U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended January 31, 2000.
( ) Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________________ to _________________
Commission file number _____________
THE MILLBROOK PRESS INC.
(Exact Name of Small Business Issuer in Its Charter)
DELAWARE 06-1390025
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 Old New Milford Road, P.O. Box 335
Brookfield, CT 06804
(Address of principal executive offices)
(203) 740-2220
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUES
State the number of share outstanding of each of the issuer's classes of
common equity, as of January 31, 2000.
2,859,887 shares of Common Stock outstanding
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE>
THE MILLBROOK PRESS, INC.
INDEX TO FORM 10-QSB
January 31, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and six months ended January
31, 2000 and 1999
Balance Sheet as of January 31, 2000
Statements of Cash Flows for six months ended January 31, 2000 and
1999
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8 - K
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Operations
<TABLE>
<CAPTION>
Six months ended Three months ended
January 31 January 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $10,492,000 $ 9,326,000 $ 5,284,000 $ 4,511,000
Cost of sales 5,638,000 4,911,000 2,977,000 2,446,000
----------- ----------- ----------- -----------
Gross profit 4,854,000 4,415,000 2,307,000 2,065,000
Operating expenses:
Selling and marketing 2,991,000 2,957,000 1,452,000 1,424,000
General and administrative 868,000 937,000 463,000 518,000
----------- ----------- ----------- -----------
Total operating expenses 3,859,000 3,894,000 1,915,000 1,942,000
----------- ----------- ----------- -----------
Operating income 995,000 521,000 392,000 123,000
Interest expense 239,000 200,000 125,000 107,000
----------- ----------- ----------- -----------
Income before income tax $ 756,000 $ 321,000 $ 267,000 $ 16,000
Provision for income tax 116,000 0 116,000 0
----------- ----------- ----------- -----------
Net income $ 640,000 $ 321,000 $ 151,000 $ 16,000
=========== =========== =========== ===========
Earnings per share (basic and diluted) $ 0.19 $ 0.09 $ 0.05 $ 0.00
=========== =========== =========== ===========
Weighted average shares outstanding 3,307,856 3,455,000 3,163,912 3,455,000
=========== =========== =========== ===========
</TABLE>
<PAGE>
THE MILLBROOK PRESS INC.
Balance Sheet
January 31, 2000
Assets
Cash $28,000
Accounts receivable, net 6,603,000
Inventory 7,243,000
Royalty advances, net 699,000
Prepaid expense and other assets 316,000
-------
Total current assets 14,889,000
Plant costs, net 4,186,000
Royalty advances, net 667,000
Fixed assets, net 230,000
Goodwill, net 3,020,000
---------
Total assets $22,992,000
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $3,663,000
Notes payable to bank 5,285,000
Royalties payable 136,000
Current portion of long term debt 300,000
-------
Total current liabilities 9,384,000
Long term debt 664,000
Total liabilities 10,048,000
Stockholders' Equity
Common stock, par value $.01, 12,000,000
shares authorized, 3,455,000 shares issued
and 2,859,887 shares outstanding 35,000
Additional paid in capital 17,556,000
Treasury stock (967,000)
Accumulated deficit (3,680,000)
-----------
Total stockholders' equity 12,944,000
----------
Total liabilities & stockholders' equity $22,992,000
===========
<PAGE>
THE MILLBROOK PRESS INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended January 31
2000 1999
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 640,000 $ 321,000
Add (deduct) to reconcile net income to net cash flow:
Depreciation and amortization 971,000 897,000
Changes in assets & liabilities:
Accounts receivable (499,000) (1,171,000)
Inventory (164,000) (648,000)
Prepaid expenses and other assets 210,000 (395,000)
Accounts payable & accrued expenses (403,000) 1,300,000
----------- -----------
Cash provided by operating activities: 755,000 422,000
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (48,000) (55,000)
Plant costs (636,000) (907,000)
----------- -----------
Cash used in investing activities (684,000) (962,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit (173,000) 918,000
Proceeds from long term debt 964,000 0
Purchase of treasury stock (967,000) 0
----------- -----------
Cash provided by (used in) financing activities (176,000) 918,000
----------- -----------
Net increase (decrease) in cash (105,000) 378,000
Cash at beginning of period 133,000 33,000
----------- -----------
Cash at end of period $ 28,000 $ 411,000
=========== ===========
Supplemental disclosure:
Interest paid $ 239,000 $ 200,000
=========== ===========
Income tax paid $ 25,000 $ 135,000
=========== ===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
January 31, 2000
Basis of Presentation
The financial statements of The Millbrook Press Inc. (the Company) included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in cash
flows for all periods presented have been made. The results of the January 31,
2000 interim period are not necessarily indicative of the results that may be
expected for the full year.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Form 10KSB for the fiscal year ended July 31, 1999.
