-----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, Um6vDqq0Xp+xQRlU8yl5htBiivwlgH1F8KGVjo6RYIb+J5IUc3CVmV0IBteUUFR9 ETEzbQcx++XdHTIDAULKfQ== 0000950152-01-501214.txt : 20010501 0000950152-01-501214.hdr.sgml : 20010501 ACCESSION NUMBER: 0000950152-01-501214 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METATEC INTERNATIONAL INC CENTRAL INDEX KEY: 0000203200 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 311647405 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09220 FILM NUMBER: 1615503 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: METATEC CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SILCO INVESTORS CORP DATE OF NAME CHANGE: 19900801 10-Q 1 l88043ae10-q.txt METATEC INTERNATIONAL, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File No. 0-9220 METATEC INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter) OHIO 31-1647405 (State of Incorporation) (IRS Employer Identification No.) 7001 Metatec Boulevard Dublin, Ohio 43017 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (614) 761-2000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of Common Shares outstanding as of April 30, 2001: 6,136,113 page 1 of 11 2 METATEC INTERNATIONAL, INC. INDEX PAGE ----- ---- Part I : Financial Information Item 1 - Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000 (unaudited) 4 Condensed Consolidated Statement of Shareholders' Equity for the three months ended March 31, 2001 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 (unaudited) 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 10 Part II: Other Information Items 1-6 11 Signatures 11 page 2 of 11 3 PART I - FINANCIAL INFORMATION ITEM I. CONDENSED FINANCIAL STATEMENTS METATEC INTERNATIONAL, INC. - -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED) At March 31, At December 31, ----------------- ---------------- 2001 2000 - ------------------------------------------------------------------------------ ----------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 4,846,498 $ 2,086,228 Accounts receivable, net of allowance for doubtful accounts of $279,000 and $351,000 12,598,567 15,146,714 Inventory 2,918,302 2,970,219 Prepaid expenses 1,454,835 1,054,362 Deferred income taxes 588,107 588,107 ----------- ---------- Total current assets 22,406,309 21,845,630 Property, plant and equipment - net 48,197,691 50,455,317 Goodwill - net 4,288,978 4,631,036 Other assets 281,417 296,890 Deferred income taxes 104,000 104,000 ----------- ----------- TOTAL ASSETS $75,278,395 $77,332,873 =========== =========== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,740,556 $ 6,472,385 Accrued expenses: Royalties 4,130,077 3,712,796 Personal property taxes 1,609,115 1,270,425 Payroll 586,340 1,193,054 Other 1,638,308 1,209,600 Unearned income 178,660 234,235 Current maturities of long-term real estate debt 173,598 170,087 Current maturities of other long-term debt and capital lease obligations 15,928,028 6,978,028 ----------- ----------- Total current liabilities 28,984,682 21,240,610 Long-term real estate debt 18,579,249 18,623,708 Other long-term debt and capital lease obligations, less current maturities 9,243,846 16,769,506 Other long-term liabilities 567,381 527,172 ----------- ----------- Total liabilities 57,375,158 57,160,996 ----------- ----------- Shareholders' equity: Common stock - no par value; authorized 10,000,000 shares; issued 2001 - 7,217,855, 2000 - 7,177,855 shares 35,031,138 34,991,138 Accumulated deficit (9,499,962) (7,573,362) Accumulated other comprehensive loss (1,770,402) (1,423,362) Treasury stock, at cost; 1,081,742 shares (5,822,537) (5,822,537) Unamortized restricted stock (35,000) -- ----------- ----------- Total shareholders' equity 17,903,237 20,171,877 ----------- ----------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $75,278,395 $77,332,873 =========== ===========
See notes to consolidated financial statements. page 3 of 11 4 METATEC INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, ------------------------------------- 2001 2000 - ------------------------------------------------------------------------------- ----------- ----------- NET SALES $21,048,545 $27,637,107 Cost of sales 15,306,172 19,478,312 ----------- ----------- Gross profit 5,742,373 8,158,795 Selling, general and administrative expenses 6,647,554 6,987,223 Restructuring expenses 109,564 430,561 ------------ ----------- OPERATING EARNINGS (LOSS) (1,014,745) 741,011 Other income and (expense): Investment income 35,046 11,171 Interest expense (946,901) (1,056,421) ------------ ----------- LOSS BEFORE INCOME TAXES (1,926,600) (304,239) Income tax benefit 0 (136,000) ----------- ----------- NET LOSS $(1,926,600) $ (168,239) =========== =========== NET LOSS PER COMMON SHARE Basic and diluted $ (0.31) $ (0.03) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic and diluted 6,135,669 6,077,206 =========== ===========
See notes to condensed consolidated financial statements. page 4 of 11 5 METATEC INTERNATIONAL, INC. - ----------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Accumulated Other Unamortized Common Accumulated Comprehensive Treasury Restricted Stock Deficit Loss Stock Stock Total - ----------------------------------------- ----------- ------------ ------------- ----------- ------------ ------------ BALANCE AT DECEMBER 31, 2000 $34,991,138 $(7,573,362) $(1,423,362) $(5,822,537) $ 0 $20,171,877 Comprehensive Loss: Net loss (1,926,600) (1,926,600) Foreign currency translation adjustments (347,040) (347,040) ------------ Comprehensive loss (2,273,640) Issuance of restricted shares 40,000 (40,000) 0 Amortization of restricted stock 5,000 5,000 ----------- ------------ ------------ ------------ --------- ------------ BALANCE AT MARCH 31, 2001 $35,031,138 $(9,499,962) $(1,770,402) $(5,822,537) $(35,000) $17,903,237 =========== ============ ============ ============ ========= ============
