<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<C> <S>
[ 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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
</TABLE>
COMMISSION FILE NUMBER: 0-9220
METATEC INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
OHIO 31-1647405
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
7001 Metatec Boulevard 43017
Dublin, Ohio (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
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, without 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 9, 2000, was $24,191,103.
On March 9, 2000, the Registrant had 6,075,613 Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 16, 2000, which proxy statement was filed with
the Securities and Exchange Commission on March 27, 2000, are incorporated by
reference into Part III, Items 10, 11, 12, and 13 of this Report.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
METATEC INTERNATIONAL, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Metatec International, Inc., an international information distribution
company ("Metatec"), helps customers utilize CD-ROM (compact disc-read only
memory), DVD-ROM (digital versatile disc-read only memory) and Internet
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, secure online transmission, 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 may 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.
Internet technologies are developed and offered through the Company's
Internet Products Group. This group provides secure, trackable and verifiable
transmission of software and information over the Internet, Extranets and
Intranets. Software and information distribution services are made available
through two offerings. The first, Metatec Express, is a hosted, managed service
providing secure, same day delivery of software and electronic documents
anywhere in the world. The second, Metatec Web Transporter(TM), is a product
that works with existing network technologies and companies' internal
distribution capabilities to manage, distribute, and track any type of
application or data.
Prior to May 1, 1999, the registrant was Metatec Corporation, a Florida
corporation which was incorporated on September 9, 1976. At the annual meeting
of shareholders on April 20, 1999, the shareholders of Metatec Corporation
approved a proposal to change the registrant's state of incorporation from
Florida to Ohio through a merger of Metatec Corporation with and into its wholly
owned subsidiary Metatec International, Inc., an Ohio corporation which was
incorporated on March 8, 1999. The merger of Metatec Corporation into Metatec
International, Inc. became effective on April 30, 1999. At that time, the
registrant became an Ohio corporation and its name changed to Metatec
International, Inc. The term "Company" includes Metatec Corporation as the
predecessor to Metatec International, Inc.
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.
1
<PAGE> 3
INDUSTRY OVERVIEW
Methods for the distribution of business information include print, optical
disc, and Internet services. CD-ROM, one form of optical disc technology, was
initially used for storing and searching vast quantities of data. Today, CD-ROM
is the primary method of software distribution for many business-to-business and
consumer software companies. CD-ROM is also a popular medium for marketing,
training, promotions, game distribution and other types of communication. With
the growing use of DVD, or digital versatile disc, optical disc technology has
the opportunity for increased penetration into business and consumer products
and services. DVD is predicted to eventually displace videotape as the primary
form of distributing popular movies. With DVD's vast storage, it is expected to
play an increasingly important role in corporate training and presentation
programs that require extensive use of graphics, audio, video and interactive
presentation capabilities. A major factor contributing to the successful
establishment of optical technology is the degree of standardization achieved in
the early stages of market development. Adherence to these standards has
significantly contributed to the growth of optical disc technology.
As a method of distributing business information, Internet
services -- sometimes called on-line services -- lend themselves to information
which requires frequent or continuous updating or requires rapid deployment. The
growing use of Extranets (businesses serving their clients through Internet
technology) and Intranets (businesses serving their employees or other divisions
of their company through Internet technology) provides an opportunity for the
rapid and secure distribution of software, electronic documents and other
information. While Internet services to consumers receive substantial attention
in the popular press, business-to-business services through Internet technology
hold more potential for growth and development as a method of commerce.
PRINCIPAL PRODUCTS AND SERVICES
The Company is an integrator of technologies and services to meet its
customers' information distribution needs. Metatec's expertise in quick-turn
optical disc replication is merging with e-business offerings to both the
business-to-business and retail marketplaces. The Company also offers logistics
services online and through a direct sales force that encompass packaging,
distribution, warehousing and fulfillment capabilities. 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.
In optical disc production, the Company manufactures CD-ROMs and DVD-ROMs.
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.
During 1999, the Company expanded its logistics, or packaging and
fulfillment services. The Company provides full-service disc packaging,
warehousing, and direct-to-user product shipping. The Company constructed a
151,000 square foot distribution center at its Dublin, Ohio location to expand
its packaging and fulfillment services and also offers similar services at its
Silicon Valley location. Logistics are a growth area for Metatec as more
companies require such value-added services beyond disc manufacturing.
The Company offers a suite of work monitoring and productivity tools called
Metatec Exchange. Customers with access to the Internet can access a secure
online area to check packaging inventory levels, monitor job progress through
Metatec's manufacturing plants and approve disc art work. Metatec Exchange
decreases communication time and enhances the exchange of information between
Metatec and its customers.
The Company's Internet products are developed and offered through Metatec
Internet Products. This group provides secure, trackable and verifiable
transmission of software and information over the Internet, Extranets and
Intranets. Software and information distribution services are made available
through two offerings. The Company's hosted offering is called Metatec Express.
It is a managed service providing secure, same day delivery of software and
electronic documents anywhere in the world. The second, Metatec Web
Transporter(TM), is a product that works with existing network technologies and
companies' internal distribution systems to manage, distribute and track any
type of application or data.
2
<PAGE> 4
The Company's optical disc manufacturing, e-business, logistics and
Internet services can be used individually or in an integrated fashion by
customers. For example, customers requiring software distribution through disc
manufacturing can also offer updates or immediate content availability online.
Also, customers might purchase certain Metatec services through the direct sales
force or have direct access through Internet-based e-commerce services.
The Company operates manufacturing and fulfillment sites in Dublin, Ohio;
Milpitas, 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 quick-turn services to major population centers
and low-cost solutions to companies with geographically disbursed information
distribution needs. The ISO-9000 quality system certification means that the
Company's manufacturing facilities meet worldwide standards for quality
practices. 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.
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 2000.
MARKETING
The Company markets it products and services through its own sales force of
employed associates based in Breda, The Netherlands; Milpitas, CA; Chicago,
Washington, D.C., New York, Dallas, Boston, 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. In addition, the
Company's products and services are marketed online through its web site and
through directory listings. The Company also makes use of a variety of marketing
communications initiatives such as news media relations, electronic chat boards,
online conferencing and presentation services and news wires.
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. The
Company believes it competes favorably with respect to these factors in the
CD-ROM and DVD-ROM market.
The Company differentiates itself from its competitors by providing a fully
integrated approach to information distribution that includes manufacturing
flexibility (including quick turnaround times), personalized customer service,
logistics services, e-business solutions and Internet-based distribution
solutions.
EMPLOYEES
The Company employed approximately 800 persons as of March 6, 2000.
Approximately 590 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 346,000 square foot office, manufacturing, and
distribution and fulfillment 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 sales,
administration, and customer support
3
<PAGE> 5
operations. A first mortgage on the real estate and improvements at this
location secures a $19.0 million loan facility that was used, among other
things, to permanently finance a new distribution center at this location.
The Company currently leases approximately 104,400 square feet of
manufacturing, customer support, and distribution and fulfillment facilities in
Milpitas, 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 Chicago, Washington, D.C., New
York, Dallas, Boston, Seattle, and Somerville, New Jersey for use as regional
sales offices.
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.
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 55 Chairman of the Board, President and Chief
Executive Officer
Christopher L. Winslow 38 Executive Vice President and General Manager
of Media and Logistics Operations
Daniel D. Viren 53 Senior Vice President and Chief Financial
Officer
Julia A. Pollner 37 Senior Vice President, Finance, Secretary and
Treasurer
Alexander P. Deak 39 Vice President and Chief Information Officer
Christopher T. Haynor 35 Vice President, Sales
Tammi Nance Spayde 37 Vice President, Human Resources and
Organizational Development
Martin G. Stokman 39 Vice President, Europe
Jeffrey F. Tarplin 45 Vice President and General Manager, Internet
Products Group
</TABLE>
Mr. Wilkins has been Chairman of the Board and Chief Executive Officer of
the Company since August 1989.
Mr. Winslow has been Executive Vice President and General Manager of Media
and Logistics Operations since October 1999. Mr. Winslow has held various
marketing and manufacturing positions with the Company since 1992.
Mr. Viren has been Chief Financial Officer since July, 1999. From 1988
until joining the Company, Mr. Viren was with R.G. Barry Corporation, a
manufacturer and marketer of home comfort footwear, last serving as a senior
vice president of that company.
Ms. Pollner has been Senior Vice President, Finance, Treasurer, and
Secretary since May 1998, and has held various accounting and finance positions
with the Company since 1987.
4
<PAGE> 6
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.
Ms. Spayde has been Vice President, Organizational Development of the
Company since August 1998. From 1984 until joining the Company, Ms. Spayde held
various human resource and administration positions with OhioHealth Corporation,
an integrated healthcare system.
Mr. Stokman has been Vice President, Europe of the Company since January
1999. Mr. Stokman 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. Tarplin has been Vice President and General Manager, Internet Products
Group since July, 1999. From 1996, until joining the Company, Mr. Tarplin was
president of Megasoft Online, Inc. an Internet software and services company.
From 1993 to 1999, Mr. Tarplin was senior vice president and director, Megasoft
Holdings, Inc., the parent corporation of Megasoft Online, Inc. and a holding
company for operating businesses involved in contract software manufacturing and
distribution services and Internet software products and services.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 1999
March 31............................................ $8.00 $4.00
June 30............................................. $6.25 $3.75
September 30........................................ $6.38 $3.06
December 31......................................... $4.50 $2.00
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
</TABLE>
As of March 6, 2000, there were 3,795 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 $4.25.
The Company has never paid cash dividends on its 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.
5
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales................. $120,281,047 $ 80,919,128 $48,933,634 $46,150,105 $39,261,463
Earnings (loss) before
income taxes........ $ (4,166,290) $ 2,684,769 $ 1,040,534 $ 3,398,728 $ 4,140,980
Net earnings (loss)... $ (2,846,290) $ 1,422,769 $ 491,534 $ 2,040,728 $ 2,808,980
Earnings (loss) per
common share:
Basic............... $ (0.47) $ 0.23 $ 0.07 $ 0.29 $ 0.44
Diluted............. $ (0.47) $ 0.23 $ 0.07 $ 0.29 $ 0.44
Weighted average
number of common
shares outstanding:
Basic............... 6,074,879 6,058,414 6,791,836 7,064,194 6,333,706
Diluted............. 6,074,879 6,115,084 7,189,266 7,159,775 6,441,105
Total assets.......... $111,407,753 $105,442,814 $52,871,893 $52,517,477 $50,076,076
Long-term
liabilities......... $ 47,382,793 $ 41,031,569 $ 5,893,410 $ 1,335,105 $ 845,875
Shareholders'
equity.............. $ 37,862,192 $ 41,949,897 $41,194,053 $45,265,791 $43,301,079
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS -- 1999 COMPARED TO 1998
Net sales in 1999 were $120,281,000, an increase of $39,362,000, or 49%
over 1998. This increase resulted primarily from CD-ROM manufacturing sales
increasing $38,895,000 to $112,749,000 for 1999, or 53%. A significant portion
of this increase was attributable to the inclusion of a full year of sales from
the CD-ROM services business acquired from Imation Corporation ("Imation") in
September 1998. Radio syndication sales decreased $693,000, or 14%, to
$4,203,000 in 1999, primarily as a result of some customers choosing to use CD-
Recordable as a distribution method for smaller size orders. DVD sales accounted
for $751,000 in 1999, as compared to $190,000 in 1998.
Gross profit was 28% of net sales for 1999 as compared to 29% of net sales
for 1998. The decrease in gross profit percentage was primarily attributable to
the continuation of price erosion during 1999, albeit at a slower rate than in
prior years.
Selling, general and administrative expenses ("SG&A") increased to
$32,911,000, or 27% of net sales, for 1999 as compared to $18,980,000, or 23% of
net sales, for 1998. SG&A expenses increased in 1999 as a percentage of sales
due to the increased overhead needed to absorb the additional sites, employee
levels, and systems acquired in connection with the acquisition of Imation's
CD-ROM services business.
Restructuring expenses of $1,051,000 were incurred during the fourth
quarter of 1999. These restructuring expenses included approximately $488,000 of
severance and termination benefits related to the Company's decision to close
its Wisconsin client services center and approximately $563,000 associated with
consolidating manufacturing and packaging operations formerly located in
Fremont, California into a single facility in Milpitas, California. These costs
related primarily to estimated lease costs, net of estimated sub-lease rental
income, which will be incurred during the remainder of the Fremont lease term.
Restructuring expenses of $826,000 were incurred during 1998. The 1998
restructuring expenses primarily related to integration costs due to the Imation
6
<PAGE> 8
CD-ROM services business acquisition and certain rent, utilities and labor
expenses associated with closing a Wisconsin manufacturing facility acquired in
that acquisition.
Investment income was $25,000 for 1999 as compared to $35,000 for 1998. The
decrease in investment income was a result of lower cash and cash equivalent
balances. Interest expense for 1999 was $3,336,000 as compared to $1,186,000 for
1998. The increase in interest expense was the result of increased borrowings
under the Company's credit facilities.
Income tax benefit was $1,320,000 in 1999, or an effective tax benefit of
32%, as compared to an income tax expense of $1,262,000 in 1998, or an effective
tax rate of 47%. The 1999 income tax benefit was primarily the result of a loss
before income taxes of $4,166,000 in 1999, as compared to earnings before income
taxes of $2,685,000 in 1998.
The net loss for 1999 was $2,846,000, or basic and diluted losses per
common share of $(.47), as compared to 1998 net earnings of $1,423,000, or basic
and diluted earnings per common share of $.23. This decrease was primarily the
result of lower gross margins and increased SG&A expenses as a percentage of
sales.
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 in September 1998. Radio syndication
sales decreased $751,000, or 13%, to $4,897,000 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 manufacturing facility that was closed in December
1998. In addition, sales price erosion continued during 1998, albeit at a slower
rate than in prior years.
SG&A expenses 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.
Restructuring expenses of $826,000 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 Wisconsin manufacturing facility acquired in that
acquisition.
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. The increase in interest expense was the result of increased borrowings
under the Company's credit facilities, 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.
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.
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 1999 and 1998. Net sales
increased primarily due to increased sales of CD-ROM and related products,
rather than increases in inflation.
7
<PAGE> 9
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This new statement requires companies to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure such instruments at fair value. As amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," the provisions of SFAS No. 133 will
require adoption in 2000.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial statements.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business in 1999 through cash generated from
operations, the use of debt, and the use of available cash balances. Cash flow
from operating activities was $10,690,000, $19,292,000, and $8,197,000 for 1999,
1998 and 1997, respectively. The Company has cash and cash equivalents of
$1,696,000 as of December 31, 1999.
During 1999, the Company continued to increase its manufacturing capacity
over the 1998 levels. These additions, along with recurring capital needs,
resulted in the purchase of $22,823,000 in property, plant and equipment during
1999 as compared to $16,030,000 in 1998 and $8,933,000 in 1997.
The Company completed construction of its distribution center in October
1999. The Company financed the construction through cash generated through
operations and funds available under a $7,000,000 construction loan facility.
This construction loan was replaced in 1999 by a permanent loan facility,
discussed below. Total interest capitalized during 1999, related to the
distribution center, was $74,242.
The Huntington National Bank and Bank One, NA have provided a $30,000,000
term loan facility and a $20,000,000 revolving loan facility to the Company (the
"Credit Facilities"). All loans under the Credit Facilities are payable on
September 11, 2003. The following is a summary of the terms of the Credit
Facilities. The term loan facility is payable over five years in 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. As of December 31, 1999, $17,950,000 was outstanding
under the revolving loan facility. 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. The Company was not in compliance with certain of its
financial covenants as of December 31, 1999, and the bank waived compliance with
these covenants through December 31, 1999. In March 2000, the bank modified the
financial covenants, and the Company anticipates being in compliance with the
revised covenants through the remainder of 2000. If such modified financial
covenants would have been in effect at December 31, 1999, the Company would have
been in compliance with them as of that date.
The Company has a $19,000,000 loan facility with Huntington Capital Corp
which is payable in monthly principal and interest payments based upon a thirty
year amortization schedule and bears interest at a fixed rate of 8.2%. This term
loan facility was used to permanently finance the Company's new Dublin, Ohio
distribution center and to pay down other bank debt. This loan facility is
payable in monthly installments over 10 years, with a 30 year amortization
period, and is secured by a first lien on all real property of the Company and
letters of credit in favor of the lender, in an aggregate amount of $1,650,000.
The Company anticipates incurring a restructuring expense of approximately
$450,000 in the first quarter of 2000. These costs will primarily consist of
severance and termination benefits related to the completion of a U.S. workforce
reduction of approximately 12%. The workforce reduction will be accomplished
through attrition, unfilled vacancies, and layoffs of temporary and some full
time employees.
8
<PAGE> 10
Management believes that current cash balances, plus the funds available
under its current and future credit facilities, plus cash to be generated from
future operations should provide sufficient capital to meet the current business
needs of the Company for the foreseeable future.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 compliant. In the latter part of 1999, the Company completed
its remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
its information and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
internal systems or those of its third party vendors. The Company will continue
to monitor its computer applications throughout the current year to ensure that
any latent Year 2000 matters that may arise are addressed promptly. The Company
incurred nominal expenses during 1999 in connection with its Year 2000
compliance efforts.
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, 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, 1999.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements of Metatec International 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.
9
<PAGE> 11
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
Daniel D. Viren
Senior Vice President and
Chief Financial Officer
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 1999, 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 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.
10
<PAGE> 12
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 except for forward contracts used to hedge the net receivable/payable
position arising from an intercompany note between Metatec International and the
European subsidiary. 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 affected by changes in
market interest rates. The Company does not expect changes in interest rates to
have a material effect on income or cash flows in fiscal 2000, although there
can be no assurances that interest rates will not significantly change.
The effect of foreign exchange rate fluctuations on the Company's
statements of operations for the year's ended December 31, 1999 and 1998 were
not material.