Stock Option Plan
The Company has reserved 675,000 shares of common stock, $.01 par value per
share (the "Common Stock"), under its non-qualified 1994 Stock Option Plan
("Option Plan") which provides that the Stock Option and Compensation Committee
of the Board of Directors, may grant stock options to eligible employees,
officers, directors of the Company or its affiliates. The number of shares
reserved for issuance is adjusted in accordance with the provisions of the
Option Plan. All stock options granted by the Company generally expire seven
years after the grant date. Stock options generally vest 50% one year from the
date of grant and 25% in each of the next two years from the date of grant.
Earnings Per Share
In December 1997, the Company adopted Statement of Financial Accounting Standard
(SFAS 128) "Earnings Per Share". SFAS 128 presents earnings per share on a basic
and diluted basis. The computation of basic earnings per share is based on
income available to common stockholders and the weighted average number of
common shares outstanding during the three and six month periods.
Purchase of Treasury Stock
On December 16, 1999, the Company purchased 595,113 shares of Common Stock in a
private transaction for an aggregate price of $967,000 or $1.625 per share. Upon
consumation of the transaction, the repurchased shares of Common Stock were
placed in treasury. On January 31, 2000, the Company borrowed additional funds
to finance the transaction (see Notes Payable to Bank). For the period from
December 16, 1999 to January 31, 2000, the Company's working capital was used
for this transaction.
Notes Payable to Bank
As of January 31, 2000, the Company had available a $7,500,000 revolving line of
credit with People's Bank and the Company had $5,285,000 outstanding under this
line. The $7,500,000 is the maximum available, however it may be lower based
upon the eligible value of accounts receivable
<PAGE>
and inventory. As of January 31, 2000, the eligible inventory and accounts
receivable was $6,838,000. The Company is in compliance with all covenants of
the loan agreement with People's Bank, as amended January 31, 2000. On January
31, 2000 the Company borrowed an additional $964,000 from People's Bank for the
purchase of 595,113 shares of its stock, of which $600,000 is evidenced by a 24
month unsecured term loan with equal monthly payments of $25,000 per month, with
interest on the outstanding balance at prime plus 2%. The remaining $364,000 is
secured by eligible accounts receivable and inventory of the Company and is
payable on January 1, 2002. Interest on the outstanding balance is at the Bank's
prime rate.
Taxes
Federal income taxes have been provided for the three and six months ended
January 31, 2000, as the Company has fully utilized its net operating loss
carryforwards.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
General
The Company is a publisher of children's fiction and non-fiction books, in both
hardcover and paperback, for the school and library market and the consumer
market. Since its inception, the Company has published more than 1100 hardcover
and 500 paperback books under its Millbrook, Copper Beech, Twenty-First Century
and Magic Attic Press imprints. The Company's books have been placed on numerous
recommended lists by libraries, retail bookstores and educational organizations.
Books published under the Millbrook imprint have evolved from information
intensive school and library books to include its current mix of highly graphic,
consumer-oriented books. Therefore, many of its books can be distributed 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
majority of Copper Beech books are published for both the consumer and library
markets. Twenty-First Century book titles are published primarily for the
library market. 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 consumer market.
Consumer Market Compared to the School and Public Library Market
As the Company sells its products in the consumer market, the results of
operations and its financial condition could be influenced by certain
distinctions between the consumer market and the school and public library
market. It is generally more difficult to collect receivables in the consumer
market than in the school and library market. 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. Sales to the consumer market have a lower gross profit margin
than sales to the school and library market because consumer sales have higher
sales discounts and promotional allowances than sales to the school and public
library market.
<PAGE>
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 library market, net sales 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. The consumer market also tends to be
highly seasonal and, given the importance of holiday gifts, a large proportion
of net sales can occur in the third calendar quarter in anticipation of the
holiday gift season. The Company's current and future net sales and operating
results will reflect these seasonal factors.
