-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DEhBT2VGuN0TS19p+j2QASA4Y5P/b5hobojTCMhbIz1lSx9uhma4cV6ZVuOPZ3b4 TDy/00HapjLZ7ZHBKGw83g== 0000950124-97-002031.txt : 19970401 0000950124-97-002031.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950124-97-002031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDAR INC CENTRAL INDEX KEY: 0000719152 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 382191935 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12728 FILM NUMBER: 97571201 BUSINESS ADDRESS: STREET 1: 38700 GRAND RIVER AVE CITY: FARMINGTON HILLS STATE: MI ZIP: 48335 BUSINESS PHONE: 8104773900 MAIL ADDRESS: STREET 1: 38700 GRAND RIVER AVENUE CITY: FARMINGTON HILLS STATE: MI ZIP: 48335 10-K 1 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /x/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For fiscal year ended December 31, 1996, or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the transition period from ______________ to _______________ Commission file number 0-12728 MEDAR, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Michigan 38-2191935 - --------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 38700 Grand River Avenue, Farmington Hills, Michigan 48335 ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, (810) 471-2660 including area code: ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE, STATED VALUE $.20 PER SHARE ------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1997: Common Stock, No Par Value, Stated Value $.20 Per Share - $27,081,920 The number of shares outstanding on each of the issuer's classes of common stock, as of February 28, 1997: Common Stock, No Par Value, Stated Value $.20 Per Share - 8,852,401 Page 1 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual shareholders meeting to be held May 28, 1997 are incorporated by reference into Part III. Page 2 3 PART I ITEM 1. BUSINESS GENERAL Medar, Inc. ("The Company") develops, manufactures and markets microprocessor-based process monitoring and control systems for use in industrial manufacturing environments. The principal applications for the Company's products include optical inspection systems and resistance welding controls. From its incorporation in 1978 to 1983, the Company was 100% owned by Maxco Inc., a publicly-held, Michigan-based holding company ("Maxco"). In June of 1983, the Company issued to the public 800,000 shares of Common Stock, reducing Maxco's ownership to 80%. As of February 28, 1997, Maxco's ownership of the Company's Common Stock was approximately 21%. The Company has two wholly-owned subsidiaries. Most of the Company's Canadian sales of resistance welding controls are effected through Medar Canada Ltd., located in Oshawa, Ontario, Canada. In February 1995, the Company acquired 100% of the common stock and preference shares of Integral Vision Ltd. ("Integral"), an English corporation, for 654,282 previously unissued shares of Medar, Inc. common stock. Integral is a machine vision company which develops solutions for OEM's and end-users. Sales of the Company's vision inspection systems are effected through Integral Vision-AID (a division of the Company), Integral Vision, Ltd., or the Company. In 1994, the Company formed a joint venture with Shanghai Electric Welding Machine Works and Lida, USA called Shanghai Medar Welding Equipment Corp., Ltd., a manufacturer of resistance welding controls located in China. The Company owns 21.3% of this joint venture. When used herein, unless the context indicates otherwise, "Medar" or the "Company" also refers to the Company's division and subsidiaries. The Company's principal offices are located at 38700 Grand River Avenue, Farmington Hills, Michigan 48335 and its telephone number is (810) 471-2660. The Company's products are principally resistance welding controls and optical inspection and gauging equipment. Medar's welding controls monitor and automatically regulate electrical current for industrial resistance welding applications. The majority of the Company's optical inspection equipment is used to detect manufacturing defects in various optical storage media such as audio compact discs ("Audio CDs") and compact discs-read only memory ("CD-ROM's"), recordable compact discs ("CD-Rs"), and digital versital discs ("DVD's"). The Company also markets a general purpose vision inspection product. Resistance Welding Controls The Company markets a full line of welding controls. These controls monitor and automatically regulate electrical current passing through materials being welded, compensating for variations in materials, coatings and certain other welding system characteristics. Many of the Company's products are fully programmable, allowing users to tailor welding sequences to particular applications using one welding control. The Company has designed two levels of "integration," combining its controls with other forms of factory automation as follows: "Level 1" integration replaces "hard-wired" connections between the welding control and other equipment ("discrete input/output") with a serial communications link; "Level 2" integration allows customers to incorporate the welding controls directly into existing microprocessor-based factory floor automation system control racks. This approach reduces overall system complexity, manufacturing floor space requirements, and total welding system cost. The Company's products range from the low-end MedWeld 200 Series to the high-end MedWeld 700 and 3000 Series. The MedWeld 200 Series are low-cost, stand-alone systems for fixed weld sequences targeted at industrial manufacturers in emerging markets as well as domestic appliance manufacturers. The MedWeld 700 Series controls, also stand-alone systems, are capable of Level 1 integration and feature fully-programmable weld sequences and serial communications capabilities. This series is used by automotive and aerospace manufacturers in North America. The Company provides Level 1 integration with robotic equipment manufacturers including Fanuc Robotics North America, Inc. and Kawasaki Robotics USA. The MedWeld 3000 Series are welding subsystems that permit Level 2 integration with programmable controllers and robotic welding systems. The MedWeld 3000 Series is currently integrated with equipment manufactured by Allen-Bradley Company, Inc., ABB Robotics, Inc. and Nachi Robotics Systems, Inc. The Company believes that its integrated approach continues to represent a significant market opportunity. The Company's product line uses common design elements, incorporates communications links and includes sophisticated feedback systems. The Company has developed a "weld kernel" that consists of core hardware and software needed for production of a wide range of welding controls in a single modular design. This weld kernel results in significantly reduced manufacturing and service costs as well as faster product design cycles. The Page 3 4 Company's communications products, including Weld Information Centers and Weld Support Systems, link multiple controls with customers' computer systems in order to program weld sequences and archive data for trend analysis and substantiation of weld quality, all from a central location. Medar's feedback systems include SureWeld Stepper, which regulates current to compensate for electrode wear, and the Thermal Force Feedback System, which monitors the expansion of parts as they are welded to determine when a high-quality weld has been formed. Optical Inspection of Compact Discs ("CD's") The Company has developed optical inspection systems that utilize white-light illumination, linear-array or matrix technologies, and sophisticated analytical software. The cornerstone of the Company's optical inspection capability is its expertise in linear array technology. In the Company's linear array optical disc inspection systems, a line of white light is projected onto the disc using specially-developed optics and collected with a linear array camera. Image processing software then analyzes and compares collected data to customer quality specifications. This collected data may also be used for statistical analysis and process control. The Company's systems can be integrated into production lines and are capable of completing an inspection cycle in less than one second. The Company believes its products provide a cost-effective solution to optical disc inspection due to a variety of software features that are available. Optical discs, made of a translucent plastic raw material, are molded with microscopic pits that represent digital information. A thin layer of reflective aluminum is applied, followed by a protective lacquer coating and a silk-screened printed label. Discs are generally marked with a bar code or alphanumeric code for identification purposes. The Company offers optical inspection systems for a wide range of optical disc formats. Medar's standard defect inspection equipment can detect surface scratches, bubbles, black specks, pin holes, disc warp and other imperfections down to resolutions of 40 microns. Customers can specify optional features for reading bar codes, inspecting lacquer coatings, and birefringence measurement. Inspection systems can be configured to achieve resolutions to 20 microns to satisfy the demanding tolerances of higher-density optical storage media such as "write-once" CD-R's and "multiple write" Magneto-Optical ("MO") discs. The Company's current family of optical inspection equipment is sold primarily to original equipment manufacturers ("OEMs") and end-users of CD manufacturing equipment. For sales to OEMs, the Company's products are typically integrated directly into optical disc production equipment. The Company's inspection systems are the systems of choice for many OEMs worldwide that sell optical disc manufacturing equipment. The acquisition of Integral in 1995 provided the Company with additional inspection products to its existing matrix product line as well as synergies with its existing optical inspection product line, including systems which inspect the printed surface of a compact disc to verify label quality and another which reads and identifies alphanumeric catalog identification codes to prevent mislabeling. General Purpose Vision Inspection Software ("VisionBlox") Machine vision is the application of technology to acquire, process and analyze image data so that conclusions can be drawn and actions taken based on those results. Machine vision technology is most frequently used to insure manufactured product quality by monitoring and controlling the manufacturing process. In the past, vision systems required dedicated systems with customized software. The programming of customized software accounted for the majority of the development effort. VisionBlox takes advantage of the advances in PC technology and uses that power to offer the first PC based, software-only machine vision product for OEMs, integrators, and machine builders to build low unit cost, low engineering investment, high-performance PC vision systems. VisionBlox can be configured in a variety of ways to customize every machine vision application. By supporting an open system's architecture, other third party hardware and software products can be easily linked into the VisionBlox application, thereby allowing developers to take advantage of off-the-shelf hardware and software products. Custom and powerful vision applications can be developed, tested, and released in man-weeks -- not man-months, or man-years. VisionBlox includes custom controls for image processing, image analysis, third party products, calibration space, and transformations/geometry (2-D and 3-D space). VisionBlox has an open architecture and can support any commercial frame grabber or vision processor. System requirements include a Pentium IBM compatible PC with 32 MB RAM, 100 MB disk space, a single SVGA display monitor, Microsoft Visual Basic or Microsoft Visual C++, and Microsoft Windows. Page 4 5 Vision developers obtain tangible benefits from using VisionBlox, such as per unit cost reductions, reduction in engineering development time, eliminating the need to develop core vision algorithms, and providing a Windows user interface. These are just some of the reasons why, during its introductory year, VisionBlox was voted by readers of Test & Measurement World magazine one of this year's top products. Voters were asked to consider value-for-price, technical support, ease of use, overall quality, and reliability when making their selection. See the notes to the Consolidated Financial Statements for details of Segment Data. PRODUCT DEVELOPMENT The markets in which the Company competes are characterized by rapid technological change. The Company's continued success will depend in large part upon its ability to develop and successfully introduce new products and product enhancements. For example, improvements in Audio CD and CD-ROM manufacturing systems, as well as the introduction of new optical storage formats such as DVD, CD-R and MO, require the Company to continually improve its optical inspection systems and provide additional features. The Company has devoted and will continue to devote substantial resources to research and development. There can be no assurance that the Company will be able to successfully develop, introduce and market new products or enhancements, or that new products or enhancements will meet the requirements of the marketplace and achieve market acceptance. If the Company is unable to develop and introduce new products and enhancements in a timely manner in response to changing market conditions or customer requirements, the Company's results of operations could be materially and adversely affected. In addition, technological developments have resulted and may continue to result in the obsolescence of components and subassemblies the Company holds as inventory. The following table sets for the periods indicated certain amounts relating to the Company's product development activities.
