<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
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 Number: 0-9220
METATEC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1698890
(State of Incorporation) (I.R.S. Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (614) 761-2000
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.10 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Shares held by nonaffiliates
of the Registrant as of March 24, 1999, was $29,370,053.
On March 24, 1999, the Registrant had 6,075,614 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on April 20, 1999, which proxy statement was filed with
the Securities and Exchange Commission on March 22, 1999, are incorporated by
reference into Part III, Items 10, 11, 12, and 13 of this Report.
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METATEC CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Metatec Corporation, an international information distribution company
("Metatec"), helps customers utilize CD-ROM (compact disc-read only memory) and
DVD-ROM (digital versatile disc-read only memory) technologies to publish and
distribute information and software. Metatec operates ISO-9000 certified
manufacturing and fulfillment sites in Ohio, California and The Netherlands.
Metatec offers its customers a variety of services, including data preparation
and mastering, optical disc replication and printing, packaging, bulk
distribution and individual fulfillment, inventory management, project
management, and a variety of electronic monitoring and tracking services.
Metatec's customers represent a host of industries and organizations, such as
publishing firms, computer hardware and software companies, government agencies,
and professional associations. Metatec and its subsidiaries are hereinafter
collectively referred to as the "Company."
CD-ROM technology combines audio, video, text, and graphics in one
medium with the capability to store, search, and retrieve large quantities of
information. One CD-ROM can contain up to 650 megabytes of data. The Company
believes that businesses and individuals are increasingly turning to CD-ROM
technology as a cost-effective means of organizing, storing, and disseminating
large quantities of information quickly to widely diversified groups of users.
DVD-ROM technology represents a new type of optical disc which can hold
up to 18 gigabytes of information, or over twenty times the amount of the
current CD-ROM. It is projected that DVD-ROM will coexist and eventually replace
CD-ROM and expand the utilization of optical disc with greater graphic and video
applications. This expansion will first require new DVD-ROM drives to be
installed in order to have significant market penetration. DVD-ROM drives began
to be introduced during 1997.
In September 1998, the Company purchased the CD-ROM services business
assets of Imation Corporation ("Imation"). These assets are used in connection
with the Company's manufacture and distribution of CD-ROM and DVD-ROM products
and related services, including data preparation and mastering, disc
replication, printing, and electronic tracking. The assets purchased included
Imation's plant operations in Fremont, California, Breda, The Netherlands, and
Menomonie, Wisconsin. The Menomonie plant operations were transferred to the
Company's Dublin, Ohio, manufacturing plant during the fourth quarter of 1998
after completion of a transitional operations period in Menomonie. A client
services center providing customer and technical support continues to be
maintained in Menomonie. The acquisition more than doubled the Company's
revenues, expanded its operations to Europe, expanded its major operating
facilities from one to three, and added approximately 200 new employees. See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Acquisition of Imation's CD-ROM Services Business.
During 1997, the Company exited a line of business which provided a
broad range of software development and media preparation services for customers
creating custom CD-ROM products and frequently published periodicals on optical
media. This line of business, known as the access services group, also offered
network services for information publishers desiring integrated worldwide web
access to support their CD-ROM publications. The Company exited this line of
business because the market for
<PAGE> 3
providing custom multimedia products was significantly reduced with the
increasing availability of low-cost software and publishing tools.
Metatec is a Florida corporation which was incorporated on September 9,
1976.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
Financial information on industry segments as required by Item 101(b)
of Regulation S-K is set forth in Note 12 of the Notes to the Consolidated
Financial Statements, which Note is part of the financial statements contained
in Item 8 of this Form 10-K, which Note is incorporated herein by reference.
INDUSTRY OVERVIEW
The principal methods for the distribution of business information
currently include print, CD-ROM, and on-line services. CD-ROM technology was
initially used primarily by institutions, such as libraries, for storing and
searching vast quantities of data. Although print remains the dominant vehicle
for business information distribution, publishers and other companies are
increasingly using CD-ROM as a cost-effective and portable format for
distributing and providing access to large amounts of information, including
multimedia applications and interactive software, to widely dispersed groups of
users. A major factor contributing to the successful establishment of CD-ROM is
the degree of standardization achieved in the early stages of market
development. Adherence to these standards has created a climate of acceptance
among both publishers and device users.
As a method of distributing business information, on-line services lend
themselves to information which requires frequent or continuous updating. CD-ROM
is a more cost-effective distribution method for large amounts of information
which require less frequent updating and provides audio, video, text, and
graphics capabilities in one medium.
PRINCIPAL PRODUCTS AND SERVICES
The Company offers its customers a variety of services, including data
preparation and mastering, optical disc replication and printing, packaging,
bulk distribution and individual fulfillment, inventory management, project
management, and a variety of electronic monitoring and tracking services. The
Company's strategy targets customers which generally have time-sensitive and
recurring information distribution requirements, demand high quality disc
manufacturing, and need fulfillment and distribution services.
The Company manufactures CD-ROMs and DVD-ROMs, as well as audio CDs for
the radio syndication programming services market. The Company's services
performed through the manufacturing process include conversion of data provided
by customers to a digital format, encoding of the data on a master disc,
replication from the master disc, data verification, quality control testing,
and design and printing of the disc label. Radio syndication customers utilize
the Company's quick turn automated production lines, strict quality control, and
end user distribution services to provide them a competitive advantage. The
Company provides a full range of services to radio syndication customers from
digital format conversion to fulfillment.
During 1998, the Company expanded its packaging and fulfillment
services. The Company provides full-service disc packaging, warehousing, and
direct-to-user product shipping. The Company is currently constructing a 151,000
square foot distribution center at its Dublin, Ohio location to expand its
packaging and fulfillment services.
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The Company operates manufacturing and fulfillment sites in Dublin,
Ohio, Fremont, California, and Breda, The Netherlands. These state-of-the-art,
ISO-9000 certified, facilities operate seven days a week, 24 hours per day,
permitting the Company to offer one-day turnaround of a master CD and high
quality CD replicas for distribution for its CD-ROM, DVD-ROM, and radio
syndication customers. The ISO-9000 quality system certification means that the
Company's manufacturing facilities meet worldwide standards for quality
practices. The Company's manufacturing services include premastering and
mastering of the discs, from which duplicate CD-ROMs, DVD-ROMs, and audio CDs
can be made, disc label design and printing, packaging and fulfillment services.
During the last five years, the Company has increased its mastering capacity.
The Company believes that its increased mastering capacity is a competitive
advantage, allowing the Company to react more responsively to customer timing
requirements.
The Company utilizes certain patents and technology in its
manufacturing activities which it licenses from third parties and which the
Company believes to be generally available to other manufacturers. Although only
one vendor currently produces a key raw material used by the Company in its
manufacturing process, the Company generally maintains a six to twelve month
supply of this material and is currently investigating other alternatives to
this material. The Company has multiple sources for all other raw materials and
supplies used in its manufacturing operations.
The Company does not believe that compliance with federal, state, and
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has had or will have a material effect upon the capital
expenditures, earnings, or competitive position of the Company. The Company does
not anticipate any material capital expenditures for environmental control
facilities for 1999.
MARKETING
The Company markets it products and services through its own sales
force of 58 employed associates based in Breda, The Netherlands, San Francisco,
Chicago, Washington, D.C., New York, Denver, Dallas, Boston, Atlanta, and
Seattle, in addition to Dublin, Ohio, where its principal offices are located.
These associates are responsible for maintaining relationships with existing
customers and developing new business relationships. The associates are
supported by a customer service staff that is responsible for ensuring that each
order is processed in a timely manner and all required support materials are in
place. The Company maintains customer support operations at all of its
manufacturing facilities and at a relocated client support center in Menomonie,
Wisconsin.
COMPETITION
The Company has a number of competitors, some of which are larger and
have greater financial resources than the Company. The Company believes that the
principal competitive factors in the CD-ROM and DVD-ROM marketplace consist of
service, quality, and reliability for the timely delivery of products. These
factors, in addition to price, also affect the audio CD marketplace. The Company
believes it competes favorably with respect to these factors in the CD-ROM and
DVD-ROM market and the radio syndication segment of the audio CD market.
The Company differentiates itself from its competitors by providing
manufacturing flexibility (including quick turnaround times), personalized
customer service, fulfillment services, and complete CD-ROM and DVD-ROM
solutions. Many firms demand a manufacturer like the Company which can provide
additional services such as label design and printing, packaging, and
distribution.
<PAGE> 5
EMPLOYEES
The Company employed approximately 800 persons as of March 15, 1999.
Approximately 520 employees are directly involved in the manufacturing and
distribution process, and the remainder are involved in sales, administration,
and support. The Company believes that its relations with its employees is good.
ITEM 2. PROPERTIES
The Company owns a 205,000 square foot office and manufacturing
facility situated on approximately 25 acres located at 7001 Metatec Boulevard,
Dublin, Ohio. The Company's principal executive offices are located at this
facility. This facility also includes customer support operations and a
distribution and fulfillment center. In October 1998, the Company began
construction of an approximate 151,000 square foot distribution center at this
location. A first mortgage on the real estate and improvements at this location
secure the $7,000,000 construction loan for the new distribution center.
The Company currently leases approximately 50,000 square feet of
manufacturing, customer support, and distribution and fulfillment facilities in
Fremont, California. The Company also leases approximately 25,000 square feet of
manufacturing, customer support, and distribution and fulfillment facilities in
Breda, The Netherlands.
The Company also leases office space in San Francisco, Chicago,
Washington, D.C., New York, Denver, Dallas, Boston, Atlanta, and Seattle for use
as regional sales offices and in Menomonie, Wisconsin for use as a client
services center.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceeding,
nor to the Company's knowledge, is any material legal proceeding threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their respective ages and
present positions with the Company are as follows:
<TABLE>
<CAPTION>
Officers Age Present Position(s) with the Company
-------- --- ------------------------------------
<S> <C> <C>
Jeffrey M. Wilkins 54 Chairman of the Board, President and Chief Executive Officer
Julia A. Pollner 36 Senior Vice President, Finance, Secretary and Treasurer
Alexander P. Deak 38 Vice President and Chief Information Officer
Nicholas J. Fortine 33 Vice President, Sales
David P. Iverson 38 Vice President, Marketing
Tammi Nance Spayde 36 Vice President, Organizational Development
Martin G. Stokman 38 Vice President, Europe
Christopher L. Winslow 37 Vice President, Manufacturing Services
</TABLE>
Mr. Wilkins has been Chairman of the Board and Chief Executive Officer
of the Company since August 1989.
Ms. Pollner has been Senior Vice President, Finance, Treasurer, and
Secretary since May 1997, and has held various accounting and finance positions
with the Company since 1987.
Mr. Deak has been Vice President and Chief Information Officer of the
Company since December 1994, and has held various information services and
product management positions with the Company since 1990.
Mr. Fortine has been Vice President, Sales of the Company since August
1998, and has held various sales and marketing positions with the Company since
1992.
Mr. Iverson has been Vice President, Marketing of the Company since
January 1999, and joined the Company in October 1998, in connection with the
Company's acquisition of the CD-ROM services business assets of Imation. From
1997 to 1998, Mr. Iverson was Imation's business manager for its CD-ROM services
business in Europe. From 1995 to 1997, Mr. Iverson was a manager of a European
distribution center for 3M, the former owner of Imation.
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Ms. Spayde has been Vice President, Organizational Development of the
Company since August 1998. From 1984 to August 1998, Ms. Spayde held various
human resources and administration positions with OhioHealth Corporation, an
entity engaged in the ownership and operation of hospitals.
Mr. Stokman has been Vice President, Europe of the Company since
January 1999, and joined the Company in October 1998, in connection with the
Company's acquisition of the CD-ROM services business assets of Imation. From
1997 to 1998, Mr. Stokman was Imation's business manager for its CD-ROM services
business in Europe. From 1995 to 1997, Mr. Stokman was a manager of a European
distribution center for 3M, the former owner of Imation.
Mr. Winslow has been Vice President, Manufacturing Services since 1994.
Mr. Winslow has held various marketing and manufacturing positions with the
company since 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Company Shares are traded on the Nasdaq National Market
system under the symbol META. The following table reflects the range of reported
high and low last sales prices for the Common Shares for the periods indicated.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
For the quarter ended 1998
March 31 $5.00 $4.00
June 30 $6.50 $4.63
September 30 $5.81 $3.50
December 31 $8.00 $3.38
For the quarter ended 1997
March 31 $7.00 $3.88
June 30 $6.00 $2.63
September 30 $6.38 $5.25
December 31 $6.00 $4.38
</TABLE>
As of March 15, 1999, there were 3,906 holders of record of the Common
Shares, and the last sales price per share on that date, as reported by the
Nasdaq National Market system, was $5.69.
The Company has never paid cash dividends on the Common Shares. The
payment of dividends is within the discretion of the Company's board of
directors and depends upon the earnings, the capital requirements, and the
operating and financial condition of the Company, among other factors. The
Company currently expects to retain its earnings to finance the growth and
development of its business and does not expect to pay cash dividends in the
foreseeable future.
In addition, the terms of the Company's credit facilities prohibit it
from paying cash dividends or making any other distributions of any kind to
shareholders without the prior consents of the administrative agent of these
credit facilities and the banks providing two-thirds of the funding for such
facilities.
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ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $80,919,128 $48,933,634 $46,150,105 $39,261,463 $28,942,748
Earnings before income taxes $ 2,684,769 $1,040,534 $3,398,728 $4,140,980 $2,424,653
Net earnings $ 1,422,769 $ 491,534 $2,040,728 $2,808,980 $1,692,653
Earnings per common share:
Basic $ 0.23 $ 0.07 $ 0.29 $ 0.44 $ 0.34
Diluted $ 0.23 $ 0.07 $ 0.29 $ 0.44 $ 0.33
Weighted average number of
common shares outstanding:
Basic 6,058,414 6,791,836 7,064,194 6,333,706 4,983,879
Diluted 6,115,084 7,189,266 7,159,775 6,441,105 5,066,447
Total assets $105,442,814 $52,871,893 $52,517,477 $50,076,076 $32,556,004
Long-term liabilities $41,031,569 $5,893,410 $1,335,105 $ 845,875 $7,959,634
Shareholders' equity $41,949,897 $41,194,053 $45,265,791 $43,301,079 $18,276,129
</TABLE>
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITION OF IMATION'S CD-ROM SERVICES BUSINESS
On September 11, 1998, Metatec purchased the CD-ROM services business assets of
Imation Corporation ("Imation") for $39,800,000. This acquisition significantly
impacted the Company's 1998 results of operations.
The asset purchase included Imation's plant operations in Fremont, California;
Breda, The Netherlands; and Menomonie, Wisconsin. The Menomonie plant
operations were transferred to Metatec's Dublin, Ohio, manufacturing plant by
the end of the fourth quarter of 1998 after completion of a transitional
operations period in Menomonie. A client services center providing customer and
technical support will be maintained in Menomonie.
The purchase price for the Imation assets was $39.8 million, which price is
subject to a post-closing adjustment based upon the closing date working
capital statement related to working capital assets transferred by Imation. The
Company financed the asset purchase through a $30.0 million term loan facility
and a portion of a $20.0 million revolving loan facility. These credit
facilities were obtained through a participation arrangement between The
Huntington National Bank and Bank One, NA. See "Liquidity and Capital
Resources" for a further discussion of these credit facilities.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Net sales in 1998 were at a record level of $80,919,000, an increase of
$31,985,000, or 65% over 1997. This increase resulted primarily from CD-ROM
manufacturing sales increasing $31,834,000 to $73,854,000 for 1998, or 76%. A
significant portion of this increase was attributable to sales from the CD-ROM
services business acquired from Imation. Radio syndication sales decreased
$751,000, or 13%, in 1998 primarily as a result of some customers choosing to
use CD-Recordable as a distribution method for smaller size orders. DVD sales
accounted for $190,000 in 1998, as compared to $6,000 in 1997.
Gross profit was 29% of net sales for 1998 as compared to 31% of net sales for
1997. This decrease is primarily attributed to additional costs incurred
related to the Wisconsin facility that was closed in December 1998. In
addition, sales price erosion continued during 1998, albeit at a slower rate
than in prior years.
Selling, general and administrative expenses ("SG&A") increased to $18,980,000,
or 23% of net sales, for 1998 as compared to $13,847,000, or 28% of net sales,
for 1997. SG&A expenses decreased in 1998 as a percentage of sales due to the
leverage achieved on the significantly increased sales dollars.
