<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1995
REGISTRATION NO. 33-58733
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METATEC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 2741 59-1698890
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
7001 METATEC BOULEVARD
DUBLIN, OHIO 43017
(614) 761-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JEFFREY M. WILKINS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
7001 METATEC BOULEVARD
DUBLIN, OHIO 43017
(614) 761-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GARY A. WADMAN, ESQ. BARRY M. ABELSON, ESQ.
BAKER & HOSTETLER PEPPER, HAMILTON & SCHEETZ
65 EAST STATE STREET 3000 TWO LOGAN SQUARE
SUITE 2100 18TH AND ARCH STREETS
COLUMBUS, OHIO 43215 PHILADELPHIA, PENNSYLVANIA 19103
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(Aa,
MAY DETERMINE.
================================================================================
<PAGE> 2
METATEC CORPORATION
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Cover Page of Prospectus.......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Investment
Considerations
4. Use of Proceeds................................... Use of Proceeds; Capitalization
5. Determination of Offering Price................... Outside Front Cover Page;
Underwriting
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered........ Outside Front Cover Page; Description
of Capital Stock; Price Range of
Common Shares and Dividend Policy
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant........ Prospectus Summary; Investment
Considerations; Use of Proceeds;
Price Range of Common Shares and
Dividend Policy; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Principal Shareholders; Description
of Capital Stock; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not Applicable
</TABLE>
<PAGE> 3
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.
SUBJECT TO COMPLETION, DATED MAY 17, 1995
PROSPECTUS
1,500,000 SHARES
COMMON SHARES
------------------------
All of the Common Shares, $.10 par value (the "Shares"), offered hereby are
being offered (the "Offering") by Metatec Corporation (the "Company"). The
Shares are quoted on The Nasdaq Stock Market under the trading symbol "META." On
May 15, 1995, the last reported sale price for the Shares, as reported on The
Nasdaq Stock Market, was $11.00 per share.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
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 COM-MISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
Per Share...................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)....................... $ $ $
=================================================================================================
</TABLE>
(1) In addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting estimated offering expenses of $ payable by the
Company. See "Use of Proceeds."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional Shares from the Company on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting."
------------------------
The Shares are offered subject to prior sale, when, as, and if issued to
and accepted by the Underwriters, subject to their right to reject any order in
whole or in part and to certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of certificates for the Shares will be
made at the offices of Legg Mason Wood Walker, Incorporated, Baltimore,
Maryland, on or about May , 1995.
------------------------
LEGG MASON WOOD WALKER VAN KASPER & COMPANY
INCORPORATED
May , 1995
<PAGE> 4
FIGURE 1-PHOTO
[CD-ROM TITLE PRODUCED BY
METATEC CORPORATION FOR
COMPUSERVE INCORPORATED, WITH RELATED
PACKAGING.]
FIGURE 2-PHOTO
[CD-ROMS PRODUCED BY
METATEC CORPORATION.]
FIGURE 3-PHOTO
[SAMPLE EDITION OF NAUTILUSCD
AND RELATED PACKAGING.]
Metatec Corporation is a leading
provider of CD-ROM manufacturing,
application software, consulting, and
publishing services. As a one-stop
source of CD-ROM solutions, the
Company serves customers in
publishing, communications, high
technology, government, and
professional services.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
at its New York Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048; at its Los Angeles Regional Office, 5757 Wilshire Boulevard, Suite
500 East, Los Angeles, California 90036; and at its Chicago Regional Office, 500
West Madison, 14th Floor, Chicago, Illinois 60661. Copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Shares are
traded on The Nasdaq Stock Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES
ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary information is qualified by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, the term
"Company" shall include Metatec Corporation and its wholly owned subsidiary,
Metatec/Discovery Systems, Inc. ("Discovery Systems"), and all references in
this Prospectus assume no exercise of the Underwriters' over-allotment option or
of the options to purchase 469,742 Shares that are currently outstanding under
the Company's stock option plans. See "Management -- Stock Option Plans."
THE COMPANY
Metatec Corporation is a leading provider of CD-ROM (compact disc-read only
memory) manufacturing, application software consulting, and publishing services.
The Company targets two principal markets: organizations seeking to publish
information on CD-ROM and personal computer users who own CD-ROM equipped,
multimedia computer systems. As a one-stop source of CD-ROM solutions, the
Company serves approximately 200 customers in publishing, communications, high
technology, government, and professional services.
The Company, which has experienced compounded annual revenue growth of 29%
from 1990 to 1994, is organized into three business divisions:
- Manufacturing Services provides CD-ROM mastering, replication, and
distribution services in addition to providing similar services to radio
syndication customers for audio compact discs ("Audio CDs"). Current customers
include Bell & Howell Publications Systems Company, Digital Equipment
Corporation, and Research Institute of America Inc.
- Software Services provides information publishers with design and
development services for CD-ROM based publications which, in turn, often produce
Manufacturing Services revenues for the Company. Current customers include
Phillips Business Information, Inc., CompuServe Incorporated, and Harcourt Brace
College Publishers.
- Publishing Services produces and publishes NautilusCD, the first
subscription-based monthly multimedia CD-ROM magazine, which has approximately
18,000 subscribers.
CD-ROM technology combines audio, video, text, and graphics in one medium
with the capability to store, search, and retrieve vast quantities of
information. One CD-ROM can contain up to 650 megabytes of data, or the
equivalent of approximately 800 high density floppy discs or 300,000 pages of
text. The Company believes that businesses and individuals are increasingly
turning to CD-ROM technology as a cost-effective means of organizing, storing,
and disseminating large quantities of information quickly to widely diversified
groups of users. According to published industry information, the North American
installed base of CD-ROM disc drives increased from less than 1.5 million in
1991 to more than 19 million in 1994, and is estimated to be more than 37
million by the end of 1995. The Company believes that only a small percentage of
applications suitable for CD-ROM have actually been implemented to date for both
individuals and businesses.
The Company's goal is to become the leading provider of information
distribution services utilizing optical disc technology. The Company believes
that the market for information distributed on CD-ROM can be expanded by the use
of communication networks, such as the Internet, to provide interim database and
application updates. The Company intends to begin offering such updating
capability as part of its services during 1995.
The principal offices of the Company are located at 7001 Metatec Boulevard,
Dublin, Ohio 43017, and its telephone number is (614) 761-2000.
THE OFFERING
<TABLE>
<S> <C>
Shares offered................................. 1,500,000 Shares
Shares to be outstanding after the
Offering(1).................................. 6,775,964 Shares
Use of proceeds................................ For repayment of bank indebtedness, expansion of
manufacturing capacity, and general corporate and
working capital purposes. See "Use of Proceeds."
The Nasdaq Stock Market symbol................. META
</TABLE>
- ---------------
(1) Includes 600,000 Shares which are subject to risk of forfeiture. See
"Management -- Certain Transactions" and Note 7 of the Notes to Consolidated
Financial Statements.
3
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................................... $10,355 $13,615 $16,877 $21,318 $28,943 $6,007 $9,179
Earnings (loss) from continuing operations before
income taxes......................................... (1,149) (1,073) (371) 1,062 2,425 172 879
Income tax benefit (expense)........................... 65 (732) (52) (336)
Net earnings (loss) from continuing operations......... (1,149) (1,008) (371) 1,062 1,693 120 543
Net earnings (loss).................................... 581 (428) (371) 1,062 1,693 120 543
Net earnings (loss) per common share from continuing
operations:
Primary.............................................. $ (0.35) $ (0.30) $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted........................................ $ (0.35) $ (0.30) $ (0.11) $ .21 $ .32 $ .02 $ .10
Primary net earnings (loss) per common share........... $ 0.18 $ (0.13) $ (0.11) $ .25 $ .33 $ .02 $ .10
Weighted average primary number of common shares(2).... 3,312 3,370 3,372 4,261 5,135 5,022 5,409
Pro forma primary net earnings (loss) per common
share(3)............................................. $ .25 $ .10
Weighted average shares used in computing pro forma
primary net earnings (loss) per common share(3)...... 6,635 6,909
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995
---------------------
AS
ACTUAL ADJUSTED(4)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................................... $ 1,276 $ 5,957
Property, plant and equipment, net.................................................................. 24,689 29,689
Total assets........................................................................................ 32,110 40,902
Long-term debt and capital lease obligations (including current maturities)......................... 8,386 258
Stockholders' equity................................................................................ $18,822 $ 35,742
</TABLE>
- ---------------
(1) Since 1990, information distribution services have been the primary business
of the Company, and, in 1992, the Company discontinued its prior real estate
operations. The 1990 amounts have been reclassified to conform with the 1991
presentation which treats prior real estate operations as discontinued.
(2) Includes 196,242 and 524,477 Shares for the years ended December 31, 1993
and 1994, respectively, and 212,042 and 600,000 Shares for the three months
ended March 31, 1994 and 1995, respectively, which are subject to risk of
forfeiture. See "Management -- Certain Transactions" and Note 7 of the Notes
to Consolidated Financial Statements.
(3) Assumes that on January 1, 1994, the Company issued 1,500,000 Shares at an
assumed public offering price of $12.25 per share, the last reported sale
price of the Shares on April 19, 1995, and used the proceeds to retire
long-term debt, the outstanding balances of which at March 31, 1995
aggregated $8,128,053. See Note 3 of the Notes to Consolidated Financial
Statements. Pro forma primary net earnings per common share for 1994 is
calculated based upon net earnings adjusted for: a reduction in after-tax
interest expense of $230,000 relating to the repayment of the long-term debt
(and a former capital lease refinanced in 1994 with such debt); an increase
in income tax expense of $226,000 resulting from the elimination of the use
of net operating loss carryforwards; and the elimination of the after tax
gain on sale of a marketable security of $64,000. Pro forma primary net
earnings per common share for the three months ended March 31, 1995 is
calculated based upon net earnings adjusted for a $118,000 reduction in
after-tax interest expense related to the repayment of the long-term debt.
See "Use of Proceeds."
(4) Adjusted to give effect to the Offering at an assumed public offering price
of $12.25 per share, the last reported sale price of the Shares on April 19,
1995, and the application of the estimated net proceeds by the Company. See
"Use of Proceeds."
4
<PAGE> 7
INVESTMENT CONSIDERATIONS
The securities offered hereby involve certain special investment
considerations. Prospective investors should carefully consider, among other
things, the following factors:
Product Concentration. Revenues from the sale of CD-ROM products and
services constituted a substantial portion of the Company's revenues for 1994,
and such products and services are expected to continue to account for a
substantial portion of the Company's revenues for the foreseeable future. In
addition, the market for publishing of magazines on CD-ROM is still in the early
stages of development. A decline in the demand for CD-ROM products and services,
whether as a result of competition, technological change or otherwise, would
have a material adverse effect on the Company's operating results. Included in
the Company's CD-ROM products and services are Audio CDs for the radio
syndication programming services market. The Company does not anticipate revenue
growth in its radio syndication services because of the maturity of the market,
the Company's existing market share, and increased price competition.
Competition. The Company faces competition in the information distribution
industry from a number of sources, such as traditional print publishers, on-line
distributors of information, CD-ROM manufacturers, and others. The Company's
competitors vary by market segment and include many companies which are larger,
more established, and have substantially more resources than the Company. The
Company does not benefit from patents or proprietary technology, and competition
may increase in the future. See "Business -- Competition."
Pricing. The CD-ROM and Audio CD industries have been characterized by new
manufacturers continually entering the market and by declining prices for
compact discs ("CDs"). CD-ROM prices declined industry-wide in 1994 and are
expected to decline in the future. To date, continuing market growth has offset
increased manufacturing capacity in the CD-ROM industry, and the Company has
been able to maintain its profitability by increasing sales volumes and
improving manufacturing efficiencies. However, the addition of manufacturing
capacity to the industry has continued, and there can be no assurance that
market growth will continue at the same rate, that prices paid to CD-ROM
manufacturers will not continue to decline or that the Company will be able to
continue to improve its manufacturing efficiencies.
Technological Change. The market for information distribution services
incorporating optical disc technology is based upon a sophisticated technology
and is subject to rapid technological change. Current or new competitors may
introduce new products, features or services that could adversely affect the
Company's competitive position. Additionally, there can be no assurance that
over time optical disc technology will not be replaced by another form of
information storage and retrieval technology, such as on-line information
services. To date, the Company has developed product and service enhancements to
address customer requirements and to respond to competitive conditions. However,
the Company must continue to improve its products and related services and
develop and successfully market new products and services in order to remain
competitive. There can be no assurance that it will be able to do so. See
"Business -- Principal Products and Services."
Dependence on Key Personnel. The Company is highly dependent upon the
efforts of certain key personnel, particularly Jeffrey M. Wilkins, its Chairman
of the Board and Chief Executive Officer. The loss of Mr. Wilkins' services to
the Company could have an adverse effect on the Company. The Company has a $1.0
million life insurance policy on Mr. Wilkins' life and has entered into an
employment agreement with him. See "Management."
Single-Site Manufacturing Facility. All of the Company's manufacturing
services are performed at its manufacturing facility in Dublin, Ohio, which
operates seven days a week, 24 hours per day. In the event this facility is
damaged by fire or other casualty, which damage could not be repaired within a
short period of time, the Company's manufacturing services would be
substantially interrupted and such casualty would be detrimental to the
Company's operations. The Company does not maintain business interruption
insurance.
Possible Volatility of Stock Price. In the future, the market price of the
Shares may be significantly affected by factors such as the announcement of new
products or services by the Company or its competitors, quarterly variations in
the Company's results of operations, conditions in the Company's markets,
conditions in the financial markets, and conditions in the economy in general.
See "Price Range of Common Shares and
5
<PAGE> 8
Dividend Policy." Additionally, Jeffrey M. Wilkins has certain registration
rights in 1996 with respect to up to 600,000 Shares issued to him in 1993, and
the exercise of such rights could have an adverse effect on the market price of
the Shares at that time. See "Management -- Certain Transactions."
Factors Inhibiting Takeovers. The Company is subject to certain provisions
of Florida law which impose restrictions on the ability of a third party to
effect an unsolicited change in control of the Company. In addition, the
Company's articles of incorporation do not provide for cumulative voting in the
election of directors, and certain other provisions of the articles of
incorporation, including provisions which divide the Company's board of
directors into three separate classes, restrict the ability of shareholders to
remove directors without cause, and require super majority shareholder voting
for certain corporate transactions, may have the effect of delaying or
preventing changes in control or management of the Company. These restrictions
could adversely affect the market price of the Shares. See "Description of
Capital Stock -- Florida Law."
6
<PAGE> 9
USE OF PROCEEDS
The net proceeds to the Company from the Offering (at an assumed public
offering price of $12.25 per share) are estimated to be $16,920,000 ($19,503,000
if the Underwriters' over-allotment option is exercised in full). It is
anticipated that approximately $8,128,000 of the net proceeds will be used for
the repayment of bank indebtedness.
Approximately $3,360,000 of this indebtedness is in the form of a term loan
incurred in May 1994. The proceeds of this loan were utilized to construct an
approximately 70,000 square foot expansion to the Company's manufacturing
facility and principal offices, including land acquisition costs. The term loan
matures on December 31, 1999, bears interest at a rate equal to the bank's prime
rate (9% as of May 15, 1995), and provides for equal monthly payments of
principal plus accrued interest. The term loan is secured by all of the
Company's manufacturing and other equipment. The remaining portion of the
indebtedness, approximately $4,768,000, is in the form of a mortgage loan
incurred in September 1994. The proceeds of this loan were utilized to acquire
the Company's existing 55,000 square foot manufacturing facility and principal
offices from Jeffrey M. Wilkins, the Company's Chairman of the Board and Chief
Executive Officer. See "Management -- Certain Transactions." The mortgage loan
matures on January 1, 1998, bears interest at a rate equal to the bank's prime
rate (9% as of May 15, 1995), and provides for 36 equal monthly payments of
principal and interest, with a balloon principal payment due at maturity. The
mortgage loan is secured by the Company's Dublin manufacturing and office
facility.
Approximately $5,000,000 of the net proceeds will be used to increase the
Company's manufacturing capacity by the acquisition of additional mastering and
replication equipment. See "Business -- Manufacturing." The balance of the net
proceeds will be used for general corporate and working capital purposes, which
may include the acquisition or construction of a second-site manufacturing
facility. Pending application of the net proceeds of the Offering to the
purposes described above, the net proceeds will be invested in short-term money
market obligations, commercial paper or other interest bearing marketable
securities.
PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY
Since June 24, 1993, the Shares have been traded on The Nasdaq Stock Market
under the symbol META. From June 5, 1991 to June 23, 1993, transactions in the
Shares were reported on the Nasdaq over-the-counter market. Prior to that time,
there was no established trading market in the Shares. The following table
reflects the range of the reported high and low sales prices, based on the
Nasdaq daily closing price, for the period indicated, except that for periods
prior to June 24, 1993, the high and low bid prices are shown.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1993
First quarter (ended March 31)........................................... $ 8.25 $ 5.00
Second quarter (ended June 30)........................................... 9.50 7.50
Third quarter (ended September 30)....................................... 12.75 9.25
Fourth quarter (ended December 31)....................................... 16.13 12.63
Fiscal Year 1994
First quarter (ended March 31)........................................... $16.00 $11.50
Second quarter (ended June 30)........................................... 12.75 9.50
Third quarter (ended September 30)....................................... 12.25 9.25
Fourth quarter (ended December 31)....................................... 10.75 8.25
Fiscal Year 1995
First quarter (ended March 31)........................................... $14.25 $ 8.75
Second quarter (through May 15).......................................... 14.00 11.00
</TABLE>
As of April 19, 1995, there were 4,300 holders of record of the Shares. On
May 15, 1995, the last reported sale price for the Shares, as reported on The
Nasdaq Stock Market, was $11.00 per share.
The Company has never paid cash dividends on the Shares. The payment of
dividends is within the discretion of the Company's board of directors and
depends upon the earnings, capital requirements, and operating and financial
condition of the Company, among other factors. The Company currently expects to
retain its earnings to finance the growth and development of its business and
does not expect to pay cash dividends in the foreseeable future. In addition,
under the terms of a loan agreement with a bank, the Company is restricted from
paying dividends in excess of 20% of its consolidated net earnings during each
fiscal year, and is subject to additional financial covenants. At March 31,
1995, the Company was in compliance with all such covenants, including those
which were amended by the bank through December 31, 1995. See Note 3 of the
Notes to Consolidated Financial Statements.
7
<PAGE> 10
CAPITALIZATION
The capitalization of the Company as of March 31, 1995, and as adjusted to
give effect to the Offering at an assumed public offering price of $12.25 per
share and application of the estimated net proceeds therefrom is set forth
below:
<TABLE>
<CAPTION>
MARCH 31, 1995
--------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt and capital lease obligations....... $ 975 $ 86
------- --------
Long-term debt and capital lease obligations, less current maturities:
Term Loan.............................................................. 2,640 --
Mortgage Loan.......................................................... 4,599 --
Other.................................................................. 172 172
------- --------
Total long-term debt and capital lease obligations, less current
maturities......................................................... 7,411 172
------- --------
Long-term debt and capital lease obligations, including current
maturities(1).......................................................... 8,386 258
------- --------
Shareholders' equity:
Common Shares, $.10 par value; 10,083,500 shares authorized and
5,274,719 shares issued and outstanding (6,774,719 as
adjusted)(2)........................................................ 527 677
Additional paid-in capital............................................... 15,647 32,417
Retained earnings........................................................ 6,584 6,584
------- --------
22,758 39,678
Less Common Shares held in treasury at cost, 2,755 shares................ (36) (36)
Unamortized restricted stock........................................ (3,900) (3,900)
------- --------
Total shareholders' equity............................................. 18,822 35,742
------- --------
Total capitalization..................................................... $27,208 $ 36,000
======= =======
</TABLE>
- ---------------
(1) See Notes 3 and 4 of the Notes to Consolidated Financial Statements for a
description of the Company's long-term debt and capital lease obligations.
(2) Includes 600,000 Shares issued in March 1993, which are subject to risk of
forfeiture. See "Management -- Certain Transactions" and Note 2 of the Notes
to Consolidated Financial Statements.
8
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data included in the following table should be
read in conjunction with the Company's Consolidated Financial Statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus. The selected
consolidated financial data as of December 31, 1993 and 1994, and for each of
the three years in the period ended December 31, 1994, have been derived from
the Consolidated Financial Statements of the Company audited by Deloitte &
Touche LLP, independent certified public accountants, which are included
elsewhere in this Prospectus. The consolidated financial data for the three
months ended March 31, 1994 and 1995, were derived from unaudited financial
statements. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for those periods. The consolidated financial data for the
three months ended March 31, 1995, are not necessarily indicative of the
combined results that may be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Revenues.................................. $10,355 $13,615 $16,877 $21,318 $28,943 $ 6,007 $ 9,179
Costs and Expenses:
Cost of products sold................... 7,875 9,933 11,198 12,071 16,301 3,612 5,134
Selling, general and administrative..... 3,426 4,533 5,975 8,226 10,060 2,275 2,992
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.............. 11,301 14,466 17,173 20,297 26,361 5,887 8,126
------- ------- ------- ------- ------- ------- -------
Operating Income (Loss)................... (946) (851) (296) 1,021 2,582 120 1,053
Other Income (Expense):
Interest income......................... 38 143 104 135 55 24 21
Gain on sale of marketable security..... 106
Other -- net............................ 164 49 144 42 62 36 (4)
Interest expense........................ (582) (414) (323) (136) (380) (8) (191)
Pre-acquisition loss of acquired
business interest..................... 177
------- ------- ------- ------- ------- ------- -------
Total other income (expense).......... (203) (222) (75) 41 (157) 52 (174)
------- ------- ------- ------- ------- ------- -------
Earnings (Loss) From Continuing Operations
Before Income Taxes..................... (1,149) (1,073) (371) 1,062 2,425 172 879
Income Tax Benefit (Expense).............. 65 (732) (52) (336)
------- ------- ------- ------- ------- ------- -------
Net Earnings (Loss) From Continuing
Operations.............................. (1,149) (1,008) (371) 1,062 1,693 120 543
Gain on sale of discontinued operations... 248
Earnings from discontinued operations (net
of taxes)............................... 1,730 332
------- ------- ------- ------- ------- ------- -------
Net Earnings (Loss)....................... $ 581 $ (428) $ (371) $ 1,062 $ 1,693 $ 120 $ 543
======= ======= ======= ======= ======= ======= =======
Net Earnings (Loss) Per Common Share from
Continuing Operations
Primary................................. $ (0.35) $ (0.30) $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted........................... $ (0.35) $ (0.30) $ (0.11) $ .21 $ .32 $ .02 $ .10
Net Earnings (Loss) per Common Share:
Primary................................. $ .18 $ (0.13) $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted........................... $ .18 $ (0.13) $ (0.11) $ .21 $ .32 $ .02 $ .10
Weighted Average Number of Common Shares
Outstanding(2)
Primary................................. 3,312 3,370 3,372 4,261 5,135 5,022 5,409
Fully diluted........................... 3,312 3,370 3,372 4,953 5,324 5,022 5,418
Pro forma primary net earnings (loss)
per common share(3)..................... $ .25 $ .10
Weighted average shares used in computing
pro forma net earnings (loss) per common
share(3)................................ 6,635 6,909
BALANCE SHEET DATA:
Working capital........................... $ 2,104 $ 4,222 $ 1,576 $ 5,657 $ 1,536 $ 2,427 $ 1,276
Property, plant and equipment, net........ 5,540 5,741 6,490 9,724 24,082 17,791 24,689
Total assets.............................. 15,478 13,920 12,552 19,347 32,556 24,483 32,110
Long-term debt and capital lease
obligations (including current
maturities)............................. 4,136 2,846 3,645 227 8,620 5,009 8,386
Shareholders' equity...................... 9,584 9,156 6,720 16,207 18,276 16,415 18,822
</TABLE>
9
<PAGE> 12
- ---------------
(1) Since 1990, information distribution services have been the primary business
of the Company, and, in 1992, the Company discontinued its prior real estate
operations. The 1990 amounts have been reclassified to conform with the 1991
presentation which treats prior real estate operations as discontinued.
(2) Includes 196,242 and 524,477 Shares for the years ended December 31, 1993
and 1994, respectively, and 212,042 and 600,000 Shares for the three months
ended March 31, 1994 and 1995, respectively, which are subject to risk of
forfeiture. See "Management -- Certain Transactions" and Note 7 of the Notes
to Consolidated Financial Statements.
(3) Assumes that on January 1, 1994, the Company issued 1,500,000 Shares at an
assumed public offering price of $12.25 per share, the last reported sale
price of the Shares on April 19, 1995, and used the proceeds to retire
long-term debt, the outstanding balances of which at March 31, 1995
aggregated $8,128,053. See Note 3 of the Notes to Consolidated Financial
Statements. Pro forma primary net earnings per common share for 1994 is
calculated based upon net earnings adjusted for: a reduction in after-tax
interest expense of $230,000 relating to the repayment of the long-term debt
(and a former capital lease refinanced in 1994 with such debt); an increase
in income tax expense of $226,000 resulting from the elimination of the use
of net operating loss carryforwards; and the elimination of the after-tax
gain on sale of a marketable security of $64,000. Pro forma primary net
earnings per common share for the three months ended March 31, 1995 is
calculated based upon net earnings adjusted for a $118,000 reduction in
after-tax interest expense related to the repayment of the long-term debt.
See "Use of Proceeds."