See notes to consolidated financial statements. page 5 of 11 6 METATEC INTERNATIONAL, INC. - ----------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2001 2000 - ----------------------------------------------------------------- ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,926,600) $ (168,239) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,778,346 3,666,331 Deferred income taxes 18,711 52,454 Net gain on sales of property, plant and equipment (1,852) (4,196) Changes in assets and liabilities: Accounts receivable 2,415,418 2,486,124 Inventory 40,114 19,580 Prepaid expenses and other assets (418,092) (382,944) Accounts payable and accrued expenses (930,400) (2,388,440) Unearned income (46,128) 104,027 ---------------------------------- Net cash provided by operating activities 1,929,517 3,384,697 ---------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (551,243) (2,170,973) Proceeds from the sales of property, plant and equipment 3,000 11,750 ---------------------------------- Net cash used in investing activities (548,243) (2,159,223) ---------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in long-term debt 3,450,000 750,000 Payment of long-term debt and capital lease obligations (2,066,608) (2,576,992) Stock options exercised 0 7,500 ---------------------------------- Net cash provided by (used in) financing activities 1,383,392 (1,819,492) ---------------------------------- Effect of exchange rate on cash (4,396) 130,680 Increase (decrease) in cash and cash equivalents 2,760,270 (463,338) Cash and cash equivalents at beginning of period 2,086,228 1,695,884 ---------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,846,498 $ 1,232,546 ================================== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 854,645 $ 1,036,429 ================================== Income taxes paid/(refunds received) $ (122,267) $ 7,150 ================================== Assets purchased by the assumption of a liability $ 123,230 $ 443,395 ================================== Issuance of restricted stock $ 35,000 ============
See notes to condensed consolidated financial statements. page 6 of 11 7 METATEC INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of presentation - The condensed consolidated balance sheet as of March 31, 2001, the condensed consolidated statements of operations for the three months ended March 31, 2001 and 2000, the condensed consolidated statement of shareholders' equity for the three months ended March 31, 2001, and the condensed consolidated statements of cash flows for the three month periods then ended have been prepared by the Company, without audit. In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position, results of operations and changes in cash flows for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 2000 annual report on Form 10-K. The results of operations for the period ended March 31, 2001 are not necessarily indicative of the results for the full year. Income taxes - In 2001, a valuation allowance has been provided to offset a portion of the net deferred tax assets due to the uncertainty surrounding the realizability of such assets. Derivative Instruments and Hedging Activities - The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 on January 1, 2001. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The adoption of SFAS 133 did not have a significant impact on the financial position, results of operations, or cash flows of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 RESULTS OF OPERATIONS Net sales for the three months ended March 31, 2001 were $21,049,000, a decrease of $6,589,000, or 24% over the same period of the prior year. This decrease resulted primarily from CD-ROM manufacturing sales decreasing $6,328,000 to $19,651,000 for the three months ended, or 24%. This decrease was due to several factors. The pricing for CD-ROM products and services continued to decline or remained at low levels industry-wide due to excess manufacturing capacity, a trend the Company anticipates will continue for the remainder of 2001. In addition, the demand for the Company's CD-ROM products and services declined due to several factors, including a decline in general economic conditions which caused many of the Company's software customers to delay or reduce their software page 7 of 11 8 releases, the continued increase in customers using on-line or electronic methods to distribute information, and the continued maturation of the CD-ROM market. The Company anticipates that these factors may continue to negatively impact the demand for the Company's CD-ROM products and services for the remainder of 2001. Radio syndication sales decreased $456,000, or 54%, to $386,000 for the three months ended March 31, 2001, primarily as a result of some customers choosing to use CD-Recordable as a distribution method for smaller size orders. The Company expects this trend to continue for the foreseeable future. DVD sales accounted for $613,000 during the three months ended March 31, 2001, as compared to $489,000 for the same period in the prior year. Gross profit was 27% of net sales for the three months ended March 31, 2001 as compared to 30% of net