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.
Voyager Learning Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
SFAS No. 142.
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 of $184.1 million.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 fromfor 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 the Company’s June 30, 2009our second and third quarter impairment test,tests, the goodwill balance for the reporting unit as of theeach of these measurement datedates was determined to be partially impaired. As a result of these factors, an impairment charge of $22.0 million was recorded for the six months ended June 30, 2009. The Company’s annual impairment testing is performed during the fourth fiscal quarter. As expected, the Company continued to experience the adverse marketplace and economic conditions that began to impact the Company in 2008. While the Company continues to experience these adverse conditions and as the estimated purchase price under the Merger Agreement continues to be refined, the Company will test the impairment of goodwill quarterly.
In performing itsour test of goodwill impairment the Company also tested its other long lived assets and determined noassets. No impairment was indicated.indicated for these other long lived assets.
| |
Note 9 — | Note 9 — Other Current Assets |
Other current assets at JuneSeptember 30, 2009 and December 31, 2008 consisted of the following:
| | | | | | | | |
| | As of | |
| | June 30,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Available for sale securities | | $ | 2,022 | | | $ | 13,137 | |
Short-term deferred tax asset | | | 1,439 | | | | 1,994 | |
Deferred costs | | | 2,641 | | | | 1,907 | |
Insurance receivable | | | — | | | | 15,000 | |
Other | | | 933 | | | | 1,788 | |
| | | | | | | | |
Total | | $ | 7,035 | | | $ | 33,826 | |
| | | | | | | | |
| | | | | | | | |
| | As of | |
| | September 30,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Available for sale securities | | $ | 2,024 | | | $ | 13,137 | |
Short-term deferred tax asset | | | 1,439 | | | | 1,994 | |
Deferred costs | | | 2,846 | | | | 1,907 | |
Insurance receivable | | | — | | | | 15,000 | |
Other | | | 1,142 | | | | 1,788 | |
| | | | | | | | |
Total | | $ | 7,451 | | | $ | 33,826 | |
| | | | | | | | |
See Note 15 for furthera description of the settlement of the legal contingency accrual related to the putative securities class actions and the related receivable from the Company’s insurance providers.
F-57
Voyager Learning Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
Note 10 — Accrued Expenses
Accrued expenses at June 30, 2009 and December 31, 2008 consisted of the following:
| | | | | | | | |
| | As of | |
| | June 30,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Salaries, bonuses and benefits | | $ | 5,269 | | | $ | 6,900 | |
Corporate transition costs | | | 1,377 | | | | 1,879 | |
Pension and post-retirement medical benefits | | | 1,263 | | | | 6,675 | |
Deferred compensation | | | 624 | | | | 3,233 | |
Legal contingency accrual | | | 73 | | | | 20,000 | |
Transaction costs | | | 3,506 | | | | — | |
Other | | | 2,544 | | | | 2,179 | |
| | | | | | | | |
Total | | $ | 14,656 | | | $ | 40,866 | |
| | | | | | | | |
See Note 13 for further description of the Company’s corporate transition costs.
See Note 15 for further 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 further description of the Merger Agreement.
Note 11 — Other Liabilities
Other liabilities at June 30, 2009 and December 31, 2008 consisted of the following:
| | | | | | | | |
| | As of | |
| | June 30,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Pension and post-retirement medical benefits, long-term portion | | $ | 9,744 | | | $ | 10,239 | |
Long-term deferred tax liability | | | 2,157 | | | | 2,638 | |
Long-term deferred revenue | | | 2,288 | | | | 1,590 | |
Long-term deferred compensation | | | 1,133 | | | | 2,765 | |
Long-term income tax payable | | | 662 | | | | 640 | |
Other | | | 3,426 | | | | 2,476 | |
| | | | | | | | |
Total | | $ | 19,410 | | | $ | 20,348 | |
| | | | | | | | |
F-58
Voyager Learning Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
| |
Note 10 — | Accrued Expenses |
Accrued expenses at September 30, 2009 and December 31, 2008 consisted of the following:
| | | | | | | | |
| | As of | |
| | September 30,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Salaries, bonuses and benefits | | $ | 7,897 | | | $ | 6,900 | |
Corporate transition costs | | | 1,388 | | | | 1,879 | |
Pension and post-retirement medical benefits | | | 1,263 | | | | 6,675 | |
Deferred compensation | | | 629 | | | | 3,233 | |
Legal contingency accrual | | | 55 | | | | 20,000 | |
Transaction costs | | | 660 | | | | — | |
Other | | | 2,807 | | | | 2,179 | |
| | | | | | | | |
Total | | $ | 14,699 | | | $ | 40,866 | |
| | | | | | | | |
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.
| |
Note 11 — | Other Liabilities |
Other liabilities at September 30, 2009 and December 31, 2008 consisted of the following:
| | | | | | | | |
| | As of | |
| | September 30,
| | | December 31,
| |
| | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Pension and post-retirement medical benefits, long-term portion | | $ | 9,595 | | | $ | 10,239 | |
Long-term deferred tax liability | | | 2,143 | | | | 2,638 | |
Long-term deferred revenue | | | 3,301 | | | | 1,590 | |
Long-term deferred compensation | | | 1,111 | | | | 2,765 | |
Long-term income tax payable | | | 1,248 | | | | 640 | |
Other | | | 3,631 | | | | 2,476 | |
| | | | | | | | |
Total | | $ | 21,029 | | | $ | 20,348 | |
| | | | | | | | |
F-59
Note 12Voyager Learning Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — Pension and Other Postretirement Benefit Plans(Continued)
| |
Note 12 — | Pension and Other Postretirement Benefit Plans |
Components of net periodic benefit costs are:
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended | |
| | U.S. Defined Benefit
| | | Other Postretirement
| |
| | Pension Plan | | | Benefits | |
| | June 30,
| | | June 30,
| | | June 30,
| | | | | | June 30,
| |
| | 2009 | | | 2008 | | | 2009 | | | | | | 2008 | |
| | (Dollars in thousands) | |
|
Service cost | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | — | |
Interest cost | | | 344 | | | | 621 | | | | 3 | | | | | | | | 3 | |
Expected return on plan assets | | | — | | | | — | | | | — | | | | | | | | — | |
Amortization of prior service cost | | | — | | | | — | | | | — | | | | | | | | — | |
Recognized net actuarial (gain) loss | | | — | | | | 36 | | | | (15 | ) | | | | | | | (49 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net pension and other postretirement benefit cost (income) | | $ | 344 | | | $ | 657 | | | $ | (12 | ) | | | | | | $ | (46 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended | |
| | U.S. Defined Benefit
| | | Other Postretirement
| |
| | Pension Plan | | | Benefits | |
| | September 30,
| | | September 30,
| | | September 30,
| | | September 30,
| |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | (Dollars in thousands) | |
|
Service cost | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Interest cost | | | 517 | | | | 932 | | | | 4 | | | | 4 | |
Amortization of prior service cost | | | — | | | | — | | | | — | | | | — | |
Recognized net actuarial (gain) loss | | | — | | | | 54 | | | | (22 | ) | | | (74 | ) |
| | | | | | | | | | | | | | | | |
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 and Lease Termination Costs | 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 and announced to employees the closing of the corporate office in Ann Arbor, Michigan.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 JuneSeptember 30, 2009, approximately $1.7 million remains accrued. Related costs are included in general and administrative expense. 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 current periodsecond 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:
| | | | |
| | (Dollars in thousands) | |
|
Balance as of December 31, 2008 | | $ | 2,556 | |
Accrual changes | | | (342 | ) |
Payments made | | | (493 | ) |
| | | | |
Balance as of September 30, 2009 | | $ | 1,721 | |
| | | | |
Current portion | | $ | 1,388 | |
| | | | |
Long-term portion | | $ | 333 | |
| | | | |
F-59F-60
Voyager Learning Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements — (Continued)
retention payments and reduction in accrual for change in employment agreement for the six months ended June 30, 2009 is as follows:
| | | | |
| | (Dollars in thousands) | |
|
Balance as of December 31, 2008 | | $ | 2,556 | |
Accruals | | | (342 | ) |
Payments made | | | (487 | ) |
| | | | |
Balance as of June 30, 2009 | | $ | 1,727 | |
| | | | |
Current portion | | $ | 1,377 | |
| | | | |
Long-term portion | | $ | 350 | |
| | | | |
| |
Note 14 — | Uncertain Tax Positions |
Note 14 — Uncertain Tax PositionsA reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
There were no material changes
| | | | |
Balance as of December 31, 2008 | | $ | 14,616 | |
Increases for changes in estimates during the current period | | | 722 | |
Decreases related to settlements | | | (136 | ) |
| | | | |
Balance as of September 30, 2009 | | $ | 15,202 | |
| | | | |
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 Company’s uncertainbalance 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 duringwould ordinarily not affect the six months ended June 30, 2009.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
| |
Note 15 — | Contingent Liabilities |
Putative Securities Class Actions
Between February and April 2006, four putative securities class actions, consolidated and designatedIn 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 associatedRule 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 itsour 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.
F-60F-61
Voyager Learning Company and Subsidiaries
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, 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 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 itsour business. Management believes that the outcome of these proceedings will not have a material adverse effect upon the Company’sour consolidated operations or financial condition and management believes that the Companywe 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 JuneSeptember 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 — | Note 16 — Subsequent Events |
The Company has evaluated subsequent events through August 10,November 6, 2009, which is the date on which these Condensed Consolidated Financial Statements were issued. There were no recognizedidentified subsequent events, as defined in SFAS No. 165,“Subsequent Events”(“SFAS No. 165”), identified. Additionally, the Company did not identify any nonrecognized subsequent events, as defined by SFAS No. 165, that should be disclosed in order to keep the financial statements from being misleading.events.
F-61F-62
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Voyager Learning Company
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 inInternal 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.
Dallas, Texas
March 5, 2009
F-62F-63
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.
Detroit, Michigan
September 17, 2008
F-63F-64
Voyager and Subsidiaries
For the fiscal years ended December 31, 2008, December 29, 2007 and December 30, 2006
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
| | (In thousands, except per share data) | |
|
Net sales | | $ | 98,531 | | | $ | 109,612 | | | $ | 115,051 | |
Cost of sales (exclusive of depreciation and amortization shown separately below) | | | (35,939 | ) | | | (36,192 | ) | | | (37,417 | ) |
| | | | | | | | | | | | |
Gross profit | | | 62,592 | | | | 73,420 | | | | 77,634 | |
Research and development expense | | | (5,302 | ) | | | (4,532 | ) | | | (5,198 | ) |
Sales and marketing expense | | | (33,734 | ) | | | (29,587 | ) | | | (27,614 | ) |
General and administrative expense | | | (30,660 | ) | | | (53,280 | ) | | | (65,081 | ) |
Depreciation and amortization expense | | | (21,358 | ) | | | (23,190 | ) | | | (23,865 | ) |
Goodwill impairment | | | (43,141 | ) | | | (67,232 | ) | | | (42,496 | ) |
Lease termination costs | | | (11,673 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Loss from continuing operations before interest, other income (expense) and income taxes | | | (83,276 | ) | | | (104,401 | ) | | | (86,620 | ) |
Net interest income (expense): | | | | | | | | | | | | |
Interest income | | | 1,485 | | | | 3,682 | | | | 1,080 | |
Interest expense | | | (510 | ) | | | (3,347 | ) | | | (28,544 | ) |
| | | | | | | | | | | | |
Net interest income (expense) | | | 975 | | | | 335 | | | | (27,464 | ) |
Other income (expense), net | | | (363 | ) | | | 4,408 | | | | — | |
| | | | | | | | | | | | |
Loss from continuing operations before income taxes | | | (82,664 | ) | | | (99,658 | ) | | | (114,084 | ) |
Income tax benefit | | | 1,160 | | | | 12,396 | | | | 64,063 | |
| | | | | | | | | | | | |
Loss from continuing operations | | | (81,504 | ) | | | (87,262 | ) | | | (50,021 | ) |
Earnings from discontinued operations (less applicable income tax expense of $0, $1,491, and $23,776, respectively) | | | — | | | | 5,460 | | | | 44,926 | |
Gain on sale of discontinued operations (less applicable income tax expense of $0, $11,160, and $66,321, respectively) | | | — | | | | 46,572 | | | | 347,708 | |
| | | | | | | | | | | | |
Net earnings (loss) | | $ | (81,504 | ) | | $ | (35,230 | ) | | $ | 342,613 | |
| | | | | | | | | | | | |
Net earnings (loss) per common share: | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
Loss from continuing operations | | $ | (2.73 | ) | | $ | (2.92 | ) | | $ | (1.68 | ) |
Earnings from discontinued operations | | | — | | | | 0.18 | | | | 1.51 | |
Gain on sale of discontinued operations | | | — | | | | 1.56 | | | | 11.66 | |
| | | | | | | | | | | | |
Basic net earnings (loss) per common share | | $ | (2.73 | ) | | $ | (1.18 | ) | | $ | 11.49 | |
| | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
Loss from continuing operations | | $ | (2.73 | ) | | $ | (2.92 | ) | | $ | (1.68 | ) |
Earnings from discontinued operations | | | — | | | | 0.18 | | | | 1.51 | |
Gain on sale of discontinued operations | | | — | | | | 1.56 | | | | 11.66 | |
| | | | | | | | | | | | |
Diluted net earnings (loss) per common share | | $ | (2.73 | ) | | $ | (1.18 | ) | | $ | 11.49 | |
| | | | | | | | | | | | |
Average number of common shares and equivalents outstanding: | | | | | | | | | | | | |
Basic | | | 29,871 | | | | 29,858 | | | | 29,816 | |
Diluted | | | 29,871 | | | | 29,858 | | | | 29,816 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
F-64F-65
Voyager and Subsidiaries
As of December 31, 2008 and December 29, 2007
| | | | | | | | |
| | 2008 | | | 2007 | |
| | (In thousands, except
| |
| | per share data) | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 67,302 | | | $ | 53,868 | |
Accounts receivable, net | | | 7,371 | | | | 9,266 | |
Income tax receivable | | | 19,782 | | | | 65,600 | |
Inventory | | | 15,196 | | | | 16,005 | |
Other current assets | | | 33,826 | | | | 16,489 | |
| | | | | | | | |
Total current assets | | | 143,477 | | | | 161,228 | |
Property, equipment, and software at cost: | | | | | | | | |
Buildings and improvements | | | 1,220 | | | | 10,666 | |
Machinery and equipment | | | 4,707 | | | | 5,975 | |
Software | | | 10,616 | | | | 7,284 | |
| | | | | | | | |
Total property, equipment, and software at cost | | | 16,543 | | | | 23,925 | |
Accumulated depreciation and amortization | | | (9,718 | ) | | | (8,584 | ) |
| | | | | | | | |
Net property, equipment, and software | | | 6,825 | | | | 15,341 | |
| | | | | | | | |
Goodwill | | | 99,717 | | | | 142,858 | |
Acquired curriculum intangibles, net | | | 38,594 | | | | 51,206 | |
Other intangible assets, net | | | 5,218 | | | | 6,411 | |
Developed curriculum, net | | | 8,903 | | | | 9,333 | |
Other assets | | | 1,363 | | | | 16,350 | |
| | | | | | | | |
Total assets | | $ | 304,097 | | | $ | 402,727 | |
| | | | | | | | |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Current maturities of capital lease obligations | | $ | 149 | | | $ | 789 | |
Accounts payable | | | 1,962 | | | | 4,403 | |
Accrued expenses | | | 40,866 | | | | 25,315 | |
Deferred revenue | | | 27,917 | | | | 19,822 | |
| | | | | | | | |
Total current liabilities | | | 70,894 | | | | 50,329 | |
| | | | | | | | |
Long-term liabilities: | | | | | | | | |
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.
F-65F-66
Voyager and Subsidiaries
For the fiscal years ended December 31, 2008, December 29, 2007 and December 30, 2006
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
|
Operating activities: | | | | | | | | | | | | |
Net earnings (loss) | | $ | (81,504 | ) | | $ | (35,230 | ) | | $ | 342,613 | |
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Goodwill and long-lived asset impairment | | | 43,141 | | | | 67,232 | | | | 42,496 | |
Gain on sale of discontinued operations, net of tax | | | — | | | | (46,572 | ) | | | (347,708 | ) |
Earnings from discontinued operations, net of tax | | | — | | | | (5,460 | ) | | | (44,926 | ) |
Depreciation and amortization | | | 21,358 | | | | 23,190 | | | | 23,865 | |
Amortization and write-off of deferred financing costs | | | — | | | | 2,286 | | | | 9,003 | |
Stock-based compensation | | | 878 | | | | 137 | | | | 4,309 | |
Excess tax benefit realized related to stock-based compensation | | | — | | | | — | | | | (92 | ) |
Gain on sale of available for sale securities | | | (106 | ) | | | (508 | ) | | | (405 | ) |
Deferred income taxes | | | (1,176 | ) | | | (12,671 | ) | | | (64,105 | ) |
Non-cash lease termination costs | | | 673 | | | | — | | | | — | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable, net | | | 1,895 | | | | 6,067 | | | | (3,286 | ) |
Tax receivable | | | 45,818 | | | | (55,742 | ) | | | 9,009 | |
Inventory | | | 809 | | | | (3,404 | ) | | | 371 | |
Other current assets | | | 6,866 | | | | 52,009 | | | | 2,890 | |
Other assets | | | (13 | ) | | | (1,205 | ) | | | (14,970 | ) |
Accounts payable | | | (2,441 | ) | | | 661 | | | | (2,295 | ) |
Accrued expenses | | | (9,038 | ) | | | (61,113 | ) | | | (3,623 | ) |
Deferred revenue | | | 8,367 | | | | 3,385 | | | | 3,685 | |
Other long-term liabilities | | | (4,353 | ) | | | (15,217 | ) | | | 32,455 | |
Other, net | | | 50 | | | | (4 | ) | | | (133 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) operating activities of continuing operations | | | 31,224 | | | | (82,159 | ) | | | (10,847 | ) |
| | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | |
Expenditures for property, equipment, curriculum development costs, and software | | | (7,912 | ) | | | (8,755 | ) | | | (14,408 | ) |
Purchases of equity investments available for sale | | | (11,786 | ) | | | (7,777 | ) | | | (6,664 | ) |
Proceeds from sales of equity investments available for sale | | | 2,172 | | | | 8,843 | | | | 11,521 | |
Proceeds from (expenditures associated with) sale of discontinued operations, net | | | — | | | | 186,342 | | | | 501,231 | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities of continuing operations | | | (17,526 | ) | | | 178,653 | | | | 491,680 | |
| | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | |
Proceeds from debt | | | — | | | | — | | | | 561,059 | |
Repayment of debt | | | — | | | | (58,225 | ) | | | (1,015,798 | ) |
Principal payments under capital lease obligations | | | (264 | ) | | | (840 | ) | | | (746 | ) |
Debt issuance costs | | | — | | | | (302 | ) | | | (8,379 | ) |
Proceeds from exercise of stock options, net | | | — | | | | — | | | | 589 | |
Excess tax benefit realized related to stock-based compensation | | | — | | | | — | | | | 92 | |
| | | | | | | | | | | | |
Net cash used in financing activities of continuing operations | | | (264 | ) | | | (59,367 | ) | | | (463,183 | ) |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | — | | | | — | | | | (7,148 | ) |
| | | | | | | | | | | | |
Increase in cash and cash equivalents of continuing operations | | | 13,434 | | | | 37,127 | | | | 10,502 | |
Net cash used in discontinued operations: | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | — | | | | (19,891 | ) | | | 66,716 | |
Net cash used in investing activities | | | — | | | | (2,540 | ) | | | (47,510 | ) |
Net cash used in financing activities | | | — | | | | (730 | ) | | | (20,763 | ) |
| | | | | | | | | | | | |
Net cash used in discontinued operations | | | — | | | | (23,161 | ) | | | (1,557 | ) |
Increase in cash and cash equivalents | | | 13,434 | | | | 13,966 | | | | 8,945 | |
Cash and cash equivalents, beginning of year | | | 53,868 | | | | 39,902 | | | | 30,957 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 67,302 | | | $ | 53,868 | | | $ | 39,902 | |
| | | | | | | | | | | | |
Non-cash financing and investing activities: | | | | | | | | | | | | |
Acquisition of equipment through capital leases | | $ | — | | | $ | — | | | $ | 1,937 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
F-66F-67
Voyager and Subsidiaries
For the fiscal years ended December 31, 2008, December 29, 2007 and December 30, 2006
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Unearned
| | | | | | Accumulated
| | | | |
| | | | | | | | | | | Compensation
| | | | | | Other
| | | | |
| | Common Stock | | | Capital
| | | on Restricted
| | | Accumulated
| | | Comprehensive
| | | | |
| | Issued | | | Treasury | | | Surplus | | | stock | | | Deficit | | | Income(Loss) | | | Total | |
| | (Dollars and shares in thousands) | |
|
Balance, at the end of fiscal 2005 (Common stock, 30,563 shares issued; treasury stock, 653 shares) | | $ | 30 | | | $ | (16,550 | ) | | $ | 354,879 | | | $ | (3,122 | ) | | $ | (375,986 | ) | | $ | (7,698 | ) | | $ | (48,447 | ) |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | | | | | | | | | | | 342,613 | | | | | | | | 342,613 | |
Foreign currency translation adjustments (net of tax expense of $2,739) | | | | | | | | | | | | | | | | | | | | | | | 14,292 | | | | 14,292 | |
Pension and postretirement plans (net of tax expense of $7,059) | | | | | | | | | | | | | | | | | | | | | | | (6,163 | ) | | | (6,163 | ) |
Unrealized gain on securities | | | | | | | | | | | | | | | | | | | | | | | 21 | | | | 21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | 350,763 | |
Adoption of SFAS 158 | | | | | | | | | | | | | | | | | | | | | | | (193 | ) | | | (193 | ) |
Restricted stock grant, 2 shares | | | | | | | | | | | (60 | ) | | | 60 | | | | | | | | | | | | — | |
Restricted stock amortization, net of cancellations, 29 shares | | | | | | | | | | | 1,259 | | | | | | | | | | | | | | | | 1,259 | |
Stock-based compensation expense | | | | | | | | | | | 3,050 | | | | | | | | | | | | | | | | 3,050 | |
Stock options exercised, net 29 shares | | | | | | | | | | | 589 | | | | | | | | | | | | | | | | 589 | |
Reclassification of unearned compensation on restricted stock | | | | | | | | | | | (3,062 | ) | | | 3,062 | | | | | | | | | | | | — | |
Restricted stock utilized to pay taxes | | | | | | | (27 | ) | | | | | | | | | | | | | | | | | | | (27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, at the end of fiscal 2006 (Common stock, 30,565 shares issued; treasury stock, 655 shares) | | $ | 30 | | | $ | (16,577 | ) | | $ | 356,655 | | | $ | — | | | $ | (33,373 | ) | | $ | 259 | | | $ | 306,994 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | | | | | | | | | | | (35,230 | ) | | | | | | | (35,230 | ) |
Foreign currency translation adjustments | | | | | | | | | | | | | | | | | | | | | | | (1,313 | ) | | | (1,313 | ) |
Pension and postretirement plans | | | | | | | | | | | | | | | | | | | | | | | 1,029 | | | | 1,029 | |
Unrealized loss on securities | | | | | | | | | | | | | | | | | | | | | | | (501 | ) | | | (501 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | (36,015 | ) |
Adoption of FIN 48 | | | | | | | | | | | | | | | | | | | 20,880 | | | | | | | | 20,880 | |
Write off foreign currency translation adjustments upon sale of PQIL | | | | | | | | | | | | | | | | | | | | | | | (24,676 | ) | | | (24,676 | ) |
Write off accumulated other comprehensive income (loss) related to PQIL pension plan | | | | | | | | | | | | | | | | | | | | | | | 23,284 | | | | 23,284 | |
Restricted stock amortization, net of cancellations, 13 shares | | �� | | | | | | | | | 369 | | | | | | | | | | | | | | | | 369 | |
Stock-based compensation expense | | | | | | | | | | | (506 | ) | | | | | | | | | | | | | | | (506 | ) |
Restricted stock utilized to pay taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | | | | | (165 | ) | | | 165 | | | | | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, at the end of fiscal 2007 (Common stock, 30,552 shares issued; treasury stock, 669 shares) | | $ | 30 | | | $ | (16,742 | ) | | $ | 356,683 | | | $ | — | | | $ | (47,723 | ) | | $ | (1,918 | ) | | $ | 290,330 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | | | | | | | | | | | (81,504 | ) | | | | | | | (81,504 | ) |
Pension and postretirement plans | | | | | | | | | | | | | | | | | | | | | | | 3,181 | | | | 3,181 | |
Unrealized loss on securities | | | | | | | | | | | | | | | | | | | | | | | (212 | ) | | | (212 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | (78,535 | ) |
Restricted stock amortization | | | | | | | | | | | 110 | | | | | | | | | | | | | | | | 110 | |
Stock-based compensation expense | | | | | | | | | | | 854 | | | | | | | | | | | | | | | | 854 | |
Restricted stock utilized to pay taxes | | | | | | | (94 | ) | | | 94 | | | | | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, at the end of fiscal 2008 (Common stock, 30,550 shares issued; treasury stock, 676 shares) | | $ | 30 | | | $ | (16,836 | ) | | $ | 357,741 | | | $ | — | | | $ | (129,227 | ) | | $ | 1,051 | | | $ | 212,759 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
F-67F-68
Voyager and Subsidiaries
Note 1 — Significant Accounting Policies
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 forK-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 LearningA-Ztm, a group of related websites known as ReadingA-Ztm, Raz-Kidstm, Reading-tutorstm, VocabularyA-Ztm, and WritingA-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 ScienceA-Ztm, a LearningA-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 | ) |
F-68
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
F-69
Voyager and Subsidiaries
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. Thetwo-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 onForm 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 thetwo-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 Force00-21, “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 LearningA-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.