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is organized into three business divisions which focus on
market-specific CD-ROM product offerings. Manufacturing Services provides CD-ROM
mastering, replication, and distribution services in addition to providing
similar services to radio syndication customers for Audio CDs. Software Services
provides information publishers with design and development services for CD-ROM
based publications, which, in turn, often produce Manufacturing Services
revenues. Publishing Services produces and publishes NautilusCD, a subscription
based monthly multimedia CD-ROM magazine. During the last five years the Company
has focused on CD-ROM manufacturing and software services, has increased
subscriber growth for its NautilusCD product, and has discontinued the Audio CD
manufacturing business except for the radio syndication market.
The following table sets forth the revenues from each of the foregoing
activities and their approximate percentage contribution to revenues during the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------- --------------------------------------
1992 1993 1994 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing Services:
CD-ROM............... $6,318 37% $10,918 51% $17,949 62% $3,476 58% $6,318 69%
Radio................ 6,672 40 5,650 27 5,666 20 1,357 22 1,371 15
Software Services...... 556 3 1,281 6 2,980 10 476 8 954 10
Publishing Services.... 1,595 10 3,113 14 2,348 8 698 12 536 6
Audio CD............... 1,736 10 356 2 0 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Revenues......... $16,877 100% $21,318 100% $28,943 100% $6,007 100% $9,179 100%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company focuses on increasing revenues from its CD-ROM Manufacturing
Services, Software Services, and Publishing Services divisions while maintaining
its current market position within the mature radio syndication market. The
Company's revenue has grown at a compound annual rate of 29% from 1990 to 1994.
During 1994, the Company completed the first stage of a capacity expansion
program started in 1993 with the installation of additional and replacement
state-of-the-art disc molding, printing, and related equipment. This expansion
program, which more than doubled the disc production capacity as compared to
1993 levels, became fully operational in the second half of 1994. The Company is
planning additional expansion of manufacturing capacity in 1995. See "Use of
Proceeds" and "Business -- Manufacturing."
11
<PAGE> 14
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31,
1994
Total revenues increased by approximately 53% from $6,007,000 for the three
months ended March 31, 1994 to approximately $9,179,000 for the three months
ended March 31, 1995. This increase resulted from CD-ROM Manufacturing Services
and Software Services, with revenues of approximately $6,318,000 and $954,000
respectively, increasing approximately a combined $3,320,000, or 84%. This
increase was partially offset by an approximate $162,000 decrease, or 23%, in
Publishing Services revenues. Included in Manufacturing Services are radio
syndication revenues of approximately $1,371,000, which remained constant for
the three months ended March 31, 1995 as compared to the same period of the
prior year. CD-ROM Manufacturing Services and Software Services revenue
increases resulted from the Company's continued focus on the business and
information services CD-ROM market. Publishing Services revenue decreased
primarily as a result of a drop in sales of a product consisting of six
different back issues of NautilusCD.
The number of subscribers to NautilusCD increased from approximately 11,300
as of March 31, 1994 to approximately 17,800 as of March 31, 1995. This resulted
in minimal revenue growth in subscription sales due to a decrease in the
domestic per-issue price of NautilusCD from $9.95 to $6.95 in the second quarter
of 1994.
Cost of products sold was 56% of revenues for the three months ended March
31, 1995 as compared to 60% of revenues for the same period of the prior year.
This decrease in the cost of products sold is primarily attributed to greater
manufacturing efficiencies and increased production volumes.
Selling, general and administrative expenses increased to $2,991,855, or
33% of revenues, for the three months ended March 31, 1995 as compared to
$2,274,869 or 38% of revenues, for the three months ended March 31, 1994. This
increase of $716,986 is primarily attributed to increased personnel costs,
higher outside sales office costs, increased depreciation, and higher occupancy
costs as a result of the Company's increased corporate office space. Increased
personnel costs resulted primarily from increased staffing in the sales and
administrative functions.
Interest and other income for the three months ended March 31, 1995 was
$17,276 as compared to $60,721 for the three months ended March 31, 1994. This
decrease is attributed to lower cash balances available for investment purposes
in the three months ended March 31, 1995 as compared to the same period of the
prior years.
Interest expense for the three months ended March 31, 1995 was $190,871 as
compared to $8,281 for the three months ended March 31, 1994. This increase is
attributed to higher long-term debt balances (including current maturities)
which were incurred as a result of the purchase and expansion of the Company's
primary manufacturing and office facility.
For the three months ended March 31, 1995 an income tax provision of
$336,600 was applied to earnings before income taxes based upon management's
estimate of the full year 1995 expected income tax rate of approximately 38%.
For the three months ended March 31, 1994 an income tax provision of $51,600 was
applied to earnings before income taxes based upon management's estimate of the
full year 1994 expected income tax rate of approximately 30%. The 1994 expected
income tax rate was lower than the 1995 expected income tax rate primarily due
to the use of the net operating loss carryforwards in 1994.
For the three months ended March 31, 1995 net earnings were $542,618
compared to $120,424 for the three months ended March 31, 1994. Net earnings per
common share was $0.10 for the three months ended March 31, 1995 as compared to
$0.02 for the same period of the prior year. The increase in the weighted
average number of shares from 5,021,595 for the three months ended March 31,
1994 to 5,408,670 for the three months ended March 31, 1995 is primarily a
result of Shares earned under the Restricted Share Agreement with an executive
officer of the Company. See "Management--Certain Transactions."
12
<PAGE> 15
1994 Compared to 1993
Total revenues increased by approximately 36% from $21,318,000 in 1993 to
approximately $28,943,000 in 1994. This increase resulted from CD-ROM
Manufacturing Services and Software Services increasing approximately a combined
$8,730,000, or 72%. This increase was partially offset by an approximate
$765,000 decrease, or 25%, in Publishing Services revenues and the elimination
of approximately $356,000 in Audio CD revenues. Radio syndication revenue
remained constant in 1994 as compared to 1993. CD-ROM Manufacturing Services and
Software Services revenue increases resulted from the Company's continued focus
on the business and information services CD-ROM market. The Company increased
the number of new customers, and its existing customers introduced new CD-ROM
products and increased the size of their existing product orders from the
Company. Publishing Services revenue decreased primarily as a result of a drop
in sales of the CD-ROM "in-pack" product, an introductory version of the
subscription-based NautilusCD product which was packaged and distributed with a
variety of CD-ROM drives in 1993.
The number of subscribers to NautilusCD increased from approximately 11,100
as of December 31, 1993 to approximately 17,000 as of December 31, 1994. This
resulted in minimal revenue growth in subscription sales due to a decrease in
the domestic per-issue price of NautilusCD from $9.95 to $6.95 in early 1994.
Cost of products sold was 56% of revenues for 1994 as compared to 57% of
revenues for 1993. This decrease is primarily attributed to greater
manufacturing efficiencies and increased production volume.
Selling, general and administrative expenses increased to $10,060,600, or
35% of revenues, for 1994 as compared to $8,225,564, or 39% of revenues, for
1993. This increase of $1,835,036 is primarily attributed to increased personnel
costs and higher expenditures on product advertising and promotion in 1994.
Increased personnel costs resulted primarily from increased sales personnel in
the Manufacturing Services division and software development personnel in the
Software Services division.
Interest and other income was $222,904 and $176,494 for 1994 and 1993,
respectively. Included in interest and other income for 1994 was a $106,000 gain
on the sale of securities that were acquired prior to 1990. The interest and
other income amounts were primarily a result of investment income from cash and
cash equivalents and other activities during the periods.
Interest expense for 1994 increased to $379,706 as compared to $135,847 for
1993 as a result of the Company's increase of its long-term debt from $227,258
at December 31, 1993 to $8,619,969 as of December 31, 1994. This increase in
debt was a result of the acquisition of the Company's primary manufacturing and
office facility and expansion of that facility in 1994.
The income tax expense was $732,000 in 1994. The 1994 provision reflects a
benefit of net operating loss carryforwards partially offset by the provision
for state and local taxes. No significant net operating loss carryforwards are
available for use beyond 1994. No provision for income taxes was necessary in
1993 due to the utilization of net operating loss carryforwards from prior
years.
Net earnings were $1,692,653 for 1994, with primary earnings per share of
$.33 and fully diluted earnings per share of $.32, as compared to net earnings
of $1,061,984 for 1993, with primary earnings per share of $.25 and fully
diluted earnings per share of $.21. Fully diluted earnings per share reflect the
treasury stock method utilizing a higher ending market price of the Shares.
1993 Compared to 1992
Total revenues increased by approximately 26% from $16,877,000 in 1992 to
approximately $21,318,000 in 1993. This increase resulted from CD-ROM
Manufacturing Services, Software Services and Publishing Services increasing
approximately a combined $6,843,000, or 81%. CD-ROM Manufacturing Services and
Software Services revenue increases resulted from the Company's continued focus
on the business and information services CD-ROM market. Publishing Services
revenue increased primarily from an increase in the number of subscribers to
NautilusCD from approximately 6,900 subscribers as of December 31, 1992 to
approximately 11,100 subscribers as of December 31, 1993 and increased "in-pack"
product revenues generated by introductory versions of NautilusCD packaged with
a variety of CD-ROM drives. Radio
13
<PAGE> 16
syndication revenue decreased to approximately $5,650,000 for 1993, or 15% down
from 1992, primarily due to lower product pricing.
Cost of products sold was 57% of revenues for 1993 as compared to 66% of
revenues for 1992. This decrease is primarily attributed to greater
manufacturing efficiencies, increased production volume and a shift in revenue
mix to higher gross profit CD-ROM products as compared to Audio CD products.
Selling, general and administrative expenses increased to $8,225,564, or
39% of revenues, for 1993 as compared to $5,975,451, or 35% of revenues, for
1992. This increase is primarily attributed to increased personnel costs and
higher levels of product advertising and promotion incurred in 1993. Increased
personnel costs resulted primarily from increased staffing in the sales,
customer support and software services functions.
Interest and other income was $176,494 and $248,398 for 1993 and 1992,
respectively. These amounts were primarily a result of investment income from
cash and cash equivalents and other investments held during the periods.
Interest expense for 1993 decreased to $135,847 as compared to $323,226 for
1992 as a result of the Company's reduction of its long-term debt from
$3,644,941 at December 31, 1992 to $227,258 as of December 31, 1993. This
decrease in debt was a result of repayment of debt with net proceeds from the
Company's Share offering in June 1993.
No provision for income taxes was necessary in 1993 due to the utilization
of net operating loss carryforwards from prior years. No provision for income
taxes was necessary for 1992 due to a loss incurred from operations.
Net earnings were $1,061,984 for 1993, with primary earnings per share of
$.25 and fully diluted earnings per share of $.21, as compared to a loss of
$370,738 for 1992, with primary and fully diluted loss per share of $.11. Fully
diluted earnings per share reflect the treasury stock method utilizing a higher
ending market price of the Shares.
IMPACT OF INFLATION
The Company's operations are not significantly affected by inflationary
pressures. Although inflation does affect salaries, employee benefits and other
operating expenses, after considering general inflationary trends, total
revenues of the Company produced growth in real terms in the first quarter of
1995 and in 1994 and 1993. Revenues increased primarily due to increased sales
of CD-ROM and related products, rather than increases in inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business in 1994 through cash generated from
operations, long-term debt, and available cash balances. In 1993, the Company
also financed its business needs through the issuance of Shares. Cash flow from
operating activities was $5,214,971, $3,858,564 and $2,244,615 for 1994, 1993
and 1992, respectively. For the three months ended March 31, 1995, the Company
financed its business through cash generated from operations of $496,971 and
available cash balances.
In 1994, the Company acquired its principal manufacturing and office
facility from Jeffrey M. Wilkins for $4,800,000 and constructed an approximately
70,000 square foot expansion to that facility. See "Management -- Certain
Transactions." The cost of the expansion, including the land acquired, was
approximately $5,500,000. The acquisition of the facility and expansion
construction costs were financed with long-term debt provided by the Company's
primary financial institution of approximately $8,400,000, with the balance
provided by Company funds.
In 1993, the Company completed a public Share offering that generated net
proceeds of $8,297,529. Those proceeds, along with cash generated from
operations, enabled the Company to reduce its long-term debt in 1993 and
purchase property and equipment. At December 31, 1993 the Company had $4,849,710
in cash and cash equivalents which, along with net cash provided by operations
during 1994 of $5,214,971,
14
<PAGE> 17
enabled the Company to acquire approximately $6,820,000 in property and
equipment, and acquire and expand the facility as previously discussed, which
completed the first stage of the capacity expansion and equipment update program
initiated in 1993. The Company has initiated the second stage of the capacity
expansion program through the placement of mastering and replication purchase
orders. The Company's obligation under these purchase commitments as of March
31, 1995 totalled approximately $2,762,000. The mastering and replication
equipment is scheduled for delivery and installation in the second half of 1995.
See "Business -- Manufacturing." The Company is also considering construction or
acquisition of a second-site manufacturing facility. See "Use of Proceeds."
The Company had cash and cash equivalents of $2,167,518 as of December 31,
1994, and $807,001 as of March 31, 1995, and additionally has $4,000,000
available under its revolving loan agreement (which matures in April 1996). With
the availability of its line of credit, the net proceeds from the Offering, and
funds generated from operations, the Company believes that it has sufficient
liquidity and capital resources to meet its capital expenditure requirements and
operating needs for the foreseeable future.
15
<PAGE> 18
BUSINESS
INDUSTRY OVERVIEW
The principal methods for the distribution of business information
currently include print, CD-ROM, and on-line services. CD-ROM technology was
initially used primarily by institutions, such as libraries, for storing and
searching vast quantities of data. Although print remains the dominant vehicle
for business information distribution, publishers and other companies are
increasingly using CD-ROM as a cost effective and portable format for
distributing and providing access to large amounts of information, including
multimedia applications and interactive software, to widely dispersed groups of
users. In 1993, CD-ROM became one of the fastest-growing segments of the
information services industry.
CD-ROM drives were first available commercially in the mid-1980s, and,
based on published industry information, the North American installed base of
CD-ROM disc drives increased from less than 1.5 million in 1991 to more than 19
million in 1994, and is estimated to be more than 37 million by the end of 1995.
A major factor contributing to the successful establishment of CD-ROM is the
degree of standardization achieved in the early stages of market development.
Adherence to these standards has created a climate of acceptance among both
publishers and device users. Domestic manufacturers of personal computers now
offer CD-ROM drives as standard equipment on virtually all of their desk-top
models.
As a method of distributing business information, on-line services lend
themselves to information which requires frequent or continuous updating. CD-ROM
is a more cost-effective distribution method for large amounts of information
which require less frequent updating and provides audio, video, text, and
graphics capabilities in one medium.
The Company believes that only a small percentage of applications suitable
for CD-ROM have actually been implemented to date for both individuals and
businesses. As a result of the proliferation of CD-ROM drives through the
embracement of CD-ROM technology by major computer hardware and software firms
and the untapped number of applications of CD-ROM technology, the Company
believes that the distribution of information to individuals and businesses
through the use of CD-ROM technology will continue to increase significantly.
STRATEGY
The Company's strategy is to target customers which require turn-key CD-ROM
publication services. Such customers generally have time-sensitive and recurring
information distribution requirements and evolving technical and creative needs,
demand high quality disc manufacturing, and may require fulfillment and
distribution services directed to the ultimate user base. As an established
independent manufacturer with the ability to produce efficiently the smaller
production runs generally required by CD-ROM orders, the Company believes that
it is strategically positioned to satisfy the needs of CD-ROM producers which
require responsive turnaround on smaller orders and a high degree of
personalized support and design services.
The Company's goal is to become the leading provider of information
distribution services utilizing optical disc technology. The Company believes
that the market for information distributed on CD-ROM can be expanded by the use
of communication networks, such as the Internet, to provide interim database and
application updates. The Company intends to begin offering such updating
capability as part of its services during 1995.
PRINCIPAL PRODUCTS AND SERVICES
Through its three business divisions which focus on market specific CD-ROM
product offerings, the Company serves as a one-stop source of CD-ROM solutions.
During the last five years, the Company has focused on CD-ROM manufacturing and
software services, has increased subscriber growth for its NautilusCD product,
and has discontinued the Audio CD manufacturing business except for that
business which is related to the radio syndication market.
Manufacturing Services. The Company manufactures CD-ROMs and provides
technical and creative services to design and assist in the marketing of new
CD-ROM applications by its customers. The Company's
16
<PAGE> 19
services performed through the manufacturing process include conversion of data
provided by customers to a digital format, encoding of the data on a master
disc, replication from the master disc, data verification, quality control
testing, and design and printing of the disc label. The Company provides
full-service disc packaging and either ships the finished product back to its
customers or distributes the product to the ultimate end user on behalf of its
customers.
The Company also manufactures Audio CDs for the radio syndication
programming services market. Radio syndication customers utilize the Company's
quick turn automated production lines, strict quality control, and end user
distribution services to provide them a competitive advantage. The Company
provides a full range of services to radio syndication customers from digital
format conversion to fulfillment.
The Company operates its automated production facility seven days a week,
24 hours per day in a state-of-the-art facility, permitting it to offer one-day
turnaround of a master CD and high quality CD replicas for distribution for both
its CD-ROM and radio syndication customers.
Software Services. The Company provides a full range of software services
to assist customers with designing and producing multimedia products integrating
text, video, audio, graphics, and animation. These services include working with
customers to develop CD-ROM applications and marketing strategies from technical
and business consultation through the conversion of raw data to the final
replication of information on disc. For example, the Company provides software
programming services to develop indexing and user interfaces providing search
and retrieval capabilities. Such user interfaces allow an ultimate end user to
manipulate efficiently the information being distributed. In order to provide
software development services, the Company currently uses search and retrieval
software licensed to it by an independent third party for an indefinite term at
a rate tied to the level of usage of the software. The Company believes that
this software will continue to be available from this supplier and other
suppliers. The services provided by the Company's Software Services division
often result in customers using the Company's Manufacturing Services division
for, among other things, replication, printing, and fulfillment of a given
project.
Publishing Services. The Company has developed the first subscription-based
multimedia magazine regularly distributed on CD-ROM. Each issue of NautilusCD,
which is published monthly, includes a variety of software demonstrations and
presentations, shareware, multimedia applications, graphics/photo resources,
audio tracks and music files, commentary, a shopping section, directories and
databases, games, educational products, and a cumulative index. NautilusCD also
contains the software necessary for subscribers to send their comments and ideas
electronically to the editors. NautilusCD was originally published in September
1990 for the Macintosh(R) family of computers (Macintosh(R) is a registered
trademark of Apple Computer, Inc.). A Windows(TM) version of the service was
introduced in the first quarter of 1991 and distribution began in November 1991
(Windows(TM) is a registered trademark of Microsoft Corporation). As of March
31, 1995, NautilusCD had approximately 18,000 subscribers. In addition, certain
software tools developed by the Publishing Services division are utilized in
services provided by the Company's other divisions.
MARKETING
The Company markets its products and services, other than NautilusCD,
through its own sales force of 20 employed associates based in San Jose,
Chicago, Washington, D.C., New York, Denver, Dallas and Boston, in addition to
Dublin, Ohio, where its principal offices are located. These associates are
responsible for maintaining relationships with existing customers and developing
new business relationships. The associates are supported by a customer service
staff that is responsible for ensuring that each order is processed in a timely
manner and all required support materials are in place. The Company believes
that its high-quality manufacturing capability, customer responsiveness, and
effective customer service have contributed to customer loyalty. The Company's
base of approximately 200 customers is diversified and no one customer accounted
for more than 7% of 1994 sales. The Company markets NautilusCD through direct
mail with advertising and promotional support.
17
<PAGE> 20
MANUFACTURING
The Company operates from an approximately 125,000 square foot facility in
Dublin, Ohio, of which approximately 60,000 square feet are used for
manufacturing and distribution activities. The Company's manufacturing services
include premastering and mastering of discs, from which duplicate CD-ROMs and
Audio CDs can be made, disc label design and printing, packaging, distribution,
and fulfillment services. During the last three years, the Company increased its
mastering capacity and converted its disc manufacturing process from batch
processing to monoline, or in-line, manufacturing. The Company believes that its
increased mastering capacity is a competitive advantage, allowing the Company to
react more responsively to customer timing requirements. The monoline process,
which moves each disc through the various operations separately, reduces
production time, permits the production of automated inspection equipment to
detect flaws at an early stage, and improves quality. Each replicating machine
is self-contained, eliminating the need for establishing and maintaining a
separate production area clean room. In 1994, the Manufacturing Services group
began the process for ISO 9000 quality system certification, which is targeted
for completion in 1995.
With the installation of additional and replacement disc molding, printing
and related equipment during 1994, the Company completed the first stage of a
capacity expansion program which was started in 1993. This expansion program
more than doubled production capacity from 1993 levels and was fully operational
in the second half of 1994. The Company intends to apply approximately
$5,000,000 of the proceeds of the Offering to increase manufacturing capacity in
1995 through the acquisition of additional mastering and replication equipment.
The Company utilizes certain patents and technology in its manufacturing
activities which it licenses from third parties and which the Company believes
to be generally available to other manufacturers. Although only one vendor
currently produces a key raw material used by the Company in its manufacturing
process, the Company generally maintains a six-month supply of this material and
has obtained the rights to manufacture the material itself or through other
third parties. The Company has multiple sources for all other raw materials and
supplies used in its manufacturing operations.
COMPETITION
The Company has a number of competitors in each of its lines of business.
Many of the Company's competitors are larger and have greater financial
resources than the Company. The Company believes that the principal competitive
factors in the CD-ROM marketplace consist of service, quality, and reliability
for the timely delivery of products. These factors, in addition to price, also
affect the Audio CD marketplace. The Company believes it competes favorably with
respect to these factors in the CD-ROM market and the radio syndication segment
of the Audio CD market.
In its CD-ROM Manufacturing and Software Services divisions, the Company
differentiates itself from its competitors by providing short-run manufacturing
flexibility (including quick turnaround times), personalized customer service,
software development services, and complete CD-ROM solutions. Many firms demand
a manufacturer like the Company which can provide additional services such as
label design and printing, packaging, and distribution. In the Publishing
Services division, the Company competes based on product innovation and content.
ASSOCIATES
The Company employed approximately 307 associates as of March 24, 1995.
Approximately 190 associates are directly involved in the manufacturing and
distribution process, approximately 55 associates are involved in the Software
Services division, approximately 20 associates are directly involved with the
Publishing Services division, and the remainder are involved in sales,
administration, and support. The Company believes that its relations with its
associates are good.
18
<PAGE> 21
PROPERTIES
The Company owns an approximately 125,000 square foot office and
manufacturing facility situated on approximately 15 acres located at 7001
Metatec Boulevard, Dublin, Ohio. The Company's principal executive offices are
located in this facility. This property is held subject to a mortgage in favor
of a bank. See "Use of Proceeds." The Company also leases office space in San
Jose, Chicago, Washington, D.C., New York, Denver, Dallas, and Boston.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceeding, nor,
to the Company's knowledge, is any material legal proceeding threatened against
it.
CORPORATE BACKGROUND
The Company was incorporated as a Florida corporation on September 9, 1976.
Since 1990, information distribution services have been the primary business of
the Company. Prior to that time, the Company's primary business was the
development and sale of real estate. The Company entered the business of
information distribution services in 1989 by acquiring a 48% interest in
Discsystems, Inc., a company in which Jeffrey M. Wilkins, the Company's Chairman
of the Board and Chief Executive Officer, also acquired a 4% interest.
Discsystems, Inc. purchased the assets of The Wilkins Company, a compact disc
manufacturer which was in a Chapter 11 bankruptcy proceeding. Mr. Wilkins was
President and a shareholder of The Wilkins Company. In 1990, the Company
acquired the remaining 52% interest in Discsystems, Inc. from Mr. Wilkins and
such company's other shareholders, and, in 1991, Discsystems, Inc. changed its
name to Metatec/ Discovery Systems, Inc. In 1992, the Company discontinued its
real estate operations through a distribution of its real estate assets in
exchange for all of its outstanding Class B Common Shares. Prior to such time,
the holders of the Class B Common Shares were entitled to elect a majority of
the Company's board of directors, and their vote was required to authorize
certain major corporate transactions. Pursuant to a recapitalization effected in
May 1993, the Company's Class B Common Shares were eliminated as a class of
shares.
19
<PAGE> 22
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
POSITIONS HELD
NAME AGE WITH THE COMPANY
- ------------------------- ---- ----------------------------------------------------------
<S> <C> <C>
Jeffrey M. Wilkins 50 Chairman of the Board, Chief Executive Officer, and
Director
Gregory T. Tillar 42 President, Chief Operating Officer, and Director
William H. Largent 39 Vice President, Finance, Treasurer, Chief Financial
Officer, and Director
Thomas J. Harmon 45 Secretary
Alexander P. Deak 34 Vice President and Chief Information Officer
James E. Lang 56 Vice President, Manufacturing Operations
John R. Rue 36 Vice President, Software Services
Brad D. Warnick 42 Vice President, Publishing Services
Christopher L. Winslow 33 Vice President, Manufacturing Services
A. Grant Bowen 64 Director
E. David Crockett 58 Director
Peter J. Kight 38 Director
Jerry D. Miller 59 Director
James V. Pickett 53 Director
</TABLE>
Jeffrey M. Wilkins has been Chairman of the Board, Chief Executive Officer,
and a director of the Company since August 1989. In 1969, Mr. Wilkins founded
CompuServe Incorporated, a provider of computer-based information services, and
for 15 years served as its Chairman of the Board, President, and Chief Executive
Officer. Mr. Wilkins holds bachelor's and master's degrees in electrical
engineering.
Gregory T. Tillar has been President of the Company since February 1995,
Chief Operating Officer of the Company since April 1993, a director of the
Company since April 1995, and has held various sales management positions with
the Company since May 1990. Mr. Tillar was previously with CompuServe
Incorporated for 11 years in its business services division in a variety of
field sales and management positions. During his last four years with
CompuServe, Incorporated, Mr. Tillar served as Vice President of Sales, managing
24 branch offices located throughout the United States.
