sole stockholder of
Cambium. We refer to these internal reorganizations as the
Holdings III Merger Transactions. As noted above,
completion of the Holdings III Merger Transactions is a
condition to Voyager’s obligation to complete the Voyager
merger. See “THE MERGERS — Diagrams —
Repositioning the Owner of Cambium” on page 58 for a
diagram describing the Holders III Merger Transactions.
The number of shares which Voyager stockholders may elect to
convert into cash in the mergers is dependent on the amount of
Voyager cash that is available for this election. This amount is
referred to as the Available Voyager Cash for Cash Election,
which is based on a formula that is described below. The total
amount of cash that is available for the cash election, which is
referred to as the Total Cash for Cash Election, is the sum of
the Available Voyager Cash for Cash Election plus an incremental
$25,000,000 in cash to be contributed by the Cambium
stockholder. The Voyager stockholders also are entitled to
receive a cash payment at closing equal to the amount of certain
tax refunds received by Voyager before closing. This cash
payment amount is referred to as the Tax Refund Consideration.
These various amounts will be calculated at two different times
prior to the closing, to enable Holdings to arrange the
necessary funding logistics in time for the closing.
At least 15 business days before the Voyager special meeting,
Voyager is required to deliver to Holdings a certificate based
on its most recent financial information which will, among other
things, set forth its estimated calculation of Available Voyager
Cash for Cash Election, the Total Cash for Cash Election and the
Tax Refund Consideration. Three business days before the Voyager
special meeting, Voyager is required to deliver to Holdings
another certificate with updated calculations using the then
most currently available financial information.
Calculation of Available Voyager Cash for Cash
Election. The Available Voyager Cash for Cash
Election is equal to the sum of the items described immediately
below, but it is by agreement of the parties limited to, and
therefore it cannot exceed, $42,500,000:
•
all cash and cash equivalents held by Voyager and its
subsidiaries as of the business day immediately before the
closing date (counting all agreed upon Voyager Tax Refunds
received before the closing date and all cash then held in rabbi
trusts for the payment of certain retirement and other
benefits); plus
•
an amount representing the aggregate amount of fees, costs and
expenses of Voyager’s consultants, financial advisors,
attorneys, accountants and other similar agents and
representatives, for services performed since November 1,2008 in connection with the transactions contemplated by the
merger agreement, in each case to the extent paid by Voyager and
its subsidiaries prior to the closing (we refer to this amount
as the “Voyager Expense Reimbursement Amount” in this
proxy statement/prospectus);
minus the sum of the following amounts:
•
the agreed upon retirement, severance, change in control and
other benefit payments Voyager is obligated to fund in
connection with the closing; plus
•
any amount in excess of $650,000 used to purchase a tail
insurance policy for Voyager’s directors and officers; plus
•
the amount of all agreed upon Voyager Tax Refunds received
before the closing date; plus
30% of any amount paid to Voyager in excess of $4.5 million
in the aggregate by any school authorities under any multi-year
contracts.
Calculation of Total Cash for Cash
Election. Since the Available Voyager Cash for
Cash Election is limited to $42,500,000, and the Total Cash for
Cash Election is the sum of $25,000,000 plus the Available
Voyager Cash for Cash Election, the maximum amount of cash into
which Voyager shares may be converted in the mergers is
$67,500,000.
Calculation of Tax Refund Consideration. Each
Voyager stockholder is entitled to receive its pro rata share,
based on the number of shares held relative to the total number
of Voyager shares outstanding, of Voyager Tax Refunds received
by Voyager before the closing date, less a holdback amount. The
holdback amount is the lesser of $4,000,000 and the amount of
tax refunds received by Voyager after June 20, 2009 and on
or prior to the closing and is scheduled to be paid to the
Voyager stockholders after closing pursuant to the contingent
value right agreement, unless it is used by Holdings to offset
agreed upon liabilities after closing and before payment. The
amount payable at closing is the total amount of agreed upon
Voyager Tax Refunds received by Voyager before the closing date,
less the holdback amount described above.
The merger agreement may be terminated and the Voyager merger
and the Cambium merger may be abandoned at any time prior to the
effective time, whether before or after stockholder approval has
been obtained by Voyager, in a number of different scenarios. In
certain instances, the termination of the merger agreement will
give rise to the obligation of either Voyager or Cambium to pay
a fee to the other or for Voyager to reimburse Cambium for its
transaction expenses. The following table sets forth the bases
for termination under the merger agreement and, where
applicable, the fees payable in connection with such termination.
Termination Event
Associated Fee
Termination by mutual written consent of Voyager and
Cambium.
No fee.
Termination by either Voyager or Cambium if the effective
time has not occurred on or before December 31, 2009, provided
that the party seeking to terminate has not breached in any
material respect its obligations under the merger agreement in
any manner that has been the cause of, or resulted in, the
failure of the effective time to occur on or before December 31,2009.
No fee.
Termination by either Voyager or Cambium if a court or
other governmental entity has imposed a restraint permanently
enjoining or otherwise prohibiting the Voyager merger, the
Cambium merger or the Holdings III Merger Transactions and such
order or other action is final and non-appealable, so long as
the party seeking to terminate the merger agreement complied
with its obligations under the merger agreement to prevent,
oppose and remove such restraint (we refer to this termination
as a “Restraint Termination”).
Termination by either Voyager or Cambium if Voyager
stockholders do not approve the merger agreement at the Voyager
special meeting of stockholders (we refer to this termination as
a “Voyager Stockholder Non-Approval Termination”).
Voyager is obligated to pay Cambium’s expenses incurred in
connection with the merger agreement and related transactions,
up to a maximum of $3,000,000, in the event that (i) the merger
agreement is terminated by Voyager or Cambium as a result of
such non-approval or (ii) Voyager stockholders fail to approve
the merger agreement at the special meeting and Voyager
terminates the merger agreement for another reason, but such
termination does not involve either (x) a default under Cambium
Learning’s credit agreements in circumstances in which no
termination fee is payable to Voyager or (y) a breach by Cambium
of its covenants under the merger agreement.
If the conditions for such $3,000,000 payment exist, a Voyager
alternative proposal or a Voyager superior proposal is publicly
announced or otherwise communicated to Voyager’s board and
within 12 months after the termination of the merger
agreement, Voyager enters into, or completes, a written
agreement with a third party relating to a Voyager alternative
proposal or a Voyager superior proposal, then Voyager is
obligated to pay Cambium a fee of $7,500,000 (less any expense
reimbursement amount previously paid).
Termination by Voyager if there is a breach by Cambium or
Holdings of any representations or warranties in the merger
agreement such that the closing conditions would not be
satisfied and such breach is incapable of being cured, or has
not been cured, in all material respects by December 31, 2009,
provided that Voyager is not then in material breach of any of
its obligations, representations or warranties in the merger
agreement.
Cambium is obligated to reimburse Voyager for any damages actually suffered by Voyager up to $4,500,000 (less any other termination fees and expenses which Cambium is otherwise obligated to pay), provided that:
• the applicable misrepresentation was a material and willful breach; and
• the misrepresentation did not arise as a result of acts or omissions occurring after June 20, 2009.
However, the dollar amount limitation described above with
respect to any such misrepresentation would not relieve Cambium
of liability if Cambium had acted fraudulently in making the
misrepresentation.
Termination by Voyager if there is a breach by Cambium or
Holdings of any covenants or agreements in the merger agreement
such that the closing conditions would not be satisfied and such
breach is incapable of being cured, or has not been cured, in
all material respects by December 31, 2009, provided that
Voyager is not then in material breach of any of its
obligations, representations or warranties in the merger
agreement.
Cambium is obligated to pay Voyager a fee of $4,500,000 (less
any other termination fees and expenses which Cambium is
otherwise obligated to pay), provided that the applicable breach
does not relate to covenants made by Cambium with respect to
Cambium’s credit agreements.
Termination by Voyager if Voyager gives notice of
termination, after the SEC declares the registration statement
effective, in order for Voyager to enter into a transaction that
constitutes a Voyager superior proposal, provided that such
proposal was first received by Voyager after the SEC declares
the registration statement effective.
Voyager is obligated to pay Cambium a fee of $7,500,000 (less
any termination fees previously paid by Voyager in connection
with a failure of Voyager stockholders to approve the merger
agreement at the Voyager special meeting).
Termination by Voyager if the closing does not occur
(including, for example, because the $25 million has not
been funded by the Cambium stockholder or if Voyager does not
have sufficient excess cash to fund its transaction expenses and
Holdings fails to make up the shortfall) within 11 business days
after all of the conditions to Cambium’s obligations to
close, including the conditions that are jointly applicable to
both Cambium and Voyager but excluding conditions which, by
their nature, cannot be satisfied until the closing, have been
satisfied or waived, provided that Voyager may not rely upon
this basis for termination until the earlier of December 31,2009 and the date on which Voyager notifies Cambium that all of
the conditions to Voyager’s obligations to close, including
the conditions that are jointly applicable to both Cambium and
Voyager but excluding certain specified conditions within
Cambium’s control, have been satisfied or waived.
Cambium is obligated to pay Voyager a fee of $4,500,000.
Termination by Voyager if Cambium is obligated to, and
fails to, effect the equity cure of the total leverage covenant
under Cambium’s credit agreement.
Cambium is obligated to pay Voyager a fee of $9,000,000.
Termination by Voyager if, on the date of the closing,
the Holdings III Merger Transactions have not been
completed in accordance with the terms of the merger agreement.
Cambium is obligated to pay Voyager a fee of $4,500,000, except
that such fee will not be payable if the merger agreement may
then be terminated pursuant to a Restraint Termination or
pursuant to a Cambium Dissenting Share Termination.
Termination by Cambium if there is a breach by Voyager of
any representations or warranties in the merger agreement such
that the closing conditions would not be satisfied and such
breach is incapable of being cured, or has not been cured, in
all material respects by December 31, 2009, provided that
Cambium is not then in material breach of any of its
obligations, representations or warranties in the merger
agreement.
Voyager is obligated to reimburse Cambium for any damages actually suffered by Cambium up to $4,500,000 (less any other termination fees and expenses which Voyager is otherwise obligated to pay), provided that:
• the applicable misrepresentation was a material and willful breach; and
• the misrepresentation did not arise as a result of acts or omissions occurring after June 20, 2009.
However, the dollar amount limitation described above with
respect to any such misrepresentation would not relieve Voyager
of liability if Voyager had acted fraudulently in making the
misrepresentation.
Termination by Cambium if there is a breach by Voyager of
any covenants or agreements in the merger agreement such that
the closing conditions would not be satisfied and such breach is
incapable of being cured, or has not been cured, in all material
respects by December 31, 2009, provided that Cambium is not then
in material breach of any of its obligations, representations or
warranties in the merger agreement.
Voyager is obligated to pay Cambium a fee of $4,500,000 (less
any other termination fees and expenses which Voyager is
otherwise obligated to pay).
Termination by Cambium if any of the following events occur:
• the Voyager board or any committee of the Voyager board withdraws or modifies, in a manner adverse to Cambium, the recommendation to Voyager stockholders to approve the merger agreement, or approves or recommends any Voyager alternative proposal or Voyager superior proposal;
Voyager is obligated to pay Cambium a fee of $7,500,000 (less
any termination fees previously paid by Voyager in connection
with the failure of Voyager stockholders to approve the merger
agreement at the special meeting), provided that Cambium
terminates the merger agreement within seven days after receipt
of notice from Voyager that an event giving rise to such a
termination has occurred.
• Voyager does not include such board recommendation
in this proxy statement/prospectus;
• a tender or exchange offer relating to Voyager
common stock is made and Voyager fails to send to its
stockholders, within ten business days after commencement of the
offer, a statement recommending the rejection of such offer;
• a Voyager alternative proposal or Voyager superior
proposal is publicly announced, and Voyager fails to issue,
within ten business days after the proposal is announced, a
press release that reaffirms the Voyager board’s
recommendation that the Voyager stockholders approve the merger
agreement;
• the Voyager board or any committee of the Voyager
board fails to reject a Voyager alternative proposal within ten
business days after receiving such a proposal or approves or
publicly recommends a Voyager alternative proposal;
• Voyager enters into a letter of intent or agreement
accepting any Voyager superior proposal; or
• Voyager materially breaches specified obligations
set forth in the merger agreement relating to competing
transactions, the filing of this proxy statement/prospectus, the
Voyager voting agreements described below and the conduct of the
Voyager special meeting.
Termination by Cambium if the number of Dissenting Shares
equals or exceeds 7.5% of the shares of Voyager common stock
outstanding at the effective time; we refer to this as a
“Cambium Dissenting Share Termination.”
No fee.
Termination by Cambium if Cambium elects to terminate the
merger agreement at any time for any other reason.
Cambium is obligated to pay Voyager a fee of $4,500,000.
If a party is obligated to pay any of the amounts set forth
above, other than damages associated with a termination due to
misrepresentations in the merger agreement, and fails to pay any
such amounts promptly, then the breaching party will be
obligated to pay to the other party out-of-pocket costs and
expenses incurred by the other party in collecting such amounts,
together with interest on the uncollected amount at a rate that
is 2% above the prime lending rate reported in the Wall
Street Journal, provided that such costs, expenses and
interest charges may not exceed $625,000 in the aggregate.
The amounts set forth above represent the sole amounts which
Voyager may recover from Cambium, and which Cambium may recover
from Voyager, if the merger agreement is terminated. However,
such limitation does not limit Cambium’s right to specific
performance, as described below.
In general, if the closing is not completed, all expenses
incurred by a party to the merger agreement will be paid by that
party, subject to the parties’ agreement to share equally
all fees paid in respect of the HSR Act and in respect of a
specified consultant, and subject to the termination payments
described above.
Cambium and Holdings have the right to enjoin breaches of the
merger agreement by Voyager and its subsidiaries and to enforce
specifically the terms and provisions of the merger agreement,
in addition to any other remedy to which Cambium and Holdings
are entitled. As a result, if all of the conditions to
Voyager’s obligation to complete the closing have been
satisfied (other than conditions within Voyager’s control),
Cambium and Holdings have the right to compel Voyager to
complete the closing. In contrast, Voyager does not have the
right to enjoin breaches of the merger agreement by Holdings,
Cambium and its subsidiaries or to enforce specifically the
terms and provisions of the merger agreement. As a result, even
if all of the conditions to Cambium’s obligation to
complete the closing have been satisfied, Voyager’s sole
and exclusive remedy with respect to any breach will be to
recover the fees and expenses associated with termination
described above from Cambium and Holdings under the merger
agreement or from guarantors under the limited guarantees
described below.
The merger agreement provides that Vowel Representative, LLC
will serve as the Stockholders’ Representative in
connection with certain post-closing matters. Vowel
Representative, LLC was formed solely for the purpose of this
transaction. An attorney whose law firm has represented Voyager
will act as sole manager of Vowel Representative, LLC. By
approving the merger agreement and submitting a signed letter of
transmittal, Voyager stockholders will be deemed to have
appointed Vowel Representative, LLC to serve as the
Stockholders’ Representative. The Stockholders’
Representative is authorized to withdraw funds from the CVR
Escrow Fund pursuant to the escrow agreement:
•
to cover its reasonable costs and expenses,
•
to purchase insurance to provide indemnification protection to
the Stockholders’ Representative; and
•
to provide reasonable compensation for the performance of its
services.
The indemnification insurance to be provided to the present and
former officers and directors of Voyager as described under
“THE MERGERS — Interests of Voyager’s
Directors and Officers in the Mergers” on page 101 is
also expected to cover the Stockholders’ Representative for
the term of the insurance. The Stockholders’ Representative
will be compensated at a rate of $810 per hour. The total amount
of the Stockholders’ Representative’s reasonable costs
and expenses and compensation cannot be estimated because they
will depend in large part on whether the Stockholders’
Representative is required to initiate (or defend) a dispute or
to take any other actions authorized by the merger agreement,
the escrow agreement or other transaction documents to which the
Stockholders’ Representative is a party.
The merger agreement grants the Stockholders’
Representative the authority to take various actions on behalf
of Voyager’s stockholders after the closing has been
completed, including the following actions:
•
to enforce any obligation of Holdings, Cambium or their
subsidiaries that arise subsequent to the closing under the
merger agreement and under other related agreements, including
the limited guarantee described below, the contingent value
rights agreement and the escrow agreement;
•
to negotiate and compromise disputes that may arise, and to
decide not to pursue any remedies available, under the merger
agreement and other related agreements and to execute any
settlement agreement, release or other document with respect to
any such dispute or remedy;
•
to engage attorneys, accountants and agents at the expense of
and on behalf of Voyager stockholders;
•
to give and receive notice or other communication on behalf of
Voyager stockholders; and
•
to take any and all other actions incidental to the duties of
the Stockholders’ Representative under the merger agreement.
By approving the merger agreement at the Voyager special meeting
and by signing a letter of transmittal, each Voyager stockholder
is deemed to have agreed, among other things, that:
•
the Stockholders’ Representative is authorized to act on
behalf of the stockholder;
•
Holdings and its subsidiaries, as well as all funds or entities
owned, controlled or managed by VSS, are entitled to rely on any
action of the Stockholder Representative taken under the merger
agreement;
•
the Stockholder Representative’s authority will continue at
all times when the stockholder has rights under the merger
agreement and related agreements; and
•
a majority in interest of the holders of the CVRs have the right
to remove, replace or appoint a successor to the
Stockholders’ Representative.
Each Voyager stockholder who signs a letter of transmittal will,
severally and not jointly, indemnify the Stockholders’
Representative against any liabilities (other than liabilities
resulting from the Stockholders’ Representative’s
willful misconduct) that the Stockholders’ Representative
may incur in connection with any action or omission in the
performance of its duties. This indemnification obligation may
only be satisfied from the escrow accounts maintained pursuant
to the merger agreement. The Stockholders’
Representative will not be liable to any Voyager stockholder
(other than as a result of its gross negligence or willful
misconduct) with respect to any action or omission taken or
omitted to be taken by the Stockholders’ Representative
pursuant to the merger agreement.
The merger agreement may be amended or waived by a written
amendment or waiver signed by the party or parties to be bound.
However, after the Voyager or Cambium stockholders approve the
merger agreement and until the effective time, if, as a matter
of law, any such amendment or waiver requires stockholder
approval, the effectiveness of such amendment or waiver will be
subject to the approval of the stockholders of Voyager or
Cambium, as applicable. After the effective time, any provision
of the merger agreement may be amended or waived if, and only
if, the amendment or waiver is in writing and signed, in the
case of an
The following summarizes material provisions of six agreements
related to the merger agreement: a limited guarantee given by
three funds managed by VSS, a form of voting and support
agreement for the benefit of Holdings, a voting and support
agreement for the benefit of Voyager, the contingent value
rights agreement, the escrow agreement and a stockholders
agreement. We have attached copies of the limited guarantee, the
voting and support agreement for the benefit of Voyager, the
form of voting and support agreement for the benefit of
Holdings, the form of contingent value rights agreement, the
form of escrow agreement and the form of stockholders agreement
as Annexes G, H, I, J, K and L, respectively, and we
incorporate those Annexes by reference into this proxy
statement/prospectus. These summaries do not purport to be
complete and may not contain all of the information about the
applicable agreements that is important to you. We encourage you
to read the related agreements carefully and in their entirety,
since the rights and obligations of the parties are governed by
the express terms of the agreements and not by this summary or
any other information contained in this proxy
statement/prospectus.
In connection with the execution of the merger agreement, three
funds managed by VSS entered into a limited guarantee in favor
of Voyager. We refer to this guarantee as a limited guarantee
because it is limited in scope. By executing the limited
guarantee, the guarantors have guaranteed the obligations of
Cambium to pay the termination fees and expenses payable by
Cambium as described under the caption
“— Termination and Termination Fees.” Except
in connection with a termination relating to a failure by
Cambium to make certain equity cure payments, the maximum
termination fee obligation that Cambium has under the merger
agreement, and thus the maximum guarantee obligation that such
funds will have under the limited guarantee, is $4,500,000 plus
up to $625,000 in expenses and interest charges. In the event of
a termination from an equity cure failure, the maximum guarantee
obligation is $9,000,000 plus up to $625,000 in expenses and
interest charges.
The limited guarantee will remain in full force and effect until
the earliest to occur of:
•
the effective time of the mergers;
•
the termination of the merger agreement in accordance with its
terms under circumstances in which Cambium is not obligated to
pay any termination fees; and
•
in the case of a termination of the merger agreement under
circumstances in which Cambium is obligated to pay any
termination fees, upon payment by Cambium or the guarantors of
the termination fees, as well as associated expenses and
interest charges, if applicable, in accordance with the terms of
the merger agreement and the limited guarantee.
Concurrently with the execution and delivery of the merger
agreement, certain holders of Voyager common stock entered into
voting and support agreements with Holdings, which we refer to
as the Voyager voting agreements. We sometimes refer to the
Voyager stockholders who have entered into the Voyager voting
agreements as the signing stockholders. Under the Voyager voting
agreements, among other things, each signing stockholder agreed
to vote the shares of Voyager common stock over which each such
signing stockholder exercises voting or investment power in
favor of adoption of the merger agreement and approval of the
Voyager merger. No signing stockholder received any additional
consideration in connection with the execution and delivery of
the Voyager voting agreements.
An aggregate of 6,121,497 shares of Voyager common stock
are subject to the Voyager voting agreements. These shares
represented 20.5% of the shares of Voyager common stock
outstanding on the date
the merger agreement was signed. These shares represent 20.5%
of the shares of Voyager common stock outstanding as of the
record date for the Voyager special meeting. The shares of
Voyager common stock subject to the Voyager voting agreements
also include any Voyager shares as to which a signing
stockholder acquires beneficial ownership after the execution of
such stockholder’s Voyager voting agreement. The signing
stockholders that are parties to the Voyager voting agreements
consist of SPO Partners II, L.P., certain parties related to SPO
Partners, Keystone Group, L.P. and a party related to Keystone
Group.
Under the Voyager voting agreements, each signing stockholder
appointed representatives of VSS as such signing
stockholder’s sole and exclusive proxies and
attorneys-in-fact to vote and act on the stockholder’s
behalf with respect to the shares of Voyager common stock held
by the stockholder at any annual or special meeting of the
Voyager stockholders and at any adjournment of any such meeting
or pursuant to any action by written consent in lieu of a
meeting with respect to the matters described below. Each
signing stockholder affirmed that the proxy is irrevocable and
agreed not to grant any subsequent proxy with respect to the
signing stockholder’s shares of Voyager common stock. Each
signing stockholder irrevocably and unconditionally agreed:
•
to vote the stockholder’s shares of Voyager common stock in
favor of adoption of the merger agreement and approval of the
Voyager merger and the other actions contemplated by the merger
agreement;
•
to vote against any Voyager alternative proposal or Voyager
superior proposal; and
•
to vote against any action, agreement or proposal that could
reasonably be expected to result in any of the conditions to the
completion of the Voyager merger under the merger agreement not
being fulfilled or which could reasonably be expected to
otherwise impede, interfere with, delay, postpone or materially
adversely effect the Voyager merger or the other transactions
contemplated by the merger agreement.
In the Voyager voting agreements, each signing stockholder also
agreed, among other things, that the stockholder will not,
subject to certain limited exceptions:
•
sell, pledge, assign, encumber, transfer or dispose of, or grant
an option, contract or other arrangement or understanding with
respect to, the shares of Voyager common stock held by such
stockholder, or any interest in the shares of Voyager common
stock held by such stockholder, to any person other than
Holdings;
•
enter into any hedging or other transaction that is designed to
or that could reasonably be expected to lead to or result in a
sale or disposition of the shares of Voyager common stock held
by such stockholder;
•
commit, agree or offer to do any of the things listed above;
•
solicit alternative acquisition proposals; or
•
assert any rights of appraisal with respect to the Voyager
merger and the transactions contemplated by the merger agreement.
The Voyager voting agreements will terminate automatically upon
the earliest to occur of:
•
the effective time;
•
the termination of the merger agreement in accordance with its
terms; or
•
the mutual written agreement of the parties to the applicable
Voyager voting and support agreement.
Concurrently with the execution and delivery of the merger
agreement, Cambium’s stockholder entered into a voting and
support agreement with Voyager, which we refer to as the Cambium
voting agreement. Under the Cambium voting agreement, among
other things, the Cambium stockholder agreed to vote all of its
shares of Cambium common stock in favor of adoption of the
merger agreement and approval of the Cambium
merger. The Cambium stockholder did not receive any additional
consideration in connection with the execution and delivery of
the Cambium voting agreement.
In the Cambium voting agreement, the Cambium stockholder has
represented and warranted to Voyager that, among other things,
it owns all 1,000 shares (constituting all outstanding
shares) of Cambium common stock that are subject to the Cambium
voting agreement. The shares of Cambium common stock subject to
the Cambium voting agreement also include any Cambium shares
that the Cambium stockholder acquires after the execution of the
Cambium voting agreement.
Under the Cambium voting and support agreement, the Cambium
stockholder appointed each of Richard Surratt and Todd Buchardt,
both of whom are executive officers of Voyager, as the Cambium
stockholder’s sole and exclusive proxy and attorney-in-fact
to vote and act on the Cambium stockholder’s behalf with
respect to the shares of Cambium common stock held by the
Cambium stockholder at any annual or special meeting of the
Cambium stockholders and at any adjournment of any such meeting
or pursuant to any action by written consent in lieu of a
meeting with respect to the matters described below. The Cambium
stockholder affirmed that the proxy is irrevocable and agreed
not to grant any subsequent proxy with respect to its shares of
Cambium common stock. The Cambium stockholder irrevocably and
unconditionally agreed:
•
with respect to the shares of Cambium common stock held by the
Cambium stockholder:
•
to vote its shares of Cambium common stock in favor of adoption
of the merger agreement and approval of the Cambium merger and
the other actions contemplated by the merger agreement; and
•
to vote against any action, agreement or proposal that could
reasonably be expected to result in any of the conditions to the
completion of the Cambium merger under the merger agreement not
being fulfilled or which could reasonably be expected to
otherwise impede, interfere with, delay, postpone or materially
adversely effect the Cambium merger or the other transactions
contemplated by the merger agreement; and
•
with respect to its membership interests in VSS-Cambium
Holdings III Acquisition, LLC, another of its wholly owned
subsidiaries, to vote all of its membership interests in
VSS-Cambium Holdings III Acquisition, LLC in favor of the
Holdings III Merger Transactions and against any other
action, agreement or proposal that could reasonably be expected
to impede, interfere with, delay, postpone or materially
adversely affect the Holdings III Merger Transactions.
The Cambium stockholder agreed, for the term of the Cambium
voting agreement, not to grant any proxy or power of attorney or
enter into any voting agreement or similar arrangement with
respect to the shares of Cambium common stock it holds except to
the extent such proxy, power of attorney, voting agreement or
similar arrangement is in favor of Voyager or its designee.
The Cambium stockholder also agreed, among other things, that it
will not, except as permitted under the merger agreement and
certain other agreements among the parties:
•
sell, pledge, assign, encumber, transfer or dispose of, or grant
an option, contract or other arrangement or understanding with
respect to, the shares of Cambium common stock held by it, or
any interest in the shares of Cambium common stock held by it,
to any person other than Holdings;
•
enter into any hedging or other transaction that is designed to
or that could reasonably be expected to lead to or result in a
sale or disposition of the shares of Cambium common stock held
by it;
•
commit, agree or offer to do any of the things listed
above; or
•
exercise or assert any rights of appraisal from the Cambium
merger and the transactions contemplated by the merger agreement.
The Cambium stockholder appointed each of Messrs. Surratt
and Buchardt as its sole and exclusive proxy and
attorney-in-fact to vote all of its membership interests in
VSS-Cambium Holdings III Acquisition, LLC in favor of the
Holdings III Merger Transactions and against any other
action, agreement or proposal that could
As mentioned elsewhere in this proxy statement/prospectus, as
part of the consideration for the Voyager merger, holders of
Voyager common stock will be entitled to receive one CVR for
each share of Voyager common stock they hold immediately prior
to the effective time. In connection with the transactions
contemplated by the merger agreement, Holdings, the
Stockholders’ Representative and Wells Fargo Bank, National
Association, as rights agent and CVR registrar, will enter into
the contingent value rights agreement governing the terms and
conditions of the CVRs. We sometimes refer to Wells Fargo Bank
as the rights agent in this proxy statement/prospectus.
As described more fully elsewhere in this proxy
statement/prospectus, each CVR represents the right to receive
an amount equal to the sum of the following amounts (minus
specified
agreed-upon
liabilities, including agreed contingencies, potential working
capital adjustments and expenses of the Stockholders’
Representative):
•
specified Voyager tax refunds received after the effective time,
plus
•
the lesser of $4,000,000 or the amount of specified
post-signing tax refunds of Voyager received after the date of
the merger agreement and on or prior to the date of the closing,
plus
•
any portion of the 280G Escrow Account which is not paid to its
beneficiary, plus
•
other amounts specified in the escrow agreement,
divided by the total number of shares of Voyager common stock
outstanding as of the effective time.
The CVRs may not be sold, assigned, transferred, pledged or
encumbered, in whole or in part, except for specified permitted
transfers. Permitted transfers include:
•
a transfer of CVRs by will or intestacy upon the death of the
holder;
•
a transfer by instrument to an inter vivos trust
(established during one’s lifetime) or testamentary trust
(established upon one’s death) in which CVRs are to be
passed to beneficiaries upon the death of the trustee;
•
a transfer made under a valid court order, such as in connection
with a divorce, bankruptcy or liquidation;
•
if the holder is a partnership or limited liability company, a
distribution by the transferring partnership or limited
liability company to its partners or members, as
applicable; or
•
a transfer made by operation of law (including a consolidation
or merger) or in connection with the dissolution, liquidation or
termination of any corporation, limited liability company,
partnership or other entity.
The CVRs will not be registered under the Securities Act. In
addition, the CVRs will not be certificated, meaning that they
will not be evidenced by a certificate or other tangible
instrument. Rather, the CVRs will be maintained in “book
entry” form, which means that the rights agent will keep a
register in which it will record the registration of the CVRs
and the name, address and number of CVRs held by each holder.
Subject to the restrictions on transferability described above,
every request of a CVR holder to transfer a CVR must be in
writing and accompanied by a written instrument of transfer and
any other documentation that the rights agent
and/or
Holdings may request. No transfer of a CVR will be valid until
it is registered in the CVR register maintained by the rights
agent, and any transfer that is not so registered will be void.
The CVRs will not have any voting or dividend rights, and
interest will not accrue on any amounts payable under the CVRs.
The CVRs do not represent any equity or ownership interest in
Holdings or in any of the companies that are involved in the
Voyager merger or that are parties to the merger agreement.
The CVR agreement provides that the rights agent will distribute
to the holders of the CVRs each of the payments, if any,
received by the rights agent (other than in connection with any
fees and expenses of the rights agent in connection with its
services under the rights agreement) pursuant to the escrow
agreement. Any amounts payable under the CVRs generally will be
payable periodically on the nine and eighteen month
anniversaries of the effective time and on or about
October 15, 2013. The specific amount and timing of each
such payment, if any, to be made by the escrow agent to the
rights agent for distributions to the CVR holders will be
determined in accordance with the terms and conditions of the
escrow agreement. The escrow agreement contains dispute
mechanisms that, if implemented, could delay any scheduled
distributions under the escrow agreement, and thus delay
distributions to the CVR holders.
Within five business days after its receipt of any CVR payment
amount, the rights agent will deliver to each CVR holder its pro
rata share of the applicable payment amount. The rights agent
will calculate these payments based on the number of CVRs held
by each holder at the close of business on the applicable CVR
payment event date. The rights agent will withhold any
applicable taxes from each CVR payment.
The rights agent will be paid a fee, exclusive of reimbursement
of out-of-pocket expenses, of $16,500, in exchange for its
services under the CVR agreement. The fees of the rights agent
will be split equally between Holdings and the
Stockholders’ Representative, and the Stockholders’
Representative’s share of these costs will be paid from the
total escrow funds forwarded to the rights agent for payment to
the CVR holders. Subject to specified limitations, Holdings will
indemnify the rights agent for liabilities that the rights agent
may incur in connection with its duties under the CVR agreement.
The rights agent may resign at any time upon 30 days’
written notice to Holdings and the Stockholders’
Representative. If the rights agent’s resigns, the board of
directors of Holdings generally has the right to appoint a
successor that is reasonably agreeable to the Stockholders’
Representative. Any successor rights agent must agree to be
bound by the terms of the contingent value rights agreement.
The CVR agreement will terminate when the rights agent has
distributed the entire balance of the escrow funds sent to it by
the escrow agent to the holders of the CVRs.
As discussed elsewhere in this proxy statement/prospectus, the
merger agreement provides that specified funds will be deposited
into certain escrow accounts upon the closing of the mergers.
This escrow arrangement will be governed by the terms and
conditions of an escrow agreement among Wells Fargo Bank, N.A.,
as escrow agent, the Stockholders’ Representative, Holdings
and Richard Surratt, the current chief executive officer of
Voyager. We sometimes refer to Wells Fargo Bank as the escrow
agent in this proxy statement/prospectus.
In particular, in connection with the transactions contemplated
by the merger agreement, the escrow agent will administer the
following escrow funds, which the parties will deposit with the
escrow agent at the time of the closing of the mergers:
•
the CVR escrow fund, which includes the Voyager tax refund
holdback amount and all tax refunds received by Voyager
following completion of the closing, which ultimately (minus
specified expenses and liabilities) will be delivered to the
rights agent for distribution to the CVR holders;
•
the excess employee payment fund, which includes specified
excess employee payments; and
the 280G escrow fund, which includes funds set aside to satisfy
any potential tax
“gross-up”
obligations incurred by Mr. Surratt in connection with the
mergers.
Generally, the escrow agent will make payments to the rights
agent from the CVR escrow fund, less certain costs incurred, on
each of the nine month and eighteen-month anniversaries of the
effective time of the mergers. To the extent not previously
distributed to Mr. Surratt within the applicable period
specified in the escrow agreement (i.e., before
October 15, 2013), amounts remaining in the 280G escrow
fund may, under certain circumstances, be distributed by the
escrow agent to the rights agent for distribution to the holders
of the CVRs. Any amounts deposited in the excess employee
payment fund, together with distributions made from the CVR
escrow fund, will be distributed by the escrow agent to the
rights agent for distribution to the holders of the CVRs.
The escrow agreement contains dispute mechanisms that, if
implemented, could delay any scheduled distributions under the
escrow agreement, and thus delay distributions to the CVR
holders scheduled to be made on the nine and eighteen month
anniversaries of the effective time and on or about
October 15, 2013.
In addition to the payments to be made to the rights agent on
behalf of the CVR holders, additional amounts that may be paid
out of the CVR escrow fund are as follows:
•
agreed contingencies, which are described in greater detail
under “THE MERGER AGREEMENT-Agreed Contingencies” on
page 135 of this proxy statement/prospectus;
•
any documented costs of Holdings incurred by Holdings in
connection with collecting tax refunds on behalf of Voyager;
•
any working capital adjustment to which Holdings may be entitled
under the terms of the merger agreement; and
•
any reasonable, documented out-of-pocket costs or expenses of,
and reasonable compensation for, the Stockholders’
Representative or any advisors that it may engage.
As mentioned, with respect to the 280G escrow fund,
Mr. Surratt is entitled, at any time or from time to time
prior to October 15, 2013, to request that the escrow agent
pay him the amount specified in his notice to the escrow agent,
in accordance with the instructions set forth in the escrow
agreement. Upon receipt of a request for payment from
Mr. Surratt, the escrow agent will pay the requested amount
to Mr. Surratt, up to the maximum amount held in the 280G
escrow fund. If any proceeds remain in the 280G escrow fund
after October 15, 2013, then the remaining proceeds will be
distributed to Holdings and the rights agent in accordance with
an agreed upon sharing arrangement, as described in the escrow
agreement.
With respect to payments made from the escrow funds, the escrow
agreement contains a dispute resolution mechanism which provides
that the Stockholders’ Representative or Holdings, as
applicable, may object to amounts requested by the other party.
Any funds subject to dispute will not be distributed by the
escrow agent until the dispute has been resolved.
The escrow funds initially will be deposited, transferred and
held in FDIC-insured, non-interest-bearing accounts, as directed
by the parties to the escrow agreement. The parties to the
escrow agreement may change this investment election for one or
more of the escrow funds according to the procedures specified
in the escrow agreement. For purposes of federal, state and
local income tax reporting, Holdings will be treated as the
owner of each escrow fund. Holdings will also be responsible for
paying taxes on any interest and other income earned on any
escrow fund and for filing all necessary tax returns with
respect to any such income.
The escrow agent will be paid an administration fee of $2,500
and will be reimbursed for its reasonable, customary and
documented out-of-pocket expenses in exchange for its services
under the escrow agreement. The fees of the escrow agent will be
split equally between Holdings and the CVR escrow fund. Subject
to specified limitations, Holdings, Voyager, the
Stockholders’ Representative and Richard Surratt will
indemnify the escrow agent for liabilities that the escrow agent
may incur in connection with its duties under the escrow
agreement.
The escrow agreement will terminate when the escrow agent has
distributed all of the escrowed funds in accordance with the
escrow agreement.
In connection with the transactions contemplated by the merger
agreement, Holdings, the Cambium stockholder and the
Stockholders’ Representative will enter into a stockholders
agreement, effective as of the closing of the mergers, that,
among other things, provides the Cambium stockholder and certain
funds managed or controlled by VSS with specified preemptive
rights and subscription rights and addresses various matters
relating to the governance of Holdings, all as discussed in
greater detail below.
Voting
Provisions Regarding Directors and Organizational
Documents
The stockholders agreement contains several agreements among the
parties with respect to the board of directors. These provisions
include an agreement by the Cambium stockholder to vote its
shares of Holdings common stock as necessary to ensure that the
size of the board of directors of Holdings is set at and remains
at nine directors until the third anniversary of the effective
time. These provisions also include an agreement by the Cambium
stockholder not to vote its shares or take any other action to
remove or disqualify any of the Voyager designees named as
members of Class II of the Holdings board of directors
(which we sometimes refer to as the Voyager Class II
designees) or of Class III of the Holdings board of
directors (which we sometimes refer to as the Voyager
Class III designees), in each case other than for
“cause” as determined in accordance with Delaware law,
until the earliest to occur of:
•
the written consent of the Stockholders’ Representative,
which consent may be granted or withheld in its sole and
absolute discretion;
•
the full distribution by the escrow agent of the CVR escrow fund
in accordance with the terms of the escrow agreement described
under “— Escrow Agreement” on page 151;
•
the second anniversary of the effective time with respect to the
Voyager Class II designees and the third anniversary of the
effective time with respect to the Voyager Class III
designees; or
•
the date on which Cambium’s stockholder and funds managed
or controlled by VSS cease to collectively beneficially own in
the aggregate at least 10% of the issued and outstanding shares
of Holdings common stock.
The initial Voyager Class II designees and the initial
Voyager Class III designees will be designated in the
stockholders agreement at the time it is signed by the parties.
In the event that any Voyager director designee resigns, is
removed for cause or a vacancy otherwise occurs with respect to
the board seat occupied by the Voyager director designee, then
the Cambium stockholder or Holdings is required to provide
prompt written notice of the vacancy to the Stockholders’
Representative. The Stockholders’ Representative may then
nominate a replacement director to serve in the same board class
as the departing director, subject to the approval of the
Cambium stockholder, which approval cannot be unreasonably
withheld, conditioned or delayed. The Cambium stockholder will
vote and take any other actions necessary to cause the election
of the replacement Voyager designee to the Holdings board of
directors.
The Cambium stockholder also has agreed that, until the third
anniversary of the effective time, and except as required by
law, for so long as the Cambium’s stockholder and funds
managed or controlled by VSS collectively beneficially own in
the aggregate at least 10% of the issued and outstanding shares
of Holdings common stock:
•
none of the funds managed or controlled by VSS nor the Cambium
stockholder will vote or otherwise take any action to amend,
modify or repeal Holdings’ certificate of incorporation or
bylaws to eliminate the Class II or Class III director
classes, to increase or decrease the size of the board of
directors or in any other manner that would result in a breach
of the stockholders agreement; and
•
Cambium’s stockholder and funds managed or controlled by
VSS will vote or act by written consent to maintain a classified
or staggered board of directors of Holdings, with the director
classes and other terms as set forth in Holdings’
certificate of incorporation and bylaws.
Except with respect to specified exempt issuances that are
described below, so long as Cambium’s stockholder and funds
managed or controlled by VSS beneficially own in the aggregate
at least 25% of the outstanding shares of Holdings common stock,
they will have preemptive rights to purchase common stock (or
such other securities as may be approved by Holdings’ audit
committee) of Holdings in connection with any proposed issuance
of securities by Holdings after the effective time of the
mergers that does not constitute an exempt issuance. These
preemptive rights generally give the holders of those rights the
opportunity to purchase an amount of Holdings securities in the
new issuance that would enable the holders of those rights to
maintain their same collective percentage ownership in Holdings
following the new issuance.
Certain specified issuances of securities by Holdings constitute
“exempt issuances” and will not be subject to the
preemptive rights of Cambium’s stockholder and funds
managed or controlled by VSS. Exempt issuances include any
issuance in which Holdings securities are issued:
•
in connection with a stock split, stock dividend, capital
reorganization, recapitalization, or reclassification of
Holdings common stock or other capital stock, distributable on a
pro rata basis to all holders of the same class of common stock
or other capital stock, as applicable;
•
to employees, officers, directors or consultants of Holdings
under an equity incentive plan, stock option plan, employee
stock purchase plan, restricted stock plan or other employee
benefit plans or programs in effect from time to time;
•
in connection with the conversion of any preferred stock or the
conversion or exercise of any options, warrants or other rights
to purchase any securities of Holdings;
•
in consideration for the acquisition (by merger, consolidation,
reorganization or otherwise) by Holdings or any subsidiary of
Holdings of the assets, business or equity interests of another
person approved by a majority of the board of directors; or
•
to any of the lenders or other financing sources of Holdings or
its subsidiaries in connection with the incurrence, renewal or
maintenance of any indebtedness.
Subscription
Rights
Holdings will grant Cambium’s stockholder and funds managed
or controlled by VSS a subscription right that would permit them
to purchase, at any time and from time to time until the
24-month
anniversary of the effective time, a number of shares of
Holdings common stock up to the lesser of:
•
7,500,000 shares of common stock (subject to adjustment in
the event of any dividend, stock split, combination or similar
recapitalization event); or
•
the number of shares of common stock that Cambium’s
stockholder and funds managed or controlled by VSS may purchase
from time to time during the
24-month
subscription period for an aggregate purchase price of
$20,000,000 (based upon the per share purchase price described
below).
The purchase price per share in connection with the subscription
rights is equal to 90% of the volume weighted average price of
the Holdings common stock measured over the ten-trading-day
period immediately preceding the issuance and sale of the shares
of Holdings common stock.
Voyager common stock is quoted on the Pink Sheets under the
symbol “VLCY.PK.” As of October 31, 2009, there
were approximately 750 holders of record of Voyager common stock
and 29,874,145 shares of Voyager common stock outstanding.
The number of stockholders does not reflect the number of
individuals or institutional investors holding stock in nominee
name through banks, brokerage firms and others.
On March 28, 2007, the New York Stock Exchange, which we
refer to as the NYSE, suspended the trading of Voyager’s
securities and, thereafter, the common stock of Voyager began
being quoted on the Pink Sheets. The following table sets forth
the high and low closing sales prices of Voyager common stock on
the NYSE or the Pink Sheets, as applicable, for the periods
indicated. For current price information, you should consult
your broker or publicly available sources.
For information regarding the security ownership of Voyager
common stock as of October 31, 2009, by (1) each
person who, to Voyager’s knowledge, is the beneficial owner
of more than five percent of Voyager’s outstanding common
stock, (2) each current director of Voyager, (3) the
named executive officers of Voyager and (4) all of
Voyager’s executive officers and directors as a group, see
“SECURITY OWNERSHIP OF VOYAGER BY CERTAIN BENEFICIAL
OWNERS” on page 284.
At present, both Cambium and Holdings are wholly owned by a
single equity owner. As a result, there is presently no market
for the equity interests of Cambium or Holdings.
For information regarding the expected security ownership of
Holdings common stock following the mergers by (1) each
person or group that is expected to become the beneficial owner
of more than five percent of the common stock of Holdings after
the mergers, (2) each person designated to become a
director of Holdings, (3) certain specified prospective
executive officers of Holdings and (4) all persons
currently designated to become directors and executive officers
of Holdings as a group, see “SECURITY OWNERSHIP OF HOLDINGS
BY CERTAIN BENEFICIAL OWNERS” on page 189.
Neither Cambium nor Voyager has, during the past five fiscal
years, declared or paid any cash dividends on its capital stock.
Holdings does not anticipate paying any cash dividends on its
common stock for the foreseeable future after completion of the
mergers.
Cambium and Voyager have entered into a merger agreement that
provides that they will combine their businesses through a
series of mergers under a single holding company, Holdings. The
net effect of the mergers will be that Cambium and Voyager will
become wholly owned subsidiaries of Holdings, and the respective
subsidiaries of Cambium and Voyager will become indirect, wholly
owned subsidiaries of Holdings.
In connection with the mergers, the sole stockholder of Cambium
will receive a total of 20,454,312 shares of Holdings
common stock in the Cambium merger. Those shares, together with
the 3,846,154 shares of Holdings common stock that Holdings
will issue to the Cambium stockholder in exchange for a
$25 million capital contribution to be made by the Cambium
stockholder to Holdings prior to the effective time of the
mergers, will represent approximately 55.5% of the total number
of shares of Holdings common stock that will be outstanding upon
completion of the Voyager merger and the Cambium merger,
assuming no exercise of any portion of the Holdings Warrant,
assuming no exercise of appraisal rights by Voyager’s
stockholders and assuming that the maximum amount of cash
payable in the mergers is paid to the Voyager stockholders. The
number of shares of Holdings common stock issuable to the
Cambium stockholder in the Cambium merger and in connection with
the $25 million capital contribution assumes that there
will be 29,874,145 shares of Voyager common stock
outstanding immediately prior to the effective time of the
mergers. To the extent that the number of shares of Voyager
common stock outstanding immediately prior to the effective time
of the mergers is greater or less than 29,874,145, the number of
shares of Holdings common stock issued to the Cambium
stockholder will be increased or decreased, respectively, so
that the shares of Cambium common stock owned by the Cambium
stockholder will convert into the same percentage of shares of
Holdings common stock immediately after the effective time of
the mergers as would have been the case had the number of shares
of Voyager common stock outstanding immediately prior to the
effective time of the mergers been 29,874,145.
The Cambium stockholder will also receive the Holdings Warrant.
The Holdings Warrant will entitle the Cambium stockholder to
purchase shares of Holdings common stock at an exercise price of
$0.01 per share (subject to adjustment). The aggregate number of
shares of Holdings common stock issuable upon exercise of the
Holdings Warrant will be determined in accordance with a formula
described under the caption “THE MERGER
AGREEMENT — Merger Consideration — Cambium
consideration.” The Holdings Warrant is subject to
customary registration rights in favor of the holder of the
Holdings Warrant and its permitted successors and assigns. The
Holdings Warrant will expire five years after the closing.
Each share of Voyager common stock will be converted into merger
consideration consisting of:
•
at the election of the stockholder, either:
•
one share of Holdings common stock, or
•
$6.50 in cash, subject to proration rules referred to below;
plus, regardless of the election made,
•
an amount in cash equal to the amount of specified tax refunds
received by Voyager prior to the closing of the mergers (reduced
by the amount of the Voyager tax refunds contractually required
to be placed in escrow at closing), divided by the total number
of shares of Voyager common stock outstanding immediately prior
to the effective time of the mergers; plus
•
a CVR, which represents the right to receive cash in an amount
equal to the aggregate amount of specified tax refunds received
after the closing of the mergers and various other amounts
deposited in escrow on or after the closing date, as reduced by
any payments to be made under the escrow agreement with respect
to agreed contingencies, a working capital adjustment and
Stockholders’ Representative expenses, divided by the total
number of shares of Voyager common stock outstanding immediately
prior to the effective time of the mergers.
The amount of cash available to satisfy cash elections by
Voyager stockholders will be determined by an agreed formula
that is dependent on, among other things, the cash generated by
Voyager prior to closing, but the amount of cash available for
cash elections is limited to a maximum of $67.5 million in
the aggregate. If the amount of cash available for the cash
elections is insufficient to accommodate all of the cash
elections made by the Voyager stockholders, then the
stockholders electing to exchange shares for cash will be
subject
to a pro rata reduction in accordance with agreed procedures set
forth in the merger agreement and described in this proxy
statement/prospectus. The shares of Voyager common stock that
are subject to this pro rata reduction and therefore are not
exchanged for cash will be exchanged for shares of Holdings
common stock. There is no comparable limit on the extent to
which Holdings will honor stock elections. Thus, if a Voyager
stockholder elects to receive Holdings stock in exchange for all
of the stockholder’s shares of Voyager common stock, that
stockholder will not be subject to proration pursuant to the
merger agreement and will receive only Holdings common stock.
The transaction will be accounted for as an
“acquisition” of Voyager by Cambium, as that term is
used under U.S. GAAP, for accounting and financial
reporting purposes under the applicable accounting guidance for
business combinations. In making this determination, management
considered that (a) Holdings does not have any significant
pre-combination activity and, therefore, would not qualify to be
the accounting acquirer and (b) the sole stockholder of
Cambium will be the majority holder of the combined entity,
while the prior owners of Voyager will become minority holders
in the combined entity. As a result, the historical financial
statements of Cambium will become the historical financial
statements of Holdings.
The following unaudited pro forma condensed combined financial
statements of Holdings have been prepared to give effect to the
mergers, as if each merger had been completed on
September 30, 2009 for balance sheet purposes and
January 1, 2008 for statement of operations purposes.
The historical financial data for Cambium and Voyager for the
year ended December 31, 2008 and for the nine months ended
September 30, 2009 have been derived from their respective
consolidated financial statements as of the dates and for the
periods indicated. The unaudited pro forma condensed combined
financial statements of Holdings should be read in conjunction
with Cambium’s and Voyager’s audited and unaudited
financial statements presented elsewhere in this proxy
statement/prospectus.
The pro forma adjustments for the mergers are based on
preliminary purchase price allocations and management’s
estimates. Actual allocations will be based on final valuations,
appraisals and other analyses of the fair value of the acquired
assets and liabilities. The allocations will be finalized after
the data necessary to complete the valuations, appraisals and
other analyses of the fair values of the acquired assets and
liabilities assumed are obtained and evaluated. Differences
between the preliminary and final allocations could have a
material effect on the pro forma results of operations.
The actual amounts recorded as of the completion of the mergers
may differ materially from the information presented in these
unaudited pro forma condensed combined financial statements as a
result of several factors, including the following:
•
changes in Voyager’s net assets between the pro forma
balance sheet date of September 30, 2009 and the closing of
the mergers which could impact the preliminary estimated
purchase price or the preliminary estimated fair values as of
the effective date of the mergers;
•
the value of Holdings as of the effective date of the mergers;
•
the timing of completion of the mergers;
•
Voyager stockholder elections to receive cash versus common
stock of Holdings and to exercise appraisal rights; and
•
other changes in net assets that may occur prior to completion
of the mergers, which could cause material differences in the
information presented.
The unaudited pro forma condensed combined financial statements
do not reflect any cost savings or other synergies that
Holdings’ management believes could have been achieved nor
do they reflect any post-closing, one-time integration costs to
achieve cost savings and other synergies had the transactions
been completed on the dates indicated. The unaudited pro forma
condensed combined financial statements of Holdings are not
necessarily indicative of the financial position or results of
operations presented as of the dates or for the periods
indicated, or the results of operations or financial position
that may be achieved in the future.
The unaudited pro forma condensed combined financial statements
of Holdings were prepared using the acquisition method of
accounting as set forth under applicable Financial Accounting
Standards Board (“FASB”) accounting guidance for
business combinations. Under this guidance, Cambium is the
accounting acquirer and Voyager is the acquiree. The pro forma
information is based on the historical financial statements of
Cambium and Voyager. Certain reclassifications to data included
in the financial statements for the fiscal year ended
December 31, 2008 and the nine months ended
September 30, 2009 of both Voyager and Cambium have been
made to conform to the pro forma presentation.
The pro forma adjustments for the mergers are based on
preliminary purchase price allocations and management estimates.
Actual allocations will be based on final valuations, appraisals
and other analyses of the fair value of the assets acquired and
liabilities assumed.
Note 2 —
Preliminary
Estimated Purchase Price
Each share of Voyager common stock will be converted into merger
consideration consisting of:
•
at the election of the stockholder, either:
•
one share of Holdings common stock, or
•
$6.50 in cash, subject to cash available to satisfy cash
elections determined by an agreed formula that is primarily
dependent on the cash generated by Voyager prior to closing, but
the amount of cash available for cash elections is limited to a
maximum of $67.5 million in the aggregate and subject to
proration rules described elsewhere in this proxy
statement/prospectus;
•
plus, regardless of the election made,
•
an amount in cash equal to the amount of specified tax refunds
received by Voyager prior to the closing of the mergers (reduced
by the amount of the Voyager tax refunds contractually required
to be placed in escrow at closing), divided by the total number
of shares of Voyager common stock outstanding immediately prior
to the effective time of the mergers, which we estimate to be
29,874,145 shares; plus
•
a CVR to receive cash in an amount equal to the aggregate amount
of specified tax refunds received after the closing of the
mergers and various other amounts deposited in escrow on or
after the closing date, reduced by any payments to be made under
an escrow agreement to be entered into in connection with the
mergers, with respect to agreed contingencies, a potential
working capital adjustment and Stockholders’ Representative
expenses, divided by the total number of shares of Voyager
common stock outstanding immediately prior to the effective time
of the mergers.
An estimate of the merger consideration to be paid to
Voyager’s shareholders was based on preliminary valuations
involving current assumptions and valuations.
The amount of cash paid to shareholders making the cash election
assumes that the cash available for cash elections will equal
the maximum of $67.5 million and that at least 35% of
shareholders, or 10.4 million shares, will make the cash
election. The table below shows the impact on purchase price
consideration if the cash paid to shareholders was reduced by
$2.5 million to $65.0 million or by $5.0 million
to $62.5 million, assuming in each case that the shares
electing cash meets or exceeds the Shares Eligible to
Receive Cash. A relatively narrow range has been used for the
sensitivity analysis because Holdings believes that Voyager will
have sufficient cash on hand to reach the $67.5 million cap
and Holdings expects that the cash election will be
oversubscribed.
Total
Shares
Shares
Cash Paid for
Estimated
Eligible to
Receiving a
Cash Election
Consideration
Receive Cash
Holdings Share
(In thousands)
$
67,500
$
184,179
10,384
19,490
65,000
183,568
10,000
19,874
62,500
182,956
9,615
20,259
The fair value of shares of Holdings to be issued was determined
by taking the remaining shares after the assumed cash election,
or 19,489,530 shares, multiplied by the per share value of
Holdings, which was estimated for pro forma purposes as $4.91.
The $4.91 represents management’s best estimate of the
future value of the combined entity of $215 million divided
by the total estimated shares expected to be outstanding at the
date of the merger of 43.8 million. To estimate the future
value of the combined entity, management relied primarily on
analyses prepared for purposes of the fairness opinion delivered
to the Voyager board of directors, in which Allen &
Company focused on companies that sell similar products targeted
at a similar market and have a similar growth profile to Voyager
to determine the range, which is at the low end of the
comparable company trading statistics. Based on its review of
these various financial measures, Allen & Company
applied a range of net income multiples between eight and
fourteen to a forecasted cash net income of $17.5 million
to derive an implied Holdings equity value of between
approximately $140 million and $245 million.
Management selected a value of $215 million, which is
slightly higher than Allen & Company’s forecasted
cash net income of $17.5 million at a multiple of twelve,
as the best estimate within this range after considering several
factors: (1) the analyses prepared by Houlihan Smith for
purposes of the solvency opinion delivered to the Voyager board
of directors, which used several valuation techniques and
sensitivity ranges that generally resulted in higher estimates
of the future combined company than those prepared by
Allen & Company; (2) the performance of each of
Cambium and Voyager during the current year compared to previous
forecasts; and (3) expectations regarding developments in
the education funding environment. For further information on
the analyses performed by Voyager’s financial advisors, see
“Opinions of Voyager’s Financial Advisors” on
page 81.
Total estimated shares expected to be outstanding at the date of
the merger of 43.8 million are calculated as follows:
(In thousands)
Holdings shares to be issued to existing Cambium stockholder
20,454
Additional shares to be issued for $25 million capital
contribution to be made immediately prior to closing by the
Cambium stockholder
3,846
Estimated Holdings shares to be issued to existing Voyager
stockholders
19,490
Total estimated shares of Holdings outstanding at the merger date
43,790
The specified tax refunds are the amounts received prior to the
signing of the agreement and any amounts received between
signing and closing that are not required to be placed in the
CVR escrow fund. Any amounts received between signing and
closing up to a $4 million limit are included in the
estimated CVR value below. Refunds received prior to signing
totaled $15.5 million and there were no amounts over the
$4 million limit as of September 30, 2009.
Estimated fair values of elements making up the aggregate CVR
amount for purposes of these pro forma condensed combined
financial statements are as follows:
(In thousands)
Tax related receivables
$
4,684
Refunds received after signing the merger agreement
1,432
Tax related liabilities
(2,202
)
Expected return of 280G escrow net of excess limitation
1,867
Estimated allowed expenses and
out-of-pocket
costs
(500
)
Total estimated aggregate CVR value
$
5,281
The fair value of the CVR was determined based on the likelihood
and amount of cash flows of these elements under the CVR
agreement, determined as follows:
•
The tax related receivables and tax related liabilities
represent amounts that have been reflected in Voyager’s
historical financial statements in accordance with
U.S. GAAP. For these elements, management assumed that the
book value of these assets and liabilities approximates their
fair value.
•
Refunds received after signing the merger agreement represent
actual cash receipts received between the signing of the
agreement and September 30, 2009.
•
The expected return of 280G escrow net of excess limitation
reflects management’s expectations that no payments made in
connection with the mergers will trigger any 280G tax
“gross-up”
obligations and that the entire $3.0 million to be set
aside in an escrow fund to satisfy this potential obligation
will be available for the CVR, net of an excess limitation of
$1.1 million, which is the value applicable when
Voyager’s cash available for the cash election is equal to
$42.5 million.
•
Estimated allowed expenses and out-of-pocket costs represent the
estimated costs of collecting tax refunds and administering the
CVR over its duration.
The maximum value of the CVR cannot be determined at this time.
However, the total amount of the CVR is not expected to be more
than $11 million, and may be substantially less than
$11 million depending on various factors, including events
beyond management’s control. The following table shows the
effect of changes in the estimated CVR on total consideration
and on the purchase price allocation:
Estimated
Estimated
High End of
Minimum CVR
CVR
CVR
Estimated fair value of the CVR
$
—
$
5,281
$
11,000
Total purchase price consideration as detailed below
178,898
184,179
189,898
Allocation to goodwill as described in Note 3 below
59,465
64,746
70,465
Additionally, under the merger agreement, share-based awards
held by employees of Voyager are required to be converted into
rights or options for Holdings shares with the same terms and
conditions that were applicable to the rights or options for
Voyager shares. Therefore, in accordance with FASB accounting
guidance for business combinations, the fair value, prior to
conversion, of replacement equity awards issued for
pre-combination services at the date of acquisition is included
in the calculation of the purchase price. The fair value of
these equity awards to be converted as of September 30,2009, which include stock appreciation rights with respect to
200,000 shares held by Ronald Klausner and stock options
for 105,910 shares held by various other employees and
directors, was determined using the Black-Scholes pricing model,
assuming historical volatility of 45.9%, dividend yield of 0%,
risk free rate of 1.9%, and weighted-average remaining life of
2.6 years.
The following table summarizes the components of the preliminary
estimated total purchase price of $184.2 million determined
for purposes of these pro forma condensed combined financial
statements:
(In thousands)
Cash paid to shareholders making the cash election
$
67,500
Cash paid to shareholders for specified tax refunds
15,523
Fair value of shares of Holdings issued to shareholders
95,694
Fair value of equity awards to be converted at acquisition
181
Fair value of the CVR
5,281
Total consideration
$
184,179
The final total consideration could materially differ from the
value estimated for these unaudited pro forma condensed combined
financial statements.
Note 3 —
Preliminary
Estimated Purchase Price Allocation
The preliminary estimated purchase price was allocated to assets
acquired and liabilities assumed as if the mergers were
completed on September 30, 2009. The excess of the purchase
price over the estimated fair value of tangible and identifiable
intangible assets acquired and liabilities assumed was allocated
to goodwill.
The allocation of the purchase price of assets and liabilities
in the accompanying unaudited pro forma condensed combined
balance sheet is preliminary and based on management’s best
estimates using current assumptions and valuations. Actual
allocations will be determined after the mergers are completed
and will be based on final valuations, appraisals and other
analyses of the fair value of assets acquired and liabilities
assumed. Accordingly, the final purchase accounting allocations
could be materially different from the preliminary unaudited pro
forma adjustments presented herein.
For purposes of the unaudited pro forma condensed combined
financial statements, the purchase price has been allocated to
the assets and liabilities of Voyager as presented below:
Identifiable intangible assets resulting from the pro forma
purchase price allocation total $42.6 million and consist
of the following:
(In thousands)
Curriculum
34,286
Customer relationships
5,400
Tradenames and trademarks
2,660
Total intangible assets acquired
$
42,346
Curriculum relates to Voyager’s product offerings and the
associated internally developed software which are currently
generating revenue. The preliminary value of these assets was
determined using a multi-period excess earnings method. This
approach determines the value of the curriculum intangibles by
measuring the present value of the incremental after-tax cash
flows attributable to the asset after deducting related
contributory asset charges. Key assumptions utilized in the
valuation are:
•
The percentage of projected revenues allocated to products
versus other factors that influence customer purchasing
decisions, estimated at 85.0% based on management’s
understanding of customer purchasing decisions and marketing
strategies utilized by Voyager.
•
A discount rate of 17.8%, based on a weighted average cost of
capital analysis that considered market, industry, size and
company specific risks.
•
Annual revenue growth rates ranging from 3.0% to 8.7%.
•
A curriculum content turnover rate of 10.0% per year in the
first three years, with greater turnover of 25.0% in year four
to represent a commonly expected major upgrade to the curriculum.
Curriculum will be amortized using an accelerated method of
amortization over the expected useful life of eight years based
on management’s expectations of the period of time the
existing curriculum and core methodology would contribute to
future cash flows, taking into consideration the historic
patterns of curriculum upgrade and replacement.
Customer relationships relate to Voyager’s ability to sell
existing, in-process and future versions of its products to its
existing customers. The preliminary value of acquired customer
related intangibles was also determined using a multi-period
excess earnings method. Key assumptions utilized in the
valuation are:
•
The percentage of projected revenues allocated to customer
relationships versus other factors that influence customer
purchasing decisions, estimated at 15.0% based on
management’s understanding of customer purchasing decisions
and marketing strategies utilized by Voyager.
•
A discount rate of 17.8%, based on a weighted average cost of
capital analysis that considered market, industry, size and
company specific risks.
•
Annual revenue growth rates ranging from 3.0% to 8.7%.
•
Customer retention rates based on analysis of existing and
future estimated customer turnover.
Customer relationships are amortized on a straight-line basis
over their expected useful life of ten years, based on
management’s expectations of the period of time the
existing customer base would contribute to future cash flows,
taking into consideration historical attrition rates and
management’s understanding of the industry.
Tradenames and trademarks represent future value to be derived
associated with the use of existing tradenames and trademarks.
The preliminary value of trademark and trade name intangibles
was determined using a relief from royalty method. This method
determines what a market participant would pay to license
the trademark and tradename and discounts this payment stream.
The key assumptions utilized in this method are:
•
An estimated royalty rate of 0.5%, determined through profit
sharing analysis to consider the effect of a change in the
tradename/trademark on revenues and industry royalty rates as
compared to retail trademarks.
•
A discount rate of 17.8%, based on a weighted average cost of
capital analysis that considered market, industry, size and
company specific risks.
•
Annual revenue growth rates ranging from 3.0% to 8.7%.
Tradenames and trademarks are amortized on a straight-line basis
over their expected useful life of ten years, based on
management’s expectations of the period of time the
existing tradenames and trademarks would add value to
Voyager’s operations, taking into consideration their
history and length of use as well as name recognition in the
industry.
Goodwill is calculated as the excess of the purchase price over
the estimated fair value of tangible and identifiable intangible
assets acquired and liabilities assumed. This amount represents
the value of the assembled and trained workforce, access to
capital markets, reduced financial leverage and potential to
reduce cost of funds, benefits of economies of scale, increased
market share and other expected financial and operational
synergies.
Note 4 —
Pro Forma
Adjustments
The accompanying unaudited pro forma condensed combined
financial statements have been prepared as if the mergers were
completed on September 30, 2009 for balance sheet purposes
and January 1, 2008 for statement of operations purposes
and reflect the following pro forma adjustments:
(A) Adjustment for cash funding of contractually
agreed-upon
closing liabilities, including net funding of $14.9 million
to a rabbi trust, $3.0 million to an escrow account and
$0.9 million in accounts payable and accrued expenses paid.
(B) Adjustments for the preliminary estimated purchase
price consideration, which includes an estimated
$83.0 million to be paid to Voyager stockholders using
existing cash and cash equivalents, $95.7 million of shares
in Holdings, and $5.5 million of CVR and replacement equity
awards.
(C) Adjustment for cash consideration contributed by
Cambium’s stockholder. Holdings will issue
3,846,154 shares of common stock to the Cambium stockholder
in exchange for a $25 million capital contribution to be
made by the Cambium stockholder to Holdings prior to the
effective time of the mergers to furnish cash to cover cash
elections.
The $25.0 million cash contribution represents an
additional 3,846,154 shares of Holdings common stock sold
for a purchase price of $6.50 per share. The price resulted from
contractual negotiations between the parties whereby
Cambium’s stockholder agreed to pay the $25.0 million
purchase price to acquire the additional shares necessary to
assure ownership of approximately 55% of Holding’s
outstanding shares. See Note 2 for a description of the
determination of consideration fair value.
(D) Adjustment to the fair value of Voyager’s
inventory to reflect additions for freight-in, labor and
overhead consistent with Cambium’s accounting policy.
(E) Certain up-front costs associated with completing the
sale of Voyager’s products are deferred and recognized as
the related revenue is recognized. This adjusts the fair value
of these deferred costs to zero.
(F) Voyager’s internally developed customer technology
is included in the line “Property, Plant and Equipment,
net” and Voyager’s internally developed and acquired
curriculum is included in the line “Intangible Assets,
net” in the Voyager historical balance sheet. In purchase
accounting, all print and
technology development will be valued as acquired curriculum.
Adjustment is to reclassify net internally developed software
from “Property, Plant and Equipment, net” to
“Intangible Assets, net.”
(G) Adjustment to record the fair value of Voyager’s
intangible assets, which includes acquired curriculum and other
purchased intangibles, including tradenames, trademarks and
customer relationships.
Other than goodwill, all of Voyager’s intangible assets are
subject to amortization and are reviewed for impairment using
the applicable accounting guidance for impairment of
long-lived
assets. Under this guidance, an impairment charge will be
recognized to the extent the sum of the undiscounted future cash
flows exceeds the carrying value of the intangible asset. As of
September 30, 2009, Voyager compared the carrying value of
its intangible assets to the expected undiscounted future cash
flows and concluded that no impairment existed. For purposes of
the preliminary purchase accounting allocation for the pro forma
presentation, the intangible assets were recorded at fair value,
based on a discounted cash flow analysis. Therefore, although
the fair value was less than the carrying value of these
intangible assets, no impairment was triggered under applicable
FASB accounting guidance for the impairment or disposal of
long-lived assets as of September 30, 2009 and the downward
adjustment to these assets in the unaudited pro forma condensed
combined balance sheet should not be considered indicative of
impairment.
(H) Adjustment to Voyager’s goodwill for purchase
price accounting allocation.
Voyager’s historical financial statements include a
goodwill impairment charge of $22.0 million in the second
quarter of 2009 and $5.2 million in the third quarter of
2009, determined under applicable accounting guidance for
goodwill and other indefinite-lived assets. Although the
purchase accounting allocation used in the second step of the
goodwill impairment calculation for purposes of recording these
goodwill impairment charges in Voyager’s historical
financial statements is similar to the one performed for the pro
forma financial statements, it is not identical due to certain
allocations that take into consideration Cambium’s
accounting policies and tax attributes. Therefore, the downward
adjustment to goodwill in the unaudited pro forma condensed
combined balance sheet should not be considered indicative of
additional impairment of goodwill in Voyager’s historical
financial statements.
(I) Cambium and Voyager expect to incur aggregate
transaction fees and other costs related to the mergers of
between $18 million and $20 million. These costs
include the following:
(i) Pursuant to the terms of Allen &
Company’s engagement letter, Voyager will owe
Allen & Company a cash fee of $3 million,
conditioned upon the completion of the Voyager merger.
Allen & Company was paid $0.5 million in August
2009 for the delivery of its opinion to the Voyager board. The
latter $0.5 million fee is creditable against any success
fee payable to Allen & Company upon the closing of the
Voyager merger. No portion of the $0.5 million fee is
contingent upon either the conclusion expressed in the opinion
or whether the Voyager merger is successfully completed.
(ii) An affiliate of VSS will receive a fee in the amount
of $3 million from Holdings upon completion of the mergers
in consideration for providing advisory services with respect to
the mergers. This fee will be payable as follows:
$1 million in cash is payable at the closing, with the
balance becoming payable if and when Cambium’s ratio of
total outstanding debt to adjusted EBITDA drops below 3.0:1.
Three-quarters of this remaining balance will be allocated pro
rata among, and paid to, VSS and certain of the members of
VSS-Cambium Holdings III, LLC.
(iii) Legal, accounting and other transaction fees are
estimated to range between $12 million and $14 million.
All transaction fees and other costs will be included as an
expense in the Voyager or Cambium statement of operations of
each entity as incurred. For purposes of the pro forma financial
statements, management has assumed that transaction costs will
approximate the midpoint of the $18.0 million to
$20.0 million range. Through September 30, 2009, total
costs of $8.6 million have been recorded in the historical
statements of operations of Voyager and Cambium. Due to their
non-recurring nature, such costs are removed from the unaudited
pro forma condensed combined statement of operations for the
year
ended December 31, 2008 and the nine months ended
September 30, 2009 as adjustment (V). Adjustment
(I) is to accrue remaining expected transaction costs of
$10.4 million in the unaudited pro forma condensed combined
balance sheet.
(J) Adjustment to accrue expected contractual obligations,
severance, retention, and other payments that become payable as
a result of the merger and to record the effect on the Unaudited
Pro Forma Condensed Combined Statement of Operations of
payments with subsequent service requirements. The pro forma
adjustment assumes that employees subject to such agreements are
still employed as of the closing date of the merger or through
the required service period, as applicable. Payments that have
future service requirements will be expensed over the required
service period rather than accrued at the merger close date and,
accordingly, are included in the adjustment to the Unaudited Pro
Forma Condensed Combined Statement of Operations for the
year ended December 31, 2008. The Unaudited Pro
Forma Condensed Combined Balance Sheet adjustment is
summarized below:
(In thousands)
Change in control payments with subsequent service requirements
$
2,690
Estimated maximum potential amount of 280G payments
3,000
Severance benefits
1,309
Guaranteed bonuses
722
Change in control payment
338
Other payments due upon change in control
399
Total payments related to the merger
8,458
Less: 280G payments deemed unlikely to be triggered
Less: amounts with subsequent service requirements
(2,690
)
$
565
Because the $2.7 million of change in control payments with
subsequent service period requirements have service requirements
of one year or less, the entire adjustment is reflected in the
Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 2008 and there is no impact
on the Unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30,2009.
(K) Adjustment to record the fair value of Voyager’s
deferred revenue. The fair value of deferred revenue was
determined by estimating the cost to service Voyager’s
deferred revenue obligations plus a normal profit margin. The
book value of deferred revenue representing Voyager’s
training and implementation service obligations generally
represents fair value as determined under this method. However,
the fair value of Voyager’s obligations for online
educational content were determined to be lower than such book
value, since much of the cost for the online educational content
is incurred upfront in development of the website, and the
ongoing costs to service the online content are not
representative of the fair value of the revenue attributed to
it. The fair value of deferred revenue for online educational
content was lower than book value by approximately
$16.2 million in total, $13.9 million of which is
related to current deferred revenue and $2.3 million of
which is related to non-current deferred revenue, representing a
write-down of approximately 58% of the book value for these
obligations. The calculation of the fair value of deferred
revenue is dependent on multiple assumptions and estimates,
including:
•
future costs to service the obligations, estimated to be
approximately 30% of the related revenue based on
management’s review of related expenses and operating costs
associated with Voyager’s online content;
•
a normal profit margin percentage of 42.9%, based on an analysis
of pretax margins for providers of online applications; and
(L) Adjustment to record the fair value of Voyager’s
net deferred taxes. As of September 30, 2009, Voyager had
$36.0 million in deferred tax assets and $14.6 million
deferred tax liabilities for a net deferred tax asset of
$21.4 million before valuation allowance. Voyager had also
established a valuation allowance of $22.1 million. After
including the valuation allowance, Voyager had an overall net
deferred tax liability of $0.7 million. The purchase
accounting adjustments decreased Voyager’s net deferred tax
assets by $2.5 million before valuation allowance, which is
equal to the estimated purchase accounting fair value
adjustments (excluding non-deductible goodwill) of
$6.7 million at an assumed statutory rate of 38%. However,
the valuation allowance also decreased by $2.4 million
resulting in a $0.1 million increase in Voyager’s
overall deferred tax liability.
As of September 30, 2009, Cambium had $4.1 million in
deferred tax assets and $9.4 million deferred tax
liabilities for a net deferred tax liability of
$5.3 million, with no related valuation allowance. The
combined entity will have $37.6 million deferred tax assets
and $24.0 million in deferred tax liabilities for a net
deferred tax asset of $13.6 million before valuation
allowance. The combined entity’s net $13.6 million
deferred tax asset will be further offset by a valuation
allowance of $14.4 million. After including the valuation
allowance, the combined entity will have an overall net deferred
tax liability of $0.8 million.
The inclusion of Cambium’s $5.3 million of net
deferred tax liabilities in the combined entity has the effect
of reducing the $19.7 million valuation allowance
established after the purchase accounting adjustments by the
equivalent amount of Cambium’s deferred tax liabilities.
Cambium’s deferred tax liabilities represent a future
source of taxable income that enables the combined entity to
release some of Voyager’s previously established valuation
allowance.
(M) Adjustment to eliminate Voyager’s
shareholders’ equity and record common stock of Holdings at
$.001 par value. The Cambium sole stockholder will receive
a total of 20,454,312 shares of Holdings common stock in
the Cambium merger. Those shares, together with the
3,846,154 shares of Holdings common stock that Holdings
will issue to the Cambium stockholder in exchange for a
$25,000,000 capital contribution to be made by the Cambium
stockholder to Holdings prior to the effective time of the
mergers, will represent approximately 55.5% of the total number
of shares of Holdings common stock that will be outstanding upon
completion of the Voyager merger and the Cambium merger,
assuming no exercise of any portion of the Holdings Warrant,
assuming no exercise of appraisal rights by Voyager’s
stockholders and assuming that the maximum amount of cash
payable in the mergers is payable to the Voyager stockholders.
The number of shares of Holdings common stock issuable to the
Cambium stockholder in the Cambium merger and in connection with
the $25,000,000 capital contribution assumes that there will be
29,874,145 shares of Voyager common stock outstanding
immediately prior to the effective time of the mergers. To the
extent that the number of shares of Voyager common stock
outstanding immediately prior to the effective time of the
mergers is greater or less than 29,874,145, the number of shares
of Holdings common stock to be issued to the Cambium stockholder
above will be increased or decreased, respectively, so that the
shares of Cambium common stock owned by the Cambium stockholder
will convert into the same percentage of shares of Holdings
common stock immediately after the effective time of the mergers
as would have been the case had the number of shares of Voyager
common stock outstanding immediately prior to the effective time
of the mergers been 29,874,145. Total shares outstanding for
purposes of the pro forma financial statements are assumed to be
43.8 million shares, calculated as follows:
Holdings shares to be issued to existing Cambium stockholder
20,454
Additional shares to be issued for $25 million capital
contribution to Holdings to be made immediately prior to closing
by the Cambium stockholder
3,846
Estimated Holdings shares to be issued to existing Voyager
stockholders
19,490
Total estimated shares of Holdings outstanding at the merger
closing date
43,790
(N) Adjustment to record the preliminary estimated fair
value of the warrant to be issued to Cambium’s stockholder
and subscription rights granted under the stockholders agreement.
As described elsewhere in this proxy statement/prospectus, the
aggregate number of shares of Holdings common stock issuable
upon exercise of the warrant will equal the sum of
•
The Cambium Specified Asset Recoupment Amount, which is based
upon the net amount of recoveries that Cambium receives on and
after June 1, 2009, including periods after the effective
time of the mergers, with respect to an embezzlement matter that
was discovered by Cambium in April 2008. To date, Cambium has
received net recoveries of approximately $535,000 with respect
to this matter and, although we cannot assure you of the actual
amount of net recoveries that Cambium will receive, management
believes that it is likely that the maximum amount it will be
able to recover is $4,250,000. The Cambium Specified Asset
Recoupment Amount equals 0.45 multiplied by the quotient of the
aggregate net recoveries divided by $6.50. Thus, for purposes of
calculating the Base Amount and Likely Maximum Amount described
elsewhere in this proxy/prospectus, we have included
37,038 shares in the Base Amount (correlating to a net
recovery of $535,000) and 294,230 shares in the Likely
Maximum Amount (correlating to a net recovery of $4,250,000)
with respect to the Cambium Specified Asset Recoupment Amount.
•
The Additional Share Amount, which will be calculated over a
period commencing at the effective time of the mergers and
ending two years thereafter. The Additional Share Amount will
equal the number of shares of Voyager common stock, if any, that
are surrendered upon consummation of the Voyager merger in
excess of the sum of the 29,874,145 shares that are known
to be currently outstanding plus the number of shares of Voyager
common stock that are issued upon the exercise of options known
to be currently outstanding, provided that the maximum
Additional Share Amount is capped at a maximum of
145,000 shares. At present, we do not believe that any such
additional shares will be surrendered. Accordingly, for purposes
of calculating the Base Amount, we have not included any shares
with respect to the Additional Share Amount. Because the parties
agreed to limit the Additional Share Amount to a maximum of
145,000 shares, we have included 145,000 shares in the
Likely Maximum Amount with respect to the Additional Share
Amount.
•
The Formula Amount, which adds shares to the Holdings Warrant
only if, prior to completion of the mergers, equity cure
payments are made under Cambium’s existing credit
agreements, debt is retired under those agreements or payments
are made to obtain default-related waivers under those
agreements. To date, the only applicable event is an equity cure
payment of $2,959,000 made in August 2009, as disclosed
elsewhere in this proxy statement/prospectus. Cambium does not
anticipate making any further payments covered by the Formula
Amount between the date of this proxy statement/prospectus and
the completion of the mergers. Subject to qualifications that
are not relevant to the equity cure payment that has previously
been made, the Formula Amount equals the equity cure payment of
$2,959,000 divided by $6.50, or 455,230 shares. Because the
equity cure payment has been made and Cambium does not
anticipate making any additional payments that will impact the
Formula Amount, we have included 455,230 shares in both the
Base Amount described below and the Likely Maximum Amount
described below with respect to the Formula Amount.
For the reasons set forth above, we believe that the minimum
number of shares of Holdings common stock to be covered by the
Holdings Warrant (the “Base Amount”) is
492,268 shares and the likely maximum number of shares of
Holdings common stock to be covered by the Holdings Warrant (the
“Likely Maximum Amount”) is 894,460 shares.
For purposes of the unaudited pro forma condensed combined
balance sheet as of September 30, 2009, the number of
shares of Holdings common stock for which the warrant could be
exercised is assumed to total 495,311, with an estimated fair
value of $2.4 million. The number of shares underlying the
warrant is based on the following:
•
40,081 shares issuable under the Cambium Specified Asset
Recoupment is based on the property held for sale on
Cambium’s historical balance sheet as of September 30,2009 of $0.2 million plus
$0.4 million cash received in the period between
June 1, 2009 and September 30, 2009, divided by $6.50
per share, and then multiplied by 0.45.
•
No shares issuable for Additional Share Amount, since the number
of shares of Voyager at closing is expected to equal
29,874,145 shares.
•
Shares issuable under the Formula Amount are 455,230. As of
August 14, 2009, Cambium was in non-compliance with its
debt covenants. On August 14, 2009, Cambium notified both
its senior secured lenders and senior unsecured debt holders
that it intended to cure the noncompliance. On August 17,2009, $3.0 million of capital was contributed by the
Cambium stockholder to Cambium to fund the cure. On
August 20, 2009, Cambium paid the $3.0 million to the
senior secured lenders and the principal amount outstanding on
Cambium’s senior secured credit agreement was reduced by a
corresponding amount. To obtain the number of shares issuable
under the warrant, the $3.0 million payment is divided by
$6.50.
The fair value of the warrant was estimated using the
Black-Scholes pricing model assuming historical volatility of
45.9%, a dividend yield of 0%, a risk free rate of 2.52%, and a
$4.91 value for each Holdings share. The warrant will be
accounted for as a liability.
Since the number of shares exercisable under the warrant is
subject to change based upon a number of factors, the following
table is provided to illustrate the impact of changes in the
number of shares exercisable under the warrant on the fair value
of the liability at the merger date:
Because the financial instrument is classified as a liability,
the warrant will be required to be presented at its fair value
as of each reporting date. Changes in the fair value will be
recorded in results of operations following the merger date.
Subscription
Rights
Holdings will grant Cambium’s stockholder and funds managed
or controlled by VSS a subscription right that permits them to
purchase, at any time and from time to time through the
24-month
anniversary of the effective time of the mergers, a number of
shares of Holdings common stock up to the lesser of:
•
7,500,000 shares of common stock (subject to adjustment in
the event of any dividend, stock split, combination or similar
recapitalization event); or
•
the number of shares of common stock that Cambium’s
stockholder and funds managed or controlled by VSS may purchase
from time to time during the
24-month
subscription period for an aggregate purchase price of
$20 million (based upon the per share purchase price
described below).
The purchase price per share in connection with the subscription
rights is equal to 90% of the volume weighted average price of
the Holdings common stock measured over the ten trading day
period immediately preceding the issuance and sale of the shares
of Holdings common stock.
Based on the limitation of aggregate purchase price, the maximum
amount of market value of the purchases under the subscription
rights would be limited to $22.2 million, with a discount
of $2.2 million. Therefore, the assumed value of the
subscription rights for pro forma purposes is $2.2 million.
This instrument will be accounted for as equity.
(O) Adjustment to reflect the impact of the purchase price
accounting reduction in deferred revenue. To calculate this
adjustment, deferred revenue obligations for online access
existing as of January 1, 2008 were written down by 58%,
which is consistent with the write-down percentage used to
adjust the
deferred revenue balance at September 30, 2009 to fair
value in adjustment (K). The resulting adjustment reflects the
difference between revenue recognized from the historical
deferred revenue balance at January 1, 2008 and revenue
that would have been recognized had a fair value adjustment been
made to the deferred revenue balance at January 1, 2008.
(P) Adjustment to reflect the impact of the purchase price
accounting reduction in deferred costs. To calculate this
adjustment, deferred costs existing as of January 1, 2008
were written down to zero, which is consistent with the
write-down percentage used to adjust the deferred costs balance
at September 30, 2009 to fair value in adjustment (E). The
resulting adjustment removes the impact of costs recognized from
the historical deferred cost balance at January 1, 2008.
(Q) Both Cambium and Voyager capitalize certain
pre-publication costs of curriculum, including art, prepress and
other costs incurred in the creation of the master copy of
curriculum products. Voyager also capitalizes editorial costs
incurred in the creation of the master copy of curriculum
products. This adjustment reflects the estimated impact of
conforming Voyager’s capitalization policy for
pre-publication costs to Cambium’s policy. To determine
this adjustment, Voyager conducted interviews with curriculum
management and reviewed development plans and budgets, where
available, to determine estimated costs associated with
editorial work that would not have been capitalized had Voyager
followed the same policy as Cambium.
(R) Adjustment to reflect the impact of the purchase price
accounting adjustments to intangible assets on amortization
expense. The pro forma amortization expense was calculated based
on the asset values, amortization methods and useful lives
assigned in the purchase price allocation described in
Note 3.
(S) Adjustment to reflect the estimated interest income
lost as a result of the $58.0 million of cash used in the
preliminary estimated purchase price consideration, which is
equal to the cash expected to be paid to stockholders of
$67.5 million plus the cash to be paid for specified tax
refunds of $15.5 million and net of the cash contributed by
Cambium’s parent of $25.0 million. The interest rates
assumed, which are 1.3% and 0.1% for the year ended
December 31, 2008 and the nine months ended
September 30, 2009, respectively, are averages of the 4 and
13 week daily Treasury bill rates for the applicable
periods, since these were the typical rates of return on
Voyager’s excess cash at these times.
(T) Adjustment to reflect the estimated pro forma combined
income tax benefit at an effective rate of 8.5% for 2008 and 0%
for the nine months ended September 30, 2009. Pre-tax
losses at statutory tax rates provided a tax benefit of
approximately $59.1 million and $15.0 million in 2008
and the nine
months ended September 30, 2009, respectively. However the
non-deductible impairment charges to goodwill do not result in
tax benefits. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income,
taxable income in prior carryback years, loss carryforward
limitations, and tax planning strategies in assessing whether
deferred tax assets will be realized in future periods. After
consideration of these factors, management believes it is more
likely than not that a portion of the deferred tax assets will
not be realized. Thus, a valuation allowance was established
which limited the tax benefit recognized in 2008 to the amount
generated from the reduction of its deferred tax liabilities,
and there was no remaining benefit or expense for the nine
months ended September 30, 2009.
(U) Adjustment to reflect Holdings’ total shares
outstanding after the mergers are completed, calculated as
follows (in thousands):
Holdings shares to be issued to existing Cambium stockholder
20,454
20,454
Additional shares to be issued for $25 million capital
contribution to be made immediately prior to closing by the
Cambium stockholder
3,846
3,846
Estimated Holdings shares to be issued to existing Voyager
stockholders
19,490
19,490
Total estimated shares of Holdings outstanding at the merger date
43,790
43,790
Basic and diluted shares outstanding per the Voyager historical
statement of operations
29,871
29,874
Increase to basic and diluted shares outstanding for the pro
forma condensed combined statement of operations
13,919
13,916
As described in Note 2, for pro forma purposes, the amount
of cash paid to shareholders making the cash election assumes
that the cash available for cash elections will equal the
maximum of $67.5 million and that at least 35% of
shareholders, holding an aggregate of 10.4 million shares,
will make the cash election, resulting in Holdings shares of
19.5 million to be issued to existing Voyager stockholders.
The table below shows the impact on estimated shares of Holdings
outstanding at the merger date and pro forma basic and diluted
net loss per common share if the cash paid to shareholders was
reduced by $2.5 million to $65.0 million or by
$5.0 million to $62.5 million, assuming in each case
that the shares electing cash meets or exceeds the shares
eligible to receive cash.
Holdings shares to be issued to existing Cambium stockholder
20,454
20,454
20,454
Additional shares to be issued for $25 million capital
contribution to be made immediately prior to closing by the
Cambium stockholder
3,846
3,846
3,846
Estimated Holdings shares to be issued to existing Voyager
stockholders
19,490
19,874
20,259
Total estimated shares of Holdings outstanding at the merger date
43,790
44,174
44,559
Pro forma basic and diluted net loss per common share
$
(0.98
)
$
(0.97
)
$
(0.96
)
(V) Adjustment to eliminate merger costs. Merger costs
included in the historical statement of operations for the year
ended December 31, 2008 were $26,000 for Cambium. Merger
costs included in the historical statement of operations for the
nine months ended September 30, 2009 were $6.1 million
for Voyager and $2.5 million for Cambium.
(W) Adjustment to conform Voyager’s quarterly
allocation of commission expense to Cambium’s policy.
Cambium has commission plans that provide for increasing
commission rates as certain tiers or milestones are achieved
and, as such, records commission expense during interim periods
based on the expected annualized commission rate multiplied by
the actual year to date sales for the quarter. Voyager also has
commission plans that provide for increasing rates, but at rates
that are different from those of Cambium. Voyager records
commission expense during interim periods based upon the amount
earned which is based on the commission rate effective at the
end of the quarter multiplied by the actual year to date sales
for the quarter. This difference in policies has no effect on
full year pro forma commission expense for 2008.
(X) Pursuant to the management services agreement, Cambium
pays VSS an annual monitoring fee of $0.2 million, plus
out-of-pocket
expenses, payable semi-annually in arrears. The management
services agreement will be terminated at the effective time of
the mergers and VSS will cease to be compensated under the
agreement. In accordance with the terms of the merger agreement,
upon completion of the mergers, the board of directors of
Holdings will be reconstituted to have nine members, consisting
of five directors designated by Cambium and four directors
designated by Voyager. Two of the board members are expected to
be employees of Holdings who will not receive additional
compensation for their service on the board. Fees paid to the
non-employee directors designated by Cambium are expected to be
paid to VSS or an affiliate of VSS. This adjustment is to
reflect the difference between the historical board compensation
and the VSS monitoring fee recorded in the historical results of
Cambium and Voyager versus the expected ongoing board fees. The
amount and form of compensation that non-employee directors of
Holdings may receive have not yet been determined. For purposes
of this pro forma adjustment, it has been assumed that
non-employee directors will receive annual compensation equal to
$72,250, which represents the current average compensation for
Voyager directors.
Board of directors fees included in Voyager’s historical
financials
$
357,262
$
183,304
VSS management fees included in Cambium’s historical
financial statements
199,315
150,000
Total historical board and management fees
556,577
333,304
Estimated board of director fees for non-employee directors of
Holdings
505,750
379,313
Total increase (decrease) in board and management fees
$
(50,827
)
$
46,009
Additionally, Cambium paid to an affiliate of VSS a fee of
$3.2 million in connection with Cambium’s purchase of
Cambium Learning in 2007, together with $0.1 million of
reimbursed expenses. Cambium was also obligated to pay to a VSS
affiliate fees in the event that additional equity or debt
financings were completed by Cambium. Contemporaneous with the
closing, that fee agreement will be replaced by a consulting fee
agreement between Holdings and VSS entitling VSS to the
following fees:
•
a fee equal to 1% of the gross proceeds of any debt or equity
financing by Holdings; and
•
a fee equal to 1% of the enterprise value of any entities
acquired or disposed of by Holdings.
These obligations will remain in effect until the earlier of the
date on which funds managed by VSS cease to beneficially own at
least 10% of the outstanding Holdings common stock or, unless
Holdings’ audit committee renews the consulting fee
agreement, January 1, 2015. No pro forma adjustment has
been made for this consulting fee because it is contingent on
future events.
(Y) Ronald D. Klausner is a party to an amendment effective
August 7, 2009 and executed August 13, 2009, to
Mr. Klausner’s amended and restated employment
agreement, dated as of April 9, 2009. Among other things,
Mr. Klausner’s agreement provides that he will be
granted options to purchase 750,000 shares of Holdings
common stock under the 2009 Incentive Plan at the effective time
of the mergers. David F. Cappellucci is a party to an employment
agreement with Cambium, dated April 12, 2007, which was
amended on June 26, 2009 to, among other things, assign the
agreement to Holdings at the effective time of the mergers.
Among other things, Mr. Cappellucci’s agreement
provides that his current annual salary of $220,000 will change
to an annual base salary of $395,000, that his current annual
bonus opportunity with a target payment of 50% of base salary
and a maximum payment of 100% of base salary will change to an
annual bonus opportunity with a target payment of 75% of base
salary and a maximum payment of 150% of base salary, and that he
will be granted options to purchase 600,000 shares of
Holdings common stock under the 2009 Incentive Plan at the
effective time of the mergers. Also, the Holdings board has
determined that the following executives will be granted options
to purchase shares of Holdings common stock under the 2009
Incentive Plan at the effective time of the mergers: Brad Almond
for options to purchase 250,000 shares; John Campbell for
options to purchase 300,000 shares; and George Logue for
options to purchase 250,000 shares.
The stock options granted to Mr. Klausner,
Mr. Cappellucci and the other executives will vest ratably,
daily for Mr. Klausner and Mr. Cappellucci and
annually for the other executives, over a four-year period,
subject to earlier vesting upon a change of control of Holdings.
Seventy-five percent of these options will have a per-share
exercise price equal to the greater of $4.50 or an average
trading price over a pre-designated
ten-day
period and 25% will have an exercise price equal to $6.50.
This pro forma adjustment for the year ended December 31,2008 represents the estimated additional annual expense
associated with these employment agreements, including
(1) estimated annual stock-based compensation expense of
$0.9 million and (2) an increase in
Mr. Cappellucci’s annual salary of $0.2 million.
The pro forma adjustment for the nine months ended
September 30, 2009 represents three- fourths of this
estimated additional annual expense. In determining the fair
value of the stock option
awards, a Black-Scholes option-pricing model was used with the
following assumptions: an expected stock volatility of 45.9%; a
risk-free interest rate of 2.09%; an expected life of four years
to exercise; a 0% dividend yield; and a grant price of $4.91 for
75% of each award and a grant price of $6.50 for 25% of each
award.
No pro forma adjustment has been provided for any change in
bonus structure, since annual bonuses are dependent on the
achievement of performance targets. Further, Holdings expects to
grant awards under the 2009 Incentive Plan to employees other
than Mr. Klausner, Mr. Cappellucci, Mr. Almond,
Mr. Campbell and Mr. Logue at or near the closing of
the mergers. However, as no determination has been made to date
with respect to the number of options to be granted to other
employees, Holdings cannot presently determine the related
compensation costs and, therefore, no pro forma adjustment for
these awards has been included.
In accordance with the terms of the merger agreement the board
of directors of Holdings will be reconstituted to have nine
members, consisting of five directors designated by Cambium and
four directors designated by Voyager. The Holdings board of
directors will be divided into three classes, with three
directors in each class, serving staggered terms. The
Class I directors will serve for a term expiring on the
date of the first Holdings annual meeting of stockholders after
completion of the mergers, the Class II directors will
serve for a term expiring on the date of the second Holdings
annual meeting of stockholders after completion of the mergers,
and the Class III directors will serve for a term expiring
on the date of the third Holdings annual meeting of stockholders
after completion of the mergers. Information regarding the seven
Holdings directors who have been designated as of the date of
this proxy statement/prospectus is listed below. Of these seven
directors, three have been designated by Cambium and four have
been designated by Voyager. Cambium expects to designate the
remaining two directors shortly following the effective time of
the mergers. It is anticipated that one of those two directors
will be “independent” within the NASDAQ and SEC
standards applicable to audit committee members. However, so
long as the VSS Funds own or control a majority of holdings
common stock, until Cambium designates the additional directors,
Jeffrey T. Stevenson will have the right to cast the votes that
the additional directors would have, so that the Cambium
designees have the agreed upon total of five board votes. If Mr.
Stevenson is not then serving on the board, then Scott J.
Troeller will be entitled to cast the additional votes.
The executive officers of Holdings upon completion of the
mergers are listed in the table below. Executive officers will
serve at the discretion of the Holdings board of directors,
subject to the terms of any employment agreements. The table
below sets forth the names and ages of the initial directors and
executive officers of Holdings who have been designated as of
the date of this proxy statement/prospectus, as well as the
positions and offices to be held by these individuals. These
persons will serve as the directors and executive officers of
Holdings upon completion of the mergers. A summary of the
biographical information regarding these individuals, including
the background and experience of each, is set forth after the
table.
Name
Age
Position(s)
CLASS I DIRECTORS(WHOSE TERMS
AREEXPECTED TOEXPIRE IN
2010)
David F. Cappellucci
52
Director and President
Two additional directors are expected to be designated by
Cambium shortly following the effective time of the mergers.
CLASS II DIRECTORS(WHOSE TERMS
AREEXPECTED TOEXPIRE IN
2011)
Neil Weiner
49
Director
Frederick J. Schwab
70
Director
Scott J. Troeller
41
Director
CLASS III DIRECTORS(WHOSE TERMS
AREEXPECTED TOEXPIRE IN
2012)
Richard J. Surratt
48
Director and Chief Executive Officer
Ronald Klausner
56
Director
Jeffrey T. Stevenson
48
Director
EXECUTIVE OFFICERSWHO ARE NOT
DIRECTORS
Bradley C. Almond
42
Chief Financial Officer
Todd W. Buchardt
49
General Counsel
John Campbell
48
Senior Vice President and President of Cambium Learning
Technologies
George A. Logue
58
Executive Vice President and President of Supplemental Solutions
David F. Cappellucci. David F. Cappellucci
will serve as a Class I director and the President of
Holdings following completion of the mergers.
Mr. Cappellucci has served as the Chief Executive Officer
of Cambium since April 2007 and has 24 years of
experience in the education industry. Before co-founding Cambium
in December of 2002, Mr. Cappellucci spent 13 years
with Houghton Mifflin Company, where he served in a variety of
senior management positions, overseeing strategy, mergers and
acquisitions, planning and operations at both the corporate
level and within a number of business units, including the K-12
School Publishing Group and the Educational and Business
Software Divisions. In 2000, Mr. Cappellucci co-founded
Classwell Learning Group, an education company formed within the
Houghton Mifflin organization. Through 2002,
Mr. Cappellucci served as President and Chief Executive
Officer of Classwell Learning Group, which was described as the
“best new brand in the education market” by a major
industry magazine in 2002. From 1992 to 1997,
Mr. Cappellucci served as Senior Vice President of
Elementary Education for Simon & Schuster. Prior to
that, Mr. Cappellucci was Vice President of Finance,
Planning and Operations for Houghton Mifflin’s K-12 school
and assessment businesses.
Ronald Klausner. Ronald Klausner will serve as
a Class III director and the Chief Executive Officer
of Holdings following completion of the mergers.
Mr. Klausner has served as President of Voyager Expanded
Learning since October 2005. Prior to that, Mr. Klausner
served as President of ProQuest Information and Learning (a
subsidiary of Voyager until it was sold in 2007) from April 2003
to October 2005. Mr. Klausner came to Voyager from D&B
(formerly known as Dun & Bradstreet), a global
business information and technology solutions provider, where he
worked for 27 years. He most recently served as
D&B’s Senior Vice President, U.S. Sales, leading
a segment with more than $900 million in revenue.
Previously, Mr. Klausner led global data and operations,
and customer service, providing business-to-business, credit,
marketing and purchasing information in over 200 countries.
Frederick J. Schwab. Frederick J. Schwab will
serve as a Class II director of Holdings following
completion of the mergers. Mr. Schwab has served as a
member of Voyager’s board of directors since September
2004. Mr. Schwab is also a member of the compensation
committee of the board of directors of Voyager. Mr. Schwab
was President and Chief Executive Officer of Porsche Cars North
America, or PCNA, from 1992 to 2003. He joined PCNA in 1985 as
Executive Vice President of Finance & Administration
and was appointed Senior Vice President in 1988. Prior to
joining PCNA, Mr. Schwab, a certified public accountant,
was employed by Fruehauf Corp. and Touche Ross &
Company. Currently, Mr. Schwab serves as a director of Boyd
Gaming Corporation, where he is chairman of the audit committee
and a member of the corporate governance committee of the board
of directors.
Jeffrey T. Stevenson. Jeffrey T. Stevenson
will serve as a Class III director of Holdings and
chairman of the board of Holdings following completion of the
mergers. Mr. Stevenson is the Managing Partner and Co-Chief
Executive Officer of VSS, a private equity fund with
$2.5 billion of capital under management.
Mr. Stevenson joined VSS in 1982, shortly after its
formation, and has been the head of its private equity business
since its first investment in 1989. VSS manages private equity
and mezzanine funds dedicated to companies engaged in the media,
communications and information industries. Mr. Stevenson
currently serves as a director of substantially all of the
private portfolio companies in which VSS has invested and serves
on the investment committee for each of VSS’ investment
funds.
Richard J. Surratt. Richard J. Surratt will
serve as a Class III director of Holdings following
completion of the mergers. Mr. Surratt currently serves as
President and Chief Executive Officer of Voyager, a position he
has held since January 2007. Prior to that, Mr. Surratt was
Senior Vice President and Chief Financial Officer of Voyager
since November 2005. From 1999 to 2005, Mr. Surratt was
Executive Vice President and Chief Financial Officer of
Independence Air, where he was responsible for accounting,
treasury, legal, financial planning and information systems
activities. Prior to that, Mr. Surratt held various
financial and management positions with Mobil Corporation
between 1991 and 1999.
Scott J. Troeller. Scott J. Troeller will
serve as a Class II director of Holdings following
completion of the mergers. Mr. Troeller is a Partner of
VSS, a position he has held since 2005, and a managing member of
the general partner of three VSS funds: VSS Communications
Partners III, L.P. (“VSS III”); VSS
Communications Partners IV, L.P. (“VSS IV”); and VSS
Mezzanine Partners (“VSS MP”). From 1996 to 1998,
Mr. Troeller was a Director of VSS and was a Managing
Director of VSS from 1998 until 2000. He became a General
Partner of VSS III in 2001. Mr. Troeller is actively
involved in substantially all aspects of VSS’ activities,
including new business development, financial and transaction
structuring, portfolio management and monitoring, fund raising
and operations of the firm. Mr. Troeller also is a member
of the investment committees of VSS III, VSS IV and VSS MP.
Mr. Troeller has approximately 18 years of private and
public equity and debt investment, financing and transactional
experience across a broad range of sectors, focusing primarily
on media, communications and information industries.
Mr. Troeller has played an active role in many of VSS’
investments, completing over 50 platform and add-on investments.
He has served or is currently serving on the boards of several
current and former portfolio companies.
Neil Weiner. Neil Weiner will serve as a
Class II director of Holdings following completion of the
mergers. Mr. Weiner is the founder of Foxhill Opportunity
Master Fund, L.P., Foxhill Opportunity Fund, L.P., and Foxhill
Opportunity Offshore Fund, Ltd., and has served as the Senior
Managing Member of Foxhill Capital Partners, LLC, the investment
manager of the Foxhill funds, since January 2006.
Mr. Weiner has over 25 years of investment experience,
including the management of hedge fund portfolios for the past
17 years. From June 2000 through March 2005,
Mr. Weiner was a Managing Member and co-portfolio manager
of Triage Advisors LLC and Triage Management LLC, the investment
advisors to Triage Capital Management LP and Triage Offshore
Fund Ltd. Prior to joining Triage Capital Management, LLC,
Mr. Weiner was a Managing Director and portfolio manager
from April 1992 to May 2000 with LibertyView Capital Management,
a multi-strategy arbitrage hedge fund group. Prior to his hedge
fund experience, Mr. Weiner worked as a sell-side analyst
at Solomon Brothers.
Executive
Officers (other than directors who are also executive
officers)
Bradley C. Almond. Bradley C. Almond will
serve as the Chief Financial Officer of Holdings following
completion of the mergers. Mr. Almond has served as Vice
President and Chief Financial Officer of Voyager since January
2009. Mr. Almond joined Voyager in November 2006 as Chief
Financial Officer of the Voyager Expanded Learning operating
unit. Before joining Voyager, Mr. Almond was Chief
Financial Officer, Treasurer and Vice President of
Administration at Zix Corporation, a publicly traded email
encryption and
e-prescribing
service provider located in Dallas, Texas, since 2003. From 1998
to 2003, Mr. Almond worked at Entrust Inc., where he held a
variety of management positions, including president of Entrust
Japan, general manager of Entrust Asia and Latin America, vice
president of finance and vice president of sales and customer
operations. Mr. Almond is a licensed Certified Public
Accountant.
John Campbell. John Campbell will serve as
Senior Vice President and the President of the Cambium Learning
Technologies business unit of Holdings following completion of
the mergers. Mr. Campbell has served as Chief Operating
Officer of Voyager Expanded Learning since January 2004. Before
joining Voyager, Mr. Campbell served as Chief Operating
Officer and business unit head of a research based reading
company (Breakthrough to Literacy) within McGraw-Hill. Prior to
joining Breakthrough/McGraw-Hill, he served as Director of
Technology for a division of Tribune Education. Additionally,
Mr. Campbell has experience as General Manager of a
software
start-up
(Insight) and as Director of Applications and Technical Support
for a hardware manufacturer (Commodore International).
George A. Logue. George A. Logue will serve as
Executive Vice President and the President of the Supplemental
Solutions business unit of Holdings following completion of the
mergers. Mr. Logue has served as the Executive Vice
President of Cambium since June 2003 and has 30 years of
education industry experience. Before joining Cambium,
Mr. Logue spent 18 years in various leadership roles
with Houghton Mifflin Company. At Houghton Mifflin,
Mr. Logue served as Executive Vice President of the School
Division from 1996 to 2003. Prior to serving as Executive Vice
President of Houghton Mifflin, Mr. Logue was Vice President
for Sales and Marketing from 1994 to 1996.
Alex Saltonstall. Alex Saltonstall will serve
as General Manager of Cambium Learning Technologies following
completion of the mergers. Alex Saltonstall has served as the
General Manager of Cambium Learning Technologies, which includes
IntelliTools, Inc. and Kurzweil Educational Systems, Inc., since
January, 2006. Mr. Saltonstall was previously the Corporate
Development Manager at Cambium Learning, in which role he led
the company’s acquisition activities, from July 2004 to
December 2005. Before joining Cambium Learning,
Mr. Saltonstall attended Harvard Business School from
September 2002 to June 2004. From 2001 to 2002,
Mr. Saltonstall was President of SearchSoft Solutions,
Inc., a company providing recruitment, selection and hiring
software for
K-12 public
school systems, from 2000 to 2001 Mr. Saltonstall was an
Associate at Schoolhouse Partners, a venture capital firm
focused on
K-12
education and from 1997 to 2000, Mr. Saltonstall served as
a Senior Associate at The Parthenon Group, a strategy consulting
firm.
Todd W. Buchardt. Todd W. Buchardt
will serve as General Counsel of Holdings following completion
of the mergers. Mr. Buchardt has served Voyager as Senior
Vice President since November 2002, Vice President since
March 2000, and General Counsel and Secretary since 1998.
Before joining Voyager, Mr. Buchardt held various legal
positions with First Data Corporation from 1986 to 1998.
Upon completion of the mergers, the board of directors of
Holdings will have an audit committee that consists of at least
three directors, two of whom will be “independent”
based on independence criteria set forth in
Rule 10A-3
of the Exchange Act. These three directors must also satisfy the
requirements set forth in NASDAQ Market Rule 5605(a) and
(c).
Rule 10A-3
of the Exchange Act and NASDAQ Market Rule 5615(b)(1) allow
Holdings to “phase in” the independence requirements
applicable to audit committees. Accordingly, the board of
directors expects to establish an audit committee composed of
three independent directors within the phase-in period. The
initial members of the audit committee of the Holdings board of
directors upon completion of the mergers will be
Messrs. Troeller, Schwab and Weiner. Each of Messrs. Schwab
and Weiner meet the applicable independence requirements, but
Mr. Troeller does not because of his position with VSS. It
is expected that within the phase-in period Mr. Troeller will be
replaced on the audit committee by a director designated by
Cambium who will meet the applicable independence requirements.
The board of directors of Holdings may, from time to time,
establish other committees to facilitate the management of
Holdings or for any other purposes it may deem necessary or
appropriate. Committee membership will be decided by the
Holdings board members.
It is expected that Holdings will be a “Controlled
Company” as defined in Rule 5615(c)(2) of the NASDAQ
Global Market because VSS-Cambium Holdings III, LLC will hold
more than 50% of Holdings’ voting power following
completion of the mergers. As a “Controlled Company,”
Holdings will not be required to have a majority of its board of
directors comprised of independent directors, a compensation
committee comprised solely of independent directors or a
nominating committee comprised solely of independent directors.
The directors and executive officers of Holdings will receive no
compensation from Holdings prior to the completion of the
mergers. The form and amount of the compensation to be paid to
each of Holdings’ directors, executive officers and other
managers who have not entered into an employment agreement with
Holdings as of the date of this proxy statement/prospectus will
be determined by the Holdings board of directors either prior
to, or promptly following completion of, the mergers.
Certain individuals who are expected to be directors and
executive officers of Holdings are presently directors
and/or
executive officers of Voyager or Cambium and are entitled to
compensation
and/or other
employment benefits from Voyager or Cambium, as applicable,
prior to the completion of the mergers.
For information concerning the compensation paid by Voyager for
the 2008 fiscal year to certain executive officers of Voyager
who will serve as executive officers of Holdings following
completion of the mergers, and for information concerning
compensation of a Voyager director who will become a director of
Holdings, see “VOYAGER COMPENSATION DISCUSSION AND
ANALYSIS” on page 274, “VOYAGER EXECUTIVE
COMPENSATION” on page 276 and “— Director
Compensation” on page 188.
For information concerning the compensation paid by Cambium or
its subsidiaries for the 2008 fiscal year to certain executive
officers of Cambium who will serve as executive officers of
Holdings following completion of the mergers, see “CAMBIUM
COMPENSATION DISCUSSION AND ANALYSIS” on page 243 and
“CAMBIUM EXECUTIVE COMPENSATION” on page 246.
Letter agreement. Mr. Klausner is party
to a letter agreement with Voyager, dated April 9, 2009,
which agreement was amended on August 13, 2009 by an
amendment dated as of August 7, 2009, to, among other
things, assign the agreement to Holdings at the effective time.
We refer to this letter agreement, as amended, as the Klausner
Agreement. The Klausner Agreement provides that
Mr. Klausner will serve Holdings as its Chief Executive
Officer and for Mr. Klausner to be nominated for election
to the board of directors of Holdings so long as he remains
Chief Executive Officer of Holdings.
Salary; Bonus. The Klausner Agreement provides
for an annual base salary of $557,875; however, solely for
purposes of calculating certain bonuses, severance payments and
other benefit entitlements, the Klausner Agreement provides for
an annual base salary of $537,075, which lower amount we refer
to as Mr. Klausner’s base salary. The Klausner
Agreement also provides for an annual bonus opportunity with a
target payment of 70% of base salary and a maximum payment of
140% of base salary, subject to the attainment of
pre-established performance goals.
Payments in connection with the
mergers. Pursuant to the Klausner Agreement, if
the mergers are completed and Mr. Klausner has not been
terminated for cause or resigned other than for good reason for
a period of six months following the effective time, he will be
entitled to receive a 2009 Change in Control Bonus Payment in
the amount of $751,906 and a Change in Control Payment in the
amount of $805,612. In addition, if Mr. Klausner has not
been terminated for cause or resigned other than for good reason
for a period of one year from the effective time, he will
receive a retention bonus in the amount of $268,538. See
“THE MERGERS — Interests of Voyager’s
Directors and Officers in the Mergers” on page 101 for
additional information regarding Mr. Klausner’s
interests in the mergers.
Employee benefits. The Klausner Agreement also
provides that Mr. Klausner may participate in
Holdings’ employee benefit plans, executive compensation
and deferred compensation plans and executive perquisite
arrangements. The Klausner Agreement also provides
Mr. Klausner with indemnification with respect to certain
“golden parachute” excise taxes under
Section 4999 of the Internal Revenue Code.
Resignation. Mr. Klausner has the right
to resign from his employment and, so long as (i) he does
not resign for a period of five months following the closing of
the mergers and (ii) following such five-month period, he
provides Holdings with seven months advance notice of any
resignation and assists in any replacement search and
transitioning his duties to his successor, he will receive, in
addition to base salary, a pro rata bonus in respect of the year
in which his employment terminates. The pro rata bonus will be
calculated based upon Holdings’ actual performance as
compared to applicable performance targets. If Mr. Klausner
resigns as described in this paragraph, he will not be eligible
for any severance benefits as described in the following
paragraph.
Severance Benefits. In the event
Mr. Klausner’s employment is terminated by Holdings
without cause, or if he resigns for good reason, he is entitled
to certain severance benefits. If such an event occurs prior to
December 31, 2010, he would receive a payment equal to the
greater of (i) 100% of his base salary or (ii) his
target bonus for 2010. If such an event occurs on or after
January 1, 2011, he would receive (i) salary
continuation payments for a period of one year, and (ii) a
pro rata bonus for the year in which such termination occurs,
but determined based upon Holdings’ actual performance as
compared to applicable performance targets and paid at the later
of the effective date of a release of claims, and the date
bonuses for such year are paid to other executives of Holdings.
In addition, upon such an event, Mr. Klausner would be
eligible to receive continued medical, dental and vision
benefits on terms similar to those applicable to active
employees of Holdings for a period of 18 months. As a
precondition to his receipt of such benefits, Mr. Klausner
is required to deliver a general release of claims to Holdings.
Equity Compensation. With respect to
Mr. Klausner’s stock appreciation rights, granted as
of April 24, 2007, relating to 300,000 shares of
Voyager common stock, at the effective time of the mergers,
(i) rights with respect to 200,000 shares will be
retained by Mr. Klausner and equitably adjusted and
converted into rights relating to 200,000 shares of
Holdings common stock, in accordance with the terms of the
merger agreement, and (ii) rights with respect to
100,000 shares will terminate. In addition,
Mr. Klausner will be granted options to purchase
750,000 shares of Holdings common stock under the 2009
Incentive Plan at the effective time of the mergers. These stock
options will vest ratably daily over a four-year period, subject
to earlier vesting upon a change of control of Holdings.
Seventy-five percent of these options will have a per-share
exercise price equal to the greater of $4.50 or an average
volume-weighted trading price over a pre-designated
ten-day
period and 25% of these options will have an exercise price
equal to $6.50. Upon Mr. Klausner’s resignation, other
than for good reason, or upon his termination for cause, all of
his vested and unvested option and equity awards will terminate.
Restrictive Covenants. For a period of
24 months following Mr. Klausner’s termination of
employment, he is restricted from (i) soliciting, calling
or contracting with certain customers of Holdings or Voyager,
(ii) participating in the development or support of certain
products which compete with, or can be used for the same
purposes as, Holdings’ or Voyager’s products,
(iii) being engaged by any entity that manufacturers or
sells products that compete with Holdings’ or
Voyager’s products or (iv) soliciting employees of
Holdings or Voyager.
David
F. Cappellucci
Employment agreement. Mr. Cappellucci is
party to an employment agreement with Cambium Learning, dated
April 12, 2007, which was amended on June 26, 2009,
to, among other things, assign it to Holdings at the effective
time of the mergers; we refer to this employment agreement, as
amended, as the Cappellucci Agreement.
Position at Holdings. The Cappellucci
Agreement provides that Mr. Cappellucci will serve as the
President of Holdings; provided, that, on or after the 180th day
after the effective time of the mergers, Mr. Cappellucci
may elect to transition from President to Vice Chairman of
Holdings on such amended terms setting forth his role and
responsibilities as Vice Chairman as Holdings and
Mr. Cappellucci may mutually agree upon. If
Mr. Cappellucci does not elect this transition, he will
remain President of Holdings in accordance with the terms of his
employment agreement, as amended. In the event that
Mr. Cappellucci elects to transition to the role of Vice
Chairman of Holdings, the terms of his employment agreement, as
amended, will, subject to further amendment by mutual agreement
of Holdings and Mr. Cappellucci, continue to govern his
role as Vice Chairman of Holdings. Pursuant to the Cappellucci
Agreement, Mr. Cappellucci will be nominated for election
to the board of directors of Holdings so long as he holds the
position of President or Vice Chairman of Holdings. If
Mr. Cappellucci elects to serve in the role of Vice
Chairman of Holdings and an amendment to his agreement governing
the terms of such role is not mutually agreed upon prior to the
270th day following the effective time of the mergers (in which
case his employment with Holdings will be terminated as of the
270th day following the effective time of the mergers), he will
be entitled to receive as severance the continuation of the
payment of his base salary and health benefits for a period of
12 months and his pro-rated bonus for the applicable
calendar year (such 12-month period may be extended for an
additional twelve-month period if Holdings, at its election,
extends Mr. Cappellucci’s non-competition period for
an additional 12 months).
Salary; Bonus. The Cappellucci Agreement
currently provides for an annual base salary of $220,000. The
Cappellucci Agreement also provides for an annual bonus
opportunity with a target payment of 50% of base salary and a
maximum payment of 100% of base salary; provided, that his cash
bonus for the 2009 year will equal $250,000 payable on the
180th day after the effective time of the mergers (but not later
than the date bonuses for 2009 are paid to other executives).
Commencing in 2010, Mr. Cappellucci will receive an
annual base salary of $395,000 and an annual bonus opportunity
with a target payment of 75% of base salary and a maximum
payment of 150% of base salary.
Payments in connection with the
mergers. Pursuant to the Cappellucci Agreement,
Mr. Cappellucci is not entitled to receive any special
payments or other benefits upon the completion of the mergers.
Employee benefits. The Cappellucci Agreement
also provides that Mr. Cappellucci may participate in all
benefits generally available to Holdings’ other senior
executives.
Severance Benefits. In the event
Mr. Cappellucci’s employment is terminated by Holdings
without cause, or if he resigns for good reason, he is entitled
to certain severance benefits equal to 150% of his base salary
payable over a period of 24 months following the
termination of employment and continued medical and dental
benefits for a period of 24 months; provided, however,
that, at the discretion of Holdings, such salary continuation
and medical and dental benefits may be extended for an
additional six-month period if Holdings elects to extend
post-termination non-competition and similar covenants by an
incremental six-month period (extending such non-competition
period from 18 months to 24 months). As a precondition
to his receipt of such benefits, Mr. Cappellucci is
required to deliver a general release of claims to Holdings.
Death or Disability. In the event that
Mr. Cappellucci’s employment terminates by reason of
his death or disability, he would be entitled to receive his
salary and prorated bonus through the date of his termination.
Equity Compensation. In connection with the
mergers, Mr. Cappellucci agreed to forfeit his interests in
VSS-Cambium Management, LLC, Cambium Learning’s former
management incentive plan. Mr. Cappellucci will be granted
options to purchase 600,000 shares of Holdings common stock
under the 2009 Incentive Plan at the effective time of the
mergers. These stock options will vest ratably daily over a
four-year period, subject to earlier vesting upon a change of
control of Holdings. Seventy-five percent of these options will
have a per-share exercise price equal to the greater of $4.50 or
an average trading price over a pre-designated
ten-day
period and 25% will have an exercise price equal to $6.50. Upon
Mr. Cappellucci’s resignation, other than for good
reason, or upon his termination for cause, all of his vested and
unvested options will terminate.
Restrictive Covenants. For a period of
18 months following Mr. Cappellucci’s termination
of employment, he is restricted from (i) being engaged by
an entity that is competitive with the business of Holdings or
Cambium (subject to certain limited exceptions),
(ii) soliciting certain customers of Holdings or Cambium,
or (iii) soliciting certain employees of Holdings or
Cambium. Such 18-month period may be extended by Holdings upon
notice to Mr. Cappellucci for an additional six-month
period if Holdings extends Mr. Cappellucci’s severance
benefits for such six-month period.
Other
Executive Officers of Holdings
No executive officer of Voyager other than Mr. Klausner, and no
executive officer of Cambium other than Mr. Cappellucci,
has entered into a separate employment agreement with Holdings.
Messrs. Almond, Campbell, Buchardt, Saltonstall and Logue
may enter into agreements with Holdings in the future that
provide for compensation, severance and other benefits
commensurate with their new positions, as determined by the
board of directors of Holdings.
In connection with the mergers, on July 31, 2009,
Holdings’ board of directors and sole stockholder approved
the Cambium Learning Group, Inc. 2009 Equity Incentive Plan,
which we refer to as the 2009 Incentive Plan. The general
purposes of the 2009 Incentive Plan are to attract and retain
the best available personnel for positions of substantial
responsibility, to provide additional incentives to employees,
directors and consultants, and to promote the success of
Holdings.
In connection with the mergers, the stock plans formerly
sponsored by Voyager will be terminated with respect to new
grants, existing awards previously granted under such plans will
become awards under the 2009 Incentive Plan, and the 2009
Incentive Plan will be Holdings’ sole stock incentive plan.
Holdings expects to submit the 2009 Incentive Plan for
subsequent approval by Holdings’ stockholders at a
subsequent meeting of
Holdings’ stockholders to the extent necessary to assure
that the 2009 Incentive Plan conforms with the stockholder
approval rules under Section 162(m) of the Internal Revenue
Code. If such approval is not granted for any reason, such
action will not invalidate awards previously granted under the
2009 Incentive Plan; however, no further awards will be made
under the 2009 Incentive Plan.
The following description of the principal terms of the 2009
Incentive Plan is a summary and is qualified in its entirety by
the full text of the 2009 Incentive Plan, which is filed as an
exhibit to the registration statement.
Administration
The 2009 Incentive Plan will be administered by Holdings’
board or, if established by Holdings’ board, by a
compensation committee of Holdings’ board. We refer to the
entity administering the 2009 Incentive Plan as the
administrator. The administrator may grant options to purchase
shares of Holdings common stock, stock appreciation rights,
restricted or unrestricted shares of Holdings common stock and
restricted stock units payable in shares of Holdings common
stock. The administrator also has the authority to determine the
terms and conditions of each option or other kind of equity
award and adopt, amend and rescind rules and regulations for the
administration of the 2009 Incentive Plan. No options or other
awards may be made under the 2009 Incentive Plan after the tenth
anniversary of the closing of the mergers; however, the 2009
Incentive Plan will continue thereafter while previously granted
options or other awards remain subject to the 2009 Incentive
Plan.
Eligibility
Officers, employees, directors and consultants of Holdings and
its subsidiaries who, in the opinion of the administrator, are
in a position to contribute to Holdings’ success are
eligible to receive options or other awards under the 2009
Incentive Plan.
Shares
Subject to the 2009 Incentive Plan
The aggregate number of shares of Holdings common stock
available for issuance in connection with options and other
awards granted under the 2009 Incentive Plan will be
5,000,000 shares, subject to customary adjustments for
stock splits, stock dividends or similar transactions, and
including shares subject to awards that related to Voyager
common stock granted under Voyager option plans and that become
awards relating to Holdings’ common stock in connection
with the mergers. If any option granted under the 2009 Incentive
Plan terminates or expires without having been exercised in full
or if any award is forfeited, the number of shares of Holdings
common stock as to which such option or award was forfeited will
be available for future grants under the 2009 Incentive Plan. No
officer, employee, director or consultant may receive options
relating to more than 750,000 shares of Holdings common
stock in the aggregate in any calendar year or may receive SARs
relating to more than 350,000 shares of Holdings common
stock in the aggregate in any calendar year.
Terms
and Conditions of Options and Stock Appreciation
Rights
Options granted under the 2009 Incentive Plan may be either
“incentive stock options” that are intended to meet
the requirements of Section 422 of the Internal Revenue
Code or “nonstatutory stock options” that do not meet
the requirements of Section 422 of the Internal Revenue
Code. The administrator will determine the exercise price of
options granted under the 2009 Incentive Plan. The exercise
price of options must, however, be at least equal to the fair
market value per share of Holdings common stock as of the date
of grant (or 110% of fair market value in the case of incentive
options granted to a ten percent stockholder).
The administrator may also grant stock appreciation rights to
any eligible officer, employee, director or consultant at such
time or times, in such amounts and for such reasons as the
administrator determines. Upon the exercise of a stock
appreciation right, the recipient will be entitled to receive a
payment equal to the fair market value of Holdings common stock
as of the date of exercise, less the exercise price applicable
to the right, multiplied by the number of shares of Holdings
common stock with respect to which such right is
exercised. Such payment may be made in the form of cash or
shares of Holdings common stock, as determined by the
administrator.
Restricted
Stock Awards and Restricted Stock Unit Awards
The administrator may also grant a restricted stock award
and/or a
restricted stock unit award to any eligible officer, employee,
director or consultant. Under a restricted stock award, shares
of Holdings common stock that are the subject of the award are
generally subject to restrictions on transfer to the extent that
the recipient terminates service with Holdings or its
subsidiaries prior to the award having vested. The administrator
will determine the restrictions and vesting terms of each stock
award. Shares of Holdings common stock that are subject to a
restricted stock award cannot be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of by the recipient
of the award unless and until the applicable restrictions lapse.
Unless otherwise determined by the administrator, holders of
restricted shares will have the right to vote such shares and to
receive any cash dividends with respect thereto during the
restriction period. Any stock dividends will be subject to the
same restrictions as the underlying shares of restricted stock.
The recipient of a restricted stock unit award will be entitled
to receive a number of shares of Holdings common stock that is
equal to the number of units granted if and when the units vest.
The administrator may provide that cash dividend equivalents
with respect to restricted stock units may be paid during, or
may be accumulated and paid at the end of, the applicable
vesting period.
Unrestricted
Stock Awards
The administrator may grant unrestricted stock awards to any
eligible officer, employee, director or consultant. Unrestricted
shares do not require any payment by the recipient and are not
subject to forfeiture or transfer restrictions except to the
extent imposed by law.
Effect
of a Change of Control
If a “change in control” occurs, the board of
directors of Holdings may take one or more of the following
actions:
•
cause any or all outstanding options or stock appreciation
rights to become vested and immediately exercisable;
•
cause any or all outstanding restricted stock or restricted
stock units to become vested;
•
cancel any option in exchange for a substitute option;
•
cancel any restricted stock or restricted stock units in
exchange for restricted stock of or restricted stock units for
the stock of any successor corporation;
•
redeem any restricted stock for cash
and/or other
substitute consideration with a value equal to the fair market
value of a share of Holdings common stock on the date of the
change in control;
•
cancel any option or stock appreciation right in exchange for
cash and/or
other substitute consideration with a value equal to the number
of shares of Holdings common stock subject to that option,
multiplied by the difference, if any, between the fair market
value of a share of Holdings common stock on the date of the
change in control and the exercise price of that option or
right, or cancel the option or right without any payment if the
exercise price exceeds the fair market value; or
•
cancel any restricted stock unit in exchange for cash
and/or other
substitute consideration with a value equal to the fair market
value of a share of Holdings common stock on the date of the
change in control.
A “change in control” will generally occur for
purposes of the 2009 Incentive Plan in the event of:
•
a consolidation or merger of Holdings, if Holdings is not the
continuing or surviving corporation;
•
the sale or transfer of substantially all of Holdings’
assets;
the acquisition by any person, corporation or entity of 50% or
more of Holdings’ outstanding voting securities; or
•
the failure of the members of Holdings’ board of directors
as of the closing of the mergers and any successors thereto who
are approved by a vote of at least two-thirds of the current
directors, to constitute a majority of Holdings’ board of
directors.
Amendment
The board of directors of Holdings may at any time amend the
2009 Incentive Plan, without advance notice to participants, and
regardless of whether such amendment adversely affects or
impairs the rights of any participant with respect to any
outstanding or future award, subject to stockholder approval to
the extent necessary to comply with applicable law.
Initial
Grants
In connection with the mergers, Holdings expects to grant awards
under the 2009 Incentive Plan to designated employees, officers
and directors of Holdings and its subsidiaries effective as of
the closing of the mergers. Such grants include:
•
awards of options and stock appreciation rights issued to
current and former employees and directors of Voyager in
exchange for options and stock appreciation rights relating to
common stock of Voyager under Voyager’s existing plans,
which we refer to as assumed awards; and
•
awards of options to employees, officers and directors of
Holdings as future incentives and subject to the terms described
below, which we refer to as new awards.
Effective as of the closing of the mergers, Holdings expects to
issue assumed awards relating to up to 334,510 shares of
Holdings common stock to current and former service providers of
Voyager. These assumed awards will be fully vested upon issuance
and will remain subject to their original terms and conditions,
subject to certain adjustments as required under the merger
agreement.
Effective as of the closing of the mergers, Holdings expects to
grant options to purchase shares of Holdings common stock as new
awards to employees of Holdings and its subsidiaries, including
employees who are currently employed with both Voyager and
Cambium. Holdings expects that such options will vest in equal
installments on the first four anniversaries of the closing of
the mergers, subject to earlier vesting upon a change in control
of Holdings. Holdings expects to condition each option grant on
the recipient’s execution of a non-competition agreement,
limiting such recipient’s right to engage in competitive
practices against Holdings during specified post-termination
periods. Holdings expects that 75% of the options granted to
each optionee will have a per-share exercise price equal to the
greater of (i) $4.50 and (ii) the weighted-average
price of Holdings common stock during a pre-established trading
period and pursuant to a pre-established formula. Holdings
expects that the remaining 25% of the options granted to each
optionee will have a per-share exercise price equal to $6.50.
As of the date of this proxy statement/prospectus, the Holdings
board has granted, effective as of the effective time of the
mergers, to certain individuals who will be serving as executive
officers of Holding following the mergers options to purchase
shares of Holdings common stock under the 2009 Incentive Plan.
These awards are listed in the following table. Other than the
options described below, the Holdings board of
directors has not yet made any determinations with respect to
options to be granted to executive officers of Cambium or
Voyager who will serve as executive officers of Holdings after
completion of the mergers.
Name
Title
Options
Ronald Klausner
Chief Executive Officer
750,000
David F. Cappellucci
President
600,000
John Campbell
Senior Vice President and President of Cambium Learning
Technologies
300,000
Bradley C. Almond
Chief Financial Officer
250,000
George A. Logue
Executive Vice President and President of Supplemental Solutions
The existing Holdings board has determined that of the directors
designated to serve on the Holdings board, Frederick J. Schwab
and Neil Weiner are independent under NASDAQ listing standards
and applicable rules and regulations of the SEC and that Jeffrey
T. Stevenson and Scott J. Troeller are independent under NASDAQ
listing standards but not under applicable rules and regulations
of the SEC. The existing Holdings board expects that one of the
two members of the Holdings board not yet designated by
Cambium’s stockholder will be independent under NASDAQ and
SEC standards, rules and regulations.
The Voyager board fees for the twelve-month period commencing
July 1st of each year are as follows:
•
the annual cash retainer is $30,000;
•
the equity based compensation is $20,000 per year; and
•
no meeting fees are paid for regular board meetings.
The 2008 equity based award was a cash-based award pursuant to
Voyager’s 2003 Strategic Performance Plan. Each director
received 2,619 units, the calculation of which is based on
the $20,000 equity based fee divided by the six-month average
stock price from July 1, 2007 to December 31, 2007.
For 2008, each director serving as a director on
December 31, 2008 received a cash payment in the amount of
$3,667. This payment was calculated by multiplying the
2,619 units times the closing stock price ($1.40) on
December 30, 2008.
The fees for committee membership include $15,000 for each
member of Voyager’s audit committee and an additional
$10,000 for the Audit Committee Chairperson. Each member of the
Voyager Compensation Committee and the Voyager Nominating and
Governance Committee receives $6,000 and the Chairperson of each
committee receives an additional $10,000. Voyager also
reimburses directors for
out-of-pocket
expenses incurred to attend board and committee meetings.
The following table provides information concerning compensation
earned or paid by Voyager to Frederick J. Schwab, the only
non-employee director on Voyager’s board who will continue
as a director of Holdings.
2008
DIRECTOR COMPENSATION TABLE
Fees Earned or
Stock
Option
Paid in Cash
Awards
Awards
Total
Name
($)(1)
($)
($)(2)
($)
Frederick J. Schwab
54,667
—
—
54,667
(1)
The fees earned or paid in cash consist of the following: an
annual retainer in the amount of $30,000; a committee retainer
in the amount of $21,000; and an equity award paid in cash in
the amount of $3,667.
Members of the Cambium board of directors do not receive any
compensation from Cambium for their service as directors.
Directors may be reimbursed for reasonable
out-of-pocket
expenses incurred in connection with their service as directors
or their attendance at meetings of the board.
The amount and form of compensation that non-employee directors
of Holdings may receive have not yet been determined.
Messrs. Stevenson and Troeller, directors of Cambium, are
both partners of VSS. Funds managed by VSS own a majority of the
equity interests of the sole stockholder of Cambium.
Cambium Learning entered into a management services agreement
with VSS, effective on April 12, 2007. Under the term of
the agreement, VSS has provided Cambium Learning with the
following services:
•
advice in connection with the negotiation of agreements,
contracts, documents, and instruments necessary to provide
Cambium Learning with financing from banks on terms and
conditions satisfactory to Cambium; and
•
financial, managerial, and operational advice in connection with
Cambium’s
day-to-day
operations, including, without limitation, advice with respect
to the development and implementation of strategies for
improving the operating, marketing and financial performance of
Cambium.
Pursuant to the management services agreement, Cambium Learning
pays VSS an annual monitoring fee of $200,000, plus
out-of-pocket
expenses, payable semi-annually in arrears, in exchange for
these services. Cambium Learning expensed $150,000, $149,317,
$199,315 and $144,658 for monitoring fees for the nine months
ended September 30, 2009 and 2008, for the year ended
December 31, 2008 and for the period of January 29,2007 to December 31, 2007, respectively. The management
services agreement will be terminated at the effective time of
the mergers and VSS will cease to be compensated under such
agreement.
Cambium paid to an affiliate of VSS a fee of $3,200,000 in
connection with Cambium’s purchase of Cambium Learning in
2007, together with $146,491 of reimbursed expenses. Cambium was
also obligated to pay to a VSS affiliate fees in the event that
additional equity or debt financings were completed by Cambium.
Contemporaneous with the closing, that fee agreement will be
replaced by a consulting fee agreement between Holdings and VSS
entitling VSS to the following fees:
•
a fee equal to 1% of the gross proceeds of any debt or equity
financing by Holdings; and
•
a fee equal to 1% of the enterprise value of any entities
acquired or disposed of by Holdings.
These obligations will remain in effect until the earlier of the
date on which funds managed by VSS cease to beneficially own at
least 10% of the outstanding Holdings common stock or, unless
Holdings’ audit committee renews the consulting fee
agreement, January 1, 2015.
Shortly after discovering the financial misappropriation at
Cambium Learning in late April 2008 described elsewhere in this
proxy statement/prospectus, VSS notified Cambium Learning’s
lenders of the circumstances, and, as a result, the ability to
draw down on the revolving loan under Cambium Learning’s
credit agreement was promptly suspended. In order to provide
needed working capital over the course of the next three months
during the pendency of the internal investigation into the
misappropriation, VSS, through its funds, advanced
$7.0 million to Cambium Learning in the form of
subordinated loans with interest at 14% per year, payable
quarterly beginning June 30, 2008. In connection with the
permanent waiver and amendment to the senior secured and senior
unsecured credit agreements that restored the revolving loan
following the misappropriation, these subordinated loans were
converted into equity of Cambium’s sole stockholder in late
August 2008. At the time of this conversion, Cambium paid VSS a
capital stock issuance fee of $99,306.
Cambium ultimately recovered $30.0 million from the former
stockholders of Cambium Learning upon discovery of the financial
misappropriation. Since David Cappellucci, Cambium’s
current Chief Executive Officer, David Caron, Cambium’s
former Chief Financial Officer, and George Logue, Cambium’s
current
Executive Vice President, were also former stockholders of
Cambium Learning, they each contributed a pro rata portion to
this recovery as former stockholders, and not in their capacity
as employees.
An affiliate of VSS will receive a fee in the amount of
$3,000,000 from Holdings upon completion of the mergers in
consideration of providing advisory services with respect to the
mergers. This fee will be payable $1,000,000 in cash at closing,
and the balance becomes payable if and when Cambium
Learning’s ratio of total outstanding debt to adjusted
EBITDA drops below 3.0:1. Three-quarters of this remaining
balance will be allocated pro rata among VSS and certain of the
members of VSS-Cambium Holdings III, LLC. For purposes of
determining when this fee is to be paid, adjusted EBITDA is
calculated in the same manner as that measure is calculated
under Cambium Learning’s senior unsecured credit agreement.
See “SUMMARY — Comparative Historical and
Unaudited EBITDA and Adjusted EBITDA.”
Cambium Learning was majority owned by Ednewco LLC, and by
Whitney V LP, through its investment in Ednewco, prior to the
sale of Cambium Learning to Cambium in 2007. Cambium Learning
entered into a management services agreement with an affiliate
of Whitney effective January 1, 2004. Under the terms of
the agreement, Whitney provided services to Cambium Learning
comparable to the services described above which VSS presently
provides to Cambium Learning. Cambium Learning paid Whitney a
management fee of not less than $250,000, plus
out-of-pocket
expenses, annually, for those services. Cambium Learning
expensed $92,500 and $324,314 for the period January 1,2007 to April 11, 2007 and for year ended December 31,2006, respectively, for these management fees. This management
agreement with Whitney was terminated on April 12, 2007,
when Cambium Learning was acquired by Cambium.
Cambium Learning leased office and warehouse space in Colorado,
from Cactus Investments, LLP. A general partner of Cactus
Investments, LLP was a director of Cambium Learning through
April 11, 2007. Cambium Learning paid $169,320 and $497,880
in the period January 1, 2007 through April 11, 2007
and for the year ended December 31, 2006, respectively, as
rent for this location.
As of the effective time of the mergers, Holdings’
corporate headquarters will be located in Dallas, Texas, at the
current site of Voyager’s corporate headquarters.
The following table and related footnotes present certain
information with respect to the expected beneficial ownership of
Holdings common stock upon completion of the mergers by:
•
each person or group that is expected to become the beneficial
owner of more than 5% of the common stock of Holdings upon
completion of the mergers;
•
each person designated to be a director of Holdings;
•
the chief executive officer, the chief financial officer and
each of the three other most highly compensated persons
designated to be executive officers of Holdings as of the date
of this proxy statement/prospectus; and
•
all persons currently designated to be directors and executive
officers of Holdings as a group.
The beneficial ownership table set forth below assumes the
following:
•
there is no change in the beneficial ownership of Voyager common
stock and Cambium common stock for any of the named
stockholders, or for any other executive officer that is part of
the designated group, between October 31, 2009 and the date
of the closing of the mergers, except that each executive
officer and director of Voyager forfeited all options
beneficially owned by the officer or director, effective as of
the closing of the mergers;
there are a total of 43,789,995 shares of Holdings common
stock outstanding upon completion of the mergers, consisting of
24,300,466 shares of Holdings common stock issued to
Cambium’s stockholder and 19,489,529 shares of
Holdings common stock issued to the former Voyager stockholders;
•
in the Voyager merger, each Voyager stockholder receives
653 shares of Holdings common stock and $2,250 in cash for
each 1,000 shares of Voyager common stock owned by such
stockholder immediately prior to the completion of the
mergers; and
•
the Holdings Warrant covers a total of 693,364 shares of
Holdings common stock.
The term “beneficial ownership” means that a person
has, or may have within 60 days, the sole or shared power to
vote or direct the voting of a security and/or for the sole or
shared investment power with respect to a security (i.e.,
the power to dispose or direct the disposition of a security).
Unless otherwise indicated in the footnotes to the table.
Cambium and Voyager believe that each of the persons named in
the table has sole voting and investment power with respect to
the shares of Holdings common stock indicated as beneficially
owned by such person.
The share calculation is based on a Schedule 13D filed with the
SEC on January 28, 2009.
(3)
The share calculation is based on a Schedule 13D/A filed
with the SEC on August 12, 2008.
(4)
Mr. Oberndorf is the chairman of the board of Voyager and
one of four controlling persons of SPO Advisory Corp. Through
relationships with SPO Advisory Corp., SPO Advisory Partners,
L.P. and SF Advisory Partners, L.P. Mr. Oberndorf may be
deemed to share investment and voting control with respect to
3,072,500 shares of Voyager common stock. He also may be
deemed to beneficially own, through his control of family
trusts, 437,998 shares of Voyager common stock.
(5)
By virtue of their positions within VSS and by virtue of
VSS’ equity interest in VSS-Cambium Holdings III, LLC,
Mr. Stevenson and Mr. Troeller may be deemed to share
investment and voting control with respect to the shares of
Holdings common stock to be received by VSS-Cambium
Holdings III, LLC.
(6)
By virtue of his position within Foxhill Capital Partners, LLC,
Mr. Weiner may be deemed to share investment control with
respect to the shares of Holdings common stock to be received by
Foxhill Capital, LLC.
(7)
Includes shares deemed to be beneficially owned by
Messrs. Stevenson, Troeller and Weiner, and
693,364 shares deemed to be issuable pursuant to the
Holdings Warrant.
The following summary is a description of the material terms of
Holdings’ capital stock as of the effective time of the
mergers. You should read this summary in conjunction with
Holdings’ second amended and restated certificate of
incorporation, a copy of which is attached as Annex C to
this proxy statement/prospectus, and Holdings’ bylaws, a
copy of which is attached as Annex D to this proxy
statement/prospectus.
As of the effective time of the mergers, Holdings will be
authorized to issue 150,000,000 shares of common stock, par
value $0.001 per share. Immediately following the mergers,
Holdings expects there to be approximately
43,800,000 shares of Holdings common stock outstanding and
an additional 5,000,000 shares of Holdings common stock
reserved for issuance pursuant to the 2009 Incentive Plan.
Shares of Holdings common stock are not convertible into or
exchangeable for shares of any other class of capital stock.
There are no redemption or sinking fund provisions applicable to
the Holdings common stock.
Voting
Rights
Each holder of shares of Holdings common stock is entitled to
one vote for each share held of record on the applicable record
date on all matters submitted to a vote of stockholders,
including the election of directors.
Dividend
Rights
Holders of Holdings common stock are entitled to receive
dividends when, as and if declared by Holdings’ board of
directors out of funds legally available for payment, subject to
the rights of holders of Holdings preferred stock, if any. For
more information about Holdings’ dividends, see
“HISTORICAL MARKET PRICES AND DIVIDEND INFORMATION” on
page 155 and “RISK FACTORS — Holdings does
not expect to pay dividends on its common stock in the short
term” on page 35.
Rights
Upon Liquidation
In the event of a voluntary or involuntary liquidation,
dissolution or winding up of Holdings, the holders of Holdings
common stock will be entitled to share equally in any of the
assets available for distribution after Holdings has paid in
full all of its debts and after the holders of all series of
Holdings’ outstanding preferred stock, if any, have
received their liquidation preferences in full.
Preemptive
Rights; Subscription Rights
In general, holders of Holdings common stock have no preemptive
rights to purchase, subscribe for or otherwise acquire any
unissued or treasury shares or other securities of Holdings.
However, under the terms of the stockholders agreement, except
with respect to specified exempt issuances, for so long as
Cambium’s stockholder and funds managed or controlled by
VSS beneficially own in the aggregate at least 25% of the
outstanding shares of Holdings common stock, Cambium’s
stockholder and funds managed or controlled by VSS have
preemptive rights to purchase common stock of Holdings (or other
securities that may be approved by the audit committee of
Holdings’ board of directors), in connection with any
proposed securities offering by Holdings. These preemptive
rights generally give Cambium’s stockholder and funds
managed or controlled by VSS the opportunity to purchase an
amount of Holdings common stock (or such other securities as may
be approved by Holdings’ audit committee) in the new
issuance sufficient to enable Cambium’s stockholder and
funds managed or controlled by VSS to maintain their same
collective percentage ownership in Holdings following the new
issuance.
In addition, under the stockholders agreement, Holdings granted
Cambium’s stockholder and funds managed or controlled by
VSS a subscription right that would permit them to purchase, at
any time and from time to time until the
24-month
anniversary of the effective time of the mergers, a number of
shares of Holdings common stock up to the lesser of:
•
7,500,000 shares of common stock (subject to adjustment in
the event of any dividend, stock split, combination or similar
recapitalization event); or
•
the number of shares of common stock that Cambium’s
stockholder and funds managed or controlled by VSS may purchase
from time to time during the
24-month
subscription period for an aggregate purchase price of
$20 million (based upon the per-share purchase price
described below).
The purchase price per share in connection with the subscription
rights is equal to 90% of the volume weighted average price of
Holdings common stock measured over the ten-trading-day period
immediately preceding the issuance and sale of the shares of
Holdings common stock.
For additional information regarding the stockholders agreement,
see “RELATED AGREEMENTS — The Stockholders
Agreement” on page 153.
As of the effective time of the mergers, Holdings will be
authorized to issue 15,000,000 shares of preferred stock,
par value $0.001 per share. Immediately following the mergers,
there will be no shares of Holdings preferred stock issued or
outstanding.
Blank
Check Preferred Stock
Under Holdings’ certificate of incorporation, without
further stockholder action, Holdings’ board of directors is
authorized to provide for the issuance of shares of preferred
stock in one or more series, to establish from time to time the
number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or
restrictions on such shares. Holdings’ board of directors
may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power
or other rights of the holders of Holdings common stock. The
issuance of preferred stock, while providing flexibility in
connection with possible financings or acquisitions and other
corporate purposes, could, among other things, have the effect
of delaying, deferring or preventing a change in control and may
adversely affect the market price of Holdings common stock and
the voting and other rights of the holders of Holdings common
stock.
The number of members of Holdings’ board of directors will
be fixed by the board of directors from time to time.
Holdings’ second amended and restated certificate of
incorporation provides that, subject to the special rights of
the holders of any preferred stock that may be issued with
respect to the election of directors, Holdings will have a
“classified” or “staggered” board of
directors, consisting of three substantially equal classes of
directors, each generally serving for a three-year term ending
on the date of the third annual meeting of stockholders
following the annual meeting of stockholders at which the class
was elected, with the term of each class of directors ending in
successive years. However, with respect to the initial directors
of Holdings, the three Class I directors will serve for a
term expiring on the date of the first annual meeting of
stockholders after completion of the mergers, the three
Class II directors will serve for a term expiring on the
date of the second annual meeting of stockholders after
completion of the mergers, and the three Class III
directors will serve for a term expiring on the date of the
third annual meeting of stockholders after completion of the
mergers. In the event of any increase or decrease in the
authorized number of directors, the newly created or eliminated
directorship resulting from the increase or decrease will be
apportioned by the board of directors among the three classes of
directors so as to keep the classes as equal in size as is
possible. In accordance with the terms of the merger agreement,
upon completion of the mergers, the board of directors
of Holdings will be reconstituted to have nine members,
consisting of five directors designated by Cambium and four
directors designated by Voyager. Seven of the nine directors
have already been designated: three by Cambium and four by
Voyager. Until Cambium designates its additional directors,
Jeffrey T. Stevenson will have the right to cast the votes that
the additional directors would have, so that the Cambium
designees have the agreed upon total of five board votes. If
Mr. Stevenson is not then serving on the board, then Scott
J. Troeller will be entitled to cast the additional votes.
Mr. Stevenson and Mr. Troeller (or if neither of them
is on the board, any other employee of VSS who is serving on the
board) will continue to have this right to cast additional votes
so long as the VSS Funds continue to own, directly or
indirectly, a majority of the outstanding common stock of
Holdings. For all purposes, so long as Messrs. Stevenson
and Troeller or any other VSS employee has this right, when the
number of directors is calculated, the calculation will be
determined based on the number of votes rather than the actual
number of directors. For example, the quorum will be based upon
the total number of votes rather than the total number of
directors, so that if Mr. Stevenson has the right to cast
three votes, then only two other directors will be required to
join Mr. Stevenson in order to achieve a five-vote majority
for a quorum. A minimum of five votes will continue to be
required to approve an action.
The DGCL specifically provides that a Delaware corporation has
the power to renounce, in its certificate of incorporation, any
interest or expectancy of the corporation in, or in being
offered an opportunity to participate in, specified business
opportunities or specified categories of business opportunities
that are presented to the corporation or one or more of its
directors, officers or stockholders. In recognition of the fact
that Holdings, Cambium’s stockholder and funds managed or
controlled by VSS currently engage in, and in the future may
engage in, the same or similar activities or lines of business
and may have an interest in the same types of corporate
opportunities, and in recognition of the benefits to be derived
by Holdings through its continued contractual, corporate and
business relations with Cambium’s stockholder and funds
managed or controlled by VSS (including the possible service of
directors, officers and employees of Cambium’s stockholder
and funds managed or controlled by VSS as directors, officers
and employees of Holdings), Holdings’ second amended and
restated certificate of incorporation contains provisions that
regulate and define the conduct of specified affairs of Holdings
that may involve Cambium’s stockholder or funds managed or
controlled by VSS or its affiliates and the rights, duties and
liabilities of Holdings in connection with any of these affairs,
and that renounce any interest or expectancy that Holdings may
have in specified opportunities, described below, to the fullest
extent permitted by the DGCL.
Specifically, to the extent permitted by law, and except for any
“restricted opportunities” (which are described
below), no director, officer, employee or stockholder of
Holdings, in such capacity, and which is also a director,
officer or employee of Cambium’s stockholder or any funds
managed or controlled by VSS or any of its affiliates, acting in
his or her capacity as such, has any obligation to Holdings to
refrain from competing with Holdings, making investments in
competing businesses or otherwise engaging in any commercial
activity that competes with Holdings, and Holdings will not have
any right, interest or expectancy with respect to any of these
activities. “Restricted opportunities” that are not
covered by this provision generally include transactions,
matters or other opportunities offered to a person in writing
solely and expressly by virtue of such person’s role as a
director, officer or employee of Holdings, regardless of whether
that person is also a director, officer or employee of
Cambium’s stockholder or any funds managed or controlled by
VSS or any other person or entity.
Holdings’ second amended and restated certificate of
incorporation and amended and restated bylaws contain provisions
that could have the effect of discouraging potential acquisition
proposals or tender offers or hindering, delaying or preventing
a change in control of Holdings. These provisions include the
following:
•
Classified Board of Directors. Holdings’
board of directors is divided into three classes with staggered
terms of office of three years each. The classification and
staggered terms of office of Holdings’
directors make it more difficult for a third party to gain
control of Holdings’ board of directors. At least two
annual meetings of stockholders, instead of one, generally would
be required to effect a change in a majority of Holdings’
board of directors.
•
Number of Directors; Board Vacancies; Term of
Office. Holdings’ second amended and
restated certificate of incorporation provides that the board of
directors has the exclusive right to determine the number of
directors and the exclusive right, by the affirmative vote of a
majority of the remaining directors then in office, to fill
vacancies on the board even if the remaining directors do not
constitute a quorum. These provisions also state that any
director elected to fill a vacancy will hold office for the
remainder of the full term of the class of directors in which
the vacancy occurred, rather than until the next annual meeting
of stockholders, as would otherwise be the case.
•
Removal of Directors. Under Holdings’
second amended and restated certificate of incorporation,
subject to the rights of one or more classes or series of
preferred stock to elect one or more directors, a director may
be removed only:
•
for cause and only by the affirmative vote of at least a
majority of all votes entitled to be cast by Holdings’
stockholders generally in the election of directors, voting
together as a single class; or
•
for so long as Cambium’s stockholder and funds managed or
controlled by VSS continue to beneficially own in the aggregate
at least 25% of the outstanding shares of capital stock of
Holdings, without cause and only by the affirmative vote of at
least a majority of all votes entitled to be cast by
Holdings’ stockholders generally in the election of
directors.
•
Preferred Stock. Under Holdings’ second
amended and restated certificate of incorporation, the board of
directors has authority to issue preferred stock from time to
time in one or more series and to establish the terms,
preferences and rights of any of these series of preferred
stock, all without approval of Holdings’ stockholders. The
issuance of shares of preferred stock could harm the voting
power of the holders of Holdings common stock and could have the
effect of delaying, deferring or preventing a change in control
or other corporate action.
•
Stockholder Requested Special
Meetings. Holdings’ second amended and
restated certificate of incorporation provides that special
meetings of the stockholders may be called at any time by the
chairperson of the board of directors, the chief executive
officer of Holdings or a majority of the members of the board of
directors. In addition, so long as Cambium’s stockholder
and funds managed or controlled by VSS beneficially own in the
aggregate at least 25% of the outstanding shares of capital
stock of Holdings, Cambium’s stockholder or a fund
controlled by VSS also may call a special meeting of the
stockholders. No other Holdings stockholders are permitted to
call a special meeting of the stockholders.
•
Stockholder Action by Written Consent. So long
as Cambium’s stockholder and the funds managed or
controlled by VSS beneficially own in the aggregate at least 25%
of the outstanding shares of Holdings common stock, and subject
to the terms of any preferred stock that may be issued, any
action required or permitted to be taken by the Holdings
stockholders may be taken without a meeting, without prior
notice and without a vote, if the holders of outstanding
Holdings capital stock having at least the minimum number of
votes necessary to authorize the action consent in writing to
the action. However, in the event that Cambium’s
stockholder and the funds managed or controlled by VSS no longer
beneficially own in the aggregate at least 25% of the
outstanding shares of Holdings common stock, and subject to the
terms of any preferred stock that may be issued, any action
required or permitted to be taken by the Holdings stockholders
must be taken at an annual or special meeting of the
stockholders and may not be taken by written consent.
•
Authority to Amend Bylaws. Holdings’
second amended and restated certificate of incorporation
provides that the board of directors has the power to alter,
amend or repeal any provision of the bylaws or to make new
bylaws, without the consent or vote of the stockholders of
Holdings. Holdings’ stockholders only may effect changes to
Holdings’ bylaws, or adopt new provisions for inclusion in
the bylaws, with the affirmative vote of the holders of at least
a majority of the capital stock of Holdings
entitled to vote generally in the election of directors, voting
together as a single class, at any duly convened annual or
special meeting of the stockholders.
•
Advance Notice Provisions for Stockholder Nominations and
Other Proposals. Holdings’ bylaws require
advance written notice for stockholders to nominate persons for
election as directors at, or to bring other business before, any
meeting of stockholders. This bylaw provision limits the ability
of stockholders to make nominations of persons for election as
directors or to introduce other proposals unless Holdings is
notified in a timely manner prior to the meeting. Thus, business
to be conducted at any meeting of stockholders will be limited
to business properly brought before the meeting by or at the
direction of Holdings’ board of directors or by a
stockholder of record who has given timely written notice to
Holdings’ secretary of the stockholder’s intention to
bring business before the meeting. These advance notice
provisions are not applicable to Cambium’s stockholder or
the funds managed or controlled by VSS for so long as
Cambium’s stockholder and the funds managed or controlled
by VSS collectively own in the aggregate at least 25% of the
outstanding shares of capital stock of Holdings.
•
No Cumulative Voting. Holdings’
organizational documents do not include a provision for
cumulative voting in the election of directors. Under cumulative
voting, a minority stockholder holding a sufficient number of
shares may be able to ensure the election of one or more
directors. The absence of cumulative voting may have the effect
of limiting the ability of minority stockholders to effect
changes in the board and, as a result, may have the effect of
deterring a hostile takeover or delaying or preventing changes
in control or management of Holdings.
The provisions listed above are intended to enhance the
likelihood of continuity and stability in the composition of
Holdings’ board of directors and in the policies formulated
by Holdings’ board of directors, and to discourage certain
types of transactions that may involve an actual or threatened
change in control of Holdings. These provisions reduce
Holdings’ vulnerability to an unsolicited acquisition
proposal and discourage certain tactics that may be used in
proxy contests. However, these provisions could have the effect
of discouraging others from making tender offers for shares of
Holdings common stock that could result from actual or rumored
takeover attempts. These provisions also may have the effect of
preventing changes in Holdings’ management.
Delaware
Statutory Provisions
Section 203 of the DGCL contains certain provisions that
may make more difficult the acquisition of control of Holdings
by means of a tender offer, open market purchase, proxy fight or
otherwise. These provisions are designed to encourage persons
seeking to acquire control of Holdings to negotiate with
Holdings’ board of directors. To the extent that these
provisions discourage takeover attempts, they could deprive
stockholders of opportunities to realize takeover premiums for
their shares or could depress the market price of the shares.
Set forth below is a description of the relevant provisions of
Section 203 of the Delaware General Corporation Law. The
description is intended as a summary only and is qualified in
its entirety by reference to Section 203 of the DGCL.
Section 203 of the DGCL prohibits certain “business
combination” transactions between a publicly held Delaware
corporation, such as Holdings will be, and any “interested
stockholder” for a period of three years after the date on
which such stockholder became an interested stockholder, unless:
•
the board of directors approves, prior to such date, either the
proposed business combination or the proposed acquisition of
stock that resulted in the stockholder becoming an interested
stockholder;
•
upon completion of the transaction that results in the
stockholder becoming an interested stockholder, the interested
stockholder acquires at least 85% of those shares of the voting
stock of the corporation which are not held by the directors,
officers or certain employee stock plans; or
•
on or subsequent to that date, the business combination with the
interested stockholder is approved by the board of directors and
also approved at a stockholders’ meeting by the affirmative
vote of the holders of at least two-thirds of the outstanding
shares of the corporation’s voting stock, other than shares
held by the interested stockholder.
An “interested stockholder” is, generally, any person
who beneficially owns, directly or indirectly, 15% or more of
Holdings’ outstanding voting stock. “Business
combinations” are broadly defined to include
(i) mergers or consolidations with, (ii) sales or
other dispositions of more than 10% of the corporation’s
assets to, (iii) certain transactions resulting in the
issuance or transfer of any stock of the corporation or any
subsidiary to, (iv) certain transactions resulting in an
increase in the proportionate share of stock of the corporation
or any subsidiary owned by, or (v) receipt of the benefit
(other than proportionately as a stockholder) of any loans,
advances or other financial benefits by, an interested
stockholder.
A Delaware corporation such as Holdings may elect not to be
governed by these restrictions. However, Holdings has not opted
out of Section 203 of the DGCL.
Under the terms of the merger agreement, Holdings has applied to
have its common stock, including those shares to be issued in
connection with the mergers, listed on the NASDAQ Global Market.
The rights of Voyager stockholders are currently governed by the
Delaware General Corporation Law, which we refer to as the DGCL,
and the amended and restated certificate of incorporation and
amended bylaws of Voyager, which we refer to in this section as
the Voyager certificate and the Voyager bylaws, respectively.
Upon completion of the transaction, certain holders of Voyager
common stock, as well as the holder of Cambium common stock,
will become holders of Holdings common stock. The rights of
Holdings stockholders will be governed by the DGCL, the second
amended and restated certificate of incorporation and the
amended and restated bylaws of Holdings, which we refer to in
this section as the Holdings certificate and the Holdings
bylaws, respectively, and the stockholders agreement to be
entered into by Holdings, the Cambium stockholder and the
Stockholders’ Representative, effective as of the closing
of the mergers.
This section describes the material differences between the
rights of a Holdings stockholder under the Holdings certificate
and Holdings bylaws that will be in effect upon the completion
of the mergers and the rights of a Voyager stockholder under the
Voyager certificate and Voyager bylaws that are currently in
effect. This section does not include a complete description of
all of the differences between the rights of stockholders of
Holdings and the rights of stockholders of Voyager, nor does it
include a complete description of the specific rights of these
stockholders. Furthermore, the identification of some of the
differences in the rights of these stockholders as material is
not intended to indicate that other differences that may be
equally important do not exist.
The Holdings certificate, the Holdings bylaws and the form of
stockholders agreement are attached as Annex C,
Annex D and Annex L, respectively, to this proxy
statement/prospectus. Copies of the Voyager certificate and
Voyager bylaws are available to Voyager stockholders upon
request. See “WHERE YOU CAN FIND MORE INFORMATION” on
page 289.
The authorized capital stock of Holdings consists of
150,000,000 shares of common stock, par value $0.001 per
share, and 15,000,000 shares of preferred stock, par value
$0.001 per share. The board of directors of Holdings is
authorized to issue one or more series of preferred stock and to
fix the designations, preferences and relative, participating,
optional or other special rights, qualifications and limitations
of preferred stock. As of the date of this proxy
statement/prospectus, there were 1,000 shares of Holdings
common stock issued and outstanding, and no shares of Holdings
preferred stock issued and outstanding. Upon completion of the
mergers, Holdings expects approximately
43.8 million shares of Holdings common stock to be
issued and outstanding, assuming $67.5 million in cash is
paid to the former stockholders of Voyager as a result of the
election procedures described elsewhere in this proxy
statement/prospectus, no Voyager stockholder exercises its
appraisal rights and no exercise of any portion of the Holdings
Warrant.
Voyager
The authorized capital stock of Voyager consists of
50,000,000 shares of common stock, par value
$0.001 per share. Voyager is not authorized to issue any
preferred stock under the terms of the Voyager certificate. As
of the record date for the Voyager special meeting, Voyager had
29,874,145 shares of common stock issued and outstanding.
