AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER __, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MILLBROOK PRESS INC.
(Name of small business issuer in its charter)
DELAWARE 2731 06-1390025
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
2 OLD NEW MILFORD ROAD
BROOKFIELD, CONNECTICUT 06804
(203) 740-2220 (PHONE)
(203) 740-2526 (TELECOPY)
(Address and telephone number of principal executive offices)
2 OLD NEW MILFORD ROAD
BROOKFIELD, CONNECTICUT 06804
(Address of principal place of business or intended principal place of business)
FRANK J. FARRELL
THE MILLBROOK PRESS INC.
2 OLD NEW MILFORD ROAD
BROOKFIELD, CONNECTICUT 06804
(203) 740-2220 (PHONE)
(203) 740-2526 (TELECOPY)
(Name, address and telephone number of agent for service)
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COPIES TO:
STEVEN WOLOSKY, ESQ. DAVID ALAN MILLER, ESQ.
KENNETH A. SCHLESINGER, ESQ. RONIT V. FISCHER, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP GRAUBARD MOLLEN & MILLER
505 PARK AVENUE 600 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10016-1903
(212) 753-7200 (PHONE) (212) 818-8800 (PHONE)
(212) 755-1467 (TELECOPY) (212) 687-6989 (TELECOPY)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Shares of Common Stock, $.01 par value ("Common
Stock")(2)............................................ 1,725,000 $5.00 $8,625,000 $2,613.58
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Redeemable Common Stock Purchase Warrants, each
to purchase one share of Common Stock
("Warrants")(2)....................................... 1,725,000 .10 172,500 52.27
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Shares of Common Stock underlying the Warrants(3)(5)..... 1,725,000 4.50(4) 7,762,500 2,352.58
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Underwriter's Purchase Option ("Underwriter's Option")(5) 150,000 .00067 100 0.30
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Shares of Common Stock included as part of the
Underwriter's Option(5)............................... 150,000 5.50 825,000 250.00
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Warrants included as part of the Underwriter's Option(5). 150,000 .11 16,500 5.00
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Shares of Common Stock underlying the Warrants included
as part of the Underwriter's Option(5)................ 150,000 4.50 675,000 204.55
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Warrants issued to certain investors in connection with a
private placement(5).................................. 875,000 .10 87,500 26.52
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Shares of Common Stock underlying the Warrants issued to
certain investors in connection with a private
placement(5).......................................... 875,000 $4.50(4) 3,937,500 1,193.18
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Total................................................. $21,260,100 $6,442.45
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 225,000 shares of Common Stock which may be issued on exercise of
a 45-day option granted to the Underwriter to cover over-allotments, if
any. See "Underwriting."
(3) Includes 225,000 Warrants which may be issued on exercise of a 45-day
option granted to the Underwriter to cover over-allotment, if any. See
"Underwriting."
(4) Represents the exercise price of the Warrants.
(5) Pursuant to Rule 416, there are also being registered such indeterminable
number of additional securities as may be issued as a result of the
anti-dilution provisions.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER __, 1996
THE MILLBROOK PRESS INC. [LOGO]
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the 1,500,000 shares of common stock ("Common Stock") and 1,500,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby
(collectively, "Securities") are being sold by The Millbrook Press Inc.
("Company"). Each Warrant entitles the holder to purchase one share of Common
Stock for $4.50 during the four-year period commencing one-year from the date of
this Prospectus. The Company may redeem the Warrants once they become
exercisable at a price of $.01 per Warrant, at any time upon not less than 30
days prior written notice if the last sale price of the Common Stock has been at
least 155% of the then exercise price of the Warrant (initially $6.975) on 20 of
the 25 consecutive trading days ending on the third day prior to the date on
which notice is given. See "Description of Securities."
Prior to this Offering, there has been no public market for the Securities and
there can be no assurance that any such market will develop. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price of the Securities and the exercise price of the Warrants.
The Company has applied for quotation of the Common Stock and the Warrants on
the Nasdaq SmallCap Market under the symbols "MILB," and "MILBW," respectively.
---------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AT PAGE 9 HEREOF AND "DILUTION" AT PAGE 16 HEREOF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=========================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
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Per Share............ $5.00 $.50 $4.50
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Per Warrant.......... $.10 $.01 $.09
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Total(3)............. $7,650,000 $765,000 $6,885,000
=========================================================================
(1) Does not include a 3% nonaccountable expense allowance which the Company
has agreed to pay to the Underwriter. The Company has also agreed to sell
to the Underwriter an option ("Underwriter's Purchase Option") to purchase
150,000 shares of Common Stock and/or 150,000 Warrants and to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended ("Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $229,500 ($263,925 if the
Underwriter's over-allotment option is exercised in full), estimated at
approximately $560,000.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 225,000 additional
shares of Common Stock and/or 225,000 Warrants on the same terms set forth
above, solely for the purpose of covering over-allotments, if any. If such
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$8,797,500, $879,750 and $7,917,750, respectively. See "Underwriting."
This Prospectus also relates to the offer and sale by certain persons ("Selling
Securityholders") of Warrants issued to the Selling Securityholders in
connection with the Company's August 1996 bridge financing ("Bridge Financing").
The Warrants offered by the Selling Securityholders are not part of this
underwritten Offering and the Company will not receive any of the proceeds from
the sale of such Warrants. Without the prior consent of the Underwriter, the
Selling Securityholders may not sell such Warrants for a period of one year from
the date of this Prospectus.
<PAGE>
The Securities are being offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify this Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities will be made against payment therefor
at the offices of the Underwriter in New York City on or about _________, 1996.
GKN SECURITIES
_________, 1996.
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<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON
STOCK OR WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
This Prospectus includes references to trademarks of entities other
than the Company, which have reserved all rights with respect to their
respective trademarks.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS
BEEN ADJUSTED TO REFLECT (I) A REVERSE STOCK SPLIT OF THE COMMON STOCK ON THE
BASIS OF .3976 SHARES OF COMMON STOCK FOR EACH SHARE OF COMMON STOCK ("REVERSE
STOCK SPLIT") EFFECTED IN AUGUST 1996 AND (II) THE CONVERSION OF ALL OUTSTANDING
SERIES A REDEEMABLE VOTING PREFERRED STOCK ("PREFERRED STOCK") AND ALL ACCRUED
AND UNPAID DIVIDENDS THEREON INTO 473,692 SHARES OF COMMON STOCK (POST-REVERSE
STOCK SPLIT), IN ACCORDANCE WITH THE COMPANY'S ARTICLES OF INCORPORATION
("PREFERRED STOCK CONVERSION"), UPON THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART. CERTAIN OF THE INFORMATION
CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING
INFORMATION UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND RELATED STRATEGY AND FINANCING, ARE
FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS,
SEE "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
THE COMPANY
The Company is a publisher of nonfiction children's books, in both
hardcover and paperback, for the school and public library market and the
consumer market. Since its inception, the Company has published more than 560
hardcover and 310 paperback books under its Millbrook and Copper Beech imprints.
The Company's books have been placed on numerous recommended lists by libraries,
retail bookstores and educational organizations. The Company believes it has
established a reputation for publishing books which have high quality content
and design and believes it has been a leader in the development of books that
appeal to both the school and public library and consumer markets. The Company's
books have evolved from information-intensive school and library books to its
current mix of highly-graphic, consumer-oriented books. As a result, many of the
Company's books are distributed throughout the United States to the school and
public library market as hardcover books while being simultaneously distributed
to retail bookstores and other specialty retail, direct sales and special market
outlets as either hardcover or paperback books. The Company achieves this
crossover by producing books with attractive layouts, illustrations and covers
that are also informationally rich.
The evolution in the Company's products anticipated changes in the
book-publishing industry. In the early 1990s there was only marginal increases
in the amount of funds allocated to book acquisition by schools and public
libraries. Conversely, the consumer market became a steady source of sales not
only for newly-published books, but also for previously published books
("backlist"). The consumer market for children's books increased from
approximately $910 million in 1986 to an expected and approximate $2,396 million
in 1996. In addition, paperbacks have become a significant factor in the school
and library market as well as the classroom marketplace as a supplemental
teaching and learning tool. In 1995, the Company began selling books in
bookstores and other retail outlets with the introduction of a high-quality line
of consumer-oriented children's paperbacks under its Copper Beech imprint. These
paperbacks are created by Aladdin, Ltd. ("Aladdin"), a British book packaging
house affiliated with a principal stockholder of the Company. Many of these
paperbacks are designed to be bound as hardcover books and sold in additional
markets, thus possessing the same crossover attributes that the Company
incorporates in the books published under its Millbrook imprint. In addition, in
1995, the Company began leveraging its investment in its significant and growing
catalog of quality children's books over a broader base of distribution
channels, including wholesalers, telemarketers and direct sales.
In order to establish itself as a leading publisher of children's
books for the consumer market, the Company intends to: (i) publish preschool
novelty books, books for beginning readers and early readers, chapter books for
young readers and popular reference children's books; (ii) acquire companies or
develop strategic partnerships that broaden its product line and extend its
distribution in consumer market channels; (iii) expand its marketing
capabilities in the consumer market by increasing its in-house sales force and
management; and (iv) develop books that can be exploited through emerging
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<PAGE>
distribution channels in the consumer market, including special sales channels
such as book clubs, book fairs, direct sales, catalogs, direct mail, commercial
on-line services and the Internet. The Company believes that the high quality of
its books, its emphasis on publishing books for multiple markets and its
expanded distribution capabilities make it well-positioned to increase its books
sales to the consumer market while at the same time increasing its established
sales base in the school and public library market.
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<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered...................................... 1,500,000 shares of Common Stock and
1,500,000 Warrants. Each Warrant
entitles the registered holder thereof
to purchase one share of Common Stock at
a price of $4.50 per share during the
four- year period commencing one-year
from the date of this Prospectus. The
Company may redeem the Warrants once
they become exercisable at a price of
$.01 per Warrant, at any time upon not
less than 30 days prior written notice
if the last sale price of the Common
Stock has been 155% of the then exercise
price of the Warrants (initially $6.975)
on 20 of the 25 consecutive trading days
ending on the third day prior to the day
on which notice is given. See
"Description of Securities."
Common Stock Outstanding Prior to the Offering.......... 1,500,000 shares
Common Stock to be Outstanding After the Offering....... 3,000,000 shares
Proposed Nasdaq Symbols................................. Common Stock: MILB
Warrants: MILBW
Proposed Boston Stock Exchange Symbols.................. Common Stock: MIL
Warrants: MILW
</TABLE>
USE OF PROCEEDS
The Company intends to apply the net proceeds of this Offering
approximately as follows: (i) $2.55 million for product development; (ii) $1.8
million to repay in full the unsecured promissory notes ("Bridge Notes") of the
Company issued in the Bridge Financing; (iii) $750,000 for the enhancement of
marketing capabilities; (iv) $400,000 for accrued development, manufacturing and
royalty expenses to an affiliate of a principal stockholder; and (v) $800,000
for working capital and general corporate purposes. See "Use of Proceeds" and
"Certain Transactions."
RISK FACTORS
The Securities offered hereby involve a high degree of risk including
without limitation: history of losses; need for market acceptance of products;
dependence on key accounts; possible need for additional financing; potential
adverse impact of returns; seasonal business and quarterly fluctuations;
competition; and dependence on government funding. See "Risk Factors."
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
financial statements of the Company appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
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1995 1996
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STATEMENT OF OPERATIONS DATA:
Actual:
Actual Net sales..................................................... $ 6,866,000 $ 9,940,000
Operating loss....................................................... (613,000) (170,000)
Net loss............................................................. (806,000) (463,000)
Preferred dividend accrued........................................... (589,000) (656,000)
Net loss available to common stockholders............................ $(1,395,000) $(1,119,000)
Net loss per share after preferred dividend requirements
(primary and fully diluted)........................................ $ (1.60) $ (1.09)
Weighted average shares.............................................. 872,186 1,026,308
Pro forma(1):
Net loss available to common stockholders............................ $ (806,000) $ (463,000)
Net loss per share (primary and fully diluted)....................... $ (0.60) $ (0.31)
Weighted average shares.............................................. 1,345,878 1,500,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1996
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Pro Forma
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $12,574,000 $13,824,000 $17,785,000
Working capital......................................... 1,318,000 2,354,000 6,929,000
Total liabilities....................................... 5,533,000 6,760,000 4,633,000
Stockholders' equity.................................... $ 7,041,000 $ 7,064,000 $13,152,000
</TABLE>
(1) On the effective date of the Registration Statement, of which this
Prospectus is a part, all of the outstanding shares of the Company's
Preferred Stock and all accrued and unpaid dividends thereon will convert
into 473,692 shares of Common Stock in accordance with the Preferred Stock
Conversion after giving effect to the Reverse Stock Split.
(2) The pro forma balance sheet data as of July 31, 1996 gives effect to: (i)
the issuance of $1,750,000 of Bridge Notes, net of a discount of $23,000
relating to the valuation of the warrants ("Bridge Warrants") issued in
connection with the Bridge Financing, and (ii) the repayment of $500,000
of principal amount unsecured promissory notes ("Prebridge Notes") issued
in connection with a financing consummated in April 1996 ("Prebridge
Financing").
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<PAGE>
(3) The pro forma as adjusted balance sheet data as of July 31, 1996 gives
effect to: (i) the receipt of the net proceeds of approximately $6,325,000
from the sale of the Securities offered hereby, (ii) the repayment of the
Bridge Notes ($1,750,000) and the related effect of writing off the
financing costs relating to the Bridge Financing ($214,000) and the
discount on the Bridge Notes ($23,000), and (iii) the repayment of
manufacturing, development and royalty expenses under the Company's joint
venture with Aladdin ($400,000).
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT
GIVE EFFECT TO THE EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION OR THE
UNDERWRITER'S PURCHASE OPTION OR TO THE EXERCISE OF THE WARRANTS OFFERED HEREBY,
AND DOES NOT INCLUDE: (I) 475,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UPON EXERCISE OF STOCK OPTIONS WHICH MAY BE GRANTED UNDER THE COMPANY'S 1994
STOCK OPTION PLAN ("STOCK OPTION PLAN"), OF WHICH OPTIONS TO PURCHASE 390,000
SHARES OF COMMON STOCK ARE OUTSTANDING AND (II) 875,000 SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE UPON THE EXERCISE OF THE WARRANTS ISSUED IN EXCHANGE FOR
BRIDGE WARRANTS ISSUED IN CONNECTION WITH THE BRIDGE FINANCING. See
"Management-- Executive Compensation" and "--Stock Option Plan," "Certain
Transactions," "Principal Stockholders" and "Description of Securities--
Warrants."
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<PAGE>
THE COMPANY
The Company, incorporated in Delaware in February 1994, was founded
by Howard Graham, Frank J. Farrell and Jean E. Reynolds. The Company was the
successor to The Millbrook Press Inc., incorporated in 1989, whose financial
support was provided by Group de la Cite International ("GLC"), a French
publishing conglomerate. From 1989 until February 1994, The Millbrook Press Inc.
was a wholly-owned subsidiary of Antia Publishing Company, a Delaware
corporation, which in turn was a wholly-owned subsidiary of GLC. In February
1994, the founders effected a management buyout by forming the Company which
purchased substantially all of the assets of The Millbrook Press Inc. Unless
otherwise indicated, references to the Company also includes its predecessor.
The Company and its executive offices are located at 2 Old New Milford Road,
Brookfield, Connecticut 06804, its telephone number is (203) 740-2220 and its
Worldwide Web site address is www.neca.com/mall/millbrook.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK. ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE
SECURITIES, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH THE
OTHER MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS.
HISTORY OF LOSSES. The Company has incurred significant losses since
the management buyout in February 1994. For the fiscal years ended July 31, 1995
and July 31, 1996, the Company had net losses of $806,000 and $463,000,
respectively. The ability of the Company to achieve profitability in the future
or, if achieved, to sustain profitability, will depend in part upon the
successful and timely introduction of new products, the successful marketing of
its existing products and the Company's ability to collect trade receivables in
a timely manner. There can be no assurance that the Company will be able to
sustain net sales in the future or achieve profitability irrespective of the
level of net sales. The Company will incur additional marketing and
administrative expenses in 1997 and expenses relating to one-time charges in the
fiscal quarter in which this Offering occurs, for financing costs relating to
the Bridge Financing and the discount on the Bridge Notes, which the Company
anticipates could result in a net loss for the fiscal year ending July 31, 1997.
See "Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED FOR MARKET ACCEPTANCE OF PRODUCTS. The nature of the publishing
industry is that net sales derived from more successful books will be used to
cover the costs of development and production of less successful books. While
the Company experienced an approximately 45% increase in net sales from the
fiscal year ended July 31, 1995 to the fiscal year ended July 31, 1996, there
can be no assurance that this growth will continue. The Company's continued
success depends on the timely introduction of successful new books and sequels
or updates to existing books to replace declining net sales from older books.
Although the Company intends to make substantial investments in product
development each year and is continually seeking new product opportunities,
there can be no assurance that any of the Company's new books will achieve
market acceptance or that, if accepted, such acceptance will be sustained for a
period long enough to recoup costs or realize profits. If market acceptance is
not sustained, the Company may be required to write-down unsold excess inventory
and/or accept substantial product returns to maintain access to its distribution
channels. See "Business -- Company Strategy," "-- Product Development" and "--
Competition."
DEPENDENCE ON KEY ACCOUNTS. Approximately 66% of the Company's sales
in the school and public library market in the fiscal year ended July 31, 1996
(or 45% of the Company's net sales) were from wholesale accounts. One such
wholesale account, Baker & Taylor, accounted for approximately 37% of total
wholesale sales attributable to the Company's school and public library business
in the fiscal year ended July 31, 1996 (or 17% of the Company's net sales).
Approximately 31% of the Company's sales in the consumer market in the fiscal
year ended July 31, 1996 (or 9% of the Company's net sales) were from wholesale
accounts. One such wholesale account, Ingram Book Company ("Ingram"), accounted
for approximately 56% of total wholesale sales attributable to the Company's
consumer business in the fiscal year ended July 31, 1996 (or 5% of the Company's
net sales). The Company expects to continue to depend on a relatively small
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<PAGE>
number of wholesalers for a significant percentage of its sales particularly
since a relatively small number of wholesalers in the publishing industry
account for a significant portion of wholesale sales. The Company has no
contracts with any of such wholesalers and significant reductions in sales to
any one or more of the Company's largest wholesalers would have a material
adverse effect on the Company's results of operations. See "Business --
Marketing and Distribution."
POSSIBLE NEED FOR ADDITIONAL FINANCING. Management believes that the
net proceeds of this Offering, together with the Company's existing resources
and cash generated from its operations, if any, will be adequate for the
Company's cash requirements through approximately July 31, 1998. However, there
can be no assurance that the Company's working capital requirements during this
period will not exceed its available resources or that these funds will be
sufficient to meet the Company's longer-term cash requirements. Accordingly,
either before or after July 31, 1998, the Company may seek additional funds from
borrowings or through debt or equity financings. There can be no assurance that
any additional financing will be available to the Company on acceptable terms,
if at all, when required by the Company. Any inability by the Company to obtain
additional financing, if required, could have a material adverse effect on the
financial condition and results of operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Use of Proceeds."
POTENTIAL ADVERSE IMPACT OF RETURNS. The practice in the publishing
industry is to permit customers, including wholesalers and retailers, to return
merchandise. The Company gives a credit for books that are returned and
establishes reserves as a deduction from gross sales for returns. Historically,
returns have been approximately 8% of the Company's gross sales to school and
public library wholesalers. For the fiscal year ended July 31, 1996, consumer
sales returns were approximately 17% of gross consumer sales. The rate of return
can have a significant impact on quarterly results since certain wholesalers
have in the past returned a large quantity of products at one time irrespective
of marketplace demand for such products, rather than spreading out the returns
during the course of the year. In both the school and public library and
consumer markets, the Company now offers a preferential discount for
non-returnability, an option being taken by an increasing number of customers.
Although the Company believes its reserves have been adequate to date, there can
be no assurance that returns by customers in the future will not exceed these
historical levels or that the actual returns will not exceed the amount of
reserves in the future. In the event that the amount of reserves proves to be
inadequate, the Company's results of operation and financial condition will be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SEASONAL BUSINESS; QUARTERLY FLUCTUATIONS. A substantial portion of
the Company's business is highly seasonal, causing significant variations in
operating results from quarter to quarter. In the fiscal year ended July 31,
1996, 69% of total net sales were derived from the school and public library
market. In the school and public library market, net sales typically tend to be
lowest in the second calendar quarter and highest in the third calendar quarter,
as schools purchase heavily in anticipation of opening in September. In the
fiscal year ended July 31, 1996, 29% of total net sales came from the consumer
market. The consumer market also tends to be highly seasonal and, given the
importance of holiday gift sales, a large proportion of net sales can occur in
the third quarter in anticipation of the holiday gift season. The Company
exercises very little control over the timing of customer orders, particularly
those of wholesalers, thus orders anticipated in the second calendar quarter,
for example, may fall into the third calendar quarter, thereby affecting both
quarters' results. In addition, even when customer orders are placed, such
orders generally are cancelable at any time without penalty. Due to the long
product development cycle of books (nine to 18 months), the Company generally
must enter into product development commitments prior to having firm orders. The
financial results in any quarter where sales fall below the Company's
expectations will be negatively impacted as expenses based on those expectations
have already been incurred in advance of actual receipt of orders. As a result,
there can be no assurance that the Company can maintain sufficient flexibility
with respect to its working capital needs and its ability to manufacture
products to be able to minimize the adverse effects of an unanticipated
shortfall in or greater than expected demand for its products. Failure to
predict accurately and respond to consumer demand may cause the Company to
produce excess inventory which could result in write-offs. Conversely, if a
product achieves greater success than anticipated, the Company may not have
sufficient inventory to meet customer demand. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION. Children's book publishing in the school and public
library market and in the consumer market is fragmented and highly competitive.
There are many publishers in the school and public library market who publish
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<PAGE>
materials similar to the Company's product offerings. The Company also competes
with a large number of other publishers for retail shelf space in large
bookstore chains such as Barnes & Noble, Inc., Borders, Inc. and Waldenbooks,
Inc. A number of these competitors have considerably greater financial and
marketing resources than the Company. In addition to competition among like
types of publishing programs, the overall competition for limited educational
budgets is intense when other producers of materials used in classrooms and
libraries are included, especially producers and distributors of electronic
hardware and software. Increased competition may result in the loss of school
and public library accounts, loss of shelf space for the Company's books at
retail stores and significant price competition, any of which could adversely
affect the Company's operating results. See "Business -- Industry Background"
and "-- Competition."
DEPENDENCE ON GOVERNMENT FUNDING. The majority of the school and
public library funding for is dependent on government funding from federal,
state and local authorities. Budget deficits affecting these three levels of
government have limited the availability of funding for school libraries and
educational programs. The school library market is especially affected by budget
cutbacks as library expenditures and needs are typically considered less
important than the expenditures and needs of the classroom. Continued restraints
in the future on federal, state and local support for educational funding could
have an adverse effect on the Company's financial condition and results of
operations. See "Business -- Industry Background."
DEPENDENCE ON QUALIFIED PERSONNEL; DEPENDENCE ON MANAGEMENT. The
ability to attract and retain highly competent executives, professionals, sales
personnel and other employees is critical to the ongoing success of the Company.
A stable and skilled work force is essential to establishing and maintaining
relationships with authors, illustrators, vendors and customers and such
relationships are critical to the Company's long-term growth. The Company has
not experienced any difficulties in attracting and retaining qualified
personnel, although there can be no assurance that it will not encounter such
problems in the future. In particular, the Company's operations are dependent on
the efforts of Jeffrey Conrad (the newly-appointed Chief Executive Officer and
President), Jean E. Reynolds (Senior Vice President - Publisher), Frank J.
Farrell (Vice President and Secretary) and Howard Graham (Vice President). The
Company has employment agreements with Mr. Conrad and Ms. Reynolds which expire
in October 1999 and two years after the date of this Prospectus, respectively.
The Company has consulting agreements with Mr. Farrell and Mr. Graham, both of
which expire in December 1998. The Company has obtained a "key person" insurance
policy on the life of Mr. Conrad in the amount of $1,000,000 under which the
Company is the beneficiary. The loss of the services of any one of the above
named persons could have a material adverse effect on the Company. See
"Management."
DEPENDENCE ON CO-PUBLISHING RIGHTS/RELATIONSHIPS. The Company sells,
as part of its catalog of titles, books developed by its own editorial staff and
authors, books fully developed by other publishers and purchased by Millbrook,
as well as books co-developed by Millbrook and other publishers as a way of
spreading production costs and risks. Such multiple sourcing utilizes a broad
band of creative talent to generate book concepts through finished books.
Approximately 20% of the Company's net sales in the fiscal year ended July 31,
1996 were derived from products sourced from outside publishers and packagers.
Competition for these arrangements is substantial and the Company competes
directly with larger companies having greater financial and marketing resources.
Although the Company has been successful in developing such relationships in the
past, there can be no assurance that it will continue to enjoy such success in
the future. See "Business -- Company Strategy" and "-- Product Development."
DEPENDENCE ON QUALITY AUTHORS, ILLUSTRATORS. The ability to attract
successful and highly qualified authors and illustrators is critical to the
ongoing success of the Company. Competition for this type of personnel is
intense and authors and illustrators have many options in terms of publisher
affiliation. The Company has been successful in developing long-term
relationships with a number of excellent authors and illustrators in the past,
but there can be no assurance that the Company can continue to retain superior
quality authors and illustrators in the future. See "Business -- Company
Strategy" and "-- Product Development."
DEPENDENCE ON THIRD PARTY MANUFACTURERS; ABILITY TO OFFSET
MANUFACTURING COSTS. The Company's books are printed and bound by third-party
manufacturers and therefore the Company does not have direct control over the
quality of manufacturing of its books. Additionally, third party manufacturers
pass on certain costs, including paper costs, to the
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Company. The Company requires substantial amounts of high-quality paper to
manufacture its products and in periods of short supply, competition for paper
can be substantial, increasing the cost of manufacturing. To cover such costs,
the Company has been successful in raising prices of its books in the past, but
there can be no assurance that the Company will be able to raise prices in the
future. Management believes that current arrangements for the manufacture of the
Company's books are satisfactory for the Company's anticipated requirements.
Nevertheless, there can be no assurance that in the future these third parties'
manufacturing capacities will be sufficient to satisfy the Company's
requirements, that interruptions or delays in manufacturing will not adversely
affect the Company's operations, or that alternative manufacturing sources will
be available to the Company on commercially reasonable terms or at all. In
particular, due to the short-run nature of the Company's manufacturing needs,
the Company is restricted to a select list of specialty book manufacturers.
Currently, Worzalla Publishing Inc. ("Worzalla") manufactures approximately 60%
of the Company's books. The Company has no contract with Worzalla and while the
Company believes that other specialty book manufacturers would be available, if
necessary, the inability of the Company to obtain adequate printing for its
books at favorable prices, or at all, could have a material adverse effect on
the Company's results of operations. See "Business -- Manufacturing and
Shipping."
SIGNIFICANT PORTION OF PROCEEDS USED TO SATISFY INDEBTEDNESS; BENEFIT
TO AFFILIATES; BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $1.8
million or 29% of the net proceeds received by the Company from this Offering
will be used to repay the Bridge Notes and accrued interest, of which
approximately $513,000 will be repaid to entities which are 5% stockholders of
the Company and affiliated with certain directors of the Company and
approximately $400,000 or 6% of the net proceeds of the Offering will be used to
satisfy payables and accrued product development expenses in connection with the
Company's joint venture with Aladdin, an affiliate of an entity that is a
principal stockholder of the Company, under the terms of its joint venture with
the Company. In addition, approximately 800,000 or 13% of the net proceeds of
the Offering has been allocated to working capital and general corporate
purposes. The Company will have broad discretion regarding how and when such
proceeds will be applied and will use a portion of such proceeds to pay
salaries, including salaries of its executive officers. See "Use of Proceeds"
and "Certain Transactions."
DEPENDENCE ON CREDIT FACILITY. The Company entered into a Loan and
Security Agreement with People's Bank in December 1995 ("Loan and Security
Agreement"). Under the terms of the Loan and Security Agreement, People's Bank
has taken a first priority security interest in substantially all of the
Company's assets. Although the Company has not been in default under its Loan
and Security Agreement, in anticipation of the Bridge Financing and this
Offering and in order to continue to comply with certain covenants of the Loan
and Security Agreement, the Company obtained from People's Bank a waiver of
certain financial covenants in the Loan and Security Agreement until December
31, 1996. In the event that the Company is in default under the Loan and
Security Agreement in the future or is unable to repay or refinance such loan
upon maturity, People's Bank could foreclose its lien which would have a
material adverse effect on the Company. As of July 31, 1996, and as of the date
of this Prospectus, the Company had borrowings outstanding of approximately $2.7
million under the Loan and Security Agreement, which is the maximum credit line
available under the Loan and Security Agreement. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
MANAGEMENT OF GROWTH. The Company has experienced significant growth
in recent years, and this growth has placed significant demands on the Company's
management, operational and financial resources. In addition, the Company has
recently hired a new Chief Executive Officer and President, Jeffrey Conrad, and
will be appointing a new Chief Financial Officer. There can be no assurance that
the Company's new management will be successfully integrated into the business
of the Company or if the Company continues to grow, that management will be
effective in attracting and retaining additional qualified personnel, expanding
the Company's physical facilities, integrating acquired businesses or otherwise
managing growth. If the Company is unable to manage growth effectively, the
Company's business, financial condition and operating results could be
materially adversely affected. See "Business" and "Management."
CONTROL BY CURRENT STOCKHOLDERS, OFFICERS AND DIRECTORS. The
Company's current principal stockholders, directors and officers, and certain of
their affiliates, will beneficially own approximately 45% of the outstanding
Common Stock immediately after this Offering and will have significant influence
over the outcome of all matters submitted to the stockholders for approval,
including the election of directors of the Company, thereby enabling such
current principal stockholders, directors and officers, and their affiliates to
control all major decisions of the Company. Furthermore, such
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concentration of ownership may have the effect of preventing a change in control
of the Company. See "Principal Stockholders" and "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Securities
offered hereby will incur an immediate and substantial dilution of approximately
35% of their investment in the Common Stock because the pro forma net tangible
book value of the Company's Common Stock after this Offering will be
approximately $3.29 per share as compared with the initial public offering price
of $5.00 per share of Common Stock and $.10 per Warrant. See "Dilution."
NO PRIOR MARKET; POTENTIAL LOSS OF ACTIVE TRADING MARKET; ARBITRARY
OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE. There has been no prior
market for the Company's Common Stock or Warrants, and there can be no assurance
that a public market for the Common Stock or the Warrants will develop or be
sustained after the Offering. The Company's Common Stock and Warrants have been
approved for trading on the Nasdaq SmallCap Market ("Nasdaq") although there can
be no assurance that an active trading market in the Securities will develop or
be maintained. To continue to be listed on Nasdaq after the Offering, the
Company must satisfy certain maintenance criteria. The failure to meet these
maintenance criteria in the future may result in the Common Stock or Warrants
not being eligible for quotations on Nasdaq and trading, if any, of the Common
Stock and the Warrants would thereafter be conducted on the OTC Bulletin Board.
As a result of such ineligibility for quotations, an investor may find it more
difficult to dispose of, or obtain accurate quotations as to the market value of
the Common Stock or the Warrants. The public offering prices of the Securities
and the exercise price and other terms of the Warrants being offered hereby were
established by negotiation between the Company and the Underwriter and may not
be indicative of prices that will prevail in the trading market. In the absence
of an active trading market, purchasers of the Common Stock or the Warrants may
experience substantial difficulty in selling their securities. The trading price
of the Company's Common Stock and Warrants is expected to be subject to
significant fluctuations in response to variations in quarterly operating
results, changes in analysts' earnings estimates, general conditions in the
publishing industry and other factors. In addition, the stock market is subject
to price and volume fluctuations that affect the market prices for companies and
that are often unrelated to operating performance. See "Description of
Securities" and "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Company may
redeem the Warrants once they become exercisable, at a price of $.01 per
Warrant, at any time upon not less than 30 days prior written notice if the last
sale price of Common Stock has been at least 155% of the then exercise price of
the Warrants (initially $6.975) on 20 of the 25 consecutive trading days ending
on the third day prior to the date on which notice is given. Notice of
redemption of the Warrants could force the holders to exercise the Warrants and
pay the exercise price at a time when it may be disadvantageous for them to do
so, to sell the Warrants at the current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price which would be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities -- Warrants."
NO DIVIDENDS. The Company has never paid cash dividends on its Common
Stock. The Company intends to retain any future earnings to finance its growth.
Accordingly, any potential investor who anticipates the need for current
dividends from an investment in the Common Stock should not purchase any of the
Securities offered hereby. In addition, the Loan and Security Agreement limits
the Company's ability to pay dividends without the lender's consent. See
"Dividend Policy."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO
EXERCISE WARRANTS. The Company will be able to issue shares of its Common Stock
upon exercise of the Warrants only if there is then a current prospectus
relating to such Common Stock, and only if such Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of the Warrants reside. The Company
has undertaken and intends to file and keep current a prospectus which will
permit the purchase and sale of the Common Stock underlying the Warrants, but
there can be no assurance that the Company will be able to do so. Although the
Company intends to seek to qualify for sale the shares of Common Stock
underlying the Warrants in those states in which the securities are to be
offered, no assurance can be given that such qualification will occur. The
Warrants may be deprived of any value and the market for the Warrants may be
limited if a current prospectus covering the Common Stock issuable upon the
exercise of
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<PAGE>
the Warrants is not kept effective or if such Common Stock is not qualified or
exempt from qualification in the jurisdictions in which the holders of the
Warrants reside. See "Description of Securities -- Warrants."
WARRANT PRICE AND EFFECT ON TRADING PRICE OF COMMON STOCK. The
Warrants being offered hereby have an exercise price below the initial offering
price of the Common Stock. It therefore may be possible that a substantial
number of the Warrants may be exercised in the future. Such exercise would be
dilutive to the net tangible book value of the Common Stock being offered
hereby. In addition, purchasers in the public offering may be willing to sell
their Common Stock into the public market at prices less than the initial
offering price because of gains in the market price of or realized on the sale
or exercise of their Warrants. Such sales could adversely affect the public
market price of the Common Stock.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Immediately after this
Offering, there will be outstanding stock options pursuant to the Stock Option
Plan to purchase an aggregate of 390,000 shares of Common Stock at a per share
exercise price equal to the Offering Price of the Common Stock. In addition,
there will be outstanding 2,375,000 Warrants, including 875,000 Warrants issued
in exchange for the Bridge Warrants. The exercise of such outstanding stock
options and Warrants, and the Underwriter's Purchase Option (and the warrants
included therein) will dilute the percentage ownership of the Company's
stockholders, and any sales in the public market of Common Stock underlying such
stock options, Warrants and the Underwriter's Purchase Option (and the warrants
included therein) may adversely affect prevailing market prices for the Common
Stock. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of such
outstanding securities can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in such stock options,
Warrants and the Underwriter's Purchase Option. In addition, the Company has
granted certain demand and piggy-back registration rights to the Underwriter
with respect to the securities issuable upon exercise of the Underwriter's
Purchase Option. See "Management -- Stock Option Plan," "Certain Transactions,"
"Description of Securities" and "Underwriting."
FUTURE SALES OF COMMON STOCK. Sales of the Company's Common Stock in
the public market after this Offering by existing stockholders could adversely
affect the market the market price of the Common Stock or the Warrants. See
"Shares Eligible for Future Sale."
ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS; Pursuant to
its Certificate of Incorporation, as amended, the Company has an authorized
class of 1,000,000 shares of preferred stock which may be issued by the Board of
Directors on such terms and with such rights, preferences and designations as
the Board may determine without any vote of the stockholders. Issuance of such
preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company. Issuance of additional shares of Common Stock could
result in the dilution of the voting power of the Common Stock purchased in this
Offering. In addition, certain "anti-takeover" provisions of the Delaware
General Corporation Law, among other things, may restrict the ability of the
stockholders to expect a merger or business combination or obtain control of the
Company. See "Description of Securities -- Preferred Stock."
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS. This Prospectus
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), which are intended to be covered by the safe harbors
created thereby. Investors are cautioned that all forward-looking statements
involve risks and uncertainty, including without limitation, the ability of the
Company to implement its strategy and identify new market and product
opportunities, product development costs, future return rates of the Company's
products, the dependence of the Company on certain customers and manufacturers,
as well as general market conditions, competition and pricing. Although the
Company believes that the assumptions underlying the forward- looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
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<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share of Common Stock
after this Offering constitutes the dilution per share of Common Stock to
investors in this Offering. Net tangible book value per share is determined by
dividing the net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock. Pro forma net
tangible book value per share at July 31, 1996 in the following discussion and
tables gives effect to the Bridge Financing as if it occurred as of July 31,
1996. The following discussion and tables allocate no value to the Warrants.
As of July 31, 1996, the Company had a pro forma net tangible book
value of $3,558,000, or approximately $2.37 per share of Common Stock (based on
1,500,000 shares of Common Stock outstanding at July 31, 1996). After giving
effect to the sale of the Securities offered hereby (less underwriting discounts
and estimated expenses of this Offering) and the application of the net proceeds
therefrom, the pro forma net tangible book value at that date would have been
$9,860,000, or approximately $3.29 per share. This represents an immediate
increase in pro forma net tangible book value of approximately $.92 per share to
existing stockholders and an immediate dilution of approximately $1.81 per share
or approximately 35% to investors in this Offering.
The following table illustrates the per share dilution without giving
effect to results of operations of the Company subsequent to July 31, 1996.
Public offering price of the Securities....................... $5.10
Pro forma net tangible book value before Offering... $2.37
Increase attributable to new investors.............. .92
Pro forma net tangible book value after Offering.............. 3.29
----
Dilution to new investors..................................... $1.81
=====
The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company, the amount and percentage of
consideration paid and the average price per share paid by existing stockholders
and by investors pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------------------- --------------------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------- ---------------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............ 1,500,000 50% $10,191,000 57% $6.79
Investors in this Offering....... 1,500,000 50 7,650,000 43 5.10
--------- ---- ----------- ---
Total................. 3,000,000 100% $17,841,000 100%
========= ==== =========== ===
</TABLE>
The foregoing analysis assumes no exercise of outstanding options or
the Warrants or the Underwriter's Purchase Option (and the Warrants included
therein). In the event any such options or warrants are exercised, the
percentage ownership of the investors in this Offering will be reduced and the
dilution per share of Common Stock to investors in this Offering will increase.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities
offered hereby are estimated to be approximately $6.3 million (approximately
$7.4 million if the Underwriter's over-allotment option is exercised in full).
The Company intends to apply the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
----------------------- ------ -------
<S> <C> <C>
Product Development....................................... $2,550,000 40.5%
Repayment of Bridge Notes................................. 1,800,000 28.6
Marketing Enhancements.................................... 750,000 11.9
Payable to an Affiliate................................... 400,000 6.3
Working Capital and General Corporate Purposes............ 800,000 12.7
---------------- -----------
Total................................... $6,300,000 100.0%
================ ===========
</TABLE>
Product development consists of expanding the Company's product lines
in the consumer market through publishing preschool novelty books, books for
beginning readers and early readers, chapter books for young readers and popular
reference children's books. See "Business -- Company Strategy."
The Bridge Notes were issued in connection with the Bridge Financing
consummated in August 1996. The Bridge Notes consist of 17 1/2 notes in the
aggregate principal amount of $1.75 million, bearing interest at the rate of 10%
per annum through November 30, 1996 and at a rate of 15% per annum thereafter
and payable upon the consummation of this Offering. If the Offering is
consummated in December 1996, the interest to be paid on the Bridge Notes will
be approximately $44,600. Approximately $513,000 of the principal and interest
to be repaid on the Bridge Notes are held by 5% stockholders and entities
affiliated with directors of the Company. The net proceeds from the sale of the
Bridge Notes have been used primarily for working capital purposes.
Marketing enhancements include (i) attracting and hiring marketing
management personnel to direct and focus the Company's marketing efforts, (ii)
increasing the use of direct mail, expanding the circulation of catalogs and
extending advertising programs, (iii) increasing the in-house sales force in the
consumer market and (iv) expanding the Company's telemarketing programs. See
"Business -- Company Strategy."
The Company has accrued development, manufacturing and royalty
expenses under its joint venture with Aladdin, an affiliate of Archon Press,
Inc., a principal stockholder of the Company, of which it will pay approximately
$400,000 out of the proceeds of this Offering. See "Certain Transactions."
Working capital and general corporate purposes may include, among
other things, payment of expenses incurred or to be incurred by the Company,
additional inventory and increases in accounts receivable, payment of general
corporate expenses (including the costs of being a public company), salaries of
additional financial and management personnel, salaries of executive officers,
and the costs of possible license or acquisition of fully-developed products or
businesses complementary to the Company's operations (although the Company is
not currently negotiating to acquire any business and has no commitments,
understandings or arrangements with respect to any such acquisition). If the
Underwriter exercises the over-allotment option in full, the Company will
realize additional net proceeds of approximately $1.1 million, which will also
be added to the Company's working capital.
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<PAGE>
Based on its current operating plan, the Company anticipates that the
proceeds of the Offering, together with existing resources and cash generated
from operations, if any, should be sufficient to satisfy the Company's
contemplated working capital requirements through July 31, 1998. There can be no
assurance, however, that the Company's working capital requirements during this
period will not exceed its available resources or that these funds will be
sufficient to meet the Company's longer term cash requirements for operations.
In the event the Company's plans or assumptions change or prove to be
inaccurate, or the proceeds of the Offering together with cash generated from
future revenues, if any, prove to be sufficient to fund operations (due to
unanticipated expenses, problems or otherwise), the Company may find it
necessary and/or advisable to reallocate some of the proceeds within the
above-described categories or to use portions thereof for other purposes and
therefore management will have significant discretion regarding how and when
such proceeds will be applied.
Proceeds not immediately required for the purposes described above
will be invested in United States government securities, short-term certificates
of deposit, money market funds or other short-term interest-bearing investments.
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CAPITALIZATION
The following table sets forth the short-term debt and capitalization
of the Company: (i) at July 31, 1996; (ii) pro forma at July 31, 1996 to give
effect to the Preferred Stock Conversion and the Bridge Financing; and (iii) pro
forma, as adjusted to give effect to the sale of the 1,500,000 shares of Common
Stock and 1,500,000 Warrants offered hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
JULY 31, 1996
-------------
PRO FORMA,
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
<S> <C> <C> <C>
Short-term debt................................................................ $2,742,000 $2,742,000 $2,742,000
========== ========== ===========
Long-term obligations.......................................................... 500,000 1,727,000 --
---------- ---------- -----------
Stockholders' equity:
12% Series A voting cumulative preferred stock, par value 0.01 per share;
10,000 shares authorized, 4,700 shares issued and outstanding; 1,000,000
shares authorized, no shares issued and outstanding pro
forma and pro forma as adjusted.............................................. 6,190,000(1) -- --
Common Stock, $.01 par value; 5,000,000 shares authorized;
12,000,000 shares authorized pro forma and pro forma, as adjusted; 1,026,308
shares issued and outstanding, actual; 1,500,000 shares issued and
outstanding on a pro forma basis;
3,000,000 shares issued and outstanding pro forma, as adjusted............. 10,000 15,000 30,000
Additional paid-in capital..................................................... 3,991,000 10,199,000 16,509,000
Accumulated deficit............................................................ (3,150,000) (3,150,000) (3,387,000)
---------- ---------- -----------
Total stockholders' equity................................................... 7,041,000 7,064,000 13,152,000
---------- ---------- -----------
Total capitalization....................................................... $7,541,000 $8,791,000 $13,152,000
========== ========== ===========
</TABLE>
(1) On the effective date of the Registration Statement, of which this
Prospectus is a part, all of the outstanding shares of the Company's
Preferred Stock and all accrued and unpaid dividends thereon will convert
into 473,692 shares of Common Stock in accordance with the Preferred Stock
Conversion after giving effect to the Reverse Stock Split.
(2) Gives effect to the issuance of the Bridge Notes, net of a discount
($23,000) relating to the valuation of the Bridge Warrants issued in
connection with the Bridge Financing, and the repayment of the Prebridge
Notes issued in connection with the Prebridge Financing.
(3) Gives effect to: (i) the receipt of the net proceeds of approximately
$6,325,000 from the sale of the Securities offered hereby, (ii) the
repayment of the Bridge Notes ($1,750,000) and the related effect of
writing off the financing costs relating to the Bridge Financing ($214,000)
and the discount on the Bridge Notes ($23,000).
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DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock and
it is currently the intention of the Company not to pay cash dividends on its
Common Stock for the foreseeable future. Management intends to reinvest
earnings, if any, in the development and expansion of the Company's business.
Any future declaration of cash dividends will be at the discretion of the Board
of Directors and will depend upon the earnings, capital requirements and
financial position of the Company, general economic conditions and other
pertinent factors. In addition, the Loan and Security Agreement limits the
Company's ability to pay dividends without the lender's consent.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION AND ANALYSIS BELOW SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES TO FINANCIAL STATEMENTS
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
GENERAL
In February 1994, the Company was incorporated and acquired the
assets of The Millbrook Press Inc., which had commenced operations in 1989.
Prior to January 1991, The Millbrook Press Inc. had no revenues and incurred
expenses related to administrative costs associated with the formation and
production of its first publication list. Subsequent to January 1991, The
Millbrook Press Inc. and the Company have had significant net sales to the
school and public library market. For the fiscal year ended July 31, 1996, the
Company's net sales increased by 45% to $9.9 million from $6.9 million in the
fiscal year ended July 31, 1995. This increase was primarily attributable to
increased sales to the consumer market and sales from the Company's backlist
(I.E., books that were previously published by the Company to be sold in the
school and public library market which have been bound as paperback or hardcover
books to be sold in consumer market). To date, however, the Company has had
continuing losses. These losses are primarily attributable to the costs
associated with expanding the Company's operations and developing and expanding
the Company's product line. In particular, the Company has incurred significant
expenses relating to the establishment of the infrastructure which can enable
the Company to sell books to the consumer market and/or develop books that can
appeal to both the school and public library market and the consumer market.
These expenses include establishing distribution channels and marketing the
Company's products. The Company believes that for the fiscal year ending July
31, 1997 net sales will increase due to its ability to produce books which can
appeal to both the school and public library market and the consumer market and
penetrate effectively into the consumer market. However, the Company anticipates
that additional marketing and administrative expenses, and financing costs
relating to one-time charges in the fiscal quarter in which this Offering occurs
for the write-off of costs relating to the Bridge Financing ($214,000) and the
discount on the Bridge Notes ($23,000), could result in a net loss for the
fiscal year ending July 31, 1997. Generally, the Company's general and
administrative, manufacturing support and product development costs do not vary
directly with net sales. Consequently, if net sales continue to increase in
accordance with the Company's expectations, the Company believes that it could
achieve profitability in periods subsequent to the fiscal year ending July 31,
1997. However, there can be no assurance that such net sales will increase in
accordance with the Company's expectations or that the Company will ever achieve
profitability.
CONSUMER MARKET COMPARED TO THE SCHOOL AND PUBLIC LIBRARY MARKET
In addition to an increase in net sales, as the Company sells more of
its products in the consumer market, its results of operations and financial
condition could be impacted by certain distinctions between the consumer market
and the school and public library market. For example, (i) it is generally more
difficult to collect receivables in the consumer market than in the school and
public library market, (ii) sales to the consumer market have a higher return
rate than sales to the school and public library market and accordingly the
Company will need to deduct a higher reserve for returns from its gross sales
and (iii) sales to the consumer market have a lower gross profit margin than
sales to the school and public library market because consumer sales have higher
sales discounts and promotional allowances than sales to the school and public
library market.
VARIABILITY IN QUARTERLY RESULTS
A substantial portion of the Company's business is highly seasonal,
causing significant variations in operating results from quarter to quarter. In
the school and public library market, net sales typically tend to be lowest in
the second calendar quarter and highest in the third calendar quarter, as
schools purchase heavily in anticipation of opening in
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September. The consumer market also tends to be highly seasonal and, given the
importance of holiday gift sales, a large proportion of net sales can occur in
the third calendar quarter in anticipation of the holiday gift season. The
Company expects its future net sales and operating results will reflect these
seasonal factors. In addition, the Company's quarterly operating results have
varied significantly depending on factors such as the timing of customer orders
and are likely to do so in the future. The Company exercises very little control
over the timing of customer orders, particularly those of wholesalers, thus
orders anticipated in the second calendar quarter, for example, may fall into
the third calendar quarter, thereby affecting both quarters' results. In
addition, even when customer orders are placed, such orders are generally
cancellable at any time. Due to the long product development cycle of books
(nine to 18 months), the Company generally must enter into product development
commitments prior to having firm orders. The financial results in any quarter
where net sales fall below Company expectations will be negatively impacted as
expenses based on those expectations have already been incurred in advance of
actual receipt of orders. In addition, there can be no assurance that the
Company can maintain sufficient flexibility with respect to its working capital
needs and its ability to manufacture products to be able to minimize the adverse
affects of an unanticipated shortfall in or greater than expected demand for its
products. Failure to predict accurately and respond to consumer demand may cause
the Company to produce excess inventory which could result in write-offs.
Conversely, if a product achieves greater success than anticipated, the Company
may not have sufficient inventory to meet customer demand.
SALES INCENTIVES AND RETURNS
In connection with the introduction of new books, many book
publishers, including the Company, discount prices of existing products, provide
certain promotional allowances and credits or give other sales incentives to its
customers. The Company intends to continue such practices in the future. In
addition, the practice in the publishing industry is to permit customers
including wholesalers and retailers to return merchandise. Most books not sold
may be returned to the Company and the Company gives a credit for such returned
books. The rate of return also can significantly impact on quarterly results
since certain wholesalers have in the past returned large quantities of products
at one time irrespective of market-place demand for such product, rather than
spreading out the returns during the course of the year. The Company computes
net sales by concurrently deducting a reserve for returns from its gross sales.
Return allowances may vary as a percentage of gross sales based on actual return
experience. The Company believes that as gross sales to the consumer market
increase as a proportion of its overall sales, returns will constitute a greater
proportion of net sales. Although the Company believes its reserves have been
adequate to date, there can be no assurance that returns by customers in the
future will not exceed historically-observed percentages or that the level of
returns will not exceed the amount of reserves in the future. In the event that
the amount reserved proves to be inadequate, the Company's operating results
will be adversely affected.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
statement of operations for the fiscal years ended July 31, 1995 and 1996, and
the relative percentage of net sales represented by certain income and expense
items:
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<TABLE>
<CAPTION>
Fiscal Years Ended July 31,
--------------------------------------------------------------------------
1995 1996
---------------------------- ------------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Net sales................................ $6,866 100.0% $9,940 100.0%
Cost of sales: 3,407 49.6 5,099 51.3
------ ------
Gross profit........................ 3,459 50.4 4,841 48.7
Operating expenses:
Selling and marketing............... 3,024 44.0 3,854 38.8
General and administrative.......... 1,051 15.3 1,205 12.1
------ ------
Total operating expenses...... 4,075 59.4 5,059 50.9
Operating loss........................... (616) (9.0) (218) (2.2)
Interest expense......................... 190 2.7 245 2.5
------ ------
Net loss................................. $ (806) (11.7) $ (463) (4.7)
======= =======
Preferred dividend accrual............... $ (589) (8.6)% $ (656) (6.6)%
</TABLE>
NET SALES. Net sales increased $3.0 million, or approximately 45%,
from $6.9 million for the fiscal year ended July 31, 1995 to $9.9 million for
the fiscal year ended July 31, 1996. This increase is primarily attributable to
increases in net sales to the consumer market which increased from $908,000 in
the fiscal year ended July 31, 1995 to $2.8 million in the fiscal year ended
July 31, 1996. In the fiscal year ended July 31, 1996, the Company published 55
books for the consumer market as opposed to 28 books for the consumer market in
the fiscal year ended July 31, 1995. The increase in the number of books was
primarily attributable to the increase of books published under the Company's
Copper Beech imprint and the crossover of books published under the Millbrook
imprint into the consumer market. Net sales in the school and public library
market increased from $5.5 million in the fiscal year ended July 31, 1995 to
$6.8 million in the fiscal year ended July 31, 1996. This increase is
attributable to the introduction and crossover of books published under the
Copper Beech imprint into the Company's traditional school and public library
market and sales from the Company's backlist.
COST OF SALES. Cost of sales increased $1.7 million, or approximately
50%, from $3.4 million in the fiscal year ended July 31, 1995 to $5.1 million in
the fiscal year ended July 31, 1996. Cost of sales were approximately 49.6% and
51.3% of net sales in the fiscal years ended July 31, 1995 and 1996,
respectively. Cost of sales increased as a percentage of net sales due primarily
to the terms and conditions of sales in the consumer market as opposed to the
school and public library market (I.E., consumer sales have higher discounts and
promotional allowances than sales to the school and public library market). This
increase was partially offset by the increase in net sales which has the effect
of deceasing amortization and depreciation costs as a percentage of net sales
since amortization and depreciation costs are relatively fixed for any one year.
Management anticipates that, while cost of sales will continue to be
significant, they should constitute a lower percentage of net sales in the
future.
SELLING AND MARKETING. Selling and marketing expenses increased
$830,000, or approximately 27%, from $3.0 million in the fiscal year ended July
31, 1995 to $3.8 million in the fiscal year ended July 31, 1996. This increase
is primarily attributed to increases in (i) commissions and salaries of
marketing personnel and (ii) warehousing and distribution costs. However, as a
percentage of net sales, selling and marketing expenses decreased from
approximately 44% in the fiscal year ended July 31, 1995 to 39% in the fiscal
year ended July 31, 1996. Management anticipates that while such
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expenses will be approximately 40% of net sales during the fiscal year ended
July 31, 1997, they should constitute a lower percentage of net sales beyond the
fiscal year ended July 31, 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $154,000, or approximately 15%, from $1.1 million in the fiscal year
ended July 31, 1995 to $1.2 million in the fiscal year ended July 31, 1996
primarily as a result of costs relating to additional personnel and the
Company's debt financings. However, as a percentage of net sales, general and
administrative expenses decreased from approximately 15% in the fiscal year
ended July 31, 1995 to 12% in the fiscal year ended July 31, 1996.
NET INTEREST AND OTHER EXPENSES. Net interest expense increased by
$55,000 or 29% from $190,000 in the fiscal year ended July 31, 1995 to $245,000
for the fiscal year ended July 31, 1996. Such increases are largely due to
higher average borrowings on the Company's line of credit.
INCOME TAXES. The Company has incurred cumulative net operating
losses for federal tax purposes of approximately $970,000. In the absence of an
ownership change as defined in the Internal Revenue Code of 1986, as amended
("Code"), these federal net operating losses would be available to reduce the
federal income taxes of the Company in the future, although such federal net
operating loss carry forward will expire in the years 2009 through 2011. Upon
the completion of this Offering utilization of the net operating loss carry
forwards may be subject to a substantial annual limitation due to the ownership
change limitations provided by the Code. The annual limitation may result in the
expiration of net operating loss carry forwards before utilization.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's internally generated cash flow has not
been sufficient to finance its operating expenses and working capital needs
including trade receivables, inventory, capital equipment requirements and new
product development, or to support operations. Due to the long product
development cycle of books (nine to 18 months), the Company generally must enter
into product development commitments prior to having firm orders. In addition,
the Company has experienced delays in obtaining external financing. As a result,
the Company has experienced working capital shortfalls in the past, which have
restricted the Company's ability to conduct and develop its business as planned.
The Company has historically not generated positive cash flows from operations
over any 12-month period since inception.
The Company has met its capital requirements to date in part through
borrowings under the Loan and Security Agreement. At July 31, 1996 and as of the
date of this Prospectus, the balance outstanding under the revolving credit
facility was approximately $2.7 million. The Company's credit line under the
Loan and Security Agreement is (i) fully utilized; (ii) currently secured by
substantially all of the Company's assets with advances based upon 80% of the
Company's eligible accounts receivables and 50% of the Company's inventory, with
this segment capped at $1.5 million of the total line of $2.7 million; and (iii)
partially guaranteed by Jean E. Reynolds, Howard Graham and Frank J. Farrell.
See "Certain Transactions." Although the Company has not been in default under
its Loan and Security Agreement, in anticipation of the Bridge Financing and
this Offering and in order to comply with certain covenants in the Loan and
Security Agreement, People's Bank has modified certain financial covenants in
the Loan and Security Agreement until December 31, 1996. The Company believes
that with the proceeds from this Offering it will be in compliance with the
covenants under the Loan and Security Agreement even after the modifications to
the covenants expire. The Loan and Security Agreement also restricts the ability
of the Company to obtain working capital in the form of indebtedness, other than
indebtedness incurred in the ordinary course of the Company's business, to grant
security interests in the assets of the Company or to pay dividends on the
Company's securities.
