-----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, ClBXxpdSGTDYvc6UVmV/2hDnL7vIC2k+AL0CKwEwhoeHppACAgs/Za5UNK0b/hsm CIfxTOyLGiTDvURA+bIqpA== 0000950152-02-006367.txt : 20020814 0000950152-02-006367.hdr.sgml : 20020814 20020814122622 ACCESSION NUMBER: 0000950152-02-006367 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 1934 Act SEC FILE NUMBER: 000-09220 FILM NUMBER: 02733170 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 FORMER COMPANY: FORMER CONFORMED NAME: METATEC CORP DATE OF NAME CHANGE: 19920703 10-Q 1 l95564ae10vq.txt METATEC INTERNATIONAL > FORM 10-Q FOR 6/30/2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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 August 14, 2002: 6,536,113 Page 1 of 16 METATEC INTERNATIONAL, INC. --------------------------- INDEX PAGE ----- ---- Part I : Financial Information Item 1 - Financial Statements Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001 3 Consolidated Statements of Operations for the three months ended June 30, 2002 and 2001 (unaudited) 4 Consolidated Statements of Operations for the six months ended June 30, 2002 and 2001 (unaudited) 5 Consolidated Statement of Shareholders' Deficiency for the six months ended June 30, 2002 (unaudited) 6 Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited) 7 Notes to Consolidated Financial Statements (unaudited) 8-9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 14 Part II: Other Information Items 1-6 15-16 Signatures 16 Page 2 of 16 PART I - FINANCIAL INFORMATION Item I. Financial Statements METATEC INTERNATIONAL, INC. - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS At June 30, At December 31, ----------- --------------- 2002 2001 (Unaudited) ------------ ------------ Assets Current assets: Cash and cash equivalents $ 386,645 $ 1,981,184 Accounts receivable, net of allowance for doubtful accounts of $400,000 9,762,363 12,006,645 Due from sale of assets - 1,000,000 Inventory 2,122,118 2,075,445 Prepaid expenses 937,070 760,470 ------------ ------------ Total current assets 13,208,196 17,823,744 Property, plant and equipment - net 26,405,634 29,381,661 Other assets 158,133 169,166 ------------ ------------ Total Assets $ 39,771,963 $ 47,374,571 ============ ============ Liabilities & Shareholders' Deficiency Current liabilities: Accounts payable $ 3,990,514 $ 5,088,149 Accrued expenses: Royalties 2,619,040 5,468,135 Personal property taxes 1,148,475 1,110,819 Payroll 778,567 911,014 Restructuring 675,661 2,658,275 Taxes, benefits and other 1,436,497 1,510,377 Unearned income 244,543 194,366 Current maturities of long-term real estate debt 164,038 157,399 Current maturities of other long-term debt and capital lease obligations 348,271 25,476 ------------ ------------ Total current liabilities 11,405,606 17,124,010 Long-term real estate debt 18,442,057 18,527,886 Other long-term debt and capital lease obligations, less current maturities 18,557,037 20,194,352 Other long-term liabilities 405,179 673,403 ------------ ------------ Total liabilities 48,809,879 56,519,651 ------------ ------------ Shareholders' deficiency: Common stock - no par value; authorized 10,000,000 shares; issued 7,217,855 shares 33,008,138 35,031,138 Accumulated deficit (37,383,631) (37,547,201) Accumulated other comprehensive loss (951,011) (786,480) Treasury stock, at cost; 681,742 and 1,081,742 shares (3,670,537) (5,822,537) Unamortized restricted stock (40,875) (20,000) ------------ ------------ Total shareholders' deficiency (9,037,916) (9,145,080) ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' DEFICIENCY $ 39,771,963 $ 47,374,571 ============ ============
See notes to consolidated financial statements. Page 3 of 16 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, ------------------------------ 2002 2001 - ------------------------------------------------- ------------ ------------ NET SALES $ 14,826,105 $ 18,861,865 Cost of sales 9,946,914 13,697,185 ------------ ------------ Gross profit 4,879,191 5,164,680 Selling, general and administrative expenses 4,194,506 6,367,857 ------------ ------------ OPERATING EARNINGS (LOSS) 684,685 (1,203,177) Other income and (expense): Investment income 6,601 5,654 Interest expense (734,280) (898,024) ------------ ------------ LOSS BEFORE INCOME TAXES (42,994) (2,095,547) Income taxes 0 0 ------------ ------------ NET LOSS $ (42,994) $ (2,095,547) ============ ============ NET LOSS PER COMMON SHARE Basic and diluted $ (0.01) $ (0.34) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic and diluted 6,536,113 6,136,113 ============ ============
See notes to condensed consolidated financial statements. Page 4 of 16 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, ------------------------------ 2002 2001 - -------------------------------------------------- ------------ ------------ NET SALES $ 30,071,779 $ 39,910,413 Cost of sales 20,453,835 29,003,252 ------------ ------------ Gross profit 9,617,944 10,907,161 Selling, general and administrative expenses 8,853,755 13,015,516 Restructuring expense 0 109,564 ------------ ------------ OPERATING EARNINGS (LOSS) 764,189 (2,217,919) Other income and (expense): Investment income 10,625 40,700 Interest expense (1,486,244) (1,844,925) ------------ ------------ LOSS BEFORE INCOME TAXES (711,430) (4,022,144) Income taxes (benefit) (875,000) 0 ------------ ------------ NET EARNINGS (LOSS) $ 163,570 $ (4,022,144) ============ ============ NET EARNINGS (LOSS) PER COMMON SHARE Basic and diluted $ 0.03 $ (0.66) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic and diluted 6,495,002 6,135,891 ============ ============
See notes to condensed consolidated financial statements. Page 5 of 16 METATEC INTERNATIONAL, INC. - ---------------------------------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY (UNAUDITED)
Accumulated Other Unamortized Common Accumulated Comprehensive Treasury Restricted Stock Deficit Loss Stock Stock Total - ----------------------------------------------------- ----------- ------------ --------- ----------- -------- ----------- BALANCE AT DECEMBER 31, 2001 $35,031,138 $(37,547,201) $(786,480) $(5,822,537) $(20,000) $(9,145,080) Comprehensive Income: Net income 163,570 163,570 Foreign currency translation adjustments (143,565) (143,565) Accretion of gain on termination of forward contracts (20,966) (20,966) ----------- Comprehensive income (961) Issuance of treasury stock (2,062,000) 2,152,000 90,000 Issuance of restricted shares 39,000 (39,000) 0 Amortization of restricted stock 18,125 18,125 ----------- ------------ --------- ----------- -------- ----------- BALANCE AT JUNE 30, 2002 $33,008,138 $(37,383,631) $(951,011) $(3,670,537) $(40,875) $(9,037,916) =========== ============ ========= =========== ======== =========== See notes to consolidated financial statements.
Page 6 of 16 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 2002 2001 - ------------------------------------------------------------------------------- ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 163,570 $(4,022,144) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,984,259 5,425,477 Deferred income taxes 0 30,434 Net loss on sales of property, plant and equipment 0 4,602 Changes in assets and liabilities: Accounts receivable 2,466,629 3,040,204 Inventory (23,785) 19,284 Prepaid expenses and other assets (147,203) (315,213) Accounts payable and accrued expenses (2,930,208) (1,264,439) Unearned income 34,988 (19,993) ------------ ----------- Net cash provided by operating activities 2,548,250 2,898,212 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (158,426) (839,893) Proceeds from the sales of property, plant and equipment 1,209,134 7,200 ------------ ----------- Net cash received from (used in) investing activities 1,050,708 (832,693) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in long-term debt 30,412,847 4,186,939 Payment of long-term debt and capital lease obligations (35,360,142) (7,770,200) ------------ ----------- Net cash used in financing activities (4,947,295) (3,583,261) ------------ ----------- Effect of exchange rate on cash (246,202) 54,004 Decrease in cash and cash equivalents (1,594,539) (1,463,738) Cash and cash equivalents at beginning of period 1,981,184 2,086,228 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 386,645 $ 622,490 ============ =========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 1,412,861 $ 1,836,982 ============ =========== Income taxes paid/(refunds received) $ (897,182) $ (122,267) ============ =========== Assets purchased by the assumption of a liability $ 34,377 $ 290,452 ============ =========== Payment of accrued restructuring expense by the issuance of treasury stock $ 90,000 $ 0 ============ =========== Exchange of short-term accrued royalties obligation for a long-term note payable $ 3,500,000 $ 0 ============ ===========
See notes to condensed consolidated financial statements. Page 7 of 16 METATEC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION - The consolidated balance sheet as of June 30, 2002, the consolidated statements of operations for the three and six months ended June 30, 2002 and 2001, the consolidated statement of shareholders' deficiency for the six months ended June 30, 2002, and the consolidated statements of cash flows for the six month periods then ended have been prepared by the Company, without audit. In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with 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, 2001 annual report on Form 10-K. The results of operations for the period ended June 30, 2002 are not necessarily indicative of the results for the full year. In August 2002, the Company entered into new licensing and other agreements with one of its CD and DVD patent licensors which, among other things, provides for a deferred payment schedule for accrued royalties owed by the Company under prior licensing agreements, and, as a result, $3.5 million of accrued royalties has been reclassified to other long-term liabilities at June 30, 2002. The Company is negotiating similar arrangements with other licensors concerning the payment of accrued royalties owed by the Company to these licensors on licensed technology. While the Company anticipates reaching acceptable agreements with each of these licensors in the near future, there can be no assurance that the Company will be able to do so. The failure to reach agreement with these licensors on the payment of accrued but unpaid royalties could result in these licensors taking action to suspend or terminate the applicable licensing agreement, which would prevent the Company from using such technology in its manufacturing process and could have a material adverse effect on the Company's financial condition and results of operations. Income taxes - In March 2002, the President signed the Job Creation and Worker Assistance Act of 2002 into law. This law extended the carry back period from two to five years for net operating losses arising in the 2001 and 2002 taxable years. The Company recorded an income tax benefit of $875,000 in the quarter ended March 31, 2002 related to this law. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, "Goodwill and Other Intangibles." SFAS 142 is effective for all fiscal years beginning after December 15, 2001, and requires changes in the amortization of certain goodwill and intangible assets, including an annual assessment of possible impairment. The adoption of this statement did not have a material impact on the Company's consolidated financial statements since the Company's goodwill and intangible assets were fully impaired at December 31, 2001 and written off. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." While this statement supercedes SFAS No. 121, "Accounting for Impairment of Long-Lived Assets to Be Disposed Of" it retains the fundamental provisions of SFAS No. 121 for recognition and impairments of assets to be held and used, and assets to be disposed of by sale. This statement was adopted in the first quarter of the year ended December 31, 2002. The adoption of this statement did not have a material effect on the Company's consolidated financial statements. Page 8 of 16 SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," will be effective for fiscal years beginning after May 15, 2002 (December 31, 2002 for the Company). The standard rescinds FASB Statements No. 4 and 64 that dealt with issues relating to the extinguishment of debt. The standard also rescinds FASB Statement No. 44 that dealt with intangible assets of motor carriers. The standard modifies SFAS No. 13, "Accounting for Leases," so that certain capital lease modifications must be accounted for by lessees as sale-leaseback transactions. Additionally, the standard identifies amendments that should have been made to previously existing pronouncements and formally amends the appropriate pronouncements. The adoption of SFAS No. 145 will not have a significant effect on the Company's results of operations or its financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 AND THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001 CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of accounting policies, many of which require the Company's management to make estimates and assumptions about future events and their impact on amounts reported in the Company's financial statements and related notes. Since future events and their impact cannot be determined with certainty, actual results will inevitably differ from management's estimates. Such differences could be material to the Company's financial statements. Management believes that its application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances indictate a change is necessary. The Company's accounting policies are more fully described in Note 1 to the consolidated financial statements included in the Company's Form 10-K for the year ended December 31, 2001. Described below are certain critical accounting policies which management believes are important to a reader of the financial statements. These critical accounting policies are not intended to be a comprehensive list of all the Company's accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting other available alternatives would not produce a materially different result. Long-lived assets. In evaluating the fair value and future benefits of long-lived assets, management completes an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets and reduces their carrying value by the excess, if any, as a result of such calculation. Management believes that the long-lived assets' carrying values and useful lives are appropriate. Allowance for doubtful accounts. Management attempts to reserve for expected credit losses based on the Company's past experience with similar accounts receivable, and it believes that the Company's reserves are adequate. It is possible, however, that the accuracy of management's estimation process could be materially impacted as the composition of this pool of accounts receivable changes over time. Management periodically reviews and modifies the estimation process as changes to the composition of this pool require. Page 9 of 16 Litigation. The Company and its legal counsel evaluate litigation and review the likelihood of an outcome and the resulting materiality to the Company. The Company is involved in various legal claims arising from the normal course of its business. While the ultimate liability, if any, from these proceedings is presently indeterminable, in the opinion of management, these matters should not have a material adverse effect on the consolidated financial statements of the Company. Income taxes. The Company has a history of unprofitable operations. These losses generated a significant federal tax net operating loss, or NOL, carryforward of as of December 31, 2001. Accounting principles generally accepted in the United States of America require the Company to record a valuation allowance against the deferred tax asset associated with this NOL if it is "more likely than not" that the Company will not be able to utilize the NOL to offset future taxes. Due to the amount of the NOL carryforward in relation to the Company's history of unprofitable operations, management has not recognized any net deferred tax asset in the Company's financial statements. In the future the Company could achieve levels of profitability which could cause management to conclude that it is more likely than not that the Company will realize all or a portion of the NOL carryforward. Upon reaching such a conclusion, the Company would record the estimated net realizable value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to the Company's combined federal and state effective rates. BUSINESS OF THE COMPANY The Company is transitioning from a disc manufacturing company to a supply chain solutions company that enables its customers to streamline the process of delivering their products and information to market by providing technology driven supply chain solutions that increase efficiencies and reduce costs. The Company assists its customers with a wide range of services from preparing their product for market to delivering their finished product into the distribution channel or directly to the end-users. The solution is built on a solid technology foundation that includes both customized system integration and a web-based reporting and tracking tool that makes real-time information easily accessible. Technologies include CD-ROM and DVD manufacturing services and secure Internet-based software distribution service. The Company's core CD-ROM manufacturing capabilities serve as a component of the supply chain. The Company maintains operations in Ohio and The Netherlands. Revenues attributed to product types are distinguished as CD-ROM sales and other sales. As its core business, a majority of the Company's revenue continues to come from its optical disc manufacturing business. Results of Operations Net sales for the three months ended June 30, 2002, were $14.8 million, a decrease of $4.0 million, or 21% over the same period of the prior year. This decrease resulted primarily from CD-ROM sales decreasing $4.2 million or 24%, to $13.3 million for the three months then ended. This decrease was due to several factors. First, the closing of the Company's Milpitas, California ("Silicon Valley") plant and a restructuring of the Dublin, Ohio operations reduced manufacturing capacity and eliminated certain low-margin customers. Second, pricing for CD-ROM products and services continued to decline industry-wide due to excess manufacturing capacity, a trend the Company anticipates will continue. Finally, demand for the Company's CD-ROM products and services declined due to several factors, including a decline in general economic conditions, the continued increase in customers using on-line or electronic methods to distribute information, and the continued maturation of the CD-ROM market. DVD sales accounted for $621,000 during the three months ended June 30, 2002, as compared to $514,000 for the same period in the prior year. Net sales for the six months ended June 30, 2002, were $30.1 million, a decrease of $9.8 million, or 25%, over the same period of the prior year. This decrease resulted primarily from CD-ROM sales decreasing $10.0 million to $27.1 million, or 27%, for the six months ended. This decrease was due to the factors noted above. Page 10 of 16 Gross profit was 33% of net sales for the three months ended June 30, 2002, as compared to 27% of net sales for the same period of the prior year. This increase was due mainly to the closing of the Company's Silicon Valley plant and the restructuring of the Dublin operations. Gross profit was 32% of net sales for the six months ended June 30, 2002, as compared to 27% of net sales for the same period of the prior year. Selling, general and administrative ("SG&A") expenses were $4.2 million, or 28% of net sales, for the three months ended June 30, 2002, as compared to $6.4 million, or 34% of net sales, for same period of the prior year. The reduction in SG&A expenses was primarily attributed to the Dublin restructuring and workforce reductions. SG&A expenses were $8.9 million, or 29% of net sales, for the six months ended June 30, 2002, as compared to $13.0 million, or 33% of net sales, for same period of the prior year. No restructuring expenses were incurred during the first half of 2002. Restructuring expenses of $110,000 were incurred during the three months ended March 31, 2001. These 2001 restructuring expenses consisted primarily of severance and termination benefits related to a U.S. workforce reduction of approximately 6%. Summary of Accrued Restructuring In Thousands
Termination Exit/Other Description Benefits Costs Total ----------- -------- ----- ----- Accrued balance December 31, 2001 $ 1,368 $ 3,100 $ 4,468 Provision year to date June 30, 2002 $ - $ - $ - Payments year to date June 30, 2002 $ (603) $(2,957) $ (3,560) ------------------------------------------ Accrued balance June 30, 2002 $ 765 $ 143 $ 908 ========================================== Accrued Restructuring-Current $ 533 $ 143 $ 676 ==========================================