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 their
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 for credit. The rate of return also can have a
significant impact on quarterly results since certain wholesalers return large
quantities of products at one time irrespective of marketplace demand for such
products, rather than spreading out the returns over the course of the year. The
Company computes net sales by deducting actual returns as well as additional
reserves as required from its gross sales. Return allowance may vary as a
percentage of gross sales based on actual return experience. 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
Net sales for the second quarter ended January 31, 2000 were $5,284,000 compared
to $4,511,000 for the same period last year, an increase of 17%. Net sales for
the six months ended January 31, 2000 were $10,492,000 compared to $9,326,000
for the same period last year, an increase of 13%. Increased sales in both the
school and public library and consumer markets account for the favorable
variance.
Gross profit margin for the second quarter ended January 31, 2000 amounted to
$2,307,000, or 44% of net sales compared to $2,065,000 or 46% of net sales for
the same period last year. For the six months ended January 31, 2000 gross
profit margin was $4,854,000, or 46% of net sales compared to $4,415,000, or 47%
of net sales for the same period last year.
Selling and marketing expenses for the quarter ended January 31, 2000 were 27%
of net sales compared to 32% of net sales for the quarter ended January 31,
1999. For the six months ended January 31, 2000 these expenses were 29% compared
to 32% of net sales for the same period in 1999. Increased sales while holding
costs constant year over year account for this favorable variance.
General and administrative expenses decreased by $55,000 to $463,000 for the
quarter ended January 31, 2000 compared to $518,000 for the quarter ended
January 31, 1999. For the six months ended
<PAGE>
January 31, 2000 these expenses decreased by $69,000 to $868,000 compared to
$937,000 for the same period in 1999.
During the quarter ended January 31, 2000, the Company had operating income of
$392,000 compared with operating income of $123,000 for the same period in 1999.
For the six months ended January 31, 2000 the operating income was $995,000
compared to $521,000 for the same period in 1999. Increased sales, constant
sales and marketing costs along with lower administrative costs account for this
favorable variance.
Interest expense for the quarter ended January 31, 2000 was $125,000 compared to
$107,000 for the same period last year due to increased bank borrowing. For the
six months ended January 31, 2000 interest expense was $239,000 compared to
$200,000 for the same period in 1999.
Net income for the quarter ended January 31, 2000 was $151,000 compared to
$16,000 for the same period last year. For the six months ended January 31, 2000
net income was $640,000 compared to $321,000 for the same period in 1999.
Liquidity and Capital Resources
As of January 31, 2000, the Company had up to $7,500,000 revolving line of
credit with People's Bank. The line of credit restricts the ability of the
Company to obtain working capital in the form of indebtedness, to grant security
interest in the assets of the Company or to pay dividends on the Company's
securities.
As of January 31, 2000, the Company had $5,285,000 outstanding under this line
as compared to $4,792,000 as of January 31, 1999. This debt increased due to
increased working capital requirements. In addition (as described under Notes
Payable to Bank) the Company had outstanding $964,000 for the purchase of
treasury stock.
As of January 31, 2000, the Company had cash and working capital of $28,000 and
$5,505,000, respectively, as opposed to cash and working capital of $411,000 and
$5,583,000, respectively, as of January 31, 1999.
Inventory of finished goods totaled $7,243,000 and $7,393,000 at January 31,
2000 and 1999 respectively. The level of inventory has remained consistant with
prior year and reflects an adequate level of trade and school and library
backlist titles. The increase in accounts receivable of $605,000 from January
31, 1999 is due to increased sales.
Based on its current operating plan, the Company believes that its existing
resources together with cash generated from operations and cash available
through its credit line will be sufficient to satisfy the Company's contemplated
working capital requirements through approximately October 31, 2000. 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 October 31, 2000, the Company may seek additional funds
through debt or equity financing.
<PAGE>
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created hereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the Company's future cash resources and liquidity and the ability of
the Company to fully exploit a book's sales potential in the school and library
and consumer markets. 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 Form 10-QSB 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.
Year 2000 Disclosure
The Company has no material Year 2000 computer issues to report. All internal
and third party hardware and software has functioned as expected since January
1, 2000. There has been no loss of business or disruption in day to day
operations. The Company will continue to monitor all computer operations during
the next quarter to insure continued compliance. The Company's costs regarding
Year 2000 compliance were in line with budget and were not material to the
Company's operating results or cash position.