Subject to the rights of holders of any series of preferred
stock, or any other series or class of stock as set forth in the
Holdings certificate, to elect additional directors under
specified circumstances, the number of Holdings directors will
be fixed from time to time by resolution of the Holdings board
of directors. The Holdings bylaws provide that the number of
directors shall not be fewer than one nor more than twelve. The
number of Holdings directors following completion of the mergers
will be fixed at nine. Under the terms of the stockholders
agreement to be entered into by Holdings, the Cambium
stockholder and the Stockholders’ Representative, effective
as of the closing of the mergers, the Cambium stockholder has
agreed that, until the third anniversary of the effective time,
for so long as the Cambium stockholder and funds managed or
controlled by VSS beneficially own in the aggregate at least ten
percent of the issued and outstanding shares of Holdings common
stock: (i) the Cambium stockholder will vote its shares of
Holdings common stock as necessary to ensure that the size of
the board of directors of Holdings is set at and remains at nine
directors, and (ii) the Cambium stockholder will not vote
or otherwise take any action to amend, modify or repeal the
Holdings certificate or Holdings bylaws to increase or decrease
the size of the board of directors of Holdings. For a
description of the stockholders agreement, see “RELATED
AGREEMENTS — Stockholders Agreement” on
page 153.
Cambium has, as of the date of this proxy statement/prospectus,
designated three of its five designees. Until Cambium designates
its additional directors, Jeffrey T. Stevenson will have the
right to cast the additional votes that the additional directors
would have, so that the Cambium designees have the agreed upon
total of five board votes. If Mr. Stevenson is not then
serving on the board, then Scott J. Troeller will be entitled to
cast the additional votes (or if neither of them is on the
board, any other employee of VSS who is serving on the board).
For all purposes, so long as Mr. Stevenson,
Mr. Troeller or any other VSS employee has this right, when
the number of directors is calculated, the calculation will be
determined based on the number of votes rather than the actual
number of directors. For example, a quorum will be based upon
the total number of votes rather than the total number of
directors, so that if Mr. Stevenson has the right to cast
three votes, then only two other directors will be required to
join Mr. Stevenson in order to achieve a five-vote majority
for a quorum. A minimum of five votes will continue to be
required to approve an action.
Voyager
The actual number of directors may be fixed from time to time by
action of the Voyager stockholders or the Voyager board or, if
the number is not fixed, the number is to be three. As of the
date of this proxy statement/prospectus, there are five
directors and five vacancies. Each member of the board has one
vote on all matters presented to Voyager’s board.
Holdings’ board of directors will be divided into three
classes, each as nearly equal in number as possible, with each
class being elected to a three-year term every three years.
Under the terms of the merger agreement, Voyager will designate
four of the nine directors on the Holdings board and Cambium
will designate the other five directors. The Voyager designees
will be designated in the stockholders agreement to be entered
into by Holdings, the Cambium stockholder and the
Stockholders’ Representative, effective as of the closing
of the mergers. Under the terms of the stockholders agreement,
the Cambium stockholder has agreed that, until the third
anniversary of the effective time, for so long as the Cambium
stockholder and funds managed or controlled by VSS beneficially
own in the aggregate at least ten percent of the issued and
outstanding shares of Holdings common stock, the funds managed
or controlled by VSS and the Cambium stockholder, (i) will
not vote or otherwise take any action to amend, modify or repeal
the Holdings certificate or Holdings bylaws to eliminate the
Class II or Class III director classes, and
(ii) will vote or act by written consent to maintain a
classified or staggered board of directors of Holdings, with the
director classes and other terms as set forth in the Holdings
certificate and Holdings bylaws as adopted on the closing date
of the mergers. For a description of the stockholders agreement,
see “RELATED AGREEMENTS — Stockholders
Agreement” on page 153.
Voyager
Voyager does not have a classified board of directors. Each
director generally is elected annually to a one-year term.
The Holdings certificate and bylaws provide that, subject to the
rights, if any, of any class or series of preferred stock to
elect and remove any director whom the holders of such stock had
the right to elect, the board of directors or any individual
director may be removed from office, but (i) only for cause
and only by the affirmative vote of at least a majority of the
voting power of the outstanding shares entitled to vote in the
election of directors, voting together as a single class, or
(ii) for so long as the Cambium stockholder and funds
managed or controlled by VSS beneficially own in the aggregate
at least 25% of the outstanding shares of capital stock of
Holdings, without cause and only by the affirmative vote of a
majority of the voting power of the outstanding shares entitled
to vote in the election of directors, voting together as a
single class. Under the terms of the stockholders agreement to
be entered into by Holdings, the Cambium stockholder and the
Stockholders’ Representative, effective as of the closing
of the mergers, the Cambium stockholder has agreed not to vote
its shares or take any other action to remove or disqualify any
of the Voyager designees named as members of Class II of
the Holdings board of directors or of Class III of the
Holdings board of directors, in each case other than for
“cause” as determined in accordance with Delaware law,
until the earliest to occur of specified events. For a
description of the stockholders agreement, see “RELATED
AGREEMENTS — Stockholders Agreement” on
page 153.
Voyager
The Voyager bylaws provide that the board of directors or any
individual director may be removed from office, with or without
cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
The Holdings certificate and bylaws provide that, subject to the
rights of holders of any class or series of preferred stock then
outstanding, vacancies, including any vacancy resulting from an
increase in the size of the
board, or the death, removal or resignation of any director,
may be filled solely by a majority of the directors then in
office, even if less than a quorum, or a sole remaining
director. Each director elected in this manner will hold office
for the unexpired term of the director whose place became
vacant, and until a successor is duly elected and qualified.
Under the terms of the stockholders agreement to be entered into
by Holdings, the Cambium stockholder and the Stockholders’
Representative, effective as of the closing of the mergers, in
the event that any Voyager director designee resigns, is removed
for cause or a vacancy otherwise occurs with respect to the
board seat occupied by a Voyager director designee, the
Stockholders’ Representative may nominate a replacement
director to serve in the same board class as the departing
director, subject to the approval of the Cambium stockholder,
which approval cannot be unreasonably withheld, conditioned or
delayed. The Cambium stockholder has agreed that if the Voyager
designee is so approved, it will vote and take any other actions
necessary to cause the election of the replacement Voyager
designee to the Holdings board of directors. For a description
of the stockholders agreement, see “RELATED
AGREEMENTS — Stockholders Agreement” on
page 153.
Voyager
The Voyager bylaws provide that in the interim between annual
meetings of stockholders or special meetings of stockholders
called for the election of directors
and/or for
the removal of one or more directors and for the filling of any
vacancy in that connection, newly created directorships and any
vacancies in the board of directors, including unfilled
vacancies resulting from the removal of directors for cause or
without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum,
or by the sole remaining director.
The Holdings bylaws provide that the annual meeting of
stockholders, for the election of directors and for the
transaction of such other business as may properly come before
the meeting, shall be held at such place, if any, on such date,
and at such time as may be determined by the board of directors.
Voyager
The Voyager bylaws provide that annual meetings of stockholders
shall be held on the date and at the time fixed, from time to
time, by the directors, provided, that each annual meeting shall
be held on a date within 13 months after the date of the
preceding annual meeting. Annual meetings shall be held at such
place, within or without the State of Delaware, as the directors
may, from time to time, fix. Whenever the directors fail to fix
such place, the meeting will be held at the registered office of
the corporation in the State of Delaware.
The Holdings certificate and bylaws provide that subject to the
rights of the holders of any series of preferred stock
outstanding, a special meeting of the stockholders may be called
at any time only by (i) the chairman, (ii) the chief
executive officer, (iii) the written request of a majority
of the members of the board of directors, or (iv) for so
long as Cambium’s stockholder and the funds managed or
controlled by VSS have beneficial ownership in the aggregate of
at least 25% of the outstanding shares of capital stock of
Holdings, by Cambium’s stockholder or a fund managed by
VSS, and may not be called by any other person. No other
Holdings stockholders are permitted to call a special meeting of
the stockholders.
The Holdings bylaws provide that notice of the place, if any,
date, and time of all meetings of the stockholders, and the
means of remote communications, if any, by which stockholders
and proxyholders may be deemed to be present in person and vote
at such meeting, shall be given, not less than ten nor more than
sixty days before the date on which the meeting is to be held,
and must state the place, if any, date and hour of the meeting
and, in the case of a special meeting, the purpose or purposes
for which the meeting is called.
Voyager
The Voyager bylaws provide that special meetings of the
stockholders may be called by the directors or by any officer
instructed by the directors to call the meeting. A special
meeting shall be held on the date and at the time fixed by the
directors. Special meetings may be held at such place, within or
without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix a place,
the meeting will be held at the registered office of the
corporation in the State of Delaware. Written notice of all
meetings must be given, stating the place, date, and hour of the
meeting and stating the place within the city or other
municipality or community at which the list of stockholders of
the corporation may be examined. The notice of a special meeting
must state the purpose or purposes for which the meeting is
called, include, or be accompanied by, any additional
statements, information, or documents prescribed by the DGCL,
and be given not less than ten days nor more than sixty days
before the date of the meeting, unless the lapse of the
prescribed period of time has been waived.
The Holdings certificate provides that for so long as
Cambium’s stockholder and the funds managed or controlled
by VSS have beneficial ownership in the aggregate of at least
25% of the outstanding shares of common stock of Holdings, any
action required or permitted to be taken by the Holdings
stockholders at an annual or special meeting may be taken
without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action to be
taken, are signed by the holders of shares of outstanding
capital stock having at least the minimum number of votes
necessary to authorize the action.
Voyager
The Voyager certificate provides that any action required or
permitted to be taken by the stockholders at an annual or
special meeting may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing,
setting forth the action to be taken, are signed by the holders
of shares of outstanding capital stock having at least the
minimum number of votes necessary to authorize the action.
The Holdings bylaws provide that nominations of persons for
election to the board of directors and the proposal of other
business to be considered by the stockholders may be made at an
annual meeting of stockholders only pursuant to Holdings’
notice of the meeting, or a supplement thereto, by or at the
direction of the board or a committee of the board or otherwise
properly brought by a stockholder. For business to be properly
brought by a stockholder, the stockholder must have given timely
notice of such business in writing to the secretary and the
proposed business must be a matter proper for stockholder
action. To be timely, a stockholder’s notice must be
delivered to the Secretary at the principal executive offices of
Holdings not less than 90 days nor more than 120 days
prior to the first anniversary of the previous year’s
annual meeting of stockholders. Such notice must set forth the
following information regarding the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made:
•
the name and record address of the stockholder, and the
beneficial owner, if any;
•
the class or series and number of shares of Holdings stock which
are owned beneficially and of record by the stockholder and the
beneficial owner, if any;
a description of any arrangement or understanding among the
stockholder, the beneficial owner, if any, and anyone else
acting in concert with the stockholder or beneficial owner, if
any, relating to the nomination or proposal;
•
a description of any derivative, hedging, option, warrant or
similar agreement entered into by or on behalf of the
stockholder or the beneficial owner, if any, as of the date of
the notice;
•
a representation that the stockholder is a holder of record
entitled to vote at the meeting and intends to appear in person
or by proxy to propose the business or nomination;
•
a representation whether the stockholder or beneficial owner, if
any, intends to deliver a proxy statement or solicit proxies in
support of the proposal or nomination; and
•
all other information relating to the stockholder and beneficial
owner, if any, that is required to be disclosed in solicitations
for proxies for the election of directors in an election
contest, pursuant to Section 14(a) of the Exchange Act.
With respect to each business matter, other than a director
nomination, the notice must also include:
•
a brief description of the business desired to be brought before
the meeting;
•
the text of the proposal or business;
•
the reasons for conducting such business at the meeting; and
•
any material interest in the business of the stockholder and the
beneficial owner, if any, on whose behalf the proposal is made.
The same procedure applies to board of director nominations by a
stockholder, except that the notice delivered to the secretary
must include different information than the information
specified above. Regarding the board nominee, the notice must
include:
•
all information relating to the nominee that is required to be
disclosed in solicitations for proxies for the election of
directors in an election contest, pursuant to Section 14(a)
of the Exchange Act; and
•
the nominee’s written consent to being named as a nominee
in the proxy statement and to serving as a director if elected.
The Holdings bylaws provide that only such business may be
conducted at a special meeting of stockholders as has been
brought before the meeting pursuant to Holdings’ notice of
meeting. Nomination of persons for election to the board may be
made at a special meeting at which directors are to be elected
pursuant to Holdings’ notice of meeting by or at the
direction of the board or a committee of the board, or, provided
that the board has determined that directors will be elected at
the meeting, by any stockholder who is a stockholder of record
at the time the notice is delivered to the Secretary, who is
entitled to vote at the meeting and upon the election and who
complies with the notice provisions set forth above. The notice
must be delivered to the Secretary at the principal executive
offices of Holdings not earlier than the close of business on
the 120th day prior to the special meeting and no later
than the close of business on the later of the 90th day
prior to the special meeting or the tenth day following the day
on which public announcement of the meeting and the nominees is
first made.
The Holdings bylaws provide that for so long as Cambium’s
stockholder and funds managed or controlled by VSS have
beneficial ownership in the aggregate of at least 25% of the
outstanding shares of capital stock of Holdings, the notice
requirements for bringing a proposal or director nomination in
front of an annual and special meeting set forth above will not
apply to Cambium’s stockholder and funds managed or
controlled by VSS; however, if Cambium’s stockholder or
funds managed or controlled by VSS wishes to nominate persons
for election to the board or propose other business to be
considered at an annual or special meeting of the stockholders,
they must give written notice to the Secretary of Holdings prior
to the date of the meeting, be a stockholder of record at the
time the notice is delivered and at the time of the meeting, and
be entitled to vote at the meeting.
The Voyager bylaws provide that nominations of persons for
election to the board of directors may be made at a meeting of
stockholders by or at the direction of the board of directors or
by a stockholder who is a stockholder of record at the time of
giving the notice, who shall be entitled to vote for the
election of directors at the meeting and who complies with the
procedure for delivering timely notice. To be timely, a
stockholder’s notice shall be delivered to the principal
executive offices of the corporation not later than the close of
business on the 90th day, nor earlier than the close of
business on the 120th day, prior to the first anniversary
of the preceding year’s annual meeting.
The stockholder’s notice must include the following
information as to each person whom the stockholder proposes to
nominate for election or reelection as a director:
•
all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such
person’s written consent to being named in the proxy
statement as a nominee and to serving as a director if elected);
and the following information regarding the stockholder giving
the notice:
•
the name and address of the stockholder;
•
the class and number of Voyager shares beneficially owned by the
stockholder; and
•
at the request of the board of directors, that information
required to be set forth in a stockholder’s notice of
nomination which pertains to the nominee, as set forth above.
The Voyager bylaws provide that at a stockholder meeting, only
such business shall be conducted as shall have been brought
before the meeting by or at the direction of the board of
directors, or by any stockholder who is a stockholder of record
at the time of giving notice, who shall be entitled to vote at
such meeting and who complies with the notice procedures set
forth below. For business to be properly brought before a
stockholder meeting by a stockholder, the stockholder must have
given timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder’s notice shall be
delivered to the principal executive offices of Voyager not
later than the close of business on the 90th day, nor
earlier than the close of business on the 120th day, prior
to the first anniversary of the preceding year’s annual
meeting.
The stockholder’s notice must include the following
information as to each matter the stockholder proposes to bring
before the meeting:
•
a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the
meeting;
•
the name and address of the stockholder proposing such business;
•
the class and number of Voyager shares beneficially owned by the
stockholder; and
•
any material interest of the stockholder in the proposed
business.
The Holdings certificate provides that Holdings reserves the
right to amend, alter, change or repeal any provision contained
in the Holdings certificate or a preferred stock designation, in
the manner prescribed by statute, and that all rights conferred
upon stockholders, directors or other persons by the Holdings
certificate are granted subject to such reservation; provided
that, any amendment or repeal of the article governing
amendments to the Holdings certificate shall not adversely
affect any right or protection existing in respect of any act or
omission occurring prior to the amendment or repeal, and that no
preferred stock designation shall be amended after the issuance
of any shares of the series of preferred stock created under the
preference, except in accordance with the terms of the
designation and applicable law.
The Voyager certificate provides that the certificate may be
amended, altered or repealed, that additional provisions may be
added in accordance with Delaware law, and that all rights
conferred upon stockholders by the Voyager certificate are
granted subject to such rights.
The Holdings certificate provides that the board of directors
has the power to alter, amend or repeal any provision of the
bylaws or to make new bylaws, without the consent or vote of the
stockholders of Holdings. Holdings’ stockholders may effect
changes to Holdings’ bylaws, or adopt new provisions for
inclusion in the bylaws, only with the affirmative vote of the
holders of at least a majority of the capital stock of Holdings
entitled to vote generally in the election of directors, voting
together as a single class, at any duly convened annual or
special meeting of the stockholders.
Voyager
The Voyager bylaws provide that, subject to the provisions of
the Voyager certificate, and the DGCL, the power to amend, alter
or repeal the bylaws may be exercised by the board of directors
or the stockholders.
Under the terms of the stockholders agreement to be entered into
by Holdings, the Cambium stockholder and the Stockholders’
Representative, effective as of the closing of the mergers, so
long as the Cambium stockholder and funds managed or controlled
by VSS beneficially own in the aggregate at least 25% of the
outstanding shares of Holdings common stock, they will have
preemptive rights which generally give them the opportunity to
purchase an amount of Holdings securities in a new issuance of
securities by Holdings that would enable them to maintain their
same collective percentage ownership in Holdings following the
new issuance. In addition, under the stockholders agreement, for
a period of 24 months following the effective time of the
mergers, the Cambium stockholder and funds managed or controlled
by VSS have the right to purchase from Holdings, at a 10%
discount from market price, up to the lesser of 7,500,000 shares
of Holdings common stock or shares of Holdings common stock with
a discounted purchase price of $20 million. For a
description of the stockholders agreement, see “RELATED
AGREEMENTS — Stockholders Agreement” on
page 153.
Section 145 of the DGCL provides that a Delaware
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys’ fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that
such person’s conduct was unlawful.
Section 145 further authorizes a corporation to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against any liability asserted against such person and incurred
by such person in any such capacity, arising out of such
person’s status as such, whether or not the corporation
would otherwise have the power to indemnify such person against
liability under Section 145.
The Holdings certificate and bylaws generally provide that an
officer or director of Holdings will be indemnified and held
harmless by Holdings against all expense, liability or loss to
the fullest extent authorized by the DGCL where such officer or
director was or is a party to or threatened to be made a party
to or is involved in any threatened, pending or completed
action, suit or proceeding by reason of the fact that such
officer or director is or was a director, officer, employee or
agent of Holdings. The Holdings certificate and bylaws provide
for advancement of expenses incurred by an officer or director
in defense of such proceedings before final disposition. The
Holdings certificate and bylaws also provide that Holdings may
indemnify and advance expenses to any other person who may be
indemnified by Holdings under the DGCL, as the board deems
advisable.
The Holdings certificate provides that, except as prohibited by
the DGCL, no director will be personally liable to Holdings or
its stockholders for monetary damages for breach of fiduciary
duty as a director.
Voyager
The Voyager certificate generally provides that an officer or
director of Voyager will be indemnified and held harmless by
Voyager against all expense, liability or loss to the fullest
extent authorized by the DGCL where such officer or director was
or is a party to or threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or
proceeding by reason of the fact that such officer or director
is or was a director, officer, employee or agent of Voyager;
provided that, subject to specified exceptions, Voyager will
indemnify any such officer or director in connection with a
proceeding brought by the officer or director only if the
proceeding was authorized by the board of directors. The Voyager
certificate provides for advancement of expenses incurred by an
officer or director in defense of such proceedings before final
disposition. The Voyager certificate also provides that Voyager
may indemnify and advance expenses to any other person to the
fullest extent provided for officers and directors. The Voyager
certificate provides that the personal liability of directors of
Voyager will be eliminated to the fullest extent permitted under
Section 102(b)(7) of the DGCL.
For information regarding Section 203 of the DGCL, see
“DESCRIPTION OF HOLDINGS CAPITAL
STOCK — Provisions Affecting Change in
Control — Delaware Statutory Provisions.”
Voyager expressly opted out of Section 203 in its original
certificate of incorporation. Holdings has not “opted
out” of this provision and is therefore subject to
Section 203.
Cambium is a leading provider of intervention solutions designed
specifically for the Pre-K-12 at-risk and special education
markets. Cambium’s research-based offerings integrate
content, services and technology to address the needs of at-risk
and special student populations. Cambium’s focus is on
serving the needs of the nation’s most challenged learners.
To this end, Cambium’s research-based intervention programs
and assistive technologies are designed to address the needs of
educators to improve performance within the at-risk and special
education populations.
Cambium operates in three complementary product areas:
•
Intervention solutions, which includes specialized
instructional materials and implementation related services,
consisting of the following:
•
Core intervention programs, offered with accompanying
training that generally provides a full-year’s worth of
literacy or math instruction to at-risk students and often
serves as an alternative course of
study for those students performing far below grade level in
order to accelerate learning. Products include LANGUAGE!,
Readwell, Transitional Mathematics and Algebra Rescue.
•
Supplementary intervention programs are offered in the
areas of literacy, mathematics and behavior generally to
supplement existing programs in use in the school or school
district. These programs generally do not represent a complete
course of study, but rather target specific skill areas and
include assessments and instructional resources for students and
professional development offerings for educators. Products
include Step Up To Writing, REWARDS, DIBELS/IDEL, the Herman
Method, LETRS and D.I.S.E.
•
Services, which include institutes and conferences,
hosted by Cambium, as well as consulting and school improvement
services, all targeted at enhancing educator and administrator
preparedness.
•
Learning technologies, which consist of a suite of
assistive technologies that provide access to content for
students with profound cognitive or physical disabilities and
provide ongoing progress monitoring of student performance.
For operational and accounting purposes, Cambium has three
reportable segments with separate management teams and
infrastructures that offer various products and services, as
follows:
•
Published Products: This operating segment
includes instructional materials, teaching guides, teacher
training, implementation services, and professional development
services. The principal markets for these products are
elementary and secondary schools.
•
Learning Technologies: This operating segment
includes assistive and instructional technology and related
services. The principal markets for these products are also
elementary and secondary schools.
•
Other: This segment consists of unallocated
corporate-related items.
For additional information regarding Cambium’s operating
segments, see Note S to Cambium’s Consolidated
Financial Statements.
Cambium Learning was founded in 2003 to create a leading company
focused on the at-risk and special student populations. In 2007,
Cambium was acquired by a consortium of equity sponsors led by
VSS. A significant portion of Cambium’s growth has resulted
from the organic growth of the companies acquired by Cambium and
from newly introduced programs developed by authors and
researchers. In October 2003, Cambium acquired Metropolitan
Teaching & Learning, Inc. Metropolitan
Teaching & Learning was founded in 1998 and has
developed culturally responsive instructional materials and
customized programs for use in urban markets, with particular
emphasis on mathematics. In February 2004, Cambium acquired
Sopris West Educational Services, Inc., a provider of
intervention programs in literacy, mathematics, and behavior. In
April 2005, Cambium acquired Kurzweil Education Systems, Inc.,
which develops reading enabling technologies for struggling
readers and individuals with visual impairments. In February
2006, Cambium acquired IntelliTools, Inc., a provider of
assistive hardware and software technologies for the special
education and at-risk market segments in math and literacy.
Cambium is headquartered in Natick, Massachusetts.
Cambium’s strategy for growth and development is based upon
the following:
•
Cambium focuses its efforts on the Pre-K-12 at-risk and
special education markets. Cambium believes that
the Pre-K-12 at-risk and special education markets represent
approximately 40% of the 54 million U.S. student
population. These markets have traditionally been under-served
by major providers of educational programs and services. Key
federal and state programs address the specific needs of at-risk
and special student populations.
•
Cambium seeks to combine its relationships with authors and
researchers and its technological expertise to create
content-driven offerings designed to provide school districts
with tools to improve
the performance of at-risk and special student
populations. Cambium has developed relationships
with authors who are known for their expertise in improving the
cognitive and behavioral performance of at-risk and special
education students. These authors are engaged by Cambium to
develop content and then to refine that content once feedback is
obtained from Cambium’s customers. Cambium’s content
is designed to benefit from Cambium’s assistive technology
platforms, which feature data management and formative
assessment reporting, enabling teachers to build upon core
concepts and enabling students to scaffold from a limited
educational base to more highly developed educational
experiences.
•
Cambium employs a multi-faceted sales strategy to increase
its market penetration. Cambium employs multiple
interrelated sales channels to market and sell its products and
services. These channels include selling efforts by
Cambium’s own direct sales force as well as by its authors,
supplemented by product training sessions, strategic sales
initiatives, direct catalog marketing, special customer events
and resellers. Marketing and sales are focused on those schools
and school districts having the significant percentages of
at-risk and special student populations, with 36.7% of sales in
2008 derived from the 1,000 largest school districts in the
United States. This focus has resulted in a broad customer base;
during the three years ended December 31, 2008, no single
customer has accounted for more than 3.0% of total sales in any
one year and Cambium’s top ten customers have accounted for
less than 16% of total sales.
•
Cambium has invested significant sums in its Frederick,
Colorado distribution facility to support future
growth. This facility has capacity which can be
expanded within the current 185,000 square foot building
footprint without a need to add-on to the existing building.
•
Cambium’s growth prospects derive from several potential
sources. Cambium believes that its growth will be
driven by a number of factors, including:
•
expanding at-risk and special education populations;
•
increasing program penetration, especially in mathematics;
•
positive results achieved in school districts using
Cambium’s programs;
•
growth in services such as teacher training and professional
development; and
•
new programs addressing adjacent markets characterized by
different student learning needs.
•
Cambium intends to explore strategic
acquisitions. Cambium operates in a highly
fragmented market. Cambium believes that this fragmentation is
likely to continue to present viable consolidation
opportunities. Cambium intends to explore strategic product,
service and company acquisitions in the future.
Cambium provides intervention solutions, services and learning
technologies designed specifically for the Pre-K-12 at-risk and
special education markets. The following table sets forth, for
each of Cambium’s product areas, revenues for the year
ended December 31, 2008 and selected brands and services.
LANGUAGE!; Read Well; Step up to Writing; Reward; Transitional
Math; Voyages; Algebra Rescue; We Can!; Reading Central; Algebra
Ready
Supplemental programs
$
17.9
DIBELS/IDEL; LETRS; Six Minute Solution; Coaching Reading;
Stepping Stones to Literacy; Parareading; Spellography;
Colleague in the Classroom
Services
$
5.4
Institutes & conferences; DoDEA; CTAG
Learning technologies
$
21.7
Kurzweil Educational Systems; IntelliTools; TSSR/Acceleration
Station
Educating at-risk and special education student populations
requires a different approach than traditional instructional
materials that largely address on-grade level students.
Cambium’s intervention programs differentiate instruction
for more challenged learners, provide access and assistance to
certain groups within special education, incorporate ongoing
progress monitoring in order to inform instruction, and often
require more comprehensive implementation and training services.
Cambium believes that its established relationships with
researchers and authors provide the foundation for its existing
intervention programs and a resource for developing new
intervention programs. Cambium utilizes established research and
authors for initial concept development, field testing,
refinement of concepts, and program sales and support. By
providing its researchers and authors with direct involvement
in, and substantial control over, product outcomes, Cambium
believes that it enhances the quality of its product offerings.
Intervention
Solutions
Core Intervention Programs. Cambium’s
suite of core intervention programs is the anchor of its product
offerings. Generally, these programs provide a full-year’s
worth of instruction for a student and are intended to be used
as the student’s primary instruction in literacy or
mathematics. Core intervention programs are sold to schools and
school districts through Cambium’s direct sales
organization.
• LANGUAGE!, Cambium’s principal literacy
offering, is a complete literacy program that targets students
in grades 3-12 achieving at or below the 35th percentile.
The program consists of a
36-unit
curriculum organized into six levels that cover phonemic
awareness and phonics, word recognition and spelling, vocabulary
and morphology, grammar and usage, listening and reading
comprehension and speaking and writing. LANGUAGE! is designed
for special education students, as well as students learning to
speak English. The curriculum is a mastery-based curriculum.
Students exit as soon as they achieve grade-level proficiency,
which will vary depending on the specific needs of the student
and where the student enters the program.
• Step Up to Writing is a strategies-based
program that spans grades K-12 and addresses students who score
at or below the basic skill level in writing. The program
teaches students to write both narrative and expository pieces,
actively engage with reading materials and develop study skills.
Step Up to Writing is designed to fit alongside a school
district’s existing reading program and to be integrated
into any standard curriculum or instructional system.
Read Well targets at-risk students in grades
K-2. The program is a research-based and data-driven
reading curriculum that addresses all five components of
effective reading instruction — phonemic awareness,
phonics, vocabulary, comprehension and fluency.
REWARDS is a research-based, reading intervention program
designed for general and special education, remedial reading,
summer school and after-school programs. The program focuses on
de-coding, fluency, vocabulary, comprehension, test-taking
abilities and content-area reading and writing.
We Can is a multilingual early childhood program which is
designed to develop both social and academic skills. The program
offers flexible lesson plans for customized instruction, a
classroom management system and learning center choices. We Can
also fits within a variety of Pre-K settings.
Voyages targets grades K-5 and is a core mathematics
program designed by teachers for teachers. Educators may utilize
Voyages as a core program, as an intervention program or as part
of a gifted and talented program.
Transitional Math, or TransMath, targets students in the
25th percentile and below in grades 5-12. TransMath
provides students with in-depth, sequential skill building of
foundational math concepts through reform-based and procedural
instruction. Multisensory strategies are designed to promote
problem-solving proficiency, vocabulary development and
mathematical discourse.
Algebra 1 Rescue targets students at risks of failure in
algebra and teaches them a variety of core objectives through
activities intended to make learning fun. Students may
participate in Algebra 1 Rescue in small groups, as a supplement
to basal curricula, or as a stand-alone algebra intervention
program.
Algebra Ready teaches students fundamental mathematics
and is designed to prepare them for algebra and geometry.
Students can utilize Algebra Ready during summer school,
extended days, or as a supplement to a core math curriculum.
Supplementary Intervention
Programs. Cambium’s supplementary
intervention programs target specific skill areas with the goal
of supplementing existing programs used in schools and school
districts.
Dynamic Indicators of Basic Early Literacy Skills
(DIBELS/IDEL) is a literary screening and progress
monitoring tool. Students from kindergarten through third grade
take benchmark assessments three times a year in order to
measure the critical areas of early reading: awareness, phonics,
fluency, comprehension and vocabulary. Students in fourth
through sixth grades are assessed in the areas of fluency and
comprehension. For those with reading difficulties, progress
monitoring assessments are given to determine the effectiveness
of the interventions being used. IDEL offers DIBELS materials
for Spanish-speaking students.
Language Essentials for Teachers of Reading and Spelling
(LETRS) is a stand-alone professional development program
for educators. The training program is delivered through a
combination of print materials, online courses, software and
face-to-face
training. LETRS Institutes are grouped into a series of
three-day
sessions presented by certified national LETRS trainers and
engage educators through group activities and hands-on practice.
The Six Minute Solution targets grades K-12 and helps
students improve reading fluency. This peer-mentoring and
feedback system is designed to complement a reading curriculum.
Stepping Stones to Literacy targets grades Pre-K-1 to
assist beginners who are struggling to build a strong foundation
in reading fluency.
Colleague in the Classroom focuses on the K-3 grade
levels and is designed to assist young students who are
struggling with sounds, symbols and reading. It consists of five
DVDs featuring educators that model a variety of sequential
reading lessons by using current, effective strategies and best
practices.
Math Interventions. Cambium’s
supplementary math interventions include Bridges, a grade
5-8 intervention program, Problem Solving Step By Step, a
grade 1-8 intervention program that teaches problem solving
skills in a structured
step-by-step
fashion and Math Readers, a collection of readers for
grades K-3 that introduces math concepts and numeracy readiness
skills.
Conferences and Institutes. Cambium conducts a
variety of professional development events to help educators and
administrators improve student achievement levels, address
behavioral problems and create safe schools. A professional
development event may be a
one-day
symposium addressing a specific strategy or a
multi-day
event with numerous presenters who address a variety of topics.
Cambium believes that its conferences and institutes are
important platforms for promoting the Cambium brand as well as
generating product sales for core and supplementary intervention
programs.
Cambium Learning Solutions. Cambium Learning
Solutions was developed to support educators and administrators
in their efforts to raise the achievement level of students and
effect evidence-based system-wide reform. Key elements of
Cambium Learning Solutions include:
•
Coaching. Cambium’s professionals perform
in-class demonstration teaching and modeling to help teachers
hone their skills, provide coaches with tools for classroom
observations, and help principals improve classroom
walk-throughs.
•
Program Evaluation. Cambium collects data on
student achievement within schools to evaluate whether school
programs match current research and best practices. Cambium
examines the findings and creates results-oriented action plans
for educators.
•
Professional Development. Cambium provides
professional development for educators on topics such as
reading, mathematics, behavioral management, assessment,
curriculum development, leadership and summer school and after
school interventions.
DoDEA. In 2005, Cambium was awarded a
$6.8 million contract, renewable on a yearly basis, by the
Department of Defense Education Activity, or DoDEA, to provide
special education professional development services and
products. The core goal of this initiative is to improve the
quality of instruction for students with disabilities. These
staff development services and products are provided at both
foreign and domestic military bases. Cambium has since received
two additional contracts with DoDEA for similar work totaling
approximately $1.8 million.
Distance Education. Cambium provides distance
education courses that are either completely online, or a blend
of
face-to-face
plus on-line extensions.
Learning
Technologies
Cambium’s Learning Technologies include three principal
product lines: Kurzweil Educational Systems, IntelliTools and
TSSR/Acceleration Station. These technologies complement
Cambium’s other products, but also are designed to offer
content-neutral platforms in order to meet the assistive and
instructional technology needs of all students.
Kurzweil Educational Systems. Kurzweil
Educational Systems is a program that primarily targets students
in middle school through higher education struggling with
reading and writing, specifically those students with ADHD,
dyslexia and visual impairments. Kurzweil Educational Systems
produces two software products for individuals with learning
difficulties and for those who are visually impaired:
•
Kurzweil 3000 is a reading, writing and learning software
package for students with dyslexia, attention deficit disorder
or other learning difficulties, including physical impairments
or language learning needs.
•
Kurzweil 1000 provides visually impaired users access to
printed and electronic materials. Documents and digital files
are converted from text to speech and read aloud in a variety of
voices that can be modified to suit individual preferences. In
addition, this software provides users with document creation,
and editing, studying and study skills for note-taking,
summarizing and outlining text.
IntelliTools offers hardware products that target
students with physical, visual and cognitive disabilities that
make using a standard keyboard and mouse difficult. IntelliTools
also offers software products that target
elementary and middle school special education students
struggling with reading and math. IntelliTools’ products
include:
•
IntelliKeys®USB
is a programmable alternative keyboard with supporting
software for students or adults who have difficulty using a
standard keyboard.
•
IntelliTools Classroom Suite is an authoring and
application tool intended to boost achievement on
standards-based tests and help meet adequate yearly progress
goals under the No Child Left Behind Act.
•
Curriculum Products. IntelliTools offers
software products with a simple interface for students to use.
The software includes lessons, activities and assessments that
reinforce reading, writing and math skills with the capability
to generate reports and provide detailed data tracking.
TSSR/Acceleration Station is a program for generating,
administering, scoring and analyzing paper-based and online
assessments. TSSR (Test, Scan, Score, Report) is a core
software product that includes student rostering, test creation,
scanning, scoring and reporting functionality. Acceleration
Station is an assessment solution built on TSSR.
Cambium’s quarterly operating results fluctuate due to a
number of factors, including the academic school year, funding
cycles, the amount and timing of new products and Cambium’s
spending patterns. In addition, Cambium’s customers
experience cyclical funding issues that can impact
Cambium’s revenue patterns. Historically, Cambium has
experienced its lowest sales and earnings in the first and
fourth fiscal quarters with its highest sales and earnings in
the second and third fiscal quarters.
Cambium regards a substantial portion of its technologies and
content as proprietary and relies primarily on a combination of
patent, copyright, trademark and trade secret laws, and employee
or vendor non-disclosure agreements, to protect its rights.
Cambium has been granted a limited number of U.S. patents
and has additional U.S. patent applications pending
relating to its products. Although Cambium believes that the
issued patents are defendable and that the pending patent
applications relate to patentable inventions, there is no
assurance that a patent will be granted under its applications
or that its existing patents, if challenged, can be successfully
defended.
Although Cambium licenses certain content from third parties,
the bulk of its products are developed
in-house or
through collaboration with researchers and authors. Third party
content may be sourced from various providers who retain the
appropriate trademarks and copyrights to the material and agree
to Cambium’s use on a nonexclusive, fee-based arrangement.
Cambium uses U.S. registered trademarks to identify various
products that it develops. The trademarks survive as long as
they are in use and the registrations of these trademarks are
renewed.
On April 26, 2008, prior to the issuance of Cambium’s
2007 year-end financial statements, Cambium undertook an
internal investigation that revealed irregularities involving
the control and use of cash and certain other general ledger
accounts, resulting from a misappropriation of assets. These
irregularities were perpetrated by a former employee beginning
in 2004 and continuing through April 2008. The total amount of
the embezzlement loss was approximately $14 million. In
2008, Cambium took possession of five boats which were purchased
by the former employee using the embezzled funds. In addition to
the embezzlement loss, Cambium incurred approximately
$5.3 million in investigative, legal, administrative and
other costs in connection with the embezzlement, net of
insurance and boat sale recoveries. See Note A of the Notes
to Cambium’s Consolidated Financial Statements presented
elsewhere in this proxy statement/prospectus and
As of September 30, 2009, Cambium had a total of
267 employees. None of Cambium’s employees are
represented by collective bargaining agreements. Cambium regards
its relationships with employees to be satisfactory.
The market for Cambium’s products is highly competitive.
Cambium competes with basal text book suppliers such as Houghton
Mifflin/Harcourt (Riverdeep), Scott Foresman (Pearson), McGraw
Hill and Voyager, which offer intervention products, and
supplemental suppliers, including Voyager, Scientific Learning,
Scholastic and Hampton-Brown.
Cambium has entered into operating leases for office and
warehouse facilities that expire at various dates through 2016.
Some leases contain renewal and escalation clauses for a
proportionate share of operating expenses. Cambium also has
entered into a
build-to-suit
lease for warehouse space in Frederick, Colorado, that Cambium
uses as its distribution center. This lease requires minimum
monthly rents that expire on October 31, 2016 and is
renewable at Cambium’s option for two additional terms of
five years each.
This analysis should be read in conjunction with Cambium’s
consolidated financial statements and the notes presented
elsewhere in this proxy statement/prospectus and in conjunction
with the matters described under “CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS” on page vii and
“RISK FACTORS” on page 32.
Overview
Cambium provides intervention solutions designed specifically
for the Pre-K-12 at-risk and special education markets. Cambium
operates in three complementary product areas: published
products, learning technologies and services. Published products
include specialized instructional materials and implementation
related services. The instructional materials, in turn, consist
of two principal types of offerings — core
intervention programs and supplementary programs. Core
intervention programs serve as the anchor to Cambium’s
product portfolio, generally providing a full-year’s worth
of literacy or math instruction to at-risk students.
Supplementary programs are offered in the areas of literacy,
mathematics and behavior to supplement core programs, and
include assessments and instructional resources for students and
professional development materials for educators. Learning
technologies consist of a suite of technologies that provide
assistive technologies for students, instructional assistance to
educators and ongoing progress monitoring of student
performance. Service offerings include institutes and
conferences, consulting and school improvement/professional
development services.
On January 29, 2007, VSS-Cambium Holdings, LLC was formed
for the purpose of acquiring all of the capital stock of Cambium
Learning. That acquisition was completed on April 12, 2007.
The Cambium consolidated financial statements
and/or
financial data set forth in this proxy statement/prospectus
present VSS-Cambium Holdings, LLC as of September 30, 2009,
December 31, 2008 and December 31, 2007 on a successor
basis reflecting the activity of VSS-Cambium Holdings, LLC from
January 29, 2007 and the activity of Cambium Learning, Inc.
and its subsidiaries from April 12, 2007 and present
Cambium Learning and its subsidiaries on a predecessor basis as
of and for the years ended December 31, 2004, 2005 and 2006
and for the period January 1, 2007 through April 11,2007, representing all periods prior to the time that
VSS-Cambium
Holdings, LLC acquired Cambium Learning.
In connection with the execution of the merger agreement:
•
VSS-Cambium Holdings, LLC contributed the capital stock of
Cambium Learning to VSS-Cambium Holdings IV, LLC, a newly
formed, wholly owned subsidiary of VSS-Cambium Holdings, LLC;
concurrently, VSS-Cambium Holdings IV, LLC assumed the
obligations of VSS-Cambium Holdings, LLC under Cambium
Learning’s senior secured and senior unsecured credit
agreements;
•
Veronis Suhler Stevenson formed a wholly owned subsidiary,
VSS-Cambium Holdings III, LLC, which in turn formed VSS-Cambium
Holdings III Acquisition, LLC and VSS-Cambium
Holdings II Corp. as its wholly owned subsidiaries;
•
VSS-Cambium Holdings III, LLC and VSS-Cambium Holdings, LLC
entered into an agreement providing for VSS-Cambium Holdings,
LLC to merge into VSS-Cambium Holdings III Acquisition, LLC with
VSS-Cambium Holdings, LLC being the surviving entity; upon
completion of that merger VSS-Cambium Holdings III, LLC will
own, directly or indirectly, 100% of VSS-Cambium Holdings, LLC,
VSS-Cambium Holdings IV, LLC, Cambium Learning and its
subsidiaries, and VSS-Cambium Holdings II Corp.; and
•
VSS-Cambium Holdings III, LLC entered into a contribution
agreement pursuant to which it has agreed to transfer its
interests in VSS-Cambium Holdings, LLC (acquired upon completion
of the above-mentioned merger) to VSS-Cambium Holdings II
Corp, which will, upon completion of such contribution, own,
directly or indirectly, 100% of VSS-Cambium Holdings, LLC,
VSS-Cambium Holdings IV, LLC, Cambium Learning and its
subsidiaries.
See “THE MERGERS — Diagrams” for a
diagram depicting these steps. For purposes of this proxy
statement/prospectus, we have utilized the term
“Cambium” to refer to VSS-Cambium Holdings, LLC before
the above-mentioned steps are taken and VSS-Cambium
Holdings II Corp. after such steps are taken.
Embezzlement
Loss
During 2008, Cambium discovered irregularities relating to the
control and use of cash and certain other general ledger items
which resulted in a substantial misappropriation of assets over
a period of approximately four years. These irregularities were
perpetrated by a former employee, resulting in embezzlement
losses, before the effect of income taxes, as follows:
In addition to these losses, Cambium incurred fees and expenses
as a result of the embezzlement totaling $5,453,250 in 2008.
During the nine months ended September 30, 2009, Cambium
received a $500,000 insurance claim recovery related to the
embezzlement, resulting in a net reduction of embezzlement and
related expenses of $194,921 for the nine months ended
September 30, 2009.
Pursuant to an agreement dated July 10, 2008 by and between
the former stockholders of Cambium Learning and the members of
VSS-Cambium Holdings, LLC, a $20,000,000 escrow relating to the
acquisition of Cambium Learning by VSS-Cambium Holdings, LLC was
contributed to a settlement fund in connection with the
above-mentioned embezzlement. Also, the former stockholders of
Cambium Learning agreed to contribute an additional $9,269,098
to the settlement fund. The total settlement of $30,202,083,
including interest income of $932,985, was distributed to
Cambium Learning and was used to cover costs and to pay down a
portion of its senior credit facility. The entire settlement
amount has been recorded as a gain from a settlement with
previous stockholders on Cambium’s consolidated statement
of operations.
All financial statements and financial data relating to Cambium
in this proxy statement/prospectus for periods prior to the
discovery of the embezzlement give effect to the embezzlement
and the related losses.
Critical
Accounting Policies and Estimates
Cambium’s consolidated financial statements are prepared in
accordance with GAAP. The preparation of Cambium’s
financial statements requires Cambium to make estimates,
assumptions and judgments that affect the reported amounts of
assets, liabilities, net sales and expenses and related
disclosure of contingent assets and liabilities.
On an ongoing basis, Cambium evaluates its estimates, including
those related to sales returns, allowance for bad debts,
recoverability of advances to authors, valuation and
recoverability of inventory, depreciation and amortization
periods, recoverability of long-term assets such as property,
plant, and equipment, capitalized pre-publication costs, other
identified intangibles and goodwill, deferred tax valuation
allowances and litigation. Actual results may differ from these
estimates, which could have a material impact on Cambium’s
consolidated financial statements.
Some accounting policies require greater degrees of judgment
than others in their application. We consider the following to
be critical accounting policies because of the judgment involved
in each. For a detailed discussion of Cambium’s significant
accounting policies, see Note B to Cambium’s
Consolidated Financial Statements included in this proxy
statement/prospectus.
Revenue recognition. Cambium recognizes
revenue from instructional materials, software licenses and
multimedia instructional materials when:
•
persuasive evidence of an arrangement exists;
•
the products are shipped;
•
title and risk of loss transfer to the customer;
•
all significant obligations have been performed, and
•
collection is reasonably assured.
Revenues related to maintenance and support are recognized on a
straight-line basis over the period that maintenance and support
provided. In certain instances, telephone support and software
repairs are provided for free within the first year of licensing
the software. The cost of providing this service is
insignificant, and is accrued at the time of revenue
recognition. Revenue for training is recognized when the
services have been completed, the fee is fixed and determinable,
and collection is reasonably assured. Amounts billed
and/or
collected prior to the completion of services are recorded as
deferred revenue. Cambium enters into agreements to license
certain book publishing rights and content. Cambium recognizes
the revenue from these agreements when the license amount is
fixed and determinable, collection is reasonably assured, and
the license period has commenced. For those license agreements
that require Cambium to deliver additional materials as part of
the license agreement, the revenue is recognized when the
product is received by the customer.
As products are shipped with a right of return, generally
90 days, a provision for estimated returns on these sales
is made at the time of sale, based on historical experience, in
accordance with applicable FASB accounting guidance regarding
revenue recognition. The amounts have not been material to date.
Shipping fees billed to customers are included in net sales, and
costs of shipping are included in selling and administrative
expenses. Shipping costs included in selling and administrative
expense were $1.3 million and $2.0 million for the
nine months ended September 30, 2009 and 2008,
respectively, and were $2.3 million, $2.7 million,
$0.4 million and $2.5 million for the year ended
December 31, 2008, for the period from January 29,2007 to December 31, 2007, for the period from
January 1, 2007 to April 11, 2007 and for the year
ended December 31, 2006, respectively.
The division of revenue among shipped materials, license fees
and services is determined in accordance with applicable
accounting guidance for revenue arrangements with multiple
deliverables. Cambium uses the residual method when objective
evidence of fair value does not exist for one of the delivered
elements in the arrangement. Under the residual method, the fair
value of the undelivered elements is deferred, and subsequently
recognized when the product or service is delivered.
Goodwill. In accordance with FASB accounting
guidance for goodwill treatment, Cambium does not amortize
goodwill, but instead tests for impairment, at least annually
and more frequently upon the occurrence of certain events which
may indicate that impairment has occurred. The applicable
accounting guidance requires that a two-step impairment test be
performed on goodwill. In the first step, Cambium compares the
fair value, which is determined by use of a discounted cash flow
technique, of the reporting unit to its carrying value. If the
fair value of the reporting unit exceeds the carrying value of
the net assets of that reporting unit, goodwill is not impaired
and Cambium is not required to perform further testing. If the
carrying value of the net assets assigned to the reporting unit
exceeds the fair value of that unit, then Cambium must perform
the second step of the impairment test in order to determine the
implied fair value of the reporting entity’s goodwill. If
the carrying value of a reporting unit’s goodwill exceeds
its implied fair value, then Cambium is required to record an
impairment loss equal to the difference. Cambium has two
reporting units: published products and learning technologies.
Determining the fair value of a reporting unit is judgmental in
nature, and involves the use of significant estimates and
assumptions. These estimates and assumptions may include revenue
growth rates and operating margins used to calculate projected
future cash flows, risk-adjusted discount rates, future economic
and
market conditions, and determination of appropriate market
comparables. In addition, Cambium may make certain judgments and
assumptions in allocating shared assets and liabilities to
determine the carrying values of its reporting units. In
December 2008, Cambium determined that it needed to assess the
recoverability of its goodwill due to significant deterioration
in the expected future performance of Cambium’s Published
Products unit. Cambium also determined that the appropriate
discount rate (based on weighted-average cost of capital) used
in the 2008 assessment should be higher than the discount rate
used in the 2007 impairment assessment. As a result of the 2008
assessment, Cambium recorded a $76.0 million impairment
charge. In June 2009, Cambium determined that it needed to
assess the carrying values of its reporting units due to the
signing of the merger agreement. Cambium also determined that
the appropriate discount rate for its Published Products unit
(based on weighted-average cost of capital) used in the 2009
assessment should be higher than the discount rate used in the
2008 impairment assessment. As a result of that analysis,
Cambium recorded a goodwill impairment charge of
$9.1 million as of June 30, 2009. As of December 31,2007 and September 30, 2009, the Company performed the first
step in the impairment test and determined that goodwill was not
impaired for its Published Products and Learning Technologies
reporting units.
Long-Lived Assets and Intangible Assets. In
accordance with applicable FASB accounting guidance for the
treatment of long-lived assets, Cambium reviews the carrying
value of its long-lived assets, including intangible assets
subject to amortization, for impairment whenever events and
circumstances indicate that the carrying value of the assets may
not be recoverable. Recoverability of these assets is measured
by comparison of the carrying value of the assets to the
undiscounted cash flows estimated to be generated by those
assets over their remaining economic life. If the undiscounted
cash flows are not sufficient to recover the carrying value of
such assets, the assets are considered impaired, and the
impairment loss is measured by comparing the fair value of the
assets to their carrying values. Fair value is determined by
either a quoted market price or a value determined by a
discounted cash flow technique, whichever is more appropriate
under the circumstances involved. Intangible assets with
determinable lives are amortized over their useful lives, based
upon the pattern in which the expected benefits will be
realized. For fiscal year 2008 and the nine months ended
September 30, 2009, no impairment was indicated.
The determination as to whether Cambium’s definite-lived
intangible assets are impaired involves significant assumptions
and estimates, including projections of future cash flows, the
percentage of future revenues and cash flows attributable to the
intangible assets, asset lives used to generate future cash
flows, and royalty charges attributable to trademarks. The
impairment calculations are most sensitive to the future cash
flow assumptions. Future cash flow projections are based on
management’s best estimates of economic and market
conditions over the projected period, including industry
fundamentals such as the state of educational funding, revenue
growth rates, future costs and operating margins, working
capital needs, and capital and other expenditures. Adverse
developments in the education funding environment, including the
impact of the economic downturn that caused state and local
budgets to be negatively impacted, have affected Cambium’s
operations during 2008 and the first half of 2009 and may
continue to have an impact, and potentially increase the impact,
on Cambium’s future sales, profits, cash flows and carrying
value of assets. Cambium has seen recent improvements in the
funding environment and management expects that trend to carry
forward through the remainder of 2009 and beyond. In addition,
with the planned 2009 California adoption being delayed, Cambium
expects there to be
pent-up
demand in California, which is expected to increase revenues for
Cambium in 2010. Future cash flows are based upon revenue growth
projections of approximately 8.5% per year; due to the scalable
nature of Cambium business, management projects expense growth
will be lower than the assumed revenue growth rate, resulting in
future cash flows growth rates in excess of 8.5% per year.
Advertising and Promotion Costs. Advertising
and promotion costs are charged to selling and administrative
expenses as incurred. Cambium recognizes catalog expense when
catalogs are mailed to potential customers. The cost to print
catalogs is recorded in prepaid expenses on Cambium’s
balance sheet until the catalogs are mailed.
Accounts Receivable. Accounts receivable are
recorded net of allowances for doubtful accounts and reserves
for estimated sales returns. Allowances for doubtful accounts
are established through the evaluation of accounts receivable
agings and prior collection experience to estimate the ultimate
collectability of these receivables. Reserves for sales returns
are based on historical return rates and sales patterns.
Inventory. Cambium uses the lower of first-in,
first-out (FIFO) or market method (net realizable value) to
value inventory and determine cost of inventories included in
cost of sales in its statement of operations. Cambium’s
level of obsolete and excess inventory is calculated on a title
or program basis by comparing the number of units in stock with
the expected future demand. The expected future demand of the
title is determined by the previous years’ sales history,
expected future sales of the title or program and known
forward-looking trends, including Cambium’s development
cycle to replace the title or program. Based on this
calculation, any excess stock is fully marked-down.
Capitalized Internal Use Software. Cambium
capitalizes certain costs related to obtaining or developing
computer software for internal use under applicable FASB
accounting guidance. Costs incurred during the application
development stage, including external direct costs of materials
and services, and payroll and payroll-related costs for
employees who are directly associated with the internal-use
software project, are capitalized and amortized on a
straight-line basis over the expected useful life of the related
software of three to five years. The application development
stage includes design, software configuration and integration,
coding, hardware installation, and testing. Costs incurred
during the preliminary stage, as well as maintenance, training,
and upgrades that do not result in additional functionality are
expensed as incurred.
Research and Development Expenses. Software
research and development costs are accounted for in accordance
with applicable FASB accounting guidance. Under that guidance,
Cambium capitalizes material software development costs incurred
once a working model of the software has been completed.
Historically, the time that elapses between when a working model
of the software has been completed and general release to
customers has been short, and, therefore, the costs have been
insignificant. Research and development expenses also include
costs to develop manuscripts, which are expensed as incurred.
Royalty Advances. Royalty advances to authors
are capitalized and represent amounts paid in advance of the
sale of an author’s product. These costs are then amortized
as the related publication is sold. Cambium evaluates advances
periodically to determine if they are expected to be recovered
and reserves any portion of a royalty advance that is not
expected to be recovered.
Pre-Publication Costs. Cambium capitalizes the
art, pre-press and other costs incurred in the creation of the
master copy of a book or other media. Cambium capitalizes the
cost of this investment in pre-publication costs and amortizes
this cost over five years using the sum-of-the-years digits
method. Cambium believes that the amortization methods and
periods chosen best reflect the projected sales generated from
individual titles or programs. On an annual basis, Cambium
evaluates the remaining lives and recoverability of capitalized
pre-publication costs on the basis of expected net realizable
value.
Publishing Rights Intangible Assets. A
publishing right allows Cambium to publish and republish
existing and future works, as well as transform, adapt, or
create new works based on previously published materials.
Cambium determines the fair market value of the publishing
rights arising from business combinations by discounting the
after-tax cash flows projected to be derived from the publishing
rights and titles to their net present value using a rate of
return that accounts for the time value of money and the
appropriate degree of risk. The useful life of the publishing
rights is based on the lives of the various titles involved,
which is generally ten years. Cambium calculates amortization
using the percentage of the projected discounted cash flows
derived from the titles in the current year as a percentage of
the total estimated discounted cash flows expected to be
generated.
Derivative Instruments. Cambium uses an
interest rate derivative instrument to hedge its exposure to
interest rate volatility resulting from its senior secured
credit agreement. Under applicable FASB accounting guidance
Cambium is required to report all derivative instruments on its
balance sheet at fair value. Applicable FASB accounting guidance
sets forth the criteria for designation and effectiveness of
hedging relationships, and provides generally that all
designations must be made at the inception of each instrument.
As such initial designations were not made by Cambium at
inception, Cambium is required to recognize changes in the fair
value of the derivative instrument in the current period as
other income or expense. Cambium determines the fair value of
the interest rate swap from a third-party quote. This value
represents the estimated amount that Cambium would receive or
pay to terminate the swap agreement taking into consideration
current interest rates.
In September 2006, the FASB issued new accounting guidance on
fair value measurements. This guidance defines fair value,
establishes a framework for measuring fair value, and expands
disclosures regarding fair value measurements. The guidance does
not require any new fair value measurements, but provides
guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information.
Cambium adopted this guidance for all recurring financial assets
and liabilities beginning fiscal 2009. The adoption of this
guidance did not have a material effect on Cambium’s
consolidated financial condition, results of operations or cash
flows.
In December 2007, the FASB issued new accounting guidance on
business combinations. This guidance establishes principles and
requirements for how an acquirer accounts for business
combinations. This issuance includes guidance for the
recognition and measurement of the identifiable assets acquired,
the liabilities assumed, and any noncontrolling or minority
interest in the acquiree. It also provides guidance for the
measurement of goodwill, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss
contingencies and acquisition-related transaction costs, and the
recognition of changes in the acquirer’s income tax
valuation allowance. This accounting guidance applies
prospectively and is effective for business combinations made by
Cambium beginning January 1, 2009. The provisions are
effective as of Cambium’s first quarter ended
March 31, 2009; however, adoption did not have a material
effect on Cambium’s financial condition, results of
operations or cash flows.
In December 2007, the FASB issued new accounting guidance on the
reporting of noncontrolling interests in consolidated financial
statements. Currently, Cambium does not have an outstanding
noncontrolling interest in one or more subsidiaries, nor does it
deconsolidate any subsidiaries. The new accounting guidance will
be effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. The
provisions are effective as of Cambium’s first quarter
ended March 31, 2009; however, adoption did not have a
material effect on Cambium’s consolidated financial
condition, results of operations or cash flows.
In April 2008, the FASB issued new accounting guidance on the
determination of the useful life of intangible assets. The new
guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under previous
guidance for goodwill and other intangible assets. This issuance
is effective for fiscal years beginning after December 15,2008. The provisions are effective as of Cambium’s first
quarter ended March 31, 2009; however, adoption did not
have a material effect on Cambium’s financial condition,
results of operations or cash flows.
In April 2009, the FASB issued new guidance related to
determining fair value when the volume and level of activity for
the asset or liability have significantly decreased and
identifying transactions that are not orderly, which provides
additional guidance for estimating fair value in accordance with
the guidance for fair value measurements, when the volume and
level of activity for the asset or liability have significantly
decreased. This issuance also includes guidance on identifying
circumstances that indicate a transaction is not orderly. The
new accounting guidance is effective for interim and annual
periods ending after June 15, 2009, and shall be applied
prospectively. The provisions are effective as of Cambium’s
second quarter ended June 30, 2009; however, adoption did
not have a material effect on Cambium’s financial
condition, results of operations or cash flows.
In April 2009, the FASB issued new accounting guidance on
recognition and presentation of other-than temporary
impairments, which provides operational guidance for determining
other-than-temporary impairments (“OTTI”) for debt and
equity securities classified as available-for-sale and
held-to-maturity. This guidance was effective for interim and
annual periods ending after June 15, 2009. The provisions
are effective as of Cambium’s second quarter ended
June 30, 2009; however, adoption did not have a material
effect on Cambium’s financial condition, results of
operations or cash flows.
In April 2009, the FASB issued new accounting guidance on
interim disclosures about fair value of financial instruments,
which amends previous guidance on disclosures about fair value
of financial instruments to require disclosure about fair value
of financial instruments in interim financial statements. This
new
guidance is effective for interim and annual periods ending
after June 15, 2009. The provisions were effective as of
Cambium’s second quarter ended June 30, 2009; however,
adoption did not have a material effect on Cambium’s
financial condition, results of operations or cash flows.
In May 2009, the FASB issued new accounting guidance relating to
subsequent events. This guidance establishes general standards
for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued and shall be applied to subsequent
events not addressed in other applicable generally accepted
accounting principles. This issuance sets forth the period after
the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition
or disclosure in the financial statements, the circumstances
under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements and the disclosures an entity should make about
events or transactions that occurred after the balance sheet
date. This guidance is effective for Cambium’s interim and
annual financial periods ending after June 15, 2009. The
provisions were effective as of Cambium’s second quarter
ended June 30, 2009; however, adoption did not have a
material effect on Cambium’s financial condition, results
of operations or cash flows.
In June 2009, the FASB issued new guidance to address the
elimination of the concept of a qualifying special purpose
entity and replaces the quantitative-based risks and rewards
calculation for determining which enterprise has a controlling
financial interest in a variable interest entity. Also, the new
guidance requires an ongoing assessment of whether an entity is
the primary beneficiary of a variable interest entity. The
amended approach focuses on identifying which enterprise has the
power to direct the activities of a variable interest entity and
the obligation to absorb losses of the entity or the right to
receive benefits from the entity. Additionally, the new guidance
provides more timely and useful information about an
enterprise’s involvement with a variable interest entity.
The provisions will become effective for the first annual period
starting after November 15, 2009. Cambium is currently
evaluating the impact of this standard on its consolidated
financial condition, results of operations and cash flows.
During the third quarter of 2009, Cambium adopted the new
Accounting Standards Codification (ASC) as issued by the FASB.
The ASC has become the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental
entities. The ASC is not intended to change or alter existing
GAAP.
Income
Taxes
Cambium utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases, as well as for operating loss and tax credit
carryforwards. A valuation allowance is applied against net
deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. Deferred tax assets
and liabilities are measured using tax rates expected to apply
to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
Cambium evaluates uncertain tax positions under applicable FASB
accounting guidance, utilizing a two-step process to determine
the amount of tax benefit to recognize. First, the tax position
must be evaluated to determine the likelihood that it will be
sustained upon examination by a tax authority. If the tax
position is deemed “more-likely-than-not” to be
sustained, the tax position is then assessed to determine the
amount of benefit to recognize in the financial statements. The
amount of the benefit that may be recognized is the largest
amount that has a greater than 50 percent likelihood of
being realized upon ultimate settlement. If the tax position
does not meet the “more-likely-than-not” threshold,
then it is not recognized in the financial statements. Under
applicable FASB accounting guidance, Cambium accrues interest
and penalties, if any, related to unrecognized tax benefits as a
component of income tax expense. If the judgments and estimates
made by us are not correct, the unrecognized tax benefits may
have to be adjusted, and the adjustments could be material.
Cambium calculates its interim income tax provision in
accordance with applicable FASB accounting guidance. At the end
of each interim period, Cambium estimates the annual effective
tax rate and applies that rate to its ordinary quarterly
earnings. The tax expense or benefit related to significant,
unusual, or extraordinary items that will be separately reported
or reported net of their related tax effect, and are
individually computed, are recognized in the interim period in
which those items occur. In addition, the effect of changes in
enacted tax laws or rates or tax status is recognized in the
interim period in which the change occurs.
The computation of the annual estimated effective tax rate at
each interim period requires certain estimates and significant
judgment including, but not limited to, the expected operating
income for the year, projections of the proportion of income
earned and taxed in various jurisdictions, permanent and
temporary differences, and the likelihood of recovering deferred
tax assets generated in the current year. The accounting
estimates used to compute the provision (benefit) for income
taxes may change as new events occur, more experience is
acquired, additional information is obtained or as the tax
environment changes.
Restructuring
In December 2007, Cambium developed, approved, and communicated
a plan to consolidate the Petaluma, California, office and
reduce the work force, with consolidation completed by
September 30, 2009. Cambium’s total restructuring
charge amounted to $662,260, consisting of one-time termination
benefits and facility-related expenses. Cambium expensed $56,433
for the nine months ended September 30, 2009, classified as
cost of sales in the accompanying Consolidated Statement of
Operations in the Learning Technologies segment. The following
table summarizes the restructuring plan:
The following table summarizes the activity in Cambium’s
restructuring reserve, which is included in other accrued
expenses in Cambium’s Consolidated Balance Sheets.
Cambium operates in a highly fragmented and competitive market.
The principal drivers of Cambium’s revenues are:
•
Availability of Governmental
Funding. Educating at-risk and special education
students requires a different approach than relying on
traditional instructional materials, since these intervention
programs often require detailed implementation and training and
substantial commitment from school administrators and teachers.
The costs of these programs are typically too substantial to be
borne by private families. Thus, Cambium derives a significant
portion of its revenues from public schools, which are heavily
dependent on federal, state and local government funding. Shifts
in priorities, as well as general reductions in funding, can
delay or reduce Cambium’s revenues. While the availability
of state and federal funding for elementary and high school
education was expanded as a result of legislation such as No
Child Left Behind and Reading First, recent reductions in and
proposed eliminations of appropriations for these programs and
governmental budget adjustments resulting from recent economic
declines have caused and may continue to cause some school
districts to reduce spending on Cambium’s products.
The American Reinvestment and Recovery Act was adopted in
February 2009. The Recovery Act provides significant new federal
funding for various education initiatives over the next two
years. Although the education funding is for a broad set of
initiatives, Cambium believes that a meaningful amount targets
the students and educators that Cambium serves. Although the
likelihood of success in attracting these funds for
Cambium’s products is uncertain, this funding may offset
some of the negative funding trends which emerged as a result of
recent economic declines.
•
Breadth of Product Offerings. Although school
districts typically do not enter multi-year contracts with
services or materials providers, high switching costs make it
unusual for schools to purchase programs for just one year or to
frequently switch between programs. Once established in a
district, Cambium is thus positioned to retain and expand its
footprint in that district. Cambium seeks to expand its
footprint in particular districts by offering a full spectrum of
product offerings for pre-kindergarten through
12th
grade students.
•
Capacity to Attract and Retain High Quality
Authors. Cambium believes that retaining skilled
researchers and authors is critical to its efforts to develop
and support its intervention programs, from initial concept to
continued program sales and support. Cambium seeks to
collaborate closely with its authors in developing new content
and high-impact programs. Cambium believes that by providing
authors with greater control and direct involvement in content
development, authors become more vested in the products and
their outcomes, which helps increase revenues.
•
Diversity of Cambium’s Sales
Channels. Cambium employs multiple interrelated
and supportive sales channels, including its sales force, its
authors, product training sessions, strategic sales initiatives,
direct marketing channels, reseller networks and other customer
events. Cambium’s sales force focuses on the largest school
districts. Cambium’s institutes and conferences complement
the direct sales force by building brand and product awareness
within key industry constituencies.
•
Adaptability and Functionality of Cambium’s
Technology. Cambium uses technology to enrich its
intervention programs, as well as to train the next generation
of teachers. An important part of Cambium’s technology
offerings is its suite of assistive technologies that target a
range of student needs, including low-incidence disabilities and
students who perform below grade level.
Cambium’s principal operating expenses are:
•
Cost of sales, excluding pre-publication, publishing rights,
trademarks and developed technology
amortization. These costs include expenses to
print, purchase and develop products and to provide services and
support to Cambium’s customers, as well as royalties paid
to authors.
•
Pre-publication, publishing rights, trademarks and developed
technology amortization. Pre-publication expenses
represent the amortized cost of the art, pre-press and other
costs incurred in the creation of the
master copy of a book or other media. Publishing rights allow
Cambium to publish and republish existing and future works, as
well as transform, adapt, or create new works based on
previously published materials. Cambium owns the trademarks for
its core intervention programs as well as the IntelliTools and
Kurzweil trademarks. The developed technology represents the
value of the developed technology products, including
IntelliTools and Kurzweil software products and IntelliTools
hardware products. The useful life of publishing rights is based
on the lives of the various titles involved, which is generally
ten years.
•
Selling and administrative expenses. These
expenses consist principally of the costs incurred by Cambium in
maintaining its various sales channels, including the salaries
and commission paid to Cambium’s sales force, advertising
and promotion costs, the cost of sales support activities,
warehouse, shipping and corporate and administrative activities.
•
Other intangible asset amortization. Other
intangible asset amortization represents the amortization of
intangible assets not included in cost of sales. These assets
were identified and valued at the date of the acquisition of
Cambium Learning by Cambium and include customer relationships,
contracts, reseller networks, conference attendees and
non-compete agreements.
•
Acquired in-process research and
development. When Cambium acquired Cambium
Learning and its subsidiaries in April 2007, the acquiring
company identified and allocated goodwill to the acquired
assets. At the time, the acquired company was conducting
research and development on certain new products which were not
yet being sold as of the April 12, 2007 closing date. Under
U.S. GAAP, Cambium was required to expense any premium in the
purchase price over book value attributable to those products
rather than treat any such premium as goodwill. These expenses
are referred to in Cambium’s income statements as acquired
in-process research and development.
•
Embezzlement and related expenses. As noted
above, during 2008, Cambium discovered certain irregularities
relating to the control and use of cash and certain other
general ledger items which resulted in a misappropriation of
assets over a period of more than four years. These
irregularities were perpetrated by a former employee, resulting
in substantial embezzlement losses and related expenses.
•
Goodwill impairment. As noted above, Cambium
tests for impairment, at least annually and more frequently upon
the occurrence of events which suggest that impairment may have
occurred.
Matters
Relating to the Mergers
Grant
of Options
Effective as of the closing of the mergers, Holdings expects to
grant options to purchase shares of Holdings common stock as new
awards to employees of Holdings and its subsidiaries, including
employees who are currently employed with both Voyager and
Cambium. It is expected that:
•
such options will vest in equal installments on the first four
anniversaries of the closing of the mergers, subject to earlier
vesting upon a change in control of Holdings;
•
75% of the options granted to each optionee will have a
per-share exercise price equal to the greater of (i) $4.50
and (ii) the weighted-average price of Holdings common
stock during a pre-established trading period and pursuant to a
pre-established formula;
•
the remaining 25% of the options granted to each optionee will
have a per-share exercise price equal to $6.50; and
•
the options will have a term of ten years, subject to earlier
termination under specified circumstances.
Pursuant to the terms of their employment agreements, Ronald
Klausner and David Cappellucci will receive stock options
covering 750,000 shares of Holdings common stock and
600,000 shares of Holdings common stock, respectively.
Determinations have been made with respect to the grant of stock
options to certain other executive officers of Cambium and
Voyager as well. Specifically, the Holdings board of directors
has determined that the following individuals who will serve as
executive officers of Holdings upon completion of the mergers
will be granted options to purchase shares of Holdings common
stock under the 2009 Incentive
Plan at the effective time of the mergers: (i) Bradley
Almond will be granted options to purchase 250,000 shares
of Holdings common stock; (ii) John Campbell will be
granted options to purchase 300,000 shares of Holdings
common stock; and (iii) George Logue will be granted
options to purchase 250,000 shares of Holdings common stock.
Under applicable FASB accounting guidance for share-based
payments, Holdings will recognize the compensation cost of stock
option grants using the straight line method over the vesting
period of the options. The estimated stock-based compensation
expense associated with the stock options to be granted to
Messrs. Klausner, Cappellucci, Almond, Campell and Logue is
$0.9 million per year. In determining the fair value of the
stock option awards, a Black-Scholes option-pricing model was
used with the following assumptions: an expected stock
volatility of 45.9%; a risk-free interest rate of 2.09%; an
expected life of four years to exercise; a 0% dividend yield;
and a grant price of $4.91 for 75% of each award and a grant
price of $6.50 for 25% of each award.
There are a total of 5,000,000 shares of Holdings common
stock authorized for issuance under the 2009 Incentive Plan.
However, other than with respect to the options to be granted to
the individuals named above, no determination has been made to
date with respect to the number of options to be granted to
other employees at and after the closing. Accordingly, Cambium
and Holdings cannot presently determine the compensation costs
that will be incurred each year by virtue of such other options.
Consulting
Agreement
Cambium Learning entered into an agreement with VSS, effective
April 12, 2007, pursuant to which VSS has provided Cambium
Learning with certain management services. See “MANAGEMENT
OF HOLDINGS FOLLOWING THE MERGERS — Related Party
Transactions.” Pursuant to the management services
agreement, Cambium Learning was obligated to pay VSS an annual
monitoring fee of $200,000, plus
out-of-pocket
expenses, payable semi-annually in arrears, in exchange for
these services. As a result, Cambium Learning expensed $150,000,
$149,317, $199,315 and $144,658 for monitoring fees for the nine
months ended September 30, 2009 and 2008 and for the year
ended December 31, 2008 and for the period of
January 29, 2007 to December 31, 2007, respectively.
The management services agreement will be terminated at the
effective time of the mergers and VSS will cease to be
compensated under that agreement. In lieu of that agreement and
another fee agreement which has not resulted in any amounts
being expensed during the period it was effective, Holdings and
VSS will enter into a consulting agreement at the closing
entitling VSS to the following fees:
•
a fee equal to 1% of the gross proceeds of any debt or equity
financing by Holdings; and
•
a fee equal to 1% of the enterprise value of any entities
acquired or disposed of by Holdings.
Because these fees are payable only in the event of certain
contingencies, they will not be expensed unless and until the
contingencies occur.
Stockholders
Agreement
Effective as of the closing of the mergers, Holdings expects to
grant Cambium’s stockholder and funds managed or controlled
by VSS a subscription right that permits them to purchase, at
any time and from time to time through the
24-month
anniversary of the effective time of the mergers, a number of
shares of Holdings common stock up to the lesser of:
•
7,500,000 shares of common stock (subject to adjustment in
the event of any dividend, stock split, combination or similar
recapitalization event); or
•
the number of shares of common stock that Cambium’s
stockholder and funds managed or controlled by VSS may purchase
from time to time during the
24-month
subscription period for an aggregate purchase price of
$20 million (based upon the per share purchase price
described below).
The purchase price per share in connection with the subscription
rights is equal to 90% of the volume weighted average price of
the Holdings common stock measured over the ten trading day
period immediately preceding the issuance and sale of the shares
of Holdings common stock.
This instrument is accounted for at fair value as equity in
accordance with applicable FASB accounting guidance.
Results
of Operations
Cambium derives a majority of its revenues from the K-12
educational publishing segment, which is a markedly seasonal
business. Schools make most of their purchases in the second and
third quarters of the calendar year, in preparation for the
beginning of the school year in September.
Sales of K-12 instructional materials are also cyclical, with
some years offering more sales opportunities than others. The
amount of funding available at the state level for educational
materials also has a significant effect on Cambium’s
year-to-year
revenues. Although the loss of a single customer or a few
customers would not have a material adverse effect on
Cambium’s business, schedules of statewide adoptions of
lists of approved products and market acceptance of our products
can materially affect
year-to-year
revenue performance.
The following tables set forth information regarding
Cambium’s net sales, costs and expenses, operating loss and
other components of Cambium’s statements of operations. The
results and percentages for the nine months ended
September 30, 2009 and 2008, the year ended
December 31, 2008, the successor period from
January 29, 2007 (inception) through December 31,2007, the predecessor period from January 1, 2007 through
April 11, 2007 and the year ended December 31, 2006
are set forth in the tables below. Due to purchase accounting
adjustments, some amounts may not be comparable between each
period presented.
Nine
Months Ended September, 2009 Compared to Nine Months Ended
September 30, 2008
For operational and accounting purposes, Cambium has three
reportable segments with separate management teams and
infrastructures that offer various products and services, as
follows:
•
Published Products: This operating segment
includes instructional materials, teaching guides, teacher
training, implementation services, and professional development
services. The principal markets for these products are
elementary and secondary schools.
•
Learning Technologies: This operating segment
includes assistive and instructional technology and related
services. The principal markets for these products are also
elementary and secondary schools.
•
Other: This segment consists of unallocated
corporate-related items.
For additional information regarding Cambium’s operating
segments, see Note S to Cambium’s Consolidated
Financial Statements.
Net
sales
Net sales for the nine months ended September 30, 2009
decreased $4.4 million, or 5.4%, to $77.7 million from
$82.1 million in the same period for 2008. The decline
reflects market conditions, as the nationwide economic slowdown
has caused the amount of funding available to schools to
purchase Cambium’s products and services to decline
significantly.
Published Products. The Published Products
segment’s net sales in the first nine months of 2009
decreased $2.9 million, or 4.5%, to $62.2 million from
net sales of $65.1 million in the first nine months of
2008. Cambium experienced a decline of $0.8 million in core
intervention program sales, a decline of $1.0 million in
supplementary program sales and a decline of $1.1 million
in service sales. In the first nine months of 2008,
Cambium’s core intervention program sales benefited from
substantial orders in Florida and Wisconsin. In 2009, economic
problems in California have sharply limited purchases
notwithstanding its intervention adoption. The decline in sales
of supplementary program sales was mainly due to a decrease in
sales of DIBELS in Florida, as Florida developed its own
assessment program. The lower service sales were mainly due to
lower Department of Defense Education Activity sales as the
contract has shifted to higher purchases of products and lower
purchases of staff development services.
Learning Technologies. The Learning
Technologies segment’s net sales in the first nine months
of 2009 decreased $1.4 million, or 8.3%, to
$15.5 million from net sales of $16.9 million in the
first nine months of 2008. In 2008, Learning Technologies sales
benefited from higher sales to international resellers. In 2009,
the economic slowdown has negatively impacted sales.
Cost
of product sales excluding pre-publication, publishing rights,
trademarks, and developed technology amortization
Cost of product sales excluding pre-publication, publishing
rights, trademarks, and developed technology amortization for
the nine months ended September 30, 2009 decreased
$1.8 million, or 8.3%, to $19.9 million from
$21.7 million in the same period in 2008. The decrease in
cost of sales was mainly due to lower net sales. As a percentage
of sales, cost of product sales decreased to 25.6% for the nine
months ended September 30, 2009 from 26.4% in the same
period in 2008.
Published Products. The Published Products
segment’s cost of product sales for the nine months ended
September 30, 2009 decreased $0.6 million, or 3.6%, to
$16.2 million from cost of sales of $16.8 million for
the same period in 2008. The decrease in cost of sales is mainly
due to lower net sales.
Learning Technologies. The Learning
Technologies segment’s cost of product sales in the first
nine months of 2009 decreased $1.1 million, or 25.6%, to
$3.2 million from cost of sales of $4.3 million in the
same period in 2008. The decrease in cost of sales was mainly
due to lower net sales.
Pre-publication,
publishing rights, trademarks, and developed technology
amortization
Pre-publication, publishing rights, trademarks, and developed
technology amortization for the nine months ended
September 30, 2009 increased $0.6 million, or 4.7%, to
$13.5 million from $12.9 million in the same period
for 2008. The increase was mainly due to higher pre-publication
amortization as a result of investments made in new programs.
Published Products. The Published Products
segment’s amortization for the nine months ended
September 30, 2009 increased $0.7 million, or 5.9%, to
$12.4 million from amortization of $11.7 million for
the same period in 2008. The increase was mainly due to higher
pre-publication amortization as a result of investments made in
new programs.
Learning Technologies. The Learning
Technologies segment’s amortization for the nine months
ended September 30, 2009 decreased $0.1 million, or
8.3%, to $1.1 million from amortization of
$1.2 million for the same period in 2008.
Cost of
service revenues
Cost of service revenues for the nine months ended
September 30, 2009 decreased $0.5 million, or 8.9%, to
$5.1 million from $5.6 million in the same period in
2008. The decrease in cost of sales was mainly due to lower net
sales.
Published Products. The Published Products
segment’s cost of service revenues for the nine months
ended September 30, 2009 decreased $0.5 million, or
9.1%, to $5.0 million from cost of service revenues of
$5.5 million for the same period in 2008. The decrease in
cost of sales was mainly due to lower net sales.
Learning Technologies. The Learning
Technologies segment’s cost of service revenues for the
nine months ended September 30, 2009 decreased
$0.1 million to $0.1 million from cost of service
revenues of $0.2 million for the same period in 2008. The
decrease in cost of sales was due to improvements in service
cost delivery performance.
Selling
and administrative expenses
Selling and administrative expenses for the nine months ended
September 30, 2009 decreased $3.2 million, or 9.1%, to
$31.8 million from $35.0 million in the same period of
2008. As a percentage of sales, selling and administrative
expense decreased to 40.9% of sales in the nine months ended
September 30, 2009 compared to 42.7% in the same period of
2008. Selling costs decreased for the nine months ended
September 30, 2009 in comparison to the same period in 2008
due to the costs incurred in 2008 to participate in several
state adoption activities and lower sales commission expense due
to the lower sales. Cambium also experienced lower catalog and
mailing costs due to a lower volume of catalogs mailed in the
nine months ended September 30, 2009 compared to the nine
months ended September 30, 2008. Warehousing expenses for
the nine months ended September 30, 2009 decreased as
compared to the same period in 2008 due to lower commissions
paid to Florida depositories to distribute Cambium products as a
result of lower Florida adoption sales.
Other
intangible asset amortization
Other intangible asset amortization for the nine months ended
September 30, 2009 decreased $1.6 million, or 24.6%,
to $4.9 million from $6.5 million in the same period
of 2008. The decrease in this amortization was due mainly to
lower contract and reseller network intangible amortization.
Embezzlement
and related expenses
Embezzlement and related expenses for the nine months ended
September 30, 2009 decreased $8.9 million to a credit
of $0.2 million from $8.7 million of expense in the
same period of 2008. The decrease in the embezzlement and
related expenses was mainly due to the receipt of a $500,000
insurance payment related to
the embezzlement in the nine months ended September 30,2009 compared with the embezzlement loss and related expenses
that were incurred in the nine months ended September 30,2008.
Goodwill
impairment
Goodwill impairment for the nine months ended September 30,2009 was $9.1 million, compared to zero goodwill impairment
in the same period of 2008. As a result of the signing of the
merger agreement, Cambium needed to assess the carrying values
of its reporting units. Cambium also determined that the
appropriate discount rate for its Published Products unit (based
on weighted-average cost of capital) used in the 2009 assessment
should be higher than the discount rate used in the 2008
impairment assessment.
Interest
and other expenses, net
Interest and other expenses, net in the nine months ended
September 30, 2009 increased $0.9 million, or 6.4%, to
$14.9 million from $14 million in the same period of
2008. This increase was mainly due to higher interest expense on
both Cambium’s senior secured and senior unsecured debt as
a result of the permanent waiver and amendments to the credit
agreement signed by Cambium on August 22, 2008. Under the
terms and conditions of the permanent waiver and amendment, the
interest rates on Cambium’s senior secured and senior
unsecured debt were increased. See “— Liquidity
and Capital Resources — Long Term Debt.” This
increase was partially offset by a gain of $0.9 million in
the fair value of Cambium’s interest rate swap in the nine
months ended September 30, 2009, compared to a gain of
$0.1 million in such fair value in the nine months ended
September 30, 2008.
Income
taxes
The income tax benefit in the nine months ended
September 30, 2009 decreased $5.8 million, or 53.7%,
to $5.0 million from $10.8 million in the same period
of 2008. The decrease was due to a lower operating loss and a
decrease in the effective tax rate to 23.6% in the nine months
ended September 30, 2009 from 38.0% in the nine months
ended September 30, 2008. The decrease in the effective tax
rate benefit was due to higher anticipated non-deductible
expenses in 2009, primarily resulting from the goodwill
impairment charge at June 30, 2009.
Net
(loss) income
Cambium’s net loss for the first nine months ended
September 30, 2009 was $16.3 million, compared to net
income of $13.0 million for the same period in 2008. The
net loss in the nine months ended September 30, 2009 was
the result of lower net sales and a $9.1 million goodwill
impairment charge, partially offset by lower embezzlement and
related expenses and lower selling, marketing and warehouse
costs. The net income earned during the nine months ended
September 30, 2008 was mainly due to the settlement with
previous stockholders of $30.2 million. See Note A of
the Notes to Cambium’s Consolidated Financial Statements.
Published Products. The Published Products
segment’s net loss for the nine months ended
September 30, 2009 was $3.1 million, compared to net
income of $0.8 million for the same period in 2008. The net
loss is primarily related to the $9.1 million goodwill
impairment charge and lower net sales, partially offset by lower
selling, marketing and warehouse costs.
Learning Technologies. The Learning
Technologies segment’s net income in the first nine months
of 2009 increased $1.9 million to $3.2 million from
net income of $1.3 million in the same period of 2008. The
increase in net income was primarily a result of a
$0.6 million decrease in depreciation and amortization,
primarily due to lower reseller and customer relationship
amortization expense and a $1.2 million decrease in selling
and marketing costs, partially offset by lower net sales.
Net sales for fiscal 2008 were $99.7 million, compared to
$80.8 million for the 2007 successor period and
$18.4 million for the 2007 predecessor period.
Published Products. The Published Products
segment’s net sales for fiscal 2008 were
$78.1 million, compared to $66.7 million for the 2007
successor period and $12.3 million for the 2007 predecessor
period. The overall decrease of $0.9 million, or 1.1%, was
due to a $1.0 million decrease in service sales and a
$0.3 million decrease in core intervention sales, partially
offset by a $0.5 million increase in supplementary program
sales. The decline in core intervention programs sales was
principally attributable to a reduction in the second half of
fiscal 2008 in the amount of funding available to school
districts in most states to purchase Cambium’s products and
services due to the nationwide economic slowdown. This decline
was partially offset by increased opportunities in the first
half of 2008 as a couple of key states and school districts,
including Florida and Milwaukee, funded and purchased
Cambium’s core programs and services. The decline in
service revenues was mainly due to lower sales for conferences
and institutes as the impact of state budget shortfalls
significantly affected attendance. The increase in supplementary
program sales were due to higher DIBELs license fees, partially
offset by a decrease in sales across most titles as the market
for supplemental products in general was weak due to state
funding issues.
Learning Technologies. The Learning
Technologies segment’s net sales for fiscal 2008 were
$21.7 million compared to $14.2 million for the 2007
successor period and $6.1 million for the 2007 predecessor
period. The overall increase of $1.4 million, or 6.9%, was
mainly due to higher international sales.
Cost
of product sales excluding pre-publication, publishing rights,
trademarks, and developed technology amortization
Cost of product sales excluding pre-publication, publishing
rights, trademarks, and developed technology amortization was
$26.6 million for fiscal 2008, compared to
$25.0 million for the 2007 successor period and
$5.6 million for the 2007 predecessor period. The overall
decrease of $4.0 million, or 13.1%, was due to lower
royalty costs as well as a $2.9 million adjustment for
inventory
step-up
associated with purchase accounting included in the 2007
successor period, offset by a $0.3 million increase in
employee severance costs associated with the December 2007
Petaluma, California office closure. The lower royalty costs
were the result of higher sales of learning technologies and
Read Well products, which carry a lower royalty rate than other
Cambium products.
Published Products. The Published Products
segment’s cost of product sales for fiscal 2008 decreased
$4.8 million, or 19.4%, to $20.0 million from cost of
product sales of $20.8 million for the 2007 successor
period and $4.0 million, for the 2007 predecessor period.
The decrease in cost of sales was mainly due to lower royalty
costs as well as a $2.9 million adjustment for inventory
step-up
associated with purchase accounting included in the 2007
successor period. The lower royalty costs were the result of
higher sales of Read Well products, which carry a royalty rate
lower than other Published Products.
Learning Technologies. The Learning
Technologies segment’s cost of product sales for fiscal
2008 increased $0.2 million, or 3.6%, to $5.8 million
from cost of product sales of $4.0 million for the 2007
successor period and $1.6 million for the 2007 predecessor
period. The increase in cost of sales is mainly due to increase
net sales.
Pre-publication,
publishing rights, trademarks, and developed technology
amortization
Pre-publication, publishing rights, trademarks, and developed
technology amortization was $17.3 million for fiscal 2008,
compared to $12.8 million for the 2007 successor period and
$3.5 million for the 2007 predecessor period. The overall
increase of $1.0 million, or 6.1%, was mainly due to the
revaluation of publishing rights, trademarks and developed
technology intangible assets as a result of the purchase of
Cambium by VSS-Cambium Holdings, LLC. This revaluation resulted
in higher amortization in the 2007 successor period and fiscal
2008.
Published Products. The Published Products
segment’s amortization for fiscal 2008 increased
$1.3 million, or 9.0%, to $15.7 million from
amortization of $11.5 million for the 2007 successor period
and $2.9 million for the 2007 predecessor period. The
increase was mainly due to the revaluation of publishing rights,
trademarks and developed technology intangible assets referred
to above, resulting in higher amortization in the 2007 successor
period and fiscal 2008.
Learning Technologies. The Learning
Technologies segment’s amortization for fiscal 2008
decreased $0.3 million, or 15.8%, to $1.6 million from
amortization of $1.3 million for the 2007 successor period
and $0.6 million for the 2007 predecessor period. The
decrease was due to a reduction in the amortization expense for
developed technology.
Cost
of service revenues
Cost of service revenues sales was $7.5 million for fiscal
2008, compared to $6.3 million for the 2007 successor
period and $1.9 million for the 2007 predecessor period.
The decrease resulted from lower service revenues.
Published Products. The Published Products
segment’s cost of service revenues for fiscal 2008
decreased $0.8 million, or 10.0%, to $7.2 million from
cost of service revenues of $6.2 million for the 2007
successor period and $1.8 million for the 2007 predecessor
period. The decrease resulted from lower net sales.
Learning Technologies. Cost of service
revenues for fiscal 2008 increased $0.1 million, or 50.0%,
to $0.3 million from cost of service revenues of
$0.1 million for the 2007 successor period and
$0.1 million for the 2007 predecessor period.
Selling
and administrative expenses
Cambium’s selling and administrative expenses were
$44.6 million for fiscal 2008, $29.9 million for the
2007 successor period and $20.8 million for the 2007
predecessor period. The overall decrease from 2007 to 2008 of
$6.1 million, or 12%, was mainly due to $5.1 million
of acquisition related costs and a $2.9 million charge
related to the modification of Cambium’s stock option plan
included in the 2007 predecessor period, partially offset by
higher selling costs in 2008 in anticipation of increased sales
opportunities in adoption states.
Other
intangible asset amortization; acquired in-process research and
development
Other intangible asset amortization was $8.6 million in
fiscal 2008, compared to $7.2 million in the 2007 successor
period and $0.3 million in the 2007 predecessor period. The
overall increase of $1.1 million, or 14.7%, was due to the
acquisition of Cambium by VSS-Cambium Holdings, LLC. As a result
of the acquisition, other intangible assets were revalued,
resulting in an increase in amortization in the 2007 successor
period and fiscal 2008.
Embezzlement
and related expenses
Cambium discovered in fiscal 2008 that a former employee of
Cambium Learning had perpetrated a significant misappropriation
of assets during a period beginning in 2004 and extending
through April 2008. Cambium identified $14.0 million of
embezzlement losses, which included $1.8 million for fiscal
2008, $5.7 million for the 2007 successor period and
$1.0 million for the 2007 predecessor period. In addition,
Cambium incurred fees and expenses of $5.5 million in
investigating and responding to this embezzlement matter in
fiscal 2008. This amount is net of the $1.6 million
appraised value of five boats that were seized by Cambium from
the former employee, who had used embezzled funds to acquire
those boats.
Goodwill
impairment
A total of $192.3 million of goodwill was recorded in
connection with the acquisition of Cambium Learning by
VSS-Cambium Holdings, LLC. Due to the weakening of the economy
and the impact that economic conditions were having on
Cambium’s customers and business in the latter portion of
fiscal 2008,
Cambium identified significant deterioration in the expected
future financial performance of its published products product
line. As a result, Cambium recorded an impairment loss of
$76.0 million within its published products unit for 2008,
reflecting the difference between the fair value and recorded
value for goodwill. The fair value was determined based upon
management’s forecasts, which are dependent on multiple
assumptions and estimates, including estimates regarding
anticipated future educational funding and the actual
performance and future projections of Cambium.
Interest
and other expenses, net
Interest and other expenses were $19.4 million for fiscal
2008, compared to $14.7 million for the 2007 successor
period and $0.7 million for the 2007 predecessor period.
The overall increase of $4.0 million, or 26.0%, was due
principally to higher interest expense as a result of the
acquisition of Cambium by VSS-Cambium Holdings, LLC on
April 11, 2007 and the higher interest rate incurred in
2008 as a result of the embezzlement suffered by Cambium. As a
result of the settlement with Cambium’s previous
stockholders, $0.6 million of the modification of the stock
option that was held in escrow was reversed and recorded as
income in fiscal 2008.
Gain
from settlement with previous stockholders
For fiscal 2008, Cambium received a total settlement from
previous stockholders of Cambium of $30.2 million relating
to the embezzlement suffered by Cambium. The total settlement
consisted of $20 million in escrowed funds, together with
additional payments of $9.3 million and interest income of
$0.9 million. The total settlement amount of
$30.2 million was used to cover costs and to pay down a
portion of a senior credit facility. Because the embezzlement
was discovered after the initial purchase allocation was made in
connection with the acquisition, the entire settlement amount
was recorded on Cambium’s consolidated statement of
operations as a gain from settlement with the previous
stockholders.
Loss
on extinguishment of debt
For fiscal 2008, Cambium recorded a loss on the extinguishment
of debt of $5.6 million related to the modification of its
senior secured credit facility and senior unsecured promissory
notes resulting from the execution of an amendment of those
documents and the delivery by the lenders of a permanent waiver.
The associated unamortized deferred financing costs as of
August 22, 2008 of $4.6 million and amendment fees of
$1.0 million related to the permanent waiver were recorded
as a loss on extinguishment of debt.
Income
tax benefit
Income taxes for fiscal 2008 reflected a $13.4 million
benefit compared to a $7.8 million benefit in the 2007
successor period and a $3.7 million benefit in the 2007
predecessor period. For 2008, the goodwill impairment was not
tax deductible and the gain from settlement from previous
stockholders was not subject to income taxes. The 2007
predecessor period includes non-deductible transaction costs of
$5.1 million.
Net
(loss) income
Cambium’s net loss for fiscal 2008 was $69.6 million,
compared to a net loss of $13.9 million for the 2007
successor period and a net loss of $11.8 million for the
2007 predecessor period. The increase in net loss in 2008 was
primarily due to a goodwill impairment charge of
$76.0 million.
Published Products. The Published Products
segment’s net loss for fiscal 2008 was $77.4 million,
compared to net income of $2.8 million for the 2007
successor period and a net loss of $3.9 million for the
2007 predecessor period. The increase in net loss in 2008 was
primarily due to the goodwill impairment charge of
$76.0 million, higher depreciation and amortization of
$2.2 million due to higher publishing rights and customer
related amortization as a result of the acquisition of Cambium
by VSS-Cambium Holdings, LLC, and higher selling and warehouse
costs, partially offset by the $2.9 million for inventory
step-up included in the 2007 successor period.
Learning Technologies. The Learning
Technologies segment’s net income for fiscal 2008 was
$1.4 million, compared to a net loss of $0.6 million
for the 2007 successor period and net income of
$1.1 million for the 2007 predecessor period. The increase
in net income in 2008 was primarily due to higher net sales.
2007 Successor Period and 2007 Predecessor Period Compared to
the Year Ended December 31, 2006 (“2006 predecessor
period”)
Net
Sales
Net sales were $80.8 million for the 2007 successor period
and $18.4 million for the 2007 predecessor period, compared
to $106.4 million for the 2006 predecessor period.
Published Products. The Published Products
segment’s net sales for the 2007 successor period were
$66.7 million, and for the 2007 predecessor period were
$12.2 million, compared to $85.4 million for the 2006
predecessor period. The overall decrease of $6.4 million,
or 7.5%, was due to a $4.9 million decrease in core
intervention sales, a $0.9 million decrease in
supplementary program sales, and a $0.6 million decrease in
service sales. The decline in 2007 successor period core
intervention sales reflected a decline in purchases of
Cambium’s Language product by customers in Baltimore
County and Los Angeles. The smaller decline in sales of
supplementary programs was due to a decrease in sales of DIBELS,
which was negatively impacted by a decline in grant funding for
the federal government’s Reading First program. The service
revenues decline in the 2007 successor period was due primarily
to lower revenue from the Department of Defense Education
Activity contract.
Learning Technologies. The Learning
Technologies segment’s net sales for the 2007 successor
period were $14.2 million, and $6.1 million for the
2007 predecessor period, compared to $21.0 million for the
2006 predecessor period. The overall decrease of
$0.7 million, or 3.3%, was primarily due to a decrease in
the 2007 predecessor period as a result of a purchase accounting
adjustment to reflect the fair value of deferred revenue at the
time of the Cambium acquisition by VSS-Cambium Holdings, LLC.
Cost
of product sales excluding pre-publication, publishing rights,
trademarks, and developed technology amortization
Cost of sales excluding pre-publication, publishing rights,
trademarks, and developed technology amortization was
$25.0 million for the 2007 successor period and
$5.6 million for the 2007 predecessor period, compared to
$31.7 million for the 2006 predecessor period. The overall
decrease of $1.1 million was mainly due to lower sales and
lower royalty costs, partially offset by a $2.9 million
inventory
step-up
adjustment due to purchase price accounting for the Cambium
acquisition by VSS-Cambium Holdings LLC within the 2007
successor period. The lower royalty costs were due to a new
royalty agreement for Language which cancelled all prior
agreements and lowered the royalty rate on future sales of
Language effective January 1, 2007.
Published Products. The Published Products
segment’s cost of product sales was $20.8 million for
the 2007 successor period and $4.0 million for the 2007
predecessor period, compared to $25.1 million for the 2006
predecessor period. The $0.3 million decrease in cost of
sales was mainly due to lower product sales, partially offset by
a $2.9 million adjustment for inventory
step-up
associated with purchase accounting included in the 2007
successor period.
Learning Technologies. The Learning
Technologies segment’s cost of product sales was
$4.0 million for the 2007 successor period and
$1.6 million for the 2007 predecessor period, compared to
$6.4 million for the 2006 predecessor period. The
$0.8 million decrease in cost of sales was mainly due to
material cost reductions.
Pre-publication,
publishing rights, trademarks, and developed technology
amortization
Pre-publication, publishing rights, trademarks, and developed
technology amortization for the 2007 successor period and the
2007 predecessor period was $12.8 million and
$3.5 million, respectively, compared to $11.3 million
for the 2006 predecessor period. The annual overall increase of
$5.0 million was attributable to higher publishing rights,
trademark and developed technology, partially offset by lower
pre-publication
amortization in the 2007 successor period, both resulting from
the purchase of Cambium in 2007. As a result of purchase
accounting, the fair value of publishing rights was established
as of the acquisition date, including the capitalization of
approximately $3.9 million of existing pre-publication
costs in the fair value of the publishing rights.
Published Products. The Published Products
segment’s amortization was $11.5 million for the 2007
successor period and $2.9 million for the 2007 predecessor
period, compared to $9.2 million for the 2006 predecessor
period. The $5.2 million increase in cost of sales is
attributable to higher publishing rights, trademark and
developed technology, partially offset by lower pre-publication
amortization in the 2007 successor period, both resulting from
the purchase of Cambium in 2007. As a result of purchase
accounting, the fair value of publishing rights was established
as of the acquisition date, including the capitalization of
approximately $3.9 million of existing pre-publication
costs in the fair value of the publishing rights.
Learning Technologies. The Learning
Technologies segment’s amortization was $1.3 million
for the 2007 successor period and $0.6 million for the 2007
predecessor period, compared to $2.2 million for the 2006
predecessor period. The $0.3 million decrease was due to a
reduction in the amortization expense for developed technology.
Cost
of service revenues
Cost of service revenues sales was $6.3 million for the
2007 successor period and $1.9 million for the 2007
predecessor period, compared to $8.3 million for the 2006
predecessor period.
Published Products. The Published Products
segment’s cost of service revenues was $6.2 million
for the 2007 successor period and $1.8 million for the 2007
predecessor period, compared to $8.0 million for the 2006
predecessor period.
Learning Technologies. Cost of service
revenues was $0.1 million for the 2007 successor period and
$0.1 million for the 2007 predecessor period, compared to
$0.2 million for the 2006 predecessor period.
Selling
and administrative expense
Cambium’s selling and administrative expenses were
$29.9 million for the 2007 successor period and
$20.8 million for the 2007 predecessor period, compared to
$45.6 million for the 2006 predecessor period. The overall
increase of $5.1 million, or 11.2%, was primarily due to
$5.1 million of acquisition related costs, a
$2.9 million charge related to the modification of
Cambium’s stock option plan included in the 2007
predecessor period and higher marketing costs as an additional
catalog was mailed in the 2007 predecessor period. Partially
offsetting these increases were lower selling commissions and
lower bonuses in the 2007 successor period as a result of
Cambium’s not meeting sales and earnings targets.
Other
intangible asset amortization; acquired in-process research and
development
Cambium’s other intangible asset amortization was
$7.2 million for the 2007 successor period and
$0.3 million for the 2007 predecessor period, compared to
$1.0 million for the 2006 predecessor period. The overall
increase of $6.5 million was due to an increase in
amortization as a result of the acquisition of Cambium by
VSS-Cambium Holdings, LLC. As a result of the acquisition, other
intangible assets were revalued, resulting in an increase in
amortization in the 2007 successor period. Cambium also recorded
a $0.9 million charge in the 2007 successor period for
acquired in-process research and development related to the
acquisition.
Embezzlement
and related expenses
The embezzlement losses associated with the misappropriation of
assets during 2004 and extending through April 2008, were
$5.7 million for the 2007 successor period and
$1.0 million for the 2007 predecessor period. The
embezzlement losses for the 2006 predecessor period were
$3.3 million.
Interest and other expenses, net were $14.7 million for the
2007 successor period and $0.7 million for the 2007
predecessor period, compared to $1.4 million for the 2006
predecessor period. The overall increase of $14.0 million
was due to the increased level of debt resulting from the
VSS-Cambium Holdings LLC acquisition in the 2007 successor
period and Cambium’s recording a $1.5 million loss in
the 2007 successor period relating to the fair value of
Cambium’s interest rate swap.
Income
tax benefit and provision
Cambium recorded an income tax benefit of $7.8 million for
the 2007 successor period and an income tax benefit of
$3.7 million for the 2007 predecessor period, compared to a
$3.4 million income tax provision in the 2006 predecessor
period. The 2007 predecessor period includes non-deductible
transaction costs of $4.8 million. The income tax provision
in the 2006 predecessor period was due to income from operations
and reflected an effective tax rate of 88.6%. The high effective
tax rate in the 2006 predecessor period was mainly due to a
valuation allowance on deferred tax assets.
Net
(loss) income
The Company’s net loss for the 2007 successor period was
$13.9 million, with a net loss of $11.8 million for
the 2007 predecessor period, compared to net income of
$0.4 million for the 2006 predecessor period. The decline
in operating performance principally reflects the
above-mentioned declines in net sales, increased amortization
and interest expense associated with the acquisition of Cambium
by VSS-Cambium Holdings, LLC and increased expenses relating to
the embezzlement, offset by the above-mentioned income tax
benefits in the 2007 periods.
Published Products. The Published Products
segment’s net income for the 2007 successor period was
$2.8 million, with a net loss of $3.9 million for the
2007 predecessor period, compared to net income of
$5.6 million for the 2006 predecessor period. The overall
decrease of $6.7 million was primarily due to higher
depreciation and amortization of $8.9 million as a result
of higher intangible assets amortization due to the acquisition
of Cambium by VSS-Cambium Holdings, LLC, $2.9 million
amortization of inventory
step-up
charge in the 2007 successor period as a result of the
acquisition, and lower net sales.
Learning Technologies. The Learning
Technologies segment recognized a net loss for the 2007
successor period of $0.6 million, with net income of
$1.1 million for the 2007 predecessor period, compared to
net income of $1.6 million for the 2006 predecessor period.
The overall decrease of $1.1 million, or 68.8%, was
primarily due to higher depreciation and amortization of
$2.7 million as a result of higher intangible assets
amortization due to the acquisition, partially offset by lower
development and overhead costs as a result of combining the
operations of Kurzweil and IntelliTools.
Liquidity
and Capital Resources
Because sales seasonality affects operating cash flow, Cambium
normally incurs a net cash deficit from all of its activities
through the early part of the third quarter of the year. Cambium
typically funds these seasonal deficits through the drawdown of
cash, supplemented by borrowings on its revolving senior credit
facility. The primary source of liquidity is cash flow from
operations and the primary liquidity requirements relate to debt
service, pre-publication costs, capital investments and working
capital. Cambium believes that based on current and anticipated
levels of operating performances, cash flow from operations and
availability under the senior secured revolving credit facility,
Cambium will be able to make required payments of principal and
interest on its debt and fund its working capital and capital
expenditure requirements for the next 12 months.
Long-term
debt
Cambium funded its acquisition of Cambium Learning through a
combination of $140.1 million of cash, $3.9 million of
executive rollover shares and $172.1 million of debt, net
of issuance costs. After debt
repayments were made in 2008 in connection with the negotiation
of an amendment to Cambium Learning’s credit agreements and
the grant of a permanent waiver to Cambium Learning, Cambium
Learning’s consolidated long-term debt outstanding as of
September 30, 2009 consisted of $97.7 million of
Cambium Learning’s floating rate senior secured notes due
April 11, 2013 and $54.0 million of Cambium
Learning’s 14.25% senior unsecured notes due April 11,2014.
Cambium Learning’s senior notes are secured by all of
Cambium Learning’s personal property. The interest rate on
the senior notes is based on the one-, three- or six-month LIBOR
or Alternative Base Rate plus a spread as determined by Cambium
Learning’s credit ratings, subject to a floor on each of
the two rates. Based on current ratings, the spread for LIBOR is
6.5%. The LIBOR rate cannot be less than 3.00%, and the ABR rate
cannot be less than 4.00%. As of September 30, 2009, the
interest rate on the senior secured notes was 9.5%. The senior
secured notes were issued pursuant to a senior secured credit
facility consisting of a $30 million revolving credit
agreement and a $128 million loan agreement. The loan
agreement requires quarterly principal payments of $320,000. As
of September 30, 2009, Cambium Learning had borrowings of
$15.0 million under the revolver and, subject to borrowing
base capacity limitations for outstanding letters of credit, had
$13.5 million available to borrow under the revolver.
The senior secured credit facility includes a total leverage
ratio financial covenant. The ratio is calculated quarterly
using an adjusted EBITDA, which is defined as earnings before
interest paid, taxes, depreciation, and amortization, and other
adjustments allowed under the terms of the agreement, on a
rolling
12-month
basis. The facility also contains customary covenants, including
limitations on Cambium Learning’s ability to incur debt,
and events of default as defined by the agreement. The senior
secured credit facility limits Cambium Learning’s ability
to pay dividends, to make advances and to otherwise engage in
inter-company transactions.
Effective as of the quarter ended March 31, 2009, the
senior secured credit facility requires the total leverage ratio
to be no greater than 6.5:1 starting with the first quarter of
2009. Cambium Learning’s senior unsecured credit agreement
contains a financial covenant regarding Cambium Learning’s
minimum adjusted EBITDA (calculated as set forth in the credit
agreements) as of the end of each fiscal quarter. If Cambium
Learning fails to comply with these financial covenants,
VSS-Cambium Holdings, LLC has the right to make a cash
contribution to the capital of Cambium Learning, the aggregate
amount not to be in excess of the minimum amount necessary to
cure the relevant failure to comply with the financial covenant.
This right to make a cash contribution is available for no more
than one fiscal quarter in a fiscal year. Cambium
Learning’s total leverage ratio was 7.33:1 for the four
quarter period ended June 30, 2009, which ratio was greater
than the maximum permitted under the credit facility, and its
adjusted EBITDA was $23.1 million for the four quarter
period ended June 30, 2009, or $1.9 million less than
the minimum required $25,000,000. Accordingly, as of
August 14, 2009, Cambium Learning was in non-compliance
with these covenants. On August 14, 2009, Cambium notified
both its senior secured lenders and its senior unsecured lenders
that VSS-Cambium Holdings intended to cure the non-compliance.
On August 17, 2009, $3.0 million of capital was
contributed to Cambium Learning by its stockholder to fund the
cure. On August 20, 2009, the $3.0 million was paid by
Cambium Learning to the senior secured lenders and the principal
amount outstanding on Cambium Learning’s senior secured
credit agreement was reduced by a corresponding amount. For
purposes of calculating covenant compliance, the amount of the
capital contribution is added to the adjusted EBITDA for the
four fiscal quarters ended September 30, 2009 and the cure
payment amount will be included in the adjusted EBITDA
calculations through the quarter ending March 31, 2010.
Cambium Learning is permitted one such cure right in each fiscal
year. Therefore, under the existing credit agreements, Cambium
Learning is not entitled to any additional cure right with
respect to future quarterly tests in this fiscal year. If such a
default were to occur, Cambium Learning’s lender may
accelerate the indebtedness under the credit agreements and,
upon any such acceleration, Cambium Learning would be required
to repay or refinance all such indebtedness. Cambium Learning
may not have sufficient funds to repay the indebtedness, and
there may not be equity or debt financing opportunities
available to Cambium Learning on acceptable terms, or at all.
Based on Cambium Learning’s performance to date, Cambium
Learning is, with respect to the quarter ended
September 30, 2009, and expects to be, with respect to the
quarter ending December 31, 2009, in compliance with its
financial covenants.
Holdings has presented elsewhere in this proxy
statement/prospectus a reconciliation among net loss, EBITDA,
adjusted EBITDA as calculated by Holdings for purposes of
measuring operating performance and
adjusted EBITDA as calculated for purposes of Cambium
Learning’s senior unsecured credit agreement. See
“SUMMARY — Comparative Historical and Unaudited
EBITDA and Adjusted EBITDA Data.” The calculation of
adjusted EBITDA used for purposes of the senior unsecured credit
agreement supplements the adjustments to EBITDA used by Holdings
for purposes of measuring operating performance with additional
adjustments to EBITDA recognized by Cambium Learning’s
lenders.
It is expected that, after giving effect to the merger
transactions, a certain amount of Voyager’s earnings will
be included in Cambium Learning’s adjusted EBITDA for
purposes of calculating compliance with the financial covenants
under the credit agreements. This contribution is expected to
increase Cambium Learning’s adjusted EBITDA and, therefore,
increase the likelihood that such financial covenants will be
satisfied.
The senior unsecured notes are guaranteed by VSS-Cambium
Holdings, LLC and require cash interest payments equal to 10% on
a quarterly basis. Any additional interest beyond the 10% rate
is added to the principal of the notes and is not payable until
April 11, 2014. The initial interest rate on the senior
unsecured notes was 11.75% per annum. That rate was increased by
200 basis points in connection with the negotiation of the
permanent waiver and credit agreement amendments in 2008 and was
increased by an additional 50 basis points as of
March 31, 2009 by virtue of Cambium’s total leverage
ratio (as defined under the senior unsecured notes) exceeding
5.5 to 1 as of March 31, 2009. Thus, as of
September 30, 2009, the interest rate on the subordinated
notes was 14.25% per annum. Assuming the all-in interest rate on
the senior unsecured notes remains at 14.25% until
April 11, 2014, the value of these notes, including accrued
interest, will be $65.6 million. The senior unsecured notes
include a financial covenant, which requires that beginning with
the quarter ended March 31, 2009, VSS-Cambium Holdings, LLC
maintains as of the end of each fiscal quarter consolidated
adjusted EBITDA of not less than $25 million (adjusted
EBITDA is defined in substantially the same manner as under the
senior secured credit facility). The senior unsecured notes also
contain customary covenants, including limitations on
Cambium’s ability to incur debt.
Cambium Learning entered into an amendment to each of its credit
agreements on October 29, 2009. Since the senior secured
credit agreement and the senior unsecured credit agreement are
substantially similar agreements, each of the amendments is
substantially similar to the other. The amendments were
permitted under the terms of the merger agreement, and provide
for the following important modifications to the credit
agreements:
•
Change in Control Definition. Prior to the amendment, the
original investors in Cambium Learning were required to own or
control a majority of the outstanding economic or voting
interests of Cambium Learning. This majority threshold is being
reduced to 35%.
•
VSS Funds Ownership. VSS is not permitted to sell or
otherwise transfer any of the Holdings common stock that it
directly or indirectly owns, unless it continues to directly or
indirectly own or control at least 35% of the outstanding
Holdings common stock, and it has not sold or otherwise
transferred, in the aggregate, more than 15% of its Holdings
common stock.
•
Increase in Material Indebtedness. An event of default
would occur if a “change in control” occurred under
any of Cambium Learning’s other “material
indebtedness.” The term “material indebtedness”
includes the senior unsecured notes, as well as any other debt,
the principal amount of which exceeds a specified threshold. The
$5 million threshold is being increased under the amendment
to $7.5 million.
•
Exceptions to Restricted Payments. Cambium Learning is
prohibited from paying dividends, unless the specific type of
payment is permitted. Additional types of payments are being
permitted to allow the following:
o
Up to $3.0 million to fund public company, administrative,
overhead, franchise tax and related costs incurred by Holdings;
and
o
Up to $750,000 in annual board of director compensation and
expenses.
The annual monitoring fee previously payable to VSS is being
eliminated.
Permitted Acquisition Basket Reset. The amount of
consideration payable in an acquisition is limited under the
credit agreements, and the limitations are being reset after
giving effect to the acquisition of Voyager Expanded Learning by
Cambium Learning in connection with the mergers. The limitation
will be reset to a cumulative $150 million amount, but any
single acquisition is limited to $20 million until the
ratio of senior secured debt to EBITDA (as calculated under the
credit agreements) does not exceed 2.50 to 1.0, and the ratio of
total leverage to EBITDA (as calculated under the credit
agreements) does not exceed 3.50 to 1.0, at which time the
single acquisition limit will be increased to $100 million.
•
Definition of Consolidated EBITDA. The definition of
Consolidated EBITDA, which is used for calculating leverage
ratios under the senior secured credit agreement, and the
minimum EBITDA covenant under the senior unsecured credit
agreement are being modified to allow additional add-backs for
the following items:
o
Deferred revenue associated with a permitted acquisition;
o
Up to $24.0 million in M&A costs related to the
mergers;
o
Up to $2.0 million in costs incurred in closing of
locations or lease terminations in connection with the mergers;
o
Up to $5.0 million in severance costs incurred in
connection with the mergers;
o
Up to $3.0 million in integration costs incurred connection
with the mergers; and
o
M&A costs for future transactions (whether or not
completed) of up to $5.0 million for closed transactions
and $0.5 million for failed transactions in any calendar
year, and $2.0 million in the aggregate.
Each of the foregoing provisions only becomes effective if and
when the mergers are completed.
In addition, the amendments ratify and approve the mergers and
the related transactions, including the Voyager Expanded
Learning acquisition and the LAZEL spinoff and dropdown. The
LAZEL drop down must occur on or before February 19, 2010;
otherwise, the failure to complete the drop down by that date,
absent a further amendment or waiver, would constitute an event
of default under the credit agreements which could result in an
acceleration of the indebtedness thereunder. We cannot provide
any assurance that a further amendment or a waiver could be
obtained.
Each of the lenders who executed the amendment on or before
October 28, 2009 received a fee equal to 20 basis
points of the amount of its loans and commitments under the
credit agreements, for an aggregate fee payable to all lenders
equal to approximately $296,000.
Cash
flows
Operating
Activities
Net cash provided by operating activities during the nine months
ended September 30, 2009 was $1.5 million, compared to
net cash used of $16.7 million for the same period in 2008.
The $18.2 million reduction in cash used in operating
activities resulted from a $4.7 million increase in net
income excluding non-cash items and $13.5 million in
changes in operating assets and liabilities. The changes in
operating assets and liabilities consisted of lower inventory
spending and higher accounts payable and accrued expenses, which
were partially offset by higher accounts receivable. The
decrease in inventory spending over the prior year was primarily
the result of Cambium’s introduction of two new products
during the nine months ended September 30, 2008. The higher
amount of accounts payable and accrued expenses were primarily
due to business seasonality. The increase in accounts receivable
was mainly due to an increase in revenues of $5.7 million
in the three months ended September 30, 2009 as compared to
the same period in 2008.
Net cash used in operating activities amounted to
$14.1 million for fiscal 2008 compared to $3.4 million
for the 2007 successor period and $3.8 million for the 2007
predecessor period. The overall increase in cash used of
$6.9 million was due to changes in operating assets and
liabilities using $9.4 million more of cash,
partially offset by a decrease in the net loss excluding
non-cash items of $2.5 million. The changes in operating
assets and liabilities used more cash in fiscal 2008 mainly due
to higher inventories, lower accounts payable, and lower
accruals due to timing. In fiscal 2008, inventory levels
increased due to the addition of new products and state specific
materials. Lower accounts payable was mainly due to the
embezzlement matter, since payments to vendors were delayed in
the 2007 successor period.
Net cash used in operating activities was $3.4 million for
the 2007 successor period and $3.8 million for the 2007
predecessor period compared to net cash provided of
$10.5 million for the 2006 predecessor period. The overall
increase in cash used of $17.7 million was mainly due to an
increase in the net loss non-cash items of $17.4 million.
Investing
Activities
Net cash used for investing activities was $2.3 million for
the nine months ended September 30, 2009, compared to
$27.5 million provided by investing activities for the same
period in 2008. The decrease in cash provided by investing
activities was primarily the result of the receipt of proceeds
from the settlement with previous stockholders during the nine
months ended September 30, 2008.
Net cash provided by investing activities was $26.9 million
for fiscal 2008 compared to cash used of $306.6 million for
the 2007 successor period and $1.1 million for the 2007
predecessor period. The cash provided by investing activities in
fiscal 2008, compared to the cash used in the 2007 successor
period and the 2007 predecessor period, was primarily the result
of receiving in fiscal 2008 a $30.2 million settlement from
the previous stockholders related to the embezzlement matter
compared to the $303.2 million of cash used to acquire
Cambium Learning in the 2007 successor period. Pre-publication
expenditures decreased in 2008 compared to the combined 2007
successor and 2007 predecessor period due to a decrease in
investment in new programs.
Net cash used by investing activities was $306.6 million
for the 2007 successor period and $1.1 million for the 2007
predecessor period compared to $35.4 million for the 2006
predecessor period. The overall increase in cash used of
$272.3 million was due to acquisition activities of
$273.6 million and higher pre-publication expenditures of
$1.5 million, offset in part by lower property, plant and
equipment expenditures of $2.8 million. The higher
pre-publication expenditures were due to increased investment in
new programs for sales opportunities in 2008 and subsequent
periods. The lower plant, property and equipment expenditures
were due to investments made in warehouse equipment in the 2006
successor period.
Financing
Activities
Net cash provided by financing activities was $7.9 million
for the nine months ended September 30, 2009 due to
$10.0 million of borrowings on the revolving senior secured
credit facility and proceeds from capital contributions of
$3.0 million, partially offset by a repayment of
$1.1 million of senior secured debt.
Net cash used in financing activities was $11.2 million for
the nine months ended September 30, 2008 due to a repayment
of $24.0 million of senior secured debt, partially offset
by $5.0 million of borrowings on Cambium’s revolving
senior secured credit facility, $7.0 million of borrowing
from VSS which was subsequently converted to equity and a
$0.7 million capital contribution.
Net cash used in financing activities for fiscal 2008 was
$11.6 million, due to repayment of $24.3 million of
the senior secured debt, partially offset by $5.0 million
of borrowings on the revolving senior secured credit facility
and $7.0 million of borrowings from VSS, which was
subsequently converted to equity.
Net cash provided by financing activities for the 2007 successor
period was $311.2 million, due to the $140.1 million
of capital contributions and the issuance of $128.0 million
of senior secured debt at a variable interest rate and
$50.0 million of senior unsecured notes issued at an
interest rate of 11.75%, net of $5.9 million of borrowing
costs, the proceeds of which were used to fund the acquisition
of Cambium. These sources of cash were partially offset by the
repayment of $1.0 million of senior secured debt.
Net cash provided by financing activities for the 2007
predecessor period was $3.6 million, due to the borrowings
under the revolving credit facility.
Net cash provided by financing activities for the 2006
predecessor period was $16.7 million, due to the issuance
of $11.7 million of preferred stock to fund acquisitions,
net of $5.0 million borrowed under the revolving credit
facility.
Capital
Expenditures
For the year ending December 31, 2009, Cambium estimates
that it will expend $0.2 million on property, plant and
equipment, $0.6 million on capitalized technology and
$2.3 million on pre-publication expenditures. These amounts
do not give effect to any incremental capital expenditures that
may be necessitated as a result of the completion of the
transactions contemplated by the merger agreement.
Commitments
and Contractual Obligations
Cambium has various contractual obligations that are recorded as
liabilities in its consolidated financial statements. Other
items, such as certain purchase commitments and other executory
contracts, are not recognized as liabilities in Cambium’s
consolidated financial statements but are required to be
disclosed.
The following table summarizes Cambium’s significant
operational and contractual obligations and commercial
commitments at December 31, 2008, showing the future
periods in which these obligations are expected to be settled in
cash:
Cambium has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on
Cambium’s financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Assuming that upon completion of the mergers Cambium Learning
will have outstanding $112.7 million of indebtedness under
Cambium Learning’s senior secured credit facility (not
including up to $1.5 million in outstanding letters of
credit) and will have outstanding $54.0 million of the
senior unsecured notes offered on April 12, 2007, Cambium
Learning will have $77.6 million of its debt bearing
interest at variable rates, including approximately
$77.6 million outstanding under Cambium Learning’s
senior secured credit facility. Assuming that Cambium Learning
does not have in effect any interest rate swaps or cap
agreements applicable to its variable rate facilities, an
increase in the variable component used in determining the
interest rates on Cambium Learning’s variable rate
facilities would result in the interest rates under these
facilities being limited by the maximum interest rate applicable
to the facilities. Upon the completion of the mergers, after
giving effect to the foregoing assumptions and assumed
applicable tax rate of 38.5%, Cambium expects that its annual
earnings would decrease by approximately $0.48 million for
each one percentage point increase in the rates applicable to
its variable debt, and by $4.8 million for a ten percent
increase in the variable component used in determining the
interest rates applicable to Cambium Learning’s variable
debt.
At present, Cambium Learning has in place an interest rate swap
agreement that hedges against the risk, on $39 million of
its credit agreement debt, that the three-month LIBOR will
exceed 5.417% per annum. Cambium Learning makes payments to the
counterparty under the swap agreement to the extent that the
three-month LIBOR is below 5.417% and is entitled to receive
payments from the counterparty to the extent that the
three-month LIBOR exceeds 5.417%. The three-month LIBOR was
0.35% at September 30, 2009. Upon the completion of the
mergers, after giving effect to the foregoing assumptions and
assumed applicable tax rate of 38.5%, Cambium Learning expects
that its annual earnings would decrease by approximately
$0.24 million for each one percentage point decrease in the
three-month LIBOR rate below the 5.417% fixed maximum rate and
expects that its annual earnings would increase by approximately
$0.24 million for each one percentage point increase in the
three-month LIBOR rate above the 5.417% fixed maximum rate.
Foreign
Currency Risk
Cambium Learning does not have material exposure to changes in
foreign currency rates. At September 30, 2009, Cambium
Learning had no outstanding foreign currency forward or option
contracts.
Cambium functions as the holding company of Cambium Learning,
the principal operating company of Cambium. Cambium’s
compensation program for senior executives is administered by
Cambium Learning’s board of directors. Cambium’s chief
executive officer also reviews with the board of directors the
salaries, benefits and other compensation for Cambium’s
other executive officers and participates in the compensation
determinations with respect to those officers.
This compensation discussion and analysis describes
Cambium’s executive compensation program and the basis for
the compensation paid to Cambium’s chief executive officer
and the other executive officers of Cambium.
The primary goal of Cambium’s executive compensation
program is to enhance Cambium’s long-term profitability and
equity value by retaining and, where necessary, attracting,
experienced and highly skilled management and sales personnel.
Cambium’s executive compensation program is designed to
meet this goal by providing competitive levels of compensation
that integrate pay with Cambium’s short-term and long-term
performance goals, rewarding corporate performance and
recognizing individual initiative and achievement.
Cambium’s executive compensation is designed to:
•
enable Cambium to attract and retain high-caliber, talented
executives;
•
provide performance incentives for each named executive officer
that are commensurate with each named executive officer’s
direct contribution to Cambium’s performance; and
•
build value for equity owners by linking incentive compensation
to Cambium’s performance.
Within this general framework, individual executive officer
compensation is based upon personal and corporate achievement
and the officer’s level of responsibility and experience.
The board of directors also considers the compensation programs
and levels for senior executives at companies with which Cambium
competes for senior executives, and which are similar in size
and profitability to Cambium, although this comparative data is
not a material factor in determining compensation. Moreover,
Cambium Learning’s board of directors has historically
emphasized equity-linked compensation and performance-based cash
compensation over fixed salary compensation and, in any
particular year, Cambium’s executive officers may be paid
more or less than executives in comparable companies, depending
on Cambium’s own performance.
The board of directors uses the following core principles and
practices to establish the compensation packages of
Cambium’s executive officers:
•
Cambium seeks to attract and retain the best available personnel
for senior executive positions that substantially impact company
performance, to provide additional incentives to employees,
directors and consultants that are aligned with Cambium’s
compensation practices for its senior executives, and to promote
and foster the ongoing success of Cambium and its subsidiaries
and other affiliates.
•
For all of its executive officers, Cambium seeks to tightly
align the interests of management and investors to those
financial and operating metrics most closely associated with
growth in equity owner value.
•
Under Cambium’s Management Incentive Plan, or MIP, selected
senior management employees of Cambium have been issued equity
interests in an affiliate of Cambium called VSS-Cambium
Management, LLC. Upon the occurrence of a “Realization
Event” (as defined in the MIP and discussed below),
participants in the MIP will be entitled to receive a portion of
any cash distributions payable to Cambium’s stockholder.
•
Under Cambium’s general compensation philosophy, an
executive officer’s total compensation will vary based on
Cambium’s achievement of established financial objectives.
Cambium’s executive compensation program consists of two
principal components: base salary and incentive compensation
awards, which are comprised of cash awards, equity awards or
both. In addition, Cambium provides limited perquisites and
other compensation to the executive officers, which are
described in greater detail below. While the compensation
packages for each of the executive officers contains base
salary, incentive compensation and perquisite components, the
compensation package for each executive officer is uniquely
designed to retain that individual and to compensate the officer
for his or her individual performance and, where appropriate,
for Cambium’s performance, as well as to create incentive
for future performance. The board of directors combines the
elements of compensation for each of the executive officers in a
manner it believes optimizes that executive officer’s
contributions to Cambium.
In particular, Cambium’s executive compensation program for
its executive officers consists of the following elements:
•
base salary;
•
annual cash bonuses tied to Cambium’s achievement of
certain financial targets and objectives; and
•
awards under the MIP.
Each of these components of executive compensation is described
below.
Base
Salary
Base salaries are used to provide a fixed amount of compensation
for an executive’s work. The salaries of executive officers
are reviewed on an annual basis, as well as at the time of
promotion or other change in responsibilities. Increases in base
salary are based on an evaluation of the individual’s
performance and, once increased to an established specified
rate, generally will not be reduced below that specified rate.
The base salaries of Cambium’s executive officers are
reviewed and established by the CEO and Cambium Learning’s
board of directors. Base salary increases for
Messrs. Cappellucci and Logue are effective on January 1 of
each year, as provided in their respective employment
agreements. Base salary increases for Mr. Saltonstall are
effective on March 1 of each year.
In formulating base salary recommendations for Cambium’s
executive officers for the following year, the CEO reviews each
executive officer’s current base salary, individual
achievements and contributions, Cambium’s financial
results, competitive market data, and the CEO’s
expectations for the executive officers for that particular
year. The criteria used to establish financial performance
targets include, among other things, EBITDA, revenue growth and
unlevered free cash flow. The CEO also considers the annual base
salary merit increase guidelines that are established by the
board of directors for the following year.
In light of Cambium’s 2007 and 2008 performance and the
overall challenging 2009 global economic environment,
Messrs. Cappellucci and Logue elected to forego any
increase in base salary in each of 2008 and 2009 as provided in
their respective employment agreements. Mr. Saltonstall did
not receive a salary increase in 2009.
General. Cambium’s executive officers may
be awarded cash bonuses for achieving certain performance
levels. These bonuses are based on various quantitative and
qualitative performance criteria for the executive officers and
are designed to attract and retain qualified individuals and
also to encourage them to meet Cambium’s desired
performance goals.
For all Cambium’s executive bonuses, annual cash bonuses
are paid only if Cambium achieves specified financial goals in
the following three areas: revenues, EBITDA and unlevered free
cash flow, all as set forth in the annual budget established by
the board of directors for each year. The executive officers
have either all or a significant portion of their annual cash
bonus targets tied directly to Cambium’s overall
performance. A portion of Mr. Saltonstall’s annual
cash bonus target is tied directly to the performance of his
division or business unit. Performance targets for the overall
company as well as for specific divisions
and/or
business units are established by the board of directors as part
of the approval process for Cambium’s annual budget.
Cambium did not achieve its financial targets in 2008, and no
cash bonuses were paid to any executive officer for 2008.
Incentive
Compensation — Management Incentive Plan
Certain employees of Cambium Learning, including Mr.
Cappellucci, own interests in VSS-Cambium Management, LLC that
were previously granted to such persons as part of the MIP.
VSS-Cambium Management, LLC owns a profits-only interest in
Cambium’s stockholder. It is contemplated that prior to
the effective time of the mergers, the MIP will be terminated.
In connection with the closing of the mergers, in order to
provide certain participants in the MIP with equity compensation
in the combined company, these participants may be granted stock
options under the 2009 Incentive Plan.
Perquisites,
Benefits and Other Compensation
Cambium provides limited perquisites to the named executive
officers. In addition, as part of Cambium’s overall
compensation program, the named executive officers are entitled
to certain other benefits, including participation in
Cambium’s 401(k) plan.
After the mergers, compensation decisions for the officers of
Holdings will be made by Holdings board of directors or, if
applicable, a compensation committee thereof. Upon the
completion of the mergers, the MIP will be terminated. In lieu
of the MIP, in connection with the closing of the mergers it is
expected that certain of the named executive officers of Cambium
who become executive officers of Holdings will receive
non-qualified stock options to purchase shares of Holdings
common stock under Holdings’ 2009 Incentive Plan in order
to provide equity incentive compensation in the combined company.
Cambium believes that the caliber and motivation of its named
executive officers, other executives and key employees and the
quality of their leadership make a significant difference in
Cambium’s performance. Further, Cambium believes that
compensation should vary with the company’s financial
performance, so that executives are well rewarded when
performance meets or exceeds the rigorous performance goals
established by the board of directors. Cambium’s board of
directors believes that Cambium’s executive compensation
program is meeting the goals and objectives outlined in this
“Compensation Discussion and Analysis.”
This section contains information concerning the compensation
paid during the year ended December 31, 2008 to
Cambium’s chief executive officer and the other executive
officers of Cambium who will be continuing as executive officers
of Holdings. All of the compensation information included in
this section reflects compensation earned by the individuals for
services performed for Cambium. Any references in this section
to stock options, restricted stock, restricted stock units, and
other stock awards relate to awards granted by Cambium in regard
to Cambium common stock.
The amounts and forms of compensation reported below do not
necessarily reflect the compensation that these executive
officers will receive following the mergers as executive
officers of Holdings, which could be higher or lower, because
historical compensation was determined by Cambium and its board
of directors and future compensation levels will be determined
by the board of directors of Holdings.
2008
Summary Compensation Table
The following table sets forth certain summary information
concerning the compensation paid during the year ended
December 31, 2008 to the Cambium named executive officer,
who received total compensation of at least $100,000 during the
year ended December 31, 2009 and who will be continuing as
executive officers of Holdings following completion of the
mergers:
Non-
Non-Equity
Qualified
Incentive
Deferred
Stock
Option
Plan
Compensation
All Other
Total
Salary
Bonus
Awards
Awards
Compensation
Earnings
Compensation
Compensation
Name and Principal Position
($)
($)
($)
($)
($)
($)
($)(1)
($)
David F. Cappellucci,
220,000
—
—
—
—
—
9,900
229,900
Chief Executive Officer
Alex Saltonstall,
General Manager of Cambium Learning Technologies
161,666
—
—
—
—
—
7,683
169,349
(1)
Represents Cambium’s contribution to the individual’s
401(k) plan account.
2008
Awards Under the Management Incentive Plan
As discussed under “CAMBIUM COMPENSATION DISCUSSION AND
ANALYSIS” on page 243, under Cambium’s MIP,
selected senior management employees of Cambium, including
Messrs. Cappellucci and Saltonstall, have been issued
equity interests in an affiliate of Cambium called VSS-Cambium
Management, LLC. Upon the occurrence of a “Realization
Event” (as defined in the MIP), participants in the MIP are
entitled to receive a portion of any distributions payable to
Cambium’s stockholder. Although Messrs. Cappellucci
and Saltonstall were awarded interests under the MIP during
fiscal year 2008, and held interests awarded under the MIP as of
December 31, 2008, none of these interests had any current
value to the executive officers during such period or as of such
date. Upon the closing of the mergers, it is contemplated that
the interests of plan participants in the MIP will terminate. In
connection with the closing of the mergers, in order to provide
certain of such participants with equity incentive compensation
in the combined company, these participants may be granted stock
options under the 2009 Incentive Plan. See
“SUMMARY — Interests of Certain Persons in the
Mergers.”
No executive officers of Cambium have been awarded any equity
interests in Cambium, including any shares of Cambium common
stock, restricted stock or restricted stock units or any stock
options or other securities that are convertible into, or
exchangeable for, shares of Cambium common stock.
2008
Potential Payments Upon Termination or Change in
Control
This section summarizes potential payments to
Mr. Cappellucci under his existing employment agreement
with Cambium in the event of a termination of employment or a
change in control of Cambium and does not give effect to the
amendment entered into on June 29, 2009, which will only
become effective at the effective time of the mergers. The
information that follows assumes a December 31, 2008
termination or
change-in-control
date. Any amounts referenced below are estimates only and do not
necessarily reflect the actual amounts that would be paid to
Mr. Cappellucci upon the occurrence of these events. The
actual amounts would only be known at the time they became
eligible for payment and would only be payable upon the
termination of employment or change in control.
Mr. Saltonstall is not entitled to any payments from
Cambium upon termination of employment or a change in control of
Cambium.
The following is a list of the payments due to
Mr. Cappellucci under the termination or change in control
scenarios specified:
•
Termination of employment by Cambium without cause (other
than by reason of death or disability) or by
Mr. Cappellucci for good reason. In the
event of a termination of employment for either of these
reasons, Mr. Cappellucci will be entitled to receive the
following:
•
his base salary through the date of termination of employment;
•
the amount of all then-unpaid expense reimbursements due to
Mr. Cappellucci related to periods prior to the date of
termination;
•
additional payments equal to Mr. Cappellucci’s base
salary (at the rate in effect at the time of termination)
payable in installments for a period of twelve months after
termination of his employment or, at Cambium’s option, in
exchange for enhanced non-compete protections, a period of
24 months after such termination; and
•
continuation of health and dental insurance benefits for a
period of 12 months after termination of
Mr. Cappellucci’s employment.
If such a termination were to occur as of December 31,2008, the estimated amount payable by Cambium to
Mr. Cappellucci would be $235,000, or $470,000 if Cambium
were to elect to exercise its additional non-compete rights.
•
Termination of employment by Cambium for cause or as a result
of Mr. Cappellucci’s voluntary termination of his
employment without good reason. In the event of a
termination of employment for either of these reasons,
Mr. Cappellucci will be entitled to receive his base salary
through the date of termination and the amount of all then
unpaid expense reimbursements due to Mr. Cappellucci
related to periods prior to the date of termination. If such a
termination were to occur as of December 31, 2008, no
amount would be payable by Cambium to Mr. Cappellucci.
•
Termination of employment resulting from death or
disability. In the event of a termination of
employment resulting from Mr. Cappellucci’s death or
disability, Mr. Cappellucci or his estate, as applicable,
will be entitled to receive the following:
•
his base salary through the date of termination of employment;
•
the amount of all then unpaid expense reimbursements due to
Mr. Cappellucci related to periods prior to the date of
termination; and
•
the amount of Mr. Cappellucci’s cash bonus for the
year of termination, pro rated for the period through the date
of termination of his employment, as determined by the Cambium
board of directors in its sole discretion, taking into account
Mr. Cappellucci’s performance prior to the date of
termination.
If such a termination were to occur as of December 31,2008, no amount would be payable by Cambium to
Mr. Cappellucci, since no bonuses were paid for 2008.
•
Termination resulting from a realization
event. In the event of a termination of
Mr. Cappellucci’s employment in connection with a
realization event, which is defined in the Cambium MIP and
includes a change of control of Cambium or its parent company,
Mr. Cappellucci will be entitled to receive his base salary
through the date of termination of his employment and the amount
of all then unpaid expense reimbursements due to
Mr. Cappellucci related to periods prior to the date of
termination. If such a termination were to occur as of
December 31, 2008, no amount would be payable by Cambium to
Mr. Cappellucci.
Compensation
Committee Interlocks and Insider Participation
As noted elsewhere in the proxy statement/prospectus, Cambium
does not have a compensation committee or other board committee
performing equivalent functions. The only officers or employee
of Cambium who participated in deliberations of the board of
directors of Cambium Learning concerning executive officer
compensation during the year ended December 31, 2008 were
David Cappellucci, George Logue and David Caron.
No interlocking relationship exists between any Cambium
executive officer or director and the board of directors or
compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Director
Compensation
The individuals serving as directors of Cambium in 2008 were not
compensated for performing that service.
Cambium Learning is wholly owned by VSS-Cambium Holdings, LLC
and, prior to the completion of the mergers, will be wholly
owned by VSS-Cambium Holdings III, LLC. See “THEMERGERS — Diagrams” on page 55.
Voyager has been a leading publisher of solutions for the
education, automotive and power equipment markets, with more
than 50 years of experience in information, content
development, and aggregation. Voyager’s predecessor
company, Bell & Howell Company, was incorporated in
Delaware in 1907. On January 31, 2005, Voyager completed
the acquisition of Voyager Expanded Learning, Inc. , which we
refer to as VEL, in support of its long-term strategy to grow
its educational business for grades K-12. On October 28,2005, Voyager sold its periodical microfilm operation to
National Archive Publishing Company, or NAPC, for
$21.9 million. On November 28, 2006, Voyager sold
ProQuest Business Solutions, or PQBS, to Snap-on Incorporated,
or Snap-On, for $514 million and the assumption of
approximately $19 million of PQBS debt by Snap-on. On
February 9, 2007, Voyager sold PQIL and the ProQuest brand
for $195.2 million. On June 30, 2007, ProQuest Company
amended Article I of its certificate of incorporation
solely to change the corporate name from “ProQuest
Company” to Voyager Learning Company. The name change and
amendment were completed pursuant to Section 253(b) of the
DGCL through a merger of Voyager’s wholly owned subsidiary
with and into the company.
Voyager’s results from continuing operations are reported
as a single business segment, which we refer to as Voyager
Education, or VED. As a result of the sale of PQBS in 2006 and
the sale of PQIL in 2007, results for those units are reported
as earnings from discontinued operations in Voyager’s
Consolidated Statements of Operations for the fiscal years ended
December 29, 2007 and December 30, 2006. An overview
of Voyager’s ongoing operations follows.
Voyager currently focuses on three market areas related to K-12
education: reading programs and resources, math and science
programs and resources, and professional development programs.
Voyager is a leading provider of results-driven reading and math
intervention programs, professional development programs
regarding the teaching of reading, subscription-based online
supplemental reading, math and science resources and programs,
and a core reading program for school districts throughout the
United States.
Voyager’s reading programs include: Voyager
Passporttm,
a comprehensive reading intervention system for K-5; Voyager
Universal Literacy
System®,
a K-3 core reading program; Passport Reading
Journeystm,
a middle school reading intervention system for grades 6-9;
TimeWarp®
Plus, a K-9 summer school reading intervention program; Voyager
Pasaportetm,
a K-3 reading intervention system in Spanish; and Learning
A-Ztm,
a group of related websites known as Reading
A-Ztm,
Raz-Kidstm,
Reading-tutorstm,
Vocabulary
A-Ztm
and Writing
A-Ztm,
which provide online supplemental reading, writing and
vocabulary lessons, books, and other resources for students and
teachers.
Voyager’s math and science programs include:
Vmath®,
a math intervention system for grades 3-8;
ExploreLearningtm,
a subscription-based online library of interactive simulations
in math and science for grades 3-12, and Science
A-Z
tm,
a Learning
A-Z website
aimed at the supplemental science market.
VoyagerU®
is Voyager’s professional development program for teachers,
literacy coaches and administrators.
Voyager’s products have achieved acceptance across a broad,
economically and geographically diverse customer base. Voyager
intervention and other products currently serve over 700,000
students in more than 1,000 school districts in all
50 states. Learning
A-Z serves
approximately 212,000 teachers in all states and in over 140
countries. ExploreLearning serves over 58,000 subscribers in
approximately 2,600 schools within over 20 countries.
Voyager counts some of the nation’s largest districts among
its major customers, including Los Angeles, Clark County,
Houston, New York City, Buffalo, Richmond, Virginia, Cleveland,
Milwaukee, and Miami-Dade County. The breadth of this customer
base provides Voyager with a national platform from which to
launch new products, address new markets, and cross-sell
products to existing customers.
Voyager customers generally purchase Voyager’s reading,
math or professional development programs along with any
necessary implementation services or training for a single
school year. In subsequent school years, customers wishing to
serve the same number of students generally need to purchase new
student materials or renew access to online content but do not
typically repurchase teacher materials. Learning
A-Z and
ExploreLearning online subscriptions generally run for a
twelve-month period. In 2008, Voyager generated approximately
76% of sales from reading programs, 13% of sales from math and
science programs, 6% of sales from professional development
programs, and 5% from other products and services.
Voyager Passport provides direct, systematic instruction in each
of the five essential reading components (phonemic awareness,
phonics, fluency, vocabulary, and comprehension) and is designed
as an intervention program for K-5 students for whom a core
reading program is not sufficient. The lessons are typically
daily and run 30 to 40 minutes in duration. They are based on
the latest scientific research regarding effective reading
instruction and are carefully designed to effectively and
efficiently address each of the strategies and skills necessary
to improve the reading ability of struggling readers.
The Voyager Universal Literacy System is a comprehensive core
reading curriculum for grades K-3 that explicitly and
systematically teaches the five essential components of reading
instruction as outlined by the National Reading Panel in 2000.
In 2007, Voyager began offering an interactive web-based program
called Ticket to
Read®
(www.tickettoread.com) with Voyager’s Passport and
Universal Literacy System programs. Ticket to Read is designed
to improve reading by allowing students to practice various
aspects of reading skills. Instruction is leveled, self-paced
and teacher monitored. Students are motivated by a leader board,
a virtual clubhouse that includes earning online tickets and
other rewards, games, and engaging self-selected passages on a
variety of topics as they build vocabulary, fluency, phonics and
reading comprehension skills. Approximately one quarter of the
use takes place after school hours including weekends. The tool
enables schools to get parents
and/or
guardians involved in their children’s education.
Passport Reading Journeys is a targeted intervention program
designed to accelerate reading for struggling readers in middle
school and high school. The lesson format integrates reading,
comprehension, vocabulary, fluency and writing. Age-appropriate
content, real-life journeys on DVDs, online interactive lessons,
and captivating text hold student interest and motivate students
to read for both information and enjoyment. The program targets
the affective domain as much as the cognitive domain as many
struggling readers have lost confidence, are not engaged, and
are close to dropping out. The program meets all of the
instructional recommendations of the Reading Next Report
and provides teachers with the tools necessary to help students
become successful readers.
Voyager TimeWarp Plus is a four-to-six week summer reading
intervention program which immerses K-9 students in reading
adventures to build essential reading skills that can prevent
summer learning loss and prepare students for the coming year.
TimeWarp Plus is a balanced, research-based reading program
offered as a two-to-four hour daily reading instruction focused
around exciting, adventure-based themes and hands-on learning
experiences. Student engagement and maximizing teacher time are
key components of the program.
Voyager Pasaporte provides students in grades K-3 with targeted
reading intervention in Spanish, using similar
scientifically-based reading research and framework as Voyager
Passport. The lessons are typically run daily for 30 to 40
minutes in duration. They are based on the latest scientific
research regarding effective reading instruction and are
carefully designed to effectively and efficiently address each
of the strategies and skills necessary to improve the reading
ability of struggling Spanish speaking children who cannot read
effectively in any language. Built-in assessment and progress
monitoring tools provide teachers with vital information about
student learning so they can adjust instruction as needed.
Voyager also sells online supplemental reading products under
the Learning
A-Z brand.
There are three free websites
(LearningPagetm,
Sites for Teachers and Sites for Parents), which aid in
directing interested
parents, teachers, schools and districts to Voyager’s six
subscription-based sites: Reading
A-Z,
Raz-Kids, Reading-Tutors, Vocabulary
A-Z, Writing
A-Z, and
Science A-Z.
Each of these websites offers products available for purchase
through online subscriptions.
Voyager’s Learning
A-Z
division’s flagship product, Reading
A-Z, offers
thousands of research-based printable teacher materials to teach
guided reading, phonological awareness, phonics, comprehension,
fluency, letter recognition and formation, high frequency words,
poetry and vocabulary. The teaching resources include
professionally developed downloadable leveled books (27 levels),
a systematic phonics program that includes decodable books, high
frequency word books, poetry books, nursery rhymes, vocabulary
books, read-aloud books, lesson plans, worksheets, graphic
organizers and reading assessments. All leveled books,
worksheets, graphic organizers and quizzes are available as
printable PDF files and as projectables for use on interactive
and non-interactive whiteboards. The leveled books and a variety
of other books are available in Spanish and French, as well as a
version with UK spellings.
Raz-Kids is a student-centered online collection of interactive
leveled books and quizzes designed to guide and motivate
emergent and reluctant readers, as well as improve the skills of
fluent readers. Students can listen to and read books as well as
record their reading and then take an online quiz while
receiving immediate feedback. Students earn stars for their
reading activity. The stars can then be spent in each
student’s personal clubhouse-like environment for
purchasing a catalog full of items that include aliens and other
fun characters. The program currently consists of over 300
online books along with companion quizzes and worksheets spread
over 27 levels of difficulty. The website also features a
classroom management system for teachers to build rosters,
assign books and review student reading activity.
Reading-Tutors is a low-cost, easy-to-use collection of
research-based resource packets for tutors. Each of the 400
packets contains items tutors need to help emerging readers gain
key literacy skills in the alphabet, phonological awareness,
phonics, high-frequency words, fluency and comprehension. It
also has all the resources needed to train tutors as well as set
up and run a successful tutoring program.
Vocabulary
A-Z provides
customized and pre-made vocabulary lessons for use by teachers
to improve student vocabularies. Vocabulary
A-Z has
thousands of vocabulary words that can be used to generate
custom vocabulary lessons and assessments. Word activities and
worksheets are available based on the word lists the user
generates. The Vocabulary
A-Z lesson
generator incorporates best practices from current educational
research.
Writing A-Z
provides teachers with a comprehensive collection of resources
to enhance the writing proficiency of students in grades K-6.
The site provides core writing lessons grouped by genre
including student packets with leveled materials, mini-lessons
that target key writing processes and skills, and writing tools
for organizing and improving writing.
Math and
Science Programs
Vmath is a targeted, systematic intervention system that is
aligned with the tenets of the National Council of Teachers of
Mathematics and is designed to complement and enhance all major
math programs by building upon and reinforcing the concepts,
skills, and strategies of a core math program. Through 30 to 40
minutes of daily instruction, Vmath helps struggling students
build a foundation in math and learn the skills and concepts
crucial to achieving grade-level success. In January 2007,
Voyager added the VmathLive online math capability, targeting
additional student practice for grades 3-8. In 2008, Voyager
added ExploreLearning online simulations to provide visual
instruction of concepts.
Low-performing math students may need summer intervention to
prevent summer learning loss in math as well as in reading.
Vmath Summer Adventure combines explicit instruction in
essential math concepts and skills and real-life adventures to
stimulate student interest and understanding over a shortened
summer school program for grades K-8.
ExploreLearning supplies online simulations in math and science.
ExploreLearning has won National Science Foundation funding,
supports the tenets of the National Council of Teachers of
Mathematics and has received positive mention in books published
by the Association of Supervision and Curriculum Development
and the National Science Teachers Association. ExploreLearning
materials are correlated to state standards and over 120 math
and science textbooks. Like Learning
A-Z,
ExploreLearning is an online subscription-based business.
The Learning
A-Z website
Science A-Z
provides teachers with an online collection of resources to
improve student skills in both science and reading. The website
offers a collection of downloadable resources organized into
thematic units aligned with state standards. The materials are
categorized into four scientific domains: life, earth, physical
and process science. The thematic units are organized into three
grade-level groupings: K-2, 3-4, and 5-6. The themed packs
include lessons, books, high- interest information sheets,
career sheets, and process activities. Within each grade span,
all books and information sheets are written to a high, medium
and low level of difficulty. The website includes many other
science resources including science fair resources and a monthly
“Science In the News” feature.
Professional
Development Programs
VoyagerU is a professional development program delivered to
reading teachers, coaches and educators in collaboration with
state-wide and school district-wide professional development
initiatives. It is designed to improve teacher effectiveness by
providing a consistent approach to teaching reading. The program
blends independent student instruction with facilitator-led
training. Voyager offers courses that are comprehensive or
targeted for specific reading skills. Participants may earn
college credit and hours toward professional development
requirements. VoyagerU has been demonstrated to improve teacher
instruction and student reading performance.
Voyager continually seeks to take advantage of new product and
technology opportunities and views product development to be
essential to maintaining and growing the company’s market
position. Voyager develops its products using a combination of
employees and outside resources such as university professors,
research experts, and topical experts. Voyager generally
conducts an extensive refresh of the company’s products
every three to five years to incorporate the latest research,
bring images current, and update factual content. The web-based
products are enhanced continuously. Between the product
refreshes, Voyager often develops variations, expansions
(i.e., more grade levels) and other basic enhancements of
its products. As of December 31, 2008, Voyager had
87 employees in curriculum development. Research and
development expense was $5.3 million, $4.5 million and
$5.2 million for fiscal years 2008, 2007 and 2006,
respectively.
Sales
and Marketing
Voyager currently organizes its marketing and sales force around
Voyager Expanded Learning, Learning
A-Z and
ExploreLearning products. Within these product lines, sales
producers sell all available products and are generalist
relationship managers. They are supported by product or subject
matter experts as well as a corporate marketing team. As of
December 31, 2008, the Voyager sales force consisted of 55
field and 46 inside sales producers for a total of 101 direct
sales producers, excluding sales management and marketing. Field
and inside sales producers are segmented primarily based on size
of district.
Voyager regards certain of its technologies and content as
proprietary and relies primarily on a combination of copyright,
trademark and trade secret laws, and employee or vendor
non-disclosure agreements, to protect its rights.
To a much lesser degree, Voyager also licenses from third
parties certain technology content or services upon which the
company relies to deliver its products and services to the
company’s customers.
Voyager derives the majority of its curriculum content through
in-house development efforts. Curriculum developed in-house or
developed through the use of independent contractors is the
proprietary property of the
company. The curriculum developed might be augmented or
complemented with third party products, which may include
printed materials, video or photographs. This third party
content may be sourced from various providers who retain the
appropriate trademarks and copyright to the material and agree
to Voyager’s use on a nonexclusive, fee-based arrangement.
Voyager’s quarterly operating results fluctuate due to a
number of factors including the academic school year, funding
cycles, the amount and timing of new products, and the
company’s spending patterns. In addition, Voyager’s
customers experience cyclical funding issues that can impact
Voyager’s revenue patterns. Historically, Voyager has
experienced its lowest sales and earnings in the first and
fourth fiscal quarters with its highest sales and earnings in
the second and third fiscal quarters.
The market for Voyager’s products and services is highly
competitive. The company competes with basal text book suppliers
such as Houghton Mifflin/Harcourt (Riverdeep), Scott Foresman
(Pearson), and
McGraw-Hill,
which offer intervention products, often as part of their core
reading programs, as well as supplemental suppliers including
Cambium Learning, Scientific Learning and Scholastic.
Voyager’s operations are governed by laws and regulations
relating to equal employment opportunity, workplace safety,
information privacy, and worker health, including the
Occupational Safety and Health Act and regulations under that
Act. Additionally, as a company that often bids on various
state, local and federally funded programs, Voyager is subject
to various governmental procurement policies and regulations.
Voyager believes that it is in compliance in all material
respects with applicable laws and regulations and that future
compliance will not have a material adverse effect upon the
company’s consolidated operations or financial condition.
Voyager is not overly dependent upon any one customer or a few
customers, the loss of which would have a material adverse
effect on the company’s business. In fiscal 2007 and 2008,
no single customer represented more than 10% of Voyager’s
consolidated net sales on an annual basis for either year. The
top five customers accounted for approximately 22% of the
company’s net sales in 2008.
Voyager’s future success is substantially dependent on the
performance of its management team and its ability to attract
and retain qualified technical and managerial personnel. As of
December 31, 2008, Voyager had 399 employees. None of
these employees are represented by collective bargaining
agreements.
As of March 31, 2009, Voyager’s principal corporate
office is located in Dallas, Texas. For ongoing operations,
Voyager leases facilities in Dallas, Texas, Charlottesville,
Virginia, Tucson, Arizona and Ann Arbor, Michigan.
Voyager announced plans after the sale of PQBS and PQIL to
transition all of its corporate functions from its Ann Arbor
headquarters to Dallas during 2007 and 2008. From the date of
sale of PQIL, Voyager subleased substantial space to the buyer
of PQIL. Voyager, the owner of the leased buildings in Ann
Arbor, and the buyer of PQIL reached an agreement in March 2008
whereby the buyer of PQIL took full responsibility for the lease
of the corporate headquarters and former PQIL space in exchange
for Voyager’s paying $11 million to the buyer of PQIL.
Under the terms of the March 2008 agreement, Voyager terminated
its Ann Arbor leases and signed a sublease for 13,090 square
feet in Ann Arbor, which was later reduced to
3,060 square feet by year-end 2008 in order to continue
performing certain information technology support functions.
The following table provides summary information in square feet
with respect to these facilities associated with continuing
operations and corporate headquarters as of September 30,2009.
Between February and April 2006, four putative securities class
actions, consolidated and designated in In re ProQuest
Company Securities Litigation, were filed in the
U.S. District Court for the Eastern District of Michigan
(the “Court”) against Voyager and certain of its
former and then-current officers and directors. Each of these
substantially similar lawsuits alleged that Voyager and certain
officers and directors violated Sections 10(b) and/or 20(a)
of the Exchange Act, as well as the associated
Rule 10b-5,
in connection with Voyager’s proposed restatement.
On July 22, 2008, Voyager reached an agreement in principle
to settle the consolidated shareholder securities class action
law suit for $20 million. A Stipulation and Agreement of
Settlement was signed by the parties and the Court granted
preliminary approval of such agreement. During January 2009,
Voyager paid $4.0 million and its insurers funded the
remaining portion of the settlement into an escrow account. The
Court entered final approval of the settlement on March 30,2009. This Final Order and Judgment fully resolves the
securities matters raised in this litigation.
Shareholder
Derivative Lawsuits
On April 18, 2006 and December 19, 2006, respectively,
two shareholder derivative lawsuits were filed in the
U.S. District Court for the Eastern District of Michigan
(the “Court”), purportedly on behalf of Voyager
against certain current and former officers and directors of
Voyager by certain of Voyager’s shareholders. Both cases
were assigned to Honorable Avern Cohn, who entered a stipulated
order staying the litigation pending completion of
Voyager’s restatement and a special committee investigation
into the restatement.
On March 20, 2008, plaintiffs filed a consolidated amended
complaint alleging claims for breach of fiduciary duty, abuse of
control, gross mismanagement, waste of corporate assets, unjust
enrichment, rescission, imposition of a constructive trust,
violations of the Sarbanes-Oxley Act of 2002 and violations of
the Exchange Act against current and former officers or
directors of the Company and one of its subsidiaries. On
December 3, 2008 Voyager reached an agreement in principle
to settle the shareholder derivative litigation law suit. Under
the terms of the agreement, Voyager and its insurers would pay
an amount not to exceed $650,000 in attorneys’ fees and
agree to maintain or adopt additional corporate governance
standards. Voyager’s portion of this amount is equal to
$500,000. The parties entered into a Stipulation of Settlement
on January 9, 2009. This Stipulation of Settlement was
approved by the Court and a Final Judgment and Order was signed
by the Court on March 31, 2009. Subject to an annual review
of the corporate governance standards by the Court, this Final
Judgment and Order fully resolves the matters asserted in this
litigation.
This section should be read in conjunction with the Consolidated
Financial Statements of Voyager and its subsidiaries, referred
to collectively in this discussion as “Voyager,” and
the notes thereto, as well as the accompanying interim financial
statements and the notes thereto for the period ended
September 30, 2009, all of which are included in this proxy
statement/prospectus.
Safe
Harbor for Forward-looking Statements
Except for the historical information and discussions contained
herein, statements contained in this discussion may constitute
“forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. In some cases,
you can identify forward-looking statements by terminology such
as “may”, “should”, “expects”,
“plans”, “anticipates”,
“believes”, “estimates”,
“predicts”, “potential”,
“continue”, “projects”, “intends”,
“prospects”, “priorities”, or the negative
of such terms or similar terminology. These statements involve a
number of risks, uncertainties and other factors, including
those described in “RISK FACTORS,” among others, which
could cause actual results to differ materially. These factors
may cause Voyager’s actual results to differ from any
forward-looking statements. All forward-looking statements made
by us or by persons acting on our behalf apply only as of the
date of this proxy statement/prospectus. Voyager undertakes no
obligation to update any of its forward-looking statements.
Overview
Voyager focuses on three market areas related to K-12 education:
reading programs, math and science programs, and professional
development programs. Voyager is a leading provider of
results-driven, in-school reading and math intervention
programs, professional development programs regarding the
teaching of reading, subscription-based online supplemental
reading and science programs, and a core reading program for
school districts throughout the U.S.
During the third quarter of 2009, Voyager began to see the
positive impact, both directly and indirectly, of the American
Reinvestment and Recovery Act (ARRA) passed in February 2009.
The Act provides significant new federal funding for various
education initiatives over the next two years. While the
education funding is for a broad set of education initiatives,
management believes that schools and districts may choose to
direct some of the funding for programs which use Voyager’s
products. In some instances, if ARRA funding is not used
directly for programs using Voyager’s products, Voyager may
still be receiving an indirect benefit. When the ARRA funding is
used to assist schools in general to meet their overall
financial needs, funds may be freed up to use for Voyager’s
programs. While success in winning some of these funds for
Voyager’s products is not certain at this time, management
believes it has the potential to continue to stabilize some of
the negative funding trends which emerged in 2008.
The growth in Voyager’s net sales during the third quarter
of 2009 is attributable in large part to success in the market
for Voyager’s Vmath and ExploreLearning products. Vmath is
the grade 2 — 8 math intervention product and
ExploreLearning is the online math and science simulation
product. Voyager introduced its current Vmath intervention
product in 2005 and has made a series of expansions, investments
and revisions. Voyager believes these investments, along with
better sales execution and assistance from the ARRA funding,
have led to the improvement in sales of Vmath. Voyager acquired
ExploreLearning in 2005 and has continued to invest in its
development and in expanding the product’s sales and
marketing efforts. Voyager believes these investments have
resulted in increased sales of ExploreLearning since the
acquisition.
While ARRA is beginning to provide a positive impact, throughout
the third quarter of 2009 Voyager continued to experience the
adverse developments in the education funding environment,
including the reductions in Reading First funding and reductions
in available state and local funds as property tax receipts
decline, which significantly decreased the funding available to
schools to purchase Voyager’s products and services. Some
school districts have found it difficult to secure alternative
funding sources in the midst of the current market conditions.
These market conditions may continue to have an impact on
Voyager’s future sales, profits, cash flows and carrying
value of assets.
The following trends have or may have had an impact on
Voyager’s revenues and profitability:
•
Sales of Voyager’s online subscription based products grew
significantly in 2008. Voyager continues to see growth in 2009
and expects this trend to continue in the coming years.
•
Voyager believes its product diversification, such as growth in
the online offerings, math intervention and new reading
intervention products for higher grades, will allow Voyager to
strengthen its ability to sustain market share in a troubled
market and capture market share when the market recovers.
•
Voyager believes its focus on product usage and an overall
partnership approach with the customer to implement its
solutions with fidelity will result in higher success rates, and
such success, if achieved, will lead to customer retention and
growth through reference sales.
•
Efforts were taken in 2008 to reduce Voyager’s cost
structure for 2009, including a reduction in force, which better
aligns Voyager’s cost structure to current market
conditions.
•
Voyager performed a goodwill impairment analysis in both the
second and third quarters of 2009 as a result of the execution
of the merger agreement in late June, which is considered a
triggering event, and in consideration of the continuing impact
of adverse marketplace and economic conditions. As a result of
these analyses, Voyager recorded a goodwill impairment charge of
$22.0 million in the second quarter and $5.2 million
in the third quarter. Because the terms of the merger agreement
are fixed, increases in Voyager’s booked net assets could
result in future goodwill impairment charges.
•
Sales and gross profit are subject to seasonality with the first
and fourth quarters being the weakest.
Critical
Accounting Policies and Estimates
Voyager’s consolidated financial statements are prepared in
accordance with accounting principles GAAP, which require
management to make estimates and assumptions that affect the
reported amount of assets, liabilities, revenue, expenses, and
related disclosure of contingent assets and liabilities.