F-69
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
F-70
Voyager and Subsidiaries
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 arein-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 thefirst-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.
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
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Voyager and Subsidiaries
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 PositionNo. 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 LearningA-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 LearningA-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.
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
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Voyager and Subsidiaries
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
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
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Voyager and Subsidiaries
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 PositionNo. 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, thatFAS 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
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
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Voyager and Subsidiaries
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 | | $ | (69,192 | ) | | $ | (35,209 | ) | | $ | (104,401 | ) |
Capital expenditures | | $ | 8,670 | | | $ | 85 | | | $ | 8,755 | |
Depreciation and amortization | | $ | 22,110 | | | $ | 1,080 | | | $ | 23,190 | |
Total assets | | $ | 283,091 | | | $ | 119,636 | | | $ | 402,727 | |
F-74F-75
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | |
| | 2007 | |
| | VED | | | Corporate | | | Total | |
|
Net sales | | $ | 109,612 | | | $ | — | | | $ | 109,612 | |
Earnings (loss) from continuing operations before interest and income taxes | | $ | (69,192 | ) | | $ | (35,209 | ) | | $ | (104,401 | ) |
Capital expenditures | | $ | 8,670 | | | $ | 85 | | | $ | 8,755 | |
Depreciation and amortization | | $ | 22,110 | | | $ | 1,080 | | | $ | 23,190 | |
Total assets | | $ | 283,091 | | | $ | 119,636 | | | $ | 402,727 | |
| | | | | | | | | | | | |
| | 2006 | |
| | VED | | | Corporate | | | Total | |
|
Net sales | | $ | 115,051 | | | $ | — | | | $ | 115,051 | |
Earnings (loss) from continuing operations before interest and income taxes | | $ | (39,315 | ) | | $ | (47,305 | ) | | $ | (86,620 | ) |
Capital expenditures | | $ | 5,860 | | | $ | 8,548 | | | $ | 14,408 | |
Depreciation and amortization | | $ | 22,777 | | | $ | 1,088 | | | $ | 23,865 | |
Total assets(1) | | $ | 322,131 | | | $ | 150,085 | | | $ | 472,216 | |
| | | | | | | | | | | | |
| | |
(1) | | Total assets includes assets from continuing operations only. |
Note 3 — Income Taxes
Earnings from continuing operations before income taxes in fiscal year 2008, 2007, and 2006 were all attributable to the U.S.
Total income taxes for the fiscal years 2008, 2007 and 2006 were allocated as follows:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
|
Income from continuing operations | | $ | (1,160 | ) | | $ | (12,396 | ) | | $ | (64,063 | ) |
Income from discontinued operations | | | — | | | | 1,491 | | | | 23,776 | |
Gain on sale of discontinued operations | | | — | | | | 11,160 | | | | 66,321 | |
Shareholders’ equity, for minimum pension liability | | | — | | | | — | | | | 7,059 | |
Shareholders’ equity, for currency translation adjustment on unremitted foreign earnings | | | — | | | | — | | | | 2,739 | |
Goodwill | | | — | | | | — | | | | (54 | ) |
Long-lived intangibles | | | — | | | | — | | | | (413 | ) |
| | | | | | | | | | | | |
| | $ | (1,160 | ) | | $ | 255 | | | $ | 35,365 | |
| | | | | | | | | | | | |
Income tax expense attributable to income from continuing operations in fiscal 2008, 2007, and 2006 included the following:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
|
Current income tax expense (benefit): | | | | | | | | | | | | |
United States federal | | $ | (222 | ) | | $ | — | | | $ | — | |
State and local | | | 238 | | | | 275 | | | | 42 | |
| | | | | | | | | | | | |
Current income tax expense | | | 16 | | | | 275 | | | | 42 | |
Deferred income tax benefit | | | | | | | | | | | | |
United States federal | | | (832 | ) | | | (12,183 | ) | | | (62,268 | ) |
State and local | | | (344 | ) | | | (488 | ) | | | (1,837 | ) |
| | | | | | | | | | | | |
Deferred income tax benefit | | | (1,176 | ) | | | (12,671 | ) | | | (64,105 | ) |
Income tax benefit | | $ | (1,160 | ) | | $ | (12,396 | ) | | $ | (64,063 | ) |
| | | | | | | | | | | | |
F-75F-76
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
Income tax expense attributable to income from continuing operations in fiscal 2008, 2007, and 2006 included the following:
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
|
Current income tax expense (benefit): | | | | | | | | | | | | |
United States federal | | $ | (222 | ) | | $ | — | | | $ | — | |
State and local | | | 238 | | | | 275 | | | | 42 | |
| | | | | | | | | | | | |
Current income tax expense | | | 16 | | | | 275 | | | | 42 | |
Deferred income tax benefit | | | | | | | | | | | | |
United States federal | | | (832 | ) | | | (12,183 | ) | | | (62,268 | ) |
State and local | | | (344 | ) | | | (488 | ) | | | (1,837 | ) |
| | | | | | | | | | | | |
Deferred income tax benefit | | | (1,176 | ) | | | (12,671 | ) | | | (64,105 | ) |
Income tax benefit | | $ | (1,160 | ) | | $ | (12,396 | ) | | $ | (64,063 | ) |
| | | | | | | | | | | | |
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
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 | | | 1,750 | | | | 1,750 | |
Property and equipment | | | 197 | | | | 202 | |
Other | | | 3,258 | | | | 5,661 | |
| | | | | | | | |
Total gross deferred tax assets | | | 35,371 | | | | 28,765 | |
Valuation allowance | | | (20,513 | ) | | | (11,154 | ) |
| | | | | | | | |
Net deferred tax assets | | | 14,858 | | | | 17,611 | |
Deferred tax liabilities are attributable to: | | | | | | | | |
Curriculum costs | | | (13,057 | ) | | | (17,320 | ) |
Intangibles | | | (2,075 | ) | | | (2,247 | ) |
Other liabilities | | | (370 | ) | | | 68 | |
| | | | | | | | |
Total gross deferred tax liabilities | | | (15,502 | ) | | | (19,499 | ) |
| | | | | | | | |
| | | | | | | | |
Net deferred tax asset (liability) | | $ | (644 | ) | | $ | (1,888 | ) |
| | | | | | | | |
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Voyager and Subsidiaries
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.
F-77
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 years2003-2004 and2006-2007. The examination for fiscal years2003-2004 has been completed by the local IRS examination team. The income tax refunds of $9.2 million requested by the Company for2003-2004 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
F-78
Voyager and Subsidiaries
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.
F-78
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| | | | |
Balance, December 31, 2006 | | $ | 18,940 | |
Increases for tax positions taken during the current period | | | 1,381 | |
Decreases relating to settlements | | | (623 | ) |
Decreases relating to dispositions | | | (4,909 | ) |
| | | | |
Balance, December 29, 2007 | | $ | 14,789 | |
| | | | |
Increases for tax positions taken during the current period | | | — | |
Decreases relating to settlements | | | (173 | ) |
| | | | |
Balance, December 31, 2008 | | $ | 14,616 | |
| | | | |
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.
F-79
Voyager and Subsidiaries
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.
F-79
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
Results from discontinued operations are shown in the tables below for the fiscal years indicated:
| | | | | | | | |
| | Fiscal Years Ended | |
| | December 29,
| | | December 30,
| |
| | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
|
Net sales by business segment: | | | | | | | | |
ProQuest Information and Learning | | $ | 26,062 | | | $ | 259,103 | |
ProQuest Business Solutions | | | — | | | | 172,813 | |
| | | | | | | | |
Net sales from discontinued operations | | | 26,062 | | | | 431,916 | |
| | | | | | | | |
Earnings (loss) before interest and income taxes: | | | | | | | | |
ProQuest Information and Learning | | | 7,798 | | | | 37,591 | |
ProQuest Business Solutions | | | — | | | | 51,533 | |
| | | | | | | | |
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.
F-80
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
Note 5 — Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the fiscal years ended December 31, 2008 and December 29, 2007 are as follows:
| | | | |
| | (Dollars in thousands) | |
|
Balance as of December 30, 2006 | | $ | 210,090 | |
Goodwill impairment | | | (67,232 | ) |
| | | | |
Balance as of December 29, 2007 | | $ | 142,858 | |
Goodwill impairment | | | (43,141 | ) |
| | | | |
Balance as of December 31, 2008 | | $ | 99,717 | |
| | | | |
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
F-81
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
F-81
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
Our definite lived intangible assets and related accumulated amortization at the end of fiscal 2008 and 2007 consist of the following:
| | | | | | | | | | | | |
| | Balance as of December 31, 2008 | |
| | | | | Accumulated
| | | | |
| | Gross | | | Amortization | | | Net | |
| | (Dollars in thousands) | |
|
Acquired curriculum | | $ | 98,410 | | | $ | (59,816 | ) | | $ | 38,594 | |
Developed curriculum | | | 14,243 | | | | (5,340 | ) | | | 8,903 | |
Customer relationships | | | 5,130 | | | | (2,160 | ) | | | 2,970 | |
Trademark | | | 3,860 | | | | (1,636 | ) | | | 2,224 | |
Non-compete agreements | | | 381 | | | | (357 | ) | | | 24 | |
| | | | | | | | | | | | |
Total intangibles, net | | $ | 122,024 | | | $ | (69,309 | ) | | $ | 52,715 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Balance as of December 29, 2007 | |
| | | | | Accumulated
| | | | |
| | Gross | | | Amortization | | | Net | |
|
Acquired curriculum | | $ | 98,410 | | | $ | (47,204 | ) | | $ | 51,206 | |
Developed curriculum | | | 15,288 | | | | (5,955 | ) | | | 9,333 | |
Customer relationships | | | 5,130 | | | | (1,614 | ) | | | 3,516 | |
Trademark | | | 3,860 | | | | (1,224 | ) | | | 2,636 | |
Non-compete agreements | | | 3,517 | | | | (3,258 | ) | | | 259 | |
| | | | | | | | | | | | |
Total intangibles, net | | $ | 126,205 | | | $ | (59,255 | ) | | $ | 66,950 | |
| | | | | | | | | | | | |
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.
F-82
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
F-82
Voyager and Subsidiaries
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.
F-83
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
F-83
Voyager and Subsidiaries
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 automaticmonth-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
F-84
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 alease-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.
F-84
Voyager and Subsidiaries
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, investmentsavailable-for-sale, accounts receivable, accounts payable and long-term debt.
The book value of cash equivalents and investmentsavailable-for-sale reflect fair market value because these investments are recorded based on quoted market pricesand/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.
F-85
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 due10/01/12, 2005 Senior Notes due01/31/15, 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,
F-85
Voyager and Subsidiaries
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 a360-day year of twelve30-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 asub-facility for letters of credit (in an amount not to exceed $20 million) and asub-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%
F-86
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 |
F-86
Voyager and Subsidiaries
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. |
F-87
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
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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 serviceand/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
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Notes to the Consolidated Financial Statements — (Continued)
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.
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Voyager and Subsidiaries
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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
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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.
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
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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 | | | | — | |
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Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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.
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Voyager and Subsidiaries
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.
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Notes to the Consolidated Financial Statements — (Continued)
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.
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Voyager and Subsidiaries
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
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Notes to the Consolidated Financial Statements — (Continued)
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 | | $ | — | | | | | | | $ | 4.13 | | | | | | | $ | — | | | | | | | $ | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-94F-93
Voyager and Subsidiaries
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.
F-95F-94
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
The following tables provide additional information with respect to stock options and stock appreciation rights outstanding at the end of fiscal 2008:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Awards Outstanding | | | Awards Exercisable | |
| | | | | Weighted
| | | | | | | | | Weighted
| | | | |
| | | | | Average
| | | Weighted
| | | | | | Average
| | | Weighted
| |
| | Number
| | | Remaining
| | | Average
| | | Number
| | | Remaining
| | | Average
| |
Range of
| | Outstanding
| | | Contractual
| | | Exercise
| | | Exercisable
| | | Contractual
| | | Exercise
| |
Exercise Price | | (000’s) | | | Life (Years) | | | Price | | | (000’s) | | | Life (Years) | | | Price | |
|
$10.00 and Below | | | 300 | | | | 3.3 | | | $ | 8.55 | | | | 100 | | | | 3.3 | | | $ | 8.55 | |
$10.01 - $15.00 | | | 16 | | | | 3.5 | | | | 12.29 | | | | 16 | | | | 3.5 | | | | 12.29 | |
$15.01 - $20.00 | | | 98 | | | | 0.5 | | | | 18.88 | | | | 98 | | | | 0.5 | | | | 18.88 | |
$20.01 - $25.00 | | | 151 | | | | 0.6 | | | | 21.81 | | | | 151 | | | | 0.6 | | | | 21.81 | |
$25.01 - $30.00 | | | 20 | | | | 1.0 | | | | 27.61 | | | | 20 | | | | 1.0 | | | | 27.61 | |
$30.01 - $35.00 | | | 524 | | | | 4.4 | | | | 31.13 | | | | 84 | | | | 1.0 | | | | 31.95 | |
$35.01 - $40.00 | | | 41 | | | | 2.2 | | | | 36.15 | | | | 41 | | | | 2.2 | | | | 36.15 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,150 | | | | 3.1 | | | $ | 22.82 | | | | 510 | | | | 1.5 | | | $ | 21.39 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | | | | | |
| | | | | Average
| | | Weighted
| | | | |
| | Number
| | | Remaining
| | | Average
| | | Aggregate
| |
| | of Shares
| | | Contractual
| | | Exercise
| | | Intrinsic
| |
| | (000’s) | | | Life (Years) | | | Price | | | Value | |
|
Vested and expected to vest as of December 31, 2008 | | | 1,150 | | | | 3.1 | | | $ | 22.82 | | | $ | — | |
F-96
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
Summary of Nonvested Restricted Stock Activity
A summary of the nonvested restricted stock transactions for fiscal 2006, 2007, and 2008 is as follows:
| | | | | | | | | | | | | | | | |
| | Employee Grantees | | | Director Grantees | |
| | | | | Weighted
| | | | | | Weighted
| |
| | | | | Average
| | | | | | Average
| |
| | Shares
| | | Grant-Date
| | | Shares
| | | Grant-Date
| |
| | (000’s) | | | Fair Value | | | (000’s) | | | Fair Value | |
|
Nonvested restricted stock balance at the end of fiscal 2005 | | | 118 | | | $ | 33.55 | | | | 13 | | | $ | 28.82 | |
2006: | | | | | | | | | | | | | | | | |
Granted | | | 2 | | | | 29.04 | | | | — | | | | — | |
Vested | | | (18 | ) | | | 34.83 | | | | — | | | | — | |
Forfeited/cancelled | | | (30 | ) | | | 34.67 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Nonvested restricted stock outstanding at the end of fiscal 2006 | | | 72 | | | $ | 32.61 | | | | 13 | | | $ | 28.82 | |
| | | | | | | | | | | | | | | | |
2007: | | | | | | | | | | | | | | | | |
Granted | | | — | | | | — | | | | — | | | | — | |
Vested | | | (48 | ) | | | 33.11 | | | | (8 | ) | | | 28.10 | |
Forfeited/cancelled | | | (10 | ) | | | 32.20 | | | | (3 | ) | | | 25.75 | |
| | | | | | | | | | | | | | | | |
Nonvested restricted stock outstanding at the end of fiscal 2007 | | | 14 | | | $ | 31.17 | | | | 2 | | | $ | 35.80 | |
| | | | | | | | | | | | | | | | |
2008: | | | | | | | | | | | | | | | | |
Granted | | | — | | | | — | | | | — | | | | — | |
Vested | | | (14 | ) | | | 31.17 | | | | (2 | ) | | | 35.80 | |
Forfeited/cancelled | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Nonvested restricted stock outstanding at the end of fiscal 2008 | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
F-95
Voyager and Subsidiaries
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.” |
F-97
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
F-96
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
in the accruals for corporate transition costs related to severance and retention payments for the fiscal year ended December 31, 2008 is as follows:
| | | | |
| | (Dollars in thousands) | |
|
Balance as of December 30, 2006 | | $ | — | |
Accruals | | | 4,338 | |
Payments made | | | (1,372 | ) |
| | | | |
Balance as of December 29, 2007 | | $ | 2,966 | |
| | | | |
Accruals | | | 103 | |
Payments made | | | (513 | ) |
| | | | |
Balance as of December 31, 2008 | | $ | 2,556 | |
| | | | |
Current portion | | $ | 1,879 | |
| | | | |
Long-term portion | | $ | 677 | |
| | | | |
On January 1, 2008, the Company entered into an agreement with one of its lessors, Relational, LLCf/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,
F-98
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 hastax-related receivables and liabilities denominated in foreign currencies. Transaction losses of $1.0 million
F-97
Voyager and Subsidiaries
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 designatedIn 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 associatedRule 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.
F-99
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 theSarbanes-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.
F-98
Voyager and Subsidiaries
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.
F-100
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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
F-99
Voyager and Subsidiaries
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.
F-101
Voyager and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
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 | | | (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 | | | 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 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | | (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 | ) |
F-100
Voyager and Subsidiaries
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).
F-102F-101
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGERS
by and among
CAMBIUM HOLDINGS, INC.,
VOYAGER LEARNING COMPANY,
VOWEL ACQUISITION CORP.,
VSS-CAMBIUM HOLDINGS II CORP.,
CONSONANT ACQUISITION CORP.