Year ended December 31 ----------------------------------------------------------------- 1996 1995 1994 ----------------------------------------------------------------- (in millions) ----------------------------------------------------------------- Gross engineering expenses $9.7 $8.0 $5.7 Capitalized computer software (4.7) (3.3) (2.5) development costs Costs directly related to customer orders (1.4) (1.8) (0.4) Technical sales support expenses (0.0) (0.8) (0.4) ----------------------------------------------------------------- Net research and development expense $3.6 $2.1 $2.4 ================================================================= Amortization of capitalized computer software development costs $2.5 $2.3 $1.6 =================================================================
SALES AND MARKETING; CUSTOMERS The Company markets its welding control and CD optical inspection products to both end-users and OEMs, and utilizes agents for the distribution of its products in Europe, Asia, South America and Mexico. The Company integrates these products with other manufacturers' factory automation systems. Management believes this approach allows the Company to leverage the sales and marketing capabilities of equipment manufacturers such as Allen-Bradley Company, Inc., ABB Robotics, Inc., Marubeni America, and Toolex Alpha. The Company markets its VisionBlox software products worldwide to OEMs, integrators and volume end users utilizing a direct sales force, distributors, and alliance partners. Direct sales activities are aimed at location and alignment applications at high potential OEMs in the electronics, semiconductor, and printing industries where integrated motion/calibration capabilities make VisionBlox extremely competitive. The Company participates in numerous trade shows each year and regularly advertises in various trade magazines. Pricing for the Company's weld control and CD optical inspection products generally is determined by competitive bidding followed by negotiations. Pricing for the Company's systems is based on features, system configuration and the customer's volume requirements. The Company generally provides a one-year warranty for all products sold. For sales to OEMs and agents, the Company offers discounts from list pricing. Pricing for the Company's VisionBlox software is determined by the type of package and the accumulated quantity purchased over a one year period. Page 5 6 For the years ended December 31, 1996, 1995 and 1994, sales to Chrysler Corporation accounted for approximately 14%, 9%, and 14% respectively, of the Company's net sales. Sales to General Motors Corporation for the same periods accounted for approximately 19%, 21% and 23% of net sales, respectively. At December 31, 1996, approximately 40% and 23% of the Company's backlog was attributable to GM and Chrysler, respectively. The loss of either of these customers or cancellation of orders by them could have a material adverse effect on the Company's results of operations. The Company anticipates that in the near term it will continue to be dependent upon certain large customers for a significant portion of its revenues. VisionBlox was introduced in 1996. Marketing relationships have been established with a number of frame grabber companies in addition to working with several large customers who are currently integrating VisionBlox into product plans and new machines. Because a significant portion of the Company's resistance welding controls sales are to domestic automotive manufacturers, the cyclical nature of the U.S. automotive industry significantly affects the Company's revenues and operating results. The Company's dependence on a few large customers in its resistance welding business, together with its reliance on large orders, and its reliance on a relatively discrete industry in its vision business have also contributed to the variability of the Company's operating results. In the past, downturns in the U.S. automotive industry have negatively affected the Company's resistance welding control sales, most recently in 1990. There can be no assurance that the Company will not be affected by future industry downturns in the U.S. automotive manufacturing industry. Export sales accounted for 23%, 21% and 27% of the Company's net sales in 1996, 1995 and 1994, respectively. The Company expects that such sales will continue to represent a significant percentage of its net sales. The Company conducts sales and service operations for its welding control products in Canada through a wholly-owned Canadian subsidiary and a joint venture agreement with Shanghai Electric Welding Machine Works for production of resistance welding control equipment in China. Also, certain optical inspection sales are effected through Integral Vision Ltd. in the United Kingdom. Non-U.S. sales involve a number of risks, including fluctuations in exchange rates, changes in trade policies, tariff regulations and changes in governments. Most of the Company's international sales are denominated in U.S. dollars, Canadian sales are denominated in Canadian dollars, and Japanese sales of optical inspection equipment are denominated in yen. For certain non-U.S. sales, the Company markets and sells its products through independent sales representatives in Europe, Asia, South America and Mexico. The loss of a key foreign sales agent or OEM could have a material adverse effect on the Company's non-U.S. sales and, accordingly, the Company's results of operations. See the notes to the Consolidated Financial Statements (Item 8) for details of geographic area information. COMPETITION The markets for microprocessor-based manufacturing control and optical inspection equipment are highly competitive. For welding controls, the Company's primary competitors include Weltronic Company, Robotron Corporation and Robert Bosch GmbH. To a lesser extent, the Company also competes with, among others, Dengensha America Corp./Dengensha Mfg. Co., Ltd., Nadex Co., Ltd./Nagoya Dengensha Co., Ltd., British Federal, Ltd., and Miyachi Technos Corporation. The Company believes competition for welding controls is based primarily upon price, performance, technical expertise, customer support and durability. For optical inspection, the Company's primary competitors are Dr. Schenk GmbH and Basler GmbH. The Company believes the principal competitive factors for optical inspection are quality, price, cycle times, and features. While the Company believes it currently competes favorably with respect to the above factors, there can be no assurance that it will be able to continue to do so or that competition will not have a material adverse effect on the Company's results of operations and financial condition. VisionBlox sales efforts are pre-directed towards the electronics, semiconductor, and printing industries where the Company believes it is extremely competitive in location and alignment applications. Dominant competitors include Cognex and AISI. While the Company may face competition from additional sources in all aspects of its business, the Company believes that competition in the optical disc inspection industry in particular may intensify, and that companies with significantly greater technical, financial and marketing resources than the Company may enter its markets. MANUFACTURING AND SUPPLIERS The Company manufactures its products at its headquarters in Farmington Hills, Michigan. Manufacturing consists primarily of assembling standard electrical and electronic components and hardware subassemblies purchased from suppliers into finished products. The Company also utilizes outside vendors to manufacture certain subassemblies and finished products. The Company designs printed circuit boards for its hardware products as needed. In most cases, the Company purchases components for circuit boards directly and forwards them to outside contractors for assembly, although in certain limited circumstances, the Company performs in-house circuit board assembly. Page 6 7 The Company generally does not rely on a single source for parts or subassemblies, unless design alternatives exist that permit use of other parts should single source supply be interrupted. Certain of the components and subassemblies included in the Company's products may be obtained from a limited number of suppliers. Although the Company believes it will be able to develop alternative sources for any of the components used in its products, significant delays or interruptions in the delivery of components by suppliers or difficulties or delays in shifting manufacturing capacity to new suppliers could have a material adverse effect on the Company. BACKLOG As of December 31, 1996, the Company had an order backlog of approximately $5.6 million, compared to approximately $12.9 million as of December 31, 1995. The Company's dependence on a few large customers in its resistance welding business, together with its reliance on large orders, have contributed to variability in the Company's backlog. For the years 1996, 1995 and 1994, approximately 14%, 9% and 14%, respectively, of the Company's net sales were attributable to sales to Chrysler Corporation ("Chrysler") and approximately 19%, 21% and 23%, respectively, were attributable to sales to General Motors Corporation ("GM"). At December 31, 1996 and 1995, approximately 40% and 62%, respectively, of the Company's backlog was attributable to GM and approximately 23% and 4%, respectively, of the Company's backlog was attributable to Chrysler. The loss of either of these customers or cancellation of orders by them could have a material adverse effect on the Company's results of operations. The Company anticipates that in the near term it will continue to be dependent upon certain large customers for a significant portion of its revenues. The Company's production schedule is generally based on a combination of sales forecasts and the receipt of specific customer orders, and typically no advance or progress payments are required from customers unless the system ordered includes custom features. Purchase orders are generally cancelable, although the Company may assess penalties. The Company expects to be able to ship products representing all of this backlog before the end of the current fiscal year, although there is no assurance that the Company will be able to do so. The amount of backlog at any date does not necessarily indicate revenues in any future period. PATENTS AND PROPRIETARY RIGHTS The Company believes that technology incorporated in its resistance welding control, optical inspection, and general vision products give it advantages over its competitors and prospective competitors. The Company attempts to protect its technology through a combination of patents, confidentiality agreements and trade secrets. The Company has ten U.S. patents on technology involved in its resistance welding controls. In addition, certain of these technologies are protected by foreign patents. The Company also has a license to use certain patents originally developed by Square D Company and a license to use certain patents originally developed by Owens-Illinois, Inc. relating to optical inspection technology. Recently, the Company has applied for patent protection of certain software products. There can be no assurance that any patents applied for will be granted or that patents the Company holds will be considered valid if challenged or sufficiently broad to protect the proprietary nature of the Company's technology. In addition, the software technology of the Company's products is advancing so quickly that in the 2-3 years it takes to get a patent issued in the U.S. and the up to ten years in some foreign countries, the technology may become obsolete before the patent issues. The Company also relies on trade secrets and proprietary know-how that it seeks to protect through confidentiality agreements with certain employees and suppliers and has established procedures to maintain confidentiality of sensitive information. There can be no assurance that confidentiality agreements will not be breached, that the Company would have adequate remedies for any breach, or that others will not develop substantially equivalent technology and techniques or otherwise gain access to the Company's trade secrets. In addition, the laws of foreign countries may not protect the Company's proprietary rights to its technology, including patent rights, to the same extent as the laws of the U.S. Although the Company believes it has independently developed its technology and attempts to assure that its products do not infringe the proprietary rights of others, if infringement were proven, there can be no assurance that the Company could obtain necessary licenses on terms and conditions that would not have an adverse affect on the Company. In the event of a dispute concerning the Company's technology, including an alleged infringement by a competitor, litigation could become necessary. Adverse findings in any proceeding could subject the Company to liability to third parties, require the Company to seek licenses from third parties, or otherwise adversely affect the Company's ability to manufacture and sell affected products. ENVIRONMENTAL COMPLIANCE The costs to the Company of complying with federal, state and local provisions regulating protection of the environment are not material. Page 7 8 EMPLOYEES As of February 28, 1997, the Company had approximately 330 permanent employees, as compared to 325 at February 29, 1996 and 214 at February 28, 1995. The Company also engages a limited number of contract workers, primarily for assembly operations, the number of which varies, depending upon production requirements. None of the Company's employees is represented by a labor union. The continued success of the Company is dependent in large part on certain key management and technical personnel, the loss of one or more of whom could adversely affect the Company's business. In particular, the Company relies upon the services and expertise of its product development and engineering staff. The Company believes that its future success will depend significantly upon its ability to attract, retain and motivate skilled technical, sales and management employees. The Company could encounter competition for these personnel. Page 8 9 ITEM 2. PROPERTIES Manufacturing, engineering and administrative functions of Medar are performed at two facilities owned by the Company in Farmington Hills, Michigan which total approximately 100,000 square feet. In addition, Medar leases approximately 7,000 square feet of warehouse space in another location in Farmington Hills, Michigan on a month-to-month basis. Integral leases two facilities located in Bedford, United Kingdom approximating 5,000 square feet each to perform sales, some engineering, and administrative functions. These leases expire through 2015. Sales and service functions principally for Canadian sales are performed at Medar Canada, Ltd., which currently leases a 4,000 square foot facility in Oshawa, Ontario, Canada with a lease term expiring November 30, 1999. The Company believes its facilities are suitable for their respective activities. Although the Company believes its facilities are adequate for its current operations, the Company may require additional space as operations expand. The Company believes that adequate space at reasonable terms is readily available in each of the areas in which the Company may seek to expand. ITEM 3. LEGAL PROCEEDINGS The Company is not currently involved in any material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Page 9 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the over-the-counter market (NASDAQ) as a National Market Issue under the symbol MDXR. As of February 28, 1997, there were approximately 4,000 stockholders of the Company including individual participants in security position listings. The table below shows the high and low sales prices for the Company's common stock for each quarter in the past two years. The closing sales price for the Company's common stock on February 28, 1997 was $4 1/8 per share.
1996 - ---------------------------------------------------------------------- Mar 31 Jun 30 Sept 30 Dec 31 - ---------------------------------------------------------------------- High $ 9 1/8 $11 1/4 $11 $6 5/8 Low 6 1/8 8 1/8 6 5/8 4 5/8 1995 - ----------------------------------------------------------------------- Mar 31 Jun 30 Sept 30 Dec 31 - ----------------------------------------------------------------------- High $16 1/2 $11 1/2 $14 3/8 $11 3/4 Low 8 1/2 6 3/4 9 1/8 7 5/8 =======================================================================
The market for securities of small market-capitalization companies has been highly volatile in recent years, often for reasons unrelated to a company's results of operations. Management believes that factors such as quarterly fluctuations in financial results, changes in the automotive, audio electronics, and optical storage media industries, failure of new products to develop as expected, sales of common stock by existing shareholders, and substantial product orders may contribute to the volatility of the price of the Company's common stock. General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of the Company's Common Stock. The Company has never paid a dividend and does not anticipate doing so in the foreseeable future. The Company expects to retain earnings to finance the expansion and development of business. Page 10 11 ITEM 6. SELECTED FINANCIAL DATA
Year ended December 31 - -------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) - -------------------------------------------------------------------------------------------------------------- Net sales $41,471 $ 39,771 $40,218 $28,694 $20,981 Gross margin 10,683 9,655 13,451 10,416 7,711 Earnings (loss) before extraordinary credit (1,979) (11,583) 3,688 3,300 1,344 Extraordinary credit* 735 ----------------------------------------------------------------------- Net earnings (loss) $(1,979) $(11,583) $ 3,300 $ 3,688 $ 2,079 Earnings (loss) per share: Before extraordinary credit $ (.22) $ (1.33) $ .43 $ .44 $ .19 Extraordinary credit .10 Net earnings (loss) per share $ (.22) $ (1.33) $ .43 $ .44 $ .29 Weighted average shares 8,820 8,692 8,524 7,529 7,251 ==============================================================================================================
* Tax benefit resulting from utilization of net operating loss carry forward.
At December 31 - -------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- (in thousands) - -------------------------------------------------------------------------------------------------------------- Working capital $17,041 $18,676 $23,459 $14,015 $ 6,245 Total assets 50,276 44,723 43,523 29,109 22,015 Long-term debt, including current portion 21,647 16,437 2,444 8,451 1,932 Stockholders' equity 21,302 22,767 34,001 16,087 12,416 =============================================================================================================
The above selected financial data should be read in conjunction with consolidated financial statements, including the notes thereto (Item 8) and Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7). The Company has never paid a dividend and does not anticipate doing so in the foreseeable future. The Company expects to retain earnings to finance the expansion and development of business. Page 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Medar develops, manufactures and markets microprocessor-based process monitoring and control products for use in industrial manufacturing environments. The Company's revenues are primarily derived from the sale of optical inspection equipment and resistance welding controls. Optical inspection equipment is principally sold to suppliers of audio compact disc ("Audio CD") and compact disc-read only memory ("CD-ROM") manufacturing equipment. Resistance welding control products are currently marketed primarily to automobile manufacturers and suppliers of industrial automation equipment. For the years of 1996, 1995 and 1994, approximately 14%, 9% and 14%, respectively, of the Company's net sales were attributable to sales to Chrysler Corporation and approximately 19%, 21% and 23%, respectively, of the Company's net sales were attributable to General Motors Corporation. The Company typically manufactures and sells its products subject to customer specifications. For most orders, revenue is recognized upon shipment. For orders that are considered long-term contracts under applicable accounting standards, revenue is recognized using the percentage-of-completion method. Long-term contracts include a relatively high engineering content. For such long-term contracts, customers generally are not billed and payment is not received until products are shipped. Revenues recognized on long-term contracts in excess of amounts billed to customers are classified as current assets, as these contracts are expected to be completed within one year. Most of the Company's international sales are denominated in U.S. dollars, Canadian welding sales are denominated in Canadian dollars and Japanese sales of optical inspection equipment are denominated in yen. The impact of foreign currency fluctuations has historically not been significant. For additional information on export sales, see the notes to the Consolidated Financial Statements (Item 8). The markets in which the Company competes are technologically advanced and highly competitive. Accordingly, the Company's continued success requires substantial research and development expenditures. While developing new products, the Company attempts to be cognizant of inventory currently in its possession in order to help mitigate inventory becoming obsolete. Software development expenditures that are not chargeable to specific customer orders are expensed as research and development until technical feasibility is established. Thereafter, such expenditures are capitalized, reflected as other assets at the lower of cost or net realizable value, and amortized over the shorter of the remaining estimated economic life of the related products or five years. Capitalized software development costs were $4.7 million, $3.3 million and $2.5 million in 1996, 1995 and 1994, respectively. Amortization of capitalized software included in cost of sales was $2.5 million, $2.3 million and $1.6 million in 1996, 1995 and 1994, respectively. Engineering and development expenditures relating to certain orders are incorporated in the price charged to customers and are reflected in cost of sales. Those costs were $1.4 million, $1.8 million and $0.4 million in 1996, 1995 and 1994, respectively. The Company expects to continue its commitment to research and development in the future. Management's future expectations and results of operations, and other forward looking statements contained in this document, involve a number of risks and uncertainties. Among these are business conditions and the general economy; competitive factors, such as pricing and marketing efforts of rival companies, margins actually realized on product sales, and the timing and success of new product introductions. Page 12 13 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain items from the Company's Statements of Operations as a percentage of net sales. The impact of inflation for the periods presented was not significant.
