<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For fiscal year ended December 31, 1996,
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the transition period
from ______________ to _______________
Commission file number 0-12728
MEDAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2191935
- --------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
38700 Grand River Avenue,
Farmington Hills, Michigan 48335
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (810) 471-2660
including area code: ----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE, STATED VALUE $.20 PER SHARE
-------------------------------------------------------
(Title of Class)
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 the filing
requirements for at least the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997:
Common Stock, No Par Value, Stated Value $.20 Per Share - $27,081,920
The number of shares outstanding on each of the issuer's classes
of common stock, as of February 28, 1997:
Common Stock, No Par Value, Stated Value $.20 Per Share - 8,852,401
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
May 28, 1997 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Medar, Inc. ("The Company") develops, manufactures and markets
microprocessor-based process monitoring and control systems for use in
industrial manufacturing environments. The principal applications for the
Company's products include optical inspection systems and resistance welding
controls. From its incorporation in 1978 to 1983, the Company was 100% owned by
Maxco Inc., a publicly-held, Michigan-based holding company ("Maxco"). In June
of 1983, the Company issued to the public 800,000 shares of Common Stock,
reducing Maxco's ownership to 80%. As of February 28, 1997, Maxco's ownership
of the Company's Common Stock was approximately 21%.
The Company has two wholly-owned subsidiaries. Most of the Company's Canadian
sales of resistance welding controls are effected through Medar Canada Ltd.,
located in Oshawa, Ontario, Canada. In February 1995, the Company acquired 100%
of the common stock and preference shares of Integral Vision Ltd. ("Integral"),
an English corporation, for 654,282 previously unissued shares of Medar, Inc.
common stock. Integral is a machine vision company which develops solutions for
OEM's and end-users. Sales of the Company's vision inspection systems are
effected through Integral Vision-AID (a division of the Company), Integral
Vision, Ltd., or the Company.
In 1994, the Company formed a joint venture with Shanghai Electric Welding
Machine Works and Lida, USA called Shanghai Medar Welding Equipment Corp., Ltd.,
a manufacturer of resistance welding controls located in China. The Company
owns 21.3% of this joint venture.
When used herein, unless the context indicates otherwise, "Medar" or the
"Company" also refers to the Company's division and subsidiaries. The
Company's principal offices are located at 38700 Grand River Avenue, Farmington
Hills, Michigan 48335 and its telephone number is (810) 471-2660.
The Company's products are principally resistance welding controls and optical
inspection and gauging equipment. Medar's welding controls monitor and
automatically regulate electrical current for industrial resistance welding
applications. The majority of the Company's optical inspection equipment is
used to detect manufacturing defects in various optical storage media such as
audio compact discs ("Audio CDs") and compact discs-read only memory
("CD-ROM's"), recordable compact discs ("CD-Rs"), and digital versital discs
("DVD's"). The Company also markets a general purpose vision inspection
product.
Resistance Welding Controls
The Company markets a full line of welding controls. These controls monitor
and automatically regulate electrical current passing through materials being
welded, compensating for variations in materials, coatings and certain other
welding system characteristics. Many of the Company's products are fully
programmable, allowing users to tailor welding sequences to particular
applications using one welding control. The Company has designed two levels of
"integration," combining its controls with other forms of factory automation as
follows: "Level 1" integration replaces "hard-wired" connections between the
welding control and other equipment ("discrete input/output") with a serial
communications link; "Level 2" integration allows customers to incorporate the
welding controls directly into existing microprocessor-based factory floor
automation system control racks. This approach reduces overall system
complexity, manufacturing floor space requirements, and total welding system
cost.
The Company's products range from the low-end MedWeld 200 Series to the
high-end MedWeld 700 and 3000 Series. The MedWeld 200 Series are low-cost,
stand-alone systems for fixed weld sequences targeted at industrial
manufacturers in emerging markets as well as domestic appliance manufacturers.
The MedWeld 700 Series controls, also stand-alone systems, are capable of Level
1 integration and feature fully-programmable weld sequences and serial
communications capabilities. This series is used by automotive and aerospace
manufacturers in North America. The Company provides Level 1 integration with
robotic equipment manufacturers including Fanuc Robotics North America, Inc.
and Kawasaki Robotics USA. The MedWeld 3000 Series are welding subsystems that
permit Level 2 integration with programmable controllers and robotic welding
systems. The MedWeld 3000 Series is currently integrated with equipment
manufactured by Allen-Bradley Company, Inc., ABB Robotics, Inc. and Nachi
Robotics Systems, Inc. The Company believes that its integrated approach
continues to represent a significant market opportunity.
The Company's product line uses common design elements, incorporates
communications links and includes sophisticated feedback systems. The Company
has developed a "weld kernel" that consists of core hardware and software
needed for production of a wide range of welding controls in a single modular
design. This weld kernel results in significantly reduced manufacturing and
service costs as well as faster product design cycles. The
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Company's communications products, including Weld Information Centers and Weld
Support Systems, link multiple controls with customers' computer systems in
order to program weld sequences and archive data for trend analysis and
substantiation of weld quality, all from a central location.
Medar's feedback systems include SureWeld Stepper, which regulates current to
compensate for electrode wear, and the Thermal Force Feedback System, which
monitors the expansion of parts as they are welded to determine when a
high-quality weld has been formed.
Optical Inspection of Compact Discs ("CD's")
The Company has developed optical inspection systems that utilize white-light
illumination, linear-array or matrix technologies, and sophisticated analytical
software. The cornerstone of the Company's optical inspection capability is
its expertise in linear array technology.
In the Company's linear array optical disc inspection systems, a line of white
light is projected onto the disc using specially-developed optics and collected
with a linear array camera. Image processing software then analyzes and
compares collected data to customer quality specifications. This collected
data may also be used for statistical analysis and process control. The
Company's systems can be integrated into production lines and are capable of
completing an inspection cycle in less than one second. The Company believes
its products provide a cost-effective solution to optical disc inspection due
to a variety of software features that are available.
Optical discs, made of a translucent plastic raw material, are molded with
microscopic pits that represent digital information. A thin layer of
reflective aluminum is applied, followed by a protective lacquer coating and a
silk-screened printed label. Discs are generally marked with a bar code or
alphanumeric code for identification purposes. The Company offers optical
inspection systems for a wide range of optical disc formats. Medar's standard
defect inspection equipment can detect surface scratches, bubbles, black
specks, pin holes, disc warp and other imperfections down to resolutions of 40
microns. Customers can specify optional features for reading bar codes,
inspecting lacquer coatings, and birefringence measurement. Inspection systems
can be configured to achieve resolutions to 20 microns to satisfy the demanding
tolerances of higher-density optical storage media such as "write-once" CD-R's
and "multiple write" Magneto-Optical ("MO") discs.
The Company's current family of optical inspection equipment is sold primarily
to original equipment manufacturers ("OEMs") and end-users of CD manufacturing
equipment. For sales to OEMs, the Company's products are typically integrated
directly into optical disc production equipment. The Company's inspection
systems are the systems of choice for many OEMs worldwide that sell optical disc
manufacturing equipment.
The acquisition of Integral in 1995 provided the Company with additional
inspection products to its existing matrix product line as well as synergies
with its existing optical inspection product line, including systems
which inspect the printed surface of a compact disc to verify label quality and
another which reads and identifies alphanumeric catalog identification codes to
prevent mislabeling.
General Purpose Vision Inspection Software ("VisionBlox")
Machine vision is the application of technology to acquire, process and analyze
image data so that conclusions can be drawn and actions taken based on those
results. Machine vision technology is most frequently used to insure
manufactured product quality by monitoring and controlling the manufacturing
process. In the past, vision systems required dedicated systems with
customized software. The programming of customized software accounted for the
majority of the development effort.
VisionBlox takes advantage of the advances in PC technology and uses that power
to offer the first PC based, software-only machine vision product for OEMs,
integrators, and machine builders to build low unit cost, low engineering
investment, high-performance PC vision systems. VisionBlox can be configured
in a variety of ways to customize every machine vision application. By
supporting an open system's architecture, other third party hardware and
software products can be easily linked into the VisionBlox application, thereby
allowing developers to take advantage of off-the-shelf hardware and software
products. Custom and powerful vision applications can be developed, tested,
and released in man-weeks -- not man-months, or man-years.
VisionBlox includes custom controls for image processing, image analysis, third
party products, calibration space, and transformations/geometry (2-D and 3-D
space). VisionBlox has an open architecture and can support any commercial
frame grabber or vision processor. System requirements include a Pentium IBM
compatible PC with 32 MB RAM, 100 MB disk space, a single SVGA display monitor,
Microsoft Visual Basic or Microsoft Visual C++, and Microsoft Windows.
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Vision developers obtain tangible benefits from using VisionBlox, such as per
unit cost reductions, reduction in engineering development time, eliminating
the need to develop core vision algorithms, and providing a Windows user
interface. These are just some of the reasons why, during its introductory
year, VisionBlox was voted by readers of Test & Measurement World magazine one
of this year's top products. Voters were asked to consider value-for-price,
technical support, ease of use, overall quality, and reliability when making
their selection.
See the notes to the Consolidated Financial Statements for details of Segment
Data.
PRODUCT DEVELOPMENT
The markets in which the Company competes are characterized by rapid
technological change. The Company's continued success will depend in large
part upon its ability to develop and successfully introduce new products and
product enhancements. For example, improvements in Audio CD and CD-ROM
manufacturing systems, as well as the introduction of new optical storage
formats such as DVD, CD-R and MO, require the Company to continually improve
its optical inspection systems and provide additional features. The Company
has devoted and will continue to devote substantial resources to research and
development. There can be no assurance that the Company will be able to
successfully develop, introduce and market new products or enhancements, or
that new products or enhancements will meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable to develop and
introduce new products and enhancements in a timely manner in response to
changing market conditions or customer requirements, the Company's results of
operations could be materially and adversely affected. In addition,
technological developments have resulted and may continue to result in the
obsolescence of components and subassemblies the Company holds as inventory.
The following table sets for the periods indicated certain amounts relating to
the Company's product development activities.
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------
(in millions)
-----------------------------------------------------------------
<S> <C> <C> <C>
Gross engineering expenses $9.7 $8.0 $5.7
Capitalized computer software (4.7) (3.3) (2.5)
development costs
Costs directly related to customer orders (1.4) (1.8) (0.4)
Technical sales support expenses (0.0) (0.8) (0.4)
-----------------------------------------------------------------
Net research and development expense $3.6 $2.1 $2.4
=================================================================
Amortization of capitalized computer
software development costs $2.5 $2.3 $1.6
=================================================================
</TABLE>
SALES AND MARKETING; CUSTOMERS
The Company markets its welding control and CD optical inspection products to
both end-users and OEMs, and utilizes agents for the distribution of its
products in Europe, Asia, South America and Mexico. The Company integrates
these products with other manufacturers' factory automation systems.
Management believes this approach allows the Company to leverage the sales and
marketing capabilities of equipment manufacturers such as Allen-Bradley
Company, Inc., ABB Robotics, Inc., Marubeni America, and Toolex Alpha. The
Company markets its VisionBlox software products worldwide to OEMs, integrators
and volume end users utilizing a direct sales force, distributors, and alliance
partners. Direct sales activities are aimed at location and alignment
applications at high potential OEMs in the electronics, semiconductor, and
printing industries where integrated motion/calibration capabilities make
VisionBlox extremely competitive. The Company participates in numerous trade
shows each year and regularly advertises in various trade magazines.
Pricing for the Company's weld control and CD optical inspection products
generally is determined by competitive bidding followed by negotiations. Pricing
for the Company's systems is based on features, system configuration and the
customer's volume requirements. The Company generally provides a one-year
warranty for all products sold. For sales to OEMs and agents, the Company offers
discounts from list pricing. Pricing for the Company's VisionBlox software is
determined by the type of package and the accumulated quantity purchased over a
one year period.
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For the years ended December 31, 1996, 1995 and 1994, sales to Chrysler
Corporation accounted for approximately 14%, 9%, and 14% respectively, of the
Company's net sales. Sales to General Motors Corporation for the same periods
accounted for approximately 19%, 21% and 23% of net sales, respectively. At
December 31, 1996, approximately 40% and 23% of the Company's backlog was
attributable to GM and Chrysler, respectively. The loss of either of these
customers or cancellation of orders by them could have a material adverse
effect on the Company's results of operations. The Company anticipates that in
the near term it will continue to be dependent upon certain large customers for
a significant portion of its revenues. VisionBlox was introduced in 1996.
Marketing relationships have been established with a number of frame grabber
companies in addition to working with several large customers who are currently
integrating VisionBlox into product plans and new machines.
Because a significant portion of the Company's resistance welding controls
sales are to domestic automotive manufacturers, the cyclical nature of the U.S.
automotive industry significantly affects the Company's revenues and operating
results. The Company's dependence on a few large customers in its resistance
welding business, together with its reliance on large orders, and its reliance
on a relatively discrete industry in its vision business have also contributed
to the variability of the Company's operating results. In the past, downturns
in the U.S. automotive industry have negatively affected the Company's
resistance welding control sales, most recently in 1990. There can be no
assurance that the Company will not be affected by future industry downturns in
the U.S. automotive manufacturing industry.
Export sales accounted for 23%, 21% and 27% of the Company's net sales in 1996,
1995 and 1994, respectively. The Company expects that such sales will continue
to represent a significant percentage of its net sales. The Company conducts
sales and service operations for its welding control products in Canada through
a wholly-owned Canadian subsidiary and a joint venture agreement with Shanghai
Electric Welding Machine Works for production of resistance welding control
equipment in China. Also, certain optical inspection sales are effected
through Integral Vision Ltd. in the United Kingdom. Non-U.S. sales involve a
number of risks, including fluctuations in exchange rates, changes in trade
policies, tariff regulations and changes in governments. Most of the Company's
international sales are denominated in U.S. dollars, Canadian sales are
denominated in Canadian dollars, and Japanese sales of optical inspection
equipment are denominated in yen. For certain non-U.S. sales, the Company
markets and sells its products through independent sales representatives in
Europe, Asia, South America and Mexico. The loss of a key foreign sales agent
or OEM could have a material adverse effect on the Company's non-U.S. sales
and, accordingly, the Company's results of operations.
See the notes to the Consolidated Financial Statements (Item 8) for details of
geographic area information.
COMPETITION
The markets for microprocessor-based manufacturing control and optical
inspection equipment are highly competitive. For welding controls, the
Company's primary competitors include Weltronic Company, Robotron Corporation
and Robert Bosch GmbH. To a lesser extent, the Company also competes with,
among others, Dengensha America Corp./Dengensha Mfg. Co., Ltd., Nadex Co.,
Ltd./Nagoya Dengensha Co., Ltd., British Federal, Ltd., and Miyachi Technos
Corporation. The Company believes competition for welding controls is based
primarily upon price, performance, technical expertise, customer support and
durability. For optical inspection, the Company's primary competitors are Dr.
Schenk GmbH and Basler GmbH. The Company believes the principal competitive
factors for optical inspection are quality, price, cycle times, and features.
While the Company believes it currently competes favorably with respect to the
above factors, there can be no assurance that it will be able to continue to do
so or that competition will not have a material adverse effect on the Company's
results of operations and financial condition. VisionBlox sales efforts are
pre-directed towards the electronics, semiconductor, and printing industries
where the Company believes it is extremely competitive in location and
alignment applications. Dominant competitors include Cognex and AISI. While
the Company may face competition from additional sources in all aspects of its
business, the Company believes that competition in the optical disc inspection
industry in particular may intensify, and that companies with significantly
greater technical, financial and marketing resources than the Company may enter
its markets.