PART II. Other Information
Item 5: Other Information
None
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27--Financial Data Schedule
Exhibit 99A--Third Amendment to the Loan and Security Agreement
Dated January 31, 2000 by and between The Millbrook
Press, Inc and People's Bank
(b) Form 8-K--None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Millbrook Press, Inc.
-------------------------
(Registrant)
March 13, 2000 By: /s/ David Allen
----------------------
David Allen
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Financial Statements as of January 31, 2000 and is
qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 28,000
<SECURITIES> 0
<RECEIVABLES> 7,468,000
<ALLOWANCES> 865,000
<INVENTORY> 7,243,000
<CURRENT-ASSETS> 14,889,000
<PP&E> 230,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,992,000
<CURRENT-LIABILITIES> 9,384,000
<BONDS> 0
<COMMON> 35,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,992,000
<SALES> 5,284,000
<TOTAL-REVENUES> 5,284,000
<CGS> 2,977,000
<TOTAL-COSTS> 2,977,000
<OTHER-EXPENSES> 1,915,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,000
<INCOME-PRETAX> 267,000
<INCOME-TAX> 116,000
<INCOME-CONTINUING> 151,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,000
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
WHEREAS, The Millbrook Press Inc., a Delaware corporation, with its
chief executive office located at 2 Old New Milford Road, Brookfield,
Connecticut 06804 (referred to herein as "Borrower") entered into a Loan and
Security Agreement with People's Bank, a Connecticut banking corporation with a
place of business located at Bridgeport Center, 850 Main Street, Bridgeport,
Connecticut 06607 (referred to herein as "Lender") dated as of December 14, 1995
(the Loan and Security Agreement being herein referred to as the "Loan
Agreement"); and
WHEREAS, Borrower and Lender entered into a First Amendment to Loan and
Security Agreement dated as of June 17, 1997 amending and revising Sections
2.1(a), 2.1(c), 2.6, 4.6, 6.13(a), 6.13(c) and 6.13(d) of the Loan Agreement;
and
WHEREAS, Borrower and Lender entered into a Second Amendment to Loan
and Security Agreement dated as of June 10, 1998 amending and revising Sections
2.1(a), 2.1(c), 2.6(d), 3.3, 6.13(c) and 6.13(d) of the Loan Agreement; and
WHEREAS, Borrower and Lender entered into a Letter Amendment to the
Loan and Security Agreement as amended by the First and Second Amendments to
Loan and Security Agreement dated January 8, 1999 to provide Borrower with a
LIBOR interest rate option and to reduce the Interest Rate on non LIBOR
Obligations to the Reference Rate (the Loan and Security Agreement, as amended
by the First Amendment to Loan and Security Agreement, the Letter Amendment and
the Second Amendment to Loan and Security Agreement shall be referred to herein
as the "Amended Agreement"); and
WHEREAS, Borrower and Lender have agreed to further amend the terms and
provisions of the Amended Agreement effective as of the date stated herein by
the provisions set forth below;
NOW, THEREFORE, Borrower and Lender hereby agree that effective as of
January , 2000, the Amended Agreement shall be further amended to contain the
provisions set forth below and the applicable provisions of the Amended
Agreement shall be superseded to the extent necessary to give effect to the
provisions set forth below:
1. The definitional terms "Debt Service Ratio", "Obligations",
"Tangible Net Worth" and "Working Capital" shall be deleted in their entirety
and the following inserted in lieu thereof:
"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 (other than the
Term Promissory Note-1 and Term Promissory Note-2), 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
(other than the Term Promissory Note-1
<PAGE>
and Term Promissory Note-2) and interest on all indebtedness (other than the
Term Promissory Note-1 and Term Promissory Note-2) plus fees and costs paid to
People's and any other holder of Indebtedness.
"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, covenants, and duties owing by Borrower to People's of any kind and
description (whether pursuant to or evidenced by the Loan Documents, by the Term
Promissory Note-1 or the Term Promissory Note-2 or by any other note or
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.
"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 plus the remaining principal amount outstanding from time to time under
Term Promissory Note-1 and Term Promissory Note-2; 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.
"Working Capital" means the result of subtracting Consolidated
Current Liabilities (exclusive of amounts included as liabilities from the Term
Promissory Note-1 and Term Promissory Note-2) from Consolidated Current Assets.