In addition to bank borrowings, the Company's principal sources of
capital since August 1, 1994 have been as follows:
(i) Between October 1994 and April 1995, the
Company issued an aggregate of 77,656 shares of
Common Stock to Archon Press for $500,000. See
"Certain Transactions."
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(ii) In June 1995, the Company issued an aggregate
of 155,437 shares of Common Stock to Applewood
Associates, L.P. ("Applewood"), 21st Century
Communications T-E Partners, L.P. ("21st T-E"),
21st Century Foreign Partners ("21st Foreign")
and 21st Century Communications Partners, LP
("21st Partners" and collectively with 21st T-E
and 21st Foreign) ("21st Century Funds") for an
aggregate purchase price of $1,000,000. See
"Certain Transactions."
(iii) In April 1996, the Company consummated the
Prebridge Financing by issuing the Prebridge
Notes. Applewood, 21st T-E, 21st Foreign and
21st Partners purchased $250,000, $57,000,
$23,000 and $170,000 principal amounts of the
Prebridge Notes, respectively. See "Use of
Proceeds", "Principal Stockholders" and
"Certain Transactions."
(iv) In August 1996, the Company received
approximately $1,036,000 in net proceeds from
the Bridge Financing, in which the Company
issued 17 1/2Bridge Units ("Bridge Units") at a
purchase price of $100,000 per Bridge Unit,
each Bridge Unit consisting of a $100,000
principal amount Bridge Note and 50,000 Bridge
Warrants each to purchase one share of Common
Stock at a purchase price of $4.50 per share.
Upon the effective date of the Offering, the
Bridge Warrants automatically convert into an
aggregate of 875,000 Warrants. As part of such
Bridge Financing, the Prebridge Notes were
converted into Bridge Units. The Bridge Notes
are in the aggregate principal amount of $1.75
million, bearing interest at the rate of 10%
per annum through November 30, 1996 and at a
rate of 15% per annum thereafter, with
principal and interest payable in full upon the
consummation of this Offering. The Bridge Notes
are being repaid out of the proceeds from this
Offering. See "Use of Proceeds," "Certain
Transactions," "Principal Stockholders" and
"Selling Stockholders."
As of July 31, 1996 the Company had $1,318,000 in working capital. At
such date, an aggregate of approximately $5.6 million (or 87.6%) of the
Company's total current assets consisted of accounts receivables and inventories
and the Company had accounts payable and accrued expenses of approximately $2.1
million, of which it was delinquent on approximately $1.3 million. Subsequent to
July 31, 1996 and as described above, the Company received an additional
$1,036,000 in net proceeds from the Bridge Financing. Based on its current
operating plan, the Company anticipates that the proceeds of the Offering,
together with existing resources and cash generated from operations, if any,
will be sufficient to satisfy the Company's contemplated working capital
requirements through approximately July 31, 1998. However, there can be no
assurance that the Company's working capital requirements will not exceed its
available resources or that these funds will be sufficient to meet the Company's
longer-term cash requirements for operations. Accordingly, either before or
after July 31, 1998, the Company may seek additional funds from borrowings or
through debt or equity financings.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are intended to be covered by the safe harbors created thereby.
Although the Company believes that the assumptions underlying the forward
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. Factors that
could cause actual results to differ from the results specifically discussed in
the forward-looking statements include, but are not limited to, those discussed
in "Risk Factors." In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of information should
not be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
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BUSINESS
OVERVIEW
The Company is a publisher of nonfiction children's books, in both
hardcover and paperback, for the school and public library market and the
consumer market. Since its inception, the Company has published more than 560
hardcover and 310 paperback books under its Millbrook and Copper Beech imprints.
The Company's books have been placed on numerous recommended lists by libraries,
retail bookstores and educational organizations. The Company believes it has
established a reputation for publishing books which have high quality content
and design and believes it has been a leader in the development of books that
appeal to both the school and public library and consumer markets. The Company's
books have evolved from information-intensive school and library books to its
current mix of highly-graphic, consumer-oriented books. As a result, many of the
Company's books are distributed throughout the United States to the school and
public library market as hardcover books while being simultaneously distributed
to the consumer market as either hardcover or paperback books. The consumer
market in children's books consists of books purchased by consumers through
traditional book distribution channels which consists of trade bookstores such
as Barnes & Noble and Waldenbooks and educational chain stores such as Zany
Brainy and Learningsmith, Inc. as well as non-traditional distribution channels
which consist of direct sales, catalogs, direct mail, book clubs, book fairs,
retail stores such as TJ Maxx, and on a smaller scale, certain museums, national
parks, historical sites, theme parks, gift shops and toy stores. The Company
achieves this crossover by producing books with attractive layouts,
illustrations and covers that are also informationally rich.
In order to establish itself as a leading publisher of children's
books for the consumer market, the Company intends to: (i) begin publishing
preschool novelty books, books for beginning readers and early readers, chapter
books for young readers and popular reference children's books; (ii) acquire
companies or develop strategic partnerships that broaden its product line and
extend its distribution in consumer market channels; (iii) expand its marketing
capabilities in the consumer market by increasing its in-house sales force and
management; and (iv) develop books that can be exploited through emerging
distribution channels in the consumer market, including special sales channels
such as book clubs, book fairs, direct sales, catalogs, direct mail, commercial
on-line services and the Internet. The Company believes that the high quality of
its books, its emphasis on publishing books for multiple markets and its
expanded distribution capabilities makes it well-positioned to increase its
books sales to the expanding consumer market while at the same time increasing
its established sales base in the school and public library market.
INDUSTRY BACKGROUND
The Company operates in two distinct markets: (i) the school and
public library market and (ii) the consumer market. Paperback sales is the
fastest growing segment of the children's book marketplace and experienced a 21%
increase in 1995. Hardcover children's books also experienced a 5.2% increase in
1995. This trend is continuing and The Book Industry Study Group anticipates
that the demand for children's hardcover books will increase by a rate of 4.7%
and children's paperback books will increase by a rate of 8.3%, each on a
compounded basis from 1995 through the year 2000. As a result of that growth,
BOOK INDUSTRY TRENDS 1996 predicts that public library expenditures on
children's books will reach approximately $190 million in the year 2000 and
school library expenditures will reach approximately $174 million in the year
2000, for a total of approximately $364 million. Veronis, Suhler & Associates
predicts that by the year 2000, children's hardcover book sales in the consumer
market will reach approximately $1,612 million and children's paperback book
sales in the consumer market will reach approximately $1,411 million, for a
total of approximately $3,023 million.
SCHOOL AND PUBLIC LIBRARY MARKET
The school and public library market is undergoing significant change
due to long-term social and economic forces. The United States Department of
Education predicts that the student population from kindergarten through 12th
grade will increase 8% from 1995 to 2006 with an overall net gain of
approximately 3.8 million students. Because many school districts allocate
instructional material funds on a "per head" basis, the Company believes that
money allocated to schools for book acquisitions should increase as the student
population increases. Purchases are primarily driven by favorable book reviews.
Age-appropriate books on the right topic with favorable reviews typically sell
along a predictable curve. In
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addition to the demographic changes, demand for books has also increased as a
result of the school and public library market becoming increasingly aware of,
and responsive to, supporting the innovative instructional programs being
developed and used in the classroom. New teaching philosophies such as the
"reading initiative", the "whole-language movement" and "cross-curriculum
teaching" developed in the 1980s and 1990s have increased the demand for
different and better books. Librarians are working with classroom teachers to
select books that meet classroom criteria of being multicultural, visually
stimulating, interesting, curriculum-related and suitable for a range of reading
ability levels.
CONSUMER MARKET
Demand for children's books should also increase in the consumer
market due to the projected increase in school-age children. The Company
believes that, in addition to the increase in younger children the most
important factors underlying the increase in the sales of children's books
include the (i) increased availability of quality books, particularly paperback
books, and (ii) convenience of purchasing inexpensive paperback books as opposed
to traveling to libraries. In addition, the Company believes the growth in
affluent, better-educated parents and their increased value on education as a
whole has also contributed to this trend.
Demand for children's books in the consumer market has also increased
because the methods by which hardcover and paperback books are distributed have
changed significantly in the past five years, leading to greater accessibility
and shelf space for books. Traditionally, books were primarily sold at a small
local bookstore that typically had a limited selection. Many such bookstores
were replaced by larger mall bookstores which in turn, were replaced by book
superstores (such as Barnes & Noble). Concurrently, alternate means of
distribution have developed. For example, books are now sold by (i) certain
retailers such as T.J. Maxx, (ii) educational chain stores such as Learningsmith
and Zany Brainy, (iii) outlets and warehouse clubs such as Sam's Warehouse,
COSTCO and B.J.'s and (iv) on a smaller scale, certain museums, national parks,
historical sites, theme parks, gift shops and toy stores. Books are also more
accessible to children and parents through the expansion of direct sales
channels such as book fairs, school and consumer book clubs, display sales and
catalogs. Book fairs are generally week-long events conducted on school premises
and sponsored by school librarians and/or parent-teacher organizations and are
intended to provide students with quality books at reasonable prices in order to
help them become more interested in reading. The Company has identified more
than 600 catalogs that sell children's books, including such oddly diverse ones
as an anatomical supply catalog.
CROSSOVER OF SALES
Demand for children's books has also increased because a book can now
be sold to both the school and public library market and the consumer market.
Traditionally, hardcover library books addressed topics typical for school
reports and research and were created with the purpose of maximizing information
content rather than appealing to consumers. Because books sold in the school and
public library market in the past were not designed to sell on a shelf, the
product was often informationally rich but somewhat aesthetically unappealing.
Conversely, a paperback book sold in the consumer market was not designed as an
information source, and accordingly, failed to address certain topics and lacked
the informational content of library books. The Company's books, and books for
the children's book market in general, are now designed to appeal to both
markets. A book filled with information is combined with an attractive title,
cover and internal design to catch the eye of the consumer browsing the shelf.
The same book can then be bound as a hardcover book and sold to school and
public libraries. Additionally, as either a hardcover or paperback, the appeal
of the book is recognized by a teacher and can be used as supplemental reading
in the classroom.
COMPANY STRATEGY
The Company's goal is to establish Millbrook as a "one stop
publisher," publishing and marketing a diverse product line servicing most of
the major segments of the children's book market. The Company's strategy is to
continue to diversify its products and the distribution channels for those
products by capitalizing on the long-term and short-term changes occurring in
the children's book publishing industry in both the school and public library
market and particularly in the consumer market.
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The Company believes that this diversified approach to its product
line will enable it to achieve broad market penetration in the children's book
market and minimize the risk of fluctuations or weakness in any one particular
segment. The Company believes that its experience in publishing children's books
as well as its reputation for quality gained over the past six years, combined
with the evolution and anticipated growth rates for children's books in the
school and public library and consumer markets, creates an opportunity for the
Company to expand the list of books in which it maintains a significant
ownership interest and expand the recognition of its brand names. The Company
believes that the elements required to achieve this goal are (i) publishing
books of the highest quality, created either in-house, through packaging
arrangements or licensed, with the ability to satisfy two or more of the markets
which it now services, (ii) expanding its product offerings to take advantage of
its investments in distribution and its exposure to the consumer market and
(iii) enhancing its existing marketing operations to support its product line
expansion initiatives. Industry conditions among publishers in recent years has
led to ongoing divestitures and the Company intends to accelerate its growth and
increase its market penetration by selectively acquiring other publishers of
children's books or by formulating strategic alliances to increase the market
exposure of its books. The Company also intends to explore opportunities in
electronic media by selectively participating in publishing and marketing
opportunities on commercial on-line services and on the Internet. Key elements
of the Company's strategy are:
o CROSSOVER OF SALES. The Company believes that significant
opportunities exist to market products originally
developed for one market into other markets and to sell
through alternative channels of distribution. In 1995 the
Company began reformatting many of its school and public
library books under its Millbrook imprint into paperback
books and selling them in the consumer market in retail
bookstores as well as other retail outlets using
independent sales representatives and several focused
in-house marketing initiatives such as telemarketing and
direct mail. The Company's paperback books have also been
sold as supplemental materials for the classroom.
Similarly, the Company's books under the Copper Beech
imprint are typically available in hardcover format to
sell to the school and public library market. As part of
its strategy to sell books which can crossover into two
markets, the Company reprints books on its backlist as
paperback books to be sold into the consumer market and
into the classroom as supplementary instructional
materials. This leverage of previously published books can
extend a book's sales life with virtually no incremental
creative investment. The Company will seek to produce
books in the future under both the Millbrook and Copper
Beech imprints that will appeal to two or more of the
markets in order to exploit all of each book's sale
potential.
o TARGET NEW MARKET NICHES/ACQUISITION OPPORTUNITIES. The
Company is continually seeking new market niches which
offer opportunities for significant sales growth. The
Company has targeted the pre-school novelty area as a
future market and plans to enter that segment with books
containing moveable elements or books bundled with
additional merchandise. The Company will publish books for
the beginning reader (four to six years old) and early
reader (five to eight years old) as well as chapter books
for ages seven through 11. The Company will publish
popular reference materials for young readers from seven
through 15. The Company will also seek to expand its entry
to the supplemental classroom market where its books can
be used as instructional material. The Company may also
seek acquisition opportunities covering niche markets in
which the Company does not currently compete and product
extensions in its existing markets. The Company's product
development strategy may include joint ventures with
strategic partners to minimize up-front development costs.
Currently, however, the Company has no commitments or
agreements with respect to any acquisitions.
o ENHANCE MARKETING AND SALES FORCE. Since inception, the
Company has increased its penetration into the school and
public library market. The Company intends to continue to
build on these efforts by increasing its use of direct
mail, expanding circulation of catalogs and extending its
advertising programs to achieve better coverage and
increased marketplace penetration. The Company also
intends to enhance its telemarketing capabilities in order
to help strengthen sales of books to retailers. In the
consumer market, the Company intends to more heavily rely
on an in-house sales force rather than a commissioned
sales force, with a view to entirely replacing the
commissioned force with in-house personnel in the future.
The Company believes this change will enable it to more
effectively concentrate the Company's selling efforts on
mass retail, major book chains and special sales accounts
and to help the Company enter newly-targeted markets.
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o EXPAND DISTRIBUTION. The Company intends to expand its
existing channels of distribution by increasing its use of
in-store promotion, consumer advertising and
telemarketing. The Company believes that decision-making
with respect to purchasing books is becoming more complex
due to expansion in types of outlets selling books and the
increasing use of marketing techniques that put the
Millbrook imprint in direct contact with children, parents
and teachers will increase sales. The Company intends to
increase its participation in book fairs, book clubs,
catalogs and to distribute its books to other alternative
retail outlets. The Company may also seek to enter into
additional strategic partnerships to extend its
distribution in both the consumer and in school and public
library market channels. Currently, however, the Company
has no commitments or agreements with respect to any
strategic partnership.
o ADAPT PRODUCT TO NEW TECHNOLOGIES. The Company has begun
digitally storing the text and graphics of its books so as
to be well-positioned to take advantage of opportunities
in the electronic media industry, including commercial
on-line services and the Internet, if and when such
opportunities become available.
o CONTINUE TO DEVELOP HIGH QUALITY BOOKS. The Company
intends to develop additional books through internal
development in collaboration with its network of authors
and artists. The Company is now selectively entering into
agreements with certain high-profile authors and
illustrators to increase the recognition of its brand
names.
PRODUCTS
The Company publishes children's books in hardcover and paperback
formats for the school and public library market and the consumer market. When
the Company began publishing books in 1991, the books created were mainly series
books and were intended to be sold singularly and in sets to the school and
public library market. Since then, the Company's products have evolved into a
diverse set of highly-graphic, consumer-oriented single books. The Company,
under its Millbrook and Copper Beech imprints, publishes books that appeal to
public libraries, teachers and librarians in schools as well as children and
parents on the bookshelf in bookstores and other alternative retail outlets.
This approach allows the Company's books to be introduced simultaneously in more
than one market, with the intent of increasing sales. For example, in 1995, the
Company published 111 hardcover books under the Millbrook imprint to be sold in
the school and public library market, of which 59 books were converted into and
published simultaneously as hardcovers or paperbacks to be sold in the consumer
market, and 42 hardcover books under the Copper Beech imprint to be sold in the
consumer market, of which 26 books were converted into and published
simultaneously as hardcovers or paperbacks, to be sold in the school and public
library market.
The newly expanded consumer market has enabled the Company to
generate further sales from the books it published from its backlist. A
significant number of hardcover books the Company originally published for the
school and public library market now can be sold in paperback at the bookstore.
Additionally, paperbacks are increasingly being used in the classroom as
supplemental instructional materials. Given the recent success of such books
reissued in the consumer market and the significant potential represented by the
school supplemental materials market, the Company feels that its backlist could
continue to provide opportunities for additional sales with virtually no
additional creative investment.
The following list is an example of the hardcover books published by
the Company under its Millbrook imprint from Spring 1995 through the Fall 1996
which have either paperback or hardcover editions to be sold in the school and
public library or consumer market:
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CRAFTS FOR VALENTINES DAY
THE QUILT-BLOCK HISTORY OF PIONEER DAYS WITH PROJECTS KIDS CAN MAKE
NATURE IN YOUR BACKYARD: SIMPLE ACTIVITIES FOR CHILDREN
COMPOST! GROWING GARDENS FROM YOUR GARBAGE
MICHAEL ROSEN'S ABC
EVERY DAY IS EARTHDAY: A CRAFT BOOK
THE CROCODILE AND THE DENTIST
CITYMAZE! A COLLECTION OF AMAZING CITY MAZES
CHILDREN'S ATLAS OF THE 20TH CENTURY
BEARS AT THE BEACH: COUNTING FROM 10 TO 20
NOW I KNOW BETTER: KIDS TELL KIDS ABOUT SAFETY
THE ANCIENT EGYPTIANS: LIFE IN THE NILE VALLEY
MALCOLM X: HIS LIFE AND LEGACY
YITZHAK RABIN: ISRAEL'S SOLDIER STATESMAN
The following list is an example of the hardcover books published by
the Company under its Copper Beech imprint from Spring 1995 through Fall 1996
which have either paperback or hardcover editions to be sold in the school and
public library or consumer market:
PIRATES: FACT OR FICTION
PLAYING WITH MAGNETS
PLANETS
THE PYRAMIDS
KNIGHTS: FACT OR FICTION
BLOOD
MOST EXCELLENT BOOK OF HOW TO BE A MAGICIAN
MOST EXCELLENT BOOK OF HOW TO BE A PUPPETEER
BRAIN SURGERY FOR BEGINNERS
53 1/2 THINGS THAT CHANGED THE WORLD
FASCINATING FACTS ABOUT SHARKS
PRODUCT DEVELOPMENT
The Company develops books through internal and external resources.
The Company may also acquire books through co-publishing arrangements and/or the
acquisition of other licenses.
INTERNAL DEVELOPMENT
Nearly 75% of the books published under the Millbrook imprint are
produced by the Company's editorial staff. A book concept can originate from a
number of sources such as (i) analysis of the Company's sales statistics for an
existing book to help assess how a similar book targeting a similar age group
will fare, (ii) analysis of school age demographics and other social and
economic factors from current philosophical trends in education (I.E., the whole
language movement) to the globalization of education, (iii) review of
competitors' books to determine if and how the Company can publish a
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superior book on a similar topic, (iv) reading children's magazines to determine
what young people are interested in and (v) maintaining personal contacts with
librarians, teachers and booksellers. Once conceived, a book proposal is
circulated to the sales, production, marketing, design and financial departments
of the Company for their input and depending on the input, the proposal will go
forward or be terminated. A favorable decision causes the editorial department
to contract with an appropriate author and/or artist from its pool of
approximately 350 authors and artists. The Company believes it has excellent
relationships with its authors and artists, including many well-known names in
the field.
Authors and artists are typically engaged on a royalty basis.
Royalties on hardcover and paperback editions are paid on the net sales and
range from 6% to 10% of net sales with an average of 7% of net sales for
hardcover and paperback books. The Company believes its average royalty rates
are slightly lower than overall industry standards. The Company expects its
average royalty rates to increase as the Company increases its emphasis on
consumer-oriented books. Virtually all of Millbrook's contracts call for an
advance payment against future royalties. Advances range from $1,000 for a
simple series book to as much as $18,000 to a well-known artist for a picture
book. In almost all cases, the Company retains control of all book club,
reprint, electronic, foreign, serialization and commercial rights. The income
generated from such arrangements is split 50%/50% between the Company and the
author.
After receiving a manuscript from an author/illustrator and after
editing, fact-checking and approval, the Company's in-house staff plans and
prepares the layout, illustrations and cover to be used for the book. Upon
completion of the editing, graphics and layout, a computer produces a mechanical
of the book with all elements in place. A cost estimate is then prepared which
determines print quantity and retail price of the book. Book printing is done by
an outside supplier, mainly domestic, on a bid contract basis. The Company's
products require varying periods of development time depending upon the
complexity of the graphics and design as well as the editing process. Most of
the Company's books can be developed in a period that ranges from nine to 18
months. Millbrook is often cited in reviews of the Company's books for one or
more outstanding design elements (cover, layout, type, etc.). Jackets and
interior design are either created in-house or free-lanced to outside artists
under the supervision of the Company's art department. The use of outside
authors, illustrators and freelancers to do jacket design, fact-checking and
copy editing allows the Company to produce a large number of books per year with
a relatively small staff and allows a tremendous amount of flexibility needed
for the Company to continue to produce a broad product line.
EXTERNAL DEVELOPMENT
Approximately 25% of books published under the Millbrook imprint are
produced by outside sources. Most of these books are produced by outside
packagers that cooperate and consult with Millbrook during the development
process but otherwise provide the full range of services needed to publish
children's books. These arrangements include cooperation with other publishers
in England, such as Templar or Quarto, where the Company pays the packager a
share of the cost of developing a relatively expensive book such as an Atlas,
and the Company retains the rights to sell the book in the United States and
Canada while the publisher retains the right to sell the book in its home
country and/or elsewhere. At present, the Company has six regular suppliers from
England and two United States companies with whom it has ongoing projects. The
Company has entered into an exclusive, long-term joint venture with Aladdin, a
major children's packager for the international market, which expires on January
1, 2002 but can be renewed thereafter, to produce 50 nonfiction titles per year
to be published under the Company's newly-created imprint, Copper Beech. The
exclusive agreement between the Company and Aladdin was designed to produce
books with strong consumer market appeal in popularly priced paperback books as
well as content suitable for hardcover books for sale to libraries. In May 1994,
the Company entered into an agreement with Aladdin, whereby Aladdin agreed to
produce approximately 50 books per year for the Company through January 1, 2002.
The books are to be wholly-owned by the Company. Aladdin is responsible for the
production, printing and binding of such books, although development costs for
such books are shared by Aladdin and the Company. Aladdin retains the sales
rights for these books to countries other than the United States, Canada and the
Philippines. Royalties are paid to Aladdin based on the Company sales.
Development recovery amounts are paid to the Company based on sales by Aladdin
to other parts of the world. See "Certain Transactions."
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LICENSES
In the normal course of its business, the Company acquires licenses
from foreign book publishers for the rights to market and sell books in the
United States which were created either with or without input from the Company.
The licensing usually includes all subsidiary rights such as first and second
serialization, commercial rights, electronic rights, foreign and translation
rights, reprint rights and rights to any means yet to be developed for
transmitting information.
MARKETING AND DISTRIBUTION
The Company's sales and marketing efforts are designed to broaden
product distribution, increase the number of first time and repeat purchasers,
promote brand-name recognition, assist retailers and properly position, package
and merchandise the Company's products. The Company utilizes various marketing
techniques designed to promote brand awareness and recognition and to maximize
the acquisition of shelf space devoted to its product line in retail outlets,
including complementary copies, reviews and recommendations, catalogs,
advertising, brochures, exhibits, publicity campaigns and in-store promotions.
The Company's marketing efforts are geared toward its two major markets: (i) the
school and public library market and (ii) the consumer market.
SCHOOL AND PUBLIC LIBRARY
The Company targets the school and public library market through
three main channels: wholesalers, telemarketing and direct sales. Large school
and public library systems tend to purchase their books through wholesalers on a
bid basis, while smaller systems purchase directly from a commission sales
representative or through a telemarketing program such as the one the Company
offers. During the fiscal year ended July 31, 1996, approximately 66% of the
Company's sales in the school and public library market were made through
wholesalers. While wholesalers do not engage in sales and marketing efforts on
behalf of the Company's products, they provide schools and public libraries with
a wide range of selection and convenience as well as discounts on bulk orders.
Baker & Taylor, one of the largest wholesalers in the school and public library
market, accounted for 17% of the Company's net sales in the fiscal year ended
July 31, 1996. While the Company believes that there are alternative wholesalers
available if its current relationship with Baker & Taylor were terminated, a
significant reduction in sales to Baker & Taylor would have a material adverse
effect on the Company's results of operations. Through a complementary marketing
program of telemarketing, advertising, review programs and direct sales calls,
the Company believes that one of its greatest strengths is its ability to reach
the individual teacher, principal or librarian making the purchase decision.
Telemarketing represents 27% of the Company's sales in the school and public
library market. Telemarketing penetrates the market through its "preview
program" where books are given on loan to teachers and other decision-makers on
the premise that the quality of the book will sell itself. The remaining 7% of
the Company's sales in this area results from direct-selling efforts where
commissioned salespersons conduct face-to-face meeting at schools and libraries
with decision-makers or by purchase from the Company's catalogs and advertising.
The Company markets its books in numerous ways to support the
foregoing efforts. The Company sends complementary copies of each
newly-published book to library media reviewers and columnists and major county
or district school systems that have their own review and recommendation
process. The Company also maintains personal contact with reviewers on a regular
basis. The Company believes that a favorable review in a respected library
journal can significantly influence the sales prospects of a particular book.
Many of Millbrook's books have received favorable reviews but there can be no
assurance that the Company will continue to receive favorable reviews in the
future. The Company produces three catalogs and one magazine insert per year.
For its school and library accounts, the Company produces one full-line catalog,
consisting of a complete annotated backlist as well as new publications for Fall
that is mailed to 100,000 current and perspective accounts. An eight-page insert
is produced in January to introduce the new list for Spring for distribution in
the School Library Journal (the major professional journal from which librarians
make purchase decisions) and at conventions throughout the year. The Company
produces two full-line catalogs per year for the consumer market each
distributed to 15,000 accounts in May and December. The Company also advertises
in many consumer journals, newsletters and newspapers. The Company produces
promotional materials for individual titles, themes, authors and illustrators.
It also produces standard "leave-behind" sell sheets that refresh a librarian's
recollection of a sales presentation. Finally, the Company exhibits its books at
many national conventions covering both the school and public library and
consumer markets.
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The expanding use of children's books in the classroom, especially in
paperback formats, has complicated the traditional distribution networks since
contacting the particular teacher or other individual in charge of curriculum
decisions can be more difficult than contacting the school librarian. The
Company has created marketing programs to extend school sales beyond the library
and into the classroom. For example, the Company's telemarketing division is
currently test- marketing curriculum-related books and materials to teachers,
principals and curriculum coordinators.
CONSUMER
The sales channels in the consumer market are more diverse than the
school and public library market requiring a different marketing approach. The
Company has recently attracted experienced and talented sales and marketing
personnel. The new in-house consumer sales group covers the two major areas:
traditional consumer book markets and non-traditional consumer book markets. The
Company's merchandising and marketing programs have increased its traditional
and non-traditional consumer sales from $908,000 in fiscal year 1995 to over
$2.8 million in fiscal 1996 despite having its personnel in place for only four
months in fiscal year 1995. Prior to June 1995, the Company's books were
distributed in the consumer market by an unrelated third party.
As is the case with the school and public library market, a large
proportion of the Company's sales in the consumer market are made through
wholesalers. Ingram, one of the largest wholesalers in the consumer market,
accounted for 5% of the Company's net sales in the fiscal year ended July 31,
1996, and 56% of its wholesale sales to the consumer market. While the Company
believes that there are alternative wholesalers available if its current
relationship with Ingram were terminated, a significant reduction in sales to
Ingram would have a material adverse effect on the Company's operations.
The Company has three sales groups: the in-house sales group, the
commissioned sales group and the special sales group. The in-house sales group,
consisting of an in-house sales director, a merchandising manager and a
full-time salaried sales person, is responsible for sales, promotion and
merchandising to the major national and large regional accounts. This group is
also responsible for sales to the network of wholesalers supporting these
accounts. The commissioned sales group currently consists of approximately 30
commissioned representatives who are responsible for sales to independent book
stores, small regional chains and certain special sales outlets and regional
jobbers. The special sales group markets to specialized retail outlets such as
museums, national parks, historical sites, theme parks, gift shops and toy
stores and consumer companies such as direct sales catalogs and direct mail. The
Company's sales representatives sell the full range of the Company's products.
The sales groups provide the Company with valuable insight by obtaining feedback
from customers on current product performance and potential acceptance of
proposed products. In addition to the marketing efforts discussed with respect
to the school and public library market, the Company conducts additional
marketing designed to increase brand name recognition in the consumer market.
The Company makes certain that good reviews, which can stimulate sales, are sent
to the news media on a regular basis which can stimulate sales. The Company
participates with various outlets in advertising directly to individuals through
media and catalogs. In-store promotions, such as posters, point of purchase
displays, brochures, holiday end-of-counter and front-of-store displays, are
also utilized by the Company to further enhance its sales in the consumer
market.
MANUFACTURING AND SHIPPING
All of the Company's books are printed and bound by third-party
manufacturers. Currently, approximately 60% of the Company's printing and
binding needs are satisfied by Worzalla, which is an industry leader in
library-bound, short-run printing and binding. Manufacturing is a significant
expense item for the Company, with a total of $3.3 million (or approximately 33%
of net sales) spent in 1996. The Company has used Worzalla's services since the
Company's inception and enjoys a strong working relationship with Worzalla. The
Company believes it has sufficient alternative sources of manufacturing services
to meet its foreseeable needs should Worzalla's services no longer be available
to the Company although manufacturing costs could be adversely impacted.
Shipping orders accurately and promptly upon their receipt is an
important factor in the Company's customer service and in closing a sale. Most
publishing companies ship products within one week of receipt of a customer
order, and in general the Company meets or betters this timetable. The Company
processes customer orders through an in-house
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order processing department. The Company leases warehouse space from, and its
products are shipped by, Mercedes Distribution Company of Brooklyn, New York.
COMPETITION
The children's book publishing marketplace in the school and public
library market and in the consumer market is fragmented and very competitive.
Competition in the school and public library market is based upon quality of
products, brand name recognition and book content. In the consumer market, the
primary factors are brand name recognition, book content, availability and
price.
There are many publishers of material similar to the Company's
product offerings. The Company's chief and direct competitors in the school and
public library market include Childrens Press, Dorling Kindersley Publishing
Inc., Franklin Watts Inc., Gareth Stevens Inc., Lerner Publications Co. and
Troll Communications. The Company's chief and direct competitors in the consumer
market include Barron's Educational Series Inc., Candlewick Press, Dorling
Kindersley Publishing Inc., Larousse Kingfisher Chambers Inc., Random House Inc.
and Usborne Publishing Ltd.
The Company also competes with a large number of other publishers for
retail shelf space in large bookstore chains such as Barnes & Noble, Borders and
Waldenbooks. In addition to competition among like types of publishing programs,
the overall competition for limited educational budgets is intense when other
producers of materials used in classrooms and libraries are included, especially
producers and distributors of electronic hardware and software. A number of
these competitors have considerably greater financial and marketing resources
than the Company, although the Company believes that the depth of experience of
its management and its connections into the hierarchy of the education sector
gives the Company a competitive edge not only in producing quality books
marketable in the school and library and consumer markets, but also in
foreseeing long-term and short-term social and economic forces influencing the
children's book industry.
PROTECTION OF PROPRIETARY RIGHTS
Nearly all of the Company's books have been copyrighted in the United
States, in the name of the author or artist and then all such copyrights have
been assigned to the Company. As a result, the Company owns the exclusive right
to exploit the copyright in the marketplace. On books created in-house by the
Company, it owns world rights for all aspects of the market, including first and
second serialization, commercial rights, electronic rights, foreign and
translation rights, reprint rights, and rights to any means yet to be developed
for transmitting information. There are a limited number of books for which
foreign rights and electronic rights will revert to the author if the Company
does not exploit them in a given period of time, usually two years after
publication. On books that are imported under the Millbrook imprint, the Company
has exclusive rights for all United States markets and the Philippines. On more
than half of the imported titles, the Company holds Canadian rights as well.
For the Copper Beech titles, the Company has exclusive rights for all
markets in the United States and Canada, and while world rights are retained by
Aladdin, the Company participates in the profits generated from such sales on a
25% basis.
EMPLOYEES
As of the date of this Prospectus, the Company has approximately 60
employees. Approximately two-thirds are full-time and one-third is part-time.
The Company has never experienced a work stoppage and its employees are not
covered by a collective bargaining agreement. The Company believes its relations
with its employees are good.
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PROPERTIES
The Company owns no real property. The Company conducts its
operations through two facilities. The Company leases approximately 5,500 square
feet of office space in Brookfield, Connecticut at a current rental of $64,340
per year plus utilities and taxes. This lease expires in December 2002. The
Company also leases approximately 1,900 square feet of space in New York City at
a rental of $33,330 per year plus utilities and taxes. This lease expires in
April 2004. The Company leases warehouse space equal to approximately 24,000
square feet in Brooklyn, New York at a rental of $84,000 per year, which
includes data processing and order-entry services. This lease expires in
September 1997. The Company also leases office space in Southampton, New York at
a current rental of $13,284 per year plus utilities and taxes. This lease
expires in September 1997.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Barry Fingerhut........ 51 Chairman of the Board
Jeffrey Conrad......... 53 President and Chief Executive Officer
Jean E. Reynolds....... 54 Senior Vice President-Publisher
Donald A. D'Angelo..... 57 Vice President and Chief Financial Officer
Frank J. Farrell....... 60 Vice President, Secretary and Director
Howard Graham.......... 66 Vice President and Director
Michael J. Marocco..... 37 Director
Barry Rubenstein....... 52 Director
BARRY FINGERHUT has served as the Chairman of the Board of the
Company since February 1994. Mr. Fingerhut has served as President since 1994,
Senior Vice President from 1981 to 1994 and a director since 1981 of GeoCapital
Corporation, a registered investment advisory firm. Since February 1995, Mr.
Fingerhut has served as a director and officer of InfoMedia Associates, Ltd.
("InfoMedia"), a New York corporation, which is a general partner of the 21st
Century Funds. In addition, since 1992, he has served as a general partner of
Applewood Associates, L.P. ("Applewood"), an investment partnership. Mr.
Fingerhut also serves as a director of Glasser Legal Works, Inc., a niche
publisher of legal texts, journals and seminars and Carriage Funeral Services
Inc., an operator of funeral homes.
JEFFREY CONRAD has served as President and Chief Executive Officer of
the Company since October 1996. From March 1992 to October 1996, Mr. Conrad
served in various capacities at Larousse Kingfisher Chambers Inc., a subsidiary
of the British publishing company Larousse PLC, most recently as President and
Chief Executive Officer from January 1993 to October 1996. Prior thereto, Mr.
Conrad was the Executive Vice President of Garland Press, an academic and
reference publisher from 1981 to March 1992.
JEAN E. REYNOLDS, one of the Company's founders, has served as Senior
Vice President-Publisher since October 1996 and as President of the Company from
its inception in 1989 to October 1996. From 1970 to 1981, Ms. Reynolds served in
various management positions at Grolier, Inc. ("Grolier"), including the
editor-in-chief of Young People's Publications and of THE NEW BOOK OF KNOWLEDGE.
Ms. Reynolds is a director of the Book Industry Study Group and chairs its
Juvenile Interest Group, which monitors industry statistics. She is a director
of the industry trade organization, The Children's Book Council. She also serves
as a director of Kiper Enterprises, Inc., a private company specializing in
first aid materials and Wellington Leisure Products, Inc., a private company
specializing in the manufacturer of rope, craft and watersports material.
DONALD A. D'ANGELO has served as Chief Financial Officer and
Assistant Secretary of the Company since February 1994, and a Vice President of
the Company since June 1992. From 1989 until 1992, Mr. D'Angelo was an
independent financial consultant in the publishing industry as well as a
financial consultant to individuals.
FRANK J. FARRELL, one of the Company's founders, has served as a Vice
President, Secretary and a director of the Company since its inception in 1989,
and is primarily responsible for overseeing the Company's operations and
finances. From 1978 to 1989, Mr. Farrell served in various senior management
positions with Grolier and its subsidiaries, including President of Grolier
Educational Corporation and President of Grolier Electronic Publishing, Inc. and
Group Vice President of Grolier's domestic reference materials operations. He
also served on Grolier's board of directors from 1988 to 1989.
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HOWARD GRAHAM, one of the Company's founders, has served as a Vice
President and director of the Company since its inception in 1989 and is
primarily responsible for the Company's marketing programs. From 1970 to 1988,
Mr. Graham served in various senior management positions at Grolier and its
subsidiaries, including President of Grolier International and executive Vice
President of Grolier. He also served on Grolier's board of directors from 1983
to 1988. Mr. Graham currently serves as a director of the Save the Children
Fund, a nonprofit corporation.
MICHAEL J. MAROCCO has served as a director of the Company since
February 1994. Mr. Marocco is a managing director of Sandler Capital Management
which he joined in 1989. He is a general partner of Sandler Associates and,
through affiliates, a general partner of the Sandler Media Partnerships, Sandler
Mezzanine Partnerships, 21st Partners, 21st T-E and 21st Foreign. He was a Vice
President at Morgan Stanley & Co. Inc., serving in its communications group,
from 1984 to 1989. Mr. Marocco is a director of YES! Entertainment, a public
company manufacturing children's toys and other educational and interactive
products, Source Media, Inc., a public company specializing in interactive
television.
BARRY RUBENSTEIN has served as a director of the Company since
February 1994. Since February 1995, Mr. Rubenstein has served as a director and
officer of InfoMedia. In addition, since 1992, 1979 and 1976, respectively, Mr.
Rubenstein has served as a general partner of Applewood, Seneca Ventures and
Woodland Venture Fund, respectively, each of which is an investment partnership.
Mr. Rubenstein also serves as a director of Infonautics, Inc., a provider of
online and internet information.
The Board of Directors has a Stock Option and Compensation Committee
which administers the Stock Option Plan and makes recommendations concerning
salaries, incentive compensation for employees of and consultants to the
Company, and an Audit Committee which reviews the results and scope of the audit
and other services provided by the Company's independent accountants. The Stock
Option and Compensation Committee is composed of Messrs. Fingerhut, Rubenstein
and Graham and the Audit Committee is composed of Messrs. Fingerhut, Marrocco
and Farrell.
The Company's executive officers are appointed annually by, and serve
at the discretion of, the Board of Directors. All directors hold office until
the next annual meeting of the Company or until their successors have been duly
elected or qualified. There are no family relationships among any of the
executive officers and directors of the Company.
The Company intends to maintain a "key person" life insurance policy
in the amount of $1.0 million on the life of Mr. Conrad after the Offering.
DIRECTOR COMPENSATION
The Company's directors are not compensated for attendance at
meetings. The Company currently does not plan to compensate its outside
directors for services rendered in their capacity as directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the
compensation paid by the Company during the year ended July 31, 1996 to Jean E.
Reynolds, the principal executive officer of the Company, and each of the
Company's most highly compensated executive officers whose salary and bonus
exceeded $100,000 with respect to the fiscal year ended July 31, 1996 ("Named
Executive Officers").
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM
NAME AND PRINCIPAL POSITIONS ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------------------------------
BONUS OTHER ANNUAL NUMBER OF
YEAR SALARY ($) COMPENSATION(1) OPTIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jean E. Reynolds...................... 1996 $125,000(2) --- --- ---
Senior Vice President-
Publisher
- -------------------------------------------------------------------------------------------------------------------------
Frank J. Farrell...................... 1996 $100,000(3) --- --- ---
Vice President
- -------------------------------------------------------------------------------------------------------------------------
Howard Graham......................... 1996 $100,000(3) --- --- ---
Vice President
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain of the officers of the Company routinely receive other benefits
from the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during fiscal 1996,
did not exceed the lesser of $50,000 and 10% of the compensation set forth
above as to any named individual.
(2) Prior to October 1996, Jean E. Reynolds was the President of the Company.
As of October 1996, Jeffrey Conrad became Chief Executive Officer and
President of the Company. Mr. Conrad will be paid a base salary of
$200,000 per year and has received options to purchase 80,000 shares of
the Company's Common Stock.
(3) Amounts paid to Messrs. Farrell and Graham constitute consulting fees paid
to Farrell Associates, Inc. and Graham International Publishing and
Research, Inc., respectively.
STOCK OPTION PLAN
The Company's Stock Option Plan was adopted to attract and retain
employees and provides for the issuance of options to purchase up to an
aggregate of 475,000 shares of Common Stock. To date, options to purchase
390,000 shares of Common Stock have been granted under the Stock Option Plan.
All options currently outstanding under the Stock Option Plan have an exercise
price equal to the Offering Price. Under the Stock Option Plan, options to
purchase shares of Common Stock may be granted to any full-time or part-time
employee, consultant or officer. The Stock Option Plan is currently administered
by the Company's Stock Option and Compensation Committee which is generally
empowered to interpret the Stock Option Plan, prescribe rules and regulations
relating thereto and determine the individuals to whom options are to be
granted.
Under the Stock Option Plan, the per-share exercise price for
incentive stock options ("ISOs") will be the greater of the fair market value of
a share of Common Stock on the date the option is granted or the Offering Price
and for non-qualified stock options ("NQSOs") will be not less than the Offering
Price. Upon exercise of an option, the optionee may pay the purchase price with
previously acquired securities of the Company, provided that with respect to
ISOs applicable holding requirements under the Code are satisfied.
Unless otherwise determined by the Stock Option and Compensation
Committee, ISOs and NQSOs granted under the Stock Option Plan shall be
exercisable for a term not greater than seven years from the date of grant and
vest after a five-year period at a rate of one-fifth upon each successive
anniversary of the date of grant; PROVIDED, HOWEVER, that with respect to all
vested options which are currently outstanding, 50% shall vest one year from the
date of this Prospectus and 50% shall vest two years from the date of this
Prospectus; PROVIDED, HOWEVER, FURTHER, that all options shall vest completely
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<PAGE>
upon the fifth anniversary of the date of grant. In addition, all options
granted under the Stock Option Plan become fully vested if (a) the optionee is
employed by the Company on or within 90 days of (i) the sale of all or
substantially all of the assets of the Company, (ii) the sale or exchange of an
amount of the Company's stock to an unaffiliated third party that results in a
change of control, (b) on the date of the optionee's death or (c) on the date
the optionee becomes disabled. ISOs are not transferable other than by will or
the laws of descent and distribution. NQSOs may be transferred, subject to
certain restrictions. Options may be exercised during the holder's lifetime only
by the holder, his or her guardian or legal representative.
The Stock Option and Compensation Committee may modify, suspend or
terminate the Stock Option Plan; provided, however, that certain material
modifications affecting the Stock Option Plan must be approved by the
stockholders, and any change in the Stock Option Plan that may adversely affect
an optionee's rights under an option previously granted under the Stock Option
Plan requires the consent of the optionee.
STOCK OPTION GRANTS
No stock options were granted to the Named Executive Officers during
the fiscal year ended July 31, 1996.
FISCAL YEAR END OPTION VALUES
No options were exercised by the Named Executive Officers during
fiscal 1996. The following table shows the number of shares covered by both
exercisable and unexercisable employee stock options, as of July 31, 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FISCAL YEAR END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT JULY 31, 1996 OPTIONS AT JULY 31, 1996
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jean E. Reynolds....... 21,000/31,500 0
- -------------------------------------------------------------------------------------------------------------
Frank J. Farrell....... 31,500/47,250 0
- -------------------------------------------------------------------------------------------------------------
Howard Graham.......... 31,500/47,250 0
=============================================================================================================
</TABLE>
(1) The exercise price of the options held by the Named Executive Officers was
amended after July 31, 1996 to the Offering Price of the Company's Common
Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The entire Board of Directors of the Company made all compensation
decisions regarding compensation of executive officers during the Company's 1996
fiscal year. During such period, Messrs. Farrell and Graham were executive
officers and directors of the Company. For information concerning transactions
with the Directors of the Company and entities affiliated with certain
Directors, see "Certain Transactions."
EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS
The Company has entered into an employment agreement with Jeffrey
Conrad pursuant to which he is employed on a full-time basis as the Company's
Chief Executive Officer and President. The term of the employment agreement
expires in October 1998, and is automatically renewable for a one-year term
unless either party terminates the employment
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<PAGE>
agreement at least thirty (30) days prior to the expiration of the initial term
or any subsequent term. Mr. Conrad's annual base cash compensation under the
employment agreement is $200,000. Mr. Conrad can also receive a bonus equal to
15% of his salary if the Company meets the budget agreed upon each fiscal year
in advance by the Board of Directors. In addition, Mr. Conrad received options
to purchase 80,000 shares of Common Stock at an exercise price equal to the
Offering Price pursuant to the Stock Option Plan. Mr. Conrad has agreed not to
compete with the Company during the term of his employment agreement and for a
period of two years thereafter.
The Company has entered into an employment agreement with Jean E.
Reynolds pursuant to which she is employed on a full-time basis as the Company's
Senior Vice President - Publisher. The term of the employment agreement expires
in two years from the date of this Prospectus and is automatically renewable for
a one-year term unless either party terminates the employment agreement at least
thirty (30) days prior to the expiration of the initial term or any subsequent
term. Ms. Reynolds annual base cash compensation under the employment agreement
is $125,000. Ms. Reynolds' base salary will be reviewed annually by the Board of
Directors. Ms. Reynolds has agreed not to compete with the Company during the
term of her employment agreement and for a period of three years thereafter.
The Company has entered into a consulting agreement with Howard
Graham pursuant to which he will be a consultant for a minimum of six months per
year with the time of such service to be determined by the Board of Directors or
the Chief Executive Officer. The term of the consulting agreement expires in
December 1998. Mr. Graham's cash compensation under the consulting agreement is
$60,000 during the first year of the agreement and $50,000 during the second
year of the agreement. Mr. Graham has agreed not to compete with the Company
during the term of his consulting agreement and for a period of two years
thereafter.
The Company has entered into a consulting agreement with Frank
Farrell pursuant to which he will be a consultant for a minimum of six months
per year with the time of such service to be determined by the Board of
Directors or the Chief Executive Officer. The term of the consulting agreement
expires in December 1998. Mr. Farrell's annual base cash compensation under the
consulting agreement is $60,000 during the first year of the agreement and
$50,000 during the second year of the agreement. Mr. Farrell has agreed not to
compete with the Company during the term of his consulting agreement and for a
period of two years thereafter.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
the beneficial ownership of the capital stock of the Company as of the date of
this Prospectus for (i) each person who is known by the Company to beneficially
own more than 5% of the capital stock, (ii) each of the Company's directors,
(iii) each of the Named Officers and (iv) all directors and executive officers
as a group. Unless otherwise indicated, the address for directors, executive
officers and 5% stockholders is 2 Old Milford Road, Brookfield, Connecticut
06804.
<TABLE>
<CAPTION>
PERCENTAGE
---------------------------------------
NUMBER OF
SHARES
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY BEFORE AFTER
AND 5% SHAREHOLDERS OWNED(1) OFFERING OFFERING(1)
- -------------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
21st Century Communications Foreign Partners, L.P.
c/o Fiduciary Trust (Cayman) Limited
P.O. Box 1062
Grand Cayman, B.W.I................................... 883,678 (2) 58.9% 29.5%
21st Century Communications Partners, LP
767 Fifth Avenue, 45th Floor
New York, NY 10053.................................... 883,678 (3) 58.9% 29.5%
21st Century Communications T-E Partners, LP
767 Fifth Avenue, 45th Floor
New York, NY 10053.................................... 883,678 (4) 58.9% 29.5%
Archon Press
28 Percy Street
Wipold, London
England............................................... 80,993 (5) 5.4% 2.7%
Applewood Associates, L.P.
68 Wheatley Road
Brookville, NY 11545.................................. 211,213 14.1% 7.0%
Barry Rubenstein
68 Wheatley Road
Brookville, NY 11545.................................. 1,120,748 (6) 74.7% 37.4%
Irwin Lieber
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 1,120,748 (7) 74.7% 37.7%
Seth Lieber
767 Fifth Avenue, 45th Floor
New York, New York 10153.............................. 215,523 (8) 14.4% 7.2%
Jonathan Lieber
767 Fifth Avenue, 45th Floor
New York, New York 10153.............................. 215,523 (9) 14.4% 7.2%
Michael J. Marocco
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 900,917 (10) 60.1% 30.0%
Barry Lewis
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 900,917 (11) 60.1% 30.0%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
---------------------------------------
NUMBER OF
SHARES
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY BEFORE AFTER
AND 5% SHAREHOLDERS OWNED(1) OFFERING OFFERING(1)
- -------------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
John Kornreich
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 900,917 (12) 60.1% 30.0%
Harvey Sandler
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 911,261 (13) 60.8% 30.4%
Andrew Sandler
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 887,988 (14) 59.2% 29.6%
Barry Fingerhut
767 Fifth Avenue, 45th Floor
New York, NY 10153.................................... 1,120,748 (15) 74.7% 37.4%
Jeffrey Conrad.......................................... ---
Jean E. Reynolds........................................ 37,172 (16) 2.4% 1.2%
Frank J. Farrell........................................ 104,277 (17) 6.8% 3.4%
Howard Graham........................................... 104,277 (18) 6.8% 3.4%
All directors and executive officers as a group
(8 persons)............................................. 1,409,570 (19) 86.2% 44.9%
</TABLE>
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission ("Commission") and generally
includes voting or investment power with respect to securities.
Shares of Common Stock upon the exercise of options, warrants
currently exercisable, or exercisable or convertible within 60 days,
are deemed outstanding for computing the percentage ownership of the
person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other
person.
(2) Represents (i) 80,662 shares of Common Stock owned by 21st Foreign
and (ii) 599,160 shares of Common Stock and 203,856 shares of Common
Stock owned by 21st Partners and 21st T-E, respectively, of which
21st Foreign disclaims beneficial ownership.
(3) Represents (i) 599,160 shares of Common Stock owned by 21st Partners
and (ii) 203,856 shares of Common Stock and 80,662 shares of Common
Stock owned by 21st T-E and 21st Foreign, respectively, of which 21st
Partners disclaims beneficial ownership.
(4) Represents (i) 203,856 shares of Common Stock owned by 21st T-E and
(ii) 599,160 shares of Common Stock and 80,662 shares of Common Stock
owned by 21st Partners and 21st Foreign, respectively, of which 21st
T-E disclaims beneficial ownership.
(5) Includes 3,337 shares of Common Stock issuable upon presently
exercisable options held by Charles Nicholas who is the controlling
stockholder and a Director of Archon Press.
(6) By virtue of being a shareholder, officer and director of InfoMedia
which is a general partner of 21st Partners, 21st T-E and 21st
Foreign, Mr. Rubenstein may be deemed to have shared power to vote
and dispose of 883,678 shares of Common Stock. In addition, Mr.
Rubenstein is also a general partner of Applewood and Woodland and by
virtue of such positions may be deemed to have shared power to vote
and to dispose of 237,070 shares of Common Stock. Mr. Rubenstein
disclaims beneficial ownership of all of the above securities, except
to the extent of his equity interest therein.
(7) Mr. Lieber has sole power to vote and dispose of 25,857 shares of
Common Stock. In addition, (i) by virtue of the fact that Mr. Lieber
is a shareholder, officer and director of InfoMedia, Mr. Lieber may
be deemed to have shared power to vote and dispose of 883,678 shares
of Common Stock and (ii) by virtue of being a general partner of
Applewood, Mr. Lieber may be deemed to have shared power to vote and
dispose of 211,213 shares of Common Stock. Mr. Lieber disclaims
beneficial ownership with respect to the securities described in the
preceding sentence.
(8) Mr. Seth Lieber has sole power to vote and dispose of 4,310 shares of
Common Stock. In addition, by virtue of being an affiliate of an
entity which is a general partner of Applewood, Mr. Seth Lieber may
be deemed to have shared power to vote and dispose of
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<PAGE>
211,213 shares of Common Stock. Mr. Seth Lieber disclaims beneficial
ownership with respect to the securities described in the preceding
sentence.
(9) Mr. Jonathan Lieber has sole power to vote and dispose of 4,310
shares of Common Stock. In addition, by virtue of being an affiliate
of an entity which is a general partner of Applewood, Mr. Jonathan
Lieber may be deemed to have shared power to vote and dispose of
211,213 shares of Common Stock. Mr. Jonathan Lieber disclaims
beneficial ownership with respect to the securities described in the
preceding sentence.
(10) Mr. Marocco has sole power to vote and dispose of 17,239 shares of
Common Stock. In addition, by virtue of Mr. Marocco being the sole
shareholder, officer and director of an entity which is a general
partner of an entity which is a general partner of 21st Partners,
21st T-E and 21st Foreign, Mr. Marocco may be deemed to have shared
power to vote and to dispose of 883,678 shares of Common Stock, of
which Mr. Marocco disclaims beneficial ownership.
(11) Mr. Lewis has sole power to vote and dispose of 17,239 shares of
Common Stock. In addition, by virtue of being the majority
shareholder and director of an entity which is a general partner of
an entity which is a general partner of 21st Partners, 21st T-E and
21st Foreign, Mr. Lewis may be deemed to have shared power to vote
and to dispose of 883,678 shares of Common Stock, of which Mr. Lewis
disclaims beneficial ownership.
(12) Mr. Kornreich has sole power to vote and dispose of 17,239 shares of
Common Stock. In addition, by virtue of being the majority
shareholder and director of an entity which is a general partner of
an entity which is a general partner of 21st Partners, 21st T-E and
21st Foreign, Mr. Kornreich may be deemed to have shared power to
vote and to dispose of 883,678 shares of Common Stock, of which Mr.
Kornreich disclaims beneficial ownership.
(13) Mr. Sandler has sole power to vote and dispose of 27,583 shares of
Common Stock. In addition, by virtue of being the majority
shareholder and director of an entity which is a general partner of
an entity which is a general partner of 21st Partners, 21st T-E and
21st Foreign, Mr. Sandler may be deemed to have shared power to vote
and to dispose of 883,678 shares of Common Stock, of which Mr.
Sandler disclaims beneficial ownership.
(14) Mr. Andrew Sandler has sole power to vote and dispose of 4,310 shares
of Common Stock. In addition, by virtue of being the majority
shareholder and director of an entity which is a general partner of
an entity which is a general partner of 21st Partners, 21st T-E and
21st Foreign, Mr. Andrew Sandler may be deemed to have shared power
to vote and to dispose of 883,678 shares of Common Stock, of which
Mr. Andrew Sandler disclaims beneficial ownership.
(15) Mr. Fingerhut has sole power to vote and dispose of 25,857 shares of
Common Stock. In addition, by virtue of being a shareholder, officer
and director of InfoMedia and a general partner of Applewood, Mr.
Fingerhut may be deemed to have shared power to vote and to dispose
of 1,094,891 shares of Common Stock, of which Mr. Fingerhut disclaims
beneficial ownership.
(16) Includes 21,666 shares of Common Stock issuable upon presently
exercisable options.
(17) Includes 34,498 shares of Common Stock issuable upon presently
exercisable options.
(18) Represents 34,498 shares of Common Stock issuable upon presently
exercisable options and 69,779 shares of Common Stock which are owned
by Mr. Graham and his wife as joint tenants.
(19) Includes 90,662 shares of Common Stock issuable upon presently
exercisable options and 1,120,748 shares owned by 21st Foreign, 21st
Partners, 21st T-E, Applewood and Woodland.
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<PAGE>
CERTAIN TRANSACTIONS
SALES OF DEBT AND EQUITY SECURITIES. From time to time, the Company
has raised capital through the sale of debt and equity securities. Most of the
investors in such offerings have been officers, directors and entities
associated with directors, and beneficial owners of 5% or more of the Company's
securities. In each transaction, such persons participated on terms no more
favorable than those offered to all other investors.
In May 1994, the Company entered into an agreement with Aladdin,
whereby Aladdin agreed to produce approximately 50 books per year for the
Company through January 1, 2002. The books are to be wholly-owned by the
Company. Aladdin is responsible for the production, printing and binding of such
books, although development costs for such books are shared by Aladdin and the
Company. Aladdin retains the sales rights for these books to countries other
than U.S.A., Canada and the Philippines. Royalties are paid to Aladdin based on
the Company sales. Development recovery amounts are paid to the Company based on
sales by Aladdin to other parts of the world. Net payables to Aladdin at July
31, 1996 and 1995 were $556,000 and $355,000, respectively, which includes goods
on order, payables, shared product development costs and net royalty payments.