MANUFACTURING AND SUPPLIERS
The Company manufactures its products at its headquarters in Farmington Hills,
Michigan. Manufacturing consists primarily of assembling standard electrical
and electronic components and hardware subassemblies purchased from suppliers
into finished products. The Company also utilizes outside vendors to
manufacture certain subassemblies and finished products.
The Company designs printed circuit boards for its hardware products as needed.
In most cases, the Company purchases components for circuit boards directly and
forwards them to outside contractors for assembly, although in certain limited
circumstances, the Company performs in-house circuit board assembly.
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The Company generally does not rely on a single source for parts or
subassemblies, unless design alternatives exist that permit use of other parts
should single source supply be interrupted. Certain of the components and
subassemblies included in the Company's products may be obtained from a limited
number of suppliers. Although the Company believes it will be able to develop
alternative sources for any of the components used in its products, significant
delays or interruptions in the delivery of components by suppliers or
difficulties or delays in shifting manufacturing capacity to new suppliers
could have a material adverse effect on the Company.
BACKLOG
As of December 31, 1996, the Company had an order backlog of approximately $5.6
million, compared to approximately $12.9 million as of December 31, 1995. The
Company's dependence on a few large customers in its resistance welding
business, together with its reliance on large orders, have contributed to
variability in the Company's backlog. For the years 1996, 1995 and 1994,
approximately 14%, 9% and 14%, respectively, of the Company's net sales were
attributable to sales to Chrysler Corporation ("Chrysler") and approximately
19%, 21% and 23%, respectively, were attributable to sales to General Motors
Corporation ("GM"). At December 31, 1996 and 1995, approximately 40% and 62%,
respectively, of the Company's backlog was attributable to GM and approximately
23% and 4%, respectively, of the Company's backlog was attributable to
Chrysler. The loss of either of these customers or cancellation of orders by
them could have a material adverse effect on the Company's results of
operations. The Company anticipates that in the near term it will continue to
be dependent upon certain large customers for a significant portion of its
revenues. The Company's production schedule is generally based on a
combination of sales forecasts and the receipt of specific customer orders, and
typically no advance or progress payments are required from customers unless
the system ordered includes custom features. Purchase orders are generally
cancelable, although the Company may assess penalties. The Company expects to
be able to ship products representing all of this backlog before the end of the
current fiscal year, although there is no assurance that the Company will be
able to do so. The amount of backlog at any date does not necessarily indicate
revenues in any future period.
PATENTS AND PROPRIETARY RIGHTS
The Company believes that technology incorporated in its resistance welding
control, optical inspection, and general vision products give it advantages
over its competitors and prospective competitors. The Company attempts to
protect its technology through a combination of patents, confidentiality
agreements and trade secrets.
The Company has ten U.S. patents on technology involved in its resistance
welding controls. In addition, certain of these technologies are protected by
foreign patents. The Company also has a license to use certain patents
originally developed by Square D Company and a license to use certain patents
originally developed by Owens-Illinois, Inc. relating to optical inspection
technology. Recently, the Company has applied for patent protection of certain
software products. There can be no assurance that any patents applied for will
be granted or that patents the Company holds will be considered valid if
challenged or sufficiently broad to protect the proprietary nature of the
Company's technology. In addition, the software technology of the Company's
products is advancing so quickly that in the 2-3 years it takes to get a patent
issued in the U.S. and the up to ten years in some foreign countries, the
technology may become obsolete before the patent issues.
The Company also relies on trade secrets and proprietary know-how that it seeks
to protect through confidentiality agreements with certain employees and
suppliers and has established procedures to maintain confidentiality of
sensitive information. There can be no assurance that confidentiality
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that others will not develop substantially equivalent
technology and techniques or otherwise gain access to the Company's trade
secrets. In addition, the laws of foreign countries may not protect the
Company's proprietary rights to its technology, including patent rights, to the
same extent as the laws of the U.S.
Although the Company believes it has independently developed its technology and
attempts to assure that its products do not infringe the proprietary rights of
others, if infringement were proven, there can be no assurance that the Company
could obtain necessary licenses on terms and conditions that would not have an
adverse affect on the Company. In the event of a dispute concerning the
Company's technology, including an alleged infringement by a competitor,
litigation could become necessary. Adverse findings in any proceeding could
subject the Company to liability to third parties, require the Company to seek
licenses from third parties, or otherwise adversely affect the Company's
ability to manufacture and sell affected products.
ENVIRONMENTAL COMPLIANCE
The costs to the Company of complying with federal, state and local provisions
regulating protection of the environment are not material.
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EMPLOYEES
As of February 28, 1997, the Company had approximately 330 permanent employees,
as compared to 325 at February 29, 1996 and 214 at February 28, 1995. The
Company also engages a limited number of contract workers, primarily for
assembly operations, the number of which varies, depending upon production
requirements. None of the Company's employees is represented by a labor union.
The continued success of the Company is dependent in large part on certain key
management and technical personnel, the loss of one or more of whom could
adversely affect the Company's business. In particular, the Company relies
upon the services and expertise of its product development and engineering
staff. The Company believes that its future success will depend significantly
upon its ability to attract, retain and motivate skilled technical, sales and
management employees. The Company could encounter competition for these
personnel.
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ITEM 2. PROPERTIES
Manufacturing, engineering and administrative functions of Medar are performed
at two facilities owned by the Company in Farmington Hills, Michigan which total
approximately 100,000 square feet. In addition, Medar leases approximately
7,000 square feet of warehouse space in another location in Farmington Hills,
Michigan on a month-to-month basis. Integral leases two facilities located in
Bedford, United Kingdom approximating 5,000 square feet each to perform sales,
some engineering, and administrative functions. These leases expire through
2015. Sales and service functions principally for Canadian sales are performed
at Medar Canada, Ltd., which currently leases a 4,000 square foot facility in
Oshawa, Ontario, Canada with a lease term expiring November 30, 1999.
The Company believes its facilities are suitable for their respective
activities. Although the Company believes its facilities are adequate for its
current operations, the Company may require additional space as operations
expand. The Company believes that adequate space at reasonable terms is
readily available in each of the areas in which the Company may seek to expand.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market (NASDAQ) as
a National Market Issue under the symbol MDXR. As of February 28, 1997, there
were approximately 4,000 stockholders of the Company including individual
participants in security position listings.
The table below shows the high and low sales prices for the Company's common
stock for each quarter in the past two years. The closing sales price for the
Company's common stock on February 28, 1997 was $4 1/8 per share.
<TABLE>
<CAPTION>
1996
- ----------------------------------------------------------------------
Mar 31 Jun 30 Sept 30 Dec 31
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $ 9 1/8 $11 1/4 $11 $6 5/8
Low 6 1/8 8 1/8 6 5/8 4 5/8
1995
- -----------------------------------------------------------------------
Mar 31 Jun 30 Sept 30 Dec 31
- -----------------------------------------------------------------------
High $16 1/2 $11 1/2 $14 3/8 $11 3/4
Low 8 1/2 6 3/4 9 1/8 7 5/8
=======================================================================
</TABLE>
The market for securities of small market-capitalization companies has been
highly volatile in recent years, often for reasons unrelated to a company's
results of operations. Management believes that factors such as quarterly
fluctuations in financial results, changes in the automotive, audio
electronics, and optical storage media industries, failure of new products to
develop as expected, sales of common stock by existing shareholders, and
substantial product orders may contribute to the volatility of the price of the
Company's common stock. General economic trends such as recessionary cycles
and changing interest rates may also adversely affect the market price of the
Company's Common Stock.
The Company has never paid a dividend and does not anticipate doing so in the
foreseeable future. The Company expects to retain earnings to finance the
expansion and development of business.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $41,471 $ 39,771 $40,218 $28,694 $20,981
Gross margin 10,683 9,655 13,451 10,416 7,711
Earnings (loss) before extraordinary
credit (1,979) (11,583) 3,688 3,300 1,344
Extraordinary credit* 735
-----------------------------------------------------------------------
Net earnings (loss) $(1,979) $(11,583) $ 3,300 $ 3,688 $ 2,079
Earnings (loss) per share:
Before extraordinary credit $ (.22) $ (1.33) $ .43 $ .44 $ .19
Extraordinary credit .10
Net earnings (loss) per share $ (.22) $ (1.33) $ .43 $ .44 $ .29
Weighted average shares 8,820 8,692 8,524 7,529 7,251
==============================================================================================================
</TABLE>
* Tax benefit resulting from utilization of net operating loss carry forward.
<TABLE>
<CAPTION>
At December 31
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $17,041 $18,676 $23,459 $14,015 $ 6,245
Total assets 50,276 44,723 43,523 29,109 22,015
Long-term debt,
including current portion 21,647 16,437 2,444 8,451 1,932
Stockholders' equity 21,302 22,767 34,001 16,087 12,416
=============================================================================================================
</TABLE>
The above selected financial data should be read in conjunction with
consolidated financial statements, including the notes thereto (Item 8) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7). The Company has never paid a dividend and does not
anticipate doing so in the foreseeable future. The Company expects to retain
earnings to finance the expansion and development of business.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Medar develops, manufactures and markets microprocessor-based process
monitoring and control products for use in industrial manufacturing
environments. The Company's revenues are primarily derived from the sale of
optical inspection equipment and resistance welding controls. Optical
inspection equipment is principally sold to suppliers of audio compact disc
("Audio CD") and compact disc-read only memory ("CD-ROM") manufacturing
equipment. Resistance welding control products are currently marketed
primarily to automobile manufacturers and suppliers of industrial automation
equipment. For the years of 1996, 1995 and 1994, approximately 14%, 9% and
14%, respectively, of the Company's net sales were attributable to sales to
Chrysler Corporation and approximately 19%, 21% and 23%, respectively, of the
Company's net sales were attributable to General Motors Corporation.
The Company typically manufactures and sells its products subject to customer
specifications. For most orders, revenue is recognized upon shipment. For
orders that are considered long-term contracts under applicable accounting
standards, revenue is recognized using the percentage-of-completion method.
Long-term contracts include a relatively high engineering content. For such
long-term contracts, customers generally are not billed and payment is not
received until products are shipped. Revenues recognized on long-term
contracts in excess of amounts billed to customers are classified as current
assets, as these contracts are expected to be completed within one year.
Most of the Company's international sales are denominated in U.S. dollars,
Canadian welding sales are denominated in Canadian dollars and Japanese sales
of optical inspection equipment are denominated in yen. The impact of foreign
currency fluctuations has historically not been significant. For additional
information on export sales, see the notes to the Consolidated Financial
Statements (Item 8).
The markets in which the Company competes are technologically advanced and
highly competitive. Accordingly, the Company's continued success requires
substantial research and development expenditures. While developing new
products, the Company attempts to be cognizant of inventory currently in its
possession in order to help mitigate inventory becoming obsolete. Software
development expenditures that are not chargeable to specific customer orders
are expensed as research and development until technical feasibility is
established. Thereafter, such expenditures are capitalized, reflected as other
assets at the lower of cost or net realizable value, and amortized over the
shorter of the remaining estimated economic life of the related products or
five years. Capitalized software development costs were $4.7 million, $3.3
million and $2.5 million in 1996, 1995 and 1994, respectively. Amortization of
capitalized software included in cost of sales was $2.5 million, $2.3 million
and $1.6 million in 1996, 1995 and 1994, respectively. Engineering and
development expenditures relating to certain orders are incorporated in the
price charged to customers and are reflected in cost of sales. Those costs
were $1.4 million, $1.8 million and $0.4 million in 1996, 1995 and 1994,
respectively. The Company expects to continue its commitment to research and
development in the future.
Management's future expectations and results of operations, and other forward
looking statements contained in this document, involve a number of risks and
uncertainties. Among these are business conditions and the general economy;
competitive factors, such as pricing and marketing efforts of rival companies,
margins actually realized on product sales, and the timing and success of new
product introductions.
Page 12
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from the
Company's Statements of Operations as a percentage of net sales. The impact of
inflation for the periods presented was not significant.
<TABLE>
<CAPTION>
Year ended December 31
- ----------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
(in thousands)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.2 75.7 66.6
- ----------------------------------------------------------------------------------------------
Gross margin 25.8 24.3 33.4
Marketing expense 10.9 12.6 9.5
General and administrative expense 7.7 8.6 6.8
Research and development expense 8.6 5.2 5.9
Patent litigation costs 13.7 1.6
Excess product quality, warranty and other costs 12.3
- ----------------------------------------------------------------------------------------------
27.2 52.4 23.8
- ----------------------------------------------------------------------------------------------
Earnings (loss) from operations (1.4) (28.1) 9.6
Interest:
Expense 3.7 1.5 0.6
Income (0.1) (0.2) (0.5)
- ----------------------------------------------------------------------------------------------
3.6 1.3 0.1
- ----------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and extraordinary credit (5.0) (29.4) 9.5
Provision (credit) for income taxes (0.2) (0.3) 0.3
- ----------------------------------------------------------------------------------------------
Net earnings (loss) (4.8%) (29.1%) 9.2%
==============================================================================================
</TABLE>
YEAR ENDED DECEMBER 31, 1996, COMPARED TO DECEMBER 31, 1995
Net sales increased $1.7 million (4.3%) to $41.5 million in 1996 from $39.8
million in 1995. The increase resulted from an increase in resistance welding
product sales and a decrease in sales of optical inspection products. The
increase in the sales of resistance welding products resulted principally from
continued strong orders from General Motors and Chrysler to satisfy retooling
programs. The decrease in sales in optical vision products resulted
principally from an industry wide drop in the growth of orders for audio CD's
and CD-ROM's which resulted in reductions in and cancellations of orders for CD
inspection equipment, particularly in the second half of the year.
Cost of sales increased to $30.8 million from $30.1 million and as a percent
age of net sales decreased to 74.2% from 75.7%. Although 1996 and 1995
percentages are comparative, the cost of sales percentage remains higher than
prior years and management's goals. This results from costs of amortization of
software and other fixed costs not being fully absorbed at the sales levels
achieved in 1996 and 1995.
Marketing expense decreased to $4.5 million from $5.0 million and as a
percentage of net sales from 12.6% to 10.9%. The decrease resulted from better
control of marketing costs, particularly the more effective integration of the
AID and Integral Vision sales forces in the current year.
General and administrative expense decreased to $3.2 million from $3.4 million
and as a percentage of net sales from 8.6% to 7.7%. The decrease resulted from
cost savings following the closing of the former AID facility in Toledo early
in 1996 and better consolidation of general and administrative costs related to
Integral Vision in the UK.
Research and development costs increased to $3.6 million from $2.1 million and
as a percentage of net sales from 5.2% to 8.6%. The increase principally
represents increased expenditures related to development of VisionBlox and DVD
and CD-R technologies.
Page 13
<PAGE> 14
Patent litigation costs and excess product quality, warranty and other costs
represent expenses that were concluded as of December 31, 1995.
