<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 the fiscal year ended
December 31, 1998.
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
incorporation or organization) Identification Number
38700 GRAND RIVER AVENUE,
FARMINGTON HILLS, MICHIGAN 48335
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 471-2660
Securities registered pursuant to Section 12(b) of the Act::
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. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 1999:
COMMON STOCK, NO PAR VALUE, STATED VALUE $.20 PER SHARE - $10,733,530
The number of shares outstanding on each of the issuer's classes of common
stock, as of February 28, 1998:
COMMON STOCK, NO PAR VALUE, STATED VALUE $.20 PER SHARE - 9,024,901
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DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
annual shareholders meeting to be held May 26, 1999 are incorporated by
reference into Part III.
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Part I
ITEM 1. BUSINESS
General
Medar, Inc. ("Medar" or the "Company") is a Michigan corporation
incorporated in 1978. Medar currently operates in two business segments
where it develops, manufactures and markets microprocessor-based
process monitoring and control systems for use in industrial
manufacturing environments. The principle applications for the
Company's products include resistance welding controls ("welding
control products") and optical inspection systems and general purpose
vision software and applications thereof (collectively "machine vision
products"). The Company's products are generally sold as capital goods.
Depending on the application, welding control products have a five to
ten year life and machine vision systems have an indefinite life.
Machine vision applications are more likely to require replacement
because of technological obsolescence than because of physical wear.
The Company operates through a division and two subsidiaries. Sales of
welding control products are effected through Medar, Inc. and its
wholly owned subsidiary, Medar Canada Ltd., located in Oshawa, Ontario,
Canada. Sales of Machine vision products are effected through Integral
Vision, a division of the Company, and through Integral Vision LTD., a
wholly owned subsidiary of the Company, located in Bedford, England.
The Company also has 21.3% of the stock of a joint venture for the
manufacture of welding control products in China, Shanghai Medar
Welding Equipment Corp. Ltd.
Welding Control Products
Welding controls monitor and automatically regulate electrical current
passing through material being welded. The regulation of electrical
current compensates for variation in materials, coatings and other
welding systems characteristics. The Company's major customers include
General Motors Corporation and DaimlerChrysler AG. Although most sales
are made in North America, in recent years significant sales have been
made to United States domestic automakers in South America (principally
Brazil) and Asia (principally China). Sales to General Motors
Corporation and DaimlerChrysler AG were 44.5%, 30.1% and 49.3% of total
welding revenues in the years ended December 31, 1998, 1997 and 1996.
With sales to these customers representing such a large share of
revenues, the loss of sales to either of these customers or a downturn
in the automotive industry could have a significantly negative effect
on the Company. In addition to sales of new controls, the Company has a
significant repair, parts and services business associated with an
installed base of up to 50,000 controls.
Machine Vision Products
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 used to insure
manufactured product quality by monitoring and controlling the
manufacturing process.
Medar's optical inspection systems are used to detect manufacturing
defects in optical storage media, principally CD-R (write once disc) or
DVD (digital versatile disc). The Company's Integral Vision division
markets these systems all over the world with the principal markets
currently being in Asia. In the past, the Company sold a version of
this equipment which also inspected CD's (Compact Disc's). In early
1998, management determined that since CD was being replaced by DVD's,
and other factors related to the
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market, it would no longer pursue this market following the liquidation
of on hand inventory. A charge of $7.0 million of software costs and
inventory (of which $6.0 million was related to machine vision
products) was recorded to recognize this decision.
Medar's general purpose software product, VisionBlox, and certain
applications developed by Company personnel using the VisionBlox
software as a base, are marketed principally in the United States and
Europe by the Company's Integral Vision division. Although sales to
date in Asia have not been significant, the Company is involved in
efforts to strengthen its presence in the region. By its nature as a
general purpose product, the software can be used by OEM's and end
users to answer a variety of needs. Current applications include
application for inspections of cellular telephones and applications in
medical, printing and electronics.
See the notes to the Consolidated Financial Statements Part II - ITEM 8
for details of segment data.
Production
The Company's production process consists principally of assembling
standard electrical and electronic components and hardware
subassemblies purchased from suppliers into finished products. When
proprietary circuit boards are needed, the Company generally contracts
for outside vendors to build the boards based on internal company
designs.
The Company generally does not rely on a single source for parts and
subassemblies, although certain of the components and subassemblies
included in the Company's products may only be obtained from a limited
number of suppliers. Management believes it will be able to develop
alternative sources or employee alternative designs for any of the
components used in its products thereby mitigating any exposure to
product interruption from shortages of parts or limited suppliers.
Management believes that technology incorporated in its products give
it advantages over its competitors and prospective competitors.
Protection of technology is attempted through a combination of patents,
applied for patents, confidentiality agreements and trade secrets. The
Company presently has 26 patents (12 related to welding controls and 10
related to machine vision products) and has applied for 14 more. There
can be no assurance that patents applied for will be granted, the
Company has the resources to defend its patents or that patents that
the Company holds will be considered valid if challenged. In addition,
it is possible that some patents will be rendered worthless as the
result of technological obsolescence.
Marketing
The Company markets its welding control products to both end users and
original equipment manufacturers (OEMs). Although primary sales are to
North American assembly plants of US and foreign automotive companies
and their suppliers, the Company has significant other customers in
farm implement, appliance and other industries. In recent years the
Company has made inroads into South America with sales to assembly
plants of both US and European automakers and with General Motors and
Volkswagen assembly plants in China. The Company's US and Canadian
sales are generally made using Company employees with certain remote
sales in the US and sales outside of the US and Canada made through
representatives. Machine vision products are generally marketed to end
users, but the Company has had success in integrating its products with
end users in certain circumstances. Sales are made worldwide, however,
the Company's strongest presence is maintained in the US (through
Company employees), Europe (through employees of
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Integral Vision, LTD.), and Asia (through a combination of
representatives and of Company employees). Company sales employees in
both segments are compensated by salary and commission.
Competition
The Company experiences strong competition in both segments. For
welding controls, competitors include Weltronic/Technitron Corp.,
Robotron Corporation (acquired by Weltronic early in 1999) and Robert
Bosch GmbH. In particular, competition is strongest for major welding
control orders from automakers. Generally, sales of welding controls to
first and second tier manufacturers and sales of parts and services
have less competition. For machine vision, the Company experiences
competition in all areas in which it operates. Competition is strongest
in optical inspection systems from Dr. Schenk GmbH and Basler GmbH.
Competition for the general-purpose vision software and applications
comes principally from Cognex Corp.; however, many other niche
producers also provide competition in specific markets.
Export Sales
Sales outside of the United States and Canada accounted for 25%, 19%
and 21% of the Company's net sales in 1998, 1997 and 1996. Management
expects that such sales will continue to represent a significant
percentage of its net sales. Most of the Company's export billings are
denominated in US dollars. Welding segment billings in Canada are in
Canadian dollars and vision segment billings in the UK and Japan are
generally in pound sterling and yen, respectively. On occasion other
export billings are denominated in the currency of the customer's
country.
See notes to the Consolidated Financial Statements Part II - Item 8 for
details of geographic area information.
Other Information
Segment information for the past 3 years is as follows:
<TABLE>
<CAPTION>
REVENUE OPERATING INCOME INDENTIFIABLE
(LOSS) ASSETS
----------------------------------------------------------------------
(IN THOUSANDS)
----------------------------------------------------------------------
<S> <C> <C> <C>
WELDING CONTROLS
1996 $ 27,853 $ 5,121 $ 27,370
1997 24,569 3,261 24,248
1998 25,380 3,260 (1) 21,770
MACHINE VISION
SYSTEMS
1996 $ 13,618 $(5,703) $ 22,423
1997 15,955 (1,078) 28,358
1998 9,433 (4,988) (1) 18,043
====================================================================
</TABLE>
(1) Excludes charge-offs of capitalized software development costs and
inventory which totaled $1.7 million for the welding controls segment
and $5.3 million for the machine vision systems segment. This charge,
which was reported in the first quarter of 1998, resulted from a
general review of the recoverability of software development costs for
welding and the specific decision to no longer pursue the sale of
products for the CD market for machine vision. See Part II - ITEM 7 and
the notes to the Consolidated Financial Statements Part II - ITEM 8 for
further discussion of this matter.
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As of December 31, 1998, the Company had an order backlog of
approximately $3,900,000 for welding control products and $600,000 for
machine vision products compared to $3,300,00 for welding and $800,000
for vision at December 31, 1997. The nature of the Company's business
is that, although it has many individual customers, it has two major
customers and those major customers tend to place large orders. As
such, backlog at any point in time can vary dramatically. At December
31, 1998 and 1997, approximately 8% and 42% of the Company's backlog
was attributable to welding control products for General Motors
Corporation and approximately 2% and 19%, was attributable to welding
control products for DaimlerChrysler AG. Management expects that the
Company will ship products representing this entire backlog in 1999.
The costs to the Company of complying with federal, state and local
provisions regulating protection of the environment are not material.
As of February 28, 1999, the Company had approximately 227 permanent
employees, as compared to 275 at February 28, 1998 and 330 at February
28, 1997. The Company also engages contract workers, primarily for
assembly operations, the number of which varies depending upon
production requirements. None of the Company's employees are
represented by a labor union.
ITEM 2. PROPERTIES
Manufacturing, engineering and administrative functions of Medar are
performed at two very similar, approximately 50,000 square foot
facilities owned by the Company in Farmington Hills, Michigan.
Operations related to the welding controls segment are located in one
building with the vision segment and administrative functions located
in the other building. In addition, Medar Canada Ltd. leases a 4,000
square foot facility in Oshawa, Ontario, Canada and Integral Vision
LTD. leases a 5,000 square foot facility in Bedford, England for sales
and administrative functions.
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, 1999, there were approximately 4,500 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, 1999 was $1.625
per share.
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------------
MAR 31 JUN 30 SEPT 30 DEC 31
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $ 5.500 $ 3.500 $ 2.500 $ 1.813
Low 1.938 1.875 1.563 0.875
-------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------------
High $ 7.125 $ 6.125 $ 9.250 $ 8.500
Low 3.500 4.625 4.875 4.750
===============================================================================
</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 its business.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 34,813 $ 40,524 $ 41,471 $ 39,771 $ 40,218
Gross margin 9,071 11,447 10,683 9,655 13,451
Net earnings (loss) (11,184) (144) (1,979) (11,583) 3,688
Basic earnings per share (1.24) (0.02) (0.22) (1.33) 0.45
Diluted earnings per share (1.24) (0.02) (0.22) (1.33) 0.43
Weighted average shares 9,025 8,897 8,820 8,692 8,524
======================================================================================================================
<CAPTION>
AT DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 2,641 $ 3,478 $ 17,041 $ 18,676 $ 23,459
Total assets 39,813 52,606 49,793 44,392 43,523
Long-term debt
including current portion 21,677 24,307 21,647 16,437 2,444
Stockholders' equity 10,861 22,003 20,819 22,436 34,001
======================================================================================================================
</TABLE>
The above selected financial data should be read in conjunction with
Consolidated Financial Statements, including the notes thereto (Part II
- ITEM 8) and Management's Discussion and Analysis of Financial
Condition and Results of Operations (Part II - 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 its development of business.
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 resistance welding controls, optical inspection equipment and
general purpose vision software. Resistance welding control products
are marketed primarily to automobile manufacturers and suppliers of
industrial automation equipment. Optical inspection equipment is
principally sold to end users and suppliers of CD-R and DVD disc
manufacturing equipment. General purpose vision software is sold into
numerous applications in a wide variety of industries. Except for the
historical information contained herein, the matters discussed in this
document are forward-looking statements made pursuant to the safe
harbor provisions of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. Such statements are based on
management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ
materially from those described in the forward-looking statements. Such
factors and uncertainties include, but are not limited to:
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CON'T
the impact of the level of the Company's indebtedness; restrictive
covenants contained in the Company's various debt agreements; general
economic conditions and conditions in the specific industries in which
the Company has significant customers; price fluctuations in the
materials purchased by the Company for assembly into final products;
competitive conditions in the Company's markets and the effect of
competitive products and pricing; and technological development by the
Company, its customers and its competition. As a result, the Company's
results may fluctuate. Additional information concerning risk factors
that could cause actual results to differ materially from those
projected in the forward-looking statements is contained in the
Company's filings with the Securities and Exchange Commission. These
forward-looking statements represent the Company's best estimates as of
the date of this document. The Company assumes no obligation to update
such estimates except as required by the rules and regulations of the
Securities and Exchange Commission.
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
revenue. The impact of inflation for the periods presented was not
significant.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues 100.0 % 100.0 % 100.0 %
Direct cost of sales 73.9 71.8 74.2
------------------------------------------------------
Gross margin 26.1 28.2 25.8
Other costs and expenses:
Marketing 11.8 10.2 10.9
General and administrative 8.5 6.7 7.7
Engineering and development:
Expenditures 21.3 22.9 23.5
Allocated to capitalized software and direct
cost of sales (6.5) (17.0) (14.9)
------------------------------------------------------
Net engineering and development expenses 14.8 5.9 8.6
Product restructuring and other charges 16.0
------------------------------------------------------
Total other costs and expenses 51.1 22.8 27.2
------------------------------------------------------
Earnings (loss) from operations (25.0) 5.4 (1.4)
Interest 7.1 5.7 3.6
------------------------------------------------------
Loss before income taxes (32.1) (0.3) (5.0)
Provision (credit) for income taxes 0.1 (0.2)
======================================================
Net loss (32.1) % (0.4) % (4.8) %
=====================================================================================================================
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CON'T
Year Ended December 31, 1998, Compared to December 31, 1997
Net revenues decreased $5.7 million (14.1%) from $40.5 million in 1997
to $34.8 million in 1998. The decrease resulted from the net of an
increase of welding product revenues of $.8 million and a decrease of
vision product revenues of $6.5 million. Fifty percent of the decrease
in vision product revenues resulted from decreased sales of optical
inspection products as the Company phased out its iNSPECt product line
which is marketed primarily to compact disc manufacturers and
introduced its Omni product line used by CD-R and DVD manufacturers.
The remainder of the decrease resulted from decreased orders for the
Company's turnkey systems, principally those used in the cellular
telephone industry.
Direct cost of sales decreased to $25.7 million from $29.1 million but
as a percentage of sales increased to 73.9% from 71.8%. The decrease in
the dollar amounts result principally from the decrease in sales. The
percentage increase resulted from inventory related to the iNSPECt
product line that was charged off in the first quarter of 1998. Without
this inventory charge-off, direct cost of sales as a percentage of
sales would have decreased by nearly 2% as a result of cost reductions
during the year and changes in product mix principally in the welding
division.
Marketing expense stayed relatively constant in dollar terms, but
increased as a percentage of net revenues from 10.2% to 11.8%. This
resulted principally from the fixed nature of these expenses. Although
cost savings were achieved in some areas additional costs were incurred
to introduce the new Omni product line and to continue the marketing of
VisionBlox software and VisionBlox applications.
General and administrative expense increased to $3.0 million from $2.7
million and as a percentage of net revenues from 6.7% to 8.6%. The
dollar amount increases resulted from additional legal expenses and
provision for uncollectable accounts receivable during the year. The
increases in these expenditures were each related to issues specific to
the 1998 year. The percentage increase resulted from the dollar
increase factors combined with the fixed nature of these expenses.
Net engineering and development expense increased to $5.1 million from
$2.4 million and as a percentage of net revenues from 5.9% to 14.8%.
Actual spending related to this expense category decreased from $9.3
million to $7.4 million because of personnel and other cost reductions
early in the year. The net increase resulted from fewer projects that
were eligible for capitalization during the year. Additionally,
development efforts related to the new Omni product line and a middle
frequency product in welding resulted in higher dollar level of net
expense. The percentage increase came from the reduced levels of net
revenues and from the higher levels of net expenditures.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CON'T
During the first quarter of 1998 in response to the financial
conditions that arose due to heavy investments necessary to complete
certain projects under development and unexpected low levels of orders
and sales, management terminated 15% of the Company's employees with
combined salaries totaling 20% of total compensation. As these
terminations severely constrained resources available for product
support, it was followed by an extensive review of product offerings.
This review determined that the Company would concentrate its efforts
going forward towards products for the inspection of CD-R and DVD
discs, products based on VisionBlox technology and certain higher
margin and better selling welding products. Other products, including
those related to compact disc production, and certain other products
that were selling poorly or at low margins or which were no longer
supportable in the software configurations in use were identified for
phase out or abandonment. These products had unamortized software
development costs totaling $5.3 million that was charged to operations.
In addition, reserves and other accruals totaling $1.7 million to
reduce the cost of inventory related to these products to estimated
realizable value and provide for other expenses were established.
The charges related to inventory ($1.4 million) were recorded as part
of direct cost of sales and the charges related to software development
costs and the building reserve (totaling $5.6 million) were reflected
as product restructuring charges with other costs and expenses in the
Consolidated Statements of Operations in the first quarter of 1998.
Interest expense increased to $2.5 million from $2.3 million and as a
percentage of net revenues from 5.6% to 7.1%. This increase resulted
from higher average levels of net borrowings during the year and the
fact that the 12.95% debentures were outstanding for the entire year as
opposed to only the second half of 1997.
Year Ended December 31, 1997, Compared to December 31, 1996
Net revenues decreased $1.0 Million (2.4%) from $41.5 million in 1996
to $40.5 million in 1997. The decrease resulted from a decrease of
welding product revenues of $3.3 million and an increase in optical
inspection product revenues of $2.3 million. Welding product revenues
decreased within the expected year to year fluctuations in orders from
the company's major customers. The increase in optical inspection
product revenues was principally in turnkey systems used in the
cellular telephone industry. Revenues from other optical inspection
products were down compared to the prior year. In particular,
continuation of confusion in the CD/DVD market resulted in decreases in
sales of CD products of $1.8 million.
Direct costs of sales decreased to $29.1 million from $30.8 million or
as a percentage of sales to 71.7% from 74.2%. This decrease in cost of
sales as a percentage of sales resulted from sales of turnkey systems
and other technology at higher margins than experienced in 1996.
Marketing expense decreased to $4.2 million from $4.5 million and as a
percentage of net revenues from 10.9% to 10.2%. This resulted from
further control of sales expenses, in both divisions.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CON'T
General and administrative expenses decreased to $2.7 million from $3.2
million and as a percentage of net revenues from 7.7% to 6.7%. This
resulted from a full year reduction of administrative costs of Integral
Vision in the UK and the effect of other cost control measures.
Research, development and engineering costs decreased to $2.4 million
from $3.6 million and as a percentage of net revenues from 8.6% to
5.9%. This decrease was partially as a result of reductions in
personnel and other costs during the year ($.5 million) and partially
as a result of greater amounts of software capitalized during 1997 ($.7
million). Software capitalized was principally related to VisionBlox
enhancements and developments of color features and development of
DVD-9.
Interest expense increased to $2.3 million from $1.5 million and as a
percentage of net revenues to 5.8% from 3.6%. The increase resulted
from additional borrowings during the year at higher average interest
rates.
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, 1998. 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
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
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 revenues $10,407 $ 8,947 $ 8,832 $ 6,627 $ 8,358 $ 10,970 $ 10,985 $ 10,211
Gross margin 3,811 2,570 3,600 (910) 1,667 3,672 3,331 2,777
Net earnings (loss) (302) (1,055) 102 (9,929) (991) 420 401 26
================================================================================================================================
Basic and diluted
earnings (loss) per $ (.03) $ (.12) $ .01 $ (1.10) $ (.11) $ .05 $ .04 $ 0
share
================================================================================================================================
</TABLE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues and operating results have varied substantially
from quarter to quarter. Net revenues 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 revenues and earnings to continue to fluctuate from
quarter to quarter.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CON'T
Liquidity and Capital Resources
At December 31, 1998, the Company had a revolving note payable to the
bank, subordinated debentures due 2000 through 2005 and various term
notes. Levels of advances under the revolving notes are based on levels
of acceptable account receivable and inventory. At December 31, 1998,
the Company had fully drawn the $10,000,000 limit of the revolving note
(See Note D of the Consolidated Financial Statements - Part II - Item
8).
The revolving note is governed by an agreement that provides for the
continuation of the agreement through June 7, 1999. There is no
assurance that the bank will extend the note beyond that date.
Management believes that as long as the Company remains profitable and
shows no deterioration in its balance sheet the bank will favorably
consider these factors in making decisions with respect to further
extensions of credit. In addition, Management believes that it has
other alternatives to refinance all or part of this debt with another
lender should the bank elect to no longer provide financing at current
levels or at all. The Company is prohibited from paying dividends under
terms of the agreement.
The Company has been in violation of tangible net worth and net worth
ratio covenants in an agreement related to the $7.0 million of
subordinated debentures since December 31, 1997. Early in 1999, an
agreement was reached with the agent for the bondholders that provides
for waiver of past violations and adjustment of the covenants to a
level with which the Company is in compliance and with which Management
believes it can remain in compliance in the future. In exchange for
these concessions by the bondholders the Company agreed to adjust the
strike price of warrants held by the bondholders based on the
occurrence of certain future events.
The Company generated $4.6 million of cash from operations in 1998.
This cash plus cash on hand at the beginning of the year was used to
fund additions to capitalized software and property and equipment
totaling $2.3 million and for reductions of debt totaling $2.6 million.
Management believes that many of the investment activities are
discretionary and can be deferred or eliminated. However, it is
Management's intention to continue to make investments in product
developments that it believes will best enhance the Company's
competitive position. Management carefully evaluates opportunities in
light of the Company's available and projected financial resources. The
Company has no material commitments for the purchase of property and
equipment or software development costs. The amount of software
development costs incurred and capitalized in 1999 will be dependent on
determinations throughout the year on long and short-term revenue
opportunities for products in both of the Company's divisions.
Management believes that its current financial resources and
potentially available resources, together with cash generated from
operations, will be adequate to meet cash needs through 1999.
Software is included with nearly all of the Company's major products.
Following review, management has concluded that it will not have to
incur any substantial amount of warranty or upgrade costs to this
software to comply with Year 2000 issues.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CON'T
Impact of Year 2000
The Company has determined that it will be required to modify or
replace certain portions of its software and hardware so that those
systems will properly utilize dates beyond December 31, 1999. The
company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be
mitigated. However, if such modifications and replacements are not
made, or are not completed timely, the Year 2000 Issue could have a
material impact on the operations of the Company.
For its information technology exposures, the Company expects to fully
complete software replacement, including testing and implementation, no
later than September 30, 1999. Once testing is complete, the
operating equipment will be ready for immediate use. The testing and
implementation of all software is expected to be fully completed by
September 30, 1999.
The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and operating
equipment for Year 2000 modifications. The total cost of the Year
2000 project is estimated at $400,000, and is being funded through
operating cash flows and capital leases. To date, the Company has
incurred approximately $350,000 ($50,000 expensed and $300,000
capitalized for new systems and equipment) related to both its Year
2000 project and ordinary business expenditures that also addressed
the Year 2000 issue.
The Company believes it has an effective program in place to resolve
the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program.
