-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GL+14kFUEiiYvWcLzACrcJ2GGSxNsYCGYGrC87vyIIvR8k6mtALEtdBJ1dvaTXbE P+qyBsaDy7jlfwtmJbiVuw== 0000950152-97-002535.txt : 19970401 0000950152-97-002535.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950152-97-002535 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: METATEC CORP CENTRAL INDEX KEY: 0000203200 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 591698890 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09220 FILM NUMBER: 97570493 BUSINESS ADDRESS: STREET 1: 7001 METATEC BLVD CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147612000 MAIL ADDRESS: STREET 1: 7001 METATEC BLVD CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: SILCO INVESTORS CORP DATE OF NAME CHANGE: 19900801 10-K405 1 METATEC CORPORATION 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ----------------- --------------- Commission File Number: 0-9220 METATEC CORPORATION (Exact name of Registrant as specified in its charter) FLORIDA 59-1698890 (State of Incorporation) (I.R.S. Employer Identification No.) 7001 Metatec Boulevard Dublin, Ohio 43017 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (614) 761-2000 Securities registered pursuant to Section 12(b) of the Act: None (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Common Shares, $.10 par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Shares held by nonaffiliates of the Registrant as of March 24, 1997, was $24,322,871. On March 24, 1997, the Registrant had 6,929,438 Common Shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's proxy statement for its annual meeting of shareholders to be held on April 24, 1997, which proxy statement was filed with the Securities and Exchange Commission on March 24, 1997, are incorporated by reference into Part III, Items 10, 11, 12, and 13 of this Report. 2 METATEC CORPORATION FORM 10-K PART I ITEM 1. BUSINESS - ------- -------- GENERAL Metatec Corporation, a Florida corporation (Metatec Corporation and its subsidiaries are hereinafter collectively referred to as the "Company"), is a leading information industry services company offering optical disc manufacturing and distribution, software development, and network services. The company is organized into two business divisions, the Manufacturing Services Group and the Access Services Group, formerly known as the New Media Solutions Group. The Manufacturing Services Group provides CD-ROM (compact disc-read only memory) mastering, replication, and distribution services in addition to providing similar services to radio syndication customers for audio compact discs ("Audio CDs"). The Access Services Group provides a broad range of software development and media preparation services for customers creating custom CD-ROM products and frequently published periodicals on optical media and offers network services for information publishers desiring integrated worldwide web access to support their CD-ROM publications. CD-ROM technology combines audio, video, text, and graphics in one medium with the capability to store, search, and retrieve vast quantities of information. One CD-ROM can contain up to approximately 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. The Company was incorporated as a Florida corporation on September 9, 1976. Since 1990, information distribution services have been the primary business of the Company. Prior to that time, the Company's primary business was the development and sale of real estate. In 1992, the Company discontinued its real estate operations through a distribution of its real estate assets in exchange for all of its outstanding Class B Common Shares. Pursuant to a recapitalization effected in May 1993, the Company's Class B Common Shares were eliminated as a class of shares. INDUSTRY OVERVIEW The principal methods for the distribution of business information currently include print, CD-ROM, and on-line services. CD-ROM technology was initially used primarily by institutions, such as libraries, for storing and searching vast quantities of data. Although print remains the dominant vehicle for business information distribution, publishers and other companies are increasingly using CD-ROM as a cost-effective and portable format for distributing and providing access to large amounts of information, including multimedia applications and interactive software, to widely dispersed groups of users. A major factor contributing to the successful establishment of CD-ROM is the degree of standardization achieved in the early stages of market development. Adherence to these standards has created a climate of acceptance among both publishers and device users. Domestic manufacturers of personal computers now offer CD-ROM drives as standard options on virtually all of their desk-top models. As a method of distributing business information, on-line services lend themselves to information which requires frequent or continuous updating. CD-ROM is a more cost-effective distribution method for large amounts of information which require less frequent updating and provides audio, video, text, and graphics capabilities in one medium. - 2 - 3 Digital versatile disc ("DVD") technology represents a new type of optical disc which can hold up to 4.7 gigabytes of information, or seven times the amount of the current CD-ROM. It is projected that DVD will replace CD-ROM and expand the utilization of optical disc technology 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. It is expected that, beginning in 1997, DVD movie player drives will be introduced to the home entertainment market, with DVD drives for other applications to be introduced thereafter. PRINCIPAL PRODUCTS AND SERVICES Through its two business divisions which focus on market-specific CD-ROM product offerings, the Company serves as a one-stop source of CD-ROM solutions. The Manufacturing Services Group provides CD-ROM mastering, replication, and distribution services in addition to providing similar services to radio syndication customers for Audio CDs. The Access Services Group better reflects the Company's approach to the evolving markets it serves. This Group provides a broad range of software development and media preparation services for customers creating custom CD-ROM products and frequently published periodicals on optical media. This Group also offers network services for customers desiring integrated worldwide web access to support their CD-ROM publications. The following table sets forth the revenues from each of the foregoing activities and their approximate percentage contribution to sales during the periods indicated:
YEAR ENDED DECEMBER 31, 1996 1995 1994 Sales Percent Sales Percent Sales Percent ----- ------- ----- ------- ----- ------- Manufacturing Services Group: CD-ROM............. $36,096,000 78% $26,945,000 69% $17,949,000 62% Radio.............. 5,325,000 12 5,578,000 14 5,666,000 20 Access Services Group............... 4,729,000 10 6,738,000 17 5,328,000 18 ----------- --- ----------- --- ----------- --- Total Revenues........ $46,150,000 100% $39,261,000 100% $28,943,000 100% =========== === =========== === =========== ===
The Company focuses on increasing revenues from its CD-ROM manufacturing services while maintaining its current market position within the mature radio syndication market. The Company's strategy targets customers which require turn-key CD-ROM publication services. Such customers generally have time-sensitive and recurring information distribution requirements and evolving technical and creative needs, demand high quality disc manufacturing, and may require fulfillment and distribution services directed to the ultimate user base. As an established independent manufacturer with the ability to produce efficiently the smaller production runs generally required by CD-ROM orders, the Company believes that it is strategically positioned to satisfy the needs of CD-ROM producers which require responsive turnaround on smaller orders and a high degree of personalized support and design services. In 1996, the Company had one customer, CompuServe Incorporated, which accounted for approximately 11.5% of the Company's consolidated revenues. The loss of this customer could have a material adverse effect on the Company. No other customer accounted for greater than 10% of the consolidated revenues of the Company in 1996. The Company will continue to invest resources into the Access Services Group through the continued development of its product offering, Metatec Access, which is a combination of production capabilities, software tools, and development experience, to offer multimedia based products. MANUFACTURING SERVICES GROUP. The Company manufactures CD-ROMs and provides technical and creative services to design and assist in the marketing of new CD-ROM applications by its customers. The Company's services performed through the manufacturing process include conversion - 3 - 4 of data provided by customers to a digital format, encoding of the data on a master disc, replication from the master disc, data verification, quality control testing, and design and printing of the disc label. The Company provides full-service disc packaging and either ships the finished product back to its customers or distributes the product to the ultimate end user on behalf of its customers. The Company also manufactures Audio CDs for the radio syndication programming services market. Radio syndication customers utilize the Company's quick turn automated production lines, strict quality control, and end user distribution services to provide them a competitive advantage. The Company provides a full range of services to radio syndication customers from digital format conversion to fulfillment. The Company operates its automated production facility seven days a week, 24 hours per day in a state-of-the-art facility, permitting it to offer one-day turnaround of a master CD and high quality CD replicas for distribution for both its CD-ROM and radio syndication customers. The Company will offer DVD-ROM production in 1997 through the addition of mastering, replication, and related production equipment. ACCESS SERVICES GROUP. The Company provides a full range of software