Interest expense increased to $1.5 million from $.6 million and as a percentage
of net sales to 3.7% from 1.5%. The increase was due to additional average
borrowings under the revolving note payable to the bank, and the full year
effect of the patent license payable incurred in the third quarter of 1995 and
the term note related to the acquisition of a new production facility in the
fourth quarter of 1995.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO DECEMBER 31, 1994
Net sales remained relatively the same in 1995 when compared to 1994. This was
a result of an increase in sales volume of vision products being offset by a
decrease in sales volume of welding products. The increase in vision sales was
comprised of an increase in shipments of the Company's optical disc inspection
system and related equipment. The decrease in welding sales was due to a
decrease in sales to the Company's two largest customers.
Cost of sales increased to $30.1 million from $26.8 million and as a percentage
of net sales to 75.7% from 66.6%. The increase was due to after-sale costs,
manufacturing inefficiencies and higher levels of overhead which were added in
anticipation of higher sales volume, and in some lines, more competitive
pricing of products.
Marketing expense increased to $5.0 million from $3.8 million and as a
percentage of net sales to 12.6% from 9.5%. The increase was primarily the
result of allocating more resources to market and promote newer vision
products.
General and administrative expense increased to $3.4 million from $2.7 million
and as a percentage of net sales to 8.6% from 6.8%. The increase was due to
additional costs associated with the acquisition of the Company's U.K.
subsidiary, and an increase in the Company's infrastructure.
Research and development expense decreased to $2.1 million from $2.4 million
and as a percentage of net sales to 5.2% from 5.9%. The decrease resulted from
engineering resources which were directed towards resolving manufacturing
issues in two of the Company's new product lines which were introduced over the
past two years.
Patent litigation costs increased to $5.5 million from $0.7 million and as a
percentage of net sales to 13.7% from 1.6%. The increase was the result of the
settlement with Square D Company related to the use of technology in prior
years as well as legal and other costs to defend the case. The Company, in
addition, will make yearly payments related to the use of future technology in
accordance with the cross license agreement which was part of the settlement.
Excess product quality, warranty and other costs relate to costs incurred in
connection with after-sale and other costs experienced with recent product
introductions. These accounts receivable, inventory, warranty and other costs,
while not all directly related to the fourth quarter of 1995, were identified
at such time, following an extensive review of these areas.
Interest expense increased to $0.6 million from $0.3 million and as a
percentage of net sales to 1.5% from 0.6%. The increase was due to additional
borrowings associated with the revolving note payable to bank, the patent
license payable and an additional term note related to the addition of a new
building to add capacity. The increase in the revolving note was principally
the result of the net loss incurred in 1995.
The credit for income taxes in 1995 was due to the net loss experienced in
1995. There was income tax expense in 1994 due to the profitability during
that year.
Page 14
<PAGE> 15
QUARTERLY INFORMATION
The following table sets forth consolidated statements of operations data for
each of the eight quarters in the two year period ended December 31, 1996. The
unaudited quarterly information has been prepared on the same basis as the
annual information and, in management's opinion, includes all adjustments
necessary for a fair presentation of the information for the quarters
presented.
<TABLE>
<CAPTION>
Quarter Ended
- --------------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
- --------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $5,312 $13,721 $12,216 $10,222 $7,441 $9,777 $11,194 $11,359
Gross margin (loss) (537) 3,840 3,913 3,467 109 2,091 3,790 3,665
Net earnings (loss) (3,800) 607 887 327 (8,788) (649) (2,293) 147
==========================================================================================================================
Net earnings (loss) per share $ (.43) $.07 $.10 $.04 $(1.01) $(.07) $(.26) $.02
==========================================================================================================================
</TABLE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's sales and operating results have varied substantially from
quarter to quarter. Net sales and earnings are typically lower in the fourth
and first quarters. The most significant factors affecting these fluctuations
are the seasonal buying patterns of the Company's customers. The principal
customers for the Company's resistance welding control products traditionally
make purchases in connection with re-tooling for new automobile body styles and
tend to purchase the Company's equipment in the second and third quarters. The
end users of the Company's optical inspection products typically add
manufacturing capacity in the second and third quarters in anticipation of
higher production requirements in the fourth quarter. The Company expects its
net sales and earnings to continue to fluctuate from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the company had a revolving note payable to bank due
August 11, 1998, with a maximum balance of $16.0 million. In February, 1997,
following negotiations with the bank, the Company restructured its bank
obligation as follows:
Revolving note payable to bank, with interest at the bank's prime rate,
plus 1/4%, due August 11, 1998.
Note payable to bank, with interest at the bank's prime rate, plus 2%, due
$1.5 million July 31, 1997 and $1.5 million December 31, 1997.
$1.5 million demand note payable to bank, with interest at the bank's
prime rate, plus 1%, guaranteed by a stockholder.
The total of these obligations is limited to $16.0 million (decreasing to $15.0
million on July 31, 1997) with availability of the revolving note based upon
levels of eligible accounts receivable and inventory. $15.6 million was
borrowed on the line as of December 31, 1996. Substantially all of the
Company's assets are pledged in support of these obligations and the mortgage
notes payable.
The agreement with the bank includes tangible net worth covenants and ratios at
levels which the Company believes can be maintained over the life of the
agreement.
In 1996, the Company used proceeds from long-term borrowings to fund additions
to capitalized software and property and equipment. Despite the operating
loss, actual cash used in operations was minimal. No significant commitments
for capital expenditures existed as of December 31, 1996. The Company expects
to capitalize approximately $3.0 million of software development costs in 1997
and has no other plans for significant capital expenditures.
Although the Company believes that current financial resources together with
cash generated from operations are adequate to meet cash needs through 1997, it
expects to issue subordinated debt in the first six months of 1997 that will be
used to refinance the demand note and support working capital requirements.
Page 15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and quarterly results of operations are submitted in
separate sections of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 16
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Medar, Inc. proxy statement (to be filed
within 120 days of December 31, 1996), with respect to directors and executive
officers of the Company, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Medar, Inc. proxy statement (to be filed
within 120 days of December 31, 1996), with respect to directors and executive
officers of the Company, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Medar, Inc. proxy statement (to be filed
within 120 days of December 31, 1996), with respect to directors and executive
officers of the Company, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Medar, Inc. proxy statement (to be filed
within 120 days of December 31, 1996), with respect to directors and executive
officers of the Company, is incorporated herein by reference.
Page 17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The response to this portion of Item 14 is
and (2) submitted as a separate section of this report.
(3) Listing of Exhibits
Exhibit
Number Description of Document
- ------ ----------- -- --------
3.1 Articles of Incorporation, as amended. (Filed as
Exhibit 3.1 to the registrant's Form.)
3.2 Bylaws of the Registrant, as amended (filed as
Exhibit 3.1 to the registrant's Form 10-K for the
year ended December 31, 1991, SEC file 0-12728, and
incorporated herein by reference).
10.1 Incentive Stock Option Plan of the Registrant as
amended (filed as Exhibit 10.4 to the registrant's
Form S-1 Registration Statement effective July 2,
1985, SEC File 2-98085, and incorporated herein by
reference).
10.2 Second Incentive Stock Option Plan (filed as Exhibit
10.2 to the registrant's Form 10-K for the year ended
December 31, 1992, SEC File 0-12728, and incorporated
herein by reference).
10.3 Amendment to Medar, Inc. Incentive Stock Option Plan
dated May 10, 1993 (filed as Exhibit 10.3 to the
registrant's Form 10-K for the year ended December
31, 1993, SEC File 0-12728, and incorporated herein
by reference).
10.4 Non-qualified Stock Option Plan (filed as Exhibit
10.3 to the registrant's Form 10-K for the year ended
December 31, 1992, SEC File 0-12728, and incorporated
herein by reference).
10.5 Medar, Inc. Employee Stock Option Plan (filed as
Exhibit 10.5 to the registrant's Form 10-Q for the
quarter ended September 30, 1995, SEC file 0-12728,
and incorporated herein by reference).
10.6 Form of Confidentiality and Non-Compete Agreement
Between the Registrant and its Employees (filed as
Exhibit 10.4 to the registrant's Form 10-K for the
year ended December 31, 1992, SEC File 0-12728, and
incorporated herein by reference).
10.7 Contract between Shanghai Electric Welding Machine
Works, Medar, Inc. and Lida U.S.A. dated August 30,
1993, related to joint venture agreement (both the
original Chinese version and the English translation)
(filed as Exhibit 10.7 to the registrant's Form 10-K
for the year ended December 31, 1993, SEC File
0-12728, and incorporated herein by reference).
10.8 Asset Purchase Agreement between Medar, Inc. and Air
Gage Company dated February 28, 1994 (filed as
Exhibit 10.8 to the registrant's Form 10-K for the
year ended December 31, 1993, SEC File 0-12728, and
incorporated herein by reference).
10.9* License Agreement number 9303-004 between Medar, Inc.
and Allen-Bradley Company, Inc. dated April 12, 1993
(filed as Exhibit 10.9 to the registrant's Form 10-K
for the year ended December 31, 1993, SEC File
0-12728, and incorporated herein by reference).
10.10* License Agreement number 9304-009 between Medar,
Inc. and Allen-Bradley Company, Inc. dated May 10,
1993 (filed as Exhibit 10.10 to the registrant's Form
10-K for the year ended December 31, 1993, SEC File
0-12728, and incorporated herein by reference).
10.11 Agreement by and between Medar, Inc. and ABB
Robotics, Inc. dated December 1992 regarding joint
development to integrate a weld controller into the
S3 robot control (filed as Exhibit 10.11 to the
registrant's Form 10-K for the year ended December
31, 1993, SEC File 0-12728, and incorporated herein
by reference).
10.15 Amended and Restated Mortgage and Security Agreement
dated June 29, 1993 by and between Medar, Inc. and
NBD Bank, N.A. (filed as Exhibit 4.5 to the
registrant's Form 10-K for the year ended December
31, 1993, SEC File 0-12728, and incorporated herein
by reference).
Page 18
<PAGE> 19
10.16 Revolving Credit and Loan Agreement dated August 10,
1995 by and between Medar, Inc., Automatic Inspection
Devices, Inc. and Integral Vision, Ltd. and NBD Bank
(filed as Exhibit 10.1 to the registrant's Form 10-Q
for the quarter ended June 30, 1995, SEC File
0-12728, and incorporated herein by reference).
10.17 Amendment No. 2 to Loan and Credit Agreement and Term
Note dated August 10, 1995 by and between Medar,
Inc., Automatic Inspection Devices, Inc. and NBD Bank
(filed as Exhibit 10.2 to the registrant's Form 10-Q
for the quarter ended June 30, 1995, SEC File
0-12728, and incorporated herein by reference).
10.18 First Amendment to Revolving Credit and Loan
Agreement dated October 12, 1995, by and between
Medar ,Inc., Automatic Inspection Devices, Inc. and
Integral Vision, Ltd. and NBD Bank (filed as Exhibit
10.18 to the registrant's Form 10-Q for the quarter
ended September 30, 1995, SEC File 0-12728, and
incorporated herein by reference).
10.19 Second Amended and Restated Revolving Note dated
October 12, 1995, by and between Medar, Inc.,
Automatic Inspection Devices, Inc. and Integral
Vision, Ltd. and NBD Bank (filed as Exhibit 10.19 to
the registrant's Form 10-Q for the quarter ended
September 30, 1995, SEC File 0-12728, and
incorporated herein by reference).
10.20 Mortgage dated October 31, 1995 by and between Medar,
Inc. and NBD Bank (filed as Exhibit 10.21 to the
registrant's Form 10-Q for the quarter ended
September 30, 1995, SEC File 0-12728, and
incorporated herein by reference).
10.21 Installment Business Loan Note dated October 31,
1995, by and between Medar, Inc. and NBD Bank (filed
as Exhibit 10.22 to the registrant's Form 10-Q for
the quarter ended September 30, 1995, SEC File
0-12728, and incorporated herein by reference).
10.22 Guarantee and Postponement of Claim dated August 10,
1995 between Medar Canada, Ltd. and NBD Bank (filed
as Exhibit 10.23 to the registrant's Form 10-Q for
the quarter ended September 30, 1995, SEC File
0-12728, and incorporated herein by reference).
10.23* Patent License Agreement dated October 4, 1995
by and between Medar, Inc. and Square D Company
(filed as Exhibit 10.24 to the registrant's Form 10-Q
for the quarter ended September 30, 1995, SEC File
0-12728, and incorporated herein by reference).
10.24 Third Amendment to Revolving Credit and Loan
Agreement dated March 29, 1996 by and between Medar,
Inc., Integral Vision-AID, Inc., Integral Vision
Ltd., and NBD Bank (filed as Exhibit 10.24 to the
registrant's Form 10-Q for the quarter ended March
31, 1996, SEC file 0-12728, and incorporated herein
by reference).
10.25 Third Amended and Restated Revolving Note dated March
29, 1996 by and between Medar, Inc., Integral
Vision-AID, Inc., Integral Vision Ltd., and NBD Bank
(filed as Exhibit 10.25 to the registrant's Form 10-Q
for the quarter ended March 31, 1996, SEC file
0-12728, and incorporated herein by reference.)
10.26 General Security Agreement dated March 29, 1996 by
and between Medar, Inc., and NBD Bank (filed as
Exhibit 10.26 to the registrant's Form 10-Q for the
quarter ended March 31, 1996, SEC file 0-12728, and
incorporated herein by reference).
10.27 General Security Agreement dated March 29, 1996 by
and between Integral Vision-AID, Inc. and NBD Bank
(filed as Exhibit 10.27 to the registrant's Form 10-Q
for the quarter ended March 31, 1996, SEC file
0-12728, and incorporated herein by reference).
10.28 General Security Agreement dated May 1, 1996 by and
between Medar Canada Ltd., and NBD Bank (filed as
Exhibit 10.28 to the registrant's Form 10-Q for the
quarter ended June 30, 1996, SEC file 0-12728, and
incorporated herein by reference).
10.29 Composite Guarantee and Debenture dated May 29, 1996
by and between Integral Vision, Ltd. and NBD Bank
(filed as Exhibit 10.29 to the registrant's Form 10-Q
for the quarter ended June 30, 1996, SEC file
0-12728, and incorporated herein by reference).
Page 19
<PAGE> 20
10.30 Fourth Amendment to Revolving Credit and Loan
Agreement dated August 11, 1996 by and between Medar,
Inc., Integral Vision-AID, Inc., Integral Vision Ltd.
and NBD Bank (filed as Exhibit 10.30 to the
registrant's Form 10-Q for the quarter ended
September 10, 1996, SEC file 0-12728, and
incorporated herein by reference).
10.31 Fifth amendment to revolving credit and loan
agreement dated February 27, 1997 by and between
Medar, Inc. and Integral Vision, Ltd. and NBD Bank.
10.32 Over formula loan note dated February 27, 1997 by and
between Medar, Inc., Integral Vision, Ltd. and NBD
Bank.
10.33 Bridge loan note dated February 27, 1997 by and
between Medar, Inc., Integral Vision ,Ltd., and NBD
Bank.
10.34 Guaranty by Maxco, Inc. dated February 27, 1997 of
$1,500,000 bridge loan note by and between Medar,
Inc., Integral Vision, Ltd., and NBD Bank.
11 Calculation of Earnings per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed in the
quarter ended December 31, 1996.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules - The response to this
portion of Item 14 is submitted as a separate
section of this report.
* The Company has been granted confidential treatment with
respect to certain portions of this exhibit pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
Page 20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 25, 1997 MEDAR, INC.