and
VOWEL REPRESENTATIVE, LLC, SOLELY IN ITS
CAPACITY AS STOCKHOLDERS’
REPRESENTATIVE
Dated as of June 20, 2009
TABLE OF CONTENTS
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ARTICLE I THE MERGERS | | | A-2 | |
Section 1.1. | | The Mergers | | | A-2 | |
Section 1.2. | | Closing | | | A-2 | |
Section 1.3. | | Effective Time | | | A-2 | |
Section 1.4. | | Effects of the Mergers | | | A-3 | |
Section 1.5. | | Certificate of Incorporation and By-laws of the Surviving Corporations | | | A-3 | |
Section 1.6. | | Directors | | | A-3 | |
Section 1.7. | | Officers | | | A-3 | |
| | | | |
ARTICLE II CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES | | | A-3 | |
Section 2.1. | | Effect on Vowel Capital Stock | | | A-3 | |
Section 2.2. | | Effect on Consonant Capital Stock | | | A-6 | |
Section 2.3. | | Exchange of Certificates | | | A-7 | |
Section 2.4. | | Treatment of Consonant Management Incentive Plan | | | A-10 | |
Section 2.5. | | Treatment of Vowel Stock Options and Other Stock-Based Awards | | | A-10 | |
Section 2.6. | | Withholding Rights | | | A-11 | |
Section 2.7. | | Additional Issuance of Holdco Common Stock | | | A-11 | |
| | | | |
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VOWEL | | | A-12 | |
Section 3.1. | | Corporate Organization | | | A-12 | |
Section 3.2. | | Subsidiaries | | | A-12 | |
Section 3.3. | | Capitalization | | | A-13 | |
Section 3.4. | | Authority | | | A-13 | |
Section 3.5. | | No Conflicts | | | A-14 | |
Section 3.6. | | SEC Reports; Financial Statements | | | A-14 | |
Section 3.7. | | Conduct of Business | | | A-15 | |
Section 3.8. | | Undisclosed Liabilities; No Material Events | | | A-16 | |
Section 3.9. | | Taxes | | | A-16 | |
Section 3.10. | | Intellectual Property | | | A-16 | |
Section 3.11. | | Title to Properties; Leases; Assets | | | A-18 | |
Section 3.12. | | Environmental Matters | | | A-19 | |
Section 3.13. | | Material Contracts | | | A-19 | |
Section 3.14. | | Employee Benefit Plans | | | A-21 | |
Section 3.15. | | Labor Matters | | | A-23 | |
Section 3.16. | | Employment Matters | | | A-24 | |
Section 3.17. | | Litigation; Compliance with Laws; Licenses; Permits and Approvals | | | A-24 | |
Section 3.18. | | Brokers | | | A-25 | |
Section 3.19. | | Insurance | | | A-25 | |
Section 3.20. | | Related Party Transactions | | | A-26 | |
Section 3.21. | | Customers and Vendors | | | A-26 | |
Section 3.22. | | Accounts Receivable | | | A-26 | |
Section 3.23. | | No Prebillings or Prepayments | | | A-26 | |
Section 3.24. | | Inventory | | | A-26 | |
Section 3.25. | | Foreign Corrupt Practices Act | | | A-27 | |
Section 3.26. | | Export Controls | | | A-27 | |
Section 3.27. | | Software | | | A-27 | |
Section 3.28. | | Tax Qualification | | | A-27 | |
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Section 3.29. | | Opinion of Financial Advisor | | | A-28 | |
Section 3.30. | | Required Vote of the Vowel Stockholders | | | A-28 | |
Section 3.31. | | Disclosure Documents | | | A-28 | |
Section 3.32. | | State Takeover Statutes and Rights Plans | | | A-28 | |
Section 3.33. | | Bank Accounts | | | A-28 | |
Section 3.34. | | Transaction Expenses | | | A-28 | |
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CONSONANT | | | A-29 | |
Section 4.1. | | Corporate Organization | | | A-29 | |
Section 4.2. | | Subsidiaries | | | A-29 | |
Section 4.3. | | Capitalization | | | A-29 | |
Section 4.4. | | Authority | | | A-30 | |
Section 4.5. | | No Conflicts | | | A-31 | |
Section 4.6. | | Financial Statements | | | A-31 | |
Section 4.7. | | Conduct of Business | | | A-32 | |
Section 4.8. | | Undisclosed Liabilities; No Material Events | | | A-32 | |
Section 4.9. | | Taxes | | | A-32 | |
Section 4.10. | | Intellectual Property | | | A-32 | |
Section 4.11. | | Title to Properties; Leases; Assets | | | A-34 | |
Section 4.12. | | Environmental Matters | | | A-35 | |
Section 4.13. | | Material Contracts | | | A-35 | |
Section 4.14. | | Employee Benefit Plans | | | A-37 | |
Section 4.15. | | Labor Matters | | | A-39 | |
Section 4.16. | | Employment Matters | | | A-40 | |
Section 4.17. | | Litigation; Compliance with Laws; Licenses; Permits and Approvals | | | A-40 | |
Section 4.18. | | Brokers | | | A-41 | |
Section 4.19. | | Insurance | | | A-41 | |
Section 4.20. | | Related Party Transactions | | | A-42 | |
Section 4.21. | | Customers and Vendors | | | A-42 | |
Section 4.22. | | Accounts Receivable | | | A-42 | |
Section 4.23. | | No Prebillings or Prepayments | | | A-42 | |
Section 4.24. | | Inventory | | | A-43 | |
Section 4.25. | | Foreign Corrupt Practices Act | | | A-43 | |
Section 4.26. | | Export Controls | | | A-43 | |
Section 4.27. | | Software | | | A-43 | |
Section 4.28. | | Tax Qualification | | | A-43 | |
Section 4.29. | | Disclosure Documents | | | A-44 | |
Section 4.30. | | State Takeover Statutes and Rights Plans | | | A-44 | |
Section 4.31. | | Bank Accounts | | | A-44 | |
Section 4.32. | | Transaction Expenses | | | A-44 | |
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ARTICLE V COVENANTS | | | A-46 | |
Section 5.1. | | Conduct of Business by Consonant and Vowel | | | A-46 | |
Section 5.2. | | Access | | | A-49 | |
Section 5.3. | | Vowel No Solicitation | | | A-50 | |
Section 5.4. | | Filings; Other Actions | | | A-52 | |
Section 5.5. | | Efforts | | | A-54 | |
Section 5.6. | | Takeover Statute | | | A-55 | |
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Section 5.7. | | Public Announcements | | | A-55 | |
Section 5.8. | | Indemnification and Insurance | | | A-55 | |
Section 5.9. | | Employee Relations and Benefits | | | A-56 | |
Section 5.10. | | Holdco Stock Options | | | A-57 | |
Section 5.11. | | Control of Operations | | | A-57 | |
Section 5.12. | | Notification of Certain Matters | | | A-57 | |
Section 5.13. | | Rule 16b-3 | | | A-58 | |
Section 5.14. | | Agreement to Defend; Stockholder Litigation | | | A-58 | |
Section 5.15. | | Nasdaq Listing | | | A-58 | |
Section 5.16. | | Directors and Officers of Holdco | | | A-58 | |
Section 5.17. | | Tax-Free Qualification | | | A-58 | |
Section 5.18. | | Tax Representation Letters | | | A-59 | |
Section 5.19. | | Transfer Restrictions | | | A-59 | |
Section 5.20. | | Closing Deliveries | | | A-59 | |
Section 5.21. | | Credit Agreements Provisions | | | A-59 | |
Section 5.22. | | Vowel Tax Holdback Amounts; Tax Refund Escrow | | | A-60 | |
Section 5.23. | | Agreed Contingencies | | | A-61 | |
Section 5.24. | | Vowel Closing Liabilities | | | A-62 | |
Section 5.25. | | LAZEL Spinoff | | | A-64 | |
Section 5.26. | | VEL Drop-Down Transaction and Related Agreements | | | A-64 | |
Section 5.27. | | Working Capital | | | A-65 | |
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ARTICLE VI CLOSING CONDITIONS | | | A-66 | |
Section 6.1. | | Conditions to Each Party’s Obligation to Effect the Mergers | | | A-66 | |
Section 6.2. | | Conditions to Obligation of Vowel to Effect the Vowel Merger | | | A-67 | |
Section 6.3. | | Conditions to Obligations of Consonant to Effect the Consonant Merger | | | A-67 | |
Section 6.4. | | Frustration of Closing Conditions | | | A-68 | |
| | | | |
ARTICLE VII TERMINATION | | | A-68 | |
Section 7.1. | | Termination or Abandonment | | | A-68 | |
Section 7.2. | | Effect of Termination; Sole and Exclusive Remedy | | | A-70 | |
Section 7.3. | | Expenses and Other Payments | | | A-71 | |
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ARTICLE VIII STOCKHOLDERS’ REPRESENTATIVE | | | A-74 | |
Section 8.1. | | Appointment of Stockholders’ Representative | | | A-74 | |
Section 8.2. | | Authority | | | A-74 | |
Section 8.3. | | Reliance | | | A-75 | |
Section 8.4. | | Indemnification of Stockholders’ Representative | | | A-75 | |
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ARTICLE IX GENERAL PROVISIONS | | | A-75 | |
Section 9.1. | | No Survival of Representations and Warranties; Limitations of Representations and Warranties | | | A-75 | |
Section 9.2. | | Counterparts; Effectiveness | | | A-75 | |
Section 9.3. | | Notices | | | A-76 | |
Section 9.4. | | Headings | | | A-77 | |
Section 9.5. | | Severability | | | A-77 | |
Section 9.6. | | Assignment; Binding Effect | | | A-77 | |
Section 9.7. | | Entire Agreement; No Third-Party Beneficiaries | | | A-77 | |
Section 9.8. | | Amendments; Waivers | | | A-78 | |
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Section 9.9. | | Governing Law | | | A-78 | |
Section 9.10. | | Jurisdiction, Etc | | | A-78 | |
Section 9.11. | | WAIVER OF JURY TRIAL | | | A-78 | |
Section 9.12. | | Waiver of Jury Trial | | | A-79 | |
Section 9.13. | | Interpretive Provisions | | | A-79 | |
Section 9.14. | | Provisions Regarding Legal Representation | | | A-79 | |
Section 9.15. | | Certain Definitions | | | A-80 | |
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Exhibits | | |
|
Exhibit A-1 | | Holdings III Merger Agreement |
Exhibit A-2 | | Holdings III Contribution Agreement |
Exhibit A-3 | | Holdings IV Contribution Agreement |
Exhibit B-1 | | Form of Vowel Voting Agreement |
Exhibit B-2 | | Form of Consonant Voting Agreement |
Exhibit C-1 | | Vowel Preliminary Closing Certificate |
Exhibit C-2 | | Vowel Closing Certificate |
Exhibit D-1 | | Certificate of Incorporation of Consonant Surviving Corporation |
Exhibit D-2 | | Bylaws of Consonant Surviving Corporation |
Exhibit E-1 | | Certificate of Incorporation of Vowel Surviving Corporation |
Exhibit E-2 | | Bylaws of Vowel Surviving Corporation |
Exhibit F | | Form of Holdco Warrant |
Exhibit G | | Holdco Stockholders Agreement |
Exhibit H | | Amended and Restated Certificate of Incorporation of Holdco |
Exhibit I | | By-laws of Holdco |
Exhibit J | | Security Agreement |
Exhibit K | | LAZEL Guaranty |
Exhibit L | | Contingent Value Right Agreement |
Exhibit M | | Escrow Agreement |
Exhibit N | | Holdco 2009 Equity Incentive Plan |
Exhibit O-1 | | Services Agreement |
Exhibit O-2 | | Subscription Agreement |
Exhibit O-3 | | Subscription Agreement |
Exhibit P-1 | | Stock Purchase Agreement |
Exhibit P-2 | | Subscription Agreement |
Exhibit Q | | Holdco Note |
Exhibit R | | Holdco Vowel Liability Guaranty |
| | |
Schedules | | |
|
Schedule A | | List of Vowel stockholders executing the Vowel Voting Agreement |
Schedule B | | List of VSS Funds executing Consonant Voting Agreement |
Schedule 1.6 | | Directors of Consonant Surviving Corporation and Vowel Surviving Corporation |
Schedule 1.7 | | Officers of Consonant Surviving Corporation and Vowel Surviving Corporation |
Schedule 5.24 | | Vowel Closing Funding Amounts |
A-iv
AGREEMENT AND PLAN OF MERGERS
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 toArticle 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 Stockand/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 inExhibit A-1,Exhibit A-2 andExhibit 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 onSchedule A attached hereto, are entering into a voting and support
A-1
agreement, in the form ofExhibit 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 onSchedule B attached hereto, is entering into a voting and support agreement, in the form ofExhibit 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 andSection 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, New York, New York 10020 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 inArticle 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 asExhibit 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 asExhibit 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”).
A-2
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 toSection 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 asExhibit 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 asExhibit 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 asExhibit 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 asExhibit 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 onSchedule 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 onSchedule 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 onSchedule 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 onSchedule 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 toSection 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 inSection 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 toSection 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
(iii) the Contingent Value Right.
A-3
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 thisSection 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 thisSection 2.1; (ii) any dividends and other distributions in accordance withSection 2.3(e); and (iii) any cash to be paid in lieu of any fractional share of Holdco Common Stock in accordance withSection 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
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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 thisSection 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 thisSection 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
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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 ofExhibit 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 thisSection 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 thisSection 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
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other than the right to receive: (i) the consideration to which such holder may be entitled pursuant to thisSection 2.2; (ii) any dividends and other distributions in accordance withSection 2.3(e); and (iii) any cash to be paid in lieu of any fractional share of Holdco Common Stock in accordance withSection 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) Voweland/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 thisArticle 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 thisArticle II, (B) any dividends and other distributions in accordance withSection 2.3(e), and (C) any cash to be
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paid in lieu of any fractional share of Holdco Common Stock in accordance withSection 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 withSection 2.3(e) and any cash in lieu of fractional shares in accordance withSection 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 toArticle II; (B) a Holdco Warrant to subscribe for the number of Holdco Shares to which such holder may be entitled to purchase pursuant toArticle II; (C) any dividends and other distributions in accordance withSection 2.3(e); and (D) any cash to be paid in lieu of any fractional share of Holdco Common Stock in accordance withSection 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 withSection 2.3(e) and any cash in lieu of fractional shares in accordance withSection 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 thisSection 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 theOver-the-Counter Bulletin Board market (or such other market on which such Vowel Shares are then trading) two Business Days
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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 toSection 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 Sharesand/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 thisArticle 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 toSection 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 Sharesand/or a check or wire transfer, to the extent and in the amount to which such holder may be entitled pursuant to thisArticle 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 toArticle 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 withSection 2.3(e); and (iii) any cash to be paid in lieu of any fractional share of Holdco Common Stock in accordance withSection 2.3(f).
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(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 thisSection 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; andprovided,further, that if at any time prior to the termination of the Exchange Fund pursuant toSection 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 toSection 2.3(f), and dividends and distributions payable pursuant toSection 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 Sharesand/or a check or wire transfer in the amount to which such holder may be entitled pursuant to thisArticle 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 thisSection 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
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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 thisSection 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 thisSection 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 onForm S-8 (or any successor or, including ifForm 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 thisSection 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 thisSection 2.7 (but not the cash purchase price for such shares) shall be equitably adjusted prior to such issuance
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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 toSection 2.1,Section 2.2 and as described in thisSection 2.7, (y) the Holdco Warrant issued pursuant toSection 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 thisArticle 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 inSection 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 onSection 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 onSection 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 inSection 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.
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Section 3.3. Capitalization.
(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 inSection 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 inSection 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 inSection 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
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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 consentsand/or notices set forth onSection 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 thisSection 3.4 or any other representation in thisArticle 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 thisSection 3.5 or any other representation in thisArticle 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 onForm 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
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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 fiscalyear-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) ofRegulation 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 byRule 13a-14 or15d-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) ofRules 13a-15 of the Exchange Act) as required byRule 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 inRule 13a-15(e) andRule 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 inRule 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
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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 inSection 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 RegulationsSection 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 RegulationsSection 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
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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 commercialoff-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, conditionand/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
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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 Subsidiaryand/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 onSection 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,
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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 thisSection 3.11 do not apply to Intellectual Property which is covered exclusively by the representations and warranties set forth inSection 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.
Section 3.13. Material Contracts.
(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 thisSection 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;
(viii) any material Contracts with any Governmental Authority, 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;
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(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 Vowel and its Subsidiaries);
(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;
(xvii) any power of attorney given by Vowel or any of its Subsidiaries;
(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 commercialoff-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) ofRegulation 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 thisSection 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.
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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 onSection 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
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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
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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
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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
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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 onSection 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 inSection 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 inSection 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
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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 onSection 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 onSection 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 inSection 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
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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.
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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 onForm 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 thisSection 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 inSection 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.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CONSONANT
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 thisArticle 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 inSection 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 onSection 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 onSection 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 inSection 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 inSection 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.
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(b) Except as set forth inSection 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 consentsand/or notices set forth onSection 4.4(b) of the Consonant Disclosure Schedule (collectively, clauses (i) through (v), the “Consonant Specified Approvals”), and other than any consent, approval,
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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 Agreementand/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
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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 inSection 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 RegulationsSection 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 RegulationsSection 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
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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 commercialoff-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, conditionand/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
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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 Subsidiaryand/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
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Subsidiary enjoys peaceful and undisturbed possession of all real property under all leases identified onSection 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 thisSection 4.11 do not apply to Intellectual Property which is covered exclusively by the representations and warranties set forth inSection 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.
Section 4.13. Material Contracts.
(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 thisSection 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;
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(viii) any material Contracts with any Governmental Authority, 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;
(xvii) any power of attorney given by Consonant or any of its Subsidiaries;
(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 commercialoff-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;
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(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 onSection 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 agentand/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 agentand/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
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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
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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
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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
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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 onSection 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 onSection 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 inSection 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,
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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 onSection 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 onSection 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 inSection 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.
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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.
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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 thisSection 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 inSection 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.
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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 inSection 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
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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 thisSection 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 toSection 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 toSections 2.4,2.5 and5.21, (iv) solely with respect to Vowel and its Subsidiaries, as set forth inSection 5.1(a) of the Vowel Disclosure Schedule or (v) solely with respect to Consonant and its Subsidiaries, as set forth inSection 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 inSection 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 asExhibit H (the “Holdco Certificate of Incorporation”) which amendment and restatement shall be
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effective prior to the Effective Time; (w) Holdco may issue a note to VSS-Consonant Holdings III in the form attached hereto asExhibit Q (the ‘‘Holdco Note”) to the extent VSS-Consonant Holdings III loans Holdco the funds to pay the Vowel Transaction Expenses pursuant toSection 7.3(a) or the Vowel Expense Reimbursement Amount pursuant toSection 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) ofSection 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 officersand/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;
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(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 inSection 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 toSection 5.1(b)(x) of the Vowel Disclosure Schedule and attached toSection 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 ofRegulation 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
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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 inSection 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
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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 toSection 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 underSection 5.3(b) or(c), shall not, in and of itself, be deemed to be a breach or violation of thisSection 5.3(a) or, in the case ofSection 5.3(b), give Consonant a right to terminate this Agreement pursuant toSection 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 thisSection 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 thisSection 5.3(a) by Vowel.
(b) Notwithstanding anything to the contrary inSection 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 ofSection 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 ofSection 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
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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 thisSection 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 inSection 5.3(b) entered into in the circumstances referred to inSection 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 Proposaland/or (iv) take any other actions that would otherwise be prohibited under the first sentence of thisSection 5.3(c), but only if (A) Vowel, its Subsidiaries and their respective Representatives and Affiliates have complied with the terms of thisSection 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 Consonantand/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 Consonantand/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 thisSection 5.3(c) and shall require a new compliance with the second sentence of thisSection 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 inSection 5.3 shall be deemed to prohibit Vowel from taking and disclosing to its stockholders a position with respect to a tender offer contemplated byRule 14e-2(a),Rule 14d-9 or Item 1012 ofRegulation 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 bySection 5.3(c). Nothing in thisSection 5.3 shall prohibit Vowel or the Vowel Board
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from making any “stop, look and listen” communications to the stockholders of Vowel as limited by and pursuant toRule 14d-9(f) of the Exchange Act and such communication shall not constitute a Change of Vowel Recommendation under this Agreement (includingArticle 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 bySections 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 toSection 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
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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 PCand/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 limitationSection 5.3(c) andSection 7.1 (and for avoidance of doubt, subject to termination of this Agreement pursuant toSection 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 withSection 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 withSection 5.3(c).
(d) NotwithstandingSections 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 thisSection 5.4.
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Section 5.5. Efforts.
(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 partyand/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
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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 inSection 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 ofSections 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 bySections 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 toSection 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 thisSection 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,
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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 thisSection 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 thisSection 5.8(b) shall thereupon, automatically without further action or deed, be extinguished and voidab 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 thisSection 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 thisSection 5.8(b) to the contrary, Holdco’s and its Subsidiaries’ obligations under thisSection 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
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or arrangements described inSection 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 thisSection 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 onForm S-8 (or any successor or, including ifForm 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 limitationSection 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 inSection 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
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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 inArticle 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 thisSection 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 inArticle 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 underRule 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 underRule 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 thisSection 5.14 shall limit the Parties’ obligations underSection 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 asExhibit 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,
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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 thisSection 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 inSection 6.3(e) of this Agreement and McDermott Will & Emery LLP to render the opinion described inSection 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 onSchedule 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 onSchedule 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 underSchedule 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 underSchedule 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
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be invested or paid directly to the agentand/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 inSection 6.2, unless Vowel has validly and irrevocably waived the conditions set forth inSection 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 underSection 5.21(b), (iii) Consonant fails to do so in accordance withSection 5.21(b), and (iv) all of the conditions inSection 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 inSections 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 toSection 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.
Section 5.22. Vowel Tax Holdback Amounts; Tax Refund Escrow.
(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 onSchedule 5.24, which amount shall be deposited in the “280G Escrow Account” (as that term is defined in the Escrow Agreement).
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(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 toSection 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 inSection 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 onSection 9.15(ii) of the Vowel Disclosure Schedule and (b) whether any dispute with a Governmental Authority exists with respect to any refund listed onSection 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 asExhibit 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 inSection 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 thisSection 5.23. If any of the Agreed Contingencies have been paid on or before the Closing Date, no
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adjustment shall be made pursuant to thisSection 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 onSchedule 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 onSchedule 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 onSchedule 5.24 (unless insurance is purchased prior to the Effective Time with respect to such
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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 onSchedule 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 toSection 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 thisSection 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 thisSection 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 onSchedule 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 ofExhibit 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 onSchedule 5.24 (provided that, with respect to each such liability, if the dollar amount set forth onSchedule 5.24 in respect of such liability is not funded in full on or before the Effective Time in accordance with thisSection 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
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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 thisSection 5.24 as set forth onSchedule 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 limitationSection 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 ofExhibit 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 inclauses (i) through (iv) ofSection 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 (includingSection 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
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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 thisSection 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 thisSection 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 inclauses (i) through (iv) ofSection 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 inSection 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 inSection 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 inSection 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 thisSection 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 toSection 5.27(d) as is reflected in its decision (the “Working Capital
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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 ofSection 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 underSection 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 toSection 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 thisSection 5.27 shall be final and binding upon the parties.
(d) If the Independent Accountant determines, in accordance with the procedures set forth inSection 5.27(c), that a breach ofSection 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 thisSection 5.27, then Holdco shall pay the reasonable documentedout-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 thisSection 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 documentedout-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 ownout-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.
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(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 thisSection 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 thisSection 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 inSections 6.2(a),6.2(b),6.2(c) and6.2(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 inSection 5.18 of this Agreement.
(g) Holdco or Consonant shall have deposited all amounts required to be deposited with the Exchange Agent pursuant toSection 2.3 andSection 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, Consonantand/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
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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 inSections 6.3(a),6.3(b) and6.3(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 inSection 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 inSections 6.1,6.2 or6.3, 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 toSection 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;
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(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 thisSection 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 thisSection 7.1(c) shall have used such efforts as may be required bySection 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 inSection 6.1 orSection 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 thisSection 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 withSection 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 inSection 6.1 orSection 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 thisSection 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 toRule 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
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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 inSection 5.3(b) entered into in the circumstances referred to inSection 5.3(b)) accepting any Vowel Superior Proposal or (G) Vowel is in material breach of any of its obligations set forth inSection 5.3,Section 5.4(a),Section 5.4(c), orSection 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 inSection 6.1 andSection 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 toSection 2.3(a), the Vowel Expense Reimbursement Amount pursuant toSection 2.3(a), or to pay the Vowel Transaction Expenses (excluding the Vowel Expense Reimbursement Amount) pursuant toSection 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 inSection 6.1 andSection 6.2 are satisfied or waived (other than those conditions set forth inSection 6.2(f),Section 6.2(g) andSection 6.2(h)) or (B) Consonant, upon written notice to the other Parties, if, whether or not the conditions set forth inSection 6.1 andSection 6.3 have been satisfied or waived, Consonant elects to terminate this Agreement prior to the Effective Time other than pursuant toSections 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 underSection 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 toSection 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 ofSection 5.2(b),Section 7.2,Section 7.3, andArticle IX will survive the termination hereof;provided,however, that, in the event of a termination solely pursuant toSections 7.1(e) orSection 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 inArticle 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 thisSection 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 toSection 7.3. If this Agreement is terminated by Vowel pursuant toSection 7.1(e) as a result of a failure by Holdcoand/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 underSection 5.21, then Consonant shall pay, or cause to be
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paid, to Vowel a fee of $4,500,000 (less any amounts to be paid by Consonant pursuant toSection 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 toSection 7.1(e). If this Agreement is terminated by Consonant pursuant toSection 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 toSection 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 toSection 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 thisSection 7.2 shall not be interpreted such that Consonant and Holdco become liable under thisSection 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 thisSection 7.2 shall in no respect limit the right of Holdcoand/or Consonant to enforce specifically the terms and provisions of this Agreement pursuant toSection 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 underSection 7.1(e) orSection 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 thisSection 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 underSection 7.1(e) orSection 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 inArticle 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 thisSection 7.2. It is understood and agreed that the remedies and liquidated damages provided in thisArticle VII,Section 9.9and/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 inArticle 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 hereofand/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 thisSection 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
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deposited with the Exchange Agent in accordance withSection 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 inSection 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 toSection 7.3(c) below, if: (1)(x) this Agreement is terminated by Consonant or Vowel pursuant toSection 7.1(d) (or if this Agreement is terminable pursuant toSection 7.1(d) and Vowel terminates this Agreement for another reason other than pursuant toSection 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 toSection 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 inSection 7.1(h) have occurred; or (3) this Agreement is terminated by Vowel pursuant toSection 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 toSection 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 toSection 7.3(b)(2), within two (2) Business Days following termination of this Agreement by Consonant; or (C) if paid pursuant toSection 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 toSection 7.1(d) (or if this Agreement is terminable pursuant toSection 7.1(d) and Vowel terminates this Agreement for another reason other than pursuant toSections 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 underSection 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, documentedout-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 toSection 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 toSection 7.3(b)(2) orSection 7.3(b)(3) or the Vowel Breach Termination Fee has been paid pursuant to Section 7.2.
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(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 toSections 7.1(i); (ii) the Consonant Ordinary Termination Fee if this Agreement is terminated by Vowel pursuant toSection 7.1(l), unless the Agreement may then be terminated underSection 7.1(c) orSection 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 toSection 7.1(j) in the event of an Equity Cure Failure. In the event this Agreement is terminated by Vowel pursuant toSection 7.1(j) orSection 7.1(e) in the event of a General Cure Failure which has not been waived by Vowel as contemplated inSection 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 thisSection 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 thisSection 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 thisSection 7.3(e), following the receipt by Consonant of the Vowel Termination Fee pursuant toSection 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 thisSection 7.3(e), following the receipt by Vowel of the applicable Consonant Termination Fee pursuant toSection 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 ofSection 7.2, the obligations of Vowel to pay any Vowel Termination Fee, in each case as applicable pursuant to the provisions of thisSection 7.3 or any other amount pursuant to thisArticle VII, shall continue notwithstanding the termination of this Agreement or the occurrence of the Outside Date. Notwithstanding anything to the contrary contained inSection 7.2 or thisSection 7.3, if Vowel fails to pay promptly to Consonant the Vowel Breach Termination Fee if due and owing underSection 7.2 or any amounts due and owing by Vowel underSection 7.3(b) andSection 7.3(c), in addition to such amounts, Vowel shall pay Consonant’s reasonable and documentedout-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 theWall 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’sout-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 ofSection 7.2, the obligations of Consonant to pay any Consonant Termination Fee pursuant to the provisions of thisSection 7.3 or any other amount pursuant to thisArticle VII shall continue notwithstanding the termination of this Agreement or the occurrence of the Outside Date. Notwithstanding anything to the contrary contained inSection 7.2 or thisSection 7.3, if Consonant fails to pay promptly to Vowel the Consonant Breach Termination Fee if due and owing underSection 7.2 or any amounts due and owing by Consonant underSection 7.3(d), in addition to such amounts, Consonant shall pay Vowel’s reasonable and documentedout-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 theWall 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’sout-of-pocket costs, expenses and interest on the amount of any such unpaid amounts exceed $625,000 in the aggregate.
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ARTICLE VIII
STOCKHOLDERS’ REPRESENTATIVE
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 byArticle 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 memberand/or manager of the Stockholders’ Representative may be removed, replacedand/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 memberand/or manager of the Stockholder’s Representative. If the Stockholders’ Representative liquidates, dissolves or winds up its affairs, without appointing a successor under thisSection 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 byArticle 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 inSection 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 thisSection 8.2; (2) the purchase of any insurance or similar products that are reasonably necessary to provide indemnification to the Stockholders’ Representative as contemplated inSection 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 inSchedule 5.24.