11
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec International, Inc.:
We have audited the accompanying consolidated balance sheets of Metatec
International, Inc. (formerly Metatec Corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States of America. 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 International, Inc. and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
February 28, 2000
(March 22, 2000 as to the waiver and amendment of certain covenants in Note 5 to
the consolidated financial statements)
Columbus, Ohio
12
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
METATEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,695,884 $ 2,557,221
Accounts receivable, net of allowance for doubtful
accounts of $480,000 and $490,000...................... 20,628,847 21,635,889
Inventory................................................. 3,671,639 3,207,460
Prepaid expenses.......................................... 1,050,898 1,037,945
Prepaid income taxes...................................... 234,302 580,879
Deferred income taxes..................................... 1,784,000 143,000
------------ ------------
Total current assets.............................. 29,065,570 29,162,394
Property, plant and equipment -- net........................ 63,748,238 55,827,054
Goodwill -- net............................................. 18,380,164 20,453,366
Other Assets................................................ 213,781 --
------------ ------------
TOTAL ASSETS................................................ $111,407,753 $105,442,814
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,663,558 $ 12,052,442
Accrued royalties......................................... 1,749,508 2,053,691
Accrued personal property taxes........................... 1,241,638 993,399
Other accrued expenses.................................... 1,927,464 2,526,684
Accrued payroll........................................... 1,384,775 1,598,507
Unearned income........................................... 195,975 156,440
Current maturities of long-term debt and capital lease
obligations............................................ 6,999,850 3,080,185
------------ ------------
Total current liabilities......................... 26,162,768 22,461,348
Long-term debt and capital lease obligations, less current
maturities................................................ 45,501,868 39,506,376
Other long-term liabilities................................. 450,925 45,193
Deferred income taxes....................................... 1,430,000 1,480,000
------------ ------------
Total liabilities................................. 73,545,561 63,492,917
------------ ------------
Commitments and contingencies (Notes 6, and 7)
Shareholders' equity:
Common stock, 1999 -- no par value, 1998 -- $.10 par
value; authorized 1999 -- 10,000,000 shares,
1998 -- 10,083,500; issued 1999 -- 7,157,355 shares,
1998 -- 7,153,480 shares............................... 34,949,138 715,348
Additional paid-in capital................................ -- 34,218,577
Retained earnings......................................... 9,959,256 12,805,546
Accumulated other comprehensive income (loss)............. (1,223,665) 32,963
Treasury stock, at cost; 1,081,742 shares................. (5,822,537) (5,822,537)
------------ ------------
Total shareholders' equity........................ 37,862,192 41,949,897
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.................... $111,407,753 $105,442,814
============ ============
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 15
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
NET SALES.......................................... $120,281,047 $80,919,128 $48,933,634
Cost of sales...................................... 87,174,319 57,276,391 33,815,791
------------ ----------- -----------
Gross profit....................................... 33,106,728 23,642,737 15,117,843
Selling, general and administrative expenses....... 32,910,549 18,980,164 13,847,028
Restructuring expenses............................. 1,050,722 825,975 206,000
------------ ----------- -----------
OPERATING EARNINGS (LOSS).......................... (854,543) 3,836,598 1,064,815
Other income and (expense):
Investment income............................. 24,520 34,546 49,459
Interest expense.............................. (3,336,267) (1,186,375) (73,740)
------------ ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES................ (4,166,290) 2,684,769 1,040,534
Income taxes (benefit)............................. (1,320,000) 1,262,000 549,000
------------ ----------- -----------
NET EARNINGS (LOSS)................................ $ (2,846,290) $ 1,422,769 $ 491,534
============ =========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic and diluted................................ $ (0.47) $ 0.23 $ 0.07
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic............................................ 6,074,879 6,058,414 6,791,836
============ =========== ===========
Diluted.......................................... 6,074,879 6,115,084 7,189,266
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 16
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL
----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996...................... $ 707,336 $33,935,853 $10,891,243 $ 0 $ (268,641) $45,265,791
Net earnings................ 491,534 491,534
Treasury shares acquired.... (4,733,256) (4,733,256)
Stock awards for
employees................. 641 30,839 31,480
Stock options exercised..... 2,871 127,633 130,504
Tax benefit relating to
stock options............. 8,000 8,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1997...................... 710,848 34,102,325 11,382,777 0 (5,001,897) 41,194,053
Comprehensive Income:
Net earnings.............. 1,422,769 1,422,769
Foreign currency
translation
adjustments............. 32,963 32,963
-----------
Comprehensive income.... 1,455,732
Treasury shares acquired.... (820,640) (820,640)
Stock options exercised..... 4,500 66,252 70,752
Tax benefit relating to
stock options............. 50,000 50,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1998...................... 715,348 34,218,577 12,805,546 32,963 (5,822,537) 41,949,897
Comprehensive Loss:
Net loss.................. (2,846,290) (2,846,290)
Foreign currency
translation
adjustments............. (1,256,628) (1,256,628)
-----------
Comprehensive loss...... (4,102,918)
Stock options exercised..... 388 10,825 11,213
Tax benefit relating to
stock options............. 4,000 4,000
Elimination of par value.... 34,233,402 (34,233,402)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1999...................... $34,949,138 $ 0 $ 9,959,256 $(1,223,665) $(5,822,537) $37,862,192
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 17
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).............................. $(2,846,290) $ 1,422,769 $ 491,534
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 14,346,593 9,976,282 7,914,342
Deferred income taxes (benefit)............... (1,691,000) 349,000 192,000
Stock awards for employees.................... 0 0 31,480
Net loss (gain) on sales of property, plant
and equipment............................... (62,094) 68,218 54,962
Changes in assets and liabilities:
Accounts receivable......................... 606,178 (3,494,680) (504,582)
Inventory................................... (535,012) 351,314 (206,781)
Prepaid expenses and other assets........... 105,334 (1,256,023) 97,929
Accounts payable and accrued expenses....... 708,606 11,792,093 257,285
Unearned income............................. 57,617 82,662 (131,365)
----------- ------------ -----------
Net cash provided by operating
activities............................. 10,689,932 19,291,635 8,196,804
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in long-term note
receivable.................................... 0 550,649 (336,799)
Purchase of property, plant and equipment........ (21,371,106) (14,290,702) (8,566,133)
Proceeds from the sales of property, plant and
equipment..................................... 267,668 20,638 83,434
Net cash used for acquisitions................... (314,212) (41,635,504) 0
----------- ------------ -----------
Net cash used in investing activities.... (21,417,650) (55,354,919) (8,819,498)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt and capital lease
obligations................................... 33,595,339 46,332,261 4,500,000
Payment of long-term debt and capital lease
obligations................................... (23,680,182) (8,425,888) (116,252)
Stock options exercised, including tax benefit... 15,213 120,752 138,504
Treasury stock acquired.......................... 0 (820,640) (4,733,256)
----------- ------------ -----------
Net cash provided (used) by financing
activities............................. 9,930,370 37,206,485 (211,004)
----------- ------------ -----------
Effect of exchange rate on cash.................. (63,989) 32,963 0
Increase (decrease) in cash and cash equivalents... (861,337) 1,176,164 (833,698)
Cash and cash equivalents at beginning of year..... 2,557,221 1,381,057 2,214,755
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ 1,695,884 $ 2,557,221 $ 1,381,057
=========== ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.................................... $ 3,950,812 $ 429,606 $ 65,197
=========== ============ ===========
Income taxes paid................................ $ 34,249 $ 1,824,155 $ 64,785
=========== ============ ===========
Assets purchased for the assumption of
liabilities................................... $ 1,452,313 $ 1,739,058 $ 367,137
=========== ============ ===========
Acquisition of receivables and inventory for the
assumption of liabilities..................... $ 0 $ 497,028 $ 0
=========== ============ ===========
Assets sold for the assumption of receivable..... $ 41,993 $ 0 $ 0
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of Metatec International, Inc. and its wholly owned subsidiaries (the "Company"
or "Metatec"). All significant intercompany accounts and transactions have been
eliminated. The Company's subsidiaries maintain separate financial statements.
Prior to May 1, 1999, the registrant was Metatec Corporation, a Florida
corporation. At the annual meeting of shareholders on April 20, 1999, the
shareholders of Metatec Corporation approved a proposal to change the
registrant's state of incorporation from Florida to Ohio through a merger of
Metatec Corporation with and into its wholly owned subsidiary Metatec
International, Inc., an Ohio corporation, which became effective on April 30,
1999. At that time, the registrant became an Ohio corporation and its name
changed to Metatec International, Inc. The term "Company" includes Metatec
Corporation as the predecessor to Metatec International, Inc.
As part of the merger, the shareholders of the Company approved a
resolution which amended and restated the Company's Articles of Incorporation to
decrease the number of authorized shares of common stock from 10,083,500 shares,
par value $.10, to 10,000,000 shares, without par value. The additional paid-in
capital account has been combined with common stock as presented in the
Consolidated Statements of Shareholder's Equity.
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 nine 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.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. In 1999
$74,242 of interest cost was capitalized. No interest was capitalized in 1998 or
1997.
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 the CD-ROM services business of Imation Corporation ("Imation").
This $18,025,184 in goodwill is being amortized using the straight-line method
through 2013. At July 2, 1999, goodwill increased $64,212 as part of the
purchase of a small software products and technology services firm called
SilverSpan. This additional $64,212 in goodwill is being amortized using the
straight-line method through 2002. Accumulated amortization was $3,549,801 and
$1,928,727 at December 31, 1999 and 1998, respectively.
17
<PAGE> 19
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.
Advertising -- The Company expenses advertising costs as incurred.
Advertising expense was $8,711, $15,508 and $26,963 for 1999, 1998 and 1997,
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 includes the effect of stock options.
Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board ("FASB") issued 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 losses
related to foreign currency translation adjustments of $1,256,628 in 1999, and
income of $32,963 for 1998.
Financial Instruments -- The Company entered into a series of forward
contracts (against the Dutch guilder and U.S. Dollar) to hedge the new
receivable/payable position arising from an intercompany note between Metatec
and its European subsidiary. The Company is not a party to leveraged derivatives
and does not hold or issue financial instruments for speculative purposes. The
purpose of the Company's hedging is to protect it from the risk that the
eventual functional currency inflows resulting from the intercompany payments
will be adversely affected by changes in exchange rates. The forward contracts
have been designed to correspond with the repayment schedule contained within
the intercompany note. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by the value of
the underlying exposures being hedged.
Foreign Currency Translation -- The assets and liabilities of the Company's
subsidiaries outside the United States are translated into U.S. dollars at the
rates of exchange in effect at the balance sheet dates. Income and expense items
are translated at the average exchange rates prevailing during the period. Gains
and losses resulting from foreign currency transactions are recognized currently
in net income and those resulting from translation of financial statements are
recognized currently in comprehensive income.
Recently Issued Financial Accounting Standards -- In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This new statement requires companies to recognize all derivatives
as either assets or liabilities in the balance sheet and measure such
instruments at fair value. As amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," the provisions of SFAS No. 133 will require adoption
in 2000.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial statements.
Reclassifications -- Certain reclassifications have been made to the prior
year financial statements to conform with the 1999 presentation.
2. BUSINESS COMBINATIONS
On July 2, 1999, the Company purchased the technology products and services
business of a company called SilverSpan for a purchase price of $314,212 which
included $64,212 in goodwill, plus an earn out to be paid over a 42 month
period.
18
<PAGE> 20
SilverSpan is a software products and technology services firm specializing
in secure, managed delivery of software, digital documents and information
products for business customers over the Internet, corporate Intranets, and
Extranets. The Company acquired the SilverSpan business through a court-approved
sale under Chapter 11 proceedings of Megasoft, SilverSpan's parent company. The
Company financed the purchase through funds borrowed under the Company's
existing revolving loan facility. The impact of the purchase of SilverSpan was
not material to the Company's 1999 results of operations.
During 1998, the Company 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 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.
The purchase price for the Imation assets was $39.8 million. 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>
3. RESTRUCTURING CHARGES
During the fourth quarter of 1999, the Company made a decision to close its
Menomonie, Wisconsin client services center. As a result of this action, the
Company incurred restructuring charges of $488,255 primarily for severance and
termination benefits, $198,622 of which had been paid as of December 31, 1999.
In addition, the Company relocated its California facility from Fremont to
Milpitas during 1999, causing the Company to incur restructuring charges of
$562,467. These costs related primarily to estimated lease costs, net of
estimated sub-lease rentals of $1,067,000, which will be incurred during the
remainder of the Fremont lease term to 2003.
Restructuring charges 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 the closing of a Wisconsin manufacturing facility acquired in connection
with such acquisition. Approximately $368,000 of these expenses were paid in
1998 and the balance was paid in 1999.
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.
19
<PAGE> 21
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land............................................ $ 2,579,787 $ 2,579,787
Buildings and improvements...................... 29,659,406 18,098,312
Machinery and equipment......................... 52,279,812 49,014,899
Furniture and fixtures.......................... 5,930,555 3,970,336
Computer equipment and related software......... 10,124,108 7,436,858
Equipment installation and building in
progress...................................... 2,918,746 3,656,616
------------ ------------
Total................................. 103,492,414 84,756,808
Less accumulated depreciation................... (39,744,176) (28,929,754)
------------ ------------
Net property, plant and equipment............... $ 63,748,238 $ 55,827,054
============ ============
</TABLE>
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Term debt......................................... $14,250,000 $30,000,000
Revolving line of credit.......................... 17,950,000 12,500,000
Real estate financing............................. 18,950,535
Capital lease obligations......................... 1,351,183 86,561
Less current maturities........................... (6,999,850) (3,080,185)
----------- -----------
Long-term debt and capital lease obligations...... $45,501,868 $39,506,376
=========== ===========
</TABLE>
The Company has an agreement with a bank that provides credit facilities
for a term loan and revolving loan. The revolving loan provides for advances of
up to $20,000,000 through September 10, 2003, of which $17,950,000 was
outstanding at December 31, 1999. The term loan was issued in a single advance
on September 11, 1998, in the amount of $30,000,000. The term loan is to be
repaid in installments with the total balance due September 11, 2003. Borrowings
under these 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, 1999 ranged from 7.68% to 8.5% (6.9% to 7.25% at December 31,
1998). These 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.
The Company has a $19,000,000 loan facility with a lender which is payable
in monthly principal and interest payments based upon a thirty year amortization
schedule and bears interest at a fixed rate of 8.2%. This term loan facility was
used to permanently finance the Company's new Dublin, Ohio distribution center
and to pay down other bank debt. The loan is secured by a first lien on all real
property of the Company and letters of credit in favor of the lender in an
aggregate amount of $1,650,000.
At December 31, 1999, the Company had a $400,000 and a $1,650,000 letter of
credit outstanding which had not been drawn upon before year end.
The terms of the credit facilities provide for the maintenance of certain
financial covenants. Because of the operating loss reported by the Company for
the year ended December 31, 1999 the Company would not have been in compliance
with such covenants had the bank not granted a waiver extending through December
31, 1999. On March 22, 2000, the bank amended the covenants and the Company
anticipates being in compliance
20
<PAGE> 22
with the amended covenants through the remainder of 2000. If such modified
financial covenants would have been in effect at December 31, 1999, the Company
would have been in compliance with them as of that date.
The estimated fair value of the Company's long-term obligations
approximated their carrying amount at December 31, 1999 and 1998, based on
current market prices for the same or similar issues.
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.
Total long-term debt maturities in 2000 to 2004, are $6,999,850,
$6,274,360, $1,795,109, $18,272,401, $352,243 respectively, and $18,807,755
thereafter.
6. LEASES
At December 31, 1999, the Company leased $1,883,121 of office equipment and
building improvements, with related accumulated depreciation of $567,951, under
non-cancelable capital lease agreements expiring at various dates through 2009.
Maintenance, insurance, and tax expenses are the responsibility of the Company
under the agreements.
Operating lease expense was $3,126,464, $1,865,688 and $370,597 for 1999,
1998 and 1997, 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>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
Year ending December 31:
2000........................................... $ 227,341 $ 2,064,855
2001........................................... 220,944 1,893,532
2002........................................... 220,944 1,799,723
2003........................................... 220,944 1,719,713
2004........................................... 220,944 1,560,158
Thereafter..................................... 976,223 6,506,609
---------- -----------
Total minimum lease payments................... 2,087,340 $15,544,590
===========
Less amount representing interest.............. (736,157)
----------
Present value of net minimum payments.......... $1,351,183
==========
</TABLE>
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, 1999 and 1998
of $450,000 and $331,000, respectively. The Company is also self insured with
respect to short term disability claims.
21
<PAGE> 23
8. INCOME TAXES
The components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
Federal:
Current............................... $ 132,000 $ 600,000 $279,000
Deferred.............................. (909,000) 272,000 101,000
----------- ---------- --------
Total Federal...................... (777,000) 872,000 380,000
----------- ---------- --------
State and Local:
Current............................... 444,000 160,000 78,000
Deferred.............................. (618,000) 77,000 91,000
----------- ---------- --------
Total State and Local.............. (174,000) 237,000 169,000
----------- ---------- --------
Foreign:
Current............................... (205,000) 153,000
Deferred.............................. (164,000)
----------- ---------- --------
Total Foreign...................... (369,000) 153,000
----------- ---------- --------
Total................................... $(1,320,000) $1,262,000 $549,000
=========== ========== ========
</TABLE>
Total earnings before income taxes in 1999 is comprised of $732,584 foreign
losses and $3,433,706 domestic losses. 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.
Significant differences between income taxes recorded for financial
reporting purposes and income taxes (benefit) calculated using the Federal
statutory rate of 34% are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
Tax expense (benefit) at statutory
rate.................................. $(1,417,000) $ 913,000 $354,000
State and local tax expense (benefit),
net of federal benefit................ (114,000) 156,000 111,000
Non deductible goodwill................. 156,000 156,000 156,000
Other................................... 55,000 37,000 (72,000)
----------- ---------- --------
Total................................... $(1,320,000) $1,262,000 $549,000
=========== ========== ========
</TABLE>
22
<PAGE> 24
Deferred income taxes recorded in the consolidated balance sheets at
December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
State tax credit (expires 2005).................... $ 409,000 $ 228,000
Allowance for doubtful accounts.................... 167,000 168,000
Net operating loss carryforwards................... 1,740,000 88,000
Accrued Medical Insurance.......................... 185,000 96,000
Other.............................................. 479,000 287,000
---------- -----------
Total deferred tax assets................ 2,980,000 867,000
---------- -----------
Deferred tax liabilities:
Depreciation....................................... 2,114,000 1,754,000
Prepaid Expenses................................... 234,000 288,000
Other.............................................. 278,000 162,000
---------- -----------
Total deferred tax liabilities........... 2,626,000 2,204,000
---------- -----------
Net deferred tax asset (liability)................. $ 354,000 $(1,337,000)
========== ===========
</TABLE>
The Company has available net operating loss carry forwards for tax
purposes of approximately $4,000,000. Included in this balance are foreign net
operating loss carry forwards of approximately $675,000. 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 the Company.
Based on management's projection of income, the Company will more likely
than not realize such benefits of such tax credits carry forwards.
At December 31, 1999 there were no unremitted earnings of subsidiaries
outside the United States, due to cumulative net losses in these subsidiaries.
Accordingly, no deferred income taxes for additional United States federal
income taxes from the distribution of foreign earnings is required.
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
$703,300, $284,100 and $170,300 for 1999, 1998 and 1997, respectively. During
1998, the Company increased its 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 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 $427,028 in performance
sharing bonuses earned for 1999, of which $357,674 was paid as of December 31,
1999. The Company recorded $1,106,756 in performance sharing bonuses earned for
1998, of which $438,293 was paid as of December 31, 1998.
The Company initiated a discretionary common stock award program for
employees during 1996. The value of the 1997 stock award was $31,480. The
program was discontinued at the end of 1997.
10. STOCK OPTION PLANS
In 1999, the Company's shareholders approved the 1999 Directors' Stock
Option Plan (the "1999 Directors Plan") under which a maximum of 300,000 Common
Shares may be issued. The 1999 Directors Plan replaced
23
<PAGE> 25
the Company's 1992 Directors' Stock Option Plan, and no additional options will
be issued under the 1992 plan. The 1999 Directors Plan automatically grants
5,000 options to each non-employee director immediately following 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 1999 Directors Plan automatically grants 10,000 one-time options.
These one-time options vest in equal installments over a four year period. As of
December 31, 1999, there have been 25,000 options granted under the 1999
Directors Plan, none of which were forfeited, none of which were exercised, and
all of which were exercisable. As of December 31, 1999, there have been 164,925
options granted under the 1992 Director's Stock Option Plan, 80,080 of which
were forfeited, 22,345 of which were exercised and 57,500 of which 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 has a 1990 Stock Option Plan under which a maximum of 1,610,000
Common Shares may be issued. This Plan, as amended, is available to officers and
available to all full time 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, 1999, there have been
2,262,050 options granted under this plan, 805,275 of which were forfeited,
271,450 of which were exercised and 578,000 of which 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, 1999, 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.