--------------
By: //CHARLES J. DRAKE//
--------------------------------------------
Charles J. Drake, President, Chairman of the Board
(Principal Executive Officer)
By: //RICHARD R. CURRENT//
--------------------------------------------
Richard R. Current, Executive Vice President of
Finance and Operations (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
//CHARLES J. DRAKE// President, Chairman of the Board (Principal
- --------------------------- Executive Officer) and Director
Charles J. Drake
//MAX A. COON// Vice Chairman, Secretary and Director
- ---------------------------
Max A. Coon
//RICHARD R. CURRENT// Executive Vice President of Finance and Operations
- --------------------------- (Principal Financial and Accounting Officer) and
Richard R. Current Director
//VINCENT SHUNSKY// Treasurer and Director
- ---------------------------
Vincent Shunsky
//WILLIAM B. WALLACE// Director
- ---------------------------
William B. Wallace
//STEPHAN SHARF// Director
- ---------------------------
Stephan Sharf
//STEPHEN ZYNDA// Director
- ---------------------------
Stephen Zynda
Page 21
<PAGE> 22
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
MEDAR, INC.
FARMINGTON HILLS, MICHIGAN
Page 22
<PAGE> 23
FORM 10-K - ITEM 14(a)(1) and (2)
MEDAR, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The following consolidated financial statements of
Medar, Inc. and subsidiaries are included in Item 8:
Report of independent auditors
Consolidated balance sheets-December 31, 1996 and 1995
Consolidated statements of operations-Years ended
December 31, 1996, 1995 and 1994
Consolidated statements of stockholders' equity-Years
ended December 31, 1996, 1995 and 1994
Consolidated statements of cash flows-Years ended
December 31, 1996, 1995 and 1994
Notes to consolidated financial statements-December 31, 1996
(2) The following consolidated financial statement schedule of Medar,
Inc. and subsidiaries is submitted herewith:
SCHEDULE II Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Page 23
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Medar, Inc.
We have audited the consolidated balance sheets of Medar, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits included the
financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Medar,
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Detroit, Michigan
February 27, 1997
Page 24
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS (Note D)
Cash $ 215 $ 1,556
Accounts receivable, less allowance of $400,000 in 1996, and $355,000 in 1995 9,415 8,618
Inventories (Note A) 15,991 13,167
Costs and estimated earnings in excess of billings on incomplete contracts (Note C) 1,841 681
Other current assets 543 849
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 28,005 24,871
PROPERTY AND EQUIPMENT (Note D)
Land and improvements 368 329
Building and building improvements 6,147 6,109
Production and engineering equipment 3,303 2,733
Furniture and fixtures 990 891
Vehicles 878 660
Computer equipment 5,058 3,907
- --------------------------------------------------------------------------------------------------------------------
16,744 14,629
Less accumulated depreciation 6,625 4,965
- --------------------------------------------------------------------------------------------------------------------
10,119 9,664
OTHER ASSETS
Capitalized computer software development costs, less accumulated amortization (Note A) 8,908 6,761
Patents, less accumulated amortization (Note A) 2,328 2,507
Other 916 920
- --------------------------------------------------------------------------------------------------------------------
12,152 10,188
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $50,276 $44,723
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 5,218 $ ,202
EMPLOYEE COMPENSATION 1,001 674
ACCRUED AND OTHER LIABILITIES 1,108 1,567
CURRENT MATURITIES OF LONG-TERM DEBT (NOTE D) 3,637 752
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 10,964 6,195
LONG-TERM DEBT, less current maturities (Note D) 18,010 15,685
DEFERRED INCOME TAXES 76
STOCKHOLDERS' EQUITY (Note H)
Common stock, without par value, stated value $.20 per share; 15,000,000
shares authorized; 8,852,401 shares issued and outstanding (8,711,589 shares at
December 31, 1995) 1,771 1,742
Additional paid-in capital 29,767 29,438
Earnings deficit retained (10,300) (8,321)
Accumulated translation adjustment 64 (92)
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 21,302 22,767
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $50,276 $44,723
====================================================================================================================
</TABLE>
See accompanying notes.
Page 25
<PAGE> 26
CONSOLIDATED STATEMENTS OF OPERATIONS
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31
- ---------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------
(in thousands, except per share data)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $41,471 $39,771 $40,218
Cost of sales 30,788 30,116 26,767
- ---------------------------------------------------------------------
10,683 9,655 13,451
Costs and expenses:
Marketing 4,510 5,016 3,814
General and administrative 3,203 3,416 2,738
Research and development 3,552 2,088 2,362
Patent litigation costs (Note I) 5,461 665
Excess product quality, warrant and
other costs (Note J) 4,872
- ---------------------------------------------------------------------
11,265 20,853 9,579
- ---------------------------------------------------------------------
Earnings (loss) from operations (582) (11,198) 3,872
Interest:
Expense 1,523 587 251
Income (50) (72) (199)
- ---------------------------------------------------------------------
1,473 515 52
- ---------------------------------------------------------------------
Earnings (loss) before income taxes (2,055) (11,713) 3,820
Provision (credit) for income taxes
(Note F) (76) (130) 132
- ---------------------------------------------------------------------
Net earnings (loss) $(1,979) $(11,583) $3,688
=====================================================================
Net earnings (loss) per share (Note A) $(.22) $(1.33) $.43
=====================================================================
</TABLE>
See accompanying notes.
Page 26
<PAGE> 27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional Retained Accumulated
Common Paid-In Earnings Translation
Stock Capital (Deficit) Adjustment Total
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994 $1,452 $15,145 $ (411) $(99) $16,087
Exercise of options to purchase 37,200
common shares 8 89 97
Issuance of 30,000 shares to acquire
technology 6 463 469
Issuance of 1,300,000 shares 260 13,406 13,666
Translation adjustments 11 11
Other (2) (15) (17)
Net earnings for the year ended December
31, 1994 3,688 3,688
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1994 1,726 29,101 3,262 (88) 34,001
Exercise of options to purchase 84,262
common shares 17 400 417
Translation adjustments (4) (4)
Other (1) (63) (64)
Net loss for the year ended December 31,
1995 (11,583) (11,583)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 1,742 29,438 (8,321) (92) 22,767
Exercise of options to purchase 140,812
common shares 29 329 358
Translation adjustments 156 156
Net loss for the year ended December
31, 1996 (1,979) (1,979)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 $1,771 $29,767 $(10,300) $ 64 $21,302
============================================================================================================================
</TABLE>
See accompanying notes.
Page 27
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (1,979) $ (11,583) $ 3,688
Adjustments to reconcile net earnings (loss) from operations to
net cash provided by (used in) operating activities:
Depreciation and amortization 4,529 3,672 2,399
Provision (credit) for deferred income taxes (76) (130) 91
(Increase) decrease in net accounts receivable (797) 3,305 (2,641)
Increase in inventories (2,824) (1,752) (4,468)
(Increase) decrease in costs and estimated earnings
in excess of billings on incomplete contracts (1,160) 1,610 383
Decrease in other assets 310 (658) (937)
Increase (decrease) in accounts payable and accrued
expenses 1,884 (1,431) 2,289
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (113) (6,967) 804
INVESTING ACTIVITIES
Sale (purchase) of short-term investments 4,018 (4,018)
Purchase of property and equipment (2,283) (5,204) (1,915)
Investment in capitalized software (4,669) (3,253) (2,507)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,952) (4,439) (8,440)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and other 358 353 79
Net proceeds from sale of common stock 13,666
Debt repayments on long-term debt and capital lease
obligations (20,154) (8,139) (12,778)
Proceeds from long-term debt borrowings 25,364 20,161 6,765
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,568 12,375 7,732
- ------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 156 1 (10)
- ------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in cash (1,341) 970 86
Cash at beginning of year 1,556 586 500
- ------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 215 $ 1,556 $ 586
==================================================================================================================
</TABLE>
See accompanying notes.
Page 28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 1996 consolidated financial statements include the accounts of the Company
and its two 100% owned subsidiaries: Integral Vision Ltd., United Kingdom; and
Medar Canada Ltd., Canada. The 1995 and 1994 consolidated financial statements
include the accounts of Integral Vision-AID, Inc. Integral Vision-AID, Inc.
became a division of Medar, Inc. in 1996. Upon consolidation, all significant
intercompany accounts and transactions are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of Integral Vision Ltd. and Medar Canada Ltd. are
translated into United States dollar equivalents at exchange rates as follows:
balance sheet accounts at year-end rates; income statement accounts at average
exchange rates for the year. Transaction gains and losses are reflected in net
earnings and are not significant.
ACCOUNTS RECEIVABLE
Trade accounts receivable primarily represent amounts due from automobile and
other equipment manufacturers located in North America for welding products and
from equipment manufactured in North America, Asia and Europe for vision
products
Customers which accounted for 10% or more of the Company's resistance welding
controls sales in any of the three years ended December 31, 1996 and the
respective sales in each year are:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------------------------
(in thousands)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chrysler Corporation $6,009 $3,400 $5,600
General Motors Corporation 7,730 8,500 9,100
================================================================================================
</TABLE>
Page 29
<PAGE> 30
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market, and
at December 31 consisted of the following (net of obsolescence reserve of
$156,000 in 1996 and $154,000 in 1995):
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------------------------------
(in thousands)
--------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 7,677 $ 7,095
Work in process 3,106 3,305
Finished goods 5,208 2,767
--------------------------------------------------------------------------------------
$15,991 $13,167
======================================================================================
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Equipment capitalized
under lease agreements and the related accumulated amortization is included in
property and equipment. Expenditures for normal repairs and maintenance are
charged to operations as incurred.
Depreciation, including amortization of assets recorded under capital lease
obligations, is computed by the straight-line method based on the estimated
useful lives of the assets (buildings-40 years, other property and equipment-3
to 10 years).
CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS
Computer software development costs are capitalized after the establishment of
technological feasibility of the related technology. These amounts are stated
at the lower of cost or net realizable value. These costs are amortized
following general release of products based on current and estimated future
revenue for each product with an annual minimum equal to the straight-line
amortization over the remaining estimated economic life of the product (not to
exceed 5 years). Amortization of the capitalized costs amounted to $2,522,000,
$2,314,000, and $1,638,000 in 1996, 1995 and 1994, respectively. Total
accumulated amortization at December 31, 1996 and 1995, was $9,893,468 and
$7,371,563 respectively.
PATENTS
Patents are stated at cost less accumulated amortization of $660,000 and
$343,000 at December 31, 1996 and 1995, respectively. Amoritization of the
patents amounted to $317,000, $204,000 and $30,000 in 1996, 1995, and 1994,
respectively. These costs are amortized on a straight-line basis over the
estimated useful lives of the assets.
REVENUE RECOGNITION
Revenues are recorded at the time services are performed or when products are
shipped, except for long-term contracts. Revenues on long-term contracts are
recognized using the percentage of completion method . The effects of changes
to estimated total contract costs are recognized in the year determined and
losses, if any, are fully recognized when identified. Costs and estimated
earnings recognized in excess of amounts billed are classified under current
assets as costs and estimated earnings in excess of billings on incomplete
contracts. Long-term contracts include a relatively high percentage of
engineering costs and are generally less than one year in duration.
Page 30
<PAGE> 31
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs not recovered from customers are expensed as
incurred.
INCOME TAXES
Deferred income taxes are provided when necessary to recognize the effect of
temporary differences between financial and income tax accounting related
principally to contract revenues, depreciation and capitalized computer
software development costs.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock outstanding and, to the extent dilutive, stock options outstanding during
the period. The weighted average number of shares of common stock and common
stock equivalents utilized in the computation of net earnings per share was
8,820,140 for the year ended December 31, 1996, 8,691,750 shares for the year
ended December 31, 1995, and 8,523,715 for the year ended December 31, 1994.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the Financial Accounting Standards Board Statement No. 121,
Accounting for the Impariement of Long-Lived Asets and for Long-lived Asets to
be Disposed of, which requires impairment losses to be recorded on long-lived
asets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The affect of adoption
was immaterial to the financial statements.
NOTE B - ACQUISITION OF INTEGRAL VISION LTD.
Effective January 1, 1995, the Company acquired 100% of the common stock and
preference shares of Integral Vision Ltd. (Integral) for 654,282 previously
unissued shares of Medar, Inc. common stock. Integral is a machine vision
company located in the United Kingdom, which develops and manufactures
solutions for OEM's and end-users. This transaction has been accounted for as
a pooling of interests and accordingly, the consolidated financial statements
for all periods prior to the transaction have been restated to include the
accounts of Integral.
NOTE C - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON INCOMPLETE
CONTRACTS
Costs and estimated earnings in excess of billings on incomplete contracts at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------------
(in thousands)
-----------------------------------------------------------------------------------
<S> <C> <C>
Contract costs to date $ 4,567 $ 4,278
Estimated contract earnings 3,040 1,985
-----------------------------------------------------------------------------------
7,607 6,263
Less billings to date (5,766) (5,582)
-----------------------------------------------------------------------------------
Costs and estimated earnings in excess
of billings on incomplete contracts $ 1,841 $ 681
===================================================================================
</TABLE>
The Company anticipates that the majority of costs incurred on long-term
contracts at December 31, 1996, will be billed and collected in 1997.
Page 31
<PAGE> 32
NOTE D - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------
<S> <C> <C>
Revolving note payable to bank $12,604 $ 9,818
Note payable to bank 3,000
Term notes payable to bank 3,967 4,463
Patent license payable 1,863 2,000
Other 213 156
------------------------------------------------------------------------------------
21,647 16,437
Less current maturities 3,637 752
------------------------------------------------------------------------------------
$18,010 $15,685
====================================================================================
</TABLE>
In February, 1997, the agreement with the bank covering the revolving note
payable to bank and the $3,000,000 note payable to bank was re-negotiated.
Under the terms of the revised agreement, covenants, interest rates and terms
were adjusted. The debt in the December 31, 1996 financial statements has been
classified in accordance with the terms of the revised agreement.
The $15,000,000 revolving note payable to bank is due August 10, 1998, and
provides for advances based upon levels of eligible accounts receivable and
inventories. Interest is at the bank's prime rate plus 1/4%.
The $3,000,000 note payable to bank is due $1,500,000 July 31, 1997, and
$1,500,000 December 31, 1997. Interest is at the bank's prime rate plus 2%.
Additionally, in February, 1997, the bank advanced $1,500,000 under a demand
note, which has been guaranteed by a stockholder. Interest is at the bank's
prime rate plus 1%.
The revised agreement provides for total borrowings on the revolving note
payable to bank and the note payable to bank (including the $1,500,000 February
note payable) of up to $16,000,000 through July 31, 1997 and up to $15,000,000
thereafter under the terms of the revised agreement. The Company has agreed,
among other covenants, to maintain net worth and the ratio of debt to equity,
all as defined, at specified levels which will next be measured at September
30, 1997. The notes are collateralized by substantially all of the Company's
assets including assets previously pledged to secure term loans described
below.
The Company has two term notes payable to bank. One note is payable in
quarterly installments of $62,500 plus interest at the bank's prime rate, with
the balance becoming due June 29, 1998. The second note is payable in monthly
installments of $14,111 plus interest at the bank's prime rate or other rates
made available under the terms of the agreement, with the balance becoming due
September 30, 2000. The notes are collateralized by the Medar office and
production facilities in Farmington Hills, Michigan, and machinery and
equipment, inventory and accounts receivable at all North American locations.