William H. Largent has been Vice President, Finance and Chief Financial
Officer of the Company since March 1993, Treasurer of the Company since May
1993, and a director of the Company since May 1990. From October 1992 to March
1993, Mr. Largent was President of Liebert Capital Management Corporation, an
investment management company, and from April 1990 to September 1992, he was
Executive Vice President of L Corporation, an investment management affiliate of
Liebert Capital Management Corporation. Mr. Largent also serves as a director of
AmeriLink Corporation.
Thomas J. Harmon has been Secretary of the Company since February 1977. Mr.
Harmon was also a director of the Company from 1983 to 1994.
Alexander P. Deak has been Chief Information Officer of the Company since
December 1994, and has held information services and product management
positions with the Company since 1990. Prior to joining the Company, Mr. Deak
was in field account management and support, technical support management, and
corporate technical support with CompuServe Incorporated.
20
<PAGE> 23
James E. Lang, Ph.D., has been Vice President, Manufacturing Operations, of
the Company since April 1993, and has supervised the Company's manufacturing
operations since September 1991. Prior to joining the Company, Dr. Lang was a
manufacturing consultant in the compact disc industry for two years, a
production manager for Denon Digital Industries, a compact disc manufacturer in
Madison, Georgia, for two years, and a director of videodisc mastering and
director of information storage systems at the CBS Technology Center for seven
years. Dr. Lang holds a Ph.D. degree in Materials Science.
John R. Rue has been Vice President, Software Services, of the Company
since January 1994, and has held various Manufacturing Services and Software
Services management positions with the Company since 1990. From 1982 to 1990,
Mr. Rue was in field sales management and was Director, Network Services, with
CompuServe Incorporated.
Brad D. Warnick has been Vice President, Publishing Services, of the
Company since October 1994, and has held various product development and
management positions with the Company since 1989.
Christopher L. Winslow has been Vice President, Manufacturing Services, of
the Company since July 1994, and has held various product management positions
with the Company since 1992. From 1984 to 1992, Mr. Winslow was in sales and
product management with CompuServe Incorporated.
A. Grant Bowen has been a director of the Company since 1991. Mr. Bowen has
served as a financial consultant since March 1986. Mr. Bowen also serves as a
director of State Savings Bank.
E. David Crockett has been a director of the Company since 1994. Mr.
Crockett has been a General Partner of Aspen Venturers, a venture capital firm
for high technology start-up companies, since April 1991. From December 1987 to
April 1991, Mr. Crockett was Vice President of 3i Ventures, which was also a
venture capital firm for high technology start-up companies. Mr. Crockett also
serves as a director of Herman Miller Corporation and Cornerstone Imaging, Inc.
Peter J. Kight has been a director of the Company since 1994. Mr. Kight has
been the Chairman, Chief Executive Officer, and President of Checkfree
Corporation, a company that provides a nationwide electronic bill paying system,
since January 1981. Mr. Kight also serves as a director of Danninger Medical
Technology, Inc.
Jerry D. Miller has been a director of the Company since 1976. Mr. Miller
has been the President of D&D Properties, Inc. and the President of MGB, Inc.,
both of which are engaged in the real estate business, since May 1992. Mr.
Miller was the President and Treasurer of the Company from its incorporation in
1976 to May 1993, and was the Chairman of the Board from June 1978 to August
1989.
James V. Pickett has been a director of the Company since April 1995. Mr.
Pickett has been the Managing Director of the real estate investment group of
Banc One Capital Corp., a subsidiary of Banc One Holding Corporation, since
February 1993, and the President of Pickett Realty Advisors, Inc., an asset
management firm for hotel owners, since December 1991. Mr. Pickett has also been
the President of a group of affiliated companies and partnerships, collectively
known as The Pickett Companies, involved in the development, management, and
ownership of hotels, since 1965. In February 1991, a group of these entities, PH
Management Corporation ("PHMC"), DCP Development Company ("DCP"), PHA Limited
Partnership ("PHA"), and PC Development Limited Partnership ("PCD"), filed a
Chapter 11 petition with the United States Bankruptcy Court for reorganization.
In April 1992, the consolidated plan of reorganization for these entities was
confirmed by the Bankruptcy Court. PHMC and PCD are continuing entities carrying
out the plan of reorganization. PHA and DCP were dissolved as part of the plan.
Mr. Pickett also serves as a director of Wendys International, Inc. and PHMC,
which controls PSH Master L.P.I.
21
<PAGE> 24
Board of Directors' Terms and Committees; Officers' Terms
The Company's Board of Directors is divided into three classes, with each
class elected to serve a staggered three-year term, and with the term of office
of one class of directors to expire at each annual meeting of shareholders. The
Board of Directors is currently classified as follows: Class I Directors (term
expiring in 1997) -- William H. Largent, E. David Crockett, and Peter J. Kight;
Class II Directors (term expiring in 1998) -- Gregory T. Tillar, Jerry D.
Miller, and James V. Pickett; and Class III Directors (term expiring in
1996) -- Jeffrey M. Wilkins and A. Grant Bowen. The classified Board of
Directors may increase the difficulty of, or discourage, a business combination
or an attempt to gain control of the Company that is not approved by the Board
of Directors.
The Board of Directors has established an Executive Committee, a
Compensation Committee, and a Finance and Audit Committee. The Executive
Committee, whose current members are Jeffrey M. Wilkins, Gregory T. Tillar,
William H. Largent, and A. Grant Bowen, may exercise all of the authority of the
Board of Directors between its meetings. The Compensation Committee, whose
current members are A. Grant Bowen, Jerry D. Miller, E. David Crockett, and
James V. Pickett, is responsible for administering the Company's two stock
option plans and may exercise the authority of the Board of Directors with
respect to the compensation of employees of the Company. The Audit and Finance
Committee, whose current members are A. Grant Bowen, Jerry D. Miller, Peter J.
Kight, and James V. Pickett, is responsible for the appointment of the
independent auditors, the annual audit of the Company's accounts by the
independent auditors, and all related matters, along with other activities
undertaken by such committee.
Subject to an employment agreement with Mr. Wilkins, the Company's
executive officers are elected annually by, and serve at the discretion of, the
Board of Directors. See "Management -- Employment Agreement with Mr. Wilkins."
EXECUTIVE COMPENSATION
Set forth below is summary information regarding the annual and long-term
compensation of the Company's chief executive officer and its only other
executive officers whose annual compensation exceeded $100,000 during fiscal
1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------
ANNUAL COMPENSATION SHARES UNDERLYING
NAME AND -------------------- OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) GRANTED(2) COMPENSATION(3)
- ------------------------------------ ---- -------- -------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey M. Wilkins 1994 $250,000 $127,286 $ 1,230
Chairman of the Board and 1993 $250,000 $ 57,447 $ 1,225
Chief Executive Officer 1992 $174,231 $ 10,000
Gregory T. Tillar 1994 $125,231 $ 82,000 20,000 $ 1,622
President and Chief 1993 $100,000 $ 57,956 10,000 $ 1,042
Operating Officer 1992 $102,692 $ 26,875
William H. Largent 1994 $108,231 $ 65,000 20,000 $ 900
Vice President-Finance, Treasurer, 1993 $ 82,696 $ 15,393 20,000
and Chief Financial Officer 1992
</TABLE>
- ---------------
(1) Bonuses, other than for Mr. Wilkins which are paid pursuant to his
employment agreement with the Company, were earned pursuant to an Incentive
Compensation Plan for certain key executives of the Company selected by the
chief executive officer. Pursuant to this plan, an individual target
incentive amount for each executive and a target amount for the Company's
net income was established. Each participating executive was paid a bonus in
an amount ranging from 65% to 140% of his target incentive amount based on
his percentage of the target net income actually achieved by the Company.
All bonuses under the Incentive Compensation Plan require approval by the
Compensation Committee.
(2) This column sets forth the number of Shares subject to options granted
during the indicated year pursuant to the Company's 1990 Stock Option Plan.
See "Management -- Stock Option Plans."
22
<PAGE> 25
(3) Represents amounts contributed by the Company as matching contributions to
its 401(k) retirement plan.
OPTION GRANTS IN 1994
The following table sets forth all grants of stock options to the executive
officers named in the Summary Compensation Table during fiscal 1994:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE PRICE APPRECIATION(2)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
- ------------------------ ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Wilkins -0- -0- -0- -0- -0- -0-
Gregory T. Tillar 20,000 13.1% $11.50 4/27/04 $144,600 $366,600
William H. Largent 20,000 13.1% $11.50 4/27/04 $144,600 $366,600
</TABLE>
- ---------------
(1) The per share exercise price is equal to the fair market value of the Shares
on the date of grant.
(2) The dollar amounts under the 5% and 10% columns in the table are the result
of calculations required by the rules of the Commission.
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR END OPTION VALUES
The following table sets forth stock option exercises during fiscal 1994 by
the executive officers named in the Summary Compensation Table and the value of
in-the-money stock options held by those individuals as of December 31, 1994:
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/94 AT 12/31/94(2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED(1) UNEXERCISABLE UNEXERCISABLE
------------------ --------------- ----------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Jeffrey M. Wilkins -0- -0- -0- -0-
Gregory T. Tillar -0- -0- 30,000/20,000 $198,750/$0
William H. Largent -0- -0- 20,000/20,000 $82,500/$0
</TABLE>
- ---------------
(1) Aggregate market value of the Shares covered by the option less the
aggregate price paid by the executive officer.
(2) The value of in-the-money options was determined by subtracting the exercise
price from the closing price of the Shares on December 31, 1994.
EMPLOYMENT AGREEMENT WITH MR. WILKINS
The Company and Mr. Wilkins are parties to an Amended and Restated
Employment Agreement (the "Employment Agreement") pursuant to which Mr. Wilkins
is serving as Chairman of the Board and Chief Executive Officer of the Company.
The Employment Agreement continues until terminated by the parties. The
Employment Agreement may be terminated by the Company for "Cause" (defined as
dishonesty constituting a felony) or because of Mr. Wilkins' long-term
disability, by Mr. Wilkins for "Good Reason" (defined as any material reduction
in authority, title, or responsibility, any reduction in compensation or
benefits or any assignment of additional duties), or by either party upon at
least one year's notice. Under the Employment Agreement, Mr. Wilkins is entitled
to an annual base salary of $250,000, fringe benefits to be determined by the
Board of Directors of the type which are typically provided to chief executive
officers of similarly situated companies, and an annual bonus equal to five
percent of the net pre-tax profit of the Company (calculated without
consideration of any such bonuses paid or payable to Mr. Wilkins) during each
fiscal year beginning with fiscal year 1993. Upon termination of the Employment
Agreement, unless the termination is by the Company for Cause or unless the
termination is a voluntary termination by Mr. Wilkins
23
<PAGE> 26
without Good Reason, Mr. Wilkins is entitled to receive a single payment equal
to his full annual salary in effect at the time, he is entitled to continue
receiving the annual bonuses for the three fiscal years of the Company ending
after the date of termination, and the Company is to continue providing group
life and group health insurance coverage for a one-year period after the date of
termination.
The Company has the option to purchase all of Mr. Wilkins' Shares at fair
market value upon Mr. Wilkins' death or long-term disability or upon his
voluntary termination other than for Good Reason or upon the Company's
termination for Cause. For a period of three years after termination of his
employment, Mr. Wilkins is prohibited from competing against the Company unless
he is terminated by the Company without Cause or he voluntarily resigns for Good
Reason.
COMPENSATION OF DIRECTORS
Employee directors receive no additional compensation for service on the
Board of Directors or its committees. Directors of the Company who are not also
employees of the Company receive a fee of $500 per board or committee meeting
attended in person and $125 per board or committee meeting attended through
telephonic communication. In addition, directors of the Company who are not
officers or employees of the Company or any of its subsidiaries receive stock
options pursuant to the Company's 1992 Directors' Stock Option Plan. See
"Management -- Stock Option Plans."
STOCK OPTION PLANS
The Company has adopted a 1990 Stock Option Plan, a 1990 Directors' Stock
Option Plan, and a 1992 Directors' Stock Option Plan (together referred to as
the "Plans").
Pursuant to the 1990 Stock Option Plan, options may be granted to any of
the full-time employees of the Company or its subsidiaries and, in the case of
options not intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), directors of
subsidiaries (other than directors of such subsidiaries who are also directors
of the Company). The option price of options granted under the 1990 Stock Option
Plan which are intended to qualify as incentive stock options under Section 422
of the Code may not be less than the fair market value of the Shares subject
thereto on the date the option is granted. The option price of any other options
granted under such plan may not be less than 50% of the fair market value of the
Shares subject thereto on the date the option is granted. A total of 510,000
Shares have been reserved for issuance (subject to anti-dilution adjustments)
under such plan, and options for 501,550 Shares have been granted. As of May 15,
1995, options to purchase 352,950 Shares were outstanding, with an option price
ranging between $1.50 and $11.50 per share.
The 1990 Stock Option Plan, as well as the other Plans, is administered by
the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee"), none of whom are eligible to participate in the 1990
Stock Option Plan. Such committee has exclusive authority, consistent with law
and the terms of 1990 Stock Option Plan, to designate recipients of options to
be granted thereunder and to determine the number and type of options and the
number of Shares subject thereto.
The 1990 Directors' Stock Option Plan expired in 1992, and no additional
options may be granted under such plan. As of May 15, 1995, options to purchase
7,500 Shares were outstanding, with an option price ranging between $1.75 and
$2.67 per share.
Pursuant to the 1992 Directors' Stock Option Plan, options are granted to
directors of the Company who are not employees of the Company or its
subsidiaries. Currently, a total of five directors are eligible for options
under the 1992 Directors' Stock Option Plan. Promptly following each annual
meeting of shareholders of the Company, each eligible director is automatically
granted an option to purchase 2,500 Shares. These options are fully vested at
the time of grant and must be exercised within five years of the date of grant.
In addition, each person who was an eligible director immediately following the
1994 annual meeting of shareholders and each person who for the first time
becomes an eligible director after the 1994 annual meeting of shareholders and
before the day after the 1996 annual meeting of shareholders is automatically
granted an option, on a one-time basis, to purchase 10,000 Shares (the "One-Time
Options"). The One-Time Options have five-year
24
<PAGE> 27
terms and vest in equal annual installments over a four-year period. The option
price of any Shares subject to an option under the 1992 Directors' Stock Option
Plan is the fair market value of the Shares on the date the option is granted.
The 1992 Directors' Stock Option Plan provides for certain early vesting and
additional exercise rights with respect to a director who has reached the age of
70 and who thereafter ceases to be an eligible director under the plan for any
reason other than death or discharge for cause. A total of 160,000 Shares
(subject to anti-dilutive adjustments) have been reserved for issuance under
such plan, and options for 109,292 Shares have been granted. As of May 15, 1995,
options to purchase 109,292 Shares were outstanding, with an option price
ranging between $3.69 and $11.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Jerry D. Miller, A.
Grant Bowen, E. David Crockett, and James V. Pickett. Until May 1993, prior to
his appointment to the Compensation Committee, Mr. Miller served as President of
the Company. There are no interlocking relationships between any executive
officers of the Company and any entity whose directors or executive officers
serve on the Company's Board of Directors or Compensation Committee, except that
Jeffrey M. Wilkins, the Company's Chairman and Chief Executive Officer, serves
as a director and member of the compensation committee of Checkfree Corporation.
Peter J. Kight, a director of the Company, is an executive officer of Checkfree
Corporation.
CERTAIN TRANSACTIONS
In connection with the Company's 1990 acquisition of all of the shares of
Discovery Systems held by two former directors of the Company and by Jeffrey M.
Wilkins, the Company's Chairman of the Board and Chief Executive Officer, and in
exchange for Mr. Wilkins' surrender of an option to purchase 48% of the shares
of Discovery Systems, the Company agreed to issue an indefinite number of Shares
to Mr. Wilkins on a deferred basis pursuant to an escrow arrangement intended to
continue until the first quarter of 1996. In March 1993, the Company and Mr.
Wilkins agreed to terminate this deferred share arrangement and effectively cap
the number of Shares which could be received by Mr. Wilkins as a result of the
termination of his original option by issuing 600,000 Shares to him. These
Shares were issued to Mr. Wilkins subject to a risk that he will forfeit the
Shares if his employment is terminated by the Company for Cause or by Mr.
Wilkins without Good Reason (as these terms are defined in Mr. Wilkins'
employment agreement with the Company) on or before February 29, 1996, and
subject to a risk that he will forfeit all or part of the Shares under a formula
based primarily on the pre-tax profits of Discovery Systems. Under that formula,
an amount equal to 48% of the pre-tax profit or loss of Discovery Systems for
each of the years 1991 through 1995, calculated with adjustments relating to
certain intercompany transactions (including the cost of any capital provided by
the Company) is discounted from the end of such year to December 31, 1989. The
discounted amount is then divided by $2.67 per share (the Company's book value
per share as of December 31, 1989) to determine a share number for that year
(with the share number expressed as a negative number for any years in which
Discovery Systems had a pre-tax loss). The share numbers for the five years
ending with 1995 are then added together and that total is reduced by the result
obtained when $480,000 (representing the option purchase price payable by Mr.
Wilkins under his surrendered option) is divided by the fair market value of one
Share on December 31, 1995, to determine the total number of Shares, if any,
earned over the five-year period. If that total number is less than 600,000,
then the difference is the number of Shares which are automatically forfeited by
Mr. Wilkins. At March 31, 1995, 600,000 Shares had been tentatively earned by
Mr. Wilkins under the formula. This number may decrease depending upon the
pre-tax profit or loss of Discovery Systems for 1995. In addition, the Company
has agreed to (a) register any unforfeited Shares at Mr. Wilkins' request, (b)
pay Mr. Wilkins a bonus in an amount equal to any tax savings resulting to the
Company from the issuance of the Shares and the payment of such bonus, up to the
amount of Mr. Wilkins' individual tax liability with respect to the issuance of
the Shares to him, and (c) use its best efforts to effect an underwriting of a
number of the unforfeited Shares sufficient to enable Mr. Wilkins to cover any
related tax liability to the extent not covered by the bonus described in (b),
above. However, the Company does not anticipate the need to pay Mr. Wilkins the
above described bonus or to effect an underwriting with respect to the issuance
of the unforfeited Shares.
25
<PAGE> 28
In September 1994, the Company purchased from Jeffrey M. Wilkins
approximately seven acres of land and the approximately 55,000 square foot
office and manufacturing facility situated thereon located at 7001 Metatec
Boulevard, Dublin, Ohio (the "Dublin Facility"). Prior to that time, the Dublin
Facility was leased by the Company from Mr. Wilkins as part of its manufacturing
facility and principal executive offices. The Dublin Facility was purchased
pursuant to the terms of an option to purchase which was contained in the lease
for the Dublin Facility. This option provided that the Company could purchase
the Dublin Facility at any time prior to the expiration of the lease term for a
purchase price equal to the lesser of (a) $4.8 million or (b) an amount equal to
the value in use of the Dublin Facility, as determined by an MAI appraiser,
reduced by $660,000 (the value of Company improvements in use at the time the
option was granted) and without consideration of any improvements made by the
Company after January 1, 1994. Pursuant to the foregoing formula, the purchase
price paid to Mr. Wilkins was $4.8 million. The Company also paid expenses in
connection with the purchase totaling $4,710, none of which were paid to Mr.
Wilkins. The lease was cancelled in connection with the purchase of the Dublin
Facility. During 1994, and prior to the cancellation of the lease and
consummation of the purchase, the Company paid Mr. Wilkins $378,900 for rent of
the Dublin Facility.
The lease which was in effect on the date of purchase was entered into
effective March 1, 1994, and modified certain provisions of the prior lease
between the Company and Mr. Wilkins. Prior to March 1994, the Dublin Facility
was leased to Discovery Systems by Mr. Wilkins under a lease with a term
expiring December 31, 1997. The prior lease was guaranteed by the Company, and
provided for annual rent increases based on increases in the Consumer Price
Index. Mr. Wilkins had granted the Company an option to purchase the Dublin
Facility at any time prior to November 16, 1996, for a purchase price
established by an MAI appraiser, less a commission amount of not less than three
percent that would have been charged by a commercial real estate broker upon the
sale of the Dublin Facility. The prior lease, the Company's guaranty, and the
related purchase option agreement were terminated on the effective date of the
new lease. Under the new lease, which had a 15-year term, Mr. Wilkins agreed to
cap the rent at $48,519 per month, extend the term of the Company's purchase
option to coincide with the lease term, and cap the purchase price payable upon
exercise of the purchase option. Consistent with the prior lease, the Company
paid all taxes, utility charges, and insurance premiums related to the Dublin
Facility. Total rent paid to Mr. Wilkins under the leases was $481,800,
$526,717, and $378,900 for 1992, 1993, and 1994, respectively.
In February 1994, the Company purchased from Olde Poste Properties, an Ohio
general partnership, approximately eight acres of land adjacent to the Dublin
Facility for purposes of expanding the Dublin Facility to increase the Company's
manufacturing and distribution capacity. The purchase price for the land was
$645,300, and the Company paid expenses in connection with the purchase totaling
approximately $48,700, including the commission payable to the seller's broker,
the conveyance fee, and the premium for owner's title insurance. Mr. Wilkins is
a general partner of Olde Poste Properties; however, Mr. Wilkins did not
participate in the negotiations of any terms of the acquisition. Such terms were
established by other partners of Olde Poste Properties and other officers of the
Company.
The Company believes the terms of the lease and purchase of the Dublin
Facility from Mr. Wilkins and the purchase of adjacent land from Olde Poste
Properties were no less favorable to it than it could obtain from independent
third parties.
During 1992 and 1993, the Company leased certain equipment from Mr. Wilkins
for a monthly rental of $17,000. The lease expired on December 31, 1993, and on
January 1, 1994, the Company purchased the equipment for $578,000, which the
Company believes was no less favorable to it than it could obtain from
independent third parties for similar equipment.
On March 30, 1993, the Company entered into a severance agreement with
Jerry D. Miller, pursuant to which he resigned from his positions as president
and treasurer of the Company on May 20, 1993, following the 1993 annual meeting
of shareholders. Under the agreement, the Company paid Mr. Miller severance
compensation at the rate of $7,500 a month during the remainder of 1993, plus a
lump sum payment of $45,000. Mr. Miller continues to serve as a director of the
Company, and has been nominated for re-election at the Company's 1995 annual
meeting of shareholders.
26
<PAGE> 29
In accordance with an agreement in principle entered into in December 1992,
on March 10, 1993, the Company distributed all of the outstanding common shares
of its subsidiary, Silco Real Estate Exchange, Inc. ("Silco"), to Darla D. Lang
and Denise Hunter, daughters of Jerry D. Miller who was at that time the
President of the Company and who continues to serve as a director of the
Company. The Silco shares were distributed in exchange for all of the Company's
outstanding Class B common shares, par value $.10 a share (the "Class B
Shares"). The exchange was completed pursuant to the terms of a Share Exchange
Agreement among the Company, Silco, Ms. Lang, Ms. Hunter, and Messrs. Wilkins
and Miller, individually and as Trustees under a Voting Trust Agreement dated
August 8, 1990, for the benefit of Ms. Lang and Ms. Hunter (the "Exchange
Agreement"). The exchange was valued at approximately $2,100,000 based upon
independent appraisals of the Class B Shares and the Company's real estate
assets. Prior to the exchange, the Company contributed and transferred control
of substantially all of its real estate assets to Silco (the "Contributed
Assets"), so that at the time of the exchange, Silco was the owner of
substantially all of the Company's remaining real estate operations and related
assets. Under the Exchange Agreement, Silco assumed all obligations and
liabilities relating to the Contributed Assets (the "Assumed Liabilities") and
agreed to indemnify the Company against the Assumed Liabilities. In addition,
Ms. Lang and Ms. Hunter have guaranteed Silco's obligations with respect to all
of the Assumed Liabilities, and Mr. Miller has guaranteed Silco's obligations
with respect to a portion of the Assumed Liabilities, under a Guaranty and
Indemnification Agreement executed pursuant to the Exchange Agreement. On May
20, 1993, the Company's articles of incorporation were amended to, among other
things, eliminate the Class B Shares (none of which were outstanding at the
time) and combine all of the Company's authorized common shares into one class.
On April 26, 1993, the Company sold to MGB, Inc., a corporation in which
Ms. Lang and Ms. Hunter are the sole shareholders ("MGB"), the Company's entire
interest in Lunn Woods Partnership, a Florida general partnership engaged in
real estate activities, including any rights of the Company accruing after
February 28, 1993, with respect to the partnership interest, for a purchase
price of $319,444, an amount equal to the book value of that partnership
interest on the books of the Company as of February 28, 1993. MGB paid to the
Company at the closing of the sale an amount equal to 20% of the total purchase
price for the partnership interest plus interest on the total purchase price at
the rate of 6.5% per annum from March 1, 1993, through the closing. The balance
of the purchase price, $255,555, is to be paid pursuant to a promissory note
with interest at the rate of 6.5% per annum, in 60 consecutive monthly
installments of principal and interest payable beginning in May 1993, with the
amount of the first 59 such installments determined based upon a 15-year
amortization schedule and the entire unpaid balance of the note being payable on
the date of the 60th such installment in April 1998. The promissory note is
secured by a security interest in the partnership interest and personally
guaranteed by Ms. Lang and Ms. Hunter.
During 1994, E. David Crockett, a director of the Company, was paid a
consulting fee by the Company in the amount of $3,500 for providing business
planning services to the Company. In addition, Focus, Inc., the president of
which is Dan R.E. Thomas, a former director of the Company, was paid a
consulting fee by the Company in the amount of $61,179 for providing business
planning services to the Company.