services to assist customers with designing and producing multimedia products integrating text, video, audio, graphics, and animation. These services include working with customers to develop CD-ROM applications and marketing strategies from technical and business consultation through the conversion of raw data to the final replication of information on disc. For example, the Company provides software programming services to develop indexing and user interfaces providing search and retrieval capabilities. Such user interfaces allow an ultimate end user to manipulate efficiently the information being distributed. In order to provide software development services, the Company currently uses search and retrieval software licensed to it by an independent third party for an indefinite term at a rate tied to the level of usage of the software. The Company believes that this software will continue to be available from this supplier and other suppliers. The services provided by the Access Services Group often result in customers using the Manufacturing Services Group for, among other things, replication, printing, and fulfillment of a given project. The Company offers CD-ROM connectivity to online resources, called "hybrid CD-ROM," which permits the multimedia presentation power of CD-ROM combined with current information online. The hybrid CD-ROM concept, named Metatec Access, is a combination of production capabilities, software tools, and experience that helps companies create multimedia-based information networks. Included are a customizable CD viewer interface, e-mail, usage tracking, advertising, chat centers, bulletin boards, Web page development, transaction tracking, and database access. MARKETING. The Company markets its products and services through its own sales force of 30 employed associates based in San Francisco, Chicago, Washington, D.C., New York, Denver, Dallas, Boston, Atlanta, and Seattle, in addition to Dublin, Ohio, where its principal offices are located. These associates are responsible for maintaining relationships with existing customers and developing new business relationships. The associates are supported by a customer service staff that is responsible for ensuring that each order is processed in a timely manner and all required support materials are in place. MANUFACTURING. The Company currently operates from an approximately 125,000 square foot facility in Dublin, Ohio, of which approximately 60,000 square feet are used for manufacturing and distribution activities. An 80,000 square foot addition to the current facility, of which 40,000 square feet will be used for manufacturing and distribution activities, will be completed and available in 1997. The Company's manufacturing services include premastering and mastering of discs, from which duplicate CD-ROMs and Audio CDs can be made, disc label design and printing, packaging, distribution, - 4 - 5 and fulfillment services. During the last four years, the Company increased its mastering capacity and converted its disc manufacturing process from batch processing to monoline, or in-line, manufacturing. The Company believes that its increased mastering capacity is a competitive advantage, allowing the Company to react more responsively to customer timing requirements. The monoline process, which moves each disc through the various operations separately, reduces production time, permits the production of automated inspection equipment to detect flaws at an early stage, and improves quality. Each replicating machine is self-contained, eliminating the need for establishing and maintaining a separate production area clean room. In 1995, the Manufacturing Services Group received ISO 9002 quality system certification. This certification means that the Company's manufacturing facilities meet worldwide standards for quality practices. During 1996, the Company continued a capacity expansion program which increased by 30% the Company's disc production capacities over 1995 levels. Additional capacity expansion activities will continue as market demand requires. During 1997, the Company will add DVD mastering and disc production capacity. The Company utilizes certain patents and technology in its manufacturing activities which it licenses from third parties and which the Company believes to be generally available to other manufacturers. Although only one vendor currently produces a key raw material used by the Company in its manufacturing process, the Company generally maintains a six-month supply of this material and has obtained the rights to manufacture the material itself or through other third parties. The Company has multiple sources for all other raw materials and supplies used in its manufacturing operations. COMPETITION. The Company has a number of competitors in each of its lines of business. Many of the Company's competitors are larger and have greater financial resources than the Company. The Company believes that the principal competitive factors in the CD-ROM marketplace consist of service, quality, and reliability for the timely delivery of products. These factors, in addition to price, also affect the Audio CD marketplace. The Company believes it competes favorably with respect to these factors in the CD-ROM market and the radio syndication segment of the Audio CD market. In its Manufacturing Services Group and Access Services Group, the Company differentiates itself from its competitors by providing short-run manufacturing flexibility (including quick turnaround times), personalized customer service, software development services, and complete CD-ROM solutions. Many firms demand a manufacturer like the Company which can provide additional services such as label design and printing, packaging, and distribution. In addition to the foregoing, the Access Services Group competes based on product innovation and content. EMPLOYEES The Company employed approximately 380 associates as of March 14, 1997. Approximately 230 employees are directly involved in the manufacturing and distribution process, approximately 50 employees are involved in the Access Services Group, and the remainder are involved in sales, administration, and support. The Company believes that its relation with its associates is good. ITEM 2. PROPERTIES - ------- ---------- The Company owns an approximately 125,000 square foot office and manufacturing facility situated on approximately 20 acres located at 7001 Metatec Boulevard, Dublin, Ohio. An 80,000 square foot addition to the existing facility was started in 1996. The addition will house manufacturing, distribution, a new computer and data services center, and additional office space. The - 5 - 6 manufacturing and distribution space was occupied in January 1997, with the computer center and office space anticipated to be available for occupancy in the second quarter of 1997. The Company's principal executive offices are located in this facility. The Company also leases office space in San Francisco, Chicago, Washington, D.C., New York, Denver, Dallas, Boston, Atlanta, and Seattle. 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: Officers Age Present Position(s) with the Company -------- --- ------------------------------------ Jeffrey M. Wilkins 52 Chairman of the Board and Chief Executive Officer Gregory T. Tillar 44 President and Chief Operating Officer William H. Largent 41 Executive Vice President, Secretary, Treasurer, and Chief Financial Officer Alexander P. Deak 36 Vice President and Chief Information Officer Brad D. Warnick 44 Vice President, Access Services Christopher L. Winslow 35 Vice President, Manufacturing Services
Mr. Wilkins has been Chairman of the Board and Chief Executive Officer of the Company since August 1989. Mr. Tillar has been President of the Company since February 1995, and Chief Operating Officer of the Company since April 1993, and was Vice President, responsible for various operating and sales functions, with the Company since May 1990. Mr. Largent has been Chief Financial Officer of the Company since March 1993, Treasurer of the Company since May 1993, and Executive Vice President and Secretary of the Company since October 1995. From October 1992 to March 1993, Mr. Largent was president of Liebert Capital Management Corporation, an investment management company. From April 1990 to September 1992, Mr. Largent was executive vice president of L Corporation, an affiliate of Liebert Capital Management Corporation. - 6 - 7 Mr. Deak has been Vice President and Chief Information Officer of the Company since December 1994, and has held information services and product management positions with the Company since 1990. Mr. Warnick has been Vice President, Access Services, of the Company since October 1995 and was Vice President, Publishing Services, from October 1994 until September 1995, and has held various product development and management positions with the Company since 1989. Mr. Winslow has been Vice President, Manufacturing Services, of the Company since 1992. From 1984 to 1992, Mr. Winslow was in sales and product management with CompuServe Incorporated. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- --------------------------------------------------------------------- The Company's Common 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. High Low ---- --- For the quarter ended 1995 March 31......................................... $14.25 $ 8.75 June 30.......................................... 14.00 10.75 September 30..................................... 14.75 11.75 December 31...................................... 12.50 8.25 For the quarter ended 1996 March 31......................................... $11.00 $ 8.50 June 30.......................................... 13.25 9.50 September 30..................................... 10.75 7.00 December 31...................................... 7.88 5.50