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Section 8.3. Reliance. By approval of this Agreement at the Vowel Meeting, and pursuant to the terms of the letter of transmittal contemplated byArticle 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 inSection 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 inSection 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 byArticle 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 thisSection 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 amountsand/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 thisARTICLE 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.
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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:
(a) If to Holdco:
Cambium Holdings, Inc.
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, New York 10022
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, NY 10020
Facsimile:(973) 597-2507
Attention: Steven E. Siesser, Esq.
(b) If to Consonant:
VSS-Cambium Holdings II Corp.
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, New York 10022
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, NY 10020
Facsimile:(973) 597-2507
Attention: Steven E. Siesser, Esq.
(c) If to Vowel:
Voyager Learning Company
789 Eisenhower Parkway
Ann Arbor, MI 48108
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, Illinois 60603
Facsimile:(312) 324-9400
Attention: Phil Gordon, Esq.
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(d) If to the Stockholders’ Representative:
Vowel Representative, LLC
c/o Perkins Coie LLP
131 South Dearborn Street, Suite 1700
Chicago, Illinois 60603
Facsimile: 312.324.9400
Attention: Phil Gordon, Esq.
with a copy (which will not constitute notice) to:
Perkins Coie LLP
131 South Dearborn Street, Suite 1700
Chicago, Illinois 60603
Facsimile: 312.324.9400
Attention: Phil Gordon, Esq.
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 Consonantand/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 underArticle 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 ofSection 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 limitationSection 5.9 andSection 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).
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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 Holdcoand/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 Consonantand/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 inSection 7.2 andSection 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
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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 inSection 9.3 shall be effective service of process for any Proceeding with respect to any matters to which it has submitted to jurisdiction in thisSection 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 THISSECTION 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
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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 inSection 4.6(a).
“2008 Financial Statements” has the meaning assigned thereto inSection 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 inSection 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 inSection 2.7.
“Affiliate” has the meaning assigned thereto inRule 12b-2 under the Exchange Act.
“Aggregate Vowel Closing Funding Amount” means the sum of all amounts set forth onSchedule 5.24 with respect to Vowel Closing Liabilities.
“Agreed Contingencies” means those Taxes set forth onSection 9.15(i) of the Vowel Disclosure Schedule, plus the reasonable documentedout-of-pocket expenses incurred after the Closing Date that reasonably relate to such tax liabilities and Tax Returns contemplated by the last sentence ofSection 5.23(c).
“Agreement” has the meaning assigned thereto in the Preamble.
“Allen & Co. ” has the meaning assigned thereto inSection 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.
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“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.
“Balance Sheet Date” means December 31, 2008.
“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 inSection 2.2(c).
“Cancelled Vowel Shares” has the meaning assigned thereto inSection 2.1(c).
“Cash Election Shares” has the meaning assigned thereto inSection 2.1(e)(ii).
“Certificates” has the meaning assigned thereto inSection 2.3(a).
“Certificates of Merger” has the meaning assigned thereto inSection 1.3.
“Change of Vowel Recommendation” has the meaning assigned thereto inSection 5.3(c).
“Closing” has the meaning assigned thereto inSection 1.2(a).
“Closing Date” has the meaning assigned thereto inSection 1.2(a).
“COBRA” has the meaning assigned thereto inSection 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 inSection 4.11.
“Consonant Benefit Plan” has the meaning assigned thereto inSection 4.14(a).
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“Consonant Board” means the then board of directors of Consonant.
“Consonant Certificate” has the meaning assigned thereto inSection 2.3(a).
“Consonant Certificate of Merger” has the meaning assigned thereto inSection 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 inSection 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 underRule 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 inArticle IV.
“Consonant Employees” has the meaning assigned thereto inSection 4.14(a).
“Consonant Enhanced Termination Fee” has the meaning assigned thereto inSection 7.3(d).
“Consonant Equity Cure” has the meaning assigned thereto inSection 5.21(b).
“Consonant ERISA Affiliate” has the meaning assigned thereto inSection 4.14(b).
“Consonant Exchange Ratio” means 0.8448961.
“Consonant Expense Reimbursement Amount” has the meaning assigned thereto inSection 7.3(c).
“Consonant Financial Statements” has the meaning assigned thereto inSection 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 inSection 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
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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 inSection 4.13(a).
“Consonant Material Customers” has the meaning assigned thereto inSection 4.21(a).
“Consonant Material Vendors” has the meaning assigned thereto inSection 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 inSection 7.3(d).
“Consonant Related Person” has the meaning assigned thereto inSection 4.20.
“Consonant Share” has the meaning assigned thereto inSection 2.2(a).
“Consonant Specified Approvals” has the meaning assigned thereto inSection 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 inSection 2.2(a).
“Consonant Surviving Corporation” has the meaning assigned thereto inSection 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 Section4.32.
“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 asExhibit L.
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“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 toSection 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 inSection 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 ofSection 9.15(i) of the Vowel Disclosure Schedule.
“Designated Tax Liability” means the Agreed Contingency identified in Line 2(f) ofSection 9.15(i) of the Vowel Disclosure Schedule.
“DGCL” has the meaning assigned thereto in the Recitals.
“DOL” has the meaning assigned thereto inSection 3.14(a).
“D&O” has the meaning assigned thereto inSection 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 bySection 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 inSection 5.8(a).
“D&O Tail Insurance” has the meaning assigned thereto inSection 5.8(a).
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“Effective Time” has the meaning assigned thereto inSection 1.3.
“Election Deadline” has the meaning assigned thereto inSection 2.1(e)(ii).
“Election Form” has the meaning assigned thereto inSection 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 inSection 5.21(c).
“Equity Cure Payment Amount” has the meaning assigned thereto inSection 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 asExhibit M.
“Excess Employee Payment Amount” has the meaning assigned thereto inSection 5.24.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exchange Agent” has the meaning assigned thereto inSection 2.3(a).
“Exchange Fund” has the meaning assigned thereto inSection 2.3(a).
“Export Approvals” has the meaning assigned thereto inSection 3.26.
“FCPA” has the meaning assigned thereto inSection 3.25.
“Fiduciary Program” has the meaning assigned thereto inSection 5.8(a).
“Filings” has the meaning assigned thereto inSection 3.31.
“Financial Default” has the meaning assigned thereto inSection 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 inSection 5.21(c).
“General Default” has the meaning assigned thereto inSection 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.
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“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 Certificate of Incorporation” has the meaning assigned thereto inSection 5.1(a).
“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 asExhibit N.
“Holdco Preferred Stock” has the meaning assigned thereto inSection 4A.3(a).
“Holdco Share” means a share of Holdco Common Stock.
“Holdco Stockholders Agreement” has the meaning assigned thereto inSection 5.16.
“Holdco Warrant(s)” has the meaning assigned thereto inSection 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 withSection 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 asExhibit A-2 hereto.
“Holdings III Merger” means the merger, pursuant toSection 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 asExhibit A-1 hereto.
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“Holdings IV Contribution Agreement” means the Contribution Agreement by and between VSS-Consonant Holdings IV and VSS-Consonant Holdings attached asExhibit A-3 hereto.
“HSR Act” means theHart-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 inSection 5.8(b).
“Indemnified Persons” has the meaning assigned thereto inSection 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 andcontinuations-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 inSection 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.
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“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 inSection 5.25.
“LAZEL Spinoff Transaction” has the meaning set forth inSection 5.25.
“LAZEL Spinoff Documents” means the Services Agreement, Subscription Agreement and the Subscription Agreement attached hereto asExhibit O-1,Exhibit O-2, andExhibit 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 inSection 5.24.
“Liability Funding Documents” has the meaning assigned thereto inSection 5.24.
“Lien” means any lien, security interest, charge, pledge or other similar encumbrance.
“Mailing Date” has the meaning assigned thereto inSection 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 inSection 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 inSection 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 the2009-2010 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)
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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 anyout-of-pocket costs and expensesand/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 inSection 2.1(e)(ii).
“Outside Date” has the meaning assigned thereto inSection 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 inSection 7.2.
“Pre-Closing Covenant Cap” has the meaning assigned thereto inSection 7.2.
“Pre-Signing Tax Refunds” means those Vowel Tax Refunds set forth onSection 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 inSection 3.31.
“Public Intellectual Property” has the meaning assigned thereto inSection 3.10(i).
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“Re-Designated Shares” has the meaning assigned thereto inSection 2.1(e)(v).
“Registration Statement” has the meaning assigned thereto inSection 3.31.
“Registration Statement Filing Date” has the meaning assigned thereto inSection 7.1(b).
“Reorganization” has the meaning assigned thereto in the Recitals.
“Representatives” has the meaning assigned thereto inSection 5.2(a).
“Required Financial Statements” has the meaning assigned thereto inSection 7.1(b).
“Restraint” has the meaning assigned thereto inSection 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 inSection 5.4(c).
“Securities Act” means the Securities Act of 1933, as amended.
“Security Agreement” has the meaning assigned thereto inSection 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 inSection 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 inSection 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” inSection 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 inSection 1.1.
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“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 inSection 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 inSection 5.1(a).
“Total Cash for Cash Election” means the sum of (a) Available Vowel Cash for Cash Electionplus (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 asExhibits P-1andP-2, respectively
“VEL Drop-Down Transaction” has the meaning assigned thereto inSection 5.26(a).
“Voting Consonant Debt” has the meaning assigned thereto inSection 4.3(b).
“Voting Holdco Debt” has the meaning assigned thereto inSection 4A.3(b).
“Voting Vowel Debt” has the meaning assigned thereto inSection 3.3(b).
“Vowel” means Voyager Learning Company, a Delaware corporation.
“Vowel 2008 Financial Statements” has the meaning assigned thereto inSection 3.6(b).
“Vowel Active Employees” has the meaning assigned thereto inSection 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 Voweland/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 inSection 3.11.
“Vowel Benefit Plans” has the meaning assigned thereto inSection 3.14(a).
“Vowel Board” means the then board of directors of Vowel.
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“Vowel Book-Entry Shares” has the meaning assigned thereto inSection 2.3(a).
“Vowel Certificate” has the meaning assigned thereto inSection 2.3(a).
“Vowel Certificate of Merger” has the meaning assigned thereto inSection 1.3.
“Vowel Closing Certificate” has the meaning assigned thereto inSection 1.2(b).
“Vowel Closing Funding Amount” means, with respect to each Vowel Closing Liability, the amount set forth opposite such Vowel Closing Liability onSchedule 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 onSchedule 5.24.
“Vowel Common Stock” has the meaning assigned thereto in the Recitals.
“Vowel Confidentiality Agreement” means the confidentiality agreement, dated March 11, 2008, by and between Vowel and Consonant, as amended by those certain amendments dated August 22, 2008, September 25, 2008 and December 8, 2008.
“Vowel Consideration” has the meaning assigned thereto inSection 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 underRule 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 inArticle III.
“Vowel Dissenting Shares” has the meaning assigned thereto inSection 2.1(g).
“Vowel Employees” has the meaning assigned thereto inSection 3.14(a).
“Vowel ERISA Affiliate” has the meaning assigned thereto inSection 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 inSection 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
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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 inSection 3.13(a).
“Vowel Material Customers” has the meaning assigned thereto inSection 3.21(a).
“Vowel Material Vendors” has the meaning assigned thereto inSection 3.21(b).
“Vowel Meeting” has the meaning assigned thereto inSection 5.4(c).
“Vowel Meeting Original Date” has the meaning assigned thereto inSection 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 inSection 2.1(a)(i), as such amount may be adjusted from time to time pursuant toSection 2.1(f).
“Vowel Per Share Stock Consideration” has the meaning assigned thereto inSection 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 toSection 2.1(c)).
“Vowel Recommendation” has the meaning assigned thereto inSection 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 inSection 3.20.
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“Vowel SARs” has the meaning assigned thereto inSection 2.5(b).
“Vowel SEC Financial Statements” has the meaning assigned thereto inSection 3.6(b).
“Vowel SEC Reports” has the meaning assigned thereto inSection 3.6(a).
“Vowel Share” has the meaning assigned thereto inSection 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 inSection 3.4(b).
“Vowel Stock Options” has the meaning assigned thereto inSection 2.5(a).
“Vowel Stock Plans” has the meaning assigned thereto inSection 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 inSection 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 inSection 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 documentedout-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 onSection 9.15(ii) of the Vowel Disclosure Schedule annexed hereto and made a part hereof.
“Vowel Termination Fee” has the meaning assigned thereto inSection 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 inSection 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 inSection 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.
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“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 inSection 5.27(c).
[Signature Page Follows]
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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.
CAMBIUM HOLDINGS, INC.
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
VOYAGER LEARNING COMPANY
Name: Richard Surratt
| | |
| Title: | President and Chief Executive Officer |
VSS-CAMBIUM HOLDINGS II CORP.
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
CONSONANT ACQUISITION CORP.
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
[Signature Page to Agreement and Plan of Merger]
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VOWEL ACQUISITION CORP.
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
STOCKHOLDERS’ REPRESENTATIVE:
VOWEL REPRESENTATIVE, LLC
BY: SPO ADVISORY CORP., its manager
| | |
| By: | /s/ William E. Oberndorf |
Name: William E. Oberndorf
[Signature Page to Agreement and Plan of Merger]
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Annex B
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
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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
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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
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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.
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Annex C
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CAMBIUM-VOYAGER HOLDINGS, INC.
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
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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.
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ARTICLE V
BY-LAWS
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
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 withRule 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.
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B. | ACTIONS BY STOCKHOLDERS |
So long as the VSS Funds beneficially own (as determined in accordance withRule 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
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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 withRule 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.
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.
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 withRule 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 thisArticle 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
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Amended and Restated Certificate of Incorporation. Notwithstanding the foregoing provisions of thisArticle 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.
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 withRule 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.
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.
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.
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
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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 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.
(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.
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(4) No amendment to or repeal of the provisions of thisArticle 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 thisArticle 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 thisArticle 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 thisArticle 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 thisArticle 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
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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 thisArticle IX nor the adoption of any provision of this certificate of incorporation inconsistent with thisArticle IX shall eliminate or reduce the effect of thisArticle IX in respect of any matter occurring, or any cause of action, suit or claim that, but for thisArticle 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 thisArticle X;provided,however, that any amendment or repeal ofArticle 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, andprovidedfurther 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 inArticle IV orArticle 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 ofArticle IV orArticle 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 thisArticle 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, thisArticle XI shall be null and voidab initio.
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IN WITNESS WHEREOF, the Corporation has caused this Second Amended and Restated Certificate of Incorporation to be signed by its President on October 29, 2009.
CAMBIUM-VOYAGER HOLDINGS, INC.
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
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Annex D
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 withRule 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
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who share an address if notice is given in accordance with the “householding” rules set forth inRule 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 thisSection 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.
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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 withSection 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 thisSection 2.10(a) is delivered to the Secretary of the Corporation and at the date of the
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meeting, who is entitled to vote at the meeting and who complies with the notice procedures set forth in thisSection 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 stockholderand/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 statementand/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 nomineeand/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 proposaland/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 thisSection 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
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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 withRule 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 thisSection 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 inSection 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 thisSection 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 thisSection 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 thisSection 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 bySection 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 withRule 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 thisSection 2.10(b) (including compliance with the notice requirements ofSection 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 thisSection 2.10 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as
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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 thisSection 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 thisSection 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 byclause (a)(ii)(C)(4) of thisSection 2.10) and (b) if any proposed nomination or business was not made or proposed in compliance with thisSection 2.10, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of thisSection 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 thisSection 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 thisSection 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 thisSection 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 thisSection 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 thisSection 2.10 (including paragraphs (a)(i)(C) and (b) hereof), and compliance with paragraphs (a)(i)(C) and (b) of thisSection 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 withRule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in thisSection 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;
(d) count and tabulate all votes or consents;
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(e) determine when the polls shall close;
(f) determine the result; and
(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 thisSection 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 thisSection 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 thisSection 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
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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 withRule 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
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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. ThisSection 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.
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ARTICLE IV
COMMITTEES
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
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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,
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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 inSection 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 inSection 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 thisArticle VI or otherwise.
Section 6.3 Right of Indemnitee to Bring Suit. If a claim underSection 6.1 or6.2 of thisArticle 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 thisArticle 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 thisArticle VI shall not be exclusive of any other right which any person may have or
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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 thisArticle 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 thisArticle 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 thisArticle 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 thisArticle 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 thisArticle 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 thisArticle 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
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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.
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ARTICLE VIII
GENERAL MATTERS
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 8.7 Subject to Law and Certificate of Incorporation. All powers, duties and responsibilities provided for in these Bylaws, whether or not explicitly so qualified, are qualified by the Certificate of Incorporation and applicable law.
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 underArticle VI of these Bylaws or to this sentence shall be effective to any claim by a person underArticle 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 thisSection 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 inSections 3.3, 3.4, 3.5, 8.8 andArticle 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 ofSections 3.3, 3.4, 3.5, 8.8 andArticle 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
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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 thisSection 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, thisSection 8.9 shall be null and voidab initio.
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Annex E
OPINION OF ALLEN & COMPANY LLC
June 20, 2009
Members of the Board of Directors
Voyager Learning Company
789 Eisenhower Parkway
P.O. Box 1346
Ann Arbor, MI48106-1346
Members of the Board of Directors:
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.
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Consonant Merger
(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
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respective representatives, or that was otherwise reviewed by us. With respect to financial projections provided to us by the Companyand/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.
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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;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.
Very truly yours,
ALLEN & COMPANY LLC
Kim Wieland
Managing Director
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Annex F
June 20, 2009
Richard Surratt
CEO
Voyager Learning Company
1800 Valley View Lane, Suite 400
Dallas, TX75234-8923
Re: Solvency Opinion
Dear Mr. Surratt:
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):
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| • | 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; |
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| • | 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; |
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| • | 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 |
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| • | has indicated it is now and is proposed to be conducted following the consummation of the Transaction; |
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| • | 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 |
An Employee-owned Company
105 W. Madison Suite 1500 Chicago, IL 60602
Tel: 312.499.5900 Toll Free: 800.654.4977 Fax: 312.499.5901
www.houlihansmith.com • www.fairnessopinion.com • www.solvencyopinion.com
F-1A-F-1
Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 2 of 5
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| • | 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:
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| • | Reviewed the following agreements and documents related to the Transaction: |
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| • | 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; |
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Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 3 of 5
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| • | A summary term sheet including structure diagrams of the various steps of the Transaction, dated as of February 5, 2009; and |
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| • | 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. |
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| • | 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. |
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| • | Obtained, reviewedand/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: |
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| • | Four-year, pro forma financial projections for Holdco, as provided by Management, including net operating loss (“NOL”) carry forward calculations; |
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| • | Unaudited, historical pro forma financial statements for Holdco for fiscal years 2006 through 2008, as provided by Management; |
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| • | Cambium’s audited financial statements for the fiscal years ending December 31, 2006 and December 31, 2007; |
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| • | Voyager’s audited financial statements for the fiscal years ending December 31, 1994 through December 31, 2008; |
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| • | Voyager’s accounts receivable aging schedule and customer sales report, dated as of December 31, 2008 and January 15, 2009, respectively; and |
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| • | Voyager’s monthly working capital projections for 2009. |
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| • | Obtained and reviewed the following documents with regards to Cambium: |
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| • | Second Amended and Restated Certificate of Incorporation of Cambium, dated as of April 12, 2005; |
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| • | Minutes of Cambium’s board of directors’ meetings between December 9, 2005 and October 26, 2006; and |
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| • | 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. |
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| • | Obtained and reviewed the following documents with regards to Voyager: |
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| • | Minutes of Voyager’s audit committee and board of director meetings between January 4, 2001 and October 13, 2008; |
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| • | Documentation related to the patents, trademarks, and licensing agreements of Cambium; and |
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| • | 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. |
F-3A-F-3
Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 4 of 5
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| • | 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:
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| • | 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; |
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| • | 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; |
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Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 5 of 5
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| • | 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; |
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| • | 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 |
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| • | 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 reasonableout-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.
Very truly yours,
Houlihan Smith & Company, Inc.
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Annex G
LIMITED GUARANTEE
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 thisSection 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 thisSection 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 thisSection 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
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one or more breaches of representations and warranties of Holdcoand/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 thisSection 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 documentedout-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 theWall Street Journalon the date such Guaranteed Obligation was required to be paid plus 2%,provided,that the Guarantors’ liability under thisSection 2 for reimbursement ofout-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 andout-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;
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(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 rescindedand/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
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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 Agreementand/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, thisSection 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
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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 thisSection 4. ThisSection 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 ofSection 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 toSections 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
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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, NY 10022
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, NY 10020
Facsimile:(973) 597-2507
Attention: Steven E. Siesser, Esq.
If to Vowel:
Voyager Learning Company
789 Eisenhower Parkway
Ann Arbor, MI 48108
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, Illinois 60603
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 inSection 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 inSection 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.
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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 ofSection 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.
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IN WITNESS WHEREOF, the undersigned have executed and delivered this Limited Guarantee as of the date first written above.
VSS COMMUNICATIONS PARTNERS IV, L.P.
VSS COMMUNICATIONS PARALLEL PARTNERS IV, L.P.
VSS COMMUNICATIONS PARALLEL II PARTNERS IV, L.P.
| | |
| By: | VSS Equities IV, LLC, |
its General Partner
Name: Scott J. Troeller
Accepted:
VOYAGER LEARNING COMPANY
Name: Richard Surratt
| | |
| Title: | President and Chief Executive Officer |
Signature Page to Limited Guarantee
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Annex H
VOTING AND SUPPORT AGREEMENT
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 inSection 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 ofRule 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 asExhibit 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 asExhibit 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,
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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 asExhibit 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 asExhibit 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 thisSection 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
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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 onSchedule I hereto; (ii) Holdings III Owns the LLC Interest indicated onSchedule 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 onSchedule 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 asExhibit 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 thisSection 6), as the Company may reasonably request in writing for the purpose of carrying out and furthering the intent of this Agreement.
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Section 7. Certain Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned thereto inRule 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 ofRule 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 ofRule 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
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to the benefit of the Company and its successors and assigns. Without limiting any of the restrictions set forth inSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 thisSection 8(c) shall exclude the right to seek specific performance or an injunction of the obligations contained inSection 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 documentedout-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 toSection 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 ofSection 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.
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(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.
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The parties have caused this Agreement to be duly executed on the date first above written.
THE COMPANY:
VOYAGER LEARNING COMPANY
Name: Richard Surratt
Title: President and Chief Executive Officer
Address for notices:
206 E. Washington, Suite B
Ann Arbor, MI 48104
Attn: General Counsel
Facsimile:(734) 663-5692
[SIGNATURE PAGE TO VOTING AND SUPPORT AGREEMENT]
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VSS-CAMBIUM HOLDINGS III, LLC
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
Title President
Address for notices:
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, New York 10022
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SCHEDULE I
| | |
LLC Interests Owned 100% | | Number of LLC Interests Issuable upon exercise of Options and Other Rights |
| | |
| | None |
| | |
| | |
| | |
| | |
Shares of Cambium Holdings II Common Stock Owned 1,000 shares | | Number of Shares of Cambium Holdings II Common Stock Issuable upon exercise of Options and Other Rights |
| | |
| | |
| | None |
| | |
| | |
| | |
| | |
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EXHIBIT A
IRREVOCABLE 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 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.
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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:
100% of membership interests
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EXHIBIT B
IRREVOCABLE 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.
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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:
1,000 shares of common stock
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Annex I
FORM OF VOTING AND SUPPORT AGREEMENT
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 inSection 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 ofRule 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 asExhibit 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.
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Section 3. Stockholder Covenants.
(a) Restriction on Transfer of Subject Securities. Except pursuant to the terms of the Merger Agreement or otherwise provided inSection 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 thisSection 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 asExhibit B hereto and (y) if prior to the Effective Time, delivers a Proxy in the form attached hereto asExhibit 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 onSchedule 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 onSchedule I
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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 onSchedule 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 memberand/or manager of the Stockholders’ Representative may be removed, replacedand/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 inSection 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;
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(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 inSection 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 inSection 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 thisSection 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 amountsand/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 thisSection 7.
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Section 8. Certain Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned thereto inRule 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 ofRule 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 ofRule 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 inSection 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
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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 documentedout-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
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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.
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The parties have caused this Agreement to be duly executed on the date first above written.
PARENT:
CAMBIUM HOLDINGS, INC.