The patent license payable relates to future payments to be made to Square D
Company related to the settlement of patent litigation. The payments are due
in ten equal installments and have been discounted at 8%.
The fair values of these financial instruments approximates their carrying
amounts at December 31, 1996.
Maturities of long-term debt is $14,359,000 in 1998; $398,000 in 1999;
$2,059,000 in 2000; $204,000 in 2001 and $990,000 thereafter.
Page 32
<PAGE> 33
NOTE E - STATEMENT OF CASH FLOWS
The Company paid interest on its debt instruments of $1,646,000, $356,000, and
$384,000 in 1996, 1995 and 1994, respectively. Payments for income taxes were
$125,000 in 1994. There were no income tax payments in 1996 or 1995.
NOTE F - INCOME TAXES
As of December 31, 1996, the Company has cumulative net operating loss
carryforwards approximating $18,530,000 for tax purposes available for
reduction of taxable income of future periods from 2010 through 2011 and unused
investment and research and development tax credits approximating $870,000
which expire through the same period. For financial reporting purposes, the
net operating losses have been offset against net deferred tax liabilities
based upon their expected amortization during the loss carryforward period.
The valuation allowance increased $448,000 and 3,896,000 in 1996 and 1995,
respectively, and decreased $944,000 in 1994.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------
(in thousands)
----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deductible software development costs, net of amortization $2,931 $2,224
Tax over book depreciation 344 346
Percentage of completion 491 184
----------------------------------------------------------------------------------------
Total deferred tax liabilities 3,766 2,754
Deferred tax assets:
Net operating loss carryforwards 6,836 4,840
Credit carryforwards 987 987
Reserve for warranty 68 237
Other 219 510
----------------------------------------------------------------------------------------
Total deferred tax assets 8,110 6,574
Valuation allowance for deferred tax assets 4,344 3,896
----------------------------------------------------------------------------------------
Net deferred tax assets 3,766 2,678
----------------------------------------------------------------------------------------
Net deferred tax liabilities $ 0 $ 76
========================================================================================
</TABLE>
Page 33
<PAGE> 34
Significant components of the provision (credit) for income taxes are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 20
Foreign (7)
State 28
-------------------------------------------------------------------------------------------
41
Deferred:
Federal $(130) 130
Foreign $ (76) (39)
-------------------------------------------------------------------------------------------
(76) (130) 91
-------------------------------------------------------------------------------------------
$ (76) $(130) $132
===========================================================================================
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax (credit) at U.S. statutory rates $(699) $(3,983) $1,299
Utilization of net operating loss (1,330)
Valuation allowance established 488 3,896
Other nondeductible expenses 73 75 38
Other 62 (118) 97
State income taxes 28
-------------------------------------------------------------------------------------------
$ (76) $ (130) $ 132
===========================================================================================
</TABLE>
NOTE G - EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan covering substantially all United
States' employees. The Company contributes $.20 to the Plan for every dollar
contributed by the employees up to 6% of their compensation. The Plan also
provides for discretionary contributions by the Company as determined annually
by the Board of Directors. Company contributions charged to operations under
the Plan were $89,000, $61,000, and $87,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
NOTE H - STOCK OPTIONS
The terms of the Company's qualified incentive stock option plan provide for
the issuance of options for the purchase of up to 800,000 shares of the
Company's common stock at market value at the date of the option grant.
Options are granted with various vesting requirements established by the
Compensation Committee of the Board of Directors and expire ten years from the
date of grant. There were 21,700 options granted under this plan during 1994.
No options were granted under this plan during 1995 or 1996. Options for
298,700 shares were outstanding and exercisable at December 31, 1996.
Under the Company's non-qualified stock option plan, options to purchase
200,000 shares were available to grant at option prices set by the Compensation
Committee of the Board of Directors. There were 19,000 options granted under
this plan during 1994. No options were granted under this plan during 1995 or
1996. Options for 90,000 shares were outstanding and exercisable at December
31, 1996.
Page 34
<PAGE> 35
The Company also has a third stock option plan under which it may issue
qualified or non-qualified options for the purchase of up to 500,000 shares at
option prices set by the Compensation Committee of the Board of Directors.
There were 131,900 and 211,000 options granted under this plan in 1996 and
1995, respectively. Options for 200,400 shares were outstanding and 75,200
were exercisable at December 31, 1996.
A summary of option activity under all plans follows ):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise Shares
Price Price
- ------------------------------------------------------------------------------------------------------
(number of shares in thousands)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 788 $5.82 664 $4.87 660
Granted ($6.25 to $8.50 per share) 132 6.25 211 8.50 41
Exercised ($.35 to $7.50 per share) (141) 2.52 (84) 4.95 (37)
Canceled ($5.625 to $11.50 per share) (190) 8.46 (3) 7.50
- ------------------------------------------------------------------------------------------------------
Outstanding at end of year
($1.75 to $9.25 per share) 589 5.87 788 5.82 664
======================================================================================================
Exercisable ($1.75 to $9.25 per share) 464 $4.54 577 $4.84
======================================================================================================
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$1.75 to $9.25. The weighted-average fair value of options outstanding as of
December 31, 1996 was $3.99. The weighted-average remaining contractual life
of those options is 5.15 years.
The Company has elected to follow APB No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee stock
options because, in management's opinion, the models required to be used by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. After adjusting for
the proforma effect of stock compensation, the net loss is estimated to be
$2,393,000 ($.27 per share) and $11,730,000 ($1.35 per share) for 1996 and
1995, respectively. Assumptions used in determining the above proforma
disclosures were risk free interest rates of 6.12% and 6.23% in 1996 and 1995,
respectively, no dividend yields, .51 market price volatility, and 8-year
weighted average life of option. These proforma results reflect only stock
options granted in 1995 and 1996 and may not be comparable with the results of
applying the fair market value methodology to all stock options granted prior
to the initial adoption of this statement.
NOTE I - COMMITMENTS AND CONTINGENCIES
In July 1995, Medar, Inc. reached a settlement of its patent litigation which
was initiated by Square D Company in April 1994 in the Federal District Courts
in Eastern District of Michigan and in Delaware. This resolution also settles
claims made by Medar against Square D. The terms of the settlement made under
the auspices of the Federal District Court in Delaware provide for a cross
license agreement on all single phase welding patents held by either company
and call for a single payment related to use of technology in prior years as
well as yearly payments for the use of technology in the future.
The single payment was recorded as an expense in 1995. The future payments
have been reflected as a noncash transaction. The costs of this
cross-licensing agreement is being amortized over the life of the agreement.
The Company and its subsidiaries use equipment under long-term operating lease
agreements requiring rental payments approximating $145,000 in 1997, $105,000
in 1998, and $83,000 in 1999. Rent expense charged to operations approximated
$276,000, $380,000, and $390,000 in 1996, 1995 and 1994, respectively.
Page 35
<PAGE> 36
NOTE J - RELATED PARTY TRANSACTIONS AND OTHER MATTERS
Two individuals who are officers and directors of the Company receive no
compensation from the Company, but are compensated by Maxco, Inc., a major
shareholder of the Company.
Excess product quality, warranty and other costs relate to costs incurred in
1995 in connection with quality and other problems experienced with new product
introductions.
NOTE K - GEOGRAPHIC AREA
Net sales to unaffiliated customers, earnings (loss) before income taxes,
identifiable assets and liabilities, classified by geographic areas in which
the Company operates, and net export sales by domestic operations, were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
- -------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
(in thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Unaffiliated customers
United States $34,366 $ 33,330 $34,500
United Kingdom 2,440 3,815 3,247
Canada 4,665 2,626 2,471
- -------------------------------------------------------------------------------------------------------
$41,471 $ 39,771 $40,218
=======================================================================================================
Earnings (loss) before income taxes:
United States $ (1,616) $(11,766) $ 3,992
United Kingdom (495) (200) (224)
Canada 56 253 52
- -------------------------------------------------------------------------------------------------------
$ (2,055) $(11,713) $ 3,820
=======================================================================================================
Identifiable assets:
United States $45,021 $ 42,101 $42,035
United Kingdom 4,993 3,844 1,885
Canada 1,712 1,145 1,109
Eliminations (1,450) (2,367) (1,506)
- -------------------------------------------------------------------------------------------------------
$ 50,276 $ 44,723 $43,523
=======================================================================================================
Liabilities:
United States $26,380 $ 19,341 $ 7,886
United Kingdom 5,170 3,762 1,569
Canada 1,656 1,092 1,625
Eliminations (4,232) (2,239) (1,558)
- -------------------------------------------------------------------------------------------------------
$28,974 $ 21,956 $ 9,522
=======================================================================================================
Net export sales by domestic operations:
North America $ 903 $ 1,944 $ 6,377
Europe 5,986 3,785 3,677
Asia 2,434 2,451 707
Other 275 259 138
- -------------------------------------------------------------------------------------------------------
$ 9,598 $ 8,439 $10,899
=======================================================================================================
</TABLE>
Page 36
<PAGE> 37
NOTE L - SEGMENT DATA
The Company operates principally in two industries, machine vision-based
inspection systems and resistance welding controls. Operations in machine
vision-based inspection systems involve development, production and sale of
equipment used to monitor or control the manufacturing process. These systems
are used to supplement human inspection or provide quality assurance when
production rates exceed human capability. Operations in resistance welding
controls involve development, production, and sale of controls that assure weld
quality and proved data about the welding process.
DECEMBER 31, 1996 AND THE YEAR THEN ENDED
<TABLE>
<CAPTION>
Vision-based Resistance Welding
Inspection Systems Controls Consolidated
- -----------------------------------------------------------------------------------------------------------
(in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $13,618 $27,853 $41,471
Amortization of software development cost 1,608 914 2,522
Research and development expense 1,923 1,130 3,053
Earnings (loss) from operations (5,703) 5,121 (582)
Net interest expense $ 1,473
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $ 2,055
===========================================================================================================
Identifiable assets at December 31, 1996 $22,423 $27,853 $50,276
===========================================================================================================
</TABLE>
DECEMBER 31, 1995 AND THE YEAR THEN ENDED
<TABLE>
<CAPTION>
Vision-based Resistance Welding
Inspection Systems Controls Consolidated
- -----------------------------------------------------------------------------------------------------------
(in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $16,428 $23,343 $ 39,771
Amortization of software development cost 1,375 939 2,314
Research and development expense 222 1,001 1,223
Earnings (loss) from operations (6,948) (4,250) (1) (11,198)
Net interest expense 515
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $(11,713)
===========================================================================================================
Identifiable assets at December 31, 1995 $20,802 $23,921 $ 44,723
===========================================================================================================
</TABLE>
Page 37
<PAGE> 38
DECEMBER 31, 1994 AND THE YEAR THEN ENDED
<TABLE>
<CAPTION>
Vision-based Resistance Welding
Inspection Systems Controls Consolidated
- ------------------------------------------------------------------------------------------------------------
(in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $13,985 $26,233 $40,218
Amortization of software development cost 792 846 1,638
Research and development expense 628 1,121 1,749
Earnings (loss) from operations (643) 4,515 3,872
Net interest expense 52
- ------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $ 3,820
============================================================================================================
</TABLE>
Earnings (loss) is total revenue less operating expenses. Interest expense and
income taxes have been excluded from the calculation of earnings (loss) from
operations.
Identifiable asset allocated to each industry are those assets that are used in
the Company's operations in each industry. Capital additions for machine
vision-based inspection systems and resistance welding controls was $2,065,000
and $218,000, respectively. Depreciation and amortization for machine
vision-based inspection systems and resistance welding controls was $3,166,000
and $1,363,000, respectively.
(1) In 1995 the welding control division incurred a charge of $5.5 million
related to settlement of patent litigation.
Page 38
<PAGE> 39
SCHEDULE II - Valuation And Qualifying Accounts
Medar, Inc. And Subsidiaries
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Description Balance at Beginning Charged to Costs Charged To Other Deductions- Balance At End
of Period And Expenses Accounts-Describe Describe Of Period
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Accounts receivable allowance $ 355 $ 120 $ 75 (2) $ 400
Inventory obsolescence reserve 154 458 456 (3) 156
Deferred tax valuation allowance 3,896 448 4,344
-------- ------ ------- --------
4,405 $1,026 $ 531 $ 4,900
====================================================================================================================================
Year ended December 31, 1995:
Accounts receivable allowance $ 311 $ 78 $ 34 (2) $ 355
Inventory obsolescence reserve 463 130 439 (3) 154
Deferred tax valuation allowance $3,896 (1) 3,896
-------- ------ ------- --------
$ 774 $4,104 $ 473 $ 4,405
====================================================================================================================================
Year ended December 31, 1994:
Accounts receivable allowance $ 166 $ 230 $ 85 (2) $ 311
Inventory obsolescence reserve 405 58 463
Deferred tax valuation allowance 944 944 (1)
-------- ------ ------- --------
$ 1,515 $ 288 $ 1,029 $ 774
===================================================================================================================================
</TABLE>
(1) Net change in deferred tax valuation allowance.
(2) Net accounts receivable write-offs.
(3) Write-off obsolete inventory.
Page 39
<PAGE> 40
EXHIBITS TO FORM 10-K
MEDAR, INC.
YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-12728
Page 40
<PAGE> 41
EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION
10.31 Fifth amendment to revolving credit and loan agreement
dated February 27, 1997 by and between Medar, Inc. and
Integral Vision, Ltd. and NBD Bank.
10.32 Over formula loan note dated February 27, 1997 by and between
Medar, Inc., Integral Vision, Ltd. and NBD Bank.
10.33 Bridge loan note dated February 27, 1997 by and between
Medar, Inc., Integral Vision, Ltd., and NBD Bank.
10.34 Guaranty by Maxco, Inc. dated February 27, 1997 of $1,500,000
bridge loan note by and between Medar, Inc., Integral
Vision, Ltd., and NBD Bank.
11 Calculation of Earnings per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.31
FIFTH AMENDMENT TO
REVOLVING CREDIT AND LOAN AGREEMENT
This FIFTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT ("Fifth
Amendment") is dated as of February 27, 1997, and is among MEDAR, INC., a
Michigan corporation (the "Company"), and INTEGRAL VISION LTD., a corporation
established under the laws of the United Kingdom ("Integral"), as Borrowers,
and NBD BANK, a Michigan banking corporation ("NBD"). This Fifth Amendment
amends the Revolving Credit and Loan Agreement dated as of August 10, 1995 (as
amended, the "Loan Agreement"), as amended by the First Amendment to Revolving
Credit and Loan Agreement dated October 12, 1995 (the "First Amendment"), the
Second Amendment to Revolving Credit and Loan Agreement dated October 31, 1995
(the "Second Amendment"), the Third Amendment to Revolving Credit and Loan
Agreement dated as of March 29, 1996 ("Third Amendment") and the Fourth
Amendment to Revolving Credit and Loan Agreement dated as of August 11, 1996
("Fourth Amendment"), among the Company, AID (as defined below), Integral and
NBD. The Company and Integral are collectively referred to as the "Borrowers"
and individually as a "Borrower". Capitalized terms not otherwise defined in
this Fifth Amendment shall have the meanings given to them in the Loan
Agreement.