As of March 18, 1997, there were 4,263 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 $4.16. The Company has never paid cash dividends on the Common Shares. The payment of dividends is within the discretion of the Company's board of directors and depends upon the earnings, the capital requirements, and the operating and financial condition of the Company, among other factors. The Company currently expects to retain its earnings to finance the growth and development of its business and does not expect to pay cash dividends in the foreseeable future. - 7 - 8 ITEM 6. SELECTED FINANCIAL DATA - ------- -----------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- OPERATING RESULTS: Sales................................ $46,150,105 $39,261,463 $28,942,748 $21,318,416 $16,877,079 Earnings (loss) from continuing operations before income taxes..... $ 3,398,728 $ 4,140,980 $ 2,424,653 $ 1,061,984 $ (370,738) Net earnings (loss) from continuing operations......................... $ 2,040,728 $ 2,808,980 $ 1,692,653 $ 1,061,984 $ (370,738) Net earnings (loss).................. $ 2,040,728 $ 2,808,980 $ 1,692,653 $ 1,061,984 $ (370,738) Earnings (loss) per common share from continuing operations: $ .29 $ 0.43 $ 0.33 $ 0.25 $ (0.11) Primary.......................... $ .29 $ 0.43 $ 0.32 $ 0.21 $ (0.11) Fully diluted.................... Primary earnings (loss) per common share.............................. $ .29 $ 0.43 $ 0.33 $ 0.25 $ (0.11) Weighted average number of common shares outstanding: Primary.......................... 7,159,722 6,480,326 5,134,656 4,260,806 3,371,956 Fully diluted.................... 7,159,775 6,485,010 5,323,503 4,953,412 3,371,956 FINANCIAL CONDITION: Total assets......................... $52,517,477 $50,076,076 $32,556,004 $19,347,362 $12,551,599 Long-term liabilities................ $ 1,335,105 $ 845,875 $ 7,959,634 $ 151,316 $ 2,821,969 Shareholders' equity................. $45,265,791 $43,301,079 $18,276,129 $16,206,703 $ 6,719,711
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS ------------- RESULTS OF OPERATIONS - 1996 COMPARED TO 1995 Net sales in 1996 were at a record level of $46,150,000, an increase of $6,889,000, or 18% over 1995. This increase resulted primarily from the Manufacturing Services Group, which includes CD-ROM and Radio Syndication manufacturing, increasing $8,898,000 to $41,421,000 for 1996, or 27%. The Access Services Group (formerly known as the New Media Solutions Group), decreased $2,009,000 to $4,729,000 for 1996, or 30%. This combined net sales increase of $6,889,000 was primarily as a result of solid CD-ROM replication growth in our Manufacturing Services Group. Within the Access Services Group, development of the Metatec Access product offering was initiated in midyear 1996. This development activity significantly slowed the selling process resulting in a sales decrease for 1996. In addition the NautilusCD product offering was terminated in early 1996. Gross profit was 36% of net sales for 1996 as compared to 42% of net sales for 1995. This decrease is primarily attributed to an under utilization of manufacturing capacity during 1996. The Company again increased capacity in 1996 in anticipation of increased volume which did not occur as - 8 - 9 rapidly as anticipated. In addition, sales price erosion occurred in 1996 at a rate that was greater than that experienced in prior years. Selling, general and administrative expenses ("SG&A") increased to $13,459,000, or 29% of net sales, for 1996 as compared to $12,121,000, or 31% of net sales, for 1995. This decrease in SG&A expenses as a percent of net sales is as anticipated based upon the goal of management to take advantage of the existing SG&A support structure put in place in late 1995. Investment income remained the same for 1996 and 1995 at $303,000. Interest expense for 1996 was $19,000 as compared to $323,000 for 1995. During 1995 the Company paid off all of its long-term bank debt utilizing a part of the proceeds from the 1995 sale of shares as more fully discussed in the Financial Condition section. Income tax expense was $1,358,000 in 1996, or an effective tax rate of 40%, as compared to $1,332,000 in 1995, or an effective tax rate of 32%. The 1996 effective tax rate increased due to the non-deductibility for income tax purposes of the additional goodwill which began being charged to earnings in 1996. This goodwill charge was $410,000 and is related to shares earned by an officer/shareholder which vested in late 1995. The 1995 effective tax rate reflects a benefit from state investment tax credits. Net earnings for 1996 were $2,041,000, or earnings per common share of $.29, as compared to 1995 net earnings of $2,809,000, or earnings per common share of $.43. This decrease was primarily a result of lower gross profit, an increase in goodwill expense and a higher effective tax rate as noted above. RESULTS OF OPERATIONS - 1995 COMPARED TO 1994 Net sales in 1995 were $39,261,000, an increase of $10,319,000, or 36% over 1994. This increase resulted primarily from the Manufacturing Services Group, increasing $8,908,000 to $32,523,000 for 1995, or 38%. Sales for the Access Services Group increased $1,411,000 to $6,738,000 for 1995, or 26%. This combined net sales increase was primarily as a result of strong market growth which resulted in a significant increase in volume. The Company increased the number of new customers it serves, as well as its existing customers introduced new CD-ROM products and increased the size of their existing product orders. Within the Access Services Group the number of subscribers to NautilusCD, the Company published CD-ROM monthly multimedia magazine, decreased from 17,000 as of December 31, 1994 to 5,000 as of December 31, 1995. This decrease in subscribers during 1995 was a result of the PC/Windows version of NautilusCD being converted to a CD-ROM publication not published by the Company. Gross profit was 42% of net sales for 1995 as compared to 44% of net sales for 1994. This decrease is primarily attributed to an under utilization of manufacturing capacity during the second half of 1995 as a result of a doubling in the capacity during that same time period. The Company increased capacity in the second half of 1995 in anticipation of increased volume in late 1995 and into 1996. Net sales in the first half of 1995 were $17,932,000 as compared to $21,329,000 in the second half of 1995. The Company operated at closer to capacity in the first half of 1995 than in the second half with the result being higher fixed costs in relation to net sales during the second half of the year. Selling, general and administrative expenses increased to $12,121,000, or 31% of net sales, for 1995 as compared to $10,061,000, or 35% of net sales, for 1994. This increase of $2,060,000 is primarily attributed to increased personnel costs and higher occupancy related costs due to the increased corporate office space. - 9 - 10 Investment income was $303,000 and $161,000 for 1995 and 1994, respectively. The increase was a result of additional investment income from higher cash and cash equivalents balances. These higher balances were as a result of proceeds received from the second quarter of 1995 sale, by the Company, of an additional 1,725,000 common shares. Other expense of $75,000 in 1995 compares to other income of $62,000 in 1994. This unfavorable change of $137,000 is a result of a loss on the sale of property, plant and equipment in 1995. Interest expense for 1995 was $323,000 as compared to $380,000 for 1994. During 1995 the Company paid off all of its long-term bank debt utilizing $8,100,000 of the proceeds from the previously mentioned 1995 sale of shares. Income tax expense was $1,332,000 in 1995, or an effective tax rate of 32%, as compared to $732,000 in 1994, or an effective tax rate of 30%. The 1995 provision reflects a benefit from state investment tax credits while the 1994 provision reflects a benefit of the usage of net operating loss carryforwards partially offset by the provision for state and local taxes. Net earnings for 1995 were $2,809,000, or primary and fully diluted earnings per common share of $.43, as compared to 1994 net earnings of $1,693,000, or primary earnings per common share of $.33 and fully diluted earnings per common share of $.32. This improvement was primarily a result of higher net sales and a reduction in the rate of growth in selling, general and administrative expenses relative to net sales growth, partially offset by a slightly higher effective tax rate. 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 1996 and 1995. Net sales increased primarily due to increased sales of CD-ROM and related products, rather than increases in inflation. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES The Company financed its business in 1996 through cash generated from operations and through the use of available cash balances. Historically, the Company also financed business needs through the issuance of common stock and through the use of debt. Cash flow from operating activities was $8,992,000, $5,119,000, and $5,215,000 for 1996, 1995 and 1994, respectively. In 1996, the Company increased replication capacity over 1995 levels by 30% and printing capacity by 60%. Also, an initial deposit was made on mastering equipment that will enable the Company to produce Digital Versatile Disc ("DVD") masters. The DVD mastering equipment was delivered in the first quarter of 1997 and should be in production during the second quarter of 1997. An 80,000 square foot building was started in 1996 and will be completed in the second quarter of 1997. The addition will house the DVD production area, additional distribution space, a new computer and data services room and additional office space, for anticipated future growth. These additions, along with the recurring capital needs, resulted in the purchase of $13,011,000 in property, plant and equipment during 1996 as compared to $12,235,000 in 1995 and $17,752,000 in 1994. The Company will continue to expand its operations in 1997 through the addition of DVD production and related equipment along with an increase in distribution capacity. In 1996, the Company put in place a new financing facility which provides for a $15,000,000 revolving loan that will convert in 1998 to a term loan, which will be due in 2003. At December 31, 1996 there were no amounts borrowed on the revolving loan. In 1995, the Company completed a public common stock offering of 1,725,000 common shares that generated net cash proceeds of - 10 - 11 $17,915,000. A portion of these proceeds were used to reduce its long-term bank debt in full in 1995 and to purchase property, plant and equipment. The Company has cash and cash equivalents of $2,215,000 as of December 31, 1996 and additionally, as previously noted, has available $15,000,000 under its revolving loan agreement. Management believes that these funding sources, plus cash to be generated from future operations and funds which may be obtained from future financing activities will provide sufficient capital to meet the current business needs of the Company, which include the completion of the current facility expansion and becoming DVD production capable. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, services and related products, prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. STATEMENT OF MANAGEMENT RESPONSIBILITY The consolidated financial statements of Metatec Corporation are the responsibility of management, and those statements have been prepared in accordance with generally accepted accounting principles. All available information and management's judgment of current conditions and circumstances have been reflected. Management accepts full responsibility for the accuracy, integrity and objectivity of the financial information included in this report. To provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that accounting records are reliable for preparing financial statements, management maintains systems of accounting and internal controls, including written policies and procedures, which are communicated to all appropriate levels of the Company. Management believes that the Company's accounting and internal control systems provide reasonable assurance that assets are safeguarded and financial information is reliable. Maintenance of sound internal control by division of responsibilities is augmented by internal review programs and an Audit Committee of the Board of Directors comprised solely of directors independent of management. The Audit Committee reviews the scope of the audits performed by the independent public accountants, Deloitte & Touche LLP, together with their audit report and any recommendations made by them. The independent accountants have free access to meet with the Audit Committee and Board of Directors with or without management representatives present. Jeffrey M. Wilkins Chairman of the Board and Chief Executive Officer William H. Largent Executive Vice President and Chief Financial Officer - 11 - 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ------------------------------------------- The Consolidated Financial Statements, including the Notes to Consolidated Financial Statements and Independent Auditors' Report, appear following this page. - 12 - 13
METATEC CORPORATION - ----------------------------------------------------------------------- At December 31, CONSOLIDATED BALANCE SHEETS ----------------------------------- 1996 1995 - ----------------------------------------------------------------------- ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 2,214,755 $ 5,898,928 Accounts receivable, net of allowance for doubtful accounts of $321,000 and $338,000 6,710,596 6,281,460 Inventory 948,738 885,107 Prepaid expenses 435,451 606,271 Prepaid income taxes 25,279 Current portion of long-term note receivable 13,202 12,374 Deferred income taxes 484,000 674,000 ---------------- ---------------- Total current assets 10,832,021 14,358,140 Long-term note receivable, less current portion 200,648 213,851 Property, plant and equipment - net 37,776,085 31,337,322 Goodwill - net 3,708,723 4,166,763 ---------------- ---------------- TOTAL ASSETS $ 52,517,477 $ 50,076,076 ================ ================ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,942,565 $ 2,328,255 Accrued royalties 1,080,400 1,173,252 Accrued personal property taxes 659,879 541,228 Other accrued expenses 567,675 530,728 Accrued payroll 398,160 465,371 Accrued income taxes 444,008 Unearned income 205,143 370,421 Current maturities of long-term debt and capital lease obligations 62,759 75,859 ---------------- ---------------- Total current liabilities 5,916,581 5,929,122 Long-term debt and capital lease obligations, less current maturities 55,105 117,875 Deferred income taxes 1,280,000 728,000 ---------------- ---------------- Total liabilities 7,251,686 6,774,997 ---------------- ---------------- Shareholders' equity: Common stock, $.10 par value; authorized 10,083,500 shares; issued 1996 - 7,073,353 shares; 1995 - 7,054,734 707,336 705,474 Additional paid-in capital 33,935,853 33,781,631 Retained earnings 10,891,243 8,850,515 Treasury stock, at cost; 1996 - 38,655 shares; 1995 - 2,755 shares (268,641) (36,541) ---------------- ---------------- Total shareholders' equity 45,265,791 43,301,079 ---------------- ---------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 52,517,477 $ 50,076,076 ================ ================
See notes to consolidated financial statements. 14
METATEC CORPORATION - ----------------------------------------------------- Additional Common Paid-in Retained Treasury Unamortized CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Stock Capital Earnings Stock Restricted Stock Total - ---------------------------------------------------- -------- ------------ ------------ ---------- ---------------- -------- BALANCE AT DECEMBER 31, 1993 $520,962 $15,273,400 $ 4,348,882 $ (36,541) $(3,900,000) $16,206,703 Net earnings 1,692,653 1,692,653 Stock options exercised 6,260 176,513 182,773 Tax benefit relating to stock options 194,000 194,000 -------- ------------ ------------ --------- ----------- ----------- BALANCE AT DECEMBER 31, 1994 527,222 15,643,913 6,041,535 (36,541) (3,900,000) 18,276,129 Net earnings 2,808,980 2,808,980 Share issued pursuant to a public offering, net of costs of $283,968 172,500 17,742,282 17,914,782 Restricted shares earned 3,900,000 3,900,000 Stock options exercised 5,752 225,436 231,188 Tax benefit relating to stock options 170,000 170,000 -------- ------------ ------------ --------- ----------- ----------- BALANCE AT DECEMBER 31, 1995 705,474 33,781,631 8,850,515 (36,541) 0 43,301,079 Net earnings 2,040,728 2,040,728 Treasury shares acquired (232,100) (232,100) Stock awards for employees 266 20,509 20,775 Stock options exercised 1,596 111,713 113,309 Tax benefit relating to stock options 22,000 22,000 -------- ----------- ------------- ---------- ------------ ------------- BALANCE AT DECEMBER 31, 1996 $707,336 $33,935,853 $10,891,243 $(268,641) $ 0 $ 45,265,791 ======== =========== ============= =========== ============ =============
See notes to consolidated financial statements. 15
METATEC CORPORATION - --------------------------------------------------------------------------- Years ended December 31, CONSOLIDATED STATEMENTS OF CASH FLOWS ---------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------- ---------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 2,040,728 $ 2,808,980 $ 1,692,653 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 6,963,466 4,533,907 3,227,325 Deferred income taxes 742,000 261,000 (207,000) Stock awards for employees 20,775 Gain on sale of marketable securities (25,900) (106,000) Net loss on sales of property, plant and equipment 59,738 144,711 37,305 Changes in assets and liabilities: Accounts receivable (429,136) (2,189,422) (1,114,703) Inventory (63,631) (282,334) (252,698) Prepaid expenses and other assets 145,541 (146,013) 6,584 Accounts payable and accrued expenses (321,814) 532,644 2,083,876 Unearned income (165,278) (518,519) (152,371) ---------------- --------------- --------------- Net cash provided by operating activities 8,992,389 5,119,054 5,214,971 ---------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in long-term note receivable 12,375 11,597 10,869 Purchase of property, plant and equipment (12,523,821) (11,740,876) (17,119,750) Proceeds from the sales of property, plant and equipment 7,545 348,300 177,000 Decrease in goodwill 178,000 Proceeds from the sale of marketable securities 103,600 219,576 ---------------- --------------- --------------- Net cash used in investing activities (12,503,901) (11,277,379) (16,534,305) ---------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock, net of offering expenses 17,914,782 Increase in long-term debt 8,750,000 Payment of long-term debt and capital lease obligations (75,870) (8,426,235) (489,631) Stock options exercised, including tax benefit 135,309 401,188 376,773 Treasury stock acquired (232,100) ---------------- --------------- --------------- Net cash provided (used) by financing activities (172,661) 9,889,735 8,637,142 ---------------- --------------- --------------- Increase (decrease) in cash and cash equivalents (3,684,173) 3,731,410 (2,682,192) Cash and cash equivalents at beginning of year 5,898,928 2,167,518 4,849,710 ---------------- --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,214,755 $ 5,898,928 $ 2,167,518 ================ =============== =============== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 18,676 $ 322,959 $ 379,706 ================ =============== =============== Income taxes paid $ 1,042,081 $ 730,271 $ 252,235 ================ =============== =============== Increase in goodwill related to 600,000 restricted common shares earned $ 3,900,000 =============== Assets purchased for the assumption of a liability $ 487,651 $ 494,232 $ 632,342 ================ =============== ===============
See notes to consolidated financial statements. 16