27
<PAGE> 30
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of May 15, 1995, with
respect to the beneficial ownership of the Shares by (i) each shareholder known
by the Company to be the beneficial owner of more than 5% of the Shares, (ii)
each director and each executive officer named in the Executive Compensation
Table (see "Management -- Executive Compensation"), and (iii) all executive
officers and directors as a group:
<TABLE>
<CAPTION>
PERCENTAGE OWNED
------------------------
SHARES BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------- --------------------- ---------- ---------
<S> <C> <C> <C>
Jeffrey M. Wilkins................................... 626,619(2) 11.9% 9.3
7001 Metatec Boulevard
Dublin, Ohio 43017
Wells Fargo Bank, N.A................................ 268,700(3) 5.1 4.0
464 California Street
San Francisco, California 94163
Gregory T. Tillar.................................... 60,286 1.1 *
William H. Largent................................... 47,711 * *
A. Grant Bowen....................................... 32,373 * *
E. David Crockett.................................... 11,500 * *
Peter J. Kight....................................... 7,500 * *
Jerry D. Miller...................................... 161,500(4) 3.1 2.4
James V. Pickett..................................... 15,600(5) * *
All executive officers and directors
as a group (14 persons)............................ 1,103,508 20.9 16.3
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise indicated in the notes to this table, the persons named
in the table have sole voting and investment power with respect to all
Shares owned by them. This table does not include options for Shares which
are not currently exercisable or not exercisable within 60 days of April 19,
1995.
(2) Includes 600,000 Shares subject to a risk of forfeiture. See
"Management -- Certain Transactions."
(3) Holdings as of December 31, 1994, based upon a Schedule 13G filed with the
Securities and Exchange Commission on February 14, 1995.
(4) Includes 13,000 Shares owned by Mr. Miller's spouse. Does not include
117,986 Shares owned by the adult children or grandchildren of Mr. Miller,
for which Mr. Miller disclaims beneficial ownership.
(5) Includes 1,000 Shares owned by a corporation controlled by Mr. Pickett and
members of his family.
DESCRIPTION OF CAPITAL STOCK
The aggregate number of shares of capital stock which the Company has
authority to issue is 10,083,500 Shares, all of which are common shares, $.10
par value. As of May 15, 1995, there were 5,275,964 Shares outstanding.
COMMON SHARES
The holders of Shares are entitled to receive such dividends as may be
declared by the Company's board of directors out of funds legally available
therefor. Upon dissolution or liquidation, holders of the Shares are entitled to
a ratable share of the net assets of the Company after payment to creditors. All
outstanding Shares are, and the shares offered hereby will be, fully paid and
nonassessable. Holders of the Shares are entitled to one vote for each Share
held of record for the election of directors and on all other matters submitted
to the vote of shareholders. The Shares are not redeemable, and the holders of
the Shares do not have cumulative voting rights in the election of directors or
preemptive rights with respect to the issuance of the Company's securities.
28
<PAGE> 31
The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") provide that the number of directors may be fixed or changed by a
resolution adopted by two-thirds in number of the board members then in office.
Additionally, a director may not be removed from office without cause except by
the affirmative vote of holders of at least 50% of the Shares. However, if the
removal of a director without cause is approved by two-thirds in number of the
board members then in office, then the 50% voting requirement will not apply and
a director may be removed without cause under Florida law if the votes cast by
the shareholders in favor of the director's removal exceed the votes cast in
opposition of the director's removal at a meeting at which a quorum is present.
This provision could have an anti-takeover effect because it could prevent
someone who does not satisfy these special voting requirements from either
increasing the number of directors and filling the new seats with enough
directors to constitute a majority of the board or from removing existing
directors without cause and replacing them with enough directors to constitute a
majority of the board.
The Restated Articles provide that special shareholder meetings may be
called by the board of directors or by holders of Shares entitled to exercise
25% or more of the voting power of the Company. This provision prevents a
shareholder from calling a special shareholder meeting to alter the composition
of the board or to effect any other corporate transaction unless holders of at
least 25% of the outstanding Shares were in favor of calling such meeting. This
requirement makes calling a special shareholders meeting more difficult and
therefore could have an anti-takeover effect.
The Restated Articles provide for a classified board of directors.
Directors are divided into three classes, designated as Class I, Class II and
Class III, as nearly equal in number as possible. At each annual meeting of
shareholders, one class of directors is elected for a three-year term. This
provision could have an anti-takeover effect because, assuming there are no
vacancies on the board of directors, it will take two annual elections of
directors to gain control of a majority of the positions on the board of
directors.
The Restated Articles require the affirmative vote of not less than 60% of
the outstanding Shares prior to effecting (a) a merger, consolidation or share
exchange of the Company with or into any other corporation, or (b) the sale,
lease, exchange or other disposition of all or substantially all of the assets
of the Company. However, such 60% voting requirement would not be applicable if
the Company's board of directors has approved the transaction by two-thirds or
more of its members. This provision could have an anti-takeover effect because
transactions not approved by two-thirds or more of the members of the board of
directors will require a higher approval percentage from shareholders than
transactions approved by two-thirds or more of the members of the board of
directors. The Restated Articles also require the affirmative vote of holders of
not less than 60% of the outstanding Shares to amend such 60% voting
requirements or the provisions of the Restated Articles relating to the number
of directors, their removal without cause or their election into three classes.
These provisions could also have an anti-takeover effect.
FLORIDA LAW
The Company is subject to Sections 607.0901 and 607.0902 of the Florida
Business Corporation Act. In general, Section 607.0901 restricts the ability of
a greater than 10% shareholder of a company from engaging in a wide range of
specified transactions between such company and such shareholder or a person or
entity controlled by or in control of such shareholder. The statute provides
that such a transaction must be approved by the affirmative vote of the holders
of two-thirds of such company's voting shares, unless it is approved by a
majority of the disinterested directors. Section 607.0902 restricts the ability
of a third party to effect an unsolicited change in control of a company. In
general, the statute provides that shares acquired in a transaction which
effects a certain threshold change in the ownership of a company's voting shares
(a "control share acquisition") have the same voting rights as shares held by
the acquiring person prior to the acquisition only to the extent granted by a
resolution adopted by shareholders in a prescribed manner. These statutory
provisions may have an anti-takeover effect by deterring unsolicited offers or
delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Shares is The Huntington Trust
Company, N.A.
29
<PAGE> 32
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below have agreed, severally
and not jointly, through Legg Mason Wood Walker, Incorporated and Van Kasper &
Company, the Representatives (the "Representatives") of the Underwriters, to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the number of Shares set forth opposite the name of the respective
Underwriter at the Price to Public less the Underwriting Discount set forth on
the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
- ------------------------------------------------------------------------------ -------------
<S> <C>
Legg Mason Wood Walker, Incorporated..........................................
Van Kasper & Company..........................................................
-------------
Total............................................................... 1,500,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Shares offered hereby, if any of the
Shares are purchased.
The Underwriters have advised the Company that they propose to offer all or
a part of the Shares offered hereby directly to the public at the Price to
Public set forth on the cover page of this Prospectus, that they may offer
shares to certain dealers at a price which represents a concession of
$ per share, and that they may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After
the commencement of the Offering, the Price to Public and the concessions may be
changed.
The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional Shares at the Price to Public less the Underwriting Discount
set forth on the cover page of this Prospectus. The Underwriters may exercise
the option only to cover over-allotments. To the extent the Underwriters
exercise the option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase the same percentage of additional
Shares as the percentage of the initial 1,500,000 Shares offered hereby to be
purchased by that Underwriter.
The Company has agreed to indemnity the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The executive officers and directors of the Company have agreed that they
will not, without the prior written consent of the Representatives, offer, sell
or otherwise dispose of any Shares owned by them during the 120-day period
following the date of this Prospectus, except for certain private transactions
and for transfers to family members or related trusts, subject to the 120-day
restriction, and that a certain director of the Company may sell, in addition,
up to 10,000 Shares in the aggregate. The Company has agreed not to offer, sell,
or otherwise dispose of any Shares during the 120-day period following the
closing of the Offering, except that the Company may grant options pursuant to
existing option plans in accordance with past practice, and issue Shares upon
the exercise of options, subject to certain limitations.
In connection with the Offering, the Underwriters and selling group members
(if any) that currently act as market makers for the Shares may engage in
"passive market making" in the Shares on The Nasdaq Stock Market in accordance
with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also
30
<PAGE> 33
Nasdaq Stock Market market makers in the security being distributed to engage in
limited market making transactions during the period when Rule 10b-6 under the
Exchange Act would otherwise prohibit such activity. In general, under Rule
10b-6A, any Underwriter or selling group member (if any) engaged in passive
market making in the Shares (i) may not effect transactions in, or display bids
for, the Shares at a price that exceeds the highest bid for the Shares displayed
on The Nasdaq Stock Market by a market maker that is not participating in the
distribution of the Shares, (ii) may not have net daily purchases of the Shares
that exceed 30% of its average daily trading volume in such Shares for the two
full consecutive calendar months immediately preceding the filing date of the
Registration Statement of which this Prospectus forms a part, and (iii) must
identify its bids as bids made by a passive market maker.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Shares offered
hereby will be passed upon for the Company by Baker & Hostetler, Columbus, Ohio,
and for the Underwriters by Pepper, Hamilton & Scheetz, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994, included in
this Prospectus and the related consolidated financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement, and have been included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information pertaining to the Company and
the securities offered hereby, reference is hereby made to the Registration
Statement, including the exhibits and the financial statement schedules filed
therewith. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
These documents may be examined without charge at the public reference
facilities maintained by the Commission in Washington, D.C., and copies thereof
may be obtained therefrom upon payment of the prescribed fees.
31
<PAGE> 34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and March
31, 1995 (unaudited)................................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1992, 1993 and
1994 and for the three months ended March 31, 1994 and 1995 (unaudited)............. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1992,
1993 and 1994 and for the three months ended March 31, 1995 (unaudited)............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and
1994 and for the three months ended March 31, 1994 and 1995 (unaudited)............. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Metatec Corporation:
We have audited the accompanying consolidated balance sheets of Metatec
Corporation and its subsidiaries as of December 31, 1993 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Metatec Corporation and its
subsidiaries at December 31, 1993 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 15, 1995
Columbus, Ohio
F-2
<PAGE> 36
METATEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------- MARCH 31,
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 4,849,710 $ 2,167,518 $ 807,001
Accounts receivable, net of allowance for doubtful
accounts of $235,000 in 1993, $269,000 in 1994 and
$291,000 in 1995................................... 2,977,335 4,092,038 4,075,987
Inventory............................................. 350,075 602,773 786,916
Current portion of long-term notes receivable......... 10,869 11,597 11,797
Prepaid expenses...................................... 458,662 460,258 604,150
Deferred income taxes................................. 522,000 532,000
----------- ----------- -----------
Total current assets.......................... 8,646,651 7,856,184 6,817,851
----------- ----------- -----------
LONG-TERM NOTES RECEIVABLE, LESS CURRENT PORTION........ 237,822 226,225 223,195
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT -- NET.................... 9,724,330 24,081,612 24,689,100
----------- ----------- -----------
OTHER ASSETS:
Goodwill.............................................. 539,103 314,283 302,403
Other................................................. 199,456 77,700 77,700
----------- ----------- -----------
Total other assets............................ 738,559 391,983 380,103
----------- ----------- -----------
TOTAL ASSETS............................................ $19,347,362 $32,556,004 $32,110,249
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease
obligations........................................ $ 75,942 $ 975,335 $ 975,635
Accounts payable...................................... 622,289 2,462,243 1,406,485
Accrued royalties..................................... 304,395 559,157 573,552
Accrued personal property taxes....................... 213,749 378,210 467,985
Accrued payroll....................................... 199,362 359,400 511,060
Other accrued expenses................................ 532,295 411,585 395,141
Unearned income....................................... 1,041,311 888,940 766,606
Accrued income taxes.................................. 285,371 445,459
----------- ----------- -----------
Total current liabilities..................... 2,989,343 6,320,241 5,541,923
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS
CURRENT MATURITIES.................................... 151,316 7,644,634 7,410,829
DEFERRED INCOME TAXES................................... 315,000 335,000
----------- ----------- -----------
Total liabilities............................. 3,140,659 14,279,875 13,287,752
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 10,083,500
shares; issued 1993 -- 5,209,619 shares;
1994 -- 5,272,219 shares; 1995 -- 5,274,719
shares............................................. 520,962 527,222 527,472
Additional paid-in capital............................ 15,273,400 15,643,913 15,647,413
Retained earnings..................................... 4,348,882 6,041,535 6,584,153
Less:
Common stock held in treasury, at cost, 2,755
shares........................................... (36,541) (36,541) (36,541)
Unamortized restricted stock....................... (3,900,000) (3,900,000) (3,900,000)
----------- ----------- -----------
Total stockholders' equity.................... 16,206,703 18,276,129 18,822,497
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $19,347,362 $32,556,004 $32,110,249
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 37
METATEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.......................... $16,877,079 $21,318,416 $28,942,748 $6,006,937 $9,178,622
COSTS AND EXPENSES:
Cost of products sold........... 11,197,538 12,071,515 16,300,693 3,612,484 5,133,954
Selling, general and
administrative............... 5,975,451 8,225,564 10,060,600 2,274,869 2,991,855
----------- ----------- ----------- ---------- ----------
Total costs and expenses..... 17,172,989 20,297,079 26,361,293 5,887,353 8,125,809
----------- ----------- ----------- ---------- ----------
OPERATING INCOME (LOSS)........... (295,910) 1,021,337 2,581,455 119,584 1,052,813
----------- ----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income................. 103,876 134,637 54,616 24,212 21,649
Gain on sale of marketable
security..................... 106,000
Other -- net.................... 144,522 41,857 62,288 36,509 (4,373)
Interest expense................ (323,226) (135,847) (379,706) (8,281) (190,871)
----------- ----------- ----------- ---------- ----------
Total other income
(expense).................. (74,828) 40,647 (156,802) 52,440 (173,595)
----------- ----------- ----------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME
TAXES........................... (370,738) 1,061,984 2,424,653 172,024 879,218
INCOME TAXES...................... 732,000 51,600 336,600
----------- ----------- ----------- ---------- ----------
NET EARNINGS (LOSS)............... $ (370,738) $ 1,061,984 $ 1,692,653 $ 120,424 $ 542,618
========== ========== ========== ========= =========
NET EARNINGS (LOSS) PER COMMON
SHARE:
Primary......................... $ (0.11) $ .25 $ .33 $ .02 $ .10
Fully diluted................... $ (0.11) $ .21 $ .32 $ .02 $ .10
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary......................... 3,371,956 4,260,806 5,134,656 5,021,595 5,408,670
Fully diluted................... 3,371,956 4,953,412 5,323,503 5,021,595 5,417,918
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 38
METATEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS B ADDITIONAL UNAMORTIZED
COMMON COMMON PAID-IN RETAINED TREASURY RESTRICTED
STOCK STOCK CAPITAL EARNINGS STOCK STOCK TOTAL
-------- ------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991... $387,440 $1,309 $ 5,918,339 $3,657,636 $ (808,775) $ 9,155,949
Treasury shares retired...... (51,710 ) (1,049 ) (756,016) 808,775
Stock options exercised...... 2,300 32,200 34,500
Purchase of Class B common
stock...................... (2,100,000) (2,100,000)
Net loss..................... (370,738) (370,738)
-------- ------- ----------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1992... 338,030 260 5,194,523 3,286,898 (2,100,000) 6,719,711
Issuance of restricted
shares..................... 60,000 3,840,000 $(3,900,000)
Stock options exercised...... 7,932 156,088 164,020
Treasury shares acquired..... (36,541) (36,541)
Elimination of Class B common
stock...................... (260 ) (2,099,740) 2,100,000
Shares issued pursuant to a
public offering, net of
costs of $596,979.......... 115,000 8,182,529 8,297,529
Net earnings................. 1,061,984 1,061,984
-------- ------- ----------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993... 520,962 $ 0 15,273,400 4,348,882 (36,541) (3,900,000 ) 16,206,703
========
Stock options exercised...... 6,260 176,513 182,773
Tax benefit related to stock
options.................... 194,000 194,000
Net earnings................. 1,692,653 1,692,653
-------- ----------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994... 527,222 15,643,913 6,041,535 (36,541) (3,900,000 ) 18,276,129
Stock options exercised
(unaudited).............. 250 3,500 3,750
Net earnings (unaudited)... 542,618 542,618
-------- ----------- ---------- ----------- ----------- -----------
BALANCE, MARCH 31, 1995
(unaudited)................ $527,472 $15,647,413 $6,584,153 $ (36,541) $(3,900,000) $18,822,497
======== ========== ========= ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 39
METATEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 MARCH 31,
---------------------------------------- -------------------------
1992 1993 1994 1994 1995
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (loss)...................................... $ (370,738) $ 1,061,984 $ 1,692,653 $ 120,424 $ 542,618
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 2,137,641 2,128,620 3,227,325 613,006 1,022,520
Deferred income taxes.................................. (207,000) (10,000)
Gain on sale of marketable security.................... (106,000)
Net (gain) loss on sales of property and equipment..... (26,172) 5,258 37,305 (6,986) 12,435
Changes in assets and liabilities:
Accounts receivable.................................. (440,196) (229,096) (1,114,703) 71,281 16,051
Inventory............................................ (90,041) (25,345) (252,698) (186,453) (184,143)
Prepaid expenses and other current assets............ 47,529 190,689 6,584 (18,227) (153,892)
Accounts payable and accrued expenses................ 20,728 233,171 2,083,876 276,841 (626,284)
Unearned income...................................... 247,800 493,283 (152,371) (131,020) (122,334)
Net assets of discontinued operations................ 718,064
----------- ----------- ------------ ----------- -----------
Net cash provided by operating activities.......... 2,244,615 3,858,564 5,214,971 738,866 496,971
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term notes receivable................... 89,875 131,629 10,869 2,646 2,830
Purchase of property, plant and equipment................ (2,213,993) (5,144,985) (17,119,750) (8,810,848) (1,927,763)
Proceeds from sale of fixed assets....................... 128,316 3,866 177,000 150,000 297,200
Decrease (increase) in goodwill.......................... (78,618) 178,000
Proceeds from sale of marketable security................ 219,576
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities.............. (2,074,420) (5,009,490) (16,534,305) (8,658,202) (1,627,733)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable................................ 1,536,683 8,750,000 4,800,000
Payment of notes and leases payable...................... (1,487,592) (3,601,585) (489,631) (18,408) (233,505)
Proceeds from issuance of stock (net of offering
expenses).............................................. 8,297,529
Stock options exercised, including tax benefit........... 34,500 164,020 376,773 88,051 3,750
Treasury shares acquired................................. (36,541)
----------- ----------- ------------ ----------- -----------
Net cash provided by financing activities.......... 83,591 4,823,423 8,637,142 4,869,643 (229,755)
----------- ----------- ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 253,786 3,672,497 (2,682,192) (3,049,693) (1,360,517)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 923,427 1,177,213 4,849,710 4,849,710 2,167,518
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 1,177,213 $ 4,849,710 $ 2,167,518 $ 1,800,017 $ 807,001
========== ========== =========== ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid, net of amounts capitalized................ $ 340,758 $ 172,311 $ 379,706 $ 8,281 $ 190,871
========== ========== =========== ========== ==========
Income taxes paid........................................ $ 118,000 $ 252,235 $ 4,000 $ 180,119
========== =========== ========== ==========
Assets purchased for the assumption of a liability....... $ 750,000 $ 183,902 $ 632,342
========== ========== ===========
Purchase of Class B common stock for transfer of assets
of discontinued operations............................. $ 2,100,000
==========
Elimination of Class B common stock...................... $ 2,100,000
==========
Issuance of 600,000 common restricted shares, all
unamortized............................................ $ 3,900,000
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 40
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Metatec Corporation and its subsidiaries (the Company).
All significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION -- The revenues from product sales are recognized at
the time the products are shipped. Subscription revenues are recognized ratably
over the subscription period. For financial reporting purposes, the Company
recognizes profit on service contracts using the percentage of completion
method, measured generally by the percentage of the cost of services completed
to date to total cost of contract services. Earned revenue is determined on the
basis of the profit as computed plus the contract costs incurred during this
period.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consist of highly
liquid instruments such as certificates of deposit, time deposits, treasury
notes and other money market instruments which generally have maturities of less
than three months. The Company holds cash primarily in one financial
institution.
INVENTORY -- Inventory consists primarily of raw materials and are valued
at the lower of cost or market with cost determined by the first-in, first-out
(FIFO) method.
GOODWILL -- Goodwill represents the excess of cost over net assets acquired
and was being amortized using the straight-line method over 25 years. Effective
April 1, 1993, the Company reduced the amortization period to 15 years
prospectively from April 1, 1993, based upon a current evaluation by the
Company. During 1994, the Company recognized the tax benefit of acquired net
operating loss carryforwards and, accordingly, reduced goodwill by such benefit
totaling $178,000.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are recorded
at cost. The cost of maintenance and repairs is charged against results of
operations as incurred. Property, plant and equipment are depreciated using the
straight-line method over the estimated useful lives of the related assets which
range from three to thirty years. For income tax purposes, accelerated methods
are used for all eligible assets. Interest costs capitalized were $96,000 in
1994.
ADVERTISING -- The Company expenses advertising costs as incurred.
Advertising expense was $192,380, $401,577 and $784,039 for 1992, 1993 and 1994,
respectively. For the three months ended March 31, 1994 and 1995, advertising
costs were $172,353 and $151,624 respectively.
INCOME TAXES -- During 1993, the Company changed its method of accounting
for income taxes in accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" (see Note 6). Prior to January 1, 1993,
the Company accounted for income taxes in accordance with Accounting Principles
Board Opinion No. 11.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK -- Earnings (loss) per share is
computed based on the weighted average number of common shares outstanding
during the period, including, when their effect is dilutive, common stock
equivalents consisting of shares subject to stock options and contingently
issuable shares of stock.
UNAUDITED INTERIM FINANCIAL REPORTING -- In the opinion of management, the
unaudited information as of and for the three months ended March 31, 1994 and
1995 includes all adjustments (consisting solely of normal recurring accruals)
the Company considers necessary for a fair presentation of such interim
financial statements in accordance with generally accepted accounting
principles. The results of
F-7
<PAGE> 41
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
operations for interim periods are not necessarily indicative of results for any
other interim period or the full year.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land........................................ $ 1,292,679 $ 1,292,679
Buildings and improvements.................. 9,426,049 9,427,388
Machinery and equipment..................... $ 8,973,887 14,425,553 14,144,185
Furniture and fixtures...................... 986,469 1,845,433 1,882,911
Computer equipment and related software..... 2,727,122 3,880,956 4,144,657
Transportation equipment.................... 4,199 12,725 12,725
Leasehold improvements...................... 827,381 802,205 815,533
Equipment installation-in-progress.......... 3,091,369 62,139 1,073,872
----------- ----------- -----------
Total............................. 16,610,427 31,747,739 32,793,950
Less accumulated depreciation............... (6,886,097) (7,666,127) (8,104,850)
----------- ----------- -----------
Net property, plant and equipment........... $ 9,724,330 $24,081,612 $24,689,100
========== ========== ==========
</TABLE>
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- MARCH 31,
1993 1994 1995
--------- ----------- ----------
<S> <C> <C> <C>
Term loan, interest at 1/2% in excess of prime
(total of 9% at December 31, 1994 and March 31,
1995), due in monthly installments to 1999...... $ 3,540,000 $3,360,000
Mortgage loan, interest at 1/2% in excess of
prime (total of 9% at December 31, 1994 and
March 31, 1995), due in monthly installments to
1998............................................ 4,800,000 4,768,053
--------- ----------- ----------
Total................................... 8,340,000 8,128,053
Capital lease obligations (see Note 4)............ $ 227,258 279,969 258,411
Less current maturities........................... (75,942) (975,335) (975,635)
--------- ----------- ----------
Long-term debt and capital lease obligations, less
current maturities.............................. $ 151,316 $ 7,644,634 $7,410,829
========= ========== =========
</TABLE>
The Company has a loan agreement with a bank that provides for advances of
$4,000,000 on an unsecured revolving loan. The revolving loan bears interest at
prime and is due April 30, 1995. No amounts were outstanding on the revolving
loan at December 31, 1994 or March 31, 1995. The term loan and mortgage loan are
secured by the property, plant and equipment of the Company. Effective February
1, 1995, the interest rate on the term loan and the mortgage loan were reduced
to prime.
The loan agreement contains restrictive covenants which, among others,
require the Company to maintain a certain level of tangible net worth, limit
dividends to 20% of net earnings, maintain certain financial
F-8
<PAGE> 42
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
ratios and limit capital expenditures. In 1994, the Company was not in
compliance with certain of these covenants which were accordingly amended by the
bank through December 31, 1995.
Long-term debt, excluding capital lease obligations, matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Year ending December 31:
1995.................................................. $ 889,100
1996.................................................. 903,591
1997.................................................. 919,323
1998.................................................. 4,967,986
1999.................................................. 660,000
------------
Total................................................... $8,340,000
==========
</TABLE>
There were no significant changes in maturities of long-term debt at March
31, 1995.
4. LEASES
The Company leases office equipment under noncancellable capital lease
agreements expiring at various dates through 1999. Maintenance, insurance, and
tax expenses are the responsibility of the Company under the agreements. The
Company also leased certain equipment under a capital lease agreement with an
executive officer/stockholder of the Company which was purchased by the Company
during 1994.