2. Section 2.1(a) of the Amended Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
2.1 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 an
amount equal to (i) 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) Three Million Seven Hundred Fifty Thousand Dollars
($3,750,000) less (iii) the principal outstanding under the Term Promissory
Note-2 referenced in Section 2.1(e).
3. A new Section 2.1(e) is hereby added to the Amended Agreement to
contain the following terms:
2
<PAGE>
(e) Upon execution of this Second Amendment to Loan and Security
Agreement, People's agrees to advance the sum of $964,000 to Borrower in the
form of two (2) Term Loan accommodations denominated as Term Loan-1 which shall
be in the amount of $600,000 and be evidenced by Exhibit A (Term Promissory
Note-1) attached hereto and Term Loan-2 which shall be in the amount of $364,000
and be evidenced by Exhibit B (Term Promissory Note-2) attached hereto.
4. Section 2.3(a) of the Amended Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
(a) Interest Rate. All Obligations, other than those subject to
LIBOR fixed term contracts and the principal balance outstanding under Term
Promissory Note-1, shall bear interest, on the average Daily Balance, at a per
annum rate equal to the Reference Rate. The principal balance outstanding under
Term Promissory Note-1 shall bear interest, on the average Daily Balance, at a
per annum rate of two percentage points (2.0) in excess of the Reference Rate
5. Section 2.3(c) of the Amended Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
(c) Payments of Interest and Principal. Interest on all Obligations not
subject to LIBOR fixed term contracts shall be due and payable, in arrears, on
the first day of each month during the term hereof. Interest due under LIBOR
fixed term contracts shall be payable at the end of each such fixed term.
In addition to the payments of interest above described, payments of
principal under Term Promissory Note-1 shall be made on the first day of each
month, commencing February 1, 2000 and continuing on the first day of each month
thereafter, in amounts of $25,000 each with any remaining outstanding principal
balance due and payable in full on January 1, 2002. In addition to the monthly
principal payments due under Term Promissory Note-1, Borrower shall on the
earlier of March 15, 2000 and continuing on each June 15, September 15 and
December 15 thereafter or if earlier, the date of Borrower's filing of its Form
10(QSB) or its Form 10(KSB) with the Securities and Exchange Commission for each
fiscal quarter commencing with the fiscal quarter ending on January 31, 2000 and
continuing with the fiscal quarters ending on April 30, July 31 and October 31
and thereafter prepay the principal amount outstanding under Term Promissory
Note-1 by an amount equal to the lesser of (i) $25,000 or (ii) such amount which
exceeds 2.0 times Borrower's Debt Service Ratio.
If not sooner paid, one lump sum payment of all outstanding principal under Term
Promissory Note-2 shall be due on January 1, 2002.
3
<PAGE>
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.
6. Section 2.3(d) of the Amended Agreement shall be deleted in its
entirety and the following inserted in lieu thereof:
(d) Computation. The Reference Rate as of the date of this
Agreement is eight and one-half percent (8.50%) 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 basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
7. A new Section 2.6(d) shall be added to Amended Agreement to contain
the following provision:
(d) Term Loan Balance Fee. On the first day of each month following the
extension of Term Loan-1 under this Amended Agreement, and thereafter so long as
any principal amount is outstanding under the Term Promissory Note-1, a fee in
an amount equal to one (1.0%) percent per annum of the remaining unpaid
principal balance shall be due and payable to People's.
8. Section 6.13 shall be deleted in its entirety and the following
substituted in lieu therefor:
6.13 Financial Covenants. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities (exclusive of Term Promissory Note-1 and Term
Promissory Note-2) of at least 1.50 to 1.0 at all times measured on a fiscal
quarter-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities (exclusive of Term Promissory Note-1 and Term
Promissory Note-2) divided by Tangible Net Worth of not more than 2.0 to 1.0
during the term of this Agreement, measured on a fiscal quarter-end basis;
(c) Tangible Net Worth. Tangible Net Worth of at least $4,500,000 at
all times measured on a fiscal quarter-end basis; and
4
<PAGE>
(d) Working Capital. Working Capital of not less than $3,750,000 at all
times measured on a fiscal quarter-end basis.
(e) Debt Service Ratio. 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 fiscal
quarter-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.