As of October 17, 1996, net payables to Aladdin were approximately $1.3 million
of which the Company was delinquent on approximately $440,000. Approximately
$400,000 of the net proceeds of this Offering will be used to pay Aladdin.
Concurrent with the agreement with Aladdin, The Archon Press, an Aladdin
affiliated company, agreed to invest $500,000 in the Company in return for
Common Stock. This investment was received by the Company over a period of
months in the fiscal year ended July 31, 1995, as follows:
o In October 1994, the Company issued 31,063 shares of its
Common Stock to Archon Press for an aggregate purchase
price of $200,000.
o In December 1994, the Company issued 15,531 shares of its
Common Stock to Archon Press for an aggregate purchase
price of $100,000.
o In February 1995, the Company issued 15,531 shares of its
Common Stock to Archon Press for an aggregate purchase
price of $100,000.
o In April 1995, the Company issued 15,531 shares of its
Common Stock to Archon Press for an aggregate purchase
price of $100,000.
In June 1995, the Company entered into Subscription Agreements
pursuant to which it sold to Applewood and 21st Century Funds, an aggregate of
155,437 shares of Common Stock, for an aggregate purchase price of 1,000,000.
In December 1995, the Company entered into the Loan and Security
Agreement which provides the Company with a $2.7 million revolving line of
credit. Such line of credit is partially collateralized by the Company's
accounts receivables which are personally guaranteed by Messrs. Graham and
Farrell and Ms. Reynolds. However, each of such officers has a right of
contribution from all of the current stockholders of the Company in the event
the Company fails to indemnify each of such officers from a claim under the
guaranty. Such officers do not intend to personally guarantee any indebtedness
or other obligations of the Company in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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<PAGE>
In April 1996, in connection with the Prebridge Financing, Applewood,
21st T-E, 21st Foreign and 21st Partners, entities that own more than 5% of the
outstanding Common Stock, purchased $250,000, $57,000, $23,000 and $170,000
principal amounts of the Prebridge Notes, respectively.
In August 1996, the Company consummated the Bridge Financing. As part
of such Bridge Financing, Applewood, 21st T-E, 21st Foreign and 21st Partners
converted their Prebridge Notes into Bridge Units and accordingly received
$250,000 principal amount of Bridge Notes and 125,000 Bridge Warrants, $57,000
principal amount of Bridge Notes and 28,500 Bridge Warrants, $23,000 principal
amount of Bridge Notes and 11,500 Bridge Warrants and $170,000 principal amount
of Bridge Notes and 85,000 Bridge Warrants, respectively. Upon the effective
date of this Offering, the Bridge Warrants will be automatically converted into
Warrants on a one-for-one basis. Messrs. Rubenstein and Fingerhut, Directors of
the Company are general partners of Applewood and are Directors and Officers of
InfoMedia, which is a general partner of 21st Foreign, 21st T-E and 21st
Partners. Mr. Marocco, a Director of the Company is an Officer and Director of
an entity which is a general partner of 21st Foreign, 21st T-E and 21st
Partners.
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 13,000,000 shares,
consisting of 12,000,000 shares of Common Stock, $.01 par value per share and
1,000,000 shares of preferred stock, $.01 par value per share ("Preferred
Stock"). As of October 15, 1996, there were 1,500,000 shares of Common Stock
outstanding. Upon the completion of this Offering there will be 3,000,000 shares
of Common Stock outstanding, after giving effect to the Preferred Stock
Conversion. No shares of Preferred Stock will be outstanding after the date
hereof.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for
each share held of record on all matters to be voted on by stockholders. There
is no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted can elect all of
the directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no redemption, preemptive or other subscription rights, and there
are no conversion provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby, when issued and paid for as set forth in this Prospectus, will be, fully
paid and nonassessable.
PREFERRED STOCK
On the effective date of the Registration Statement, of which this
Prospectus is a part, all of the outstanding shares of the Company's Preferred
Stock and all accrued and unpaid dividends thereon will convert into 473,692
shares of Common Stock (post-Reverse Stock Split) in accordance with the
Company's Articles of Incorporation, as amended. Subsequent to the Preferred
Stock Conversion, the Company's authorized shares of Preferred Stock may be
issued in one or more series, and the Board of Directors is authorized, without
further action by the stockholders, to designate the rights, preferences,
limitations and restrictions of and upon shares of each series, including
dividend, voting, redemption and conversion rights. The Board of Directors also
may designate par value, preferences in liquidation and the number of shares
constituting any series. The Company believes that the availability of Preferred
Stock issuable in series will provide increased flexibility for structuring
possible future financings and acquisitions, if any, and in meeting other
corporate needs. It is not possible to state the actual effect of the
authorization and issuance of any series of Preferred Stock upon the rights of
holders of Common Stock until the Board of Directors determines the specific
terms, rights and preferences of a series of Preferred Stock. However, such
effects might include, among other things, restricting dividends on the Common
Stock, diluting the voting power of the Common Stock, or impairing liquidation
rights of such shares without further action by holders of the Common Stock. In
addition, under various circumstances, the issuance of Preferred Stock may have
the effect of facilitating, as well as impeding or discouraging, a merger,
tender offer, proxy contest, the assumption of control by a holder of a large
block of the Company's securities or the removal of incumbent management.
Issuance of Preferred Stock could also adversely effect the market price of the
Common Stock. The Company has no present plan to issue any additional shares of
Preferred Stock.
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<PAGE>
WARRANTS
Each Warrant, including Warrants converted from Bridge Warrants, are
issued pursuant to a Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company as warrant agent. The following statements are subject
to the detailed provisions of and are qualified in their entirety by reference
to the Warrant Agreement, which is included as an exhibit to the Registration
Statement of which this Prospectus is a part.
During the four-year period commencing one year after the date of
this Prospectus, each Warrant will entitle the registered holder to purchase one
share of the Company's Common Stock at an exercise price of $4.50 per share. The
Warrants may be called by the Company with the Underwriter's prior consent, at
any time once they become exercisable, for a redemption price of $.01 per
Warrant if notice of not less than 30 days is given and the last sale price of
the Common Stock has been at least 155% of the then exercise price of the
Warrants on 20 of the 25 trading days ending on the third day prior to the day
on which notice is given. No fractional shares of Common Stock will be issued in
connection with the exercise of Warrants. Upon exercise, the Company will pay
the holder the value of any such fractional shares in cash, based upon the
market value of the Common Stock at such time.
The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
such Common Stock, and only if such Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws of the jurisdictions
in which the various holders of the Warrants reside. The Company has undertaken
and intends to file and keep current a prospectus which will permit the purchase
and sale of the Common Stock underlying the Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company intends
to seek to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the securities are to be offered, no assurance can be
given that such qualification will occur.
The Warrants will expire at 5:00 p.m., New York time, on the fifth
anniversary of the date of this Prospectus. In the event a holder of Warrants
fails to exercise the Warrants prior to their expiration, the Warrants will
expire and the holder thereof will have no further rights with respect to the
Warrants.
A holder of Warrants will not have any rights, privileges or
liabilities as a stockholder of the Company prior to exercise of the Warrants.
The Company is required to keep available a sufficient number of authorized
shares of Common Stock to permit exercise of the Warrants.
The exercise price of the Warrants and the number of shares issuable
upon exercise of the Warrants will be subject to adjustment to protect against
dilution in the event of a merger, acquisition, recapitalization, or split-up of
the Common Stock, the issuance of a stock dividend or any similar event. No
assurance can be given that the market price of the Company's Common Stock will
exceed the exercise price of the Warrants at any time during the exercise
period.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation, as amended, limits the personal
liability of a director or officer to the Company for monetary damages for
breach of fiduciary duty of care as a director. Liability is not eliminated for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or stock purchases or redemptions
-46-
<PAGE>
pursuant to Section 174 of the DGCL, or (iv) any transaction from which the
director derived an improper personal benefit.
The Company has also entered into indemnification agreements with
each of its directors and executive officers. The indemnification agreements
provide that the directors and executive officers will be indemnified to the
fullest extent permitted by applicable law against all expenses (including
attorneys' fees), judgments, fines and amounts reasonably paid or incurred by
them for settlement in any threatened, pending or completed action, suit or
proceeding, including any derivative action, on account of their services as a
director or officer of the Company or of any subsidiary of the Company or of any
other company or enterprise in which they are serving at the request of the
Company. No indemnification will be provided under the indemnification
agreements, however, to any director or executive officer in certain limited
circumstances, including on account of knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provisions may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to public policy.
DELAWARE LAW
The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly-held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions); or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.
The provisions of Section 203 of the DGCL could have the effect of
delaying, deferring or preventing a change in control of the Company.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The transfer agent, warrant agent and registrar for the Common Stock
and the Company's Warrants is Continental Stock Transfer & Trust Company, New
York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering and the conversion of the Preferred
Stock into Common Stock, the Company will have outstanding 3,000,000 shares of
Common Stock, not including shares of Common Stock issuable upon exercise of
outstanding options, Warrants or the Underwriter's Purchase Option and assuming
no exercise of the over-allotment option granted to the Underwriter.
-47-
<PAGE>
o Of these outstanding shares, the 1,500,000 shares of Common Stock
sold to the public in this Offering may be freely traded without
restriction or further registration under the Securities Act, except
that any shares that may be held by an "affiliate" of the Company
(as that term is defined in the rules and regulations under the
Securities Act) may be sold only pursuant to a registration under
the Securities Act or pursuant to an exemption from registration
under the Securities Act, including the exemption provided by Rule
144 adopted under the Securities Act.
o The 1,500,000 shares of Common Stock outstanding prior to the
consummation of this Offering are "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Restricted
Shares") and may not be sold unless such sale is registered under
the Securities Act, or is made pursuant to an exemption from
registration under the Securities Act, including the exemption
provided by Rule 144. Of such shares, 1,267,000 shares are presently
available for sale pursuant to Rule 144, (ii) 31,063 shares will be
available for sale pursuant to Rule 144 commencing October 1996,
(iii) 15,531 shares will be available for sale pursuant to Rule 144
commencing December 1996, (iv) 15,531 shares will be available for
sale pursuant to Rule 144 commencing February 1997 and (v) 15,531
shares will be available for sale pursuant to Rule 144 commencing
April 1997 and (vi) 155,344 shares will be available for sale
pursuant to Rule 144 commencing June 1997. All officers, directors
and existing stockholders of the Company have agreed that for a
period of 24 months after the date of this Prospectus, they will not
sell any of their shares (representing all of the Restricted Shares)
without the prior consent of the Underwriter. The Selling
Stockholders have agreed that they will not sell their Warrants
converted from their Bridge Warrants until 12 months after the date
of this Prospectus without the Underwriter's consent. The Company is
unable to predict the effect that sales made under Rule 144 or
otherwise may have on the market price of the Common Stock
prevailing at the time of any such sales. See "Description of
Securities."
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is given to the Securities and Exchange
Commission ("Commission"), provided certain public information, manner of sale
and notice requirements are satisfied. A stockholder who is deemed to be an
affiliate of the Company, including members of the Board of Directors and senior
management of the Company, will still need to comply with the restrictions and
requirements of Rule 144, other than the two-year holding period requirement, in
order to sell shares of Common Stock that are not Restricted Securities, unless
such sale is registered under the Securities Act. A stockholder (or stockholders
whose shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder, and
who has beneficially owned Restricted Shares for at least three years, will be
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. The Commission is currently considering a reduction
in the required holding periods under Rule 144.
No predictions can be made of the effect, if any, that future sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect the then-prevailing
market price.
-48-
<PAGE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has agreed to register for sale under the Securities Act
concurrently with the Offering the Warrants converted from the Bridge Warrants.
An aggregate of 875,000 Warrants may be offered and sold pursuant to this
Prospectus by the holders thereof. The Warrants offered by the Selling
Securityholders are not part of the underwritten Offering. The Company will not
receive any of the proceeds from the sale of the Warrants.
The shares of Common Stock and the Warrants registered for sale on
behalf of the Selling Securityholders under the Registration Statement of which
this Prospectus forms a part may be offered and sold from time to time in
transactions (which may include block transactions) on the Nasdaq SmallCap
Market ("Nasdaq") in negotiated transactions, or a combination of such methods
of sale, at fixed prices which may be changed, at market prices prevailing at
the time of sale, or at negotiated prices. The Selling Securityholders have
advised the Company that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their Warrants. The Selling Securityholders may effect such
transactions by selling their Warrants directly to purchasers or to or through
broker-dealers (including the Underwriter), which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Securityholders and/or
the purchasers of the Warrants for whom such broker-dealers may act as agents or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Securityholders and any broker-dealers that act in connection with the sale of
the Warrants might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act. The Selling Securityholders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the Warrants against certain liabilities, including liabilities arising
under the Securities Act. Notwithstanding that such Warrants are being
registered, the Selling Securityholders have agreed that none of such Warrants
may be sold prior to one year following the consummation of the Offering without
the prior written consent of the Underwriter. Notwithstanding the foregoing, the
Underwriter may, depending upon market conditions, release the lock-up prior to
one year.
The following table sets forth the name of each Selling Stockholder
and the number of Warrants and shares of Common Stock beneficially owned upon
the consummation of the Offering and prior to sale. All of such Warrants are
being registered for sale under the Registration Statement of which this
Prospectus forms a part, and the Company believes that all such Warrants will be
owned by the respective holders thereof following the consummation of the
Offering and prior to resale. Although none of the Selling Securityholders has
ever held any position or office with the Company or had any other material
relationship with the Company, 21st Partners, 21st T-E, 21st Foreign and
Applewood are affiliated with certain Directors and current stockholders of the
Company.
See "Principal Stockholders."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF
OWNED PRIOR TO WARRANTS
RESALE(1) REGISTERED
SELLING SECURITYHOLDERS NUMBER PERCENT FOR RESALE
- ----------------------- ------ ------- ----------
<S> <C> <C> <C>
Applewood Associates LP............................... 211,213 14.1% 125,000
Gordon M. Freeman..................................... 0 3.3% 100,000
21st Century Communications Partners, L.P............. 883,678(2) 29.5% 85,000
Steven Etra........................................... 0 1.0% 31,250
21st Century Communications T-E Partners, L.P......... 883,678(3) 29.5% 28,500
</TABLE>
-49-
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF
OWNED PRIOR TO WARRANTS
RESALE(1) REGISTERED
SELLING SECURITYHOLDERS NUMBER PERCENT FOR RESALE
- ----------------------- ------ ------- ----------
<S> <C> <C> <C>
Damerel Trading S.A................................... 0 * 25,000
ALSA, Inc............................................. 0 * 25,000
Rebecca Rubenstein.................................... 0 * 25,000
Jeffrey Rubinstein.................................... 0 * 25,000
William Wolfson....................................... 0 * 25,000
Chana Sasha Foundation................................ 0 * 16,667
Abraham Wolfson....................................... 0 * 16,667
Aaron Wolfson......................................... 0 * 16,666
Leon Abramson and Lorraine Abramson................... 0 * 12,500
Richard Ackerman...................................... 0 * 12,500
David Alexander....................................... 0 * 12,500
Neil Bellett.......................................... 0 * 12,500
Robert Bender......................................... 0 * 12,500
Daniel Berger and Carolyn Berger...................... 0 * 12,500
Kenneth D. Cole....................................... 0 * 12,500
Drew Effron........................................... 0 * 12,500
Chris Engel........................................... 0 * 12,500
Richard Etra and Kenneth Etra......................... 0 * 12,500
Andrew Feiner......................................... 0 * 12,500
Ernest Gottdiener..................................... 0 * 12,500
Paula Graff........................................... 0 * 12,500
Peter Hunt............................................ 0 * 12,500
Daniel A. Kaplan...................................... 0 * 12,500
Richard C. Kaufman and Elaine J. Lenart JTWROS........ 0 * 12,500
Norman Kurtz.......................................... 0 * 12,500
Mariwood Investments.................................. 0 * 12,500
Anthony Peyser........................................ 0 * 12,500
RJB Partners, L.P..................................... 0 * 12,500
Alan J. Rubin......................................... 0 * 12,500
Curtis Schenker....................................... 0 * 12,500
Alan and Nancy Shapiro................................ 0 * 12,500
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF
OWNED PRIOR TO WARRANTS
RESALE(1) REGISTERED
SELLING SECURITYHOLDERS NUMBER PERCENT FOR RESALE
- ----------------------- ------ ------- ----------
<S> <C> <C> <C>
Carl E. Siegel........................................ 0 * 12,500
21st Century Communications Foreign Partners, L.P..... 883,678(4) 29.5% 11,500
Steven Rosen.......................................... 0 * 6,250
Gregory Trubowitsch................................... 0 * 6,250
Charles Warshaw....................................... 0 * 6,250
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock upon the exercise of
options, warrants currently exercisable, or exercisable or
convertible within 60 days, are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants
but are not deemed outstanding for computing the percentage ownership
of any other person. As of the date of this Prospectus, none of the
Warrants are currently exercisable within 60 days and accordingly the
shares of Common Stock underlying such Warrants are not deemed to be
outstanding.
(2) Represents (i) 599,160 shares of Common Stock owned by 21st Partners
and 203,856 shares of Common Stock owned by 21st T-E and 80,662
shares of Common Stock owned by 21st Foreign, of which 21st Partners
disclaims beneficial ownership.
(3) Represents (i) 203,856 shares of Common Stock owned by 21st T-E and
(ii) 599,160 shares of Common Stock owned by 21st Partners and 80,662
shares of Common Stock owned by 21st Foreign, of which 21st T-E
disclaims beneficial ownership.
(4) Represents (i) 80,662 shares of Common Stock owned by 21st Foreign
and (ii) 599,160 shares of Common Stock owned by 21st Partners and
203,856 shares of Common Stock owned by 21st T-E, of which 21st
Foreign disclaims beneficial ownership.
UNDERWRITING
GKN Securities ("Underwriter"), has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,500,000 shares of Common Stock and 1,500,000 Warrants (collectively, the
"Securities"). The obligations of the Underwriter under the Underwriting
Agreement are subject to approval of certain legal matters by counsel and
various other conditions precedent, and the Underwriter is obligated to purchase
all of the Securities offered by this Prospectus (other than the Securities
covered by the over-allotment option described below), if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the initial offering price set forth on the cover
page of this Prospectus and to certain dealers at that price less a concession
not in excess of $ per share of Common Stock. The Underwriter may allow, and
such dealers may reallow, a concession not in excess of $ per share of Common
Stock to certain other dealers. After this Offering, the offering price and
other selling terms may be changed by the Underwriter.
-51-
<PAGE>
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to 3% of the gross proceeds derived from the sale of the Securities
offered by this Prospectus (including the sale of any Securities subject to the
Underwriter's over-allotment option), $50,000 of which has been paid to date.
The Company also has agreed to pay all expenses in connection with qualifying
the shares of Common Stock offered hereby for sale under the laws of such states
as the Underwriter may designate and registering this Offering with the National
Association of Securities Dealers, Inc., including fees and expenses of counsel
retained for such purposes by the Underwriter.
The Company has granted to the Underwriter an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase from the
Company at the offering price, less underwriting discounts and the
nonaccountable expense allowance, up to an aggregate of 225,000 additional
shares of Common Stock and/or 225,000 additional Warrants for the sole purpose
of covering over-allotments, if any.
The Company has engaged the Underwriter, on a non-exclusive basis, as
its agent for the solicitation of the exercise of the Warrants. Additionally,
other NASD members may be engaged by the Underwriter in its solicitation
efforts. To the extent not inconsistent with the guidelines of the NASD and the
rules and regulations of the Commission, the Company has agreed to pay the
Underwriter for bona fide services rendered a commission equal to 5% of the
exercise price for each Warrant exercised if the exercise was solicited by the
Underwriter. In addition to soliciting, either orally or in writing, to
warrantholders about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of the Warrants, such services may
also include disseminating information, either orally or in writing, to
warrantholders about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of Warrants. No compensation will be
paid to the Underwriter in connection with the exercise of the Warrants if the
market price of the underlying shares of Common Stock is lower than the exercise
price, the Warrants are held in a discretionary account, the Warrants are
exercised in an unsolicited transaction, the warrantholder has not confirmed in
writing that the Underwriter solicited such exercise or the arrangement to pay
the commission is not disclosed in the prospectus provided to warrantholders at
the time of exercise. In addition, unless granted an exemption by the Commission
from Rule 10b-6 under the Exchange Act, while it is soliciting exercise of the
Warrants, the Underwriter will be prohibited from engaging in any market
activities or solicited brokerage activities with regard to the Company's
securities unless the Underwriter has waived its right to receive a fee for the
exercise of the Warrants.
In connection with this Offering, the Company has agreed to sell to
the Underwriter for an aggregate of $100, the Underwriter's Purchase Option,
consisting of the right to purchase up to an aggregate of 150,000 shares of
Common Stock and/or an aggregate of 150,000 Warrants. The Underwriter's Purchase
Option is exercisable initially at a price of % of the initial offering price of
the Securities for a period of four years commencing one-year from the date
hereof. The Underwriter's Purchase Option may not be transferred, sold, assigned
or hypothecated during the one year period following the date of this Prospectus
except to officers of the Underwriter and the selected dealers and their
officers or partners. The Underwriter's Purchase Option grants to the holders
thereof certain "piggyback" and demand rights for periods of seven and five
years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the Underwriter's Purchase Option.
Pursuant to the Underwriting Agreement, all of the officers,
directors and existing shareholders of the Company and any of such person's
respective affiliates as of the date of this Prospectus have agreed not to sell
any of their shares of Common Stock (who hold in the aggregate 1,500,000
outstanding shares of Common Stock) until 24 months from the date of this
Prospectus. In addition, the Underwriting Agreement provides that, for a period
of three years from the date of this Prospectus, the Company will recommend and
use its best efforts to elect a designee of the Underwriter as a member of the
Board of Directors. Alternatively, the Underwriter will have the right to send a
representative to observe each meeting of the Board of Directors. The
Underwriter has not yet selected such designee or representative. During the
three year period following the date of this Prospectus, the Underwriter shall
have the right to purchase for the Underwriter's account or to sell for the
account of the officers and directors of the Company (and any family member or
affiliate of any of the foregoing persons), any securities sold by any of such
persons in the open market.
-52-
<PAGE>
Prior to this Offering, there has been no public market for any of
the Company's securities. Accordingly, the offering price of the securities and
the terms of the Warrants have been determined by negotiation between the
Company and the Underwriter and do not necessarily bear any relation to
established valuation criteria. Factors considered in determining such prices
and terms, in addition to prevailing market conditions, included an assessment
of the prospect for the industry in which the Company will compete, the
Company's management and the Company's capital structure.
In August 1996, the Underwriter acted as placement agent in the
Bridge Financing and was paid commissions of $148,750 (8.5%) and a
nonaccountable expense allowance of $52,500 (3%).
LEGAL MATTERS
Certain legal matters in connection with the securities offered
hereby are being passed upon for the Company by Olshan Grundman Frome &
Rosenzweig LLP, New York, New York. Graubard Mollen & Miller, New York, New
York, has served as counsel to the Underwriter in connection with this Offering.
EXPERTS
The financial statements of Millbrook as of July 31, 1995 and 1996
and for each of the years in the two year period ended July 31, 1996 have been
included herein and in the Registration Statement of which this Prospectus is a
part, in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement
under the Securities Act with respect to the Common Stock and Warrants offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, the securities
offered by this Prospectus and such omitted information, reference is made to
the Registration Statement, including any and all exhibits and amendments
thereto. Statements contained in this Prospectus concerning the provisions of
any document filed as an exhibit are of necessity brief descriptions thereof and
are not necessarily complete, and in each instance reference is made to the copy
of the document filed as an exhibit to the Registration Statement, each such
statement being qualified in its entirety by this reference.
Following the effectiveness of the Registration Statement, the
Company will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith the Company files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, New York, New
York 10048. Copies of such material, including the Registration Statement, can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock and
the Warrants are traded on the Nasdaq SmallCap Market and The Boston Stock
Exchange. The foregoing material also should be available for inspection at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C., 20006 and The Boston Stock Exchange, One Boston Place, Boston,
Massachusetts 02108. The Commission also maintains a cite on the Worldwide Web
that contains reports, proxy and information statements and other information
regarding Registrants that file electronically. The address of such cite is
http://www.sec.gov.
-53-
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited and reported on by its
independent public accounting firm, and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
-54-
<PAGE>
THE MILLBROOK PRESS INC.
Financial Statements
July 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and The Board of Directors
The Millbrook Press Inc.:
We have audited the accompanying balance sheets of The Millbrook Press Inc. as
of July 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Millbrook Press Inc. as of
July 31, 1995 and 1996 and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
October 16, 1996
New York, New York
<PAGE>
THE MILLBROOK PRESS INC.
Balance Sheets
July 31, 1995 and 1996
<TABLE>
<CAPTION>
Assets 1995 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 538,000 134,000
Accounts receivable (less allowance for returns and
bad debts of $213,000 in 1995 and $329,000 in 1996) 1,283,000 2,084,000
Inventories 2,658,000 3,477,000
Royalty advances, net 394,000 364,000
Prepaid expenses 326,000 292,000
------------ ------------
Total current assets 5,199,000 6,351,000
------------ ------------
Plant costs, net 2,063,000 2,582,000
Fixed assets, net 235,000 270,000
Goodwill, net 3,431,000 3,245,000
Royalty advances, net 127,000 67,000
Other assets 23,000 59,000
------------ ------------
Total assets $ 11,078,000 12,574,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable to banks (note 4) $ 2,000,000 2,742,000
Accounts payable and accrued expenses 1,483,000 2,141,000
Royalties payable 91,000 150,000
------------ ------------
Total current liabilities 3,574,000 5,033,000
Shareholder notes (note 5) -- 500,000
------------ ------------
Total liabilities 3,574,000 5,533,000
------------ ------------
Commitments (note 9)
Stockholders' equity:
12% Series A voting, cumulative Preferred Stock, par value
$.01 per share; authorized 10,000 shares; issued and
outstanding 4,700 shares (at aggregate liquidation
preference including dividends in arrears) 5,534,000 6,190,000
Common stock - par value $.01 per share, authorized
5,000,000 shares; issued and outstanding 1,026,308
shares in 1995 and 1996 10,000 10,000
Additional paid-in capital 3,991,000 3,991,000
Accumulated deficit (2,031,000) (3,150,000)
------------ ------------
Total stockholders' equity 7,504,000 7,041,000
------------ ------------
Total liabilities and stockholders' equity $ 11,078,000 12,574,000
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Operations
Years Ended July 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net sales $ 6,866,000 9,940,000
Cost of sales 3,407,000 5,099,000
----------- -----------
Gross profit 3,459,000 4,841,000
----------- -----------
Operating expenses:
Selling and marketing 3,024,000 3,854,000
General and administrative 1,051,000 1,205,000
----------- -----------
Total operating expenses 4,075,000 5,059,000
----------- -----------
Operating loss (616,000) (218,000)
Interest expense 190,000 245,000
----------- -----------
Net loss (806,000) (463,000)
Preferred dividend accrued (589,000) (656,000)
----------- -----------
Net loss available to common stockholders $(1,395,000) (1,119,000)
=========== ===========
Loss per share after preferred dividend
requirements (primary and fully diluted) $ (1.60) (1.09)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Stockholders' Equity
Years Ended July 31, 1995 and 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- ----------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994 4,700 4,945,000 793,215 8,000 2,493,000 (636,000) 6,810,000
Sale of common stock -- -- 233,093 2,000 1,498,000 -- 1,500,000
Preferred stock dividend -- 589,000 -- -- -- (589,000) --
Net loss -- -- -- -- -- (806,000) (806,000)
--------- --------- --------- --------- --------- --------- ---------
Balance at July 31, 1995 4,700 5,534,000 1,026,308 10,000 3,991,000 (2,031,000) 7,504,000
Preferred stock dividend -- 656,000 -- -- -- (656,000) --
Net loss -- -- -- -- -- (463,000) (463,000)
--------- --------- --------- --------- --------- --------- ---------
Balance at July 31, 1996 4,700 $6,190,000 1,026,308 $ 10,000 3,991,000 (3,150,000) (7,041,000)
========= ========== ========= ========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Cash Flows
Years Ended July 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (806,000) (463,000)
Depreciation and amortization 1,102,000 1,047,000
Provision for returns and bad debts 18,000 116,000
Changes in assets and liabilities:
Increase in accounts receivable (252,000) (917,000)
Increase in inventories (1,034,000) (819,000)
Decrease in royalty advances 57,000 90,000
(Increase) decrease in prepaid expenses (194,000) 34,000
Increase in other assets -- (36,000)
Increase in accounts payable and
accrued expenses 480,000 658,000
Increase in royalties payable 26,000 59,000
----------- -----------
Net cash used in operating activities (603,000) (231,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (112,000) (102,000)
Plant costs (1,221,000) (1,313,000)
Net cash used in investing activities (1,333,000) (1,415,000)
----------- -----------
Cash flows from financing activities:
Repayment of debt -- (2,000,000)
Proceeds from borrowings under notes payable 600,000 3,242,000
Proceeds from sale of capital stock 1,500,000 --
----------- -----------
Net cash provided by financing activities 2,100,000 1,242,000
----------- -----------
Net increase (decrease) in cash 164,000 (404,000)
Cash at beginning of period 374,000 538,000
----------- -----------
Cash at end of period $ 538,000 134,000
=========== ===========
Supplemental disclosures:
Interest paid $ 190,000 239,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE MILLBROOK PRESS INC.
Notes to Financial Statements
July 31, 1995 and 1996
(1) DESCRIPTION OF THE BUSINESS AND FINANCIAL STATUS AND PLANS
DESCRIPTION OF THE BUSINESS
The Millbrook Press Inc. (the Company) was incorporated and commenced
operations as an independent company on February 23, 1994. The Company is
a publisher of nonfiction children's books, in both hardcover and
paperbacks, for preschoolers through young adults. The Company's books
are distributed to the school and public library market, trade bookstores
and other specialty retail and direct sales markets through wholesalers,
its own telemarketing efforts and commissioned sales representatives. The
Company was formed to acquire the net assets of a wholly owned subsidiary
of Antia Publishing Company, which is a wholly owned subsidiary of Groupe
de la Cite International, a French Corporation.
On February 23, 1994 the Company sold 4,700 shares of preferred stock and
715,683 shares of common stock for a total of $6,700,000 and used a
portion of such proceeds to acquire substantially all of the net assets
related to the business of the Company. In conjunction with the
acquisition, the purchase price was allocated as follows:
Cash paid, including acquisition costs $ 3,025,000
Fair value of liabilities assumed 6,384,000
----------
Total purchase price 9,409,000
Less: Fair value of assets acquired 5,718,000
----------
Costs in excess of fair value of net assets acquired $ 3,691,000
==========
Also on February 23, 1994, the Company repaid acquired debt payable to
Societe Generale in the amount of $4,911,000.
During fiscal 1995 and June 1994, the Company sold 233,093 and 77,532
shares of common stock for $1,500,000 and $500,000, respectively. Of the
233,093 shares sold, 77,656 were sold to The Archon Press through the
transaction described below.
Concurrent with the agreement with Aladdin Books, detailed in note 9, The
Archon Press, an Aladdin affiliated company, agreed to invest $500,000 in
the Millbrook Press. This investment was received over a period of months
in fiscal 1995. Archon currently owns 77,656 common shares (7.57%) of the
Company.
FINANCIAL STATUS AND PLANS
The Company has incurred losses of $1,660,000 since its inception. The
Company has taken or is planning the following actions to fund its
ongoing operations and to maintain compliance with certain covenants
relating to its notes payable to bank.
<PAGE>
2
THE MILLBROOK PRESS INC.
Notes to Financial Statements
o The Company has obtained a deferral of compliance with certain
covenants under its notes payable to bank through December 31,
1996.
o In August 1996, the Company received proceeds of $1,036,000,
net of offering costs ($214,000) and the conversion of
shareholder loans ($500,000) as described in note 12. These
proceeds were used to fund working capital requirements. The
aggregate debt of $1,750,000 becomes due and payable upon the
earlier of February 28, 1998 or the completion of an initial
public offering by the Company.
o The Company is in the process of offering 1,500,000 shares of
common stock in an initial public offering to raise
approximately $6,325,000 which is scheduled for completion in
the second quarter of fiscal 1997. Management intends to use
the proceeds to repay the $1,750,000 bridge loan and finance
its working capital needs and the expansion of its operations.
There can be no assurance that the initial public offering will be
successfully completed and that, absent of the initial public offering,
the Company will be in compliance with its debt covenants once the waiver
expires on December 31, 1996 or that the Company will be able to repay
its indebtedness when due. If the initial public offering is not
successfully completed, the Company anticipates that it will have to
refinance existing indebtedness, sell assets and/or otherwise raise funds
in either the private or public markets and seek further waivers from its
lenders. There can be no assurance, however, that the Company will be
able to raise such funds.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISKS
Revenue from the sale of books to wholesalers is recognized at shipment.
The Company provides a reserve for product returns. Sales from
telemarketing activities are recognized when the customer accepts all or
part of a sample shipment.
Ongoing credit evaluations of customers' financial condition are
performed and collateral is not required. One customer accounted for 19%
and 17% of the Company's net sales for the years ended July 31, 1995 and
1996, respectively.
INVENTORIES
Inventories of sheets and bound books, which are primarily located in a
public warehouse and in-transit or at customers as inventory on preview,
are stated at the lower of cost or market, with cost determined by the
average cost method.
<PAGE>
3
THE MILLBROOK PRESS INC.
Notes to Financial Statements
ROYALTY ADVANCES
Licensing agreements for rights to future publications usually require a
non-refundable partial payment of the royalty in advance of the
publication. The Company charges royalty advances to expense in the
period during which the related sales are recorded. If it appears that an
advance will exceed total royalties to be incurred based upon estimated
sales, such excess is immediately expensed. Royalty advances for
publications to be published in excess of one year from the balance sheet
date are classified as non-current assets.
PLANT COSTS
Plant costs consisting of plates, photo engraving, separations, and other
text costs of unpublished books are amortized over three to five years
from publication date or the estimated remaining life, if shorter. Plant
costs at July 31, 1995 and 1996 are presented net of accumulated
amortization of $1,300,000 and $979,000, respectively.
ADVERTISING COSTS
Advertising costs consisting of the costs of producing and distributing
catalogs are expensed in the periods in which the costs are incurred.
Advertising expense for the years ended July 31, 1995 and 1996 was
$349,000 and $328,000, respectively.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation and amortization of fixed
assets are computed on the straight-line method based on useful lives
ranging from 7-10 years for office furniture and equipment and 5 years
for computers. Leasehold improvements are amortized over the lesser of
the lease term or the life of the asset.
GOODWILL AND OTHER LONG LIVED ASSETS
Goodwill represents the excess of the cost over the fair value of the net
assets of the Company acquired on February 23, 1994. For financial
reporting purposes, the excess of cost over the fair value of net assets
acquired is amortized over 20 years using the straight-line method.
Accumulated amortization at July 31, 1995 and 1996 is $259,000 and
$446,000, respectively. Pursuant to Internal Revenue Code Section 197,
for Federal income tax purposes such goodwill is deductible over 15
years.
The Company systematically reviews the recoverability of its long lived
assets by comparing their unamortized carrying value to their anticipated
undiscounted future cash flows. Any impairment is charged to expense when
such determination is made.
<PAGE>
4
THE MILLBROOK PRESS INC.
Notes to Financial Statements
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be realized or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
EARNINGS PER SHARE
Earnings (loss) per share are net earnings (loss) less the dividend
requirements on preferred stock, divided by the weighted average number
of common stock outstanding for the periods. Per share data does not
assume the exercise of common stock options issued under the
non-qualified 1994 Stock Option Plan or the exercise of the warrants
issued in conjunction with the Bridge financing (note 12) because the
effects of such exercise would have been antidilutive. Per share data
reflects the reverse stock split effected on August 29, 1996 described in
note 12.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting
for Stock-Based Compensation. As allowable by SFAS 123, the Company does
not intend to recognize compensation cost for stock-based employee
compensation arrangements, but rather, starting if fiscal 1997, will
disclose the pro-forma impact on net income (loss) and earnings (loss)
per share as if the fair value stock-based compensation had been
recognized starting in fiscal 1996.
Other pronouncements issued by the FASB or other authoritative accounting
standard groups with future effective dates are either not applicable or
are not significant to the financial statements of the Company.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the reported amounts of revenue and expenses during the reported
periods. Actual results could vary from the estimates and assumptions
used in the preparation of the accompanying financial statements.
<PAGE>
5
THE MILLBROOK PRESS INC.
Notes to Financial Statements
(3) Fixed Assets
Fixed assets at July 31, 1995 and 1996 consist of the following:
1995 1996
---- ----
Office furniture and equipment $ 105,000 125,000
Computers 176,000 241,000
Telecommunication equipment 25,000 33,000
Leasehold improvements 19,000 28,000
---------- -----------
325,000 427,000
Accumulated depreciation (90,000) (157,000)
---------- -----------
$ 235,000 270,000
========== ===========
(4) NOTES PAYABLE TO BANKS
The Company had a revolving line of credit from a bank that expired
December 31, 1995. The note payable provided for an interest rate at the
bank's base rate (8.75% at July 31, 1995) plus .5% and was collateralized
by substantially all of the assets of the Company. The maximum available
principal amount was $2,000,000, all of which was outstanding at July 31,
1995.
On December 14, 1995, the Company entered into a revolving line of credit
agreement with a bank that provides for borrowings up to $2,700,000. The
proceeds of the new line of credit were used to pay-off the $2,000,000
outstanding principal balance of the previous note. The new line of
credit expires on December 15, 1998 and provides for an interest rate at
the bank's base rate plus .5% (8.75% at July 31, 1996). On July 29, 1996
the bank increased the available line of credit to $2,875,000. The
additional line of $175,000 expired August 31, 1996. At July 31, 1996,
the amount outstanding under this credit agreement was $2,742,000. The
advances under this line of credit are collateralized by substantially
all of the assets of the Company.
The revolving line of credit contains various covenants which include,
among other things, a minimum tangible net worth requirement. Although
the Company has not been in default under its line of credit agreement,
in anticipation of the Bridge Loan (decribed in note 12) and in order to
maintain compliance with certain covenants, the Company has obtained a
waiver of certain covenants from the bank that expires on December 31,
1996. The revolving line of credit prohibits the Company from the
declaration or payment of dividends without the banks prior consent,
however, dividends on preferred stock may continue to accrue.
<PAGE>
6
THE MILLBROOK PRESS INC.
Notes to Financial Statements
(5) SHAREHOLDER NOTES
On April 15, 1996, the Company issued interest bearing promissory notes
to certain shareholders for an aggregate of $500,000. The notes carried
interest at 10% and were converted into units sold by the Company as part
of the private placement bridge offering completed by the Company on
August 29, 1996 as described in note 12.
(6) INCOME TAXES
No Federal or state income taxes have been provided for the years ended
July 31, 1995 and 1996 due to the Company's net operating losses. The
actual income tax expense differs from the "expected" income tax benefit
computed by applying the U.S. Federal corporate income tax rate to loss
before income taxes for the years ended July 31, 1995 and 1996 as
follows:
1995 1996
---- ----
Computed "expected" income tax benefit $ (274,000) (158,000)
State and local income taxes, net of
Federal benefit (32,000) (18,000)
Increase in valuation allowance 302,000 171,000
Nondeductible expenses 4,000 5,000
--------- -----------
Provision for income taxes $ - -
========= ==========
<PAGE>
7
THE MILLBROOK PRESS INC.
Notes to Financial Statements
The tax effects of temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that give rise
to the deferred tax assets and deferred tax liabilities at July 31, 1995
and 1996 are the following:
1995 1996
---- ----
Deferred tax assets:
Accounts receivable allowances $ 81,000 125,000
Inventory reserves 44,000 104,000
Accruals not currently deductible 6,000 17,000
Plate and revision costs amortization 241,000 230,000
Net operating loss carryforwards 259,000 368,000
-------- --------
631,000 844,000
Less: Valuation allowance 608,000 779,000
-------- --------
Net deferred tax asset 23,000 65,000
Deferred tax liabilities:
Goodwill amortization (21,000) (56,000)
Fixed asset depreciation (2,000) (9,000)
-------- --------
(23,000) (65,000)
Net deferred income taxes $ - -
======== =======
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax asset will be realized. The ultimate realization of the
deferred tax asset is dependent upon the generation of future taxable
income during the periods in which temporary differences or net operating
loss carryforwards become deductible. Based on the Company's net
operating losses to date, the Company has established a valuation
allowance of $779,000 at July 31, 1996. The Company's tax net operating
loss carryforward of approximately $970,000 at July 31, 1996 expires in
the years 2009 to 2011. The Tax Reform Act of 1986 included certain
provisions relating to changes in stock ownership which, if triggered,
could result in future annual limitations on the utilization of the net
operating loss carryforwards.
<PAGE>
8
THE MILLBROOK PRESS INC.
Notes to Financial Statements
(7) STOCK OPTION PLAN
The Company has reserved 310,000 shares of common stock under its
non-qualified 1994 Stock Option Plan (the "Option Plan") which provides
that a Committee, appointed by the Board of Directors, may grant stock
options to eligible employees, officers of the Company or its affiliates.
The number of shares reserved for issuance is adjusted in accordance with
the provisions of the Plan. All stock options granted by the Company
expire seven years after the grant date and are issued at exercise prices
which are not less than the estimated fair value of the stock as
determined by the Company on the date of grant. Stock options vest in 20%
increments in each of the five years after the date of grant. In the
event the Company has an initial public offering, all non-vested options
on the effective date of the initial public offering will vest 50% one
year from that date and an additional 50% two years from that date.
As of July 31, 1995 and 1996, there were options outstanding for 245,500
shares and 285,000 shares, respectively, at an exercise price of $8.00
per share. As of July 31, 1996, there were 107,000 options exercisable.
During fiscal 1996, no options were canceled.
In August and October 1996, the Company granted an additional 25,000 and
80,000 shares, respectively, under the Option Plan.
In October 1996, the Company amended the Option Plan to increase the
number of shares of common stock reserved under the Option Plan from
310,000 to 475,000; decrease the exercise price from $8.00 per share to
the initial public offering price; permit the granting of incentive stock
options; and allow the Stock Option and Compensation Committee of the
Board of Directors to set vesting provision at the time of grant for
future stock options granted.
(8) 401(K) PROFIT SHARING PLAN
The Company maintains a Non-standardized Prototype Cash or Deferred
Profit Sharing 401(k) Plan ("the Plan"). Participation in the Plan by
employees requires that they complete one month of service for the
Company and attain 21 years of age. Employees on the Plan's effective
date did not have to satisfy the one-month service requirement. The
Company determines each year a discretionary matching contribution. Such
additional contribution, if any, shall be allocated to employees in
proportion to each participant's contribution. The Company did not
contribute to the Plan during the years ended July 31, 1995 and 1996.
(9) COMMITMENTS
The Company leases office facilities under operating leases which expire
at various dates through 2004. The leases are subject to escalation
clauses as they relate to certain expenses of the lessor, i.e., utilities
and real estate taxes.
<PAGE>
9
THE MILLBROOK PRESS INC.
Notes to Financial Statements
Minimum future rental payments under non-cancelable operating leases
having initial or remaining terms in excess of one year are as follows:
Year ending
July 31 Amount
------- ------
1997 $ 124,000
1998 130,000
1999 131,000
2000 134,000
2001 138,000
Thereafter 250,000
----------
$ 907,000
============
Rent expense for the years ended July 31, 1995 and 1996 was $138,000 and
$126,000, respectively.
In May 1994, the Company entered into an agreement with Aladdin Books, a
British publishing company, whereby Aladdin agreed to produce
approximately 50 books per year for Millbrook through January 1, 2002.
The titles are to be wholly owned by Millbrook. Aladdin is responsible
for production, printing and binding. Production costs are shared by
Aladdin and Millbrook. Aladdin retains sales rights for these titles to
countries other than the United States, Canada and the Philippines.
Royalties are paid to Aladdin based on Millbrook sales. Development
recovery amounts are paid to Millbrook based on sales by Aladdin to other
parts of the world. Net payables to Aladdin at July 31, 1995 and 1996 are
$355,000 and $556,000, respectively.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The carrying amount approximates fair value because of the short term
maturity of these instruments.
NOTES PAYABLE
The carrying amount of these financial instruments approximates fair
values based on the fact that the related interest rates fluctuate with
market rates.
<PAGE>
10
THE MILLBROOK PRESS INC.
Notes to Financial Statements
(11) PREFERRED STOCK
The Company's preferred stock has a preference in liquidation of $1,000
per share and is redeemable at the option of the Company at the
liquidation value plus accrued and unpaid dividends. The terms of the
preferred stock provide for annual cumulative dividends equal to 12% of
the liquidation value, which are added to the liquidation value each
March 31. In the event the Company has an initial public offering, all
preferred shares outstanding, plus accrued and unpaid dividends will
convert to 473,692 shares of common stock. At July 31, 1996 dividends in
arrears amounted to $1,490,000 ($317 per share).
(12) SUBSEQUENT EVENTS
RECAPITALIZATION PLAN
In August 1996 the board of directors of the Company approved a
recapitalization plan that includes (i) a bridge financing (the "Bridge
Loan") in the principal amount $1,750,000 and the issuance of an
aggregate amount of 875,000 warrants as outlined below (ii) a planned
initial public offering of 1,500,000 shares of common stock and 1,500,000
warrants (the "IPO Warrants") to purchase one share of common stock for
$4.50.
In connection with the Bridge Loan, the Company effected a reverse stock
split of common stock on the basis of .3976 shares of common stock for
each share of common stock. Common stock outstanding and earnings (loss)
per share data reflect the reverse stock split for all periods presented.
On October 16, 1996 the Company increased the number of authorized shares
of common stock from 5,000,000 shares to 12,000,000 shares and increased
the number of authorized shares of preferred stock from 10,000 shares to
1,000,000 shares. The preferred stock may be issued by the Board of
Directors on such terms and with such rights, preferences and
designations as the Board may determine without any vote of the
stockholders.
BRIDGE LOAN
On August 29, 1996, the Company consummated the closing of a private
placement bridge offering in which it sold 17-1/2 units for an aggregate
of $1,750,000. Each unit consists of a $100,000 interest bearing
unsecured convertible promissory note (the "Note") and a warrant to
purchase 50,000 shares of common stock at an initial exercise price of
$5.00 per share (the "Warrant"). On the effective date of an initial
public offering the Warrants automatically convert into an aggregate
875,000 IPO Warrants. The Note provides for interest at a rate of 10% per
annum through November 30, 1996 and thereafter a rate of 15% per annum
and is payable upon the earlier of February 28, 1998 or the closing of an
initial public offering by the Company. The carrying value of the Note
has been reduced by $22,500 to reflect the fair market value of the
Warrants at issue date and will be accreted up to the face value of
<PAGE>
11
THE MILLBROOK PRESS INC.
Notes to Financial Statements
$1,750,000 using the interest method. Fees incurred in connection with
the financing were $214,000.
In the event the Company does not successfully complete an initial public
offering the holders of the Notes can elect to convert the entire
principal amount and interest payable into the number of shares of common
stock equal to the principal amount and interest payable divided by
$2.50.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
-----------------
TABLE OF CONTENTS
PAGE
Prospectus Summary..........................................
The Company.................................................
Risk Factors................................................
Dilution....................................................
Use of Proceeds.............................................
Capitalization..............................................
Dividend Policy.............................................
Price Range of Common Stock.................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................
Business....................................................
Management..................................................
Principal Stockholders......................................
Certain Transactions........................................
Description of Securities...................................
Shares Eligible For Future Sale.............................
Selling Securityholders.....................................
Underwriting................................................
Legal Matters...............................................
Experts.....................................................
Available Information.......................................
Index to Financial Statements...............................
UNTIL DECEMBER __, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK AND THE WARRANTS, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------
THE MILLBOOK PRESS INC.
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
-----------------
PROSPECTUS
-----------------
GKN SECURITIES
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Except as hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director or officer of The Millbrook Press Inc. ("Company") is insured
or indemnified in any manner against liability which he may incur in his
capacity as such.
The Certificate of Incorporation, as amended ("Certificate of
Incorporation"), of the Company provides that the Company shall indemnify to the
fullest extent permitted by Delaware law any person whom it may indemnify
thereunder, including directors, officers, employees and agents of the Company.
The pertinent section of Delaware law is set forth below in full. Such
indemnification (other than as ordered by a court) shall be made by the Company
only upon a determination that indemnification is proper in the circumstances
because the individual met the applicable standard of conduct. Advances for such
indemnification may be made pending such determination. Such determination shall
be made by a majority vote of a quorum consisting of disinterested directors, or
by independent legal counsel or by the stockholders. In addition, the
Certificate of Incorporation provides for the elimination, to the extent
permitted by Delaware law, of personal liability of directors to the Company and
its stockholders for monetary damages for breach of fiduciary duty as directors.
The Company obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000. The policy insures directors
and officers against unindemnified loss arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act").
Section 145 of the General Corporation Law provides as follows:
(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right
of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation
II-1
<PAGE>
unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
(g) A corporation shall have 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 as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the
II-2
<PAGE>
interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
The Company has also agreed to indemnify each director and executive
officer pursuant to an Indemnification Agreement with each such director and
executive officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or executive officer for or as a result
of action taken or not taken while such director or executive officer was acting
in his capacity as a director, officer, employee or agent of the Company.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses to be
borne by the Company in connection with the offering described in the
Registration Statement, other than underwriting commissions and discounts.
Registration Fee................................................. 6,442.45
National Association of Securities Dealers, Inc. Fee............. 2,626.01
Nasdaq SmallCap Market and The Boston Stock Exchange Filing
Fee..............................................................
Legal Fees and Expenses..........................................
Accounting Fees and Expenses.....................................
Printing and Engraving Expenses..................................
Blue Sky Fees and Expenses....................................... 50,000.00
Transfer Agent's and Registrar's Fees............................
Miscellaneous Expenses...........................................
--------------
Total.................................................... 330,500.00
==============
- ------------------
* Estimate
** To be filed by amendment.
II-3
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the following securities were sold by the
Company without registration under the Securities Act. Except as otherwise
indicated, the securities were sold by the Company in reliance upon the
exemption provided by Section 4(2) of the Securities Act. With respect to all
transactions prior to August 1996, all share numbers in this section have been
adjusted to reflect (i) the reverse stock split of the Company's Common Stock,
$.01 par value ("Common Stock") on the basis of .3976 shares of Common Stock for
each share of Common Stock ("Reverse Stock Split") or (ii) the conversion of all
of its outstanding Series A Redeemable Voting Preferred Stock, $.01 par value
("Preferred Stock") and all accrued and unpaid dividends into 473,692 shares of
Common Stock in accordance with the Company's Articles of Incorporation after
giving effect to the Reverse Stock Split.
In February 1994, the Company was incorporated and acquired
substantially all of the assets of The Millbrook Press Inc. In connection with
such merger the following persons received the following shares.
Number of Shares
Name of Common Stock
- ---- ---------------
Frank Farrell...................................... 69,779
Howard Graham...................................... 69,779
Jean Reynolds...................................... 15,506
Applewood Associates, L.P.......................... 517,154
Barry Fingerhut.................................... 25,858
Woodland Partners.................................. 25,858
Irwin Lieber....................................... 25,858
Jonathan Lieber.................................... 4,310
Seth Lieber........................................ 4,310
Sandler Capital Management......................... 344,769
Harvey Sandler..................................... 27,583
John Kornriech..................................... 17,239
Michael Marocco.................................... 17,239
Barry Lewis........................................ 17,239
Andrew Sandler..................................... 4,310
Hannah Stone....................................... 2,586
----------
Total........................................... 1,189,377
=========
In June 1994, Sandler Capital Management transferred 344,769 shares of
Common Stock to 21st Century Investments ("21st Investments"), which in turn
transferred such shares of Common Stock to its affiliates, 21st Century Foreign
Partners ("21st Foreign"), 21st Century Communications Partners, L.P. ("21st
Partners") and 21st Century Communications T-E Partners, L.P. ("21st T-E"), pro
rata according to such entity's interest in 21st Investments.
In June 1994, Applewood Associates, L.P. ("Applewood") transferred
344,767 shares of Common Stock to 21st Investments, which in turn transferred
such shares of Common Stock to its affiliates, 21st Foreign, 21st Partners and
21st T-E, pro rata according to such entity's interest in 21st Investments.
In October 1994, the Company issued 31,063 shares of its Common Stock
to Archon Press for an aggregate purchase price of $200,000.
In December 1994, the Company issued 15,531 shares of its Common Stock
to Archon Press for an aggregate purchase price of $100,000.
In February 1995, the Company issued 15,531 shares of its Common Stock
to Archon Press for an aggregate purchase price of $100,000.
II-4
<PAGE>
In April 1995, the Company issued 15,531 shares of its Common Stock to
Archon Press for an aggregate purchase price of $100,000.
In June 1995, the Company issued 78,979, 26,872, 10,633, 38,828 shares
of its Common Stock to 21st Partners, 21st T-E, 21st Foreign and Applewood,
respectively for aggregate purchase prices of $508,520, $173,020, $68,460 and
$250,000, respectively.
In August 1996, in connection with the Bridge Financing, the Company
issued the following Bridge Notes and Bridge Warrants to the following persons:
Number
of
Name Note Amount Warrants
------------- ----------
Leon Abramson and Lorraine Abramson.................. $ 25,000 12,500
Richard Ackerman..................................... 25,000 12,500
David Alexander...................................... 25,000 12,500
Alsa, Inc............................................ 50,000 25,000
Applewood Associates LP.............................. 250,000 125,000
Neil Bellett......................................... 25,000 12,500
Robert Bender........................................ 25,000 12,500
Daniel Berger and Carolyn Berger..................... 25,000 12,500
Kenneth D. Cole...................................... 25,000 12,500
Damerel Trading S.A.................................. 50,000 25,000
Drew Effron.......................................... 25,000 12,500
Chris Engel.......................................... 25,000 12,500
Richard Etra and Kenneth Etra........................ 25,000 12,500
Steven Etra.......................................... 62,500 31,250
Andrew Feiner........................................ 25,000 12,500
Gordon M. Freeman.................................... 200,000 100,000
Ernest Gottdiener.................................... 25,000 12,500
Paula Graff.......................................... 25,000 12,500
Peter Hunt........................................... 25,000 12,500
Daniel A. Kaplan..................................... 25,000 12,500
Richard C. Kaufman and Elaine J. Lenart.............. 25,000 12,500
Norman Kurtz......................................... 25,000 12,500
Mariwood Investments................................. 25,000 12,500
Anthony Peyser....................................... 25,000 12,500
RJB Partners, L.P.................................... 25,000 12,500
Steven Rosen......................................... 12,500 6,250
Rebecca Rubenstein................................... 50,000 25,000
Alan J. Rubin........................................ 25,000 12,500
Jeffrey Rubinstein................................... 50,000 25,000
Chana Sasha Foundation............................... 33,333.34 16,667
Curtis Schenker...................................... 25,000 12,500
Alan and Nancy Shapiro............................... 25,000 12,500
Carl E. Siegel....................................... 25,000 12,500
Gregory Trubowitsch.................................. 12,500 6,250
21st Century Communications Foreign Partners, L.P.... 23,000 11,500
21st Century Communications T-E Partners, L.P........ 57,000 28,500
21st Century Communications Partners, L.P............ 170,000 85,000
Charles Warshaw...................................... 12,500 6,250
Aaron Wolfson........................................ 33,333.33 16,666
Abraham Wolfson...................................... 33,333.33 16,667
William Wolfson...................................... 50,000 25,000
Total....................................... 1,750,000 875,000
========= =======
II-5
<PAGE>
Item 27. Exhibits
Exhibit
Number Description of Exhibit
*1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Company, as amended.
*3.2 By-laws of the Company, as amended.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Warrant Certificate.
*4.3 Form of Underwriter's Purchase Option granted to GKN Securities.
*4.4 Warrant Agreement between Continental Stock Transfer and Trust Company
and the Company.
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
*10.1 Employment Agreement, dated as of September 27, 1996, by and between
the Company and Jeffrey Conrad, as amended.
*10.2 Employment Agreement, dated as of , 1996, by and between the Company
and Jean E. Reynolds.
*10.3 Consulting Agreement, dated as of , 1996, by and between the Company
and Frank J. Farrell.
*10.4 Consulting Agreement, dated as of , 1996, by and between the Company
and Howard Graham.
10.5 Form of Indemnification Agreement between each of the Officers and
Directors of the Company and the Company.
10.6 Agreement of Lease, dated September 27, 1994, by and between the
Company and Arnold S. Paster.
*10.7 Agreement of Lease, dated March 26, 1996, by and between the Company
and Land First II Group.
10.8 Agreement of Lease and rider attached thereto, dated February 15,
1996, by and between the Company and Ninety-Five Madison Company.