24
<PAGE> 26
The following summarizes all stock option transactions from January 1, 1997
through December 31, 1999:
<TABLE>
<CAPTION>
PER SHARE WEIGHTED AVERAGE
SHARES OPTION PRICE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Outstanding at January 1, 1997...... 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
GRANTED............................. 299,500 $ 3.00 TO $6.63 $5.02
EXERCISED........................... (3,875) $ 1.50 TO $4.38 $2.89
TERMINATED.......................... (84,875) $4.38 TO $11.50 $8.82
---------
OUTSTANDING AT DECEMBER 31, 1999.... 1,272,825 $1.50 TO $12.88 $5.24
=========
</TABLE>
The following presents information for common shares exercisable as of
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Weighted Average Exercise Price.............. $ 5.56 $ 6.35 $ 6.68
======= ======= ========
Common Shares Exercisable.................... 660,500 510,800 186,455
======= ======= ========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999:
<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>
$1.50 -- $1.75 20,500 0.9 $ 1.56 20,500 $ 1.56
$3.00 -- $4.50 512,225 8.2 $ 4.15 163,675 $ 4.22
$5.13 -- $6.00 596,700 7.7 $ 5.67 432,925 $ 5.80
$6.13 -- $11.00 132,500 7.3 $ 7.24 32,500 $ 9.13
$11.50 -- $12.88 10,900 1.6 $12.77 10,900 $12.77
--------- -------
1,272,825 $ 5.22 660,500 $ 5.56
========= =======
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and
1997 were $5.02, $4.96 and $4.03, respectively.
At December 31, 1999 options for 275,000 and 153,225 common shares (total
of 428,225) were reserved for future grant and the 1999 Directors 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
25
<PAGE> 27
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, 1999, 1998 and 1997, respectively: dividend yield of 0%;
expected volatility of 62%, 61% and 56%; risk-free interest rates based on the
constant maturity rates for Treasuries that mature in accordance with the
vesting period of the options granted.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ---------
<S> <C> <C> <C>
Net earnings (loss) --
As reported........................................ $(2,846,290) $ 1,422,769 $ 491,534
Pro forma.......................................... $(3,116,219) $ 810,441 $(661,075)
Earnings per share --
As reported
Basic and diluted............................... $ (0.47) $ 0.23 $ 0.07
Pro forma --
Basic........................................... $ (0.51) $ 0.13 $ (0.10)
Diluted......................................... $ (0.51) $ 0.13 $ (0.09)
</TABLE>
The pro forma amounts are not representative of the effects on reported net
earnings or earnings per common share for future years.
11. FINANCIAL INSTRUMENTS
Off balance sheet derivative financial instruments at December 31, 1999,
include a foreign currency forward contract.
The Company entered into a series of forward contracts (against the Dutch
guilder and U.S. Dollar) to hedge the new receivable/payable position arising
from an intercompany note between Metatec and its European subsidiary. The
Company is not a party to leveraged derivatives and does not hold or issue
financial instruments for speculative purposes. The purpose of the Company's
hedging is to protect it from the risk that the eventual functional currency
inflows resulting from the intercompany payments will be adversely affected by
changes in exchange rates. The forward contracts have been designed to
correspond with the repayment schedule contained within the intercompany note.
While these hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged.
Foreign currency forward contracts had contract values, and fair values of
$6,438,315 and $6,017,059, respectively, at December 31, 1999. No foreign
currency forward contracts existed at December 31, 1998.
12. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
In June 1997 the FASB issued SFAS 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 No. 131, the
Company has determined that it has one reportable segment.
However, the Company does operate in two primary geographic areas and two
classes of products.
26
<PAGE> 28
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>
U.S. EUROPE
------------ -----------
<S> <C> <C>
1999
Sales....................................................... $107,644,368 $12,636,679
Long-lived assets........................................... $ 76,267,397 $ 6,074,786
1998
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
</TABLE>
Revenues attributed to product types are distinguished as CD-ROM sales and
other sales. Segment information for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
CD-ROM OTHER PRODUCTS
------------ --------------
<S> <C> <C>
1999
Sales....................................................... $112,749,000 $7,532,000
1998
Sales....................................................... $ 73,854,000 $7,065,000
1997
Sales....................................................... $ 42,020,000 $6,914,000
</TABLE>
No customer accounted for greater than 10% of net sales for any of the
three years in the period ended December 31, 1999.
13. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1999
NET SALES........................... $31,067,983 $29,488,771 $28,152,547 $31,571,746
GROSS PROFIT........................ 10,067,663 7,556,234 6,849,548 8,633,283
NET EARNINGS (LOSS)................. 857,790 (556,620) (1,628,777) (1,518,683)
NET EARNINGS (LOSS) PER COMMON
SHARE:
BASIC............................ $ 0.14 $ (0.09) $ (0.27) $ (0.25)
DILUTED.......................... $ 0.14 $ (0.09) $ (0.27) $ (0.25)
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
</TABLE>
The quarter ended December 31, 1999, also included an approximate $650,000
reduction of expenses for prior quarters of 1999 due to a change in estimate
related to manufacturing royalties. The quarter also included $1,050,722 of
restructuring charges.
The quarter ended December 31, 1998 included restructuring charges of
$825,975.
27
<PAGE> 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 27, 2000, 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
27, 2000, 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
27, 2000, and is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Company's proxy
statement which was filed with the Securities and Exchange Commission on March
27, 2000, and is hereby incorporated herein by reference.
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, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
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, 1999, 1998 and 1997 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.
28
<PAGE> 30
(a)(3) LISTING OF EXHIBITS
<TABLE>
<CAPTION>
IF INCORPORATED BY REFERENCE,
DOCUMENT WITH WHICH EXHIBIT WAS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
- - ----------- ---------------------- -------------------------------
<S> <C> <C>
2 Asset Purchase Agreement dated July 29, 1998, Current Report on Form 8-K dated September 11,
among Metatec International, Inc., Metatec 1998 (See Exhibit 2 therein).
Acquisition Corp., Metatec International B.V.,
Imation Corp., Imation International B.V., and
Imation Enterprises Corp.
3(a) Amended and Restated Articles of Incorporation Registration Statement on Form S-8, File No.
of Metatec International, Inc. 333-03125 (see Exhibit 4(a) therein).
3(b) Code of Regulations of Metatec International, Registration Statement on Form S-8, File No.
Inc. 333-03125 (see Exhibit 4(b) therein).
4 Form of Share Certificate Registration Statement on Form S-8, File No.
333-03125 (see Exhibit 4(c) therein).
10(a)* Amended and Restated Employment Agreement dated Annual Report on Form 10-K for the fiscal year
March 23, 1993, between Metatec International, ended December 31, 1992 (See Exhibit 10(h)
Inc. and Jeffrey M. Wilkins therein).
10(b)* First Amendment to Amended and Restated Annual Report on Form 10-K for the fiscal year
Employment Agreement dated March 21, 1996, ended December 31, 1995 (See Exhibit 10(c)
between Metatec International, Inc. and Jeffrey therein).
M. Wilkins
10(c)* Second Amendment to Amended and Restated Annual Report on Form 10-K for the fiscal year
Employment Agreement dated February 17, 1998, ended December 31, 1998 (see Exhibit 10(d)
between Metatec International, Inc. and Jeffrey therein).
M. Wilkins
10(d)* Metatec International, Inc. 1990 Stock Option Annual Report on Form 10-K for the fiscal year
Plan ended December 31, 1991 (see Exhibit 10(k)
therein).
10(e)* Amendment No. 1 to Metatec International, Inc. Registration Statement on Form S-8, File No.
1990 Stock Option Plan 33-48022 (see Exhibit 4(d) therein).
10(f)* Amendment No. 2 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1992 (see Exhibit 10(k)
therein).
10(g)* Amendment No. 3 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1993 (see Exhibit 10(g)
therein).
10(h)* Amendment No. 4 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1995 (See Exhibit 10(h)
therein).
10(i)* Amendment No. 5 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1997 (See Exhibit 10(I)
therein).
10(j)* Amendment No. 6 to Metatec International, Inc. Registration Statement on Form S-8, File No.
1990 Stock Option Plan 333-03125 (see Exhibit 4(i) therein).
10(k)* Metatec International, Inc. 1992 Directors' Registration Statement on Form S-8, File No.
Stock Option Plan 33-52700 (see Exhibit 4(c) therein).
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
IF INCORPORATED BY REFERENCE,
DOCUMENT WITH WHICH EXHIBIT WAS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
- - ----------- ---------------------- -------------------------------
<S> <C> <C>
10(l)* Amendment No. 1 to Metatec International, Inc. 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 International, Inc. 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 International, Inc. 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 International, Inc. 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) Amendment No. 5 to Metatec International, Inc. Registration Statement on Form S-8, File No.
1992 Directors' Stock Option Plan 333-31027 (see Exhibit 4 therein).
10(q)* Metatec International, Inc. 1999 Directors Stock Registration Statement on Form S-8, File No.
Option Plan 333-10442 (see Exhibit 4(d) therein).
10(r)* Metatec International, Inc. Open Book Management Annual Report on Form 10-K for the fiscal year
Plan ended December 31, 1998 (see Exhibit 10(p)
therein).
10(s)* Metatec International, Inc. Directors Deferred Annual Report on Form 10-K for the fiscal year
Compensation Plan ended December 31, 1997 (see Exhibit 10(p)
therein).
10(t) Form of Indemnification Agreement between Contained herein.
Metatec International, Inc. and each of its
officers and directors
10(u) Patent License Agreement for Disc Products dated Amendment No. 1 to Registration Statement on
July 1, 1986, between Metatec/ Discovery Form S-1, File No. 33-60878 (see Exhibit 10(t)
Systems, Inc. and Discovision Associates therein).
10(v) CD Disc License Agreement dated January 1, 1986, Amendment No. 1 to Registration Statement on
between U.S. Philips Corporation and Metatec/ Form S-1, File No. 33-60878 (see Exhibit 10(u)
Discovery Systems, Inc. therein).
10(w) Optical Disc Corporation NPR Technology License Amendment No. 1 to Registration Statement on
Agreement between Optical Disc Corp-oration and Form S-1, File No. 33-60878 (see Exhibit 10(v)
Metatec/Discovery Systems effective March 2, therein).
1992
10(x) Loan Agreement dated September 11, 1998, among Current Report on Form 8-K dated September 11,
Metatec International, Inc., Bank One, NA, The 1998 (See Exhibit 10(a) therein).
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(y) $19.0 million Promissory Note and Mortgage, Contained herein.
Assignment of Rents and Security Agreement, each
dated July 28, 1999, between META Holdings, LLC
and Huntington Capital Corp.
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
IF INCORPORATED BY REFERENCE,
DOCUMENT WITH WHICH EXHIBIT WAS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
- - ----------- ---------------------- -------------------------------
<S> <C> <C>
21 Subsidiaries of Metatec International, Inc. Contained herein.
23 Consent of Deloitte & Touche LLP Contained herein.
24(a) Powers of Attorney for Peter J. Kight and A. Annual Report on Form 10-K for the fiscal year
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. Keeler, Jr. Annual Report on Form 10-K for the 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
None
(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.
31
<PAGE> 33
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 INTERNATIONAL, INC.
Date: March 27, 2000
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
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY M. WILKINS Chairman of the Board, Chief March 27, 2000
- - ------------------------------------------------ Executive Officer (principal
Jeffrey M. Wilkins executive officer) and Director
/s/ DANIEL D. VIREN Senior Vice President and Chief March 27, 2000
- - ------------------------------------------------ Financial Officer (principal
Daniel D. Viren financial officer and principal
accounting officer)
PETER J. KIGHT* Director March 27, 2000
- - ------------------------------------------------
Peter J. Kight
JERRY D. MILLER* Director March 27, 2000
- - ------------------------------------------------
Jerry D. Miller
A. GRANT BOWEN* Director March 27, 2000
- - ------------------------------------------------
A. Grant Bowen
JAMES V. PICKETT* Director March 27, 2000
- - ------------------------------------------------
James V. Pickett
JOSEPH F. KEELER, JR.* Director March 27, 2000
- - ------------------------------------------------
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
--------------------------------------------------------
Jeffrey M. Wilkins, Attorney In Fact March 27, 2000
32
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec International, Inc.:
We have audited the consolidated financial statements of Metatec
International, Inc. (formerly Metatec Corporation) and subsidiaries as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated February 28, 2000
(March 22, 2000 as to the waiver and amendment of certain covenants in Note 5 to
the consolidated financial statements); such report is included elsewhere in
this Form 10-K. Our audits also included the consolidated financial statement
schedule of Metatec International, Inc. 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
February 28, 2000
(March 22, 2000 as to the waiver and amendment of certain covenants in Note 5 to
the consolidated financial statements)
Columbus, Ohio
<PAGE> 35
METATEC INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - ---------------------------------------------------- ------------ ----------------------- -------------- ---------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS(A) YEAR
----------- ------------ ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
1999
Allowance for doubtful accounts receivable.......... $490,000 $403,000 $413,000 $480,000
======== ======== ======== ========
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
======== ======== ======== ========
</TABLE>
- - ---------------
(A) Amount represents uncollectible accounts written off.
<PAGE> 36
EXHIBIT INDEX
03/21/00
<PAGE> 37
<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 Current Report on Form 8-K
dated July 29, 1998, among dated September 11, 1998 (See
Metatec International, Inc., 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 Articles Registration Statement on Form
of Incorporation of Metatec S-8, File No. 333-03125 (see
International, Inc. Exhibit 4(a) therein).
3(b) Code of Regulations of Registration Statement on Form
Metatec International, Inc. S-8, File No. 333-03125 (see
Exhibit 4(b) therein).
4 Form of Share Certificate Registration Statement on Form
S-8, File No. 333-03125 (see
Exhibit 4(c) therein).
10(a) Amended and Restated Annual Report on Form 10-K for
Employment Agreement dated the fiscal year ended December
March 23, 1993, between 31, 1992 (See Exhibit 10(h)
Metatec International, Inc. therein).
and Jeffrey M. Wilkins
10(b) First Amendment to Amended Annual Report on Form 10-K for
and Restated Employment the fiscal year ended December
Agreement dated March 21, 31, 1995 (See Exhibit 10(c)
1996, between Metatec therein).
International, Inc. and
Jeffrey M. Wilkins
10(c) Second Amendment to Amended Annual Report on Form 10-K for
and Restated Employment the fiscal year ended December
Agreement dated February 17, 31, 1998 (see Exhibit 10(d)
1998, between Metatec therein).
International, Inc. and
Jeffrey M. Wilkins
10(d) Metatec International, Inc. Annual Report on Form 10-K for
1990 Stock Option Plan the fiscal year ended December
31, 1991 (see Exhibit 10(k)
therein).
</TABLE>
03/21/00
<PAGE> 38
<TABLE>
<CAPTION>
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ----------------------------- -------------------------------
<S> <C> <C>
10(e) Amendment No. 1 to Metatec Registration Statement on Form
International, Inc. 1990 S-8, File No. 33-48022 (see
Stock Option Plan Exhibit 4(d) therein).
10(f) Amendment No. 2 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1992 (see Exhibit 10(k)
therein).
10(g) Amendment No. 3 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1993 (see Exhibit 10(g)
therein).
10(h) Amendment No. 4 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1995 (See Exhibit 10(h)
therein).
10(i) Amendment No. 5 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1997 (See Exhibit 10(I)
therein).
10(j) Amendment No. 6 to Metatec Registration Statement on Form
International, Inc. 1990 S-8, File No. 333-03125 (see
Stock Option Plan Exhibit 4(i) therein).
10(k) Metatec International, Inc. Registration Statement on Form
1992 Directors' Stock Option S-8, File No. 33-52700 (see
Plan Exhibit 4(c) therein).
10(l) Amendment No. 1 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1993 (see Exhibit 10(i)
therein).
10(m) Amendment No. 2 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1995 (see Exhibit 10(k)
therein).
10(n) Amendment No. 3 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1995 (see Exhibit 10(i)
therein).
10(o) Amendment No. 4 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1996 (see Exhibit 10(m)
therein).
10(p) Amendment No. 5 to Metatec Registration Statement on Form
International, Inc. 1992 S-8, File No. 333-31027 (see
Directors' Stock Option Plan Exhibit 4 therein).
</TABLE>
03/21/00
<PAGE> 39
<TABLE>
<CAPTION>
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ----------------------------- -------------------------------
<S> <C> <C>
10(q) Metatec International, Inc. Registration Statement on Form
1999 Directors Stock Option S-8, File No. 333-10442 (see
Plan Exhibit 4(d) therein).
10(r) Metatec International, Inc. Annual Report on Form 10-K for
Open Book Management Plan the fiscal year ended December
31, 1998 (see Exhibit 10(p)
therein).
10(s) Metatec International, Inc. Annual Report on Form 10-K for
Directors Deferred the fiscal year ended December
Compensation Plan 31, 1997 (see Exhibit 10(p)
therein).
10(t) Form of Indemnification Contained herein.
Agreement between Metatec
International, Inc. and each
of its officers and directors
10(u) Patent License Agreement for Amendment No. 1 to Registration
Disc Products dated July 1, Statement on Form S-1, File No.
1986, between Metatec/ 33-60878 (see Exhibit 10(t)
Discovery Systems, Inc. and therein).
Discovision Associates
10(v) CD Disc License Agreement Amendment No. 1 to Registration
dated January 1, 1986, Statement on Form S-1, File No.
between U.S. Philips 33-60878 (see Exhibit 10(u)
Corporation and therein).
Metatec/Discovery Systems,
Inc.
10(w) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement Statement on Form S-1, File No.
between Optical Disc 33-60878 (see Exhibit 10(v)
Corporation and therein).
Metatec/Discovery Systems
effective March 2, 1992
10(x) Loan Agreement dated Current Report on Form 8-K
September 11, 1998, among dated September 11, 1998 (See
Metatec International, Inc., Exhibit 10(a) therein).
Bank 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.
</TABLE>
03/21/00
<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>
10(y) $19.0 million Promissory Note Contained herein.
and Mortgage, Assignment of
Rents and Security Agreement,
each dated July 28, 1999,
between META Holdings, LLC
and Huntington Capital Corp.
21 Subsidiaries of Metatec Contained herein.
International, Inc.
23 Consent of Deloitte & Touche Contained herein.
LLP
24(a) Powers of Attorney for Peter Annual Report on Form 10-K for
J. Kight and A. Grant Bowen the fiscal year ended December
31, 1994 (see Exhibit 24
therein).
24(b) Powers of Attorney for Jerry Annual Report on Form 10-K for
D. Miller the fiscal year ended December
31, 1993 (see Exhibit 24
therein).
24(c) Power of Attorney for James Annual Report on Form 10-K for
V. Pickett the fiscal year ended December
31, 1995 (see Exhibit 24(c)
therein).
24(d) Power of Attorney for Joseph Annual Report on Form 10-K for
F. Keeler, Jr. the fiscal year ended December
31, 1997 (see Exhibit 24(d)
therein).
27 Financial Data Schedule Contained herein.
</TABLE>
03/21/00
<PAGE> 1
EXHIBIT 10(t)
FORM OF INDEMNIFICATION AGREEMENTS
BETWEEN METATEC INTERNATIONAL, INC.