On an ongoing basis, Voyager evaluates its estimates including
those related to accounting for revenue recognition, impairment,
capitalization and depreciation, allowances for doubtful
accounts and sales returns, inventory reserves, income taxes,
and other contingencies. Voyager bases its estimates on
historical experience and other assumptions Voyager believes are
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of
assets and liabilities that may not be readily available from
other sources. Actual results may differ from these estimates,
which could have a material impact on Voyager’s financial
statements.
Certain accounting policies require higher degrees of judgment
than others in their application. Voyager considers the
following to be critical accounting policies due to the judgment
involved in each. For a detailed discussion of Voyager’s
significant accounting policies, see Note 1 to
Voyager’s Year-End Consolidated Financial Statements
included herein.
Revenue Recognition. Revenues are derived from
sales of reading, math and science, and professional development
solutions to school districts primarily in the U.S. Sales
include printed materials and often online access to educational
materials for individual students, teachers, and classrooms.
Revenue from the sale of printed materials for reading and math
products is recognized when the product is shipped to or
received by the customer. Revenue for product support,
implementation services, and online subscriptions is recognized
over the period services are delivered. The division of revenue
between shipped materials, online materials, and ongoing support
and services is determined in accordance with applicable
accounting guidance for revenue arrangements with multiple
deliverables. Revenue for Voyager’s professional
development courses, which includes an internet delivery
component, is recognized over the contractual delivery period,
typically nine to twelve months. Revenue for the online content
sold separately or included with Voyager’s curriculum
materials is recognized ratably over the subscription period,
typically a school year. Shipments to school book depositories
are on consignment and revenue is recognized based on shipments
from the depositories to the schools.
ExploreLearning and Learning
A-Z derive
revenue exclusively from sales of online subscriptions to their
reading, math and science teaching websites. Typically, the
subscriptions are for a twelve month period and the revenue is
recognized ratably over the period the online access is
available to the customer.
Discontinued Operations. Voyager sold PQBS on
November 28, 2006. Voyager sold PQIL on February 9,2007. Accordingly, the operating results of these businesses
have been segregated from Voyager’s continuing operations
and are separately reported as discontinued operations. Interest
on consolidated debt that was repaid as a result of the PQBS and
PQIL disposal transactions has been allocated between
discontinued operations and continuing operations.
Impairment of Long Lived Assets. Voyager
reviews the carrying value of long lived assets for impairment
whenever events or changes in circumstances indicate net book
value may not be recoverable from the estimated undiscounted
future cash flows. If Voyager’s review indicates any assets
are impaired, the impairment of those assets is measured as the
amount by which the carrying amount exceeds the fair value as
estimated by discounted cash flows. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
cost of disposal. For fiscal year 2008 and the first half of
fiscal year 2009, no impairment was indicated.
The determination whether Voyager’s definite-lived
intangible assets are impaired involves significant assumptions
and estimates, including projections of future cash flows, the
percentage of future revenues and cash flows attributable to the
intangible assets, asset lives used to generate future cash
flows, and royalty charges attributable to trademarks. The
impairment calculations are most sensitive to the future cash
flow assumptions. Future cash flow projections are based on
management’s best estimates of economic and market
conditions over the projected period including industry
fundamentals such as the state of educational funding, revenue
growth rates, future costs and operating margins, working
capital needs, and capital and other expenditures. Adverse
developments in the education funding environment, including the
reductions in Reading First funding that occurred in 2008 and
reductions in available state and local funds as property taxes
decline, have affected Voyager’s operations during 2008 and
the first half of 2009 and may continue to have an impact, and
potentially increase the impact, on Voyager’s future sales,
profits, cash flows and carrying value of assets. Voyager
performed a sensitivity analysis on the projected cash flows and
determined that a 10% decrease in projected cash flows would not
affect its conclusion that no impairment was indicated for its
definite-lived intangible assets.
Impairment of Goodwill. Voyager reviews the
carrying value of goodwill for impairment at least annually. The
annual analysis is performed during the fourth fiscal quarter or
when certain triggering events occur. The impairment test
requires Voyager to compare the fair value of each reporting
unit to its carrying value.
In the first step of the impairment test for fiscal year 2008,
the fair market value of Voyager’s single reporting unit
was determined using an income approach and was dependent on
multiple assumptions and estimates, including future cash flow
projections with a terminal value multiple and the discount rate
used to determine the expected present value of the estimated
future cash flows. Future cash flow projections were based on
management’s best estimates of economic and market
conditions over the projected period including industry
fundamentals such as the state of educational funding, revenue
growth rates, future costs and operating margins, working
capital needs, capital and other expenditures, and tax rates.
The discount rate applied to the future cash flows was a
weighted-average cost of capital and took into consideration
market and industry conditions, returns for comparable
companies, the rate of return an outside investor would expect
to earn, and other relevant factors. The first step of
impairment testing for fiscal 2008 showed that the carrying
value of Voyager’s single reporting unit exceeded its fair
value; therefore, a second step of testing was required.
The second step of the goodwill impairment analysis requires the
allocation of the fair value of the reporting unit to all of the
assets and liabilities of that reporting unit as if the
reporting unit had been acquired in a business combination. The
fair values included in the second step of the fiscal 2008
goodwill impairment analysis were dependent on multiple
assumptions and estimates, including the projected cash flows
and discount rate used for the first step of the analysis, as
well as the percentage of future revenues and cash flows
attributable to the intangible assets, asset lives used to
generate future cash flows, royalty charges attributable to
Voyager’s trademarks, normal profit margins applicable to
Voyager’s deferred revenues, and other assumptions used in
determining the fair value of assets and liabilities in a
hypothetical purchase accounting allocation. As a result of the
second step of the 2008 impairment test, the goodwill balance
for the reporting unit as of the measurement date was determined
to be partially impaired, and an impairment charge of
$43.1 million was recorded in 2008.
The adverse developments in the education funding environment
that affected Voyager’s operations during fiscal year 2008
and continuing into the first quarter of 2009 may continue
to have an impact, and potentially increase the impact, on
Voyager’s future sales, profits, cash flows and carrying
value of assets. Although management has included its best
estimates of the impact of these and other factors in
Voyager’s cash flow projections, the projection of future
cash flows is inherently uncertain and requires a significant
amount of judgment. Actual results that are significantly
different than these cash flow projections or a change in the
discount rate could significantly affect the fair value
estimates used to value Voyager’s reporting unit in step
one of the goodwill analysis or the fair values of its other
asset and liability balances used in step two of the goodwill
analysis, and could result in future goodwill impairments.
Developed Curriculum. Voyager capitalizes
certain pre-publication costs of its curriculum including art,
prepress, editorial, and other costs incurred in the creation of
the master copy of its curriculum products. Curriculum
development costs are amortized over the expected life of the
education program, generally on a straight-line basis over a
period of three to five years. Voyager periodically reviews the
recoverability of the capitalized costs based on expected net
realizable value.
Accounts Receivable. Accounts receivable are
stated net of allowances for doubtful accounts and estimated
sales returns. These allowances are based on a review of the
outstanding balances and historical collection experience. The
reserve for sales returns is based on historical rates of
returns as well as other factors that in Voyager’s judgment
could reasonably be expected to cause sales returns to differ
from historical experience. Actual returns could differ from
Voyager’s estimates.
Inventory. Inventory costs include material
only. Inventory is stated at the lower of cost, determined using
the
first-in,
first-out (FIFO) method, or market. Voyager estimates a reserve
to reduce slow-moving or obsolete inventory to net realizable
value. The inventory reserve is maintained at an amount that
management considers appropriate based on factors such as the
inventory aging, historical usage of the product, future sales
forecasts, and product development plans. These factors involve
management’s judgment and changes in estimates could result
in increases or decreases to the inventory reserves. Inventory
reserves are reviewed on a periodic basis and required
adjustments, if any, are made.
Income Taxes. Provision is made for the
expense, or benefit, associated with taxes based on income. The
provision for income taxes is based on laws currently enacted in
every jurisdiction in which Voyager does business and considers
laws mitigating the taxation of the same income by more than one
jurisdiction. Significant judgment is required in determining
income tax expense, current tax receivables and payables,
deferred tax assets and liabilities, and valuation allowance
recorded against the net deferred tax assets. Management
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, taxable income in prior
carryback years, loss carryforward limitations, and tax planning
strategies in assessing whether deferred tax assets will be
realized in future periods. If, after consideration of these
factors, management believes it is more likely than not that a
portion of the deferred tax assets will not be realized, a
valuation allowance is established. The amount of the deferred
tax asset considered realizable could be reduced if estimates of
future taxable income during the carryforward period are reduced.
Voyager recognizes liabilities for uncertain tax positions based
on the two-step process. The first step is to evaluate the tax
position for recognition by determining if available evidence
indicates that it is more likely than not that the position will
be sustained on audit. The second step requires Voyager to
estimate and measure the tax benefit as the largest amount that
is more than 50% likely to be realized upon ultimate settlement.
It is inherently difficult and subjective to estimate these
amounts, since this requires management to determine the
probability of various possible outcomes. Voyager reevaluates
its uncertain tax positions on a periodic basis,
Cost of sales (exclusive of depreciation and amortization shown
separately below)
(26.3
)
(33.0
)
(27.8
)
(36.4
)
1.5
5.4
Gross profit
53.3
67.0
48.6
63.6
4.7
9.7
Research and development expense
(3.4
)
(4.3
)
(3.7
)
(4.9
)
0.3
8.1
Sales and marketing expense
(22.6
)
(28.4
)
(25.4
)
(33.2
)
2.8
11.0
General and administrative expense
(18.4
)
(23.1
)
(24.3
)
(31.8
)
5.9
24.3
Depreciation and amortization expense
(14.6
)
(18.3
)
(16.1
)
(21.1
)
1.5
9.3
Goodwill impairment
(27.2
)
(34.2
)
—
—
(27.2
)
(100.0
)
Lease termination costs
—
—
(11.7
)
(15.3
)
11.7
100.0
Loss before interest, other income and income taxes
(32.9
)
(41.3
)
(32.6
)
(42.7
)
(0.3
)
(0.9
)
Net interest income (expense)
(0.5
)
(0.6
)
0.5
0.7
(1.0
)
200.0
Other income (expense)
1.0
1.3
0.8
1.0
0.2
25.0
Income tax benefit
—
—
—
—
—
—
Net loss
$
(32.4
)
(40.7
)
$
(31.3
)
(41.0
)
(1.1
)
(3.5
)
Net
Sales
Total net sales increased $3.2 million, or 4.2%, to
$79.6 million in the nine month period ended
September 30, 2009 compared to the nine month period ended
September 30, 2008. The increase in net sales is
attributable to an increase in revenue recognized from prior
period deferred revenue, as well as the increase in order volume
primarily resulting from the positive impact of the ARRA and its
effect on the availability of funds available to school
districts that Voyager began to experience in the third quarter
of 2009 and strong performance by Voyager’s Vmath and
ExploreLearning products.
Voyager defers revenue associated with certain services and
technology components and recognizes the revenue over the period
they are delivered. In fiscal 2008 Voyager had an increase in
revenue deferral rates due to more of these service and
technology components in Voyager’s products. These deferral
rates have stabilized in 2009. During the nine month period
ended September 30, 2009, deferred revenue balances
increased $6.0 million, totaling $29.5 million at
December 31, 2008 and $35.5 million at
September 30, 2009. Comparatively, during the nine month
period ended September 30, 2008, deferred revenue balances
increased $7.6 million, totaling $21.1 million at
December 31, 2007 and $28.7 million at
September 30, 2008.
Gross
Profit
Cost of sales includes expenses to print, purchase, handle and
warehouse product and to provide services and support to
customers. Voyager’s gross profit as a percentage of
revenue for the nine month period ended
September 30, 2009 increased 3.4 percentage points to
67.0% compared to 63.6% for the nine month period ended
September 30, 2008. The improvement in margin is due to the
increase in the mix of revenue Voyager recognized from
technology, which is at a higher margin.
Research
and Development
Research and development expenditures include costs to research,
evaluate and develop educational products, net of
capitalization. Research and development expense for the nine
month period ended September 30, 2009 decreased
$0.3 million to $3.4 million compared to the nine
month period ended September 30, 2008, due to the timing of
expenditures and the ratio of capitalizable versus
non-capitalizable activities performed during the respective
periods.
Sales
and Marketing
Sales and marketing expenditures include all costs related to
selling efforts and marketing. Sales and marketing expense for
the nine month period ended September 30, 2009 decreased
$2.8 million to $22.6 million compared to the nine month
period ended September 30, 2008, due to prior year costs
associated with Voyager’s participation in several
2008 state adoptions, and Voyager’s overall initiative
to lower costs as a response to the market slow down, partially
offset by higher commission costs commensurate with the
increased sales volume.
General
and Administrative
Overall, general and administrative expenses for the nine month
period ended September 30, 2009 decreased
$5.9 million, or 24.3%, to $18.4 million compared to
the nine month period ended September 30, 2008. General and
administrative activities for the nine month period ended
September 30, 2009 include $6.1 million of costs
directly related to the merger transaction. Excluding these
merger costs, general and administrative expenses for the nine
month period ended September 30, 2009 were
$12.3 million, a decrease of $12.0 million, or 49.4%,
over the nine month period ended September 30, 2008. This
decrease is primarily attributable to a significant decline in
corporate expenses and one-time costs related to activities
based in Ann Arbor, Michigan that were required to finalize
the restatement effort, to bring Voyager’s SEC filings
current, and to transition the corporate office to Dallas,
Texas. These activities were brought to conclusion by the end of
fiscal 2008.
Depreciation
and Amortization Expense
Depreciation and amortization expense decreased
$1.5 million, or 9.3%, to $14.6 million in the nine
month period ended September 30, 2009 compared to the nine
month period ended September 30, 2008. The decrease is
primarily due to the use of an accelerated depreciation method
on acquired curriculum, which resulted in higher amortization
expense in the previous period when compared to the current
period.
Goodwill
Impairment
Voyager reviews the carrying value of goodwill for impairment at
least annually, and whenever certain triggering events occur.
The signing of the merger agreement in late June is such a
triggering event and so Voyager performed goodwill impairment
analyses in both the second and third quarters of 2009, giving
due consideration to the continuing impact of adverse
marketplace and economic conditions. As a result of these
analyses, Voyager recorded goodwill impairment charges of
$22.0 million in the second quarter and $5.2 million
in the third quarter of 2009.
Lease
Termination Costs
On January 1, 2008, Voyager entered into an agreement with
one of its lessors, Relational, LLC f/k/a Relational Funding
Corporation (“Relational”) and ProQuest LLC (formerly
known as ProQuest-CSA LLC and CSA relating to certain
obligations regarding the capital and operating leases for
certain property and equipment used at its facilities at 777
Eisenhower Parkway (the “777 Facility”) and 789
Eisenhower Parkway
(the “789 Facility”) in Ann Arbor, Michigan. The
aforementioned leases originated as early as fiscal 2005 with up
to five year terms. Effective January 1, 2008, Voyager
conveyed, assigned, transferred and delivered to CSA all of the
right, title and interest and benefit of certain property and
equipment. Voyager was released from any and all obligations
relating to these leases and Relational, as lessor, consented to
such assignments and releases. Due to these assignments, the
write off of certain assets and liabilities under capital
leases, such as office furniture, phone and power supply
systems, and video equipment, totaled a net charge of
$0.1 million in the first quarter of 2008.
On January 25, 2008, Voyager entered into a series of
agreements with its current landlord, Transwestern Great Lakes,
LP (“Transwestern”) and CSA relating to certain
obligations regarding the long term leases for the facilities in
Ann Arbor, Michigan. On March 4, 2008, Voyager paid CSA
$11.0 million, a portion of which was distributed to
Transwestern for termination of the lease relating to office
space at the 777 Facility. Upon the Closing Date of
March 7, 2008, Voyager was released from any and all
obligations relating to the 15 year lease previously
entered into for the 777 Facility. Through assignment, Voyager
was also released from any and all obligations relating to the
15 year lease previously entered into for office space at
the 789 Facility. Voyager assigned all of its rights under the
lease for the 789 Facility to CSA and CSA assumed the
obligations of tenant under such lease, as amended.
Transwestern, as landlord, consented to such assignment. In
connection with the termination and assignment of these long
term facility leases, certain leasehold improvements and
deferred rent were written off, which totaled a net charge of
$0.6 million in the first quarter of 2008. Voyager recorded
a total charge to expense in the first quarter of 2008 of
$11.7 million for all lease termination costs.
Net
Interest Income (Expense)
Nine Months Ended
Year Over Year Change
September 30,
September 30,
Favorable / (Unfavorable)
2009
2008
$
%
(Dollars in millions)
Interest income
$
0.1
$
0.7
(0.6
)
(85.7
)
Interest expense
(0.6
)
(0.2
)
(0.4
)
(200.0
)
Total
$
(0.5
)
$
0.5
$
(1.0
)
(200.0
)
Net interest income (expense) for the nine month period ended
September 30, 2009 decreased $1.0 million to
($0.5) million compared to the nine month period ended
September 30, 2008. Interest income declined from
$0.7 million in the nine month period ended
September 30, 2008 to $0.1 million for the nine month
period ended September 30, 2009 since Voyager traditionally
invests very conservatively in cash deposits and
U.S. Treasuries, and the safety and liquidity of these
investments in the current economic crisis has led to an
interest rate yield near 0%. Interest expense for the nine month
period ended September 30, 2009 was primarily related to
tax-related liabilities resulting from the sales agreement with
Snap-On Incorporated and CSA.
Other
Income (Expense)
From the date of the sale of ProQuest Information and Learning
(“PQIL”) in February 2007, Voyager subleased
substantial space to the buyer of PQIL through March 2008,
resulting in sublease income totaling $0.8 million, which
was recognized in other income, during the first quarter of
fiscal 2008. Because this sublease expired in the first quarter
of fiscal 2008, Voyager did not recognize any sublease income
during the nine month period ended September 30, 2009.
During the fourth quarter of 2008, Voyager provided an
opportunity for participants in its Replacement Benefit Plan
(“RBP”) and Supplemental Retirement Plan to receive a
discounted lump sum distribution to settle retirement
obligations. Prior to the distribution opportunity, both plans
were frozen, with no participants entitled to make additional
contributions or earn additional service years. Based on the
number of participants
who chose to receive a discounted lump sum distribution,
Voyager paid participants approximately $7.9 million in
January 2009 for these lump sum payments. As a result of the
settlements, Voyager recorded a gain in January 2009 of
$1.3 million, consisting of $1.1 million related to
the RBP settlement and $0.2 million related to the
settlement of the Supplemental Retirement Plan.
Other expense of $0.2 million was recorded in the nine
months ended September 30, 2009 related to changes in
estimates of certain tax-related receivables and liabilities
denominated in foreign currencies resulting from the sale
agreement with Snap-On Incorporated and CSA.
Income
Tax Benefit
For the nine months ended September 30, 2009, Voyager
attributed no income tax benefit to continuing operations.
Pre-tax losses at statutory tax rates provided a tax benefit of
approximately $11.4 million. The impairment charges to
non-deductible goodwill did not result in a tax benefit. Certain
transaction costs attributable to the pending merger with
Cambium also did not result in a tax benefit. Finally, Voyager
continues to maintain a valuation allowance on its deferred tax
assets. The requirement of maintaining a valuation allowance
against Voyager’s deferred tax assets eliminated almost all
of the deferred tax benefit generated from the Federal net
operating loss incurred in the nine month period ended
September 30, 2009.
Voyager recorded no income tax benefit or expense for the net
loss in the nine month period ended September 30, 2008
because it could not assume future taxable income.
Certain reclassifications to Voyager’s Consolidated
Financial Statements for all prior periods presented have been
made to conform to the 2008 presentation. In prior years,
Voyager included amortization of its acquired and developed
curriculum and certain other operational assets in Cost of
Sales. In the current year presentation, all depreciation and
amortization for the periods presented have been segregated and
shown as a separate line item on the Consolidated Statements of
Operations. Also, in prior years, Voyager included a line item
in its Consolidated Financial Statements entitled selling and
administrative expense. In the current year presentation,
amounts previously included in this line item have been
reclassified into the line items sales and marketing expense,
general and administrative expense, or depreciation and
amortization expense. A summary of the impact of these
conforming reclassifications on previously filed results is as
follows (in thousands):
2007 as
2007 in
2006 as
2006 in
Originally
Current Year
Originally
Current Year
Filed
Reclassifications
Presentation
Filed
Reclassifications
Presentation
Cost of sales
$
(55,720
)
$
19,528
$
(36,192
)
$
(57,279
)
$
19,862
$
(37,417
)
Gross profit
53,892
19,528
73,420
57,772
19,862
77,634
Selling and administrative expense
(86,529
)
86,529
—
(96,698
)
96,698
—
Sales and marketing expense
—
(29,587
)
(29,587
)
—
(27,614
)
(27,614
)
General and administrative expense
—
(53,280
)
(53,280
)
—
(65,081
)
(65,081
)
Depreciation and amortization expense
—
(23,190
)
(23,190
)
—
(23,865
)
(23,865
)
VEL and ExploreLearning were both acquired in 2005 and Learning
A-Z was
acquired in 2004. These operations together are Voyager
Education and comprise Voyager’s single reporting segment.
The continuing operations presented below include the
operational activities for VED and the activities based in Ann
Arbor, Michigan required to finalize the restatement efforts,
transition the corporate office to Dallas, Texas, and complete
the sale of PQIL.
Voyager determined to sell PQBS and PQIL in the second quarter
of 2006. PQBS was sold on November 28, 2006 and PQIL was
sold on February 9, 2007 and therefore their results are
classified as discontinued operations and excluded from the
following discussion.
Cost of sales (exclusive of depreciation and amortization shown
separately below)
(35,939
)
(36.5
)
(36,192
)
(33.0
)
(37,417
)
(32.5
)
Gross profit
62,592
63.5
73,420
67.0
77,634
67.5
Research and development expense
(5,302
)
(5.4
)
(4,532
)
(4.1
)
(5,198
)
(4.5
)
Sales and marketing expense
(33,734
)
(34.2
)
(29,587
)
(27.0
)
(27,614
)
(24.0
)
General and administrative expense
(30,660
)
(31.1
)
(53,280
)
(48.6
)
(65,081
)
(56.6
)
Depreciation and amortization expense
(21,358
)
(21.7
)
(23,190
)
(21.2
)
(23,865
)
(20.8
)
Goodwill impairment
(43,141
)
(43.8
)
(67,232
)
(61.3
)
(42,496
)
(36.9
)
Lease termination costs
(11,673
)
(11.8
)
—
—
—
—
Loss from continuing operations before interest, other income
(expense) and income taxes
(83,276
)
(84.5
)
(104,401
)
(95.2
)
(86,620
)
(75.3
)
Net interest income (expense)
975
1.0
335
0.3
(27,464
)
(23.9
)
Other income (expense), net
(363
)
(0.4
)
4,408
4.0
—
—
Income tax benefit
1,160
1.2
12,396
11.3
64,063
55.7
Loss from continuing operations
$
(81,504
)
(82.7
)
$
(87,262
)
(79.6
)
$
(50,021
)
(43.5
)
Overview
During 2008, Voyager experienced a decline in net sales, or
revenues, due to lower order volume and higher revenue deferral
rates. The decline in order volume is primarily attributed to
market conditions, most notably, the amount of funding available
to schools to purchase Voyager’s products and services
declined significantly. Funding to schools from the federal
level declined as the Reading First program was reduced. Local
funding declined as a result of lower property tax receipts.
Additionally, higher operating costs in the schools from midyear
fuel cost increases further depleted available funds. The
revenue decline is greater than the volume decline primarily due
to the change of product mix towards more service based or
technology based products, which requires a greater degree of
deferred revenue recognition over the period of product use.
While revenues declined in 2008, Voyager’s spending for
sales and marketing increased as Voyager sought to maintain
sales volumes in an increasingly challenging market and due to
costs associated with Voyager’s participation in several
2008 state adoptions. In late 2008, to respond to the
market conditions and the related decline in revenue, Voyager
reduced its cost structure through a reduction in force in
November 2008 and enacted plans to reduce selected non-headcount
areas. The reduction in force affected 26 full-time
employees and roughly 15 equivalent contractor positions.
The reduction was almost exclusively in the Voyager Expanded
Learning product line as well as in general overhead, as opposed
to Voyager’s Learning
A-Z or
ExploreLearning product lines. The 26 positions represented
7% of Voyager’s total full time work force.
Other significant developments include the following:
•
The increasing usage of web-based capabilities within
Voyager’s curriculum, including Ticket to Read and
VmathLive, has had a positive impact on student achievement and
stand-alone sales of these products has increased. Voyager
believes that such capabilities are an emerging trend within
education and that Voyager is well positioned to capture market
share in this space.
Voyager’s web-based products have seen a significant
increase in usage outside of normal school hours, including
weekends, which increases the advocacy of our products among
influential groups, such as students, teachers and parents.
•
Participation in the 2008 Florida adoption has proved successful
in generating sales, customer acceptance, and student
achievement.
•
Voyager filed all of its fiscal quarterly reports for 2008 in
January 2009. Upon filing these reports with the SEC, Voyager
became current with its filings with the SEC after three years
of delinquent reporting following the discovery of material
irregularities in Voyager’s accounting in January 2006.
Net
Sales
2008
2007
(Dollars in millions)
Reading programs
$
75.6
$
87.1
Math and science programs
12.6
11.0
Professional development
5.6
7.4
Other (primarily freight)
4.7
4.1
Total
$
98.5
$
109.6
Total net sales from continuing operations decreased
$11.1 million, or 10.1%, to $98.5 million in 2008. The
decrease was primarily driven by lower order volume and higher
revenue deferral rates in fiscal 2008 compared to fiscal 2007.
Voyager experienced weakness in markets and products that have
heavy reliance on federal, state and local funding sources.
Voyager’s reading intervention for middle school students
and online offerings continue to grow, but that growth was not
enough to offset declines in products with heavy reliance on
federal funding. In 2008, Voyager deferred a larger percentage
of sales compared to 2007 as Voyager continues the trend of
including more service and technology in its products. On-line
access and service elements are delivered over time rather than
immediately shipped to customers like printed materials. Voyager
defers the revenue associated with those services and on-line
access and recognizes the revenue over the period they are
delivered.
Gross
Profit
Cost of sales includes expenses to print, purchase, handle and
warehouse product and to provide services and support to
customers. Gross profit decreased $10.8 million in fiscal
2008 to $62.6 million compared to $73.4 million in
fiscal 2007. Voyager’s gross profit percentage for 2008
decreased 3.5 percentage points to 63.5% compared to 67.0%
for 2007. The decrease is primarily due to the deferral of a
larger percentage of sales in 2008 versus 2007, which reduced
net sales but did not have an offsetting and corresponding
decrease in cost of sales. The higher deferral percentages are
primarily due to increased revenue attributed to the
company’s online materials, which are recognized over the
period access is provided. To a lesser degree, the gross profit
declined due to increases in printing costs as Voyager’s
product was upgraded in quality and the company chose to produce
more specialized, state specific versions to sell in state
adoptions.
Research
and Development
Research and development expenditures include costs to research,
evaluate and develop educational products, net of
capitalization. Research and development expense for fiscal 2008
increased $0.8 million to $5.3 million compared to
$4.5 million in fiscal 2007, primarily due to the ratio of
capitalizable versus non-capitalizable activities performed
during the year.
Sales
and Marketing
Sales and marketing expenditures include all costs related to
selling efforts and marketing costs. Sales and marketing expense
for fiscal 2008 increased $4.1 million to
$33.7 million compared to $29.6 million in
fiscal 2007, as Voyager sought to maintain sales volumes in an
increasingly challenging market and due to costs associated with
the company’s participation in several 2008 state
adoptions. The increase in expenditures was primarily in
Voyager’s growth products without a corresponding decrease
in spending associated with products which declined in sales.
General
and Administrative
2008
2007
(Dollars in millions)
VED
$
15.8
$
19.2
Corporate
14.9
34.1
Total
$
30.7
$
53.3
General and administrative expenses decreased
$22.6 million, or 42.4%, to $30.7 million compared to
fiscal 2007. General and administrative activities include
$14.9 million for 2008 and $34.1 million for the
comparable period of 2007 related to activities based in Ann
Arbor, Michigan required to finalize the restatement and SEC
filing efforts, transition the corporate office to Dallas,
Texas, and complete the sale of PQIL.
Both the corporate and Dallas-based general and administrative
expenses decreased in 2008 as the efforts to complete the
restatement, get current on SEC filings, and finalize the
transition efforts were brought closer to conclusion in 2008.
Goodwill
Impairment
In conducting its annual goodwill impairment testing for fiscal
2008, Voyager compared the book value of the company’s
single reporting unit to its estimated fair market value. These
estimates of fair market are dependent on multiple assumptions,
estimates and inputs, including industry fundamentals such as
the state of educational funding and the actual performance and
future projections of the company. As of year end 2008, the
estimated fair market value of the reporting unit was estimated
to have fallen below the book value as a result of worsening and
prolonged adverse developments in the overall education funding
environment, including the reductions in Reading First funding
effective 2008 and the reductions in available state and local
funds. As a result of these factors, an impairment charge of
$43.1 million was recorded in 2008.
In conducting its annual goodwill impairment testing for fiscal
2007, Voyager compared the book value of goodwill attributed to
VED with the estimated fair market value of VED. These estimates
of fair market are dependent on multiple assumptions and inputs,
including industry fundamentals such as the state of educational
funding and the actual performance and future projections of
Voyager. As of year end 2007, the estimated fair market value of
VED was estimated to be less than the book value as a result of
lower future cash flow projections, driven by adverse
developments in the education funding environment at the federal
and local level. An impairment charge of $67.2 million
related to VED was recorded in 2007 as a result of these factors.
Lease
Termination Costs
Please see Voyager’s description of lease termination costs
in the first quarter analysis set forth above.
Net interest income totaled $1.0 million for fiscal 2008
versus $0.3 million in fiscal 2007. On February 9,2007, Voyager sold PQIL and all of Voyager’s remaining
foreign subsidiaries to Cambridge Scientific Abstracts, LP.
Voyager used a portion of the proceeds from that sale to pay
down all remaining debt, excluding capital leases. The result
was to eliminate interest expense associated with long-term debt
other than capital leases effective February 2007. Additionally,
lower cash balances throughout the year and a change in the mix
of investments and related interest rates during 2008 relative
to 2007 decreased earnings on cash balances and investments.
Other
Income (Expense)
Voyager announced plans after the sale of PQBS and PQIL to
transition all of its corporate functions from the Ann Arbor
headquarters to Dallas during 2007 and 2008. The transition plan
was completed by year-end 2008. From the date of the sale of
PQIL in February 2007, Voyager subleased substantial space to
the buyer of PQIL through March 2008 resulting in sublease
income totaling $4.4 million in fiscal 2007 and
$0.8 million in fiscal 2008.
Voyager has tax-related receivables and liabilities denominated
in foreign currencies resulting from the sale agreements with
Snap-On and Cambridge Scientific Abstracts, LP. Foreign exchange
transaction losses of $1.0 million associated with these
tax liabilities have been included in other income (expense) in
fiscal 2008. Transaction gains and losses in fiscal 2007 were
not material to Voyager’s financial statements.
Income
Tax Benefit
In 2008, Voyager attributed an income tax benefit of
$1.2 million to continuing operations. Pre-tax losses at
statutory tax rates provided a tax benefit of approximately
$28.9 million. The impairment charge to non-deductible
goodwill did not result in a tax benefit which is
$15.1 million less than the amount expected based on the
federal statutory tax rate. Furthermore, Voyager continues to
maintain a valuation allowance on its deferred tax assets. The
requirement of maintaining a valuation allowance against its
deferred tax assets eliminated almost all of the deferred tax
benefit generated from the $37.3 million Federal net
operating loss incurred in 2008.
In 2007, Voyager attributed an income tax benefit of
$12.4 million to continuing operations. Pre-tax losses at
statutory tax rates provided a tax benefit of approximately
$34.9 million. The impairment charge to non-deductible
goodwill did not result in a tax benefit which is
$23.5 million less than the amount expected based on the
federal statutory tax rate.
Total net sales from continuing operations decreased
$5.5 million, or 4.8%, to $109.6 million in 2007. In
2007 Voyager deferred a larger percentage of sales than in 2006
as Voyager continued the trend of including more service and
technology in its products. On-line access and service elements
are delivered over time rather than immediately shipped to
customers like printed materials. Voyager defers the revenue
associated with those services and on-line access and recognizes
the revenue over the period they are delivered.
Gross
Profit
Gross profit decreased $4.2 million in fiscal 2007 to
$73.4 million compared to $77.6 million in fiscal
2006. Voyager’s gross profit percentage for 2007 decreased
0.4 percentage points to 67.0% compared to 67.4% for 2006.
The decrease is primarily due to the deferral of a larger
percentage of sales in 2007 versus 2006, which reduced net sales
but did not have an offsetting and corresponding decrease in
cost of sales. The higher deferral percentages are primarily due
to increased revenue attributed to Voyager’s online
materials, which are recognized over the period access is
provided.
Research
and Development
Research and development expense for fiscal 2007 decreased by
$0.7 million to $4.5 million compared to
$5.2 million for fiscal 2006, but remained flat as a
percentage of revenues, representing 4.1% of revenues in fiscal
2007 versus 4.5% in fiscal 2006.
Sales
and Marketing
Sales and marketing expense for fiscal 2007 increased
$2.0 million to $29.6 million in 2007 compared to
$27.6 million in fiscal 2006 due to increased investment in
the sales force.
General
and Administrative
2007
2006
(Dollars in millions)
VED
$
19.2
$
18.9
Corporate
34.1
46.2
Total
$
53.3
$
65.1
General and administrative expenses decreased
$11.8 million, or 18.1%, to $53.3 million compared to
fiscal 2006. General and administrative activities include
$34.1 million in fiscal 2007 and $46.2 million in
fiscal 2006 related to activities based in Ann Arbor, Michigan
required to finalize the restatement and SEC filing efforts,
transition the corporate office to Dallas, Texas, and complete
the sale of PQIL. General and administrative expenses decreased
in 2008 as the efforts to complete the restatement and get
current on SEC filings were reduced in 2007. The efforts to
transition the corporate office were completed in 2008.
Net interest income (expense) totaled $0.3 million in
fiscal 2007 versus $(27.5) million in fiscal 2006. On
November 28, 2006, Voyager sold PQBS to Snap-on and used
the proceeds to reduce outstanding debt. In December 2006,
Voyager announced the sale of PQIL, including all remaining
foreign subsidiaries, to Cambridge Scientific Abstracts, LP.
That sale closed on February 9, 2007, and Voyager used a
portion of the proceeds from that sale to pay off all remaining
debt, excluding capital leases. The result of this activity was
to eliminate interest expense associated with long-term debt
other than capital leases effective February 2007. Additionally,
higher cash balances during 2007, primarily as a result of the
proceeds, increased earnings on cash balances and investments.
Income
Tax Benefit
In 2006, Voyager attributed an income tax benefit of
$64.1 million to continuing operations. Pre-tax losses at
statutory tax rates provided a tax benefit of approximately
$39.9 million. The VEL impairment charge to non-deductible
goodwill did not result in a tax benefit which is
$14.9 million less than the amount expected based on the
federal statutory tax rate. During 2006 PQIL transferred its
investment in VEL to VLC. Voyager recognized a tax benefit, net
of valuation allowance, of approximately $37.5 million
because Voyager expected to realize a tax loss and recover a
portion of its investments in VEL when PQIL left the
U.S. consolidated group in fiscal 2007.
Discontinued
Operations
In December 2006, Voyager announced the sale of its PQIL
businesses. The sale was completed in February 2007 for
$195.2 million after final adjustments for working capital
and assumed liabilities. Accordingly, the operating results of
the PQIL businesses have been segregated from Voyager’s
continuing operations and reported as earnings from discontinued
operations in Voyager’s Consolidated Statements of
Operations for fiscal years ended December 30, 2006 and
December 29, 2007. Voyager recognized a gain on the sale of
discontinued operations of $46.6 million (net of tax) due
to the sale of PQIL in fiscal 2007.
On November 28, 2006, Voyager sold its PQBS businesses to
Snap-on for $514 million and the assumption of
approximately $19 million of debt by Snap-on. Accordingly,
the operating results of the PQBS businesses have been
segregated from Voyager’s continuing operations and
reported as earnings from discontinued operations. Voyager
recognized a gain on the sale of discontinued operations of
$347.7 million (net of tax) due to the sale of PQBS in
fiscal 2006.
Goodwill
Impairment
For fiscal 2006, Voyager performed its annual impairment testing
of goodwill and impairment testing of long-lived assets as of
December 30, 2006. As a result of this testing, Voyager
recorded impairment to goodwill of VED totaling
$42.5 million. In conducting Voyager’s annual goodwill
impairment testing, Voyager compared the book value of goodwill
attributed to VED with the estimated fair market value of VED
using revenue and EBITDA multiples of publicly traded comparable
companies. These estimates of fair market are dependent on
multiple assumptions, estimates and inputs including: market
prices of securities in general, prevailing interest rates,
industry fundamentals including the state of educational
funding, and the actual performance and future projections of
Voyager. As of year end 2006, the estimated fair market value of
VED was estimated to have fallen below the book value as a
result of multiple factors including: a more competitive
environment, the need to invest in redesigning older products
and to introduce new products, the need to
improve customer retention, sales declines in certain key
products, the loss of several significant customers, and lower
actual performance and future projections than were made at the
time of acquisition of Voyager.
Quarterly
Financial Results (Unaudited)
First
Second
Third
Fourth
Total
Quarter
Quarter
Quarter
Quarter
Year
(Dollars in thousands, except per share data)
2009
Net sales
$
18,716
$
28,293
$
32,575
$
79,584
Gross profit
12,625
18,780
21,881
53,286
Loss from continuing operations before income taxes
(5,740
)
(22,429
)
(4,342
)
(32,511
)
Income tax expense (benefit)
321
126
366
81
Loss from continuing operations
$
(5,419
)
$
(22,303
)
$
(4,708
)
$
(32,430
)
Basic loss per share from continuing operations
(0.18
)
(0.75
)
(0.16
)
(1.09
)
Diluted loss per share from continuing operations
(0.18
)
(0.75
)
(0.16
)
(1.09
)
2008
Net sales
$
15,637
$
33,514
$
27,267
$
22,113
$
98,531
Gross profit
9,104
22,166
17,311
14,011
62,592
Loss from continuing operations before income taxes
(24,632
)
(1,601
)
(5,110
)
(51,321
)
(82,664
)
Income tax expense (benefit)
—
—
—
1,160
1,160
Loss from continuing operations
$
(24,632
)
$
(1,601
)
$
(5,110
)
$
(50,161
)
$
(81,504
)
Basic loss per share from continuing operations
(0.82
)
(0.05
)
(0.17
)
(1.68
)
(2.73
)
Diluted loss per share from continuing operations
(0.82
)
(0.05
)
(0.17
)
(1.68
)
(2.73
)
2007
Net sales
$
20,059
$
36,330
$
31,837
$
21,386
$
109,612
Gross profit
8,478
21,032
17,002
7,380
53,892
Loss from continuing operations before income taxes
(15,885
)
(1,985
)
(3,207
)
(78,581
)
(99,658
)
Income tax expense (benefit)
(6,074
)
(756
)
(1,226
)
(4,340
)
(12,396
)
Loss from continuing operations
(9,811
)
(1,229
)
(1,981
)
(74,241
)
(87,262
)
Earnings from discontinued operations, net of income tax
4,594
—
—
866
5,460
Gain on sale of discontinued operations, net of income tax
46,572
—
—
—
46,572
Net earnings (loss)
$
41,355
$
(1,229
)
$
(1,981
)
$
(73,375
)
$
(35,230
)
Loss per share from continuing operations
(0.33
)
(0.04
)
(0.07
)
(2.49
)
(2.92
)
Earnings per share from discontinued operations
0.15
—
—
0.03
0.18
Gain per share from sale of discontinued operations
1.56
—
—
—
1.56
Basic earnings (loss) per share
1.38
(0.04
)
(0.07
)
(2.46
)
(1.18
)
Loss per share from continuing operations
(0.33
)
(0.04
)
(0.07
)
(2.49
)
(2.92
)
Earnings per share from discontinued operations
0.15
—
—
0.03
0.18
Gain per share from sale of discontinued operations
1.56
—
—
—
1.56
Diluted earnings (loss) per share
1.38
(0.04
)
(0.07
)
(2.46
)
(1.18
)
The loss from continuing operations includes a goodwill
impairment charge of $22.0 million for the second quarter
of 2009, $5.2 million for the third quarter of 2009,
$43.1 million for the fourth quarter of 2008, and
$67.2 million for the fourth quarter of 2007. Additionally,
the loss from continuing operations for the fourth quarter of
2008 includes lease termination costs of $11.7 million.
Liquidity
and Capital Resources
As of September 30, 2009, Voyager did not have any debt
with the exception of certain capital leases. Cash and cash
equivalents increased to $85.3 million at
September 30, 2009, compared to $67.3 million at
December 31, 2008.
During the nine month period ended September 30, 2009, cash
provided by operating activities was $13.1 million. Voyager
received income tax refunds of $15.1 million, primarily
from U.S. Federal income tax refunds for tax years 2003 and
2004, plus another $1.7 million of tax-related receivables
from CSA. Use of cash beyond normal season operating use
included $7.9 million related to the partial settlement of
Voyager’s legacy employee benefit plans, $4.0 million
escrowed in connection with the settlement of the consolidated
shareholder securities class actions lawsuit, and
$6.1 million used for costs directly related to the merger
transaction.
Cash is seasonal with positive net cash typically generated in
the second half of the year. The first half of the year
generally results in net cash usage. Positive cash flow is
historically generated during the second half of the year
because the buying cycle of school districts generally starts at
the beginning of each new school year in the fall.
Other significant uses of cash during the nine month period
ended September 30, 2009 included:
•
$6.1 million of expenditures related to property,
equipment, curriculum development costs, and software; and
•
$0.1 million for principal payments on capital leases.
Net proceeds generated from the sale or maturities of marketable
securities were $11.1 million.
Voyager’s management believes that current cash, cash
equivalents and short term investment balances, expected income
tax refunds, and cash generated from operations will be adequate
to fund the working capital and capital expenditures necessary
to support Voyager’s currently expected sales in the next
twelve months.
Commitments
and Contractual Obligations
Voyager has various contractual obligations which are recorded
as liabilities in Voyager’s Consolidated Financial
Statements. Other items, such as certain purchase commitments
and other executory contracts, are not recognized as liabilities
in Voyager’s Consolidated Financial Statements but are
required to be disclosed.
The following table summarizes Voyager’s significant
operational and contractual obligations and commercial
commitments at December 31, 2008, showing the future
periods in which such obligations are expected to be settled in
cash:
As of December 31, 2008, Voyager also has
$16.9 million in obligations with respect to the
company’s pension and post-retirement medical benefit
plans. For further information see Note 13 to
Voyager’s Year-End Consolidated Financial Statements
included herein.
Voyager has letters of credit in the amount of $1.1 million
outstanding as of December 31, 2008 to support
workers’ compensation insurance coverage as well as
collateral for Voyager’s credit card and Automated
Clearinghouse (ACH) programs.
As of December 31, 2008, Voyager had approximately
$0.6 million of long-term income tax liabilities that have
a high degree of uncertainty regarding the timing of the future
cash outflows. Voyager is unable to reasonably estimate the
years when settlement will occur with the respective tax
authorities.
Off-Balance
Sheet Arrangements
Voyager had no off-balance sheet arrangements at
September 30, 2009 that have or are reasonably likely to
have a current or future effect on its financial condition,
changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources
that are material to its business.
In September 2006, the FASB issued new accounting guidance on
fair value measurements. This guidance defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. In February 2008, the
FASB delayed the effective date of this guidance for
non-recurring measurements of non-financial assets and
liabilities to fiscal years beginning after November 15,2008 and interim periods within those fiscal years. Voyager
adopted this guidance for all recurring financial assets and
liabilities beginning fiscal 2008 and for other nonfinancial
assets and liabilities beginning fiscal 2009. The adoption of
this accounting guidance did not have a material effect on
Voyager’s financial condition, results of operations or
cash flows.
In December 2007, the FASB issued new accounting guidance on
business combinations. This guidance establishes principles and
requirements for how an acquirer accounts for business
combinations. This issuance includes guidance for the
recognition and measurement of the identifiable assets acquired,
the liabilities assumed, and any noncontrolling or minority
interest in the acquiree. It also provides guidance for the
measurement of goodwill, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss
contingencies and acquisition-related transaction costs, and the
recognition of changes in the acquirer’s income tax
valuation allowance. This accounting guidance applies
prospectively and is effective for business combinations made by
Voyager beginning January 1, 2009. The provisions are
effective as of Voyager’s first quarter ended
March 31, 2009; however, adoption did not have a material
effect on Voyager’s financial condition, results of
operations or cash flows.
In December 2007, the FASB issued new accounting guidance on
noncontrolling interests in consolidated financial statements.
Currently, Voyager does not have an outstanding noncontrolling
interest in one or more subsidiaries, nor does it deconsolidate
any subsidiaries. This guidance will be effective for fiscal
years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. The provisions are effective
as of Voyager’s first quarter ended March 31, 2009;
however, adoption did not have a material effect on
Voyager’s financial condition, results of operations or
cash flows.
In April 2008, the FASB issued new accounting guidance on the
determination of the useful life of intangible assets. The new
guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under previous
guidance for goodwill and other intangible assets. This issuance
is effective for fiscal years beginning after December 15,2008. The provisions are effective as of Voyager’s first
quarter ended March 31, 2009; however, adoption did not
have a material effect on Voyager’s financial condition,
results of operations or cash flows.
In April 2009, the FASB issued new accounting guidance on
recognition and presentation of other-than-temporary
impairments, which provides operational guidance for determining
other-than-temporary impairments (“OTTI”) for debt and
equity securities classified as available-for-sale and
held-to-maturity. This guidance was effective for interim and
annual periods ending after June 15, 2009. The provisions
are effective as of Voyager’s second quarter ended
June 30, 2009; however, adoption did not have a material
effect on Voyager’s financial condition, results of
operations or cash flows.
In April 2009, the FASB issued new guidance related to
determining fair value when the volume and level of activity for
the asset or liability have significantly decreased and
identifying transactions that are not orderly, which provides
additional guidance for estimating fair value in accordance with
the guidance for fair value measurements, when the volume and
level of activity for the asset or liability have significantly
decreased. This issuance also includes guidance on identifying
circumstances that indicate a transaction is not orderly. The
new accounting guidance is effective for interim and annual
periods ending after June 15, 2009, and shall be applied
prospectively. The provisions are effective as of Voyager’s
second quarter ended June 30, 2009; however, adoption did
not have a material effect on Voyager’s financial
condition, results of operations or cash flows.
In April 2009, the FASB issued new accounting guidance on
interim disclosures about fair value of financial instruments,
which amends previous guidance on disclosures about fair value
of financial instruments” to require disclosure about fair
value of financial instruments in interim financial statements.
This new
guidance is effective for interim and annual periods ending
after June 15, 2009. The provisions were effective as of
Voyager’s second quarter ended June 30, 2009; however,
adoption did not have a material effect on Voyager’s
financial condition, results of operations or cash flows.
In May 2009, the FASB issued new accounting guidance relating to
subsequent events. This guidance establishes general standards
for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued and shall be applied to subsequent
events not addressed in other applicable generally accepted
accounting principles. This issuance, among other things, sets
forth the period after the balance sheet date during which
management should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements and the disclosures an
entity should make about events or transactions that occurred
after the balance sheet date. This guidance is effective for
Voyager’s interim and annual financial periods ending after
June 15, 2009. The provisions were effective as of
Voyager’s second quarter ended June 30, 2009; however,
adoption did not have a material effect on Voyager’s
financial condition, results of operations or cash flows.
During the third quarter of 2009, Voyager adopted the new
Accounting Standards Codification (ASC) as issued by the FASB.
The ASC has become the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental
entities. The ASC is not intended to change or alter existing
GAAP. The adoption of the ASC did not have a material effect on
Voyager’s financial condition, results of operations or
cash flows.
Voyager does not have material interest rate risk. At
December 31, 2008 and as of the date of this proxy
statement/prospectus, Voyager did not have any interest rate
forwards or option contracts outstanding.
Foreign
Currency Risk
Voyager does not have material exposure to changes in foreign
currency rates. At December 31, 2008 and as of the date of
this proxy statement/prospectus, Voyager had no outstanding
foreign currency forwards or option contracts.
Below is a summary description of Voyager’s capital
stock. This description is not complete. You should read the
full text of Voyager’s amended and restated certificate of
incorporation and amended bylaws, and the applicable provisions
of Delaware law.
The authorized capital stock of Voyager consists of
50,000,000 shares of common stock, $0.001 par value,
of which 29,874,145 shares were outstanding as of
September 30, 2009.
Holders of Voyager common stock are entitled to one vote for
each share on all matters voted upon by stockholders and have no
preemptive or other rights to subscribe for additional
securities of Voyager. Holders of Voyager common stock do not
have the right to cumulatively vote their shares in the election
of directors. Each share of Voyager common stock has an equal
and ratable right to receive dividends when, as and if declared
by Voyager’s board of directors out of assets legally
available therefore. In the event of a liquidation, dissolution
or winding up of Voyager, the holders of Voyager common stock
will be entitled to share equally and ratably in the
distribution of all of Voyager’s assets remaining available
for distribution after satisfaction of all its liabilities and
the payment of the liquidation preference of any outstanding
preferred stock.
Voyager’s amended and restated certificate of incorporation
and amended bylaws contain provisions that could have the effect
of discouraging potential acquisition proposals or making a
tender offer or delaying or preventing a change in control of
Voyager. In particular, Voyager’s amended and restated
certificate of incorporation and amended bylaws, as applicable,
among other things:
•
Provide that special meetings of the stockholders may be called
only by or at the direction of Voyager’s board of directors.
•
Provide advance notice procedures with respect to stockholder
proposals and nominations of candidates for election as
directors other than nominations made by or at the direction of
Voyager’s board of directors. The business to be conducted
at any meeting of stockholders will be limited to business
properly brought before the meeting by or at the direction of
Voyager’s board of directors or by a stockholder of record
who has given timely written notice to Voyager’s secretary
of the stockholder’s intention to bring business before the
meeting.
•
Do not include a provision for cumulative voting in the election
of directors. Under cumulative voting, a minority stockholder
holding a sufficient number of shares may be able to ensure the
election of one or more directors. The absence of cumulative
voting may have the effect of limiting the ability of minority
stockholders to effect changes in the board and, as a result,
may have the effect of deterring a hostile takeover or delaying
or preventing changes in control or management of Voyager.
•
Provide that vacancies on Voyager’s board of directors may
be filled by a majority of directors in office, although less
than a quorum, or the sole remaining director, and not by the
stockholders.
These provisions are intended to enhance the likelihood of
continuity and stability in the composition of Voyager’s
board of directors and in the policies formulated by them, and
to discourage certain types of transactions that may involve an
actual or threatened change in control of Voyager. These
provisions are designed to reduce Voyager’s vulnerability
to an unsolicited acquisition proposal and to discourage certain
tactics that may be used in proxy fights. However, these
provisions could have the effect of discouraging others from
making tender offers for shares of Voyager common stock that
could result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in
Voyager’s management.
Delaware
Statutory Provisions
Section 203 of the DGCL contains certain provisions that
may make more difficult the acquisition of control of Voyager by
means of a tender offer, open market purchase, proxy fight or
otherwise. These provisions are designed to encourage persons
seeking to acquire control of Voyager to negotiate with
Voyager’s board of directors. However, these provisions
could have the effect of discouraging a prospective acquirer
from making a tender offer or otherwise attempting to obtain
control of Voyager. To the extent that these provisions
discourage takeover attempts, they could deprive stockholders of
opportunities to realize takeover premiums for their shares or
could depress the market price of the shares. See
“DESCRIPTION OF HOLDINGS CAPITAL STOCK —
Provisions Affecting Change in Control — Delaware
Statutory Provisions” for information regarding Section 203
of the DGCL.
Voyager has opted out of Section 203 of the DGCL pursuant
to its terms.
The compensation structure for Voyager’s named executive
officers reflects the unique circumstances it faced following
the sale of PQBS in November 2006 and PQIL in February 2007. In
light of these events, Voyager’s Compensation Committee has
focused on the need to:
•
retain key executives during this uncertain period to achieve
strategic objectives related to its remaining line of business;
•
complete the restatement of Voyager’s financial statements
in compliance with applicable accounting standards as
expeditiously as possible; and
•
settle various outstanding issues stemming from the restatement
including shareholder lawsuits and a formal SEC investigation.
The emphasis of Voyager’s Compensation Committee on
retention in order to maintain Voyager’s business and
restate its financial statements resulted in a greater emphasis
on short- and mid-term compensation, guaranteed minimum bonuses
and retention agreements for Messrs. Surratt, Klausner,
Buchardt, Asai and Campbell. The Committee developed certain of
these arrangements for the named executive officers after
extensive consultation with Frederic W. Cook &
Company, the Committee’s independent compensation
consultant. Certain retention agreements also reflect
negotiations with Voyager’s creditors in 2006 and 2007,
including regarding who should receive retention agreements and
how and when payments should be made under those agreements.
Bonus payments to Mr. Asai were provided in 2008 in
connection with Voyager’s finalizing its
Form 10-K
reports for 2006 and 2007. In addition, Mr. Klausner and
Mr. Buchardt were provided bonuses for 2008 in recognition
of special achievements that were not recognized by the annual
bonus formula. Mr. Campbell also was guaranteed a long-term
incentive cash award. Except for Mr. Klausner’s stock
appreciation rights awarded in 2007, no equity grants were made
in 2007 or 2008.
Key
Components of Compensation
The objective of Voyager’s compensation program has been to
reward executives in a manner consistent with Voyager’s
strategic objectives. Voyager’s compensation program for
executive officers has consisted primarily of the following
components:
•
base salary;
•
annual incentive compensation and bonuses;
•
benefits; and
•
severance.
Prior to 2008, equity awards were also a component of the
compensation program.
Base
Salary
Base salary is intended to provide a fixed component of
compensation reflecting the named executive officer’s
position and responsibilities. Voyager historically compared
base salary as well as other compensation elements against base
salary for comparable positions as a guideline for annual salary
adjustments. No named executive officer received a base salary
increase in 2008.
Annual
Incentive Compensation and Bonuses
Annual incentive compensation for Voyager’s named executive
officers has historically been based primarily on achieving
pre-established financial goals. Recently, Voyager’s
Compensation Committee has adjusted its approach based on
Voyager’s challenges in light of the financial restatements
and the contribution of each named executive officer. In
addition, certain amounts of annual incentive compensation were
guaranteed by Voyager.
For 2008, Voyager’s Compensation Committee established
opportunities to earn short-term incentive compensation based on
sales (60%) and earnings before interest, taxes, depreciation
and amortization (40%). In prior years, revenue rather than
sales was used as an incentive target, but Voyager shifted from
revenue to sales to make the incentive targets consistent with
targets for Voyager’s sales organizations and to have a
more current business indicator. However, the general incentive
compensation program was not material in determining the 2008
bonuses and non-equity incentive payments for the named
executive officers. For 2008, bonuses and non-equity incentive
payments to named executive officers were made as follows:
•
Mr. Surratt’s target bonus award for 2008 equal
to $573,750 was guaranteed through June 20, 2008 under his
amended retention agreement and the target bonus for the year
was paid.
•
Mr. Buchardt’s bonus of $148,328 reflects his
achievement of favorable results with respect to extraordinary
and unusual legal matters that arose following Voyager’s
need for restated financial statements.
•
Mr. Klausner’s bonus of $100,000 reflects his
efforts in introducing additional products for Voyager Education
and the continued growth in the Learning
A-Z and
ExploreLearning product lines.
•
Mr. Asai’s 2008 bonus of $230,000 was two
performance bonuses of $115,000 each for completing and filing
Voyager’s financial statements for each of fiscal year 2006
and fiscal year 2007.
•
Mr. Campbell’s 2008 bonus of $132,480 was
comprised of an incentive award of $75,000 guaranteed as part of
a retention letter, $42,480 as earned based on an average 96%
achievement of revenue (weighted 60%) and earnings before
interest, taxes, depreciation and amortization (weighted 40%)
targets for EL and LAZ, and $15,000 as a discretionary bonus for
reasonable performance in a difficult year.
Equity
Awards
Historically, Voyager’s Compensation Committee has granted
stock options to its executives as a long-term incentive award.
Given that Voyager’s common stock was not traded on a
national stock exchange during 2008, neither stock options nor
other equity were considered an appropriate form of incentive
compensation.
Benefits
Due to the change in Voyager’s size and complexity, the
Committee terminated the Executive Deferred Compensation Plan,
including the Supplemental Executive Retirement Plan
(“SERP”). In lieu of maintaining the plan, the
Committee provides a cash payment in lieu of the SERP benefit.
Severance
Voyager’s named executive officers had previously entered
into agreements which provided severance protection. These
severance arrangements continued during 2008. In addition, on
February 25, 2009, Voyager’s Compensation Committee
approved certain other changes to executive agreements, as
described under “THE MERGERS — Interests of
Voyager’s Directors and Officers in the Mergers.”
Stock
Restrictions
As part of Voyager’s retention agreements, certain
executives agreed not to sell or otherwise transfer shares of
Voyager common stock within 90 days after their termination
of employment without the express written consent of
Voyager’s general counsel. Options granted in 2004 require
Mr. Klausner to retain 50% of all after-tax gain relating
to such options in shares of Voyager common stock until his
termination of employment.
The retention agreements with certain executives provide that if
any action or inaction by such executives constitutes grounds
for termination for cause under the retention agreement, Voyager
may recover all awards and payments made under the retention
agreements.
The Voyager Compensation Committee considers the tax and
accounting consequences in structuring compensation as well as
retention agreements, including, the tax implications associated
with a change in control and certain terminations of deferred
compensation programs. However, the Voyager Compensation
Committee believes that it is important to preserve flexibility
and maximize the effectiveness of Voyager’s executive
compensation programs in a manner designed to retain and reward
high-performing executives or promote strategic corporate goals
and therefore tax and accounting consequences are not the sole
determinant in structuring compensation.
The following tables contain information concerning the
compensation paid to only the named executive officers of
Voyager who are continuing with Holdings as either an officer or
a director, which we refer to as the continuing officers and
directors, for services rendered to Voyager during the years
ended December 31, 2008, 2007 and 2006. The term
“named executive officer” refers to an executive
officer whose compensation is required to be disclosed in an SEC
registrant’s proxy statement. All of the information
included in these tables reflects compensation earned by the
individuals for services performed for Voyager. All references
in the following tables to stock options, restricted stock,
restricted stock units, and other stock awards relate to awards
granted by Voyager in regard to Voyager common stock.
The amounts and forms of compensation reported below do not
necessarily reflect the compensation the continuing officers and
directors will receive following the merger, which could be
higher or lower, because historical compensation was determined
by Voyager and future compensation levels will be determined by
the compensation committee of Holdings’ board of directors
and do not give effect to certain agreements entered into with
Voyager after December 31, 2008.
Summary
Compensation Table
The following table sets forth the total compensation paid or
earned during the fiscal years ended December 31, 2008,
December 29, 2007 and December 30, 2006 by each of the
continuing officers and directors for services rendered to
Voyager.
In the case of Mr. Surratt, the amount earned in 2008
represents a payment of $573,750 with respect to his 2008 annual
bonus and $1,000,000 cash paid in July 2008 in lieu of any
equity grants in 2008, in accordance with the retention
agreement dated February 1, 2007 which guaranteed such
annualized bonus through June 30, 2008 and the cash payment
in lieu of equity grants. Voyager’s Compensation Committee
exercised its discretion to pay Mr. Klausner’s bonus
in recognition of his efforts in introducing additional products
in the Voyager Education segment and the continued growth of the
Learning A-Z
and
ExploreLearnings product lines, even though the specific targets
set for the Voyager Education segment were not met. The
Compensation Committee also exercised its discretion to provide
Mr. Buchardt a bonus in recognition of favorable results
with respect to legal matters that arose following
Voyager’s need for restatement of its financial statements.
(2)
The amounts reported in this column for each executive reflect
the compensation costs for financial reporting purposes for the
year under Statement of Financial Accounting Standards
No. 123R “Share-Based Payment”(SFAS
No. 123R) for outstanding stock awards (other than stock
options) granted in prior years. These are not amounts paid to
or realized by the executive. Assumptions used in the
calculation of these compensation costs are included in
Notes 1 and 15 to Voyager’s Year-End Consolidated
Financial Statements included elsewhere in this proxy
statement/prospectus. However, pursuant to SEC rules, the
amounts shown above do not reflect any assumption that a portion
of this award will be forfeited.
(3)
The amounts reported in this column for each executive reflect
the compensation costs for financial reporting purposes for the
year under SFAS No. 123R for stock options granted in
prior years. The 2008 amount for Mr. Klausner includes a
stock option expense of $854,076 and a stock appreciation rights
expense of negative $100,712. These are not amounts paid to or
realized by the executive, and no amounts were paid in 2008.
Assumptions used in the calculation of these compensation costs
are included in Notes 1 and 15 to Voyager’s Year-End
Consolidated Financial Statements included elsewhere in this
proxy statement/prospectus. However, pursuant to SEC rules, the
amounts above do not reflect any assumption that a portion of
the awards will be forfeited and do not reflect a forfeiture of
an amount expensed in a prior year. More information regarding
outstanding stock options is set forth in the 2008 Outstanding
Equity Awards at Fiscal Year-End Table.
(4)
See Voyager’s All Other Compensation Table (and footnotes
thereto) for details.
(5)
The executives did not participate in any Voyager defined
benefit pension plan and there were no above market or
preferential earnings with respect to Voyager’s
nonqualified deferred compensation plans. Information regarding
Voyager’s deferred compensation plans is set forth under
Voyager’s 2008 Nonqualified Deferred Compensation Table.
2008 All
Other Compensation Table
Cash
Other
Awards in
Perq and
Company
lieu of
Relocation
Tax
Personal
Life Ins.
Contributions
SERP
Expenses
Reimbursement
Benefits
Name
Premiums
to 401(k)
(1)
(2)
(3)
(4)
Total
Richard J. Surratt
$
2,106
$
6,900
$
124,477
$
76,417
$
56,969
$
266,869
Ronald Klausner
$
1,741
$
6,900
$
80,531
$
89,172
Todd W. Buchardt
$
962
$
6,900
$
101,589
$
109,451
John Campbell
$
478
$
6,900
$
1,361
$
3,500
$
12,239
(1)
Represents cash that would otherwise have been contributed to
the executive’s supplemental executive retirement benefits
account under Voyager’s Executive Deferred Compensation
Plan, but was distributed directly to the executive as a current
cash payment.
(2)
Pursuant to the terms of his February 1, 2007 employment
agreement, Voyager agreed to reimburse Mr. Surratt for
relocation expenses plus any loss on the sale of his residence
in Ann Arbor, Michigan (up to a maximum of $150,000).
(3)
For Mr. Surratt, the tax reimbursement amount represents
the tax gross up on relocation expenses. For Mr. Campbell,
the tax reimbursement amount represents the tax gross up on
those items described in footnote (4).
(4)
Mr. Campbell’s benefits include $36 for tax return
preparation, $2,864 for home office equipment, $302 for internet
services, and $298 for subscriptions to financial services or
publications.
The following table sets forth information regarding the 2008
annual cash incentive programs and performance-based awards. No
stock or options were granted in 2008.
Estimated Future Payouts
Under Non-Equity Incentive Plan Awards
Name
Threshold
Target
Maximum
Richard J. Surratt
—
—
—
Ronald Klausner
—
$
375,952
—
Todd W. Buchardt
—
$
148,328
—
John Campbell
—
$
177,000
—
Employment
and Severance Agreements
As mentioned under “VOYAGER COMPENSATION DISCUSSION AND
ANALYSIS” and “— Potential Payments upon
Termination or Change of Control,” certain Voyager
executives entered into retention agreements which addressed
bonus and severance. Certain of these retention agreements also
provided for the grant of restricted stock subject to certain
vesting requirements. Subsequently, the executives exchanged
their right to restricted stock for a right to a cash award
subject to the same vesting requirements.
Benefits
Voyager’s executives participate in many of the same
benefits as are available to Voyager employees generally. Prior
to 2007, certain Voyager executives were also able to defer the
receipt of compensation under Voyager’s Executive Deferred
Compensation Plan. Voyager also credited the deferral accounts
of such executives with employer contributions of 15% of the
executive’s base salary and bonus as a supplemental
executive retirement benefit. Voyager’s Compensation
Committee determined that for 2007 and thereafter, both to
simplify Voyager’s benefit structure and to wind down the
deferral plans, it would provide a cash payment to executives
rather than provide a supplemental executive retirement benefit
credit under Voyager’s Executive Deferred Compensation
Plan. For those executives whose employment is terminated, a
pro-rata cash payment for the portion of the year the executive
was employed is made in lieu of a supplemental executive
retirement benefit credit.
Prior to the negotiation of the retention agreements, Voyager
provided certain perquisites to better enable it to attract and
retain key executives. As part of the negotiation of the
retention agreements with Messrs. Surratt, Klausner and
Buchardt, Voyager’s Compensation Committee decided to
provide an additional cash amount to executives rather than
continue perquisites to executives with retention agreements and
also provided that such additional cash amounts in lieu of
perquisites would not be used to determine bonuses or other
benefits determined by base salary. In addition, because of the
unusual circumstances of the relocation of corporate
headquarters, Voyager provided in 2008 certain benefits in
connection with commuting costs and limited protection on the
sale of a residence in appropriate circumstances. For example,
such benefits were provided to Mr. Surratt in his
employment agreement entered into when he became chief executive
officer of Voyager.
Severance
In 2006 and 2007, Voyager’s Compensation Committee provided
more extensive severance protection as part of the retention
agreements negotiated with Messrs. Surratt, Klausner and
Buchardt than Voyager’s general severance program or what
was previously set forth in offer letters. Under the retention
agreements, Mr. Surratt would receive two times his annual
base salary for termination of employment in certain
circumstances listed below entitling him to enhanced severance
and one and one-half times his annual base salary for other
terminations entitling him to severance under the retention
agreements. A Voyager executive is generally
entitled to enhanced severance under the retention agreement if
his employment is terminated within two years after either:
•
a change in control; or
•
both an acquisition of at least 30% of Voyager’s
outstanding voting stock and a change in the board of directors.
For Mr. Buchardt and Mr. Klausner, the base salary
multiplier for severance is one and one-half times for enhanced
severance and one times for other severance qualifying for
payments.
In general, for the Voyager executive to obtain any severance,
Voyager had to terminate the executive’s employment without
cause or the executive had to terminate his employment for good
reason as described in more detail under
“— Executive Agreements.” For
Mr. Buchardt’s executive retention agreement, the
Compensation Committee approved a one-month period between
December 29, 2007, and January 30, 2008, after certain
transactions such as the sale of both PQBS and PQIL, during
which the executive could voluntarily terminate employment and
be treated as having good reason and therefore entitled to the
enhanced severance. In Mr. Surratt’s 2007 employment
agreement, the period was delayed six months until between
June 30, 2008 and July 31, 2008. In 2008, Voyager
extended throughout 2008 such period for Mr. Buchardt in
order to encourage Mr. Buchardt to remain with Voyager
given his extensive background and knowledge regarding
Voyager’s legal issues. In 2009, Voyager further extended
the period during which Mr. Buchardt could voluntarily
terminate employment and be treated as having good reason.
As a safeguard for the Voyager executives, the retention
agreements for Mr. Surratt and Mr. Buchardt required
that if, following specified transactions, certain operating
results were not achieved, an amount equal to the enhanced
severance benefits be deposited to a trust. After the sale of
PQBS and PQIL, this standard was triggered and amounts
sufficient to fund such enhanced severance were deposited in a
trust. Mr. Klausner’s agreement was entered into after
the PQBS and PQIL transaction; thus, such transactions did not
trigger enhanced severance protection or deposit of amounts into
a trust for severance.
The retention agreements provide for pro-rata payment of bonuses
in the year the executive is terminated in some circumstances.
Voyager’s Compensation Committee determined that for 2007
and thereafter, it would provide a cash payment rather than a
supplemental executive retirement benefit credit under
Voyager’s Executive Deferred Compensation Plan for the
year. For those executives who participated in Voyager’s
Executive Deferred Compensation Plan (Messrs. Surratt,
Klausner and Buchardt) whose employment is terminated during a
year, a pro rata cash payment for the portion of the year the
executive was employed is made in lieu of any additional
supplemental executive retirement benefit credit. The retention
agreements also provided for certain continuation of benefits
under circumstances entitling the executive to severance.
Change in
Control Triggers and Parachute Excise Tax Protection
In addition, upon a change in control, certain bonuses under
Voyager’s agreements with its executives would be paid.
Options other than the 2004 options granted to executives
generally vest on a change in control. The stock appreciation
rights granted to Mr. Klausner also vest upon a change in
control.
As the 2004 option grants provided for a tax reimbursement
provision if the executive incurred parachute excise taxes, the
retention agreements of Messrs. Surratt, Klausner and
Buchardt maintained that protection for Voyager’s
executives, provided that no such
gross-up
payments were made prior to certain of Voyager’s loan
agreements being repaid. This parachute tax
gross-up
provision was not included in Mr. Klausner’s retention
agreement, although his 2004 option grant, which remains
outstanding, had a parachute tax
gross-up
provision.
2008
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the outstanding options and stock
appreciation rights held by the continuing officers and
directors at December 31, 2008. No continuing officer or
director had any unvested or unearned stock awards at
December 31, 2008 other than a portion of
Mr. Klausner’s stock appreciation rights and
Mr. Klausner’s 2004 option award.
2008
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option Awards
Equity Incentive
Plan Awards:
Number of
Number of
Number of
Securities
Securities
Securities
Underlying
Underlying
Underlying
Unexercised
Unexercised
Unexercised
Option
Option
Date of
Option (#):
Option (#):
Unearned
Exercise
Expiration
Name
Grant
Exercisable
Unexercisable
Option (#)(1)
Price ($)
Date(2)
Richard J. Surratt
—
—
—
—
—
—
Ronald Klausner
4/2/2003
100,000
21.15
4/2/2009
2/4/2004
—
—
440,000
30.97
2/4/2014
4/24/2007
(3)
100,000
200,000
—
8.55
4/23/2012
Todd W. Buchardt
2/26/1999
24,000
—
—
33.13
2/26/2009
10/12/2000
15,000
—
—
19.69
10/12/2010
2/28/2001
18,000
—
—
22.95
2/28/2011
3/6/2002
22,000
—
—
36.00
3/6/2012
3/5/2003
19,700
—
—
18.31
3/5/2009
John Campbell
1/12/2004
9,000
—
—
30.08
1/12/2010
(1)
Unexercisable unearned options vest (i) based on
performance determined on the basis of the rolling average of
the fair market value of a share of Voyager common stock for a
period of 90 consecutive trading days during the performance
period or (ii) otherwise on the seventh year anniversary of
the grant, provided the executive remains employed through such
period. The stock price targets are consistent for all
participants and range from $36.67 or $46.88 and above. The
performance period for Mr. Klausner begins on
January 1, 2005 and ended April 1, 2009. The
performance period for Mr. Surratt and Mr. Buchardt
begins on the grant date of November 2, 2005 and ended
April 1, 2009. Mr. Surratt and Mr. Buchardt later
agreed to a cancellation of their unexercisable unearned options.
(2)
On August 9, 2006, Voyager’s Compensation Committee
extended the period of time that Mr. Klausner may exercise
his outstanding vested stock options (other than his
unexercisable unearned option grants) due to involuntary
termination of employment by Voyager without cause or
resignation for good reason up to 12 months after his
termination but not beyond the original option expiration date.
(3)
Mr. Klausner received a grant of stock appreciation rights
with respect to 300,000 shares of Voyager common stock on
April 24, 2007. The base price for the SAR is $8.55, which
was the closing price of a share of Voyager’s common stock
on the grant date. The difference between the fair market value
of a share of Voyager’s stock and the base price is payable
on exercise in cash. The term of the SAR is five years, subject
to earlier expiration in the event Mr. Klausner terminates
employment under certain circumstances. Mr. Klausner will
vest in 100,000 of the shares subject to this SAR on each of the
first three anniversaries of the grant date, provided he remains
continuously employed by Voyager on each such date.
Notwithstanding the foregoing, vesting of the SAR will fully
accelerate on a Change of Control of Voyager if he remains
continuously employed on such date.
The table below describes individual credited earnings,
withdrawals, and the aggregate balance as of the end of the year
for each continuing officer and director under Voyager’s
deferred compensation plans. No executive or company
contributions were credited to the plan during 2008:
2008
NONQUALIFIED DEFERRED COMPENSATION TABLE
Aggregate
Aggregate
Aggregate
Balance at
Earnings in 2008
Withdrawals/
2008 Fiscal
Fiscal Year
Distributions
Year-End
Name
Plan
($)
($)
($)
Richard J. Surratt
Executive Deferred Compensation Plan(1)
5,459
54,898
—
Ronald Klausner
Executive Deferred Compensation Plan(1)
(31,882
)
444,357
—
Todd W. Buchardt
Replacement
Benefit Plan
4,636
100,955
John Campbell
—
—
—
—
(1)
The Voyager Executive Deferred Compensation Plan was terminated
and all amounts were paid out by the end of 2008. The Voyager
Executive Deferred Compensation Plan credited accounts of
participants with deferrals by participants as well as
supplemental executive retirement plan contributions by Voyager
and adjusted account balances with earnings.
(2)
The Voyager replacement benefit plan was a plan that provided
for amounts to be credited to certain highly compensated
employees whose benefits under Voyager’s profit sharing
plan were limited. No additional contributions were credited
after December 31, 2000 under the replacement benefit plan
but participants continue to receive an earnings adjustment. The
earnings rate is determined each October 31 for the subsequent
calendar year based on 120% of the
120-month
rolling average of
10-year U.S.
Treasury Notes. Upon a change of control of Voyager, the
replacement benefit plan benefits are funded in a rabbi trust.
Mr. Buchardt’s replacement benefit plan distribution
will be paid in a lump sum after his termination of employment.
Upon a change of control of Voyager, the replacement benefit
plan benefits are funded in a rabbi trust.
Potential
Payment Upon Termination or Change of Control
Executive
Agreements
Voyager entered into formal retention agreements with each of
the continuing officers and directors other than
Mr. Campbell. Under those agreements, Voyager agreed to
provide these executives with severance benefits upon certain
terminations of employment. Mr. Klausner’s retention
agreement was entered into in 2007 while the other executives
entered into their retention agreements in 2006.
Mr. Surratt’s retention agreement was expanded in
2007. Mr. Campbell entered into a severance letter
agreement in 2007.
Retention
Agreements
Severance Amounts. Under Voyager’s
retention agreements, if the executive’s employment is
terminated without “Cause” or if the executive
terminates employment for “Good Reason” at any time
during a two-year period beginning on a Change of Control of
Voyager, or an “Acquisition of at Least 30% of
Voyager’s Outstanding Voting Stock and Board Change,”
the executive would be entitled to the following enhanced
severance benefits from Voyager, subject to signing a release in
a form satisfactory to Voyager:
•
a single lump sum payment equal to a severance factor times his
then current base salary; and
•
continued participation for up to a number of years equal to a
severance factor in all medical, dental and vision plans in
which the executive participates.
If the executive’s employment is terminated without
“Cause” or the executive terminates employment for
“Good Reason” and the executive is not entitled to
enhanced severance benefits under the retention agreements as
described above, then the severance factor is generally reduced.
The severance factors for the Voyager executives are set forth
below:
Name
Enhanced Severance (Years)
Regular Severance (Years)
Richard J. Surratt
2.0
1.5
Ronald Klausner
1.5
1.0
Todd W. Buchardt
1.5
1.0
Voyager executives other than Mr. Campbell have tax
reimbursement protections for parachute excise taxes. Certain
payments under the retention agreements are subject to such
payments not violating certain terms imposed by the lenders.
Definitions
Change of Control. For purposes of the
retention agreements, the term “Change of Control of the
Company” is defined to include:
•
mergers or business combinations in which Voyager’s
existing stockholders do not continue to own more than 50% of
Voyager;
•
stockholder approval of a plan of liquidation for Voyager (this
criteria is not included in Mr. Klausner’s retention
agreement);
•
certain events that result in the persons who are then the
incumbent directors of Voyager ceasing to constitute a majority
of Voyager’s board of directors; and
•
a sale, lease or transfer of substantially all of the assets of
Voyager (an “Asset Sale”).
For purposes of the retention agreements, the term
“Acquisition of at Least 30% of the Company’s
Outstanding Voting Stock and Board Change” is defined to
mean the acquisition by any person or group of persons of
Voyager’s voting securities representing 30% or more of the
total number of votes eligible to be cast at any election of the
directors of Voyager and a change in the majority of the board
of directors of Voyager.
Voyager determined that an Asset Sale occurred upon the
completion of the sale of PQBS and PQIL and therefore a Change
of Control of Voyager occurred upon the completion of such sales
(in February 2007) for purposes of the retention agreements
other than for Mr. Klausner whose agreement was entered
into after such transaction. As provided by the retention
agreements, a rabbi trust was thereafter established to fund the
enhanced severance benefits of Messrs. Surratt and Buchardt.
Cause. Under the retention agreements,
“Cause” is defined to mean:
•
an act of fraud, embezzlement or theft in connection with the
executive’s duties or in the course of the executive’s
employment;
•
unreasonable neglect or refusal by the executive to perform the
executive’s material duties after notice;
•
the executive engages in willful, reckless, or grossly negligent
misconduct which is or may be materially injurious to
Voyager; or
•
the executive’s conviction of or plea of guilty or nolo
contendere to a felony.
Good Reason. “Good Reason” is
defined generally under the retention agreements for
Messrs. Surratt, Klausner and Buchardt to mean:
•
the executive is no longer a direct report to Voyager’s
Chief Executive Officer (or for Mr. Surratt, is no longer
the Chief Executive Officer);
the executive is assigned any duties inconsistent in any
material respect with his position, authority, duties or
responsibilities, or any other action that results in a
significant diminution in such position, authority, duties or
responsibilities, unless the action is remedied by Voyager
within ten days after receipt of notice;
•
the executive’s assignment for longer than six months to a
location in excess of 50 miles from the executive’s
then current office;
•
a reduction of the executive’s salary, or a reduction of
the executive’s regular bonus target; or
•
a material failure to pay the executive’s salary, bonus,
equity compensation or benefits under the retention agreement,
without substitution of a benefit of at least equal value.
Solely for the purposes of determining entitlement to enhanced
severance in retention agreements other than the retention
agreements of Mr. Klausner, “Good Reason” also
includes:
•
a reduction in the executive’s rate of total compensation,
in the aggregate, after taking into account the executive’s
salary, bonus, incentive compensation, equity compensation,
fringe benefits, retirement benefits and any other benefits or
an adverse change in the form or timing of the payment of the
executive’s salary, bonus or accrued benefits under the
deferred compensation plan, as in effect prior to a Change of
Control (other than an Asset Sale or an Acquisition of Greater
than 30% of Voyager’s Outstanding Voting Stock and Board
Change); or
•
the executive’s resignation from Voyager for any reason
between December 29, 2007 and January 30, 2008
following an Asset Sale; however, the period during which the
executive could voluntarily resign for Good Reason was
subsequently renegotiated for Mr. Surratt to be delayed
until June 30, 2008 to July 31, 2008 in connection
with his becoming the Chief Executive Officer and for
Mr. Buchardt was renegotiated to be throughout 2008 to
encourage him to remain with Voyager in 2008 and in 2009,
further renegotiated to provide for a voluntary resignation for
Good Reason at any time.
The retention agreements provide that “Good Reason”
does not exist due solely to a diminution of the business of
Voyager or any of its affiliates, including, without limitation,
a sale or other transfer of property or other assets of Voyager
or any of its affiliates, or a reduction in the executive’s
business unit’s head count or budget, or a suspension of
the executive’s position, job functions, authorities,
duties and responsibilities while on paid administrative leave
due to a reasonable belief that the executive has engaged in
conduct constituting “Cause.”
Severance
Letter Agreement
Pursuant to his severance letter agreement, Mr. Campbell is
entitled to one year base salary paid according to the regular
payroll cycle and continued group medical, dental and vision
insurance coverage at the same cost as active employees if his
employment is terminated involuntarily without cause prior to
December 31, 2009. If an involuntary termination of his
employment occurs effective on or after January 1, 2010,
his severance term is reduced from one year to six months.
Pursuant to a 2007 letter agreement, Mr. Campbell was
entitled to a long term incentive of $150,000 payable $75,000 on
each of January 1, 2008 and January 1, 2009. On
February 25, 2009, the Compensation Committee approved a
bonus for Mr. Campbell equal to $265,000 payable
March 1, 2010 if a change of control occurs during 2009 and
Mr. Campbell does not voluntarily terminate his employment
or have his employment terminated for cause before March 1,2010.
Subsequent
Events
In addition to the bonus approved for Mr. Campbell, on
February 25, 2009 Voyager’s Compensation Committee
approved certain other changes to the executive agreements as
described under “THE MERGERS — Interests of
Voyager Officers and Directors in the Mergers.”
Table
The potential payments upon termination or change of control for
the continuing officers and directors are set forth below. For
purposes of this table, 2008 fiscal year end base salary and
2008 incentive awards were used.
The table below sets forth an estimate of the payments that
would have been made to Messrs. Surratt, Klausner and
Campbell upon a termination of employment or Change of Control
as of December 31, 2008.
2008
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
TABLE
Non-Change
Change of
of Control
Control
Termination
Termination
w/o Cause or
w/o Cause or
for Good
for Good
Change of
Name
Benefit
Reason
Reason
Death
Disability
Control
Richard J. Surratt
Severance(1)
$
1,012,500
$
1,350,000
$
—
$
—
$
—
Annual Incentive(2)
573,500
573,500
573,500
573,500
573,500
Benefit Continuation(3)
15,615
20,281
—
—
—
280G Tax Gross Up(4)
—
—
—
—
—
Total:
$
1,601,615
$
1,943,781
$
573,500
$
573,500
$
573,500
Ronald Klausner
Severance(1)
$
537,075
$
805,613
$
—
$
—
$
—
Annual Incentive(2)
375,953
375,953
375,953
375,953
375,953
Benefit Continuation(3)
8,797
13,195
—
—
—
280G Tax Gross Up(4)
—
—
—
—
—
Total:
$
921,825
$
1,194,761
$
375,953
$
375,953
$
375,953
Todd W. Buchardt
Severance(1)
$
296,656
$
444,984
$
—
$
—
$
—
Annual Incentive(2)
148,328
148,328
148,328
148,328
148,328
Benefit Continuation(3)
10,411
15,616
—
—
—
280G Tax Gross Up(4)
—
—
—
—
—
Total:
$
455,395
$
608,928
$
148,328
$
148,328
$
148,328
John Campbell
Severance(1)
$
295,000
$
295,000
$
—
$
—
$
—
Annual Incentive(5)
75,000
75,000
—
—
340,500
Benefit Continuation(3)
7,555
7,555
—
—
—
Total:
$
377,555
$
377,555
$
—
$
—
$
340,500
(1)
Severance is calculated pursuant to their agreements as though
the event occurred December 31, 2008.
(2)
Assumes the effective date of termination is December 31,2008 and that the pro-rata payment under the Annual Incentive is
equal to the award paid for the year.
(3)
The benefit continuation number is an estimate of the cost of
health coverage continuation for the severance factor period
described above with respect to the retention agreements. The
number for Mr. Klausner sets forth the estimate of the cost
of health coverage for one year since it was customary for
Voyager to provide executives with health coverage for a period
corresponding to their severance amount period. Voyager provides
benefits on active-employee terms during the severance period.
(4)
Some payments received prior to December 31, 2008 could be
treated as contingent on a change of control, if one were to
occur on December 31, 2008. The estimated gross-up payment
includes restoration of excise tax due on any such payments as
well as the parachute portion of the payments shown on this
table.
(5)
Mr. Campbell’s bonus was guaranteed to be at least
150% of his target bonus if Voyager were sold in 2008.
Set forth below is certain information as of October 31,2009, with respect to the beneficial ownership determined in
accordance with
Rule 13d-3
under the Exchange Act of shares of Voyager common stock by
(1) each person who, to Voyager’s knowledge, is the
beneficial owner of more than five percent of Voyager’s
outstanding common stock, (2) each director of Voyager,
(3) each of the named executive officers of Voyager and
(4) all of Voyager’s executive officers and directors
as a group. Unless otherwise stated, the business address of
each person listed is 1800 Valley View Lane, Suite 400,
Dallas, Texas75234.
The term “beneficial ownership” means that a person
has, or may have within 60 days, the sole or shared power
to vote or direct the voting of a security
and/or the
sole or shared investment power with respect to a security
(i.e., the power to dispose or direct the disposition of
a security). The beneficial ownership is calculated based on
29,874,145 shares of Voyager common stock outstanding as of
October 31, 2009. Unless otherwise indicated, each person
or entity named in the table has sole voting power and
investment power, or shares voting and investment power with his
or her spouse under applicable community property laws, with
respect to all shares of capital stock listed as owned by that
person.
All directors and executive officers as a Group
(14 persons)(18)
3,648,117
12.17
%
*
Less than 1%
(1)
This information is based on a Schedule 13D filed with the
SEC on January 28, 2009.
(2)
This information is based on a Schedule 13D/A filed with
the SEC on August 12, 2008.
(3)
Includes 437,998 shares that William E. Oberndorf may
be deemed to beneficially own through his control of family
trusts and also includes options to purchase 11,114 shares
that are currently exercisable.
(4)
As general partner of SF Advisory Partners, L.P., SPO Partners
II, L.P. and SPO Advisory Partners L.P., SPO Advisory Corp. may
be deemed to share investment and voting control with respect to
these shares. Messrs. William Oberndorf, John Scully,
William Patterson and Edward McDermott are the controlling
persons of SPO Advisory Corp.
(5)
This information is based on a Schedule 13G/A filed with
the SEC on January 22, 2009.
(6)
This information is based on a Schedule 13G/A filed with
the SEC on March 10, 2009.
(7)
This information is based on a Schedule 13G/A filed with
the SEC February 4, 2003.
(8)
This information is based on a Schedule 13G filed with the
SEC on January 12, 2007.
(9)
This information is based on a Schedule 13G filed with the
SEC on February 17, 2009.
(10)
This information is based on a Schedule 13G filed with the SEC
on May 1, 2009.
(11)
Mr. Oberndorf through relationships with SPO Advisory
Corp., SPO Advisory Partners, L.P. and
SF Advisory Partners, L.P., may be deemed to share
investment and voting control with respect to
3,072,500 shares. Includes 437,998 shares that
Mr. Oberndorf may be deemed to beneficially own through his
control of family trusts and includes an additional
11,114 shares granted under Voyager’s stock option
plans, which are currently exercisable.
(12)
Includes 55,000 options to purchase shares held by
Mr. Buchardt, granted under Voyager’s stock option
plans, which are currently exercisable.
(13)
Includes 11,114 options to purchase shares held by
Mr. Brown, granted under Voyager’s stock option plans,
which are currently exercisable.
(14)
Includes 11,114 options to purchase shares held by
Mr. Roubos, granted under Voyager’s stock option
plans, which are currently exercisable.
(15)
Includes 9,000 options to purchase shares held by
Mr. Campbell, granted under Voyager’s stock option
plans, which are currently exercisable.
(16)
Includes 4,284 options to purchase shares held by
Mr. Schwab, granted under Voyager’s stock option
plans, which are currently exercisable.
(17)
Includes 4,284 options to purchase shares held by
Mr. Roemer, granted under Voyager’s stock option
plans, which are currently exercisable.
(18)
Percentage is based upon 29,874,145 aggregate shares of common
stock outstanding as of October 31, 2009, as adjusted to
reflect options that are exercisable within 60 days of that
date. As of the date of this proxy statement/prospectus, all
stock options beneficially owned by the group are
out-of-the-money
because the current stock price is less than the exercise price
for all of the vested options. Each member of the group has
agreed to forfeit all options beneficially owned by the member,
effective upon the closing of the mergers.
Although it is not currently expected, the Voyager special
meeting may be adjourned or postponed for the purpose of
soliciting additional proxies. Any adjournment may be made
without notice, other than by an announcement made at the
Voyager special meeting of the time, date and place of the
adjourned meeting. For the proposal to adjourn the special
meeting, if necessary or appropriate to solicit additional
proxies, abstentions and broker non-votes will count for the
purpose of determining whether a quorum is present at the
special meeting. The affirmative vote of holders of a majority
of the shares of Voyager common stock present and entitled to
vote is required in order to approve the adjournment proposal.
Abstentions will count as shares present and entitled to vote on
the proposal to adjourn the meeting. Broker non-votes, however,
will not count as shares entitled to vote on the proposal to
adjourn the meeting. As a result, abstentions will have the same
effect as a vote against the proposal to adjourn the meeting and
broker non-votes will have no effect on the vote to adjourn the
special meeting. Any signed proxies received by Voyager in which
no voting instructions are provided on such matter will be voted
“FOR” an adjournment of the special meeting, if
necessary or appropriate to solicit additional proxies.
Any adjournment or postponement of the special meeting for the
purpose of soliciting additional proxies will allow Voyager
stockholders who have already sent in their proxies to revoke
them at any time prior to their use at the Voyager special
meeting as adjourned or postponed.
The Voyager board of directors recommends that stockholders
vote “FOR” the adjournment of the Voyager special
meeting, if necessary or appropriate, to solicit additional
proxies.
Holdings will hold an annual stockholder meeting in the year
2010, assuming that the mergers are completed. Any stockholder
who wishes to submit a proposal for inclusion in the proxy
materials to be distributed by Holdings in connection with
Holdings’ 2010 annual meeting of stockholders must submit
such proposal to Holdings a reasonable time before Holdings
begins to print its proxy statement for Holdings’ 2010
annual stockholder meeting. Holdings will publicly announce the
date of its 2010 annual stockholder meeting in advance, so that
stockholders will be able to determine when proposals must be
submitted for inclusion in Holdings’ 2010 proxy statement.
In addition, Holdings’ bylaws, a copy of which is attached
as Annex D to this proxy statement/prospectus, contain an
advance notice procedure for stockholders to bring business
before an annual stockholder meeting. This advance notice
procedure generally requires that a stockholder interested in
presenting a proposal for action at Holdings’ 2010 annual
meeting of stockholders must deliver written notice of the
proposal, together with certain specified information relating
to such stockholder’s identity and ownership of common
stock of Holdings, not earlier than the 120th day prior to such
meeting and not later than the later of (i) the 90th day
prior to such annual meeting and (ii) the 10th day
following the date on which public announcement of the meeting
is first made by Holdings. Any such stockholder proposal should
be sent by mail to Secretary, Cambium Learning Group, Inc., c/o
Veronis Suhler Stevenson, 350 Park Avenue, New York, NewYork10022.
Voyager will hold an annual stockholder meeting with respect to
the year 2009 only if the merger agreement has been terminated.
Any stockholder who wishes to submit a proposal for inclusion in
the proxy materials to be distributed by Voyager in connection
with Voyager’s 2009 annual meeting of stockholders must
submit the proposal to Voyager a reasonable time before Voyager
begins to print its proxy statement for Voyager’s 2009
annual stockholder meeting. If the merger agreement is
terminated, Voyager will publicly announce the date of its 2009
annual stockholder meeting in advance, so that stockholders will
be able to judge when proposals must be submitted for inclusion
in Voyager’s 2009 proxy statement. In addition,
Voyager’s bylaws contain an advance notice procedure for
stockholders to bring business before an annual stockholder
meeting. This advance notice procedure generally requires that a
stockholder interested in presenting a proposal for action at
Voyager’s 2009 annual meeting of stockholders must deliver
written notice of the proposal, together with the following
information relating to the proposal: (i) a brief
description of the business desired to be brought before the
meeting and the reasons for conducting the business at the
meeting, (ii) the name and address, as they appear on
Voyager’s books, of the stockholder proposing the business,
(iii) the class and number of shares of Voyager which are
beneficially owned by the stockholder and (iv) any material
interest of the stockholder in the business, no later than the
tenth calendar day following the calendar day on which public
announcement of the date of the Voyager 2009 stockholder meeting
is first made by Voyager. Any stockholder proposal should be
sent by mail to Corporate Secretary, Voyager Learning Company,
1800 Valley View Lane, Suite 400, Dallas, Texas75234.
Lowenstein Sandler PC, New York, New York, legal counsel to
Holdings and Cambium, will provide an opinion for Holdings
regarding the validity of the shares of Holdings offered by this
proxy statement/prospectus. It is a condition to Cambium’s
completion of the mergers that Cambium receive an opinion from
Lowenstein Sandler PC to the effect that the mergers, taken
together, will be treated as a transaction described in
Section 351 of the Internal Revenue Code, and a condition
to Voyager’s completion of the mergers that Voyager receive
an opinion from McDermott Will & Emery LLP, Chicago,
Illinois, to the effect that the mergers, taken together, will
be treated as a transaction described in Section 351 of the
Internal Revenue Code.
The consolidated financial statements and schedule of
VSS-Cambium Holdings, LLC as of and for the year ended
December 31, 2008 included in the Proxy Statement of
Voyager Learning Company and made a part of this Prospectus and
Registration Statement have been so included in reliance upon
the report of Grant Thornton LLP, independent registered public
accounting firm, upon the authority of said firm as experts in
giving said report.
The consolidated financial statements of VSS-Cambium Holdings,
LLC (Successor basis) at December 31, 2007 and for the
period from January 29, 2007 (inception) through
December 31, 2007 (Successor basis), the period from
January 1, 2007 to April 11, 2007 (Predecessor basis)
and the year ended December 31, 2006 (Predecessor basis),
included in the Proxy Statement of Voyager Learning Company,
which is referred to and made a part of this Prospectus and
Registration Statement, have been audited by Ernst &
Young LLP, independent registered public accounting firm, as set
forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
Voyager
The consolidated financial statements and schedule of Voyager as
of December 31, 2008 and December 29, 2007, and for
each of the years in the two-year period ended December 31,2008, included in this proxy statement/prospectus and in the
related registration statement, have been audited by Whitley
Penn LLP, independent registered public accounting firm, as set
forth in its report included herein. Such consolidated financial
statements and schedule are included herein in reliance upon
such report given upon the authority of said firm as experts in
accounting and auditing. The report on the consolidated
financial statements refers to a separate report, with an
unqualified opinion and dated March 5, 2009, related to
Whitley Penn LLP’s audit of Voyager’s internal control
over financial reporting and also refers to a change in the
method of accounting for uncertainty in income taxes as of
December 31, 2006.
The consolidated financial statements of Voyager for the year
ended December 30, 2006 have been included in this proxy
statement/prospectus and in the related registration statement
in reliance upon the report of KPMG LLP (“KPMG”),
independent registered public accounting firm, appearing in this
proxy statement/prospectus and elsewhere in the related
registration statement, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering
the December 30, 2006 financial statements refers to a
change to the method of accounting for share-based payments in
2006.
Voyager has agreed to indemnify and hold KPMG harmless from and
against any and all legal costs and expenses incurred by KPMG in
the successful defense of any legal action or proceeding that
arises as a result of KPMG’s consent to the inclusion of
its audit report covering the financial statements of Voyager
for the year ended December 30, 2006 included in this proxy
statement/prospectus and in the related registration statement.
Voyager files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy any reports, statements or other information filed by
Voyager at the SEC’s public reference room, located at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. The public
filings filed by Voyager are also available to the public from
commercial document retrieval services and on the website
maintained by the SEC at
http://www.sec.gov.
You may also obtain these documents free of charge by requesting
them in writing or by telephone at the following address:
Voyager stockholders should contact Voyager Public and Investor
Relations at the address or telephone number listed above with
any questions about the mergers.
Cambium is not subject to the reporting requirements of
Section 13(a) or 15(d) of the Exchange Act. Accordingly,
Cambium does not file documents with the SEC. If Cambium’s
stockholder has any questions about the mergers, such
stockholder should contact Scott J. Troeller in writing or
by telephone at the following address: c/o Veronis Suhler
Stevenson, 350 Park Avenue, New York, New York10022.
Holdings has filed a registration statement on
Form S-4
under the Securities Act with the SEC with respect to the
securities to be issued to Cambium and Voyager stockholders
pursuant to the mergers. This proxy statement/prospectus
constitutes the prospectus of Holdings filed as part of the
registration statement. This proxy statement/prospectus does not
contain all of the information set forth in the registration
statement because some parts of the registration statement are
omitted in accordance with the rules and regulations of the SEC.
The registration statement and its exhibits are available for
inspection and copying as set forth above.
Voyager stockholders should rely only on the information
contained in this proxy statement/prospectus to vote their
shares at the special meetings. Holdings, Cambium and Voyager
have not authorized anyone to provide you with information that
differs from that contained in this proxy statement/prospectus.
This proxy statement/prospectus is dated November 13, 2009.
You should not assume that the information contained in this
proxy statement/prospectus is accurate as of any date other than
that date, and neither the delivery of this document nor any
distribution of securities made under this document shall, under
any circumstances, create an implication that there has been no
change in the affairs of Holdings, Cambium or Voyager since the
date of this document or that the information contained or
incorporated by reference into this document is correct as of
any time subsequent to the date of this document.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES
OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION
OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM
OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF
AN OFFER OR PROXY SOLICITATION.
Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 2009
158
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 2008
159
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 2009
160
Notes to Unaudited Condensed Combined Financial Statements
161
Note: Cambium Learning Group, Inc. (f/k/a Cambium-Voyager
Holdings, Inc.), or Holdings, was formed in 2009 solely for the
purpose of effecting the business combination of Cambium and
Voyager. Holdings will not engage in any business prior to the
effective time of the mergers other than to take the steps
necessary to effect the mergers. As a result, the consolidated
financial statements of Holdings have not been presented in this
proxy statement/prospectus. Upon completion of the mergers, the
historical consolidated financial statements of Cambium will
constitute the historical consolidated financial statements of
Holdings.
Report of
Independent Registered Public Accounting Firm
To the Board
of Managers and Members of VSS-Cambium Holdings, LLC:
We have audited the accompanying consolidated balance sheet of
VSS-Cambium Holdings, LLC (a Delaware limited liability company)
and subsidiaries (the “Company”) as of
December 31, 2008, and the related consolidated statements
of operations, members’ equity, and cash flows for the year
then ended. Our audit of the basic financial statements included
the financial statement schedule, Schedule II: Valuation
and Qualifying Accounts for the year ended December 31,2008 listed in the index appearing under Item 21(b). These
financial statements and financial statement schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of VSS-Cambium Holdings, LLC and subsidiaries as of
December 31, 2008, and the results of their operations and
their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement
schedule for the year ended December 30, 2008, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
The Board of
Managers and Stockholders of VSS-Cambium Holdings, LLC
We have audited the accompanying consolidated balance sheet of
VSS-Cambium Holdings, LLC (Successor basis) as of
December 31, 2007 and the related consolidated statements
of operations, stockholders’/members’ equity, and cash
flows for the period from January 29, 2007 (inception)
through December 31, 2007 (Successor basis), the period
from January 1, 2007 to April 11, 2007 (Predecessor
basis) and the year ended December 31, 2006 (Predecessor
basis). In connection with our audits of the consolidated
financial statements, we have also audited financial statement
schedule II for the period from January 29, 2007
(inception) through December 31, 2007 (Successor basis),
the period from January 1, 2007 to April 11, 2007
(Predecessor basis) and the year ended December 31, 2006
(Predecessor basis). Our audits also included the financial
statement schedule listed in the index in Item 21(b). These
financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of VSS-Cambium Holdings, LLC (Successor
basis) at December 31, 2007 and the consolidated results of
its operations and its cash flows for the period from
January 29, 2007 (inception) through December 31, 2007
(Successor basis), the period from January 1, 2007 to
April 11, 2007 (Predecessor basis) and the year ended
December 31, 2006 (Predecessor basis), in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note B to the consolidated financial
statements, on January 1, 2007, the Company adopted the
provisions of ASC 740 “Income Taxes”, as it pertains
to accounting for uncertainty in income taxes.
Accounts receivable, net of allowance for bad debts of $200,856
and sales returns of $200,351 at September 30, 2009 and net
of allowance for bad debts of $505,682 and sales returns of
$200,351 in 2008 and net of allowance for bad debts of $489,695
and sales returns of $205,464 in 2007
21,640,162
10,550,011
9,508,735
Inventories
9,800,223
12,850,392
9,698,171
Deferred tax assets
4,102,137
4,617,636
5,362,054
Prepaid expenses
1,615,890
1,180,600
825,544
Total current assets
46,692,690
31,616,710
26,600,750
Property, plant and equipment, net
17,849,322
18,310,361
18,808,134
Pre-publication costs
4,199,927
3,838,138
2,685,338
Author advances
58,198
57,180
56,323
Goodwill
107,268,162
116,373,162
192,287,323
Other intangible assets, net
81,354,948
98,596,291
123,408,901
Property held for sale
157,500
1,577,700
—
Other long-term assets
91,228
108,016
5,291,534
Total assets
$
257,671,975
$
270,477,558
$
369,138,303
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Notes payable — line of credit
$
15,000,000
$
5,000,000
$
—
Current portion of long-term debt
1,280,000
1,280,000
1,280,000
Accounts payable
1,707,605
3,035,339
5,976,467
Royalties payable
1,305,198
1,431,859
1,433,421
Accrued compensation
3,241,607
1,613,278
2,234,239
Income tax payable
—
—
298,893
Deferred revenue
1,189,473
1,479,525
1,429,521
Other accrued expenses
3,767,625
2,519,674
4,196,101
Total current liabilities
27,491,508
16,359,675
16,848,642
Long-term debt, less current portion
150,426,490
153,787,018
176,401,960
Co-development liability
363,585
577,655
780,092
Deferred revenue
453,805
430,353
—
Deferred tax liabilities
9,419,604
15,166,488
29,436,235
Deferred compensation
116,416
182,254
269,020
Building lease liability
12,724,926
12,960,221
13,239,336
Fair value of interest rate swap
1,461,474
2,381,978
1,534,379
Other
359,789
427,930
548,632
Total liabilities
202,817,597
202,273,572
239,058,296
Commitments and contingencies (Note N)
Members’ equity:
Member’s interest
154,666,898
151,707,432
144,023,857
Accumulated deficit
(99,812,520
)
(83,503,446
)
(13,943,850
)
Total members’ equity
54,854,378
68,203,986
130,080,007
Total liabilities and members’ equity
$
257,671,975
$
270,477,558
$
369,138,303
The accompanying notes are an integral part of the financial
statements.
VSS-Cambium Holdings, LLC (the Company or Holding Company) was
formed on January 29, 2007. Holding Company was formed to
enter into a stock purchase agreement, dated as of
January 29, 2007, by and among Cambium Learning, Inc. (the
Company or Cambium), the former stockholders of Cambium and
Holding Company, and to acquire all of the capital stock of
Cambium.
On February 7, 2007, VSS-Cambium Management, LLC
(Management LLC) was formed. Management LLC was formed for
the purpose of providing selected key employees of Cambium with
an equity participation in the future appreciation in the value
of Cambium. Management LLC is a member of Holding Company and
holds an equity interest in Holding Company.
On April 12, 2007, Holding Company acquired 100% of the
capital stock of Cambium. The operating results of Holding
Company include Cambium’s operating results from the
acquisition date.
In accordance with the requirements of purchase accounting, the
assets and liabilities of Cambium were adjusted to their
estimated fair values and the resulting goodwill computed, as of
the acquisition date. The application of purchase accounting
generally results in higher depreciation and amortization
expense in future periods. Accordingly, and because of other
effects of purchase accounting, the accompanying consolidated
financial statements as of and for the period prior to the
Holding Company acquisition are not comparable.
Cambium develops and markets comprehensive educational programs
and technologies for the pre-kindergarten through twelfth grade
in the United States. Products and services include
instructional materials, technology-based products, teaching
guides, and other resources, and teacher training and
implementation services, as part of a full-service offering to
schools, educators, and students.
The Company has two reportable segments with separate management
teams and infrastructures that offer various products and
services — published products and learning
technologies.
Liquidity
The Company is subject to certain risks. Among these are the
risks associated with managing growth, dependence on key
individuals, the need for successful marketing and selling of
products and services, competition from larger companies,
constraints on the funding available to schools and school
districts, the ability to meet its debt service requirements,
and other obligations. The Company believes that, based on
anticipated earnings, cash on hand at September 30, 2009 of
$9.5 million, expected cash flow from operations and the
ability to borrow under its revolving credit facility agreement,
the Company will be able to maintain its debt compliance, make
required principal and interest payments on debt, and fund its
working capital and capital expenditure requirements through
January 1, 2010. See Note T for additional information
regarding this topic.
Unaudited
Interim Financial Information
The accompanying consolidated balance sheet as of
September 30, 2009, the consolidated statement of
operations and cash flows for the nine months ended
September 30, 2009 and 2008, and the consolidated statement
of members’ equity for the nine months ended
September 30, 2009 are unaudited. These unaudited
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
interim consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting
principles. The Company believes that these financial statements
include all necessary and recurring adjustments for the fair
presentation of the interim period results.
The financial data and other information disclosed in these
notes to the financial statements as of September 30, 2009
and the related nine month periods ended September 30, 2009
and 2008 are unaudited. Due, in part, to seasonality, the
results of operations for the nine months ended
September 30, 2009 are not necessarily indicative of the
results to be expected for the year ending December 31,2009, for any other interim period or for any future year.
Revisions
to Prior Period Financial Statements
The Company adopted the provisions of accounting guidance for
income taxes related to uncertain tax positions. The Company did
not originally adopt these provisions as the Company was
privately held and elected to defer the adoption. Due to the
expectations that the Company will be a registrant in 2009, the
Company determined it was appropriate to adopt this guidance
beginning January 1, 2007. See Note H for further
discussion.
In addition, the financial statements were also revised to
reflect disclosure about the Company’s segments and rate
reconciliation for income taxes which are both required
disclosures of public company registrants.
Principles
of Consolidation
The Successor consolidated financial statements of the Company
include the accounts of Holding Company and its wholly owned
subsidiaries, Cambium Learning, Inc., Cambium Learning (New
York), Inc., Sopris West Educational Services, Inc., Kurzweil
Educational Systems, Inc. (Kurzweil), and IntelliTools, Inc. All
inter-company accounts and transactions are eliminated in
consolidation.
The Predecessor consolidated financial statements for the period
from January 1, 2007 through April 11, 2007 and for
year ended December 31, 2006 include the accounts of
Cambium and its wholly owned subsidiaries described above. All
inter-company accounts and transactions have been eliminated in
consolidation.
Embezzlement
Loss
On April 26, 2008, the Company began an internal
investigation that revealed irregularities over the control and
use of cash and certain other general ledger accounts of the
Company, resulting in a misappropriation of assets (the
“Embezzlement Matter”). These irregularities were
perpetrated by a former employee over
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
more than a three-year period beginning in 2004 and continuing
through April 2008. The embezzlement loss incurred in each year,
before the effect of income taxes, is as follows:
In addition to these losses, the Company has incurred fees and
expenses as a result of the embezzlement totaling $5,453,250 in
2008, net of expected recoveries to date. In 2008, the Company
took possession of five boats which were purchased by the former
employee using the embezzled funds. As of December 31,2008, the boats had an appraised value of $1,577,700 and were
netted against the fees and expenses incurred as a result of the
embezzlement and are classified as property held for sale on the
Consolidated Balance Sheet. During the nine months ended
September 30, 2009, the Company received a $500,000
insurance claim recovery related to the embezzlement, resulting
in a net reduction of embezzlement and related expenses of
$194,921. The embezzlement loss incurred and the related
expenses in the nine months ended September 30, 2008 were
$8,683,561.
As more fully described in Note C, $20,000,000 of the
purchase price of Cambium Learning, Inc. was held in escrow.
Pursuant to an agreement dated July 10, 2008 by and between
the former stockholders of the predecessor company and the
members of the successor company, the remaining escrow amount
was distributed in its entirety to VSS-Cambium Settlement Fund,
LLC (Settlement Fund), acting as an agent for Cambium Learning,
Inc. Also, the former stockholders of the predecessor company
agreed to contribute an additional $9,269,098 to the Settlement
Fund. The total settlement of $30,202,083 including interest
income of $932,985 was distributed to Cambium Learning, Inc. and
used to cover costs and pay down a portion of the Senior Credit
Facility. Since the embezzlement was discovered after the
initial purchase allocation, the entire settlement amount was
recorded as a gain from settlement with previous stockholders on
the accompanying Consolidated Statement of Operations. The
former stockholders also agreed to forego any claims or rights
to any amount held in escrow in exchange for which the members
of VSS-Cambium Holdings, LLC indemnified the former stockholders
from any claims in connection with the Embezzlement Matter.
NOTE B —
SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires the use of estimates and assumptions by management that
affect the amounts reported in the financial statements and
accompanying notes. On an ongoing basis, the Company evaluates
its estimates and assumptions including, but not limited to,
sales returns, allowance for bad debts, recoverability of
advances to authors, valuation and recoverability of inventory,
depreciation and amortization periods, recoverability of
long-term assets such as property, plant, and equipment,
capitalized pre-publication costs, other identified intangibles
and goodwill, and deferred tax valuation allowances. Actual
results may differ from those estimates.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Revenue
Recognition
The Company derives revenue primarily from the sale of
instructional materials, software licenses, maintenance and
support services, and training.
The Company recognizes revenue from instructional materials,
software licenses, and multimedia instructional materials when
persuasive evidence of an arrangement exists, the products are
shipped, title and risk of loss transfer to the customer, all
significant obligations have been performed, and collection is
reasonably assured. The persuasive evidence that an arrangement
exists includes customer-issued purchase orders, or in the case
of credit card sales, the actual sales transaction. For product
sales, excluding software, that include multiple elements, the
Company recognizes revenue upon transfer of title when the
product has standalone value to the customer and the Company has
objective evidence of fair value for any undelivered items.
Maintenance and support services include telephone support, bug
fixes, and for certain products, rights to upgrades and
enhancements on a
when-and-if
available basis. Revenues under multiple-element software
license arrangements, which may include several different
software products and services sold together, including training
and maintenance and support, is allocated to each element based
on the residual method in accordance with accounting guidance
for software revenue recognition.
The Company uses the residual method when vendor-specific
objective evidence of fair value does not exist for one of the
delivered elements in the arrangement. Under the residual
method, the fair value of the undelivered elements is deferred,
and subsequently recognized when the product or service is
delivered. The Company has established sufficient
vendor-specific objective evidence for maintenance and support
services based on a price charged when this element is sold
separately. Accordingly, software license revenues are
recognized under the residual method in arrangements in which
software is licensed with maintenance and support services.
Revenues related to maintenance and support are recognized on a
straight-line basis over the period the maintenance is provided.
In certain instances, telephone support and bug fixes are
provided for free, which is provided within one year of
licensing the software. The cost of providing this service is
insignificant, and is accrued for at the time of revenue
recognition.
As products are shipped with a right of return, generally
90 days, a provision for estimated returns on these sales
is made at the time of sale based on historical experience. The
amounts have not been material to date. Shipping fees billed to
customers are included in net sales, and costs of shipping are
included in selling and administrative expenses. Shipping costs
included in selling and administrative expense were $1,313,853
and $1,964,412 for the nine months ended September 30, 2009
and 2008, respectively, and $2,348,206, $2,738,796, $444,846,
and $2,526,763 for the year ended December 31, 2008, for
the period from January 29, 2007 to December 31, 2007,
for the period from January 1, 2007 to April 11, 2007,
and for the year ended December 31, 2006, respectively.
Revenue for training is recognized when the services have been
completed, the fee is fixed and determinable, and collection is
reasonably assured. Amounts billed
and/or
collected prior to the completion of services are recorded as
deferred revenue.
The Company enters into agreements to license certain book
publishing rights and content. The Company recognizes the
revenue from these agreements when the license amount is fixed
and determinable, collection is reasonably assured, and the
license period has commenced. For those license agreements that
require the Company to deliver additional materials as part of
the license agreement, the revenue is recognized when the
product is shipped and received by the customer.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The division of revenue between shipped materials, license fees
and services are determined in accordance with the accounting
guidance for multiple element arrangements. The Company uses the
residual method when vendor objective evidence of fair value
does not exist for one of the delivered elements in the
arrangement. Under the residual method, the fair value of the
undelivered elements is deferred, and subsequently recognized
when the product or service is delivered. The Company has
established sufficient vendor objective evidence for maintenance
and support services based on a price charged when this element
is sold separately.
Any taxes assessed by a governmental authority related to
revenue-producing transactions (e.g., sales taxes) are reported
on a net basis and are excluded from revenues.
Advertising
and Promotion Costs
Advertising and promotion costs are charged to selling and
administrative expenses as incurred and totalled $2,470,599 and
$4,024,204 for the nine months ended September 30, 2009 and
2008, respectively, and $4,504,782, $2,488,193, $2,407,933 and
$3,013,462 for the year ended December 31, 2008, for the
period from January 29, 2007 to December 21, 2007, for
the period from January 1, 2007 to April 11, 2007, and
for the year ended December 31, 2006, respectively. The
Company recognizes catalog expense when the catalog is mailed to
potential customers. The cost to print the catalog is recorded
in prepaid expenses on the Consolidated Balance Sheet until such
time that the catalog is mailed.
Cash
and Cash Equivalents
The Company maintains its cash in bank deposit accounts, which
at times, may exceed federally insured limits. The Company has a
cash management program which provides for the investment of
excess cash balances primarily in money market accounts. The
Company considers such highly liquid investments with maturities
of three months or less when purchased to be cash equivalents.
The carrying amounts of these instruments approximate fair value
on the reporting dates.
Accounts
Receivable
Accounts receivable are recorded net of allowances for doubtful
accounts and reserves for sales returns. In the normal course of
business, the Company extends credit to customers that satisfy
pre-defined criteria. Allowances for doubtful accounts are
established through the evaluation of accounts receivable agings
and prior collection experience to estimate the ultimate
collectibility of these receivables. Amounts deemed
uncollectible are charged off against the allowance for doubtful
accounts. Reserves for sales returns are based on historical
return rates and sales patterns.
Inventories
Inventories are stated at the lower of cost or market using the
weighted average
first-in,
first-out (FIFO) inventory method, and consist of finished
goods. An estimate is made for inventory obsolescence based on
demand for products currently on hand.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, or in the case
of assets acquired in business combinations, at fair value as of
the acquisition date, less accumulated depreciation and
amortization. Maintenance and repair costs are charged to
expense as incurred, and renewals and improvements that extend
the useful life of the assets are capitalized.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Depreciation and amortization on property, plant and equipment
is calculated on the straight-line method over the estimated
useful lives of the assets.
Estimated useful lives of property, plant and equipment are as
follows:
Estimated Useful Life
Building
35 years
Land improvements
19 years
Machinery and equipment
8 - 15 years
Furniture and fixtures
8 years
Computer equipment and software
2 - 5 years
Leasehold improvements
Lesser of useful life or lease term
Capitalized
Internal Use Software
Capitalized internal use software is included in property,
plant, and equipment on the consolidated balance sheets. The
Company capitalizes certain costs related to obtaining or
developing computer software for internal use under accounting
guidance for internal use software intangibles. Costs incurred
during the application development stage, including external
direct costs of materials and services, and payroll and
payroll-related costs for employees who are directly associated
with the internal-use software project, are capitalized and
amortized on a straight-line basis over the expected useful life
of the related software of three to five years. The application
development stage includes design, software configuration and
integration, coding, hardware installation, and testing. Costs
incurred during the preliminary stage, as well as maintenance,
training, and upgrades that do not result in additional
functionality are expensed as incurred.
Research
and Development Costs
Software research and development costs are accounted for in
accordance with the applicable accounting guidance for costs of
software to be sold, leased, or marketed. The Company will
capitalize material software development costs incurred after
the technological feasibility of software development projects
has been established. The Company determines technological
feasibility has been established at the time when a working
model of the software has been completed. Historically, the time
incurred between when a working model of the software has been
completed and general release to customers has been short, and
therefore, the costs have been insignificant. As a result, for
the nine months ended September 30, 2009 and 2008 and for
the year ended December 31, 2008 and for the period from
January 29, 2007 to December 21, 2007, for the period
from January 1, 2007 to April 11, 2007, and for the
year ended December 31, 2006, no software development costs
met the criteria for capitalization.
Research and development expense includes costs to develop
manuscripts, which are expensed as incurred.
The amount of research and development costs that was expensed
was $4,116,693 and 4,926,000 for the nine months ended
September 30, 2009 and 2008, respectively, and $6,365,364,
$5,246,586, $1,736,988 and $7,410,878 for the year ended
December 31, 2008, for the period of January 29, 2007
to December 31, 2007, for the period from January 1,2007 to April 11, 2007, and for the year ended
December 31, 2006, respectively. These expenses are
included in cost of sales in the accompanying Consolidated
Statements of Operations.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Royalty
Advances
Royalty advances to authors are capitalized and represent
amounts paid in advance of the sale of an author’s product.
These costs are amortized as the related publication is sold.
Advances are evaluated periodically to determine if they are
expected to be recovered. Any portion of a royalty advance that
is not expected to be recovered is fully reserved.
Pre-Publication
Costs
The Company capitalizes the art, pre-press, and other costs
incurred in the creation of the master copy of a book or other
media (the pre-publication costs). Pre-publication costs are
amortized over five years using the
sum-of-the-years-digits
method. The amortization methods and periods chosen best reflect
the expected sales generated from individual titles or programs.
The Company evaluates, on an annual basis, the remaining lives
and recoverability of capitalized pre-publication costs.
A publishing right allows the Company to publish and republish
existing and future works, as well as transform, adapt, or
create new works based on previously published materials. The
Company determines the fair market value of the publishing
rights arising from business combinations by discounting the
after-tax cash flows projected to be derived from the publishing
rights and titles to their net present value using a rate of
return that accounts for the time value of money and the
appropriate degree of risk. The useful life of the publishing
rights is based on the lives of the various titles involved,
which is generally ten years. The Company calculates
amortization using either the straight-line method or the
percentage of the projected discounted cash flows derived from
the titles in the current year as a percentage of the total
estimated discounted cash flows over the remaining useful life.
Goodwill
In accordance with the accounting guidance for business
combinations, the Company accounts for its business combinations
using the purchase method. In accordance with the accounting
guidance for goodwill and other intangibles the Company does not
amortize goodwill, but instead tests for impairment, at least
annually and more frequently upon the occurrence of certain
events, which may indicate that impairment has occurred.
Intangible assets acquired in conjunction with a business
combination are required to be separately recognized if the
benefit of the intangible asset obtained is through contractual
or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of the
acquirer’s intent to do so.
The provisions of the accounting guidance for goodwill and other
intangibles require that a two-step impairment test be performed
on goodwill. In the first step, the Company compares the fair
value, which is determined by use of a discounted cash flow
technique, of the reporting unit to its carrying value. If the
fair value of the reporting unit exceeds the carrying value of
the net assets of that reporting unit, goodwill is not impaired
and the Company is not required to perform further testing. If
the carrying value of the net assets assigned to the reporting
unit exceeds the fair value of that unit, then the Company must
perform the second step of the impairment test in order to
determine the implied fair value of the reporting entity’s
goodwill. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then the Company
records an impairment loss equal to the difference.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The Company has two reporting units: Published Products and
Learning Technologies. Determining the fair value of a reporting
unit is judgmental in nature, and involves the use of
significant estimates and assumptions. These estimates and
assumptions may include revenue growth rates and operating
margins used to calculate projected future cash flows,
risk-adjusted discount rates, future economic and market
conditions, and determination of appropriate market comparables.
The Company bases its fair value estimates on assumptions it
believes to be reasonable, but that are unpredictable and
inherently uncertain. Actual future results may differ from
those estimates. In addition, the Company may make certain
judgments and assumptions in allocating shared assets and
liabilities to determine the carrying values of its reporting
units.
Certain negative macroeconomic factors began to impact the
Company’s customer base in late 2008 and the Company began
to experience significant adverse trends in business conditions
in the fourth quarter of 2008. Concurrent with these adverse
developments, the Company commenced its annual impairment
assessment of goodwill on December 1, 2008. In connection
with preparing the impairment assessment, the Company identified
significant deterioration in the expected future financial
performance of the Published Products unit. The Company also
determined that the appropriate discount rate (based on weighted
average cost of capital) as of December 1, 2008 should be
higher than the discount rate used in the 2007 impairment
assessment. As a result, the Company recognized a goodwill
impairment of $75,966,164 within the Publishing Products unit
for the year ended December 31, 2008. In June 2009, Cambium
announced that it had entered into a Merger Agreement; this
planned business combination is a triggering event requiring
impairment testing for Cambium’s reporting units. The first
step of impairment testing as of June 30, 2009 showed that
the carrying value of the Company’s Published Products unit
exceeded its fair value and that a second step of testing was
needed. Cambium also determined that the appropriate discount
rate for its Published Products unit (based on weighted-average
cost of capital) used in the 2009 assessment should be higher
than the discount rate used in the 2008 impairment assessment.
The development of the discount rates for the Published Products
and Learning Technologies reporting units were developed based
on market information as of the valuation date. Consistent with
the December 31, 2008 impairment testing, additional
adjustments were made for both reporting units to account for
risk associated with achieving the financial projections. A
higher risk adjustment was used in the current analysis for the
Published Products unit due to the uncertainties associated with
achieving anticipated revenue and profit growth in light of
recent financial results. As a result of the second step of the
Company’s June 30, 2009 impairment test, the goodwill
balance of the Published Products unit as of the measurement
date was determined to be partially impaired. As a result of
these factors, an impairment charge of $9.1 million was
recorded as of June 30, 2009. As of December 31, 2007,
and September 30, 2009the Company performed the first step
in the impairment test and determined that goodwill was not
impaired for its Published Products and Learning Technologies
reporting units. See Note F for further discussion of
goodwill and related impairment charges recognized in 2008 and
2009.
Long-Lived
Assets and Intangible Assets
The Company reviews the carrying value of its long-lived assets,
including intangible assets subject to amortization, for
impairment whenever events and circumstances indicate that the
carrying value of the assets may not be recoverable.
Recoverability of these assets is measured by comparison of the
carrying value of the assets to the undiscounted cash flows
estimated to be generated by those assets over their remaining
economic life. If the undiscounted cash flows are not sufficient
to recover the carrying value of such assets, the assets are
considered impaired, and the impairment loss is measured by
comparing the fair value of the assets to their carrying values.
Fair value is determined by either a quoted market price or a
value determined by a discounted cash flow technique, whichever
is more appropriate under the circumstances involved. Intangible
assets with determinable lives are amortized over their useful
lives, based upon the pattern in which the expected benefits
will be realized. For the nine months ended September 30,2009 and for the years ended December 31, 2008 and 2007,
the Company has determined there is no impairment of any of its
long-lived assets.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Income
Taxes
The Company uses an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases, as well as for operating loss and tax credit
carryforwards. A valuation allowance is applied against net
deferred tax assets if, based on the weight of available
evidence, it is more likely than not some or all of the deferred
tax assets will not be realized. Deferred tax assets and
liabilities are measured using tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
The Company adopted the new accounting guidance issued by the
FASB for uncertain tax positions in its financial statements as
of January 1, 2007. This guidance prescribes a two-step
process to determine the amount of tax benefit to recognize.
First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon examination by a tax
authority. If the tax position is deemed
“more-likely-than-not” to be sustained, the tax
position is then assessed to determine the amount of benefit to
recognize in the financial statements. The amount of the benefit
that may be recognized is the largest amount that has a greater
than 50 percent likelihood of being realized upon ultimate
settlement. If the tax position does not meet the
“more-likely-than-not” threshold, then it is not
recognized in the financial statements. The Company accrues
interest and penalties, if any, related to unrecognized tax
benefits as a component of income tax expense. See Note H
for discussion of the impact of adopting this guidance.
At the end of each interim period, the Company estimates the
annual effective tax rate and applies that rate to its ordinary
quarterly earnings. The tax expense or benefit related to
significant, unusual, or extraordinary items that will be
separately reported or reported net of their related tax effect,
and are individually computed are recognized in the interim
period in which those items occur. In addition, the effect of
changes in enacted tax laws or rates or tax status is recognized
in the interim period in which the change occurs.
The computation of the annual estimated effective tax rate at
each interim period requires certain estimates and significant
judgment including, but not limited to, the expected operating
income for the year, projections of the proportion of income
earned and taxed in various jurisdictions, permanent and
temporary differences, and the likelihood of recovering deferred
tax assets generated in the current year. The accounting
estimates used to compute the provision for income taxes may
change as new events occur, more experience is acquired,
additional information is obtained or as the tax environment
changes.
Derivative
Instruments and Hedging Activities
The Company uses an interest rate derivative instrument to hedge
its exposure to interest rate volatility resulting from its
Senior Facility (Note G). Accounting guidance for
derivatives and hedging requires that all derivative instruments
be reported on the balance sheet at fair value, and establishes
criteria for designation and effectiveness of hedging
relationships, including a requirement that all designations
must be made at the inception of each instrument. As such
initial designations were not made by the Company at inception,
changes in the fair value of the derivative instrument are
required to be recognized in the current period Statement of
Operations as other income or expense.
Derivative financial instruments involve, to a varying degree,
elements of market and credit risk not recognized in the
consolidated financial statements. The market risk associated
with these instruments resulting from interest rate movements is
expected to offset the market risk of the underlying
transactions, assets and liabilities being hedged. The
counterparty to the agreement relating to the Company’s
interest rate instrument
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
consists of a major financial institution. The Company does not
believe that there is significant risk of nonperformance by this
counterparty. While the contract or notional amounts of the
derivative financial instrument provide one measure of the
volume of these transactions, they do not represent the amount
of the Company’s exposure to credit risk. The amounts
potentially subject to credit risk (arising from the possible
inability of counterparties to meet the terms of their
contracts) are generally limited to the amounts, if any, by
which the counterparties’ obligations under the contracts
exceed the obligations of the Company to the counterparties. The
Company does not hold or use any derivative financial
instruments for trading purposes.
The fair value of the interest rate swap is obtained from a
third-party quote. This value represents the estimated amount
the Company would receive or pay to terminate the agreement
taking into consideration current interest rates.
Stock-Based
Compensation
The Company adopted new accounting guidance for share based
payments effective January 1, 2006. This guidance requires
non-public companies that used the minimum value method in
previous guidance for either recognition or pro forma
disclosures to apply the revised guidance using the
prospective-transition method. The Company recognizes the
compensation cost of employee stock-based awards using the
straight line method over the vesting period of the award.
Effective with the adoption of this revised guidance, the
Company has elected to use the Black-Scholes option pricing
model to determine the fair value of stock options granted.
As a result of the April 11, 2007 acquisition of Cambium by
Holding Company, all unvested stock options outstanding on
February 28, 2007 were accelerated and vested in full
effective immediately prior to the closing. At that time, all
outstanding options were canceled and converted to the right to
receive a lump-sum cash payment in an amount equal to the excess
of $2.5476 per share over the exercise price for each option.
For certain employees, a portion of their lump-sum cash payment
was held in escrow in accordance with the acquisition agreement.
The stock option plan was subsequently terminated.
For the period January 1, 2007 through April 11, 2007,
the Company recorded stock-based compensation of $2,872,650, of
which $2,254,780 was paid in cash in connection with stock-based
awards accounted for in accordance with the revised guidance and
$617,870 was held in escrow. As a result of the settlement with
the former stockholders (Note A), in 2008 the $617,870 held
in escrow was reversed and recorded as income in interest and
other expenses in the accompanying Consolidated Statements of
Operations. For the year ended December 31, 2006, the
Company recorded stock-based compensation of $260,442.
Recently
Issued Accounting Standards
In September 2006, the FASB issued new accounting guidance on
fair value measurements and disclosures. This statement defines
fair value, establishes a framework for measuring fair value,
and expands disclosures regarding fair value measurements. This
issuance does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information. The provisions were adopted for all recurring
financial assets and liabilities beginning fiscal 2009 and the
adoption did not have a material effect on the Company’s
consolidated financial condition, results of operations or cash
flows.
In December 2007, the FASB issued new accounting guidance on
business combinations. This guidance establishes principles and
requirements for how an acquirer accounts for business
combinations. This issuance includes guidance for the
recognition and measurement of the identifiable assets acquired,
the liabilities assumed, and any noncontrolling or minority
interest in the acquiree. It also provides guidance for the
measurement of goodwill, the recognition of contingent
consideration, the accounting for pre-acquisition gain
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
and loss contingencies and acquisition-related transaction
costs, and the recognition of changes in the acquirer’s
income tax valuation allowance. This accounting guidance applies
prospectively and is effective for business combinations made by
Cambium beginning January 1, 2009. The provisions are
effective as of Cambium’s first quarter ended
March 31, 2009; however, adoption did not have a material
effect on Cambium’s financial condition, results of
operations or cash flows.
In December 2007, the FASB issued new accounting guidance on the
reporting of noncontrolling interests in consolidated financial
statements. Currently, Cambium does not have an outstanding
noncontrolling interest in one or more subsidiaries, nor does it
deconsolidate any subsidiaries. The new accounting guidance will
be effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. The
provisions are effective as of Cambium’s first quarter
ended March 31, 2009; however, adoption did not have a
material effect on Cambium’s consolidated financial
condition, results of operations or cash flows.
In April 2008, the FASB issued new accounting guidance on the
determination of the useful life of intangible assets. The new
guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under previous
guidance for goodwill and other intangible assets. This issuance
is effective for fiscal years beginning after December 15,2008. The provisions are effective as of Cambium’s first
quarter ended March 31, 2009; however, adoption did not
have a material effect on Cambium’s financial condition,
results of operations or cash flows.
In April 2009, the FASB issued new guidance related to
determining fair value when the volume and level of activity for
the asset or liability have significantly decreased and
identifying transactions that are not orderly, which provides
additional guidance for estimating fair value in accordance with
the guidance for fair value measurements, when the volume and
level of activity for the asset or liability have significantly
decreased. This issuance also includes guidance on identifying
circumstances that indicate a transaction is not orderly. The
new accounting guidance is effective for interim and annual
periods ending after June 15, 2009, and shall be applied
prospectively. The provisions are effective as of Cambium’s
second quarter ended June 30, 2009; however, adoption did
not have a material effect on Cambium’s financial
condition, results of operations or cash flows.
In April 2009, the FASB issued new accounting guidance on
recognition and presentation of other-than temporary
impairments, which provides operational guidance for determining
other-than-temporary impairments (“OTTI”) for debt and
equity securities classified as available-for-sale and
held-to-maturity. This guidance was effective for interim and
annual periods ending after June 15, 2009. The provisions
are effective as of Cambium’s second quarter ended
June 30, 2009; however, adoption did not have a material
effect on Cambium’s financial condition, results of
operations or cash flows.
In April 2009, the FASB issued new accounting guidance on
interim disclosures about fair value of financial instruments,
which amends previous guidance on disclosures about fair value
of financial instruments to require disclosure about fair value
of financial instruments in interim financial statements. This
new guidance is effective for interim and annual periods ending
after June 15, 2009. The provisions were effective as of
Cambium’s second quarter ended June 30, 2009; however,
adoption did not have a material effect on Cambium’s
financial condition, results of operations or cash flows.
In May 2009, the FASB issued new accounting guidance relating to
subsequent events. This guidance establishes general standards
for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued and shall be applied to subsequent
events not addressed in other applicable generally accepted
accounting principles. This issuance, among other things, sets
forth the period after the balance sheet date during which
management should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial
statements, the
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its
financial statements and the disclosures an entity should make
about events or transactions that occurred after the balance
sheet date. This guidance is effective for Cambium’s
interim and annual financial periods ending after June 15,2009. The provisions were effective as of Cambium’s second
quarter ended June 30, 2009; however, adoption did not have
a material effect on Cambium’s financial condition, results
of operations or cash flows.
In June 2009, the FASB issued new guidance to address the
elimination of the concept of a qualifying special purpose
entity and replaces the quantitative-based risks and rewards
calculation for determining which enterprise has a controlling
financial interest in a variable interest entity. Also, the new
guidance requires an ongoing assessment of whether an entity is
the primary beneficiary of a variable interest entity. The
amended approach focuses on identifying which enterprise has the
power to direct the activities of a variable interest entity and
the obligation to absorb losses of the entity or the right to
receive benefits from the entity. Additionally, the new guidance
provides more timely and useful information about an
enterprise’s involvement with a variable interest entity.
The provisions will become effective for the first annual period
starting after November 15, 2009. Cambium is currently
evaluating the impact of this standard on its consolidated
financial condition, results of operations and cash flows.
During the third quarter of 2009, Cambium adopted the new
Accounting Standards Codification (ASC) as issued by the FASB.
The ASC has become the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental
entities. The ASC is not intended to change or alter existing
GAAP.
NOTE C —
ACQUISITIONS
Acquisition
of Cambium Learning, Inc.
On April 12, 2007, the Holding Company acquired Cambium and
its subsidiaries: Cambium Learning (New York), Inc., Sopris West
Educational Services, Inc. (Sopris West), Kurzweil Educational
Systems, Inc., and IntelliTools, Inc. The Company determined
that combining their media expertise and capital with the strong
growth potential that existed in the pre K — 12
educational marketplace for the types of products and services
provided by Cambium would create a more competitive company. In
reaching its decision to acquire Cambium, which resulted in the
recognition of $192,287,323 of goodwill, there were a number of
reasons why the Company believed the acquisition would be
beneficial. These potential benefits include:
•
Capitalizing on a growing market and the need for accountability.
•
Increasing program penetration by expanding sales from current
customers.
•
Expanding geographic footprint in rural areas.
•
Exploring acquisition opportunities in a fragmented market.
The acquisition was funded through a combination of $140,108,857
of cash, $3,915,000 of executive rollover shares, and
$172,104,739 of debt, net of issuance costs. The aggregate
purchase price, net of cash acquired and executive rollover
shares was $303,235,675, of which $21,000,000 was held in
escrow. The $21,000,000 held in escrow consisted of $1,000,000
held in a Purchase Price Escrow and $20,000,000 held in an
Indemnity Escrow. The Purchase Price Escrow fund was established
to support a post-closing working capital adjustment. The
Indemnity Escrow was established to support any deficiencies in
the Purchase Price Escrow and to secure the payment of any
indemnification claims made by the purchaser pursuant to the
acquisition agreement. The acquisition agreement contained
customary general indemnification protection for breaches of
representations and warranties during a specified post-closing
survival period. Except to the extent a claim was pending, the
Indemnity Escrow was to be automatically released in full to the
sellers on May 30, 2008, unless the 2007 audited financial
statements were delivered before May 1, 2008, and then
30 days after
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
such delivery, but in no event could the release to the sellers
occur before April 12, 2008. If a claim were pending at
the time of release, then the amount of that claim would remain
in the escrow until it was resolved, and the undisputed amounts
were to be released to the sellers. At closing, the purchaser
received a certificate from the sellers certifying that all of
the sellers’ representations and warranties were true and
correct. Thus, at the time of closing, the purchaser had no
reason to believe that any such representations or warranties
would prove to be inaccurate, and, consequently, no reason to
believe it would assert any claims against the Indemnity Escrow.
The accounting guidance issued by FASB that was in effect at the
time of closing prescribes the accounting treatment for escrows
such as the Indemnity Escrow. It requires certain future
contingent consideration to be included in the purchase price of
an acquisition only after the contingency has occurred and the
consideration has been delivered to the sellers, and pending
occurrence of the contingency, the amount of such consideration
is to be recorded on the balance sheet as a liability and not
included in purchase price. However, where the expectation of
making the future payment is beyond a reasonable doubt, then it
is not deemed contingent. A release of consideration from an
indemnity escrow which secured claims for breaches of
representations and warranties is deemed to be beyond a
reasonable doubt, based upon the assumption that representations
and warranties are accurate when made. Escrowed amounts which
secured such breaches, like the Indemnity Escrow, are,
therefore, not deemed to be contingent, absent a pre-acquisition
contingency that was subject to the escrow. Thus, the amount of
consideration placed in the Indemnity Escrow at closing was
included in the purchase price. In 2007, $1,000,000 of the
Purchase Price Escrow was released for a purchase price
adjustment related to net working capital. As disclosed in
Note A, Cambium Learning, Inc. suffered a loss resulting
from an embezzlement that was discovered in late April 2008. The
purchaser asserted indemnity claims against the sellers with
respect to that loss, and settled those claims in July 2008. The
settlement negotiations were memorialized in an agreement dated
July 10, 2008 by and between the former stockholders of the
predecessor company and the members of the successor company,
and resulted in the remaining Indemnity Escrow being distributed
in its entirety to VSS-Cambium Settlement Fund, LLC (Settlement
Fund), acting as an agent for Cambium Learning, Inc. Also, the
former stockholders of the predecessor company agreed to
contribute an additional $9,269,098 to the Settlement Fund. The
total settlement of $30,202,083, including interest income of
$932,985, was distributed by the Settlement Fund to Cambium
Learning, Inc. and used to cover costs and pay down a portion of
the senior credit facility and is reflected in gain from
settlement with previous stockholders in the Consolidated
Statements of Operations. The Settlement Fund was designated as
the agent to act as a receiving and paying agent, since the
settlement monies had to be received from the several sellers
and then distributed to several parties, consisting of the
various lenders and professional advisors; having the Settlement
Fund act as agent facilitated this flow of funds at a time when
the Company was concluding its internal investigation. Despite
these escrow releases, the expected accuracy of the
representations and warranties provided a reasonable basis to
find sufficient certainty with respect to the sellers’
entitlement to the escrows and, consequently, to include them in
the purchase price at closing.
The acquisition was accounted for as a purchase transaction. The
consolidated financial statements of Holding Company includes
the results of Cambium from the date of acquisition. The
purchase price was allocated among tangible and intangible
assets acquired and liabilities assumed based on fair values at
the transaction date. The excess of the purchase price over the
acquired tangible and intangible assets and liabilities was
recorded as goodwill. The Company acquired the stock and,
therefore, the additional goodwill resulting from this
transaction is not expected to be tax deductible. The Company
has established deferred taxes on the other nondeductible
intangible assets as part of the purchase price.
In connection with the acquisition, certain executives carried
over a portion of their investment to the Holding Company. The
rollover shares were valued at $3,915,000 based on the fair
value of their equity interest in Cambium at the time of the
acquisition. This amount was converted into a membership
interest which was based on the percentage of $3,915,000 to the
total $144,023,857 of contributed capital.
Goodwill of $153,533,164 and $38,754,159 purchased in the
acquisition has been allocated to the Company’s Publishing
and Learning Technologies reporting units, respectively, based
on their relative fair values. Valuations were established
giving consideration to the three basic approaches to value with
the method or methods applied for each asset depending on the
nature of the asset and the type and reliability of information
available for the analysis and were based upon the
Company’s projected revenue growth assumptions through each
asset’s estimated useful life. Discounted cash flows were
based upon the Company’s weighted average cost of capital
of 12% and an estimated effective tax rate of 40%. Publishing
rights were valued using a form of the income approach known as
the excess earnings method. Trademarks and developed technology
were valued using a form of the income approach known as the
relief-from-royalty method. Customer relationships, conference
attendees and reseller networks were valued using the residual
cash flow method and customer contracts were valued using
various forms of the income approach depending on the nature of
the individual contract. Non-compete agreements were valued
using a form of the income approach known as the profit
differential method.
Acquisition
of Certain Assets of Tobii Assistive Technology,
Inc.
On July 25, 2008, Cambium acquired certain intellectual
property rights and an inventory of titles with related author
agreements of Tobii Assistive Technology, Inc., a Massachusetts
corporation, for $112,003. The cash used to fund this
acquisition came from the Company’s general working
capital. The purchase price was allocated as follows: $52,003 to
goodwill (deductible for tax purposes), $39,000 to customer
lists and $21,000
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
to developed technology. The customer lists and developed
technology will be amortized on a straight-line basis over their
useful lives of two years and three years, respectively.
Predecessor
Acquisitions
Acquisition
of IntelliTools, Inc.
On February 13, 2006, Cambium acquired IntelliTools, Inc.
(IntelliTools), a California-based provider of technology to
struggling students with limited English proficiency or in need
of additional instructional support. Upon completing the
acquisition, the Company combined IntelliTools with Kurzweil to
form the Cambium Learning Technologies Group (CLT). In reaching
the decision to acquire IntelliTools, which resulted in the
recognition of $5,616,638 of goodwill, there were a number of
specific reasons why the Company believed the acquisition would
be beneficial. The Company believed that:
•
IntelliTools, combined into CLT, would be able to provide a more
complete offering to special needs students, generating
additional sales.
•
IntelliTools, combined into CLT, would be able to achieve
significant economies of scale and greater market penetration by
utilizing a single direct selling, marketing, reseller network,
and development team.
•
By combining the back office administration and systems, the
Company would be able to reduce its costs.
The aggregate purchase price, net of cash acquired, was
$9,340,829, of which $1,500,000 was initially held in escrow,
and as of December 31, 2006 and 2007, $1,000,000 and
$500,000, respectively, remained in escrow. The acquisition
agreement allows for up to an additional $400,000 of
consideration contingent upon the achievement of certain
financial targets. As of December 2006, the entire
contingent payment of $400,000 was accrued, which resulted in
additional goodwill. The cash used to finance this acquisition
was a $10,400,000 equity contribution. The acquisition was
accounted for as a purchase transaction. The consolidated
financial statements include the results of IntelliTools from
the date of acquisition. The purchase price was allocated among
tangible and intangible assets acquired and liabilities assumed
based on fair values at the transaction date. The excess of the
purchase price over the acquired tangible and intangible assets
and liabilities was recorded as goodwill. The Company acquired
the stock of IntelliTools and both seller and buyer made an
election under §338(h)(10) of the Internal Revenue Code to
treat the acquisition as an asset acquisition for tax purposes.
Therefore, the goodwill and other intangible assets resulting
from this transaction will be tax deductible.
The following represents the allocation of the purchase price:
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Other identified intangibles acquired consist of the following:
Estimated Useful
Asset
Fair Value
Life
Developed technology
$
1,770,000
4 years
Trademarks and patents
530,000
Indefinite
Noncompete
100,000
3 years
Customer relationships
1,730,000
9 years
Total other identified intangibles
$
4,130,000
Acquisition
of Certain Assets of Lexia Learning, Inc.
On March 10, 2006, Cambium acquired certain publishing
rights and inventory of the Lexia Learning Systems, Inc., a
Massachusetts corporation, for approximately $356,000. The cash
used to fund this acquisition came from the Company’s
general working capital. Approximately $315,000 of the purchase
price was allocated to publishing rights and $41,000 to
inventory. The publishing rights will be amortized on an
accelerated basis over its useful life of ten years.
Acquisition
of Certain Assets from Jane Fell Greene
On September 29, 2006, Cambium agreed to acquire all the
copyrights and trademarks for the LANGUAGE! Product for
$20,008,677. The cash used to fund this acquisition came from
the Company’s general working capital. The purchase price
was allocated as follows:
Estimated Useful
Asset
Fair Value
Life
Pre-paid expenses
$
120,000
Copyrights
15,588,677
10 years
Trademarks
4,300,000
14 years
Purchase price
$
20,008,677
Concurrent with the acquisition of the copyrights and trademarks
for LANGUAGE!, the Company entered into a new author
agreement with Jane Fell Greene, which cancelled all previous
agreements between the Company and Ms. Greene.
NOTE D —
PERFORMANCE SHARE PLAN
At the time of the acquisition of Cambium by Holding Company,
the Company agreed to pay for a long-term incentive plan for
Sopris West employees. The Company recorded a liability at fair
value on the date of acquisition due to the commitment being
fixed. The Company paid $220,865 in 2006 and the aggregate
amount accrued as of April 11, 2007 and paid on
June 30, 2007 under this plan was $7,558,990. No further
amounts were due at December 31, 2008 or December 31,2007.
Total other intangibles — Accumulated Amortization
(19,971,099
)
(24,872,610
)
—
(44,843,709
)
(17,241,343
)
—
(62,085,082
)
Other intangible assets, net
$
123,408,901
$
(24,812,610
)
$
—
$
98,596,291
$
(17,241,343
)
—
$
81,354,948
In accordance with accounting guidance for goodwill and other
intangibles, goodwill is not amortized but instead reviewed at
least annually and if a triggering event is determined to have
occurred in the interim period, the Company’s annual
impairment testing is performed as of December 1 of each year.
The first step of impairment testing for 2008 showed that the
book value of the Published Products unit exceeded its fair
value and a second step of impairment testing was required. The
second step requires the allocation of the fair value of a
reporting unit to all of the assets and liabilities of that
reporting unit as if the reporting unit had been acquired in a
business combination. The fair value was determined using an
income approach based upon forecasted operating results. As a
result of the second step of the 2008 impairment test, goodwill
for the Published Products unit, as of the measurement date, was
determined to be partially impaired. The estimates of fair value
used in the testing are dependent upon multiple assumptions,
estimates and inputs. As of December 31, 2008, the
estimated fair market value of the Published Products unit was
estimated to have fallen below book value as a result of the
economic downturn, which has decreased the amount of state and
local funding available for school districts to purchase
educational materials. As a result of these factors, an
impairment charge of $75,966,164 was recorded in 2008. In June
2009, Cambium announced that it had entered into a merger
agreement. This planned business combination is a triggering
event requiring impairment testing for Cambium’s reporting
units. The first step of impairment testing as of June 30,2009 showed that the carrying value of the Company’s
Published Products unit exceeded its fair value and that a step
two was needed.
Cambium also determined that the appropriate discount rate for
its Published Products unit (based on weighted-average cost of
capital) used in the 2009 assessment should be higher than the
discount rate used in
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
the 2008 impairment assessment. The development of the discount
rates for its Published Products and Learning Technologies
reporting units were developed based on market information as of
the valuation date. Consistent with the December 31, 2008
impairment testing, additional adjustments were made for both
reporting units to account for risk associated with achieving
the financial projections. A higher risk adjustment was used in
the current analysis for the Published Products unit due to the
uncertainties associated with achieving anticipated revenue and
profit growth in light of recent financial results. As a result
of the second step of the Company’s June 30, 2009
impairment testing, the goodwill balance of the Published
Products unit as of the measurement date was determined to be
partially impaired. As a result of these factors, an impairment
charge of $9.1 million was recorded as of June 30,2009. As of December 31, 2007 and September 30, 2009the Company performed the first step in the impairment test and
determined that goodwill was not impaired for its Published
Products and Learning Technologies reporting units.
As discussed further in Note L, effective January 1,2008, the Company adopted new accounting guidance for fair value
measurements and disclosures for its financial assets and
liabilities. The fair value of intangible assets is based upon
the Company’s market assumptions and derived from valuation
techniques in which significant value drivers are unobservable
(Level 3). Valuations were established giving consideration
to the three basic approaches to value with the method or
methods applied for each asset depending on the nature of the
asset and the type and reliability of information available for
the analysis and were based upon the Company’s projected
revenue growth assumptions through each asset’s estimated
useful life. The rate of return used to discount cash flow based
upon the Company’s weighted average cost of capital were
15%, 14% and 12% at June 30, 2009, December 31, 2008
and December 31, 2007, respectively and assumed an
effective tax rate of 40%. Publishing rights were valued using a
form of the income approach known as the excess earnings method.
Trademarks and developed technology were valued using a form of
the income approach known as the relief-from-royalty method.
Customer relationships, conference attendees and reseller
networks were valued using the residual cash flow method and
customer contracts were valued using various forms of the income
approach depending on the nature of the individual contract.
Non-compete agreements were valued using a form of the income
approach known as the profit differential method. For the period
ended September 30, 2009 and for the years ended
December 31, 2008 and 2007, the Company has determined that
there is no impairment of any of its intangible assets.
Amortization expense for publishing rights, trademarks, customer
relationship, and other intangible assets was $17,241,343 and
$18,650,594, for the nine months ended September 30, 2009
and 2008, respectively, and $24,872,610, $19,971,099, $3,335,225
and $10,835,971 for the year ended December 31, 2008, for
the period from January 29, 2007 to December 31, 2007,
for the period from January 1, 2007 to April 11, 2007,
and for the year ended December 31, 2006, respectively.
Estimated aggregate amortization expense expected for each of
the next five years related to intangibles subject to
amortization is as follows:
$128,000,000 of floating rate senior debt due April 11,2013, interest payable quarterly
$
97,699,534
$
102,760,000
$
127,040,000
$65,597,068 of 14.25% senior unsecured notes due
April 11, 2014, interest payable quarterly
54,006,956
52,307,018
50,641,960
151,706,490
155,067,018
177,681,960
Less amounts due in one year
1,280,000
1,280,000
1,280,000
Total long-term debt
$
150,426,490
$
153,787,018
$
176,401,960
As a result of the Embezzlement Matter and the relevant
investigation, the Company was unable to issue its 2007
financial statements until after April 14, 2008, causing a
financial reporting default under the Senior Facility and Senior
Unsecured Notes Agreement. Pursuant to waivers entered into
among the Company, the administrative agent under the Senior
Facility, and the required lenders, and waivers entered into
among the Company, the administrative agent under the Senior
Unsecured Notes Agreement, and the required noteholders on
May 20, 2008, the required lenders under the Senior
Facility and the required noteholders under the Senior Unsecured
Note Agreement each temporarily waived the financial reporting
defaults, and extended the date upon which the Company was
required to deliver the relevant financial reports until
August 15, 2008. During the period of temporary waiver,
interest on the senior secured loans made pursuant to the Senior
Facility and Senior Unsecured Notes was calculated at 2% higher
than the original rate, as called for in the agreements. The
additional interest for the Senior Unsecured Notes was added to
the principal of the notes and is payable at maturity.
While in default, including the period of temporary waiver, the
Company was prohibited from borrowing against the revolving
loans made pursuant to the Senior Facility. In order to assist
the Company in meeting its seasonal, short-term financing
requirements, three members of the Company made unsecured loans
to the Company totaling $7,000,000, payable October 11,2014, with interest at 14% per year, payable quarterly beginning
June 30, 2008.
On August 22, 2008the Company entered into a Permanent
Waiver and Amendment (Permanent Waiver) with its Senior Facility
and Senior Unsecured Notes lenders. Under the terms and
conditions of the Permanent Waiver, the lenders waived the
default arising from the embezzlement and resulting financial
reporting default, and agreed to other terms and conditions
further described in this note.
The EBITDA definition in the agreement has been modified and the
adjustments will now include losses and expenses incurred as a
result of the Embezzlement Matter.
The Permanent Waiver required the Company to pay an amendment
fee and increased the interest rate on the Senior Credit
Facility and Senior Unsecured Notes.
In connection with the Permanent Waiver, the $7,000,000 in
unsecured loans described above were converted to capital stock
of Holding Company on June 30, 2008.
Deferred financing costs are capitalized in other assets, net of
accumulated amortization, and are amortized over the term of the
related debt using the effective interest method. In connection
with the successor financings above, the Company incurred
$5,895,261 in financing costs. Capitalized deferred
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
financing costs at August 22, 2008 (date of Permanent
Waiver) and at December 31, 2007 were $4,594,453 and
$5,198,568, respectively.
In accordance with the accounting guidance for modifications or
exchanges of debt instruments, the modifications to the Senior
Secured Credit Facility and Senior Unsecured Notes resulting
from the Permanent Waiver were analyzed to determine whether the
refinancing would be recorded as an extinguishment of debt or a
modification of debt. Based upon this analysis, it was
determined that the modification qualified as extinguishment of
debt, with associated unamortized deferred financing costs and
amendment fees included in debt extinguishment gain or loss. The
Company recognized a total pre-tax charge of $5,632,544
consisting of deferred financing costs of $4,594,453 and
amendment fees of $1,038,091, recorded as loss on extinguishment
of debt on the accompanying Consolidated Statement of Operations.
At December 31, 2008, the future minimum repayments under
long-term debt, including
paid-in-kind
interest, are payable as follows:
2009
$
1,280,000
2010
1,280,000
2011
1,280,000
2012
1,280,000
2013
97,640,000
Thereafter
65,597,068
Total debt repayment
$
168,357,068
In June 2007, the Company entered into an interest rate swap
contract, with a notional amount of $39.0 million, which
expires in June 2010. Under the agreement, to the extent that
LIBOR exceeds a fixed maximum rate, the Company will receive
payments on the notional amount. The total fair value of this
financial instrument at September 30, 2009,
December 31, 2008 and December 31, 2007 amounted to a
liability of approximately $1.5 million, $2.4 million
and $1.5 million, respectively, and is included in other
long-term liabilities in the accompanying Consolidated Balance
Sheets. During the nine months ended September 30, 2009 and
2008, the Company recognized gains of $920,504 and 129,724
respectively, and for the year ended December 31, 2008 and
for the period from January 29, 2007 through
December 31, 2007, the Company recognized losses of
$847,599 and $1,534,379, respectively, on changes in fair market
value of the interest rate swap, which has been included in
interest and other expenses in the accompanying Consolidated
Statements of Operations.
Credit
Agreements of the Successor — Senior Secured Credit
Facility
On April 12, 2007, Cambium entered into a $158,000,000
Senior Secured Credit Facility (the Senior Facility) with
several banks for which Holding Company is a guarantor. The
Senior Facility was comprised of a $30,000,000 revolving credit
agreement (the Revolver) and a $128,000,000 loan agreement. The
Senior Facility, including the Revolver for which Cambium pays
annual commitment fees, expires on April 11, 2013. The
Senior Facility is collateralized by all of Cambium’s
personal property. Under the original agreement, the interest
rate on the Senior Facility was based upon either the one-,
three- or six-month LIBOR rate plus 2.75%.
Due to the Permanent Waiver, the interest rate on the Senior
Facility will now be based on one-, three- or six-month LIBOR or
ABR rate plus a spread as determined by the Company’s
credit ratings. Based on current ratings the spread would be
LIBOR plus 6.50%. The Permanent Waiver also places a floor on
the two rates. The LIBOR rate will not be less than 3.00%, and
the ABR rate will not be less than 4.00%. As of
September 30, 2009, the interest rate on the Senior
Facility was 9.5%.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The loan agreement requires quarterly principal payments of
$320,000. As of September 30, 2009, Cambium had borrowings
of $15,000,000 under the Revolver, and subject to certain
borrowing base capacity limitations for outstanding letters of
credit, had $13,518,000 available to borrow. At
September 30, 2009, the interest rate on the Revolver was
9.5%.
On August 27, 2008, in accordance with the terms of the
Permanent Waiver, $23,000,000 was used to prepay the
Tranche B Loans of the Senior Facility. In addition, the
Company has begun the process of recovery of the embezzled
funds. The net cash proceeds from any future recovery will be
used to make prepayments on the Senior Facility.
The Senior Facility includes a financial covenant which is a
total leverage ratio. The ratio is calculated quarterly using
EBITDA, which is defined as earnings before interest paid,
taxes, depreciation, and amortization, and other adjustments
allowed under the terms of the agreement, on a rolling
12-month
basis. It also contains customary covenants, including
limitations on Cambium’s ability to incur debt, and events
of default as defined by the agreement. The Senior Facility also
limits Cambium’s ability to pay dividends, to make
advances, and otherwise engage in inter-company transactions.
The Senior Facility requires the total leverage ratio to be no
greater than 8.0:1 in 2007, 7.75:1 for the second quarter of
2008, 7.50:1 starting the third quarter of 2008 and 6.50:1
starting the first quarter of 2009.
In the event that Cambium fails to comply with the financial
covenant, Holding Company has the right to make a one-time cash
contribution to the capital of Cambium, the aggregate amount not
to be in excess of the minimum amount necessary to cure the
relevant failure to comply with the financial covenant. Upon
receipt by Cambium of such cash, the financial covenant will be
recalculated giving effect to the pro forma adjustments. EBITDA
shall be increased by the amount of cash contributed, solely for
the purpose of measuring the financial covenant. Cambium
Learning’s senior secured credit agreement contains a
financial covenant regarding Cambium Learning’s total
leverage ratio as of the end of each fiscal quarter. Cambium
Learning’s senior unsecured credit agreement contains a
financial covenant regarding Cambium Learning’s minimum
adjusted EBITDA (calculated as set forth in the credit
agreements) as of the end of each fiscal quarter. For the fiscal
quarter ended June 30, 2009, Cambium Learning’s total
leverage ratio was greater than the maximum permitted 6.5:1, and
Cambium Learning’s adjusted EBITDA was less than the
minimum required $25 million. As of August 14, 2009,
Cambium Learning was in non-compliance with these covenants. On
August 14, 2009, Cambium notified both its senior secured
lenders and senior unsecured debt holders that VSS-Cambium
Holdings intended to cure the non-compliance. On August 17,2009, $3.0 million of capital was contributed to Cambium
Learning to fund the cure. On August 20, 2009, the $3.0
million was paid to the senior secured lenders and reduced the
principal amount outstanding on Cambium Learning’s senior
secured credit agreement. Cambium Learning is permitted one such
cure right in each fiscal year. An uncured default with respect
to either of these financial covenants could, if not waived by
the lenders and the noteholders, result in acceleration of the
indebtedness under Cambium Learning’s credit facilities.
Cambium Learning may not have sufficient funds to repay the
indebtedness, and there may not be equity or debt financing
opportunities available to Cambium Learning on acceptable terms,
or at all. Based on Cambium Learning’s performance to date,
Cambium Learning is, with respect to the quarter ended September30, 2009, and expects to be, with respect to the quarter ending
December 31, 2009, in compliance with its financial covenants.
Credit
Agreements of the Successor — Senior Unsecured
Notes
On April 12, 2007, Cambium entered into a Note Purchase
Agreement and sold 11.75% notes due April 11, 2014
(the Senior Unsecured Notes), generating gross proceeds of
$50 million, in a private placement. The Senior Unsecured
Notes are guaranteed by Holding Company and pay cash interest
equal to 10.0% on a quarterly basis. The remaining 1.75% of
interest is not due until April 11, 2014.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Due to the Permanent Waiver, the Senior Unsecured Notes interest
rate was increased by 2% from the interest rate called for in
the agreements. If the Total Leverage Ratio exceeds 5.5 to 1 the
interest rate will increase by an additional 0.50%. As of
December 31, 2008, the additional interest rate was 4.25%.
The additional interest for the Senior Unsecured Notes is added
to the principal of the notes and payable at maturity. Assuming
the additional interest rate remains at 4.25% until
April 11, 2014, the value of these notes, including accrued
interest, will be $65,597,068. At September 30, 2009, the
total outstanding balance and accrued interest on the Senior
Unsecured Notes was $54,006,956.
The Note Purchase Agreement includes a financial covenant, which
requires that beginning with the quarter ended March 31,2009, Holding Company maintains as of the end of each fiscal
quarter a consolidated EBITDA of not less than $25,000,000,
which is defined as earnings before interest paid, taxes,
depreciation, and amortization, and other adjustments allowed
under the terms of the agreement, on a rolling
12-month
basis. It also contains customary covenants, including
limitations on Cambium’s ability to incur debt, and events
of default as defined by the agreement.
Credit
Agreement of the Predecessor
On March 7, 2005, Cambium had entered into a credit
agreement that provided Cambium with a senior secured revolving
credit facility (the Predecessor Revolver), subject to borrowing
base limitations. On February 27, 2006, Cambium amended the
line of credit agreement. The amendment increased the
Predecessor Revolver to $12,500,000, for which Cambium paid
annual commitment fees, and extended the expiration date to
May 30, 2008. Borrowings under the Revolver were
collateralized by all of Cambium’s personal property and
the Predecessor Revolver pledges all stock owned by Cambium and
EdNewco, LLC as additional security. On April 12, 2007, the
Predecessor Revolver was terminated, and all borrowings under
the Predecessor Revolver were paid in full.
Long-Term
Debt — Related Party
Long-term debt — related party at April 11, 2007
consisted of $17,500,000 of 5.5% unsecured notes issued to the
former owner of Sopris West due January 30, 2009. Interest
on the notes was payable semi-annually. The notes were repaid in
full on April 12, 2007, concurrent with the Holding
Company’s acquisition of Cambium.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The net deferred tax liabilities are stated at prevailing
statutory income tax rates. Deferred tax assets and liabilities
reflected on the Company’s consolidated balance sheets are
as follows:
For the nine month period ended September 30, 2009, the
major components attributable to the difference between the
Federal statutory rate of 35% and the actual rate are from the
impairment of goodwill, state taxes, non-deductible meals and
entertainment and transaction costs. In 2008, the major
components attributable to the difference between the Federal
statutory rate of 35% and the actual rate are the proceeds from
settlement with previous stockholders, impairment of goodwill,
state income taxes, valuation allowances, and non-deductible
meals and entertainment expenses. In the period ended
December 31, 2007, the major components attributable to the
difference between the Federal statutory rate of 35% and the
actual rate are state taxes, nondeductible meals and
entertainment, and in-process research and development. In the
period ended April 11, 2007, the major components
attributable to the difference between the Federal statutory
rate of 35% and the actual rate are valuation allowances, state
taxes, nondeductible meals and entertainment, and nondeductible
acquisition costs. In 2006, the major components attributable to
the difference between the federal statutory rate of 35% and the
actual tax rate are valuation allowances, state taxes,
nondeductible meals and entertainment, the manufacturer’s
deduction under Section 199 of the Internal Revenue Code,
and the extraterritorial income exclusion.