Business realignment expenses of $825,975 were incurred during 1998. These
expenses primarily related to integration costs due to the Imation CD-ROM
services business acquisition and certain rent, utilities and labor expenses
associated with closing the acquired Wisconsin facility. Of these expenses,
$367,813 had been paid as of December 31, 1998.
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Investment income was $35,000 for 1998 as compared to $49,000 for 1997. The
decrease in investment income was a result of lower cash and cash equivalent
balances. Interest expense for 1998 was $1,186,000 as compared to $74,000 for
1997. During 1998 the Company borrowed against its revolving line of credit and
term loan as more fully discussed in the Financial Condition section.
Income tax expense was $1,262,000 in 1998, or an effective tax rate of 47%, as
compared to $549,000 in 1997, or an effective tax rate of 53%. The 1998
effective tax rate decreased due to the lessened effect of the non
deductibility of certain goodwill for income tax purposes. This goodwill was
related to shares earned by an officer/shareholder which vested in late 1995.
Net earnings for 1998 were $1,423,000, or basic and diluted earnings per common
share of $.23, as compared to 1997 net earnings of $492,000, or basic and
diluted earnings per common share of $.07. This increase was primarily a result
of increased sales, reduced SG&A expenses as a percentage of sales, and a lower
effective tax rate as noted above.
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996
Net sales in 1997 were $48,934,000, an increase of $2,784,000, or 6% over 1996.
This increase resulted primarily from CD-ROM and Radio Syndication
manufacturing increasing $6,252,000 to $47,673,000 for 1997, or 15%. The Access
Services Group (formerly known as the New Media Solutions Group) decreased
$3,468,000 to $1,261,000 for 1997, or 73%.
This combined net sales increase of $2,784,000 was primarily as a result of
solid CD-ROM replication growth. During 1997 the decision was made to exit the
business segment known as the Access Services Group.
Gross profit was 31% of net sales for 1997 as compared to 36% of net sales for
1996. This decrease is primarily attributed to an under utilization of
manufacturing capacity during 1997. In addition, sales price erosion continued
during 1997.
Selling, general and administrative expenses ("SG&A") increased to $13,847,000,
or 28% of net sales, for 1997 as compared to $13,492,000, or 29% of net sales,
for 1996.
A restructuring charge of $206,000 occurred during 1997. This charge related to
a reorganization and downsizing of the Access Services Group.
Investment income was $49,000 for 1997 as compared to $303,000 for 1996. The
decrease in investment income was a result of lower cash and cash equivalent
balances. Interest expense for 1997 was $74,000 as compared to $19,000 for
1996. During 1997 the Company borrowed against its revolving line of credit.
Income tax expense was $549,000 in 1997, or an effective tax rate of 53%, as
compared to $1,358,000 in 1996, or an effective tax rate of 40%. The 1997
effective tax rate increased due to the non deductibility for income tax
purposes of the additional goodwill which began being
<PAGE> 11
charged to earnings in 1996. This goodwill charge was $410,000 and is related
to shares earned by an officer/shareholder which vested in late 1995.
Net earnings for 1997 were $492,000, or basic and diluted earnings per common
share of $.07, as compared to 1996 net earnings of $2,041,000, or basic and
diluted earnings per common share of $.29. This decrease was primarily a result
of lower gross profit, costs associated with exiting the Access Services
business, and a higher effective tax rate as noted above.
IMPACT OF INFLATION
The Company's operations are not significantly affected by inflationary
pressures. Although inflation does affect salaries, employee benefits and other
operating expenses, after considering general inflationary trends, total sales
of the Company produced growth in real terms in 1998 and 1997. Net sales
increased primarily due to increased sales of CD-ROM and related products,
rather than increases in inflation.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business in 1998 through cash generated from
operations, the use of debt, and the use of available cash balances.
Historically, the Company also financed business needs through the issuance of
common stock. Cash flow from operating activities was $19,292,000, $8,200,000,
and $8,992,000 for 1998, 1997 and 1996, respectively.
During 1998, the Company continued to increase its manufacturing capacity over
the 1997 levels. These additions, along with recurring capital needs, resulted
in the purchase of $16,030,000 in property, plant and equipment during 1998 as
compared to $8,933,000 in 1997 and $13,011,000 in 1996.
The Company also has commitments under contracts of approximately $7,000,000
for a 151,000 square foot distribution center in Dublin, Ohio. The Company
began construction of the distribution center in October 1998. The Company is
currently financing the construction through cash generated through operations
and funds available under the Company's new $7,000,000 construction loan
facility, discussed below. The Company is continuing to evaluate additional
long term real estate financing options.
On September 11, 1998, the Company purchased the CD-ROM services business
assets of Imation for $39,800,000, which price is subject to a post-closing
adjustment based upon the closing date working capital statement related to
working capital assets transferred by Imation. The Company financed this asset
purchase through a $30,000,000 term loan facility and a portion of a
$25,000,000 revolving loan facility, discussed below.
The Huntington National Bank and Bank One, NA have provided a $30,000,000 term
loan facility and a $25,000,000 revolving loan facility to the Company (the
"Credit Facilities"). In December 1998 the revolving loan was amended to
$20,000,000 in connection with the addition of the $7,000,000 construction
loan, discussed below. The following is a summary of the terms of the Credit
Facilities. The revolving loan facility is available for five years and
replaced the Company's prior $15,000,000 line of credit. The term loan facility
is payable over five years in
<PAGE> 12
quarterly principal payments which escalate over the term of the loan. The term
loan facility and a portion of the revolving loan facility were used to finance
the Imation asset purchase. The remaining portion of the revolving loan
facility is available for general corporate purposes. Borrowings under the
Credit Facilities bear interest, at the Company's option, at either the federal
funds rate plus 50 basis points or prime rate (whichever of the two are higher)
or the London Interbank offered Rate (LIBOR) rate plus a margin based upon the
Company's debt coverage ratio (which ranges from not less than 75 basis points
to not more than 150 basis points). The Credit Facilities are secured by a
first lien on all non-real estate business assets of the Company and a pledge
of the stock of the Company's subsidiaries. The Company is required to comply
with certain financial and other covenants.
In January 1999, the Company received a $7,000,000 construction loan to finance
the distribution center being constructed. Borrowings under this construction
loan bear interest, at the Company's option, at either the prime rate or the
LIBOR rate plus 165 basis points. The construction loan contains an option to
convert the principal balance to a 20 year term loan, at various interest rate
options. The construction loan is secured by a mortgage in the real property,
fixtures, and improvements located at the Dublin, Ohio site.
The Company has cash and cash equivalents of $2,557,000 as of December 31, 1998
and additionally has available $7,500,000 under its revolving loan agreement.
Management believes that these funding sources, plus cash to be generated from
operations will provide sufficient capital to meet the current and anticipated
future business needs of the Company. In addition, management continues to
review other long term financing options.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than 2000. This could result in a system failure or
miscalculations causing disruptions of uncertain duration in operations
including, among other things, a temporary inability to process transactions,
or engage in similar normal business activities.
The Company utilizes information technology ("IT") and non-IT systems which are
essential to its operations. Non-IT systems typically include embedded
technology, such as microcontrollers.
The Company created a task force during 1997 to address the Company's Year 2000
issues, and this task force has been actively assessing the Company's Year 2000
readiness since that time. As of December 31, 1998, all of the Company's
proprietary IT systems and applications were Year 2000 compliant. In addition,
non-proprietary IT systems utilized by the Company are either Year 2000
compliant or will be Year 2000 compliant upon installation of available patches
and upgrades. The Company currently believes that all of its IT systems will be
Year 2000 compliant by June 30, 1999. The Company also performed a Year 2000
readiness review of the CD-ROM services business assets acquired from Imation.
A sample of each type of manufacturing equipment in the Dublin facility has
been tested for continued operation with dates after January 1, 2000. Known
<PAGE> 13
problems have been documented and suppliers notified. Testing of each
production line in Dublin is currently underway. Similar testing is underway
for the manufacturing equipment acquired from Imation. The Company expects
testing to be completed and all patches and upgrades to be in place by June 30,
1999. The Company's task force is working with third party vendors with which
it has significant relationships to verify that they are Year 2000 compliant.
The Company currently believes that all Year 2000 issues will be resolved in a
timely manner and that costs associated with Year 2000 compliance issues will
not be material to the Company's financial position or results of operations.
However, there is a risk that third parties will not achieve Year 2000
compliance in a timely manner, which could have an adverse effect on the
Company's operations. The task force intends to develop appropriate contingency
plans as necessary to address Year 2000 compliance issues as they arise.
The Company currently believes that the only costs associated with Year 2000
compliance issues include in-house time associated with administration, review
and testing of systems. These costs have not been calculated, but the Company
believes the costs are not material.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, all other statements made in this report are
"forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to certain
risks and uncertainties that could cause the Company's actual results to differ
materially from those projected. Such risks and uncertainties that might cause
such a difference include, but are not limited to, changes in general business
and economic conditions, changes in demand for CD-ROM products, excess capacity
levels in the CD-ROM industry, the introduction of new products by competitors,
increased competition (including pricing pressures), changes in manufacturing
efficiencies, changes in technology, failure to achieve Year 2000 compliance by
the Company or third party vendors with which it has significant relationships,
and other risks indicated in the company's filings with the Securities and
Exchange Commission, including Form 10-K for Metatec's year ended December 31,
1998.
<PAGE> 14
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements of Metatec Corporation are the
responsibility of management, and those statements have been prepared in
accordance with generally accepted accounting principles. All available
information and management's judgment of current conditions and circumstances
have been reflected. Management accepts full responsibility for the accuracy,
integrity and objectivity of the financial information included in this report.
To provide reasonable assurance that assets are safeguarded against loss from
unauthorized use or disposition and that accounting records are reliable for
preparing financial statements, management maintains systems of accounting and
internal controls, including written policies and procedures, which are
communicated to all appropriate levels of the Company. Management believes that
the Company's accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
Maintenance of sound internal control by division of responsibilities is
augmented by internal review programs and an Audit Committee of the Board of
Directors comprised solely of directors independent of management. The Audit
Committee reviews the scope of the audits performed by the independent public
accountants, Deloitte & Touche LLP, together with their audit report and any
recommendations made by them. The independent accountants have free access to
meet with the Audit Committee and Board of Directors with or without management
representatives present.
Jeffrey M. Wilkins
Chairman of the Board and
Chief Executive Officer
Julia A. Pollner
Senior Vice President, Finance
<PAGE> 15
FORWARD LOOKING STATEMENTS; CERTAIN FACTORS AFFECTING FUTURE RESULTS
Statements contained in this Form 10-K or any other reports or
documents prepared by the Company or made by management of the Company may be
"forward-looking" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are subject to certain risks and
uncertainties that could cause the Company's operating results to differ
materially from those projected. The following factors, among others, in some
cases have affected and in the future could affect the Company's actual
financial performance.
PRODUCT CONCENTRATION
Revenues from the sale of CD-ROM and DVD-ROM products and services
constituted substantially all of the Company's revenues for 1998, and such
products and services are expected to continue to account for substantially all
of the Company's revenues for the foreseeable future. A decline in the demand
for CD-ROM and DVD-ROM products and services, whether as a result of
competition, technological change or otherwise, would have a material adverse
effect on the Company's operating results. Included in the Company's CD-ROM
products and services are audio CDs for the radio syndication programming
services market. The Company does not anticipate revenue growth in its radio
syndication services because of the maturity of the market, the Company's
existing market share, and increased price competition.
COMPETITION
The Company faces competition in the information distribution industry
from a number of sources, such as traditional print publishers, on-line
distributors of information, CD-ROM manufacturers, and others. The Company's
competitors vary by market segment and include many companies which are larger,
more established, and have substantially more resources than the Company. The
Company does not benefit from patents or proprietary technology, and competition
may increase in the future.
PRICING
The CD-ROM and audio CD industries have been characterized by new
manufacturers continually entering the market and by declining prices for CDs.
CD-ROM prices declined industry-wide in recent years, and this trend may
continue in the future. To date, continuing market growth has offset increased
manufacturing capacity in the CD-ROM industry. However, the addition of
manufacturing capacity to the industry has continued, and there can be no
assurance that market growth will continue at
<PAGE> 16
the same rate or that prices paid to CD-ROM manufacturers will not continue to
decline. In addition, the Company's pricing of its new products and services may
not in all cases be competitive with the other providers in the marketplace, and
some new products and services may not be profitable.
TECHNOLOGICAL CHANGE
The market for information distribution services incorporating optical
disc technology is based upon a sophisticated technology and is subject to rapid
technological change. Current or new competitors may introduce new products,
features or services that could adversely affect the Company's competitive
position. Additionally, there can be no assurance that over time optical disc
technology will not be replaced by another form of information storage and
retrieval technology, such as on-line information services. To date, the Company
has developed product and service enhancements to address customer requirements
and to respond to competitive conditions. However, the Company must continue to
improve its products and related services and develop and successfully market
new products and services in order to remain competitive. There can be no
assurance that it will be able to do so.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the efforts of certain key
personnel, particularly Jeffrey M. Wilkins, its Chairman of the Board and Chief
Executive Officer. The loss of Mr. Wilkins' services to the Company could have
an adverse effect on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivative financial instruments in its
investment portfolio. The Company places its investments in instruments that
meet high credit quality standards. The Company does not expect any material
loss with respect to its investment portfolio.
The Company utilizes term and revolving debt with variable interest
rates of 75 to 150 basis points above LIBOR, and therefore is affected by
changes in market interest rates. The Company is currently reviewing alternative
financing which would convert a portion of such debt to a fixed-rate debt
instrument. The Company does not expect changes in interest rates to have a
material effect on income or cash flows in fiscal 1999, although there can be no
assurances that interest rates will not significantly change.