METATEC CORPORATION - ----------------------------------------------------------- Years Ended December 31, CONSOLIDATED STATEMENTS OF EARNINGS ----------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------- -------------- -------------- -------------- NET SALES $ 46,150,105 $ 39,261,463 $ 28,942,748 Cost of sales 29,543,583 22,904,728 16,300,693 -------------- --------------- -------------- Gross profit 16,606,522 16,356,735 12,642,055 Selling, general and administrative expenses 13,459,012 12,120,839 10,060,600 -------------- --------------- -------------- OPERATING EARNINGS 3,147,510 4,235,896 2,581,455 Other income and (expense): Investment income 302,705 302,642 160,616 Other - net (32,811) (74,599) 62,288 Interest expense (18,676) (322,959) (379,706) -------------- --------------- -------------- EARNINGS BEFORE INCOME TAXES 3,398,728 4,140,980 2,424,653 Income taxes 1,358,000 1,332,000 732,000 -------------- --------------- -------------- NET EARNINGS $ 2,040,728 $ 2,808,980 $ 1,692,653 ============== =============== ============== NET EARNINGS PER COMMON SHARE: Primary $ 0.29 $ 0.43 $ 0.33 ============== =============== ============== Fully Diluted $ 0.29 $ 0.43 $ 0.32 ============== =============== ============== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Primary 7,159,722 6,480,326 5,134,656 ============== =============== ============== Fully Diluted 7,159,775 6,485,010 5,323,503 ============== =============== ==============
See notes to consolidated financial statements. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The consolidated financial statements include the accounts of Metatec Corporation and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Management believes those estimates and assumptions utilized in preparing the financial statements are reasonable. Nature of Operations - The operations of the Company are in the information industry primarily providing optical disc manufacturing and distribution in addition to software development and related network services, for specific customers primarily in North America, with a majority of the customers under contract. The Company maintains one manufacturing, sales, distribution and development facility with sales offices located in nine different locations around the United States. The revenues from product sales are recognized at the time the products are shipped. Subscription revenues are recognized ratably over the subscription period. 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. Major Customer - The Company had one customer that accounted for approximately 11.5% of net sales in 1996; no other customer accounted for greater than 10% of net sales for any of the three years in the period ended December 31, 1996. 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 sheet approximate fair value. The Company holds cash primarily in one financial institution. Inventory - Inventory consists primarily of raw materials and are valued at the lower of cost or market with cost determined by the first-in, first-out 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. In 1994 interest costs of $96,000 were capitalized. Goodwill - Goodwill represents the excess of cost over net assets acquired and is being amortized using the straight-line method over 15 years. During 1994, the Company recognized the tax benefit of acquired net operating loss carry forwards and, accordingly, reduced goodwill by such benefit totaling $178,000. At December 31, 1995 goodwill and shareholders' equity were increased $3,900,000 to reflect the vesting of the restricted shares earned by an officer/shareholder. The additional $3,900,000 in goodwill, beginning in 1996, is being amortized using the straight-line method through 2005. Accumulated amortization was $648,186 and $190,146 on December 31, 1996 and 1995, respectively. At each balance sheet date, a determination is made by management to ascertain whether goodwill has been impaired based on several criteria, including, but not limited to, revenue trends, undiscounted operating cash flows and other operating factors. For the years presented there has been no impairment of goodwill. 18 Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards 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 $197,440, $370,157 and $784,039 for 1996, 1995 and 1994, respectively. Net Earnings Per Common Share - Net earnings per common share is computed based on the weighted average number of common shares outstanding during the period, including, when their effect is dilutive, common stock equivalents consisting of shares subject to options. 2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at December 31, 1996 and 1995: December 31 1996 1995 Land $ 1,779,573 $ 1,292,679 Buildings and improvements 11,256,453 10,897,039 Machinery and equipment 26,325,653 20,392,705 Furniture and fixtures 2,486,517 2,486,726 Computer equipment and related software 6,129,627 5,149,679 Transportation equipment 35,898 12,725 Equipment installation and building in progress 5,346,382 1,001,412 ------------ ------------ Total 53,360,103 41,232,965 Less accumulated depreciation (15,584,018) (9,895,643) ------------ ------------ Net property, plant and equipment $ 37,776,085 $ 31,337,322 ============ ============ 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consists of the following at December 31, 1996 and 1995: December 31 1996 1995 Capital lease obligations $ 117,864 $ 193,734 Less current maturities (62,759) (75,859) Long-term debt and capital --------- --------- lease obligations $ 55,105 $ 117,875 ========= ========= The Company has an agreement with a bank that provides for advances of $15,000,000 on an unsecured revolving loan. The revolving loan bears interest at 1.5% in excess of the London Interbank Offered Rate ("LIBOR") (at December 31, 1996 the 90 day LIBOR was at 5.6 %) and is due December 31, 1998. No amounts were outstanding on the revolving loan at December 31, 1996 or 1995. On December 31, 1998 the Company has the option of paying off the revolving loan outstanding balance, if any, or rolling the balance into a term loan due December 31, 2003 19 with interest at 1.5 % in excess of LIBOR and monthly principal payments of $250,000, plus accrued interest. The loan agreement contains restrictive covenants which, among others, require the Company to maintain a certain level of tangible net worth, maintain certain financial ratios and limit capital expenditures. 4. LEASES The Company leases office equipment under non-cancelable capital lease agreements expiring at various dates through 2001. Maintenance, insurance, and tax expenses are the responsibility of the Company under the agreements. The Company also leased certain equipment under a capital lease agreement with an officer/shareholder of the Company which was purchased by the Company during 1994. The Company previously leased its principal manufacturing and office facility from an officer/shareholder under an operating lease. In 1994 the Company entered into a new capital lease for the facilities and then subsequently exercised an option in the lease agreement to purchase the facilities from the officer/shareholder for $4,800,000. Total rent expense under the operating lease was $87,786 for 1994. Total Lease payments under the capital lease were $291,114 in 1994. Operating lease expense was $342,635, $293,897 and $260,425 for 1996, 1995 and 1994, 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: Year ending December 31: CAPITAL LEASES OPERATING LEASES 1997 $ 69,378 $194,278 1998 45,371 92,865 1999 13,088 69,611 2000 70,623 2001 47,992 ------- -------- Total minimum lease payments 127,837 $475,369 ======== Less amount representing interest (9,973) ------- Present value of net minimum payments $ 117,864 ======= 5. COMMITMENTS AND CONTINGENCIES Self-Insurance - The Company is self insured with respect to medical and dental claims. The Company has obtained stop-loss insurance for claims in excess of $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, 1996 and 1995 of $214,000 and $170,000, respectively. Property, plant and equipment - The Company has commitments under contracts for the purchase of property, plant and equipment. Portions of such contracts at December 31, 1996 are not reflected in the consolidated financial statements. These unrecorded commitments amounted to approximately $4,495,000. 20 6. INCOME TAXES The components of income tax expense (benefit) were as follows:
1996 1995 1994 Federal: Current $ 511,000 $ 793,000 $ 778,000 Deferred 554,000 549,000 (207,000) ---------- ----------- --------- Total Federal 1,065,000 1,342,000 571,000 State and Local: ---------- ----------- --------- Current 105,000 278,000 161,000 Deferred 188,000 (288,000) ---------- ----------- --------- Total State and Local 293,000 (10,000) 161,000 ---------- ----------- --------- Total $1,358,000 $1,332,000 $ 732,000 ========== =========== =========
In 1995 the state and local income tax expense was reduced by a state investment tax credit which resulted in a net benefit for the year of $500,000 of which $288,000 will reduce future years state tax payable. Significant differences between income taxes recorded for financial reporting purposes and income taxes calculated using the Federal statutory rate of 34% are as follows:
1996 1995 1994 Tax expense at statutory rate $ 1,155,000 $ 1,408,000 $824,000 State and local tax expense (benefit), net of federal benefit 194,000 (7,000) 106,000 Reversal of valuation allowance, net of goodwill adjustment (367,000) Non deductible goodwill 156,000 18,000 15,000 Other (147,000) (87,000) 154,000 ----------- ----------- -------- Total $ 1,358,000 $ 1,332,000 $732,000 =========== =========== ========
Deferred income taxes recorded in the consolidated balance sheets at December 31, 1996 and 1995 consist of the following:
1996 1995 Deferred tax assets: State tax credit (expires 1998) $288,000 $288,000 AMT carryforwards (no expiration date) 193,000 198,000 Allowance for doubtful accounts 132,000 121,000 Net operating loss carryforwards 118,000 116,000 Inventory 88,000 66,000 Medical self-insurance accrual 61,000 Other 3,000 -------- -------- Total deferred tax assets 819,000 853,000 -------- -------- Deferred tax liabilities:
21 Depreciation 1,546,000 844,000 Other 69,000 63,000 ----------- --------- Total deferred tax liabilities 1,615,000 907,000 ----------- --------- Net deferred tax (liability) $ (796,000) $ (54,000) =========== =========