The Company previously leased its principal manufacturing and office
facility from an executive officer/ stockholder under an operating lease. In
1994 the Company entered into a new capital lease for the facilities and then
subsequently exercised an option in the lease agreement to purchase the
facilities from the executive officer/stockholder for $4,800,000. Total rent
expense under the operating lease was $481,800, $526,717 and $87,786 for 1992,
1993 and 1994, respectively. Total lease payments under the capital lease were
$291,114 in 1994.
The future annual minimum lease payments under all capital leases, together
with the present value of the minimum lease payments, and the future minimum
rental payments required under all operating leases that have initial or
remaining lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
------------------------ ------------------------
DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1994 1995
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Year ending December 31:
1995.................................. $103,409 $ 77,557 $121,088 $ 84,924
1996.................................. 86,394 86,394 105,572 105,572
1997.................................. 69,378 69,378 34,642 34,642
1998.................................. 45,371 45,371 8,426 8,426
1999.................................. 13,088 13,088
------------ --------- ------------ ---------
Total minimum lease payments............ $317,640 $ 291,788 $269,728 $ 233,564
========== ========
Less amount representing interest....... (37,671) (33,377)
------------ ---------
Present value of net minimum payments
(see Note 3).......................... $279,969 $ 258,411
========== ========
</TABLE>
F-9
<PAGE> 43
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
The following assets capitalized under lease agreements are included in
property, plant and equipment at December 31, 1993 and 1994 and March 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment.................. $ 543,469 $ 543,469 $ 543,469
Computer equipment and related
software............................... 84,399 84,399 84,399
Furniture and fixtures................... 268,552 400,895 400,895
--------- ---------- ----------
Total.................................. 896,420 1,028,763 1,028,763
Less accumulated depreciation............ (681,330) (706,677) (719,631)
--------- ---------- ----------
Total.................................... $ 215,090 $ 322,086 $ 309,132
========= ========= =========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Self-Insurance -- The Company is self-insured with respect to medical and
dental claims. The Company has obtained stop-loss insurance for claims in excess
of $35,000 per individual per year and $1,000,000 lifetime maximum per
individual. The Company has recorded an estimated liability at December 31, 1993
and 1994 and March 31, 1995 of $142,700, $171,000 and $171,000, respectively,
for self-insured claims incurred but not reported.
Property, plant and equipment -- The Company has commitments under
contracts for the purchase of property and equipment. Portions of such contracts
not completed at March 31, 1995 are not reflected in the Consolidated Financial
Statements. These unrecorded commitments amounted to approximately $2,762,152.
6. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This standard
requires, among other things, recognition of future tax benefits, measured by
enacted tax rates, attributable to deductible temporary differences between the
financial statement basis and income tax basis of assets and liabilities and net
operating loss carryforwards to the extent realization is more likely than not.
There was no cumulative effect of adopting SFAS No. 109 on the Company's
consolidated financial statements since the Company provided a 100% valuation
allowance against net deferred tax assets recorded as of January 1, 1993.
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Federal:
Current....................................................... $ 778,000
Deferred...................................................... (207,000)
------------
Total Federal.............................................. 571,000
State and local............................................... 161,000
------------
Total......................................................... $ 732,000
==========
</TABLE>
In 1993, no tax provision was necessary as the Company utilized a net
operating loss carryforward. In 1992, no tax provision was established as the
Company was in a net loss position.
F-10
<PAGE> 44
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
A reconciliation of recorded Federal income tax expense to the expected
expense computed by applying the Federal statutory rate of 34% to income before
income taxes follows:
<TABLE>
<S> <C>
Expected expense at statutory rate............................... $ 824,000
State and local taxes including other -- net..................... 114,000
Reversal of valuation allowance.................................. (367,000)
---------
Total............................................................ $ 571,000
=========
</TABLE>
The Company expects a combined 38% income tax rate for 1995. Deferred
income taxes recorded in the consolidated balance sheets at December 31, 1993
and 1994 consist of the following:
<TABLE>
<CAPTION>
1993 1994
--------- --------
<S> <C> <C>
Deferred tax assets:
AMT carryforwards (no expiration date)...................... $403,000
Net operating loss carryforwards............................ $ 627,000 122,000
Allowance for doubtful accounts............................. 80,000 92,000
Accrued self-insurance account.............................. 48,000 58,000
Other....................................................... 12,000 4,000
Valuation allowance......................................... (545,000)
--------- --------
Total deferred tax assets........................... 222,000 679,000
--------- --------
Deferred tax liabilities:
Depreciation................................................ 222,000 438,000
Other -- net................................................ 34,000
--------- --------
Total deferred tax liabilities...................... 222,000 472,000
--------- --------
Net deferred assets........................................... $ 0 $207,000
========= ========
</TABLE>
There is no significant change in the components of net deferred tax assets
and liabilities at March 31, 1995.
During 1994, the Company eliminated the valuation allowance based on its
assessment that realization of its deferred tax assets is more likely than not
given the nature and expected timing of its temporary differences and the recent
and expected future profitable operations of the Company. The valuation
allowance was reduced during 1993 by approximately $115,000 which reflected the
usage of a portion of the net operating loss carryforwards to offset income
before income taxes.
The Company has available net operating loss carryforwards for tax purposes
of approximately $360,000 which expire in 2005 which may only be used to offset
future taxable income of Metatec/Discovery Systems, Inc. (a wholly-owned
subsidiary of the Company).
7. EMPLOYMENT AGREEMENT AND BENEFIT PLAN
The Company has an employment agreement with an executive
officer/stockholder of the Company. The agreement continues until terminated by
the executive or the Company and provides for a lump sum payment of one year's
compensation upon termination. The executive is entitled to an annual cash bonus
in addition to base salary.
The same executive officer/stockholder was issued 600,000 common shares
under a Restricted Share Agreement (the Agreement) dated March 23, 1993. These
shares were issued subject to a risk of forfeiture of
F-11
<PAGE> 45
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
all of the shares if his employment is terminated by the Company for cause or by
the executive officer/ stockholder without good reason (as those terms are
defined in the Employment Agreement) on or before February 29, 1996. These
shares are also subject to a risk of forfeiture of all or part of the shares as
determined pursuant to an earnings formula as defined in the Agreement.
Additionally, the Company has agreed to pay the officer/stockholder an amount
equal to any tax savings resulting to the Company from the issuance and vesting
of the shares and the payment of such additional amount, up to the amount of the
officer's/ stockholder's individual tax liability.
At December 31, 1994 and March 31, 1995, 524,447 and 600,000, respectively
common shares have been earned by the officer/stockholder in accordance with the
Agreement. Any shares issued under this contingent arrangement will be treated
as adjustments to goodwill and be amortized over the remaining amortization
period using the straight-line method.
Substantially all associates are enrolled in a Company-sponsored defined
contribution plan established under Section 401(k) of the Internal Revenue Code.
The plan was established in 1993 and the Company contribution was approximately
$41,500, $49,393, $10,123 and $15,763 for 1993, 1994 and the three months ended
March 31, 1994 and 1995, respectively. The Company contribution is 20% of the
associate's contribution up to maximum of 1% of the associates annual
compensation. The funds are invested in mutual funds.
8. STOCK OPTION PLANS
The Company implemented two stock option plans effective July 1, 1990. The
first plan, the 1990 Directors' Stock Option Plan, was available only to
directors who were not employees or officer/stockholders of the Company. As of
December 31, 1994, and March 31, 1995 there have been 27,500 options granted of
which 7,500 were exercisable. The plan expired in 1992 and no additional options
may be granted under this Plan. All options under the 1990 Director's Plan were
fully vested on the first anniversary date of the grant.
In 1992, an additional Directors' Stock Option Plan was implemented under
which a maximum of 160,000 Common Shares may be issued. This Plan, as amended,
provides for each person who is an eligible director on the day after the
Company's annual meeting of stockholders to be automatically granted an option
for 2,500 shares, vesting on the grant date, and each person who first becomes
an eligible director will automatically receive a one time grant of options for
10,000 shares. This one time option vests in equal installments over a four year
period. At December 31, 1994 and March 31, 1995 24,292 shares were exercisable.
The option price of shares subject to an option for the Directors' Stock
Option Plans is the fair market value of the shares at the time the option is
granted. No options issued are exercisable after five years from the date of
grant.
The second plan, the 1990 Stock Option Plan, is available to
officer/stockholders and key employees of the Company or its subsidiary
corporations and, in the case of non-qualified options, directors of
subsidiaries of the Company (other than directors of such subsidiaries who are
also directors of the Company). The maximum aggregate number of common shares
which may be granted under the 1990 Stock Option Plan is 510,000 shares.
The Company's Compensation Committee, which administers the plan, has the
authority to grant incentive options and non-qualified options. Only
officer/stockholders and other key employees of the Company or its subsidiary
corporations are eligible for grants of incentive options. At December 31, 1994
and March 31, 1995, no incentive options had been granted. An option vests one
year from the date of grant, and is
F-12
<PAGE> 46
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
not exercisable after 10 years from the date of grant. The option price is equal
to the fair market value of the shares at the time the option is granted.
The following summarizes all stock option transactions from January 1, 1992
through March 31, 1995:
<TABLE>
<CAPTION>
AGGREGATE
SHARES OPTION PRICE AMOUNT
------- ---------------- ----------
<S> <C> <C> <C>
Outstanding at December 31, 1991.................... 256,500 $1.50 to $2.67 $ 410,075
Granted............................................. 42,555 $1.75 to $3.69 129,738
Exercised........................................... (23,000) $1.50 (34,500)
Expired............................................. (24,000) $1.50 (36,000)
------- ----------
Outstanding at December 31, 1992.................... 252,055 $1.50 to $3.69 469,313
Granted............................................. 90,370 $5.50 to $10.50 501,493
Exercised........................................... (79,633) $1.50 to $3.69 (164,020)
Expired............................................. (500) $6.00 (3,000)
------- ----------
Outstanding at December 31, 1993.................... 262,292 $1.50 to $10.50 803,786
Granted............................................. 229,425 $10.00 to $11.50 2,630,888
Exercised........................................... (62,600) $1.50 to $6.00 (182,773)
Expired............................................. (3,525) $6.00 to $11.50 (35,038)
------- ----------
Outstanding at December 31, 1994.................... 425,592 $1.50 to $11.50 3,216,863
Granted............................................. 26,825 $9.37 to $11.25 265,450
Exercised........................................... (2,500) $1.50 (3,750)
Expired............................................. (1,175) $11.50 (13,513)
------- ----------
Outstanding at March 31, 1995....................... 448,742 $1.50 to $11.50 $3,465,050
======= =========
</TABLE>
At December 31, 1994, 181,900 common shares under option were exercisable
and 67,575 and 33,100 common shares (total of 100,675) were reserved for future
grant under the 1992 Directors' Stock Option Plan and the 1990 Stock Option
Plan, respectively.
At March 31, 1995, 179,400 common shares under option were exercisable and
67,575 and 7,450 common shares (total of 75,025) were reserved for future grant
under the 1992 Directors' Stock Option Plan and the 1990 Stock Option Plan,
respectively.
9. RELATED PARTY TRANSACTIONS
Effective April 26, 1993, the Company sold its interest in a partnership
(which primarily held real estate) for a purchase price of $319,444 for cash and
for a note receivable in the amount of $255,555. The note was received from a
corporation which is wholly-owned by the adult daughters of a
director/stockholder of the Company. The note bears interest at 6.5% and is
payable in monthly installments of principal and interest of $2,226 with the
balance due in 60 months.
Effective January 19, 1994, the Company purchased, for cash, real estate
from a partnership, in which an officer/stockholder of the Company is a partner.
The tract of land included approximately eight acres and the purchase price
totalled approximately $694,000. The land was used for the expansion at the
existing facility.
F-13
<PAGE> 47
METATEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED
10. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1993
Revenues..................................... $5,044,767 $4,946,001 $5,526,458 $ 5,801,190
Gross Profit................................. 2,163,048 2,151,234 2,415,841 2,516,778
Net Earnings................................. 291,218 193,225 276,657 300,884
Net Earnings per common share
Primary................................... $ 0.08 $ 0.05 $ 0.06 $ 0.06
Fully diluted............................. $ 0.08 $ 0.05 $ 0.06 $ 0.06
1994
Revenues..................................... $6,006,937 $6,538,579 $7,694,259 $ 8,702,973
Gross Profit................................. 2,394,453 2,802,730 3,378,152 4,066,720
Net Earnings................................. 120,424 308,625 384,962 878,642
Net Earnings per common share
Primary................................... $ 0.02 $ 0.06 $ 0.08 $ 0.17
Fully diluted............................. $ 0.02 $ 0.06 $ 0.08 $ 0.17
1995
Revenues..................................... $9,178,622
Gross Profit................................. 4,044,668
Net Earnings................................. 542,618
Net Earnings per common share
Primary................................... $ 0.10
Fully diluted............................. $ 0.10
</TABLE>
F-14
<PAGE> 48
<TABLE>
<S> <C>
FIGURE 4 - PHOTO [LOGO]
[Metatec personnel operating
mastering equipment.]
FIGURE 5 - PHOTO
[Metatec personnel presenting
software services capabilities.]
The Company currently is organized into FIGURE 6 - PHOTO
three business divisions: [Metatec personnel
- - MANUFACTURING SERVICES provides CD-ROM discussing NautilusCD.]
mastering, replication, and distribution
services in addition to providing similar
services to radio syndication customers
for Audio CDs.
- - SOFTWARE SERVICES provides information
publishers with design and development
services of CD-ROM based publications,
which, in turn, often produce
Manufacturing Services revenues for the
Company.
- - PUBLISHING SERVICES produces and publishes
NautilusCD.
</TABLE>
<PAGE> 49
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY STATE TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Investment Considerations............. 5
Use of Proceeds....................... 7
Price Range of Common Shares and
Dividend Policy..................... 7
Capitalization........................ 8
Selected Consolidated Financial
Data................................ 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 11
Business.............................. 16
Management............................ 20
Principal Shareholders................ 28
Description of Capital Stock.......... 28
Underwriting.......................... 30
Legal Matters......................... 31
Experts............................... 31
Additional Information................ 31
Index to Consolidated Financial
Statements.......................... F-1
=============================================
</TABLE>
======================================================
1,500,000 SHARES
[LOGO]
COMMON SHARES
------------------------
PROSPECTUS
------------------------
LEGG MASON WOOD WALKER
INCORPORATED
VAN KASPER & COMPANY
MAY , 1995
======================================================
<PAGE> 50
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.................... $ 7,361
NASD Filing Fee........................................................... 2,635
The Nasdaq Stock Market Fees.............................................. 34,500*
Legal Fees and Expenses................................................... 90,000*
Printing and Engraving Fees and Expenses.................................. 70,000*
Accounting Fees and Expenses.............................................. 60,000*
Blue Sky Fees and Expenses................................................ 25,000*
Transfer Agent and Registrar Fees and Expenses............................ 5,000*
Miscellaneous Expenses.................................................... 5,504*
--------
Total Expenses.................................................. $300,000*
========
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act (the "Statute")
sets forth conditions and limitations governing the indemnification of officers,
directors, and other persons.
Article VI of the Amended and Restated Bylaws of the Company (the
"Bylaws"), a copy of which is filed as Exhibit 3(d), contains certain
indemnification provisions adopted pursuant to authority contained in the
Statute. Under the Bylaws, the Company will indemnify any person who is or was a
director, officer, employee, or agent of the Company or who is or was serving at
the request of the Company as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against: (a)
liability incurred in connection with any proceeding (other than an action by or
in the right of the Company) to which such person was or is a party by reason of
acting in any such capacity, and (b) expenses and amounts paid in settlement
(not exceeding, in the judgment of the Company's board of directors, the
estimated expense of litigating the proceeding to conclusion) actually and
reasonably incurred in connection with the defense or settlement of any
proceeding by or in the right of the Company to procure a judgment in its favor
to which such person was or is a party by reason of acting in any such capacity,
provided that: (i) such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; and (ii) no indemnification shall be made in
respect of any claim, issue, or matter in any proceeding by or in the right of
the Company as to which such person shall have been adjudged to be liable
unless, and only to the extent that, the court in which such proceeding was
brought, or any other court of competent jurisdiction, 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 as the court shall deem proper. For purposes of
Article VI of the Bylaws: (A) the term "expenses" includes counsel fees,
including those for appeal; (B) the term "liability" includes obligations to pay
a judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding; and (C) the term "proceeding" includes
any threatened, pending, or completed action, suit, or other type of proceeding,
whether civil, criminal, administrative, or investigative, and whether formal or
informal.
Under the Bylaws, to the extent a director, officer, employee, or agent of
the Company has been successful on the merits or otherwise in defense of any
proceeding described above, or in the defense of any claim, issue, or matter
therein, such person shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith. For all other
indemnification which may be provided under the Bylaws in connection with any
proceeding, unless made pursuant to a determination by a court, indemnifica-
II-1
<PAGE> 51
tion shall be made only as authorized in the specific case upon a determination
that indemnification is proper in the circumstances because the director,
officer, employee or agent has met the applicable standard of conduct set forth
in the Bylaws, which determination shall be made: (a) by the board of directors
by a majority vote of a quorum consisting of directors who were not parties to
such proceeding; (b) if such quorum is not obtainable, or even if obtainable, by
majority vote of a committee duly designated by the board of directors
consisting solely of two or more directors not at the time parties to the
proceeding; (c) by independent legal counsel selected by the board of directors
or a committee thereof as prescribed by the Statute; or (d) by the shareholders
by majority vote of a quorum consisting of shareholders who were not parties to
such proceeding or if such a quorum is not obtainable, by a majority vote of
shareholders who were not parties to such proceeding. Evaluation as to
reasonableness of expenses and authorization of indemnification must be made in
the same manner as the determination that indemnification is permissible, except
that if the determination of permissibility is made by independent legal
counsel, then the board of directors or the committee thereof which appointed
such legal counsel must evaluate the reasonableness of expenses and may
authorize indemnification. The Bylaws also permit the Company to pay expenses
incurred by its officers, directors, employees, and agents in advance of the
final disposition of a proceeding, provided that the Company may advance
expenses to a director or officer only after receiving an undertaking by or on
behalf of such director or officer to repay such amount if he is ultimately
found not to be entitled to indemnification pursuant to the Bylaws.
The Company has entered into Indemnification Agreements with all of its
directors, the form of which is filed as Exhibit 10(j). These agreements require
the Company to indemnify its directors to the full extent permitted by the
Statute, including without limitation, indemnification, to the extent permitted
by applicable law, against all expenses (including legal fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by them
in any threatened, pending or completed action or proceeding, including any
action by or in the right of the Company, on account of their service as a
director, officer, employee, or agent of the Company or at the request of the
Company as a director, officer, employee, or agent of another corporation,
partnership, trust, or other enterprise. Coverage under these agreements is
excluded: (i) on account of any suit in which judgment is rendered against the
director for an accounting of profits made from the purchase or sale by the
director of securities of the Company pursuant to Section 16(b) of the Exchange
Act or any similar provisions of any federal, state, or local statutory law; or
(ii) if a judgment or other final adjudication establishes that the director's
actions, or omissions to act, were material to the cause of action so
adjudicated and constitute (A) a violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (B) a transaction from
which the director derived an improper personal benefit, (C) a circumstance
under which the liability provisions of Section 607.0834 of the Statute
(relating to unlawful distributions to shareholders) are applicable, or (D)
willful misconduct or a conscious disregard for the best interests of the
Company in a proceeding by or in right of the Company to procure a judgment in
its favor or in a proceeding by or in the right of a shareholder.
The Company's 1990 Stock Option Plan, 1990 Directors' Stock Option Plan,
and 1992 Directors' Stock Option Plan all contain provisions under which each
member of the Compensation Committee of the Board of Directors of the Company is
provided indemnification against all costs and expenses incurred by him in
connection with any action, suit, or proceeding to which he may be a party by
reason of any action taken or failure to act under or in connection with any
such plan or any option granted under any such plan, and against all amounts
paid by him in satisfaction of a judgment in any 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 Company. These indemnification
provisions are in addition to the indemnification provided under the Company's
By-Laws and the Indemnification Agreements described above, but such provisions
are to be construed in a manner consistent with applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In April 1992, John C. Ryan, Jr., a former employee of the Company,
exercised a stock option granted to him and purchased 1,000 Shares for a total
purchase price of $1,500, or $1.50 per share. The option was
II-2
<PAGE> 52
granted to Mr. Ryan pursuant to the 1990 Stock Option Plan. At the time of such
exercise, the Shares subject to the 1990 Stock Option Plan were not registered
under the Securities Act. Such Shares were issued by the Company in reliance
upon the exemption from registration set forth in Section 4(2) of the Securities
Act based on Mr. Ryan's written investment representations to the Company.
In March 1993, the Company issued 600,000 Shares to Jeffrey M. Wilkins, its
Chairman of the Board and Chief Executive Officer. See "MANAGEMENT -- Certain
Transactions." These Shares were issued by the Company in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------------------------------------------------------------
<C> <S>
1* Form of Underwriting Agreement.
3(a) Amended and Restated Articles of Incorporation of Metatec Corporation
(Incorporated by reference to Amendment No. 2 to Registration Statement
on Form S-1, File No. 33-60878 (see Exhibit 3(a) therein)).
3(b) Amended and Restated By-laws of Metatec Corporation (Incorporated by
reference to Registration Statement on Form S-1, File No. 33-60878 (see
Exhibit 3(d) therein)).
4 Form of Share Certificate (Incorporated by reference to Amendment No. 2
to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit 4
therein)).
5* Opinion of Baker & Hostetler.
10(a) Amended and Restated Employment Agreement dated March 23, 1993, between
Metatec Corporation and Jeffrey M. Wilkins (Incorporated by reference to
Annual Report on Form 10-K for the fiscal year ended December 31, 1992
(See Exhibit 10(h) therein)).
10(b) Metatec Corporation 1990 Directors' Stock Option Plan and Amendment No. 1
thereto (Incorporated by reference to Registration Statement on Form S-8,
File No. 33-48021 (see Exhibit 4(d) therein)).
10(c) Metatec Corporation 1990 Stock Option Plan (Incorporated by reference to
Annual Report on Form 10-K for the fiscal year ended December 31, 1991
(see Exhibit 10(k) therein)).
10(d) Amendment No. 1 to Metatec Corporation 1990 Stock Option Plan
(Incorporated by reference to Registration Statement on Form S-8, File
No. 33-84022 (see Exhibit 4(d) therein)).
10(e) Amendment No. 2 to Metatec Corporation 1990 Stock Option Plan
(Incorporated by reference to Annual Report Form 10-K for the fiscal year
ended December 31, 1992 (see Exhibit 10(k) therein)).
10(f) Amendment No. 3 to Metatec Corporation 1990 Stock Option Plan
(Incorporated by reference to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (see Exhibit 10(g) therein)).
10(g) Metatec Corporation 1992 Directors' Stock Option Plan (Incorporated by
reference to Registration Statement on Form S-8, File No. 33-52700 (see
Exhibit 4(c) therein)).
10(h) Amendment No. 1 to Metatec Corporation 1992 Directors' Stock Option Plan
(Incorporated by reference to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (see Exhibit 10(i) therein)).
10(i) Metatec Corporation 1992 Incentive Compensation Plan (Incorporated by
reference to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (see Exhibit 10(p) therein)).
10(j) Form of Indemnification Agreement between Metatec Corporation and each of
its officers and directors (Incorporated by reference to Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 (see Exhibit 10(q)
therein)).
10(k) Restricted Share Agreement dated March 23, 1993, between Metatec
Corporation and Jeffrey M. Wilkins (Incorporated by reference to Annual
Report on Form 10-K for the fiscal year ended December 31, 1992 (see
Exhibit 10(r) therein)).
</TABLE>
II-3
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------------------------------------------------------------
<C> <S>
10(l) Amendment to Restricted Share Agreement dated April 8, 1993, between
Metatec Corporation and Jeffrey M. Wilkins (Incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-1, File No. 33-60878
(see Exhibit 10(o) therein)).
10(m) Patent License Agreement for Disc Products dated July 1, 1986, between
Discovery Systems, Inc. and Discovision Associates (Incorporated by
reference to Amendment No. 1 to Registration Statement on Form S-1, File
No. 33-60878 (see Exhibit 10(t) therein)).
10(n) CD Disc License Agreement dated January 1, 1986, between U.S. Philips
Corporation and Discovery Systems, Inc. (Incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-1, File No. 33-60878
(see Exhibit 10(u) therein)).
10(o) Optical Disc Corporation NPR Technology License Agreement between Optical
Disc Corporation and Discovery Systems effective March 2, 1992
(Incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1, File No. 33-60878 (see Exhibit 10(v) therein)).
10(p) Lease and Option Agreement dated March 1, 1994, between Metatec
Corporation and Jeffrey M. Wilkins (Incorporated by reference to Current
Report on Form 8-K filed with the Securities and Exchange Commission on
March 28, 1995 (see Exhibit 10(a) therein)).
10(q) Real Estate Purchase Agreement dated September 1, 1994, between Metatec
Corporation and Jeffrey M. Wilkins (Incorporated by reference to Current
Report on Form 8-K filed with the Securities and Exchange Commission on
March 28, 1995 (see Exhibit 10(b) therein)).
10(r) Real Estate Purchase Contract dated January 19, 1994, between Metatec
Corporation and Olde Post Properties (Incorporated by reference to Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 (see
Exhibit 10(s) therein)).
10(s) Loan Agreement dated May 13, 1994, between The Huntington National Bank,
Metatec Corporation, and Discovery Systems, Inc. (Incorporated by
reference to Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 28, 1995 (see Exhibit 10(c) therein)).
10(t) First Amendment to Loan Agreement dated September 1, 1994, between The
Huntington National Bank, Metatec Corporation, and Discovery Systems,
Inc. (Incorporated by reference to Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 28, 1995 (see Exhibit
10(d) therein)).
