<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-9220
METATEC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1698890
(State of Incorporation) (IRS Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (614) 761-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of Common Shares outstanding as of August 8, 1997: 6,831,023
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METATEC CORPORATION
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INDEX PAGE
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Part I : Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Earnings
for the three months ended June 30, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statements of Earnings
for the six months ended June 30, 1997
and 1996 (unaudited) 5
Condensed Consolidated Statement of Shareholders'
Equity for the six months ended June 30, 1997
(unaudited) 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30,
1997 and 1996 (unaudited) 7
Notes to Condensed Consolidated Financial
Statements (unaudited) 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 10
Part II: Other Information
Items 1-6 11
Signatures 11
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
METATEC CORPORATION
- --------------------------------------------------------------------------------
(Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS At June 30, At December 31,
1997 1996
- -------------------------------------------------------------------------------- -------------- --------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 574,282 $ 2,214,755
Accounts receivable, net of allowance for doubtful accounts
of $291,000 and $321,000 5,358,147 6,710,596
Inventory 850,620 948,738
Prepaid expenses 376,476 435,451
Prepaid income taxes 25,279
Current portion of long-term note receivable 13,202 13,202
Deferred income taxes 499,000 484,000
------------ --------------
Total current assets 7,671,727 10,832,021
Long-term note receivable, less current portion 194,154 200,648
Property, plant and equipment - net 40,726,934 37,776,085
Goodwill - net 3,479,703 3,708,723
------------ --------------
Total Assets $ 52,072,518 $ 52,517,477
============ ==============
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable $ 2,344,930 $ 2,942,565
Accrued royalties 1,161,106 1,080,400
Accrued personal property taxes 799,389 659,879
Other accrued expenses 568,868 567,675
Accrued payroll 420,425 398,160
Accrued income taxes 28,844
Unearned income 68,810 205,143
Current maturities of long-term debt and capital lease obligations 859,154 62,759
------------ ------------
Total current liabilities 6,251,526 5,916,581
Long-term debt and capital lease obligations, less current maturities 131,592 55,105
Deferred income taxes 1,295,000 1,280,000
------------ ------------
Total liabilities 7,678,118 7,251,686
------------ ------------
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1997 - 7,080,254 shares; 1996 - 7,073,353 708,026 707,336
Additional paid-in capital 33,964,132 33,935,853
Retained earnings 11,054,760 10,891,243
Treasury stock, at cost; 1997 - 272,655 shares; 1996 - 38,655 shares (1,332,518) (268,641)
------------ ------------
Total shareholders' equity 44,394,400 45,265,791
------------ ------------
Total Liabilities & Shareholders' Equity $ 52,072,518 $ 52,517,477
============ ============
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
METATEC CORPORATION
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended June 30,
--------------------------------------
1997 1996
- ------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
NET SALES $ 12,007,932 $ 10,975,017
Cost of sales 8,016,322 6,967,938
------------ ------------
Gross profit 3,991,610 4,007,079
Selling, general and administrative expenses 3,366,100 3,172,357
------------ ------------
OPERATING EARNINGS 625,510 834,722
Other income and (expense):
Investment income 12,550 97,836
Other - net (4,577) 3,593
Interest expense (9,455) (2,684)
------------ ------------
EARNINGS BEFORE INCOME TAXES 624,028 933,467
Income taxes 256,500 384,000
------------ ------------
NET EARNINGS $ 367,528 $ 549,467
============ ============
NET EARNINGS PER COMMON SHARE $ 0.05 $ 0.08
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,935,727 7,197,148
============ ============
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Six Months Ended June 30,
--------------------------------------
1997 1996
- -------------------------------------------------------------- ------------- ------------
<S> <C> <C>
NET SALES $ 23,686,507 $ 23,179,472
Cost of sales 16,068,909 13,994,434
------------ ------------
Gross profit 7,617,598 9,185,038
Selling, general and administrative expenses 7,079,635 6,644,362
Restructuring expenses 206,000 0
------------ ------------
OPERATING EARNINGS 331,963 2,540,676
Other income and (expense):
Investment income 23,312 166,183
Other - net (43,619) (18,188)
Interest expense (11,639) (5,473)
------------ ------------
EARNINGS BEFORE INCOME TAXES 300,017 2,683,198
Income taxes 136,500 1,090,000
------------ ------------
NET EARNINGS $ 163,517 $ 1,593,198
============ ============
NET EARNINGS PER COMMON SHARE $ 0.02 $ 0.22
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,099,384 7,173,237
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 5 of 11
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
- -------------------------------------- ------------ ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 707,336 $ 33,935,853 $ 10,891,243 $ (268,641) $ 45,265,791
Net earnings 163,517 163,517
Stock options exercised 271 9,733 10,004
Stock awards for employees 419 18,546 18,965
Treasury shares acquired (1,063,877) (1,063,877)
------------ ------------- ------------ ------------- ----------------
BALANCE AT JUNE 30, 1997 $ 708,026 $ 33,964,132 $ 11,054,760 $ (1,332,518) $ 44,394,400
============ ============= ============ ============= ================
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 1997 1996
- -------------------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 163,517 $ 1,593,198
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 3,874,808 3,365,960
Deferred income taxes 0 753,000
Net loss on sales of property, plant and equipment 43,618 26,673
Changes in assets and liabilities:
Accounts receivable 1,353,547 686,430
Inventory 98,118 82,334
Prepaid expenses and other assets 18,325 37,926
Accounts payable and accrued expenses (307,995) (1,835,752)
Unearned income (136,333) (312,629)
----------- -----------
Net cash provided by operating activities 5,107,605 4,397,140
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable 6,494 5,059
Purchase of property, plant and equipment (6,655,845) (4,434,473)
Proceeds from the sales of property, plant and equipment 63,300 3,939
----------- -----------
Net cash used in investing activities (6,586,051) (4,425,475)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 928,576 0
Payment of long-term debt and capital lease obligations (55,695) (43,406)
Stock options exercised, including tax benefit 10,004 103,305
Treasury stock acquired (1,063,877) 0
Stock awards for employees 18,965 0
----------- -----------
Net cash (used in) provided by financing activities (162,027) 59,899
----------- -----------
Increase (decrease) in cash and cash equivalents (1,640,473) 31,564
Cash and cash equivalents at beginning of year 2,214,755 5,898,928
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 574,282 $ 5,930,492
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 7,036 $ 5,473
=========== ===========
Income taxes paid $ 120,100 $ 1,043,083
=========== ===========
Assets purchased for the assumption of a liability $ 536,462 $ 0
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 7 of 11
<PAGE> 8
METATEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION - The consolidated balance sheet as of June 30,
1997, the consolidated statements of earnings for the three and six months
ended June 30, 1997 and June 30, 1996, the consolidated statement of
shareholders' equity for the six months ended June 30, 1997, and the
consolidated statements of cash flows for the six month periods then ended
have been prepared by the Company, without audit. In the opinion of
management, all adjustments, which consist solely of normal recurring
adjustments, necessary to present fairly, in accordance with generally
accepted accounting principles, the financial position, results of
operations and changes in cash flows for all periods presented have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's December 31, 1996
annual report on Form 10-K. The results of operations for the period ended
June 30, 1997 are not necessarily indicative of the results for the full
year.
2. PROPERTY, PLANT AND EQUIPMENT COMMITMENTS - The Company has commitments
under contracts for the purchase of property, plant, and equipment. Portions
of such contracts not completed as of June 30, 1997 are not reflected in the
consolidated financial statements. The unrecorded commitments amounted to
approximately $771,000 at June 30, 1997. This amount represents
manufacturing equipment on order.
3. RECENTLY ISSUED ACCOUNTING STANDARD - In February 1997, The Financial
Accounting Standards Board issued Statement of Financial Accounting Standard
(SFAS) No. 128, "Earnings Per Share," which is effective for periods ending
after December 15, 1997. SFAS No. 128 establishes new standards for
computing and presenting earnings per share. Under SFAS No. 128 basic and
dilutive earnings per share, as defined therein, for the six months ended
June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
----- ---- ----- ----
<S> <C> <C> <C> <C>
Basic $ 0.05 $ 0.08 $ 0.02 $ 0.23
======= ======== ======== ========
Diluted $ 0.05 $ 0.08 $ 0.02 $ 0.22
======= ======== ======== ========
</TABLE>
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which will require
adoption no later than the Company's fiscal quarter ended March 31, 1998.
This new statement defines comprehensive income as "all changes in equity
during a period, with the exception of stock issuances and dividends". The
new pronouncement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
In June 1997, FASB also issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information", which will require adoption no later than 1998. SFAS
131 requires companies to report financial and descriptive information
about its reportable operating segments. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Based on current operations, the Company does not believe the
Statement will be applicable.
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METATEC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1997 were $12,008,000, an
increase of $1,033,000, or 9% over the same period of the prior year. This
increase resulted primarily from the Manufacturing Services Group, which
includes CD-ROM and Radio Syndication manufacturing, increasing $1,639,000 to
$11,569,000 for the three months ended June 30, 1997, or 17% over the same
period of the prior year. Net sales for the Access Services Group, previously
reported as the New Media Solutions Group, decreased $606,000 to $439,000, or a
58% decrease from the three months ended June 30, 1996. This combined net sales
increase was primarily as a result of a continued growing CD-ROM manufacturing
market which resulted in an increase in volume. The Company continued its focus
on the business and information services CD-ROM market.