Investment income was $6,600 and $5,700 for the three month periods ended June 30, 2002 and 2001, respectively. Investment income was $10,600 and $41,000 for the six month periods ended 2002 and 2001, respectively. Interest expense for the three months ended June 30, 2002 was $734,000, as compared to $898,000 for the same period of the prior year. Interest expense for the six months ended June 30, 2002 was $1.5 million, as compared to $1.8 million for the same period of the prior year. The decrease in interest expense was due to decreased debt balances under the Company's revolving loan and term loan facilities, as well as decreases in interest rates. The Company recognized an income tax benefit of $875,000 for the three months ended March 31, 2002. In March 2002, the Job Creation and Worker Assistance Act of 2002 was enacted into law. This law extended the carry back period from two years to five years for net operating losses arising in the 2001 and 2002 taxable years. For the same time period for the prior year, the Company did not record an income tax benefit due to the uncertainty of realizing the value of such benefit. Page 11 of 16 Based upon the foregoing, the net income for the six months ended June 30, 2002 was $164,000, or net income per basic or diluted common share of $.03, as compared to a net loss in the same period of the prior year of $4.0 million, or net loss per basic or diluted common share of $.66. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES Source of Liquidity The Company financed its business during the six months ended June 30, 2002 through cash generated from operations. Cash flow from operating activities was $2.5 million for the six months ended June 30, 2002, as compared to $2.9 million for the six months ended June 30, 2001. The Company had cash and cash equivalents of $387,000 as of June 30, 2002, as compared to $2.0 million as of December 31, 2001. Bank Financing Matters The Company has a term loan facility and a revolving loan facility (collectively, the "Credit Facilities") with its banks. The Company is required to comply with certain financial and other loan covenants set forth in the loan agreement for the Credit Facilities. The Company was in compliance with such covenants as of June 30, 2002. As of June 30, 2002, $8.9 million and $5.2 million were outstanding under the term loan facility and the revolving loan facility, respectively. The borrowing base of the revolving loan facility is limited to the lesser of (i) $12,490,762, or (ii) the sum of (A) 80% of eligible domestic accounts receivable, plus (B) 30% of eligible domestic inventory, plus (C) 90% of domestic machinery and equipment. The borrowing base is further reduced by the aggregate amount of the Company's outstanding letters of credit and is permanently reduced by the amount of any additional advances made to the company under the second term loan facility. As of June 30, 2002 the Company had approximately $2.7 million available to draw on its revolving loan facility. The revolving loan and the term loans under the Credit Facilities mature on April 1, 2004. Quarterly principal payments are required for the term loans beginning in June 2002 if cash flows exceed certain specified targets over designated periods of time. As of June 30, 2002, the Company had not exceeded these targets. 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 the financial and other covenants. The revolving loan and the term loans accrue interest at a rate equal to 3.5% in excess of the prime rate of the banks. Certain fees are required to be paid to the banks in connection with the Credit Facilities. The Company expects that it will be able to negotiate a new borrowing facility prior to April 1, 2004. However, there can be no assurance that the Company will be able to do so. The Company has a $19,000,000 term loan facility which was used to permanently finance the Company's Dublin, Ohio distribution center (completed in 1999) and to pay down other bank debt. The loan facility has an outstanding principal balance of $18,606,095 as of June 30, 2002. This term loan facility is payable in monthly principal and interest payments based upon a thirty year amortization schedule, bears interest at a fixed rate of 8.2%, and matures on September 1, 2009. This loan facility 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. Page 12 of 16 Other Liquidity Matters In August 2002, the Company entered into new licensing and other agreements with one of its CD and DVD patent licensors which, among other things, provides for a deferred payment schedule for accrued royalties owed by the Company under prior licensing agreements, and, as a result, $3.5 million of accrued royalties has been reclassified to other long-term liabilities at June 30, 2002. The Company is negotiating similar arrangements with other licensors concerning the payment of accrued royalties owed by the Company to these licensors on licensed technology. While the Company anticipates reaching acceptable agreements with each of these licensors in the near future, there can be no assurance that the Company will be able to do so. The failure to reach agreement with these licensors on the payment of accrued but unpaid royalties could result in these licensors taking action to suspend or terminate the applicable licensing agreement, which would prevent the Company from using such technology in its manufacturing process and could have a material adverse effect on the Company's financial condition and results of operations. Plan to Improve Liquidity and Financial Condition The Company currently has a shareholders' deficiency of $9.0 million as of June 30, 2002, as compared to a shareholders' deficiency of $9.1 million as of December 31, 2001. This financial condition presents both short-term and long-term liquidity issues for the Company. Management is addressing, and has addressed, the short-term liquidity situation. In response to declining pricing and reduced demand for CD-ROM products, management is transitioning the Company from a disc manufacturing company to a supply chain solutions company. In addition, management is also focusing on higher-margin customers in certain industries and reducing the number of the Company's low-margin disc customers. Finally, the maturity date of the Company's Credit Facilities was extended until April 2004. The Company has generated positive cash flow from operations in each of the last three fiscal years, as well as in the first two quarters of 2002. Management believes that the Company's current focus on its core business customers and continued cost saving measures will allow it to generate sufficient cash flows to meet operational needs in 2002. However, there can be no assurance that such measures will allow the Company to generate sufficient cash flows for the remainder 2002. Furthermore, additional actions will need to be taken to address the Company's long-term liquidity issues as a result of the Company's shareholders' deficiency. The Company's loan agreement with the banks includes financial covenants which require the Company to meet specified cash flow thresholds over designated periods of time. There can be no assurance that the Company will be able to meet these cash flow thresholds over such periods of time. 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 actual results to differ materially from those projected. Such risks and uncertainties that might cause such a difference include, but are not limited to: changes in general business and economic conditions; changes in demand for CD-ROM products or supply chain services; excess capacity levels in the CD-ROM industry; the introduction of new products or services by competitors; increased competition (including pricing pressures); changes in manufacturing efficiencies, changes in supply chain services techniques; changes in technology; changes in foreign currency exchange rates; the Company's ability to meet the cash flow thresholds and other financial covenants in its loan agreement with its banks, the failure of which could result in the banks' exercising their legal remedies against the Company or its assets; the Company's shareholders' deficiency, which means that shareholders may not realize any value upon a sale Page 13 of 16 or liquidation of the Company or its assets; and other risks discussed in the Company's filings with the Securities and Exchange Commission, including those risks discussed under the caption "Forward Looking Statements; Risk Factors Affecting Future Results" and elsewhere in the Form 10-K for Metatec's year ended December 31, 2001. 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, 2001. Page 14 of 16 PART II - OTHER INFORMATION --------------------------- Items 1-3. Inapplicable. ------------- Items 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The annual meeting of shareholders was held May 16, 2002. (b) David P. Lauer and Jeffrey M. Wilkins were elected as Directors. Joseph F. Keller, Peter J. Kight, Jerry D. Miller, James V. Pickett and Daniel D. Viren continued as Directors. (c) The following two directors were elected to three-year terms: David P. Lauer with 5,232,182 votes for and 111,828 votes withheld; and Jeffrey M. Wilkins with 5,178,139 votes for and 165,871 votes withheld. (d) Inapplicable. Item 5. Inapplicable ------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit No. Description of Exhibit ----------- ---------------------- 10.1 DVD Video and DVD ROM Disc Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.2 Patent License Agreement for the Use of AC-3 Technology in the Manufacture of DVD-Video Discs dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.3 MPEG Audio Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.4 CD Disc Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.5 Letter agreement dated August 9, 2002, among U.S. Philips Corporation, Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Schedules and exhibits to this document have not been filed because the Company believes such schedules and exhibits do not contain information material to an investment decision that is not otherwise disclosed in such document. The Company hereby agrees to furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon its request. Page 15 of 16 (b) No reports on Form 8-K were filed during the quarter ended June 30, 2002. 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/ Gary W. Qualmann BY: Gary W. Qualmann Date: August 14, 2002 Chief Financial Officer (authorized signatory- principal financial officer) /s/ Julia A. Pollner BY: Julie A. Pollner Senior Vice President - Finance (authorized signatory- principal accounting officer) Page 16 of 16 EXHIBIT INDEX Exhibit No. Description of Exhibit ----------- ---------------------- 10.1 DVD Video and DVD ROM Disc Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.2 Patent License Agreement for the Use of AC-3 Technology in the Manufacture of DVD-Video Discs dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.3 MPEG Audio Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.4 CD Disc Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 10.5 Letter agreement dated August 9, 2002, among U.S. Philips Corporation, Koninklijke Philips Electronics N.V. and Metatec International, Inc.* 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Schedules and exhibits to this document have not been filed because the Company believes such schedules and exhibits do not contain information material to an investment decision that is not otherwise disclosed in such document. The Company hereby agrees to furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon its request. EX-10.1 3 l95564aexv10w1.txt EX-10.1 DVD PATENT AGREEMENT WITH KONINKLIJKE EXHIBIT 10.1 DVD Video and DVD ROM Disc Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc. This Agreement is entered into this 9th day of August, 2002 by and between KONINKLIJKE PHILIPS ELECTRONICS N.V., having its registered office in Eindhoven, The Netherlands, (hereinafter referred to as "Philips") and METATEC INTERNATIONAL, INC., having its registered office in 7001 Metatec Blvd., Dublin, Ohio 43017 (hereinafter referred to as "Licensee") WHEREAS, Philips, Sony Corporation of Japan ("Sony"), Pioneer Corporation of Japan ("Pioneer"), Hitachi Ltd. of Japan, Matsushita Electric Industrial Co. Ltd. of Japan, Mitsubishi Electric Corporation of Japan, Thomson Multimedia of France, Time Warner Entertainment Company L.P. of the USA, Toshiba Corporation of Japan, and Victor Company of Japan Ltd. of Japan, have defined a new system, which has been presented under the name DVD-Video System, as well as a system, which has been presented under the name DVD-ROM System, said systems hereinafter defined, and collectively referred to as the "DVD Systems"; WHEREAS, the DVD Systems result from research and development efforts of each of the companies mentioned above; WHEREAS, the DVD Systems specifications and the right to use the DVD logo can be obtained from the entity known as the DVD Format/Logo Licensing Corporation, based in Tokyo, Japan; WHEREAS, Philips, Sony and Pioneer each own certain patents relating to the DVD Systems; WHEREAS, Philips has been authorized by Sony and Pioneer to grant licenses under certain patents relating to the DVD Systems, which are owned or controlled by Sony and its Associated Companies (as hereinafter defined) and by Pioneer and its Associated Companies respectively, as well as such patents relating to the DVD Systems which are jointly owned by Pioneer, Sony and/or Philips, while Sony and Pioneer each retain the right also to license their respective patents relating to the DVD Systems separately so that interested manufacturers may opt to take out individual licenses under the relevant patents of each of Philips, Sony and Pioneer instead of a combined license; WHEREAS, Licensee has requested from Philips a license under the relevant patents of Philips, Sony and Pioneer relating to DVD-Discs and wishes such DVD-Discs to be compatible with devices conforming to the DVD Standard Specifications for any of the relevant DVD Systems; and WHEREAS, Philips is willing to grant Licensee a license under the relevant patents on the conditions set forth herein; NOW, THEREFORE, in consideration of the mutual obligations and covenants hereinafter set forth, the parties hereto have agreed as follows: ARTICLE 1 - DEFINITIONS ----------------------- The following terms used in this Agreement shall have the meanings set out below: 1.01 "DISC" shall mean a non-recordable reflective disc-shaped information carrier comprising any kind of information including, but not limited to, audio, video, text and/or data related information, which is irreversibly stored in one or more information layers during and as an integral part of the manufacturing process of the disc in a form which is optically readable by playback devices using a laser-beam. 1.02 "DVD-VIDEO DISC" shall mean a replicated Disc comprising any kind of information including, but not limited to, audio, video, text, and/or data related information, encoded in digital form, which is optically readable by a DVD-Video Player and by a DVD-ROM Player (as hereinafter defined) and which conforms to the DVD-Video Standard Specifications and the DVD-ROM Standard Specifications, parts 1, 2 and 3 (as hereinafter defined). 1.03 "DVD-ROM DISC" shall mean a replicated Disc comprising any kind of information including, but not limited to, audio, video, text, and/or data related information, encoded in digital form, which is optically readable by a DVD-ROM Player (as hereinafter defined) and which conforms to the DVD-ROM Standard Specifications (as hereinafter defined). The DVD-Video Disc and DVD-ROM Disc together are referred to as "DVD-Disc". 1.04 "DVD-VIDEO SYSTEM" shall mean the Digital Versatile Disc Video System which is capable of storing and reproducing video and sound signals in digital form on DVD-Video Discs. 1.05 "DVD-ROM SYSTEM" shall mean the Digital Versatile Disc ROM System which is capable of storing and reproducing data signals in digital form on DVD-ROM Discs. 1.06 "DVD-ROM STANDARD SPECIFICATIONS" shall mean the specifications for the DVD-ROM System, as specified in the document "DVD Specification for Read-Only Disc, version 1.0 (parts 1 and 2)" of August 1996, or any updated version thereof, as issued by the DVD Format/Logo Licensing Corporation. 1.07 "DVD-VIDEO STANDARD SPECIFICATIONS" shall mean the specifications for the DVD-Video System, as specified in the document "DVD Specification for Read-Only Disc, version 1.0 (part 3)" of August 1996, or any updated version thereof, as issued by the DVD Format/Logo Licensing Corporation. The DVD-ROM Standard Specifications and the DVD-Video Standard Specifications together are referred to as the "DVD Standard Specifications". 1.08 "PLAYER" shall mean a playback device for optically reading information stored on a Disc and converting such information into electrical signals for reproduction purposes. 1.09 "DVD-VIDEO PLAYER" shall mean a Player capable of reproducing information stored on a DVD-Video Disc and converting such information into electrical signals, in accordance with the DVD Standard Specifications, which electrical signals are directly capable and intended to be used for visual reproduction through standard television receivers and/or video monitors. Such DVD-Video Player may, in addition to reproducing information on a DVD-Video Disc, also be capable of reproducing information stored on a CD-Audio Disc. 1.10 "DVD-ROM PLAYER" shall mean a Player capable of reproducing information stored on a DVD-ROM Disc and/or a DVD-Video Disc and converting such information into electrical signals, in accordance with the DVD-ROM Standard Specifications or the DVD Standard Specifications, which electrical signals are directly capable and intended to be used for reproduction of video, text and data-related information through data handling and/or data processing equipment. Such DVD-ROM Player may, in addition to reproducing information stored on a DVD-Disc, also be capable of reproducing information stored on a CD-Audio Disc and/or a CD-ROM Disc. The DVD-Video Player and DVD-ROM Player together referred to as "DVD-Player". 1.11 "LICENSED PRODUCT(S)" shall mean a DVD-Video Disc and/or a DVD-ROM Disc, having either a single or dual information layer(s) (which is/are readable from one side of the disc) or two single or dual information layers (which are readable from opposite sides of the disc), manufactured and/or sold in accordance with the provisions hereof, which has been duly reported and on which the royalties due hereunder are paid in accordance with the provisions of this Agreement. 1.12 "LICENSED PATENTS" shall mean the patents listed in the relevant Exhibits as selected by Licensee pursuant to Option A and B below. OPTION A: Licensee chooses the essential patents listed in Exhibit I, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of DVD-ROM Discs. OPTION B: Licensee chooses the essential patents listed in Exhibit II, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of DVD-Video Discs. Option(s): o A o B o A and B (please tick as appropriate) Initial: __________________ The term "ESSENTIAL" as used in relation to patents in this Agreement shall refer to patents, the use of which is necessary (either directly or as a practical matter) for compliance with the Standard Specifications defining the relevant DVD Systems. Philips will commission an independent patent expert to review the European, Japanese and US patents listed as essential in Exhibits I and II in order to confirm the essentiality of such patents. In the event that said independent expert would find that any of the patents would not qualify as essential as defined in this Agreement, Philips shall delete such patent (as well as the equivalent national patents) from the relevant Exhibit and such patent will be put on the relevant Exhibit of non-essential patents. Any such finding and deletion however, shall not affect the obligation of Licensee to pay the royalty on each Licensed Product as specified in Article 4.02, provided that, in the event that none of the Licensed Patents would be infringed by the manufacture of Licensed Products within the Territory, Licensee shall have no obligation to pay royalties in respect of Licensed Products manufactured within the Territory and which are directly sold for final use within the Territory or directly exported for final use to a country in which no Licensed Patents subsist. Notwithstanding such deletion, Licensee shall retain the right to continue the use of such deleted patent(s) in accordance with this Agreement, without any additional payment, unless Licensee explicitly notifies Philips in writing of its decision to waive such right. In the event that Philips or Sony or Pioneer (or any of their Associated Companies) would have additional patents (other than patents acquired from third parties after the date of January 1, 1997) in their respective patent portfolio which are essential to the manufacture, sale or other disposal of Licensed Products and which have a filing date or are entitled to a so-called priority date prior to January 1, 1997, but which have not been listed as essential patents in the respective Exhibits hereto, Philips will notify Licensee accordingly and such additional patents will be added to the Licensed Patents. Any patents as may be added as essential patents to any of the respective Exhibits hereto, will similarly be subject to the review by the independent patent expert in accordance with the preceding paragraph. THE PATENT LISTS PROVIDED TO LICENSEE UPON EXECUTION OF THE AGREEMENT ARE SUBJECT TO CHANGE IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. WITH REGARD TO THE RIGHTS GRANTED TO LICENSEE HEREUNDER, THE PATENT LISTS PUBLISHED BY PHILIPS ON ITS WEBSITE (www.licensing.philips.com) OR OTHERWISE COMMUNICATED BY PHILIPS TO LICENSEE AFTER THE DATE OF EXECUTION HEREOF SHALL PREVAIL OVER THE LISTS PROVIDED TO LICENSEE UPON EXECUTION OF THIS AGREEMENT. 