The Company has available net operating loss carry forwards for tax purposes of approximately $287,000 which expire in 2005 which may only be used to offset future taxable income of Metatec/Discovery Systems, Inc. (a wholly-owned subsidiary of the Company). 7. EMPLOYMENT AGREEMENT AND BENEFIT PLAN The Company has an employment agreement with an executive officer/shareholder of the Company. The agreement continues until terminated by the executive or the Company and provides for a lump sum payment of one year's compensation upon the occurrence of certain events. The executive is entitled to an annual cash bonus in addition to base salary. The same executive officer/shareholder was issued 600,000 common shares under a Restricted Share Agreement (the "Agreement") dated March 23, 1993. These shares were earned in accordance with the agreement as of December 31, 1995. The shares issued under this agreement were treated as an adjustment to goodwill at December 31, 1995 in the amount of $3,900,000. The goodwill is being amortized beginning in 1996, using the straight-line method, over a ten year period ending in 2005. Substantially all associates are enrolled in a Company-sponsored defined contribution plan established under Section 401(k) of the Internal Revenue Code. The plan was established in 1993 and the Company contribution was approximately $170,700, $68,900 and $49,400 for 1996, 1995 and 1994, respectively. The Company contribution is 40% of the associate's contribution up to maximum of 2% of the associate's annual compensation. The funds are invested in mutual funds. The company initiated a discretionary common stock award program for employees during 1996. The value of the 1996 stock awards was $20,775. 8. STOCK OPTION PLANS The Company established the 1990 Directors' Stock Option Plan for issuance of Common Shares to non-employee directors of the Company. As of December 31, 1996, there have been 27,500 options granted of which 5,000 were forfeited and 22,500 were exercised. The plan expired in 1992 and no additional options may be granted under this Plan. All options under the 1990 Directors' Stock Option Plan were fully vested on the first anniversary date of the grant. In 1992, the Company established an additional Directors' Stock Option Plan under which a maximum of 160,000 Common Shares may be issued. This Plan, as amended, automatically grants 2,500 options to each non-employee director on the day after the Company's annual meeting of shareholders. These options are fully vested on the grant date. In addition, for each non-employee director, when they first become a director, the Plan automatically grants 10,000 one time options. This one time option vests in equal installments over a four year period. As of December 31, 1996, there have been 129,925 options granted of which 7,500 were forfeited, 19,634 were exercised and 75,291 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 22 exercisable after five years from the date of grant. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company established the 1990 Stock Option Plan under which a maximum of 1,010,000 Common Shares may be issued. This Plan, as amended, is available to officers and key employees of the Company or its subsidiary corporations and, in the case of non-qualified options, directors of subsidiaries of the Company (other than directors of such subsidiaries who are also directors of the Company). As of December 31, 1996, there have been 804,350 options granted of which 64,700 were forfeited, 196,575 were exercised and 470,925 are exercisable. The Company's Compensation Committee, which administers the plan, 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, 1996, no incentive options had been granted. Both incentive and non-qualified options vest one year from the date of grant, and are not exercisable after 10 years from the date of grant. The option price of an incentive option is equal to the fair market value of the shares at the time the incentive option is granted. The following summarizes all stock option transactions from January 1, 1994 through December 31, 1996:
Per Share Weighted Average Shares Option Price Exercise Price Outstanding at December 31, 1993 262,292 $1.50 to $10.50 $ 3.06 Granted 229,425 $10.00 to $11.50 $11.47 Exercised (62,600) $1.50 to $6.00 $ 2.92 Expired (3,525) $6.00 to $11.50 $ 9.94 ------- Outstanding at December 31, 1994 425,592 $1.50 to $11.50 $ 7.56 Granted 51,825 $9.37 to $11.25 $10.43 Exercised (57,515) $1.50 to $11.50 $ 4.02 Expired (14,425) $ 11.50 $11.50 ------- Outstanding at December 31, 1995 405,477 $1.50 to $11.50 $ 8.29 Granted 268,100 $6.63 to $12.88 $ 9.96 Exercised (15,961) $1.50 to $11.50 $ 7.10 Expired (11,750) $9.37 to $11.50 $10.58 ------- Outstanding at December 31, 1996 645,866 $1.50 to $12.88 $ 8.97 =======
The weighted average fair value of options granted during 1996 and 1995 were $5.42 and $5.83, respectively. At December 31, 1996, 546,216 common shares under option were exercisable and 37,575 and 270,350 common shares (total of 307,925) were reserved for future grant under the 1992 Directors' Stock Option Plan and the 1990 Stock Option Plan, respectively. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement No. 123, the Company's net earnings and net earnings per common share, net of related income tax benefits, would have resulted in the amounts as reported 23 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, 1996 and 1995, respectively: dividend yield of 0%; expected volatility of 49% and 50%; risk-free interest rates of 6.4% and 5.3%; and expected life of 6 years. 1996 1995 Net earnings - As reported $ 2,040,728 $ 2,808,980 Pro forma $ 1,186,304 $ 2,607,636 Earnings per share - As reported $0.29 $0.43 Pro forma $0.17 $0.40 The pro forma amounts are not representative of the effects on reported net earnings or earnings per common share for future years. The following table summarizes information about options outstanding at December 31, 1996: Options Outstanding Options Exercisable
Weighted-Average Range of Remaining Weighted-Average Weighted-Average Exercise Prices Number Contractual Life Exercise Price Number Exercise Price $1.50 - $1.75 73,500 4.0 $ 1.58 73,500 $ 1.58 $3.50 - $3.69 7,711 4.0 $ 3.57 7,711 $ 3.57 $5.50 - $7.75 64,080 6.3 $ 5.97 58,080 $ 5.91 $9.37 - $10.25 266,700 8.9 $ 9.71 200,550 $ 9.72 $11.00 - $12.88 233,875 5.5 $ 11.45 206,375 $ 11.49 ------- ------- 645,866 $ 8.97 546,216 ======= =======
9. RELATED PARTY TRANSACTIONS In 1994 and 1996, the Company purchased, for cash, real estate from a partnership, in which an officer/shareholder of the Company is a partner. The tracts of land acquired in 1994 and 1996 included approximately eight acres and five acres, respectively, and the purchase price totaled approximately $694,000 and $485,000, respectively. The eight acre tract was used for the expansion at the existing facility and the five acre tract, which is adjacent to the existing facility, will be used for future expansion. 10. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended March 31 June 30 September 30 December 31 1996 Net Sales $12,204,455 $10,975,017 $10,804,766 $12,165,867 Gross Profit 5,177,959 4,007,079 3,491,640 3,929,844 Net Earnings 1,043,731 549,467 131,480 316,050 Net Earnings per
24 common share: Primary $ 0.15 $ 0.08 $ 0.02 $ 0.04 Fully diluted $ 0.15 $ 0.08 $ 0.02 $ 0.04 1995 Net Sales $ 9,178,622 $ 8,754,016 $ 9,434,662 $11,894,163 Gross Profit 4,044,668 3,661,448 3,743,796 4,906,823 Net Earnings 542,618 367,895 626,480 1,271,987 Net Earnings per common share: Primary $ 0.10 $ 0.06 $ 0.09 $ 0.18 Fully diluted $ 0.10 $ 0.06 $ 0.09 $ 0.18
25 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Metatec Corporation: We have audited the accompanying consolidated balance sheets of Metatec Corporation and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Metatec Corporation and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP February 7, 1997 Columbus, Ohio 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 24, 1997, 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 24, 1997, and is hereby incorporated herein by reference. - 13 - 26 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 24, 1997, 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 24, 1997, 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, 1996 and 1995 Consolidated Statements of Earnings for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 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, 1996, 1995 and 1994 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 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. - 14 - 27 (a)(3) Listing of Exhibits -------------------
If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 3(a) Amended and Restated Amendment No. 2 to Registration Articles of Incorporation Statement on Form S-1, File No. 33- of Metatec Corporation 60878 (see Exhibit 3(a) therein). 3(b) Amended and Restated By-laws Registration Statement on Form S-1, of Metatec Corporation File No. 33-60878 (see Exhibit 3(d) therein). 4 Form of Share Certificate Amendment No. 2 to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit 4 therein). 10(a)* Metatec Corporation 1990 Registration Statement on Form S-8, Directors' Stock Option Plan File No. 33-48021 (see Exhibit 4(d) and Amendment No. 1 thereto therein). 10(b)* Amended and Restated Employ- Annual Report on Form 10-K for the ment Agreement dated March fiscal year ended December 31, 1992 23, 1993, between Metatec (See Exhibit 10(h) therein). Corporation and Jeffrey M. Wilkins 10(c)* First Amendment to Amended Annual Report on Form 10-K for the and Restated Employment fiscal year ended December 31, 1995 (See Agreement dated March 21, Exhibit 10(c) therein). 1996, between Metatec Corporation and Jeffrey M. Wilkins 10(d)* Metatec Corporation 1990 Annual Report on Form 10-K for the Stock Option Plan fiscal year ended December 31, 1991 (see Exhibit 10(k) therein). 10(e)* Amendment No. 1 to Metatec Registration Statement on Form S-8, Corporation 1990 Stock Option File No. 33-48022 (see Exhibit 4(d) Plan therein). 10(f)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the Corporation 1990 Stock Option fiscal year ended December 31, 1992 Plan (see Exhibit 10(k) therein). 10(g)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the Corporation 1990 Stock Option fiscal year ended December 31, 1993 Plan (see Exhibit 10(g) therein). 10(h)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the Corporation 1990 Stock Option fiscal year ended December 31, 1995 Plan (See Exhibit 10(h) therein).