Year ended December 31 - ---------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------- (in thousands) - ---------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of sales 74.2 75.7 66.6 - ---------------------------------------------------------------------------------------------- Gross margin 25.8 24.3 33.4 Marketing expense 10.9 12.6 9.5 General and administrative expense 7.7 8.6 6.8 Research and development expense 8.6 5.2 5.9 Patent litigation costs 13.7 1.6 Excess product quality, warranty and other costs 12.3 - ---------------------------------------------------------------------------------------------- 27.2 52.4 23.8 - ---------------------------------------------------------------------------------------------- Earnings (loss) from operations (1.4) (28.1) 9.6 Interest: Expense 3.7 1.5 0.6 Income (0.1) (0.2) (0.5) - ---------------------------------------------------------------------------------------------- 3.6 1.3 0.1 - ---------------------------------------------------------------------------------------------- Earnings (loss) before income taxes and extraordinary credit (5.0) (29.4) 9.5 Provision (credit) for income taxes (0.2) (0.3) 0.3 - ---------------------------------------------------------------------------------------------- Net earnings (loss) (4.8%) (29.1%) 9.2% ==============================================================================================
YEAR ENDED DECEMBER 31, 1996, COMPARED TO DECEMBER 31, 1995 Net sales increased $1.7 million (4.3%) to $41.5 million in 1996 from $39.8 million in 1995. The increase resulted from an increase in resistance welding product sales and a decrease in sales of optical inspection products. The increase in the sales of resistance welding products resulted principally from continued strong orders from General Motors and Chrysler to satisfy retooling programs. The decrease in sales in optical vision products resulted principally from an industry wide drop in the growth of orders for audio CD's and CD-ROM's which resulted in reductions in and cancellations of orders for CD inspection equipment, particularly in the second half of the year. Cost of sales increased to $30.8 million from $30.1 million and as a percent age of net sales decreased to 74.2% from 75.7%. Although 1996 and 1995 percentages are comparative, the cost of sales percentage remains higher than prior years and management's goals. This results from costs of amortization of software and other fixed costs not being fully absorbed at the sales levels achieved in 1996 and 1995. Marketing expense decreased to $4.5 million from $5.0 million and as a percentage of net sales from 12.6% to 10.9%. The decrease resulted from better control of marketing costs, particularly the more effective integration of the AID and Integral Vision sales forces in the current year. General and administrative expense decreased to $3.2 million from $3.4 million and as a percentage of net sales from 8.6% to 7.7%. The decrease resulted from cost savings following the closing of the former AID facility in Toledo early in 1996 and better consolidation of general and administrative costs related to Integral Vision in the UK. Research and development costs increased to $3.6 million from $2.1 million and as a percentage of net sales from 5.2% to 8.6%. The increase principally represents increased expenditures related to development of VisionBlox and DVD and CD-R technologies. Page 13 14 Patent litigation costs and excess product quality, warranty and other costs represent expenses that were concluded as of December 31, 1995. Interest expense increased to $1.5 million from $.6 million and as a percentage of net sales to 3.7% from 1.5%. The increase was due to additional average borrowings under the revolving note payable to the bank, and the full year effect of the patent license payable incurred in the third quarter of 1995 and the term note related to the acquisition of a new production facility in the fourth quarter of 1995. YEAR ENDED DECEMBER 31, 1995, COMPARED TO DECEMBER 31, 1994 Net sales remained relatively the same in 1995 when compared to 1994. This was a result of an increase in sales volume of vision products being offset by a decrease in sales volume of welding products. The increase in vision sales was comprised of an increase in shipments of the Company's optical disc inspection system and related equipment. The decrease in welding sales was due to a decrease in sales to the Company's two largest customers. Cost of sales increased to $30.1 million from $26.8 million and as a percentage of net sales to 75.7% from 66.6%. The increase was due to after-sale costs, manufacturing inefficiencies and higher levels of overhead which were added in anticipation of higher sales volume, and in some lines, more competitive pricing of products. Marketing expense increased to $5.0 million from $3.8 million and as a percentage of net sales to 12.6% from 9.5%. The increase was primarily the result of allocating more resources to market and promote newer vision products. General and administrative expense increased to $3.4 million from $2.7 million and as a percentage of net sales to 8.6% from 6.8%. The increase was due to additional costs associated with the acquisition of the Company's U.K. subsidiary, and an increase in the Company's infrastructure. Research and development expense decreased to $2.1 million from $2.4 million and as a percentage of net sales to 5.2% from 5.9%. The decrease resulted from engineering resources which were directed towards resolving manufacturing issues in two of the Company's new product lines which were introduced over the past two years. Patent litigation costs increased to $5.5 million from $0.7 million and as a percentage of net sales to 13.7% from 1.6%. The increase was the result of the settlement with Square D Company related to the use of technology in prior years as well as legal and other costs to defend the case. The Company, in addition, will make yearly payments related to the use of future technology in accordance with the cross license agreement which was part of the settlement. Excess product quality, warranty and other costs relate to costs incurred in connection with after-sale and other costs experienced with recent product introductions. These accounts receivable, inventory, warranty and other costs, while not all directly related to the fourth quarter of 1995, were identified at such time, following an extensive review of these areas. Interest expense increased to $0.6 million from $0.3 million and as a percentage of net sales to 1.5% from 0.6%. The increase was due to additional borrowings associated with the revolving note payable to bank, the patent license payable and an additional term note related to the addition of a new building to add capacity. The increase in the revolving note was principally the result of the net loss incurred in 1995. The credit for income taxes in 1995 was due to the net loss experienced in 1995. There was income tax expense in 1994 due to the profitability during that year. Page 14 15 QUARTERLY INFORMATION The following table sets forth consolidated statements of operations data for each of the eight quarters in the two year period ended December 31, 1996. The unaudited quarterly information has been prepared on the same basis as the annual information and, in management's opinion, includes all adjustments necessary for a fair presentation of the information for the quarters presented.
Quarter Ended - -------------------------------------------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 - -------------------------------------------------------------------------------------------------------------------------- (in thousands except per share data) - -------------------------------------------------------------------------------------------------------------------------- Net Sales $5,312 $13,721 $12,216 $10,222 $7,441 $9,777 $11,194 $11,359 Gross margin (loss) (537) 3,840 3,913 3,467 109 2,091 3,790 3,665 Net earnings (loss) (3,800) 607 887 327 (8,788) (649) (2,293) 147 ========================================================================================================================== Net earnings (loss) per share $ (.43) $.07 $.10 $.04 $(1.01) $(.07) $(.26) $.02 ==========================================================================================================================
SEASONALITY AND QUARTERLY FLUCTUATIONS The Company's sales and operating results have varied substantially from quarter to quarter. Net sales and earnings are typically lower in the fourth and first quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company's customers. The principal customers for the Company's resistance welding control products traditionally make purchases in connection with re-tooling for new automobile body styles and tend to purchase the Company's equipment in the second and third quarters. The end users of the Company's optical inspection products typically add manufacturing capacity in the second and third quarters in anticipation of higher production requirements in the fourth quarter. The Company expects its net sales and earnings to continue to fluctuate from quarter to quarter. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the company had a revolving note payable to bank due August 11, 1998, with a maximum balance of $16.0 million. In February, 1997, following negotiations with the bank, the Company restructured its bank obligation as follows: Revolving note payable to bank, with interest at the bank's prime rate, plus 1/4%, due August 11, 1998. Note payable to bank, with interest at the bank's prime rate, plus 2%, due $1.5 million July 31, 1997 and $1.5 million December 31, 1997. $1.5 million demand note payable to bank, with interest at the bank's prime rate, plus 1%, guaranteed by a stockholder. The total of these obligations is limited to $16.0 million (decreasing to $15.0 million on July 31, 1997) with availability of the revolving note based upon levels of eligible accounts receivable and inventory. $15.6 million was borrowed on the line as of December 31, 1996. Substantially all of the Company's assets are pledged in support of these obligations and the mortgage notes payable. The agreement with the bank includes tangible net worth covenants and ratios at levels which the Company believes can be maintained over the life of the agreement. In 1996, the Company used proceeds from long-term borrowings to fund additions to capitalized software and property and equipment. Despite the operating loss, actual cash used in operations was minimal. No significant commitments for capital expenditures existed as of December 31, 1996. The Company expects to capitalize approximately $3.0 million of software development costs in 1997 and has no other plans for significant capital expenditures. Although the Company believes that current financial resources together with cash generated from operations are adequate to meet cash needs through 1997, it expects to issue subordinated debt in the first six months of 1997 that will be used to refinance the demand note and support working capital requirements. Page 15 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and quarterly results of operations are submitted in separate sections of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 16 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the Medar, Inc. proxy statement (to be filed within 120 days of December 31, 1996), with respect to directors and executive officers of the Company, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained in the Medar, Inc. proxy statement (to be filed within 120 days of December 31, 1996), with respect to directors and executive officers of the Company, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the Medar, Inc. proxy statement (to be filed within 120 days of December 31, 1996), with respect to directors and executive officers of the Company, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the Medar, Inc. proxy statement (to be filed within 120 days of December 31, 1996), with respect to directors and executive officers of the Company, is incorporated herein by reference. Page 17 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The response to this portion of Item 14 is and (2) submitted as a separate section of this report. (3) Listing of Exhibits Exhibit Number Description of Document - ------ ----------- -- -------- 3.1 Articles of Incorporation, as amended. (Filed as Exhibit 3.1 to the registrant's Form.) 3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.1 to the registrant's Form 10-K for the year ended December 31, 1991, SEC file 0-12728, and incorporated herein by reference). 10.1 Incentive Stock Option Plan of the Registrant as amended (filed as Exhibit 10.4 to the registrant's Form S-1 Registration Statement effective July 2, 1985, SEC File 2-98085, and incorporated herein by reference). 10.2 Second Incentive Stock Option Plan (filed as Exhibit 10.2 to the registrant's Form 10-K for the year ended December 31, 1992, SEC File 0-12728, and incorporated herein by reference). 10.3 Amendment to Medar, Inc. Incentive Stock Option Plan dated May 10, 1993 (filed as Exhibit 10.3 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). 10.4 Non-qualified Stock Option Plan (filed as Exhibit 10.3 to the registrant's Form 10-K for the year ended December 31, 1992, SEC File 0-12728, and incorporated herein by reference). 10.5 Medar, Inc. Employee Stock Option Plan (filed as Exhibit 10.5 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC file 0-12728, and incorporated herein by reference). 10.6 Form of Confidentiality and Non-Compete Agreement Between the Registrant and its Employees (filed as Exhibit 10.4 to the registrant's Form 10-K for the year ended December 31, 1992, SEC File 0-12728, and incorporated herein by reference). 10.7 Contract between Shanghai Electric Welding Machine Works, Medar, Inc. and Lida U.S.A. dated August 30, 1993, related to joint venture agreement (both the original Chinese version and the English translation) (filed as Exhibit 10.7 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). 10.8 Asset Purchase Agreement between Medar, Inc. and Air Gage Company dated February 28, 1994 (filed as Exhibit 10.8 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). 10.9* License Agreement number 9303-004 between Medar, Inc. and Allen-Bradley Company, Inc. dated April 12, 1993 (filed as Exhibit 10.9 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). 10.10* License Agreement number 9304-009 between Medar, Inc. and Allen-Bradley Company, Inc. dated May 10, 1993 (filed as Exhibit 10.10 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). 10.11 Agreement by and between Medar, Inc. and ABB Robotics, Inc. dated December 1992 regarding joint development to integrate a weld controller into the S3 robot control (filed as Exhibit 10.11 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). 