Name: Scott J. Troeller
Address for notices:
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, NY 10022
Attn: Scott J. Troeller
Facsimile:
[SIGNATURE PAGE TO VOTING AND SUPPORT AGREEMENT]
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STOCKHOLDER:
Name:
Title
Address for notices:
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SCHEDULE I
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Shares of Company Common Stock Owned | | Number of Shares of Company Common Stock Issuable upon exercise of Options and Other Rights |
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EXHIBIT A
IRREVOCABLE PROXY
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.
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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:
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EXHIBIT B
JOINDER TO VOTING AND SUPPORT AGREEMENT
Pursuant toSection 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 inSection 4 of the Voting Agreement are true, correct and complete as if made by the undersigned on the date hereof.
Executed, in counterpart, as of the day of , 2009
Name:
Title:
Address for notices:
ACCEPTED & ACKNOWLEDGED:
CAMBIUM HOLDINGS, INC.
Name:
Title:
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Annex J
FORM OF
CONTINGENT VALUE RIGHTS AGREEMENT
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 thisArticle I have the meanings assigned to them in thisArticle I, and include the plural as well as the singular;
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(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 toSection 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 inSection 2.3(b).
“CVR Registrar” has the meaning set forth inSection 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.
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“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 datedividedby (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 underSection 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 onSchedule 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).
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“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 inSection 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 inSection 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 inSection 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
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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 thisSection 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 orW-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.
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ARTICLE III
THE RIGHTS AGENT
Section 3.1 Certain Duties and Responsibilities.
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 withSection 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 inSections 3.2(h) and3.2(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 thisSection 3.2(g) shall be reimbursed to Holdco out of the CVR Escrow Fund; and
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(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 onSchedule 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 thisSection 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 thisSection 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 withSection 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 thisSection 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.
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ARTICLE IV
COVENANTS
Section 4.1 List of Holders.
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 inSection 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 ofSection 6.1 hereof.
ARTICLE V
AMENDMENTSRichard Surratt
CEO
Voyager Learning Company
1800 Valley View Lane, Suite 400
Dallas, TX75234-8923
SectionRe: Solvency Opinion
Dear Mr. Surratt:
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):
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| • | 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; |
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| • | 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; |
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| • | 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 |
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| • | has indicated it is now and is proposed to be conducted following the consummation of the Transaction; |
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| • | 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 |
An Employee-owned Company
105 W. Madison Suite 1500 Chicago, IL 60602
Tel: 312.499.5900 Toll Free: 800.654.4977 Fax: 312.499.5901
www.houlihansmith.com • www.fairnessopinion.com • www.solvencyopinion.com
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Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 2 of 5
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| • | 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:
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| • | Reviewed the following agreements and documents related to the Transaction: |
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| • | 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; |
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Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 3 of 5
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| • | A summary term sheet including structure diagrams of the various steps of the Transaction, dated as of February 5, 2009; and |
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| • | 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. |
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| • | 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. |
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| • | Obtained, reviewedand/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: |
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| • | Four-year, pro forma financial projections for Holdco, as provided by Management, including net operating loss (“NOL”) carry forward calculations; |
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| • | Unaudited, historical pro forma financial statements for Holdco for fiscal years 2006 through 2008, as provided by Management; |
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| • | Cambium’s audited financial statements for the fiscal years ending December 31, 2006 and December 31, 2007; |
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| • | Voyager’s audited financial statements for the fiscal years ending December 31, 1994 through December 31, 2008; |
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| • | Voyager’s accounts receivable aging schedule and customer sales report, dated as of December 31, 2008 and January 15, 2009, respectively; and |
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| • | Voyager’s monthly working capital projections for 2009. |
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| • | Obtained and reviewed the following documents with regards to Cambium: |
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| • | Second Amended and Restated Certificate of Incorporation of Cambium, dated as of April 12, 2005; |
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| • | Minutes of Cambium’s board of directors’ meetings between December 9, 2005 and October 26, 2006; and |
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| • | 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. |
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| • | Obtained and reviewed the following documents with regards to Voyager: |
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| • | Minutes of Voyager’s audit committee and board of director meetings between January 4, 2001 and October 13, 2008; |
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| • | Documentation related to the patents, trademarks, and licensing agreements of Cambium; and |
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| • | 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. |
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Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 4 of 5
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| • | 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:
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| • | 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; |
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| • | 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; |
A-F-4
Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 5 of 5
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| • | 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; |
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| • | 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 |
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| • | 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 reasonableout-of-pocket 5.1expenses (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.
Very truly yours,
Houlihan Smith & Company, Inc.
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Annex G
LIMITED GUARANTEE
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. Amendments Without ConsentLimited 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 HoldersConsonant’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 Stockholders’ Representative.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 thisSection 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 thisSection 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 thisSection 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
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one or more breaches of representations and warranties of Holdcoand/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 thisSection 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) WithoutThis Limited Guarantee is an unconditional guarantee of payment, not collection, and a separate action or actions may be brought and prosecuted against the consentGuarantors 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 documentedout-of-pocket costs and expenses (including reasonable and documented legal fees and expenses) incurred in connection with any action, including the filing of any Holders,lawsuit or legal action, taken to collect payment of any Guaranteed Obligation, together with interest on the Stockholders’ Representativeamount 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 Rights Agent,Guarantors hereunder), at a per annum rate equal to the prime lending rate as reported in theWall Street Journalon the date such Guaranteed Obligation was required to be paid plus 2%,provided,that the Guarantors’ liability under thisSection 2 for reimbursement ofout-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 andout-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, when authorizedConsonant or Consonant Merger Sub;
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(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 Board Resolution,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 rescindedand/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 enter into onealso make any agreement with Consonant, Holdco or more amendments hereto,any Person liable for any of the following purposes: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.
(i)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 evidenceConsonant in accordance with
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Section 9.3 of the successionMerger Agreement), all defenses which may be available by virtue of anotherany 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 Agreementand/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 assumption byGuarantor/Consonant Affiliates in respect of any such successorliabilities 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 covenantsrights of HoldcoVowel 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 transaction contemplated bySection 6.1 hereof; or
(ii) to evidencetermination resulting from the termination of the CVR Registrar andMerger 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 successioncase of another Person as a successor CVR Registrar andtermination under Section 7.1(e), only to the assumptionextent damages are payable by Consonant pursuant to Section 7.2 thereof) of the Equity Commitment Letter affect or limit any successor of the obligations of the CVR Registrar herein.
(b) WithoutGuarantors under this Limited Guarantee. For the consentavoidance of any Holders ordoubt, thisSection 4 shall in no way limit the rights of 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 thanSection 2.4) unless such addition, elimination or change is adverse to the interests of the Holders.
(c) Promptly after the execution by Holdco andEffective Time in enforcing the Rights Agent of any amendment pursuant toMerger Agreement or the provisions of thisSection 5.1, Holdco shall mail a notice thereof by first-class mail to the Stockholders’other Transaction
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RepresentativeDocuments, 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 thisSection 4. ThisSection 4 shall survive termination of this Limited Guarantee.
5. Termination. Except as otherwise provided herein, this Limited Guarantee shall terminate and eachthe Guarantors shall have no further obligations under this Limited Guarantee as of the Holders at their addresses as they shall appear onearliest to occur of (a) if the CVR Register, setting forthMergers are consummated, the Effective Time, or (b) if the Mergers are not consummated, (W) in general terms the substancecase 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 amendment.termination.
Section 5.26. Amendments With Consent of the Stockholders’ Representative.Continuing Guarantee.
(a) Subject toSection 5.1 (which amendments pursuant toSection 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 Unless terminated pursuant to the provisions of thisSection 5.25, Holdco hereof, this Limited Guarantee is a continuing one and shall mail a notice thereof by first-class mailremain in full force and effect until the indefeasible payment and satisfaction in full of the Guaranteed Obligations up to the Stockholders’ Representativeapplicable 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 toSections 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 Holders atEquity 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 addresses as they shall appearrespective affiliates on the CVR Register, setting forth in general termsone hand, and Vowel or any of its affiliates on the substance of such amendment.other hand, except for the Merger Agreement and the Transaction Documents.
Section 5.38. ExecutionAmendments and Waivers. No amendment or waiver of Amendments.
In executing any provision of this Limited Guarantee will be valid and binding unless it is in writing and signed, in the case of an amendment, permitted by thisArticle V, the Rights Agent shallGuarantors and Vowel, or in the case of waiver, by the party against whom the waiver is to be entitled to receive, and shall be fully protected in relying upon, an opinioneffective. No waiver by any party of counsel stating that the executionany breach or violation 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 dutiesdefault under, this AgreementLimited Guarantee, whether intentional or otherwise.
Section 5.4 Effect of Amendments.
Upon the executionnot, 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 amendment under thisArticle V, this Agreement shall be modified in accordance therewith,prior or subsequent 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 withoccurrence. No delay 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 Agreementomission on the part of Holdcoany 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 performed or observed;an original but all of which taken together shall constitute one and the same agreement.
(ii) Holdco has delivered to the Rights Agent an Officer’s Certificate, stating that such consolidation, merger, conveyance, transfer10. Notices. All notices, waivers, consents, approvals and other communications given or lease complies with thisArticle VI and that all conditions precedent herein provided for relating to such transaction have been complied with.
(b) For purposes of thisSection 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 thisSection 6.1, Holdco and the Surviving Personmade pursuant hereto 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.
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Section 6.2 Successor Substituted.
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 withSection 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 duly given or made as of the date
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delivered, mailed or transmitted, and shall be effective upon receipt:
(a)receipt, if delivered personally, sent by a nationally recognized courier, mailed by registered or certified mail (postage prepaid, return receipt requested), to the Rights Agent, addressed to itparties at Shareowner Services: MAC N9100-030, 161 North Concord Exchange Street, St. Paul, Minnesota 55075, facsimilethe following addresses (or at(651) 450-4078,e-mail at martin.j.knapp@wellsfargo.com, Attention: Marty Knapp, or at any such other address previously furnishedas a party may hereafter specify in writing to the Stockholders’ Representative and Holdco by the Rights Agentother parties in accordance with thisSection 7.1; section) or sent by electronic transmission to the fax number specified below:
(b) ifIf to Holdco, addressed to it at Cambium Holdings, Inc.,c/o a Guarantor:
Veronis Suhler Stevenson LLC
350 Park Avenue
New York, New YorkNY 10022 telephone at(212) 381-8420, facsimile at
Facsimile:(212) 381-8168 email at troellers@vss.com,
Attention: Scott J. Troeller; withTroeller
With a copy to (which shall not constitute notice):
Lowenstein Sandler PC
1251 Avenue of the Americas 18th Floor,
New York, New YorkNY 10020 telephone at(212) 204-8688, facsimile at
Facsimile:(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) ifIf to the Stockholders’ Representative, addressedVowel:
Voyager Learning Company
789 Eisenhower Parkway
Ann Arbor, MI 48108
Facsimile:(734) 663-5692
Attention: Todd Buchardt
With a copy to it at Vowel Representative, LLC,c/o (which shall not constitute notice):
Perkins Coie LLP
131 South Dearborn Street
Suite 1700
Chicago, Illinois 60603 telephone at(312) 324-8600, facsimile at
Facsimile:(312) 324-9400 email at pgordon@perkinscoie.com,
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 inSection 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 inSection 12 hereof shall be effective service of process for any suit or proceeding in connection with a copythis 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.
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12. No Assignment. Neither the Guarantors nor Vowel may assign its rights, interests or obligations hereunder to Perkins Coie LLP, 131 South Dearborn Street, Suite 1700, Chicago, Illinois 60603, 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 furnishedPerson (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 writingany 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 Rights Agentlimitation of the amount payable hereunder to the applicable Maximum Amount and Holdcoto the provisions ofSection 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.
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IN WITNESS WHEREOF, the undersigned have executed and delivered this Limited Guarantee as of the date first written above.
VSS COMMUNICATIONS PARTNERS IV, L.P.
VSS COMMUNICATIONS PARALLEL PARTNERS IV, L.P.
VSS COMMUNICATIONS PARALLEL II PARTNERS IV, L.P.
| | |
| By: | VSS Equities IV, LLC, |
its General Partner
Name: Scott J. Troeller
Accepted:
VOYAGER LEARNING COMPANY
Name: Richard Surratt
| | |
| Title: | President and Chief Executive Officer |
Signature Page to Limited Guarantee
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Annex H
VOTING AND SUPPORT AGREEMENT
This Voting and Support Agreement (“Agreement”) is made and entered into as of June 20, 2009, by Stockholders’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 inSection 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 ofRule 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 asExhibit 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 accordance withthe form attached asExhibit 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 thisSection 7.1. Agreement.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement, intending to be legally bound, agree as follows:
Section 7.21. NoticeAgreements to Holders.Vote.
Where this (a) Agreement provides for notice to Holders, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-Vote LLC Interests. During the Term, at any meeting of the members of Acquisition LLC (or of the holders of any 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 sufficiencymembership interests of such noticeAcquisition 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 Holders.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,
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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. 7.3 Effect of Headings.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 asExhibit 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 asExhibit 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 thisSection 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
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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 Articleexecution and Section headings hereindelivery 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 for convenience onlybound. Except pursuant to this Agreement or otherwise in favor of the Company, Holdings III has not, and shall not, affectgrant any proxy with respect to the construction hereof.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 onSchedule I hereto; (ii) Holdings III Owns the LLC Interest indicated onSchedule 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 onSchedule 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 asExhibit A-2 to the Merger Agreement.
Section 5. 7.4 SuccessorsWaiver of Appraisal Rights. Holdings III hereby agrees not to exercise or assert, any rights of appraisal from the Cambium Merger and Assigns.the transactions contemplated by the Merger Agreement that Holdings III may have.
All covenantsSection 6.Further Assurances. From time to time and agreementswithout 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 Agreement by Holdco shall bind its successorsSection 6), as the Company may reasonably request in writing for the purpose of carrying out and assigns, whether so expressed or not.furthering the intent of this Agreement.
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Section 7. 7.5 BenefitsCertain Definitions. For purposes of Agreement.this Agreement,
(a) “Affiliate” has the meaning assigned thereto inRule 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 ofRule 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 ofRule 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
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to the benefit of the Company and its successors and assigns. Without limiting any of the restrictions set forth inSection 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 express or implied, shall giveis intended to confer on any Person (other than the parties heretoCompany and their permittedits successors and assigns hereunder)assigns) any benefitrights 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 thisSection 8(c) shall exclude the right to seek specific performance or an injunction of the obligations contained inSection 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 legal or equitable right, remedy or claiminjunction 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 under any covenantfor failure to perform material covenants or provision herein contained, all such covenants and provisions beingobligations to be performed pursuant to the terms hereof, or (ii) $625,000 for the sole benefitpayment of any reasonable and documentedout-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 toSection 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 ofSection 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.
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(f) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations 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, byconstrued and construedinterpreted in accordance with the laws of the State of Delaware without regardsgiving effect to its rulesprinciples of conflicts or choice of laws.law.
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(g) Counterparts.
This Agreement may be executed by the parties hereto, in two or more counterparts (which may be effectively delivered(including by facsimile, by electronic transmission of portable document format (PDF) files or tagged image file format (TIF) files, or by other electronic means))facsimile), each of which shall be deemed an original and all of which together shall together constitute one and the same agreement.instrument.
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(h) Entire Agreement.
This Agreement the Mergerand any Proxy delivered in connection with this Agreement and the Escrow Agreement representconstitute the entire understanding of Holdco andagreement between the Stockholders’ Representative with reference to the CVRs, and this Agreement supersedes any and all other oral or written agreements hereto madeparties with respect to the CVRs, except forsubject matter hereof and supersede all prior agreements, representations and understandings (both written and oral) between the Mergerparties 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 Escrow Agreement. Thisparty 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 Escrow Agreement represent the entire understanding of the Rights Agentregular mail as certified or registered mail (airmail if sent internationally) with referencepostage prepaid, if such notice is addressed to the CVRs, and this Agreement supersedes any and all other oralparty 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 agreements hereto made with respect tonotice.
(j) Severability. In the CVRs, except for the Merger Agreement and the Escrow Agreement. If and to the extentevent that any provision of this Agreement is inconsistent or conflicts with the Merger Agreement or the Escrow Agreement,application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the Escrow Agreement shall govern and be controlling, andremainder of this Agreement maywill continue in full force and effect and the application of such provision to other Persons or circumstances will be amended, modified, supplementedinterpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or alteredunenforceable 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 accordance withany way the termsmeaning or interpretation of Article V.this Agreement.
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The parties have caused this Agreement to be duly executed on the date first above written.
THE COMPANY:
VOYAGER LEARNING COMPANY
Name: Richard Surratt
Title: President and Chief Executive Officer
Address for notices:
206 E. Washington, Suite B
Ann Arbor, MI 48104
Attn: General Counsel
Facsimile:(734) 663-5692
[Remainder of Page Intentionally Left Blank.SIGNATURE PAGE TO VOTING AND SUPPORT AGREEMENT]
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VSS-CAMBIUM HOLDINGS III, LLC
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
Title President
Address for notices:
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, New York 10022
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IN WITNESS WHEREOFSCHEDULE I
| | |
LLC Interests Owned 100% | | Number of LLC Interests Issuable upon exercise of Options and Other Rights |
| | |
| | None |
| | |
| | |
| | |
| | |
Shares of Cambium Holdings II Common Stock Owned 1,000 shares | | Number of Shares of Cambium Holdings II Common Stock Issuable upon exercise of Options and Other Rights |
| | |
| | |
| | None |
| | |
| | |
| | |
| | |
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EXHIBIT A
IRREVOCABLE 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 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.
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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:
100% of membership interests
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EXHIBIT B
IRREVOCABLE 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.
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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:
1,000 shares of common stock
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Annex I
FORM OF VOTING AND SUPPORT AGREEMENT
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 inSection 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 ofRule 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 asExhibit 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.
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Section 3.Stockholder Covenants.
(a) Restriction on Transfer of Subject Securities. Except pursuant to the terms of the Merger Agreement or otherwise provided inSection 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 thisSection 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 asExhibit B hereto and (y) if prior to the Effective Time, delivers a Proxy in the form attached hereto asExhibit 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 onSchedule 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 onSchedule I
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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 onSchedule 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 memberand/or manager of the Stockholders’ Representative may be removed, replacedand/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 inSection 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;
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(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 inSection 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 inSection 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 thisSection 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 amountsand/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 thisSection 7.
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Section 8.Certain Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned thereto inRule 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 ofRule 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 ofRule 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 inSection 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
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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 documentedout-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 hashereto. 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
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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.
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The parties have caused this Agreement to be duly executed on its behalf by its duly authorized officers as of the day and yeardate first above written.
PARENT:
CAMBIUM HOLDINGS, INC.
Name: Scott J. Troeller
Address for notices:
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, NY 10022
Attn: Scott J. Troeller
Facsimile:
[SIGNATURE PAGE TO VOTING AND SUPPORT AGREEMENT]
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STOCKHOLDER:
Name:
Title
Address for notices:
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SCHEDULE I
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Shares of Company Common Stock Owned | | Number of Shares of Company Common Stock Issuable upon exercise of Options and Other Rights |
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EXHIBIT A
IRREVOCABLE PROXY
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.
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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:
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EXHIBIT B
JOINDER TO VOTING AND SUPPORT AGREEMENT
Pursuant toSection 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 inSection 4 of the Voting Agreement are true, correct and complete as if made by the undersigned on the date hereof.
Executed, in counterpart, as of the day of , 2009
Name:
Title:
Address for notices:
ACCEPTED & ACKNOWLEDGED:
CAMBIUM HOLDINGS, INC.
Name:
Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Name:
VOWEL REPRESENTATIVE, LLC
Name:
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Annex KJ
FORM OF
ESCROWCONTINGENT VALUE RIGHTS AGREEMENT
This ESCROWCONTINGENT VALUE RIGHTS AGREEMENT, (this “Agreement”), dated as of [ ], 2009 (this “Agreement”), is entered into by and among WELLS FARGO BANK, NATIONAL ASSOCIATION,Cambium-Voyager Holdings, Inc. (formerly known as Cambium Holdings, Inc.), a national banking association, having an office at 161 North Concord Exchange, St. Paul, MinnesotaDelaware corporation (“Wells Fargo”), as escrow agent (the “Escrow AgentHoldco”), 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 knownand Wells Fargo Bank, National Association, as Cambium Holdings, Inc.), a Delaware corporation (“rights agent (the “HoldcoRights Agent”) and as initial CVR Registrar (as defined herein).
WITNESSETH:
WHEREAS, 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”), each, a Delaware corporation and wholly-owned subsidiary of Holdco, and the Stockholder’sStockholders’ Representative, have entered into an Agreement and Plan of Mergers dated as of June 20, 2009 (as the same may be amended, supplementedmodified or otherwise modifiedsupplemented 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.Holdco;
B. Each shareWHEREAS, 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 was converted into, among other merger consideration therefor, the right to receive one contingent value right (eachfor 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 “CVR”) issued byvalid and binding agreement of 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”).its terms.
C. In accordance with WHEREAS,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 inSection 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 toSection 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
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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 toSection 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 taxgross-up obligations (the “TaxGross-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 EscrowRights 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 EscrowRights Agent shall have no implied duties beyond the express duties set forth in this Agreement.
Accordingly,NOW, THEREFORE, for and in consideration of the foregoing,premises and the mutual promisesconsummation of the transactions referred to above, it is mutually covenanted and covenants contained hereinagreed, for the equal and other good and valuable consideration, the receipt and sufficiencyproportionate benefit of which are hereby acknowledged, the parties hereby agreeall Holders (as hereinafter defined), as follows:
1.ARTICLE I
DEFINITIONS
Section 1.1 Escrow Agent and Escrow Accounts.Definitions.
1.1 (a) For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(i) the terms defined in thisArticle I have the meanings assigned to them in thisArticle I, and include the plural as well as the singular;
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(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 toSection 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 inSection 2.3(b).
“CVR Registrar” has the meaning set forth inSection 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 AccountsAgent.” TheWells 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 Vowel do hereby (a) consentRichard Surratt, as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms.
“Escrow Funds” has the establishmentmeaning set forth in the Escrow Agreement.
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“First CVR Payment Amount”means the amount, if any, received from the Escrow Agent in respect of the CVR Escrow Fund and the Excess Employee Payment Fund to provide a source of funds for the satisfaction of theFirst CVR Payment AmountsAmount (as defined in the Escrow Agreement).
“First CVR Agreement)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 datedividedby (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 CVRapplicable provisions of this Agreement, and (b) consent tothereafter “Rights Agent” shall mean such successor Rights Agent.
“Rights Agent Costs” means the establishmentcosts and expenses for which the Rights Agent is due reimbursement underSection 3.2 and the Rights Agent Fee.
“Rights Agent Fee”means the fee of the 280G Escrow Fund to provide a source of funds for the satisfaction of the TaxGross-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 TaxGross-Up Obligations.
1.3 EscrowRights 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 agentin such capacity pursuant to the terms of this Agreement as set forth onSchedule 1 hereto.
“Rights Agent Initial Payment” means the costs and conditionsexpenses 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).
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“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 inSection 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.
1.4(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 Joint Instructions.Nontransferable. Notwithstanding
The CVRs shall not be sold, assigned, transferred, pledged, encumbered or in any provision herein to the contrary, the Escrowother 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 distribute or pay any amountkeep 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 in (i) the CVR Escrow Fund pursuant to any joint written instructions received by the Escrow Agent fromsuch Holder and Tax Identification Number of each Holder. Each of Holdco and the Stockholders’ Representative executed by Holdcomay receive 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
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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 investmentsinspect a copy 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 thisSection 2.1 may be changed at any time andRegister, from time to time, by (x)upon 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 ofrequest made to 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 thisSection 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
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Specified Agreed Contingency, a certificate executed by Holdco’s Chief Executive Officer or Chief Financial Officer stating that Holdcoand/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 Scheduleand/or (iv) that the Agreed Contingency Payment Notice does not contain the information required bySection 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 ofSections 3.1(a) and13 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 thisSection 3.1(b), is herein referred as a “AC Disputed Amount”) until such AC Objection Notice has been resolved in accordance withSection 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 withSection 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 bySection 3.2(a). The Stockholders’ Representative shall deliver written notice of such objection (a “DC Objection Notice”) to the
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Escrow Agent and Holdco within ten (10) Business Days after a Documented Cost Payment Notice was received by it in accordance with the terms ofSections 3.2(a) and13 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 thisSection 3.2(b), is herein referred as a “DC Disputed Amount”) until such DC Objection Notice has been resolved in accordance withSection 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 ofExhibit 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 ofExhibit 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 thisSection 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 inSection 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 TaxGross-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
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Escrow Accountless the amount of the payment to be made pursuant to any then unpaid 280G Payment Notice in accordance withSection 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 toSection 3.3(b) or thisSection 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 thisSection 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 thisSection 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 TaxGross-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 TaxGross-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
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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 bySection 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 ofSections 3.4(a) and13 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 thisSection 3.4(b), is herein referred as the “WC Disputed Amount”) until the WC Objection Notice has been resolved in accordance withSection 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 Fundand/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).Registrar. Within five (5) Business Days after receipt of such Expense Notice,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 inSection 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 inSection 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
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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 thisSection 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 without any approval, direction or other action of Holdco or Vowel, shall remit the amounts set forthwithin Payment Notices (as defined in the Expense NoticeEscrow Agreement) delivered by the Stockholder’s Representative with wire transfer instructions on or prior to the Stockholders’ Representativedate 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 CVR Escrow Fundamounts, if any, that Holdco or the Excess Employee Payment Fund. The Expense Noticeapplicable 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 includegive effect to any properly presented form (e.g.,Form W-8 orW-9 as applicable) eliminating or reducing the nameamount 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 bank toHolder in respect of which such paymentsdeduction 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 be made, account name atnot have any voting or dividend rights, and interest shall not accrue on any amounts payable on the bank, account number atCVRs to any Holder.
