THIS
EMPLOYMENT AGREEMENT (the “ Agreement ”) is
dated as of April 12, 2007 between CAMBIUM LEARNING,
INC., a Delaware corporation (the “ Company
”), and DAVID CAPPELLUCCI (the “
Executive ”)
WHEREAS,
the Executive is one of the members of VSS-Cambium Holdings, LLC, a
newly formed Delaware limited liability company (the “
Parent ”), and also is an officer of the
Company;
WHEREAS,
the Parent and the Company have entered into a series of agreements
whereby the Parent has agreed to acquire the stock of the Company
(the “ Transaction ”) pursuant to the Stock
Purchase Agreement, dated as of January 29, 2007, by and among
Parent, as purchaser, the Company and each of the stockholders of
the Company, as sellers, as modified by the Assignment and
Assumption Agreement, dated as of March 27, 2007, by and
between Parent, as assignor, and VSS-Cambium Merger Corp., as
assignee (“ Merger Corp ”), as amended by
Amendment of Disclosure Schedules, dated as of April 11, 2007,
and First Amendment to Stock Purchase Agreement, dated as of
April 11, 2007 (the “ Stock Purchase Agreement
”);
WHEREAS,
the Company desires to employ the Executive as its Chief Executive
Officer and the Executive desires to be so employed by the Company;
and
WHEREAS,
the Company, the Parent and the Executive each believe it is in
their respective best interests to enter into this Agreement
setting forth the mutual understandings and agreements reached
between the Company and the Executive with respect to the
Executive’s employment with the Company and certain
restrictions on the Executive’s conduct benefiting the
Company and the Parent during such time and thereafter, all as set
forth herein.
NOW,
THEREFORE, in consideration of the promises and the mutual
covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intended to be legally
bound hereby, agree as follows:
ARTICLE 1
TERM OF AGREEMENT AND EMPLOYMENT
During the term of
this Agreement, the Company shall employ the Executive and the
Executive shall serve the Company as the Chief Executive Officer.
Subject to the direction and ultimate authority of the Board of
Directors of the Company (the “ Board ”), the
Executive shall have general supervision and direction of the
business and affairs of the Company subject to the control of the
Board. The Executive shall report to the Board and agrees to
perform to the best of his ability, experience and talent those
acts and duties, consistent with the position of Chief Executive
Officer of the Company, as the Board shall from time to time
direct. The Executive
shall serve as
a member of the Board or as a member of any governing entity of any
Affiliate of the Company for no additional compensation.
The term (the
“ Term ”) of the Executive’s employment
under this Agreement shall begin on the date hereof (the
“Effective Date”) and, subject to earlier termination
as provided in ARTICLE 5, shall continue from year to year
thereafter unless terminated by either party with 90 days
prior written notice.
ARTICLE 2
DUTIES AND OBLIGATIONS OF THE EXECUTIVE
Section 2.1.
Compliance With Policies, etc.
At all times
during the performance of this Agreement, the Executive shall
adhere to the Company’s policies, rules and regulations
governing the conduct of its employees, now in effect, or as
subsequently adopted or amended.
Section 2.2.
Time Commitment.
During the term of
his employment, the Executive shall use his best efforts to promote
the interests of the Company and its Affiliates and shall devote
all of his business time, ability and attention to the performance
of his duties for the Company and its Affiliates and shall not,
directly or indirectly, render any services to any other person or
organization, whether for compensation or otherwise, except with
the Board’s prior written consent (which shall not be
unreasonably withheld provided that those services are not
inconsistent with, and do not interfere with, your full-time
employment by the Company). The Executive’s principal place
of business shall be in the Natick, Massachusetts area or within
thirty-five (35) miles thereof.
As full
compensation for his services hereunder in each and any capacity
contemplated, during the Term, Company shall pay to the Executive a
base salary at the rate of $220,000, on an annualized basis,
subject to applicable deductions and withholdings (“ Base
Salary ”), commencing on the Effective Date and payable
in accordance with the Company’s customary payroll practices.