In the event that the Company does not complete any additional phases,
the Company could be unable to effectively manufacture and ship
certain products. In addition, disruptions in the economy generally
resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue
cannot be reasonably estimated at this time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk stemming from changes in foreign
exchange rates, interest rates and prices of inventory purchased for
assembly into finished products. Changes in these factors could cause
fluctuations in earnings and cash flows. In the normal course of
business, exposure to interest rates is managed by fixing the interest
rates on the Company's long-term debt whenever possible. The Company
does not generally enter into long-term purchase contracts but instead
purchases inventory to fill specific sales contracts thereby minimizing
risks with respect to inventory price fluctuations.
Foreign Exchange Rates - The Company's locations outside the US are in
Canada and the United Kingdom. In both cases these are sales offices
with net non-current assets that are not significant. On a consolidated
basis the Company denominates sales in the following currencies:
- Canadian Dollar
- Japanese Yen
- Pound Sterling
- French Francs
In management's opinion, as the currencies of Canada, Western Europe
and the UK are generally stable; there is no significant exposure to
losses due to currency fluctuations. However, because the Yen has not
been stable over the past several years, the Company does enter into
forward sales contracts equal to the future amount of Yen to be
received at the time the order is accepted. These hedging transactions
are on an order by order basis and at no time are they speculative in
nature. At December 31, 1998, the fair market value of market risk
sensitive instruments or potential for near-term losses of earnings or
cash flows for such instruments was not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLIMENTARY DATA
Financial statements and quarterly results of operations are submitted
in separate sections of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
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, 1998), 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, 1998), 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, 1998), 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, 1998), with respect to directors
and executive officers of the Company, is incorporated herein by
reference.
15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) The response to this portion of ITEM 14 is 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 10-K for the year ended December 31, 1995, SEC file
0-12728, and incorporated herein by reference).
3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the
registrant's Form 10-K for the year ended December 31, 1994, SEC
file 0-12728, and incorporated herein by reference).
4.1 Note and Warrant Purchase Agreement (filed as Exhibit 4.1 to the
registrants Form 8-K dated July 15, 1997, SEC file 0-12728, and
incorporated herein by reference).
4.2 Form of 12.95% Senior Subordinated Secured Note (filed as Exhibit 4.2
to the registrants Form 8-K dated July 15, 1997, SEC file 0-12728,
and incorporated herein by reference).
4.3 Form of Medar, Inc. Common Stock Purchase Warrant Certificate (filed
as Exhibit 4.3 to registrants Form 8-K dated July 15, 1997, SEC file
0-12728, and incorporated herein by reference).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.9* 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).
16
<PAGE> 17
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CON'T
10.12 Amended and Restated Mortgage and Security Agreement (Grand River
mortgage) 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).
10.13 Mortgage (Crestview Court 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).
10.14 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).
10.15 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).
10.16* 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).
10.17 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).
10.18 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).
10.19 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).
10.20 Amended and Restated Term Note dated July 15, 1997 by and between
Medar, Inc. and NBD bank (filed as Exhibit 10.37 to the registrant's
Form 10-Q for the quarter ended June 30, 1997, SEC file 0-12728, and
incorporated herein by reference).
10.21 Collateral Assignment of Property Rights and Security Agreement dated
July 15, 1997 by and between Medar, Inc. and NBD bank (filed as
Exhibit 10.38 to the registrant's Form 10-Q for the quarter ended
June 30, 1997, SEC file 0-12728, and incorporated herein by
reference).
10.22 Stock Purchase Agreement between Maxco, Inc. and Medar, Inc. dated
July 23, 1997 (filed as Exhibit 10.39 to the registrant's Form 10-Q
for the quarter ended June 30, 1997, SEC file 0-12728, and
incorporated herein by reference).
10.24 Amended and Restated Revolving Credit and Loan Agreement dated July
31, 1998 by and between Medar, Inc. and Integral Vision LTD and NBD
Bank (filed as Exhibit 10.24 to the registrants Form 10-Q for the
quarter ended September 30, 1998, SEC file 0-12728, and incorporated
herein by reference.)
10.25 Amendment and Forebearance Agreement dated December 14, 1998 by and
between Medar, Inc. and Integral Vision LTD and NBD Bank.
10.26 Amended and Restated Master Demand Business Loan Note dated December
14, 1998 by and between Medar, Inc. and Integral Vision LTD and NBD
Bank.
17
<PAGE> 18
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CON'T
10.27 First Amendment to Mortgage (Grand River Mortgage-see 10.12) dated
December 14, 1998 by and between Medar, Inc. and NBD Bank.
10.28 First Amendment to Mortgage (Crestview Court Mortgage-see 10.13)
dated December 14, 1998 by and between Medar, Inc. and NBD Bank.
10.29 Second Amended and Restated Master Demand Business Loan Note dated
December 14, 1998 by and between Medar, Inc. and NBD Bank.
10.30 Amended and Restated Installment Loan Note dated December 14, 1998 by
and between Medar, Inc. and NBD Bank.
10.31 First Amendment to Amendment and Forebearance Agreement dated March
5, 1999 by and between Medar, Inc. and Intgeral Vision LTD. and NBD
Bank.
13 Annual Report on Form 10-K.
21 Subsidiaries of the registrant.
23 Consent of independent auditors.
(b) There were no reports on Form 8-K filed in the quarter ended December
31, 1998.
(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.
27 Financial Data Schedule
18
<PAGE> 19
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 30, 1999 MEDAR, INC.
By: /S/CHARLES J. DRAKE
-----------------------------------------------------
Charles J. Drake, Chairman of the Board
(Principal Executive Officer)
By: /S/RICHARD R. CURRENT
-----------------------------------------------------
Richard R. Current, Executive Vice President of
Finance (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.
/S/CHARLES J. DRAKE Chairman of the Board (Principal
- -------------------------------------- Executive Officer) and Director
Charles J. Drake
/S/MAX A. COON Vice Chairman, Secretary and Director
- --------------------------------------
Max A. Coon
/S/RICHARD R. CURRENT Executive Vice President of Finance
- -------------------------------------- (Principal Financial and Accounting
Richard R. Current Officer) and Director
/S/VINCENT SHUNSKY Treasurer and Director
- --------------------------------------
Vincent Shunsky
/S/WILLIAM B. WALLACE Director
- --------------------------------------
William B. Wallace
/S/STEPHAN SHARF Director
- --------------------------------------
Stephan Sharf
19
<PAGE> 20
EXHIBIT EXHIBIT INDEX DESCRIPTION
NUMBER
10.24 Amendment and Forbearance Agreement dated December 14, 1998 by
and between Medar, Inc. and Integral Vision LTD and NBD Bank.
10.26 Amended and Restated Master Demand Business Loan Note dated
December 14, 1998 by and between Medar, Inc, and Integral Vision
LTD and NBD Bank.
10.27 First Amendment to Mortgage (Grand -River Mortgage - see 10.12)
dated December 14, 1998 by and between Medar, Inc. and NBD Bank.
10.28 First Amendment to Mortgage (Crestview Court Mortgage - see
10.13) dated December 14, 1998 by and between Medar, Inc. and NBD
Bank.
10.29 Second Amended and Restated Master Demand Business Loan dated
December 14, 11998 by and between Medar, Inc. and NBD Bank.
10.30 Amended and Restated Installment loan Note dated December 14,
1998 by and between Medar, Inc. and NBD Bank.
10.31 First Amendment to Amendment and Forebearance Agreement dated
March 5, 1999 by and between Medar, Inc. and Integral Vision LTD.
and NBD Bank.
13 Annual Report on Form 10-K.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors.
27 Financial Data Schedule
<PAGE> 1
AMENDMENT AND FORBEARANCE AGREEMENT
NBD Bank ("NBD" or "Lender"), Medar, Inc. ("Medar"), Integral Vision,
Ltd. ("Integral") and Medar Canada, Ltd. ("Medar Canada"), enter into this
Amendment and Forbearance Agreement (this "Agreement"), on December ____, 1998.
For convenience (i) Medar and Integral are referred to herein, collectively, as
"Borrowers" and, individually, as a "Borrower," (ii) Medar Canada in its
capacity as guarantor of Borrowers' debt to NBD, and Integral, in its capacity
as guarantor of Medar's debt to NBD, and any other person or entity who
guaranteed the obligations of one or both of Borrowers to NBD are referred to
herein, collectively, as "Guarantors", and, individually, as a "Guarantor," and
(iii) Borrowers and Guarantors are referred to herein, collectively, as the
"Parties" and, individually, as a "Party."
RECITALS
A. NBD, as lender and secured party, and Borrowers, as borrowers and
debtors, are parties to a certain Amended and Restated Revolving Credit and Loan
Agreement dated as of July 31, 1998 (as may be amended and with all supplements
thereto, the "Credit Agreement"). The Credit Agreement amended and restated a
Revolving Credit and Loan Agreement by and among NBD, the Parties and Integral
Vision-Aid, Inc. (formerly known as Automatic Inspection Devices) dated August
10, 1995, as amended by agreements dated October 12, 1995, October 31, 1995,
March 29, 1996, August 11, 1996, February 27, 1997, March 28, 1997, June 27,
1997, July 15, 1997 and March 16, 1998 (the "Former Loan Agreement"). Integral
Vision-Aid, Inc. was merged with and into Medar prior to the execution of the
Credit Agreement. Capitalized terms used herein but not defined shall have the
meanings given to them in the Credit Agreement.
B. In furtherance of, and in accordance with, the Credit Agreement, NBD
agreed, among other things, to make available to Borrowers (i) a secured
committed revolving credit facility in an aggregate principal amount not to
exceed $10,000,000 (the "Revolving Credit Facility"), against the security of
accounts receivable and inventory described in the Credit Agreement, subject to
certain limitations; and (ii) letters of credit in an aggregate amount
outstanding not to exceed $500,000 subject to availability under the Revolving
Credit Facility.
C. The Revolving Credit Facility is evidenced by a Revolving Note dated
as of July 31, 1998, in the original principal amount of $10,000,000 (the
"Revolving Note").
D. Under the Former Loan Agreement, NBD granted to Medar a loan to
purchase equipment (the "Equipment Loan"), which loan is evidenced by an
Installment Business Loan Note dated March 20, 1997 in the original principal
amount of $131,315.80 (the "Equipment Note").
E. NBD also extended a term loan to Medar in the original principal
amount of $1,500,000 (the "1997 Mortgage Loan"), which loan is evidenced by an
Amended and Restated Term Note, dated July 15, 1997, in the original principal
amount of $1,500,000 (the "1997
<PAGE> 2
Mortgage Note"), which amended and restated a Term Note dated June 29, 1993 in
the original principal amount of $2,500,000. Proceeds of the 1997 Mortgage Note
were used to finance property commonly known as 38700 Grand River, Farmington
Hills, Michigan (the "Grand River Premises").
F. In addition, NBD extended a term loan to Medar in the original
principal amount of $2,540,000 (the "1995 Mortgage Loan") evidenced by an
Installment Business Loan Note dated October 31, 1995 in the original principal
amount of $2,540,000 (the "1995 Mortgage Note"). The proceeds of the 1995
Mortgage Note were used to finance property commonly known as 24755 Crestview
Court, Farmington Hills, Michigan (the "Crestview Court Premises").
G. In addition, NBD made available to Medar a business credit card
authorization (the "Charge Card Authorization") in the aggregate maximum amount
of $60,000 and Instaloans with current amounts outstanding equal to $8,100.30,
$68,895.59, $11,865.35 and $12,719.47, respectively (the "Instaloan").
H. Among other mortgages and security agreements, Medar executed and
delivered to NBD (A) General Security Agreement dated March 29, 1996 (as may be
amended and with all supplements thereto, the "Medar Security Agreement"), and
(B) a Collateral Assignment of Proprietary Rights and Security Agreement, dated
July 15, 1997 (the "Proprietary Rights Agreement"). For convenience, the Medar
Security Agreement and the Proprietary Rights Agreement are referred to herein,
collectively, as the "Security Agreements."
I. In addition to the Medar Security Agreement and the Proprietary
Rights Agreement, Medar also executed and delivered to NBD (i) an Amended and
Restated Mortgage and Security Agreement, dated June 29, 1993, and recorded on
August 20, 1993, in Liber 13885, Page 040 of the Oakland County Records (as may
be amended and with all supplements thereto, the "1993 Mortgage"), which 1993
Mortgage relates to the Grand River Premises; and (ii) a Future Advance Mortgage
dated October 31, 1995, and recorded in Liber 15799, Page 151 of the Oakland
County Records (as may be amended and with all supplements thereto, the "1995
Mortgage"), which 1995 Mortgage relates to the Crestview Premises. For
convenience, the 1993 Mortgage and the 1995 Mortgage are referred to herein,
collectively, as the "Mortgages."
J. All of the obligations of Borrowers to NBD, whether then existing or
thereafter created or arising, are guaranteed by Medar Canada, pursuant to that
certain Guaranty and Postponement of Claim dated August 10, 1995 (as may be
amended and with all supplements thereto, the "Medar Canada Guaranty"). In
connection with the Medar Canada Guaranty, Medar Canada executed and delivered
to NBD a General Security Agreement dated May 1, 1996 (the "Medar Canada
Security Agreement").
K. All of the obligations of Medar to NBD, whether then existing or
thereafter created or arising, are guaranteed by Integral and secured by
Integral's assets pursuant to that
2
<PAGE> 3
certain Composite Guaranty and Debenture dated as of June 7, 1996 (as may be
amended and with all supplements thereto, the "Integral Guaranty").
L. For convenience, the Medar Canada Guaranty and the Integral Guaranty
are referred to herein, collectively, as the "Guaranties," and such Guaranties,
the Medar Security Agreement and all other documents and instruments executed by
any Guarantor in connection therewith are referred to herein, collectively, as
the "Guarantor Loan Documents."
M. For convenience, all of the foregoing documents, mortgages,
agreements, assignments and promissory notes set forth in Recitals A through L
above, together with any other documents, instruments, agreements or promissory
notes executed in connection with, or in furtherance of, any of the foregoing,
as amended from time to time, including as amended by this Agreement, but
exclusive of all present or future oral agreements between NBD and any one or
more of the Parties, are referred to herein, collectively, as the "Loan
Documents."
N. On July 15, 1997, Dorrance Street Capital Advisors, L.L.C.
("Dorrance") and several creditors, including:
(a) Ohio National Fund, Inc./Omni Portfolio;
(b) Maxco, Inc.;
(c) Ohio National Fund, Inc./Social Awareness Portfolio;
(d) Ohio National Fund, Inc./Equity Portfolio;
(e) Industrial Boxboard Corporation Profit-Sharing Plan
and Trust;
(f) Robert W. Fulk IRA Rollover; and
(g) State Street Bank and Trust Company, as Trust for The
Textron Master Trust
(collectively, the "Junior Creditors"), executed a Subordination Agreement (the
"Textron Subordination Agreement"), whereby the above-referenced creditors and
Dorrance subordinated all present and future indebtedness of Medar, Medar Canada
and Integral to such creditors (the "Subordinated Debt") in favor of all present
and future obligations to NBD (collectively, the "NBD Obligations"), provided,
however, that the NBD Obligations shall not exceed $23,000,000 in the aggregate
outstanding at any one time, including interest, costs and expenses.
O. On November 10, 1998 (i) there was $8,837,500.00 in principal owing
by Borrowers to NBD under the Revolving Credit Facility, (ii) there was $0 in
principal owing by Borrowers to NBD under the Letter of Credit Facility, (iii)
there was $89,732.40 in principal
3
<PAGE> 4
owing by Medar to NBD under the Equipment Loan Note, (iv) there was $
1,187,500.00 in principal owing by Medar to NBD under the 1997 Mortgage Note
(v), there was $2,032,004.00 in principal owing by Medar to NBD under the 1995
Mortgage Note, (vi) there was $41,580.71 in principal owing by Medar to NBD
under the Instaloans, and (vii) as of November 15, 1998, there was $34,965.18 in
principal owing by Medar to NBD under the Charge Card Authorization, in each
case, plus accrued but unpaid interest, costs and expenses (including attorneys'
fees) called for by the Credit Agreement or other Loan Documents. For
convenience, all of the obligations referred to in the immediately preceding
sentence, together with all other principal and interest due or becoming due to
NBD, together with the payment of all other sums, indebtedness and liabilities
of any and every kind now or hereafter owing and to become due from Borrowers to
NBD however created, incurred, evidenced, acquired or arising, and whether
direct or indirect, primary, secondary, fixed or contingent, matured or
unmatured, joint, several, or joint and several, and whether for principal,
interest, reimbursement obligations, indemnity obligations, obligations under
guaranty agreements, fees, costs, expenses, or otherwise, all of Borrowers'
obligations under this Agreement, together with all other present and future
obligations of Borrowers to NBD, are referred to herein, collectively, as the
"Obligations."
P. Each Party, jointly and severally, acknowledges and agrees that (i)
the Obligations, Guarantors' obligations under the Guarantor Loan Documents, and
all other obligations of any one or more of the Parties to NBD are owing to NBD
without setoff, recoupment, defense or counterclaim, in law or in equity, of any
nature or kind; (ii) the Obligations are secured by valid, perfected,
indefeasible, enforceable, first priority liens and security interests in favor
of NBD in, among other things all of each Borrowers' instruments, documents,
chattel paper, contracts, accounts, contract rights, general intangibles
(including patents, trademarks and copyrights), equipment and inventory as more
fully described in the Security Agreements. The Obligations are also secured by
a first priority lien, security interest and mortgage in favor of NBD with
respect to the Grand River Premises and the Crestview Premises, as more fully
described in the Mortgages. In addition, Medar Canada's Obligations under the
Medar Canada Guaranty are secured by a valid, perfected, indefeasible,
enforceable first lien and security interest in, among other things, all of
Medar Canada's contracts, contract rights, general intangibles, equipment and
inventory, as more fully described in the Medar Canada Security Agreement. For
convenience all collateral referred to above, together with all other collateral
described in the Loan Documents and all collateral heretofore, simultaneously
herewith or hereafter granted to NBD by any one or more of the Parties to secure
any of the Obligations or any one or more of the Parties' other obligations to
NBD, including, without limitation, the obligations of any one or more of the
Guarantors under the Guarantor Loan Documents, is referred to, collectively, as
the "Collateral."
Q. Each Party reaffirms, ratifies, confirms and approves its
obligations and duties under the Loan Documents, as modified by this Agreement.
Without limiting the generality of the immediately preceding sentence,
Guarantors hereby reaffirm, ratify, confirm and approve their obligations and
duties under the Guarantor Loan Documents, and the provisions herein, and
acknowledge and agree that the Guarantor Loan Documents extend to, and cover,
all of the Obligations, including the sums described in Paragraph M above. Each
Party, jointly and
4
<PAGE> 5
severally, reaffirms, ratifies and confirms the liens, mortgages, assignments
and security interests granted to NBD in the Collateral under the Loan Documents
or otherwise.
R. Borrowers are in default under the Loan Documents for the following
reasons:
(i) Based on Borrowers' financial statements for the quarter
ended September 30, 1998 (the "Third Quarter Financials"), Borrowers'
Tangible Net Worth is less than $4,250,000. (The Third Quarter
Financials indicate that Borrowers' Tangible Net Worth was $3,857,762);
(ii) Based on the Third Quarter Financials, Borrowers' Debt to
Tangible Net Worth Ratio exceeds 6.25 to 1.0. (The Third Quarter
Financials indicate that Borrowers' Debt to Tangible Net Worth Ratio
was 6.74 to 1.0); and
(iii) Medar is in default under the Note and Warrant Purchase
Agreement dated as of July 15, 1997 by and among Medar and the Junior
Creditors.
For convenience, the above-described defaults are referred to
collectively as the "Existing Defaults." Each Party represents and warrants,
after due inquiry and investigation, that none of them is aware of any other
Events of Default or defaults, or of any event which, with the passage of time,
notice, or both, would become an Event of Default or a default under the Loan
Documents or this Agreement.
S. Each Party also acknowledges that based on the Existing Defaults,
NBD has the right, without further notice, to enforce its rights under the Loan
Documents (including the Guarantor Loan Documents) and applicable law. Further,
if NBD took such action, each Party acknowledges that NBD's actions would be
within NBD's rights under the Loan Documents (including the Guarantor Loan
Documents) and applicable law, and would be reasonable and appropriate under the
circumstances.
T. Each Party acknowledges and agrees that (i) NBD has fully performed
all of its obligations under the Loan Documents; (ii) NBD has no obligation to
continue to lend to Borrowers, or to forbear from enforcing its rights and
remedies beyond the Forbearance Period (as hereinafter defined); (iii) any loans
made after the date of this Agreement will be made in NBD's sole discretion; and
(iv) NBD has made no representations of any nature or kind that funding in any
amount will continue, or that the Forbearance Period (as hereinafter defined)
will be extended beyond the expiration thereof.
U. Each Party further acknowledges and agrees that the actions taken by
NBD to date in furtherance of the Loan Documents are reasonable and appropriate
under the circumstances and are within NBD's rights under the Loan Documents and
applicable law.
V. Each Party represents and warrants to NBD that it has received
direct and substantial economic benefit from all of the Obligations and that it
will continue to receive
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direct and substantial economic benefit from such Obligations, and from any
other loans made or which may be made in the future to Borrowers.
W. The Parties have informed NBD that they are in the process of
seeking alternative sources of financing for Borrowers. The Parties have
requested that NBD agree to forbear from exercising its rights and remedies
under the Loan Documents and applicable law in connection with the Existing
Defaults until March 5, 1999 to allow the Parties time to obtain alternative
sources of financing and consummate transactions with respect thereto.
X. Subject to the terms and conditions of this Agreement, and in
reliance on the Parties' agreements, acknowledgments, representations, and
warranties in this Agreement, NBD has agreed to amend the Loan Documents and
waive the Existing Defaults under the Loan Documents (including the Guarantor
Loan Documents), as set forth below.
AGREEMENT
Based on the foregoing Recitals (which are incorporated herein as
agreements, representations, warranties, and covenants of the respective
Parties, as the case may be), and for other good and valuable consideration, the
adequacy and receipt of which are acknowledged by each Party hereto, NBD and
each Party agree as follows:
1. FORBEARANCE. Subject to the following conditions and those set forth
below, NBD agrees to forbear from enforcing its rights and remedies with respect
to the Existing Defaults through March 5, 1999 (the "Forbearance Period"):
(a) There are no further Events of Default or defaults under
the Loan Documents (including a worsening of the Existing Defaults beyond the
Permitted Deviations, as defined below) and each Party fully complies with all
the terms and conditions of this Agreement and the other Loan Documents; and
(b) NBD receives, on or before December 11, 1998 (the
"Effective Date"), a fully-executed copy of this Agreement, acknowledged by
counsel for each of the Parties as provided below, together with fully-executed
copies of all of the Exhibits that require signature.