10.15 Amended and Restated Mortgage and Security Agreement dated June 29, 1993 by and between Medar, Inc. and NBD Bank, N.A. (filed as Exhibit 4.5 to the registrant's Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). Page 18 19 10.16 Revolving Credit and Loan Agreement dated August 10, 1995 by and between Medar, Inc., Automatic Inspection Devices, Inc. and Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.1 to the registrant's Form 10-Q for the quarter ended June 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.17 Amendment No. 2 to Loan and Credit Agreement and Term Note dated August 10, 1995 by and between Medar, Inc., Automatic Inspection Devices, Inc. and NBD Bank (filed as Exhibit 10.2 to the registrant's Form 10-Q for the quarter ended June 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.18 First Amendment to Revolving Credit and Loan Agreement dated October 12, 1995, by and between Medar ,Inc., Automatic Inspection Devices, Inc. and Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.18 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.19 Second Amended and Restated Revolving Note dated October 12, 1995, by and between Medar, Inc., Automatic Inspection Devices, Inc. and Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.19 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.20 Mortgage dated October 31, 1995 by and between Medar, Inc. and NBD Bank (filed as Exhibit 10.21 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.21 Installment Business Loan Note dated October 31, 1995, by and between Medar, Inc. and NBD Bank (filed as Exhibit 10.22 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.22 Guarantee and Postponement of Claim dated August 10, 1995 between Medar Canada, Ltd. and NBD Bank (filed as Exhibit 10.23 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.23* Patent License Agreement dated October 4, 1995 by and between Medar, Inc. and Square D Company (filed as Exhibit 10.24 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.24 Third Amendment to Revolving Credit and Loan Agreement dated March 29, 1996 by and between Medar, Inc., Integral Vision-AID, Inc., Integral Vision Ltd., and NBD Bank (filed as Exhibit 10.24 to the registrant's Form 10-Q for the quarter ended March 31, 1996, SEC file 0-12728, and incorporated herein by reference). 10.25 Third Amended and Restated Revolving Note dated March 29, 1996 by and between Medar, Inc., Integral Vision-AID, Inc., Integral Vision Ltd., and NBD Bank (filed as Exhibit 10.25 to the registrant's Form 10-Q for the quarter ended March 31, 1996, SEC file 0-12728, and incorporated herein by reference.) 10.26 General Security Agreement dated March 29, 1996 by and between Medar, Inc., and NBD Bank (filed as Exhibit 10.26 to the registrant's Form 10-Q for the quarter ended March 31, 1996, SEC file 0-12728, and incorporated herein by reference). 10.27 General Security Agreement dated March 29, 1996 by and between Integral Vision-AID, Inc. and NBD Bank (filed as Exhibit 10.27 to the registrant's Form 10-Q for the quarter ended March 31, 1996, SEC file 0-12728, and incorporated herein by reference). 10.28 General Security Agreement dated May 1, 1996 by and between Medar Canada Ltd., and NBD Bank (filed as Exhibit 10.28 to the registrant's Form 10-Q for the quarter ended June 30, 1996, SEC file 0-12728, and incorporated herein by reference). 10.29 Composite Guarantee and Debenture dated May 29, 1996 by and between Integral Vision, Ltd. and NBD Bank (filed as Exhibit 10.29 to the registrant's Form 10-Q for the quarter ended June 30, 1996, SEC file 0-12728, and incorporated herein by reference). Page 19 20 10.30 Fourth Amendment to Revolving Credit and Loan Agreement dated August 11, 1996 by and between Medar, Inc., Integral Vision-AID, Inc., Integral Vision Ltd. and NBD Bank (filed as Exhibit 10.30 to the registrant's Form 10-Q for the quarter ended September 10, 1996, SEC file 0-12728, and incorporated herein by reference). 10.31 Fifth amendment to revolving credit and loan agreement dated February 27, 1997 by and between Medar, Inc. and Integral Vision, Ltd. and NBD Bank. 10.32 Over formula loan note dated February 27, 1997 by and between Medar, Inc., Integral Vision, Ltd. and NBD Bank. 10.33 Bridge loan note dated February 27, 1997 by and between Medar, Inc., Integral Vision ,Ltd., and NBD Bank. 10.34 Guaranty by Maxco, Inc. dated February 27, 1997 of $1,500,000 bridge loan note by and between Medar, Inc., Integral Vision, Ltd., and NBD Bank. 11 Calculation of Earnings per Share. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule (b) There were no reports on Form 8-K filed in the quarter ended December 31, 1996. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. * The Company has been granted confidential treatment with respect to certain portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Page 20 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 25, 1997 MEDAR, INC. -------------- By: //CHARLES J. DRAKE// -------------------------------------------- Charles J. Drake, President, Chairman of the Board (Principal Executive Officer) By: //RICHARD R. CURRENT// -------------------------------------------- Richard R. Current, Executive Vice President of Finance and Operations (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. //CHARLES J. DRAKE// President, Chairman of the Board (Principal - --------------------------- Executive Officer) and Director Charles J. Drake //MAX A. COON// Vice Chairman, Secretary and Director - --------------------------- Max A. Coon //RICHARD R. CURRENT// Executive Vice President of Finance and Operations - --------------------------- (Principal Financial and Accounting Officer) and Richard R. Current Director //VINCENT SHUNSKY// Treasurer and Director - --------------------------- Vincent Shunsky //WILLIAM B. WALLACE// Director - --------------------------- William B. Wallace //STEPHAN SHARF// Director - --------------------------- Stephan Sharf //STEPHEN ZYNDA// Director - --------------------------- Stephen Zynda Page 21 22 ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) AND (2), (c) AND (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1996 MEDAR, INC. FARMINGTON HILLS, MICHIGAN Page 22 23 FORM 10-K - ITEM 14(a)(1) and (2) MEDAR, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (a)(1) The following consolidated financial statements of Medar, Inc. and subsidiaries are included in Item 8: Report of independent auditors Consolidated balance sheets-December 31, 1996 and 1995 Consolidated statements of operations-Years ended December 31, 1996, 1995 and 1994 Consolidated statements of stockholders' equity-Years ended December 31, 1996, 1995 and 1994 Consolidated statements of cash flows-Years ended December 31, 1996, 1995 and 1994 Notes to consolidated financial statements-December 31, 1996 (2) The following consolidated financial statement schedule of Medar, Inc. and subsidiaries is submitted herewith: SCHEDULE II Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Page 23 24 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Stockholders Medar, Inc. We have audited the consolidated balance sheets of Medar, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Medar, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Detroit, Michigan February 27, 1997 Page 24 25 CONSOLIDATED BALANCE SHEETS MEDAR, INC. AND SUBSIDIARIES
DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------------------------------------- (in thousands) - -------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS (Note D) Cash $ 215 $ 1,556 Accounts receivable, less allowance of $400,000 in 1996, and $355,000 in 1995 9,415 8,618 Inventories (Note A) 15,991 13,167 Costs and estimated earnings in excess of billings on incomplete contracts (Note C) 1,841 681 Other current assets 543 849 - -------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 28,005 24,871 PROPERTY AND EQUIPMENT (Note D) Land and improvements 368 329 Building and building improvements 6,147 6,109 Production and engineering equipment 3,303 2,733 Furniture and fixtures 990 891 Vehicles 878 660 Computer equipment 5,058 3,907 - -------------------------------------------------------------------------------------------------------------------- 16,744 14,629 Less accumulated depreciation 6,625 4,965 - -------------------------------------------------------------------------------------------------------------------- 10,119 9,664 OTHER ASSETS Capitalized computer software development costs, less accumulated amortization (Note A) 8,908 6,761 Patents, less accumulated amortization (Note A) 2,328 2,507 Other 916 920 - -------------------------------------------------------------------------------------------------------------------- 12,152 10,188 - -------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $50,276 $44,723 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES ACCOUNTS PAYABLE $ 5,218 $ ,202 EMPLOYEE COMPENSATION 1,001 674 ACCRUED AND OTHER LIABILITIES 1,108 1,567 CURRENT MATURITIES OF LONG-TERM DEBT (NOTE D) 3,637 752 - -------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 10,964 6,195 LONG-TERM DEBT, less current maturities (Note D) 18,010 15,685 DEFERRED INCOME TAXES 76 STOCKHOLDERS' EQUITY (Note H) Common stock, without par value, stated value $.20 per share; 15,000,000 shares authorized; 8,852,401 shares issued and outstanding (8,711,589 shares at December 31, 1995) 1,771 1,742 Additional paid-in capital 29,767 29,438 Earnings deficit retained (10,300) (8,321) Accumulated translation adjustment 64 (92) - -------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 21,302 22,767 - -------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $50,276 $44,723 ====================================================================================================================
See accompanying notes. Page 25 26 CONSOLIDATED STATEMENTS OF OPERATIONS MEDAR, INC. AND SUBSIDIARIES
Year ended December 31 - --------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------- (in thousands, except per share data) - --------------------------------------------------------------------- Net sales $41,471 $39,771 $40,218 Cost of sales 30,788 30,116 26,767 - --------------------------------------------------------------------- 10,683 9,655 13,451 Costs and expenses: Marketing 4,510 5,016 3,814 General and administrative 3,203 3,416 2,738 Research and development 3,552 2,088 2,362 Patent litigation costs (Note I) 5,461 665 Excess product quality, warrant and other costs (Note J) 4,872 - --------------------------------------------------------------------- 11,265 20,853 9,579 - --------------------------------------------------------------------- Earnings (loss) from operations (582) (11,198) 3,872 Interest: Expense 1,523 587 251 Income (50) (72) (199) - --------------------------------------------------------------------- 1,473 515 52 - --------------------------------------------------------------------- Earnings (loss) before income taxes (2,055) (11,713) 3,820 Provision (credit) for income taxes (Note F) (76) (130) 132 - --------------------------------------------------------------------- Net earnings (loss) $(1,979) $(11,583) $3,688 ===================================================================== Net earnings (loss) per share (Note A) $(.22) $(1.33) $.43 =====================================================================
See accompanying notes. Page 26 27 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY MEDAR, INC. AND SUBSIDIARIES
Additional Retained Accumulated Common Paid-In Earnings Translation Stock Capital (Deficit) Adjustment Total - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) - ---------------------------------------------------------------------------------------------------------------------------- BALANCES AT JANUARY 1, 1994 $1,452 $15,145 $ (411) $(99) $16,087 Exercise of options to purchase 37,200 common shares 8 89 97 Issuance of 30,000 shares to acquire technology 6 463 469 Issuance of 1,300,000 shares 260 13,406 13,666 Translation adjustments 11 11 Other (2) (15) (17) Net earnings for the year ended December 31, 1994 3,688 3,688 - ---------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1994 1,726 29,101 3,262 (88) 34,001 Exercise of options to purchase 84,262 common shares 17 400 417 Translation adjustments (4) (4) Other (1) (63) (64) Net loss for the year ended December 31, 1995 (11,583) (11,583) - ---------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1995 1,742 29,438 (8,321) (92) 22,767 Exercise of options to purchase 140,812 common shares 29 329 358 Translation adjustments 156 156 Net loss for the year ended December 31, 1996 (1,979) (1,979) - ---------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1996 $1,771 $29,767 $(10,300) $ 64 $21,302 ============================================================================================================================
See accompanying notes. Page 27 28 CONSOLIDATED STATEMENTS OF CASH FLOWS MEDAR, INC. AND SUBSIDIARIES
Year Ended December 31 - ------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ (in thousands) - ------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net earnings (loss) $ (1,979) $ (11,583) $ 3,688 Adjustments to reconcile net earnings (loss) from operations to net cash provided by (used in) operating activities: Depreciation and amortization 4,529 3,672 2,399 Provision (credit) for deferred income taxes (76) (130) 91 (Increase) decrease in net accounts receivable (797) 3,305 (2,641) Increase in inventories (2,824) (1,752) (4,468) (Increase) decrease in costs and estimated earnings in excess of billings on incomplete contracts (1,160) 1,610 383 Decrease in other assets 310 (658) (937) Increase (decrease) in accounts payable and accrued expenses 1,884 (1,431) 2,289 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities (113) (6,967) 804 INVESTING ACTIVITIES Sale (purchase) of short-term investments 4,018 (4,018) Purchase of property and equipment (2,283) (5,204) (1,915) Investment in capitalized software (4,669) (3,253) (2,507) - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (6,952) (4,439) (8,440) FINANCING ACTIVITIES Proceeds from exercise of stock options and other 358 353 79 Net proceeds from sale of common stock 13,666 Debt repayments on long-term debt and capital lease obligations (20,154) (8,139) (12,778) Proceeds from long-term debt borrowings 25,364 20,161 6,765 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 5,568 12,375 7,732 - ------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash 156 1 (10) - ------------------------------------------------------------------------------------------------------------------ (Decrease) Increase in cash (1,341) 970 86 Cash at beginning of year 1,556 586 500 - ------------------------------------------------------------------------------------------------------------------ Cash at end of year $ 215 $ 1,556 $ 586 ==================================================================================================================
See accompanying notes. Page 28 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MEDAR, INC. AND SUBSIDIARIES NOTE A - SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The 1996 consolidated financial statements include the accounts of the Company and its two 100% owned subsidiaries: Integral Vision Ltd., United Kingdom; and Medar Canada Ltd., Canada. The 1995 and 1994 consolidated financial statements include the accounts of Integral Vision-AID, Inc. Integral Vision-AID, Inc. became a division of Medar, Inc. in 1996. Upon consolidation, all significant intercompany accounts and transactions are eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. TRANSLATION OF FOREIGN CURRENCIES The financial statements of Integral Vision Ltd. and Medar Canada Ltd. are translated into United States dollar equivalents at exchange rates as follows: balance sheet accounts at year-end rates; income statement accounts at average exchange rates for the year. Transaction gains and losses are reflected in net earnings and are not significant. ACCOUNTS RECEIVABLE Trade accounts receivable primarily represent amounts due from automobile and other equipment manufacturers located in North America for welding products and from equipment manufactured in North America, Asia and Europe for vision products Customers which accounted for 10% or more of the Company's resistance welding controls sales in any of the three years ended December 31, 1996 and the respective sales in each year are:
1996 1995 1994 ----------------------------------------------------------------------------------------------- (in thousands) ----------------------------------------------------------------------------------------------- Chrysler Corporation $6,009 $3,400 $5,600 General Motors Corporation 7,730 8,500 9,100 ================================================================================================
Page 29 30 INVENTORIES Inventories are stated at the lower of first-in, first-out cost or market, and at December 31 consisted of the following (net of obsolescence reserve of $156,000 in 1996 and $154,000 in 1995):