WHEREAS, the Company has informed NBD that its former subsidiary,
INTEGRAL VISION-AID, INC., a Michigan corporation ("AID") (successor by merger
to Integral Vision-Aid, Inc., an Ohio corporation, formerly known as Automatic
Inspection Devices, Inc.), has been merged into the Company and no longer
exists as a separate corporation;
WHEREAS, the Borrowers have requested that NBD advance sums in excess
of the current Borrowing Base;
WHEREAS, NBD has agreed that to make an additional $1,500,000 loan to
the Borrowers while they seek additional equity or subordinated debt, pursuant
to the terms and conditions of this Fifth Amendment, including the guaranty of
such loan by MAXCO, INC. ("Maxco").
WHEREAS, NBD has agreed that to make an additional $3,000,000 term loan
to the Borrowers in order to finance the existing over-formula advances which
Borrowers have not been able to repay on a timely basis.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties agree as follows:
1. Revised Definitions.
(a) The following definitions contained in Section 1.1 of the Loan
Agreement, as amended, are hereby amended, effective the date hereof, to read
as follows:
"Borrowing Base" means the sum of the following:
<PAGE> 2
(a) 80% of the book value of Eligible Accounts Receivables of
the Borrowers and Guarantor; plus
(b) 40% of the lower of costs or market value of Eligible
Inventory of the Borrowers and Guarantor. Notwithstanding the
foregoing, in no event will the amount advanced against Eligible
Inventory exceed $6,000,000 for advances on or prior to December 30,
1997, and $5,000,000 for advances on or after December 31, 1997.
"Commitment" means the commitment of NBD to make Revolving
Loans pursuant to the terms of Section 2.1, which together with the
outstanding principal amount of the Bridge Loan and the Over-Formula
Loan shall not exceed $16,000,000 until July 30, 1997, and $15,000,000
on and after July 31, 1997, as such amounts may be further reduced from
time to time pursuant to Section 2.2.
"Floating Rate" means the per annum rate equal to (i) 1/4%per annum,
plus (ii) the Prime Rate in effect from time to time.
"Tangible Net Worth" means (a) the excess, if any, of the
assets of the Borrowers and the Guarantor (excluding capitalized
software development costs, goodwill, patents, trademarks, trade names,
copyrights and other assets properly classified as intangible assets in
accordance with GAAP) over the liabilities of the Borrowers and the
Guarantors, determined on a combined basis in accordance with GAAP,
plus (c) Subordinated Debt; provided, however, that, in determining
Tangible Net Worth, (i) there shall be included in liabilities any and
all evidences of Indebtedness of the Borrowers or any Guarantor,
including notes and debentures of any Borrower or Guarantor which are
subordinated indebtedness, and (ii) there shall be excluded from assets
any and all assets of the Borrowers and the Guarantor which are
Investments in any other Person.
(b) Paragraph (b) of the definition of "Eligible Accounts Receivable"
is hereby amended by replacing the date "December 30, 1996" with the date
"March 31, 1997" and replacing the date "December 31, 1996" with the date
"April 1, 1997".
(c) The following definition is hereby added in alphabetical order to
Section 1.1 of the Loan Agreement to read as follows:
"Subordinated Debt" means Indebtedness of any of the Borrowers
or Guarantor which is incurred with the written consent of NBD;
provided that such Indebtedness is made subordinate to the Obligations
on terms satisfactory to NBD; and provided further that, unless
otherwise agreed to by NBD, NBD shall take custody and possession of
all original notes or other evidence of such Indebtedness.
2
<PAGE> 3
2. Commitment. The first sentence of Section 2.1(a) of the Loan
Agreement is hereby amended effective the date hereof by replacing it with the
following two sentences:
Subject to the terms and conditions of this Agreement, NBD
agrees to make Revolving Loans to the Borrowers, jointly and severally,
on a revolving basis from the Effective Date and before the Termination
Date as the Borrowers may from time to time request from NBD; provided,
however, that the aggregate principal amount of all Revolving Loans
which NBD shall be committed to have outstanding hereunder, when added
to the aggregate face amount of all outstanding L/Cs and Guaranties
Issued by NBD, shall not at any time exceed the lesser of (i) the
Borrowing Base at such time; or (ii) the Commitment; provided further,
that the aggregate principal amount of all Revolving Loans which NBD
shall be committed to have outstanding hereunder, when added to the
outstanding principal balance of the Bridge Loan, the outstanding
principal amount of the Over-Formula Loan, and the aggregate face
amount of all outstanding L/Cs and Guaranties Issued by NBD, shall not
at any time exceed the Commitment.
3. Inventory Reliance Fee. A new Section 2.1(b)(iii) of the Loan
Agreement is hereby added, effective January 1, 1997, to read as follows:
(iii) Inventory Reliance Fee. In addition to the commitment
fee due under Section 2.1(b)(ii) above, the Borrowers, jointly and
severally, agree to pay to NBD an inventory reliance fee computed at
the rate of 0.5% per quarter on the daily amount by which (a) the
principal amount of the outstanding Revolving Loans plus the aggregate
face amount of all outstanding L/Cs and Guaranties Issued by NBD
exceeds the sum of 80% of Eligible Receivables, calculated with respect
to the Borrowers on a combined basis. Such accrued inventory reliance
fee (if any) shall be due and payable quarterly in arrears on the first
day of each calendar quarter, beginning with the quarter beginning
January 1, 1997, to be paid on April 1, 1997, with any accrued but
unpaid inventory reliance fee due on the Termination Date.
4. New Term Loans. The Loan Agreement is hereby amended such that
new Sections 2.7 and 2.8 are added to read as follows:
2.7 Bridge Loan to the Borrowers. Subject to the terms and
conditions of the Loan Agreement and the Fifth Amendment, NBD will
extend a short term loan to the Borrowers, jointly and severally, in
the original principal amount of $1,500,000 ("Bridge Loan"), to be
evidenced by a promissory note in substantially the form of Exhibit 2.7
attached to the Fifth Amendment (together with any amendments,
restatements, replacements or renewals, the "Bridge Loan Note"). The
proceeds of the Bridge Loan will be applied to the outstanding
principal balance of the Revolving Loans. The Bridge Loan will bear
interest at 1% per annum above the Prime Rate in effect from time to
time. Interest on the Bridge
3
<PAGE> 4
Loan will be due and payable monthly on the last business day
of each month, beginning March 31, 1997. The principal outstanding
under the Bridge Loan shall be due and payable on March 31, 1997. Any
payments on the Bridge Loan will be applied first to unpaid interest
and then to principal, and once repaid, principal may not be
reborrowed. So long as there exists any Default or Event of Default,
unless otherwise consented to in writing by NBD, all payments received
by NBD from the Borrowers generated from operations, rather than from
Subordinated Debt or additional equity contributions, will be applied
first to the outstanding obligations under the Revolving Loans and
Over-Formula Loan before being applied to the Bridge Loan.
2.8 Over-Formula Loan to the Borrowers. Subject to the terms
and conditions of the Loan Agreement and the Fifth Amendment, NBD will
extend a term loan to the Borrowers, jointly and severally, in the
original principal amount of $3,000,000 ("Over-Formula Loan"), to be
evidenced by a promissory note in substantially the form of Exhibit 2.8
attached to the Fifth Amendment (together with any amendments,
restatements, replacements or renewals, the "Over-Formula Loan Note").
The proceeds of the Over-Formula Loan will be applied to the
outstanding principal balance of the Revolving Loans. The Over-Formula
Loan will bear interest at 2% per annum above the Prime Rate in effect
from time to time. Interest on the Over-Formula Loan will be due and
payable monthly on the last business day of each month, beginning March
31, 1997. The principal outstanding under the Over-Formula Loan shall
be due and payable in two installments of $1,500,000 each on July 31,
1997 and December 30, 1997. Any payments on the Over-Formula Loan will
be applied first to unpaid interest and then to principal, and once
repaid, principal may not be reborrowed.
5. Reporting. Subsections (ii) and (vii) of Section 6.1(d) of the
Loan Agreement are hereby amended to read as follows:
(ii) as soon as available and in any event within 30 days
after the end of each fiscal month of the Borrowers, (x) the Combined
balance sheet of the Borrowers and the Guarantor as of the end of each
such month and Combined statements of income, surplus and cash flow of
the Borrowers and the Guarantor for each such month and for the period
commencing at the end of the previous fiscal year and ending with the
end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the
preceding fiscal year, and (y) the combining balance sheet and
statements of income, surplus and cash flows with respect to the
Borrowers and the Guarantor for such periods (prepared in a manner
consistent with such Combined balance sheet and statements), all in
reasonable detail and duly certified (subject to normal, immaterial
year-end audit adjustments) by the chief financial officer or
controller of the Company as having been prepared in accordance with
GAAP, together with a certificate of the chief financial officer or
controller of the Company (A) stating
4
<PAGE> 5
that no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, a statement setting forth the details thereof and the
action which the applicable person has taken and proposes to take with
respect thereto, and (B) setting forth a computation (which computation
shall accompany such certificate and shall be in reasonable detail)
showing compliance with Sections 6.2(a), (b), (c) and (e) in conformity
with the terms of this Agreement;
. . . .
(vii) as soon as available, and in any event by Friday with
respect to the immediately preceding Thursday, a Borrowing Base
Certificate in a form and detail reasonably acceptable to NBD, executed
by the chief financial officers of the Borrowers; and
6. Field Examinations. A new Section 6.1(g) of the Loan Agreement
is hereby added to read as follows:
Audits. Prior to the occurrence of an Event of Default, permit
NBD's representatives to conduct an annual, on-site audit of the
Borrowers' and Guarantor's business operations, after the occurrence
of an Event of Default, NBD may audit the Borrowers, Guarantor and
their respective businesses as frequently as NBD desires, and the
Borrowers must reimburse NBD for all costs incurred in connection
therewith within 10 days after receipt of an invoice therefor.
7. Revised Financial Covenants. Sections 6.2(a) and (b) of the Loan
Agreement are hereby amended in their entirety to read as follows:
(a) Tangible Net Worth. Permit or suffer Tangible Net Worth
to be: (i) on September 30, 1996, less than $14,500,000; (ii) December
31, 1996, less than $9,700,000; and (iii) on September 30, 1997 and as
of the end of each fiscal quarter of the Borrowers thereafter, less
than $11,000,000.
(b) Debt to Worth Ratio. Permit or suffer the Debt to Worth
Ratio to exceed: (i) on December 31, 1996, 3.0 to 1.00; (ii) on
September 30, 1997 and as of the end of each fiscal quarter of the
Borrowers thereafter, 2.50 to 1.00.
8. Revolving Loans in Pounds Sterling. The parties agree that in
light of the fact that Integral has closed its office in the United Kingdom at
this time, NBD will not make any new Revolving Loans in Pounds Sterling or
Guaranties Issued by NBD, regardless of any terms to the contrary in the Loan
Agreement. At such time as the Borrowers so request and can show NBD that the
business of the Borrowers' would be better served by such borrowings, NBD (in
its sole discretion) may hereafter agree in writing to once again provide such
Pounds Sterling borrowings.
5
<PAGE> 6
9. Conditions. Notwithstanding any other term of this Fifth
Amendment or the Loan Agreement, NBD will not be required to give effect to
this Fifth Amendment unless the following conditions have been met:
(a) NBD shall have received an amendment fee of $90,000 and a
restructure fee of $25,000 from the Borrowers prior to or simultaneously with
the execution and delivery of this Fifth Amendment. The amendment fee and
restructure fee are in addition to all interest and fees otherwise payable to
NBD and will be deemed to be fully earned upon execution and delivery of this
Fifth Amendment.
(b) NBD shall have received a fully executed copy of this Fifth
Amendment, the Bridge Loan Note and the Over-Formula Loan Note.
(c) NBD shall have received the Guaranty Agreement from Maxco, in
form and substance acceptable to NBD, guarantying the principal, interest and
costs of collection of the Bridge Loan and consenting to the terms of this
Fifth Amendment.
(d) The Borrowers shall have executed and delivered to NBD
assignments of their respective intellectual property rights (including license
agreements), in form and substance satisfactory to NBD.
(e) All of the terms and conditions in Section 3.7 of the Loan
Agreement continue to be met.
10. Reaffirmation of Loan Agreement; Conflicts. The parties hereto
acknowledge and agree that the terms and provisions of this Fifth Amendment,
amend, add to and constitute a part of the Loan Agreement. Except as expressly
modified and amended by the terms of this Fifth Amendment, all of the other
terms and conditions of the Loan Agreement and all of the documents executed in
connection therewith or referred to or incorporated therein, remain in full
force and effect and are hereby ratified, confirmed and approved. If there is
an express conflict between the terms of this Fifth Amendment and the terms of
the Loan Agreement, or any of the other agreements or documents executed in
connection therewith or referred to or incorporated therein, the terms of this
Fifth Amendment shall govern and control. Any reference in any other document
or agreement to the Loan Agreement shall hereafter refer to the Loan Agreement
as amended by this Fifth Amendment.
11. Representations True. The representations and warranties of the
Borrowers contained in the Loan Agreement are true on the date hereof and,
after giving effect hereto, there does not exist any Default or Event of
Default under the Loan Agreement.
12. Expenses. Borrowers acknowledge and agree that the Borrowers will
pay all attorneys' fees and out-of-pocket costs of NBD in connection with or
with respect to this Fifth Amendment and the conditions set forth herein.
6
<PAGE> 7
IN WITNESS WHEREOF, the Borrowers and NBD have executed the foregoing
document by their duly authorized officers as of the day and year first written
above.
NBD BANK
By: Richard P. Haslinger
---------------------------
Richard P. Haslinger
Its: Senior Vice President
and
By: Glenn Ansiel
---------------------------
Glenn Ansiel
Its: Assistant Vice President
MEDAR, INC.
By: Charles Drake
---------------------------
Charles Drake
Its: President
INTEGRAL VISION LTD.
By: Richard Current
---------------------------
Richard Current
Its: Company Secretary
7
<PAGE> 8
REAFFIRMATION OF GUARANTY
The undersigned, Medar Canada Ltd., hereby acknowledges and agrees to
the terms of this Fifth Amendment to Revolving Credit and Loan Agreement and
hereby reaffirms each and every term of its (i) Guarantee and Postponement of
Claim dated August 10, 1995, given in favor of NBD Bank with respect to the
obligations of Medar, Inc., Automatic Inspection Devices, Inc. (now known as
Integral Vision-AID, Inc.) and Integral Vision Ltd., and (ii) General Security
Agreement dated as of May 1, 1996, given in favor of NBD Bank.
MEDAR CANADA LTD.
By: Charles Drake
--------------------------
Charles Drake
Its: President
<PAGE> 9
COLLATERAL ASSIGNMENT OF
PROPRIETARY RIGHTS AND SECURITY AGREEMENT
THIS COLLATERAL ASSIGNMENT OF PROPRIETARY RIGHTS AND SECURITY AGREEMENT
("Agreement"), dated as of February 27, 1997, is made by Medar, Inc., a
Michigan corporation, in favor of NBD Bank, a Michigan banking corporation
("NBD" or "Lender").
Recitals:
A. Assignor, certain of its affiliates and Lender are parties to that
certain Revolving Credit and Loan Agreement dated as of August 10, 1995, as
amended by agreements dated October 12, 1995, October 31, 1995, March 29, 1996,
August 11, 1996 and the date hereof (such agreement, as amended, modified or
supplemented from time to time, is referred to herein as the "Loan Agreement").
B. It is a condition to the Fifth Amendment to Revolving Credit and
Loan Agreement being executed simultaneously herewith, that Assignor executes
and delivers this Agreement.