2. DEMAND DISCRETIONARY FACILITY. The Credit Agreement is hereby
amended to convert the Revolving Credit Facility to a demand discretionary
facility. Under this facility (the "Demand Discretionary Facility"), NBD, in its
sole and absolute discretion, may decide whether or not to make any future loans
to Borrowers. NBD may refuse to advance for any reason or for no reason at any
time, even if Borrowers have collateral availability to borrow under the Loan
Documents and no Event of Default or default has occurred under such Loan
Documents. UPON THE EARLIER OF (A) DEMAND (B) A DEFAULT OR EVENT OF DEFAULT
UNDER THE LOAN DOCUMENTS OR THE FORBEARANCE AGREEMENT (OTHER THAN THE EXISTING
DEFAULTS), OR (C) THE EXPIRATION OF THE FORBEARANCE PERIOD, THE DEMAND
DISCRETIONARY FACILITY SHALL, AT
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NBD'S OPTION AND WITHOUT FURTHER NOTICE, TERMINATE AND ALL OBLIGATIONS OF
BORROWERS UNDER SUCH DEMAND DISCRETIONARY FACILITY SHALL BE DUE AND PAYABLE IN
FULL. Any reference in any document or instrument (including the Credit
Agreement) to the Revolving Credit Facility shall constitute a reference to the
Demand Discretionary Facility and any reference in any document or instrument
(including the Credit Agreement) to Revolving Loans shall constitute a reference
to loans made under the Demand Discretionary Facility. The Credit Agreement is
further amended to eliminate the requirement to pay any Commitment Fees (as
defined in the Credit Agreement) which would have been due and payable after the
Effective Date. Anything to the contrary in the Loan Documents notwithstanding,
the fact that NBD in its sole and absolute discretion makes one or more Loans
after the date of this Agreement does not in any way obligate NBD to make any
other Loans under the Demand Discretionary Facility or otherwise.
3. PERMITTED DEVIATIONS. Borrowers have informed NBD that the Existing
Defaults set forth in Recitals (R)(i) and (ii) above may worsen during the
Forbearance Period and Borrowers have requested that NBD make an allowance for
this. Thus, as an accommodation to Borrowers, NBD agrees that it shall not be a
worsening of the Existing Defaults or a new default under the Loan Documents or
this Agreement so long as the following financial covenants are met during the
Forbearance Period (the "Permitted Deviations"):
(a) Tangible Net Worth shall be no less than $3,000,000 at
November 30, 1998; and no less than $3,900,000 at December 31, 1998 and
thereafter; and
(b) Total Liabilities to Tangible Net Worth shall not exceed
8.80 to 1.0 at November 30, 1998; or 7.25 to 1.0 at December 31, 1998
and thereafter.
If Borrowers violate these covenant requirements, then such violation
shall be a new default under the Loan Documents and this Forbearance Agreement
and, therefore, a breach of this Forbearance Agreement.
4. INTEREST. The Credit Agreement is hereby amended to provide that,
notwithstanding anything to the contrary in the Loan Documents, prior to the
occurrence of a default or Event of Default under this Agreement or any of the
other Loan Documents (excluding the Existing Defaults during the Forbearance
Period, but including a worsening of such Existing Defaults) (a) all Obligations
(other than the Obligations under the Charge Card Authorization the Instaloans,
and the 1995 Mortgage Note) shall bear interest computed on the basis of the
actual number of days elapsed in a year of 360 days at the rate of 1% per annum
above the rate announced from time to time by NBD as its prime rate, which may
not be the lowest rate charged by NBD to any of its customers and (b) the 1995
Mortgage Note shall bear interest at the rate of 8.7% per annum (each, the
"Applicable Rate"). After the occurrence of an Event of Default or default under
this Agreement or the Loan Documents (excluding the Existing Defaults during the
Forbearance Period, but including a worsening of such Existing Defaults), all of
such Obligations at NBD's sole discretion shall bear interest at the rate of 3%
per annum above the Applicable Rate (the "Default Rate"). Notwithstanding the
foregoing, in
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no event whatsoever shall the rate of interest charged under this Agreement or
any agreement or note executed in connection herewith or referred to or
incorporated herein exceed the highest rate permitted by applicable law. The
fact that NBD is entitled to receive a higher rate of interest upon default is
to compensate NBD for increased administrative and monitoring costs and shall
not in any manner be deemed to have waived or modified any of NBD's rights in
connection with the occurrence of a default or any Event of Default under this
Agreement or any other Loan Document.
5. AMENDED AND RESTATED NOTES. The Revolving Note is hereby amended,
restated and replaced in its entirety by a Master Demand Business Loan Note, in
the form of Exhibit A attached hereto (the "Amended Line of Credit Note"). The
Equipment Note is amended and restated and replaced in its entirety by an
Amended and Restated Equipment Note in the form of Exhibit B attached hereto
(the "Amended Equipment Note"). The 1997 Mortgage Note is amended, restated and
replaced in its entirety by a Second Amended and Restated Mortgage Note in the
form of Exhibit C attached hereto (the "Amended 1997 Mortgage Note"). The 1995
Mortgage Note is hereby amended, restated and replaced in its entirety by an
Amended and Restated Mortgage Note in the form of Exhibit D attached hereto (the
"Amended 1995 Mortgage Note"). For convenience, the Amended Line of Credit Note,
the Amended Equipment Note, the Amended 1997 Mortgage Note, and the Amended 1995
Mortgage Note are referred to herein, collectively, as the "Amended Notes." Any
reference in any other document or instrument (including, but not limited to,
the Credit Agreement) to the Revolving Note, the Equipment Note, the 1997
Mortgage Note, and the 1995 Mortgage Note shall constitute a reference to the
Amended Notes. The Amended Notes are in substitution and exchange for the Notes
and shall not in any circumstances be deemed a novation or to have paid,
terminated, extinguished or discharged Borrowers' indebtedness evidenced by such
Notes, all of which indebtedness shall continue under, and be evidenced and
governed by, the Amended Notes.
ANYTHING TO THE CONTRARY NOTWITHSTANDING IN ANY NOTE OR ANY
OTHER LOAN DOCUMENT, ALL OBLIGATIONS OF BORROWERS TO NBD, INCLUDING ALL
OBLIGATIONS UNDER THE AMENDED NOTES, BORROWERS' OBLIGATIONS TO NBD UNDER THE
INSTALOAN, AND BORROWER'S OBLIGATIONS TO NBD UNDER THE CHARGE CARD AUTHORIZATION
SHALL BE DUE AND PAYABLE IN FULL UPON THE EARLIER OF (A) DEMAND (B) A DEFAULT OR
EVENT OF DEFAULT UNDER THE LOAN DOCUMENTS OR THE FORBEARANCE AGREEMENT (OTHER
THAN THE EXISTING DEFAULTS), OR (C) THE EXPIRATION OF THE FORBEARANCE PERIOD.
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6. BORROWING BASE.
(a) The Parties acknowledge and agree that in the past, certain
accounts receivable and inventory have been included in the Borrowing Base
Formula which accounts receivable and inventory did not qualify as "Eligible
Accounts Receivable" or "Eligible Inventory Receivable" under the Credit
Agreement as described on Exhibit E-1. For convenience, all accounts receivable
and inventory that do not meet the definition of "Eligible Accounts Receivable"
and "Eligible Inventory" under the Credit Agreement, as amended hereby,
including, without limitations, those categories of receivables and inventory
described in Exhibit E-2, are referred to herein, respectively, as "Ineligible
Receivables" and "Ineligible Inventory." Without limiting the discretion granted
to NBD under the Credit Agreement to reasonably deem at any time for any reason
that certain inventory or accounts receivable are ineligible, the Parties
acknowledge and agree that the items set forth on Exhibit E-2 shall be
Ineligible Accounts Receivable and Ineligible Inventory, notwithstanding that
certain of such receivables or inventory may have been included in the Borrowing
Base in the past.
(b) The Parties acknowledge and agree that in the past, certain
advances may have been made to Borrowers, even though Borrowers did not have
availability under the Borrowing Base Formula set forth in the Loan Agreement
("Out-of-Formula Advances"). The Parties acknowledge and agree that
notwithstanding that certain Out-of-Formula Advances may have been made in the
past, NBD had and continues to have no obligation to make any Out-of-Formula
Advances and any Out-of-Formula Advance permitted by NBD in the future shall be
in NBD's sole and absolute discretion and shall not give rise to a right or
expectation on the part of the Parties' to similar Out-of-Formula Advances at
any time in the future. The Parties acknowledge and agree that it is NBD's
current intention not to make any Out-of-Formula Advances.
7. YEAR 2000 ISSUES. Borrowers will take all actions reasonably
necessary to assure that Year 2000 Issues will not have a material adverse
effect on the business, operations or financial condition of Borrowers. Upon
NBD's request, Borrowers will provide NBD with a description of their plan to
address Year 2000 Issues, including updates and progress reports. Borrowers will
advise NBD of any reasonably anticipated material adverse effect on the
business, operations or financial condition of Borrowers as a result of Year
2000 Issues.
8. COMPENSATION. So long as any of the Obligations remain outstanding,
no loans, distributions, advances or other payments of any kind or nature shall
be made by any Borrower to any officers or any member of their immediate
families, other than the following:
(i) Reasonable cash compensation in an amount no
greater than the amount currently being paid to each such individual as
of the date hereof, provided that such cash compensation is paid for
services actually rendered by the applicable individual to Borrower;
(ii) Reasonable reimbursement for business expenses
incurred in the ordinary course of business; and
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(iii) Employee benefits provided in the ordinary
course of business to other employees of Borrower consistent with past
practices.
9. TRANSACTIONS WITH AFFILIATES. Without NBD's prior written consent,
which consent may be withheld at NBD's sole discretion, until all of the
Obligations are paid in full, no advances will be made by any Borrower to any
entity or individual affiliated with any Borrower, whether now existing or
formed in the future, except with respect to inter-company transactions
consistent with practice, and except for amounts to shareholders and members of
their immediate families specifically permitted by Paragraph 8 above.
10. NBD'S CONSULTANT. The Parties acknowledge that counsel to NBD may
hire a financial consultant (the "Consultant") to assist such counsel in its
evaluation of Borrowers' financial condition and Borrowers' relationship with
NBD. The Parties shall provide the Consultant access to Borrowers' facilities,
books and records and shall cooperate in good faith with the Consultant and
shall request Borrowers' outside accountant (the "CPA") to cooperate in good
faith in connection with the provision of all information requested by the
Consultant (including copies of all information in the CPA's possession relating
to the Parties). All information provided to the Consultant shall be held in
confidence and used only by NBD and its agents in connection with transactions
with the Parties.
11. ADDITIONAL COVENANTS. In addition to the covenants already
contained in the Loan Documents or elsewhere in this Agreement, Borrowers agree
that the Loan Documents are hereby amended to include the following covenants:
(a) Except as specifically provided herein, Borrowers shall
not make any loan or advance to any of their respective shareholders or
affiliates without the prior written consent of NBD;
(b) Borrowers shall not incur any obligations for loans or
leases without the prior written consent of NBD;
(c) Borrowers shall permit NBD or its agents to perform audits
of the Collateral whenever deemed necessary by NBD. Notwithstanding the
foregoing, NBD's current intention is to conduct audits no more frequently than
quarterly. Borrowers shall compensate NBD for those audits in accordance with
NBD's schedule of fees, as may be amended from time to time;
(d) Borrowers shall not permit any tax or other liens to be
placed on any of their property;
(e) The Parties shall immediately notify NBD in writing of any
legal proceeding brought by or against any Borrower or any Guarantor.
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(f) Borrowers shall not permit their EBITD to be less than
$350,000 for the month ended November 30, 1998, and $1,100,000 for the month
ended December 31, 1998 and for each month thereafter.
12. ADDITIONAL REPORTING. In addition to any reports or information
required by the Loan Documents or this Agreement (which must be provided
timely), or that NBD may hereafter request, each Party must provide NBD with:
(a) Within one day of receipt, copies of written notices of
default received from other creditors;
(b) Within one day of gaining knowledge thereof, any adverse
information regarding any Party;
(c) Daily, a Borrowing Base Certificate in a form and detail
reasonably acceptable to NBD, executed by an authorized agent of the Loan
Parties and completed and sent by facsimile with the originals to follow by U.S.
Mail. The current form utilized by Borrowers is acceptable so long as Borrowers
add sections detailing the prior day's loan balance, requested advance or
paydown, the resulting loan balance and the excess availability.
(d) As soon as available and in any event within 20 days after
the end of each calendar month, a report listing the accounts receivable aging,
accounts payable aging and a perpetual inventory report summarized by commodity
code of Borrowers, in a form and detail reasonably acceptable to Bank, executed
by an authorized agent of Borrowers and completed as of the end of the most
recently ended month;
(e) Within 20 days after the end of the first eleven months of
each year and by January 31 for the month of December, a balance sheet as of the
end of such month and statements of income, retained earnings and cash flows
from the beginning of the fiscal year to the end of such month, certified as
correct by one of Borrowers' authorized agents, together with a calculation
showing the actual cash flows for such month as compared to the cash flows for
such month set forth in the Projections;
(f) Monthly by the 15th of each month, an updated list of all
patents, patent applications, copyrights, trademarks, or trade names of
Borrowers; and
(g) Such other documents, certificates, financial reports or
statements as Bank may reasonably request.
13. DEFAULTS. In addition to any other Events of Default or defaults
provided for in the Loan Documents, and without waiver of the demand and
discretionary provisions of the Loan Documents, the occurrence of any of the
following constitutes an Event of Default and a default under this Agreement
(and each Loan Document):
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(a) If any Party fails to comply with any term or condition in
this Agreement (or any agreement referred to or incorporated herein) or the Loan
Documents (other than the Existing Defaults);
(b) If any material adverse change occurs in any Borrower's
financial condition or business prospects;
(c) If any lender, supplier, creditor, lessor, bond holder or
representative thereof (collectively, "Creditor") of any Party shall (i) obtain
a judgment against any Party or (ii) receives from any Borrower any prepayments
of obligations;
(d) If any representation or warranty made by any Party in
this Agreement or in connection with the negotiation hereof is untrue as of the
date made;
(e) If attachment by way of seizure, levy, lien or otherwise
of any assets of any one or more of the Parties;
(f) If the filing of any notice of lien, levy or assessment by
any government, department or agency or the fact that any taxes or debts owing
(including the Unpaid Taxes) become a lien or encumbrance upon any assets of any
of the Parties; and
(g) If any Borrower fails to pay or cause to be paid when due
any and all taxes with respect to such Borrower's business, including, without
limitation, payroll taxes and real property taxes, other than the Unpaid Taxes.
(h) If any Borrower defaults under any agreement, document or
instrument by and among such Borrower and NBD or any of its affiliates, or by
and among such Borrower and any other bank, financial institution, lending
agency, or leasing agency who has provided financing of any nature to such
Borrower, including without limitation, any Junior Creditor, except for those
defaults listed on Exhibit F attached hereto (the "Textron Existing Defaults")
under the Borrowers' loan documents with such Junior Creditors.
(i) If any Junior Creditor accelerates the obligations owing
to it by any of the Parties, or otherwise attempt to enforce its rights under
any of their loan documents with any of the Parties, on account of the Textron
Existing Defaults, or otherwise.
14. WRITTEN DOCUMENTS CONTROL. The Parties acknowledge and agree that
in the past, certain terms and provisions of the Loan Documents may not have
been complied with and may have been temporarily waived or modified through
certain temporary oral agreements or waivers among the Parties and NBD. Each
Party acknowledges and agrees that any and all of such oral agreements or
waivers are hereby terminated and each Party's duties, obligations, rights and
responsibilities with respect to the Loan Documents and this Agreement shall be
governed solely in accordance with the terms and conditions of the written Loan
Documents between the Parties and NBD, and this Agreement, together with all
written supplements or
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amendments, thereto or hereto, but exclusive of all present or future oral
agreements between NBD and any one or more of the Parties.
15. BANK ACCOUNTS. The Parties represent and warrant to NBD that all of
the financial and bank accounts of Borrowers of any nature, including, without
limitation, checking and savings accounts, time deposit accounts and operating
and other deposit accounts and money market and other investment accounts
(collectively, the "Bank Accounts"), other than those listed on Exhibit G
attached hereto (the "Excluded Accounts") are maintained with NBD, and Borrowers
maintain no such accounts with any other bank, financial institution or other
third party (other than the Excluded Accounts). The Parties acknowledge and
agree that Borrowers shall continue to maintain all of such Bank Accounts (other
than the Excluded Accounts) with NBD, and all revenues of Borrowers will be
deposited in an NBD Bank Account immediately upon receipt.
16. NO OVERDRAFTS. The Parties acknowledge that, notwithstanding that
NBD may have honored overdrafts in the past, hereafter, neither NBD nor any of
its affiliates are obligated, under any circumstances, to honor any checks or
other items presented to NBD or such affiliates for payment for which there are
insufficient available funds in any Borrower's accounts and NBD or such
affiliates, as the case may be, may return any such items so presented.
17. AUTHORITY TO DEBIT ACCOUNTS. If any payment called for by the Loan
Documents, this Agreement or any other agreement referred to or incorporated
herein, or any other present or future agreements between NBD or any of its
affiliates on the one hand, or any party on the other hand, is not paid when and
as called for under the terms of such agreement, then NBD or any of its
affiliates may debit any one or more of any Party's accounts at NBD or any of
its affiliates for such amount. The fact that NBD or any of its affiliates has
debited any such account will in no way waive or diminish any default for the
failure to make such payment when and as due.
18. NO FURTHER FORBEARANCE IMPLIED. Each Party acknowledges that NBD
has no obligation to continue making Loans or extend the term of the Forbearance
Period or forbear from enforcing its rights and remedies after the Forbearance
Period, and nothing contained herein or otherwise is intended to be or is a
promise or agreement to continue making Loans, or to extend the term of the
Forbearance Period beyond the expiration thereof. Furthermore, no future
agreement by NBD to continue making Loans, or to extend the term of the
Forbearance Period beyond the expiration thereof, or any other agreement, is
valid or enforceable unless it is contained in a written agreement signed by
NBD.
19. FORBEARANCE FEE. In consideration for NBD agreeing to forbear from
exercising its rights and remedies under the Loan Documents with respect to the
Existing Defaults as provided herein, Borrowers shall pay to NBD a forbearance
fee in the amount of $75,000 simultaneously with the execution of this
Agreement, plus $25,000 the first day of each month until all Obligations are
paid in full, collectively, the "Forbearance Fee."
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20. EXPENSES, FEES AND COSTS; INDEMNIFICATION
(a) Each Party, jointly and severally, shall be responsible
for the payment of all fees and out-of-pocket disbursements incurred by NBD,
including fees of counsel and court costs, in any way arising from or in
connection with this Agreement, any Collateral, any Loan Document, any
Obligations, or the business relationship between NBD on the one hand and any
one or more of the Parties on the other hand, including, without limitation: (1)
Audit Fees (as defined in Paragraph 21 below); (2) all fees and expenses
(including recording fees and insurance policy fees) of NBD and counsel for NBD
for the preparation, examination, approval, negotiation, execution and delivery
of, or the closing of any of the transactions contemplated by, this Agreement or
any of the Loan Documents; (3) all fees and out-of-pocket disbursements incurred
by NBD, including attorneys' fees, in any way arising from or in connection with
any action taken by NBD to monitor, advise, administer, enforce or collect any
of the Obligations (including under this Agreement, the Guarantor Loan
Documents, and any other Loan Document, or otherwise), or any other obligations
of any one or more of the Parties, whether joint, joint and several, or several,
under this Agreement, any Loan Document, any other existing or future document
or agreement, or arising from or relating to the business relationship between
NBD, on the one hand, and any one or more of the Parties, on the other hand, or
otherwise securing any of the Obligations, including any actions to lift the
automatic stay or to otherwise in any way monitor or participate in any
bankruptcy, reorganization or insolvency proceeding of any one or more of the
Parties; (4) all expenses and fees (including attorneys' fees) incurred in
relation to, in connection with, in defense of or in prosecution of any
litigation instituted by any one or more of the Parties, NBD, or any third
party, against or involving NBD arising from, relating to, or in connection with
any of the Obligations, or any one or more of the Parties' other obligations,
this Agreement, any Collateral, any Loan Document, or the business relationship
between NBD, on the one hand, and any one or more of the Parties, on the other
hand, including any so-called "lender liability" action, any claim and delivery
or other action for possession of, or foreclosure on, any of the Collateral,
post-judgment enforcement of any rights or remedies including enforcement of any
judgments, and prosecution of any appeals (whether discretionary or as of right
and whether in connection with pre-judgment or post-judgment matters); (5) all
costs, expenses, and fees incurred by NBD or its agents in connection with
appraisals and reappraisals of all or any of the Collateral (and each Party must
fully cooperate with such appraisers and make its property available for
appraisal in connection with as many appraisals as NBD may request); (6) all
costs, expenses, and fees incurred by NBD or its counsel in connection with
consultants, including, without limitation, the Consultant, expert witnesses, or
other professionals retained by NBD or its counsel, to assist, advise, or give
testimony with respect to any matter relating to the Collateral, the
Obligations, the Loan Documents, the Guaranty, or the business relationship
between NBD, on the one hand, and any one or more of the Parties, on the other
hand (and each Party must fully cooperate with such Consultant, expert witness
or other professional and shall make its premises, books and records, accounting
systems, computer systems and other media for the recordation of information
available to such persons); and (7) all costs, expenses and fees incurred by NBD
in connection with any environmental investigations including, but not limited
to, Phase I, Phase II and
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Phase III environmental audits (and each Party agrees that NBD or its agents may
enter on its premises at any time to conduct such environmental investigations).
Each Party's agreement, jointly and severally, to be responsible for NBD's
attorneys' fees and costs applies regardless of whether or not NBD prevails in
whole or in part in any action, proceeding, litigation, or otherwise, and
regardless of the nature of any action or litigation or the theories or bases of
recovery or defense. Each Party, jointly and severally, agrees to indemnify NBD
for all Claims (as hereinafter defined) which may be imposed on, incurred by, or
asserted against NBD in connection with this Agreement, any Loan Document, or
the transactions contemplated hereby or thereby, or the business relationship
between NBD, on the one hand, and any one or more of the Parties, on the other
hand.
(b) All of the foregoing costs, expenses, reimbursement
obligations, and indemnification obligations are part of the Obligations and are
secured by all of the Collateral.
(c) "Claims" means any demand, claim, action or cause of
action, damage, liability, loss, cost, debt, expense, obligation, tax,
assessment, charge, lawsuit, contract, agreement, undertaking or deficiency, of
any kind or nature, whether known or unknown, fixed, actual, accrued or
contingent, liquidated or unliquidated (including interest, penalties,
attorneys' fees and other costs and expenses incident to proceedings or
investigations relating to any of the foregoing or the defense of any of the
foregoing), whether or not litigation has commenced.
21. VERIFICATION OF ACCOUNTS/AUDITS. Attached hereto as Exhibit H is a
true and complete list, including accurate addresses and contact persons of all
of each Borrower's customers and account debtors. The Parties agree that, NBD,
through its employees or authorized agents, is permitted to send a letter to and
otherwise contact each Borrower's customers and account debtors to verify
account receivable balances. In addition, NBD shall be permitted full and
complete access to each Borrower's facilities, and books and records to conduct
audits as often as NBD reasonably desires. Notwithstanding the foregoing, NBD's
current intention is to conduct audits no more frequently than quarterly. The
cost of such audits is part of the Obligations, is secured by all Collateral,
and must be paid by Borrowers within ten (10) days of receipt of an invoice
therefor (the "Audit Fees"). The Audit Fees are in addition to all other
interest, fees, costs, and expenses provided for in the Loan Documents or this
Agreement.
22. OTHER DOCUMENTS. Each Party must execute, or cause to be executed,
any documents requested by NBD to carry out the intent of or to implement this
Agreement, the Guarantor Loan Documents, or any other Loan Document.