9. Lender has requested and Borrower has agreed to execute the Term
Promissory Note-1 and the Term Promissory Note-2 to evidence the term loan
advances under Section 2.1(e) which Term Promissory Notes shall be in the form
attached hereto as Exhibit A and Exhibit B.
10. Except as herein amended, all of the terms and provisions of the
Amended Agreement shall remain in full force and effect.
11. Except as set forth in Exhibit C attached hereto, all of the
representations and warranties made by the Obligors in Section 5 of the Amended
Agreement are true and correct on the date hereof as if made on and as of the
date hereof, except to the extent that any of such representations and
warranties related by their terms to a prior date.
12. Borrower and Lender agree that this Third Amendment to Loan and
Security Agreement has been prepared by the mutual effort of both parties and
that in the event of a conflict or interpretive question with respect to any
term, provision or section contained in this Third Amendment to Loan and
Security Agreement or the First or Second Amendments or Letter Amendment to or
the December 14, 1995 Loan and Security Agreement, that this Third Amendment to
Loan and Security Agreement shall not be construed more strictly against any one
party than any other party; it being agreed that both Borrower and Lender have
equally negotiated the terms hereof and thereof.
5
<PAGE>
13. The revisions and amendments recited herein shall not become
effective and shall be of no force or effect until Borrower has executed this
Third Amendment to Loan and Security Agreement and the original form of Term
Promissory Note-1 and Term Promissory Note-2 and provided Lender with a current
certificate of the Secretary of Borrower attesting to the adoption and/or
passage of applicable corporate resolutions authorizing and approving the
revisions and amendments contained in this Third Amendment to Loan and Security
Agreement which such certificate shall also contain an acceptable form of
incumbency certificate attesting to the current officers and directors of
Borrower.
The date of execution of this Third Amendment to Loan and Security
Agreement by Borrower is January 31, 2000.
LENDER: BORROWER:
PEOPLE'S BANK THE MILLBROOK PRESS INC.
By:_________________________ By:__________________________
Title:_____________________ Title:_______________________
<PAGE>
EXHIBIT A
TERM PROMISSORY NOTE-1
January 31, 2000
FOR VALUE RECEIVED, at the earlier of January 1, 2002 or the occurrence
of an Event of Default under a Loan and Security Agreement dated December 14,
1995, as amended from time to time (hereinafter referred to as the "Agreement"),
the undersigned, The Millbrook Press Inc., a Delaware corporation (hereinafter
referred to as "Debtor"), with its chief executive office located at 2 Old New
Milford Road, Brookfield, Connecticut 06804 hereby promises to pay to the order
of People's Bank, a Connecticut banking corporation with a place of business
located at Bridgeport Center, 850 Main Street, Bridgeport, Connecticut 06607
(hereinafter referred to as "Lender") in such coin and currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of Six Hundred Thousand
Dollars ($600,000), or so much thereof as shall have been advanced and remain
outstanding and due, together with interest from January , 2000 at the rate
hereinafter set forth.
This Secured Promissory Note represents a term loan extended to Debtor
on this date.
Interest on all advances of principal remaining from time to time
unpaid shall be paid by Debtor to Lender at the Reference Rate plus 2 percent
per annum and after the occurrence and during the continuance of an Event of
Default at the rate of interest stated in Section 2.3(b) of the Agreement.
So long as no Event of Default shall have occurred under the Agreement,
the principal and interest shall be due and payable on the dates and in the
manner set forth in Section 2.3(c) of the Agreement.
Debtor, for itself and its legal representatives, successors and
assigns, expressly waives presentment, protest, notice of dishonor, notice of
nonpayment, notice of maturity, notice of protest, presentment for the purpose
of accelerating maturity, diligence in collection, and the benefit of any
exemption under the homestead exemption laws, if any, or any other exemption or
insolvency laws, and consents that Lender may release or surrender, exchange or
substitute any real estate and/or personal property or other collateral security
now held or which may hereafter be held as security for the payment of this
Note, and may extend the time for payment or otherwise modify the terms of
payment of any part or the whole of the debt evidenced hereby.