(b) The CVRs shall not represent any equity or ownership interest in Holdco or in any constituent company to the bank to which such payments shall be made, ABA routing number of the bank and any further credit instructions forVowel Merger.
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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 Fundand/or the Excess Employee Payment Funds, as applicable.
ARTICLE III
3.6THE RIGHTS AGENT
Section 3.1 CVR PaymentsCertain Duties and Responsibilities.
(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 theThe 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 thisSection 3, or on any other grounds that would be permissible underSections 3.1,3.2,3.3 or3.4, 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 thisSection 3.6(a) andSection 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 inSection 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 thisSection 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 thisSection 3.6(a) andSection 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
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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 thisSection 3, or on any other grounds that would be permissible underSections 3.1,3.2,3.3 or3.4, 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 thisSection 3.6(b) andSection 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 inSection 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 thisSection 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 thisSection 3.6(b) andSection 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 toSection 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 withSection 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 rightliability for any actions taken or not taken in connection with this Agreement, except to object to such payment.
3.7 Resolutionsthe extent of Disputes.
(a) If the Stockholders’ Representative (or Holdco pursuant toSection 3.6, as the case may be) shall have timely delivered an Objection Notice in accordance with the termsits willful misconduct, bad faith or gross negligence. No provision of this Agreement then Holdco and the Stockholders’ Representative shall attempt to resolve the dispute subject to such Objection Notice as promptly
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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 toSection 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 toSection 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 withSection 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 withSection 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 distributeexpend or risk its own 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, lessotherwise incur 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
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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 IRSForm 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 suchfinancial 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 thisSection 3.8(c) is in addition to the indemnification provided inSection 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 toSection 3 hereof.
5. Escrow Agent; Fees; Miscellaneous Matters Concerning Escrow Agent.
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 any of its duties hereunder all to be paid one half by Holdco and one half from CVR Escrow Fund, andor in 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 interestsexercise of any other personsof its rights or entities. Except as expressly provided in the immediately preceding sentence, the Escrowpowers.
Section 3.2 Certain Rights of Rights Agent.
The Rights Agent does not have any interest in the Escrow Funds deposited hereunder but is serving as escrow holder only and having only possession thereof.
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5.2 The Escrow Agent agrees to hold and safeguard the Escrow Funds andundertakes to perform itssuch 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 obligationsonly such duties as are specifically set forth in accordance with this Agreement, and no implied covenants or obligations shall be read into this Agreement against 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:Rights Agent. In addition:
(a) The Escrowthe Rights Agent may rely and shall be protected in acting or refraining from acting upon any writtenresolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, receiptorder or other paper or document furnished tobelieved by 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 forhave been signed or presented by the Escrow Agent to act upon any instructions, directions, documentsproper party 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.parties;
(b) The Escrowwhenever the Rights Agent shall notdeem it desirable that a matter be liable forproved or established prior to taking, suffering or omitting any erroraction hereunder, the Rights Agent may, in the absence of judgmentwillful misconduct, faith 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.on its part, rely upon an Officer’s Certificate;
(c) The Escrowthe 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 EscrowRights Agent in accordance withSection 5.13.2(h) above andclause (f) of thisSection 5.2.below. The EscrowRights 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 byif 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
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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 EscrowRights 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 inSections 6.13.2(h) and6.3(c)3.2(d) hereof;provided,,however, that the EscrowRights Agent shall not be entitled to any such reimbursement to the extent such litigation ultimately determines that the EscrowRights Agent acted with gross negligence or willful misconduct.
(g) In the event that conflicting demands are made upon the EscrowRights Agent for any situation not addressed or not addressed in this Agreement, the EscrowRights 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(e) 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 ofExhibits B-1,B-2 andB-3 to this Agreement.
(j) The permissive rights of the EscrowRights Agent to do things enumerated in this Agreement shall not be construed as duties.a duty;
(k) No provision(f) the Rights Agent shall not be required to give any note or surety in respect of this Agreement shall require the Escrow Agent to risk or advance its own fundsexecution of such powers or otherwise incur any financial liability or potential financial liability in respect of the performance of its duties or the exercise of its rights under this Agreement.premises; and
(l) This Agreement is subject to the parties of this Agreement passing all necessary background, compliance and other required or best practice internaland/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(g) 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,agrees to indemnify the EscrowRights Agent for, and to hold itthe Rights Agent harmless against, any loss, liability, claim, demands, suits or expense incurred without gross negligence, recklessness, willful misconduct on the part of the Escrow Agent arising out of or in connection with its performancethe Rights Agent’s duties under this Agreement. The obligationsAgreement, including the costs and expenses of Holdco,defending the Stockholders’ Representative and Surratt set forth in thisSection 5.3 shall survive the terminationRights Agent against any claims, charges, demands, suits 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 receivedloss, unless 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 withSection 3.8, shall be
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Holdco), and the Escrow Agentloss shall have no responsibility for the preparationand/or filing of any tax return with respect to any income earnedbeen determined 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 withSection 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 rightsbe a result of the parties hereto. InRights Agent’s willful misconduct, bad faith or gross negligence,provided,however, that the event the Escrow Agent is a partyRights Agent’s aggregate liability with respect 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,arising from, or should the Escrow Agent be threatened with litigation or become involved in litigation or binding arbitration in any manner whatsoeverarising 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 thisSection 3.2(g) shall be reimbursed to Holdco out of the CVR Escrow Funds,Fund; and
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(h) Holdco, Vowelon the one hand, and the Stockholders’ Representative, (solelyon 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 extent ofHolders, shall be payable from the CVR Escrow FundsFund. Notwithstanding the foregoing and solely for the benefit of the Rights Agent, Holdco and the Excess Employee Payment Fund) each hereby agreeStockholders’ Representative, on behalf of the Holders, agrees (i) to reimburseequally pay the Escrow Agent for one-half (1/2) of its reasonable attorneys’ fees and any and all other expenses losses, costs and damages incurred byof the EscrowRights Agent in connection with this Agreement, as set forth onSchedule 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 resultingincurred 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 such threatened or actual litigationthe 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 prior to any disbursement hereunder any adverse claimarising under or demand in the courts of the State of New York and the United States District Court locatedconnection with this Agreement. Notwithstanding anything in New York County, New York and the parties agreethis Agreement to the jurisdictioncontrary, the portion of said Courts over their persons as well asany payment under thisSection 3.2(h) which is payable by the Escrow Funds.Stockholders’ Representative shall be paid to the Rights Agent solely by the Rights Agent deducting such payment from any then unpaid CVR Payment Amount.
5.6Section 3.3 Resignation and Removal; Appointment of Successor.
(a) The EscrowRights Agent agrees thatmay resign at any time by giving written notice thereof to Holdco Vowel,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 thisSection 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 extent the 280G Escrow Fund has been establishedHolders as their names and funds remainaddresses appear in the 280G Escrow Account to which Surratt is entitled, Surratt, may, by mutual written agreement executed by all of them (including Surratt inCVR Register. Each notice shall include the casename and address of the 280G Escrow Account)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 any time, remove the Escrowexpense of Holdco.
(d) If a successor Rights Agent as escrow agent hereunder,has not been appointed and substitute another bank or trust company therefor,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 which event,connection with such a proceeding shall be paid in accordance withSection 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 written notice thereof, paymentthe all relevant books and records relating thereto, become the Rights Agent hereunder. Upon delivery of any accrued but unpaid fees due the Escrow Agent, and reimbursementall of the Escrow Agent’s other feesrelevant books and expenses, in accordance herewith,records, pursuant to the Escrowterms of thisSection 3.3(d) to a successor Rights Agent, shall account for and deliver to such substituted escrow agent the entire Escrow Funds, and the EscrowRights 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 toSection 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 theany 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 be a beneficiary of this Agreement.
7. Amendment; Waiver. This Agreement mayso comply or obey, it shall 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 respectliable to any other person by reason of such actioncompliance or proceeding shall be heard and determined in such New York State or federalobedience.
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court and agrees notARTICLE IV
COVENANTS
Section 4.1 List of Holders.
Holdco shall furnish or cause to commence an action or proceeding relatingbe furnished to this Agreement or the transactions contemplated hereby exceptRights Agent in such courts, (c) irrevocably and unconditionally waives any objectionform as Holdco receives from its transfer agent or from Vowel’s transfer agent prior to the layingEffective Time (or other agent performing similar services for Holdco or Vowel), the names, addresses, shareholdings and tax certification (T.I.N.) of venuethe record holders of any action or proceeding arising out of this Agreement orVowel Common Stock within sixty (60) days after 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 inSection 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.Effective Time.
9.Section 4.2 Assignment.Payment of CVR Payment Amount. Subject to the provisions ofSection 5.2(h), this Agreement shall not be assigned without the express written consent
Each of the Stockholders’ Representative and Holdco (which consent may be granted or withheldshall 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 sole discretion of the Stockholders’ Representativemanner provided for inSection 2.4 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 interpretationterms of this Agreement.
12.Section 4.3 Severability.Ability to Make Prompt Payment. To
Neither Holdco nor any of its Subsidiaries shall enter into any agreement that would prohibit or restrict the extent any provision of this Agreement is prohibited by or invalid underRights Agent’s ability to pay the applicable law of any jurisdiction, such provision shall be ineffective onlyCVR Payment Amount 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 ofHolders under this Agreement in any jurisdiction.Agreement.
13.Section 4.4 Notices.Assignment. All notices, requests, consents and demands to
Holdco shall not, in whole or upon the respective parties hereto will be in writing and will be deemed received (a) on the datepart, assign any of delivery if delivered personally, (b) on the date that written confirmation of transmission is received if by telecopy, facsimileits rights ore-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 recognizednext-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 obligations under this Agreement shall be delivered by such method(s) under thisother than in accordance with the terms ofSection 136.1 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 thisSection 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:hereof.
If to Holdco or Vowel, to:ARTICLE V
c/o Veronis Suhler Stevenson
350 Park Avenue
New York, New York 10022
Attention: Scott J. Troeller
Tel: 212.381.8420
Fax: 212.381.8168
E-mail: troellers@vss.com
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with a copy (which will not constitute notice) to:
Lowenstein Sandler PC
1251 Avenue of the Americas, 18th Floor
New York, New York 10020
Attention: Steven E. Siesser, Esq.
Tel: 212.204.8688
Fax: 973.597.2507
E-mail: ssiesser@lowenstein.com
If to the Stockholders’ Representative, to:
Vowel Representative, LLC
c/o Perkins Coie LLP
131 South Dearborn Street, Suite 1700
Chicago, Illinois 60603
Attention: Phil Gordon, Esq.
Tel: 312.324.8600
Fax: 312.324.9400
E-mail: pgordon@perkinscoie.com
with a copy (which will not constitute notice) to:
Perkins Coie LLP
131 South Dearborn Street, Suite 1700
Chicago, Illinois 60603
Attention: Phil Gordon, Esq. and Jim Cruger, Esq.
Tel: 312.324.8600
Fax: 312.324.9400
E-mail: pgordon@perkinscoie.com
jcruger@perkinscoie.com
If to Surratt, to:
Richard Surratt
CEO
Voyager Learning Company
1800 Valley View Lane, Suite 400
Dallas, TX75234-8923
Re: Solvency Opinion
Dear Mr. Surratt:
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):
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| • | 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; |
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| • | 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; |
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| • | 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 |
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| • | has indicated it is now and is proposed to be conducted following the consummation of the Transaction; |
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| • | 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 |
An Employee-owned Company
105 W. Madison Suite 1500 Chicago, IL 60602
Tel: 312.499.5900 Toll Free: 800.654.4977 Fax: 312.499.5901
www.houlihansmith.com • www.fairnessopinion.com • www.solvencyopinion.com
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Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 2 of 5
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| • | 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:
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| • | Reviewed the following agreements and documents related to the Transaction: |
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| • | 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-F-2
Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 3 of 5
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| • | A summary term sheet including structure diagrams of the various steps of the Transaction, dated as of February 5, 2009; and |
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| • | 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. |
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| • | 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. |
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| • | Obtained, reviewedand/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: |
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| • | Four-year, pro forma financial projections for Holdco, as provided by Management, including net operating loss (“NOL”) carry forward calculations; |
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| • | Unaudited, historical pro forma financial statements for Holdco for fiscal years 2006 through 2008, as provided by Management; |
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| • | Cambium’s audited financial statements for the fiscal years ending December 31, 2006 and December 31, 2007; |
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| • | Voyager’s audited financial statements for the fiscal years ending December 31, 1994 through December 31, 2008; |
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| • | Voyager’s accounts receivable aging schedule and customer sales report, dated as of December 31, 2008 and January 15, 2009, respectively; and |
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| • | Voyager’s monthly working capital projections for 2009. |
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| • | Obtained and reviewed the following documents with regards to Cambium: |
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| • | Second Amended and Restated Certificate of Incorporation of Cambium, dated as of April 12, 2005; |
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| • | Minutes of Cambium’s board of directors’ meetings between December 9, 2005 and October 26, 2006; and |
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| • | 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. |
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| • | Obtained and reviewed the following documents with regards to Voyager: |
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| • | Minutes of Voyager’s audit committee and board of director meetings between January 4, 2001 and October 13, 2008; |
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| • | Documentation related to the patents, trademarks, and licensing agreements of Cambium; and |
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| • | 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. |
A-F-3
Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 4 of 5
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| • | 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:
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| • | 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; |
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| • | 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; |
A-F-4
Voyager Learning Company
June 20, 2009
Solvency Opinion Letter
Page 5 of 5
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| • | 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; |
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| • | 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 |
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| • | 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 reasonableout-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.
Very truly yours,
Houlihan Smith & Company, Inc.
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Annex G
LIMITED GUARANTEE
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 thisSection 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 thisSection 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 thisSection 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
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one or more breaches of representations and warranties of Holdcoand/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 thisSection 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 documentedout-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 theWall Street Journalon the date such Guaranteed Obligation was required to be paid plus 2%,provided,that the Guarantors’ liability under thisSection 2 for reimbursement ofout-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 andout-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;
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(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 rescindedand/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
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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 Agreementand/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, thisSection 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
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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 thisSection 4. ThisSection 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 ofSection 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 toSections 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
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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, NY 10022
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, NY 10020
Facsimile:(973) 597-2507
Attention: Steven E. Siesser, Esq.
If to Vowel:
Voyager Learning Company
789 Eisenhower Parkway
Ann Arbor, MI 48108
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, Illinois 60603
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 inSection 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 inSection 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.
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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 ofSection 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.
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IN WITNESS WHEREOF, the undersigned have executed and delivered this Limited Guarantee as of the date first written above.
VSS COMMUNICATIONS PARTNERS IV, L.P.
VSS COMMUNICATIONS PARALLEL PARTNERS IV, L.P.
VSS COMMUNICATIONS PARALLEL II PARTNERS IV, L.P.
| | |
| By: | VSS Equities IV, LLC, |
its General Partner
Name: Scott J. Troeller
Accepted:
VOYAGER LEARNING COMPANY
Name: Richard Surratt
| | |
| Title: | President and Chief Executive Officer |
Signature Page to Limited Guarantee
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Annex H
VOTING AND SUPPORT AGREEMENT
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 inSection 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 ofRule 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 asExhibit 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 asExhibit 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,
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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 asExhibit 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 asExhibit 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 thisSection 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
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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 onSchedule I hereto; (ii) Holdings III Owns the LLC Interest indicated onSchedule 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 onSchedule 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 asExhibit 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 thisSection 6), as the Company may reasonably request in writing for the purpose of carrying out and furthering the intent of this Agreement.
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Section 7.Certain Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned thereto inRule 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 ofRule 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 ofRule 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
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to the benefit of the Company and its successors and assigns. Without limiting any of the restrictions set forth inSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 ofSection 1(a) andSection 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 thisSection 8(c) shall exclude the right to seek specific performance or an injunction of the obligations contained inSection 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 documentedout-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 toSection 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 ofSection 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.
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(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.
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The parties have caused this Agreement to be duly executed on the date first above written.
THE COMPANY:
VOYAGER LEARNING COMPANY
Name: Richard Surratt
Title: President and Chief Executive Officer
Address for notices:
206 E. Washington, Suite B
Ann Arbor, MI 48104
Attn: General Counsel
Facsimile:(734) 663-5692
[SIGNATURE PAGE TO VOTING AND SUPPORT AGREEMENT]
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VSS-CAMBIUM HOLDINGS III, LLC
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
Title President
Address for notices:
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, New York 10022
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SCHEDULE I
| | |
LLC Interests Owned 100% | | Number of LLC Interests Issuable upon exercise of Options and Other Rights |
| | |
| | None |
| | |
| | |
| | |
| | |
Shares of Cambium Holdings II Common Stock Owned 1,000 shares | | Number of Shares of Cambium Holdings II Common Stock Issuable upon exercise of Options and Other Rights |
| | |
| | |
| | None |
| | |
| | |
| | |
| | |
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EXHIBIT A
IRREVOCABLE 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 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.
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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:
100% of membership interests
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EXHIBIT B
IRREVOCABLE 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.
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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:
1,000 shares of common stock
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Annex I
FORM OF VOTING AND SUPPORT AGREEMENT
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 inSection 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 ofRule 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 asExhibit 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.
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Section 3.Stockholder Covenants.
(a) Restriction on Transfer of Subject Securities. Except pursuant to the terms of the Merger Agreement or otherwise provided inSection 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 thisSection 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 asExhibit B hereto and (y) if prior to the Effective Time, delivers a Proxy in the form attached hereto asExhibit 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 onSchedule 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 onSchedule I
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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 onSchedule 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 memberand/or manager of the Stockholders’ Representative may be removed, replacedand/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 inSection 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;
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(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 inSection 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 inSection 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 thisSection 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 amountsand/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 thisSection 7.
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Section 8.Certain Definitions. For purposes of this Agreement,
(a) “Affiliate” has the meaning assigned thereto inRule 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 ofRule 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 ofRule 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 inSection 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
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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 documentedout-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
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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.
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The parties have caused this Agreement to be duly executed on the date first above written.
PARENT:
CAMBIUM HOLDINGS, INC.
Name: Scott J. Troeller
Address for notices:
c/o Veronis Suhler Stevenson LLC
350 Park Avenue
New York, NY 10022
Attn: Scott J. Troeller
Facsimile:
[SIGNATURE PAGE TO VOTING AND SUPPORT AGREEMENT]
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STOCKHOLDER:
Name:
Title
Address for notices:
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SCHEDULE I
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Shares of Company Common Stock Owned | | Number of Shares of Company Common Stock Issuable upon exercise of Options and Other Rights |
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EXHIBIT A
IRREVOCABLE PROXY
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.
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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:
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EXHIBIT B
JOINDER TO VOTING AND SUPPORT AGREEMENT
Pursuant toSection 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 inSection 4 of the Voting Agreement are true, correct and complete as if made by the undersigned on the date hereof.
Executed, in counterpart, as of the day of , 2009
Name:
Title:
Address for notices:
ACCEPTED & ACKNOWLEDGED:
CAMBIUM HOLDINGS, INC.
Name:
Title:
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Annex J
FORM OF
CONTINGENT VALUE RIGHTS AGREEMENT
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 thisArticle I have the meanings assigned to them in thisArticle I, and include the plural as well as the singular;
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(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 toSection 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 inSection 2.3(b).
“CVR Registrar” has the meaning set forth inSection 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.
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“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 datedividedby (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 underSection 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 onSchedule 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).
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“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 inSection 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 inSection 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 inSection 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
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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 thisSection 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 orW-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.
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ARTICLE III
THE RIGHTS AGENT
Section 3.1 Certain Duties and Responsibilities.
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 withSection 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 inSections 3.2(h) and3.2(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 thisSection 3.2(g) shall be reimbursed to Holdco out of the CVR Escrow Fund; and
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(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 onSchedule 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 thisSection 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 thisSection 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 withSection 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 thisSection 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.
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ARTICLE IV
COVENANTS
Section 4.1 List of Holders.
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 inSection 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 ofSection 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 bySection 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 thanSection 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 thisSection 5.1, Holdco shall mail a notice thereof by first-class mail to the Stockholders’
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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 toSection 5.1 (which amendments pursuant toSection 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 thisSection 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 thisArticle 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 thisArticle 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 thisArticle VI and that all conditions precedent herein provided for relating to such transaction have been complied with.
(b) For purposes of thisSection 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 thisSection 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.
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Section 6.2 Successor Substituted.
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 withSection 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, Minnesota 55075, 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 thisSection 7.1;
(b) if to Holdco, addressed to it at Cambium Holdings, Inc.,c/o Veronis Suhler Stevenson, 350 Park Avenue, New York, New York 10022, 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 York 10020, 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, Illinois 60603, 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, Illinois 60603, 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 thisSection 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.
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Section 7.5 Benefits of Agreement.
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.
[Remainder of Page Intentionally Left Blank.]
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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.
CAMBIUM HOLDINGS, INC.
Name:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Name:
VOWEL REPRESENTATIVE, LLC
Name:
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Annex K
FORM OF
ESCROW AGREEMENT
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 inSection 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 toSection 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
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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 toSection 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 taxgross-up obligations (the “TaxGross-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 TaxGross-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 TaxGross-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
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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 thisSection 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 thisSection 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
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Specified Agreed Contingency, a certificate executed by Holdco’s Chief Executive Officer or Chief Financial Officer stating that Holdcoand/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 Scheduleand/or (iv) that the Agreed Contingency Payment Notice does not contain the information required bySection 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 ofSections 3.1(a) and13 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 thisSection 3.1(b), is herein referred as a “AC Disputed Amount”) until such AC Objection Notice has been resolved in accordance withSection 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 withSection 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 bySection 3.2(a). The Stockholders’ Representative shall deliver written notice of such objection (a “DC Objection Notice”) to the
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Escrow Agent and Holdco within ten (10) Business Days after a Documented Cost Payment Notice was received by it in accordance with the terms ofSections 3.2(a) and13 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 thisSection 3.2(b), is herein referred as a “DC Disputed Amount”) until such DC Objection Notice has been resolved in accordance withSection 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 ofExhibit 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 ofExhibit 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 thisSection 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 inSection 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 TaxGross-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
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Escrow Accountless the amount of the payment to be made pursuant to any then unpaid 280G Payment Notice in accordance withSection 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 toSection 3.3(b) or thisSection 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 thisSection 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 thisSection 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 TaxGross-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 TaxGross-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
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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 bySection 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 ofSections 3.4(a) and13 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 thisSection 3.4(b), is herein referred as the “WC Disputed Amount”) until the WC Objection Notice has been resolved in accordance withSection 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 Fundand/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
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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 Fundand/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 thisSection 3, or on any other grounds that would be permissible underSections 3.1,3.2,3.3 or3.4, 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 thisSection 3.6(a) andSection 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 inSection 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 thisSection 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 thisSection 3.6(a) andSection 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
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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 thisSection 3, or on any other grounds that would be permissible underSections 3.1,3.2,3.3 or3.4, 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 thisSection 3.6(b) andSection 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 inSection 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 thisSection 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 thisSection 3.6(b) andSection 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 toSection 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 withSection 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 toSection 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
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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 toSection 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 toSection 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 withSection 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 withSection 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
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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 IRSForm 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 thisSection 3.8(c) is in addition to the indemnification provided inSection 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 toSection 3 hereof.