23. CROSS DEFAULT/CROSS COLLATERALIZATION/REMEDIES. An Event of Default
or a default under this Agreement (or any agreement referred to or incorporated
herein) is an Event of Default or a default under each document and agreement
comprising the Loan Documents (including the Guarantor Loan Documents), and an
Event of Default or a default under any document or agreement comprising the
Loan Documents (including the Guarantor Loan Documents) is an Event of Default
or a default under the terms of this Agreement (and all
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agreements referred to or incorporated herein). Immediately upon the occurrence
of an Event of Default or a default under this Agreement, any Loan Document or
any document executed in connection herewith or referenced herein, and without
notice or an opportunity to cure such Event of Default or default, NBD has the
right to exercise any remedies provided in this Agreement, the Loan Documents,
and under applicable law, and the Forbearance Period will automatically expire
at NBD's election, without further notice and, at NBD's election but without
notice, all of each Party's obligations to NBD (including the Obligations and
the Guarantors' obligations under the Guarantor Loan Documents) will be
immediately due and payable. In any event, from and after the earlier of
expiration of the Forbearance Period or the occurrence of an Event of Default or
a default under this Agreement or any Loan Document, NBD may immediately take
action to enforce its rights and remedies under the Loan Documents (including
enforcement action on account of the Existing Defaults), this Agreement, and
applicable law, including collecting the Obligations and foreclosing on the
Collateral. Each of the Parties acknowledges and agrees that it was and remains
each Party's intent that a default by any Party under any of its Obligations to
NBD shall be deemed to be a default under each document or agreement evidencing
all of the other Parties' Obligations to NBD, and all Collateral pledged by a
Party to secure that Party's Obligations to NBD also secures all of the other
Parties' Obligations to NBD. Each Party agrees to execute and deliver to NBD any
security agreements, financing statements or other documents NBD may deem
necessary or desirable to effectuate the above-referenced provisions. ABSENT THE
PRIOR OCCURRENCE OF AN EVENT OF DEFAULT, DEFAULT OR PRIOR DEMAND FOR PAYMENT,
ALL OBLIGATIONS, AND GUARANTORS' OBLIGATIONS UNDER THE GUARANTOR LOAN DOCUMENTS
ARE DUE AND PAYABLE IN FULL AT THE EXPIRATION OF THE FORBEARANCE PERIOD.
24. LOAN DOCUMENTS, GUARANTIES AND MORTGAGES CONTINUE. Except as
expressly modified and amended by the terms of this Agreement, all other terms
and conditions of the Loan Documents (including the Guarantor Loan Documents and
the Mortgages) remain in full force and effect and are hereby ratified,
confirmed, and approved. If there is an express conflict between the terms of
this Agreement and the terms of the Loan Documents, the terms of this Agreement
govern and control. Without limiting the generality of the foregoing, (a) each
Guarantor acknowledges and agrees that the Guaranties extend to cover all of the
Obligations of Borrowers to NBD, including without limitation, all of such
Obligations under this Agreement and under the Loan Documents, and (b) each
Party acknowledges and agrees that the Mortgages extend to cover all of
Borrowers' Obligations to NBD, including without limitation, all of such
Obligations under this Agreement and under the Loan Documents.
25. RESERVATION OF RIGHTS/NO WAIVERS. This Agreement grants a limited
forbearance until the expiration of the Forbearance Period on the terms and
conditions set forth in this Agreement. Except for such forbearance through the
expiration of the Forbearance Period, all of NBD's rights and remedies against
each Party and the Collateral are expressly reserved, including all rights and
remedies resulting from, or arising in connection with, the Existing Defaults.
Likewise, nothing herein is a waiver of any Existing Defaults, or other defaults
existing as of the date hereof, or an agreement to consent to further worsening
of such
16
<PAGE> 17
Existing Defaults, or new Events of Default or defaults, or in any way
prejudices NBD's rights and remedies under the Loan Documents (including the
Guarantor Loan Documents), or applicable law. Further, NBD has the right to
waive any terms, provisions, or conditions in this Agreement or the Loan
Documents in its sole discretion, and any such waiver does not prejudice, waive,
or reduce any other right or remedy which NBD may have against any one or more
of the Parties. No waiver of rights or any condition of this Agreement, the Loan
Documents, or any other agreement by NBD is effective unless the same is
contained in a writing signed by an authorized agent of NBD.
26. CREDIT INQUIRIES. In the event customers, buyers, investors,
potential alternative financing sources, or other parties ask NBD about the
current lending relationship among NBD and any one or more of the Parties, each
Party agrees that NBD may refer such inquiries to Medar.
27. ENTIRE AGREEMENT, ETC.
(a) This Agreement and the Exhibits hereto constitute the
Parties' and NBD's entire understanding with respect to the subject matter
hereof. Modifications or amendments to this Agreement must be in writing and
signed by the party to be charged in order to be effective. This Agreement is
governed by the internal laws of the State of Michigan (without regard to
conflicts of law principles). This Agreement is binding on each Party and its
respective successors, assigns, heirs, and personal representatives and shall
inure to NBD's benefit and its successors and assigns. If any provision of this
Agreement conflicts with any applicable statute or law, or is otherwise
unenforceable, such offending provision is null and void only to the extent of
such conflict or unenforceability, and is deemed separate from and does not
invalidate any other provision of this Agreement.
(b) This Agreement is being entered into among competent
persons who are experienced in business and represented by counsel (or who have
had the opportunity to be represented by counsel), and has been reviewed by the
Parties and their counsel, if any. Therefore, any ambiguous language in this
Agreement will not necessarily be construed against any particular party as the
drafter of such language.
(c) This Agreement may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one
instrument. Facsimile copies of signatures are to be treated as original
signatures for all purposes.
(d) References in the Loan Documents and all other documents
executed in connection with the Loan Documents (as each of the foregoing is
amended hereby) to the Loan Documents mean the Loan Documents as amended by this
Agreement.
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<PAGE> 18
(e) The term "including" means including, without limitation,
and the term "includes" means includes, without limitation.
(f) All headings are inserted for convenience only and do not
affect the construction or interpretation of this Agreement.
28. ADDITIONAL REPRESENTATIONS. Each Party represents and warrants to
NBD that:
(a) Each Borrower's execution, delivery, and performance of
this Agreement and all agreements and documents delivered in connection herewith
by such Borrower, have been duly authorized by all necessary corporate action
and do not and will not require any consent or approval of such Borrower's
stockholders, violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to such Borrower or it articles of incorporation or bylaws, or
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which such
Borrower is a party or by which it or its properties may be bound or affected.
(b) No authorization, consent, approval, license, exemption of
or filing a registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by any Borrower of
this Agreement and all agreements and documents delivered in connection with
this Agreement.
(c) This Agreement and all agreements and documents delivered
pursuant hereto by any one or more of the Parties are the legal, valid and
binding obligations of each such Party enforceable against each such Party in
accordance with the terms thereof.
(d) After giving effect to the amendments contained herein and
effected pursuant hereto, all representations and warranties contained in the
Loan Documents are true and correct on and as of the date hereof with the same
force and effect as if made on and as of the date hereof.
(e) Except for the Existing Defaults, each Party has duly and
properly performed, complied with and observed each of its covenants,
agreements, and obligations contained in the Loan Documents.
(f) Borrowers' compiled financial statement for the fiscal
year ended December 31, 1997, and Borrowers' interim financial statements for
the nine-month period ended September 30, 1998, copies of which have been
furnished to NBD, fairly present Borrowers' financial condition at such dates
and the results of Borrowers' operations for the periods indicated, all
substantially in accordance with generally accepted accounting principles
applied on a consistent basis (except for absence of footnotes in interim
statements).
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<PAGE> 19
(g) No Party has assigned any claim, set off or defense to any
individual or entity.
(h) This Agreement and all of the Exhibits and other written
material delivered by any one or more of the Parties to NBD in connection with
the transactions contemplated hereby do not contain any statement that is false
or misleading with respect to any material fact and do not omit to state a
material fact necessary in order to make the statements therein not false or
misleading. There is no additional fact of which any Party is aware that has not
been disclosed in writing to NBD that materially affects adversely or, so far as
each Party can reasonably foresee, will materially affect adversely, any Party's
financial condition or business prospects.
(i) All Parties executing this Agreement in a representative
capacity warrant that they have authority to execute this Agreement and legally
bind the entity they represent.
29. SURVIVAL; RELIANCE. All agreements, representations and warranties
made in this Agreement (and all agreements referred to or incorporated herein)
survive the execution of this Agreement (and all documents and agreements
referred to or incorporated herein). Notwithstanding anything in this Agreement
(or any documents or agreements referred to or incorporated herein) to the
contrary, no investigation or inquiry by NBD (including by its agents) with
respect to any matter which is the subject of any representation, warranty,
covenant or other agreement set forth herein or therein is intended, nor shall
it be interpreted, to limit, diminish or otherwise affect the full scope and
effect of any such representation, warranty, covenant or other agreement. All
terms, covenants, agreements, representations and warranties of each Party made
herein (or in any documents or agreements referred to or incorporated herein),
or in any certificate or other document delivered or to be delivered pursuant
hereto, are deemed to be material and to have been relied upon by NBD,
notwithstanding any investigation heretofore or hereafter made by NBD or its
agents.
30. NOTICES. Any notice or other communication required or permitted to
be given under this Agreement or any of the Loan Documents must be in writing
and delivered personally, telegraphed, telecopied or telexed, or mailed (by
certified or registered mail or by recognized overnight courier), postage
prepaid, and is deemed given when so delivered personally, telegraphed or
telexed, or if mailed, one day after the date of mailing, addressed as follows
(or to any another address as to which any party so advises the other parties in
writing):
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<PAGE> 20
(a) If to Borrowers
or Guarantors: Medar, Inc.
38700 Grand River Ave.
Farmington Hills, MI 48335-1563
Telecopy (248) 615-2971
Attn: Richard R. Current
With a copy to: Warren, Cameron, Faust & Asciutto, P.C.
2161 Commons Parkway
Okemos, MI 48864
Telecopy: (517) 349-3311
Attn: Josephine L. Cameron
(c) If to NBD: NBD Bank
701 First National Building
Detroit, Michigan 48226
Telecopy: (313) 225-4355
Attn: Oliver J. Glenn, III
With a copy to: Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226-3583
Telecopy: (313) 465-8026
Attn: Carol A. Clark
31. DISCRETIONARY LOANS; DEMAND OBLIGATIONS. Notwithstanding any
provisions of this Agreement, it is understood and agreed that NBD is at no time
obligated to make any Loan, despite compliance with any express conditions
precedent thereto, and NBD may at any time make demand for payment of the
Obligations, notwithstanding that there may then exist no Event of Default or
default. ABSENT PRIOR DEMAND BY NBD, OR A WRITTEN AGREEMENT SIGNED BY NBD TO THE
CONTRARY, ALL OF THE OBLIGATIONS SHALL BE DUE AND PAYABLE IN FULL ON THE EARLIER
OF (A) A DEFAULT UNDER THE LOAN DOCUMENTS, INCLUDING THIS AGREEMENT, OR (B) THE
EXPIRATION OF THE FORBEARANCE PERIOD.
32. IMPAIRMENT OF COLLATERAL. The execution and delivery of this
Agreement (and all agreements and documents referred to herein) does not impair
or affect any other security (by endorsement or otherwise) for the Obligations,
or any one or more of the Parties' other obligations to NBD. No security taken
before or after as security for the Obligations impairs or affects this
Agreement (or any agreement or document referred to herein). All present and
future additional security is to be considered as cumulative security.
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<PAGE> 21
33. TIME IS OF THE ESSENCE. Each Party acknowledges and agrees that
time is of the essence as to each and every term and provision of this Agreement
and each Loan Document.
34. ADVERSE EVENTS. Promptly upon gaining knowledge thereof or at such
time as any Party should have known thereof, each Party must inform NBD of the
occurrence of any Event of Default, or default, or any event which with the
lapse of time or service of notice or both would constitute an Event of Default
or default under this Agreement or any of the Loan Documents, or of any other
occurrence which has or could reasonably be expected to have a materially
adverse effect on any Party's business, properties, or financial condition or
upon any Party's ability to comply with its obligations under this Agreement or
the Loan Documents (including the Guarantor Loan Documents).
35. NON-WAIVER. No failure or delay on the part of NBD in the exercise
of any power or right, and no course of dealing between any one or more of the
Parties or any Personal Guarantor and NBD, operates as a waiver of such power or
right, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
The remedies provided for herein are cumulative and not exclusive of any
remedies which may be available to NBD at law or in equity. No notice to or
demand on any Party not required hereunder or under the Loan Documents entitles
any such Party to any other or further notice or demand in similar or other
circumstances, or waives NBD's right to any other or further action in any
circumstances without notice or demand. Any waiver of any provision of this
Agreement or the Loan Documents and any consent to any departure by any one or
more of the Parties from the terms of any provision of this Agreement or the
Loan Documents, is effective only if in writing signed by an authorized officer
of NBD, and only in the specific instance and for the specific purpose for which
given.
36. NO OTHER PROMISES OR INDUCEMENTS. There are no promises or
inducements which have been made to any signatory hereto to cause such signatory
to enter into this Agreement other than those which are set forth in this
Agreement.
37. ADDITIONAL AGREEMENTS. Prior to or simultaneously with the
execution and delivery of this Agreement (or such other date as is indicated
below), the Parties shall cause to be executed and delivered to NBD the
following documents:
(a) The Amended Notes executed by Borrowers or Medar as
applicable, (Exhibits A-D);
(b) The description of Eligible Receivables and Eligible
Inventory attached hereto as Exhibit E-1;
(c) Borrowers' Ineligible Receivables and Inventory attached
hereto as Exhibit E-2;
(d) Textron Existing Defaults (Exhibit F);
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<PAGE> 22
(e) Excluded Accounts of Borrowers (Exhibit G);
(f) List of Borrowers' Customers and Account Debtors attached
hereto as Exhibit H;
(g) Certificate of Resolutions in the form attached as Exhibit
I hereto, executed by Borrowers;
(h) A UCC Financing Statement and UCC Fixture Filing in the
forms of Exhibit J attached hereto;
(i) An amendment to the Patent Assignment in the form of
Exhibit L updating the list of patents attached hereto;
(j) Written evidence of insurance coverage with respect to
foreign accounts receivables;
(k) A First Amendment to Mortgage for the Premises in the
Forms of Exhibits M-1 and M-2 attached hereto; and
(l) Such other financing statements, resolutions, searches and
other documents and agreements reasonably required by NBD, to effectuate the
transactions contemplated by this Agreement.
38. SUBORDINATION AGREEMENTS. ANYTHING CONTAINED IN THIS AGREEMENT OR
IN ANY OTHER AGREEMENT TO THE CONTRARY NOTWITHSTANDING, NOTHING CONTAINED IN
THIS AGREEMENT OR IN ANY OTHER AGREEMENT RESTRICTS OR PROHIBITS NBD'S RIGHT TO
BLOCK, STOP OR PROHIBIT PAYMENTS TO ANY SUBORDINATED CREDITOR(S) ON ACCOUNT OF
THE EXISTING DEFAULTS OR OTHERWISE. Without limiting the generality of the
previous sentence and notwithstanding any provision of any Subordination
Agreement to the contrary, Guarantors agree jointly and severally that all
amounts owing by any Borrower to any of them, however evidenced, present or
future (the "Subordinated Indebtedness") are subordinated to all of the
Obligations, AND HEREBY WAIVE ALL RIGHTS TO RECEIVE PAYMENTS ON OR RELATED TO
THE SUBORDINATED INDEBTEDNESS UNTIL SUCH TIME AS NBD HAS RECEIVED PAYMENT IN
FULL WITH RESPECT TO THE OBLIGATIONS.
39. PAYMENTS TO OFFICERS. Effective immediately, all dividends,
distributions and other payments to officers, present or future, whether by way
of stock redemption, payments on preferred stock, or deferred compensation,
principal or interest, shall cease in their entirety, except for those payments
specifically permitted by this Agreement, other than in connection with a 401K
Plan.
22
<PAGE> 23
40. STATUTE OF FRAUDS. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. ALL PRIOR AND
CONTEMPORANEOUS ORAL AGREEMENTS, IF ANY, BETWEEN NBD, ON THE ONE HAND, AND ANY
ONE OR MORE OF THE PARTIES, ON THE OTHER HAND, ARE MERGED INTO THIS AGREEMENT
AND DO NOT SURVIVE THE EXECUTION OF THIS AGREEMENT.
41. RELEASE. AS OF THE DATE HEREOF EACH PARTY REPRESENTS AND WARRANTS
THAT HE, SHE OR IT IS AWARE OF, AND POSSESSES, NO CLAIMS OR CAUSES OF ACTION
AGAINST NBD. NOTWITHSTANDING THIS REPRESENTATION AND AS FURTHER CONSIDERATION
FOR THE AGREEMENTS AND UNDERSTANDINGS HEREIN, EACH PARTY INDIVIDUALLY, JOINTLY,
SEVERALLY, AND JOINTLY AND SEVERALLY, IN EVERY CAPACITY, INCLUDING BUT NOT
LIMITED TO, AS SHAREHOLDERS, OFFICERS, PARTNERS, DIRECTORS, INVESTORS, OR
CREDITORS OF ANY ONE OR MORE OF THE PARTIES, EACH OF THEIR AGENTS, EXECUTORS,
SUCCESSORS AND ASSIGNS, HEREBY RELEASES NBD, ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY
LIABILITY, CLAIM, RIGHT OR CAUSE OF ACTION WHICH NOW EXISTS, OR HEREAFTER
ARISES, WHETHER KNOWN OR UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN
EXISTENCE AS OF THE DATE HEREOF. BY WAY OF EXAMPLE AND NOT LIMITATION, THE
FOREGOING INCLUDES ANY CLAIMS IN ANY WAY RELATED TO ACTIONS TAKEN OR OMITTED TO
BE TAKEN BY NBD UNDER THE LOAN DOCUMENTS, THE BUSINESS RELATIONSHIP WITH NBD AND
ALL OTHER OBLIGATIONS OF ANY NATURE OR KIND OF ANY ONE OR MORE OF THE PARTIES,
ANY ORAL AGREEMENTS OR UNDERSTANDINGS (ACTUAL OR ALLEGED), ANY BANKING
RELATIONSHIPS THAT ANY ONE OR MORE OF THE PARTIES HAS OR MAY HAVE HAD WITH NBD
AT ANY TIME AND FOR ANY REASON INCLUDING, BUT NOT LIMITED TO, DEMAND DEPOSIT
ACCOUNTS, OR OTHERWISE.
42. WAIVER OF JURY TRIAL AND BOND; SUBMISSION
TO JURISDICTION; AND ACKNOWLEDGMENT.
(A) ANY JUDICIAL PROCEEDING AGAINST ANY ONE OR MORE OF THE
PARTIES BROUGHT BY NBD WITH RESPECT TO ANY TERM OR CONDITION OF THIS AGREEMENT,
THE LOAN DOCUMENTS OR ANY OTHER PRESENT OR FUTURE AGREEMENT BETWEEN ANY ONE OR
MORE OF THE PARTIES AND NBD MAY BE BROUGHT BY NBD IN A COURT OF COMPETENT
JURISDICTION IN THE STATE OF MICHIGAN, UNITED STATES OF AMERICA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY AND NBD ACCEPT FOR
THEMSELVES AND IN CONNECTION WITH THEIR
23
<PAGE> 24
RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY
FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE LOAN
DOCUMENTS OR ANY OTHER PRESENT AND FUTURE AGREEMENT BETWEEN ANY ONE OR MORE OF
THE PARTIES AND NBD. EACH PARTY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON THEM, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY MAIL OR
MESSENGER DIRECTED TO THEM AT THEIR ADDRESSES SET FORTH IN THIS AGREEMENT. EACH
OF THE PARTIES WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND OR SURETY
WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF NBD. NOTHING CONTAINED IN THIS
SECTION AFFECTS NBD'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR AFFECTS NBD'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY ONE
OR MORE OF THE PARTIES OR ANY ONE OR MORE OF THEIR PROPERTIES IN THE COURTS OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY PARTY AGAINST NBD
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT
OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
PRESENT OR FUTURE AGREEMENT BETWEEN ANY ONE OR MORE OF THE PARTIES AND NBD, MUST
BE BROUGHT ONLY IN A COURT LOCATED IN THE STATE OF MICHIGAN. EACH PARTY WAIVES
ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER OR IN
CONNECTION HEREWITH AND MAY NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION
OR VENUE OR BASED UPON FORUM NONCONVENIENS.
(B) EACH PARTY ACKNOWLEDGES THAT (1) HE, SHE OR IT HAS FULLY
READ ALL OF THIS AGREEMENT AND HAS BEEN GIVEN THE OPPORTUNITY TO CONSULT WITH
COUNSEL AND OTHER ADVISORS OF HIS, HER OR ITS CHOICE, AND AFTER CONSULTING WITH
SUCH COUNSEL OR ADVISORS, KNOWINGLY, VOLUNTARILY AND WITHOUT DURESS, COERCION,
UNLAWFUL RESTRAINT, INTIMIDATION OR COMPULSION, ENTERS INTO THIS AGREEMENT,
BASED UPON SUCH ADVICE AND COUNSEL AND IN THE EXERCISE OF HIS, HER OR ITS
BUSINESS JUDGMENT, (2) THIS AGREEMENT HAS BEEN ENTERED INTO IN EXCHANGE FOR GOOD
AND VALUABLE CONSIDERATION, RECEIPT OF WHICH THE PARTIES HERETO ACKNOWLEDGE, (3)
HE, SHE OR IT HAS CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS
OF THIS AGREEMENT AND IS NOT RELYING ON THE OPINIONS OR ADVICE OF NBD OR HIS,
HER OR ITS AGENTS OR REPRESENTATIVES IN ENTERING INTO THIS AGREEMENT.
(C) THE PARTIES HERETO ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THIS RIGHT
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<PAGE> 25
MAY BE WAIVED. NBD AND EACH PARTY 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, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENTS
BETWEEN ANY OF THE PARTIES. NO PARTY WILL 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.
EACH PARTY AND NBD AGREE THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY AND THE OTHER AGREEMENTS SET FORTH IN
THIS AGREEMENT.
WITNESS NBD BANK
By:
-------------------------------------
Name: Oliver J. Glenn, III
- ---------------------------------- --------------------------
Title: Vice President
--------------------
WITNESS MEDAR, INC.
By:
-------------------------------------
Name:
- ---------------------------------- --------------------------
Title:
--------------------
Subscribed and sworn to before me this day of , 1998.
---- --------------
----------------------------------------
Notary Public, County, MI
---------------
My Commission Expires:
------------------
[Signatures continued on Page 26]
25
<PAGE> 26
[Signatures continued from Page 25]
WITNESS MEDAR CANADA, LTD.
By:
-------------------------------------
Name:
- ---------------------------------- --------------------------
Title:
--------------------
Subscribed and sworn to before me this day of , 1998.
---- --------------
----------------------------------------
Notary Public, County, MI
---------------
My Commission Expires:
------------------
WITNESS INTEGRAL VISION, LTD.
By:
-------------------------------------
Name:
- ---------------------------------- --------------------------
Title:
--------------------
Subscribed and sworn to before me this day of , 1998.