Net sales for the six months ended June 30, 1997 were $23,687,000, an increase
of $507,000, or 2% over the same period of the prior year. This increase
resulted primarily from the Manufacturing Services Group, which includes CD-ROM
and Radio Syndication manufacturing, increasing $2,300,000 to $22,839,000 for
the six months ended June 30, 1997, or 11% over the same period of the prior
year. Net sales for the Access Services Group, previously reported as the New
Media Solutions Group, decreased $1,793,000 to $848,000, or a 68% decrease from
the six months ended June 30, 1996. This combined net sales increase was
primarily as a result of a continued growing CD-ROM manufacturing market which
resulted in an increase in volume.
Gross profit was 33% of net sales for the three months ended June 30, 1997 as
compared to 37% of net sales for the same period of the prior year. This
decrease is primarily attributed to price erosion and mix change which
contributed to a lower gross profit percentage in 1997 as compared to 1996.
Gross profit was 32% of net sales for the six months ended June 30, 1997 as
compared to 40% of net sales for the same period of the prior year.
Selling, general and administrative ("SG&A") expenses increased to $3,366,000,
or 28% of net sales, for the three months ended June 30, 1997 as compared to
$3,172,000, or 29% of net sales, for same period of the prior year. SG&A
expenses increased to $7,080,000, or 30% of net sales, for the six months ended
June 30, 1997 as compared to $6,644,000, or 29% of net sales, for same period
of the prior year.
The six months ended June 30, 1997 included a restructuring charge of $206,000
related to continuing operations. This charge related to a reorganization and
downsizing of the Access Services Group.
Investment income was $13,000 and $98,000 for the three month periods ended
June 30, 1997 and 1996, respectively. Investment income was $23,000 and
$166,000 for the six month periods ended June 30, 1997 and 1996, respectively.
This decrease is the result of lower cash and cash equivalent balances and
lower investment earnings rates on those balances in 1997.
Interest expense for the three months ended June 30, 1997 was $9,000 as
compared to $3,000 for the same period of the prior year. Interest expense for
the six months ended June 30, 1997 was $12,000 as compared to $5,000 for the
same period of the prior year. The increase in interest expense was due to
borrowing under a revolving line of credit.
Page 9 of 11
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METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The income tax expense was $257,000 for the three months ended June 30, 1997,
or an effective tax rate of 41%, as compared to a tax expense of $384,000 for
the same period of the prior year, or an effective tax rate of 41%. The income
tax expense was $137,000 for the six months ended June 30, 1997, as compared to
a tax expense of $1,090,000 for the same period of the prior year.
Net earnings for the three months ended June 30, 1997 were $368,000, or net
earnings per common share of $.05, as compared to net earnings in the same
period of the prior year of $549,000, or net earnings per common share of $.08.
Net earnings for the six months ended June 30, 1997 were $164,000, or net
earnings per common share of $.02, as compared to net earnings in the same
period of the prior year of $1,593,000, or net earnings per common share of
$.22. The net earnings decrease was primarily a result of the change in product
focus, and resulting decreased revenues, within the Access Services Group.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the six months ended June 30, 1997
through cash generated from operations and available cash balances and through
the use of debt. Cash flow from operating activities was $5,108,000 for the six
months ended June 30, 1997, as compared to $4,397,000 for the six months ended
June 30, 1996.
The Company, in the six month period ended June 30, 1997, continued to increase
its manufacturing capacity over the 1996 level. The capacity increase along
with recurring capital needs resulted in the purchase of $6,656,000 in
property, plant and equipment during the six months ended June 30, 1997. During
the period ended June 30, 1997 the Company completed an 80,000 square foot
addition to the Company's existing facility, with a cost of $6,400,000.
The Company has cash and cash equivalents of $574,000 as of June 30, 1997.
Additionally the Company has available $15,000,000 under its revolving line of
credit agreement, of which $750,000 was outstanding as of June 30, 1997.
Management believes that current cash balances, plus the funds available from
the revolving line of credit agreement, plus cash to be generated from future
operations should provide sufficient capital to meet the current business
needs of the Company.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Except for the historical information in this report, this report includes
forward-looking statements that involve risks and uncertainties, including, but
not limited to, economic and competitive factors affecting the Company's
operations, markets, products, prices, technological changes, manufacturing
efficiencies, and other factors discussed from time to time in the Company's
Security and Exchange Commission filings, including the Company's Form 8-K
filed April 18, 1996, and it's Form 10-K for the year ended December 31, 1996.
Actual results may differ materially from management expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Disclosure
not currently required.
Page 10 of 11
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PART II - OTHER INFORMATION
---------------------------
Items 1-3. Inapplicable.
------------
Items 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held April 24, 1997.
(b) William H. Largent, E. David Crockett, and Peter J. Kight were
elected as Directors. Jeffrey M. Wilkins, A. Grant Bowen, Gregory
T. Tillar, Jerry D. Miller and James V. Pickett continued as
Directors.
(c) The proposal to amend the Company's 1992 Directors' Stock Option
Plan was adopted with 4,536,006 votes for, 326,823 votes against
and 219,909 abstain/broker non-votes. The following three
Directors were elected to three year terms, William H. Largent
with 5,031,713 votes for and 51,025 votes withheld, E. David
Crockett with 5,032,310 votes for and 50,428 votes withheld and
Peter J. Kight with 5,038,783 votes for and 43,955 votes withheld.
(d) Inapplicable.
Item 5. Inapplicable.
------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
The exhibits on to this report begin on page ______.
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1997.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Metatec Corporation
/s/ Julia A. Pollner
BY: Julia A. Pollner
Date: August 12, 1997 Vice President, Finance
and Treasurer
(authorized signatory-
principal financial and
accounting officer)
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Form 10-Q
Exhibit Index
Exhibit Number Exhibit Description Page Number
- -------------- ------------------- -----------
10a Loan Agreement dated December 31, --
1996 between Metatec Corporation
and Huntington National Bank.
27 Financial Data Schedule --
<PAGE> 1
EXHIBIT 10(a)
LOAN AGREEMENT
DATED AS OF
DECEMBER 31, 1996
BETWEEN
METATEC CORPORATION AND
METATEC/DISCOVERY SYSTEMS, INC.
AND
THE HUNTINGTON NATIONAL BANK
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
1 Loans....................................................................................................1
1.1 Revolving Loan...........................................................................................1
1.2 Term Loan................................................................................................1
1.3 Notes; Advances; Repayment...............................................................................1
2 Interest Rates; Fees; Uses of Loans......................................................................1
2.1 Prime Rate...............................................................................................1
2.2 U.S. Treasury Constant Maturity Rate.....................................................................2
2.3 LIBOR Rate...............................................................................................2
2.4 Additional Costs.........................................................................................4
2.5 Limitations on LIBOR Requests and Elections..............................................................5
2.6 Illegality and Impossibility.............................................................................5
2.7 Compensation.............................................................................................6
2.8 Survival of Obligations..................................................................................6
2.9 Fees, Costs and Expenses.................................................................................6
2.10 Interest Rate after Default..............................................................................7
2.11 Use of Proceeds..........................................................................................7
3 Warranties and Representations...........................................................................7
3.1 Corporate Organization and Authority.....................................................................7
3.2 Borrowing is Legal and Authorized........................................................................8
3.3 Taxes....................................................................................................8
3.4 Compliance with Law......................................................................................8
3.5 Financial Statements; Full Disclosure....................................................................8
3.6 Litigation; Adverse Effects..............................................................................9
3.7 No Insolvency............................................................................................9
3.8 Government Consent.......................................................................................9
3.9 Title to Properties......................................................................................9
3.10 No Defaults..............................................................................................9
3.11 Environmental Protection................................................................................10
3.12 Warranties and Representations..........................................................................10
4 Company Business Covenants..............................................................................10
4.1 Payment of Taxes and Claims.............................................................................10
4.2 Maintenance of Properties and Corporate Existence.......................................................11
4.3 Sale of Assets; Merger; Subsidiaries; Tradenames........................................................11
4.4 Negative Pledge.........................................................................................12
4.5 Other Borrowings and Contingent Liabilities.............................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.6 Sale of Accounts; No Consignment........................................................................12
4.7 Management..............................................................................................12
4.8 Acquisition of Capital Stock............................................................................12
4.9 Transactions With Affiliates............................................................................13
4.10 Tangible Net Worth......................................................................................13
4.11 Leverage Ratio..........................................................................................13
4.12 Current Ratio...........................................................................................13
4.13 Capital Expenditures....................................................................................13
4.14 Fixed Charge Coverage Ratio.............................................................................14
4.15 Loans and Advances......................................................................................14
4.16 Environmental Compliance and Indemnification............................................................14
4.17 Maintenance of Accounts.................................................................................14
5 Financial Information and Reporting.....................................................................15
6 Default.................................................................................................15
6.1 Events of Default.......................................................................................15
6.2 Default Remedies........................................................................................16
7 Miscellaneous...........................................................................................16
7.1 Notices.................................................................................................16
7.2 Access to Accountants...................................................................................17
7.3 Confidentiality.........................................................................................17
7.4 Reproduction of Documents...............................................................................17
7.5 Survival; Successors and Assigns........................................................................17
7.6 Amendment and Waiver; Duplicate Originals...............................................................18
7.7 Generally Accepted Accounting Principles................................................................18
7.8 Enforceability and Governing Law........................................................................18
7.9 No Consequential Damages................................................................................18
7.10 Indemnity...............................................................................................19
7.11 Waiver of Right to Trial by Jury........................................................................19
7.12 Advertising.............................................................................................19
7.13 Term of Agreement.......................................................................................19
7.14 Schedule of Definitions.................................................................................20
</TABLE>
Exhibits
Exhibit A-1 Revolving Note
Exhibit A-2 Commercial Loan Note
Exhibit B Notice of Borrowing
Exhibit C Schedule of Pending or Threatened Litigation
Exhibit D Schedule of Permitted Liens
1
<PAGE> 4
LOAN AGREEMENT
--------------
This agreement (this "Agreement") is entered into at Columbus, Ohio,
between The Huntington National Bank (the "Bank") and Metatec Corporation
("Metatec") and Metatec/Discovery Systems, Inc. ("Discovery") as of December 31,
1996. Metatec and Discovery are referred to herein collectively as the
"Borrowers" and separately as the "Borrower").