1.13 "Associated Company" shall mean any one or more business entities (1) owned or controlled by Philips, Sony, Pioneer or Licensee, (2) owning or controlling Philips, Sony, Pioneer or Licensee, or (3) owned or controlled by the business entity owning or controlling Philips, Sony, Pioneer or Licensee at the material time. For the purposes of this definition a business entity shall be deemed to own and/or to control another business entity if more than 50% (fifty per cent) of the voting stock of the latter business entity, ordinarily entitled to vote in the election of directors, (or, if there is no such stock, more than 50% (fifty per cent) of the ownership of or control in the latter business entity) is held by the owning and/or controlling business entity. For the purpose of this Agreement, Discovision Associates shall not be deemed an Associated Company of Pioneer. 1.14 "Territory" shall mean the geographic area known as the United States of America, its territories and possessions. ARTICLE 2 - GRANT OF RIGHTS --------------------------- Subject to the conditions of this Agreement: 2.01 For the term of this Agreement, Philips hereby grants to Licensee a non-exclusive, non-transferable license under the Licensed Patents selected by Licensee pursuant to Article 1.12 to manufacture Licensed Products within the Territory in accordance with the relevant DVD Standard Specifications and to sell or otherwise dispose of Licensed Products so manufactured in all countries of the world. 2.02 Philips, also on behalf of Sony and Pioneer, further agrees, for as long as this Agreement is in force and effect and Licensee is in full compliance with its obligations hereunder, to grant Licensee upon Licensee's request a non-exclusive, non-transferable license, either by means of a sub-license arrangement or by means of individual licenses from Philips, Sony and/or Pioneer respectively, on reasonable, non-discriminatory conditions, to manufacture Licensed Products in the Territory and to sell or otherwise dispose of Licensed Products so manufactured in all countries of the world, under any patents not yet licensed hereunder and which are essential to the manufacture, sale or other disposal of Licensed Products, for which Philips, Sony and Pioneer and their respective Associated Companies have or may hereafter acquire from third parties the free right to grant licenses. It is acknowledged and agreed that in respect of the patents as may be licensed pursuant to this Article 2.02, additional royalties may have to be paid over and above the royalties specified in Article 4.02. 2.03 Philips, also on behalf of Sony and Pioneer, further agrees, for as long as this Agreement is in force and effect and Licensee is in full compliance with its obligations hereunder, to grant Licensee upon Licensee's request as well as to those of Licensee's Associated Companies who so request, a non-exclusive, non-transferable license, on reasonable, non-discriminatory conditions, either by means of a sub-license arrangement or by means of individual licenses from Philips, Sony and/or Pioneer respectively, to manufacture DVD-Players and to sell or otherwise dispose of such DVD-Players so manufactured in all countries of the world, under any and all present and future patents essential to the manufacture, sale or other disposal of DVD-Players for which Philips, Sony and/or Pioneer and their respective Associated Companies have or may hereafter acquire the free right to grant licenses. 2.04 In consideration of the undertakings set forth in Articles 2.01, 2.02 and 2.03 and similar undertakings by third party licensees of Philips and without prejudice to the provisions of Article 10, for a period of ten years from the Effective Date (as hereinafter defined) Licensee agrees to grant to Philips, Sony, Pioneer and their respective Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips concerning DVD-Discs, non-exclusive, non-transferable licenses, on reasonable, non-discriminatory conditions comparable to those set forth herein, to manufacture, sell or otherwise dispose of DVD-Discs, under any and all present and future patents, for which Licensee or its Associated Companies have or may hereafter acquire the right to grant licenses and which are essential to the manufacture, sale or other disposal of such DVD-Discs as correspond with the Licensed Patents selected by Licensee pursuant to Article 1.12 and which patents were first filed in any country of the world prior to the date of termination of this Agreement. For the avoidance of doubt, the undertaking set out in the preceding sentence shall only apply to those companies which have made the same selection pursuant to Article 1.12 as Licensee and which in that respect accept or have accepted a similar undertaking as contained in this Article 2.04. 2.05 In addition, in consideration of the undertakings set forth in Articles 2.01, 2.02 and 2.03 and similar undertakings by third party licensees of Philips or any of its Associated Companies and without prejudice to the provisions of Article 10, for a period of ten years from the Effective Date, Licensee agrees to grant to Philips, Sony, Pioneer and their respective Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips concerning DVD-Players, non-exclusive, non-transferable licenses, on reasonable, non-discriminatory conditions, to manufacture, sell or otherwise dispose of such DVD-Players under any and all present and future patents, for which Licensee or its Associated Companies have or may hereafter acquire the right to grant licenses and which are essential to the manufacture, sale or other disposal of such DVD-Players and which patents were first filed in any country of the world prior to the date of termination of this Agreement. For the avoidance of doubt, the undertaking set out in the preceding sentence shall only apply to those companies which accept or have accepted a similar undertaking as contained in this Article 2.05. 2.06 Philips undertakes that it will offer, at the request of any of Licensee's Associated Companies to any such Associated Company, a non-exclusive and non-transferable license under the Licensed Patents on reasonable and non-discriminatory conditions comparable to those set forth herein, to manufacture, sell or otherwise dispose of DVD-Discs. In consideration of Philips' undertaking as set out in the preceding paragraph, Licensee undertakes that all of its Associated Companies which have or may hereafter acquire patents essential to the manufacture, sale or other disposal of DVD-Discs and which patents were first filed in any country of the world prior to the date of termination of this Agreement, shall make available licenses under such patents, on reasonable, non-discriminatory conditions comparable to those set forth herein to Philips, any of Philips' Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips in respect of DVD-Discs. 2.07 IT IS EXPRESSLY ACKNOWLEDGED AND AGREED THAT: (I) THE LICENSES AND LICENSE UNDERTAKINGS HEREIN CONTAINED WITH RESPECT TO THE MANUFACTURE OF LICENSED PRODUCTS DO NOT EXTEND TO METHODS OR THE MANUFACTURE OR SALE OF EQUIPMENT FOR COMPRESSION AND/OR DECOMPRESSION OF AUDIO SIGNALS (INCLUDING BUT NOT LIMITED TO THE SYSTEM KNOWN AS MPEG-2 AUDIO) OR FOR THE COMPRESSION OR DECOMPRESSION OF VIDEO SIGNALS IN ACCORDANCE WITH THE SYSTEM KNOWN UNDER THE NAME MPEG-2 VIDEO, NOR TO MASTER RECORDING MACHINES, MACHINES, EQUIPMENT OR METHODS FOR THE REPLICATION OF DISCS, NOR TO THE MANUFACTURE OF MATERIALS OR REPRODUCTION RIGHTS FOR INFORMATION (SUCH AS AUDIO, VIDEO, TEXT AND/OR DATA-RELATED INFORMATION), CONTAINED ON DISCS TO BE PLAYED BACK ON A PLAYER/RECORDER. FURTHER, THE LICENSE UNDERTAKINGS WITH RESPECT TO THE MANUFACTURE OF RECORDING/PLAYBACK DEVICES DO NOT EXTEND TO THE MANUFACTURE OF COMPONENTS FOR RECORDING/PLAYBACK DEVICES (INCLUDING BUT NOT LIMITED TO SEMICONDUCTOR DEVICES, INTEGRATED CIRCUITS, LASERS, MOTORS AND LENSES), EXCEPT FOR PATENTS RELATING TO CIRCUITRY AND/OR SYSTEM ASPECTS SPECIFIC TO THE DVD SYSTEMS; (II) THE RIGHTS AND LICENSES GRANTED UNDER THIS AGREEMENT APPLY ONLY TO SUCH PART OF A COMBINATION OF ONE OR MORE LICENSED PRODUCTS OR DVD PLAYERS WITH ANY OTHER ELEMENTS, PRODUCTS, SYSTEMS, EQUIPMENT OR SOFTWARE WHICH IS IN COMPLIANCE WITH THE DVD STANDARD SPECIFICATIONS. ARTICLE 3 - HAVE MADE --------------------- 3.01 The rights granted to Licensee pursuant to Article 2 include the right for Licensee to have Licensed Products made for it by third party manufacturers, duly licensed by Philips under an agreement similar to this Agreement, provided that Licensee will properly identify such third party manufacturer in the royalty reporting forms to be submitted to Philips hereunder, together with the quantities of Licensed Products so purchased. Conversely, Licensee shall refrain from purchasing or selling DVD-Video Discs and/or DVD-ROM Discs manufactured by any third party not licensed by Philips, where such purchase or sale would constitute an act of infringement of any of the Licensed Patents. ARTICLE 4 - ROYALTIES, REPORTS AND PAYMENTS ------------------------------------------- 4.01 In consideration of the rights granted by Philips, Licensee shall, upon execution of this Agreement, make a non-refundable payment of US$ 10,000 (ten thousand US Dollars) to Philips. From this amount of US$ 10,000, an amount of US$ 5,000 (five thousand US Dollars) shall be regarded as an advance payment against royalties payable pursuant to Article 4.02. 4.02 In further consideration of the rights granted hereunder by Philips to Licensee, Licensee agrees to pay to Philips a royalty on each Licensed Product sold by Licensee in which any one or more of the Licensed Patent(s) is (are) used, irrespective of whether such Licensed Patent(s) is (are) used in the country of manufacture, sale or other disposal. This royalty shall amount to US$ 0.05 (five US Dollar cents) for each such Licensed Product. Provided that Licensee is in full compliance with its obligations under this Agreement, and subject to Article 5.01, the royalty applicable to Licensed Products sold after July 1, 2002 shall amount to US$ 0.0375 (three and three quarters of a US Dollar cent) instead of the aforementioned rate of US$ 0.05 for each Licensed Product. In the event that Licensee fails to comply at any time with any of its obligations hereunder, a royalty rate of US$ 0.05 shall apply to Licensee's manufacture and sale of Licensed Products instead of the royalty rate of US$ 0.0375, with immediate effect from the moment of such non-compliance until such moment that Licensee's non-compliance will have been remedied in full. A Licensed Product shall be considered sold when invoiced or, if not invoiced, when delivered to a party other than Licensee. No royalties shall be payable on Licensed Products purchased by Licensee on a "have made" basis in accordance with Article 3 from third party manufacturers, duly licensed by Philips, provided that Licensee can demonstrate to Philips' satisfaction, that such third party manufacturer has paid to Philips the royalties due in respect of such Licensed Products. For the avoidance of doubt, in the event that the manufacture by Licensee of Licensed Products within the Territory would not infringe any of the Licensed Patents, Licensee shall have no obligation to pay royalties in respect of Licensed Products manufactured within the Territory and which are directly sold for final use within the Territory or directly exported for final use to a country in which no Licensed Patents subsist. 4.03 Within 30 days following 31 March, 30 June, 30 September and 31 December of each year during the term of this Agreement, Licensee shall submit to Philips (even in the event that no sales have been made) a written statement in the form as attached hereto as Exhibit C3 (Royalty Reporting Form), signed by a duly authorized officer on behalf of Licensee, setting forth with respect to the preceding quarterly period: (1) the quantities of DVD-Discs manufactured by Licensee specified per individual type of DVD-Disc; (2) the quantities of DVD-Discs purchased from other licensed manufacturers in accordance with the provisions of Article 3, specified per individual type of DVD-Disc; (3) on a per-country basis, specifying for each individual type of DVD-Disc: (a) the quantities of DVD-Discs sold or otherwise disposed of, specifying the identity of the buyers and the trademarks used on or in connection with the DVD-Discs; (b) the quantities of DVD-Discs sold to other manufacturers, duly licensed by Philips, specifying the identity of such other manufacturers and the trademarks used on or in connection with the DVD-Discs; (4) a computation of the royalties due under this Agreement. Licensee shall pay the royalties due to Philips within 30 days after the end of each quarterly period, in US Dollars. 4.04 In the event that Licensee fails to submit to Philips a Royalty Reporting Form for any royalty reporting period within 30 days from the end of the relevant reporting period in accordance with the provisions of Article 4.03, Licensee shall be obliged to pay to Philips within 30 days after the end of the relevant quarterly period for which the Royalty Reporting Form was not submitted, an estimated royalty (hereinafter referred to as an "Advance"), being an amount equal to the highest amount of royalties due for any royalty reporting period over the preceding eight royalty reporting periods (or over all preceding royalty reporting periods if fewer than eight). Such payment shall be treated as a non-refundable advance, primarily against the royalties and interest for the relevant royalty reporting period and then, if any sum remains, against any future royalties or other payments payable by Licensee hereunder. Licensee acknowledges and agrees that any Advance shall not be due by way of penalty but that such payment shall constitute a non-refundable advance as aforesaid. For the avoidance of doubt: such payment shall be payable without any further notice or action by Philips, legal or otherwise, and shall take effect by virtue of the failure to submit a Royalty Reporting Form on time; the payment by Licensee of an Advance shall not affect Licensee's obligation to submit a Royalty Reporting Form; the payment by Licensee of an Advance shall be without prejudice to any other rights or remedies of Philips, including, without limitation, Philips' right to charge 2% interest per month on overdue payments (including overdue payments of the Advance), and Philips' right to terminate this Agreement in accordance with its provisions. The Advance will not be set off against other sums due to Philips until a Royalty Reporting Form has been submitted in respect of the relevant royalty reporting period. In respect of any royalty reporting period for which an Advance has been paid and the Royalty Reporting Form subsequently submitted, Philips will first set off against the Advance all royalties and interest due for that period. Any remaining sum from the Advance will be set off against further royalty, interest or Advance payments due to Philips hereunder (if any). 4.05 Licensee shall submit to Philips, once per calendar year, an audit statement by its external auditors, who shall be public certified auditors, confirming that the quarterly royalty statements as submitted by Licensee to Philips for the last four quarterly periods, are true, complete and accurate in every respect. Such statement must meet Philips' requirements as specified in the Audit Guidelines attached hereto as Exhibit C1 and shall be submitted to Philips within 90 days following the end of Licensee's financial year. The correctness of this audit statement shall be verified by Philips by means of a work paper review, conducted by one of the public certified auditors selected by Philips. Notwithstanding this audit statement, Philips reserves the right to inspect the books and records of Licensee from time to time in accordance with Article 4.10. 4.06 Within 30 days following the expiration or termination of this Agreement, Licensee shall submit to Philips a certified report on the number of Licensed Products in stock at the time of expiration or termination of this Agreement. Royalties, calculated in accordance with Article 4.02, shall be due and payable on all Licensed Products manufactured prior to, but remaining in stock with Licensee on the date of expiration or termination of this Agreement. For the avoidance of doubt, this Article 4.06 shall be without prejudice to the provisions of Article 10.06. 4.07 Any payment under this Agreement which is not made on the date(s) specified herein, shall accrue interest at the rate of 2% (two per cent) per month (or part thereof) or the maximum amount permitted by law, whichever is lower. 4.08 All payments to Philips under this Agreement shall be made by transfer in such currency, convertible in the sense of Articles VIII and XIX of the Articles of Agreement of the International Monetary Fund, as designated by Philips. The rate of exchange for converting the currency of the Territory shall be the telegraphic transfer selling rate of the designated currency as officially quoted in the Territory by the officially authorized foreign exchange bank for payment of currency transactions on the day that the amount is due and payable. 4.09 All costs, stamp duties, taxes and other similar levies arising from or in connection with the conclusion of this Agreement shall be borne by Licensee. However, in the event that the government of a country imposes any income taxes on payments made by Licensee to Philips hereunder and requires Licensee to withhold such tax from such payments, Licensee may deduct such tax from such payments. In such event, Licensee shall promptly provide Philips with tax receipts issued by the relevant tax authorities so as to enable Philips to support a claim for credit against income taxes which may be payable by Philips and/or its Associated Companies in The Netherlands and to enable Philips to document, if necessary, its compliance with tax obligations in any jurisdiction outside The Netherlands. 4.10 In order that the royalty statements provided for in this Article 4 may be verified, Licensee shall keep complete and accurate books and records and shall keep the books and records available for a period of 5 years following the manufacture, sale or other disposal of each Licensed Product. In order to verify the correctness of the aforementioned royalty statements, Philips shall have the right to inspect the books and records of Licensee from time to time. Any such inspection shall take place no more than once per calendar year and shall be conducted by a public certified auditor appointed by Philips. Philips shall give Licensee written notice of such inspection at least 7 days prior to the inspection. Licensee shall willingly co-operate and provide all such assistance in connection with such inspection as Philips and/or the auditor may require. The inspection shall be conducted at Philips' own expense, provided that in the event that Licensee has failed to submit royalty statements and/or yearly written statement(s) by its external auditors, as provided for in Article 4.03 and Article 4.05, in respect of the period to which the inspection relates or in the event that any discrepancy or error exceeding 3% (three per cent) of the monies actually due is established, the cost of the inspection shall be borne by Licensee, without prejudice to any other claim or remedy as Philips may have under this Agreement or under applicable law. Philips' right of inspection as set out in this Article 4.10 shall survive termination or expiration of this Agreement. 4.11 Without prejudice to the provisions of Article 4.10, Licensee shall provide all relevant additional information as Philips may reasonably request from time to time, so as to enable Philips to ascertain which products manufactured, sold or otherwise disposed of by Licensee are subject to the payment of royalties to Philips hereunder, the patents which have been used in connection with such products, and the amount of royalties payable. 