sales for the same period of the prior year. This reduction was primarily caused by reduced utilization of the Company's manufacturing capacity. Selling, general and administrative ("SG&A") expenses were $6,648,000, or 32% of net sales, for the three months ended March 31, 2001 as compared to $6,987,000, or 25% of net sales, for same period of the prior year. The increase in SG&A expenses as a percentage of net sales was primarily caused by the 24% decrease in net sales in relation to a 5% decrease in SG&A expenses. Restructuring expenses of $110,000 were incurred during the three months ended March 31, 2001. These restructuring expenses consisted primarily of severance and termination benefits related to the U.S. workforce reduction of approximately 6%. The workforce reduction was accomplished through attrition, unfilled vacancies, and layoffs of temporary and some full time employees. Restructuring expenses of $430,000 related to U.S. workforce reductions of approximately 12% were incurred for the same period in the prior year. Investment income was $35,000 and $11,000 for the three month periods ended March 31, 2001 and 2000, respectively. Interest expense for the three months ended March 31, 2001 was $947,000 as compared to $1,056,000 for the same period of the prior year. The decrease in interest expense was due to decreased borrowings under revolving loan and term loan facilities, as well as decreases in interest rates. No income tax benefit was realized for the three months ended March 31, 2001, due to the uncertainty of realizing the value of such benefit. In the prior year a $136,000 income tax benefit was realized resulting in an effective tax rate of 45%. Based upon the foregoing, the net loss for the three months ended March 31, 2001 was $1,927,000, or net loss per basic or diluted common share of $.31, as compared to a net loss in the same period of the prior year of $168,000, or net loss per basic or diluted common share of $.03. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES The Company financed its business during the three months ended March 31, 2001 through cash generated from operations, the use of debt, and the use of available cash balances. Cash flow from operating activities was $1,930,000 for the three months ended March 31, 2001, as compared to $3,385,000 for the three months ended March 31, 2000. The Company had cash and cash equivalents of $4,846,000 as of March 31, 2001. page 8 of 11 9 The Huntington National Bank and Bank One, NA have provided a $37,000,000 term loan facility and a $13,000,000 revolving loan facility to the Company (the "Credit Facilities"). As of March 31, 2001, $12,958,000 and $10,950,000 was outstanding under the term loan facility and the revolving loan facility, respectively. On April 2, 2001, the banks and the Company amended certain terms and financial covenants of the Credit Facilities. The following is a summary of the terms of the amended Credit Facilities. As part of the amended Credit Facilities, the revolving loan and the term loan will mature on April 1, 2002. The revolving loan has been changed to an asset based lending arrangement wherein a $13,000,000 borrowing base will be limited by the amounts of any outstanding letters of credit and 80% of eligible domestic accounts receivable, 80% of eligible insured foreign accounts receivable, 30% of eligible domestic inventory, and 20% of domestic machinery and equipment at net book value, eligibility to be determined by the banks. The Credit Facilities are secured by a first lien on all non-real estate business assets of the Company and a pledge of the stock of the Company's subsidiaries. The Company is required to comply with certain financial and other covenants In addition, effective March 31, 2001, interest accrues at 2% in excess of the prime rate of the banks, and quarterly commitment fees are required to be paid. The Company expects that it will be able to negotiate a new borrowing facility prior to April 1, 2002, however, there can be no assurance that the Company will be able to do so. The Company has a $19,000,000 loan facility with Huntington Capital Corp which is payable in monthly principal and interest payments based upon a thirty year amortization schedule and bears interest at a fixed rate of 8.2%. This term loan facility was used to permanently finance the Company's new Dublin, Ohio distribution center and to pay down other bank debt. This loan facility is payable in monthly installments over 10 years, with a 30 year amortization period, and is secured by a first lien on all real property of the Company and letters of credit in favor of the lender, in an aggregate amount of $1,650,000. Management believes that current cash balances, plus the funds available under its current credit facilities, plus cash to be generated from future operations should provide sufficient capital to meet the current business needs of the Company. During the first quarter 2001, the Company's board of directors approved a plan to restructure certain of the Company's operations. As part of the plan, the Company implemented a workforce reduction for its Dublin facility during the first quarter of 2001, and the Company expects to implement other portions of this plan during the remainder of 2001. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements contained in this Form 10-Q or any other reports or documents prepared by the Company or made by management of the Company may be "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company's operating results to differ materially from those projected. Forward-looking statements include, by way of example and without limitation, statements concerning plans, objectives, goals, strategies, future events of performance and underlying assumptions and other statements, which are other than statements of historical facts, and information concerning future results of the operations of the Company. Forward-looking statements may be identified, preceded by, followed by or otherwise include, without limitation, words such as "believes," "expects," "anticipates," "intends," "estimates" or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company's actual results to differ materially from page 9 of 11 10 those projected. Such risks and uncertainties that might cause such a difference include, but are not limited to, the Company's product concentration in CD-ROM manufacturing sales, a decrease in the demand for the Company's products caused by various factors, such as the continuation of customers increasing their electronic methods to distribute information rather than CD-ROM and the continuation of the maturing market for CD-ROM products, changes in general business and economic conditions, excess capacity levels in the CD-ROM industry, the introduction of new products by competitors, increased competition (including pricing pressures), changes in manufacturing efficiencies, changes in technology, and other risks indicated in the company's filings with the Securities and Exchange Commission, including Form 10-K for Metatec's year ended December 31, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. There is no change in the quantitative and qualitative disclosures about the Company' market risk from the disclosures contained in the Company's Form 10-K for its fiscal year ended December 31, 2000. page 10 of 11 11 PART II - OTHER INFORMATION Items 1-5. Inapplicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description of Exhibit 10.1 Letter agreement dated March 30, 2001, among Metatec International, Inc., Metatec Worldwide, Inc., The Huntington National, Bank, and Bank One, NA. (b) No reports on Form 8-K have been filed during the quarter ended March 31, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Metatec International, Inc. /s/ Julia A. Pollner BY: Julia A. Pollner Date: April 30, 2001 Senior Vice President and Secretary/Treasurer (authorized signatory- principal financial and accounting officer) Page 11 of 11 12 Form 10-Q Exhibit Index Exhibit Number Description of Exhibit 10.1 Letter agreement dated March 30, 2001, among Metatec International, Inc., Metatec Worldwide, Inc., The Huntington National Bank, and Bank One, NA. EX-10.1 2 l88043aex10-1.txt EXHIBIT 10.1 1 March 30, 2001 Ms. Julia A. Pollner Senior Vice President, Finance Metatec International, Inc. 7001 Metatec Boulevard Dublin, Ohio 43017 Re: Metatec International, Inc. ("Company") -- Loans ("Loans") from The Huntington National Bank ("Huntington") and Bank One, NA ("Bank One") with Huntington, as Agent ("Agent") Dear Julie: In connection with the Loan Agreement dated as of September 11, 1998 and executed by and among the Company, the Agent, Huntington and Bank One (as amended, the "Loan Agreement"), it is the understanding of the Agent, Huntington and Bank One that the Company has failed to comply with each of the following covenants ("Current Covenant Violations"): (a) the Tangible Net Worth covenant (set forth in Section 4.12 of the Agreement) for the period ending December 31, 2000; (b) the Leverage Ratio covenant (set forth in Section 4.13 of the Agreement) for the period ending December 31, 2000; (c) the Interest Coverage Ratio covenant (set forth in Section 4.14 of the Agreement) for the period ending December 31, 2000; (d) the "no loss" covenant (set forth in Section 4.20 of the Agreement) for the period ending December 31, 2000; and (e) the minimum EBITDA covenant (set forth in Section 4.21 of the Agreement) for the periods ending October 31, November 30 and December 31, 2000. (Capitalized terms used but not defined herein shall have the meanings ascribed in the Loan Agreement.) The Company has requested that each of the Current Covenant Violations be waived by the Agent, Huntington and Bank One. We have advised you that your agreement to various modifications to the Loan Documents constitutes an integral part of our consideration of the Company's request. The modifications under consideration at this time include, but will not hereafter necessarily be limited to, the following: (i) the minimum consolidated Tangible Net Worth covenant set forth in Section 4.12 of the Loan Agreement will be adjusted as follows: 2 Period Ending Minimum TNW ------------- ----------- March, 2001 $11,750,000.00 April, 2001 $10,800,000.00 May, 2001 $9,900,000.00 June, 2001 $9,600,000.00 July, 2001 $8,600,000.00 August, 2001 $8,000,000.00 September, 2001 $8,000,000.00 October, 2001 $7,900,000.00 November, 2001 $7,700,000.00 December, 2001 $7,500,000.00 January, 2002 $7,500,000.00 February, 2002 $7,500,000.00 March, 2002 $7,500,000.00 The Tangible Net Worth figures set forth above will be adjusted to reflect any tax credits realized by the Company during the period January 1, 2001 through March 31, 2002, such adjustments to be made immediately prior to the end of the testing period in which such credits are realized. (ii) the monthly / quarterly limitation on the Company's expenditures for fixed or capital assets set forth in Section 4.19 of the Loan Agreement will be adjusted as follows: Period Ending Capital