LOANS.
- ------
REVOLVING LOAN. The Bank, subject to the terms and conditions hereof, will make
loans to the Borrowers on a revolving basis up to the sum of $15,000,000 (the
"Revolving Loan"). The Revolving Loan shall be made available to the Borrowers
in three tranches of $5,000,000 each. In order for loans to be made from a
tranch, the Borrowers shall first request that the tranch be activated. The
request for activation of a tranch shall be made by the Borrowers in writing in
such form as the Bank may reasonably require. Once a request for activation of a
tranch has been made by the Borrowers, such request cannot be rescinded. (A
tranch with respect to which a request for activation has been made is referred
to hereafter as an "Activated Tranch.") The Borrowers' right to obtain loans
under the Revolving Loan shall terminate on December 31, 1998 (the "Revolving
Loan Maturity Date"). Each loan requested by the Borrowers under the Revolving
Loan shall be accompanied by such documents or communications as may be
acceptable to the Bank in its sole good faith discretion.
TERM LOAN. The Bank, subject to the terms and conditions hereof, will make a
term loan to the Borrowers on December 31, 1998 in an amount equal to the lesser
of (i) the principal balance of the Revolving Loan outstanding as of such date,
or (ii) $15,000,000 (the "Term Loan"). (The Term Loan and the Revolving Loan are
hereinafter sometimes separately referred to as a "Loan" and collectively
referred to as the "Loans.")
NOTES; ADVANCES; REPAYMENT. Each of the Loans shall be evidenced by a note or by
one or more notes (separately a "Note" and collectively the "Notes")
subsequently executed in substitution therefor, each in substantially the forms
set forth in EXHIBITS A-1 AND A-2 attached hereto. The Bank shall have no
obligation to advance or re-advance any sums pursuant to the Loans at any time
when a set of facts or circumstances exists, which, by themselves, upon the
giving of notice, the lapse of time, or any one or more of the foregoing would
constitute an Event of Default (as hereinafter defined) under this Agreement.
Repayment of the principal amount of the Loans shall be made in accordance with
the terms of the Notes then outstanding pursuant to this Agreement. Repayment of
interest accrued with respect to the Loans shall be made in accordance with the
terms of this Agreement.
INTEREST RATES; FEES; USES OF LOANS.
- ------------------------------------
PRIME RATE. The Borrowers agree to pay to the Bank monthly interest on the
outstanding principal balance of the Revolving Loan at a variable rate of
interest per annum equal to the Prime Rate (as hereafter defined) of the Bank
from time to time in effect, with each change in the Prime Rate automatically
and immediately changing the interest rate on the Revolving Loan without notice
to the Borrowers. "Prime Rate" shall mean the commercial lending rate of
interest per annum as fixed from time to time by the Bank, and designated as the
Bank's "Prime Rate," based upon the Bank's consideration of economic, money
market, business and competitive factors. All interest hereunder shall be
calculated on a 360-day year basis and shall be based on the actual number of
days which elapse during the interest calculation period. The
<PAGE> 5
Borrowers waive any right to claim that the Prime Rate is an interest rate other
than that rate designated by the Bank as its "Prime Rate" on the grounds that:
(i) such rate may or may not be published or otherwise made known to the
Borrowers; or (ii) the Bank may make loans to certain borrowers at interest
rates which are lower than the Bank's "Prime Rate." The Prime Rate shall be
applicable at all times prior to the Revolving Loan Maturity Date to so much of
the outstanding principal balance of the Revolving Loan as is not subject to an
alternative interest rate option elected in the manner provided in this
Agreement. "Prime Rate Advance" shall mean any amount borrowed as part of the
Revolving Loan that bears interest at the Prime Rate.
2.2. U.S. TREASURY CONSTANT MATURITY RATE. The Borrowers agree to pay to the
Bank monthly interest on the outstanding principal balance of the Term Loan at a
rate of interest equal to 1.75% per annum in excess of the five-year U.S.
Treasury Constant Maturity Rate in effect on the Revolving Loan Maturity Date.
"U.S. Treasury Constant Maturity Rate" shall mean the interest rate for United
States Treasury Notes with a maturity of five years as set forth in the Federal
Reserve Statistical Release Form H-15 (519) published most recently prior to or
on the Revolving Loan Maturity Date. If for any reason that rate index is
unannounced, the interest rate calculation required herein shall be determined
by whatever method the Bank then uses in determining interest rates for domestic
commercial loans under similar circumstances. All interest hereunder shall be
calculated on a 360-day year basis and shall be based on the actual number of
days which elapse during the interest calculation period. The U.S. Treasury
Constant Maturity Rate shall be applicable at all times prior to the Term Loan
Maturity Date (as defined in the Note evidencing the Term Loan) to so much of
the outstanding principal balance of the Term Loan as is not subject to an
alternative interest rate option elected on the Revolving Loan Maturity Date in
the manner provided in this Agreement. "Treasury Rate Advance" shall mean any
amount borrowed as part of the Term Loan that bears interest at the U.S.
Treasury Constant Maturity Rate.
2.3. LIBOR RATE. The Borrowers, from time to time prior to the Termination Date
(as hereafter defined), may elect to have interest accrue on all or part of the
outstanding principal balances of the Loans at rates of interest that are based
upon the percentages hereafter specified in excess of the LIBOR Rate (as
hereafter defined). The Borrowers agree to pay to the Bank, on each LIBOR
Interest Payment Date (as hereafter defined), as applicable, interest on the
outstanding principal balances of the Loans at the following rates: (i) the
LIBOR Rate plus 1.25% per annum if Leverage (as hereafter defined) is less than
0.50 to 1.00 and if Coverage (as hereafter defined) is greater than 3.50 to
1.00; and (ii) the LIBOR Rate plus 1.50% per annum if Leverage is greater than
or equal to 0.50 to 1.00 and if Coverage is less than or equal to 3.50 to 1.00.
"Leverage" shall mean the ratio (determined on a consolidated basis) of the
Borrowers' (a) total liabilities to (b) Tangible Net Worth (as defined in
Section 4.10) plus subordinated debt. "Coverage" shall mean the ratio
(determined on a consolidated basis) of the Borrowers' (y) earnings before
interest, taxes, depreciation, amortization and operating lease expense to (z)
interest expense, current maturities on long term debt and operating lease
expense. As to each LIBOR Rate Advance (as hereafter defined), Leverage and
Coverage shall be calculated based upon the information set forth in the
financial statements of the Borrowers most recently submitted to the Bank, in
accordance with the requirements of Section 5 of this Agreement, prior to the
request for such LIBOR Rate Advance. "LIBOR Rate" shall mean, with respect to
any LIBOR Rate Advance (as hereinafter defined) and the related LIBOR Rate
Interest
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Period (as hereinafter defined), the per annum rate that is equal
to the quotient of:
(a) the actual or estimated arithmetic mean of the per annum rates of
interest at which deposits in U.S. dollars for the related LIBOR Rate Interest
Period and in an aggregate amount comparable to the amount of such LIBOR Rate
Advance are being offered to U.S. banks by one or more prime banks in the London
interbank market, as determined by the Bank in its sole good faith discretion,
the obtaining of rate quotations, or any other reasonable procedure, at
approximately 2:00 p.m. New York time, on the second LIBOR Business Day (as
hereafter defined) prior to the first day of the related LIBOR Rate Interest
Period, all as determined by the Bank, such sum to be rounded up, if necessary,
to the nearest whole multiple of 1/16 of 1%; divided by
(b) a percentage equal to 100% minus the rate (expressed as a
percentage), if any, at which reserve requirements are imposed on the Bank, on
the second LIBOR Business Day prior to the first day of the related LIBOR Rate
Interest Period, with respect to any "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the Federal Reserve System or any
other regulations of any governmental authority having jurisdiction with
respect thereto (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) for a term comparable to such LIBOR
Rate Interest Period. This provision is for the benefit of the Bank and is not
intended to increase the expected yield to the Bank above the rates of interest
provided for in this Agreement.
"LIBOR Rate Advance" shall mean any amount outstanding as part of the
Loans that bears interest at a rate calculated with reference to the LIBOR Rate;
provided, however, that no LIBOR Rate Advance shall be in an amount of less than
$500,000; and provided further, however, that all LIBOR Rate Advances in excess
of $500,000 shall be in increments of $250,000; and provided further, however,
that not more than five LIBOR Rate Advances will be outstanding at any one time.
"LIBOR Business Day" shall mean, with respect to any LIBOR Rate Advance, a day
which is both a day on which the Bank is open for business and a day on which
dealings in U.S. dollar deposits are carried out in the London interbank market.
"Advance" shall mean a Prime Rate Advance, a Treasury Rate Advance (as
hereinafter defined) or a LIBOR Rate Advance. "Termination Date" shall mean with
respect to the Loans, the Revolving Loan Maturity Date and the Term Loan
Maturity Date, as applicable.