4.12 As a condition precedent to the entry into force of this Agreement, Licensee shall submit to Philips a royalty statement in respect of DVD-Discs manufactured and sold or otherwise disposed of by Licensee before the Effective Date of this Agreement in accordance with the provisions of Article 4.03. Within 7 days following the execution of this Agreement, Licensee shall pay to Philips the royalties on such DVD-Discs, calculated by applying the royalty rate of US$ 0.05 for each such DVD-Disc. The royalty statement shall similarly be subject to Philips' right of audit as set out in Article 4.10. Within 45 days following the execution of this Agreement, Licensee shall submit to Philips an audit statement by its external auditors, who shall be public certified auditors, confirming that this royalty statement is true, complete and accurate in every respect. ARTICLE 5 MANUFACTURING EQUIPMENT IDENTIFICATION SYSTEM --------------------------------------------- 5.01 Upon signing of the Agreement, Licensee shall submit to Philips an overview of its manufacturing equipment used for the manufacture of Licensed Products. Further, upon any acquisition, transfer or disposal of manufacturing equipment used for the manufacture of Licensed Products, Licensee shall submit to Philips details of any such adjustment(s) to its manufacturing equipment. Further, Licensee shall submit to Philips an overview containing all adjustments to its manufacturing equipment during the preceding year, together with and confirmed by the audit statement referred to in Article 4.05. Such overview shall be in the form as attached hereto as Exhibit C2 (Manufacturing Equipment List), signed by a duly authorized officer on behalf of Licensee. The royalty rate of US$ 0.0375 referred to in Article 4.02 shall only apply to Licensed Products manufactured by Licensee using manufacturing equipment properly identified in the Manufacturing Equipment List and shall be conditional upon Licensee submitting to Philips the audit statement meeting Philips' requirements as set out in the Audit Guidelines, in accordance with the provisions in Article 4.05. In the event that Licensee puts into use newly acquired manufacturing equipment (i.e. manufacturing equipment acquired after May 6, 2002) which has been used for the manufacture of Licensed Products prior to the acquisition by Licensee, the royalty rate of US$ 0.0375 shall only apply if Licensee can demonstrate to Philips' full satisfaction, that the newly acquired manufacturing equipment originates from and has been used by a company which was properly licensed by Philips for the manufacture of Licensed Products and in full compliance with its obligations under its license agreement at the time of the acquisition of the newly acquired manufacturing equipment by Licensee. In the event that Licensee is unable to comply with the requirements under this Article 5.01, a royalty rate of US$ 0.05 shall apply to Licensee's manufacture and sale of Licensed Products instead of the royalty rate of US$ 0.0375. ARTICLE 6 - MOST FAVOURABLE CONDITIONS -------------------------------------- 6.01 In the event that licenses under the patents referred to in Article 2 are granted by Philips for Licensed Products to a third party under substantially similar conditions, but at a royalty rate more favourable than the rate payable by Licensee under this Agreement, Licensee shall be entitled to the same royalty rate as applicable to such third party, provided always that this right of Licensee shall not apply in respect of cross-license agreements or other agreements providing for a consideration which is not exclusively based on payment of royalties and further provided that this right of Licensee shall not apply in respect of licenses or other arrangements made pursuant to a court decision or the settlement of a dispute between Philips and a third party, irrespective of the nature of such dispute, the terms of the court decision or the settlement terms. ARTICLE 7 - NO WARRANTY AND INDEMNIFICATION ------------------------------------------- 7.01 Philips makes no representation or warranty as to the ability of Licensee to achieve interchangeability with respect to Licensed Products. Philips makes no warranty whatsoever that the use of information supplied by Philips does not infringe or may not cause infringement of any industrial or intellectual property rights owned or controlled by third parties, or any industrial or intellectual property rights owned or controlled by Philips, Sony, Pioneer or their respective Associated Companies not licensed pursuant to Article 2. 7.02 It is acknowledged by Licensee that third parties may own industrial and/or intellectual property rights in the field of DVD-Discs. Licensee acknowledges and agrees that Philips, Sony, Pioneer and their respective Associated Companies make no warranty whatsoever that the manufacture, sale or other disposal of any Licensed Product does not infringe or will not cause infringement of any industrial and/or intellectual property rights other than the Licensed Patents. Philips, Sony, Pioneer and their respective Associated Companies shall be fully indemnified and held harmless by Licensee from and against any and all third party claims in connection with DVD-Discs manufactured, sold or otherwise disposed of by Licensee. ARTICLE 8 - CONFIDENTIALITY --------------------------- 8.01 Licensee shall, during the term of this Agreement as specified in Article 10.01 and for a period of 3 years thereafter, not disclose to any third party any information acquired from Philips or any of Philips' Associated Companies in connection with this Agreement, or use such information for any other purpose than the manufacture or disposal of Licensed Products in accordance with this Agreement. This obligation shall not apply to the extent information so acquired: (a) was known to Licensee prior to the date on which such information was acquired from Philips or any of Philips' Associated Companies, as shown by records of Licensee or otherwise demonstrated to Philips' satisfaction; (b) is or has become available to the public through no fault of Licensee; (c) was or is received from a third party who was under no confidentiality obligation in respect of such information. 8.02 PHILIPS SHALL, DURING THE TERM OF THIS AGREEMENT AS SPECIFIED IN ARTICLE 10.01 AND FOR A PERIOD OF 3 YEARS THEREAFTER, NOT DISCLOSE TO ANY THIRD PARTY ANY CONFIDENTIAL INFORMATION OBTAINED IN CONNECTION WITH ARTICLE 4.03, ARTICLE 4.05 AND/OR ARTICLE 5, EXCEPT THAT PHILIPS MAY DISCLOSE SUCH INFORMATION TO ITS EXTERNAL AUDITORS, LEGAL REPRESENTATIVES AND TO THE COMPETENT COURTS TO THE EXTENT THIS IS NECESSARY FOR PHILIPS IN CONNECTION WITH THE ENFORCEMENT OF ITS RIGHTS HEREUNDER. FURTHER, PHILIPS SHALL NOT USE SUCH INFORMATION FOR OTHER PURPOSES THAN TO VERIFY LICENSEE'S COMPLIANCE WITH ITS ROYALTY REPORTING AND PAYMENT OBLIGATIONS AS PROVIDED IN THIS AGREEMENT AND TO ENFORCE PHILIPS' RIGHTS HEREUNDER. PHILIPS' OBLIGATIONS SET OUT IN THIS PARAGRAPH SHALL NOT APPLY TO INFORMATION REFERRED TO IN SECTIONS A, B AND/OR C OF ARTICLE 8.01. ARTICLE 9 - NO ASSIGNMENT ------------------------- 9.01 This Agreement shall inure to the benefit of and be binding upon each of the parties hereto and their respective assignees. It may not be assigned in whole or in part by Licensee without the prior written consent of Philips. ARTICLE 10 - TERM AND TERMINATION --------------------------------- 10.01 This Agreement shall enter into force on the "Effective Date", being the date first written above. In the event that validation of this Agreement is required by the competent governmental authorities, the Effective Date shall be the date of such validation. This Agreement shall remain in force for a period of 10 years from the Effective Date, unless terminated earlier in accordance with the provisions of this Article 10. 10.02 Without prejudice to the provisions of Article 10.03 through 10.06, each party may terminate this Agreement at any time by means of written notice to the other party in the event that the other party fails to perform any obligation under this Agreement and such failure is not remedied within 30 days after receipt of a notice specifying the nature of such failure and requiring it to be remedied. Such right of termination shall not be exclusive of any other remedies or means of redress to which the non-defaulting party may be lawfully entitled and all such remedies shall be cumulative. Any such termination shall not affect any royalties or other payment obligations under this Agreement accrued prior to such termination. 10.03 Philips may terminate this Agreement forthwith by means of notice in writing to Licensee in the event that a creditor or other claimant takes possession of, or a receiver, administrator or similar officer is appointed over any of the assets of Licensee or in the event that Licensee makes any voluntary arrangement with its creditors or becomes subject to any court or administration order pursuant to any bankruptcy or insolvency law. 10.04 Additionally, insofar as legally permitted, Philips may terminate this Agreement at any time by means of written notice to Licensee in case Licensee or an Associated Company of Licensee has been found liable by a competent court or administrative authority to have committed a serious act of piracy with respect to copyrights of third parties. 10.05 Philips shall have the right to terminate this Agreement forthwith or to revoke the license granted under any of Philips', Sony's or Pioneer's respective patents in the event that Licensee or any of its Associated Companies brings a claim for infringement of any of its essential patents relating to DVD-Discs or DVD Players against Philips, Sony, Pioneer or any of their respective Associated Companies and Licensee refuses to license such patents on fair and reasonable conditions. 10.06 Upon the termination of this Agreement by Philips for any reason pursuant to Article 10.02 through 10.05, Licensee shall immediately cease the manufacture, sale or other disposal of DVD-Discs in which any one or more of the Licensed Patents are used. Further, upon such termination, any and all amounts outstanding hereunder shall become immediately due and payable. 10.07 All provisions of this Agreement which are intended to survive (whether express or implied) the expiry or termination of this Agreement, shall so survive. ARTICLE 11 - MISCELLANEOUS -------------------------- 11.01 Any notice required under this Agreement to be sent by either party shall be given in writing by means of a letter or facsimile directed: in respect of Licensee, to: Metatec International, Inc. 7001 Metatec Blvd., Dublin, Ohio 43017 Fax: (614) 766-3163 in respect of Philips, to: Koninklijke Philips Electronics N.V. c/o Philips International B.V. Intellectual Property & Standards - Legal Department P.O. Box 80002, Building SFF-8 5600 JB Eindhoven The Netherlands Fax.+31 40 2734131 with a copy to: U.S. Philips Corporation 580 White Plains Road Tarrytown, New York 10591 or such other address as may have been previously specified in writing by either party to the other. 11.02 This Agreement sets forth the entire understanding and agreement between the parties as to the subject matter hereof and supersedes and replaces all prior arrangements, discussions and understandings between the parties relating thereto. Neither party shall be bound by any obligation, warranty, waiver, release or representation, except as expressly provided herein, or as may subsequently be agreed in writing between the parties. 11.03 Nothing contained in this Agreement shall be construed: (a) as imposing on either party any obligation to instigate any suit or action for infringement of any of the patents licensed hereunder or to defend any suit or action brought by a third party which challenges or relates to the validity of any such patents. Licensee shall have no right to instigate any such suit or action for infringement of any of the patents licensed by Philips hereunder, nor the right to defend any such suit or action which challenges or relates to the validity of any such patent licensed by Philips hereunder; (b) as imposing any obligation to file any patent application or to secure any patent or to maintain any patent in force; (c) as conferring any license or right to copy or imitate the appearance and/or design of any product of Philips, Sony, Pioneer or any of their Associated Companies; (d) as conferring any license to manufacture, sell or otherwise dispose of any product or device other than a Licensed Product. 11.04 Neither the failure nor the delay of either party to enforce any provision of this Agreement shall constitute a waiver of such provision or of the right of either party to enforce each and every provision of this Agreement. 11.05 Should any provision of this Agreement be finally determined void or unenforceable in any judicial proceeding, such determination shall not affect the operation of the remaining provisions hereof, provided that, in such event, Philips shall have the right to terminate this Agreement by written notice to Licensee. 11.06 This Agreement shall be governed by and construed in accordance with the laws of The State of New York. Any dispute between the parties hereto in connection with this Agreement (including any question regarding its existence, validity or termination) shall be submitted to any state or federal courts in The State of New York, provided always that, in case Philips is the plaintiff, Philips may at its sole discretion submit any such dispute either to the state or federal courts in the venue of Licensee's registered office, or to any of the state or federal courts in the Territory having jurisdiction. Licensee hereby irrevocably waives any objection to the jurisdiction, process and venue of any such court and to the effectiveness, execution and enforcement of any order or judgment (including, but not limited to, a default judgment) of any such court in relation to this Agreement, to the maximum extent permitted by the law of any jurisdiction, the laws of which might be claimed to be applicable regarding the effectiveness, enforcement or execution of such order or judgment. AS WITNESS, the parties hereto have caused this Agreement to be signed on the date first written above. KONINKLIJKE PHILIPS ELECTRONICS METATEC INTERNATIONAL, INC. N.V. /s/ B. Mache /s/ Gary W. Qualmann - ------------------------------- ----------------------------- Name: Bernd Mache Name: Gary W. Qualmann Title: Chief Financial Officer Title: Chief Financial Officer ------------------------- ----------------------- Date: August 13, 2002 Date: August 9, 2002 -------------------------- ------------------------ EX-10.2 4 l95564aexv10w2.txt EX-10.2 PATENT LICESNE AGREEMENT EXHIBIT 10.2 Patent License Agreement for the Use of AC-3 Technology in the Manufacture of DVD-Video Discs dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc. This Agreement is entered into this 9th day of August, 2002 by and between KONINKLIJKE PHILIPS ELECTRONICS N.V., having its registered offices in Eindhoven, The Netherlands, (hereinafter referred to as "Philips") and METATEC INTERNATIONAL, INC., having its registered office in 7001 Metatec Blvd., Dublin, Ohio 43017 (hereinafter referred to as "Licensee") WHEREAS, Licensee is engaged in the manufacture of DVD-Video Discs and, in the process of such manufacture, is making use of the technology developed by Dolby Laboratories Inc. and known as AC-3; WHEREAS, Philips, Institut fur Rundfunk Technik G.m.b.H. of Munchen, Germany, (IRT) and France Telecom R&D of Issy Les Moulineaux, France (France Telecom) own certain patents relating to the AC-3 technology, these patents (hereinafter referred to as "Licensed Patents") are listed in Exhibit I hereto; WHEREAS, Philips has been authorized by IRT and France Telecom to grant licenses for the use of the Licensed Patents in connection with the manufacture of DVD-Video Discs making use of the AC-3 technology, while IRT and France Telecom each retain the right also to license their respective patents relating to the AC-3 technology separately so that interested manufacturers may opt to take out individual licenses under the relevant patents of Philips, IRT and France Telecom instead of a combined license; WHEREAS, Licensee has requested from Philips a license under the Licensed Patents in connection with the manufacture of DVD-Video Discs making use of AC-3 and Philips is willing to grant such license on the conditions set forth herein; IT IS HEREBY AGREED AS FOLLOWS: ARTICLE 1 - DEFINITIONS ----------------------- 1.01 "DISC" shall mean a non-recordable reflective disc-shaped information carrier comprising any kind of information including, but not limited to, audio, video, text and/or data related information, which is irreversibly stored in one or more layers during and as an integral part of the manufacturing process of the disc in a form which is optically readable by playback devices using a laser-beam. 1.02 "PLAYER" shall mean a playback device for optically reading information stored on a Disc and converting such information into electrical signals for reproduction purposes. 1.03 "DVD-VIDEO DISC" shall mean a replicated Disc comprising any kind of information including, but not limited to, audio, video, text, and/or data related information, encoded in digital form, which is optically readable by a DVD-Video Player (as hereinafter defined). 1.04 "DVD-VIDEO PLAYER" shall mean a Player capable of reproducing information stored on a DVD-Video Disc and converting such information into electrical signals, in accordance with the DVD-Video and DVD-ROM Standard Specifications (as hereinafter defined), which electrical signals are directly capable and intended to be used for visual reproduction through standard television receivers and/or video monitors. 1.05 "DVD-VIDEO AND DVD-ROM STANDARD SPECIFICATIONS" shall mean the specifications for the DVD Systems, as specified in the document "DVD Specifications for Read-Only Disc, version 1.0 (parts 1, 2 and 3)" of August 1996, or any updated version thereof, as issued by the DVD Format/Logo Licensing Corporation. 1.06 "LICENSED PRODUCT(S)" shall mean DVD-Video Discs incorporating the AC-3 technology, manufactured and/or sold in accordance with the provisions hereof, which have been duly reported and on which the royalties due hereunder are paid in accordance with the provisions of this Agreement. 1.07 "LICENSED PATENTS" shall mean the patents as listed in Exhibit I hereto. The term "ESSENTIAL" as used in relation to patents in this Agreement shall refer to patents, the use of which is necessary (either directly or as a practical matter) for the use of the AC-3 technology in connection with the Licensed Products. Philips will commission an independent patent expert to review the European, Japanese and US patents listed as essential in Exhibit I in order to confirm the essentiality of such patents. In the event that said independent expert would find that any of the patents would not qualify as essential as defined in this Agreement, Philips shall delete such patent (as well as the equivalent national patents) from the relevant Exhibit and such patent will be put on the relevant Exhibit of non-essential patents. Any such finding and deletion however, shall not affect the obligation of Licensee to pay the royalty on each Licensed Product as specified in Article 3.01, provided that, in the event that none of the Licensed Patents would be infringed by the manufacture of Licensed Products within the Territory, Licensee shall have no obligation to pay royalties in respect of Licensed Products manufactured within the Territory and which are directly sold for final use within the Territory or directly exported for final use to a country in which no Licensed Patents subsist. Notwithstanding such deletion, Licensee shall retain the right to continue the use of such deleted patent(s) in accordance with this Agreement, without any additional payment, unless Licensee explicitly notifies Philips in writing of its decision to waive such right. In the event that Philips or IRT or France Telecom (or any of their Associated Companies, as hereinafter defined) would have additional patents (other than patents acquired from third parties after the date of January 1, 1997) in its patent portfolio which are essential to the manufacture, sale or other disposal of Licensed Products and which have a filing date or are entitled to a so-called priority date prior to January 1, 1997, but which have not been listed as essential patents in the Exhibit hereto, Philips will notify Licensee accordingly and such additional patents will be added to the Licensed Patents. Any patents as may be added as essential patents to the Exhibit, will similarly be subject to the review by the independent patent expert in accordance with the preceding paragraph. The patent lists provided to Licensee upon execution of the Agreement are subject to change in accordance with the provisions of this Agreement. With regard to the rights granted to Licensee hereunder, the patent lists published by Philips on its website (www.licensing.philips.com) or otherwise communicated by Philips to Licensee after the date of execution hereof shall prevail over the lists provided to Licensee upon execution of this Agreement. 