NOW THEREFORE, in consideration of the premises and to induce Lender to
make extensions of credit to Assignor under the Loan Agreement, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Assignor agrees with Lender as follows:
1. Defined Terms. In addition to those terms defined elsewhere in this
Agreement, terms defined in the Loan Agreement shall have their defined
meanings when used herein (unless otherwise defined herein) and the following
terms shall have the following meanings, unless the context otherwise requires:
"Collateral" means all of the Trademarks, Copyrights, Patents
and Intellectual Property Rights, whether now existing or hereafter
created or acquired (including, without limitation, such of the
foregoing as are listed on Schedule A attached hereto and made a part
hereof).
"Copyrights" means all United States copyrights, registered or
unregistered, in and to all copyrightable works now owned or hereafter
acquired by Assignor, including all registrations and applications
therefor and all licenses thereof and (a) any renewals or extensions of
the registrations therefor that may be secured under the laws now or
hereafter in effect in the United States, (b) all income, royalties,
damages and payments now and hereafter due or payable under and with
respect thereto, including, without limitation, payments under all
licenses entered into in connection therewith and damages and payments
for past or future infringements thereof, (c) the right to sue and
recover for
<PAGE> 10
past, present and future infringements thereof, and (d) all
rights corresponding thereto throughout the world.
"Event of Default" means an Event of Default as defined in the
Loan Agreement.
"Intellectual Property Rights" means all intellectual property
rights other than Trademarks, Copyrights and Patents, now owned or
hereafter acquired by Assignor, including, without limitation, trade
secrets, know-how and confidential business information, computer
software, data and documentation (including electronic media) and
licenses thereof, and (a) all income, royalties, damages and payments
now and hereafter due or payable under and with respect thereto,
including, without limitation, payments under all licenses entered into
in connection therewith and damages and payments for past or future
infringements thereof, (b) the right to sue and recover for past,
present and future infringements thereof, and (c) all rights
corresponding thereto throughout the world.
"Patents" means all United States patents and patent
applications, now owned or hereafter acquired by Assignor, including,
without limitation, the inventions and improvements described and
claimed therein, all licenses thereof and (a) the reissues,
divisions, continuations, renewals, extensions and
continuations-in-part thereof, (b) all income, royalties, damages and
payments now and hereafter due or payable under and with respect
thereto, including, without limitation, payments under all licenses
entered into in connection therewith and damages and payments for past
or future infringements thereof, (c) the right to sue and recover for
past, present and future infringements thereof, and (d) all rights
corresponding thereto throughout the world.
"Trademarks" means all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, trademark
registrations and applications for registration owned by Assignor and
all licenses thereof, together with the goodwill of the business
connected with the use of, and symbolized by, the foregoing, and (a)
the registration renewals thereof, (b) all income, royalties, damages
and payments now and hereafter due or payable under and with respect
thereto including, without limitation, payments under all licenses
entered into in connection therewith and damages and payments for past
or future infringements thereof, (c) the right to sue and recover for
past, present and future infringements thereof, and (d) all rights
corresponding thereto throughout the world.
2. Collateral Assignment of Security Interest in Trademarks,
Copyrights and Patents and Intellectual Property Rights. To secure the prompt
and complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Obligations, Assignor hereby grants to
Lender and its assignees a continuing security interest in the Collateral, and,
subject to Section 6 hereof, shall assign, transfer and convey to Lender all
2
<PAGE> 11
right, title and interest, in the United States and throughout the world, in,
to and under the Collateral.
3. Continuing Liability. Assignor hereby expressly agrees that,
anything herein to the contrary notwithstanding, it shall remain liable under
each license, interest and obligation assigned to Lender hereunder to observe
and perform all the conditions and obligations to be observed and performed by
Assignor thereunder, all in accordance with and pursuant to the terms and
provisions thereof. Lender shall have no obligation or liability under any
such license, interest or obligation by reason of or arising out of this
Agreement or the assignment thereof to Lender or the receipt by Lender of any
payment relating to any such license, interest or obligation pursuant hereto,
nor shall Lender be required or obligated in any manner to perform or fulfill
any of the obligations of Assignor thereunder or pursuant thereto, or to make
any payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by any of them or the sufficiency of any performance by any
party under any such license, interest or obligation, or to present or file any
claim, or to take any action to collect or enforce any performance of the
payment of any amounts which may have been assigned to Assignor or to which
Assignor may be entitled at any time or times.
4. Representations and Warranties. Assignor hereby represents and
warrants to Lender:
(a) All of Assignor's Copyrights, Patents and Trademarks
(whether or not registered) which are material to its business are
listed on Schedule A hereto, as updated from time to time.
(b) Except as set forth in Schedule A and except for Permitted
Liens, Assignor owns free and clear of all Liens all right, title and
interest in, or has full right and authority to use, all Collateral
necessary or desirable for the conduct of its business as currently
conducted, as previously conducted or as currently proposed to be
conducted.
5. Updated Information and Filings. Assignor agrees that it will
deliver to Lender an updated Schedule A to this Agreement on at least a
quarterly basis, and more often if requested by Lender. Assignor also agrees
that it will take such actions as requested by Lender to allow Lender to record
and perfect its Lien on Assignor's Copyrights, Patents, Trademanrks and
Intellectual Property Rights, including without limitation, filing and
registering its rights with appropriate governmental entities.
6. Restrictions on Future Agreements. Assignor agrees that until all
of the Obligations have been paid in full and the Loan Agreement has been
terminated, it will not, without Lender's prior written consent, enter into any
agreement, including, without limitation, any license agreement, which is
inconsistent with Assignor's obligations under this Agreement or which is
prohibited by the Loan Agreement.
3
<PAGE> 12
7. Effect of Collateral Assignment and Remedies. (a) If an Event of
Default has occurred and is continuing, Lender may exercise, in addition to all
other rights and remedies granted to it in this Agreement, the Loan Agreement
and any other Loan Document, all rights and remedies of a secured party under
the Uniform Commercial Code or any other applicable law. Without limiting the
generality of the foregoing, Assignor expressly agrees that in any such event
Lender may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, or may forthwith sell, lease, assign or sell
or otherwise dispose of and deliver said Collateral (or contract to do so), or
any part thereof, in one or more public or private sale or sales, at any
exchange, broker's board or at any of Lender's offices or elsewhere at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk, and Lender shall apply the net proceeds
(after expenses) of any such sale, lease, assignment or other disposition
against the Obligations in such order as Lender in its sole discretion shall
determine (subject to the terms of the Loan Agreement), Assignor remaining
liable for any deficiency thereon. Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in Assignor, which right or
equity is hereby expressly waived and released. To the extent permitted by
applicable law, Assignor waives all claims, damages and demands against Lender
arising out of the repossession, retention or sale of the Collateral. Assignor
agrees that Lender need not give more than ten days' notice of the time and
place of any public sale or of the time after which a private sale may take
place and that such notice is reasonable notification of such matter.
(b) During the continuance of an Event of Default, Assignor hereby
authorizes Lender to make, constitute and appoint any officer or agent of
Lender as Lender may select, in Lender's sole discretion, as Assignor's true
and lawful attorney-in-fact, with power: (i) to endorse Assignor's name on all
applications, documents, papers and instruments necessary or desirable for
Lender in the use of Collateral; (ii) to notify any licensee of Assignor that
such licensee should make future payments under the license directley to
Lender; (iii) to take any other actions with respect to the Collateral as
Lender deem in its best interest; and (iv) to assign, pledge, convey or
otherwise transfer title in or dispose of the Collateral to any Person.
Assignor hereby ratifies all that such attorney shall lawfully do or cause to
be done by virtue of this Agreement. This power of attorney shall be
irrevocable until all of the Obligations have been paid in full and all of the
financing arrangements between Assignor and Lender have been terminated.
Assignor agrees that, in addition to all other rights and remedies granted to
Lender in this Agreement, the Loan Agreement and any other Loan Document,
Lender shall be entitled to specific performance and injunctive and other
equitable relief, and Assignor further agrees to waive any requirement for the
securing or posting of any bond or other security in connection with the
obtaining of any such specific performance and injunctive or other equitable
relief.
8. Indemnification. Assignor shall indemnify and hold harmless Lender
from and against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
sustained, suffered or incurred by Lender arising out of, with respect to, or
resulting from any commercially reasonable exercise by Lender of its rights
under this Agreement, including without limitation, after a default by
Assignor, the
4
<PAGE> 13
exercise by Lender of its rights to sell, lease, assign, give option or options
to purchase, or sell and otherwise dispose of the Collateral. In any suit,
proceeding or action brought by Lender to enforce its rights in the Collateral,
Assignor will save, indemnify and hold Lender harmless from and against all
expenses, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of any third
party, arising out of a breach by Assignor of any obligation or arising out of
any other agreement, indebtedness or liability at any time owing to or in favor
of such third party or its successors from Assignor; provided that Assignor
shall have no obligation under this Section 7 to indemnify any Person under
this Agreement for liabilities arising from the gross negligence or willful
misconduct of such Person or arising from the breach by any such Person of its
obligations under applicable law (including the obligation to act in a
commercially reasonable manner in the disposition of certain Collateral).
9. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
10. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. Section Headings, etc. The Section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof. All
references to Sections, Schedules and Exhibits are to Sections, Schedules and
Exhibits in or to this Agreement unless otherwise specified.
12. No Waiver: Cumulative Remedies. Lender shall not by any act
(except a written instrument pursuant to Section 12 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Event of Default or in any breach of the terms and
conditions hereof. A waiver by Lender of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which
Lender would otherwise have had on any future occasion. No failure to exercise
nor any delay in exercising on the part of Lender any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
future exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by the Loan Agreement, any other Loan Document or applicable law.
13. Waivers and Amendments: Successors and Assigns: Governing Law.
None of the terms or provisions of this Agreement may be waived, altered,
modified or amended except by a written instrument, duly executed by Assignor
and Lender. This Agreement and all obligations of Assignor hereunder shall be
binding upon the successors and assigns of Assignor, and shall, together with
the rights and remedies of Lender hereunder, inure to the benefit of
5
<PAGE> 14
Lender and its successors and assigns, provided that Assignor may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of Lender. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAWS OF
CONFLICT) OF THE STATE OF MICHIGAN.
14. Notices, Etc. Any demand, notice or communication to be made or
given hereunder shall be in writing and shall be given in accordance with the
Loan Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
16. Waiver of Jury Trial. THE PARTIES HERETO ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THIS RIGHT MAY BE
WAIVED. LENDER AND THE ASSIGNOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND WITHOUT
COERCION, WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES ARISING OUT OF OR
IN RELATION TO THIS AGREEMENT OR ANY OTHER AGREEMENTS BETWEEN THE PARTIES. NO
PARTY SHALL BE DEEMED TO HAVE RELINQUISHED THE BENEFIT OF THIS WAIVER OF JURY
TRIAL UNLESS SUCH RELINQUISHMENT IS IN A WRITTEN INSTRUMENT SIGNED BY THE PARTY
TO WHICH SUCH RELINQUISHMENT WILL BE CHARGED.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
NBD BANK MEDAR, INC.
By: Richard P. Haslinger By: Charles Drake
-------------------------------- ---------------------------------
Richard P. Haslinger Charles Drake
Its: Senior Vice President Its:President
and
By: Glenn Ansiel
--------------------------------
Glenn Ansiel
Its: Assistant Vice President
6
<PAGE> 15
EXHIBIT A
List of Patents
Medar, Inc.
1. Structure for and method of weld control
Number: US 5424506
Issue Date: 6/13/95
Continuation of US 5128507
2. Weld contact structure for and method of delaying initiation of a weld
Number: US 5128507
Issue Date: 12/5/89
3. Automatic Stepper for resistance welding
Number: US 4885451
Issue Date: 12/5/89
4. Method and apparatus for determining the power factor of a circuit
Number: US 4851635
Issue Date: 7/25/89
5. High frequency resistance spot welding structure and method
Number: US 4831229 and foreign patents Germany DE 3741602
Issue Date: 5/16/89 Japan JP 63192574
Canada CA 1300696
6. Structure and method for resistance welding with an inductively
coupled power source
Number: US 4804819 and foreign patents Germany DE 3741507
Issue Date: 2/14/89 Japan JP 63192575
Canada CA 1298625
Japan JP 2547430
7. High speed resistance seam welding
Number: US 4733045 and foreign patents Canada CA 1295693
Issue Date: 3/22/88
<PAGE> 16
8. Structure for and method of reducing impedance in multi phase direct
current power supplies
Number: US 4513363
Issue Date: 4/23/85
9. Proximity detector
Number: US 3736445
Issue Date: 5/29/73
10. Method of regulating DC current in resistance welders
Number: US 5589088
Issue Date: 12/31/96
11. Patent Assignee: Medar, Inc.
Title: Butt welding control by sensor of velocity,
acceleration or displacement of relative motion
Patent Family:
Germany 3233560 A 840301
Great Britain 2126511 A 840328
12. Patent Assignee: Medar, Inc.
Title: Three-phase rectifier supplying welding
transformer has six-thyristor bridges coupled
via four-thyristor controller to transformer
Patent Family:
Germany 3034151 A 810402
Great Britain 2061032 A 810507
France 2465356 A 810417
Great Britain 2061032 B 840125
Canada 1168305 A 840529
Trademarks
1. Visionblox Status: Registered in U.K.
RN: 2043358
Goods: Computer Software
<PAGE> 17
Status: Advertised in Canada
AN: 796,249
Goods: Computer Software
Status: Pending in the U.S.
SN: 74-696,744
Goods: Computer Software
Status: Registered in France
AN: 95 599447
Goods: "in the French language"
2. Medar Status: Pending in Canada
AN: 770,874
Goods: Welding control/optical devices
Status: Registered in U.S.
RN: 1,909,851
Goods: Welding control/optical devices
3. Medar
and Design Status: Pending in Canada
AN: 770,872
Goods: Welding control/optical devices
Status: Registered in U.S.
RN: 1,911,205
Goods: Welding control/optical devices
4. Visionbasic Status: Pending in U.S.
SN: 74-696,745
Goods: Computer Software
5. Indepth Status: Pending in U.S.
SN: 74-696,743
Goods: Visual inspection system etc.
List of Copyrights
Meldweld 2000
Class: TX
Reg. Num: TX2486122
Date: 1/11/89
<PAGE> 1
EXHIBIT 10.32
OVER FORMULA LOAN NOTE
$3,000,000 February 27, 1997
Due: December 30, 1997 Detroit, Michigan
FOR VALUE RECEIVED, the undersigned, MEDAR, INC. ("Medar") and INTEGRAL
VISION, LTD. ("Integral"), jointly and severally (collectively, "Borrowers"),
hereby promise to pay to the order of NBD Bank, ("Bank"), pursuant to the
Revolving Credit and Loan Agreement dated as of August 10, 1995 (as amended,
the "Loan Agreement"), as amended by the First Amendment to Revolving Credit
and Loan Agreement dated October 12, 1995, the Second Amendment to Revolving
Credit and Loan Agreement dated October 31, 1995, the Third Amendment to
Revolving Credit and Loan Agreement dated as of March 29, 1996, the Fourth
Amendment to Revolving Credit and Loan Agreement dated as of August 11, 1996
and the Fifth Amendment to Revolving Credit and Loan Agreement dated as of the
date hereof, among Borrowers and Bank, at the main office of Bank in Detroit,
Michigan, in lawful money of the United States of America and in immediately
available funds, the principal sum of Three Million and 00/100 Dollars (U.S.