---- --------------
----------------------------------------
Notary Public, County, MI
---------------
My Commission Expires:
------------------
26
<PAGE> 27
COUNSEL'S ACKNOWLEDGMENT
I have represented Medar in negotiating and executing the foregoing
Amendment and Forbearance Agreement. I have explained the legal effect and
ramifications of the Agreement to my clients. I am of the opinion that (1) the
Agreement is valid, enforceable and binding according to its terms, subject to
the effect of any applicable bankruptcy, insolvency, moratorium, reorganization,
or other similar laws affecting creditors' rights generally, and to general
principals of equity, and (2) the parties I represent executing this agreement
in representative capacities are authorized to do so.
WARREN, CAMERON, FAUST & ASCIUTTO, P.C.
---------------------------------------
Josephine L. Cameron
27
<PAGE> 1
EXHIBIT 10.26
APPROVED BY:
-------------- ------------
ORC# INITIALS
-------------- ------------
-------------- ------------
-------------- ------------
AMENDED AND RESTATED*
PRIMARY ORC #:
---------------------------
[NBD LOGO] MASTER DEMAND BUSINESS LOAN NOTE
Due on Demand $10,000,000
No. Date: December , 1998
------------------- ----
PROMISE TO PAY. For value received, the undersigned (collectively, the
"Borrower") promises to pay ON DEMAND TO NBD BANK (the "Bank"), or order, at any
office of the Bank in the State of Michigan, the sum of TEN MILLION DOLLARS
($10,000,000), or such lesser sum as is indicated on Bank records, plus interest
computed on the basis of the actual number of days elapsed in a year of 360 days
at the rate of:
1% per annum above the rate announced from time to time by the Bank as
its "prime" rate (the "Note Rate"), which rate may not be the lowest
rate charged by the Bank to any of its customers, until default or
until maturity, whether by default, demand, acceleration or otherwise,
and at the rate of 3% per annum above the Note Rate after maturity or
default. Each change in the "prime" rate will immediately change the
Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
Interest will be computed on the unpaid principal balance from the date of each
borrowing.
The Borrower will pay this sum on demand. Until demand, the Borrower will pay
consecutive monthly installments of interest only commencing December __, 1998.
LATE FEE. If any payment is not received by the Bank within fifteen days after
its due date, the Bank may assess and the Borrower agrees to pay a late fee
equal to the lesser of five percent of the past due amount or $500.
MASTER DEMAND NOTE. The Bank has authorized a discretionary credit facility to
the Borrower in a principal amount not to exceed the face amount of this note.
The credit facility is in the form of loans made from time to time by the Bank
to the Borrower at the Bank's sole discretion. This note evidences the
Borrower's obligation to repay those loans. The aggregate principal amount of
debt evidenced by this note shall be the amount reflected from time to time in
the records of the Bank but shall not exceed the face amount of this note. The
Borrower acknowledges and agrees that no provision of this note and no course of
dealing by the Bank shall commit the Bank to make loans to the Borrower and that
notwithstanding any provision of this note or any other instrument or document,
all loans evidenced by this note are due and payable on demand, which may be
made by the Bank at any time, whether or not any event of acceleration then
exists.
CREDIT AGREEMENT. This note evidences a debt under the terms of an Amended and
Restated Revolving Credit and Loan Agreement between the Bank, Integral Vision,
Ltd. and the Borrower dated July 31, 1998, as amended by an Amendment and
Forbearance Agreement of approximate even date herewith (the "Forbearance
Agreement").
SECURITY. To secure the payment of this note and any other present or future
liability of the Borrower, whether several, joint, or joint and several, the
Borrower pledges and grants to the Bank a continuing security interest in the
following described property and all of its additions, substitutions,
increments, proceeds and products, whether now owned or later acquired
("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2. All property or securities declared or acknowledged to constitute
security for any past, present or future liability of the Borrower to
the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: Among other things, (a) all of
Medar, Inc.'s present and future accounts, chattel paper, general
intangibles, inventory, equipment, fixtures, documents, and instruments
and all products and proceeds of the foregoing, as more fully described
in the General Security Agreement dated March 29, 1996 (as amended and
with all supplements thereto) and in the Collateral Assignment of
Proprietary Rights and Security Agreement dated July 15, 1997 (as
amended and with all supplements thereto), all as amended by the
Forbearance Agreement; (b) a Future Advance Mortgage dated October 31,
1995 on the premises located at 24755 Crestview Court, Farmington
Hills, Michigan, as recorded in Liber 15799, Page 151 of the Oakland
County Records (as may be amended or as may be further amended,
including, but not limited to, by the First Amendment to Mortgage dated
the approximate even date herewith, and with all supplements thereto);
and (c) the Amended and Restated Mortgage and Security Agreement dated
June 29, 1993 on the premises located at 38700 Grand River, Farmington
Hills, Michigan, as recorded in Liber 13885, Page 040, of the Oakland
County Records (as may be amended and as may be further amended,
including, but not limited to, by the First Amendment to Amended and
Restated Mortgage and Security Agreement of approximate even date
herewith and with all supplements thereto).
BANK'S RIGHT TO SETOFF. The Bank shall have the right at any time to apply its
own debt or liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future liabilities,
without any requirement of mutual maturity.
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<PAGE> 2
REPRESENTATIONS BY BORROWER. Each Borrower represents: (a) that the execution
and delivery of this note and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or any third
party; (b) that this note is a valid and binding agreement, enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statements, and other financial statements furnished to the Bank are accurate
and fairly reflect the financial condition of the organizations and persons to
which they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and adversely
since those dates. Each Borrower, other than a natural person, further
represents: (a) that it is duly organized, existing and in good standing
pursuant to the laws under which it is organized; and (b) that the execution and
delivery of this note and the performance of the obligations it imposes (i) are
within its powers and have been duly authorized by all necessary action of its
governing body; and (ii) do not contravene the terms of its articles of
incorporation or organization, its by laws, or any partnership, operating or
other agreement governing its affairs.
EVENTS OF DEFAULT/ACCELERATION. If any of the following events occurs, this note
shall be due immediately without notice at the Bank's option whether or not the
Bank has made demand.
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay
when due any amount payable under this note or under any agreement or
instrument evidencing debt to any creditor;
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this note) such that
the creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this note, or any guaranty of the loan evidenced by this
note becomes unenforceable in whole or in part, or any Guarantor fails
to promptly perform under its guaranty;
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its
debts as they become due;
6. The Borrower or any Guarantor (a) makes an assignment for the benefit
of creditors; (b) consents to the appointment of a custodian, receiver,
or trustee for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent
of the party against which the appointment is made and is not removed
within 60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under
any bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement
of such proceedings;
9. The Borrower or any Guarantor, without the Bank's written consent, (a)
is dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d) leases, purchases
or otherwise acquires a material part of the assets of any other
corporation or business entity except in the ordinary course of
business, or (e) agrees to do any of the foregoing (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any other
subsidiary, or with the Borrower so long as the Borrower is the
survivor);
10. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
11. The Bank in good faith deems itself insecure.
REMEDIES. If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the Bank
sends the notice to the Borrower at least seven (7) days prior to the date of
sale, disposition or other event giving rise to the required notice. The Bank is
authorized to cause all or any part of the Collateral to be transferred to or
registered in its name or in the name of any other person, firm or corporation,
with or without designation of the capacity of such nominee. The Borrower shall
be liable for any deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all reasonable costs and expenses of every
kind incurred in the making or collection of this note, including, without
limitation, reasonable attorneys' fees and court costs. These costs and expenses
shall include, without limitation, any costs or expenses incurred by the Bank in
any bankruptcy, reorganization, insolvency or other similar proceeding.
WAIVER. Each endorser and any other party liable on this note severally waives
demand, presentment, notice of dishonor and protest, and consents to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of the
Collateral, to the addition of any party, and to the release or discharge of, or
suspension of any rights and remedies against, any person who may be liable for
the payment of this note. No delay on the part of the Bank in the exercise of
any right or remedy shall operate as a waiver. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or indulgence by the
Bank of any default shall be effective unless in writing and signed by the Bank,
nor shall a waiver on one occasion be construed as a bar to or waiver of that
right on any future occasion.
MISCELLANEOUS. The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank shall
include any holder of this note. This note is delivered in the State of Michigan
and governed by Michigan law. Section headings are for convenience of reference
only and shall not affect the interpretation of this note.
WAIVER OF JURY TRIAL. The Bank and the Borrower knowingly and voluntarily waive
any right either of them have to a trial by jury in any proceeding (whether
sounding in contract or tort) which is in any way connected with this or any
related agreement, or the
2
<PAGE> 3
relationship established under them. This provision may only be modified in a
written instrument executed by the Bank and the Borrower.
*This Amended and Restated Master Demand Business Loan Note (this "Note") is in
substitution and exchange for a Revolving Note dated July 31, 1998, in the
original principal amount of $10,000,000 (the "Original Note"). This Note shall
not in any circumstances be deemed a novation or to have terminated,
extinguished or discharged Borrower's obligations evidenced by the Original
Note. This Note is issued pursuant to the Forbearance Agreement. Any Default,
Unmatured Default, default or Event of Acceleration under the Forbearance
Agreement or any document or instrument executed in connection herewith shall be
an Event of Default under this Note.
ADDRESS: BORROWER:
38700 Grand River Medar, Inc.
Farmington Hills, MI 48335
By:
---------------------------------
38700 Grand River Integral Vision, Ltd.
Farmington Hills, MI 48335
By:
---------------------------------
3
<PAGE> 1
(For Recorder's Use) (For Recorder's use)
FIRST AMENDMENT TO MORTGAGE
(THIS AMENDMENT IS AN AMENDMENT TO ESTABLISH A FUTURE
ADVANCE MORTGAGE UNDER APPLICABLE MICHIGAN LAW)
THIS FIRST AMENDMENT TO AMENDED AND RESTATED MORTGAGE ("Amendment") is
made effective as of the ____ day of ________, 1998 by and between Medar, Inc.,
a Michigan corporation ("Mortgagor"), whose address is 38700 Grand River Avenue,
Farmington Hills, Michigan 48335, and NBD Bank ("Mortgagee"), whose address is
611 Woodward Avenue, Detroit, Michigan 48226-3947.
RECITALS:
The following is a recital of facts underlying this Amendment:
WHEREAS, Mortgagee has provided certain loans and other credit
facilities to (i) Integral Vision, Ltd. ("Integral"), an entity affiliated with
Mortgagor, and (ii) Mortgagor (for convenience, Integral and Mortgagor are
sometimes hereinafter collectively referred to as the "Borrowers").
WHEREAS, Borrowers and Mortgagee are parties to an Amended and Restated
Revolving Credit and Loan Agreement dated July 31, 1998 (as the foregoing may be
amended, modified, supplemented, replaced or restated from time to time, the
"Credit Agreement"), which Credit Agreement amended and restated that certain
Revolving Credit and Loan Agreement dated August 10, 1995, as amended by
agreements dated October 12, 1995, October 31, 1995, March 29, 1996, August 11,
1996, February 27, 1997, March 28, 1997, June 27, 1997, July 15, 1997 and March
16, 1998 (as amended, "Original Credit Agreement").
WHEREAS, pursuant to the Credit Agreement, Mortgagee made available to
Borrowers a secured committed line of credit, including the availability of
letters of credit in the maximum aggregate amount of $500,000, up to a maximum
principal amount of $10,000,000 ("Line of Credit"), as evidenced by a Revolving
Note dated July 31, 1998 in the principal amount of $10,000,000 given by the
Borrowers in favor of Mortgagee (as the foregoing may be amended, modified,
restated or replaced from time to time, the
1
<PAGE> 2
"Revolving Note").
WHEREAS, pursuant to the Original Credit Agreement, Mortgagee made
available to the Mortgagor a term loan to purchase equipment (the "Equipment
Loan"), which Equipment Loan is evidenced by a Term Note dated March 20, 1997 in
the original principal amount of $131,315.80 given by Mortgagor in favor of
Mortgagee (the "Equipment Note").
WHEREAS, Mortgagee also extended a term loan to Mortgagor in the
original principal amount of $1,500,000 (the "1997 Mortgage Loan"), which 1997
Mortgage Loan is evidenced by an Amended and Restated Term Note, dated July 15,
1997, in the original principal amount of $1,500,000 given by Mortgagor in favor
of Mortgagee (the "1997 Mortgage Note"), which amended and restated a Term Note
dated June 29, 1993 in the original principal amount of $2,500,000 (the "1993
Mortgage Note"). Proceeds of the 1997 Mortgage Loan were used to finance the
Premises, as defined below.
WHEREAS, Mortgagee also extended a term loan to Mortgagor in the
original principal amount of $2,540,000 (the "1995 Mortgage Loan"), which 1995
Mortgage Loan is evidenced by an Installment Business Loan Note dated October
31, 1995 in the original principal amount of $2,540,000 given by Mortgagor in
favor of Mortgagee (the "1995 Mortgage Note").
WHEREAS, Mortgagee has also provided to Mortgagor a business credit
card authorization in the maximum principal amount of $60,000 ("Charge Card
Authorization") as well as various Instaloans in the current aggregate principal
amount of $101,580.71 (collectively, the "Instaloans").
WHEREAS, in connection with certain defaults under the Loan Documents,
as defined below, by the Borrowers, Mortgagee and various guarantors
(collectively, the "Parties") entered into that certain Amendment and
Forbearance Agreement on or about the date hereof (as the foregoing may be
amended, modified, supplemented, restated, or replaced from time to time, the
"Forbearance Agreement").
(For convenience, the Credit Agreement, Forbearance Agreement and all Notes, as
defined below, and all other loan and security documents executed in connection
with any of the Loans, as defined below, are hereinafter collectively referred
to as the "Loan Documents"; the Charge Card Authorization, Revolving Note,
Equipment Note, 1997 Mortgage Note, 1993 Mortgage Note, as amended, 1995
Mortgage Note, and Instaloans are hereinafter collectively referred to as the
"Notes"; and the Line of Credit, Equipment Loan, 1997 Mortgage Loan, 1995
Mortgage Loan, Charge Card Authorization and Instaloans are hereinafter
collectively referred to as the "Loans").
WHEREAS, certain of the obligations of Mortgagor to Mortgagee are
secured by that certain Amended and Restated Mortgage and Security Agreement
dated June 29, 1993 given by Mortgagor in favor of Mortgagee, as recorded in
Liber 13885, Page 40, Oakland County, Michigan Records ("Mortgage"), which
Mortgage amended and restated that certain Mortgage dated December 1, 1985, as
recorded in Liber 9225, Page 238, Oakland County Records, and which Mortgage
encumbers certain real estate and other
2
<PAGE> 3
collateral located in the City of Farmington Hills, Oakland County, Michigan, as
more particularly described on Exhibit A attached hereto (the "Premises")
WHEREAS, the Parties desire to amend the Mortgage to confirm the fact
that pursuant to the terms of the Forbearance Agreement, the Mortgage now
secures all of the obligations of the Borrowers to Mortgagee under the Loan
Documents and the obligations of Integral and Medar Canada, as defined below,
under their respective guarantees.
NOW, THEREFORE, the Parties agree as follows:
1. The recitals set forth above are incorporated herein by reference
and shall form a part of this Amendment and the Mortgage. Capitalized terms used
herein shall have the same meanings as in the Mortgage unless otherwise set
forth herein.
2. All references in the Mortgage to the term "Mortgage" shall mean the
Mortgage as amended by this Amendment.
3. The paragraph entitled "THE DEBT" is hereby amended to reflect the
fact that the Mortgage now secures the following ("Debt"):
(i) Credit Agreement and all other Loan Documents;
(ii) Revolving Note;
(iii) Equipment Note;
(iv) 1997 Mortgage Note;
(v) 1995 Mortgage Note;
(vi) Forbearance Agreement;
(vii) Charge Card Authorization;
(viii) Instaloans;
(ix) Guaranty and Debenture dated as of June 7, 1996 given by
Integral in favor of Mortgagee pursuant to which Integral
guaranteed the obligations of Mortgagor to Mortgagee;
(x) Guaranty and Postponement of Claim dated August 10, 1995,
given by Medar Canada, Ltd. ("Medar Canada") in favor of
Mortgagee, pursuant to which Medar Canada guaranteed the
obligations of the Borrowers to Mortgagee; and
(xi) All other present and future, direct and indirect
obligations and
3
<PAGE> 4
liabilities of the Borrowers, or either of them, with or
without others, however evidenced, to the Mortgagee, and
all future advances, whether obligatory or optional, from
the Mortgagee to the Borrowers, or either of them, with or
without others;
together with all extension renewals and modifications and replacement thereof
and together with all of the obligations of any of the Borrowers in connection
with any of the obligations of any of the Borrowers to Mortgagee under the Notes
or other Loan Documents and under the Forbearance Agreement.
The Mortgage shall also secure the performance of the promises and
agreements contained in the Mortgage.
4. The following is hereby added to the terms and conditions of the
Mortgage as Paragraph 25:
"25. This Mortgage is a "Future Advance Mortgage" under MCLA 565.901 et
seq. All future advances under this Mortgage and the Loan Documents
shall have the same priority as if the future advance was made on the
date that this Amendment was recorded. This Mortgage shall secure all
indebtedness of Borrowers, their respective successors and assigns
under the Mortgage, the Notes, the Loan Documents, whenever incurred,
such indebtedness to be due at the times provided in the Notes, the
Loan Documents and the Mortgage. Notice is hereby given that the
indebtedness secured hereby may increase as a result of advances under
the Line of Credit and/or any defaults hereunder by Mortgagor due to,
for example, and without limitation, unpaid interest or late charges,
unpaid taxes or insurance premiums which Mortgagee elects to advance,
defaults under leases that Mortgagee elects to cure, attorney fees or
costs incurred in enforcing the Agreement or other expenses incurred by
Mortgagee in protecting the Premises, the security of this Mortgage or
Mortgagee's rights and interests."
5. Except as amended hereby, the Mortgage is hereby restated and
republished in its entirety and remains in full force and effect and Mortgagor
hereby ratifies and confirms all of its obligations thereunder.
6. This Amendment may be executed in any number of counterparts, each
of which will be deemed to be an original of which together shall comprise but a
single instrument. This Amendment shall be binding upon and shall inure to the
benefit of the Parties hereto and their respective successors and assigns.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed and delivered this
document on the day and year first above written.
WITNESSES:
MEDAR, INC.,
a Michigan corporation
Print name By:
Print name
Its:
Print name
"Mortgagor"
NBD BANK
By:
Print name Print name
Its:
Print name "Mortgagee"
State of Michigan )
) SS.
County of _______ )
The foregoing was acknowledged before me this ____ day of ____________,
1998 by ______________________, the _____________________________ of Medar,
Inc., a Michigan corporation, on behalf of the corporation.
Notary Public, ______________ County, MI
My Commission Expires:
5
<PAGE> 6
State of Michigan )
) SS.
County of _______ )
The foregoing was acknowledged before me this ____ day of ____________,
1998 by ______________, a _______________ of NBD Bank on behalf of the bank.
Notary Public, ______________ County, MI
My Commission Expires:
Drafted by and when Recorded
Return to:
Carol A. Clark, Esq.
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
6
<PAGE> 7
EXHIBIT A
Description of Real Property
Land located in the City of Farmington Hills, Oakland County, Michigan:
Lot 1, Farmington - Grand River Industrial Park Subdivision, as recorded
in Liber 144 of Plats, Pages 39 through 47, inclusive, Oakland County
Records.
Commonly known as 38700 Grand River Avenue
Tax Parcel I.D. No.: 23-19-326-031
7
<PAGE> 1
EXHIBIT 10.28
(For Recorder's Use) (For Recorder's use)
FIRST AMENDMENT TO MORTGAGE
THIS FIRST AMENDMENT TO MORTGAGE ("Amendment") is made effective as of
the ____ day of ___________, 1998 by and between Medar, Inc., a Michigan
corporation ("Mortgagor"), whose address is 38700 Grand River Avenue, Farmington
Hills, Michigan 48335, and NBD Bank ("Mortgagee"), whose address is 611 Woodward
Avenue, Detroit, Michigan 48226-3947.
RECITALS:
The following is a recital of facts underlying this Amendment:
WHEREAS, Mortgagee has provided certain loans and other credit
facilities to (i) Integral Vision, Ltd. ("Integral"), an entity affiliated with
Mortgagor, and (ii) Mortgagor (for convenience, Integral and Mortgagor are
sometimes hereinafter collectively referred to as the "Borrowers").
WHEREAS, Borrowers and Mortgagee are parties to an Amended and Restated
Revolving Credit and Loan Agreement dated July 31, 1998 (as the foregoing may be
amended, modified, supplemented, replaced or restated from time to time, the
"Credit Agreement"), which Credit Agreement amended and restated that certain
Revolving Credit and Loan Agreement dated August 10, 1995, as amended by
agreements dated October 12, 1995, October 31, 1995, March 29, 1996, August 11,
1996, February 27, 1997, March 28, 1997, June 27, 1997, July 15, 1997 and March
16, 1998 (as amended, the "Original Credit Agreement").
WHEREAS, pursuant to the Credit Agreement, Mortgagee made available to
Borrowers, a secured committed line of credit, including the availability of
letters of credit in the maximum aggregate principal amount of $500,000, up to a
maximum principal amount of $10,000,000 ("Line of Credit"), as evidenced by a
Revolving Note dated July 31, 1998 in the principal amount of $10,000,000 given
by the Borrowers in favor of Mortgagee (as the foregoing may be amended,
modified, restated or replaced from time to time, the "Revolving Note").
1
<PAGE> 2
WHEREAS, pursuant to the Original Credit Agreement, Mortgagee made
available to Mortgagor, a term loan to purchase equipment (the "Equipment
Loan"), which Equipment Loan is evidenced by a Term Note dated March 20, 1997 in
the original principal amount of $131,315.80 given by Mortgagor in favor of
Mortgagee (the "Equipment Note").
WHEREAS, Mortgagee also extended a term loan to Mortgagor in the
original principal amount of $1,500,000 (the "1997 Mortgage Loan"), which 1997
Mortgage Loan is evidenced by an Amended and Restated Term Note, dated July 15,
1997, in the original principal amount of $1,500,000 given by Mortgagor in favor
of Mortgagee (the "1997 Mortgage Note"), which amended and restated a Term Note
dated June 29, 1993 in the original principal amount of $2,500,000 given by
Mortgagor in favor of Mortgagee (the "1993 Mortgage Note").
WHEREAS, Mortgagee also extended a term loan to Mortgagor in the
original principal amount of $2,540,000 (the "1995 Mortgage Loan"), which 1995
Mortgage Loan is evidenced by an Installment Business Loan Note dated October
31, 1995 in the original principal amount of $2,540,000 given by Mortgagor in
favor of Mortgagee (the "1995 Mortgage Note"). The proceeds of the 1995 Mortgage
Loan were used to finance the Premises, as defined below.
WHEREAS, Mortgagee has also provided to Mortgagor a business credit
card authorization in the maximum principal amount of $60,000 ("Charge Card
Authorization") as well as various Instaloans in the current aggregate principal
amount of $101,580.71 (collectively, the "Instaloans").
WHEREAS, in connection with certain defaults under the Loan Documents,
as defined below, the Borrowers, Mortgagee and various guarantors (collectively,
the "Parties") entered into that certain Amendment and Forbearance Agreement on
or about the date hereof (as the foregoing may be amended, modified,
supplemented, restated, or replaced from time to time, the "Forbearance
Agreement").