Executive’s rate of Base Salary shall be increased on the
first day of each calendar year occurring during the Term,
beginning with January 1, 2008, by the percentage increase for
the prior year in the Consumer Price Index for Urban Wage Earners
and Clerical Workers (Northeast Urban), as published by the Bureau
of Labor Statistics of the U.S. Department of Labor, or by any
greater amount specified by the Board in its sole
discretion.
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In addition to his
Base Salary, Executive shall be eligible while he remains employed
hereunder, in respect of each calendar year (pro-rated for any
partial calendar years during the Term), to an annual bonus payable
in cash and at such times as bonuses are customarily paid to senior
executives of the Company (the “ Cash Bonus ”),
in effect on the last day of the calendar year with respect to
which such Cash Bonus is paid. The Executive’s Cash bonus
target (the “Target Bonus”) shall be equal to 50% of
his Base Salary and he shall be eligible to earn up to a maximum of
100% of his Base Salary (the “Maximum Bonus”). The Cash
Bonus shall consist of the following three components, and each
shall be calculated as set forth below (and as more particularly
described in the examples set forth on Exhibit A:
annexed hereto and made a part hereof).
(a) Up to
33.3333% out of the Maximum Bonus Amount shall be based on
achievement of the Board-approved annual budgeted revenue target
for the calendar year then ended.
(i) If the
consolidated gross revenues of the Company and its Subsidiaries for
the calendar year then ended is less than 90% of the annual
budgeted revenue target for that year, then this component shall
equal zero;
(ii) If the
consolidated gross revenues of the Company and its Subsidiaries for
the calendar year then ended is equal to or greater than 90% but is
less than or equal to 100% of the annual budgeted revenue target,
then this component shall be equal to 33.3333% multiplied by the
(i) Target Bonus and (ii) the quotient of (x) the
consolidated gross revenues of the Company and its Subsidiaries for
the calendar year then ended; and (y) the Board-approved
annual budgeted revenue target for the calendar year then ended;
or
(iii) If the
consolidated gross revenues of the Company and its Subsidiaries for
the calendar year then ended exceeds 100% but is less than 150% of
the annual budgeted revenue target, then this component shall be
equal to the product of (i) 33.3333% by (ii) the Target
Bonus and by (iii) the sum of (x) 100%; and (y) the
product of (i) the percentage that the consolidated gross
revenues of the Company and its Subsidiaries for the calendar year
then ended exceeds 100%; and (ii) 2; or
(iv) If the
consolidated gross revenues of the Company and its Subsidiaries for
the calendar year then ended is greater than or equal to 150% of
the annual budgeted revenue target, then this component shall be
equal to the product of (i) 33% by (ii) the Target Bonus
and (ii) 2
(b) Up to
33.33333% of the Maximum Bonus Amount shall be based on achievement
of the Board-approved annual budgeted Unlevered Free Cash Flow
(“ UFCF ”) target for the calendar year then
ended.
(i) If the
UFCF of the Company and its Subsidiaries for the calendar year then
ended is less than 90% of the annual budgeted revenue target for
that year, then this component shall equal zero;
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(ii) If the
UFCF of the Company and its Subsidiaries for the calendar year then
ended is equal to or greater than 90% but is less than or equal to
100% of the annual UFCF target, then this component shall be equal
to 33.3333% multiplied by the (i) Target Bonus and
(ii) the quotient of (x) the UFCF of the Company and its
Subsidiaries for the calendar year then ended; and (y) the
Board-approved UFCF target for the calendar year then ended;
or
(iii) If the
UFCF of the Company and its Subsidiaries for the calendar year then
ended exceeds 100% but is less than 150% of the annual budgeted
UFCF target, then this component shall be equal to the product of
(i) 33.3333% by (ii) the Target Bonus and by
(iii) the sum of (x) 100%; and (y) the product of
(i) the percentage that the UFCF of the Company and its
Subsidiaries for the calendar year then ended exceeds 100%; and
(ii) 2; or
(iv) If the
UFCF of the Company and its Subsidiaries for the calendar year then
ended is greater than or equal to 150% of the annual budgeted UFCF
target, then this component shall be equal to the product of
(i) 33.3333% by (ii) the Target Bonus and
(ii) 2
(c) Up to
33.3333% out of the Maximum Bonus Amount shall be based on
achievement of the Board-approved annual budgeted EBITDA target for
the calendar year then ended.