The effect of foreign exchange rate fluctuations on the Company for the
year's ended December 31, 1998 and 1997 was not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
METATEC CORPORATION
- -------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS At December 31,
---------------------------------
1998 1997
- ------------------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,557,221 $ 1,381,057
Accounts receivable, net of allowance for doubtful accounts of $490,000 and $301,000 21,635,889 7,215,178
Inventory 3,207,460 1,155,519
Prepaid expenses 1,037,945 362,801
Prepaid income taxes 580,879 --
Current portion of long-term note receivable -- 364,087
Deferred income taxes 143,000 327,000
--------------- ---------------
Total current assets 29,162,394 10,805,642
Long-term note receivable, less current portion -- 186,562
Property, plant and equipment - net 55,827,054 38,629,006
Goodwill - net 20,453,366 3,250,683
--------------- ---------------
TOTAL ASSETS $ 105,442,814 $ 52,871,893
=============== ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,052,442 $ 2,058,587
Accrued royalties 2,053,691 1,109,257
Accrued personal property taxes 993,399 809,399
Other accrued expenses 2,526,684 814,569
Accrued payroll 1,598,507 567,315
Accrued income taxes -- 249,747
Unearned income 156,440 73,778
Current maturities of long-term debt and capital lease obligations 3,080,185 101,778
--------------- ---------------
Total current liabilities 22,461,348 5,784,430
Long-term debt and capital lease obligations, less current maturities 39,506,376 4,578,410
Other long-term liabilities 45,193 -
Deferred income taxes 1,480,000 1,315,000
--------------- ---------------
Total liabilities 63,492,917 11,677,840
--------------- ---------------
Commitments and contingencies (Notes 2, 6, and 7)
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1998 - 7,153,480 shares; 1997 - 7,108,479 shares 715,348 710,848
Additional paid-in capital 34,218,577 34,102,325
Foreign currency translation adjustments 32,963 --
Retained earnings 12,805,546 11,382,777
Treasury stock, at cost; 1998 - 1,081,742 shares; 1997 - 912,755 shares (5,822,537) (5,001,897)
--------------- ---------------
Total shareholders' equity 41,949,897 41,194,053
--------------- ---------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 105,442,814 $ 52,871,893
=============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 17
METATEC CORPORATION
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,
-------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------ ============= ================ ==============
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,422,769 $ 491,534 $ 2,040,728
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 9,976,282 7,914,342 6,963,466
Deferred income taxes 349,000 192,000 742,000
Stock awards for employees 0 31,480 20,775
Net loss on sales of property, plant and equipment 68,218 54,962 59,738
Changes in assets and liabilities:
Accounts receivable (3,494,680) (504,582) (429,136)
Inventory 351,314 (206,781) (63,631)
Prepaid expenses and other assets (1,256,023) 97,929 145,541
Accounts payable and accrued expenses 11,792,093 257,285 (321,814)
Unearned income 82,662 (131,365) (165,278)
------------- -------------- --------------
Net cash provided by operating activities 19,291,635 8,196,804 8,992,389
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in long-term note receivable 550,649 (336,799) 12,375
Purchase of property, plant and equipment (14,290,702) (8,566,133) (12,523,821)
Proceeds from the sales of property, plant and equipment 20,638 83,434 7,545
Net cash used for acquisition (41,635,504) 0 0
------------- -------------- --------------
Net cash used in investing activities (55,354,919) (8,819,498) (12,503,901)
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 46,332,261 4,500,000 0
Payment of long-term debt and capital lease obligations (8,425,888) (116,252) (75,870)
Stock options exercised, including tax benefit 120,752 138,504 135,309
Treasury stock acquired (820,640) (4,733,256) (232,100)
------------- -------------- --------------
Net cash provided (used) by financing activities 37,206,485 (211,004) (172,661)
------------- -------------- --------------
Effect of exchange rate on cash 32,963 0 0
Increase (decrease) in cash and cash equivalents 1,176,164 (833,698) (3,684,173)
Cash and cash equivalents at beginning of year 1,381,057 2,214,755 5,898,928
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,557,221 $ 1,381,057 $ 2,214,755
============= ================ ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 429,606 $ 65,197 $ 18,676
============= ================ ==============
Income taxes paid $ 1,824,155 $ 64,785 $ 1,042,081
============= ================ ==============
Assets purchased for the assumption of liabilities $ 1,739,058 $ 367,137 $ 487,651
============= ================ ==============
Acquisition of receivables and inventory for the assumption of liabilities $ 497,028 $ 0 $ 0
============= ================ ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 18
METATEC CORPORATION
- -------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Additional
Common Paid-in Retained Foreign Currency
Stock Capital Earnings Translation Adjustments
- ------------------------------------------------- ---------- ----------- ------------ -----------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 705,474 $33,781,631 $ 8,850,515 $ 0
Net earnings 2,040,728
Treasury shares acquired
Stock awards for employees 266 20,509
Stock options exercised 1,596 111,713
Tax benefit relating to stock options 22,000
--------- ----------- ------------ -------------
BALANCE AT DECEMBER 31, 1996 707,336 33,935,853 10,891,243 0
Net earnings 491,534
Treasury shares acquired
Stock awards for employees 641 30,839
Stock options exercised 2,871 127,633
Tax benefit relating to stock options 8,000
--------- ----------- ------------ -------------
BALANCE AT DECEMBER 31, 1997 710,848 34,102,325 11,382,777 0
Net earnings 1,422,769
Treasury shares acquired
Stock options exercised 4,500 66,252
Tax benefit relating to stock options 50,000
Foreign currency translation adjustments 32,963
--------- ----------- ------------ -------------
BALANCE AT DECEMBER 31, 1998 715,348 $34,218,577 $ 12,805,546 $ 32,963
========= =========== ============ =============
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Treasury
Stock Total
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ (36,541) $ 43,301,079
Net earnings 2,040,728
Treasury shares acquired (232,100) (232,100)
Stock awards for employees 20,775
Stock options exercised 113,309
Tax benefit relating to stock options 22,000
----------- ------------
BALANCE AT DECEMBER 31, 1996 (268,641) 45,265,791
Net earnings 491,534
Treasury shares acquired (4,733,256) (4,733,256)
Stock awards for employees 31,480
Stock options exercised 130,504
Tax benefit relating to stock options 8,000
----------- ------------
BALANCE AT DECEMBER 31, 1997 (5,001,897) 41,194,053
Net earnings 1,422,769
Treasury shares acquired (820,640) (820,640)
Stock options exercised 70,752
Tax benefit relating to stock options 50,000
Foreign currency translation adjustments 32,963
----------- ------------
BALANCE AT DECEMBER 31, 1998 $(5,822,537) $ 41,949,897
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 19
METATEC CORPORATION
- ----------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS Years Ended December 31,
---------------------------------------------------
1998 1997 1996
- ---------------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $ 80,919,128 $ 48,933,634 $ 46,150,105
Cost of sales 57,276,391 33,815,791 29,543,583
--------------- -------------- --------------
Gross profit 23,642,737 15,117,843 16,606,522
Selling, general and administrative expenses 18,980,164 13,847,028 13,491,823
Business realignment 825,975 0 0
Restructuring expenses 0 206,000 0
--------------- -------------- --------------
OPERATING EARNINGS 3,836,598 1,064,815 3,114,699
Other income and (expense):
Investment income 34,546 49,459 302,705
Interest expense (1,186,375) (73,740) (18,676)
--------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES 2,684,769 1,040,534 3,398,728
Income taxes 1,262,000 549,000 1,358,000
--------------- -------------- --------------
NET EARNINGS $ 1,422,769 $ 491,534 $ 2,040,728
=============== ============== ==============
NET EARNINGS PER COMMON SHARE:
Basic $ 0.23 $ 0.07 $ 0.29
=============== ============== ==============
Diluted $ 0.23 $ 0.07 $ 0.29
=============== ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 6,058,414 6,791,836 7,064,194
=============== ============== ==============
Diluted 6,115,084 7,189,266 7,159,775
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the accounts of
Metatec Corporation and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements.
Management believes those estimates and assumptions utilized in preparing the
financial statements are reasonable. Actual results could differ from these
estimates.
Nature of Operations - The operations of the Company are in the information
industry primarily providing optical disc manufacturing and distribution, for
specific customers primarily in North America and Europe, with a majority of
the customers under contract. The Company maintains three manufacturing, sales,
distribution and development facilities with sales offices located in eleven
different locations around the United States and Europe. The revenues from
product sales are recognized at the time the products are shipped. For software
development services, the Company recognizes profit using the percentage of
completion method, measured by the percentage of the cost of services completed
to date compared to total planned cost of services. Earned revenue is
determined on the basis of the profit recognized plus the contract costs
incurred during the period.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid
instruments such as certificates of deposit, time deposits, treasury notes and
other money market instruments which generally have maturities of less than
three months. The carrying amounts reported in the balance sheets approximate
fair value. The Company holds cash primarily in one financial institution.
Inventory - Inventory consists primarily of raw materials and spare parts and
is valued at the lower of cost or market with cost determined by the first-in,
first-out method.
Property, Plant and Equipment - Property, plant and equipment are recorded at
cost. The cost of maintenance and repairs is charged against results of
operations as incurred. Property, plant and equipment are depreciated using the
straight-line method over the estimated useful lives of the related assets
which range from three to thirty years. For income tax purposes, accelerated
methods are used for all eligible assets.
Goodwill - Goodwill represents the excess of cost over net assets acquired and
is being amortized using the straight-line method over periods ranging from 10
to 15 years. At September 12, 1998 goodwill increased $18,025,184 as part of
the purchase of Imation's Corporation CD-ROM business. The additional
$18,025,184 in goodwill, beginning in September, 1998, is being amortized using
the straight-line method through 2013. Accumulated amortization was $1,928,727
and $1,106,226 at December 31, 1998 and 1997, respectively.
At each balance sheet date, a determination is made by management to ascertain
whether goodwill has been impaired based on several criteria, including, but
not limited to, revenue trends, undiscounted operating cash flows and other
operating factors. For the years presented there has been no impairment of
goodwill.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which uses the liability method to calculate deferred income
taxes. This standard requires, among other things recognition of future tax
benefits, measured by enacted tax rates, attributable to deductible temporary
differences between the financial statement basis and income tax basis of
assets and liabilities and net operating loss carry forwards to the extent
realization is more likely than not.
<PAGE> 21
Advertising - The Company expenses advertising costs as incurred. Advertising
expense was $15,508, $26,963 and $197,440 for 1998, 1997 and 1996,
respectively.
Net Earnings Per Common Share - Basic net earnings per common share is computed
based on the weighted average number of common shares outstanding during the
period. Diluted net earnings per common share is computed similarly but
including the effect of stock options.
Comprehensive Income - In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income". This statement requires the reporting and
display of comprehensive income and its components for all years presented. The
Company had other comprehensive income related to foreign currency translation
adjustments of $32,963 in 1998.
Recently Issued Financial Accounting Standards - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which is effective for fiscal quarters of fiscal years beginning
after June 15, 1999. SFAS No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts.
Additionally, in March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and is effective for fiscal years beginning after
December 15, 1998.
The Company is presently evaluating the applicability of SFAS 133 and SOP 98-1
to its operations.
Reclassifications - Certain reclassifications have been made to the 1997 and
1996 financial statements to conform with the 1998 presentation.
2. BUSINESS COMBINATIONS
On September 11, 1998, Metatec purchased the CD-ROM services business assets of
Imation Corporation ("Imation") for $39.8 million, excluding professional
service fees, in a business combination accounted for under the purchase
method. Accordingly, the assets acquired were recorded at their fair values and
included goodwill of $18,025,184 which is being amortized over 15 years using
the straight-line method. The results of operations of the acquired entity have
been included in the accompanying financial statements from the date of
acquisition.
The asset purchase included Imation's plant operations in Fremont, California,
Breda; The Netherlands; and Menomonie, Wisconsin. The Menomonie plant
operations were transferred to Metatec's Dublin, Ohio, manufacturing plant by
the end of the fourth quarter of 1998 after completion of a transitional
operations period in Menomonie. A client services center providing customer and
technical support will be maintained in Menomonie.
The purchase price for the Imation assets was $39.8 million, which price is
subject to a post-closing adjustment based upon the closing date working
capital statement related to working capital assets transferred by Imation. The
Company financed the asset purchase through a $30.0 million term loan facility
and a portion of a $20.0 million revolving loan facility.
The pro forma results of operations of the Company for 1998 and 1997, assuming
the Imation acquisition occurred at the beginning of each period presented are
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net revenues $ 127,023,636 $ 110,815,634
Net Income 5,725,750 2,831,340
Basic net earnings per share 0.95 0.42
Diluted net earnings per share 0.94 0.39
</TABLE>
<PAGE> 22
Business realignment expenses of $825,975 were incurred during 1998. These
expenses primarily related to integration costs due to the Imation CD-ROM
services business acquisition and certain rent, utilities and labor expenses
associated with closing the acquired Wisconsin facility. Of these expenses,
$367,813 had been paid as of December 31, 1998.
3. RESTRUCTURING CHARGES
During 1997 the Company made a decision to exit its business of providing
publishing tools and software development services. As a result of this action
the company incurred restructuring charges of $206,000 primarily for severance
and termination benefits all of which were paid in 1997.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 2,579,787 $ 1,779,573
Buildings and improvements 18,098,312 18,085,187
Machinery and equipment 48,979,434 29,802,219
Furniture and fixtures 3,970,336 2,930,663
Computer equipment
and related software 7,436,858 5,784,275
Transportation equipment 35,465 28,665
Equipment installation
and building in progress 3,656,616 880,291
------------ ------------
Total 84,756,808 59,290,873
Less accumulated
depreciation (28,929,754) (20,661,867)
------------ ------------
Net property, plant
and equipment $ 55,827,054 $ 38,629,006
============ ============
</TABLE>
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Term Debt $ 30,000,000
Revolving line of credit 12,500,000 $ 4,500,000
Capital lease obligations 86,561 180,188
Less current maturities (3,080,185) (101,778)
------------ -----------
Long-term debt and capital
lease obligations $ 39,506,376 $ 4,578,410
============ ===========
</TABLE>
The Company has a Credit Facilities agreement with a bank that provides for
advances of $20,000,000 on a $20,000,000 revolving loan due September 10, 2003
of which $12,500,000
<PAGE> 23
was outstanding at December 31, 1998. In addition, this Credit Facilities
agreement includes a term loan which was issued in a single advance on
September 11, 1998 of $30,000,000. The term loan is to be repaid in
installments with the total balance due September 11, 2003. Borrowings under
the Credit Facilities bear interest, at the Company's option, at either the
federal funds rate plus 50 basis points or prime rate (whichever of the two are
higher) or the London Interbank Offered Rate (LIBOR) plus a margin based upon
the Company's debt coverage ratio (which ranges from not less than 75 basis
points to not more than 150 basis points). The interest rates on the borrowings
at December 31, 1998 ranged from 6.9% to 7.25%. The Credit Facilities are
secured by a first lien on all non-real estate business assets of the Company
and a pledge of the stock of the Company's subsidiaries. The Company is
required to comply with certain financial and other covenants.
At December 31, 1998, the Company had a $400,000 letter of credit outstanding
which had not been drawn upon before year end.
In January 1999, a $7,000,000 construction loan was put in place to finance the
distribution center being constructed. Borrowings under the construction loan
bear interest, at the Company's option, at either the prime rate or the LIBOR
rate plus 165 basis points. The construction loan contains an option to convert
the principal balance to a 20 year term loan, at various interest rate options.
The construction loan is secured by a mortgage in the real property, fixtures,
and improvements located at the Dublin, Ohio site.
The estimated fair value of the Company's long-term obligations approximated
their carrying amount at December 31, 1998, based on current market prices for
the same or similar issues.
6. LEASES
At December 31, 1998, the Company leases $507,135 of office equipment, with
related accumulated depreciation of $331,673, under non-cancelable capital
lease agreements expiring at various dates through 2000. Maintenance,
insurance, and tax expenses are the responsibility of the Company under the
agreements.
Operating lease expense was $1,865,688, $370,597 and $342,635 for 1998, 1997
and 1996, respectively.
The future annual minimum lease payments under all capital leases, together
with the present value of the minimum lease payments, and the future minimum
rental payments required under all operating leases that have initial or
remaining lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Year ending December 31: CAPITAL LEASES OPERATING LEASES
<S> <C> <C>
1999 81,581 2,041,715
2000 6,398 1,598,126
2001 1,198,072
2002 1,013,086
2003 662,464
Thereafter 660,242
----------- -----------
Total minimum lease payments 87,979 $ 7,173,705
===========
Less amount representing
interest (1,418)
-----------
Present value of net
minimum payments $ 86,561
===========
</TABLE>
<PAGE> 24
The Company is also the lessor of certain of its main office facilities to an
unrelated third party, under an operating lease which expires March 31, 1999.
Minimum future rentals under this lease to be received are approximately
$109,500.
7. COMMITMENTS AND CONTINGENCIES
Self-Insurance - The Company is self insured with respect to medical and dental
claims for United States employees. The Company has obtained stop-loss
insurance for claims in excess of $50,000 per individual per year and
$1,000,000 lifetime maximum per individual. The Company has recorded an
estimated liability for self-insured claims incurred but not reported at
December 31, 1998 and 1997 of $331,000 and $202,000, respectively. The Company
is also self insured with respect to short term disability claims.
Property, plant and equipment - The Company has commitments under contracts for
the purchase of property, plant and equipment. Portions of such contracts at
December 31, 1998 are not reflected in the consolidated financial statements.
These unrecorded commitments amounted to approximately $244,698 of outstanding
equipment purchase commitments and $5,124,776 of outstanding building
purchases.
8. INCOME TAXES
The components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal:
Current $ 600,000 $ 279,000 $ 511,000
Deferred 272,000 101,000 554,000
----------- ----------- -----------
Total Federal 872,000 380,000 1,065,000
----------- ----------- -----------
State and Local:
Current 160,000 78,000 105,000
Deferred 77,000 91,000 188,000
----------- ----------- -----------
Total State and Local 237,000 169,000 293,000
Foreign
Current 153,000
----------- ----------- -----------
Total $ 1,262,000 $ 549,000 $ 1,358,000
=========== =========== ===========
</TABLE>
Total earnings before income taxes in 1998 is comprised of $354,705 foreign
earnings and $2,330,064 domestic earnings. There were no foreign earnings in
1997 or 1996.