Expenditures ------------- -------------------- March, 2001 (Quarter) $1,100,000.00 April, 2001 $350,000.00 May, 2001 $20,000.00 June, 2001 $10,000.00 July, 2001 $175,000.00 August, 2001 $50,000.00 September, 2001 $10,000.00 October, 2001 $25,000.00 November, 2001 $25,000.00 December, 2001 $25,000.00 December, 2001 (Year) $1,790,000.00 January, 2002 $200,000.00 February, 2002 $200,000.00 March, 2002 $200,000.00 Any portion of a monthly or quarterly capital expenditure allowance set forth above that is not used in the specified month or quarter of 2001 may be used by 3 the Company in any subsequent month or quarter of fiscal year 2001, but no such unused portion may be used by the Company in fiscal year 2002. (iii) the minimum monthly consolidated EBITDA covenant set forth in Section 4.21 of the Loan Agreement will be restated as a minimum monthly (cumulative)/ quarterly consolidated EBITDA covenant and adjusted as follows: Period Ending Minimum EBITDA ------------ -------------- March, 2001 (Quarter) $885,000.00 April, 2001 $970,000.00 May, 2001 $1,200,000.00 June, 2001 $2,000,000.00 June, 2001 (Quarter) $1,300,000.00 July, 2001 $2,200,000.00 August, 2001 $2,700,000.00 September, 2001 $3,700,000.00 September, 2001 (Quarter) $1,600,000.00 October, 2001 $4,500,000.00 November, 2001 $5,300,000.00 December, 2001 $6,000,000.00 December, 2001 (Quarter) $2,300,000.00 January, 2002 $6,700,000.00 February, 2002 $7,500,000.00 March, 2002 $8,100,000.00 March, 2002 (Quarter) $2,300,000.00 (iv) a minimum monthly (cumulative) / quarterly EBITDA covenant will be instituted for the Silicon Valley operation as follows: Period Ending Minimum EBITDA ------------- -------------- March, 2001 (Quarter) ($300,000.00) April, 2001 ($400,000.00) May, 2001 ($500,000.00) June, 2001 ($600,000.00) June, 2001 (Quarter) ($300,000.00) July, 2001 ($700,000.00) August, 2001 ($800,000.00) September, 2001 ($900,000.00) 4 Period Ending Minimum EBITDA ------------- -------------- September, 2001 (Quarter) ($275,000.00) October, 2001 ($950,000.00) November, 2001 ($1,000,000.00) December, 2001 ($1,050,000.00) December, 2001 (Quarter) ($250,000.00) January, 2002 ($1,050,000.00) February, 2002 ($1,050,000.00) March, 2002 ($1,050,000.00) March, 2002 (Quarter) $100,000.00 (v) the financial covenants set forth in Sections 4.12, 4.13, 4.14, 4.19, 4.20, and 4.21 of the Loan Agreement will be suspended during the period January 1, 2001 through March 31, 2002; provided, however, that all terms defined in those Sections and all methods of financial covenant calculation set forth in those Sections (to the extent that such terms and methods of calculation are applicable to the financial covenants set forth in items (i) through (iv) above and to the extent such terms and methods of calculation are not modified by the terms of items (i) through (iv) above) will remain as currently written; and provided, further, however, that for purposes of EBITDA covenant compliance calculation and Tangible Net Worth covenant compliance calculation, EBITDA will be modified to permit the Company to add back (as and when paid) the $500,000.00 of fees hereinafter described that are payable by the Company to Huntington and Bank One and the fees that are payable by the Company to a "turnaround" consultant and to an appraiser as hereinafter set forth. (vi) effective March 31, 2001, interest will accrue on the outstanding principal balances of the Loans at a per annum rate of interest that is 2.00% in excess of the Prime Rate, and the Commitment Fee will accrue at a per annum rate of 0.50% (all provisions in the Loan Agreement concerning calculations, payments and the like with respect to the foregoing otherwise to remain in effect as currently written); (vii) a borrowing base requirement (with daily borrowing base reports and monitoring by Huntington's asset based lending division) will be instituted with respect to Revolving Loan advances; Revolving Loan advance availability to be limited by outstanding Sub-Facility Letters of Credit (which Sub-Facility will hereafter be limited to $2,050,000.00) and by a formula based upon 80% of eligible domestic accounts, 80% of eligible insured foreign accounts, 30% of eligible domestic inventory and 20% of domestic machinery and equipment at net book value ("eligibility" to be determined by Huntington and Bank One in their sole discretion); as to eligible domestic accounts and eligible insured foreign accounts, such formula may be adjusted by Huntington and Bank One in their sole discretion following the completion of an asset-based-lending-type audit of the 5 accounts and inventory of the Company (the fees and expenses associated with such audit to be borne by the Company), any such adjustment to be effective as of July 15, 2001 and to be based upon the Company's dilution experience concerning such accounts during the period April 1, 2001 through June 30, 2001; all accounts (domestic and foreign) securing the Loans will be collected through lockbox arrangements to be entered into between the Company and the Agent (and any necessary foreign entities); and cash collateral and controlled disbursement account arrangements also to be entered into between the Company and the Agent; (viii) quarterly financial reporting requirements will be changed to monthly (30 days after month end for monthly reports and 90 days after fiscal year end for annual reports) (presentations to include year-to-date results), with reporting by site and on a consolidated basis for income statements and with reporting as either "domestic" or "foreign" and on a consolidated basis for balance sheets, and period/prior-year comparisons and comparisons to budget will be required; the Company will provide cash receipts and disbursement reports to Huntington and Bank One on a daily basis; and within 15 days of month end, the Company will submit to the Agent and to each of the Banks reports concerning accounts receivable and payable agings, accounts receivable reconciliations and inventory listings; (ix) the definition of Net Cash Flow set forth in Section 1.4 (f) of the Loan Agreement will be modified to refer to "cash taxes" and the reference to "50%" in that Section will be changed to "100%"; and (x) the Revolving Loan Termination Date and the Term Loan Termination Date will be re-set to April 1, 2002. In connection with the foregoing, you need to be aware of several other matters. First, the Company must pay (a) to each of Huntington and Bank One a fee of $50,000.00 on April 2, 2001, a fee of $75,000.00 on or before July 31, 2001, and a fee of $75,000.00 on or before November 30, 2001, (b) to Bank One a fee of $100,000.00 on or before March 31, 2002, and (c) the fees and expenses of counsel for the Agent not later than 10 days after receipt of each statement submitted by counsel for the Agent. Second, on April 2, 2001, all funds of the Company currently on deposit with Huntington Capital Investment Company in Account No. OHE495484 (in the approximate amount of $4,600,000.00) must be paid to the Agent, for the ratable benefit of Huntington and Bank One, such funds to be applied to the outstanding balance of the Revolving Loan. Third, on or before April 20, 2001, the Company will engage a "turnaround" consultant to review, prepare and analyze (as applicable) the Company's financial condition including, without limitation, the Company's going concern and break-up values, the Company's operating, cashflow and capital budgets and the Company's management of working capital. The consultant will also prepare "hold/merge/liquidate" recommendations for each business location concerning the Company operations. All reports prepared by the consultant for the Company will also be simultaneously delivered by the consultant to the Agent, Huntington 6 and Bank One, and the Agent, Huntington and Bank One will have the right to discuss such reports directly with the consultant. The consultant will be selected and paid by the Company; provided, however, that the Agent, Huntington and Bank One will have the right to approve the consultant selected by the Company and the scope and cost of the engagement. Attached hereto as Schedule 1 is nonexclusive list of approved consultants. Fourth, the Agent will obtain an appraisal (at fair market and orderly liquidation values) of the domestic machinery and equipment of the Company (a schedule of such fixed assets by location must be provided to the Agent on or before April 10, 2001), and the fees and expenses associated with such appraisal will be borne by the Company. Fifth, the Company (and its subsidiaries, as applicable) will not only reaffirm existing security interests granted to secure the Loans and related fees, costs and expenses, but will also provide additional security for the Loans, which additional security will relate to the rights of the Company, as the sole member of Meta Management, LLC, to receive distributions from Meta Management, LLC. Sixth, the perfection and priority of the security interest of the Agent in the pledged shares of Metatec International B.V. must be confirmed (to the satisfaction of the Agent and its counsel) in an opinion of Netherlands counsel to be delivered to the Agent by not later than April 30, 2001. Finally, a guaranty secured by a first priority perfected security interest in the accounts of Metatec International B.V. (which accounts must be insured to the satisfaction of the Agent) must be delivered to the Agent and the validity and enforceability of such guaranty and related security agreement, as well as the perfection and priority of the security interest of the Agent in such accounts, must be confirmed (to the satisfaction of the Agent and its counsel) in an opinion of Netherlands counsel to be delivered to the Agent by not later than April 30, 2001. With respect to the lease ("Lease") between the Company and Banc One Leasing Company ("BOLC") described in Schedule 4.5 of the Loan Agreement, BOLC will be granted a security interest in the Collateral, which security interest will be junior in priority to that of the Agent. Additionally, as additional security for the Lease, BOLC will be granted an assignment of the Company's interest under a certain "foreign exchange contract" with Bank One in the original amount of $5,000,000.00. If the Lease does not currently so provide, the Lease will be cross-defaulted to the Events of Default set forth in the Loan Documents. The foregoing terms and modifications will be set forth in one or more formal amendments and/or supplemental documents which will be executed by the parties on or before April 6, 2001. Based upon our understanding that you are in agreement with the foregoing, the Agent, Huntington and Bank One agree to waive the Current Covenant Violations, the terms of which waiver are more fully set forth in a Limited Waiver of Covenants 4.12, 4.13, 4.14, 4.20 and 4.21, a copy of which is attached hereto as Exhibit A. 7 The Agent, Huntington and Bank One are under no obligation with respect to any other waiver, modification, suspension, standstill or forbearance and no