- 15 - 28 If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 10(i)* Metatec Corporation 1992 Registration Statement on Form S-8, Directors' Stock Option Plan File No. 33-5200 (see Exhibit 4(c) therein). 10(j)* Amendment No. 1 to Metatec Annual Report on Form 10-K for the Corporation 1992 Directors' fiscal year ended December 31, 1993 Stock Option Plan (see Exhibit 10(i) therein). 10(k)* Amendment No. 2 to Metatec Report on Form 10-K for the Corporation 1992 Directors' fiscal year ended December 31, 1995 Stock Option Plan Annual (see Exhibit 10(k) therein). 10(l)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the Corporation 1992 Directors' fiscal year ended December 31, 1995 Stock Option Plan (see Exhibit 10(i) therein). 10(m)* Amendment No. 4 to Metatec Contained herein. Corporation 1992 Directors' Stock Option Plan 10(n)* Metatec Corporation 1992 Annual Report on Form 10-K for the Incentive Compensation Plan fiscal year ended December 31, 1992 (see Exhibit 10(p) therein). 10(o) Form of Indemnification Agree- Annual Report on Form 10-K for the ment between Metatec Corp- fiscal year ended December 31, 1992 oration and each of its officers (see Exhibit 10(q) therein). and directors 10(p) Restricted Share Agreement Annual Report on Form 10-K for the dated March 23, 1993, fiscal year ended December 31, 1992 between Metatec Corporation (see Exhibit 10(r) therein). and Jeffrey M. Wilkins 10(q) Amendment to Restricted Share Amendment No. 1 to Registration Agreement dated April 8, Statement on Form S-1, File No. 33- 1993, between Metatec 60878 (see Exhibit 10(o) therein). Corporation and Jeffrey M. Wilkins 10(r) Patent License Agreement for Amendment No. 1 to Registration Disc Products dated July 1, Statement on Form S-1, File No. 33- 1986, between Metatec/ 60878 (see Exhibit 10(t) therein). Discovery Systems, Inc. and Discovision Associates
- 16 - 29 If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 10(s) CD Disc License Agreement Amendment No. 1 to Registration dated January 1, 1986, Statement on Form S-1, File No. 33- between U.S. Philips 60878 (see Exhibit 10(u) therein). Corporation and Metatec/ Discovery Systems, Inc. 10(t) Optical Disc Corporation NPR Amendment No. 1 to Registration Technology License Agreement Statement on Form S-1, File No. 33- between Optical Disc Corp- 60878 (see Exhibit 10(v) therein). oration and Metatec/Discovery Systems effective March 2, 1992 10(u) Real Estate Purchase Contract Annual Report on Form 10-K for the dated January 5, 1996, fiscal year ended December 31, 1995 between Metatec Corporation (see Exhibit 10(w) therein). and Olde Poste Properties. 10(v) Loan Agreement dated May 13, Current Report on Form 8-K filed with 1994, between The Huntington the Securities and Exchange National Bank, Metatec Commission on March 28, 1995 Corporation, and (see Exhibit 10(c) therein). Metatec/Discovery Systems, Inc. 10(w) First Amendment to Loan Current Report on Form 8-K filed with the Agreement dated September 1, Securities and Exchange 1994, between The Huntington Commission on March 28, 1995 National Bank, Metatec (see Exhibit 10(d) therein). Corporation, and Metatec/Discovery Systems, Inc. 10(x) Second Amendment to Loan Current Report on Form 8-K filed with the Agreement dated February 1, Securities and Exchange Commission on 1995, between The Huntington March 28, 1995 (see Exhibit 10(e) therein). National Bank, Metatec Corporation, and Metatec/Discovery Systems, Inc.
- 17 - 30 If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 21 Subsidiaries of Metatec Annual Report on Form 10-K for the Corporation fiscal year ended December 31, 1993 (see Exhibit 21 therein). 23 Consent of Deloitte & Touche Contained herein. LLP 24(a) Powers of Attorney for Peter J. Annual Report on Form 10-K for the Kight, E. David Crockett, and fiscal year ended December 31, 1994 A. Grant Bowen (see Exhibit 24 therein). 24(b) Powers of Attorney for Jerry D. Annual Report on Form 10-K for the Miller fiscal year ended December 31, 1993 (see Exhibit 24 therein). 24(c) Power of Attorney for James V. Annual Report on Form 10-K for the Pickett fiscal year ended December 31, 1995 (see Exhibit 24(c) therein). 27 Financial Data Schedule Contained herein.
*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 ------------------- The Company did not file any Form 8-K current reports during the fourth quarter of the Company's year ended December 31, 1996. (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. - 18 - 31 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METATEC CORPORATION Date: March 27, 1997 By /s/ Jeffrey M. Wilkins ------------------------------- Jeffrey M. Wilkins, Chairman of the Board 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.
Signature Title Date --------- ----- ---- /s/ Jeffrey M. Wilkins Chairman of the Board, March 27, 1997 - ------------------------------------- Chief Executive Officer Jeffrey m. Wilkins (principal executive officer) and Director /s/ Gregory T. Tillar President, Chief Operating March 27, 1997 - ------------------------------------- Officer and Director Gregory T. Tillar /s/ William H. Largent Executive Vice President, Secretary, March 27, 1997 - ------------------------------------- Treasurer, Chief Financial William H. Largent Officer (principal financial officer and principal accounting officer) and Director E. David Crockett* Director March 27, 1997 - ------------------------------------- E. David Crockett Peter J. Kight* Director March 27, 1997 - ------------------------------------- Peter J. Kight Jerry D. Miller* Director March 27, 1997 - ------------------------------------- Jerry D. Miller A. Grant Bowen* Director March 27, 1997 - ------------------------------------- A. Grant Bowen James V. Pickett* Director March 27, 1997 - ------------------------------------- James V. Pickett *Jeffrey M. Wilkins, by signing his name hereto, does sign this document on behalf of the person indicated above pursuant to a Power of Attorney duly executed by such person. By /s/ Jeffrey M. Wilkins March 27, 1997 --------------------------------------- Jeffrey M. Wilkins, Attorney In Fact
- 19 - 32 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Metatec Corporation: We have audited the consolidated financial statements of Metatec Corporation and subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 7, 1997; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Metatec Corporation and subsidiaries, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP February 7, 1997 Columbus, Ohio 33 METATEC CORPORATION AND SUBSIDIARIES
SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ----------------------------- CHARGED BALANCE AT TO COSTS CHARGED TO BALANCE AT BEGINNING OF AND OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD 1996 ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE $338,000 $124,382 $141,382 $321,000 ======== ======== ======== ======== 1995 ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE $269,000 $ 86,694 $ 17,694 $338,000 ======== ======== ======== ======== 1994 ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE $235,000 $178,679 $144,679 $269,000 ======== ======== ======== ========
34 EXHIBIT INDEX ------------- If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 3(a) Amended and Restated Amendment No. 2 to Registration Articles of Incorporation Statement on Form S-1, File No. 33- of Metatec Corporation 60878 (see Exhibit 3(a) therein). 3(b) Amended and Restated By-laws Registration Statement on Form S-1, of Metatec Corporation File No. 33-60878 (see Exhibit 3(d) therein). 4 Form of Share Certificate Amendment No. 2 to Registration Statement on Form S-1, File No. 33-60878 (see Exhibit 4 therein). 10(a)* Metatec Corporation 1990 Registration Statement on Form S-8, Directors' Stock Option Plan File No. 33-48021 (see Exhibit 4(d) and Amendment No. 1 thereto therein). 10(b)* Amended and Restated Employ- Annual Report on Form 10-K for the ment Agreement dated March fiscal year ended December 31, 1992 23, 1993, between Metatec (See Exhibit 10(h) therein). Corporation and Jeffrey M. Wilkins 10(c)* First Amendment to Amended Annual Report on Form 10-K for the and Restated Employment fiscal year ended December 31, 1995 (See Agreement dated March 21, Exhibit 10(c) therein). 1996, between Metatec Corporation and Jeffrey M. Wilkins 10(d)* Metatec Corporation 1990 Annual Report on Form 10-K for the Stock Option Plan fiscal year ended December 31, 1991 (see Exhibit 10(k) therein). 10(e)* Amendment No. 1 to Metatec Registration Statement on Form S-8, Corporation 1990 Stock Option File No. 33-48022 (see Exhibit 4(d) Plan therein). 10(f)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the Corporation 1990 Stock Option fiscal year ended December 31, 1992 Plan (see Exhibit 10(k) therein). 10(g)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the Corporation 1990 Stock Option fiscal year ended December 31, 1993 Plan (see Exhibit 10(g) therein). 10(h)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the Corporation 1990 Stock Option fiscal year ended December 31, 1995 Plan (See Exhibit 10(h) therein).