1.08 "Associated Company" shall mean any one or more business entities (1) owned or controlled by Philips, IRT, France Telecom or Licensee, (2) owning or controlling Philips, IRT, France Telecom or Licensee, or (3) owned or controlled by the business entity owning or controlling Philips, IRT, France Telecom or Licensee at the material time. For the purposes of this definition a business entity shall be deemed to own and/or to control another business entity if more than 50% (fifty per cent) of the voting stock of the latter business entity, ordinarily entitled to vote in the election of directors, (or, if there is no such stock, more than 50% (fifty per cent) of the ownership of or control in the latter business entity) is held by the owning and/or controlling business entity. 1.09 "Territory" shall mean the geographic area known as the United States of America, its territories and possessions. ARTICLE 2 - GRANT OF RIGHTS --------------------------- 2.01 For the term of this Agreement, Philips hereby grants to Licensee a non-exclusive, non-transferable license under the Licensed Patents to use the AC-3 technology in the manufacture of Licensed Products within the Territory and to sell or otherwise dispose of Licensed Products so manufactured in all countries of the world. 2.02 In consideration of the undertakings set forth in Articles 2.01, 202 and 2.04 and similar undertakings by third party licensees of Philips and without prejudice of the provisions of Article 5, for a period of ten years from the Effective Date (as hereinafter defined) Licensee agrees to grant to Philips, IRT, France Telecom and their respective Associated Companies in respect of the use of the AC-3 technology in the manufacture of DVD-Video Discs, non-exclusive, non-transferable licenses, on reasonable, non-discriminatory conditions comparable to those set forth herein, to use the AC-3 technology in the manufacture of DVD-Video Discs and to sell or otherwise dispose of DVD-Video Discs, under any and all present and future patents, for which Licensee or its Associated Companies have or may hereafter acquire the right to grant licenses and which are essential to the use of AC-3 technology in the manufacture of DVD-Video Discs and the subsequent sale or other disposal thereof, and which patents were first filed in any country of the world prior to the date of termination of this Agreement. 2.03 Philips undertakes that it will offer, at the request of any of Licensee's Associated Companies, which has concluded a DVD Video Disc and DVD ROM Disc Patent License Agreement, to any such Associated Company, a non-exclusive and non- transferable license under the Licensed Patents to use the AC-3 technology in the manufacture of DVD-Video Discs on reasonable and non-discriminatory conditions comparable to those set forth herein, to manufacture, sell or otherwise dispose of DVD-Video Discs incorporating the AC-3 technology. In consideration of Philips' undertaking as set out in the preceding paragraph, Licensee undertakes that all of its Associated Companies which have or may hereafter acquire patents essential to the manufacture, sale or other disposal of DVD-Video Discs incorporating the AC-3 technology and which patents were first filed in any country of the world prior to the date of termination of this Agreement, shall make available licenses under such patents, on reasonable, non-discriminatory conditions comparable to those set forth herein to Philips, any of Philips' Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips in respect of DVD-Video Discs incorporating the AC-3 technology. ARTICLE 3 - ROYALTIES, REPORTS AND PAYMENTS ------------------------------------------- 3.01 In consideration of the rights granted hereunder by Philips to Licensee, Licensee agrees to pay to Philips a royalty of US$ 0.003 (three tenths of a US dollar cent) on each Licensed Product sold by Licensee, in which any one or more of the Licensed Patent(s) is (are) used, irrespective of whether such Licensed Patent(s) is (are) used in the country of manufacture, sale or other disposal. A Licensed Product shall be considered sold when invoiced or, if not invoiced, when delivered to a party other than Licensee. For the avoidance of doubt, in the event the manufacture by Licensee of Licensed Products within the Territory would not infringe any of the Licensed Patents, Licensee shall have no obligation to pay the royalties due on the basis of this Agreement in respect of Licensed Products manufactured within the Territory and which are directly sold for final use within the Territory or directly exported for final use to a country in which no Licensed Patents subsist. 3.02 Within 30 days following 31 March, 30 June, 30 September and 31 December of each year during the term of this Agreement, Licensee shall submit to Philips (even in the event that no sales have been made) a written statement, signed by a duly authorized officer on behalf of Licensee, setting forth with respect to the preceding quarterly period: (1) the quantities of DVD-Video Discs incorporating the AC-3 technology manufactured by Licensee; (2) a computation of the royalties due under this Agreement. Licensee shall pay the royalties due to Philips within 30 days after the end of each quarterly period, in US Dollars. Licensee shall submit to Philips, once per calendar year, an audit statement by its external auditors, who shall be public certified auditors, confirming that the quarterly royalty statements as submitted by Licensee to Philips for the last four quarterly periods, are true, complete and accurate in every respect. Such statement shall be submitted within 90 days following the end of Licensee's financial year. 3.03 Within 30 days following the expiration or termination of this Agreement, Licensee shall submit to Philips a certified report on the number of Licensed Products in stock at the time of expiration or termination of this Agreement. Royalties, calculated in accordance with Article 3.01, shall be due and payable on all Licensed Products manufactured prior to, but remaining in stock with Licensee on the date of expiration or termination of this Agreement. For the avoidance of doubt, this Article 3.03 shall be without prejudice to the provisions of Article 5.06. 3.04 Any payment under this Agreement which is not made on the date(s) specified herein, shall accrue interest at the rate of 2% (two per cent) per month (or part thereof) or the maximum amount permitted by law, whichever is lower. 3.05 All payments to Philips under this Agreement shall be made by transfer in such currency, convertible in the sense of Articles VIII and XIX of the Articles of Agreement of the International Monetary Fund, as designated by Philips. The rate of exchange for converting the currency of the Territory shall be the telegraphic transfer selling rate of the designated currency as officially quoted in the Territory by the officially authorized foreign exchange bank for payment of currency transactions on the day that the amount is due and payable. 3.06 All costs, stamp duties, taxes and other similar levies arising from or in connection with the conclusion of this Agreement shall be borne by Licensee. However, in the event that the government of a country imposes any income taxes on payments made by Licensee to Philips hereunder and requires Licensee to withhold such tax from such payments, Licensee may deduct such tax from such payments. In such event, Licensee shall promptly provide Philips with tax receipts issued by the relevant tax authorities so as to enable Philips to support a claim for credit against income taxes which may be payable by Philips and/or its Associated Companies in The Netherlands and to enable Philips to document, if necessary, its compliance with tax obligations in any jurisdiction outside The Netherlands. 3.07 In order that the royalty statements provided for in this Article 3 may be verified, Licensee shall keep complete and accurate books and records and shall keep the books and records available for a period of 5 years following the manufacture, sale or other disposal of each Licensed Product. In order to verify the correctness of the aforementioned royalty statements, Philips shall have the right to inspect the books and records of Licensee from time to time. Any such inspection shall take place no more than once per calendar year and shall be conducted by a public certified auditor appointed by Philips. Philips shall give Licensee written notice of such inspection at least 7 days prior to the inspection. Licensee shall willingly co-operate and provide all such assistance in connection with such inspection as Philips and/or the auditor may require. The inspection shall be conducted at Philips' own expense, provided that in the event that Licensee has failed to submit royalty statements and/or yearly written statement(s) by its external auditors, as provided for in Article 3.02, in respect of the period to which the inspection relates or in the event that any discrepancy or error exceeding 3% (three per cent) of the monies actually due is established, the cost of the inspection shall be borne by Licensee, without prejudice to any other claim or remedy as Philips may have under this Agreement or under applicable law. Philips' right of inspection as set out in this Article 3.07 shall survive termination or expiration of this Agreement. 3.08 Without prejudice to the provisions of Article 3.07, Licensee shall provide all relevant additional information as Philips may reasonably request from time to time, so as to enable Philips to ascertain which products manufactured, sold or otherwise disposed of by Licensee are subject to the payment of royalties to Philips hereunder, the patents which have been used in connection with such products, and the amount of royalties payable. 3.09 As a condition precedent to the entry into force of this Agreement, Licensee shall submit to Philips a royalty statement in respect of DVD-Video Discs incorporating the AC-3 technology manufactured and sold or otherwise disposed of by Licensee before the Effective Date of this Agreement in accordance with the provisions of Article 3.02. Within 7 days following the execution of this Agreement, Licensee shall pay to Philips the royalties on such DVD-Video Discs incorporating the AC-3 technology, calculated by applying the royalty rate of US$ 0.003 for each such DVD-Video Disc incorporating the AC-3 technology. The royalty statement shall similarly be subject to Philips' right of audit as set out in Article 3.07. Within 45 days following the execution of this Agreement, Licensee shall submit to Philips an audit statement by its external auditors, who shall be public certified auditors, confirming that this royalty statement is true, complete and accurate in every respect. ARTICLE 4 - NO WARRANTY AND INDEMNIFICATION ------------------------------------------- 4.01 It is acknowledged by Licensee that third parties may own industrial and/or intellectual property rights in the field of the AC-3 technology. Licensee acknowledges and agrees that Philips, IRT and France Telecom and their respective Associated Companies make no warranty whatsoever that the use of the AC-3 technology or the manufacture, sale or other disposal of any Licensed Product does not infringe or will not cause infringement of any industrial and/or intellectual property rights other than the Licensed Patents. ARTICLE 5 - TERM AND TERMINATION -------------------------------- 5.01 This Agreement shall enter into force on the "Effective Date", being the date first written above. In the event that validation of this Agreement is required by the competent governmental authorities, the Effective Date shall be the date of such validation. This Agreement shall remain in force for a period of 10 years from the Effective Date, unless terminated earlier in accordance with the provisions of this Article 5. 5.02 Without prejudice to the provisions of Article 5.03 through 5.06, each party may terminate this Agreement at any time by means of written notice to the other party in the event that the other party fails to perform any obligation under this Agreement and such failure is not remedied within 30 days after receipt of a notice specifying the nature of such failure and requiring it to be remedied. Such right of termination shall not be exclusive of any other remedies or means of redress to which the non-defaulting party may be lawfully entitled and all such remedies shall be cumulative. Any such termination shall not affect any royalties or other payment obligations under this Agreement accrued prior to such termination. 5.03 Philips may terminate this Agreement forthwith by means of notice in writing to Licensee in the event that a creditor or other claimant takes possession of, or a receiver, administrator or similar officer is appointed over any of the assets of Licensee or in the event that Licensee makes any voluntary arrangement with its creditors or becomes subject to any court or administration order pursuant to any bankruptcy or insolvency law. 5.04 Additionally, insofar as legally permitted, Philips may terminate this Agreement at any time by means of written notice to Licensee in case Licensee or an Associated Company of Licensee has been found liable by a competent court or administrative authority to have committed a serious act of piracy with respect to copyrights of third parties. 5.05 Philips shall have the right to terminate this Agreement forthwith or to revoke the license granted under any of Philips', IRT's or France Telecom's respective patents in the event that Licensee or any of its Associated Companies brings a claim for infringement of any of its patents essential for the use of the AC-3 technology in the manufacture of DVD-Video Discs and/or the sale or other disposal thereof against Philips, IRT or France Telecom and/or any of their respective Associated Companies and Licensee refuses to license such patents on fair and reasonable conditions to Philips, IRT and France Telecom respectively. 5.06 Upon the termination of this Agreement by Philips for any reason pursuant to Article 5.02 through 5.05, Licensee shall immediately cease the manufacture, sale or other disposal of DVD-Video Discs incorporating the AC-3 technology in which any one or more of the Licensed Patents are used. Further, upon such termination, any and all amounts outstanding hereunder shall become immediately due and payable. 5.07 All provisions of this Agreement which are intended to survive (whether express or implied) the expiry or termination of this Agreement, shall so survive. ARTICLE 6 - MISCELLANEOUS ------------------------- 6.01 Any notice required under this Agreement to be sent by either party shall be given in writing by means of a letter or facsimile directed: in respect of Licensee, to: Metatec International, Inc. 7001 Metatec Blvd., Dublin, Ohio 43017 Fax: (614) 798-5847 in respect of Philips, to: Koninklijke Philips Electronics N.V. c/o Philips International B.V. Intellectual Property & Standards - Legal Department P.O. Box 80002, Building SFF-8 5600 JB Eindhoven The Netherlands Fax. +31 40 2734131 with a copy to: U.S. Philips Corporation 580 White Plains Road Tarrytown, New York 10591 Fax: (914) 332-0615 or to such other address as may have been previously specified in writing by either party to the other. 6.02 This Agreement sets forth the entire understanding and agreement between the parties as to the subject matter hereof and supersedes and replaces all prior arrangements, discussions and understandings between the parties relating thereto. Neither party shall be bound by any obligation, warranty, waiver, release or representation, except as expressly provided herein, or as may subsequently be agreed in writing between the parties. 6.03 Nothing contained in this Agreement shall be construed: (a) as imposing on either party any obligation to instigate any suit or action for infringement of any of the patents licensed hereunder or to defend any suit or action brought by a third party which challenges or relates to the validity of any of such patents. Licensee shall have no right to instigate any such suit or action for infringement of any of the patents licensed by Philips hereunder, nor the right to defend any such suit or action which challenges or relates to the validity of any such patent licensed by Philips hereunder; (b) as imposing any obligation to file any patent application or to secure any patent or to maintain any patent in force; (c) as conferring any license or right to copy or imitate the appearance and/or design of any product of Philips, IRT, France Telecom or any of their Associated Companies; (d) as conferring any license to manufacture, use, sell or otherwise dispose of any product or device other than a Licensed Product. 6.04 Neither the failure nor the delay of either party to enforce any provisions of this Agreement shall constitute a waiver of such provision or of the right of either party to enforce each and every provision of this Agreement. 6.05 Should any provision of this Agreement be finally determined void or unenforceable in any judicial proceeding, such determination shall not affect the operation of the remaining provisions hereof, provided that, in such event, Philips shall have the right to terminate this Agreement by written notice to Licensee. 6.06 This Agreement shall be governed by and construed in accordance with the laws of The State of New York. Any dispute between the parties hereto in connection with this Agreement (including any question regarding its existence, validity or termination) shall be submitted to any state or federal courts in The State of New York, provided always that, in case Philips is the plaintiff, Philips may at its sole discretion submit any such dispute to either the state or federal courts in the venue of Licensee's registered office, or to any of the state or federal courts in the Territory having jurisdiction. Licensee hereby irrevocably waives any objection to the jurisdiction, process and venue of any such court and to the effectiveness, execution and enforcement of any order or judgment (including, but not limited to, a default judgment) of any such court in relation to this Agreement, to the maximum extent permitted by the law of any jurisdiction, the laws of which might be claimed to be applicable regarding the effectiveness, enforcement or execution of such order or judgment. AS WITNESS, the parties hereto have caused this Agreement to be signed on the date first written above. KONINKLIJKE PHILIPS ELECTRONICS METATEC INTERNATIONAL, INC. N.V. /s/ B. Mache /s/ Gary W. Qualmann - ------------------------------- ----------------------------- Name: Bernd Mache Name: Gary W. Qualmann Title: Chief Financial Officer Title: Chief Financial Officer ------------------------- ----------------------- Date: August 13, 2002 Date: August 9, 2002 -------------------------- ------------------------ EX-10.3 5 l95564aexv10w3.txt EX-10.3 MPEG AUDIO PATENT LICENSE AGREEMENT EXHIBIT 10.3 MPEG Audio Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc. This Agreement is entered into this 9th day of August, 2002 by and between KONINKLIJKE PHILIPS ELECTRONICS N.V., having its registered offices in Eindhoven, The Netherlands, (hereinafter referred to as "Philips") and METATEC INTERNATIONAL, INC., having its registered office in 7001 Metatec Blvd., Dublin, Ohio 43017 (hereinafter referred to as "Licensee") WHEREAS the parties hereto have entered into a DVD Video Disc and DVD ROM Disc Patent License Agreement (hereinafter referred to as the "DVD Agreement"), whereby Philips has granted to Licensee the right to use certain patents owned by Philips, Sony Corporation and Pioneer Corporation respectively in connection with the manufacture and sale of DVD-Video Discs (as defined in the DVD Agreement); WHEREAS Philips, together with the Institut fur Rundfunk Technik G.m.b.H. of Munchen (Germany) and France Telecom R&D of Issy Les Moulineaux (France) own certain patents relating to the MPEG-1 Layer II and the MPEG-2 Layer II Audio technology, which are being used in connection with the manufacture of DVD-Video Discs; these patents (hereinafter referred to as "the MPEG Audio Patents") are listed in Exhibit I hereto; It is hereby agreed as follows: FOR THE DURATION OF THE DVD AGREEMENT AND SUBJECT TO THE FULL COMPLIANCE BY LICENSEE WITH ITS OBLIGATIONS UNDER THE DVD AGREEMENT, PHILIPS HEREBY GRANTS TO LICENSEE AND LICENSEE HEREBY ACCEPTS THE RIGHT TO USE THE MPEG AUDIO PATENTS SOLELY FOR THE DECODING OF DIGITAL AUDIO SIGNALS IN ACCORDANCE WITH THE ISO/IEC 11172-3 MPEG-1 LAYER II AND/OR THE ISO/IEC 13818-3 MPEG-2 LAYER II AUDIO STANDARD IN CONNECTION WITH THE MANUFACTURE OF DVD-VIDEO DISCS. THE ROYALTIES FOR THE USE OF THE MPEG AUDIO PATENTS ARE INCLUDED IN THE ROYALTIES PAYABLE UNDER THE DVD AGREEMENT. Licensee shall