Common use of Principles of Consolidation Clause in Contracts

Principles of Consolidation. The Successor consolidated financial statements of the Company include the accounts of Holdings as of January 29, 2007 (inception), Management LLC from February 7, 2007 (inception) and Cambium and its wholly owned subsidiaries, Cambium Learning (New York), Inc., Sopris West Educational Services, Inc., Kurzweil Educational Systems, Inc. (Kurzweil), and IntelliTools, Inc., from April 12, 2007. All inter-company accounts and transactions are eliminated in consolidation. The Predecessor consolidated financial statements for the year ended December 31, 2006 and the period from January 1, 2007 through April 11, 2007 include the accounts of Cambium and its wholly owned subsidiaries described above. All inter-company accounts and transactions have been eliminated in consolidation. On April 26, 2008, the Company, began an internal investigation that revealed irregularities over the control and use of cash and certain other general ledger accounts of the Company, resulting in a misappropriation of assets. The Company believes these irregularities were perpetrated by a former employee over more than a three year period beginning in 2004 and continuing through April 2008. The embezzlement incurred in each year, before the effect of income taxes, is as follows: ▇▇▇▇ $ 1,912,795 2005 290,135 2006 3,261,132 January 1, 2007 – April 11, 2007 999,516 Total - Predecessor 6,463,578 April 12, 2007 – December 31, 2007 5,731,671 2008 1,800,735 Total - Successor 7,532,406 Total Embezzlement Loss $ 13,995,984