Significant differences between income taxes recorded for financial reporting
purposes and income taxes calculated using the Federal statutory rate of 34%
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Tax expense at statutory rate $ 913,000 $ 354,000 $ 1,155,000
State and local tax expense (benefit),
net of federal benefit 156,000 111,000 194,000
Non deductible goodwill 156,000 156,000 156,000
Other 37,000 (72,000) (147,000)
----------- --------- -----------
Total $ 1,262,000 $ 549,000 $ 1,358,000
=========== ========= ===========
</TABLE>
<PAGE> 25
Deferred income taxes recorded in the consolidated balance sheets at December
31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
State tax credit (expires 2001) $ 357,000 $ 222,000
AMT carryforwards (no expiration date) 36,000
Allowance for doubtful accounts 183,000 134,000
Net operating loss carryforwards 96,000 112,000
Inventory 105,000 90,000
Other 126,000 131,000
----------- -----------
Total deferred tax assets 867,000 725,000
----------- -----------
Deferred tax liabilities:
Depreciation 1,908,000 1,684,000
Other 296,000 29,000
----------- -----------
Total deferred tax liabilities 2,204,000 1,713,000
----------- -----------
Net deferred tax (liability) $(1,337,000) $ (988,000)
=========== ===========
</TABLE>
The Company has available net operating loss carry forwards for tax purposes of
approximately $216,000 which expire in 2005 which may only be used to offset
future taxable income of Metatec/Discovery Systems, Inc. (a wholly-owned
subsidiary of the Company).
Based on management's projection of income the Company will more likely than
not realize such benefits of such state tax credits.
9. BENEFIT PLANS
Substantially all U.S. associates are enrolled in a Company-sponsored defined
contribution plan established under Section 401(k) of the Internal Revenue
Code. The Company's contribution under the plan was approximately $284,100,
$170,300 and $170,700 for 1998, 1997 and 1996, respectively. During 1998, the
Company increased it's contribution to 75% of the associate's contribution up
to a maximum of 3.75% of the associate's annual compensation. The funds are
invested in mutual funds.
The company initiated a discretionary common stock award program for employees
during 1996. The value of the 1997 and 1996 stock awards was $31,480 and
$20,775, respectively. The program was discontinued at the end of 1997.
The company initiated a performance sharing plan (Open Book Management Plan)
for employees during 1998. All employees are eligible for this plan after a six
month waiting period. Each employee is assigned points at the beginning of the
year, and these points pay quarterly bonuses based on actual results as
compared to planned results. The Company recorded $1,106,756 in performance
sharing bonuses earned for 1998, of which $438,293 was paid as of December 31,
1998.
10. STOCK OPTION PLANS
In 1992, the Company established a Directors' Stock Option Plan under which a
maximum of 210,000 Common Shares may be issued. This Plan, as amended,
automatically grants 2,500 options to each non-employee director on the day
after the Company's annual meeting of shareholders. These options are fully
vested on the grant date. In addition, for each non-employee director, when
they first become a director, the Plan automatically grants 10,000 one
<PAGE> 26
time options. This one time option vests in equal installments over a four year
period. As of December 31, 1998, there have been 164,925 options granted of
which 30,080 were forfeited, 22,345 were exercised and 102,500 are exercisable.
The option price of shares subject to an option for the Directors' Stock Option
Plans is the fair market value of the shares at the time the option is granted.
No options issued are exercisable after five years from the date of grant.
The Company established the 1990 Stock Option Plan under which a maximum of
1,610,000 Common Shares may be issued. 600,000 of these options are subject to
shareholder approval at the Company's next annual meeting. This Plan, as
amended, is available to officers and key employees of the Company or its
subsidiary corporations and, in the case of non-qualified options, directors of
subsidiaries of the Company (other than directors of such subsidiaries who are
also directors of the Company). As of December 31, 1998, there have been
1,987,550 options granted of which 770,400 were forfeited, 267,575 were
exercised and 408,300 are exercisable.
In February 1997, the Compensation Committee, which administers the plan,
approved a stock option exchange program for employees holding options
previously granted under the 1990 Stock Option Plan. Under this program,
employees were given the opportunity to exchange their options having exercise
prices above the then-current fair market value for the Company's common shares
(which was $4.38 at that time) for new options having an exercise price equal
to such current fair market value. However, all new options would be subject to
a four-year vesting schedule in which an equal number of options would vest
each year. The stock option exchange was contingent upon the grantee of the new
option terminating, effective as of the grant date, existing options for the
same number of common shares. Under this stock option exchange program, a total
of 350,000 new options were granted at an exercise price of $4.38 (subject to
the above-described vesting schedule), and the same number of existing options
were terminated.
The Company's Compensation Committee has the authority to grant incentive
options and non-qualified options. Only officers and other key employees of the
Company or its subsidiary corporations are eligible for grants of incentive
options.
At December 31, 1998, no incentive options had been granted. Both incentive and
non-qualified options vest over a period of from one to four years from the
date of grant, and are not exercisable after 10 years from the date of grant.
The option price of both incentive options and non-qualified options is equal
to the fair market value of the shares at the time the options are granted.
The following summarizes all stock option transactions from January 1, 1996
through December 31, 1998:
<TABLE>
<CAPTION>
Per Share Weighted Average
Shares Option Price Exercise Price
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 405,477 $1.50 to $11.50 $ 8.29
Granted 268,100 $6.63 to $12.88 $ 9.96
Exercised (15,961) $1.50 to $11.50 $ 7.10
Terminated (11,750) $9.37 to $11.50 $10.58
---------
Outstanding at December 31, 1996 645,866 $1.50 to $12.88 $ 8.97
Granted 806,000 $4.13 to $ 6.00 $ 5.19
Exercised (28,711) $1.75 to $ 5.50 $ 4.55
Terminated (520,000) $4.38 to $11.50 $ 9.03
---------
Outstanding at December 31, 1997 903,155 $1.50 to $12.88 $ 5.70
Granted 412,200 $3.88 to $ 6.13 $ 4.96
Exercised (45,000) $1.50 to $ 1.75 $ 1.57
Terminated (208,280) $4.25 to $12.88 $ 5.77
---------
Outstanding at December 31, 1998 1,062,075 $1.50 to $12.88 $ 5.58
=========
</TABLE>
<PAGE> 27
The following presents information for common shares exercisable as of December
31:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted Average Exercise Price $ 6.35 $ 6.68 $ 8.80
======= ======= =======
Common Shares Exercisable 510,800 186,455 546,216
======= ======= =======
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
<S> <C> <C> <C> <C> <C> <C>
$ 1.50 - $ 1.75 22,500 1.8 $ 1.56 22,500 $ 1.56
$ 3.50 - $ 4.38 340,100 8.4 $ 4.19 84,525 $ 4.24
$ 5.13 - $ 6.00 605,700 8.9 $ 5.67 312,500 $ 6.00
$ 6.13 - $11.00 32,775 2.5 $ 9.13 30,275 $ 8.97
$11.25 - $12.88 61,000 0.4 $11.52 61,000 $11.52
--------- -------
1,062,075 $ 5.58 510,800 $ 6.35
========= =======
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and 1996
were $4.96, $4.03 and $5.42, respectively.
At December 31, 1998, 510,800 common shares under option were exercisable and
75,155 and 392,850 common shares (total of 468,005) were reserved for future
grant under the 1992 Directors' Stock Option Plan and the 1990 Stock Option
Plan, respectively.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its stock option plans. Had compensation costs for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of FASB Statement No. 123, the Company's net earnings and net earnings
per common share, net of related income tax benefits, would have resulted in
the amounts as reported below. In determining the estimated fair value of each
option granted on the date of grant, the Company uses the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in the years ended December 31, 1998, 1997 and 1996, respectively:
dividend yield of 0%; expected volatility of 61%, 56% and 49%; risk-free
interest rates of 6.4%, and expected life of 6 years.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net earnings -
As reported $ 1,422,769 $ 491,534 $ 2,040,728
Pro forma $ 810,441 $ (661,075) $ 1,186,304
Earnings per share -
As reported
Basic $ 0.23 $ 0.07 $ 0.29
Diluted $ 0.23 $ 0.07 $ 0.29
Pro forma -
Basic $ 0.13 $ (0.10) $ 0.17
Diluted $ 0.13 $ (0.09) $ 0.17
</TABLE>
<PAGE> 28
The pro forma amounts are not representative of the effects on reported net
earnings or earnings per common share for future years.
11. RELATED PARTY TRANSACTIONS
In 1996, the Company purchased, for cash, real estate from a partnership in
which an officer/shareholder of the Company is a partner. The tract of land
acquired included approximately five acres and the purchase price totaled
approximately $485,000. The land which is adjacent to the existing
manufacturing facility, is currently being utilized for the distribution center
expansion, described above.
12. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
In June 1997 the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). The new rules establish revised standards for public companies
relating to the reporting of financial information about operating segments. In
accordance with SFAS 131, the Company has determined that it has one reportable
segment. However, the Company does operate in two primary geographic areas.
Revenues are attributed to specific geographical areas based on origin of order
generation. Geographic information for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1998 U.S. EUROPE
- ---- ---- ------
<S> <C> <C>
Sales $ 76,630,600 $ 4,288,528
Long-lived assets $ 69,634,124 $ 6,646,296
1997
Sales $ 48,933,634 $ 0
Long-lived assets $ 41,879,689 $ 0
1996
Sales $ 46,150,105 $ 0
Long-lived assets $ 41,484,808 $ 0
</TABLE>
The Company had one customer that accounted for approximately 11.5% of net
sales in 1996; no other customer accounted for greater than 10% of net sales
for any of the three years in the period ended December 31, 1998.
13. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1998
Net Sales $14,717,057 $14,085,060 $18,981,471 $33,135,540
Gross Profit 4,886,682 4,886,899 5,490,248 8,378,908
Net Earnings 578,069 475,676 179,534 189,490
Net Earnings per
common share:
Basic $ 0.09 $ 0.08 $ 0.03 $ 0.03
Diluted $ 0.09 $ 0.08 $ 0.03 $ 0.03
1997
Net Sales $11,678,574 $12,007,932 $11,890,865 $13,356,263
Gross Profit 3,625,987 3,991,610 3,402,072 4,098,174
Net Earnings (204,011) 367,528 51,735 276,282
Net Earnings per
common share:
Basic $ (0.03) $ 0.05 $ 0.01 $ 0.04
Diluted $ (0.03) $ 0.05 $ 0.01 $ 0.04
</TABLE>
To the Board of Directors and Shareholders of Metatec Corporation:
We have audited the accompanying consolidated balance sheets of Metatec
Corporation and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Metatec Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 25, 1999
Columbus, Ohio
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information required under this Item with respect to directors is
contained in the Company's proxy statement which was filed with the Securities
and Exchange Commission on March 22, 1999, and is hereby incorporated herein by
reference. Information regarding the executive officers of the Company may be
found under the caption "Executive Officers of the Company" in Part I and is
also incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 22, 1999, and is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is contained in the Company's
proxy statement which was filed with the Securities and Exchange Commission on
March 22, 1999, and is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements of the Company are included
in Item 8:
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Earnings for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
<PAGE> 30
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following independent auditors' report and financial
statement schedule for the years ended December 31, 1998, 1997
and 1996 are included in this report following the signatures
and should be read in conjunction with the Consolidated
Financial Statements included in Item 8:
Independent Auditors' Report on Financial Statement Schedule
Schedule II - Consolidated Valuation and Qualifying Accounts
and Reserves
All other financial statement schedules have been omitted
because they are not applicable or the required information is
included in the Company's consolidated financial statements or
notes thereto.
(a)(3) LISTING OF EXHIBITS
<PAGE> 31
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
2 Asset Purchase Agreement dated July Current Report on Form 8-K dated
29, 1998, among Metatec Corporation, September 11, 1998 (See Exhibit 2
Metatec Acquisition Corp., Metatec therein).
International B.V., Imation Corp.,
Imation International B.V., and
Imation Enterprises Corp.
3(a) Amended and Restated Amendment No. 2 to Registration
Articles of Incorporation Statement on Form S-1, File No.
of Metatec Corporation 33-60878 (see Exhibit 3(a) therein).
3(b) Amended and Restated By-laws Registration Statement on Form S-1,
of Metatec Corporation File No. 33-60878 (see Exhibit 3(d)
therein).
4 Form of Share Certificate Amendment No. 2 to Registration
Statement on Form S-1, File No.
33-60878 (see Exhibit 4 therein).
10(a)* Metatec Corporation 1990 Directors' Registration Statement on Form S-8,
Stock Option Plan and Amendment No. 1 File No. 33-48021 (see Exhibit 4(d)
thereto therein).
10(b)* Amended and Restated Employment Annual Report on Form 10-K for the
Agreement dated March 23, 1993, fiscal year ended December 31, 1992
between Metatec Corporation and (See Exhibit 10(h) therein).
Jeffrey M. Wilkins
10(c)* First Amendment to Amended and Annual Report on Form 10-K for the
Restated Employment Agreement dated fiscal year ended December 31, 1995
March 21, 1996, between Metatec (See Exhibit 10(c) therein).
Corporation and Jeffrey M. Wilkins
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(d)* Second Amendment to Amended and Contained herein.
Restated Employment Agreement dated
February 17, 1999, between Metatec
Corporation and Jeffrey M. Wilkins
10(e)* Metatec Corporation 1990 Stock Option Annual Report on Form 10-K for the
Plan fiscal year ended December 31, 1991
(see Exhibit 10(k) therein).
10(f)* Amendment No. 1 to Metatec Corporation Registration Statement on Form S-8,
1990 Stock Option Plan File No. 33-48022 (see Exhibit 4(d)
therein).
10(g)* Amendment No. 2 to Metatec Corporation Annual Report on Form 10-K for the
1990 Stock Option Plan fiscal year ended December 31, 1992
(see Exhibit 10(k) therein).
10(h)* Amendment No. 3 to Metatec Corporation Annual Report on Form 10-K for the
1990 Stock Option Plan fiscal year ended December 31, 1993
(see Exhibit 10(g) therein).
10(i)* Amendment No. 4 to Metatec Corporation Annual Report on Form 10-K for the
1990 Stock Option Plan fiscal year ended December 31, 1995
(See Exhibit 10(h) therein).
10(j)* Amendment No. 5 to Metatec Corporation Annual Report on Form 10-K for the
1990 Stock Option Plan fiscal year ended December 31, 1997
(See Exhibit 10(I) therein).
10(k)* Metatec Corporation 1992 Directors' Registration Statement on Form S-8,
Stock Option Plan File No. 33-5200 (see Exhibit 4(c)
therein).
10(l)* Amendment No. 1 to Metatec Corporation Annual Report on Form 10-K for the
1992 Directors' Stock Option Plan fiscal year ended December 31, 1993
(see Exhibit 10(i) therein).
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(m)* Amendment No. 2 to Metatec Corporation Annual Report on Form 10-K for the
1992 Directors' Stock Option Plan fiscal year ended December 31, 1995
(see Exhibit 10(k) therein).
10(n)* Amendment No. 3 to Metatec Corporation Annual Report on Form 10-K for the
1992 Directors' Stock Option Plan fiscal year ended December 31, 1995
(see Exhibit 10(i) therein).
10(o)* Amendment No. 4 to Metatec Corporation Annual Report on Form 10-K for the
1992 Directors' Stock Option Plan fiscal year ended December 31, 1996
(see Exhibit 10(m) therein).
10(p)* Metatec Corporation Open Book Contained herein.
Management Plan
10(q)* Metatec Corporation Directors Deferred Annual Report on Form 10-K for the
Compensation Plan fiscal year ended December 31, 1997
(see Exhibit 10(p) therein).
10(r) Form of Indemnification Agreement Annual Report on Form 10-K for the
between Metatec Corporation and each fiscal year ended December 31, 1992
of its officers and directors (see Exhibit 10(q) therein).
10(s) Patent License Agreement for Disc Amendment No. 1 to Registration
Products dated July 1, 1986, between Statement on Form S-1, File No.
Metatec/ Discovery Systems, Inc. and 33-60878 (see Exhibit 10(t) therein).
Discovision Associates
10(t) CD Disc License Agreement dated Amendment No. 1 to
January 1, 1986, between U.S. Registration Statement on
Philips Corporation and Form S-1, File No. 33-60878 (see
Metatec/ Discovery Systems, Inc. Exhibit 10(u) therein).
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
10(u) Optical Disc Corporation NPR Amendment No. 1 to
Technology License Agreement between Registration Statement on
Optical Disc Corp-oration and Form S-1, File No. 33-60878 (see
Metatec/Discovery Systems effective Exhibit 10(v) therein).
March 2, 1992
10(v) Loan Agreement dated September 11, Current Report on Form 8-K dated
1998, among Metatec Corporation, Bank September 11, 1998 (See Exhibit 10(a)
One, NA, The Huntington National Bank, therein).
other financial institutions from time
to time a party thereto, as banks, and
The Huntington National Bank, as
administrative agent for the banks.
10(w) Construction Loan Agreement dated Contained herein.
