<p style= text-align: justify; ><strong>7/22/2008 - Ex-ProQuest VP Scott Hirth and ProQuest Settle with SEC in Connection With Accounting Fraud Scheme</strong></p> <p align= justify >According to the US Securities and Exchange Commission (SEC), the SEC today charged Scott Hirth of Carleton, Michigan and ProQuest Company, headquartered in Ann Arbor Michigan, in connection with a financial fraud scheme that occurred from 2001 through 2005. Hirth was the former Vice-President of Finance and Chief Financial Officer for ProQuest’s Information and Learning Division.</p>
<p align= justify >The SEC’s complaint, filed in federal court in Detroit, alleged that at the end of monthly and quarterly reporting periods, from at least 2001 through 2005, Hirth made fraudulent manual journal entries in order to favorably alter ProQuest’s financial results. These manual journal entries were adjustments to the balances in certain ProQuest accounts and were designed to increase revenue and decrease expenses at ProQuest. Through these false accounting entries, Hirth materially inflated ProQuest’s reported Earnings Before Interest and Taxes for 2001 though 2004 and the first three quarters of 2005. The SEC further alleged that Hirth created false documentation to purportedly support the balances in the manipulated accounts and used “hidden rows” and “white font” functions in spreadsheets to conceal his false accounting entries. After ProQuest disclosed the accounting scheme in its public filings, the SEC alleged that ProQuest lost over $437 million in market capitalization. ProQuest’s stock price dropped from $29.41 to $12.31 per share between February and April 2006. Finally, the SEC alleged that ProQuest failed to devise and maintain a system of internal accounting controls that could have prevented Hirth’s scheme and failed to properly apply other basic accounting principles during this period.</p>
<p align= justify >ProQuest and Hirth consented to the settlement of this action without admitting or denying the allegations of the SEC’s complaint. Under the settlement, Hirth is permanently enjoined from committing future violations of the federal securities laws, and he will pay disgorgement of $233,676.00, prejudgment interest of $54,474.25 and a civil penalty of $130,000, and consent to be permanently barred from serving as an officer and director of a public company and from practicing as an accountant before the SEC. ProQuest is permanently enjoined from future violations of the internal controls, books and records, and reporting provisions of the federal securities laws.</p>
<p style= text-align: justify; ><strong>11/13/2007 - Lawsuit</strong></p>
<p style= text-align: justify; >According to an article November 13, 2007, Judge Avern Cohn of the Eastern District of Michigan last week denied ProQuest and its executives’ motions to dismiss the case, ruling that the company’s shareholders had provided sufficient evidence to let the case proceed. The suit, which consolidated four shareholder cases, accused the publishing company of failing to have adequate accounting controls which led to earnings restatements and stock price plunges.</p>
<p style= text-align: justify; >On May 2, 2006, the Court entered the Stipulation and Order U.S. District Judge Avern Cohn granting the motion to consolidate the related actions and to appoint lead plaintiffs and to approve lead plaintiffs’ choice of co-lead counsel. On July 17, 2006, the plaintiffs filed a Consolidated Class Action Complaint. The defendants responded by filing motions to dismiss the Consolidated Class Action Complaint.<br />The Plaintiffs allege that, during the class period, the Defendants issued materially false and misleading statements regarding the company’s business and financial results and that, as a result of these false statements, ProQuest stock traded at artificially inflated prices. Then, on February 9, 2006 ProQuest announced that it had discovered “material irregularities in its accounting” which would require it to restate certain of its previously issued financial statements. On this news ProQuest’s stock dropped 18%, from $29.41 to $24.19 per share. Then, on April 28, 2006, ProQuest disclosed information on the expected magnitude of the planned restatement and that it was also investigating the propriety of its revenue recognition policies. The market reacted to this second round of unexpected bad news by driving down ProQuest stock by 28%, from $21.72 to $15.70 per share.</p>
<p style= text-align: justify; >According to the complaint filed by the Plaintiffs, the Defendants knew or recklessly disregarded the true facts that were concealed from the public. The Plaintiffs allege that, during the class period, ProQuest’s reported financial results were not accurate because the company lacked adequate internal controls and because its financial statements were not prepared in accordance with Generally Accepted Accounting Principles (GAAP).<br />The original Complaint alleges defendants violated federal securities laws by issuing a series of materially false statements regarding ProQuest’s financial condition. Specifically, defendants concealed the following facts: (i) the Company lacked requisite internal controls, and, as a result, the Company’s projections and reported results were based upon defective assumptions and/or manipulated facts; and (ii) the Company’s financial statements were materially misstated due to its failure to properly defer income and royalty payments and its improper capitalization of royalty expenses, thereby overstating its revenue and income from at least 1999 to 2005.</p>
<p style= text-align: justify; >The complaint further alleges that on or around February 9, 2006, prior to the market opening, ProQuest announced that it had discovered material irregularities in its accounting and would have to restate certain of its previously issued financial statements. As a result of the irregularities, the Company’s deferred income and accrued royalty accounts were materially understated in previously issued financial statements and its prepaid royalty account was materially overstated. On this news, ProQuest’s stock fell almost 18% from the previous day’s close to close at $24.19 per share. During the Class Period, ProQuest traded as high as $37.89 per share on April 12, 2005.</p>
<p style= text-align: justify; >The lawsuit was filed on behalf of all persons who purchased or acquired the common stock of ProQuest Company during the Class Period, and including those who acquired ProQuest through its acquisition of Voyager Expanded Learning.</p>