1996 1995 -------------------------------------------------------------------------------------- (in thousands) -------------------------------------------------------------------------------------- Raw materials $ 7,677 $ 7,095 Work in process 3,106 3,305 Finished goods 5,208 2,767 -------------------------------------------------------------------------------------- $15,991 $13,167 ======================================================================================
PROPERTY AND EQUIPMENT Property and equipment is stated on the basis of cost. Equipment capitalized under lease agreements and the related accumulated amortization is included in property and equipment. Expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation, including amortization of assets recorded under capital lease obligations, is computed by the straight-line method based on the estimated useful lives of the assets (buildings-40 years, other property and equipment-3 to 10 years). CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS Computer software development costs are capitalized after the establishment of technological feasibility of the related technology. These amounts are stated at the lower of cost or net realizable value. These costs are amortized following general release of products based on current and estimated future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product (not to exceed 5 years). Amortization of the capitalized costs amounted to $2,522,000, $2,314,000, and $1,638,000 in 1996, 1995 and 1994, respectively. Total accumulated amortization at December 31, 1996 and 1995, was $9,893,468 and $7,371,563 respectively. PATENTS Patents are stated at cost less accumulated amortization of $660,000 and $343,000 at December 31, 1996 and 1995, respectively. Amoritization of the patents amounted to $317,000, $204,000 and $30,000 in 1996, 1995, and 1994, respectively. These costs are amortized on a straight-line basis over the estimated useful lives of the assets. REVENUE RECOGNITION Revenues are recorded at the time services are performed or when products are shipped, except for long-term contracts. Revenues on long-term contracts are recognized using the percentage of completion method . The effects of changes to estimated total contract costs are recognized in the year determined and losses, if any, are fully recognized when identified. Costs and estimated earnings recognized in excess of amounts billed are classified under current assets as costs and estimated earnings in excess of billings on incomplete contracts. Long-term contracts include a relatively high percentage of engineering costs and are generally less than one year in duration. Page 30 31 RESEARCH AND DEVELOPMENT EXPENSES Research and development costs not recovered from customers are expensed as incurred. INCOME TAXES Deferred income taxes are provided when necessary to recognize the effect of temporary differences between financial and income tax accounting related principally to contract revenues, depreciation and capitalized computer software development costs. EARNINGS PER SHARE Earnings per share is based on the weighted average number of shares of common stock outstanding and, to the extent dilutive, stock options outstanding during the period. The weighted average number of shares of common stock and common stock equivalents utilized in the computation of net earnings per share was 8,820,140 for the year ended December 31, 1996, 8,691,750 shares for the year ended December 31, 1995, and 8,523,715 for the year ended December 31, 1994. IMPAIRMENT OF LONG-LIVED ASSETS The Company adopted the Financial Accounting Standards Board Statement No. 121, Accounting for the Impariement of Long-Lived Asets and for Long-lived Asets to be Disposed of, which requires impairment losses to be recorded on long-lived asets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The affect of adoption was immaterial to the financial statements. NOTE B - ACQUISITION OF INTEGRAL VISION LTD. Effective January 1, 1995, the Company acquired 100% of the common stock and preference shares of Integral Vision Ltd. (Integral) for 654,282 previously unissued shares of Medar, Inc. common stock. Integral is a machine vision company located in the United Kingdom, which develops and manufactures solutions for OEM's and end-users. This transaction has been accounted for as a pooling of interests and accordingly, the consolidated financial statements for all periods prior to the transaction have been restated to include the accounts of Integral. NOTE C - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON INCOMPLETE CONTRACTS Costs and estimated earnings in excess of billings on incomplete contracts at December 31 are summarized as follows:
1996 1995 ----------------------------------------------------------------------------------- (in thousands) ----------------------------------------------------------------------------------- Contract costs to date $ 4,567 $ 4,278 Estimated contract earnings 3,040 1,985 ----------------------------------------------------------------------------------- 7,607 6,263 Less billings to date (5,766) (5,582) ----------------------------------------------------------------------------------- Costs and estimated earnings in excess of billings on incomplete contracts $ 1,841 $ 681 ===================================================================================
The Company anticipates that the majority of costs incurred on long-term contracts at December 31, 1996, will be billed and collected in 1997. Page 31 32 NOTE D - LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS Long-term debt at December 31 consists of the following:
1996 1995 ------------------------------------------------------------------------------------ (in thousands) ------------------------------------------------------------------------------------ Revolving note payable to bank $12,604 $ 9,818 Note payable to bank 3,000 Term notes payable to bank 3,967 4,463 Patent license payable 1,863 2,000 Other 213 156 ------------------------------------------------------------------------------------ 21,647 16,437 Less current maturities 3,637 752 ------------------------------------------------------------------------------------ $18,010 $15,685 ====================================================================================
In February, 1997, the agreement with the bank covering the revolving note payable to bank and the $3,000,000 note payable to bank was re-negotiated. Under the terms of the revised agreement, covenants, interest rates and terms were adjusted. The debt in the December 31, 1996 financial statements has been classified in accordance with the terms of the revised agreement. The $15,000,000 revolving note payable to bank is due August 10, 1998, and provides for advances based upon levels of eligible accounts receivable and inventories. Interest is at the bank's prime rate plus 1/4%. The $3,000,000 note payable to bank is due $1,500,000 July 31, 1997, and $1,500,000 December 31, 1997. Interest is at the bank's prime rate plus 2%. Additionally, in February, 1997, the bank advanced $1,500,000 under a demand note, which has been guaranteed by a stockholder. Interest is at the bank's prime rate plus 1%. The revised agreement provides for total borrowings on the revolving note payable to bank and the note payable to bank (including the $1,500,000 February note payable) of up to $16,000,000 through July 31, 1997 and up to $15,000,000 thereafter under the terms of the revised agreement. The Company has agreed, among other covenants, to maintain net worth and the ratio of debt to equity, all as defined, at specified levels which will next be measured at September 30, 1997. The notes are collateralized by substantially all of the Company's assets including assets previously pledged to secure term loans described below. The Company has two term notes payable to bank. One note is payable in quarterly installments of $62,500 plus interest at the bank's prime rate, with the balance becoming due June 29, 1998. The second note is payable in monthly installments of $14,111 plus interest at the bank's prime rate or other rates made available under the terms of the agreement, with the balance becoming due September 30, 2000. The notes are collateralized by the Medar office and production facilities in Farmington Hills, Michigan, and machinery and equipment, inventory and accounts receivable at all North American locations. The patent license payable relates to future payments to be made to Square D Company related to the settlement of patent litigation. The payments are due in ten equal installments and have been discounted at 8%. The fair values of these financial instruments approximates their carrying amounts at December 31, 1996. Maturities of long-term debt is $14,359,000 in 1998; $398,000 in 1999; $2,059,000 in 2000; $204,000 in 2001 and $990,000 thereafter. Page 32 33 NOTE E - STATEMENT OF CASH FLOWS The Company paid interest on its debt instruments of $1,646,000, $356,000, and $384,000 in 1996, 1995 and 1994, respectively. Payments for income taxes were $125,000 in 1994. There were no income tax payments in 1996 or 1995. NOTE F - INCOME TAXES As of December 31, 1996, the Company has cumulative net operating loss carryforwards approximating $18,530,000 for tax purposes available for reduction of taxable income of future periods from 2010 through 2011 and unused investment and research and development tax credits approximating $870,000 which expire through the same period. For financial reporting purposes, the net operating losses have been offset against net deferred tax liabilities based upon their expected amortization during the loss carryforward period. The valuation allowance increased $448,000 and 3,896,000 in 1996 and 1995, respectively, and decreased $944,000 in 1994. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 are as follows:
1996 1995 ---------------------------------------------------------------------------------------- (in thousands) ---------------------------------------------------------------------------------------- Deferred tax liabilities: Deductible software development costs, net of amortization $2,931 $2,224 Tax over book depreciation 344 346 Percentage of completion 491 184 ---------------------------------------------------------------------------------------- Total deferred tax liabilities 3,766 2,754 Deferred tax assets: Net operating loss carryforwards 6,836 4,840 Credit carryforwards 987 987 Reserve for warranty 68 237 Other 219 510 ---------------------------------------------------------------------------------------- Total deferred tax assets 8,110 6,574 Valuation allowance for deferred tax assets 4,344 3,896 ---------------------------------------------------------------------------------------- Net deferred tax assets 3,766 2,678 ---------------------------------------------------------------------------------------- Net deferred tax liabilities $ 0 $ 76 ========================================================================================
Page 33 34 Significant components of the provision (credit) for income taxes are as follows:
1996 1995 1994 ------------------------------------------------------------------------------------------- (in thousands) ------------------------------------------------------------------------------------------- Current: Federal $ 20 Foreign (7) State 28 ------------------------------------------------------------------------------------------- 41 Deferred: Federal $(130) 130 Foreign $ (76) (39) ------------------------------------------------------------------------------------------- (76) (130) 91 ------------------------------------------------------------------------------------------- $ (76) $(130) $132 ===========================================================================================
The reconciliation of income taxes computed at the U.S. federal statutory tax rates to income tax expense is as follows:
1996 1995 1994 ------------------------------------------------------------------------------------------- (in thousands) ------------------------------------------------------------------------------------------- Tax (credit) at U.S. statutory rates $(699) $(3,983) $1,299 Utilization of net operating loss (1,330) Valuation allowance established 488 3,896 Other nondeductible expenses 73 75 38 Other 62 (118) 97 State income taxes 28 ------------------------------------------------------------------------------------------- $ (76) $ (130) $ 132 ===========================================================================================
NOTE G - EMPLOYEE SAVINGS PLAN The Company has an Employee Savings Plan covering substantially all United States' employees. The Company contributes $.20 to the Plan for every dollar contributed by the employees up to 6% of their compensation. The Plan also provides for discretionary contributions by the Company as determined annually by the Board of Directors. Company contributions charged to operations under the Plan were $89,000, $61,000, and $87,000 for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE H - STOCK OPTIONS The terms of the Company's qualified incentive stock option plan provide for the issuance of options for the purchase of up to 800,000 shares of the Company's common stock at market value at the date of the option grant. Options are granted with various vesting requirements established by the Compensation Committee of the Board of Directors and expire ten years from the date of grant. There were 21,700 options granted under this plan during 1994. No options were granted under this plan during 1995 or 1996. Options for 298,700 shares were outstanding and exercisable at December 31, 1996. Under the Company's non-qualified stock option plan, options to purchase 200,000 shares were available to grant at option prices set by the Compensation Committee of the Board of Directors. There were 19,000 options granted under this plan during 1994. No options were granted under this plan during 1995 or 1996. Options for 90,000 shares were outstanding and exercisable at December 31, 1996. Page 34 35 The Company also has a third stock option plan under which it may issue qualified or non-qualified options for the purchase of up to 500,000 shares at option prices set by the Compensation Committee of the Board of Directors. There were 131,900 and 211,000 options granted under this plan in 1996 and 1995, respectively. Options for 200,400 shares were outstanding and 75,200 were exercisable at December 31, 1996. A summary of option activity under all plans follows ):
1996 1995 1994 - ------------------------------------------------------------------------------------------------------ Weighted Weighted Average Average Shares Exercise Shares Exercise Shares Price Price - ------------------------------------------------------------------------------------------------------ (number of shares in thousands) - ------------------------------------------------------------------------------------------------------ Outstanding at beginning of year 788 $5.82 664 $4.87 660 Granted ($6.25 to $8.50 per share) 132 6.25 211 8.50 41 Exercised ($.35 to $7.50 per share) (141) 2.52 (84) 4.95 (37) Canceled ($5.625 to $11.50 per share) (190) 8.46 (3) 7.50 - ------------------------------------------------------------------------------------------------------ Outstanding at end of year ($1.75 to $9.25 per share) 589 5.87 788 5.82 664 ====================================================================================================== Exercisable ($1.75 to $9.25 per share) 464 $4.54 577 $4.84 ======================================================================================================