10.9 1994 Stock Option Plan, as amended
10.10 Loan and Security Agreement, dated as of December 14, 1995, between
People's Bank and the Company.
10.11 Debt Subordination Agreement, dated as of December 14, 1995, between
People's Bank and Jean Reynolds.
10.12 Debt Subordination Agreement, dated as of December 14, 1995, between
People's Bank and Frank Farrell.
10.13 Debt Subordination Agreement, dated as of December 14, 1995, between
People's Bank and Howard Graham.
10.14 Contribution Agreement, dated as of December 14, 1995, entered into
among the stockholders of the Company named therein.
10.15 Agreement made effective as of August 1, 1996 by and between Aladdin
Books Limited and the Company.
10.16 Heads of Option Agreement, dated July 27, 1993, as amended, among
Groupe de la Cite International, Antia Corporation and SMG Associates.
10.17 Standardized Adoption Agreement, dated March 20, 1996, for the
Company's 401K Plan.
10.18 Fidelity Guarantee/Guaranty of Validity of Accounts, dated as of
December 14, 1995, among Frank Farrell, Howard Graham, Jean Reynolds
and People's Bank.
23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP, included in Exhibit
5.
24 Power of Attorney (included in Part II, page II-9).
- ----------------------
* To be filed by amendment
II-6
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) File, during any period in which it offers or sales securities,
a post-effective amendment to this registration statement to;
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement;
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement of the
securities offered, and in the offering of such securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
The undersigned small business issuer will provide to the
Representative at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission 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 small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer 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 small business issuer 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 of 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.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and the offering of the securities at
that time as the initial bona fide offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this 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 the 21st day of
October 1996.
THE MILLBROOK PRESS INC.
By: /s/Jeffrey Conrad
--------------------
Name: Jeffrey Conrad
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Frank J. Farrell and Jeffrey Conrad, and
each one of them individually, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him or her and in
his or her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this registration statement
and to file the same with the Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/Jeffrey Conrad
- ------------------ Chief Executive Officer
Jeffrey Conrad and President October 21, 1996
/s/Howard Graham
- ------------------
Howard Graham Vice President and Director October 21, 1996
/s/Frank J. Farrell
- ------------------ Vice President, Secretary
Frank J. Farrell and Director October 21, 1996
/s/Barry Fingerhut
- ------------------ Director, Chairman October 21, 1996
Barry Fingerhut
/s/Barry Rubinstein
- ------------------- Director October 21, 1996
Barry Rubinstein
/s/Michael Marocco
- ------------------ Director October 21, 1996
Michael Marocco
/s/Donald D'Angelo
- ------------------ Vice President and Chief
Donald D'Angelo Financial Officer October 21, 1996
II-8
<PAGE>
AWARDS
--------------------------------------------------------------------------
American Association for the
Advancement of Science-Best Children's
Science Book List
Cats in the Zoo(1994)
Chico Mendes: Defender of the Rain
Forest(1994)
The Nez Perces: People of the
Far West(1994)
The Ojibwas: People of the
Northern Forests(1994)
Performing Dogs: Stars of Stage, Screen,
and Television(1994)
Ranch and Farm Dogs: Herders
and Guards(1994)
Search and Rescue Dogs(1994)
American Bookseller - Pick of the Lists
The Crocodile and the Dentist(1995)
Every Day Is Earth Day(1995)
One Day We Had to Run!(1995)
Sharks(1996)
Witches(1996)
American Library Association
Best Books for Young Adults
Say It Loud! The Story of Rap Music(1995)
American Library Association-Picks for Reluctant Young
Adult Readers
Jim Abbott: Star Pitcher(1993)
Mario Lemieux: Wizard with a Puck(1993)
American Library Association-Outstand-
ing Books for Middle School Readers
Say It Loud! The Story of Rap Music (1995)
Booklist Top Black History Picks
for Youth
Afican-American Voices(1995)
Child Study Association-Children's
Books of the Year
African-American Inventors(1995)
African-American Scientists(1995)
At Gore(1995)
Chico Mendes: Defender of the
Rain Forest(1995)
Children of the Swastika:
The Hitler Youth(1994)
The Children's Atlas of
Exploration(1994)
Church and State: Government and
Religion in the United States(1994)
David Robinson: NBA Super Center(1994)
Drought(1994)
Elie Wiesel: Bearing Witness(1995)
Freedom of Expression: The Right to Speak
Out in America(1994)
Gardens from Garbage(1994)
Henry David Thoreau: In Step
with Nature(1994)
The Irish-American Experience(1994)
International Reading Association/
Children's Book Council-Children's
Choices
David Robinson: NBA Super Center(1994)
Dracula(1995)
53 1/2 Things That Changed the World(1995)
Frankenstein(1995)
The Los Angeles Riots: America's Cities in Crisis(1994)
The Winter Solstice(1995)
The Iroguois: People of the Northeast
(1994)
Mohandas Gandhi(1995)
Mother Jones and the March
of the Mill Children(1995)
The Orchestra: An Introduction to the
World of Classical Music(1994)
Our Great Rivers and Waterways(1995)
Our Song, Our Toil(1995)
Our Supreme Court(1995)
The Pullman Strike of 1894(1995)
The Right to Die: Public Controversy,
Private Matter(1994)
Ruth Bader Ginsburg(1995)
Songs and Stories from the American
Revolution(1995)
Spaces(1994)
Thurgood Marshall and Equal Rights(1994)
The West Indian-American
Experience(1995)
Wounded Knee: The Death of
a Dream(1994)
National Council for Social Studies/
Children's Book Council-Notable
Children's Trade Books in the Field of
Social Studies
The American Revolution: How We Fought
the War of Independence(1996)
Growing up in America: 1830-1860(1996)
Mother Jones and the March of the
Mill Children(1995)
Our Song, Our Toil: The Story of American Slavery as Told by
Slaves(1995)
Strike! The Biner Struggle of American Workers from Colonial Times to
the Present(1996)
National Science Teachers Association/
Children's Book Council-Outstanding
Science Trade Books for Children
Bones(1996)
The Children's Atlas of
Natural Wonders(1996)
Lucky Mouse(1996)
Nature in Your Backyard(1996)
Scientific American Young Readers
Book Award
The Crocodile and the Dentist(1995)
The Children's Literature Choice List
Launch Day(1995)
International Reading Association/
Children's Book Council-Children's
Choices
David Robinson: NBA Super Center(1994)
Dracula(1995)
53 1/2 Things that Changed the World(1995)
Frankenstein(1995)
The Los Angles Riots: America's Cities
in Crisis(1994)
The Winter Solstice(1995)
International Reading Association
Young Adults Choices
Violence on America's Streets(1994)
National Parenting Center
Seal of Approval
The Children's Atlas of the
Human Body(1994)
New York Public Library Books
for the Teen Age
Adolf Hitler(1996)
American Indian Voices(1996)
Animal Rights: A Handbook
for Young Adults(1994)
Belles of the Ballpark(1994)
Campaign Financing(1995)
The Cathedral Builders(1994)
Children of the Swastika: The Hitler
Young(1994)
China Under Communism(1996)
Church and State: Government and
Religion in the United States(1994)
Collecting Baseball Cards(1994)
Cults(1995)
Food Risks and Controversies: Minimizing
the Dangers in Your Diet(1994)
Freedoms of Expression: The Right to Speak
Out in America(1994)
Gambling(1996)
Hit Me With Music(1996)
The Hunt for Hidden Killers(1995)
Japan and the United States:
Economic Competitors(1994)
Know About Gays and Lesbians(1995)
Latino Voices(1995)
Libya(1995)
The Magic Show(1996)
Malcolm X: His Life and Legacy(1996)
The Mind at Work: How to Make
It Work Better for You(1994)
Mohandas Gandhi(1995)
Prophets of Doom(1994)
Quinceanera(1995)
Rights and Respect(1996)
Say It Loud! The Story of Rap Music(1995)
Science on Ice(1996)
Those Incredible Women of
World War II(1995)
The Welfare System(1996)
The White Power Movement: American's
Racist Home Groups(1994)
School Library Journal Best Books
for YA's
Say It Loud! The Story of Rap Music(1995)
Skipping Stones 1996 Honor Award
One Day We Had to Run(1995)
[Form of]
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made as of
the day of February, 1994, by and between Millbrook Acquisition Corp., a
Delaware corporation (the "COMPANY"), and the undersigned [Director] [Officer]
of the Company (the "INDEMNITEE").
RECITALS
A. The Indemnitee is currently serving as a [Director]
[Officer] of the Company and the Company wishes the Indemnitee to continue in
such capacity. The Indemnitee is willing, under certain circumstances, to
continue serving as a [Director][Officer] of the Company.
B. The Indemnitee has indicated that he does not regard the
indemnities available under the Company's By-laws as adequate to protect him
against the risks associated with his service to the Company and has noted that
the Company's directors' and officers' liability insurance policy has numerous
exclusions and a deductible and thus does not adequately protect Indemnitee. In
this connection the Company and the Indemnitee now agree they should enter into
this INDEMNIFICATION AGREEMENT in order to provide greater protection to
Indemnitee against such risks of service to the Company.
C. Section 145 of the General Corporation Law of the State of
Delaware, under which law the Company is organized, empowers corporations to
indemnify a person serving as a director, officer, employee or agent of the
corporation and a person who serves at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, and said Section 145 and the By-laws of the
Company specify that the indemnification set forth in said Section 145 and in
the By-laws, respectively, shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise.
AGREEMENT
In order to induce the Indemnitee to continue to serve as a
[Director][Officer] of the Company and in consideration of his continued
service, the Company hereby agrees to indemnify the Indemnitee as follows:
1. INDEMNITY. The Company will indemnify the
Indemnitee, his executors, administrators or assigns, for any Expenses (as
defined below) which the Indemnitee is or becomes legally obligated to pay in
connection with any Proceeding. As used in this
<PAGE>
Agreement the term "Proceeding" shall include any threatened, pending or
completed claim, action, suit or proceeding, whether brought by or in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Indemnitee may be or may have been involved
as a party or otherwise, by reason of the fact that Indemnitee is or as a
director or officer of the Company, by reason of any actual or alleged error or
misstatement or misleading statement made or suffered by the Indemnitee, by
reason of any action taken by him or of any action on his part while acting as
such director or officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise; provided that in each such case
Indemnitee acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company, and, in the case of a
criminal proceeding, in addition had no reasonable cause to believe that his
conduct was unlawful. As used in this Agreement, the term "other enterprise"
shall include (without limitation) employee benefit plans and administrative
committees thereof, and the term "fines" shall include (without limitation)
employee benefit plans and administrative committees thereof, and the term
"fines" shall include (without limitations) any excise tax assessed with respect
to any employee benefit plan.
2. EXPENSES. As used in this Agreement, the term
"Expenses" shall include, without limitation, damages, judgments, fines,
penalties, settlements and costs, attorneys' fees and disbursements (including
the cost of copying documents, obtaining transcripts and taking depositions) and
costs of attachment or similar bonds, investigations, and any expenses of
establishing a right to indemnification under this Agreement.
3. ENFORCEMENT. If a claim or request under this
Agreement is not paid by the Company, or on its behalf, within twenty days after
a written claim or request has been received by the Company, the Indemnitee may
at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim or request and if successful in whole or in part, the
Indemnitee shall be entitled to be paid also the Expenses of prosecuting such
suit. The Company shall have the right to recoup from the Indemnitee the amount
of any item or items of Expenses theretofore paid by the Company pursuant to
this Agreement, to the extent such Expenses are not reasonable in nature or
amounts; provided, however, that the Company shall have the burden of proving
such Expenses to be unreasonable. The burden of proving that the Indemnitee is
not entitled to indemnification for any other reason shall be upon the Company.
4. SUBROGATION. In the event of payment under this
Agreement, the Company 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 Company
effectively to bring suit to enforce such rights.
5. EXCLUSIONS. The Company shall not be liable under
this Agreement to pay any Expenses in connection with any claim made against the
Indemnitee:
2
<PAGE>
(a) to the extent that payment is actually
made to the Indemnitee under a valid, enforceable and
collectible insurance policy;
(b) to the extend that the Indemnitee is
indemnified and actually paid otherwise than pursuant
to this Agreement;
(c) in connection with a judicial action by
or in the right of the Company, in respect of any
claim, issue or matter as to which the Indemnitee
shall have been adjudged to be liable to the Company
unless and only to the extent that any court in which
such action was brought shall determine upon
application that, despite the adjudication of
liability but in view of all the circumstances of the
case, the Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court
shall deem proper;
(d) If it is proved by final judgment in a
court of law or other final adjudication to have been
based upon or attributable to the Indemnitee's in
fact having gained any material personal profit or
advantage to which he was not legally entitled (but
excluding any profit or advantage attributable to
Indemnitee solely as a result of stock ownership in
the Company);
(e) for a disgorgement of profits made from
the purchase and sale by the Indemnitee of securities
pursuant to Section 16(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar
provisions of any state statutory law or common law;
(f) brought about or contributed to by the
dishonesty of the Indemnitee seeking payment
hereunder; however, notwithstanding the foregoing,
the Indemnitee shall be protected under this
Agreement as to any claims upon which suit may be
brought against him by reason of any alleged
dishonesty on his part, unless a judgment or other
final adjudication thereof adverse to the Indemnitee
shall establish that he committed (i) acts of active
and deliberate dishonesty, (ii) which actual
dishonest purpose and intent, (iii) which acts were
material to the cause of action so adjudicated; or
(g) where it has been judicially determined
that the Company is prohibited by applicable law or
for any other reason from paying same.
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue or matter
3
<PAGE>
therein, including dismissal without prejudice, Indemnitee shall be indemnified
against any and all expenses incurred in connection therewith.
7. PARTIAL INDEMNIFICATION. If the Indemnitee is
entitled under any provision of this Agreement to indemnification by the Company
for some or a portion of Expenses, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify the Indemnitee for the portion
of such Expenses to which the Indemnitee is entitled.
8. ADVANCE OF EXPENSES. Expenses incurred by the
Indemnitee in connection with any Proceeding, except the amount of any
settlement, shall be paid by the Company in advance upon request of the
Indemnitee that the Company pay such Expenses. The Company's obligation to
advance Expenses provided for in the prior sentence shall continue unless and
until it has been determined by judicial adjudication pursuant to this Agreement
that the Indemnitee is not entitled to indemnification. The indemnitee hereby
undertakes to repay to the Company the amount of any Expenses theretofore paid
by the Company to the extent that it is ultimately judicially determined that
such expenses were not reasonable or that the Indemnitee is not entitled to
indemnification. Any such repayment shall be to the extent, but only to the
extent, of Expenses which would not otherwise have been incurred except for the
rights of Indemnitee under this Agreement.
9. APPROVAL OF EXPENSES. No expenses for which
indemnity shall be sought under this Agreement, other than those in respect of
judgments and verdicts actually rendered, shall be incurred without the prior
consent of the Company, which consent shall not be unreasonably withheld, but
the failure of Indemnitee to obtain such consent shall not offset the obligation
of the Company under this agreement to pay all reasonable Expenses.
10. NOTICE OF CLAIM. The Indemnitee, as a condition
precedent to his right to be indemnified under this Agreement,shall give to the
Company notice in writing as soon as practicable of any claim made against him
for which indemnity will or could be sought under this Agreement. Notice to the
Company shall be given at its principal office and shall be directed to the
Corporate Secretary (or such other address as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
11. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
instrument.
12. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. Nothing
herein shall be deemed to diminish or otherwise restrict the Indemnitee's right
to indemnification under any provision of the Certificate of Incorporation or
By-laws of the Company and amendments thereto or under law.
4
<PAGE>
13. GOVERNING LAW. This Agreement shall be governed
by and interpreted and enforced in accordance with the laws of the State of
Delaware, without regard to the rules regarding conflicts of law thereof.
14. SAVING CLAUSES. Wherever there is conflict
between any provision of this Agreement and any applicable present or future
statute, law or regulation contrary to which the Company and the Indemnitee have
no legal right to contract, the latter shall prevail, but in such event the
affected provisions of this Agreement shall be curtailed and restricted only to
the extent necessary to bring them within applicable legal requirements, it
being the intention of the parties to provide the Indemnitee with the fullest
and most effective protection against Expenses as permissible under applicable
law.
15. COVERAGE. The provisions of this Agreement shall
apply with respect to the Indemnitee's service as a [Director] [Officer] of the
Company prior to the date of this Agreement and with respect to all periods of
such service after the date of this Agreement, event though the Indemnitee may
have ceased to be a [Director] [Officer] of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and signed as of the day and year first above
written.
MILLBROOK ACQUISITION CORP.
By
----------------------------
Name:
Title:
----------------------------
[Name of Officer or Director]
5
AGREEMENT OF LEASE
AGREEMENT OF LEASE made as of the day of September 1994 between
Arnold S. Paster
27A Main Street
Southampton, NY 11968
and
The Millbrook Press
Howard and Rita Graham
2 Old New Milford Road
Brookfield, CT 06804
27A Main Street
Southampton, NY 11968
If LANDLORD wants to give service by mailing service registered mail to
location, that is considered giving service.
ARTICLE 1. PREMISES
LANDLORD does hereby lease to TENANT, and TENANT does hereby lease from
LANDLORD, the front two offices on the second floor at 27A Main Street,
(hereafter the "Premises") Southampton, (Suffolk County) New York.
ARTICLE 2. TERM
The term of the Lease shall be a period of one (1) year commencing on
the first day of October 1994 and ending on the 30th day of September, 1995.
ARTICLE 3. USE: Office Space. (Front room and reception area is for TENANTS use
and for passage to other tenants on the floor).
ARTICLE 4. FIXED RENT
4.1 Tenant shall pay to the LANDLORD as annual fixed rent the sum of
twelve thousand seven hundred eighty ($12,780.00) dollars, said rent to be paid
in equal monthly payments in advance on the first day of each and every month
during the term aforesaid, as follows: one thousand sixty-five ($1,065.00)
dollars.
4.2 All other amounts payable by TENANT under the Lease in addition too
fixed rent shall be deemed to be additional rent.
4.3 TENANT covenants to pay all rentals when due and payable without
any set off, deduction or demand whatsoever. Any monies paid or expense incurred
by LANDLORD to correct violations of any of the TENANT'S obligations hereunder
shall be additional rental. Any additional rental provide for in this Lease
becomes due with the next installment of rental and other monies due after
receipt of notice of such additional rental from LANDLORD. Rentals and
<PAGE>
statements required of TENANT shall be paid or delivered to LANDLORD at the
place designated for notices to LANDLORD.
ARTICLE 5. DELETED
ARTICLE 6. REPAIRS AND MAINTENANCE
6.1 LANDLORD shall be responsible for maintaining and repairing the
roof, foundation, exterior walls and load-bearing interior walls of the
Premises, and the downspouts and gutters of the building. LANDLORD shall be
responsible for repairing all pipes, risers and conduits within the Premises
which serve other portions of the building exclusively, or in addition to the
Premises.
6.2 If LANDLORD performs repairs that are TENANT'S responsibility under
the Lease, LANDLORD shall be entitled to reimbursement for the cost of such
repair plus an administrative fee of 15% of the cost of such repair. Except in
emergencies, LANDLORD shall not perform any work for TENANT'S account unless
LANDLORD has given TENANT at least ten (10) days notice and TENANT has failed to
cure the condition or does not complete within a reasonable time thereafter.
6.3 TENANT may not authorize any work to be performed which is the
expense of the LANDLORD without first obtaining the prior written consent of the
LANDLORD. Any maintenance or repair initiated by the TENANT shall be at his own
cost and expense.
6.4 Except for the repairs required to be made by LANDLORD, TENANT
shall be responsible for repairing, replacing and maintaining the interior of
the Premises, TENANT'S storefront and signs, plumbing, air conditioning system,
heating and electrical systems and equipment within the Premises and exclusively
serving the Premises, and the windows, plate glass and doors located in the
Premises. TENANT shall, in addition, repair all conditions in or around the
building caused by the negligence of TENANT, or TENANT'S agents, servants and
employees.
ARTICLE 7. ALTERATIONS
7.1 TENANT will not alter the exterior of the premises (including
storefront and/or signs, lettering and advertising matter on any windows or
doors) or install any radio or television antennae, loud speakers, sound
amplifiers or similar devises on the roof or exterior walls of the buildings
without first obtaining LANDLORD'S written approval of such alteration. TENANT
will not overload the electrical wiring serving the Premises or within the
Premises and will install at its own expense, but only after obtaining
LANDLORD'S approval, any additional electrical wiring which may be required in
connection with TENANT'S apparatus.
7.2 TENANT will not paint or decorate any part of the exterior of the
premises, including storefronts, or any part of the interior visible from the
exterior thereof or paste any signs to any portion of the premises, or display
any signs attached to show windows or within three (3) feet of the building
without obtaining LANDLORD'S written approval.
<PAGE>
7.5 TENANT shall have the right, at its own cost and expense, to make
alterations, replacements, changes, additions and improvements in and to the
Premises, subject to the following:
a) prior to commencing any alterations, additions,
replacements or repairs to the Premises that require structural changes, TENANT
shall provide LANDLORD with a full set of architectural plans reflecting the
proposed work and obtain LANDLORD'S prior written approval. LANDLORD shall not
unreasonably withhold its consent to allow TENANT to install a sign on the
entrance door to the building which is on the front door and/or cement column on
the southeast corner of the building.
b) that the same shall be performed in a first class
workmanlike manner, and shall not impair the structural integrity of the
building;
c) that TENANT shall have obtained all required permits and
authorizations of governmental agencies and departments having jurisdiction over
such work or the Premises prior to commencing any work.
d) that TENANT shall assure that all contractors, prior to
commencing work, have valid contractor's licenses to work in the Town of
Southampton, have appropriate insurance coverage including Workmen's
Compensation Insurance and general liability insurance for the mutual benefit of
TENANT and LANDLORD and provide proof of same to LANDLORD;
e) TENANT agrees to promptly pay all sums of money in respect
of any labor services, materials, supplies or equipment furnished or alleged to
have been furnished to TENANT'S agents, employees, contractors or
subcontractors, which may be secured by any mechanics, materials, suppliers, or
other type of lien against the premises or the LANDLORD'S interest therein. In
the event of any such or similar lien shall be filed, TENANT shall within
mechanics, materials, suppliers, or other type of lien against the premises or
the LANDLORD'S interest therein. In the event of any such of similar lien shall
be filed, TENANT shall within twenty-four (24) hours of receipt thereof, give
notice to LANDLORD of such lien, and TENANT shall, within ten (10) days after
receiving notice of the filing of the lien, discharge such lien by payment of
the amount due the lien claimant. However, TENANT may in good faith contest such
lien provided that within such ten (10) day period TENANT provides LANDLORD with
a surety bond in a company acceptable to LANDLORD, protecting against said lien
in an amount at least one and one-half (1-1/2) times the amount claimed as lien.
Failure of TENANT to discharge the lien, or if contracted to provide such bond
shall constitute a default under this Lease and in addition to any other right
or remedy of LANDLORD, LANDLORD may but shall not be obliged to discharge the
same of record by paying the amount claimed to be due and the amount so paid by
LANDLORD and all costs and expenses incurred by LANDLORD therewith, including
all reasonable attorneys' fees shall be due and payable by TENANT within ten
(10) days.
ARTICLE 8. UTILITIES
8.1 LANDLORD warrants and represents that the Premises are served by
electrical, heating, plumbing and sewerage or septic systems and that there are
separate electric, gas and water meters for the Premises. TENANT shall be
responsible for 50% of the electric bill and oil bill for the second floor of
the building.
<PAGE>
ARTICLE 9. INSURANCE
9.1 PUBLIC LIABILITY INSURANCE. Prior to entry into the premises to
begin TENANT'S work or prior to commencement of this Lease, whichever date first
occurs, and thereafter during the terms of this Lease, TENANT shall keep in full
force and effect at its expense a policy or policies of public liability
insurance with respect to the premises and the business of TENANT and any
approved subtenant, licensee, or concessionaire, with companies licensed to do
business in New York State and approved by LANDLORD, in which both TENANT and
LANDLORD and any person, firm or corporation designated by LANDLORD, shall be
adequately covered under reasonable limits of liability not less than
$500,000.00 for injury or death to more than one person; $1,000,000.00 for
injury or death to more than one person, and $300,000.00 with respect to damage
to property. TENANT shall furnish LANDLORD with certificates or other evidence
acceptable to LANDLORD that such insurance is in effect which evidence shall
state that LANDLORD shall be notified in writing thirty (30) days prior to
cancellation, material change or renewal of insurance.
9.4 WORKMEN'S COMPENSATION. If the nature of TENANT'S TENANT shall also
keep in force, at its expense, so long as this Lease remains in effect and
during such other time as TENANT occupies the premises or any part thereof,
Workmen's Compensation or similar insurance affording statutory coverage and
containing statutory limits. At the written request of LANDLORD, TENANT agrees
to furnish to LANDLORD evidence of Workmen's Compensation coverage. If TENANT
shall not comply with its covenants made in this section, LANDLORD may cause
insurance as aforesaid to be issued, and in such event TENANT agrees to pay, as
additional rent, the premium for such insurance upon LANDLORD'S demand.
9.5 WAIVER OF SUBROGATION. LANDLORD waives any right that it may have
to recover from TENANT damages for any loss occurring to property of LANDLORD by
reason of any act or omission of TENANT; provided, however, that this waiver is
limited to those losses for which LANDLORD is compensated by its insurers.
TENANT hereby waives any and all right that it may have to
recover from LANDLORD damages for any loss occurring to property of the TENANT
by reason of any act or omission of the LANDLORD; provided, however, that this
waiver is limited to those losses for which TENANT is compensated by its
insurers.
ARTICLE 10. NON-LIABILITY
LANDLORD shall not be responsible or liable to TENANT for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or any part of the premises adjacent to or
connected with the premises or any part of the building for any other purpose or
for any loss or damage resulting to TENANT or its property from pipes or
plumbing fixtures or from any failure or defect in any electric line, circuit or
facility.
<PAGE>
ARTICLE 11. APPLICABLE LAW
This Lease shall be construed under the laws of the State of New York.
If any provision of this Lease, or portion thereof, or the application thereof
to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby and
each provision of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
ARTICLE 12. SUCCESSORS
This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon LANDLORD, its successors and
assigns, and shall be binding upon TENANT, its successors and assigns, and shall
inure to the benefit of TENANT and only such assigns of TENANT to whom the
assignment by TENANT has been consented to, in writing, by LANDLORD.
ARTICLE 13. BROKERS
Each of the parties represents and warrants that Allan M. Schneider
Associates, Inc., 69 Main Street, East Hampton, New York, is the broker for this
Lease and LANDLORD is responsible for commission.
ARTICLE 14. EXAMINATION
The submission of this Lease for the examination does not constitute a
reservation of or option for the premises, and this Lease becomes effective only
upon execution and delivery thereof by LANDLORD and TENANT.
ARTICLE 15. NOTICES
15.1 Any notices desired or required to be given under this Lease shall
be sent postage paid registered or certified mail, return receipt requested as
to LANDLORD:
Mr. Arnold S. Paster
Peconic Bay Properties, Inc.
27A Main Street
Southampton, New York 11968
15.2 Any notices desired or required to be given under this Lease shall
be sent postage paid registered or certified mail, return receipt requested or
delivered by hand and receiving a signed receipt for same as to TENANT:
The Millbrook Press
Howard and Rita Graham
2 Old New Milford Road
Brookfield, CT 06804
or
27A Main Street
Southampton, NY 11968
<PAGE>
ARTICLE 17. LATE RENT
17.1 If the rent due is received by the LANDLORD after the tenth (10th)
day, TENANT will pay to the LANDLORD an additional amount equal to 5% of the
rent due on the first of the month.
17.2 In the event the TENANT fails to pay the rent due by the 15th day
following the due date, LANDLORD shall notify TENANT in writing of TENANT'S
default and TENANT shall have ten (10) days from notification to cure said
default. Thereafter, LANDLORD shall have the right at his option to terminate
the Lease at that time and no further obligation by the LANDLORD to rent the
demised premises to the TENANT shall exist.
ARTICLE 18. SECURITY
Simultaneously herewith TENANT has delivered to LANDLORD the sum of
$1,065.00 (one thousand sixty-five dollars) as security for TENANT'S performance
of its operation under this Lease. That the security deposited under this Lease
shall not be mortgaged, assigned or encumbered by the TENANT without the prior
written consent of the LANDLORD.
ARTICLE 19. DELETED
ARTICLE 20. TENANT'S RESPONSIBILITIES
TENANT shall at TENANT'S expense:
20.3 Replace promptly at its own expense any broken door closers and
any cracked or broken glass on the premises with glass of like kind and quality;
20.4 Maintain the premises in a clean, orderly and sanitary condition;
20.5 Keep any garbage, trash, rubbish, or refuse temporarily stored in
refuse container provided by the sanitation company or the LANDLORD. Location of
refuse container to be determined by LANDLORD;
20.6 Keep all mechanical apparatus free of vibration and noise which
may be transmitted beyond the TENANT'S premises;
20.7 Comply with all laws, ordinances, rules and regulations of
governmental authorities, including the fire underwriters rating bureau or
hereafter in effect;
20.8 Replace promptly all light bulbs when burned out;
20.9 Conduct its business in all respects in a dignified manner in
accordance with high standards as maintained by the building.
ARTICLE 21. MISCELLANEOUS
21.1 TENANT will permit LANDLORD, its agents, employees and contractors
to enter all parts of the premises to inspect the same and to enforce or carry
out any provisions of this Lease.
<PAGE>
21.2 Wherever in this Lease LANDLORD'S consent is required, LANDLORD
agrees not to unreasonably withhold or delay consent.
21.3 No reference to any specific right or remedy shall preclude
LANDLORD from exercising any other right or from having any other remedy or from
maintaining any action to which it may otherwise be entitled wither at law or in
equity.
21.4 LANDLORD'S failure to insist upon a strict performance of any
covenant of this Lease or to exercising any option or right herein contained
shall not be a waiver of relinquishment for the future of such covenant, right
or option, but the same shall remain in full force and effect.
21.5 The time within which any of the parties hereto shall be required
to perform any act or acts under this Lease except for payment of monies shall
be extended to the extent that the performance of such act or acts shall be
delayed by acts of God, fire, windstorm, flood, explosion, collapse of
structures, riot, wars, strikes, labor disputes, delays or restrictions by
governmental bodies inability to obtain or use necessary materials, or any cause
beyond the reasonable control of such party (and such delay being called
"unavoidable delay" in this Lease) provided however, that the party entitled to
such extension hereunder shall give prompt notice to the other party of the
occurrence causing such delay.
21.6 In case suit shall be brought for recovery of possession of the
Lease premises, for the recovery of rent or any other account due under the
provision of this Lease, or because of the breach of any other covenant herein
contained on the part of TENANT to be kept or performed, and a breach shall be
established, TENANT shall pay to LANDLORD all expenses incurred therefore,
including reasonable attorneys fees.
21.7 The TENANT also agrees to permit the LANDLORD or the LANDLORD'S
agents to show the premises to persons wishing to hire or purchase the same upon
reasonable notice to TENANT; and the TENANT further agrees that on and after two
(2) months before expiration of term unless option to extend is exercised by
TENANT, the LANDLORD or the LANDLORD'S agents shall have the right to place
notices on the front of said premises, or any part thereof, offering the
premises "To Let" of "For Rent" and the TENANT hereby agrees to permit the same
to remain thereon without hindrance or molestation, except that such notice
shall not interfere with TENANT'S business sign.
ARTICLE 22. INTERRUPTION
No diminution of abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services", if any, herein expressly or impliedly agreed
to be furnished by the LANDLORD to the TENANT, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be
<PAGE>
due to accident, alterations or repairs desirable or necessary to be made or to
inability or difficulty in securing supplies or labor for the maintenance of
such "service" or to some other cause, not gross negligence on the part of the
LANDLORD. No such interruption or curtailment of any such "service" shall be
deemed a constructive eviction. The LANDLORD shall not be required to furnish,
and the TENANT shall not be entitled to receive, any such "services" during any
period wherein the TENANT shall be in default in respect to the payment of rent.
Neither shall there be any abatement or diminution of rent because of making of
repairs, improvement or decorations to the demised premises after the date above
fixed for the commencement of the term, it being understood that rent shall, in
any event, commence to run at such date so above fixed. The above clause is
operative providing the period of inconvenience or discomfort does not exceed
ten (10) days. an abatement of rent will be allowed after ten (10) days and
until such time as the inconvenience and discomfort shall cease.
ARTICLE 23. VACATED PREMISES
That if the said premises, or any part thereof shall be deserted or
become vacant during said term, or if any default be made in the performance of
any of the covenants herein contained, then it shall be lawful for the LANDLORD
or his representatives to re-enter the said premises by force, summary
proceedings or otherwise, and remove all persons therefrom, without being liable
to prosecution therefor, and the TENANT hereby expressly waives the service of
any notice in writing of intention to re-enter, and the TENANT shall pay at the
same time as the rent becomes payable under the terms hereof a sum equivalent to
the rent reserved herein, and the LANDLORD may rent the premises on behalf of
the TENANT reserving the right to rent the premises for a longer period of time
than fixed in the original Lease without releasing the original TENANT from any
liability, applying any moneys collected, first to the expense of resuming or
obtaining possession, second to restoring the premises to a rentable condition,
and then to the payment of the rent and all other charges due and to grow due to
the LANDLORD, any surplus to be paid to the TENANT, who shall remain liable for
any deficiency.
ARTICLE 24. MONTH-TO-MONTH LEASE
In the event TENANT remains in possession of the premises after the
expiration of this Lease and without the execution of a new Lease, it shall be
deemed to be occupying the premises as a TENANT from month-to-month, at two (2)
times, or twice the rent and all other monies paid LANDLORD hereunder subject to
all the conditions, provisions and obligations of this Lease insofar as the same
can be applicable to month-to-month tenancy cancelable by either party upon
thirty (30) days written notice to the other, but no cancellation of security.
ARTICLE 25.
That this instrument shall not be a lien against said premises in
respect to any mortgages that are now on or that hereafter may be place against
said premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this Lease,
irrespective of the date of recording and the TENANT agrees to execute without
<PAGE>
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this Lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the LANDLORD, or the LANDLORD'S
assigns and legal representatives to the option of canceling this Lease without
incurring any expense or damage and the term hereby granted is expressly limited
accordingly.
ARTICLE 26. SUBLETTING
It is agreed that the TENANT will not sublet the premises nor allow
anyone other than employees and/or contractors of TENANT to use the premises.
ARTICLE 27. HAZARDOUS WASTE
TENANT will not do or keep or suffer to be kept, used, generate or
store hazardous substances or pollutants or contaminants in, upon or about the
Premises. If that event does occur, TENANT shall be required to remove and clean
up any such substance brought onto or about the Premises in violation of this
provision. TENANT shall indemnify LANDLORD in the event of such breech in which
indemnification shall survive the termination of the Lease. In addition to any
other remedies available to LANDLORD, at LANDLORD'S sole option, TENANT shall
immediately be in default and the term of this Lease shall cease and terminate
immediately without relieving TENANT of its monetary obligations hereunder.
ARTICLE 28. POSSESSION
LANDLORD shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior TENANT or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall be extended for the period in which the premises were not ready for
occupancy.
ARTICLE 29. FORCE MAJEURE
The time within which any of the parties hereto shall be required to
perform any act or acts under this Lease, except for payment of monies, shall be
extended to the extent that the performance of such act or acts shall be delayed
by labor disputes, acts of God, or the public enemy, governmental regulations or
controls, fire, windstorm, flood, explosion, collapse of structures, riot, wars,
strikes, inability to obtain or use necessary materials, or any other cause
beyond the reasonable control of such party (any such delay being called
"Unavoidable Delay" in this Lease); provided however, that the party entitled to
such extension hereunder shall give notice to the other party of the occurrence
causing such delay.
ARTICLE 30. RENEWAL OF LEASE
If TENANT faithfully performs all the terms and conditions of this
Lease then the TENANT shall have the option to renew this Lease for an
additional one (1) year by notifying LANDLORD in writing by mailing such notice
return receipt
<PAGE>
requested on or before August 1, 1995 to such address as previously mentioned.
Annual fixed rent for the renewal period from October 1, 1995 through September
30, 1996 shall be the sum of thirteen thousand two hundred eighty-four
($13,284.00) dollars; said rent to be paid in equal monthly payments in advance
on the first day of each and every month during the term aforesaid, as follows:
one thousand one hundred seven ($1,107.00) dollars per month.
It is mutually understood that there may be ARTICLE numbers missing as
the Lease was modified.
And LANDLORD doth covenant that the said TENANT on paying the said
yearly rent, and performing the covenants aforesaid, shall and may have, hold
and enjoy the said demised premises for the term aforesaid.
And it is mutually understood and agreed that the covenants and
agreements contained in the within Lease shall be binding upon the parties
hereto and upon their respective successors, heirs, executors and
administrators.
IN WITNESS WHEREOF, the parties have interchangeably set their hands
and seals (or caused these presents to be signed by their proper corporate
officers and caused their proper corporate seal to be hereto affixed) this 27th
day of September, 1994.
Signed, sealed and delivered in the presence of
LANDLORD
WITNESS TENANT
STATE OF CONNECTICUT )
) SS
COUNTY OF FAIRFIELD )
On this 27th day of September, 1994, before me personally came DONALD D'ANGELO
to me known and known to me to be the individual described in, and who executed,
the foregoing instrument, and he acknowledged to me that he executed the same
and that he is the VICE PRESIDENT of The Millbrook Press and that he has the
authority to enter into this legal binding document.
NOTARY PUBLIC
My commission Exp. Oct. 31, 1995
1
STANDARD FORM OF LOFT LEASE
The Real Estate Board Of New York, Inc.
Copyright 1982. All Rights Reserved
Reproduction in whole or in part prohibited
AGREEMENT OF LEASE, made as of this 15th day of February 1996, between
NINETY-FIVE MADISON COMPANY, A NEW YORK LIMITED PARTNERSHIP, having an office at
95 Madison Avenue, New York, NY 10016
party of the first part, hereinafter referred to as OWNER, and
THE MILLBROOK PRESS, INC., A DELAWARE CORPORATION, having an office at 2 Old New
Milford Road, Brookfield, CT 06804
party of the second part, hereinafter referred to as TENANT,
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner Suite 604-5 in
the building known as THE EMMET BUILDING, 95 MADISON AVENUE, NEW YORK, NY 10016
in the Borough Of MANHATTAN, City Of New York, for the term of Eight (8) Years
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the
1st day of May, nineteen hundred and ninety-six, and to end on the 30th
day of April, two thousand four
both dates inclusive, at an annual rental rate of Thirty-Three Thousand Three
Hundred Thirty and 00/100 ($33,330.00) Dollars payable in equal monthly
installments of
Two Thousand Seven Hundred Seventy-Seven and 50/100 ($2,777.50) Dollars
from 5/1/96-1/31/97;
Thirty-Five Thousand Three Hundred Fifty and 00/100 ($35,350.00)
Dollars payable in equal monthly installments of Two Thousand Nine Hundred
Forty-Five and 83/100 ($2,945.83) Dollars from 2/1/97-10/31/97;
Thirty-Four Thousand Three Hundred Forty and 00/100 (34,340.00) Dollars
payable in equal monthly installments of Two Thousand Eight Hundred Sixty-One
and 67/100 ($2,861.67) Dollars from 11/1/97-4/30/2000;
Thirty-Six Thousand Three Hundred Sixty and 00/100 ($36,360.00) Dollars
payable in equal monthly installments of Three Thousand Thirty and 00/100
($3,030.00) Dollars from 5/1/2000-4/30/2004
which Tenant agrees to pay in
lawful money of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, in equal monthly
installments in advance on the first day of each month during said term, at the
office of Owner or such other place as Owner may designate in writing on
Tenant's bill, without any set off or deduction whatsoever, except that Tenant
shall pay the first monthly installment(s) on the execution hereof (unless
this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to owner as additional rent.
<PAGE>
2
The parties hereto, for themselves, their heirs, distributes,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
OCCUPANCY: 1. Tenant shall pay the rent as above and as hereinafter
provided.
USE: 2. Tenant shall use and occupy demised premises for
executive and administrative offices and subject to
Rider clause # 46, provided such use is in accordance
with the Certificate Of Occupancy for the building,
if any, and for no other purpose.
ALTERATIONS: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written
consent. Subject to the prior written consent of
Owner, which consent shall not be unreasonably
withheld or delayed after full compliance with
building regulations and requirements to include:
(a) Union contractors
(b) Certificates Of Insurance of contractors in
form and amounts specified by Owner
(c) Contractors cannot use Tenant's bathrooms;
they may only use basement facilities
(d) Contractors quality and competence must be
verifiable by Owner
(e) Contractors must have references from having
performed work in Class "A" buildings
(f) Work may not disturb other Tenants
(g) Contractor must follow all building rules
re: the transport of workers and materials
into the building and through common areas.
and to the provisions of this article, Tenant at Tenant's expense, may make
alterations, installations, additions or improvements which are non-structural
and which do not affect utility services or plumbing and electrical lines, in or
to the interior of the demised premises using contractors or mechanics first
approved by Owner, which consent shall not be unreasonably withheld or delayed.
Tenant shall, at its expense, before making any alterations, additions,
installations or improvements obtain all permits, approval and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner. Tenant agrees to carry
and will cause Tenant's contractors and subcontractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may reasonably require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within thirty
(30) days thereafter, at Tenant's expense, by filing the bond required by law or
otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of Owner
and shall remain upon and be surrendered with the demised premises unless Owner,
by notice to Tenant no later than twenty (20) days after the date fixed as the
termination of this Lease, elects to relinquish Owner's right thereto and to
have them removed from the demised premises by Tenant promptly thereafter at
Tenant's expense. Nothing in this article shall be construed to give owner title
to or to prevent Tenant's removal of trade fixtures, moveable office furniture
and equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, Tenant shall immediately and at
its expense, repair and restore the premises to the condition existing prior to
installation and repair any damage to the demised premises or the building due
to such removal. All property permitted or required to be removed, by Tenant at
the end of the term remaining in the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or removed from the premises by Owner, at Tenant's expense.
Everything else to the contrary notwithstanding, Tenant will not be required to
remove or restore any of Owner's construction work that is referred to on
"Schedule A" - "The Work Letter" or "Exhibit 1" attached hereto.
REPAIRS: 4. Owner shall maintain and repair the exterior of
and the public portions of the building. Tenant
shall, throughout the term of this lease, take good care of the demised premises
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3
including the bathrooms and lavatory facilities (if the demised premises
encompass the entire floor of the building) and the windows and window frames
and, the fixtures and appurtenances therein and at Tenant's sole cost and
expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from other
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
Lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after ten (10) days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin (Owner represents that it maintains a contract for exterminating services
for the building's common areas), Tenant shall, at its expense, cause the same
to be exterminated. Tenant shall give Owner prompt notice of any defective
condition in any plumbing, heating system or electrical lines and sprinklers
located in the demised premises, and following such notice, Owner shall remedy
the condition with due diligence, but at the expense of Tenant, if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesaid. Except as specifically
provided in Article 9 or elsewhere in this Lease, there shall be no allowance to
the Tenant for a diminution of rental value and no liability on the part of
Owner by reason of inconvenience, annoyance or injury to business arising from
Owner, Tenant or others making or failing to make any repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. Owner
agrees to make any repairs hereunder as expeditiously as possible under the
circumstances and to use reasonable efforts to avoid interference with Tenant's
business. The provisions of this Article 4 with respect to the making of repairs
shall not apply in the case of fire or other casualty with regard to which
Article 9 hereof shall apply.
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be
cleaned from the outside in violation of Section 202
of the New York State Labor Law or any other applicable law or of the Rules of
the Board Of Standards And Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS 6. Prior to the commencement of the lease term, if
OF LAW, Tenant is then in possession, and at all times
FIRE INSURANCE, thereafter, Tenant shall, at Tenant's sole cost and
FLOOR LOADS: expense, promptly comply with all present and future
laws, orders and regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any direction of any public
officer pursuant to law, Owner represents that the Building is in compliance and
conformity with all mandated laws, rules and regulations of controlling
governmental bodies, and all orders rules and regulations of the New York Board
Of Fire Underwriters, or the Insurance Services Office, or any similar body
which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, or, with respect to the building, if arising out of
Tenant's use or manner of use of the demised premises or the building (including
the use permitted under the Lease). Except as provided in Article 30 hereof,
nothing herein shall require Tenant to make structural repairs or alterations
(including, but not limited to, sprinklers), unless Tenant has, by its manner of
use of the demised premises or method of operation therein, violated any such
laws, ordinances, orders, rules, regulations or requirements with respect
thereto. Tenant shall not do or permit any act or thing to be done in or to the
demised premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner. Tenant shall not keep anything in the
demised premises except as now or hereafter permitted by the Fire Department,
Board Of Fire Underwriters, Fire Insurance Rating Organization and other
authority having jurisdiction, and then only in such manner and such quantity so
as not to increase the rate for fire insurance applicable to the building,
<PAGE>
4
nor use the premises in a manner which will increase the insurance rate for the
building or any property located therein over that then in effect prior to the
commencement of Tenant's occupancy. If by reason of failure to comply with the
foregoing the fire insurance rate shall, at the beginning of this Lease or at
any time thereafter, be higher than it otherwise would be, then Tenant shall
reimburse Owner, as additional rent hereunder, for that portion of all fire
insurance premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" or rate for the building or demised
premises issued by a body making fire insurance rates applicable to said
premises shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rates then applicable to said
parties. Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by the law. Owner reserves the right to prescribe the weight
and position of all safes, business machines and mechanical equipment in order
to prevent any damage of whatever nature to the Building or vibration, noise or
annoyance. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's reasonable judgment, to
absorb and prevent vibration, noise and annoyance. Everything else to the
contrary notwithstanding, Owner will assume responsibility (at its sole cost)
for any asbestos removal required by law.
SUBORDINATION: 7. This Lease is subject and subordinate to all ground
or underlying leases and to all mortgages which may
now or hereafter affect such leases or the real
property of which demised premises are a part and to
all renewals, modifications, consolidations, replacements and extensions of any
such underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may reasonably request.
PROPERTY - 8. Owner or its agents shall not be liable for any
LOSS, DAMAGE, damage to property of Tenant or of others entrusted
REIMBURSEMENT, to employees of the building, nor for loss of or
INDEMNITY: damage any property of Tenant by theft or otherwise,
nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or due to the
negligence of Owner, its agents, servants or employees; Owner or its agents
shall not be liable for any damage caused by other tenants or persons in, upon
or about said building or caused by operations in connection of any private,
public or quasi public work. If at any time any windows of the demised premises
are temporarily closed, darkened or bricked up, if required by law) for any
reason whatsoever including, but not limited to Owner's own acts, Owner shall
not be liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and reasonable
expenses for which Owner shall not be reimbursed by insurance, including
reasonable attorney's fees, paid, suffered or incurred as a result of any breach
by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of
any covenant or condition of this Lease, or the carelessness, negligence or
improper conduct of the Tenant, Tenant's agents, contractors, employees,
invitees or licensees. Tenant's liability under this lease extends to the acts
and omissions of any sub-tenant, and any agent, contractor, employee, invitee or
licensee of any sub-tenant. In case any action or proceeding is brought Owner by
reason of any such claim, Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding by counsel approved
by Owner in writing, such approval not to be unreasonably withheld.
DESTRUCTION, 9. (a) If the demised premises or any part thereof
FIRE AND OTHER shall be damaged by fire or other casualty,
CASUALTY: Tenant shall give immediate notice thereof to
Owner and this Lease shall continue in full
force and effect except as hereinafter set
forth.
<PAGE>
5
(b) If the demised premises are partially damaged
or rendered partially unusable by fire or other
casualty, the damages thereto shall be repaired
by and at the expense of Owner and the rent,
until such repair shall be substantially complete, shall be apportioned from the
day following the casualty according to the part of the premises which is
usable.
(c) If the demised premises are totally damaged or
rendered wholly unusable by fire or other
casualty, then the rent shall be
proportionately paid up to the time of the
casualty and thenceforth shall cease until the date when the premises shall have
been repaired and restored by Owner, subject to Owner's right to elect not to
restore the same as hereinafter provided.
(d) If the demised premises are rendered wholly
unusable or (whether or not the demised
premises are damaged in whole or in part) if
the building shall be so damaged that Owner
shall decide to demolish it or to rebuild it, then, in any of such events, Owner
may elect to terminate this Lease by written notice to Tenant, given within
ninety (90) days after such fire or casualty, specifying a date for the
expiration of the Lease, which date shall not be more than sixty (60) days after
the giving of such notice, and upon the date specified in such notice the term
of this Lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this Lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Owner's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a termination
notice as provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable expedition,
subject to delays due to adjustment of insurance claims, labor troubles and
causes beyond Owner's control. After any such casualty, Tenant shall cooperate
with Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice from Owner that the premises are substantially ready
for Tenant's occupancy.
(e) Nothing contained hereinabove shall relieve
Tenant from liability that may exist as a
result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall
look first to any insurance to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or other casualty, and to the extent that such insurances in force and
collectible and to the extent permitted by law, Owner and Tenant each hereby
releases and waives all right of recovery against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain clause providing that such a release or waiver shall not invalidate the
insurance. If, and to the extent, that such waiver can be obtained only by the
payment of additional premiums, then the party benefiting from the waiver shall
pay such premium within ten (10) days after written demand or shall be deemed to
have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same.
(f) Tenant hereby waives the provisions of Section
227 of the Real Property Law and agrees that
the provisions of this article shall govern and
control in lieu thereof.
EMINENT 10. If the whole or any part of other demised premises
DOMAIN: shall be acquired or condemned by Eminent Domain of
<PAGE>
6
any public or quasi public use or purpose, then and
in that event, the term of this Lease shall cease and
terminate from the date of title vesting in such
proceeding and Tenant shall have no claim for the
value of any unexpired term of said Lease.
ASSIGNMENT, 11. Tenant, for itself, its heirs, distributees,
MORTGAGE, executors, administrators, legal representatives,
ETC. successors and assigns, expressly covenants that it
shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the
demised premises or any part thereof to be used by
others, without the prior written consent of Owner in each instance. Transfer of
the majority of the stock of a corporate Tenant shall be deemed an assignment.
If this Lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Owner may, after default by
Tenant, collect rent from the assignee, under-tenant, or occupant, and apply the
net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Owner to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment or
underletting.
ELECTRIC 12. Rates and conditions in respect to submetering or
CURRENT: rent inclusion, as the case may be, to be added in
RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall
not exceed the capacity of existing leeders to the
building or the risers or wiring installation, and Tenant may not use any
electrical equipment which, in Owner's opinion, reasonably exercised, will
overload such installations or interfere with the use thereof by other tenants
of the building. The change at any time of the character of electric service
shall in no way make Owner liable or responsible to Tenant, for any loss,
damages or expenses which Tenant may sustain, unless as a result of Owner's
negligence.
ACCESS TO 13. Owner or Owner's agents shall have the right (but
PREMISES: shall not be obligated) to enter the demised premises
in any emergency at any time, and, at other
reasonable times, after reasonable notice and during
normal business hours, to examine the same and to
make such repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building or which Owner may elect to
perform in the premises after Tenant's failure to make repairs or perform any
work which Tenant is obligated to perform under this Lease, or for the purpose
of complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided, wherever possible, they are within walls or otherwise
concealed. All entries made by Owner pursuant to this clause (except in the case
of emergencies) shall be after reasonable notice and any work will be performed
in such a manner so as to avoid unreasonable interference with Tenant's use
(without the necessity of incurring overtime wages or other additional costs) of
the demised premises and will not materially affect Tenant's layout. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof, Owner shall have the right to
enter the demised premises at reasonable hours and after reasonable notice for
the purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term for the purpose of showing
the same to prospective tenants and may, during said six months period, place
upon the premises the usual notices "To Let" and "For Sale" which notices Tenant
shall permit to remain thereon without molestation. If Tenant is not present to
open and permit an entry into the premises, Owner or Owner's agents may enter
the same whenever such entry may be necessary in the event of an emergency or a
suspected emergency, by master key or forcibly and provided reasonable care is
exercised to safeguard Tenant's
<PAGE>
7
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom, Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to tenant for any compensation and such act shall have no
effect on this Lease or Tenant's obligations hereunder.
VAULT, 14. No Vaults, vault space or area, whether or not
VAULT SPACE, or covered, not within the property line of the
AREA: building is leased hereunder, anything contained in
or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the
contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
OCCUPANCY: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy
issued for the building of which the demised premises
are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, but subject to the foregoing, Owner makes no
representation as to the condition of the premises and Tenant agrees, except as
otherwise provided for herein to the contrary, to accept the same subject to
violations, whether or not of record. If any governmental license or permit
shall be required for the proper and lawful conduct of Tenant's business, Tenant
shall be responsible for and shall procure and maintain such license or permit.
Owner hereby represents that the use contemplated under this Lease is
permissible under local zoning laws.
BANKRUPTCY: 16. (a) Anything elsewhere in this Lease to the
contrary notwithstanding, this Lease may be
canceled by Owner by sending of a written
notice to Tenant within a reasonable time after
the happening of any one or more of the following events: (1) the commencement
of a case in bankruptcy or under the laws of any state naming Tenant as the
debtor; or (2) the making by Tenant of an assignment or any other arrangement
for the benefit of creditors under any state statute. Neither Tenant nor any
person claiming through or under Tenant, or by reason of any statute or order of
court, shall thereafter be entitled to possession of the premises demised but
shall forthwith quit and surrender the premises. If this Lease shall be assigned
in accordance with its terms, the provisions of this Article 16 shall be
applicable only to the party then owning Tenant's interest in this Lease.
(b) It is stipulated and agreed that in the event
of the termination of this Lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this Lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rental reserved hereunder for the unexplored portion of
the term demised and the fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages, the difference
between any installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the demised premises for
the period for which such installment was payable shall be discounted to the
date of termination at the rate of four percent (4%) per annum. If such premises
or any part thereof be relet by the Owner for the unexpired term of said Lease,
or any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and reasonable rental value for the
part or the whole of the premises so re-let during the term of the re-letting.
Nothing herein contained shall limit or
<PAGE>
8
prejudice the right of the Owner to prove for and obtain as liquidated damages
by reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which, such damages are to be proved, whether or not such amount be greater,
equal to, or less than the amount of the difference referred to above.
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the
covenants of this Lease other than the
covenants for the payment of rent or additional
rent; or if the demised premises becomes vacant
or deserted "or if this Lease be rejected under
#235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if Tenant shall make default with respect to any other lease between Owner and
Tenant; or if Tenant shall have failed, after ten (10) days written notice, to
redeposit with Owner any portion of the security deposited hereunder which Owner
has applied to the payment of any rent and additional rent due and payable
hereunder of which fact Owner shall be the sole judge; then in any one or more
of such events, upon Owner serving a written ten (10) days notice upon Tenant
specifying the nature of said default and upon the expiration of said ten (10)
days, if Tenant shall have failed to comply with or remedy such default, or if
the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said ten (10) day period, and if
Tenant shall not have diligently commenced during such default within such ten
(10) day period, and shall not thereafter with reasonable diligence and in good
faith, proceed to remedy or cure such default, then Owner may serve a written
three (3) day' notice of cancellation of this Lease upon Tenant, and upon the
expiration of said three (3) days, if such default remains uncured, this Lease
and the term thereunder shall end and expire as fully and completely as if the
expiration of such three (3) day period were the day herein definitely fixed for
the end and expiration of this Lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall
have been given, and the term shall expire as aforesaid: or if Tenant shall make
default in the payment of the rent reserved herein or any item of additional
rent herein mentioned or any part of either or in making any other payment
herein required: then and in any of such events Owner may without notice,
re-enter the demised premises and dispossess Tenant by summary proceedings or by
any legal method or proceeding otherwise, and the legal representative of Tenant
or other occupant of demised premises and remove their effects and hold the
premises as if this Lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings to
that end. If Tenant shall make default hereunder prior to the date foxed as the
commencement of any renewal or extension of this Lease, Owner may cancel and
terminate such renewal or extension agreement by written notice.
REMEDIES OF 18. In case of any such default and expiration
OWNER AND of any applicable grace and notice period, re-
WAIVER OF entry, expiration and/or dispossess by summary
REDEMPTION: proceedings or otherwise (a) the rent, and
additional rent, shall become due thereupon and
be paid up to the time of such re- entry,
dispossess and/or expiration, (b) Owner may re-
let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this Lease and may grant concessions or
free rent or charge a higher rental than that in this Lease, (c) Tenant or the
legal representatives of Tenant shall also pay Owner as liquidated damages for
the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this Lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's from its liability for damages. In computing such
reasonable liquidated damages there shall be added to the said deficiency such
expenses as Owner may incur in connection with re-lettering, such as legal
expenses, attorneys' fees,
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9
brokerage, advertising and for keeping the demised premises in good order or for
preparing the same for re-letting. Any such liquidated damages shall be paid in
monthly installments by Tenant on the rent day specified in this Lease and any
suit brought to collect the amount of the deficiency for any month shall not
shall not prejudice in any way the rights of Owner to collect the deficiency for
any subsequent month by a similar proceeding. Owner, in putting the demised
premises in good order or preparing the same for re-rental may, at Owner's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Owner, in Owner's sole judgment, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making of
such alterations, repairs, replacements and/or decorations shall not operate or
be construed to release Tenant from liability hereunder as aforesaid. Owner
shall in no event be liable in any way whatsoever for failure to re-let the
demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rents collected
over the sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provide for. Mention in this Lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws.