As of December 31, 2008, the Company had Federal
consolidated net operating loss carryforwards of approximately
$18,100,000, of which $2,600,000 expire in 2027 and $15,500,000
expire in 2028.
The deferred tax assets at December 31, 2008, 2007 and 2006
were reduced by valuation allowances of $2,857,867, $1,032,806
and $2,325,966, respectively, which in 2008 and 2007 were
principally related to tax benefits of capital losses and state
net operating loss carryforwards that are not expected to be
realized and in 2006 were related to the tax benefits of
amortization of intangibles, capital losses and state net
operating losses not expected to be realized.
The Predecessor’s Federal Income Tax returns for the years
2005 and 2006 have been examined by the Internal Revenue Service
and all outstanding issues were settled in 2008. The results of
the examination are reflected in the Company’s tax accounts
and provision.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The income tax expense (benefit) computed using the federal
statutory income tax rate differs from Cambium’s effective
tax rate primarily due to the following:
Prior to the initial filing of an
S-4
Registration Statement by Cambium Learning Group, Inc. (f/k/a
Cambium-Voyager Holdings, Inc.), the Company was considered a
private company, and therefore, in accordance with the
FASB’s new accounting guidance for accounting for
uncertainty in income taxes, the Company elected to defer the
effective date to its annual financial statements for fiscal
years beginning after December 15, 2008. As a result of
such filing, the Company has adopted the new accounting guidance
as of January 1, 2007, at which time differences between
the amounts recognized in the financial statements prior to the
adoption of the new guidance and the amounts recognized after
adoption are to be accounted for as a cumulative effect
adjustment recorded to the beginning balance of retained
earnings. As of the adoption date of January 1, 2007, and
also at December 31, 2007 and 2008, the Company had no
unrecognized tax benefits. The Company or its subsidiaries file
income tax returns in the U.S. federal jurisdictions and
various U.S. state jurisdictions. The tax years which
remain subject to examination by major tax jurisdictions as of
December 31, 2008 include 2007 and 2008 (Federal) and
2004-2008
(State).
NOTE I —
MEMBERS’ EQUITY
VSS-Cambium
Holdings, LLC
Holding Company was formed on January 29, 2007, and on that
date entered into a stock purchase agreement that provided for
the purchase by Holding Company of all of the outstanding stock
of Cambium. Each Investor and Executive Member (Member)
contributed capital which totaled $144,023,857, including cash
and carryover interest, and was issued a membership interest in
Holding Company. The capital contributed was then used to
purchase the outstanding stock of Cambium on April 12,2007. On January 15, 2008, $750,000 of capital was
contributed by a new investor for a membership interest in
Holding Company. On June 30, 2008, the $7,000,000 in
unsecured loans (Note G) were converted to capital
stock of Holding Company. A capital stock issuance fee of
$99,306 was paid by the Company. No future capital contribution
is required to Holding Company by its Members.
Holding Company distributes cash and securities at the times
determined by the Board at its sole discretion. The amount of
each distribution is as follows:
a) first, to the Members, in proportion to their membership
interest, until the aggregate amount equals the aggregate amount
of their capital contributions;
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
b) second, to the Members, in proportion to their
respective percentages, a return on the aggregate amount of
their capital contributions from the date of the making of such
contributions at the rate of eight percent (8%) per year,
compounded annually;
c) then, upon the occurrence of a Realization Event, to the
Management LLC for the aggregate amount of up to 17% of the
remaining proceeds from the Realization Event;
d) the balance to the Members in proportion to their
membership interest.
The term “Realization Event” means the date upon which
the Members of Holding Company receive cash equal to more than
50% of the total consideration to which they are entitled in
connection with any of the following transactions (with noncash
consideration valued at fair market value as reasonably
determined by the Board):
a) sale or assignment in one transaction, or in a series of
related transactions of more than 50% of the percentage
interests in Holding Company (other than a sale or assignment to
an affiliate of an Investor Member, or a sale or assignment in
connection with one or more public offerings);
b) a sale or other disposition in one transaction, or in a
series of related transactions of assets of Holding Company, or
of Cambium having a value equal to more than 50% of the total
value of the assets of Holding Company and Cambium; or
c) a merger or consolidation involving Holding Company or
Cambium following which the Members of Holding Company, prior to
such transaction, do not own in the aggregate, directly or
indirectly 50%, or more of the equity or voting interests in the
surviving or successor entity.
Following a Realization Event, a sale of membership or any other
sale of membership interests, or a merger, Holding Company shall
have the right to withhold, and each of the selling Members
shall contribute and pay over from the proceeds received or
receivable, a pro rata portion of the proceeds payable in any
such transaction equal to the amount necessary, as reasonably
determined by the Board, to satisfy any post-transaction
indemnification, purchase price adjustment, or other similar
escrow or holdback obligation.
If an initial public offering of equity interests in any
subsidiary of Holding Company shall occur, the Board may, in its
sole discretion, cause Holding Company to distribute its shares
in the public subsidiary to the Investor Members and the
Executive Members in accordance with the Distribution.
If an Executive Member’s employment by Holding Company, or
one of its subsidiaries is terminated for cause or is terminated
by the Executive Member without good reason (each, a Trigger
Termination), then Holding Company shall have the option (but
not the obligation), exercisable for 180 days after such
termination, to purchase the Executive Member’s membership
interest in the Company, in whole or in part, at the fair market
value thereof as of the last day of the calendar month in which
such Trigger Termination occurs. Holding Company may exercise
this option upon determination of the Board. If the Company
exercises this option, the Company will accrete the difference
and record the obligation as a liability. The total Executive
Members’ Interest subject to this provision at
June 30, 2009, December 31, 2008 and December 31,2007 were $2,665,000, $2,665,000 and $2,915,000, respectively.
VSS-Cambium
Management, LLC
VSS-Cambium Management, LLC (Management LLC) is a Delaware
limited liability company formed on February 7, 2007.
Management LLC is a member and holds up to a $50,000 equity
interest in Holding Company. Its members are individuals
admitted as Management Members including some which are also
Members of Holding Company. Management Members may include
employees of and consultants to
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Cambium. Management LLC is authorized to sell a total of 100,000
Management LLC units. Management Members are entitled to receive
from Holding Company, following the occurrence of a Realization
Event, distributions in an aggregate amount of up to 17% of the
amount available for distribution to the Members of Holding
Company after repayment of all capital contributions made by
them, plus an 8% compounded amount return on those contributions.
Upon the occurrence of a Realization Event, all of the
authorized but unissued LLC units automatically shall be issued
pro rata to the Management Members of the Company who are active
employees, except that Holding Company may, in its absolute
discretion, allocate those LLC units to some of the members
recommended by the Chief Executive Officer of Holding Company.
Each Management Member units are subject to vesting, but upon
the occurrence of Realization Event, each member of the
Management LLC who is an active employee shall be deemed to be
fully vested. Each Management Member’s interest, in most
cases, shall vest solely upon a Realization Event, and certain
others vest over a four-year period; however, the Management
Member loses the right to the vested shares in the case of a
voluntary termination or a termination for cause. Upon a vesting
or Realization Event, the Company will record compensation
expense and a related liability related to the cash payable on
distribution.
As of September 30, 2009, December 31, 2008 and
December 31, 2007, 65,762 units for a total of $32,881
have been sold and distributed to certain employees of Cambium.
The units were valued at $0.50 per unit and reflect the fair
value at the date of purchase as determined by the
Company’s Board of Managers. The proceeds received from the
sale of the units are included in other accrued expenses on the
accompanying Consolidated Balance Sheet. Upon a vesting or
realization event, each of which are contingent, compensation
expense will be recorded in the financial statements of the
Company and a liability will be recorded related to the cash
payable on distribution. Compensation expense has not been
recognized during the periods presented because no vesting or
realization event occurred or was deemed probable during such
periods.
NOTE J —
STOCKHOLDERS’ EQUITY — PREDECESSOR
The rights and preferences of each of the Company’s classes
of stock are as follows:
Common
Stock
At December 31, 2006, the Company had authorized
110,000,000 shares of common stock, of which 2,720,718 were
issued, 100,000,000 were reserved for the conversion of
preferred stock, and 7,000,000 were reserved for issuance upon
exercise of common stock options, of which 5,860,750 options
were issued.
Voting
Each share of common stock of the Company shall have identical
rights and privileges in every respect. The holders of shares of
common stock are entitled to vote upon all matters submitted to
a vote of the stockholders of the Company, and shall be entitled
to one vote for each share of common stock held.
Dividends
Dividends may be declared on the shares of common stock by the
Board of Directors in accordance with the criteria set forth in
the Series A Preferred Stock dividend rights.
Series A
Preferred Stock
At December 31, 2006, the Company had authorized
100,000,000 shares of preferred stock, of which 100,000,000
have been designated as Series A Preferred Stock.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Ranking
Series A Preferred Stock shall rank senior to all other
equity securities of the Company, including any other series or
class of the Company’s preferred stock, common stock, or
other capital stock, now or hereafter authorized, unless by its
terms such series or class of equity securities ranks senior to
or pari passu with the Series A Preferred Stock, and
such series or class of equity securities has been authorized
and approved in accordance with the provisions of the agreement
by the holders of a majority of the then-outstanding shares of
Series A Preferred Stock.
Dividends
and Distributions
Subject to the prior rights and preferences, if any, applicable
to shares of the preferred stock or any series thereof that
ranks senior to or pari passu with the Series A
Preferred Stock and that has been authorized and approved in
accordance with the provisions of the agreement by the holders
of a majority of the then-outstanding shares of Series A
Preferred Stock, the Board of Directors may declare and pay
dividends (payable in cash, stock, or otherwise) at any time and
from time to time out of any funds the Company legally has
available therefore, in the following order of priority:
(i) First, to the holders of Series A Preferred Stock,
pro rata, in proportion to their respective ownership of the
Series A Preferred Stock until each such holder has
received 100% of the original issue price of such Series A
Preferred Stock paid by such holder.
(ii) Second, to the holders of Series A Preferred
Stock, pro rata, in proportion to their respective ownership of
the Series A Preferred Stock until each such holder has
received cumulative dividends equal to a pre-tax annual rate of
return of 8% of the original issue compounded quarterly as such
amount is determined in good faith by the Board.
(iii) Thereafter, to the holders of Series A Preferred
Stock and common stock, pro rata, in proportion to the number of
shares of common stock each holder would be entitled to receive
upon conversion of all of the Series A Preferred Stock into
common stock.
As of April 11, 2007, no dividends had been declared or
paid.
Voting
Rights
In addition to any voting rights provided by law, the holders of
shares of Series A Preferred Stock shall have the following
voting rights:
Each share of Series A Preferred Stock shall entitle the
holder thereof to vote, in person or by proxy, on all matters
voted on by holders of common stock, voting together as a single
class with the holders of the common stock, and with holders of
all other shares entitled to vote thereon.
Each share of Series A Preferred Stock shall entitle the
holder to the number of votes with respect to such share as is
equal to the number of votes that such holder would be entitled
to cast assuming that such share of Series A Preferred
Stock had been converted on the record date into the number of
shares of common stock then issuable upon conversion of such
share of Series A Preferred Stock.
Conversion
Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time or
from time to time, into a number of shares of common stock equal
to a fraction, the numerator of which is the Series A
Liquidation Preference and the denominator of which is the
Adjusted Conversion Price then in effect. At April 11,2007, just prior to the acquisition by Holding Company, each
share of Series A Preferred Stock outstanding converted
into one share of common stock.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Liquidation,
Dissolution, or Winding Up
In the event of any liquidation, dissolution, or winding up of
the Company, either voluntary or involuntary, the assets of the
Company shall be distributed to the holders of preferred stock
and common stock consistent with the distribution of dividends
described above. If, upon any liquidation, dissolution, or
winding up of the Company, the assets of the Company available
for distribution to the holders of the Series A Preferred
Stock shall be insufficient to permit payment in full to such
holders of the sums, which such holders are entitled to receive
in such case, then all of the assets available for distribution
to holders of the Series A Preferred Stock shall be
distributed among and paid to such holders ratably in proportion
to the amounts that would be payable to such holders if such
assets were sufficient to permit payment in full. A
consolidation or merger of the Company resulting in the holders
of the issued and outstanding voting securities of the Company
immediately prior to such transaction owning or controlling a
majority of the issued and outstanding voting securities of the
continuing or surviving entity immediately following such
transaction shall not be deemed to be a liquidation,
dissolution, or winding up of the Company.
NOTE K —
DEFINED CONTRIBUTION RETIREMENT PLAN
Cambium has established a defined contribution retirement plan,
the Cambium Learning 401(k) Savings Plan, which conforms to
Section 401(k) of the Internal Revenue Code and covers
substantially all of Cambium’s eligible employees.
Participants may elect to contribute a percentage of their
compensation subject to an annual limit. Cambium provides a
matching contribution in amounts up to 4.5% of employee
compensation. The 401(k) matching contribution expense was
$433,579 and $540,670 for the nine months ended September 30,2009 and 2008, respectively, and $733,854, $472,219, $292,622
and $695,642 for the year ended December 31, 2008, for the
period from January 29, 2007 to December 31, 2007, for
the period from January 1, 2007 to April 11, 2007, and
for the year ended December 31, 2006, respectively.
NOTE L —
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 2008, the Company adopted the
FASB’s new accounting guidance for fair value measurements
and disclosures for its financial assets and liabilities. The
new guidance establishes a new framework for measuring fair
value and expands disclosure requirements. In addition, the new
guidance defines fair value as the price that would be received
to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants.
Under the new guidance, valuation techniques are based on
observable or unobservable inputs. Observable inputs reflect
market data obtained from independent sources, while
unobservable inputs reflect the Company’s market
assumptions. These two types of inputs have created the
following fair value hierarchy:
•
Level 1 — Quoted prices for identical instruments
in active markets.
•
Level 2 — Quoted prices for similar instruments
in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived
valuations in which significant value drivers are observable.
•
Level 3 — Valuations derived from valuation
techniques in which significant value drivers are unobservable.
As of September 30, 2009, the financial instruments include
$9,534,278 of cash and cash equivalents, the $15,000,000
revolver, the $97,699,534 senior secured credit facility, the
$54,006,956 senior unsecured notes and the $1,461,474 interest
rate swap contract. As of December 31, 2008, the financial
instruments include $2,418,071 of cash and cash equivalents, the
$5,000,000 revolver, the $102,760,000 senior secured credit
facility, the $52,307,018 senior unsecured notes and the
$2,381,978 interest rate swap contract. As of December 31,2007, the financial instruments include $1,173,365 of cash and
cash equivalents, the $127,040,000 senior secured credit
facility, the $50,641,960 senior unsecured notes and the
$1,534,379 interest
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
rate swap contract. The fair market values of cash and cash
equivalents are equal to their carrying value. The fair value of
the revolver is equal to its carrying value due to the
short-term nature of the instrument and the interest rate being
variable. The fair market value of the senior credit facility
and senior unsecured notes are subject to market conditions;
however, a limited trading market restricts the ability to
freely trade the debt. The senior credit facility bears interest
at a variable rate and management believes that the carrying
value of the senior credit facility approximates its fair value.
The fair value of the interest rate swap is obtained from a
third-party quote. This value represents the estimated amount
the Company would receive or pay to terminate the agreement
taking into consideration current interest rates.
The fair value of the interest rate swap was determined using a
pricing model predicated upon observable market inputs.
NOTE M —
STOCK OPTION PLAN — PREDECESSOR
2004
Stock Compensation Plan
The Company adopted the Cambium Learning 2004 Stock Compensation
Plan (the 2004 Option Plan) on April 28, 2004. A total of
7,000,000 shares of common stock have been authorized and
reserved for issuance under the 2004 Option Plan. Under the
terms of the 2004 Option Plan, the Company is authorized to
grant incentive stock options as defined under the Internal
Revenue Code, nonqualified options, restricted stock, bonus
stock, performance awards, and cash awards to employees,
officers, directors, consultants, and advisors. Options granted
under the 2004 Option Plan typically expire ten years from the
date of grant.
The 2004 Option Plan is administered by the compensation
committee of the Board of Directors, which selects the
individuals to whom equity-based awards will be granted and
determines the option exercise price and other terms of each
award, subject to the provisions of the 2004 Option Plan. The
2004 Option Plan provides that, at the sole discretion of the
compensation committee upon an acquisition of the Company, all
options to purchase common stock will become exercisable, all
restrictions on restricted stock will lapse,
and/or all
performance share awards will be paid out pro rata based on the
level of performance attained as of such date. Options granted
under the 2004 Option Plan typically vest over a four- to
six-year period. At April 11, 2007, there was no restricted
or bonus stock issued under the 2004 Option Plan and there were
no performance awards or cash awards issued under the 2004
Option Plan. At April 11, 2007, 1,139,250 shares were
available for future grant under the 2004 Option Plan.
The fair value of options granted were calculated using the
following estimated weighted-average assumptions:
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
As there is no public market for the Company’s common
stock, the volatility for options granted in 2006 has been
determined based on the analysis of reported data for a peer
group of companies that issued options with substantially
similar terms. The expected life of options has been determined
utilizing the “simplified” method as prescribed by the
SEC’s Staff Accounting Bulletin No. 107,
“Share-Based Payment.” The risk-free interest
rate is based on a zero coupon United States Treasury instrument
whose term is consistent with the expected life of the stock
options. The Company has not paid, and does not anticipate
paying, cash dividends on its shares of common stock; therefore,
the expected dividend yield is assumed to be zero. The Company
applied an estimated forfeiture rate of 0% in the year ended
December 31, 2006.
The Company uses the Black-Scholes option pricing model to
calculate the grant date fair value of an award.
Information with respect to activity under the 2004 Option Plan
is as follows:
In February 2007, in connection with the acquisition of Cambium,
all outstanding stock options were modified such that they
became fully vested, prior to the effective time of the
acquisition. All outstanding options prior to the effective time
of the acquisition were canceled in exchange for cash in an
amount equal to the excess, if any, of the fair value over the
exercise price of the option, multiplied by the number of shares
of common stock underlying the option. Cambium recorded and
expensed $2,872,650 in its consolidated statement of operations
for the period from January 1, 2007 through April 11,2007 as a result of the modification. As a result of the
settlement with the former stockholders (Note A), $617,870
of the modification that was held in escrow was reversed and
recorded as income in interest and other expenses in the
Consolidated Statement of Operations in 2008.
NOTE N —
COMMITMENTS AND CONTINGENCIES
Leases
Cambium has operating leases for various office and warehouse
equipment and office and warehouse facilities that expire at
various dates through 2016. Certain leases contain renewal and
escalation clauses for a proportionate share of operating
expenses.
Cambium has a build-to-suit lease for warehouse space in
Frederick, Colorado. The lease requires minimum monthly rents
that expire on October 31, 2016. The lease is renewable at
the Company’s option for two additional periods of five
years each. The Company has an outstanding letter of credit in
the amount of $1,000,000 to secure the lease.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The Company evaluated the provisions of the accounting guidance
relating to the effect of a lessee’s involvement in an
asset construction and concluded that due to the Company’s
collateral to the landlord, in the form of the $1,000,000 letter
of credit, that it is deemed the owner of the land and building
for accounting purposes. As a result, the related capitalized
costs for the warehouse space in Frederick, Colorado are now
classified as “land, land improvements, and building”
and are included in property, plant and equipment, net, in the
accompanying Consolidated Balance Sheets. A liability for the
same amount appears as other accrued expenses and accrued
long-term building costs, representing the short- and long-term
components. Due to the acquisition of Cambium, the Company
recorded an increase of $4,747,587 in purchase accounting
related to the fair market value of land, land improvements, and
building for the warehouse space on the date of acquisition. The
related liability has been adjusted accordingly. The cost of the
building is being depreciated over a
35-year
useful life. The amount of the depreciation expense was $275,842
and $275,842 for the nine months ended September 30, 2009
and 2008, respectively, and $367,789, $167,793, $60,732, and
$36,079 for the year ended December 31, 2008, for the
period of January 29, 2007 through December 31, 2007,
for the period of January 1, 2007 through April 11,2007, and for the year ended December 31, 2006,
respectively. Additionally, the obligation will be reduced over
the life of the lease at an interest rate of 5.54%. At the end
of the original lease term, the land and building, net of
accumulated depreciation, will be equal to the remaining
liability.
The future minimum lease commitment under this build-to-suit
lease as of December 31, 2008 is payable as follows:
2009
$
1,006,108
2010
1,026,150
2011
1,037,173
2012
1,092,289
2013
1,092,289
Thereafter
3,265,175
Total minimum lease payments
$
8,519,184
The future minimum rental commitments under all remaining
noncancelable leases for real estate operating leases as of
December 31, 2008 are payable as follows:
2009
$
1,327,833
2010
803,964
2011
649,356
2012
649,356
2013
270,565
Total minimum lease payments
$
3,701,074
The future minimum sublease rental payments as of
December 31, 2008 to be received under noncancelable
subleases are as follows:
Cambium is involved in ordinary and routine litigation and
matters incidental to its business. There are no such matters
pending that Cambium expects to be material in relation to its
financial condition, results of operations, or cash flows.
Cambium is contingently liable for $1,482,000 of letters of
credit, performance bonds, and surety bonds posted as security
for its operating activities. The full amount is backed by
letters of credit from the Revolver. Under the terms of the
Revolver, outstanding letters of credit are deducted from the
unused borrowing capacity.
Indemnification
Provisions
Except as limited by Massachusetts law, the by-laws of the
Company require it to indemnify certain current or former
directors, officers, and employees of the Company against
expenses incurred by them in connection with each proceeding in
which he or she is involved as a result of serving or having
served in certain capacities. Indemnification is not available
with respect to a proceeding as to which it has been adjudicated
that the person did not act in good faith in the reasonable
belief that the action was in the best interests of the Company.
The maximum potential amount of future payments the Company
could be required to make under these provisions is unlimited.
The Company has never incurred significant costs related to
these indemnification provisions. As a result, the Company
believes the estimated fair value of these provisions is minimal.
The Company accepts standard limited indemnification provisions
in the ordinary course of business, whereby it indemnifies its
customers for certain direct damages incurred in connection with
third-party patent or other intellectual property infringement
claims with respect to the use of the Company’s products.
The term of these indemnification provisions generally coincides
with the customer’s use of the Company’s products. The
maximum potential amount of future payments the Company could be
required to make under these provisions is always subject to
fixed monetary limits. The Company has never incurred
significant costs to defend lawsuits or settle claims related to
these indemnification provisions. As a result, the Company
believes the estimated fair value of these provisions is minimal.
NOTE O —
RELATED PARTY TRANSACTIONS
Veronis
Suhler Stevenson LLC
Veronis Suhler Stevenson LLC (VSS LLC), through its investment
partnerships, is the majority member of Holding Company. Cambium
entered into a management services agreement with VSS LLC,
effective on April 12, 2007. Under the term of the
agreement, VSS LLC provides Cambium the following services:
(i) advice in connection with the negotiation of
agreements, contracts, documents, and instruments necessary to
provide Cambium with financing from banks on terms and
conditions satisfactory to Cambium; and (ii) financial,
managerial, and operational advice in connection with its
day-to-day operations, including, without limitation, advice
with respect to the development and implementation of strategies
for improving the operating, marketing and financial performance
of Cambium. Cambium has agreed to pay VSS LLC an annual
monitoring fee of $200,000, plus out-of-pocket expenses, payable
semi-annually in arrears, in exchange for these services. The
Company expensed for monitoring fees $150,000 and $149,317 for
the nine months ended September 30, 2009 and 2008,
respectively, and $199,315 and $144,658 for the year ended
December 31, 2008 and for the period of January 29,2007 to December 31, 2007, respectively.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
In each instance that an additional equity investment is made in
Holding Company (regardless of whether such investment is such
Member’s initial equity investment, or a subsequent equity
investment) and in each instance that Holding Company obtains
debt financing from any party, VSS LLC, or its designee, shall
be entitled to advisory fees from Holding Company at the time of
any such investment or financing in an aggregate amount of 1.0%
of the gross proceeds of such investment or financing. Upon each
acquisition or disposition of any business or entity by Holding
Company or any of its subsidiaries or affiliates, Holding
Company shall pay VSS LLC, or its designee, an advisory fee in
an amount equal to 1.0% of the enterprise value of that business
or entity. Holding Company shall promptly reimburse VSS LLC for
all out-of-pocket fees and expenses incurred by it in performing
any services for or on behalf of the Company, including, without
limitation, any legal, financial or tax advisor fees, and
travel, hotel, and meal expenses incurred. Holding Company paid
to VSS Fund Management LLC a one-time transaction fee of
$3,200,000 in cash at the closing of the acquisition of Cambium;
of this, $500,000 was allocated to deferred financing costs, and
$2,700,000 was allocated to purchase price. Holding Company
allocated $500,000 of the transaction fee to deferred financing
costs based on the fact that VSS Fund Management LLC
performed a limited amount of work related to the debt
financing. Specifically, VSS Fund Management LLC’s
services included securing financing for, and participating in
the syndication of, Holding Company’s senior unsecured
debt, and VSS Fund Management LLC’s assistance in the
syndication of the senior unsecured round reduced the fees paid
to the underwriters by 1.0% of the $50,000,000 facility, or by
$500,000. On August 22, 2008, unsecured loans to the
Company totaling $7,000,000 from three members of the Company
(see Note G) were converted to qualified capital stock
of Holding Company (see Note I). A capital stock issuance
fee of $99,306 was paid by the Company to VSS LLC.
Whitney
Cambium was majority owned by Ednewco LLC and Whitney V LP,
through its investment in Ednewco, LLC, was the majority
stockholder of Cambium prior to its sale to Holding Company.
Cambium entered into a management services agreement with
Whitney V Management Co., LLC (Whitney), effective on
January 1, 2004. Under the terms of the agreement, Whitney
provided Cambium the following services: (i) advice in
connection with the negotiation of agreements, contracts,
documents, and instruments necessary to provide Cambium with
financing from banks on terms and conditions satisfactory to
Cambium; and (ii) financial, managerial, and operational
advice in connection with its day-to-day operations, including,
without limitation, advice with respect to the development and
implementation of strategies for improving the operating,
marketing, and financial performance of Cambium. Cambium has
agreed to pay Whitney a management fee of not less than
$250,000, plus out-of-pocket expenses, annually, payable
quarterly in arrears, in exchange for these services. The
Company expensed $92,500 and $324,314 for the period
January 1, 2007 to April 11, 2007 and for year ended
December 31, 2006, respectively, for management fees.
Furthermore, the Company has agreed to pay Whitney a transaction
fee equal to 1% of the enterprise value of assets or securities
acquired from third parties by Cambium. This agreement was
terminated on April 12, 2007, when Cambium was acquired by
Holding Company.
Cactus
Investments, LLP
The Company leased office and warehouse space in Longmont,
Colorado from Cactus Investments, LLP. A general partner of
Cactus Investments, LLP was a director of Cambium through
April 11, 2007. The Company paid $169,320 and $497,880 in
the period January 1, 2007 through April 11, 2007 and
for the year ended December 31, 2006, respectively, for
rent for this location.
Microcomputer
Science Corporation
On January 15, 2008, Microcomputer Science Corporation of
Mississauga, Ontario and its owner made a capital contribution
of $1,000,000; $750,000 was contributed for a membership
interest in VSS-Cambium
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
Holding Company, LLC and $250,000 was used to acquire a portion
of Executive Members’ interest. Microcomputer Science
Corporation is an authorized reseller of the Company’s
products with sales totaling $1,259,565 in the period
January 15, 2008 through December 31, 2008. The sales
were an arm’s length transaction and the relationship with
Microcomputer Science Corporation began prior to its investment
in Holding Company.
NOTE P —
OTHER INFORMATION
The Company’s geographic area of operation is predominantly
the United States. Export or foreign sales to locations outside
the United States are not significant to the Company’s
business. No single customer accounts for more than 10% of
consolidated net sales. Although the loss of a single customer
or a few customers would not have a material adverse effect on
the Company’s business, schedules of school adoptions and
market acceptance of the Company’s products can materially
affect year-to-year revenue performance. As customary in this
industry, the Company does not require collateral against its
trade receivables; however, the risk from these concentrations
is reduced as the Company monitors its credit and collection
procedures as a matter of policy.
NOTE Q —
RESTRUCTURING
In December 2007, Cambium developed, approved, and communicated
a plan to consolidate the Petaluma, California, office and
reduce the work force, with consolidation completed by
September 30, 2009 Cambium’s total restructuring
charge amounted to $662,260. The Company expensed $56,433 for
the nine months ended September 30, 2009, classified as
cost of sales in the accompanying Consolidated Statement of
Operations in the Learning Technologies segment. The following
table summarizes the restructuring plan:
The following table summarizes the activity in the
Company’s restructuring reserve, which is included in other
accrued expenses in the accompanying Consolidated Balance Sheets.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
NOTE R —
TASA SETTLEMENT
On February 15, 2007, Touchstone Applied Science
Associates, Inc. (TASA) filed a complaint in the United States
District Court, Southern District of New York, against Cambium
Learning, Inc., requesting a judgment declaring that the parties
entered into a licensing agreement pursuant to which, in
consideration of the defendant paying in a timely manner an
annual licensing fee, the defendant acquired the limited right
to use TASA’s DRP specified materials only for the
LANGUAGE! third edition and otherwise only for a
five-year period, measured from the date the materials were
delivered through April 2009. Cambium previously asserted that
the license is perpetual, subject to the timely payment of the
annual license fee of $23,000. On July 31, 2007, Cambium
and TASA reached a settlement agreement on this matter. Cambium
agreed to pay TASA $300,000 for an irrevocable, royalty free,
fully
paid-up,
perpetual license to use TASA’s DRP specified materials for
the life of the LANGUAGE! third edition. This amount is
capitalized in pre-publication costs and is being amortized over
its estimated useful life.
NOTE S —
SEGMENT REPORTING
The Company’s geographic area of operation is predominantly
the United States. Export or foreign sales to locations outside
the United States for the nine month period ended
September 30, 2009 accounted for 9% of total sales, with 7%
of these sales shipped to Canada. No single customer accounts
for more than 10% of consolidated net sales. Sales to the
Company’s largest single customer for the nine month period
ended September 30, 2009 accounted for 4% of total sales
and accounted for 14% of accounts receivable (none past due) as
of September 30, 2009. Although the loss of a single
customer or a few customers would not have a material adverse
effect on the Company’s business, schedules of school
adoptions and market acceptance of the Company’s products
can materially affect year-to-year revenue performance. The
Company evaluates the performance of its operating segments
based on income (loss) from operations before interest income
and expense, income taxes, and nonrecurring and extraordinary
items. The significant accounting policies of the reportable
segments are the same as those for the Company. There were no
inter-segment sales or transfers.
The Company has three reportable segments with separate
management teams and infrastructures that offer various products
and services, as follows:
Published Products:
This operating segment includes instructional materials,
teaching guides, teacher training, implementation services, and
professional development services. The principal markets for
these products are elementary and secondary schools.
Learning Technologies:
This operating segment includes assistive and instructional
technology and related services. The principal markets for these
products are elementary and secondary schools.
Other:
This consists of unallocated corporate related items.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
The following table represents the revenue, gross profit and
income (loss) from operations which are used by the
Company’s chief operating decision maker to measure the
segment’s operating performance. The accounting policies of
each segment are the same as those described in the summary of
significant accounting policies.
Assets assigned to each segment are based upon specific
identification of such assets and include fixed assets and
intangible assets. All other assets are not assignable to
segments. The table below summarized total fixed assets and
intangible assets by segment:
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
NOTE T —
SUBSEQUENT EVENTS (unaudited)
Pursuant to the adoption of the FASB’s new accounting
guidance related to subsequent events, issued in May 2009, which
became effective as of the Company’s second quarter ended
June 30, 2009the Company has evaluated all events subsequent to
the balance sheet date of September 30, 2009 through
November 10, 2009, which is the date these financial
statements were issued, and have determined that except as set
forth below, there are no subsequent events that require
disclosure.
On or about June 20, 2009, the Holding Company engaged in a
series of corporate transactions designed to provide for a
business combination involving Cambium and publicly held Voyager
Learning Company (“Voyager”). Upon completion of those
corporate transactions, the current equity owners of the Holding
Company will instead own all of the equity interests in
VSS-Cambium Holdings III, LLC, which in turn will own all of the
outstanding capital stock of VSS-Cambium Holdings II Corp.
That entity, in turn, will own, directly or indirectly, 100% of
the equity of the Holding Company and Cambium. Concurrently, the
controlling equity owner of the Holding Company formed Cambium
Learning Group, Inc. (f/k/a Cambium-Voyager Holdings, Inc.)
(“Holdings”) and Holdings entered into an agreement
and plan of mergers (the “Merger Agreement”) which
provides that upon satisfaction or waiver of the conditions
described in the Merger Agreement, VSS-Cambium Holdings II
Corp., Cambium, Voyager and the subsidiaries of the Cambium and
Voyager will become direct or indirect wholly owned subsidiaries
of Holdings. Upon consummation of the closing provided for in
the Merger Agreement, VSS-Cambium Holdings III, LLC will own
24,300,466 shares of the outstanding common stock of
Holdings and the former stockholders of Voyager will receive a
combination of Holdings common stock, cash and contingent value
rights. The precise number of shares of Holdings common stock to
be issued to the former stockholders of Voyager cannot be
determined until closing, as that number depends upon the amount
of cash held by Voyager at closing, the extent to which the
former stockholders of Voyager elect to receive cash rather than
stock at closing, and the potential exercise of appraisal rights
by Voyager’s stockholders. It is anticipated that the
former stockholders of Voyager will own approximately 44.5% of
the Holdings common stock to be outstanding upon consummation of
the transactions described in the Merger Agreement (excluding
the effect of the Holdings warrant). Closing is conditioned on
the receipt of Voyager stockholder approval, as well as other
customary conditions.
VSS LLC will receive a fee in the amount of $3,000,000 from
Holdings upon completion of the mergers in consideration of
providing advisory services with respect to the mergers. This
fee will be payable $1,000,000 in cash at closing, and the
balance becomes payable if and when Cambium Learning’s
ratio of total outstanding debt to adjusted EBITDA drops below
3.0:1. Three-quarters of this remaining balance will be
allocated pro rata among VSS LLC and certain of the members of
VSS-Cambium Holdings, LLC.
On June 8, 2009, the Company executed a Preferred Supplier
Agreement with TPO/Hess Holdings, Inc. (“Hess”). Hess
supplies the Company with printed materials including soft cover
books and catalogs. The agreement specifies that the Company
will purchase a minimum of 70% of 2008 sales volume with Hess
for the production period of January 1, 2009 to
December 31, 2009. The pricing will be based on quoted
prices and the agreement can be cancelled by either party with
120 days written notice.
On October 13, 2009, the Company entered into a lease
agreement with LMF Cochituate Corporation of Natick,
Massachusetts for 13,212 square feet of office space at the
building commonly known as Cochituate Place, 24 Prime
Parkway, Natick, Massachusetts. The term of the lease is
sixty-three (63) months commencing on December 1, 2009 and
ending on February 28, 2015. This lease commitment
coincides with the November 30, 2009 termination of lease
agreements for office space at 313 Speen Street, Natick,
Massachusetts and 100 Crosby Drive, Bedford, Massachusetts
and results in the consolidation of the Company’s multiple
Massachusetts-based operations into a single office location.
Total annualized base rent is $19,181, $297,270 and $310,482 for
the periods of December 1, 2009 through February 28,2010, March 1, 2010 through February 28, 2013 and
March 1, 2013 through February 28, 2015, respectively.
VSS-CAMBIUM
HOLDINGS, LLC (Successor) and
CAMBIUM LEARNING, INC. (Predecessor)
Notes to Consolidated Financial
Statements — (Continued)
On October 29, 2009, Cambium Learning entered into an
amendment to each of its credit agreements. The amendments,
which are substantially similar to each other in form, provide
for the following important modifications to the credit
agreements. The threshold in the “Change in Control”
definition is reduced from 50% to 35%. VSS, however, is not
permitted to sell or otherwise transfer any of its equity in
Holdings, unless it continues to own at least 35% of Holdings
common stock, and it has not sold or otherwise transferred, in
the aggregate, more than 15% of its Holdings common stock. The
“material indebtedness” threshold was increased from
$5.0 to $7.5 million, so if a “change in control”
occurs under any other debt whose principal amount does not
exceed $7.5 million, such occurrence would not (in and of
itself) be an event of default under the credit agreements.
Additional restricted payments are being permitted to allow
Cambium Learning to upstream up to $3.0 million each fiscal
year for company, administrative, overhead, franchise tax and
related costs incurred by Holdings, as well as $750,000 each
fiscal year for board of director compensation payments and
related expenses. The annual VSS monitoring fee has been
eliminated. The permitted acquisition basket is being reset,
after giving effect to the Voyager Expanded Learning
acquisition, to a cumulative $150 million amount, but any
single acquisition is limited to $20 million until the
ratio of senior secured debt to EBITDA (as calculated under the
credit agreements) does not exceed 2.50 to 1.0, and the ratio of
total leverage to EBITDA (as calculated under the credit
agreements) does not exceed 3.50 to 1.0, at which time, the
single acquisition limit will be increased to $100 million.
The following items are being permitted as add-backs to
consolidated EBITDA: deferred revenue associated with a
permitted acquisition; costs related to the mergers for
transaction expenses; closing of locations or lease termination,
severance and integration; and M&A costs for future
transactions (whether or not consummated). Each of the foregoing
provisions only becomes effective if and when the mergers are
consummated. In addition, the amendments ratify and approve of
the mergers and the related transactions, including the Voyager
Expanded Learning acquisition and the LAZEL spinoff and
dropdown. The LAZEL drop down must occur on or before February19, 2010. Each of the lenders who executed the amendment on or
before October 28, 2009, received a fee equal to
20 basis points of the amount of its loans and commitments
under the credit agreements, for an aggregate fee payable to all
lenders equal to approximately $296,000.
On October 29, 2009, Holdings amended and restated its
certificate of incorporation to change its name from
“Cambium-Voyager Holdings, Inc.” to “Cambium
Learning Group, Inc.” The other changes allow the Cambium
designees for the Holdings board of directors to have, in the
aggregate, the agreed upon total of five board votes, even if
not all five have been designated.
Capital lease obligations, less current maturities
63
96
Other liabilities
21,029
20,348
Total long-term liabilities
21,092
20,444
Commitments and contingencies (See Note 15)
Shareholders’ equity:
Common stock ($.001 par value, 50,000 shares
authorized, 30,550 shares issued and 29,874 shares
outstanding at September 30, 2009, and December 31,2008)
The Condensed Consolidated Financial Statements include the
accounts of Voyager Learning Company and its Subsidiaries
(collectively, unless the context otherwise requires, the
“Company”) and are unaudited. All intercompany
transactions are eliminated.
As permitted under the Securities and Exchange Commission
(“SEC”) requirements for interim reporting, certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been omitted. We believe that these financial statements
include all necessary and recurring adjustments for the fair
presentation of the interim period results. These financial
statements should be read in conjunction with the Consolidated
Financial Statements and related notes included in this proxy
statement/prospectus for the fiscal year ended December 31,2008. Due to seasonality, the results of operations for the nine
months ended September 30, 2009 are not necessarily
indicative of the results to be expected for the year ending
December 31, 2009.
Certain reclassifications to the 2008 Consolidated Financial
Statements have been made to conform to the 2009 presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting periods. Subsequent actual results may differ from
those estimates.
The Company’s management approach, organizational
structure, operating performance measurement and reporting, and
operational decision making are performed from a single company
perspective. The Company operates as one reportable segment
within the United States in fiscal 2008 and 2009.
Note 2 —
Planned
Business Combination
On June 22, 2009the Company announced that it entered into
a definitive merger agreement (the “Merger
Agreement”), dated as of June 20, 2009, to combine
with Cambium Learning, Inc. (“Cambium”), an education
company serving the needs of at-risk and special student
populations in the pre-kindergarten through twelfth grade
market. The planned business combination will be effected
through a newly-formed company, Cambium Learning Group, Inc.
(formerly known as Cambium-Voyager Holdings, Inc.)
(“Holdings”), which will acquire both companies and
issue shares in the combined company to stockholders of each of
the Company and Cambium. Holdings will be majority owned by
VSS-Cambium Holdings III, LLC, which will be majority owned by
Veronis Suhler Stevenson, a private equity investor in the
information, education and media industries and current majority
owner of VSS-Cambium Holdings, LLC, which indirectly owns
Cambium. Upon completion of the planned mergers, Holdings will
be a public company, and anticipates having its common stock
approved for listing on the NASDAQ Global Market.
Under the terms of the Merger Agreement, each stockholder of the
Company will be entitled to receive, in exchange for each share
of the Company’s common stock owned by such stockholder,
the following consideration: (i) at the election of the
stockholder, either one share of common stock of Holdings or
$6.50 in cash, subject to a potential pro-rata reduction;
(ii) a pro-rata amount of certain tax refunds received by
the Company prior to the closing of the transaction reduced by
the amount of the tax refunds contractually required to be
placed in escrow at closing; and (iii) a contingent value
right payable periodically on the nine and eighteen month
anniversary of the effective time of the mergers and on or about
October 15, 2013.
Under applicable accounting guidance for business combinations,
Cambium is the accounting acquirer and the Company is the
acquiree. As such, if and when the planned mergers are
completed, the Company will cease to be a reporting entity and
Cambium’s financial statements will be the historical
financial statements of
Notes to
the Condensed Consolidated Financial
Statements — (Continued)
Holdings. The planned merger is subject to approval by the
stockholders of the Company and other closing conditions. The
Company expects the merger to be completed no later than year
end 2009.
Note 3 —
Accounts
Receivable
Accounts receivable are stated net of allowances for doubtful
accounts and estimated sales returns. The allowance for doubtful
accounts and estimated sales returns totaled $0.7 million
at September 30, 2009 and December 31, 2008. The
allowance for doubtful accounts is based on a review of the
outstanding accounts receivable balances and historical
collection experience. The allowance for sales returns is based
on historical rates of return as well as other factors that
management believes could reasonably be expected to cause sales
returns to differ from historical experience.
Note 4 —
Stock-Based
Compensation
The total amount of pre-tax expense for stock-based compensation
recognized in general and administrative expense was
$0.2 million and $0.7 million in the nine month
periods ended September 30, 2009 and September 30,2008, respectively.
There were no issuances of stock-based compensation awards
during the nine months ended September 30, 2009.
On April 9, 2009, 440,000 options granted in 2004 to one of
the Company’s key executives under the Long Term Incentive
Performance Plan, were cancelled due to voluntary forfeiture of
these options.
Note 5 —
Net
Earnings (Loss) per Common Share
Basic net loss per common share is computed by dividing net loss
by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share is computed
by dividing net loss by the weighted average number of common
shares outstanding during the period, including the potential
dilution that could occur if all of the Company’s
outstanding stock awards that are
in-the-money
were exercised, using the treasury stock method. A
reconciliation of the weighted average number of common shares
and equivalents outstanding used in the calculation of basic and
diluted net loss per common share are shown in the table below
for the period indicated:
No awards were included in the computation of diluted net loss
per common share for the nine months ended September 30,2009 and September 30, 2008 because a loss from continuing
operations occurred and to include them would be anti-dilutive.
Note 6 —
Fair
Value Measurements
Effective fiscal 2008, the Company adopted new accounting
guidance on fair value measurements and disclosures that defines
fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The
Company adopted the guidance for all recurring financial assets
and liabilities beginning fiscal 2008 and for all other
nonfinancial assets and liabilities beginning fiscal 2009. The
adoption of this accounting guidance had no impact on the
Company’s Condensed Consolidated Financial Statements.
Notes to
the Condensed Consolidated Financial
Statements — (Continued)
Fair value is defined by this accounting guidance as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
This accounting guidance also establishes a fair value hierarchy
which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of
inputs that may be used to measure fair value.
All of the Company’s financial assets and liabilities are
valued using quoted prices in active markets, which are
considered Level 1 inputs under this accounting guidance.
The carrying values for other current financial assets and
liabilities, such as accounts receivable and accounts payable,
approximate fair value due to the short maturity of such
instruments.
Note 7 —
Comprehensive
Income (Loss)
Comprehensive loss includes net loss, pension and postretirement
liability, net unrealized gain (loss) on
available-for-sale
securities, and the write-off of tax benefit resulting from the
partial settlement of the U.S. defined benefit pension plan
(See Note 12 herein).
Comprehensive loss is shown in the table below for the period
indicated:
Under applicable accounting guidance for goodwill and other
intangibles, goodwill and other indefinite-lived intangible
assets are no longer amortized but are instead reviewed for
impairment at least annually and whenever a triggering event is
determined to have occurred in an interim period.
The Company’s annual impairment testing is performed during
the fourth fiscal quarter. As expected, during 2009 the Company
continued to experience the adverse marketplace and economic
conditions that began to impact the Company in 2008. As a result
of these conditions, the Company performed goodwill impairment
tests during the second and third quarters of 2009.
Additionally, the Company announced the Merger Agreement during
the second quarter of 2009 and this planned business combination
was considered a triggering event requiring ongoing goodwill
impairment review. See Note 2 for additional information on
the planned business combination. Although the terms of the
Merger Agreement are fixed, the estimated purchase price may
continue to be refined, which could result in future goodwill
impairment charges. Additionally,
Notes to
the Condensed Consolidated Financial
Statements — (Continued)
because the terms of the Merger Agreement are fixed, increases
in the Company’s net assets could result in future goodwill
impairment charges.
As a result of these impairment reviews, the Company recorded a
goodwill impairment charge of $22.0 million during the
second quarter of 2009 and $5.2 million during the third
quarter of 2009.
The first step of impairment testing during the second and third
quarters of 2009 showed that the book value of the
Company’s single reporting unit exceeded its fair value;
therefore, a second step of testing was required. The fair value
was determined using an estimated purchase price from the Merger
Agreement. The final total purchase price could materially
differ from the value estimated due to numerous factors
including the value of Holdings as of the date of the merger,
the timing of completion of the merger, stockholder elections to
receive cash versus common stock of Holdings, and the value of
cash received by stockholders for tax refunds and the contingent
value right. The fair value was estimated as $184.1 million
at the time the second quarter test was performed and
$184.3 million at the time the third quarter test was
performed.
The second step requires the allocation of fair value of a
reporting unit to all of the assets and liabilities of that
reporting unit as if the reporting unit had been acquired in a
business combination, and is dependent on multiple assumptions
and estimates, including estimated purchase price, future cash
flow projections with a terminal value multiple, and the
discount rate used to determine the expected present value of
the estimated future cash flows. Future cash flow projections
are based on management’s best estimates of economic and
market conditions over the projected period including industry
fundamentals such as the state of educational funding, revenue
growth rates, future costs and operating margins, working
capital needs, capital and other expenditures, and tax rates.
The discount rate applied to the future cash flows is a
weighted-average cost of capital and takes into consideration
market and industry conditions, returns for comparable
companies, the rate of return an outside investor would expect
to earn, and other relevant factors. As a result of the second
step of our second and third quarter impairment tests, the
goodwill balance for the reporting unit as of each of these
measurement dates was determined to be partially impaired.
In performing our test of goodwill impairment the Company also
tested its other long lived assets. No impairment was indicated
for these other long lived assets.
See Note 15 for a description of the legal contingency
accrual related to the putative securities class actions and the
related receivable from the Company’s insurance providers.
See Note 13 for a description of our corporate transition
costs.
See Note 15 for a description of the settlement of the
legal contingency accrual related to the putative securities
class actions.
Transaction costs relate to professional service fees incurred
but not paid for the merger with Cambium. See Note 2 for a
description of the Merger Agreement.
Net pension and other postretirement benefit cost (income)
$
517
$
986
$
(18
)
$
(70
)
During the fourth quarter of 2008, the Company provided an
opportunity for participants in its Replacement Benefit Plan
(“RBP”) and its U.S. defined benefit pension plan
to receive a discounted lump sum distribution to settle
retirement obligations. Prior to the distribution opportunity,
both plans were frozen, with no participants entitled to make
additional contributions or earn additional service years. Based
on the number of participants who chose to receive a discounted
lump sum payment, the Company paid participants approximately
$7.9 million in January 2009 related to these lump sum
payments. As a result of the settlements, the Company recorded a
gain in January 2009 of $1.3 million, consisting of
$1.1 million related to the RBP settlement and
$0.2 million related to the settlement of the
U.S. defined benefit pension plan. The gain is included in
Other Income (Expense) in the Condensed Consolidated Statement
of Operations.
Note 13 —
Corporate
Transition
On February 12, 2007, after the sale of ProQuest Business
Solutions and ProQuest Information and Learning, the
Company’s Board of Directors approved the closing of the
corporate office in Ann Arbor, Michigan and this plan was
announced to employees. The transition plan, which was completed
by year-end 2008, included the elimination of redundant
positions and transitioning the performance of certain
operational activities to Dallas, Texas. The Company expects to
incur approximately $4.1 million in severance and retention
expense related to the transition plan, all of which was accrued
in prior years. As of September 30, 2009, approximately
$1.7 million remains accrued. In May 2009 one of the
affected employees signed a new employment agreement that
reduced the applicable severance payments by $0.3 million.
This change in estimate was recorded in the second quarter in
general and administrative expense. The change in the accruals
for corporate transition costs related to severance and
retention payments and reduction in accrual for change in
employment agreement for the nine month period ended
September 30, 2009 is as follows:
During the nine months ended September 30, 2009, the
Company recorded an increase to its liability for unrecognized
tax benefits of approximately $0.7 million, primarily
related to an increase in estimate related to an existing tax
position, and a decrease to its liability of approximately
$0.1 million, primarily related to settlement of a state
income tax filing position.
Included in the balance of unrecognized tax benefits at
September 30, 2009 are approximately $1.2 million of
tax benefits that, if recognized, would affect the effective tax
rate. Because of the impact of deferred tax accounting and the
availability of tax attributes, the majority of the tax
positions would ordinarily not affect the effective tax rate or
the payment of cash to the taxing authorities. However, due to
the limited evidence to support the realization of these tax
assets a valuation allowance is required.
The Company files income tax returns in the U.S. federal
jurisdiction and various U.S. state jurisdictions. The
Company is currently under examination by the IRS for 2006 and
2007.
Under the sale agreements with Snap-On Incorporated and
Cambridge Scientific Abstracts, LP (“CSA”), the
Company is liable to indemnify Snap-On Incorporated or CSA for
any income taxes assessed against ProQuest Business Solutions
(“PQBS”) or ProQuest Information and Learning
(“PQIL”) for periods prior to the sale of PQBS or
PQIL. The Company has established a liability for those matters
where it is not probable that the position will be sustained.
The amount of the liability is based on management’s best
estimate given the Company’s history with similar matters
and interpretations of current laws and regulations.
Note 15 —
Contingent
Liabilities
Putative
Securities Class Actions
Between February and April 2006, four putative securities class
actions, consolidated and designated In re ProQuest Company
Securities Litigation, were filed in the U.S. District
Court for the Eastern District of Michigan (the
“Court”) against the Company and certain of its former
and then-current officers and directors. Each of these
substantially similar lawsuits alleged that the Company and
certain officers and directors (“the Defendants”)
violated Sections 10(b)
and/or 20(a)
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as well as the associated
Rule 10b-5,
in connection with the Company’s proposed restatement.
On May 2, 2006, the Court ordered the four cases
consolidated and appointed lead plaintiffs and lead
plaintiffs’ counsel.
On July 22, 2008, the Company reached an agreement in
principle to settle the consolidated shareholder securities
class action law suit filed against it and certain officers and
directors in the U.S. District Court for the Eastern
District of Michigan for $20 million. A Stipulation and
Agreement of Settlement was signed by the parties and the Court
granted preliminary approval of such agreement. During January
2009, the Company paid $4.0 million into an escrow account
and our insurers funded the remaining portion of the settlement
into the escrow account as well. The Court entered final
approval of the settlement on March 30, 2009. This Final
Order and Judgment fully resolves the securities matters raised
in this litigation.
Notes to
the Condensed Consolidated Financial
Statements — (Continued)
Shareholder
Derivative Lawsuits
On April 18, 2006 and December 19, 2006, respectively,
two shareholder derivative lawsuits were filed in the
U.S. District Court for the Eastern District of Michigan
(the “Court”), purportedly on behalf of the Company
against certain current and former officers and directors of the
Company by certain of the Company’s shareholders. Both
cases were assigned to Honorable Avern Cohn, who entered a
stipulated order staying the litigation pending completion of
the Company’s restatement and a special committee
investigation into the restatement.
On January 29, 2008, the Court entered an order
consolidating the two cases and approving co-lead and co-liaison
counsel representing plaintiffs. On March 20, 2008,
plaintiffs filed a consolidated amended complaint alleging
claims for breach of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets, unjust enrichment,
rescission, imposition of a constructive trust, violations of
the Sarbanes-Oxley Act of 2002 and violations of the Securities
Exchange Act of 1934 against current and former officers or
directors of the Company and one of its subsidiaries. On
December 3, 2008the Company reached an agreement in
principle to settle the shareholder derivative litigation law
suit filed against it and certain officers and directors in the
Court. Under the terms of the agreement, the Company and its
insurers would pay an amount not to exceed $650,000 in
attorneys’ fees and agree to maintain or adopt additional
corporate governance standards. The Company’s portion of
this amount is equal to $500,000. The parties entered into a
Stipulation of Settlement on January 9, 2009. This
Stipulation of Settlement was approved by the Court and a Final
Judgment and Order was signed by the Court on March 31,2009. Subject to an annual review of the corporate governance
standards by the Court, this Final Judgment and Order fully
resolves the matters asserted in this litigation.
Other
Contingent Liabilities
The Company is also involved in various legal proceedings
incidental to our business. Management believes that the outcome
of these proceedings will not have a material adverse effect
upon our consolidated operations or financial condition and we
believe we have recognized appropriate reserves as necessary
based on facts and circumstances known to management.
The Company has letters of credit in the amount of
$0.8 million outstanding as of September 30, 2009 to
support workers’ compensation insurance coverage as well as
certain of the Company’s credit card programs. The Company
has a certificate of deposit in the amount of $1.1 million
collateralizing these letters of credit, certain other credit
card programs and the Automated Clearinghouse (ACH) program. The
certificate of deposit is recorded in other assets.
Note 16 —
Subsequent
Events
The Company has evaluated subsequent events through
November 6, 2009, which is the date on which these
Condensed Consolidated Financial Statements were issued. There
were no identified subsequent events.
We have audited the accompanying consolidated balance sheets of
Voyager Learning Company and subsidiaries (the
“Company”), as of December 31, 2008 and
December 29, 2007, and the related consolidated statements
of operations, shareholders’ equity and comprehensive
income (loss), and cash flows for the fiscal years then ended.
In connection with our audits of the consolidated financial
statements, we have also audited financial statement
schedule II. The Company’s management is responsible
for these financial statements and financial statement schedule.
Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and
financial statement schedule referred to above present fairly,
in all material respects, the financial position of the Company,
as of December 31, 2008 and December 29, 2007, and the
results of their operations and their cash flows for the fiscal
years then ended in conformity with accounting principles
generally accepted in the United States of America.
As described in Note 1 to the consolidated financial
statements, the Company adopted FASB Interpretation No. 48
(“FIN 48”), “Accounting for Uncertainty
in Income Taxes — an Interpretation of FASB
No. 109,”effective as of December 31, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 5, 2009 expressed an
unqualified opinion.
Report of
Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Voyager Learning Company:
We have audited the accompanying consolidated statements of
operations, shareholders’ equity (deficit) and
comprehensive income (loss), and cash flows of Voyager Learning
Company (formerly known as ProQuest Company) (the Company) and
subsidiaries for the fiscal year ended December 30, 2006.
In connection with our audit of the consolidated financial
statements, we have also audited financial statement
schedule II for the fiscal year ended December 30,2006. These consolidated financial statements and financial
statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the results
of operations and cash flows of Voyager Learning Company and
subsidiaries for the fiscal year ended December 30, 2006,
in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule for the fiscal year ended December 30,2006, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in note 1 to the consolidated financial
statements, the Company changed its method of accounting for
share-based payments in 2006.
Capital lease obligations, less current maturities
96
810
Other liabilities
20,348
61,258
Total long-term liabilities
20,444
62,068
Commitments and contingencies (See Note 18)
Shareholders’ equity:
Common stock ($.001 par value, 50,000 shares
authorized, 30,550 shares issued and 29,874 shares
outstanding at the end of fiscal 2008, and 30,552 shares
issued and 29,883 shares outstanding at the end of fiscal
2007)
30
30
Capital surplus
357,741
356,683
Accumulated earnings (deficit)
(129,227
)
(47,723
)
Treasury stock, at cost (676 shares at the end of fiscal
2008 and 669 shares at the end of fiscal 2007)
(16,836
)
(16,742
)
Other comprehensive income (loss):
Pension and postretirement plans, net of tax benefit of $713 in
each year
1,093
(2,088
)
Net unrealized gain (loss) on securities, net of tax expense of
$39 in each year
(42
)
170
Accumulated other comprehensive income (loss)
1,051
(1,918
)
Total shareholders’ equity
212,759
290,330
Total liabilities and shareholders’ equity
$
304,097
$
402,727
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
Nature of Operations. Voyager and Subsidiaries
(collectively the “Company”) is a leading provider of
results-driven reading and math intervention programs,
professional development programs regarding the teaching of
reading, subscription-based online supplemental reading, math
and science resources and programs, and a core reading program
for school districts throughout the U.S.
Our reading programs include: Voyager
Passporttm,
a comprehensive reading intervention system for
K-5; Voyager
Universal Literacy System
®,
a K-3 core reading program; Passport Reading
Journeystm,
a middle school reading intervention system for grades 6-9;
TimeWarp
®
Plus, a K-9 summer school reading intervention program; Voyager
Pasaportetm,
a K-3 reading intervention system in Spanish; and Learning
A-Ztm,
a group of related websites known as Reading
A-Ztm,
Raz-Kidstm,
Reading-tutorstm,
Vocabulary
A-Ztm,
and Writing
A-Ztm
which provide online supplemental reading, writing and
vocabulary lessons, books, and other resources for students and
teachers.
Our math and science programs include:
Vmath®,
a math intervention system for grades 3-8;
ExploreLearningtm,
a subscription-based online library of interactive simulations
in math and science for grades 3-12; and Science
A-Ztm,
a Learning
A-Z website
aimed at the supplemental science market.
VoyagerU®
is our professional development program for teachers, literacy
coaches and administrators.
The Company has been a leading publisher of solutions for the
education, automotive and power equipment markets. In 2005, we
acquired Voyager Expanded Learning (“VEL”). In 2007,
we changed our name to Voyager.
The Company had provided products and services to our customers
through three business segments. With the sale of ProQuest
Business Solutions (“PQBS”) on November 28, 2006
and the sale of ProQuest Information and Learning
(“PQIL”) on February 9, 2007, we now provide
products and services to our customers through one business
segment, Voyager Education (“VED”).
Reclassifications. Certain reclassifications
to the Consolidated Financial Statements for all prior periods
presented have been made to conform to the 2008 presentation. In
prior years, the Company included amortization of its acquired
and developed curriculum and certain other operational assets in
Cost of Sales. In the current year presentation, all
depreciation and amortization for the periods presented herein
has been segregated and shown as a separate line item on the
Consolidated Statements of Operations.
Also, in prior years, the Company included a line item in its
Consolidated Financial Statements entitled selling and
administrative expense. In the current year presentation,
amounts previously included in this line item have been
reclassified into the line items sales and marketing expense,
general and administrative expense, or depreciation and
amortization expense. A summary of the impact of these
conforming reclassifications on previously filed results is as
follows (in thousands):
2007 as
2007 in
2006 as
2006 in
Originally
Current Year
Originally
Current Year
Filed
Reclassifications
Presentation
Filed
Reclassifications
Presentation
Cost of sales
$
(55,720
)
$
19,528
$
(36,192
)
$
(57,279
)
$
19,862
$
(37,417
)
Gross profit
53,892
19,528
73,420
57,772
19,862
77,634
Selling and administrative expense
(86,529
)
86,529
—
(96,698
)
96,698
—
Sales and marketing expense
—
(29,587
)
(29,587
)
—
(27,614
)
(27,614
)
General and administrative expense
—
(53,280
)
(53,280
)
—
(65,081
)
(65,081
)
Depreciation and amortization expense
—
(23,190
)
(23,190
)
—
(23,865
)
(23,865
)
Use of Estimates. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the
Notes to the Consolidated Financial
Statements — (Continued)
financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Subsequent actual results
may differ from those estimates.
Principles of Consolidation. The Consolidated
Financial Statements include the accounts of Voyager and its
majority owned subsidiaries. All intercompany transactions are
eliminated.
Discontinued Operations.The Company considers
businesses to be held for sale when management approves and
commits to a formal plan to actively market a business for sale.
Upon designation as held for sale, the carrying value of the
assets of the business are recorded at the lower of their
carrying value or their estimated fair value, less costs to
sell. The Company ceases to record depreciation and amortization
expense associated with assets held for sale at that time.
On November 28, 2006, the Company sold its our PQBS
businesses to Snap-on Incorporated. In December 2006, the
Company announced the sale of its PQIL businesses to Cambridge
Scientific Abstracts, LP. The sale was completed on
February 9, 2007. The operating results and the gain on
sale of PQBS and PQIL have been segregated from the
Company’s continuing operations for all periods presented
in the Company’s Consolidated Financial Statements and are
separately reported as discontinued operations (see Note 4
to the Company’s Consolidated Financial Statements included
herein for additional information on discontinued operations).
Fiscal Year. On December 20, 2007, the
Board of Directors of the Company adopted a resolution changing
the Company’s fiscal year end from the Saturday nearest to
December 31 to a calendar year. This change is effective for the
fiscal year ended on December 31, 2008. The Company’s
fiscal 2007 year ended on December 29, 2007. The
two-day
transition period between December 29, 2007 and the 2008
annual fiscal year, which began January 1, 2008, is
included in this proxy statement/prospectus for the year ending
December 31, 2008. The Quarterly Report on
Form 10-Q
for the period ended March 31, 2008 was the first report
filed by the Company for the newly adopted fiscal year and
included the
two-day
transition period.
Prior to fiscal 2008, the Company’s fiscal year ended on
the Saturday nearest to December 31 each calendar year.
References to fiscal year 2007 or fiscal 2007 are for the
52 weeks ended December 29, 2007 and references to
fiscal year 2006 or fiscal 2006 are for the 52 weeks ended
December 30, 2006.
Revenue Recognition.The Company accounts for
its revenues under Staff Accounting Bulletin No. 104,
“Revenue Recognition”
(“SAB No. 104”). Revenues are derived from
sales of reading, math and science, and professional development
solutions to school districts primarily in the U.S. Sales
include printed materials and often online access to educational
materials for individual students, teachers, and classrooms.
Revenue from the sale of printed materials for reading and math
products is recognized when the product is shipped to or
received by the customer. Revenue for product support,
implementation services, and online subscriptions is recognized
over the period services are delivered. The division of revenue
between shipped materials, online materials, and ongoing support
and services is determined in accordance with Emerging Issues
Task Force
00-21,
“Revenue Arrangements with Multiple Deliverables”
(“EITF 00-21”).
Revenue for our professional development courses, which includes
an internet delivery component, is recognized over the
contractual delivery period, typically nine to twelve months.
Revenue for the online content sold separately or included with
our curriculum materials, is recognized ratably over the access
period, typically a school year. Shipments to school book
depositories are on consignment and revenue is recognized based
on shipments from the depositories to the schools.
ExploreLearning and Learning
A-Z derive
revenue exclusively from sales of online subscriptions to
reading, math and science teaching materials. Typically, the
subscriptions are for a 12 month period and the revenue is
recognized ratably over the period the online access is
available to the customer.
The amount of service revenues are less than 10% of total
revenues for all periods presented.
For our discontinued operations, PQIL’s published products
provided users with access to comprehensive databases, including
historical newspapers, Early English Books Online
(“EEBO”),
e-dissertations,
and topic
Notes to the Consolidated Financial
Statements — (Continued)
specific products on either a subscription basis that normally
covers twelve months, or through a perpetual access license.
PQIL followed the guidance under SAB No. 104 for all
subscription products. Revenue from subscription agreements was
recognized ratably over the term of the subscription, including
any free before or after periods, using the straight-line
method. For sales of perpetual access licenses, revenue was
recognized over the greater of one year or the applicable period
if the perpetual access license was associated with a
subscription or data access agreement.
Accounts Receivable. Accounts receivable are
stated net of allowances for doubtful accounts and estimated
sales returns. The allowance for doubtful accounts and estimated
sales returns totaled $0.7 million and $1.3 million at
year end 2008 and 2007, respectively. The allowance for doubtful
accounts is based on a review of the outstanding balances and
historical collection experience. The allowance for sales
returns is based on historical rates of return.
Foreign Currency Translation. The financial
position and results of operations of each of our foreign
subsidiaries which are included in discontinued operations, are
measured using the local currency as the functional currency.
Revenues and expenses are translated at average exchange rates
prevailing during the respective fiscal periods. Assets and
liabilities are translated into U.S. dollars using the
exchange rates at the end of the respective fiscal periods.
Balance sheet translation adjustments arising from differences
in exchange rates from period to period are included in the
determination of Voyager’s other comprehensive income
(loss) which is reflected as a component of shareholders’
equity.
Net Earnings (Loss) per Common Share. Basic
net earnings/ (loss) per common share are computed by dividing
net earnings/ (loss) by the weighted average number of common
shares outstanding during the period. Diluted net
earnings/(loss) per common share is computed by dividing net
earnings/(loss) by the weighted average number of common shares
outstanding during the period, including the potential dilution
that could occur if all of Voyager’s outstanding stock
awards that are
in-the-money
were exercised, using the treasury stock method. A
reconciliation of the weighted average number of common shares
and equivalents outstanding used in the calculation of basic and
diluted net earnings per common share are shown in the table
below for the periods indicated:
2008
2007
2006
(Shares in thousands)
Basic
29,871
29,858
29,816
Dilutive effect of awards
—
—
—
Diluted
29,871
29,858
29,816
The following were not included in the computation of diluted
net income per share because their effect would have been
antidilutive: options to purchase shares of 0.9 million,
1.4 million, and 3.0 million for fiscal years 2008,
2007, and 2006, respectively; nonvested restricted stock of
zero, 16,000, and 85,000 for fiscal years 2008, 2007, and 2006,
respectively; and a stock appreciation right with respect to
0.3 million shares in fiscal years 2008 and 2007.
Cash and Cash Equivalents. We consider all
highly liquid investments with maturities of three months or
less (when purchased) to be cash equivalents. The carrying
amount reported in the Consolidated Balance Sheets approximates
fair value.
Inventory. Inventory costs include material
only. Inventory is stated at the lower of cost, determined using
the
first-in,
first-out (“FIFO”) method, or market. Where
appropriate, a valuation reserve has been recorded to reduce
slow-moving or obsolete inventory to net realizable value.
Property and Equipment. Property and equipment
are stated at cost less accumulated depreciation and
amortization. Depreciation is computed over the assets’
estimated useful lives using the straight-line method. Estimated
lives range from three to five years for office and computer
equipment, five to seven years for furniture and fixtures, and
fourteen to eighteen years in fiscal 2007 and four to five years
in fiscal 2008 for
Notes to the Consolidated Financial
Statements — (Continued)
buildings and leasehold improvements. Amortization of leasehold
improvements is computed based on the shorter of the
assets’ estimated useful lives or the lease term.
Expenditures for maintenance and repairs, as well as minor
renewals, are charged to operations as incurred, while
betterments and major renewals are capitalized. Any gain or loss
resulting from the retirement or sale of an asset is credited or
charged to operations.
We recognized depreciation and amortization expense on property
and equipment of $1.3 million, $2.3 million and
$2.1 million for fiscal 2008, 2007 and 2006, respectively.
Purchased and Developed Software. Purchased
and developed software includes the costs to purchase third
party software and to develop internal-use software.
Amortization of purchased software costs in fiscal 2008, 2007
and 2006 totaled $0.4 million, $0.5 million, and
$0.7 million, respectively. The Company follows the
guidance in Statement of Position
No. 98-1,
“Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use”(“SOP 98-1”),
for capitalizing software projects. Software costs are amortized
over the expected economic life of the product, generally three
to five years. Amortization of developed software costs in
fiscal 2008, 2007 and 2006 totaled $1.8 million,
$1.0 million, and $0.5 million, respectively. At
December 31, 2008 and 2007, unamortized capitalized
software was $4.6 million and $3.2 million,
respectively, which included zero or immaterial amounts of
software under development.
Acquired Curriculum. Acquired curriculum
represents curriculum acquired in the acquisitions of VEL and
ExploreLearning in 2005 and Learning
A-Z in 2004
and is the initial purchase accounting value placed on the past
development and refinement of the core methodologies, processes
and measurement techniques by which VED structures curriculum.
Acquired curriculum is being amortized using an accelerated
method over ten years, as it has an economic benefit declining
over the estimated useful life. Acquired curriculum is presented
net of accumulated amortization of $59.8 million and
$47.2 million as of fiscal year end 2008 and 2007,
respectively. Amortization of acquired curriculum for fiscal
2008, 2007 and 2006 was $12.6 million, $14.4 million
and $16.2 million, respectively.
Developed Curriculum.The Company capitalizes
certain pre-publication costs of its curriculum including art,
prepress, editorial, and other costs incurred in the creation of
the master copy of its curriculum products. Curriculum
development costs are amortized over the expected life of the
education program, generally on a straight-line basis over a
period of three to five years. The Company periodically reviews
the recoverability of the capitalized costs based on expected
net realizable value, and generally retire the assets once fully
depreciated. Developed curriculum costs are presented net of
accumulated amortization of $5.3 million and
$6.0 million as of fiscal year end 2008 and 2007,
respectively. Amortization of curriculum development costs for
fiscal year 2008, 2007, and 2006 was $4.1 million,
$3.1 million, and $2.2 million, respectively.
Goodwill and Other Intangible Assets. Goodwill
and other intangible assets are related to the acquisitions of
VEL and ExploreLearning in 2005 and Learning
A-Z in 2004.
Other intangible assets include trade names/trademarks and
customer relationships, which are being amortized on a
straight-line basis over estimated lives ranging from five to
ten years, and non-compete agreements, which are being amortized
on a straight-line basis over their contractual lives ranging
from one to five years. Amortization of other intangible assets
in fiscal 2008, 2007, and 2006 was $1.2 million,
$1.9 million, and $2.2 million, respectively. Other
intangible assets are presented net of accumulated amortization.
See Note 5 herein for further discussion of the
Company’s review of goodwill and the related impairment
charge recognized in fiscal 2008.
Impairment of Long Lived Assets. We review the
carrying value of long lived assets for impairment whenever
events or changes in circumstances indicate net book value may
not be recoverable from the estimated undiscounted future cash
flows, which is based on the requirements of Statement of
Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 144”). If our review
indicates any assets are impaired, the impairment of those
assets is measured
Notes to the Consolidated Financial
Statements — (Continued)
as the amount by which the carrying amount exceeds the fair
value as estimated by discounted cash flows. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less cost of disposal. The determination whether
these assets are impaired involves significant judgment based on
projections of future performance. For fiscal years 2008, 2007
and 2006, no impairment was indicated.
Deferred Costs. Certain up-front costs
associated with completing the sale of the Company’s
products are deferred and recognized as the related revenue is
recognized.
Shipping and Handling Costs. All amounts
billed to customers in a sales transaction for shipping and
handling are classified as revenue. Shipping and handling costs
incurred by the Company are included in cost of sales.
Advertising Costs.The Company, from time to
time, ships products to prospective customers as samples.
Samples costs are expensed upon shipment and totaled
$2.1 million, $1.6 million, and $0.8 million in
2008, 2007, and 2006 respectively. Other costs of advertising,
which include advertising, print, and photography expenses, are
expensed as incurred and totaled $1.1 million,
$0.7 million, and $0.3 million in 2008, 2007, and
2006, respectively.
Income Taxes. Provision is made for the
expense, or benefit, associated with taxes based on income. The
provision for income taxes is based on laws currently enacted in
every jurisdiction in which we do business and considers laws
mitigating the taxation of the same income by more than one
jurisdiction. Significant judgment is required in determining
income tax expense, current tax receivables and payables,
deferred tax assets and liabilities, and valuation allowance
recorded against the net deferred tax assets. Management
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, taxable income in prior
carryback years, loss carryforward limitations, and tax planning
strategies in assessing whether deferred tax assets will be
realized in future periods. If, after consideration of these
factors, management believes it is more likely than not that a
portion of the deferred tax assets will not be realized, a
valuation allowance is established. The amount of the deferred
tax asset considered realizable could be reduced if estimates of
future taxable income during the carryforward period are
reduced. Effective December 31, 2006, we adopted Financial
Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”) and account for
liabilities related to uncertain tax positions in accordance
with its provisions.
Sales Taxes.The Company reports sales taxes
collected from customers and remitted to governmental
authorities on a net basis. Sales tax collected from customers
is excluded from revenues. Collected but unremitted sales tax is
included as part of accounts payable in the accompanying
consolidated balance sheets.
Stock-Based Compensation. Prior to
January 1, 2006, we accounted for our stock option plan
using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees” (“APB No. 25”), as
allowed by SFAS No. 123, “Accounting for
Stock-based Compensation”
(“SFAS No. 123”). No stock-based
compensation expense was recognized in the income statement
related to stock options as all options granted had an exercise
price equal to the market value of the underlying common stock
on the date of grant. Restricted stock grants were valued at the
market price on the award dates and recognized as compensation
expense over the vesting period.
Effective January 1, 2006, we adopted the provisions of
SFAS No. 123R, “Share-Based Payment”
(“SFAS No. 123R”), which requires all
share-based payments to be recognized in the income statement
based on their fair values. We adopted this statement using the
modified prospective method in which compensation cost is
recognized based on the requirements of SFAS No. 123R for
all share-based payments granted after the effective date and
for all awards granted prior to the effective date that remain
unvested on the effective date. Compensation costs for awards
with graded vesting are recognized on a straight-line basis over
the anticipated vesting period.
Foreign Exchange Risks. Historically, a
portion of revenue, earnings, and net investment in foreign
affiliates has been exposed to changes in foreign exchange
rates, primarily related to the discontinued
Notes to the Consolidated Financial
Statements — (Continued)
operations. Substantially all foreign exchange risks are managed
through operational means. However, we believe that from time to
time some foreign exchange risks related to certain transactions
are better managed by utilizing foreign currency forwards or
option contracts. These contracts are reported at fair value and
any changes in fair value are recognized currently in earnings.
These contracts are not designated for hedging treatment under
SFAS No. 133, as amended. We did not have any foreign
currency forwards or option contracts outstanding at
December 31, 2008 or December 29, 2007.
Recently Issued Financial Accounting
Standards. In April 2008, the Financial
Accounting Standards Board (“FASB”) issued FASB Staff
Position
No. FAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“FAS 142-3”).
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, “Goodwill and Other Intangible
Assets”.
FAS 142-3
is effective for fiscal years beginning after December 15,2008 and early adoption is prohibited. The Company is currently
evaluating the impact, if any, that
FAS 142-3
will have on its consolidated financial position, results of
operations and cash flows.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,”
(“SFAS No. 160”). Currently, the Company
does not have an outstanding noncontrolling interest in one or
more subsidiaries, nor does it deconsolidate any subsidiaries.
SFAS No. 160 will be effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company does not expect the adoption
of SFAS No. 160 to have a material effect on the
Company’s consolidated financial position, results of
operations and cash flows.
In December 2007, the FASB issued SFAS No. 141
(revised), “Business Combinations” (“SFAS
No. 141R”). SFAS No. 141R establishes
principles and requirements for how an acquirer accounts for
business combinations. SFAS No. 141R includes guidance
for the recognition and measurement of the identifiable assets
acquired, the liabilities assumed, and any noncontrolling or
minority interest in the acquiree. It also provides guidance for
the measurement of goodwill, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss
contingencies and acquisition-related transaction costs, and the
recognition of changes in the acquirer’s income tax
valuation allowance. SFAS No. 141R should be applied
prospectively and is effective for business combinations made by
the Company beginning January 1, 2009.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of
SFAS No. 115 “
(“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure many financial instruments
and other items at fair value. Unrealized gains and losses on
items for which the fair value option has been elected would be
recognized in earnings at each subsequent reporting date.
Generally, the fair value option may be applied instrument by
instrument and is irrevocable unless a new election date occurs.
SFAS No. 159 is effective as of the beginning of the
first fiscal year that begins after November 15, 2007, with
earlier adoption permitted as of the beginning of a fiscal year
that begins on or before November 15, 2007. On
January 1, 2008, the Company did not elect to apply the
provisions of SFAS No. 159 to financial assets and
liabilities.
In September 2006, the FASB issued SFAS No. 158,
“Employer’s Accounting for Defined Pension and Other
Postretirement Plans — an amendment of SFASs
No. 87, 88, 106 and 132(R),”
(“SFAS No. 158”). SFAS No. 158
requires the recognition of the funded status of a benefit plan
in the statement of financial position. It also requires the
recognition as a component of other comprehensive income, net of
tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of
net periodic benefit cost pursuant to SFAS No. 87,
“Employers’ Accounting for Pensions”
(“SFAS No. 87”) or SFAS No. 106,
“Employers’ Accounting for Postretirement Benefits
Other Than Pension” (“SFAS No. 106”).
The statement also has new provisions regarding the measurement
date as well as certain disclosure requirements. The recognition
provisions of the statement were effective for our
2006 year end, and the measurement date requirements are
effective for our 2008 year end. The adoption of the
recognition and disclosure provisions of SFAS No. 158
had a minimal impact on our consolidated financial position,
results of operations and cash flows.
Notes to the Consolidated Financial
Statements — (Continued)
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements” (“SFAS No.
157”), which defines fair value, establishes a framework
for measuring fair value in Generally Accepted Accounting
Principles (“GAAP”), and expands disclosures regarding
fair value measurements. SFAS No. 157 does not require
any new fair value measurements, but provides guidance on how to
measure fair value by providing a fair value hierarchy used to
classify the source of the information. SFAS 157 was
effective for financial assets and liabilities in fiscal years
beginning after November 15, 2007, and is effective for
nonfinancial assets and liabilities in fiscal years beginning
after November 15, 2008. We adopted the provisions of
SFAS No. 157 related to recurring financial assets and
liabilities beginning fiscal 2008. The adoption had no impact on
our consolidated financial statements. All financial assets and
liabilities are valued using level 1 inputs. The Company is
currently evaluating the potential impact of
SFAS No. 157 to nonfinancial assets and liabilities on
our consolidated financial position, results of operation and
cash flows.
Note 2 —
Business Segments
With the sale of PQBS in November 2006 and the sale of PQIL in
February 2007, the Company had business segments that were
included in discontinued operations in prior years. Because the
Company’s management approach, organizational structure,
operating performance measurement and reporting, and operational
decision making are performed from a single company perspective,
the Company operates as one reportable segment within the
U.S. as of February 2007, which includes all corporate
operations. The loss from continuing operations before interest,
other income (expense) and income taxes and depreciation and
amortization attributable to the corporate operations continue
to be shown separately below for comparability with prior years.
As the transition of activities based in Ann Arbor, Michigan to
headquarters in Dallas, TX was complete as of December 31,2008, all assets are presented as VED for 2008.
Information concerning our operating business segments for
fiscal 2008, 2007 and 2006 for our continuing operations is as
follows (dollars in thousands):
2008
VED
Corporate
Total
Net sales
$
98,531
$
—
$
98,531
Loss from continuing operations before interest, other income
(expense) and income taxes
$
(56,569
)
$
(26,707
)
$
(83,276
)
Capital expenditures
$
7,912
$
—
$
7,912
Depreciation and amortization
$
21,248
$
110
$
21,358
Total assets
$
304,097
$
—
$
304,097
2007
VED
Corporate
Total
Net sales
$
109,612
$
—
$
109,612
Earnings (loss) from continuing operations before interest and
income taxes
Notes to the Consolidated Financial
Statements — (Continued)
The significant components of deferred income tax expense
(benefit) attributable to loss from continuing operations were
as follows:
2008
2007
2006
(Dollars in thousands)
Deferred income tax benefit, exclusive of item listed below:
$
(1,176
)
$
(3,692
)
$
(45,829
)
Benefits of gain from sale and discontinued operations allocated
to continuing operations
—
(8,979
)
(18,276
)
Deferred income tax benefit
$
(1,176
)
$
(12,671
)
$
(64,105
)
Reconciliation of income tax expense (benefit) from continuing
operations and the domestic federal statutory income tax expense
(benefit) were as follows:
2008
2007
2006
(Dollars in thousands)
Statutory federal income tax rate
$
(28,932
)
$
(34,880
)
$
(39,930
)
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit
(56
)
(214
)
(1,795
)
Change of intent for investment basis difference
—
—
(37,525
)
Non-deductible goodwill
15,099
23,531
14,874
Changes in valuation allowance
13,486
—
—
Other
(757
)
(833
)
313
Income tax benefit
$
(1,160
)
$
(12,396
)
$
(64,063
)
Deferred income taxes are primarily provided for temporary
differences between the financial reporting basis and the tax
basis of our assets and liabilities. The tax effects of each
type of temporary difference and carryforward (for both
continuing and discontinued operations) that give rise to a
significant portion of deferred tax assets (liabilities) at the
end of fiscal 2008 and 2007 were as follows:
2008
2007
(Dollars in thousands)
Deferred tax assets are attributable to:
Net operating loss carryforwards
$
13,191
$
822
Tax credit carryforwards
8,675
10,176
Deferred compensation & pension benefits
8,300
10,154
Legal contingency accrual, less insurance receivable
Notes to the Consolidated Financial
Statements — (Continued)
The net deferred tax asset (liability) is classified as follows:
2008
2007
(Dollars in thousands)
Short-term deferred tax asset
$
1,994
$
2,566
Long-term deferred tax liability
(2,638
)
(4,454
)
Net deferred tax asset (liability)
$
(644
)
$
(1,888
)
The net decrease in the valuation allowance in 2007 was
$26.8 million. The valuation allowance decreased during
2007 primarily as a result of selling PQIL. Deferred tax assets
associated with PQIL that had valuation allowances established
on them were divested. As of December 31, 2007, the amount
of valuation allowance that existed was $11.2 million. The
amount of valuation allowance is all attributable to the US
Federal and state jurisdictions. The net US domestic deferred
tax assets and liabilities before valuation allowance was
approximately $9.3 million. As of December 31, 2007,
there is not any amount of the valuation allowance for which
subsequently recognized benefits will be allocated to reduce
goodwill or other intangible assets.
The net increase in the valuation allowance in 2008 was
$9.4 million. The valuation allowance increased during 2008
primarily because of the net operating loss generated in 2008.
As of December 31, 2008, the amount of valuation allowance
that existed was $20.5 million. The amount of valuation
allowance is all attributable to the U.S. federal and state
jurisdictions. The net U.S. domestic deferred tax assets and
liabilities before valuation allowance was approximately
$19.9 million. As of December 31, 2008, there is not
any amount of the valuation allowance for which subsequently
recognized benefits will be allocated to reduce goodwill or
other intangible assets.
At December 31, 2008, the amounts and expiration dates of
loss and tax credit carryforwards were as follows:
Amount as of Year
Expire or Start Expiring at
Ended 2008
the end of:
(Dollars in thousands)
U.S. net operating loss(1)
$
37,337
2028
State net operating loss carryforward (net):
State tax net operating losses
349
2012-2028
Tax credits:
Foreign tax credit
1,378
2011-2015
Minimum tax credit
6,549
Carry forward indefinitely
Research and development tax credit
748
2014-2021
Total tax credits
8,675
(1)
Not subject to any annual limitation.
Income taxes refunded, net of tax payments, were
$45.9 million for fiscal year 2008. Income taxes paid, net
of refunds, for fiscal years 2007 and 2006 were
$66.6 million and $0.3 million, respectively. The
Company has refunds receivable from taxing authorities of
$19.8 million and $65.6 million as of fiscal year end
2008 and 2007, respectively.
As of December 31, 2008, the Company is under examination
by the IRS for fiscal years
2003-2004
and
2006-2007.
The examination for fiscal years
2003-2004
has been completed by the local IRS examination team. The income
tax refunds of $9.2 million requested by the Company for
2003-2004
have been approved by the local office but are still subject to
review by IRS joint committee. These years under examination
contain matters that could be subject to differing
interpretations of applicable tax laws and regulations as they
Notes to the Consolidated Financial
Statements — (Continued)
related to the amount, timing or inclusion of revenue and
expenses or the sustainability of income tax credits for a given
audit cycle. The Company has established a liability for those
matters where it is not probable that the position will be
sustained. The amount of the liability is based on
management’s best estimate given the Company’s history
with similar matters and interpretations of current laws and
regulations.
Under the sale agreements with Snap-On Incorporated and
Cambridge Scientific Abstracts, LP (“CSA”), the
Company is liable to indemnify Snap-On Incorporated or CSA for
any income taxes assessed against PQBS or PQIL for periods prior
to the sale of PQBS or PQIL. The Company has established a
liability for those matters where it is not probable that the
position will be sustained. The amount of the liability is based
on management’s best estimate given the Company’s
history with similar matters and interpretations of current laws
and regulations.
Uncertain
Tax Positions
In July 2006, the FASB issued FIN 48. FIN 48 clarifies
the accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 applies to all tax
positions related to income taxes.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
During the fiscal year ended December 31, 2008, the Company
recorded a decrease to its liability for unrecognized tax
benefits of approximately $0.2 million, which primarily
relates to settlement of a state income tax filing position.
Included in the balance of unrecognized tax benefits at
December 31, 2008 are approximately $0.5 million of
tax benefits that, if recognized, would affect the effective tax
rate. Because of the impact of deferred tax accounting and the
availability of tax attributes, the majority of the tax
positions would ordinarily not affect the effective tax rate or
the payment of cash to the taxing authorities. However, due to
the limited evidence to support the realization of these tax
assets a valuation allowance is required.
The Company recognizes interest accrued related to unrecognized
tax benefits and penalties as income tax expense. Related to the
unrecognized tax benefits noted above, the Company recognized
penalties of zero and immaterial amounts for interest (gross)
during 2008 and, as of December 31, 2008, has a liability
for penalties of zero and interest (gross) of approximately
$0.1 million.
We do not expect our unrecognized tax benefits to change
significantly over the next 12 months.
The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction and various
U.S. state jurisdictions. The tax years which remain
subject to examination by major tax jurisdictions as of
December 31, 2008 include 2003-2007.
Notes to the Consolidated Financial
Statements — (Continued)
Note 4 —
Discontinued Operations
The Board determined to sell PQBS and PQIL and authorized the
plan of sale in the second quarter of 2006. On November 28,2006, we sold PQBS to Snap-on Incorporated and used the proceeds
to reduce outstanding debt. In December 2006, we announced the
sale of PQIL including all remaining foreign subsidiaries to
Cambridge Scientific Abstracts, LP. The sale of PQIL was closed
on February 9, 2007 and we used a portion of the proceeds
from that sale to pay down all remaining debt, excluding capital
leases.
The operating results of these businesses have been segregated
from our continuing operations. The Consolidated Statements of
Operations separately reflect the gains on sale and the earnings
of PQBS and PQIL as discontinued operations. Interest expense of
zero, $0.8 million, and $18.3 million for 2008, 2007
and 2006, respectively, was allocated to discontinued operations
based on the ratio of net assets of sold or to be sold
businesses to total net assets of the consolidated company.
Results from discontinued operations are shown in the tables
below for the fiscal years indicated:
Earnings from discontinued operations before interest and income
taxes
7,798
89,124
Interest expense, net
(847
)
(20,422
)
Income tax expense
(1,491
)
(23,776
)
Earnings from discontinued operations, net of taxes
$
5,460
$
44,926
The gain on sale in fiscal years 2007 and 2006 resulting from
the sale of discontinued operations was derived as follows:
2007
2006
(Dollars in thousands)
Sale price
$
195,249
$
513,986
Net assets, related liabilities, and selling costs(1)
(137,517
)
(99,957
)
Gain on sale
57,732
414,029
Income tax expense
(11,160
)
(66,321
)
Gain on sale of discontinued operations, net of tax
$
46,572
$
347,708
(1)
Net assets sold in fiscal 2007 and 2006 include goodwill of
$68.0 million and $52.2 million, respectively.
The sale of PQBS generated significant taxable income that
enabled the Company to utilize capital loss carryforwards and
other tax attributes in 2006 for which the Company had
previously established valuation allowances. Therefore, the tax
expense of $66.3 million for 2006 was significantly less
than the statutory tax rate because of the release of the
valuation allowance on these tax attributes.
Under Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets”,
(“SFAS No. 142”), goodwill and other
indefinite-lived intangible assets are no longer amortized but
are instead reviewed for impairment at least annually and if a
triggering event is determined to have occurred in an interim
period. The Company’s annual impairment testing is
performed during the fourth fiscal quarter. The first step of
impairment testing for fiscal 2008 showed that the book value of
the Company’s single reporting unit exceeded its fair
value; therefore, a second step of testing was required under
SFAS No. 142. The second step requires the allocation
of fair value of a reporting unit to all of the assets and
liabilities of that reporting unit as if the reporting unit had
been acquired in a business combination. The fair value was
determined using an income approach based on forecasted
operating results. As a result of the second step of our 2008
impairment test, the goodwill balance for the reporting unit as
of the measurement date was determined to be partially impaired.
The estimates of fair market used in our goodwill testing are
dependent on multiple assumptions, estimates and inputs,
including industry fundamentals such as the state of educational
funding and the actual performance and future projections of the
Company. As of year end 2008, the estimated fair market value of
the reporting unit was estimated to have fallen below the book
value as a result of worsening and prolonged adverse
developments in the overall education funding environment,
including the reductions in Reading First funding effective 2008
and the reductions in available state and local funds. As a
result of these factors, an impairment charge of
$43.1 million was recorded in 2008.
In conducting our annual goodwill impairment testing for fiscal
2007, we compared the book value of goodwill attributed to VED
with the estimated fair market value of VED. These estimates of
fair market are dependent on multiple assumptions and inputs,
including industry fundamentals such as the state of educational
funding and the actual performance and future projections of the
Company. As of year end 2007, the estimated fair market value of
VED was estimated to be less than the book value as a result of
lower future cash flow projections, driven by adverse
developments in the education funding environment at the federal
and local level. An impairment charge of $67.2 million
related to VED was recorded in 2007 as a result of these factors.
For fiscal 2006, the Company performed its annual impairment
testing of goodwill and impairment testing of long-lived assets
as of December 30, 2006. As a result of this testing, the
Company recorded impairment to goodwill of VED totaling
$42.5 million. In conducting our annual goodwill impairment
testing, we compared the book value of goodwill attributed to
VED with the estimated fair market value of VED using revenue
and EBITDA multiples of publicly traded comparable companies.
These estimates of fair market are dependent on multiple
assumptions and inputs including: market prices of securities in
general, prevailing interest rates, industry fundamentals
including the state of educational funding, and the actual
performance and future projections of the Company. As of year
end 2006, the estimated fair market value of VED was estimated
to have fallen below the book value as a result of multiple
factors including: a more competitive environment, the need to
invest in redesigning older products and to introduce new
products, the need to improve customer retention, sales declines
in certain key products, the loss of several significant
customers, and lower actual performance and future projections
than were made at the time of acquisition of Voyager.
Based on the current amount of intangible assets subject to
amortization, the estimated amortization expense for each of the
succeeding 5 years and thereafter is as follows:
2009 — $15.3 million; 2010 —
$12.9 million; 2011 — $9.7 million;
2012 — $7.0 million; 2013 —
$4.8 million; all years thereafter —
$3.0 million.
There were no intangibles acquired in 2008 or 2007.
Note 6 —
Other Current Assets
Other current assets at the end of fiscal 2008 and 2007 consist
of the following:
2008
2007
(Dollars in thousands)
Short-term deferred tax asset
$
1,994
$
2,566
Deferred costs
1,907
1,434
Available for sale securities
13,137
3,629
Insurance receivable
15,000
1,217
Other
1,788
7,643
Total
$
33,826
$
16,489
Available-for-sale
securities represent assets, invested in equity and fixed income
securities, held in a rabbi trust, related to executive plans,
as well as investments in short-term debt securities that will
mature within one year.
See Note 18 for further description of the legal
contingency accrual related to the putative securities class
actions and the related receivable from the Company’s
insurance providers. This liability and related receivable were
classified as long-term as of December 29, 2007.
Notes to the Consolidated Financial
Statements — (Continued)
Note 7 —
Other Assets
Other assets at the end of fiscal 2008 and 2007 consist of the
following:
2008
2007
(Dollars in thousands)
Insurance receivable
$
—
$
15,000
Other
1,363
1,350
Total
$
1,363
$
16,350
Note 8 —
Accrued Expenses
Accrued expenses at the end of fiscal 2008 and 2007 consist of
the following:
2008
2007
(Dollars in thousands)
Salaries, bonuses and benefits
$
6,900
$
8,540
Pension and post-retirement medical benefits
6,675
2,101
Deferred compensation
3,233
1,590
Corporate transition costs
1,879
2,466
Legal contingency accrual
20,000
5,400
Other
2,179
5,218
Total
$
40,866
$
25,315
See Note 13 for further description of our pension benefits.
See Note 16 for further description of our corporate
transition costs.
See Note 18 for further description of the legal
contingency accrual related to the putative securities class
actions and the related receivable from the Company’s
insurance providers. This liability and related receivable were
classified as long-term as of December 29, 2007.
The legal contingency accrual of $5.4 million as of
December 29, 2007 is related to an arbitration that was
settled and paid in the first quarter of 2008.
Note 9 —
Other Liabilities
Other liabilities at the end of fiscal 2008 and 2007 consist of
the following:
2008
2007
(Dollars in thousands)
Pension and post-retirement medical benefits, long-term portion
$
10,239
$
18,957
Long-term deferred tax liability
2,638
4,454
Long-term income tax payable
640
777
Legal contingency accrual
—
20,000
Long-term deferred compensation
2,765
5,713
Deferred rent
128
7,639
Long-term deferred revenue
1,590
1,317
Other
2,348
2,401
Total
$
20,348
$
61,258
See Note 13 for further description of our pension benefits.
Notes to the Consolidated Financial
Statements — (Continued)
Note 10 —
Leases
Capital
Lease Obligations
Voyager leases certain facilities and equipment for selling and
administrative purposes under capital lease agreements with
original lease terms up to 5 years. Capital leases that
exist as of year-end 2008 expire no later than 2010.
The gross value of leased capital assets was $1.4 million
and $3.5 million at December 31, 2008 and
December 29, 2007, respectively, which are included in
Machinery and Equipment on the Consolidated Balance Sheet. The
gross value of leased capital assets was reduced by
$1.9 million as of the beginning of fiscal 2008 due to the
assignment of certain property and equipment leases to CSA. The
accumulated amortization of leased capital assets was
$1.0 million and $1.6 million at December 31,2008 and December 29, 2007, respectively. Amortization of
capital lease assets is recognized over the term of the lease on
a straight line basis and included in depreciation expense.
See Note 16 for further description of our lease
termination costs.
Operating
Leases
We lease certain facilities and equipment for production and
selling and administrative purposes under agreements with
original lease periods up to 15 years (5 years
excluding leases terminated in early 2008). Leases generally
include provisions requiring payment of taxes, insurance, and
maintenance on the leased property. Some leases include renewal
options and rent escalation clauses, and certain leases include
options to purchase the leased property during or at the end of
the lease term.
In connection with the sale of PQIL in February 2007, the
Company and ProQuest LLC (formerly known as ProQuest-CSA LLC)
(“CSA”) entered into a transition services agreement
(“TSA”) and subsequently certain assignment agreements
that established, among other things, sublease payments due the
Company from CSA for use of certain property, equipment and
office space at 777 Eisenhower Parkway, Ann Arbor, Michigan (the
“777 Facility”) and 789 Eisenhower Parkway, Ann Arbor,
Michigan (the “789 Facility”). The TSA was effective
for up to one year following the sale of PQIL with automatic
month-to-month
extensions thereafter; however, all sublease income received by
the Company from CSA ceased after the associated capital or
operating leases were either fully assigned to CSA or terminated
by April 2008. Sublease income received from CSA for capital and
operating leases for fiscal 2008 and 2007 totaled
$0.8 million and $4.4 million, respectively.
Pursuant to a Sublease Agreement entered into between the
Company and CSA effective March 7, 2008, the Company
subleased certain space located in the 789 Facility under
operating leases. The term of such sublease, which includes
approximately 13,090 square feet of rental space
(i) is for six months from the Closing Date of
March 7, 2008, with month to month extensions thereafter
but not past December 31, 2008, for approximately
10,030 square feet to be utilized by the Company’s
remaining corporate functions in such facility, and
(ii) runs from the Closing Date until December 31,2008, with optional semi-annual extensions thereafter but not
past December 31, 2010, for approximately 3,060 square
feet to be utilized by the Company for certain technology
related functions in the 789 Facility. Future lease payment
obligations related to the Sublease Agreement total
$0.1 million for fiscal 2009 and 2010 combined.
Rent holidays and rent escalation provisions are considered in
determining straight-line rent expense to be recorded over the
lease term. The lease term begins on the date of initial term of
the lease. Lease renewal periods are considered on a
lease-by-lease
basis and are generally not included in the initial lease term.
Total rental expense for fiscal 2008, 2007, and 2006 was
$3.0 million, $6.2 million, and $2.2 million,
respectively.
Notes to the Consolidated Financial
Statements — (Continued)
Future minimum capital lease and operating lease payments under
long-term non-cancelable leases, and the related present value
of capital lease payments at December 31, 2008 are as
follows:
Capital
Operating
Leases
Leases
(Dollars in thousands)
2009
$
159
$
1,272
2010
98
1,110
2011
—
320
2012
—
333
2013
—
258
Subsequent to 2013
—
—
Total minimum lease payments
257
$
3,293
Less: Amount representing interest
(12
)
Present value of net minimum lease payments
245
Less: current portion
(149
)
Obligations under capital leases, less current portion
$
96
See Note 16 for further description of our lease
termination costs.
Note 11 —
Fair Value of Financial Instruments
Our financial instruments include cash equivalents, investments
available-for-sale,
accounts receivable, accounts payable and long-term debt.
The book value of cash equivalents and investments
available-for-sale
reflect fair market value because these investments are recorded
based on quoted market prices
and/or other
market data for the same or comparable instruments and
transactions as of the end of the reporting period. We believe
the book value of accounts receivable and accounts payable
approximates fair value due to their short-term nature.
Note 12 —
Debt
Upon closing on the sale of PQIL on February 9, 2007, the
Company paid its remaining balances owed to our lenders and
noteholders and were released from all obligations under the
2002 Senior Notes due
10/01/12,
2005 Senior Notes due
01/31/15,
and the 2005 Revolving Credit Agreement, including accrued
interest, fees, and required make-whole premiums.
Interest expense for the first quarter of 2007 includes
$2.3 million for amortization and write-off of deferred
financing fees related to the extinguished debt balances.
Cash paid for interest on Company debt, lines of credit and
capital leases for continuing and discontinued operations were
immaterial amounts in fiscal 2008 and $1.1 million and
$43.9 million in 2007 and 2006, respectively.
Previously
Outstanding Debt
2002
Senior Notes
On January 31, 2005, we entered into a First Amendment to
the 2002 Note Purchase Agreement dated as of October 1,2002 (the “2002 Note Purchase Agreement”), under and
pursuant to which we originally issued and sold our
5.45% senior notes (the “2002 Senior Notes”) due
October 1, 2012, in an aggregate principal amount of
$150 million. No principal payments were due until
October 1, 2006. The notes amortized in seven equal annual
payments of $21.4 million, beginning October 1, 2006
and ending on October 1, 2012. The interest rate on these
senior notes was fixed at 5.45% and was payable semi-annually.
The first amendment,
Notes to the Consolidated Financial
Statements — (Continued)
among other things, amended the financial covenants under the
2002 Note Purchase Agreement to give effect to the acquisition
of Voyager Expanded Learning. Specifically, the consolidated
adjusted net worth covenant and the consolidated debt covenants
were adjusted to be consistent with the terms of the 2005 Note
Purchase Agreement. The Waiver Agreement (defined below)
modified the interest rate as of May 2, 2006 to give the
holders of the 2002 Senior Notes the option of a fixed interest
rate of 7.87%, interest at the London Interbank Offered Rate
(LIBOR) plus 2.5% or the interest at the Base Rate (defined
below) plus 1.0% and changed other provisions as described below.
2005
Senior Notes
The 2005 Note Purchase Agreement dated as of January 31,2005 (the “2005 Note Purchase Agreement”) provided
for, among other things, the issuance and sale of the
Company’s 5.38% Senior Notes due January 31,2015, in the aggregate principal amount of $175 million
(the “2005 Senior Notes”). No principal payments were
due until January 31, 2010. We were required to make six
equal annual principal payments of $29.1 million on the
2005 Senior Notes commencing on January 31, 2010. The
applicable annual interest on the 2005 Notes was fixed at 5.38%
and was payable semi-annually in arrears calculated on the basis
of a 360-day
year of twelve
30-day
months. The Waiver Agreement (defined below) modified the
interest rate as of May 2, 2006 to give the holders of the
2005 Senior Notes the option of a fixed interest rate of 7.87%,
interest at LIBOR plus 2.5% or interest at the Base Rate plus
1.0% and changed other provisions as described below.
2005
Revolving Credit Agreement
On January 31, 2005, we replaced our previous revolving
credit agreement with a new variable interest rate facility (the
“2005 Revolving Credit Agreement”). The 2005 Revolving
Credit Agreement was a five-year, unsecured revolving credit
facility in an amount up to $275 million, with a
sub-facility
for letters of credit (in an amount not to exceed
$20 million) and a
sub-facility
for swingline loans (in an amount not to exceed
$15 million). The final maturity date of the 2005 Revolving
Credit Agreement was January 31, 2010 with no principal
payments due until that date. Borrowings and letters of credit
under the 2005 Revolving Credit Agreement originally bore
interest, at our option, at either LIBOR plus a spread ranging
from 0.75% to 1.75% or 0.0% to 0.25% over an alternative base
rate. The alternative base rate is the greater of the LaSalle
Bank Midwest National Association prime rate or the Federal
Funds rate plus 0.50% (“Base Rate”). The Waiver
Agreement (defined below) modified the interest rate as of
May 2, 2006 to give the lenders the option of LIBOR plus
2.5% or the Base Rate plus 1.0%. The interest rate in effect as
of December 30, 2006 was LIBOR + 2.5%, which was 7.85% on
$22.2 million outstanding at December 30, 2006.
The 2002 Note Purchase Agreement, the 2005 Note Purchase
Agreement and the 2005 Revolving Credit Agreement are
collectively referred to as the “Credit Agreements”.
On February 9, 2006, we announced the restatement of our
historical financial statements. The restatement resulted in
failure to comply with the covenants set forth in the Credit
Agreements. The events of default included, but were not limited
to, failure to deliver the annual audited financial statements
for the 2005 fiscal year and related compliance certificate
within the required period, failure to comply with the rules and
regulations of the SEC, failure to notify the bank agent or any
bank lender of any event of default, material
misrepresentations, and failure to make the payment of interest
on a portion of the existing bank advances and on the existing
2002 Senior Notes.
On May 2, 2006, the Company entered into a Waiver and
Omnibus Amendment Agreement (the “Waiver Agreement”)
by and among the Company, each of the other lenders party
thereto (the “Lenders”) and LaSalle Bank Midwest
National Association, as collateral agent. This Waiver Agreement
was effective until November 30, 2006, and was subject to
the Company’s ongoing compliance with certain additional
covenants. Under the terms of the Waiver Agreement:
•
the Lenders agreed not to exercise remedies available to them
resulting from the Company’s defaults under its Credit
Agreements and to temporarily waive the specified existing and
continuing defaults
Notes to the Consolidated Financial
Statements — (Continued)
during the period commencing on the date of default and expiring
on November 30, 2006 unless the date was extended to
January 31, 2007 if the Company achieved certain
pre-determined milestones,
•
the Credit Agreements were amended to provide that the
covenants, events of default and other provisions were
substantially the same among those agreements,
•
the Credit Agreements were amended to provide that the financial
covenants contained in the Credit Agreements were replaced by
monthly EBITDA and capital expenditures covenants,
•
the swingline facility contained in the 2005 Revolving Credit
Agreement’s was cancelled,
•
the existing amounts outstanding under the 2005 Revolving Credit
Agreement which were repaid as of the effective date of the
Waiver Agreement could not be re-borrowed,
•
the revolving commitment under the 2005 Revolving Credit
Agreement was capped at $32.8 million,
•
a new superpriority credit facility was established in an amount
up to $56 million in the aggregate, so long as the Company
was in compliance with the underlying terms and conditions of
the Waiver Agreement,
•
the Company was required to grant a security interest in
substantially all its assets and to provide guarantees from all
its domestic subsidiaries with respect to the Credit Agreements
and the superpriority credit facility,
•
borrowings under the superpriority credit facility would be at
either LIBOR plus 3.5% or the Base Rate plus 2.0% which was on
average approximately 175 basis points higher than under
the then existing Credit Agreements, and
•
the Company would pay various fees, including a waiver fee
applicable to the 2002 Senior Notes, the 2005 Senior Notes, and
the existing 2005 Revolving Credit Agreement of 25 basis
points ($1.3 million), and a 100 basis point
origination fee ($0.6 million) on the superpriority credit
facility.
In October 2006, in order to sell PQBS to Snap-on Incorporated,
the Company entered into a Waiver Agreement which extended the
waiver period from November 30, 2006 to March 15,2007. In addition the amendment modified the superpriority
credit facility allowing the company to borrow up to
$15.0 million beginning January 1, 2007, increasing to
$20.3 million on February 1, 2007, and decreasing to
zero on March 15, 2007.
On November 28, 2006, the Company sold PQBS to Snap-on
Incorporated. The aggregate consideration received by the
Company was $514 million including the assumption by
Snap-on of approximately $19 million of debt. Upon
completing the sale of PQBS on November 28, 2006, the
Company used the proceeds from the sale, along with certain
other funds from the Company, to repay $475.8 million,
representing 89% of its outstanding debt.
As of December 30, 2006, debt was $58.2 million
excluding capital leases. The interest rate in effect under the
amended 2005 Revolving Credit Agreement was LIBOR + 2.5%, which
was 7.85% on $22.2 million of debt outstanding. The company
did not have the ability to borrow any additional amounts under
the 2005 Revolving Credit Agreement as of December 30,2006. The interest rate on Senior Notes was a fixed interest
rate of 7.87% on $28.1 million of debt outstanding and a
variable rate of LIBOR + 2.5%, which was 7.85% on
$7.9 million outstanding at December 30, 2006.
Note 13 —
Profit-Sharing, Pension, and Other Postretirement Benefit
Plans
Defined
Contribution Plans
Eligible employees who elect to do so can participate in our
defined contribution profit-sharing retirement plans. As the
Company is not obligated to continue these defined contribution
plans in future years, the Company expenses its annual
contributions to these plans but does not record a liability for
these plans. The
Notes to the Consolidated Financial
Statements — (Continued)
amounts charged to earnings for fiscal 2008, 2007 and 2006
related to these plans were $0.8 million,
$0.8 million, and $3.0 million, respectively.
The Company also has contractual obligations under a frozen
replacement benefit plan (“RBP”) for a small number of
terminated and retired executives and one current employee.
Because the RBP is frozen, no participant can make or is
entitled to additional contributions. Instead the Company has
accrued a liability totaling $5.6 million as of year end
2008 to reflect its estimated future obligation for RBP. The
current portion of the RBP liability, which was
$3.1 million at year end 2008, is included on the line
“Salaries, bonus and benefits” in Note 8 to these
financial statements. The long term portion of the RBP
liability, which was $2.5 million at year end 2008, is
included on the line “Long-term deferred compensation”
in Note 9 of these financial statements. See Future
Contributions in this footnote regarding lump sum payments made
in January 2009 which further reduced the RBP liability.
Defined
Benefit Plan and Other Postretirement Benefit Plan
We also have a frozen defined benefit pension plan covering
certain terminated and retired former domestic employees. The
benefits are primarily based on years of service
and/or
compensation during the years immediately preceding retirement.
We use a measurement date of December 31 for our pension and
postretirement benefit plans.
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of SFASs No. 87,
88, 106, and 132(R)” (“SFAS No. 158”).
This statement requires reporting of the funded status of
defined benefit postretirement plans as an asset or liability in
the statement of financial position, recognizing changes in the
funded status due to gains or losses, prior service costs, and
net transition assets or obligations in other comprehensive
income in the year the changes occur, adjusting other
comprehensive income when the gains or losses, prior service
costs, and net transition assets or obligations are recognized
as components of net period benefit cost through amortization,
and measuring the funded status of a plan as of the date of the
statement of financial position, with limited exceptions.
SFAS No. 158 was effective for recognition of the
funded status of the benefit plans for fiscal years ended after
December 15, 2006 and was effective for the measurement
date provisions for fiscal years ended after December 15,2008. We adopted SFAS No. 158 effective
December 30, 2006, with minimal impact to our financial
statements.
As a result of the sale of PQIL, the obligation for our United
Kingdom (“U.K.”) pension plan was assumed by the buyer
of PQIL and as of February 2007 the Company has no further
obligation to make U.K. pension contributions. The Company made
payments of $22.9 million in early 2007 to its U.K. pension
plan concurrent with the sale of PQIL in February 2007.
In addition, we have contributory and non-contributory
postretirement medical benefit plans and a non-contributory
postretirement life insurance benefit plan covering certain
domestic employees. All of these other postretirement benefit
plans are unfunded. Effective January 1, 2006 we ceased to
offer a retiree medical program.
Notes to the Consolidated Financial
Statements — (Continued)
The net cost of our defined benefit pension plan and other
postretirement benefit plan for fiscal 2008, 2007, and 2006 were
as follows:
U.S. Defined Benefit
Other Postretirement
Pension Plan
Benefits
2008
2007
2006
2008
2007
2006
(Dollars in thousands)
Service cost
$
—
$
—
$
—
$
—
$
—
$
—
Interest cost
1,242
1,189
1,227
5
8
11
Recognized net actuarial loss/(gain)
72
135
138
(98
)
(104
)
(107
)
Net pension and other postretirement benefit cost (income)
$
1,314
$
1,324
$
1,365
$
(93
)
$
(96
)
$
(96
)
Obligation
and Funded Status
The funded status of our defined benefit pension plan and other
postretirement benefit plan at the end of fiscal 2008 and 2007
were as follows:
U.S. Defined Benefit
Other Postretirement
Pension Plan
Benefits
2008
2007
2008
2007
(Dollars in thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year
$
20,903
$
22,569
$
134
$
194
Service cost
—
—
—
—
Interest cost
1,242
1,189
5
8
Actuarial (gain)/loss
(3,277
)
(933
)
69
(66
)
Benefits paid
(2,039
)
(1,922
)
(131
)
(2
)
Benefit obligation, end of year
$
16,829
$
20,903
$
77
$
134
Change in Plan Assets
Fair value, beginning of year
$
—
$
—
$
—
$
—
Company contributions
2,039
1,922
131
2
Benefits paid
(2,039
)
(1,922
)
(131
)
(2
)
Fair value, end of year
$
—
$
—
$
—
$
—
Funded/(unfunded) status
$
(16,829
)
$
(20,903
)
$
(77
)
$
(134
)
Accrued benefit cost
$
(16,829
)
$
(20,903
)
$
(77
)
$
(134
)
Amounts Recognized in the Consolidated Balance Sheets
Current accrued benefit liability
(6,648
)
(2,060
)
(27
)
(41
)
Non-current accrued benefit liability
(10,181
)
(18,843
)
(50
)
(93
)
Net amount recognized
$
(16,829
)
$
(20,903
)
$
(77
)
$
(134
)
At December 31, 2008, we had a net actuarial gain of
$0.3 million and $0.1 million for our
U.S. pension and other postretirement benefits,
respectively. These amounts are included in Accumulated Other
Comprehensive Income (Loss) on our Consolidated Balance Sheets.
Of these amounts, we expect immaterial amounts to be recognized
as a component of net pension and other postretirement benefit
cost (income) during 2009.
See Future Contributions in this footnote regarding lump sum
payments made in January 2009 which reduced the pension plan
liability.
Notes to the Consolidated Financial
Statements — (Continued)
Plan
Assumptions
U.S. Defined Benefit Pension Plan
Other Postretirement Benefits
2008
2007
2008
2007
Discount rate
6.25
%
6.25
%
5.50
%
5.00
%
The discount rate is determined by analyzing the average returns
of high-quality fixed income investments defined as AA-rated or
better. We also utilize an interest rate yield curve for
instruments with maturities corresponding to our benefit
obligations.
Additional
Information
For our pension plan, the projected benefit obligation and
accumulated benefit obligation at the end of fiscal 2008 and
2007 were as follows:
U.S. Defined Benefit
Pension Plan
2008
2007
(Dollars in thousands)
Projected benefit obligation
$
16,829
$
20,903
Accumulated benefit obligation
$
16,829
$
20,903
Assumed
Health Care Cost Trend Rates
2008
2007
Health care cost trend rate assumed for next year
8.50
%
9.00
%
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
6.00
%
6.00
%
Year that the rate reaches the ultimate trend rate
2014
2014
Assumed future health care cost trend rates do not have a
significant effect on postretirement medical benefit costs. A
one percentage point change in the assumed health care cost
trend rates would have less than a two thousand dollar impact on
the benefit plan obligation at year end 2008 and less than a
four thousand dollar impact on the benefit plan obligation at
year end 2007.
Future
Contributions
During the fourth quarter of 2008, the Company provided an
opportunity for participants in its RBP and its defined benefit
pension plan to receive a discounted lump sum distribution to
settle retirement obligations. Prior to the distribution
opportunity, both plans were frozen, with no participants
entitled to make additional contributions or earn additional
service years. Based on the responses received, the Company paid
cash out of approximately $7.9 million in January 2009
related to these lump sum payments. As a result of the
settlements the Company expects to record a gain of
$1.3 million in January 2009. At the end of January 2009,
after normal distributions and the settlement, the total
liability related to the RBP was $1.4 million and the total
liability related to the U.S. defined benefit plan was
$11.2 million.
Total contributions expected to be paid under our frozen
U.S. retirement plans or to the beneficiaries thereof
during fiscal 2009 are $9.7 million, consisting of
$6.6 million to our U.S. defined benefit plan and
$3.1 million to RBP, including the lump sum payments made
in January 2009.
Notes to the Consolidated Financial
Statements — (Continued)
Gross benefit payment obligations under our continuing defined
benefit plans for the next ten years are anticipated to be as
follows:
U.S. Retirement
Other Postretirement
Plans (SRP and RBP)
Benefits
(Dollars in thousands)
2009
$
9,728
$
27
2010
1,969
21
2011
1,719
17
2012
1,365
14
2013
1,319
5
2014 — 2018
5,275
—
In December 2003, Congress passed the Medicare Act of 2003. We
do not provide post-65 medical or prescription drug coverage;
therefore, our postretirement benefit liability and costs are
not impacted by the employer subsidy provision of the Act.
Note 14 —
Common Stock
We have 50,000,000 authorized shares of common stock,
($.001 par value per share), 30,550,443 shares issued
and 29,874,145 shares outstanding as of December 31,2008 and 30,552,129 shares issued and
29,882,559 shares outstanding as of December 29, 2007.
Note 15 —
Stock-Based Compensation
As of December 31, 2008, the Company has one stock-based
compensation plan, which is described below. The total amount of
pre-tax expense for stock-based compensation recognized in
general and administrative expense in fiscal 2008, 2007, and
2006 was $0.9 million, $0.1 million, and
$3.1 million, respectively. Additionally, zero,
($0.1) million and $1.2 million in pre-tax expense
(benefit) for stock-based compensation is recognized in earnings
from discontinued operations in 2008, 2007 and 2006,
respectively. The total income tax benefit recognized for book
purposes in the consolidated statement of operations related to
stock-based compensation was zero, zero, and $0.4 million
for fiscal 2008, 2007, and 2006, respectively. The total tax
benefit realized was immaterial for 2008 and $0.2 million
for both fiscal 2007 and 2006.
Stock
Option Plan
In fiscal 2003, we adopted the 2003 ProQuest Strategic
Performance Plan (“Option Plan”), which replaced the
ProQuest Company 1995 Stock Option Plan and the ProQuest Company
Non-Employee Directors Stock Option Plan. Under the Option Plan,
5,160,000 shares of common stock were reserved for
issuance. In 2004, an additional 1,532,000 shares were
reserved for issuance. The Option Plan is administered by the
Compensation Committee of the Board of Directors which has the
authority to establish the terms and conditions of awards
granted under the Option Plan. Under the Option Plan, the
Committee can grant stock appreciation rights, restricted stock,
performance stock, performance units, annual management
incentive awards and other stock or cash awards.
Options granted to certain executives may contain a replacement
option feature. When the option’s exercise price is paid
with shares of the Company’s common stock, which the
executive previously owned for more than six months, a
replacement option is granted for the number of shares used to
make that payment. The replacement option has an exercise price
equal to the fair market value of the Company’s common
stock on the date the replacement option is granted; is
exercisable in full six months after the date of the grant; and
has a term expiring on the expiration date of the original
options. Options granted in 2004 are not eligible for this
replacement feature.
Notes to the Consolidated Financial
Statements — (Continued)
Long
Term Incentive Performance (“LTIP”)
Grants
In fiscal 2004, the Compensation Committee of our Board of
Directors granted 1,961,500 nonqualified stock options with an
exercise price of $30.97 per share to six members of our senior
executive team. On October 5, 2005 and November 2,2005, an additional 100,000 and 175,000 nonqualified stock
options with an exercise price of $36.52 and $30.97,
respectively, were granted to two new members of our senior
executive team. These stock options were issued under a new Long
Term Incentive Performance (“LTIP”) plan consistent
with the Board’s desire that management deliver long-term
sustainable shareholder value. The number of options granted to
each executive under the 2004 LTIP was the projected aggregate
number of options that would have been granted annually over a
five year period to each of these executives based on their then
positions and responsibilities. Currently, there is only one
executive who retains rights under the LTIP plan. The options
outstanding under this grant equal 440,000 shares. All
other options granted under the LTIP have been terminated or
forfeited.
Under this grant, the options vest after seven years and expire
in ten years. However, if certain stock price thresholds are met
during the initial seven year period, the vesting of the options
is accelerated. These stock price thresholds represented 8% to
10% compounded annual stock price growth rates for 3 to
5 years as of the date of the grant.
The following table outlines the stock price thresholds and the
number of options accelerated at each target stock price.
2004 Grant
Achievement
Options
Stock Price
Period
Vested
$36.67
3 years
208,000
$39.81
4 years
246,000
$42.77
5 years
283,000
$46.88
5 years
440,000
If the options are exercised, the executive must retain 50% of
all after-tax gains in shares of the Company until his
retirement or termination of employment at Voyager.
Stock
Appreciation Right (“SAR”) Grant
In fiscal 2007, the Compensation Committee of our Board of
Directors granted a stock appreciation right (“SAR”)
with respect to 300,000 shares of the Company’s common
stock with an exercise price of $8.55 per share to one member of
our senior executive team. Under this grant, the SAR vests over
a three year period and expires in five years. The SAR will be
settled in cash in the amount equal to the excess of the fair
market value of common stock over the exercise price multiplied
by the number of shares exercised. The SAR has been classified
as a liability award based on the cash settlement provisions.
Executive
Stock Option Grants
At the end of fiscal 2008, we had options outstanding for
342,335 shares granted to key executives. The term for
these options is six or ten years, vesting in equal annual
increments over either a three-year or a five-year period.
Nonvested
Restricted Stock Grants
During fiscal 2006, we granted certain employees and members of
our Board of Directors 2,067 shares of nonvested restricted
stock, with market values at the date of grant of
$0.1 million. In fiscal 2007 and 2006, we cancelled
12,604 shares and 30,430 shares, respectively, of the
nonvested restricted stock granted, with market values at the
date of grant of $0.4 million and $1.1 million,
respectively. These shares were valued at the market price at
their respective award dates and are being recognized as expense
over the 3 year vesting period.
Notes to the Consolidated Financial
Statements — (Continued)
During fiscal 2008 and 2007 the Company issued 15,714 and
11,158, respectively, cash-based restricted stock units to
members of the Company’s Board of Directors (2,619 and
1,594 units per board member, respectively). Under this
grant, the cash based restricted stock units vest after six
months. As of December 30, 2008 and December 29, 2007,
each director was entitled to receive a cash payment equal to
the product of the 2,619 and 1,594 units, respectively,
multiplied by the closing stock price on December 30, 2008
and December 28, 2007, respectively. No actual shares were
issued in relation to these grants, but instead, the grants were
intended to provide payment to the members of the Board of
Directors in a form of compensation that is related to the price
of the Company’s stock. All cash settled restricted stock
units related to these grants have been and were classified as
liability awards based on their cash settlement provisions and
were valued at the settlement amount of approximately
$0.1 million at year end 2007, which was paid in January
2008. Liability and expense amounts related to these awards
granted in 2008 are not material at December 31, 2008.
Fair
Value of Stock Option and SAR Grants
The fair value of each stock-based compensation award granted is
estimated on the date of grant using either the Black-Scholes
option-pricing model or a binomial model.
All other stock option and SAR grants are calculated using the
Black-Scholes option-pricing model. The following assumptions
were used during the periods presented to estimate the fair
value of awards:
2008
2007
2006
Expected stock volatility
45.90
%
35.30
%
39.00
%
Risk-free interest rate (weighted average for fiscal year)
1.10
%
3.06
%
5.19
%
Expected years until exercise
3
3
3
Dividend yield
0.00
%
0.00
%
0.00
%
Summary
of Stock Option and SAR Activity
A summary of the stock option and stock appreciation right
transactions for fiscal 2006, 2007, and 2008 is as follows:
Executive Grantees
Director Grantees
LTIP Grantees
SAR Grantee
Weighted
Weighted
Weighted
Weighted
Average
Average
Average
Average
Shares
Exercise
Shares
Exercise
Shares
Exercise
Shares
Exercise
(000’s)
Price
(000’s)
Price
(000’s)
Price
(000’s)
Price
Balance at the end of fiscal 2005
1,432
$
25.53
66
$
30.20
2,066
$
31.24
—
$
—
2006:
Granted
—
—
18
12.29
—
—
—
—
Exercised
(29
)
20.47
—
—
—
—
—
—
Forfeited/cancelled
(300
)
27.49
(3
)
32.63
(260
)
30.97
—
—
Awards outstanding at the end of fiscal 2006
1,103
$
25.21
81
$
24.68
1,806
$
31.28
—
$
—
Awards exercisable at the end of fiscal 2006
1,073
$
25.13
63
$
30.06
—
$
—
—
$
—
Weighted average fair value of awards granted during
fiscal 2006
Notes to the Consolidated Financial
Statements — (Continued)
Executive Grantees
Director Grantees
LTIP Grantees
SAR Grantee
Weighted
Weighted
Weighted
Weighted
Average
Average
Average
Average
Shares
Exercise
Shares
Exercise
Shares
Exercise
Shares
Exercise
(000’s)
Price
(000’s)
Price
(000’s)
Price
(000’s)
Price
2007:
Granted
—
—
—
—
—
—
300
8.55
Exercised
—
—
—
—
—
—
—
—
Forfeited/cancelled
(259
)
25.66
(9
)
26.78
(1,366
)
31.38
—
—
Awards outstanding at the end of fiscal 2007
844
$
25.08
72
$
25.98
440
$
30.97
300
$
8.55
Awards exercisable at the end of fiscal 2007
844
$
25.08
72
$
25.98
—
$
—
—
$
—
Weighted average fair value of awards granted during
fiscal 2007
$
—
$
—
$
—
$
2.61
2008:
Granted
—
—
—
—
—
—
—
—
Exercised
—
—
—
—
—
—
—
—
Forfeited/cancelled
(502
)
25.65
(4
)
25.81
—
—
—
—
Awards outstanding at the end of fiscal 2008
342
$
24.23
68
$
25.99
440
$
30.97
300
$
8.55
Awards exercisable at the end of fiscal 2008
342
$
24.23
68
$
25.99
—
$
—
100
$
8.55
The total intrinsic value of options outstanding and exercisable
as of December 31, 2008 was zero. The total intrinsic value
of stock options exercised during fiscal 2008, 2007, and 2006
was zero for all three years. The aggregate intrinsic value is
calculated as the difference between the exercise price of the
underlying awards and the closing stock price of $1.48 of our
common stock on December 31, 2008. The total grant date
fair value of stock options vested during fiscal 2008, 2007, and
2006 was $0.3 million, $0.3 million, and
$2.1 million, respectively.
As of December 31, 2008, there was $0.1 million of
unrecognized compensation cost related to outstanding stock
options and stock appreciation rights, net of forecasted
forfeitures. This amount is expected to be recognized over a
weighted average period of 0.1 years. To the extent the
forfeiture rate is different than what we have anticipated,
stock-based compensation related to these awards will be
adjusted in accordance with SFAS No. 123R.
Notes to the Consolidated Financial
Statements — (Continued)
As of December 31, 2008, there were no remaining shares or
unrecognized compensation cost related to nonvested restricted
stock.
The total fair value of restricted stock shares vested during
fiscal 2008 and 2007 was approximately $0.5 million and
$1.8 million, respectively.
Securities
Authorized for Issuance
Securities authorized for issuance under equity compensation
plans at December 31, 2008 are as follows:
Number of Securities
Number of Securities to be
Weighted-average
Remaining Available for
Issued Upon Exercise of
Exercise Price of
Future Issuance
Outstanding Options
Outstanding Options
Under Equity
Plan Category
and Rights
and Rights
Compensation Plans(a)
Equity compensation plans approved by security holders
1,150
$
22.82
3,213
Equity compensation plans not approved by security holders
—
—
—
Total
1,150
$
22.82
3,213
(a)
Excludes securities reflected in the first column, “Number
of securities to be issued upon exercise of outstanding options
and rights.”
Employee
Stock Purchase Plan
In fiscal 1996, our Board of Directors adopted the Associate
Stock Purchase Plan (“ASPP”), whereby employees are
afforded the opportunity to purchase Voyager shares, by
authorizing the sale of up to 500,000 shares of common
stock. The purchase price of the shares is 95% of the lower of
the closing market price at the beginning or end of each
quarter. Under SFAS No. 123R, the ASPP is a
non-compensatory plan. Purchases under the ASPP were suspended
effective March 9, 2006. The number of ASPP shares
purchased was zero for all fiscal years presented.
Note 16 —
Corporate Transition and Lease Termination Costs
On February 12, 2007, after the sale of PQBS and PQIL, the
Company’s Board of Directors approved and announced to
employees the closing of the corporate office in Ann Arbor,
Michigan. The transition plan, which was completed by year-end
2008, included the elimination of redundant positions and
transitioning the performance of certain operational activities
to Dallas, Texas. The Company expects to incur approximately
$4.4 million in severance and retention expense related to
the transition plan, all of which has been accrued or paid as of
December 31, 2008. Related costs are included in general
and administrative expense. The change
On January 1, 2008, the Company entered into an agreement
with one of its lessors, Relational, LLC
f/k/a
Relational Funding Corporation (“Relational”) and
ProQuest LLC (formerly known as ProQuest-CSA LLC)
(“CSA”) relating to certain obligations regarding the
capital and operating leases for certain property and equipment
used at its facilities at 777 Eisenhower Parkway (the “777
Facility”) and 789 Eisenhower Parkway (the “789
Facility”) in Ann Arbor, Michigan. The aforementioned
leases originated as early as fiscal year 2005 with up to five
year terms. Effective January 1, 2008, the Company
conveyed, assigned, transferred and delivered to CSA all of its
right, title and interest and benefit of certain property and
equipment. The Company was released from any and all obligations
relating to these leases and Relational, as lessor, consented to
such assignments and releases. Due to these assignments, the
write off of certain assets and liabilities under capital
leases, such as office furniture, phone and power supply
systems, and video equipment, totaled a net charge of
$0.1 million in the first quarter of 2008.
On January 25, 2008, the Company entered into a series of
agreements with its current landlord, Transwestern Great Lakes,
LP (“Transwestern”) and CSA relating to certain
obligations regarding the long term leases for the facilities in
Ann Arbor, Michigan. On March 4, 2008, the Company paid CSA
$11.0 million, a portion of which was distributed to
Transwestern for termination of the lease relating to office
space at the 777 Facility. Upon the Closing Date of
March 7, 2008, the Company was released from any and all
obligations relating to the 15 year lease the Company
previously entered into for the 777 Facility. Through
assignment, the Company was also released from any and all
obligations relating to the 15 year lease the Company
previously entered into for office space at the 789 Facility.
The Company assigned all of its rights under the lease for the
789 Facility to CSA and CSA assumed the obligations of tenant
under such lease, as amended. Transwestern, as landlord,
consented to such assignment. In connection with the termination
and assignment of these long term facility leases, certain
leasehold improvements and deferred rent were written off, which
totaled a net charge of $0.6 million in the first quarter
of 2008. The Company recorded a total charge to expense in the
first quarter of 2008 of $11.7 million for all lease
termination costs.
Note 17 —
Foreign Currency Transactions
We periodically have entered into contracts to buy or sell
foreign currencies, primarily British pounds and Canadian
dollars. These contracts were properly recorded at fair market
value with the changes in fair value recognized in interest
expense and were not designated for hedging treatment under
SFAS No. 133, as amended. At December 31, 2008 we
have no outstanding foreign currency contracts.
Net foreign currency transaction losses for fiscal 2006 of
$1.3 million have been included in general and
administrative expense. As a result of the sale agreements with
Snap-On and CSA, the Company has
tax-related
receivables and liabilities denominated in foreign currencies.
Transaction losses of $1.0 million
Notes to the Consolidated Financial
Statements — (Continued)
associated with these assets and liabilities have been included
in other income (expense) in fiscal 2008. Transaction gains and
losses in fiscal 2007 were not material to the financial
statements.
Note 18 —
Contingent Liabilities
Putative
Securities Class Actions
Between February and April 2006, four putative securities class
actions, consolidated and designated In re ProQuest Company
Securities Litigation, were filed in the U.S. District
Court for the Eastern District of Michigan (the
“Court”) against the Company and certain of its former
and then-current officers and directors. Each of these
substantially similar lawsuits alleged that the Company and
certain officers and directors (“the Defendants”)
violated Sections 10(b)
and/or 20(a)
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as well as the associated
Rule 10b-5,
in connection with the Company’s proposed restatement.
On May 2, 2006, the Court ordered the four cases
consolidated and appointed lead plaintiffs and lead
plaintiffs’ counsel.
On July 22, 2008, the Company reached an agreement in
principle to settle the consolidated shareholder securities
class action law suit filed against it and certain officers and
directors in the U.S. District Court for the Eastern
District of Michigan for $20 million. A Stipulation and
Agreement of Settlement was signed by the parties and the Court
granted preliminary approval of such agreement. During January
2009, the Company paid $4.0 million into an escrow account
and our insurers funded the remaining portion of the settlement
into the escrow account as well. The settlement is subject to
final Court approval. There is no assurance that a final Court
approval will be obtained. If the settlement arrangement is not
finalized, the Company intends to defend itself vigorously.
Shareholder
Derivative Lawsuits
On April 18, 2006 and December 19, 2006, respectively,
two shareholder derivative lawsuits were filed in the
U.S. District Court for the Eastern District of Michigan
(the “Court”), purportedly on behalf of the Company
against certain current and former officers and directors of the
Company by certain of the Company’s shareholders. Both
cases were assigned to Honorable Avern Cohn, who entered a
stipulated order staying the litigation pending completion of
the Company’s restatement and a special committee
investigation into the restatement.
On January 29, 2008, the Court entered an order
consolidating the two cases and approving co-lead and co-liaison
counsel representing plaintiffs. Pursuant to a stipulated
scheduling order entered on February 15, 2008, plaintiffs
filed a consolidated amended complaint on March 20, 2008.
The consolidated amended complaint purports to state claims for
breach of fiduciary duty, abuse of control, gross mismanagement,
waste of corporate assets, unjust enrichment, rescission,
imposition of a constructive trust, violations of the
Sarbanes-Oxley
Act of 2002 and violations of the Securities Exchange Act of
1934 against current and former officers or directors of the
Company and one of its subsidiaries. On December 3, 2008,
the Company reached an agreement in principle to settle the
shareholder derivative litigation law suit filed against it and
certain officers and directors in the Court. Under the terms of
the agreement, the Company and its insurers would pay an amount
not to exceed $650,000 in attorneys’ fees and agree to
maintain or adopt additional corporate governance standards. The
Company’s portion of this amount is equal to $500,000. The
parties entered into Stipulation of Settlement on
January 9, 2009. This Stipulation of Settlement is subject
to final Court approval and the provision of notice to
shareholders. There is no assurance that a final Court approval
will be obtained or putative class member participation will be
sufficient. If the derivative litigation settlement arrangement
is not finalized, the Company intends to defend itself
vigorously.
Notes to the Consolidated Financial
Statements — (Continued)
Securities
and Exchange Commission Investigation
In February 2006, the Division of Enforcement of the SEC
commenced an informal inquiry regarding the Company’s
announcement of a possible restatement. In April 2006, the
Division of Enforcement of the SEC commenced a formal,
non-public investigation in connection with the Company’s
restatement. On July 22, 2008, the SEC
(“Commission”) filed a settled enforcement action
against the Company in the U.S. District Court for the
Eastern District of Michigan. Pursuant to that settlement, the
terms of which were disclosed previously by the Company, without
admitting or denying the allegations in the Complaint, the
Company consented to the filing by the Commission of a
Complaint, and to the imposition by the Court of a final
judgment of permanent injunction against the Company. The
Complaint alleges civil violations of the reporting, books and
records and internal controls provisions of the Securities
Exchange Act of 1934. The final judgment was signed by the Court
on July 28, 2008 and permanently enjoins the Company from
future violations of those provisions. No monetary penalty was
imposed. The settlement resolved fully the previously disclosed
SEC investigation of the Company’s restatement.
Data
Driven Software Corporation vs. Voyager Expanded Learning et
al.
Voyager Expanded Learning (“VEL”) was a defendant in
an arbitration styled: D2 Data Driven Software Corporation f/k/a
EdSoft Software Corporation (“EdSoft”) v. Voyager
Expanded Learning, Inc., et al., before the American
Arbitration Association, No. 71 117 Y 00238 06.
Effective on or about January 24, 2008, VEL, the individual
respondents and EdSoft executed a mutual release and settlement
agreement. VEL subsequently paid EdSoft $5.4 million in
2008 in connection with that settlement. In addition to
providing mutual releases between EdSoft, on one hand, and VEL
and the individual respondents, on the other hand, the parties
agreed to dismiss all lawsuits with prejudice. EdSoft also
executed a release of arbitration award. The Company accrued
$5.4 million related to this settlement as of year end 2006
and 2007.
Other
Contingent Liabilities
We are also involved in various legal proceedings incidental to
our business. Management believes that the outcome of these
proceedings will not have a material adverse effect upon our
consolidated operations or financial condition and we believe we
have recognized appropriate reserves as necessary based on facts
and circumstances known to management.
We have letters of credit in the amount of $1.1 million
outstanding as of December 31, 2008 to support
workers’ compensation insurance coverage as well as
collateral for the Company’s credit card and Automated
Clearinghouse (ACH) programs.
Note 19 —
Related Party Transactions
On March 10, 2005, the Company’s Board of Directors
appointed Randy Best to serve as a member of the Company’s
Board of Directors. Mr. Best was the Chief Executive
Officer of VEL immediately prior to the Company’s
acquisition of VEL and held 34% of the common stock. In
connection with the Company’s acquisition of VEL,
Mr. Best and the Company entered into a two year Consulting
Agreement (the “Consulting Agreement”) and a three
year Non-Disclosure, Non-Solicitation and Non-Competition
Agreement, both of which became effective on January 31,2005. As compensation for these services, Mr. Best received
payments of $40,000 per month for the first six months of the
term and $26,666 per month for the last eighteen months of the
term of the Consulting Agreement. Both of these agreements have
expired and were not extended. Effective November 5, 2008,
Mr. Best resigned from the Company’s Board of
Directors. Mr. Best’s resignation was not due to any
disagreement with the Company or any matter relating to
operations, policies, or practices.
The Non-Competition Agreement provided that Mr. Best will
not disclose or use the confidential information of VEL or the
Company in any way, except on behalf of the Company or VEL.
Mr. Best also
Notes to the Consolidated Financial
Statements — (Continued)
agreed that for three years after January 31, 2005, and for
the term of the Consulting Agreement, that he would not,
directly or indirectly, engage or participate in: (i) any
capacity, anywhere in the United States, in any business that is
competitive to the business operated by VEL or in which VEL has
currently planned to engage; (ii) recruiting or soliciting
any person to leave his or her employment with the Company or
VEL; and (iii) hiring or engaging any person who is or was
an employee of VEL from January 31, 2005 through and
including the time of such hiring or engagement. In the
agreement, Mr. Best acknowledged that VEL is or plans to be
engaged in the business of: (i) developing, marketing, and
selling reading and math-related materials for use by students
in grades K-12; and (ii) developing, marketing, and selling
programs that are designed to enhance the ability of teachers
and school districts to teach reading to students in grades
K-12. The Non-Competition Agreement does not prevent
Mr. Best from continuing his involvement with GlobalEd
Holdings Ltd. And EdCollege, Inc. to the extent that those
entities, or affiliates thereof, do not engage in the business
of: (i) developing, marketing, or selling reading and
math-related materials for use by students in grades K-12;
(ii) developing, marketing, or selling any courses,
products or services substantially similar to the “Reading
for Understanding” and “Foundations of Reading”
programs offered by Voyager as of January 31, 2005 to be
used by administrators or teachers in grades K-12; and
(iii) developing, marketing, or selling programs for any
reading based curriculum to those customers who are currently
customers of VoyagerU, a division of VEL.
PQIL had sales of approximately $1.5 million to Apollo
Group, Inc. and its affiliates in 2006.
Todd S. Nelson, a former director of the Company, was
Chief Executive Officer of Apollo Group, Inc. from August 2001
to January 2006 and President from February 1998 to January
2006. The sales were an arms length transaction and the
relationship with Apollo Library began prior to
Mr. Nelson’s directorship.
PQIL had immaterial sales to The Readers Digest Association,
Inc. (“Readers Digest”) and its affiliates prior to
the sale of PQIL in February 2007. Michael S. Geltzeiler, a
director of the Company until March 20, 2007, was Chief
Financial Officer of Readers Digest during 2005. The sales were
an arms length transaction and Mr. Geltzeiler was not
involved in any of the sales transactions.
Note 20 —
Interim Financial Information (Unaudited)
The following table presents our quarterly results of operations
for fiscal 2008 and fiscal 2007. For comparison purposes,
results from the PQIL operations have been reclassified to
discontinued operations for all periods presented.
First
Second
Third
Fourth
Total
Quarter
Quarter
Quarter
Quarter
Year
(Dollars in thousands, except per share data)
2008
Net sales
$
15,637
$
33,514
$
27,267
$
22,113
$
98,531
Gross profit
9,104
22,166
17,311
14,011
62,592
Earnings (loss) from continuing operations before income taxes
Notes to the Consolidated Financial
Statements — (Continued)
First
Second
Third
Fourth
Total
Quarter
Quarter
Quarter
Quarter
Year
(Dollars in thousands, except per share data)
2007
Net sales
$
20,059
$
36,330
$
31,837
$
21,386
$
109,612
Gross profit
13,338
25,810
21,864
12,408
73,420
Earnings (loss) from continuing operations before income taxes
(15,885
)
(1,985
)
(3,207
)
(78,581
)
(99,658
)
Income tax expense (benefit)
(6,074
)
(756
)
(1,226
)
(4,340
)
(12,396
)
Earnings (loss) from continuing operations
(9,811
)
(1,229
)
(1,981
)
(74,241
)
(87,262
)
Earnings (loss) from discontinued operations, net of income tax
4,594
—
—
866
5,460
Gain on sale of discontinued operations, net of income tax
46,572
—
—
—
46,572
Net earnings (loss)
$
41,355
$
(1,229
)
$
(1,981
)
$
(73,375
)
$
(35,230
)
Loss per share from continuing operations
(0.33
)
(0.04
)
(0.07
)
(2.49
)
(2.92
)
Earnings per share from discontinued operations
0.15
—
—
0.03
0.18
Gain per share from sale of discontinued operations
1.56
—
—
—
1.56
Basic earnings (loss) per share
1.38
(0.04
)
(0.07
)
(2.46
)
(1.18
)
Loss per share from continuing operations
(0.33
)
(0.04
)
(0.07
)
(2.49
)
(2.92
)
Earnings per share from discontinued operations
0.15
—
—
0.03
0.18
Gain per share from sale of discontinued operations
1.56
—
—
—
1.56
Diluted earnings (loss) per share
1.38
(0.04
)
(0.07
)
(2.46
)
(1.18
)
The loss from continuing operations for the fourth quarter 2008
and 2007 includes a goodwill impairment charge of
$43.1 million and $67.2 million, respectively.
Additionally, the loss from continuing operations for the fourth
quarter 2008 includes lease termination costs of
$11.7 million (See Note 16 presented herein for
further information).
THIS AGREEMENT AND PLAN OF MERGERS (this
“Agreement”) is made and entered into as of the
20th day of June, 2009, by and among Cambium Holdings,
Inc., a Delaware corporation (“Holdco”),
Voyager Learning Company, a Delaware corporation
(“Vowel”), VSS-Cambium Holdings II Corp.,
a Delaware corporation (“Consonant”), Vowel
Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Holdco (“Vowel Merger Sub”),
Consonant Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Holdco (“Consonant Merger
Sub” and, together with Vowel Merger Sub, the
“Merger Subsidiaries”) and Vowel
Representative, LLC, a Delaware limited liability company,
solely in its capacity as the Stockholders’ Representative
pursuant to Article VIII of this Agreement.
W I T N E S
S E T H
WHEREAS, the Boards of Directors of Consonant and Vowel have
determined that it is consistent with and in furtherance of
their respective long-term business strategies and fair to and
in the best interests of their respective companies and
stockholders to combine their respective businesses through the
acquisition of Vowel and Consonant by Holdco in a dual merger
transaction such that their businesses will be conducted as
subsidiaries of Holdco which shall be controlled by VSS-Cambium
Holdings III, LLC, a Delaware limited liability company
(“VSS-Consonant Holdings III”) as set forth in
this Agreement (the “Reorganization”);
WHEREAS, to effect the foregoing, upon the terms and subject to
the conditions of this Agreement and in accordance with the
General Corporation Law of the State of Delaware (the
“DGCL”), Holdco will acquire all of the common
stock of each of Consonant and Vowel through the merger of
Consonant Merger Sub with and into Consonant (the
“Consonant Merger”) and the simultaneous merger
of Vowel Merger Sub with and into Vowel (the “Vowel
Merger” and together with the Consonant Merger, the
“Mergers”);
WHEREAS, the stockholders of Consonant will be entitled to
receive shares of common stock of Holdco, $0.001 par value
per share (the “Holdco Common Stock”), as well
as certain other consideration described herein, in
consideration of their common stock of Consonant, par value
$0.001 (the “Consonant Common Stock”);
WHEREAS, the stockholders of Vowel will be entitled to receive
shares of Holdco Common Stock
and/or cash,
in a cash-election merger, as well as certain other
consideration described herein, in consideration of their common
stock of Vowel, par value $0.001 (the “Vowel Common
Stock”);
WHEREAS, in furtherance thereof, the Board of Directors of each
of Holdco, Consonant, Vowel, Consonant Merger Sub and Vowel
Merger Sub has approved this Agreement and the applicable
merger, upon the terms and subject to the conditions set forth
in this Agreement;
WHEREAS, immediately following the execution of this Agreement,
Holdco, as sole stockholder of each of the Merger Subsidiaries,
will execute written consents in accordance with the DGCL
approving and adopting this Agreement; WHEREAS, VSS has formed
VSS-Consonant Holdings III, which, on the Closing Date after
giving effect to the Holdings III Merger Transactions
pursuant to the documents and instruments set forth in
Exhibit A-1,
Exhibit A-2
and
Exhibit A-3
hereto (the “Holdings III Merger
Agreements”), will be the sole owner of all of the
Consonant Common Stock, and pursuant to the Holdings III
Merger Transactions, Consonant will, on the Closing Date,
acquire 100% of the equity interests of VSS-Consonant Holdings,
LLC;
WHEREAS, as a result of the Mergers, (i) Consonant will
become a wholly owned subsidiary of Holdco, (ii) Vowel will
become a wholly owned subsidiary of Holdco, (iii) the
stockholder of Consonant will be entitled to become a
stockholder of Holdco and (iv) the stockholders of Vowel
will be entitled to become stockholders of Holdco;
WHEREAS, for Federal income tax purposes, it is intended that
the Mergers, taken together, will be treated as a transaction
described in Section 351 of the Code;
WHEREAS, as a condition and inducement to Consonant’s
willingness to enter into this Agreement certain stockholders of
Vowel, identified on Schedule A attached hereto, are
entering into a voting and support
agreement, in the form of
Exhibit B-1
attached hereto and made a part hereof (collectively, the
“Vowel Voting Agreements”), concurrently with
the execution of this Agreement; and
WHEREAS, as a condition and inducement to Vowel’s
willingness to enter into this Agreement, each of the VSS Funds
listed on Schedule B attached hereto, is entering
into a voting and support agreement, in the form of
Exhibit B-2
attached hereto and made a part hereof (collectively, the
“Consonant Voting Agreements”), concurrently
with the execution of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained
herein, and intending to be legally bound hereby, Consonant,
Vowel, Holdco and the Merger Subsidiaries agree as follows:
ARTICLE I
THE MERGERS
Section 1.1. The
Mergers. On the terms and subject to the
conditions set forth in this Agreement and
Section 1.2, in accordance with the DGCL, at the
Effective Time: (a) Consonant Merger Sub will merge with
and into Consonant, the separate corporate existence of
Consonant Merger Sub will cease and Consonant will continue its
corporate existence under Delaware law as the surviving
corporation in the Consonant Merger (the “Consonant
Surviving Corporation”); and (b) Vowel Merger Sub
will merge with and into Vowel, the separate corporate existence
of Vowel Merger Sub will cease and Vowel will continue its
corporate existence under Delaware law as the surviving
corporation in the Vowel Merger (the “Vowel Surviving
Corporation” and, together with the Consonant Surviving
Corporation, each, a “Surviving Corporation”
and collectively, the “Surviving
Corporations”).
Section 1.2. Closing.
(a) The closing of the Mergers (the
“Closing”) shall take place at the offices of
Lowenstein Sandler PC, 1251 Avenue of the Americas, NewYork, New York10020 at 10:00 a.m. (New York time), on a
date (the “Closing Date”) (or via exchange of
documents via pdf and overnight courier) which shall be no later
than the fifth Business Day after the satisfaction or waiver (to
the extent permitted by applicable Law) of the conditions set
forth in Article VI (other than those conditions
that by their nature are to be satisfied by actions to be taken
at the Closing, but subject to the satisfaction or waiver of
such conditions), or at such other place, date and time as
Consonant and Vowel may agree in writing.
(b) At least fifteen (15) Business Days before the
Vowel Meeting, Vowel shall deliver to Holdco a written statement
in the form attached hereto as
Exhibit C-1
(the “Vowel Preliminary Closing Certificate”)
based on the most recent ascertainable financial information.
The Vowel Preliminary Closing Certificate shall be provided
solely for informational purposes and shall not be the basis for
any of the calculations set forth herein.
(c) At least three (3) Business Days before the Vowel
Meeting, Vowel shall deliver to Holdco a written statement in
the form attached hereto as
Exhibit C-2
(the “Vowel Closing Certificate”) based on the
most recent ascertainable financial information. The Vowel
Closing Certificate shall be provided solely for informational
purposes and shall not be the basis for any of the calculations
set forth herein.
Section 1.3. Effective
Time. Subject to the provisions of this
Agreement, upon consummation of the Closing, Consonant will
cause a certificate of merger (the “Consonant
Certificate of Merger”) to be executed, acknowledged
and filed with the Secretary of State of the State of Delaware
in accordance with Section 251 of the DGCL and Vowel will
cause a certificate of merger (the “Vowel Certificate of
Merger”, and together with the Consonant Certificate of
Merger, the “Certificates of Merger”) to be
executed, acknowledged and filed with the Secretary of State of
the State of Delaware in accordance with Section 251 of the
DGCL. Each of the Mergers shall become effective at such time as
is set forth in the applicable certificate of merger, which time
shall be the timing of filing of such certificate (the first
time at which both the Mergers become fully effective being
hereinafter referred to as the “Effective
Time”).
Section 1.4. Effects
of the Mergers. The Mergers shall have the
effects set forth in this Agreement and the applicable
provisions of the DGCL.
Section 1.5. Certificate
of Incorporation and By-laws of the Surviving
Corporations. Subject to
Section 5.8, at the Effective Time: (a) the
certificate of incorporation of Consonant shall be amended in
its entirety to be in the form attached hereto as
Exhibit D-1,
and as so amended, such certificate of incorporation shall be
the certificate of incorporation of the Consonant Surviving
Corporation, until thereafter amended as provided therein or by
applicable Law; (b) the by-laws of Consonant shall be
amended in the form attached hereto as
Exhibit D-2
so as to read in their entirety as the by-laws of Consonant
Merger Sub as in effect immediately prior to the Effective Time,
until thereafter amended in accordance with applicable Law,
except that the references to Consonant Merger Sub’s name
shall be replaced by references to “VSS-Cambium
Holdings II Corp.”; (c) the certificate of
incorporation of Vowel shall be amended in its entirety to be in
the form attached hereto as
Exhibit E-1,
and as so amended, such certificate of incorporation shall be
the certificate of incorporation of the Vowel Surviving
Corporation, until thereafter amended as provided therein or by
applicable Law; and (d) the by-laws of Vowel shall be
amended in the form attached hereto as
Exhibit E-2
so as to read in their entirety as the by-laws of Vowel Merger
Sub as in effect immediately prior to the Effective Time, until
thereafter amended in accordance with applicable Law, except
that the references to Vowel Merger Sub’s name shall be
replaced by references to “Voyager Learning Company.”
Section 1.6. Directors. The
directors of Consonant Merger Sub immediately prior to the
Effective Time, as set forth on Schedule 1.6, shall
be the directors of Consonant Surviving Corporation, and the
directors of Vowel Merger Sub immediately prior to the Effective
Time, as set forth on Schedule 1.6, shall be the
directors of Vowel Surviving Corporation; and, in each case,
such directors shall hold office until their respective
successors are duly elected and qualified, or their earlier
death, resignation or removal in accordance with applicable Law
or their respective bylaws or other governing documents.
Section 1.7. Officers. The
officers of Consonant Merger Sub immediately prior to the
Effective Time, as set forth on Schedule 1.7, shall
serve as the officers of Consonant Surviving Corporation, and
the officers of Vowel Merger Sub immediately prior to the
Effective Time, as set forth on Schedule 1.7, shall
serve as the officers of Vowel Surviving Corporation. Such
officers of the Surviving Corporations shall hold such offices
until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal in
accordance with applicable Law, the certificates of
incorporation and the by-laws of the Surviving Corporations.
ARTICLE II
CONVERSION
OF SHARES; EXCHANGE OF CERTIFICATES
Section 2.1. Effect
on Vowel Capital Stock. At the Effective
Time, by virtue of the Vowel Merger and without any action on
the part of the Parties or the holders of any securities of any
of the Parties:
(a) Conversion of Vowel Common
Stock. Each share of Vowel Common Stock
outstanding immediately prior to the Effective Time (such
shares, the “Vowel Shares,” and each, a
“Vowel Share”), other than Vowel Shares to be
cancelled pursuant to Section 2.1(c) and other than
Vowel Dissenting Shares, shall be converted automatically into
and shall thereafter represent only the right to receive the
consideration set forth in clauses (i), (ii) and
(iii) immediately below:
(i) subject to the election procedures set forth in
Section 2.1(e), (X) one fully paid and
non-assessable share of Holdco Common Stock (the “Vowel
Per Share Stock Consideration”), or (Y) the sum of
$6.50 in cash without interest thereon, as such figure may be
adjusted from time to time pursuant to
Section 2.1(f) (as may be adjusted, the
“Vowel Per Share Cash Consideration”);
plus
(ii) the Vowel Per Share Pre-Closing Tax Refund
Consideration; plus
The aggregate consideration set forth in the immediately
preceding clauses (i), (ii) and (iii) is referred to
collectively herein as the “Vowel
Consideration”.
(b) Cancellation of Converted
Shares. Each Vowel Share that has been
converted into the right to receive a portion of the Vowel
Consideration as provided in this Section 2.1 shall
be automatically cancelled and shall cease to exist, and the
holders of certificates that immediately prior to the Effective
Time represented such Vowel Shares shall cease to have any
rights with respect to such Vowel Shares other than the right to
receive: (i) the consideration to which such holder may be
entitled pursuant to this Section 2.1; (ii) any
dividends and other distributions in accordance with
Section 2.3(e); and (iii) any cash to be paid
in lieu of any fractional share of Holdco Common Stock in
accordance with Section 2.3(f).
(c) Vowel and Consonant-Owned
Shares. Each Vowel Share that is owned by
Vowel, as treasury stock, any wholly owned Subsidiary of Vowel
or that is owned by Consonant or Holdco immediately prior to the
Effective Time (in each case, other than any such Vowel Shares
held on behalf of third parties or held in trust to
fund Vowel or Consonant obligations) (the
“Cancelled Vowel Shares”) shall be cancelled
without any conversion thereof and shall cease to exist, and no
consideration shall be delivered in exchange for such
cancellation.
(d) Conversion of Vowel Merger Sub Common
Stock. Each share of common stock, par value
$0.001 per share, of Vowel Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable
share of common stock, par value $0.001 per share, of the Vowel
Surviving Corporation and shall constitute the only outstanding
shares of capital stock of the Vowel Surviving Corporation. From
and after the Effective Time, all certificates representing the
common stock of Vowel Merger Sub shall be deemed for all
purposes to represent the number of shares of common stock of
the Vowel Surviving Corporation into which they were converted
in accordance with the immediately preceding sentence.
(e) Election Procedures.
(i) Concurrent with the mailing of the Proxy
Statement/Prospectus in connection with the Vowel Meeting (the
“Mailing Date”), Vowel shall mail, or shall
cause to be mailed, an election form and other appropriate and
customary transmittal materials prepared by Holdco (the
“Election Form”) to each holder of record of
Vowel Common Stock as of the Vowel Record Date.
(ii) Each Election Form shall permit the holder (or the
beneficial owner through appropriate and customary documentation
and instructions) to specify (A) the number of Vowel Shares
with respect to which such holder elects to receive the Vowel
Per Share Stock Consideration (the “Stock Election
Shares”), (B) the number of Vowel Shares with
respect to which such holder elects to receive the Vowel Per
Share Cash Consideration (the “Cash Election
Shares”) or (C) that such holder makes no election
with respect to such holder’s Vowel Shares (the “No
Election Shares”). Any Vowel Shares with respect to
which the Exchange Agent has not received an effective, properly
completed Election Form on or before 5:00 p.m. (New York
time), on the Business Day immediately prior to the day of the
Vowel Meeting (such prior Business Day, the “Election
Deadline”) shall be deemed to be No Election Shares.
(iii) Vowel shall make available one or more Election Forms
as may reasonably be requested from time to time by any Person
who becomes a holder (or beneficial owner) of Vowel Common Stock
between the Vowel Record Date and the close of business on the
Business Day prior to the Election Deadline, and Vowel shall
provide the Exchange Agent all information reasonably necessary
for it to perform as specified herein.
(iv) Any such election shall have been properly made only
if the Exchange Agent shall have actually received a duly
executed and properly completed Election Form by the Election
Deadline. Any Election Form may be revoked or changed by the
Person submitting such Election Form, only by written notice
received by the Exchange Agent prior to the Election Deadline.
In the event an Election Form is revoked prior to the Election
Deadline, unless a subsequent properly completed Election Form
is submitted and actually received by the Exchange Agent by the
Election Deadline, the Vowel Shares represented by such Election
Form shall become No Election Shares. Subject to the terms of
this Agreement and of the Election Form, the Exchange Agent
shall have reasonable discretion in consultation with Holdco and
Vowel to determine whether any
election, revocation or change has been properly or timely made
and to disregard immaterial defects in the Election Forms, and
any reasonable good faith decision of Holdco regarding such
matters shall be binding and conclusive. Holdco shall have the
right to make rules, not inconsistent with the terms of this
Agreement, governing the validity and effectiveness of Election
Forms and the manner and extent to which Election Forms are to
be taken into account in making determinations by this
Section 2.1. Neither Holdco, Vowel, Consonant nor
the Exchange Agent shall be under any obligation to notify any
Person of any defect in an Election Form.
(v) As soon as practicable after the Effective Time, the
Exchange Agent shall effect the allocation among the holders of
record of Vowel Common Stock immediately prior to the Effective
Time of rights to receive the Vowel Consideration in the Vowel
Merger in accordance with this Agreement and the properly
completed and duly submitted Election Forms, unless the number
of Cash Election Shares is greater than the number of Available
Cash Election Shares, in which case:
A. the Exchange Agent shall identify among all Eligible
Cutback Persons, and, notwithstanding anything in such Eligible
Cutback Person’s Election Form to the contrary, shall
re-designate a number of each such Eligible Cutback
Person’s Cash Election Shares as Stock Election Shares (the
“Re-Designated Shares”) that is equal to the
product (rounded up to the nearest whole number) derived from
the following formula: (x) the Cutback Number,
multiplied by (y) a fraction, the numerator of which
is the number of such Eligible Cutback Person’s Cash
Election Shares reflected in its Election Form, and the
denominator of which is aggregate number of Cash Election Shares
reflected in the Election Forms submitted by all Eligible
Cutback Persons;
B. each Stock Election Share, No Election Share and
Re-Designated Share shall be converted into the right to receive
the Vowel Per Share Stock Consideration, plus the Vowel Per
Share Pre-Closing Tax Refund Consideration, plus the Contingent
Value Right; and
C. each Cash Election Share that is not a Re-Designated
Share will be converted into the right to receive the Vowel Per
Share Cash Consideration, plus the Vowel Per Share Pre-Closing
Tax Refund Consideration, plus the Contingent Value Right.
(vi) In the event the number of Cash Election Shares is
equal to or less than the number of Available Cash Election
Shares, (X) each Stock Election Share and each No Election
Share shall be converted into the right to receive the Vowel Per
Share Stock Consideration, plus the Vowel Per Share Pre-Closing
Tax Refund Consideration and the Contingent Value Right, and
(Y) each Cash Election Share shall be converted into the
right to receive the Vowel Per Share Cash Consideration, plus
the Vowel Per Share Pre-Closing Tax Refund Consideration and the
Contingent Value Right.
(f) Adjustments. If at any time
during the period between the date of this Agreement and the
Effective Time any change in the outstanding shares of capital
stock of Vowel or Consonant, or in the securities convertible or
exchangeable into or exercisable for shares of capital stock of
Vowel or Consonant, shall occur as a result of any
reclassification, recapitalization, stock split (including a
reverse stock split) or subdivision or combination, exchange or
readjustment of shares, or any stock dividend or stock
distribution with a record date during such period, merger
(other than the Holdings III Merger Transactions) or other
similar transaction, the Merger Consideration and any number or
amount contained in this Agreement which is based on the number
of shares of Vowel Common Stock or Consonant Common Stock
(including without limitation, the Consonant Exchange Ratio, the
Vowel Per Share Stock Consideration, the Vowel Per Share Cash
Consideration and the Contingent Value Right), as the case may
be, shall be equitably adjusted to reflect such change so that
the conversion of capital stock contemplated in the Mergers
shall continue to provide the same economic effect as before
such change; provided, however, that nothing in
this Section 2.1(f) shall be construed to permit
Vowel or Consonant to take any action with respect to its
securities that is prohibited by the terms of this Agreement.