This Note has been issued pursuant to the Agreement between Debtor and
Lender of even date herewith, and all of the terms, covenants and conditions of
said Agreement (including all schedules thereto) and all other instruments
evidencing and/or securing the indebtedness hereunder are hereby made part of
this Note and are deemed incorporated herein in full. Any default in any of the
conditions, covenants, obligations or agreements contained in said Agreement
(and all schedules attached thereto) or any other instruments securing and/or
evidencing this indebtedness shall constitute a default under this Note and
shall entitle Lender to accelerate the entire indebtedness hereunder and take
such other action as may be provided for in said Agreement.
<PAGE>
This Note and all transactions hereunder and/or evidenced herein shall
be governed by, construed and enforced in accordance with the laws of the State
of Connecticut.
DEBTOR ACKNOWLEDGES ITS UNDERSTANDING THAT LENDER MAY HAVE RIGHTS AGAINST
DEBTOR, 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 DEBTOR OF OR
AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF DEBTOR'S PROPERTY; AND IN THE
EVENT LENDER DEEMS IT NECESSARY TO EXERCISE ANY OF SUCH RIGHTS PRIOR TO THE
RENDITION OF A FINAL JUDGMENT AGAINST DEBTOR, OR OTHERWISE, DEBTOR MAY BE
ENTITLED TO NOTICE AND/OR HEARING UNDER THE LAWS OF THE STATE OF CONNECTICUT,
(TO DETERMINE WHETHER OR NOT LENDER HAS A PROBABLE CAUSE TO SUSTAIN THE VALIDITY
OF LENDER CLAIM), PRIOR TO THE EXERCISE BY LENDER OF ANY SUCH RIGHTS. DEBTOR
EXPRESSLY AGREES THAT THIS AGREEMENT REPRESENTS A COMMERCIAL TRANSACTION AND
WAIVES ANY RIGHT UNDER TITLE 52 SECTION 278 OF THE CONNECTICUT GENERAL STATUTES,
AS AMENDED, TO NOTICE OF ANY REQUEST FOR A PREJUDGMENT REMEDY OR HEARING TO
WHICH DEBTOR MAY BE ENTITLED; PROVIDED, HOWEVER, THAT THIS WAIVER SHALL NOT
INCLUDE A WAIVER OF SUCH RIGHTS AS DEBTOR SHALL HAVE TO PRIOR NOTICE OF THE
PROPOSED DISPOSITION OF COLLATERAL BY LENDER. SPECIFICALLY AND WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, DEBTOR RECOGNIZES THAT LENDER HAS AND SHALL
CONTINUE TO HAVE AN REASONABLE RIGHT TO EFFECT COLLECTION OF THE COLLATERAL WITH
RESPECT TO WHICH LENDER HOLDS A SECURITY INTEREST WITHOUT THE NECESSITY OF
ACCORDING TO DEBTOR ANY PRIOR NOTICE OR HEARING. THIS SHALL BE A CONTINUING
WAIVER AND REMAIN IN FULL FORCE AND EFFECT SO LONG AS DEBTOR IS OBLIGATED TO
LENDER.
IN WITNESS WHEREOF, Debtor has caused this Note to be signed in its
corporate name by its duly authorized corporate officer and its corporate seal
to be hereto affixed, by order of its Board of Directors on the day and year
first above written.
THE MILLBROOK PRESS INC.
By__________________________
Title:______________________
<PAGE>
EXHIBIT B
TERM PROMISSORY NOTE-2
January 31, 2000
FOR VALUE RECEIVED, at the earlier of January 1, 2002 or the occurrence
of an Event of Default under a Loan and Security Agreement dated December 14,
1995, as amended from time to time (hereinafter referred to as the "Agreement"),
the undersigned, The Millbrook Press Inc., a Delaware corporation (hereinafter
referred to as "Debtor"), with its chief executive office located at 2 Old New
Milford Road, Brookfield, Connecticut 06804 hereby promises to pay to the order
of People's Bank, a Connecticut banking corporation with a place of business
located at Bridgeport Center, 850 Main Street, Bridgeport, Connecticut 06607
(hereinafter referred to as "Lender") in such coin and currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of Three Hundred Sixty Four
Thousand Dollars ($364,000), or so much thereof as shall have been advanced and
remain outstanding and due, together with interest from January , 2000 at the
rate hereinafter set forth.
This Secured Promissory Note represents a term loan extended to Debtor
on this date.
Interest on all advances of principal remaining from time to time
unpaid shall be paid by Debtor to Lender at the Reference Rate and after the
occurrence and during the continuance of an Event of Default at the rate of
interest stated in Section 2.3(b) of the Agreement.