(For convenience, the Credit Agreement, Forbearance Agreement and all Notes and
all other loan and security documents executed in connection with any of the
Loans, as defined below, are hereinafter collectively referred to as the "Loan
Documents"; together with all other obligations of Mortgagor under the Charge
Card Authorization, Revolving Note, Equipment Note, 1997 Mortgage Note, 1993
Mortgage Note, as amended, 1995 Mortgage Note, and Instaloans are hereinafter
collectively referred to as the "Notes"; and the Line of Credit, Equipment Loan,
1997 Mortgage Loan, 1995 Mortgage Loan, Charge Card Authorization and Instaloans
are hereinafter collectively referred to as the "Loans").
WHEREAS, certain of the obligations of Mortgagor to Mortgagee are
secured by that certain Future Advance Mortgage dated October 31, 1995 given by
Mortgagor in favor of Mortgagee, as recorded in Liber 15799, Page 151, Oakland
County, Michigan Records ("Mortgage"), which Mortgage encumbers certain real
estate and other collateral located in the City of Farmington Hills, Oakland
County, Michigan, as more particularly described on Exhibit A attached hereto
(the "Premises")
2
<PAGE> 3
WHEREAS, the Parties desire to amend the Mortgage to confirm the fact
that pursuant to the terms of the Forbearance Agreement, the Mortgage now
secures all of the obligations of the Borrowers to Mortgagee under the Loan
Documents and the obligations of Integral and Medar Canada, as defined below,
under their respective guarantees.
NOW, THEREFORE, the Parties agree as follows:
1. The recitals set forth above are incorporated herein by reference
and shall form a part of this Amendment and the Mortgage. Capitalized terms used
herein shall have the same meanings as in the Mortgage unless otherwise set
forth herein.
2. All references in the Mortgage to the term "Mortgage" shall mean the
Mortgage as amended by this Amendment.
3. The paragraph entitled "THE DEBT" is hereby amended to reflect the
fact that the Mortgage now secures the following ("Debt"):
(i) Credit Agreement and all other Loan Documents;
(ii) Revolving Note;
(iii) Equipment Note;
(iv) 1997 Mortgage Note;
(v) 1995 Mortgage Note;
(vi) Forbearance Agreement;
(vii) Charge Card Authorization;
(viii) Instaloans;
(ix) Guaranty and Debenture dated as of June 7, 1996 given by
Integral in favor of Mortgagee pursuant to which Integral
guaranteed the obligations of Mortgagor to Mortgagee;
(x) Guaranty and Postponement of Claim dated August 10, 1995,
given by Medar Canada, Ltd. ("Medar Canada") in favor of
Mortgagee, pursuant to which Medar Canada guaranteed the
obligations of Borrowers to Mortgagee; and
(xi) All other present and future, direct and indirect
obligations and liabilities of the Borrowers, or either of
them, with or without others, however evidenced, to the
Mortgagee, and all future advances,
3
<PAGE> 4
whether obligatory or optional, from the Mortgagee to the
Borrowers, or either of them, with or without others;
together with all extension renewals and modifications and replacement thereof
and together with all of the obligations of any of the Borrowers in connection
with any of the obligations of any of the Borrowers to Mortgagee under the Notes
or other Loan Documents and under the Forbearance Agreement.
The Mortgage shall also secure the performance of the promises and
agreements contained in the Mortgage.
4. Except as amended hereby, the Mortgage is hereby restated and
republished in its entirety and remains in full force and effect and Mortgagor
hereby ratifies and confirms all of its obligations thereunder.
5. This Amendment may be executed in any number of counterparts, each
of which will be deemed to be an original of which together shall comprise but a
single instrument. This Amendment shall be binding upon and shall inure to the
benefit of the Parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties have executed and delivered this
document on the day and year first above written.
WITNESSES:
MEDAR, INC.,
a Michigan corporation
Print name By:
Print name
Its:
Print name
"Mortgagor"
NBD BANK
By:
Print name Print name
Its:
Print name "Mortgagee"
4
<PAGE> 5
State of Michigan )
) SS.
County of _______ )
The foregoing was acknowledged before me this ____ day of ____________,
1998 the _____________________ of Medar, Inc., a Michigan corporation, on
behalf of the corporation.
Notary Public, ______________ County, MI
My Commission Expires:
State of Michigan )
) SS.
County of _______ )
The foregoing was acknowledged before me this ____ day of ____________,
1998 by ______________, a _______________ of NBD Bank on behalf of the bank.
Notary Public, ________________ County, MI
My Commission Expires:
Drafted by and when Recorded
Return to:
Carol A. Clark, Esq.
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
5
<PAGE> 6
EXHIBIT A
Description of Real Property
Land located in the City of Farmington Hills, Oakland County, Michigan:
PART OF LOT 6, ALL OF LOT 7 AND PART OF LOT 8, FARMINGTON-GRAND RIVER INDUSTRIAL
PARK SUBDIVISION, IN PART OF THE SOUTHWEST 1/4 OF SECTION 19, TOWN 1 NORTH,
RANGE 9 EAST, CITY OF FARMINGTON HILLS, OAKLAND COUNTY, MICHIGAN, ACCORDING TO
THE RECORDED PLAT THEREOF, AS RECORDED IN LIBER 144, OF PLATS, PAGES 39 THROUGH
41 INCLUSIVE, OAKLAND COUNTY RECORDS, AND MORE PARTICULARLY DESCRIBED AS
BEGINNING AT THE SOUTHERLY CORNER OF LOT 7; THENCE NORTH 56 DEGREES 10 MINUTES
46 SECONDS WEST 261.50 FEET; THENCE SOUTH 87 DEGREES 46 MINUTES 48 SECONDS WEST,
321.45 FEET TO A POINT ON THE SOUTHERLY RIGHT OF WAY LINE OF M-102 LIMITED
ACCESS HIGHWAY (FORMERLY I-96 HIGHWAY); THENCE NORTH 33 DEGREES 08 MINUTES 48
SECONDS EAST ALONG SAID RIGHT OF WAY LINE 189.14 FEET; THENCE NORTH 45 DEGREES
08 MINUTES 48 SECONDS EAST ALONG SAID RIGHT OF WAY LINE 284.34 FEET; THENCE
NORTH 57 DEGREES 08 MINUTES 48 SECONDS EAST ALONG SAID RIGHT OF WAY LINE, 283.77
FEET; THENCE NORTH 69 DEGREES 08 MINUTES 48 SECONDS EAST ALONG SAID RIGHT OF WAY
LINE; 69.00 FEET; THENCE SOUTH 02 DEGREES 21 MINUTES 11 SECONDS EAST, 617.93
FEET TO A POINT ON THE NORTHERLY RIGHT OF WAY LINE OF CRESTVIEW COURT (120 FEET
RADIUS); THENCE ON A CURVE TO THE LEFT ALONG SAID RIGHT OF WAY LINE (RADIUS
EQUALS 120.00 FEET, LONG CHORD BEARS SOUTH 60 DEGREES 44 MINUTES 16 SECONDS
WEST, 108.63 FEET), A DISTANCE OF 112.73 FEET TO THE POINT OF BEGINNING.
Commonly known as 24755 Crestview Court
Tax I.D. # 23-19-326-048
6
<PAGE> 1
SECOND AMENDED AND RESTATED TERM NOTE
Amount: $1,187,500.00 Maturity Date: Upon the earlier of (a)
demand, (b) a default, Default
or an Event of Default
hereunder or under the
Forbearance Agreement (defined
below) or any related loan
documents (other than the
Existing Defaults as defined
in the Forbearance Agreement),
or (c) the expiration of the
Forbearance Period (as defined
in the Forbearance Agreement).
Made at , Michigan on December , 1998
-------- --
FOR VALUE RECEIVED, the undersigned promises to pay to the order of NBD
Bank ("Lender"), at its offices in Detroit, Michigan or at such other place as
the holder of this note may from time to time designate in writing, the
principal sum of ONE MILLION ONE HUNDRED EIGHTY-SEVEN THOUSAND FIVE HUNDRED
DOLLARS ($1,187,500) payable as follows:
In consecutive quarterly installments of $62,500, plus interest
commencing December 29, 1998 and a like sum due and payable on or
before the 29th day of each March, June, September and December
thereafter until the earlier of (a) demand, (b) a default, Default or
an Event of Default hereunder or under the Forbearance Agreement or any
related loan documents (other than the Existing Defaults as defined in
the Forbearance Agreement), or (c) the expiration of the Forbearance
Period, when all remaining unpaid principal plus accrued but unpaid
interest shall be due and payable in full.
Interest shall be payable quarterly on the 29th day of each March,
June, September and December for the principal balance outstanding during the
preceding quarter.
The indebtedness under this Note outstanding from time to time prior to
maturity shall bear interest from the date hereof on the basis of a year of 360
days for the actual number of days elapsed in each month, at a rate of 1
percentage points per annum in excess of the Prime Rate (the "Note Rate") of
interest and after default or maturity (whether upon demand for payment,
expiration of term, termination, acceleration or otherwise), at a rate of 3
percentage points per annum in excess of the Note Rate until paid; however, in
no event shall the rate of interest be in excess of the highest rate permitted
by law. The "Prime Rate" is that rate of interest which Lender shall from time
<PAGE> 2
to time announce to be its Prime Rate. The Prime Rate is set by the Lender based
upon various factors, including its costs and desired return, general economic
conditions and other factors and is used as a reference point for pricing some
loans. Lender may make loans at, above or below the Prime Rate. Any change in
the Prime Rate shall immediately effect a change in the Note Rate.
Principal of and interest on this Note shall be payable in lawful money
of the United States of America. The undersigned agrees to pay all costs of
collection and enforcement of this Note including reasonable attorneys' fees and
court costs.
The indebtedness under this Note may be prepaid in whole or in part at
any time. All partial prepayments shall be applied in inverse order of maturity
to the principal installments due on this Note. However, if Borrower elects to
completely or substantially (more than 50% of the principal balance then
outstanding) prepay the indebtedness, such prepayment shall be made on at least
10 business days prior written notice to Lender and shall be accompanied by a
prepayment premium equal to $2,500 times the number of monthly principal
installments or portions of monthly principal installments that are being
prepaid.
This Note is secured by, among other things, the following: (a) all of
Medar, Inc.'s present and future accounts, chattel paper, general intangibles,
inventory, equipment, fixtures, documents, and instruments, and all products and
proceeds of the foregoing as more fully described in the General Security
Agreement, dated March 29, 1996 ("General Security Agreement"), the Collateral
Assignment of Proprietary Rights and Security Agreement, dated July 15, 1997
("Assignment of Rights"), and the collateral granted to Lender under an Amended
and Restated Revolving Credit and Loan Agreement dated July 31, 1998 ("Restated
Loan Agreement"), all as amended by the Amendment and Forbearance Agreement of
approximate even date herewith (the "Forbearance Agreement"), (b) the Amended
and Restated Mortgage and Security Agreement dated June 29, 1993 on the premises
located at 38700 Grand River, Farmington Hills, Michigan, as recorded in Liber
13885, Page 040, of the Oakland County Records (as may be amended and as may be
further amended, including, but not limited to, by the First Amendment to
Mortgage of approximate even date herewith and with all supplements thereto),
(c) a Future Advance Mortgage dated October 31, 1995 on the premises located at
24755 Crestview Court, Farmington Hills, Michigan, as recorded in Liber 15799,
Page 151 of the Oakland County Records (as may be amended or as may be further
amended, including, but not limited to, by the First Amendment to Mortgage dated
the approximate even date herewith, and with all supplements thereto); and (d)
any other collateral security heretofore or hereafter granted to Lender by the
undersigned. The failure to make any payment when due under this Note or the
occurrence of any default, Default, Event of Default, or Event of Acceleration
under the Forbearance Agreement or any document or instrument executed in
connection herewith shall be deemed a default under this Note, and in any such
events, the holder of this Note shall be entitled to accelerate the maturity of
the debt evidenced by this Note and have all rights and remedies afforded by law
or available under the Forbearance Agreement.
<PAGE> 3
This Note is in substitution and exchange for the Amended and Restated
Term Note dated July 15, 1997 in the original principal amount of $1,500,000
(the "Old Note") and is issued pursuant to the Forbearance Agreement. This Note
shall not in any circumstances be deemed a novation or to have paid, terminated,
extinguished or discharged the undersigned's indebtedness evidenced by the Old
Note, all of which indebtedness shall continue under and be evidenced and
governed by this Note. The Old Note is amended and restated in its entirety by
this Note. Any reference in any other document or instrument (including but not
limited to the General Security Agreement, the Assignment of Rights, the
Restated Loan Agreement, or the Forbearance Agreement) to the Old Note shall
constitute a reference to this Note.
The undersigned, and all endorsers and guarantors, hereby severally
waive valuation and appraisement, presentment, protest and demand, notice of
protest, demand and dishonor and nonpayment of this Note, and expressly agree
that the maturity of this Note, or any payment due under this Note, may be
extended from time to time without in any way affecting the liability of the
undersigned or such endorsers or guarantors.
This Note shall be governed and construed according to the internal
laws of Michigan.
MEDAR, INC.
By:
Name:
Title:
<PAGE> 1
APPROVED BY:
-------------- -------------
ORC# INITIALS
-------------- -------------
-------------- -------------
-------------- -------------
PRIMARY ORC #:
----------------------------
[NBD LOGO] AMENDED AND RESTATED*
INSTALLMENT BUSINESS LOAN NOTE
Due: Upon the earlier of (a) demand, (b) a default, Default $89,732.40
or an Event of Default hereunder or under the Forbearance
Agreement (defined below) or any related loan documents (other than the
Existing Defaults as defined in the Forbearance Agreement), or (c) the
expiration of the Forbearance Period (as defined in the Forbearance
Agreement).
No. Date: December , 1998
------------- --
PROMISE TO PAY. For value received, the undersigned (the "Borrower") promises to
pay to NBD BANK (the "Bank"), or order, at any office of the Bank in the State
of Michigan, the sum of EIGHTY-NINE THOUSAND SEVEN HUNDRED THIRTY-TWO DOLLARS
AND 40/100 ($89,732.40) plus interest computed on the basis of the actual number
of days elapsed in a year of 360 days at the rate of:
1% per annum above the rate announced from time to time by the Bank as
its "prime" rate (the "Note Rate"), which rate may not be the lowest
rate charged by the Bank to any of its customers, until default or
until maturity, whether by default, acceleration or otherwise, and at
the rate of 3% per annum above the Note Rate on overdue principal from
the date when due until paid or from the date of default. Each change
in the "prime" rate will immediately change the Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law; any
interest payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.
The Borrower will pay this sum in consecutive monthly payments of $2,188.60,
plus interest commencing on December 20, 1998, and each month thereafter until
the earlier of (a) demand, (b) a default, Default, or an Event of Default
hereunder or under the Forbearance Agreement or any related loan documents
(other than the Existing Defaults), or (c) the expiration of the Forbearance
Period, at which time the entire balance of unpaid principal plus accrued
interest shall be due and payable immediately. Each payment will be applied
first to accrued interest, then to principal.
LOAN AGREEMENT. This note evidences a debt under the terms of an Amended and
Restated Revolving Credit and Loan Agreement between the Bank, Integral Vision,
Ltd. and the Borrower dated July 31, 1998, as amended by the Amendment and
Forbearance Agreement of approximate even date herewith ("Forbearance
Agreement"), and any amendments thereto.
LATE FEE. If any payment is not received by the Bank within fifteen days after
its due date, the Bank may assess and the Borrower agrees to pay a late fee
equal to the lesser of five percent of the past due amount or $200.
PREPAYMENT. If a fixed interest rate is specified above, the Borrower may prepay
all or any part of the principal balance of this note on one business day's
notice provided that, in addition to all principal, interest and costs owing at
the time of prepayment, the Borrower pays a prepayment premium equal to the
Current Value of (i) the interest that would have accrued on the amount prepaid
at the Note Rate, minus (ii)
1
<PAGE> 2
the interest that could accrue on the amount prepaid at the Treasury Rate. In
both cases, interest will be calculated from the prepayment date to the maturity
dates of the installments being prepaid. Such maturity dates shall be determined
by applying the prepayment to the scheduled installments of principal in their
inverse order of maturity. "Treasury Rate" means the yield, as of the date of
prepayment, on United States Treasury bills, notes or bonds, selected by the
Bank in its discretion, having maturities comparable to the scheduled maturities
of the installments being prepaid. "Current Value" means the net present value
of the dollar amount of the interest to be earned, discounted at the Treasury
Rate. In no event shall the prepayment premium be less than zero. The Borrower's
notice of its intent to prepay shall be irrevocable. If the balance of this note
is accelerated in accordance with the terms of this note, the resulting balance
due shall be considered a prepayment due and payable as of the date of
acceleration. The Borrower agrees that the prepayment premium is a reasonable
estimate of loss and not a penalty. The prepayment premium is payable as
liquidated damages for the loss of bargain and its payment shall not in any way
reduce, affect or impair any other obligation of the Borrower under this note.
SECURITY. To secure the payment of this note and any other present or future
liability of the Borrower, whether several, joint, or joint and several, the
Borrower pledges and grants to the Bank a continuing security interest in the
following described property and all of its additions, substitutions,
increments, proceeds and products, whether now owned or later acquired
("Collateral"):
1. All securities and other property of the Borrower in the custody,
possession or control of the Bank (other than property held by the Bank
solely in a fiduciary capacity);
2. All property or securities declared or acknowledged to constitute
security for any past, present or future liability of the Borrower to
the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: (a) All of Borrower's present and
future accounts, chattel paper, general intangibles, inventory,
equipment, fixtures, documents, and instruments and all products and
proceeds of the foregoing, as more fully described in the General
Security Agreement dated March 29, 1996 (as amended and with all
supplements thereto) and in the Collateral Assignment of Proprietary
Rights and Security Agreement dated July 15, 1997 (as amended and with
all supplements thereto), all as amended by the Forbearance Agreement;
(b) a Future Advance Mortgage dated October 31, 1995 on the premises
located at 24755 Crestview Court, Farmington Hills, Michigan, as
recorded in Liber 15799, Page 151 of the Oakland County Records (as may
be amended or as may be further amended, including, but not limited to,
by the First Amendment to Mortgage dated the approximate even date
herewith, and with all supplements thereto); and (c) the Amended and
Restated Mortgage and Security Agreement dated June 29, 1993 on the
premises located at 38700 Grand River, Farmington Hills, Michigan, as
recorded in Liber 13885, Page 040, of the Oakland County Records (as
may be amended and as may be further amended, including, but not
limited to, by the First Amendment to Amended and Restated Mortgage and
Security Agreement of approximate even date herewith and with all
supplements thereto).
BANK'S RIGHT TO SETOFF. The Bank shall have the right at any time to apply its
own debt or liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future liabilities,
without any requirement of mutual maturity.
REPRESENTATIONS BY BORROWER. Each Borrower represents: (a) that the execution
and delivery of this note and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or any third
party; (b) that this note is a valid and binding agreement, enforceable
according to its terms; and (c) that all balance sheets, profit and loss
statements, and other financial statements furnished to the Bank are accurate
and fairly reflect the financial condition of the organizations and persons to
which they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and adversely
since those dates. Each Borrower, other than a natural person, further
represents: (a) that it is duly organized, existing and in good standing
pursuant to the laws under which it is organized; and (b)
2
<PAGE> 3
that the execution and delivery of this note and the performance of the
obligations it imposes (i) are within its powers and have been duly authorized
by all necessary action of its governing body; and (ii) do not contravene the
terms of its articles of incorporation or organization, its by laws, or any
partnership, operating or other agreement governing its affairs.
EVENTS OF DEFAULT/ACCELERATION. If any of the following events occurs, this note
shall be due immediately, without notice, at the Bank's option:
1. The Borrower or any guarantor of this note ("Guarantor") fails to pay
when due any amount payable under this note or under any agreement or
instrument evidencing debt to any creditor;
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this note) such that
the creditor declares the debt due before its maturity;
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this note, or any guaranty of the loan evidenced by this
note becomes unenforceable in whole or in part, or any Guarantor fails
to promptly perform under its guaranty;
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower;
5. The Borrower or any Guarantor becomes insolvent or unable to pay its
debts as they become due; 6. The Borrower or any Guarantor (a) makes an
assignment for the benefit of creditors; (b) consents to the
appointment of a custodian, receiver, or trustee for itself or for a
substantial part of its assets; or (c) commences any proceeding under
any bankruptcy, reorganization, liquidation, insolvency or similar laws
of any jurisdiction;
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without the consent
of the party against which the appointment is made and is not removed
within 60 days after such appointment;
8. Proceedings are commenced against the Borrower or any Guarantor under
any bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement
of such proceedings;
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor;
10. The Borrower or any Guarantor, without the Bank's written consent, (a)
is dissolved, (b) merges or consolidates with any third party, (c)
leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of business, (d) leases, purchases
or otherwise acquires a material part of the assets of any other
corporation or business entity except in the ordinary course of
business, or (e) agrees to do any of the foregoing (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any other
subsidiary, or with the Borrower so long as the Borrower is the
survivor);
11. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor which the Bank in good faith
determines to be materially adverse;
12. The Bank in good faith deems itself insecure.
REMEDIES. If this note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall be met if the Bank
sends the notice to the Borrower at least seven (7) days prior to the date of
sale, disposition or other event giving rise to the required notice. The Bank is
authorized to cause all or any part of the Collateral to be transferred to or
registered in its name or in the name of any other person, firm or corporation,
with or without designation of the capacity of such nominee. The Borrower shall
be liable for any deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all
3
<PAGE> 4
reasonable costs and expenses of every kind incurred in the making or
collection of this note, including, without limitation, reasonable attorneys'
fees and court costs. These costs and expenses shall include, without
limitation, any costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
WAIVER. Each endorser and any other party liable on this note severally waives
demand, presentment, notice of dishonor and protest, and consents to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of the
Collateral, to the addition of any party, and to the release or discharge of, or
suspension of any rights and remedies against, any person who may be liable for
the payment of this note. No delay on the part of the Bank in the exercise of
any right or remedy shall operate as a waiver. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or indulgence by the
Bank of any default shall be effective unless in writing and signed by the Bank,
nor shall a waiver on one occasion be construed as a bar to or waiver of that
right on any future occasion.
MISCELLANEOUS. The Borrower, if more than one, shall be jointly and severally
liable, and the term "Borrower" shall mean any one or more of them. This note
shall be binding on the Borrower and its successors, and shall inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank shall
include any holder of this note. This note is delivered in the State of Michigan
and governed by Michigan law. Section headings are for convenience of reference
only and shall not affect the interpretation of this note.
WAIVER OF JURY TRIAL. The Bank and the Borrower knowingly and voluntarily waive
any right either of them have to a trial by jury in any proceeding (whether
sounding in contract or tort) which is in any way connected with this or any
related agreement, or the relationship established under them. This provision
may only be modified in a written instrument executed by the Bank and the
Borrower.
* This Amended and Restated Installment Business Loan Note (this "Note") is in
substitution and exchange for an Installment Business Loan Note dated March
20, 1997 in the original principal amount of $131,315.80 (the "Original Term
Note"). This Note shall not in any circumstances be deemed a novation or to
have terminated, extinguished, or discharged Borrower's obligations evidenced
by the Original Term Note. This Note is issued pursuant to the Forbearance
Agreement. Any Event of Default, Default, or default under the Forbearance
Agreement or any document or instrument executed in connection herewith shall
be an Event of Default under this Note.