(g) Vowel Dissenters’
Rights. Notwithstanding any provision of this
Agreement to the contrary, if required by the DGCL (but only to
the extent required thereby), Vowel Shares that are issued and
outstanding immediately prior to the Effective Time (other than
Cancelled Vowel Shares) and that are held by holders of such
Vowel Shares who have properly exercised appraisal rights with
respect thereto in accordance with, and
who have complied with, Section 262 of the DGCL (the
“Vowel Dissenting Shares”) will not be
converted into the right to receive the Vowel Consideration, and
holders of such Vowel Dissenting Shares will be entitled to
receive payment of the fair value of such Vowel Dissenting
Shares in accordance with the provisions of Section 262 of
the DGCL unless and until any such holder fails to perfect, or
effectively withdraws or loses its rights to, appraisal and
payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such
right, such Vowel Dissenting Shares will thereupon be treated as
if they had been converted into and have become exchangeable
for, at the Effective Time, the right to receive the Vowel Per
Share Stock Consideration, plus the Vowel Per Share Pre-Closing
Tax Refund Consideration and the Contingent Value Right in
accordance with the applicable provisions of this Agreement. At
the Effective Time, any holder of Vowel Dissenting Shares shall
cease to have any rights with respect thereto, except the rights
provided in Section 262 of the DGCL and as provided in the
previous sentence. Vowel shall give Consonant, before or at the
Effective Time, or Holdco, following the Effective Time,
(i) prompt notice of any demands received by Vowel for
appraisals of Vowel Shares, any withdrawal of any such demand
and any other demand, notice or instrument delivered to Vowel
prior to the Effective Time that relate to such demand and
(ii) the opportunity to participate in and direct all
negotiations and proceedings with respect to such notices and
demands. Vowel shall not, except with the prior written consent
of Consonant, before or at the Effective Time, or Holdco,
following the Effective Time (which consent shall not be
unreasonably withheld, conditioned or delayed), make any payment
with respect to any demands for appraisal or settle any such
demands.
Section 2.2. Effect
on Consonant Capital Stock. At the Effective
Time, by virtue of the Consonant Merger and without any action
on the part of the Parties or the holders of any securities of
any of the Parties:
(a) Conversion of Consonant Common
Stock. Each share of Consonant Common Stock
outstanding immediately prior to the Effective Time (such
shares, the “Consonant Shares,” and each, a
“Consonant Share”), other than Cancelled
Consonant Shares, shall be converted automatically into and
shall thereafter represent the right to receive, (i) that
number of fully paid and non-assessable shares of Holdco Common
Stock equal to the Consonant Exchange Ratio (the
“Consonant Stock Consideration”) and
(ii) the right to subscribe from time to time for
additional fully paid and non-assessable shares of Holdco Common
Stock pursuant to the Holdco Warrant, in the form of
Exhibit F annexed hereto and made a part hereof
(each, a “Holdco Warrant”). The Consonant Stock
Consideration, together with the Holdco Warrant, are
collectively referred to herein as the “Consonant
Consideration” and, together with the Vowel
Consideration, the “Merger Consideration”. The
holder of record of Consonant Common Stock outstanding
immediately prior to the Effective Time shall receive a Holdco
Warrant, which shall provide that it is exercisable for a number
of fully paid and non-assessable shares of Holdco Common Stock
equal to the Consonant Specified Asset Recoupment Amount. The
Holdco Warrant shall be subject to customary registration rights
in favor of the holder thereof and its permitted successors and
assigns. Notwithstanding the foregoing or anything to the
contrary contained herein or in any Transaction Documents:
(x) immediately prior to the Effective Time and after
giving effect to the Holdings III Merger Transactions, a
total of 24,209,264 Consonant Shares shall be issued and
outstanding and no other equity or debt securities of Consonant
shall be outstanding; (y) 20,454,312 shares of Holdco
Common Stock in the aggregate shall be issued pursuant to this
Section 2.2 upon conversion of the Consonant Shares
in the Consonant Merger; and (z) after giving effect to the
Consonant Merger and the issuance of the Additional Shares,
VSS-Consonant Holdings III shall hold
24,300,466 shares of Holdco Common Stock; provided,
however, that to the extent the number of shares of
Vowel Common Stock outstanding immediately prior the Effective
Time is greater or less than 29,874,145, the number of shares of
Holdco Common Stock issued pursuant to clauses (y) and
(without duplication) (z) above shall be increased or
decreased, respectively, so that the Consonant Shares shall
convert into the same percentage of shares of Holdco Common
Stock immediately after the Effective Time as would have been
the case had the number of shares of Vowel Common Stock
immediately prior to the Effective Time been 29,874,145.
(b) Cancellation of Converted
Shares. All Consonant Shares that have been
converted into the right to receive Consonant Consideration as
provided in this Section 2.2 shall be automatically
cancelled and shall cease to exist, and the holders of
certificates that immediately prior to the Effective Time
represented such Consonant Shares shall cease to have any rights
with respect to such Consonant Shares
other than the right to receive: (i) the consideration to
which such holder may be entitled pursuant to this
Section 2.2; (ii) any dividends and other
distributions in accordance with Section 2.3(e); and
(iii) any cash to be paid in lieu of any fractional share
of Holdco Common Stock in accordance with
Section 2.3(f).
(c) Consonant and Holdco-Owned
Shares. Each Consonant Share that is owned by
Consonant, as treasury stock, any wholly owned Subsidiary of
Consonant or that is owned by Holdco immediately prior to the
Effective Time (in each case, other than any such Consonant
Shares held on behalf of third parties or held in trust to
fund Consonant obligations) (the “Cancelled
Consonant Shares”) shall be cancelled without any
conversion thereof and shall cease to exist, and no
consideration shall be delivered in exchange for such
cancellation.
(d) Conversion of Consonant Merger Sub Common
Stock. Each share of common stock, par value
$0.001 per share, of Consonant Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable
share of common stock, par value $0.001 per share, of the
Consonant Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Consonant Surviving
Corporation. From and after the Effective Time, all certificates
representing the common stock of Consonant Merger Sub shall be
deemed for all purposes to represent the number of shares of
common stock of the Consonant Surviving Corporation into which
they were converted in accordance with the immediately preceding
sentence.
Section 2.3. Exchange
of Certificates.
(a) Exchange Agent. At or prior to
the Effective Time, (x) Holdco shall deposit, or shall
cause to be deposited, with Wells Fargo, N.A. (or such other
exchange agent as Holdco shall select, pursuant to an agreement
with such other exchange agent in form and substance reasonably
acceptable to Holdco) (the “Exchange Agent”),
in trust for the benefit of holders of the Vowel Shares and
Consonant Shares (as applicable), certificates representing a
number of shares of Holdco Common Stock and Contingent Value
Rights sufficient to satisfy the requirements of this Agreement,
and the sum of $25,000,000 in immediately available funds,
(y) Vowel shall deposit, or shall cause to be deposited,
with the Exchange Agent, the sum in immediately available funds
equal to the Available Vowel Cash for Cash Election (less an
amount equal to the Vowel Expense Reimbursement Amount) and the
Available Vowel Cash for Tax Refund Consideration, and
(z) Vowel
and/or
Holdco, in each case to the extent provided in
Section 7.3(a), shall deposit with the Exchange
Agent (or cause to be deposited with the Exchange Agent), a sum
equal to the Vowel Expense Reimbursement Amount in immediately
available funds (all such cash, certificates representing shares
of Holdco Common Stock and Contingent Value Rights, the
“Exchange Fund”), in each case, to be issued
and paid pursuant to the provisions of this
Article II in exchange, as the case may be, for
(A) all of the Vowel Shares (excluding the Cancelled Vowel
Shares and Vowel Dissenting Shares) outstanding immediately
prior to the Effective Time, issuable and payable upon due
surrender of the certificates that immediately prior to the
Effective Time represented Vowel Shares (each,
‘‘Vowel Certificate” and collectively, the
“Vowel Certificates”) or non-certificated Vowel
Shares represented by book-entry (the “Vowel Book-Entry
Shares”); and (B) all of the Consonant Shares
(excluding the Cancelled Consonant Shares) outstanding
immediately prior to the Effective Time, issuable and payable
upon due surrender of the certificates that immediately prior to
the Effective Time represented Consonant Shares (each, a
“Consonant Certificate” and collectively, the
“Consonant Certificates”, and together with the
Vowel Certificates, a “Certificates” or,
collectively, the “Certificates”) (or, in
either case, effective affidavits of loss in lieu thereof and,
if required by the Exchange Agent, the posting by the holder of
such Certificate of a bond in customary amount as indemnity
against any claim that may be made against it with respect to
such Certificate).
(b) Each holder of Vowel Shares that have been converted
into the right to receive the Vowel Consideration shall be
entitled to receive, upon (i) surrender to the Exchange
Agent of its Vowel Certificates, together with a properly
completed letter of transmittal, or (ii) receipt of an
“agent’s message” by the Exchange Agent (or such
other evidence, if any, of transfer as the Exchange Agent may
reasonably request) in the case of Vowel Book-Entry Shares,
(A) a certificate for Holdco Shares, a check or wire
transfer, and a CVR, in each case, in the amount and to the
extent to which such holder may be entitled pursuant to this
Article II, (B) any dividends and other
distributions in accordance with Section 2.3(e), and
(C) any cash to be
paid in lieu of any fractional share of Holdco Common Stock in
accordance with Section 2.3(f). The shares of Holdco
Common Stock constituting part of such Vowel Consideration, at
Holdco’s option, shall be in uncertificated book-entry
form, unless a physical certificate is requested by a given
holder of shares of Vowel Common Stock or is otherwise required
under applicable Law, in which case, a physical certificate
shall be delivered to such holder. The CVR constituting part of
such Vowel Consideration shall be given in uncertificated
book-entry form. Until so surrendered or transferred, as the
case may be, each such Vowel Certificate or Vowel Book-Entry
Share shall represent after the Effective Time for all purposes
only the right to receive the Vowel Consideration (including, in
the case of Vowel Per Share Stock Consideration, any dividends
or distributions in accordance with Section 2.3(e)
and any cash in lieu of fractional shares in accordance with
Section 2.3(f)).
(c) Each holder of shares of Consonant Common Stock that
have been converted into the right to receive the Consonant
Consideration shall be entitled to receive, upon surrender to
the Exchange Agent of its Consonant Certificates (A) a
certificate for the number of Holdco Shares in the amount and to
the extent which such holder may be entitled pursuant to
Article II; (B) a Holdco Warrant to subscribe
for the number of Holdco Shares to which such holder may be
entitled to purchase pursuant to Article II;
(C) any dividends and other distributions in accordance
with Section 2.3(e); and (D) any cash to be
paid in lieu of any fractional share of Holdco Common Stock in
accordance with Section 2.3(f). The shares of Holdco
Common Stock constituting part of such Consonant Consideration,
at Holdco’s option, shall be in uncertificated book-entry
form, unless a physical certificate is requested by a given
holder of shares of Consonant Common Stock or is otherwise
required under applicable Law, in which case a physical
certificate shall be delivered to such holder. Until so
surrendered or transferred, as the case may be, each such
Consonant Certificate shall represent after the Effective Time
for all purposes only the right to receive such Consonant
Consideration (including any dividends or distributions in
accordance with Section 2.3(e) and any cash in lieu
of fractional shares in accordance with
Section 2.3(f)).
(d) If any portion of the Merger Consideration is to be
issued or paid to a Person other than the Person in whose name
the surrendered Certificate or the transferred Vowel Book-Entry
Share, as the case may be, is registered, it shall be a
condition to such issuance or payment that (i) either such
Certificate shall be properly endorsed or shall otherwise be in
proper form for transfer or such Vowel Book-Entry Share, as the
case may be, shall be properly transferred and (ii) the
Person requesting such payment shall pay to the Exchange Agent
any transfer or other Taxes required as a result of such payment
to a Person other than the registered holder of such Certificate
or Vowel Book-Entry Share, or establish to the satisfaction of
the Exchange Agent that such Tax has been paid or is not payable.
(e) No dividends or other distributions with respect to
shares of Holdco Common Stock issued pursuant to the Mergers
shall be paid to the holder of any unsurrendered Certificates or
Vowel Book-Entry Shares until such Certificates or Vowel
Book-Entry Shares are surrendered as provided in this
Section 2.3. Following such surrender, subject to
the effect of escheat, Tax or other applicable Law, there shall
be paid, without interest, to the record holder of the shares of
Holdco Common Stock issued in exchange therefor (i) at the
time of such surrender, an amount equal to all dividends and
other distributions payable in respect of such shares of Holdco
Common Stock with a record date on or after the Effective Time
and a payment date on or prior to the date of such surrender and
not previously paid and (ii) at the appropriate payment
date, an amount equal to the dividends or other distributions
payable with respect to such shares of Holdco Common Stock with
a record date after the Effective Time but with a payment date
subsequent to such surrender.
(f) No Fractional Shares. No
fractional shares of Holdco Common Stock or certificates for
scrip representing such fractional shares, shall be issued in
the Mergers. All fractional shares of Holdco Common Stock that a
holder of Vowel Shares or Consonant Shares would otherwise be
entitled to receive as a result of the applicable Merger shall
be aggregated and if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu
thereof, an amount in cash without interest thereon determined
by multiplying such fraction by the closing sales price (or, if
the closing sale price is not then available, the average of the
high bid and the low ask price) of one share of Vowel Common
Stock on the
Over-the-Counter
Bulletin Board market (or such other market on which such
Vowel Shares are then trading) two Business Days
prior to the Closing Date. Such fractional share interests shall
not entitle the owner thereof to any rights of a holder of
Holdco Common Stock.
(g) Payment Procedures.
A. As soon as reasonably practicable after the Effective
Time and in any event not later than the second Business Day
following the Closing Date, the Exchange Agent shall mail to
each holder of record of Vowel Shares whose Vowel Shares were
converted into the Vowel Consideration pursuant to
Section 2.1, (A) a letter of transmittal (which
shall, among other things, specify that delivery shall be
effected, and risk of loss and title to Vowel Certificates shall
pass, only upon delivery of Vowel Certificates (or effective
affidavits of loss in lieu thereof and, if required by the
Exchange Agent, the posting by the holder of such Vowel
Certificate of a bond in customary amount as indemnity against
any claim that may be made against it with respect to such Vowel
Certificate) or Vowel Book-Entry Shares to the Exchange Agent
and shall be in such form and have such other provisions as
Holdco may reasonably prescribe), and (B) instructions for
use in effecting the surrender of Vowel Certificates (or
effective affidavits of loss in lieu thereof and, if required by
the Exchange Agent, the posting by the holder of such Vowel
Certificate of a bond in customary amount as indemnity against
any claim that may be made against it with respect to such Vowel
Certificate) or Vowel Book-Entry Shares in exchange for the
Vowel Consideration.
B. Upon surrender of Vowel Certificates (or effective
affidavits of loss in lieu thereof and, if required by the
Exchange Agent, the posting by the holder of such Vowel
Certificate of a bond in customary amount as indemnity against
any claim that may be made against it with respect to such Vowel
Certificate) or Vowel Book-Entry Shares to the Exchange Agent
together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto,
and such other documents as may customarily be required by the
Exchange Agent, the holder of such Vowel Certificates or Vowel
Book-Entry Shares shall be entitled to receive in exchange
therefor, a certificate for Holdco Shares
and/or a
check or wire transfer and a CVR to the extent and in the amount
to which such holder may be entitled pursuant to this
Article II. No interest will be paid or accrued on
any amount payable upon due surrender of Vowel Certificates (or
effective affidavits of loss in lieu thereof and, if required by
the Exchange Agent, the posting by the holder of such Vowel
Certificate of a bond in customary amount as indemnity against
any claim that may be made against it with respect to such Vowel
Certificate) or Vowel Book-Entry Shares.
C. As soon as reasonably practicable after the Effective
Time and in any event not later than the second Business Day
following the Closing Date, Holdco shall instruct the Exchange
Agent to deliver to each holder of record of Consonant Shares
whose Consonant Shares were converted into the Consonant
Consideration pursuant to Section 2.2, upon receipt
of such holder’s Consonant Certificates evidencing such
Consonant Shares (or effective affidavits of loss in lieu
thereof and, if required by the Exchange Agent, the posting by
the holder of such Consonant Certificate of a bond in customary
amount as indemnity against any claim that may be made against
it with respect to such Consonant Certificate), (A) a
certificate for Holdco Shares
and/or a
check or wire transfer, to the extent and in the amount to which
such holder may be entitled pursuant to this
Article II, and (B) a Holdco Warrant to
subscribe for the number of Holdco Shares to the extent to which
such holder may be entitled to purchase pursuant to
Article II. No interest will be paid or accrued on
any amount payable upon due surrender of such Consonant
Certificates (or effective affidavits of loss in lieu thereof
and, if required by the Exchange Agent, the posting by the
holder of such Consonant Certificate of a bond in customary
amount as indemnity against any claim that may be made against
it with respect to such Consonant Certificate).
(h)Closing of Transfer Books. At
the Effective Time, the stock transfer books of Consonant and
Vowel shall be closed, and there shall be no further
registration of transfers of the Consonant Shares or Vowel
Shares, respectively, that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates
or Vowel Book-Entry Shares are presented to the Consonant
Surviving Corporation, the Vowel Surviving Corporation, or
Holdco for transfer, they shall be cancelled and exchanged for
(i) the applicable Merger Consideration, (ii) any
dividends and other distributions in accordance with
Section 2.3(e); and (iii) any cash to be paid
in lieu of any fractional share of Holdco Common Stock in
accordance with Section 2.3(f).
(i)Termination of Exchange
Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains
undistributed to the former holders of Vowel Shares or Consonant
Shares on: (x) except as provided in clause (y) below,
the first anniversary of the Effective Time shall at any time
thereafter be delivered to Holdco upon demand, and any former
holders of Vowel Shares or Consonant Shares who have not then
surrendered their Certificates or Vowel Book-Entry Shares, as
the case may be, in accordance with this Section 2.3
shall thereafter look only to Holdco for payment of their claim
for the Merger Consideration, without any interest thereon, upon
due surrender of their Certificates or Vowel Book-Entry Shares,
as the case may be; and (y) the second anniversary of the
Effective Time (or such earlier date, immediately prior to such
time when the amounts would otherwise escheat to or become
property of any Governmental Authority) shall become, to the
extent permitted by applicable Law, the property of Holdco, free
and clear of any Liens of any Person previously entitled thereto.
(j)No Liability. Notwithstanding
anything herein to the contrary, none of Consonant, Vowel,
Holdco, the Merger Subs, the Consonant Surviving Corporation,
the Vowel Surviving Corporation, the Exchange Agent or any other
Person shall be liable to any former holder of Consonant Shares
or Vowel Shares for any amount properly delivered to a public
official pursuant to any applicable abandoned property, escheat
or similar Law.
(k)Investment of Exchange
Fund. The Exchange Agent shall invest all
cash included in the Exchange Fund as reasonably directed by
Holdco; provided, however, that any investment of
such cash shall be limited to direct short-term obligations of,
or short-term obligations fully guaranteed as to principal and
interest by, the U.S. government; and provided,
further, that if at any time prior to the termination of
the Exchange Fund pursuant to Section 2.3(i), the
value of the cash in the Exchange Fund is reduced below the
amount necessary to pay the cash component of any unpaid Merger
Consideration, amounts in lieu of fractional shares pursuant to
Section 2.3(f), and dividends and distributions
payable pursuant to Section 2.3(e), Holdco shall
immediately deposit additional funds into the Exchange Fund
sufficient to correct this deficiency. Any interest and other
income resulting from such investments shall be paid to Holdco.
(l)Lost Certificates. In the case
of any Certificate that has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if
required by the Exchange Agent, the posting by such Person of a
bond in customary amount as indemnity against any claim that may
be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate a certificate for Holdco Shares
and/or a
check or wire transfer in the amount to which such holder may be
entitled pursuant to this Article II in respect of
such lost, stolen or destroyed Certificate.
Section 2.4. Treatment
of Consonant Management Incentive Plan. In
connection with the Holdings III Merger Transactions,
VSS-Consonant Management LLC shall cease to be a member of
VSS-Consonant Holdings and shall become a member of
VSS-Consonant Holdings III. Holdco, Consonant and their
respective Subsidiaries shall cause the conversion at or prior
to the Effective Time of all interests of VSS-Consonant
Management LLC in VSS-Consonant Holdings, into interests in
VSS-Consonant Holdings III so that following the
consummation of the Holdings III Merger Transactions:
(x) VSS-Consonant Management LLC and its equity holders
shall not be entitled to any allocations or distributions from
or with respect to VSS-Consonant Holdings and (y) no Person
shall have an economic interest in VSS-Consonant Holdings other
than Consonant. The only consideration to be issued to VSS
Consonant Management LLC in connection with the conversion and
other transactions described in this Section 2.4
shall be interests of VSS-Consonant Holdings III.
Section 2.5. Treatment
of Vowel Stock Options and Other Stock-Based
Awards. Vowel and its Subsidiaries will use
commercially reasonable efforts to cause the termination, prior
to the Effective Time, of all outstanding Vowel Stock Options
and Vowel SARs provided that the aggregate payments made by
Vowel and its Subsidiaries in connection with such termination
shall not exceed $25,000. To the extent any such Vowel Stock
Options or Vowel SARs remain outstanding as of the Closing Date,
the following shall apply:
(a) Each option to purchase Vowel Shares (collectively, the
“Vowel Stock Options”) granted under the
employee and director equity compensation plans of Vowel (the
“Vowel Stock Plans”) or otherwise which has not
been terminated as of the Effective Time, shall be converted, at
the Effective Time, into an option to acquire, on the same terms
and conditions (including applicable vesting provisions) as were
applicable under the Vowel Stock Option, that number of Holdco
Shares equal to the number of Vowel Shares subject to such Vowel
Stock Option immediately prior to the Effective Time, at a price
per share equal to the per share exercise or purchase price
specified in such Vowel Stock Option immediately prior to the
Effective Time and such converted option shall be assumed by
Holdco.
(b) Each stock appreciation right relating to Vowel Shares
(collectively, the “Vowel SARs”) granted under
the Vowel Stock Plans or otherwise which has not been terminated
as of the Effective Time shall be converted, as of the Effective
Time, into a stock appreciation right relating to, on the same
terms and conditions (including applicable vesting provisions)
as were applicable under the Vowel SARs, that number of Holdco
Shares equal to the number of Vowel Shares subject to such Vowel
SAR immediately prior to the Effective Time, at an exercise
price equal to the per share exercise price specified in such
Vowel SAR immediately prior to the Effective Time and such
converted stock appreciation right shall be assumed by Holdco.
(c) Prior to the Effective Time, Holdco and Vowel shall
take all necessary action to assume as of the Effective Time all
of the obligations undertaken by, or on behalf of, Holdco under
this Section 2.5 and to adopt at the Effective Time
the Vowel Stock Plans and each Vowel Stock Option and Vowel SAR,
and to take all other actions called for by this
Section 2.5, including the reservation, issuance and
listing of a number of shares of Holdco Common Stock at least
equal to the number of shares of Holdco Common Stock that will
be subject to the Vowel Stock Options or any Vowel SAR. No later
than twenty (20) Business Days after the Effective Time,
Holdco shall file a registration statement on
Form S-8
(or any successor or, including if
Form S-8
is not available, other appropriate forms) with respect to the
shares of Holdco Common Stock subject to such Vowel Stock
Options and Vowel SARs and shall maintain the effectiveness of
such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options or stock
appreciation rights remain outstanding.
(d) As soon as reasonably practicable following the
Effective Time, Holdco shall deliver to the holders of Vowel
Stock Options and Vowel SARs appropriate notices setting forth
such holders’ rights pursuant to the respective Vowel Stock
Plans and agreements evidencing the grants of, or rights in,
such Vowel Stock Options and Vowel SARs, and stating that such
Vowel Stock Options and Vowel SARs and agreements that have not
been terminated as of the Effective Time have been assumed by
Holdco and shall continue in effect on the same terms and
conditions (after giving effect to any changes thereto as set
forth in this Section 2.5).
(e) Prior to the Effective Time, Vowel shall provide to
Holdco and Consonant an updated schedule that identifies as of
the Effective Time with respect to each Vowel Stock Option and
Vowel SAR which will not be terminated on or prior to the
Effective Time, (i) the name of the holder, (ii) the
number of shares subject to such award, (iii) the Vowel
Stock Plan under which the award was issued, (iv) the
exercise price of each Vowel Stock Option, (v) the number
of shares vested, (vi) the vesting schedule, (vii) the
grant date, and (viii) the expiration date.
Section 2.6. Withholding
Rights. The Exchange Agent, Consonant, Holdco
and Vowel shall be entitled to deduct and withhold from the
Merger Consideration otherwise payable under this Agreement to
any holder of Consonant Shares, Vowel Shares or Vowel Stock
Options, such amounts as are required to be withheld or deducted
under the Code, or any provision of state, local or foreign Tax
Law with respect to the making of such payment. To the extent
that amounts are so withheld or deducted and paid over to the
applicable Governmental Authority, such withheld or deducted
amounts shall be treated for all purposes of this Agreement as
having been paid to such holder, in respect of which such
deduction and withholding were made.
Section 2.7. Additional
Issuance of Holdco Common Stock. Immediately
prior to the Effective Time, Holdco shall issue
3,846,154 shares of Holdco Common Stock (the
“Additional Shares”) to VSS-Consonant
Holdings III for an aggregate purchase price of $25,000,000
to be paid to Holdco in immediately available funds concurrent
with such issuance. The aggregate number of Additional Shares
issued pursuant to this Section 2.7 (but not the
cash purchase price for such shares) shall be equitably adjusted
prior to such issuance
if at any time during the period between the date of this
Agreement and the earlier of the Effective Time and the
Termination Date any change in the outstanding shares of capital
stock of Vowel, or in the securities convertible or exchangeable
into or exercisable for shares of capital stock of Vowel, shall
occur as a result of any reclassification, recapitalization,
stock split (including a reverse stock split) or subdivision or
combination, exchange or readjustment of shares, or any stock
dividend or stock distribution or exercise prior to the
Effective Time of options, warrants or other convertible
securities so that the issuance of such shares shall continue to
provide the same economic effect as before such change. On the
Closing Date, immediately following the Effective Time, the only
issued and outstanding securities of Holdco shall be
(x) the Holdco Common Stock issued pursuant to
Section 2.1, Section 2.2 and as
described in this Section 2.7, (y) the Holdco
Warrant issued pursuant to Section 2.2(a) and
(z) the Holdco Note (if any).
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF VOWEL
Except as set forth in the disclosure schedule delivered by the
Vowel to Consonant concurrently with the execution of this
Agreement (the “Vowel Disclosure Schedule”),
Vowel hereby represents and warrants as of the date hereof to
Consonant, Holdco and the Merger Subsidiaries as follows (the
disclosures in any section or subsection of the Vowel Disclosure
Schedule shall qualify the corresponding section or subsection
of this Article III provided, however, that
any matter set forth in any section of the Vowel Disclosure
Schedule shall be deemed to be referred to and incorporated in
all other sections of the Vowel Disclosure Schedule to which
such matter’s application or relevance is readily apparent
on its face):
Section 3.1. Corporate
Organization. Vowel is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary corporate power
and authority to operate and lease its properties and to carry
on its business as now being conducted. Vowel is qualified to do
business in the jurisdictions set forth in
Section 3.1 of the Vowel Disclosure Schedules and is
in good standing in each jurisdiction where the character of the
property leased by it or the nature of its activities makes such
qualification necessary, other than in such jurisdictions where
a failure to be so qualified, individually or in the aggregate,
would not reasonably be expect to result in a Vowel Material
Adverse Effect. Vowel has delivered or made available to
Consonant and Holdco a copy of its certificate of incorporation
and by-laws as of the date of this Agreement and each such copy
is true, correct and complete and such instrument is in full
force and effect.
Section 3.2. Subsidiaries. Set
forth on Section 3.2 of the Vowel Disclosure
Schedule is a list of all Subsidiaries of Vowel and any other
Person in which Vowel or any of its Subsidiaries owns, directly
or indirectly, capital stock or ownership interests. Each
Subsidiary of Vowel is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation (as set forth on Section 3.2 of the
Vowel Disclosure Schedule), and has all requisite corporate
power and authority to operate and lease its properties and to
carry on its business as now being conducted. Each Subsidiary of
Vowel is qualified to do business in the jurisdictions listed in
Section 3.2 of the Vowel Disclosure Schedule and is
in good standing in each jurisdiction where the character of the
property leased by it or the nature of its activities makes such
qualification necessary, other than in such jurisdictions where
a failure to be so qualified, individually or in the aggregate,
would not reasonably be expect to result in a Vowel Material
Adverse Effect. All the outstanding shares of capital stock of
each Subsidiary of Vowel are owned by Vowel and have been duly
authorized and validly issued, are fully paid and non-assessable
and are not subject or issued in violation of any Lien, purchase
option, call option, right of first refusal, preemptive right,
subscription right or any other Contract to which Vowel or any
Subsidiary of Vowel is bound. No shares of capital stock of any
Subsidiary of Vowel are reserved for issuance, and there are no
rights, subscriptions, warrants, options, calls, conversion
rights, commitments, agreements or understandings of any kind
authorized or outstanding that were granted by Vowel or any
Subsidiary thereof to purchase or otherwise to acquire any
shares of capital stock or ownership, profit or capital
interests in any Subsidiary of Vowel or securities or
obligations of any kind of any Subsidiary of Vowel convertible
into or exchangeable for any shares of capital stock or
ownership, profit or capital interests of any Subsidiary of
Vowel.
(a) The authorized capital stock of Vowel consists solely
of 50,000,000 shares of Vowel Common Stock. As of
June 9, 2009, there were (i) 30,550,433 shares of
Vowel Common Stock issued, (ii) 29,874,145 shares of
Vowel Common Stock outstanding, (iii) 676,288 shares
of Vowel Common Stock held as treasury shares, (iv) Vowel
Stock Options to purchase an aggregate of 143,531 shares of
Vowel Common Stock issued and outstanding, and (v) 300,000
Vowel SARs issued and outstanding; all such Vowel Stock Options
and Vowel SARs are set forth in Section 3.3(a) of
the Vowel Disclosure Schedule. All outstanding shares of Vowel
Common Stock are duly authorized, validly issued, fully paid and
nonassessable and are not subject to or issued in violation of
any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under
any provision of the DGCL, or any Contract to which Vowel is a
party or otherwise bound.
(b) Except as set forth in Section 3.3(a), as
of the date hereof, Vowel does not have any shares of capital
stock issued and outstanding other than shares of Vowel Common
Stock that have become outstanding after June 9, 2009, that
were reserved for issuance as of June 9, 2009 as set forth
in Section 3.3(a). There are no bonds, debentures,
notes or other indebtedness of Vowel having the right to vote
(or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which holders of Vowel Shares
may vote (“Voting Vowel Debt”). There are no
options, warrants, rights, convertible or exchangeable
securities, “phantom” stock rights, stock appreciation
rights, stock-based performance Vowel Shares, commitments,
Contracts, arrangements or undertakings of any kind to which
Vowel is a party or by which Vowel is bound (i) obligating
Vowel to issue, deliver or sell, or cause to be issued,
delivered or sold, additional Vowel Shares or other equity
interests in, or any security convertible or exercisable for or
exchangeable into any Vowel Shares or other equity interest in,
Vowel or any Voting Vowel Debt or (ii) obligating Vowel to
issue, grant or enter into any such option, warrant, right,
security, commitment, Contract, arrangement or undertaking.
There are no outstanding contractual obligations of Vowel to
repurchase, redeem or otherwise acquire any Vowel Shares or
other equity interests of Vowel. None of Vowel nor any of its
Subsidiaries is a party to any, and, to Vowel’s Knowledge,
no other Person is a party to any, stockholders agreements,
voting trusts, Contracts or other commitments, arrangements or
undertakings relating to the voting or disposition of any Vowel
Shares or the capital stock of any of Vowel’s Subsidiaries
or granting any Person or group of Persons the right to elect or
to designate or nominate for election a director to the Vowel
Board.
Section 3.4. Authority.
(a) Vowel and each of its Subsidiaries has requisite
corporate power and authority to enter into this Agreement and
the other Transaction Documents to which it is a party and,
subject to receipt of Vowel Stockholder Approval, to consummate
the transactions contemplated hereby and thereby. The Vowel
Board at a duly held meeting has (i) determined that it is
in the best interests of Vowel and its stockholders, and
declared it advisable, to enter into this Agreement and the
other Transaction Documents to which Vowel or any of its
Subsidiaries is a party, (ii) approved the execution,
delivery and performance of this Agreement, the other
Transactions Documents to which Vowel or any of its Subsidiaries
is a party and the consummation of the transactions contemplated
hereby and thereby, including the Vowel Merger, and
(iii) resolved to recommend that the stockholders of Vowel
approve the adoption of this Agreement (the “Vowel
Recommendation”) and directed that such matter be
submitted for consideration of the stockholders of Vowel at the
Vowel Meeting. Except for the Vowel Stockholder Approval and the
filing of the Vowel Certificate of Merger with the Secretary of
State of the State of Delaware, no other corporate proceedings
on the part of Vowel are necessary to authorize the consummation
of the transactions contemplated hereby. This Agreement and the
other Transaction Documents to which Vowel or any of its
Subsidiaries is a party which are dated of even date herewith
have been duly and validly executed and delivered by Vowel or
its Subsidiary, as applicable, as of the date hereof and, to the
extent such Transactions Documents are delivered on the Closing
Date, will have been duly and validly executed and delivered by
Vowel or its Subsidiary, as applicable on the Closing Date, and,
assuming this Agreement constitutes the valid and binding
agreement of Consonant, Holdco and the Merger Subs, constitutes
the valid and binding agreement of Vowel or its Subsidiary, as
applicable, enforceable against Vowel or its Subsidiary, in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights
and to general equity principles.
(b) The execution, delivery and performance by Vowel or any
of its Subsidiaries of this Agreement, the other Transaction
Documents to which Vowel or any of its Subsidiaries is a party
and the consummation of the Reorganization by Vowel do not and
will not require any consent, approval, authorization or permit
of, action by, filing with or notification to any Governmental
Authority, other than (i) the filing of the Vowel
Certificate of Merger, (ii) compliance with the applicable
requirements of the HSR Act, (iii) compliance with the
applicable requirements of the Securities Act and the Exchange
Act, including the filing of the Proxy Statement/Prospectus,
(iv) compliance with any applicable foreign or state
securities or blue sky laws, and (v) the other consents
and/or
notices set forth on Section 3.4(b) of the Vowel
Disclosure Schedule (collectively, clauses (i) through (v),
the “Vowel Specified Approvals”), and other
than any consent, approval, authorization, permit, action,
filing or notification the failure of which to make or obtain
would not (A) individually or in the aggregate, reasonably
be expected to result in a Vowel Material Adverse Effect or
(B) prevent or materially delay the consummation of the
Mergers.
(c) Notwithstanding the foregoing or anything to the
contrary herein, none of the representations in this
Section 3.4 or any other representation in this
Article III shall be deemed to apply to the VEL
Drop-Down Documents or the VEL Drop-Down Transactions, such
transactions being undertaken solely for the benefit, and at the
instruction, of Holdco.
Section 3.5. No
Conflicts. Assuming receipt of or compliance
with the Vowel Specified Approvals and the receipt of the Vowel
Stockholder Approval, the execution, delivery and performance by
Vowel or its Subsidiaries of this Agreement and the other
Transaction Documents to which Vowel or any of its Subsidiaries
is a party and the consummation by Vowel of the Mergers and the
other transactions contemplated hereby and thereby do not and
will not (i) contravene or conflict with the organizational
or governing documents of Vowel or any of its Subsidiaries,
(ii) contravene or conflict with or constitute a violation
of any provision of any Law binding upon or applicable to Vowel
or any of its Subsidiaries or any of their respective properties
or assets, or (iii) result in any breach or violation of,
or constitute a default (with or without notice or lapse of
time, or both) or an event of default under, or give rise to a
right of termination, cancellation or acceleration of any
obligation or to the loss of a benefit under, any loan,
guarantee of indebtedness, credit agreement or Contract binding
upon Vowel or any of its Subsidiaries or result in the creation
of any Lien (other than Permitted Liens) upon any of the
properties or assets of Vowel or any of its Subsidiaries, except
in the case of clauses (ii) and (iii), for such matters as
would not, individually or in the aggregate, reasonably be
expected to result in a Vowel Material Adverse Effect.
Notwithstanding the foregoing or anything to the contrary
herein, none of the representations in this
Section 3.5 or any other representation in this
Article III shall be deemed to apply to the VEL
Drop-Down Documents or the VEL Drop-Down Transactions, such
transactions being undertaken solely for the benefit, and at the
instruction, of Holdco.
Section 3.6. SEC
Reports; Financial Statements.
(a) Vowel has filed all required reports, schedules, forms,
statements and other documents with the SEC since
December 31, 2005 (such documents, together with any
documents filed during such period by Vowel with the SEC on a
voluntary basis on Current Reports on
Form 8-K,
the “Vowel SEC Reports”). As of their
respective filing dates, the Vowel SEC Reports complied as to
form in all material respects with the requirements of the
Securities Act, the Exchange Act and the Sarbanes-Oxley Act of
2002 (including the rules and regulations promulgated
thereunder, ‘‘SOX”) applicable to such
Vowel SEC Reports, and none of the Vowel SEC Reports contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Vowel
has made available to Consonant true, correct and complete
copies of all material correspondence received from the SEC, on
the one hand, and responded to by Vowel, on the other, since
December 31, 2006, including without limitation all
material SEC comment letters and material responses to such
comment letters by or on behalf of Vowel. As of the date of this
Agreement, there are no outstanding or unresolved comments
received from the SEC staff with respect to the Vowel SEC
Reports. To the Knowledge of Vowel, as of the date hereof, none
of the Vowel SEC Reports is the subject of ongoing SEC review or
outstanding SEC comment.
(b) The financial statements (including the related notes
and schedules) of Vowel included in, or incorporated by
reference into, the Vowel SEC Reports (the “Vowel SEC
Financial Statements”) comply as to form in all
material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in
the case of unaudited quarterly statements, as indicated in the
notes thereto) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and
present fairly, in all material respects, the consolidated
financial position of Vowel as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited
statements, to year-end audit adjustments and the absence of
footnotes). Section 3.6(b) of the Vowel Disclosure
Schedule sets forth a true and complete copy of the audited
balance sheet of Vowel as of December 31, 2008, and the
related audited consolidated statements of income (loss),
changes in stockholders’ equity and cash flows for Vowel,
for the fiscal year then ended (the “Vowel 2008
Financial Statements”, and together with the Vowel SEC
Financial Statements, the “Vowel Financial
Statements”). Vowel has no current intention to correct
or restate, and to the Knowledge of Vowel, there is not any
basis to correct or restate any of the Vowel SEC Financial
Statements. Vowel’s auditors have not delivered any written
reports to the Vowel audit committee expressing any disagreement
as to material accounting matters or policies during any of
Vowel’s past three full fiscal years or during the current
fiscal
year-to-date.
Vowel is not a party to, nor has any commitment to become a
party to, any “off-balance sheet arrangements” (as
defined in Item 303(a) of
Regulation S-K
of the SEC).
(c) Each of the principal executive officer of Vowel and
the principal financial officer of Vowel has made all
certifications required by
Rule 13a-14
or 15d-14
under the Exchange Act and Sections 302 and 906 of SOX with
respect to the Vowel SEC Reports, and the statements contained
in such certifications are true and accurate. For purposes of
this Agreement, “principal executive officer” and
“principal financial officer” shall have the meanings
given to such terms in SOX. Vowel has no outstanding, and has
not arranged any outstanding, “extensions of credit”
to directors or executive officers within the meaning of
Section 402 of SOX.
(d) Vowel has established and maintains a system of
internal controls over financial reporting (as such term is
defined by paragraph (f) of
Rules 13a-15
of the Exchange Act) as required by
Rule 13a-15
of the Exchange Act. Vowel’s management has completed an
assessment of the effectiveness of Vowel’s internal
controls over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act for
the year ended December 31, 2008, and such assessment
concluded that such controls were effective. The assessment of
the effectiveness of Vowel’s internal controls over
financial reporting has been attested to by Whitley Penn LLP, an
independent registered public accounting firm, as stated in
their report which is included in the Vowel SEC Reports.
(e) Vowel’s “disclosure controls and
procedures” (as such term is defined in
Rule 13a-15(e)
and
Rule 15d-15(e)
of the Exchange Act) are reasonably designed to ensure that all
information (both financial and non-financial) required to be
disclosed by Vowel in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
SEC, and that all such information is accumulated and
communicated to Vowel’s management as appropriate to allow
timely decisions regarding required disclosure and to make the
certifications of the chief executive officer and chief
financial officer of Vowel required under the Exchange Act with
respect to such reports. Vowel has disclosed, based on its most
recent evaluation of internal control over financial reporting,
to Vowel’s outside auditors and the audit committee of the
Vowel Board (A) all significant deficiencies and material
weaknesses in the design or operation of internal control over
financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) which are known to Vowel and
(B) any fraud, whether or not material, known to Vowel that
involves management or other employees who have a role in the
preparation of financial statements or Vowel’s internal
control over financial reporting.
Section 3.7. Conduct
of Business. Between the Balance Sheet Date
and the date of this Agreement, Vowel and each Subsidiary of
Vowel has, in all material respects, operated in the ordinary
course of business
consistent with past practice, other than with respect to the
transactions expressly contemplated by this Agreement or the
other Transaction Documents.
Section 3.8. Undisclosed
Liabilities; No Material Events. None of
Vowel nor its Subsidiaries has any Liability that is required to
be reflected on a consolidated balance sheet of Vowel prepared
in accordance with GAAP, except for Liabilities
(a) disclosed in Section 3.8 of the Vowel
Disclosure Schedule, (b) expressly contemplated by this
Agreement or any other Transaction Document, (c) as
expressly disclosed in any Vowel SEC Report, (d) reflected
or reserved against in the Vowel Financial Statements or
(e) incurred in the ordinary course of business since the
Balance Sheet Date and is not material to Vowel and its
Subsidiaries, taken as a whole. Since the Balance Sheet Date,
there has not been any change, event or occurrence that has had
or would reasonably be expected to have a Vowel Material Adverse
Effect.
Section 3.9. Taxes. Vowel
and each of its Subsidiaries have (i) prepared and timely
filed (taking into account any extension of time within which to
file) all Tax Returns required to be filed by any of them and
all such filed Tax Returns are complete and accurate in all
material respects and (ii) paid all Taxes shown as due and
owing. Neither Vowel nor any of its Subsidiaries has any
liability for Taxes of any Person (other than Vowel or such
Subsidiaries) pursuant to any Tax allocation or sharing
agreement, under Treasury Regulations
Section 1.1502-6
(or any similar provision of Law), as a transferee or successor,
or otherwise. As of the date of this Agreement, there are not
pending or, to the Knowledge of Vowel, threatened in writing,
any audits, examinations, investigations or other proceedings in
respect of Taxes of Vowel or any of its Subsidiaries and neither
Vowel nor any of its Subsidiaries has given any currently
effective waiver of any statute of limitations in respect of
Taxes. Neither Vowel nor any of its Subsidiaries has
(i) been a “controlled corporation” or a
“distributing corporation” in any distribution
occurring during the two-year period ending on the date hereof
that was purported or intended to be governed by
Section 355 of the Code or (ii) been a party to any
“reportable transaction,” as defined in
Section 6707A(c)(1) of the Code and Treasury Regulations
Section 1.6011-4(b).
Section 3.10. Intellectual
Property.
(a) Section 3.10(a) of the Vowel Disclosure
Schedule lists all registrations, and all applications for
registration, of Vowel Intellectual Property, including the
record owner thereof and the Governmental Authorities by which
each item of Vowel Intellectual Property has been registered or
in which any such application has been filed. Each registration
of Vowel Intellectual Property is valid and subsisting, all
necessary registration, maintenance and renewal fees currently
due in connection therewith have been paid, and all necessary
documents and certificates in connection therewith have been
filed with the relevant Governmental Authority (including, but
not limited to, the United States Patent and Trademark Office or
equivalent authority anywhere in the world) for the purposes of
maintaining such registration. Neither Vowel nor any of its
Subsidiaries has misrepresented any facts or circumstances, or
failed to disclose any facts or circumstances known to it, in
connection with any such registration, or in connection with the
application for registration of any other Intellectual Property,
that would constitute fraud with respect to such registration or
application.
(b) Section 3.10(b) of the Vowel Disclosure
Schedule lists any material proceedings or actions before any
Governmental Authority related to any registration of any Vowel
Intellectual Property.
(c) Vowel and its Subsidiaries have taken commercially
reasonable steps to maintain their rights in the Vowel
Intellectual Property and in all registrations and applications
for registration of the Vowel Intellectual Property.
(d) Vowel or one or more of its Subsidiaries owns all Vowel
Intellectual Property free and clear of any Liens, excluding any
non-exclusive license rights granted to customers in the
ordinary course of business. All Vowel Intellectual Property is
the work product of Employees of Vowel or its Subsidiaries and
belongs to Vowel or its Subsidiaries as a matter of law, or has
been acquired by valid and enforceable written assignment. No
third party has any rights to any material Vowel Intellectual
Property other than non-exclusive license rights granted to
customers in the ordinary course of business. Without limitation
of the foregoing, each Employee of Vowel and its Subsidiaries
who in the normal course of his or her duties is or was involved
in
the creation of Vowel Intellectual Property has entered into one
or more Contracts with Vowel or one of its Subsidiaries,
and/or
otherwise has a legal duty to Vowel or one of its Subsidiaries,
sufficient to vest title in Vowel or such Subsidiary of all
Intellectual Property created by such Employee in the scope of
his or her employment or consultancy, as the case may be, with
Vowel or such Subsidiary. It is not and will not be necessary
for Vowel to utilize any Intellectual Property of any of its or
any of its Subsidiaries’ Employees (or persons it or they
currently intend to hire) created prior to their employment by
Vowel or any Subsidiary, or, if necessary, such Employees have
entered into valid and enforceable written assignments conveying
all rights in such Intellectual Property to Vowel or its
Subsidiaries.
(e) All Vowel Intellectual Property is fully transferable,
alienable, and licensable to any Person whatsoever by Vowel and
its Subsidiaries without restriction and without payment of any
kind to any third party, subject, however, to any non-exclusive
license rights granted to customers in the ordinary course of
business.
(f) Vowel or one or more of its Subsidiaries has acquired
and currently holds written or electronic licenses permitting
Vowel and its Subsidiaries to use and incorporate each and every
item of Vowel Third Party Intellectual Property that is
necessary to, or used by Vowel or any of its Subsidiaries in the
operation of, the business of Vowel and its Subsidiaries as each
is currently conducted and has been conducted within the six
(6) years prior to the date of this Agreement, including
all products and services currently distributed, licensed or
provided to customers by Vowel or any of its Subsidiaries or
proposed to be distributed, licensed or provided to customers
within the next twelve months. Except with respect to
non-exclusive licenses for generally available commercial
off-the-shelf
software programs, each such license associated with any
products or services distributed, licensed or provided by Vowel
or any of its Subsidiaries is valid throughout the world, of
perpetual duration, non-terminable by the licensor except for
breach or insolvency of the licensor, assignable without
restriction or condition, and fully sublicensable within the
scope of the license granted. There is no outstanding unresolved
claim, and to the Knowledge of Vowel, there is no basis for any
claim, that Vowel or any of its Subsidiaries is in breach of any
such license. The execution and delivery of this Agreement by
Vowel and the consummation of the transactions contemplated
hereby, will not cause Vowel or any of its Subsidiaries to be in
violation or default under any such license or entitle any other
party to terminate or modify any such license.
(g) The Vowel Intellectual Property, together with the
Vowel Third Party Intellectual Property, constitutes
(i) all Intellectual Property used by Vowel and its
Subsidiaries in the operation of the business of Vowel and its
Subsidiaries as each is currently conducted, has been conducted
within the six (6) years prior to the date of this
Agreement, and is currently proposed to be conducted in the
future, and (ii) all Intellectual Property necessary to the
operation of the business of Vowel and its Subsidiaries as each
is currently conducted, has been conducted within the six
(6) years prior to the date of this Agreement, and is
currently proposed to be conducted within the next twelve months.
(h) No Vowel Intellectual Property, and to the Knowledge of
Vowel, no Vowel Third Party Intellectual Property, is subject to
any Court Order, any Proceeding in which a Court Order is
sought, or any agreement, that does or would in any manner
restrict, condition
and/or
materially affect the validity or enforceability thereof, or the
use, transfer or licensing thereof by Vowel or any of its
Subsidiaries.
(i) No Public Intellectual Property (as defined below) has
been or is incorporated in, or distributed in conjunction with,
in whole or in part, any Vowel Intellectual Property or any
Vowel Third Party Intellectual Property; and no Vowel
Intellectual Property has been distributed in whole or in part
as Public Intellectual Property. “Public Intellectual
Property” means Intellectual Property distributed under
a free, open source, or other similar licensing or distribution
model, including, but not limited to, the GNU General Public
License, the Mozilla Public License, or any Creative Commons
License.
(j) There is no outstanding unresolved demand or claim, and
to the Knowledge of Vowel, there is no basis for any demand or
claim, that the operation of the business of Vowel or any of its
Subsidiaries or any act, product, technology or service of Vowel
or any of its Subsidiaries infringes, misappropriates, or
dilutes any Intellectual Property of any Person (including,
without limitation, any demand or request that Vowel or any
Subsidiary license any rights from a third party). Neither Vowel
nor any of its Subsidiaries has received, at any time during the
six-year period preceding the date hereof, or, to the Knowledge
of Vowel, is aware of any
facts that indicate a likelihood of receiving, written notice
from any Person directing Vowel or any of its Subsidiaries to
review or consider the applicability of such Person’s
Intellectual Property Rights to the business of Vowel or any
Subsidiary
and/or the
Vowel Intellectual Property.
(k) To the Knowledge of Vowel, no Person is infringing,
misappropriating, or diluting, or is intending to infringe,
misappropriate, or dilute, any Vowel Intellectual Property or
any Vowel Third Party Intellectual Property in which Vowel or
any of its Subsidiaries is the owner or exclusive licensee.
(l) Vowel and its Subsidiaries have taken commercially
reasonable steps to ensure that their Employees have not
disclosed to them any information that is subject to any
restriction of confidentiality in favor of any prior employer or
other Person.
(m) Vowel and its Subsidiaries have taken all reasonable
and appropriate steps to protect and preserve the
confidentiality of all Trade Secrets. During the six
(6) years prior to the date hereof, (i) there have
been no material security breaches in Vowel’s or any of its
Subsidiaries’ information technology systems, and
(ii) there have been no disruptions in any of Vowel’s
or its Subsidiaries’ information technology systems that
have adversely affected in any material respect Vowel’s or
any of its Subsidiaries’ business or operations.
(n) Vowel and its Subsidiaries have at all times complied
with all applicable Law, as well as its own rules, policies, and
procedures, relating to privacy, data protection, and the
collection and use of personal information collected, used, or
held for use by Vowel and its Subsidiaries in the conduct of its
business, including but not limited to the Children’s
Online Privacy Protection Act. No claims have been asserted or
threatened against Vowel or any of its Subsidiaries alleging a
violation of any Person’s privacy or personal information
or data rights and the consummation of the transactions
contemplated hereby will not breach or otherwise cause any
violation of any Law or rule, policy, or procedure related to
privacy, data protection, or the collection and use of personal
information collected, used, or held for use by Vowel or any of
its Subsidiaries in the conduct of their business. Each of Vowel
and its Subsidiaries take reasonable measures to ensure that
such information is protected against unauthorized access, use,
modification, or other misuse.
Section 3.11. Title
to Properties; Leases; Assets. Vowel and each
Subsidiary of Vowel has good and valid title to, and is the
lawful owner of, or has the right to use pursuant to a lease,
license or otherwise, all the tangible and intangible personal
property used in its business free and clear of all Liens and
material defects, except for Permitted Liens and for defects in
title, easements, restrictive covenants and similar encumbrances
that, individually or in the aggregate, have not had or would
not reasonably be expected to materially interfere with the
continuous use of the property for the purposes for which the
property is currently used. Neither Vowel nor any Subsidiary of
Vowel owns any real property or has any option to acquire any
real property. Section 3.11 of the Vowel Disclosure
Schedule sets forth all real property leases of Vowel and its
Subsidiaries (including all amendments, extensions, renewals,
guarantees and other agreements with respect thereto), and Vowel
has delivered or made available true and complete copies of all
such leases or other agreements. All such leases are valid,
binding and enforceable against Vowel or one of its Subsidiaries
(and, to the Knowledge of Vowel, each other party thereto) in
accordance with their respective terms, Vowel has not received
any written notice of a material default by Vowel or any such
Subsidiary, as the case may be, under any such lease that
remains outstanding. Vowel has not given any written notice of a
material default by any other party to any such lease that
remains outstanding, and there does not exist, under any lease
of real property, any default or any event which, with notice or
lapse of time or both, would constitute a default by Vowel or
such Subsidiary, as the case may be, or to the Knowledge of
Vowel, by any other party thereto, except for a default that,
individually or in the aggregate, has not had or would not
reasonably be expected to materially interfere with the
continuous use of the property for the purposes for which the
property is currently used. Vowel and each Subsidiary enjoys
peaceful and undisturbed possession of all real property under
all leases identified on Section 3.11 of the Vowel
Disclosure Schedule. Neither Vowel nor any of its Subsidiaries
have assigned, sublet or otherwise transferred any interest in
any such lease, and no other Person has any rights to the use,
occupancy or enjoyment of any real property governed thereby
pursuant to any lease, sublease, license, occupancy or other
agreement. All leases of real property will continue to be
legal, binding, and enforceable and in full force and effect
immediately following the Closing Date in accordance with the
terms in effect immediately prior to the Closing Date. Vowel and
each of its Subsidiaries has all of the rights,
properties and assets (real, personal, mixed, tangible or
intangible) that are necessary or desirable for the conduct of
their respective business (the “Vowel Assets”)
and there are no defects in the Vowel Assets that materially
interfere with the operation thereof. No Person (including any
Affiliate of Vowel or any Subsidiary of Vowel) owns or has any
interest by lease, license or otherwise in any of Vowel Assets.
The execution and delivery of the Transaction Documents at the
Closing will be sufficient to convey good and marketable title
to the Vowel Assets to the Vowel Surviving Corporation free any
clear of any Lien, except for any Lien which, individually or in
the aggregate, would not reasonably be expected to result in a
Vowel Material Adverse Effect. The representations and
warranties contained in this Section 3.11 do not
apply to Intellectual Property which is covered exclusively by
the representations and warranties set forth in
Section 3.10 hereof.
Section 3.12. Environmental
Matters. Vowel and each Subsidiary of Vowel
has complied in all material respects and is in compliance in
all material respects with all applicable Environmental Laws; to
the Knowledge of Vowel, no written notice of violation,
notification of Liability, request for information or order has
been received by, and no fine or penalty has been issued to,
Vowel or any Subsidiary of Vowel relating to or arising out of
any Environmental Law; no material Proceeding arising under any
Environmental Laws is pending, or to the Knowledge of Vowel,
threatened, against Vowel or any Subsidiary thereof; and Vowel
has provided to Consonant all environmental site assessments,
audits, investigations and studies in the possession, custody or
control of Vowel or any Subsidiary of Vowel, relating to any
leased real property of Vowel or its Subsidiaries.
(a) Section 3.13(a) of the Vowel Disclosure
Schedule sets forth each of the following Contracts presently in
effect, to which Vowel or any Subsidiary of Vowel is a party or
is bound by as of the date hereof (organized in subsections
corresponding to the subsections of this
Section 3.13(a)):
(i) Contracts for money borrowed, and any related security
agreements and collateral documents (including any agreements
for any commitment for future loans, credit or financing
evidencing, or with respect to, Indebtedness) or any guarantees
of any of the foregoing;
(ii) any Contract entered into by Vowel or any Subsidiary
involving payment after the date of this Agreement by or to
Vowel or any Subsidiary of Vowel of an aggregate of at least
$100,000 per annum or an aggregate of $250,000 in total that is
not terminable upon notice of 30 days or less without
penalty, cost or Liability to Vowel or any Subsidiary of Vowel;
(iii) any Contract with the Vowel Material Customers and
the Vowel Material Vendors;
(iv) any Contract relating to the lease, as lessee or
lessor, or license, as licensee or licensor, of (x) any
real property or (y) any other property (tangible or
intangible) which, solely in the case of clause (y)
provides for a future Liability or receivable, as the case may
be, in excess of $100,000;
(v) Contracts relating to any joint venture, strategic
alliance, partnership agreements or profit sharing agreements;
(vi) Contracts that would restrain Vowel or any Subsidiary
of Vowel, or any Affiliate of Vowel, from engaging or competing
in any business;
(vii) Contracts containing a “most favored
nations” pricing or commercial terms or other similar terms
in favor of any Person, other than School Contracts;
(ix) any employment, consulting or similar Contracts
(A) with any member of the Vowel Board (or similar
governing body) or any Subsidiary of Vowel, (B) with any
executive officer of Vowel or any Subsidiary of Vowel,
(C) with any other Employee of Vowel or any Subsidiary of
Vowel, other than, in the case of this clause (C), those
Contracts terminable by Vowel or any Subsidiary of Vowel, as the
case may be, on no more than 30 days notice without
Liability or financial obligations to Vowel or any Subsidiary or
(D) which provide for severance, retention, change in
control or other similar payments;
(xii) Contracts under which Vowel or any of its
Subsidiaries has advanced or loaned any amount to any of its
directors and Employees;
(xiii) any Contract to provide source code into any escrow
or to any Person (under any circumstances) for any product or
technology or under which Vowel or any of its Subsidiaries
agrees to encumber, not assert, transfer or sell rights in or
with respect to any Intellectual Property;
(xiv) any Contract which provides for the development of
any Intellectual Property, independently or jointly, by or for
Vowel or any of its Subsidiaries, except any such Contracts
entered into in the ordinary course of business consistent with
past practice;
(xv) any Contract pursuant to which Vowel or any of its
Subsidiaries has acquired a business or entity, or assets of a
business or entity, whether by way of merger, consolidation,
purchase of stock, purchase of assets, license or otherwise, or
any contract pursuant to which it has any ownership interest or
has agreed to purchase any ownership interest in any other
Person (other than its Subsidiaries);
(xvi) any material Contract entered into outside of the
ordinary course of business;
(xviii) any Contract under which Vowel or any of its
Subsidiaries has received or granted a license relating to any
Intellectual Property that is material to the business of Vowel
and its Subsidiaries, taken as a whole, other than non-exclusive
licenses extended to customers, clients or other resellers in
the ordinary course of business and other non-exclusive licenses
for generally commercial
off-the-shelf
software programs;
(xix) any Contract providing for indemnification by Vowel
or any of its Subsidiaries, other than School Contracts and
Contracts entered into in the ordinary course of business with
respect to the purchase, sale, lease or license of any
equipment, inventory, products, services, software or other
property (whether real or personal, tangible or intangible);
(xx) any settlement, conciliation or similar Contract, the
performance of which will involve payment after the Closing Date
in excess of $100,000;
(xxi) Contracts relating to (x) the future disposition
or acquisition (including any sale, lease, exchange, mortgage,
or transfer) of any material assets or properties or
(y) the disposition or acquisition since January 1,2008 (including any sale, lease, exchange, mortgage, or
transfer) of any material assets or properties except inventory
disposed of in the ordinary course of business;
(xxii) Contracts under which Vowel or any Subsidiary of
Vowel, as the case may be, has made or agreed to make any
advance, loan, extension of credit, capital contribution or
other investment in any Person (other than Vowel or any
Subsidiary of Vowel, as the case may be) in excess of $25,000 to
any one Person or $100,000 in the aggregate;
(xxiii) any Contract with any investment banker, broker,
advisor or similar party retained by Vowel or any stockholder in
connection with the transactions contemplated by this Agreement;
(xxiv) any “material contract” (within the
meaning of Item 601(b)(10) of
Regulation S-K
under the Securities Act and the Exchange Act) with respect to
Vowel and its Subsidiaries, to the extent not covered or
included in any other provision of this
Section 3.13(a);
(xxv) Contracts other than as set forth above if the
default of Vowel, any Subsidiary thereof or any other party
thereto, or the failure of such Contract to be in full force and
effect, would reasonably be likely to cause a Vowel Material
Adverse Effect.
Vowel has delivered to (or made available for inspection by)
Consonant correct and complete copies of all the Contracts,
together with all amendments thereto, listed on
Section 3.13(a) of the Vowel Disclosure Schedule
(the “Vowel Material Contracts”).
(b) All of the Vowel Material Contracts are valid, binding
and in full force and effect and are enforceable by Vowel or the
applicable Subsidiary in accordance with their terms, except for
such failure to be valid and binding or in full force and effect
that, individually or in the aggregate, would not reasonably be
expected to result in a Vowel Material Adverse Effect and except
to the extent that enforcement may be affected by laws relating
to bankruptcy, reorganization, insolvency and creditors’
rights and by the availability of injunctive relief, specific
performance and other equitable remedies. Vowel or the
applicable Subsidiary has performed all material obligations
required to be performed by it through the date of this
Agreement under the Vowel Material Contracts, and it is not
(with or without the lapse of time or the giving of notice, or
both) in breach or default thereunder and, to the Knowledge of
Vowel, no other party to any Vowel Material Contract is (with or
without the lapse of time or the giving of notice, or both) in
breach or default thereunder, except for those breaches which
would not, individually or in the aggregate, reasonably be
expected to result in a Vowel Material Adverse Effect. Neither
Vowel nor its Subsidiaries has received any written notice or
has any Knowledge of the intention of any party to terminate or
not renew any Vowel Material Contract, except for a termination
or non-renewal which would not, individually or in the
aggregate, reasonably be expected to result in a Vowel Material
Adverse Effect.
Section 3.14. Employee
Benefit Plans.
(a) Section 3.14(a) of the Vowel Disclosure
Schedule sets forth a correct and complete list of (i) all
employee welfare benefit plans (as defined in Section 3(1)
of ERISA), (ii) all employee pension benefit plans (as
defined in Section 3(2) of ERISA) and (iii) all other
employee benefit plans, programs, policies, agreements or
arrangements, including any deferred compensation plan,
incentive plan, bonus plan or arrangement, stock option plan,
stock purchase plan, stock award plan or other equity-based
plan, change in control agreement, retention, severance pay
plan, dependent care plan, sick leave, disability, death
benefit, group insurance, hospitalization, dental, life, any
fund, trust or arrangement providing health benefits including
multiemployer welfare arrangements, a multiple employer welfare
fund or arrangement, cafeteria plan, employee assistance
program, scholarship program, employment contract, retention
incentive agreement, termination agreement, severance agreement,
noncompetition agreement, consulting agreement, confidentiality
agreement, vacation policy, Employee loan, or other similar
plan, agreement or arrangement, whether written or oral, funded
or unfunded, or actual or contingent that (A) is maintained
by Vowel, any of its Subsidiaries or any Vowel ERISA Affiliate
(as defined below) for the benefit of any current or former
Employees or directors of Vowel or any of its Subsidiaries, or
their beneficiaries (collectively, “Vowel
Employees”), (B) has been approved by Vowel or any
of its Subsidiaries but is not yet effective for the benefit of
Vowel Employees, or (C) was previously maintained by Vowel,
any of its Subsidiaries or a Vowel ERISA Affiliate for the
benefit of Vowel Employees with respect to which Vowel, any of
its Subsidiaries or a Vowel ERISA Affiliate has or would
reasonably be expected to have any Liability (each, a
“Vowel Benefit Plan” and collectively,
“Vowel Benefit Plans”). Vowel has made
available to Consonant a correct and complete copy (where
applicable) of (1) each Vowel Benefit Plan (or, where a
Vowel Benefit Plan has not been reduced to writing, a summary of
all material Vowel Benefit Plan terms of such Vowel Benefit
Plan), (2) each trust or funding arrangement prepared in
connection with each such Vowel Benefit Plan and the most recent
trust statement showing the current account value and assets,
(3) the three most recently filed annual reports on IRS
Form 5500 or any other annual report required by applicable
Law, (4) the most recently received IRS determination
letter for each such Vowel Benefit Plan, (5) the most
recently prepared actuarial report and financial statement in
connection with each such Vowel Benefit Plan, (6) the most
recent summary plan description, any summaries of material
modification, any employee handbooks and any material written
communications (or a description of any material oral
communications) by Vowel or any of its Subsidiaries to Vowel
Employees generally concerning the extent of the benefits
provided under any Vowel Benefit Plan, (7) all
correspondence with the IRS, United States Department of Labor
(“DOL”) and any other Governmental Authority
regarding Vowel Benefit Plan, (8) all contracts with
third-party administrators, actuaries, investment managers,
consultants and other independent contractors that relate to any
Vowel Benefit Plan and (9) any other documents in respect
of
any Vowel Benefit Plan reasonably requested by Consonant.
Neither Vowel nor any of its Subsidiaries has any plan or
commitment to establish any new Vowel Benefit Plan or to modify
any Vowel Benefit Plan so as to materially increase Vowel
compensation costs, except to the extent required by Law.
(b) None of Vowel or any of its Subsidiaries or any other
Person or entity that, together with Vowel or any of its
Subsidiaries, is or was treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code
(each, together with Vowel and any of its Subsidiaries, a
“Vowel ERISA Affiliate”), has now or at any
time within the past six years (and in the case of any such
other Person or entity, only during the period within the past
six years that such other Person or entity was a Vowel ERISA
Affiliate) contributed to, sponsored, or maintained (i) a
pension plan (within the meaning of Section 3(2) of ERISA)
subject to Section 412 of the Code or Title IV of
ERISA, (ii) a multiemployer plan (within the meaning of
Section 3(37) or 4001(a)(3) of ERISA or the comparable
provisions of any other applicable Law) (a
“Multiemployer Plan”) or (iii) a single
employer pension plan (within the meaning of
Section 4001(a)(15) of ERISA), in each case for which a
Vowel ERISA Affiliate would reasonably be expected to incur
Liability under Section 4063 or 4064 of ERISA.
(c) (i) Each Vowel Benefit Plan has been maintained
and operated in all material respects in compliance with its
terms and applicable Law, including ERISA, the Code,
Section 4980B of the Code (as well as its predecessor
provision, Section 162(k) of the Code) and
Sections 601 through 608, inclusive, of ERISA, which
provisions are hereinafter referred to collectively as
“COBRA”, and any other applicable Laws,
including the Americans with Disabilities Act of 1990, the
Family and Medical Leave Act of 1993 and the Health Insurance
Portability and Accountability Act of 1996, (ii) with
respect to each Vowel Benefit Plan, all reports, returns,
notices and other documentation that are required to have been
filed with or furnished to the IRS, the DOL or any other
Governmental Authority, or to the participants or beneficiaries
of such Vowel Benefit Plan have been filed or furnished on a
timely basis, and (iii) each Vowel Benefit Plan that is
intended to be qualified within the meaning of
Section 401(a) of the Code, has received a favorable
determination letter from the IRS to the effect that Vowel
Benefit Plan satisfies the requirements of Section 401(a)
of the Code taking into account all changes in qualification
requirements under Section 401(a) for which the applicable
“remedial amendment period” under Section 401(b)
of the Code has expired, and to the Knowledge of Vowel there are
no facts or circumstances that could reasonably be expected to
adversely affect such qualification.
(d) With respect to any Vowel Benefit Plan, (i) no
actions, claims or proceedings (other than routine claims for
benefits in the ordinary course) are pending or, to the
Knowledge of Vowel, threatened, (ii) to the Knowledge of
Vowel no facts or circumstances exist that would reasonably be
expected to give rise to any such actions, claims or
proceedings, and (iii) no administrative investigation,
audit or other administrative proceeding by the DOL, the IRS or
other Governmental Authority, including any voluntary compliance
submission through the IRS’s Employee Plans Compliance
Resolution System or the DOL’s Voluntary Fiduciary
Correction Program, is pending, in progress or, to the Knowledge
of Vowel, threatened.
(e) Neither Vowel nor any of its Subsidiaries nor any other
“party in interest” or “disqualified person”
with respect to any Vowel Benefit Plan has engaged in a
non-exempt “prohibited transaction” within the meaning
of Section 406 of ERISA or Section 4975 of the Code
involving such Vowel Benefit Plan. To the Knowledge of Vowel no
fiduciary has any Liability for breach of fiduciary duty or any
other failure to act or comply with the requirements of ERISA,
the Code or any other applicable Laws in connection with any
Vowel Benefit Plan.
(f) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby
will (either alone or in combination with another event)
(i) result in any payment or benefit becoming due, or
increase the amount of any compensation due, to any Vowel
Employee, (ii) increase any benefits otherwise payable
under any Vowel Benefit Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such
compensation or benefits. Neither Vowel nor any of its
Subsidiaries is a party to any contract, arrangement or plan
pursuant to which it is bound to compensate any Person for any
excise or other additional taxes under Section 409A or 4999
of the Code or any similar provision of Law, and to the extent
that any Vowel Benefit Plan constitutes a “non-qualified
deferred compensation plan” within the meaning of
Section 409A of the Code, such Vowel Benefit Plan has been
operated in good faith compliance with Section 409A of the
Code and applicable guidance issued thereunder and has been
amended to comply
with Section 409A of the Code prior to January 1,2009. No Employee of Vowel or any of its Subsidiaries with a
base salary of at least $100,000 has given Vowel or any
Subsidiary of Vowel any notice of an intention to, or, to the
Knowledge of Vowel has any plans to, terminate his or her
employment or other arrangement with Vowel or any Subsidiary of
Vowel.
(g) No oral commitments have been made by an officer of
Vowel with the authority to make such commitments that would
preclude Vowel from amending or terminating any material Vowel
Benefit Plan to the extent the Vowel Benefit Plan otherwise
permits amendment or termination.
(h) All contributions (including all employer contributions
and employee salary reduction contributions) or premium payments
required to have been made under the terms of any Vowel Benefit
Plan, and in accordance with applicable Law (including pursuant
to 29 C.F.R.
Section 2510.3-102),
as of the date hereof have been timely made or reflected on
Vowel’s financial statements in accordance with GAAP.
(i) Except for the continuation coverage requirements under
COBRA or other applicable Law, neither Vowel nor its
Subsidiaries have any obligations or Liability for health, life
or similar welfare benefits to Vowel Employees or their
respective dependents following termination of employment.
(j) Each Vowel Benefit Plan subject to the provisions of
Section 401(k) or 401(m) of the Code, or both, has been
tested for and to the Knowledge of Vowel, has satisfied the
requirements of Section 401(k)(3), Section 401(m)(2)
and Section 416 of the Code, as applicable, for each plan
year ending prior to Closing.
(k) Each Vowel Benefit Plan that is maintained in a
jurisdiction outside of the United States or for Employees
outside of the United States has been maintained in material
compliance with all applicable laws, any and all costs and
liabilities associated with such plans have been reflected in
Vowel’s financial statements in accordance with GAAP.
Section 3.15. Labor
Matters.
(a) Neither Vowel nor any of its Subsidiaries is or has
been a party to any collective bargaining agreement or other
labor union agreements, nor is any such collective bargaining
agreement being negotiated. To the Knowledge of Vowel, no
activities or proceedings are underway by any labor union to
organize any Employees of Vowel or its Subsidiaries. No work
stoppage, slowdown or labor strike against Vowel or any of its
Subsidiaries is pending or threatened. Vowel and its
Subsidiaries (i) have no direct or indirect Liability with
respect to any misclassification of any Person as an independent
contractor rather than as an employee, (ii) are in
compliance in all material respects with all applicable foreign,
federal, state and local Laws respecting employment, employment
practices, labor relations, employment discrimination, health
and safety, terms and conditions of employment and wages and
hours, and (iii) have not received any written remedial
order or notice of offense under applicable occupational health
and safety Law.
(b) Neither Vowel nor any of its Subsidiaries has incurred,
nor do either of them reasonably expect to incur, any Liability
or obligation under the Worker Adjustment and Retraining
Notification Act, and the regulations promulgated thereunder, or
any similar state or local Law which remains unsatisfied.
(c) There is no unfair labor practice charge or complaint
against Vowel or its Subsidiaries pending or, to the Knowledge
of Vowel, threatened, before the National Labor Relations Board,
any court or any Governmental Authority.
(d) Vowel and each of its Affiliates are in compliance in
all material respects with all applicable federal, state, local
and foreign Laws concerning the employer-employee relationship,
including applicable wage and hour Laws, fair employment Laws,
safety Laws, workers’ compensation statutes, unemployment
Laws and social security Laws. There are no pending or, to the
Knowledge of Vowel, threatened actions, charges, citations or
consent decrees concerning: (i) wages, compensation,
bonuses, commissions, awards or payroll deductions, equal
employment or human rights violations regarding race, color,
religion, sex, national origin, age, disability, veteran’s
status, marital status, or any other recognized class, status or
attribute under any federal, state, local or foreign equal
employment Law prohibiting discrimination,
(ii) representation petitions or unfair labor practices,
(iii) occupational safety and health,
(iv) workers’ compensation, (v) wrongful
termination, negligent hiring, invasion of privacy or defamation
or (vi) immigration or any other claims under state or
federal labor Law.
Section 3.16. Employment
Matters.
(a) Section 3.16(a) of the Vowel Disclosure
Schedule contains a true, complete and correct list setting
forth the name, position or title, location, citizenship, date
of hire and current compensation rate (including but not limited
to salary, commission and bonus compensation) for each Employee
of Vowel and its Subsidiaries with a base salary of at least
$100,000, indicating whether they are employed or otherwise
engaged on a salaried, hourly or piecework basis.
(b) Vowel has not made any payments, and has not been and
is not a party to any agreement, contract, arrangement or plan
that could result in it making payments, that have resulted or
would result, separately or in the aggregate, in the payment of
any “excess parachute payment” within the meaning of
Section 280G of the Code or in the imposition of an excise
Tax under Section 4999 of the Code (or any corresponding
provisions of state, local or foreign Tax Law) or that were or
would not be deductible under Code Sections 162 or 404.
(c) Neither the execution of this Agreement or the other
Transaction Documents nor the transactions contemplated hereby
or thereby nor the carrying on of Vowel’s or its
Subsidiaries’ business by the Employees of Vowel or such
Subsidiaries, nor the conduct of Vowel’s or its
Subsidiaries’ business as presently proposed to be
conducted, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default
under, any Contract under which any of such Employees is now
obligated.
(d) To the Knowledge of Vowel, none of Vowel’s
Employees or those of any of its Subsidiaries is obligated under
any Contract, or subject to Court Order, that would materially
interfere with the use of his or her best efforts to promote the
interests of Vowel and its Subsidiaries or that would conflict
with Vowel’s or its Subsidiaries’ business as
presently conducted and as presently proposed to be conducted in
any material respect.
Section 3.17. Litigation;
Compliance with Laws; Licenses; Permits and Approvals.
(a) There are no, and since January 1, 2005 there have
not been any, material Proceedings pending or, to the Knowledge
of Vowel, threatened against, by or affecting Vowel or any
Subsidiary of Vowel (or to the Knowledge of Vowel, pending or
threatened against any Employee of Vowel or any Subsidiary of
Vowel with respect to their business activities on behalf of
Vowel or any Subsidiary of Vowel), and neither Vowel nor any
Subsidiary of Vowel is subject to or bound by any outstanding
Court Order affecting the properties, assets, personnel or
business activities of Vowel or its Subsidiaries. There are no
material Proceedings pending or threatened against any executive
officer of Vowel or any Subsidiary of Vowel and no executive
officer of Vowel or any Subsidiary of Vowel is subject to or
bound by any outstanding material Court Order. Neither Vowel nor
any Subsidiary of Vowel has received written notice or, to the
Knowledge of Vowel, is being charged with any material violation
of any applicable Law relating to Vowel or any Subsidiary of
Vowel or the operation of their respective businesses. There are
no Proceedings pending or, to the Knowledge of Vowel, threatened
that are reasonably likely to prohibit or restrain the ability
of Vowel and its Subsidiaries to perform their obligations under
the Transaction Documents or consummate the transactions
contemplated hereby and thereby. To the Knowledge of Vowel,
there are no facts or circumstances which, if known by a
potential claimant or Governmental Authority, would give rise to
a claim or proceeding which, if asserted or conducted with
results unfavorable to Vowel or any of its Subsidiaries, would
reasonably be likely to have a Vowel Material Adverse Effect.
(b) Vowel and each Subsidiary thereof is in compliance in
all material respects with all Laws applicable to Vowel, each
Subsidiary thereof and their respective assets. Since
January 1, 2006, neither Vowel nor any Subsidiary of Vowel
has received any written communication or notice from any
Governmental Authority that alleges that Vowel or any Subsidiary
of Vowel is not in compliance in any material respect with any
material Law or Permits. Since January 1, 2006, no claims
have been asserted or, to the Knowledge of Vowel, threatened in
writing against Vowel or any Subsidiary of Vowel, alleging a
violation of any Person’s privacy or personal information
or data rights. The consummation of the transactions
contemplated hereby will not
materially breach or otherwise cause any material violation of
any applicable Law or rule, policy, or procedure related to
privacy, data protection, or the collection and use of personal
information collected, used or held for use by Vowel or any
Subsidiary of Vowel in the conduct of the business. Vowel and
each Subsidiary of Vowel takes reasonable measures to protect
such information against unauthorized access, use, modification,
or other misuse. None of Vowel nor any of its Subsidiaries
conducts business or sells products outside of the
U.S. and, to the Knowledge of Vowel, no products of Vowel
or any of its Subsidiaries are resold outside of the
U.S. by any Person.
(c) Vowel and each Subsidiary thereof has all Permits or
other authorizations required for the conduct of its businesses
as now being conducted and as proposed to be conducted, all of
which are in full force and effect, except for the lack of
Permits which, individually or in the aggregate, would not
reasonably be likely to result in a Vowel Material Adverse
Effect. All such Permits and authorizations are listed on
Section 3.17(c) of the Vowel Disclosure Schedule.
There are no Proceedings pending with respect to any Permits or,
to the Knowledge of Vowel, threatened with respect to any
Permits.
(d) As of the date hereof, neither Vowel nor any of its
Subsidiaries (or Vowel’s predecessor ProQuest Company) has
received written notice from any other party to the PQIL
Agreement seeking indemnification by Vowel or any of its
Subsidiaries pursuant to the terms thereof, and, to the
Knowledge of Vowel, as of the date hereof, there are not and
there have not been any claims for indemnification pursuant to
the PQIL Agreement threatened against Vowel or any of its
Subsidiaries. As of the date hereof, no written claims for
indemnification have been made pursuant to the terms of the PQIL
Agreement which have been, or could reasonably be expected to,
be Losses (as defined in the PQIL Agreement) applied toward the
Minimum Amount (as defined in the PQIL Agreement).
(e) As of the date hereof, neither Vowel nor any of its
Subsidiaries (or Vowel’s predecessor ProQuest Company) has
received written notice from any other party to the PQBS
Agreement seeking indemnification by Vowel or any of its
Subsidiaries pursuant to the terms thereof, and, to the
Knowledge of Vowel, as of the date hereof, there are not and
there have not been any claims for indemnification pursuant to
the PQBS Agreement threatened against Vowel or any of its
Subsidiaries. As of the date hereof, no written claims for
indemnification have been made pursuant to the terms of the PQBS
Agreement which have been, or could reasonably be expected to,
be Losses (as defined in the PQBS Agreement) applied toward the
Minimum Amount (as defined in the PQBS Agreement).
Section 3.18. Brokers. Other
than Allen & Company, LLC (“Allen &
Co.”), no broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or
commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of
Vowel. The engagement letter identified in
Section 3.18 of the Vowel Disclosure Schedule (a
true and complete copy of which has been delivered to Consonant)
contains the entire agreement of the parties thereto, and except
for such engagement letter there are no other Contracts between
or among such parties, with respect to compensation payable in
connection with transactions contemplated by this Agreement.
Section 3.19. Insurance. Vowel
and its Subsidiaries have insurance policies in full force and
effect for such amounts as are sufficient for all requirements
of Law and all agreements to which each of Vowel and its
Subsidiaries is a party or by which they are bound. The nature
and extent of Vowel’s and its Subsidiaries’ insurance
coverage, to the Knowledge of Vowel, are reasonable, given the
nature of the risks inherent in Vowel’s and its
Subsidiaries’ business, and are customary for similarly
situated businesses. Set forth in Section 3.19 of
the Vowel Disclosure Schedule is a list of all insurance
policies and all fidelity bonds held by or applicable to Vowel
and its Subsidiaries for policy year 2009 setting forth, in
respect of each such policy, the policy name, policy number,
carrier, term, type and amount of coverage and annual premium.
No event relating to any of Vowel or its Subsidiaries has
occurred which could reasonably be expected to result in a
material retroactive upward adjustment in premiums under any
such insurance policies or which could reasonably be expected to
result in a material prospective upward adjustment in such
premiums. Excluding insurance policies that have expired and
been replaced in the ordinary course of business, no insurance
policy has been canceled within the last two years and, to the
Knowledge of Vowel, no threat has been made to cancel any
insurance policy of any of Vowel or any Subsidiary of Vowel
during such period. No event has
occurred, including, without limitation, the failure by any of
Vowel or any Subsidiary of Vowel to give any notice or
information or Vowel or any Subsidiary of Vowel giving any
inaccurate or erroneous notice or information, which limits or
impairs the rights of Vowel or any Subsidiary of Vowel in any
material respect under any such insurance policies.
Section 3.20. Related
Party Transactions. No Employee, director,
stockholder, partner, manager or member of Vowel or any
Subsidiary of Vowel, any member of his or her immediate family
or any of their respective Affiliates (each, a “Vowel
Related Person”) (i) owes any amount to Vowel or
any Subsidiary of Vowel nor do Vowel or any Subsidiary of Vowel
owe any amount to, nor have Vowel or any Subsidiary of Vowel
committed to make any loan or extend or guarantee credit to or
for the benefit of, any Vowel Related Person, (ii) is
involved in any business arrangement or other relationship
(other than customary employment relationships) with Vowel or
any Subsidiary of Vowel (whether written or oral),
(iii) owns any property or right, tangible or intangible,
that is used by Vowel or any Subsidiary of Vowel (other than
rights arising out of employment arrangements) or (iv) has
any claim or cause of action against Vowel or any Subsidiary of
Vowel.
Section 3.21. Customers
and Vendors.
(a) To the Knowledge of Vowel, neither Vowel nor any of its
Subsidiaries has received any notice (written or otherwise) that
any of its top twenty customers (measured by revenue dollars as
of the fiscal year ended December 31, 2008) set forth
on Section 3.21(a) of the Vowel Disclosure Schedule
(such top twenty customers, the “Vowel Material
Customers”) intends to, or has threatened to, terminate
or reduce in any material respect its business with Vowel and
its Subsidiaries, and no such Vowel Material Customer has
terminated or reduced its business, or modified its existing
terms in an unfavorable manner, with Vowel or its Subsidiaries
in the twelve months immediately preceding the date of this
Agreement.
(b) To the Knowledge of Vowel, neither Vowel nor any of its
Subsidiaries has received any notice (written or otherwise) that
any of its top ten vendors (measured by payment dollars as of
the fiscal year ended December 31, 2008) set forth on
Section 3.21(b) of the Vowel Disclosure Schedule
(such top ten vendors, the “Vowel Material
Vendors”) intends to, or has threatened to, terminate
or reduce in any material respect its business with Vowel and
its Subsidiaries, and no such Vowel Material Vendor has
terminated or reduced its business with Vowel or any of its
Subsidiaries, or modified its existing terms in an unfavorable
manner, with Vowel or its Subsidiaries in the twelve months
immediately preceding the date of this Agreement.
(c) Since June 30, 2008, to the Knowledge of Vowel,
neither Vowel nor any of its Subsidiaries has received any
material complaints (whether written or oral) or has been
engaged in any material disputes with any of the Vowel Material
Customers or Vowel Material Vendors.
Section 3.22. Accounts
Receivable.Section 3.22 of the
Vowel Disclosure Schedule sets forth a true, correct and
complete listing and aging of the accounts receivable of Vowel
as of December 31, 2008, determined in accordance with GAAP
and which is prepared on a basis that is consistent with the
presentation in the Vowel Financial Statements. All of such
accounts receivable have arisen in bona fide arm’s-length
transactions in the ordinary course of business. The reserves
for doubtful accounts established by Vowel and reflected in
Section 3.22 of the Vowel Disclosure Schedule or on
the Vowel Financial Statements have been determined in
accordance with GAAP.
Section 3.23. No
Prebillings or Prepayments. Except for
existing subscription products sold in the ordinary course of
business consistent with past practice, neither Vowel nor any
Subsidiary of Vowel has billed or will bill, and Vowel has not
received any payments (in the form of retainers or otherwise)
from, any of its customers or potential customers for services
to be rendered or for expenses to be incurred subsequent to the
Closing Date, other than any Multi-Year Contracts. To the extent
that accounts receivable include pre-billed amounts, the
corresponding Liabilities have been accrued on Vowel’s
books in accordance with GAAP.
Section 3.24. Inventory. The
inventories (net of returns and allowances) shown on the Vowel
Financial Statements as of the Balance Sheet Date or thereafter
acquired by Vowel or its Subsidiaries consist of items of a
quantity and quality usable or saleable in the ordinary course
of business. Since the Balance Sheet Date, Vowel and its
Subsidiaries have continued to replenish inventories in a normal
and customary manner consistent with past practices. Neither
Vowel nor its Subsidiaries has received written or oral notice
that it will
experience in the foreseeable future any difficulty in
obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the
raw materials, supplies or component products required for the
manufacture, assembly or production of its products. The values
(net of returns and allowances) at which inventories are carried
reflect the inventory valuation policy of Vowel and its
Subsidiaries, which is in accordance with GAAP applied on a
consistent basis. Since the Balance Sheet Date, due provision
has been made on the books of Vowel and its Subsidiaries, as
applicable, in the ordinary course of business consistent with
past practices to provide for all slow-moving, obsolete, or
unusable inventories and such inventory reserves as of the
Balance Sheet Date are adequate to provide for such slow-moving,
obsolete or unusable inventory shrinkage.
Section 3.25. Foreign
Corrupt Practices Act. Neither Vowel nor any
of its Subsidiaries (including any of its directors, agents,
distributors, Employees or other Person associated with or
acting on its behalf) has, directly or indirectly, taken any
action which would cause Vowel to be in material violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any
rules or regulations thereunder or any similar anti-corruption
or anti-bribery Law applicable to Vowel (as in effect at the
time of such action) (collectively, the
“FCPA”), and, to the Knowledge of Vowel, none
of them has used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to
political activity, made, offered or authorized any unlawful
payment to foreign or domestic government officials or
Employees, whether directly or indirectly, or made, offered or
authorized any unlawful bribe, rebate, payoff, influence
payment, kickback or other similar unlawful payment, whether
directly or indirectly. Vowel and its Subsidiaries have
established reasonable internal controls and procedures
reasonably designed to prevent and detect violations of the FCPA.
Section 3.26. Export
Controls. Vowel and its Subsidiaries have at
all times conducted its export transactions materially in
accordance with (i) all applicable U.S. export and
re-export control laws and (ii) to the Knowledge of Vowel,
all other applicable import/export controls in other countries
in which Vowel conducts business. Without limiting the foregoing:
(a) Vowel and each of its Subsidiaries has obtained, and is
in material compliance with, all export licenses, license
exceptions and other consents, notices, waivers, approvals,
orders, authorizations, registrations, declarations,
classifications and filings with any Governmental Authority
required for (i) the export and re-export of products,
services, software and technologies and (ii) releases of
technologies and software to foreign nationals located in the
United States and abroad (“Export Approvals”);
(b) There are no pending or, to Knowledge of Vowel,
threatened claims or legal actions against Vowel or any of its
Subsidiaries with respect to such Export Approvals or with
respect to the export control laws of any Governmental
Authority; and
(c) No Export Approvals for the transfer of export licenses
to Holdco or the Vowel Surviving Corporation are required by the
consummation of the Vowel Merger, or such Export Approvals can
be obtained in a reasonable timely manner without material cost
and without disruption to the conduct of operations by Holdco or
Vowel Surviving Corporation.
Section 3.27. Software. With
respect to the use, operation, implementation and delivery of
the software in the business of Vowel and its Subsidiaries,
(i) no material capital expenditures are necessary with
respect to such use other than capital expenditures in the
ordinary course of business that are consistent with the past
practice of Vowel and its Subsidiaries, taken as a whole,
(ii) neither Vowel nor its Subsidiaries has experienced any
material defects in such software, including any material error
or omission in the processing of any transactions other than
defects which have been corrected, and (iii) to the
Knowledge of Vowel, no such software (x) contains any
device or feature designed to disrupt, disable, or otherwise
impair the functioning of any software or (y) is subject to
the terms of any “open source” or other similar
license that provides for the source code of the software to be
publicly distributed or dedicated to the public.
Section 3.28. Tax
Qualification. Neither Vowel nor any of its
Subsidiaries has taken or agreed to take any action or knows of
any fact that is reasonably likely to prevent or impede the
Mergers, taken together, from being treated as a transaction
described in Section 351 of the Code.
Section 3.29. Opinion
of Financial Advisor. The Vowel Board has
received a fairness opinion of Allen & Co., dated as
of the date of this Agreement, a copy of which has been provided
to Consonant and Holdco.
Section 3.30. Required
Vote of the Vowel Stockholders. The
affirmative vote of the holders of at least a majority of the
outstanding shares of Vowel Common Stock is the only vote of
holders of securities of Vowel which is required to adopt and
approve this Agreement and the Mergers (the “Vowel
Stockholder Approval”).
Section 3.31. Disclosure
Documents. None of the information supplied
or to be supplied by Vowel and its Subsidiaries for inclusion or
incorporation by reference in the proxy statement relating to
the Vowel Meeting or any amendment or supplement thereto (as
initially filed and as so amended and supplemented, the
“Proxy Statement/Prospectus”), or in the
registration statement on
Form S-4
(or such successor form as shall then be appropriate) to be
filed by Holdco with the SEC pursuant to which the issuance of
shares of Holdco Common Stock pursuant to the Mergers will be
registered by Holdco under the Securities Act or any amendment
or supplement thereto (as initially filed and as so amended and
supplemented, the “Registration Statement” and,
together with the Proxy Statement/Prospectus, the
“Filings”) will, at the respective times filed
with the SEC or any other regulatory agency and, in addition,
(A) in the case of the Proxy Statement/Prospectus, at the
date it is first mailed to Vowel’s stockholders, at the
time of the Vowel Meeting and at the Effective Time and
(B) in the case of the Registration Statement, when it
becomes effective under the Securities Act and at the Effective
Time, in each case, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation or
warranty is made by Vowel in this Section 3.31 with
respect to statements made or incorporated by reference in the
Filings based on information supplied by Consonant, Consonant
Learning or Holdco for inclusion or incorporation by reference
therein.
Section 3.32. State
Takeover Statutes and Rights Plans. No
“fair price,”“moratorium,”“control
share acquisition,”“business combination” or
other similar anti-takeover statute or regulation enacted under
state or federal laws in the United States applicable to Vowel
is applicable to the Mergers or the other transactions
contemplated by this Agreement. Vowel does not have in effect
any “poison pill” agreement.
Section 3.33. Bank
Accounts.Section 3.33 of the
Vowel Disclosure Schedule sets forth: (a) a true and
complete list of the names and locations of all banks, trust
companies, securities brokers and other financial institutions
at which Vowel and each Subsidiary of Vowel has an account or
safe deposit box or maintains a banking, custodial, trading or
other similar relationship; and (b) a true and complete
list and description of each such account, safe deposit box and
relationship, including in each case the account number and the
names of the respective officers, Employees, agents or other
similar representatives of Vowel and its Subsidiaries having
signatory power with respect thereto.
Section 3.34. Transaction
Expenses. Set forth in
Section 3.34 of the Vowel Disclosure Schedule is a
list as of the date hereof of the consultants, financial
advisors, attorneys, accountants and other similar agents and
representatives retained by Vowel or any of its Subsidiaries
that have provided or are providing services in connection with
the transactions contemplated by this Agreement. The fees, costs
and expenses of such consultants, financial advisors, attorneys,
accountants and other similar agents and representatives,
whether accrued, incurred or paid as of the date hereof or
hereafter, but in each case, only to the extent for services
that are performed or rendered since November 1, 2008 and
are reasonably related to the transactions contemplated by this
Agreement and the other Transaction Documents, are referred to
herein as the “Vowel Transaction Expenses”; it
being understood and agreed that fees and expenses relating to
the preparation of Vowel SEC Reports (other than any such Vowel
SEC Reports prepared on or after May 1, 2009 in connection
with the transactions contemplated by this Agreement and the
other Transaction Documents) are not reasonably related to the
transactions contemplated by this Agreement. With respect to the
fees of Vowel’s attorneys and accountants, the term
“Vowel Transaction Expenses” shall be based
solely on such advisors’ hours actually worked and regular
hourly rates, and shall not include any premiums, bonus or other
fees based on successful completion of any of the transactions
contemplated by this Agreement or the other Transaction
Documents.
Except as set forth in the disclosure schedule delivered by
Consonant to Vowel concurrently with the execution of this
Agreement (the “Consonant Disclosure
Schedule”), Consonant hereby represents and warrants as
of the date hereof to Vowel, Holdco and the Merger Subsidiaries
as follows (the disclosures in any section or subsection of the
Consonant Disclosure Schedule shall qualify the corresponding
section or subsection of this Article IV,
provided, however, that any matter set forth in
any section of the Consonant Disclosure Schedule shall be deemed
to be referred to and incorporated in all other sections of the
Consonant Disclosure Schedule to which such matter’s
application or relevance is readily apparent on its face):
Section 4.1. Corporate
Organization. Consonant is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary corporate power
and authority to operate and lease its properties and to carry
on its business as now being conducted. Consonant is qualified
to do business in the jurisdictions set forth in
Section 4.1 of the Consonant Disclosure Schedules
and is in good standing in each jurisdiction where the character
of the property leased by it or the nature of its activities
makes such qualification necessary, other than in such
jurisdictions where a failure to be so qualified, individually
or in the aggregate would not reasonably be expected to result
in a Consonant Material Adverse Effect. Consonant has delivered
or made available to Vowel a copy of its certificate of
incorporation and by-laws as of the date of this Agreement and
each such copy is true, correct and complete and such instrument
is in full force and effect.
Section 4.2. Subsidiaries. Set
forth on Section 4.2 of the Consonant Disclosure
Schedule is a list of all Subsidiaries of Consonant and any
other Person in which Consonant or any of its Subsidiaries owns,
directly or indirectly, capital stock or ownership interests.
Each Subsidiary of Consonant is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation (as set forth on Section 4.2 of the
Consonant Disclosure Schedule), and has all requisite corporate
power and authority to operate and lease its properties and to
carry on its business as now being conducted. Each Subsidiary of
Consonant is qualified to do business in the jurisdictions set
forth in Section 4.2 of the Consonant Disclosure
Schedule and is in good standing in each jurisdiction where the
character of the property leased by it or the nature of its
activities makes such qualification necessary, other than in
such jurisdictions where a failure to be so qualified,
individually or in the aggregate would not reasonably be
expected to result in a Consonant Material Adverse Effect. On
the date hereof, all the outstanding shares of capital stock of
each Subsidiary of Consonant are owned by the Persons set forth
in Section 4.2 of the Consonant Disclosure Schedule
and have been duly authorized and validly issued, are fully paid
and non-assessable and are not subject or issued in violation of
any Lien, purchase option, call option, right of first refusal,
preemptive right, subscription right or any other Contract to
which Consonant or any Subsidiary of Consonant is bound. No
shares of capital stock of any Subsidiary of Consonant are
reserved for issuance, and there are no rights, subscriptions,
warrants, options, calls, conversion rights, commitments,
agreements or understandings of any kind authorized or
outstanding that were granted by Consonant or any Subsidiary
thereof to purchase or otherwise to acquire any shares of
capital stock or ownership, profit or capital interests in any
Subsidiary of Consonant or securities or obligations of any kind
of any Subsidiary of Consonant convertible into or exchangeable
for any shares of capital stock or ownership, profit or capital
interests of any Subsidiary of Consonant.
Section 4.3. Capitalization.
(a) The authorized capital stock of Consonant consists
solely of 50,000,000 shares of Consonant Common Stock. As
of the date hereof, there are 1,000 shares of Consonant
Common Stock issued and outstanding, and all of which are owned
by VSS-Consonant Holdings III. All outstanding shares of
Consonant Common Stock are duly authorized, validly issued,
fully paid and nonassessable and are not subject to or issued in
violation of any purchase option, call option, right of first
refusal, preemptive right, subscription right or any similar
right under any provision of the DGCL, or any Contract to which
Consonant is a party or otherwise bound.
(b) Except as set forth in Section 4.3(a), as
of the date hereof, Consonant does not have any shares of
capital stock issued and outstanding. There are no bonds,
debentures, notes or other indebtedness of Consonant having the
right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
holders of Consonant Shares may vote (“Voting Consonant
Debt”). There are no options, warrants, rights,
convertible or exchangeable securities, “phantom”
stock rights, stock appreciation rights, stock-based performance
Consonant Shares, commitments, Contracts, arrangements or
undertakings of any kind to which Consonant is a party or by
which Consonant is bound (i) obligating Consonant to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional Consonant Shares or other equity interests in, or any
security convertible or exercisable for or exchangeable into any
Consonant Shares or other equity interest in, Consonant or any
Voting Consonant Debt or (ii) obligating Consonant to
issue, grant or enter into any such option, warrant, right,
security, commitment, Contract, arrangement or undertaking.
There are no outstanding contractual obligations of Consonant to
repurchase, redeem or otherwise acquire any Consonant Shares or
other equity interests of Consonant. None of Consonant or any of
its Subsidiaries is a party to any, and to Consonant’s
Knowledge, no other Person is a party to any stockholders
agreements, voting trusts, Contracts or other commitments,
arrangements or undertakings relating to voting or disposition
of any Consonant Shares or the capital stock of any of
Consonant’s Subsidiaries or granting any Person or group of
Persons the right to elect or to designate or nominate for
election a director to the Consonant Board.
Section 4.4. Authority.
(a) Consonant and each of its Subsidiaries has requisite
corporate power and authority to enter into this Agreement and
the other Transaction Documents to which it is a party and,
subject to the adoption of this Agreement by the stockholders of
Consonant, to consummate the transactions contemplated hereby
and thereby. The Consonant Board at a duly held meeting has
(i) determined that it is in the best interests of
Consonant and its stockholders, and declared it advisable, to
enter into this Agreement and the other Transaction Documents to
which Consonant or any of its Subsidiaries is a party,
(ii) approved the execution, delivery and performance of
this Agreement, the other Transactions Documents to which
Consonant or any of its Subsidiaries is a party and the
consummation of the transactions contemplated hereby and
thereby, including the Consonant Merger, and (iii) resolved
to recommend that the stockholders of Consonant approve the
adoption of this Agreement and directed that such matter be
submitted for consideration of the stockholders of Consonant for
approval by written consent in accordance with Section 228
of the DGCL. Except for adoption of this Agreement by the
stockholders of Consonant and the filing of the Consonant
Certificate of Merger with the Secretary of State of the State
of Delaware, no other corporate proceedings on the part of
Consonant are necessary to authorize the consummation of the
transactions contemplated hereby. This Agreement and the other
Transaction Documents to which Consonant or any of its
Subsidiaries is a party which are dated of even date herewith
have been duly and validly executed and delivered by Consonant
or its Subsidiary, as applicable, as of the date hereof and, to
the extent such Transactions Documents are delivered on the
Closing Date, will have been duly and validly executed and
delivered by Consonant or its Subsidiary, as applicable on the
Closing Date and, assuming this Agreement constitutes the valid
and binding agreement of Vowel, constitutes the valid and
binding agreement of Consonant or its Subsidiary, as applicable,
enforceable against Consonant or its Subsidiary, as applicable,
in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting
creditors’ rights and to general equity principles.
(b) The execution, delivery and performance by Consonant or
any of its Subsidiaries of this Agreement, the other Transaction
Documents to which Consonant or any of its Subsidiaries is a
party and the consummation of the Reorganization and the
Holdings III Merger Transactions do not and will not
require any consent, approval, authorization or permit of,
action by, filing with or notification to any Governmental
Authority, other than (i) the filing of the Consonant
Certificate of Merger and the Holdings III Certificate of
Merger, (ii) compliance with the applicable requirements of
the HSR Act, (iii) compliance with the applicable
requirements of the Securities Act and the Exchange Act,
including the filing of the Proxy Statement/Prospectus,
(iv) compliance with any applicable foreign or state
securities or blue sky laws, and (v) the other consents
and/or
notices set forth on Section 4.4(b) of the Consonant
Disclosure Schedule (collectively, clauses (i) through (v),
the “Consonant Specified Approvals”), and other
than any consent, approval,
authorization, permit, action, filing or notification the
failure of which to make or obtain would not
(A) individually or in the aggregate, reasonably be
expected to result in a Consonant Material Adverse Effect or
(B) prevent or materially delay the consummation of the
Mergers.
Section 4.5. No
Conflicts. Assuming receipt of or compliance
with the Consonant Specified Approvals, the execution, delivery
and performance by Consonant and its Subsidiaries of this
Agreement
and/or the
other Transaction Documents to which Consonant or its
Subsidiaries are a party and the consummation by Consonant or
its Subsidiaries of the Mergers and the other transactions
contemplated hereby and thereby do not and will not
(i) contravene or conflict with the organizational or
governing documents of Consonant or any of its Subsidiaries,
(ii) other than the Credit Agreements, contravene or
conflict with or constitute a violation of any provision of any
Law binding upon or applicable to Consonant or any of its
Subsidiaries or any of their respective properties or assets, or
(iii) result in any breach or violation of, or constitute a
default (with or without notice or lapse of time, or both) or an
event of default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of
a benefit under, any loan, guarantee of indebtedness, credit
agreement or Contract binding upon Consonant or any of its
Subsidiaries or result in the creation of any Lien (other than
Permitted Liens) upon any of the properties or assets of
Consonant or any of its Subsidiaries, except in the case of
clauses (ii) and (iii), for such matters as would not,
individually or in the aggregate, reasonably be expected to
result in a Consonant Material Adverse Effect.
Section 4.6. Financial
Statements.
(a) Section 4.6(a) of the Consonant Disclosure
Schedule sets forth accurate copies of: (i) the audited
consolidated financial statements of Consonant Learning and its
Subsidiaries for the fiscal year ended December 31, 2006
(the “2006 Financial Statements”),
(ii) the audited consolidated financial statements of
VSS-Consonant Holdings and its Subsidiaries as of
December 31, 2007 and for the period from January 29,2007 (inception) through December 31, 2007 (the
“VSS-Consonant Financial Statements”),
(iii) the audited consolidated financial statements of
Consonant Learning, Inc. and its Subsidiaries for the period
from January 1, 2007 to April 11, 2007 (predecessor
basis) (the “Consonant Learning Financial
Statements”), in each case together with all notes and
schedules related thereto, (iv) the audited consolidated
financial statements of VSS-Consonant Holdings and its
Subsidiaries for the fiscal year ended December 31, 2008
(the “2008 Financial Statements” and, together
with the Annual Financial Statements, the “Consonant
Financial Statements”) and (v) the unaudited
consolidated financial statements of VSS-Consonant Holdings and
its Subsidiaries as of and for the three month period ended
March 31, 2009 (the “Interim Financial
Statements”). The Consonant Financial Statements and
the Interim Financial Statements (a) present fairly, in all
material respects, the consolidated financial position of
Consonant and its Subsidiaries as of the date thereof and for
the periods covered thereby and (b) have been prepared in
accordance with GAAP applied on a consistent basis throughout
the period presented, except for the Interim Financial
Statements which are subject to normal year-end adjustments and
exclude footnotes.
(b) Except for obligations and liabilities reflected in the
2008 Financial Statements, neither Consonant nor any of its
Subsidiaries has any off balance sheet obligation or Liability
of any nature (matured or unmatured, fixed or contingent) to, or
any financial interest in, any Person, the purpose or effect of
which is to defer, postpone, reduce or otherwise avoid or adjust
the recording of debt expenses incurred by Consonant or its
Subsidiaries. All reserves that are set forth in or reflected in
the Consonant Financial Statements have been established in
accordance with GAAP consistently applied and are adequate.
Neither Consonant, its Subsidiaries nor, to the Knowledge of
Consonant, Consonant’s accountants or any current or former
Employee or director of Consonant or its Subsidiaries, has
identified or been made aware of any fraud, whether or not
material, that involves Consonant’s management or other
current or former Employees or directors of Consonant or its
Subsidiaries who have a role in the preparation of financial
statements or the internal accounting controls utilized by
Consonant or its Subsidiaries, or any claim or allegation
regarding any of the foregoing. Neither Consonant nor its
Subsidiaries nor, to Knowledge of Consonant, any director,
Employee, auditor, accountant or representative of Consonant or
its Subsidiaries, has received or otherwise had or obtained
Knowledge of any complaint, allegation, assertion or claim,
whether written or oral, in each case, regarding deficient
accounting or auditing practices, procedures, methodologies or
methods of Consonant or its
Subsidiaries or their respective internal accounting controls or
any material inaccuracy in the Consonant Financial Statements.
Section 4.7. Conduct
of Business. Between the Balance Sheet Date
and the date of this Agreement, Consonant and each Subsidiary of
Consonant has, in all material respects, operated in the
ordinary course of business consistent with past practice, other
than with respect to the transactions expressly contemplated by
this Agreement or the other Transaction Documents.
Section 4.8. Undisclosed
Liabilities; No Material Events. None of
Consonant nor its Subsidiaries has any Liability that is
required to be reflected on a consolidated balance sheet of
Consonant prepared in accordance with GAAP, except for
Liabilities (a) disclosed in Section 4.8 of the
Consonant Disclosure Schedule, (b) expressly contemplated
by this Agreement or any other Transaction Document,
(c) reflected or reserved against in the 2008 Financial
Statements or (d) incurred in the ordinary course of
business since the Balance Sheet Date and is not material to the
Consonant and its Subsidiaries, taken as a whole, which incurred
such Liability. Since the Balance Sheet Date there has not been
any change, event or occurrence that has had or would reasonably
be expected to have a Consonant Material Adverse Effect.
Section 4.9. Taxes. Consonant
and each of its Subsidiaries have (i) prepared and timely
filed (taking into account any extension of time within which to
file) all Tax Returns required to be filed by any of them and
all such filed Tax Returns are complete and accurate in all
material respects and (ii) paid all Taxes shown as due and
owing. Neither Consonant nor any of its Subsidiaries has any
liability for Taxes of any Person (other than Consonant or such
Subsidiaries) pursuant to any Tax allocation or sharing
agreement, under Treasury Regulations
Section 1.1502-6
(or any similar provision of Law), as a transferee or successor,
or otherwise. As of the date of this Agreement, there are not
pending or, to the Knowledge of Consonant, threatened in
writing, any audits, examinations, investigations or other
proceedings in respect of Taxes of Consonant or any of its
Subsidiaries and neither Consonant nor any of its Subsidiaries
has given any currently effective waiver of any statute of
limitations in respect of Taxes. Neither Consonant nor any of
its Subsidiaries has (i) been a “controlled
corporation” or a “distributing corporation” in
any distribution occurring during the two-year period ending on
the date hereof that was purported or intended to be governed by
Section 355 of the Code or (ii) been a party to any
“reportable transaction,” as defined in
Section 6707A(c)(1) of the Code and Treasury Regulations
Section 1.6011-4(b).
Section 4.10. Intellectual
Property.
(a) Section 4.10(a) of the Consonant Disclosure
Schedule lists all registrations, and all applications for
registration, of Consonant Intellectual Property, including the
record owner thereof and the Governmental Authorities by which
each item of Consonant Intellectual Property has been registered
or in which any such application has been filed. Each
registration of Consonant Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal
fees currently due in connection therewith have been paid, and
all necessary documents and certificates in connection therewith
have been filed with the relevant Governmental Authority
(including, but not limited to, the United States Patent and
Trademark Office or equivalent authority anywhere in the world)
for the purposes of maintaining such registration. Neither
Consonant nor any of its Subsidiaries has misrepresented any
facts or circumstances, or failed to disclose any facts or
circumstances known to it, in connection with any such
registration, or in connection with the application for
registration of any other Intellectual Property, that would
constitute fraud with respect to such registration or
application.
(b) Section 4.10(b) of the Consonant Disclosure
Schedule lists any material proceedings or actions before any
Governmental Authority related to any registration of any
Consonant Intellectual Property.
(c) Consonant and its Subsidiaries have taken commercially
reasonable steps to maintain their rights in the Consonant
Intellectual Property and in all registrations and applications
for registration of the Consonant Intellectual Property.
(d) Consonant or one or more of its Subsidiaries owns all
Consonant Intellectual Property free and clear of any Liens,
excluding any non-exclusive license right granted to customers
in the ordinary course of business. All Consonant Intellectual
Property is the work product of Employees of Consonant or its
Subsidiaries and belongs to Consonant or its Subsidiaries as a
matter of law, or has been acquired by valid and enforceable
written assignment. No third party has any rights to any
material Consonant Intellectual Property other than
non-exclusive license rights granted to customers in the
ordinary course of business. Without limitation of the
foregoing, each Employee of Consonant and its Subsidiaries who
in the normal course of his or her duties is or was involved in
the creation of Consonant Intellectual Property has entered into
one or more Contracts with Consonant or one of its Subsidiaries,
and/or
otherwise has a legal duty to Consonant or one of its
Subsidiaries, sufficient to vest title in Consonant or such
Subsidiary of all Intellectual Property created by such Employee
in the scope of his or her employment or consultancy, as the
case may be, with Consonant or such Subsidiary. It is not and
will not be necessary for Consonant to utilize any Intellectual
Property of any of its or any of its Subsidiaries’
Employees (or persons it or they currently intend to hire)
created prior to their employment by Consonant or any
Subsidiary, or, if necessary, such Employees have entered into
valid and enforceable written assignments conveying all rights
in such Intellectual Property to Consonant or its Subsidiaries.
(e) All Consonant Intellectual Property is fully
transferable, alienable, and licensable to any Person whatsoever
by Consonant and its Subsidiaries without restriction and
without payment of any kind to any third party, subject,
however, to any non-exclusive license rights granted to
customers in the ordinary course of business.
(f) Consonant or one or more of its Subsidiaries has
acquired and currently holds written or electronic licenses
permitting Consonant and its Subsidiaries to use and incorporate
each and every item of Consonant Third Party Intellectual
Property that is necessary to, or used by Consonant or any of
its Subsidiaries in the operation of, the business of Consonant
and its Subsidiaries as each is currently conducted and has been
conducted within the six (6) years prior to the date of
this Agreement, including all products and services currently
distributed, licensed, or provided to customers by Consonant or
any of its Subsidiaries or proposed to be distributed, licensed
or provided to customers within the next twelve months. Except
with respect to non-exclusive licenses for generally available
commercial
off-the-shelf
software programs, each such license associated with any
products or services distributed, licensed or provided by
Consonant or any of its Subsidiaries is valid throughout the
world, of perpetual duration, non-terminable by the licensor
except for breach or insolvency of the licensor, assignable
without restriction or condition, and fully sublicensable within
the scope of the license granted. There is no outstanding
unresolved claim, and to the Knowledge of Consonant, there is no
basis for any claim, that Consonant or any of its Subsidiaries
is in breach of any such license. The execution and delivery of
this Agreement by Consonant and the consummation of the
transactions contemplated hereby, will not cause Consonant or
any of its Subsidiaries to be in violation or default under any
such license or entitle any other party to terminate or modify
any such license.
(g) The Consonant Intellectual Property, together with the
Consonant Third Party Intellectual Property, constitutes
(i) all Intellectual Property used by Consonant and its
Subsidiaries in the operation of the business of Consonant and
its Subsidiaries as each is currently conducted, has been
conducted within the six (6) years prior to the date of
this Agreement, and is currently proposed to be conducted in the
future, and (ii) all Intellectual Property necessary to the
operation of the business of Consonant and its Subsidiaries as
each is currently conducted, has been conducted within the six
(6) years prior to the date of this Agreement, and is
currently proposed to be conducted within the next twelve
(12) months.
(h) No Consonant Intellectual Property, and to the
Knowledge of Consonant, no Consonant Third Party Intellectual
Property, is subject to any Court Order, any Proceeding in which
a Court Order is sought, or any agreement, that does or would in
any manner restrict, condition
and/or
materially affect the validity or enforceability thereof, or the
use, transfer or licensing thereof by Consonant or any of its
Subsidiaries.
(i) No Public Intellectual Property (as defined below) has
been or is incorporated in, or distributed in conjunction with,
in whole or in part, any Consonant Intellectual Property or any
Consonant Third Party Intellectual Property; and no Consonant
Intellectual Property has been distributed in whole or in part
as Public Intellectual Property.
(j) There is no outstanding unresolved demand or claim, and
to the Knowledge of Consonant, there is no basis for any demand
or claim, that the operation of the business of Consonant or any
of its Subsidiaries or
any act, product, technology or service of Consonant or any of
its Subsidiaries infringes, misappropriates, or dilutes any
Intellectual Property of any Person (including, without
limitation, any demand or request that Consonant or any
Subsidiary license any rights from a third party). Neither
Consonant nor any of its Subsidiaries has received, at any time
during the six-year period preceding the date hereof, or, to the
Knowledge of Consonant, is aware of any facts that indicate a
likelihood of receiving, written notice from any Person
directing Consonant or any of its Subsidiaries to review or
consider the applicability of such Person’s Intellectual
Property Rights to the business of Consonant or any Subsidiary
and/or the
Consonant Intellectual Property.
(k) To the Knowledge of Consonant, no Person is infringing,
misappropriating, or diluting, or is intending to infringe,
misappropriate, or dilute, any Consonant Intellectual Property
or any Consonant Third Party Intellectual Property in which
Consonant or any of its Subsidiaries is the owner or exclusive
licensee.
(l) Consonant and its Subsidiaries have taken commercially
reasonable steps to ensure that their Employees have not
disclosed to them any information that is subject to any
restriction of confidentiality in favor of any prior employer or
other Person.
(m) Consonant and its Subsidiaries have taken all
reasonable and appropriate steps to protect and preserve the
confidentiality of all Trade Secrets. During the six
(6) years prior to the date hereof, (i) there have
been no material security breaches in Consonant’s or any of
its Subsidiaries’ information technology systems, and
(ii) there have been no disruptions in any of
Consonant’s or its Subsidiaries’ information
technology systems that have adversely affected in any material
respect Consonant’s or any of its Subsidiaries’
business or operations.
(n) Consonant and its Subsidiaries have at all times
complied with all applicable Law, as well as its own rules,
policies, and procedures, relating to privacy, data protection,
and the collection and use of personal information collected,
used, or held for use by Consonant and its Subsidiaries in the
conduct of its business, including but not limited to the
Children’s Online Privacy Protection Act. No claims have
been asserted or threatened against Consonant or any of its
Subsidiaries alleging a violation of any Person’s privacy
or personal information or data rights and the consummation of
the transactions contemplated hereby will not breach or
otherwise cause any violation of any Law or rule, policy, or
procedure related to privacy, data protection, or the collection
and use of personal information collected, used, or held for use
by Consonant or any of its Subsidiaries in the conduct of their
business. Each of Consonant and its Subsidiaries take reasonable
measures to ensure that such information is protected against
unauthorized access, use, modification, or other misuse.
Section 4.11. Title
to Properties; Leases; Assets. Consonant and
each Subsidiary of Consonant has good and valid title to, and is
the lawful owner of, or has the right to use pursuant to a
lease, license or otherwise, all the tangible and intangible
personal property used in its business free and clear of all
Liens and material defects, except for Permitted Liens and for
defects in title, easements, restrictive covenants and similar
encumbrances that, individually or in the aggregate, have not
had or would not reasonably be expected to materially interfere
with the continuous use of the property for the purposes for
which the property is currently used. Neither Consonant nor any
Subsidiary of Consonant owns any real property or has any option
to acquire any real property. Section 4.11 of the
Consonant Disclosure Schedule sets forth all real property
leases of Consonant and its Subsidiaries (including all
amendments, extensions, renewals, guarantees and other
agreements with respect thereto), and Consonant has delivered or
made available true and complete copies of all such written
leases or other agreements. All such leases are valid, binding
and enforceable against Consonant or one of its Subsidiaries
(and, to the Knowledge of Consonant, each other party thereto)
in accordance with their respective terms, Consonant has not
received any written notice of a material default by Consonant
or any such Subsidiary, as the case may be, under any such lease
that remains outstanding. Consonant has not given any written
notice of a material default by any other party to any such
lease that remains outstanding, and there does not exist, under
any lease of real property, any default or any event which, with
notice or lapse of time or both, would constitute a default by
Consonant or such Subsidiary, as the case may be, or to the
Knowledge of Consonant, by any other party thereto, except for a
default that, individually or in the aggregate, have not had or
would not reasonably be expected to materially interfere with
the continuous use of the property for the purposes for which
the property is currently used. Consonant and each
Subsidiary enjoys peaceful and undisturbed possession of all
real property under all leases identified on
Section 4.11 of the Consonant Disclosure Schedule.
Neither Consonant nor any of its Subsidiaries have assigned,
sublet or otherwise transferred any interest in any such lease,
and no other Person has any rights to the use, occupancy or
enjoyment of any real property governed thereby pursuant to any
lease, sublease, license, occupancy or other agreement. All
leases of real property will continue to be legal, binding, and
enforceable and in full force and effect immediately following
the Closing Date in accordance with the terms in effect
immediately prior to the Closing Date. Consonant and each of its
Subsidiaries has all of the rights, properties and assets (real,
personal, mixed, tangible or intangible) that are necessary or
desirable for the conduct of their respective business (the
“Consonant Assets”) and there are no defects in
the Consonant Assets that materially interfere with the
operation thereof. No Person (including any Affiliate of
Consonant or any Subsidiary of Consonant) owns or has any
interest by lease, license or otherwise in any of Consonant
Assets. The execution and delivery of the Transaction Documents
at the Closing will be sufficient to convey good and marketable
title to the Consonant Assets to the Consonant Surviving
Corporation free any clear of any Lien, except any Liens which,
individually or in the aggregate, would not reasonably be
expected to result in a Consonant Material Adverse Effect. The
representations and warranties contained in this
Section 4.11 do not apply to Intellectual Property
which is covered exclusively by the representations and
warranties set forth in Section 4.10 hereof.
Section 4.12. Environmental
Matters. Consonant and each Subsidiary of
Consonant has complied in all material respects and is in
compliance in all material respects with all applicable
Environmental Laws; to the Knowledge of Consonant, no written
notice of violation, notification of Liability, request for
information or order has been received by, and no fine or
penalty has been issued to, Consonant or any Subsidiary of
Consonant relating to or arising out of any Environmental Law;
no material Proceeding arising under any Environmental Laws is
pending, or to the Knowledge of Consonant, threatened, against
Consonant or any Subsidiary thereof; and Consonant has provided
to Vowel all environmental site assessments, audits,
investigations and studies in the possession, custody or control
of Consonant or any Subsidiary of Consonant, relating to any
leased real property of Consonant or its Subsidiaries.
(a) Section 4.13(a) of the Consonant Disclosure
Schedule sets forth each of the following Contracts presently in
effect, to which Consonant or any Subsidiary of Consonant is a
party or is bound by as of the date hereof (organized in
subsections corresponding to the subsections of this
Section 4.13(a)):
(i) Contracts for money borrowed, and any related security
agreements and collateral documents (including any agreements
for any commitment for future loans, credit or financing
evidencing, or with respect to, Indebtedness) or any guarantees
of any of the foregoing;
(ii) any Contract entered into by Consonant or any
Subsidiary involving payment after the date of this Agreement by
or to Consonant or any Subsidiary of Consonant of an aggregate
of at least $100,000 per annum or an aggregate of $250,000 in
total that is not terminable upon notice of 30 days or less
without penalty, cost or Liability to Consonant or any
Subsidiary of Consonant;
(iii) any Contract with the Consonant Material Customers
and the Consonant Material Vendors;
(iv) any Contract relating to the lease, as lessee or
lessor, or license, as licensee or licensor, of (x) any
real property or (y) any other property (tangible or
intangible) which, solely in the case of clause (y)
provides for a future Liability or receivable, as the case may
be, in excess of $100,000;
(v) Contracts relating to any joint venture, strategic
alliance, partnership agreements or profit sharing agreements;
(vi) Contracts that would restrain Consonant or any
Subsidiary of Consonant, or any Affiliate of Consonant, from
engaging or competing in any business;
(vii) Contracts containing a “most favored
nations” pricing or commercial terms or other similar terms
in favor of any Person, other than School Contracts;
(ix) any employment, consulting or similar Contracts
(A) with any member of the Consonant Board (or similar
governing body) or any Subsidiary of Consonant, (B) with
any executive officer of Consonant or any Subsidiary of
Consonant, (C) with any other Employee of Consonant or any
Subsidiary of Consonant, other than, in the case of this clause
(C), those Contracts terminable by Consonant or any Subsidiary
of Consonant, as the case may be, on no more than 30 days
notice without Liability or financial obligations to Consonant
or any Subsidiary or (D) which provide for severance,
retention, change in control or other similar payments;
(x) any collective bargaining agreement or other Contract
with any labor union, trade union, works council or other
employee organization;
(xi) any Contract with any Affiliates (other than Consonant
and its Subsidiaries);
(xii) Contracts under which Consonant or any of its
Subsidiaries has advanced or loaned any amount to any of its
directors and Employees;
(xiii) any Contract to provide source code into any escrow
or to any Person (under any circumstances) for any product or
technology or under which Consonant or any of its Subsidiaries
agrees to encumber, not assert, transfer or sell rights in or
with respect to any Intellectual Property;
(xiv) any Contract which provides for the development of
any Intellectual Property, independently or jointly, by or for
Consonant or any of its Subsidiaries, except any such Contracts
entered into in the ordinary course of business consistent with
past practice;
(xv) any Contract pursuant to which Consonant or any of its
Subsidiaries has acquired a business or entity, or assets of a
business or entity, whether by way of merger, consolidation,
purchase of stock, purchase of assets, license or otherwise, or
any contract pursuant to which it has any ownership interest or
has agreed to purchase any ownership interest in any other
Person (other than its Subsidiaries);
(xvi) any material Contract entered into outside of the
ordinary course of business;
(xviii) any Contract under which Consonant or any of its
Subsidiaries has received or granted a license relating to any
Intellectual Property that is material to the business of
Consonant and its Subsidiaries, taken as a whole, other than
non-exclusive licenses extended to customers, clients or other
resellers in the ordinary course of business and other
non-exclusive licenses for generally commercial
off-the-shelf
software programs;
(xix) any Contract providing for indemnification by
Consonant or any of its Subsidiaries, other than School
Contracts and Contracts entered into in the ordinary course of
business with respect to the purchase, sale, lease or license of
any equipment, inventory, products, services, software or other
property (whether real or personal, tangible or intangible);
(xx) any settlement, conciliation or similar Contract, the
performance of which will involve payment after the Closing Date
in excess of $100,000;
(xxi) Contracts relating to (x) the future disposition
or acquisition (including any sale, lease, exchange, mortgage,
or transfer) of any material assets or properties or
(y) the disposition or acquisition since January 1,2008 (including any sale, lease, exchange, mortgage, or
transfer) of any material assets or properties, except inventory
disposed of in the ordinary course of business;
(xxii) Contracts under which Consonant or any Subsidiary of
Consonant, as the case may be, has made or agreed to make any
advance, loan, extension of credit, capital contribution or
other investment in any Person (other than Consonant or any
Subsidiary of Consonant, as the case may be) in excess of
$25,000 to any one Person or $100,000 in the aggregate;
(xxiii) any Contract with any investment banker, broker,
advisor or similar party retained by Consonant or any
stockholder in connection with the transactions contemplated by
this Agreement; or
(xxiv) Contracts other than as set forth above if the
default of Consonant, any Subsidiary thereof or any other party
thereto, or the failure of such Contract to be in full force and
effect, would reasonably be likely to cause a Consonant Material
Adverse Effect.
(b) Consonant has delivered to (or made available for
inspection by) Vowel correct and complete copies of all the
Contracts, together with all amendments thereto, listed on
Section 4.13(a) of the Consonant Disclosure Schedule
(the “Consonant Material Contracts”).
(c) All of the Consonant Material Contracts are valid,
binding and in full force and effect and are enforceable by
Consonant or the applicable Subsidiary in accordance with their
terms, except for such failure to be valid and binding or in
full force and effect that, individually or in the aggregate,
would not reasonably be expected to result in a Consonant
Material Adverse Effect and except to the extent that
enforcement may be affected by laws relating to bankruptcy,
reorganization, insolvency and creditors’ rights and by the
availability of injunctive relief, specific performance and
other equitable remedies. Consonant or the applicable Subsidiary
has performed all material obligations required to be performed
by it through the date of this Agreement under the Consonant
Material Contracts (other than any of the Credit Agreements),
and it is not (with or without the lapse of time or the giving
of notice, or both) in breach or default under any of the
Consonant Material Contracts (other than any of the Credit
Agreements) and, to the Knowledge of Consonant, no other party
to any Consonant Material Contract (other than any of the Credit
Agreements) is (with or without the lapse of time or the giving
of notice, or both) in breach or default thereunder, except for
those breaches which would not, individually or in the
aggregate, reasonably be expected to result in a Consonant
Material Adverse Effect. Neither Consonant nor its Subsidiaries
has received any written notice or has any Knowledge of the
intention of any party to terminate or not renew any Consonant
Material Contract (other than any of the Credit Agreements),
except for a termination or non-renewal which would not,
individually or in the aggregate, reasonably be expected to
result in a Consonant Material Adverse Effect.
(d) Without limiting the foregoing, as of the date hereof,
(x) there is no Credit Agreement Default that is both
existing and continuing, and (y) there is no ongoing
material dispute between or among Consonant or any of its
Subsidiaries, on the one hand, and the agent
and/or
lenders under any of the Credit Agreements, on the other hand,
over whether a Credit Agreement Default is both existing and
continuing. The execution, delivery and performance by Consonant
of this Agreement and the other Transaction Documents to which
Holdco, Consonant or any of their respective Subsidiaries is a
party, and the consummation by Holdco, Consonant or any of their
respective Subsidiaries of the Mergers and the other
transactions contemplated hereby and thereby, do not and will
not constitute a Credit Agreement Default. To the Knowledge of
Consonant, as of the date hereof, there are no facts or
circumstances which, if known by the agent
and/or the
lenders under any of the Credit Agreements, would give rise to a
Credit Agreement Default.
Section 4.14. Employee
Benefit Plans.
(a) Section 4.14(a) of the Consonant Disclosure
Schedule sets forth a correct and complete list of (i) all
employee welfare benefit plans (as defined in Section 3(1)
of ERISA), (ii) all employee pension benefit plans (as
defined in Section 3(2) of ERISA) and (iii) all other
employee benefit plans, programs, policies, agreements or
arrangements, including any deferred compensation plan,
incentive plan, bonus plan or arrangement, stock option plan,
stock purchase plan, stock award plan or other equity-based
plan, change in control agreement, retention, severance pay
plan, dependent care plan, sick leave, disability, death
benefit, group insurance, hospitalization, dental, life, any
fund, trust or arrangement providing health benefits including
multiemployer welfare arrangements, a multiple employer welfare
fund or arrangement, cafeteria plan, employee assistance
program, scholarship program, employment contract, retention
incentive agreement, termination agreement, severance agreement,
noncompetition agreement, consulting agreement, confidentiality
agreement, vacation policy, Employee loan, or other similar
plan, agreement or arrangement, whether written or oral, funded
or unfunded, or actual or contingent that (A) is maintained
by Consonant, any of its Subsidiaries or any Consonant ERISA
Affiliate (as defined below) for the benefit of any current or
former Employees or directors of Consonant or any of its
Subsidiaries, or their beneficiaries (collectively,
“Consonant
Employees”), (B) has been approved by Consonant
or any of its Subsidiaries but is not yet effective for the
benefit of Consonant Employees, or (C) was previously
maintained by Consonant, any of its Subsidiaries or a Consonant
ERISA Affiliate for the benefit of Consonant Employees with
respect to which Consonant, any of its Subsidiaries or a
Consonant ERISA Affiliate has or would be reasonably expected to
have any Liability (each, a “Consonant Benefit
Plan” and collectively, “Consonant Benefit
Plans”). Consonant has made available to Vowel a
correct and complete copy (where applicable) of (1) each
Consonant Benefit Plan (or, where a Consonant Benefit Plan has
not been reduced to writing, a summary of all material Consonant
Benefit Plan terms of such Consonant Benefit Plan),
(2) each trust or funding arrangement prepared in
connection with each such Consonant Benefit Plan and the most
recent trust statement showing the account value and assets,
(3) the three most recently filed annual reports on IRS
Form 5500 or any other annual report required by applicable
Law, (4) the most recently received IRS determination
letter for each such Consonant Benefit Plan, (5) the most
recently prepared actuarial report and financial statement in
connection with each such Consonant Benefit Plan, (6) the
most recent summary plan description, any summaries of material
modification, any employee handbooks and any material written
communications (or a description of any material oral
communications) by Consonant or any of its Subsidiaries to
Consonant Employees generally concerning the extent of the
benefits provided under any Consonant Benefit Plan, (7) all
correspondence with the IRS, DOL and any other Governmental
Authority regarding Consonant Benefit Plan, (8) all
contracts with third-party administrators, actuaries, investment
managers, consultants and other independent contractors that
relate to any Consonant Benefit Plan and (9) any other
documents in respect of any Consonant Benefit Plan reasonably
requested by Consonant. Neither Consonant nor any of its
Subsidiaries has any plan or commitment to establish any new
Consonant Benefit Plan or to modify any Consonant Benefit Plan
so as to materially increase Consonant compensation costs,
except to the extent required by Law.
(b) None of Consonant or any of its Subsidiaries or any
other Person or entity that, together with Consonant or any of
its Subsidiaries, is or was treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code
(each, together with Consonant and any of its Subsidiaries, a
‘‘Consonant ERISA Affiliate”), has now or
at any time within the past six years (and in the case of any
such other Person or entity, only during the period within the
past six years that such other Person or entity was a Consonant
ERISA Affiliate) contributed to, sponsored, or maintained
(i) a pension plan (within the meaning of Section 3(2)
of ERISA) subject to Section 412 of the Code or
Title IV of ERISA, (ii) a Multiemployer Plan or
(iii) a single employer pension plan (within the meaning of
Section 4001(a)(15) of ERISA), in each case for which a
Consonant ERISA Affiliate would reasonably be expected to incur
Liability under Section 4063 or 4064 of ERISA.
(c) (i) Each Consonant Benefit Plan has been
maintained and operated in all material respects in compliance
with its terms and applicable Law, including ERISA, the Code,
Section 4980B of the Code (as well as its predecessor
provision, Section 162(k) of the Code) and COBRA, and any
other applicable Laws, including the Americans with Disabilities
Act of 1990, the Family and Medical Leave Act of 1993 and the
Health Insurance Portability and Accountability Act of 1996,
(ii) with respect to each Consonant Benefit Plan, all
reports, returns, notices and other documentation that are
required to have been filed with or furnished to the IRS, the
DOL or any other Governmental Authority, or to the participants
or beneficiaries of such Consonant Benefit Plan have been filed
or furnished on a timely basis, and (iii) each Consonant
Benefit Plan that is intended to be qualified within the meaning
of Section 401(a) of the Code, has received a favorable
determination letter from the IRS to the effect that Consonant
Benefit Plan satisfies the requirements of Section 401(a)
of the Code taking into account all changes in qualification
requirements under Section 401(a) for which the applicable
“remedial amendment period” under Section 401(b)
of the Code has expired, and to the Knowledge of Consonant there
are no facts or circumstances that could reasonably be expected
to adversely affect such qualification.
(d) With respect to any Consonant Benefit Plan, (i) no
actions, claims or proceedings (other than routine claims for
benefits in the ordinary course) are pending or, to the
Knowledge of Consonant, threatened, (ii) to the Knowledge
of Consonant no facts or circumstances exist that would
reasonably be expected to give rise to any such actions, claims
or proceedings, and (iii) no administrative investigation,
audit or other administrative proceeding by the DOL, the IRS or
other Governmental Authority, including any voluntary compliance
submission through the IRS’ Employee Plans Compliance
Resolution System or the DOL’s Voluntary Fiduciary
Correction Program, is pending, in progress or, to the Knowledge
of Consonant, threatened.
(e) Neither Consonant nor any of its Subsidiaries nor any
other “party in interest” or “disqualified
person” with respect to any Consonant Benefit Plan has
engaged in a non-exempt “prohibited transaction”
within the meaning of Section 406 of ERISA or
Section 4975 of the Code involving such Consonant Benefit
Plan. To the Knowledge of Consonant no fiduciary has any
Liability for breach of fiduciary duty or any other failure to
act or comply with the requirements of ERISA, the Code or any
other applicable Laws in connection with any Consonant Benefit
Plan.
(f) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby
will (either alone or in combination with another event)
(i) result in any payment or benefit becoming due, or
increase the amount of any compensation due, to any Consonant
Employee, (ii) increase any benefits otherwise payable
under any Consonant Benefit Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such
compensation or benefits. Neither Consonant nor any of its
Subsidiaries is a party to any contract, arrangement or plan
pursuant to which it is bound to compensate any Person for any
excise or other additional taxes under Section 409A or 4999
of the Code or any similar provision of Law, and to the extent
that any Consonant Benefit Plan constitutes a
“non-qualified deferred compensation plan” within the
meaning of Section 409A of the Code, such Consonant Benefit
Plan has been operated in good faith compliance with
Section 409A of the Code and applicable guidance issued
thereunder and has been amended to comply with Section 409A of
the Code prior to January 1, 2009. No Employee of Consonant
or any of its Subsidiaries with a base salary of at least
$100,000 has given Consonant or any Subsidiary of Consonant any
notice of an intention to, or, to the Knowledge of Consonant has
any plans to, terminate his or her employment or other
arrangement with Consonant or any Subsidiary of Consonant.
(g) No oral commitments have been made by an officer of
Consonant with the authority to make such commitments that would
preclude Consonant from amending or terminating any material
Consonant Benefit Plan to the extent the Consonant Benefit Plan
otherwise permits amendment or termination.
(h) All contributions (including all employer contributions
and employee salary reduction contributions) or premium payments
required to have been made under the terms of any Consonant
Benefit Plan, and in accordance with applicable Law (including
pursuant to 29 C.F.R.
Section 2510.3-102),
as of the date hereof have been timely made or reflected on
Consonant’s financial statements in accordance with GAAP.
(i) Except for the continuation coverage requirements under
COBRA or other applicable Law, neither Consonant nor its
Subsidiaries have any obligations or Liability for health, life
or similar welfare benefits to Consonant Employees or their
respective dependents following termination of employment.
(j) Each Consonant Benefit Plan subject to the provisions
of Section 401(k) or 401(m) of the Code, or both, has been
tested for and to the Knowledge of Consonant, has satisfied the
requirements of Section 401(k)(3), Section 401(m)(2)
and Section 416 of the Code, as applicable, for each plan
year ending prior to Closing.
(k) Each Consonant Benefit Plan, if any, that is maintained
in a jurisdiction outside of the United States or for Employees
outside of the United States has been maintained in material
compliance with all applicable laws, any and all costs and
liabilities associated with such plans have been reflected in
Consonant’s financial statements in accordance with GAAP.
Section 4.15. Labor
Matters.
(a) Neither Consonant nor any of its Subsidiaries is or has
been a party to any collective bargaining agreement or other
labor union agreements, nor is any such collective bargaining
agreement being negotiated. To the Knowledge of Consonant, no
activities or proceedings are underway by any labor union to
organize any Employees of Consonant or its Subsidiaries. No work
stoppage, slowdown or labor strike against Consonant or any of
its Subsidiaries is pending or threatened. Consonant and its
Subsidiaries (i) have no direct or indirect Liability with
respect to any misclassification of any Person as an independent
contractor rather than as an employee, (ii) are in
compliance in all material respects with all applicable foreign,
federal, state and local
Laws respecting employment, employment practices, labor
relations, employment discrimination, health and safety, terms
and conditions of employment and wages and hours, and
(iii) have not received any written remedial order or
notice of offense under applicable occupational health and
safety Law.
(b) Neither Consonant nor any of its Subsidiaries has
incurred, nor do either of them reasonably expect to incur, any
Liability or obligation under the Worker Adjustment and
Retraining Notification Act, and the regulations promulgated
thereunder, or any similar state or local Law which remains
unsatisfied.
(c) There is no unfair labor practice charge or complaint
against Consonant or its Subsidiaries pending or, to the
Knowledge of Consonant, threatened, before the National Labor
Relations Board, any court or any Governmental Authority.
(d) Consonant and each of its Affiliates are in compliance
in all material respects with all applicable federal, state,
local and foreign Laws concerning the employer-employee
relationship, including applicable wage and hour Laws, fair
employment Laws, safety Laws, workers’ compensation
statutes, unemployment Laws and social security Laws. There are
no pending or, to the Knowledge of Consonant, threatened
actions, charges, citations or consent decrees concerning:
(i) wages, compensation, bonuses, commissions, awards or
payroll deductions, equal employment or human rights violations
regarding race, color, religion, sex, national origin, age,
disability, veteran’s status, marital status, or any other
recognized class, status or attribute under any federal, state,
local or foreign equal employment Law prohibiting
discrimination, (ii) representation petitions or unfair
labor practices, (iii) occupational safety and health,
(iv) workers’ compensation, (v) wrongful
termination, negligent hiring, invasion of privacy or defamation
or (vi) immigration or any other claims under state or
federal labor Law.
Section 4.16. Employment
Matters.
(a) Section 4.16(a) of the Consonant Disclosure
Schedule contains a true, complete and correct list setting
forth the name, position or title, location, citizenship, date
of hire and current compensation rate (including but not limited
to salary, commission and bonus compensation) for each Employee
of Consonant and its Subsidiaries with a base salary of at least
$100,000, indicating whether they are employed or otherwise
engaged on a salaried, hourly or piecework basis.
(b) Consonant has not made any payments, and has not been
and is not a party to any agreement, contract, arrangement or
plan that could result in it making payments, that have resulted
or would result, separately or in the aggregate, in the payment
of any “excess parachute payment” within the meaning
of Section 280G of the Code or in the imposition of an
excise Tax under Section 4999 of the Code (or any
corresponding provisions of state, local or foreign Tax Law) or
that were or would not be deductible under Code
Sections 162 or 404.
(c) Neither the execution of this Agreement or the other
Transaction Documents nor the transactions contemplated hereby
or thereby nor the carrying on of Consonant’s or its
Subsidiaries’ business by the Employees of Consonant or
such Subsidiaries, nor the conduct of Consonant’s or its
Subsidiaries’ business as presently proposed to be
conducted, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default
under, any Contract under which any of such Employees is now
obligated.
(d) To the Knowledge of Consonant, none of Consonant’s
Employees or those of any of its Subsidiaries is obligated under
any Contract, or subject to any Court Order, that would
materially interfere with the use of his or her best efforts to
promote the interests of Consonant and its Subsidiaries or that
would conflict with Consonant’s or its Subsidiaries’
business as presently conducted and as presently proposed to be
conducted in any material respect.
Section 4.17. Litigation;
Compliance with Laws; Licenses; Permits and Approvals.
(a) There are no, and since January 1, 2005 there have
not been any, material Proceedings pending or, to the Knowledge
of Consonant, threatened against, by or affecting Consonant or
any Subsidiary of Consonant (or to the Knowledge of Consonant,
pending or threatened against any Employee of Consonant or any
Subsidiary of Consonant with respect to their business
activities on behalf of Consonant or any Subsidiary of
Consonant), and neither Consonant nor any Subsidiary of
Consonant is subject to or bound by any outstanding Court Order
affecting the properties, assets, personnel or business
activities of Consonant or its Subsidiaries. There are no
material Proceedings pending or threatened against any executive
officer of Consonant or any Subsidiary of Consonant and no
executive officer of Consonant or any Subsidiary of Consonant is
subject to or bound by any outstanding material Court Order.
Neither Consonant nor any Subsidiary of Consonant has received
written notice or, to the Knowledge of Consonant, is being
charged with any material violation of any applicable Law
relating to Consonant or any Subsidiary of Consonant or the
operation of their respective businesses. There are no
Proceedings pending or, to the Knowledge of Consonant,
threatened that are reasonably likely to prohibit or restrain
the ability of Consonant and its Subsidiaries to perform their
obligations under the Transaction Documents or consummate the
transactions contemplated hereby and thereby. To the Knowledge
of Consonant, there are no facts or circumstances which, if
known by a potential claimant or Governmental Authority, would
give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to Consonant or any of its
Subsidiaries, would reasonably be likely to have a Consonant
Material Adverse Effect.
(b) Consonant and each Subsidiary thereof is in compliance
in all material respects with all Laws applicable to Consonant,
each Subsidiary thereof and their respective assets. Since
January 1, 2006, neither Consonant nor any Subsidiary of
Consonant has received any written communication or notice from
any Governmental Authority that alleges that Consonant or any
Subsidiary of Consonant is not in compliance in any material
respect with any material Law or Permits. Since January 1,2006, no claims have been asserted or, to the Knowledge of
Consonant, threatened in writing against Consonant or any
Subsidiary of Consonant, alleging a violation of any
Person’s privacy or personal information or data rights.
The consummation of the transactions contemplated hereby will
not materially breach or otherwise cause any material violation
of any applicable Law or rule, policy, or procedure related to
privacy, data protection, or the collection and use of personal
information collected, used or held for use by Consonant or any
Subsidiary of Consonant in the conduct of the business.
Consonant and each Subsidiary of Consonant takes reasonable
measures to protect such information against unauthorized
access, use, modification, or other misuse. None of Consonant
nor any of its Subsidiaries conducts business or sells products
outside of the U.S. and, to the Knowledge of Consonant, no
products of Consonant or any of its Subsidiaries are resold
outside of the U.S. by any Person.
(c) Consonant and each Subsidiary thereof has all Permits
or other authorizations required for the conduct of its
businesses as now being conducted and as proposed to be
conducted, all of which are in full force and effect, except for
the lack of Permits which, individually or in the aggregate,
would not reasonably be likely to result in a Consonant Material
Adverse Effect. All such Permits and authorizations are listed
on Section 4.17(c) of the Consonant Disclosure
Schedule. There are no Proceedings pending with respect to any
Permits or, to the Knowledge of Consonant, threatened with
respect to any Permits.
Section 4.18. Brokers. Except
as and only to the extent set forth on Section 4.18
of the Consonant Disclosure Schedule, no broker, finder or
investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by
or on behalf of Consonant.
Section 4.19. Insurance. Consonant
and its Subsidiaries have insurance policies in full force and
effect for such amounts as are sufficient for all requirements
of Law and all agreements to which each of Consonant and its
Subsidiaries is a party or by which they are bound. The nature
and extent of Consonant’s and its Subsidiaries’
insurance coverage, to the Knowledge of Consonant, are
reasonable, given the nature of the risks inherent in
Consonant’s and its Subsidiaries’ business, and are
customary for similarly situated businesses. Set forth in
Section 4.19 of the Consonant Disclosure Schedule is
a list of all insurance policies and all fidelity bonds held by
or applicable to Consonant and its Subsidiaries for policy year
2009 setting forth, in respect of each such policy, the policy
name, policy number, carrier, term, type and amount of coverage
and annual premium. No event relating to any of Consonant or its
Subsidiaries has occurred which could reasonably be expected to
result in a material retroactive upward adjustment in premiums
under any such insurance policies or which could reasonably be
expected to result in a material prospective upward adjustment
in such premiums. Excluding insurance policies that have expired
and been replaced in the ordinary course of business, no
insurance policy has been canceled within the last two years
and, to the Knowledge of Consonant,
no threat has been made to cancel any insurance policy of any of
Consonant or any Subsidiary of Consonant during such period. No
event has occurred, including, without limitation, the failure
by any of Consonant or any Subsidiary of Consonant to give any
notice or information or Consonant or any Subsidiary of
Consonant giving any inaccurate or erroneous notice or
information, which limits or impairs the rights of Consonant or
any Subsidiary of Consonant in any material respect under any
such insurance policies.
Section 4.20. Related
Party Transactions. No Employee, director,
stockholder, partner, manager or member of Consonant or any
Subsidiary of Consonant, any member of his or her immediate
family or any of their respective Affiliates (each, a
“Consonant Related Person”) (i) owes any
amount to Consonant or any Subsidiary of Consonant nor do
Consonant or any Subsidiary of Consonant owe any amount to, nor
have Consonant or any Subsidiary of Consonant committed to make
any loan or extend or guarantee credit to or for the benefit of,
any Consonant Related Person, (ii) is involved in any
business arrangement or other relationship (other than customary
employment relationships) with Consonant or any Subsidiary of
Consonant (whether written or oral), (iii) owns any
property or right, tangible or intangible, that is used by
Consonant or any Subsidiary of Consonant (other than rights
arising out of employment arrangements) or (iv) has any
claim or cause of action against Consonant or any Subsidiary of
Consonant.
Section 4.21. Customers
and Vendors.
(a) To the Knowledge of Consonant, neither Consonant nor
any of its Subsidiaries has received any notice (written or
otherwise) that any of its top twenty customers (measured by
revenue dollars as of the fiscal year ended December 31,2008) set forth on Section 4.21(a) of the
Consonant Disclosure Schedule (such top twenty customers, the
“Consonant Material Customers”) intends to, or
has threatened to, terminate or reduce in any material respect
its business with Consonant and its Subsidiaries, and no such
Consonant Material Customer has terminated or reduced its
business, or modified its existing terms in an unfavorable
manner, with Consonant or its Subsidiaries in the twelve months
immediately preceding the date of this Agreement.
(b) To the Knowledge of Consonant, neither Consonant nor
any of its Subsidiaries has received any notice (written or
otherwise) that any of its top ten vendors (measured by payment
dollars as of the fiscal year ended December 31,2008) set forth on Section 4.21(b) of the
Consonant Disclosure Schedule (such top ten vendors, the
“Consonant Material Vendors”) intends to, or
has threatened to, terminate or reduce in any material respect
its business with Consonant and its Subsidiaries, and no such
Consonant Material Vendor has terminated or reduced its business
with Consonant or any of its Subsidiaries, or modified its
existing terms in an unfavorable manner, with Consonant or its
Subsidiaries in the twelve months immediately preceding the date
of this Agreement.
(c) Since June 30, 2008, to the Knowledge of
Consonant, neither Consonant nor any of its Subsidiaries has
received any material complaints (whether written or oral) or
has been engaged in any material disputes with any of the
Consonant Material Customers or Consonant Material Vendors.
Section 4.22. Accounts
Receivable.Section 4.22 of the
Consonant Disclosure Schedule sets forth a true, correct and
complete listing and aging of the accounts receivable of
Consonant as of December 31, 2008, determined in accordance
with GAAP and which is prepared on a basis that is consistent
with the presentation in the Consonant Financial Statements. All
of such accounts receivable have arisen in bona fide
arm’s-length transactions in the ordinary course of
business. The reserves for doubtful accounts established by
Consonant and reflected in Section 4.22 of the
Consonant Disclosure Schedule or on the Consonant Financial
Statements have been determined in accordance with GAAP.
Section 4.23. No
Prebillings or Prepayments. Except for
existing subscription products sold in the ordinary course of
business consistent with past practice, neither Consonant nor
any Subsidiary of Consonant has billed or will bill, and
Consonant has not received any payments (in the form of
retainers or otherwise) from, any of its customers or potential
customers for services to be rendered or for expenses to be
incurred subsequent to the Closing Date, other than any
Multi-Year Contracts. To the extent that accounts receivable
include pre-billed amounts, the corresponding Liabilities have
been accrued on Consonant’s books in accordance with GAAP.
Section 4.24. Inventory. The
inventories (net of returns and allowances) shown on the
Consonant Financial Statements as of the Balance Sheet Date or
thereafter acquired by Consonant or its Subsidiaries consist of
items of a quantity and quality usable or saleable in the
ordinary course of business. Since the Balance Sheet Date,
Consonant and its Subsidiaries have continued to replenish
inventories in a normal and customary manner consistent with
past practices. Neither Consonant nor its Subsidiaries has
received written or oral notice that it will experience in the
foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon
reasonable terms and conditions, the raw materials, supplies or
component products required for the manufacture, assembly or
production of its products. The values (net of returns and
allowances) at which inventories are carried reflect the
inventory valuation policy of Consonant and its Subsidiaries,
which is in accordance with GAAP applied on a consistent basis.
Since the Balance Sheet Date, due provision has been made on the
books of Consonant and its Subsidiaries, as applicable, in the
ordinary course of business consistent with past practices to
provide for all slow-moving, obsolete, or unusable inventories
and such inventory reserves as of the Balance Sheet Date are
adequate to provide for such slow-moving, obsolete or unusable
inventory shrinkage.
Section 4.25. Foreign
Corrupt Practices Act. Neither Consonant nor
any of its Subsidiaries (including any of its directors, agents,
distributors, Employees or other Person associated with or
acting on its behalf) has, directly or indirectly, taken any
action which would cause Consonant to be in material violation
of the FCPA, and, to the Knowledge of Consonant, none of them
has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political
activity, made, offered or authorized any unlawful payment to
foreign or domestic government officials or Employees, whether
directly or indirectly, or made, offered or authorized any
unlawful bribe, rebate, payoff, influence payment, kickback or
other similar unlawful payment, whether directly or indirectly.
Consonant and its Subsidiaries have established reasonable
internal controls and procedures reasonably designed to prevent
and detect violations of the FCPA.
Section 4.26. Export
Controls. Consonant and its Subsidiaries have
at all times conducted its export transactions materially in
accordance with (i) all applicable U.S. export and
re-export control laws and (ii) to the Knowledge of
Consonant, all other applicable import/export controls in other
countries in which Consonant conducts business. Without limiting
the foregoing:
(a) Consonant and each of its Subsidiaries has obtained,
and is in material compliance with, all Export Approvals;
(b) There are no pending or, to Knowledge of Consonant,
threatened claims or legal actions against Consonant or any of
its Subsidiaries with respect to such Export Approvals or with
respect to the export control laws of any Governmental
Authority; and
(c) No Export Approvals for the transfer of export licenses
to Holdco or the Consonant Surviving Corporation are required by
the consummation of the Consonant Merger, or such Export
Approvals can be obtained in a reasonable timely manner without
material cost and without disruption to the conduct of
operations by Holdco or Consonant Surviving Corporation.
Section 4.27. Software. With
respect to the use, operation, implementation and delivery of
the software in the business of Consonant and its Subsidiaries,
(i) no material capital expenditures are necessary with
respect to such use other than capital expenditures in the
ordinary course of business that are consistent with the past
practice of Consonant and its Subsidiaries, taken as a whole,
(ii) neither Consonant nor its Subsidiaries has experienced
any material defects in such software, including any material
error or omission in the processing of any transactions other
than defects which have been corrected, and (iii) to the
Knowledge of Consonant, no such software (x) contains any
device or feature designed to disrupt, disable, or otherwise
impair the functioning of any software or (y) is subject to
the terms of any “open source” or other similar
license that provides for the source code of the software to be
publicly distributed or dedicated to the public.
Section 4.28. Tax
Qualification. Neither Consonant nor any of
its Subsidiaries has taken or agreed to take any action or knows
of any fact that is reasonably likely to prevent or impede the
Mergers, taken together, from being treated as a transaction
described in Section 351 of the Code.
Section 4.29. Disclosure
Documents. None of the information supplied
or to be supplied by Consonant and its Subsidiaries for
inclusion or incorporation by reference in the Filings will, at
the respective times filed with the SEC or any other regulatory
agency and, in addition, (A) in the case of the Proxy
Statement/Prospectus, at the date it is first mailed to
Vowel’s stockholders, at the time of the Vowel Meeting and
at the Effective Time and (B) in the case of the
Registration Statement, when it becomes effective under the
Securities Act and at the Effective Time, in each case, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation or warranty is
made by Consonant in this Section 4.29 with respect
to statements made or incorporated by reference in the Filings
based on information supplied by Vowel and its Subsidiaries for
inclusion or incorporation by reference therein.
Section 4.30. State
Takeover Statutes and Rights Plans. Except
for Section 203 of the DGCL, no “fair price,”“moratorium,”“control share acquisition,”“business combination” or other similar anti-takeover
statute or regulation enacted under state or federal laws in the
United States applicable to Consonant is applicable to the
Reorganization or the other transactions contemplated by this
Agreement. The Consonant Board has taken all actions so that the
restrictions contained in Section 203 of the DGCL
applicable to a “business combination” (as defined in
such Section 203) will not apply to Consonant or
Holdco, including the execution, delivery or performance of this
Agreement and the consummation of the Reorganization and the
other transactions contemplated hereby.
Section 4.31. Bank
Accounts.Section 4.31 of the
Consonant Disclosure Schedule sets forth: (a) a true and
complete list of the names and locations of all banks, trust
companies, securities brokers and other financial institutions
at which the Consonant and each Subsidiary of Consonant has an
account or safe deposit box or maintains a banking, custodial,
trading or other similar relationship; and (b) a true and
complete list and description of each such account, safe deposit
box and relationship, including in each case the account number
and the names of the respective officers, Employees, agents or
other similar representatives of Consonant and its Subsidiaries
having signatory power with respect thereto.
Section 4.32. Transaction
Expenses. Set forth in
Section 4.32 of the Consonant Disclosure Schedule is
a list as of the date hereof of the consultants, financial
advisors, attorneys, accountants and other similar agents and
representatives retained by Holdco, Consonant or any of their
respective Subsidiaries that have provided or are providing
services in connection with the transactions contemplated by
this Agreement and the Transaction Documents. The fees, costs
and expenses of such consultants, financial advisors, attorneys,
accountants and other similar agents and representatives,
whether accrued, incurred or paid as of the date hereof or
hereafter, but in each case, only to the extent for services
that are performed or rendered since November 1, 2008 and
are reasonably related to the transactions contemplated by this
Agreement and the Transaction Documents, are referred to herein
as the “Consonant Transaction Expenses”. With
respect to the fees and expenses of Consonant’s attorneys
and accountants, the term ‘‘Consonant Transaction
Expenses” shall be based solely on such advisors’
hours actually worked and regular hourly rates, and shall not
include any premiums, bonus or other fees based on successful
completion of any of the transactions contemplated by this
Agreement or the Transaction Documents.
ARTICLE IV-A
REPRESENTATIONS
AND WARRANTIES OF HOLDCO
Holdco hereby represents and warrants as of the date hereof and
as of the Effective Time, to Consonant and Vowel as follows:
Section 4A.1 General. Holdco
was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. Prior to the
Effective Time, Holdco shall have conducted its operations only
for the purpose of consummating the transactions contemplated by
this Agreement, and will have incurred no liabilities or
obligations other than as contemplated herein or for such
purpose. From and after the date hereof through the Effective
Time, Holdco shall directly own all of the equity securities of
the Merger Subsidiaries.
Section 4A.2 Corporate
Organization. Holdco is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware, and has all necessary corporate power
and authority to carry on its business as now being conducted.
Holdco has delivered or made available to Vowel a copy of its
certificate of incorporation and by-laws (the
‘‘Holdco By-Laws”), and each such copy is
true, correct and complete and such instrument is in full force
and effect as of the date hereof.
Section 4A.3 Capitalization.
(a) On the date hereof the authorized capital stock of
Holdco consists of 1,000 shares of Common Stock, all of
which are issued and outstanding. On the Closing Date, in
accordance with the Holdco Certificate of Incorporation, the
authorized capital stock of Holdco will consist of
150,000,000 shares of Holdco Common Stock and
15,000,000 shares of preferred stock, $0.001 par value
per share (“Holdco Preferred Stock”). No shares
of Holdco Preferred Stock will be issued and outstanding as of
the Effective Time. All outstanding shares of Holdco Common
Stock are duly authorized, validly issued, fully-paid and
non-assessable, and are not subject to or issued in violation of
any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under
any provision of the DGCL or any Contract to which Holdco is a
party or otherwise bound.
(b) There are no bonds, debentures, notes or other
indebtedness of Holdco having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote)
on any matters on which holders of Holdco Common Stock may vote
(“Voting Holdco Debt”). Except as provided in
this Agreement, there are no options, warrants, rights,
convertible or exchangeable securities, “phantom”
stock rights, stock appreciation rights, stock-based
performance, commitments, Contracts, arrangements or
undertakings of any kind to which Holdco is a party or by which
Holdco is bound (i) obligating Holdco to issue, deliver or
sell, or cause to be issued, delivered or sold, additional
Holdco Common Stock, Holdco Preferred Stock or other equity
interests in, or any security convertible or exercisable for or
exchangeable into any Holdco Common Stock, Holdco Preferred
Stock or other equity interest in, Holdco or any Voting Holdco
Debt or (ii) obligating Holdco to issue, grant or enter
into any such option, warrant, right, security, commitment,
Contract, arrangement or undertaking. There are no outstanding
contractual obligations of Holdco to repurchase, redeem or
otherwise acquire any Holdco Common Stock, Holdco Preferred
Stock or other equity interests of Holdco. Except as provided in
this Agreement, there are no stockholders agreements, voting
trusts, Contracts or other commitments, arrangements or
undertakings relating to the voting or disposition of any Holdco
Common Stock, Holdco Preferred Stock or granting any Person or
group of Persons the right to elect or to designate or nominate
for election a director to the Holdco Board.
Section 4A.4 Authority.
(a) Holdco has requisite corporate power and authority to
enter into this Agreement and the other Transaction Documents to
which it is a party and to consummate the transactions
contemplated hereby and thereby. The Holdco Board has validly
approved the execution, delivery and performance of this
Agreement, the other Transaction Documents to which Holdco is a
party and the consummation of the transactions contemplated
hereby and thereby including the Mergers. This Agreement and the
other Transaction Documents to which Holdco is a party have been
duly and validly executed and delivered by Holdco and constitute
the valid and binding agreements of Holdco enforceable against
Holdco in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creditors’ rights and to general equity
principles.
(b) The execution, delivery and performance by Holdco of
this Agreement and the other Transaction Documents to which it
is a party do not and will not require any consent, approval,
authorization or permit of, action by, filing with or
notification to any Governmental Authority, other than
(i) the filing of the Certificates of Merger,
(ii) compliance with the applicable requirements of the HSR
Act, (iii) compliance with the applicable requirements of
the Securities Act and the Exchange Act, including the filing of
the Proxy Statement/Prospectus, (iv) to the extent provided
in Section 5.15 hereof, filing and approval of a
listing application with a national securities exchange, and
(v) compliance with any applicable foreign or state
securities or blue sky laws and other than any consent,
approval, authorization, permit, action, filing or
notification the failure of which to make or obtain would not
(A) individually or in the aggregate have a material
adverse effect on Holdco or (B) prevent or delay the
consummation of the Mergers.
Section 4A.5 No
Conflicts. The execution, delivery and
performance by Holdco of this Agreement and the other
Transaction Documents to which Holdco is a party and the
consummation by Holdco or its Subsidiaries of the Mergers and
the other transactions contemplated hereby and thereby do not
and will not (i) contravene or conflict with the
organizational or governing documents of Holdco or any of its
Subsidiaries, (ii) contravene or conflict with or
constitute a violation of any provision of any Law binding upon
or applicable to Holdco or any of its Subsidiaries or any of
their respective properties or assets, or (iii) result in
any breach or violation of, or constitute a default (with or
without notice or lapse of time, or both) or an event of default
under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a benefit
under, any loan, guarantee of indebtedness or credit agreement
or Contract binding upon Holdco or any of its Subsidiaries or
result in the creation of any Lien (other than Permitted Liens)
upon any of the properties or assets of Holdco or any of its
Subsidiaries, except in the case of clauses (ii) and (iii),
for such matters as would not, (A) individually or in the
aggregate, reasonably be expected to have a material adverse
effect on Holdco or (B) prevent or delay the consummation
of the Mergers.