5. Escrow Agent; Fees; Miscellaneous Matters Concerning Escrow Agent.
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.
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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 withSection 5.1 above andclause (f) of thisSection 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
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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 inSections 6.1 and6.3(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 ofExhibits B-1,B-2 andB-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 internaland/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 thisSection 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 withSection 3.8, shall be
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Holdco), and the Escrow Agent shall have no responsibility for the preparationand/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 withSection 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 toSection 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
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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 inSection 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 ofSection 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 ore-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 recognizednext-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 thisSection 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 thisSection 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:
If to Holdco or Vowel, to:
c/o Veronis Suhler Stevenson
350 Park Avenue
New York, New York 10022
Attention: Scott J. Troeller
Tel: 212.381.8420
Fax: 212.381.8168
E-mail: troellers@vss.com
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with a copy (which will not constitute notice) to:
Lowenstein Sandler PC
1251 Avenue of the Americas, 18th Floor
New York, New York 10020
Attention: Steven E. Siesser, Esq.
Tel: 212.204.8688
Fax: 973.597.2507
E-mail: ssiesser@lowenstein.com
If to the Stockholders’ Representative, to:
Vowel Representative, LLC
c/o Perkins Coie LLP
131 South Dearborn Street, Suite 1700
Chicago, Illinois 60603
Attention: Phil Gordon, Esq.
Tel: 312.324.8600
Fax: 312.324.9400
E-mail: pgordon@perkinscoie.com
with a copy (which will not constitute notice) to:
Perkins Coie LLP
131 South Dearborn Street, Suite 1700
Chicago, Illinois 60603
Attention: Phil Gordon, Esq. and Jim Cruger, Esq.
Tel: 312.324.8600
Fax: 312.324.9400
E-mail: pgordon@perkinscoie.com
jcruger@perkinscoie.com
If to Surratt, to:
Richard Surratt
[ ]
[ ]
Tel:
Fax:
E-mail: [ ]
If to the Escrow Agent, to:
Wells Fargo Bank, National Association
MAC N9311-115
625 Marquette Ave
11th Floor
Minneapolis, Minnesota55402-2308
Attention: Aaron Soper
Tel:(612) 667-5628
Fax:(612) 667-2149
E-mail: aaron.soper@wellsfargo.com
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
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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 withSection 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 inSection 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 inclause (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 Dateplus (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 inclause (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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of the date first above written.
HOLDCO:
CAMBIUM HOLDINGS, INC.
Name:
VOWEL:
VOYAGER LEARNING COMPANY
Name:
STOCKHOLDERS’ REPRESENTATIVE:
VOWEL REPRESENTATIVE, LLC, as Stockholders’ Representative
Name:
SURRATT:
Richard Surratt
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ESCROW AGENT:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Escrow Agent
Name:
Signature Page to Escrow Agreement
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Annex L
FORM OF
STOCKHOLDERS 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 underRule 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.
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1.4. “Board” has the meaning assigned thereto inSection 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.
1.6. “By-laws” means the by-laws of the Company.
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 inSection 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 inSection 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 inSection 3.1.
1.19. “Offer Notice” has the meaning assigned thereto inSection 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 Noticedividedby (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 inSection 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 inSection 3.2(a).
1.25. “Restated Certificate” means the Amended and Restated Certificate of Incorporation of the Company.
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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 inSection 4.2.
1.28. “Subscription Period”has the meaning assigned thereto inSection 4.1.
1.29. “Subscription Price Per Share” has the meaning assigned thereto inSection 4.1.
1.30. “Subscription Shares” has the meaning assigned thereto inSection 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 inSection 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 Stockholderand/or one or more other funds or entities owned, controlled or managed by VSS.
1.32. “VSS Stockholder” has the meaning assigned thereto inSection 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 onExhibit A attached hereto and that each such person serves in the class described onExhibit 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 withRule 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
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“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 inSection 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 withRule 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 thisSection 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 inSection 3.3), for so long as the VSS Funds beneficially own (as determined in accordance withRule 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
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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 thisSection 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 thisSection 3 among itself and its Affiliates in such proportions as it deems appropriate and may assign the rights granted to it under thisSection 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 thisSection 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 thisSection 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 thisSection 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 thisSection 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 thisSection 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 thisSection 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
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forth in thisSection 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 thisSection 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 bySection 3 hereof and subject to the terms and conditions specified in thisSection 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 thisSection 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 thisSection 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 thisSection 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.
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5. Miscellaneous.
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 ore-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, NY 10020, 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, Illinois 60603, Attention: Phil Gordon, Esq.: telephone:(312) 324-8600; facsimile:(312) 324-9400;E-mail: pgordon@perkinscoie.com.
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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.
[Remainder of Page Intentionally Left Blank.]
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IN WITNESS WHEREOF, the parties have executed this Stockholders Agreement as of the date first written above.
COMPANY:
CAMBIUM-VOYAGER HOLDINGS, INC.
Name:
Title:
Address:
STOCKHOLDER:
VSS-CAMBIUM HOLDINGS III, LLC
Name:
Title:
Address:
STOCKHOLDERS’ REPRESENTATIVE:
VOWEL REPRESENTATIVE, LLC
Name:
Title:
Address:
[Signature Page to Stockholders Agreement]
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EXHIBIT A
BOARD OF DIRECTORS
CLASS I DIRECTORS
CLASS II DIRECTORS
CLASS III DIRECTORS
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Pursuant to the Delaware General Corporation Law (the “DGCL”), a corporation may indemnify any person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of such corporation) who is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery (or the court in which such action or suit was brought) shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses that such court may deem proper.
To the extent a director, officer, employee or agent is successful in the defense of such an action, suit or proceeding, the corporation is required by the DGCL to indemnify such person for actual and reasonable expenses incurred thereby. Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined that such person is not entitled to be so indemnified.
The DGCL provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its bylaws, disinterested directors’ vote, stockholders’ vote, agreement or otherwise. The DGCL also provides corporations with the power 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 in a similar capacity for another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above.
The registrant’s certificate of incorporation provides that a director of the registrant shall not be personally liable to the registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except, if required by the DGCL, for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DCGL, or (4) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor repeal of such provision shall eliminate or reduce the effect of such provision in respect of any matter occurring, or any cause of action, suit or claim that, but for such provision, would accrue or arise prior to such amendment or repeal.
While the registrant’s certificate of incorporation provides directors with protection from awards for monetary damages for breach of their duty of care, it does not eliminate such duty. Accordingly, the registrant’s certificate of incorporation will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director’s breach of his or her duty of care.
The registrant’s certificate of incorporation provides that each person who was or is made a party to or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a “proceeding”), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the registrant or is or was serving
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at the request of the registrant as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the registrant to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the registrant to provide broader indemnification rights than said law permitted the registrant to provide prior to such amendment), against all expense, liability and loss reasonably incurred or suffered by such person in connection therewith. Such right to indemnification includes the right to have the registrant pay the expenses incurred in defending any such proceeding in advance of its final disposition, subject to the provisions of the DGCL. Such rights are not exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the registrant’s certificate of incorporation or bylaws, agreement, vote of stockholders or disinterested directors or otherwise. No repeal or modification of such provision will in any way diminish or adversely affect the rights of any director, officer, employee or agent of the registrant thereunder in respect of any occurrence or matter arising prior to any such repeal or modification.
The registrant’s certificate of incorporation also specifically authorizes the registrant to maintain insurance and to grant similar indemnification rights to employees or agents of the registrant. The directors and officers of the registrant are covered by insurance policies indemnifying them against certain liabilities, including certain liabilities arising under the Securities Act of 1933, which might be incurred by them in such capacities.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
In reviewing the agreements included as exhibits to this registration statement onForm S-4, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Voyager, Cambium, Holdings or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other party or parties to the applicable agreement and:
(i) should not in any instances be treated as categorical statements of fact, but rather as a means of allocating the risk to one of the parties if those statements prove to be inaccurate;
(ii) may have been qualified by disclosures that were made to the other party or parties in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
(iii) may apply standards of materiality in a manner that is different from what may be viewed as material to you or other investors; and
(iv) were made only as of the date of the applicable agreement or other date or dates that may be specified in the agreement and are subject to more recent developments.
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.
The following exhibits are filed herewith:
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Exhibit
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Number | | Description |
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| 2 | .1 | | Agreement and Plan of Mergers by and among Voyager-Cambium Holdings, Inc. (f/k/a Cambium Holdings, Inc.), Voyager Learning Company, VSS-Cambium Holdings II Corp., Vowel Acquisition Corp., Consonant Acquisition Corp. and Vowel Representative, LLC, solely in its capacity as stockholders’ representative, dated as of June 20, 2009 is attached as Annex A to the proxy statement/prospectus included in this registration statement. |
| 3 | .1 | | Amended and Restated Certificate of Incorporation of Cambium-Voyager Holdings, Inc. is attached as Annex C to the proxy statement/prospectus included in this registration statement. |
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Exhibit
| Exhibit
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Number | Number | | Description | Number | | Description |
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| 3 | .2 | | Amended and Restated Bylaws of Cambium-Voyager Holdings, Inc. are attached as Annex D to the proxy statement/prospectus included in this registration statement. | 3 | .2 | | Amended and Restated Bylaws of Cambium-Voyager Holdings, Inc. are attached as Annex D to the proxy statement/prospectus included in this registration statement. |
| 4 | .1 | | Specimen share certificate of Cambium-Voyager Holdings, Inc.†† | 4 | .1 | | Specimen share certificate of Cambium-Voyager Holdings, Inc.†† |
| 4 | .2 | | Form of Cambium-Voyager Holdings, Inc. Warrant.† | 4 | .2 | | Form of Cambium-Voyager Holdings, Inc. Warrant.† |
| 5 | .1 | | Opinion of Lowenstein Sandler PC with respect to the validity of the common stock offered hereby.* | 5 | .1 | | Opinion of Lowenstein Sandler PC with respect to the validity of the common stock offered hereby.* |
| 8 | .1 | | Opinion of Lowenstein Sandler PC with respect to certain tax matters.* | 8 | .1 | | Opinion of Lowenstein Sandler PC with respect to certain tax matters.* |
| 8 | .2 | | Opinion of McDermott Will & Emery LLP with respect to certain tax matters.* | 8 | .2 | | Opinion of McDermott Will & Emery LLP with respect to certain tax matters.* |
| 10 | .1 | | Limited Guarantee given by certain funds managed by VSS Fund Management LLC is attached as Annex G to the proxy statement/prospectus included in this registration statement. | 10 | .1 | | Limited Guarantee given by certain funds managed by VSS Fund Management LLC is attached as Annex G to the proxy statement/prospectus included in this registration statement. |
| 10 | .2 | | Voting and Support Agreement given to Voyager Learning Company by VSS-Cambium Holdings III, LLC is attached as Annex H to the proxy statement/prospectus included in this registration statement. | 10 | .2 | | Voting and Support Agreement given to Voyager Learning Company by VSS-Cambium Holdings III, LLC is attached as Annex H to the proxy statement/prospectus included in this registration statement. |
| 10 | .3 | | Form of Voting and Support Agreement given to Cambium-Voyager Holdings, Inc. is attached as Annex I to the proxy statement/prospectus included in this registration statement. | 10 | .3 | | Form of Voting and Support Agreement given to Cambium-Voyager Holdings, Inc. is attached as Annex I to the proxy statement/prospectus included in this registration statement. |
| 10 | .4 | | Form of Contingent Rights Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC and Wells Fargo Bank, National Association is attached as Annex J to the proxy statement/prospectus included in this registration statement. | 10 | .4 | | Form of Contingent Rights Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC and Wells Fargo Bank, National Association is attached as Annex J to the proxy statement/prospectus included in this registration statement. |
| 10 | .5 | | Form of Escrow Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC, Voyager Learning Company, Richard Surratt and Wells Fargo Bank, National Association is attached as Annex K to the proxy statement/prospectus included in this registration statement. | 10 | .5 | | Form of Escrow Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC, Voyager Learning Company, Richard Surratt and Wells Fargo Bank, National Association is attached as Annex K to the proxy statement/prospectus included in this registration statement. |
| 10 | .6 | | Form of Stockholders Agreement by and among Cambium-Voyager Holdings, Inc., VSS-Cambium Holdings III, LLC and Vowel Representative, LLC is attached as Annex L to the proxy statement/prospectus included in this registration statement. | 10 | .6 | | Form of Stockholders Agreement by and among Cambium-Voyager Holdings, Inc., VSS-Cambium Holdings III, LLC and Vowel Representative, LLC is attached as Annex L to the proxy statement/prospectus included in this registration statement. |
| 10 | .7 | | Cambium-Voyager Holdings, Inc. 2009 Equity Incentive Plan.† | 10 | .7 | | Cambium-Voyager Holdings, Inc. 2009 Equity Incentive Plan.† |
| 10 | .8 | | Senior Secured Credit Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp. as the Borrower (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC and other Guarantors; the Lenders; Credit Suisse Securities (USA) LLC and Barclays Capital, the investment banking division of Barclays Bank PLC, as Co-Lead Arrangers and Joint Bookmanagers; Barclays Bank PLC, as Administrative Agent and Collateral Agent; Credit Suisse Securities (USA) LLC, as Co-Syndication Agent; BNP Paribas, as Co-Syndication Agent; and TD Securities (USA) LLC, as Documentation Agent.* | 10 | .8 | | Senior Secured Credit Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp. as the Borrower (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC and other Guarantors; the Lenders; Credit Suisse Securities (USA) LLC and Barclays Capital, the investment banking division of Barclays Bank PLC, as Co-Lead Arrangers and Joint Bookmanagers; Barclays Bank PLC, as Administrative Agent and Collateral Agent; Credit Suisse Securities (USA) LLC, as Co-Syndication Agent; BNP Paribas, as Co-Syndication Agent; and TD Securities (USA) LLC, as Documentation Agent.††† |
| 10 | .9 | | Limited Waiver and Amendment, dated as of May 20, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders, to the Senior Secured Credit Agreement, dated as of April 12, 2007.†† | 10 | .9 | | Limited Waiver and Amendment, dated as of May 20, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders, to the Senior Secured Credit Agreement, dated as of April 12, 2007.†† |
| 10 | .10 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., as the Borrower, Barclays Bank PLC, as Administrative Agent and the required lenders.† | 10 | .10 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., as the Borrower, Barclays Bank PLC, as Administrative Agent and the required lenders.† |
| 10 | .11 | | Permanent Waiver and Amendment No. 2, dated as of August 22, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.* | 10 | .11 | | Permanent Waiver and Amendment No. 2, dated as of August 22, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.††† |
| 10 | .12 | | Note Purchase Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp., as Company (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC, as Guarantor; TCW/Crescent Mezzanine Partners IV, L.P., TCW/Crescent Mezzanine Partners IVB, L.P., MAC Capital, Ltd., New York Life Investment Management Mezzanine Partners II, LP, NYLIM Mezzanine Partners II Parallel Fund, LP, Goldentree Capital Solutions Fund Financing, Goldentree Capital Opportunities, LP, as Purchasers; and TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent.* | 10 | .12 | | Note Purchase Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp., as Company (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC, as Guarantor; TCW/Crescent Mezzanine Partners IV, L.P., TCW/Crescent Mezzanine Partners IVB, L.P., MAC Capital, Ltd., New York Life Investment Management Mezzanine Partners II, LP, NYLIM Mezzanine Partners II Parallel Fund, LP, Goldentree Capital Solutions Fund Financing, Goldentree Capital Opportunities, LP, as Purchasers; and TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent.††† |
| 10 | .13 | | Temporary Waiver and Amendment, dated as of May 20, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007.†† | 10 | .13 | | Temporary Waiver and Amendment, dated as of May 20, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007.†† |
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Exhibit
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Number | Number | | Description | Number | | Description |
|
| 10 | .14 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders.† | 10 | .14 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders.† |
| 10 | .15 | | Permanent Waiver and Amendment No. 2 dated as of August 22, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.†† | 10 | .15 | | Permanent Waiver and Amendment No. 2 dated as of August 22, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.†† |
| 10 | .16 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IV, L.P. in the aggregate principal amount of $12,973,131.22.† | 10 | .16 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IV, L.P. in the aggregate principal amount of $12,973,131.22.† |
| 10 | .17 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IVB, L.P. in the aggregate principal amount of $9,526,868.78.† | 10 | .17 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IVB, L.P. in the aggregate principal amount of $9,526,868.78.† |
| 10 | .18 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of MAC Capital LTD in the aggregate principal amount of $2,500,000.† | 10 | .18 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of MAC Capital LTD in the aggregate principal amount of $2,500,000.† |
| 10 | .19 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NYLIM Mezzanine Partners II Parallel Fund, L.P. in the aggregate principal amount of $3,063,436.24.† | 10 | .19 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NYLIM Mezzanine Partners II Parallel Fund, L.P. in the aggregate principal amount of $3,063,436.24.† |
| 10 | .20 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NY Life Investment Management Mezzanine Partners II, L.P. in the aggregate principal amount of $8,936,536.76.† | 10 | .20 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NY Life Investment Management Mezzanine Partners II, L.P. in the aggregate principal amount of $8,936,536.76.† |
| 10 | .21 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Solutions Fund Financing in the aggregate principal amount of $10,000,000.† | 10 | .21 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Solutions Fund Financing in the aggregate principal amount of $10,000,000.† |
| 10 | .22 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Opportunities in the aggregate principal amount of $3,000,000.† | 10 | .22 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Opportunities in the aggregate principal amount of $3,000,000.† |
| 10 | .23 | | Employment Agreement, dated April 12, 2007, by and between Cambium Learning, Inc. and David Cappellucci.† | 10 | .23 | | Employment Agreement, dated April 12, 2007, by and between Cambium Learning, Inc. and David Cappellucci.† |
| 10 | .24 | | Amendment, dated June 26, 2009, by and among David Cappellucci, Cambium Learning, Inc. and Cambium Voyager Holdings, Inc. to Employment Agreement, dated April 12, 2007.† | 10 | .24 | | Amendment, dated June 26, 2009, by and among David Cappellucci, Cambium Learning, Inc. and Cambium Voyager Holdings, Inc. to Employment Agreement, dated April 12, 2007.† |
| 10 | .25 | | Restrictive Covenants Agreement, dated November 28, 2006 by and between ProQuest Company and Snap-on Incorporated.† | 10 | .25 | | Restrictive Covenants Agreement, dated November 28, 2006 by and between ProQuest Company and Snap-on Incorporated.† |
| 10 | .26 | | Employment agreement dated April 9, 2009, between Voyager Learning Company and Ron Klausner.† | 10 | .26 | | Employment agreement dated April 9, 2009, between Voyager Learning Company and Ron Klausner.† |
| 10 | .27 | | Employment agreement dated June 19, 2009, between Voyager Expanded Learning and Brad Almond.† | 10 | .27 | | Employment agreement dated June 19, 2009, between Voyager Expanded Learning and Brad Almond.† |
| 10 | .28 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Richard Surratt.† | 10 | .28 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Richard Surratt.† |
| 10 | .29 | | Retention Agreement, dated July 13, 2006, by and between Voyager Learning Company (f/k/a ProQuest Company) and Todd Buchardt.†† | 10 | .29 | | Retention Agreement, dated July 13, 2006, by and between Voyager Learning Company (f/k/a ProQuest Company) and Todd Buchardt.†† |
| 10 | .30 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Todd Buchardt.† | 10 | .30 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Todd Buchardt.† |
| 10 | .31 | | Employment agreement dated March 4, 2009, between Voyager Expanded Learning and John Campbell.† | 10 | .31 | | Employment agreement dated March 4, 2009, between Voyager Expanded Learning and John Campbell.† |
| 10 | .32 | | Letter Agreement, dated June 20, 2009, by and among Voyager Learning Company, Cambium-Voyager Holdings, Inc. (f/k/a Cambium Holdings, Inc.), VSS-Cambium Holdings III and VSS Cambium Holdings II Corp.† | 10 | .32 | | Letter Agreement, dated June 20, 2009, by and among Voyager Learning Company, Cambium-Voyager Holdings, Inc. (f/k/a Cambium Holdings, Inc.), VSS-Cambium Holdings III and VSS Cambium Holdings II Corp.† |
| 10 | .33 | | Letter Agreement, dated July 24, 2009, by and between Cambium-Voyager Holdings, Inc. and VSS Fund Management LLC.† | 10 | .33 | | Letter Agreement, dated July 24, 2009, by and between Cambium-Voyager Holdings, Inc. and VSS Fund Management LLC.† |
| 10 | .34 | | Voyager Supplemental Retirement Plan.†† | 10 | .34 | | Voyager Supplemental Retirement Plan.†† |
| 10 | .35 | | Voyager Amended and Restated Replacement Benefit Plan.†† | 10 | .35 | | Voyager Amended and Restated Replacement Benefit Plan.†† |
| 10 | .36 | | Amendment to Employment Agreement dated as of August 7, 2009, by and among Cambium-Voyager Holdings, Inc., Voyager Learning Company and Ronald Klausner.†† | 10 | .36 | | Amendment to Employment Agreement dated as of August 7, 2009, by and among Cambium-Voyager Holdings, Inc., Voyager Learning Company and Ronald Klausner.†† |
| 10 | .37 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., as the Borrower (the successor toVSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent, and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.* | 10 | .37 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., as the Borrower (the successor toVSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent, and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.††† |
| 10 | .38 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., (the successor toVSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent, and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.* | 10 | .38 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., (the successor toVSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent, and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.††† |
II-4
| | | | |
Exhibit
| | |
Number | | Description |
|
| 21 | .1 | | Subsidiaries of Cambium-Voyager Holdings, Inc.† |
| 23 | .1 | | Consent of Grant Thornton LLP.* |
| 23 | .2 | | Consent of Ernst & Young LLP.* |
| 23 | .3 | | Consent of Whitley Penn LLP.* |
| 23 | .4 | | Consent of KPMG LLP.* |
| 23 | .5 | | Consent of Lowenstein Sandler PC (included in Exhibit 5.1). |
| 23 | .6 | | Consent of Lowenstein Sandler PC (included in Exhibit 8.1). |
| 23 | .7 | | Consent of McDermott Will & Emery LLP (included in Exhibit 8.2). |
| 24 | .1 | | Power of Attorney (included on the signature page to the initial filing of this registration statement). |
| 99 | .1 | | Form of Voyager Learning Company proxy card.† |
| 99 | .2 | | Opinion of Allen & Company, LLC is attached as Annex E to the proxy statement/prospectus included in this registration statement. |
| 99 | .3 | | Opinion of Houlihan, Smith & Company, LLC is attached as Annex F to the proxy statement/prospectus included in this registration statement. |
| 99 | .4 | | Form of Election Form.* |
| 99 | .5 | | Consent of Allen & Company, LLC (included as part of its opinion filed as Exhibit 99.2). |
| 99 | .6 | | Consent of Houlihan Smith & Company Inc.† |
| 99 | .7 | | Consent of Prospective Director (David F. Cappellucci).†† |
| 99 | .8 | | Consent of Prospective Director (Ronald Klausner).†† |
| 99 | .9 | | Consent of Prospective Director (Frederick J. Schwab).†† |
| 99 | .10 | | Consent of Prospective Director (Richard J. Surratt).†† |
| 99 | .11 | | Consent of Prospective Director (Neil Weiner).†† |
| | | | |
Exhibit
| | |
Number | | Description |
|
| 21 | .1 | | Subsidiaries of Cambium-Voyager Holdings, Inc.† |
| 23 | .1 | | Consent of Grant Thornton LLP.* |
| 23 | .2 | | Consent of Ernst & Young LLP.* |
| 23 | .3 | | Consent of Whitley Penn LLP.* |
| 23 | .4 | | Consent of KPMG LLP.* |
| 23 | .5 | | Consent of Lowenstein Sandler PC (included in Exhibit 5.1). |
| 23 | .6 | | Consent of Lowenstein Sandler PC (included in Exhibit 8.1). |
| 23 | .7 | | Consent of McDermott Will & Emery LLP (included in Exhibit 8.2). |
| 24 | .1 | | Power of Attorney (included on the signature page to the initial filing of this registration statement). |
| 99 | .1 | | Form of Voyager Learning Company proxy card.† |
| 99 | .2 | | Opinion of Allen & Company, LLC is attached as Annex E to the proxy statement/prospectus included in this registration statement. |
| 99 | .3 | | Opinion of Houlihan, Smith & Company, LLC is attached as Annex F to the proxy statement/prospectus included in this registration statement. |
| 99 | .4 | | Form of Election Form.* |
| 99 | .5 | | Consent of Allen & Company, LLC.* |
| 99 | .6 | | Consent of Houlihan Smith & Company Inc.† |
| 99 | .7 | | Consent of Prospective Director (David F. Cappellucci).†† |
| 99 | .8 | | Consent of Prospective Director (Ronald Klausner).†† |
| 99 | .9 | | Consent of Prospective Director (Frederick J. Schwab).†† |
| 99 | .10 | | Consent of Prospective Director (Richard J. Surratt).†† |
| 99 | .11 | | Consent of Prospective Director (Neil Weiner).†† |
| | |
† | | Filed with the initial filing of the registration statement on Form S-4 on August 6, 2009. |
| | |
†† | | Filed with Amendment No. 1 to the registration statement on Form S-4 on October 9, 2009. |
| | |
††† | | Filed with Amendment No. 2 to the registration statement on Form S-4 on October 30, 2009. |
(b) Financial Statement Schedules
The following documents are filed as part of the proxy statement/prospectus filed as part of this registration statement:
Schedule II: VSS – Cambium Holdings, LLC Valuation and Qualifying Accounts
Schedule II: Voyager Learning Company Valuation and Qualifying Accounts
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the
II-5
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
II-5
changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this registration statement will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post effective amendment will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of thisForm S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means; this includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Amendment No. 23 to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on October 29,November 10, 2009.