$3,000,000), payable in two principal installments of $1,500,000 each, due on
July 31, 1997 and December 30, 1997, plus accrued but unpaid interest payable
monthly on the last business day of each month beginning March 31, 1997, and on
the maturity date set forth above.
The indebtedness outstanding hereunder shall bear interest as provided
in the Loan Agreement. During the period that any amount owing on this Note is
not paid in full when due (whether at stated maturity, by acceleration or
otherwise), such amount shall bear interest at the Default Rate in effect from
time to time or the maximum rate permitted by law, whichever is lower, for the
period commencing on the due date until the same is paid in full. In addition
to the foregoing, during the period that any other Event of Default has
occurred and shall be continuing, Borrower shall pay on demand, at the election
of Bank, interest at the Default Rate or the maximum rate permitted by law,
whichever is lower, on the principal amount outstanding hereunder during such
period from and after the date of any such demand.
Bank is hereby authorized by Borrower to record on its books and
records, the date and amount of each payment, which books and records shall
constitute rebuttable presumptive evidence of the information so recorded,
provided, however, that any failure by Bank to record any such information
shall not relieve Borrower of its obligation to repay the outstanding principal
amount, all accrued interest hereon and any amount payable with respect hereto
in accordance with the terms of this Note and the Loan Agreement.
This Note is subject to, and evidences the Over Formula Loan made by
Bank to Borrower under the Loan Agreement, to which reference is hereby made
for a statement of the circumstances and terms under which this Note may be
prepaid and under which its due date may be accelerated and other terms
applicable to this Note. An Event of Default under the Loan Agreement
constitutes a default hereunder. Capitalized terms used but not defined in
this Note
<PAGE> 2
shall have the respective meanings assigned to them in the Loan Agreement. As
provided in the Loan Agreement, this Note is secured by certain collateral
granted under the Loan Documents.
Borrowers and each endorser or guarantor hereof, waive demand,
presentment, protest, diligence, notice of dishonor and any other formality in
connection with this Note. Borrowers further agree to pay, in addition to the
principal, interest and other sums due and payable hereon, all costs of
collecting this Note, including reasonable attorneys' fees and expenses.
This Note is made under, and shall be governed by and construed in
accordance with, the laws of the State of Michigan applicable to contracts made
and to be performed entirely within the State of Michigan and without giving
effect to the choice of law principles of the State of Michigan.
MEDAR, INC.,
a Michigan corporation
By: _______________________________
Charles Drake
Its: President
INTEGRAL VISION, LTD.
an English corporation
By: _______________________________
Richard Current
Its: Corporate Secretary
2
<PAGE> 1
EXHIBIT 10.33
BRIDGE LOAN NOTE
$1,500,000 February 27, 1997
Due: March 31, 1997 Detroit, Michigan
FOR VALUE RECEIVED, the undersigned, MEDAR, INC. ("Medar") and
INTEGRAL VISION, LTD. ("Integral"), jointly and severally (collectively,
"Borrowers"), hereby promise to pay to the order of NBD Bank, ("Bank"),
pursuant to the Revolving Credit and Loan Agreement dated as of August 10, 1995
(as amended, the "Loan Agreement"), as amended by the First Amendment to
Revolving Credit and Loan Agreement dated October 12, 1995, the Second
Amendment to Revolving Credit and Loan Agreement dated October 31, 1995, the
Third Amendment to Revolving Credit and Loan Agreement dated as of March 29,
1996, the Fourth Amendment to Revolving Credit and Loan Agreement dated as of
August 11, 1996 and the Fifth Amendment to Revolving Credit and Loan Agreement
dated as of the date hereof, among Borrowers and Bank, at the main office of
Bank in Detroit, Michigan, in lawful money of the United States of America and
in immediately available funds, the principal sum of One Million Five Hundred
Thousand and 00/100 Dollars (U.S. $1,500,000), payable in one principal payment
on March 31, 1997, plus accrued but unpaid interest payable monthly on the last
business day of each month beginning March 31, 1997, and on the maturity date
set forth above.
The indebtedness outstanding hereunder shall bear interest as provided
in the Loan Agreement. During the period that any amount owing on this Note is
not paid in full when due (whether at stated maturity, by acceleration or
otherwise), such amount shall bear interest at the Default Rate in effect from
time to time or the maximum rate permitted by law, whichever is lower, for the
period commencing on the due date until the same is paid in full. In addition
to the foregoing, during the period that any other Event of Default has
occurred and shall be continuing, Borrower shall pay on demand, at the election
of Bank, interest at the Default Rate or the maximum rate permitted by law,
whichever is lower, on the principal amount outstanding hereunder during such
period from and after the date of any such demand.
Bank is hereby authorized by Borrower to record on its books and
records, the date and amount of each payment, which books and records shall
constitute rebuttable presumptive evidence of the information so recorded,
provided, however, that any failure by Bank to record any such information
shall not relieve Borrower of its obligation to repay the outstanding principal
amount, all accrued interest hereon and any amount payable with respect hereto
in accordance with the terms of this Note and the Loan Agreement.
This Note is subject to, and evidences the Bridge Loan made by Bank to
Borrower under the Loan Agreement, to which reference is hereby made for a
statement of the circumstances and terms under which this Note may be prepaid
and under which its due date may be accelerated and other terms applicable to
this Note. An Event of Default under the Loan Agreement constitutes a default
hereunder. Capitalized terms used but not defined in this Note shall have
<PAGE> 2
the respective meanings assigned to them in the Loan Agreement. As provided in
the Loan Agreement, this Note is secured by certain collateral granted under
the Loan Documents.
Borrowers and each endorser or guarantor hereof, waive demand,
presentment, protest, diligence, notice of dishonor and any other formality in
connection with this Note. Borrowers further agree to pay, in addition to the
principal, interest and other sums due and payable hereon, all costs of
collecting this Note, including reasonable attorneys' fees and expenses.
This Note is made under, and shall be governed by and construed in
accordance with, the laws of the State of Michigan applicable to contracts made
and to be performed entirely within the State of Michigan and without giving
effect to the choice of law principles of the State of Michigan.
MEDAR, INC.,
a Michigan corporation
By: _______________________________
Charles Drake
Its: President
INTEGRAL VISION, LTD.
an English corporation
By: _______________________________
Richard Current
Its: Corporate Secretary
2
<PAGE> 1
EXHIBIT 10.34
GUARANTY
This Guaranty is given by Maxco, Inc., a Michigan corporation of 1118
Centennial Way, Lansing, MI 48917 (Guarantor") to NBD Bank, ("Bank") to induce
Bank to make a loan dated February 27, 1997 in the principal amount of
$1,500,000 ("Indebtedness") to Medar, Inc., a Michigan corporation of 38700
Grand River Avenue, Farmington Hills, MI 48335 ("Borrower").
1. For valuable consideration, Guarantor unconditionally guaranties the
payment when due, upon maturity, acceleration, or otherwise, of all or any of
Borrower's Indebtedness to Bank. If all or any of such Indebtedness becomes due
and payable hereunder due to Borrower's failure to pay such Indebtedness or
Bank's refusal to refinance such Indebtedness on or before March 31, 1997,
Guarantor unconditionally promises to pay the debt to Bank, on demand, in
lawful money of the United States.
2. Guarantor unconditionally guaranties the payment of all or any of
Borrower's Indebtedness to Bank, regardless of whether due or payable by
Borrower, upon: (a) the dissolution, insolvency, or business failure of, or any
assignment for benefit of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceedings by
or against, Borrower or (b) the appointment of a receiver for, or the
attachment, restraint of, or making or levying of any order of court or legal
process affecting, Borrower's property.
3. Guarantor's liability hereunder shall not exceed at any one time the
sum of (i) the principal amount of the Indebtedness and (ii) all interest upon
the Indebtedness.
4. Guarantor's liability hereunder is exclusive and independent of any
security for or other guaranty of Borrower's Indebtedness, whether executed by
Guarantor or by any other party. Guarantor's liability hereunder is not
affected or impaired by the following: (a) any indebtedness exceeding
Guarantor's liability; (b) direction of application of payment by Borrower or
any other party; (c) any other continuing or other guaranty, undertaking, or
maximum liability of Guarantor or of any other party as to Borrower's
Indebtedness; (d) any payment on or in reduction of such guaranty or
undertaking; (e) any notice of termination hereof as to future transactions
given by, or by the death or termination, revocation, or release of any
obligations hereunder of, any other guarantors; (f) any payment made to Bank on
the Indebtedness which Bank repays to Borrower under court order in a
bankruptcy, reorganization, arrangement, moratorium, or other debtor relief
proceeding, and Guarantor waives any right to the deferral or modification of
its obligations hereunder by reason of such proceedings.
5. Guarantor's obligations hereunder are independent of Borrower's
obligations. A separate action or actions may be brought and prosecuted against
Guarantor, regardless of whether action is brought against Borrower or whether
Borrower is joined in any such action or actions.
<PAGE> 2
6. Guarantor authorizes Bank (whether or not after revocation or
termination of this guaranty), without notice or demand (except as is required
by applicable statute and cannot be waived), and without affecting or impairing
its liability hereunder, from time to time to: (a) renew, compromise, extend,
increase, accelerate, or otherwise change the time for payment of, or otherwise
change the terms of the Indebtedness or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this guaranty or the indebtedness and exchange, enforce, waive, and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as Bank in its discretion determines; and (d) release or
substitute any one or more endorsers, guarantors, borrowers, or other obligors.
Bank may without notice assign all or part of this guaranty.
7. It is not necessary for Bank to inquire into the capacity or powers of
Borrower or the officers, directors, or agents acting or purporting to act on
its behalf, and any Indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
8. Guarantor waives any right to require Bank to (a) proceed against
Borrower or any other party, (b) proceed against or exhaust any security held
from Borrower, or (c) pursue any other remedy in Bank's power. Guarantor waives
any defense based on or arising out of any defense of Borrower other than
payment in full of the Indebtedness, including any defense based on or arising
out of Borrower's disability, or the unenforceability of all or any part of the
Indebtedness from any cause, or the cessation from any cause of Borrower's
liability other than full payment of the Indebtedness. Bank may foreclose on
any security held by it by one or more judicial or nonjudicial sales,
regardless of whether every aspect of any such sale is commercially reasonable,
or exercise any other right or remedy it has against Borrower, or any security,
without affecting or impairing in any way Guarantor's liability hereunder
except to the extent the Indebtedness has been paid. Guarantor waives any
defense arising out of any the election by Bank, unless the election operates
to impair or extinguish any right of reimbursement or subrogation or other
right or remedy of Guarantor against Borrower or any security. Guarantor waives
all presentments, demands for performance, protests and notices, including
without limitation notices of nonperformance, notices of protest, notices of
dishonor, notices of acceptance of this guaranty, and notices of the existence,
creation or incurring of new or additional indebtedness. Guarantor assumes all
responsibility for being and keeping itself informed of Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Indebtedness and the nature, scope, and extent of the risks
which Guarantor assumes and incurs hereunder, and agrees that Bank shall have
no duty to advise Guarantor of information known to it regarding such
circumstances or risks.
9. Guarantor agrees not to enforce any common law rights of subrogation,
contribution or indemnification that it has against Borrower or any collateral
until Bank has been paid in full for all obligations of Borrower to Bank. This
is not intended to limit the rights of Guarantor under the subordination
agreement between Guarantor and Bank dated February 27, 1997.
10. In addition to all liens upon, and rights of setoff against the
moneys, securities, or other property of Guarantor given to Bank by law, Bank
shall have a lien upon and a right of setoff against all moneys, securities,
and other property of Guarantor now or hereafter in the
<PAGE> 3
possession of or on deposit with Bank, whether held in a general or
special account or deposit, or for safekeeping or otherwise. Every such lien
and right of setoff may be exercised without demand upon or notice to
Guarantor.
11. No right or power of Bank hereunder shall be deemed to have been
waived by any act or conduct by it, by any neglect to exercise such right or
power, or by any delay in so doing. Every right or power shall continue in full
force and effect until specifically waived or released by an instrument
executed by Bank.
12. This guaranty shall be deemed to be made under and shall be governed
by the laws of the State of Michigan in all respects. Its terms and provisions
may not be waived, altered, modified, or amended except in writing duly signed
by an authorized officer of Bank and by Guarantor.
13. If any provision of this guaranty contravenes or is held invalid under
the laws of any jurisdiction, this guaranty shall be construed as if not
containing those provisions and the rights and obligations of the parties shall
be construed and enforced accordingly.
14. This guaranty and the liability and obligations of Guarantor hereunder
are binding upon Guarantor and its successors and assigns, and inures to the
benefit of and is enforceable by Bank and its successors, transferees, and
assigns.
In witness whereof the undersigned Guarantor has executed this guaranty on
February 27, 1997.
Maxco, Inc.
_________________________________
Vincent Shunsky
Vice President of Finance
<PAGE> 1
EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
- -----------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
(in thousands)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per common share and common share equivalents
Outstanding shares - beginning of period 8,712 7,976 6,609
Weighted average of:
Shares issued to acquire Integral Vision, Ltd. 654 654
Issuance of common stock 816(A)
Exercise of stock options 108 62 28
Net effect of dilutive stock options-based on
treasury stock method using average market
price 417
TOTAL 8,820 8,692 8,524
====================================================================================================
Net earnings (loss) $(1,979) $(11,583) $3,688
====================================================================================================
Net earnings (loss) per share $ (.22) $ (1.33) $ .43
====================================================================================================
Per common share assuming full dilution:
Outstanding shares - beginning of period 8,712 7,976 6,609
Weighted average of:
Shares issued to acquire Integral Vision, Ltd. 654 654
Issuance of common stock 816(A)
Exercise of stock options 108 62 28
Net effect of dilutive stock options-based on
treasury stock method using year-end market
price if higher than average market price 430
- -----------------------------------------------------------------------------------------------------
TOTAL 8,820 8,692 8,537
====================================================================================================
Net earnings (loss) $(1,979) $(11,583) $3,688
====================================================================================================
Net earnings (loss) per share $ (.22) $ (1.33) $ .43
====================================================================================================
</TABLE>
(A) Issuance of 1,300,000 shares to the public and 30,000 shares to acquire
technology
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
MEDAR, INC. AND SUBSIDIARIES
MEDAR CANADA LTD.
Incorporated in Canada
INTEGRAL VISION LTD.
Incorporated in the United Kingdom
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement 33-61977
on Form S-8 dated August 21, 1995, and Registration Statement 33-619797 on Form
S-8 dated August 21, 1995, and Registration Statement 33-12571 on Form S-8
dated March 11, 1987, and Registration Statement 33-593 on Form S-8 dated
October 1, 1985, of our report dated February 27, 1997, with respect to the
consolidated financial statements and schedule of Medar, Inc. and subsidiaries
listed in the index at Item 14(a) of this Annual Report (Form 10-K) for the
year ended December 31, 1996.
/s/Ernest & Young LLP
Detroit, Michigan
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 215
<SECURITIES> 0
<RECEIVABLES> 9,815
<ALLOWANCES> 400
<INVENTORY> 15,991
<CURRENT-ASSETS> 28,005
<PP&E> 16,744
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0
0
<COMMON> 1,771
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<CGS> 30,788
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<INCOME-PRETAX> (2,055)
<INCOME-TAX> (76)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,979)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