"LIBOR Rate Interest Period" shall mean with respect to any LIBOR Rate
Advance, a period commencing, as the case may be, on the day on which a LIBOR
Rate Advance is initially made by the Bank, or on the day on which a LIBOR Rate
Advance is continued as such an Advance, or on the day on which any then
outstanding Prime Rate Advance or Treasury Rate Advance is converted to a LIBOR
Rate Advance, and ending on the date one, two, three or six months thereafter,
all as the Borrower may elect pursuant to this Agreement, provided, that (a) any
LIBOR Rate Interest Period with respect to a LIBOR Rate Advance that shall
commence on the last LIBOR Business Day of the calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last LIBOR Business Day of the appropriate
subsequent calendar month, and (b) each LIBOR Rate Interest Period with respect
to a LIBOR Rate Advance that would otherwise end on a day which is not a LIBOR
Business Day shall end on the next succeeding LIBOR Business Day or,
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<PAGE> 7
if such next succeeding LIBOR Business Day falls in the next succeeding calendar
month, on the next preceding LIBOR Business Day. Notwithstanding the provisions
of this paragraph, unless the Bank otherwise consents in writing, no LIBOR Rate
Interest Period shall be permitted with respect to a Loan which would end after
the Termination Date applicable to such Loan.
Interest on LIBOR Rate Advances shall be calculated on a 360-day year
basis and shall be based on the actual number of days which elapse during the
interest calculation period. Interest shall be due and payable on each LIBOR
Interest Payment Date. "LIBOR Interest Payment Date" shall mean in the case of
any LIBOR Rate Advance, the last day of each LIBOR Rate Interest Period and, in
the case of a LIBOR Rate Interest Period of more than three months, the
ninetieth day of such LIBOR Rate Interest Period.
The Borrowers may initially elect to request a LIBOR Rate Advance, may
continue a LIBOR Rate Advance as a LIBOR Rate Advance or may convert a Prime
Rate Advance to a LIBOR Rate Advance by specifying the amount thereof and giving
notice thereof to the Bank in writing in the form of EXHIBIT B hereto not later
than 2:00 p.m. New York time, two LIBOR Business Days prior to (as applicable)
the date any LIBOR Rate Advance is to be made initially or the date on which any
continuation of or conversion to a LIBOR Rate Advance is to be effective,
provided, that an outstanding LIBOR Rate Advance may only be continued or
converted on the last day of the then current LIBOR Rate Interest Period
applicable to such LIBOR Rate Advance. If the Borrowers shall fail to timely
deliver such a notice with respect to any outstanding LIBOR Rate Advance, the
Borrowers shall be deemed to have elected to convert such LIBOR Rate Advance to
a Prime Rate Advance on the last day of the then current LIBOR Rate Interest
Period applicable to such LIBOR Rate Advance. In all other cases concerning
Prime Rate Advances, the Borrowers shall specify the amount thereof and give
notice thereof to the Bank in writing in the form of EXHIBIT B hereto not later
than 2:00 p.m. New York time on the day such Prime Rate Advance is to be made.
In the case of a Treasury Rate Advance, the Borrowers shall specify the amount
thereof and give notice thereof to the Bank in writing in the form of EXHIBIT B
hereto not later than 2:00 p.m. New York time two LIBOR Business Days prior to
the Revolving Loan Maturity Date.
2.4. ADDITIONAL COSTS. In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive of any such authority (whether or not having the
force of law), shall (a) affect the basis of taxation of payments of the Bank of
any amounts payable by the Borrowers for Advances under this Agreement (other
than taxes imposed on the overall net income of the Bank by the jurisdiction, or
by any political subdivision or taxing authority of any such
jurisdiction, in which the Bank has its principal office), or (b) shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (c) shall impose any other condition, requirement or charge with
respect to this Agreement or the Loans (including, without limitation, any
capital adequacy requirement, any requirement which affects the manner in which
the Bank allocates capital resources to its commitments or any similar
requirement), and the result of any of the foregoing is to increase the cost of
the Bank of making or maintaining the Loans or any Advance thereunder, to reduce
the amount of any sum
5
<PAGE> 8
receivable by the Bank thereon, or to reduce the rate of return on the Bank's
capital, then the Borrowers shall pay to the Bank, from time to time, upon
request of the Bank, additional amounts sufficient to compensate the Bank for
such increased cost, reduced sum receivable or reduced rate of return to the
extent the Bank is not compensated therefor in the computation of the interest
rates applicable to the Loans. A detailed statement as to the amount of such
increased cost, reduced sum receivable or reduced rate of return, prepared in
good faith and submitted by the Bank to the Borrowers, shall be conclusive and
binding for all purposes relative to the Bank, absent manifest error in
computation. The Bank shall promptly notify the Borrowers of any event occurring
after the date of this Agreement that entitles the Bank to additional
compensation pursuant to this Section 2.4.
2.5. LIMITATIONS ON LIBOR REQUESTS AND ELECTIONS. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
LIBOR Rate Advance, or a request for continuation of a LIBOR Rate Advance as a
LIBOR Rate Advance or a request for conversion of a Prime Rate Advance to a
LIBOR Rate Advance, (a) deposits in dollars for periods comparable to the LIBOR
Rate Interest Period elected by the Borrowers are not available to the Bank in
the London interbank or secondary market, or (b) the LIBOR Rate will not
accurately cover the cost to the Bank of making or maintaining the related LIBOR
Rate Advance, or (c) by reason of national or international financial, political
or economic conditions or by reason of any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect, or the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive of such authority (whether or not having the force
of law), including, without limitation, exchange controls, it is impracticable,
unlawful or impossible for the Bank (i) to make the relevant LIBOR Rate Advance
or (ii) to continue such Advance as a LIBOR Rate Advance or (iii) to convert a
Prime Rate Advance to a LIBOR Rate Advance, then the Borrowers shall not be
entitled, so long as such circumstances continue, to request a LIBOR Rate
Advance or a continuation of or conversion to such an Advance from the Bank. In
the event that such circumstances no longer exist, the Bank shall again consider
requests for LIBOR Rate Advances of the affected type and requests for
continuations of and conversions to such Advances.
2.6. ILLEGALITY AND IMPOSSIBILITY. In the event that any applicable
law, treaty, rule or regulation (whether domestic or foreign) now or hereafter
in effect, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such authority (whether
or not having the force of law), including, without limitation, exchange
controls, shall make it unlawful or impossible for the Bank to maintain any
Advance under this Agreement, the Borrower shall upon receipt of notice thereof
from the Bank, repay in full the then outstanding principal amount of such
Advance together with all accrued interest thereon to the date of payment and
all amounts due to the Bank under Section 2.7, (a) on the last day of the then
current LIBOR Rate Interest Period applicable to such Advance, if the Bank may
lawfully continue to maintain such Advance to such day, or (b) immediately if
the Bank may not continue to maintain such Advance to such day. This provision
is for the benefit of the Bank and is not intended to increase the yield to the
Bank above the rates of interest provided for in this Agreement. This Section
2.6 shall apply only as long as such illegality or impossibility exists.
6
<PAGE> 9
The Bank shall use reasonable, lawful efforts to avoid the impact of such law,
treaty, rule or regulation.
2.7. COMPENSATION. In addition to any other sums that may become due and owing
to the Bank under this Agreement, if the Borrowers make any payment of principal
with respect to any LIBOR Rate Advance on any date other than the last day of
the LIBOR Rate Interest Period applicable thereto, or if the Borrowers fail to
borrow any LIBOR Rate Advance after notice has been given to the Bank in
accordance with Section 2.3, or if the Borrowers fail to make any payment of
principal or interest in respect of any LIBOR Rate Advance when due or at the
applicable Termination Date, the Borrowers shall reimburse the Bank on demand
for any resulting loss or expense incurred by the Bank, determined in the Bank's
reasonable opinion, including, without limitation, any loss incurred in
obtaining, liquidating or employing deposits from third parties.
In addition to any other sums that may become due and owing to the Bank
under this Agreement, if the Borrowers fail to make any payment of principal or
interest in respect of any Treasury Rate Advance when due or at the Term Loan
Maturity Date, the Borrowers shall reimburse the Bank on demand for any
resulting loss or expense incurred by the Bank, determined in the Bank's
reasonable opinion, including, without limitation, any loss incurred in
obtaining, liquidating or employing deposits from third parties.
A detailed statement as to the amount of such loss or expense, prepared in
good faith and submitted by the Bank to the Borrowers shall be conclusive and
binding for all purposes absent manifest error in computation. The Bank shall
promptly notify the Borrowers of any event occurring after the date of this
Agreement that entitles the Bank to reimbursement pursuant to this Section 2.7.
2.8. SURVIVAL OF OBLIGATIONS. The provisions of Sections 2.4 and 2.7 shall
survive the termination of this Agreement and the payment in full of all Notes
outstanding pursuant hereto.
2.9. FEES, COSTS AND EXPENSES. The Borrowers agree to pay to the Bank a
commitment fee (the "Commitment Fee") on the average daily unused portion of
each Activated Tranch of the Revolving Loan at a rate equal to 0.125% per annum.