10(u) Second Amendment to Loan Agreement dated February 1, 1995, between The
Huntington National Bank, Metatec Corporation, and Discovery Systems,
Inc. (Incorporated by reference to Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 28, 1995 (see Exhibit
10(e) therein)).
10(v) Share Exchange Agreement dated March 10, 1993, among Metatec Corporation,
Darla D. Lang, Denise Hunter, Jeffrey M. Wilkins and Jerry D. Miller, as
voting trustees, and Silco Real Estate Exchange, Inc. (Incorporated by
reference to Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 25, 1993 (see Exhibit 1 therein)).
10(w) Agreement for Sale of Partnership Interest dated March 29, 1993, among
Metatec Corporation, MGB, Inc., Darla D. Lang, and Denise Hunter
(Incorporated by reference to Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 (see Exhibit 10(s) therein)).
10(x) Severance Agreement dated March 30, 1993, between Metatec Corporation and
Jerry D. Miller (Incorporated by reference to Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (see Exhibit 10(t) therein)).
21 Subsidiaries of Metatec Corporation (Incorporated by reference to Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 (see
Exhibit 21 therein)).
23(a)* Consent of Baker & Hostetler (contained in Exhibit 5).
23(b)* Consent of Deloitte & Touche LLP.
24* Powers of Attorney (for James V. Pickett and Gregory T. Tillar).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
II-4
<PAGE> 54
(b) FINANCIAL STATEMENT SCHEDULES
The following independent auditors' report and financial statement schedule
of the Company are included in this Registration Statement:
Independent Auditors' Report on Financial Statement Schedule
Schedule II -- Consolidated Valuation and Qualifying Accounts
All other schedules are omitted because the information prescribed thereon
is not applicable nor required or is furnished in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 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 Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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 Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 55
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
COLUMBUS, STATE OF OHIO, ON MAY 16, 1995.
METATEC CORPORATION
By: /S/ JEFFREY M. WILKINS
-----------------------------
JEFFREY M. WILKINS, CHAIRMAN OF
THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- -----------------
<C> <S> <C>
/s/ JEFFREY M. WILKINS Chairman of the Board, Chief Executive May 16, 1995
- ------------------------------------- Officer (principal executive officer)
JEFFREY M. WILKINS and Director
/s/ WILLIAM H. LARGENT Vice President -- Finance, Treasurer May 16, 1995
- ------------------------------------- and Chief Financial Officer (principal
WILLIAM H. LARGENT financial officer and principal
accounting officer) and Director
A. GRANT BOWEN* Director May 16, 1995
- -------------------------------------
A. GRANT BOWEN
E. DAVID CROCKETT* Director May 16, 1995
- -------------------------------------
E. DAVID CROCKETT
PETER J. KIGHT* Director May 16, 1995
- -------------------------------------
PETER J. KIGHT
JERRY D. MILLER* Director May 16, 1995
- -------------------------------------
JERRY D. MILLER
JAMES V. PICKETT* Director May 16, 1995
- -------------------------------------
JAMES V. PICKETT
GREGORY T. TILLAR* Director May 16, 1995
- -------------------------------------
GREGORY T. TILLAR
</TABLE>
- ---------
*The undersigned, Jeffrey M. Wilkins, by signing his name hereto, does hereby
execute this Amendment No. 1 to the Registration Statement on his own behalf
personally and on behalf of each of the above-named directors of the Registrant
pursuant to Powers of Attorney executed by such directors and filed with the
Securities and Exchange Commission as exhibits to the Registration Statement.
/s/ JEFFREY M. WILKINS
- -------------------------------------
JEFFREY M. WILKINS
II-6
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Metatec Corporation:
We have audited the consolidated financial statements of Metatec
Corporation and subsidiaries as of December 31, 1993 and 1994, and for each of
the three years in the period ended December 31, 1994, and have issued our
report thereon dated February 15, 1995 (included elsewhere in this Registration
Statement). Our audits also included the consolidated financial statement
schedule of Metatec Corporation and subsidiaries, listed in Item 16 of this
Registration Statement. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
February 15, 1995
Columbus, Ohio
S-1
<PAGE> 57
METATEC CORPORATION AND SUBSIDIARIES
SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------------- ---------- ---------
CHARGED TO
BALANCE AT COSTS CHARGED TO BALANCE
BEGINNING AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE.......................... $ 235,000 $178,679 $144,679 $ 269,000
======== ======== ======== ========
1993
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE.......................... $ 206,000 $112,578 $ 83,578 $ 235,000
======== ======== ======== ========
1992
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE.......................... $ 208,000 $120,100 $122,100 $ 206,000
======== ======== ======== ========
</TABLE>
S-2
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ --------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement.
3(a) Amended and Restated Articles of Incorporation of Metatec Corporation
(Incorporated by reference to Amendment No. 2 to Registration Statement on Form
S-1, File No. 33-60878 (see Exhibit 3(a) therein)).
3(b) Amended and Restated By-laws of Metatec Corporation (Incorporated by reference
to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit 3(d)
therein)).
4 Form of Share Certificate (Incorporated by reference to Amendment No. 2 to
Registration Statement on Form S-1, File No. 33-60878 (see Exhibit 4 therein)).
5* Opinion of Baker & Hostetler.
10(a) Amended and Restated Employment Agreement dated March 23, 1993, between Metatec
Corporation and Jeffrey M. Wilkins (Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 (See Exhibit 10(h)
therein)).
10(b) Metatec Corporation 1990 Directors' Stock Option Plan and Amendment No. 1
thereto (Incorporated by reference to Registration Statement on Form S-8, File
No. 33-48021 (see Exhibit 4(d) therein)).
10(c) Metatec Corporation 1990 Stock Option Plan (Incorporated by reference to Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 (see Exhibit
10(k) therein)).
10(d) Amendment No. 1 to Metatec Corporation 1990 Stock Option Plan (Incorporated by
reference to Registration Statement on Form S-8, File No. 33-84022 (see Exhibit
4(d) therein)).
10(e) Amendment No. 2 to Metatec Corporation 1990 Stock Option Plan (Incorporated by
reference to Annual Report Form 10-K for the fiscal year ended December 31, 1992
(see Exhibit 10(k) therein)).
10(f) Amendment No. 3 to Metatec Corporation 1990 Stock Option Plan (Incorporated by
reference to Annual Report on Form 10-K for the fiscal year ended December 31,
1993 (see Exhibit 10(g) therein)).
10(g) Metatec Corporation 1992 Directors' Stock Option Plan (Incorporated by reference
to Registration Statement on Form S-8, File No. 33-52700 (see Exhibit 4(c)
therein)).
10(h) Amendment No. 1 to Metatec Corporation 1992 Directors' Stock Option Plan
(Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (see Exhibit 10(i) therein)).
10(i) Metatec Corporation 1992 Incentive Compensation Plan (Incorporated by reference
to Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (see
Exhibit 10(p) therein)).
10(j) Form of Indemnification Agreement between Metatec Corporation and each of its
officers and directors (Incorporated by reference to Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (see Exhibit 10(q) therein)).
10(k) Restricted Share Agreement dated March 23, 1993, between Metatec Corporation and
Jeffrey M. Wilkins (Incorporated by reference to Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (see Exhibit 10(r) therein)).
10(l) Amendment to Restricted Share Agreement dated April 8, 1993, between Metatec
Corporation and Jeffrey M. Wilkins (Incorporated by reference to Amendment No. 1
to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit 10(o)
therein)).
10(m) Patent License Agreement for Disc Products dated July 1, 1986, between Discovery
Systems, Inc. and Discovision Associates (Incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit
10(t) therein)).
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ --------------------------------------------------------------------------------
<S> <C>
10(n) CD Disc License Agreement dated January 1, 1986, between U.S. Philips
Corporation and Discovery Systems, Inc. (Incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit
10(u) therein)).
10(o) Optical Disc Corporation NPR Technology License Agreement between Optical Disc
Corporation and Discovery Systems effective March 2, 1992 (Incorporated by
reference to Amendment No. 1 to Registration Statement on Form S-1, File No.
33-60878 (see Exhibit 10(v) therein)).
10(p) Lease and Option Agreement dated March 1, 1994, between Metatec Corporation and
Jeffrey M. Wilkins (Incorporated by reference to Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 28, 1995 (see Exhibit
10(a) therein)).
10(q) Real Estate Purchase Agreement dated September 1, 1994, between Metatec
Corporation and Jeffrey M. Wilkins (Incorporated by reference to Current Report
on Form 8-K filed with the Securities and Exchange Commission on March 28, 1995
(see Exhibit 10(c) therein)).
10(r) Real Estate Purchase Contract dated January 19, 1994, between Metatec
Corporation and Olde Post Properties (Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 (see Exhibit 10(s)
therein)).
10(s) Loan Agreement dated May 13, 1994, between The Huntington National Bank, Metatec
Corporation, and Discovery Systems, Inc. (Incorporated by reference to Current
Report on Form 8-K filed with the Securities and Exchange Commission on March
28, 1995 (see Exhibit 10(c) therein)).
10(t) First Amendment to Loan Agreement dated September 1, 1994, between The
Huntington National Bank, Metatec Corporation, and Discovery Systems, Inc.
(Incorporated by reference to Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 28, 1995 (see Exhibit 10(d)
therein)).
10(u) Second Amendment to Loan Agreement dated February 1, 1995, between The
Huntington National Bank, Metatec Corporation, and Discovery Systems, Inc.
(Incorporated by reference to Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 28, 1995 (see Exhibit 10(e)
therein)).
10(v) Share Exchange Agreement dated March 10, 1993, among Metatec Corporation, Darla
D. Lang, Denise Hunter, Jeffrey M. Wilkins and Jerry D. Miller, as voting
trustees, and Silco Real Estate Exchange, Inc. (Incorporated by reference to
Current Report on Form 8-K, filed with the Securities and Exchange Commission on
March 25, 1993 (see Exhibit 1 therein)).
10(w) Agreement for Sale of Partnership Interest dated March 29, 1993, among Metatec
Corporation, MGB, Inc., Darla D. Lang, and Denise Hunter (Incorporated by
reference to Annual Report on Form 10-K for the fiscal year ended December 31,
1992 (see Exhibit 10(s) therein)).
10(x) Severance Agreement dated March 30, 1993, between Metatec Corporation and Jerry
D. Miller (Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (see Exhibit 10(t) therein)).
21 Subsidiaries of Metatec Corporation (Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 (see Exhibit 21
therein)).
23(a)* Consent of Baker & Hostetler (contained in Exhibit 5).
23(b)* Consent of Deloitte & Touche LLP.
24* Powers of Attorney (for James V. Pickett and Gregory T. Tillar).
27 Financial Data Schedules.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
1,500,000 Shares
METATEC CORPORATION
of Common Shares
UNDERWRITING AGREEMENT
May 19, 1995
Legg Mason Wood Walker, Incorporated and
Van Kasper & Company
As Representatives of the Several Underwriters
c/o Legg Mason Wood Walker, Incorporated
Legg Mason Tower
111 South Calvert Street, 20th Floor
Baltimore, Maryland 21202
Gentlemen:
Metatec Corporation, a Florida corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters", which term
shall also include any underwriter substituted as hereinafter provided in
Section 9 hereof) named in Schedule I hereto for whom you are acting as
representatives (the "Representatives"), 1,500,000 shares (the "Firm Shares") of
the Company's Common Shares, $.10 par value (the "Common Stock"). The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto. In addition, the
Company proposes to grant to the Underwriters, solely for the purpose of
covering over-allotments in the sale of Firm Shares, the option described in
Section 2(b) of this Agreement to purchase up to 225,000 additional shares of
Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company, and the
Company is relying on your representation, (a) that you are authorized to enter
into this Agreement on behalf of the several Underwriters and (b) that you and
the several Underwriters are willing, acting severally and not jointly, to
purchase the numbers of Firm Shares set forth opposite their respective names
in Schedule I, plus their pro rata portion of the Option Shares if you elect
to exercise the over-allotment option in whole or in part. The Firm Shares and
the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
<R/>
In consideration of the mutual agreements contained herein and
of the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents, warrants, covenants and agrees
with Underwriters as follows:
(a) REGISTRATION STATEMENT AND PROSPECTUS. A
registration statement on Form S-1 (File No. 33-58733 with respect to the
Shares has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act") and the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission under the Act.
Copies of such registration statement, including any amendments and supplements
thereto, the preliminary prospectuses (meeting the requirements of Rule 430A of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to the Representatives (and to such of the Underwriters
which have requested the foregoing from the Company). Such registration
statement, hereinafter referred to as the "Registration Statement", which shall
be deemed to include all information omitted therefrom in reliance upon
Rule 430A and contained in the Prospectus, as defined below, has been declared
effective by the Commission under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement. The form
of prospectus first filed by the Company with the Commission pursuant to Rule
424(b) and Rule 430A of the Act as it may hereafter be supplemented or amended
is herein referred to as the "Prospectus." Each preliminary prospectus included
in the Registration Statement prior to the time it becomes effective and each
form of prospectus that pursuant to Rule 430A of the Act omits certain
information is herein referred to as a "Preliminary Prospectus". Any reference
herein to the Prospectus shall be deemed to include any supplements or
amendments thereto filed with the Commission after the date of filing of the
Prospectus under Rules 424(b) and 430A, and during such longer period as the
Prospectus may be required to be delivered in connection with the Shares by the
Underwriters or any dealer.
(b) COMPLIANCE WITH THE ACT. At the effective time of
the Registration Statement and at all times subsequent thereto (except for the
period between (a) the occurrence of an event which requires the filing of an
amendment to the Registration Statement and (b) the filing thereof, so long as
the Company promptly makes such filing and promptly notifies the Representatives
of the occurrence of such event), up to and including the Closing Date and the
Option Closing Date (as such terms are herein defined), and during such longer
period until any post-effective amendment to the Registration Statement shall
become effective, the Registration Statement and any post-effective amendment to
the Registration Statement) will contain
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<PAGE> 3
all statements which are required to be stated therein in accordance with the
Act and the Rules and Regulations under the Act and will fully comply in all
material respects with the applicable provisions of the Act and the Rules and
Regulations under the Act, and neither the Registration Statement nor any such
amendment will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and the Prospectus as it may be amended or supplemented
will at all times up to and including the Closing Date and the Option Closing
Date (except for the period between (a) the occurrence of an event which
requires the filing of an amendment or supplement to the Prospectus and (b) the
filing thereof, so long as the Company promptly makes such filing and promptly
notifies the Representatives of the occurrence of such event), and during such
longer period as the Prospectus may be required to be delivered in connection
with sales of the Shares by the Underwriters or any dealer, fully comply in all
material respects with the provisions of the Act and the Rules and Regulations
under the Act, and will not contain any untrue statement of a material fact and
will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the Company
makes no representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectus or any amendment of,
or supplement to, either of them in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter through the Representatives specifically for use in connection with
the preparation of the Registration Statement or of the Prospectus. It is
understood that the statements set forth (a) on the outside cover page of the
Prospectus regarding (i) indemnity, (ii) compensation of underwriters and (iii)
other information about the underwriting arrangements; (b) on the inside cover
page of the Prospectus with respect to stabilization and passive market making;
(c) under the section entitled "Underwriting" regarding the Underwriters and the
underwriting arrangements; and (d) under the section entitled "Legal Matters"
regarding the identity of counsel for the Underwriters, constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) ORGANIZATION AND QUALIFICATION. Each of the
Company and its wholly owned subsidiary, Metatec/Discovery Systems, Inc.
("Discovery Systems") has been duly incorporated and is validly existing as a
corporation under the law of its respective state of incorporation. Each of the
Company and Discovery Systems, is in good standing under the law of its
respective state of incorporation, with the corporate power and
authority
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<PAGE> 4
to own, lease and operate its properties and conduct its business
as described in the Registration Statement. Each of the Company and its
subsidiaries (collectively, the "Subsidiaries") is duly qualified to transact
business and is in good standing in all jurisdictions in which the conduct of
its business requires such qualification except where the failure to so qualify
would not have a materially adverse effect upon the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company and
its Subsidiaries taken as a whole. Sterling Health Services Corporation
("Sterling Health") and Sterling Investors Corporation ("Sterling Investors"),
each subsidiaries of the Company incorporated under the laws of Florida, and
Discovery Artists, Inc., a subsidiary of the Company incorporated under the
laws of Ohio ("Discovery Artists"), are inactive.
(d) SUBSIDIARIES. Exhibit 21 to the Registration
Statement lists all of the Subsidiaries of the Company, other than Discovery
Artists. Neither Discovery Artists, Sterling Investors nor Sterling Health
constitute a significant subsidiary within the meaning of Rule 1-02(w) of
Regulation S-X. Except as set forth on Exhibit 21 to the Registration
Statement, the Company or its wholly-owned subsidiary, Discovery Systems,
owns all of the issued an outstanding capital stock of each Subsidiary, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest.
(e) CAPITALIZATION; DESCRIPTION OF SECURITIES. All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable (except to
the extent that the risk of forfeiture and earnings requirements as described in
the Registration Statement affects the full payment or nonassessability of the
600,000 shares of Common Stock issued to Jeffrey M. Wilkins in March, 1993),
have been issued in compliance with all Federal and state securities laws, and
were not issued in violation of, or subject to, any preemptive rights or other
rights to subscribe for or purchase securities that were not provided or waived.
The authorized and outstanding capital stock of the Company conforms, and the
authorized and outstanding capital stock of the Company will conform as of the
Closing Date and, if the Option Shares are purchased, the Option Closing Date in
all material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company).
The Firm Shares and the Option Shares (if and to the extent exercised) to be
purchased from the Company hereunder have been duly authorized for issuance and
sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of shareholders exists with respect to
any of the Firm Shares or Option Shares or the issuance and sale thereof. No
further approval or authorization of any shareholder, the Board of Directors or
others is required for the issuance and sale or transfer of the Shares in the
manner set forth in this Agreement, except as may be required under the Act, the
Securities Exchange Act of 1934, as amended (the
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<PAGE> 5
"Exchange Act") or under state or other securities or Blue Sky laws. All issued
and outstanding shares of capital stock of each Subsidiary of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all Federal and state securities laws and
were not issued in violation of, or subject to, any preemptive rights or other
rights to subscribe for or purchase securities that were not provided or waived.
Except as disclosed in the Prospectus, neither the Company nor any Subsidiary
has, or will have as of the Closing Date and the Option Closing Date,
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
descriptions of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly present the information
required to be shown with respect to such plans, arrangements, options and
rights. The only outstanding shares of capital stock of the Company are
5,275,964 shares of Common Stock, being the sum of the number of shares
outstanding at May 15, 1995 and the number of shares issued thereafter in a
manner consistent with Section 4(h) hereof.
(f) NO STOP ORDER. Neither the Commission nor any
state securities commission in a jurisdiction designated by the Representatives
pursuant to Section 4(c) has issued an order preventing or suspending the use of
any Preliminary Prospectus related to the proposed offering of the Shares nor
instituted proceedings for that purpose.
(g) FINANCIAL STATEMENTS. The consolidated financial
statements of the Company and its Subsidiaries (including the unaudited
financial statements for the period ended March 31, 1995 (the "Unaudited
Financial Statements")), together with related notes and schedules, as set forth
in the Preliminary Prospectus, Prospectus and Registration Statement
(collectively, the "Company Financial Statements"), present fairly, in all
material respects, the consolidated financial position, the changes in
stockholders' equity, the results of operations and the changes in cash flows of
the Company and its Subsidiaries at the indicated dates and for the indicated
periods and comply in all material respects with the requirements of the Act.
Each of the Company Financial Statements has been prepared in accordance with
generally accepted accounting principles, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation in all
material respects of results for such periods have been made subject, in the
case of the Unaudited Financial Statements, to normal year-end audit
adjustments, none of which will, individually or in the
-5-
<PAGE> 6
aggregate, be material. The financial statement schedules and summary, selected
and statistical financial information and data, and related notes thereto,
included in the Preliminary Prospectus, Prospectus and Registration Statement
present fairly the information and data shown therein, have been compiled on a
basis consistent with the Company Financial Statements presented therein and
comply in all material respects with the requirements of the Act. The supporting
notes and schedules included in the Preliminary Prospectus, Prospectus and
Registration Statement fairly state in all material respects the information
required to be stated therein in relation to the financial statements taken as a
whole. The financial information included in the Prospectus under the caption
"Prospectus Summary" and "Selected Consolidated Financial Data" presents fairly
the information shown therein and has been compiled on a basis consistent with
that of the audited financial statements included in the Registration Statement;
and comply with the requirements of the Securities Act and the Rules and
Regulations. No other financial statements or schedules are required to be
included in the Registration Statement.
(h) LITIGATION. There is no action, suit, claim or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries or any of their respective officers or any of
their properties, assets or rights, before any court or administrative agency or
body or otherwise which (A) might result in any materially adverse change in the
business, condition (financial or otherwise), operations, earnings, or business
prospects of the Company or any of its Subsidiaries or might materially
adversely affect their properties, assets or rights, (B) if determined adversely
to the Company or any of its Subsidiaries would prevent consummation of the
transactions contemplated hereby or (C) is required to be disclosed in the
Registration Statement or the Prospectus. There are no contracts or documents of
the Company or any of its Subsidiaries that are required to be described in the
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or by the Rules and Regulations which have not been accurately described in all
material respects in the Prospectus and filed as exhibits to the Registration
Statement. The contracts so described in the Prospectus are in full force and
effect on the date hereof and neither the Company nor any of its Subsidiaries,
nor to the best knowledge of the Company, any other party, is in breach or
default under any of such contracts.
(i) TITLE TO ASSETS. The Company and its Subsidiaries
have good and marketable title to all of the properties and assets reflected in
the Company Financial Statements (or as described in the Registration Statement
as owned by such party) subject to no lien, mortgage, pledge, charge or
encumbrance of any kind, except those reflected in the Company Financial
Statements or referred to in the Registration Statement, other than (A) liens
for taxes and assessments not yet due and payable, (B) encumbrances relating to
improvements made by the City of Dublin with respect to the Company's property
located at 7001 Metatec Boulevard, Dublin, Ohio, (C) legal highways, zoning and
building laws, ordinances and regulations, (D) covenants, restrictions,
conditions and easements of record which do not unreasonably
-6-
<PAGE> 7
interfere with the current use made to such properties or assets, or (E)
immaterial liens and encumbrances which do not unreasonably impair or interfere
with the current use made to such properties or assets, and, with respect to
the foregoing item (E), that do not and could not reasonably be expected
to materially adversely affect the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and its
Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries
is a party to any material lease under which the Company or its Subsidiaries
holds properties or assets as lessee.
(j) TAXES. The Company and each Subsidiary has filed
all Federal, State, local and foreign income tax returns which have been
required be filed and has paid all taxes indicated by said returns and all
assessments received by it to the extent that such taxes have become due except
to the extent that any such taxes are currently being contested in good faith
and are not material to the Company or any of its Subsidiaries. There is no tax
deficiency against the Company or its Subsidiaries and, to the Company's
knowledge, there is no reasonable basis for the assertion of any such deficiency
that, if determined adversely, would have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its Subsidiaries taken as a whole, and all tax
liabilities are adequately provided for on the books of the Company and its
Subsidiaries.
(k) NO MATERIAL ADVERSE CHANGE. Since the date as of
which information is given in the Registration Statement and the Prospectus,
(A) there has not been any materially adverse development in or affecting the
condition (financial or otherwise), earnings, operations, business, or business
prospects of the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, (B) there has not been any
material transaction entered into by the Company or any of its Subsidiaries,
other than transactions in the ordinary course of business and transactions
disclosed in the Registration Statement, as it may be amended or supplemented,
(C) there has not been any obligation that is material to the Company or any of
its Subsidiaries, direct or contingent, incurred by the Company or any of its
Subsidiaries, except obligations incurred in the ordinary course of business
and the extension of the Company's $4,000,000 line of credit under its
revolving loan agreement to mature in April 1996 (the "Revolving Loan
Extension"), (D) there has not been any change in the capital stock or
outstanding indebtedness of the Company or any of its Subsidiaries, that is
material to the Company or any of its Subsidiaries, except the Revolving Loan
Extension, and (E) the Company has not declared, paid or made any dividend or
other distribution on its capital stock.
-7-
<PAGE> 8
The Company has no material contingent obligations which are not disclosed in
the Registration Statement.
(l) NO VIOLATION. Neither the Company nor any of its
Subsidiaries is in violation of its charter or by-laws or is in default under
any agreement, lease, contract, indenture or other instrument or obligation to
which it is a party or by which it or any of its properties is bound and which
is material to the Company and its Subsidiaries taken as a whole. The
consummation of the transactions herein contemplated and the execution and
performance of this Agreement and the fulfillment of the terms hereof have been
duly authorized by all necessary shareholder and other corporate action on the
part of the Company and the Subsidiaries and do not and will not conflict with,
or result in a breach of, any of the terms or provisions of, or constitute a
default or require any payment by the Company or any of the Subsidiaries, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or asset of the Company or any Subsidiary under (i) any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound and which is material to the Company and its Subsidiaries
taken as a whole, or of the charter or by-laws of the Company or any of its
Subsidiaries or (ii) any law, order, rule, judgment, decree or regulation
applicable to the Company or any of its Subsidiaries of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction over the Company or any of its Subsidiaries or any of their
properties except such defaults, conflicts or payments which are not material to
the Company and its Subsidiaries taken as a whole.
(m) AUTHORIZATIONS. Each approval, consent, order,
authorization, designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation of
the transactions contemplated in this Agreement and in the Registration
Statement or which may be necessary to qualify the Shares for public offering by
the Underwriters under State securities or Blue Sky laws has been obtained or
made and is in full force and effect.