So long as no Event of Default shall have occurred under the Agreement,
the principal and interest shall be due and payable on the dates and in the
manner set forth in Section 2.3(c) of the Agreement.
Debtor, for itself and its legal representatives, successors and
assigns, expressly waives presentment, protest, notice of dishonor, notice of
nonpayment, notice of maturity, notice of protest, presentment for the purpose
of accelerating maturity, diligence in collection, and the benefit of any
exemption under the homestead exemption laws, if any, or any other exemption or
insolvency laws, and consents that Lender may release or surrender, exchange or
substitute any real estate and/or personal property or other collateral security
now held or which may hereafter be held as security for the payment of this
Note, and may extend the time for payment or otherwise modify the terms of
payment of any part or the whole of the debt evidenced hereby.
This Note has been issued pursuant to the Agreement between Debtor and
Lender of even date herewith, and all of the terms, covenants and conditions of
said Agreement (including all schedules thereto) and all other instruments
evidencing and/or securing the indebtedness hereunder are hereby made part of
this Note and are deemed incorporated herein in full. Any default in any of the
conditions, covenants, obligations or agreements contained in said Agreement
(and all schedules attached thereto) or any other instruments securing and/or
evidencing this indebtedness shall constitute a default under this Note and
shall entitle Lender to accelerate the entire indebtedness hereunder and take
such other action as may be provided for in said Agreement.
This Note and all transactions hereunder and/or evidenced herein shall
be governed by,
<PAGE>
construed and enforced in accordance with the laws of the State of Connecticut.
DEBTOR ACKNOWLEDGES ITS UNDERSTANDING THAT LENDER MAY HAVE RIGHTS AGAINST
DEBTOR, 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 DEBTOR OF OR
AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF DEBTOR'S PROPERTY; AND IN THE
EVENT LENDER DEEMS IT NECESSARY TO EXERCISE ANY OF SUCH RIGHTS PRIOR TO THE
RENDITION OF A FINAL JUDGMENT AGAINST DEBTOR, OR OTHERWISE, DEBTOR MAY BE
ENTITLED TO NOTICE AND/OR HEARING UNDER THE LAWS OF THE STATE OF CONNECTICUT,
(TO DETERMINE WHETHER OR NOT LENDER HAS A PROBABLE CAUSE TO SUSTAIN THE VALIDITY
OF LENDER CLAIM), PRIOR TO THE EXERCISE BY LENDER OF ANY SUCH RIGHTS. DEBTOR
EXPRESSLY AGREES THAT THIS AGREEMENT REPRESENTS A COMMERCIAL TRANSACTION AND
WAIVES ANY RIGHT UNDER TITLE 52 SECTION 278 OF THE CONNECTICUT GENERAL STATUTES,
AS AMENDED, TO NOTICE OF ANY REQUEST FOR A PREJUDGMENT REMEDY OR HEARING TO
WHICH DEBTOR MAY BE ENTITLED; PROVIDED, HOWEVER, THAT THIS WAIVER SHALL NOT
INCLUDE A WAIVER OF SUCH RIGHTS AS DEBTOR SHALL HAVE TO PRIOR NOTICE OF THE
PROPOSED DISPOSITION OF COLLATERAL BY LENDER. SPECIFICALLY AND WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, DEBTOR RECOGNIZES THAT LENDER HAS AND SHALL
CONTINUE TO HAVE AN REASONABLE RIGHT TO EFFECT COLLECTION OF THE COLLATERAL WITH
RESPECT TO WHICH LENDER HOLDS A SECURITY INTEREST WITHOUT THE NECESSITY OF
ACCORDING TO DEBTOR ANY PRIOR NOTICE OR HEARING. THIS SHALL BE A CONTINUING
WAIVER AND REMAIN IN FULL FORCE AND EFFECT SO LONG AS DEBTOR IS OBLIGATED TO
LENDER.
IN WITNESS WHEREOF, Debtor has caused this Note to be signed in its
corporate name by its duly authorized corporate officer and its corporate seal
to be hereto affixed, by order of its Board of Directors on the day and year
first above written.
THE MILLBROOK PRESS INC.
By__________________________
Title:______________________
<PAGE>
EXHIBIT C
EXCEPTIONS TO WARRANTIES AND REPRESENTATIONS