January 15, 1999, between The
Huntington National Bank and Metatec
Corporation
21 Subsidiaries of Metatec Contained herein.
Corporation
23 Consent of Deloitte & Touche LLP Contained herein.
24(a) Powers of Attorney for Peter J. Kight Annual Report on Form 10-K for the
and A. Grant Bowen fiscal year ended December 31, 1994
(see Exhibit 24 therein).
24(b) Powers of Attorney for Jerry D. Miller Annual Report on Form 10-K for the
fiscal year ended December 31, 1993
(see Exhibit 24 therein).
24(c) Power of Attorney for James V. Pickett Annual Report on Form 10-K for the
fiscal year ended December 31, 1995
(see Exhibit 24(c) therein).
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
24(d) Power of Attorney for Joseph F. Annual Report on Form 10-K for the
Keeler, Jr. fiscal year ended December 31, 1997
(see Exhibit 24(d) therein).
27 Financial Data Schedule Contained herein.
</TABLE>
*Executive compensation plans and arrangements required to be filed pursuant to
Item 601(b)(10) of Regulation S-K.
(b) REPORTS ON FORM 8-K
On November 25, 1998, the Company filed a Form 8-K/A (dated
November 25, 1998) amending its Form 8-K (dated September 11,
1998) filed on September 29, 1998. The Form 8-K (dated
September 11, 1998) reported under Item 2 the completion of
the Company's purchase of the CD-ROM services business assets
of Imation Corporation (the "Acquired Business"). The Form
8-K/A (dated November 25, 1998) reported under Item 7 and
included: (i) the audited balance sheets of the Acquired
Business as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years
in the period ended December 31, 1997; (ii) the unaudited
balance sheet of the Acquired Business as of June 30, 1998,
and the statements of operations for the six-month periods
ended June 30, 1998 and 1997; and (iii) the unaudited
condensed pro forma combined balance sheet of the Company and
the Acquired Business at June 30, 1998, and the combined
statements of earnings for the year ended December 31, 1997
and the six-month period ended June 30, 1998.
(c) EXHIBITS
The exhibits in response to this portion of Item 14 are
submitted following the signatures.
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule and the independent auditors'
report thereon are submitted following the signatures.
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
METATEC CORPORATION
Date: March 30, 1999 By /s/ Jeffrey M. Wilkins
-------------------------------------------
Jeffrey M. Wilkins, Chairman of the Board
President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey M. Wilkins Chairman of the Board, March 30, 1999
- ------------------------------------ Chief Executive Officer
Jeffrey M. Wilkins (principal executive
officer) and Director
/s/ Julia A. Pollner Senior Vice President, Finance, March 30, 1999
- ------------------------------------ Secretary, and Treasurer
Julia A. Pollner (principal financial officer
and principal accounting officer)
Peter J. Kight* Director March 30, 1999
- ------------------------------------
Peter J. Kight
Jerry D. Miller* Director March 30, 1999
- ------------------------------------
Jerry D. Miller
A. Grant Bowen* Director March 30, 1999
- ------------------------------------
A. Grant Bowen
James V. Pickett* Director March 30, 1999
- ------------------------------------
James V. Pickett
Joseph F. Keeler, Jr.* Director March 30, 1999
- ---------------------------------
Joseph F. Keeler, Jr.
</TABLE>
*Jeffrey M. Wilkins, by signing his name hereto, does sign this
document on behalf of the person indicated above pursuant to a Power of Attorney
duly executed by such person.
By /s/ Jeffrey M. Wilkins March 30, 1999
-----------------------------------------
Jeffrey M. Wilkins, Attorney In Fact
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec Corporation:
We have audited the consolidated financial statements of Metatec Corporation and
subsidiaries as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
February 25, 1999; such report is included elsewhere in this Form 10-K. Our
audits also included the consolidated financial statement schedule of Metatec
Corporation and subsidiaries listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 29, 1999
Columbus, Ohio
<PAGE> 38
METATEC CORPORATION AND SUBSIDIARIES
SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-----------------------------
Balance at Charged to Charged to Balance At
Beginning of Costs and Other End Of
Description Year Expenses Accounts Deductions(A) Year
<S> <C> <C> <C> <C>
1998
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE $301,000 $260,000 $71,000 $490,000
======== ======== ======= ========
1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE $321,000 $7,000 $27,000 $301,000
======== ====== ======= ========
1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE $338,000 $124,382 $141,382 $321,000
======== ======== ======== ========
(A) Amount represents uncollectible accounts written off.
</TABLE>
<PAGE> 39
EXHIBIT INDEX
<PAGE> 40
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------
<S> <C> <C>
2 Asset Purchase Agreement dated July Current Report on Form 8-K dated September 11,
29, 1998, among Metatec Corporation, 1998 (See Exhibit 2 therein).
Metatec Acquisition Corp., Metatec
International B.V., Imation Corp.,
Imation International B.V., and
Imation Enterprises Corp.
3(a) Amended and Restated Amendment No. 2 to Registration Statement on
Articles of Incorporation Form S-1, File No. 33-60878 (see Exhibit 3(a)
of Metatec Corporation therein).
3(b) Amended and Restated By-laws Registration Statement on Form S-1, File No.
of Metatec Corporation 33-60878 (see Exhibit 3(d) therein).
4 Form of Share Certificate Amendment No. 2 to Registration
Statement on Form S-1, File No.
33-60878 (see Exhibit 4 therein).
10(a) Metatec Corporation 1990 Directors' Registration Statement on Form S-8, File No.
Stock Option Plan and Amendment No. 1 33-48021 (see Exhibit 4(d) therein).
thereto
10(b) Amended and Restated Employment Annual Report on Form 10-K for the fiscal year
Agreement dated March 23, 1993, ended December 31, 1992 (See Exhibit 10(h)
between Metatec Corporation and therein).
Jeffrey M. Wilkins
10(c) First Amendment to Amended and Annual Report on Form 10-K for the fiscal year
Restated Employment Agreement dated ended December 31, 1995 (See Exhibit 10(c)
March 21, 1996, between Metatec therein).
Corporation and Jeffrey M. Wilkins
10(d) Second Amendment to Amended and Contained herein.
Restated Employment Agreement dated
February 17, 1999, between Metatec
Corporation and Jeffrey M. Wilkins
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C>
10(e) Metatec Corporation 1990 Stock Option Annual Report on Form 10-K for the fiscal year
Plan ended December 31, 1991 (see Exhibit 10(k)
therein).
10(f) Amendment No. 1 to Metatec Corporation Registration Statement on Form S-8, File No.
1990 Stock Option Plan 33-48022 (see Exhibit 4(d) therein).
10(g) Amendment No. 2 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1992 (see Exhibit 10(k)
therein).
10(h) Amendment No. 3 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1993 (see Exhibit 10(g)
therein).
10(i) Amendment No. 4 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1995 (See Exhibit 10(h)
therein).
10(j) Amendment No. 5 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1997 (See Exhibit 10(I)
therein).
10(k) Metatec Corporation 1992 Directors' Registration Statement on Form S-8, File No.
Stock Option Plan 33-5200 (see Exhibit 4(c) therein).
10(l) Amendment No. 1 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1993 (see Exhibit 10(i)
therein).
10(m) Amendment No. 2 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1995 (see Exhibit 10(k)
therein).
10(n) Amendment No. 3 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1995 (see Exhibit 10(i)
therein).
10(o) Amendment No. 4 to Metatec Corporation Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1996 (see Exhibit 10(m)
therein).
10(p) Metatec Corporation Open Book Contained herein.
Management Plan
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C>
10(q) Metatec Corporation Directors Deferred Annual Report on Form 10-K for the fiscal year
Compensation Plan ended December 31, 1997 (see Exhibit 10(p)
therein).
10(r) Form of Indemnification Agreement Annual Report on Form 10-K for the fiscal year
between Metatec Corporation and each ended December 31, 1992 (see Exhibit 10(q)
of its officers and directors therein).
10(s) Patent License Agreement for Disc Amendment No. 1 to Registration
Products dated July 1, 1986, between Statement on Form S-1, File No. 33-60878 (see
Metatec/ Discovery Systems, Inc. and Exhibit 10(t) therein).
Discovision Associates
10(t) CD Disc License Agreement dated Amendment No. 1 to Registration
January 1, 1986, between U.S. Statement on Form S-1, File No. 33-60878 (see
Philips Corporation and Exhibit 10(u) therein).
Metatec/ Discovery Systems, Inc.
10(u) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement between Statement on Form S-1, File No. 33-60878 (see
Optical Disc Corporation and Exhibit 10(v) therein).
Metatec/Discovery Systems effective
March 2, 1992
10(v) Loan Agreement dated September 11, Current Report on Form 8-K dated September 11, 1998,
among Metatec Corporation, Bank 1998 (See Exhibit 10(a) therein).
One, NA, The Huntington National Bank,
other financial institutions from time
to time a party thereto, as banks, and
The Huntington National Bank, as
administrative agent for the banks
10(w) Construction Loan Agreement dated Contained herein.
January 15, 1999, between The
Huntington National Bank and Metatec
Corporation
21 Subsidiaries of Metatec Contained herein.
Corporation
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C>
23 Consent of Deloitte & Touche LLP Contained herein.
24(a) Powers of Attorney for Peter J. Kight Annual Report on Form 10-K for the fiscal year
and A. Grant Bowen ended December 31, 1994 (see Exhibit 24
therein).
24(b) Powers of Attorney for Jerry D. Miller Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (see Exhibit 24
therein).
24(c) Power of Attorney for James V. Pickett Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (see Exhibit 24(c)
therein).
24(d) Power of Attorney for Joseph F. Annual Report on Form 10-K for the fiscal year
Keeler, Jr. ended December 31, 1997 (see Exhibit 24(d)
therein).
27 Financial Data Schedule Contained herein.
</TABLE>
<PAGE> 1
EXHIBIT 10(d)
SECOND AMENDMENT TO AMENDED AND
RESTATED EMPLOYMENT AGREEMENT
This is an amendment made effective February 17, 1999, to the Amended
and Restated Employment Agreement dated March 23, 1993 (the "Original
Agreement") between Metatec Corporation, a Florida corporation (the "Company"),
and Jeffrey M. Wilkins ("Mr. Wilkins"), as amended by the First Amendment To
Amended and Restated Employment Agreement dated March 21, 1996 between the
Company and Mr. Wilkins (the "First Amendment", and together with the Original
Agreement, the "Agreement"). The Company and Mr. Wilkins hereby agree as
follows:
Section 1. Board Committee Authorization. For purposes of
clarification, and without limiting any provision of the Agreement, the
authority of the Company's board of directors under the Agreement may be
exercised by any duly designated committee of the board.
Section 2. Incentive Bonus Plan. Section 6 of the Original Agreement
and Section 1 of the First Amendment are hereby deleted from the Original
Agreement and the First Amendment, respectively, in their entirety, and no
bonuses shall be payable under those provisions for any period after December
31, 1998.
Beginning with calendar year 1999 and for each calendar year
thereafter, the Company shall pay to Mr. Wilkins an annual bonus (the "Incentive
bonus") based upon the amount of the Pre-Tax Profit (defined below) for the
applicable calendar year, with the amount of the Incentive Bonus calculated as
follows:
(a) For calendar year 1999, the Incentive Bonus shall be an
amount equal to 5% of the Pre-Tax Profit that year, up to a maximum of
$7.5 million of Pre-Tax Profit (the "Threshold"), plus 2.5% of any
Pre-Tax Profit that year in excess of the Threshold.
(b) For calendar year 2000, the Incentive Bonus shall be an
amount equal to 4% of the Pre-Tax Profit that year, up to the
Threshold, plus 2.5% of any Pre-Tax Profit that year in excess of the
Threshold.
(c) For calendar year 2001, the Incentive Bonus shall be an
amount equal to 3% of the Pre-Tax Profit that year, up to the
Threshold, plus 2.5% of any Pre-Tax Profit that year in excess of the
Threshold.
(d) For calendar year 2002 and each calendar year thereafter,
the Incentive Bonus shall be an amount equal to 2.5% of the Pre-Tax
Profit for the applicable calendar year.
Each annual Incentive Bonus shall be payable in quarterly installments,
based upon calendar quarters, with each quarterly installment to be in an amount
equal to the result obtained when (i) the Pre-Tax Profit for that calendar
quarter and all prior calendar quarters is multiplied by the percentage or
percentages applicable to such Pre-Tax Profit under the preceding provisions of
this section, and (ii) the result is reduced by the aggregate amount of all
Incentive Bonus installment payments previously made with respect to that
calendar year; provided that if Mr. Wilkins receives Incentive Bonus installment
payments for any or all of the first three calendar quarters in any calendar
year in an aggregate amount
<PAGE> 2
which exceeds the annual Incentive Bonus payable for that calendar year, then
the Company shall have the right to offset such excess against the amounts next
payable by the Company under the Agreement until such excess is fully recovered
by the Company or, if such offsets are insufficient to permit the recovery of
such excess, require Mr. Wilkins to repay the unrecovered portion of such excess
promptly following the Company's request.
The Incentive Bonus installment payments for the first three calendar
quarters of each calendar year shall be paid not later than 30 days after the
applicable calendar quarter, and the final Incentive Bonus installment payment,
if any, for each calendar year shall be payable not later than 90 days after the
end of that calendar year.
The obligation of the Company to pay Incentive Bonuses shall continue
with respect to the three calendar years of the Company ending after the date of
termination of Mr. Wilkins' employment under the Agreement, including without
limitation termination in the event of Mr. Wilkins' death or Long-Term
Disability or termination by Mr. Wilkins for Good Reason under Section 10(c) of
the Agreement (as those terms are defined in the Agreement), unless such
termination is a result of a voluntary termination by Mr. Wilkins other than for
Good Reason under Section 10(c) of the Agreement or a termination by the Company
for Cause under Section 10(b) of the Agreement (as those terms are defined in
the Agreement).
For purposes of this amendment and the Agreement, the term "Pre-Tax
Profit" for any period shall mean the net pre-tax profit of the Company for such
period, determined on a consolidated basis in accordance with generally accepted
accounting principles, consistently applied, before deducting (A) any amounts
payable for any federal, state, or local taxes based upon or measured by income,
and (B) any amounts paid or payable to Mr. Wilkins under this section.
Section 3. Construction. In the event of any inconsistency between the
provisions of this amendment and the Agreement, the provisions of this amendment
shall control. Except as modified by this amendment, the Agreement shall
continue in full force and effect with change.
METATEC CORPORATION
By /s/ Julia A. Pollner
---------------------------------------------
Julia A. Pollner, Vice President, Finance
/s/ Jeffrey M. Wilkins
---------------------------------------------
JEFFREY M. WILKINS
<PAGE> 1
EXHIBIT 10(p)
METATEC CORPORATION OPEN BOOK MANAGEMENT PLAN
WHAT IS OPEN BOOK Open Book Management is a way of
MANAGEMENT? operating and growing a business that
involves a company's associates in its
financial operations; allowing them to
think, feel, and act like owners.
Important numbers from the company's
operations including the annual plan,
income statement and balance sheet are
shared, allowing associates to understand
and affect business performance. In
addition, through a Performance Sharing
system, associates have a stake in the
outcome of the business. With Open Book
Management, people are expected to have
greater influence over the future
performance of their company and
therefore their own career opportunities.
Open Book Management Open Book Management at Metatec is
At Metatec designed to make the numbers of Metatec
our business understandable, give
everyone a stake in the results and
essentially make every associate a member
of a high performance team; a team that
delivers "great performance." It is our
intent that associates see themselves as
partners in the business and teammates
with all other associates. As teammates
and partners in Metatec, expected to help
run the business as part of their daily
responsibilities, everyone needs to
understand what the business is all
about. In order to understand and help
influence profitable business growth,
associates receive the company's
financial information so that they can
evaluate, understand and act on it.
Regular team meetings take place all
across the company to communicate this
information and to solicit feedback. The
meetings follow a monthly "Scorecard
Meeting" where people with operational
responsibilities update revenue and
expense forecasts. This allows income and
expense adjustments to be made quickly,
thereby keeping the business on track and
identifying opportunities for improving
performance.
Performance Sharing An important part of Open Book Management
is providing teammates with a stake in
the outcome. At Metatec, this program is
called "Performance Sharing." The program
financially rewards Metatec associates
for helping achieve the company's
financial goals. It emphasizes
achievement of an annual financial plan
for the company ("The Fixed Plan") and
provides a financial reward for meeting
operating goals. The Performance Sharing
program is based upon points assigned to
associates on an annual basis. The value
of points is directly related to the
financial performance of the company
relative to
<PAGE> 2
the annual plan and is frequently updated
and communicated to all associates.