AND EACH OF ITS OFFICERS AND DIRECTORS
<PAGE> 2
INDEMNIFICATION AGREEMENT
-------------------------
This agreement is made effective as of April 30, 1999, between Metatec
International, Inc., an Ohio corporation (the "Company"), and _______________
(the "Director").
Background Information
----------------------
A. The Director is a member of the Company's board of directors, and,
in that capacity, is performing valuable services for the Company.
B. The shareholders of the Company have adopted a Code of Regulations
that provides for the indemnification of the officers, directors, employees, and
agents of the Company as permitted by Chapter 1701 of the Ohio Revised Code (the
"Statute"). The Code of Regulations and the Statute specifically provide that
they are not exclusive and contemplate that agreements may be entered into
between the Company and its directors, officers, employees, and agents with
respect to the indemnification of such individuals.
C. In order to induce the Director to continue to serve as a member of
the Company's board of directors, the Company has determined to enter into this
agreement with the Director.
Statement of Agreement
----------------------
The Company and the Director hereby acknowledge the accuracy of the
above Background Information and agree as follows:
ss.1. Indemnity. The Company shall indemnify the Director to the
fullest extent authorized or permitted by the provisions of the Statute or by
any amendment of the Statute or any other statutory provisions authorizing or
permitting such indemnification which may be adopted after the date of this
agreement.
Without limiting the generality of the foregoing, but subject to the
Statute and the exclusions contained in ss.3 below, the Company shall indemnify
the Director against any and all expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by the
Director in connection with any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative, or investigative and
including, without limitation, an action by or in the right of the Company) to
which the Director is, or was, or at any time becomes, a party, or to which the
Director is threatened to be made a part, as a result, directly or indirectly,
of his serving at any time as a director, officer, employee, or agent of the
Company or serving at the request of the Company as a director, trustee,
officer, employee, member, manager, or agent of another corporation (domestic or
foreign, nonprofit or for profit), limited liability company, partnership, joint
venture, trust, or other enterprise.
ss.2. Insurance. If at any time the Company maintains any directors and
officers liability insurance ("D&O" Insurance"), the Company shall cause the
Director to be covered by
<PAGE> 3
such D&O Insurance to the maximum extent of the coverage available for any
director, officer, employee or agent of the Company, as the case may be. In no
event shall the failure of the Company to maintain D&O Insurance affect or
modify the obligation of the Company to indemnify the Director to the full
extent required under other provisions of this agreement.
ss.3. Limitations on Indemnity. No indemnity pursuant toss.1 of this
agreement shall be paid by the Company:
(a) On account of any suit in which judgment is rendered
against the Director for an accounting of profits made from the
purchase or sale of securities of the Company pursuant to the
provisions of ss.16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of any federal, state, or local
statutory law; or
(b) In any action or suit in which the only liability asserted
against the Director is pursuant to ss.1701.95 of the Ohio Revised
Code.
ss.4. Continuation of Obligations. All obligations of the Company under
this agreement shall continue during the period that the Director is a director,
officer, employee, or agent of the Company or, at the request of the Company, is
a director, officer, employee, or agent of another corporation (domestic or
foreign, nonprofit or for profit), limited liability company, partnership, joint
venture, trust, or other enterprise and shall continue thereafter as long as the
Director may be subject to any possible claim or any threatened, pending, or
completed action, suit, or proceeding (whether civil, criminal, or investigative
and including, without limitation, an action by or in the right of the Company)
as a result, directly or indirectly, of his being such a director, officer,
employee, or agent.
ss.5. Notification and Defense of Claim. Promptly after receipt by the
Director of notice of the commencement of any action, suit, or proceeding, if a
claim is to be made against the Company under this agreement, the Director shall
notify the Company of the commencement thereof, but the omission so to notify
the Company shall not relieve the Company from any liability which it may have
to the Director other than under this agreement. With respect to any such
action, suit, or proceeding of which the Director notifies the Company of this
commencement:
(a) The Company shall be entitled to participate therein at
its own expense;
(b) The Company shall be entitled to assume the defense
thereof, jointly with any other indemnifying party similarly notified,
with counsel selected by the Company and approved by the Director,
which approval shall not unreasonably be withheld. After notice from
the Company to the Director of the Company's election to assume such
defense, the Company shall not be liable to the Director under this
agreement for any legal or other expenses subsequently incurred by the
Director in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. The Director
shall have the right to employ his own counsel in such action, suit or
proceeding, but the fees and expenses of such counsel incurred after
notice from the Company of its assumption of such defense shall be the
expense of the Director unless (i)
-2-
<PAGE> 4
the employment of such counsel by the Director has been authorized by
the Company, (ii) the Director shall have reasonably concluded that
there may be a conflict of interest between the Company and the
Director in the conduct of such defense, or (iii) the Company has not
in fact employed counsel to assume such defense, in any of which cases
the fees and expenses of such counsel shall be the expense of the
Company. The Company shall not be entitled to assume the defense of any
action, suit, or proceeding brought by or on behalf of the Company or
as to which the Director shall have made the conclusion described in
(ii) above.
(c) The Company shall not be required to indemnify the
Director under this agreement for any amounts paid in settlement of any
action or claim without its written consent.
Neither the Company nor the Director shall unreasonably withhold their
consent to any proposed settlement. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the Director
without the Director's written consent.
ss.6. Repayment of Expenses. The Director shall reimburse the Company
for all reasonable expenses paid by the Company in defending any civil or
criminal action, suit, or proceeding against the Director if and to the extent
that the Director shall ultimately be determined not to be entitled to
indemnification by the Company for such expenses under the Statute, the Code of
Regulations, this agreement, or otherwise.
ss.7. Enforcement. The Company expressly confirms that it has entered
into this agreement and has assumed the obligations of this agreement in order
to induce the Director to continue serving as a director of the Company, and the
Company acknowledges that the Director is relying upon this agreement in serving
in that capacity. If the Director is required to bring an action to enforce
rights or to collect money due under this agreement and is successful in such
action, the Company shall reimburse the Director for all of his reasonable
expenses (including without limitation legal fees) in bringing and pursuing such
action.
The rights of the Director under this agreement shall be cumulative and
in addition to any other rights which may be available to the Director from time
to time, whether under any other agreement or document at law or in equity.
ss.8. Governing Law. All questions concerning the validity or intention
of this agreement and all questions relating to performance under this agreement
shall be resolved under the laws of the State of Ohio.
ss.9. Severability. The intention of the parties to this agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all such laws and public policies to the extent
possible. If and to the extent that any court of competent jurisdiction is
unable to so construe any provision of this agreement and holds that provision
to be invalid, such invalidity shall not affect the remaining provisions of this
agreement, which shall remain in full force and effect.
-3-
<PAGE> 5
ss.10. Successors. This agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against the Director and the Company and
the respective heirs, successors, and assigns of the Director and the Company.
METATEC INTERNATIONAL, INC.
By:
---------------------------------------------
Jeffrey M. Wilkins, Chairman of the Board,
President, and Chief Executive Officer
---------------------------------------------
-4-
<PAGE> 1
EXHIBIT 10(y)
$19.0 MILLION PROMISSORY NOTE
AND MORTGAGE, ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT, EACH DATED JULY 28, 1999,
BETWEEN META HOLDINGS, LLC AND HUNTINGTON CAPITAL CORP.
<PAGE> 2
(Defeasance)
PROMISSORY NOTE
US$19,000,000.00 Columbus, Ohio
July 28, 1999
FOR VALUE RECEIVED, the undersigned promise to pay HUNTINGTON CAPITAL
CORP., an Ohio corporation, or order, the principal sum of Nineteen Million
Dollars, with interest on the unpaid principal balance from the date of this
Note, until paid, at the rate of eight and one-fifth (8.20%) percent per annum.
The principal and interest shall be payable at 41 South High Street, Columbus,
Ohio 43215, or such other place as the holder hereof may designate in writing,
in consecutive monthly installments of One Hundred Forty-Two Thousand
Seventy-Three and 35/100 Dollars (US$142,073.35) on the 1st day of each month
beginning September 1, 1999, (herein "amortization commencement date"), until
the entire indebtedness evidenced hereby is fully paid, except that any
remaining indebtedness, if not sooner paid, shall be due and payable on August
1, 2009 (the "Maturity Date").
If any installment under this Note is not paid when due, the entire
principal amount outstanding hereunder and accrued interest thereon shall at
once become due and payable, at the option of the holder hereof. The holder
hereof may exercise this option to accelerate during any default by the
undersigned regardless of any prior forbearance. In the event of any default in
the payment of this Note or any other payment due under the Instrument or any
other Loan Document (as such terms are hereinafter defined) and if the same is
referred to an attorney at law for collection or any action at law or in equity
is brought with respect hereto, the undersigned shall pay the holder hereof all
expenses and costs, including, but not limited to, attorneys' fees.
If any installment under this Note is not received by the holder hereof
within ten (10) calendar days after the installment is due, the undersigned
shall pay to the holder hereof a late charge of the greater of (a) US$250.00 or
(b) five percent (5%) of such installment, such late charge to be immediately
due and payable without demand by the holder hereof. If any installment under
this Note or any other monetary payment due under this Note, the Instrument or
any other Loan Document remains past due for ten (10) calendar days or more, the
outstanding principal balance of this Note shall bear interest during the period
in which the undersigned is in default at a rate of thirteen and one-fifth
(13.20%) percent per annum, or if there shall exist any non-monetary default
under this Note, the Instrument or any other Loan Document which remains uncured
for the later of (i) ten (10) calendar days or (ii) the expiration of any
applicable grace or cure period specifically provided in the Instrument, the
outstanding principal balance of this Note shall bear interest during the period
the undersigned is in default at the rate of ten and one-fifth (10.20%) percent
per annum, or, if such increased rate of interest may not be collected from the
undersigned under applicable law, then at the maximum increased rate of
interest, if any, which may be collected from the undersigned under applicable
law.
<PAGE> 3
From time to time, without affecting the obligation of the undersigned
or the successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein, in the Instrument or in any other Loan Document without affecting the
guaranty of any person, corporation, partnership or other entity for payment of
the outstanding principal balance of this Note, without giving notice to or
obtaining the consent of the undersigned, the successors or assigns of the
undersigned or guarantors, and without liability on the part of the holder
hereof, the holder hereof may, at the option of the holder hereof, extend the
time for payment of said outstanding principal balance or any part thereof,
reduce the payments thereon, release anyone liable on any of said outstanding
principal balance, accept a renewal of this Note, modify the terms and time of
payment of said outstanding principal balance, join in any extension or
subordination agreement, release any security given herefor, take or release
other or additional security, and agree in writing with the undersigned to
modify the rate of interest or period of amortization of this Note or change the
amount of the monthly installments payable hereunder.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the joint
and several obligation of all makers, sureties, guarantors, and endorsers, and
shall be binding upon them and their successors and assigns.
The indebtedness evidenced by this Note is secured by, among other
things, that certain Mortgage, Assignment of Rents and Security Agreement (the
"Instrument"), executed by the undersigned, encumbering real property more
particularly described therein (the "Property"), dated of even date herewith,
and reference is made thereto for rights as to acceleration of the indebtedness
evidenced by this Note.
The indebtedness evidenced by this Note may not be prepaid in full or
in part; provided that the undersigned may prepay the indebtedness in full
without premium during the period commencing two (2) months prior to the
Maturity Date. At any time during the Defeasance Period (as defined below),
however, the undersigned may obtain a release of the Property from the lien of
the Instrument upon satisfaction of the following conditions:
(1) not less than thirty (30) days' prior written notice shall be
given to the holder hereof specifying a date (the "Defeasance
Date") on which the Defeasance Deposit (as defined below) is
to be delivered, such date being a principal and interest
installment payment date;
(2) all accrued and unpaid interest and all other sums due under
this Note and under the other Loan Documents up to the
Defeasance Date, including, without limitation, all reasonable
costs and expenses incurred by the holder hereof or its agents
in connection with such defeasance, including, without
limitation, any legal fees and expenses incurred in connection
with obtaining and reviewing the Defeasance Collateral (as
defined below) and the preparation of the Defeasance Security
Agreement (as defined below) and related documentation, shall
be paid in full on or prior to the Defeasance Date;
2
<PAGE> 4
(3) no default or event of default, and no event or condition
that, with the giving of notice or passage of time or both,
would constitute a default or an event of default, shall exist
hereunder or under any of the other Loan Documents either at
the time the undersigned gives notice of the Defeasance Date
to the holder hereof or on the Defeasance Date;
(4) at least ten (10) days prior to the Defeasance Date, the
undersigned shall pay to the holder hereof the principal
amount of the loan evidenced by this Note (the "Loan") to be
defeased together with an additional amount (the "Yield
Maintenance Charge") such that the aggregate amount (the
"Defeasance Deposit") is sufficient to purchase direct,
non-callable obligations of the United States of America (the
"Defeasance Collateral") that provide for payments prior, but
as close as possible, to all successive principal and interest
installment payment dates occurring after the Defeasance Date
through and including the Maturity Date, with each such
payment being equal to or greater than (1) the monthly
installment and (2) with respect to the payment due on the
Maturity Date, the entire outstanding principal balance of
this Note together with any interest accrued as of such date
and all other amounts payable pursuant to the Loan Documents;
(5) the Defeasance Collateral shall be duly endorsed by the holder
thereof as directed by the holder hereof or accompanied by a
written instrument of transfer in form and substance wholly
satisfactory to the holder hereof (including, without
limitation, such instruments as may be required by the
depository institution holding such securities to effectuate
book-entry transfers and pledges through the book-entry
facilities of such institution) in order to create a first
priority security interest therein in favor of the holder
hereof in conformity with all applicable state and federal
laws governing granting of such security interests;
(6) The undersigned shall deliver the following to the holder
hereof on or prior to the Defeasance Date:
(a) a pledge and security agreement, in form and
substance satisfactory to the holder hereof in its
sole discretion, creating a first priority security
interest in favor of the holder hereof in the
Defeasance Deposit and the Defeasance Collateral (the
"Defeasance Security Agreement"), which shall
provide, among other things, that any excess received
by the holder hereof from the Defeasance Collateral
over the amounts payable by the undersigned hereunder
shall be refunded to the undersigned promptly after
each monthly payment date;
(b) a certificate of the undersigned certifying that all
of the defeasance requirements set forth in this Note
have been satisfied;
3
<PAGE> 5
(c) an opinion of counsel for the undersigned in form and
substance and delivered by counsel satisfactory to
the holder hereof in its sole discretion stating,
among other things, (x) that the holder hereof has a
perfected first priority security interest in the
Defeasance Deposit and the Defeasance Collateral, (y)
that the Defeasance Security Agreement is enforceable
against the undersigned in accordance with its terms
and (z) that the defeasance will not cause the trust
holding this Note to fail to qualify as a "real
estate mortgage investment conduit" (a "REMIC"),
within the meaning of Section 860D of the Internal
Revenue Code of 1986, as amended from time to time,
or any successor statute (the "Code");
(d) evidence in writing from each of the rating agencies
(as described in PARAGRAPH 37 of the Instrument) to
the effect that such release will not result in a
qualification, downgrade or withdrawal of any rating
in effect immediately prior to the Defeasance Date
for any securities issued in connection with a
secondary market transaction (as described in
PARAGRAPH 37 of the Instrument); and
(e) such other certificates, opinions, documents or
instruments as the holder hereof may reasonably
require.
The "Defeasance Period" shall mean the period of time commencing on the
earlier of (i) the date four (4) years after the date hereof or (ii)
the date two (2) years after the "startup day" (within the meaning of
Section 860G(a)(9) of the Code) of the REMIC, and ending two (2) months
prior to the Maturity Date.
Upon a defeasance in accordance with this Note, the undersigned shall,
at the holder hereof's request, assign all its obligations and rights under this
Note to a special-purpose, bankruptcy-remote entity ("Successor Borrower") to be
formed by the undersigned at its sole cost and expense. In connection therewith,
the Successor Borrower shall execute an assumption agreement in form and
substance satisfactory to the holder hereof in its sole discretion pursuant to
which the Successor Borrower shall assume the undersigned's obligations under
this Note and the Defeasance Security Agreement. The sole asset of the Successor
Borrower shall be the Defeasance Collateral. In connection with such assignment
and assumption, the undersigned and/or the Successor Borrower shall:
(1) deliver to the holder hereof an opinion of counsel in form and
substance and delivered by counsel satisfactory to the holder
hereof in its sole discretion stating, among other things,
that such assumption agreement is enforceable against the
undersigned and the Successor Borrower, as applicable, in
accordance with its terms and that this Note, the Defeasance
Security Agreement and any other documents executed in
connection with such defeasance are enforceable against the
undersigned or the Successor Borrower, as applicable, in
accordance with their respective terms; and
4
<PAGE> 6
(2) pay all costs and expenses incurred by the holder hereof or
its agents in connection with such assignment and assumption
(including, without limitation, any fees and disbursements of
legal counsel).
Upon an assumption by a Successor Borrower acceptable to the holder hereof, the
undersigned shall be relieved of its obligations under this Note and the
Defeasance Security Agreement and, to the extent such documents relate to the
Property, the other Loan Documents.
Upon compliance with the defeasance requirements, the Property shall be
released from the lien of the Instrument and the other Loan Documents, and the
Defeasance Collateral shall constitute collateral which shall secure this Note.
The holder hereof, will, at the undersigned's expense, execute and deliver any
agreements reasonably requested by the undersigned to release the lien of the
Instrument.
The holder hereof, as attorney-in-fact of the undersigned, shall cause
the purchase of the Defeasance Collateral with the Defeasance Deposit, which
purchase may be through an affiliate of the holder hereof. The undersigned shall
be responsible for the payment of any brokerage or other transaction fees in
connection with such purchase.
In the event of a prepayment of this Note after the Defeasance Period,
Borrower shall pay, together with the amount of such prepayment, an amount equal
to the interest which would have been accrued on the amount of such prepayment
during the remaining days of the full calendar month within which such
prepayment is made.
Notwithstanding any other provision herein to the contrary, the
undersigned shall not be required to pay any premium in connection with any
prepayment occurring as a result of the application of insurance proceeds or
condemnation awards under the Instrument.
Notwithstanding anything herein contained to the contrary, any
permitted prepayment of this Note may only be made by payment of the principal
amount to be prepaid together with (i) all accrued and unpaid interest and (ii)
any other sums due under this Note, the Instrument or any other Loan Document.
In the event of involuntary prepayment of this Note because of the
holder hereof's acceleration of the unpaid principal balance of this Note or the
Instrument is satisfied or released by foreclosure or deed in lieu of
foreclosure, the undersigned shall pay to the holder hereof an amount (the
"Yield Maintenance Premium") equal to the aggregate (without duplication) of:
(a) the product obtained by multiplying (1) the entire unpaid
principal balance of this Note at the time of prepayment, times (2) the
difference obtained by subtracting from the interest rate on this Note
the yield rate (the "Yield Rate") on the 5.50% U.S. Treasury Security
due May 15, 2009 (the "Specified U.S. Treasury Security"), as the Yield
Rate is reported in the Wall
5
<PAGE> 7
Street Journal on the fifth Business Day (as hereinafter defined)
preceding (x) the date notice of prepayment is given to holder hereof
where prepayment is voluntary, or (y) the date holder hereof
accelerates the Loan (as hereinafter defined), times (3) the present
value factor calculated using the following formula:
1-(1 + r)-n
---------
r
r = Yield Rate
n = the number of years, and any fraction thereof,
remaining between the prepayment date and the
Maturity Date.