The Commitment Fee shall be payable quarterly in arrears beginning on March 31,
1997 and continuing on the last day of each calendar quarter thereafter
throughout the term of this Agreement and at maturity. The Commitment Fee shall
be applied retroactively to each Activated Tranch as of the date that is ninety
days prior to activation of the tranch (but in no event prior to the date of
execution of the Note evidencing the Revolving Loan) pursuant to the terms of
Section 1.1 of this Agreement. The Borrowers further agree to pay to the Bank
upon demand all costs and expenses incidental to or incurred in connection with
(a) the enforcement of the Bank's rights in connection with the Loans, (b) the
preparation of this Agreement and related loan documents, and any amendments or
modifications thereof, and (c) any litigation, contest, dispute, proceeding or
action in any way relating to this Agreement, whether any of the foregoing are
incurred prior to or after maturity, the occurrence of an Event of Default, or
the rendering of a judgment. Such costs and expenses shall include, but not be
limited to, reasonable fees and out-of-pocket expenses of the Bank's counsel,
recording fees, inspection fees, title fees, search fees, revenue stamps and
note and
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<PAGE> 10
mortgage taxes.
2.10. INTEREST RATE AFTER DEFAULT. Upon the occurrence of any Event of Default
and the expiration of any applicable cure period, interest shall thereafter
accrue on the outstanding principal balance of each Advance made pursuant to
this Agreement and unpaid interest, if any, at a rate equal to 3.00% per annum
above the Prime Rate.
2.11. USE OF PROCEEDS. The net proceeds of the Revolving Loan will be used for
general corporate purposes, including working capital needs and capital
expenditures. The net proceeds of the Term Loan will be used to pay in full all
principal and interest then outstanding with respect to the Revolving Loan.
None of the Loans under this Agreement will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any debt or other person's indebtedness
which was originally incurred to purchase or carry any margin security, or for
any other purpose which might cause any such Loans to be considered a "purpose
credit" within the meaning of Regulations G, U or X of the Board of Governors of
the Federal Reserve System.
3. WARRANTIES AND REPRESENTATIONS. In order to induce the Bank to enter into
this Agreement and to make the Loans and other financial accommodations to the
Borrowers, each Borrower warrants and represents to the Bank that each of the
following statements is true and correct:
3.1. CORPORATE ORGANIZATION AND AUTHORITY. The Borrower (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State or other jurisdiction of incorporation; (b) has all requisite corporate
power and authority and all necessary licenses and permits to own and operate
its properties and to carry on its business as now conducted and as presently
proposed to be conducted; and (c) is not doing business or conducting any
activity in any jurisdiction in which it has not duly qualified and become
authorized to do business, except where the failure to so qualify will not have
a Material Adverse Effect. "Material Adverse Effect" shall mean a material
adverse effect upon (i) the business (present or future), condition (financial
or otherwise), operations, performance or properties of the Borrower, (ii) the
ability of the Borrower to perform its obligations under this Agreement or any
document, agreement or instrument executed in connection herewith, or (iii) the
rights or remedies of the Bank under this Agreement or any document, agreement
or instrument executed in connection herewith.
3.2. BORROWING IS LEGAL AND AUTHORIZED. (a) The Board of Directors of the
Borrower has duly authorized the execution and delivery of this Agreement and of
the Notes and documents contemplated herein, and this Agreement, the Notes and
other documents executed in connection with this Agreement will constitute valid
and binding obligations of the Borrower enforceable in accordance with their
respective terms; (b) the execution of this Agreement and the Notes and related
documents and the compliance by the Borrower with all the provisions of this
Agreement (i) are within the corporate powers of the Borrower, and (ii) are
legal and will not conflict with, result in any breach in any of the provisions
of, constitute a default under, or result in the creation of any lien or
encumbrance upon any property of the Borrower under the provisions of,
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<PAGE> 11
any agreement, charter instrument, bylaw or other instrument to which the
Borrower is a party or by which it may be bound; and (c) there are no
limitations in any indenture, contract, agreement, mortgage, deed of trust or
other agreement or instrument to which the Borrower is now a party or by which
the Borrower may be bound with respect to the payment of principal or interest
on any indebtedness, or the Borrower's ability to incur indebtedness including
the notes to be executed in connection with this Agreement.
3.3. TAXES. All tax returns required to be filed by the Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon the Borrower, or upon any of its properties, which are
due and payable have been paid, except those contested in good faith or for
which a reserve provision has been made in accordance with generally accepted
accounting principles consistently applied; provided, however, that in no event
shall the Borrower fail to so file or pay for a period of longer than 60 days.
The Internal Revenue Service has examined and settled the federal income tax
liability (or the statute of limitations has expired) of the Borrower for all
taxable years up to an including the taxable period ended December 31, 1992. The
Borrower does not know of any proposed additional tax assessment against it. The
accruals for taxes on the books of the Borrower for its current fiscal period
are adequate.
3.4. COMPLIANCE WITH LAW. The Borrower (a) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, including
without limitation any laws, rulings or regulations relating to federal or state
securities laws, the Employee Retirement Income Security Act of 1974 or Section
4975 of the Internal Revenue Code, and (b) has not failed to obtain any
licenses, permits, franchises or other governmental or environmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, except to the extent that a violation or failure does not have or
is not likely to have a Material Adverse Effect.
3.5. FINANCIAL STATEMENTS; FULL DISCLOSURE. The audited financial statements
for the fiscal year ending December 31, 1995, which have been supplied to the
Bank, have been prepared in accordance with generally accepted accounting
principles consistently applied, and fairly represent the Borrower's financial
condition as of such date. No material adverse change in the Borrower's
financial condition has occurred since that date. Neither the financial
statements referred to in this Section 3.5, nor this Agreement, nor any written
analyses, reports, business plans, projections or other statements furnished by
the Borrower to the Bank in connection with obtaining the Loans contain any
untrue statement of a material fact or omit a material fact necessary to make
statements contained therein or herein not misleading.
3.6. LITIGATION; ADVERSE EFFECTS. Except as set forth in EXHIBIT C attached
hereto, there is no action, suit, audit or administrative, investigative or
arbitration proceeding (or series of related actions, suits, audits or
proceedings) before or by any governmental authority or private arbitrator
pending or, to the knowledge of the Borrower, threatened against the Borrower or
any property of the Borrower (i) challenging the validity or the enforceability
of any of this Agreement, or any loan document, agreement, or instrument
executed in connection herewith, or (ii) which has had, shall have or is
reasonably likely to have a Material Adverse Effect. The Borrower is not in
violation of any applicable requirements of law which violation shall have
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<PAGE> 12
or is likely to result in a Material Adverse Effect, or subject to or in default
with respect to any final judgment, writ, injunction, restraining order or order
of any nature, decree, rule or regulation of any court or governmental
authority, in each case which shall have or is likely to have a Material Adverse
Effect.
3.7. NO INSOLVENCY. On the date of the Borrower's entering into this Agreement
and after giving effect to all indebtedness of the Borrower (including the
Loans), (a) the Borrower will be able to pay its obligations as they become due
and payable; (b) the present fair saleable value of the Borrower's assets
exceeds the amount that will be required to pay its probable liability on its
obligations as the same become absolute and matured; (c) the sum of the
Borrower's property at a fair valuation exceeds Borrower's indebtedness; and (d)
the Borrower will have sufficient capital to engage in the Borrower's business.
3.8. GOVERNMENT CONSENT. Neither the nature of the Borrower or of its business
or properties, nor any relationship between the Borrower and any other entity or
person, nor any circumstance in connection with the execution of this Agreement,
is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Borrower as a condition to the execution and delivery of this Agreement and
the Notes and documents contemplated herein.
3.9. TITLE TO PROPERTIES. The Borrower has good and marketable title to all the
property in which it has a property interest, free from any liens and
encumbrances, except as set forth on EXHIBIT D attached to this Agreement. The
Borrower has not agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property whether now owned
or hereafter acquired to be subject to a lien or encumbrance except as provided
in this Section 3.8.
3.10. NO DEFAULTS. No event has occurred and no condition exists which would
constitute an Event of Default pursuant to this Agreement. The Borrower is not
in violation in any material respect of any term of any agreement, charter
instrument, bylaw or other instrument to which it is a party or by which it may
be bound.
3.11. ENVIRONMENTAL PROTECTION. The Borrower (a) has no actual knowledge of the
permanent placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned, leased, or used by the Borrower
(the "Premises"), of any spills, releases, discharges, leaks, or disposal of
Hazardous Substances that have occurred or are presently occurring on, under, or
onto the Premises, or of any spills, releases, discharges, leaks or disposal of
Hazardous Substances that have occurred or are occurring off the Premises as a
result of the Borrower's improvement, operation, or use of the Premises which
would result in non-compliance with any of the Environmental Laws (as
hereinafter defined); (b) is and has been in compliance with all applicable
Environmental Laws; (c) knows of no pending or threatened environmental civil,
criminal or administrative proceedings against the Borrower relating to
Hazardous Substances; and (d) knows of no facts or circumstances that would give
rise to any future civil, criminal or administrative proceeding against the
Borrower relating to Hazardous Substances.
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As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. 9601, ET SEQ., the Toxic Substances Control Act, 15 U.S.C.
2601, ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. 6901, ET
SEQ., the Water Quality Act of 1987, 33 U.S.C. 1251, ET SEQ., and the Clean Air
Act, 42 U.S.C. 7401, ET SEQ., and any state or local statute, ordinance, law,
code, rule, regulation or order regulating or imposing liability (including
strict liability) or standards of conduct regarding Hazardous Substances
(hereinafter the "Environmental Laws"), but does not include such substances as
are permanently incorporated into a structure or any part thereof in such a way
as to preclude their subsequent release into the environment, or the permanent
or temporary storage or disposal of household hazardous substances by tenants,
and which are thereby exempt from or do not give rise to any violation of the
aforementioned Environmental Laws.