FEES AND 19. If Tenant shall default in the observance or perform-
EXPENSES: ance of any term or covenant on Tenant's part to
be observed or performed under or by virtue of any of
the terms or provisions in any article of this Lease,
then, unless otherwise provided elsewhere in this
Lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. However, in regard to non-monetary
defaults under this Lease, Owner, except in an emergency or where required by
law, will give Tenant a maximum of ten (10) days verbal or written notice
depending on what is reasonably practicable under the circumstances in Owner's
sole judgment, after which Owner shall perform the obligation of Tenant
hereunder (at Tenant's sole cost) provided Tenant has not performed or in good
faith begun to perform such obligation within such "notice" period and
thereafter diligently completes such obligation. If Owner, in connection with
the foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorneys' fees, in
instituting, prosecuting or defending any action or proceedings, then Tenant
will reimburse Owner for such sums so paid or obligations incurred with interest
and costs. The foregoing expenses incurred by reason of Tenant's default shall
be deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within ten (10) days of rendition of any bill or statement to Tenant therefor.
If Tenant's Lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner as damages.
BUILDING 20. Owner shall have the right at any time without the
ALTERATIONS same constituting an eviction and without
AND incurring liability to Tenant therefor to change
MANAGEMENT: the arrangement and/or location of public entrances,
passageways, doors, doorways, corridors, elevators,
stairs, toilets or other public parts of the building
and to change the name, number or designation by
which the building may be known. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or other
Tenant making any repairs in the building or any such alterations, additions and
improvements. Owner shall use all reasonable efforts to compete such repairs as
expeditiously as possible and with minimal interference to Tenant, provided,
however, that the foregoing shall not obligate Owner to incur any overtime
charges. Furthermore, Tenant shall not have any claim against Owner by reason of
Owner's imposition of any controls of the manner of access to the building by
Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
NO REPRE- 21. Neither Owner nor Owner's agents have made any
SENTATIONS BY representations or promises with respect to the
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10
OWNER: physical condition of the building, the land upon
which it is erected or the demised premises, the
rents, leases, expenses of operation or any other
matter of thing affecting or related to the demised
premises or the building except as herein expressly set forth and no rights,
casements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this Lease. Tenant has inspected the
building and the demised premises and is thoroughly acquainted with their
condition and agrees, except as set forth herein to the contrary, to take the
same "as is" on the date possession is tendered and acknowledges that the taking
of possession of the demised premises by Tenant shall be conclusive evidence
that the said premises and the building of which the same form a part were in
good and satisfactory condition at the time such possession was so taken, except
as to latent defects. All understandings and agreements heretofore made between
the parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandon-ment is sought.
END OF 22. Upon the expiration or other termination of the term
TERM: of this Lease, Tenant shall quit and surrender to
Owner the demised premises, broom clean, in good
order and condition, ordinary wear and tear and
damages which Tenant is not required to repair as
provided elsewhere in this Lease excepted, and Tenant shall remove all its
property from the demised premises. Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of this Lease.
If the last day of the term of this Lease or any renewal thereof, falls on
Sunday, this Lease shall expire at noon on the preceding Saturday unless it be a
legal holiday in which case it shall expire at noon on the preceding business
day.
QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and
observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and
performed, Tenant may peaceably and quietly enjoy the premises hereby demised,
subject, nevertheless, to the terms and conditions of this Lease, including, but
not limited to, Article 34 hereof and to the ground leases, underlying leases
and mortgages hereinbefore mentioned.
FAILURE TO 24. If Owner is unable to give possession of the demised
GIVE premises on the date of the commencement of the term
POSSESSION: hereof, because Owner has not completed any work
required to be performed by Owner, or for any other
reason Owner shall not be subject to any liability
for failure to give possession on said date and the
validity of the Lease shall not be impaired under such circumstances, not shall
the same be construed in any way to extend the term of this Lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession or complete any work required) until
after Owner shall have given Tenant notice that the premises are substantially
ready for Tenant's occupancy. If permission is given to Tenant to enter into the
possession of the demised premises or to occupy premises other than the demised
prior to the date specified as the commencement of the term of this Lease.
Tenant covenants and agrees that such occupancy shall be deemed to be under all
the terms, covenants, conditions and provisions of this Lease, except as to the
covenant to pay rent. The provisions of this article are intended to constitute
"an express provision to the contrary" within the meaning of Section 223-a of
the New York Real Property Law.
NO WAIVER: 25. The failure of Owner to seek redress for violation
of, or to insist upon the strict performance of any
covenant or condition of this Lease or of any of the
Rules or Regulations, set forth or hereafter adopted
by Owner, shall not prevent a subsequent act which would have originally
constituted a violation. The receipt by Owner of rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such breach
and no
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11
provision of this Lease shall be deemed to have been waived by Owner unless such
waiver be in writing and signed by Owner. No payment by Tenant or receipt by
Owner of a lesser amount than the monthly rent herein stipulated shall be deemed
to be other than on account of the earliest stipulated rent, nor shall any
endorsement or statement of any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction , and Owner may accept such
check or payment without prejudice to Owner's right to recover the balance of
such rent or pursue any other remedy in this Lease provided. All checks tendered
to Owner as and for the rent of the demised premises shall be deemed payments
for the account of Tenant. Acceptance by Owner of rent from anyone other than
Tenant shall not be deemed to operate as an attornment to Owner by the payor of
such rent or as a consent by Owner to an assignment or subletting by Tenant of
the demised premises to such payor, or as a modification of the provisions of
this Lease. No act or thing done by Owner or Owner's agents during the term
hereby demised shall be deemed an acceptance of a surrender of said premises and
no agreement to accept such surrender shall be valid unless in writing signed by
Owner. No employee of Owner or Owner's agent shall have any power to accept the
keys of said premises prior to the termination of the Lease and the delivery of
keys to any such agent or employee shall not operate as a termination of the
Lease or a surrender of the premises. Any claims by Tenant must be received
certified or registered mail within thirty (30) days of complaint or they will
be deemed waived forever.
WAIVER OF 26. It is mutually agreed by and between Owner and Tenant
TRIAL BY JURY: that the respective parties hereto shall and they
hereby do waive trail by jury in any action,
proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal
injury or property damage) on any matters whatsoever arising out of or in any
way connected with this Lease, the relationship of Owner and Tenant, Tenant's
use of or occupancy of said premises, and any emergency statutory or any other
statutory remedy. It is further mutually agreed that in the event Owner
commences any summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding.
INABILITY TO 27. This Lease and the obligation of Tenant to pay rent
PERFORM: hereunder and perform all of the other covenants and
agreements hereunder on part of Tenant to be
performed shall in no way be affected, impaired or
excused because Owner is unable to fulfill any of its
obligations under this Lease or to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repair, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Owner is prevented or
delayed from so doing by reason of strike or labor troubles or any cause
whatsoever beyond Owner's reasonable control including, but not limited to,
government preemption in connection with a National Emergency or by reason of
any rule, order or regulation of any department or subdivision thereof of any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
BILLS AND 28. Except as otherwise in this Lease provided, a bill,
NOTICES: statement, notice or communication which Owner may
desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered it, in writing,
delivered to Tenant personally or sent by registered
or certified mail addressed to Tenant at the building of which the demised
premises form a part or at the last known residence address or business address
of Tenant or left at any of the aforesaid premises addressed to Tenant, and the
time of the rendition of such bill or statement and of the giving of such notice
or communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant
to Owner must be served by registered or certified mail addressed to Owner at
the address first hereinabove given or at such other address as the Owner shall
designate by written notice.
WATER 29. If Tenant requires, uses or consumes water for any
CHARGES: purpose in addition to ordinary lavatory purposes
(of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and
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12
thereby measure Tenant's water consumption for all purposes. Tenant shall pay
Owner for the reasonable cost of the meter and the reasonable cost of the
installation , thereof and throughout the duration of Tenant's occupancy Tenant
shall keep said meter and installation equipment in good working order and
repair at Tenant's own cost and expense in default of which Owner may cause such
meter and equipment to be replaced or repaired and collect the cost thereof from
Tenant, as additional rent. Tenant agrees to pay for water consumed, as shown on
said meter as and when bills are rendered, and on default in making such
payment, Owner may pay such charges and collect the same from Tenant, as
additional rent. Tenant covenants and agrees to pay, as additional rent, the
sewer rent, charge or any other tax, rent, levy or charge which now or hereafter
is assessed, imposed or a lien upon the demised premises or the realty of which
they are part pursuant to law, order or regulation made or issued in connection
with the use, consumption, maintenance or supply of water, water system or
sewage or sewage connection or system. Independently of and in addition to any
of the remedies reserved to Owner hereinabove or elsewhere in this Lease, Owner
may sue for and collect any monies to be paid by Tenant or paid by Owner for any
of the reasons or purposes hereinabove set forth.
SPRINKLERS: 30. If any changes, modifications, alterations, or
additional sprinkler heads or other equipment be made
or supplied in an existing sprinkler system by reason
of Tenant's business, or other location of
partitions, trade fixtures, or other contents of the demised premises, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required whether the work involved shall be structural or
non-structural in nature.
ELEVATORS, 31. As long as Tenant is not in default under any of
HEAT, the covenants of this Lease, Owner shall: (a) provide
CLEANING: necessary passenger elevator facilities on business
days from 8 a.m. to 6 p.m. and on Saturdays from 8
a.m. to 1 p.m.; (b) if freight elevator service is
provided, same shall be provided only on regular
business days Monday through Friday inclusive, and on those days only between
the hours of 9 a.m. and 11:45 a.m. and between 1 p.m. and 5 p.m.; (c) furnish
heat, water and other services supplied by Owner to the demised premises, when
and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays
from 8 a.m to 1 p.m.; (d) clean the public halls and public portions of the
building which are used in common by all tenants. Tenant shall, at Tenant's
expense, keep the demised premises, including the window, clean and in order, to
the reasonable satisfaction of Owner, and for that purpose shall employ the
person or persons, or corporation approved by Owner. Tenant shall pay to Owner
the reasonable cost of removal of any of Tenant's refuse and rubbish from the
building. Bills for the same shall be rendered by Owner to Tenant at such time
as Owner may elect and shall be due and payable hereunder, and the account of
such bills shall be deemed to be, and be paid as, additional rent. Tenant shall,
however, have the option of independently contracting for the removal of such
rubbish and refuse in the event that Tenant does not wish to have same done by
employees of Owner. Under such circumstances, however, the removal of such
refuse and rubbish by others shall be subject to such rules and regulations as,
in the reasonable judgment of Owner, are necessary for the proper operation of
the building. Owner reserves the right to stop service of the heating, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder, provided that
the same shall be done with the minimum amount of inconvenience to Tenant, and
Owner pursues with due diligence the completion of the alterations.
SECURITY: 32. Tenant has deposited with Owner the sum of $3,030.00
as security for the faithful performance and
observance by Tenant of the terms, provisions and
conditions of this Lease. The security deposit of
$3,030.00 will be paid by transferring $1,581.71 of Tenants' prior security
<PAGE>
13
account for Rooms 1201-2 (composed of an opening balance of $1,500.00 plus
interest to date January 31, 1996 or $81.71) to Rooms 604-5 and Tenant
delivering a check for the balance due on this security deposit of $1,448.29.
(See Rider clauses 41-67). It is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and condition of this Lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this Lease, including but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease, the security
shall be returned to Tenant after the date foxed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendor or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security; and Tenant agrees to look to
the new Owner solely for the return of said security, and it is agreed that the
provision hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber monies deposited herein as security
and that neither Owner not its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Owner
agrees to deposit the security deposit in an interest bearing account as used
for all of the Building's security accounts. Interest earned shall be delivered
to Tenant after the expiration date of the Lease (and accrued until that time).
CAPTIONS: 33. The Captions are inserted only as a matter of
convenience and for reference and in no way define,
limit or describe the scope of this Lease not the
intent of any provision thereof.
DEFINITIONS: 34. The term "Owner" as used in this Lease means only the
owner of the fee or of the leasehold of the building,
or the mortgagee in possession, for the time being of
the land and building (or the owner of a lease of the
building or of the land and building) of which the demised premises form a part,
so that in the event of any sale or sales of said land and building or of said
Lease, or in the event of a Lease of said building, or of the land and building,
the said Owner shall be and hereby is entirely freed and relieved of all
covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner hereunder. The words "re-enter" and
"re-entry" as used in this Lease are not restricted to their technical legal
meaning. The term "rent" includes the annual rental rate whether so-expressed or
expressed in monthly installments, and "additional rent." "Additional rent"
means all sums which shall be due to new Owner from Tenant under this Lease, in
addition to the annual rental rate. The term "business days" as used in this
Lease, shall exclude Saturdays (except such portion thereof as is covered by
specific hours in Article 31 hereof), Sundays and all days observed by the State
or Federal Government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
ADJACENT 35. If an excavation shall be made upon land adjacent to
EXCAVATION- the demised premises, or shall be authorized to be
SHORING: made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter
upon the demised premises for the purpose of doing
such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
<PAGE>
14
RULES AND 36. Tenant and Tenant's servants, employees, agents,
REGULATIONS: visitors, and licensees shall observe faithfully, and
comply strictly with, the Rules and Regulations
annexed hereto and such other and further reasonable
Rules and Regulations as Owner or Owner's agents may
from time to time adopt. Notice of any additional rules or regulations shall be
given promptly in such manner as Owner may elect. In case Tenant disputes the
reasonableness of any additional Rule or Regulation hereafter made or adopted by
Owner or Owner's agents, the parties hereto agree to submit the question of the
reasonableness of such Rule and Regulation for decision to the New York office
of the American Arbitration Association, whose determination shall be final and
conclusive upon the parties hereto. All Rules and Regulations shall be enforced
against Tenant in a non-discriminatory fashion. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this Lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
GLASS: 37. Owner shall replace, at the expense of the Tenant,
any and all plate and other glass damaged or broken
from any cause whatsoever in and about the demised
premises. Owner may insure, and keep insured, at
Tenant's expense, all plate and other glass in the demised premises for and in
the name of Owner. Bills for the premiums therefor shall be rendered by Owner to
Tenant at such times as Owner my elect, and shall be due from, and payable by,
Tenant when rendered, and the amount thereof shall be deemed to be, and be paid,
as additional rent.
ESTOPPEL 38. Tenant or Owner, at any time, and from time to time,
CERTIFICATES: upon at least ten (10) days' prior notice by the
other party, shall execute, acknowledge and deliver
to the other party, and/or to any other person, firm
or corporation specified by the other party, a
statement certifying that this Lease is unmodified in fulfill force and effect
(or, if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
DIRECTORY 39. If, at the request of and as accommodation to Tenant,
BOARD LISTING: Owner shall place upon the directory board in the
lobby of the building, one or more names of persons
other than Tenant, such directory board listing shall
not be construed as the consent by Owner to an
assignment of subletting by Tenant to such person or
persons.
SUCCESSORS 40. The covenants, conditions and agreements contained in
AND ASSIGNS: this Lease shall bind and inure to the benefit of
Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors,
and except as otherwise provided in this Lease, their
assigns.
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15
IN WITNESS WHEREOF,
Owner and Tenant have respectively signed and sealed
this Lease as of the day and year first above written.
NINETY-FIVE MADISON COMPANY
By: (L.S.)
Witness For Owner Rita A. Sklar, General Partner
THE MILLBROOK PRESS, INC.
By: (L.S.)
Witness For Owner Don D'Angelo, Vice President
<PAGE>
ACKNOWLEDGMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss:
County of
On this day of , 19 , before me
personally came
to me known, who being by me duly sworn,
did depose and say that he resides
in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT: that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board Of Directors of said corporation, and that he signed his name thereto by
like order.
INDIVIDUAL TENANT
STATE OF NEW YORK, ss:
County of
On this day of , 19 , before me personally came
to me known and known to me to be the
individual described in and who, as TENANT, executed the foregoing instrument
and acknowledged to me that he executed the same.
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE
WITH ARTICLE 36.
1. The sidewalks entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the build,
Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in
front of said premises clan and free from ice, now, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
<PAGE>
17
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. No sign, advertisement, notice of other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the demise
premises of the same is visible from the outside of the premises without the
prior written consent of Owner, except that the name of Tenant may appear on the
entrance door or the premises. In the event of the violation of the foregoing by
any Tenant, Owner may remove same without any liability and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule.
Interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each Tenant by Owner at the expense of such Tenant, and shall be of
a size, color and style acceptable to Owner.
6. No tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Owner, which consent shall not be unreasonably withheld or
delayed, and Owner may reasonably direct. No Tenant shall lay linoleum, or other
similar floor covering, so that the same shall come in direct contact with the
floor of the demised premises, and, if linoleum or other similar floor covering
is desired to be used, an interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be place upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Teach Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Fright, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner reasonably approved by Owner. Owner reserves the
right to inspect all freight to be brought into the building and to exclude from
the building all freight which violates any of these Rules and Regulations of
the Lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice,
drinking water, towel and other similar services, or accept barbering or
bootblacking services in the demised premises, except from persons authorized by
Owner, and at hours and under regulations fixed by Owner. Canvassing, soliciting
and peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at
all hours on Sundays and legal holidays all persons who do not present a pass to
the building signed by Owner. Owner will furnish passes to persons for whom any
Tenant requests same in writing. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Owner for all acts
of such persons. Notwithstanding the foregoing, Owner shall not be required to
allow Tenant or any person to enter or remain in the building, except on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.
<PAGE>
18
11. Owner shall have the right to prohibit any advertising by any
Tenant which in Owner's opinion, tends to impair the reputation of the building
or its desirability as a loft building, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. Tenant shall not use the demise premises in a manner which disturbs
or interferes with other Tenants in the beneficial use of their premises.
Address: 95 Madison Avenue
New York, New York 10016
Premises Room 604-5
NINETY-FIVE MADISON COMPANY
TO
THE MILLBROOK PRESS, INC.
STANDARD FORM OF
LOFT LEASE
The Real Estate Board Of New York, Inc.
(C)Copyright 1982. All Rights Reserved.
Reproduction in whole or in part prohibited.
Dated: February 15, 1996
Rent Per Year
$33,330.00 from 5/1/96 - 1/31/97
$35,350.00 from 2/1/97 - 10/31/97
$34,340.00 from 11/1/97 - 4/30/2000
$36,360.00 from 5/1/2000 - 4/30/2004
Rent Per Month
$2,777.50 from 5/1/96 - 1/31/97
$2,945.83 from 2/1/97 - 10/31/97
$2,861.67 from 11/1/97 - 4/30/2000
$3,030.00 from 5/1/2000 - 4/30/2004
Term: Eight (8) years
From: April 1, 1996
To: March 31, 2004
Drawn by Checked by
Entered by Approved by
MILLBROOK ACQUISITION CORP.
1994 Stock Option Plan
1. PURPOSE: The purpose of the Millbrook Acquisition Corp.
1994 Stock Option Plan (the "Plan"), as hereinafter set forth, is to enable
Millbrook Acquisition Corp., a Delaware corporation (the "Corporation"), to
attract and retain the best available personnel for positions of substantial
responsibility and to provide additional incentives to officers and other key
employees of the Corporation and any future parent or subsidiary of the
Corporation to promote the success of the Corporation. Options granted under the
Plan are not intended to be incentive stock options under Internal Revenue Code
ss. 422. Proceeds of cash or property received by the Corporation from the sale
of common stock of the Corporation pursuant to options granted under the Plan
will be used for general corporate purposes.
2. ADMINISTRATION. The Plan shall be administered by a
committee initially consisting of Mr. Frank Farrell, Mr. Howard Graham and Mr.
Barry Fingerhut (the "Committee"). Replacements on the Committee shall be
appointed by the Board of Directors (the "Board") of the Corporation subject to
the applicable provisions of the Stockholders' Agreement dated of even date
herewith (the "Stockholders' Agreement") setting forth certain agreements among
the Corporation's stockholders. Subject to the express provisions of the Plan,
the Committee may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of the optionee's
option agreements and make such other determinations as it deems necessary or
advisable for the administration of the Plan. All decisions of the Committee
shall be made only pursuant to the unanimous vote of the members thereof, except
for any decisions concerning the recipients of any unawarded options as listed
on Annex A hereto, as adjusted by the provisions of Section 6, which shall be
made by majority vote. The decisions of the Committee on matters within their
jurisdiction under the Plan shall be conclusive and binding. Notwithstanding the
foregoing provisions to the contrary, if the number of shares issuable pursuant
to this Plan are increased, other than pursuant to the provisions of Section 6
hereof, above 250,000 shares (the amount by which such shares issuable pursuant
to this Plan are increased above 250,000 shares being hereinafter referred to as
"Increased Shares"), this Plan with respect to such Increased Shares only shall
be administered by or at the direction of the Board in all respects.
3. ELIGIBILITY. Options may be granted under this Plan to any
full-time or part-time employee or officer of the Corporation or its affiliates,
who, in the opinion of the Committee (or in the opinion of the Board with
respect to the Increased Shares), has or is expected to make key contributions
to the success of the Corporation. The initial grantees of options under the
Plan and the number of shares subject to options granted them are set forth on
Annex A hereto. The Committee (or in the case of the Increased Shares, the
Board) shall determine, within the limits of the express provisions of the Plan,
those employees to whom, and the time or times at which, additional options
<PAGE>
shall be granted. The Committee (or in the case of the Increased Shares, the
Board) shall also determine the number of shares to be subject to each option.
In making such determinations, the Committee (or in the case of the Increased
Shares, the Board) may take into account the nature of the services rendered by
the employee, his/her present and potential contributions to the Corporation's
success and such other factors as the Committee (or in the case of the Increased
Shares, the Board) in its discretion shall deem relevant. The duration of each
option, the exercise price (option price) under each option and the time or
times within which (during the term of the option) all or portions of each
option may be exercised are set forth in this Plan.
4. COMMON STOCK. Options may be granted for a number of shares
not to exceed, in the aggregate, 250,000 shares of common stock of the
Corporation, $.01 par value per share ("Common Stock"), except as such number of
shares shall be adjusted in accordance with the provisions of Section 6 hereof.
Such shares may be either authorized but unissued shares or reacquired shares or
other treasury shares. In the event that any option granted under the Plan
expires unexercised, or is surrendered by a participant for cancellation, or is
terminated or ceases to be exercisable for any other reason without having been
fully exercised prior to the end of the period during which options may be
granted under the Plan, the shares which had been subject to such option, or to
the unexercised portion thereof, shall again become available for new options to
be granted under the Plan to any eligible employee (including the holder of such
former option).
5. REQUIRED TERMS AND CONDITIONS OF OPTIONS. The options
granted under the Plan shall be in such form and upon such terms and conditions
as the Committee (or in the case of the Increased Shares, the Board) shall from
time to time determine subject to the provisions of the Plan, including the
following:
(a) OPTION PRICE. The option price of each
option to purchase Common Stock shall be $8.00 per share. The option price shall
be subject to further adjustment as set forth in Section 6 below.
(b) MAXIMUM TERM. No option shall be
exercisable after the expiration of seven (7) years from the date it is granted.
(c) VESTING LIMITATIONS.
(i) An option becomes exercisable in the
following percentages of option shares awarded to an optionee on the following
anniversaries of the grant of such option; provided that such optionee is
employed by the Corporation on each such anniversary; and provided further that,
all such optionee's options shall become fully vested if the optionee is
employed by Corporation (A) on or within ninety (90) days of the Effective Date
of a Triggering Event (other than a Public Offering), or (B) on the date of the
optionee's death, or (C) on the date the optionee becomes incapable of
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<PAGE>
performing optionee's duties to the Corporation and such incapacity results in
the optionee becoming Disabled (as defined in Section 5(d) below); and provided
further that, all such optionee's options which are not vested on the Effective
Date of an initial Public Offering shall vest 50% on the first anniversary of
such Effective Date and the balance on the second anniversary of such Effective
Date but in any event such optionee's options shall be 100% vested no later than
the fifth anniversary of the date of their grant:
Percentage of Option Shares
Awarded to Optionee Under
Option which are Vested Anniversary
----------------------- -----------
20% First
40% Second
60% Third
80% Fourth
100% Fifth
Notwithstanding the foregoing, vested options shall be subject to termination in
accordance with the provisions of this Plan.
(ii) For purposes of Section 5(c)(i) the
following capitalized terms have the meanings set forth below:
"CHANGE OF CONTROL" shall mean any (A) issuance,
sale, assignment, transfer or other disposition of Common Stock, (B) exercise or
conversion of Common Stock, or of any other security which is issued or
distributed by the Corporation and which entitles its registered owner to vote
in an election of directors ("Voting Stock"), or (C) any security, right,
option, warrant, agreement convertible or exercisable into Common Stock or
Voting Stock (collectively "Voting Securities"), or any series of such
transactions described in clauses (A), (B) or (C), which, in the aggregate,
results in Persons other than the Investor Group and/or the Management Group
being the record or "beneficial owner" (as such term is defined for the purposes
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended)
of Voting Securities and/or Voting Stock entitled to elect more than fifty (50%)
percent of the Board of Directors of the Corporation or of the surviving
corporation in a merger between the Corporation and such surviving corporation
or such other Persons in fact elect or appoint a majority of the Board of
Directors of the Company.
"EFFECTIVE DATE" shall mean the date on which the relevant
transaction closes, provided that for purposes of a Public Offering, the
Effective Date shall be the date the Corporation and/or the Investor Group
and/or the Management Group receives the net proceeds of the Public Offering.
-3-
<PAGE>
"INVESTOR GROUP" means Applewood Associates, L.P., a New York
limited partnership, Sandler Capital Management, a New York general partnership,
Barry Fingerhut, Irwin Lieber, Seth Lieber, Jonathan Lieber, Woodland Partners,
a New York general partnership, Harvey Sandler, Andrew Sandler, John Kornreich,
Michael Marocco, Barry Lewis, Hannah Stone, and their Permitted Transferees who
are Affiliates (as those terms are defined in the Stockholders' Agreement) of
such investors.
"MANAGEMENT GROUP" means Frank J. Farrell, Howard B. Graham,
Jean E. Reynolds.
"PUBLIC OFFERING" shall mean the consummation of the sale of
Common Stock of the Corporation pursuant to a registration statement declared
effective under the Securities Act of 1933, as amended, pursuant to which the
Corporation and/or the Investor Group and/or Management Group receives aggregate
net proceeds of at least $5,000,000.
"SALE OF ASSETS" shall mean the sale, transfer or other
disposition by the Corporation of all or substantially all of its assets.
"SALE OF STOCKS" shall mean the sale, transfer or other
disposition for value by the stockholders or by the Corporation to an
unaffiliated third party of an amount of Common Stock such that, after giving
effect to such sale, transfer or other disposition, a Change of Control results
(regardless of the form of the transaction, including without limitation a
cash-out merger or a merger, recapitalization or consolidation.
"TRIGGERING EVENT" shall mean the first to occur of a Public
Offering, Sale of Assets or Sale of Stock.
(d) TERMINATION OF OPTION. In the event an optionee
shall cease to be employed by the Corporation for any reason other than death,
the optionee shall have the right, subject to the provisions of Sections 5(b)
and 6 hereof, to exercise optionee's option at any time within six (6) months
after such cessation of employment, but only as to such number of shares as to
which optionee's option was exercisable at the date of such cessation of
employment. Notwithstanding the provisions of the preceding sentence, (i) if
cessation of employment occurs by reason of the optionee becoming Disabled, such
six month period shall be extended to nine months; and (ii) if employment is
terminated at the request of the Corporation for Cause or the cessation of
employment is the result of the optionee's resignation without Good Reason, the
optionee's right to exercise an option shall terminate at the time notice of
termination of employment is given by the Corporation in the case of a
termination for Cause or by the optionee in the case of a resignation without
Good Reason, as the case may be. For purposes of this Section 5(d), "Cause"
shall mean: (i) any action by optionee involving willful malfeasance or a
willful breach of optionee's fiduciary duties in connection with optionee's
employment by the Corporation; (ii) the conviction of optionee of a felony or
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<PAGE>
of a fraud; (iii) the breach by the optionee of any material fiduciary duty owed
to the Corporation or any material provision of his or her employment agreement,
which breach continues for thirty (30) days after written notice specifying the
nature of such breach is delivered to optionee from the Corporation's Board of
Directors. For purposes of this Section 5(d) and Section 5(c) above, an optionee
shall become "Disabled" upon the earlier to occur of optionee's absence from
optionee's duties to the Corporation on a full-time basis for ninety (90)
consecutive days or for shorter periods aggregating one hundred eighty (180)
days during any consecutive eighteen (18) month period as a result of optionee's
incapacity due to accident or physical or mental illness. For purposes of this
Section 5(d), "Good Reason" shall be limited to the assignment to optionee by
the Corporation of duties, individually or in the aggregate, materially
inconsistent with optionee's positions, duties, responsibilities, titles or
offices normally enjoyed by the optionee prior to such assignment or a material
breach of optionee's employment agreement, the Stockholders' Agreement to the
extent the optionee is a party thereto or an option agreement under this Plan by
the Corporation or the Investor Group, provided, however, Good Reason shall not
be deemed to exist unless the Corporation is notified by Optionee of the
circumstances constituting Good Reason and the Corporation fails to remedy the
circumstances within thirty (30) days of such notice. If a participant dies
while in the employ of the Corporation or within three months after cessation of
such employment (other than cessation resulting from termination of employment
for cause or resignation without Good Reason), optionee's estate, personal
representative or the person that acquires the option by bequest or inheritance
or by reason of optionee's death shall have the right, subject to the provisions
of Section 5(b) and 6 hereof, to exercise optionee's options at any time within
six (6) months from the date of optionee's death. In any such event, unless so
exercised within the period as aforesaid, the option shall terminate at the
expiration of said period. The time of cessation of employment and whether an
authorized leave of absence shall constitute cessation of employment, for the
purpose of the Plan, shall be determined by the Committee.
(e) METHOD OF EXERCISE. Options may be exercised by
giving written notice to the Treasurer of the Corporation, stating the number of
shares of Common Stock with respect to which the option is being exercised and
tendering payment of the option price therefor. Payment for Common Stock shall
be made in full at the time that an option, or any part thereof, is exercised.
The date the Corporation receives (i) such notice and (ii) payment in full for
the applicable option price by certified check, wire transfer, same day funds or
collection of a bank check shall be referred to herein as the "Exercise Date".
In the event that the shares of Corporation's Common Stock issuable upon
exercise of an option are registered under the applicable federal securities
laws for trading on a national securities exchange or over-the-counter market,
then in connection with the exercise of an option and concurrent resale of the
shares of Common Stock underlying such option by a broker designated by the
optionee in its notice of exercise, to the extent authorized by the Committee
(or in the case of Increased Shares, by the Board), the Corporation may deliver
such shares to the broker, and payment of the option price may be made from the
proceeds of the concurrent
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<PAGE>
resale; provided, however, that the optionee shall have delivered irrevocable
instructions to the broker to deliver promptly to the Corporation the portion of
the sale proceeds sufficient to pay the option price and the Corporation shall
have received from the optionee and/or such broker such documentation as the
Committee or the Board may reasonably request to assure that such payment
occurs.
6. ADJUSTMENTS.
(a) The aggregate of shares of Common Stock with
respect to which options may be granted hereunder, the number of shares of
Common Stock subject to each outstanding option and the option price of each
option to purchase Common Stock shall be adjusted as determined in good faith by
the unanimous vote of the Committee (or in cases involving the Increased Shares,
by the majority vote of the Board) to give effect to any increase or decrease in
the number of shares of issued Common Stock resulting from a subdivision or
consolidation of shares that is effected without the receipt of consideration by
the Corporation, whether through reorganization of the Corporation's capital
stock structure, payment of a stock dividend, stock split or other increase or
decrease in the number of such shares outstanding.
(b) Subject to any required action by stockholders,
if the Corporation shall be a party to a transaction involving a Sale of Assets
or a Sale of Stock, any unexercised option granted hereunder shall pertain to
and apply to the securities to which a holder of the number of shares of Common
Stock subject to the option would have been entitled if the optionee actually
owned the stock subject to the option immediately prior to the time any such
transaction became effective; provided, however, that all unexercised options
under the Plan may be canceled by the Corporation as of the effective date of
any such transaction, by giving notice to the holders thereof of its intention
to do so and by permitting the exercise, during the thirty (30) day period
preceding the Effective Date of such transaction of all partly or wholly
unexercised options in full (without regard to exercise vesting limitations
contained in Section 5(c)).
(c) In the case of liquidation, dissolution or
winding up of the Corporation, every option outstanding hereunder shall
terminate; provided, however, that each option holder shall have thirty (30)
days prior written notice of such event, during which time optionee shall have a
right to exercise optionee's partly or wholly unexercised option (without regard
to exercise vesting limitations contained in Section 5(c)).
7. OPTION AGREEMENTS. Each optionee shall agree to such terms
and conditions in connection with the exercise of an option, including
restrictions on the disposition of the Common Stock acquired upon the exercise
thereof, as evidenced by the option agreement in the form annexed hereto as
Annex B. The certificates evidencing the shares of Common Stock acquired upon
exercise of an option shall bear a legend referring to the terms and conditions
contained in the respective option
-6-
<PAGE>
agreement and the Plan, an appropriate legend referring to the Securities Act of
1933, as amended, and a legend referring to any existing stockholders' agreement
to which such shares are subject.
8. CERTAIN LEGAL AND OTHER REQUIREMENTS.
(a) The obligation of the Corporation to sell and
deliver Common Stock under options granted under the Plan shall be subject to
all applicable laws, regulations, rules and approvals, including, but not by way
of limitation, the effectiveness of a registration statement under the
Securities Act of 1933, as amended, or any state securities laws, if deemed
necessary or appropriate by the Board, with respect to the Common Stock reserved
for issuance upon exercise of options. Nothing herein shall be construed to
obligate the Corporation to effect any such registration or qualification. The
certificates evidencing the Common Stock issued upon exercise of options may be
affixed with a legend to indicate a lack of such registration or qualification,
thereby restricting resale. The Corporation may require any optionee, as a
condition of exercising such optionee's option, or at any time thereafter, to
represent in writing that such optionee is acquiring (or has acquired) the
Common Stock for optionee's own account and not with a view to distribution and
to furnish the Corporation with an opinion of counsel addressed to the
Corporation as to such matters (including federal and state securities laws) as
the Corporation shall request. Notwithstanding the foregoing, the Corporation's
failure or refusal to request and/or obtain such representation or opinion shall
not be construed as a waiver of any provision hereof.
(b) An optionee shall have no rights as a stockholder
with respect to any shares covered by an option granted to, or exercised by,
optionee until the Exercise Date. No adjustment other than pursuant to Section 6
hereof shall be made for dividends or other rights for which the record date is
prior to the Exercise Date.
9. NON-TRANSFERABILITY. During the lifetime of an optionee,
any option granted to optionee shall be exercisable only by optionee or by
optionee's guardian or legal representative. No option shall be assignable or
transferable, except by will or by the laws of descent and distribution. The
granting of an option shall impose no obligation upon the optionee to exercise
such option or right.
10. NO CONTRACT OF EMPLOYMENT. Neither the adoption of this
Plan nor the grant of any option shall be deemed to obligate the Corporation to
continue the employment of any optionee for any particular period, nor shall the
granting of an option constitute a request or consent to postpone the retirement
date of any optionee.
11. INDEMNIFICATION OF COMMITTEE. In addition to such other
rights of indemnification as they may have as Directors or as members of the
Committee, the members of the Committee shall be indemnified by the Corporation
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in
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<PAGE>
connection with the defense of any action, suit or proceeding (or in connection
with any appeal therein) to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any option granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Committee
member is liable for gross negligence or gross misconduct in the performance of
the member's duties; provided that within sixty (60) days after institution of
any such action, suit or proceeding, a Committee member shall, in writing, offer
the Corporation the opportunity, at its own expense, to handle and defend the
same.
12. TERMINATION AND AMENDMENT OF PLAN. No options shall be
granted under the Plan more than ten (10) years after the date the Plan was
adopted. The Plan may be amended, suspended or terminated by the Board, in whole
or in part, at any time; provided, however, that the Board may not, without the
consent of a Management Director (as that term is defined in the Stockholders'
Agreement), (i) decrease the total number of shares of Common Stock available
for options (other than options with respect to Increased Shares) under the
Plan, (ii) amend, suspend or terminate the Plan in a manner not contemplated by
the express provisions of the Plan if such amendment, suspension or termination
adversely affects the ability of the Committee to issue options pursuant to this
Plan or limits its authority under the Plan or the terms upon which options
(other than options with respect to Increased Shares) may be issued by the
Committee under the Plan, (iii) modify the eligibility requirements of the Plan
for issuance of options, other than options for Increased Shares, or (iv) do
anything in respect of the Plan which requires the consent of a Management
Director pursuant to the terms of the Stockholders Agreement. No Board action
shall materially and adversely affect any of the terms or provisions of the
outstanding options without the consent of the respective optionees.
13. TAX WITHHOLDING. All awards and distributions of shares or
other payments pursuant to the Plan shall be subject to withholding required by
applicable Federal, state and local laws, and the Committee, or with respect to
the Increased Shares, the Board may make such arrangements for the payment of
any withholding taxes on awards or distributions as it deems satisfactory,
including, but not limited to (i) reducing the number of shares of Common Stock,
based upon their fair market value, or cash, otherwise deliverable, to permit
deduction of the amount of any such withholding taxes from the amount otherwise
payable under the Plan, (ii) deducting the amount required to be withheld from
salary or any other amount then or thereafter payable to an optionee,
beneficiary or legal representative, and (iii) requiring an optionee,
beneficiary or legal representative to pay to the Corporation the amount
required to be withheld as a condition of releasing the Common Stock and any
other distributions related thereto.
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<PAGE>
14. EXPENSES. Any expenses of administering the Plan shall be
borne by the Corporation.
15. OTHER PLANS. Nothing contained herein shall prevent the
Corporation from establishing other incentive plans in which Participants in the
Plan also may participate. No award under this Plan shall be considered as
compensation in calculating any insurance, pension or other benefit for which
the recipient is eligible unless any such insurance, pension or other benefit is
granted under a plan which expressly provides that compensation under this Plan
(and specifying the type of such compensation) shall be considered as
compensation under such plan, or except where the Board expressly determines
that inclusion in an award or portion of an award should be included to
accurately reflect competitive compensation practices or to recognize that an
award has been made in lieu of a portion of annual cash compensation.
16. UNFUNDED PLAN. The Plan shall be unfunded. The Corporation
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the payment of any award under the Plan,
nor shall the Corporation be deemed to be a trustee of any rights granted under
the Plan and rights to payment of awards shall be no greater than the rights of
the Corporation's general creditors.
17. GOVERNING LAW. The Plan shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to the
principles of conflicts of law thereof.
18. SEVERABILITY. In the event any provision of this Plan
shall be held to be illegal, invalid, or unenforceable for any reason, the
illegality, invalidity, or unenforceability of such provision shall not affect
the remaining provision of the Plan, but shall be fully severable and this Plan
shall be construed and enforced as if the illegal, invalid, or unenforceable
provision had never been included herein.
19. GENDER. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural. The section
headings contained in the Plan are for reference purposes only and shall not in
any way affect the meaning or interpretation of the Plan.
20. BINDING EFFECT. This Plan shall be binding upon, and shall
inure to the benefit of, the Corporation, its successors and assigns, and the
optionee, his or her heirs, executors, administrators, and legal
representatives.
21. EFFECTIVE DATE. The Plan shall become effective upon
adoption by the Board and by the Corporation's stockholders.
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1
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of December 14, 1995 between
PEOPLE'S BANK, a Connecticut banking corporation ("People's"), with a place of
business located at Bridgeport Center, 850 Main Street, Bridgeport, Connecticut
06607, and THE MILLBROOK PRESS, INC., a Delaware corporation ("Borrower"), with
its chief executive office located at 2 Old New Milford Road, Brookfield,
Connecticut 06804.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" which means any person who is or who may become
obligated under, with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, or otherwise.
"Agreement" means this Loan and Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Loan and Security Agreement.
"Authorized Officer" means any officer of Borrower.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
#101 et seq.), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower's Books" means all of Borrower's books and records including:
ledgers, records indicating, summarizing, or evidencing Borrower's properties or
assets (including the Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information.
<PAGE>
2
"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day which is not a Saturday, Sunday, or other
day on which national banks or banks in the State of Connecticut are authorized
or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), other than current
stockholders of the Borrower and their Affiliates, directly or indirectly, or
more than 50% of the total voting power of all classes of stock then outstanding
of Borrower normally entitled to vote in the election of directors.
"Closing Date" means the date of the initial advance hereunder.
"Code" means the Connecticut Uniform Commercial Code.
"Collateral means each of the following: the Accounts; Borrower's
Books; the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money, or other assets of Borrower which now or hereafter come
into the possession, custody, or control of People's and the proceeds and
products, whether tangible or intangible, of any of the foregoing including
proceeds of insurance covering any or all of the Collateral, and any and all
Accounts, Borrower's Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, money deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Consolidated Current Assets" means, as of any date of determination,
the aggregate amount of all current assets of Borrower and its subsidiaries less
all prepaid expenses calculated on a consolidated basis that would, in
accordance with GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower and
its subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For purposes
of this definition, all advances outstanding under this Agreement shall be
deemed to be current liabilities without regard to whether they would be deemed
to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"Debt Service Ratio" shall mean the ratio obtained by dividing (I) Net
Profit After Taxes plus all non-recurring items, discretionary expenses,
depreciation, amortization, interest expense on Indebtedness, less dividends,
less adjustments to retained earnings (other than accrued and unpaid dividends
on preferred stock), less internally funded capital expenditure costs and less
other adjustments to income by (ii) all current maturities of long term debt and
interest on all indebtedness plus fees and costs paid to People's and any other
holder of Indebtedness.
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3
"Early Termination Premium" has the meaning set forth in Section 3.5.
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of business that arise out of Borrower's sale of goods, that
comply in all material respects with all of Borrower's representations and
warranties to People's, and that are and at all times shall continue to be
acceptable to People's in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by People's in People's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts (due within 60 days) that the Account Debtor has failed to
pay within sixty (60) days of due date, Accounts (due within ninety (90) days)
that the Account Debtor has failed to pay within thirty (30) days and all
Accounts owed by an Account Debtor that has failed to pay fifty percent (50%) or
more of its Accounts owed to Borrower within sixty (60) days of due date;
(b) Accounts with respect to which the Account Debtor is an officer,
employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
provided, however, that this subsection shall not make ineligible, any Account
which otherwise would be eligible, if the Account Debtor is a wholesaler and has
the right within six (6) months from the creation of the sale to return the
purchased goods in accordance with normal industry standards; provided, however,
that People's shall have the right to impose reasonable reserves from time to
time in connection with any Accounts from Account Debtors who are wholesalers
who have or exercise such right of return;
(d) Accounts with respect to which the Account Debtor is not a resident
of the United States, and which are not either (I) covered by credit insurance
in form and amount, and by an insurer, satisfactory to People's, or (ii)
supported by one or more letters of credit that are assignable by their terms
and have been delivered to People's in an amount, of a tenor, and issued by a
financial institution, acceptable to People's;
(e) Accounts with respect to which the Account Debtor is the United
States or any department, agency, or instrumentality of the United States;
(f) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower;
(g) Accounts with respect to which the Account Debtor disputes
liability or makes any claim with respect thereto to the extent of such dispute
or claim, or is subject to any Insolvency Proceeding, or becomes insolvent, or
goes out of business;
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4
(h) Accounts the collection of which People's, in its reasonable credit
judgment, believes to be doubtful by reason of the Account Debtor's financial
condition;
(I) Accounts that are payable in other than United States Dollars; and
(j) Accounts that represent progress payments or advance billings that
are due proper to the completion of performance by Borrower of the subject
contract for goods or services; provided, however, that upon delivery of such
goods or services or completion of performance such account shall be deemed an
Eligible Account.
"Eligible Inventory" means Inventory consisting of books held for sale
in the ordinary course of Borrower's business, that are located at the premises
identified on Schedule E-1, are acceptable to People's in all respects, and
comply in all material respects with all of Borrower's representations and
warranties to People's. Eligible Inventory shall not include consignment
inventory, telemarketing packages, unbound books or loose sheets at a bindery,
intransit books or slow moving inventory (any book which has been in print and
available for sale for the past 24 months which has not sold) or obsolete items,
packaging and shipping materials, supplies used or consumed in Borrower's
business, Inventory at any location other than those set forth on Schedule E-1,
Inventory subject to a security interest or lien in favor of any third Person,
bill and hold goods or Inventory that is not subject to People's perfected
security interest. Eligible Inventory shall be valued at the lower of Borrower's
cost or market value.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools parts, dies, jigs, goods
(other than consumer goods, farm products, or Inventory), wherever located, and
any interest of Borrower in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located.
"ERISA" means the Employees Retirement Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or superseding laws of
the United States of America, together with all regulation promulgated
thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is: (I) under
common control with Borrower or (ii) treated, together with Borrower, as a
single employer.
"ERISA Event" means any one or more of the following: (I) a Reportable
Event with respect to a Qualified Plan or a Multiemployer Plan; (ii) a
Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or
<PAGE>
5
any ERISA Affiliate is required to make; (vi) the filing of a notice of intent
to terminate, or the treatment of a plan amendment as a termination, under
Sections 4041 or 4041A of ERISA; (vii) an event or condition which might
reasonably be expected to constitute ground under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Qualified
Plan or Multiemployer Plan; (viii) the imposition of any liability under Title
IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007
of ERISA, upon Borrower or any ERISA Affiliate; and (ix) a violation of the
applicable requirements of Sections 404 or 405 of ERISA, or the exclusive
benefit rule under Section 403(c) of ERISA, by any fiduciary or disqualified
person with respect to any Plan for which Borrower or any ERISA Affiliate may be
directly or indirectly liable.
"Event Of Default" has the meaning set forth in Section 8.
"FEIN" means Federal Employer Identification Number.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, chooses in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims), other than
goods, Accounts, and Negotiable Collateral.
"Hazardous Materials" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances", "hazardous materials",
"hazardous wastes", "toxic substances", or any other formulation intended to
define, list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity"; (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with that exploration, development, or production of
crude oil, natural gas, or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels or polychlorinated biphenyls in excess of fifty (50) parts per million.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
money; (b) all obligations of Borrower evidenced by bonds, debentures, notes or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, letter of credit guaranties, bankers
acceptances, interest rate swaps, controlled disbursement accounts, or other
financial products; (c) all obligations under capital leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any property or asset of Borrower, irrespective of
<PAGE>
6
whether such obligation or liability is assumed; and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under a contract of service, all current lists of title, all backlists, backlist
titles and rights to such titles and backlists and backlist titles, all rights
to the licensed rights to publish periodicals and books and Borrower's present
and future bound and unbound books, periodicals and reading material and all
plates, engravings, dies, type forms, printed copies and all other appliances
and materials used in publishing materials by Borrower.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Loan Documents" means this Agreement, any note or notes executed by
Borrower and payable to People's, and any other agreement entered into in
connection with this Agreement.
"Maximum Amount" has the meaning set forth in Section 2.1.
"Multiemployer Plan" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which employees of
Borrower of an ERISA Affiliate participate or to which Borrower or any ERISA
Affiliate contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, certificated and uncertificated
securities (including the shares of stock of subsidiaries of Borrower),
documents, personal property leases (wherein Borrower is the lessor), chattel
paper, and Borrower's Books relating to any of the foregoing.
"Net Profit After Taxes" means all of Borrower's income from whatever
source less all of Borrower's expenses of operation, both direct and indirect
including depreciation and amortization and less all taxes paid to all federal,
state and local governmental authorities.
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations owing to People's,
premiums (including Early Termination Premiums), liabilities (including all
amounts charged to Borrower's loan account pursuant to any agreement authorizing
People's to charge Borrower's loan account), obligations, fees, lease payments,
guaranties,
<PAGE>
7
covenants, and duties owing by Borrower to People's of any kind and description
(whether pursuant to or evidenced by the Loan Documents, by any note or other
instrument or pursuant to any other agreement between People's and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from Borrower to others
that People's may have obtained by assignment or otherwise, and further
including all interest not paid when due and all People's Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or otherwise.
"Old Lender" means First Fidelity Bank.
"Overadvance" has the meaning set forth in Section 2.2.
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to People's, from Old Lender respecting the amount necessary to
repay in full all of the obligations of Borrower owing to Old Lender and obtain
a termination or release of all of the security interests or liens existing in
favor of Old Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"People's" has the meaning set forth in the preamble to this Agreement.
"People's Expenses" means all: reasonable costs or expenses (including
taxes, photocopying, notarization, telecommunication and insurance premiums)
required to be paid by Borrower under any of the Loan Documents that are paid or
advanced by People's; documentation, filing, recording, publication, appraisal
(including periodic Collateral), environmental audit, and search fees assessed,
paid, or incurred by People's in connection with People's transactions with
Borrower; costs and expenses incurred by People's in the disbursement of funds
to Borrower (by wire transfer or otherwise); charges paid or incurred by
People's resulting from the dishonor of checks; costs and expenses paid or
incurred by People's to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by People's in examining
Borrower's Books; reasonable costs and expenses of third party claims or any
other suit paid or incurred by People's in enforcing or defending the Loan
Documents; People's fees and costs and its reasonable attorney's fees,
appraisal, recording and filing fees and costs incurred in documenting the loan
facility represented by this Agreement, up to a maximum of $13,200 in the
aggregate for all foregoing People's Expenses incurred on or prior to the
Closing Date (with $1,200 of such sum an agreed upon fee for the initial audit
and expenses of People's in connection with the approval of this loan facility)
and subsequent to the Closing Date People's reasonable attorney's fees and
expenses incurred in advertising, structuring, drafting, reviewing,
administering, amending, terminating, enforcing (including reasonable attorney's
fees and expenses incurred in connection with a "workout", a "restructuring", or
an Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations),
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8
defending, or concerning the Loan Documents, irrespective of whether suit is
brought.
"Permitted Liens" means: (a) liens and security interests held by
People's; (b) liens for unpaid taxes that are not yet due and payable; (c) liens
and security interests set forth on Schedule P-1 attached hereto; (d) purchase
money security interests and liens of lessors under capital leases to the extent
that the acquisition or lease of the underlying asset was permitted under
Section 7.10, and so long as the security interest or lien only secures the
purchase price of the asset; (e) easements, rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and other similar
encumbrances that do not materially interfere with the use or value of the
property subject thereto; (f) obligations and duties as lessee under any lease
existing on the date of this Agreement; (g) mechanics', materialmen's,
warehousemen's, or similar liens that arise by operation of law; (h) any lien
subject to a Permitted Protest and (I) any lien not described in (a)-(h) above,
and which lien does not materially interfere with the use and value of Property
subject thereto and which lien is extinguished or satisfied within thirty (30)
days.
"Permitted Protest" means the right of the Borrower to protest any
lien, tax, rental payment, or other charge, other than any such lien or charge
that secures the Obligations, provided (I) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (ii) People's is reasonably
satisfied that, while any such protest is pending, there will be no material
impairment of the enforceability, validity, or priority of any of the liens or
security interests of People's in and to the property or assets of Borrower.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to which
Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"Prohibited Transaction" means any transaction described in Section 406
of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c) of the IRC.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the IRC which
Borrower or any ERISA Affiliate sponsors, maintains, or to which any such person
makes, is making, or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
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9
"Reference Rate" means the highest of the variable rates of interest,
per annum, most recently announced by People's or any successor to People's as
its "prime rate" or "reference rate", as the case may be, irrespective of
whether such announced rate is the best rate available.
"Renewal Date" has the meaning set forth in Section 3.3.
"Reportable Event" means any event described in Section 4043 (other
than Subsections (b)(7) and (b)(9) of ERISA.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Tangible Net Worth" means, as of the date any determination thereof is
to be made, the difference of: (a) Borrower's total stockholder's equity; minus
(b) the sum of: (I) all intangible assets of Borrower; (ii) all of Borrower's
prepaid expenses; (iii) capitalized costs for new Inventory titles and (iv) all
amounts due to Borrower from Affiliates, calculated on a consolidated basis.
"Unfunded Benefit Liability" means the excess of a Plan's benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the current value
of such Plan's assets, determined in accordance with the assumptions used by the
Plan's actuaries for funding the Plan pursuant to Section 412 of the IRC for the
applicable plan year.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Working Capital" means the result of subtracting Consolidated Current
Liabilities from Consolidated Current Assets.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
<PAGE>
10
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or". The words "hereof", "herein", "hereby", "hereunder", and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5 Schedules And Exhibits. All of the schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement, People's
agrees to make revolving advances to Borrower in an amount at any one time
outstanding not to exceed the Borrowing Base. For purposes of this Agreement,
"Borrowing Base", as of any date of determination, shall mean (i) an amount
equal to eighty percent (80%) of the amount of Eligible Accounts plus (ii) an
amount equal to the lowest of: (x) fifty percent (50%) of the amount of Eligible
Inventory, (y) the amount of credit availability created by Section 2.1(a) above
or (z) One Million Five Hundred Thousand Dollars ($1,500,000).
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
People's may reduce its advance rates based upon Eligible Accounts or Eligible
Inventory without declaring an Event of Default if it determines, in its
reasonable discretion, that there is a material impairment of the prospect of
repayment of all or any portion of the Obligations or a material impairment of
the value or priority of People's security interests in the Collateral.
(c) People's shall have no obligation to make advances hereunder to the
extent they would cause the outstanding Obligations to exceed Two Million Seven
Hundred Thousand Dollars ($2,700,000) ("Maximum Amount").
(d) People's is authorized to make advances under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Officer of Borrower. Borrower agrees to establish and maintain a
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11
single designated deposit account for the purpose of receiving the proceeds of
the advances requested by Borrower and made by People's hereunder. Unless
otherwise agreed by People's and Borrower, any advance requested by Borrower and
made by People's hereunder shall be made to such designated deposit account.
Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to People's pursuant to Section 2.1 is greater than
either the dollar or percentage limitations set forth in Section 2.1 (an
"Overadvance"), Borrower immediately shall pay to People's, in cash, the amount
of such excess to be held by People's as cash collateral to secure Borrower's
obligation to repay People's.
2.3 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. All Obligations shall bear interest, on the average
Daily Balance, at a per annum rate of one-half (0.5) percentage points above the
Reference Rate.
(b) Default Rate. All Obligations shall bear interest, from and after
the occurrence and during the continuance of an Event of Default, at a per annum
rate equal to four and one-half (4.5) percentage points above the Reference
Rate.
(c) Payments. Interest hereunder shall be due and payable, in arrears,
on the first day of each month during the term hereof. Borrower hereby
authorizes People's, at its option, without prior notice to Borrower, to charge
such interest, all People's Expenses (as and when incurred), and all
installments or other payments due under any note or other Loan Document to
Borrower's loan account, which unpaid amounts thereafter shall accrue interest
at the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. The Reference Rate as of the date of this Agreement is
eight and three-quarters percent (8.75%) per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the bases of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments; Application Of Collections. The receipt of any
wire transfer of funds, check, or other item of payment by People's immediately
shall be applied to provisionally reduce the Obligations, but shall not be
considered a payment on account unless such wire transfer is of immediately
available federal funds and is made to the appropriate deposit account of
People's or unless and until such check or other item of payment is honored when
presented for payment. From and after the Closing Date, People's shall be
entitled to charge Borrower for two (2) Business Days of "clearance" at the rate
set forth
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12
in Section 2.3(a) or Section 2.3(b), as applicable, on all collections, checks,
wire transfers, or other items of payment that are received by People's, whether
provisionally applied to reduce the Obligations, or otherwise). This
across-the-board two (2) Business Day clearance charge on all receipts is
acknowledged by the parties to constitute an integral aspect of the pricing of
People's facility to Borrower, and shall apply irrespective of the
characterization of whether receipts are owned by Borrower or People's, and
irrespective of the level of Borrower's Obligations to People's. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by People's only if it is received by People's on or before 2:00
p.m., it shall be deemed to have been received by People's as of the opening of
business on the immediately following Business Day.
2.5 Statements Of Obligations. On a monthly basis, People's shall
render statements to Borrower of the Obligations, including principal, interest,
fees, and including an itemization of all charges and expenses constituting
People's Expenses owing, and such statements shall be conclusively presumed to
be correct and accurate and constitute an account stated between Borrower and
People's unless, within thirty (30) days after receipt thereof by Borrower,
Borrower shall deliver to People's by registered or certified mail at its
address specified in Section 12, written objection thereto describing the error
or errors contained in any such statements.