(n) PERMITS, LICENSES, ETC. The Company and its
Subsidiaries are in possession of, and are operating in compliance with, all
authorizations, licenses, certificates, consents, orders and permits
("Governmental Licenses") from governmental authorities which are necessary to
the conduct of their business and are material to the Company and its
Subsidiaries taken as a whole, all of which are valid and in full force and
effect. Neither the Company nor any Subsidiary has received any written
notice of proceedings relating to revocation or
-8-
<PAGE> 9
modification of any such Governmental Licenses. The Company and its Subsidiaries
own, possess or have the right to use all patents, trade names, trademarks,
service marks, copyrights, know-how (including trade secrets and other
unpatented or unpatentable proprietary information) and other intellectual
property, and rights thereto, described or referred to in the Prospectus or
which are necessary for the conduct of their business. Neither the Company nor
its Subsidiaries have, to the best of their knowledge, infringed, or received
any notice of infringement of, any patents, trade names, trademarks, service
marks, copyrights or intellectual property of other persons, or rights thereto
which may have a material adverse affect on the Company and its Subsidiaries
taken as a whole.
(o) ACCOUNTANTS. Deloitte & Touche LLP have audited
the Company Financial Statements (except for the Unaudited Financial
Statements) filed as part of the Registration Statement and included in the
Prospectus, to the extent set forth in its reports contained in the
Registration Statement and Prospectus. Deloitte & Touche LLP are independent
public accountants as required by the Act and the Rules under the Act. The
Company and each Subsidiary maintains a system of internal accounting controls
sufficient to provide reasonable assurances that: (a) transactions are executed
in accordance with management's general or specific authorization; (b)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted accounting
principles and to maintain accountability for assets; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(p) AUTHORITY. The Company has the full corporate
legal right, power and authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement and the documents contemplated
hereby have been duly authorized, executed and delivered by the Company, and
constitute its valid and binding obligations, enforceable in accordance with
their respective terms, except (A) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a proceeding at law
or in equity) and (B) as rights to indemnity and contribution may be limited by
Federal or state securities laws or principles of public policy.
(q) NO STABILIZATION OR MANIPULATION OF PRICE. Neither
the Company nor any of its officers, directors or affiliates has taken or will
take, directly or indirectly, any action designed to, or which has constituted,
or which might
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<PAGE> 10
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock of the Company or any outstanding securities
convertible or exchangeable for the Common Stock.
(r) AFFILIATIONS. To the Company's knowledge after due
investigation, none of the officers, directors or 5% or greater shareholders of
the Company have any affiliation with the National Association of Securities
Dealers, Inc. (the "NASD").
(s) INSURANCE. The Company and its Subsidiaries
maintain insurance of the types and in the amounts generally deemed adequate for
their respective business, including but not limited to, insurance covering real
and personal property owned or leased by the Company or its Subsidiaries against
theft, damages, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(t) LABOR MATTERS. No labor disturbance by the
employees of the Company or any of its Subsidiaries exists or, to the best of
the Company's knowledge, is imminent and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its principal
suppliers, subassemblers, value added suppliers, subcontractors, original
equipment manufacturers, authorized dealers or distributors that would be
expected to result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
or its Subsidiaries. No collective bargaining agreement exists with any of the
Company's or its Subsidiaries' employees and, to the Company's knowledge, no
such agreement is imminent.
(u) COMPLIANCE WITH LAWS. Neither the Company nor any
of its Subsidiaries has been advised, or has reason to believe, that it is not
conducting business in compliance with all of the laws, rules and regulations of
the jurisdiction in which it is conducting business except where failure to be
so in compliance would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its Subsidiaries taken as a whole.
(v) DISTRIBUTION OF MATERIALS. Neither the Company nor
any Subsidiary has distributed or will distribute any prospectus (as such term
is defined in the Securities Act and the Rules and Regulations) in connection
with the offering and sale of the Shares other than a Preliminary Prospectus or
the Prospectus.
(w) ILLEGAL CONTRIBUTIONS. Neither the Company nor any
of its Subsidiaries has at any time during the last five
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<PAGE> 11
years (i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any Federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(x) LOCK-UP AGREEMENTS. Each member of the Board of
Directors of the Company and each officer (as such term is defined in Rule
16a-1(f) under the Exchange Act) of the Company has agreed that such person will
not, for a period of 120 days after the date of this Underwriting Agreement (the
"Restricted Period"), directly or indirectly sell, offer to sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, by any means,
any shares of Common Stock or announce an intent to sell any shares of Common
Stock, without the prior written consent of the Representatives.
Notwithstanding the foregoing, during the Restricted Period, directors and
officers may sell shares of Common Stock in private transactions not effected
through any broker or dealer and not through any public market or stock
exchange and may transfer shares of Common Stock to his or her spouse,
children, descendants, parents or grandparents or to a trust for the benefit of
one or more of such persons, provided that each transferee agrees in writing
to be bound by this lock-up agreement. In addition, A. Grant Bowen, a director
of the Company, may sell up to 10,000 shares of the Company's Common Stock, in
the aggregate during the Restricted Period (in addition to the other sales
permitted in this subparagraph).
(y) LISTING OF SHARES. The Firm Shares and the Option
Shares, if any, have been approved for quotation on The Nasdaq Stock Market,
subject to official notice of issuance.
(z) RELATED TRANSACTIONS. There are no business
relationships or related-party transactions of the nature described in Item 404
of Regulation S-K of the Act, involving the Company and any other persons
referred to in said Item 404, that are required to be described in the
Prospectus and which have not been so disclosed.
(aa) FILING OF REPORTS. Since January 1, 1990, the
Company has filed on a timely basis all reports, statements, forms, schedules
and other material required to be filed by it under the Exchange Act, except
that the Commission had no record of the filing of the Company's Form 10-Q due
September 15, 1992, which the Company refiled in May, 1993, and that the Company
filed a Form 8-K on March 28, 1995, which was required to be filed by
September 16, 1994. The Company has otherwise complied in all material respects
with the Act. All such filings do not contain any untrue statement of a material
fact and do not omit to state any material fact required to be stated therein or
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<PAGE> 12
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(ab) EXCHANGE OF CLASS B SHARES. In March 1993, the
Company acquired all previously outstanding shares of its Class B common shares,
$.10 par value per share (the "Class B Shares"), in exchange for all of the
outstanding common shares of its wholly-owned subsidiary, Silco Real Estate
Exchange, Inc. (the "Exchange"). All actions taken by the Company in connection
with the Exchange were taken in accordance with all laws and regulations
applicable to the Company or the Exchange and, except for conflicts, breaches,
defaults or payments which have been waived or which do not exceed $75,000, the
Exchange did not conflict with, or result in a breach of, any of the terms or
provisions of, or constitute a default or require any payment by the Company
under (i) any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any of its Subsidiaries was a party or by
which the Company or any of its Subsidiaries was bound at the time of the
Exchange, or of the charter or by-laws of the Company or any of its Subsidiaries
or (ii) any order, rule or regulation applicable to the Company or any of its
Subsidiaries or of any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction over the Company or any of its
Subsidiaries or any of their properties at the time of the Exchange.
(ac) CHAPTER 11 PROCEEDINGS. Discovery Systems
purchased substantially all of the assets of The Wilkins Company, dba Discovery
Systems ("The Wilkins Company") pursuant to a Second Amended Plan of
Reorganization (the "Plan") confirmed by Order dated April 19, 1989 (the
"Confirmation Order"). Discovery Systems has performed in all material respects
its obligations, under the Plan and has complied in all material respects with
the terms of the Confirmation Order. The bankruptcy case of The Wilkins Company
was closed by Order dated February 17, 1993.
(ad) ENVIRONMENTAL LIABILITIES. The Company and
its Subsidiaries have received all material permits and filed all material
notifications required for handling of Hazardous Waste (as defined below) and
have materially complied with all laws and regulations governing the treatment,
handling, storage and disposal of Hazardous Wastes and, to the knowledge of the
Company and its Subsidiaries, have materially complied with all Environmental
Laws (as defined below) (except to the extent that failure to comply with such
Environmental Laws would not have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or business prospects of
the Company and the Subsidiaries, taken as a whole). Neither the Company nor
any of its Subsidiaries have received any notice from a regulatory agency that
it has failed to comply in any material respect with laws or regulations
governing the treatment, handling, storage and disposal of Hazardous Waste or,
to the knowledge of the Company and its Subsidiaries, any Environmental Law.
For purposes of this section, the term "Hazardous Waste" shall have the same
meaning as "Hazardous Waste" under the Resource Conservation and Recovery Act,
42 U.S.C. section 6901 et seq. and similar state laws or regulations. No
release, leak, discharge, spill, disposal or emission ("Release") of Hazardous
Substances
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has occured in, on , or under any property owned or used by the Company or any
of its Subsidiaries which Release (i) had or has a material effect on the value
of the property or (ii) may involve remediation or removal costs in excess of
an aggregate of $50,000, and all such property is free in all material respects
of Hazardous Substances except for those matters as to which the Company has
undertaken remedial measures. For purposes of this section, the term "Hazardous
Substances" shall have the same meaning as "Hazardous Substances" in the
Comprehensive Environment Response, Compensation and Liability Act, 42 U.S.C.
9601, et seq. and similar state statutes. As used herein, "Environmental Laws"
means any federal, state or local law or regulation applicable to the Company's
or the Subsidiaries' business operations or ownership or possession of any of
their properties or assets relating to environmental matters.
(ae) DIVIDENDS. The Company has not declared, paid or
accrued any dividends or distributions to shareholders and will not hereafter
declare, pay or accrue any such dividends
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or distributions prior to the Closing Date or the Option Closing Date.
(af) NASD CONFLICTS. No NASD Member and/or its
associated persons, parent or affiliates in the aggregate beneficially own 10%
or more of the common equity of the Company.
(ag) Subsidiaries. None of the Company's
Subsidiaries, except for Discovery Systems (collectively, the "Inactive
Subsidiaries"), owns any tangible or intangible personal property, real
property or other assets. None of the Inactive Subsidiaries has any Liabilities
(as defined below) and neither the Company nor Discovery Systems has any
Liabilities in respect of such Inactive Subsidiaries. For the purposes hereof,
"Liabilities" means all indebtedness, obligations and other liabilities,
whether direct or indirect, matured or unmatured, and any loss, damage, cost,
contingent liability, loss contingency, unpaid expense, claim, deficiency,
guaranty or endorsement of or by any person whether or not ascertainable.
Any certificate signed by any officer of the Company or any
Subsidiary in such capacity and delivered to the Representatives or to counsel
for the Underwriters pursuant to this Agreement shall be deemed a representation
and warranty by the Company or such Subsidiary to the several Underwriters as to
the matters covered thereby.
2. Purchase and Delivery of the Shares.
(a) On the basis of the representations, warranties
and covenants herein contained, and subject to the conditions herein set forth,
the Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of [$______] per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
Payment for the Firm Shares to be sold hereunder is to
be made in Baltimore Clearing House funds (next day funds) by certified or bank
cashier's checks drawn to the order of the Company for the Shares against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery is to be made at the
offices of Legg Mason Wood Walker, Incorporated, Legg Mason Tower, 111 South
Calvert Street, 20th Floor, Baltimore, Maryland at 10:00 AM, Baltimore time, on
the fifth business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as the Representatives and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." The certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives request in
writing not later than the third full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
full business day prior to the Closing Date. At the election of the Company,
settlement for the Shares shall be made in same day funds in accordance with
Section 5(a)(xiii) of this Agreement.
It is understood that you have advised the Company,
and the Company is relying on your representation, that each Underwriter has
authorized you, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Shares that it has agreed to purchase.
It is understood that each of you,
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individually and not as the Representatives of the several Underwriters, may
(but shall not be obligated to) make payment of the purchase price on behalf of
any Underwriter or Underwriters whose check or checks shall not have been
received by the Representatives prior to the Closing Date for the Firm Shares
(or the Option Shares discussed below) to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in Section 2(a)
of this Agreement. The option granted hereby may be exercised in whole or in
part but only once and at any time upon written notice given within 30 days
after the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than ten full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. If the option is exercised as to all or any portion of the Option
Shares, the number of Option Shares to be purchased by each Underwriter shall be
in the same proportion to the total number of Option Shares being purchased as
the number of Firm Shares being purchased by such Underwriter bears to the
aggregate number of Firm Shares, adjusted by the Representatives in such manner
as to avoid fractional shares. The option with respect to the Option Shares
granted hereunder may be exercised only to cover over-allotments in the sale of
the Firm Shares by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in Baltimore Clearing House funds (next day funds) by
certified or bank cashier's check drawn to the order of the Company against
delivery of certificates therefor at the offices of Legg Mason Wood Walker,
Incorporated, Legg Mason Tower, 111 South Calvert Street, 20th Floor, Baltimore,
Maryland. The certificates for the Firm Shares will be delivered in such
denominations and in such registration as the Representatives
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<PAGE> 16
request in writing not later than the third full business day prior to the
Option Closing Date, and will be made available for inspection by the
Representatives at least one full business day prior to the Option Closing Date.
At the election of the Company, settlement for the Option Shares shall be made
in same day funds in accordance with Section 5(a)(xiii) of this Agreement.
Upon exercise of any option provided for in Section
2(b) hereof, the obligations of the Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment for such
Option Shares) to the accuracy of and compliance with the representations and
warranties of the Company, to the accuracy of the statements of the Company and
officers of the Company, made pursuant to the provisions hereof, to the
performance by the Company of its covenants hereunder and to the condition that
all proceedings taken at or prior to the payment date in connection with the
sale and transfer of such Option Shares shall be reasonably satisfactory in form
and substance to you and to Underwriters' Counsel, and you shall have been
furnished with all such documents, certificates and opinions as you may
reasonably request in order to evidence the accuracy and completeness of any of
the representations, warranties or statements, the performance of any of the
covenants of the Company or its compliance with any of the conditions herein
contained.
3. Offering by the Underwriters. It is understood that
the several Underwriters are to make a public offering of the Firm Shares as
soon as the Representatives deems it advisable to do so. The Firm Shares are to
be initially offered to the public at the public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2(b) hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with an Agreement Among Underwriters entered into by you and the
several other Underwriters.
4. Covenants of the Company. The Company covenants and
agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and amendments thereof, if not effective at the time and
date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; and it will notify you, promptly after
it shall receive notice thereof, of the time when the Registration
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<PAGE> 17
Statement or any subsequent amendment to the Registration Statement has become
effective or any supplement to the Prospectus has been filed. The Company will
(i) prepare and timely file with the Commission under Rule 424(b) of the Rules
and Regulations, a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (ii) not file or publish any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations, (iii) file on a
timely basis all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission subsequent to the date
of the Prospectus and prior to the termination of the offering of the Shares by
the Underwriters. In case any Underwriter is required to deliver a prospectus
nine months or more after the effective date of the Registration Statement in
connection with the sale of the Shares, the Company will prepare promptly upon
request, but at the expense of such Underwriter, such amendment or amendments to
the Registration Statement and such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(b) The Company will advise the Representatives
promptly of the receipt of any comments from the Commission, and of any request
of the Commission for amendment of the Registration Statement or for supplement
to the Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or any Preliminary Prospectus or of the
suspension of the qualification of the Shares for offering in any jurisdiction,
or of the institution or threatening of any proceedings for that purpose, and
the Company will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of the Prospectus and to obtain as soon
as possible the lifting thereof, if issued.
(c) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction in which
the Company would be required thereby to qualify to do business or in which the
Company would thereby become subject to taxation. The Company
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<PAGE> 18
will, from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in effect
for so long a period as the Representatives may reasonably require for the
initial distribution of the Firm Shares and the Option Shares or for such longer
period as may be required by law.
(d) The Company will deliver to the Representatives,
or such other entity or person as the Representatives may designate, from time
to time, without charge, as many copies of any Preliminary Prospectus as the
Representatives may reasonably request. The Company will deliver to the
Representatives, or such other entity or person as the Representatives may
designate, without charge, during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at or before the
Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement, but
without exhibits, and of all amendments thereto, as the Representatives may
reasonably request.
(e) The Company shall comply to the best of its
ability with the Act and the Rules and Regulations, and the Exchange
Act and the rules and regulations of the Commission thereunder so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and in the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company will promptly notify the
Representatives of such event and will promptly prepare and file with the
Commission an appropriate amendment to the Registration Statement or supplement
to the Prospectus so that the Prospectus as so amended or supplemented will not,
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with law; provided that the Company shall make
such changes in any such document as the Underwriters upon advice of counsel may
reasonably request and, provided the Representatives have received the
notification referred to above, you shall notify the Underwriters not to
distribute or otherwise use any Prospectus that needs to be amended or
supplemented until such amendment or supplement is complete.
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<PAGE> 19
(f) The Company will make generally available to its
shareholders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise the Representatives, and such of the Underwriters
which request the foregoing from the Company, in writing when such statement has
been so made available.
(g) The Company will, for a period of three years from
the Closing Date, deliver to the Representatives copies of annual reports and
copies of all other documents, reports and information furnished by the Company
to its shareholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or the
Exchange Act. The Company will deliver to the Representatives similar
information with respect to significant subsidiaries, as that term is defined in
the Rules and Regulations, which are not consolidated in the Company's financial
statements.
(h) No offering, sale or other disposition by the
Company of any Common Stock or any other class of securities or warrants to
purchase any class of securities of the Company will be made during the
Restricted Period, directly or indirectly, otherwise than hereunder or with the
prior written consent of the Representatives, except that the Company may,
without such consent, (i) issue shares of Common Stock upon exercise of options
outstanding as of the date hereof and which are identified in the Prospectus
(provided that the party exercising such option, if a person referred to in
Section 1(x) hereof, is subject to a lock-up agreement of the type described in
Section 1(x) of this Agreement) and (ii) grant options pursuant to existing
option plans in accordance with past practice (provided that either any such
option cannot be exercised prior to the end of the Restricted Period or the
party exercising any such option is subject to a lock-up agreement of the type
described in Section 1(x) of this Agreement).
(i) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(j) If at any time during the 90 day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
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necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the course of the distribution of the
Shares, the Company will not take, directly or indirectly, any action designed
to or that could reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock.
(l) The Company has complied and shall comply with all
of the provisions of Florida H.B. 1771, as codified in Sec. 517.075 Florida
Statutes, as amended, and all regulations promulgated thereunder relating to
issuers doing business with Cuba.
5. Costs, Expenses and Fees.
(a) Whether or not the transactions contemplated by
this Agreement are consummated and regardless of the reason this Agreement is
terminated, the Company will pay or cause to be paid, and bear or cause to be
borne, all costs and expenses incident to the performance of the obligations of
the Company under this Agreement, including (i) the fees and expenses of the
accountants and counsel for the Company incurred in the preparation of the
Registration Statement and any post-effective amendments thereto (including
financial statements and exhibits), Preliminary Prospectuses and the Prospectus
and any amendments or supplements thereto; (ii) printing and delivery expenses
associated with the Registration Statement and any post-effective amendments
thereto, the Preliminary Prospectus, the Prospectus, this Agreement, the
Agreement Among Underwriters, the Underwriters' Questionnaire, the Power of
Attorney, the Selected Dealer Agreement and related documents and the
Preliminary Blue Sky Memorandum and any supplement thereto (excluding mailing
expenses incurred by Underwriters in connection with sending a Preliminary
Prospectus, Prospectus or other document to prospective purchasers of the
Shares); (iii) the costs incident to the authentication, issuance, sale and
delivery of the Shares to the Underwriters; (iv) all taxes, if any, on the
issuance, delivery and transfer of the Shares to be sold by the Company; (v)
NASD fees and the fees, expenses and all other costs of qualifying the Shares
for sale under the securities or Blue Sky laws of those states in which the
Shares are to be offered or
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sold, including the reasonable fees and disbursements of Underwriters' counsel
and such local counsel as may have been reasonably required and retained for
such purpose; (vi) the filing fees incident to securing any review or approvals
by or from the NASD; (vii) the filing fees of the Commission; (viii) the cost
of furnishing to the Underwriters copies of the Registration Statement,
Preliminary Prospectuses and Prospectuses as herein provided; (ix) the
Company's travel expenses in connection with meetings with the brokerage
community and institutional investors; (x) the fees for listing the Shares on
The Nasdaq Stock Market; (xi) the cost of printing certificates for the
Shares; (xi) the cost and charges of any transfer agent; (xii) the cost
of preparing and binding closing binders for the Company, the Representatives
and their counsel; (xiii) settlement in same day funds, if desired by the
Company; and (xiv) all other costs and expenses reasonably incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. Subject to the reimbursement provided for in
Section 5(c) below, the Underwriters agree to pay all fees and expenses of
their legal counsel, other than counsel fees and expenses relating to the "Blue
Sky" matters referred to in clause (v) above, and all advertising, telephone,
travel, clerical or other office costs incurred or to be incurred by the
Underwriters or by their sales personnel in connection with the offering of the
Shares.
(b) The Company shall pay as due any state
registration, qualification and filing fees and any accountable out-of-pocket
disbursements in connection with such registration, qualification or filing in
the states in which the Representatives shall reasonably determine, to offer or
sell the Shares.
(c) In the event that the transactions contemplated by
this Agreement are not consummated for any reason, other than as a result of the
Underwriters' intentional refusal to proceed without cause or the Underwriters'
breach of their obligations under this Agreement, or if the Representatives
terminate this Agreement pursuant to Section 10(a) hereof, then the Company
shall reimburse the Representatives for its accountable reasonable out-of-pocket
expenses associated with the offering contemplated hereby, including, without
limitation, reasonable fees and disbursements of counsel for the Underwriters,
in an amount not to exceed $150,000. If the Firm Shares are not purchased or the
Offering is not consummated as a result of the Underwriters' intentional refusal
to proceed without cause or the Underwriters' breach of their obligations under
this Agreement, the Representatives shall not be entitled to any expense
reimbursement pursuant to the preceding sentence. For purposes of this
paragraph, "cause" shall not include the Underwriter's inability to market the
Offering where there have not been any events materially adverse to the Company
or the
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<PAGE> 22
financial markets in general. This amount shall be in addition to reimbursement
of fees of counsel for the Underwriters incurred in qualifying the Shares
under state securities or Blue Sky laws to be paid by the Company to the
Representatives pursuant to Section 5(a)(v) above.
6. Conditions of Obligations of the Underwriters. The
obligation of any of the Underwriters to purchase the Firm Shares on the Closing
Date and the Option Shares, if any, on the Option Closing Date are subject to
the accuracy, as of the date of this Agreement and the Closing Date and the
Option Closing Date, as the case may be, of the representations and warranties
of the Company contained herein, and to the performance by the Company of its
covenants and obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 p.m. on the date of this Agreement. All filings,
if any, required by Rules 424 and 430A under the Act shall have been timely
made; no stop order suspending the effectiveness of the Registration Statement,
as amended from time to time, shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission; and any request for additional information (to
be included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of the Underwriters' counsel.
(b) All corporate proceedings and other legal matters
in connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issuance, sale and delivery of
the Shares, shall have been taken to the reasonable satisfaction of
Underwriters' counsel, and such counsel shall have been furnished with such
documents and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this subsection.
(c) The Representatives shall have received on the
Closing Date and the Option Closing Date, as the case may be, the opinion of
Baker & Hostetler, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters to the effect
that:
(i) Each of the Company and Discovery Systems has
been duly incorporated and is validly existing as a corporation under the law
of its state of incorporation. Each of the Company and Discovery Systems is in
good standing under the law of its respective state of incorporation, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; the Company and its Subsidiaries are duly
qualified to transact business in all jurisdictions in which the conduct of
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<PAGE> 23
their business as described in the Prospectus requires such qualification except
where the failure to qualify would not have a materially adverse effect upon the
business of the Company and its Subsidiaries taken as a whole.
(ii) The Company has authorized and outstanding
capital stock as set forth in the Prospectus under the heading "Capitalization".
The outstanding shares of the Company's Common Stock have been duly authorized
and validly issued and are fully paid and non-assessable except to the extent
that the risk of forfeiture and earnings requirement of the 600,000 shares of
Common Stock issued to Jeffrey M. Wilkins may affect the full payment or
nonassessability of such shares. All of the Shares conform to the description
thereof contained in the Prospectus. The certificates for the Shares are in due
and proper form under the Florida Business Corporation Act; the Firm Shares and
the Option Shares, if any, to be sold by the Company pursuant to this Agreement
have been duly authorized and will be validly issued, fully paid and
non-assessable when issued and paid for in accordance with the terms of this
Agreement; and no preemptive rights of shareholders exist under applicable law
or, to the knowledge of such counsel, by agreement or otherwise, with respect to
any of the Shares or the issue and sale thereof.
(iii) The Registration Statement has become
effective under the Act and, to the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(iv) The Registration Statement, the Prospectus
and each amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations thereunder (except that such counsel need express no opinion as to
the financial statements, schedules and other financial or statistical
information included therein).
(v) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required.
(vi) Discovery Systems has authorized and
outstanding capital stock as set forth in Schedule II to this Agreement. The
outstanding shares of Discovery Systems' capital stock have been duly authorized
and validly issued and are fully paid and non-assessable and none of the
outstanding shares of the capital stock of Discovery System was issued in
violation of statutory or, to the best of such counsel's knowledge, contractual
preemptive rights. To such counsel's knowledge, the
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<PAGE> 24
ownership of the shares of Discovery Systems' capital stock is as set forth on
Schedule II.
(vii) To the knowledge of such counsel, there are
no governmental or legal proceedings pending or threatened against the Company
or any of its Subsidiaries of a character which are required to be disclosed in
the Registration Statement or the Prospectus, by the Act or the applicable Rules
and Regulations, except as described in the Prospectus.