35 If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 10(i) Metatec Corporation 1992 Registration Statement on Form S-8, Directors' Stock Option Plan File No. 33-5200 (see Exhibit 4(c) therein). 10(j) Amendment No. 1 to Metatec Annual Report on Form 10-K for the Corporation 1992 Directors' fiscal year ended December 31, 1993 Stock Option Plan (see Exhibit 10(i) therein). 10(k) Amendment No. 2 to Metatec Report on Form 10-K for the Corporation 1992 Directors' fiscal year ended December 31, 1995 Stock Option Plan Annual (see Exhibit 10(k) therein). 10(l) Amendment No. 3 to Metatec Annual Report on Form 10-K for the Corporation 1992 Directors' fiscal year ended December 31, 1995 Stock Option Plan (see Exhibit 10(i) therein). 10(m) Amendment No. 4 to Metatec Contained herein. Corporation 1992 Directors' Stock Option Plan 10(n) Metatec Corporation 1992 Annual Report on Form 10-K for the Incentive Compensation Plan fiscal year ended December 31, 1992 (see Exhibit 10(p) therein). 10(o) Form of Indemnification Agree- Annual Report on Form 10-K for the ment between Metatec Corp- fiscal year ended December 31, 1992 oration and each of its officers (see Exhibit 10(q) therein). and directors 10(p) Restricted Share Agreement Annual Report on Form 10-K for the dated March 23, 1993, fiscal year ended December 31, 1992 between Metatec Corporation (see Exhibit 10(r) therein). and Jeffrey M. Wilkins 10(q) Amendment to Restricted Share Amendment No. 1 to Registration Agreement dated April 8, Statement on Form S-1, File No. 33- 1993, between Metatec 60878 (see Exhibit 10(o) therein). Corporation and Jeffrey M. Wilkins 10(r) Patent License Agreement for Amendment No. 1 to Registration Disc Products dated July 1, Statement on Form S-1, File No. 33- 1986, between Metatec/ 60878 (see Exhibit 10(t) therein). Discovery Systems, Inc. and Discovision Associates
36 If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 10(s) CD Disc License Agreement Amendment No. 1 to Registration dated January 1, 1986, Statement on Form S-1, File No. 33- between U.S. Philips 60878 (see Exhibit 10(u) therein). Corporation and Metatec/ Discovery Systems, Inc. 10(t) Optical Disc Corporation NPR Amendment No. 1 to Registration Technology License Agreement Statement on Form S-1, File No. 33- between Optical Disc Corp- 60878 (see Exhibit 10(v) therein). oration and Metatec/Discovery Systems effective March 2, 1992 10(u) Real Estate Purchase Contract Annual Report on Form 10-K for the dated January 5, 1996, fiscal year ended December 31, 1995 between Metatec Corporation (see Exhibit 10(w) therein). and Olde Poste Properties. 10(v) Loan Agreement dated May 13, Current Report on Form 8-K filed with 1994, between The Huntington the Securities and Exchange National Bank, Metatec Commission on March 28, 1995 Corporation, and (see Exhibit 10(c) therein). Metatec/Discovery Systems, Inc. 10(w) First Amendment to Loan Current Report on Form 8-K filed with the Agreement dated September 1, Securities and Exchange 1994, between The Huntington Commission on March 28, 1995 National Bank, Metatec (see Exhibit 10(d) therein). Corporation, and Metatec/Discovery Systems, Inc. 10(x) Second Amendment to Loan Current Report on Form 8-K filed with the Agreement dated February 1, Securities and Exchange Commission on 1995, between The Huntington March 28, 1995 (see Exhibit 10(e) therein). National Bank, Metatec Corporation, and Metatec/Discovery Systems, Inc.
37 If Incorporated by Reference, Exhibit Document with which Exhibit was No. Description of Exhibit Previously Filed with SEC - --- ---------------------- ------------------------- 21 Subsidiaries of Metatec Annual Report on Form 10-K for the Corporation fiscal year ended December 31, 1993 (see Exhibit 21 therein). 23 Consent of Deloitte & Touche Contained herein. LLP 24(a) Powers of Attorney for Peter J. Annual Report on Form 10-K for the Kight, E. David Crockett, and fiscal year ended December 31, 1994 A. Grant Bowen (see Exhibit 24 therein). 24(b) Powers of Attorney for Jerry D. Annual Report on Form 10-K for the Miller fiscal year ended December 31, 1993 (see Exhibit 24 therein). 24(c) Power of Attorney for James V. Annual Report on Form 10-K for the Pickett fiscal year ended December 31, 1995 (see Exhibit 24(c) therein). 27 Financial Data Schedule Contained herein.
EX-10.M 2 EXHIBIT 10(M) 1 Exhibit 10(m) AMENDMENT NO. 4 TO METATEC CORPORATION 1992 DIRECTORS' STOCK OPTION PLAN The Metatec Corporation 1992 Directors' Stock Option Plan (the "Original Plan"), as previously amended by Amendment No. 1 dated March 21, 1994 ("Amendment No. 1"), and Amendment No. 2 dated January 25, 1995, and Amendment No. 3 dated January 24, 1996 ("Amendment No. 3") (together with the Original Plan, collectively, the "Plan"), is hereby amended pursuant to the following provisions: Section 1. DEFINITIONS. All capitalized terms used in this amendment which are not otherwise defined herein shall have the respective meanings given such terms in the Plan. Section 2. ANNUAL GRANTS. The annual Option grants provided for in Section 5 of the Original Plan, as amended by Section 3 of Amendment No. 1, as further amended by Section 2 of Amendment No. 3, shall continue through the first nine annual meetings of the shareholders of the Company following the effective date of the Original Plan. Section 3. ADDITIONAL ONE-TIME GRANTS. The One-Time Option grants provided for in Section 4 of Amendment No. 1 shall continue for each person who first becomes an Eligible Director at any time during the period beginning on the day of the 1997 annual meeting of the shareholders of the Company and ending on the day after the 2000 annual meeting of the shareholders of the Company. Section 4. SHARES SUBJECT TO PLAN. The maximum aggregate number of Shares with respect to which options (including the Options and the One-Time Options) may be granted under the Plan, as set forth in Section 3 of the Plan, as amended by Section 2 of Amendment No. 1, is increased by 50,000 Shares to a total of 210,000 Shares. Such aggregate number of Shares shall be subject to adjustment as provided in the Plan. Section 5. TERMINATION AND AMENDMENT OF PLAN. Section 10 of the Original Plan is hereby amended in its entirety to read as follows: The Board may from time to time alter, amend, or suspend the Plan or may at any time terminate the Plan, provided that no such action shall materially and adversely affect any outstanding options without the consent of the respective Grantees of such options. Section 6. EFFECTIVE DATE; CONSTRUCTION. The effective date of this amendment is January 29, 1997, and this amendment shall be deemed to be a part of the Plan as of such date. In the event of any inconsistencies between the 2 provisions of the Plan and this amendment, the provisions of this amendment shall control. Except as modified by this amendment, the Plan shall continue in full force and effective without change. This amendment shall be submitted to the shareholders of the Company for approval as soon as practicable, but in any event not later than 12 months after this amendment has been approved by the board of directors of the Company. Notwithstanding the preceding paragraph or any other provisions of this amendment to the contrary, if this amendment is not approved by the shareholders of the Company within such 12-month period, this amendment and all Options granted with respect to the additional Shares subject to the Plan as a result of this amendment shall automatically become null and void and have no further force or effect, and the Plan shall continue in effect without this amendment. EX-23 3 EXHIBIT 23 1 EXHIBIT 23 Consent of DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-48021, No. 33-52700, No. 33-80172, No. 33-84022, No. 33-71080, No. 33-80170, and 333-3125 of Metatec Corporation on Form S-8 and Registration Statement No. 333-3123 on Form S-3 of our reports dated February 7, 1997, included and incorporated by reference in this Annual Report on Form 10-K of Metatec Corporation for the year ended December 31, 1996. /s/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP March 27, 1997 Columbus, Ohio EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S BALANCE SHEET DATED AS OF DECEMBER 31, 1996, AND ITS CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996, WHICH FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 8 OF THIS REPORT, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 DEC-31-1996 2,214,755 0 7,031,596 321,000 948,738 10,832,021 53,360,103 15,584,018 52,517,477 5,916,581 1,335,105 707,336 0 0 44,558,455 52,517,477 46,150,105 46,150,105 29,543,583 43,002,595 0 124,382 18,676 3,398,728 1,358,000 2,040,728 0 0 0 2,040,728 .29 .29
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