2.6 Fees. Borrower shall pay to People's the following fees:
(a) Closing Fee. A one time commitment fee of Thirteen Thousand Five
Hundred Dollars ($13,500) which is earned, in full, and is due and payable by
Borrower to People's in connection with this Agreement on the Closing Date;
(b) Financial Examination, Documentation, and Appraisal Fees. People's
customary fee of Four Hundred Dollars ($400) per day per examiner, plus out-of
- -pocket expenses for each financial analysis and examination of Borrower
performed by People's or its agents provided, however, so long as no Event of
Default has occurred and is continuing the maximum per diem fees for examiners
conducting periodic financial examinations would be limited to Four Thousand
Dollars ($4,000) per annum plus actual out of pocket costs; and
(c) Servicing Fee. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to Two Hundred Dollars ($200) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial Advance. The obligation of People's
to make the initial advance is subject to the fulfillment, to the satisfaction
of People's and its counsel, of each of the following conditions on or before
the Closing Date:
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13
(a) the closing Date shall occur on or before December 15, 1995;
(b) Old Lender shall have executed and delivered the Pay-Off Letter,
together with UCC termination statements and other documentation evidencing the
termination of its liens and security interests in and to the properties and
assets of Borrower or a subordination agreement in form and substance reasonably
satisfactory to People's;
(c) People's shall have received searches reflecting the filing of its
financing statements;
(d) People's shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
Loan and Security Agreement with
Schedule E-1 - Eligible Inventory and Location
Schedule P-1 - Permitted Liens
Schedule 5.9 - Litigation
Schedule 5.12 - Pension Plan Disclosure
Borrowing Base Certificate
Copy of Warehouse and Distribution
Agreement with Mercedes Distribution Center, Incorporated
Collateral Assignment of Warehouse
and Distribution Agreement with
Mercedes Distribution Center, Incorporated
Listing of Authors Agreements
Assignment of Authors Agreements
Listing of Backlist Titles
UCC Search
The Millbrook Press, Inc.
2 Old New Milford Road
Brookfield, CT 06804
with Secretary of States of
Connecticut
New York
and with County Recorder/Clerk
Kings County, New York
List of Leased Locations
<PAGE>
14
Conditional Assignment of Leases from
The Millbrook Press, Inc.
Copies of Leases
Landlord's Licenses and Waiver
Agreements/Agreements of Landlords to
Conditional Assignment of Leases
Fidelity/Validity Guaranty of
Frank Farrell
Howard Graham
Jean Reynolds
Opinion of Dow, Lohnes and Albertson
(e) People's shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution and delivery of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute same;
(f) People's shall have received copies of Borrower's By-laws and
Articles or Certificate of Incorporation, as amended, modified, or supplemented
to the Closing Date, certified by the Secretary of Borrower;
(g) People's shall have received a certificate of corporate status with
respect to Borrower, dated within ten (10) days of the Closing Date, by the
Secretary of State of the State of Delaware and from Connecticut, which
certificates shall indicate that Borrower is in good standing in such states;
(h) People's shall have received certificates of corporate status with
respect to Borrower, each dated within fifteen (15) days of the Closing Date,
such certificates to be issued by the Secretary Of State of the states in which
its failure to be duly qualified or licensed would have a material adverse
effect on the financial condition or properties and assets of Borrower, which
certificates shall indicate that Borrower is in good standing;
(I) People's shall have received the certified copies of the policies
of insurance, together with the endorsements thereto, as are required by Section
6.12 hereof, the form and substance of which shall be reasonably satisfactory to
People's and its counsel;
(j) People's shall have received satisfactory evidence that all returns
since the formation of Borrower required to be filed by Borrower have been
timely filed and all taxes upon Borrower or its properties, assets, income and
franchises have been paid prior to delinquency, except such taxes that are the
subject of a Permitted Protest; and
(k) All other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered or
executed
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15
or recorded and shall be in form and substance reasonably satisfactory to
People's and its counsel.
3.2 Conditions Precedent To All Advances. The following shall be
conditions precedent to all advances hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all material respects on
and as of the date of such advance as though made on and as of such date (except
to the extent that such representations and warranties relate solely to an
earlier date);
(b) no Event of Default or event which with the giving of notice or
passage of time would constitute an Event of Default shall have occurred and be
continuing on the date of such advance nor shall either result from the making
thereof; and
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the making of such advance shall
have been issued and remain in force by any governmental authority against
Borrower, People's, or any of their Affiliates.
3.3 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and People's and shall continue in full force and
effect for a term ending on the date that is three (3) years from the Closing
Date. The foregoing notwithstanding, People's shall have the right to terminate
its obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.4 Effect Of Termination. On the date of termination, all Obligations
immediately shall become due and payable without notice or demand. No
termination of this Agreement, however, shall relieve or discharge Borrower of
Borrower's duties, Obligations, or covenants hereunder, and People's continuing
security interests in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and People's obligation to
provide advances hereunder is terminated.
3.5 Early Termination By Borrower. The provisions of Section 3.3 that
allow termination of this Agreement by Borrower only on the Renewal Date and
certain anniversaries thereof notwithstanding, Borrower has the option, at any
time upon ten (10) days prior written notice to People's, to terminate this
Agreement by paying to People's, in cash, the Obligations together with a
premium (the "Early Termination Premium") equal to Twenty Seven Thousand Dollars
($27,000) if termination occurs on or before last day of the twelfth (12) month
after the Closing Date or the sum of Five Thousand Dollars ($5,000) if
termination occurs on or after the first day of the thirteenth (13th) month
after the Closing Date through the day immediately preceding the third
anniversary of the Closing Date; provided, however, that Borrower shall have no
obligation to pay People's an Early Termination Premium if the monies used for
prepayment of the Obligations are derived from any contribution of additional
equity to Borrower (e.g., a public or private offering), or in the event of such
prepayment of this Agreement in connection with a merger or an acquisition.
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16
3.6 Termination Upon Event Of Default. If as a result of the occurrence
of an Event of Default, People's shall conduct a liquidation of the Collateral
in accordance with the provisions of Section 9 hereof, People's shall be able to
collect in connection with such liquidation, a premium in an amount equal to the
Early Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by People's as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this Section
3.6 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant Of Security Interest. Borrower hereby grants to People's a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. People's security interests in
the Collateral shall attach to all Collateral without further action on the part
of People's or Borrower. Anything contained in this Agreement or any other Loan
Document on the contrary notwithstanding, except for sales of Inventory in the
ordinary course of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall,
promptly upon the request of People's, endorse and assign such Negotiable
Collateral to People's and deliver physical possession of such Negotiable
Collateral to People's.
4.3 Collection Of Accounts, General Intangibles, Negotiable Collateral.
On or before the Closing Date, People's and Borrower shall enter into the
Agreements, in form and substance reasonably satisfactory to People', pursuant
to which Borrower shall maintain all of its operating bank accounts with
People's (Borrower shall be responsible for all costs and charges assessed by
People's in connection with the maintenance of such accounts) and all of
Borrower's cash receipts, checks, and other items of payment (including
insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds)
will be forwarded to People's on a daily basis. At any time after the occurrence
of an Event of Default, People's or People's designee may: (a) notify customers
or Account Debtors of Borrower that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to People's or that People's has a
security interest therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to Borrower's loan account. Borrower agrees that it will hold in trust for
People's, as People's trustee, any cash receipts, checks, and other items of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to People's in their original form
as received by Borrower.
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17
4.4 Delivery Of Additional Documentation Required. At any time upon the
request of People's, Borrower shall execute and deliver to People's all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of titles, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
People's may reasonably request, in form reasonably satisfactory to People's, to
perfect and continue perfected People's security interests in the Collateral and
in order to fully comply with the terms of the Loan Documents.
4.5 Power Of Attorney. Upon the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably makes, constitutes, and
appoints People's (and any of People's officers, employees, or agents designated
by People's ) as Borrower's true and lawful attorney, with power to: (a) if
Borrower refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the documents
described in Section 4.4 to perfect and continue perfected People's security
interests in the Collateral and in order to fully comply with the terms of the
Loan Documents; (b) sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's
name on any checks, notices, acceptances, money orders, drafts, or other item of
payment or security that may come into People's possession; (e) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by People's, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower; (f) make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance; and (g) settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms which People's determines to be reasonable, and People's may cause to be
executed and delivered any documents and releases which People's determines to
be necessary. The appointment of People's as Borrower's attorney, and each and
every one of People's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and People's obligation to extend credit hereunder is terminated.
4.6 Right To Inspect. People's (through any of its officers, employees,
or agents) shall have the right, form time to time hereafter during ordinary
business hours and upon reasonable notice to Borrower, to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to People's as follows:
<PAGE>
18
5.1 No Prior Encumbrances. Borrower has good and marketable title to
the Collateral, free and clear of liens, adverse claims, security interests, or
encumbrances, except for Permitted Liens
5.2 Eligible Accounts. The Eligible Accounts are, at the time of the
creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory to Account Debtors in the ordinary
course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims. The Inventory giving rise to such
Eligible Accounts has been delivered to the Account Debtor, or to the Account
Debtor's agent for immediate shipment to and unconditional acceptance by the
Account Debtor. At the time of the creation of an Eligible Account and as of
each date on which Borrower includes an Eligible Account in a Borrowing Base
calculation or certification, Borrower has not received notice of actual or
imminent bankruptcy, insolvency, or material impairment of the financial
condition of any applicable Account Debtor regarding such Eligible Account.
5.3 Eligible Inventory. All Eligible Inventory is now and at all times
hereafter shall be of good and merchantable quality.
5.4 Location Of Inventory And Equipment. The Inventory and Equipment
are located only at the locations identified on Schedule E-1 or otherwise
permitted by Section 6.15.
5.5 Inventory Records. Borrower now keeps, and hereafter at all times
shall keep, correct and accurate records itemizing and describing the kind and
quantity of the Inventory, and Borrower's cost therefor.
5.6 Location Of Chief Executive Office; FEIN. The chief executive
office of Borrower of located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 06-139-0025.
5.7 Due Organization And Qualification; No Subsidiaries. Borrower is
duly organized and existing and in good standing under the laws of the State of
Delaware and qualified and licensed to do business in Connecticut, and in good
standing in, any other state or jurisdiction where the failure to be so licensed
or qualified could reasonably be expected to have a material adverse effect on
the business, operations, condition (financial or otherwise), or finances of
Borrower or on the value of the Collateral to People's. Borrower has no
subsidiaries.
5.8 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a b reach of
any provision contained in Borrower's Articles or Certificate of Incorporation,
or By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which its properties or assets may
be bound to the extent that such agreement has or could be reasonably expected
to have a material adverse effect on Borrower's business.
<PAGE>
19
5.9 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower except for: (a) ongoing collection matters in which Borrower is the
plaintiff; (b) matters disclosed on Schedule 5.9; and (c) matters arising after
the date hereof that, if decided adversely to Borrower be reasonably expected to
materially impair the prospect of repayment of the Obligations or materially
impair the value or priority of People's security interests in the Collateral.
5.10 No Material Adverse Change In Financial Condition. All financial
statements relating to Borrower that have been delivered by Borrower to People's
have been prepared in accordance with GAAP and fairly present Borrower's
financial condition as of the date thereof and Borrower's results of operations
for the period then ended. As of the date hereof, there has not been a material
adverse change in the financial condition of Borrower since the date of the
latest financial statements submitted to People's on or before the Closing Date.
5.11 Solvency. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.12 Employee Benefits. Except as disclosed on Schedule 5.12, each Plan
is in compliance in all material respects with the applicable provisions of
ERISA and the IRC. Each Qualified Plan and Multiemployer Plan and each trust
maintained pursuant thereto is the subject of a favorable determination letter
issued by the Internal Revenue Service regarding their exemptions from federal
income taxation under ITC Section 501, and, to the best knowledge of Borrower,
nothing has occurred that would cause the loss of such qualification or
tax-exempt status. There are no outstanding liabilities under Title IV of ERISA
with respect to any Plan maintained or sponsored by Borrower or any ERISA
Affiliate, nor with respect to any Plan to which Borrower or any ERISA Affiliate
contributes or is obligated to contribute which could reasonably be expected to
have a material adverse effect on the financial condition of borrower. No Plan
subject to Title IV of ERISA has any Unfunded Benefit Liability which could
reasonably be expected to have a material adverse effect on the financial
condition of Borrower. Neither Borrower nor any ERISA Affiliate has transferred
any Unfunded Benefit Liability or has otherwise engaged in a transaction that
could be subject to Sections 4069 or 4212(c) of ERISA which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Neither Borrower nor any ERISA Affiliate has incurred nor reasonably
expects to incur (x) any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan, or
(y) any liability under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007 of ERISA) with respect to a Plan, which could, in
either event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has been
made with respect to any Plan. No ERISA Event has occurred or is
<PAGE>
20
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the applicable notice and continuation coverage requirements of
Section 4980B of the IRC.
5.13 Environmental Condition. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials to the extent that it has
or could be reasonably expected to have a material adverse effect on Borrower's
business. None of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statue as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.14 Reliance By People's; Cumulative. Each warranty and representation
contained in this Agreement automatically shall be deemed repeated with each
advance and shall be conclusively presumed to have been relied on by People's
regardless of any investigation made or information possessed by People's. The
warranties and representations set forth herein shall be cumulative and in
addition to any and all other written warranties and representations that
Borrower now or hereafter shall give, or cause to be given, to People's.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless People's shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 Accounting System. Borrower shall maintain a standard and modern
system of accounting in accordance with GAAP with ledger and account cards or
computer tapes, discs, printouts, and records pertaining to the Collateral which
contain information as from time to time may be requested by People's. Borrower
also shall keep proper books of account showing all sales, claims, and
allowances on its Inventory in accordance with prevailing standards in the
publishing industry.
6.2 Collateral Reports. Borrower shall deliver to People's, no later
than the fifteenth (15th) day of each month during the term of this Agreement, a
detailed aging, by total, of the Accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any book overdraft.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor with a copy to People's, and, at People's direction after an
Event of Default has occurred, the invoices shall indicate on their face that
the Account has been
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21
assigned to People's and that all payments are to be made directly to People's.
Borrower shall deliver to People's, daily collection reports and cash
application, and as People's may from time to time require, sales journals,
invoices, original delivery receipts, customer's purchase orders, shipping
instructions, bills of lading, and other documentation respecting shipment
arrangements. Absent such a request by People's, copies of all such
documentation shall be held by Borrower as custodian for People's. In addition,
from time to time, Borrower shall deliver to People's such other and additional
information or documentation as People's may reasonably request.
6.3 Schedules Of Accounts. With such regularity as People's shall
require, Borrower shall provide People's with schedules describing all Accounts.
People's failure to request such schedules or Borrower's failure to execute and
deliver such schedules shall not affect or limit People's security interests or
other rights in and to the Accounts.
6.4 Financial Statements, Reports, Certificates. Borrower agrees to
deliver to People's: (a) as soon as available, but in any event within thirty
(30) days after the end of each month during each of Borrower's fiscal years, a
company prepared balance sheet, income statement, and cash flow statement
covering Borrower's operations during such period; and (b) as soon as available,
but in any event within forty-five (45) days after the end of each fiscal
quarter during each of Borrower's fiscal years, a company prepared report on
slow moving Inventory; and (c) as soon as available, but in any event within
ninety (90) days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by KPMG Peat Marwick
or such other independent certified public accountants reasonably acceptable to
People's and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to People's stating that such accountants do not have
knowledge of the existence of any event or condition constituting an Event of
Default, or that would, with the passage of time or the giving of notice,
constitute an Event of Default. Such audited financial statements shall include
a balance sheet, profit and loss statement, and cash flow statement, and, if
prepared, such accountants' letter to management. If Borrower is a parent
company of one or more subsidiaries, or Affiliates, or is a subsidiary or
Affiliate of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis. In addition to the above, annually with
Borrower's annual financial statements, Borrower shall provide People's with a
projection on an annual basis for the ensuing fiscal year of Borrower's cash
flow, financial performance, sales and expenses.
Together with the above, Borrower also shall deliver to People's Borrower's any
Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Borrower with the Securities and Exchange
Commission, if any, as soon as the same are filed, or any other information that
is provided by Borrower to its shareholders, in their capacity as shareholders,
and any other report reasonably requested by People's relating to the Collateral
or the financial condition of Borrower.
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22
Each month, together with the financial statements provided pursuant to Section
6.4(a), Borrower shall deliver to People's a certificate signed by its chief
financial officer to the effect that: (i) all reports, statements, or computer
prepared information of any kind or nature delivered or caused to be delivered
to People's hereunder have been prepared in accordance with GAAP and fairly
present the financial condition of Borrower; (ii) Borrower is in timely
compliance with all of its covenants and agreements hereunder; (iii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date and except for changes resulting from events or transactions not expressly
prohibited by the terms hereof); and (iv) on the date of delivery of such
certificate to People's there does not exist any condition or event that
constitutes an Event of Default (or, in each case, to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking, or proposes to take
with respect thereto).
Borrower shall have issued written instructions to its independent certified
public accountants authorizing them to communicate with People's and to release
to People's whatever financial information concerning Borrower that People's may
request. Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to People's, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
people's any information they may have regarding Borrower's business affairs and
financial conditions.
6.5 Tax Returns. Borrower agrees to deliver to People's copies of each
of Borrower's future federal income tax returns, and any amendments thereto,
within thirty (30) days of the filing thereof with the Internal Revenue Service.
6.6 Intentionally Deleted.
6.7 Designation Of Inventory. Borrower shall now and from time to time
hereafter, but not less frequently than monthly, execute and deliver to People's
a designation of Inventory specifying Borrower's cost and the wholesale market
value thereof and further specifying such other information as People's may
reasonably request.
6.8 Returns. Returns and allowances, if any, as between Borrower and
its Account Debtors shall be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and, if Borrower
accepts such return, issue a credit memorandum (with a copy to be sent to
People's) in the appropriate amount to such Account Debtor. If, at a time when
an Event of Default has occurred and is continuing, any Account Debtor returns
any inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if People's consents (which consent shall not be unreasonably
<PAGE>
23
withheld), issue a credit memorandum (with a copy to be sent to People's) in the
appropriate amount to such Account Debtor. On a monthly basis, Borrower shall
notify People's of all returns and recoveries and of all disputes and claims.
6.9 Title To Equipment. Upon People's request, Borrower shall promptly
deliver to People's, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.10 Maintenance Of Equipment. Borrower shall keep and maintain the
equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto to maintain equipment in
good operating condition, except for property which, in the good faith of
Borrower, may no longer be profitably employed in the business of Borrower.
6.11 Taxes. Except to the extent that such assessments and taxes, due
and payable by, imposed, levied or assessed against Borrower or any of its
property is the subject of a Permitted Lien or Permitted Protest, all
assessments and taxes, whether real, personal, or otherwise, due or payable by,
or imposed, levied, or assessed against Borrower or any of its property have
been paid, and shall hereafter be paid in full, before delinquency or before the
expiration of any extension period. Borrower shall make due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to People's, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto. Borrower will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish People's with proof
reasonably satisfactory to People's indicating that Borrower has made such
payments or deposits.
6.12 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain product liability, public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as is customary in the case of corporations of
established reputations engaged in the same or similar business and similarly
situated. All such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to People's, showing People's as
sole loss payee thereof, and shall contain a waiver of warranties, and shall
specify that the insurer must give at least ten (10) days prior written notice
to People's before canceling its policy for any reason. Borrower shall deliver
to People's certified copies of such policies of insurance and evidence of the
payment of all premiums
<PAGE>
24
therefor. All proceeds payable under any such policy shall be payable to
People's to be applied on account of the Obligations.
6.13 Financial Covenants. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities of at least 1.30 to 1.0 through April, 1996
(with no Current Ratio tested during the months of May, June and July of 1996),
1.35 to 1.0 during fiscal 1997 and 1.40 to 1.0 during fiscal 1998 and
thereafter, all measured on a calendar month-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities divided by Tangible Net Worth of not more than 2.0
to 1.0 during the term of this Agreement, measured on a calendar month-end
basis;
(c) Tangible Net Worth. Tangible Net Worth of at least $2,200,000
through April, 1996, $2,100,000 during the months of May, June and July of 1996,
$2,200,000 during fiscal 1997, $2,400,000 during fiscal 1998 and thereafter, all
measured on a calendar month-end basis; and
(d) Working Capital. Working Capital of not less than $1,300,000
through April, 1996 (with no Working Capital minimum during the months of May,
June and July of 1996), $1,400,000 during fiscal 1997, $1,500,000 during fiscal
1998 and thereafter, all measured on a calendar month-end basis.
(e) Debt Service. Borrower shall maintain a Debt Service Ratio of not
less than 2.0 to 1.0 during the term of this Agreement, measured on a calendar
month-end basis.
(f) Development Costs of New Titles. Borrower shall during each rolling
12 month period during the term of this Agreement limit its costs of development
of new titles to cash flow in excess of 1.25 times the Debt Service Ratio plus
additional paid in equity.
6.14 No Setoffs Or Counterclaims. All payments hereunder and under the
other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.15 Location Of Inventory And Equipment. Borrower shall keep the
Inventory and Equipment only at the locations identified on Schedule E-1;
provided, however, that Borrower may amend Schedule E-1 so long as such
amendment occurs by written notice to People's not less than thirty (30) days
prior to the date on which the Inventory or Equipment is moved to such new
location, so long as such new location is within the continental United States,
and so long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected People's security interests in such assets and also provides to
People's a landlord's waiver in form and substance satisfactory to People's.
<PAGE>
25
6.16 Compliance With Laws. Borrower shall comply with the requirements
of all applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise) or finances of Borrower
or on the value of the Collateral to People's.
6.17 Employee Benefits.
(a) Borrower shall deliver to People's a written statement by the chief
financial officer of Borrower specifying the nature of any of the following
events and the actions which Borrower proposes to take with respect thereto
promptly, and in any event within ten (10 ) days of becoming aware of any of
them, and when known, any action taken or threatened by the Internal Revenue
Service, PBGC, Department of Labor, or other party with respect thereto: (i) an
ERISA Event with respect to any Plan which could reasonably be expected to have
a material adverse effect on the financial condition of Borrower; (ii) the
incurrent of an obligation to pay additional premium to the PBGC under Section
4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the
assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly furnish to People's copies prepared or
received by Borrower or an ERISA Affiliate of: (i) at the request of People's,
each annual report (Internal Revenue Service Form 5500 series) and all
accompanying schedules, actuarial reports, financial information concerning the
financial status of each Plan, and schedules showing the amounts contributed to
each Plan by or on behalf of Borrower or its ERISA Affiliates for the most
recent three (3) plan years; (ii) all notices of intent to terminate or to have
a trustee appointed to or from the PBGC to administer any Plan; (iii) all
written demands by the PBGC under Subtitle D of Title IV of ERISA; (iv) all
notices required to be sent to employees or to the PBGC under Section 302 of
ERISA or Section 412 of the IRC; (v) all written notices received with respect
to a Multiemployer Plan concerning (x) the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA, (y) a termination described in
Section 4041A of ERISA, or (z) a reorganization or insolvency described in
Subtitle E of Title IV of ERISA; (vi) the adoption of any new Plan that is
subject to Title IV of ERISA or Section 412 of the IRC by Borrower of any ERISA
Affiliate; (vii) the adoption of any amendment to any Plan that is subject to
Title IV of ERISA or Section 412 of the IRC, if such amendment results in a
material increase in benefits of Unfunded Benefit Liability; or (viii) the
commencement of contributions by Borrower or any ERISA Affiliate to any Plan
that is subject to Title IV of ERISA or Section 412 of the IRC.
6.18 Leases. Borrower shall pay when due all rents and other amounts
payable under any leases to which Borrower is a party or by which Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that Borrower fails timely to make payment of
such rents and other amounts payable when due under its leases, People's shall
be entitled, in its discretion, and without the necessity of declaring an Event
of
<PAGE>
26
Default, to reserve an amount equal to such unpaid amounts from the loan
availability created under Section 2.1 hereof.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until full and final payment of the Obligations, Borrower will not
do any of the following without People's prior written consent which shall not
be unreasonably withhold:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to People's on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) Refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by Borrower, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to People's as those applicable to
the refinanced Indebtedness; and
(e) Other Indebtedness not otherwise permitted by this Section 7.1 in
an aggregate principal amount not to exceed $50,000 at any time provided,
however, that at all times, Borrower shall be in compliance with all of the
covenants contained in Section 6.13 hereof.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement liens secure only those assets or
property that secured the original Indebtedness).
7.3 Restrictions On Fundamental Changes. Consummate any acquisition,
merger, consolidation, reorganization, or recapitalization, or reclassify
<PAGE>
27
its capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business, property, or assets, whether now owned or
hereafter acquired, or acquire by purchase or otherwise all or substantially all
of the properties, assets, stock, or other evidence of beneficial ownership of
any Person.
7.4 Extraordinary Transactions And Disposal Of Assets. Consummate any
transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise, of any of Borrower's properties or
assets (other than sales of Inventory to buyers in the ordinary course of
Borrower's business as currently conducted).
7.5 Change Name. Change Borrower's name, FEIN, business structure, or
identity, or add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to People's.
7.7 Restructure. Make any change in Borrower's financial structure, the
principal nature of Borrower's business operations, or the date of its fiscal
year.
7.8 Prepayments. Except in connection with a refinancing permitted by
Section 7.1(d), prepay any Indebtedness owing to any third Person.
7.9 Change Of Control. Cause, permit, or suffer, directly or
indirectly, any Change Of Control.
7.10 Expenditures. Make any capital expenditure, or any commitment
therefor, in excess of One Hundred Twenty-Five Thousand Dollars ($125,000)
during the 1995 fiscal year or make any capital expenditure, or any commitment
therefor, in excess of One Hundred Fifty Thousand Dollars ($150,000) during the
1996, 1997 or 1998 fiscal years.
7.11 Intentionally Deleted.
7.12 Distributions. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire any
of Borrower's capital stock, of any class, whether now or hereafter outstanding;
provided, however, dividends on preferred stock may continue to accrue.
7.13 Accounting Methods. Modify or change its method of accounting or
enter into, modify, terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of Borrower's accounting records without said
accounting firm or service bureau agreeing to provide People's information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm
<PAGE>
28
or service bureau in connection with any information requested by People's
pursuant to or in accordance with this Agreement, and agrees that People's may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.14 Investments. Directly or indirectly make or acquire any beneficial
interest in (including stock, partnership interest, or other securities of) or
make any loan, advance, or capital contribution to , any Person, except:
(a) direct obligations of the United States Government maturing in one
year;
(b) certificates of deposit of a member bank of the Federal Reserve
System having capital, surplus and undivided profits in excess of $100,000,000;
(c) any investment in commercial paper which at the time of such
investment is assigned the highest quality rating in accordance with the rating
systems employed by either Mood's Investor's Service, Inc. or Standard & Poor's
Corporation;
(d) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of Account Debtors or suppliers and in
settlement of delinquent obligations of, and other disputes, Account Debtors or
suppliers arising in the ordinary course of business; and
(e) deposit accounts of the Borrower maintained in the ordinary course
of business.
7.15 Transactions With Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms, that are fully disclosed to People's, and that are no
less favorable to Borrower than would be obtained in arm's length transaction
with a non-Affiliate.
7.16 Suspension. Suspend or terminate a substantial portion of its
business.
7.17 Compensation. Increase the annual fee or per-meeting fees paid to
director during any year by more than fifteen percent (15%) over the prior year;
pay or accrue total cash compensation, during any year, to officers and senior
management employees in an aggregate amount in excess of one hundred fifteen
percent (115%) of that paid or accrued in the prior year.
7.18 Use Of Proceeds. Use the proceeds of the advances made hereunder
for any purpose other than: (a) on the Closing Date, to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Old Lender; (b) to pay transactional costs and expenses incurred in connection
with this Agreement; and (c) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted corporate purposes.
<PAGE>
29
7.19 Change In Location Of Chief Executive Office; Inventory And
Equipment With Bailees. Borrower covenants and agrees that it will not, without
thirty (30) days prior written notification to People's, relocate its chief
executive office to a new location and so long as, at the time of such written
notification, Borrower provides any financing statements necessary to perfect
and continue perfected People's security interests and also provides to People's
a landlord's waiver in form and substance satisfactory to People's.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due
and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts, fees and charges due People's, reimbursement
of People's Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Borrower and
People's in relation thereto, and such failure shall continue for thirty (30)
days after becoming known to Borrower;
8.3 If there is a material impairment of the prospect of repayment of
any portion of the Obligations owing to People's or a material impairment of the
value or priority of People's security interests in the Collateral;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any
of the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed with sixty (60) calendar days of the date
of the filing thereof; provided, however, that, during the pendency of such
period, People's shall be relieved of its obligation to make additional advances
hereunder; (d) a trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Borrower; or (e) an order for relief shall have been
issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
<PAGE>
30
8.8 If a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts
owning at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any of borrower's properties or assets and the
same is not paid on the payment date thereof;
8.9 The Borrower shall suffer final judgments for payment of monies
aggregating in excess of $100,000, exclusive of amounts covered by insurance
proceeds, and shall not discharge the same within a period of thirty (30) days
unless, pending further proceedings, execution has not been commenced or, if
commenced, has been effectively stayed;
8.10 If there is a default in any material agreement to which Borrower
is a party with one or more third Persons resulting in a right by such third
Persons, irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that has
been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any warranty, representation, statement, or report made to
People's by Borrower or any officer, employee, agent, or director of Borrower is
materially false when made;
8.13 If the obligation of any guarantor or other third Person under any
Loan Document is limited or terminated by operation of law or by the guarantor
or other third Person thereunder, or any such guarantor or other third Person
becomes the subject of an Insolvency Proceeding; or
8.14 If (a) with respect to any Plan, there shall occur any of the
following which would reasonably be expected to have a material adverse effect
on the financial condition of Borrower; (i) the violation of any of the
provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan of
its qualification under Section 401(a) of the IRC; (iii) the incurrence of
liability under Title IV of ERISA; (iv) a failure to make full payment when due
of all amounts which, under the provisions of any Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the filing of a notice
of intent to terminate a Plan under Sections 4041 or 4041A of ERISA; (vi) a
complete or partial withdrawal of Borrower or an ERISA Affiliate from any Plan,
(vii) the receipt of a notice by the plan administrator of a Plan that the PBGC
has instituted proceedings to terminate such Plan or appoint a trustee to
administer such Plan, (viii) a commencement or increase of contributions to, or
the adoption of or the amendment or, a Plan; and (ix) the assessment against
Borrower or any ERISA Affiliate of a tax under Section 4980B of the IRC; or (b)
the Unfunded Benefit Liability of all of the Plans of Borrower and its ERISA
Affiliates shall, in the aggregate, exceed $100,000.
<PAGE>
31
9. PEOPLE'S RIGHTS AND REMEDIES.
9.1 Rights And Remedies. Upon the occurrence and during the
continuation, of an Event of Default People's may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of People's, but without affecting People's
rights and security interests in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which People's considers advisable, and in such
cases, People's will credit Borrower's loan account with only the net amounts
received by People's in payment of such disputed Accounts after deducting all
People's Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
People's, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of People's;
(f) Without notice to or demand upon Borrower, make such payments and
do such acts as People's considers necessary or reasonable to protect its
security interests in the Collateral. Borrower agrees to assemble the Collateral
if People's so requires, and to make the Collateral available to People's as
People's may designate. Borrower authorizes People's to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien that in People's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith;
(g) Without notice to Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
People's or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by People's;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by People's to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral.
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32
For the purpose of enabling People's to exercise rights and remedies under this
Section 9 at such time as People's shall be lawfully entitled to exercise such
rights and remedies, People's is hereby granted, to the extent assignable, a
license or other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to People's benefit;
(j) Upon at least ten (10) days notice to Borrower, sell the Collateral
at either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) People's shall give notice of the disposition of the Collateral as
follows:
(1) People's shall give Borrower and each holder of a security interest
in the Collateral who has filed with People's a written request for notice, a
notice in writing of the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public sale is to be made of
the Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least ten (10) days before
the date fixed for the sale or at least ten (10) days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to People's;
(3) If the sale is to be made a public sale, People's also shall give
notice of the time and place by publishing a notice one time at least ten (10)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) People's may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by
People's to Borrower.
9.2 Remedies Cumulative. People's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
People's shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by People's of one
right or remedy shall be deemed an election, and no waiver by People's of any
Event of
<PAGE>
33
Default shall be deemed a continuing waiver. No delay by People's shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If the Borrower fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that People's determines
that such failure by Borrower could have a material adverse effect on People's
interests in the Collateral in its discretion and without proper notice to
Borrower, People's may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves in Borrower's loan account as
People's deems necessary to protect People's from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
Section 6.12, and take any action with respect to such policies as People's
deems prudent. Any such amounts paid by People's shall constitute People's
Expenses. Any such payment made by People's shall not constitute an agreement by
People's to make similar payments in the future or a waiver by People's of any
Event of Default under this Agreement. People's need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance,
or lien and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by People's on which Borrower may in any way be
liable.
11.2 People's Liability For Collateral. So long as People's complies
with its obligations, if any, under Section 9207 of the Code, People's shall not
in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 Indemnification. Borrower agrees to defend, indemnify, save, and
hold People's and its officers, employees, and agents (referred to herein as
"Indemnified Persons") harmless against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other Person arising out of or
relating to the transactions contemplated by this Agreement or any other Loan
Document, and (b) all losses (including reasonable attorneys fees and
disbursements) in any way suffered, incurred, or paid by People's as a result of
or in any way arising out of, following, or consequential to the transactions
contemplated by this Agreement or any other Loan Document; provided, however,
that the Borrower shall not be liable
<PAGE>
34
to any Indemnified Person, if there is a judicial determination that such
losses, liabilities, obligations, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulted solely from the gross negligence or
willful misconduct of an Indemnified Person. This provision shall survive the
termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other Loan Document shall be in writing and
(except for financial statements and other informational documents which may be
sent first-class mail, postage prepaid) shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, by
reputable overnight courier service, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Borrower or to People's, as the
case may be, at its address set forth below:
If to Borrower: The Millbrook Press, Inc.
2 Old New Milford Road
Brookfield, CT 06804
Attn: Mr. Frank Farrell
Telefacsimile No. (203)740-2526
If to People's: People's Bank
Bridgeport Center
850 Main Street
Bridgeport, CT 06604-4913
Attn: Nicholas Mecca
Telefacsimile No. (203) 338-2639
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other. All
notices or demand sent in accordance with this Section 12, other than notices by
People's in connection with Sections 9504 or 9505 of the Code, shall be deemed
received on the earlier of the date of actual receipt or three (3) days after
the deposit thereof in the mail. Borrower acknowledges and agrees that notices
sent by People's in connection with Sections 9504 or 9505 of the Code shall be
deemed sent when deposited in the mail or transmitted by telefacsimile or other
similar method set forth above.
13. CHOICE OR LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT
GIVING EFFECT TO ITS CONFLICT OR LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED
<PAGE>
35
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
FAIRFIELD, STATE OF CONNECTICUT OR, AT THE SOLE OPTION OF PEOPLE'S IN ANY OTHER
COURT IN WHICH PEOPLE'S SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER
AND PEOPLE'S WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. BORROWER AND PEOPLE'S HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
AND PEOPLE'S HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
BORROWER AND PEOPLE'S REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRAIL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
BORROWER ACKNOWLEDGES ITS UNDERSTANDING THAT PEOPLE'S MAY HAVE RIGHTS AGAINST
BORROWER, NOW OR IN THE FUTURE, IN ITS CAPACITY AS SECURED PARTY, CREDITOR, OR
IN ANY OTHER CAPACITIES. SUCH RIGHTS MAY INCLUDE THE RIGHT TO DEPRIVE BORROWER
OF OR AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF BORROWER'S PROPERTY; AND
IN THE EVENT PEOPLE'S DEEMS IT NECESSARY TO EXERCISE ANY OF SUCH RIGHTS PRIOR TO
THE RENDITION OF A FINAL JUDGMENT AGAINST BORROWER, OR OTHERWISE, BORROWER MAY
BE ENTITLED TO NOTICE AND/OR HEARING UNDER THE LAWS OF THE STATE OF CONNECTICUT,
(TO DETERMINE WHETHER OR NOT PEOPLE'S HAS A PROBABLE CAUSE TO SUSTAIN THE
VALIDITY OF PEOPLE'S CLAIM), PRIOR TO THE EXERCISE BY PEOPLE'S OF ANY SUCH
RIGHTS. BORROWER EXPRESSLY AGREES THAT THIS AGREEMENT REPRESENTS A COMMERCIAL
TRANSACTION AND WAIVES ANY RIGHT UNDER TITLE 52, SECTION 278 OF THE CONNECTICUT
GENERAL STATUES, AS AMENDED, TO NOTICE OF ANY REQUEST FOR A PREJUDGMENT REMEDY
OR HEARING TO WHICH BORROWER MAY BE ENTITLED; PROVIDED, HOWEVER, THAT THIS
WAIVER SHALL NOT INCLUDE A WAIVER OF SUCH RIGHTS AS BORROWER SHALL HAVE TO PRIOR
NOTICE OF THE PROPOSED DISPOSITION OF COLLATERAL BY PEOPLE'S. SPECIFICALLY AND
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWER RECOGNIZES THAT
PEOPLE'S HAS AND SHALL CONTINUE TO HAVE AN ABSOLUTE RIGHT TO EFFECT A SECURITY
INTEREST WITHOUT THE NECESSITY OF ACCORDING TO BORROWER ANY PRIOR NOTICE OR
HEARING. THIS SHALL BE A CONTINUING WAIVER AND REMAIN IN FULL FORCE AND EFFECT
SO LONG AS BORROWER IS OBLIGATED TO PEOPLE'S.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
15.1 Effectiveness. This Agreement shall be binding an deemed effective
when executed by Borrower and People's.
<PAGE>
36
15.2 Successors And Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without People's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by People's
shall release Borrower from its Obligations. People's may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. People's reserves the right to
sell, assign, transfer, negotiate, or grant participation's in all or any part
of, or any interest in People's rights and benefits hereunder. In connection
with any such assignment or participation, People's may disclose all documents
and information which People's now or hereafter may have relating to Borrower or
Borrower's business. To the extent that People's assigns its rights and
obligations hereunder to a third Person, People's thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
notation between Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against People's or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability Of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 Amendments In Writing. This Agreement can only be amended by a
writing signed by both People's and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
<PAGE>
37
IN WITNESS WHEREOF, Subordinating Creditor and Obligor have severally executed
this Agreement on December 14, 1995.
Obligor:
The Millbrook Press, Inc.
By:
Its Vice President
Subordinating Creditor (Debtor):
Jean Reynolds
Accepted by:
Secured Party:
People's Bank
By:
Its Vice President
DEBT SUBORDINATION AGREEMENT
To: People's Bank
Bridgeport Center
850 Main Street
Bridgeport, Connecticut 06604-4913
Gentlemen:
The undersigned, Jean Reynolds having an address of (herein called
"Subordinating Creditor"), is or in the future may be owed money by The
Millbrook Press Inc. of 2 Old New Milford Road, Brookfield, Connecticut 06804
(herein called "Obligor"). Subordinating Creditor understands that Obligor has
requested you to extend credit to Obligor, but that you are unwilling to do so
unless you first receive Subordinating Creditor's agreement as herein contained.
In order to induce you, at this time and from time to time hereafter,
at your option, to make loans or extend credit or other financial accommodations
or benefits to or for the account of Obligor or to grant such renewals or
extensions of any thereof as you may deem advisable, it is agreed as follows:
1. Subordinating Creditor and Obligor represent and
warrant to you that:
(a) At the date hereof the total Indebtedness owing by Obligor
to Subordinating Creditor is $ . "Indebtedness" as used herein shall mean
present indebtedness together with all future indebtedness of Obligor to
Subordinating Creditor which may be from time to time directly or indirectly
incurred, whether evidenced by a note or any other form of indebtedness or book
entry thereof or any extension, renewal or amendment of same and shall include
any negotiable instruments, notes, documents or other evidences of indebtedness
evidencing the same and all other debts, demands, monies, indebtedness,
liabilities and obligations owed or to become owing, all interest, principal,
costs and other charges, and all claims, rights, causes of action, judgments,
decrees or other obligations of any kind whatsoever owing from Obligor to
Subordinating Creditor, exclusive of compensation for (i) services rendered to
Obligor and (ii) expenses incurred in performing services on behalf of Obligor.
(b) The evidence of the Indebtedness, if written, at your
option, either shall be delivered to you or the face of said instruments shall
be permanently marked with the following legend:
<PAGE>
"Subject to that certain Subordination Agreement executed by the Millbrook Press
Inc. on December 14, 1995, addressed to People's Bank."
and, after being so marked, the originals of said written instruments shall be
exhibited to you and a copy of the marked instruments delivered to you.
(c) There is no default under the Indebtedness or to the
knowledge of the undersigned under any other agreements between Obligor and
third parties.
2. Subordinating Creditor agrees with you that:
(a) The Indebtedness whether now existing or hereafter
acquired, shall be and hereby is subordinated to, and the payment thereof is
deferred until the full and final payment in cash or its equivalent of, any and
all obligations (including all interest accruing after the date of filing of a
petition by or against Obligor under any bankruptcy or insolvency statute or
code) of any nature whatsoever now due to you from Obligor or which may
hereafter be incurred and become due to you from Obligor.
(b) Subordinating Creditor will not, without you prior written
consent, assert, collect or enforce the Indebtedness or any part thereof, or
take any action to institute legal proceedings against Obligor to collect the
Indebtedness.
(c) Subordinating Creditor will hold in trust and immediately
pay to you in the same form of payment received for application upon the amount
now or hereafter owing to you by Obligor any amount Obligor pays to
Subordinating Creditor or which Subordinating Creditor receives from any source
on the principal amount of any Indebtedness.
(d) Subordinating Creditor will upon your request forthwith
assign, deliver or cause to be delivered to you any collateral for the
Indebtedness now held by Subordinating Creditor or anyone on its behalf, or in
the future received by it or anyone on its behalf.
(e) Subordinating Creditor shall not, without your prior
written consent, commence, prosecute or participate in any administrative, legal
or equitable action against Obligor or in any administrative, legal or equitable
action that might adversely affect your interest, rights or liens or the
interest or rights of Obligor.
3. If Subordinating Creditor, in violation of this agreement, shall
commence, prosecute or participate in any suit,
-2-
<PAGE>
action or proceeding against Obligor, you or Obligor may interpose as a defense
or plea the making of this agreement.
4. Obligor shall not, without your prior written consent, other
than as provided for herein, pay to Subordinating Creditor any sum on account of
the Indebtedness or execute or deliver any negotiable instruments as evidence of
the Indebtedness or any part thereof.
5. You may grant extensions of the time of payment or performance
to and make compromises, including releases of collateral, and settlements with
Obligor and all other persons without the consent of Obligor or Subordinating
Creditor and without affecting the agreements of Subordinating Creditor or
Obligor hereunder.
6. If, at any time hereafter, you shall, in your own judgment
determine to discontinue the extension of credit to Obligor, you may do so. This
Agreement shall continue in full force and effect until Obligor shall have
satisfied all obligations and you shall have been paid in full on all of the
Indebtedness.
7. This Agreement shall be binding upon the heirs,
administrators, personal representatives, successors and assigns of
Subordinating Creditor and Obligor, and shall inure to the benefit of you and
your successors and assigns.
8. This Agreement and the obligations which it secures and all
rights and liabilities of the parties shall be governed as to validity,
interpretations, enforcement and effect by the laws of Connecticut.
-3-
<PAGE>
IN WITNESS WHEREOF, Subordinating Creditor and Obligor have severally
executed this Agreement on December 14, 1995.
Obligor:
The Millbrook Press Inc.
By------------------------------
Its Vice President
Subordinating Creditor (Debtor):
Jean Reynolds
-------------------------------
Accepted by:
Secured Party:
People's Bank
By-------------------------
Its Vice President
-4-
DEBT SUBORDINATION AGREEMENT
To: People's Bank
Bridgeport Center
850 Main Street
Bridgeport, Connecticut 06604-4913
Gentlemen:
The undersigned, Frank Farrell having an address of (herein called
"Subordinating Creditor"), is or in the future may be owed money by The
Millbrook Press Inc. of 2 Old New Milford Road, Brookfield, Connecticut 06804
(herein called "Obligor"). Subordinating Creditor understands that Obligor has
requested you to extend credit to Obligor, but that you are unwilling to do so
unless you first receive Subordinating Creditor's agreement as herein contained.
In order to induce you, at this time and from time to time hereafter,
at your option, to make loans or extend credit or other financial accommodations
or benefits to or for the account of Obligor or to grant such renewals or
extensions of any thereof as you may deem advisable, it is agreed as follows:
1. Subordinating Creditor and Obligor represent and
warrant to you that:
(a) At the date hereof the total Indebtedness owing by Obligor
to Subordinating Creditor is $ . "Indebtedness" as used herein shall mean
present indebtedness together with all future indebtedness of Obligor to
Subordinating Creditor which may be from time to time directly or indirectly
incurred, whether evidenced by a note or any other form of indebtedness or book
entry thereof or any extension, renewal or amendment of same and shall include
any negotiable instruments, notes, documents or other evidences of indebtedness
evidencing the same and all other debts, demands, monies, indebtedness,
liabilities and obligations owed or to become owing, all interest, principal,
costs and other charges, and all claims, rights, causes of action, judgments,
decrees or other obligations of any kind whatsoever owing from Obligor to
Subordinating Creditor, exclusive of compensation for (i) services rendered to
Obligor and (ii) expenses incurred in performing services on behalf of Obligor.
(b) The evidence of the Indebtedness, if written, at your
option, either shall be delivered to you or the face of said instruments shall
be permanently marked with the following legend:
<PAGE>
"Subject to that certain Subordination Agreement executed by the Millbrook Press
Inc. on December 14, 1995, addressed to People's Bank."
and, after being so marked, the originals of said written instruments shall be
exhibited to you and a copy of the marked instruments delivered to you.
(c) There is no default under the Indebtedness or to
the knowledge of the undersigned under any other agreements
between Obligor and third parties.
2. Subordinating Creditor agrees with you that:
(a) The Indebtedness whether now existing or hereafter
acquired, shall be and hereby is subordinated to, and the payment thereof is
deferred until the full and final payment in cash or its equivalent of, any and
all obligations (including all interest accruing after the date of filing of a
petition by or against Obligor under any bankruptcy or insolvency statute or
code) of any nature whatsoever now due to you from Obligor or which may
hereafter be incurred and become due to you from Obligor.
(b) Subordinating Creditor will not, without you prior written
consent, assert, collect or enforce the Indebtedness or any part thereof, or
take any action to institute legal proceedings against Obligor to collect the
Indebtedness.
(c) Subordinating Creditor will hold in trust and immediately
pay to you in the same form of payment received for application upon the amount
now or hereafter owing to you by Obligor any amount Obligor pays to
Subordinating Creditor or which Subordinating Creditor receives from any source
on the principal amount of any Indebtedness.
(d) Subordinating Creditor will upon your request forthwith
assign, deliver or cause to be delivered to you any collateral for the
Indebtedness now held by Subordinating Creditor or anyone on its behalf, or in
the future received by it or anyone on its behalf.
(e) Subordinating Creditor shall not, without your prior
written consent, commence, prosecute or participate in any administrative, legal
or equitable action against Obligor or in any administrative, legal or equitable
action that might adversely affect your interest, rights or liens or the
interest or rights of Obligor.
3. If Subordinating Creditor, in violation of this agreement,
shall commence, prosecute or participate in any suit,
-2-
<PAGE>
action or proceeding against Obligor, you or Obligor may interpose as a defense
or plea the making of this agreement.
4. Obligor shall not, without your prior written consent, other
than as provided for herein, pay to Subordinating Creditor any sum on account of
the Indebtedness or execute or deliver any negotiable instruments as evidence of
the Indebtedness or any part thereof.
5. You may grant extensions of the time of payment or performance
to and make compromises, including releases of collateral, and settlements with
Obligor and all other persons without the consent of Obligor or Subordinating
Creditor and without affecting the agreements of Subordinating Creditor or
Obligor hereunder.
6. If, at any time hereafter, you shall, in your own judgment
determine to discontinue the extension of credit to Obligor, you may do so. This
Agreement shall continue in full force and effect until Obligor shall have
satisfied all obligations and you shall have been paid in full on all of the
Indebtedness.
7. This Agreement shall be binding upon the heirs,
administrators, personal representatives, successors and assigns of
Subordinating Creditor and Obligor, and shall inure to the benefit of you and
your successors and assigns.
8. This Agreement and the obligations which it secures and all
rights and liabilities of the parties shall be governed as to validity,
interpretations, enforcement and effect by the laws of Connecticut.
-3-
<PAGE>
IN WITNESS WHEREOF, Subordinating Creditor and Obligor have severally
executed this Agreement on December 14, 1995.
Obligor:
The Millbrook Press Inc.
By--------------------------------
Its Vice President
Subordinating Creditor (Debtor):
Frank Farrell
----------------------------------
Accepted by:
Secured Party:
People's Bank
By-------------------------
Its Vice President
-4-
DEBT SUBORDINATION AGREEMENT
To: People's Bank
Bridgeport Center
850 Main Street
Bridgeport, Connecticut 06604-4913
Gentlemen:
The undersigned, Howard Graham having an address of (herein called
"Subordinating Creditor"), is or in the future may be owed money by The
Millbrook Press Inc. of 2 Old New Milford Road, Brookfield, Connecticut 06804
(herein called "Obligor"). Subordinating Creditor understands that Obligor has
requested you to extend credit to Obligor, but that you are unwilling to do so
unless you first receive Subordinating Creditor's agreement as herein contained.
In order to induce you, at this time and from time to time hereafter,
at your option, to make loans or extend credit or other financial accommodations
or benefits to or for the account of Obligor or to grant such renewals or
extensions of any thereof as you may deem advisable, it is agreed as follows:
1. Subordinating Creditor and Obligor represent and warrant to you
that:
(a) At the date hereof the total Indebtedness owing by Obligor
to Subordinating Creditor is $ . "Indebtedness" as used herein shall mean
present indebtedness together with all future indebtedness of Obligor to
Subordinating Creditor which may be from time to time directly or indirectly
incurred, whether evidenced by a note or any other form of indebtedness or book
entry thereof or any extension, renewal or amendment of same and shall include
any negotiable instruments, notes, documents or other evidences of indebtedness
evidencing the same and all other debts, demands, monies, indebtedness,
liabilities and obligations owed or to become owing, all interest, principal,
costs and other charges, and all claims, rights, causes of action, judgments,
decrees or other obligations of any kind whatsoever owing from Obligor to
Subordinating Creditor, exclusive of compensation for (i) services rendered to
Obligor and (ii) expenses incurred in performing services on behalf of Obligor.
(b) The evidence of the Indebtedness, if written, at your
option, either shall be delivered to you or the face of said instruments shall
be permanently marked with the following legend:
<PAGE>
"Subject to that certain Subordination Agreement executed by the Millbrook Press
Inc. on December 14, 1995, addressed to People's Bank."
and, after being so marked, the originals of said written instruments shall be
exhibited to you and a copy of the marked instruments delivered to you.
(c) There is no default under the Indebtedness or to the
knowledge of the undersigned under any other agreements between Obligor and
third parties.
2. Subordinating Creditor agrees with you that:
(a) The Indebtedness whether now existing or hereafter
acquired, shall be and hereby is subordinated to, and the payment thereof is
deferred until the full and final payment in cash or its equivalent of, any and
all obligations (including all interest accruing after the date of filing of a
petition by or against Obligor under any bankruptcy or insolvency statute or
code) of any nature whatsoever now due to you from Obligor or which may
hereafter be incurred and become due to you from Obligor.
(b) Subordinating Creditor will not, without you prior written
consent, assert, collect or enforce the Indebtedness or any part thereof, or
take any action to institute legal proceedings against Obligor to collect the
Indebtedness.
(c) Subordinating Creditor will hold in trust and immediately
pay to you in the same form of payment received for application upon the amount
now or hereafter owing to you by Obligor any amount Obligor pays to
Subordinating Creditor or which Subordinating Creditor receives from any source
on the principal amount of any Indebtedness.
(d) Subordinating Creditor will upon your request forthwith
assign, deliver or cause to be delivered to you any collateral for the
Indebtedness now held by Subordinating Creditor or anyone on its behalf, or in
the future received by it or anyone on its behalf.
(e) Subordinating Creditor shall not, without your prior
written consent, commence, prosecute or participate in any administrative, legal
or equitable action against Obligor or in any administrative, legal or equitable
action that might adversely affect your interest, rights or liens or the
interest or rights of Obligor.
3. If Subordinating Creditor, in violation of this agreement, shall
commence, prosecute or participate in any suit,
-2-
<PAGE>
action or proceeding against Obligor, you or Obligor may interpose as a defense
or plea the making of this Agreement.
4. Obligor shall not, without your prior written consent, other than as
provided for herein, pay to Subordinating Creditor any sum on account of the
Indebtedness or execute or deliver any negotiable instruments as evidence of the
Indebtedness or any part thereof.
5. You may grant extensions of the time of payment or performance to
and make compromises, including releases of collateral, and settlements with
Obligor and all other persons without the consent of Obligor or Subordinating
Creditor and without affecting the agreements of Subordinating Creditor or
Obligor hereunder.
6. If, at any time hereafter, you shall, in your own judgment determine
to discontinue the extension of credit to Obligor, you may do so. This Agreement
shall continue in full force and effect until Obligor shall have satisfied all
obligations and you shall have been paid in full on all of the Indebtedness.
7. This Agreement shall be binding upon the heirs, administrators,
personal representatives, successors and assigns of Subordinating Creditor and
Obligor, and shall inure to the benefit of you and your successors and assigns.
8. This Agreement and the obligations which it secures and all rights
and liabilities of the parties shall be governed as to validity,
interpretations, enforcement and effect by the laws of Connecticut.
-3-
<PAGE>
IN WITNESS WHEREOF, Subordinating Creditor and Obligor have severally
executed this Agreement on December 14, 1995.
Obligor:
The Millbrook Press Inc.
By-----------------------------
Its Vice President
Subordinating Creditor (Debtor):
Howard Graham
-------------------------------
Accepted by:
Secured Party:
People's Bank
By-----------------------------
Its Vice President
-4-
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement"), dated as of December
14, 1995, is entered into among the stockholders of The Millbrook Press Inc., a
Delaware corporation (the "Company"), listed on the signature pages hereto
(individually referred to herein as a "Stockholder" and collectively as the
"Stockholders"). The Company is also a party to this Agreement for purposes of
the covenant set forth in Section 8 hereof.
RECITALS
1. Each of Howard B. Graham and Frank E. Farrell is currently serving
both as a director and an officer of the Company, and Jean E. Reynolds is
currently serving as an officer of the Company (each of such persons referred to
individually as an "Officer" and collectively as the "Officers").
2. The Company and People's Bank (the "Lender") propose to enter into
that certain Loan and Security Agreement, dated as of even date herewith (the
"Loan Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit to be made by the Lender to the Company in an aggregate
principal amount not to exceed $2,700,000 (the "Loans").
3. In order to induce the Lender to enter into the Loan Agreement, the
Officers will enter into that certain Guaranty of Validity of Accounts, dated as
of even date herewith (the "Guaranty"), substantially in the form of EXHIBIT A
attached hereto, pursuant to which the Officers will personally guarantee the
validity of the present and future accounts receivable of the Company.
4. The Stockholders acknowledge that the Lender has requested that each
Officer enter into the Guaranty because of his status as an officer of the
Company.
5. The Officers have indicated that they do not regard the indemnity
available under those certain Indemnification Agreements, dated as of February
23, 1994 (the "Indemnification Agreements"), by and between the Company and each
Officer, respectively, as adequate to protect them from the risks of personal
loss associated with the Guaranty. In this connection, each Officer and the
other Stockholders have agreed to enter into this Contribution Agreement in
order to provide greater protection to the Officers against the risks of
personal liability under the Guaranty.