Section 4A.6 Disclosure
Documents. None of the information supplied
or to be supplied by Holdco for inclusion or incorporation by
reference in the Filings will, at the respective times filed
with the SEC or any other regulatory agency and, in addition,
(A) in the case of the Proxy Statement/Prospectus, at the
date it is first mailed to Vowel’s stockholders, at the
time of the Vowel Meeting and at the Effective Time and
(B) in the case of the Registration Statement, when it
becomes effective under the Securities Act and at the Effective
Time, in each case, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation or
warranty is made by Holdco in this Section 4A.6 with
respect to statements made or incorporated by reference in the
Filings based on information supplied by Vowel or its
Subsidiaries for inclusion or incorporation by reference therein.
ARTICLE V
COVENANTS
Section 5.1. Conduct
of Business by Consonant, Holdco and Vowel.
(a) From and after the date hereof through and including
the Effective Time or the date, if any, on which this Agreement
is earlier terminated pursuant to Section 7.1 (the
‘‘Termination Date”), and except
(i) as may be required by applicable Law, (ii) as may
be agreed in writing by Consonant or Vowel (which agreement by
either Party shall not be unreasonably withheld, conditioned or
delayed), (iii) as may be expressly required or permitted
by this Agreement or the other Transaction Documents, including
without limitation pursuant to Sections 2.4,
2.5 and 5.21, (iv) solely with respect to
Vowel and its Subsidiaries, as set forth in
Section 5.1(a) of the Vowel Disclosure Schedule or
(v) solely with respect to Consonant and its Subsidiaries,
as set forth in Section 5.1(a) of the Consonant
Disclosure Schedule, each of Vowel and Consonant covenants and
agrees with the other and Holdco that the business of such Party
and its Subsidiaries shall be conducted in the ordinary course
of business consistent with past practice in all material
respects and such Party shall use its reasonable best efforts to
maintain and preserve its business organization (and the
business organization of its Subsidiaries) and to retain the
services of its (and its Subsidiaries’) officers and key
employees and maintain its (and its Subsidiaries’)
relationships with customers, suppliers, lessees, licensees and
other third parties to the end that its goodwill and ongoing
business shall not be impaired in any material respect. From and
after the date hereof through and including the Effective Time
or the earlier Termination Date, as applicable, Holdco shall not
amend its certificate of incorporation or by-laws as in effect
on the date hereof, have any operations, incur or suffer any
material Liabilities, or enter into any transactions or
agreements with any Person (including transactions involving the
incurrence of indebtedness or issuance of equity securities)
except: (u) as set forth in Section 5.1(a) of
the Consonant Disclosure Schedule; (v) Holdco may amend and
restate its Certificate of Incorporation in its entirety in the
form of the Amended and Restated Certificate of Incorporation
attached hereto as Exhibit H (the “Holdco
Certificate of Incorporation”) which amendment and
restatement shall be
effective prior to the Effective Time; (w) Holdco may issue
a note to VSS-Consonant Holdings III in the form attached
hereto as Exhibit Q (the ‘‘Holdco
Note”) to the extent VSS-Consonant Holdings III
loans Holdco the funds to pay the Vowel Transaction Expenses
pursuant to Section 7.3(a) or the Vowel Expense
Reimbursement Amount pursuant to Section 2.3(a)
hereof, (x) as may be required by applicable Law,
(y) as may be agreed in writing by Consonant and Vowel
(which agreement by either Party shall not be unreasonably
withheld, conditioned or delayed) and (z) as expressly
contemplated by this Agreement or the Transaction Documents.
(b) Subject to the exceptions contained in clauses (i)
through (v) of Section 5.1(a), each of Vowel
and Consonant agrees with the other that from and after the date
hereof and through and including the Effective Time or the
earlier Termination Date, if applicable, without the prior
written consent of the other (which consent shall not be
unreasonably withheld, conditioned or delayed), it:
(i) shall not, and shall not permit (subject to legal or
contractual obligations) any of its Subsidiaries, to, directly
or indirectly, authorize, set aside or pay any dividends on or
make any distribution with respect to its outstanding shares of
capital stock (whether in cash, assets, stock or other
securities of such Party or its Subsidiaries), except dividends
and distributions paid or made by such Subsidiaries to either
Vowel, Consonant or Holdco (or any of their respective
Subsidiaries), as the case may be;
(ii) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, split, combine or
reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock,
except for any such transaction by a wholly owned Subsidiary of
such Party which remains a wholly owned Subsidiary after
consummation of such transaction;
(iii) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, purchase, redeem or
otherwise acquire any shares of its capital stock or any other
of its securities or any rights, warrants or options to acquire
any such shares or other securities, except in each case
(i) in connection with any Benefit Plan,
and/or
(ii) pursuant to the terms of any Vowel Stock Options;
(iv) except as required by (x) written agreements in
effect on the date hereof or (y) any Benefit Plan or as
otherwise required by applicable Law (including
Section 409A of the Code), shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly,
(A) increase the compensation or other benefits payable or
provided to its executive officers
and/or
directors or those of any of its Subsidiaries; (B) increase
the compensation or other benefits payable or provided to its
other employees or any of its Subsidiaries, other than in the
ordinary course of business consistent with past practice, but
in no event shall the sum of all such increases for a Party and
its Subsidiaries exceed an aggregate of $100,000; (C) enter
into or amend in any material respect any employment, change of
control, severance or retention agreement (or any other terms of
employment) with any of its employees, directors or officers or
those of its Subsidiaries, except for severance agreements
entered into with employees (other than executive officers) in
the ordinary course of business in connection with terminations
of employment providing severance payments of no more than two
weeks salary plus an additional one week salary for each year of
employment with such Party or its Subsidiaries; or
(D) except as permitted pursuant to clause (C) above,
establish, adopt, enter into or amend any collective bargaining
agreement, plan, trust, fund, policy or arrangement for the
benefit of any of its current or former directors, officers or
employees or those of any of its Subsidiaries, or any of their
respective beneficiaries, except as is required to comply with
Section 409A of the Code;
(v) shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, enter into or make any loans to any
of its employees, officers or directors or those of its
Subsidiaries (other than routine advances for business expenses
in the ordinary course of business consistent with past
practice) or make any material change in its existing borrowing
or lending arrangements for or on behalf of any of such Persons;
(vi) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, adopt any amendments to
its certificate of incorporation or by-laws or similar
applicable charter documents;
(vii) except for transactions among such Party and its
wholly owned Subsidiaries or among such Party’s wholly
owned Subsidiaries, shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, issue, sell, pledge,
dispose of or encumber, or authorize the issuance, sale, pledge,
disposition or encumbrance of, any shares of its capital stock
or other ownership interest in such Party or any of its
Subsidiaries or any securities convertible into or exchangeable
for any such shares or ownership interest, or any rights,
warrants or options to acquire or with respect to any such
shares of capital stock, ownership interest or convertible or
exchangeable securities, other than in the case of Vowel,
(x) issuances of shares of Vowel Common Stock in respect of
any exercise of Vowel Stock Options or in respect of the
settlement of any Vowel Stock-Based Awards, in each case,
outstanding on the date hereof or as may be granted after the
date hereof as required by written agreements in effect on the
date hereof or Vowel Benefit Plans and set forth in
Section 5.1(b)(vii) of the Vowel Disclosure
Schedule, or (y) the acquisition of shares of Vowel Common Stock
from a holder of a Vowel Stock Option or Vowel Stock-Based Award
in satisfaction of withholding obligations or in payment of the
exercise price;
(viii) except for transactions among such Party and its
wholly owned Subsidiaries or among such Party’s wholly
owned Subsidiaries, and except in the ordinary course of
business consistent with past practice, it shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly,
purchase, redeem or otherwise acquire any shares of its or any
Subsidiary’s capital stock or any rights, warrants or
options to acquire any such shares;
(ix) except for transactions among such Party and its
wholly owned Subsidiaries or among such Party’s wholly
owned Subsidiaries, shall not, directly or indirectly, sell,
lease, license, transfer, exchange or swap, mortgage or
otherwise encumber (including securitizations), or subject or
suffer to exist to any Lien (other than Permitted Liens) or
otherwise dispose of any material portion of its properties or
assets, including the capital stock of Subsidiaries, except
(A) pursuant to agreements in effect prior to the date
hereof; or (B) as may be required by applicable Law or any
Governmental Authority in order to permit or facilitate the
consummation of the transactions contemplated hereby;
(x) shall not and shall not permit any of its Subsidiaries
to, directly or indirectly, incur any Liability for any capital
expenditure which is not paid, discharged or satisfied in full
prior to the Closing Date or which such Party or any of its
Subsidiaries is otherwise required to pay, discharge or satisfy
after the Closing Date, other than those capital expenditures
set forth in such Party’s budget attached to
Section 5.1(b)(x) of the Vowel Disclosure Schedule
and attached to Section 5.1(b)(x) of the Consonant
Disclosure Schedule, as applicable;
(xi) except for transactions among such Party and its
wholly owned Subsidiaries or among such Party’s wholly
owned Subsidiaries, shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, acquire by merger or
consolidation, make an investment in or loan, advance or
extension of credit to, or, directly or indirectly, by any other
means, any business, whether a corporation, partnership, joint
venture, limited liability company, association or other
business organization or division thereof;
(xii) shall not, directly or indirectly, incur, assume,
guarantee, or become obligated with respect to any indebtedness
for borrowed money except for (A) transactions among such
Party and its wholly owned Subsidiaries or among such
Party’s wholly owned Subsidiaries; (B) indebtedness
for borrowed money incurred to replace, renew, extend, refinance
or refund any existing indebtedness, and in any such case, on
materially no less favorable terms and in principal amount no
greater than the outstanding principal amount of the
indebtedness being replaced, renewed, extended, refinanced or
refunded; and (C) indebtedness for borrowed money incurred
pursuant to agreements in effect prior to the date hereof and
described in the Vowel Disclosure Schedule or the Consonant
Disclosure, as the case may be;
(xiii) shall not, directly or indirectly, enter into, renew
or amend in any material respect any transaction, agreement,
arrangement or understanding between (A) the Party or any
of its Subsidiaries, on the one hand; and (B) any affiliate
of the Party (other than any of the Party’s Subsidiaries),
on the other hand, of a type that would be required to be
disclosed under Item 404 of
Regulation S-K
under the Securities Act (treating Consonant as if it were
subject to such disclosure requirements), except that the
foregoing prohibitions shall not apply to any transactions or
agreements expressly set forth on
Section 5.1(b)(xiii) of the Consonant Disclosure
Schedule attached hereto that are entered into between or among
Consonant and (x) its Subsidiaries or (y) the VSS
Funds and their Affiliates;
(xiv) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into, or
materially amend, modify or fail to renew, any Vowel Material
Contract or Consonant Material Contract, as the case may be, or
waive, release, grant, assign or transfer any of its material
rights or claims thereunder, except (x) any such actions
taken in the ordinary course of business consistent with past
practice (provided that any action consisting of entering into a
Multi-Year Contract between the date hereof and the earlier of
the Effective Time or the Termination Date shall not be covered
by this clause (x) but shall be permitted without consent
if permitted by clause (y)) or (y) in the case of entering
into any Multi-Year Contract, to the extent such Multi-Year
Contract’s discounts and gross profitability (measured on
an accounting basis consistent with GAAP) are consistent in all
material respects with other similarly sized single-year and
multi-year transactions entered into by Vowel prior to the date
hereof;
(xv) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, (A) waive,
release, assign, settle or compromise any claim, action or
proceeding, other than waivers, releases, assignments,
settlements or compromises that do not create obligations of
such Party or its Subsidiaries other than the payment of
monetary damages not in excess of $2,500,000 in the aggregate
since the date hereof (excluding amounts to be paid under
existing insurance policies or renewals thereof or any amounts
reflected or reserved against in such Party’s consolidated
audited balance sheet as of the Balance Sheet Date), or
(B) otherwise pay, discharge or satisfy any claims,
liabilities or obligations in excess of such amount;
(xvi) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any material
change in any method of financial accounting or make any
material Tax election other than changes required by GAAP or
applicable Law;
(xvii) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, (A) enter into any
agreement to purchase or sell any interest in real property or
grant a security interest in any real property, or
(B) enter into any material lease, sublease or other
occupancy agreement with respect to any real property or
materially alter, amend, modify or terminate the terms of any
lease for real property;
(xviii) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, adopt a plan of
complete or partial liquidation, dissolution, restructuring,
recapitalization or other corporate reorganization;
(xix) in the case of Consonant, shall not, and shall not
permit any of its Subsidiaries to, modify, amend or obtain a
waiver of any of the material terms of the Credit Agreements or
take (or omit to take) any other action under the Credit
Agreements, to the extent (i) set forth in
Section 5.1(b)(xix) of the Consonant Disclosure
Schedule, or (ii) any such modification, amendment, waiver,
act or omission would be reasonably likely to result in a
Consonant Material Adverse Effect;
(xx) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, knowingly take any
action that will likely result in the representations and
warranties set forth in (A) with respect to Vowel,
Article III and (B) with respect to Consonant,
Article IV, becoming false or inaccurate in any
material respect; and
(xxi) shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, agree, in writing or
otherwise, to take any of the foregoing actions.
Section 5.2. Access.
(a) Each of Consonant and Vowel shall afford to the
officers, directors, employees, accountants, consultants, legal
counsel, financial advisors and agents and other representatives
of the other Party and its Subsidiaries (collectively,
“Representatives”) reasonable access during
normal business hours upon reasonable notice and as coordinated
through such Party’s General Counsel, Chief Financial
Officer or other authorized representative throughout the period
prior to the earlier of the Effective Time and the Termination
Date, to its and its Subsidiaries properties, contracts,
commitments, books and records. In addition, Consonant, Holdco
and Vowel shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other Party (i) a
copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to
the requirements of federal or state securities Laws and
(ii) all other information concerning its business,
finances, operations, properties, assets and personnel as the
requesting Party may reasonably request. The foregoing
notwithstanding, neither Consonant nor Vowel shall be required
to afford such access if it determines in good faith that such
access would constitute a violation of any applicable Law.
(b) Each of Vowel and Consonant agree that all information
provided to the other Party or its Representatives in connection
with this Agreement and the consummation of the transactions
contemplated hereby shall be deemed to be “Evaluation
Material,” as such term is used in, and shall be treated in
accordance with, the Confidentiality Agreements.
Section 5.3. Vowel
No Solicitation.
(a) Subject to Section 5.3(b), Vowel agrees
that neither it nor any Subsidiary of Vowel shall, and that it
shall cause its and their respective Representatives not to,
directly or indirectly, (i) initiate, solicit, encourage or
facilitate (including by way of furnishing information) any
inquiries, proposals or offers (including any proposal from or
offer to Vowel’s stockholders) that will lead to or would
constitute a Vowel Alternative Proposal or any inquiry, proposal
or offer (including any proposal from or offer to Vowel’s
stockholders) that is reasonably likely to lead to a Vowel
Alternative Proposal; (ii) engage, continue or participate
in any negotiations concerning, or provide or cause to be
provided any information or data relating to Vowel or any of its
Subsidiaries in connection with, or have any discussions with
any Person relating to, or that is reasonably likely to lead to,
a Vowel Alternative Proposal; (iii) approve, endorse or
recommend, or propose publicly to approve, endorse or recommend,
any Vowel Alternative Proposal or a Vowel Superior Proposal; or
(iv) execute or enter into, any letter of intent, agreement
in principle, merger agreement, acquisition agreement, option
agreement or other similar agreement relating to any Vowel
Alternative Proposal or a Vowel Superior Proposal;
provided, however, it is understood and agreed
that any determination or action by the Vowel Board permitted
under Section 5.3(b) or (c), shall not, in
and of itself, be deemed to be a breach or violation of this
Section 5.3(a) or, in the case of
Section 5.3(b), give Consonant a right to terminate
this Agreement pursuant to Section 7.1(h). Vowel
shall, and shall cause its Representatives to, cease immediately
all discussions and negotiations with any Person conducted
heretofore regarding any proposal that constitutes, or may
reasonably be expected to lead to, a Vowel Alternative Proposal
or a Vowel Superior Proposal, and immediately after the public
announcement of this Agreement shall request the prompt return
or destruction of all confidential information previously
furnished to such Person(s) within the last three months for the
purpose of evaluating a possible Vowel Alternative Proposal.
Without limiting the foregoing, it is agreed that any violation
of the restrictions set forth in this Section 5.3(a)
by any Representative or Affiliate of Vowel or any Subsidiary,
whether or not such Person is purporting to act on behalf of
Vowel or any Subsidiary or otherwise, shall be deemed to be a
breach of this Section 5.3(a) by Vowel.
(b) Notwithstanding anything to the contrary in
Section 5.3(a), at any time prior to the Vowel
Stockholder Approval, Vowel may, in response to an unsolicited
written Vowel Alternative Proposal received after the date
hereof (so long as such Vowel Alternative Proposal did not
result from a breach of Section 5.3(a) by Vowel, any
of its Subsidiaries or any of their respective Representatives
or Affiliates), if the Vowel Board determines, in good faith,
after consultation with its financial advisors, that such Vowel
Alternative Proposal constitutes or is reasonably expected to
lead to a Vowel Superior Proposal and with respect to which the
Vowel Board determines in good faith, after consulting with its
outside legal counsel, that such action is required in order for
the Vowel Board to comply with its fiduciary obligations to the
Vowel stockholders under applicable Law, (A) furnish
non-public information with respect to Vowel and its
Subsidiaries to the Person making such Vowel Alternative
Proposal and its Representatives and potential debt and equity
financing sources pursuant to a customary confidentiality
agreement (in accordance with the provisions of
Section 5.3(e)), and (B) participate in
discussions or negotiations with such Person and its
Representatives regarding such Vowel Alternative Proposal;
provided, however, that (i) Vowel shall
contemporaneously provide or make available to Consonant
(subject to the Vowel Confidentiality Agreement) any non-public
information concerning Vowel or any of its Subsidiaries that is
provided to the Person making such Vowel Alternative Proposal or
its Representatives which was not previously provided or made
available to Consonant (in which case, Vowel shall so advise
Consonant that such was previously provided), and (ii) the
Person making such Vowel Alternative Proposal becomes party to a
confidentiality agreement containing customary limitations on
the use and disclosure of all nonpublic information furnished to
such Person on Vowel’s behalf that is no less favorable to
Vowel than the Vowel Confidentiality Agreement.
(c) Except as set forth in this Section 5.3(c),
neither the Vowel Board nor any committee thereof shall
(i) withdraw or modify in a manner adverse to Consonant or
publicly propose to withdraw or modify in a manner adverse to
Consonant, the Vowel Recommendation, (ii) approve,
recommend or take any position other than to recommend rejection
(including modifying any recommendation of rejection) of, any
Vowel Alternative Proposal, (iii) cause or permit
Vowel or any of its Subsidiaries to enter into (or publicly
propose that Vowel or any of its Subsidiaries enter into)
approve or recommend any letter of intent, agreement in
principle, acquisition agreement, option agreement or similar
agreement constituting or relating to, or that is intended to be
or would reasonably be likely to result in, any Vowel
Alternative Proposal or Vowel Superior Proposal or
(iv) approve or recommend, or publicly propose to approve,
endorse or recommend any Vowel Alternative Proposal or Vowel
Superior Proposal or any agreement, understanding or arrangement
relating to any Vowel Alternative Proposal or Vowel Superior
Proposal, except for a confidentiality agreement referred to in
Section 5.3(b) entered into in the circumstances
referred to in Section 5.3(b). Notwithstanding
anything to the contrary contained herein, prior to receipt of
the Vowel Stockholder Approval, the Vowel Board shall be
permitted (i) not to recommend to Vowel’s stockholders
approval and adoption of this Agreement and the Vowel Merger,
(ii) to withdraw or modify (in a manner adverse to
Consonant) the Vowel Recommendation (a ‘‘Change of
Vowel Recommendation”), (iii) to approve or
recommend any Vowel Superior Proposal
and/or
(iv) take any other actions that would otherwise be
prohibited under the first sentence of this
Section 5.3(c), but only if (A) Vowel, its
Subsidiaries and their respective Representatives and Affiliates
have complied with the terms of this Section 5.3,
(B) Vowel has received an unsolicited Vowel Alternative
Proposal which the Vowel Board (or any committee thereof)
determines in good faith, after consultation with its financial
advisors, constitutes a Vowel Superior Proposal, (C) the
Vowel Board (or any committee thereof) determines in good faith,
after consultation with its outside legal counsel, that such
action is required in order for the Vowel Board to comply with
its fiduciary obligations to the Vowel stockholders under
applicable Law, (D) Vowel has delivered a prior written
notice advising Consonant and Holdco that it intends to take
such action (which notice shall include a copy of any materials
and terms and conditions provided to Vowel by the Person making
the Vowel Superior Proposal, including the identity of such
Person) and (E) during the four (4) Business Day
period following receipt by Consonant and Holdco of such written
notice, Vowel and its Representatives shall negotiate in good
faith with Consonant
and/or
Holdco and their respective Representatives to make such
adjustments to the terms and conditions of this Agreement so
that such Vowel Superior Proposal ceases to constitute a Vowel
Superior Proposal or does not require the Vowel Board to make a
Change of Vowel Recommendation in order to comply with its
fiduciary obligations to the Vowel stockholders under applicable
Law and (F) following the end of such four
(4) Business Day period, the Vowel Board shall have
determined in good faith after consultation with its financial
advisors, taking into account any adjustments proposed by
Consonant
and/or
Holdco to Vowel to the terms of this Agreement, that the Vowel
Superior Proposal giving rise to such notice continues to
constitute a Vowel Superior Proposal. Vowel acknowledges and
agrees that each successive modification to the financial terms
or other material terms of a Vowel Alternative Proposal that is
determined to be a Vowel Superior Proposal shall be deemed to
constitute a new Vowel Superior Proposal for purposes of this
Section 5.3(c) and shall require a new compliance
with the second sentence of this Section 5.3(c)
(and, for the avoidance of doubt, shall require a new four
(4) Business Day notice period following Consonant’s
receipt of notice of, and all materials relating to, such
modified Vowel Alternative Proposal that is determined to be a
Vowel Superior Proposal).
(d) Nothing contained in Section 5.3 shall be
deemed to prohibit Vowel from taking and disclosing to its
stockholders a position with respect to a tender offer
contemplated by
Rule 14e-2(a),
Rule 14d-9
or Item 1012 of
Regulation M-A
promulgated under the Exchange Act or from making any disclosure
to Vowel’s stockholders if, in the good faith judgment of
the Vowel Board, after consultation with its outside legal
counsel, the making of such disclosure is required to comply
with such rules and regulations; provided,
however, in no event shall Vowel, the Vowel Board or any
committee thereof take, or agree or resolve to take, any action
prohibited by Section 5.3(c). Nothing in this
Section 5.3 shall prohibit Vowel or the Vowel Board
from making any “stop, look and listen” communications
to the stockholders of Vowel as limited by and pursuant to
Rule 14d-9(f)
of the Exchange Act and such communication shall not constitute
a Change of Vowel Recommendation under this Agreement (including
Article VII); provided, however, that
in no event shall Vowel, the Vowel Board or any committee
thereof take, or agree or resolve to take, any action prohibited
by Sections 5.3(a) or (c).
(e) Vowel promptly (and in any event within 24 hours)
shall advise Consonant orally and in writing of (i) any
inquiries, proposals or offers reasonably expected to lead to a
Vowel Alternative Proposal, (ii) any request for
information relating to Vowel or its Subsidiaries reasonably
expected (in the good faith judgment of the Vowel Board) to lead
to a Vowel Alternative Proposal and (iii) any inquiry or
request for discussion or negotiation that would reasonably be
expected to result in a Vowel Alternative Proposal, including in
each case a copy of the materials (including, without
limitation, any written inquiry, term sheet, letter of intent,
proposal, offer or other indication of interest) provided to
Vowel by such Person, the identity of the Person making any such
Vowel Alternative Proposal, indication, inquiry, offer or
request reasonably expected to lead to a Vowel Alternative
Proposal and the material terms and conditions of any such Vowel
Alternative Proposal or indication, inquiry or offer reasonably
likely to lead to a Vowel Alternative Proposal. Vowel shall keep
Consonant and Holdco reasonably informed on a reasonably current
basis of the status and details (including any material changes
to the terms thereof) and material discussions or negotiations
regarding any such Vowel Alternative Proposal, indication,
inquiry or offer reasonably likely to lead to a Vowel
Alternative Proposal or any material developments relating
thereto and promptly provide Consonant and Holdco with all
copies of all written material communications and other material
documents that reflect the terms of such Vowel Alternative
Proposal, indication, inquiry or offer reasonably likely to lead
to a Vowel Alternative Proposal (Vowel agreeing that it shall
not, and shall cause its Subsidiaries not to, enter into any
confidentiality agreement with any Person subsequent to the date
of this Agreement which prohibits Vowel from providing such
information to Consonant).
Section 5.4. Filings;
Other Actions.
(a) As promptly as reasonably practicable following the
date of this Agreement, each of Vowel, Consonant and Holdco
shall cooperate in preparing the Registration Statement and
Holdco shall cause the Registration Statement to be filed with
the SEC upon approval thereof by Vowel and Consonant, such
approval not to be unreasonably withheld, delayed or
conditioned. The Proxy Statement/Prospectus will be included in
the Registration Statement as a prospectus and will constitute a
part of the Registration Statement. Subject to
Section 5.3(c), the Proxy Statement/Prospectus shall
contain the Vowel Recommendation. Each of Vowel, Consonant and
Holdco shall use commercially reasonable efforts to respond to
any comments of the SEC, to have the Registration Statement
declared effective under the Securities Act as promptly as
practicable after such filing and to cause the Proxy
Statement/Prospectus in definitive form to be mailed to
Vowel’s stockholders as promptly as practicable after the
Registration Statement is declared effective under the
Securities Act. Each of Vowel, Consonant and Holdco will notify
the other parties, as promptly as practicable after the receipt
thereof, of any written comments, and advise each other of any
oral comments, from the SEC or its staff and of any request by
the SEC or its staff or any other Governmental Authority for
amendments or supplements to the Filings or for additional
information, and will supply the other parties with copies of
all correspondence between it or any of its Representatives, on
the one hand, and the SEC, or its staff or any other
Governmental Authority, on the other hand, with respect to the
Filings, the transactions contemplated by this Agreement or the
shares of Holdco Common Stock issuable pursuant to the Mergers.
Vowel, Consonant and Holdco shall cooperate and provide the
other Parties with a reasonable opportunity to review and
comment on any amendment or supplement to the Filings prior to
filing such with the SEC, and each will provide each other with
a copy of all such filings made with the SEC. No amendment or
supplement to any Filing will be made by Vowel or Consonant
without the prior approval of Holdco (not to be unreasonably
withheld or delayed), except as required by Law and then only to
the extent necessary, or without providing the other parties the
opportunity to review and comment thereon; provided,
however, that Vowel, in connection with a Change of Vowel
Recommendation, may amend or supplement the Filings (including
by incorporation by reference) to effect such a Change of Vowel
Recommendation. Holdco shall advise Consonant and Vowel promptly
after it receives notice thereof, of the time when the
Registration Statement has been declared
effective or any supplement or amendment has been filed, the
issuance of any stop order, or the suspension of the
qualification of Holdco Common Stock issuable in connection with
the Mergers for offering or sale in any jurisdiction. If, at any
time prior to the Effective Time, any information relating to
the Parties, or any of their respective Subsidiaries,
Affiliates, officers or directors should be discovered by the
Parties which should be set forth in an amendment or supplement
to the Filings so that any of such documents would not include
any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading,
or an event occurs which is required to be set forth in an
amendment or supplement to the Filings, the Party that discovers
such information shall promptly notify the other Party and an
amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by Law,
disseminated to Vowel’s stockholders. Holdco, Consonant and
Vowel shall furnish Lowenstein Sandler PC
and/or
McDermott Will & Emery LLP, as applicable, with
executed representation letters in form and substance reasonably
acceptable to such counsel to support opinions by each of
Lowenstein Sandler PC and McDermott Will & Emery LLP
addressed to Holdco to be filed as Exhibits 8.1 and 8.2 to
the Registration Statement.
(b) As promptly as practicable after the date of this
Agreement, the Parties shall prepare and file any other filings
required under the Exchange Act, the Securities Act or any other
federal or state securities Law relating to the Mergers and the
other transactions contemplated by this Agreement.
(c) Subject to the other provisions of this Agreement,
including without limitation Section 5.3(c) and
Section 7.1 (and for avoidance of doubt, subject to
termination of this Agreement pursuant to
Section 7.1(f)), as soon as is reasonably
practicable following the date (the “SEC Effective
Date”) upon which the Registration Statement becomes
effective with the SEC, (i) Vowel shall, regardless of any
Change of Vowel Recommendation, take all action necessary in
accordance with the DGCL and its certificate of incorporation
and by-laws to duly call, give notice of, convene and hold a
meeting of its stockholders as promptly as reasonably
practicable following the mailing of the Proxy
Statement/Prospectus for the purpose of obtaining the Vowel
Stockholder Approval (the “Vowel Meeting”), it
being understood that Vowel shall use reasonable best efforts to
cause the Proxy Statement/Prospectus to be mailed not more than
ten (10) calendar days after the SEC Effective Date, and
(ii) subject to a Change of Vowel Recommendation in
accordance with Section 5.3(c), the Vowel Board
shall make the Vowel Recommendation (a statement to such effect
shall be contained in the Proxy Statement/Prospectus) and Vowel
shall use its commercially reasonable best efforts to solicit
from its stockholders proxies in favor of the adoption of this
Agreement and approval of the transactions contemplated hereby,
provided, the foregoing shall not prohibit accurate
disclosure (and such disclosure shall not be deemed to be a
Change of Vowel Recommendation) of factual information regarding
the business, financial condition or results of operations of
Consonant or Vowel or the fact that a Vowel Alternative Proposal
has been made, the identity of the party making such proposal or
the material terms of such proposal (but not in the Proxy
Statement/Prospectus), to the extent Vowel’s Board, in good
faith after consultation with its outside legal counsel,
determines that such information, facts, identity or terms is
required to comply with its fiduciary obligations to the Vowel
stockholders under applicable Law and, provided,
further, that the Vowel Board may only make a Change of
Vowel Recommendation in accordance with
Section 5.3(c).
(d) Notwithstanding Sections 5.4(a) or
(c), if on a date for which the Vowel Meeting is
scheduled (the “Vowel Meeting Original Date”),
Vowel has not received proxies representing a sufficient number
of shares of Vowel Common Stock to adopt this Agreement, Vowel
shall have the right to postpone or adjourn the Vowel Meeting to
a date which shall not be more than 45 days after the Vowel
Meeting Original Date. If Vowel continues not to receive proxies
representing a sufficient number of shares of Vowel Common Stock
to adopt this Agreement, Vowel may make one or more successive
postponements or adjournments of the Vowel Meeting as long as
the date of the Vowel Meeting is not postponed or adjourned more
than an aggregate of 45 days from the Vowel Meeting
Original Date in reliance on this subsection. In the event that
the Vowel Meeting is adjourned or postponed as a result of
applicable Law, including the need to supplement the Proxy
Statement/Prospectus, any days resulting from such adjournment
or postponement shall not be included for purposes of the
calculations of numbers of days pursuant to this
Section 5.4.
(a) Subject to the terms and conditions set forth in this
Agreement, each of the Parties shall use all commercially
reasonable efforts to take promptly, or cause to be taken, all
actions, and to do promptly, or cause to be done, and to assist
and cooperate with the other parties in doing, all things
necessary, proper or advisable under applicable Laws to
consummate and make effective the Mergers and the other
transactions contemplated by this Agreement, including
(i) obtaining all necessary actions or nonactions, waivers,
consents, clearances, approvals, and expirations or terminations
of waiting periods, including the Vowel Specified Approvals and
the Consonant Specified Approvals, from Governmental Authorities
and the making of all necessary registrations and filings and
the taking of all steps as may be necessary to obtain an
approval, clearance or waiver from, or to avoid an action or
proceeding by, any Governmental Authority, (ii) obtaining
all necessary consents, approvals or waivers from third parties,
and (iii) the execution and delivery of any additional
instruments necessary to consummate the transactions
contemplated by this Agreement; provided, however,
that, except as otherwise expressly provided in this Agreement,
in no event shall Vowel or any of its Subsidiaries, or Consonant
or any of its Subsidiaries or Holdco be required to pay prior to
the Effective Time any fee, penalty or other consideration to
any third party for any consent or approval required for the
consummation of the transactions contemplated by this Agreement
under any contract or agreement in excess of $500,000.
(b) Subject to the terms and conditions herein provided and
without limiting the foregoing, the Parties shall
(i) promptly, but in no event later than fifteen
(15) Business Days after the date hereof (or such later
date as may be mutually agreed in writing by the Parties), file
any and all required Notification and Report Forms under the HSR
Act with respect to the Mergers and the other transactions
contemplated by this Agreement, and use commercially reasonable
efforts to cause the expiration or termination of any applicable
waiting periods under the HSR Act; (ii) use commercially
reasonable efforts to cooperate with each other in
(x) determining whether any filings are required to be made
with, or consents, permits, authorizations, waivers, clearances,
approvals, and expirations or terminations of waiting periods
are required to be obtained from, any third parties or other
Governmental Authorities in connection with the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby and (y) timely making all
such filings and timely seeking to obtain all such consents,
permits, authorizations or approvals; (iii) supply to any
Governmental Authorities as reasonably promptly as practicable
any additional information or documents that may be requested
pursuant to any Law or by such Governmental Authority; and
(iv) take, or cause to be taken, all other actions and do,
or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions
contemplated hereby, including taking all such further action as
may be necessary promptly to resolve such objections, if any, as
the United States Federal Trade Commission, the Antitrust
Division of the United States Department of Justice, state
antitrust enforcement authorities or competition authorities of
any other nation or other jurisdiction or any other Person may
assert under any Law with respect to the transactions
contemplated hereby, and to avoid or eliminate each and every
impediment under any Law that may be asserted by any
Governmental Authority with respect to the Mergers so as to
enable the Closing to occur as soon as reasonably possible (and
in any event no later than the Outside Date); provided,
however, that nothing contained in this Agreement shall
be deemed to require any Party or any Subsidiary or Affiliate
thereof to agree to any Action of Divesture.
(c) Subject to applicable legal limitations and the
instructions of any Governmental Authority and the
Confidentiality Agreements, Vowel and Consonant shall keep each
other apprised of the status of matters relating to the
completion of the transactions contemplated thereby, including
promptly furnishing the other with copies of notices or other
communications received by Vowel or Consonant or any of their
respective Affiliates, as the case may be, or any of their
respective Subsidiaries, from any third party
and/or any
Governmental Authority with respect to such transactions. Vowel
and Consonant shall permit counsel for the other party
reasonable opportunity to review in advance, and consider in
good faith the views of the other party in connection with, any
proposed written communication to any Governmental Authority.
Each of Vowel and Consonant agrees not to participate in any
substantive meeting or discussion, either in person or by
telephone, with any Governmental Authority in connection with
the proposed transactions unless it consults
with the other party in advance and, to the extent not
prohibited by a Governmental Authority, gives the other party
the opportunity to attend and participate.
(d) In furtherance and not in limitation of the covenants
of the Parties contained in Section 5.5(b), if any
administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to
be instituted) challenging any transaction contemplated by this
Agreement as violative of any Law, each of Vowel and Consonant
shall cooperate in all respects with each other and shall use
their respective commercially reasonable efforts to contest and
resist any such Proceeding and to have vacated, lifted, reversed
or overturned any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent, that is in effect
and that prohibits, prevents or restricts consummation of the
Mergers and the other transactions contemplated by this
Agreement.
(e) Notwithstanding the provisions of
Sections 5.5(a)-(d),
to the extent that a Party or its Affiliates has confidential
information contained in any filing with or correspondence to a
Governmental Authority, such Party shall not be required to
share such portion of such filing or correspondence with the
other Party. A Party may request entry into a joint defense
agreement as a condition to providing any materials to another
Party in connection with the matters covered by
Sections 5.5(a)-(d)
and, upon receipt of that request, the Parties shall work in
good faith to enter into a joint defense agreement to create and
preserve attorney-client privilege in a form and in substance
mutually acceptable to the Parties.
Section 5.6. Takeover
Statute. Subject to the provisions of this
Agreement, if any “fair price,”“moratorium,”“control share acquisition” or
other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby after the
date hereof, each of Vowel and Consonant and the members of
their respective Boards of Directors shall grant such approvals
and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly
as practicable on the terms contemplated hereby and otherwise
act to eliminate or minimize the effects of such statute or
regulation on transactions contemplated hereby and otherwise act
to eliminate or minimize the effects of such statute or
regulation on the Mergers and the other transactions
contemplated hereby.
Section 5.7. Public
Announcements. Subject to
Section 5.4(a) of this Agreement and except in
connection with a Change of Vowel Recommendation, Holdco, Vowel
and Consonant will consult with and provide each other the
opportunity to review and comment upon any press release or
other public statement, comment or filing and will obtain the
approval of the other, such approval not to be unreasonably
withheld, conditioned or delayed, prior to the issuance of such
press release or other public statement or comment or the making
of any filing relating to this Agreement or the transactions
contemplated herein and shall not issue any such press release
or other public statement or comment, or make any such filing,
prior to such consultation and approval except as may be
required by applicable Law or by obligations pursuant to any
listing agreement with any national securities exchange, in
which case the Parties will use their reasonable best efforts to
consult with the other Parties in advance of any such press
release or other public statement, comment or filing. The
executive officers of Holdco, Consonant and Vowel will cause
their respective employees, Representatives and Subsidiaries to
comply with this Section 5.7. Holdco, Consonant and
Vowel agree to issue a joint press release announcing this
Agreement in form and substance mutually agreeable to Holdco,
Consonant and Vowel.
Section 5.8. Indemnification
and Insurance.
(a) Prior to the Effective Time, Vowel shall purchase a
six-year extended reporting period (“tail”) to report
claims under its then existing directors’ and
officers’ (“D&O”) insurance policies
(“D&O Program”) and its fiduciary
liability insurance policies (“Fiduciary
Program”) arising out of or pertaining to any action or
omission occurring on or prior to the Effective Time (including
any which arise out of or relate to the transaction contemplated
by this Agreement and the Transaction Documents), all on terms
no less favorable than such insurance then maintained in effect
by Vowel or its Subsidiaries, including, without limitation, in
terms of coverage and amount, except that the tail for the
D&O Program, at Vowel’s option, shall provide coverage
solely on a Side-A basis (the “D&O Tail
Insurance”). Further, the excess insurance policies on
the D&O Program, at Vowel’s option, each shall specify
that they will drop down to provide coverage in place of any
insolvent underlying insurer. After the Effective Time, neither
Holdco nor Vowel shall amend, modify,
replace or terminate the D&O Tail Insurance or any related
policies or agreements that are in effect at or immediately
before the Effective Time.
(b) Holdco shall indemnify and hold harmless each present
and former director and officer of Vowel and its Subsidiaries
(the “Indemnified Persons”) against any losses,
claims, damages, liabilities, costs, expenses (including
reasonable attorneys’ fees), judgments, fines and amounts
paid in settlement in connection with any threatened, pending or
completed claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative,
whether asserted or commenced prior to or after the Effective
Time (but only to the extent relating to acts or omissions
occurring on or prior to the Effective Time) (an
“Indemnifiable Claim”), to the full extent
permitted under the DGCL and Vowel’s and its
Subsidiaries’ respective certificates of incorporation and
by-laws, in each case as in effect on the date hereof or as
expanded subsequent to the Effective Time. Holdco and Consonant
acknowledge and accept as contract rights (and agree to cause
Holdco’s and Consonant’s Subsidiaries (whether
existing as of the date hereof or later formed or acquired, but
excluding Consonant Learning and its Subsidiaries) to honor in
accordance with their terms) the provisions of Vowel’s and
its Subsidiaries’ (treating LAZEL as if it were a
Subsidiary of Vowel as of the date hereof) respective
certificates of incorporation and by-laws as in effect on the
date hereof (or, in the case of LAZEL, as of the Closing) with
respect to exculpation from liability and indemnification of
officers, directors, employees and agents of Vowel and the
Subsidiaries (including provisions relating to contributions,
advancement of expenses and the like), and agree such rights
shall not be modified or amended except as required by Law,
unless such modification or amendment expands the rights of the
Indemnified Persons to indemnification (including with respect
to contribution, advancement of expenses and the like);
provided, however, that, notwithstanding the
foregoing, the above-described contract rights acknowledged and
agreed by Holdco and Consonant (and their respective
Subsidiaries, other than Consonant Learning and its
Subsidiaries) under this Section 5.8(b), and any and
all obligations with respect thereto, shall only be applicable
to, and shall only include those rights set forth in the
respective certificates of incorporation and by-laws (in each
case, as in effect on the date hereof or as of the Effective
Time in the case of LAZEL) of, each of Vowel and any Subsidiary
of Vowel that remains in existence and a Subsidiary of Vowel at
the Effective Time. If any Subsidiary of Vowel, other than
LAZEL, is sold to, or merged or consolidated with, any Person
other than Holdco or a Subsidiary thereof then such
Subsidiary’s obligations under this
Section 5.8(b) shall thereupon, automatically
without further action or deed, be extinguished and void ab
initio, other than with respect to any Indemnifiable Claim
for which Holdco or any of its Subsidiaries shall have received
written notice prior to the closing of any such sale, merger or
consolidation. Holdco shall advance expenses (including
attorneys’ fees) to each such Indemnified Person to the
full extent permitted by law; provided, that, the
Indemnified Person must provide a written undertaking to repay
all expenses if it is finally judicially determined that such
Indemnified Person is not entitled to indemnification. Any
Indemnified Person seeking to claim indemnification or
advancement of expenses under this Section 5.8(b),
upon learning of any Indemnifiable Claim, shall promptly provide
written notice to Holdco specifying in reasonable detail the
Indemnifiable Claim, the basis for such indemnification or
advancement of expenses and the undertaking contemplated by the
preceding proviso if advancement of expenses is desired;
provided, however, that the failure of an
Indemnified Person to give such notice shall only relieve Holdco
of its indemnification or advancement obligation to the extent
of actual prejudice resulting therefrom. Notwithstanding
anything in this Section 5.8(b) to the contrary,
Holdco’s and its Subsidiaries’ obligations under this
Section 5.8(b) shall terminate with respect to any
Indemnifiable Claim for which Holdco or any of its Subsidiaries
shall not have received written notice prior to the expiration
of the applicable statute of limitations with respect to such
Indemnifiable Claim (subject to any tolling agreements).
Section 5.9. Employee
Relations and Benefits.
(a) Holdco shall not, and shall cause each of its
Subsidiaries not to, make any material modifications, effective
during the period beginning on the Closing Date and ending on
the first anniversary thereof, to (i) the base compensation
and incentive compensation program as in effect immediately
prior to the Effective Time with respect to the Vowel Employees
who are active employees of Vowel or any of its Subsidiaries as
of the Effective Time (the “Vowel Active
Employees”) or (ii) the employee benefit plans,
programs and arrangements provided to Vowel Employees as in
effect immediately prior to the Effective Time, unless, in case
of clauses (i) or (ii) (other than with respect to 2009
incentive compensation payable in 2009 or 2010 pursuant to the
plans
or arrangements described in Section 5.9(a) of the
Vowel Disclosure Schedules (the “2009 Incentive
Plans”)), any such modification is applicable to
similarly situated employees of Consonant Learning;
provided, however, nothing in this
Section 5.9 shall prevent Holdco or any Subsidiary
from making any modification (other than with respect to 2009
Incentive Plans) (x) to the extent required to comply with
applicable Law, or (y) that is approved by the Special
Majority of the Holdco Board. Neither Vowel nor any of its
Subsidiaries shall amend or otherwise modify the 2009 Incentive
Plans prior to the Effective Time without the prior written
consent of Holdco, and after the Effective Time, none of Holdco,
Vowel or any of their respective Subsidiaries shall amend or
otherwise modify or terminate the 2009 Incentive Plans without
the consent of the Stockholders’ Representative. During the
period beginning on the Closing Date and ending on the first
anniversary thereof, any Vowel Active Employees who are
terminated without cause (as reasonably determined by the
applicable employer) shall be entitled to a severance amount no
less than they would have received as severance under the Vowel
Benefits Plans in effective immediately before the Effective
Time.
(b) Holdco and Consonant shall, and shall cause Vowel and
the Subsidiaries of Holdco to, recognize all service of the
Vowel Active Employees (consistent with Vowel’s service
recognition policies) prior to the Closing Date as service in
connection with any 401(k) savings plans, welfare benefit plans
and employment policies (including any vacation and holiday
policies) that are made available following the Closing Date by
any of Holdco, Consonant or their respective Subsidiaries or
Affiliates for purposes of any waiting period, vesting,
eligibility and benefit entitlement (but excluding pension plan
accruals).
(c) Following the Closing Date, Holdco and Consonant shall,
and shall cause the Subsidiaries of Holdco to, waive, or cause
their insurance carriers to waive, all limitations as to
pre-existing and at-work conditions, if any, with respect to
participation and coverage requirements applicable to Vowel
Active Employees under any welfare benefit plan (as defined in
Section 3(1) of ERISA) that is made available to Vowel
Active Employees following the Closing Date.
(d) Nothing herein, express or implied, shall confer upon
any Vowel Employee or Consonant Employee any right to employment
or continued employment for any specified period of any nature
or kind whatsoever, under or by reason of this Agreement.
Section 5.10. Holdco
Stock Options. At or prior to the Effective
Time the Holdco Board shall adopt the Holdco Equity Incentive
Plan and within twenty (20) Business Days after the
Effective Time, Holdco shall file with the SEC a registration
statement on
Form S-8
(or any successor or, including if
Form S-8
is not available, other appropriate forms) with respect to the
Holdco Common Stock authorized for issuance under the Holdco
Equity Incentive Plan.
Section 5.11. Control
of Operations. Nothing contained in this
Agreement (including without limitation Section 5.1)
shall give any of Holdco, Consonant or Vowel, directly or
indirectly, the right to control or direct any other
Party’s operations prior to the Effective Time. Prior to
the Effective Time, each of Holdco, Consonant and Vowel shall
exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over their
respective operations and the operations of their respective
Subsidiaries. If and to the extent that compliance with any
covenant by a Party in Section 5.1 of this Agreement
would result in, or would be reasonably likely to result in, a
violation of any applicable Law relating to antitrust or
competition matters, in each case in the reasonable, good faith
judgment of the affected Party after consultation with outside
counsel, then each of the Parties shall refrain from enforcing
any such covenant and shall cooperate in good faith to structure
an arrangement that effectuates the purpose of this Agreement
without violation of applicable Law.
Section 5.12. Notification
of Certain Matters. Vowel shall give prompt
notice to Consonant, and Consonant shall give prompt notice to
Vowel, of (i) any notice or other communication received by
such party (or any of its Affiliates) from any Governmental
Authority in connection with the Mergers or the other
transactions contemplated hereby or from any Person alleging
that the consent of such Person is or may be required in
connection with the Mergers or the other transactions
contemplated hereby, if the subject matter of such communication
or the failure of such party to obtain such consent could be
material to Vowel, the Surviving Corporations, or Consonant (or,
following the Effective Time, Holdco); (ii) any Proceedings
commenced or, to such Party’s Knowledge, threatened
against, relating to or involving or otherwise affecting
such party or any of its Subsidiaries which relate to the
Mergers or the other transactions contemplated hereby;
(iii) any representation or warranty made by it or Holdco
in this Agreement or any Transaction Document becoming
inaccurate or untrue in any material respect; or (iv) the
discovery of any fact or circumstance that, or the occurrence or
non-occurrence of any event the occurrence or non-occurrence of
which, would cause or result in any of the conditions to the
Mergers set forth in Article VI not being satisfied
or satisfaction of those conditions being materially delayed in
violation of any provision of this Agreement; provided,
however, that the delivery of any notice pursuant to this
Section 5.12 shall not (x) cure any breach of,
or non-compliance with, any other provision of this Agreement or
(y) limit the remedies available to the party receiving
such notice; and, provided, further, that the
failure to give prompt notice hereunder pursuant to
clause (iv) shall not constitute a failure of a condition
to the Mergers set forth in Article VI except to the
extent that the underlying fact or circumstance not so notified
would standing alone constitute such a failure.
Section 5.13. Rule 16b-3
. Prior to the Effective Time, Vowel will take such steps
as may be reasonably necessary or advisable hereto to cause
dispositions of Vowel equity securities (including derivative
securities) pursuant to the transactions contemplated by this
Agreement by each individual who is a director or officer of
Vowel to be exempt under
Rule 16b-3
promulgated under the Exchange Act. Prior to the Effective Time,
Holdco will take such steps as may be reasonably necessary or
advisable hereto to cause acquisitions of Holdco equity
securities (including derivative securities) pursuant to the
transactions contemplated by this Agreement by each individual
who is or will become a director or officer of Holdco to be
exempt under
Rule 16b-3
promulgated under the Exchange Act.
Section 5.14. Agreement
to Defend; Stockholder Litigation. In the
event any Proceeding by any Governmental Authority or other
Person is commenced that questions the validity or legality of
the Mergers, the other transactions contemplated by this
Agreement or seeks damages in connection therewith, the Parties
agree to cooperate and use their reasonable best efforts to
promptly take or cause to be taken all actions necessary, proper
or advisable to defend against and respond thereto;
provided, that nothing in this Section 5.14
shall limit the Parties’ obligations under
Section 5.5 hereof. Vowel shall give Consonant and
Holdco a reasonable opportunity to participate (at
Consonant’s or Holdco’s sole expense) in the defense
or settlement of any stockholder litigation against Vowel and
its directors relating to the Mergers; provided, that no
such settlement shall be agreed to without Holdco’s prior
written consent, which shall not be unreasonably withheld,
conditioned or delayed, unless such settlement does not create
any obligations for Vowel or its Subsidiaries other than the
payment of monetary damages not in excess of $2,500,000 and
Vowel, its Subsidiaries or other defendants, as applicable,
receives a general release in its favor.
Section 5.15. Nasdaq
Listing. Each of Consonant, Vowel and Holdco
shall use its reasonable best efforts to cause the shares of
Holdco Common Stock to be issued as part of the Merger
Consideration and any other shares to be reserved for issuance
in connection with the Mergers to be approved for listing on the
Nasdaq Global Market or such other national securities exchange
as Holdco may determine; provided, however, that
the failure of Holdco Common Stock to be so listed shall in no
event provide any Party with the right to terminate this
Agreement.
Section 5.16. Directors
of Holdco. As contemplated in the Holdco
Stockholders Agreement by and among Holdco, VSS-Consonant
Holdings III and the Stockholders’ Representative
attached hereto as Exhibit G (the “Holdco
Stockholders Agreement”) and on the terms and
conditions contained therein, at the Effective Time, the Vowel
Designees and the Consonant Designees shall be the directors of
Holdco until their successors shall be duly elected and
qualified or their earlier death, resignation or removal.
Subject to the Holdco Stockholders Agreement, effective as of
the Effective Time, the majority of the members of the Holdco
Board (including the chairperson) shall be designated by the VSS
Funds.
Section 5.17. Tax-Free
Qualification.
(a) Each of Consonant, Vowel, Holdco and the Merger
Subsidiaries shall use its respective reasonable best efforts
to, and shall use its reasonable best efforts to cause each of
its Subsidiaries to, cause the Mergers, taken together, to be
treated as a transaction described in Section 351 of the
Code. Each of Consonant, Vowel,
Holdco and the Merger Subsidiaries shall use its respective
reasonable best efforts not to, and shall use its reasonable
best efforts not to permit any of its respective Subsidiaries
to, take any action (including any action otherwise permitted by
this Section 5.17) that would prevent or impede the
Mergers, taken together, from being treated as a transaction
described in Section 351 of the Code.
(b) Unless otherwise required pursuant to a
“determination” within the meaning of
Section 1313(a) of the Code, each of the Parties shall
report the Mergers for U.S. federal income tax purposes
collectively as a transaction within the meaning of
Section 351 of the Code.
Section 5.18. Tax
Representation Letters. Vowel shall use its
reasonable best efforts to deliver to Lowenstein Sandler PC and
McDermott Will & Emery LLP a “Tax Representation
Letter,” dated as of the Closing Date and signed by an
officer of Vowel, containing representations of Vowel, and
Consonant shall use its reasonable best efforts to deliver to
Lowenstein Sandler PC and McDermott Will & Emery LLP a
“Tax Representation Letter,” dated as of the Closing
Date and signed by an officer of Consonant, containing
representations of Consonant, in each case as shall be
reasonably necessary or appropriate to enable Lowenstein Sandler
PC to render the opinion described in Section 6.3(e)
of this Agreement and McDermott Will & Emery LLP to
render the opinion described in Section 6.2(f) of
this Agreement.
Section 5.19. Transfer
Restrictions. Vowel agrees, with respect to
each stockholder that is a party to any Vowel Voting Agreement,
that if any such stockholder attempts to Transfer (as defined in
the Vowel Voting Agreement), vote or provide any other person
with the authority to vote any of the shares of Vowel Common
Stock owned by such stockholder other than in compliance with
the Vowel Voting Agreement, Vowel shall not (a) permit any
such Transfer on the Vowel’s books and records,
(b) issue a new certificate representing any of the shares
of Vowel Common Stock or permit any book entries for any such
Transfer with respect to any shares of Vowel Common Stock that
are in uncertificated form or (c) record such vote, in each
case, unless and until such stockholder shall have complied with
the terms of the Vowel Voting Agreement.
Section 5.20. Closing
Deliveries. At or prior to the Effective
Time, (i) Holdco and Consonant shall have delivered, or
caused the delivery of, the duly executed documents, instruments
and agreements required to be delivered by them as set forth on
Schedule 5.20 and (ii) Vowel and its
Subsidiaries shall have delivered, or caused the delivery of,
the duly executed documents, instruments and agreements required
to be delivered by them as set forth on
Schedule 5.20.
Section 5.21. Credit
Agreements Provisions.
(a) Holdco or Consonant shall provide to Vowel:
(i) prompt written notice upon the occurrence of any
“Default” or an “Event of Default” (as those
terms are defined in the Credit Agreements as in effect on the
date hereof) (in each case, a “Credit Agreement
Default”), (ii) a copy of any written
correspondence with, and a summary (oral or written) of any
discussions with, the agent or lender under the Credit
Agreements relating to an Event of Default promptly after
receipt thereof, and (iii) copies of any compliance
certificates and financial statements delivered by Consonant or
any Subsidiary to any agent or other lender under the Credit
Agreements promptly after receipt thereof.
(b) From the date hereof through the earlier of the
Effective Time or the Termination Date, if a Credit Agreement
Default occurs under Section 6.10 of the Senior Credit
Agreement or Section 8.3 of the Mezzanine Credit Agreement
(each, a “Financial Default”) that may be cured
(or, if permitted by the lenders thereunder, waived) under
Section 8.04 of the Senior Credit Agreement or
Section 9.6 of the Mezzanine Credit Agreement (each, a
“Consonant Equity Cure”), then Consonant shall,
subject to the limitation in the succeeding proviso, use
commercially reasonable efforts to effect such Consonant Equity
Cure within the time period permitted to do so under such
Section 8.04 and Section 9.6, as applicable, by
issuing equity securities (as permitted under the Credit
Agreements, as in effect on the date hereof except for such
amendments or modifications as are permitted under
Schedule 5.1(b)(xix) of the Consonant Disclosure
Schedule) or taking such other action (other than the issuance
of any debt securities) as is permitted by, and has the effect
of curing such Financial Default under, the applicable Credit
Agreement (as in effect on the date hereof except for such
amendments or modifications as are permitted under
Schedule 5.1(b)(xix) of the Consonant Disclosure
Schedule); provided, that, in no event shall
Consonant be obligated to effect the Consonant Equity Cure if
the amount required to
be invested or paid directly to the agent
and/or
lenders exceeds $3,000,000 (less any Equity Cure Payment Amount
funded between the date hereof and the Effective Time) (the
amount funded by Consonant prior to the Effective Time as
described above, the ‘‘Equity Cure Payment
Amount”); provided, further,
however, Consonant shall have no obligation to effect the
Consonant Equity Cure if, at the time such Consonant Equity Cure
is consummated (or required to be consummated), a Credit
Agreement Default other than a Financial Default (a
“General Default”) does or would then exist
after consummation of the Consonant Equity Cure (a
“General Cure Failure”) or there is any other
event or circumstance (related or unrelated to the Credit
Agreements) that gives rise to a failure of any condition in
Section 6.2, unless Vowel has validly and
irrevocably waived the conditions set forth in
Section 6.2 (relating to each and every then pending
Credit Agreement Default and any other then existing non-Credit
Agreement event or circumstance that gives rise to a failure of
any such condition), it being understood that any such waiver
shall not apply with respect to any General Default or other
events or circumstances that are not in existence, or that were
not fully disclosed by Consonant to Vowel, at the time of the
consummation (or required consummation) of the Consonant Equity
Cure. If a General Default occurs under either of the Credit
Agreements, Consonant shall use its commercially reasonable
efforts to cure or obtain a waiver of such General Default prior
to the expiration of the Cure Period; provided,
however, that in no event shall Consonant be required to
pay any penalties, fees or other amounts to the applicable agent
or lender to cure or obtain a waiver of a General Default;
provided, further, however, the failure to
cure or obtain a waiver of a General Default shall not give rise
to the payment of the Consonant Ordinary Termination Fee, the
Consonant Enhanced Termination Fee or Consonant Breach
Termination Fee under this Agreement.
(c) If (i) a Financial Default occurs,
(ii) Consonant becomes obligated to effect the Consonant
Equity Cure with respect to such Financial Default under
Section 5.21(b), (iii) Consonant fails to do so
in accordance with Section 5.21(b), and
(iv) all of the conditions in Section 6.3 are
satisfied as of the date that Consonant becomes obligated to
effect such Consonant Equity Cure assuming that the Closing were
to occur on such date (other than the conditions contained in
Sections 6.3(e), (f) and (j)) (the occurrence
of such events, an ‘‘Equity Cure
Failure”), then Vowel may exercise its right to
terminate this Agreement pursuant to Section 7.1(j)
and shall upon such termination be entitled to receive the
Consonant Enhanced Termination Fee.
(d) If either the Equity Cure Payment Amount or the
Consonant Acquired Debt Payment is greater than zero, or any
other amount (up to but not exceeding $1,000,000) is paid by any
of the Consonant Holders to the agent or lenders under the
Credit Agreements after the date hereof through and including
the Effective Time, if any, to cure or obtain a waiver of a
Credit Agreement Default, then, in consideration of any such
payment, at the Effective Time, Holdco shall issue to
VSS-Consonant Holdings III, a Holdco Warrant, which shall be
exercisable for a number of shares of Holdco Common Stock equal
to the quotient (rounded down to the nearest whole number) of
(x) the aggregate amount paid, divided by
(y) the Vowel Per Share Cash Consideration. The Holdco
Warrant shall be subject to customary registration rights in
favor of the holder thereof and its permitted successors and
assigns.
(e) Notwithstanding anything to the contrary herein,
neither VSS-Consonant Holdings III nor any of its
Affiliates shall receive a Holdco Warrant with respect to:
(a) any indebtedness under the Credit Agreements, unless
such indebtedness is retired or contributed to Holdco and
extinguished on or before the Effective Time; or (b) for
the avoidance of doubt, any indebtedness issued after the date
hereof by Consonant or VSS-Consonant Holdings or any Subsidiary
thereof, the proceeds of which are used to acquire any, or which
otherwise would be a, Consonant Acquired Debt Payment.
(a) On or prior to the Effective Time, Vowel shall deposit
with the Escrow Agent cash in immediately available funds equal
to (x) the Vowel Tax Refund Holdback Amount, if any, to be
held pursuant to the Escrow Agreement, which amount shall be
deposited in the “CVR Escrow Account” (as that term is
defined in the Escrow Agreement) and (y) unless covered by
insurance at the Effective Time, the Vowel Closing Liability
identified as number 7 on Schedule 5.24, which
amount shall be deposited in the “280G Escrow Account”
(as that term is defined in the Escrow Agreement).
(b) Until the sooner of (x) payment in full of all
amounts due (or which may become due) under the CVRs (other than
the payment of the 280G Returned Amount) in accordance with
their terms and (y) the eighteen (18) month
anniversary of the Closing Date, Holdco shall cause Vowel and
its Subsidiaries to, and Vowel and its Subsidiaries shall,
deposit any and all Vowel Tax Refunds received by Vowel, any of
its Subsidiaries or Holdco (on behalf of Vowel) on or after the
Closing Date, promptly after receipt thereof, with the Escrow
Agent in the CVR Escrow Account, to be held pursuant to the
Escrow Agreement. Holdco shall cause Vowel and its Subsidiaries
to, and Vowel and its Subsidiaries shall, use commercially
reasonable efforts to recover such Vowel Tax Refunds during the
period specified in the preceding sentence. Any and all funds
deposited in the CVR Escrow Account (including interest thereon)
shall be applied to the payment of the Contingent Value Rights
in accordance with the Contingent Value Right Agreement;
provided, however, Holdco shall be entitled to
obtain the release from the CVR Escrow Account, in accordance
with the terms of the Escrow Agreement, of an amount equal to
(x) the portion of Agreed Contingencies for which Vowel is
responsible pursuant to Section 5.23 and
(y) the Vowel Tax Refund Documented Costs. The
Stockholders’ Representative shall be entitled to obtain
the release from the CVR Escrow Account in accordance with the
terms of the Escrow Agreement of any fees, expenses or charges
incurred or paid by the Stockholders’ Representative as
contemplated in Section 8.2.
(c) So long as funds remain in the CVR Escrow Account,
Holdco and Vowel shall promptly provide to the
Stockholders’ Representative and the Stockholders’
Representative shall promptly provide to Holdco and Vowel, all
written statements and other correspondence received by such
Person or any of such Person’s Subsidiaries from the Escrow
Agent (or delivered by such Person or any of such Person’s
Subsidiaries to the Escrow Agent) with respect to activity in
the Escrow Account. In addition, Holdco shall deliver to the
Stockholders’ Representative (1) within ten
(10) days after receipt by the Escrow Agent, with respect
to each calendar quarter while there are funds held in the CVR
Escrow Account, a written statement setting forth each of the
following: (a) the balance of the CVR Escrow Account as of
the opening of business on the first day of such quarter (or on
the Closing Date, in the case of the first quarter ended after
the Closing Date); (b) any deposits and withdrawals made in
the CVR Escrow Account during the quarter and (c) the
balance of the CVR Escrow Account as of the last day of the
quarter; and (2) within ten (10) days after the end of
each calendar quarter while there are funds held under the CVR
Escrow Account, a written statement setting forth each of the
following: (a) the status of all unpaid Vowel Tax Refunds
listed on Section 9.15(ii) of the Vowel Disclosure
Schedule and (b) whether any dispute with a Governmental
Authority exists with respect to any refund listed on
Section 9.15(ii) of the Vowel Disclosure Schedule.
(d) In order to secure their obligations to direct the
Vowel Tax Refunds into the Escrow Account, at the Closing,
Holdco and Vowel shall execute and deliver a security agreement
in the form attached as Exhibit J hereto (the
“Security Agreement”), under which each of
Holdco and Vowel grants to the Stockholders’ Representative
(on behalf of the Vowel Stockholders) a valid security interest
in and to the Vowel Tax Refunds and all proceeds thereof with
such proceeds to be distributed in accordance with the Escrow
Agreement, together with such other ancillary agreements,
instruments or certificates to be executed by either of them as
are reasonably necessary or appropriate to perfect such security
interest. In addition, notwithstanding anything to the contrary
herein (including the covenants in Section 5.1),
Vowel may at any time prior to the Closing notify the
appropriate taxing authorities and direct payment of the Vowel
Tax Refunds to the CVR Escrow Account or to a segregated Vowel
account subject to a control agreement or similar arrangement
that is mutually acceptable to the Parties, and, until the
sooner of (x) payment of all Vowel Tax Refunds to the
Escrow Agent in accordance with the Escrow Agreement and
(y) the eighteen (18) month anniversary of the Closing
Date, Holdco hereby agrees that it will cause such payment
direction to be continuously effective and will not (and will
not permit Vowel to) modify or revoke such payment direction,
unless with the express written consent of the
Stockholders’ Representative (which consent may be withheld
or granted in its sole discretion).
Section 5.23. Agreed
Contingencies.
(a) Vowel and Consonant have identified the Agreed
Contingencies, and, provided that the Closing shall have
occurred, agreed to a financial sharing arrangement with respect
to such liabilities as set forth in this
Section 5.23. If any of the Agreed
Contingencies have been paid on or before the Closing Date, no
adjustment shall be made pursuant to this
Section 5.23 with respect to such Agreed
Contingencies. If any of the Agreed Contingencies are assessed,
levied or become subject to a notice of deficiency before the
Closing Date, Vowel shall pay, settle or object to any such
Agreed Contingencies in a manner consistent with its past
practices.
(b) After the Closing Date until the eighteen
(18) month anniversary of the Closing Date, with respect to
any Agreed Contingencies that are assessed, levied or become
subject to a notice of deficiency, Holdco shall cause Vowel to,
and Vowel shall, pay, settle or object to any such Agreed
Contingencies in a commercially reasonable manner.
(c) To the extent any of the Agreed Contingencies are paid
by Holdco or its Subsidiaries after the Closing Date and on or
before the eighteen (18) month anniversary of the Closing
Date, an amount equal to 50% of the aggregate amount by which
such Agreed Contingencies (except in the case of the Designated
Tax Liability, then an amount not to exceed $1,400,000, and
whether paid to a Governmental Authority or to the Designated
Person) so paid or which are otherwise due and payable exceeds
an aggregate deductible of $250,000 (such $250,000 deductible to
be reduced dollar for dollar to the extent such deductible
previously mitigated a reduction of the CVR), shall dollar for
dollar reduce the aggregate amount payable pursuant to the CVRs
(but not below zero) in accordance with the terms thereof.
Notwithstanding the foregoing, in the case of the Designated Tax
Liability, to the extent the amount paid on or before the
eighteen (18) month anniversary of the Closing Date in
respect of the Designated Tax Liability exceeds the sum of
$1,400,000 plus the then unused portion of the $250,000
deductible set forth in the immediately preceding sentence,
whether paid to any Governmental Authority or to the Designated
Person, such excess shall dollar for dollar reduce the aggregate
amount payable pursuant to the CVRs (but not below zero) in
accordance with the terms thereof. Holdco shall be entitled to
obtain the release from the CVR Escrow Account in accordance
with the terms of the Escrow Agreement of the amount by which
the CVR is reduced pursuant to the two immediately preceding
sentences. With respect to each Agreed Contingency paid on or
before the eighteen (18) month anniversary of the Closing
Date and the corresponding Vowel Shared Tax Offset Amount,
Holdco shall, and shall cause Vowel, and Vowel shall, use
commercially reasonable efforts to: (i) provided that a
reduction is not prohibited under applicable Law, negotiate with
the Governmental Authority to whom such Agreed Contingency is
due, to have such Agreed Contingency reduced by such Vowel
Shared Tax Offset Amount; and (ii) to the extent such
Agreed Contingency is not so reduced under clause (i), include
such Vowel Shared Tax Offset Amount in a refund claim, Tax
Return or amended Tax Return, as applicable, in each case which
shall be filed as soon as reasonably practicable. On or before
the eighteen (18) month anniversary of the Closing Date,
except as provided in the immediately succeeding sentence,
Holdco shall and shall cause Vowel to, and Vowel shall, promptly
deposit into the CVR Escrow Account an amount equal to the
product of (x) the Applicable Refund Percentage multiplied
by (y) the cash amount realized by Vowel, any of its
Subsidiaries or Holdco (on behalf of Vowel) from any Vowel
Shared Tax Offset Amounts on or before the eighteen
(18) month anniversary of the Closing Date (but only to the
extent not previously used to avoid a reduction in the CVR).
Notwithstanding the immediately preceding sentence to the
contrary, if any reduction of the CVR under this Agreement would
have reduced the CVR below zero but for the limitations on
reducing the CVR below zero in this Agreement, then any deposit
into the CVR Escrow Account pursuant to the immediately
preceding sentence shall be reduced, dollar for dollar, by the
lesser of (x) the amount of such deposit, and (y) the
amount by which the CVR would have been reduced below zero but
for the limitations on such reductions in this Agreement, and
this calculation shall be made on a cumulative basis.
Section 5.24. Vowel
Closing Liabilities. At or prior to the
Effective Time, Vowel or its Subsidiaries shall (a) pay in
cash to the recipients named in the Liability Contracts (as
defined below) the Vowel Closing Funding Amount identified in
numbers 5, 6, 14, 17 and 24 on Schedule 5.24,
(b) retain in cash the Vowel Closing Funding Amount
identified in numbers 13, 26, 27, 28, 29, 30 and, unless
insurance is purchased prior to the Effective Time with respect
to such Vowel Closing Liability number 31 on Schedule 5.24,
(c) fund to the extent not already funded into a rabbi
trust(s), the Vowel Closing Funding Amount identified in numbers
1, 2, 3, 4, 8, 9, 10, 11, 12, 15, 16, 18, 19, 20, 21, 22, 23,
25, 32 and 33 on Schedule 5.24, and (d) fund
into the 280G Escrow Fund (as defined in the Escrow Agreement),
the Vowel Closing Funding Amount identified as number 7 on
Schedule 5.24 (unless insurance is purchased prior
to the Effective Time with respect to such
Vowel Closing Liability), in each case to the extent such Vowel
Closing Liability remains a liability of Vowel or its
Subsidiaries on such date (it being understood that Vowel or its
Subsidiaries may pay such liabilities in cash on or prior to the
Effective Time, but only (i) to the extent required to be
paid prior to the Effective Time by the terms of the Contract
governing such payment, benefit or other liabilities, as such
Contract is in effect on the date hereof (the “Liability
Contracts”) or (ii) with respect to the Vowel
Closing Liability identified as number 14 on
Schedule 5.24). Forms of each of the agreements and
other documents establishing each such trust, fund escrow
account or arrangement (the “Liability Funding
Documents”) shall be substantially in the form attached
to Section 5.24 of the Vowel Disclosure Schedule.
Following the Effective Time and until each of the respective
Vowel Closing Liabilities is satisfied (whether satisfied by
payment, provision of benefit, expiration of obligation,
and/or
forfeiture of the right to payment or benefit in accordance with
the applicable Liability Contract), and unless otherwise
required by applicable Law, Holdco shall cause Vowel and
Vowel’s then Subsidiaries (but only so long as such
Subsidiary remains a Subsidiary of Vowel) to: (i) refrain
from pledging or acting to impose (or omitting to take any
action which would have the effect of imposing) any lien,
security interest or encumbrance on, whether directly or
indirectly, the assets of Vowel and the amounts in such rabbi
trusts, escrows, or cash set aside for the future satisfaction
of the respective Vowel Closing Liability; (ii) to the
extent the Vowel Closing Funding Amounts are funded by Vowel or
its Subsidiaries in accordance with this
Section 5.24, make the payments or refrain from
preventing the Escrow Agent or the trustee for the applicable
rabbi trust from making the payments as required to satisfy the
respective Vowel Closing Liability as it comes due as provided
for under the Liability Contracts and subject to the Liability
Funding Documents; (iii) except as required by applicable
Law, refrain from amending the terms governing a Liability
Contract without the prior written consent of the Person or
Persons party to such Vowel Closing Liability; (iv) except
as otherwise provided in the last sentence of this
Section 5.24, not prevent the Escrow Agent from
paying to the CVR Rights Agent, for distribution pursuant to the
CVRs, the amount, if any, that is retained in the CVR Escrow
Account with respect to Vowel Closing Liability identified as
number 7 on Schedule 5.24 (the “280G
Returned Amount”) on or as of October 15, 2013 or
such other time provided in the Escrow Agreement; and
(v) not prevent the trustee of the rabbi trust(s) from
paying to the Escrow Agent, for distribution to the CVR holders
pursuant to the Escrow Agreement and the CVR Agreement, the
amount, if any, that remains in the rabbi trust(s) with respect
to each of the Vowel Closing Liabilities identified as numbers
8, 9, 10, 11, 12, 20, 21, 22, 23, 25 and 33 after the respective
Vowel Closing Liability is satisfied (collectively, the
‘‘Excess Employee Payment Amounts”); and
(vi) with respect to the Vowel Closing Liabilities
identified as numbers 28, 29, 30, and 31 for which insurance has
not been purchased, provide the same or substantially equivalent
health benefits coverage as in effect immediately prior to the
Closing Date, for the duration specified in the Liability
Contract governing each such Vowel Closing Liability, at the
same cost to the former employee as in effect immediately prior
to the Closing Date, provided that to the extent Holdco, Vowel
and Vowel’s Subsidiaries provide the benefits contemplated
under this clause (vi), they may reduce the amounts set aside
for such Vowel Closing Liability pro rata in equal installments,
on a monthly basis, over the applicable period during which the
applicable benefit is provided. Notwithstanding the foregoing,
or any provision of any Liability Contract or Liability Funding
Document to the contrary, to the extent any amount remains in
the rabbi trust(s) with respect to any of the Vowel Closing
Liabilities identified as numbers 15, 16, 18 or 19 after
satisfaction in full of such liabilities, the trustee of the
rabbi trust(s) shall promptly return such amount to Holdco.
Notwithstanding anything in this Agreement or in the Escrow
Agreement to the contrary, if the 280G Excess Amount is greater
than zero, then, the 280G Returned Amount shall be reduced by
such 280G Excess Amount and such 280G Excess Amount shall be
paid by the Escrow Agent to Holdco instead of the CVR Rights
Agent, concurrent with the payment of the remaining portion 280G
Returned Amount to the CVR Rights Agent. Following the Effective
Time and until each of the respective Vowel Closing Liabilities
is satisfied (whether satisfied by payment, provision of
benefit, expiration of obligation,
and/or
forfeiture of the right to payment or benefit in accordance with
the applicable Liability Contract), Holdco shall guarantee,
pursuant to a guaranty in the form of Exhibit R
hereto (the “Holdco Vowel Liability Guaranty”),
the satisfaction in full of each Vowel Closing Liability
identified as numbers 1, 2, 26, 27, 29, 30, and 31 on
Schedule 5.24 (provided that, with respect to each
such liability, if the dollar amount set forth on
Schedule 5.24 in respect of such liability is not
funded in full on or before the Effective Time in accordance
with this Section 5.24, then the Holdco Vowel
Liability Guaranty with respect to such liability (and only such
liability) shall be limited to the amount so funded and such
guaranteed obligations shall be
reduced dollar for dollar to the extent such liability is paid
to its intended recipient from the amounts funded prior to or at
the Effective Time pursuant to this Section 5.24 as
set forth on Schedule 5.24).
Section 5.25. LAZEL
Spinoff.
(a) To be effective immediately prior to the Effective
Time, Vowel shall, and shall cause its Subsidiaries to, effect
the transfer of the businesses described as LearningA-Z.com and
ExploreLearning from Vowel Expanded Learning to LAZEL (the
“LAZEL Spinoff Transaction”) pursuant to the
LAZEL Spinoff Documents. Vowel shall, and shall cause its
Subsidiaries to, perform their respective obligations under the
LAZEL Spinoff Documents. Unless this Agreement shall be
terminated in accordance with its terms, Vowel shall not, and
shall not cause or permit any of its Subsidiaries to:
(x) terminate, amend or in any way modify any of the LAZEL
Spinoff Documents or any provisions therein; or (y) except
as expressly contemplated in this Agreement (including without
limitation Section 5.1 or any corresponding
schedule), enter into any Contract which has the effect of
impeding, delaying or diminishing in any material respect the
practical benefits to Holdco or any of its Subsidiaries of, the
LAZEL Spinoff Transaction, unless, in the case of (x) or
(y), Holdco shall have consented in writing prior thereto (which
consent shall not be unreasonably withheld, conditioned or
delayed).
(b) After the Effective Time and the consummation of the
LAZEL Spinoff Transaction, other than sales of inventory and
services in the ordinary course of business, none of the equity
interests, material assets, rights or material properties of
LAZEL shall be transferred, sold, assigned, pledged, or disposed
of, whether directly or indirectly, with or without
consideration, or in any transaction or series of transactions,
to Holdco or any Subsidiary of Holdco (such transaction being
referred to as the “LAZEL Drop-Down
Transaction”), unless and until all of the following
conditions are satisfied: (i) Holdco determines in its
reasonable good faith judgment that the LAZEL Drop-Down
Transaction complies with the Credit Agreements (and any
ancillary documents thereto) or the requisite lenders under the
applicable Credit Agreements have consented to the LAZEL
Drop-Down Transaction, (ii) all Vowel Transaction Expenses
(including, without duplication, the Vowel Expense Reimbursement
Amount) have been paid in full, (iii) Holdco shall have
received a solvency opinion from a reputable valuation firm in
form and substance reasonably satisfactory to the Special
Majority of the Holdco Board, and (iv) Holdco shall provide
an unconditional guaranty of payment (not collection) with
respect to the remaining Vowel Closing Liabilities.
(c) Prior to the LAZEL Drop-Down Transaction, LAZEL shall
provide an unconditional guaranty of payment (not collection),
in the form of Exhibit K attached hereto (the
“LAZEL Guaranty”), of the Vowel Tax Refunds to
the Escrow Agent in accordance with the Escrow Agreement,
provided that such guaranty shall terminate automatically upon
the consummation of the LAZEL Drop-Down Transaction, provided
that all of the conditions precedent to the LAZEL Drop-Down
Transaction set forth in clauses (i) through (iv) of
Section 5.25(b) have been satisfied.
Section 5.26. VEL
Drop-Down Transaction and Related Agreements.
(a) To be effective promptly following the Effective Time,
unless and to the extent the Holdco Board determines otherwise,
Vowel shall, and shall cause its Subsidiaries to, effect the
transfer of 100% of the equity of Vowel Expanded Learning from
Vowel to Consonant Learning (the “VEL Drop-Down
Transaction”) pursuant to the VEL Drop-Down Documents.
Vowel shall, and shall cause its Subsidiaries to, perform their
respective obligations under the VEL Drop-Down Documents in
accordance with the terms and conditions thereof. Unless this
Agreement shall be terminated in accordance with its terms,
Vowel shall not, and shall not cause or permit any of its
Subsidiaries to: (x) terminate, amend or in any way modify
any of the VEL Drop-Down Documents or any provisions therein; or
(y) except as expressly contemplated in this Agreement
(including Section 5.1 or any corresponding
schedule), enter into any Contract which has the effect of
impeding, delaying or diminishing in any material respect the
practical benefits to Holdco or any of its Subsidiaries of, the
VEL Drop-Down Transaction, unless, in the case of
clause (x) or (y), Holdco shall have approved thereof
(which approval shall not be unreasonably withheld, conditioned
or delayed).
(b) After the Closing until the Vowel Closing Liabilities
are paid or discharged in full, whether in accordance with the
terms of the plans or agreements governing the Vowel Closing
Liabilities as in effect on
the date hereof, or pursuant to amendments or modifications
thereto that are agreed upon by each of the recipients or
participants in such plans, Vowel shall not conduct any material
business operations or incur any material Liabilities other than
as are reasonably necessary to pay or discharge such then
remaining Vowel Closing Liabilities or to fulfill any
obligations expressly set forth in this Agreement or any
Transaction Document and shall not transfer, pledge, encumber or
otherwise dispose of any of Vowel’s assets, rights or
privileges as of the Effective Time (other than as expressly
contemplated pursuant to this Agreement); provided,
however, nothing in this Section 5.26 shall
prevent or prohibit Vowel from defending its assets, properties
or rights in any Proceedings or otherwise from enforcing its
rights and pursuing its remedies; provided,
further, that nothing in this Section 5.26
shall prohibit Vowel from consummating (x) the VEL
Drop-Down Transaction, (y) the transfer, sale, assignment
or other disposition of any of its equity interests of
VSS-Consonant Holdings which it shall have received as provided
in the VEL Drop-Down Documents or (z) the LAZEL Drop-Down
Transaction (so long as all of the conditions precedent to the
LAZEL Drop-Down Transaction set forth in clauses (i)
through (iv) of Section 5.25(b) have been
satisfied prior to the consummation of the LAZEL Drop-Down
Transaction).
Section 5.27. Working
Capital.
(a) Except as expressly contemplated or permitted by, or
disclosed pursuant to, this Agreement, Vowel shall, and shall
cause its Subsidiaries to, during the period beginning on the
date hereof through the Effective Time, manage working capital
in the ordinary course of business consistent with past
practices, in order to maintain a level of working capital
consistent with past practice, including without limitation:
(i) purchasing inventory at times and in amounts consistent
with past practices; (ii) paying accounts payable in
amounts and within time periods in the ordinary course of
business consistent with past practices; (iii) not
discounting sales, except to the extent doing so would be in the
ordinary course of business consistent with past practice,
(iv) failing to make investments or capital expenditures in
accordance with the capital expenditure budget set forth in
Section 5.1(b)(x) of the Vowel Disclosure Schedule,
except to the extent doing so would be consistent with past
practice, and (v) not accelerating collection of accounts
receivable or discounting accounts receivable, except to the
extent consistent with past practice.
(b) Holdco has the right, for a period of thirty
(30) calendar days after the Closing Date, to assert a
breach by Vowel of any obligation in Section 5.27(a)
by delivery of written notice (the “Working Capital
Dispute Notice”) to the Stockholders’
Representative setting forth in reasonable detail the nature of
the alleged breach and the amount by which the CVR should be
reduced in accordance with the formula set forth in
Section 5.27(d) (a “Working Capital
Dispute”). The failure to timely deliver a Working
Capital Dispute notice in accordance with the preceding sentence
shall constitute a waiver of any dispute rights under this
Section 5.27. If Holdco delivers a timely Working
Capital Dispute Notice to the Stockholders’ Representative,
Holdco and the Stockholders’ Representative shall negotiate
in good faith to resolve the Working Capital Dispute and, if not
resolved through negotiations within (10) Business Days
after Holdco’s delivery of its Working Capital Dispute
Notice, then Holdco and the Stockholders’ Representative
shall jointly engage the Independent Accountant to resolve such
Working Capital Dispute. To the extent Holdco and the
Stockholders’ Representative resolve any portion of such
Working Capital Dispute, they shall jointly deliver a written
notice of such resolution to the Escrow Agent, who shall
disburse to Holdco the amount set forth therein.
(c) The Independent Accountant may, at its discretion,
conduct a conference concerning the Working Capital Dispute, at
which conference Holdco and the Stockholders’
Representative shall have the right to present additional
documents, materials and other information and to have present
their respective advisors, experts, counsel and accountants. In
connection with the resolution of the Working Capital Dispute,
there shall be no other hearings or oral examinations,
testimony, depositions, discovery or other similar proceedings,
unless the Independent Accountant shall so determine. Holdco
shall make available to the Stockholders’ Representative
and the Independent Accountant such documents, books, records,
work papers, facilities, personnel and other information as the
Stockholders’ Representative or the Independent Accountant
may reasonably request to resolve the Working Capital Dispute.
The Independent Accountant shall as promptly as possible, and in
any event within thirty (30) days after the date of its
appointment, render its decision on the dispute in writing to
Holdco and the Stockholders’ Representative and shall set
forth the amount of any adjustment to the CVR, if any, pursuant
to Section 5.27(d) as is reflected in its decision
(the “Working Capital
Award”). The Independent Accountant (i) shall
be bound to follow the provisions of this Agreement,
(ii) may not assign a value to any item greater than the
greatest value claimed for such item or less than the smallest
value claimed for such item by the Stockholders’
Representative or Holdco, as the case may be, (iii) shall
limit its decision to such items as are in dispute,
(iv) shall only have the power to determine
(A) whether a breach of Section 5.27(a) has
occurred and whether and the extent to which such breach
increased or decreased the Available Vowel Cash for Cash
Election, and (B) whether any change in the CVR should be
made under Section 5.27(d) as a result of such
breach, but in each case, the Independent Accountant’s
determination must be in accordance with GAAP, (v) shall
determine the party entitled to an award of fees and expenses
pursuant to Section 5.27(e) and shall set forth such
determination in the Working Capital Award, and (vi) shall
not be deemed an arbitrator but only an independent party
retained by the Parties for the purpose of making accounting and
mathematical determinations in accordance with this Agreement.
The determination of the Independent Accountant in accordance
with this Section 5.27 shall be final and binding
upon the parties.
(d) If the Independent Accountant determines, in accordance
with the procedures set forth in Section 5.27(c),
that a breach of Section 5.27(a) has occurred, then
the aggregate amount payable under the CVR shall be reduced,
dollar for dollar, by the amount, if any, by which (i) the
increase in the Available Vowel Cash for Cash Election directly
resulting from such breach, exceeds (ii) $400,000.
(e) If the Independent Accountant determines that the
Stockholders’ Representative is the substantially
prevailing party in any dispute determined in accordance with
this Section 5.27, then Holdco shall pay the
reasonable documented
out-of-pocket
fees and expenses of the Stockholders’ Representative
incurred in such dispute (including without limitation the fees
and expenses of its representatives, agents, attorneys and
accountants), as well as the fees and expenses of the
Independent Accountant. If the Independent Accountant determines
that Holdco is the substantially prevailing party in any dispute
determined in accordance with this Section 5.27,
then, notwithstanding anything in this Agreement to the
contrary, any amounts to be deposited with the Escrow Agent by
Holdco or any Subsidiary pursuant to this Agreement after such
Independent Accountant’s determination shall be reduced,
and Holdco shall be permitted (or such Subsidiary shall be
permitted to distribute to Holdco) to retain for its own
account, dollar for dollar, an amount equal to the reasonable
documented
out-of-pocket
fees and expenses of Holdco incurred in such dispute (including
without limitation the fees and expenses of its representatives,
agents, attorneys and accountants), as well as the fees and
expenses of the Independent Accountant. If the Independent
Accountant determines that neither party is the substantially
prevailing party, then each party shall pay its own
out-of-pocket
fees and expense incurred in such dispute and one-half of the
fees and expenses of the Independent Accountant.
ARTICLE VI
CLOSING
CONDITIONS
Section 6.1. Conditions
to Each Party’s Obligation to Effect the
Mergers. The respective obligations of each
party to effect the Mergers shall be subject to the fulfillment
(or written waiver by Consonant and Vowel) at or prior to the
Effective Time of the following conditions:
(a) The Vowel Stockholder Approval shall have been obtained.
(b) No Law shall have been adopted or promulgated, and no
temporary restraining order, preliminary or permanent injunction
or other judgment or order issued by any Governmental Authority
shall be in effect (a “Restraint”), in
each case which has the effect of making any of the
Holdings III Merger Transactions or the Mergers illegal or
otherwise enjoining or prohibiting the consummation of any of
the Holdings III Merger Transactions or the Mergers.
(c) Any applicable waiting period under the HSR Act (and
any extension thereof) relating to the Mergers shall have
expired or been earlier terminated and any waiting periods (and
extensions thereof) applicable to the transactions contemplated
by this Agreement under any other applicable antitrust or
competition laws and regulations shall have expired or been
earlier terminated.
(d) The Registration Statement shall have been declared
effective under the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been
issued by the SEC and no Proceedings for that purpose shall have
been initiated or threatened in writing by the SEC.
Section 6.2. Conditions
to Obligation of Vowel to Effect the Vowel
Merger. The obligation of Vowel to effect the
Vowel Merger is further subject to the fulfillment (or written
waiver by Vowel in its discretion) of the following conditions:
(a) The representations and warranties of Holdco and
Consonant shall be true and correct in all material respects at
and as of the Closing Date as if made on the Closing Date
(except (A) to the extent a representation is by its
express provisions made as of a specified date, in which case,
it shall be true and correct in all material respects as of the
specified date, and (B) to the extent a representation is
by its express provisions qualified by materiality, Consonant
Material Adverse Effect or a similar qualification, in which
case, it shall be true and correct in all respects), except
where the failure of the representations and warranties in the
aggregate to be true and correct in all (or all material, as the
case may be) respects would not have a Consonant Material
Adverse Effect; provided, however, any event or
circumstance under the Credit Agreements shall not give rise to
a failure of condition under this Section 6.2(a).
(b) Holdco, Consonant and their respective Subsidiaries
shall have in all material respects performed all obligations
and complied with all covenants required by this Agreement and
the Transaction Documents to be performed or complied with by
them at or prior to the Effective Time.
(c) No event has occurred or circumstance shall have come
into existence, either individually or in the aggregate, that
has or is reasonably expected to have a Consonant Material
Adverse Effect; provided, however, any event or
circumstance under the Credit Agreements shall not give rise to
a failure of condition under this Section 6.2(c).
(d) No Credit Agreement Default shall then be continuing
under any of the Credit Agreements.
(e) Holdco and Consonant shall have delivered to Vowel a
certificate, dated as of the Closing Date and signed by a senior
executive officer, certifying to the effect that the conditions
set forth in Sections 6.2(a), 6.2(b),
6.2(c) and 6.2(d) have been satisfied.
(f) Vowel shall have received from McDermott
Will & Emery LLP, special tax counsel to Vowel (or
other reputable tax counsel), a written opinion dated the
Closing Date to the effect that, on the basis of the facts,
representations and assumptions set forth or referred to in such
opinion, for United States federal income tax purposes, the
Mergers, taken together, will be treated as a transaction
described in Section 351 of the Code. In rendering such
opinion, counsel to Vowel shall be entitled to rely upon
assumptions, representations, warranties and covenants,
including those contained in the Tax Representation Letters
described in Section 5.18 of this Agreement.
(g) Holdco or Consonant shall have deposited all amounts
required to be deposited with the Exchange Agent pursuant to
Section 2.3 and Section 7.3(a).
(h) The Holdings III Merger Transactions shall have
been consummated in accordance with the terms of the
Holdings III Merger Agreements.
(i) Holdco, Consonant
and/or the
VSS Funds, as applicable, have executed and delivered the
Transaction Documents to which they are a party at or prior to
the Closing Date.
Section 6.3. Conditions
to Obligations of Consonant to Effect the Consonant
Merger. The obligation of Consonant to effect
the Consonant Merger is further subject to the fulfillment (or
written waiver by Consonant in its discretion) of the following
conditions:
(a) The representations and warranties of Vowel shall be
true and correct in all material respects at and as of the
Closing Date as if made on the Closing Date (except (A) to
the extent a representation is by its express provisions made as
of a specified date, in which case, it shall be true and correct
in all material respects as of the specified date, and
(B) to the extent a representation is by its express
provisions qualified by materiality, Vowel Material Adverse
Effect or a similar qualification, in which
case, it shall be true and correct in all respects), except
where the failure of the representations and warranties in the
aggregate to be true and correct in all (or all material, as the
case may be) respects would not have a Vowel Material Adverse
Effect.
(b) Vowel and its Subsidiaries shall have in all material
respects performed all obligations and complied with all
covenants required by this Agreement and the Transaction
Documents to be performed or complied with by it at or prior to
the Effective Time.
(c) No event has occurred or circumstance shall have come
into existence, either individually or in the aggregate, that
has or is reasonably expected to have a Vowel Material Adverse
Effect.
(d) Vowel shall have delivered to Consonant a certificate,
dated as of the Closing Date and signed by an officer,
certifying to the effect that the conditions set forth in
Sections 6.3(a), 6.3(b) and 6.3(c)
have been satisfied.
(e) Consonant shall have received from Lowenstein Sandler
PC, counsel to Consonant (or other reputable tax counsel), a
written opinion dated the Closing Date to the effect that, on
the basis of the facts, representations and assumptions set
forth or referred to in such opinion, for United States federal
income tax purposes, the Mergers, taken together, will be
treated as a transaction described in Section 351 of the
Code. In rendering such opinion, counsel to Consonant shall be
entitled to rely upon assumptions, representations, warranties
and covenants, including those contained in the Tax
Representation Letters described in Section 5.18 of
this Agreement.
(f) Each of the LAZEL Spinoff Transactions shall have been
consummated in accordance with the LAZEL Spinoff Documents.
(g) The Available Vowel Cash for Cash Election shall be
greater than Twelve Million Dollars ($12,000,000).
(h) The number of Vowel Dissenting Shares shall at any time
not exceed 7.5000% of the total number of shares of Vowel Common
Stock then outstanding.
(i) After giving effect to the Mergers, the Persons
included in the definition of “Permitted Holders” in
the Senior Credit Agreement shall, directly or indirectly, own
not less than fifty-one percent (51%) of the outstanding shares
of Holdco Common Stock (taking into account the shares of Holdco
Common Stock reserved for issuance under the Holdco Equity
Incentive Plan).
(j) Vowel or its Subsidiaries, as applicable, have executed
and delivered the Transaction Documents to which they are a
party at or prior to the Closing Date.
Section 6.4. Frustration
of Closing Conditions. None of the Parties
may rely, either as a basis for not consummating the Mergers or
terminating this Agreement and abandoning the Mergers, on the
failure of any condition set forth in Sections 6.1,
6.2 or 6.3, as the case may be, to be satisfied if
such failure was caused by such party’s breach of any
provision of this Agreement or failure to use all commercially
reasonable efforts to consummate the Mergers and the other
transactions contemplated hereby, as required by and subject to
Section 5.5.
ARTICLE VII
TERMINATION
Section 7.1. Termination
or Abandonment. Notwithstanding anything to
the contrary contained in this Agreement, this Agreement may be
terminated and abandoned at any time prior to the Effective
Time, whether before or, subject to the terms hereof, after any
approval by the stockholders of Vowel or Consonant of the
matters presented in connection with the Mergers:
(a) by the mutual written consent of Vowel and Consonant;
(b) by either Vowel or Consonant, upon written notice to
the other Parties, if (i) the Effective Time shall not have
occurred on or before December 31, 2009 (the
“Outside Date”) or (ii) the Registration
Statement shall not have been filed on or before
September 9, 2009 (the ‘‘Registration
Statement Filing Date”) solely as a result of the
failure of either Vowel or Consonant to obtain audited financial
statements that are required for inclusion in the Registration
Statement (including the respective independent auditors report
and any consent required by the applicable auditor)
(collectively, the “Required Financial
Statements”); provided, that, the Party
seeking to terminate this Agreement under any provision of this
Section 7.1(b) shall not have breached in any
material respect its obligations under this Agreement in any
manner that shall have been the cause of, or resulted in, the
failure of the Effective Time to occur on or before the Outside
Date or the failure to obtain the Required Financial Statements
on or before the Registration Statement Filing Date, as the case
may be;
(c) by either Vowel or Consonant, upon written notice to
the other Parties, if any Restraint permanently enjoining or
otherwise prohibiting the consummation of any of the
Holdings III Merger Transactions or the Mergers has become
final and non-appealable, provided, that the Party
seeking to terminate this Agreement pursuant to this
Section 7.1(c) shall have used such efforts as may
be required by Section 5.5 to prevent, oppose and
remove such Restraint;
(d) by either Vowel or Consonant, upon written notice to
the other Parties, if the Vowel Meeting (including any
adjournments or postponements thereof) shall have concluded and
the Vowel Stockholder Approval contemplated by this Agreement
shall not have been obtained;
(e) by Vowel, upon written notice to the other Parties, if:
(i) a breach of any representation or warranty or failure
to perform any covenant or agreement on the part of Consonant or
Holdco set forth in this Agreement shall have occurred that
would cause the conditions set forth in Section 6.1
or Section 6.2 not to be satisfied; (ii) Vowel
shall have delivered to Consonant written notice of such breach
or failure; and (iii) such breach or failure is incapable
of being cured (or has not been cured) in all material respects
by the Outside Date; provided, however, that Vowel
shall not have the right to terminate this Agreement pursuant to
this Section 7.1(e) if it is then in material breach
of any of its obligations, representations or warranties under
this Agreement;
(f) by Vowel, upon written notice to the other Parties,
which notice may only be given after the SEC Effective Date
until the Business Day immediately preceding the Vowel
Stockholder Approval, in order to enable Vowel to enter into a
definitive agreement providing for a transaction that is a Vowel
Superior Proposal concurrently with such termination, if
(i) Vowel has complied with Section 5.3(c),
(ii) prior to or concurrently with such termination, Vowel
pays the Vowel Termination Fee and (iii) such Vowel
Superior Proposal was first received after the SEC Effective
Date;
(g) by Consonant, upon written notice to the other Parties,
if: (i) a breach of any representation or warranty or
failure to perform any covenant or agreement on the part of
Vowel set forth in this Agreement shall have occurred that would
cause the conditions set forth in Section 6.1 or
Section 6.3 not to be satisfied; (ii) Consonant
shall have delivered to Vowel written notice of such breach or
failure; and (iii) such breach or failure is incapable of
being cured (or has not been cured) in all material respects by
the Outside Date; provided, however, that
Consonant shall not have the right to terminate this Agreement
pursuant to this Section 7.1(g) if it is then in
material breach of any of its obligations, representations or
warranties under this Agreement;
(h) by Consonant, upon written notice to the other Parties,
if, (A) whether or not permitted to do so, the Vowel Board
or any committee thereof shall have withdrawn or modified (in a
manner adverse to Consonant) its Vowel Recommendation, or
approved or recommended any Vowel Alternative Proposal or Vowel
Superior Proposal, (B) Vowel shall have failed to include
in the Prospectus/Proxy Statement the Vowel Recommendation,
(C) a tender or exchange offer relating to the Vowel Common
Stock has been commenced and Vowel fails to send to its security
holders pursuant to
Rule 14e-2
promulgated under the Exchange Act, within ten
(10) Business Days after the commencement of such tender or
exchange offer, a statement disclosing that Vowel’s Board
recommends the rejection of such tender or exchange offer,
(D) a Vowel Alternative Proposal or Vowel Superior Proposal
is publicly announced, and Vowel fails to
issue, within ten (10) Business Days after such Vowel
Alternative Proposal or Vowel Superior Proposal is announced, a
press release that reaffirms the Vowel Recommendation that the
stockholders of Vowel vote in favor of the adoption of this
Agreement, (E) the Vowel Board or any committee thereof
fails to reject a Vowel Alternative Proposal and deliver written
notice thereof to the other Parties, in each case, within ten
(10) Business Days after the receipt thereof or shall have
approved or publicly recommended a Vowel Alternative Proposal,
(F) Vowel shall have entered into any letter of intent or
similar document or any agreement, contract or commitment
(except for a confidentiality agreement referred to in
Section 5.3(b) entered into in the circumstances
referred to in Section 5.3(b)) accepting any Vowel
Superior Proposal or (G) Vowel is in material breach of any
of its obligations set forth in Section 5.3,
Section 5.4(a), Section 5.4(c), or
Section 5.19;
(i) by (A) Vowel, upon written notice to the other
Parties, if the Closing has not occurred within eleven
(11) Business Days following the satisfaction or waiver of
all the conditions set forth in Section 6.1 and
Section 6.3 (other than those conditions that, by
their nature, cannot be satisfied until the Closing Date or
Effective Time, as applicable, but which conditions would be
satisfied if the Closing Date or Effective Time, as applicable,
were the date of such notice), including, without limitation,
due to the failure of Holdco to fund to the Exchange Agent
either $25,000,000 pursuant to Section 2.3(a), the
Vowel Expense Reimbursement Amount pursuant to
Section 2.3(a), or to pay the Vowel Transaction
Expenses (excluding the Vowel Expense Reimbursement Amount)
pursuant to Section 7.3(a); provided,
however, that Vowel may not exercise such right of
termination until the earlier to occur of (i) the Outside
Date and (ii) the date that Vowel provided written notice
to Consonant that the conditions set forth in
Section 6.1 and Section 6.2 are
satisfied or waived (other than those conditions set forth in
Section 6.2(f), Section 6.2(g) and
Section 6.2(h)) or (B) Consonant, upon written
notice to the other Parties, if, whether or not the conditions
set forth in Section 6.1 and Section 6.3
have been satisfied or waived, Consonant elects to terminate
this Agreement prior to the Effective Time other than pursuant
to Sections 7.1(a), 7.1(b), 7.1(c), 7.1(d), 7.1(g),
7.1(h) or 7.1(k);
(j) by Vowel, upon written notice to the other Parties, if
Vowel is entitled to terminate this Agreement under
Section 5.21(c);
(k) by Consonant, upon written notice to the other Parties,
if the number of Vowel Dissenting Shares is equal to or exceeds
7.5000% of the total number of shares of Vowel Common Stock
outstanding at the Effective Time; or
(l) by Vowel, upon written notice to the other Parties, if,
on the Closing Date, the Holdings III Merger Transactions
shall not have been consummated in accordance with the terms of
this Agreement.
Section 7.2. Effect
of Termination; Sole and Exclusive Remedy. In
the event of termination of this Agreement pursuant to
Section 7.1, this Agreement shall immediately become
null and void and have no further effect and there shall be no
liability or obligation on the part of the Parties or their
respective Subsidiaries or Affiliates, except that the
provisions of Section 5.2(b),
Section 7.2, Section 7.3, and
Article IX will survive the termination hereof;
provided, however, that, in the event of a
termination solely pursuant to Sections 7.1(e) or
Section 7.1(g): (x) no such termination shall
relieve any Party from liability for fraud; and (y) in the
event that such termination results from (I) any
“material and willful” breach of any representations
and warranties contained in Article III or IV made
and measured only as of the date hereof or (II) the failure
by such Party to perform its material covenants or obligations
hereunder, the Party committing such breach or failure to
perform shall be liable for damages resulting from such breach
or failure to perform but only to the extent permitted in this
Section 7.2. The aggregate liability of Vowel, on
the one hand, or Consonant and Holdco, on the other hand, for
any “material and willful” breaches of representations
or warranties made (and measured only) as of the date hereof,
shall be based on actual damages suffered and shall not exceed,
in the aggregate, $4,500,000 minus the amount which Vowel, on
the one hand, or Consonant and Holdco, on the other hand, are
obligated to pay pursuant to Section 7.3. If this
Agreement is terminated by Vowel pursuant to
Section 7.1(e) as a result of a failure by Holdco
and/or
Consonant (or any of their respective Affiliates) to perform
material covenants or obligations to be performed at or prior to
the Effective Time, except for any of the covenants or
obligations to be performed under Section 5.21, then
Consonant shall pay, or cause to be
paid, to Vowel a fee of $4,500,000 (less any amounts to be paid
by Consonant pursuant to Section 7.3) (the
“Consonant Breach Termination Fee”). The
Consonant Breach Termination Fee shall be paid by Consonant to
Vowel in immediately available funds (to an account designated
by Vowel) promptly upon termination of this Agreement by Vowel
pursuant to Section 7.1(e). If this Agreement is
terminated by Consonant pursuant to Section 7.1(g)
as a result of a failure by Vowel (or any of its Affiliates) to
perform material covenants or obligations to be performed at or
prior to the Effective Time, then Vowel shall pay, or cause to
be paid, to Consonant a fee of $4,500,000 (less any amounts to
be paid by Vowel pursuant to Section 7.3) (the
“Vowel Breach Termination Fee”). The Vowel
Breach Termination Fee shall be paid by Vowel to Consonant in
immediately available funds (to an account designated by
Consonant) promptly upon termination of this Agreement by
Consonant pursuant to Section 7.1(g). The Parties
acknowledge and agree that (A) the limitations contained
herein with respect to covenants to be performed at or prior to
Closing (“Pre-Closing Covenants”) shall not
apply to any Post-Closing Covenants; (B) the limitations
contained in this Section 7.2 shall not be
interpreted such that Consonant and Holdco become liable under
this Section 7.2 for more than an aggregate of
$4,500,000 (and not a combined total of $9,000,000), and
(C) the limitations set forth in this
Section 7.2 shall in no respect limit the right of
Holdco
and/or
Consonant to enforce specifically the terms and provisions of
this Agreement pursuant to Section 9.9. The Parties
acknowledge and agree that the damages for failure to perform
material covenants and obligations to be performed prior to
Closing resulting in a termination of this Agreement under
Section 7.1(e) or Section 7.1(g) (the
“Pre-Closing
Liabilities”) are impractical to predict or forecast
and the amount of the Consonant Breach Termination Fee and Vowel
Breach Termination Fee represent a freely bargained for and
reasonable estimate of such damages. The Parties agree that this
Section 7.2 and the payments contemplated thereby
are an integral part of the Mergers and the other transactions
contemplated hereby and constitute liquidated damages and not a
penalty for failure to perform material covenants and
obligations to be performed prior to Closing resulting in a
termination of this Agreement under Section 7.1(e)
or Section 7.1(g), as applicable. For purposes of
this Agreement, a “material and willful” breach shall
mean, with respect to a representation or warranty set forth in
Article III or IV, such representation or warranty
was not, to the Knowledge of such Party, true and correct in all
material respects when made as of the date hereof. For the
avoidance of doubt, if any representation or warranty was true
and correct in all material respects when made on the date
hereof, but at any time thereafter, whether or not to such
Party’s Knowledge, ceased to be true and correct, such
failure to thereafter be or remain true and correct shall not
give rise to a “material and willful” breach. For
avoidance of doubt, the failure of Consonant to cure any Credit
Agreement Default, shall not give rise to damages under this
Section 7.2. It is understood and agreed that the
remedies and liquidated damages provided in this
Article VII, Section 9.9
and/or the
VSS Limited Guarantee, as the case may be, shall be the sole and
exclusive remedy for any act or omission resulting in or from
the termination of this Agreement or other claim (regardless of
whether accompanied by termination of this Agreement) arising
out of any representation or warranty in Article III or
IV of this Agreement or any covenant or obligation to be
performed or satisfied at or prior to the Closing, and, except
for such remedies and liquidated damages, no Party shall have,
and each Party does hereby knowingly, intentionally, voluntarily
and irrevocably waive, any other claim or right of recovery
against any other Person with respect to such provisions of this
Agreement. Holdco and Consonant acknowledge and agree that they
shall not be entitled to assert any defense to the enforcement
of any of their respective representations, warranties and
covenants in this Agreement that are made with respect to, or to
be performed by the Subsidiaries (as defined herein) of
Consonant on the grounds that Consonant does not own or control
such Subsidiaries as of the date hereof
and/or that
the Holdings III Merger Transactions have not yet occurred
as of the date hereof.
Section 7.3. Expenses
and Other Payments.
(a) Except as set forth in this Section 7.3,
(i) if the Mergers are not consummated, all costs and
expenses incurred in connection with the Mergers, this
Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby shall be paid by the Party
incurring or required to incur such expenses and (ii) if
the Mergers are consummated, then all Vowel Transaction Expenses
and Consonant Transaction Expenses incurred in connection with
the Mergers, this Agreement, the other Transaction Documents and
the transactions contemplated hereby and thereby (including
without limitation the premiums and commissions for the D&O
Tail Insurance), other than the Vowel Expense Reimbursement
Amount
deposited with the Exchange Agent in accordance with
Section 2.3, shall be paid in full by Vowel (but
only to the extent of Vowel Excess Cash, if any) and Holdco (to
the extent such Vowel Transaction Expenses and Consonant
Transaction Expenses are in excess of Vowel Excess Cash) on the
Closing Date to the appropriate vendors or other parties to whom
such expenses are owed by wire transfer of immediately available
funds; provided, however, all fees paid
(x) in respect of any HSR Act or other regulatory filing
and (y) to ghSmart & Company, Inc., shall be
borne equally by Vowel and Consonant prior to the Effective
Time. For the avoidance of doubt and notwithstanding anything to
the contrary herein (express or implied), in no event shall the
Available Vowel Cash for Cash Election, Available Cash for Tax
Refund Consideration or any other amounts to be paid to Vowel
Stockholders hereunder (whether before or after Closing) or to
be applied to the Vowel Closing Liabilities be reduced by the
amount of any Vowel Transaction Expenses (except with respect to
any amount in excess of the D&O Maximum Amount) or
Consonant Transaction Expenses, but, if Vowel Excess Cash is
greater than zero, Vowel shall contribute to the Closing Date
payment of Vowel Transaction Expenses an amount in cash equal to
the lesser of (x) Vowel Excess Cash, and (y) Vowel
Transaction Expenses. The Parties hereto agree that the
Consonant Transaction Expenses may be paid by Holdco or its
Subsidiaries at or after the Effective Time (subject to the
restrictions set forth in the definition of Consonant
Transaction Expenses in Section 4.32), but no such
Consonant Transaction Expenses shall be paid by Holdco,
Consonant or any of its Subsidiaries unless and until all Vowel
Transaction Expenses are paid in full in cash.
(b) Vowel shall pay, or cause to be paid, to Consonant a
fee equal to Seven Million Five Hundred Thousand Dollars
($7,500,000) (the “Vowel Termination Fee”),
less any amounts paid pursuant to Section 7.3(c)
below, if: (1)(x) this Agreement is terminated by Consonant or
Vowel pursuant to Section 7.1(d) (or if this
Agreement is terminable pursuant to Section 7.1(d)
and Vowel terminates this Agreement for another reason other
than pursuant to Section 7.1(e) or
Section 7.1(j)), (y) at any time after the date
hereof a Vowel Alternative Proposal or a Vowel Superior Proposal
shall have been publicly announced or otherwise communicated to
the Vowel Board and (z) within twelve (12) months of
the termination of this Agreement by any Party, Vowel enters
into a definitive agreement with any third party with respect to
a Vowel Alternative Proposal or a Vowel Superior Proposal, or
any such transaction is consummated; (2) this Agreement is
terminated by Consonant pursuant to Section 7.1(h),
provided that Consonant has terminated the Agreement within
seven (7) Business Days after receipt of written notice
from Vowel that any of the events set forth in
Section 7.1(h) have occurred; or (3) this
Agreement is terminated by Vowel pursuant to
Section 7.1(f). Any Vowel Termination Fee shall be
paid by wire transfer in immediately available funds to an
account designated by Consonant and: (A) if paid pursuant
to Section 7.3(b)(1) within two (2) Business
Days of Vowel entering into a definitive agreement with a third
party with respect to a Vowel Alternative Proposal or a Vowel
Superior Proposal, or the consummation of any such transaction;
(B) if paid pursuant to Section 7.3(b)(2),
within two (2) Business Days following termination of this
Agreement by Consonant; or (C) if paid pursuant to
Section 7.3(b)(3) prior to or concurrently with the
termination of this Agreement by Vowel.
(c) In the event that this Agreement is terminated pursuant
to Section 7.1(d) (or if this Agreement is
terminable pursuant to Section 7.1(d) and Vowel
terminates this Agreement for another reason other than pursuant
to Sections 7.1(e) or Section 7.1(j))
under circumstances in which no Vowel Termination Fee is then
payable upon such termination (regardless if it subsequently
becomes payable under Section 7.3(b)(1)), then Vowel
shall promptly, but in no event later than five
(5) Business Days after being notified of such by
Consonant, pay all of the reasonable, documented
out-of-pocket
expenses incurred by Consonant in connection with this Agreement
and the transactions contemplated by this Agreement, up to a
maximum of Three Million Dollars ($3,000,000), by wire transfer
in immediately available funds to an account designated by
Consonant (the “Consonant Expense Reimbursement
Amount”). In the event that a Vowel Termination Fee
becomes payable pursuant to Section 7.3(b)(1) after
the payment of the Consonant Expense Reimbursement Amount, the
Vowel Termination Fee Amount then payable shall be reduced by
the amount of the Consonant Expense Reimbursement Amount so
paid. By way of example, in the event Vowel shall have paid to
Consonant a Consonant Expense Reimbursement Amount of Three
Million Dollars ($3,000,000) any Vowel Termination Fee Amount
thereafter payable shall be equal to Four Million Five Hundred
Thousand Dollars ($4,500,000). For avoidance of doubt, no
Consonant Expense Reimbursement Amount shall be payable if the
Vowel Termination Fee has bee paid pursuant to
Section 7.3(b)(2) or Section 7.3(b)(3)
or the Vowel Breach Termination Fee has been paid pursuant to
Section 7.2.
(d) Consonant shall pay, or cause to be paid, to Vowel:
(i) a fee equal to Four Million Five Hundred Dollars
($4,500,000) (the “Consonant Ordinary Termination
Fee”), if this Agreement is terminated by Vowel or
Consonant pursuant to Sections 7.1(i); (ii) the
Consonant Ordinary Termination Fee if this Agreement is
terminated by Vowel pursuant to Section 7.1(l),
unless the Agreement may then be terminated under
Section 7.1(c) or Section 7.1(k); or
(iii) a fee equal to Nine Million Dollars ($9,000,000) (the
“Consonant Enhanced Termination Fee”), if this
Agreement is terminated by Vowel pursuant to
Section 7.1(j) in the event of an Equity Cure
Failure. In the event this Agreement is terminated by Vowel
pursuant to Section 7.1(j) or
Section 7.1(e) in the event of a General Cure
Failure which has not been waived by Vowel as contemplated in
Section 5.21(b), Vowel shall not be entitled to
receive any Consonant Termination Fee. Any Consonant Termination
Fee shall be paid by wire transfer in immediately available
funds to an account designated by Vowel within two
(2) Business Days following any termination of this
Agreement by Vowel or Consonant in circumstances set forth in
this Section 7.3(d). For avoidance of doubt, under
no circumstances shall Consonant be required to pay to Vowel
more than one of the following: the Consonant Ordinary
Termination Fee, the Consonant Enhanced Termination Fee or the
Consonant Breach Termination Fee.
(e) The Parties agree that this Section 7.3 and
the payments contemplated thereby are an integral part of the
Mergers and the other transactions contemplated hereby and
constitute liquidated damages and not a penalty. Except as
otherwise provided in this Section 7.3(e), following
the receipt by Consonant of the Vowel Termination Fee pursuant
to Section 7.3(b), Vowel shall have no further
liability with respect to this Agreement or the transactions
contemplated hereby to Consonant or Holdco (except as otherwise
expressly provided herein). Except as otherwise provided in this
Section 7.3(e), following the receipt by Vowel of
the applicable Consonant Termination Fee pursuant to
Section 7.3(d), Consonant shall have no further
liability with respect to this Agreement or the transactions
contemplated hereby to Vowel (except as otherwise expressly
provided herein). Without limiting the provisions of
Section 7.2, the obligations of Vowel to pay any
Vowel Termination Fee, in each case as applicable pursuant to
the provisions of this Section 7.3 or any other
amount pursuant to this Article VII, shall continue
notwithstanding the termination of this Agreement or the
occurrence of the Outside Date. Notwithstanding anything to the
contrary contained in Section 7.2 or this
Section 7.3, if Vowel fails to pay promptly to
Consonant the Vowel Breach Termination Fee if due and owing
under Section 7.2 or any amounts due and owing by
Vowel under Section 7.3(b) and
Section 7.3(c), in addition to such amounts, Vowel
shall pay Consonant’s reasonable and documented
out-of-pocket
costs and expenses (including reasonable and documented legal
fees and expenses) in connection with any action, including the
filing of any lawsuit or legal action, taken to collect payment,
together with interest on the amount of any such unpaid amounts
from the date such amounts were required to be paid at the prime
lending rate as reported in the Wall Street Journal, plus
2%, on the date such amounts were required to be paid,
provided, however, in no event shall Vowel’s
liability pursuant to this sentence with respect to the payment
of Consonant’s
out-of-pocket
costs, expenses and interest on the amount of any such unpaid
amounts exceed $625,000 in the aggregate. Without limiting the
foregoing provisions of Section 7.2, the obligations
of Consonant to pay any Consonant Termination Fee pursuant to
the provisions of this Section 7.3 or any other
amount pursuant to this Article VII shall continue
notwithstanding the termination of this Agreement or the
occurrence of the Outside Date. Notwithstanding anything to the
contrary contained in Section 7.2 or this
Section 7.3, if Consonant fails to pay promptly to
Vowel the Consonant Breach Termination Fee if due and owing
under Section 7.2 or any amounts due and owing by
Consonant under Section 7.3(d), in addition to such
amounts, Consonant shall pay Vowel’s reasonable and
documented
out-of-pocket
costs and expenses (including reasonable and documented legal
fees and expenses) in connection with any action, including the
filing of any lawsuit or legal action, taken to collect payment,
together with interest on the amount of any such unpaid amounts
from the date such amounts were required to be paid at the prime
lending rate as reported in the Wall Street Journal, plus
2%, on the date such amounts were required to be paid,
provided, however, that in no event shall
Consonant’s liability pursuant to this sentence with
respect to the payment of Vowel’s
out-of-pocket
costs, expenses and interest on the amount of any such unpaid
amounts exceed $625,000 in the aggregate.
Section 8.1. Appointment
of Stockholders’ Representative. By
approval of this Agreement at the Vowel Meeting, and pursuant to
the terms of the letter of transmittal contemplated by
Article II hereof, the Vowel Stockholders shall
irrevocably make, constitute and appoint the Stockholders’
Representative as their agent, attorney-in-fact and
representative and authorize and empower it to fulfill the role
of the Stockholders’ Representative contemplated hereunder.
This power is irrevocable and coupled with an interest. The
Parties acknowledge and agree that the member
and/or
manager of the Stockholders’ Representative may be removed,
replaced
and/or
substituted by the Vowel Board at any time or from time to time
prior to the Effective Time without any consent or approval by,
any Party hereto. The Stockholders’ Representative shall
promptly notify Holdco in writing by the Stockholders’
Representative of any removal, replacement or substitution of
the member
and/or
manager of the Stockholder’s Representative. If the
Stockholders’ Representative liquidates, dissolves or winds
up its affairs, without appointing a successor under this
Section 8.1, then, the Audit Committee of the Holdco
Board shall be deemed the Stockholders’ Representative for
purposes of discharging all of its powers and authority under
this Agreement and each of the other Transaction Documents, and
all Persons shall be entitled to rely on the action of the Audit
Committee as though it were the Stockholders’
Representative.
Section 8.2. Authority. By
approval of this Agreement at the Vowel Meeting, and pursuant to
the terms of the letter of transmittal contemplated by
Article II hereof, each of the Vowel Stockholders
hereby irrevocably grants the Stockholders’ Representative
full power and authority on their behalf to take the actions
after the Closing set forth immediately below:
(a) to enforce (1) any Post-Closing Obligations of
Holdco, Consonant or their respective Subsidiaries pursuant to
this Agreement and (2) any obligations under the Escrow
Agreement, the Contingent Value Right Agreement, the Security
Agreement, the VSS Limited Guarantee or any other Transaction
Documents to the extent such other Transaction Documents
expressly provide rights or benefits to the Stockholders’
Representative or to any Vowel Stockholder after the Closing;
(b) to negotiate and compromise, on behalf of such Vowel
Stockholder, any dispute that may arise under, and to exercise
or refrain from exercising any remedies available under, the
agreements and obligations contemplated in
Section 8.2(a), and to execute, on behalf of such
Vowel Stockholder, any settlement agreement, release or other
document with respect to such dispute or remedy;
(c) to engage attorneys, accountants and agents at the
expense of and on behalf of the Vowel Stockholders;
(d) to give and receive notice or other communications on
behalf of the Vowel Stockholders;
(e) to receive all or any portion of amounts in the Escrow
Funds (as defined in the Escrow Agreement) to fund: (1) the
payment of reasonable costs and expenses (including without
limitation any insurance contemplated by clause (e)(2)) of the
Stockholders’ Representative incurred or reasonably
expected to be incurred in connection with the performance of
its duties or the taking of any action contemplated in this
Section 8.2; (2) the purchase of any insurance
or similar products that are reasonably necessary to provide
indemnification to the Stockholders’ Representative as
contemplated in Section 8.4;
and/or
(3) any reasonable compensation payable to the
Stockholders’ Representative for performing its services in
accordance with this Agreement and any applicable Transaction
Document; and/or
(f) to take any and all other actions incidental to, or as
are otherwise necessary or appropriate to, carry out the duties
of the Stockholders’ Representative contemplated herein or
of the secured party as contemplated by the Security Agreement.
Notwithstanding the foregoing, the Stockholders’
Representative shall have no authority to enforce the rights of
any employee or other Person in such Person’s capacity as a
beneficiary of any of the plans or amounts set forth in
Schedule 5.24.
Section 8.3. Reliance. By
approval of this Agreement at the Vowel Meeting, and pursuant to
the terms of the letter of transmittal contemplated by
Article II hereof, each Vowel Stockholder
irrevocably agrees that:
(a) in all matters in which action by the
Stockholders’ Representative is required or permitted, the
Stockholders’ Representative is authorized to act on behalf
of such Vowel Stockholder, notwithstanding any dispute or
disagreement among Vowel Stockholders or between any Vowel
Stockholder and the Stockholders’ Representative, and
Holdco and its Subsidiaries, and the VSS Funds, shall be
entitled to rely on any and all action taken by the
Stockholders’ Representative under this Agreement without
any liability to, or obligation to inquire of, any of the Vowel
Stockholders, notwithstanding any knowledge on the part of
Holdco or Consonant of any such dispute or disagreement;
(b) any notice to the Stockholders’ Representative
must be given to the Stockholders’ Representative in the
manner provided in Section 9.3, and such notice
shall be deemed to be notice to all the Vowel Stockholders for
the purposes of this Agreement;
(c) the power and authority of the Stockholders’
Representative, as described in this Agreement, shall continue
in force until all rights of the Vowel Stockholders under the
agreements contemplated in Section 8.2(a) shall have
terminated, expired or been fully performed; and
(d) after the Effective Time, a majority in interest of the
Holders (as defined in the CVR Agreement) shall have the right,
exercisable from time to time upon written notice delivered to
the Stockholders’ Representative and Holdco, as applicable:
(1) to remove the Stockholders’ Representative, with
or without cause, and (2) to appoint a Stockholders’
Representative to fill a vacancy caused by the resignation or
removal of the Stockholders’ Representative.
Section 8.4. Indemnification
of Stockholders’ Representative. The
letter of transmittal contemplated by Article II
hereof shall provide that each Vowel Stockholder shall severally
indemnify the Stockholders’ Representative and each of its
members or managers against any Liabilities of any kind or
nature whatsoever (except such as result from willful misconduct
by such person) that the Stockholders’ Representative may
suffer or incur in connection with any action or omission of
such member as a member of the Stockholders’
Representative. The Liabilities contemplated in this
Section 8.4 shall be satisfied exclusively out of
the Escrow Account, net of any insurance proceeds actually
received by the Stockholders’ Representative (after taking
into account any deductibles, retention amounts
and/or any
costs or expenses incurred in obtaining such insurance
proceeds). The Stockholders’ Representative shall not be
liable to any Vowel Stockholder for any Liabilities (except such
Liabilities as result from the Stockholders’
Representative’s gross negligence or willful misconduct)
with respect to any action or omission taken or omitted to be
taken by the Stockholders’ Representative pursuant to this
ARTICLE VIII.
ARTICLE IX
GENERAL
PROVISIONS
Section 9.1. No
Survival of Representations and Warranties; Limitations of
Representations and Warranties. None of the
representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive
the Effective Time but shall survive the termination of this
Agreement if the Mergers are not consummated. ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE ARE EXPRESSLY EXCLUDED. THE PARTIES MAKE NO
REPRESENTATIONS OR WARRANTIES TO EACH OTHER, EXCEPT AS CONTAINED
IN THIS AGREEMENT, AND ANY AND ALL PRIOR REPRESENTATIONS AND
WARRANTIES MADE BY ANY PARTY OR ITS REPRESENTATIVES, WHETHER
VERBALLY OR IN WRITING, ARE DEEMED TO HAVE BEEN MERGED INTO THIS
AGREEMENT, IT BEING INTENDED THAT NO SUCH PRIOR REPRESENTATIONS
OR WARRANTIES SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS
AGREEMENT.
Section 9.2. Counterparts;
Effectiveness. This Agreement may be executed
in two or more consecutive counterparts (including by
facsimile), each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the
same instrument, and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered (by telecopy or otherwise) to the other parties.
Section 9.3. Notices. All
notices, waivers, consents, approvals and other communications
given or made pursuant hereto shall be in writing and shall be
deemed to have been duly given or made as of the date delivered,
mailed or transmitted, and shall be effective upon receipt, if
delivered personally, sent by a nationally recognized courier,
mailed by registered or certified mail (postage prepaid, return
receipt requested), to the Parties at the following addresses
(or at such other address as a Party may hereafter specify in
writing to the other Parties in accordance with this section) or
sent by electronic transmission to the fax number specified
below:
Section 9.4. Headings. The
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5. Severability. If
any term or other provision (or portion thereof) of this
Agreement, or the application of any such term or other
provision (or portion thereof) to any Person, is finally
determined by a court of competent jurisdiction (and such
determination has become non-appealable) to be invalid, illegal
or incapable of being enforced by any applicable Law, or public
policy, such circumstances shall not have the effect of
rendering such term or provision in question invalid,
inoperative or unenforceable in any other case or circumstance,
or of rendering any other term or provision herein contained
invalid, inoperative or unenforceable to any extent whatsoever.
Upon such final determination, to the extent not reformed by
such court, that any term or other provision (or portion
thereof) of this Agreement is invalid, illegal or incapable of
being enforced, the Parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the
end that transactions contemplated hereby are fulfilled to the
extent possible.
Section 9.6. Assignment;
Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be
assigned by any of the Parties (whether by operation of Law or
otherwise) without the prior written consent of the other
parties; provided, however, that Consonant
and/or
Holdco may assign this Agreement to a wholly owned Subsidiary
without the prior written consent of any other Party so long as
Consonant or Holdco, as the case may be, remains bound as a
Party hereto notwithstanding such assignment. Subject to the
preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the Parties and their respective
successors and assigns; provided, further,
however, upon prior written notice thereof to Vowel,
Consonant may assign its rights to any payment under
Article VII of this Agreement to any of its
Affiliates without the prior written consent of any other Party,
and Vowel shall remit such payments, if any, to such Affiliate
instead of Consonant as and when due.
Section 9.7. Entire
Agreement; No Third-Party Beneficiaries. This
Agreement (including the exhibits and schedules hereto) taken
together with the other Transaction Documents and the
Confidentiality Agreements constitute the entire agreement, and
supersede all other prior agreements, representations and
understandings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof and
thereof and, except for the provisions of
Section 5.8 (which, from and after the Effective
Time, shall be for the benefit of the Indemnified Persons) and
Article VIII (which, from and after the Effective Time,
shall be for the benefit of the Stockholders’
Representative), nothing in this Agreement, express or implied,
is intended to or shall confer upon any Person (other than the
Parties) any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement,
express or implied, including without limitation
Section 5.9 and Section 5.24 hereof,
shall confer upon any current or former employee of Vowel or any
of its Subsidiaries or any legal representative thereof any
rights or remedies of any kind or nature whatsoever under or by
reason of this Agreement (including any right to employment,
continued employment with any of the Parties or benefits for any
specified period).
Section 9.8. Amendments;
Waivers. At any time prior to the Effective
Time, any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Parties, or in the
case of a waiver, by the Party against whom the waiver is to be
effective; provided, however, that after receipt
of the Vowel Stockholder Approval or adoption of this Agreement
by the stockholders of Consonant but prior to the Effective
Time, if any such amendment or waiver shall by applicable Law
require further approval of the stockholders of Vowel or
Consonant, as applicable, the effectiveness of such amendment or
waiver shall be subject to the approval of the stockholders of
Vowel or Consonant, as applicable. After the Effective Time, any
provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by Holdco and the Stockholders’
Representative, or in the case of a waiver, by the party against
whom the waiver is to be effective.
Section 9.9. Failure
or Indulgence Not Waiver; Specific
Performance. No failure or delay on the part
of any Party in the exercise of any right hereunder shall impair
such right or be construed to be a waiver of, or acquiescence
in, any breach of any representation, warranty or covenant in
any Transaction Document, nor shall any single or partial
exercise of any such right preclude other or further exercise
thereof or of any other right. Vowel agrees that irreparable
damage would occur in the event that any of the provisions of
this Agreement were not performed by it in accordance with their
specific terms or were otherwise breached by Vowel or its
Subsidiaries. Vowel accordingly agrees that Holdco
and/or
Consonant shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by Vowel and its Subsidiaries
and to enforce specifically the terms and provisions of this
Agreement in the Court of Chancery of the State of Delaware, New
Castle County, or in a federal court sitting in Wilmington,
Delaware, without bond or other security being required, this
being in addition to any other remedy to which they are entitled
at Law or in equity. Vowel and its Subsidiaries acknowledge that
neither Vowel nor its Subsidiaries is entitled to an injunction
or injunctions to prevent breaches of this Agreement by
Consonant
and/or
Holdco or to enforce specifically the terms of this Agreement
and that Vowel and its Subsidiaries sole and exclusive remedy
with respect to any such breach shall be the remedies set forth
in Section 7.2 and Section 7.3(d) (and
the VSS Limited Guarantee); provided, that if and only if the
Mergers are consummated and the Effective Time occurs, the
Parties agree (i) that irreparable damage would occur in
the event that any Post-Closing Obligations are not performed by
such parties in accordance with their specific terms or are
otherwise breached by such parties and (ii) that the
Stockholders’ Representative, acting on behalf of the
holders of Vowel Common Stock, shall be entitled, after the
Effective Time, to an injunction or injunctions to prevent a
breach or failure to perform any Post-Closing Obligations by
Consonant, Holdco, Vowel or its Subsidiaries and, after the
Effective Time, to enforce specifically the terms and provisions
of such Post-Closing Obligations in the Court of Chancery of the
State of Delaware, New Castle County, or in a federal court
sitting in Wilmington, Delaware, without bond or other security
being required, this being in addition to any other remedy to
which they are entitled at Law or in equity. For the avoidance
of doubt, Vowel shall not have the right to specific performance
or any injunctions if the Mergers are not consummated.
Section 9.10. Governing
Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware
applicable to contracts to be wholly performed within such State.
Section 9.11. Jurisdiction,
Etc.
(a) Each of the Parties agrees that any Proceeding,
directly or indirectly, arising out of, or relating to, the
Transaction Documents or any of the transactions contemplated
thereby (whether based on contract, tort or any other theory) or
any counterclaim related thereto or any judgment entered by any
court in respect thereof may be brought in the Court of Chancery
of the State of Delaware, New Castle County, or if that court
does not have jurisdiction a federal court sitting in
Wilmington, Delaware, and the Parties hereby irrevocably accept
the personal jurisdiction of such court for the purpose of any
such Proceeding.
(b) Each of the Parties irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the
laying of venue of any Proceeding, directly or indirectly,
arising out of, or relating to, the Transaction Documents or any
of the transactions contemplated thereby (whether based on
contract, tort or any other theory) or any counterclaim related
thereto
in such state or federal court in Wilmington, Delaware. Each of
the Parties hereby irrevocably waives, to the fullest extent
permitted by Law, the defense of an inconvenient forum to the
maintenance of any such Proceeding in such court.
(c) Each Party further agrees that service of any process,
summons, notice or document by U.S. registered mail to such
party’s address set forth in Section 9.3 shall
be effective service of process for any Proceeding with respect
to any matters to which it has submitted to jurisdiction in this
Section 9.11 or otherwise. As an alternative method
of service, each such party also irrevocably consents to the
service of any and all process in any manner permitted by or
under the laws of the State of Delaware.
Section 9.12. Waiver
of Jury Trial. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR
OTHER LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, OR
RELATING TO, ANY TRANSACTION DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY) OR ANY COUNTERCLAIM RELATED THERETO. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY
SUIT, ACTION OR OTHER LEGAL PROCEEDING, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.12.
Section 9.13. Interpretive
Provisions. Unless the express context
otherwise requires: (a) the words “hereof,”“herein,” and “hereunder” and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement; (b) terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa;
(c) the terms “Dollars” and “$” mean
United States Dollars; (d) references herein to a specific
Section, Subsection, Recital, Schedule or Exhibit shall refer,
respectively, to Sections, Subsections, Recitals, Schedules or
Exhibits of this Agreement; (e) wherever the word
“include,”“includes,” or
“including” is used in this Agreement, it shall be
deemed to be followed by the words “without
limitation”; (f) references herein to any gender shall
include each other gender; (g) references herein to any
Person shall include such Person’s heirs, executors,
personal representatives, administrators, successors and
permitted assigns; (h) references herein to a Person in a
particular capacity or capacities shall exclude such Person in
any other capacity; (i) references herein to any contract
or agreement (including this Agreement) means such contract or
agreement as amended, supplemented or modified from time to time
in accordance with the terms thereof; (j) with respect to
the determination of any period of time, the word
“from” means “from and including” and the
words “to” and “until” each means “to
but excluding”; (k) references herein to any Law or
any Permit mean such Law or Permit as amended, modified,
codified, reenacted, supplemented or superseded in whole or in
part, and in effect from time to time; and (l) references
herein to any Law shall be deemed also to refer to all rules and
regulations promulgated thereunder
Section 9.14. Provisions
Regarding Legal Representation. Each of the
Parties hereby agrees, on its own behalf and on behalf of its
directors, members, partners, officers, employees and
Affiliates, that Perkins Coie LLP or any of its successors or
assigns is serving as counsel to Vowel in connection with the
negotiation, preparation, execution and delivery of this
Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and
thereby, and that following Closing, neither Vowel nor Holdco
nor any of its Subsidiaries shall be considered a current client
of Perkins Coie LLP or any of its successors or assigns.
Following the Closing, and despite Perkins Coie LLP’s prior
representation of Vowel and each of its Subsidiaries, each of
the Parties hereto consent to Perkins Coie LLP or any of its
successors or assigns serving as counsel to the Stockholders
Representative, in connection with any litigation, claim or
obligation arising out of or relating to this Agreement or any
Transaction Document or the transactions contemplated by this
Agreement or any Transaction Document notwithstanding such
representation of Vowel and its Subsidiaries. Each of the
Parties hereby consents thereto to the representation by Perkins
Coie LLP of the Stockholders’ Representative directly
adverse to Vowel, Holdco, any of its subsidiaries, or to any of
the
Parties to this Agreement or any Transaction Document in any
litigation, claim or obligation arising out of or related to
this Agreement or any other Transaction Document or the
transactions contemplated by this Agreement or any of the other
Transaction Document and waives any conflict of interest arising
therefrom, and each of the Parties shall cause any Affiliate
thereof to waive any conflict of interest arising from such
representations; provided, however, that Perkins
Coie LLP shall not also be representing Holdco or any of its
Subsidiaries at such time.
Section 9.15. Certain
Definitions. For the purposes of this
Agreement:
“2006 Financial Statements” has the
meaning assigned thereto in Section 4.6(a).
“2008 Financial Statements” has the
meaning assigned thereto in Section 4.6(a).
“280G Excess Amount” means the amount,
if any, by which the sum of (x) $1,133,000, plus
(y) the Available Vowel Cash for Cash Election, exceeds
$42,500,000.
“280G Returned Amount” has the meaning
assigned thereto in Section 5.24.
“Action of Divesture” shall mean
(i) any license, sale or other disposition or holding
separate (through establishment of a trust or otherwise) of any
shares of capital stock or of any business, assets or properties
of any Party, its Subsidiaries or Affiliates that are material
to such Party, its Subsidiaries or Affiliates, (ii) the
imposition of any material limitation on the ability of any
Party, its Subsidiaries or Affiliates to conduct their
respective businesses or own any capital stock or assets or to
acquire, hold or exercise full rights of ownership of their
respective businesses or (iii) the imposition of any
material impediment on any Party, its Subsidiaries or Affiliates
under any Law governing competition, monopolies or restrictive
trade practices.
“Additional Shares” has the meaning
assigned thereto in Section 2.7.
“Affiliate” has the meaning assigned
thereto in
Rule 12b-2
under the Exchange Act.
“Aggregate Vowel Closing Funding Amount”
means the sum of all amounts set forth on
Schedule 5.24 with respect to Vowel Closing
Liabilities.
“Agreed Contingencies” means those Taxes
set forth on Section 9.15(i) of the Vowel Disclosure
Schedule, plus the reasonable documented
out-of-pocket
expenses incurred after the Closing Date that reasonably relate
to such tax liabilities and Tax Returns contemplated by the last
sentence of Section 5.23(c).
“Agreement” has the meaning assigned
thereto in the Preamble.
“Allen & Co. ” has
the meaning assigned thereto in Section 3.18.
“Annual Financial Statements” means the
2006 Financial Statements, the Consonant Learning Financial
Statements and the VSS-Consonant Financial Statements.
“Applicable Refund Percentage” equals:
(i) in the case of Vowel Shared Tax Offset Amounts (other
than the allocable portion thereof attributable to the amounts
in excess of $1,400,000 (plus any remaining portion of the
$250,000 deductible) paid after the Effective Time with respect
to the Designated Tax Liability), fifty percent (50%); and
(ii) in the case of Vowel Shared Tax Offset Amounts
relating to the allocable portion thereof paid after the
Effective Time and attributable to the Designated Tax Liability
in excess of $1,400,000 plus any remaining portion of the
$250,000 deductible, one hundred percent (100%).
“Available Cash Election Shares” means
the quotient (rounded down to the nearest whole number) of
(x) the Total Cash for Cash Election, divided by
(y) the Vowel Per Share Cash Consideration.
“Available Vowel Cash for Tax Refund
Consideration” means the sum of all Vowel Tax
Refunds received prior to the Closing (including the Pre-Signing
Tax Refunds), less the Vowel Tax Refund Holdback Amount.
“Available Vowel Cash for Cash Election”
means the lesser of: (x) the sum of all cash and cash
equivalents held by Vowel and its Subsidiaries as of the close
of business on the Business Day immediately preceding the
Closing Date (including, without duplication, the Vowel Tax
Refunds received prior to Closing (including the Pre-Signing Tax
Refunds) and all cash then held in rabbi trusts that are funded
by Vowel and its Subsidiaries as of or prior to the close of
business on the Business Day immediately preceding the Closing
Date) plus, without duplication, the Vowel Expense
Reimbursement Amount, minus (i) the Aggregate Vowel
Closing Funding Amount (excluding amounts paid on or before the
Business Day immediately preceding the Closing Date by Vowel or
its Subsidiaries in accordance with the Liability Contracts in
effect on the date hereof, other than amounts then held in the
rabbi trusts that are included in the calculations in the first
parenthetical in this clause (x)), minus (ii) the
D&O Excess Amount, minus (iii) the Vowel Tax
Refunds received prior to the Closing (including the Pre-Signing
Tax Refunds, minus (iv) $1,000,000, minus
(v) the Out-year Excess Amount, if any; and
(y) $42,500,000.
“Benefit Plan(s)” means the Vowel
Benefit Plans and the Consonant Benefit Plans.
“Business Day” means any day that is not
a Saturday, Sunday, legal holiday or other day on which
commercial banks in New York, New York are authorized or
required by Law to close.
“Cancelled Consonant Shares” has the
meaning assigned thereto in Section 2.2(c).
“Cancelled Vowel Shares” has the meaning
assigned thereto in Section 2.1(c).
“Cash Election Shares” has the meaning
assigned thereto in Section 2.1(e)(ii).
“Certificates” has the meaning assigned
thereto in Section 2.3(a).
“Certificates of Merger” has the meaning
assigned thereto in Section 1.3.
“Change of Vowel Recommendation” has the
meaning assigned thereto in Section 5.3(c).
“Closing” has the meaning assigned
thereto in Section 1.2(a).
“Closing Date” has the meaning assigned
thereto in Section 1.2(a).
“COBRA” has the meaning assigned thereto
in Section 3.14(c).
“Code” means the Internal Revenue Code
of 1986, as amended, including any successor provisions and
transition rules, whether or not codified.
“Confidentiality Agreements” means the
Consonant Confidentiality Agreement and the Vowel
Confidentiality Agreement.
“Consonant” means VSS-Cambium
Holdings II Corp., a Delaware corporation.
“Consonant Acquired Debt Payment” means:
(a) the aggregate principal amount of any indebtedness
outstanding on the date hereof under any Credit Agreement
acquired (by purchase, participation, assignment or otherwise)
by any Consonant Holder, VSS or any Affiliate, but only to the
extent such indebtedness is retired and extinguished at or
before the Effective Time; or (b) the aggregate amount of
any cash contributions to Holdco, Consonant or its Subsidiaries
from the Consonant Holder or VSS Funds to the extent such cash
contributions made between the date hereof and the Effective
Time retire or extinguish outstanding indebtedness under any of
the Credit Agreements at or before the Effective Time;
provided, however, the acquisition of any such
indebtedness shall not, after giving effect to the
Holdings III Merger Transactions, result in Consonant,
directly or indirectly, owning less than 100% of its
Subsidiaries. Notwithstanding the foregoing, to avoid double
counting, in no event shall any amount treated as an Equity Cure
Payment Amount also be treated as a Consonant Acquired Debt
Payment.
“Consonant Assets” has the meaning
assigned thereto in Section 4.11.
“Consonant Benefit Plan” has the meaning
assigned thereto in Section 4.14(a).
“Consonant Board” means the then board
of directors of Consonant.
“Consonant Certificate” has the meaning
assigned thereto in Section 2.3(a).
“Consonant Certificate of Merger” has
the meaning assigned thereto in Section 1.3.
“Consonant Common Stock” has the meaning
assigned thereto in the Recitals.
“Consonant Confidentiality Agreement”
means the confidentiality agreement, dated December 8,2008, by and between Vowel and Consonant.
“Consonant Consideration” has the
meaning assigned thereto in Section 2.2(a).
“Consonant Designees” means the five
individuals to be named or appointed by Consonant as directors
of Holdco at any time prior to the filing of the Registration
Statement one of which shall (i) be independent as defined
under Rule 5605(a)(2) of the Nasdaq Marketplace Rules;
(ii) meet the criteria for independence set forth under
Rule 10A-3(b)
of the Exchange Act; (iii) not have participated in the
preparation of the financial statements of Holdco, Vowel or any
of their respective Subsidiaries during the past three years;
and (iv) be able to read and understand fundamental
financial statements, including a balance sheet, income
statement and cash flow statement.
“Consonant Disclosure Schedule” has the
meaning assigned thereto in Article IV.
“Consonant Employees” has the meaning
assigned thereto in Section 4.14(a).
“Consonant Enhanced Termination Fee” has
the meaning assigned thereto in Section 7.3(d).
“Consonant Equity Cure” has the meaning
assigned thereto in Section 5.21(b).
“Consonant ERISA Affiliate” has the
meaning assigned thereto in Section 4.14(b).
“Consonant Exchange Ratio” means
0.8448961.
“Consonant Expense Reimbursement Amount”
has the meaning assigned thereto in Section 7.3(c).
“Consonant Financial Statements” has the
meaning assigned thereto in Section 4.6(a).
“Consonant Holders” means prior to
consummation of the Holdings III Merger Transactions, the
holders of memberships interests of VSS-Consonant Holdings and,
after the Holdings III Merger Transactions, the holders of
membership interests of VSS-Consonant Holdings III.
“Consonant Intellectual Property” means
Intellectual Property, other than Consonant Third Party
Intellectual Property, that is (i) used internally in the
business of Consonant or any of its Subsidiaries, or
(ii) incorporated in or used in connection with any product
or service offered for sale by Consonant or any of its
Subsidiaries any time within the six (6) years preceding
the date of this Agreement, or currently under development.
“Consonant Learning” means Cambium
Learning, Inc., a Delaware corporation and wholly owned
subsidiary of VSS-Consonant Holdings IV.
“Consonant Learning Financial
Statements” has the meaning assigned thereto in
Section 4.6(a).
“Consonant Material Adverse Effect”
means any change, effect, event, occurrence, state of facts,
non-occurrence or omission (or any development that has had or
is reasonably likely to have any effect) that, (A) is
materially adverse to the business, financial condition or
results of operations of Consonant and its Subsidiaries, taken
as a whole, or (B) which would prevent or materially delay
the consummation of the Consonant Merger; provided,
however, that none of the following shall be deemed in
themselves, either alone or in combination, to constitute, and
none of the following shall be taken into account in determining
whether there has been a Consonant Material Adverse Effect:
(i) a disruption in financial, credit, banking or
securities markets or any interest rate or exchange rate
changes, generally which does not disproportionately affect
Consonant and its Subsidiaries, taken as a whole, as compared to
other companies with similar Indebtedness as Consonant and its
Subsidiaries; (ii) any material downturn in
general business or economic conditions to the extent it does
not disproportionately affect Consonant and its Subsidiaries,
taken as a whole, as compared with other participants in the
industries in which Consonant and its Subsidiaries operate;
(iii) any change attributable to the announcement or
pendency of the Reorganization (including any cancellations of
or delays in customer agreements, any reduction in sales, any
disruption in supplier, distributor, partner or similar
relationships or any loss of employees), or resulting from or
relating to compliance with the terms of, or the taking of any
action required by, this Agreement; (iv) any change arising
from or relating to any change after the date of this Agreement
in GAAP as consistently applied by Consonant; (v) any
change resulting from or relating to political or economic
conditions, including acts of terrorism or war which to the
extent it does not disproportionately affect Consonant and its
Subsidiaries, taken as a whole, as compared with other
participants in the industries in which Consonant and its
Subsidiaries operate; (vi) any change arising from or
relating to Laws issued by any Governmental Authority after the
date of this Agreement applicable to the Parties to the extent
it does not disproportionately affect Consonant and its
Subsidiaries, taken as a whole, as compared with other
participants in the industries in which Consonant and its
Subsidiaries operate; (vii) the failure, in and of itself,
by Consonant to meet or exceed any internal projections,
forecasts or earnings predictions, provided that this
clause (vii) shall not exclude any event or occurrence
which caused such failure; and (viii) the taking of any
action, or failure to take action, to which Vowel, has expressly
consented or approved in writing.
“Consonant Material Contracts” has the
meaning assigned thereto in Section 4.13(a).
“Consonant Material Customers” has the
meaning assigned thereto in Section 4.21(a).
“Consonant Material Vendors” has the
meaning assigned thereto in Section 4.21(b).
“Consonant Merger” has the meaning
assigned thereto in the Recitals.
“Consonant Merger Sub” means Consonant
Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Holdco.
“Consonant Ordinary Termination Fee” has
the meaning assigned thereto in Section 7.3(d).
“Consonant Related Person” has the
meaning assigned thereto in Section 4.20.
“Consonant Share” has the meaning
assigned thereto in Section 2.2(a).
“Consonant Specified Approvals” has the
meaning assigned thereto in Section 4.4(b).
“Consonant Specified Asset Recoupment
Amount” means an amount equal to the product
(rounded down to the nearest whole dollar), of: (x) 0.45;
multiplied by (y) the quotient of (A) the Net
Windle Proceeds, divided by (B) the Vowel Per Share
Cash Consideration.
“Consonant Stock Consideration” has the
meaning assigned thereto in Section 2.2(a).
“Consonant Surviving Corporation” has
the meaning assigned thereto in Section 1.1.
“Consonant Termination Fee” means either
the Consonant Ordinary Termination Fee or the Consonant Enhanced
Termination Fee, as applicable.
“Consonant Third Party Intellectual
Property” means all Intellectual Property owned by
Persons not party to this Agreement that is (i) used
internally in the business of Consonant or any of its
Subsidiaries, or (ii) incorporated in or used in connection
with any product or service offered for sale by Consonant any
time within the six (6) years preceding the date hereof or
any of its Subsidiaries, or currently under development.
“Consonant Transaction Expenses” has the
meaning assigned thereto in Section 4.32.
“Consonant Voting Agreements” has the
meaning assigned thereto in the Recitals.
“Contingent Value Right Agreement” or
“CVR Agreement” shall mean that certain
agreement governing the Contingent Value Rights, in
substantially the form attached hereto as Exhibit L.
“Contingent Value Right” or
“CVR” means a right to receive the quotient
of: (x) the aggregate proceeds, if any, payable under the
Contingent Value Right Agreement to be issued in the Vowel
Merger as part of the Vowel Consideration, which represents the
right to receive certain Vowel Tax Refunds received after the
Effective Time, the Vowel Tax Refund Holdback Amount, the 280G
Returned Amount and certain other amounts contemplated in the
Escrow Agreement, in each case net of certain agreed upon
liabilities, all as further described in the Contingent Value
Right Agreement and the Escrow Agreement divided by (y) the
aggregate number of shares of Vowel Common Stock outstanding as
of the Effective Time (excluding any shares of Vowel Common
Stock to be cancelled pursuant to Section 2.1(c)).
“Contract” means any note, bond,
mortgage, agreement, indenture, contract, lease, license,
permit, franchise or other instrument or obligation.
“Control” (including the terms
“controlled”, “controlled
by” and ‘‘under common control
with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
“Court Order” means any judgment, order,
writ, injunction, award, decree, stipulation or determination of
any foreign, federal, state or local Governmental Authority, and
any award in any arbitration proceeding.
“Credit Agreements” means the Senior
Credit Agreement and the Mezzanine Credit Agreement.
“Credit Agreement Default” has the
meaning assigned thereto in Section 5.21(a).
“Cure Period” means the period
commencing on the earlier of (a) the date upon which
Consonant or any of its Subsidiaries receives written notice
from the agent under the applicable Credit Agreement of a
General Default or (b) the date upon which Consonant
obtains Knowledge of the occurrence of a General Default, and,
in each case, ending on the earlier of (x) seventy five
(75) calendar days after the earlier of the dates set forth
in item (a) or (b) immediately above (as applicable)
and (y) the Outside Date.
“Cutback Number” means the difference of
(x) the aggregate number of Cash Election Shares reflected
in all of the properly completed Election Forms submitted on or
before the Election Deadline in accordance with this Agreement,
minus (y) the number of Available Cash Election
Shares.
“CVR” or “CVRs”
see definition of Contingent Value Right.
“CVR Rights Agent” means Wells Fargo,
N.A.
“Designated Person” means the Person set
forth in the first line of Section 2 of
Section 9.15(i) of the Vowel Disclosure Schedule.
“Designated Tax Liability” means the
Agreed Contingency identified in Line 2(f) of
Section 9.15(i) of the Vowel Disclosure Schedule.
“DGCL” has the meaning assigned thereto
in the Recitals.
“DOL” has the meaning assigned thereto
in Section 3.14(a).
“D&O” has the meaning assigned
thereto in Section 5.8(a).
“D&O Excess Amount” means the
amount by which all premiums and brokerage commissions directly
paid, payable or credited with respect to the insurance coverage
contemplated by Section 5.8(a), regardless of when
it is actually paid, exceeds $650,000.
“D&O Maximum Amount” means $650,000.
“D&O Program” has the meaning
assigned thereto in Section 5.8(a).
“D&O Tail Insurance” has the
meaning assigned thereto in Section 5.8(a).
“Effective Time” has the meaning
assigned thereto in Section 1.3.
“Election Deadline” has the meaning
assigned thereto in Section 2.1(e)(ii).
“Election Form” has the meaning assigned
thereto in Section 2.1(e)(i).
“Eligible Cutback Person” means any
holder of Vowel Shares who submits a properly completed Election
Form on or before the Election Deadline in accordance with this
Agreement, and elects therein to receive a number of Cash
Election Shares in excess of such holder’s Maximum Pro Rata
Election Amount.
“Employee” means any employee, officer,
consultant or independent contractor.
“Environmental Laws” means the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et seq., as amended as of the Closing;
the Resource Conservation and Recovery Act, 42 U.S.C. 6901
et seq., as amended as of the Closing; the Clean Air Act,
42 U.S.C. 7401 et seq., as amended as of the Closing; the
Clean Water Act, 33 U.S.C. 1251 et seq., as amended as of
the Closing; and any other Law, in each case in existence as of
the Closing, imposing Liability or establishing standards of
conduct with respect to the release of Hazardous Substances into
the environment.
“Equity Cure Failure” has the meaning
assigned thereto in Section 5.21(c).
“Equity Cure Payment Amount” has the
meaning assigned thereto in Section 5.21(b).
“ERISA” means the Employee Retirement
Income Security Act of 1974.
“Escrow Agent” means Wells Fargo, N.A.
“Escrow Agreement” means that certain
escrow agreement, by and among Vowel, the Stockholders’
Representative, Holdco and the Escrow Agent in the form attached
hereto as Exhibit M.
“Excess Employee Payment Amount” has the
meaning assigned thereto in Section 5.24.
“Exchange Act” means the Securities
Exchange Act of 1934, as amended.
“Exchange Agent” has the meaning
assigned thereto in Section 2.3(a).
“Exchange Fund” has the meaning assigned
thereto in Section 2.3(a).
“Export Approvals” has the meaning
assigned thereto in Section 3.26.
“FCPA” has the meaning assigned thereto
in Section 3.25.
“Fiduciary Program” has the meaning
assigned thereto in Section 5.8(a).
“Filings” has the meaning assigned
thereto in Section 3.31.
“Financial Default” has the meaning
assigned thereto in Section 5.21(b).
“GAAP” means U.S. generally
accepted accounting principles consistently applied throughout
the periods involved.
“General Cure Failure” has the meaning
assigned thereto in Section 5.21(c).
“General Default” has the meaning
assigned thereto in Section 5.21(b).
“Governmental Authority” means any
government, state, province or other political subdivision
thereof, any entity exercising executive, legislative, judicial,
regulatory or administration functions of or pertaining to
government, or any government authority, agency, department,
board, tribunal, commission or instrumentality of the United
State of America, any foreign government, any state of the
United States of America, or any municipality or other political
subdivision thereof, and any court, tribunal or arbitrators of
competent jurisdiction, and any governmental or non governmental
self regulatory organization, agency or authority.
“Hazardous Substances” shall mean any
substances, materials or wastes, whether liquid, gaseous or
solid, and any pollutant or contaminant, that is infectious,
toxic, hazardous, explosive, corrosive, flammable or
radioactive, or that is regulated under, defined, listed or
included in any Environmental Laws, including without
limitation, petroleum, chlorinated hydrocarbons, polychlorinated
biphenyls, asbestos and asbestos containing materials and urea
formaldehyde.
“Holdco” has the meaning assigned
thereto in the Preamble.
“Holdco Board” means the then board of
directors of Holdco.
“Holdco By-Laws” means the by-laws of
Holdco in the form attached hereto as Exhibit I.
“Holdco Common Stock” has the meaning
assigned thereto in the Recitals.
“Holdco Equity Incentive Plan” means the
Holdco 2009 Equity Incentive Plan, substantially in the form
attached hereto as Exhibit N.
“Holdco Preferred Stock” has the meaning
assigned thereto in Section 4A.3(a).
“Holdco Share” means a share of Holdco
Common Stock.
“Holdco Stockholders Agreement” has the
meaning assigned thereto in Section 5.16.
“Holdco Warrant(s)” has the meaning
assigned thereto in Section 2.2(a).
“Holdings III Certificate of
Merger” means the certificate of merger to be
executed, acknowledged and filed with the Secretary of State of
the State of Delaware in accordance with
Section 18-209
of the Delaware Limited Liability Company Act and the
Holdings III Merger Agreement.
“Holding III Contribution
Agreement” means the Contribution Agreement by and
between VSS-Consonant Holdings III, LLC, and VSS-Consonant
Holdings II Corp. attached as
Exhibit A-2
hereto.
“Holdings III Merger” means the
merger, pursuant to
Section 18-209
of the Delaware Limited Liability Company Act and the
VSS-Consonant Holdings LLC Amended and Restated Limited
Liability Company Agreement, dated as of April 12, 2007, of
VSS-Consonant Holdings III Acquisition, LLC a Delaware
limited liability company and a wholly-owned subsidiary of
VSS-Consonant Holdings III with and into VSS-Consonant
Holdings, LLC, a Delaware limited liability company, with
VSS-Consonant Holdings, LLC as the surviving entity thereof
pursuant to the Holdings III Merger Agreement, and
resulting in each of the members of VSS-Consonant Holdings, LLC,
including VSS-Consonant Management LLC, ceasing to be members of
VSS-Consonant Holdings, LLC and thereupon becoming members of
VSS-Consonant Holdings III.
“Holdings III Merger Transactions”
means the consummation of each of the following: (a) the
contribution by VSS-Consonant Holdings of all of the issued and
outstanding shares of capital stock of Consonant Learning to
VSS-Consonant Holdings IV , it wholly-owned subsidiary,
pursuant to the Holdings IV Contribution Agreement,
(b) the Holdings III Merger and (c) immediately
after giving effect to the Holdings III Merger, the
contribution by VSS-Consonant Holdings III of all of its
membership interests of VSS-Consonant Holdings to Consonant in
exchange for 24,208,264 shares of Consonant Common Stock
pursuant to the Holdings III Contribution Agreement. It
being understood that the purpose of the foregoing transactions
is to result in (i) VSS-Consonant Holdings III
becoming the sole stockholder of Consonant, (ii) Consonant
becoming the sole member of VSS-Consonant Holdings and
(iii) VSS-Consonant Holdings continuing to own, directly or
indirectly, through VSS-Consonant Holdings IV (its
wholly-owned subsidiary), 100% of the outstanding capital stock
of Consonant Learning and its Subsidiaries.
“Holdings III Merger Agreement”
means the Agreement and Plan of Merger by and among
VSS-Consonant Holdings III, VSS-Cambium Holdings III
Acquisition, LLC and VSS-Consonant Holdings attached as
Exhibit A-1
hereto.
“Holdings IV Contribution
Agreement” means the Contribution Agreement by and
between VSS-Consonant Holdings IV and VSS-Consonant
Holdings attached as
Exhibit A-3
hereto.
“HSR Act” means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder.
“Indebtedness” means, with respect to
any Person, without duplication, (a) all obligations of
such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of assets, property or
services, (c) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, inclusive of
outstanding principal, prepayment premiums, if any, and accrued
interest, fees and expenses, related thereto, (d) all
obligations under capital leases (which obligations are required
to be classified and accounted for as capital lease obligations
on a balance sheet of such Person under GAAP), (e) all
obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit, bankers’
acceptances or similar facilities (but only to the extent drawn
or called), (f) all obligations under any interest rate,
currency or similar hedging agreement, (g) all obligations
of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock or equity interest of such
Person or any options, rights or warrants to acquire the
foregoing, and (h) all direct or indirect guarantee,
support or keep well obligations of such Person with respect to
obligations of the kind referred to in clauses (a) through
(g) of this definition.
“Indemnifiable Claim” has the meaning
assigned thereto in Section 5.8(b).
“Indemnified Persons” has the meaning
assigned thereto in Section 5.8(b).
“Independent Accountant” means an
accounting firm mutually acceptable to Holdco, Vowel (or, after
the Effective Time, the Stockholders’ Representative) and
Consonant.
“Intellectual Property” means any and
all worldwide rights in, arising from or associated with the
following, whether protected, created or arising under the Laws
of the United States or any other jurisdiction or under any
international convention: (1) all patents and applications
therefor and all reissues, divisions, re-examinations, renewals,
extensions, provisionals, substitutions, continuations and
continuations-in-part
thereof, and equivalent or similar rights anywhere in the world
in inventions and discoveries including, without limitation,
invention disclosures (“Patents”); (2) all
trade secrets and other proprietary information which derives
independent economic value from not being generally known to the
public (collectively, “Trade Secrets”);
(3) all copyrights, copyrights registrations and
applications therefor (“Copyrights”);
(4) all uniform resource locators,
e-mail and
other internet addresses and domain names and applications and
registrations therefor (“URLs”); (5) all
trade names, corporate names, logos, slogans, trade dress,
trademarks, service marks, and trademark and service mark
registrations and applications therefor and all goodwill
associated therewith (“Trademarks”);
(6) rights of publicity; (7) moral rights and rights
of attribution; (8) computer programs (whether in source
code, object code, or other form), databases, compilations and
data, technology supporting the foregoing, and all
documentation, including user manuals and training materials
relating to the foregoing (“Software”); and
(9) any similar, corresponding or equivalent rights to any
of the foregoing anywhere in the world.
“Interim Financial Statements” has the
meaning assigned thereto in Section 4.6(a).
“IRS” means the U.S. Internal
Revenue Service.
“Knowledge” means actual knowledge after
due inquiry.
“Knowledge of Consonant” means the
Knowledge of David Cappellucci, David Caron, Alex Saltonstall,
George Logue, Scott Troeller, Eric VanErt or Ankeet Kansupada.
“Knowledge of Vowel” means the Knowledge
of Richard Surratt, Bradley Almond, Ronald Klausner, Todd
Buchardt or John Campbell.
“Law” means any U.S. federal, state
or local or foreign law, statute, ordinance, rule, regulation,
permit, order, judgment or decree.
“LAZEL” means a newly formed, Delaware
corporation wholly-owned by Vowel, and formed for solely the
purpose of effecting the LAZEL Spinoff Transaction, as the
purchaser therein.
“LAZEL Drop-Down Transaction” has the
meaning set forth in Section 5.25.
“LAZEL Spinoff Transaction” has the
meaning set forth in Section 5.25.
“LAZEL Spinoff Documents” means the
Services Agreement, Subscription Agreement and the Subscription
Agreement attached hereto as
Exhibit O-1,
Exhibit O-2,
and
Exhibit O-3,
respectively.