commitment is hereby made or implied regarding the same. Very truly yours, THE HUNTINGTON NATIONAL BANK, AS AGENT /s/ Bud Ward --------------------------------- Bud Ward Senior Vice President It is the intention of each of the parties executing this letter agreement that this letter agreement is binding upon and enforceable by and against each of the parties irrespective of the execution of formal documentation setting forth the terms and conditions hereof; provided, however, that it is the intention of the parties that formal documentation setting forth the terms and conditions hereof will be prepared and executed by the parties on or before April 6, 2001. Acknowledged and agreed as of March 30, 2001: METATEC INTERNATIONAL, INC. By: /s/ Julia A. Pollner --------------------------------- Its: Senior Vice President, Finance --------------------------------- METATEC WORLDWIDE, INC. By: /s/ Julia A. Pollner --------------------------------- Its: Vice President, Finance --------------------------------- THE HUNTINGTON NATIONAL BANK By: /s/ Bud Ward --------------------------------- Its: Senior Vice President --------------------------------- 8 BANK ONE, NA By: /s/ J. Ralph Parker --------------------------------- Its: Vice President --------------------------------- 9 SCHEDULE 1 Nonexclusive List of Approved Consultants 1. Casas, Benjamin & White, LLC -- Ed Casas -- Skokie, Illinois 847-583-1718 2. Development Specialists, Inc. -- Fred C. Caruso -- Chicago, Illinois 312-263-4141 3. Glass & Associates - Henry Glass -- Canton, Ohio 330-494-3252 4. Groner, Boyle & Quillin, LLP -- Bradford S. Eldridge -- Columbus, Ohio 614-221-1120 5. The Meridian Group -- Maggie Good -- Pittsburgh, Pennsylvania 412-232-0385 10 EXHIBIT A LIMITED WAIVER OF COVENANTS 4.12, 4.13, 4.14, 4.20 AND 4.21 OF LOAN AGREEMENT DATED AS OF SEPTEMBER 11, 1998 This Limited Waiver of Covenants 4.12, 4.13, 4.14, 4.20 and 4.21 of Loan Agreement Dated as of September 11, 1998 (this "Waiver") is dated as of the 31st day of December, 2000, and is executed by and among (a) Metatec International, Inc. (successor by merger to Metatec Corporation), an Ohio corporation (the "Company"), as borrower, (b) The Huntington National Bank ("Huntington"), Bank One, NA ("Bank One") and all other financial institutions from time to time party to a certain Loan Agreement dated as of September 11, 1998 (as amended by a First Amendment to Loan Agreement dated as of December 23, 1998, by a Second Amendment to Loan Agreement dated as of March 8, 1999, by a Third Amendment to Loan Agreement dated as of March 22, 2000 and by a Fourth Amendment to Loan Agreement dated as of August 14, 2000, the "Loan Agreement"), whether by execution of the Loan Agreement or an assignment and acceptance acceptable to the Administrative Agent (collectively, the "Banks" and individually a "Bank"), as lenders, and (c) Huntington, as Administrative Agent for the Banks (Huntington in such capacity, the "Administrative Agent"). RECITALS: WHEREAS, the Banks, the Administrative Agent and the Company executed the Loan Agreement in connection with the Company's execution and delivery to (i) Huntington of a certain term note of even date therewith in the original principal amount of $18,000,000.00, which term note was amended and restated as of March 22, 2000 in the principal amount of $12,750,000.00; (ii) Bank One of a certain term note of even date therewith in the original principal amount of $12,000,000.00, which term note was amended and restated as of March 22, 2000 in the principal amount of $8,500,000.00; (iii) Huntington of a certain revolving note of even date therewith in the original principal amount of $15,000,000.00, which revolving note was amended and restated as of December 23, 1998 in the principal amount of $12,000,000.00, and which revolving note was further amended and restated as of March 22, 2000 in the principal amount of $7,800,000.00; and (iv) Bank One of a certain revolving note of even date therewith in the original principal amount of $10,000,000.00, which revolving note was amended and restated as of December 23, 1998 in the principal amount of $8,000,000.00, and which revolving note was further amended and restated as of March 22, 2000 in the principal amount of $5,200,000.00 (capitalized terms used but not defined herein shall have the meanings ascribed in the Loan Agreement); and WHEREAS, Section 4.12 of the Loan Agreement requires the Company to maintain a minimum consolidated Tangible Net Worth in excess of certain levels during various periods (the "Section 4.12 Covenant"); and WHEREAS, Section 4.13 of the Loan Agreement prohibits the Company from maintaining Leverage Ratios in excess of certain levels during various periods (the "Section 4.13 Covenant"); and WHEREAS, Section 4.14 of the Loan Agreement prohibits the Company from maintaining Interest Coverage Ratios of less than certain levels during various periods (the "Section 4.14 Covenant"); and WHEREAS, Section 4.20 of the Loan Agreement prohibits the Company from having net income before taxes for any calendar quarter of less than zero dollars (the "Section 4.20 Covenant"); and 11 WHEREAS, Section 4.21 of the Loan Agreement requires the Company to maintain minimum EBITDA on both a monthly and a quarterly basis (the "Section 4.21 Covenant"); and WHEREAS, the Company has requested the Banks and the Administrative Agent to waive the Company's non-compliance with the Section 4.12 Covenant, the Section 4.13 Covenant, the Section 4.14 Covenant, the Section 4.20 Covenant and the Section 4.21 Covenant for certain periods hereinafter specified; and WHEREAS, the Banks and the Administrative Agent are willing to waive the Company's non-compliance with the Section 4.12 Covenant, Section 4.13 Covenant, the Section 4.14 Covenant, the Section 4.20 Covenant and the Section 4.21 Covenant for certain periods hereinafter specified, subject to the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties hereto agree as follows: 1. The Banks and the Administrative Agent hereby (a) waive the Company's non-compliance with the Section 4.12 Covenant, the Section 4.13, the Section 4.14 Covenant and the Section 4.20 Covenant for the period ending December 31, 2000, and (b) waive any Event of Default associated therewith or occasioned thereby. 