AGREEMENTS
To induce the Officers to enter into the Guaranty, and in consideration
thereof, the parties hereto have agreed as follows:
<PAGE>
1. RIGHT OF CONTRIBUTION. (a) Each of the Officers shall have a right
of contribution from the other Stockholders for any loss, claim, damage,
liability, cost or expense (including reasonable attorneys' fees) arising from
any claims, demands, proceedings or lawsuits initiated by the Bank against any
Officer arising out of or in connection with the Guaranty (the "Losses");
PROVIDED, HOWEVER, that such Officer shall have first sought indemnification
from the Company pursuant to his respective Indemnification Agreement, and the
Company shall have failed to provide indemnification to such Officer in
circumstances under which such indemnification was required to have been
provided by the Company in accordance with the terms of such Indemnification
Agreement, before such Officer shall have any right of contribution pursuant to
this Agreement; and
(b) The amount of any Losses to be contributed by each Stockholder
shall be determined on a pro rata basis among the Stockholders based on their
respective pro rata percentage ownership of shares of capital stock in the
Company immediately prior to such contribution (such contributions are herein
referred to as a "Contribution"). For any Losses as to which Contribution is
required hereunder, each Stockholder shall be required to make a Contribution
equal to the product of (i) such Stockholder's percentage interest in the
Company's capital stock multiplied by (ii) the Contribution Amount specified in
the applicable Contribution Notice applicable to such Losses (as such terms are
defined below). In the event that any Stockholder (a "Defaulting Stockholder")
fails to contribute such Stockholder's proportional share of a Contribution, the
other Stockholders shall pay a proportional share (pro rata based on their
respective ownership of shares of capital stock in the Company) of the amount of
the Defaulting Stockholder's unpaid proportional share of such Contribution. All
Stockholders shall cooperate with each other in pursuing such remedies with
respect to a Defaulting Stockholder as may be necessary or appropriate to compel
such Defaulting Stockholder to repay to the other Stockholders all amounts
contributed by such other Stockholders with respect to the Defaulting
Stockholder's proportional share of any Contribution.
2. NOTICE OF CONTRIBUTION. After an Officer has first requested,
pursuant to his respective Indemnification Agreement, and been denied
indemnification thereunder in circumstances under which such indemnification was
required to have been provided by the Company in order to satisfy a claim of
such Officer for indemnification by the Company for any Losses, the applicable
Officers shall give immediate notice thereof (the "Contribution Notice") to the
Stockholders (which notice shall specify the Company's denial of indemnification
and the actual or anticipated Contribution necessary from all Stockholders for
such Losses) (the "Contribution Amount"), and each Stockholder shall make the
requisite Contribution as determined pursuant to Section 1(b)
-2-
<PAGE>
hereof within twenty (20) days after receipt of such Contribution Notice.
3. ENFORCEMENT. If a claim or request for Contribution under this
Agreement is not paid by any Stockholder within twenty days after the
Contribution Notice has been received by such Stockholder, the applicable
Officer or Officers may at any time thereafter bring suit against such
Stockholder to recover the unpaid amount of the claim or request for
Contribution and if successful, in whole or in part, such Officer shall be
entitled to be paid also the expenses of prosecuting such suit. Each Stockholder
shall have the right to recoup from each Officer the amount of any Contribution
theretofore paid by such Stockholder to such Officer pursuant to this Agreement,
to the extent it is established that such Contribution was not required to have
been made in accordance with the terms hereof.
4. EXCLUSIONS. Notwithstanding any other provision of this Agreement,
the Stockholders shall not be liable under this Agreement to make any
Contribution in connection with any claim made against each Officer:
(a) to one extent that such Officer is indemnified and
actually paid pursuant to his respective
Indemnification Agreement with the Company;
(b) to the extent that payment is actually made to the
Officer under a valid, enforceable and collectible
insurance policy;
(c) to the extent that such Officer is indemnified and
actually paid otherwise than pursuant to this
Agreement; and
(d) to the extent that acts or omissions of such Officer
giving rise to the Losses for which the Contribution is to be
paid are found by a court of competent jurisdiction to have
resulted from bad faith, fraud, gross negligence or reckless
or intentional misconduct; and
(e) where the Stockholders are prohibited by applicable
law from paying same.
5. PARTIAL CONTRIBUTION. If any Officer is entitled to Contribution by
the Stockholders pursuant to this Agreement for some or a portion of any Losses,
but not, however, for the total amount thereof, the Stockholders shall
nevertheless contribute to such Officer the portion of such Contribution to
which the Officer is entitled.
-3-
<PAGE>
6. ADVANCE OF LOSSES. An Officer may seek contributions to cover the
cost of expenses, except the amount of any settlement, incurred by such Officer
in connection with any litigation, which Contribution shall be paid in advance
of a final determination of such litigation upon the request of any Officer,
provided that no Stockholder shall have an obligation to make advances unless
such Officer has first sought indemnification from the Company pursuant to his
respective Indemnification Agreement and the Company shall have failed to
provide indemnification in circumstances under which such indemnification was
required to have been provided by the Company in order to satisfy such claim or
request for indemnification. Each Officer hereby undertakes to repay to the
Stockholders the amount of any Contribution theretofore paid by the Stockholders
to the extent that it is ultimately determined that such Losses are not
reasonable or that such Officer is not entitled to Contribution pursuant to
Section 1 or Section 4 hereof.
7. APPROVAL OF LOSSES. No Losses for which Contribution shall be sought
under this Agreement, other than those in respect to judgments and verdicts
actually rendered, shall be incurred without the prior consent of the
Stockholders representing at least a majority of the outstanding shares of
capital stock of the Company, which consent shall not be unreasonably withheld,
provided, that if such consent is unreasonably withheld, failure to obtain such
consent shall not offset the obligation of the Stockholders to contribute to the
payment of all reasonably incurred Losses. The Stockholders representing a
majority of the outstanding shares of the capital stock of the Company, shall
act to approve or deny Contribution for Losses within twenty (20) days of
receipt of the Contribution Notice by the last Stockholder to receive such
Contribution Notice. If the Stockholders representing a majority of the
outstanding shares of the capital stock of the Company deem it advisable, such
Stockholders shall be permitted to assume the defense of any litigation for
which Contribution for Losses is sought pursuant hereto.
8. Replacement Guarantor. The Company and the Shareholders hereby
covenant with each of the Officers that the Company shall, and the Stockholders
will cause the Company to:
(i) provide a replacement guarantor acceptable to
Lender who shall commit in writing to undertake the
obligations contained in the Guaranty, and
(ii) secure from Lender and unconditional release from
such Officer's obligations under the Guaranty,
in the event of, and with such replacement to be effective as of, such Officer's
complete cessation of involvement, whether by termination of employment or
otherwise, with the Company.
-4-
<PAGE>
9. TERMINATION. This Agreement is a continuing agreement and shall
remain in full force and effect until (i) the payment in full of the Company's
obligations to the Lender under the Loan Agreement, and (ii) the Lender shall
have no commitment to make any Loan to the Company under the Loan Agreement, at
which time this Agreement shall be terminated.
10. NOTICES. All notices and demands to or upon the respective parties
hereto to be effective shall be in writing and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered
by hand, or five (5) days after having been deposited in the mail, air postage
prepaid, or in the case of notice by telecopier (fax), when sent, or in the case
of overnight courier service, one business day after delivery to a nationally
recognized overnight courier service, to such addresses as appear on the record
books of the Company.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument.
12. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of Delaware, without
regard to the rule regarding conflicts of law thereof.
13. GENDER. All pronouns and all variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons, thing or entity may require.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
STOCKHOLDERS: 21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
general partner
By: Sandler Capital Management,
general partner
By: EMEBE Corp., general
partner
By: ------------------------
Name:
Title:
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
general partner
By: Sandler Capital Management,
general partner
By: EMEBE Corp., general
partner
By: ------------------------
Name:
Title:
-6-
<PAGE>
21ST CENTURY COMMUNICATIONS FOREIGN
PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
general partner
By: Sandler Capital Management,
general partner
By: EMEBE Corp., general
partner
By: ------------------------
Name:
Title:
APPLEWOOD ASSOCIATES, L.P.
By:-------------------------------
Name: Barry Rubenstein
Title: General Partner
WOODLAND PARTNERS
By:-------------------------------
Name: Barry Rubenstein
Title: General Partner
ARCHON PRESS, LTD.
By:-------------------------------
Name:
Title:
----------------------------------
Harvey Sandler
-7-
<PAGE>
21ST CENTURY COMMUNICATIONS FOREIGN
PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
general partner
By: Sandler Capital Management,
general partner
By: EMEBE Corp., general
partner
By: ------------------------
Name:
Title:
APPLEWOOD ASSOCIATES, L.P.
By:-------------------------------
Name: Barry Rubenstein
Title: General Partner
WOODLAND PARTNERS
By:-------------------------------
Name: Barry Rubenstein
Title: General Partner
ARCHON PRESS, LTD.
By:-------------------------------
Name:
Title:
----------------------------------
Harvey Sandler
-8-
<PAGE>
21ST CENTURY COMMUNICATIONS FOREIGN
PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
general partner
By: Sandler Capital Management,
general partner
By: EMEBE Corp., general
partner
By: ------------------------
Name:
Title:
APPLEWOOD ASSOCIATES, L.P.
By:-------------------------------
Name: Barry Rubenstein
Title: General Partner
WOODLAND PARTNERS
By:-------------------------------
Name: Barry Rubenstein
Title: General Partner
ARCHON PRESS, LTD.
By:-------------------------------
Name:
Title:
----------------------------------
Harvey Sandler
-9-
<PAGE>
------------------------------------
Andrew Sandler
------------------------------------
Michael Marocco
------------------------------------
John Kornreich
------------------------------------
Barry Lewis
------------------------------------
Barry Fingerhut
------------------------------------
Irwin Lieber
------------------------------------
Jonathan Lieber
------------------------------------
Seth Lieber
------------------------------------
Hannah Stone
------------------------------------
Jean Reynolds
-10-
<PAGE>
------------------------------------
Andrew Sandler
------------------------------------
Michael Marocco
------------------------------------
John Kornreich
------------------------------------
Barry Lewis
------------------------------------
Barry Fingerhut
------------------------------------
Irwin Lieber
------------------------------------
Jonathan Lieber
------------------------------------
Seth Lieber
------------------------------------
Hannah Stone
------------------------------------
Jean Reynolds
-11-
<PAGE>
THE COMPANY: THE MILLBROOK PRESS INC.
By: -------------------------------
Name:
Title: Vice President
-12-
<PAGE>
------------------------------------
Frank Farrell
------------------------------------
Howard Graham and Rita Graham,
as JTWROS
OFFICERS: ------------------------------------
Jean Reynolds
------------------------------------
Frank Farrell
------------------------------------
Howard Graham
-13-
C O N T R A C T
AGREEMENT made effective as of August 1, 1996 by and between Aladdin Books
Limited 28 Percy Street London W1P-9FF (hereinafter called "Aladdin") of the one
part and The Millbrook Press Inc., 2 Old New Milford Road, Brookfield,
Connecticut, USA (hereinafter called the "Publisher") of the other part.
PART A
WHEREAS it is agreed generally between the parties as follows:
1) Aladdin shall make its best effort to create and produce no less than
50 titles a year, and Millbrook shall use its best efforts to purchase
no less than 50 titles a year, during the term of this Agreement for an
imprint, wholly owned by the Publisher, as set forth below. For
purposes of this Agreement, all titles are identified as the "Work".
2) This Agreement shall commence on January 1, 1996 and shall continue for
a period of six years and as further extended by Paragraph 7(a) with
respect to each title published. After the initial six-year period,
this Agreement shall be automatically renewed year to year unless
cancelled by either party by written notice at least 90 days prior to
the end of the initial term or any renewal term.
3) The titles on the list shall be agreed by both parties at regular
intervals to be mutually decided, taking into account the Publisher's
publishing requirements and Aladdin's overseas markets. Approved
publishing lists shall form part of this agreement under Appendix A.
<PAGE>
4) Aladdin shall submit prototype cover and spread design, together with a
Title Approval form, which shall contain full specifications and
physical characteristics, unit printing and binding estimates, and
development budget of each title. Each Title Approval form shall upon
approval become part of the contract as Appendix B, and is incorporated
by reference into this Agreement.
5) Aladdin shall be responsible for production printing and
binding.
6) The development costs shall be shared between the Publisher
and Aladdin as in PART B, clause 4(a).
7) Royalties shall be payable to Aladdin as in clause 4(c).
PART B
Now it is specifically agreed between parties hereto as follows:
1. Aladdin hereby licenses and grants to the Publisher the following
volume book rights, which includes but is not limited to hardcover,
paperback, and all derivative rights, in and to the Works:
a) The sole and exclusive right to publish, sell, market and
advertise the Work in the English language markets of the
United States of America its territories and dependencies
including the Philippines and Canada (hereinafter called the
exclusive licensed territories subject as herein provided) for
the term of the agreement.
-2-
<PAGE>
2. a) Aladdin warrants to the Publisher that it is the sole owner or
licensee of the copyright and of all the rights granted herein
to the Publisher; that the Work is original, contains nothing
defamatory or violates the right of privacy; and that the Work
has not heretofore been published in the said language. In the
event of a claim or suit under the foregoing warranty, Aladdin
will defend the claim or suit and hold the Publisher harmless
including all legal expenses.
b) Aladdin will not, during the continuance of the Agreement
without prior consent in writing of the Publisher, print or
cause to be printed or published any edition of the Work that
might injure the sales of the Work by the Publisher hereunder.
3. Aladdin will be responsible for the complete production of the Work,
and agrees to sell and the Publisher agrees to purchase copies of the
Work, as long as the Work conforms to the specifications shown on
Appendix B and is delivered on a timely basis, produced to the
specifications and at the price and quantity specified under Specific
Title and Approval Form (incorporated into Appendix B),
PROVIDED THAT:
a) a 5% over-delivery or under-delivery shall be constituted
as fulfillment of the order.
b) The Publisher shall supply copy for Americanization.
-3-
<PAGE>
c) An imprint agreed by Aladdin and the Publisher shall appear on
the title page and on the spine of the cover.
d) All the illustrations and design characteristics of the Work
shall remain the same for all editions or adaptations
published hereunder PROVIDED THAT the Publisher shall not
without the prior consent of Aladdin i) use the names,
designs, texts or any other materials appearing in the Work
for any purpose whatsoever except for advertising or
publishing their edition of the Work ii) the Publisher is not
entitled to print the Work or any part thereof itself or cause
it to be printed by anybody except Aladdin or Aladdin's
nominee.
4. The Publisher shall pay Aladdin for the Work as follows:
a) DEVELOPMENT COSTS
Development costs of each title shall be shared as follows:
i)A General international books: Millbrook 50%
Aladdin 50%
B American-only books: Millbrook 90%
Aladdin 10%
"American-only" books will be those mutually agreed upon by Aladdin and
the Publisher to be suitable only for the North American market and
shall be so designated on the approval form (Appendix B). "General
International Books" shall be books suitable for the Americas and
worldwide distribution and sale.
-4-
<PAGE>
ii) Development costs of each title shall be included in the Title
Approval form.
iii) Payment by Publisher for its share of development costs shall be
on a monthly basis, reviewable on 1st September each year at the rate
of USD30,000 per month. The funds shall be remitted as long as Aladdin
conforms to the delivery schedules shown on Appendix B and is not in
breach of any other terms ofthis Agreement. In the event of a delay in
delivery, payment of the funds may be delayed to the extent of the
delayed delivery provided the delay in delivery is held to be caused by
Aladdin or Aladdin's actions.
iv) the Publisher shall receive from Aladdin a development cost
recovery as follows on all sales outside US markets in an amount equal
to:
General international books: 25% of net receipts
American books: Nil.
Net receipts, in this instance, are defined as revenue less cost
for printing, freight and/or films and Authors Royalty, if any.
The above development cost recovery payments to Publisher may exceed
Publisher's share of development costs and shall be accounted for
separately.
-5-
<PAGE>
Accounting should be made as of close of business June 30 and December
31 and payable 90 days thereafter.
b) Printing and Binding
i) Aladdin shall invoice the Publisher for printing and binding of each
book in accordance with the Title Approval form (Appendix B).
ii) the Publisher shall pay Aladdin 90 days from shipment as evidenced
by a bill of lading showing delivery.
iii) in the event that Millbrook is delinquent in its payments to
Aladdin in excess of 15 days, Aladdin may suspend shipments, after
notifying Millbrook in writing until Millbrook remedies such default.
In the event Millbrook remedies the default, Aladdin will reschedule
deliveries and notify Millbrook of new delivery date.
c) Royalties
Aladdin shall receive a royalty on all sales as follows:
i) On all sales of books first published by Publisher on or after
August 1, 1996 as follows:
General international books:
Hardcover Library Editions 9% of net receipts
Hardcover Trade Editions 5% of net receipts
Softcover Trade Editions 5% of net receipts
American books:
15% of net receipts first 3,000 copies
7% thereafter.
-6-
<PAGE>
Royalties due will be paid semi-annually within 90 days
following the close of business on June 30 and December 31.
Royalty income from third parties will be shared after the
deduction of Agents' commission (if any) as follows:
International titles: 50% to Aladdin
American-only titles: 25% to Aladdin
ii) On all sales of books first published by Publisher prior
to August 1, 1996 as follows:
General International Books: 7% of net receipts
American books: 15% of net receipts first 3,000
copies
7% thereafter.
Royalties due will be paid semi-annually within 90 days
following the close of business on June 30 and December 31.
Royalty income from third parties will be shared after the
deduction of Agents' commission (if any) as follows:
International titles: 50% to Aladdin
American-only titles: 25% to Aladdin
d) On special sales at other than published discounts to bulk
users including, but not limited to, Book Clubs, Book Fairs,
Premium Sales, Director Marketing, and Direct sales payment to
Aladdin shall be as follows:
i) From Publishers stock as in (c) above
-7-
<PAGE>
ii) From film provided by Aladdin to the Publisher, 30% of the
Gross Margin as commonly defined after deduction of third
party royalties, if any and after the payment of Agents'
Commission, if any. The 30% is in lieu of Royalty due to
Aladdin.
iii) When printed by Aladdin, 30% of the Gross Margin as
commonly defined after deduction of third party Royalties, if
any and after payment of the Agents' Commission, if any. The
30% is in lieu of Royalty due to Aladdin.
iv) From film provided to the end user by Aladdin, with
consent of Publisher, and where payment is in the form of
Royalty, 50% to Aladdin of the advance and subsequent payments
after deducting Agent's Commission, if any. Film where
required above shall be provided by Aladdin at cost plus 15%
for handling. It is understood these terms may be modified by
mutual consent.
e) All sums of money due to Aladdin hereunder shall be paid as
follows:
i) Royalties in USD ($).
ii) Manufacturing costs in Pounds Sterling ((pound))
where manufactured by Aladdin in a Pound Sterling
area and in USD ($) when manufactured by the
Publisher.
iii) Plant cost in USD ($).
-8-
<PAGE>
Payment shall be made on behalf of Aladdin to Books Limited at Royal
Bank of Scotland, 67 Lombard Street, London EC3 3DP (or to such other
account as may be notified by Aladdin to the Publisher at any time) and
shall be paid without any deduction whatsoever. Funds due to the
Publisher shall be paid to a bank and account furnished by the
Publisher. Each party shall be responsible for income taxes or
government levies on funds they receive in accordance with local law.
f) Certain titles may be designated School and Library only
titles by mutual consent. On such titles so designated a
mutually agreed upon School and Library price shall be
established. The cost to the Publisher on a minimum of 4000
copies will be 30% of agreed upon School and Library price CIF
New York inclusive of all charges including development and
Royalty. On quantities of less or more than 4000 copies the
cost shall be subject to good faith negotiation.
5. a) Aladdin undertakes that in the absence of circumstances
beyond their control to meet all schedules as shown in Appendix B
provided that the Publisher meets all schedules agreed upon in the
Title Approval form. In the event of a delay by Aladdin, the Publisher
may delay payment by the extent of the delay.
b) the Publisher will supply Aladdin shipping instructions in
reasonable time for arrangements for the packing and shipping on the
Publisher's behalf.
-9-
<PAGE>
c) Copies of the Work will be sent CIF dock New York. The Publisher
will be billed separately for such charges.
6. If in consequence of any event beyond Aladdin's control (i.e. war,
riot, strikes, fire, floods, act of God, governmental restrictions or
other such circumstances) Aladdin shall be prevented from performing
any of its obligations hereunder by the dates set forth for such
performance, the time for such performance shall be deemed extended for
a period of time equivalent to the duration of such event and the
approval of the Publisher shall be deemed to be given to the said
extension of time without liability to Aladdin. If Aladdin is prevented
from performing hereunder by reason of such event it shall give prompt
written notice to the Publisher of the nature of such event and of the
expected effect of such event so far as relevant to the operation of
this Agreement. Payment required under this Agreement may be deferred
until Aladdin is able to perform as required.
7. a) Notwithstanding Part A, Paragraph 2, the terms of this
Agreement shall continue with respect to each work published pursuant
to this Agreement for a period of ten years from the date the first
books of the US edition for said work are published in the Licensed
Territory.
b) In the event of cancellation or expiration or other
termination of this Agreement, and subject to paragraph 7(a) above
unless the cancellation, expiration, or other termination is caused by
the material breach by Publisher, all rights
-10-
<PAGE>
licensed or granted to the Publisher hereunder immediately revert to
Aladdin without prejudice to any claim by either party hereto against
the other. Notwithstanding the foregoing, any license heretofore
granted by the Publisher to others shall continue in effect until such
license terminates and Aladdin and the Publisher shall continue to
share in the proceeds according to the terms of this contract. The
Publisher shall be responsible for accounting to Aladdin as provided in
paragraph 4.
c) In the event of cancellation or expiration or any other termination
of this agreement, a list of titles that had been previously confirmed
and are in some state of work in progress shall be provided and those
titles will be delivered in accordance with in the terms and provisions
of this agreement within a six month period following confirmation.
This shall not be construed as impeding any action or damages sought by
either party from each other in the case of cancellation.
d) The rights to the titles published under this Agreement extend for
the life of the Agreement including paragraph 7(a) above as long as the
titles remain in print unless the Publisher allow the Work to go out of
print or ceases to offer it for sale, whichever is sooner, and fails to
order a reprint of a reasonable quantity during the said term. If the
Publisher's editions of the Work shall go off the market or out of
print, Aladdin shall have the right 6 months after giving written
notice to the Publisher to revert the rights concerning
-11-
<PAGE>
that specific Work in the territory in which the book is out of print
at the expiration of a further 6 months period if the Work is not again
placed on sale in the licensed territory during that twelve months
period.
e) Aladdin or its authorized representatives have the right to inspect
during reasonable business hours the accounts and records of the
Publisher relating to all transactions covered by this Agreement.
f) The Publisher shall not sell its copies of the Work or cause them to
be sold at a reduced price or remainder copies of the Work for a period
of at least 18 months from first publication hereunder. A reduced price
or remainder shall be interpreted as copies sold at more than an 80%
discount from Publisher's retail list price.
g) All of the above articles in paragraph 7 may be changed by mutual
consent. Such consent whether on specific titles or all titles must be
submitted and approved in writing.
8. If a Receiver or Manager be appointed for the Publisher by creditors
or if the Publisher goes into liquidation other than voluntary
liquidation for the purpose of reconstruction or amalgamation only or
if payment should not be made by the Publisher without justification of
advance payments due under Clause 4 a) i) within 30 days of the date of
written demand by Aladdin or if payment should not be made of monies
due or statements to be delivered to Aladdin hereunder within three
months after the date of a written demand from Aladdin or its
-12-
<PAGE>
representatives for such payment or such delivery after it shall be due
then in either of these cases this Agreement shall automatically
terminate without prejudice to any claim which either party may have
against the other or to the right of any third party arising hereunder.
The rights to distribute published Works in the territories allocated
to the Publisher shall not be affected by this termination.
9. The Publisher and Aladdin agree to cooperate in the exploitation of any
rights not specifically granted hereunder and accordingly:
a) The Publisher must have prior written consent, not to be
unreasonably withheld, of Aladdin to sub-license for publication in any
form or medium (but only in the exclusive licensed territory) any part
of the Work or for any other use of the material.
b) The Publisher and Aladdin will jointly explore electronic rights and
mutually decide and consent to exploitation. When a decision is reached
both parties will endeavor to clear all necessary provisions and
provide all necessary permissions. Development costs will be shared
equally as will profits. By mutual consent the sharing of costs and
profits may be varied. The Publisher agrees, however, that on sales
outside of its territory it shall it shall only be entitled to a profit
share equal the original percentage stated for plant cost recovery in
Paragraph 4 above.
-13-
<PAGE>
Should either side decline to collaborate with the other party in the
production of any electronic product generated from the basic concept,
design and illustration of the Work the initiating party shall be
entitled to produce the electronic Work itself. Aladdin will make
available to the Publisher, should the Publisher be the initiating
party, all design, content, textual materials and permissions which are
necessary to create the electronic product. In such case, the Publisher
shall pay to Aladdin a pro-rated royalty on a 7% royalty of retail
Price, based on the proportion that the Work participates in the final
electronic product. Clearance of electronic rights in the text and
illustrations will be obtained where possible.
c) the Publisher has the right to use excerpts from the Work for
promotion and review purposes PROVIDED THAT all such excerpts should
bear the appropriate copyright notices as hereinbefore specified.
d) Nothing contained in this Agreement shall be construed to place the
parties in the relationship of partners or joint ventures and neither
Aladdin nor the Publisher shall have the right to obligate or bind the
other in respect of any matter arising in connection with the Work or
this agreement.
10. The exclusive and non-exclusive licenses granted hereby are not
assignable by the Publisher; no assignment of this Agreement voluntary
or by assignment of operation of law shall be binding upon either of
the parties without the prior consent of the
-14-
<PAGE>
other. In the event the Publisher sells all or substantially all of the
assets of its business, all titles published up until the date of
transfer shall automatically be assigned. Continuation of the remaining
portion of the contract for titles not published prior to date of
transfer is subject to Aladdin's consent.
11. Titles published by Millbrook not provided by Aladdin may be published
under the same imprint ("Copper Beech") with Aladdin's consent.
12. If any difference shall arise between Aladdin and the Publisher
touching the meaning of this Agreement or the rights and liabilities of
the parties hereto the same shall be referred to the arbitration of two
persons or their umpire in accordance with the provisions of the
American Arbitration Association or any statutory modification or
re-enactment thereof for the time being in force, such arbitration to
be held in New York City.
13. This Agreement shall be interpreted and shall be governed in all
respects by the laws of the State of New York.
As witnessed the hands of the duly authorized representatives of the
parties hereto this day an year first before written.
Signed by:----------------------------
for and on behalf of Aladdin Books Ltd.
in the presence of--------------------
Date:---------------------------------
-15-
<PAGE>
Signed by:----------------------------
for and on behalf of The Millbrook Press Inc.
in the presence of--------------------
Date:---------------------------------
-16-
<PAGE>
ALADDIN BOOKS LIMITED - MILLBROOK PRESS, INC.
JANUARY 1, 1996 AGREEMENT
APPENDIX A - APPROVED PUBLISHING LIST
-17-
<PAGE>
ALADDIN BOOKS LIMITED - MILLBROOK PRESS, INC.
JANUARY 1, 1996 AGREEMENT
APPENDIX B - TITLE APPROVAL
-18-
Heads of Option Agreement
date: July 27, 1993
Groupe de la Cite / ANTIA (GLC) desires to sell and SMG Associates (SMG) desires
to purchase all the business and the assets of the Millbrook Press, Inc.
(Millbrook).
This Heads of Option Agreement shall be completed if necessary by covenants
which may expand but not alter the following conditions:
1. If SMG exercises this option, SMG will pay to GLC $2.1 million (USD)
on/or before December 31, 1993. Simultaneously, as an additional part
of the purchase price, SMG will pay off the outstanding principal and
interest for the amount shown as a loan from Societe Generale on
Millbrook's books as of December 31, 1993, and take over the
liabilities of the business.
2. If SMG exercises this option, SMG agrees to transfer all of Millbrook's
rights in The Encyclopedia of the United States to Grisewood and
Dempsey (a subsidiary of GLC) in return for Grisewood and Dempsey's
payment to Millbrook of an amount equal to the unamortized plate
relating to the work as of December 31, 1993 which shall amount to
$94,205 (USD) and Millbrook's share of the inventory of bound books,
sheets and any other materials. Such payment will be made at the date
of the payment stated inss.1. At the same time, SMG / Millbrook and
Groupe de la Cite / CKG shall enter into an Agreement for the
distribution of this product, in the school and library market in the
US for 1994. The terms and conditions shall be those decided between
Millbrook and CKG for the distribution of Millbrook's products by CKG
in the US trade market in 1994.
3. Until the exercise of the option, SMG shall continue to manage
Millbrook under the conditions of the existing agreement pertaining to
the management fee, duties and responsibilities. It will waive all
other rights under the agreements dated October 5, 1989 and any other
agreement upon signing this Heads of Option Agreement. Both parties
agree to take no action in any way injurious to Millbrook. This waiver
shall remain valid even if SMG is unable to purchase Millbrook as
contemplated in this Agreement.
In the event that SMG is unable to purchase Millbrook as contemplated
in this agreement, it will have no other liability to GLC.
<PAGE>
Heads of Option Agreement - continued
- -------------------------------------
4. Should SMG not exercise the purchase option by December 31, 1993, new
management agreements will be entered into by the following
individuals:
Howard B. Graham
Jean E. Reynolds
Frank F. Farrell.
Such management agreements shall incorporate an annual rate of
compensation of $50,000(USD) each to Howard B. Graham and Frank J.
Farrell. Jean E. Reynolds shall be paid at an annual rate of $150,000
(USD) which shall cover all benefits and expenses. These agreements
will be cancelable by either party with ninety (90) days notice
effective the first day of the subsequent month such notice is given.
5. GLC shall cooperate fully with SMG in allocating the purchase price
among all of Millbrook's assets.
6. SMG shall have the exclusive right to purchase Millbrook until December
31, 1993; SMG shall notify GLC not later than December 15, 1993 that it
shall exercise its option to buy.
7. SMG shall be provided with access to Antia's corporate accounting and
financial books and records as may be necessary to perform its due
diligence review. No warranty shall be given by GLC on Millbrook's
assets or business.
8. GLC and SMG shall keep an absolute confidentiality on this Agreement,
even if the transaction is not completed.
This Heads of Option Agreement is binding as of July 27, 1993 on both parties.
Any controversy or claim arising out of or relating to this agreement, or the
breach thereof, shall be settled by arbitration in accordance with the Rules of
the American Arbitration Association, and any hearings in connection with such
arbitration shall be held in New York City. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
<PAGE>
Heads of Option Agreement - continued
- -------------------------------------
The signatures below indicate acceptance of the above agreement:
For SMG Associates:
- -------------------
- ----------------------------------
Howard B. Graham Date
- ----------------------------------
Jean E. Reynolds Date
- ----------------------------------
Frank J. Farrell Date
For Groupe de la Cite / ANTIA
- -----------------------------
- ----------------------------------
Baudouin de la Tour Date
<PAGE>
AMENDMENT AGREEMENT TO THE
HEADS OF OPTION AGREEMENT
Amendment Agreement dated as of November 4, 1993 among GROUPE
DE LA CITE INTERNATIONAL, a Science Anonyme organized under French law with an
address at 20 Avenue Hocha, 75008 Paris, France ("GLC"), ANTIA CORPORATION, a
corporation with offices at 10 East 40th Street, New York, NY 10016 ("Antia"),
and SMG ASSOCIATES, a general partnership organized under the laws of
Connecticut with an address at 18 West 55th street, 3rd Floor, New York, NY
10019 ("SMG").
W I T N E S S E T H:
WHEREAS, on July 27, 1993, SMG, Antia and GLC entered into a
Heads of Option Agreement pursuant to which, inter alia, GLC, Antia and SMG
agreed to sell and SMG agreed to purchase all the business and the assets of the
Company (the "Heads of Option Agreement");
WHEREAS, the Heads of Option Agreement provided, among other
things, for SMG's exclusive right to purchase the business and the assets of the
Company (the "Assets") until December 31, 1993;
WHEREAS, GLC Antia and SMG desire to extend the Option
Expiration Date to February 28, 1994 and to amend the Heads of Option Agreement
in other respects;
NOW, THEREFORE, the parties, wishing to be legally bound and
hereby acknowledging their receipt and the sufficiency of the consideration
therefor hereby agree as follows:
1. To the extent that the terms of this Amendment Agreement
conflict with the terms of the Heads of Option Agreement, the terms of this
Amendment Agreement shall govern the relationship among the parties hereto. As
herein amended the Heads of Option Agreement is hereby ratified and confirmed.
2. (a) At the end of the first sentence of paragraph one of
the Heads of Option Agreement the period should be changed to a semicolon and
the following language should be added: "provided, however, SMG shall have the
option to extend the December 31, 1993 date to February 28, 1994 (December 31,
1993, or, if extended as herein provided, February 28, 1994 is hereinafter
referred to as the "Option Expiration Date") upon the payment to GLC on or
before December 31, 1993 of the sum of $45,000 to be applied as follows:
<PAGE>
"(i) $23,000 shall be treated as a non- refundable
deposit which shall be applied by SMG in reduction of the purchase price paid by
SMG to GLC in the event that SMG exercises its option and the purchase of the
Assets takes place on or prior to February 28, 1994 (the "Closing") or retained
by GLC in the event SMG is unable to exercise its option and such purchase does
not occur on or prior to February 28, 1994.
"(ii) $23,000 shall be applied by GLC as additional
purchase price at the rate of $400 per day for each day or part thereof after
December 31, 1993 until the date of the Closing of the transaction whereby SMG
purchases the Assets from GLC. In the event such Closing occurs prior to
February 28, 1994 the balance of the $23,000 derived by subtracting therefrom
the additional purchase price shall be repaid by GLC to SMG at Closing. In the
event the Closing does not occur by February 28, 1994 then GLC shall promptly
refund the full $23,000 to SMG."
(b) Delete the words "December 31, 1993" in the last
line of the second sentence of paragraph one of the Heads of Option Agreement
and substitute therefor "the Closing (as hereinabove defined)".
3. Paragraph 4 of the Heads of Option Agreement shall be
amended by:
(a) Deleting "December 31, 1993" in the first line
thereof and substituting therefor "the Option Expiration Date"; and
(b) Changing of the period at the end of paragraph 4
to a semicolon and adding the following at the end of such paragraph: "provided,
however, if the Option Expiration Date is extended to February 28, 1994 as
provided in paragraph one hereof Messrs. Graham and Farrell and Ms. Reynolds may
not give such notice prior to June 30, 1994".
4. Paragraph 6 of the Heads of Option Agreement shall be
deleted and replaced by the following: "SMG shall have the exclusive right to
purchase the Assets until the Option Expiration Date. SMG shall notify GLC not
later than 15 days prior to the Closing that it shall exercise its option to
purchase the Assets.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Extension Agreement as of the day and year first above written.
SMG ASSOCIATES
By: Graham Int'l Publishing &
Research Inc., Partner
By:-------------------------------
Howard B. Graham, President
By: Braben Inc. Partner
By:-------------------------------
Jean F. Reynolds, President
By: Farrell Associates, Inc., Partner
By:-------------------------------
Frank J. Farrell, President
GROUPE DE LA CITE INTERNATIONAL/ANTIA
By:------------------------------------
Name
Title:
-3-
<PAGE>
SECOND AMENDMENT TO HEADS OF OPTION AGREEMENT
ADDITIONAL ASSET PURCHASE COVENANTS AND AGREEMENTS
AGREEMENT made as of the first day of December, 1993, among
GROUPE DE LA CITE INTERNATIONAL, a Societe Anonyne organized under French law
with an address at 20, Avenue Hoche, 75008 Paris, France ("GLC"), ANTIA
CORPORATION, a corporation with offices at 10 East 40th Street, New York, NY
10016 (the "Antia"), The Millbrook Press Inc., a corporation with an office at 2
Old New Milford Road, Brookfield, CT 06804 (the "Seller") and SMG Associates, a
general partnership organized under the laws of Connecticut with an office at 18
West 55th Street, 3rd Floor, New York, New York 10019 (the "Buyer").
W I T N E S S E T H:
WHEREAS, Antia is the wholly-owned subsidiary of GLC and the
Seller is a wholly-owned subsidiary of Antia;
WHEREAS, the Seller was incorporated in 1989 and Antia and
Buyer entered into a preliminary agreement (the "Preliminary Agreement") with
respect to the Seller dated July 31, 1989, prior to its formation, and Buyer,
Antia and the Seller entered into a Subscription Option Agreement dated as of
October 5, 1989 (the "Option Agreement");
WHEREAS, the Seller and the Buyer have entered into a
Management Agreement dated as of October 5, 1989 (the "Management Agreement")
pursuant to which Buyer provides management services to the Seller;
WHEREAS, on July 27, 1993, GLC, Buyer and Antia entered into a
Heads of Option Agreement, as amended as of November 4, 1993, pursuant to which
GLC and Antia agreed to sell and Buyer agreed to purchase the business and
assets of the Seller (the "Heads of Option Agreement") and the Buyer, GLC, and
Antia desire that the covenants, representations and agreements contained in
this Asset Purchase Agreement shall amplify the Heads of Option Agreement and
upon the occurrence of certain events as herein provided the Option Agreement
and Management Agreement shall terminate; and
WHEREAS, the Buyer desires to purchase from the Seller and the
Seller desires to sell to the Buyer all of the business and assets (other than
the Excluded Assets as hereinafter defined) of Seller as a going concern, and
the Seller desires to transfer and the Buyer desires to assume certain of the
liabilities and obligations of the Seller, each upon the terms and conditions
set forth herein.
<PAGE>
NOW, THEREFORE, the parties, wishing to be legally bound
hereby and acknowledging the receipt and sufficiency of the consideration
therefor, hereby agree as follows:
1. SALE AND TRANSFER OF BUSINESS, PROPERTIES AND ASSETS.
Subject to the terms and conditions of this Agreement, the Seller hereby agrees
to sell, transfer, convey, assign and deliver to Buyer and the Buyer agrees to
purchase at the Closing (as hereinafter defined) all of the business and assets
(other than Excluded Assets) owned or otherwise held by Seller as a going
concern (the "Acquired Business") including, without limitation (i) the cash,
choses-in-action, properties, assets and other rights referred to in the bill of
sale (the "Bill of Sale") substantially in the form of Exhibit A attached
hereto, and (ii) as set forth below.
1.1 MACHINERY, EQUIPMENT AND SUPPLIES. All
tangible personal property, machinery, equipment and supplies (including, but
not limited to, computer equipment, production machinery, tools, and all
maintenance and other operating supplies, including small tools and spare parts
and other expendables or noninventories items which may not have been treated as
assets for accounting purposes in past years, including, without limitation,
those listed on Schedule 1.1 owned or leased by the Seller and used or useful in
the operation of the Acquired Business.
1.2 BOOKS AND RECORDS. All files, books and
records, invoices, accounts and surveys used or useful in connection with the
ownership and/or operation of the Acquired Business, including without
limitation all current supplier and customer lists relating to the Acquired
Business including, without limitation, those listed on Schedule 1.2.
1.3 INTANGIBLES. All of the Seller's right,
title and interest in and to (i) all contracts and agreements, including all
service contracts, employment contracts, contracts with suppliers and
distributors, and insurance policies, and all contracts with authors or others
granting to or creating for Seller rights in existing or future literary works
("Author Contracts"), and all contracts dealing with the paper, binding,
printing or other phases of book production ("Production Contracts"), and all
rights and benefits accruing to the Seller under such contracts and agreements;
(ii) all trademarks, tradenames, servicemarks, copyrights, patents and
applications therefor; (iii) all permits, leases, subleases, licenses,
franchises and privileges; (iv) all software in development and source codes,
flow charts, notes or outlines relating thereto, proposals, bids and other
documents and information, or copies thereof, relating to any marketing of
promotional efforts undertaken in connection therewith; (v) all goodwill
associated with the Acquired Business; (vi) all causes of action, judgments,
claims and demands of whatever nature; and (vii) all other intangible assets
owned by the Seller and/or used or
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<PAGE>
useful in connection with the Acquired Business, or held for the benefit of the
Seller, including, without limitation the intangibles described on Schedule 1.3
hereto.
1.4 INVENTORIES. All inventory items held by the
Seller on the Closing Date (as hereinafter defined), including, without
limitation all (i) raw materials, (ii) work in process, and (iii) finished
goods; but not including inventory relating to the Encyclopedia of the United
States to the extent denoted as such in Schedule 1.4 hereto. Schedule 1.4
attached hereto contains a list of the inventories valued at the lower of cost
or fair market value as of October 31, 1993.
1.5 ACCOUNTS RECEIVABLE. All of the Seller's
receivables for products sold or services rendered which are not collected as of
the Closing Date. Schedule 1.5 attached hereto contains a complete list of the
accounts receivable as of October 31, 1993.
1.6 PREPAID ITEMS. All of the Seller's prepaid
items as of the Closing Date. Schedule 1.6 attached hereto is a complete list of
all of the prepaid items as of October 31, 1993.
1.7 ALL ASSETS SCHEDULE. The assets described
in Section 1 are hereinafter referred to as the "Purchased Assets". At the
request of Buyer any of the Schedules 1.1, 1.2, 1.3, 1.4, 1.5, and/or 1.6 shall
be updated to a date within three days of the Closing Date and delivered to
Buyer at or prior to Closing.
1.8 EXCLUDED ASSETS. It is understood and
agreed that those assets listed on Schedule 1.8 attached hereto shall not be
included in the Purchased Assets (the "Excluded Assets").
2. ASSUMPTION OF LIABILITIES. As further consideration,
subject to the terms and conditions of this Asset Purchase Agreement, Buyer
shall undertake, assume and agree to satisfy and perform, pay or discharge, to
the extent not satisfied or performed, paid or discharged prior to the Closing,
all of the liabilities and obligations of the Acquired Business as of the
opening of business on the Closing date which are listed in Schedule 2 (the
"Assumed Liabilities"); provided that the Buyer is not assuming any liabilities
or obligations of the Acquired Business relating to or arising from (a) Income
Taxes and other Taxes (as hereinafter defined) of the Seller, (b) liabilities
created by the action or failure to act of GLC or Antia except to the extent
specifically listed and described in Schedule 2 hereto, (c) any liabilities,
duties or obligations of Seller arising under the Heads of Option Agreement,
this Asset Purchase Agreement or any agreement executed pursuant to this
Agreement, (d) any and all claims for damages to he extent insured by Seller,
and (e) claims which GLC or Antia have knowledge of or should have known of by
exercising reasonable diligence and which Buyer is unaware of (the
3
<PAGE>
liabilities not being assumed by Buyer hereunder, collectively, the "Retained
Liabilities"). "Income Taxes" means (a) taxes imposed on (i) gross or net
income, revenue or receipts, (ii) franchise taxes, (iii) doing business taxes,
(iv) trade taxes, (v) business earnings taxes, (vi) capital taxes, and (vii)
profit taxes; (b) taxes imposed in lieu of taxes described in clause (a); and
(c) surcharges and taxes on taxes described in clauses (a) and (b); in each case
whether imposed by the United States, by any political subdivision thereof or
therein or by any foreign jurisdiction.
2.1 UNDERTAKING OF BUYER. Buyer shall at
Closing execute and deliver to Seller an undertaking substantially in the form
of Exhibit B attached hereto with respect to the Assumed Liabilities (the
"Undertaking").
3. THE CLOSING. The closing of the purchase of the Purchased
Assets (the "Closing") shall be held at 10:00 am. on December 31, 1993, or at
such earlier time as Buyer on five days prior notice shall establish, or at such
other time as Seller and Buyer may agree at the offices of Morrison Cohen Singer
& Weinstein, 7540 Lexington Avenue, New York, New York 10022; provided, however,
Buyer shall have the option to extend the December 31, 1993 date to February 28,
1994 (such time and date as same may be extended hereunder being called the
"Closing Date") upon the payment to Seller on or before December 31, 1993 of the
sum of $46,000 to be applied as follows:
(a) $23,000 shall be treated as a non-
refundable deposit which shall be applied by Buyer in reduction of the purchase
price paid by Buyer to Seller in the event that the Closing takes place on or
prior to the Closing Date or retained by Seller in the event the Closing does
not occur on or prior to February 28, 1994 through no fault of Seller.
(b) $23,000 shall be applied by Seller
as additional purchase price at the rate of $400 per day for each day or part
thereof after December 31, 1993 until the date of the Closing. In the event such
Closing occurs prior to February 28, 1994 the balance of the $23,000 derived by
subtracting therefrom the additional purchase price shall be repaid by Seller to
Buyer at Closing. In the event the Closing does not occur by February 28, 1994
then Seller shall promptly refund the full $23,000 to Buyer.
4. PURCHASE PRICE.
4.1 AGGREGATE PURCHASE PRICE. The aggregate
purchase price (the "Purchase Price") of the Purchased Assets to be conveyed
pursuant to this Asset Purchase Agreement shall be (a) an amount payable in cash
or certified check on the Closing Date of $2,100,000 as hereinafter adjusted;
plus (b) the assumption of liabilities as and to the extent provided in Section
2 hereof.
4
<PAGE>
4.2 ADJUSTMENTS TO PURCHASE PRICE. The Purchase
Price shall be (a) increased as provided in Section 3(b), and (b) decreased by
$94,205 plus the cost of all books of the Encyclopedia of the United States in
Seller's inventory at Closing and comprising Excluded Assets, valued at Seller's
inventory cost therefor. In payment of the Purchase Price Buyer shall be
credited with the amounts as provided for in Sections 3(a) and 3(b).
4.3 ALLOCATION OF PURCHASE PRICE. The Purchase
Price shall be allocated as set forth in Schedule 4.3 attached hereto. Buyer and
Seller represent, warrant and agree that such allocation was determined through
arms-length negotiations. Seller and Buyer each agree that, to the extent
permitted by applicable law, it shall adopt and utilize the amounts allocated to
each asset or a class of assets for purposes of all federal, state and other Tax
returns or reports of any nature filed by it and that it will not voluntarily
take any position inconsistent therewith upon examination of such Tax returns or
reports, and any claim for refund, in any litigation or otherwise with respect
to such Tax returns or reports. Notwithstanding any other provisions of this
Asset Purchase Agreement, the foregoing agreement shall survive the Closing Date
without limitation. As used in this Asset Purchase Agreement, the term "Tax" or
"Taxes" means any federal, state, local, foreign or other taxes (including,
without limitation, income (net or gross), gross receipts, profits, alternate or
add-on minimum, franchise, license, capital, capital stock, intangible,
services, premium, transfer, sales, use, ad valorem, payroll, wage, severance,
employment, occupation, property (real or personal), windfall profits, import,
excise, custom, stamp, withholding or governmental charges of any kind
whatsoever (including interest, penalties, additions to tax or additional
amounts with respect to such items).
5. INSTRUMENTS OF CONVEYANCE, TRANSFER, ASSUMPTION,
ETC.
5.1 INSTRUMENTS OF CONVEYANCE. Seller shall
properly execute and deliver to Buyer at the Closing:
(a) the Bill of sale and
(b) assignment with respect to each of
the contracts and other agreements and rights to be assigned to Buyer hereunder
and, where required for such assignment, the consent or waiver of any third
party to such assignment, in each case in the form reasonably satisfactory to
Buyer.
5.2 POSSESSION. Simultaneously with the Closing,
Seller shall take all steps requisite to put Buyer in actual possession and
operating control of the Purchased Assets, including, without limitation,
disclosure to such persons as Buyer
5
<PAGE>
may designate of Seller's trade secrets, formulae and other proprietary
information.
5.3 UNDERTAKING. Buyer shall promptly execute
and deliver the Undertaking to Seller at the Closing.
6. FURTHER ASSURANCES. At the Closing, and from time
to time after the Closing,
(a) at the request of Buyer and without further
consideration, Seller shall promptly execute and deliver to Buyer such
certificates and other instruments of sale, conveyance, assignment and transfer,
and take such other action, as may be reasonably requested by Buyer to confirm
more effectively any obligation assumed by Buyer pursuant to the Undertaking and
to sell, convey, assign and transfer to and vest in Buyer or to put Buyer in
possession of the Purchased Assets.
(b) At the request of the Seller and without
further consideration, Buyer shall promptly execute and deliver to Seller such
certificates and other instruments of assumption and take such other action as
may be reasonably requested by Seller to confirm more effectively and carry out
the assumption by Buyer of the obligations of the Seller assumed by Buyer
pursuant to the Undertaking.
(c) To the extent that any consents, waivers or
approvals necessary to convey items of Purchased Assets to Buyer are not
obtained prior to the Closing and Buyer waives the failure to obtain any such
consent, waiver or approval, Seller shall use its best efforts to:
(i) provide to Buyer, at the request of
Buyer, the benefits of any such Purchased Asset, and hold the same in trust for
Buyer;
(ii) cooperate in any reasonable and lawful
arrangement, approved by Buyer, to provide such benefits to Buyer;
and
(iii) enforce and perform, at the request
of Buyer, for the account of Buyer any rights or obligations of Seller arising
from any such Purchased Asset against or in respect of any third person
(including a government or governmental unit), including the right to elect to
terminate any contract, arrangement or agreement in accordance with the terms
thereof or upon the advice of Buyer.
7. REPRESENTATIONS OF GLC/ANTIA AND SELLER. The parties
hereto acknowledge that Buyer, pursuant to the Management Agreement, had and
continues to have, operational responsibility over Seller. Accordingly, those
representations concerning the
6
<PAGE>
business of Seller set forth in Sections 7.4 through and including 7.13 are made
to the knowledge of GLC, Antia and Seller on the assumption that Buyer in its
capacity as the manager of Seller pursuant to the terms of the Management
Agreement has not caused Seller to be in breach of any of such representations.
Based upon the foregoing each of the Seller, Antia and GLC hereby jointly and
severally represent to the Buyer as follows:
7.1 ORGANIZATION, STANDING AND QUALIFICATION OF
THE SELLER. Each of GLC, Antia and the Seller is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation; has all requisite power and authority to own its property and
conduct its business and is qualified to do business in, and is in good standing
under the laws of, all jurisdictions in which the ownership of its property
makes such qualification necessary.
7.2 EXECUTION, DELIVERY AND PERFORMANCE OF THIS
AGREEMENT; NO CONFLICT. The execution, delivery and performance of the Heads of
Option Agreement and this Asset Purchase Agreement and the agreements
contemplated hereby have been duly authorized by all requisite corporate action
and approval of GLC, the Seller and Antia and will not violate any provision of
law or any order of any court or other agency of government, and will not
conflict with, result in any breach of any of the provisions of, constitute
(with due notice and/or lapse of time) a default under or violation of, the
provisions of any agreement or other instrument to which GLC, the Seller or
Antia is a party or by which GLC, the Seller, Antia or their respective property
may be bound. Each of the heads of Option Agreement, this Asset Purchase
Agreement, and upon execution, the other agreements contemplated hereby,
constitutes the legal, valid and binding obligation of each GLC, the Seller and
Antia to the extent it is a party thereto, enforceable against it in accordance
with its terms.
7.3 NO CONSENTS. No permit, consent, approval
or authorization of, or declaration, filing or registration with, or the giving
of notice to, any public body or authority or other person or entity is
necessary in connection with the execution, delivery and performance of this
Asset Purchase Agreement, the agreements contemplated hereby and transactions
contemplated hereby and thereby.
7.4 LITIGATION. There are no actions, suits,
proceedings, investigations or claims pending or threatened against or affecting
GLC, or Antia, or, to the knowledge of GLC or Antia, the Seller, at law or in
equity, in any court or before any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
wherein an unfavorable judgment, decree or order would (a) restrain, prohibit,
invalidate, rescind or make unlawful the execution, delivery and performance of
this Asset Purchase
7
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Agreement or any of the agreements contemplated hereby or (b) result in a
material adverse change in the business, condition (financial or otherwise),
assets, liabilities, properties or prospects of the Seller or (c) materially and
adversely affect the ability of the Seller to conduct the Acquired Business as
presently conducted or (d) materially impact the ability of GLC, the Seller or
Antia to perform this Asset Purchase Agreement or the agreements contemplated
hereby or (e) apply to the Acquired Business (including, without limitation, any
Purchased Asset) (each of (a), (b), (c), (d) or (e) above, or any other event or
occurrence which results in a material adverse change in the business, condition
(financial or otherwise), assets, liabilities, properties or prospects of
Seller, each a "Material Adverse Effect").
7.5 ACQUIRED BUSINESS. The Acquired Business is
not conducted through any subsidiary of the Seller or any of its affiliates.
Except for the Excluded Assets, the Purchased Assets owned by Seller and the
assets utilized in the Acquired Business under the agreements included in the
Assumed Liabilities, constitute all of the assets of Seller. The Seller has no
subsidiaries and is not a general partner in any partnership or coventurer in
any joint venture or other business enterprise. The Seller has complied with all
laws, rules, regulations, ordinances, orders, judgments and decrees
(collectively "Applicable Laws") applicable to the Acquired Business or Seller's
properties used therein; neither the ownership of the Acquired Business by
Seller nor the use of such properties by Seller nor the conduct of such business
by Seller conflicts with the rights of any other person or entity or violates
any Applicable Laws. Seller has all approvals, authorizations, consents,
licenses, orders and other permits required to permit operation of the Acquired
Business.
7.6 FINANCIAL STATEMENTS; No Material Adverse
Effects. GLC, Antia and the Seller have delivered to Buyer true and complete
copies of financial statements of the Seller for the periods ending December 31,
1991 and 1992, certified by Ernest D. Lowenwarter & Co. in 1991 and by Guibert
in 1992 and the unaudited financial statements for the period ending August 31,
1993 (the "Financial Statements"). Such Financial Statements were prepared in
accordance with generally accepted accounting principles, consistently applied
in accordance with the past practice of the Company and, to the knowledge of
GLC, Antia and the Seller, are true, correct and complete in all respects and
fairly present the financial position of the Seller as of the date thereof.
Since the date of the Financial Statements, to the knowledge of the Seller,
Antia and GLC, there have been no Material Adverse Effects (as defined in
Section 7.4 hereof). The Financial Statements, as of the date thereof, reflect
and any other financial statements furnished to Buyer by Seller, Antia and/or
GLC shall reflect the Purchased Assets of the Seller owned by it and the amounts
reflected with respect to such Purchased Assets are and in the case of such
financial statements delivered after the date hereof shall
8
<PAGE>
be stated in accordance with generally accepted accounting principles and
reflect all Purchased Assets that are required, in accordance with such
principles, to be reflected in the Financial Statements and such other financial
statements. All assets reflected in the Financial Statements constitute
Purchased Assets except for the Excluded Assets set forth in Schedule 1.8.
7.7 BOOKS AND RECORDS. The Company's books and
records are, and until the Closing will be, maintained currently and in good
order so that the Buyer and/or its representatives may inspect the same and use
the same, immediately upon and after the Closing, to conduct the Acquired
Business.
7.8 LIABILITIES. To the knowledge of Antia and
GLC, the Seller has not debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, whether due or to become due, that
is not reflected or reserved against and fully shown in the Financial Statements
except for those (i) that may have been incurred after the date of the
applicable Financial Statements; and (ii) that are not required by generally
accepted accounting principles consistently applied in accordance with the past
practice of the Seller to be included in the Financial Statements. To the
knowledge of GLC and Antia all debts, liabilities, and obligations incurred
after the date of the Financial Statements were incurred in the ordinary course
of business of the Seller consistent with its past practice, and are usual and
normal in type and in amount. The outstanding principal of the loan owed by the
Seller and guaranteed by GLC to Societe Generale ("Societe Generale") as of the
date hereof amounts to $4,900,000 (the "Societe Generale Indebtedness"). All
interest on the Societe Generale Indebtedness has been paid to date except for
accrued interest since November 30, 1993. Interest will be paid when due on
December 31, 1993, January 30, 1994 and February 28, 1994.
7.9 ABSENCE OF CHANGES OR EVENTS. Except as set
forth on Schedule 7.9 attached hereto or except as authorized in writing by
Buyer or a direct or indirect owner of Buyer, Seller has heretofore conducted
and shall hereinafter conduct the Acquired Business only in the ordinary course
and has not:
(a) incurred any obligation or liability,
absolute, accrued, contingent or otherwise whether due or to become due, except
liabilities or obligations incurred in the ordinary course of the business of
Seller and consistent with its prior practice;
(b) mortgaged, pledged or subjected to
lien, charge or security interest or any other incumbrance or restricting of any
of the property, business or assets, tangible or intangible, of the Seller
including any Purchased Asset;
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(c) sold, transferred, leased to others
or otherwise disposed of any of the assets of the Seller, or committed to do any
of the foregoing, including the payment of any loans owed to any affiliate,
except for inventory sold to customers or returned to vendors in the ordinary
course of business and consistent with its prior practice;
(d) cancelled or compromised andy debt
or claim, or waived or released any right of substantial value except in the
ordinary course of business and consistent with its prior practice;
(e) suffered any damage, destruction or
loss (whether or not covered by insurance) which has resulted in a Material
Adverse Effect;
(f) modified, amended or terminated any
Author Contracts or Production Contracts;
(g) made any change in the rate of
compensation, commission, bonus or other direct or indirect remuneration
payable, or paid or agreed or orally promise to pay, conditionally or otherwise,
any bonus, extra compensation, pension or severance or vacation pay, to any
employee of the Seller except in the ordinary course of business consistent with
prior practice;
(h) created any capital expenditures or
capital additions or betterments in excess of $10,000 and $50,000
in the aggregate;
(i) Instituted any litigation, action or
proceeding before any court or governmental body relating to it or its property
or waived or compromised any right of a substantial value to the Acquired
Business except for litigation, actions or proceedings instituted and waivers
and compromises given, in the ordinary course of business and consistent with
its prior practice;
(j) Suffered any Material Adverse
Effect;
7.10 PERSONAL PROPERTY.
(a) The personal property to be
transferred to Buyer by Seller on the Closing Date will include all of the
Purchased Assets, subject to (i) dispositions of assets in the ordinary course
of business provided such assets are replaced with similar assets of comparable
value and utility, and (ii) improvements or additions to such assets. The
Purchased Assets to be transferred hereunder constitute all of the properties,
assets, rights, contracts, leases, easements, licenses and personal property
utilized by Seller in the conduct of the Acquired Business except for the
Excluded Assets. Seller has good and marketable title to all the purchased
Assets constituting personal property
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described in Section 1 of this Asset Purchase Agreement and will have the
ability to and shall transfer such to Buyer free and clear of any conditional
bills of sales, chattel mortgages, security agreements, financing statements or
other security interests or liens of any kind.