3.12. WARRANTIES AND REPRESENTATIONS. On the date of each advance pursuant to
the Loans, the warranties and representations set forth in Section 3 hereof
shall be true and correct on and as of such date with the same effect as though
such warranties and representations had been made on and as of such date, except
to the extent that such warranties and representations expressly relate to an
earlier date.
4. COMPANY BUSINESS COVENANTS. Each of the Borrowers covenants that on and
after the date of this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the indebtedness provided for herein remains
unpaid:
4.1. PAYMENT OF TAXES AND CLAIMS. The Borrower will pay before they become
delinquent (a) all taxes, estimated payments, assessments and governmental
charges or levies imposed upon it or its property or assets or in respect of its
franchises, businesses or income, before any interest or penalty accrues
thereon; and (b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, bailees and other like persons for sums which have
become due and payable and which by law have or may become a lien or encumbrance
upon the Borrower's property or assets; provided, however, that none of the
foregoing are required to be paid if being contested in good faith by the
Borrower by appropriate proceedings diligently instituted and conducted, and
provided further, however, that if a reserve or other appropriate provision
shall be required with respect thereto in conformity with generally accepted
accounting principles consistently applied, the same shall be established and
maintained.
4.2. MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE. The Borrower shall (a)
maintain its property in good condition (ordinary wear and tear excepted) and
make all renewals, replacements, additions, betterments and improvements thereto
which are deemed necessary by the Borrower; (b) maintain, with financially sound
and reputable insurers, insurance with respect to its properties and business
against such casualties and contingencies, of such types (including, but not
limited to, fire and casualty, public liability, products liability, larceny,
embezzlement or other criminal misappropriation insurance) and in such amounts
as are customary in the case of entities of established reputations engaged in
the same or a similar business and similarly situated, with each such policy of
insurance containing a clause or endorsement satisfactory to
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<PAGE> 14
the Bank that names the Bank as an additional insured and loss payee, and that
provides that no act, default or breach of warranty or condition by the Borrower
or any other person, including, without limitation, a failure to pay any premium
in whole or in part relating thereto, shall affect the right of the Bank to
recover under such policy or policies of insurance ; (c) reflect in its
financial statements adequate accruals and appropriations to reserves and keep
and maintain proper books of record and account in which full and correct
entries will be made concerning all the Borrower's dealings and transactions in
relation to its business and activities; (d) do or cause to be done all things
necessary (i) to preserve and keep in full force and effect its existence,
rights and franchises, and (ii) to maintain its status as a corporation duly
organized and existing and in good standing under the laws of the state of its
incorporation; (e) conduct continuously and operate actively its business and
take all actions necessary to enforce and protect the validity of any
intellectual property; and (f) not be in violation of any laws, ordinances, or
governmental rules and regulations or fail to obtain any licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its properties or to the conduct of its business, except to the extent that a
violation or failure does not have or is not likely to have a Material Adverse
Effect.
4.3. SALE OF ASSETS; MERGER; SUBSIDIARIES; TRADENAMES. The Borrower will not,
except in the ordinary course of business or upon the prior written consent of
the Bank, sell, lease, transfer or otherwise dispose of, any of its assets,
other than obsolete or severely damaged assets of an aggregate net book value in
any calendar year of not more than $250,000.
The Borrower will not, without the prior written consent of the Bank,
acquire or otherwise make investments in any entity (other than the other
Borrower) if the aggregate consideration therefor (whether in cash or otherwise)
equals or exceeds $7,000,000. Additionally, the Borrower will not, without prior
written notice to the Bank, acquire or otherwise make investments in any entity
(other than the other Borrower) if the aggregate consideration therefor (whether
in cash or otherwise) is less than $7,000,000. The Borrower will not permit any
other entity (other than the other Borrower) to acquire or otherwise consolidate
with the Borrower without the prior written consent of the Bank.
The only subsidiary of Metatec is Discovery and Discovery has no
subsidiaries. The Borrower conducts business only in its own name. The Borrower
will not create or acquire any subsidiaries or conduct business under any other
tradenames without the prior written consent of the Bank.
4.4. NEGATIVE PLEDGE. The Borrower will not cause or permit or permit to exist
or agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its real or personal property, whether now
owned or hereafter acquired, to become subject to a lien or encumbrance, except:
(i) liens in connection with deposits required by workers' compensation,
unemployment insurance, social security and other like laws; (ii) taxes,
assessments, reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting real property, provided they do not in the aggregate
materially detract from the value of said property or materially interfere with
its use in the ordinary conduct of business; (iii) inchoate liens arising under
ERISA to secure the contingent liability of the Borrower; (iv) liens as set
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forth in EXHIBIT D attached to this Agreement; (v) liens in connection with
borrowings permitted by Section 4.5 below; and (vi) liens in favor of the Bank.
In addition, the Borrower will not grant or agree to provide in the future (upon
the happening of a contingency or otherwise), a "negative pledge" or other
covenant or agreement similar to this Section 4.4 in favor of any other lender,
creditor or third party.
4.5. OTHER BORROWINGS AND CONTINGENT LIABILITIES. Except for purchase money
indebtedness arising hereafter not exceeding $1,000,000 annually in the
aggregate, the Loans and existing vehicle loans, the Borrower will not (a)
create or incur or permit to exist extensions of credit or indebtedness,
including, without limitation, any indebtedness for borrowed money or advances,
letters of credit or capitalized lease agreements or (b) guarantee, indorse or
otherwise become surety for or upon the obligations of others, except by
indorsement of negotiable instruments for deposit or collection in the ordinary
course of business.
4.6. SALE OF ACCOUNTS; NO CONSIGNMENT. The Borrower shall not sell, assign, or
encumber, except to the Bank, any of its accounts or notes receivable. The
Borrower shall not permit any of its inventory to be sold or transferred on
consignment or acquire or possess any of its inventory on consignment.
4.7. MANAGEMENT. The Borrower shall not replace or change its chairman,
president, chief executive officer or chief financial officer without the prior
written consent of the Bank, unless such replacement or change will not or is
not likely to have a Material Adverse Effect.
4.8. ACQUISITION OF CAPITAL STOCK. The Borrower shall not redeem or acquire
more than $5,000,000 in the aggregate of its own capital stock, or warrants or
securities for its capital stock, except through the use of the net proceeds
from the simultaneous sale of an equivalent amount of its capital stock for the
same purchase or redemption price.
4.9. TRANSACTIONS WITH AFFILIATES. The Borrower shall not directly or
indirectly enter into or permit to exist any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any of its Affiliates, shareholders or any
Affiliates of either of the foregoing, on terms that are less favorable to the
Borrower than those which might be obtained at the time from persons or entities
who are not affiliated with the Borrower or its shareholders. "Affiliate" shall
mean any individual, partnership, corporation, or other entity which, directly
or indirectly, is in control of, is controlled by, or is under common control
with the Borrower, or is a family member related by birth or marriage to any one
or more of the foregoing persons. For the purposes of this definition, control
of such entity shall mean the power, direct or indirect, to vote five percent or
more of the securities, units or other measures having ordinary voting power for
the election of directors, management committees, or similar committees of such
entity, or the power to direct or cause the direction of the management and
policies of such entity, whether by contract or otherwise.
TANGIBLE NET WORTH. The Borrowers, on a consolidated basis, shall maintain at
all times a Tangible Net Worth of (a) not less than $41,000,000 beginning with
the date of this Agreement, and continuing through and including December 30,
1997. As of each December 31 during the term of this Agreement, the Borrowers'
Tangible Net Worth shall increase over the prior year's
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<PAGE> 16
Tangible Net Worth by the greater of 50% of the Borrowers' annual net earnings
for the year just ended or $1,000,000. "Tangible Net Worth" shall mean the
Borrowers' equity, minus all of the following: (i) the excess of cost over the
value of net assets of purchased businesses, rights, and other similar
intangibles, (ii) organizational expenses, (iii) intangible assets (to the
extent not reflected in the foregoing), (iv) goodwill, (v) deferred charges or
deferred financing costs, (vi) loans or advances to and/or accounts or notes
receivable from Affiliates (as hereafter defined), and (vii) non-compete
agreements. The minimum Tangible Net Worth amounts required to be maintained
under this Section 4.11 shall be reduced by the amount of any capital stock
repurchased by the Borrowers, subject to an aggregate amount of not more than
$5,000,000.
4.11. LEVERAGE RATIO. The Borrowers, on a consolidated basis, shall maintain at
all times a ratio of total liabilities to Tangible Net Worth plus subordinated
debt of not greater than 0.75 to 1.00.
4.12. CURRENT RATIO. The Borrowers, on a consolidated basis, shall maintain at
all times a ratio of total current assets to total current liabilities of not
less than 1.50 to 1.00.
4.13. CAPITAL EXPENDITURES. Commencing with fiscal year 1998, the Borrowers, on
a consolidated basis, will not make any expenditure for fixed or capital assets,
including the incurrence of capitalized lease obligations or expenditures for
maintenance and repairs which should be capitalized in accordance with generally
accepted accounting principles consistently applied or otherwise, in excess of
the sum of the Borrowers' net income plus depreciation and amortization for the
prior fiscal year.
4.14. FIXED CHARGE COVERAGE RATIO. The Borrowers, on a consolidated basis, shall
maintain at all times a ratio of the sum of the Borrowers' earnings before
interest, taxes, depreciation and amortization plus operating lease expense to
the sum of the Borrowers' interest expense plus current maturities of long term
debt plus operating lease expense of not less than 2.00 to 1.00, as measured on
a rolling twelve-month basis.