Each Scorecard Meeting includes a
projection for the value of a Performance
Sharing point for the current quarter.
All eligible associates are assigned a
number of points and can calculate the
amount of Performance Sharing that they
can receive for that quarter. After the
end of the quarter, payments are made
equal to the number of points held times
the value per point for the quarter. A
maximum percentage of the Performance
Sharing is paid out in any given quarter
equal to the percentage of the annual
plan earnings expected to that date. If
results fall short of plan in any
quarter, but results for the year meet or
exceed plan, the entire amount of the
Performance Sharing may be earned.
Associates are eligible to participate in
the Performance Sharing system starting
with the first full quarter following the
end of their initial six months of
employment. An associate must be with the
company for the entire quarter to receive
a Performance Sharing payment for that
quarter. Performance Sharing points are
assigned based upon classification of the
job held by the associate.
Terminology Open Book Management uses certain words
and phrases to describe various program
elements. Here are just a few:
The Scorecard - A breakdown of the
revenue and expense forecast for the
current and next two months, updated on a
monthly basis. The Scorecard also
determines the value of points for the
Performance Sharing program.
The Scorecard Meeting - A monthly meeting
held to update revenue and expense
forecasts for the current month and next
two months, explain significant
variances, review previous month's
performance, share success stories, and
discuss upcoming events.
Team Scorecard Meeting - A monthly
meeting held at the department or work
unit level to review the Scorecard and
discuss departmental and company issues.
Scorecard Line Item Owners - The global
team that meets monthly to update the
Scorecard and discuss current business
issues. Each member of the team is
responsible for forecasting a particular
section of the company's revenues or
expenses.
Performance Sharing - A program to give
teammates a stake in the outcome of the
business.
<PAGE> 3
Critical Numbers - The numbers that
determine a company's success. When they
move in the right direction, a company is
on the right track toward achieving its
objectives. Metatec's critical number in
1999 is operating profit before
performance sharing expense.
The Annual Plan - A plan developed and
finalized each year by the executive
management team of the company. The
overall consideration in the formulation
of the plan is the performance necessary
to assure adequate access to growth
capital, to earn and maintain equity
market confidence, to assure adequate and
steady stock price growth and to generate
capital for growth and diversification.
The Guidelines - Refers to the Official
Guidelines for Tracking Company Stock and
Handling "Insider" Information. The
Guidelines include details of the policy
which govern current and former
associates regarding buying, selling or
trading company securities and the
non-disclosure of material information.
Certification - A letter signed by
associates who wish to participate in the
Performance Sharing program saying they
understand and agree to comply with the
guidelines.
Compliance - A compliance letter signed
by associates who wish to participate in
the Performance Sharing program saying
they have complied with and will continue
to comply with the guidelines.
Material Information - Any information
that an investor would consider important
in a decision to buy, hold, or sell
stock. Examples of such information would
include projections of future earnings,
news of a major pending transaction, gain
or loss of a customer and development of
a major new product or service.
Public Information - Material information
about a company made public through a
widely disseminated public announcement.
Scorecard Terminology Revenue - Sales dollars generated by
billing clients for jobs shipped during
that month.
COPS - Stands for the Cost of Product
Sold, which is all the costs directly
incurred in order to produce, package and
ship the jobs.
<PAGE> 4
COPS is divided into two categories: 1)
Cost Centers, and 2) Unallocated COPS.
Cost Centers - The expenses generated by
individual departments as they produce
products (i.e. Wages, benefits,
maintenance, etc.).
Unallocated COPS - Includes general
expenses associated with making a
product, such as polycarbonate, ink
royalties and freight.
Gross Profit - Revenue minus COPS.
SG&A - Stands for Sales, General and
Administrative expenses. These include
indirect expenses incurred by the
organization in making the product.
SG&A is divided into two categories: 1)
Direct SG&A, and 2) Corporate SG&A.
Direct SG&A - Includes expenses incurred
specifically because we sell the product
(i.e. sales, product management, customer
support).
Corporate SG&A - Includes all other
departments that support the organization
(i.e. OD, IS, Accounting).
Operating Profit - Gross Profit minus
Total SG&A.
Other Income & Expenses - Includes
additions and subtractions of items not
directly associated with operations (i.e.
interest expense, income from rent,
etc.).
Operating Profit Before Performance
Sharing - The profit before we pay
Performance Sharing. THIS IS THE KEY
NUMBER.
Performance Sharing What it is
Program Description
An essential part of the company's Open
Book Management system is giving
associates a stake in the outcome. In
1999, the rewards of the company's
success will be shared with all
associates through a program called
Performance Sharing.
How it works
Each eligible associate is assigned
points. Supervisors will communicate to
associates what the points are for their
job group.
<PAGE> 5
Each quarter the company will distribute
Performance Sharing to all eligible
associates. The dollar amount of the
Performance Sharing is based upon the
number of points an associate has been
assigned multiplied by the dollar value
of a Performance Sharing point for that
quarter.
How points were assigned
All jobs at Metatec were classified into
one of six groups. Performance Sharing
points were then assigned to each job
group. When assigning points to jobs, the
senior team took into account the extent
to which a job affects revenue, assets,
and people, and otherwise impacts the
organization.
Eligibility
Associates are eligible for Performance
Sharing points The First Full Quarter
After they have completed an initial
6-month waiting period.
<TABLE>
<CAPTION>
Hire Month Eligible for Points
<S> <C>
Before July 1998 1st Quarter 1999
July, August, September 1998 2nd Quarter 1999
October, November, December 1998 3rd Quarter 1999
January, February, March 1999 4th Quarter 1999
</TABLE>
Associates must also sign the Open Book
Management Certification letter in order
to be eligible for Performance Sharing.
Part-time associates
Part-time associates are eligible for the
program on the same schedule as full-time
associates and will receive half of the
Performance Sharing points for full-time
associates in the same job group.
Re-hires
If associates leave the company and then
rejoin at a later time, any full calendar
quarters that they worked prior to
leaving will count toward the initial
six-month waiting period. Once rehired,
they are eligible for Performance Sharing
the next full calendar quarter after
their rehire date (assuming they have met
the six-month requirement).
<PAGE> 6
The effect of job changes
When associates move into a position that
has more points assigned to it than their
previous position, they will be eligible
for the additional points in the first
full quarter they are in the new
position.
Performance Sharing distribution
Performance Sharing will be distributed
the month following each quarter. Time is
needed to complete the financials for the
quarter and to calculate the actual value
of Performance Sharing points.
Performance Sharing will be distributed
each quarter up to the amount projected
for that quarter and any excess will be
carried over into the next quarter. If
the profit goal is not reached for that
quarter, it can be made up in later
quarters. Any excess for the year will be
distributed after the end of the year
with the 4th quarter Performance Sharing.
Calculating Performance Sharing amounts
The profit projected for each quarter in
the company's 1999 Annual Plan varies
based on the timing of our customers'
work and when we invest in our business.
The monthly Scorecard shows the projected
Performance Sharing for each quarter.
The goal for the company this year is to
make $12.2 million in operating profit
before Performance Sharing expense. If
the company reaches this goal, the value
of a Performance Sharing point for the
year is designed to total $10. To
calculate what an associate's Performance
Sharing before deductions will be for the
year if the company meets its plan,
multiply the number of points by $10.
Associate termination
Eligible associates will receive
Performance Sharing if they are on the
company's payroll through the end of the
quarter. In order to receive any excess
for the year, they need to be on payroll
through the end of 1999.
Exceeding or not meeting profit plans
If the company has an operating profit
before Performance Sharing expense
greater than $12.2 million, a portion of
the
<PAGE> 7
profits in excess of that amount will be
placed into the Performance Sharing pool
for distribution after the end of the
year. The dollar value of Performance
Sharing points would increase
accordingly, and Performance Sharing
would be distributed to associates based
on the number of points they are
assigned.
If the company does not meet its plan,
there is a formula that calculates a
straight percentage of distribution from
99% down to 50%, at which point it drops
more rapidly. For example, if the company
reaches 80% of its profit goal for the
year, then Performance Sharing points
would be worth approximately $8 each for
the year.
Guidelines and Policy for The Open Book Management program at
Trading Company Stock and Metatec allows everyone to act
Handling Confidential like company owners and have a financial
Information stake in the outcome. This happens, in
part, by the company sharing confidential
financial and non-financial information
with associates. Knowing the information
makes associates "insiders," a term used
by the Securities and Exchange
Commission, which means associates know
information that could be financially
beneficial to them, their family, friends
and acquaintances when involving the
buying or selling of Metatec securities
(in our case, Metatec common stock).
Being an insider gives associates a stake
in the outcome, but also carries
responsibilities. These guidelines will
help clarify key issues and procedures.
Important Things to Remember There are three important things to
remember:
1. The information the company shares
with associates is confidential -
"for your eyes only."
2. There are times when associates can
buy and sell Metatec stock, and
times when they can't.
3. Failure to comply with these
guidelines can have serious
consequences for associates and for
Metatec, including possible civil
and criminal penalties.
The Policy Here is Metatec's Policy:
1. Associates are not permitted to
disclose confidential information
about Metatec to anyone outside the
company.
2. Neither associates, their families,
nor members of their households are
permitted to buy or sell Metatec
stock or other company securities
when in possession of material
non-public information about the
company. Material
<PAGE> 8
information means information that
an investor would consider important
in a decision to buy, hold or sell
stock or other securities. Examples
include projections of future
earnings, news of a major pending
transaction, gain or loss of a
customer and development of a major
new product or service. This
includes bad news as well as good
news. Typically, company information
will be considered "public"
beginning on the third business day
after it has been announced publicly
by the company.
3. The same rules regarding stock
trading and non-disclosure apply to
information about any other company,
such as Metatec's customers or
suppliers, which is obtained in the
course of employment by the company.
Before Buying or Selling Metatec The company provides associates with help
Stock, Contact the Compliance in staying in compliance with the above
Officer policy.
1. To avoid accidental violation of the
Policy, all transactions in
Metatec's stock must be pre-cleared.
2. Contact Mary McDonald, Compliance
Officer (ext. 3727 in Dublin), at
least 10 days before buying or
selling Metatec stock.
3. As a general rule, STOCK
TRANSACTIONS WILL BE CLEARED ONLY
ONCE EACH CALENDAR QUARTER DURING A
21-DAY PERIOD BEGINNING THE THIRD
BUSINESS DAY FOLLOWING THE
ANNOUNCEMENT OF METATEC'S QUARTERLY
OR ANNUAL EARNINGS, but each
transaction must be pre-cleared even
if it is within that 21-day period.
4. This requirement does not apply to
exercises of stock options, but it
does apply to sales of option stock,
including sales occurring at the
same time as the exercise of an
option.
5. Changes to associates' participation
in the Metatec Associate Stock
Purchase Program are subject to the
same pre-clearance requirement.
6. For associates' and the company's
protection, Metatec requires
associates to certify understanding
of and compliance with these
guidelines on a periodic basis. If
you have any questions about these
guidelines, please contact the
Compliance Officer.
These guidelines are effective January 22,
1999. Metatec may supplement or modify
these guidelines as circumstances require.
<PAGE> 1
EXHIBIT 10(w)
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT ("Loan Agreement"), dated as of the 15th day of
January, 1999, by and between THE HUNTINGTON NATIONAL BANK, a national banking
association, having an office at 41 South High Street, Columbus, Ohio 43215
("Huntington") and METATEC CORPORATION, a Florida corporation, having an office
at 7001 Metatec Boulevard, Dublin, Ohio 43017 ("Borrower").
WITNESSETH:
In consideration of the covenants contained herein and other valuable
consideration, Huntington and Borrower agree as follows:
DEFINITIONS
The following terms wherever used in this Loan Agreement shall have the
following meanings:
"Acquisition Costs" shall mean the costs of acquiring the Property.
"Acquisition Costs Loan" shall mean that portion of the Loan Amount applicable
and equal to the sum of the Loan Budget Amount for Acquisition Costs shown on
the Cost Breakdown.
"Acquisition Costs Statement" shall mean a statement setting forth, by line item
and category, Acquisition Costs incurred, to be prepared, certified and approved
as accurate by Borrower.
"Change Orders" shall mean any amendments or modifications to the Plans or
General Contract.
"Completion" shall mean substantial completion of the Project, in accordance
with the Plans, and of any necessary access and utilities serving the Project;
issuance of all approvals and certificates by Governmental Authorities required
for the permanent use and occupancy of the Project; issuance of a Certificate of
Substantial Completion on AIA Document G704 by the Project Architect and the
General Contractor; verification of substantial completion by Huntington's
architect; and presentation of evidence of acceptance by all tenants having a
right of acceptance as a lease condition.
"Completion Date" shall mean January 1, 2000.
"Construction Loan Checking Account" shall mean a separate non-interest bearing
checking account established by Borrower with Huntington.
<PAGE> 2
"Cost Breakdown" shall mean a statement setting forth, by line item and
category, the Acquisition Costs, Hard Costs and Soft Costs and the Loan Budget
Amounts in respect of Acquisition Costs, Hard Costs and Soft Costs, which
statement is attached hereto as Exhibit A.
"General Contract" shall mean any contract between Borrower and the General
Contractor or any other person which requires the General Contractor or such
other person to provide, or supervise or manage the procurement of,
substantially all labor and materials needed for Completion of the Project.
"General Contractor" shall mean Ruscilli Construction Company, Inc., and any
successor engaged by Borrower with Huntington's consent.
"Governmental Authorities" shall mean the United States, the state in which the
Property is located and any political subdivision, agency, department,
commission, board, bureau or instrumentality of either of them, including any
local authorities, which exercises jurisdiction over the Project or the
Property.
"Hard Costs" shall mean the costs of all labor, materials, equipment, fixtures
and furnishings necessary for Completion of the Project.
"Hard Costs Loan" shall mean that portion of the Loan Amount applicable and
equal to the sum of the Loan Budget Amount for Hard Costs shown on the Cost
Breakdown.
"Hard Costs Statement" shall mean a statement on AIA Documents G702 and G703
setting forth, by line item and category, Hard Costs incurred, to be prepared
and certified by the General Contractor, certified and approved as accurate by
Borrower, Project Architect and such others as Huntington shall reasonably
require.
"Huntington's Counsel" shall mean Bricker & Eckler LLP, 100 South Third Street,
Columbus, Ohio 43215.
"Initial Advance" shall mean the first advance of Loan proceeds.
"Lien Waivers" shall mean lien waivers or releases from the General Contractor,
subcontractors and suppliers evidencing payment of Hard Costs.
<PAGE> 3
"Loan" shall mean the aggregate of the Acquisition Costs Loan, the Hard Costs
Loan and Soft Costs Loan, which aggregate is equal to the Loan Amount.
"Loan Amount" shall mean Seven Million Dollars ($7,000,000.00).
"Loan Budget Amounts" shall mean the portion of the Loan Amount set forth in the
Cost Breakdown to be advanced for each line item and category of Acquisition
Costs, Hard Costs and Soft Costs.
"Loan Documents" shall mean collectively the Loan Agreement, Note, Mortgage, and
any other instrument, document, certificate or affidavit heretofore, now or
hereafter given by Borrower evidencing or securing all or any part of the
foregoing.
"Mortgage" shall mean that certain Open-End Mortgage, Assignment of Rents and
Security Agreement, of even date herewith, granted by Borrower to Huntington to
secure payment and performance by Borrower in accordance with the terms and
conditions of the Loan Documents.
"Mortgaged Property" shall mean the Property and other property comprising
"Mortgaged Property", as said term is defined in the Mortgage.
"Net Operating Income" shall mean all rents and revenues of the Project and
Property, less all reasonable and customary costs and expenses of operating the
Project and Property, exclusive of any payment of interest or principal on the
Note and of any charges or fees for the services of Borrower, or any party or
entity financially affiliated with Borrower.
"Note" shall mean collectively that certain Note, of even date herewith, made by
Borrower to Huntington in the Loan Amount to evidence the Loan and any and all
renewals, amendments, modifications, reductions and extensions thereof and
substitutions therefor.
"Plans" shall mean collectively the final plans and specifications prepared by
Borrower, Project Architect or the General Contractor, and approved by
Huntington, which describe and show the labor, materials, equipment, fixtures
and furnishings necessary for the Completion of the Project, including all
amendments and modifications thereof made by approved Change Orders.