“Liabilities” means all debts,
liabilities, guarantees, assurances, commitments, obligations,
claims, losses, damages, indemnities, sureties and deferred
compensation and all other amounts owing (including reasonable
attorneys’ fees), whether fixed, contingent or absolute,
asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or not accrued, known or unknown, due or
to become due, whenever or however arising (including, without
limitation, whether arising out of any Contract, Law, other
regulatory requirement, Court Order or injunction or tort based
on negligence or strict liability) and whether or not the same
would be required by GAAP to be reflected in financial
statements or disclosed in the notes thereto.
“Liability Contracts” has the meaning
assigned thereto in Section 5.24.
“Liability Funding Documents” has the
meaning assigned thereto in Section 5.24.
“Lien” means any lien, security
interest, charge, pledge or other similar encumbrance.
“Mailing Date” has the meaning assigned
thereto in Section 2.1(e)(i).
“Maximum Cash Election Factor” means a
fraction (expressed as a decimal carried out to the fourth
place), the numerator of which is the number of Available Cash
Election Shares, and the denominator of which is the aggregate
number of Vowel Shares issued and outstanding immediately before
the Effective Time.
“Maximum Pro Rata Election Amount”
means, with respect to a given holder of Vowel Shares, the
product (rounded down to the nearest whole number) of
(x) the total number of Vowel Shares held by such holder
immediately before the Effective Time, multiplied by
(y) Maximum Cash Election Factor.
“Merger Subsidiaries” has the meaning
assigned thereto in the Preamble.
“Merger Consideration” has the meaning
assigned thereto in Section 2.2(a).
“Mergers” has the meaning assigned
thereto in the Recitals; for purposes of clarification, does not
include the Holdings III Merger.
“Mezzanine Credit Agreement” means the
Note Purchase Agreement, dated as of April 12, 2007, among
VSS-Consonant Merger Corp. (currently Consonant Learning), as
Company, VSS-Consonant Holdings, as Guarantor, TCW/Crescent
Mezzanine Partners IV, L.P., TCW/Crescent Mezzanine Partners II,
LP, NYLIM Mezzanine Partners II Parallel Fund, LP,
Goldentree Capital Solutions Fund Financing, Goldentree
Capital Opportunities, LP and the other Purchasers from time to
time party thereto, as Purchasers, and TCW/Crescent Mezzanine
Partners IV, as Administrative Agent, as amended from time to
time.
“Multiemployer Plan” has the meaning
assigned thereto in Section 3.14(b).
“Multi-Year Contract” means any Contract
with a School Authority entered into after the date of this
Agreement but prior to the Effective Date pursuant to which the
School Authority purchases products or services for a period in
excess of one (1) school year and makes an advance payment
for products or services to be delivered or performed after the
2009-2010
school year.
“Net Windle Proceeds” means the
difference between: (i) the cash proceeds received by
Consonant or any of its Subsidiaries from and after June 1,2009 from any indemnity payment, insurance payment or any other
payment or recovery (including, without limitation, recoveries
from Jeffrey S. Windle’s estate)
arising from or related to any judgment, arbitration, order,
decree, settlement negotiation or other proceeding, whether
criminal or civil in nature, in connection with the theft,
fraud, malfeasance and other conduct committed by Jeffrey S.
Windle or any other person involved in such conduct of Jeffrey
S. Windle against Consonant or any of its Subsidiaries, but only
to the extent such cash proceeds are used to retire or
extinguish indebtedness under the Credit Agreements, minus
(ii) and any
out-of-pocket
costs and expenses
and/or tax
liabilities directly incurred from and after the Closing Date in
connection with the collection or recovery of the amounts
described in the preceding clause, including without limitation
any attorneys, accountants, investigator and other professional
fees.
“No Election Shares” has the meaning
assigned thereto in Section 2.1(e)(ii).
“Outside Date” has the meaning assigned
thereto in Section 7.1(b).
“Out-year Excess Amount” means the
product of: (x) the excess of the aggregate amounts paid to
Vowel prior to the Effective Time by or on behalf of each School
Authority under all Multi-Year Contracts over $4,500,000;
multiplied by (y) 0.30.
“Party” or
“Parties” means any of Holdco, Vowel,
Consonant, Vowel Merger Sub or Consonant Merger Sub.
“Permit” means, with respect to any
Person, all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and
operate its properties and to carry on its business as it is
currently being conducted.
“Permitted Liens” means:
(A) statutory liens for Taxes that are not yet due and
payable; (B) statutory liens to secure obligations to
landlords, lessors or renters under leases or rental agreements;
and (C) statutory liens in favor of carriers, warehousemen,
mechanics and materialmen, to secure claims for labor, materials
or suppliers and other like liens.
“Person” means an individual,
corporation, partnership, association, trust, unincorporated
organization, or other entity or any Governmental Authority.
“Post-Closing Covenants” means, with
respect to any Person, any covenants or obligations of any
Person to be performed or satisfied after the Effective Time
pursuant to this Agreement or any Transaction Document.
“Post-Signing Tax Refunds” means the
aggregate amount of any Vowel Tax Refunds received after the
date of this Agreement and on or prior to the Closing Date.
“PQBS Agreement” shall mean the Stock
and Asset Purchase Agreement, dated as of October 20, 2006,
by and between ProQuest Company and Snap-On Incorporated, as
amended.
“PQIL Agreement” shall mean the
Subscription Agreement and Plan of Merger, by and among ProQuest
Company, ProQuest Information and Learning Company, I&L
Holdings, Inc., I&L Operating LLC and Cambridge Scientific
Abstracts, Limited Partnership, dated December 14, 2006.
“Pre-Closing Covenants” has the meaning
assigned thereto in Section 7.2.
“Pre-Closing Covenant Cap” has the
meaning assigned thereto in Section 7.2.
“Pre-Signing Tax Refunds” means those
Vowel Tax Refunds set forth on Section 9.13(ii) of
the Vowel Disclosure Schedules annexed hereto and made a part
hereof, to the extent they are received on or prior to the date
of this Agreement.
“Proceedings” means any action, suit,
investigation, hearing, proceeding, examination, review, audit,
inspection, inquiry, claim or similar process, whether or not
judicial, administrative, arbitral, regulatory or
administrative, by or before a Governmental Authority, other
than a School Authority.
“Proxy Statement/Prospectus” has the
meaning assigned thereto in Section 3.31.
“Public Intellectual Property” has the
meaning assigned thereto in Section 3.10(i).
“Re-Designated Shares” has the meaning
assigned thereto in Section 2.1(e)(v).
“Registration Statement” has the meaning
assigned thereto in Section 3.31.
“Registration Statement Filing Date” has
the meaning assigned thereto in Section 7.1(b).
“Reorganization” has the meaning
assigned thereto in the Recitals.
“Representatives” has the meaning
assigned thereto in Section 5.2(a).
“Required Financial Statements” has the
meaning assigned thereto in Section 7.1(b).
“Restraint” has the meaning assigned
thereto in Section 6.1(b).
“School Authority” means a school,
school district, department of education, board of education or
other Governmental Authority, solely in its capacity as a party
to a School Contract.
“School Contract” means a Contract with
a School Authority pursuant to which such School Authority
purchases or licenses any products or services from a Party
hereto or their respective Subsidiaries.
“SEC” means the U.S. Securities and
Exchange Commission.
“SEC Effective Date” has the meaning
assigned thereto in Section 5.4(c).
“Securities Act” means the Securities
Act of 1933, as amended.
“Security Agreement” has the meaning
assigned thereto in Section 5.22(d).
“Senior Credit Agreement” means the
Credit Agreement dated as of April 12, 2007 among
VSS-Consonant Merger Corp. (currently Consonant Learning), as
Borrower, VSS-Consonant Holdings and the other guarantors
thereto, as Guarantors, the Lenders party thereto, Credit Suisse
Securities (USA) LLC and Barclays Capital, as Co-Lead Arrangers
and Joint Bookmanagers, Barclays PLC, as Administrative Agent
and Collateral Agent, and Credit Suisse Securities (USA) LLC, as
Co-Syndication Agent and BNP Paribas, as Co-Syndication Agent
and TD Securities (USA) LLC, as Documentation Agent, as amended
from time to time.
“SOX” has the meaning assigned thereto
in Section 3.6(a).
“Special Majority of the Holdco Board”
means, in the case of a determination contemplated by this
Agreement, that such determination was approved by the
affirmative vote of a number of directors of the Holdco Board
constituting a simple majority plus one Vowel Designee.
“Stock Election Shares” has the meaning
assigned thereto in Section 2.1(e)(ii).
“Stockholders’ Representative”
means Vowel Representative, LLC or such other Person that is
appointed by the holders of Vowel Common Stock at the Vowel
Meeting.
“Subsidiary” means any corporation,
partnership, joint venture or other legal entity of which any
Person (either alone or through or together with any other
Subsidiary), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are
generally entitled to vote for the election of the Board of
Directors or other governing body of such corporation or other
legal entity. Except for those references to “Consonant
Learning and its Subsidiaries” in
Section 5.8(b), any and all references to a
Subsidiary of Consonant or to Consonant and its Subsidiaries
(and words of similar import) shall in all cases be conclusively
deemed to include VSS-Consonant Holdings and each of its
Subsidiaries, including without limitation, Consonant Learning,
Inc., a Delaware corporation, Intellitools, Inc., a California
corporation, Consonant Learning (New York), Inc., a Delaware
corporation, Sopris West Educational Services, Inc., a Colorado
corporation, Kurzweil Educational Systems, Inc., a Delaware
corporation, and VSS-Consonant Maritime, LLC, a Delaware limited
liability company, all as if the Holdings III Merger
Transactions had been consummated prior to the date of this
Agreement.
“Surviving Corporations” has the meaning
assigned thereto in Section 1.1.
“Tax” means any and all taxes payable to
any federal, state, local or foreign Taxing Authority or agency,
including (a) income, franchise, profits, gross receipts,
minimum, alternative minimum, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment,
social security, workers compensation, unemployment, utility,
severance, excise, stamp, windfall profits, transfer or other
tax of any kind whatsoever, (b) interest thereon and
(c) penalties and additions to tax imposed with respect
thereto.
“Tax Representation Letter” has the
meaning assigned thereto in Section 5.18.
“Tax Return” shall mean any return,
declaration, report, claim for refund, information return or
statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof, to be
filed (whether on a mandatory or elective basis) with any
federal, state, local, or foreign government or Taxing Authority.
“Taxing Authority” means any federal,
state, local or foreign Governmental Authority that is charged
with the review or collection of Taxes.
“Termination Date” has the meaning
assigned thereto in Section 5.1(a).
“Total Cash for Cash Election” means the
sum of (a) Available Vowel Cash for Cash Election
plus (b) $25,000,000.
“Transaction Documents” mean this
Agreement, the Certificates of Merger, the LAZEL Spinoff
Documents, Escrow Agreement, the Contingent Value Right
Agreement, the Exchange Agent Agreement, the Security Agreement,
the Holdco Stockholders Agreement, the LAZEL Guaranty, the
Holdco Vowel Liability Guaranty, the Holdings III
Contribution Agreement, the Holdings IV Contribution
Agreement and the Holdings III Merger Agreement.
“VEL Drop-Down Documents” means the
Stock Purchase Agreement and Subscription Agreement attached
hereto as
Exhibits P-1
and
P-2,
respectively
“VEL Drop-Down Transaction” has the
meaning assigned thereto in Section 5.26(a).
“Voting Consonant Debt” has the meaning
assigned thereto in Section 4.3(b).
“Voting Holdco Debt” has the meaning
assigned thereto in Section 4A.3(b).
“Voting Vowel Debt” has the meaning
assigned thereto in Section 3.3(b).
“Vowel” means Voyager Learning Company,
a Delaware corporation.
“Vowel 2008 Financial Statements” has
the meaning assigned thereto in Section 3.6(b).
“Vowel Active Employees” has the meaning
assigned thereto in Section 5.9(a).
“Vowel Alternative Proposal” shall mean
with respect to Vowel, (A) any proposal or offer made by
any Person (i) for a merger, reorganization, share
exchange, exchange offer, consolidation, business combination,
joint venture, sale of substantially all of the assets,
recapitalization, dissolution, liquidation or similar
transaction involving Vowel or any of its Subsidiaries,
(ii) for the acquisition by any Person, directly or
indirectly, of twenty percent (20%) or more of the consolidated
total assets (based on fair market value) of Vowel
and/or any
of its Subsidiaries, in a single transaction or series of
related transactions, (iii) for the acquisition by any
Person, directly or indirectly, of twenty percent (20%) or more
of the outstanding shares of capital stock of Vowel or any of
its Subsidiaries, in a single transaction or series of related
transactions or (iv) to appoint or replace at least a
majority of the Vowel Board or any of its Subsidiaries or
(B) any inquiry that might reasonably be expected to lead
to any offer described in the foregoing clause (A), in each
case, other than the Vowel Merger.
“Vowel Assets” has the meaning assigned
thereto in Section 3.11.
“Vowel Benefit Plans” has the meaning
assigned thereto in Section 3.14(a).
“Vowel Board” means the then board of
directors of Vowel.
“Vowel Book-Entry Shares” has the
meaning assigned thereto in Section 2.3(a).
“Vowel Certificate” has the meaning
assigned thereto in Section 2.3(a).
“Vowel Certificate of Merger” has the
meaning assigned thereto in Section 1.3.
“Vowel Closing Certificate” has the
meaning assigned thereto in Section 1.2(b).
“Vowel Closing Funding Amount” means,
with respect to each Vowel Closing Liability, the amount set
forth opposite such Vowel Closing Liability on
Schedule 5.24.
“Vowel Closing Liability” means the
obligation or liability of Vowel or its Subsidiaries arising
under a contract, agreement or other legally enforceable
arrangement, commitment or undertaking, referenced on
Schedule 5.24.
“Vowel Common Stock” has the meaning
assigned thereto in the Recitals.
“Vowel Consideration” has the meaning
assigned thereto in Section 2.1(a).
“Vowel Designees” means the four
individuals to be named or appointed by Vowel as directors of
Holdco at any time prior to filing of the Registration
Statement, (A) two of which shall (i) be independent
as defined under Rule 5605(a)(2) of the Nasdaq Marketplace
Rules; (ii) meet the criteria for independence set forth
under
Rule 10A-3(b)
of the Exchange Act; (iii) not have participated in the
preparation of the financial statements of Holdco, Vowel or any
of their respective Subsidiaries during the past three years;
and (iv) be able to read and understand fundamental
financial statements, including a balance sheet, income
statement and cash flow statement and (B) all of which of
the subject to the approval of Consonant (which approval shall
not be unreasonably withheld, conditioned or delayed).
“Vowel Disclosure Schedule” has the
meaning assigned thereto in Article III.
“Vowel Dissenting Shares” has the
meaning assigned thereto in Section 2.1(g).
“Vowel Employees” has the meaning
assigned thereto in Section 3.14(a).
“Vowel ERISA Affiliate” has the meaning
assigned thereto in Section 3.14(b).
“Vowel Excess Cash” mean the excess of:
(x) cash and cash equivalents held by Vowel and its
Subsidiaries as of the close of business on the Business Day
immediately preceding the Closing Date (excluding cash
previously deposited into rabbi trusts), over
(y) the sum of (A) the Available Vowel Cash for Cash
Election (less the Vowel Expense Reimbursement Amount),
plus (B) the Available Vowel Cash for Tax Refund
Consideration, plus (C) Vowel Tax Refund Holdback
Amount plus (D) the Aggregate Vowel Closing Funding Amount
to the extent not funded prior to the Closing Date.
“Vowel Expense Reimbursement Amount”
means the aggregate amount of all Vowel Transaction Expenses
paid by Vowel prior to the Closing, including the amount of any
prepaid insurance premium that was credited toward the purchase
of the D&O Tail Insurance, as set forth on the Vowel
Closing Certificate.
“Vowel Financial Statements” has the
meaning assigned thereto in Section 3.6(b).
“Vowel Intellectual Property” means
Intellectual Property, other than Vowel Third Party Intellectual
Property, that is (i) used internally in the business of
Vowel or any of its Subsidiaries, or (ii) incorporated in
or used in connection with any product or service offered for
sale by Vowel or any of its Subsidiaries any time within the six
(6) years preceding the date of this Agreement, or
currently under development.
“Vowel Material Adverse Effect” means
any change, effect, event, occurrence, state of facts,
non-occurrence or omission (or any development that has had or
is reasonably likely to have any effect) that, (A) is
materially adverse to the business, financial condition or
results of operations of Vowel and its
Subsidiaries, taken as a whole, or (B) which would prevent
or materially delay the consummation of the Vowel Merger;
provided, however, that none of the following
shall be deemed in themselves, either alone or in combination,
to constitute, and none of the following shall be taken into
account in determining whether there has been a Vowel Material
Adverse Effect: (i) a disruption in financial, credit,
banking or securities markets (including any disruption thereof
and any decline in the price of any security or market index) or
any interest rate or exchange rate changes, generally which does
not disproportionately affect Vowel and its Subsidiaries, taken
as a whole; (ii) any material downturn in general business
or economic condition to the extent it does not
disproportionately affect Vowel and its Subsidiaries, taken as a
whole, as compared with other participants in the industries in
which Vowel and its Subsidiaries operate; (iii) any change
attributable to the announcement or pendency of the
Reorganization (including any cancellations of or delays in
customer agreements, any reduction in sales, any disruption in
supplier, distributor, partner or similar relationships or any
loss of employees), or resulting from or relating to compliance
with the terms of, or the taking of any action required by, this
Agreement; (iv) any change arising from or relating to any
change after the date of this Agreement in GAAP as consistently
applied by Vowel; (v) any change resulting from or relating
to political or economic conditions, including acts of terrorism
or war to the extent it does not disproportionately affect Vowel
and its Subsidiaries, taken as a whole, as compared with other
participants in the industries in which Vowel and its
Subsidiaries operate; (vi) any change arising from or
relating to Laws issued by any Governmental Authority after the
date of this Agreement applicable to the Parties to the extent
it does not disproportionately affect Vowel and its
Subsidiaries, taken as a whole, as compared with other
participants in the industries in which Vowel and its
Subsidiaries operate; (vii) any change, in and of itself,
in the market price or trading volume of the Vowel Common Stock,
provided that this clause (vii) shall not exclude the
underlying event or occurrence which may have caused such change
in market price or trading volume; (viii) the failure, in
and of itself, by Vowel to meet or exceed any internal or public
projections, forecasts or earnings predictions, provided that
this clause (viii) shall not exclude any event or
occurrence which caused such failure; and (ix) the taking
of any action, or failure to take action, to which Consonant,
has expressly consented or approved in writing.
“Vowel Material Contracts” has the
meaning assigned thereto in Section 3.13(a).
“Vowel Material Customers” has the
meaning assigned thereto in Section 3.21(a).
“Vowel Material Vendors” has the meaning
assigned thereto in Section 3.21(b).
“Vowel Meeting” has the meaning assigned
thereto in Section 5.4(c).
“Vowel Meeting Original Date” has the
meaning assigned thereto in Section 5.4(d).
“Vowel Merger” has the meaning assigned
thereto in the Recitals.
“Vowel Merger Sub” means Vowel
Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Holdco.
“Vowel Per Share Cash Consideration” has
the meaning assigned thereto in Section 2.1(a)(i),
as such amount may be adjusted from time to time pursuant to
Section 2.1(f).
“Vowel Per Share Stock Consideration”
has the meaning assigned thereto in
Section 2.1(a)(i).
“Vowel Per Share Pre-Closing Tax Refund
Consideration” means the quotient of: (i) the
Available Vowel Cash for Tax Refund Consideration; divided by
(ii) the aggregate number of shares of Vowel Common Stock
outstanding as of the Effective Time (excluding any shares of
Vowel Common Stock to be cancelled pursuant to
Section 2.1(c)).
“Vowel Recommendation” has the meaning
assigned thereto in Section 3.4(a).
“Vowel Record Date” shall mean the date
fixed by the Vowel Board for determination of Vowel’s
stockholders entitled to notice of and to vote at the Vowel
Meeting.
“Vowel Related Persons” has the meaning
assigned thereto in Section 3.20.
“Vowel SARs” has the meaning assigned
thereto in Section 2.5(b).
“Vowel SEC Financial Statements” has the
meaning assigned thereto in Section 3.6(b).
“Vowel SEC Reports” has the meaning
assigned thereto in Section 3.6(a).
“Vowel Share” has the meaning assigned
thereto in Section 2.1(a).
“Vowel Shared Tax Offset Amounts” means
any refunds, credits or reductions in Taxes resulting from the
payment of any of the Agreed Contingencies.
“Vowel Specified Approvals” has the
meaning assigned thereto in Section 3.4(b).
“Vowel Stock Options” has the meaning
assigned thereto in Section 2.5(a).
“Vowel Stock Plans” has the meaning
assigned thereto in Section 2.5(a).
“Vowel Stockholder” means the holder of
any Common Stock of Vowel as of the Closing.
“Vowel Stockholder Approval” has the
meaning assigned thereto in Section 3.30.
“Vowel Superior Proposal” means a Vowel
Alternative Proposal that the Vowel Board determines in good
faith, after consultation with its financial and legal advisors,
and considering such factors as the Vowel Board considers to be
appropriate, (i) to be more favorable to Vowel and its
stockholders (in their capacities as stockholders) from a
financial point of view than the transactions contemplated by
this Agreement, (ii) is reasonably capable of being
completed on terms proposed, and (iii) the failure to
accept such Vowel Alternative Proposal would be a breach of the
fiduciary duties of the Vowel Board; provided that for
purposes of the definition of “Vowel Superior
Proposal”, the references to “20%” in the
definition of Vowel Alternative Proposal shall be deemed to be
references to “80%.”
“Vowel Surviving Corporation” has the
meaning assigned thereto in Section 1.1.
“Vowel Tax Refund Holdback Amount” means
an amount equal to the lesser of: (x) the Post-Signing Tax
Refunds; and (y) $4,000,000.
“Vowel Tax Refund Documented Costs”
means reasonable documented
out-of-pocket
costs or expenses incurred by Holdco, Vowel or any of their
respective Subsidiaries from and after the Effective Time that
reasonably relate to obtaining the Vowel Tax Refunds.
“Vowel Tax Refunds” means, without
duplication, all refunds of Taxes which are both
(x) received in cash by Vowel, any of its Subsidiaries or
Holdco (on behalf of Vowel) from the applicable taxing
authorities at any time prior to the 18 month anniversary
of the Effective Time and (y) set forth on
Section 9.15(ii) of the Vowel Disclosure Schedule
annexed hereto and made a part hereof.
“Vowel Termination Fee” has the meaning
assigned thereto in Section 7.3(b).
“Vowel Third Party Intellectual
Property” means all Intellectual Property owned by
Persons not party to this Agreement that is (i) used
internally in the business of Vowel or any of its Subsidiaries,
or (ii) incorporated in or used in connection with any
product or service offered for sale by Vowel any time within the
six (6) years preceding the date hereof or any of its
Subsidiaries, or currently under development.
“Vowel Transaction Expenses” has the
meaning assigned thereto in Section 3.34.
“Vowel Voting Agreement” has the meaning
assigned thereto in the Recitals.
“VSS” means Veronis Suhler Stevenson LLC.
“VSS-Consonant Financial Statements” has
the meaning assigned thereto in Section 4.6(a).
“VSS-Consonant Holdings” means
VSS-Cambium Holdings, LLC, a Delaware limited liability company.
“VSS-Consonant Holdings III” has the
meaning assigned thereto in the Recitals.
“VSS-Consonant Holdings IV” means
VSS-Cambium Holdings IV, LLC, a Delaware limited liability
company and wholly owned subsidiary of VSS-Consonant Holdings.
“VSS-Consonant Management LLC” means
VSS-Cambium Management, LLC, a Delaware limited liability
company.
“VSS Funds” means any funds or entities
owned, controlled or managed by VSS, including, with out
limitation, VSS-Consonant Holdings III, VSS Communications
Partners IV, L.P., VSS Communications Parallel Partners IV,
L.P., VSS Communications Parallel II Partners IV, L.P. and
VSS SBS IV, LLC.
“VSS Limited Guarantee” means that
Limited Guarantee, dated as of the date hereof, made by the VSS
Funds in favor of Vowel.
“Working Capital Award” has the meaning
assigned thereto in Section 5.27(c).
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
SECTION 262
OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder’s shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
“stockholder” means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words “stock” and “share”
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words “depository receipt” mean a
receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to § 251
(other than a merger effected pursuant to § 251(g) of this
title), § 252, § 254, § 257, § 258, §
263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of § 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to §§
251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of this
title is not owned by the parent corporation immediately prior
to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale
of all or substantially all of the assets of the corporation. If
the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder’s
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholder’s shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholder’s
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holder’s shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder’s shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holder’s shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise entitled to
appraisal rights, may commence an appraisal proceeding by filing
a petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the
foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a
named party shall have the right to withdraw such
stockholder’s demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the
merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder’s
written request for such a statement is received by the
surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
Notwithstanding subsection (a) of this section, a person
who is the beneficial owner of shares of such stock held either
in a voting trust or by a nominee on behalf of such person may,
in such person’s own name, file a petition or request from
the corporation the statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After the Court determines the stockholders entitled to
an appraisal, the appraisal proceeding shall be conducted in
accordance with the rules of the Court of Chancery, including
any rules specifically governing appraisal proceedings. Through
such proceeding the Court shall determine the fair value of the
shares exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors. Unless
the Court in its discretion determines otherwise for good cause
shown, interest from the effective date of the merger through
the date of payment of the judgment shall be compounded
quarterly and shall accrue at 5% over the Federal Reserve
discount rate (including any surcharge) as established from time
to time during the period between the effective date of the
merger and the date of payment of the judgment. Upon application
by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court
may, in its discretion, proceed to trial upon the appraisal
prior to the final determination of the stockholders entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such
stockholder’s certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder
is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the
certificates representing such stock. The Court’s decree
may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney’s fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder’s demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just;
provided, however that this provision shall not affect the right
of any stockholder who has not commenced an appraisal proceeding
or joined that proceeding as a named party to withdraw such
stockholder’s demand for appraisal and to accept the terms
offered upon the merger or consolidation within 60 days
after the effective date of the merger or consolidation, as set
forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
Cambium-Voyager Holdings, Inc., a corporation organized and
existing under the General Corporation Law of the State of
Delaware (the “DGCL”), does hereby certify as
follows:
FIRST: The name of the corporation is
Cambium-Voyager Holdings, Inc. The Certificate of Incorporation
of the corporation was originally filed with the Secretary of
State of the State of Delaware on June 19, 2009. The name
under which the corporation was incorporated was Cambium
Holdings, Inc. The original certificate of incorporation of the
corporation was amended on June 22, 2009. The certificate
of incorporation, as amended, was amended and restated on
August 4, 2009.
SECOND: This Second Amended and Restated
Certificate of Incorporation of the corporation has been duly
adopted in accordance with the provisions of Section 242
and 245 of the DGCL. The written consent of the stockholders of
the corporation was obtained in accordance with Section 228
of the DGCL.
THIRD: The Certificate of Incorporation, as
amended, of the corporation is hereby amended and restated to
read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation (which is hereinafter referred to as
the “Corporation”) is Cambium Learning Group,
Inc.
ARTICLE II
ADDRESS
The address of the Corporation’s registered office in the
State of Delaware is 2711 Centerville Road, Suite 400, in
the City of Wilmington, County of New Castle 19808. The name of
its registered agent at such address is Corporation Service
Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITALIZATION
A. The total number of shares of stock which the
Corporation shall have authority to issue is One Hundred
Sixty-Five Million (165,000,000) consisting of Fifteen Million
(15,000,000) shares of Preferred Stock, $.001 par value per
share (hereinafter referred to as “Preferred
Stock”), and One Hundred Fifty Million (150,000,000)
shares of Common Stock, $.001 par value per share
(hereinafter referred to as “Common Stock”).
B. The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of this Corporation
(the “Board of Directors”) is hereby authorized
to provide for the issuance of shares of
Preferred Stock in series and, by filing a certificate pursuant
to the DGCL (hereinafter referred to as a “Preferred
Stock Designation”), to establish from time to time the
number of shares to be included in each such series, and to fix
the designations, powers, preferences and rights of the shares
of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited
to, determination of the following:
(1) The designation of the series, which may be by
distinguishing number, letter or title.
(2) The number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise
provided in the Preferred Stock Designation) increase or
decrease (but not below the number of shares thereof then
outstanding).
(3) The amounts payable on, and the preferences, if any, of
shares of the series in respect of dividends, and whether such
dividends, if any, shall be cumulative or noncumulative.
(4) Dates at which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for
shares of the series.
(6) The terms and amount of any sinking fund provided for
the purchase or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the Corporation.
(8) Whether the shares of the series shall be convertible
into or exchangeable for shares of any other class or series, or
any other security, of the Corporation or any other corporation,
and, if so, the specification of such other class or series of
such other security, the conversion or exchange price or prices
or rate or rates, any adjustments thereof, the date or dates at
which such shares shall be convertible or exchangeable and all
other terms and conditions upon which such conversion or
exchange may be made.
(9) Restrictions on the issuance of shares of the same
series or of any other class or series.
(10) The voting rights, if any, of the holders of shares of
the series.
(11) Any other preferences, qualifications, privileges,
options and other relative or special rights and limitations of
that series.
C. The Common Stock shall be subject to the express terms
of the Preferred Stock and any series thereof. Except as may be
provided in this Second Amended and Restated Certificate of
Incorporation or in a Preferred Stock Designation or by
applicable law, the holders of shares of Common Stock shall be
entitled to one vote for each such share upon all questions
presented to the stockholders. The holders of Preferred Stock
shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote. The holders
of the shares of Common Stock shall at all times, except as
otherwise provided in this Second Amended and Restated
Certificate of Incorporation or as required by law, vote as one
class, together with the holders of any other class or series of
stock of the Corporation accorded such general voting rights.
D. The Corporation shall be entitled to treat the person in
whose name any share of its stock is registered as the owner
thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, such share on the
part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable
law.
In furtherance and not in limitation of the powers conferred by
law, the Board of Directors is expressly authorized and
empowered:
(1) to make, alter, amend or repeal the Bylaws of the
Corporation or any amendment thereof without the assent or vote
of the stockholders of the Corporation; and
(2) from time to time to determine whether and to what
extent, and at what times and places, and under what conditions
and regulations, the accounts and books of the Corporation, or
any of them, shall be open to inspection of stockholders; and,
except as so determined or as expressly provided in this Second
Amended and Restated Certificate of Incorporation or in any
Preferred Stock Designation, no stockholder shall have any right
to inspect any account, book or document of the Corporation
other than such rights as may be conferred by applicable law.
Notwithstanding any other provisions of this Second Amended and
Restated Certificate of Incorporation or the Bylaws of the
Corporation and in addition to any other vote required by law,
no provision of the Bylaws may be altered, amended or repealed
in any respect by the stockholders, nor may any provision
inconsistent therewith be adopted, in any respect by the
stockholders, unless such alteration, amendment, repeal or
adoption is approved by the affirmative vote of the holders of
at least a majority of the capital stock of the Corporation
entitled to vote generally in an election of directors, voting
together as a single class, at any annual or special meeting of
the stockholders of the Corporation, duly called and upon proper
notice thereof.
The Corporation may in its Bylaws confer powers upon the Board
of Directors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon the Board of
Directors by applicable law; provided that such powers are
approved by the affirmative vote of the holders of at least a
majority of the capital stock of the Corporation entitled to
vote generally in an election of directors.
ARTICLE VI
STOCKHOLDER
ACTIONS
A.
CALLING A
MEETING
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairperson
of the Board of Directors or the Chief Executive Officer or at
the written request of a majority of the members of the Board of
Directors or, for so long as VSS-Cambium Holdings III, LLC, a
Delaware limited liability company or one or more funds or
entities, owned, controlled or managed by VSS
Fund Management LLC (each a “VSS Fund” and
collectively, the “VSS Funds”) have beneficial
ownership (as determined in accordance with
Rule 13d-3
of the Securities Exchange Act 1934, as amended (the
“Exchange Act”)) of at least twenty-five (25%)
of the outstanding shares of capital stock of the Corporation,
by a VSS Fund, and may not be called by any other person. Except
as set forth in the preceding sentence with respect to the VSS
Funds, any power of stockholders to call a special meeting is
specifically denied; provided, however, that if
and to the extent that any special meeting of stockholders may
be called by any other person or persons specified in any
provisions of this Second Amended and Restated Certificate of
Incorporation or any amendment hereto or any certificate filed
under Section 151(g) of the DGCL, then such special meeting
may also be called by the person or person, in the manner, at
times and for the purposes so specified.
B.
ACTIONS
BY STOCKHOLDERS
So long as the VSS Funds beneficially own (as determined in
accordance with
Rule 13d-3
of the Exchange Act) at least twenty-five (25%) of the
outstanding shares of Common Stock, and subject to the terms of
any series of Preferred Stock, any action required or permitted
to be taken by the stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or
consents in writing, setting forth the action to be taken, are
signed by the holders of shares of outstanding capital
stock having not less
than the minimum number of votes necessary to authorize such
action, subject to applicable law. Once the VSS Funds cease to
beneficially own (as determined in accordance with
Rule 13d-3
of the Exchange Act) at least twenty-five percent (25%) of the
outstanding shares of Common Stock, and subject to the terms of
any series of Preferred Stock, any action required or permitted
to be taken by the stockholders must be effected at an annual or
special meeting of the stockholders and may not be effected by
written consent in lieu of a meeting.
C.
ADVANCE
NOTICE
Advance notice of new business at a meeting of the stockholders
and stockholder proposals and stockholder nominations for the
election of directors shall be given in the manner and to the
extent provided in the Bylaws of the Corporation.
ARTICLE VII
BOARD OF
DIRECTORS
The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors.
A.
NUMBER;
TERM
Subject to the right of the holders of any series of Preferred
Stock, or any other series or class of stock as set forth in
this Second Amended and Restated Certificate of Incorporation,
to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be fixed by the
Board of Directors from time to time and, on the date hereof,
the initial number of directors shall be nine.
Pursuant to that certain Agreement and Plan of Mergers, dated as
of June 20, 2009, by and among the Corporation, Voyager
Learning Company, VSS-Cambium Holdings II Corp., Vowel
Acquisition Corp., Consonant Acquisition Corp. and Vowel
Representative, LLC (as amended or modified from time to time,
the “Merger Agreement”) and that certain
Stockholders Agreement, by and among the Corporation,
VSS-Cambium Holdings III, LLC and Vowel Representative, LLC (as
amended or modified from time to time, the “Stockholders
Agreement”) attached as Exhibit G to the Merger
Agreement, (i) for so long as the VSS Funds or any
affiliate thereof beneficially owns (as determined in accordance
with
Rule 13d-3
of the Exchange Act) at least a majority of the outstanding
shares of Common Stock, five directors shall be nominated by the
VSS Funds or an affiliate thereof (each a “VSS
Nominee” and collectively, the “VSS
Nominees”) and (ii) until the Expiration Date (as
defined in the Stockholders Agreement) four directors shall be
nominated by Voyager Learning Company prior to the consummation
of the mergers contemplated by the Merger Agreement (the
“Mergers”), and after the consummation of the
Mergers, by Vowel Representative, LLC (each a “Voyager
Nominee” and collectively, the “Voyager
Nominees”).
Whenever the holders of one or more classes or series of
Preferred Stock shall have the right, voting separately as a
class or series, to elect directors, the nomination, election,
term of office, filling of vacancies, removal and other features
of such directorships shall not be governed by this
Article VII unless otherwise provided for in the
applicable Preferred Stock Designation; and shall instead be
governed by the Preferred Stock Designation.
Subject to the special rights of the holders of any class or
series of Preferred Stock to elect directors, the directors of
the Corporation shall be divided into three classes, as nearly
equal in number as possible, designated as Class I,
Class II and Class III. Each director shall serve for
a term ending on the date of the third annual meeting of
stockholders following the annual meeting at which the director
was elected; provided, however, that each director
in initial Class I shall hold office until the first annual
meeting of the stockholders following the effectiveness of this
Second Amended and Restated Certificate of Incorporation; each
director in initial Class II shall hold office until the
second annual meeting of the stockholders following the
effectiveness of this Second Amended and Restated Certificate of
Incorporation; and each director in initial Class III shall
hold office until the third annual meeting of the stockholders
following the effectiveness of this Second
Amended and Restated Certificate of Incorporation.
Notwithstanding the foregoing provisions of this
Article VII, each director elected shall hold office
until his or her successor is duly elected and qualified or
until such director’s earlier death, resignation,
retirement, disqualification or removal.
In the event of any increase or decrease in the authorized
number of directors, the newly created or eliminated
directorship resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent
director.
At the effective time of the Mergers: (i) the Class I
directors shall consist of three (3) VSS Nominees,
(ii) the Class II directors shall consist of two
(2) Voyager Nominees and one (1) VSS Nominees and
(iii) the Class III directors shall consist of two
(2) Voyager Nominees and one (1) VSS Nominee.
B.
REMOVAL
Subject to the rights of holders of any class or series of
Preferred Stock, if any, to elect directors under specified
circumstances, a director may be removed from office only
(i) for cause and only by the affirmative vote of not less
than a majority of the total voting power of all outstanding
securities of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class or
(ii) for so long as the VSS Funds continue to beneficially
own (as determined in accordance with
Rule 13d-3
of the Exchange Act) at least twenty-five percent (25%) of the
outstanding shares of capital stock of the Corporation, without
cause and only by the affirmative vote of not less than a
majority of the total voting power of all outstanding securities
of the Corporation then entitled to vote generally in the
election of directors, voting together as a single class.
C.
VACANCIES
Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding and the Stockholders Agreement
(if and when effective), newly-created directorships resulting
from any increase in the authorized number of directors, or any
vacancies in the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be
filled solely by a majority of the total number of directors
then in office, even if less than a quorum, or by a sole
remaining director. Any director elected by the Board of
Directors to fill any vacancy shall hold office for a term that
shall coincide with the remaining term of the class of directors
to which such person has been elected.
D.
ELECTION
Unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
E.
VOTING
Unless otherwise set forth herein, a majority in voting power of
directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. Each director shall
have one (1) vote on all matters to be voted on by the
Board of Directors or any committee thereof; provided,
however, at any time that the right of any of the VSS
Funds or an affiliate thereof to nominate a majority of the
Board of Directors is in effect, if at any time there are less
than five (5) VSS Nominees on the Board of Directors, then
for so long as Jeffrey T. Stevenson shall be serving on the
Board of Directors as a VSS Nominee, Jeffrey T. Stevenson shall
have such number of votes as is equal to six (6) minus the
number of VSS Nominees then serving on the Board of Directors,
provided, that, in the event Jeffrey T. Stevenson
shall not then be serving on the Board of Directors as a VSS
Nominee then, for so long as Scott J. Troeller shall be serving
on the Board of Directors as a VSS Nominee, Scott J. Troeller
shall have such number of votes as is equal to six
(6) minus the number of VSS Nominees then serving on the
Board of Directors, provided, further, that in the
event neither Jeffrey T. Stevenson nor Scott J. Troeller shall
be then serving on the Board of Directors as a VSS Nominee, then
the most senior employee of the VSS Funds then serving on the
Board of Directors as a VSS Nominee shall have such number of
votes as is equal to six (6) minus the number of VSS
Nominees then
serving on the Board of Directors, provided,
further, that in the event no employee of any VSS Fund
shall then be serving on the Board of Directors as a VSS
Nominee, then the Chairman of the Board of Directors shall have
such number of votes as is equal to six (6) minus the
number of VSS Nominees then serving on the Board of Directors,
in each case, so that all of the VSS Nominees then serving on
the Board of Directors collectively have five (5) votes. At
any time that the right of any of the VSS Funds or an affiliate
thereof to nominate a majority of the Board of Directors is in
effect, all references in this Second Amended and Restated
Certificate of Incorporation, the Bylaws of the Corporation, and
any other charter document of the Corporation, each as may be
amended from time to time, to (i) “a majority of the
members of the Board of Directors”, “a majority of the
total number of directors then in office”, “majority
of the members of the Board”, “a majority of the
Board”, “a majority of the remaining directors”,
“a majority of the authorized number of directors”,
“majority of the directors present” and similar
phrases and (ii) “unanimous vote of the Board” or
“all members of the Board” and similar phrases, in
each case, shall give effect to the voting provisions of this
Article VII such that references to “majority”
shall mean a “majority” of the votes of the directors
and references to “unanimous vote of the Board” or
“all members of the Board” and similar phrases mean
all votes entitled to be cast by the directors.
ARTICLE VIII
LIABILITY
AND INDEMNIFICATION
A.
LIABIILITY
A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the DGCL as the same exists or may hereafter be amended.
Any amendment, modification or repeal of the foregoing sentence
shall not adversely affect any right or protection of a director
of the Corporation hereunder in respect of any act or omission
occurring prior to the time of such amendment, modification or
repeal.
B.
INDEMNIFICATION
(1) The Corporation shall indemnify each of the
Corporation’s directors and officers in each and every
situation where, under Section 145 of the DGCL, as amended
from time to time (“Section 145”), the
Corporation is permitted or empowered to make such
indemnification. The Corporation may, in the sole discretion of
the Board of Directors of the Corporation, indemnify any other
person who may be indemnified pursuant to Section 145 to
the extent the Board of Directors deems advisable, as permitted
by Section 145. The Corporation shall promptly make or
cause to be made any determination required to be made pursuant
to Section 145.
(2) The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent
of the Corporation or other entity against any expense,
liability or loss, whether or not the Corporation would have the
power to indemnify such person under the DGCL.
(3) The Corporation shall, to the fullest extent permitted
by the DGCL, advance all costs and expenses (including, without
limitation, attorneys’ fees and expenses) incurred by any
director or officer within fifteen (15) days of
presentation of such costs and expenses to the Corporation, with
respect to any one or more actions, suits or proceedings,
whether civil or criminal, administrative or investigative, so
long as the Corporation receives from such director or officer
an unsecured undertaking to repay such expenses if it shall
ultimately be determined that such director or officer is not
entitled to be indemnified by the Corporation under the DGCL.
Such obligation to advance costs and expenses shall include,
without limitation, costs and expenses incurred in asserting
affirmative defenses, counterclaims and cross-claims to the
fullest extent permitted by the DGCL. Such undertaking to repay
may, if first requested in writing by the applicable director or
officer, be on behalf of (rather than by) such director or
officer, provided that in such case the Corporation shall
have the right to approve the party making such undertaking.
(4) No amendment to or repeal of the provisions of this
Article VIII shall deprive a director or officer of
the benefit hereof with respect to any act or omission occurring
prior to such amendment or repeal.
ARTICLE IX
CORPORATE
OPPORTUNITIES
(1) In recognition of the fact that the Corporation, the
VSS Funds, and directors, officers and employees of the VSS
Funds, acting in their capacities as such, currently engage in,
and may in the future engage in, the same or similar activities
or lines of business and have an interest in the same areas and
types of corporate opportunities, and in recognition of the
benefits to be derived by the Corporation through its continued
contractual, corporate and business relations with the VSS Funds
(including possible service of directors, officers and employees
of the VSS Funds as directors, officers and employees of the
Corporation), the provisions of this Article IX are
set forth to regulate and define the conduct of certain affairs
of the Corporation as they may involve Authorized Persons and
their directors, officers and employees, acting in their
capacities as such, and the powers, rights, duties and
liabilities of the Corporation and its directors, officers,
employees and stockholders in connection therewith. In
furtherance of the foregoing, the Corporation renounces any
interest or expectancy in, or in being offered the opportunity
to participate in, any corporate opportunity not allocated to it
pursuant to this Article IX to the fullest extent
permitted by Section 122(17) of the DGCL (or any successor
provision).
(2) To the fullest extent permitted by applicable law, no
director, officer, employee, or stockholder of the Corporation,
in such capacity, that is an Authorized Person or a director,
officer, or employee of an Authorized Person, acting in his or
her capacity as such, shall have any obligation to the
Corporation to refrain from competing with the Corporation,
making investments in competing businesses or otherwise engaging
in any commercial activity that competes with the Corporation,
which in each case is not a Restricted Opportunity. To the
fullest extent permitted by applicable law, the Corporation
shall not have any right, interest or expectancy with respect to
any such particular investments or activities, which in each
case is not a Restricted Opportunity, undertaken by any
Authorized Person or any director, officer or employee of an
Authorized Person, acting in his or her capacity as such, such
investments or activities, which in each case is not a
Restricted Opportunity, shall not be deemed wrongful or
improper, and no such person shall be obligated to communicate,
offer or present any potential transaction, matter or
opportunity to the Corporation, which in each case is not a
Restricted Opportunity, even if such potential transaction,
matter or opportunity is of a character that, if presented to
the Corporation, could be taken by the Corporation.
(3) Nothing in this Article IX shall limit or
otherwise prejudice any contractual rights the Corporation may
have or obtain against any Authorized Person or any director,
officer, or employee of any Authorized Person.
(4) For purposes of this Article IX:
“Authorized Person” shall mean the VSS
Funds, any subsidiary of an Authorized Person, any successor by
operation of law (including merger) of an Authorized Person, and
any person or entity which acquires all or substantially all of
the assets of an Authorized Person in a single transaction or
series of related transactions; and
“Restricted Opportunity” shall mean a
transaction, matter or opportunity offered to a person in
writing solely and expressly by virtue of such Authorized Person
or a director, officer, or employee of an Authorized Person
being a member of the Board of Directors or an officer or an
employee of the Corporation. In the event that an Authorized
Person or any director, officer or employee of an Authorized
Person, acting in his or her capacity as such, acquires
knowledge of a potential transaction or matter which may be a
corporate opportunity for both the Authorized Person and the
Corporation, but is not a Restricted Opportunity, the Authorized
Person and the directors, officers and employees of the
Authorized Person, acting in their capacities as such, shall
have no duty to communicate or offer such corporate opportunity
to the Corporation and shall not be liable to the Corporation or
its stockholders for breach of any fiduciary duty by reason of
the fact that an Authorized Person or any director, officer, or
employee of
an Authorized Person, acting in his or her capacity as such,
pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person, or does
not communicate information regarding such corporate opportunity
to the Corporation, and the Corporation hereby renounces any
interest or expectancy in such corporate opportunity.
(5) Neither the alteration, amendment or repeal of this
Article IX nor the adoption of any provision of this
certificate of incorporation inconsistent with this
Article IX shall eliminate or reduce the effect of
this Article IX in respect of any matter occurring,
or any cause of action, suit or claim that, but for this
Article IX, would accrue or arise, prior to such
alteration, amendment, repeal or adoption.
ARTICLE X
AMENDMENTS
Except as may be expressly provided in this Second Amended and
Restated Certificate of Incorporation, the Corporation reserves
the right at any time and from time to time to amend, alter,
change or repeal any provision contained in this Second Amended
and Restated Certificate of Incorporation or a Preferred Stock
Designation, and any other provisions authorized by the laws of
the State of Delaware at the time in force may be added or
inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Second Amended
and Restated Certificate of Incorporation in its present form or
as hereafter amended are granted subject to the right reserved
in this Article X; provided, however,
that any amendment or repeal of Article X of this
Second Amended and Restated Certificate of Incorporation shall
not adversely affect any right or protection existing thereunder
in respect of any act or omission occurring prior to such
amendment or repeal, and providedfurther that no
Preferred Stock Designation shall be amended after the issuance
of any shares of the series of Preferred Stock created thereby,
except in accordance with the terms of such Preferred Stock
Designation and the requirements of applicable law.
ARTICLE XI
EFFECT OF
STOCKHOLDERS AGREEMENT
Notwithstanding anything to the contrary in
Article IV or Article VII of this Second
Amended and Restated Certificate of Incorporation and subject to
the effectiveness of the Stockholders Agreement, if and to the
extent any of the provisions of Article IV or
Article VII of this Second Amended and Restated
Certificate of Incorporation permits or authorizes the Board of
Directors to take any action that would be a breach of
Section 2 of the Stockholders Agreement then such action
shall require the approval of at least one (1) Voyager
Nominee that is not an Independent Director (as defined in the
Stockholders Agreement); provided, however, the
approval rights granted in this Article XI shall
automatically terminate, without any further action by the
Corporation or any other person or entity upon the
Class III Expiration Date (as defined in the Stockholders
Agreement); provided, however, to the extent the
Stockholders Agreement does not become effective upon
consummation of the transactions contemplated by the Merger
Agreement, this Article XI shall be null and void
ab initio.
AMENDED
AND RESTATED BYLAWS
OF
CAMBIUM LEARNING GROUP, INC. (formerly known as Cambium Voyager Holdings, Inc.)
(a Delaware corporation)
ARTICLE I
CORPORATE
OFFICES
Section 1.1 Registered
Office. The registered office of Cambium
Learning Group, Inc. (hereinafter called the
“Corporation”) shall be fixed in the
Certificate of Incorporation of the Corporation.
Section 1.2 Other
Offices. The Corporation may also have an
office or offices, and keep the books and records of the
Corporation, except as may otherwise be required by law, at such
other place or places, either within or without the State of
Delaware, as the Board of Directors of the Corporation (the
“Board”) may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF
STOCKHOLDERS
Section 2.1 Annual
Meeting. The annual meeting of stockholders,
for the election of directors and for the transaction of such
other business as may properly come before the meeting, shall be
held at such place, if any, on such date, and at such time as
may be determined by the Board.
Section 2.2 Special
Meeting. Except as may otherwise be required
by law or by the Certificate of Incorporation of the Corporation
(the “Certificate of Incorporation”) and
subject to the rights of the holders of any series of preferred
stock of the Corporation, a special meeting of the stockholders
may be called at any time only by (a) the Chairman,
(b) the Chief Executive Officer, (c) the written
request of a majority of the members of the Board, or
(d) for so long as VSS-Cambium Holdings III, LLC, a
Delaware limited liability company or one or more other funds or
entities owned, controlled or managed by VSS
Fund Management LLC (each a “VSS Fund” and
collectively, the “VSS Funds”) have beneficial
ownership (as determined in accordance with
Rule 13d-3
of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) of at least twenty-five
percent (25%) of the outstanding shares of capital stock of the
Corporation, by a VSS Fund, and may not be called by any other
person; and any power of stockholders to call a special meeting
is specifically denied.
Section 2.3 Notice
of Stockholders’ Meetings.
(a) Notice of the place, if any, date, and time of all
meetings of the stockholders, and the means of remote
communications, if any, by which stockholders and proxyholders
may be deemed to be present in person and vote at such meeting,
shall be given, not less than ten (10) nor more than sixty
(60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or required by law. Each
such notice shall state the place, if any, date and hour of the
meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Notice may be given
personally, by mail or by electronic transmission in accordance
with Section 232 of the General Corporation Law of the
State of Delaware (the “DGCL”). If mailed, such
notice shall be deemed given when deposited in the United States
mail, postage prepaid, directed to each stockholder at such
stockholder’s address appearing on the books of the
Corporation or given by the stockholder for such purpose. Notice
by electronic transmission shall be deemed given as provided in
Section 232 of the DGCL. An affidavit of the mailing or
other means of giving any notice of any stockholders’
meeting, executed by the Secretary, Assistant Secretary or any
transfer agent of the Corporation giving the notice, shall be
prima facie evidence of the giving of such notice or report.
Notice shall be deemed to have been given to all stockholders of
record
who share an address if notice is given in accordance with the
“householding” rules set forth in
Rule 14a-3(e)
under the Exchange Act, and Section 233 of the DGCL.
(b) When a meeting is adjourned to another time or place,
if any, notice need not be given of the adjourned meeting if the
place, if any, date and time thereof, and the means of remote
communications, if any, by which stockholders and proxyholders
may be deemed to be present in person and vote at such adjourned
meeting are announced at the meeting at which the adjournment is
taken; provided, however, that if the date of any
adjourned meeting is more than thirty (30) days after the
date for which the meeting was originally called, or if a new
record date is fixed for the adjourned meeting, notice of the
place, if any, date, and time of the adjourned meeting and the
means of remote communications, if any, by which stockholders
and proxyholders may be deemed to be present in person and vote
at such adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which
might have been transacted at the original meeting.
(c) Notice of the time, place (if any) and purpose of any
meeting of stockholders may be waived in writing, either before
or after the meeting, and to the extent permitted by law, will
be waived by any stockholder by attendance thereat, in person or
by proxy, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting
is not lawfully called or convened.
Section 2.4 Organization.
(a) Meetings of stockholders shall be presided over by the
Chairman of the Board, if any, or in his or her absence by the
Chief Executive Officer, or in his or her absence by a person
designated by the Board, or in the absence of a person so
designated by the Board, by a Chairman chosen at the meeting by
the holders of a majority in voting power of the stock entitled
to vote thereat, present in person or represented by proxy. The
Secretary, or in his or her absence, an Assistant Secretary, or
in the absence of the Secretary and all Assistant Secretaries, a
person whom the Chairman of the meeting shall appoint, shall act
as Secretary of the meeting and keep a record of the proceedings
thereof.
(b) The Board shall be entitled to make such rules or
regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such
rules and regulations of the Board, if any, the Chairman of the
meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in
the judgment of such Chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business
for the meeting, rules and procedures for maintaining order at
the meeting and the safety of those present, limitations on
participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies and
such other persons as the Chairman shall permit, restrictions on
entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and
closing of the polls for balloting and matters which are to be
voted on by ballot.
Section 2.5 List
of Stockholders. A complete list of
stockholders entitled to vote at any meeting of stockholders,
arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of
shares registered in such stockholder’s name, shall be
prepared by the Secretary or other officer having charge of the
stock ledger and shall be open to the examination of any
stockholder for a period of at least ten (10) days prior to
the meeting in the manner provided by law. The stock list shall
also be open to the examination of any stockholder during the
whole time of the meeting as provided by law. Such list shall
presumptively determine the identity of the stockholders
entitled to vote in person or by proxy at the meeting and
entitled to examine the list required by this
Section 2.5.
Section 2.6 Quorum. Except
as otherwise provided by law or the Certificate of
Incorporation, at any meeting of stockholders, the holders of a
majority in voting power of all issued and outstanding stock
entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of
business; provided, that where a separate vote by a class
or series is required, the holders of a majority in voting power
of all issued and outstanding stock of such class or series
entitled to vote on such matter, present in person or
represented by proxy, shall constitute a quorum entitled to take
action with respect to such matter.
If a quorum is not present or represented at any meeting of
stockholders, then the Chairman of the meeting or the holders of
a majority in voting power of the stock entitled to vote
thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time in accordance
with Section 2.7, without notice other than
announcement at the meeting, until a quorum is present or
represented. If a quorum initially is present at any meeting of
stockholders, the stockholders may continue to transact business
until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, but if a quorum is not
present at least initially, no business other than adjournment
may be transacted.
Section 2.7 Adjourned
Meeting. Any annual or special meeting of
stockholders, whether or not a quorum is present, may be
adjourned for any reason from time to time by either the
Chairman of the meeting or the holders of a majority in voting
power of the stock entitled to vote thereat, present in person
or represented by proxy. At any such adjourned meeting at which
a quorum may be present, any business may be transacted that
might have been transacted at the meeting as originally called.
Section 2.8 Voting.
(a) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, each holder of common stock of
the Corporation shall be entitled to one (1) vote for each
share of such stock held of record by such holder on all matters
submitted to a vote of stockholders of the Corporation. Except
as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, each holder of preferred stock of the
Corporation shall be entitled to such number of votes, if any,
for each share of such stock held of record by such holder as
may be fixed in the Certificate of Incorporation.
(b) Except as otherwise provided by law, the Certificate of
Incorporation, these Bylaws or the rules and regulations of any
stock exchange applicable to the Corporation or pursuant to any
other regulation applicable to the Corporation or its
stockholders, at each meeting of stockholders at which a quorum
is present, all corporate actions to be taken by vote of the
stockholders (other than the election of directors) shall be
authorized by the affirmative vote of the holders of a majority
in voting power of the stock present in person or represented by
proxy and entitled to vote thereon, and where a separate vote by
class or series is required, if a quorum of such class or series
is present, such act shall be authorized by the affirmative vote
of the holders of a majority in voting power of the stock of
such class or series present in person or represented by proxy
and entitled to vote thereon. At all meetings of stockholders
for the election of directors at which a quorum is present, a
plurality of the votes cast shall be sufficient to elect each
such director standing for election.
Section 2.9 Proxies. Every
person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more
agents authorized by a written proxy, which may be in the form
of any means of electronic transmission, signed by the person
and filed with the Secretary of the Corporation, but no such
proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. A
proxy shall be deemed signed if the stockholder’s name is
placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the stockholder or the
stockholder’s attorney-in-fact. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in
law to support an irrevocable power. A stockholder may revoke
any proxy which is not irrevocable by attending the meeting and
voting in person or by filing an instrument in writing revoking
the proxy or by filing another duly executed proxy bearing a
later date with the Secretary of the Corporation. A proxy is not
revoked by the death or incapacity of the maker unless, before
the vote is counted, written notice of such death or incapacity
is received by the Corporation.
Section 2.10 Notice
of Stockholder Business and Nominations.
(a) Annual Meeting.
(i) Nominations of persons for election to the Board and
the proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders
only (A) pursuant to the Corporation’s notice of
meeting (or any supplement thereto), (B) by or at the
direction of the Board or any committee thereof or (C) by
any stockholder of the Corporation who was a stockholder of
record at the time the notice provided for in this
Section 2.10(a) is delivered to the Secretary of the
Corporation and at the date of the
meeting, who is entitled to vote at the meeting and who complies
with the notice procedures set forth in this
Section 2.10(a).
(ii) For any nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to
clause (C) of the foregoing paragraph, the stockholder must
have given timely notice thereof in writing to the Secretary of
the Corporation and any such proposed business must constitute a
proper matter for stockholder action. To be timely, a
stockholder’s notice must be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor
earlier than the close of business on the one hundred twentieth
(120th) day prior to the first anniversary of the preceding
year’s annual meeting; provided, however,
that in the event that the date of the annual meeting is more
than thirty (30) days before or more than seventy
(70) days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than
the close of business on the one hundred twentieth (120th) day
prior to such annual meeting and not later than the close of
business on the later of (x) the ninetieth (90th) day prior
to such annual meeting or (y) the tenth (10th) day
following the date on which public announcement of the date of
such meeting is first made by the Corporation. In no event shall
the public announcement of an adjournment or postponement of an
annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder’s notice as
described above. Such stockholder’s notice shall set forth:
(A) as to each person whom the stockholder proposes to
nominate for election as a director (x) all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case
pursuant to and in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated
thereunder and (y) such person’s written consent to
being named in the proxy statement as a nominee and to serving
as a director if elected; (B) as to any other business that
the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and in the
event that such business includes a proposal to amend the Bylaws
of the Corporation, the language of the proposed amendment), the
reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made;
and (C) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation’s books, and
of such beneficial owner, (2) the class or series and
number of shares of capital stock of the Corporation which are
owned beneficially and of record by such stockholder and such
beneficial owner, (3) a description of any agreement,
arrangement or understanding with respect to the nomination or
proposal between or among such stockholder
and/or such
beneficial owner, any of their respective affiliates or
associates, and any others acting in concert with any of the
foregoing, (4) a description of any agreement, arrangement
or understanding (including any derivative or short positions,
profit interests, options, warrants, convertible securities,
stock appreciation or similar rights, hedging transactions, and
borrowed or loaned shares) that has been entered into as of the
date of the stockholder’s notice by, or on behalf of, such
stockholder and such beneficial owners, whether or not such
instrument or right shall be subject to settlement in underlying
shares of capital stock of the Corporation, the effect or intent
of which is to mitigate loss to, manage risk or benefit of share
price changes for, or increase or decrease the voting power of,
such stockholder or such beneficial owner, with respect to
shares of stock of the Corporation, (5) a representation
that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such
business or nomination, (6) a representation whether the
stockholder or the beneficial owner, if any, intends or is part
of a group which intends (a) to deliver a proxy statement
and/or form
of proxy to holders of at least the percentage of the
Corporation’s outstanding capital stock required to approve
or adopt the proposal or elect the nominee
and/or
(b) otherwise to solicit proxies from stockholders in
support of such proposal or nomination and (7) any other
information relating to such stockholder and beneficial owner,
if any, required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of
proxies for, as applicable, the proposal
and/or for
the election of directors in an election contest pursuant to and
in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder. The foregoing
notice requirements of this Section 2.10(a) shall be
deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his, her or its intention to present
a proposal or nomination at an annual meeting in
compliance with applicable rules and regulations promulgated
under the Exchange Act and such stockholder’s proposal or
nomination has been included in a proxy statement that has been
prepared by the Corporation to solicit proxies for such annual
meeting. The Corporation may require any proposed nominee to
furnish such other information as it may reasonably require to
determine the eligibility of such proposed nominee to serve as a
director of the Corporation. Notwithstanding the foregoing, for
so long the VSS Funds collectively have beneficial ownership (as
determined in accordance with
Rule 13d-3
of the Exchange Act) of at least twenty-five percent (25%) of
the outstanding shares of capital stock of the Corporation the
notice provisions of this Section 2.10(a)(ii) shall
not be applicable to the VSS Funds; provided,
however, to the extent any of the VSS Funds desire to
nominate persons for election to the Board or propose other
business to be considered by the stockholders at the annual
meeting of stockholders, such VSS Fund must give written notice
to the Secretary of the Corporation prior to the date of the
meeting and be a stockholder of record at the time such notice
is delivered to the Secretary of the Corporation and at the date
of the meeting and be entitled to vote at the meeting.
(iii) Notwithstanding anything in
Section 2.10(a)(ii) above to the contrary, in the
event that the number of directors to be elected to the Board at
an annual meeting is increased and there is no public
announcement naming all of the nominees for directors or
specifying the size of the increased Board made by the
Corporation at least ninety (90) days prior to the first
anniversary of the preceding year’s annual meeting, a
stockholder’s notice required by this
Section 2.10(a) shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than
the close of business on the tenth (10th) day following the day
on which such public announcement is first made by the
Corporation.
(b) Special Meeting. (i) Only
such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting
pursuant to the Corporation’s notice of meeting.
Nominations of persons for election to the Board may be made at
a special meeting of stockholders at which directors are to be
elected pursuant to the Corporation’s notice of meeting
(A) by or at the direction of the Board or any committee
thereof or (B) provided that the Board has determined that
directors shall be elected at such meeting, by any stockholder
of the Corporation who is a stockholder of record at the time
the notice provided for in this Section 2.10(b) is
delivered to the Secretary of the Corporation, who is entitled
to vote at the meeting and upon such election and who complies
with the notice procedures set forth in this
Section 2.10. In the event the Corporation calls a
special meeting of stockholders for the purpose of electing one
or more directors to the Board, any such stockholder entitled to
vote in such election of directors may nominate a person or
persons (as the case may be) for election to such position(s) as
specified in the Corporation’s notice of meeting, if the
stockholder’s notice required by
Section 2.10(a)(ii) shall be delivered to the
Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the one hundred
twentieth (120th) day prior to such special meeting and not
later than the close of business on the later of the ninetieth
(90th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board to be elected at such meeting. In no event shall the
public announcement of an adjournment or postponement of a
special meeting commence a new time period (or extend any time
period) for the giving of a stockholder’s notice as
described above. Notwithstanding the foregoing, for so long as
the VSS Funds collectively have beneficial ownership (as
determined in accordance with
Rule 13d-3
of the Exchange Act) of at least twenty-five percent (25%) of
the outstanding shares of capital stock of the Corporation the
notice provisions of this Section 2.10(b) (including
compliance with the notice requirements of
Section 2.10(a)(ii)) shall not be applicable to the
VSS Funds; provided, however, to the extent any of
the VSS Funds desire to nominate persons for election to the
Board or propose other business to be considered by the
stockholders at the special meeting of stockholders, such VSS
Fund must give written notice to the Secretary of the
Corporation prior to the date of the meeting and be a
stockholder of record at the time such notice is delivered to
the Secretary of the Corporation and at the date of the meeting
and be entitled to vote at the meeting.
(c) General.
(i) Only such persons who are nominated in accordance with
the procedures set forth in this Section 2.10 shall
be eligible to be elected at an annual or special meeting of
stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this
Section 2.10. Except as otherwise provided by law,
the Chairman of the meeting shall have the power and duty
(a) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth
in this Section 2.10 (including whether the
stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made solicited (or is part of a group
which solicited) or did not so solicit, as the case may be,
proxies in support of such stockholder’s nominee or
proposal in compliance with such stockholder’s
representation as required by clause (a)(ii)(C)(4) of
this Section 2.10) and (b) if any proposed
nomination or business was not made or proposed in compliance
with this Section 2.10, to declare that such
nomination shall be disregarded or that such proposed business
shall not be transacted. Notwithstanding the foregoing
provisions of this Section 2.10, unless otherwise
required by law, if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual
or special meeting of stockholders of the Corporation to present
a nomination or proposed business, such nomination shall be
disregarded and such proposed business shall not be transacted,
notwithstanding that proxies in respect of such vote may have
been received by the Corporation. For purposes of this
Section 2.10, to be considered a qualified
representative of the stockholder, a person must be authorized
by a writing executed by such stockholder or an electronic
transmission delivered by such stockholder to act for such
stockholder as proxy at the meeting of stockholders and such
person must produce such writing or electronic transmission, or
a reliable reproduction of the writing or electronic
transmission, at the meeting of stockholders.
(ii) For purposes of this Section 2.10, a
“public announcement” shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press
or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act and the rules and regulations promulgated
thereunder.
(iii) Notwithstanding the foregoing provisions of this
Section 2.10, a stockholder shall also comply with
all applicable requirements of the Exchange Act and the rules
and regulations promulgated thereunder and any national
securities exchange on which the Corporation is then listed with
respect to the matters set forth in this
Section 2.10; provided, however, that
any references in these Bylaws to the Exchange Act or the rules
and regulations promulgated thereunder are not intended to and
shall not limit any requirements applicable to nominations or
proposals as to any other business to be considered pursuant to
this Section 2.10 (including paragraphs (a)(i)(C)
and (b) hereof), and compliance with paragraphs (a)(i)(C)
and (b) of this Section 2.10 shall be the
exclusive means for a stockholder to make nominations or submit
other business (other than, as provided in the third to last
sentence of (a)(ii), matters brought properly under and in
compliance with
Rule 14a-8
of the Exchange Act, as may be amended from time to time).
Nothing in this Section 2.10 shall be deemed to
affect any rights of stockholders to request inclusion of
proposals or nominations in the Corporation’s proxy
statement pursuant to applicable rules and regulations
promulgated under the Exchange Act or any rights of the holders
of any series of preferred stock to elect directors pursuant to
any applicable provisions of the Certificate of Incorporation.
Section 2.11 Inspectors
of Election. Before any meeting of
stockholders, the Board shall appoint one or more inspectors of
election to act at the meeting or its adjournment. If any person
appointed as inspector fails to appear or fails or refuses to
act, then the Chairman of the meeting may, and upon the request
of any stockholder or a stockholder’s proxy shall, appoint
a person to fill that vacancy. Inspectors need not be
stockholders. No director or nominee for the office of director
shall be appointed such an inspector.
Such inspectors shall:
(a) determine the number of shares outstanding and the
voting power of each, the number of shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as
expeditiously as is practical. Any report or certificate made by
the inspectors of election shall be prima facie evidence of the
facts stated therein.
Section 2.12 Meetings
by Remote Communications. The Board may, in
its sole discretion, determine that a meeting of stockholders
shall not be held at any place, but may instead be held solely
by means of remote communication in accordance with
Section 211(a)(2) of the DGCL. If authorized by the Board
in its sole discretion, and subject to such guidelines and
procedures as the Board may adopt, stockholders and proxyholders
not physically present at a meeting of stockholders may, by
means of remote communication (a) participate in a meeting
of stockholders and (b) be deemed present in person and
vote at a meeting of stockholders whether such meeting is to be
held at a designated place or solely by means of remote
communication, provided that (i) the Corporation shall
implement reasonable measures to verify that each person deemed
present and permitted to vote at the meeting by means of remote
communication is a stockholder or proxyholder; (ii) the
Corporation shall implement reasonable measures to provide such
stockholders and proxyholders a reasonable opportunity to
participate in the meeting and to vote on matters submitted to
the stockholders, including an opportunity to read or hear the
proceedings of the meeting substantially concurrently with such
proceedings; and (iii) if any stockholder or proxyholder
votes or takes other action at the meeting by means of remote
communication, a record of such vote or other action shall be
maintained by the Corporation.
ARTICLE III
DIRECTORS
Section 3.1 Powers. Subject
to the provisions of the DGCL and to any limitations in the
Certificate of Incorporation or these Bylaws relating to action
required to be approved by the stockholders, the business and
affairs of the Corporation shall be managed and shall be
exercised by or under the direction of the Board. In addition to
the powers and authorities these Bylaws expressly confer upon
them, the Board may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these Bylaws required to be
exercised or done by the stockholders.
Section 3.2 Chairman
of the Board. The Board may annually elect
one of its members to be Chairman of the Board and, subject to
the requirements of this Section 3.2, may fill any
vacancy in the position of Chairman of the Board at such time
and in such manner as the Board may determine. The Chairman of
the Board appointed pursuant to this Section 3.2, in
its capacity as such, may but need not be an officer of the
Corporation. The Chairman of the Board shall preside at meetings
of the Board and shall lead the Board in fulfilling its
responsibilities. The responsibilities of the Chairman of the
Board appointed pursuant to this Section 3.1, if
any, shall include: (a) organizing and presiding over
executive sessions of the Board; (b) acting as a
communication channel between the Board and the Chief Executive
Officer (or, in the absence of the Chief Executive Officer, the
executive officer or officers authorized to act in such
capacity); (c) in collaboration with the Chief Executive
Officer, setting the Board’s agenda; (d) serving as a
point of contact for stockholders of the corporation who wish to
communicate with the independent directors of the corporation;
and (e) such other responsibilities as may be assigned to
the Chairman from time to time by the Board or as set forth in
these Bylaws.
Section 3.3 Number,
Term of Office and Election. Subject to the
rights of the holders of any shares of preferred stock, the
Board shall initially consist of three members, and the Board
shall consist of not fewer than one nor more than twelve
directors, the exact number may be fixed from time to time
exclusively by the Board pursuant to a resolution adopted by a
majority of the Board. A director shall hold office until the
annual
meeting for the year in which his or her term expires and until
his or her successor shall be elected and shall qualify, or
until to such director’s earlier death, resignation,
disqualification or removal from office. Directors need not be
stockholders unless so required by the Certificate of
Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Notwithstanding the foregoing,
whenever the holders of any one or more series of preferred
stock issued by the Corporation shall have the right, voting
separately by series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, removal,
and other features of such directorships shall be governed by
the terms of the Certificate of Incorporation applicable thereto
(including any certificate of designation relating to any series
of preferred stock), and such directors so elected shall not be
divided into classes pursuant to the Certificate of
Incorporation unless expressly provided by such terms. The
number of directors that may be elected by the holders of any
such series of preferred stock shall be in addition to the
number fixed by or pursuant to these Bylaws or the Certificate
of Incorporation. Except as otherwise expressly provided in the
terms of such series, the number of directors that may be so
elected by the holders of any such series of stock shall be
elected for terms expiring at the next annual meeting of
stockholders and without regard to the classification of the
members of the Board as set forth in the Certificate of
Incorporation, and vacancies among directors so elected by the
separate vote of the holders of any such series of preferred
stock shall be filled by the affirmative vote of a majority of
the remaining directors elected by such series, or, if there are
no such remaining directors, by the holders of such series in
the same manner in which such series initially elected a
director.
Section 3.4 Vacancies. Unless
otherwise provided in the Certificate of Incorporation or these
Bylaws, vacancies and newly created directorships resulting from
an increase in the authorized number of directors may be filled
solely by a majority of the remaining directors, even if less
than a quorum, or by a sole remaining director. Each director so
elected shall hold office for the remaining term of the director
whose vacancy is being filled and until a successor shall have
been duly elected and qualified, or until such director’s
earlier death, disqualification, resignation or removal.
Section 3.5 Resignations
and Removal.
(a) Any director may resign at any time by delivering his
or her written resignation, or resignation by electronic
transmission to the Board, the Chairman of the Board or the
Secretary. Such resignation shall take effect on the later of
(i) the time specified in such notice or (ii) upon
acceptance thereof by the Chairman of the Board or, in the event
of a resignation of the Chairman of the Board, by the Board.
(b) Except for such additional directors, if any, as are
elected by the holders of any series of preferred stock as
provided for or fixed pursuant to the provisions of the
Certificate of Incorporation, any director, or the entire Board,
may be removed from office at any time, but (i) only for
cause and only by the affirmative vote of at a majority of the
total voting power of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors, voting together as a single class or (ii) for so
long as the VSS Funds continue to beneficially own (as
determined in accordance with
Rule 13d-3
of the Exchange Act) at least twenty-five percent (25%) of the
outstanding shares of capital stock of the Corporation, without
cause and only by the affirmative vote of a majority of the
total voting power of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
Section 3.6 Regular
Meetings. Regular meetings of the Board shall
be held at such place or places, on such date or dates and at
such time or times, as shall have been established by the Board
and publicized among all directors. A notice of each regular
meeting shall not be required.
Section 3.7 Special
Meetings. Special meetings of the Board for
any purpose or purposes may be called at any time by the
Chairman of the Board, the Chief Executive Officer or a majority
of the Board then in office. The person or persons authorized to
call special meetings of the Board may fix the place and time of
such meetings. Notice of each such meeting shall be given to
each director, if by mail, addressed to such director as his or
her residence or usual place of business, at least three
(3) days before the day on which such meeting is to be
held, or shall be sent to such director at such place by
telecopy, telegraph, electronic transmission or other form of
recorded communication, or be delivered personally or by
telephone (including without limitation to a representative of
the director or to the director’s electronic voice message
system), in each case not later than the day before the date set
for such meeting. Notice of any meeting need not be given
to a director who shall, either before or after the meeting,
submit a waiver of such notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of
notice to such director. A notice of special meeting need not
state the purpose of such meeting, and, unless indicated in the
notice thereof, any and all business may be transacted at a
special meeting.
Section 3.8 Participation
in Meetings by Conference Telephone. Members
of the Board, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference
telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at
such meeting.
Section 3.9 Quorum. Except
as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, a majority of the authorized number of
directors shall constitute a quorum for the transaction of
business at any meeting of the Board, and the vote of a majority
of the directors present at a duly held meeting at which a
quorum is present shall be regarded as the act of the Board. The
Chairman of the meeting or a majority of the directors present
may adjourn the meeting to another time and place whether or not
a quorum is present. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been
transacted at the meeting as originally called. Notwithstanding
the foregoing, at any time that the right of any of the VSS
Funds or an affiliate thereof to nominate a majority of the
Board of Directors is in effect, all references in these Bylaws
and any other charter document of the Corporation, each as may
be amended from time to time, to (i) “a majority of the
members of the Board of Directors”, “a majority of the
total number of directors then in office”, “majority
of the members of the Board”, “a majority of the
remaining directors”, “a majority of the authorized
number of directors”, “majority of the directors
present” and similar phrases, and (ii) “unanimous vote
of the Board” or “all members of the Board” and
similar phrases, in each case, shall give effect to the voting
provisions of Article VII of the Certificate of Incorporation
such that references to “majority” shall mean a
“majority” of votes of the directors and references to
“unanimous vote of the Board” or “all members of
the Board” and similar phrases mean all votes entitled to
be cast by the directors.
Section 3.10 Board
Action Without A Meeting. Any action required
or permitted to be taken by the Board may be taken without a
meeting, provided that all members of the Board consent in
writing or by electronic transmission to such action, and the
writing or writings or electronic transmission or transmissions
are filed with the minutes or proceedings of the Board. Such
filing shall be in paper form if the minutes are maintained in
paper form and shall be in electronic form if the minutes are
maintained in electronic form. Such action by written consent
shall have the same force and effect as a unanimous vote of the
Board.
Section 3.11 Rules
and Regulations. The Board may adopt such
rules and regulations not inconsistent with the provisions of
law, the Certificate of Incorporation or these Bylaws for the
conduct of its meetings and management of the affairs of the
Corporation as the Board shall deem proper.
Section 3.12 Fees
and Compensation of Directors. Directors and
members of committees may receive such compensation, if any, for
their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board. This
Section 3.12 shall not be construed to preclude any
director from serving the Corporation in any other capacity as
an officer, agent, employee or otherwise and receiving
compensation for those services.
Section 3.13 Emergency
Bylaws. In the event of any emergency,
disaster or catastrophe, as referred to in Section 110 of
the DGCL, or other similar emergency condition, as a result of
which a quorum of the Board or a standing committee of the Board
cannot readily be convened for action, then the director or
directors in attendance at the meeting shall constitute a
quorum. Such director or directors in attendance may further
take action to appoint one or more of themselves or other
directors to membership on any standing or temporary committees
of the Board as they shall deem necessary and appropriate.
Section 4.1 Committees
of the Board. The Board may from time to time
designate committees of the Board, with such lawfully delegable
powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any
others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires,
other directors as alternate members who may replace any absent
or disqualified member at any meeting of the committee. The
Board may at any time for any reason remove any individual
committee member and the Board may fill any committee vacancy
created by death, disqualification, resignation, removal or
increase in the number of members of the committee. In the
absence or disqualification of any member of any committee and
any alternate member in his or her place, the member or members
of the committee present at the meeting and not disqualified
from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the
Board to act at the meeting in the place of the absent or
disqualified member.
Section 4.2 Meetings
and Action of Committees. Any committee of
the Board may adopt such rules and regulations not inconsistent
with the provisions of law, the Certificate of Incorporation or
these Bylaws for the conduct of its meetings as such committee
may deem proper.
ARTICLE V
OFFICERS
Section 5.1 Officers. The
officers of the Corporation shall consist of a Chief Executive
Officer, a Chief Financial Officer, a President, a Secretary,
and such other officers as the Board may from time to time
determine, each of whom shall be elected by the Board, each to
have such authority, functions or duties as set forth in these
Bylaws or as determined by the Board. Each officer shall be
chosen by the Board and shall hold office for such term, or at
will, as may be prescribed by the Board and until such
person’s successor shall have been duly chosen and
qualified, or until such person’s earlier death,
disqualification, resignation or removal. Any two of such
offices may be held by the same person; provided,
however, that no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such
instrument is required by law, the Certificate of Incorporation
or these Bylaws to be executed, acknowledged or verified by two
or more officers.
Section 5.2 Compensation. The
salaries of the officers of the Corporation and shall be fixed
from time to time in the manner prescribed by the Board.
Section 5.3 Removal,
Resignation and Vacancies. Any officer of the
Corporation may be removed, with or without cause, by the Board,
without prejudice to the rights, if any, of such officer under
any contract to which it is a party. Any officer may resign at
any time upon written notice to the Corporation, without
prejudice to the rights, if any, of the Corporation under any
contract to which such officer is a party. If any vacancy occurs
in any office of the Corporation, the Board may elect a
successor to fill such vacancy for the remainder of the
unexpired term, if applicable, and until a successor shall have
been duly chosen and qualified.
Section 5.4 Chief
Executive Officer. The Chief Executive
Officer shall have general supervision and direction of the
business and affairs of the Corporation, shall be responsible
for corporate policy and strategy, and shall report directly to
the Board. Unless otherwise provided in these Bylaws, all other
officers of the Corporation shall report directly to the Chief
Executive Officer or as otherwise determined by the Chief
Executive Officer. The Chief Executive Officer shall, if present
and in the absence of the Chairman of the Board, preside at
meetings of the stockholders and of the Board.
Section 5.5 Chief
Financial Officer. The Chief Financial
Officer shall exercise all the powers and perform the duties of
the office of the chief financial officer and in general have
overall supervision of the financial operations of the
Corporation. The Chief Financial Officer shall, when requested,
counsel with and
advise the other officers of the Corporation and shall perform
such other duties as the Chief Executive Officer or as the Board
may from time to time determine.
Section 5.6 President. The
President shall be the chief operating officer of the
Corporation, with general responsibility for the management and
control of the operations of the Corporation. The President
shall have the power to affix the signature of the Corporation
to all contracts that have been authorized by the Board or the
Chief Executive Officer. The President shall, when requested,
counsel with and advise the other officers of the Corporation
and shall perform such other duties as the Chief Executive
Officer or as the Board may from time to time determine.
Notwithstanding anything herein to the contrary the office of
President may be held by the Chief Executive Officer of the
Corporation.
Section 5.7 Secretary. The
powers and duties of the Secretary are: (i) to act as
Secretary at all meetings of the Board, of the committees of the
Board and of the stockholders and to record the proceedings of
such meetings in a book or books to be kept for that purpose;
(ii) to see that all notices required to be given by the
Corporation are duly given and served; (iii) to act as
custodian of the seal of the Corporation and affix the seal or
cause it to be affixed to all certificates of stock of the
Corporation and to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these Bylaws; (iv) to
have charge of the books, records and papers of the Corporation
and see that the reports, statements and other documents
required by law to be kept and filed are properly kept and
filed; and (v) to perform all of the duties incident to the
office of Secretary. The Secretary shall, when requested,
counsel with and advise the other officers of the Corporation
and shall perform such other duties as the Chief Executive
Officer or as the Board may from time to time determine.
Section 5.8 Additional
Matters. The Board shall have, and shall have
the authority to delegate to the Chief Executive Officer or
President of the Corporation, the authority to designate
employees of the Corporation to have the title of Vice
President, Assistant Vice President, Treasurer, Assistant
Treasurer, Controller, Assistant Controller or Assistant
Secretary. Any employee so designated shall have the powers and
duties determined by the officer making such designation. The
persons upon whom such titles are conferred shall not be deemed
officers of the Corporation unless elected by the Board.
Section 5.9 Checks;
Drafts; Evidences of Indebtedness. From time
to time, the Board shall determine by resolution which person or
persons may sign or endorse all checks, drafts, other orders for
payment of money, notes, bonds, debentures or other evidences of
indebtedness that are issued in the name of or payable by the
Corporation, and only the persons so authorized shall sign or
endorse such instruments.
Section 5.10 Corporate
Contracts and Instruments; How
Executed. Except as otherwise provided in
these Bylaws, the Board may authorize any officer or officers,
or agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board or within the
agency power of an officer, no officer, agent or employee shall
have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 5.11 Action
with Respect to Securities of Other
Corporations. The Chief Executive Officer or
any other officer of the Corporation authorized by the Board or
the Chief Executive Officer is authorized to vote, represent,
and exercise on behalf of the Corporation all rights incident to
any and all shares or other securities of any other corporation
or corporations (or entity or entities) standing in the name of
the Corporation. The authority herein granted may be exercised
either by such person directly or by any other person authorized
to do so by proxy or power of attorney duly executed by the
person having such authority.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right
to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is
otherwise involved in any action, suit, arbitration, alternative
dispute mechanism, inquiry, administrative or legislative
hearing, investigation or any other actual, threatened or
completed proceeding,
including any and all appeals, whether civil, criminal,
administrative or investigative (hereinafter a
“proceeding”), by reason of the fact that he or
she is or was a director or an officer of the Corporation or is
or was serving at the request of the Corporation as a director,
officer or trustee of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an
“indemnitee”), whether the basis of such
proceeding is alleged action in an official capacity as a
director, officer or trustee or in any other capacity while
serving as a director, officer or trustee, shall be indemnified
and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be
amended, against all expense, liability and loss (including
attorneys’ fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith;
provided, however, that, except as provided in
Section 6.3 with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any
such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding
(or part thereof) was authorized or ratified by the Board of the
Corporation.
Section 6.2 Right
to Advancement of Expenses. In addition to
the right to indemnification conferred in
Section 6.1, an indemnitee shall, to the fullest
extent not prohibited by law, also have the right to be paid by
the Corporation the expenses (including attorneys’ fees)
incurred in defending any such proceeding in advance of its
final disposition (hereinafter an “advancement of
expenses”); provided, however, that, if
the DGCL requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an
“undertaking”), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which
there is no further right to appeal (hereinafter a
“final adjudication”) that such indemnitee is
not entitled to be indemnified for such expenses under this
Article VI or otherwise.
Section 6.3 Right
of Indemnitee to Bring Suit. If a claim under
Section 6.1 or 6.2 of this
Article VI is not paid in full by the Corporation
within 60 days after a written claim has been received by
the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period
shall be 20 days, the indemnitee may at any time thereafter
bring suit against the Corporation in a court of competent
jurisdiction in the State of Delaware to recover the unpaid
amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking,
the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (a) any suit brought
by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a
defense that, and (b) any suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of
an undertaking, the Corporation shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has
not met any applicable standard for indemnification set forth in
the DGCL. Neither the failure of the Corporation (including its
directors who are not parties to such action, a committee of
such directors, independent legal counsel, or its stockholders)
to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable
standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including its directors who
are not parties to such action, a committee of such directors,
independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct,
shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or
brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article VI
or otherwise shall be on the Corporation.
Section 6.4 Non-Exclusivity
of Rights. The rights to indemnification and
to the advancement of expenses conferred in this
Article VI shall not be exclusive of any other right
which any person may have or
hereafter acquire under any law, agreement, vote of stockholders
or directors, provisions of the Certificate of Incorporation or
these Bylaws or otherwise.
Section 6.5 Insurance. The
Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the
Corporation or another Corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss
under the DGCL.
Section 6.6 Indemnification
of Employees and Agents of the
Corporation. The Corporation may, to the
extent authorized from time to time by the Board, grant rights
to indemnification and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent of
the provisions of this Article VI with respect to
the indemnification and advancement of expenses of directors and
officers of the Corporation.
Section 6.7 Nature
of Rights. The rights conferred upon
indemnitees in this Article VI shall be contract
rights and such rights shall continue as to an indemnitee who
has ceased to be a director, officer or trustee and shall inure
to the benefit of the indemnitee’s heirs, executors and
administrators. Any amendment, alteration or repeal of this
Article VI that adversely affects any right of an
indemnitee or its successors shall be prospective only and shall
not limit or eliminate any such right with respect to any
proceeding involving any occurrence or alleged occurrence of any
action or omission to act that took place prior to such
amendment or repeal.
Section 6.8 Settlement
of Claims. The Corporation shall not be
liable to indemnify any indemnitee under this
Article VI for any amounts paid in settlement of any
action or claim effected without the Corporation’s written
consent, which consent shall not be unreasonably withheld, or
for any judicial award if the Corporation was not given a
reasonable and timely opportunity, at its expense, to
participate in the defense of such action.
Section 6.9 Subrogation. In
the event of payment under this Article VI, the
Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the indemnitee, who shall
execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such
documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
Section 6.10 Procedures
for Submission of Claims. The Board may
establish reasonable procedures for the submission of claims for
indemnification pursuant to this Article VI,
determination of the entitlement of any person thereto and
review of any such determination. Such procedures shall be set
forth in an appendix to these Bylaws and shall be deemed for all
purposes to be a part hereof.
ARTICLE VII
CAPITAL STOCK
Section 7.1 Stock
Certificates. There shall be issued to each
holder of fully paid shares of the capital stock of the
Corporation a certificate or certificates for such shares;
provided that the Board may provide by resolution or
resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Every holder of shares
of the Corporation represented by certificates shall be entitled
to have a certificate signed by, or in the name of, the
Corporation by the Chairman of the Board, Chief Executive
Officer or the President, and by the Chief Financial Officer,
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, representing the number of shares
registered in certificate form. Any or all such signatures may
be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon
a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by
the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
Section 7.2 Transfers
of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation
upon authorization by the registered holder thereof or by such
holder’s attorney thereunto authorized by a power of
attorney duly executed and filed with the Secretary or a
transfer agent for such stock, and if such shares are
represented by a certificate, upon surrender of the certificate
or certificates
for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of any taxes
thereon; provided, however, that the Corporation
shall be entitled to recognize and enforce any lawful
restriction on transfer.
Section 7.3 Lost
Certificates. The Corporation may issue a new
share certificate, uncertificated shares or new certificate for
any other security in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed,
and the Corporation may require the owner of the lost, stolen or
destroyed certificate or the owner’s legal representative
to give the Corporation a bond (or other adequate security)
sufficient to indemnify it against any claim that may be made
against it (including any expense or liability) on account of
the alleged loss, theft or destruction of any such certificate
or the issuance of such new certificate. The Board may adopt
such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall
in its discretion deem appropriate.
Section 7.4 Addresses
of Stockholders. Each stockholder shall
designate to the Secretary an address at which notices of
meetings and all other corporate notices may be served or mailed
to such stockholder and, if any stockholder shall fail to so
designate such an address, corporate notices may be served upon
such stockholder by mail directed to the mailing address, if
any, as the same appears in the stock ledger of the Corporation
or at the last known mailing address of such stockholder.
Section 7.5 Registered
Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered
on its books as the owner of shares to receive dividends, and to
vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by
law.
Section 7.6 Record
Date for Determining Stockholders.
(a) For purposes of determining the stockholders entitled
to notice of any meeting or to vote thereat, or to receive
payment of any dividend or other distribution or allotment of
any rights or the stockholders entitled to exercise any rights
in respect of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than sixty
(60) days nor less than (10) days before the date of
such meeting, nor more than sixty (60) days prior to the
time for such other action as herein described, as the case may
be. In that case, only stockholders of record at the close of
business on the date so fixed shall be entitled to notice and to
vote, or to receive the dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the
Corporation after the record date so fixed, except as otherwise
required by law, the Certificate of Incorporation or these
Bylaws.
(b) If the Board does not so fix a record date,
(i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at
the close of business on the business day next preceding the day
on which notice is given, or, if notice is waived, at the close
of business on the business day next preceding the day on which
the meeting is held, and (ii) the record date for
determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights, or to
exercise such rights, shall be the close of business on the
business day on which the Board adopts a resolution relating
thereto or the sixtieth (60th) day before the date of the
relevant action, whichever is later.
(c) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting unless the Board fixes a new
record date for the adjourned meeting, but the Board shall fix a
new record date if the meeting is adjourned for more than thirty
(30) days from the date set for the original meeting.
Section 7.7 Regulations. The
Board may make such additional rules and regulations as it may
deem expedient concerning the issue, transfer and registration
of shares of stock of the Corporation.
Section 8.1 Fiscal
Year. The fiscal year of the Corporation
shall begin on the first day of January of each year and end on
the last day of December of the same year.
Section 8.2 Facsimile
Signatures. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in
these Bylaws, facsimile signatures of any officer or officers of
the Corporation may be used whenever and as authorized by the
Board or a committee thereof.
Section 8.3 Corporate
Seal. The Board may provide a suitable seal,
containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the
Board or a committee thereof, duplicates of the seal may be kept
and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 8.4 Maintenance
and Inspection of Records. The Corporation
shall, either at its principal executive office or at such place
or places as designated by the Board, keep a record of its
stockholders listing their names and addresses and the number
and class of shares held by each stockholder, a copy of these
Bylaws as amended to date, accounting books and other records.
Section 8.5 Reliance
Upon Books, Reports and Records. Each
director, each member of any committee designated by the Board,
and each officer of the Corporation shall, in the performance of
his or her duties, be fully protected in relying in good faith
upon the books of account or other records of the Corporation
and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or
employees, or committees of the Board so designated, or by any
other person as to matters which such director or committee
member reasonably believes are within such other person’s
professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 8.6 Time
Periods. In applying any provision of these
Bylaws which requires that an act be done or not be done a
specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the
act shall be excluded, and the day of the event shall be
included.
Section 8.8 Amendments. These
Bylaws may be altered, amended or repealed, in whole or in part,
and new Bylaws may be adopted by (i) the affirmative vote
of the shares representing not less than a majority of the votes
entitled to be cast by the then outstanding shares of all
classes and series of capital stock of the Corporation entitled
generally to vote on the election of the directors of the
Corporation at any annual or special meeting of the
stockholders, provided that notice of the proposed
alteration, amendment or repeal or of the proposed new Bylaw or
Bylaws be included in the notice of such meeting or waiver
thereof, or (ii) the affirmative vote of not less than a
majority of the Board at any meeting of the Board,
provided that notice of the proposed alteration,
amendment or repeal or of the proposed new Bylaw or Bylaws be
included in the notice of such meeting or waiver thereof.
Notwithstanding the foregoing, no alteration, amendment or
repeal with respect to any provision under
Article VI of these Bylaws or to this sentence shall
be effective to any claim by a person under
Article VI based on any act or failure to act
occurring before such alteration, amendment or repeal, to the
extent detrimental to such claim by such person. The provisions
of this Section 8.8 are subject to any contrary
provisions and any provisions requiring a greater vote that are
set forth in the Certificate of Incorporation or these Bylaws.
Section 8.9 Effect
of Stockholders Agreement. Notwithstanding
anything to the contrary in Sections 3.3, 3.4, 3.5,
8.8 and Article IV of these Bylaws and subject
to the effectiveness of the Stockholders Agreement (as defined
below), if and to the extent any of the provisions of
Sections 3.3, 3.4, 3.5, 8.8 and
Article IV of these Bylaws permits or authorizes the
Board of Directors to take any action that would be a breach of
Section 2 of that certain Stockholders Agreement, by and
among the Corporation, VSS-Cambium
Holdings III, LLC and Vowel Representative, LLC (as amended or
modified from time to time, the “Stockholders
Agreement”) attached as Exhibit G to that certain
Agreement and Plan of Mergers, dated as of June 20, 2009,
by and among the Corporation, Voyager Learning Company,
VSS-Cambium Holdings II Corp., Vowel Acquisition Corp.,
Consonant Acquisition Corp. and Vowel Representative, LLC (the
“Merger Agreement”), then such action shall
require the approval of at least one (1) Vowel Designee
that is not an Independent Director (as such terms are defined
in the Stockholders Agreement); provided, however,
the approval rights granted in this Section 8.9
shall automatically terminate, without any further action by the
Corporation or any other person or entity upon the
Class III Expiration Date (as defined in the Stockholders
Agreement); provided, however, to the extent the
Stockholders Agreement does not become effective upon
consummation of the transactions contemplated by the Merger
Agreement, this Section 8.9 shall be null and void
ab initio.
We are pleased to confirm in writing the opinion provided orally
to the Board of Directors of Voyager Learning Company, Inc., a
corporation organized under the laws of Delaware (the
“Company”), at its meeting held earlier today.
We understand that the Company, VSS-Cambium Holdings II
Corp., a Delaware corporation (“Consonant”),
Cambium Holdings, Inc., a Delaware corporation
(“Holdco”), Vowel Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Holdco
(“Vowel Merger Sub”), Consonant Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of
Holdco (“Consonant Merger Sub”), and Vowel
Representative, LLC, a Delaware limited liability company,
solely in its capacity as representative of the Vowel
Stockholders, are entering into an Agreement and Plan of Mergers
(the “Merger Agreement”) whereby Holdco will
acquire all of the common stock of each of Consonant and the
Company through the merger of Consonant Merger Sub with and into
Consonant (the “Consonant Merger”) and the
simultaneous merger of Vowel Merger Sub with and into the
Company (the “Vowel Merger” and together with
the Consonant Merger, the “Transaction”).
Capitalized terms used herein but not defined have the same
meanings as set forth in the Merger Agreement.
As further described in the Merger Agreement and subject to
Section 2.3 (Exchange of Certificates) thereof, at the
Effective Time, by virtue of the Transaction and without any
further action on the part of the Company, Consonant, Holdco or
any of their respective stockholders, the following shall occur
in the Transaction:
Vowel
Merger
(a) Vowel Merger Sub will merge with and into the Company,
the separate corporate existence of Vowel Merger Sub will cease
and the Company will continue its corporate existence under
Delaware law as the surviving corporation in the Vowel Merger;
(b) each Vowel Share, other than Vowel Shares to be
cancelled pursuant to the Merger Agreement and Vowel Dissenting
Shares, shall be converted automatically into and shall
thereafter represent only the right to receive (i) one
fully paid and non-assessable share of Holdco Common Stock (the
“Vowel Per Share Stock Consideration”) or the
sum of $6.50 in cash without interest thereon, as such figure
may be adjusted from time to time pursuant to the terms of the
Merger Agreement (the “Vowel Per Share Cash
Consideration”); plus (ii) the Vowel Per
Share Pre-Closing Tax Refund Consideration; plus
(iii) the Contingent Value Right (the aggregate amount of
each of the Vowel Per Share Stock Consideration, the Vowel Per
Share Cash Consideration, the Vowel Per Share Pre-Closing Tax
Refund Consideration and the Contingent Value Right are together
the “Vowel Consideration”); and
(c) each Vowel Share that has been converted into the right
to receive a portion of the Vowel Consideration shall be
automatically cancelled and shall cease to exist, and the
holders of certificates that immediately prior to the Effective
Time represented such Vowel Shares shall cease to have any
rights with respect to such Vowel Shares other than the right to
receive (i) the Vowel Consideration and (ii) any
dividends and other distributions and any cash to be paid in
lieu of any fractional share of Holdco Common Stock in
accordance with the terms of the Merger Agreement.
(a) Consonant Merger Sub will merge with and into
Consonant, the separate corporate existence of Consonant Merger
Sub will cease and Consonant will continue its corporate
existence under Delaware law as the surviving corporation in the
Consonant Merger;
(b) each Consonant Share, other than Cancelled Consonant
Shares, shall be converted automatically into and shall
thereafter represent the right to receive (i) that number
of fully paid and non-assessable shares of Holdco Common Stock
equal to the Consonant Exchange Ratio (the “Consonant
Stock Consideration”) and (ii) the right to
subscribe from time to time for additional fully paid and
non-assessable shares of Holdco Common Stock pursuant to a
warrant (the “Holdco Warrant” and together with
the Consonant Stock Consideration, the “Consonant
Consideration”); and
(c) all Consonant Shares that have been converted into the
right to receive Consonant Consideration shall be automatically
cancelled and shall cease to exist, and the holders of
certificates that immediately prior to the Effective Time
represented such Consonant Shares shall cease to have any rights
with respect to such Consonant Shares other than the right to
receive (i) the Consonant Consideration and (ii) any
dividends and other distributions and any cash to be paid in
lieu of any fractional share of Holdco Common Stock in
accordance with the terms of the Merger Agreement.
As you know, Allen & Company LLC
(“Allen”) was engaged by the Company to act as
a financial advisor to the Company. Pursuant to our
October 10, 2007 engagement letter, as amended by the
amendment thereto, executed on October 10, 2008 (the
“Engagement Letter”), you have asked us to
render our opinion as to the fairness, from a financial point of
view, of the Vowel Consideration to be received by the Vowel
Stockholders in the Transaction. Pursuant to the Engagement
Letter, the Company shall owe Allen a cash fee of
$3 million dollars, conditioned upon the consummation of
the Transaction (the “Success Fee”). In
addition, Allen shall be owed a cash fee of $500,000, payable
upon delivery of this opinion (the “Opinion
Fee”) and the Opinion Fee shall be creditable against
any Success Fee payable to Allen upon the closing of the
Transaction. The Company has also agreed to reimburse
Allen’s reasonable expenses up to $20,000 and indemnify
Allen against certain liabilities arising out of such engagement.
Allen, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and
related financings, bankruptcy reorganizations and similar
recapitalizations, negotiated underwritings, secondary
distributions of listed and unlisted securities, and valuations
for corporate and other purposes. Except as described herein,
Allen does not have and has not had any material relationships
involving the payment or receipt of compensation between Allen
and the Company, Consonant and, to our knowledge, any of their
respective affiliates during the last two years. Allen has
previously served as financial advisor to the Company, in
connection with its acquisition of Vowel Expanded Learning in
December of 2004 and its disposition of ProQuest Business
Solutions and Proquest Information Learning in October and
December of 2006, respectively. In the ordinary course of its
business as a broker-dealer and market maker, Allen may have
long or short positions, either on a discretionary or
nondiscretionary basis, for its own account or for those of its
clients, in the debt and equity securities (or related
derivative securities) of the Company. This opinion has been
approved by Allen’s fairness opinion committee.
Our opinion as expressed herein reflects and gives effect to our
general familiarity with the Company as well as information
which we received during the course of this assignment,
including information provided by the management of each of the
Company and Consonant in the course of discussions relating to
this engagement. In arriving at our opinion, we neither
conducted a physical inspection of the properties and facilities
of the Company or Consonant nor made or obtained any evaluations
or appraisals of the assets or liabilities of the Company or
Consonant, or conducted any analysis concerning the solvency of
the Company or Consonant.
In rendering our opinion, we have relied upon and assumed, with
your consent and without independent verification, the accuracy
and completeness of all of the financial, accounting, tax and
other information that were available to us from public sources,
that was provided to us by the Company, Consonant or their
respective representatives, or that was otherwise reviewed by
us. With respect to financial projections provided to us by the
Company
and/or
Consonant, we have assumed with your consent that they have been
reasonably prepared in good faith reflecting the best currently
available estimates and judgments of the management of each of
the Company and Consonant, as to the future operating and
financial performance of the Company or Consonant on a separate
or combined basis. We assume no responsibility for and express
no view or opinion as to such forecasts or the assumptions on
which they are based.
We have assumed that the Transaction will be consummated in
accordance with the terms and conditions set forth in the Merger
Agreement dated as of the date hereof and the agreements
ancillary thereto that we have reviewed.
Further, our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
made available to us as of, the date hereof. It should be
understood that subsequent developments may affect the
conclusions expressed in this opinion and that we assume no
responsibility for advising any person of any change in any
matter affecting this opinion or for updating or revising our
opinion based on circumstances or events occurring after the
date hereof.
In arriving at our opinion, we have among other things:
(i) reviewed and analyzed the terms and conditions of the
Merger Agreement and related documents;
(ii) reviewed and analyzed the financial aspects of the
Transaction;
(iii) reviewed and analyzed the trends in the K-12
supplemental education market;
(iv) reviewed and analyzed publicly available information
on the Company;
(v) reviewed and analyzed the present financial and
business condition and prospects of each of the Company and
Consonant based on information provided by the management of
each company;
(vi) reviewed and analyzed the historical results and
financial projections of each of the Company and Consonant
provided by management of each company;
(vii) reviewed and analyzed the financial projections of
Holdco prepared by management of the Company and Consonant;
(viii) reviewed and analyzed the information obtained from
discussions with the management of each of the Company and
Consonant and with Veronis Suhler Stevenson
(“VSS”), the financial sponsor that owns an
indirect controlling interest in Consonant;
(ix) reviewed and analyzed the publicly available financial
information of comparable companies in the K-12 education sector;
(x) reviewed and analyzed the publicly available financial
information related to comparable transactions;
(xi) reviewed and analyzed the valuation trends in the
U.S. equity market;
(xii) reviewed and analyzed the auction sale process the
Company has undertaken to sell Vowel;
(xiii) reviewed and analyzed the cash consideration
received per each Vowel Share;
(xiv) reviewed and analyzed the implied trading value of
Holdco based on publicly traded comparable companies;
(xv) reviewed and analyzed the premiums paid in certain
precedent transactions;
(xvi) reviewed and analyzed the current macroeconomic
environment and its relevance to previous comparable
transactions in the K-12 sector; and
(xvii) conducted such other financial analyses and
investigations as we deemed necessary or appropriate for the
purposes of the opinion expressed herein.
It is understood that this opinion is intended for the benefit
and use of the Board in connection with its consideration of the
Transaction. This letter is not to be used for any other
purpose, or be reproduced, disseminated, quoted from or referred
to at any time, in whole or in part, without our prior written
consent, except as required by law; provided, however, that this
letter may be used by the Company in conjunction with any proxy
mailing to Vowel Stockholders and any filing with the Securities
and Exchange Commission related to the Transaction, provided
that Allen has the right to review and approve any disclosure
with respect to this opinion.
This opinion does not constitute a recommendation as to what
course of action the Board should pursue in connection with the
Transaction, or otherwise address the merits of the underlying
decision by the Company to engage in the Transaction. We do not
express an opinion about the fairness of any compensation
payable to any of the Company’s officers, directors or
employees in connection with the Transaction relative to the
consideration payable to the Company’s stockholders. Our
opinion also does not consider the treatment of any stock
options or stock appreciation rights issued pursuant to the
Vowel Stock Plans.
We do not express any opinion as to any tax or other
consequences that might result from the Transaction, nor does
our opinion address any legal, tax, regulatory or accounting
matters, as to which we understand that the Company obtained
such advice as it deemed necessary from qualified professionals.
For the purposes of our opinion, we have assumed with your
consent that all governmental, regulatory or other consents
necessary for the consummation of the Transaction as
contemplated by the Merger Agreement will be obtained without
any material adverse effect on the Company.
Our opinion is limited to the fairness, from a financial point
of view, of the Vowel Consideration to be received by the Vowel
Stockholders in the Transaction as of the date hereof.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Vowel Consideration to be received by
the Vowel Stockholders in the Transaction is fair, from a
financial point of view, to the Vowel Stockholders.
We understand that the Voyager Learning Company
(“Voyager” or the “Seller”) is considering a
business combination transaction with affiliates of Cambium
Learning, Inc. (“Cambium” or the “Buyer”)
pursuant to which Cambium’s indirect shareholders will
acquire, through a multi-step merger transaction (the
“Transaction”), approximately 51% of the outstanding
capital stock of Voyager in exchange for cash and equity
securities of a newly formed entity Consonant Holdings, Inc.
(“Holdco” or the “Company”). In the initial
merger transaction, it is currently anticipated that the
existing public shareholders of Voyager will receive (subject to
a working capital and other adjustments) an aggregate of
approximately $67.5 million in cash plus stock in Holdco,
which is anticipated to be listed on NASDAQ (the “Merger
Consideration”).
Following consummation of the Transaction, the Company will own,
directly or indirectly, 100% of the capital stock of Cambium and
Voyager. In the second step of the transaction, subject to
compliance with Cambium’s credit agreements (the
“Credit Agreements”), the Company will consolidate the
operating subsidiaries of Cambium and Voyager in a merger or
similar transaction.
You have requested that Houlihan Smith & Company, Inc.
(“Houlihan”) render a written opinion as to whether,
assuming the Transaction has been consummated as proposed (as
such proposal may be updated from time to time prior to
consummation), immediately after and giving effect to the
Transaction (including the second step):
•
On a pro forma basis, the “Fair Value” and
“Present Fair Saleable Value” (as defined herein) of
the assets of Holdco, as applicable, would exceed the sum of its
respective probable liabilities, including all “Contingent
and Other Liabilities” (as defined herein), on its
respective existing debts as such debts become absolute and
matured;
•
Holdco and its subsidiaries will be able to pay their respective
debts as they become due in the ordinary course of their
respective businesses on a consolidated basis;
•
The capital remaining in Holdco and its subsidiaries after the
Transaction would not be unreasonably small for the respective
business in which it is engaged, as Holdco’s management
•
has indicated it is now and is proposed to be conducted
following the consummation of the Transaction;
•
The Fair Value of Holdco’s assets exceeds the value of its
liabilities, including all Contingent and Other Liabilities, by
an amount that is greater than its stated capital
amount; and
The sum of the assets of Holdco, as applicable, at Fair Value is
greater than all its respective debts at fair valuation.
Our Opinion considers the Company as a going-concern, both
immediately before and on a pro forma basis immediately after,
and giving effect to the Transaction and the associated
indebtedness. For purposes of our Opinion, “Fair
Value” shall be defined as the amount at which the equity
of the Company would change hands between a willing buyer and a
willing seller, each having reasonable knowledge of the relevant
facts, neither being under any compulsion to act, with equity to
both; and “Present Fair Saleable Value” shall be
defined as the amount that may be realized if the Company’s
and its subsidiaries’ assets on a consolidated basis are
sold as an entirety with reasonable promptness, not to exceed
one year, in an arm’s length transaction under present
conditions for the sale of comparable business enterprises, as
those conditions could be reasonably evaluated by Houlihan. We
have used the same valuation methodologies in determining Fair
Value and Present Fair Saleable value for purposes of rendering
the Opinion. The term “Contingent and Other
Liabilities” shall mean the stated amount of contingent
liabilities identified to us and valued by responsible officers
of the Company, upon whom we have relied upon without
independent verification; no other contingent liabilities have
been considered by us. It is Houlihan’s understanding, upon
which it is relying, that the Board and any other recipient of
the Opinion will consult with and rely solely upon their own
legal counsel with respect to said definitions. The term
“would not be unreasonably small amount of capital for the
respective businesses in which it is engaged” and
“required to pay its respective probable liabilities,
including all ‘Contingent and Other Liabilities’, on
its respective existing debt, as such debts become absolute and
matured” means that the Company, as applicable, will be
able to generate enough cash from operations, financing or a
combination thereof to meet its respective obligations
(including all Contingent and Other Liabilities) as they become
due. No representation is made herein, or directly or indirectly
by the Opinion, as to any legal matter or as to the sufficiency
of said definitions for any purpose other than setting forth the
scope of Houlihan’s Opinion hereunder.
Notwithstanding the use of the defined terms “Fair
Value” and “Present Fair Saleable Value,” we have
not been engaged to identify prospective purchasers or to
ascertain the actual prices at which and terms on which the
Company or any of its individual business units can currently be
sold. Because the sale of any business enterprise involves
numerous assumptions and uncertainties, not all of which can be
quantified or ascertained prior to engaging in an actual selling
effort, we express no opinion as to whether the Company (or any
of its individual business units) would actually be sold for the
amount we believe to be its Fair Value and Present Fair Saleable
Value.
Scope
of Analysis
In completing our analyses and for purposes of the Opinion set
forth herein, Houlihan has, among other things, performed the
following:
•
Reviewed the following agreements and documents related to the
Transaction:
•
Draft Agreement and Plan of Mergers by and among Consonant
Holdings, Inc., Vowel, Vowel Acquisition Corp., VSS-Consonant
Holdings II Corp., and Consonant Acquisition Corp., dated
as of May 11, 2009;
A summary term sheet including structure diagrams of the various
steps of the Transaction, dated as of February 5,2009; and
•
Cambium’s Credit Agreements, including the senior secured
debt credit agreement, dated as of April 12, 2007, and its
respective amendments, including the limited waiver and
amendment, and the permanent waiver and amendment, dated as of
May 20, 2008 and August 22, 2008, respectively.
•
Held discussions with certain members of Voyager management
(“Management”) regarding the Transaction, the pro
forma historical performance and pro forma financial projections
of Holdco, and the future outlook for Holdco.
•
Obtained, reviewed
and/or
analyzed certain information relating to the historical, current
and future operations of Voyager and Constant on a pro forma
basis as consolidated through Holdco on a post-transaction
basis, including but not limited to the following:
•
Four-year, pro forma financial projections for Holdco, as
provided by Management, including net operating loss
(“NOL”) carry forward calculations;
•
Unaudited, historical pro forma financial statements for Holdco
for fiscal years 2006 through 2008, as provided by Management;
Discussed with Management the status of current outstanding
legal claims and confirmed that any potential related financial
exposure, as a result of the legal claims, has been properly
disclosed.
•
Obtained and reviewed the following documents with regards to
Voyager:
Documentation related to the patents, trademarks, and licensing
agreements of Cambium; and
•
Discussed with Management the status of current outstanding
legal claims and confirmed that any potential related financial
exposure, as a result of the legal claims, has been properly
disclosed.
Reviewed certain other relevant, publicly available information,
including economic, industry, and Company specific information.
We have relied upon and assumed, without independent
verification, that the financial forecasts and projections
provided to us have been reasonably prepared and reflect the
best currently available estimates of the future financial
results and condition of the Company, and that there has been no
material adverse change in the assets, financial condition,
business or prospects of the Company since the date of the most
recent financial statements made available to us. We have not
independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do
not assume any responsibility with respect to it. We have not
made any physical inspection or independent appraisal of any of
the properties or assets of the Company.
Nothing has come to our attention in the course of this
engagement which would lead us to believe that (i) any
information provided to us or assumptions made by us are
insufficient or inaccurate in any material respect or
(ii) it is unreasonable for us to use and rely upon such
information or make such assumptions.
Several analytical methodologies have been employed in our
analysis and no one method of analysis should be regarded as
critical to the overall conclusion we have reached. Each
analytical technique has inherent strengths and weaknesses, and
the nature of the available information may further affect the
value of particular techniques.
The conclusions we have reached are based on all the analyses
and factors presented in our Opinion taken as a whole and also
on application of our own experience and judgment. Such
conclusions may involve significant elements of subjective
judgment or qualitative analysis. We therefore give no opinion
as to the value or merit standing alone of any one or more parts
of the material contained in our Opinion. Our only opinion is
the formal written Opinion we have expressed as to the ongoing
solvency of Holdco. In our analysis and in connection with the
preparation of this Opinion, Houlihan has made numerous
assumptions with respect to industry performance, general
business, market and economic conditions and other matters, many
of which are beyond the control of any party involved in the
Transaction. Our Opinion is necessarily based on business,
economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
Conclusion
Based upon the foregoing, and in reliance thereon, it is our
opinion as of June 20, 2009 that, assuming the Transaction
will be consummated as proposed, on a pro forma basis, after and
giving effect to the Transaction:
•
On a pro forma basis, the Fair Value and Present Fair Saleable
Value of the assets of Holdco, as applicable, would exceed the
sum of its respective probable liabilities, including all
Contingent and Other Liabilities, on its respective existing
debts as such debts become absolute and matured, following the
consummation of the Transaction;
•
Holdco and its subsidiaries will be able to pay their respective
debts as they become due in the ordinary course of their
respective businesses on a consolidated basis;
The capital remaining in Holdco and its subsidiaries after the
Transaction would not be unreasonably small for the respective
business in which it is engaged, as Holdco’s management has
indicated it is now and is proposed to be conducted following
the consummation of the Transaction;
•
The Fair Value of Holdco’s assets exceeds the value of its
liabilities, including all Contingent and Other Liabilities, by
an amount that is greater than its stated capital
amount; and
•
The sum of the assets of Holdco, as applicable, at Fair Value is
greater than all its respective debts at fair valuation.
Houlihan received a fee from the Company relating to its
services in providing this Opinion that is not contingent on the
consummation of the proposed Transaction. In an engagement
letter dated February 26, 2009, the Company has agreed to
indemnify Houlihan with respect to Houlihan’s services. An
excerpt of the indemnification from the engagement letter
follows:
The Client agrees to indemnify Houlihan and any of its
employees, agents, officers, directors, shareholders or any
other person who controls Houlihan (any or all of the foregoing
being an “Indemnified Party”) from and against any and
all losses, claims, damages and liabilities, joint or several,
to which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise, and related to or
arising out of the Transaction or the engagement of Houlihan
pursuant to, and the performance by Houlihan of the services
contemplated by, this Agreement and will periodically reimburse
any Indemnified Party for all reasonable
out-of-pocket
expenses (including reasonable counsel fees and expenses) as
they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or
any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party (other than in connection with any
claim, action or proceeding initiated or brought by or on behalf
of the Client). The Client will not be liable under the
foregoing indemnification provision to the extent that any loss,
claim, damage, liability or expense is found to have resulted
primarily from such Indemnified Party’s negligence, bad
faith, willful misconduct, or reckless disregard of its
obligations or duties provided that if an Indemnified Party is
so found, then such Indemnified Party shall reimburse the Client
promptly for all amounts previously paid by the Client to
indemnify such Indemnified Party. The Client also agrees that no
Indemnified Party shall have any liability (whether direct or
indirect, in contract or tort or otherwise) to the Client or its
security holders or creditors related to or arising out of the
engagement of Houlihan pursuant to, or the performance by
Houlihan of the services contemplated by, this Agreement except
to the extent that any loss, claim, damage or liability is found
in a final judgment by a court to have resulted from
Houlihan’s gross negligence, bad faith, willful misconduct,
or reckless disregard of its obligations or duties.
Limited Guarantee, dated as of June 20, 2009 (this
“Limited Guarantee”), by VSS Communication
Partners IV, L.P., VSS Communications Parallel Partners IV, L.P.
and VSS Communications Parallel II Partners IV, L.P. each,
a Delaware limited partnership (each a
“Guarantor” and together, the
”Guarantors”) in favor of, Voyager Learning
Company, a Delaware corporation (“Vowel”).
Reference is hereby made to the Agreement and Plan of Mergers
(the “Merger Agreement”), dated as of the date
hereof, among Cambium Holdings, Inc., a Delaware corporation
(“Holdco”), Vowel, VSS-Cambium Holdings II
Corp., a Delaware corporation (“Consonant”),
Vowel Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Holdco (“Vowel Merger Sub”) and
Consonant Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Holdco (“Consonant Merger
Sub”). Capitalized terms which are used herein but not
otherwise defined herein shall have the meanings ascribed to
them in the Merger Agreement.
1. Limited Guarantee. The
Guarantors hereby agree as follows in order to induce Vowel to
enter into the Merger Agreement:
(a) The Guarantors hereby jointly and severally,
absolutely, irrevocably and unconditionally guarantee to Vowel
the due payment by Consonant of Consonant’s payment
obligations, if any, with respect to the Consonant Breach
Termination Fee payable pursuant to Section 7.2 of the
Merger Agreement and the Consonant Ordinary Termination Fee
payable pursuant to Sections 7.3(d)(i) or 7.3(d)(ii) of the
Merger Agreement (each of the obligation to pay the Consonant
Breach Termination Fee pursuant to Section 7.2 of the
Merger Agreement and the obligation to pay the Consonant
Ordinary Termination Fee payable pursuant to
Sections 7.3(d)(i) or 7.3(d)(ii) of the Merger Agreement,
the “Guaranteed Ordinary Termination Fee
Obligation”), provided, however, that the
maximum aggregate amount payable by the Guarantors with respect
to the Guaranteed Ordinary Termination Fee Obligation shall be
$4,500,000 (the “Guaranteed Ordinary Termination Fee
Obligation Cap Amount”). In the case of a Guaranteed
Ordinary Termination Fee Obligation payable pursuant to
Section 7.2 or Section 7.3(d)(ii) of the Merger
Agreement, the Guarantors shall pay the Guaranteed Ordinary
Termination Fee Obligation Cap Amount pursuant to this
Section 1(a) promptly upon failure of Consonant to
pay the Guaranteed Ordinary Termination Fee Obligation when due
in accordance with the Merger Agreement. In the case of a
Consonant Ordinary Termination Fee payable pursuant to
Section 7.3(d)(i) of the Merger Agreement, the Guarantors
shall pay the Guaranteed Ordinary Termination Fee Obligation Cap
Amount pursuant to this Section 1(a) promptly upon
failure of Consonant to pay the related Consonant Ordinary
Termination Fee Obligation on or before the
180thday
after the date such payment is due to be paid by Consonant under
the Merger Agreement
(b) The Guarantors hereby jointly and severally,
absolutely, irrevocably and unconditionally guarantee to Vowel
the due payment by Consonant of Consonant’s payment
obligations, if any, with respect to the Consonant Enhanced
Termination Fee payable under Section 7.3(d)(iii) of the
Merger Agreement (the “Guaranteed Enhanced Termination
Fee Obligation” and, collectively with the Guaranteed
Ordinary Termination Fee Obligation, the “Guaranteed
Termination Fee Obligation”); provided,
however, that the maximum aggregate amount payable by the
Guarantors with respect to the Guaranteed Enhanced Termination
Fee Obligation shall be $9,000,000 (the “Guaranteed
Enhanced Termination Fee Obligation Cap Amount”).
Guarantors shall pay the Guaranteed Enhanced Termination Fee
Obligation Cap Amount payable pursuant to this
Section 1(b) promptly in the event Consonant fails
to pay the Consonant Enhanced Termination Fee Obligation on or
before the 30th day after the date such payment is due to
be paid by Consonant under the Merger Agreement. For the
avoidance of doubt, under no circumstances shall Consonant be
required to pay Vowel both the Consonant Ordinary Termination
Fee and the Consonant Enhanced Termination Fee, and the
Guaranteed Termination Fee Obligation shall in all instances
refer to only one of the following (as applicable): the
Consonant Ordinary Termination Fee, the Consonant Enhanced
Termination Fee or the Consonant Breach Termination Fee.
(c) The Guarantors hereby jointly and severally,
absolutely, irrevocably and unconditionally guarantee to Vowel
the due payment and performance by Holdco and Consonant of any
damages resulting from
one or more breaches of representations and warranties of Holdco
and/or
Consonant under the Merger Agreement (“Breach
Damages”), but only to the extent such Breach Damages
are payable by Holdco or Consonant pursuant to Section 7.2
of the Merger Agreement (the ”Guaranteed Damages
Obligation”, and, together with the Guaranteed
Termination Fee Obligation, the “Guaranteed
Obligations”); provided, however, that
the maximum aggregate amount payable by the Guarantors with
respect to all Breach Damages payable by Holdco and Consonant
pursuant to Section 7.2 of the Merger Agreement shall be
$4,500,000 and not $9,000,000. Guarantors shall pay the
Guaranteed Damages Obligation payable pursuant to this
Section 1(c) promptly in the event Consonant fails
to pay the Guaranteed Damages Obligation on or before the
30th day after the date on which the dollar amount of the
Breach Damages is agreed upon by Consonant and Vowel or
determined by a court of competent jurisdiction in accordance
with Section 11.
(d) Notwithstanding anything to the contrary contained in
this Limited Guarantee, but subject to the last sentence of
Section 2(d) hereof, Vowel hereby agrees that to the extent
Holdco or Consonant is relieved of all or any portion of the
Guaranteed Obligations by the satisfaction thereof or pursuant
to any written agreement with Vowel (any amount so relieved, the
”Reduction Amount”), the applicable Maximum
Amount (as defined below) shall be reduced by an amount equal to
the Reduction Amount. All payments hereunder shall be made in
lawful money of the United States, in immediately available
funds.
2. Terms of Limited Guarantee.
(a) This Limited Guarantee is an unconditional guarantee of
payment, not collection, and a separate action or actions may be
brought and prosecuted against the Guarantors to enforce this
Limited Guarantee up to the applicable Maximum Amount,
irrespective of whether any action is brought against Consonant,
Holdco or any other Person or whether Consonant, Holdco or any
other Person are joined in any such action or actions.
Notwithstanding anything to the contrary contained in this
Limited Guarantee but subject to the proviso at the end of this
sentence, if Holdco or Consonant fail to pay any Guaranteed
Obligation promptly when due, the Guarantors shall promptly pay
(and shall be jointly and severally liable for) Vowel’s
reasonable and documented
out-of-pocket
costs and expenses (including reasonable and documented legal
fees and expenses) incurred in connection with any action,
including the filing of any lawsuit or legal action, taken to
collect payment of any Guaranteed Obligation, together with
interest on the amount of any unpaid Guaranteed Obligation, from
the date such Guaranteed Obligation was required to be paid
pursuant to the Merger Agreement until such payment is made (by
Consonant under the Merger Agreement or the Guarantors
hereunder), at a per annum rate equal to the prime lending rate
as reported in the Wall Street Journal on the date such
Guaranteed Obligation was required to be paid plus 2%,
provided, that the Guarantors’ liability
under this Section 2 for reimbursement of
out-of-pocket
costs and expenses and payment of interest, in the aggregate,
shall not exceed $625,000. For the avoidance of doubt, the
amount of interest and
out-of-pocket
costs and expenses recoverable under this Limited Guarantee and
Section 7.3(e) of the Merger Agreement, as applicable,
shall not exceed $625,000, in the aggregate, so in no event
shall the Guarantors’ aggregate liability hereunder exceed
the following amount, either (the “Maximum
Amount”), (x) $9,625,000 in the case of the
Guaranteed Enhanced Termination Fee Obligation, or
(y) $5,125,000 in the case of all other Guaranteed
Obligations.
(b) The liability of the Guarantors under this Limited
Guarantee (up to the applicable Maximum Amount) shall, to the
fullest extent permitted under applicable Law, be absolute,
irrevocable and unconditional in accordance with the terms
hereof, irrespective of:
(i) the failure of Vowel to assert any claim or demand or
enforce any right or remedy against Consonant or any other
Person primarily or secondarily liable with respect to any of
the Guaranteed Obligations;
(ii) the validity or enforceability of the Merger Agreement
with respect to Holdco, Consonant or Consonant Merger Sub;
(iii) the addition, substitution or release of any Person
as a guarantor of the Guaranteed Obligations;
(iv) any release or discharge of any obligation of
Consonant or Holdco contained in the Merger Agreement resulting
from any change in the corporate existence, structure or
ownership of Consonant, Holdco or any other Person primarily or
secondarily liable with respect to any of the Guaranteed
Obligations, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting Consonant, Holdco or any
other Person primarily or secondarily liable with respect to any
of the Guaranteed Obligations or any of their respective assets;
(v) any change in the time, manner, place or terms of
payment, or any change or extension of the time of payment of,
renewal or alteration of, any of the Guaranteed Obligations, any
escrow arrangement or other security therefor, any liability
incurred directly or indirectly in respect thereof, or any
amendment, rescission, compromise, consolidation or waiver of,
or any consent to any departure from the terms of, the Merger
Agreement or the documents entered into in connection therewith;
(vi) the existence of any claim, set-off or other right
that the Guarantors may have at any time against Consonant,
Holdco or Vowel, whether in connection with any of the
Guaranteed Obligations or otherwise; or
(vii) the adequacy of any other means Vowel may have of
obtaining repayment of any of the Guaranteed Obligations; or
(viii) any other fact or circumstance which might otherwise
constitute grounds at law or in equity for the discharge or
release of the Guarantor from its obligations hereunder.
(c) To the fullest extent permitted by Law, the Guarantors
hereby irrevocably and expressly waive any and all rights or
defenses arising by reason of any Law which would otherwise
require any election of remedies by Vowel. The Guarantors hereby
waive any and all notice of the creation, renewal, extension or
accrual of any of the Guaranteed Obligations and notice of or
proof of reliance by Vowel upon this Limited Guarantee or
acceptance of this Limited Guarantee. The Guaranteed Obligations
shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Limited Guarantee, and all
dealings between Consonant, Holdco or the Guarantors, on the one
hand, and Vowel, on the other, shall likewise be conclusively
presumed to have been had or consummated in reliance upon this
Limited Guarantee.
(d) Vowel shall not be obligated to file any claim relating
to any of the Guaranteed Obligations in the event that Consonant
or Holdco becomes subject to a bankruptcy, reorganization or
similar proceeding, and the failure of Vowel to so file shall
not affect the Guarantors’ obligations hereunder. In the
event that any payment to Vowel in respect of any of the
Guaranteed Obligations is rescinded
and/or
returned to the Guarantors for any reason whatsoever, the
Guarantors shall remain liable hereunder with respect to the
Guaranteed Obligation as if such payment had not been made.
(e) The Guarantors agree that Vowel may at any time and
from time to time, without notice to or further consent of the
Guarantors, extend the time of payment of any of the Guaranteed
Obligations, and may also make any agreement with Consonant,
Holdco or any Person liable for any of the Guaranteed
Obligations, for the extension, renewal, payment, compromise,
discharge or release thereof, in whole or in part provided
however that no amendment to the Merger Agreement shall effect
or impair the obligations under this Limited Guaranty.
3. Waiver of Acceptance, Presentment;
Etc. To the fullest extent permitted by Law,
the Guarantors hereby expressly waive any and all rights or
defenses arising by reason of any Law which would otherwise
require any election of remedies by Vowel. The Guarantors waive
promptness, diligence, notice of the acceptance of this Limited
Guarantee and of the Guaranteed Obligations, presentment, demand
for payment, notice of non-performance, default, dishonor and
protest, notice of the incurrence of any of the Guaranteed
Obligations and all other notices of any kind (except for
notices provided to Consonant in accordance with
Section 9.3 of the Merger Agreement), all defenses which
may be available by virtue of any valuation, stay, moratorium
law or other similar law now or hereafter in effect, any right
to require the marshalling of assets of Consonant, Holdco or any
other Person interested in the transactions contemplated by the
Merger Agreement, and all suretyship defenses generally (other
than fraud and willful misconduct by Vowel or any of its
affiliates, defenses to the payment of the Guaranteed
Obligations under the Merger Agreement or breach by Vowel of
this Limited Guarantee). Notwithstanding the foregoing, for the
avoidance of doubt, Guarantors retain any and all defenses that
may be available to Consonant, Holdco or the Guarantors that the
Guaranteed Obligations are not due pursuant to the Merger
Agreement
and/or have
already been satisfied or performed.
4. No Recourse. Vowel, by
its acceptance of the benefits hereof, acknowledges as follows:
(a) Vowel, by its acceptance of the benefits hereof, agrees
that it has no right of recovery in respect of a claim arising
under the Merger Agreement, the other Transaction Documents, the
Equity Commitment Letter (as defined below), or in connection
with any documents or instruments delivered in connection
therewith, including this Limited Guarantee, against any former,
current or future officer, agent, Affiliate or employee of the
Guarantors, Holdco or Consonant (or any of their
successors’ or permitted assignees), against any former,
current or future general or limited partner, member or
stockholder of the Guarantors, Holdco or Consonant (or any of
their successors or permitted assignees), notwithstanding that a
Guarantor is or may be a partnership, or any Affiliate thereof
or against any former, current or future director, officer,
agent, employee, Affiliate, general or limited partner,
stockholder, manager or member of any of the foregoing
(collectively, “Guarantor/Consonant
Affiliates”; it being understood that, notwithstanding
anything to the contrary herein contained, the term
Guarantor/Consonant Affiliates shall not include the Guarantors,
Consonant, Holdco, Merger Subsidiaries or any of their
respective successors and assigns), whether by or through
attempted piercing of the corporate veil, by or through a claim
by or on behalf of Consonant against the Guarantor/Consonant
Affiliates, or otherwise, except for its rights under this
Limited Guarantee and subject to the limits contained herein.
For the avoidance of doubt, there shall be no recourse under
this Limited Guarantee against Cambium Learning or any of its
Subsidiaries, and each of whom shall be deemed a
Guarantor/Consonant Affiliate hereunder.
(b) Recourse against the Guarantors under this Limited
Guarantee shall be the sole and exclusive remedy of Vowel and
all of its Affiliates against the Guarantors and the
Guarantor/Consonant Affiliates in respect of any liabilities or
obligations arising under, or in connection with, the Merger
Agreement, the other Transaction Documents, the Equity
Commitment Letter, or the transactions contemplated thereby,
including in the event Consonant, Consonant Merger Sub or Holdco
breaches any covenant, representation or warranty under the
Merger Agreement or the other Transaction Documents or the
Guarantors breach a covenant, representation or warranty
hereunder or under the Equity Commitment Letter. Vowel hereby
covenants and agrees that it shall not institute, and shall
cause its Subsidiaries and Affiliates not to institute, any
proceeding or bring any other claim arising under, or in
connection with, the Merger Agreement, the other Transaction
Documents, the Equity Commitment Letter, or the transactions
contemplated thereby, against any Guarantor or any
Guarantor/Consonant Affiliates except for claims against the
Guarantors under this Limited Guarantee. Nothing set forth in
this Limited Guarantee shall affect or be construed to affect
any liability of Consonant or Holdco to Vowel or shall confer or
give or shall be construed to confer or give to any Person other
than Vowel any rights or remedies against any Person other than
the rights of Vowel against the Guarantors as expressly set
forth herein. Notwithstanding anything to the contrary herein
contained or contained in any other Transaction Document, in no
event shall any amendment, modification or termination (except
for a termination resulting from the termination of the Merger
Agreement in accordance with its terms, other than pursuant to:
(X) Sections 7.1(i), 7.1(l) or 7.1(j) thereof; or
(Y) Section 7.1(e) but, in the case of a termination
under Section 7.1(e), only to the extent damages are
payable by Consonant pursuant to Section 7.2 thereof) of
the Equity Commitment Letter affect or limit any of the
obligations of the Guarantors under this Limited Guarantee. For
the avoidance of doubt, this Section 4 shall in no
way limit the rights of the Stockholders’ Representative
after the Effective Time in enforcing the Merger Agreement or
the other Transaction
Documents, to the extent of any obligations or covenants to be
performed after the Effective Time, in each case, against
Holdco, Vowel or any of Vowel’s Subsidiaries.
(c) Vowel acknowledges that the Guarantors are agreeing to
enter into this Limited Guarantee in reliance on the provisions
set forth in this Section 4. This
Section 4 shall survive termination of this Limited
Guarantee.
5. Termination. Except as
otherwise provided herein, this Limited Guarantee shall
terminate and the Guarantors shall have no further obligations
under this Limited Guarantee as of the earliest to occur of
(a) if the Mergers are consummated, the Effective Time, or
(b) if the Mergers are not consummated, (W) in the
case of a termination of the Merger Agreement pursuant to which
Holdco or Consonant are or may be obligated to make payments
pursuant to Sections 7.2 or 7.3 thereof, upon payment in
full of all such amounts (whether by Consonant or Holdco
pursuant to the Merger Agreement or by Guarantors pursuant to
this Limited Guarantee) except to the extent the last sentence
of Section 2(d) is applicable, or (X) in the case of
termination of the Merger Agreement under circumstances in which
no payments are or may become due from Holdco or Consonant under
Section 7.2 or 7.3, upon the effective date of such
termination.
6. Continuing
Guarantee. Unless terminated pursuant to the
provisions of Section 5 hereof, this Limited
Guarantee is a continuing one and shall remain in full force and
effect until the indefeasible payment and satisfaction in full
of the Guaranteed Obligations up to the applicable Maximum
Amount (as such obligations may be modified pursuant to
Section 1(d) hereof), shall be binding upon the Guarantors,
their respective successors and assigns, and shall inure to the
benefit of, and be enforceable by, Vowel and its respective
successors, transferees and assigns. All obligations to which
this Limited Guarantee applies or may apply under the terms
hereof shall be conclusively presumed to have been created in
reliance hereon. Subject to Sections 1 and 4 hereof,
each and every right, remedy and power hereby granted to Vowel
shall be cumulative and not exclusive of any other, and may be
exercised by Vowel at any time or from time to time. Vowel shall
not have any obligation to proceed at any time or in any manner
against, or exhaust any or all of Vowel’s rights against,
Consonant or Holdco prior to proceeding against the Guarantors
hereunder. Each Guarantor acknowledges and confirms that each
Guarantor has established its own adequate means of obtaining
from Consonant and Holdco on a continuing basis all information
desired by such Guarantor concerning the financial condition of
Consonant and Holdco and that each Guarantor will look to
Consonant and Holdco and not to Vowel in order for such
Guarantor to keep adequately informed of changes in
Consonant’s and Holdco’s financial condition.
7. Entire Agreement. This
Limited Guarantee and the Equity Commitment Letter constitute
the entire agreement with respect to the subject matter hereof
and supersede any and all prior discussions, negotiations,
proposals, undertakings, understandings and agreements, whether
written or oral, among Consonant, Holdco and the Guarantors or
any of their respective affiliates on the one hand, and Vowel or
any of its affiliates on the other hand, except for the Merger
Agreement and the Transaction Documents.
8. Amendments and
Waivers. No amendment or waiver of any
provision of this Limited Guarantee will be valid and binding
unless it is in writing and signed, in the case of an amendment,
by the Guarantors and Vowel, or in the case of waiver, by the
party against whom the waiver is to be effective. No waiver by
any party of any breach or violation of, or default under, this
Limited Guarantee, whether intentional or not, will be deemed to
extend to any prior or subsequent breach, violation or default
hereunder or affect in any way any rights arising by virtue of
any prior or subsequent such occurrence. No delay or omission on
the part of any party in exercising any right, power or remedy
under this Limited Guarantee will operate as a waiver thereof.
9. Counterparts. This
Limited Guarantee may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which
when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
10. Notices. All notices,
waivers, consents, approvals and other communications given or
made pursuant hereto shall be in writing and shall be deemed to
have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, sent by a nationally
recognized courier, mailed by registered or certified mail
(postage prepaid, return receipt requested), to the parties at
the following addresses (or at such other address as a party may
hereafter specify in writing to the other parties in accordance
with this section) or sent by electronic transmission to the fax
number specified below:
If to a Guarantor:
Veronis Suhler Stevenson LLC
350 Park Avenue New York, NY10022
Facsimile:
(212) 381-8168
Attention: Scott J. Troeller
With a copy to (which shall not constitute notice):
Lowenstein Sandler PC
1251 Avenue of the Americas New York, NY10020
Facsimile:
(973) 597-2507
Attention: Steven E. Siesser, Esq.
If to Vowel:
Voyager Learning Company
789 Eisenhower Parkway Ann Arbor, MI48108
Facsimile:
(734) 663-5692
Attention: Todd Buchardt
With a copy to (which shall not constitute notice):
Perkins Coie LLP
131 South Dearborn Street
Suite 1700 Chicago, Illinois60603
Facsimile:
(312) 324-9400
Attention: Phil Gordon, Esq.
11. GOVERNING LAW AND VENUE; WAIVER OF JURY
TRIAL.
(a) THIS LIMITED GUARANTEE SHALL BE DEEMED TO BE MADE IN
AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED
BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. Each
of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any federal court located in the State
of Delaware or any state court located in the State of Delaware,
in the event any dispute arises out of this Limited Guarantee or
any of the transactions contemplated by this Limited Guarantee,
(ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from
any such court, (iii) agrees that it will not bring any
action relating to this Limited Guarantee in any court other
than any federal court located in the State of Delaware or any
state court located in the State of Delaware and
(iv) consents to service of process being made through the
notice procedures set forth in Section 12 hereof.
Without limiting other means of service of process permissible
under applicable law, each of the parties hereby agrees that
service of any process, summons, notice or document by
U.S. registered mail to the respective addresses set forth
in Section 12 hereof shall be effective service of
process for any suit or proceeding in connection with this
Limited Guarantee or the transactions contemplated hereby.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BETWEEN THE
PARTIES HERETO ARISING OUT OF OR RELATING TO THIS LIMITED
GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12. No Assignment. Neither the Guarantors nor Vowel
may assign its rights, interests or obligations hereunder to any
other Person (except by operation of law) without the prior
written consent of Vowel (in the case of an assignment by the
Guarantors) or the Guarantors (in the case of an assignment by
Vowel).
13. Severability. Any term
or provision of this Limited Guarantee that is invalid or
unenforceable in any situation in any jurisdiction will not
affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any
other jurisdiction; provided, however, that this
Limited Guarantee shall not be enforced without giving effect to
the limitation of the amount payable hereunder to the applicable
Maximum Amount and to the provisions of Section 4
hereof. No party hereto shall assert, and each party shall cause
its respective Affiliates not to assert, that this Limited
Guarantee or any part hereof is invalid, illegal or
unenforceable.
14. Headings. The headings
contained in this Limited Guarantee are for convenience purposes
only and will not in any way affect the meaning or
interpretation hereof.
This Voting and Support Agreement (“Agreement”)
is made and entered into as of June 20, 2009, by and
between Voyager Learning Company, a Delaware corporation (the
“Company”), and VSS-Cambium Holdings III, LLC,
a Delaware limited liability company (“Holdings
III”). Certain capitalized terms used in this Agreement
are defined in Section 7 hereof and certain other
capitalized terms used in this Agreement that are not defined
herein shall have the meaning given to such terms in the Merger
Agreement (as defined below).
RECITALS
WHEREAS, Holdings III is the holder of record or the
“beneficial owner” (within the meaning of
Rule 13d-3
under the Exchange Act) of (i) all of the membership
interests in VSS-Cambium Holdings III Acquisition, LLC, a
Delaware limited liability company (“Acquisition
LLC”) and (ii) all outstanding capital stock of
VSS-Cambium Holdings II Corp., a Delaware corporation
(“Cambium Holdings II”);
WHEREAS, concurrently with the execution and delivery of
this Agreement, Cambium Holdings, Inc., a Delaware corporation
(“Parent”), Vowel Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent
(“Purchaser”), the Company, Cambium Holdings
II, Consonant Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent (“Consonant Merger
Sub”), and Vowel Representative, LLC, a Delaware
limited liability company, are entering into an Agreement and
Plan of Mergers (the “Merger Agreement”) which
provides, upon the terms and subject to the conditions set forth
therein, for the merger of Purchaser with and into the Company
(the “Voyager Merger”) and the merger of
Consonant Merger Sub with and into Cambium Holdings II (the
“Cambium Merger”) and together with the Voyager
Merger, the “Mergers”);
WHEREAS, pursuant to the Merger Agreement and the
Holdings III Merger Agreement attached as
Exhibit A-1
to the Merger Agreement, prior to the Effective Time,
VSS-Cambium Holdings, LLC, a Delaware limited liability company
(“VSS-Cambium LLC”) will merge with and into
Acquisition LLC with VSS-Cambium LLC as the surviving entity
(the “Holdings III Merger”);
WHEREAS, following the Holdings III Merger and prior
to the Effective Time, VSS-Cambium LLC and Cambium
Holdings II will be wholly owned subsidiaries of Holdings
III, and pursuant to the Contribution Agreement, dated as of the
date hereof, between Holdings III and Cambium
Holdings II in the form attached as
Exhibit A-2
to the Merger Agreement (the “Holdings III
Contribution Agreement”), Holdings III will
contribute all of the outstanding membership interest in
VSS-Cambium LLC to Cambium Holdings II (the
“Cambium Reorganization”); and
WHEREAS, as a condition and inducement to the
Company’s willingness to enter into the Merger Agreement,
Holdings III has agreed to execute, deliver and perform
this Agreement.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement, intending
to be legally bound, agree as follows:
Section 1. Agreements
to Vote.
(a) Agreement to Vote LLC
Interests. During the Term, at any meeting of
the members of Acquisition LLC (or of the holders of any class
of membership interests of Acquisition LLC) called with
respect to any of the following, and at every adjournment or
postponement thereof and in any action by written consent of the
members of Acquisition LLC in lieu of a meeting, with respect to
any of the following, Holdings III shall vote or consent
with respect to the Subject Acquisition Securities: (a) in
favor of adoption of the Holdings III Merger Agreement and
approval of the Holdings III Merger and the other actions
contemplated by the Holdings III Merger Agreement (the
“Holdings III Merger Proposals”),
(b) against any action, agreement or proposal that could
reasonably be expected to impede, interfere with, delay,
postpone or materially adversely affect the Holdings III
Merger or the other transactions contemplated by the
Holdings III Merger Agreement,
and (c) against any action, agreement or proposal that
could reasonably be expected to impede, interfere with, delay,
postpone or materially adversely affect the Cambium
Reorganization. The Subject Acquisition Securities shall be
deemed present for purposes of a quorum at any meeting of the
members of Acquisition LLC at which the Holdings III Merger
is voted upon.
(b) Agreement to Vote
Shares. During the Term, at any meeting of
the stockholders of Cambium Holdings II (or of the holders
of any class of stock of Cambium Holdings II’s capital
stock) called with respect to any of the following, and at every
adjournment or postponement thereof and in any action by written
consent of the stockholders of Cambium Holdings II in lieu
of a meeting, with respect to any of the following,
Holdings III shall vote or consent with respect to the
Subject Cambium Holdings II Securities: (a) in favor
of adoption of the Merger Agreement and approval of the Cambium
Merger and the other actions contemplated by the Merger
Agreement (the ‘‘Cambium Merger
Proposals”), (b) against any action, agreement or
proposal that could reasonably be expected to result in any of
the conditions to the consummation of the Cambium Merger under
the Merger Agreement not being fulfilled or which could
reasonably be expected to otherwise impede, interfere with,
delay, postpone or materially adversely affect the Cambium
Merger or the other transactions contemplated by the Merger
Agreement. The Subject Cambium Securities shall be deemed
present for purposes of a quorum at any meeting of the
stockholders of Cambium Holdings II at which the Cambium
Merger is voted upon.
Section 2. Irrevocable
Proxies.
(a) Membership Proxy. Concurrently
with the execution of this Agreement, Holdings III agrees
to execute and deliver to the Company a proxy, which is coupled
with an interest and shall be irrevocable to the fullest extent
permitted by law, with respect to the membership interests
referred to therein in the form attached hereto as
Exhibit A (the “Membership Proxy”),
which Membership Proxy shall remain in full force and effect
during the Term and will automatically be revoked upon
expiration of the Term.
(b) Cambium Holdings II
Proxy. Concurrently with the execution of
this Agreement, Holdings III agrees to execute and deliver
to the Company a proxy, which is coupled with an interest and
shall be irrevocable to the fullest extent permitted by law,
with respect to the shares referred to therein in the form
attached hereto as Exhibit B (the “Cambium
Holdings II Proxy”, and together with the
Membership Proxy, the “Proxies”), which Cambium
Holdings II Proxy shall remain in full force and effect
during the Term and will automatically be revoked upon
expiration of the Term.
Section 3. Covenants.
(a) Restriction on Transfer of Subject
Securities. Except pursuant to the terms of the
Merger Agreement, the Holdings III Merger Agreement and the
Holdings III Contribution Agreement, during the Term,
Holdings III shall not, directly or indirectly, cause or
permit any Transfer of any of the Subject Securities to be
effected. Any Transfer of any Subject Securities in violation of
this Section 3 shall be void and have no force or
effect.
(b) Restriction on Transfer of Voting Rights of Subject
Securities. During the Term, except as provided
in this Agreement Holdings III shall not: (i) grant
any proxy or power of attorney or enter into a voting agreement
or similar arrangement with respect to the Subject Securities
except to the extent such proxy, power of attorney, voting
agreement or similar arrangement is in favor of the Company or
its designee or (ii) deposit any of the Subject Securities
into a voting trust.
(c) Inconsistent
Agreements. Holdings III agrees, during the
Term, that it shall not enter into any agreement, proxy, voting
trust or other arrangement or understanding with any other
Person that would violate or prohibit the performance of this
Agreement.
Section 4. Representations,
Warranties and Covenants. Holdings III
hereby represents, warrants and covenants to the Company as
follows:
(a) Due Authorization,
Etc. Holdings III has legal capacity, power
and authority to enter into this Agreement and the Proxies. This
Agreement has been, and each Proxy when delivered will have
been, duly and validly executed and delivered by
Holdings III and constitute valid and binding agreements or
instruments of Holdings III enforceable in accordance with
their terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors’ rights generally
and subject to general principles of equity.
(b) No Conflict. The execution and
delivery of this Agreement and each Proxy by Holdings III
do not, and the performance of this Agreement and each Proxy by
Holdings III will not conflict with, violate or result in a
breach of or constitute (with or without notice or the passage
of time) a default (or give rise to any third party right of
termination, cancellation, material modification or
acceleration) under (i) the organizational documents of
Holdings III, if any, (ii) any law, rule, regulation,
order, decree or judgment applicable to Holdings III or the
Subject Securities held by Holdings III, or (iii) any
contract, indenture, guarantee, lease, mortgage, license or
other agreement, instrument, obligation or undertaking of any
kind to which Holdings III is a party or by which
Holdings III or any of its properties or assets are bound.
Except pursuant to this Agreement or otherwise in favor of the
Company, Holdings III has not, and shall not, grant any
proxy with respect to the Subject Securities.
(c) Title to Securities. As of the date
of this Agreement: (i) Holdings III Owns all of the
shares of Cambium Holdings II Common Stock indicated on
Schedule I hereto; (ii) Holdings III Owns
the LLC Interest indicated on Schedule I hereto; and
(iii) Holdings III does not directly or indirectly Own
any capital stock, membership interests or other securities of
Acquisition LLC or Cambium Holdings II, or any option, warrant
or right to acquire (by purchase, conversion or otherwise) any
capital stock, membership interests or other securities of
Acquisition LLC or Cambium Holdings II other than those
indicated on Schedule I hereto. Except as permitted
by this Agreement, the Holdings III Merger and the
Holdings III Contribution, the Subject Securities are now
and, at all times during the Term, the Subject Securities will
be, held by Holdings III or by a nominee or custodian for
the benefit of Holdings III, free and clear of all mortgages,
claims, charges, liens, security interests, pledges or options,
proxies, voting trusts or agreements, understandings or
arrangements or any other rights whatsoever.
(d) Reliance by the
Company. Holdings III understands and
acknowledges that the Company is entering into the Merger
Agreement in reliance upon Holdings III’s execution,
delivery and performance of this Agreement.
(e) Stop Transfer. Holdings III
hereby agrees and covenants that it will not request that
Acquisition LLC or Cambium Holdings II register the
Transfer of any certificate or uncertificated interest
representing any of the Subject Securities unless such Transfer
is made in compliance with this Agreement or in connection with
the Holdings III Merger Agreement or the Holdings III
Contribution Agreement, as the case may be. Holdings III
hereby acknowledges and agrees that Acquisition LLC or Cambium
Holdings II may instruct their respective transfer agent to
prohibit any Transfer during the Term of any certificate or
uncertificated interests representing any of the Subject
Securities Owned by Holdings III except to the extent
permitted by this Agreement or necessary to effect the
Holdings III Merger Agreement or the Holdings III
Contribution Agreement.
(f) Holdings III Contribution
Agreement. Simultaneously with the execution and
delivery of this Agreement Holdings III and Cambium
Holdings II have entered into the Holdings III
Contribution Agreement in the form attached as
Exhibit A-2
to the Merger Agreement.
Section 5. Waiver
of Appraisal Rights. Holdings III hereby
agrees not to exercise or assert, any rights of appraisal from
the Cambium Merger and the transactions contemplated by the
Merger Agreement that Holdings III may have.
Section 6. Further
Assurances. From time to time and without
additional consideration, Holdings III shall (at the
Company’s sole expense and without requiring
Holdings III to undertake any additional liability or
obligation or make any representation or warranty to any Person)
execute and deliver, or cause to be executed and delivered, such
additional confirmatory transfers, assignments, endorsements,
proxies, consents and other instruments, and shall (at the
Company’s sole expense) take such further actions (subject
to the limitations in this Section 6), as the
Company may reasonably request in writing for the purpose of
carrying out and furthering the intent of this Agreement.
Section 7. Certain
Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned
thereto in
Rule 12b-2
under the Exchange Act.
(b) “Cambium Holdings II Common
Stock” means the common stock, par value of $0.001 per
share, of Cambium Holdings II.
(c) “Exchange Act” means the Securities
Exchange Act of 1934, as amended.
(d) Holdings III shall be deemed to
“Own” or to have acquired
“Ownership” of a security if Holdings III, at
the time of determination, is the record owner of such security,
or is the “beneficial owner” of such security within
the meaning of
Rule 13d-3
under the Exchange Act.
(e) “LLC Interests” means the membership
interests of Acquisition LLC.
(f) “Person” means any
(i) individual, (ii) corporation, limited liability
company, partnership or other entity or (iii) Governmental
Authority.
(g) “Subject Acquisition Securities”
means: (i) all securities of Acquisition LLC (including all
LLC Interests and all rights to acquire LLC Interests) Owned by
Holdings III as of the date of this Agreement, whether
vested or unvested; and (ii) all additional securities of
Acquisition LLC (including all additional LLC Interests and all
additional rights to acquire LLC Interests), whether vested or
unvested, of which Holdings III acquires Ownership
(regardless of the method by which Holdings III acquires
Ownership) during the Term and (iii) any security of
Acquisition LLC issued with respect to the securities set forth
in clauses (i) or (ii) as a result of any dividend,
split-up,
recapitalization, combination, exchange of interests or the like.
(h) “Subject Cambium Holdings II
Securities” means: (i) all securities of Cambium
Holdings II (including all Cambium Holdings II Common
Stock and all rights to acquire Cambium Holdings II Common
Stock) Owned by Holdings III as of the date of this
Agreement, whether vested or unvested; and (ii) all
additional securities of Cambium Holdings II (including all
additional Cambium Holdings II Common Stock and all
additional rights to acquire Cambium Holdings II Common
Stock), whether vested or unvested, of which Holdings III
acquires Ownership (regardless of the method by which
Holdings III acquires Ownership) during the Term and
(iii) any security of Cambium Holdings II issued with
respect to the securities set forth in clauses (i) or
(ii) as a result of any dividend,
split-up,
recapitalization, combination, exchange of interests or the like.
(i) “Subject Securities” means the Subject
Acquisition Securities and the Subject Cambium Holdings II
Securities.
(j) “Term” shall mean from the date hereof
until the earlier to occur of (i) the Effective Time,
(ii) the termination of the Merger Agreement in accordance
with its terms, or (iii) the termination of this Agreement
upon mutual written agreement of the parties hereto.
(k) A Person shall be deemed to have effected a
“Transfer” of a security if such Person
directly or indirectly: (i) sells, pledges, assigns,
encumbers, transfers or disposes of (including by gift, merger
or operation of law), or grants an option, contract or other
arrangement or understanding with respect to such security or
any interest in such security to any Person other than Parent;
(ii) enters into an agreement or commit to do any of the
foregoing; (iii) enters into a hedging transaction or other
transaction which is designed to or which reasonably could be
expected to lead to or result in a sale or disposition of the
Subject Securities; (iv) establishes a “put equivalent
position” within the meaning of
Rule 16a-1(h)
under the Exchange Act or (v) commits, agrees or offers to
do any of the foregoing.
Section 8. Miscellaneous.
(a) Assignment; Binding Effect. Except as
provided herein, neither this Agreement nor any of the interests
or obligations hereunder may be assigned or delegated by
Holdings III, and any attempted or purported assignment or
delegation of any of such interests or obligations shall be
void. Subject to the preceding sentence, this Agreement shall be
binding upon Holdings III and Holdings III’s heirs,
estate, executors and personal representatives and Holdings
III’s successors and assigns. This Agreement shall inure
to the benefit of the Company and its successors and assigns.
Without limiting any of the restrictions set forth in
Section 3(a) or elsewhere in this Agreement, this
Agreement shall be binding upon any Person to whom any Subject
Securities Owned by Holdings III are transferred. Nothing
in this Agreement is intended to confer on any Person (other
than the Company and its successors and assigns) any rights or
remedies of any nature.
(b) Disclosure. Holdings III hereby
agrees to permit the Company to publish and disclose in the
Proxy Statement/Prospectus, and any press release or other
disclosure document which the Company reasonably determined to
be necessary or desirable in connection with the Mergers and any
transactions related thereto, Holdings III’s identity and
ownership of the Subject Securities and the nature of Holdings
III’s commitments, arrangements and understandings under
this Agreement.
(c) Specific Performance. The parties
agree that irreparable damage would occur in the event that any
provisions of this Agreement (excluding the provisions of
Section 1(a) and Section 2(a) and the
Membership Proxy) or the Cambium Holdings II Proxy were not
performed in accordance with its specific terms or were
otherwise breached and in the event of any breach or threatened
breach by Holdings III of any covenant or obligation
contained in any provisions of this Agreement (excluding the
provisions of Section 1(a) and
Section 2(a) and the Membership Proxy) or in the
Cambium Holdings II Proxy, the Company shall be entitled
(in addition to any other remedy that may be available to it,
including monetary damages but strictly as limited herein),
without the posting of any bond and without proof of actual
damages, to seek (x) a decree or order of specific
performance to enforce the observance and performance of such
covenant or obligation contained in this Agreement (excluding
the provisions of Section 1(a) and
Section 2(a) and the Membership Proxy) or in the
Cambium Holdings II Proxy, solely to the extent set forth
in this Agreement (excluding the provisions of
Section 1(a) and Section 2(a) and the
Membership Proxy) and the Cambium Holdings II Proxy, and
(y) an injunction restraining such breach or threatened
breach of this Agreement (excluding the provisions of
Section 1(a) and Section 2(a) and the
Membership Proxy) and the Cambium Holdings II Proxy. For
avoidance of doubt, the Company’s right to seek specific
performance or an injunction under this Section 8(c)
shall exclude the right to seek specific performance or an
injunction of the obligations contained in
Section 1(a), Section 2(a) or the
Membership Proxy and nothing set forth in this Agreement shall
give the Company the right to seek specific performance or any
injunction to enforce any other Transaction Document.
(d) Limitation on
Damages. Notwithstanding anything to the contrary
contained herein, under no circumstances shall the aggregate
liability for money damages of Holdings III under this
Agreement exceed (i) $4,500,000 for any material and
willful breaches of representations and warranties made herein
or for failure to perform material covenants or obligations to
be performed pursuant to the terms hereof, or (ii) $625,000
for the payment of any reasonable and documented
out-of-pocket
costs and expenses (including reasonable and documented legal
fees and expenses) in connection with any action, including the
filing of any lawsuit or legal action, taken to collect payment
or force specific performance by Holdings III pursuant to
Section 8(c) of this Agreement.
(e) Amendment; Waiver; Remedies
Cumulative. Any provision of this Agreement may
be amended if, and only if, such amendment is in writing and
signed by each of the parties hereto. No failure on the part of
the Company to exercise any power, right, privilege or remedy
under this Agreement, and no delay on the part of the Company in
exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any
such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right,
privilege or remedy subject, however, to the limitations of
Section 8(c) and subject to the further limitation
that the Company shall not be entitled to monetary damages if
the Mergers shall have occurred. The Company shall not be deemed
to have waived any claim available to the Company, as the case
may be, arising out of this Agreement, or any power, right,
privilege or remedy of the Company under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and
delivered on behalf of the Company, as the case may be; and any
such waiver shall not be applicable or have any effect except in
the specific instance in which it is given. All rights and
remedies existing under this Agreement are cumulative to, and
not exclusive to, and not exclusive of, any rights or remedies
otherwise available.
(f) Governing Law. This Agreement and all
acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of
Delaware without giving effect to principles of conflicts or
choice of law.
(g) Counterparts. This Agreement may be
executed in two or more counterparts (including by facsimile),
each of which shall be deemed an original and all of which
together shall constitute one instrument.
(h) Entire Agreement. This Agreement and
any Proxy delivered in connection with this Agreement constitute
the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements,
representations and understandings (both written and oral)
between the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding
upon any party unless made in writing and signed by the party
against whom enforcement is sought.
(i) Notices. Any notice required or
permitted by this Agreement shall be in writing and shall be
deemed sufficient upon receipt, when delivered personally or by
courier, overnight delivery service or confirmed facsimile, or
two (2) business days after being deposited in the regular
mail as certified or registered mail (airmail if sent
internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party’s
address or facsimile number as set forth beneath such
party’s signature hereto, or as subsequently modified by
written notice.
(j) Severability. In the event that any
provision of this Agreement or the application thereof, becomes
or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement
will continue in full force and effect and the application of
such provision to other Persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties
hereto. The parties hereto further agree to replace such void or
unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or
unenforceable provision.
(k) Waiver of Jury Trial. EACH OF THE
COMPANY AND HOLDINGS III HEREBY IRREVOCABLY WAIVE AND COVENANT
THAT IT WILL NOT ASSERT THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENT OR ACTION RELATED HERETO OR THERETO.
(l) Descriptive Heading. The descriptive
headings used herein are for reference purposes only and will
not affect in any way the meaning or interpretation of this
Agreement.
VSS-Cambium Holdings III, LLC, a Delaware limited liability
company (“Holdings III”), hereby irrevocably
appoints each of Richard Surratt and Todd Buchardt
(collectively, the ‘‘Proxyholders”), as
the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and
exercise all voting and related rights expressly provided herein
and to act by written consent in lieu of any meeting (to the
full extent that the undersigned is entitled to do so) with
respect to (i) the outstanding membership interests of
VSS-Cambium Holdings III Acquisition, LLC, a Delaware
limited liability company (“Acquisition LLC”),
owned of record by Holdings III as of the date of this
Proxy, which interests are specified on the final page of this
Proxy, and (ii) any and all other membership interests of
Acquisition LLC which Holdings III may acquire on or after
the date hereof. The membership interests of the Company
referred to in clauses “(i)” and “(ii)” of
the immediately preceding sentence are collectively referred to
as the “LLC Interests”. Upon Holdings
III’s execution of this Proxy, any and all prior proxies
given by Holdings III with respect to any of the LLC
Interests are hereby revoked and Holdings III agrees not to
grant any subsequent proxies with respect to the LLC Interests
until such time as this Proxy is terminated in accordance with
its terms.
This Proxy is irrevocable, is coupled with an interest and is
granted pursuant to that certain Voting and Support Agreement of
even date herewith (the “Voting and Support
Agreement”), by and between Voyager Learning Company, a
Delaware corporation (the “Company”) and
Holdings III, and is granted in consideration of the Company
entering into that certain Agreement and Plan of Mergers, of
even date herewith, by and among the Company, Cambium Holdings,
Inc., a Delaware corporation (“Parent”), Vowel
Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent, VSS-Cambium Holdings II Corp., a
Delaware corporation, Consonant Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent, and Vowel
Representative, LLC, a Delaware limited liability company (the
“Merger Agreement”). As used herein, the term
‘‘Termination Date” means the earlier to
occur of (i) the effective time of the Holdings III
Merger, (ii) the termination of the Holdings III
Merger Agreement in accordance with its terms, and
(iii) the termination of the Voting and Support Agreement
upon mutual written agreement of the parties thereto. Unless
otherwise provided, other capitalized terms used but not defined
in this Agreement shall have the meaning given to such terms in
the Voting and Support Agreement.