4.15. LOANS AND ADVANCES. The Borrowers, on a consolidated basis, will not make
any loans or advances to any Affiliate or to any other person, corporation or
entity in the aggregate in excess of $250,000 at any one time outstanding,
without the prior written consent of the Bank; provided, however, that the
Borrowers, on a consolidated basis, may make loans and advances to shareholders
and employees in an aggregate amount of not more than $100,000 at any one time
outstanding.
4.16. ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION. The Borrower will not permit
any of its employees, agents, contractors, subcontractors, or any other person
occupying or present on the Premises to generate, manufacture, store, dispose or
release on, about or under the Premises any Hazardous Substances which would
result in the Premises not complying with the Environmental Laws. 4.16.
The Borrower hereby indemnifies the Bank and holds the Bank harmless from
and against any loss, damage, cost, expense or liability (including strict
liability) directly or indirectly
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arising from or attributable to the generation, storage, release, threatened
release, discharge, disposal or presence (whether prior to or during the term of
the Loans) of Hazardous Substances on, under or about the Premises (whether by
the Borrower or any employees, agents, contractor or subcontractors of the
Borrower or any predecessor in title or any third persons occupying or present
on the Premises), or the breach of any of the representations and warranties
regarding the Premises, including, without limitation: (a) those damages or
expenses arising under the Environmental Laws; (b) the costs of any repair,
cleanup or detoxification of the Premises, including the soil and ground water
thereof, and the preparation and implementation of any closure, remedial or
other required plans; (c) damage to any natural resources; and (d) all
reasonable costs and expenses incurred by the Bank in connection with clauses
(a), (b) and (c) including, but not limited to reasonable attorneys' fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous
Substances placed or disposed of on the Premises after the Bank acquires title
to the Premises through foreclosure or otherwise.
MAINTENANCE OF ACCOUNTS. The Borrower shall maintain all of its primary
operating and deposit accounts and cash management services at the Bank or
affiliates thereof.
FINANCIAL INFORMATION AND REPORTING. The Borrowers, on a consolidated basis,
shall deliver the following to the Bank: (a) within 60 days after the end of
each quarter, financial statements, including a balance sheet and statements of
income and surplus comparing the information for the current period with the
information for the same period of the preceding year, certified by the
president or chief financial officer of the Borrowers as fairly representing the
Borrowers' financial condition as of the end of such period; (b) within 60 days
after the end of each quarter, statements signed by the president or chief
financial officer of the Borrowers certifying the compliance of the Borrowers
with the terms of this Agreement, and specifically certifying the compliance of
the Borrower with the terms of Sections 4.11, 4.12, 4.13, 4.14 and 4.15 of this
Agreement; (c) within 90 days of the end of each fiscal year, unqualified,
audited financial statements prepared in accordance with generally accepted
accounting principles consistently applied and certified by independent public
accountants satisfactory to the Bank, containing a balance sheet, statements of
income and surplus, statements of cash flows and reconciliation of capital
accounts, along with any management letters written by such accountants; (d)
within 90 days of the end of each fiscal year, a statement signed by the
president or chief financial officer of the Borrowers certifying the compliance
of the Borrowers with the terms of Sections 4.11, 4.12, 4.13, 4.14 and 4.15 of
this Agreement; (e) immediately upon becoming aware of the existence of any set
of facts or circumstances which, by themselves, upon the giving of notice, the
lapse of time, or any one or more of the foregoing, would constitute a breach of
any of the terms or conditions of this Agreement or an Event of Default under
this Agreement, a written notice specifying the nature and period of existence
thereof and what action the Borrowers is taking or proposes to take with respect
thereto; and (f) at the request of the Bank, such other information as the Bank
may from time to time reasonably require.
DEFAULT.
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EVENTS OF DEFAULT. Each of the following shall constitute an "Event of Default"
hereunder: (a) the Borrowers fail to make any payment of principal or interest
on any note executed in connection with this Agreement on or before the date
such payment is due; (b) the Borrowers fail to perform or observe any covenant
contained in Sections 1, 2, 4 or 5 of this Agreement; (c) the Borrowers fail to
comply with any other provision of this Agreement, and such failure continues
for more than 10 days after such failure shall first become known to any officer
of the Borrowers; (d) any warranty, representation or other statement by or on
behalf of the Borrowers contained in this Agreement or in any instrument
furnished in compliance with or in reference to this Agreement is false or
misleading in any material respect, or the Borrowers fail to perform or observe
any covenant (after applicable grace periods) contained in any mortgage,
security agreement or other agreement in favor of the Bank; (e) the Borrowers
become insolvent or makes an assignment for the benefit of creditors, or
consents to the appointment of a trustee, receiver or liquidator; (f)
bankruptcy, reorganization, composition, arrangement, insolvency or liquidation
proceedings are instituted by the Borrowers, or bankruptcy, reorganization,
composition, arrangement, insolvency or liquidation proceedings are instituted
against the Borrowers which are not stayed or dismissed within 60 days; (g) a
final judgment or judgments for the payment of money aggregating in excess of
$100,000 is or are outstanding against the Borrowers and any such judgment or
judgments have not been discharged in full or stayed within 60 days after the
entry of such judgment or judgments or within 60 days after the expiration of
any such stay, as applicable; (h) the occurrence of any event which allows the
acceleration of the maturity of any obligation or indebtedness of the Borrowers
to the Bank, any of the Bank's affiliates, or any other person, corporation or
entity under any indenture, agreement or undertaking in excess of $250,000 in
the aggregate ; (i) the default by or dissolution of, any insurer or other
surety for the Borrowers with respect to any obligation or indebtedness to the
Bank; (j) the suspension, termination or adverse restriction of any license,
permit or privilege necessary or useful in the operation of the Borrowers'
businesses, which has or is likely to have a Material Adverse Effect; or (k) the
Bank for any reason in good faith deems itself insecure with respect to the
repayment of the indebtedness provided for herein.
DEFAULT REMEDIES. If an Event of Default exists, the Bank may immediately
exercise any right, power or remedy permitted to the Bank by law or any
provision of this Agreement, and shall have, in particular, without limiting the
generality of the foregoing, the right to declare the entire principal and all
interest accrued on all notes then outstanding pursuant to this Agreement to be
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrowers .
MISCELLANEOUS.
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NOTICES. (a) All communications under this Agreement or under the Notes or other
documents, agreements or instruments executed pursuant hereto shall be in
writing and shall be mailed by certified mail, postage prepaid, or sent by
telecopier or by commercial overnight courier (1) if to the Bank, at the
following address, or at such other address as may have been furnished in
writing to the Borrowers by the Bank:
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The Huntington National Bank
41 South High Street (HC0810)
Columbus, Ohio 43215
Telecopier: (614)-480-5791
Attn: Ted Hoover, Assistant Vice President
(2) if to the Borrowers, at the following address, or at such other address as
may have been furnished in writing to the Bank by the Borrowers:
Metatec Corporation
7001 Metatec Boulevard
Dublin, Ohio 43017
Telecopier: (614)-766-3146
Attn: William H. Largent, Executive Vice President
(b) any notice so addressed, and if mailed by certified mail shall be deemed to
be given on the second business day following the postmark date, or if sent by
telecopier, shall be deemed to be given when confirmed, or if sent by commercial
overnight courier, shall be deemed to be given when delivered.
ACCESS TO ACCOUNTANTS. The Borrowers hereby irrevocably authorizes its certified
public accountants to provide to the Bank any and all information that the Bank
reasonably requests from time to time with regard to any of the Borrowers, and
to discuss with the Bank from time to time any and all matters relating to any
of the Borrowers; provided, however, that if the Bank requests financial or
material information in writing or verbally from such accountants, the Bank
shall provide a copy of such correspondence or inform a financial officer of the
Borrowers. In furtherance of the foregoing, the Borrowers hereby waive any
privilege or claim of confidentiality to the extent such might otherwise prevent
the Borrowers' accountants from providing such information to the Bank or
discussing such matters with the Bank.
CONFIDENTIALITY. The Bank shall hold all non-public information, identified as
such by the Borrowers, obtained pursuant to the requirements hereof in
accordance with the Bank's customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices; provided, however, that the Bank may make disclosures reasonably
required in connection with any co-lending arrangement or participation, as the
case may be, or as required or requested by any governmental authority or any
representative thereof, or pursuant to any legal process, or to its accountants,
attorneys and other advisors.
REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating hereto,
including, without limitation, (a) consents, waivers and modifications which may
hereafter be executed, (b) documents received by the Bank at the closing or
otherwise, and (c) financial statements, certificates and other information
previously or hereafter furnished to the Bank, may be
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reproduced by the Bank by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and the Bank may destroy any
original document so reproduced. The Borrowers agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Bank in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SURVIVAL; SUCCESSORS AND ASSIGNS. All warranties, representations, and covenants
made by the Borrowers herein or on any certificate or other instrument delivered
by it or on its behalf under this Agreement shall be considered to have been
relied upon by the Bank and shall survive the closing of the Loans regardless of
any investigation made by the Bank on its behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Borrowers. This Agreement shall inure to the benefit of and be binding
upon the heirs, successors and assigns of each of the parties.