(b) All personal property used in the
Acquired Business is owned by Seller, free and clear of all liens and
encumbrances, except as set forth in Schedule 7.10(a) and none of such property
is leased except as set forth in said Schedule 7.10(a) or 7.11.
(c) To the knowledge of GLC, Antia an
Seller all books, records, files, client lists and other documents and
instruments delivered or required to be delivered to Buyer hereunder are true,
complete and correct originals or copies thereof. There will not exist at
Closing any duplicates, summaries, extracts or synopsis of the foregoing. All
information contained therein shall be kept confidential as provided in Section
9.7 hereof.
7.11 CONTRACTS AND OTHER INTANGIBLES. To the
knowledge of GLC or Antia: (i) Seller has good title free of all liens and
encumbrances to all of its intangible property other than as described on
Schedule 7.11; all intangible property owned by Seller is listed in Schedule
7.11 and no other intangible property is required by Buyer to operate the
Acquired Business after the Closing; (ii) Seller's rights to the intangible
property listed on Schedule 7.11 are valid and enforceable and not the subject
of any default or termination notice by any party thereto, (iii) Seller does not
know of any existing state of facts which would constitute an event of default
or give rise to termination rights by any of the parties thereto; and (iv)
Seller has received no notice from any party to any such contract with respect
to such parties unwillingness or inability to perform thereunder. To the
knowledge of GLC or Antia, set forth on Schedule 7.11 is a list and a brief
description or identification of (i) all licenses, patents, patent rights,
patent applications, trademarks, trademark applications, tradenames, service
marks, service mark applications and copyrights, if any, used by Seller in the
Acquired Business; (ii) all Author's Contracts, Production Contracts and other
material contracts or leases; and (iii) all trade secrets that Seller has used
in the Acquired Business and which Seller believes are to within the general
knowledge of the industry; and in each case a brief description of the nature of
such rights. Other than as set forth on Schedule 7.11, Seller is not a licensee
of and no third party has any rights to or in, any license, patent, patent
rights, patent application, trademarks, trademark applications, tradenames,
service marks, service mark applications or copyright insofar as any of the
foregoing relates to the Acquired Business. Seller owns or possesses adequate
licenses or other rights to use the foregoing necessary to conduct the Acquired
Business as now operated and as
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it is contemplated to be operated. No claim is pending, or, to the knowledge of
Seller or its officers, has been made to the effect that the present or past
Acquired Business operations of Seller or the use by Seller of any of the
intangible assets described above infringe or conflict with any rights of
others.
7.12 TAXES. To the knowledge of Seller, (i) all
Taxes which are due and payable by Seller or any other corporation or legal
entity now or previously owned or controlled by Seller or a member of previously
a member of the Antia Consolidated Group, but only to the extent that Seller may
be liable for payment thereof, with respect to all periods prior to the Closing
Date or with respect to a period that includes but does not end on the Closing
Date (each a "Preclosing Period"), have been paid or adequate provision has been
made for the payment thereof, and (ii) the liabilities for all Taxes reflected
in the Financial Statements represent adequate provision for the payment of all
Taxes of the Acquired Business payable for all periods ending on or prior to the
Closing Date whether or not disputed and whether or not asserted prior to the
Closing Date.
7.13 ERISA. To the knowledge of GLC or Antia,
except as set forth on Schedule 7.13, Seller has no plan or arrangement that
would constitute or is intended to qualify as an employee benefit plan under
Section 3(3) of the Employee Retirement Income Security Agreement, as amended
("ERISA") or as an employee pension benefit plan under Section 3(2) of ERISA or
as an employee welfare benefit plan under Section 3(1) of ERISA. All plans or
arrangements listed in Schedule 7.13 are in compliance with all applicable laws.
7.14 SURVIVAL. All representations of Antia, GLC
and the Seller shall survive the Closing. Any statements contained in any
certificate delivered by Antia, GLC or the Seller pursuant to this Asset
Purchase Agreement shall be deemed a representation to Buyer under the Heads of
Option Agreement and this Asset Purchase Agreement.
7.15 "KNOWLEDGE". The term "to the knowledge of"
means that after due inquiry, the party neither knows, nor should have known of
the fact(s) in question.
8. REPRESENTATIONS OF BUYER. Buyer hereby represents
to the Seller as follows:
8.1 ORGANIZATION AND STANDING OF BUYER. The
Buyer is duly organized, validly existing and in good standing under the laws of
Connecticut.
8.2 EXECUTION; DELIVERY AND PERFORMANCE OF
AGREEMENT. Any and all partnership action necessary to approve the execution and
delivery of the Heads of Option Agreement and this
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Asset Purchase Agreement has been taken and the Heads of Option Agreement and
this Asset Purchase Agreement represents a valid and binding obligation of
Buyer.
8.3 NO CONFLICTS. The execution, delivery and
performance of this Asset Purchase Agreement and the agreements contemplated
hereby will not violate any provision of law or any order of any court or other
agency of government, and will not conflict with, or result in any breach of any
of the provisions of, constitute (with due notice and/or lapse of time) a
default under or a violation of, the provisions of any agreement or other
instrument to which the Buyer is a party or by which the Buyer or its property
may be bound.
8.4 SURVIVAL. All representations of the Buyer
shall survive the Closing. Any statement contained in a certificate delivered by
or pursuant to the Asset Purchase Agreement shall be deemed an representation to
the Seller under the Asset Purchase Agreement.
9. COVENANTS.
9.1 CONDUCT OF COMPANY BUSINESS PENDING THE
CLOSING. The Seller, GLC and Antia shall not take any action (or intentionally
omit to take a required action) which shall cause the Seller to, operate the
Acquired Business other than in the ordinary course of business consistent with
the Seller's past practice during the period commencing with the execution and
delivery of this Asset Purchase Agreement and ending with the Closing Date and
shall avoid any act that might injure or detract from the Acquired Business'
good will and reputation. The Seller, Antia and GLC shall not take any action
(or intentionally omit to take a required action) which shall adversely affect
the good will of the Acquired Business' suppliers, customers, distributors,
sales representatives and others having business relations with the Seller.
Notwithstanding the foregoing, GLC, Antia and Seller shall not be responsible
for any action taken by Buyer or its employees or agents pursuant to the
Management Agreement.
9.2 DUE DILIGENCE ACCESS. Buyer shall be
provided with such access to the corporate, accounting and financial books and
records and physical plants and offices of the Seller and Antia as the Buyer
shall reasonably request in order to perform a due diligence investigation of
the Acquired Business (the "Due Diligence").
9.3 INSTRUMENTS EVIDENCING CONVEYANCE OF
PURCHASED ASSETS. At the Closing, the Seller shall execute and deliver to Buyer
such instruments of sale, transfer, conveyance, assignment and or confirmation
and shall take such action as Buyer may reasonably request in order to
effectively transfer, assign and convey to Buyer, and to confirm Buyer's title,
in the Purchased
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Assets. Seller, GLC and Antia shall also execute and deliver such
other documents and instruments as Buyer may reasonably request.
9.4 NEGATIVE COVENANTS. The parties acknowledge
that Buyer has operational responsibilities for the Seller under the Management
Agreement. GLC, Antia and the Seller covenant to Buyer that, except as permitted
by the written consent of Buyer or except for affirmative action taken by Buyer
to the contrary, the Seller shall operate the Acquired Business only in the
ordinary course consistent with its past practice and the Seller shall not, and
Antia and GLC shall not permit the Seller to, take any of the following actions:
(a) propose or adopt any amendment to
the Seller's Articles of Incorporation or By-laws or similar governing
documents;
(b) enter into any agreement (including
any agreement in principle) with respect to any merger, consolidation or
business combination (other than the transactions contemplated by this Asset
purchase Agreement), any acquisition of a material amount of assets or
securities of any other entity, any disposition of a material amount of its own
assets or securities or any material change in its capitalization, or any
release or relinquishment of any material contract right not in the ordinary
course of business consistent with past practice;
(c) waive, release, grant or transfer
any rights of value or modify or change in any respect any existing license,
lease, contract or document, other than in the ordinary course of business
consistent with past practice;
(d) fail to maintain its existing
insurance coverage on Purchased Assets in effect on the date of this Asset
Purchase Agreement or, in the event any such coverage shall be terminated or
lapse, procure substantially similar substitute insurance policies with
financially sound and reputable insurance companies in at least such amounts and
against such risks as are currently covered by such terminated or lapsed
policies;
(e) adopt or amend in any respect any
bonus, profit sharing, compensation, severance, termination, stock option,
pension, retirement, deferred compensation, employment or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or welfare of
any of the Seller's directors, officers or employees, or (except for normal
increases in the ordinary course of business consistent with past practices)
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any material benefit not required by any existing
plan or arrangement (including, without limitation, the granting of stock
options or stock appreciation
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rights) or enter into any contract, agreement, commitment or arrangement to do
any of the foregoing;
(f) make any capital expenditures or
commitments for capital expenditures in excess of $1,000 with respect to any
single capital expenditure or $5,000 in the aggregate;
(g) fail to advise the Buyer in writing
within three (3) business days upon obtaining knowledge of any material change
in the Acquired Business or Purchased Assets;
(h) use the proceeds of the Societe
Generale Indebtedness other than in the Acquired Business or amend or modify the
terms of the Societe Generale Indebtedness in any respect;
(i) permit the dismissal of any Seller
employee, management person or consultant who is associated with the Buyer
(including without limitation Messrs. Graham and Farrell and Ms. Reynolds); or
permit the assignment of any such employee, management person or consultant to
duties which are, individually or in the aggregate, materially inconsistent with
the respective duties, responsibilities, titles or offices enjoyed as of the
date of this Asset Purchase Agreement;
(j) terminate or be in breach of the
terms of the Management Agreement;
(k) incur any additional indebtedness
for borrowed money or place a lien on any Purchased Asset; or
(l) enter into, amend or terminate any
Author Contract or Production Contract;
(m) agree in writing or otherwise to
take any of the foregoing actions or any action which would constitute or result
in a violation of or make any representation or warranty contained in Article
VII of this Asset Purchase Agreement untrue or incorrect in any material
respect.
9.5 NEW ENCYCLOPEDIA DISTRIBUTION AGREEMENT. At
the Closing, Seller shall, or shall cause it's designee to, enter into a
distribution agreement with Buyer for sales of the Encyclopedia of the United
States to the school and library market in calendar year 1994 upon the same
terms and conditions as decided between the Buyer and Chambers Kingfisher Graham
incorporated ("CKG") for the distribution of the Acquired Business' products by
CKG in the United States trade market in calendar year 1994 (the "New
Encyclopedia Distribution Agreement"). The New Encyclopedia Distribution
Agreement shall be in the form annexed hereto as Exhibit C.
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9.6 EFFECT OF TERMINATION ON MANAGEMENT AGREEMENT.
The parties hereby agree that if the consummation of the transactions
contemplated by this Asset Purchase Agreement do not take place on or prior to
the Closing Date, or this Asset Purchase Agreement is terminated by GLC, Antia
or Seller prior to the Closing Date pursuant to Section 12.1(d) or Section 12.3
of this Asset Purchase Agreement or by Buyer pursuant to Section 12.2 of this
Asset Purchase Agreement; then, on the earliest to occur of (i) the Closing
Date, (ii) the date this Asset Purchase Agreement is terminated by Seller
pursuant to Section 12.1(d) or Section 12.3 of this Asset Purchase Agreement,
and (iii) the date this Asset Purchase Agreement is terminated by Buyer pursuant
to Section 12.2 of this Asset Purchase Agreement, the Management Agreement shall
terminate and no party thereto shall have any continuing obligations thereunder,
including, without limitation, the obligations to keep confidential, to not
compete with the Seller, to provide future management services on request and
any other obligations under provisions intended to survive termination, and
Antia and GLC shall cause the Seller to, enter into new management agreements
(the "New Management Agreements") with Howard B. Graham, Jean E. Reynolds and
Frank J. Farrell, respectively, providing for full-time management services of
Ms. Reynolds and part-time management services of Mr. Farrell and Mr. Graham,
and containing an annual rate of compensation of $50,000 in the case of each of
Mr. Graham and Mr. Farrell and of $150,000 in the case of Ms. Reynolds. The New
Management Agreements shall be cancelable by either party thereto upon ninety
90) days notice (the "Notice Period") to the other party and such cancellation
shall be effective on the first day of the month subsequent to the expiration of
the Notice Period; provided, however, Ms. Reynolds, Mr. Graham or Mr. Farrell
may not give such notice prior to June 30, 1994.
9.7 CONFIDENTIALITY. Each of Seller, Antia and
GLC, jointly and severally, represent, warrant and agree that, after the
Closing, it shall (i) keep confidential and (ii) furnish to the Buyer or its
designees, if possible, all information and data (whether written or oral) in
its possession relating to the Acquired Business. Each of Seller, Antia and GLC
acknowledges that such information and data is confidential information
constituting trade secrets of the Acquired Business and agrees such data and
information in its possession shall be treated as such. Each of GLC, Antia and
the Seller agrees that, after the Closing, it shall not directly or indirectly
make use or allow the use of such data or information for its benefit or to the
detriment of the Buyer or the Acquired Business or for the benefit of anyone
else nor divulge such information to any party.
9.8 CONTINUING MANAGEMENT SERVICES. Buyer will
continue to provide the services of its principals under the terms of the
Management Agreement during the period commencing with the execution and
delivery of this Asset Purchase Agreement and ending
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on the first to occur of the Closing Date or the date this Asset Purchase
Agreement is terminated by Antia pursuant to Section 12.1(d) or Section 12.3 of
this Asset Purchase Agreement or by Buyer pursuant to Section 12.2 of this Asset
Purchase Agreement.
9.9 SOCIETE GENERALE INDEBTEDNESS. Buyer will at
or prior to Closing pay the Societe Generale Indebtedness in an amount not to
exceed $4,900,000 plus accrued and unpaid interest from the last interest
payment date to the Closing Date.
9.10 COOPERATION. Each of GLC, the Seller, Antia
and Buyer agree to take all reasonable actions necessary to comply promptly with
all legal and other requirements which may be imposed or necessary in connection
with the purchase of the Purchased Assets pursuant to this Asset Purchase
Agreement and will promptly cooperate with each other and furnish information to
each other in connection with ensuring the consummation of the transactions
contemplated by this Asset Purchase Agreement.
9.11 RESTRICTIVE COVENANT.
(a) Each of GLC, Antia and Seller agrees
that during the period commencing with the date hereof and ending two (2) years
after the Closing Date it shall not solicit any current, past or future (i)
employee of the Acquired business (ii) applicant for employment by the Acquired
Business or (iii) consultant of the Acquired Business to leave the Acquired
Business or to do business with any enterprise or business which competes with
the business of the Acquired Business.
(b) In the event of a breach or
threatened breach by either of GLC, Antia and the Seller of the provisions of
this Section 9.11, the Buyer shall be entitled to an injunction restraining such
breach, since the remedy at law would be inadequate and insufficient. In
addition, the Buyer shall be entitled to such damages as it can show it has
sustained by reason of such breach. Nothing herein contained shall be construed
as prohibiting the Buyer or the Acquired Business from pursuing any other
remedies available for such breach or threatened breach of this Section 9.11.
9.12 SETTLEMENT AGREEMENTS. From the date of
this Asset Purchase Agreement through the Closing date, the Seller, Antia and
GLC shall promptly advise the Buyer of, and consult with Buyer concerning, the
terms and conditions of any proposed settlement agreement in connection with
litigation relating to the Acquired Business prior to the execution of such
Settlement Agreement.
9.13 RELEASE OF INDEBTEDNESS. Antia will at or
prior to Closing against payment of the Societe Generale
Indebtedness by Buyer as provided in Section 9.9 hereof, cause the
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Acquired Business and Buyer to be released from all obligations to Societe
Generale under any agreements or instruments executed in connection with the
Societe Generale Indebtedness or otherwise.
9.14 TRANSFER TAXES. All transfer Taxes, realty
Taxes, documentary Taxes, stamp Taxes and sales and use Taxes, if any, payable
by reason of this transaction or the sale, transfer or delivery of the Acquired
Business shall be paid and borne by GLC or Antia.
9.15 BULK SALES REQUIREMENTS. Buyer hereby
waives compliance by Seller of any bulk sales notice requirements of applicable
law, and GLC and Antia jointly and severally shall indemnify and hold Buyer
harmless from any and all losses, liabilities and expenses which shall arise
against or be incurred by Buyer for the failure to comply with such
requirements.
9.16 NEW FINANCIAL STATEMENTS. Seller shall
deliver unaudited financial statements of Seller as of and through a date not
later than 90 days prior to Closing which financial Statements shall be in the
same form and detail and shall contain the same types of financial statements as
are contained in the Financial Statements and such financial statements shall be
deemed Financial Statements for purposes of Section 7.6 of this Agreement and
for all other purposes of this Agreement.
10. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO
CLOSE. The obligation of the Buyer to enter into and complete the Closing is
subject to the fulfillment prior to or on the Closing date of each of the
following conditions, all of which are for the sale and exclusive benefit of the
Buyer and any of which may be waived by it:
10.1 REPRESENTATIONS TRUE. All representations
of GLC, Antia and the Seller contained in Article 7 hereof shall be true and
correct in all material respects on the Closing Date with the same effect as if
made at and as of the Closing Date.
10.2 COVENANTS AND AGREEMENTS PERFORMED. The
Seller, GLC and Antia shall have performed and complied in all respects with all
agreements and conditions contained in this Asset Purchase Agreement which are
required to be performed or complied with by the Antia, GLC and the Seller prior
to or at the Closing.
10.3 NO ACTIONS, SUITS OR PROCEEDINGS. No action,
suit, or proceeding before any court or governmental regulatory authority shall
be pending, no investigation by any governmental regulatory authority shall have
been commenced, and no action, suit or proceeding by any governmental or
regulatory authority shall have been threatened against Buyer, Seller, GLC,
Antia or any of their principals, officers or directors, seeking to restrain,
prevent or change the transactions contemplated by this Asset
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Purchase Agreement or by any of the agreements contemplated hereby or question
the legality or validity of any such transaction or agreements or seeking
damages in connection with any such transactions or agreements.
10.4 DELIVERY OF BOOKS AND RECORDS. The Buyer
shall have received all books and records of the Acquired Business.
10.5 NO ADVERSE EFFECT. Since the date of the
Financial Statements, the financial condition, business prospects and the
ability of the Seller to conduct the Acquired Business in the manner in which
such business was conducted on or prior to that date shall not have been
materially adversely affected in any manner or by any cause whatsoever, whether
or not beyond the control of Antia, GLC or the Seller and whether or not covered
by insurance.
10.6 AGREEMENTS. Seller and Antia shall have
executed and delivered the New Encyclopedia Distribution Agreement.
10.7 OFFICER'S CERTIFICATE. The Buyer shall
receive the certificate of an officer of each of GLC, Antia and the Seller
certifying to the fulfillment of the conditions specified in Sections 10.1 and
10.2 above.
10.8 LEGAL OPINION. Seller shall have furnished
Buyer with the opinion of Phillipe LeDuc, Esq. in the form and substance
satisfactory to Buyer and its counsel.
10.9 UPDATED SCHEDULES. Buyer shall have
received updated Schedules pursuant to Section 1.7 to the extent requested by
Buyer.
11. CONDITIONS PRECEDENT TO THE SELLERS'S OBLIGATIONS TO
CLOSE. The obligation of the Seller to enter into and complete the Closing is
subject to the fulfillment prior to or at the Closing Date of each of the
following conditions, all of which are for the sole and exclusive benefit of
GLC, Antia and any of which may be waived by the Seller.
11.1 REPRESENTATIONS TRUE. All representation of
the Buyer contained in Article 8 hereof shall be true and correct in all
material respects on the Closing Date with the same effect as if made at and as
of the Closing Date.
11.2 COVENANTS AND AGREEMENTS PERFORMED. The
Buyer shall have performed and complied in all material respects with all
agreements and conditions contained in this Asset Purchase Agreement, which are
required to be performed or complied with by the Buyer prior to or at the
Closing.
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11.3 NO ACTIONS, SUITS OR PROCEEDINGS. No action,
suit or proceeding before any court or governmental regulatory authority shall
be pending, no investigation by any governmental regulatory authority shall have
been commenced, and no action, suit or proceeding by any governmental or
regulatory authority shall have been threatened against GLC, Buyer, Seller,
Antia or any of their principals, officers or directors, seeking to retrain,
prevent or change the transactions contemplated by this Asset Purchase Agreement
or by any of the agreements contemplated hereby or question the legality or
validity of any such transactions or agreements or seeking damages in connection
with any such transactions or agreements.
12. TERMINATION; EXPENSES.
12.1 TERMINATION BY EITHER PARTY PRIOR TO CLOSING
DATE. This Asset Purchase Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date as
follows:
(a) by mutual consent of the Seller and
the Buyer; or
(b) by either Buyer or Seller if the
consummation of the purchase of the Purchased Assets pursuant to this Asset
Purchase Agreement has not occurred on or before the Closing Date without fault
of the terminating party; or
(c) by either the Seller or the Buyer if
any court of competent jurisdiction in the United States, foreign jurisdiction
or any governmental body shall have issued an order, decree or ruling or have
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of the transaction contemplated by this Asset Purchase Agreement or
the agreements contemplated hereby; or
(d) by the Seller if the Buyer breached
a material representation or agreement set forth in this Asset Purchase
Agreement; or by Buyer if Seller, GLC or Antia breached a material
representation or agreement set forth in this Asset Purchase Agreement.
12.2 TERMINATION BY BUYER. This Asset Purchase
Agreement may be terminated and the consummation of the transactions
contemplated hereby may be abandoned at any time by Buyer for any reason prior
to the Closing Date.
12.3 TERMINATION BY SELLER. This Asset Purchase
Agreement may be terminated by the Antia and the consummation of the
transactions contemplated hereby may be abandoned at any time after the Closing
Date if the Buyer has not satisfied the closing conditions set forth in Section
11 above.
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12.4 PROCEDURES AND EFFECT OF TERMINATION. In
the event of the termination or abandonment of the purchase of the Purchased
Assets contemplated by this Asset Purchase Agreement, by any party hereto
pursuant to Sections 12.1, 12.2 and 12.3 above, written notice shall be given by
the terminating party to the other party and the Heads of Option Agreement and
this Asset Purchase Agreement shall forthwith become void and have no effect,
without any liability on the part of any party or its directors, officers
stockholders or partners, other than any rights, remedies, fees and expenses the
parties may be entitled to pursuant to Section 12.5 hereof; provided, however,
the rights, duties and obligations under Sections 9.6 and 12.5 and under Article
13 shall survive such termination. Nothing contained in this Section 12.4 shall
relieve any party from liability for any intentional breach of this Asset
Purchase Agreement.
12.5 EXPENSES; RIGHTS AND REMEDIES. Whether or
not the purchase of the Purchased Assets contemplated by this Asset Purchase
Agreement is consummated, all costs and expenses, including reasonable legal and
accounting fees and disbursements, in connection with the preparation and
negotiation of this Asset Purchase Agreement and the agreements contemplated
hereby and the consummation of the transactions contemplated hereby and thereby
("Transaction Costs") incurred by Buyer will be paid by Buyer and all
Transaction Costs incurred by GLC, Antia and the Seller will be paid by GLC;
provided that if this Asset Purchase Agreement is terminated by a party pursuant
to Section 12.1(d) above as a result of another party's wilful breach of a
material representation or agreement set forth in this Asset Purchase Agreement,
then the terminating party shall be entitled to the reimbursement of its
Transaction Costs and (a) the Buyer in the case such breach is by Buyer or (b)
each of GLC and Antia in the case such breach is by any of GLC, the Seller or
Antia, shall be obligated to pay to such terminating party the Transaction Costs
of the terminating party. In addition to the right hereunder to be reimbursed
for Transaction Costs in the event of a wilful breach of this Asset Purchase
Agreement, the terminating party shall be entitled to whatever rights and
remedies at law or in equity or otherwise it may have against the party which
has committed such breach. In determining such rights all of the provisions of
this Agreement shall be deemed in force and applicable.
13. TERMINATION OF OPTION AGREEMENT AND PRELIMINARY AGREEMENT.
On the earlier to occur of (a) the Closing Date if the Closing shall not have
occurred and (b) the date this Asset Purchase Agreement is terminated (i) by
Seller pursuant to Section 12.1(d) or Section 12.3 of this Asset Purchase
Agreement or (ii) by Buyer pursuant to Section 12.2 of this Asset Purchase
Agreement; each of the Option Agreement and the Preliminary Agreement shall be
terminated and no party thereunder shall have any continuing rights, duties or
obligations thereunder, including, without limitation, the obligations to keep
confidential, to not compete
21
<PAGE>
with the Seller and the rights, duties and obligations contained in any other
provisions which had been intended to survive termination.
14. INDEMNIFICATION; BREACH OF REPRESENTATION.
14.1 INDEMNIFICATION BY GLC/ANTIA. GLC and
Antia, jointly and severally, hereby agree to indemnify, defend and hold the
buyer harmless from and against and to pay for as incurred any and all loss,
liability, damage or deficiency (including interest, penalties and reasonable
attorneys' fees) ("Losses") arising out of or due to a breach of any of the
representations or covenants of GLC, the Seller and Antia contained in this
Asset Purchase Agreement.
14.2 INDEMNIFICATION BY BUYER. The Buyer hereby
agrees to indemnify, defend and hold the Seller harmless from and against and to
pay for as incurred any and all Losses arising out of or due to a breach of any
of the representations or covenants of the Buyer contained in this Asset
Purchase Agreement.
15. Binding Agreement. This Asset Purchase Agreement is
binding upon, and shall inure to the benefit of, the parties hereto, their
respective legal representatives, successors and assigns.
16. Notices. Any notice or communication given pursuant
hereto by either of the parties hereto to the other party hereto shall be in
writing and be hand delivered or mailed by registered mail, postage prepaid, in
either case to be effective upon actual receipt, as follows:
If to the Seller, at:
The Millbrook Press Inc.
2 Old New Milford Road
Brookfield, CT 06804
Tel: 203-740-2220
Fax: 203-740-2526
If to Antia, at:
Antia Corporation
10 East 40th Street
New York, NY 10016
Tel: 212-532-2777
Fax: 212-889-9899
22
<PAGE>
If to GLC:
Group de la Cite International
20, Avenue Hoche
75008 Paris, France
Tel: 011-331-44-95-56-13
Fax: 011-331-44-95-56-60
With a copy to [GLC's, Antia's and Antia's Counsel]:
Philippe LeDuc, Esq.
Groupe de la Cite International
20, Avenue Hoche
75008 Paris, FRANCE
Tel: 011-331-44-95-56-00
Tel: 011-331-44-95-56-56
If to the Buyer, at:
SMG Associates
18 West 55th Street
3rd Floor
New York, NY 10019
Tel: 212-581-9350
Fax: 212-581-9383
With a Copy to:
Morrison Cohen Singer & Weinstein
Attention: Peter D. Weinstein, Esq.
750 Lexington Avenue
New York, NY 10022
Tel: 212-735-8600
Fax: 212-735-8708
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 16 by any of the parties hereto to the
other parties hereto.
17. INTEGRATION, INTERPRETATION AND MISCELLANEOUS.
17.1 PRIOR AGREEMENTS; SEVERABILITY.
(a) This Asset Purchase Agreement, which
for all purposes shall include the Annexes hereto and the Schedules, amplifies
the heads of Option Agreement and supersedes all other prior agreements,
arrangements and understandings written or oral, relating to the subject matter
hereof. Any conflict between the provisions of this Agreement and the Heads of
Option Agreement shall be resolved in favor of this Agreement.
23
<PAGE>
(b) The invalidity, illegality or
unenforceability in any jurisdiction of any provision in or obligation under
this Asset Purchase Agreement or the other agreements contemplated hereby shall
not affect or impair the validity, legality or enforceability of the remaining
provisions or obligations under this Asset Purchase Agreement or the other
agreements contemplated hereby or of such provision or obligation in any other
jurisdiction.
17.2 APPLICABLE LAW. This Asset Purchase
Agreement shall be construed in accordance with the laws of the State of New
York without regard to principals of conflicts of law.
17.3 CURRENCY. Unless otherwise indicated, all
dollar amounts referred to in this Asset Purchase Agreement are in United States
dollars.
17.4 HEADINGS. The headings contained in this
Asset Purchase Agreement are for reference purposes only and shall not affect
the meaning or interpretation of such instruments.
17.5 WAIVERS. This Asset Purchase Agreement and
the other instruments to be executed pursuant hereto may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by the parties hereto, or in
the case of a waiver, by the party waiving compliance. The failure of any party
at any time or times to require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the same. No waiver by any
party of the breach of any term or covenant contained in Asset Purchase
Agreement or in any other such instrument, whether be conduct or otherwise, in
any one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any breach, or a waiver of the breach of any other term or
covenant contained herein.
17.6 ENTIRE AGREEMENT. The Heads of Option
Agreement and this Asset Purchase Agreement, including the Annexes hereto, the
Disclosure Schedule and the documents referred to herein, constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Asset Purchase Agreement as of the date and year first above written.
THE MILLBROOK PRESS INC., as Seller
By:--------------------------------
Name:
Title:
24
<PAGE>
SMG ASSOCIATES, as Buyer
By: Graham Int'l Publishing
& Research, Inc., Partner
By:---------------------------
Howard B. Graham, President
By: Braben, Inc., Partner
By:---------------------------
Jean E. Reynolds, President
By: Farrell Associates, Inc., Partner
By:---------------------------
Frank J. Farrell, President
GROUPE DE LA CITE INTERNATIONAL
By:----------------------------------
Name:
Title:
ANTIA CORPORATION
By:----------------------------------
Name:
Title:
25
THE INSTITUTIONAL PROTOTYPE PLAN
A Fidelity Prototype Plan
STANDARDIZED ADOPTION AGREEMENT
Basic Plan No. 08
<PAGE>
THE INSTITUTIONAL PROTOTYPE PLAN
STANDARDIZED ADOPTION AGREEMENT
ARTICLE 1
1.01 PLAN INFORMATION
(a) Name of Plan:
This is the Millbrook Press 401(k) Plan (the "Plan").
(b) Type of Plan (check one):
(X) 401(k) and profit sharing
( ) 401(k) only (not if Section 1.04(c) elected below)
(Note: Employer contributions under Section 1.04(c) will be required
for a top-heavy plan)
( ) discretionary employer contribution/profit sharing only (Section
1.04(c)(2) elected below and Section 1.04(a) not elected) fixed
employer contribution/profit sharing only (Section 1.04(c)(1) elected
below and Section 1.04(a) not elected)
(Note: Employers that are governmental units or tax-exempt
organizations (other than rural cooperatives) are not permitted to
maintain a 401(k) arrangement.
(c) Name of Plan Administrator, if not the Employer:
Address:
Phone Number:
The Plan Administrator is the agent for service of legal process for
the Plan.
(d) Name of Trustees: Donald A. D'Angelo
Address: Millbrook Press
2 Old New Milford Road
Brookfield, CT 06804
Phone Number: (203) 740-2220
(e) Limitation Year (check one):
( ) Calendar Year
2
<PAGE>
(X) Plan Year
( ) Other:
(f) Plan Number: 001
(g) Plan Year End: December 31
(h) Plan Status (check one):
(1) ( ) Effective Date of new Plan:
(2) (X) Effective Date of amendment of Adoption Agreement or
conversion from another plan document: April 1, 1996
Original Effective Date of Plan: January 1, 1992
The substantive provisions of the Plan shall apply prior to the
Effective Date to the extent required by the Tax Reform Act of 1986 or
other applicable law.
1.02 EMPLOYER
(a) The Employer is: Millbrook Press Inc.
Address: 2 Old New Milford Road
Brookfield, CT 06804
Contact Name: David Burke
Phone Number: (203) 740-2220
(1) Employer Identification Number: 06-1390025
(2) Business form of Employer:
(X) Corporation ( ) Governmental
( ) Sole proprietor or partnership ( ) Tax-exempt organization
( ) Subchapter S Corporation
(3) Employer's Fiscal Year End: July 31st
(4) Date business commenced: November 1989
(b) The term "Employer" includes all Related Employers (as defined in Section
2.01(a)(26)), which may be listed below for purposes of reference:
3
<PAGE>
----------------------------
----------------------------
----------------------------
1.03 COVERAGE
(a) All Employees who meet the conditions specified below will be eligible to
participate in the Plan:
(1) Service Requirement (check one):
(i) (X) no service requirement
(ii) ( ) ____ months (not less than I or more than 11) of
service (no minimum number Hours of Service required)
(iii) ( ) one year of service
(2) Age requirement (check one):
(i) ( ) no age requirement
(ii) (X) must have attained age 21 (not to exceed 21)
(3) The class of Employees eligible to participate in the Plan
(check one):
(i) (X) includes all Employees of the Employer.
(ii) ( ) includes all Employees of the Employer, except for
(check each item that applies):
(A) ( ) Employees covered by a collective bargaining agreement
between the Employer and employee representatives, if
retirement benefits were the subject of good faith bargaining
and if two percent or less of the employees of the Employer
who are covered pursuant to that agreement are professionals
as defined in Section 1.410(b)-9(g) of the proposed
regulations. For this purpose, the term "employee
representatives" does not include any organization more than
half of whose members are employees who are owners, officers
or executives of the Employer.
(B) ( ) Employees who are nonresident aliens (within the
meaning of Code section 7701(b)(1)(B)) and who receive no
earned income (within the meaning of section 911(d)(2)) from
the employer which constitutes income
4
<PAGE>
from sources within the United States (within the meaning of
section 861(a)(3)).
(b)(1) All Employees who are in the service of the Employer on the
Effective Date may become Participants (check one):
(i) ( ) on the Effective Date.
(ii) (X) on the first Entry Date or, if earlier, the Effective Date
on which the Employee satisfies the eligibility requirements
set forth in Section 1.03(a).
(2) The Entry Date(s) in each year shall be (check one):
(i) ( ) the first day of each Plan Year (not if more than six
months of service or more than age 20 1/2 is selected in
(a)(1) or (a)(2) above, respectively, for eligibility to
participate).
(ii) (X) the first day of each Plan Year and the date six months
later.
(iii) ( ) the first day of each Plan Year and the first day of the
fourth, seventh, and tenth months.
(iv) ( ) the first day of each month of the Plan Year. (Note: the
Plan Year must begin on the first day of a month for this
option to be used.)
1.04 CONTRIBUTIONS
(a) (X) Deferral Contributions:
(1) (X) Ongoing Contributions:
If checked above, the Employer shall make a Deferral
Contribution in accordance with Section 4.01 on behalf of each
Participant who has an executed salary reduction agreement in
effect with the Employer for the payroll period in question,
not to exceed 15% (no more than 15%) of Compensation for that
period.
(2) ( ) Catch-Up Contributions (optional, if 1.04(a) checked
above):
If (a) is checked above, the Employer may allow Participants
upon proper notice and approval to enter unto a special salary
reduction agreement to make Deferral Contributions in an
amount up to 100% of their Compensation for one or more
payroll periods in the final month of the Plan Year (but see
note below).
(3) ( ) Annual Bonus Contributions (optional, if 1.04(a) checked
above):
5
<PAGE>
If (a) is checked above, the Employer may allow Participants
upon proper notice and approval to enter into a special salary
reduction agreement to make Deferral Contributions in an
amount up to 100% of their annual bonus. If the Employer pays
bonuses more frequently than annually then the Employer may
designate the last bonus paid in the Plan Year as the annual
bonus for purposes of this Section.
Note: For purposes of (2) and (3) above, such contributions may not
cause a Participant's Deferral Contributions for the Plan Year to
exceed his Compensation in Section 1.04(e) times the Plan's maximum
allowable deferral percentage or the maximum dollar amount permitted
under Section 402(g) of the Code. The Employer has the right to refuse
to allow a Participant to make contributions described in (2) or (3) if
they would adversely affect the Plan's ability to pass the Actual
Deferral Percentage and/or the Actual Contribution Percentage test.
(b) (X) Matching Contributions (optional if 1.04(a) checked above):
If checked above, the Employer shall make a Matching Contribution on
behalf of each Participant in accordance with Section 4.03, in an
amount equal to (check one of (1) through (4)):
(1) ( ) 50% of each Participant's Deferral Contribution
(2) ( ) 100% of each Participant's Deferral Contribution (not if
Deferral Contribution formula exceeds 12 1/2% of compensation)
(3) ( ) ___% of each Participant's Deferral Contribution
(4) (X) the same percentage of each Participant's Deferral
Contribution to be determined by the Employer on an annual
basis
( ) (Optional) If so elected, the Matching Contribution shall be made
only with respect to each Participant's Deferral Contribution not in
excess of ___% of the Participant's Compensation, which is made on
behalf of the Participant for the payroll period in question.
( ) (Optional) If so elected, the Matching Contribution for each
Participant for each Plan Year shall be limited to $ .
(c) Fixed or Discretionary Employer Contributions (Select either (1) or
(2)):
(1) ( ) Fixed Employer Contributions (Select either (A) or (B) in each
of (i) and (ii)):
(i) Contribution Formula:
6
<PAGE>
(A)( ) Percentage Contribution:
For each Plan Year, the Employer will contribute for each
eligible Participant an amount equal to ___% (not to exceed
15%) of such Participant's Compensation.
(B) ( ) Flat Dollar Contribution:
For each Plan Year, the Employer will contribute for each
eligible Participant an amount equal to $______.
(ii) Allocation of Contribution Formula:
(A) ( ) Nonintegrated Formula:
Contributions will be allocated to each eligible Participant's
account in the ratio that that Participant's Compensation
bears to the total Compensation paid to all eligible
Participants for the Plan Year.
(B) ( ) Integrated Formula:
Contributions will be allocated to each eligible Participant's
account in accordance with Section 4.06. Note: An Employer who
maintains any other plan that provides for Social Security
integration (permitted disparity) may not elect (I)(ii)(B).
(2) (X) Discretionary Employer Contributions (Select either (i) or
(ii)):
If checked, the Employer may decide each Plan Year whether to
make a Discretionary Employer Contribution on behalf of
eligible Participants in accordance with Section 4.05. Such
contributions may only be funded by the Employer after Plan
Year End and shall be allocated to eligible Participants based
upon the following:
(i) (X) Nonintegrated Formula:
In the ratio that each eligible Participant's Compensation bears to the
total Compensation paid to all eligible Participants for the Plan Year.
(ii) ( ) Integrated Formula:
In accordance with Section 4.06.
7
<PAGE>
Note: An Employer who maintains any other plan that provides for
Social Security integration (permitted disparity) may not elect (2)(ii).
(3) The Employer Contribution in Section 1.04(c)(1 ) or (2), if any, by
the Employer for the Plan Year, shall be made for each Participant who is either
employed by the Employer on the last day of the Plan Year or earns more than 500
Hours of Service during the Plan Year.
(d) ( ) Qualified Discretionary Contributions (if applicable):
If checked above, the Employer may make Qualified
Discretionary Contributions for Non-highly Compensated
Employees under this Plan, for any Plan Year in which the Plan
would otherwise fail the ADP test. Qualified Discretionary
Contributions shall be allocated (check one):
(1)( ) in the ratio which each Participant's Compensation for the Plan
Year bears to the total Participant Compensation for the year.
(2) ( ) in the ratio to which each Participant's Compensation not in
excess of $_______ for the Plan Year bears to the total Compensation for the
Plan Year of all such Participants not in excess of $_______.
(e) ( ) (Optional) Compensation for First Year of
Participation
For purposes of Section 4, Compensation for a Participant's
first year of participation shall include only Compensation
earned on and after the Entry Date on which the Participant
first becomes eligible to participate in the Plan.
(f) ( ) (Optional) Employee Contributions
If checked above, Participants may make voluntary nondeductible
Employee Contributions pursuant to Section 4.09 of the Plan. This
option may only be elected if the Employer has elected to permit
Deferral Contributions under Section 1.04(a) above. Matching
Contributions by the Employer are not allowed on any voluntary
nondeductible Employee Contributions. Withdrawals are limited to one
per year unless employee contributions were allowed under a previous
plan document which authorized more frequent withdrawals.
1.05 RETIREMENT AGE(S)
(a) The Normal Retirement Age under the Plan is (check one):
(1) (X) age 65
8
<PAGE>
(2) ( ) age _____ (specify between 55 and 64)
(b) ( ) (Optional) The Early Retirement Age is the first day of the month after
the Participant attains age 55 (specify 55 or greater) and completes ____ years
of service.
(c) (X)(Optional) A Participant is eligible for Disability Retirement if he/she:
(1) ( ) satisfies the requirements for benefits under the Employer's Long-term
Disability Plan.
(2) (X) satisfies the requirements for Social Security disability benefits.
(3) ( ) is determined to be disabled by a physician approved by the Employer.
1.06 VESTING SCHEDULE
(a) In the event of termination of service prior to retirement or death, the
Participant's vested percentage for Matching Contributions and Fixed or
Discretionary Employer Contributions shall be:
(1) (X) Top Heavy Vesting Schedule.
The Employer must select a Top Heavy vesting schedule. The Employer may
elect to have the selected Top Heavy schedule apply at all times or, if
the Plan is not Top Heavy, may also selected a non-Top Heavy schedule
in (2) below. However, if the Plan becomes Top Heavy in any Plan Year,
the Top Heavy schedule will apply for that and all subsequent Plan
Years.
(i) ( ) 100% vested immediately.
(ii) ( ) 100% vested after 3 (not more than 3) complete Years of
Service for Vesting.
(iii) (X) a vested percentage determined in accordance with the
following schedule:
Year of Service for Vesting Percentage
less than 2 0
2 20
3 40
4 60
5 80
6 100
9
<PAGE>
(iv) ( ) a vested percentage determined in accordance with the
following schedule:
Years of Service for Vesting Percentage Must be At Least
0 0%
1 0%
2 20%
3 40%
4 60%
5 80%
6 100%
(Each year of the schedule entered above must vest Participants at
least as rapidly as each year under (iii) above).
(2) ( ) Non-Top Heavy Vesting Schedule (optional, but only if Plan is
not Top Heavy).
If the Plan is not Top Heavy, the Employer may select a non-Top Heavy
vesting schedule. However, if the Plan becomes Top Heavy in any Plan
Year, the Top Heavy schedule selected in (1) above will apply for that
and all subsequent Plan Years.
(i) ( ) Five year cliff schedule:
Years of Service for Vesting Percentage
0 0
1 0
2 0
3 0
4 0
5 100
(ii) ( ) Three to seven year schedule:
10
<PAGE>
Years of Service for Vesting Percentage
0 0
1 0
2 0
3 20
4 40
5 60
6 80
7 100
(iii) ( ) A vested percentage determined in accordance with the
following schedule:
Years of Service for Vesting Percentage Must Be At Least
0 0%
1 0%
2 0%
3 20%
4 40%
5 60%
6 80%
7 100%
(b) ( ) (Optional) Years of Service for Vesting shall include service
with the following employer(s):
(l)------------------
(2)------------------
(c) ( ) (Optional) Years of Service for Vesting shall exclude a
Participant's service prior to the Effective Date in the case of a new
plan, or prior to the Original Effective Date in the case of an
amendment and restatement.
(d) ( ) (Optional) Years of Service for Vesting shall exclude a
Participant's service prior to attainment of age 18.
11
<PAGE>
1.07 PARTICIPANT LOANS
Participant Loans:
(a) (X) will be permitted in accordance with Section 7.09, subject to such other
procedures as may be adopted from time to time by the Administrator.
(b) ( ) will not be permitted under the Plan.
1.08 HARDSHIP WITHDRAWALS
Withdrawals for hardship prior to termination of employment:
(a) (X) will be permitted in accordance with Section 7.10, subject to a
$500 (may be $0 but not more than $1,000) minimum amount.
(b) ( ) will not be permitted.
1.09 DISTRIBUTIONS
(a) (X) Subject to Article 8 and (b) below, distributions under the Plan will be
paid as a lump sum in cash.
(b) Check ( ) if the Plan was converted (by plan amendment) from another defined
contribution plan, and check below whether benefits were payable:
(1)( ) under a systematic withdrawal plan (installments)
(2)( ) as a form of single or joint and survivor life annuity
Note: If (b) is checked, there also may be other distribution options
that are "protected benefits" under the Internal Revenue Code. See
Sections 11.02 and 8.01 of the Plan. These optional forms of benefit
would be protected for existing account balances under such plans.
(c)( ) A Participant will be entitled to withdraw all or any portion of
his Matching Contributions Account and/or Employer Contributions
Account upon attainment of age 55 (optional).
(d)( ) A Participant will be entitled to withdraw all or any portion of
his Account upon attainment of age 59 1/2 (optional).
(e)( ) A Participant will be entitled to withdraw all or any portion of
his Employee Contributions Account and/or Rollover Account at any time
(optional).
(f)(X) Forfeitures. Any portion of a Participant's Account that is
forfeited upon termination of employment will be:
12
<PAGE>
(1) (X) applied to reduce the contributions of the Employer next
payable under the Plan (or administrative expenses of the Plan) (2) ( )
allocated in accordance with Section 4.06 to the Accounts of all other
Participants who are eligible to share in Employer Contributions under
Section 1.04(c)(3)
Note: Under Federal Law, distributions to Participants must generally
begin in a minimum required amount no later than April 1 following the
year in which the Participant attains age 70 1/2. The Plan provides for
automatic distribution of such minimum required amounts only to
in-service Participants.
1.10 TOP HEAVY STATUS
(a) (X)The Plan shall be subject to the Top-Heavy Plan requirements of
Article 9 (check one):
(1) ( ) for each Plan Year.
(2) (X) for each Plan Year, if any, for which the Plan is Top-Heavy as
defined in Section 9.02.
(b) (X) In determining Top-Heavy status, if necessary, for an employer with
at least one defined benefit plan, the following assumptions shall
apply:
(1) ( ) Interest rate: ___% per annum
(2) ( ) Mortality table: _____
(3) (X) Not Applicable
(c) (X) In the event that the Plan is treated as Top-Heavy for a Plan
Year each non-key Employee shall receive an Employer Contribution (as
described in Section 1.04(c)) of at least 3 (3, 4, 5, or 7 1/2)% of
Compensation for the Plan Year in accordance with Section 9.03 (check
one):
(1) ( ) under this Plan in any event.
(2) (X) under this Plan only if the Participant is not entitled to
such contribution under another qualified plan of the
Employer.
Note: Such minimum Employer contribution may be less than the
percentage indicated in (c) above to the extent provided in Section
9.03(a).
1.11 TWO OR MORE PLANS - Code Section 415 limitation on annual
additions
13
<PAGE>
If the Employer maintains or ever maintained another qualified plan in which any
Participant in this Plan is (or was) a participant or could become a
participant, the Employer must complete this section. The Employer must also
complete this section if it maintains a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as defined in
Section 415(1)(2) of the Code, under which amounts are treated as annual
additions with respect to any Participant in this Plan.
(a)(X) If the Employer maintains, or had maintained, any other defined
contribution plan or plans which are not Master or Prototype Plans, Annual
Additions for any Limitation Year to this Plan will be limited (check one):
(1) (X) in accordance with Section 5.03 of this Plan.
(2) ( ) in accordance with another method set forth on an attached
separate sheet.
(3) ( ) Not Applicable
(b) (X) If the Employer maintains, or had maintained, a defined benefit
plan or plans, the sum of the Defined Contribution Fraction and Defined
Benefit Fraction for a Limitation Year may not exceed the limitation
specified in Code Section 415(e), modified by section 416(h)(1) of the
Code. This combined plan limit will be met as follows:
(1) (X) Annual Additions to this Plan are limited so that the sum of
the Defined Contribution Fraction and the Defined Benefit Fraction does
not exceed 1.0
(2) ( ) another method of limiting Annual Additions or reducing
projected annual benefits is set forth on an attached schedule
(3) ( )Not Applicable
1.12 ESTABLISHMENT OF TRUST AND INVESTMENT DECISIONS
(a) The Employer hereby establishes a Trust under the plan in
accordance with the provisions of Article 14, and the Trustee signifies
acceptance of its duties under Article 14 by its signature below. Under
the Plan, Participants' Accounts will be invested in accordance with
Participant directions.
(b) Participants' Accounts may be invested among the Funds (as defined
in Section 2.01(a)(16) designated on the properly executed Exhibit A
attached hereto, which is incorporated herein and made a part hereof by
this reference.
1.13 RELIANCE ON OPINION LETTER
An adopting Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Code Section 419(e), which
provides post-retirement medical benefits allocated to separate accounts for key
employees, as defined in Code
14
<PAGE>
Section 419A(d)(3), or an individual medical account, as defined in Code Section
415(1)(2)) in addition to this Plan may not rely on the opinion letter issued by
the National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Section 401 of the Code. If the Employer who adopts or
maintains multiple plans wishes to obtain reliance that his or her plan(s) are
qualified, application for a determination letter should be made to the
appropriate Key District Director of the Internal Revenue Service. Failure to
properly fill out the Adoption Agreement may result in disqualification of the
Plan.
An adopting Employer may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is qualified
under Section 401 of the Code unless the terms of the Plan, as herein adopted or
amended, that pertain to the requirements of Sections 401(a)(4), 401(a)(17),
401(1), 401(a)(5), 410(b), and 414(s) of the Code, as amended by the Tax Reform
Act of 1986 or later laws (a) are made effective retroactively to the first day
of the first plan year beginning after December 31, 1988 (or such other date on
which these requirements first became effective with respect to this Plan); or
(b) are made effective no later than the first day on which the Employer is no
longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the Plan
constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with Fidelity Prototype
Plan Basic Plan Document No. 08. The Prototype Sponsor shall inform the adopting
Employer of any amendments made to the Plan or of the discontinuance or
abandonment of the prototype plan document.
1.14 PROTOTYPE INFORMATION:
Name of Prototype Sponsor: Fidelity Management & Research Co.
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype document may be directed to the following
telephone number: 1-(800) 684-5254.
15
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed this --- day of --------------, 1996.
EMPLOYER--------------------
(Print Name)
By--------------------------
(Signature)
- ----------------------------
(Print Name)
Title-----------------------
(Print Title)
TRUSTEE
(Print Name)----------------
By--------------------------
(Signature)
- -----------------------------------------
(Print Name if Different from First Line)
Title------------------------------------ Date:--------------------
(Print Title if Applicable)
16
<PAGE>
THE INSTITUTIONAL PROTOTYPE PLAN
STANDARDIZED ADOPTION AGREEMENT
EXHIBIT A TO ARTICLE 1
1.12(b) Funds Made Available for Investment (Section 1.12(b))
Participants' Accounts may be invested in the following Funds (as defined in
Section 2.01(a)(16)):
(1) Daily Money Fund: Money Market Portfolio
(2) Fidelity Advisor Intermediate Term Bond Fund
(3) Fidelity Advisor Strategic Income Fund
(4) Fidelity Advisor Equity Income Fund
(5) Fidelity Advisor Growth Opportunities Fund
(6) Fidelity Advisor Overseas Fund
Note: 100% of the funds selected must be Fidelity Funds, except to the extent
that Fidelity or its authorized affiliate specifically agrees in writing to a
lesser percentage.
Note: The method and frequency for change of investments will be determined
under the rules applicable to the selected funds. Participants will be furnished
with information regarding expenses, if any, for changes in investments.
17
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Exhibit A to the Adoption
Agreement to be executed this ____ day of ________, 1996.
EMPLOYER--------------------
(Print Name)
By--------------------------
(Signature)
- ----------------------------
(Print Name)
Title-----------------------
(Print Title)
TRUSTEE
(Print Name)----------------
By--------------------------
(Signature)
- -----------------------------------------
(Print Name if Different from First Line)
Title------------------------------------ Date:--------------------
(Print Title if Applicable)
18
FIDELITY GUARANTEE/
GUARANTY OF VALIDITY OF ACCOUNTS
FOR VALUE RECEIVED, the undersigned, Frank Farrell, Howard Graham and
Jean Reynolds hereby unconditionally guarantee to People's Bank (herein called
"Lender"), its successors and assigns, that to the best of their knowledge, all
accounts receivable of The Millbrook Press Inc. (herein referred to as
"Debtor"), which have been or may in the future be assigned to Lender by Debtor
pursuant to a Loan and Security Agreement between Debtor and Lender dated
December 14, 1995 and that to the best of their knowledge, all other financing
agreements between Lender and Debtor related to such Loan and Security
Agreement, and to the best of their knowledge, all papers, documents,
instruments, assignments and schedules of accounts and other assignments
relating to said accounts receivable, are and shall be genuine and in all
material respects what they purport to be, and that said accounts receivable are
and will be valid and subsisting and have arisen and will arise out of the bona
fide sale of goods, wares and merchandise, or other property sold and delivered
to and accepted by the customers of Debtor, or by reason of services rendered by
Debtor it its customers, in material compliance with the specifications of such
customers and that the amount of such accounts represented as owing by each
customer in the correct amount actually owing by such customer, is not disputed,
is not subject to any material defense, setoff, credit, deduction or
contra-charge, and the payment thereof is not contingent or conditioned on the
fulfillment of any contract, condition, or warranty, past or future, express or
implied, to the best of their knowledge, that proper entries have been made and
will be made on the books of Debtor disclosing the sale of said accounts and the
pledge of other collateral to Lender, and that Debtor has and will have absolute
and good title to each such account and such other pledged collateral and good
right to sell and transfer the same, and has no knowledge of any fact which
would materially impair the validity thereof; to the best of their knowledge,
that there is and will be owing (after allowing all charges, setoffs, returns
and counterclaims) on each such account the total amount represented by Debtor
as owing thereon, upon the occurrence and continuance of an Event of Default,
that Debtor will promptly repurchase from Lender each and every such account, as
to which there may have been a breach of the undersigned's warranties in respect
of the matters herein above set forth; that, to the extent the undersigned it
empowered to do so as an officer of Debtor, the undersigned will cause all
money, checks, notes, drafts or other things of value collected or received by
Debtor with reference to said accounts to belong to Lender and to be accounted
for and transmitted by Debtor to Lender, or to such employees or agents of
Lender as Lender may designate, in the original form in which the same were
received, immediately upon receipt, but in no event later than the day
<PAGE>
following receipt thereof by Debtor and that Debtor shall not use any of the
proceeds of such collections or commingle the same with its own funds.
The undersigned hereby waive notice of acceptance hereof or relating to the
extension of credit to Debtor and also waive notice of default, nonpayment,
partial payment, presentment, demand, protest and all other notices to which the
undersigned might be otherwise entitled, it being further understood and agreed
that Lender shall not be chargeable for, nor shall the undersigned be relieved
from liability hereunder, because of any negligence, mistake, act or omission of
any accountant, examiner, agent or attorney employed by Lender in making
examinations, investigations, collections or otherwise.
The obligations of any one or all of the undersigned guarantor's may be
terminated upon sixty (60) days prior written notice to People's Bank by such
party in the event of any one or more of the undersigneds complete cessation of
involvement, whether by termination of employment or otherwise with the
Millbrook Press Inc., provided that Debtor provide a replacement guarantor,
acceptable to People's Bank in its reasonable discretion, committing such
replacement guarantor in writing to the obligations contained in this Agreement.
Dated at Hartford, Connecticut, this 14th day of December, 1995.
--------------------------------
Frank Farrell SSID
####-##-#### having a
residence address of:
429 North Salem Road
Ridgefield, Connecticut 06877
--------------------------------
Howard Graham SSID
####-##-#### having a
residence address of:
25 East 83 Street
New York, New York 10028
--------------------------------
Jean Reynolds SSID
####-##-#### having a
residence address of:
33 Corn Tassle Road
Danbury, Connecticut 06811
-2-
The Board of Directors
The Millbrook Press Inc.
We consent to the use our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
-------------------------------
KPMG Peat Marwick LLP
New York, New York
October 22, 1996