ADDRESS: BORROWER: Medar, Inc.
38700 Grand River By:
Farmington Hills, MI 48335 Name:
Title:
4
<PAGE> 1
FIRST AMENDMENT TO AMENDMENT AND FORBEARANCE AGREEMENT
NBD Bank ("NBD" or "Lender"), Medar, Inc. ("Medar"), Integral Vision,
Ltd. ("Integral") and Medar Canada, Ltd. ("Medar Canada"), enter into this First
Amendment to Amendment and Forbearance Agreement (this "first Amendment"), on
March ____, 1999. For convenience (i) Medar and Integral are referred to herein,
collectively, as "Borrowers" and, individually, as a "Borrower," (ii) Medar
Canada in its capacity as guarantor of Borrowers' debt to NBD, and Integral, in
its capacity as guarantor of Medar's debt to NBD, and any other person or entity
who guaranteed the obligations of one or both of Borrowers to NBD are referred
to herein, collectively, as "Guarantors", and, individually, as a "Guarantor,"
and (iii) Borrowers and Guarantors are referred to herein, collectively, as the
"Parties" and, individually, as a "Party."
RECITALS
A. The Parties and NBD are parties to an Amendment and Forbearance
Agreement dated December 14, 1998 (the "Forbearance Agreement"). Capitalized
terms used but not defined in this First Amendment have the same meanings as in
the Forbearance Agreement.
B. On March 4, 1999, (i) there was $9,025,000 in principal owing by
Borrowers to NBD under the Revolving Credit Facility, (ii) there was $0 in
principal owing by Borrowers to NBD under the Letter of Credit Facility, (iii)
there was $80,978 in principal owing by Medar to NBD under the Equipment Loan
Note, (iv) there was $1,125,000 in principal owing by Medar to NBD under the
1997 Mortgage Note (v), there was $1,975,560 in principal owing by Medar to NBD
under the 1995 Mortgage Note, (vi) there was $35,632.35 in principal owing by
Medar to NBD under the Instaloans, and (vii) there was $34,493.60 in principal
owing by Medar to NBD under the Charge Card Authorization, in each case, plus
accrued but unpaid interest, costs and expenses (including attorneys' fees)
called for by the Credit Agreement or other Loan Documents. For convenience, all
of the obligations referred to in the immediately preceding sentence, together
with all other principal and interest due or becoming due to NBD, together with
the payment of all other sums, indebtedness and liabilities of any and every
kind now or hereafter owing and to become due from Borrowers to NBD however
created, incurred, evidenced, acquired or arising, and whether direct or
indirect, primary, secondary, fixed or contingent, matured or unmatured, joint,
several, or joint and several, and whether for principal, interest,
reimbursement obligations, indemnity obligations, obligations under guaranty
agreements, fees, costs, expenses, or otherwise, all of Borrowers' obligations
under this First Amendment, together with all other present and future
obligations of Borrowers to NBD, are referred to herein, collectively, as the
"Obligations."
C. Each Party acknowledges and agrees that (i) NBD has fully performed
all of its obligations under the Loan Documents; (ii) NBD has no obligation to
continue to lend to Borrowers, or to forbear from enforcing its rights and
remedies beyond the Forbearance Period (as hereinafter defined); (iii) any loans
made after the date of this First Amendment will be made in NBD's sole
discretion; and (iv) NBD has made no representations of any nature or kind that
funding in any amount will continue, or that the Forbearance Period (as
hereinafter defined)
<PAGE> 2
will be extended beyond the expiration thereof.
D. Each Party further acknowledges and agrees that the actions taken by
NBD to date in furtherance of the Loan Documents are reasonable and appropriate
under the circumstances and are within NBD's rights under the Loan Documents and
applicable law.
E. Each Party represents and warrants to NBD that it has received
direct and substantial economic benefit from all of the Obligations and that it
will continue to receive direct and substantial economic benefit from such
Obligations, and from any other loans made or which may be made in the future to
Borrowers.
F. Over the past several weeks, the Parties have been attempting to
reach an agreement with the Junior Creditors with respect to resolving defaults
under the Subordinated Debt, and the Parties are also attempting to resolve the
Existing Defaults under the Loan Documents. The Forbearance Period expired March
5, 1999, and the Parties have requested that NBD agree to extend the Forbearance
Period with respect to the Existing Defaults to allow the Parties additional
time to reach an agreement with the Junior Creditors and to address the Existing
Defaults.
G. Subject to the terms and conditions of this First Amendment, and in
reliance on the Parties' agreements, acknowledgments, representations, and
warranties in this First Amendment, NBD has agreed to amend the Loan Documents
and forbear from enforcing its right with respect to the Existing Defaults under
the Loan Documents (including the Guarantor Loan Documents), as set forth below.
AGREEMENT
Based on the foregoing Recitals (which are incorporated herein as
agreements, representations, warranties, and covenants of the respective
Parties, as the case may be), and for other good and valuable consideration, the
adequacy and receipt of which are acknowledged by each Party hereto, NBD and
each Party agree as follows:
1. FORBEARANCE. Paragraph 1 of the Forbearance Agreement is amended in
its entirety to read as follows:
1. FORBEARANCE. Subject to the following conditions and those
set forth below, NBD agrees to forbear from enforcing its
rights and remedies with respect to the Existing Defaults
through Monday, June 7, 1999 (the "Forbearance Period"):
(a) There are no further Events of Default or defaults under
the Loan Documents (including a worsening of the Existing
Defaults beyond the Permitted Deviations, as defined below)
and
2
<PAGE> 3
each Party fully complies with all the terms and conditions of
this Agreement and the other Loan Documents; and
(b) NBD receives, on Monday, March 15, 1999 (the "Effective
Date"), by facsimile, a fully-executed copy of the First
Amendment to Amendment and Forbearance Agreement, acknowledged
by counsel for each of the Parties as provided below, together
with fully-executed copies of all of the Exhibits that require
signature, with all originals to follow by overnight courier.
2. AGREEMENT WITH JUNIOR CREDITORS. No later than the close of business
on Friday, March 26, 1999, Borrowers shall provide to NBD a copy of the written
agreement reached with the Junior Creditors regarding resolution of defaults
with respect to the Subordinated Debt acceptable to NBD in its sole discretion.
In the interim, the Parties will continue to advise NBD on a regular basis of
their progress with respect to reaching an agreement with the Junior Creditors.
3. NEW DEFAULTS. Borrowers have defaulted under the Forbearance
Agreement for the following reasons:
(a) Borrowers' Tangible Net Worth at December 31, 1998 was
less than $3,900,000, as required by Paragraph 3(a) of the
Forbearance Agreement (As of December 31, 1998, Borrowers'
Tangible Net Worth was $3,130,631.); and
(b) Borrowers' Total Liabilities to Tangible Net Worth
exceeded 7.25 to 1.0 at December 31, 1998, in violation of
Paragraph 3(b) of the Forbearance Agreement (As of December
31, 1998, Borrowers' Total Liabilities to Tangible Net Worth
was 9.25 to 1.0).
For convenience, the above-referenced defaults are referred to
herein as the "New Defaults." As an accommodation to Borrowers, and subject to
the terms and conditions of this First Amendment, NBD agrees to forbear from
exercising its rights and remedies with respect to the New Defaults under the
same terms and conditions under which it has agreed to forbear from exercising
its rights and remedies with respect to the Existing Defaults and, in that
regard, the term "Existing Defaults" as used in the Forbearance Agreement, as
amended by this First Amendment, shall include the New Defaults.
4. REVISED PROJECTIONS; PERMITTED DEVIATIONS. Attached hereto as
Exhibit A are updated projections (the "Projections") delivered by Borrowers to
NBD. The Projections indicate that the New Defaults set forth above may worsen
during the Forbearance Period and Borrowers have requested that NBD make an
allowance for this. Thus, as an accommodation to Borrowers, Paragraph 3 of the
Forbearance Agreement is hereby amended in its entirety to read as follows:
3. PERMITTED DEVIATIONS. As an accommodation to Borrowers, NBD
agrees that it shall not be a worsening of the Existing
Defaults or a new default under the Loan Documents or
3
<PAGE> 4
this Agreement so long as the following financial covenants
are met during the Forbearance Period (the "Permitted
Deviations"):
(a) Tangible Net Worth shall be not less than $2,130,631 at
January 31, 1999, not less than $1,830,631 at February 28,
1999, not less than $2,830,631 at March 31, 1999, not less
than $2,230,631 at April 30, 1999, and not less than
$2,330,631 at May 31, 1999 and thereafter;
(b) Total Liabilities to Tangible Net Worth shall not exceed
14.85 to 1 at January 31, 1999, 17.49 to 1 at February 28,
1999, 11.03 to 1 at March 31, 1999, 13.95 to 1 at April 30,
1999, and 13.03 to 1 at May 31, 1999 and thereafter; and
(c) Earnings Before Interest Taxes Depreciation and
Amortization (EBITDA) shall not be less than ($586,000) for
the month ended January 31, 1999, not less than $117,000 for
the month ended February 28, 1999, not less than $1,391,000
for the month ending March 31, 1999, not less than ($210,000)
for the month ending April 30, 1999, and not less than
$490,000 for the month ending May 31, 1999 and thereafter; and
(d) Current Ratio shall not be less than 1.0 to 1.0 at any
time during the Forbearance Period or thereafter.
5. DEFAULTS. In addition to any other Events of Default or defaults
provided for in the Loan Documents and the Forbearance Agreement, and without
waiver of the demand and discretionary provisions of the Loan Documents, the
occurrence of any of the following constitutes an Event of Default and a default
under this First Amendment (and each Loan Document, including the Forbearance
Agreement):
(a) If Borrowers fail to reach a written agreement with the
Junior Creditors regarding resolution of defaults with respect to Subordinated
Debt acceptable to NBD in its sole discretion and provide a copy of such
agreement to NBD on or before March 26,1999; and
(b) If the field examination to be conducted by NBD during the
month of March, 1999 is unsatisfactory to NBD in its sole discretion.
6. FEES. In consideration for NBD agreeing to extend the Forbearance
Period and forbear from exercising its rights and remedies under the Loan
Documents with respect to the Existing Defaults as provided herein, Borrowers
shall pay to NBD an extension fee in the amount of $75,000 simultaneously with
the execution of this First Amendment (the "Extension Fee"). In addition,
Borrowers shall continue to pay NBD the Forbearance Fee of $25,000 per month on
the first day of each month until all Obligations are paid in full. In addition,
simultaneously with the execution of this First Amendment, Borrowers shall
reimburse NBD for legal fees and expenses totaling $26,037.57 incurred by NBD
through January 31, 1999.
4
<PAGE> 5
7. SPECIAL ACCOMMODATIONS. The Parties acknowledge and agree that NBD
has entered into foreign exchange contracts with Borrowers and has allowed
Borrowers the use of a Controlled Disbursement Account. The Parties further
acknowledge and agree that NBD may, in its sole discretion, require Borrowers to
close their Controlled Disbursement Account and refuse to enter into further
foreign exchange contracts with Borrowers. Notwithstanding the foregoing and not
in any way affecting NBD's sole discretion in this regard, it is NBD's current
intention to continue to allow Borrowers to enter into foreign exchange
contracts with NBD and to maintain a Controlled Disbursement Account, but it is
also NBD's current intention to immediately terminate these accommodations to
Borrowers if there is a default or Event of Default (other than the Existing
Defaults) under the Loan Documents, including the Forbearance Agreement as
amended hereby.
8. ENTIRE AGREEMENT, ETC.
(a) This First Amendment and the Exhibits hereto constitute
the Parties' and NBD's entire understanding with respect to the subject matter
hereof. Modifications or amendments to this First Amendment must be in writing
and signed by the party to be charged in order to be effective. This First
Amendment is governed by the internal laws of the State of Michigan (without
regard to conflicts of law principles). This First Amendment is binding on each
Party and its respective successors, assigns, heirs, and personal
representatives and shall inure to NBD's benefit and its successors and assigns.
If any provision of this First Amendment conflicts with any applicable statute
or law, or is otherwise unenforceable, such offending provision is null and void
only to the extent of such conflict or unenforceability, and is deemed separate
from and does not invalidate any other provision of this First Amendment.
(b) This First Amendment is being entered into among competent
persons who are experienced in business and represented by counsel (or who have
had the opportunity to be represented by counsel), and has been reviewed by the
Parties and their counsel, if any. Therefore, any ambiguous language in this
First Amendment will not necessarily be construed against any particular party
as the drafter of such language.
(c) This First Amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one
instrument. Facsimile copies of signatures are to be treated as original
signatures for all purposes.
(d) References in the Loan Documents and all other documents
executed in connection with the Loan Documents (as each of the foregoing is
amended hereby) to the Loan Documents mean the Loan Documents as amended by this
First Amendment.
(e) The term "including" means including, without limitation,
and the term "includes" means includes, without limitation.
5
<PAGE> 6
(f) All headings are inserted for convenience only and do not
affect the construction or interpretation of this First Amendment.
9. ADDITIONAL REPRESENTATIONS. Each Party represents and warrants to
NBD that:
(a) Each Borrower's execution, delivery, and performance of
this First Amendment and all agreements and documents delivered in connection
herewith by such Borrower, have been duly authorized by all necessary corporate
action and do not and will not require any consent or approval of such
Borrower's stockholders, violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to such Borrower or it articles of incorporation or
bylaws, or result in a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
such Borrower is a party or by which it or its properties may be bound or
affected.
(b) No authorization, consent, approval, license, exemption of
or filing a registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by any Borrower of
this First Amendment and all agreements and documents delivered in connection
with this First Amendment.
(c) This First Amendment and all agreements and documents
delivered pursuant hereto by any one or more of the Parties are the legal, valid
and binding obligations of each such Party enforceable against each such Party
in accordance with the terms thereof.
(d) After giving effect to the amendments contained herein and
effected pursuant hereto, all representations and warranties contained in the
Loan Documents are true and correct on and as of the date hereof with the same
force and effect as if made on and as of the date hereof.
(e) Except for the Existing Defaults, each Party has duly and
properly performed, complied with and observed each of its covenants,
agreements, and obligations contained in the Loan Documents.
(f) No Party has assigned any claim, set off or defense to any
individual or entity.
(g) This First Amendment and all of the Exhibits and other
written material delivered by any one or more of the Parties to NBD in
connection with the transactions contemplated hereby do not contain any
statement that is false or misleading with respect to any material fact and do
not omit to state a material fact necessary in order to make the statements
therein not false or misleading. There is no additional fact of which any Party
is aware that has not been disclosed in writing to NBD that materially affects
adversely or, so far as each Party can reasonably foresee, will materially
affect adversely, any Party's financial condition or
6
<PAGE> 7
business prospects.
(h) All Parties executing this First Amendment in a
representative capacity warrant that they have authority to execute this First
Amendment and legally bind the entity they represent.
10. SURVIVAL; RELIANCE. All agreements, representations and warranties
made in this First Amendment (and all agreements referred to or incorporated
herein) survive the execution of this First Amendment (and all documents and
agreements referred to or incorporated herein). Notwithstanding anything in this
First Amendment (or any documents or agreements referred to or incorporated
herein) to the contrary, no investigation or inquiry by NBD (including by its
agents) with respect to any matter which is the subject of any representation,
warranty, covenant or other agreement set forth herein or therein is intended,
nor shall it be interpreted, to limit, diminish or otherwise affect the full
scope and effect of any such representation, warranty, covenant or other
agreement. All terms, covenants, agreements, representations and warranties of
each Party made herein (or in any documents or agreements referred to or
incorporated herein), or in any certificate or other document delivered or to be
delivered pursuant hereto, are deemed to be material and to have been relied
upon by NBD, notwithstanding any investigation heretofore or hereafter made by
NBD or its agents.
11. IMPAIRMENT OF COLLATERAL. The execution and delivery of this First
Amendment (and all agreements and documents referred to herein) does not impair
or affect any other security (by endorsement or otherwise) for the Obligations,
or any one or more of the Parties' other obligations to NBD. No security taken
before or after as security for the Obligations impairs or affects this First
Amendment (or any agreement or document referred to herein). All present and
future additional security is to be considered as cumulative security.
12. TIME IS OF THE ESSENCE. Each Party acknowledges and agrees that
time is of the essence as to each and every term and provision of this First
Amendment and each Loan Document.
13. NON-WAIVER. No failure or delay on the part of NBD in the exercise
of any power or right, and no course of dealing between any one or more of the
Parties or any Personal Guarantor and NBD, operates as a waiver of such power or
right, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
The remedies provided for herein are cumulative and not exclusive of any
remedies which may be available to NBD at law or in equity. No notice to or
demand on any Party not required hereunder or under the Loan Documents entitles
any such Party to any other or further notice or demand in similar or other
circumstances, or waives NBD's right to any other or further action in any
circumstances without notice or demand. Any waiver of any provision of this
First Amendment or the Loan Documents and any consent to any departure by any
one or more of the Parties from the terms of any provision of this First
Amendment or the Loan Documents, is effective only if in writing signed by an
authorized officer of NBD, and only in the specific instance and for the
specific purpose for which given.
7
<PAGE> 8
14. NO OTHER PROMISES OR INDUCEMENTS. There are no promises or
inducements which have been made to any signatory hereto to cause such signatory
to enter into this First Amendment other than those which are set forth in this
First Amendment.
15. EFFECT OF FIRST AMENDMENT. All references to the Loan Documents
include the Forbearance Agreement as amended by this First Amendment and all
security agreements, pledge agreements, notes, mortgages, assignments and other
documents and instruments executed by any Party in connection with or in
furtherance of the Forbearance Agreement as amended by this First Amendment.
Each Party agrees that this First Amendment supplements the Forbearance
Agreement, but is not a novation of, and does not terminate, extinguish or
discharge any obligations evidenced by the Forbearance Agreement. Each Party
hereby ratifies, confirms and approves all the terms and conditions of the
Forbearance Agreement as supplemented hereby, and acknowledges and agrees that
such Forbearance Agreement, as supplemented hereby, remains in full force and
effect. All the terms and conditions of the Forbearance Agreement, as
supplemented hereby, including, without limitation, the Release and Waiver of
Jury Trial provisions contained therein, are hereby ratified, confirmed and
approved by each Party as if made and entered into on this date.
WITNESS NBD BANK
By:
- --------------------------- ---------------------------------------
Name: Oliver J. Glenn, III
-------------------------------
Title: Vice President
-----------------------
WITNESS MEDAR, INC.
By:
- --------------------------- ---------------------------------------
Name:
-------------------------------
Title:
------------------------------
Subscribed and sworn to before me this day of , 1999.
---- --------------
----------------------------------------
Notary Public, County, MI
---------------
My Commission Expires:
--------------------
[Signatures continue on Page 9]
8
<PAGE> 9
[Signatures continue from Page 8]
WITNESS MEDAR CANADA, LTD.
By:
- --------------------------- ---------------------------------------
Name:
-------------------------------
Title:
------------------------------
Subscribed and sworn to before me this day of , 1999.
---- --------------
-------------------------------------------
Notary Public, County, MI
---------------
My Commission Expires:
--------------------
WITNESS INTEGRAL VISION, LTD.
By:
- --------------------------- ---------------------------------------
Name:
-------------------------------
Title:
------------------------------
Subscribed and sworn to before me this day of , 1999.
---- --------------
-------------------------------------------
Notary Public, County, MI
---------------
My Commission Expires:
--------------------
[Counsel's Acknowledgement continued on Page 10]
9
<PAGE> 10
[Counsel's Acknowledgement continued from Page 9]
COUNSEL'S ACKNOWLEDGMENT
I have represented Medar in negotiating and executing the foregoing
First Amendment to Amendment and Forbearance Agreement. I have explained the
legal effect and ramifications of the First Agreement to my clients. I am of the
opinion that (1) the First Amendment is valid, enforceable and binding according
to its terms, subject to the effect of any applicable bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting creditors' rights
generally, and to general principals of equity, and (2) the parties I represent
executing this First Amendment in representative capacities are authorized to do
so.
WARREN, CAMERON, FAUST & ASCIUTTO, P.C.
---------------------------------------
Josephine L. Cameron
EXHIBIT A: PROJECTIONS
10
<PAGE> 1
EXHIBIT 13
Annual Report on Form 10K
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, 1998
MEDAR, INC.
Farmington Hills, MI
1
<PAGE> 2
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, 1998 and 1997
Consolidated Statements of Operations-Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders'
Equity-Years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows-Years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements-December 31, 1998
(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.