In the event that no Yield Rate is published for the Specified
U.S. Treasury Security, then the nearest equivalent U.S. Treasury
Security shall be selected at the holder hereof's sole discretion. If
the publication of such Yield Rates in the Wall Street Journal is
discontinued, the holder hereof shall determine such Yield Rates from
another source selected by the holder hereof. As used herein, the term
"Business Day" means any day other than a Saturday, a Sunday, or any
other day on which the holder hereof is not open for business; and
(b) an amount equal to the interest which would have accrued
on the amount of such prepayment during the remaining days of the full
calendar month within which such prepayment is made.
The Yield Maintenance Premium is not a penalty or additional interest,
but is the holder hereof's cost of liquidating its investments in the event of
an involuntary prepayment of this Note. The undersigned hereby covenants and
agrees to indemnify the holder hereof and hold it harmless from any costs, fees,
expenses (including attorney's fees) resulting from any action, litigation or
judicial decision alleging, claiming or holding that the Yield Maintenance
Premium is a penalty or additional interest, and from any damages (whether
compensatory or punitive) ordered by a court, judge or administrative law judge
which may determine that the Yield Maintenance Premium is a penalty or
additional interest.
Subject to the qualifications below in this paragraph, the undersigned
shall be liable for payment and performance of all of the obligations, covenants
and agreements of the undersigned under this Note, the Instrument, the
Assignment of Leases and Rents (herein so called), dated of even date herewith,
and executed by the undersigned to the holder hereof, the Environmental
Indemnity Agreement (herein so called), dated of even date herewith, and
executed by the undersigned and the holder hereof, and all other instruments and
documents evidencing, securing or governing the terms of the Loan (collectively,
the "Loan Documents"), to the full extent (but only to the extent) of all of the
Property and any other items, property or amounts which are collateral or
security for the Loan. If a default occurs in the timely and proper payment of
any portion of such indebtedness or in the timely performance of any
obligations, agreements or
6
<PAGE> 8
covenants under any of the Loan Documents, except as set forth below in this
paragraph, neither the undersigned, nor any member of the undersigned, nor any
partner, stockholder, director or officer of any member of the undersigned,
shall be personally liable for the repayment of any of the principal of,
interest on, or prepayment fees or late charges, or other charges or fees, due
in connection with, the Loan, the performance of any covenants of the
undersigned under this Note, the Instrument or any of the other Loan Documents
or for any deficiency judgment which the holder hereof may obtain after default
by the undersigned. Notwithstanding the foregoing provisions of this paragraph
or any other agreement, the undersigned shall be fully and personally liable for
any and all: (1) liabilities, costs, losses, damages, expenses or claims
(including, without limitation, any reduction in the value of the Property or
any other items, property or amounts which are collateral or security for the
Loan) suffered or incurred by the holder hereof by reason of or in connection
with (a) any fraud or misrepresentation by the undersigned in connection with
the Loan, including but not limited to any misrepresentation of the undersigned
contained in any Loan Document, (b) any failure by the undersigned to pay taxes,
insurance premiums (except to the extent that such taxes and insurance premiums
are then held by the holder hereof), assessments, charges for labor or materials
or other charges that can create liens on any portion of the Property, (c) any
misapplication by the undersigned or by any member of the undersigned or by any
partner, member, stockholder, director or officer of any member of the
undersigned of (i) proceeds of insurance covering any portion of the Property,
or (ii) proceeds of the sale or condemnation of any portion of the Property, (d)
any rentals, income, profits, issues and products received by or on behalf of
the undersigned subsequent to the date on which the holder hereof gives written
notice that a default has occurred under the Loan and not applied to the payment
of principal or interest due under this Note or the payment of operating
expenses (excluding any operator's, manager's, or developer's fee payable to the
undersigned or any affiliate of the undersigned) of the Property, (e) any
failure by the undersigned to maintain, repair or restore the Property in
accordance with any Loan Document, to the extent not covered by insurance
proceeds made available to the holder hereof, (f) any failure by the undersigned
to deliver to the holder hereof all unearned advance rentals and security
deposits paid by tenants of the Property received by or on behalf of the
undersigned, and not refunded to or forfeited by such tenants, (g) any failure
by the undersigned to return to, or reimburse the holder hereof for, all
personalty taken from the Property by or on behalf of the undersigned, except in
accordance with the provisions of the Instrument, and (h) any and all
indemnities given by the undersigned to the holder hereof set forth in the
Environmental Indemnity Agreement or any other Loan Document in connection with
any environmental matter relating to the Property; and (2) court costs and all
attorneys' fees provided for in any Loan Document. Furthermore, no limitation of
liability or recourse provided above in this paragraph shall (x) apply to the
extent that the holder hereof's rights of recourse to the Property are
suspended, reduced or impaired by or as a result of any act, omission or
misrepresentation of the undersigned or any other party now or hereafter liable
for any part of the Loan and accrued interest thereon, or by or as a result of
any case, action, suit or proceeding to which the undersigned or any such other
party, voluntarily becomes a party; or (y) constitute a waiver, forfeiture,
abrogation or limitation of or on any right accorded by any law establishing a
debtor relief proceeding, including, but not limited to, Title 11, U.S. Code,
which right provides for the assertion in such debtor relief proceeding of a
deficiency arising by reason of the insufficiency of collateral notwithstanding
an agreement of the holder hereof not to assert such deficiency.
7
<PAGE> 9
This Note shall be governed by and construed in accordance with the law
of the state in which the Property is located, and applicable federal law. The
parties hereto intend to conform strictly to the applicable usury laws. In no
event, whether by reason of demand for payment, prepayment, acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged or
received by the holder hereof hereunder or otherwise exceed the maximum amount
permissible under applicable law. If from any circumstance whatsoever interest
would otherwise be payable to the holder hereof in excess of the maximum lawful
amount, the interest payable to the holder hereof shall be reduced automatically
to the maximum amount permitted by applicable law. If the holder hereof shall
ever receive anything of value deemed interest under applicable law which would
apart from this provision be in excess of the maximum lawful amount, an amount
equal to any amount which would have been excessive interest shall be applied to
the reduction of the principal amount owing hereunder in the inverse order of
its maturity and not to the payment of interest, or if such amount which would
have been excessive interest exceeds the unpaid balance of principal hereof,
such excess shall be refunded to the undersigned. All interest paid or agreed to
be paid to the holder hereof shall, to the extent permitted by applicable law,
be amortized, prorated, allocated, and spread throughout the full stated term
(including any renewal or extension) of such indebtedness so that the amount of
interest on account of such indebtedness does not exceed the maximum permitted
by applicable law. The provisions of this paragraph shall control all existing
and future agreements between the undersigned and the holder hereof.
THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT THE UNDERSIGNED MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THIS
NOTE, THE INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY OTHER AGREEMENT CONTEMPLATED
TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
The holder hereof shall have the right to assign, in whole or in part,
this Note, the Instrument and any other Loan Document and all of its rights
hereunder and thereunder, and all of the provisions herein and therein shall
continue to apply to the Loan. The holder hereof shall have the right to
participate the Loan with other parties.
Interest on the principal sum of this Note shall be calculated on the
basis of the actual number of days elapsed over a year consisting of 360 days.
Interest on this Note shall be paid in arrears.
The undersigned shall pay the holder hereof, in advance, on the date
hereof, interest only on the outstanding principal balance of this Note, at the
interest rate first mentioned above, from the date hereof through and including
the last day of the calendar month in which this Note is executed.
8
<PAGE> 10
Executed as of the date set forth above.
META HOLDINGS, LLC, an Ohio limited liability
company
By META Management, LLC, Sole Member
By: /s/ Julia Pollner
-----------------------------------------
Name: Julia Pollner
---------------------------------------
Title: Secretary and Treasurer
--------------------------------------
9
<PAGE> 11
THIS INSTRUMENT
PREPARED BY AND WHEN
RECORDED MAIL TO
Donald W. Jordan, Esq.
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215 SPACE ABOVE THIS LINE FOR RECORDER'S USE
- - -------------------------------------- -----------------------------------------
MORTGAGE,
ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
THIS MORTGAGE (herein "Instrument") is made this 28th day of July,
1999, between the Mortgagor/Grantor, META HOLDINGS, LLC, an Ohio limited
liability company, whose address is 7001 Metatec Boulevard, Dublin, Ohio 43017
(herein "Borrower"), and the Mortgagee, HUNTINGTON CAPITAL CORP., an Ohio
corporation organized and existing under the laws of Ohio, whose address is 41
South High Street, Columbus, Ohio 43215, together with its successors, assigns
and transferees, (herein "Lender").
WHEREAS, Borrower is indebted to Lender in the principal sum of
Nineteen Million ($19,000,000.00) Dollars, which indebtedness is evidenced by
Borrower's Promissory Note dated of even date herewith (herein "Note"),
providing for monthly installments of principal and interest, with the balance
of the indebtedness, if not sooner paid, due and payable on August 1, 2009 (the
"Maturity Date");
TO SECURE TO LENDER (a) the repayment of the indebtedness evidenced by
the Note with interest thereon, and all renewals, extensions and modifications
thereof; (b) the performance of the covenants and agreements of Borrower
contained in an Environmental Indemnity Agreement (herein so-called) between
Lender, Borrower and Principal (as defined in the Environmental Indemnity
Agreement) dated of even date herewith; (c) the payment of all other sums, with
interest thereon, advanced in accordance herewith to protect the security of
this Instrument; and (d) the performance of the covenants and agreements of
Borrower herein contained, or contained in any other Loan Document (as
hereinafter defined), Borrower does hereby mortgage, grant, convey and assign to
Lender, its successors, assigns and transferees, the following described
property located in Franklin County, State of Ohio:
See Exhibit "A" attached hereto and incorporated herein by reference
for all purposes.
TOGETHER with all buildings, improvements, and tenements now or
hereafter erected on the property, and all heretofore or hereafter vacated
alleys and streets abutting the property, and all easements, rights,
appurtenances, rents (subject however to the assignment of rents to Lender
herein), royalties, mineral, oil and gas rights and profits, water, water
rights, and water stock appurtenant to the property, and all fixtures,
machinery, equipment, engines, boilers, incinerators, building materials,
appliances and goods of every nature whatsoever now or
<PAGE> 12
hereafter located in, or on, or used, or intended to be used in connection with
the property, including, but not limited to, those for the purposes of supplying
or distributing heating, cooling, electricity, gas, water, air and light; and
all elevators, and related machinery and equipment, fire prevention and
extinguishing apparatus, security and access control apparatus, plumbing, water
heaters, water closets, sinks, awnings, storm windows, storm doors, screens,
blinds, shades, curtains and curtain rods, mirrors, cabinets, panelling, rugs,
attached floor coverings, furniture, pictures, antennas, trees and plants, tax
refunds, trade names, licenses, permits, Borrower's rights to insurance
proceeds, unearned insurance premiums and choses in action (excluding, however,
personal property owned by and removable by tenants under the terms of their
leases); all of which, including replacements and additions thereto, shall be
deemed to be and remain a part of the real property covered by this Instrument;
and all of the foregoing, together with said property are herein referred to as
the "Property";
TOGETHER with all right, title and interest in, to and under any and
all leases now or hereinafter in existence (as amended or supplemented from time
to time) and covering space in or applicable to the Property (hereinafter
referred to collectively as the "Leases" and singularly as a "Lease"), together
with all rents, earnings, income, profits, benefits and advantages arising from
the Property and from said Leases and all other sums due or to become due under
and pursuant thereto, and together with any and all guarantees of or under any
of said Leases, and together with all rights, powers, privileges, options and
other benefits of Borrower as lessor under the Leases, including, without
limitation, the immediate and continuing right to receive and collect all rents,
income, revenues, issues, profits, condemnation awards, insurance proceeds,
moneys and security payable or receivable under the Leases or pursuant to any of
the provisions thereof, whether as rent or otherwise, the right to accept or
reject any offer made by any tenant pursuant to its Lease to purchase the
Property and any other property subject to the Lease as therein provided and to
perform all other necessary or appropriate acts with respect to such Leases as
agent and attorney-in-fact for Borrower, and the right to make all waivers and
agreements, to give and receive all notices, consents and releases, to take such
action upon the happening of a default under any Lease, including the
commencement, conduct and consummation of proceedings at law or in equity as
shall be permitted under any provision of any Lease or by any law, and to do any
and all other things whatsoever which the Borrower is or may become entitled to
do under any such Lease together with all accounts receivable, contract rights,
franchises, interests, estates or other claims, both at law and in equity,
relating to the Property, to the extent not included in rent earnings and income
under any of the Leases;
TOGETHER with all right, title and interest in, to and under any and
all reserve, deposit or escrow accounts (the "Accounts") made pursuant to any
Loan Document made between Borrower and Lender with respect to the Property,
together with all income, profits, benefits and advantages arising therefrom,
and together with all rights, powers, privileges, options and other benefits of
Borrower under the Accounts, and together with the right to do any and all other
things whatsoever which the Borrower is or may become entitled to do under the
Accounts;
TOGETHER with all right, title and interest in, to and under any and
all agreements, contracts, certificates, guaranties, warranties, instruments,
franchises, permits, licenses, plans, specifications and other documents, now or
hereafter entered into, and all rights therein and
2
<PAGE> 13
thereto, pertaining to the use, occupancy, construction, management or operation
of the Property and any part thereof and any improvements or respecting any
business or activity conducted on the Property and any part thereof and all
right, title and interest of Borrower therein, including the right to receive
and collect any sums payable to Borrower thereunder and all deposits or other
security or advance payments made by Borrower with respect to any of the
services related to the Property or the operation thereof;
TOGETHER with all of Borrower's tradenames, trademarks, servicemarks,
logos, copyrights, goodwill, books and records and all other general intangibles
relating to or used in connection with the operation of the Property; and
TOGETHER with any and all proceeds resulting or arising from the
foregoing (collectively, the "Collateral").
Borrower covenants that Borrower is lawfully seised of the estate
hereby conveyed and has the right to mortgage, grant, convey and assign the
Property, that the Property is unencumbered, and that Borrower will warrant and
defend generally the title to the Property against all claims and demands,
subject to any easements and restrictions listed in a schedule of exceptions to
coverage in any title insurance policy insuring Lender's interest in the
Property.
UNIFORM COVENANTS. Borrower and Lender covenant and agree as follows:
1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay when due the
principal of and interest on the indebtedness evidenced by the Note, any
prepayment and late charges provided in the Note and all other sums secured by
this Instrument.
2. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Subject to applicable law or to
a written waiver by Lender, Borrower shall pay to Lender on the day monthly
installments of principal or interest are payable under the Note (or on another
day designated in writing by Lender), until the Note is paid in full, a sum
(herein "Funds") equal to one-twelfth of (a) the yearly taxes and assessments
which may be levied on the Property and (b) the yearly premium installments for
fire and other hazard insurance, rent loss insurance and such other insurance
covering the Property as Lender may require pursuant to PARAGRAPH 5 hereof, all
as reasonably estimated initially and from time to time by Lender on the basis
of assessments and bills and reasonable estimates thereof; provided, however,
Lender has agreed to waive the requirement to escrow for insurance premiums as
long as Borrower pays such premiums for 12-month periods in advance and provides
renewal certificates of insurance not later than forty-five (45) days prior to
each expiration date. Any waiver by Lender of a requirement that Borrower escrow
for taxes and assessments may be revoked by Lender, in Lender's sole discretion,
at any time upon notice in writing to Borrower. Lender may require Borrower to
pay to Lender, in advance, such other Funds for other taxes, charges, premiums,
assessments and impositions in connection with Borrower or the Property which
Lender shall reasonably deem necessary to protect Lender's interests (herein
"Other Impositions"). Unless otherwise provided by applicable law, Lender may
require Funds for Other Impositions to be paid by Borrower in a lump sum or in
periodic installments, at Lender's option.
3
<PAGE> 14
The Funds shall be held in an interest-bearing account with an
institution(s) the deposits or accounts of which are insured or guaranteed by a
Federal or state agency (including Lender if Lender is such an institution).
Lender shall apply the Funds to pay said taxes, assessments, insurance premiums
and Other Impositions so long as Borrower is not in breach of any covenant or
agreement of Borrower in this Instrument. Lender shall make no charge for so
holding and applying the Funds, analyzing said account or for verifying and
compiling said assessments and bills. Lender shall give to Borrower, without
charge, an annual accounting of the Funds in Lender's normal format showing
credits and debits to the Funds and the purpose for which each debit to the
Funds was made. The Funds are pledged as additional security for the sums
secured by this Instrument.
If the amount of the Funds held by Lender at the time of the annual
accounting thereof shall exceed the amount deemed necessary by Lender to provide
for the payment of taxes, assessments, insurance premiums, and Other
Impositions, as they fall due, such excess shall be credited to Borrower on the
next monthly installment or installments of Funds due. If at any time the amount
of the Funds held by Lender shall be less than the amount deemed necessary by
Lender to pay taxes, assessments, insurance premiums, and Other Impositions, as
they fall due, Borrower shall pay to Lender any amount necessary to make up the
deficiency within thirty days after notice from Lender to Borrower requesting
payment thereof.
Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument, Lender may apply, in any amount and in any order as Lender shall
determine in Lender's sole discretion, any Funds held by Lender at the time of
application (i) to pay taxes, assessments, insurance premiums and Other
Impositions which are now or will hereafter become due, or (ii) as a credit
against sums secured by this Instrument. Upon payment in full of all sums
secured by this Instrument, Lender shall promptly refund to Borrower any Funds
held by Lender.
3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, all
payments received by Lender from Borrower under the Note or this Instrument
shall be applied by Lender in the following order of priority: (i) amounts
payable to Lender by Borrower under PARAGRAPH 2 hereof; (ii) interest payable on
the Note; (iii) principal of the Note; (iv) interest payable on advances made
pursuant to PARAGRAPH 8 hereof; (v) principal of advances made pursuant to
PARAGRAPH 8 hereof, and (vi) any other sums secured by this Instrument in such
order as Lender, at Lender's option, may determine: provided, however, that
Lender may, at Lender's option, apply any sums payable pursuant to PARAGRAPH 8
hereof prior to interest on and principal of the Note, but such application
shall not otherwise affect the order of priority of application specified in
this PARAGRAPH 3.
4. CHARGES; LIENS. Borrower shall pay all rents, taxes, assessments, premiums,
and Other Impositions attributable to the Property at Lender's option in the
manner provided under PARAGRAPH 2 hereof or, if not paid in such manner, by
Borrower making payment, when due, directly to the payee thereof, or in such
other manner as Lender may designate in writing. Borrower shall promptly furnish
to Lender all notices of amounts due under this PARAGRAPH 4, and in the event
Borrower shall make payment directly, Borrower shall promptly furnish to
4
<PAGE> 15
Lender receipts evidencing such payments. Borrower shall promptly discharge any
lien, which has, or may have, priority over or equality with, the lien of this
Instrument, and Borrower shall pay, when due, the claims of all persons
supplying labor or materials to or in connection with the Property. Without
Lender's prior written permission, Borrower shall not allow any lien inferior to
this Instrument to be perfected against the Property.