(viii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance of
the Company's indemnification, contribution or related or similar obligations
hereunder, as to which no opinion need be expressed) will not (a) result in any
violation of the Company's or Discovery Systems' charter or bylaws, or (b)
to such counsel's knowledge, result in the material breach or violation of any
of the terms and provisions, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any lease, contract or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which their properties are bound that is an exhibit to the Registration
Statement, or any applicable statute, rule or regulation or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its Subsidiaries or over any of
their properties or operations; provided, however, that no opinion need be
rendered concerning state securities or Blue Sky laws.
(ix) The Company is not an investment company
within the meaning of the Investment Company Act of 1940, as amended.
(x) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver to the
Underwriters the Firm Shares or the Option Shares, as the case may be. This
Agreement has been duly authorized by all necessary corporate action by the
Company, and has been duly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by the other parties hereto,
constitutes its valid and binding obligation, enforceable in accordance with its
terms, except (A) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
and (B) as enforceability of rights to indemnity and contribution hereunder may
be limited by Federal or state securities laws or principles of public policy.
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(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by State
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the same.
(xii) To such counsel's knowledge, neither the
Company nor any of its Subsidiaries is presently in material breach of, or in
material default under, any bond, debenture, note or other evidence of
indebtedness or any contract, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of their property is bound that is
material to the financial condition, earnings, operations, business or business
prospects of the Company and its Subsidiaries taken as a whole.
(xiii) To such counsel's knowledge, except as set
forth in the Registration Statement and the Prospectus, no holders of Common
Stock or other securities of the Company have registration rights with respect
to securities of the Company, and no holders of securities of the Company have
rights to registration of such shares of Common Stock, or other securities,
because of the filing of the Registration Statement by the Company.
For purposes of the opinion set forth in (x) above as it
relates to the enforceability of this Agreement, such counsel may assume that
the provisions in this Agreement selecting Pennsylvania law as the governing law
have selected Ohio law without regard for principles of choice of law.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that, although counsel has not
undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement, nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, as of the time it became effective under the Act, (ii)
the Prospectus or any amendment or supplement thereto, on the date it was filed
pursuant to Rule 424(b), or (iii) the Registration Statement, or the Prospectus,
or any amendment or supplement thereto, as of the Closing Date or the Option
Closing Date, as the case may be, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (except that such counsel need
express no
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view as to financial statements, schedules and other financial or statistical
information included therein).
(d) The Representatives shall have received from
Pepper, Hamilton & Scheetz, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that:
(i) The Company is a corporation validly existing
and in good standing under the laws of the State of Florida.
(ii) The issuance and sale of the Shares by the
Company pursuant to this Agreement have been duly authorized by all necessary
corporate action and the Shares, upon delivery thereof against payment as
provided for in this Agreement, will be validly issued, fully paid and
nonassessable.
(iii) The Underwriting Agreement has been duly
authorized, executed and delivered by the Company.
(iv) To the knowledge of such counsel, no stop
order suspending effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or threatened by the
Commission.
(v) The Registration Statement and the Prospectus
(except for the financial and statistical information referred to above, as to
which such counsel need not express any opinion) as of the effective date of the
Registration Statement, comply as to form in all material respects with the Act
and the Rules and Regulations of the Act relating to registration statements and
prospectuses.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that, although counsel has not
undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement, nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement as of the time it became effective under the Act, (ii)
the Prospectus or any amendment or supplement thereto, on the date it was filed
pursuant to Rule 424(b), or (iii) the Registration Statement or the Prospectus,
or any amendment or supplement thereto, as of the Closing Date or the
Option Closing Date, as the case may be, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except that such
counsel need express no view as to financial statements, schedules and other
financial information included therein).
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(e) The Representatives shall have received at or
prior to the Closing Date from Pepper, Hamilton & Scheetz a memorandum or
summary, in form and substance satisfactory to the Representatives, with respect
to the qualification for offering and sale by the Underwriters of the Shares
under the state securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(f) At the time this Agreement is executed and at the
Closing Date and the Option Closing Date, as the case may be, the
Representatives shall have received a letter addressed to them individually and
as Representatives of the several Underwriters in form and substance reasonably
satisfactory to such Representatives (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) from Deloitte &
Touche LLP dated as of the date of this Agreement, the Closing Date and the
Option Closing Date, as the case may be:
(i) confirming that they are independent public
accountants within the meaning of the Act and the Rules and Regulations and
stating that the section of the Registration Statement under the caption
"Experts" is correct insofar as it relates to them;
(ii) stating that, in their opinion, the Company
Financial Statements, together with the related notes and schedules as set forth
in the Preliminary Prospectus, the Prospectus and the Registration Statement,
examined by them and the summary, selected, and statistical financial
information and data, and related notes thereto, to the extent derived from the
financial statements examined by them and included in the Preliminary
Prospectus, the Prospectus and the Registration Statement, comply in form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations;
(iii) stating that, on the basis of specified
procedures which included a reading of the Unaudited Financial Statements and
the latest available unaudited interim consolidated financial statements of the
Company (with an indication of the date of such statements), a reading of the
minutes of the meetings of the shareholders and the Board of Directors of the
Company and audit and compensation committees of such Board, if any, and
inquiries to certain officers and other employees of the Company responsible for
financial and accounting matters and other specified procedures and inquiries,
nothing has come to their attention that would cause them to believe that (A)
the Unaudited Financial Statements and related schedules of the Company included
in the Preliminary Prospectus, the Prospectus and the Registration Statement (1)
do not comply in form in all material respects with the applicable accounting
requirements of
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<PAGE> 28
the Act and the Rules and Regulations, or (2) were not fairly presented in
conformity with generally accepted accounting principles on a basis
substantially consistent with that of the audited consolidated Company Financial
Statements and related schedules included in the Preliminary Prospectus, the
Prospectus and the Registration Statement; or (B) (1) at a specified date, not
more than three business days prior to the date of such letter, there was any
change in the capital stock or consolidated short-term or long-term debt or any
decrease in consolidated net current assets, total assets or stockholders'
equity as compared with the amounts shown in the March 31, 1995 unaudited
consolidated balance sheet of the Company, other than as set forth in or
contemplated by the Registration Statement and Prospectus, or, if there was any
change or decrease, setting forth the amount of such change or decrease, and (2)
during the period from March 31, 1995 to a specified date not more than three
business days prior to the date of such letter, there has been any decrease in
revenues or in income from continuing operations or in total or per share net
income of the Company as compared with the corresponding period of the prior
year other than as set forth in the Registration Statement, or, if there was any
such decrease or increase, setting forth the amount thereof; and
(iv) stating that they have compared specific
dollar amounts, numbers of shares and other information pertaining to the
Company set forth in the Registraion Statement and Prospectus, which have been
specified by the Representatives prior to the date of this Agreement, to the
extent that such amounts, numbers, percentages and information may be derived
from the general accounting or other records of the Company, with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter,
and found them to be in agreement.
(g) The Representatives shall have received on the
Closing Date and the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The representations and warranties of the
Company in this Agreement are true and correct as if made on and as of the
Closing Date or any later date on which Option Shares are to be purchased and
the Company has complied with all of its covenants contained herein to be
complied with prior to Closing and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Closing Date or any
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<PAGE> 29
later date on which Option Shares are to be purchased, as the case may be.
(ii) The Registration Statement has become
effective under the Act, no stop order suspending the effectiveness of the
Registration Statement has been issued, and, to his knowledge, no proceedings
for such purpose have been taken or are contemplated by the Commission.
(iii) He does not know of any litigation
instituted or threatened against the Company or any of its Subsidiaries of a
character required to be disclosed in the Registration Statement which is not so
disclosed; he does not know of any contract required to be filed as an exhibit
to the Registration Statement which is not so filed; and, to his knowledge, the
representations and warranties of the Company contained in Section 1 hereof are
true and correct as of the Closing Date or the Option Closing Date, as the case
may be.
(iv) He has carefully examined the Registration
Statement and the Prospectus and in his opinion, as of the effective date of the
Registration Statement, the Registration Statement and the Prospectus did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading and, in his opinion, since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment.
(v) Except as described in the Registration
Statement or Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been (A) any material adverse change in the properties or assets described
or referred to in the Registration Statement and the Prospectus or in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business; (B) any transaction which is
material to the Company and its Subsidiaries, except transactions entered into
in the ordinary course of business; (C) any obligation, direct or contingent,
incurred by the Company or any of its Subsidiaries which is material to the
Company or its Subsidiaries, except obligations incurred in the ordinary course
of business; (D) any change in the capital stock or outstanding indebtedness of
the Company or any of its Subsidiaries which is material to the Company or any
of its Subsidiaries; or (E) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its Subsidiaries.
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<PAGE> 30
(h) The Company shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties contained herein and related matters as the
Representatives or Pepper, Hamilton & Scheetz, counsel for the Underwriters, may
reasonably have requested.
(i) The Firm Shares, and Option Shares, if any, shall
have been approved by all requisite corporate action by the Company and shall
have been approved for quotation upon official notice of issuance on the Nasdaq
Stock Market.
(j) The Company shall have obtained and delivered to
you an agreement from each member of the Board of Directors of the Company and
each officer (as such term is defined in Rule 16a-1(f) under the Exchange Act)
of the Company in writing prior to the date hereof, that such person will not,
during the Restricted Period, offer to sell, sell, contract to sell or otherwise
sell or dispose of, any shares of Common Stock of the Company, any options or
warrants to purchase any shares of Company Stock of the Company or any
securities convertible into or exchangeable for shares of the Common Stock of
the Company owned by such person or entity or with respect to which such person
has the power of disposition otherwise than (i) in private transactions not
effected through any broker or dealer and not through any public market or stock
exchange, or (ii) to his or her spouse, children, descendants, parents or
grandparents or to a trust for the benefit of one or more of such persons,
provided that each transferee and other person acquiring shares of Common Stock
agrees in writing to be bound by such lock-up agreement. Each such person shall
also agree and consent to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of shares of Common Stock held by
such person except in compliance with the foregoing restrictions. In addition,
A. Grant Bowen, a director of the Company, may sell up to 10,000 shares of the
Common Stock, in the aggregate during the Restricted Period (in addition to
other sales permitted in this subparagraph).
(k) The NASD shall have indicated that it had no
objection to the underwriting arrangements pertaining to the sale of the Shares
and the participation by the Underwriters in the sale of the Firm Shares and the
Option Shares.
(l) There shall have been duly tendered to the
Representatives for the respective accounts of the Underwriters certificates
representing all of the Shares to be purchased by the Underwriters on the
Closing Date or any Option Closing Date, as the case may be.
The opinions and certificates mentioned in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects reasonably satisfactory to the Representatives
and to Pepper, Hamilton & Scheetz, counsel for the Underwriters.
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<PAGE> 31
If any of the conditions hereinabove provided for in
this Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters hereunder may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram or by facsimile at or prior to the Closing Date or the
Option Closing Date, as the case may be, and any such termination shall be
without liability of any party to any other party, except to the extent provided
in Sections 5 and 8 of this Agreement, which Sections shall survive such
termination.
7. Conditions of the Obligations of the Company. The
obligations of the Company to sell and deliver the portion of the Shares
required to be delivered as and when specified in this Agreement are subject to
the condition that at the Closing Date or the Option Closing Date, as the case
may be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and their respective officers, directors, employees and agents,
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act (each Underwriter and
each such other person or entity previously described in this Paragraph 8(a) is
hereinafter sometimes referred to as an "Indemnified Underwriter Person" and
collectively as the Indemnified Underwriter Persons") from and against all
claims, liabilities, losses or damages (or actions or proceedings in respect
thereof) to which any such Indemnified Underwriter Person may become subject
under the Act or otherwise, insofar as such claims, liabilities, losses or
damages (or actions or proceedings in respect thereof) arise out of, are related
to or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, (iii) any enforcement of
any of the Underwriters' rights hereunder, or (iv) any misrepresentation with
respect to or breach or violation of the representations, warranties and
covenants of the Company set forth in this Agreement or any Certificate
delivered pursuant to this Agreement, or (v) any written misrepresentations of
the Company, or the officers, directors, employees or agents (other than any
Indemnified Underwriter Person) of the Company in such capacities in connection
with the offering and sale of the Shares, and will reimburse each Indemnified
Underwriter Person for any legal or other expenses
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<PAGE> 32
reasonably incurred by such Indemnified Underwriter Person in connection with
investigating or defending any such claim, liability, loss, damage, action or
proceeding; provided, however, that the Company will not be liable in any such
case to the extent that any such claim, liability, loss or damage arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representatives and specifically approved in writing by the Representatives for
use in the preparation thereof and provided further that the indemnification
contained in this paragraph with respect to, based on or arising out of an
untrue statement or omission or alleged untrue statement or omission in a
Preliminary Prospectus shall not inure to the benefit of any Underwriter or
Indemnified Underwriter Person with respect to a claim made by a third party if
(i) a copy of the Prospectus, as amended or supplemented, shall have been
received by the Representatives prior to the date on which the Representatives
shall be required by the Act and the Rules and Regulations to deliver such
Prospectus, (ii) such Prospectus, as amended or supplemented shall not have been
delivered or sent to the person making claims or seeking damages or to impose
liabilities or losses within the time required by the Act and the Rules and
Regulations, (iii) the untrue statement or omission or the alleged untrue
statement or omission was corrected in the Prospectus, as amended or
supplemented and (iv) the delivery of such Prospectus would have constituted a
complete defense to the claim asserted by such person. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, (each of
the Company and each such other person or entity previously described in this
Paragraph 8(b) is hereinafter sometimes individually referred to as an
"Indemnified Company Person" and collectively as the Indemnified Company
Persons"), from and against all claims, liabilities, losses or damages (or
actions or proceedings in respect thereof) to which any such Indemnified Company
Person may become subject under the Act or otherwise, insofar as such claims,
liabilities, losses or damages (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or
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<PAGE> 33
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse each Indemnified
Company Person for any legal or other expenses reasonably incurred by such
Indemnified Company Person in connection with investigating or defending any
such claim, liability, loss, damage, action or proceeding; provided, however,
that each Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives and specifically approved in writing by the Representatives
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense; provided, however, that the
indemnifying party shall pay as incurred the fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm (in addition to counsel for the
indemnifying party) for all such indemnified parties. Such firm shall be
designated in writing by the Representatives in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the
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indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or (b) above in respect of any claims, liabilities,
losses or damages (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such claims, liabilities,
losses or damages (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
claims, liabilities, losses or damages (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus;
provided that in the event the Underwriters shall have purchased any Option
Shares hereunder, any determination of the relative benefits received by the
Company or the Underwriters from the offering of the Shares shall include the
net proceeds (before deducting expenses) received by the Company and the
underwriting discounts and commissions received by the Underwriters from the
sale of such Option Shares, in each case computed on the basis of the respective
amounts set forth in the notes to the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the
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<PAGE> 35
order and method of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a result of
the claims, liabilities, losses or damages (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having jurisdiction
over any other contributing party, agrees that process issuing from such court
may be served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Each indemnifying party agrees that it will not
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought from it by an indemnified party (whether any indemnified party is
an actual or potential party to such claim, action, suit or proceeding) unless
such settlement, compromise or consent includes an unconditional release of each
indemnified party hereunder from all liability arising out of such claim,
action, suit or proceeding.
(g) If any personnel of any indemnified party appear
as witnesses, are deposed or are otherwise involved in any action (except to the
extent that it is finally judicially determined that such action resulted from
such indemnified party's gross negligence or willful misconduct) against any
indemnified party, the indemnifying party agrees to reimburse such indemnified
party for all expenses (including fees and expenses of counsel) incurred by it
by reason of any of its personnel being involved in any such action and will
compensate such person for time spent by its employees preparing for and
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<PAGE> 36
testifying as witnesses in any deposition or proceeding at the indemnified
party's customary rates, as the case may be.
9. Default by Underwriters. If on the Closing Date or
the Option Closing Date, as the case may be, any Underwriter shall fail to
purchase and pay for the portion of the Shares which such Underwriter has agreed
to purchase and pay for on such date (otherwise than by reason of any default on
the part of the Company), you, as Representatives of the Underwriters, shall use
your best efforts to procure within 24 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon and upon the terms set forth herein, the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 24 hours you, as such Representatives, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 24-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company except to the extent provided
in Sections 5 and 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. Termination. This Agreement may be terminated by the
Representatives by notice to the Company as follows:
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<PAGE> 37
(a) at any time prior to the Closing Date if any of
the following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
materially adverse change or any development involving a prospective materially
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, operations,
management, business or business prospects of the Company and its Subsidiaries
taken as a whole, whether or not arising in the ordinary course of business,
(ii) any material adverse change in the financial markets in the United States
or internationally or any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change on the financial
markets of the United States would, in the Representatives' reasonable judgment,
make the offering or delivery of the Shares impracticable, (iii) suspension of
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Stock Market or the over-the-counter market or limitation
on prices (other than limitations on hours or numbers of days of trading) for
securities, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Representatives' reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company and its Subsidiaries taken as a whole, (v)
declaration of a banking moratorium by either federal or New York State
authorities, (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Representatives' reasonable opinion has a material adverse effect on the
securities markets in the United States; (vii) or trading in any securities of
the Company shall have been suspended or halted by the NASDAQ Stock Market or
the Commission; or
(b) as provided in Sections 6 and 9 of this
Agreement.
This Agreement also may be terminated by the
Representatives, by notice to the Company, as to any obligation of the
Underwriters to purchase the Option Shares, upon the occurrence at any time
prior to the Option Closing Date of any of the events descried in subparagraph
(a) above or as provided in Sections 6 and 9 of this Agreement.
11. Default by the Company. If the Company shall fail at the
Closing Date to sell and deliver the number of Offered Shares that it is
obligated to sell, then this Agreement shall
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<PAGE> 38
terminate without any liability on the part of any non-defaulting party except
to the extent provided in Section 5 and except that the provisions of Section 8
shall remain in effect. No action taken pursuant to this Section shall relieve
the Company from liability, if any, in respect of such default.
12. Notices. All communications hereunder shall be in writing
and, except as otherwise provided herein, will be mailed, delivered or
telegraphed or sent by facsimile and confirmed (postage and costs prepaid) as
follows: if to the Underwriters, to Legg Mason Wood Walker, Incorporated, Legg
Mason Tower, 111 South Calvert Street - 20th Floor, Baltimore, Maryland 21202,
Attention: Edmund J. Cashman, Jr., Facsimile (410) 539-4508, with a copy to
Pepper, Hamilton & Scheetz, 3000 Two Logan Square, Philadelphia, Pennsylvania
19103, Attention: Barry M. Abelson, Esquire, Facsimile (215) 981-4750, if to the
Company, to Metatec Corporation, 7001 Metatec Boulevard, Dublin, Ohio,
Attention: Jeffrey M. Wilkins, Facsimile (614) 766-3146, with a copy to Baker &
Hostetler, 65 East State Street, Columbus, Ohio 43215, Facsimile (614) 462-2616,
Attention: Gary A. Wadman, Esquire.
13. Governing Law: Waiver of Trial by Jury: Severability. This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the Commonwealth of Pennsylvania, without giving effect to the
principles of conflicts of law thereof. For the purpose of expediting the
resolution of any controversy, claim or dispute arising out of or related to
this Agreement or the transactions or agreements contemplated hereby, the
Company and the Underwriters hereby waive trial by jury. Any term or provision
of this Agreement which is invalid or unenforceable in any jurisdiction shall,
as to such jurisdiction, be deemed severable from the remainder of this
Agreement, and the remaining terms and provisions contained in this Agreement
shall be construed to preserve to the maximum permissible extent the intent and
purposes of this Agreement. Any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such term or provision
in any other jurisdiction.
14. Successors. This Agreement has been and is made solely for
the benefit of the Underwriters and the Company and their respective successors,
executors, administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Shares merely because of such purchase.
15. Miscellaneous. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of
-38-
<PAGE> 39
any Underwriter or controlling person thereof, or by or on behalf of the Company
or its directors or officers and (c) delivery of and payment for the Shares
under this Agreement. This Agreement contains the entire agreement among the
parties hereto with respect to the matters governed hereby. All section headings
used herein are for convenience and ease of reference only and do not constitute
part of this Agreement and shall not be referred to for the purpose of defining,
interpreting, construing or enforcing any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. One or more counterparts of this Agreement may
be delivered by facsimile, with the intention that they shall have the same
effect as an original counterpart hereof.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
METATEC CORPORATION
By
-------------------------
Name: William H. Largent
Title: Vice President, Finance
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
LEGG MASON WOOD WALKER, INCORPORATED
VAN KASPER & COMPANY
As Representatives of the
several Underwriters listed
on Schedule I hereto
By: Legg Mason Wood Walker, Incorporated
By:
------------------------------
Authorized Representative
By: Van Kasper & Company
-39-
<PAGE> 40
By:
------------------------------
Authorized Representative
-40-
<PAGE> 41
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Legg Mason Wood Walker, Incorporated
Van Kasper & Company
Total 1,500,000
=========
</TABLE>
-41-
<PAGE> 42
SCHEDULE II
METATEC/DISCOVERY SYSTEMS, INC. -- Jurisdiction
of Incorporation, Authorized Capital and Percentage Ownership
<TABLE>
<CAPTION>
Authorized
Subsidiary Jurisdiction % Ownership Capital
- ---------- ------------ ----------- ----------
<S> <C> <C> <C>
Metatec/Discovery
Systems, Inc. Ohio 100% 500
</TABLE>
-42-
<PAGE> 43
SCHEDULE III
Subsidiaries of the Company, Jurisdiction
of Incorporation, Authorized Capital and Percentage Ownership
<TABLE>
<CAPTION>
Authorized
Subsidiary Jurisdiction % Ownership Capital
- ---------- ------------ ----------- ----------
<S> <C> <C>
Metatec/Discovery
Systems, Inc. Ohio 100%
Sterling Investors
Corporation Florida 100%
Sterling Health
Service Corporation Florida 80%
</TABLE>
-43-
<PAGE> 1
EXHIBIT 5
May 16, 1995
Metatec Corporation
7001 Metatec Boulevard
Dublin, Ohio 43017
Gentlemen:
We are acting as counsel to Metatec Corporation, a Florida corporation
(the "Company"), in connection with its Registration Statement on Form S-1 (File
No. 33-58733), as amended (the "Registration Statement"), filed by the Company
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, to register 1,725,000 common shares, $0.10 par value, of the Company
(the "Shares").
In connection therewith, we have examined the Company's Amended and
Restated Articles of Incorporation, the Company's Amended and Restated Bylaws,
the records, as exhibited to us, of the corporate proceedings of the Company,
and such other documents and records as we considered necessary for purposes of
this opinion. In rendering this opinion, we have assumed, without independent
investigation, the genuineness of all signatures on all documents examined by
us, the conformity to original documents of all documents submitted to us as
certified or facsimile copies and the authenticity of all such documents.
Based upon the foregoing, we are of the opinion that:
(1) The Company is a corporation duly organized and
validly existing under the laws of the State of Florida; and
(2) The Shares have been duly authorized and, when
sold and paid for in the manner contemplated by the Registration Statement, will
have been validly issued and will be fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus which is part of the Registration Statement.
Very truly yours,
/s/ Baker & Hostetler
---------------------
BAKER & HOSTETLER
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-58733 of Metatec Corporation on Form S-1 of our report dated February 15,
1995, appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated February 15, 1995 relating to the financial
statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Columbus, Ohio
May 17, 1995
<PAGE> 1
POWER OF ATTORNEY
-----------------
The undersigned, a director and/or officer of Metatec Corporation, a
Florida corporation (the "Company"), hereby constitutes and appoints Jeffrey M.
Wilkins and William H. Largent, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, with full power and authority in each and
said attorney-in-fact and agent, to sign for the undersigned and in his name as
a director and/or officer of the Company and in any and all other capacities,
the Amendment No. 1 to the Registration Statement on Form S-1 (Registration No.
33-58733) of the Company and any and all subsequent amendments (including
post-effective amendments) to such Registration Statement to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, in connection with the proposed public offering by the Company of
1,725,000 common shares, $.10 par value, of the Company, including shares to
be issued upon exercise of the underwriters' over-allotment option, and to file
such amended Registration Statement with all exhibits and other related
documents and any and all such further amendments with the Securities and
Exchange 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 and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all acts taken by each said attorney-in-fact and agent, or any of
them, or their substitutes, as herein authorized.
Date: May 15, 1995 /s/ James V. Pickett
--------------------
Signature
James V. Pickett
--------------------
Print Name
Director
--------------------
Position(s) with Company
POWER OF ATTORNEY
-----------------
The undersigned, a director and/or officer of Metatec Corporation, a
Florida corporation (the "Company"), hereby constitutes and appoints Jeffrey
M. Wilkins and William H. Largent, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, with full power and authority in each and
said attorney-in-fact and agent, to sign for the undersigned and in his name as
a director and/or officer of the Company and in any and all other capacities,
the Amendment No. 1 to the Registration Statement on Form S-1 (Registration
No. 33-58733) of the Company and any and all subsequent amendments (including
post-effective amendments) to such Registration Statement to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, in connection with the proposed public offering by the Company of
1,725,000 common shares, $.10 par value, of the Company, including shares to
be issued upon exercise of the underwriters' over-allotment option, and to file
such amended Registration Statement with all exhibits and other related
documents and any and all such further amendments with the Securities and
Exchange 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 and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all acts taken by each said attorney-in-fact and
agent, or any of them, or their substitutes, as herein authorized.
Date: May 16, 1995
/s/ Gregory T. Tillar
---------------------
Signature
Gregory T. Tillar
---------------------
Print Name
President, Chief Operating Officer and Director
----------------------
Position(s) with Company