have the right to use the MPEG-2 Audio logo on DVD-Video Discs, which conform to the ISO/IEC 13818-3 MPEG-2 Audio Standard, manufactured by it in accordance with the provisions of this Agreement and the DVD Agreement. In addition to the reporting of DVD-Video Discs in accordance with Article 4.03 of the DVD Agreement, Licensee shall also report the quantities of DVD-Video Discs making use of the above-mentioned MPEG-1 Layer II and/or MPEG-2 Layer II Audio Standard. The relevant provisions of the DVD Agreement shall apply, mutatis mutandis, to this Agreement. Signed for and on behalf of: Koninklijke Philips Electronics N.V. Metatec International, Inc. /s/ B. Mache /s/ Gary W. Qualmann - ------------------------------- ------------------------------ Name: Bernd Mache Name: Gary W. Qualmann Title: Chief Financial Officer Title: Chief Financial Officer ------------------------- ------------------------- Date: August 13, 2002 Date: August 9, 2002 ----------------- ------------------ EX-10.4 6 l95564aexv10w4.txt EX-10.4 CD DISC PATENET LICENSE AGREEMENT EXHIBIT 10.4 CD Disc Patent License Agreement dated August 9, 2002, between Koninklijke Philips Electronics N.V. and Metatec International, Inc. This Agreement is entered into this 9th day of August, 2002 by and between KONINKLIJKE PHILIPS ELECTRONICS N.V., having its registered office in Eindhoven, The Netherlands, (hereinafter referred to as "Philips") and METATEC INTERNATIONAL, INC., having its registered office in 7001 Metatec Blvd., Dublin, Ohio 43017 (hereinafter referred to as "Licensee") WHEREAS, the Philips' group of companies has for many years been engaged in research and development of systems, in which signals encoded in digital form and stored on a disc are read and reproduced by means of devices using an optical read-out beam, and has acquired valuable know-how and expertise therein; WHEREAS, one of the achievements of such research and development efforts has been a revolutionary high-fidelity sound storage and reproduction system, of which the specifications have been further defined in a joint research and development co-operation with Sony Corporation of Japan ("Sony") and which has been presented under the name "Compact Disc Digital Audio System" (CD-Audio System); WHEREAS, on the basis of the CD-Audio System Philips and Sony have developed a further system, which has been presented under the name "Compact Disc Data System" (CD-ROM System); WHEREAS, Philips and Sony have developed an additional multi-session CD system, which has been presented under the name "Enhanced Music Compact Disc System" ("Enhanced Music CD System" or "CD Extra System" (the CD-Audio System, the CD-ROM System and the CD Extra System together are referred to as "the CD Systems"); WHEREAS, Philips and Sony own certain patents relating to the CD Systems; WHEREAS, Philips has been authorized by Sony to grant licenses under certain patents relating to the CD Systems, which are owned or controlled by Sony and its Associated Companies (as hereinafter defined), as well as such patents relating to the CD Systems which are jointly owned by Philips and Sony, while Philips and Sony each retain the right also to license their respective patents relating to the CD Systems separately, so that interested manufacturers may opt to take out separate licenses under the relevant patents of each of Philips and Sony, instead of a combined license; WHEREAS, Licensee has requested from Philips a license under the relevant patents of Philips and Sony relating to CD-Discs and wishes such CD-Discs to be compatible with CD-Players conforming to the Standard Specifications for any of the relevant CD Systems; and WHEREAS, Philips is willing to grant Licensee a license under the relevant patents and to make available certain basic information relating to the CD Systems, on the conditions set forth herein; NOW, THEREFORE, in consideration of the mutual obligations and covenants hereinafter set forth, the parties hereto have agreed as follows: ARTICLE 1 - DEFINITIONS ----------------------- The following terms used in this Agreement shall have the meanings set out below: 1.01 "DISC" shall mean a non-recordable reflective disc-shaped information carrier comprising any kind of information including, but not limited to, audio, video, text and/or data-related information, which is irreversibly stored in a layer during and as an integral part of the manufacturing process of the disc in a form which is optically readable by playback devices using a laser-beam. 1.02 "CD-AUDIO DISC" shall mean a Disc comprising audio information encoded in digital form, which is optically readable by a CD-Audio Player (as hereinafter defined) and which conforms to the CD-Audio Standard Specifications (as hereinafter defined). 1.03 "CD-AUDIO MAXI-SINGLE" shall mean a CD-Audio Disc which, in addition, conforms to the CD-Audio Maxi-Single Standard Specifications. 1.04 "CD-ROM DISC" shall mean a Disc comprising information encoded in digital form, which is optically readable by a CD-ROM Player (as hereinafter defined) and which conforms to the CD-ROM Standard Specifications (as hereinafter defined). 1.05 "ENHANCED MUSIC CD DISC/CD EXTRA DISC" shall mean a Disc comprising information encoded in digital form, which is optically readable by a CD-Audio Player and which conforms to the CD-Audio Standard Specifications, a CD-ROM Player and which conforms to the CD-ROM Standard Specifications and an Enhanced Music CD Player (as hereinafter defined) which conforms to the Enhanced Music CD Standard Specifications (as hereinafter defined). The CD-Audio Disc, the CD-Audio Maxi-Single, the CD-ROM Disc and the CD Extra Disc together are referred to as "CD-Discs". 1.06 "CD-AUDIO STANDARD SPECIFICATIONS" shall mean the specifications for the CD-Audio System, including the Subcode/Control and Display System, Channels R .W, Chapter 5.8, The CD-TEXT mode, as made available, modified or extended from time to time. 1.07 "CD-AUDIO MAXI-SINGLE STANDARD SPECIFICATIONS" shall mean the specifications for the CD-Audio Maxi-Single system, specifying among other things a maximum playing time of 30 minutes, as made available, modified or extended from time to time. For the purpose of this Agreement, the CD-Audio Maxi-Single Standard Specifications shall be considered to form part of the CD-Audio Standard Specifications. 1.08 "CD-ROM STANDARD SPECIFICATIONS" shall mean the specifications for the CD-ROM System as made available, modified or extended from time to time. 1.09 "ENHANCED MUSIC CD STANDARD SPECIFICATIONS" shall mean the specifications for the Enhanced Music CD System as made available, modified or extended from time to time. The CD-Audio, CD-Audio Maxi-Single, CD-ROM and Enhanced Music CD Standard Specifications together are referred to as the "CD Standard Specifications". 1.10 "PLAYER" shall mean a playback device for optically reading information stored on a Disc and converting such information into electrical signals for reproduction purposes. 1.11 "CD-AUDIO PLAYER" shall mean a Player solely capable of reproducing information stored on a CD-Audio Disc or CD-Audio Maxi-Single and converting such information into electrical signals, in accordance with the CD-Audio Standard Specifications, which electrical signals are directly capable of and intended to be used for sound reproduction through amplifiers and loudspeakers. 1.12 "CD-ROM PLAYER" shall mean a Player solely capable of reproducing information stored on a CD-ROM Disc and converting such information into electrical signals, in accordance with the CD-ROM Standard Specifications, which electrical signals are directly capable of and intended to be used for the reproduction of computer related data through data handling and/or data processing equipment. 1.13 "ENHANCED MUSIC CD PLAYER" shall mean a Player solely capable of reproducing information stored on a CD Extra Disc and converting such information into electrical signals, in accordance with the Enhanced Music CD Standard Specifications, which electrical signals are directly capable of and intended to be used for the reproduction of video, text and/or computer related data through data handling and/or data processing equipment. 1.14 "COMBI-PLAYER" shall mean a Player which is any combination of a CD-Audio Player, a CD-ROM Player and/or an Enhanced Music CD Player. The CD-Audio Player, the CD-ROM Player, the Enhanced Music CD Player and the Combi-Player together are referred to as the "CD-Players". 1.15 "LICENSED PRODUCT" shall mean a CD-Audio Disc, a CD-Audio Maxi-Single, a CD-ROM Disc and/or a CD Extra Disc, as correspond with the Licensed Patents selected by Licensee pursuant to Article 1.16, manufactured and/or sold in accordance with the provisions hereof, which has been duly reported and on which the royalties due hereunder are paid in accordance with the provisions of this Agreement. 1.16 "LICENSED PATENTS" shall mean the patents listed in the relevant Exhibits as selected by Licensee pursuant to the Options below. OPTION A1: Licensee chooses the essential patents listed in Exhibit E1, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of CD-Audio Discs and/or CD-Audio Maxi Singles, which conform to the CD-Audio Standard Specifications. Option A2: Licensee chooses the essential patents listed in Exhibit E1 and Exhibit E2, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of CD-ROM Discs, which conform to the CD-ROM Standard Specifications. OPTION A3: Licensee chooses the essential patents listed in Exhibit E1, Exhibit E2 and Exhibit E3, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of CD Extra Discs, which conform to the Enhanced Music CD Standard Specifications. OPTION A4: Licensee chooses, in addition to Option A1 and/or A3 the essential patents listed in Exhibit E4, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of CD-Discs, excluding CD-ROM Discs, containing CD Text information. OPTION A5: Licensee chooses the non-essential patents listed in Exhibit E5, for the use of any one or more of these patents, exclusively for the manufacture and/or sale of CD Extra Discs. Option(s): o A1 o A2 o A3 o A4 o A5 ---------- (please tick any combination as appropriate) Initial: ______________ The term "ESSENTIAL" as used in relation to patents in this Agreement shall refer to patents, the use of which is necessary (either directly or as a practical matter) for compliance with the Standard Specifications defining the relevant CD System(s). Philips will commission an independent patent expert to review the European, Japanese and US patents listed as essential in Exhibits E1, E2, E3 and E4 in order to confirm the essentiality of such patents. In the event that such independent expert would find that any of the patents does not qualify as essential as defined in this Agreement, Philips shall delete such patent (as well as the equivalent national patents) from the relevant Exhibit and such patent will be put on the relevant Exhibit of non-essential patents. Any such finding and deletion however, shall not affect the obligation of Licensee to pay the royalty on each Licensed Product as specified in Article 5.02, provided that, in the event that the manufacture by Licensee of Licensed Products within the Territory would not infringe any of the Licensed Patents, Licensee shall have no obligation to pay royalties in respect of Licensed Products manufactured within the Territory and which are directly sold for final use within the Territory or directly exported for final use to a country in which no Licensed Patents subsist. Notwithstanding such deletion, Licensee shall retain the right to continue the use of such deleted patent(s) in accordance with this Agreement, without any additional payment, unless Licensee explicitly notifies Philips in writing of its decision to waive such right. In the event that Philips or Sony (or any of their respective Associated Companies) would have additional patents relevant to CD-Audio Discs (except for CD Text information and other than patents acquired from third parties after the date of January 1, 1983), CD-ROM Discs (other than patents acquired from third parties after the date of January 1, 1985), CD Extra Discs (other than patents acquired from third parties after the date of January 1, 1996) or the CD Text mode of CD-Discs, excluding CD-ROM Discs, (other than patents acquired from third parties after the date of October 1, 1996) in their respective patent portfolios which are essential to the manufacture, sale or other disposal of Licensed Products and which have a filing date or are entitled to a so-called priority date prior to either January 1, 1983 for CD-Audio Discs, January 1, 1985 for CD-ROM Discs, January 1, 1996 for CD Extra Discs or October 1, 1996 for the CD Text mode of CD-Discs, excluding CD-ROM Discs, but which have not been listed as essential patents in the respective Exhibits hereto, Philips will notify Licensee accordingly and such additional patents will be added to the Licensed Patents. Any patents as may be added as essential patents to any of the respective Exhibits hereto, will similarly be subject to the review by the independent patent expert in accordance with the preceding paragraph. The patent lists provided to Licensee upon execution of the Agreement are subject to change in accordance with the provisions of this Agreement. With regard to the rights granted to Licensee hereunder, the patent lists published by Philips on its website (www.licensing.philips.com) or otherwise communicated by Philips to Licensee after the date of execution hereof shall prevail over the lists provided to Licensee upon execution of this Agreement. 1.17 "ASSOCIATED COMPANY" shall mean any one or more business entities (1) owned or controlled by Philips, Sony or Licensee, (2) owning or controlling Philips, Sony or Licensee, or (3) owned or controlled by the business entity owning or controlling Philips, Sony or Licensee at the material time. For the purposes of this definition a business entity shall be deemed to own and/or to control another business entity if more than 50% (fifty per cent) of the voting stock of the latter business entity, ordinarily entitled to vote in the election of directors, (or, if there is no such stock, more than 50% (fifty per cent) of the ownership of or control in the latter business entity) is held by the owning and/or controlling business entity. 1.18 "TERRITORY" shall mean the geographic area known as the United States of America, its territories and possessions. ARTICLE 2 - GRANT OF RIGHTS --------------------------- Subject to the conditions of this Agreement: 2.01 For the term of this Agreement, Philips hereby grants to Licensee a non-exclusive, non-transferable license under the Licensed Patents selected by Licensee pursuant to Article 1.16 to manufacture Licensed Products within the Territory in accordance with the relevant CD Standard Specifications and to sell or otherwise dispose of Licensed Products so manufactured in all countries of the world. 2.02 Philips, also on behalf of Sony, further agrees, for as long as this Agreement is in force and effect and Licensee is in full compliance with its obligations hereunder, to grant Licensee, upon Licensee's request, a non-exclusive, non-transferable license, either by means of a sub-license arrangement or by means of individual licenses from Philips and/or Sony respectively, on reasonable, non-discriminatory conditions, to manufacture Licensed Products in the Territory and to sell or otherwise dispose of Licensed Products so manufactured in all countries of the world, under any patents not yet licensed hereunder and which are essential to the manufacture, sale or other disposal of Licensed Products, for which Philips and/or Sony and their respective Associated Companies may hereafter acquire from third parties the free right to grant licenses. It is acknowledged and agreed that in respect of the patents as may be licensed pursuant to this Article 2.02, additional royalties may have to be paid over and above the royalties specified in Article 5.02. 2.03 Philips, also on behalf of Sony, further agrees, for as long as this Agreement is in force and effect and Licensee is in full compliance with its obligations hereunder, to grant Licensee upon Licensee's request as well as to those of Licensee's Associated Companies who so request, a non-exclusive, non-transferable license, on reasonable, non-discriminatory conditions either by means of a sub-license arrangement or by means of individual licenses from Philips and/or Sony respectively, to manufacture CD-Audio Players, CD-ROM Players, Enhanced Music CD Players and/or Combi-Players and to sell or otherwise dispose of such Players so manufactured in all countries of the world, under any and all present and future patents essential to the manufacture, sale or other disposal of such Players, for which Philips and/or Sony and their respective Associated Companies may hereafter acquire the free right to grant licenses. 2.04 In consideration of the undertakings set forth in Articles 2.01, 2.02 and 2.03 and similar undertakings by third party licensees of Philips and without prejudice to the provisions of Article 12, for a period of ten years from the Effective Date (as hereinafter defined) Licensee agrees to grant to Philips, Sony and their respective Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips concerning CD-Discs, non-exclusive, non-transferable licenses, on reasonable, non-discriminatory conditions comparable to those set forth herein, to manufacture, sell or otherwise dispose of CD-Discs, under any and all present and future patents, for which Licensee or its Associated Companies have or may hereafter acquire the right to grant licenses and which are essential to the manufacture, sale or other disposal of such CD-Discs as correspond with the Licensed Patents selected by Licensee pursuant to Article 1.16 and which patents were first filed in any country of the world prior to the date of termination of this Agreement. For the avoidance of doubt, the undertaking set out in the preceding sentence shall only apply to those companies which have made the same selection pursuant to Article 1.16 as Licensee and which in that respect accept or have accepted a similar undertaking as contained in this Article 2.04. 2.05 In addition, in consideration of the undertakings set forth in Articles 2.01, 2.02, 2.03 and 2.04 and similar undertakings by third party licensees of Philips or any of its Associated Companies and without prejudice to the provisions of Article 12, for a period of ten years from the Effective Date, Licensee agrees to grant to Philips, Sony and their respective Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips concerning Players, non-exclusive, non-transferable licenses on reasonable, non-discriminatory conditions, to manufacture, sell or otherwise dispose of such CD-Audio Players, CD-ROM Players, Enhanced Music CD Players and/or Combi-Players under any and all present and future patents, for which Licensee or its Associated Companies have or may hereafter acquire the right to grant licenses and which are essential to the manufacture, sale or other disposal of such Players and which patents were first filed in any country of the world prior to the date of termination of this Agreement. For the avoidance of doubt, the undertaking set out in the preceding sentence shall only apply to those companies which accept or have accepted a similar undertaking as contained in this Article 2.05. 2.06 Philips undertakes that it will offer, at the request of any of Licensee's Associated Companies to any such Associated Company, a non-exclusive and non-transferable license under the Licensed Patents on reasonable and non-discriminatory conditions comparable to those set forth herein, to manufacture, sell or otherwise dispose of CD-Discs. In consideration of Philips' undertaking as set out in the preceding paragraph, Licensee undertakes that all of its Associated Companies which have or may hereafter acquire patents essential to the manufacture, sale or other disposal of CD-Discs and which patents were first filed in any country of the world prior to the date of termination of this Agreement, shall make available licenses under such patents, on reasonable, non-discriminatory conditions comparable to those set forth herein to Philips, any of Philips' Associated Companies and to other third parties who have entered or will enter into a license agreement with Philips or an Associated Company of Philips in respect of CD-Discs. 