5. HAZARD INSURANCE. Borrower shall keep the improvements now existing or
hereafter erected on the Property insured by carriers at all times satisfactory
to Lender against loss by fire, hazards included within the term "extended
coverage", rent loss and such other hazards, casualties, liabilities and
contingencies as Lender shall require and in such amounts and for such periods
as Lender shall require. Borrower shall purchase policies of insurance with
respect to the Property with such insurers, in such amounts and covering such
risks as shall be satisfactory to Lender, including, but not limited to, (i)
personal injury and death; (ii) loss or damage by fire, lightning, hail,
windstorm, explosion, hurricane (to the extent available), and such other
hazards, casualties and contingencies (including at least twelve (12) months
rental insurance in an amount equal to the gross rentals for such period and
broad form boiler and machinery insurance) as are normally and usually covered
by extended coverage policies in effect where the Property is located and
comprehensive general public liability insurance in amounts not less than
$1,000,000.00 per occurrence and $2,000,000.00 aggregate with $3,000,000.00
excess liability and containing an "Ordinance or Law Coverage" or "Enforcement"
endorsement if any of the improvements or the use of the Property shall at any
time constitute legal nonconforming structures or uses; provided, that each
policy shall provide by way of endorsement, rider or otherwise that no such
insurance policy shall be cancelled, endorsed, altered, or reissued to effect a
change in coverage unless such insurer shall have first given Lender thirty (30)
days prior written notice thereof, such policy shall be on a replacement cost
basis, with a waiver of depreciation, in an amount not less than that necessary
to comply with any coinsurance percentage stipulated in the policy, but not less
than one hundred percent (100%) of the insurable value (based upon replacement
cost) of the Property and the deductible clause, if any, of the fire and
extended coverage policy may not exceed the lesser of one percent (1%) of the
face amount of the policy or $1,000.00; (iii) loss or damage by flood, if the
Property is in an area designated by the Secretary of Housing and Urban
Development as an area having special flood hazards, in an amount equal to the
principal amount of the Note or the maximum amount available under the Flood
Disaster Protection Act of 1973, and regulations issued pursuant thereto, as
amended from time to time, whichever is less, in form complying with the
"insurance purchase requirement" of that Act; and (iv) such other insurance and
endorsements, if any, as Lender reasonably may require from time to time, or
which is required by the Loan Documents. Borrower shall cause all insurance
(except general public liability insurance) carried in accordance with this
PARAGRAPH 5 to be payable to Lender as a mortgagee and not as a coinsured, and,
in the case of all policies of insurance carried by each lessee for the benefit
of Borrower, if any, to cause all such policies to be payable to Lender as
Lender's interest may appear. All premiums on insurance policies shall be paid,
in the manner provided under PARAGRAPH 2 hereof, or in such other manner as
Lender may designate in writing.
All insurance policies and renewals thereof shall be in a form
acceptable to Lender and shall include a standard mortgagee clause in favor of
and in form acceptable to Lender. Lender
5
<PAGE> 16
shall have the right to hold the policies, and Borrower shall promptly furnish
to Lender all renewal notices and all receipts of paid premiums. At least thirty
(30) days prior to the expiration date of a policy, Borrower shall deliver to
Lender a renewal policy in form satisfactory to Lender.
In the event of loss, Borrower shall give immediate written notice to
the insurance carrier and to Lender. Borrower hereby authorizes and empowers
Lender as attorney-in-fact for Borrower to make proof of loss, to adjust and
compromise any claim under insurance policies, to appear in and prosecute any
action arising from such insurance policies, to collect and receive insurance
proceeds, and to deduct therefrom Lender's expenses incurred in the collection
of such proceeds; provided however, that nothing contained in this PARAGRAPH 5
shall require Lender to incur any expense or take any action hereunder. Borrower
further authorizes Lender, at Lender's option, (a) to hold the balance of such
proceeds to be used to reimburse Borrower for the cost of reconstruction or
repair of the Property or (b) subject to the immediately following paragraph, to
apply such proceeds to the payment of the sums secured by this Instrument
whether or not then due, in the order of application set forth in PARAGRAPH 3
hereof.
Lender shall not exercise Lender's option to apply insurance proceeds
to the payment of the sums secured by this Instrument if all of the following
conditions are met: (i) Borrower is not in breach or default of any covenant or
agreement of this Instrument, the Note or any other Loan Document; (ii) Lender
determines that there will be sufficient funds to restore and repair the
Property to the Pre-existing Condition (as hereinafter defined); (iii) Lender
agrees in writing that the rental income of the Property, after restoration and
repair of the Property to the Pre-existing Condition, will be sufficient to meet
all operating costs and other expenses, payments for reserves and loan repayment
obligations (including any obligations under any permitted subordinate
financing) relating to the Property and maintain a debt service coverage ratio
of at least 1.47 to 1.0; (iv) Lender determines that restoration and repair of
the Property to the Pre-existing Condition will be completed within one year of
the date of the loss or casualty to the Property, but in no event later than six
months prior to the Maturity Date; (v) less than fifty percent (50%) of the
total floor area of the improvements has been damaged, destroyed or rendered
unusable as a result of such fire or other casualty; (vi) tenant leases demising
in the aggregate at one hundred percent (100%) of the total rentable space in
the Property and in effect as of the date of the occurrence of such fire or
other casualty remain in full force and effect during and after the completion
of the restoration and repair of the Property; and (vii) Lender is reasonably
satisfied that the Property can be restored and repaired as nearly as possible
to the condition it was in immediately prior to such casualty and in compliance
with all applicable zoning, building and other laws and codes (the "Pre-existing
Condition"). If Lender elects to make the insurance proceeds available for the
restoration and repair of the Property, Borrower agrees that, if at any time
during the restoration and repair, the cost of completing such restoration and
repair, as determined by Lender, exceeds the undisbursed insurance proceeds,
Borrower shall, immediately upon demand by Lender, deposit the amount of such
excess with Lender, and Lender shall first disburse such deposit to pay for the
costs of such restoration and repair on the same terms and conditions as the
insurance proceeds are disbursed.
6
<PAGE> 17
If the insurance proceeds are held by Lender to reimburse Borrower for
the cost of restoration and repair of the Property, the Property shall be
restored to the equivalent of its original condition or such other condition as
Lender may approve in writing. Lender may, at Lender's option, condition
disbursement of said proceeds on Lender's approval of such plans and
specifications of an architect satisfactory to Lender, contractor's cost
estimates, architect's certificates, waivers of liens, sworn statements of
mechanics and materialmen and such other evidence of costs, percentage
completion of construction, application of payments; and satisfaction of liens
as Lender may reasonably require. If the insurance proceeds are applied to the
payment of the sums secured by this Instrument, any such application of proceeds
to principal shall not extend or postpone the due dates of the monthly
installments referred to in PARAGRAPHS 1 AND 2 hereof or change the amounts of
such installments. If the Property is sold pursuant to PARAGRAPH 27 hereof or if
Lender acquires title to the Property, Lender shall have all of the right, title
and interest of Borrower in and to any insurance policies and unearned premiums
thereon and in and to the proceeds resulting from any damage to the Property
prior to such sale or acquisition.
6. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (a) shall not commit waste
or permit impairment or deterioration of the Property, (b) shall not abandon the
Property, (c) shall restore or repair promptly and in a good and workmanlike
manner all or any part of the Property to the equivalent of its original
condition, or such other condition as Lender may approve in writing, in the
event of any damage, injury or loss thereto, whether or not insurance proceeds
are available to cover in whole or in part the costs of such restoration or
repair, (d) shall keep the Property, including improvements, fixtures,
equipment, machinery and appliances thereon in good repair and shall replace
fixtures, equipment, machinery and appliances on the Property when necessary to
keep such items in good repair, (e) shall comply with all laws, ordinances,
regulations and requirements of any governmental body applicable to the
Property, (f) if Borrower or its managing member ceases to manage the Property,
then Borrower shall provide for professional management of the Property by a
commercial rental property manager satisfactory to Lender pursuant to a contract
approved by Lender in writing, (g) shall generally operate and maintain the
Property in a manner to ensure maximum rentals, and (h) shall give notice in
writing to Lender of and, unless otherwise directed in writing by Lender, appear
in and defend any action or proceeding purporting to affect the Property, the
security of this Instrument or the rights or powers of Lender. Neither Borrower
nor any tenant or other person shall remove, demolish or alter any improvement
now existing or hereafter erected on the Property or any fixture, equipment,
machinery or appliance in or on the Property except when incident to the
replacement of fixtures, equipment, machinery and appliances with items of like
kind and except as permitted under the terms of approved leases.
7. USE OF PROPERTY. Unless required by applicable law or unless Lender has
otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Instrument
was executed. Borrower shall not subdivide the Property or initiate or acquiesce
in a change in the zoning classification of the Property without Lender's prior
written consent.
7
<PAGE> 18
8. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform the covenants
and agreements contained in this Instrument, or if any action or proceeding is
commenced which affects the Property or title thereto or the interest of Lender
therein, including, but not limited to, eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or decedent,
then Lender at Lender's option may make such appearances, disburse such sums and
take such action as Lender deems necessary, in its sole discretion, to protect
Lender's interest, including, but not limited to, (i) disbursement of attorney's
fees, (ii) entry upon the Property to make repairs, (iii) procurement of
satisfactory insurance as provided in PARAGRAPH 5 hereof, and (iv) the payment
of any taxes and/or assessments levied against the Property and then due and
payable.
Any amounts disbursed by Lender pursuant to this PARAGRAPH 8, with
interest thereon, shall become additional indebtedness of Borrower secured by
this Instrument. Unless Borrower and Lender agree to other terms of payment,
such amounts shall be immediately due and payable and shall bear interest from
the date of disbursement at the rate stated in the Note unless collection from
Borrower of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Borrower under applicable law. Borrower hereby covenants and
agrees that Lender shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the indebtedness secured hereby. Nothing
contained in this PARAGRAPH 8 shall require Lender to incur any expense or take
any action hereunder.
9. INSPECTION. Upon not less than two (2) business days prior written notice to
Borrower, Lender may make or cause to be made reasonable entries upon and
inspections of the Property including, but not limited to, phase I and/or phase
II environmental audits and inspections which phase II inspections will not
unreasonably disturb Borrower's use of the Property.
10. BOOKS AND RECORDS. Borrower shall keep and maintain at all times at
Borrower's address stated below, or such other place as Lender may approve in
writing, complete and accurate books of accounts and records adequate to reflect
correctly the results of the operation of the Property and copies of all written
contracts, leases and other instruments which affect the Property. Such books,
records, contracts, leases and other instruments shall be subject to examination
and inspection at any reasonable time by Lender. Upon Lender's request, Borrower
shall furnish to Lender, within thirty (30) days after the end of each three
month quarter of each fiscal year of Borrower, a balance sheet, a statement of
income and expenses of the Property and a statement of changes in financial
position, each in reasonable detail and certified by Borrower and, if Lender
shall require, by an independent certified public accountant. Borrower shall
furnish, together with the foregoing financial statements and at any other time
upon Lender's request, a rent schedule for the Property, certified by Borrower,
showing the name of each tenant, and for each tenant, the space occupied, the
lease expiration date, the rent payable and the rent paid. In addition to the
above delivery of financial statements and rent schedule, Borrower shall deliver
to Lender updated versions of such financial statements at any other time upon
Lender's request, including monthly balance sheets and monthly statements of
income and expenses of the Property.
8
<PAGE> 19
11. CONDEMNATION. Borrower shall promptly notify Lender of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part thereof, and Borrower shall appear in and
prosecute any such action or proceeding unless otherwise directed by Lender in
writing. Borrower authorizes Lender, at Lender's option, as attorney-in-fact for
Borrower, to commence, appear in and prosecute, in Lender's or Borrower's name,
any action or proceeding relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim in
connection with such condemnation or other taking. The proceeds of any award,
payment or claim for damages, direct or consequential, in connection with any
condemnation or other taking, whether direct or indirect, of the Property, or
part thereof, or for conveyances in lieu of condemnation, are hereby assigned to
and shall be paid to Lender.
Borrower authorizes Lender to apply such awards, payments, proceeds or
damages, after the deduction of Lender's expenses incurred in the collection of
such amounts, at Lender's option, to restoration or repair of the Property or to
payment of the sums secured by this Instrument, whether or not then due, in the
order of application set forth in PARAGRAPH 3 hereof, with the balance, if any,
to Borrower. Unless Borrower and Lender otherwise agree in writing, any
application of proceeds to principal shall not extend or postpone the due date
of the monthly installments referred to in PARAGRAPHS 1 AND 2 hereof or change
the amount of such installments. Borrower agrees to execute such further
evidence of assignment of any awards, proceeds, damages or claims arising in
connection with such condemnation or taking as Lender may require.
12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at Lender's
option, without giving notice to or obtaining the consent of Borrower,
Borrower's successors or assigns or of any junior lienholder or guarantors,
without liability on Lender's part and notwithstanding Borrower's breach of any
covenant or agreement of Borrower in this Instrument, extend the time for
payment of said indebtedness or any part thereof, reduce the payments thereon,
release anyone liable on any of said indebtedness, accept a renewal note or
notes therefor, modify the terms and time of payment of said indebtedness,
release from the lien of this Instrument any part of the Property, take or
release other or additional security, reconvey any part of the Property, consent
to any map or plan of the Property, consent to the granting of any easement,
join in any extension or subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period of amortization of the Note or
change the amount of the monthly installments payable thereunder. Any actions
taken by Lender pursuant to the terms of this PARAGRAPH 12 shall not affect the
obligation of Borrower or Borrower's successors or assigns to pay the sums
secured by this Instrument and to observe the covenants of Borrower contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other entity for payment of the indebtedness secured hereby, and shall not
affect the lien or priority of lien hereof on the Property. Borrower shall pay
Lender a reasonable service charge, together with such title insurance premiums
and attorney's fees as may be incurred at Lender's option, for any such action
if taken at Borrower's request.
9
<PAGE> 20
13. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in exercising
any right or remedy hereunder, or otherwise afforded by applicable law, shall
not be a waiver of or preclude the exercise of any right or remedy. The
acceptance by Lender of payment of any sum secured by this Instrument after the
due date of such payment shall not be a waiver of Lender's right to either
require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of insurance or the
payment of taxes or other liens or charges by Lender shall not be a waiver of
Lender's right to accelerate the maturity of the indebtedness secured by this
Instrument, nor shall Lender's receipt of any awards, proceeds or damages under
PARAGRAPHS 5 AND 11 hereof operate to cure or waive Borrower's default in
payment of sums secured by this Instrument.
14. ESTOPPEL CERTIFICATE. Borrower shall within ten (10) days of a written
request from Lender furnish Lender with a written statement, duly acknowledged,
setting forth the sums secured by this Instrument and any right of set-off,
counterclaim or other defense which exists against such sums and the obligations
of this Instrument and attaching true, correct and complete copies of the Note,
this Instrument and any other Loan Documents and any and all modifications,
amendments and substitutions thereof.
15. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is intended to
be a security agreement pursuant to the Uniform Commercial Code for any of the
items specified above as part of the Collateral which, under applicable law, may
be subject to a security interest pursuant to the Uniform Commercial Code, and
Borrower hereby grants Lender a security interest in said items. Borrower agrees
that Lender may file this Instrument, or a reproduction thereof, in the real
estate records or other appropriate index, as a financing statement for any of
the items specified above as part of the Property. Any reproduction of this
Instrument or of any other security agreement or financing statement shall be
sufficient as a financing statement. In addition, Borrower agrees to execute and
deliver to Lender, upon Lender's request, any financing statements, as well as
extensions, renewals and amendments thereof, and reproductions of this
Instrument in such form as Lender reasonably may require to perfect a security
interest with respect to said items. Borrower shall pay all costs of filing such
financing statements and any extensions, renewals, amendments and releases
thereof, and shall pay all reasonable costs and expenses of any record searches
for financing statements Lender may reasonably require. Without the prior
written consent of Lender, Borrower shall not create or suffer to be created
pursuant to the Uniform Commercial Code any other security interest in said
items, including replacements and additions thereto. Upon Borrower's breach of
any covenant or agreement of Borrower contained in this Instrument, including
the covenants to pay when due all sums secured by this Instrument, Lender shall
have the remedies of a secured party under the Uniform Commercial Code and, at
Lender's option, may also invoke the remedies provided in PARAGRAPH 27 of this
Instrument as to such items. In exercising any of said remedies, Lender may
proceed against the items of real property and any items of personal property
specified above as part of the Property separately or together and in any order
whatsoever, without in any way affecting the availability of Lender's remedies
under the Uniform Commercial Code or of the remedies provided in PARAGRAPH 27 of
this Instrument.
10
<PAGE> 21
16. LEASES OF THE PROPERTY. Borrower shall comply with and observe Borrower's
obligations as landlord under all leases of the Property or any part thereof.
Borrower will not lease any portion of the Property except with the prior
written approval of Lender. By acceptance of this Instrument, Lender
acknowledges approval of the lease to Metatec International, Inc., a copy of
which lease was provided to Lender prior to execution of this Instrument.
Borrower acknowledges that a default by Metatec International, Inc. under the
Lease, which default continues at the expiration of the applicable notice and
cure period, if any, provided in the Lease, shall constitute a default under the
Loan Documents.
Borrower shall be required to obtain Lender's consent, which shall not
be unreasonably withheld, for any lease and subleases at the Property. The
request for approval of each such proposed lease shall be made to Lender in
writing and Borrower shall furnish to Lender (and any loan servicer specified
from time to time by Lender): (i) such biographical and financial information
about the proposed tenant as Lender may require in conjunction with its review,
(ii) a copy of the proposed form of lease, and (iii) a summary of the material
terms of such proposed lease (including, without limitation, rental terms and
the term of the proposed lease and any options).
Borrower, at Lender's request, shall furnish Lender with executed
copies of all leases hereafter made of all or any part of the Property, and all
leases hereafter entered into will be in form and substance subject to the
approval of Lender. All leases of the Property or a separate agreement in
recordable form and substance satisfactory to Lender shall specifically provide
that such leases are subordinate to this Instrument; that the tenant attorns to
Lender, such attornment to be effective upon Lender's acquisition of title to
the Property; that the tenant agrees to execute such further evidences of
attornment as Lender may from time to time request; that the attornment of the
tenant shall not be terminated by foreclosure; that in no event shall Lender, as
holder of this Instrument or as successor landlord, be liable to the tenant for
any act or omission of any prior landlord or for any liability or obligation of
any prior landlord occurring prior to the date that Lender or any subsequent
owner acquire title to the Property; and that Lender may, at Lender's option,
accept or reject such attornments. Borrower shall not, without Lender's written
consent, execute, modify, surrender or terminate, either orally or in writing,
any lease now existing or hereafter made of all or any part of the Property,
permit an assignment or sublease of a lease without Lender's written consent, or
request or consent to the subordination of any lease of all or any part of the
Property to any lien subordinate to this Instrument. If Borrower becomes aware
that any tenant proposes to do, or is doing, any act or thing which may give
rise to any right of set-off against rent, Borrower shall (i) take such steps as
shall be reasonably calculated to prevent the accrual of any right to a set-off
against rent, (ii) notify Lender thereof and of the amount of said set-offs, and
(iii) within ten (10) days after such accrual, reimburse the tenant who shall
have acquired such right to set-off or take such other steps as shall
effectively discharge such set-off and as shall assure that rents thereafter due
shall continue to be payable without set-off or deduction.