Each of the Proxyholders named above is hereby authorized and
empowered by Holdings III, at any time on or before the
Termination Date, to act as Holdings III’s attorney and
proxy to act by written consent or vote the LLC Interests,
without regard to any instructions, written or otherwise, that
may be given by Holdings III with respect to such vote or
consent, at every annual, special or adjourned meeting of the
members of Acquisition LLC or pursuant to any action by written
consent in lieu of a meeting: (a) in favor of adoption of
the Holdings III Merger Proposals, (b) against any
other action, agreement or proposal that could reasonably be
expected to impede, interfere with, delay, postpone or
materially adversely affect the Holdings III Merger or the
other transactions contemplated by the Holdings III Merger
Agreement, and (c) against any action, agreement or
proposal that could reasonably be expected to impede, interfere
with, delay, postpone or materially adversely affect the Cambium
Holdings II Reorganization. The Proxyholders may not
exercise this Proxy on any other matter not referred to in this
Proxy, and Holdings III may vote the LLC Interests on all
other such matters.
This Proxy shall be binding upon the heirs, estate, executors,
personal representatives, successors and assigns of
Holdings III (including any transferee of any of the LLC
Interests).
VSS-Cambium Holdings III, LLC, a
Delaware limited liability company
Name: Scott J. Troeller
Title: President
Dated: June , 2009
Membership interests of Acquisition LLC
owned of record as of the date of this Proxy:
VSS-Cambium Holdings III, LLC, a Delaware limited liability
company (“Holdings III”) hereby irrevocably
appoints each of Richard Surratt and Todd Buchardt
(collectively, the ‘‘Proxyholders”), as
the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and
exercise all voting and related rights expressly provided herein
and to act by written consent in lieu of any meeting (to the
full extent that the undersigned is entitled to do so) with
respect to (i) the outstanding shares of VSS-Cambium
Holdings II Corp., a Delaware corporation (“Cambium
Holdings II”), owned of record by Holdings III as
of the date of this Proxy, which interests are specified on the
final page of this Proxy, and (ii) any and all other
capital stock of Cambium Holdings II which
Holdings III may acquire on or after the date hereof. The
capital stock of Cambium Holdings II referred to in clauses
“(i)” and “(ii)” of the immediately
preceding sentence are collectively referred to as the
“Cambium Holdings II Stock”. Upon Holdings
III’s execution of this Proxy, any and all prior proxies
given by Holdings III with respect to any of the Cambium
Holdings II Stock are hereby revoked and Holdings III
agrees not to grant any subsequent proxies with respect to the
Cambium Holdings II Stock until such time as this Proxy is
terminated in accordance with its terms.
This Proxy is irrevocable, is coupled with an interest and is
granted pursuant to that certain Voting and Support Agreements
of even date herewith (the “Voting and Support
Agreement”), by and between Voyager Learning Company, a
Delaware corporation (the “Company”) and
Holdings III, and is granted in consideration of the Company
entering into that certain Agreement and Plan of Mergers, dated
of even date herewith, by and among the Company, Cambium
Holdings, Inc., a Delaware corporation
(“Parent”), Vowel Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent, Cambium
Holdings II, Consonant Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Parent, and Vowel Representative,
LLC, a Delaware limited liability company (the “Merger
Agreement”). As used herein, the term
‘‘Termination Date” means the earlier to
occur of (i) the Effective Time, (ii) the termination
of the Merger Agreement in accordance with its terms, and
(iii) the termination of the Voting and Support Agreement
upon mutual written agreement of the parties thereto. Unless
otherwise provided, other capitalized terms used but not defined
in this Agreement shall have the meaning given to such terms in
the Merger Agreement.
Each of the Proxyholders named above is hereby authorized and
empowered by Holdings III, at any time on or before the
Termination Date, to act as Holdings III’s attorney and
proxy to act by written consent or vote the Cambium
Holdings II Stock, without regard to any instructions,
written or otherwise, that may be given by Holdings III
with respect to such vote or consent, at every annual, special
or adjourned meeting of the members of Cambium Holdings II
or pursuant to any action by written consent in lieu of a
meeting: (a) in favor of adoption of the Cambium Merger
Proposals (as defined in the Voting and Support Agreements), and
(b) against any action, agreement or proposal that could
reasonably be expected to result in any of the conditions to the
consummation of the Cambium Merger under the Merger Agreement
not being fulfilled or which could reasonably be expected to
otherwise impede, interfere with, delay, postpone or materially
adversely affect the Cambium Merger or the other transactions
contemplated by the Merger Agreement. The Proxyholders may not
exercise this Proxy on any other matter not referred to in this
Proxy, and Holdings III may vote the Cambium
Holdings II Stock on all other such matters.
This Proxy shall be binding upon the heirs, estate, executors,
personal representatives, successors and assigns of
Holdings III (including any transferee of any of the
Cambium Holdings II Stock).
VSS-Cambium Holdings III, LLC, a
Delaware limited liability company
Name: Scott J. Troeller
Title: President
Dated: June , 2009
Number of shares of Cambium Holdings II
owned of record as of the date of this Proxy:
This Voting and Support Agreement (“Agreement”)
is made and entered into as of June 20, 2009, by and among
Cambium Holdings, Inc., a Delaware corporation
(“Parent”), and the undersigned stockholder
(the “Stockholder”) of Voyager Learning
Company, a Delaware corporation (the
“Company”). Certain capitalized terms used in
this Agreement are defined in Section 8 hereof and
certain other capitalized terms used in this Agreement that are
not defined herein shall have the meaning given to such terms in
the Merger Agreement (as defined below).
RECITALS
WHEREAS, Stockholder is the holder of record or the
“beneficial owner” (within the meaning of
Rule 13d-3
under the Exchange Act) of certain common stock of the Company;
WHEREAS, concurrently with the execution and delivery of
this Agreement, Parent, Vowel Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent
(“Purchaser”), VSS-Cambium Holdings II
Corp., a Delaware corporation (“Cambium Holdings
II”), Consonant Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent
(“Cambium Merger Sub”), Vowel Representative,
LLC, a Delaware limited liability company (the
“Stockholders’ Representative”), and the
Company are entering into an Agreement and Plan of Mergers (the
“Merger Agreement”) which provides, upon the
terms and subject to the conditions set forth therein, for the
merger of Purchaser with and into the Company (the
“Voyager Merger”) and the merger of Cambium
Merger Sub with and into Cambium Holdings II (the
“Cambium Merger”, and together with the Voyager
Merger, the “Mergers”); and
WHEREAS, as a condition and inducement to Parent’s
willingness to enter into the Merger Agreement, the Stockholder
has agreed to execute, deliver and perform this Agreement.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement, intending
to be legally bound, agree, (except that, if more than one
Stockholder executes this agreement, each Stockholder agrees,
severally and not jointly) as follows:
Section 1.Agreement
to Vote Shares. During the Term, at any
meeting of the stockholders of the Company (or of the holders of
any class of stock of the Company’s capital stock) called
with respect to any of the following, and at every adjournment
or postponement thereof and in any action by written consent of
the stockholders of the Company in lieu of a meeting, with
respect to any of the following, the Stockholder shall vote or
consent with respect to the Subject Securities: (a) in
favor of adoption of the Merger Agreement and approval of the
Voyager Merger and the other actions contemplated by the Merger
Agreement (the “Merger Proposals”),
(b) against any Vowel Alternative Proposal or Vowel
Superior Proposal and (c) against any other action,
agreement or proposal that could reasonably be expected to
result in any of the conditions to the consummation of the
Voyager Merger under the Merger Agreement not being fulfilled or
which could reasonably be expected to otherwise impede,
interfere with, delay, postpone or materially adversely affect
the Voyager Merger or the other transactions contemplated by the
Merger Agreement. The Subject Securities shall be deemed present
for purposes of a quorum at any meeting of the stockholders of
Voyager at which the Voyager Merger is voted upon.
Section 2. Irrevocable
Proxy. Concurrently with the execution of
this Agreement, the Stockholder agrees to execute and deliver to
Parent a proxy, which is coupled with an interest and shall be
irrevocable to the fullest extent permitted by law, with respect
to the shares referred to therein in the form attached hereto as
Exhibit A (the “Proxy”), which
Proxy shall remain in full force and effect during the Term and
will automatically be revoked upon expiration of the Term.
(a) Restriction on Transfer of Subject
Securities. Except pursuant to the terms of the
Merger Agreement or otherwise provided in
Section 3(c) of this Agreement, during the Term, the
Stockholder shall not, directly or indirectly, cause or permit
any Transfer of any of the Subject Securities to be effected.
Any Transfer of any Subject Securities in violation of this
Section 3 shall be void and have no force or effect.
(b) Restriction on Transfer of Voting Rights of Subject
Securities. During the Term, except as provided
in this Agreement the Stockholder shall not: (i) grant any
proxy or power of attorney or enter into a voting agreement or
similar arrangement with respect to the Subject Securities
except to the extent such proxy, power of attorney, voting
agreement or similar arrangement is in favor of Parent or its
designee or (ii) deposit any of the Subject Securities into
a voting trust.
(c) Permitted Transfers of Subject
Securities.Section 3(a) shall not
prohibit a Transfer of Subject Securities by the Stockholder
(i) to any member of the Stockholder’s immediate
family, or to a trust, partnership or other entity formed for
the benefit of the Stockholder or any member of the
Stockholder’s immediate family, (ii) upon the death of
the Stockholder or (iii) to an Affiliate of the
Stockholder; provided, however, that a Transfer
referred to in this sentence shall be permitted only if, as a
precondition to such Transfer, the transferee (x) agrees in
a writing to be bound by the terms of this Agreement by
executing and delivering to Parent the Joinder attached as
Exhibit B hereto and (y) if prior to the
Effective Time, delivers a Proxy in the form attached hereto as
Exhibit A to Parent. The term
“Stockholder” shall include and also refer to any
Person to whom Subject Securities are Transferred.
(d) Inconsistent Agreements. The
Stockholder agrees, during the Term, that it shall not enter
into any agreement, proxy, voting trust or other arrangement or
understanding with any other Person that would violate or
prohibit the performance of, this Agreement.
(e) No-Solicitation. During the Term, the
Stockholder agrees not to, nor to permit any investment banker,
financial adviser, attorney, accountant or other representative
of the Stockholder to, directly or indirectly, engage in any
activity which would be prohibited by Section 5.3(a) of the
Merger Agreement if engaged in by the Company.
Section 4. Representations,
Warranties and Covenants of Stockholder. The
Stockholder hereby represents, warrants and covenants to Parent
and Purchaser as follows:
(a) Due Authorization, Etc. The
Stockholder has legal capacity, power and authority to enter
into this Agreement and the Proxy. This Agreement has been, and
each Proxy when delivered will have been, duly and validly
executed and delivered by the Stockholder and constitute valid
and binding agreements or instruments of the Stockholder
enforceable in accordance with their terms, except as the same
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating
to creditors’ rights generally and subject to general
principles of equity.
(b) No Conflict. The execution and
delivery of this Agreement and each Proxy by the Stockholder do
not, and the performance of this Agreement and the Proxy by the
Stockholder will not conflict with, violate or result in a
breach of or constitute (with or without notice or the passage
of time) a default (or give rise to any third party right of
termination, cancellation, material modification or
acceleration) under (i) the organizational documents of the
Stockholder, if any, (ii) any law, rule, regulation, order,
decree or judgment applicable to the Stockholder or the Subject
Securities held by the Stockholder, or (iii) any contract,
indenture, guarantee, lease, mortgage, license or other
agreement, instrument, obligation or undertaking of any kind to
which Stockholder is a party or by which the Stockholder or any
of its properties or assets are bound. Except pursuant to this
Agreement or otherwise in favor of Parent, the Stockholder has
not, and shall not, grant any proxy with respect to the Subject
Securities.
(c) Title to Securities. As of the date
of this Agreement: (i) the Stockholder Owns (and has the
sole right to vote and dispose of) all of the shares of Company
Common Stock indicated on Schedule I hereto;
(ii) the Stockholder Owns the options and the other rights
to acquire shares of Company Common Stock that are exercisable
for the number of shares of Company Common Stock indicated on
Schedule I
hereto, and (iii) the Stockholder does not directly or
indirectly Own any capital stock or other securities of the
Company, or any option, warrant or other right to acquire (by
purchase, conversion or otherwise) any capital stock or other
securities of the Company, other than the stock and options,
warrants and other rights set forth on Schedule I
hereto. Except as permitted by this Agreement the Subject
Securities are now and, at all times during the Term, the
Subject Securities will be, held by the Stockholder or by a
nominee or custodian for the benefit of the Stockholder, free
and clear of all mortgages, claims, charges, liens, security
interests, pledges or options, proxies, voting trusts or
agreements, understandings or arrangements or any other rights
whatsoever.
(d) Reliance by Parent and Purchaser. The
Stockholder understands and acknowledges that Parent and
Purchaser are entering into the Merger Agreement in reliance
upon the Stockholder’s execution, delivery and performance
of this Agreement.
(e) Stop Transfer. The Stockholder hereby
agrees and covenants that it will not request that the Company
register the Transfer of any certificate or uncertificated
interest representing any of the Subject Securities unless such
Transfer is made in compliance with this Agreement. The
Stockholder hereby acknowledges and agrees that the Company may
instruct its transfer agent to prohibit any Transfer during the
Term of any certificate or uncertificated interests representing
any of the Subject Securities Owned by the Stockholder except to
the extent permitted by this Agreement.
Section 5. Waiver
of Appraisal Rights. The Stockholder hereby
knowingly, voluntarily and intentionally waives, and agrees not
to exercise or assert, any rights of appraisal from the Voyager
Merger and the transactions contemplated by the Merger Agreement
that the Stockholder may have.
Section 6. Further
Assurances. From time to time and without
additional consideration, the Stockholder shall (at
Parent’s sole expense and without requiring the Stockholder
to undertake any additional liability or obligation or make any
representation or warranty to any Person) execute and deliver,
or cause to be executed and delivered, such additional
confirmatory transfers, assignments, endorsements, proxies,
consents and other instruments, and shall (at Parent’s sole
expense) take such further actions (subject to the limitations
in this Section 6), as Parent may reasonably request in
writing for the purpose of carrying out and furthering the
intent of this Agreement.
Section 7. Appointment
of Stockholders’ Representative.
(a) Appointment. The Stockholder
irrevocably makes, constitutes and appoints the
Stockholders’ Representative as its agent, attorney-in-fact
and representative and authorizes and empowers it to fulfill the
role of the Stockholders’ Representative as set forth in
the Merger Agreement, which appointment shall be irrevocable and
coupled with an interest. The Stockholder acknowledges and
agrees that the member
and/or
manager of the Stockholders’ Representative may be removed,
replaced
and/or
substituted at any time or from time to time after the date
hereof without any consent or approval by, any party hereto,
subject only to the requisite approval of the Vowel Stockholders.
(b) Authority. The Stockholder hereby
irrevocably grants the Stockholders’ Representative full
power and authority on its behalf to take the actions after the
Closing Date set forth immediately below:
(i) to enforce (1) any Post-Closing Obligations of
Parent, Cambium Holdings II or their respective
Subsidiaries pursuant to the Merger Agreement and (2) any
obligations under the Escrow Agreement, the Contingent Value
Right Agreement, the Security Agreement, the VSS Limited
Guarantee, or any other Transaction Documents to the extent such
other Transaction Documents expressly provide rights or benefits
to the Stockholders’ Representative or to the Stockholder
or any other Vowel Stockholder after the Closing;
(ii) to negotiate and compromise, on behalf of the
Stockholder, any dispute that may arise under, and to exercise
or refrain from exercising any remedies available under, the
agreements and obligations contemplated in
Section 7(b)(i), and to execute, on behalf of the
Stockholder, any settlement agreement, release or other document
with respect to such dispute or remedy;
(iii) to engage attorneys, accountants and agents at the
expense of and on behalf of the Stockholder and the other Vowel
Stockholders;
(iv) to give and receive notice or other communications on
behalf of the Stockholder;
(v) to receive all or any portion of amounts in the Escrow
Account to fund: (1) the payment of reasonable costs and
expenses (including without limitation any insurance
contemplated by clause (iv)(2)) of the Stockholders’
Representative incurred in connection with the performance of
its duties or the taking of any action contemplated in this
Section 7(d); and (2) the purchase of any insurance or
similar products that are reasonably necessary to provide
indemnification to the Stockholders’ Representative as
contemplated in Section 7(d);
and/or
(3) any reasonable compensation payable to the
Stockholders’ Representative for performing its services in
accordance with this Agreement and any applicable Transaction
Document; and
(vi) To take any and all other actions incidental to, or as
are otherwise necessary or appropriate to, carry out the duties
of the Stockholders’ Representative contemplated in this
Agreement or the Merger Agreement, or of the secured party as
contemplated by the Security Agreement.
Notwithstanding the foregoing, the Stockholders’
Representative shall have no authority to enforce the rights of
any employee or other Person in such Person’s capacity as a
beneficiary of any of the plans or amounts set forth in
Schedule 5.24 to the Merger Agreement.
(c) Reliance. The Stockholder irrevocably
agrees that:
(i) in all matters in which action by the
Stockholders’ Representative is required or permitted, the
Stockholders’ Representative is authorized to act on behalf
of the Stockholder, notwithstanding any dispute or disagreement
among the Stockholder and any other Vowel Stockholder or between
the Stockholder, any other Vowel Stockholder and the
Stockholders’ Representative, and Parent and its
Subsidiaries, and the VSS Funds, shall be entitled to rely on
any and all action taken by the Stockholders’
Representative under this Agreement or the Merger Agreement
without any liability to, or obligation to inquire of, the
Stockholder or any of the other Vowel Stockholders,
notwithstanding any knowledge on the part of Parent or Cambium
Holdings II of any such dispute or disagreement;
(ii) any notice to the Stockholders’ Representative
must be given to the Stockholders’ Representative in the
manner provided in Section 9.3 of the Merger Agreement, and
such notice shall be deemed to be notice to the Stockholder for
the purposes of this Agreement;
(iii) the power and authority of the Stockholders’
Representative, as described in this Agreement, shall continue
in force until all rights of the Vowel Stockholders under the
agreements contemplated in Section 7(b)(i) shall
have terminated, expired or been fully performed; and
(iv) a majority in interest of the Vowel Stockholders shall
have the right, exercisable from time to time upon written
notice delivered to the Stockholders’ Representative and
Holdco, as applicable: (1) to remove the Stockholders’
Representative, with or without cause, and (2) to appoint a
Stockholders’ Representative to fill a vacancy caused by
the resignation or removal of the Stockholders’
Representative.
(d) Indemnification. The Stockholder
shall severally indemnify the Stockholders’ Representative
and each of its members or managers against any Liabilities of
any kind or nature whatsoever (except such as result from
willful misconduct by such person) that the Stockholders’
Representative may suffer or incur in connection with any action
or omission of such member as a member of the Stockholders’
Representative. The Liabilities contemplated in this
Section 7(d) shall be satisfied exclusively out of
the Escrow Account, net of any insurance proceeds actually
received by the Stockholders’ Representative (after taking
into account any deductibles, retention amounts
and/or any
costs or expenses incurred in obtaining such insurance
proceeds). The Stockholder acknowledges and agrees that the
Stockholders’ Representative shall not be liable to the
Stockholder or any other Vowel Stockholder for any Liabilities
(except such Liabilities as result from the Stockholders’
Representative’s gross negligence or willful misconduct)
with respect to any action or omission taken or omitted to be
taken by the Stockholders’ Representative pursuant to this
Section 7.
Section 8. Certain
Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned
thereto in
Rule 12b-2
under the Exchange Act.
(b) “Company Common Stock” means the
common stock, par value $0.001 per share, of the Company.
(c) “Exchange Act” means the Securities
Exchange Act of 1934, as amended.
(d) The Stockholder shall be deemed to
“Own” or to have acquired
“Ownership” of a security if the Stockholder,
at the time of determination, is the record owner of such
security, or is the “beneficial owner” of such
security within the meaning of
Rule 13d-3
under the Exchange Act.
(e) “Person” means any
(i) individual, (ii) corporation, limited liability
company, partnership or other entity or (iii) Governmental
Authority.
(f) “Subject Securities” means:
(i) all securities of the Company (including all Company
Common Stock and all options, warrants and other rights to
acquire Company Common Stock) Owned by the Stockholder as of the
date of this Agreement, whether vested or unvested; and
(ii) all additional securities of the Company (including
all additional Company Common Stock and all additional options,
warrants and other rights to acquire Company Common Stock),
whether vested or unvested, of which the Stockholder acquires
Ownership (regardless of the method by which Stockholders
acquire Ownership) during the Term and (iii) any security
of the Company issued with respect to the securities set forth
in clauses (i) or (ii) as a result of any stock
dividend,
split-up,
recapitalization, combination, exchange of stock or the like.
(g) “Term” shall mean from the date hereof
until the earlier to occur of (i) the Effective Time,
(ii) the termination of the Merger Agreement in accordance
with its terms, or (iii) the termination of this Agreement
upon mutual written agreement of the parties hereto.
(h) A Person shall be deemed to have effected a
“Transfer” of a security if such Person
directly or indirectly: (i) sells, pledges, assigns,
encumbers, transfers or disposes of (including by gift, merger
or operation of law), or grants an option, contract or other
arrangement or understanding with respect to such security or
any interest in such security to any Person other than Parent;
(ii) enters into an agreement or commit to do any of the
foregoing; (iii) enters into a hedging transaction or other
transaction which is designed to or which reasonably could be
expected to lead to or result in a sale or disposition of the
Subject Securities; (iv) establishes a “put equivalent
position” within the meaning of
Rule 16a-1(h)
under the Exchange Act or (v) commits, agrees or offers to
do any of the foregoing.
Section 9. Miscellaneous.
(a) Assignment; Binding Effect. Except as
provided herein, neither this Agreement nor any of the interests
or obligations hereunder may be assigned or delegated by the
Stockholder, and any attempted or purported assignment or
delegation of any of such interests or obligations shall be
void. Subject to the preceding sentence, this Agreement shall be
binding upon the Stockholder and the Stockholder’s heirs,
estate, executors and personal representatives and the
Stockholder’s successors and assigns. This Agreement shall
inure to the benefit of Parent and its successors and assigns.
Without limiting any of the restrictions set forth in
Section 3(a) or elsewhere in this Agreement, this
Agreement shall be binding upon any Person to whom any Subject
Securities Owned by the Stockholder are transferred. Nothing in
this Agreement is intended to confer on any Person (other than
Parent and its successors and assigns) any rights or remedies of
any nature.
(b) Disclosure. The Stockholder hereby
agrees to permit Parent to publish and disclose in the Proxy
Statement/Prospectus, and any press release or other disclosure
document which Parent reasonably determine to be necessary or
desirable in connection with the Mergers and any transactions
related thereto, the Stockholder’s identity and ownership
of the Subject Shares and the nature of the Stockholder’s
commitments, arrangements and understandings under this
Agreement.
(c) Specific Performance. The parties
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement or any Proxy were not
performed in accordance with its specific terms or were
otherwise breached and in the event of any breach or threatened
breach by the Stockholder of any covenant or obligation
contained in this Agreement or in any Proxy, Parent shall be
entitled (in addition to any
other remedy that may be available to it, including monetary
damages but strictly as limited herein), without the posting of
any bond and without proof of actual damages, to seek (x) a
decree or order of specific performance to enforce the
observance and performance of such covenant or obligation, and
(y) an injunction restraining such breach or threatened
breach.
(d) Limitation on
Damages. Notwithstanding anything to the contrary
contained herein, under no circumstances shall the aggregate
liability for money damages of all the Vowel Stockholders party
to Voting and Support Agreements of even date herewith exceed
(i) the lesser of (A) the value of the Subject
Securities held by such Vowel Stockholders and
(B) $4,500,000 for any material and willful breaches of
representations and warranties made herein or for failure to
perform material covenants or obligations to be performed
pursuant to the terms hereof, or (ii) $625,000 for the
payment of any reasonable and documented
out-of-pocket
costs and expenses (including reasonable and documented legal
fees and expenses) in connection with any action, including the
filing of any lawsuit or legal action, taken to collect payment
or force specific performance by such Vowel Stockholders, and
any such liability shall be apportioned on a several basis.
(e) Amendment; Waiver; Remedies
Cumulative. Any provision of this Agreement may
be amended if, and only if, such amendment is in writing and
signed by each of the parties hereto. No failure on the part of
Parent or Purchaser to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of Parent
or Purchaser in exercising any power, right, privilege or remedy
under this Agreement, shall operate as a waiver of such power,
right, privilege or remedy; and no single or partial exercise of
any such power, right, privilege or remedy shall preclude any
other or further exercise thereof or of any other power, right,
privilege or remedy subject, however, to the limitations of
Section 9(d) and subject to the further limitation that
neither Parent nor Purchaser shall be entitled to monetary
damages if the Mergers shall have occurred. Neither Parent nor
Purchaser shall be deemed to have waived any claim available to
Parent or Purchaser, as the case may be, arising out of this
Agreement, or any power, right, privilege or remedy of Parent
under this Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of Parent or
Purchaser, as the case may be; and any such waiver shall not be
applicable or have any effect except in the specific instance in
which it is given. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not
exclusive of, any rights or remedies otherwise available.
(f) Governing Law. This Agreement and all
acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of
Delaware without giving effect to principles of conflicts or
choice of law.
(g) Counterparts. This Agreement may be
executed in two or more counterparts (including by facsimile),
each of which shall be deemed an original and all of which
together shall constitute one instrument.
(h) Entire Agreement. This Agreement and
any Proxy delivered in connection with this Agreement constitute
the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements,
representations and understandings (both written and oral)
between the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding
upon any party unless made in writing and signed by the party
against whom enforcement is sought.
(i) Notices. Any notice required or
permitted by this Agreement shall be in writing and shall be
deemed sufficient upon receipt, when delivered personally or by
courier, overnight delivery service or confirmed facsimile, or
two (2) business days after being deposited in the regular
mail as certified or registered mail (airmail if sent
internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party’s
address or facsimile number as set forth beneath such
party’s signature hereto, or as subsequently modified by
written notice.
(j) Severability. In the event that any
provision of this Agreement or the application thereof, becomes
or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement
will continue in full force and effect and the application of
such provision to other Persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties
hereto. The parties hereto further agree to replace such void or
unenforceable provision of this Agreement with a valid and
enforceable
provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or
unenforceable provision.
(k) Waiver of Jury Trial. EACH OF PARENT
AND THE STOCKHOLDER HEREBY IRREVOCABLY WAIVE AND COVENANT THAT
IT WILL NOT ASSERT THE RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENT OR ACTION RELATED HERETO OR THERETO.
(l) No Limitation on Actions of Stockholder as
Director. Notwithstanding anything in this
Agreement to the contrary, if the Stockholder or any of its
representatives is a member of the board of directors of the
Company, nothing in this Agreement is intended or shall be
construed to require the Stockholder or such representative to
take any action, or limit any action the Stockholder or such
representative may take, to the extent that doing so would be
inconsistent with the Stockholder’s or such
representative’s fiduciary duties as a director of the
Company. Notwithstanding anything in this Agreement to the
contrary, the Stockholder makes no agreement or understanding
herein in any capacity other than in the Stockholder’s
capacity as Owner of the Subject Securities.
(m) Descriptive Heading. The descriptive
headings used herein are for reference purposes only and will
not affect in any way the meaning or interpretation of this
Agreement.
The undersigned stockholder (the “Stockholder”)
of Voyager Learning Company, a Delaware corporation (the
“Company”), hereby irrevocably appoints each of
Scott J. Troeller and Eric Van Ert (collectively, the
Proxyholders), as the sole and exclusive attorneys and proxies
of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related
rights expressly provided herein and to act by written consent
in lieu of any meeting (to the full extent that the undersigned
is entitled to do so) with respect to (i) the outstanding
capital stock of the Company owned of record by the Stockholder
as of the date of this Proxy, which shares are specified on the
final page of this Proxy, and (ii) any and all other
capital stock of the Company which the Stockholder may acquire
on or after the date hereof. The capital stock of the Company
referred to in clauses “(i)” and “(ii)” of
the immediately preceding sentence are collectively referred to
as the “Shares”. Upon the undersigned’s
execution of this Proxy, any and all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies
with respect to the Shares until such time as this Proxy is
terminated in accordance with its terms.
This Proxy is irrevocable, is coupled with an interest and is
granted pursuant to that certain Voting and Support Agreement of
even date herewith (the “Voting and Support
Agreement”), by and between Cambium Holdings, Inc., a
Delaware corporation (“Parent”) and the
Stockholder, and is granted in consideration of Parent entering
into that certain Agreement and Plan of Mergers, of even date
herewith, by and among the Company, Parent, Vowel Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of
Parent, VSS-Cambium Holdings II Corp., a Delaware
corporation and Consonant Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent (the
“Merger Agreement”). As used herein, the term
“Termination Date” means the earlier to occur
of (i) the Effective Time, (ii) the termination of the
Merger Agreement in accordance with its terms, and
(iii) the termination of the Voting and Support Agreement
upon mutual written agreement of the parties thereto. Unless
otherwise provided, other capitalized terms used but not defined
in this Agreement shall have the meaning given to such terms in
the Merger Agreement.
Each of the Proxyholders named above is hereby authorized and
empowered by the undersigned, at any time on or before the
Termination Date, to act as the undersigned’s attorney and
proxy to act by written consent or vote the Shares, without
regard to any instructions, written or otherwise, that may be
given by the undersigned with respect to such vote or consent,
at every annual, special or adjourned meeting of the
stockholders of the Company or pursuant to any action by written
consent in lieu of a meeting: (a) in favor of adoption of
the Merger Proposals (as defined in the Voting and Support
Agreement), (b) against any Vowel Alternative Proposal or
Vowel Superior Proposal and (c) against any other action,
agreement or proposal that could reasonably be expected to
result in any of the conditions to the consummation of the
Voyager Merger under the Merger Agreement not being fulfilled or
which could reasonably be expected to otherwise impede,
interfere with, delay, postpone or materially adversely affect
the Voyager Merger or the other transactions contemplated by the
Merger Agreement. The Proxyholders may not exercise this Proxy
on any other matter not referred to in this Proxy, and the
Stockholder may vote the Shares on all other such matters.
This Proxy shall be binding upon the heirs, estate, executors,
personal representatives, successors and assigns of the
Stockholder (including any transferee of any of the Shares).
(Signature of Stockholder)
Dated: June , 2009
(Print Name of Stockholder)
Number of common stock of the Company owned of record as of the
date of this Proxy:
Pursuant to Section 3.3(c) of that certain Voting
and Support Agreement dated as of June 20, 2009 (the
“Voting Agreement”) by and among Cambium
Holdings, Inc.
and
(the “Transferring Stockholder”), upon
execution and delivery this joinder agreement to Parent and its
acceptance thereof by Parent, the undersigned hereby agrees and
acknowledges that the undersigned is a “Stockholder”
as defined in the Voting Agreement, and hereby agrees with
respect to itself and its Subject Securities to be bound by the
terms and conditions and subject to the obligations of, the
Voting Agreement as a “Stockholder” thereunder, and
agrees to execute and deliver a Proxy in the form attached as
Exhibit A to the Voting Agreement. The undersigned further
certifies that the representations and warranties made by the
Stockholder in Section 4 of the Voting Agreement are
true, correct and complete as if made by the undersigned on the
date hereof.
This CONTINGENT VALUE RIGHTS AGREEMENT, dated as of
[ ], 2009 (this
“Agreement”), is entered into by and among
Cambium-Voyager Holdings, Inc. (formerly known as Cambium
Holdings, Inc.), a Delaware corporation
(“Holdco”), Vowel Representative, LLC, a
Delaware limited liability company, solely in its capacity as
stockholders’ representative (in such capacity, the
“Stockholders’ Representative”), and Wells
Fargo Bank, National Association, as rights agent (the
“Rights Agent”) and as initial CVR Registrar
(as defined herein).
WITNESSETH:
WHEREAS, Holdco, Voyager Learning Company, a Delaware
corporation (“Vowel”), VSS-Cambium
Holdings II Corp., a Delaware corporation, Vowel
Acquisition Corp. (“Vowel Merger Sub”),
Consonant Acquisition Corp. (“Consonant Merger
Sub”), each, a Delaware corporation and wholly-owned
subsidiary of Holdco, and the Stockholders’ Representative,
have entered into an Agreement and Plan of Mergers (as the same
may be amended, modified or supplemented from time to time, the
“Merger Agreement”), dated as of June 20,2009, pursuant to which, among other things, Vowel Merger Sub
will merge with and into Vowel (the “Vowel
Merger”), with Vowel surviving the Vowel Merger, as a
wholly-owned subsidiary of Holdco, and Consonant Merger Sub will
merge with and into Consonant (the “Consonant
Merger”), with Consonant surviving the Consonant
Merger, as a wholly-owned subsidiary of Holdco;
WHEREAS, pursuant to the Merger Agreement, Holdco agreed
to create and issue to holders of record of shares of
Vowel’s common stock, par value $0.001 per share
(“Vowel Common Stock”), outstanding immediately
prior to the effective time of the Vowel Merger (the
“Effective Time”), contingent value rights as
hereinafter described;
WHEREAS, each holder of Vowel Common Stock immediately
prior to the Effective Time, will receive, among other things,
as merger consideration, the right to receive upon the Effective
Time one contingent value right for each share of Vowel Common
Stock held by such Person (as defined in below) immediately
prior to the Effective Time; and
WHEREAS, the parties have done all things necessary to
make the contingent value rights, when issued pursuant to the
Merger Agreement and hereunder, the valid obligations of Holdco
and to make this Agreement a valid and binding agreement of
Holdco, in accordance with its terms.
WHEREAS, the parties hereto acknowledge that the Rights
Agent is not party to, is not bound by, and has no duties or
obligations under, the Merger Agreement, that all references in
this Agreement to the Merger Agreement are for convenience, and
that the Rights Agent shall have no implied duties beyond the
express duties set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises
and the consummation of the transactions referred to above, it
is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders (as hereinafter defined),
as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
(a) For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the terms defined in this Article I have
the meanings assigned to them in this Article I, and
include the plural as well as the singular;
(ii) all accounting terms used herein and not expressly
defined herein shall have the meanings assigned to such terms in
accordance with United States generally accepted accounting
principles, as in effect on the date hereof;
(iii) the words “herein,”“hereof” and
“hereunder” and other words of similar import refer to
this Agreement as a whole and not to any particular Article,
Section or other subdivision;
(iv) unless the context otherwise requires, words
describing the singular number shall include the plural and vice
versa, words denoting any gender shall include all genders and
words denoting natural Persons shall include corporations,
partnerships and other Persons and vice versa; and
(v) all references to “including” shall be deemed
to mean including without limitation.
(b) Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed thereto in the Merger
Agreement. The following terms shall have the meanings ascribed
to them as follows:
“280G Returned Amount” has the meaning
set forth in the Escrow Agreement.
“280G Termination Date” has the meaning
set forth in the Escrow Agreement.
“Board of Directors” means the board of
directors of Holdco.
“Board Resolution” means a copy of a
resolution certified by the secretary or an assistant secretary
of Holdco to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such
certification, and delivered to the Rights Agent.
“Business Day” means any day that is not
a Saturday, Sunday, legal holiday or other day on which
commercial banks in New York, New York are authorized or
required by Law to close.
“Code” means the U.S. Internal
Revenue Code of 1986, as amended, including any successor
provisions and transition rules, whether or not codified.
“CVR Escrow Fund” has the meaning
ascribed thereto in the Escrow Agreement.
“CVR Payment Amount” means any of the
First CVR Payment Amount, the Second CVR Payment Amount, the
280G Returned Amount, or the Subsequent CVR Payment Amount, as
applicable, or any other amounts paid to the Rights Agent by the
Escrow Agent under the Escrow Agreement.
“CVR Payment Date” means, with respect
to a CVR Payment Amount, the date that the Rights Agent pays
such CVR Payment Amount pursuant to Section 2.4.
“CVR Payment Event Date” means any of
the First CVR Payment Event Date, the Second CVR Payment Event
Date, the Subsequent CVR Payment Event Date, the 280G
Termination Date, or such other date a CVR Payment Amount is
received by the Rights Agent, as applicable.
“CVR Register” has the meaning set forth
in Section 2.3(b).
“CVR Registrar” has the meaning set
forth in Section 2.3(b).
“CVRs” means the contingent value rights
issued by Holdco pursuant to the Merger Agreement and this
Agreement.
“Effective Time” has the meaning set
forth in the Recitals.
“Escrow Agent” Wells Fargo Bank,
National Association, in its capacity as escrow agent under the
Escrow Agreement (or any successor escrow agent thereunder).
“Escrow Agreement” means that certain
Escrow Agreement, dated as [ ],
2009, entered into by and among the Escrow Agent, the
Stockholders’ Representative, Holdco, and Richard Surratt,
as the same may be amended, supplemented or otherwise modified
from time to time in accordance with its terms.
“Escrow Funds” has the meaning set forth
in the Escrow Agreement.
“First CVR Payment Amount” means the
amount, if any, received from the Escrow Agent in respect of the
First CVR Payment Amount (as defined in the Escrow Agreement).
“First CVR Payment Event Date” has the
meaning set forth in the Escrow Agreement.
“Governmental Authority” means any
government, state, province or other political subdivision
thereof, any entity exercising executive, legislative, judicial,
regulatory or administration functions of or pertaining to
government, or any government authority, agency, department,
board, tribunal, commission or instrumentality of the United
State of America, any foreign government, any state of the
United States of America, or any municipality or other political
subdivision thereof, and any court, tribunal or arbitrators of
competent jurisdiction, and any governmental or non governmental
self regulatory organization, agency or authority.
“Holder” means a Person in whose name a
CVR is registered in the CVR Register.
“Officer’s Certificate” means a
certificate signed by the chief executive officer, president,
chief financial officer, any vice president, the controller, the
treasurer or the secretary, in each case of Holdco, in his or
her capacity as such an officer, and delivered to the Rights
Agent.
“Permitted Transfer” means: (i) the
transfer of any or all of the CVRs (upon the death of the
Holder) by will or intestacy; (ii) transfer by instrument
to an inter vivos or testamentary trust in which the CVRs are to
be passed to beneficiaries upon the death of the trustee;
(iii) transfers made pursuant to a court order of a court
of competent jurisdiction (such as in connection with divorce,
bankruptcy or liquidation); (iv) if the Holder is a
partnership or limited liability company, a distribution by the
transferring partnership or limited liability company to its
partners or members, as applicable; or (v) a transfer made
by operation of law (including a consolidation or merger) or in
connection with the dissolution, liquidation or termination of
any corporation, limited liability company, partnership or other
entity.
“Person” means an individual,
corporation, partnership, limited liability company,
association, trust, unincorporated organization, or other entity
or any Governmental Authority.
“Pro Rata Share” means, with respect to
any Holder as of a given CVR Payment Event Date, the quotient of
the (x) sum of all of the CVRs held of record by such
Holder on such date dividedby (y) the total
number of CVRs outstanding as of such date.
“Rights Agent” means the Rights Agent
named in the first paragraph of this Agreement, until a
successor Rights Agent shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter
“Rights Agent” shall mean such successor Rights Agent.
“Rights Agent Costs” means the costs and
expenses for which the Rights Agent is due reimbursement under
Section 3.2 and the Rights Agent Fee.
“Rights Agent Fee” means the fee of the
Rights Agent to act in such capacity pursuant to the terms of
this Agreement as set forth on Schedule 1 hereto.
“Rights Agent Initial Payment” means the
costs and expenses reasonably incurred and invoiced by the
Rights Agent prior to the Effective Time in connection with the
negotiation of this Agreement and any other reasonable costs and
expenses incurred by the Rights Agent in connection herewith
prior to the Effective Time.
“Second CVR Payment Amount” means the
amount, if any, received from the Escrow Agent in respect of the
Second CVR Payment Amount (as defined in the Escrow Agreement).
“Second CVR Payment Event Date” has the
meaning set forth in the Escrow Agreement.
“Stockholders’ Representative” has
the meaning set forth in the Preamble.
“Subsequent CVR Payment Amount” means
the amount, if any, received from the Escrow Agent in respect of
the Subsequent CVR Payment Amount (as defined in the Escrow
Agreement).
“Subsequent CVR Payment Event Date”
means the date on which a Subsequent CVR Payment Amount is paid
to the Rights Agent.
“Subsidiary” means any corporation,
partnership, joint venture or other legal entity of which any
Person (either alone or through or together with an other
Subsidiary), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other
legal entity.
“Surviving Person” has the meaning set
forth in Section 6.1(a)(i).
“Tax” means any and all taxes payable to
any federal, state, local or foreign taxing authority or agency,
including (a) income, franchise, profits, gross receipts,
minimum, alternative minimum, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment,
social security, workers compensation, unemployment, utility,
severance, excise, stamp, windfall profits, transfer or other
tax of any kind whatsoever, (b) interest thereon and
(c) penalties and additions to tax imposed with respect
thereto.
ARTICLE II
CONTINGENT
VALUE RIGHTS
Section 2.1 Issuance
of CVRs; Appointment of Rights Agent.
(a) The CVRs shall be issued pursuant to the Merger
Agreement at the time and in the manner set forth in the Merger
Agreement. The Registrar and Administration of the CVRs shall be
handled pursuant to this Agreement in the manner set forth in
this Agreement.
(b) Holdco hereby appoints Wells Fargo Bank, National
Association as the Rights Agent to act as rights agent for
Holdco in accordance with the instructions hereinafter set forth
in this Agreement, and the Rights Agent hereby accepts such
appointment.
Section 2.2 Nontransferable.
The CVRs shall not be sold, assigned, transferred, pledged,
encumbered or in any other manner transferred or disposed of, in
whole or in part, other than through a Permitted Transfer.
Section 2.3 No
Certificate; Registration; Registration of Transfer; Change of
Address.
(a) The CVRs shall not be evidenced by a certificate or
other instrument.
(b) The Rights Agent shall keep a register (the
“CVR Register”) for the registration of CVRs in
a book-entry position for each CVR Holder. The CVR Register
shall set forth the name and address of each Holder, and the
number of CVRs held by such Holder and Tax Identification Number
of each Holder. Each of Holdco and the Stockholders’
Representative may receive and inspect a copy of the CVR
Register, from time to time, upon written request made to the
CVR Registrar. Within five (5) Business Days after receipt
of such request, the CVR Registrar shall deliver a copy of the
CVR Registrar, as then in effect, to Holdco and the
Stockholders’ Representative at the address set forth in
Section 7.1. The Rights Agent is hereby initially
appointed “CVR Registrar” for the purpose of
registering CVRs and transfers of CVRs as herein provided.
(c) Subject to the restriction on transferability set forth
in Section 2.2, every request made to transfer a CVR
must be in writing and accompanied by a written instrument or
instruments of transfer and any other requested documentation in
form reasonably satisfactory to Holdco and the CVR Registrar,
duly executed by the registered Holder or Holders thereof or by
the duly appointed legal representative thereof or by a duly
authorized attorney, such signature to be guaranteed by a
participant in a recognized Signature Guarantee Medallion
Program. A request for a transfer of a CVR shall be accompanied
by such documentation establishing satisfaction that the
transfer is a Permitted Transfer as may be reasonably requested
by Holdco and the CVR Registrar (including opinions of counsel,
if appropriate). Upon receipt of such written notice, the CVR
Registrar shall, subject to its reasonable determination that
the transfer instrument is in proper form and the transfer
otherwise complies with the other terms and conditions herein,
register the transfer of the CVRs in
the CVR Register. All duly transferred CVRs registered in the
CVR Register shall be the valid obligations of Holdco,
evidencing the same rights and entitling the transferee to the
same benefits and rights under this Agreement as those held by
the transferor. No transfer of a CVR shall be valid until
registered in the CVR Register, and any transfer not duly
registered in the CVR Register will be void ab initio. Any
transfer or assignment of the CVRs shall be without charge
(other than the cost of any transfer Tax which shall be the
responsibility of the transferor) to the Holder.
(d) A Holder may make a written request to the CVR
Registrar to change such Holder’s address of record in the
CVR Register. The written request must be duly executed by the
Holder. Upon receipt of such written notice, the CVR Registrar
shall promptly record the change of address in the CVR Register.
(e) The Stockholders’ Representative may make a
written request to the Rights Agent for a list containing the
names, addresses and number of CVRs of the Holders that are
registered in the CVR Register. Within five (5) Business
Days following the date of receipt by the Rights Agent of such
request, the CVR Registrar shall deliver a copy of such list to
the Stockholders’ Representative.
Section 2.4 Payment
Procedures.
(a) Within five (5) Business Days after its receipt of
any CVR Payment Amount, the Rights Agent shall deliver to each
Holder its Pro Rata Share of the applicable CVR Payment Amount
based on the number of CVRs held by such Holder at the close of
business as reflected on the CVR Register on the applicable CVR
Payment Event Date (x) by check mailed to the address of
each Holder (or any successor or permitted transferee or
assignee thereof) as reflected in the CVR Register as of the
close of business on the day that is two (2) Business Days
prior to the date that the Rights Agent performs its obligations
under this Section 2.4, or, (y) with respect to
any Holder that is due payment pursuant to this Agreement in
excess of $1,000,000 whose bank information has been provided to
the Escrow Agent within Payment Notices (as defined in the
Escrow Agreement) delivered by the Stockholder’s
Representative with wire transfer instructions on or prior to
the date referred to in immediately preceding clause (x)
above, by wire transfer of immediately available funds to such
account. Subsequent payments will require new wire instructions
be provided within each Payment Notice received by the Escrow
Agent.
(b) The Rights Agent shall deduct and withhold, or cause to
be deducted or withheld, from each CVR Payment Amount otherwise
payable pursuant to this Agreement, the amounts, if any, that
Holdco or the applicable subsidiary of Holdco is required to
deduct and withhold with respect to the making of such payment
under the Code; provided that in determining the required amount
to be withheld, the Rights Agent will give effect to any
properly presented form (e.g.,
Form W-8
or W-9 as
applicable) eliminating or reducing the amount required to be
withheld. To the extent that amounts are so withheld or paid
over to or deposited with the relevant Governmental Authority,
such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Holder in respect of which
such deduction and withholding was made.
(c) Tax Reporting for Payments made pursuant to Payment
Notices received by the Escrow Agent under this Agreement will
be reported to the Internal Revenue Service on Tax
Form 1099B or 1099INT, as applicable.
Section 2.5 No
Voting, Dividends or Interest; No Equity or Ownership Interest
in Holdco.
(a) The CVRs shall not have any voting or dividend rights,
and interest shall not accrue on any amounts payable on the CVRs
to any Holder.
(b) The CVRs shall not represent any equity or ownership
interest in Holdco or in any constituent company to the Vowel
Merger.
The Rights Agent shall not have any liability for any actions
taken or not taken in connection with this Agreement, except to
the extent of its willful misconduct, bad faith or gross
negligence. No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers.
Section 3.2 Certain
Rights of Rights Agent.
The Rights Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no
implied covenants or obligations shall be read into this
Agreement against the Rights Agent. In addition:
(a) the Rights Agent may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) whenever the Rights Agent shall deem it desirable that
a matter be proved or established prior to taking, suffering or
omitting any action hereunder, the Rights Agent may, in the
absence of willful misconduct, faith or gross negligence on its
part, rely upon an Officer’s Certificate;
(c) the Rights Agent may consult with, and obtain advice
from, legal counsel in the event of any question as to any of
the provisions hereof or the duties hereunder, and it shall
incur no liability and shall be deemed to be acting in
accordance with the opinion and instructions of such counsel.
The reasonable costs of such counsel’s services shall be
paid to the Rights Agent in accordance with
Section 3.2(h) below. The Rights Agent may perform
any and all of its duties through its agents, representatives,
attorneys, custodians,
and/or
nominees.
(d) if the Rights Agent becomes involved in litigation on
account of this Agreement, it shall have the right to retain
counsel and shall be entitled to reimbursement for all
reasonable documented costs and expenses related thereto as
provided in Sections 3.2(h) and 3.2(d)
hereof; provided, however, that the Rights Agent shall
not be entitled to any such reimbursement to the extent such
litigation ultimately determines that the Rights Agent acted
with gross negligence or willful misconduct. In the event that
conflicting demands are made upon the Rights Agent for any
situation addressed or not addressed in this Agreement, the
Rights Agent may withhold performance of the terms of this
Agreement until such time as said conflicting demands shall have
been withdrawn or the rights of the respective parties shall
have been settled by court adjudication, arbitration, joint
order or otherwise.
(e) the permissive rights of the Rights Agent to do things
enumerated in this Agreement shall not be construed as a duty;
(f) the Rights Agent shall not be required to give any note
or surety in respect of the execution of such powers or
otherwise in respect of the premises; and
(g) Holdco agrees to indemnify the Rights Agent for, and
hold the Rights Agent harmless against, any loss, liability,
claim, demands, suits or expense arising out of or in connection
with the Rights Agent’s duties under this Agreement,
including the costs and expenses of defending the Rights Agent
against any claims, charges, demands, suits or loss, unless such
loss shall have been determined by a court of competent
jurisdiction to be a result of the Rights Agent’s willful
misconduct, bad faith or gross negligence, provided,
however, that the Rights Agent’s aggregate liability
with respect to, arising from, or arising in connection with
this Agreement, or from all services provided or omitted to be
provided under this Agreement, whether in contract, in tort, or
otherwise, is limited to, and shall not exceed, the amounts paid
hereunder by Holdco to the Rights Agent as fees and charges, but
not including reimbursable expenses; provided,
further, however, 50% of any amounts payable by
Holdco under this Section 3.2(g) shall be reimbursed
to Holdco out of the CVR Escrow Fund; and
(h) Holdco, on the one hand, and the Stockholders’
Representative, on behalf of the Holders, on the other hand,
shall each be responsible for paying 50% of the Rights Agent
Costs and the Rights Agent Initial Payment, the portion of which
with respect to the Holders, shall be payable from the CVR
Escrow Fund. Notwithstanding the foregoing and solely for the
benefit of the Rights Agent, Holdco and the Stockholders’
Representative, on behalf of the Holders, agrees (i) to
equally pay the fees and expenses of the Rights Agent in
connection with this Agreement, as set forth on
Schedule 1 hereto, and (ii) to equally
reimburse the Rights Agent for all taxes and governmental
charges, reasonable expenses and other charges of any kind and
nature incurred by the Rights Agent in the execution of this
Agreement (other than taxes measured by the Rights Agent’s
net income). The Rights Agent shall also be entitled to
reimbursement from Holdco and the Stockholders’
Representative, on behalf of the Holders, on an equal basis for
all reasonable and necessary out-of-pocket expenses (including
reasonable fees and expenses of the Rights Agent’s counsel
and agent) paid or incurred by it in connection with the
administration by the Rights Agent of its duties hereunder. An
invoice for the Rights Agent Fee (prorated for the period of
time from the previous payment of the Rights Agent Fee, if
applicable) will be rendered a reasonable time prior to, and
paid on, the date upon which the Effective Time occurs and each
CVR Payment Date. An invoice for any out-of-pocket expenses and
per item fees realized will be rendered and payable within
thirty (30) days after receipt by Holdco and the
Stockholders’ Representative, except for postage and
mailing expenses, which funds must be received one
(1) Business Day prior to the scheduled mailing date. Each
of Holdco and the Stockholders’ Representative, on behalf
of the Holders, on an equal basis, agrees to pay to the Rights
Agent any amounts, including fees and expenses, payable in favor
of the Rights Agent in connection with any dispute, resolution
or arbitration arising under or in connection with this
Agreement. Notwithstanding anything in this Agreement to the
contrary, the portion of any payment under this
Section 3.2(h) which is payable by the
Stockholders’ Representative shall be paid to the Rights
Agent solely by the Rights Agent deducting such payment from any
then unpaid CVR Payment Amount.
Section 3.3 Resignation
and Removal; Appointment of Successor.
(a) The Rights Agent may resign at any time by giving
written notice thereof to Holdco and the Stockholders’
Representative specifying a date when such resignation shall
take effect, which notice shall be sent at least thirty
(30) days prior to the date so specified.
(b) If the Rights Agent shall resign, be removed or become
incapable of acting, Holdco, by way of a Board Resolution, shall
promptly appoint a qualified successor Rights Agent who shall be
reasonably acceptable to the Stockholders’ Representative.
The successor Rights Agent so appointed shall, forthwith upon
its acceptance of such appointment in accordance with this
Section 3.3(b), become the successor Rights Agent.
(c) Holdco shall give notice of each resignation and each
removal of a Rights Agent and each appointment of a successor
Rights Agent by mailing written notice of such event by
first-class mail, postage prepaid, to Stockholders’
Representative and to the Holders as their names and addresses
appear in the CVR Register. Each notice shall include the name
and address of the successor Rights Agent. If Holdco fails to
send such notice within ten days after acceptance of appointment
by a successor Rights Agent, the successor Rights Agent shall
cause such notice to be mailed at the expense of Holdco.
(d) If a successor Rights Agent has not been appointed and
has not accepted such appointment by the end of the 30-calendar
day period, the Rights Agent may apply to a court of competent
jurisdiction for the appointment of a successor Rights Agent,
and the costs, expenses and reasonable attorneys’ fees
which are incurred in connection with such a proceeding shall be
paid in accordance with Section 3.2(h) hereof. Any
such successor to the Rights Agent shall agree to be bound by
the terms of this Agreement and shall, upon receipt of the all
relevant books and records relating thereto, become the Rights
Agent hereunder. Upon delivery of all of the relevant books and
records, pursuant to the terms of this
Section 3.3(d) to a successor Rights Agent, the
Rights Agent shall thereafter be discharged from any further
obligations hereunder. The Rights Agent is hereby authorized, in
any and all events, to comply with and obey any and all final
judgments, orders and decrees of any court of competent
jurisdiction which may be filed, entered or issued, and all
final arbitration awards and, if it shall so comply or obey, it
shall not be liable to any other person by reason of such
compliance or obedience.
Holdco shall furnish or cause to be furnished to the Rights
Agent in such form as Holdco receives from its transfer agent or
from Vowel’s transfer agent prior to the Effective Time (or
other agent performing similar services for Holdco or Vowel),
the names, addresses, shareholdings and tax certification
(T.I.N.) of the record holders of Vowel Common Stock within
sixty (60) days after the Effective Time.
Section 4.2 Payment
of CVR Payment Amount.
Each of the Stockholders’ Representative and Holdco shall
use reasonable best efforts to cause the Rights Agent to pay the
CVR Payment Amount upon its receipt thereof from the CVR Escrow
Fund provided by the Escrow Agent in the manner provided for in
Section 2.4 and in accordance with the terms of this
Agreement.
Section 4.3 Ability
to Make Prompt Payment.
Neither Holdco nor any of its Subsidiaries shall enter into any
agreement that would prohibit or restrict the Rights
Agent’s ability to pay the CVR Payment Amount to the
Holders under this Agreement.
Section 4.4 Assignment.
Holdco shall not, in whole or in part, assign any of its rights
or obligations under this Agreement other than in accordance
with the terms of Section 6.1 hereof.
ARTICLE V
AMENDMENTS
Section 5.1 Amendments
Without Consent of Holders or Stockholders’
Representative.
(a) Without the consent of any Holders, the
Stockholders’ Representative or the Rights Agent, Holdco,
when authorized by a Board Resolution, at any time and from time
to time, may enter into one or more amendments hereto, for any
of the following purposes:
(i) to evidence the succession of another Person to Holdco
and the assumption by any such successor of the covenants of
Holdco herein in a transaction contemplated by
Section 6.1 hereof; or
(ii) to evidence the termination of the CVR Registrar and
the succession of another Person as a successor CVR Registrar
and the assumption by any successor of the obligations of the
CVR Registrar herein.
(b) Without the consent of any Holders or the
Stockholders’ Representative, Holdco, when authorized by a
Board Resolution, and the Rights Agent, in the Rights
Agent’s sole and absolute discretion, at any time and from
time to time, may enter into one or more amendments hereto, for
any of the following purposes:
(i) to evidence the succession of another Person as a
successor Rights Agent and the assumption by any successor of
the covenants and obligations of the Rights Agent herein;
(ii) to add to the covenants of Holdco such further
covenants, restrictions, conditions or provisions as the Board
of Directors and the Rights Agent shall consider to be for the
protection of the Holders; provided, that in each case,
such provisions shall not adversely affect the interests of the
Holders;
(iii) to cure any ambiguity, to correct or supplement any
provision herein that may be defective or inconsistent with any
other provision herein, or to make any other provisions with
respect to matters or questions arising under this Agreement;
provided, that in each case, such provisions shall not
adversely affect the interests of the Holders; or
(iv) to add, eliminate or change any provision of this
Agreement (other than Section 2.4) unless such
addition, elimination or change is adverse to the interests of
the Holders.
(c) Promptly after the execution by Holdco and the Rights
Agent of any amendment pursuant to the provisions of this
Section 5.1, Holdco shall mail a notice thereof by
first-class mail to the Stockholders’
Representative and each of the Holders at their addresses as
they shall appear on the CVR Register, setting forth in general
terms the substance of such amendment.
Section 5.2 Amendments
With Consent of the Stockholders’ Representative.
(a) Subject to Section 5.1 (which amendments
pursuant to Section 5.1 may be made without the
consent of the Holders or the Stockholders’
Representative), with the consent of the Stockholders’
Representative (which may be granted or withheld in its sole
discretion), acting on behalf of the Holders, Holdco, when
authorized by a Board Resolution, and the Rights Agent may enter
into one or more amendments hereto for the purpose of adding,
eliminating or changing any provisions of this Agreement, even
if such addition, elimination or change is in any way adverse to
the interests of the Holders.
(b) Promptly after the execution by Holdco and the Rights
Agent of any amendment pursuant to the provisions of this
Section 5.2, Holdco shall mail a notice thereof by
first-class mail to the Stockholders’ Representative and
the Holders at their addresses as they shall appear on the CVR
Register, setting forth in general terms the substance of such
amendment.
Section 5.3 Execution
of Amendments.
In executing any amendment permitted by this
Article V, the Rights Agent shall be entitled to
receive, and shall be fully protected in relying upon, an
opinion of counsel stating that the execution of such amendment
is authorized or permitted by this Agreement. The Rights Agent
may, but is not obligated to, enter into any such amendment that
affects the Rights Agent’s own rights, privileges,
covenants or duties under this Agreement or otherwise.
Section 5.4 Effect
of Amendments.
Upon the execution of any amendment under this
Article V, this Agreement shall be modified in
accordance therewith, such amendment shall form a part of this
Agreement for all purposes and every Holder shall be bound
thereby.
ARTICLE VI
CONSOLIDATION,
MERGER, SALE OR CONVEYANCE
Section 6.1 Holdco
May Consolidate, Etc.
(a) Holdco shall not consolidate with or merge into any
other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, unless:
(i) the Person formed by such consolidation or into which
Holdco is merged or the Person that acquires by conveyance or
transfer, or that leases, the properties and assets of Holdco
substantially as an entirety (the “Surviving
Person”) shall expressly assume the performance of
every duty and covenant of this Agreement on the part of Holdco
to be performed or observed; and
(ii) Holdco has delivered to the Rights Agent an
Officer’s Certificate, stating that such consolidation,
merger, conveyance, transfer or lease complies with this
Article VI and that all conditions precedent herein
provided for relating to such transaction have been complied
with.
(b) For purposes of this Section 6.1 only,
“convey, transfer or lease its properties and assets
substantially as an entirety” shall mean
(i) properties and assets contributing in the aggregate at
least 80% of Holdco’s total consolidated revenues for the
current period as reported in Holdco’s last available
periodic financial report (quarterly or annual, as the case may
be) or (ii) properties and consolidated assets constituting
in the aggregate at least 80% of Holdco’s total assets for
the current period as reported in Holdco’s last available
periodic financial report (quarterly or annual, as the case may
be).
(c) In the event Holdco conveys, transfers or leases its
properties and assets substantially as an entirety in accordance
with the terms and conditions of this Section 6.1,
Holdco and the Surviving Person shall be jointly and severally
liable for the payment of the CVR Payment Amount and the
performance of every duty and covenant of this Agreement on the
part of Holdco to be performed or observed.
Upon any consolidation of or merger by Holdco with or into any
other Person, or any conveyance, transfer or lease of the
properties and assets substantially as an entirety to any Person
in accordance with Section 6.1, the Surviving Person
shall succeed to, and be substituted for, and may exercise every
right and power of, Holdco under this Agreement with the same
effect as if the Surviving Person had been named as Holdco
herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and
covenants under this Agreement and the CVRs.
ARTICLE VII
OTHER
PROVISIONS OF GENERAL APPLICATION
Section 7.1 Notices
to the Rights Agent, Holdco and the Stockholders’
Representative.
Any request, demand, authorization, direction, notice, consent,
waiver or other document provided or permitted by this Agreement
shall be sufficient for every purpose hereunder if in writing
and sent by facsimile transmission, delivered personally, or by
certified or registered mail (return receipt requested and
first-class postage prepaid) or sent by a nationally recognized
overnight courier (with proof of service), addressed as follows,
and shall be deemed to have been given upon receipt:
(a) if to the Rights Agent, addressed to it at Shareowner
Services: MAC N9100-030, 161 North Concord Exchange Street, St.
Paul, Minnesota55075, facsimile at
(651) 450-4078,
e-mail at
martin.j.knapp@wellsfargo.com, Attention: Marty Knapp, or at any
other address previously furnished in writing to the
Stockholders’ Representative and Holdco by the Rights Agent
in accordance with this Section 7.1;
(b) if to Holdco, addressed to it at Cambium Holdings,
Inc.,
c/o Veronis
Suhler Stevenson, 350 Park Avenue, New York, New York10022,
telephone at
(212) 381-8420,
facsimile at
(212) 381-8168,
email at troellers@vss.com, Attention: Scott J. Troeller; with a
copy to Lowenstein Sandler PC, 1251 Avenue of the Americas,
18th Floor, New York, New York10020, telephone at
(212) 204-8688,
facsimile at
(973) 597-2507,
email at ssiesser@lowenstein.com, Attention: Steven E.
Siesser, Esq., or at any other address previously furnished
in writing to the Rights Agent and the Stockholders’
Representative by Holdco in accordance with this
Section 7.1; or
(c) if to the Stockholders’ Representative, addressed
to it at Vowel Representative, LLC,
c/o Perkins
Coie LLP, 131 South Dearborn Street, Suite 1700, Chicago,
Illinois60603, telephone at
(312) 324-8600,
facsimile at
(312) 324-9400,
email at pgordon@perkinscoie.com, Attention: Phil
Gordon, Esq.; with a copy to Perkins Coie LLP, 131 South
Dearborn Street, Suite 1700, Chicago, Illinois60603,
telephone at
(312) 324-8600,
facsimile at
(312) 324-9400,
email at pgordon@perkinscoie.com,
Attention: Phil Gordon, Esq., or at any other
address previously furnished in writing to the Rights Agent and
Holdco by Stockholders’ Representative in accordance with
this Section 7.1.
Section 7.2 Notice
to Holders.
Where this Agreement provides for notice to Holders, such notice
shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first- class postage
prepaid, to each Holder affected by such event, at his, her or
its address as it appears in the CVR Register, not later than
the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice
with respect to other Holders.
Section 7.3 Effect
of Headings.
The Article and Section headings herein are for convenience only
and shall not affect the construction hereof.
Section 7.4 Successors
and Assigns.
All covenants and agreements in this Agreement by Holdco shall
bind its successors and assigns, whether so expressed or not.
Nothing in this Agreement, express or implied, shall give to any
Person (other than the parties hereto and their permitted
successors and assigns hereunder) any benefit or any legal or
equitable right, remedy or claim under this Agreement or under
any covenant or provision herein contained, all such covenants
and provisions being for the sole benefit of the parties hereto
and their permitted successors and assigns. For the avoidance of
doubt, no Holder shall have any right to enforce or otherwise
assert a claim with respect to this Agreement; all such rights
and claims shall only be brought by the Stockholders’
Representative on behalf of such Holder.
Section 7.6 Governing
Law.
This Agreement and the CVRs shall be governed by and construed
in accordance with the laws of the State of Delaware without
regards to its rules of conflicts of laws.
Section 7.7 Legal
Holidays.
In the event that a CVR Payment Date shall not be a Business
Day, then, notwithstanding any provision of this Agreement to
the contrary, any payment required to be made in respect of the
CVRs on such date need not be made on such date, but may be made
on the next succeeding Business Day with the same force and
effect as if made on the CVR Payment Date.
Section 7.8 Severability
Clause.
In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this
Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable provision had never been
contained herein. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, the court or
other tribunal making such determination is authorized and
instructed to modify this Agreement so as to effect the original
intent of the parties as closely as possible so that the
transactions and agreements contemplated herein are consummated
as originally contemplated to the fullest extent possible.
Section 7.9 Counterparts.
This Agreement may be executed by the parties hereto, in two or
more counterparts (which may be effectively delivered by
facsimile, by electronic transmission of portable document
format (PDF) files or tagged image file format (TIF) files, or
by other electronic means)), each of which shall be an original
and all of which shall together constitute one and the same
agreement.
Section 7.10 Termination.
This Agreement shall terminate and be of no further force or
effect, and the parties hereto shall have no liability
hereunder, upon payment by the Rights Agent to the Holders of
the then remaining balance of the Escrow Funds in accordance
with this Agreement.
Section 7.11 Entire
Agreement.
This Agreement, the Merger Agreement, and the Escrow Agreement
represent the entire understanding of Holdco and the
Stockholders’ Representative with reference to the CVRs,
and this Agreement supersedes any and all other oral or written
agreements hereto made with respect to the CVRs, except for the
Merger Agreement and the Escrow Agreement. This Agreement and
the Escrow Agreement represent the entire understanding of the
Rights Agent with reference to the CVRs, and this Agreement
supersedes any and all other oral or written agreements hereto
made with respect to the CVRs, except for the Merger Agreement
and the Escrow Agreement. If and to the extent that any
provision of this Agreement is inconsistent or conflicts with
the Merger Agreement or the Escrow Agreement, the Escrow
Agreement shall govern and be controlling, and this Agreement
may be amended, modified, supplemented or altered only in
accordance with the terms of Article V.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its duly authorized
officers as of the day and year first above written.
This ESCROW AGREEMENT (this “Agreement”), dated
as of [ ], 2009, is by and among
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
association, having an office at 161 North Concord Exchange, St.
Paul, Minnesota (“Wells Fargo”), as escrow
agent (the “Escrow Agent”), Vowel
Representative, LLC, a Delaware limited liability company,
solely in its capacity as stockholders’ representative (in
such capacity, the “Stockholders’
Representative”), Cambium-Voyager Holdings, Inc.
(formerly known as Cambium Holdings, Inc.), a Delaware
corporation (“Holdco”), Voyager Learning
Company, a Delaware corporation (“Vowel”), and
Richard Surratt, an individual residing at
[ ] (“Surratt”).
A. Holdco, Vowel, VSS-Cambium Holdings II Corp., a
Delaware corporation, Vowel Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Holdco
(“Vowel Merger Sub”), and Consonant Acquisition
Corp., a Delaware corporation, a wholly-owned subsidiary of
Holdco (“Consonant Merger Sub”) and the
Stockholder’s Representative, have entered into an
Agreement and Plan of Mergers, dated as of June 20, 2009
(as the same may be amended, supplemented or otherwise modified
from time to time, the “Merger Agreement”),
pursuant to which, among other things, Vowel Merger Sub will
merge with and into Vowel (the “Vowel Merger”),
with Vowel surviving the Vowel Merger as a wholly-owned
subsidiary of Holdco, and Consonant Merger Sub will merge with
and into Consonant (the “Consonant Merger”),
with Consonant surviving the Consonant Merger as a wholly-owned
subsidiary of Holdco.
B. Each share of Vowel’s common stock, par value
$0.001 per share (“Vowel Common Stock”),
outstanding immediately prior to the effective time of the Vowel
Merger (the “Effective Time”), upon the
Effective Time was converted into, among other merger
consideration therefor, the right to receive one contingent
value right (each a “CVR”) issued by Holdco in
accordance with the terms and conditions set forth in the Merger
Agreement and that certain Contingent Value Rights Agreement,
dated as the date hereof (as the same may be amended,
supplemented or otherwise modified from time to time, the
“CVR Agreement”), by and among Holdco, the
Stockholders’ Representative and Wells Fargo, as rights
agent and initial CVR registrar (including any successor rights
agent under the CVR Agreement, the “Rights
Agent”).
C. In accordance with the terms and conditions of the
Merger Agreement, (i) Vowel is obligated at the Effective
Time to deposit, or cause its Subsidiaries (as that term is
defined in the Merger Agreement) to deposit, with the Escrow
Agent for deposit into an escrow account to be established under
this Agreement (the “CVR Escrow Account”), the
Vowel Tax Refund Holdback Amount (as that term is defined in the
Merger Agreement), if any, for the purpose of funding certain
payments under the CVR Agreement, (ii) after the Effective
Time, Vowel is obligated to deposit, and Holdco is obligated to
cause Vowel to deposit, with the Escrow Agent for deposit into
the CVR Escrow Account, (a) all Vowel Tax Refunds (as that
term is defined in the Merger Agreement), for the purpose of
further funding the payments under the CVR Agreement, and
(b) an agreed upon portion of the Vowel Shared Tax Offset
Amounts, as contemplated in Section 5.23(c) of the
Merger Agreement, (iii) Vowel, or a trustee or
administrator under the applicable Liability Funding Document,
is obligated to deposit, and Holdco is obligated to cause Vowel
to deposit, with the Escrow Agent for deposit into a separate
escrow account to be established under this Agreement (the
“Excess Employee Payment Account”) the Excess
Employee Payment Amounts, (iv) pursuant to
Section 5.23(c) of the Merger Agreement, Holdco and
its Subsidiaries are entitled to receive funds from the CVR
Escrow Account to satisfy the Agreed Contingencies, including an
agreed upon portion of reasonable documented out-of-pocket
costs, expenses or liabilities incurred by Holdco or any of its
Subsidiaries from and after the Effective Time that reasonably
relate to Agreed Contingencies (which documented costs, for the
avoidance of doubt, are included in the definition of
“Agreed Contingencies”), and (v) pursuant to
Section 5.22(b) of the Merger Agreement, Holdco and its
Subsidiaries are entitled to receive funds from the CVR Escrow
Account to satisfy the Vowel Tax Refund Documented Costs (as
that term is defined in the Merger Agreement), in each case, to
be held by the Escrow Agent, and thereafter paid or disbursed by
the Escrow Agent, in accordance with the terms hereof. The
amounts deposited into the CVR Escrow Account, together with all
interest, dividends or profit on or
proceeds or other income earned thereon, are referred to
collectively herein as the “CVR Escrow Fund”,
and the amounts deposited into the Excess Employee Payment
Account, together with all interest, dividends or profit on or
proceeds or other income earned thereon, are referred to
collectively herein the “Excess Employee Payment
Fund”.
D. Pursuant to Section 5.24 of the Merger
Agreement, Vowel is obligated to pay to the Escrow Agent for
deposit into a separate escrow account to be established under
this Agreement (the “280G Escrow Account”, and
together with the CVR Escrow Account and the Excess Employee
Payment Account, the “Escrow Accounts”) for the
purpose of discharging certain tax
gross-up
obligations (the “Tax
Gross-Up
Obligations”) of Vowel to Surratt, the President and
Chief Executive Officer of Vowel, for taxes which may become due
by Surratt in connection with Section 280G of the
U.S. Internal Revenue Code of 1986, as amended (the
“Code”) an amount equal to $3,000,000
(including all interest, dividends or profit on or proceeds or
other income earned thereon, the “280G Escrow
Fund”, and together with the Excess Employee Payment
Fund and the CVR Escrow Fund, the “Escrow
Funds”).
E. The parties desire to set forth the terms and conditions
pursuant to which the Escrow Funds will be established,
maintained and released, and such terms and conditions are set
forth in this Agreement.
F. The parties further desire that the Escrow Agent shall
serve, and the Escrow Agent is willing to serve, as an escrow
agent pursuant to the terms and conditions set forth herein.
Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings given to such terms in
the Merger Agreement. The parties hereto acknowledge that the
Escrow Agent is not a party to, is not bound by, and has no
duties or obligations under, the Merger Agreement, that all
references in this Agreement to the Merger Agreement are for
convenience, and that the Escrow Agent shall have no implied
duties beyond the express duties set forth in this Agreement.
Accordingly, in consideration of the foregoing, the mutual
promises and covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. Escrow Agent and Escrow Accounts.
1.1 Escrow Accounts. The
Stockholders’ Representative, Holdco and Vowel do hereby
(a) consent to the establishment of the CVR Escrow Fund and
the Excess Employee Payment Fund to provide a source of funds
for the satisfaction of the CVR Payment Amounts (as defined in
the CVR Agreement) pursuant to the CVR Agreement and
(b) consent to the establishment of the 280G Escrow Fund to
provide a source of funds for the satisfaction of the Tax
Gross-Up
Obligations.
1.2 Surratt. Surratt hereby
consents to the establishment of the 280G Escrow Fund to provide
the sole source of funds for the satisfaction of the Tax
Gross-Up
Obligations.
1.3 Escrow Agent. Vowel,
Holdco, the Stockholders’ Representative and Surratt hereby
appoint the Escrow Agent as escrow agent and the Escrow Agent
desires and is willing to act and serve as escrow agent pursuant
to the terms and conditions of this Agreement.
1.4 Joint
Instructions. Notwithstanding any provision
herein to the contrary, the Escrow Agent shall distribute or pay
any amount held in (i) the CVR Escrow Fund pursuant to any
joint written instructions received by the Escrow Agent from
Holdco and the Stockholders’ Representative, executed by
Holdco and the Stockholders’ Representative, (ii) the
Excess Employee Payment Fund pursuant to any written
instructions received from Holdco and the Stockholders’
Representative, executed by Holdco and the Stockholders’
Representative, and (iii) the 280G Escrow Fund pursuant to
any joint written instructions received by the Escrow Agent from
Holdco and the Stockholders’ Representative and Surratt,
executed by Holdco and the Stockholders’ Representative and
Surratt.
2. Investment of the Escrow Funds.
2.1 Investment. The Escrow
Agent is hereby directed to deposit, transfer, hold and invest
the Escrow Funds in the “100% FDIC Insured Non-interest
Bearing Deposit Account” in accordance with the investment
election form delivered by the Stockholders’ Representative
and Holdco to the Escrow Agent prior to the Effective Time. Each
of the parties hereby acknowledges that: (i) Holdco and the
Stockholders’ Representative have full power to jointly
direct investments of the CVR Escrow Fund, (ii) the
Stockholders’ Representative, Surratt and Holdco have full
power to jointly direct investments of the 280G Escrow Fund and
(iii) the investment direction in this
Section 2.1 may be changed at any time and from time
to time, by (x) written notice of the Stockholders’
Representative in the case of the Excess Employee Payment Fund,
and (y) joint written notice of (A) Holdco and the
Stockholders’ Representative in the case of the CVR Escrow
Fund, and (B) the Stockholders’ Representative,
Surratt and Holdco, in the case of the 280G Escrow Fund (any
investments made in accordance with any of clauses (i)
through (iii) above of this Section 2.1 are
hereinafter referred to as “Permitted
Investments”).
(a) Interest and other earnings on Permitted Investments
with respect to an Escrow Fund shall be added to the Escrow
Account for such Escrow Fund and shall be subject to
distribution in accordance with this Agreement. Any loss or
expenses incurred as a result of a Permitted Investment with
respect to an Escrow Fund will be borne by the Escrow Account
for such Escrow Fund.
(b) The Escrow Agent is hereby authorized to execute
purchases and sales of Permitted Investments through the
facilities of its own trading or capital markets operations or
those of any affiliated entity.
(c) The Escrow Agent is hereby authorized and directed to
sell or redeem any such investments as it deems necessary to
make any payments or distributions required under this
Agreement. The Escrow Agent shall have no responsibility or
liability for any loss which may result from any investment or
sale of investment made pursuant to this Agreement. The Escrow
Agent is hereby authorized, in making or disposing of any
Permitted Investment, to deal with itself (in its individual
capacity) or with any one or more of its affiliates, whether it
or any such affiliate is acting as agent of the Escrow Agent or
for any third person or dealing as principal for its own
account. The parties hereto acknowledge and agree that the
Escrow Agent is not providing investment supervision,
recommendations, or advice.
(d) Vowel, Holdco, the Stockholders’ Representative
and Surratt acknowledge and agree that the delivery of the
Escrow Funds by the Escrow Agent is subject to the sale and
final settlement of Permitted Investments. Proceeds of a sale of
Permitted Investments will be delivered on the Business Day on
which the appropriate instructions are delivered to the Escrow
Agent if received prior to the deadline for same day sale of
such Permitted Investments. If such instructions are received
after the applicable deadline, proceeds will be delivered on the
next succeeding Business Day.
2.2 Monthly Statements from the Escrow Agent to
the Parties. The Escrow Agent shall send
statements to each of the parties hereto on a monthly basis
reflecting activity in each of the Escrow Accounts for the
preceding month. No such statement need be rendered for an
Escrow Account if no activity occurred for such month with
respect to such Escrow Account.
3. Withdrawal Procedures and Payments.
3.1 Payment of Agreed Contingencies.
(a) If at any time or from time to time, Holdco determines
in good faith that it is entitled to any amounts from the CVR
Escrow Fund as a result of any Agreed Contingency in accordance
with Section 5.23 of the Merger Agreement, it shall give
written notice (a “Agreed Contingency Payment
Notice”) to the Escrow Agent and the Stockholders’
Representative of such withdrawal to be made from the CVR Escrow
Fund, which notice shall include the following: (i) a
calculation of the amount of the Agreed Contingency to be
released from the CVR Escrow Fund, after applying the $250,000
deductible and the sharing mechanism as and to the extent set
forth in Section 5.23(c) of the Merger Agreement (each, a
“AC Payment Amount”); (ii) an appropriate
cross-reference to Section 9.15(i) to Vowel Disclosure
Schedule identifying the Agreed Contingency, (iii) a
cumulative calculation showing the amounts, if any, previously
expended to pay, settle or defend all Agreed Contingencies,
(iv) reasonable evidence (in the form of a bill,
assessment, notice, invoice, receipt or other writing) that the
amount of such Agreed Contingency has been paid or is due and
payable, provided that any bill, invoice, receipt or other
evidence relating to fees and expenses shall contain reasonable
detail regarding such fees and expenses, and (v) solely
with respect to any Agreed Contingency that constitutes a
Specified Agreed Contingency, a certificate executed by
Holdco’s Chief Executive Officer or Chief Financial Officer
stating that Holdco
and/or
Vowel, as the case may be, have satisfied in full their
obligations under clauses (i) and (ii) of
Section 5.23(c) of the Merger Agreement with respect to the
Specified Agreed Contingency.
(b) The Stockholders’ Representative may in good faith
object to the amounts set forth in the Agreed Contingency
Payment Notice based solely on one or more of the following
grounds: (i) that the liability described in the Agreed
Contingency Payment Notice is not listed on Section 9.15(i)
to Vowel Disclosure Schedule, (ii) that Holdco has failed
to properly calculate Vowel’s portion of the Agreed
Contingency in accordance with Section 5.23(c) of the
Merger Agreement, (iii) in the case of an expense incurred
to defend or settle an Agreed Contingency, that such expense is
not a reasonable documented out-of-pocket expense incurred after
the Effective Time that reasonably relates to an Agreed
Contingency listed on Section 9.15(i) to Vowel Disclosure
Schedule
and/or
(iv) that the Agreed Contingency Payment Notice does not
contain the information required by Section 3.1(a).
The Stockholders’ Representative shall deliver written
notice of such objection (a “AC Objection
Notice”) to the Escrow Agent and Holdco within ten
(10) Business Days after an Agreed Contingency Payment
Notice was received by it in accordance with the terms of
Sections 3.1(a) and 13 of this Agreement,
which notice must set forth in reasonable detail an explanation
as to why one or more of the enumerated grounds for objection
set forth above is applicable and a calculation of the amount of
the Agreed Contingency that it reasonably believes should apply,
if any (the “AC Agreed Upon Amount”) to the
extent that such amount is less than the applicable AC Payment
Amount; provided, however, if the
Stockholders’ Representative shall fail to timely deliver
an AC Objection Notice in accordance with this sentence (which
notice must include such detail as is required by this
paragraph), it shall have thereupon irrevocably waived any right
to object to such Agreed Contingency Payment Notice. On the date
that is eleven (11) Business Days after receipt by the
Escrow Agent of the Agreed Contingency Payment Notice, the
Escrow Agent shall pay Holdco from the CVR Escrow Account the AC
Payment Amount shown in the applicable Agreed Contingency
Payment Notice unless the Escrow Agent shall have timely
received an AC Objection Notice from the Stockholders’
Representative (which notice must have included such detail as
is required by this paragraph), in which case, the Escrow Agent
shall (x) pay Holdco from the CVR Escrow Account the AC
Agreed Upon Amount, if any, shown in the applicable AC Objection
Notice (if any) and (y) delay the payment of the difference
between the applicable AC Payment Amount and the corresponding
AC Agreed Upon Amount (such difference, which represents the
amount which has been disputed by the Stockholders’
Representative pursuant to this Section 3.1(b), is
herein referred as a “AC Disputed Amount”)
until such AC Objection Notice has been resolved in accordance
with Section 3.7 of this Agreement. The Escrow Agent
will deduct payments first from principal and second on interest
on any payments made from the CVR Escrow Fund.
3.2 Payment of Documented Costs.
(a) If at any time or from time to time, Holdco determines
in good faith that it is entitled to any amounts from the CVR
Escrow Fund as a result of any Vowel Tax Refund Documented Costs
in accordance with Section 5.22(b) of the Merger
Agreement it shall give written notice (a “Documented
Cost Payment Notice”) to the Escrow Agent and the
Stockholders’ Representative of such withdrawal to be made
from the CVR Escrow Fund, which notice shall include the
following: (i) a calculation of the amount of the Vowel Tax
Refund Documented Costs to be released from the CVR Escrow Fund
(each, a “DC Payment Amount”), and
(ii) reasonable evidence (in the form of a bill,
assessment, notice, a reasonably detailed invoice, receipt or
other writing) that the amount of such Vowel Tax Refund
Documented Costs has been paid or is due and payable, provided
that any bill, invoice, receipt or other evidence relating to
fees and expenses shall contain reasonable detail regarding such
fees and expenses.
(b) The Stockholders’ Representative may in good faith
object to the amounts set forth in the Documented Cost Payment
Notice based solely on the grounds that (i) any of the
Vowel Tax Refund Documented Costs is not a reasonable documented
out-of-pocket cost, expense or liability incurred by Holdco or
any of its Subsidiaries after the Effective Time that reasonably
relates to obtaining the Vowel Tax Refunds or (ii) the
Documented Cost Payment Notice does not contain the information
required by Section 3.2(a). The Stockholders’
Representative shall deliver written notice of such objection (a
“DC Objection Notice”) to the
Escrow Agent and Holdco within ten (10) Business Days after
a Documented Cost Payment Notice was received by it in
accordance with the terms of Sections 3.2(a) and
13 of this Agreement, which notice must set forth in
reasonable detail an explanation as to why any such Vowel Tax
Refund Documented Costs is not reasonable or otherwise
applicable to the subject Vowel Tax Refund and a calculation of
the amount of the Vowel Tax Refund Documented Costs that it
reasonably believes should apply, if any (the “DC Agreed
Upon Amount”) to the extent that such amount is less
than the applicable DC Payment Amount; provided,
however, if the Stockholders’ Representative shall
fail to timely deliver a DC Objection Notice in accordance with
this sentence (which notice must include such detail as is
required by this paragraph), it shall have thereupon irrevocably
waived any right to object to such Documented Cost Payment
Notice. On the date that is eleven (11) Business Days after
receipt by the Escrow Agent of the Documented Cost Payment
Notice, the Escrow Agent shall pay Holdco from the CVR Escrow
Account the DC Payment Amount shown in the applicable Documented
Cost Payment Notice unless the Escrow Agent shall have timely
received a DC Objection Notice from the Stockholders’
Representative, in which case, the Escrow Agent shall
(x) pay Holdco from the CVR Escrow Account the DC Agreed
Upon Amount, if any, shown in the applicable DC Objection Notice
and (y) delay the payment of the difference between the
applicable DC Payment Amount and the corresponding DC Agreed
Upon Amount (such difference, which represents the amount which
has been disputed by the Stockholders’ Representative
pursuant to this Section 3.2(b), is herein referred
as a “DC Disputed Amount”) until such DC
Objection Notice has been resolved in accordance with
Section 3.7 of this Agreement. The Escrow Agent will
deduct payments first from principal and second on interest on
any payments made from the CVR Escrow Fund.
3.3 Withdrawal of Amounts from the 280G Escrow
Fund.
(a) If, at any time or from time to time prior to
October 15, 2013 (the “280G Termination
Date”), Surratt has delivered to the Escrow Agent and
Holdco a written notice, duly notarized, from Surratt
substantially in the form of Exhibit A attached
hereto (the “280G Payment Notice”) it shall,
within five (5) Business Days after receipt of such notice,
pay to Surratt the amount set forth in the 280G Payment Notice
by wire transfer of immediately available funds to the account
set forth on the 280G Payment Notice. The 280G Payment Notice
will include the name of the bank to which such payments shall
be made, account name at the bank, account number at the bank to
which such payments shall be made, ABA routing number of the
bank and any further credit instructions for payment to the
account. For the avoidance of doubt, if Surratt has timely
executed and delivered the 280G Payment Notice in the form of
Exhibit A (without substantive modification thereto
and without any modification to Section 4 thereof), no
party shall have the right to dispute or contest the payment to
Surratt in accordance with this Section 3.3;
provided, however, if Surratt substantively
modifies the 280G Payment Notice or makes any modification to
Section 4 thereof, then, Holdco shall be entitled to
deliver a written notice to Surratt and the Escrow Agent
objecting thereto within ten (10) Business Days after
receipt of the 280G Payment Notice (such objection notice being
referred to as the “Holdco 280G Objection
Notice”), and the Escrow Agent shall delay funding such
280G Payment Notice until the sooner of (x) Surratt
rescinds the modified notice and re-submits a new 280G Payment
Notice, within ten (10) Business Days after receipt of the
Holdco 280G Objection Notice, without such modifications, or
(y) Surratt and Holdco deliver a written payment
instruction executed by both of them to the Escrow Agent, within
ten (10) Business Days after receipt of the Holdco 280G
Objection Notice, directing the funding of such 280G Payment
Notice.
(b) If and to the to the extent that: (i) on the 280G
Termination Date, any amounts remain in the 280G Escrow Account
and Surratt has not timely delivered a 280G Payment Notice (in
accordance with and subject to the last sentence in
Section 3.3(a) including its proviso) with respect
to such then remaining escrow funds, or (ii) at any time on
or prior to the 280G Termination Date, Surratt delivers a
written, notarized, confirmation to the Escrow Agent that he is
the beneficiary of an insurance policy with respect to any
potential liability which may be incurred by him in connection
with the Tax
Gross-Up
Obligations (the “280G Insurance Policy
Notice”), then, in the absence of the receipt by the
Escrow Agent of a Holdco 280G Payment Notice (as hereinafter
defined), the Escrow Agent shall on the eleventh
(11th)
Business Day after (x) the 280G Termination Date or
(y) the date it received the 280G Insurance Policy Notice,
as the case may be, pay to the Rights Agent, in immediately
available funds, all of the 280G Escrow Fund then remaining in
the 280G
Escrow Account less the amount of the payment to be made
pursuant to any then unpaid 280G Payment Notice in accordance
with Section 3.3(a) (such net amount, the
“280G Escrow Fund Balance”).
(c) If there exists both a 280G Excess Amount as of the
Closing and a 280G Escrow Fund Balance on the 280G
Termination Date or the date Holdco received the 280G Insurance
Policy Notice, as the case may be, Holdco shall give written
notice (the “Holdco 280G Payment Notice”) to
the Escrow Agent and the Stockholders’ Representative
within ten (10) Business Days after such date, setting
forth (i) the 280G Excess Amount and (ii) directing
the Escrow Agent to pay to (A) Holdco an amount equal to
the lesser of the 280G Excess Amount and the 280G Escrow
Fund Balance (such amount, the “Holdco 280G Payment
Amount”), and (B) the Rights Agent the amount, if
any, of the 280G Escrow Fund Balance (including all
interest, dividends or profit on or proceeds or other income
earned thereon) after giving effect to the payment of the 280G
Excess Amount (the amount to be paid to the Right Agents
pursuant to Section 3.3(b) or this
Section 3.3(c), as the case may be, the
“280G Returned Amount”), and the
Stockholders’ Representative shall have the right, within
ten (10) Business Days after receipt of the Holdco 280G
Payment Notice, to object to the calculations set forth in the
Holdco 280G Payment Notice, by written notice delivered to the
Escrow Agent and Holdco, solely on account of a mathematical
error. On the date that is eleven (11) Business Days after
receipt by the Escrow Agent of the Holdco 280G Payment Notice,
unless the Escrow Agent has received an objection notice from
the Stockholders’ Representative in accordance with the
preceding sentence, the Escrow Agent shall pay (x) Holdco
from the 280G Escrow Fund the Holdco 280G Payment Amount, and
(y) to the extent any amounts remain in the 280G Escrow
Account after the making of the Holdco 280G Payment Amount, the
Rights Agent from the 280G Escrow Fund the entire amount
remaining in the 280G Escrow Account including all interest,
dividends or profit on or proceeds or other income earned
thereon. Notwithstanding anything to contrary set forth in this
Section 3.3(c), if Holdco fails to deliver the
Holdco 280G Payment Notice within the time period contemplated
above in this paragraph, then the Stockholders’
Representative shall have the right, but not the obligation, to
deliver such Holdco 280G Payment Notice, whereupon Holdco shall
have the same objection rights as are contemplated in this
paragraph for the Stockholders’ Representative.
(d) The Escrow Agent will deduct payments made pursuant to
this Section 3.3 first from principal and second on
interest on any payments made from the 280G Escrow Fund.
(e) By executing and delivering this Agreement, Surratt
hereby acknowledges and agrees, that in consideration for the
deposit by Vowel with the Escrow Agent into the 280G Escrow
Account of the sum of $3,000,000 pursuant to Section 5.24
of the Merger Agreement, he hereby releases and forever
discharges Holdco, Vowel, each of their respective subsidiaries
and affiliates, and each of the foregoing’s respective
successors, assigns, officers, directors, shareowners, members,
managers, agents and employees (collectively, the
“Released Parties”), of and from any and all
liabilities, debts, obligations, promises, covenants,
agreements, contracts, controversies, suits, actions, causes of
action, judgments, executions, damages, claims or demands in law
or in equity, known or unknown, liquidated or contingent,
material or immaterial, from the beginning of time to the
present relating to the Tax
Gross-Up
Obligations (each, a “Claim”), which Surratt,
his heirs, successors, personal representatives, estate or
devisees has or may have against the Released Parties, or any of
them, including those Claims relating to the Tax
Gross-Up
Obligations that Surratt is unaware of. Surratt hereby
represents and warrants that the deposit of the foregoing sum
satisfies in full all of Holdco’s and Vowel’s and each
of their respective Subsidiaries obligations with respect to any
claim he may have against any of them solely relating to
Sections 4999 and 280G of the Code.
3.4 Working Capital Adjustment.
(a) If, in accordance with the terms and conditions of
Section 5.27 of the Merger Agreement, Holdco becomes
entitled to receive a Working Capital Adjustment, Holdco shall
have the right at any time to give written notice (the
“WC Payment Notice”) to the Escrow Agent and
the Stockholders’ Representative of such withdrawal to be
made from the CVR Escrow Fund, which notice shall set forth the
amount of the Working Capital Adjustment to be withdrawn from
the CVR Escrow Fund (the “WC Payment Amount”)
and, with respect to any amounts contemplated in clause (z)
of the definition of Working Capital Adjustment (such amounts,
“WC Costs”), to the extent not expressly set
forth in the Working Capital Award, reasonable evidence (in the
form of a bill, assessment, notice, invoice, receipt or other
writing) that the amount of such
fees or expenses has been paid or is due and payable, provided
that any bill, invoice, receipt or other evidence relating to
fees and expenses shall contain reasonable detail regarding such
fees and expenses.
(b) The Stockholders’ Representative may in good faith
object to the amounts described in clause (y) of the
definition of Working Capital Adjustment set forth in the WC
Payment Notice based solely on one or more of the following
grounds: (i) the Working Capital Dispute has not been
resolved in accordance with the terms and conditions of the
Merger Agreement, (ii) the amount set forth in the WC
Payment Notice does not equal the amount of the payment to be
paid pursuant to a Working Capital Adjustment as determined in
accordance with the terms of the Merger Agreement or
(iii) solely with respect to WC Costs to the extent such WC
Costs are not expressly set forth in the Working Capital Award,
the WC Payment Notice does not contain the information required
by Section 3.4(a). The Stockholders’
Representative shall deliver written notice of such objection
(the “WC Objection Notice”) to the Escrow Agent
and Holdco within ten (10) Business Days after a WC Payment
Notice was received by it in accordance with the terms of
Sections 3.4(a) and 13 of this Agreement,
which notice must set forth the grounds for such objection and,
to the extent that such objection is to the calculation of the
WC Payment Amount, a calculation of the amount of the Working
Capital Adjustment it reasonably believes should be withdrawn
from the CVR Escrow Fund, if any (the “WC Agreed Upon
Amount”), to the extent that such amount is less than
the WC Payment Amount; provided, however, if the
Stockholders’ Representative shall fail to timely deliver a
WC Objection Notice in accordance with this sentence, it shall
have thereupon irrevocably waived any right to object to the WC
Payment Notice. On the date that is eleven (11) Business
Days after the receipt by the Escrow Agent of the WC Payment
Notice, the Escrow Agent shall pay Holdco from the CVR Escrow
Account the WC Payment Amount shown in the WC Payment Notice
unless the Escrow Agent shall have timely received the WC
Objection Notice from the Stockholders’ Representative, in
which case, the Escrow Agent shall (x) pay Holdco from the
CVR Escrow Account the WC Agreed Upon Amount, if any, shown in
the WC Objection Notice and (y) delay the payment of the
difference between the applicable WC Payment Amount and the WC
Agreed Upon Amount (such difference, which represents the amount
which has been disputed by the Stockholders’ Representative
pursuant to this Section 3.4(b), is herein referred
as the “WC Disputed Amount”) until the WC
Objection Notice has been resolved in accordance with
Section 3.7 of this Agreement. The Escrow Agent will
deduct payments first from principal and second on interest on
any payments made from the CVR Escrow Fund.
3.5 Withdrawals by Stockholders’
Representative.
(a) At any time and from time to time as it deems
appropriate, the Stockholders’ Representative may provide
written notice (“Expense Notice”) to Holdco and
the Escrow Agent that it desires to withdraw funds from the CVR
Escrow Fund
and/or the
Excess Employee Payment Fund for the purpose of paying
reasonable compensation to, or any reasonable out-of-pocket fees
or expenses of, the Stockholders’ Representative pursuant
Article VIII of the Merger Agreement, as well as the
reasonable fees and expenses of any attorneys, agents or other
third parties engaged by the Stockholders’ Representative
in connection with the performance of its duties or exercise of
its rights hereunder, under the Merger Agreement or any other
Transaction Document (in each case, as contemplated by
Article VIII of the Merger Agreement).
(b) Each Expense Notice shall contain (i) a detailed
description of the purpose and amount of such withdrawal (each,
an “Expense Payment Amount”), together with
reasonable evidence (in the form of a bill, assessment, notice,
invoice, receipt or other writing) that the amount of such fees
or expenses has been paid or is due and payable, provided that
any bill, invoice, receipt or other evidence relating to fees
and expenses shall contain reasonable detail regarding such fees
and expenses, and (ii) reasonable evidence that such
out-of-pocket costs or expenses were incurred by
Stockholders’ Representative in accordance with
Article VIII of the Merger Agreement or in connection with
the performance of its duties or exercise of its rights
hereunder, under the Merger Agreement or any other Transaction
Document (in each case, as contemplated by Article VIII of
the Merger Agreement). Within five (5) Business Days after
receipt of such Expense Notice, the Escrow Agent, without any
approval, direction or other action of Holdco or Vowel, shall
remit the amounts set forth in the Expense Notice to the
Stockholders’ Representative by wire transfer of
immediately available funds from the CVR Escrow Fund or the
Excess Employee Payment Fund. The Expense Notice will include
the name of the bank to which such payments shall be made,
account name at the bank, account number at the bank to which
such payments shall be made, ABA routing number of the bank and
any further credit instructions for
payment to the account. The Escrow Agent will deduct payments
first from principal and second on interest on any payments made
from the CVR Escrow Fund
and/or the
Excess Employee Payment Funds, as applicable.
3.6 CVR Payments
(a) First CVR Payment.
Within ten (10) Business Days after the First CVR Payment
Event Date, Holdco shall give written notice to the Escrow Agent
and the Stockholders’ Representative calculating in
reasonable detail the First CVR Payment Amount (the
“First CVR Payment Notice”). On or prior to the
second Business Day following receipt of the First CVR Payment
Notice, the Escrow Agent shall pay the Rights Agent from the CVR
Escrow Account the First CVR Payment Amount shown in the First
CVR Payment Notice, including all interest, dividends or profit
on or proceeds or other income earned thereon. If the
Stockholders’ Representative shall object to the
calculation of the First CVR Payment Amount or any elements of
such First CVR Payment Amount set forth in the First CVR Payment
Notice (x) on account of mathematical error, (y) on
account of a failure to include any Vowel Tax Refunds or the
applicable portion of Vowel Shared Tax Offset Amounts received
by Vowel or its Subsidiaries after the Effective Time and on or
before the First CVR Payment Event Date, or (z) on the
grounds that any Recoupment Amount included in the First CVR
Payment Notice either has been paid or no notice for such
Recoupment Amount has been delivered under this
Section 3, or on any other grounds that would be
permissible under Sections 3.1,3.2,3.3 or 3.4, as applicable, then the
Stockholders’ Representative shall deliver a reasonably
detailed written notice of such objection (the “First
CVR Objection Notice”) to the Escrow Agent and Holdco
within twenty (20) Business Days after the First CVR
Payment Notice was received by it in accordance with the terms
of this Section 3.6(a) and Section 13 of
this Agreement, which notice must set forth a calculation of the
additional amount that it reasonably believes should be paid to
the Rights Agent (the “First CVR Disputed
Amount”); provided, however, if the
Stockholders’ Representative shall fail to timely deliver
the First CVR Objection Notice in accordance with this sentence
(which notice must include such detail as is required by this
paragraph), it shall have thereupon irrevocably waived any right
to object to such First CVR Payment Notice. If any portion of
the First CVR Disputed Amount is determined to be payable as a
result of the dispute resolution procedure in
Section 3.7 of this Agreement, then such amount
shall be paid to the Rights Agent within five (5) Business
Days after resolution of the dispute, unless the Stockholders
Representative (in its sole and absolute discretion) has
previously elected by written notice to the Escrow Agent to
defer such payment until the Second CVR Payment Event Date.
Notwithstanding anything to contrary set forth in this
Section 3.6(a), to the extent that Holdco fails to
deliver the First CVR Payment Notice by the
10th
Business Day after the First CVR Payment Event Date, then the
Stockholders’ Representative shall have the right at any
time after such 10th Business Day, but not the obligation, to
deliver such First CVR Payment Notice, whereupon Holdco shall
have the right to deliver the First CVR Objection Notice within
twenty (20) Business Days after the First CVR Payment
Notice was received by it in accordance with the terms of this
Section 3.6(a) and Section 13 of this
Agreement. The First CVR Payment Notice will include the name of
the bank to which such payments shall be made, account name at
the bank, account number at the bank to which such payments
shall be made, ABA routing number of the bank and any further
credit instructions for payment to the account. The Escrow Agent
will deduct payments first from principal and second on interest
on any payments made from the CVR Escrow Fund.
(b) Second CVR
Payment. Within ten (10) Business Days
after the Second CVR Payment Event Date, Holdco shall give
written notice to the Escrow Agent and the Stockholders’
Representative calculating in reasonable detail the Second CVR
Payment Amount (the “Second CVR Payment
Notice”, and together with each Agreed Contingency
Payment Notice, each Documented Cost Payment Notice, the 280G
Payment Notice, the Holdco 280G Payment Notice, the WC Payment
Notice, each Expense Notice and the First CVR Payment Notice,
the “Payment Notices”, and each a
“Payment Notice”). On or prior to the second
Business Day after receipt of the Second CVR Payment Notice, the
Escrow Agent shall pay the Rights Agent from the CVR Escrow
Account the Second CVR Payment Amount shown in the Second CVR
Payment Notice, plus all interest, dividends or profit on or
proceeds or other income earned thereon. If the
Stockholders’ Representative shall object to the
calculation of the Second CVR Payment Amount set forth in the
Second CVR Payment Notice (x) on account of mathematical
error, (y) on account of a failure to include any Vowel Tax
Refunds or
the applicable portion of Vowel Shared Tax Offset Amounts
received by Vowel or its Subsidiaries after the Effective Time
and on or before the Second CVR Payment Event Date, or
(z) on the grounds that any Recoupment Amount included in
the Second CVR Payment Notice either has been paid or no notice
for such Recoupment Amount has been delivered under this
Section 3, or on any other grounds that would be
permissible under Sections 3.1,3.2,3.3 or 3.4, as applicable, then the
Stockholders’ Representative shall deliver a reasonably
detailed written notice of such objection (the “Second
CVR Objection Notice”, and together with each AC
Objection Notice, each DC Objection Notice, the WC Objection
Notice and the First CVR Objection Notice, the
“Objection Notices”, and each an
“Objection Notice”) to the Escrow Agent and
Holdco within twenty (20) Business Days after the Second
CVR Payment Notice was received by it in accordance with the
terms of this Section 3.6(b) and
Section 13 of this Agreement, which notice must set
forth a calculation of the additional amount that it reasonably
believes should be paid to the Rights Agent (the “Second
CVR Disputed Amount”); provided, however,
if the Stockholders’ Representative shall fail to timely
deliver the Second CVR Objection Notice in accordance with this
sentence (which notice must include such detail as is required
by this paragraph), it shall have thereupon irrevocably waived
any right to object to such Second CVR Payment Notice. If any
portion of the Second CVR Disputed Amount is determined to be
payable as a result of the dispute resolution procedure in
Section 3.7 of this Agreement, then such amount
shall be paid to the Rights Agent within five (5) Business
Days after resolution of the dispute. Notwithstanding anything
to contrary set forth in this Section 3.6(b), to the
extent that Holdco fails to deliver the Second CVR Payment
Notice by the 10th Business Day after the Second CVR Payment
Event Date, then the Stockholders’ Representative shall
have the right at any time after such
10th
Business Day, but not the obligation, to deliver such Second CVR
Payment Notice, whereupon Holdco shall have the right to deliver
the Second CVR Objection Notice within twenty (20) Business
Days after the Second CVR Payment Notice was received by it in
accordance with the terms of this Section 3.6(b) and
Section 13 of this Agreement. The Second CVR Payment
Notice will include the name of the bank to which such payments
shall be made, account name at the bank, account number at the
bank to which such payments shall be made, ABA routing number of
the bank and any further credit instructions for payment to the
account. The Escrow Agent will deduct payments first from
principal and second on interest on any payments made from the
CVR Escrow Fund.
(c) Subsequent CVR
Payment. If any funds remain in the CVR
Escrow Account after the payments, if any, made from the CVR
Escrow Fund pursuant to Section 3.6(b), then, to the
extent such funds are subject to an Objection Notice, they shall
remain in the CVR Escrow Account until such Objection Notice(s)
is/are resolved in accordance with Section 3.7 of
this Agreement. Upon resolution of the last such Objection
Notice(s) in accordance with this Agreement, all such funds then
remaining in the CVR Escrow Account shall promptly be paid
either to the Rights Agent for further payment pursuant to the
CVR Agreement in accordance with such resolution (if any, the
“Subsequent CVR Payment Amount”) or to Holdco,
as the case may be. Any payment notice given in connection with
directing any such further payment will include the name of each
bank to which such payments shall be made, account name at such
bank, account number at the bank to which such payments shall be
made, ABA routing number of such bank and any further credit
instructions for payment to such account.
(d) Treatment of Excess Employee Payment
Fund. Holdco and the Stockholders’
Representative hereby acknowledge and agree that the Excess
Employee Payment Fund has been included in the calculation of
the First CVR Payment Amount and the Second CVR Payment Amount
solely for purposes of convenience and shall not be deemed as
part of the CVR Escrow Fund. If, at any time or from time to
time after the date hereof and prior to the full distribution of
the Excess Employee Payment Fund, the Stockholders’
Representative (in its sole and absolute discretion) desires to
direct all or any portion of the Excess Employee Payment Fund to
the Rights Agent for payment to the holders of the CVRs, Holdco
shall promptly execute a joint direction letter to the Escrow
Agent with respect to such payment and shall not have any right
to object to such payment.
3.7 Resolutions of Disputes.
(a) If the Stockholders’ Representative (or Holdco
pursuant to Section 3.6, as the case may be) shall
have timely delivered an Objection Notice in accordance with the
terms of this Agreement, then Holdco and the Stockholders’
Representative shall attempt to resolve the dispute subject to
such Objection Notice as promptly
as possible. If Holdco and the Stockholders’ Representative
resolve such dispute, they shall deliver to the Escrow Agent a
joint written notice (a “Settlement Notice”) to
that effect signed by a duly authorized representative of each
of Holdco and the Stockholders’ Representative. Such
Settlement Notice shall direct the Escrow Agent to pay from the
CVR Escrow Fund to Holdco, the CVR Agent or retain the amount in
the CVR Escrow Account, if any, agreed to by both Holdco and the
Stockholders’ Representative in settlement of such dispute.
If Holdco and the Stockholders’ Representative fail to
resolve such dispute within thirty (30) calendar days after
receipt by Holdco (or the Stockholders’ Representative
pursuant to Section 3.6, as the case may be) of the
Objection Notice corresponding to such dispute, either party may
at any time thereafter commence an arbitration in order to
finally resolve such dispute.
(b) If Holdco or the Stockholders’ Representative
commences arbitration pursuant to Section 3.7(a),
such dispute shall be resolved by arbitration administered by
the American Arbitration Association under its Commercial
Arbitration Rules, and judgment on the Award (as defined below)
rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The number of arbitrators shall be three.
The arbitrators must be independent of each party, meaning that
neither they nor their current or past firm may have represented
any party within the five (5) years preceding their
appointment. The arbitrators shall be lawyers or retired judges.
Within fifteen (15) days after the commencement of
arbitration, each of Holdco and the Stockholders’
Representative shall select one person to act as arbitrator, and
the two selected shall select a third arbitrator within fifteen
(15) days of their appointment. If the arbitrators selected
by Holdco and the Stockholders’ Representative are unable
or fail to agree upon the third arbitrator, the third arbitrator
shall be selected by the American Arbitration Association.
(c) The arbitrators shall only have the power to construe
this Agreement, the applicable provisions of the Merger
Agreement, the applicable provisions of the CVR Agreement and
applicable Law, solely for the purpose of determining whether
and to whom payments are due in accordance with this Agreement.
The place of the arbitration shall be New York, New York. The
arbitrators shall: (a) commence the arbitration proceedings
within ten (10) calendar days after the three arbitrators
have been appointed, and conduct any hearings as they shall
reasonably determine, (b) require such oral and written
submissions as they reasonably determine; and (c) order a
party to produce business records or other documentation
reasonably related to the given dispute that are within such
party’s possession and control as they reasonably
determine. The arbitrators must issue their written opinion
within ninety (90) days of the commencement of the
arbitration proceeding (the “Award”), which
Award shall specifically direct the Escrow Agent as to the
payment of the amount in dispute, and contain an assessment of
the fees and costs of such arbitration (consisting of the
arbitrators’ reasonable fees and expenses, any amounts
payable to the American Arbitration Association, and each
party’s reasonable documented out-of-pocket attorneys fees
and expenses incurred in connection with such arbitration)
against the losing party.
(d) Except as may be required by Law, neither a party nor
an arbitrator may disclose the existence, content or results of
any arbitration hereunder without the prior written consent of
Holdco and the Stockholders’ Representative, except that
either party may deliver a copy of the Award to the Escrow
Agent. If the Award assesses fees and expenses against Holdco in
accordance with Section 3.7(c), then Holdco shall
promptly pay an amount equal to such fees and expenses to the
Escrow Agent for deposit into the CVR Escrow Account and such
amount shall be added to the amount then payable from the CVR
Escrow Fund to the Rights Agent for distribution under the CVR
Agreement. If the Award assesses fees and expenses against the
Stockholders’ Representative in accordance with
Section 3.7(c), then the Escrow Agent shall promptly
pay to Holdco from the CVR Escrow Fund, such fees and expenses.
Except as provided in the immediately preceding sentence, upon
receipt of the Award, the Escrow Agent shall promptly distribute
funds from or retain funds in, as the case may be, the CVR
Escrow Fund in accordance with the Award, including all
interest, dividends or profit on or proceeds or other income
earned thereon, less any fees and expenses paid pursuant to the
immediately preceding sentence.
3.8 Certain Tax Matters.
(a) The parties hereto hereby acknowledge and agree that,
for tax reporting with respect to federal, state and local taxes
based on income, Holdco will be treated as the owner of each
Escrow Fund and will report all
income, gain, loss, credit or deduction, if any, that is earned
on, or derived from or attributable to, any investment made from
each such Escrow Fund as its income, gain, loss, credit or
deduction, in the taxable year or years in which such income tax
item is properly includible and pay any taxes attributable
thereto, and as of the end of each calendar year and, to the
extent required by the U.S. Internal Revenue Service (the
“IRS”), such income shall be reported as having
been earned by Holdco whether or not such income was disbursed
during such calendar year. Holdco will provide the Escrow Agent
with an IRS
Form W-9
concurrently with its execution and delivery of this Agreement
to comply with the Escrow Agent’s legal compliance
obligations. The parties hereto understand that if such tax
reporting documentation is not provided and certified to the
Escrow Agent, the Escrow Agent may be required by the Code and
the rules and regulations of the IRS promulgated thereunder, to
withhold a portion of any interest or other income earned on the
investment of the Escrow Funds.
(b) Holdco shall be responsible for paying taxes (including
any penalties and interest thereon) on all interest and other
income earned on any Escrow Fund pursuant to this Agreement and
for filing all necessary tax returns with respect to such
income. None of Vowel, the Stockholders’ Representative,
the holders of the CVRs (collectively, the
“Holders”) or the Escrow Agent shall have any
obligation to file or prepare any tax returns or prepare any
other reports for any taxing authorities concerning matters
covered by this Agreement with respect to income earned on any
Escrow Fund. The Escrow Agent shall have no responsibility to
provide tax forms relating to taxable transactions for claimants
or closing payees.
(c) To the extent that the Escrow Agent becomes liable for
the payment of any taxes in respect of income derived from the
investment of any portion of the funds in an Escrow Fund, the
Escrow Agent shall satisfy such liability to the extent possible
from such Escrow Fund. The parties hereto hereby agree,
severally and not jointly, to indemnify, defend and hold the
Escrow Agent harmless from and against any tax, late payment,
interest, penalty or other cost or expense that may be assessed
against the Escrow Agent on or with respect to the Escrow Funds
and the investment thereof unless such tax, late payment,
interest, penalty or other expense was directly caused by the
gross negligence or willful misconduct of the Escrow Agent. The
indemnification provided by this Section 3.8(c) is
in addition to the indemnification provided in
Section 5.3 and shall survive the resignation or
removal of the Escrow Agent and the termination of this
Agreement.
(d) The Escrow Agent shall not be considered the payor with
respect to payments made on Holdco’s, the
Stockholders’ Representative’s, the Holders’ or
Surratt’s behalf and pursuant to any Payment Notices,
notice of an Award or similar disbursement or payment
instructions. The Escrow Agent shall not be considered the payor
with respect to payments made on Holdco’s, the
Stockholders’ Representative’s, the Holders’ or
Surratt’s behalf to non-resident aliens and, accordingly,
is not the “withholding agent” for purposes of the
payments as that term is defined under the rules and regulations
of the IRS. The Escrow Agent has no direct knowledge of the
recipients of the payments and is not in a position to
characterize the nature of the payments made to recipients for
tax purposes.
4. Termination of
Agreement. This Agreement shall become
effective on the date hereof and its term (the
“Term”) shall continue until and terminate upon
the full distribution of all Escrow Funds pursuant to
Section 3 hereof.
5.1 The Escrow Agent shall be entitled to an
administration fee of $2,500 and reimbursement of its reasonable
customary and documented out-of-pocket expenses including, but
not by way of limitation, the reasonable fees and costs of
attorneys or agents which it may find necessary to engage in the
performance of its duties hereunder, all to be paid one half by
Holdco and one half from CVR Escrow Fund, and the Escrow Agent
shall have, and is hereby granted, a prior lien upon any
property, cash, or assets of the Escrow Funds, as the case may
be, with respect to its unpaid fees and nonreimbursed expenses,
superior to the interests of any other persons or entities.
Except as expressly provided in the immediately preceding
sentence, the Escrow Agent does not have any interest in the
Escrow Funds deposited hereunder but is serving as escrow holder
only and having only possession thereof.
5.2 The Escrow Agent agrees to hold and safeguard the
Escrow Funds and to perform its duties in accordance with the
terms and provisions of this Agreement. Holdco, the
Stockholders’ Representative and Surratt agree that the
Escrow Agent does not assume any responsibility for the failure
of Holdco, the Stockholders’ Representative or Surratt to
perform any of their respective obligations in accordance with
this Agreement, the Merger Agreement or any other agreement. The
acceptance by the Escrow Agent of its responsibilities hereunder
is subject to the following terms and conditions, which the
parties hereto agree shall govern and control with respect to
the Escrow Agent’s rights, duties, liabilities and
immunities:
(a) The Escrow Agent shall be protected in acting upon any
written notice, consent, receipt or other paper or document
furnished to it, not only as to its due execution and validity
and effectiveness of its provisions but also as to the truth and
accuracy of any information therein contained, which the Escrow
Agent believes to be genuine and what it purports to be. Should
it be necessary for the Escrow Agent to act upon any
instructions, directions, documents or instruments issued or
signed by or on behalf of any corporation, fiduciary, or
individual acting on behalf of another party hereto, which the
Escrow Agent in believes to be genuine, it shall not be
necessary for the Escrow Agent to inquire into such
corporation’s, fiduciary’s or individual’s
authority. The Escrow Agent is also relieved from the necessity
of satisfying itself as to the authority of the persons
executing this Agreement in a representative capacity.
(b) The Escrow Agent shall not be liable for any error of
judgment or for any act done or step taken or omitted, or for
any mistake of fact or law, or for anything which it may do or
refrain from doing in connection herewith, except for its own
gross negligence, recklessness or willful misconduct.
(c) The Escrow Agent may consult with, and obtain advice
from, legal counsel in the event of any question as to any of
the provisions hereof or the duties hereunder, and it shall
incur no liability and shall be deemed to be acting in
accordance with the opinion and instructions of such counsel.
The reasonable costs of such counsel’s services shall be
paid to the Escrow Agent in accordance with
Section 5.1 above and clause (f) of this
Section 5.2. The Escrow Agent may perform any and
all of its duties through its agents, representatives,
attorneys, custodians,
and/or
nominees.
(d) The Escrow Agent shall have no duties except those
which are expressly set forth herein, and it shall not be bound
by the Merger Agreement, the CVR Agreement or any agreement of
the other parties hereto (whether or not it has any knowledge
thereof) or by any notice of a claim, or demand with respect
thereto, or any waiver, modification, amendment, termination or
rescission of this Agreement, until received and acknowledged by
an officer in its Shareowner Services department in writing. The
Escrow Agent shall have only those duties as are expressly
provided herein, which shall be deemed purely ministerial in
nature, and shall under no circumstance be deemed a fiduciary
for any of the parties to this Agreement. The Escrow Agent shall
neither be responsible for, nor chargeable with, knowledge of
the terms and conditions of any other agreement, instrument or
document between the other parties hereto, in connection
herewith, including without limitation the Merger Agreement or
the CVR Agreement. This Agreement sets forth all matters
pertinent to the escrow contemplated hereunder, and no
additional obligations of the Escrow Agent shall be inferred
from the terms of this Agreement or any other agreement. IN NO
EVENT SHALL THE ESCROW AGENT BE LIABLE, DIRECTLY OR INDIRECTLY,
FOR ANY (i) DAMAGES OR EXPENSES ARISING OUT OF THE SERVICES
PROVIDED HEREUNDER, OTHER THAN DAMAGES WHICH RESULT FROM THE
ESCROW AGENT’S FAILURE TO ACT IN ACCORDANCE WITH THE
STANDARDS SET FORTH IN THIS AGREEMENT, OR (ii) SPECIAL,
INDIRECT OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF THE ESCROW
AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR
DAMAGES.
(e) In the event that any Escrow Account property shall be
attached, garnished, or levied upon by any court order, or the
delivery thereof shall be stayed or enjoined by an order of a
court, or any order, judgment or decree shall be made or entered
by any court order affecting the property deposited under this
Agreement, or any part thereof, the Escrow Agent is hereby
expressly authorized, in its sole discretion, to obey and comply
with all writs, orders or decrees so entered or issued, which it
is advised by legal counsel of its own choosing is binding upon
it, and in the event that the Escrow Agent obeys or complies
with any such writ, order, judgment or decree it shall not be
liable to any of the parties hereto
or to any other Person by reason of such compliance
notwithstanding such writ, order, judgment or decree be
subsequently reversed, modified, annulled, set aside or vacated.
(f) If the Escrow Agent becomes involved in litigation on
account of this Agreement, it shall have the right to retain
counsel and shall be entitled to reimbursement for all
reasonable documented costs and expenses related thereto as
provided in Sections 6.1 and 6.3(c) hereof;
provided, however, that the Escrow Agent shall not
be entitled to any such reimbursement to the extent such
litigation ultimately determines that the Escrow Agent acted
with gross negligence or willful misconduct.
(g) In the event that conflicting demands are made upon the
Escrow Agent for any situation not addressed or addressed in
this Agreement, the Escrow Agent may withhold performance of the
terms of this Agreement until such time as said conflicting
demands shall have been withdrawn or the rights of the
respective parties shall have been settled by court
adjudication, arbitration, joint order or otherwise.
(h) Any corporation or association into which the Escrow
Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its corporate
trust business and assets as a whole or substantially as a
whole, or any corporation or association resulting from any such
conversion, sale, merger, consolidation or transfer to which it
is a party, so long as such successor has capital and surplus of
at least $5,000,000,000, shall be and become the successor
Escrow Agent hereunder and vested with all of the title to the
whole property or trust estate and all of the trusts, powers,
immunities, privileges, protections and all other matters as was
its predecessor, without the execution or filing of any
instrument or any further act, deed or conveyance on the part of
any of the parties hereto, anything herein to the contrary
notwithstanding.
(i) The Escrow Agent shall not be liable for any action
taken or not taken by it in accordance with the direction or
consent of the parties or their respective agents,
representatives, successors, or assigns. The Escrow Agent shall
not be liable for acting or refraining from acting upon any
notice, request, consent, direction, requisition, certificate,
order, affidavit, letter, or other paper or document believed by
it to be genuine and correct and to have been signed or sent by
the proper person or persons, without further inquiry into the
person’s or persons’ authority. Concurrently with the
execution of this Agreement, the parties hereto shall deliver to
the Escrow Agent authorized signers’ forms in the form of
Exhibits B-1,
B-2 and B-3 to this Agreement.
(j) The permissive rights of the Escrow Agent to do things
enumerated in this Agreement shall not be construed as duties.
(k) No provision of this Agreement shall require the Escrow
Agent to risk or advance its own funds or otherwise incur any
financial liability or potential financial liability in the
performance of its duties or the exercise of its rights under
this Agreement.
(l) This Agreement is subject to the parties of this
Agreement passing all necessary background, compliance and other
required or best practice internal
and/or
mandated compliance measures. The Escrow Agent reserves the
right to terminate this Agreement if findings in a compliance
related background check or other source determine a reasonable
cause eliminating opportunity to continue relation and Escrow
Agreement.
5.3 Holdco, Vowel, the Stockholders’
Representative (solely to the extent of the CVR Escrow Fund and
the Excess Employee Payment Fund) and Surratt (solely to the
extent of the 280G Escrow Fund) hereby agree, severally and not
jointly, to indemnify the Escrow Agent for and to hold it
harmless against any loss, liability or expense incurred without
gross negligence, recklessness, willful misconduct on the part
of the Escrow Agent arising out of or in connection with its
performance under this Agreement. The obligations of Holdco, the
Stockholders’ Representative and Surratt set forth in this
Section 5.3 shall survive the termination or
assignment of this Agreement and the resignation or removal of
the Escrow Agent.
5.4 Any tax returns required to be prepared and filed
will be prepared and filed by the party which is reported to
have received such income with the IRS in all years income is
earned, whether or not income is received or distributed in any
particular tax year (which party, in accordance with
Section 3.8, shall be
Holdco), and the Escrow Agent shall have no responsibility for
the preparation
and/or
filing of any tax return with respect to any income earned by
the Escrow Funds. Any taxes payable on income earned from the
investment of the Escrow Funds shall be paid by the party which
is reported to have received such income, whether or not the
income was distributed by the Escrow Agent during any particular
year (which party, in accordance with Section 3.8,
shall be Holdco). The Escrow Agent shall have no obligation to
pay any taxes or estimated taxes. After the Escrow Funds and the
income earned thereon have been distributed by the Escrow Agent,
Holdco, the Stockholders’ Representative and Surratt agree
to cooperate and to file any amended reports which may be
necessary in order to correct any filings with the IRS which
reported income as having been earned by a party which did not
actually receive such income.
5.5 Notwithstanding any provision herein to the
contrary, the parties agree that the Escrow Agent may
interplead, should any controversy arise involving the parties
hereto or any of them or any other Person with respect to this
Agreement or the Escrow Funds, or should a substitute escrow
agent fail to be designated as provided herein, or if the Escrow
Agent should be in doubt as to what action to take, the Escrow
Agent shall have the right, but not the obligation, either to
(a) withhold delivery of the applicable Escrow Funds until
the controversy is resolved, the conflicting demands are
withdrawn or its doubt is resolved or (b) institute a
petition for interpleader in any court of competent jurisdiction
to determine the rights of the parties hereto. In the event the
Escrow Agent is a party to any dispute, the Escrow Agent shall
have the additional right to refer such controversy to binding
arbitration. Should a petition for interpleader be instituted,
or should the Escrow Agent be threatened with litigation or
become involved in litigation or binding arbitration in any
manner whatsoever in connection with this Agreement or any of
the Escrow Funds, Holdco, Vowel and the Stockholders’
Representative (solely to the extent of the CVR Escrow Funds and
the Excess Employee Payment Fund) each hereby agree to reimburse
the Escrow Agent for one-half
(1/2)
of its reasonable attorneys’ fees and any and all other
expenses, losses, costs and damages incurred by the Escrow Agent
in connection with or resulting from such threatened or actual
litigation or arbitration prior to any disbursement hereunder
any adverse claim or demand in the courts of the State of New
York and the United States District Court located in New York
County, New York and the parties agree to the jurisdiction of
said Courts over their persons as well as the Escrow Funds.
5.6 The Escrow Agent agrees that Holdco, Vowel, the
Stockholders’ Representative and, to the extent the 280G
Escrow Fund has been established and funds remain in the 280G
Escrow Account to which Surratt is entitled, Surratt, may, by
mutual written agreement executed by all of them (including
Surratt in the case of the 280G Escrow Account) at any time,
remove the Escrow Agent as escrow agent hereunder, and
substitute another bank or trust company therefor, in which
event, upon receipt of written notice thereof, payment of any
accrued but unpaid fees due the Escrow Agent, and reimbursement
of the Escrow Agent’s other fees and expenses, in
accordance herewith, the Escrow Agent shall account for and
deliver to such substituted escrow agent the entire Escrow
Funds, and the Escrow Agent shall thereafter be discharged from
all duties hereunder, except for its gross negligence or willful
misconduct.
6. Entire Agreement. This
Agreement, the Merger Agreement and the CVR Agreement constitute
the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and
undertakings, whether written or oral, with respect to the
subject matter hereof. Except for the Released Parties pursuant
to Section 3.3 of this Agreement, there are no
express, implied or intended third party beneficiaries of this
Agreement. For the avoidance of doubt, none of the Holders or
the Rights Agent shall be a beneficiary of this Agreement.
7. Amendment; Waiver. This
Agreement may not be amended or modified except by an instrument
in writing signed by the Stockholders’ Representative,
Holdco and the Escrow Agent. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate
as a waiver thereof.
8. Governing Law. This
Agreement shall be governed by the laws of the State of New York
without regard for choice of law or conflicts of law principles
thereof. Each party hereby (a) irrevocably and
unconditionally submits to the exclusive jurisdiction of the
courts of the State of New York and of the United States of
America, in each case located in the State of New York with
respect to all actions and proceedings arising out of or
relating to this Agreement or the transaction contemplated
hereby, (b) agrees that all claims with respect to any such
action or proceeding shall be heard and determined in such New
York State or federal
court and agrees not to commence an action or proceeding
relating to this Agreement or the transactions contemplated
hereby except in such courts, (c) irrevocably and
unconditionally waives any objection to the laying of venue of
any action or proceeding arising out of this Agreement or the
transactions contemplated hereby and irrevocably and
unconditionally waives the defense of an inconvenient forum,
(d) consents to service of process upon it by mailing or
delivering such service to the address set forth in
Section 13 hereof, and (e) agrees that a final
judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
9. Assignment. Subject to
the provisions of Section 5.2(h), this Agreement
shall not be assigned without the express written consent of the
Stockholders’ Representative and Holdco (which consent may
be granted or withheld in the sole discretion of the
Stockholders’ Representative and Holdco); provided
that Holdco shall be entitled to assign this Agreement to the
same extent it is entitled to assign the Merger Agreement and
the Stockholders Representative shall be entitled to assign this
Agreement to any successor in accordance with Article VIII
of the Merger Agreement. Notwithstanding the foregoing, no
assignment of the interest of any of the parties hereto shall be
binding upon the Escrow Agent unless and until reasonable
written evidence of such assignment shall be delivered to the
Escrow Agent.
10. Counterparts. This
Agreement may be executed in one or more counterparts, and by
the parties hereto in separate counterparts, each of which, when
executed, shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement. The
exchange of copies of this Agreement and of signature pages by
facsimile transmission or by electronic transmission of portable
document format (PDF) files or tagged image file format (TIF)
files shall constitute effective execution and delivery of this
Agreement and may be used in lieu of the originally executed
Agreement for all purposes. Signatures of the parties
transmitted by facsimile or by electronic transmission of
portable document format (PDF) files or tagged image file format
(TIF) files shall be deemed to be their original signatures for
all purposes.
11. Headings. The headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement.
12. Severability. To the
extent any provision of this Agreement is prohibited by or
invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such
prohibition or invalidity and only in such jurisdiction, without
prohibiting or invalidating such provision in any other
jurisdiction or the remaining provisions of this Agreement in
any jurisdiction.
13. Notices. All notices,
requests, consents and demands to or upon the respective parties
hereto will be in writing and will be deemed received
(a) on the date of delivery if delivered personally,
(b) on the date that written confirmation of transmission
is received if by telecopy, facsimile or
e-mail
transmission of portable document format (PDF) files or tagged
image file format (TIF) files, provided that such written
confirmation is received on a Business Day on or prior to
3:00 p.m., New York City time, or if received after such
time or on a day other than a Business Day, then on the first
Business Day thereafter, (c) on the first Business Day
following the date of dispatch if delivered by a recognized
next-day
courier service, or (d) on the fifth Business Day following
the date of mailing if delivered by registered or certified
mail, return receipt requested, postage prepaid. Any notice
required to be delivered to more than one party under this
Agreement shall be delivered by such method(s) under this
Section 13 to ensure that all parties required to be
recipients of said notice are deemed to have received such
notice on the same day pursuant to this
Section 13. All notices hereunder must be
delivered as set forth below, or pursuant to instructions as may
be designated in writing by the party to receive such notice:
14. Service of Process. Any
and all service of process shall be effective against any party
if given personally or by registered or certified mail, return
receipt requested, or by any other means of mail that requires a
signed receipt, postage prepaid, mailed to such party as herein
provided. Nothing herein contained shall be deemed to affect the
right of any party to serve process in any manner permitted by
law or to
commence legal proceedings or otherwise proceed against any
other party in any other jurisdiction. No notice shall be
effective under this Agreement unless given in a manner that
complies with Section 13 hereof.
15. Certain Definitions. The
following terms shall have the meanings ascribed thereto:
(a) “Business Day” means any
day other than a Saturday, Sunday or other day on which the
Escrow Agent is not open for conducting business as an escrow
agent, generally.
(b) “Excess Employee Payment
Amounts” has the meaning set forth in
Section 5.24 of the Merger Agreement.
(c) “First CVR Payment
Amount” means an amount equal the sum of
(A) 100% of the aggregate amount held in the Excess
Employee Payment Account as of the First CVR Payment Event Date,
plus (B) 50% of the excess, if any, of (x) the
total amount held in the CVR Escrow Account as of the First CVR
Payment Event Date, minus (y) the then-unpaid
portion of any Recoupment Amount as of the First CVR Payment
Event Date. For the avoidance of doubt, under no circumstances
shall any amounts in the Excess Employee Payment Fund be reduced
or offset by any amounts set forth in clause (y) in the
preceding sentence.
(d) “First CVR Payment Event
Date” means the nine (9) month
anniversary of the Effective Time.
(e) “Recoupment Amount” means
an AC Payment Amount, DC Payment Amount, WC Payment Amount or
Expense Payment Amount, as such amounts are reflected in a
notice given in accordance with this Agreement, whether or not
an Objection Notice has been delivered and whether or not the
period during which an Objection Notice may be delivered has
expired.
(f) “Second CVR Payment
Amount” means an amount equal the
(A) 100% of the aggregate amount held in the Excess
Employee Payment Account as of the Second CVR Payment Event Date
plus (B) the excess, if any, of (x) the total
amount held in the CVR Escrow Account as of the Second CVR
Payment Event Date, minus (y) the then-unpaid
portion of any Recoupment Amount as of the Second CVR Payment
Event Date. For the avoidance of doubt, under no circumstances
shall any amounts in the Excess Employee Payment Account be
reduced or offset by any amounts set forth in clause (y)
in the preceding sentence.
(g) “Second CVR Payment Event
Date” means the eighteen (18) month
anniversary of the Effective Time.
(h) “Specified Agreed
Contingency” means the Agreed Contingencies
identified in Lines 5 and 6 of Section 9.15(i) of Vowel
Disclosure Schedule.
(i) “Working Capital
Adjustment” means the sum, if any, without
duplication, of (x) the payment to be made to Holdco
pursuant to the mutual written agreement of Holdco and the
Stockholders Representative pursuant to Section 5.27(b) of
the Merger Agreement, plus (y) the amount set forth
in the Working Capital Award (as that terms is defined in the
Merger Agreement), plus (z) without duplication of
any amounts set forth in the Working Capital Award or retained
by Holdco pursuant to Section 5.27(e) of the Merger
Agreement, any reasonable documented out-of-pocket fees and
expenses of the prevailing party as determined by the
Independent Accountant in accordance with Section 5.27(e)
of the Merger Agreement.
THIS STOCKHOLDERS AGREEMENT (this “Agreement”)
is made as of [ ], 2009, by and
among Cambium-Voyager Holdings, Inc., a Delaware corporation
(f/k/a Cambium Holdings, Inc.) (the “Company”),
VSS-Cambium Holdings III, LLC, a Delaware limited liability
company (the “Stockholder”), and Vowel
Representative, LLC, a Delaware limited liability company (the
“Stockholders’ Representative”), solely in
its capacity as the Stockholders’ Representative pursuant
to ARTICLE VIII of the Merger Agreement (as defined below).
RECITALS
WHEREAS, the Company, Voyager Learning Company,
VSS-Cambium Holdings II Corp., a Delaware corporation
(“Consonant”), Vowel Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of the
Company (“Vowel Merger Sub”), Consonant
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Company (“Consonant Merger
Sub”) and the Stockholders’ Representative, have
entered into an Agreement and Plan of Mergers, dated as of
June 20, 2009 (as the same may be amended, supplemented or
otherwise modified from time to time, the “Merger
Agreement”), pursuant to which, among other things,
immediately prior to the execution of this Agreement, Vowel
Merger Sub merged with and into Vowel (the “Vowel
Merger”), with Vowel surviving the Vowel Merger as a
wholly-owned subsidiary of the Company, and Consonant Merger Sub
merged with and into Consonant (the “Consonant
Merger”), with Consonant surviving the Consonant Merger
as a wholly-owned subsidiary of the Company;
WHEREAS, pursuant to the terms of the Merger Agreement,
the Stockholder, being the former sole stockholder of Consonant,
has received shares of common stock of the Company,
$0.001 par value per share (the “Common
Stock”), as well as certain other consideration
described in the Merger Agreement, in consideration of its
common stock of Consonant;
WHEREAS, the Stockholder is currently the beneficial
owner of [ ] of shares of
Common Stock;
WHEREAS, the Stockholder and the Company believe it to be
in the best interests of the Stockholder and of the Company to
insure continuity of harmonious management of the Company and
its subsidiaries, and the good performance thereof, by providing
for certain preemptive rights and subscription rights and by
addressing certain matters relating to the governance of the
Company; and
WHEREAS, the Stockholder and the Company hereby agree
that this Agreement shall govern certain matters as set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
the Company and the Stockholder do hereby agree as follows:
1. Definitions. For purposes of
this Agreement:
1.1. “Affiliate” has the meaning
given to it in Rule 144(a)(1) of the Securities Act of
1933, as amended.
1.2. “Audit Committee” means the
Audit Committee of the Company’s Board of Directors.
1.3. “Audit Committee Independent
Director” means a director who is
(i) independent as defined under Rule 5605(a)(2) of
the Nasdaq Marketplace Rules; (ii) meets the criteria for
independence set forth under
Rule 10A-3(b)
of the Exchange Act; (iii) has not participated in the
preparation of the financial statements of the Company or any of
its subsidiaries during the past three years; and (iv) is
able to read and understand fundamental financial statements,
including a balance sheet, income statement and cash flow
statement.
1.4. “Board” has the meaning
assigned thereto in Section 2.1(a).
1.5. “Business Day” means a day,
other than a Saturday or Sunday, or other day on which banks in
the State of New York are closed or authorized by law to close.
1.7. “Capital Stock” means
(a) shares of Common Stock and Preferred Stock (whether now
outstanding or hereafter issued in any context), (b) shares
of Common Stock issued or issuable upon conversion of Preferred
Stock and (c) shares of Common Stock issued or issuable
upon exercise or conversion, as applicable, of stock options,
warrants or other convertible securities of the Company, in each
case now owned or subsequently acquired by any Stockholder, or
their respective successors or permitted transferees or assigns.
For purposes of the number of shares of Capital Stock held by a
Stockholder (or any other calculation based thereon), all shares
of Preferred Stock shall be deemed to have been converted into
Common Stock at the then-applicable conversion ratio.
1.8. “Common Stock” has the meaning
assigned thereto in the recitals to this Agreement.
1.9. “Company Securities” has the
meaning assigned thereto in Section 3.1.
1.10. “Contingent Value Right
Agreement” means that certain Contingent Value
Right Agreement, dated as of
[ ],
2009, by and among the Stockholders’ Representative, the
Company and Wells Fargo, N.A., as Rights Agent.
1.11. “DGCL” means the General
Corporation Law of the State of Delaware.
1.12. “Effective Time” has the
meaning assigned thereto in the Merger Agreement.
1.13. “Escrow Agreement” means that
certain Escrow Agreement, dated as of
[ ],
2009, by and among Voyager Learning Company, the
Stockholders’ Representative, the Company and Wells Fargo,
N.A., as Escrow Agent.
1.14. “Exchange Act” means the
Securities Exchange Act of 1934, as amended.
1.15. “Exempt Issuances” has the
meaning assigned thereto in Section 3.2(a).
1.16. “Independent Director” means
a director who is independent as defined under
Rule 5605(a)(2) of the Nasdaq Marketplace Rules.
1.17. “Merger Agreement” has the
meaning assigned thereto in the recitals to this Agreement.
1.18. “New Issuance” has the
meaning assigned thereto in Section 3.1.
1.19. “Offer Notice” has the
meaning assigned thereto in Section 3.1.
1.20. “Ownership Percentage” means
the quotient of (1) the number of votes which may be cast
by a VSS Stockholder as of the date of the Offer Notice based
upon the number of shares of Voting Stock owned by such VSS
Stockholder on the date of the Offer Notice dividedby (2) the total number of votes which may be cast
by the holders of all outstanding shares of Voting Stock as of
the date of the Offer Notice.
1.21. “Permitted Assignee” has the
meaning assigned thereto in Section 3.1.
1.22. “Person” means any
individual, corporation, partnership, trust, limited liability
company, association or other entity.
1.23. “Preferred Stock” means
shares of the Company’s preferred stock, par value $0.001
per share, as may be issued from time to time.
1.24. “Purchasing Stockholder” has
the meaning assigned thereto in Section 3.2(a).
1.26. “Shares” means and includes
any securities of the Company the holders of which are entitled
to vote for members of the Board, including without limitation,
all shares of Common Stock or Preferred Stock, by whatever name
called, now owned or subsequently acquired by a Stockholder,
however acquired, whether through stock splits, stock dividends,
reclassifications, recapitalizations, similar events or
otherwise.
1.27. “Subscription Notice” has the
meaning assigned thereto in Section 4.2.
1.28. “Subscription Period” has the
meaning assigned thereto in Section 4.1.
1.29. “Subscription Price Per
Share” has the meaning assigned thereto in
Section 4.1.
1.30. “Subscription Shares” has the
meaning assigned thereto in Section 4.2.
1.31. “Voting Stock” means shares
of Common Stock and any Company Securities which vote on an
as-converted basis with the Common Stock.
1.32. “Vowel Class II
Designees” has the meaning assigned thereto in
Section 2.1(d).
1.33. “Vowel Class III
Designees” has the meaning assigned thereto in
Section 2.1(d).
1.34. “VSS” means VSS
Fund Management LLC.
1.35. “VSS Fund(s)” means the
Stockholder
and/or one
or more other funds or entities owned, controlled or managed by
VSS.
1.32. “VSS Stockholder” has the
meaning assigned thereto in Section 3.1.
2. Voting Provisions Regarding Board of Directors and
Organizational Documents.
2.1. Size and Composition of Board.
(a) The Stockholder agrees to vote, or cause to be voted,
all Shares owned by such Stockholder, or over which such
Stockholder has voting control, from time to time and at all
times, in whatever manner as shall be necessary to ensure that
the size of the Board of Directors of the Company (the
“Board”) shall, until the third anniversary of
the Effective Time (as that term is defined in the Merger
Agreement), be set and remain at nine (9) directors.
(b) Pursuant to the terms of the Restated Certificate, the
Company maintains a staggered board with the classes and other
terms set forth in the Restated Certificate and By-laws.
Specifically, among other things, the Restated Certificate
provides that the Board shall be divided into three classes, as
nearly equal in number as possible, designated as Class I,
Class II and Class III. The Stockholder hereby
acknowledges that the duly elected directors of the Company as
of the date hereof are the persons set forth on
Exhibit A attached hereto and that each such person
serves in the class described on Exhibit A.
2.2. Removal and Replacement of Board
Members.
(a) The Stockholder agrees that except as required by Law
or rule of any national securities exchange or self regulatory
organization (based on advice of legal counsel), and until the
earlier to occur of (the “Expiration Date”):
(i) the written consent of the Stockholders’
Representative (which consent may be granted or withheld in its
sole and absolute discretion), (ii) the full distribution
by the Escrow Agent (as defined in the Escrow Agreement) of all
of the CVR Escrow Funds (as defined in the Escrow Agreement) in
accordance with the terms of the Escrow Agreement,
(iii) the second anniversary of the Effective Time with
respect to the Vowel Class II Designees listed below or the
third anniversary of the Effective Time with respect to the
Vowel Class III Designees listed below or (iv) the VSS
Funds collectively ceasing to beneficially own (as determined in
accordance with
Rule 13d-3
of the Exchange Act) at least ten percent (10%) of the issued
and outstanding shares of Common Stock, the Stockholder shall
not vote, act by written consent or take any other action to
remove or disqualify any of (i) the Vowel Class II
Designees, or (ii) the Vowel Class III Designees, in
each case other than for cause as determined in accordance with
Section 141 of the DGCL. The Stockholder agrees to execute
any written consents and take any other actions reasonably
required to perform the obligations of this Agreement. The
Expiration Date, as applicable to the Vowel Class II
Designees is referred to herein as the
“Class II Expiration Date”; and the
Expiration Date, as applicable to the Vowel Class III
Designees is referred to herein as the “Class III
Expiration Date”.
(b) “Vowel Class II Designees”
shall initially mean the following two (2) individuals:
[ ] and
[ ].
“Vowel Class III Designees” shall
initially mean the following two (2) individuals:
[ ] and
[ ].
The Vowel Class II Designees and the Vowel Class III
Designees are referred to collectively herein as the
“Vowel Designees”. If, at any time prior to the
applicable Expiration Date, any Vowel Designee resigns, is
removed for cause as contemplated in Section 2.2(a),
or a vacancy otherwise occurs with respect to the board seat
occupied by such Vowel Designee, then the Stockholder or the
Company shall provide prompt written notice to the
Stockholders’ Representative of such vacancy and the
Stockholders’ Representative may nominate a replacement
director to serve in the same Class as the departing director,
subject to the approval of the Stockholder (which approval shall
not be unreasonably withheld, conditioned or delayed) (each, a
“Vowel Replacement Designee”). The Stockholder
shall vote, act by written consent and take any other action
that is necessary or appropriate to cause the election of the
Vowel Replacement Designee to the Board whereupon the Vowel
Replacement Designee shall become a Vowel Class II Designee
or a Vowel Class III Designee, as applicable, in accordance
with this Agreement.
(c) Notwithstanding the foregoing, at least two (2) of
the Vowel Designees (including any Vowel Replacement Designee)
and at least one (1) of the directors nominated by the
Stockholder shall be an Audit Committee Independent Director.
2.3. Amendment of Restated Certificate and
Bylaws. The Stockholder agrees that, until
the third anniversary of the Effective Time, except as required
by Law or any rule of any national securities exchange or self
regulatory organization (based on advice of legal counsel), for
so long as the VSS Funds collectively beneficially own (as
determined in accordance with
Rule 13d-3
of the Exchange Act) at least ten percent (10%) of the issued
and outstanding shares of Common Stock, (i) none of the VSS
Funds nor the Stockholder shall vote, act by written consent or
take any other action to amend, modify or repeal the Restated
Certificate or Bylaws to eliminate the Class II or the
Class III classes, to increase or decrease the size of the
Board or in any other manner that would constitute a breach of
this Section 2 and (ii) the VSS Funds and the
Stockholder shall vote or act by written consent to maintain a
staggered board with the classes and other terms set forth in
the Restated Certificate and the By-Laws as adopted on the
Closing Date
2.4. Other Agreements Relating to Board
Members.
(a) From time to time the Board may establish one or more
committees of the Board consisting of more than one director.
From the date of this Agreement until the Class III
Expiration Date, at least one (1) Vowel Designee that is
not an Independent Director shall be appointed by the Board to
any such committee other than the Audit Committee;
provided, however, to the extent such committee is
required by applicable Law or any rule of any national
securities exchange or self regulatory organization to be
comprised of at least a majority of Independent Directors, then
the Vowel Designee appointed to such committee shall be an
Independent Director. From the date of this Agreement until the
Class III Expiration Date, at least (1) Vowel Designee
who shall be an Audit Committee Independent Director shall be
appointed by the Board to the Audit Committee.
(b) From the date of this Agreement until the
Class III Expiration Date, the Stockholder and the Company
hereby agree that, if and to the extent the Company or any
subsidiary enters into an indemnification or similar agreement
with, or purchases insurance for the benefit of, any director
nominated by the Stockholder, then such agreement or insurance
shall also be provided to the Vowel Designees on the same terms
and conditions.
3. Preemptive Rights.
3.1. Notice of Proposed
Issuance. Except with respect to Exempt
Issuances (as defined in Section 3.3), for so long
as the VSS Funds beneficially own (as determined in accordance
with
Rule 13d-3
of the Exchange Act) at least twenty-five percent (25%) of the
issued and outstanding shares of Common Stock, in the event that
the Company proposes to issue any (i) shares of Common
Stock, (ii) warrants, options or other rights to purchase
shares of Common Stock or (iii) notes, debentures or other
securities convertible into or exercisable
or exchangeable for shares of Common Stock (collectively, the
“Company Securities”), the Company will deliver
to each of the VSS Funds then owning Common Stock or, if
applicable, other Company Securities (a “VSS
Stockholder”) a written notice (the “Offer
Notice”) prior to effecting any such issuance (the
“New Issuance”), offering to such VSS
Stockholder the right, for a period of thirty (30) days
after receipt of the Offer Notice (the “Election
Period”), to purchase such number of shares of Common
Stock so that its Ownership Percentage following such New
Issuance shall be equal to its Ownership Percentage prior to
such New Issuance; provided, however, to the
extent the New Issuance consists of Company Securities other
than Common Stock, subject to the approval of the Audit
Committee (which notice of approval shall be set forth in the
Offer Notice), any VSS Stockholder shall have the right to
purchase such number of Company Securities so that it shall
maintain its same Ownership Percentage following such New
Issuance. The Offer Notice shall describe the Company Securities
proposed to be issued by the Company and specify the number,
price and payment terms. Each VSS Stockholder who exercises its
rights under this Section 3.1 shall pay an amount
equal to the cash and other consideration with respect to such
Company Securities being issued to it as set forth in the Offer
Notice. Each of the VSS Stockholders shall be entitled to
apportion its rights to purchase the Company Securities under
this Section 3 among itself and its Affiliates in
such proportions as it deems appropriate and may assign the
rights granted to it under this Section 3 to any of
its Affiliates, in each case prior to the expiration of the
Election Period (a “Permitted Assignee”).
3.2. Right to Purchase Company
Securities.
(a) Any of the VSS Stockholders or Permitted Assignees, as
the case may be, which desires to exercise rights under this
Section 3 shall accept the Company’s offer as
to the full number of Common Stock or other Company Securities,
as the case may be, offered to the applicable VSS Stockholder in
the Offer Notice or any lesser number by written notice thereof
(an “Exercise Notice”) given by the VSS
Stockholder or Permitted Assignee, as the case may be, to the
Company prior to the expiration of the Election Period. A
delivery of an Exercise Notice (which notice shall specify the
number (or amount) of Common Stock or other Company Securities,
as the case may be, to be purchased by such VSS Stockholder or
Permitted Assignee, as the case may be, as permitted under this
Section 3) shall constitute a binding agreement of
such VSS Stockholder or Permitted Assignee, as the case may be,
(a “Purchasing Stockholder”), to purchase, at
the price and on the terms specified in the Offer Notice, the
number (or amount) of Common Stock or other Company Securities
specified in such Purchasing Stockholder’s Exercise Notice.
If at the termination of the Election Period a VSS Stockholder
or Permitted Assignee, as the case may be, shall not have
exercised its rights to purchase Common Stock or other Company
Securities, as applicable, pursuant to this
Section 3, such VSS Stockholder or Permitted
Assignee, as the case may be, shall be deemed to have waived any
and all of its rights under this Section 3 with
respect to that purchase of such Common Stock or other Company
Securities, as applicable (such waiver shall not apply to any
subsequently offered Company Securities).
(b) The Company shall have ninety (90) days from the
date of the Offer Notice to consummate the proposed New Issuance
at the price and upon substantially the same terms specified in
the Offer Notice. At the consummation of such New Issuance, the
Company shall issue in an uncertificated book-entry form (unless
a physical certificate is requested by such Purchasing
Stockholder) the Common Stock or other Company Securities to
each Purchasing Stockholder, against payment by such Purchasing
Stockholder of the purchase price for such Common Stock or other
Company Securities, as the case may be, specified in such
Purchasing Stockholder’s Exercise Notice. If the Company
proposes another New Issuance after such time period above, it
shall again comply with the procedures set forth in this
Section 3.
(c) The value of any non-cash consideration to be received
by the Company in any New Issuance shall be determined by the
Board in good faith, and shall be specified in the Offer Notice
delivered in connection with any such New Issuance. If a
Purchasing Stockholder elects to exercise its rights under this
Section 3 in connection with any New Issuance in
which there is any such non-cash consideration, then, such
Purchasing Stockholder may elect in its Exercise Notice to
tender, in lieu of tendering any such non-cash consideration, an
amount in cash equal to the reasonably determined good faith
value of such non-cash consideration.
(d) The Common Stock or other Company Securities, as the
case may be, when issued, sold and delivered to the applicable
Purchasing Stockholders in accordance with the terms and for the
consideration set
forth in this Section 3, will be validly issued,
fully paid and nonassessable and free of restrictions on
transfer other than applicable state and federal securities laws
and liens and encumbrances created by any Purchasing Stockholder
owning such Common Stock or other Company Securities, as the
case may be. The Company shall use its reasonable best efforts
to cause the Common Stock or other Company Securities, as the
case may be, to be listed on the national securities exchange
where the Company’s capital stock is then listed.
3.3. Exempt Issuances. The
following shall constitute “Exempt Issuances”
under this Section 3: any issuance in which Company
Securities are issued (i) pursuant to a stock split, stock
dividend, capital reorganization, recapitalization, or
reclassification of the Company’s Common Stock or other
capital stock, distributable on a pro rata basis to all holders
of the same class of such Common Stock or other capital stock,
(ii) to employees, officers, directors or consultants of
the Company pursuant to an equity incentive plan, stock option
plan, employee stock purchase plan, restricted stock plan or
other employee benefit plans or programs in effect from time to
time, (iii) in connection with the conversion of any
preferred stock or the conversion or exercise of any options,
warrants or other rights to purchase any Company Securities,
(iv) in consideration for the acquisition (by merger,
consolidation, reorganization or otherwise) by the Company or
any subsidiary of the Company of the assets, business or equity
interests of another Person approved by a majority of the Board,
or (v) to any of the Company’s or its
subsidiaries’ lenders or other financing sources in
connection with the incurrence, renewal or maintenance of any
indebtedness.
4. Subscription Rights.
4.1. Grant of Subscription
Right. Notwithstanding the rights afforded by
Section 3 hereof and subject to the terms and
conditions specified in this Section 4, at any time
and from time to time, until the twenty-four month anniversary
of Effective Time (as defined in the Merger Agreement) (the
“Subscription Period”), the Company hereby
grants to the VSS Funds (collectively) an option to purchase, in
the aggregate and at a purchase price per share of Common Stock
equal to ninety percent (90%) of the volume weighted average
price measured over the 10-trading day period immediately
preceding the issuance (the “Subscription Price
Per Share”), a number of shares of Common Stock up
to the lesser of (i) 7,500,000 shares of Common Stock
(subject to appropriate adjustment in the event of any dividend,
stock split, combination or similar recapitalization event) or
(ii) such number of shares of Common Stock as the VSS Funds
may purchase from time to time during the Subscription Period
for an aggregate purchase price of up to $20,000,000. Each of
the VSS Funds shall be entitled to apportion its subscription
rights under this Section 4.1 among itself and its
Permitted Assignees in such proportions as it deems appropriate
and may assign any such rights granted to it to any of its
Permitted Assignees.
4.2. Subscription Rights
Process. Any of the VSS Funds or Permitted
Assignees, as the case may be, which desires to exercise its
rights under this Section 4 shall, from time to time
during the Subscription Period, deliver a written notice to the
Company (the “Subscription Notice”) stating
(i) its bona fide intention to purchase shares of Common
Stock (the “Subscription Shares”), and
(ii) either the number of Subscription Shares to be
purchased by such VSS Fund or the proposed aggregate purchase
price to be paid by such VSS Fund for such Subscription Shares.
The Company shall have sixty (60) days following the
receipt of the Subscription Notice to consummate the issuance of
such number of Subscription Shares to the applicable VSS Funds
or Permitted Assignees, as the case may be, on the terms set
forth in the Subscription Notice. At the consummation the
issuance of such Subscription Shares, the Company shall issue in
an uncertificated book-entry form (unless a physical certificate
is requested by such VSS Fund) such Subscription Shares to be
purchased by the applicable VSS Fund, against payment by such
VSS Fund of the Subscription Price Per Share for such
Subscription Shares. The Subscription Shares when issued, sold
and delivered in accordance with the terms and for the
consideration set forth in this Section 4, will be
validly issued, fully paid and nonassessable and free of
restrictions on transfer other than applicable state and federal
securities laws and liens and encumbrances created by the VSS
Fund or Permitted Assignee, as the case may be, owning such
Subscription Shares. The Company shall use its reasonable best
efforts to cause the Subscription Shares to be listed on the
national securities exchange where the Company’s capital
stock is then listed.
5.1. Covenants of the
Company.The Company agrees to use
commercially reasonable efforts, within the requirements of
applicable law, to ensure that the rights granted under this
Agreement are effective and that the parties enjoy the benefits
of this Agreement.
5.2. Stock Split. All
references to numbers of shares of Capital Stock in this
Agreement shall be appropriately adjusted to reflect any stock
dividend, split, combination or other recapitalization affecting
the shares of Capital Stock occurring after the date of this
Agreement.
5.3. Binding Effect; Assignability.
(a) The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors
and permitted assigns of the parties, including without
limitation Permitted Assignees. Nothing in this Agreement,
express or implied, is intended to confer upon any party, other
than VSS, the VSS Funds and the parties hereto or their
respective successors and permitted assigns any rights,
remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. VSS
shall be an express intended third party beneficiary of this
Agreement.
(b) Any successor, permitted assignee or permitted
transferee of any Stockholder, including any Permitted Assignee
who purchases securities in accordance with the terms hereof,
shall deliver to the Company, as a condition to any transfer or
assignment, a counterpart signature page hereto pursuant to
which such successor, permitted assignee or permitted transferee
shall confirm their agreement to be subject to and bound by all
of the provisions set forth in this Agreement that were
applicable to the predecessor or assignor of such successor or
permitted assignee.
5.4. Severability. In the
event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the
application of such provision to other persons or entity or
circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties hereto further agree
to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
5.5. Governing Law. This
Agreement and any controversy arising out of or relating to this
Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to conflict of
law principles that would result in the application of any law
other than the law of the State of Delaware.
5.6. Counterparts. This
Agreement may be executed in separate counterparts, but taken
together shall constitute one and the same instrument. Delivery
of an executed counterpart by facsimile or
e-mail of a
PDF file shall be effective as delivery of an original manually
executed counterpart.
5.7. Descriptive
Headings. The descriptive headings used
herein are for reference purposes only and will not affect in
any way the meaning or interpretation of this Agreement.
5.8. Notices. Any notice
required or permitted by this Agreement shall be in writing and
shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or
confirmed facsimile, or two (2) business days after being
deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such
party’s address or facsimile number as set forth beneath
such party’s signature hereto, or as subsequently modified
by written notice. If notice is given to the Company, a copy
shall also be sent to Lowenstein Sandler PC, 1251 Avenue of the
Americas, New York, NY10020, Attention: Steven E.
Siesser, Esq.; facsimile:
(973) 597-2507.
If notice is given to the Stockholders’ Representative, a
copy shall also be sent to Perkins Coie LLP, 131 South Dearborn
Street, Suite 1700, Chicago, Illinois60603, Attention:
Phil Gordon, Esq.: telephone:
(312) 324-8600;
facsimile:
(312) 324-9400;
E-mail:
pgordon@perkinscoie.com.
5.9. Amendment, Termination or
Waiver. Any provision of this Agreement may
be amended, modified or terminated and the observance of any
term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a
written instrument executed by (a) the Company;
(b) the Stockholder; and either (c) (i) the
Stockholders’ Representative or (ii) a majority of the
Vowel Designees who are serving on Board at such time.
5.10. Entire Agreement. This
Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersede all
prior agreements, representations and understandings (both
written and oral) between the parties with respect thereto. No
addition to or modification of any provision of this Agreement
shall be binding upon any party unless made in writing and
signed by the party against whom enforcement is sought.
5.11. Delays or
Omissions. No delay or omission to exercise
any right, power, or remedy accruing to any party under this
Agreement, upon any breach or default of any other party under
this Agreement, shall impair any such right, power, or remedy of
such nonbreaching or nondefaulting party, nor shall it be
construed to be a waiver of or acquiescence to any such breach
or default, or to any similar breach or default thereafter
occurring, nor shall any waiver of any single breach or default
be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, whether under this Agreement
or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
5.12. Further
Assurances. Each of party shall do and
perform or cause to be done and performed all such further acts
and things and shall execute and deliver all such other
agreements, certificates, assignments, instruments, and
documents as the other reasonably may request from time to time
for the purposes of carrying out the intent of this Agreement.
5.13. Waiver of Jury
Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE AND COVENANT THAT THEY WILL NOT ASSERT THE
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENT OR ACTION
RELATED HERETO OR THERETO.
5.14. Specific
Performance. In addition to all other
remedies available at law and in equity, the Stockholder or the
Stockholders Representative, as the case may be, shall be
entitled to specifically enforce any provision of this
Agreement, and to seek and obtain injunctive and other equitable
relief with respect to the enforcement of its rights under this
Agreement, in each case, without the need to post bond or
security therefore.
. Electronic Voting Instructions You can vote by Internet or telephone! Available 24 hours a day, 7
days a week! Instead of mailing your proxy, you may choose one of the two voting methods outlined
below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted
by the Internet or telephone must be received by 1:00 a.m., Central Time, on December 8, 2009. Vote
by Internet • Log on to the Internet and go to www.investorvote.com\VLCY • Follow the steps
outlined on the secured website. Vote by telephone • Call toll free 1-800-652-VOTE (8683) within
the USA, US territories & Canada any time on a touch tone telephone. There is NO CHARGE to you for
the call. Using a black ink pen, mark your votes with an X as shown in X • Follow the instructions
provided by the recorded message. this example. Please do not write outside the designated areas.
Special Meeting Proxy Card 3 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 3 + A Proposals — The
Board of Directors recommends a vote FOR Proposals 1 and 2. For Against Abstain For Against Abstain
1. To adopt the Agreement and Plan of Mergers, dated as of 2. To approve the adjournment of the
meeting, if necessary, to June 20, 2009, by and among Cambium Learning Group, solicit additional
proxies if there are not sufficient votes to Inc., Voyager Learning Company, Vowel Acquisition
Corp., adopt the merger agreement. VSS-Cambium Holdings II Corp., Consonant Acquisition Corp., and
Vowel Representative, LLC. B Non-Voting Items Change of Address — Please print your new address
below. Comments — Please print your comments below. Meeting Attendance Mark the box to the right
if you plan to attend the Special Meeting. C Authorized Signatures — This section must be
completed for your vote to be counted. — Date and Sign Below Please sign exactly as name(s)
appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) —
Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please
keep signature within the box. 1 U P X + <STOCK#> 0147QD
Directions to the Meeting From DFW Airport: Merge onto I-635 E Take Exit 28 toward Luna Rd Turn
Left at Luna Rd Turn Right at Valley View Lane Destination is on the Right Arrive: 1800 Valley View
Lane, Dallas, Texas75234 3 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 3 Proxy — Voyager
Learning Company Notice of Special Meeting of Stockholders 1800 Valley View Lane, Suite 400,
Dallas, TX75234 Proxy Solicited by Board of Directors for Special Meeting — December 8, 2009
Richard Surratt and Todd Buchardt, or any of them, each with the power of substitution, are hereby
authorized to represent and vote the shares of the undersigned, with all the powers which the
undersigned would possess if personally present, at the Special Meeting of Stockholders of Voyager
Learning Company to be held on December 8, 2009 at 8:00 a.m. local time, at Voyager’s corporate
headquarters, located at 1800 Valley View Lane, Suite 400, Dallas, Texas75234 or at any
postponement or adjournment thereof. The undersigned hereby acknowledges receipt of the Notice of
Special Meeting of Stockholders and Proxy Statement/Prospectus, dated November 13, 2009. Shares
represented by this proxy will be voted on behalf of the stockholder. If no such directions are
indicated, the Proxies will have authority to vote FOR Proposal 1 and Proposal 2. In their
discretion, the Proxies are authorized to vote upon such other business as may properly come before
the meeting or any adjournment or postponement thereof. (Items to be voted appear on reverse side.)
Dates Referenced Herein and Documents Incorporated by Reference