2.07 IT IS EXPRESSLY ACKNOWLEDGED AND AGREED THAT: (I) THE LICENSES AND LICENSE UNDERTAKINGS HEREIN CONTAINED WITH RESPECT TO THE MANUFACTURE OF LICENSED PRODUCTS DO NOT EXTEND TO MASTER RECORDING MACHINES, MACHINES, EQUIPMENT OR METHODS FOR THE REPLICATION OF DISCS, NOR TO THE MANUFACTURE OF MATERIALS OR REPRODUCTION RIGHTS FOR INFORMATION (SUCH AS AUDIO, VIDEO, TEXT AND/OR DATA-RELATED INFORMATION), CONTAINED ON DISCS TO BE PLAYED BACK ON A PLAYER/RECORDER. FURTHER, THE LICENSE UNDERTAKINGS WITH RESPECT TO THE MANUFACTURE OF RECORDING/PLAYBACK DEVICES DO NOT EXTEND TO THE MANUFACTURE OF COMPONENTS FOR RECORDING/PLAYBACK DEVICES (INCLUDING BUT NOT LIMITED TO SEMICONDUCTOR DEVICES, INTEGRATED CIRCUITS, LASERS, MOTORS AND LENSES), EXCEPT FOR PATENTS RELATING TO CIRCUITRY AND/OR SYSTEM ASPECTS SPECIFIC TO THE CD SYSTEMS (AND SIMILAR OPTICAL READ-OUT SYSTEMS); (II) THE RIGHTS AND LICENSES GRANTED UNDER THIS AGREEMENT DO NOT EXTEND TO ANY COMBINATION OF ONE OR MORE LICENSED PRODUCTS OR PLAYERS, RECORDING/PLAYBACK DEVICES WITH ANY OTHER ITEMS, PRODUCTS, SYSTEMS, STRUCTURES, EQUIPMENT OR SOFTWARE OTHER THAN THE COMBINATION OF A LICENSED PRODUCT AND A PLAYER OR RECORDING/PLAYBACK DEVICE. ARTICLE 3 - STANDARD SPECIFICATIONS, ------------------------------------ TECHNICAL INFORMATION AND SUPPORT --------------------------------- 3.01 Upon receipt of the payment provided for in Article 5.01 and the payment provided for in Article 5.12, Philips shall make available to Licensee for use by Licensee in accordance with the provisions hereof, a copy of the then current version of the respective CD Standard Specifications, as correspond with the Licensed Patents selected by Licensee pursuant to Article 1.16, together with such other information and support as Philips considers necessary for the interpretation and/or correct application of the relevant CD Standard Specifications. 3.02 Licensee shall be notified in writing of any addition or modification to any of the relevant CD Standard Specifications and shall be provided with relevant information in connection therewith. 3.03 Philips and Licensee undertake to keep each other generally informed of developments or initiatives, which may have an impact on the relevant CD Standard Specifications. ARTICLE 4 - HAVE MADE --------------------- 4.01 The rights granted to Licensee pursuant to Article 2 and the right to use the information pursuant to Article 3, include the right for Licensee to have Licensed Products made for it by third party manufacturers, duly licensed by Philips under an agreement similar to this Agreement, provided that Licensee will properly identify such third party manufacturer in the royalty reporting forms to be submitted to Philips hereunder, together with the quantities of Licensed Products so purchased. Conversely, Licensee shall refrain from purchasing or selling CD-Discs manufactured by any third party not licensed by Philips, where such purchase or sale would constitute an act of infringement of any of the Licensed Patents. ARTICLE 5 - ROYALTIES, REPORTS AND PAYMENTS ------------------------------------------- 5.01 In consideration of the rights granted by Philips and the information to be provided by Philips hereunder, Licensee shall, upon execution of this Agreement, make a non-refundable, non-recoupable payment of US$ 25,000 (twenty-five thousand US Dollars) to Philips. 5.02 In further consideration of the rights granted hereunder by Philips to Licensee, Licensee agrees to pay to Philips a royalty on each Licensed Product sold by Licensee, in which any one or more of the Licensed Patents is (are) used, irrespective of whether such Licensed Patent(s) is (are) used in the country of manufacture, sale or other disposal. These royalties shall amount to: (a) US$ 0.03 (three US Dollar cents) for each Licensed Product being a CD-Audio Disc with an outer diameter greater than 90 mm; and (b) US$ 0.02 (two US Dollar cents) for each Licensed Product being a CD-Audio Disc with an outer diameter smaller than 90 mm; and (c) US$ 0.027 (two point seven US Dollar cents) for each Licensed Product being a CD-Audio Maxi-Single; and (d) US$ 0.03 (three US Dollar cents) for each Licensed Product being a CD-ROM Disc with an outer diameter greater than 90 mm; and (e) US$ 0.02 (two US Dollar cents) for each Licensed Product being a CD-ROM Disc with an outer diameter smaller than 90 mm; and (f) US$ 0.045 (four and a half US Dollar cents) for each Licensed Product being a CD Extra Disc with an outer diameter greater than 90 mm; and (g) US$ 0.03 (three US Dollar cents) for each Licensed Product being a CD Extra Disc with an outer diameter smaller than 90 mm, such rates hereinafter referred to as "Standard Rates". With respect to Licensed Products sold after July 1, 2002, provided that Licensee is in full compliance with its obligations under this Agreement and subject to Article 6.01, the royalties shall amount to: (a) US$ 0.0175 (one and three quarters of a US Dollar cent) for each Licensed Product being a CD-Audio Disc with an outer diameter greater than 90 mm; and (b) US$ 0.0115 (one and fifteen hundredths of a US Dollar cent) for each Licensed Product being a CD-Audio Disc with an outer diameter smaller than 90 mm; and (c) US$ 0.0155 (one and fifty-five hundredths of a US Dollar cent) for each Licensed Product being a CD-Audio Maxi-Single; and (d) US$ 0.0175 (one and three quarters of a US Dollar cent) for each Licensed Product being a CD-ROM Disc with an outer diameter greater than 90 mm; and (e) US$ 0.0115 (one and fifteen hundredths of a US Dollar cent) for each Licensed Product being a CD-ROM Disc with an outer diameter smaller than 90 mm; (f) US$ 0.03 (three US Dollar cents) for each Licensed Product being a CD Extra Disc with an outer diameter greater than 90 mm; and (g) US$ 0.02 (two US Dollar cents) for each Licensed Product being a CD Extra Disc with an outer diameter smaller than 90 mm, such rates hereinafter referred to as "Compliance Rates". In the event that Licensee fails to comply at any time with any of its obligations hereunder, the Standard Rates, as applicable, shall apply to Licensee's manufacture and sale of CD-Discs instead of the Compliance Rates, as applicable, with immediate effect from the moment of such non-compliance until such moment that Licensee's non-compliance will have been remedied in full. A Licensed Product shall be considered sold when invoiced or, if not invoiced, when delivered to a party other than Licensee. No royalties shall be payable on Licensed Products purchased by Licensee on a "have made" basis in accordance with Article 4 from third party manufacturers, duly licensed by Philips, provided that Licensee can demonstrate to Philips' satisfaction, that such third party manufacturer has paid to Philips the royalties due in respect of such Licensed Products. For the avoidance of doubt, in the event that the manufacture by Licensee of Licensed Products within the Territory would not infringe any of the Licensed Patents, Licensee shall have no obligation to pay royalties in respect of Licensed Products manufactured within the Territory and which are directly sold for final use within the Territory or directly exported for final use to a country in which no Licensed Patents subsist. 5.03 Within 30 days following 31 March, 30 June, 30 September and 31 December of each year during the term of this Agreement, Licensee shall submit to Philips (even in the event that no sales have been made) a written statement in the form as attached hereto as Exhibit C3 (Royalty Reporting Form) signed by a duly authorized officer on behalf of Licensee, setting forth with respect to the preceding quarterly period: (1) the quantities of CD-Discs manufactured by Licensee, specified per individual type of CD-Disc; (2) the quantities of CD-Discs purchased from other licensed manufacturers in accordance with the provisions of Article 4, specified per individual type of CD-Disc; (3) on a per-country basis, specifying for each individual type of CD-Disc: (a) the quantities of CD-Discs sold or otherwise disposed of, specifying the identity of the buyers and the trademarks used on or in connection with the CD-Discs; (b) the quantities of CD-Discs sold to other manufacturers, duly licensed by Philips, specifying the identity of such other manufacturers and the trademarks used on or in connection with the CD-Discs; (4)a computation of the royalties due under this Agreement. Licensee shall pay the royalties due to Philips within 30 days after the end of each quarterly period, in such US Dollars. 5.04 In the event that Licensee fails to submit to Philips a Royalty Reporting Form for any royalty reporting period within 30 days from the end of the relevant reporting period in accordance with the provisions of Article 5.03, Licensee shall be obliged to pay to Philips within 30 days after the end of the relevant quarterly period for which the Royalty Reporting Form was not submitted, an estimated royalty (hereinafter referred to as an "Advance"), being an amount equal to the highest amount of royalties due for any royalty reporting period over the preceding eight royalty reporting periods (or over all preceding royalty reporting periods if fewer than eight). Such payment shall be treated as a non-refundable advance, primarily against the royalties and interest for the relevant royalty reporting period and then, if any sum remains, against any future royalties or other payments payable by Licensee hereunder. Licensee acknowledges and agrees that any Advance shall not be due by way of penalty but that such payment shall constitute a non-refundable advance as aforesaid. For the avoidance of doubt, such payment shall be payable without any further notice or action by Philips, legal or otherwise, and shall take effect by virtue of the failure to submit a Royalty Reporting Form on time; the payment by Licensee of an Advance shall not affect Licensee's obligation to submit a Royalty Reporting Form; the payment by Licensee of an Advance shall be without prejudice to any other rights or remedies of Philips, including, without limitation, Philips' right to charge 2% interest per month on overdue payments (including overdue payments of the Advance), and Philips' right to terminate this Agreement in accordance with its provisions. The Advance will not be set off against other sums due to Philips until a Royalty Reporting Form has been submitted in respect of the relevant royalty reporting period. In respect of any royalty reporting period for which an Advance has been paid and the Royalty Reporting Form subsequently submitted, Philips will first set off against the Advance all royalties and interest due for that period. Any remaining sum from the Advance will be set off against further royalty, interest or Advance payments due to Philips hereunder (if any). 5.05 Licensee shall submit to Philips, once per calendar year, an audit statement by its external auditors, who shall be public certified auditors, confirming that the quarterly royalty statements as submitted by Licensee to Philips for the last four quarterly periods, are true, complete and accurate in every respect. Such statement must meet Philips' requirements as specified in the Audit Guidelines attached hereto as Exhibit C1 and shall be submitted to Philips within 90 days following the end of Licensee's financial year. The correctness of this audit statement shall be verified by Philips by means of a work paper review, conducted by one of the public certified auditors selected by Philips. Notwithstanding this audit statement, Philips reserves the right to inspect the books and records of Licensee from time to time in accordance with Article 5.10. 5.06 Within 30 days following the expiration or termination of this Agreement, Licensee shall submit to Philips a certified report on the number of Licensed Products in stock at the time of expiration or termination of this Agreement. Royalties, calculated in accordance with Article 5.02 and Article 5.12, shall be due and payable on all Licensed Products manufactured prior to, but remaining in stock with Licensee on the date of expiration or termination of this Agreement. For the avoidance of doubt, this Article 5.06 shall be without prejudice to the provisions of Article 12.06. 5.07 Any payment under this Agreement which is not made on the date(s) specified herein, shall accrue interest at the rate of 2% (two per cent) per month (or part thereof) or the maximum amount permitted by law, whichever is lower. 5.08 All payments to Philips under this Agreement shall be made by transfer in such currency, convertible in the sense of Articles VIII and XIX of the Articles of Agreement of the International Monetary Fund, as designated by Philips. The rate of exchange for converting the currency of the Territory shall be the telegraphic transfer selling rate of the designated currency as officially quoted in the Territory by the officially authorized foreign exchange bank for payment of currency transactions on the day that the amount is due and payable. 5.09 All costs, stamp duties, taxes and other similar levies arising from or in connection with the conclusion of this Agreement shall be borne by Licensee. In the event that the government of a country imposes any income taxes on payments by Licensee to Philips hereunder and requires Licensee to withhold such tax from such payments, Licensee may deduct such tax from such payments. In such event, Licensee shall promptly provide Philips with tax receipts issued by the relevant tax authorities so as to enable Philips to support a claim for credit against income taxes which may be payable by Philips and/or its Associated Companies in The Netherlands and to enable Philips to document, if necessary, its compliance with tax obligations in any jurisdiction outside The Netherlands. 5.10 In order that the royalty statements provided for in this Article 5 may be verified, Licensee shall keep complete and accurate books and records and shall keep the books and records available for a period of 5 years following the manufacture, sale or other disposal of each Licensed Product. Philips shall have the right to inspect the books and records of Licensee from time to time, in order to verify the correctness of the aforementioned royalty statements. Any such inspection shall take place no more than once per calendar year and shall be conducted by a public certified auditor appointed by Philips. Philips shall give Licensee written notice of such inspection at least 7 days prior to the inspection. Licensee shall willingly co-operate and provide all such assistance in connection with such inspection as Philips and/or the auditor may require. The inspection shall be conducted at Philips' own expense, provided that in the event that Licensee has failed to submit royalty statements and/or yearly written statement(s) by its external auditors, as provided for in Article 5.03 and Article 5.05, in respect of the period to which the inspection relates or in the event that any discrepancy or error exceeding 3% (three per cent) of the monies actually due is established, the cost of the inspection shall be borne by Licensee, without prejudice to any other claim or remedy as Philips may have under this Agreement or under applicable law. Philips' right of inspection as set out in this Article 5.10 shall survive termination or expiration of this Agreement. 5.11 Without prejudice to the provisions of Article 5.10, Licensee shall provide all relevant additional information as Philips may reasonably request from time to time, so as to enable Philips to ascertain which products manufactured, sold or otherwise disposed of by Licensee are subject to the payment of royalties to Philips hereunder, the patents which have been used in connection with such products, and the amount of royalties payable. 5.12 As a condition precedent to the entry into force of this Agreement, Licensee shall submit to Philips a royalty statement in respect of CD-Discs manufactured and sold or otherwise disposed of by Licensee before the Effective Date of this Agreement in accordance with the provisions of Article 5.03. Within 7 days following the execution of this Agreement, Licensee shall pay to Philips the royalties on such CD-Discs, calculated by applying the royalty rates of (a) US$ 0.03 for each CD-Audio Disc or CD-ROM Disc with an outer diameter greater than 90 mm, (b) US$ 0.02 for each CD-Audio Disc or CD-ROM Disc with an outer diameter smaller than 90 mm, (c) US$ 0.027 for each CD-Audio Maxi-Single and (d) US$ 0.045 or US$ 0.048 for each CD Extra Disc, depending on the selection made by Licensee in Schedule I to the Enhanced Music CD Disc License Agreement. The royalty statement shall similarly be subject to Philips' right of audit as set out in Article 5.10. Within 45 days following the execution of this Agreement, Licensee shall submit to Philips an audit statement by its external auditors, who shall be public certified auditors, confirming that this royalty statement is true, complete and accurate in every respect. ARTICLE 6 - MANUFACTURING EQUIPMENT IDENTIFICATION SYSTEM --------------------------------------------------------- 6.01 Upon signing of the Agreement, Licensee shall submit to Philips an overview of its manufacturing equipment used for the manufacture of Licensed Products. Further, upon any acquisition, transfer or disposal of manufacturing equipment used for the manufacture of Licensed Products, Licensee shall submit to Philips details of any such adjustment(s) to its manufacturing equipment. Further, Licensee shall submit to Philips an overview containing all adjustments to its manufacturing equipment during the preceding year, together with and confirmed by the audit statement referred to in Article 5.05. Such overview shall be in the form as attached hereto as Exhibit C2 (Manufacturing Equipment List), signed by a duly authorized officer on behalf of Licensee. The Compliance Rates referred to in Article 5.02 shall only apply to Licensed Products manufactured by Licensee using manufacturing equipment properly identified in the Manufacturing Equipment List and shall be conditional upon Licensee submitting to Philips the audit statement meeting Philips' requirements as set out in the Audit Guidelines, in accordance with the provisions in Article 5.05. In the event that Licensee puts into use newly acquired manufacturing equipment which has been used for the manufacture of Licensed Products prior to the acquisition by Licensee, the Compliance Rates shall only apply if Licensee can demonstrate to Philips' full satisfaction, that the newly acquired manufacturing equipment originates from and has been used by a company which was properly licensed by Philips for the manufacture of Licensed Products and in full compliance with its obligations under its license agreement at the time of the acquisition of the newly acquired manufacturing equipment by Licensee. In the event that Licensee is unable to comply with the requirements under this Article 6.01, the Standard Rates shall apply to Licensee's manufacture and sale of Licensed Products instead of the Compliance Rates. ARTICLE 7 - MOST FAVOURABLE CONDITIONS -------------------------------------- 7.01 In the event that licenses under the patents referred to in Article 2 are granted by Philips for Licensed Products to a third party under substantially similar conditions, but at a royalty rate more favourable than the rate payable by Licensee under this Agreement, Licensee shall be entitled to the same royalty rate as applicable to such third party, provided always that this right of Licensee shall not apply in respect of cross-license agreements or other agreements providing for a consideration which is not exclusively based on payment of royalties and further provided that this right of Licensee shall not apply in respect of licenses or other arrangements made pursuant to a court decision or the settlement of a dispute between Philips and a third party, irrespective of the nature of such dispute, the terms of the court decision or the settlement terms. ARTICLE 8 - NO WARRANTY AND INDEMNIFICATION ------------------------------------------- 8.01 Whereas Philips has made efforts to ensure that the information to be supplied by it hereunder is complete and accurate, Philips makes no representation or warranty as to the accuracy or completeness of such information, nor with respect to the ability of Licensee to achieve interchangeability with respect to Licensed Products through the use of such information. 8.02 It is acknowledged by Licensee that third parties may own industrial and/or intellectual property rights in the field of CD-Discs. Philips and Sony make no warranty whatsoever that the manufacture, sale or other disposal of Licensed Products or the use of information supplied by Philips hereunder, does not infringe or will not cause infringement of any industrial and/or intellectual property rights other than Licensed Patents. Philips, Sony and their respective Associated Companies shall be fully indemnified and held harmless by Licensee from and against any and all third party claims in connection with CD-Discs manufactured, sold or otherwise disposed of by Licensee. ARTICLE 9 - CONFIDENTIALITY --------------------------- 9.01 Licensee shall at all times maintain strict confidentiality with regard to the CD Standard Specifications and shall not disclose same to any third party without the prior written consent of Philips. 