(i) If the
consolidated EBITDA of the Company and its Subsidiaries for the
calendar year then ended is less than 90% of the annual budgeted
EBITDA target for that year, then this component shall equal
zero;
(ii) If the
consolidated EBITDA of the Company and its Subsidiaries for the
calendar year ended is equal to or greater than 90% but is less
than or equal to 100% of the annual budgeted EBITDA target, then
this component shall be equal to 33.3333% multiplied by the
(i) Target Bonus and (ii) the quotient of (x) the
consolidated EBITDA of the Company and its Subsidiaries for the
calendar year then ended; and (y) the Board-approved annual
budgeted EBITDA target for the calendar year then ended;
or
(iii) If the
consolidated EBITDA of the Company and its Subsidiaries for the
calendar year then ended exceeds 100% but is less than 150% of the
annual budgeted EBITDA target, then this component shall be equal
to the product of (i) 33.3333% by (ii) the Target Bonus
and by (iii) the sum of (x) 100%; and (y) the
product of (i) the percentage that the consolidated EBITDA of
the Company and its Subsidiaries for the calendar year then ended
exceeds 100%; and (ii) 2; or
(iv) If the
consolidated EBITDA of the Company and its Subsidiaries for the
calendar year then ended is greater than or equal to 150% of the
annual budgeted EBITDA target, then this component shall be equal
to the product of (i) 33.3333% by (ii) the Target Bonus
and (ii) 2
(d) The
annual budget, including the revenue, UFCF, EBITDA and other
performance targets described above, shall be approved by the Board
in its sole discretion and may be adjusted from time to time by
approval of the Board for such developments as material
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acquisitions or
dispositions, in order to make the Cash Bonus achievable on a
comparable basis after giving pro forma effect to such
developments. All amounts under this Section 3.2 shall be
calculated on a consolidated basis in accordance with the
Company’s past practice and, where not inconsistent with such
past practice, in accordance with U.S. generally accepted
accounting principles, consistently applied Notwithstanding the
foregoing, UFCF and EBITDA targets and actual EBITDA and UFCF shall
be calculated prior to payment of executive bonuses.
(e) For
purposes of this Agreement: (x) “ UFCF ” shall
mean for a given calendar year: (i) EBITDA for such calendar year,
less (ii) capital expenditures made during such
calendar year, less (iii) capitalized development costs
incurred during such calendar year, less (iv) the
excess, if any, by which Working Capital for such calendar year
exceeds Working Capital for the immediately preceding calendar
year, plus (v) the excess, if any, by which Working
Capital for the Immediately preceding calendar year exceeds Working
Capital for such calendar year; (y) “ Working Capital
” shall mean, with respect to a given calendar year, without
duplication, current assets, consisting of the sum of the amounts
set forth in the Company’s consolidated balance sheet (as of
the last day of such calendar year) line items for (i) accounts
receivable, net, (ii) inventories, net, and
(iii) prepaids, net (but excluding prepaid taxes), less
current liabilities, consisting of the sum of the amounts set forth
in the Company’s consolidated balance sheet line items for
(i) accounts payable, (ii) commissions and bonuses,
(iii) accrued royalties, (iv) deferred revenue,
(v) other accrued expenses and (vi) other current
liabilities (in calculating Working Capital, items shall be
classified in a manner consistent with the manner in which each
such item was classified on the Company’s monthly
consolidated balance sheet for January through November 2006);
and (z) “ EBITDA ” shall mean, with respect to a
given calendar year, the sum of (i) “Consolidated
EBITDA” as calculated under, and as reflected in the
applicable “Compliance Certificate” delivered pursuant
to, the Credit Agreement (as defined below) for the twelve month
period ending on the last day of such calendar year, plus
(ii) if any, all accrued bonus compensation for David
Cappellucci, David Caron and George Logue with respect to such
calendar year. The term “ Credit Agreement ”
shall mean that certain Credit Agreement, dated as of
April 12, 2007, by and among Merger Corp, as borrower, Parent,
the Company, Cambium Learning (New York), Inc., Kurzweil
Educational Systems, Inc., Sopris West Educational Services, Inc.