Upon Lender's request, Borrower shall absolutely assign to Lender, by
written instrument satisfactory to Lender, all leases now existing or hereafter
made of all or any part of the Property and all security deposits made by
tenants in connection with such leases of the Property. Upon assignment by
Borrower to Lender of any leases of the Property, Lender shall have all of the
rights and powers possessed by Borrower prior to such assignment and Lender
shall have the
11
<PAGE> 22
right to modify, extend or terminate such existing leases and to execute new
leases, in Lender's sole discretion.
17. REMEDIES CUMULATIVE. Each remedy provided in this Instrument is distinct and
cumulative to all other rights or remedies under this Instrument or afforded by
law or equity, and may be exercised concurrently, independently, or
successively, in any order whatsoever.
18. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower shall voluntarily
file a petition under Title 11 of the U.S. Code (the "Act"), as such Act may
from time to time be amended, or under any similar or successor Federal statute
relating to bankruptcy, insolvency, arrangements or reorganizations, or under
any state bankruptcy or insolvency act, or file an answer in any involuntary
proceeding admitting insolvency or inability to pay debts, or if Borrower shall
fail to obtain a vacation or stay of involuntary proceedings brought for the
reorganization, dissolution or liquidation of Borrower, within one hundred and
twenty (120) days of the filing of such involuntary proceeding, or if Borrower
shall be adjudged a bankrupt, or if a trustee or receiver shall be appointed for
Borrower or Borrower's property, or if the Property shall become subject to the
jurisdiction of a Federal bankruptcy court or similar state court, or if
Borrower shall make an assignment for the benefit of Borrower's creditors, or if
there is an attachment, execution or other judicial seizure of any portion of
Borrower's assets and such seizure is not discharged within ten (10) days, then
Lender may, at Lender's option, declare all of the sums secured by this
Instrument to be immediately due and payable without prior notice to Borrower,
and Lender may invoke any remedies permitted by PARAGRAPH 27 of this Instrument.
Any attorney's fees and other expenses incurred by Lender in connection with
Borrower's bankruptcy or any of the other aforesaid events shall be additional
indebtedness of Borrower secured by this Instrument pursuant to PARAGRAPH 8
hereof.
19. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER.
(a) Except as provided in SUBPARAGRAPH (c) of this PARAGRAPH 19, upon
the sale or transfer of (i) all or any part of the Property, or any interest
therein, or (ii) beneficial interests in Borrower (if Borrower is not a natural
person or persons but is a corporation, partnership, trust or other legal
entity), Lender may, at Lender's option, declare all of the sums secured by this
Instrument to be immediately due and payable, and Lender may invoke any remedies
permitted by PARAGRAPH 27 of this Instrument.
(b) For purposes of this PARAGRAPH 19, a sale or transfer of a
beneficial interest in Borrower shall be deemed to include, but is not limited
to:
(i) if Borrower or any general partner of Borrower is a
corporation or limited liability company, the
voluntary or involuntary sale, conveyance, transfer
or pledge of a majority of such corporation's or
limited liability company's stock (or the stock of
any corporation directly or indirectly controlling
such corporation or limited liability company by
operation of law or otherwise) or the creation or
issuance
12
<PAGE> 23
of new stock by which an aggregate of more than 49%
of such corporation's or limited liability company's
stock shall be vested in a party or parties who are
not now stockholders;
(ii) if Borrower is a limited liability company, the
change, removal or resignation of a managing member;
(iii) if Borrower, or any general partner of Borrower, is a
limited or general partnership, the change, removal
or resignation of a general partner or managing
partner or the transfer or pledge of the partnership
interest of any general partner or managing partner
or any profits or proceeds relating to such
partnership interest;
(iv) if Borrower is a limited partnership, the transfer or
pledge of a majority of the limited partnership
interests which in the aggregate constitute more than
a 49% interest in Borrower, or any profits or
proceeds relating to such limited partnership
interests.
(c) Notwithstanding the foregoing, the following shall not be deemed a
sale or transfer of a beneficial interest in Borrower for purposes of this
PARAGRAPH 19:
(i) a transfer of less than a 49% interest in Borrower,
or any partner, shareholder or member of Borrower, by
devise, descent or by operation of law upon the death
of a partner, member or stockholder of Borrower;
(ii) a transfer of a limited partner, shareholder or
non-managing member interest in Borrower for estate
planning purposes to an immediate family member of
such limited partner, shareholder or member, or a
trust for the benefit of an immediate family member;
or
(iii) a transfer of a general partner or managing member
interest in Borrower for estate planning purposes to
an immediate family member of such partner or member,
or a trust for the benefit of an immediate family
member, subject to obtaining Lender's prior written
consent, which consent shall not be unreasonably
withheld, subject to the criteria set forth in
SUBPARAGRAPH (b) of PARAGRAPH 35 of this Instrument.
See PARAGRAPH 35 of this Instrument.
20. NOTICE. Except for any notice required under applicable law to be given in
another manner, (a) any notice to Borrower provided for in this Instrument or in
the Note shall be given by mailing such notice by certified mail addressed to
Borrower at Borrower's address stated above or at such other address as Borrower
may designate by notice to Lender as provided herein, and (b) any notice to
Lender shall be given by certified mail, return receipt requested, to Lender's
address stated herein or to such other address as Lender may designate by notice
to
13
<PAGE> 24
Borrower as provided herein. Any notice provided for in this Instrument or in
the Note shall be deemed to have been given to Borrower or Lender when given in
the manner designated herein.
21. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS; CAPTIONS.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective successors and assigns of Lender and
Borrower, subject to the provisions of PARAGRAPH 19 hereof. All covenants and
agreements of Borrower shall be joint and several. In exercising any rights
hereunder or taking any actions provided for herein, Lender may act through its
employees, agents or independent contractors as authorized by Lender. The
captions and headings of the paragraphs of this Instrument are for convenience
only and are not to be used to interpret or define the provisions hereof.
22. UNIFORM INSTRUMENT; GOVERNING LAW; SEVERABILITY. This form of instrument
combines uniform covenants for national use and non-uniform covenants with
limited variations by jurisdiction to constitute a uniform security instrument
covering real property and related fixtures and personal property. This
Instrument shall be governed by the law of the jurisdiction in which the
Property is located. In the event that any provision of this Instrument or the
Note conflicts with applicable law, such conflict shall not affect other
provisions of this Instrument or the Note which can be given effect without the
conflicting provisions, and to this end the provisions of this Instrument and
the Note are declared to be severable. In the event that any applicable law
limiting the amount of interest or other charges permitted to be collected from
Borrower is interpreted so that any charge provided for in this Instrument or in
the Note, whether considered separately or together with other charges levied in
connection with this Instrument and the Note, violates such law, and Borrower is
entitled to the benefit of such law, such charge is hereby reduced to the extent
necessary to eliminate such violation. The amounts, if any, previously paid to
Lender in excess of the amounts payable to Lender pursuant to such charges as
reduced shall be applied by Lender to reduce the principal of the indebtedness
evidenced by the Note. For the purposes of determining whether any applicable
law limiting the amount of interest or other charges permitted to be collected
from Borrower has been violated, all indebtedness which is secured by this
Instrument or evidenced by the Note and which constitutes interest, as well as
all other charges levied in connection with such indebtedness which constitute
interest, shall be deemed to be allocated and spread over the stated term of the
Note. Unless otherwise required by applicable law, such allocation and spreading
shall be effected in such a manner that the rate of interest computed thereby is
uniform throughout the stated term of the Note.
23. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to assert
any statute of limitations as a bar to the enforcement of the lien of this
Instrument or to any action brought to enforce the Note or any other obligation
secured by this Instrument.
24. WAIVER OF MARSHALLING. Notwithstanding the existence of any other security
interest in the Property held by Lender or by any other party, Lender shall have
the right to determine the order in which any or all of the Property shall be
subjected to the remedies provided herein. Lender shall have the right to
determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of
14
<PAGE> 25
the remedies provided herein. Borrower, any party who consents to this
Instrument and any party who now or hereafter acquires a security interest in
the Property and who has actual or constructive notice hereof hereby waives any
and all right to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided herein.
25. INTENTIONALLY OMITTED.
26. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION. As part
of the consideration for the indebtedness evidenced by the Note, Borrower hereby
absolutely and unconditionally assigns and transfers to Lender all the rents and
revenues of the Property, including those now due, past due, or to become due by
virtue of any lease or other agreement for the occupancy or use of all or any
part of the Property, regardless of to whom the rents and revenues of the
Property are payable. Borrower hereby authorizes Lender or Lender's agents to
collect the aforesaid rents and revenues and hereby directs each tenant of the
Property to pay such rents to Lender or Lender's agents; provided, however, that
prior to written notice given by Lender to Borrower of the breach by Borrower of
any covenant or agreement of Borrower in this Instrument or any other Loan
Document, Borrower shall collect and receive all rents and revenues of the
Property as trustee for the benefit of Lender and Borrower, to apply the rents
and revenues so collected to the sums secured by this Instrument in the order
provided in PARAGRAPH 3 hereof with the balance, so long as no such breach has
occurred, to the account of Borrower, it being intended by Borrower and Lender
that this assignment of rents constitutes an absolute assignment and not an
assignment for additional security only. Upon delivery of written notice by
Lender to Borrower of the breach by Borrower of any covenant or agreement of
Borrower in this Instrument, and without the necessity of Lender entering upon
and taking and maintaining full control of the Property in person, by agent or
by a court-appointed receiver, Lender shall immediately be entitled to
possession of all rents and revenues of the Property as specified in this
PARAGRAPH 26 as the same become due and payable, including, but not limited to,
rents then due and unpaid, and all such rents shall immediately upon delivery of
such notice be held by Borrower as trustee for the benefit of Lender only;
provided, however, that the written notice by Lender to Borrower of the breach
by Borrower shall contain a statement that Lender exercises its rights to such
rents. Borrower agrees that commencing upon delivery of such written notice of
Borrower's breach by Lender to Borrower, each tenant of the Property shall make
such rents payable to and pay such rents to Lender or Lender's agents on
Lender's written demand to each tenant therefor, delivered to each tenant
personally, by mail or by delivering such demand to each tenant, without any
liability on the part of said tenant to inquire further as to the existence of a
default by Borrower.
Borrower hereby covenants that Borrower has not executed any prior
assignment of said rents, that Borrower has not performed, and will not perform,
any acts or has not executed, and will not execute, any instrument which would
prevent Lender from exercising its rights under this PARAGRAPH 26, and that at
the time of execution of this Instrument there has been no anticipation or
prepayment of any of the rents of the Property for more than one month prior to
the due dates of such
15
<PAGE> 26
rents. Borrower covenants that Borrower will not hereafter collect or accept
payment of any rents of the Property more than one month prior to the due dates
of such rents. Borrower further covenants that Borrower will execute and deliver
to Lender such further assignments of rents and revenues of the Property as
Lender may from time to time request.
Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument, or upon Borrower's breach of any material covenant of Borrower as
landlord or lessor under any lease, Lender shall be entitled to the appointment
of a receiver for the Property, without notice to Borrower or any other person
or entity and Lender may in person, by agent or by a court appointed receiver,
regardless of the adequacy of Lender's security, enter upon and take and
maintain full control of the Property in order to perform all acts necessary and
appropriate for the operation and maintenance thereof including, but not limited
to, the execution, cancellation or modification of leases, the collection of all
rents and revenues of the Property, the enforcement or fulfillment of any terms,
condition or provision of any lease, the making of repairs to the Property and
the execution or termination of contracts providing for the management or
maintenance of the Property, all on such terms as reasonably are deemed best to
protect the security of this Instrument. In the event Lender elects to seek the
appointment of a receiver for the Property upon Borrower's breach of any
covenant or agreement of Borrower in this Instrument, Borrower hereby expressly
consents to the appointment of such receiver. Lender or the receiver shall be
entitled to receive a reasonable fee for so managing the Property.
All rents and revenues collected subsequent to delivery of written
notice by Lender to Borrower of the breach by Borrower of any covenant or
agreement of Borrower in this Instrument shall be applied first to the costs, if
any, of taking control of and managing the Property and collecting the rents,
including, but not limited to, attorney's fees, receiver's fees, premiums on
receiver's bonds, costs of repairs to the Property, premiums on insurance
policies, taxes, assessments and other charges on the Property, and the costs of
discharging any obligation or liability of Borrower as lessor or landlord of the
Property and then to the sums secured by this Instrument. Lender or the receiver
shall have access to the books and records used in the operation and maintenance
of the Property and shall be liable to account only for those rents actually
received. Lender shall not be liable to Borrower, anyone claiming under or
through Borrower or anyone having an interest in the Property by reason of
anything done or left undone by Lender under this PARAGRAPH 26.
If the rents of the Property are not sufficient to meet the costs, if
any, of taking control of and managing the Property and collecting the rents,
any funds expended by Lender for such purposes shall become indebtedness of
Borrower to Lender secured by this Instrument pursuant to PARAGRAPH 8 hereof.
Unless Lender and Borrower agree in writing to other terms of payment, such
amounts shall be payable upon notice from Lender to Borrower requesting payment
thereof and shall bear interest from the date of disbursement at the rate stated
in the Note unless payment of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law.
Any entering upon and taking and maintaining of control of the Property
by Lender or the receiver and any application of rents as provided herein shall
not cure or waive any default hereunder or invalidate any other right or remedy
of Lender under applicable law or provided
16
<PAGE> 27
herein. This assignment of rents of
the Property shall terminate at such time as this Instrument ceases to secure
indebtedness held by Lender.
NON-UNIFORM COVENANTS. Borrower and Lender further covenant and agree as
follows:
27. ACCELERATION; REMEDIES. Upon Borrower's breach of any representation,
covenant or agreement of Borrower in this Instrument, the Note, the
Environmental Indemnity Agreement or any other Loan Document, including, but not
limited to, the covenants to pay when due any sums secured by this Instrument,
Lender, at Lender's option, may declare all of the sums secured by this
Instrument to be immediately due and payable without further demand, and may
invoke any remedies permitted by applicable law or provided herein. Lender shall
be entitled to collect all costs and expenses incurred in pursuing such
remedies, including, but not limited to, attorney's fees and costs of
documentary evidence, abstracts and title reports.
Notwithstanding the foregoing, Lender shall not invoke any remedy
provided hereunder, under the Loan Documents, at law or in equity upon
Borrower's breach of a non-monetary representation, covenant, or agreement of
Borrower in this Instrument, the Note, the Environmental Indemnity Agreement or
any other Loan Document, other than a breach of PARAGRAPHS 5, 19, 32(K), 32(L)
OR 32(N) of this Instrument, or PARAGRAPH 2 of the Environmental Indemnity
Agreement, provided Borrower shall have, on or before the date that is ten (10)
days after Borrower's receipt of notice thereof, cured such default or, if such
default cannot be cured within such ten (10) day period, Borrower shall have
commenced to cure within such ten (10) day period and is taking all actions
required to diligently cure such default and such default is cured on or before
the date that is thirty (30) days after Borrower's receipt of a notice to cure
such default.
28. RELEASE. Upon payment of all sums secured by this Instrument, Lender shall
release this Instrument. Borrower shall pay the recording fees for the release
of this Instrument.
29. INTENTIONALLY OMITTED.
30. NONRECOURSE LOAN. Subject to the qualifications below in this paragraph, the
Borrower shall be liable for payment and performance of all of the obligations,
covenants and agreements of the Borrower under the Note, this Instrument, the
Assignment of Leases and Rents (herein so-called), dated of even date herewith,
executed by Borrower to Lender, the Environmental Indemnity Agreement dated of
even date herewith, executed by Borrower and Lender, and all other instruments
and documents evidencing, securing or governing the terms of the loan (the
"Loan") evidenced by the Note (collectively, the "Loan Documents"), to the full
extent (but only to the extent) of all of the Property and any other items,
property or amounts which are collateral or security for the Loan. If a default
occurs in the timely and proper payment of any portion of such indebtedness or
in the timely performance of any obligations, agreements or covenants, except as
set forth below in this paragraph, neither Borrower, nor any member of Borrower,
nor any partner, member, stockholder, director or officer of any member of
Borrower, shall be personally liable for the repayment of any of the principal
of, interest on, or prepayment fees or late charges, or other charges or fees
due in connection with the Loan, the
17
<PAGE> 28
performance of any covenants of Borrower under the Note, this Instrument or any
of the other Loan Documents or for any deficiency judgment which Lender may
obtain after default by Borrower. Notwithstanding the foregoing provisions of
this paragraph or any other agreement, the Borrower shall be fully and
personally liable for any and all: (1) liabilities, costs, losses, damages,
expenses or claims (including, without limitation, any reduction in the value of
the Property or any other items, property or amounts which are collateral or
security for the Loan) suffered or incurred by Lender by reason of or in
connection with (a) any fraud or misrepresentation by the Borrower in connection
with the Loan, including but not limited to any misrepresentation of the
Borrower contained in any Loan Document, (b) any failure by the Borrower to pay
taxes, insurance premiums (except to the extent that such taxes and insurance
premiums are then held by the Lender), assessments, charges for labor or
materials or other charges that can create liens on any portion of the Property,
(c) any misapplication by the Borrower or by any member of the Borrower or by
any partner, member, stockholder, officer or director of any member of the
Borrower of (i) proceeds of insurance covering any portion of the Property, or
(ii) proceeds of the sale or condemnation of any portion of the Property, (d)
any rentals, income, profits, issues and products received by or on behalf of
the Borrower subsequent to the date on which the Lender gives written notice
that a default has occurred under the Loan and not applied to the payment of
principal or interest due under the Note or the payment of operating expenses
(excluding any operator's, manager's or developer's fee paid to the Borrower or
any affiliate of the Borrower) of the Property, (e) any failure by the Borrower
to maintain, repair or restore the Property in accordance with any Loan Document
to the extent not covered by insurance proceeds made available to the Lender,
(f) any failure by the Borrower to deliver to the Lender all unearned advance
rentals and security deposits paid by tenants of the Property received by or on
behalf of the Borrower, and not refunded to or forfeited by such tenants, (g)
any failure by the Borrower to return to, or reimburse the Lender for, all
personalty taken from the Property by or on behalf of the Borrower, except in
accordance with the provisions of this Instrument, and (h) any and all
indemnities given by the Borrower to the Lender set forth in the Environmental
Indemnity Agreement or any other Loan Document in connection with any
environmental matter relating to the Property; and (2) court costs and all
attorneys' fees provided for in any Loan Document. Furthermore, no limitation of
liability or recourse provided above in this paragraph shall (x) apply to the
extent that the Lender's rights of recourse to the Property are suspended,
reduced or impaired by or as a result of any act, omission or misrepresentation
of the Borrower or any other party now or hereafter liable for any part of the
Loan and accrued interest thereon, or by or as a result of any case, action,
suit or proceeding to which the Borrower or any such other party, voluntarily
becomes a party; or (y) constitute a waiver, forfeiture, abrogation or
limitation of or on any right accorded by any law establishing a debtor relief
proceeding, including, but not limited to, Title 11, U.S. Code, which right
provides for the assertion in such debtor relief proceeding of a deficiency
arising by reason of the insufficiency of collateral notwithstanding an
agreement of the Lender not to assert such deficiency.
31. REPRESENTATIONS OF BORROWER. The Borrower hereby represents and warrants to
Lender the following:
18
<PAGE> 29
(a) Borrower is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Ohio. There are no
proceedings or actions pending, threatened or contemplated for the liquidation,
termination or dissolution of Borrower.