CAMBIUM-VOYAGER HOLDINGS, INC.
| | |
| By: | /s/ Scott J. Troeller |
Name: Scott J. Troeller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 23 to the registrant’s registration statement has been signed by the following persons in the capacities and on the dates indicated.
| | | | | | |
Signature | | Title(s) | | Date |
|
| | | | |
/s/ Scott J. Troeller Scott J. Troeller | | Director and Principal Executive Officer | | October 29,November 10, 2009 |
| | | | |
/s/ Jeffrey T. Stevenson* Jeffrey T. Stevenson | | Director | | October 29,November 10, 2009 |
| | | | |
/s/ David F. Cappellucci* David F. Cappellucci | | Principal Financial and Accounting Officer | | October 29,November 10, 2009 |
| | | | |
*By: /s/ Scott J. Troeller Scott J. Troeller Attorney-in-fact | | | | |
II-7
VSS-Cambium Holdings, LLC
Schedule II: Valuation and Qualifying Accounts
(in thousands)
| | | | |
| | Accounts
| |
| | Receivable
| |
| | Reserve | |
|
Balance as of January 1, 2006 (Predecessor) | | $ | 513 | |
Charged to costs and expenses | | | — | |
Charged to other accounts(1) | | | 201 | |
Recoveries | | | — | |
Write-offs | | | (212 | ) |
Other | | | — | |
| | | | |
Balance as of December 31, 2006 (Predecessor) | | $ | 502 | |
| | | | |
Charged to costs and expenses | | | (4 | ) |
Charged to other accounts(1) | | | 61 | |
Recoveries | | | — | |
Write-offs | | | (2 | ) |
Other | | | — | |
| | | | |
Balance as of April 11, 2007 | | $ | 557 | |
| | | | |
Charged to costs and expenses | | | 157 | |
Charged to other accounts(1) | | | (10 | ) |
Recoveries | | | — | |
Write-offs | | | (9 | ) |
Other | | | — | |
| | | | |
Balance as of December 31, 2007 (Successor) | | $ | 695 | |
| | | | |
Charged to costs and expenses | | | 18 | |
Charged to other accounts(1) | | | (5 | ) |
Recoveries | | | — | |
Write-offs | | | (2 | ) |
Other | | | — | |
| | | | |
Balance as of December 31, 2008 (Successor) | | $ | 706 | |
| | | | |
| | |
(1) | | Charges to other accounts includes sales returns. |
II-8
Schedule II: Voyager Learning Company Valuation and Qualifying Accounts
(in thousands)
| | | | | | | | |
| | Accounts
| | | | |
| | Receivable
| | | Inventory
| |
| | Reserve | | | Reserve | |
|
Balance as of January 1, 2006 | | $ | 649 | | | $ | 967 | |
Charged to costs and expenses | | | 1,646 | | | | 1,128 | |
Charged to other accounts(1) | | | 1,425 | | | | — | |
Recoveries | | | — | | | | — | |
Write-offs | | | (1,947 | ) | | | (492 | ) |
Other | | | — | | | | — | |
| | | | | | | | |
Balance as of December 30, 2006 | | $ | 1,773 | | | $ | 1,603 | |
| | | | | | | | |
Charged to costs and expenses | | | 67 | | | | 2,149 | |
Charged to other accounts(1) | | | 2,326 | | | | — | |
Recoveries | | | — | | | | — | |
Write-offs | | | (2,830 | ) | | | (996 | ) |
Other | | | — | | | | — | |
| | | | | | | | |
Balance as of December 29, 2007 | | $ | 1,336 | | | $ | 2,756 | |
| | | | | | | | |
Charged to costs and expenses | | | (61 | ) | | | 2,348 | |
Charged to other accounts(1) | | | 1,569 | | | | — | |
Recoveries | | | — | | | | — | |
Write-offs | | | (2,156 | ) | | | (741 | ) |
Other | | | — | | | | — | |
| | | | | | | | |
Balance as of December 31, 2008 | | $ | 688 | | | $ | 4,363 | |
| | | | | | | | |
| | |
(1) | | Charges to other accounts include sales returns. |
II-9
EXHIBIT INDEX
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Description | Number | | Description |
|
| 2 | .1 | | Agreement and Plan of Mergers by and among Voyager-Cambium Holdings, Inc. (f/k/a Cambium Holdings, Inc.), Voyager Learning Company, VSS-Cambium Holdings II Corp., Vowel Acquisition Corp., Consonant Acquisition Corp. and Vowel Representative, LLC, solely in its capacity as stockholders’ representative, dated as of June 20, 2009 is attached as Annex A to the proxy statement/prospectus included in this registration statement. | 2 | .1 | | Agreement and Plan of Mergers by and among Voyager-Cambium Holdings, Inc. (f/k/a Cambium Holdings, Inc.), Voyager Learning Company, VSS-Cambium Holdings II Corp., Vowel Acquisition Corp., Consonant Acquisition Corp. and Vowel Representative, LLC, solely in its capacity as stockholders’ representative, dated as of June 20, 2009 is attached as Annex A to the proxy statement/prospectus included in this registration statement. |
| 3 | .1 | | Amended and Restated Certificate of Incorporation of Cambium-Voyager Holdings, Inc. is attached as Annex C to the proxy statement/prospectus included in this registration statement. | 3 | .1 | | Amended and Restated Certificate of Incorporation of Cambium-Voyager Holdings, Inc. is attached as Annex C to the proxy statement/prospectus included in this registration statement. |
| 3 | .2 | | Amended and Restated Bylaws of Cambium-Voyager Holdings, Inc. are attached as Annex D to the proxy statement/prospectus included in this registration statement. | 3 | .2 | | Amended and Restated Bylaws of Cambium-Voyager Holdings, Inc. are attached as Annex D to the proxy statement/prospectus included in this registration statement. |
| 4 | .1 | | Specimen share certificate of Cambium-Voyager Holdings, Inc.†† | 4 | .1 | | Specimen share certificate of Cambium-Voyager Holdings, Inc.†† |
| 4 | .2 | | Form of Cambium-Voyager Holdings, Inc. Warrant.† | 4 | .2 | | Form of Cambium-Voyager Holdings, Inc. Warrant.† |
| 5 | .1 | | Opinion of Lowenstein Sandler PC with respect to the validity of the common stock offered hereby.* | 5 | .1 | | Opinion of Lowenstein Sandler PC with respect to the validity of the common stock offered hereby.* |
| 8 | .1 | | Opinion of Lowenstein Sandler PC with respect to certain tax matters.* | 8 | .1 | | Opinion of Lowenstein Sandler PC with respect to certain tax matters.* |
| 8 | .2 | | Opinion of McDermott Will & Emery LLP with respect to certain tax matters.* | 8 | .2 | | Opinion of McDermott Will & Emery LLP with respect to certain tax matters.* |
| 10 | .1 | | Limited Guarantee given by certain funds managed by VSS Fund Management LLC is attached as Annex G to the proxy statement/prospectus included in this registration statement. | 10 | .1 | | Limited Guarantee given by certain funds managed by VSS Fund Management LLC is attached as Annex G to the proxy statement/prospectus included in this registration statement. |
| 10 | .2 | | Voting and Support Agreement given to Voyager Learning Company by VSS-Cambium Holdings III, LLC is attached as Annex H to the proxy statement/prospectus included in this registration statement. | 10 | .2 | | Voting and Support Agreement given to Voyager Learning Company by VSS-Cambium Holdings III, LLC is attached as Annex H to the proxy statement/prospectus included in this registration statement. |
| 10 | .3 | | Form of Voting and Support Agreement given to Cambium-Voyager Holdings, Inc. is attached as Annex I to the proxy statement/prospectus included in this registration statement. | 10 | .3 | | Form of Voting and Support Agreement given to Cambium-Voyager Holdings, Inc. is attached as Annex I to the proxy statement/prospectus included in this registration statement. |
| 10 | .4 | | Form of Contingent Rights Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC and Wells Fargo Bank, National Association is attached as Annex J to the proxy statement/prospectus included in this registration statement. | 10 | .4 | | Form of Contingent Rights Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC and Wells Fargo Bank, National Association is attached as Annex J to the proxy statement/prospectus included in this registration statement. |
| 10 | .5 | | Form of Escrow Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC, Voyager Learning Company, Richard Surratt and Wells Fargo Bank, National Association is attached as Annex K to the proxy statement/prospectus included in this registration statement. | 10 | .5 | | Form of Escrow Agreement by and among Cambium-Voyager Holdings, Inc., Vowel Representative, LLC, Voyager Learning Company, Richard Surratt and Wells Fargo Bank, National Association is attached as Annex K to the proxy statement/prospectus included in this registration statement. |
| 10 | .6 | | Form of Stockholders Agreement by and among Cambium-Voyager Holdings, Inc., VSS-Cambium Holdings III, LLC and Vowel Representative, LLC is attached as Annex L to the proxy statement/prospectus included in this registration statement. | 10 | .6 | | Form of Stockholders Agreement by and among Cambium-Voyager Holdings, Inc., VSS-Cambium Holdings III, LLC and Vowel Representative, LLC is attached as Annex L to the proxy statement/prospectus included in this registration statement. |
| 10 | .7 | | Cambium-Voyager Holdings, Inc. 2009 Equity Incentive Plan.† | 10 | .7 | | Cambium-Voyager Holdings, Inc. 2009 Equity Incentive Plan.† |
| 10 | .8 | | Senior Secured Credit Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp. as the Borrower (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC and other Guarantors; the Lenders; Credit Suisse Securities (USA) LLC and Barclays Capital, the investment banking division of Barclays Bank PLC, as Co-Lead Arrangers and Joint Bookmanagers; Barclays Bank PLC, as Administrative Agent and Collateral Agent; Credit Suisse Securities (USA) LLC, as Co-Syndication Agent; BNP Paribas, as Co-Syndication Agent; and TD Securities (USA) LLC, as Documentation Agent.* | 10 | .8 | | Senior Secured Credit Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp. as the Borrower (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC and other Guarantors; the Lenders; Credit Suisse Securities (USA) LLC and Barclays Capital, the investment banking division of Barclays Bank PLC, as Co-Lead Arrangers and Joint Bookmanagers; Barclays Bank PLC, as Administrative Agent and Collateral Agent; Credit Suisse Securities (USA) LLC, as Co-Syndication Agent; BNP Paribas, as Co-Syndication Agent; and TD Securities (USA) LLC, as Documentation Agent.††† |
| 10 | .9 | | Limited Waiver and Amendment, dated as of May 20, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders, to the Senior Secured Credit Agreement, dated as of April 12, 2007.†† | 10 | .9 | | Limited Waiver and Amendment, dated as of May 20, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders, to the Senior Secured Credit Agreement, dated as of April 12, 2007.†† |
| 10 | .10 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., as the Borrower, Barclays Bank PLC, as Administrative Agent and the required lenders.† | 10 | .10 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., as the Borrower, Barclays Bank PLC, as Administrative Agent and the required lenders.† |
| 10 | .11 | | Permanent Waiver and Amendment No. 2, dated as of August 22, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.* | 10 | .11 | | Permanent Waiver and Amendment No. 2, dated as of August 22, 2008, by and among, Cambium Learning, Inc., as the Borrower (the successor to VSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.††† |
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Description | Number | | Description |
|
| 10 | .12 | | Note Purchase Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp., as Company (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC, as Guarantor; TCW/Crescent Mezzanine Partners IV, L.P., TCW/Crescent Mezzanine Partners IVB, L.P., MAC Capital, Ltd., New York Life Investment Management Mezzanine Partners II, LP, NYLIM Mezzanine Partners II Parallel Fund, LP, Goldentree Capital Solutions Fund Financing, Goldentree Capital Opportunities, LP, as Purchasers; and TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent.* | 10 | .12 | | Note Purchase Agreement dated as of April 12, 2007 among VSS-Cambium Merger Corp., as Company (the predecessor to Cambium Learning, Inc.); VSS-Cambium Holdings, LLC, as Guarantor; TCW/Crescent Mezzanine Partners IV, L.P., TCW/Crescent Mezzanine Partners IVB, L.P., MAC Capital, Ltd., New York Life Investment Management Mezzanine Partners II, LP, NYLIM Mezzanine Partners II Parallel Fund, LP, Goldentree Capital Solutions Fund Financing, Goldentree Capital Opportunities, LP, as Purchasers; and TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent.††† |
| 10 | .13 | | Temporary Waiver and Amendment, dated as of May 20, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007.†† | 10 | .13 | | Temporary Waiver and Amendment, dated as of May 20, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007.†† |
| 10 | .14 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders.† | 10 | .14 | | Letter Agreement, dated July 15, 2008, by and among Cambium Learning, Inc., TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders.† |
| 10 | .15 | | Permanent Waiver and Amendment No. 2 dated as of August 22, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.†† | 10 | .15 | | Permanent Waiver and Amendment No. 2 dated as of August 22, 2008, by and among Cambium Learning, Inc., (the successor to VSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.†† |
| 10 | .16 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IV, L.P. in the aggregate principal amount of $12,973,131.22.† | 10 | .16 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IV, L.P. in the aggregate principal amount of $12,973,131.22.† |
| 10 | .17 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IVB, L.P. in the aggregate principal amount of $9,526,868.78.† | 10 | .17 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of TCW/Crescent Mezzanine Partners IVB, L.P. in the aggregate principal amount of $9,526,868.78.† |
| 10 | .18 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of MAC Capital LTD in the aggregate principal amount of $2,500,000.† | 10 | .18 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of MAC Capital LTD in the aggregate principal amount of $2,500,000.† |
| 10 | .19 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NYLIM Mezzanine Partners II Parallel Fund, L.P. in the aggregate principal amount of $3,063,436.24.† | 10 | .19 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NYLIM Mezzanine Partners II Parallel Fund, L.P. in the aggregate principal amount of $3,063,436.24.† |
| 10 | .20 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NY Life Investment Management Mezzanine Partners II, L.P. in the aggregate principal amount of $8,936,536.76.† | 10 | .20 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of NY Life Investment Management Mezzanine Partners II, L.P. in the aggregate principal amount of $8,936,536.76.† |
| 10 | .21 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Solutions Fund Financing in the aggregate principal amount of $10,000,000.† | 10 | .21 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Solutions Fund Financing in the aggregate principal amount of $10,000,000.† |
| 10 | .22 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Opportunities in the aggregate principal amount of $3,000,000.† | 10 | .22 | | Promissory Note, dated April 12, 2007, made by Cambium Learning, Inc. in favor of Goldentree Capital Opportunities in the aggregate principal amount of $3,000,000.† |
| 10 | .23 | | Employment Agreement, dated April 12, 2007, by and between Cambium Learning, Inc. and David Cappellucci.† | 10 | .23 | | Employment Agreement, dated April 12, 2007, by and between Cambium Learning, Inc. and David Cappellucci.† |
| 10 | .24 | | Amendment, dated June 26, 2009, by and among David Cappellucci, Cambium Learning, Inc. and Cambium Voyager Holdings, Inc. to Employment Agreement, dated April 12, 2007.† | 10 | .24 | | Amendment, dated June 26, 2009, by and among David Cappellucci, Cambium Learning, Inc. and Cambium Voyager Holdings, Inc. to Employment Agreement, dated April 12, 2007.† |
| 10 | .25 | | Restrictive Covenants Agreement, dated November 28, 2006 by and between ProQuest Company and Snap-on Incorporated.† | 10 | .25 | | Restrictive Covenants Agreement, dated November 28, 2006 by and between ProQuest Company and Snap-on Incorporated.† |
| 10 | .26 | | Employment agreement dated April 9, 2009, between Voyager Learning Company and Ron Klausner.† | 10 | .26 | | Employment agreement dated April 9, 2009, between Voyager Learning Company and Ron Klausner.† |
| 10 | .27 | | Employment agreement dated June 19, 2009, between Voyager Expanded Learning and Brad Almond.† | 10 | .27 | | Employment agreement dated June 19, 2009, between Voyager Expanded Learning and Brad Almond.† |
| 10 | .28 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Richard Surratt.† | 10 | .28 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Richard Surratt.† |
| 10 | .29 | | Retention Agreement, dated July 13, 2006, by and between Voyager Learning Company (f/k/a ProQuest Company) and Todd Buchardt.†† | 10 | .29 | | Retention Agreement, dated July 13, 2006, by and between Voyager Learning Company (f/k/a ProQuest Company) and Todd Buchardt.†† |
| 10 | .30 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Todd Buchardt.† | 10 | .30 | | Employment agreement dated May 8, 2009, between Voyager Learning Company and Todd Buchardt.† |
| 10 | .31 | | Employment agreement dated March 4, 2009, between Voyager Expanded Learning and John Campbell.† | 10 | .31 | | Employment agreement dated March 4, 2009, between Voyager Expanded Learning and John Campbell.† |
| 10 | .32 | | Letter Agreement, dated June 20, 2009, by and among Voyager Learning Company, Cambium-Voyager Holdings, Inc. (f/k/a Cambium Holdings, Inc.), VSS-Cambium Holdings III and VSS Cambium Holdings II Corp.† | 10 | .32 | | Letter Agreement, dated June 20, 2009, by and among Voyager Learning Company, Cambium-Voyager Holdings, Inc. (f/k/a Cambium Holdings, Inc.), VSS-Cambium Holdings III and VSS Cambium Holdings II Corp.† |
| 10 | .33 | | Letter Agreement, dated July 24, 2009, by and between Cambium-Voyager Holdings, Inc. and VSS Fund Management LLC.† | 10 | .33 | | Letter Agreement, dated July 24, 2009, by and between Cambium-Voyager Holdings, Inc. and VSS Fund Management LLC.† |
| 10 | .34 | | Voyager Supplemental Retirement Plan.†† | 10 | .34 | | Voyager Supplemental Retirement Plan.†† |
| 10 | .35 | | Voyager Amended and Restated Replacement Benefit Plan.†† | 10 | .35 | | Voyager Amended and Restated Replacement Benefit Plan.†† |
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .36 | | Amendment to Employment Agreement dated as of August 7, 2009, by and among Cambium-Voyager Holdings, Inc., Voyager Learning Company and Ronald Klausner.†† |
| 10 | .37 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., as the Borrower (the successor toVSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent, and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.* |
| 10 | .38 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., (the successor toVSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent, and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.* |
| 21 | .1 | | Subsidiaries of Cambium-Voyager Holdings, Inc.† |
| 23 | .1 | | Consent of Grant Thornton LLP.* |
| 23 | .2 | | Consent of Ernst & Young LLP.* |
| 23 | .3 | | Consent of Whitley Penn LLP.* |
| 23 | .4 | | Consent of KPMG LLP.* |
| 23 | .5 | | Consent of Lowenstein Sandler PC (included in Exhibit 5.1). |
| 23 | .6 | | Consent of Lowenstein Sandler PC (included in Exhibit 8.1). |
| 23 | .7 | | Consent of McDermott Will & Emery LLP (included in Exhibit 8.2). |
| 24 | .1 | | Power of Attorney (included on the signature page to the initial filing of this registration statement). |
| 99 | .1 | | Form of Voyager Learning Company proxy card.† |
| 99 | .2 | | Opinion of Allen & Company, LLC is attached as Annex E to the proxy statement/prospectus included in this registration statement. |
| 99 | .3 | | Opinion of Houlihan, Smith & Company, LLC is attached as Annex F to the proxy statement/prospectus included in this registration statement. |
| 99 | .4 | | Form of Election Form.* |
| 99 | .5 | | Consent of Allen & Company, LLC (included as part of its opinion filed as Exhibit 99.2). |
| 99 | .6 | | Consent of Houlihan Smith & Company Inc.† |
| 99 | .7 | | Consent of Prospective Director (David F. Cappellucci).†† |
| 99 | .8 | | Consent of Prospective Director (Ronald Klausner).†† |
| 99 | .9 | | Consent of Prospective Director (Frederick J. Schwab).†† |
| 99 | .10 | | Consent of Prospective Director (Richard J. Surratt).†† |
| 99 | .11 | | Consent of Prospective Director (Neil Weiner).†† |
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .36 | | Amendment to Employment Agreement dated as of August 7, 2009, by and among Cambium-Voyager Holdings, Inc., Voyager Learning Company and Ronald Klausner.†† |
| 10 | .37 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., as the Borrower (the successor toVSS-Cambium Merger Corp.), Barclays Bank PLC, as Administrative Agent, and the required lenders to the Senior Secured Credit Agreement, dated as of April 12, 2007, as amended.††† |
| 10 | .38 | | Amendment No. 3, dated as of October 29, 2009, by and among Cambium Learning, Inc., (the successor toVSS-Cambium Merger Corp.), TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent, and the required note holders, to the Note Purchase Agreement, dated as of April 12, 2007, as amended.††† |
| 21 | .1 | | Subsidiaries of Cambium-Voyager Holdings, Inc.† |
| 23 | .1 | | Consent of Grant Thornton LLP.* |
| 23 | .2 | | Consent of Ernst & Young LLP.* |
| 23 | .3 | | Consent of Whitley Penn LLP.* |
| 23 | .4 | | Consent of KPMG LLP.* |
| 23 | .5 | | Consent of Lowenstein Sandler PC (included in Exhibit 5.1). |
| 23 | .6 | | Consent of Lowenstein Sandler PC (included in Exhibit 8.1). |
| 23 | .7 | | Consent of McDermott Will & Emery LLP (included in Exhibit 8.2). |
| 24 | .1 | | Power of Attorney (included on the signature page to the initial filing of this registration statement). |
| 99 | .1 | | Form of Voyager Learning Company proxy card.† |
| 99 | .2 | | Opinion of Allen & Company, LLC is attached as Annex E to the proxy statement/prospectus included in this registration statement. |
| 99 | .3 | | Opinion of Houlihan, Smith & Company, LLC is attached as Annex F to the proxy statement/prospectus included in this registration statement. |
| 99 | .4 | | Form of Election Form.* |
| 99 | .5 | | Consent of Allen & Company, LLC.* |
| 99 | .6 | | Consent of Houlihan Smith & Company Inc.† |
| 99 | .7 | | Consent of Prospective Director (David F. Cappellucci).†† |
| 99 | .8 | | Consent of Prospective Director (Ronald Klausner).†† |
| 99 | .9 | | Consent of Prospective Director (Frederick J. Schwab).†† |
| 99 | .10 | | Consent of Prospective Director (Richard J. Surratt).†† |
| 99 | .11 | | Consent of Prospective Director (Neil Weiner).†† |
| | |
† | | Filed with the initial filing of the registration statement on Form S-4 on August 6, 2009. |
| | |
†† | | Filed with Amendment No. 1 to the registration statement on Form S-4 on October 9, 2009. |
| | |
††† | | Filed with Amendment No. 2 to the registration statement on Form S-4 on October 30, 2009. |