2
<PAGE> 3
Report of 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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31,
1998. 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 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, 1998 and 1997,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, 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 contained therein.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully described
in Note D, as a result of recurring operating losses the Company has
violated the provisions of certain of its loan agreements with regard
to levels of tangible net worth. Consequently the revolver and term
notes with the Bank, all mature in June 1999. The Company is
currently exploring alternatives for financing its operations should
the Bank elect not to extend the agreement. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are more fully
described in Note D. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/S/ Ernst & Young LLP
Detroit, Michigan
February 23, 1999, except for Note D
as to which the date is March 31, 1999
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 566 $ 831
Accounts receivable, less allowance of $400,000 10,901 10,682
Inventories 9,749 14,227
Costs and estimated earnings in excess of billings on incomplete contracts 1,495 2,568
Other current assets 683 881
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 23,394 29,189
PROPERTY AND EQUIPMENT
Land and improvements 377 377
Building and building improvements 6,317 6,317
Production and engineering equipment 4,217 3,791
Furniture and fixtures 1,022 1,022
Vehicles 365 875
Computer equipment 5,675 5,241
- -----------------------------------------------------------------------------------------------------------------------
17,973 17,623
Less accumulated depreciation 9,485 8,021
- -----------------------------------------------------------------------------------------------------------------------
8,488 9,602
OTHER ASSETS
Capitalized computer software development costs, less accumulated
amortization 5,349 10,796
Patents, less accumulated amortization 1,890 2,127
Other 692 892
- -----------------------------------------------------------------------------------------------------------------------
7,931 13,815
- -----------------------------------------------------------------------------------------------------------------------
$ 39,813 $ 52,606
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,559 $ 4,472
Employee compensation 889 1,110
Accrued and other liabilities 827 714
Current maturities of long-term debt 13,478 19,415
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 20,753 25,711
LONG-TERM DEBT, less current maturities 8,199 4,892
STOCKHOLDERS' EQUITY
Common stock, without par value, stated value $.20 per share;
15,000,000 shares authorized; 9,024,901 shares issued and outstanding 1,805 1,805
Additional paid-in capital 31,187 31,187
Retained-earnings deficit (21,628) (10,444)
Notes receivable from officers (580) (552)
Accumulated translation adjustment 77 7
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 10,861 22,003
- -----------------------------------------------------------------------------------------------------------------------
$ 39,813 $ 52,606
=======================================================================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES $ 34,813 $ 40,524 $ 41,471
Direct costs of sales 25,742 29,077 30,788
- --------------------------------------------------------------------------------------------------------------------
9,071 11,447 10,683
Other costs and expenses:
Marketing 4,096 4,161 4,510
General and administrative 2,988 2,700 3,203
Engineering and development:
Expenditures 7,400 9,271 9,749
Allocated to capitalized software and
direct cost of sales (2,256) (6,868) (6,197)
- --------------------------------------------------------------------------------------------------------------------
Net Expense 5,144 2,403 3,552
Product restructuring and other charges 5,571
- --------------------------------------------------------------------------------------------------------------------
17,799 9,264 11,265
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations (8,728) 2,183 (582)
Interest 2,456 2,289 1,473
- --------------------------------------------------------------------------------------------------------------------
Loss before income taxes (11,184) (106) (2,055)
Provision (credit) for income taxes - 38 (76)
- --------------------------------------------------------------------------------------------------------------------
NET LOSS $ (11,184) $ (144) $ (1,979)
====================================================================================================================
Basic and diluted loss per share $ (1.24) $ (.02) $ (.22)
====================================================================================================================
</TABLE>
See accompanying notes
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED
COMMON STOCK PAID-IN EARNINGS OFFICER TRANSLATION TOTAL
CAPITAL (DEFICIT) NOTES ADJUSTMENT
- -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996 $ 1,742 $ 29,438 $ (8,321) $(331) $(92) $ 22,436
Net loss for the year (1,979) (1,979)
Translation adjustments 156 156
------------
Comprehensive loss (1,823)
------------
Exercise of options to purchase
140,812 shares 29 329 358
Loans to Officers (152) (152)
- -------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 1,771 29,767 (10,300) (483) 64 20,819
Net loss for the year (144) (144)
Translation adjustments (57) (57)
------------
Comprehensive loss (201)
------------
Issuance of 150,000 shares 30 720 750
Exercise of options to purchase 4 98 102
22,500 shares
Issuance of stock warrants 602 602
Loans to Officers (69) (69)
- -------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 1,805 31,187 (10,444) (552) 7 22,003
Net loss for the year (11,184) (11,184)
Translation adjustments 70 70
------------
Comprehensive loss (11,114)
------------
Loans to Officers (28) (28)
=========================================================================================================================
BALANCES AT DECEMBER 31, 1998 $ 1,805 $ 31,187 $(21,628) $(580) $ 77 $ 10,861
=========================================================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
MEDAR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (11,184) $ (144) $ (1,979)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 4,051 5,279 4,529
Restructuring Charges 5,571 - -
Credit for deferred income taxes - - (76)
(Increase) decrease in net accounts receivable (219) (1,267) (797)
(Increase) decrease in inventories 4,478 1,764 (2,824)
(Increase) decrease in costs and estimated earnings
in excess of billings on incomplete contracts 1,073 (727) (1,160)
(Increase) decrease in other assets (112) (1,053) 310
Increase (decrease) in accounts payable and accrued
expenses 979 (1,031) 1,884
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,637 2,821 (113)
INVESTING ACTIVITIES
Increase in property and equipment (691) (879) (2,283)
Investment in capitalized software (1,651) (5,383) (4,669)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,342) (6,262) (6,952)
FINANCING ACTIVITIES
Repayments of revolving line of credit and other
obligations (24,696) (34,740) (20,154)
Proceeds from draws on revolving line of credit 22,066 37,400 25,364
Proceeds from exercise of stock options - 102 358
Proceeds from sale of common stock - 750
Proceeds from issuance of stock warrants - 602
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (2,630) 4,114 5,568
- -------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes 70 (57) 156
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (265) 616 (1,341)
Cash at beginning of year 831 215 1,556
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $ 566 $ 831 $ 215
=============================================================================================================
</TABLE>
See accompanying notes.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 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. 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
equipment and automobile manufacturers located in North America for
welding control products and from equipment manufacturers and end users
in North America, Asia and Europe for Machine vision products.
Customers which accounted for 10% or more of the Company's resistance
welding controls revenues in any of the three years ended December 31,
1998 and the respective sales in each year are:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------------------------
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DaimlerChrysler AG $ 6,132 $ 4,607 $ 6,009
General Motors Corporation $ 5,180 $ 5,778 $ 7,730
================================================================================================
</TABLE>
8
<PAGE> 9
NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CON'T
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 $300,000 in 1998 and $210,000 in 1997):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 5,244 $ 6,076
Work in process 1,818 1,654
Finished goods 2,687 6,497
- --------------------------------------------------------------------------
$ 9,749 $ 14,227
==========================================================================
</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 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).
Management continually reviews the net realizable value of capitalized
software costs. At the time that a determination is made that
capitalized software amounts exceed the estimated net realizable value
of amounts capitalized, any amounts in excess of the estimated
realizable amounts are written off. (See Note B.)
Amortization of the capitalized costs amounted to $1,827,000,
$3,590,000, and $2,522,000 in 1998, 1997 and 1996, respectively. Total
accumulated amortization at December 31, 1998 and 1997, was $4,249,000
and $13,483,000, respectively.
PATENTS
Patents are stated at cost less accumulated amortization of $1,467,000
and $1,048,000 at December 31, 1998 and 1997, respectively.
Amortization of the patents amounted to $419,000, $388,000 and $317,000
in 1998, 1997, and 1996, respectively. These costs are amortized on a
straight-line basis over the estimated useful lives of the assets.
9
<PAGE> 10
NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CON'T
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.
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.
RECLASSIFICATIONS
Certain amounts have been reclassified in prior years' presentations to
conform to the current year's presentation.
NOTE B - RESTRUCTURING OF OPERATIONS
Early in the second quarter of 1998, Management completed an evaluation
of competitive conditions and product offerings in the vision and
welding divisions. A charge of $6,973,000 was recorded as of March 31,
1998 to give effect to the impairment of assets identified in this
review. The charge consisted of $5,268,000 related to capitalized
software development costs, $1,402,000 related to inventory (included
in direct costs of sales) and $303,000 of other accruals.
10
<PAGE> 11
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>
1998 1997
- ----------------------------------------------------------------------------------
(IN THOUSANDS)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Contract costs to date $ 4,766 $ 3,499
Estimated contract earnings 3,363 3,377
- ----------------------------------------------------------------------------------
8,129 6,876
Less billings to date 6,634 4,308
- ----------------------------------------------------------------------------------
Costs and estimated earnings in excess
of billings on incomplete contracts $ 1,495 $ 2,568
==================================================================================
</TABLE>
The Company anticipates that substantially all of the costs incurred on
long-term contracts at December 31, 1998, will be billed and collected
in 1999.
NOTE D - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving note payable to bank $ 10,000 $ 12,258
Term notes payable to bank 3,214 3,660
Subordinated debentures, 12.95%
(Net of $417,000 ($510,000 in 1997) unaccreted value
assigned to related warrants) 6,583 6,490
Patent license payable 1,554 1,715
Other 326 184
- -------------------------------------------------------------------------------------------------------
21,677 24,307
Less current maturities 13,478 19,415
- -------------------------------------------------------------------------------------------------------
$ 8,199 $ 4,892
=======================================================================================================
</TABLE>
The revolving note payable to bank had an original due date of August
31, 1999, and currently provides for advances up to $10,000,000 based
upon levels of eligible accounts receivable and inventory. At December
31, 1998, the line was fully drawn and interest was at the Bank's prime
rate plus 1%. For various periods during the year, the Company was not
in compliance with certain of the covenants of the agreement associated
with the note payable. Under a new agreement entered into late in the
year, the Bank and Company agreed to continue the loan on a basis
similar to the operating basis followed under the original agreement.
The principal change from the former agreement is that the new
agreement expires on March 5, 1999. As of March 4, 1999, the Bank and
the Company agreed to extend the expiring new agreement to June 7,
1999, under substantially similar terms as the expiring agreement.
Substantially all Company assets not previously pledged under term
notes (see below), have been pledged as collateral for this
indebtedness.
11
<PAGE> 12
NOTE D - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS - CON'T
The term notes to bank are covered under the new agreement with the
Bank as to expiration date, and therefore are all due June 7, 1999. The
term notes are described as follows:
- $62,500 quarterly plus interest at the Bank's prime rate, plus 1%,
collateralized by a first mortgage on the Company's Grand River
facility;
- $14,111 monthly, plus interest at 8.7%, collateralized by a first
mortgage on the Company's Crestview facility;
- $2,189 monthly, plus interest at the Bank's prime rate, plus 1%
The subordinated debentures mature $700,000 on each June 30 in the
years 2000 to 2004, with the balance due June 30, 2005. Interest on the
debentures is payable quarterly at 12.95% per annum. At the time the
debentures were issued, the debenture holders were granted warrants for
the purchase 1,400,000 shares of the Company's common stock at $6.86.
At December 31, 1997 and throughout 1998, the Company was not in
compliance with certain of the covenants of the debenture agreement and
the Company was unsuccessful in 1998 in obtaining waivers of the
covenant violations. As a result, at December 31, 1997 and throughout
1998 the debentures were classified as a current liability. Under an
agreement reached in March of 1999, the debenture holders agreed to
adjust the loan covenants and make other changes in the agreement in
exchange for an agreement by the Company to allow for repricing of the
related warrants based on the occurance of certain future events. In
light of the agreement reached with the debenture holders, management
now believes that it can comply with the requirements of the new
agreement going forward and on this basis has classified the debentures
as a noncurrent liability at December 31, 1998.
During the first quarter of 1998, management reduced the Company's
breakeven point though cost reductions and continues to challenge
operating costs and other expenditures. Additionally, management is
currently exploring alternatives for financing its operations. These
options include locating and appointing a new senior lending
institution. Management believes that these efforts will allow the
Company to meet its obligations as they come due over the next year.
The patent license payable relates to future payments to a corporation
for use of certain patents. The payments are due in seven remaining
installments and have been discounted at 8%.
The fair values of these financial instruments approximates their
carrying amounts at December 31, 1998. The Company paid interest on its
debt instruments of $2,274,000, $2,039,000, and $1,646,000 in 1998,
1997 and 1996, respectively.
Maturities of long-term debt are $946,000 in 2000; $970,000 in 2001;
$998,000 in 2002; $968,000 in 2003; $4,317,000 thereafter.
12
<PAGE> 13
NOTE E - INCOME TAXES
The Company establishes valuation allowances in accordance with the
provisions of FASB Statement No. 109, "Accounting for Income Taxes."
The Company continually reviews realizability of deferred tax assets
and recognizes these benefits only as reassessment indicates that it is
more likely than not that the benefits will be realized.
As of December 31, 1998, the Company has cumulative net operating loss
carryforwards approximating $28,100,000 (expiring: $4,502,000 in 2007,
$7,955,000 in 2010, $3,889,000 in 2011, $6,404,000 in 2012, and
$5,350,000 in 2018) for tax purposes available to reduce taxable income
of future periods and unused investment and research and development
tax credits approximating $983,000 which expire through 2013. 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 remaining
valuation allowance is necessary due to the uncertainty of future
income estimates. The valuation allowance increased $3,883,000 in 1998
and decreased $55,000 in 1997 and increased $448,000 in 1996.
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 are as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deductible software development costs, net of
amortization $ 1,808 $ 3,609
Tax over book depreciation 498 275
Percentage of completion 508 873
- -------------------------------------------------------------------------------------------------
Total deferred tax liabilities 2,814 4,757
Deferred tax assets:
Net operating loss carryforwards 9,489 7,592
Credit carryforwards 1,097 1,061
Reserve for warranty 61 68
Other 339 325
- -------------------------------------------------------------------------------------------------
Total deferred tax assets 10,986 9,046
Valuation allowance for deferred tax assets 8,172 4,289
- -------------------------------------------------------------------------------------------------
Net deferred tax assets 2,814 4,757
- -------------------------------------------------------------------------------------------------
Net deferred tax $ 0 $ 0
=================================================================================================
</TABLE>
13
<PAGE> 14
NOTE E - INCOME TAXES - CON'T
Income tax expense of $38,000 for 1997 and income tax credits of
$(76,000) for 1996 represent income taxes paid (refunded) on foreign
income.
The reconciliation of income taxes computed at the U.S. federal
statutory tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------
(IN THOUSANDS)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax credit at U.S. statutory rates $ (3,802) $ (36) $ (699)
Change in valuation allowance 3,883 (55) 488
Nondeductible expenses 38 43 73
Other (119) 86 62
========================================================================================
$ 0 $ 38 $ (76)
========================================================================================
</TABLE>
There were no income tax payments in 1998, 1997 or 1996.
NOTE F - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NUMERATOR:
<S> <C> <C> <C>
Net loss for basic and diluted earnings
per share:
*there was no effect of dilutive
securities see below $ (11,184) $ (144) $ (1,979)
DENOMINATOR:
Weighted-average shares outstanding for
basic and diluted 9,025 8,897 8,820
====================================================================================================
*there was no effect of dilutive
securities see below
Basic and diluted loss per share $ (1.24) $ (0.02) $ (0.22)
====================================================================================================
</TABLE>
Warrants and options outstanding were not included in the computation
of diluted earnings per share because the inclusion of these options
would have an antidilutive effect. For additional disclosures regarding
stock options and warrants see Note H.
14
<PAGE> 15
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 $80,000,
$66,000, and $89,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
NOTE H - STOCK OPTIONS AND WARRANTS
A summary of the status of the Option Plan is as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
QUALIFIED ISO STOCK OPTION
PLAN PLAN 1995 PLAN
- -------------------------------------------------------------------------------------
(IN THOUSANDS)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding 195 16 386
Options exercisable 195 16 386
Options granted during:
1998 0 0 0
1997 0 0 267
1996 0 0 132
1995 211
Options available
For Grant 0 0 112
======================================================================================
</TABLE>
Option grants are approved by the Compensation Committee of the Board
of Directors. The option price is the market price on the date of the
grant, and vesting generally occurs after one year and the expiration
occurs after ten years from the date of the grant.
A summary of option activity under all plans follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
-------------------------------------------------------------------------------------------------------------------
(NUMBER OF SHARES IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 662 $ 5.64 589 $ 5.87 788
Granted 0 0 267 5.20 132
Exercised 0 0 (23) 4.57 (141)
Canceled (65) 5.74 (171) 5.88 (190)
-------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 597 5.48 662 5.64 589
($1.75 to $9.25 per share)
===================================================================================================================
Exercisable ($1.75 to $9.25 per share) 597 $ 5.48 396 $ 5.93 464
===================================================================================================================
</TABLE>
15
<PAGE> 16
NOTE H - STOCK OPTIONS AND WARRANTS - CON'T
Additional information regarding the range of exercise prices and
weighted average remaining life of options outstanding at December 31,
1998 follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF NUMBER AVERAGE NUMBER
EXERCISE OUTSTANDING REMAINING EXERCISABLE
PRICES LIFE
- ------------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
$1.75 to 2.50 11 1.0 11
4.00 to 4.88 345 6.0 345
5.38 to 5.75 15 8.75 15
6.00 to 6.25 154 6.0 154
8.50 to 9.25 72 6.25 72
========================================================================
$1.75 to 9.25 597 6.5 597
========================================================================
</TABLE>
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 $11,532,000 ($1.28 per share), $470,000 ($.05 per
share), and $2,393,000 ($.27 per share) for 1998, 1997 and 1996
respectively. Assumptions used in determining these proforma
disclosures were risk free interest rates of 6.00% in 1998 and 1997,
and 6.12 % in 1996, no dividend yields, .51 market price volatility,
and 6.5-year weighted average life of options. These proforma results
reflect only stock options granted in 1995 through 1997 (no options
were issued during 1998) 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.
In connection with the private placement of $7.0 million of debentures
in 1997, the company issued warrants for the purchase of 1,400,000
Medar common shares at $6.86 per share. The estimated value of these
warrants was recognized as a discount on the debentures and will be
accreted and reported as additional interest expense over the life of
the debentures.
NOTE I - LEASE COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries use equipment and office space under
long-term operating lease agreements requiring rental payments
approximating $104,000 in 1999, $83,000 in 2000 and $57,000 per year in
2001 and 2002. Rent expense charged to operations approximated
$107,000, $156,000, and $276,000 in 1998, 1997 and 1996, respectively.
16
<PAGE> 17
NOTE J - OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT
The Company adopted Statement of Financial Accounting Standards
("SAFS") No. 131, Disclosures about Segments of an Enterprise and
Related Information, for the year ended December 31, 1998. SFAS No. 131
established standards for reporting information about operating
segments in annual financial statements and requires selected
information about operating segments in interim financial reports
issued to stockholders. It also established standards for related
disclosures about products and services, and geographic areas.
Operating segments are defined as components of the enterprise about
which separate financial information is available that is evaluated
regularly by management in deciding how to allocate resources and in
assessing performance.
Net revenues from 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
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
Unaffiliated customers
United States $ 31,290 $ 38,865 $ 34,366
United Kingdom 2,661 960 2,440
Canada 862 699 4,665
- -----------------------------------------------------------------------------------------------------
$ 34,813 $ 40,524 $ 41,471
=====================================================================================================
Earnings (loss) before income taxes:
United States $ (9,982) $ 2,004 $ (1,616)
United Kingdom (1,232) (2,232) (495)
Canada 30 122 56
- -----------------------------------------------------------------------------------------------------
$ (11,184) $ (106) $ (2,055)
=====================================================================================================
Identifiable assets:
United States $ 42,688 $ 50,058 $ 44,538
United Kingdom 1,608 4,471 4,993
Canada 169 163 1,712
Eliminations (4,652) (2,086) (1,450)
- -----------------------------------------------------------------------------------------------------
$ 39,813 $ 52,606 $ 49,793
=====================================================================================================
Liabilities:
United States $ 28,647 $ 30,696 $ 26,380
United Kingdom 979 7,045 5,170
Canada 65 70 1,656
Eliminations (739) (7,208) (4,232)
- -----------------------------------------------------------------------------------------------------
$ 28,952 $ 30,603 $ 28,974
=====================================================================================================
Net revenues by geographic area:
United States* $ 21,157 $ 26,386 $ 27,208
Canada* 5,114 6,588 5,568
Europe 3,650 4,237 5,986
Asia 4,768 3,011 2,434
Other 124 302 275
- -----------------------------------------------------------------------------------------------------
$ 34,813 $ 40,524 $ 41,471
=====================================================================================================
</TABLE>
* Countries that are considered individually material (more that 10% of
net revenues) all others less than 10% are grouped by region.
17
<PAGE> 18
NOTE J - OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT - CON'T
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 provide data about the welding process.
Operating data by business segment is summarized as follows:
DECEMBER 31, 1998 AND THE YEAR THEN ENDED
<TABLE>
<CAPTION>
VISION-BASED RESISTANCE WELDING
INSPECTION SYSTEMS CONTROLS CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues $ 9,433 $ 25,380 $ 34,813
Engineering and development 3,495 1,649 5,144
Earnings (loss) from operations (10,288) 1,560 (8,728)
Net interest expense 2,456
- -----------------------------------------------------------------------------------------------------------------
Loss before income taxes (11,184)
Increase in property and equipment 251 440 691
Depreciation 834 1,390 2,224
Capitalized software development costs 1,283 368 1,651
Amortization of software development costs 1,420 407 1,827
Write-off of software development costs 4,231 1,037 5,268
Write-off of inventory 1,402 0 1,402
Identifiable assets at December 31, 1998 18,043 21,770 39,813
=================================================================================================================
</TABLE>
DECEMBER 31, 1997 AND THE YEAR THEN ENDED
<TABLE>
<CAPTION>
VISION-BASED RESISTANCE WELDING
INSPECTION SYSTEMS CONTROLS CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues $ 15,955 $ 24,569 $ 40,524
Engineering and development 1,285 1,118 2,403
Earnings (loss) from operations (1,078) 3,261 2,183
Net interest expense 2,289
- -----------------------------------------------------------------------------------------------------------------
Loss before income taxes 106
Increase in property and equipment 128 751 879
Depreciation 498 1,191 1,689
Capitalized software development costs 4,644 739 5,383
Amortization of software development costs 2,678 912 3,590
Identifiable assets at December 31, 1997 28,358 24,248 52,606
=================================================================================================================
</TABLE>
18
<PAGE> 19
NOTE J - OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT - CON'T
DECEMBER 31, 1996 AND THE YEAR THEN ENDED
<TABLE>
<CAPTION>
VISION-BASED RESISTANCE
INSPECTION SYSTEMS WELDING CONTROLS CONSOLIDATED
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 13,618 $ 27,853 $ 41,471
Engineering and development 2,138 1,414 3,552
Loss from operations (5,703) 5,121 (582)
Net interest expense 1,473
- ------------------------------------------------------------------------------------------------------------
Loss before income taxes 2,055
Increase in property and equipment 2,065 218 2,283
Depreciation 1,558 449 2,007
Capitalized software development costs 3,826 843 4,669
Amortization of software development costs 1,608 914 2,522
Identifiable assets at December 31, 1996 22,423 27,370 49,793
============================================================================================================
</TABLE>
Interest expense and income taxes have been excluded from the
calculation of earnings (loss) from operations.
Identifiable assets allocated to each industry are those assets that
are used in the Company's operations in each industry.
19
<PAGE> 20
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
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS
DESCRIPTION BEGINNING OF COSTS OTHER DESCRIBE BALANCE AT END
PERIOD AND EXPENSES ACCOUNTS-DESCRIBE OF PERIOD
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Accounts receivable allowance $ 400 $ 162 $ 162 (3) $ 400
Inventory obsolescence reserve 210 1,530 1,440 (1) 300
Deferred tax valuation allowance 4,289 3,883 (2) 8,172
---------------------------------------------------------------------------------
$ 4,899 $ 5,575 $ 1,602 $ 8,872
======================================================================================================================
Year ended December 31, 1997:
Accounts receivable allowance $ 400 $ 120 $ 120 (3) $ 400
Inventory obsolescence reserve 156 622 568 (1) 210
Deferred tax valuation allowance 4,344 55 (2) 4,289
---------------------------------------------------------------------------------
$ 4,900 $ 742 $ 743 $ 4,899
======================================================================================================================
Year ended December 31, 1996:
Accounts receivable allowance $ 355 120 75 (3) $ 400
Inventory obsolescence reserve 154 458 456 (1) 156
Deferred tax valuation allowance 3,896 448 4,344
---------------------------------------------------------------------------------
$ 4,405 $ 1,026 $ 531 $ 4,900
======================================================================================================================
</TABLE>
1) Write-off obsolete inventory
2) Net change in deferred tax valuation allowance
3) Net accounts receivable write-offs
20
<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, Registration Statement
33-61979 on Form S-8 dated August 21, 1995, 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
25, 1999, (except for Note D, as to which the date is March 31, 1999),
with respect to the consolidated financial statements and schedule of
Medar, Inc. and subsidiaries included in Annual Report (Form 10-K) for
the year ended December 31, 1998.
/S/ Ernst & Young LLP
Detroit, Michigan
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000719152
<NAME> MEDAR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 566
<SECURITIES> 0
<RECEIVABLES> 10,901
<ALLOWANCES> 400
<INVENTORY> 9,749
<CURRENT-ASSETS> 23,394
<PP&E> 17,973
<DEPRECIATION> 9,485
<TOTAL-ASSETS> 39,813
<CURRENT-LIABILITIES> 20,753
<BONDS> 21,677
0
0
<COMMON> 1,805
<OTHER-SE> 9,056
<TOTAL-LIABILITY-AND-EQUITY> 39,813
<SALES> 34,813
<TOTAL-REVENUES> 34,813
<CGS> 25,742
<TOTAL-COSTS> 25,742
<OTHER-EXPENSES> 17,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,456
<INCOME-PRETAX> (11,184)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,184)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