2. The Banks and the Administrative Agent hereby (a) waive the Company's non-compliance with the Section 4.21 Covenant for the periods ending October 31, November 30 and December 31, 2000, and (b) waive any Event of Default associated therewith or occasioned thereby. 3. Except as expressly set forth herein, nothing contained herein shall constitute a waiver or forbearance by the Banks or the Administrative Agent of any other Event of Default, whether now existing or hereafter arising, or waiver or modification of any other term, condition or covenant set forth in the Loan Agreement, the Notes or any related documents, instruments or agreements (collectively, the "Loan Documents"). Additionally, this Waiver shall not be construed as a commitment on the part of the Banks or the Administrative Agent to any future amendment, modification or waiver of any term, condition or covenant set forth in the Loan Documents. 4. The Company represents and warrants that, except for the Company's non-compliance with the Section 4.13 Covenant, the Section 4.14, the Section 4.20 Covenant and the Section 4.21 Covenant for the periods specified herein, no Event of Default has occurred and is continuing under the Loan Documents. 5. The Company agrees that, except for the Company's non-compliance with the Section 4.13 Covenant, the Section 4.14, the Section 4.20 Covenant and the Section 4.21 Covenant for the periods specified herein, the Company will perform and observe all of the covenants, agreements, stipulations and conditions to be performed or observed by the Company under the Loan Documents. 6. This Waiver shall be interpreted, and the rights and liabilities of the parties hereto determined, in accordance with the laws of the State of Ohio. 12 7. This Waiver may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the Company, the Banks and the Administrative Agent have caused this Waiver to be executed by their duly authorized representatives as of the day and year first above written. COMPANY: METATEC INTERNATIONAL, INC., an Ohio corporation By: /s/ Julia A. Pollner ----------------------------------- Its: Senior Vice President, Finance AGENT: THE HUNTINGTON NATIONAL BANK, a national banking association, as Administrative Agent By: /s/ Bud Ward ----------------------------------- Its: Senior Vice President 13 BANK: THE HUNTINGTON NATIONAL BANK, a national banking association By: /s/ Bud Ward ----------------------------------- Its: Senior Vice President BANK: BANK ONE, NA, a national banking association By: /s/ J. Ralph Parker ----------------------------------- Its: Vice President 14 CONSENT OF GUARANTOR The undersigned, being a guarantor of certain obligations of the Company to the Banks and the Administrative Agent by virtue of a certain Unconditional Guaranty of Payment and Performance ("Guaranty") executed and delivered by it to the Banks and the Administrative Agent, hereby consents to the terms of the Waiver, agrees that its Obligations (as defined in the Guaranty) to the Banks and the Administrative Agent shall not be discharged, limited, impaired or diminished in any way as a result of the execution of the Waiver by the parties thereto and agrees that its Obligations to the Banks and the Administrative Agent under its Guaranty shall be continuing as provided therein. The undersigned, also being a debtor under a Security Agreement (the "Security Agreement") in favor of the Banks and the Administrative Agent, hereby reaffirms its grant to the Banks and the Administrative Agent of a security interest under the Security Agreement, and acknowledges that such security interest secures its Obligations to the Banks and the Administrative Agent. The undersigned authorizes any attorney at law to appear in any Court of Record in the State of Ohio or in any other state or territory of the United States after the Obligations subject to its Guaranty becomes due, whether by acceleration or otherwise, to waive the issuing and service of process, and to confess judgment against it in favor of the Banks and the Administrative Agent for the amount then appearing due together with costs of suit, and thereupon to waive all errors and all rights of appeal from the judgments rendered. WARNING-BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. Metatec Worldwide, Inc., an Ohio corporation By: /s/ Julia A. Pollner ----------------------------- Its: Treasurer 15 STATE OF OHIO } COUNTY OF FRANKLIN: }SS The foregoing instrument was executed and acknowledged before me this 2nd day of April, 2001, by Julia A. Pollner, the Treasurer of Metatec Worldwide, Inc., an Ohio corporation, on behalf of the corporation. /s/ Lorraine M. Rea -------------------------------- Notary Public Commission Expiration: 2-16-04 -----END PRIVACY-ENHANCED MESSAGE-----