Exercise prices for options outstanding as of December 31, 1996 ranged from $1.75 to $9.25. The weighted-average fair value of options outstanding as of December 31, 1996 was $3.99. The weighted-average remaining contractual life of those options is 5.15 years. The Company has elected to follow APB No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options because, in management's opinion, the models required to be used by FASB Statement No. 123, "Accounting for Stock-Based Compensation," were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. After adjusting for the proforma effect of stock compensation, the net loss is estimated to be $2,393,000 ($.27 per share) and $11,730,000 ($1.35 per share) for 1996 and 1995, respectively. Assumptions used in determining the above proforma disclosures were risk free interest rates of 6.12% and 6.23% in 1996 and 1995, respectively, no dividend yields, .51 market price volatility, and 8-year weighted average life of option. These proforma results reflect only stock options granted in 1995 and 1996 and may not be comparable with the results of applying the fair market value methodology to all stock options granted prior to the initial adoption of this statement. NOTE I - COMMITMENTS AND CONTINGENCIES In July 1995, Medar, Inc. reached a settlement of its patent litigation which was initiated by Square D Company in April 1994 in the Federal District Courts in Eastern District of Michigan and in Delaware. This resolution also settles claims made by Medar against Square D. The terms of the settlement made under the auspices of the Federal District Court in Delaware provide for a cross license agreement on all single phase welding patents held by either company and call for a single payment related to use of technology in prior years as well as yearly payments for the use of technology in the future. The single payment was recorded as an expense in 1995. The future payments have been reflected as a noncash transaction. The costs of this cross-licensing agreement is being amortized over the life of the agreement. The Company and its subsidiaries use equipment under long-term operating lease agreements requiring rental payments approximating $145,000 in 1997, $105,000 in 1998, and $83,000 in 1999. Rent expense charged to operations approximated $276,000, $380,000, and $390,000 in 1996, 1995 and 1994, respectively. Page 35 36 NOTE J - RELATED PARTY TRANSACTIONS AND OTHER MATTERS Two individuals who are officers and directors of the Company receive no compensation from the Company, but are compensated by Maxco, Inc., a major shareholder of the Company. Excess product quality, warranty and other costs relate to costs incurred in 1995 in connection with quality and other problems experienced with new product introductions. NOTE K - GEOGRAPHIC AREA Net sales to unaffiliated customers, earnings (loss) before income taxes, identifiable assets and liabilities, classified by geographic areas in which the Company operates, and net export sales by domestic operations, were as follows:
Year Ended December 31 - ------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- (in thousands) - ------------------------------------------------------------------------------------------------------- Net sales: Unaffiliated customers United States $34,366 $ 33,330 $34,500 United Kingdom 2,440 3,815 3,247 Canada 4,665 2,626 2,471 - ------------------------------------------------------------------------------------------------------- $41,471 $ 39,771 $40,218 ======================================================================================================= Earnings (loss) before income taxes: United States $ (1,616) $(11,766) $ 3,992 United Kingdom (495) (200) (224) Canada 56 253 52 - ------------------------------------------------------------------------------------------------------- $ (2,055) $(11,713) $ 3,820 ======================================================================================================= Identifiable assets: United States $45,021 $ 42,101 $42,035 United Kingdom 4,993 3,844 1,885 Canada 1,712 1,145 1,109 Eliminations (1,450) (2,367) (1,506) - ------------------------------------------------------------------------------------------------------- $ 50,276 $ 44,723 $43,523 ======================================================================================================= Liabilities: United States $26,380 $ 19,341 $ 7,886 United Kingdom 5,170 3,762 1,569 Canada 1,656 1,092 1,625 Eliminations (4,232) (2,239) (1,558) - ------------------------------------------------------------------------------------------------------- $28,974 $ 21,956 $ 9,522 ======================================================================================================= Net export sales by domestic operations: North America $ 903 $ 1,944 $ 6,377 Europe 5,986 3,785 3,677 Asia 2,434 2,451 707 Other 275 259 138 - ------------------------------------------------------------------------------------------------------- $ 9,598 $ 8,439 $10,899 =======================================================================================================
Page 36 37 NOTE L - SEGMENT DATA The Company operates principally in two industries, machine vision-based inspection systems and resistance welding controls. Operations in machine vision-based inspection systems involve development, production and sale of equipment used to monitor or control the manufacturing process. These systems are used to supplement human inspection or provide quality assurance when production rates exceed human capability. Operations in resistance welding controls involve development, production, and sale of controls that assure weld quality and proved data about the welding process. DECEMBER 31, 1996 AND THE YEAR THEN ENDED
Vision-based Resistance Welding Inspection Systems Controls Consolidated - ----------------------------------------------------------------------------------------------------------- (in thousands) - ----------------------------------------------------------------------------------------------------------- Net sales $13,618 $27,853 $41,471 Amortization of software development cost 1,608 914 2,522 Research and development expense 1,923 1,130 3,053 Earnings (loss) from operations (5,703) 5,121 (582) Net interest expense $ 1,473 - ----------------------------------------------------------------------------------------------------------- Earnings (loss) before taxes $ 2,055 =========================================================================================================== Identifiable assets at December 31, 1996 $22,423 $27,853 $50,276 ===========================================================================================================
DECEMBER 31, 1995 AND THE YEAR THEN ENDED
Vision-based Resistance Welding Inspection Systems Controls Consolidated - ----------------------------------------------------------------------------------------------------------- (in thousands) - ----------------------------------------------------------------------------------------------------------- Net sales $16,428 $23,343 $ 39,771 Amortization of software development cost 1,375 939 2,314 Research and development expense 222 1,001 1,223 Earnings (loss) from operations (6,948) (4,250) (1) (11,198) Net interest expense 515 - ----------------------------------------------------------------------------------------------------------- Earnings (loss) before taxes $(11,713) =========================================================================================================== Identifiable assets at December 31, 1995 $20,802 $23,921 $ 44,723 ===========================================================================================================
Page 37 38 DECEMBER 31, 1994 AND THE YEAR THEN ENDED
Vision-based Resistance Welding Inspection Systems Controls Consolidated - ------------------------------------------------------------------------------------------------------------ (in thousands) - ------------------------------------------------------------------------------------------------------------ Net sales $13,985 $26,233 $40,218 Amortization of software development cost 792 846 1,638 Research and development expense 628 1,121 1,749 Earnings (loss) from operations (643) 4,515 3,872 Net interest expense 52 - ------------------------------------------------------------------------------------------------------------ Earnings (loss) before taxes $ 3,820 ============================================================================================================
Earnings (loss) is total revenue less operating expenses. Interest expense and income taxes have been excluded from the calculation of earnings (loss) from operations. Identifiable asset allocated to each industry are those assets that are used in the Company's operations in each industry. Capital additions for machine vision-based inspection systems and resistance welding controls was $2,065,000 and $218,000, respectively. Depreciation and amortization for machine vision-based inspection systems and resistance welding controls was $3,166,000 and $1,363,000, respectively. (1) In 1995 the welding control division incurred a charge of $5.5 million related to settlement of patent litigation. Page 38 39 SCHEDULE II - Valuation And Qualifying Accounts Medar, Inc. And Subsidiaries (in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONS - ------------------------------------------------------------------------------------------------------------------------------------ Description Balance at Beginning Charged to Costs Charged To Other Deductions- Balance At End of Period And Expenses Accounts-Describe Describe Of Period ==================================================================================================================================== Year ended December 31, 1996: Accounts receivable allowance $ 355 $ 120 $ 75 (2) $ 400 Inventory obsolescence reserve 154 458 456 (3) 156 Deferred tax valuation allowance 3,896 448 4,344 -------- ------ ------- -------- 4,405 $1,026 $ 531 $ 4,900 ==================================================================================================================================== Year ended December 31, 1995: Accounts receivable allowance $ 311 $ 78 $ 34 (2) $ 355 Inventory obsolescence reserve 463 130 439 (3) 154 Deferred tax valuation allowance $3,896 (1) 3,896 -------- ------ ------- -------- $ 774 $4,104 $ 473 $ 4,405 ==================================================================================================================================== Year ended December 31, 1994: Accounts receivable allowance $ 166 $ 230 $ 85 (2) $ 311 Inventory obsolescence reserve 405 58 463 Deferred tax valuation allowance 944 944 (1) -------- ------ ------- -------- $ 1,515 $ 288 $ 1,029 $ 774 ===================================================================================================================================
(1) Net change in deferred tax valuation allowance. (2) Net accounts receivable write-offs. (3) Write-off obsolete inventory. Page 39 40 EXHIBITS TO FORM 10-K MEDAR, INC. YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-12728 Page 40 41 EXHIBIT EXHIBIT INDEX NUMBER DESCRIPTION 10.31 Fifth amendment to revolving credit and loan agreement dated February 27, 1997 by and between Medar, Inc. and Integral Vision, Ltd. and NBD Bank. 10.32 Over formula loan note dated February 27, 1997 by and between Medar, Inc., Integral Vision, Ltd. and NBD Bank. 10.33 Bridge loan note dated February 27, 1997 by and between Medar, Inc., Integral Vision, Ltd., and NBD Bank. 10.34 Guaranty by Maxco, Inc. dated February 27, 1997 of $1,500,000 bridge loan note by and between Medar, Inc., Integral Vision, Ltd., and NBD Bank. 11 Calculation of Earnings per Share. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule EX-10.31 2 EXHIBIT 10.31 1 EXHIBIT 10.31 FIFTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT This FIFTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT ("Fifth Amendment") is dated as of February 27, 1997, and is among MEDAR, INC., a Michigan corporation (the "Company"), and INTEGRAL VISION LTD., a corporation established under the laws of the United Kingdom ("Integral"), as Borrowers, and NBD BANK, a Michigan banking corporation ("NBD"). This Fifth Amendment amends the Revolving Credit and Loan Agreement dated as of August 10, 1995 (as amended, the "Loan Agreement"), as amended by the First Amendment to Revolving Credit and Loan Agreement dated October 12, 1995 (the "First Amendment"), the Second Amendment to Revolving Credit and Loan Agreement dated October 31, 1995 (the "Second Amendment"), the Third Amendment to Revolving Credit and Loan Agreement dated as of March 29, 1996 ("Third Amendment") and the Fourth Amendment to Revolving Credit and Loan Agreement dated as of August 11, 1996 ("Fourth Amendment"), among the Company, AID (as defined below), Integral and NBD. The Company and Integral are collectively referred to as the "Borrowers" and individually as a "Borrower". Capitalized terms not otherwise defined in this Fifth Amendment shall have the meanings given to them in the Loan Agreement. WHEREAS, the Company has informed NBD that its former subsidiary, INTEGRAL VISION-AID, INC., a Michigan corporation ("AID") (successor by merger to Integral Vision-Aid, Inc., an Ohio corporation, formerly known as Automatic Inspection Devices, Inc.), has been merged into the Company and no longer exists as a separate corporation; WHEREAS, the Borrowers have requested that NBD advance sums in excess of the current Borrowing Base; WHEREAS, NBD has agreed that to make an additional $1,500,000 loan to the Borrowers while they seek additional equity or subordinated debt, pursuant to the terms and conditions of this Fifth Amendment, including the guaranty of such loan by MAXCO, INC. ("Maxco"). WHEREAS, NBD has agreed that to make an additional $3,000,000 term loan to the Borrowers in order to finance the existing over-formula advances which Borrowers have not been able to repay on a timely basis. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows: 1. Revised Definitions. (a) The following definitions contained in Section 1.1 of the Loan Agreement, as amended, are hereby amended, effective the date hereof, to read as follows: "Borrowing Base" means the sum of the following: 2 (a) 80% of the book value of Eligible Accounts Receivables of the Borrowers and Guarantor; plus (b) 40% of the lower of costs or market value of Eligible Inventory of the Borrowers and Guarantor. Notwithstanding the foregoing, in no event will the amount advanced against Eligible Inventory exceed $6,000,000 for advances on or prior to December 30, 1997, and $5,000,000 for advances on or after December 31, 1997. "Commitment" means the commitment of NBD to make Revolving Loans pursuant to the terms of Section 2.1, which together with the outstanding principal amount of the Bridge Loan and the Over-Formula Loan shall not exceed $16,000,000 until July 30, 1997, and $15,000,000 on and after July 31, 1997, as such amounts may be further reduced from time to time pursuant to Section 2.2. "Floating Rate" means the per annum rate equal to (i) 1/4%per annum, plus (ii) the Prime Rate in effect from time to time. "Tangible Net Worth" means (a) the excess, if any, of the assets of the Borrowers and the Guarantor (excluding capitalized software development costs, goodwill, patents, trademarks, trade names, copyrights and other assets properly classified as intangible assets in accordance with GAAP) over the liabilities of the Borrowers and the Guarantors, determined on a combined basis in accordance with GAAP, plus (c) Subordinated Debt; provided, however, that, in determining Tangible Net Worth, (i) there shall be included in liabilities any and all evidences of Indebtedness of the Borrowers or any Guarantor, including notes and debentures of any Borrower or Guarantor which are subordinated indebtedness, and (ii) there shall be excluded from assets any and all assets of the Borrowers and the Guarantor which are Investments in any other Person. (b) Paragraph (b) of the definition of "Eligible Accounts Receivable" is hereby amended by replacing the date "December 30, 1996" with the date "March 31, 1997" and replacing the date "December 31, 1996" with the date "April 1, 1997". (c) The following definition is hereby added in alphabetical order to Section 1.1 of the Loan Agreement to read as follows: "Subordinated Debt" means Indebtedness of any of the Borrowers or Guarantor which is incurred with the written consent of NBD; provided that such Indebtedness is made subordinate to the Obligations on terms satisfactory to NBD; and provided further that, unless otherwise agreed to by NBD, NBD shall take custody and possession of all original notes or other evidence of such Indebtedness. 