and IntelliTools, Inc., as guarantors, Credit Suisse Securities
(USA) LLC, as co-syndication agent, BNP Paribas, as
co-syndication agent, TD Securities (USA) LLC, as
documentation agent, Barclays Bank PLC, as administrative agent and
collateral agent, and the lenders from time to time party
thereto.
Section 3.3.
Management Incentive Plan.
Executive shall be
eligible to participate in the VSS-Cambium Management LLC (“
Management LLC ”) Management Incentive Plan as set
forth in the limited liability company agreement of the Management
LLC (the “ MIP ”), and his participation will be
reflected in a separate Agreement Relating to Membership, of even
date herewith, between the Management LLC and the Executive (the
“ Grant Agreement ”). To the extent of any
inconsistency between this Agreement and the Grant Agreement, the
terms of the Grant Agreement shall control, including without
limitation, in case of any termination of the Executive’s
employment.
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ARTICLE 4
BENEFITS AND EXPENSES
Section 4.1.
Benefit Plans.
The Executive
shall be entitled to participate in all benefit plans generally
available to other senior executives of the Company on the same
basis and to the same extent as other senior executives. The
Executive shall be entitled to four (4) weeks of paid
vacation, annually, which the Executive shall take during such
times as shall be consistent with the Executive’s
responsibilities.
Section 4.2.
General Expense Reimbursement.
The Company shall
reimburse the Executive, in accordance with the Company’s
policies, for all reasonable out-of-pocket business expenses
incurred by the Executive in the performance of his duties
hereunder. The Executive shall furnish to the Company documentary
evidence of each such expense in the form required to comply with
the Company’s policies and all applicable federal and state
tax statutes and regulations issued thereunder for the
substantiation of such expense as a tax deduction.
ARTICLE 5
TERMINATION OF EMPLOYMENT
Section 5.1.
Termination Without Cause or Resignation For Good
Reason.
(a) The
Company may terminate the Executive’s employment hereunder at
any time without Cause upon written notice to the Executive. The
Executive may terminate his employment hereunder for Good Reason
upon written notice to the Company.
(b) If the
Executive’s employment is terminated by the Company without
Cause (other than by reason of the Executive’s death or
disability) or by the Executive for Good Reason, the Executive
shall be entitled to receive, in full discharge of all of the
Company’s obligations to the Executive under this agreement,
(i) his Base Salary through the date of termination of his
employment, (ii) the amount of all then unpaid expense
reimbursements due to the Executive under Section 4.2 for
periods prior to the date of termination, (iii) additional
payments equal to his Base Salary (at the rate in effect at the
time of termination) for a period of twelve months after
termination of his employment, payable in installments (subject to
applicable withholding) at the same times as the Executive’s
salary would have been payable if the Executive’s employment
had not terminated, and (iv) continuation during that
twelve-month period of the health and dental insurance benefits
provided to the Executive and his covered dependents under the
Company’s insurance plans in effect as of the date of
termination (except that the Executive shall pay that portion of
the cost of such insurance as the Executive was required
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