AMENDMENT AND WAIVER; DUPLICATE ORIGINALS. All references to this Agreement
shall also include all amendments, extensions, renewals, modifications and
substitutions thereto and thereof. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Borrowers and the Bank; provided however that nothing
herein shall change the Bank's sole good faith discretion (as set forth
elsewhere in this Agreement) to make advances, determinations, decisions or to
take or refrain from taking other actions. No delay or failure or other course
of conduct by the Bank in the exercise of any power or right shall operate as a
waiver thereof; nor shall any single or partial exercise of the same preclude
any other or further exercise thereof, or the exercise of any other power or
right. Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. All accounting terms not defined
herein shall be determined in accordance with generally accepted accounting
principles consistently applied, as set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements and pronouncements of the Financial Accounting
Standards Board. The Borrowers' fiscal years begins on January 1 and ends on
December 31, and the Borrowers will not change their fiscal years without the
prior written consent of the Bank. The financial covenants set forth in Sections
4.11 through and including 4.15 of this Agreement shall be tested quarterly.
ENFORCEABILITY AND GOVERNING LAW. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No delay or omission on
the part of the Bank in exercising any right shall operate as a waiver of such
right or any other right. All of the Bank's rights and remedies, whether
evidenced hereby or by any other agreement or instrument, shall be cumulative
and may be exercised singularly or concurrently. This
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Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio. The Borrowers agree that any legal suit, action or proceeding
arising out of or relating to this Agreement may be instituted in a state or
federal court of appropriate subject matter jurisdiction in the State of Ohio;
waives any objection which it may have now or hereafter to the venue of any
suit, action or proceeding; and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
NO CONSEQUENTIAL DAMAGES. No claim may be made by the Borrowers, any of its
officers, directors, or agents against the Bank or its affiliates, directors,
officers, employees, attorneys or agents for any special, indirect or
consequential damages in respect of any breach or wrongful conduct (whether the
claim therefor is based on contract, tort or duty imposed by law) in connection
with, arising out of or in any way related to the transactions contemplated and
relationship established by this Agreement, or any act, omission or event
occurring in connection therewith, and the Borrowers hereby waive, release and
agree not to sue upon any such claim for any such damages, whether or not
accrued and whether or not known or suspected to exist in its favor.
INDEMNITY. The Borrowers shall indemnify the Bank from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, reasonable fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Bank in any litigation,
proceeding or investigation instituted or conducted by any governmental agency
or instrumentality or any third person or entity with respect to any aspect of,
or any transaction contemplated by, or referred to in, or any matter related to,
this Agreement, whether or not the Bank is a party thereto, except to the extent
that any of the foregoing arises out of the gross neglect or willful misconduct
of the party being indemnified as determined in a final, non-appealable judgment
by a court of competent jurisdiction.
WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
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ADVERTISING. The Borrowers agree that the Bank may advertise or otherwise
disclose for marketing purposes the extent and nature of the credit extended or
to be extended and other services provided to the Borrowers by the Bank in
connection with or relating in any way to the Loans.
TERM OF AGREEMENT. The term of this Agreement shall commence with the date
hereof and end upon the payment in full of the obligations of the Borrowers to
the Bank (including, but not limited to prepayment fees, if any) at maturity,
which shall occur upon the Term Loan Maturity Date, unless sooner terminated
under the terms of this Agreement. The termination of this Agreement shall not
affect any of the Borrowers' or the Bank's rights, or any of the Borrowers
obligations arising prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or obligations incurred have been
fully disposed of, concluded or liquidated. The rights granted to the Bank
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the related Loan commitment or the fact that
the Loans may from time to time be temporarily in a zero or credit position,
until all of the obligations of the Borrowers to the Bank have been paid in full
or the Borrowers have furnished the Bank with an indemnification satisfactory to
the Bank with respect thereto.
SCHEDULE OF DEFINITIONS.
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"Activated Tranch" is defined in Section 1.1.
"Advance" is defined in Section 2.3.
"Affiliate" is defined in Section 4.9.
"Agreement" is defined in the preamble.
"Bank" is defined in the preamble.
"Borrower" and "Borrowers" are defined in the preamble.
"Commitment Fee" is defined in Section 2.9.
"Coverage" is defined in Section 2.3.
"Discovery" is defined in the preamble.
"Environmental Laws" is defined in Section 3.11.
"Event of Default" is defined in Section 6.1.
"Hazardous Substances" is defined in Section 3.11.
"Leverage" is defined in Section 2.3.
"LIBOR Business Day" is defined in Section 2.3.
"LIBOR Interest Payment Date" is defined in Section 2.3.
"LIBOR Rate" is defined in Section 2.3.
"LIBOR Rate Advance" is defined in Section 2.3.
"LIBOR Rate Interest Period" is defined in Section 2.3.
"Loan" and "Loans" are defined in Section 1.2.
"Metatec" is defined in the preamble.
"Material Adverse Effect" is defined in Section 3.1.
"Metatec" is defined in the preamble.
"Note" and "Notes" are defined in Section 1.3.
"Premises" is defined in Section 3.11.
"Prime Rate" is defined in Section 2.1.
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"Prime Rate Advance" is defined in Section 2.1.
"Revolving Loan" is defined in Section 1.1.
"Revolving Loan Maturity Date" is defined in Section 1.1.
"Tangible Net Worth" is defined in Section 4.11.
"Term Loan" is defined in Section 1.2.
"Term Loan Maturity Date" is defined in Section 2.2.
"Termination Date" is defined in Section 2.3.
"Treasury Rate Advance" is defined in Section 2.2.
"U.S. Treasury Constant Maturity Rate " is defined in Section 2.2.
METATEC CORPORATION,
a Florida corporation
By: ________________________________
Its: ________________________________
METATEC/DISCOVERY SYSTEMS, INC.,
an Ohio corporation
By: ________________________________
Its: ________________________________
THE HUNTINGTON NATIONAL BANK
By: ________________________________
Its: ________________________________
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EXHIBIT B
NOTICE OF BORROWING
THE HUNTINGTON NATIONAL BANK
41 SOUTH HIGH STREET
COLUMBUS, OHIO 43215
ATTENTION: ______________________
Re: Revolving Loan Under Loan Agreement dated as of December 31, 1996
Ladies and Gentlemen:
The undersigned, a duly authorized officer of Metatec Corporation and
Metatec/Discovery Systems, Inc., the borrowers under the above-referenced Loan
Agreement, hereby requests the (disbursement) (continuation) (conversion) of a
(Prime Rate Advance) (LIBOR Rate Advance) in the amount of $____________ (to a
Prime Rate Advance) (LIBOR Rate Advance) in the amount of $_____________ for a
period of ___________ (days) (months). The date of (disbursement) (continuation)
(conversion) will be ____________________, _____.
METATEC CORPORATION,
a Florida corporation
By: ________________________________
Its: ________________________________
METATEC/DISCOVERY SYSTEMS, INC.,
an Ohio corporation
By: ________________________________
Its: ________________________________
Date: ___________________________
<PAGE> 25
NOTICE OF BORROWING
THE HUNTINGTON NATIONAL BANK
41 SOUTH HIGH STREET
COLUMBUS, OHIO 43215
ATTENTION: ______________________
Re: Term Loan Under Loan Agreement dated as of December 31, 1996
Ladies and Gentlemen:
The undersigned, a duly authorized officer of Metatec Corporation and
Metatec/Discovery Systems, Inc., the borrowers under the above-referenced Loan
Agreement, hereby requests the (disbursement of a Treasury Rate Advance)
(disbursement/continuation of a LIBOR Rate Advance) in the amount of
$____________ for a period of (five years) (___________ months). The date of
(disbursement) (continuation) will be
- --------------------, -----.
METATEC CORPORATION,
a Florida corporation
By: ________________________________
Its: ________________________________
METATEC/DISCOVERY SYSTEMS, INC.,
an Ohio corporation
By: ________________________________
Its: ________________________________
Date: ___________________________
<PAGE> 26
EXHIBIT C
SCHEDULE OF PENDING OR THREATENED LITIGATION
MICHELE HARRINGTON, ET AL. V. METATEC CORPORATION, Case Number 95 CVH
107212, Franklin County Common Pleas Court.
This matter concerns a sex discrimination claim filed by a former
employee. Since 1995, this matter has been actively litigated by Metatec. All
discovery has been completed and the case dispositive motions have been filed
and are currently ripe for decision before the Court. This case is set to
commence at jury trial on March 17, 1997.
<PAGE> 27
EXHIBIT D
SCHEDULE OF PERMITTED ENCUMBRANCES
1. SECURED PARTY: Xerox
COLLATERAL: Office Equipment
MAXIMUM AMOUNT: $25,000
2. SECURED PARTY: AT&T
COLLATERAL: Office Equipment
MAXIMUM AMOUNT: $110,000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 574,282
<SECURITIES> 0
<RECEIVABLES> 5,649,147
<ALLOWANCES> 291,000
<INVENTORY> 850,620
<CURRENT-ASSETS> 7,671,727
<PP&E> 59,685,140
<DEPRECIATION> (18,958,206)
<TOTAL-ASSETS> 52,072,518
<CURRENT-LIABILITIES> 6,251,526
<BONDS> 1,426,592
<COMMON> 708,026
0
0
<OTHER-SE> 43,686,374
<TOTAL-LIABILITY-AND-EQUITY> 52,072,518
<SALES> 23,686,507
<TOTAL-REVENUES> 23,686,507
<CGS> 16,068,909
<TOTAL-COSTS> 23,354,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 11,639
<INCOME-PRETAX> 300,017
<INCOME-TAX> 136,500
<INCOME-CONTINUING> 163,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,517
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