9.02 Without prejudice to Article 9.01, Licensee shall, during the term of this Agreement as specified in Article 12.01 and for a period of 3 years thereafter, not disclose to any third party any information acquired from Philips or any of Philips' Associated Companies in connection with this Agreement, or use such information for any other purpose than the manufacture or disposal of Licensed Products in accordance with this Agreement. This obligation shall not apply to the extent information so acquired: (a) was known to Licensee prior to the date on which such information was acquired from Philips or any of Philips' Associated Companies, as shown by records of Licensee or otherwise demonstrated to Philips' satisfaction; (b) is or has become available to the public through no fault of Licensee; (c) was or is received from a third party who was under no confidentiality obligation in respect of such information. In protecting information acquired from Philips or any of Philips' Associated Companies, Licensee shall take all necessary measures and precautions, including but not limited to measures requiring its present and future employees to give suitable undertakings of secrecy both for the period of their employment and thereafter, and shall protect such information in the same manner and with the same degree of care (but no less than a reasonable degree of care) with which Licensee protects its own information of a confidential nature. 9.03 The obligations concerning confidentiality contained in Article 9.01 and Article 9.02 shall survive termination of this Agreement 9.04 Philips shall, during the term of this Agreement as specified in Article 12.01 and for a period of 3 years thereafter, not disclose to any third party any confidential information obtained by Philips in connection with Article 5.03 and/or Article 5.05, except that Philips may disclose such information to its external auditors, legal representatives and to the competent courts to the extent this is necessary for Philips in connection with the enforcement of its rights hereunder. Further, Philips shall not use such information for other purposes than to verify Licensee's compliance with its royalty reporting and payment obligations as provided in this Agreement and to enforce Philips' rights hereunder. Philips' obligations set out in this paragraph shall not apply to information referred to in sections a, b and/or c of Article 9.02. ARTICLE 10 - LOGO ----------------- 10.01 For the term of this Agreement and subject to the full and timely performance and observance by Licensee of all its undertakings and obligations hereunder, Licensee shall be entitled to use on the Licensed Products as well as in advertisements and sales literature with respect to Licensed Products sold by Licensee, a logo (hereinafter referred to as "the Logo") in accordance with the instructions laid down in the CD-Logo Guide which shall be made available to Licensee together with the Standard Specifications. 10.02 Licensee acknowledges and agrees that Philips makes no warranty whatsoever that any use of the Logo does not infringe or will not cause infringement of any third party intellectual property rights. ARTICLE 11 - NO ASSIGNMENT -------------------------- 11.01 This Agreement shall inure to the benefit of and be binding upon each of the parties hereto and their respective assignees. It may not be assigned in whole or in part by Licensee without the prior written consent of Philips. ARTICLE 12 - TERM AND TERMINATION --------------------------------- 12.01 This Agreement shall enter into force on the "Effective Date", being the date first written above. In the event that validation of this Agreement is required by the competent governmental authorities, the Effective Date shall be the date of such validation. This Agreement shall remain in force for a period of 10 years from the Effective Date unless terminated earlier in accordance with the provisions of this Article 12. 12.02 Without prejudice to the provisions of Article 12.03 through 12.06, each party may terminate this Agreement at any time by means of written notice to the other party in the event that the other party fails to perform any obligation under this Agreement and such failure is not remedied within 30 days after receipt of a notice specifying the nature of such failure and requiring it to be remedied. Such right of termination shall not be exclusive of any other remedies or means of redress to which the non-defaulting party may be lawfully entitled, and all such remedies shall be cumulative. Any such termination shall not affect any royalty or other payment obligations under this Agreement accrued prior to such termination. 12.03 Philips may terminate this Agreement forthwith by means of notice in writing to Licensee in the event that a creditor or other claimant takes possession of, or a receiver, administrator or similar officer is appointed over any of the assets of Licensee or in the event that Licensee makes any voluntary arrangement with its creditors or becomes subject to any court or administration order pursuant to any bankruptcy or insolvency law. 12.04 Additionally, insofar as legally permitted, Philips may terminate this Agreement at any time by means of written notice to Licensee in case Licensee or an Associated Company of Licensee has been found liable by a competent court or administrative authority to have committed an act of copyright piracy. 12.05 Philips shall have the right to terminate this Agreement forthwith or to revoke the license granted under any of Philips' or Sony's respective patents in the event that Licensee or any of its Associated Companies brings a claim for infringement of any of Licensee's or any of Licensee's Associated Companies essential patents relating to CD-Discs or CD-Players against Philips, Sony or any of their respective Associated Companies and Licensee refuses to license such patents on fair and reasonable conditions. 12.06 Upon the termination of this Agreement by Philips for any reason pursuant to Article 12.02 through 12.05, Licensee shall immediately cease the manufacture, sale or other disposal of CD-Discs in which any one or more of the Licensed Patents are used. Further, upon such termination, any and all amounts outstanding hereunder shall become immediately due and payable. 12.07 All provisions of this Agreement which are intended to survive (whether express or implied) the expiry or termination of this Agreement, shall so survive. ARTICLE 13 - MISCELLANEOUS -------------------------- 13.01 Any notice required under this Agreement to be sent by either party shall be given in writing by means of a letter, facsimile or electronic mail directed: in respect of Licensee, to: Metatec International, Inc. 7001 Metatec Blvd. Dublin, Ohio 43017 Fax: (614) 798-5847 in respect of Philips, to: Koninklijke Philips Electronics N.V. c/o Philips International B.V. Intellectual Property & Standards - Legal Department P.O. Box 220, Building WAH-2 5600 AE Eindhoven The Netherlands Fax: +31 40 2734131 with a copy to: U.S. Philips Corporation 580 White Plains Road Tarrytown, New York 10591 Fax: (914) 332-0615 or to such other address as may have been previously specified in writing by either party to the other. 13.02 This Agreement sets forth the entire understanding and agreement between the parties as to the subject matter hereof and supersedes and replaces all prior arrangements, discussions and understandings between the parties relating thereto. Neither party shall be bound by any obligation, warranty, waiver, release or representation except as expressly provided herein, or as may subsequently be agreed in writing between the parties. 13.03 Nothing contained in this Agreement shall be construed: (a) as imposing on either party any obligation to instigate any suit or action for infringement of any of the patents licensed hereunder or to defend any suit or action brought by a third party which challenges or relates to the validity of any of such patents. Licensee shall have no right to instigate any such suit or action for infringement of any of the patents licensed by Philips hereunder, nor the right to defend any such suit or action which challenges or relates to the validity of any such patent licensed by Philips hereunder; (b) as imposing any obligation to file any patent application or to secure any patent or to maintain any patent in force; (c) as conferring any license or right to copy or imitate the appearance and/or design of any product of Philips, Sony or any of their Associated Companies; (d) as conferring any license to manufacture, sell or otherwise dispose of any product or device other than a Licensed Product. 13.04 Neither the failure nor the delay of either party to enforce any provision of this Agreement shall constitute a waiver of such provision or of the right of either party to enforce each and every provision of this Agreement. 13.05 Should any provision of this Agreement be finally determined void or unenforceable in any judicial proceeding, such determination shall not affect the operation of the remaining provisions hereof, provided that, in such event, Philips shall have the right to terminate this Agreement by written notice to Licensee. 13.06 This Agreement shall be governed by and construed in accordance with the laws of The State of New York. Any dispute between the parties hereto in connection with this Agreement (including any question regarding its existence, validity or termination) shall be submitted to any state or federal courts in The State of New York, provided always that, in case Philips is the plaintiff, Philips may at its sole discretion submit any such dispute either to the state or federal courts in the venue of Licensee's registered office, or to any of the state or federal courts in the Territory having jurisdiction. Licensee hereby irrevocably waives any objection to the jurisdiction, process and venue of any such court and to the effectiveness, execution and enforcement of any order or judgment (including, but not limited to, a default judgment) of any such court in relation to this Agreement, to the maximum extent permitted by the law of any jurisdiction, the laws of which might be claimed to be applicable regarding the effectiveness, enforcement or execution of such order or judgment. AS WITNESS, the parties hereto have caused this Agreement to be signed on the date first written above. KONINKLIJKE PHILIPS ELECTRONICS METATEC INTERNATIONAL, INC. N.V. /s/ B. Mache /s/ Gary W. Qualmann - ------------------------------- ------------------------------ Name: Bernd Mache Name: Gary W. Qualmann Title: Chief Financial Officer Title: Chief Financial Officer ------------------------- ------------------------ Date: August 13, 2002 Date: August 9, 2002 -------------------------- ------------------------- EX-10.5 7 l95564aexv10w5.txt EX-10.5 LETTER AGREEMENT EXHIBIT 10.5 Letter agreement dated August 9, 2002, among U.S. Philips Corporation, Koninklijke Philips Electronics N.V. and Metatec International, Inc. August 9, 2002 Mr. Gary Qualmann, CFO Metatec International, Inc. 7001 Metatec Boulevard Dublin, OH 43017 Re: Comprehensive CD Disc License Agreement; DVD Video Disc and DVD ROM Disc Patent License Agreement License Agreement For The Use Of AC-3 Technology In The Manufacture of DVD Video Discs Dear Mr. Qualmann: U.S. Philips Corporation ("USPC") and Metatec International, Inc. ("METATEC") hereby confirm the following agreement ("Workout Agreement") regarding the Comprehensive CD Disc License Agreement ("CD Disc Agreement"), the DVD Video Disc and DVD ROM Disc Patent License Agreement ("DVD Disc Agreement"), and the License Agreement For The Use Of AC-3 Technology In The Manufacture of DVD Video Discs ("AC-3 Agreement"). 1. Under Art. 5.04 of the CD Disc Agreement, Art. 4.03 of the DVD Disc Agreement, and Art. 3.02 of the AC-3 Agreement, METATEC is required to provide USPC with royalty reports thirty days after the end of each calendar quarter and to make royalty payments thirty days after the end of each calendar quarter on all Licensed Product sold during the preceding calendar quarter. Under the CD Disc Agreement, METATEC made only a partial payment of $300,000 toward the royalty payment of $672,290.82 for the third quarter of 2000, and failed to make royalty payments for the fourth calendar quarter of 2000, all four calendar quarters of the year 2001, and the first two calendar quarters of 2002. Similarly, under the DVD Disc Agreement and the AC-3 Agreement, METATEC failed to make royalty payments for the fourth calendar quarter of 2000, all four calendar quarters of the year 2001, and the first two calendar quarters of 2002. METATEC has asked USPC (i) to forbear on the remedies available to USPC under such CD Disc Agreement, DVD Disc Agreement, and AC-3 Agreement (including termination of each of these Agreements and commencement of legal action for immediate payment) and (ii) to re-structure payment for the unpaid royalties due and owing ("Arrears"). 2. METATEC has provided USPC with an accounting of Arrears under the CD Disc Agreement, the DVD Disc Agreement and the AC-3 Agreement and represents and warrants that these amounts as of July 31, 2002 equals Three Million, Four Hundred and Sixty Nine Thousand, Seven Hundred and Two U.S. Dollars ($3,469,702)("Arrears Amount"). METATEC shall pay USPC the Arrears Amount with interest at 6%/annum calculated from July 31, 2002 in installments as set forth in the attached payment schedule labelled "ARREARS PAYMENT SCHEDULE - METATEC - AUGUST 9, 2002". 3. Upon execution of this Workout Agreement, METATEC shall execute and deliver a Promissory Note according to the Payment Schedule listed under Article 2, as attached hereto. 4. Metatec shall, concurrently with execution of this Workout Agreement, execute the current version of Philips' CD Disc License Agreement, DVD Video Disc and DVD ROM Disc Patent License Agreement, the License Agreement For The Use Of AC-3 Tecnology In The Manufacture of DVD Video Discs, and the MPEG Audio Patent License Agreement (collectively the "New Agreements"). Execution of the New Agreements is required under the CD and DVD Disc Compliance Programs announced by Philips. METATEC shall be entitled to the Compliance Rates Under the New Agreements, provided that METATEC is in full compliance with all terms of such New Agreements, and this Workout Agreement. 5. Upon execution of this Agreement, Metatec shall deliver an escrow agreement in which an estimated royalty payment for the New Agreements, in an amount no less than $150,000, is held in escrow for the benefit of Koninklijke Philips Electronics NV of The Netherlands ("Philips"). Such funds shall be immediately payable to Philips if any of the amounts under such New Agreements or this Workout Agreement is not made when due. 6. In view of USPC's forbearance in not immediately enforcing its rights under the CD Disc Agreement and in agreeing to the payment schedule set forth in paragraph 2, METATEC further agrees that: (a) METATEC shall not contest the Arrears Amount and interest thereon; (b) METATEC stipulates that with respect to the payments due under this Workout Agreement, the Licensed Patents under the CD Disc Agreement, the DVD Disc Agreement, and the AC-3 agreement are valid and infringed by the Licensed Products manufactured by METATEC during the Arrears period, and METATEC shall not contest the validity or infringement of the Licensed Patents with respect to the Arrears Amount (provided, however, that nothing herein shall prevent METATEC from contesting the Licensed Patents with respect to sales of Licensed Products after the full and timely payment of all monies payable under paragraph 2; (c) If METATEC (i) fails to make any of the payments for Arrears as of the due date specified or (ii) if METATEC fails to timely provide any of the quarterly royalty reports or timely make any of the quarterly royalty payments due thereon as specified in the New Agreements to be executed by METATEC, and METATEC fails to cure such error within ten (10) business days of written notice by USPC or Koninklijke Philips Electronics NV, then: (i) the entire remaining unpaid balance of the Arrears Amount shall immediately become due and payable; (ii) USPC shall be entitled to injunctive relief as well as or confession of judgement for the entire unpaid portion of the Arrears Amount; and (iii) USPC shall be entitled to an award of reasonable counsel fees and costs for enforcement of this Workout Agreement. 7. METATEC and USPC shall treat the contents of this Workout Agreement as confidential information and shall not disclose it to third parties, except as may be necessary by either USPC or METATEC to enforce its rights hereunder in a governmental body or court of law. METATEC may also disclose the contents of this Workout Agreement to a financial institution (and its advisors, accountants and bankers) as necessary to secure financing or to a prospective buyer (and its advisors, accountants and bankers) of METATEC as part of a due diligence investigation, provided that (i) USPC is informed in advance of such disclosure, and (ii) a suitable confidentiality agreement is executed between METATEC and the intended recipient of the confidential information sufficient to protect the information hereunder from disclosure to other parties and USPC is provided with a copy of the confidentiality agreement before the disclosure of any contents of this Workout Agreement. 8. In addition to the other remedies set forth in this Workout Agreement, USPC shall have the option to terminate this Workout Agreement in the event METATEC breaches any term hereof by providing written notice to METATEC and METATEC fails to cure such breach within ten (10) days of written notice by USPC. In the event this termination option is exercised by USPC, METATEC shall be entitled to credit for payments made hereunder, but all other rights, remedies and defenses of USPC shall be preserved. USPC shall have the right to immediately assert claims (and take whatever legal action it deems appropriate) against METATEC for the full amounts due (as opposed to the compromised amounts set forth herein), less credits to METATEC for payments made hereunder. 9. METATEC forever releases and discharges USPC, its agents, servants, employees, directors, officers, lawyers, branches, parent, affiliates, subsidiaries, successors and assigns and all person, firms, corporations and organizations acting on USPC's behalf (collectively, the "USPC Released Entities") of and from any and all losses, damages, claims, demands, liabilities, obligations, actions and causes of action, of any nature whatsoever in law or in equity, contribution or indemnity, which the METATEC may have or claim to have against USPC or any one or more of the USPC Released Entities, as of March 1, 2000, of every nature and kind whatsoever, on account of or in any way touching, concerning, arising out of, founded upon or relating to i) the License Agreement, ii) the obligations of USPC under the License Agreement or otherwise, iii) this Workout Agreement, iv) enforcement or negotiations of this Workout Agreement or the License Agreement, v) the dealings of the parties to this Workout Agreement, and vi) anything else whatsoever. 10. USPC shall maintain its right of audit under the license agreements and should any such audit reveal facts which are materially different than those represented by METATEC to USPC in negotiating this Workout Agreement, USPC shall have the right to enforce the license agreement and seek any additional monies which may be due and owing under such agreements and discovered as a result of such audit. Please acknowledge METATEC's approval and acceptance to the foregoing by completing the signature block below. Very truly yours, Brian J. Wieghaus Regional Manager, Optical Licensing - North America Metatec International, Inc. Koninklijke Philips Electronics NV By: /s/ Gary W. Qualmann By: /s/ B. Mache ----------------------------- -------------------------------- Gary W. Qualmann Bernd Mache Title: Chief Financial Officer Title: Chief Financial Officer --------------------------- ------------------------------ Date: August 9, 2002 Date: August 13, 2002 --------------------------- ------------------------------ U.S. Philips Corporation By: /s/ Michael Marion ---------------------------- Title: Authorized Signatory Date: August 13, 2002 ----------------------- EX-99.1 8 l95564aexv99w1.txt EX-99.1 CERTIFICATION BY MUNRO EXHIBIT 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Metatec International, Inc. (the "Company") on Form 10-Q for the quarterly period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher A. Munro, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Christopher A. Munro - ---------------------------------- Christopher A. Munro Chief Executive Officer August 13, 2002 EX-99.2 9 l95564aexv99w2.txt EX-99.2 CERTIFICATION BY QUALMANN EXHIBIT 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Metatec International, Inc. (the "Company") on Form 10-Q for the quarterly period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary W. Qualmann, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gary W. Qualmann - ----------------------------- Gary W. Qualmann Chief Financial Officer August 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----