"Project" shall mean the 151,000 square foot warehouse facility to be developed
and constructed on the Property.
<PAGE> 4
"Project Architect" shall mean Wandel & Schnell, Architects, Inc., and any
successor engaged by Borrower with Huntington's consent.
"Property" shall mean the real property described in the Mortgage, upon which
the Project is to be developed and constructed.
"Retained Amounts" shall mean the greater of ten percent (10%) of Hard Costs
incurred by Borrower through the end of the period covered by each Requisition
or the actual amounts retained from the General Contractor, any subcontractor
and any supplier for the same period.
"Requisition" shall mean a statement executed by Borrower setting forth the
amount of the Loan advance requested in each instance and including:
the Acquisition Costs Statement, Hard Costs Statement and Soft Costs
Statement;
a list of proposed payees;
Lien Waivers from the General Contractor for all Hard Costs covered by
the Requisition.
proof of payment of all Acquisition Costs covered by the preceding
Requisition;
Lien Waivers from all subcontractors and suppliers for all Hard Costs
covered by the preceding Requisition; and
proof of payment of all Soft Costs covered by the preceding
Requisition;
"Soft Costs" shall mean all costs, other than Hard Costs, necessary for
Completion of the Project, including without limitation, architects' and
attorneys' fees, ground rents, interest, real estate taxes, survey costs and
insurance premiums.
"Soft Costs Loan" shall mean that portion of the Loan Amount applicable and
equal to the sum of the Loan Budget Amount for Soft Costs shown on the Cost
Breakdown.
"Soft Costs Statement" shall mean a statement setting forth, by line item and
category, Soft Costs incurred and to be incurred, to be prepared, certified and
approved as accurate by Borrower.
<PAGE> 5
"Stored Materials Statement" shall mean a statement, which, if advances are to
be made for stored materials pursuant to Section 3.12 hereof, shall be submitted
with and made a part of the Hard Cost Statement.
"Title Insurer" shall mean the issuer of the title insurance policy insuring the
lien of the Mortgage.
BORROWER COVENANTS
Borrower shall commence construction of the Project no later than thirty (30)
days from the date hereof and thereafter prosecute the same continuously and
diligently, except during the existence of delays of not more than thirty (30)
days caused by events beyond Borrower's control, and cause Completion of the
Project on or before the Completion Date, time being of the essence.
Borrower shall construct the Project in a good and workmanlike manner and in
accordance with the Plans, using only materials, fixtures, furnishings and
equipment that are not used or obsolete and shall cause the Completion of the
Project free from defects and in accordance with the Plans. Upon demand of
Huntington, Borrower shall correct any defects in the Project or any departures
from the Plans not approved by Huntington.
Borrower shall protect from theft and vandalism all portions of the Project and
all tools and building materials stored on the Property.
Borrower shall pay all Acquisition Costs, Hard Costs and Soft Costs required for
Completion of the Project and all costs of completing any work required to be
performed by Borrower under any purchase contract for or lease of all or part or
the Project, or detailed work letter with respect thereto, to permit the lawful
occupancy of space, including public space, in the Project by purchasers or
lessees of such space as contemplated in the purchase contracts or leases for
the same. Borrower shall keep the Project free from mechanics' and materialmen's
liens, except as expressly permitted in the Loan Documents.
Borrower shall pay all costs and expenses in connection with entering into the
Loan with Huntington, the sale of participating interests in the Loan, the
making of the Loan, the advance of Loan proceeds and the satisfaction of the
terms and conditions of this Loan Agreement, including without limitation, the
following:
all costs and expenses of satisfying Lender's loan closing
requirements, whether denominated as pre-closing, closing or general;
all filing and recording fees and expenses and all document, mortgage,
stamp or similar taxes;
<PAGE> 6
all expenses of Huntington's in-house architect, engineer or inspector
and all fees and expenses of any independent architect, engineer or
consultant retained by Huntington in connection with the Project;
all fees and expenses of Huntington's Counsel;
all fees and expenses of any disbursing agent; and
all fees and commissions of any broker, lawfully due and arising
through Borrower from the making of the Loan.
Borrower shall defend and indemnify Huntington against any claim by any broker
for fees or commissions, arising through Borrower from the making of the Loan.
Borrower shall receive and deposit all Loan advances in the Construction Loan
Checking Account and hold the same as a trust fund for the purpose of paying
only Acquisition Costs, Hard Costs and Soft Costs.
Borrower shall not enter into any Change Order until Huntington shall have
received a copy thereof. Further, Borrower shall not enter into any Change Order
without Huntington's written consent if such Change Order (a) will increase or
decrease the cost of achieving Completion in excess of Forty Thousand Dollars
($40,000.00), (b) will, when aggregated with all previous Change Orders,
increase or decrease the cost of achieving Completion in excess of One Hundred
Thousand Dollars ($100,000.00) or (c) will change the character, size, value or
utility of the Project. The approval of any Change Order by Huntington shall not
be construed as obligating Huntington to increase or advance any Loan Budget
Amount on account of any such Change Order.
Borrower shall permit Huntington and its representatives to enter upon the
Property, inspect the Project and all materials to be used in the construction
thereof and examine all detailed plans and shop drawings which are or may be
kept at the construction site. Borrower will cooperate and cause the General
Contractor to cooperate with Huntington in the performance of such inspections.
At the time of each such inspection, Borrower will make available to Huntington
on demand, daily log sheets covering the period since the immediately preceding
inspection, showing the date, weather, subcontractors on the job, number of
workers and status of construction.
Borrower shall comply with all laws, statutes, ordinances, rules, regulations
and orders of Governmental Authorities and shall promptly furnish Huntington
with reports of any official searches and claims of violations made by
Governmental Authorities.
Borrower shall comply with all restrictions, covenants and easements affecting
the Project or the Property and shall satisfy and keep satisfied any conditions
to the zoning of the Property and to the
<PAGE> 7
approvals of Public Authorities, including without limitation, conditions to
building permits, curb cut permits, storm water and other discharge permits,
operating permits, licenses and site plan approvals.
Borrower shall promptly provide to Huntington copies of all contracts, bills of
sale, statements, receipted vouchers and agreements under which title is claimed
by Borrower to any materials, furniture, fixtures or equipment incorporated into
the Project or subject to the lien of the Mortgage and any other data or
documents in connection with the Project as Huntington may from time to time
request.
Borrower shall comply with Ohio Revised Code Sections 1311.01 to 1311.22,
inclusive. Without limiting the generality of such obligation, the Borrower
shall, immediately after the filing of the Mortgage, but prior to the
performance of any labor or work or the furnishing of any materials for the
Project that may give rise to a mechanics' lien, prepare and file with the
County Recorder a Notice of Commencement; shall post and keep posted a copy of
the same in a conspicuous place on the Property during construction of the
Project; shall serve a copy of the same on each general contractor; and shall
amend such Notice of Commencement and likewise file, post and serve each
amendment, all as required by Ohio Revised Code Section 1311.04. Borrower shall
maintain a complete record of the foregoing, of each Notice of Furnishing
received by Borrower and of each release and waiver of a right to a mechanic's
lien.
Borrower shall faithfully keep and perform each and every covenant contained in
the other Loan Documents, each of which is incorporated by reference herein.
Borrower shall faithfully cause each of the representations made by it in
Section 6 hereof to be continuously true and correct. Further, each Requisition
presented by Borrower to Huntington, and the receipt of the funds requested
thereby, shall constitute an affirmation by Borrower that the representations
made by it in Section 6 hereof are true and correct as of the date of the
Requisition and as of the date of the receipt of the funds requested thereby.
Borrower shall indemnify and hold Huntington harmless from all claims of every
person, including, without limitation, employees, contractors and tenants of
Borrower, subcontractors, subtenants or concessionaires of any contractors or
tenants, and employees and business invitees of any contractors, subcontractors,
tenants, subtenants or concessionaires, arising from or out of the acquisition,
development, construction, use, occupancy or possession of the Project or the
Property, excluding however, any claim arising solely from the gross negligence
of Huntington, its officers, employees, agents or contractors.
LOAN ADVANCES GENERALLY
Subject to the provisions of this Loan Agreement, Huntington will advance and
Borrower will accept the Loan Amount in installments. The Initial Advance and
all subsequent advances shall be made upon satisfaction of the applicable
conditions precedent set forth in Section 4 hereof, in amounts which shall be
equal to the aggregate of the Acquisition Costs, Hard Costs and Soft Costs
incurred by Borrower through the end of the period covered by the Requisition
less:
<PAGE> 8
the Retained Amounts; and
the total of the Loan advances theretofore made; and
at the election of Huntington, any combination of the following further
amounts:
(1) all or a portion of the amount by which any Acquisition
Costs, Hard Costs or Soft Costs are or are reasonably
estimated by Huntington to be greater than the respective Loan
Budget Amounts for such costs; and
(2) any costs covered by the Requisition not approved or
certified by Borrower, Project Architect or General
Contractor, as the case may be, any Acquisition Costs covered
by a previous Requisition for which proof of payment has not
been received by Huntington, any Hard Costs covered by a
previous Requisition for which Lien Waivers have not been
received by Huntington and any Soft Costs covered by a
previous Requisition for which proof of payment has not been
received by Huntington.
Borrower shall submit a Requisition for the Initial Advance within thirty (30)
days after commencement of construction, for subsequent advances, not more
frequently than monthly thereafter, and for a final advance promptly upon
Completion. Requisitions shall conform to the Cost Breakdown and shall be
received by Huntington at least ten (10) business days prior to the date of the
requested advance. All advances to Borrower are to be made at Huntington's
principal office or at such other place as Huntington may designate and shall be
deposited in the Construction Loan Checking Account.
Borrower's Requisition, the progress of construction and the conformity of the
construction with the Plans is subject to Huntington's verification and
approval. Huntington may use its own in-house engineers, architects and
inspectors for such verification and to review plans, specifications and
engineering reports, but shall have the right to engage the services of
independent contractors, engineers, architects or consultants for such purposes.
Borrower shall include in the Requisition for the Initial Advance all utility
tap, frontage and capacity charges required for the Project and within seven (7)
days after receipt of the Initial Advance provide evidence to Huntington that
the right to tap and use all necessary utilities has been granted.
Borrower hereby irrevocably authorizes Huntington to advance Loan proceeds to
pay interest on the Note as it comes due and, provided that there is no Event of
Default under the Note or Mortgage, as defined therein, or any event or state of
facts, which after notice or the passage of time, or both, would constitute such
an Event of Default, Huntington shall advance Loan proceeds and credit the same
against interest then due under the Note, but not more in the aggregate than the
Loan Budget Amount for interest as set forth in the Cost Breakdown. Loan
advances for interest as set forth in the Cost Breakdown, however, shall be
reduced by the Net Operating Income of the Project and Property. After
Completion and prior to the advance of the full Loan Budget Amount for interest
as set forth in the Cost Breakdown, Borrower shall (a) determine the Net
Operating Income of the Project and Property for each calendar month, which
<PAGE> 9
determination shall be certified to Huntington by the chief executive or
financial officer of Borrower not later than the fifteenth (15th) day of the
succeeding month, and (b) remit such Net Operating Income, or so much thereof as
may be necessary, for timely payment of interest under the Note for such
succeeding calendar month.
Borrower hereby irrevocably authorizes Huntington to advance Loan proceeds to
pay any or all of the costs and expenses set forth in Section 2.6 hereof,
notwithstanding that Borrower may not have requested advance of such amounts and
that there may be an Event of Default under the Note or Mortgage, as defined
therein. In the event Borrower has not requested payment, Huntington shall give
notice to Borrower that a payment has been made. The authorization granted
hereby shall not prevent Borrower from paying such expenses from Borrower's own
funds and shall not be construed as discharging Borrower's obligation to pay
such expenses, as and when due. Further, Huntington shall not be obligated to
advance Loan proceeds for such expenses unless Borrower has submitted a
Requisition for the same and Huntington is otherwise obligated to advance Loan
proceeds against such Requisition.
Retained Amounts shall be advanced upon the satisfaction of the conditions set
forth in Section 4.2 hereof, provided that Retained Amounts with respect to
future tenant improvements, if any, shall be separately retained and advanced on
a tenant by tenant basis.
Subject to the prior application of the Net Operating Income of the Project
against interest, Loan Budget Amounts for Soft Costs not advanced prior to
Completion shall be advanced until exhausted, not more frequently than once a
month, for Soft Costs after Completion.
Huntington shall not advance Loan proceeds after the Conversion Date, as defined
in the Note, and shall not re-advance repaid Loan advances.
Huntington may, in its sole discretion, advance all or any portion of the
amounts to be advanced hereunder, without regard to Borrower's satisfaction of
the conditions precedent to its entitlement to Loan proceeds, and no person
dealing with Borrower or the General Contractor or any other person shall have
standing to demand any different performance from Huntington.
Huntington may require that Loan advances be disbursed through a disbursing
agent selected by Huntington and that disbursements be made directly to General
Contractor, subcontractors and materialmen. In such event, interest shall accrue
to Huntington from the time the Loan proceeds are advanced to the disbursing
agent. Further, Huntington may, in lieu of the presentation of proofs of payment
and Lien Waivers with the Requisition for the succeeding month, require the
immediate presentation of proofs of payment and Lien Waivers against the advance
of Loan proceeds.
Huntington shall not make Loan advances for materials or furnishings which are
stored on the Property, but not yet affixed to or incorporated into the Project,
except in the case of major materials approved by Huntington and intended to be
incorporated into the Project pursuant to the Plans, and then not until
<PAGE> 10
Huntington shall have received: (a) bills of sale and other documentation
evidencing payment in full for such materials, Borrower's ownership thereof and
the release of any right, title or lien in respect thereof by any vendor; (b)
evidence that such materials are covered by the insurance policies required by
the Loan Documents and are identified and protected against loss, theft and
damage in a manner acceptable to Huntington; and (c) evidence that advances made
by Huntington for said materials do not, at any one time, exceed in the
aggregate One Hundred Thousand Dollars ($100,000.00) inclusive of the amount
requested.
A drawing under any letter of credit which Huntington has issued or hereafter
issues in connection with the Project or Property, irrespective of the account
party thereunder, shall constitute an advance of Loan proceeds under this Loan
Agreement and the amount thereof shall be evidenced and secured by the Loan
Documents. The issuance of any such letter of credit shall effect a reduction,
by the amount and during the existence thereof, of available Loan proceeds and
Huntington, in its reasonable discretion, shall allocate such reduction to the
Loan Budget Amounts which it deems most appropriate.
CONDITIONS PRECEDENT TO OBLIGATION TO MAKE LOAN ADVANCES
Huntington shall not be obligated to make the Initial Advance or subsequent
advances unless the following conditions precedent shall have been and remain
satisfied:
Huntington shall have received a Requisition for the Initial Advance or
subsequent advance, as the case may be;
Huntington shall have received a Loan Fee in an amount equal to
one-half percent (.50%) of the Loan Amount;
Huntington shall have received and approved every item required to
satisfy every loan closing requirement of Lender, whether denominated
as preclosing, closing or general;
Huntington shall have received and approved evidence of Borrower's
payment of not less than One Million Three Hundred Eighty-Six Thousand
Dollars ($1,386,000.00) of the Acquisition Costs, Hard Costs and Soft
Costs shown in the Cost Breakdown as the required equity contribution;
Borrower shall have certified that Huntington has been provided a copy
of any amended Notice of Commencement required to be filed, posted and
served in accordance with Ohio Revised Code Section 1311.04 and of any
Notice of Furnishing received by Borrower in accordance with Ohio
Revised Code Section 1311.05;
Huntington shall have received an endorsement to the title insurance
policy insuring the lien of the Mortgage, which endorsement shall (i)
modify the effective date of such title insurance
<PAGE> 11
policy to or immediately prior to the date of the advance, (ii) show no
additional exceptions, except those approved by Huntington's Counsel
and (iii) acknowledge the aggregate amount of Loan proceeds then
advanced;
For the advance immediately after the foundation of the Project has
been constructed, Huntington shall have received and approved a survey
of the foundation and Property, certified to within ten (10) days of
the advance to Huntington and the Title Insurer, and otherwise in form
and content acceptable to Lender;
Existing improvements on the Property, if any, shall not have been
materially injured or damaged by fire or other casualty unless,
Huntington shall have received insurance proceeds sufficient in the
reasonable judgment of Huntington to effect the satisfactory
restoration of the said improvements and to permit completion of said
improvements prior to the Completion Date, pursuant to terms of
disbursement satisfactory to Huntington;
The representations made in Section 6 hereof shall be true and correct
on and as of the date of the advance with the same effect as if made on
such date; and
There shall exist no Event of Default under the Note or Mortgage, as
therein defined, or any event or state of facts which after notice or
the passage of time, or both, could give rise to such an Event of
Default.