2 3 2. Commitment. The first sentence of Section 2.1(a) of the Loan Agreement is hereby amended effective the date hereof by replacing it with the following two sentences: Subject to the terms and conditions of this Agreement, NBD agrees to make Revolving Loans to the Borrowers, jointly and severally, on a revolving basis from the Effective Date and before the Termination Date as the Borrowers may from time to time request from NBD; provided, however, that the aggregate principal amount of all Revolving Loans which NBD shall be committed to have outstanding hereunder, when added to the aggregate face amount of all outstanding L/Cs and Guaranties Issued by NBD, shall not at any time exceed the lesser of (i) the Borrowing Base at such time; or (ii) the Commitment; provided further, that the aggregate principal amount of all Revolving Loans which NBD shall be committed to have outstanding hereunder, when added to the outstanding principal balance of the Bridge Loan, the outstanding principal amount of the Over-Formula Loan, and the aggregate face amount of all outstanding L/Cs and Guaranties Issued by NBD, shall not at any time exceed the Commitment. 3. Inventory Reliance Fee. A new Section 2.1(b)(iii) of the Loan Agreement is hereby added, effective January 1, 1997, to read as follows: (iii) Inventory Reliance Fee. In addition to the commitment fee due under Section 2.1(b)(ii) above, the Borrowers, jointly and severally, agree to pay to NBD an inventory reliance fee computed at the rate of 0.5% per quarter on the daily amount by which (a) the principal amount of the outstanding Revolving Loans plus the aggregate face amount of all outstanding L/Cs and Guaranties Issued by NBD exceeds the sum of 80% of Eligible Receivables, calculated with respect to the Borrowers on a combined basis. Such accrued inventory reliance fee (if any) shall be due and payable quarterly in arrears on the first day of each calendar quarter, beginning with the quarter beginning January 1, 1997, to be paid on April 1, 1997, with any accrued but unpaid inventory reliance fee due on the Termination Date. 4. New Term Loans. The Loan Agreement is hereby amended such that new Sections 2.7 and 2.8 are added to read as follows: 2.7 Bridge Loan to the Borrowers. Subject to the terms and conditions of the Loan Agreement and the Fifth Amendment, NBD will extend a short term loan to the Borrowers, jointly and severally, in the original principal amount of $1,500,000 ("Bridge Loan"), to be evidenced by a promissory note in substantially the form of Exhibit 2.7 attached to the Fifth Amendment (together with any amendments, restatements, replacements or renewals, the "Bridge Loan Note"). The proceeds of the Bridge Loan will be applied to the outstanding principal balance of the Revolving Loans. The Bridge Loan will bear interest at 1% per annum above the Prime Rate in effect from time to time. Interest on the Bridge 3 4 Loan will be due and payable monthly on the last business day of each month, beginning March 31, 1997. The principal outstanding under the Bridge Loan shall be due and payable on March 31, 1997. Any payments on the Bridge Loan will be applied first to unpaid interest and then to principal, and once repaid, principal may not be reborrowed. So long as there exists any Default or Event of Default, unless otherwise consented to in writing by NBD, all payments received by NBD from the Borrowers generated from operations, rather than from Subordinated Debt or additional equity contributions, will be applied first to the outstanding obligations under the Revolving Loans and Over-Formula Loan before being applied to the Bridge Loan. 2.8 Over-Formula Loan to the Borrowers. Subject to the terms and conditions of the Loan Agreement and the Fifth Amendment, NBD will extend a term loan to the Borrowers, jointly and severally, in the original principal amount of $3,000,000 ("Over-Formula Loan"), to be evidenced by a promissory note in substantially the form of Exhibit 2.8 attached to the Fifth Amendment (together with any amendments, restatements, replacements or renewals, the "Over-Formula Loan Note"). The proceeds of the Over-Formula Loan will be applied to the outstanding principal balance of the Revolving Loans. The Over-Formula Loan will bear interest at 2% per annum above the Prime Rate in effect from time to time. Interest on the Over-Formula Loan will be due and payable monthly on the last business day of each month, beginning March 31, 1997. The principal outstanding under the Over-Formula Loan shall be due and payable in two installments of $1,500,000 each on July 31, 1997 and December 30, 1997. Any payments on the Over-Formula Loan will be applied first to unpaid interest and then to principal, and once repaid, principal may not be reborrowed. 5. Reporting. Subsections (ii) and (vii) of Section 6.1(d) of the Loan Agreement are hereby amended to read as follows: (ii) as soon as available and in any event within 30 days after the end of each fiscal month of the Borrowers, (x) the Combined balance sheet of the Borrowers and the Guarantor as of the end of each such month and Combined statements of income, surplus and cash flow of the Borrowers and the Guarantor for each such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding fiscal year, and (y) the combining balance sheet and statements of income, surplus and cash flows with respect to the Borrowers and the Guarantor for such periods (prepared in a manner consistent with such Combined balance sheet and statements), all in reasonable detail and duly certified (subject to normal, immaterial year-end audit adjustments) by the chief financial officer or controller of the Company as having been prepared in accordance with GAAP, together with a certificate of the chief financial officer or controller of the Company (A) stating 4 5 that no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, a statement setting forth the details thereof and the action which the applicable person has taken and proposes to take with respect thereto, and (B) setting forth a computation (which computation shall accompany such certificate and shall be in reasonable detail) showing compliance with Sections 6.2(a), (b), (c) and (e) in conformity with the terms of this Agreement; . . . . (vii) as soon as available, and in any event by Friday with respect to the immediately preceding Thursday, a Borrowing Base Certificate in a form and detail reasonably acceptable to NBD, executed by the chief financial officers of the Borrowers; and 6. Field Examinations. A new Section 6.1(g) of the Loan Agreement is hereby added to read as follows: Audits. Prior to the occurrence of an Event of Default, permit NBD's representatives to conduct an annual, on-site audit of the Borrowers' and Guarantor's business operations, after the occurrence of an Event of Default, NBD may audit the Borrowers, Guarantor and their respective businesses as frequently as NBD desires, and the Borrowers must reimburse NBD for all costs incurred in connection therewith within 10 days after receipt of an invoice therefor. 7. Revised Financial Covenants. Sections 6.2(a) and (b) of the Loan Agreement are hereby amended in their entirety to read as follows: (a) Tangible Net Worth. Permit or suffer Tangible Net Worth to be: (i) on September 30, 1996, less than $14,500,000; (ii) December 31, 1996, less than $9,700,000; and (iii) on September 30, 1997 and as of the end of each fiscal quarter of the Borrowers thereafter, less than $11,000,000. (b) Debt to Worth Ratio. Permit or suffer the Debt to Worth Ratio to exceed: (i) on December 31, 1996, 3.0 to 1.00; (ii) on September 30, 1997 and as of the end of each fiscal quarter of the Borrowers thereafter, 2.50 to 1.00. 8. Revolving Loans in Pounds Sterling. The parties agree that in light of the fact that Integral has closed its office in the United Kingdom at this time, NBD will not make any new Revolving Loans in Pounds Sterling or Guaranties Issued by NBD, regardless of any terms to the contrary in the Loan Agreement. At such time as the Borrowers so request and can show NBD that the business of the Borrowers' would be better served by such borrowings, NBD (in its sole discretion) may hereafter agree in writing to once again provide such Pounds Sterling borrowings. 5 6 9. Conditions. Notwithstanding any other term of this Fifth Amendment or the Loan Agreement, NBD will not be required to give effect to this Fifth Amendment unless the following conditions have been met: (a) NBD shall have received an amendment fee of $90,000 and a restructure fee of $25,000 from the Borrowers prior to or simultaneously with the execution and delivery of this Fifth Amendment. The amendment fee and restructure fee are in addition to all interest and fees otherwise payable to NBD and will be deemed to be fully earned upon execution and delivery of this Fifth Amendment. (b) NBD shall have received a fully executed copy of this Fifth Amendment, the Bridge Loan Note and the Over-Formula Loan Note. (c) NBD shall have received the Guaranty Agreement from Maxco, in form and substance acceptable to NBD, guarantying the principal, interest and costs of collection of the Bridge Loan and consenting to the terms of this Fifth Amendment. (d) The Borrowers shall have executed and delivered to NBD assignments of their respective intellectual property rights (including license agreements), in form and substance satisfactory to NBD. (e) All of the terms and conditions in Section 3.7 of the Loan Agreement continue to be met. 10. Reaffirmation of Loan Agreement; Conflicts. The parties hereto acknowledge and agree that the terms and provisions of this Fifth Amendment, amend, add to and constitute a part of the Loan Agreement. Except as expressly modified and amended by the terms of this Fifth Amendment, all of the other terms and conditions of the Loan Agreement and all of the documents executed in connection therewith or referred to or incorporated therein, remain in full force and effect and are hereby ratified, confirmed and approved. If there is an express conflict between the terms of this Fifth Amendment and the terms of the Loan Agreement, or any of the other agreements or documents executed in connection therewith or referred to or incorporated therein, the terms of this Fifth Amendment shall govern and control. Any reference in any other document or agreement to the Loan Agreement shall hereafter refer to the Loan Agreement as amended by this Fifth Amendment. 11. Representations True. The representations and warranties of the Borrowers contained in the Loan Agreement are true on the date hereof and, after giving effect hereto, there does not exist any Default or Event of Default under the Loan Agreement. 12. Expenses. Borrowers acknowledge and agree that the Borrowers will pay all attorneys' fees and out-of-pocket costs of NBD in connection with or with respect to this Fifth Amendment and the conditions set forth herein. 6 7 IN WITNESS WHEREOF, the Borrowers and NBD have executed the foregoing document by their duly authorized officers as of the day and year first written above. NBD BANK By: Richard P. Haslinger --------------------------- Richard P. Haslinger Its: Senior Vice President and By: Glenn Ansiel --------------------------- Glenn Ansiel Its: Assistant Vice President MEDAR, INC. By: Charles Drake --------------------------- Charles Drake Its: President INTEGRAL VISION LTD. By: Richard Current --------------------------- Richard Current Its: Company Secretary 7 8 REAFFIRMATION OF GUARANTY The undersigned, Medar Canada Ltd., hereby acknowledges and agrees to the terms of this Fifth Amendment to Revolving Credit and Loan Agreement and hereby reaffirms each and every term of its (i) Guarantee and Postponement of Claim dated August 10, 1995, given in favor of NBD Bank with respect to the obligations of Medar, Inc., Automatic Inspection Devices, Inc. (now known as Integral Vision-AID, Inc.) and Integral Vision Ltd., and (ii) General Security Agreement dated as of May 1, 1996, given in favor of NBD Bank. MEDAR CANADA LTD. By: Charles Drake -------------------------- Charles Drake Its: President 9 COLLATERAL ASSIGNMENT OF PROPRIETARY RIGHTS AND SECURITY AGREEMENT THIS COLLATERAL ASSIGNMENT OF PROPRIETARY RIGHTS AND SECURITY AGREEMENT ("Agreement"), dated as of February 27, 1997, is made by Medar, Inc., a Michigan corporation, in favor of NBD Bank, a Michigan banking corporation ("NBD" or "Lender"). Recitals: A. Assignor, certain of its affiliates and Lender are parties to that certain Revolving Credit and Loan Agreement dated as of August 10, 1995, as amended by agreements dated October 12, 1995, October 31, 1995, March 29, 1996, August 11, 1996 and the date hereof (such agreement, as amended, modified or supplemented from time to time, is referred to herein as the "Loan Agreement"). B. It is a condition to the Fifth Amendment to Revolving Credit and Loan Agreement being executed simultaneously herewith, that Assignor executes and delivers this Agreement. NOW THEREFORE, in consideration of the premises and to induce Lender to make extensions of credit to Assignor under the Loan Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Assignor agrees with Lender as follows: 1. Defined Terms. In addition to those terms defined elsewhere in this Agreement, terms defined in the Loan Agreement shall have their defined meanings when used herein (unless otherwise defined herein) and the following terms shall have the following meanings, unless the context otherwise requires: "Collateral" means all of the Trademarks, Copyrights, Patents and Intellectual Property Rights, whether now existing or hereafter created or acquired (including, without limitation, such of the foregoing as are listed on Schedule A attached hereto and made a part hereof). "Copyrights" means all United States copyrights, registered or unregistered, in and to all copyrightable works now owned or hereafter acquired by Assignor, including all registrations and applications therefor and all licenses thereof and (a) any renewals or extensions of the registrations therefor that may be secured under the laws now or hereafter in effect in the United States, (b) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (c) the right to sue and recover for 10 past, present and future infringements thereof, and (d) all rights corresponding thereto throughout the world. "Event of Default" means an Event of Default as defined in the Loan Agreement. "Intellectual Property Rights" means all intellectual property rights other than Trademarks, Copyrights and Patents, now owned or hereafter acquired by Assignor, including, without limitation, trade secrets, know-how and confidential business information, computer software, data and documentation (including electronic media) and licenses thereof, and (a) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (b) the right to sue and recover for past, present and future infringements thereof, and (c) all rights corresponding thereto throughout the world. "Patents" means all United States patents and patent applications, now owned or hereafter acquired by Assignor, including, without limitation, the inventions and improvements described and claimed therein, all licenses thereof and (a) the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, (b) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (c) the right to sue and recover for past, present and future infringements thereof, and (d) all rights corresponding thereto throughout the world. "Trademarks" means all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, trademark registrations and applications for registration owned by Assignor and all licenses thereof, together with the goodwill of the business connected with the use of, and symbolized by, the foregoing, and (a) the registration renewals thereof, (b) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (c) the right to sue and recover for past, present and future infringements thereof, and (d) all rights corresponding thereto throughout the world. 