(b) The lease to Metatec International, Inc. (the "Existing Lease") is
the only lease affecting the Property; Borrower has delivered to Lender a true,
correct, and complete copy of the Existing Lease; and there are no other leases,
assignments, modifications, extensions, renewals, or other agreements of any
kind whatsoever (written or oral) outstanding with respect to the Existing
Lease.
(c) Unless otherwise specified:
(i) the Existing Lease is in full force and effect;
(ii) Borrower has not given any notice of default to the
tenant under the Existing Lease (the "Existing
Tenant") which remains uncured;
(iii) the Existing Tenant has no set off, claim or defense
to the enforcement of the Existing Lease;
(iv) the Existing Tenant is not in arrears in the payment
of rent, additional rent or any other charges
whatsoever due under the Existing Lease; and, to the
knowledge of Borrower, is not materially in default
in the performance of any other obligation of the
Existing Tenant under the Existing Lease; and
(v) except for the work described in the
Completion/Repair and Security Agreement of even date
with the Note, by and between Borrower and Lender,
Borrower has completed all work or alterations
required of the landlord or lessor under the Existing
Lease; and all of the other obligations of landlord
or lessor under the Existing Lease have been
performed.
(d) Borrower has not granted the Existing Tenant any rent concessions
(whether in form of cash contributions, work agreements, assumption of the
Existing Tenant's other obligations, or otherwise) or extensions of time
whatsoever.
(e) There are no legal proceedings commenced (or, to the best of the
knowledge of the Borrower, threatened) against Borrower by the Existing Tenant;
no rental in excess of one month's rent has been prepaid under the Existing
Lease; the Existing Lease is valid and binding on the parties thereto in
accordance with its terms; and the execution of this Instrument and the other
Loan Documents will not constitute an event of default under the Existing Lease.
(f) Borrower currently holds the security deposit (if any) specified in
the Existing Lease and has not given any credit, refund, or set off against such
security deposit to any person.
19
<PAGE> 30
(g) There are no residential units in the Property, and no portion of
the Property is an apartment or other unit subject to any form or rent control,
stabilization or regulation; and no person presently occupies any part of the
Property for dwelling purposes.
(h) Except for Borrower and the Existing Tenant, there are no persons
or entities occupying space in the Property.
(i) Except as specifically listed in the schedule of exceptions to
coverage in the title policy insuring Lender's interest in the Property,
Borrower is now in possession of the Property; Borrower's possession of the
Property is peaceable and undisturbed; Borrower does not know any facts by
reason of which any claim to the Property, or any part thereof, might arise or
be set up adverse to Borrower; and the Property is free and clear of (i) any
lien for taxes (except real property taxes not yet due and payable for the
calendar year in which this Instrument is being executed), and (ii) any
easements, rights-of-way, restrictions, encumbrances, liens or other exceptions
to title by mortgage, decree, judgment, agreement, instrument, or, to the
knowledge of Borrower, proceeding in any court.
(j) Except for certain work described in the above-referenced
Completion/Repair and Security Agreement, all charges for labor, materials or
other work of any kind furnished in connection with the construction,
improvement, renovation or rehabilitation of the Property or any portion thereof
have been paid in full, and no unreleased affidavit claiming a lien against the
Property, or any portion thereof, for the supplying of labor, materials or
services for the construction of improvements on the Property has been executed
or recorded in the mechanic's lien or other appropriate records in the county in
which the Property is located.
(k) The Property and the current and contemplated uses of the Property
are in compliance with all applicable federal, state and municipal laws, rules,
regulations and ordinances, applicable restrictions, zoning ordinances, building
codes and regulations, building lines and easements, including, without
limitation, federal and state environmental protection law and the Americans
with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988, all
state and local laws or ordinances related to handicapped access, and any
statute, rule, regulation, ordinance, or order of governmental bodies or
regulatory agencies, or any order or decree of any court adopted or enacted with
respect thereto (collectively, "Applicable Laws"); no governmental authority
having jurisdiction over any aspect of the Property has made a claim or
determination that there is any such violation; the Property is not included in
any area identified by the Secretary of Housing and Urban Development pursuant
to the Flood Disaster Protection Act of 1973, as amended, as an area having
special flood hazards; and all permits, licenses and the like which are
necessary for the operation of the Property have been issued (except for
occupancy permits for Building Two, as defined in the above-referenced
Completion/Repair and Security Agreement) and are in full force and effect.
(l) There have been no material adverse changes, financial or
otherwise, in the condition of Borrower from that disclosed to Lender in the
loan application submitted to Lender by Borrower, or in any supporting data
submitted in connection with the Loan, and all of the
20
<PAGE> 31
information contained therein was true and correct when submitted and is now
substantially and materially true and correct on the date hereof.
(m) There is no claim, litigation or condemnation proceeding pending,
or, to the knowledge of the Borrower, threatened, against the Property or
Borrower, which would affect the Property or Borrower's ability to perform its
obligations in the connection with the Loan.
(n) Borrower does not own any real property or assets other than the
Property and does not operate any business other than the management and
operation of the Property.
(o) No proceedings in bankruptcy or insolvency has ever been instituted
by or against Borrower or any affiliate thereof, and no such proceeding is now
pending or contemplated.
(p) Borrower is, and if there are any general partners or members of
Borrower, such partners or members are, solvent pursuant to the laws of the
United States, as reflected by the entries in Borrower's books and records and
as reflected by the actual facts.
(q) The Loan Documents have been duly authorized, executed and
delivered by Borrower and constitute valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms. No
approval, consent, order or authorization of any governmental authority and no
designation, registration, declaration or filing with any governmental authority
is required in connection with the execution and delivery of the Note, this
Instrument or any other Loan Document.
(r) The execution and delivery of the Loan Documents will not violate
or contravene in any way the articles of incorporation or bylaws or partnership
agreement, articles of organization or operating agreement as the case may be,
of Borrower or any indenture, agreement or instrument to which Borrower is a
party or by which it or its property may be bound, or be in conflict with,
result in a breach of or constitute a default under any such indenture,
agreement or other instrument, result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the property or
assets of Borrower, except as contemplated by the provisions of such Loan
Documents, and no action or approval with respect thereto by any third person is
required.
(s) No part of the Property is all or a part of Borrower's homestead.
(t) The Property is served by all utilities required for the current or
contemplated use thereof. All utility service is provided by public utilities
and the Property has accepted or is equipped to accept such utility service.
(u) All public roads and streets necessary for service of and access to
the Property for the current or contemplated use thereof have been completed,
are serviceable and all-weather and are physically and legally open for use by
the public.
(v) The Property is serviced by public water and sewer systems.
21
<PAGE> 32
(w) The Property is free from damage caused by fire or other casualty.
(x) All liquid and solid waste disposal, septic and sewer systems
located on the Property are in a good and safe condition and repair and in
compliance with all Applicable Laws.
32. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby covenants, agrees and
undertakes to:
(a) fulfill and perform all of Borrower's obligations as landlord or
lessor under any lease; will promptly send Lender copies of any notices of
default received from the tenant under any lease; and will enforce (short of
terminating such lease) the performance by the tenant of the tenant's
obligations under any lease;
(b) not make, enter into, execute, cancel, amend or modify any lease
without the prior written consent of Lender;
(c) not approve any assignment of a lease, of any sublease or
underlease, without the prior written consent of Lender;
(d) not cancel or modify any guaranty of a lease, or release any
security deposit or letter of credit constituting security under a lease,
without the prior written consent of Lender;
(e) not accept prepayment of any installment of rent from any tenants
of the Property for a period of more than one (1) month in advance;
(f) not further assign the whole (or any part of) the leases or the
rents;
(g) except for completion of Building Two, not undertake or commence
any alterations of any improvements on the Property the cost of which is in
excess of five percent (5%) of the then original principal amount of the Note,
without the prior written consent of Lender;
(h) from time to time, at the request of Lender, (i) promptly correct
any defect, error or omission which may be discovered in the contents of this
Instrument or in any other Loan Document or in the execution or acknowledgement
thereof; (ii) execute, acknowledge, deliver and record and/or file such further
documents or instruments (including, without limitation, further mortgages,
security agreements, financing statements, continuation statements, assignments
of rents or leases and environmental indemnity agreements) and perform such
further acts and provide such further assurances as reasonably may be necessary,
desirable or proper, in Lender's opinion, to carry out more effectively the
purposes of this Instrument and such other instruments and to subject to the
liens and security interests hereof and thereof any property intended by the
terms hereof or thereof to be covered hereby or thereby, including specifically,
but without limitation, any renewals, additions, substitutions, replacements, or
appurtenances to the Property; provided that such documents or instruments do
not materially
22
<PAGE> 33
increase Borrower's liability under the Loan Documents; and (iii) execute,
acknowledge, deliver, procure, and file and/or record any document or instrument
(including specifically, but without limitation, any financing statement)
reasonably deemed advisable by Lender to protect the liens and the security
interests herein granted against the rights or interests of third persons;
provided that such documents or instruments do not materially increase
Borrower's liability under the Loan Documents. Borrower will pay all reasonable
costs connected with any of the foregoing in this SUBPARAGRAPH (h);
(i) continuously maintain Borrower's existence and right to do business
in the State of Ohio;
(j) at any time any law shall be enacted imposing or authorizing the
imposition of any tax upon this Instrument, or upon any rights, titles, liens or
security interests created hereby, or upon the obligations secured hereby or any
part thereof, immediately pay all such taxes; provided that, if such law as
enacted makes it unlawful for Borrower to pay such tax, Borrower shall not pay
nor be obligated to pay such tax, and in the alternative, Borrower may, in the
event of the enactment of such a law, and must, if it is unlawful for Borrower
to pay such taxes, prepay the obligations secured hereby in full within sixty
(60) days after demand therefor by Lender;
(k) not execute or deliver any other deed of trust, mortgage or pledge
of any type covering all or any portion of the Property;
(l) not acquire any real property or assets (other than the Property)
or operate any business other than the management and operation of the Property
during the term of the Loan;
(m) not permit any drilling or exploration for or extraction, removal
or production of any mineral, natural element, compound or substance from the
surface or subsurface of the Property regardless of the depth thereof or the
method of mining or extraction thereof;
(n) not change its name, identity, structure or employer identification
number during the term of the Loan;
(o) pay on demand all reasonable and bona fide out-of-pocket costs,
fees and expenses and other expenditures, including, but not limited to,
reasonable attorneys' fees and expenses, paid or incurred by Lender to third
parties incident to this Instrument or any other Loan Document (including, but
not limited to, reasonable attorneys' fees and expenses in connection with the
negotiation, preparation and execution hereof and of any other Loan Document and
any amendment hereto or thereto, any release hereof, any consent, approval or
waiver hereunder or under any other Loan Document, the making of any advance
under the Note, and any suit to which Lender is a party involving this
Instrument or the Property) or incident to the enforcement of the obligations
secured hereby or the exercise of any right or remedy of Lender under any Loan
Document; and
(p) maintain and keep the Property in compliance with all Applicable
Laws.
23
<PAGE> 34
33. INTENTIONALLY OMITTED.
34. INTENTIONALLY OMITTED.
35. ASSUMABILITY.
(a) So long as (i) Borrower is not in default under any of the terms of
the Note, this Instrument or any other Loan Document, and (ii) no situation
exists which with the passage of time or the giving of notice or both would
constitute a default under the Note, this Instrument or any other Loan Document,
in the event Borrower desires to transfer all of the Property to another party
(the "Transferee") and have the Transferee assume all of Borrower's obligations
under the Note, this Instrument and all of the other Loan Documents
(collectively, the "Transfer and Assumption"), Borrower, subject to the terms of
this paragraph, may make a written application to Lender for Lender's consent to
the Transfer and Assumption, subject to the conditions set forth in SUBPARAGRAPH
(B) of this PARAGRAPH 35. Together with such written application (and afterwards
if requested by Lender), Borrower will submit to Lender true, correct and
complete copies of any and all information and documents of any kind requested
by Lender concerning the Property, Transferee and/or Borrower, together with any
review fee required by Lender, in Lender's sole discretion.
(b) Lender shall not unreasonably withhold its consent to a Transfer
and Assumption provided and upon the condition that:
(iv) Lender receives an opinion from counsel acceptable to
Lender that (x) such Transfer and Assumption shall
not affect, in any way, the enforceability of the
Loan Documents or the lien status, and (y) that the
Transferee complies in all respects with the
provisions of PARAGRAPH 31(N) and PARAGRAPH 32(L) of
this Instrument and such other conditions concerning
the organizational structure of the Transferee as
were required by Lender at the time of the making of
the Loan;
(v) Borrower has submitted to Lender true, correct and
complete copies of any and all information and
documents of any kind requested by Lender concerning
the Property, Transferee and/or Borrower;
(vii) the Transferee, in Lender's sole judgment, has
sufficient experience in managing assets similar in
size and type to the Property;
(vii) in Lender's sole judgment, the Transferee and the
partners, members or shareholders of the Transferee
are financially sound or have sufficient financial
resources to manage the Property for the term of the
Loan;
(viii) the Loan has been placed, or Lender plans to place
the Loan, in an offering of Securities (as defined in
PARAGRAPH 37) and Lender receives written
confirmation from the rating agencies that the
Transfer and
24
<PAGE> 35
Assumption will not result in any downgrade,
qualification or withdrawal of the ratings assigned
to the pool and assets in which the Loan has been
placed; and
(ix) Borrower has paid any review fee required by Lender.
(c) If Lender consents to the Transfer and Assumption, the Transferee
and/or Borrower as the case may be, shall deliver the following to Lender:
(x) Borrower shall deliver to Lender an assumption fee in
the amount of one percent (1%) of the then unpaid
principal balance of the Loan;
(xi) Borrower and Transferee shall execute and deliver to
Lender any and all documents required by Lender, in
form and substance required by Lender, in Lender's
sole discretion (the "Assumption Documents");
(xii) Borrower shall cause to be delivered to Lender, an
endorsement to the mortgagee policy of title
insurance then insuring the lien created by this
Instrument in form and substance acceptable to
Lender, in Lender's sole discretion (the
"Endorsement"); and
(xiii) Borrower shall deliver to Lender a payment in the
amount of all costs incurred by Lender in connection
with the Transfer and Assumption, including but not
limited to, Lender's attorneys fees and expenses, all
recording fees for the Assumption Documents, and all
fees payable to the title company for the delivery to
Lender of the Endorsement.
(d) Notwithstanding anything contained in this paragraph to the
contrary, (x) under no circumstances may the Property and Loan be transferred
and assumed by any party under the terms of this paragraph more than once during
the entire term of the Loan and (y) except based on Lender's written agreement
to the Transfer and Assumption and Borrower's and Transferee's compliance with
all of the terms and provisions of this paragraph, the terms and provisions of
this paragraph shall in no way amend or modify the terms and provisions
contained in PARAGRAPH 19 of this Instrument.
36. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT THE BORROWER MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONJUNCTION WITH THE NOTE, THIS INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY OTHER
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY.
25
<PAGE> 36
37. TRANSFER OF LOAN. Lender may, at any time, sell, transfer or assign the
Note, this Instrument and the Loan Documents, or any part thereof, and any or
all servicing rights with respect thereto, or grant participations therein or
issue mortgage pass-through certificates or other securities evidencing a
beneficial interest in a rated or unrated public offering or private placement
(the "Securities"). Lender may forward to each purchaser, transferee, assignee,
servicer, participant, investor in such Securities or any rating agency rating
such Securities (singularly, an "Investor," and collectively, the "Investors")
and each prospective Investor, all documents and information which Lender now
has or may hereafter acquire relating to the Loan and to Borrower, any
guarantor, any indemnitors and/or the Property, whether furnished by Borrower,
any guarantor, any indemnitors or otherwise, as Lender determines necessary or
desirable. Borrower shall furnish and Borrower consents to Lender furnishing to
such Investors or such prospective Investors or rating agency any and all
information concerning the Property, the leases, the financial condition of
Borrower, any guarantor and any indemnitor as may be requested by Lender, any
Investor or any prospective Investor or rating agency in connection with any
sale, transfer or participation interest.
This Instrument may be executed in any number of duplicate originals
and each duplicate original shall be deemed to be an original.
IN WITNESS WHEREOF, Borrower has executed this Instrument or has caused
the same to be executed by its representatives thereunto duly authorized.
Signed and acknowledged META HOLDINGS, LLC
in the presence of:
By META Management, LLC, Sole
Member
/s/ Pamela A. DeDent
- - -------------------------------------- By: /s/ Julia Pollner
Signature ------------------------------
Pamela A. DeDent Name: Julie Pollner
- - -------------------------------------- ----------------------------
Printed Name
Title: Secretary and Treasurer
/s/ Donald W. Jordan ---------------------------
- - --------------------------------------
Signature
Donald W. Jordan
- - --------------------------------------
Printed Name
26
<PAGE> 37
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
On this 23rd day of July, 1999, before me, a notary public in and for
said County and State, personally appeared Julia Pollner, known to me or
satisfactorily identified to be the person who as Secretary and Treasurer of
META Management, LLC, the sole member of META Holdings, LLC, the limited
liability company which signed the foregoing instrument as "Borrower," who being
first duly sworn, acknowledged to me that he/she did sign the foregoing
instrument on behalf of Borrower in such capacity, being duly authorized, and
that the same is the free act and deed of Borrower and his/her free act and
deed.
WITNESS my hand and notarial seal.
/s/ Donald W. Jordan
------------------------------------
Notary Public
THIS INSTRUMENT PREPARED BY:
Donald W. Jordan, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
27
<PAGE> 38
EXHIBIT A
Property Description
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF METATEC INTERNATIONAL, INC.
Metatec Worldwide, Inc., an Ohio Corporation
Metatec International B.V., a Netherlands corporation
META Holdings, LLC, an Ohio Limited Liability Company
META Management, LLC, an Ohio Limited Liability Company
03/21/00
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-48022, No. 33-52700, No. 33-80172, No. 33-71080, No. 33-80170, No. 333-03125,
No. 333-31027, and No. 333-10442 of Metatec International, Inc. (formerly
Metatec Corporation) on Form S-8 and Registration Statement No. 333-03123 on
Form S-3 of our reports dated February 28, 2000 (March 22, 2000 as to the waiver
and amendment of certain covenants in Note 5 to the consolidated financial
statements), included in this Annual Report on Form 10-K of Metatec
International, Inc. for the year ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 28, 2000
Columbus, Ohio
03/21/00
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET DATED AS OF DECEMBER 31, 1999, AND ITS CONSOLIDATED
STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999, 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,695,884
<SECURITIES> 0
<RECEIVABLES> 21,108,847
<ALLOWANCES> 480,000
<INVENTORY> 3,671,639
<CURRENT-ASSETS> 29,065,570
<PP&E> 103,492,414
<DEPRECIATION> (39,744,176)
<TOTAL-ASSETS> 111,407,753
<CURRENT-LIABILITIES> 26,162,768
<BONDS> 47,382,793
0
0
<COMMON> 715,736
<OTHER-SE> 37,146,456
<TOTAL-LIABILITY-AND-EQUITY> 111,407,753
<SALES> 120,281,047
<TOTAL-REVENUES> 120,281,047
<CGS> 87,174,319
<TOTAL-COSTS> 121,135,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 403,000
<INTEREST-EXPENSE> 3,336,267
<INCOME-PRETAX> (4,166,290)
<INCOME-TAX> (1,320,000)
<INCOME-CONTINUING> (2,846,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,846,290)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