Huntington shall not be obligated to advance Retained Amounts unless the
following additional conditions precedent shall have been and remain satisfied:
Huntington shall have received and approved evidence that Completion
has been achieved; and
Huntington shall have received and approved an "as built" survey of the
Project and the Property, certified to within ten (10) days of the
advance to Huntington and the Title Insurer, and otherwise in form and
content acceptable to Lender.
Notwithstanding the foregoing provision, Retained Amounts with respect to future
tenant improvements shall be separately retained and advanced on a tenant by
tenant basis.
Borrower shall cause the satisfaction of each and every of the foregoing
conditions precedent, whether precedent to the obligation to make the Initial
Advance, a subsequent advance or the advance of Retained Amounts.
ADJUSTMENTS TO COST BREAKDOWN
Borrower shall prepare, certify and provide to Huntington a revised Cost
Breakdown on AIA Document G703 with any Change Order provided to Huntington as
required under Section 2.8 hereof.
<PAGE> 12
If at any time Huntington gives notice to Borrower that, in Huntington's sole
discretion, the undisbursed balance of the Loan Budget Amount for any line item
or category of cost shown on the Cost Breakdown is insufficient to achieve
Completion and to pay the Acquisition Costs, Hard Costs and Soft Costs, as the
case may be, remaining unpaid, then Huntington may reallocate to such Loan
Budget Amount any excess in any other Loan Budget Amount balance that
Huntington, in its sole discretion, deems to be excessive. In such event,
Borrower shall prepare, certify and provide to Huntington a revised Cost
Breakdown on AIA Document G703.
If at any time Huntington gives notice to Borrower that, in Huntington's sole
discretion, the undisbursed balance of the Loan, including Retained Amounts, is
insufficient to achieve Completion and to pay the Acquisition Costs, Hard Costs
and Soft Costs remaining unpaid, Borrower, at its option, shall either: (a)
deposit with Huntington an amount equal to such deficiency, which Huntington
shall from time to time apply, or allow Borrower to apply, to such Acquisition
Costs, Hard Costs or Soft Costs; or (b) make a payment against such Acquisition
Costs, Hard Costs or Soft Costs in the amount of such deficiency so that the
undisbursed balance of the Loan, including Retained Amounts, shall be sufficient
to achieve Completion and to pay the Acquisition Costs, Hard Costs and Soft
Costs remaining unpaid, and shall furnish Huntington with such evidence thereof
as Huntington may require. In such event, Borrower shall prepare, certify and
provide to Huntington a revised Cost Breakdown on AIA Document G703. Huntington
shall have a lien on and security interest in any sums deposited pursuant to
clause (a) above. Borrower shall have no right to withdraw any such sums, except
for the payment of Acquisition Costs, Hard Costs or Soft Costs approved by
Huntington. Any such sums not so used shall be released to Borrower upon
Completion. If prior to Completion, an Event of Default shall occur under the
Note or Mortgage, as defined therein, or any event or state of facts which after
notice or the passage of time, or both, would constitute such an Event of
Default, Huntington shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code, as enacted in the State of Ohio and may, at
its option, apply such sums either to the costs of completing the Project or to
the immediate reduction of outstanding principal, or interest or both under the
Note.
BORROWER REPRESENTATIONS
Borrower represents that, if Borrower or any general partner of Borrower is a
corporation, the same is duly organized, validly existing and in good standing
under the laws of the state of its incorporation, has stock outstanding which
has been duly and validly issued, is qualified to do business and is in good
standing in the state in which the Project and Property are located, with full
power and authority to consummate the transactions contemplated hereby; if
Borrower or any general partner of Borrower is a partnership, the same is duly
formed and validly existing, is fully qualified under the laws of the state in
which the Project and Property is located to do business therein and has full
power and authority to consummate the transactions contemplated hereby.
Borrower represents that the Plans are satisfactory to Borrower, have been
reviewed and approved by the General Contractor and the Project Architect; by
all Governmental Authorities, to the extent required by applicable law; by each
beneficiary under any effective restrictive covenant; and by each tenant under
any lease covenant requiring plan approval. Further, that all construction, if
any, already performed on the Project has been performed in accordance with the
Plans approved by the persons named above and with any restrictive covenants
applicable thereto; there are no structural defects in the Project or violations
of any requirement of any Governmental Authorities with respect thereto; that
the planned use
<PAGE> 13
of the Project complies with applicable zoning ordinances, regulations and
restrictive covenants affecting the Property as well as all environmental,
ecological, landmark and other applicable laws and regulations; and that all
requirements for such use have been satisfied.
Borrower represents that the financial statements heretofore delivered to
Huntington are true, correct and current in all respects and fairly present the
respective financial conditions of the subjects thereof as of the respective
dates thereof; that no material adverse change has occurred in the financial
conditions reflected therein since the respective dates thereof and no
borrowings, except the Loan, which might give rise to a lien or claim against
the Mortgaged Property or Loan proceeds have been made by Borrower, or others
since the date thereof.
Borrower represents that there are no actions, suits or proceedings pending, or
to the knowledge of Borrower, threatened against or affecting Borrower, the
Property, the validity or enforceability of the Mortgage or the priority of the
lien thereof at law, in equity or before or by any Governmental Authorities and
that Borrower is not in default with respect to any order, writ, injunction,
decree or demand of any court or Governmental Authorities.
Borrower represents that the consummation of the transactions contemplated
hereby and performance of this Loan Agreement, the Note and Mortgage have not
and will not result in any breach of, or constitute a default under, any
mortgage, deed of trust, lease, bank loan or credit agreement, corporate
charter, by-laws, partnership agreement or other instrument to which Borrower is
a party or by which Borrower may be bound or affected.
Borrower represents that all utility services necessary for the construction of
the Project and the operation thereof for their intended purposes are available
in adequate capacities at the boundaries of the Property, including water
supply, storm and sanitary sewer, gas, electric power and telephone facilities,
and all of such utility services enter the Property through public rights-of-way
or through recorded private easements reviewed and approved by Huntington.
Borrower represents that it has entered into no contract or arrangement of any
kind, the performance of which by the other party thereto would give rise to a
lien on the Mortgaged Property, except for its arrangements with Project
Architect, General Contractor, and contractors or subcontractors who have been
paid in full and have filed Lien Waivers for all payments due under said
arrangements as of the end of the period covered by the last Requisition.
Borrower represents that all roads necessary for the full utilization of the
Project for its intended purposes have either been completed or the necessary
rights-of-way therefor have been acquired by appropriate Governmental
Authorities or dedicated to public use and accepted by said Governmental
Authorities, and all necessary steps have been taken by Borrower and said
Governmental Authorities to assure the complete construction and installation
thereof no later than the Completion Date or any earlier date required by any
law, order or regulation.
<PAGE> 14
Borrower represents that each of the leases of the Property are unmodified and
in full force and effect, there are no defaults under any thereof and all
conditions to the effectiveness and continuing effectiveness thereof required to
be satisfied as of the date hereof have been satisfied.
Borrower represents that there exists no Event of Default under the Note or
Mortgage, as defined therein, and no event or state of facts exists which after
notice or the passage of time, or both, would constitute such an Event of
Default.
Borrower represents that the Plans are the same as the filed plans referred to
in the building permits for the Project.
Borrower represents that Borrower has advised the Title Insurer in writing prior
to the issuance of the title policy insuring the Mortgage, whether any site
development, excavation or other work related to construction of the Project was
begun or done before the Mortgage was recorded.
Borrower represents that no assessments, except installments not yet due and
payable, of any nature will remain unpaid after the last Hard Costs Loan
advance, including, without limitation, assessments relating to streets, roads,
entrances, water lines, sanitary and storm sewers, gas lines and all other
utilities including, without limitation, impact fees and capacity charges.
Borrower represents that the Property has not been damaged or injured as a
result of any fire, explosion, accident, flood, gasoline or chemical leakage or
other casualty.
DEFAULT
Upon the occurrence of any Event of Default under the Note or Mortgage, as
defined therein, Borrower does hereby irrevocably authorize Huntington to
complete the acquisition, development, construction and equipping of the Project
and Property, with such changes as Huntington may, in its sole discretion, deem
appropriate, all at the risk, cost and expense of Borrower, but Huntington is
not obligated to do so. In the event that Huntington elects to proceed under
such authorization, Huntington may assume or reject any contract entered into by
Borrower in connection with the acquisition, development, construction or
equipping of the Project or the Property, may enter into additional or different
contracts for services, labor and materials required in the judgment of
Huntington, to complete such acquisition, development, construction or
equipping, and may make, compromise and settle all claims in connection with
such acquisition, development, construction or equipping.
All sums expended by Huntington in completing the acquisition, development,
construction and equipping of the Project and the Property shall be deemed
advances made by Huntington to Borrower secured by the Mortgage and, to the
extent such advances exceed the Loan Amount, such advances shall be deemed to be
for the protection of the Mortgaged Property and Borrower shall repay such sums
upon
<PAGE> 15
demand together with interest from the date of each advance at the Default Rate
of Interest, as defined in the Note.
Huntington may at any time abandon acquisition, development, construction and
equipping of the Project and Property, after having commenced it, and may
recommence such acquisition, development, construction and equipping of the
Project and Property, upon Huntington's election to do so.
For the purposes of completing the acquisition, development, construction and
equipping of the Project and Property after an Event of Default under the Note
or Mortgage, as defined therein, Borrower does hereby irrevocably appoint
Huntington its attorney-in-fact with full power of substitution to execute and
deliver such documents, to pay and receive such bonds, and to take such action
as may be desirable in the judgment of Huntington to complete such acquisition,
development, construction and equipping, all in the name of Borrower.
Notwithstanding the foregoing, upon the occurrence of any Event of Default under
the Note or Mortgage, as defined therein, Borrower does hereby irrevocably
authorize Huntington to advance any undisbursed Loan proceeds directly to the
General Contractor, subcontractors, materialmen and other persons to pay for
Completion of the Project, but Huntington is under no obligation to do so. No
further direction or authorization from Borrower shall be necessary to warrant
such direct advances and all such advances shall satisfy pro tanto the
obligations of Huntington hereunder and shall be secured by the Loan Documents
as fully as if made to Borrower, regardless of the disposition thereof by the
General Contractor, or other person.
OTHER
All documentation required or deemed by Huntington to be necessary in connection
with this Loan Agreement shall be acceptable to and subject to the approval of
Huntington as to form and content.
Borrower acknowledges that Borrower has selected all architects, engineers,
contractors, subcontractors, materialmen, and others furnishing services or
materials for the Project and that Huntington shall have no responsibility
whatsoever for them or for any inspection reports or for the quality of their
materials or workmanship. It is understood that Huntington's sole function is
that of lender and that the only consideration passing from Huntington to
Borrower are the Loan proceeds in accordance with and subject to the terms of
this Loan Agreement. Neither Borrower, nor any other person, shall have any
right to rely on any approvals or procedures required by Huntington herein, such
approvals and procedures being solely for the benefit and protection of
Huntington.
<PAGE> 16
Any advance by Huntington of Loan proceeds hereunder made prior to or without
the fulfillment by Borrower of all of the conditions precedent thereto, whether
or not known to Huntington, shall not constitute a waiver by Huntington of the
requirement that all conditions precedent, including the non-performed
conditions precedent, shall be required with respect to all future advances.
No provision of the Loan Documents may be changed, waived, discharged or
terminated orally, by telephone or by any other means, except an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
All conditions precedent to Huntington's obligation to make advances hereunder
are imposed solely and exclusively for the benefit of Huntington and may be
freely waived or modified in whole or in part by Huntington at any time, if in
its sole discretion Huntington deems it advisable to do so. Upon satisfaction or
waiver of all such conditions precedent, no person other than Borrower shall
have standing to require Huntington to make any Loan advances or to be a
beneficiary of this Loan Agreement or any advances to be made hereunder.
Any notice required or permitted to be given hereunder shall be in writing. If
mailed by first class United States mail, postage prepaid, registered or
certified with return receipt requested, then such notice shall be effective
upon its deposit in the mails. Notice given in any other manner shall be
effective only if and when received by the addressee. For purposes of notice,
the addresses of Borrower and Huntington shall be as set forth below; provided
however, that either party shall have the right to change such party's address
for notice hereunder to any other location within the continental United States
by the giving of thirty (30) days' notice to the other party.
If to Borrower: Metatec Corporation
7001 Metatec Boulevard
Dublin, Ohio 43017
Attn: Julia A. Pollner
If to Huntington: The Huntington National Bank
Commercial Real Estate Department
8th Floor
41 South High Street
Columbus, Ohio 43215
Except as herein provided, this Loan Agreement shall be binding upon and inure
to the benefit of Borrower and Huntington and their respective heirs, personal
representatives, successors and assigns. Notwithstanding the foregoing, Borrower
may not assign, transfer or set over to another, in whole or in part, all or any
part of its benefits, rights, duties and obligations hereunder, including,
without limitation, performance of and compliance with conditions hereof and the
right to receive the proceeds of current or future advances.
HUNTINGTON AND BORROWER HEREBY MUTUALLY, VOLUNTARILY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE FOR THE BENEFIT OF THE OTHER ANY RIGHT TO HAVE
<PAGE> 17
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO
THE LOAN DOCUMENTS, THE TRANSACTIONS RELATED THERETO OR THE RELATIONSHIP
ESTABLISHED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO HUNTINGTON AND
BORROWER TO ENTER INTO THIS TRANSACTION. IT SHALL NOT IN ANY WAY AFFECT, WAIVE,
LIMIT, AMEND OR MODIFY HUNTINGTON'S ABILITY TO PURSUE ITS REMEDIES INCLUDING,
BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED
IN THE LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the day
and year first above written, the execution hereof by Borrower constituting: (a)
a certification that the representations made in Section 6 hereof are true and
correct as of the date hereof; and (b) the undertaking of said Borrower that
each Requisition shall constitute personal affirmation that at the time thereof
said representations are true and correct.
THE HUNTINGTON NATIONAL BANK, METATEC CORPORATION,
a national banking association a Florida corporation
By: /s/ Charles A. Gisha By: /s/ Julia A. Pollner
--------------------------- --------------------------------
Its: Vice President Its: Vice President-Finance
-------------------------- -------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF METATEC CORPORATION
Metatec/Discovery Systems, Inc., an Ohio corporation
Metatec Worldwide, Inc. an Ohio corporation
Metatec International B.V., a Netherlands corporation
Metatec International, Inc., an Ohio corporation
Metatec Acquisition Corp., an Ohio corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-48021, No. 33-52700, No. 33-80172, No. 33-84022, No. 33-71080, No. 33-80170,
No. 333-03125, and No. 31027 of Metatec Corporation on Form S-8 and Registration
Statement No. 333-03123 on Form S-3 of our reports dated February 25, 1999,
included in this Annual Report on Form 10-K of Metatec Corporation for the year
ended December 31, 1998.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
March 29, 1999
Columbus, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET DATED AS OF DECEMBER 31, 1998, AND ITS CONSOLIDATED
STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998, WHICH
FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 8 OF THIS REPORT, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,557,221
<SECURITIES> 0
<RECEIVABLES> 22,125,889
<ALLOWANCES> 490,000
<INVENTORY> 3,207,460
<CURRENT-ASSETS> 29,162,394
<PP&E> 84,756,808
<DEPRECIATION> (28,929,754)
<TOTAL-ASSETS> 105,442,814
<CURRENT-LIABILITIES> 22,461,348
<BONDS> 41,031,569
0
0
<COMMON> 715,348
<OTHER-SE> 41,234,549
<TOTAL-LIABILITY-AND-EQUITY> 105,442,814
<SALES> 80,919,128
<TOTAL-REVENUES> 80,919,128
<CGS> 57,276,391
<TOTAL-COSTS> 77,082,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 260,000
<INTEREST-EXPENSE> 1,186,375
<INCOME-PRETAX> 2,684,769
<INCOME-TAX> 1,262,000
<INCOME-CONTINUING> 1,422,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,422,769
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