2. Collateral Assignment of Security Interest in Trademarks, Copyrights and Patents and Intellectual Property Rights. To secure the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Obligations, Assignor hereby grants to Lender and its assignees a continuing security interest in the Collateral, and, subject to Section 6 hereof, shall assign, transfer and convey to Lender all 2 11 right, title and interest, in the United States and throughout the world, in, to and under the Collateral. 3. Continuing Liability. Assignor hereby expressly agrees that, anything herein to the contrary notwithstanding, it shall remain liable under each license, interest and obligation assigned to Lender hereunder to observe and perform all the conditions and obligations to be observed and performed by Assignor thereunder, all in accordance with and pursuant to the terms and provisions thereof. Lender shall have no obligation or liability under any such license, interest or obligation by reason of or arising out of this Agreement or the assignment thereof to Lender or the receipt by Lender of any payment relating to any such license, interest or obligation pursuant hereto, nor shall Lender be required or obligated in any manner to perform or fulfill any of the obligations of Assignor thereunder or pursuant thereto, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by any of them or the sufficiency of any performance by any party under any such license, interest or obligation, or to present or file any claim, or to take any action to collect or enforce any performance of the payment of any amounts which may have been assigned to Assignor or to which Assignor may be entitled at any time or times. 4. Representations and Warranties. Assignor hereby represents and warrants to Lender: (a) All of Assignor's Copyrights, Patents and Trademarks (whether or not registered) which are material to its business are listed on Schedule A hereto, as updated from time to time. (b) Except as set forth in Schedule A and except for Permitted Liens, Assignor owns free and clear of all Liens all right, title and interest in, or has full right and authority to use, all Collateral necessary or desirable for the conduct of its business as currently conducted, as previously conducted or as currently proposed to be conducted. 5. Updated Information and Filings. Assignor agrees that it will deliver to Lender an updated Schedule A to this Agreement on at least a quarterly basis, and more often if requested by Lender. Assignor also agrees that it will take such actions as requested by Lender to allow Lender to record and perfect its Lien on Assignor's Copyrights, Patents, Trademanrks and Intellectual Property Rights, including without limitation, filing and registering its rights with appropriate governmental entities. 6. Restrictions on Future Agreements. Assignor agrees that until all of the Obligations have been paid in full and the Loan Agreement has been terminated, it will not, without Lender's prior written consent, enter into any agreement, including, without limitation, any license agreement, which is inconsistent with Assignor's obligations under this Agreement or which is prohibited by the Loan Agreement. 3 12 7. Effect of Collateral Assignment and Remedies. (a) If an Event of Default has occurred and is continuing, Lender may exercise, in addition to all other rights and remedies granted to it in this Agreement, the Loan Agreement and any other Loan Document, all rights and remedies of a secured party under the Uniform Commercial Code or any other applicable law. Without limiting the generality of the foregoing, Assignor expressly agrees that in any such event Lender may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, or may forthwith sell, lease, assign or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more public or private sale or sales, at any exchange, broker's board or at any of Lender's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, and Lender shall apply the net proceeds (after expenses) of any such sale, lease, assignment or other disposition against the Obligations in such order as Lender in its sole discretion shall determine (subject to the terms of the Loan Agreement), Assignor remaining liable for any deficiency thereon. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Assignor, which right or equity is hereby expressly waived and released. To the extent permitted by applicable law, Assignor waives all claims, damages and demands against Lender arising out of the repossession, retention or sale of the Collateral. Assignor agrees that Lender need not give more than ten days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matter. (b) During the continuance of an Event of Default, Assignor hereby authorizes Lender to make, constitute and appoint any officer or agent of Lender as Lender may select, in Lender's sole discretion, as Assignor's true and lawful attorney-in-fact, with power: (i) to endorse Assignor's name on all applications, documents, papers and instruments necessary or desirable for Lender in the use of Collateral; (ii) to notify any licensee of Assignor that such licensee should make future payments under the license directley to Lender; (iii) to take any other actions with respect to the Collateral as Lender deem in its best interest; and (iv) to assign, pledge, convey or otherwise transfer title in or dispose of the Collateral to any Person. Assignor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue of this Agreement. This power of attorney shall be irrevocable until all of the Obligations have been paid in full and all of the financing arrangements between Assignor and Lender have been terminated. Assignor agrees that, in addition to all other rights and remedies granted to Lender in this Agreement, the Loan Agreement and any other Loan Document, Lender shall be entitled to specific performance and injunctive and other equitable relief, and Assignor further agrees to waive any requirement for the securing or posting of any bond or other security in connection with the obtaining of any such specific performance and injunctive or other equitable relief. 8. Indemnification. Assignor shall indemnify and hold harmless Lender from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses) sustained, suffered or incurred by Lender arising out of, with respect to, or resulting from any commercially reasonable exercise by Lender of its rights under this Agreement, including without limitation, after a default by Assignor, the 4 13 exercise by Lender of its rights to sell, lease, assign, give option or options to purchase, or sell and otherwise dispose of the Collateral. In any suit, proceeding or action brought by Lender to enforce its rights in the Collateral, Assignor will save, indemnify and hold Lender harmless from and against all expenses, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of any third party, arising out of a breach by Assignor of any obligation or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such third party or its successors from Assignor; provided that Assignor shall have no obligation under this Section 7 to indemnify any Person under this Agreement for liabilities arising from the gross negligence or willful misconduct of such Person or arising from the breach by any such Person of its obligations under applicable law (including the obligation to act in a commercially reasonable manner in the disposition of certain Collateral). 9. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. 10. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11. Section Headings, etc. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. All references to Sections, Schedules and Exhibits are to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. 12. No Waiver: Cumulative Remedies. Lender shall not by any act (except a written instrument pursuant to Section 12 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of the terms and conditions hereof. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Lender any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by the Loan Agreement, any other Loan Document or applicable law. 13. Waivers and Amendments: Successors and Assigns: Governing Law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by a written instrument, duly executed by Assignor and Lender. This Agreement and all obligations of Assignor hereunder shall be binding upon the successors and assigns of Assignor, and shall, together with the rights and remedies of Lender hereunder, inure to the benefit of 5 14 Lender and its successors and assigns, provided that Assignor may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAWS OF CONFLICT) OF THE STATE OF MICHIGAN. 14. Notices, Etc. Any demand, notice or communication to be made or given hereunder shall be in writing and shall be given in accordance with the Loan Agreement. 15. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 16. Waiver of Jury Trial. THE PARTIES HERETO ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THIS RIGHT MAY BE WAIVED. LENDER AND THE ASSIGNOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND WITHOUT COERCION, WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES ARISING OUT OF OR IN RELATION TO THIS AGREEMENT OR ANY OTHER AGREEMENTS BETWEEN THE PARTIES. NO PARTY SHALL BE DEEMED TO HAVE RELINQUISHED THE BENEFIT OF THIS WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN A WRITTEN INSTRUMENT SIGNED BY THE PARTY TO WHICH SUCH RELINQUISHMENT WILL BE CHARGED. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first set forth above. NBD BANK MEDAR, INC. By: Richard P. Haslinger By: Charles Drake -------------------------------- --------------------------------- Richard P. Haslinger Charles Drake Its: Senior Vice President Its:President and By: Glenn Ansiel -------------------------------- Glenn Ansiel Its: Assistant Vice President 6 15 EXHIBIT A List of Patents Medar, Inc. 1. Structure for and method of weld control Number: US 5424506 Issue Date: 6/13/95 Continuation of US 5128507 2. Weld contact structure for and method of delaying initiation of a weld Number: US 5128507 Issue Date: 12/5/89 3. Automatic Stepper for resistance welding Number: US 4885451 Issue Date: 12/5/89 4. Method and apparatus for determining the power factor of a circuit Number: US 4851635 Issue Date: 7/25/89 5. High frequency resistance spot welding structure and method Number: US 4831229 and foreign patents Germany DE 3741602 Issue Date: 5/16/89 Japan JP 63192574 Canada CA 1300696 6. Structure and method for resistance welding with an inductively coupled power source Number: US 4804819 and foreign patents Germany DE 3741507 Issue Date: 2/14/89 Japan JP 63192575 Canada CA 1298625 Japan JP 2547430 7. High speed resistance seam welding Number: US 4733045 and foreign patents Canada CA 1295693 Issue Date: 3/22/88 16 8. Structure for and method of reducing impedance in multi phase direct current power supplies Number: US 4513363 Issue Date: 4/23/85 9. Proximity detector Number: US 3736445 Issue Date: 5/29/73 10. Method of regulating DC current in resistance welders Number: US 5589088 Issue Date: 12/31/96 11. Patent Assignee: Medar, Inc. Title: Butt welding control by sensor of velocity, acceleration or displacement of relative motion Patent Family: Germany 3233560 A 840301 Great Britain 2126511 A 840328 12. Patent Assignee: Medar, Inc. Title: Three-phase rectifier supplying welding transformer has six-thyristor bridges coupled via four-thyristor controller to transformer Patent Family: Germany 3034151 A 810402 Great Britain 2061032 A 810507 France 2465356 A 810417 Great Britain 2061032 B 840125 Canada 1168305 A 840529 Trademarks 1. Visionblox Status: Registered in U.K. RN: 2043358 Goods: Computer Software 17 Status: Advertised in Canada AN: 796,249 Goods: Computer Software Status: Pending in the U.S. SN: 74-696,744 Goods: Computer Software Status: Registered in France AN: 95 599447 Goods: "in the French language" 2. Medar Status: Pending in Canada AN: 770,874 Goods: Welding control/optical devices Status: Registered in U.S. RN: 1,909,851 Goods: Welding control/optical devices 3. Medar and Design Status: Pending in Canada AN: 770,872 Goods: Welding control/optical devices Status: Registered in U.S. RN: 1,911,205 Goods: Welding control/optical devices 4. Visionbasic Status: Pending in U.S. SN: 74-696,745 Goods: Computer Software 5. Indepth Status: Pending in U.S. SN: 74-696,743 Goods: Visual inspection system etc. List of Copyrights Meldweld 2000 Class: TX Reg. Num: TX2486122 Date: 1/11/89 EX-10.32 3 EXHIBIT 10.32 1 EXHIBIT 10.32 OVER FORMULA LOAN NOTE $3,000,000 February 27, 1997 Due: December 30, 1997 Detroit, Michigan FOR VALUE RECEIVED, the undersigned, MEDAR, INC. ("Medar") and INTEGRAL VISION, LTD. ("Integral"), jointly and severally (collectively, "Borrowers"), hereby promise to pay to the order of NBD Bank, ("Bank"), pursuant to the Revolving Credit and Loan Agreement dated as of August 10, 1995 (as amended, the "Loan Agreement"), as amended by the First Amendment to Revolving Credit and Loan Agreement dated October 12, 1995, the Second Amendment to Revolving Credit and Loan Agreement dated October 31, 1995, the Third Amendment to Revolving Credit and Loan Agreement dated as of March 29, 1996, the Fourth Amendment to Revolving Credit and Loan Agreement dated as of August 11, 1996 and the Fifth Amendment to Revolving Credit and Loan Agreement dated as of the date hereof, among Borrowers and Bank, at the main office of Bank in Detroit, Michigan, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Million and 00/100 Dollars (U.S. $3,000,000), payable in two principal installments of $1,500,000 each, due on July 31, 1997 and December 30, 1997, plus accrued but unpaid interest payable monthly on the last business day of each month beginning March 31, 1997, and on the maturity date set forth above. The indebtedness outstanding hereunder shall bear interest as provided in the Loan Agreement. During the period that any amount owing on this Note is not paid in full when due (whether at stated maturity, by acceleration or otherwise), such amount shall bear interest at the Default Rate in effect from time to time or the maximum rate permitted by law, whichever is lower, for the period commencing on the due date until the same is paid in full. In addition to the foregoing, during the period that any other Event of Default has occurred and shall be continuing, Borrower shall pay on demand, at the election of Bank, interest at the Default Rate or the maximum rate permitted by law, whichever is lower, on the principal amount outstanding hereunder during such period from and after the date of any such demand. Bank is hereby authorized by Borrower to record on its books and records, the date and amount of each payment, which books and records shall constitute rebuttable presumptive evidence of the information so recorded, provided, however, that any failure by Bank to record any such information shall not relieve Borrower of its obligation to repay the outstanding principal amount, all accrued interest hereon and any amount payable with respect hereto in accordance with the terms of this Note and the Loan Agreement. This Note is subject to, and evidences the Over Formula Loan made by Bank to Borrower under the Loan Agreement, to which reference is hereby made for a statement of the circumstances and terms under which this Note may be prepaid and under which its due date may be accelerated and other terms applicable to this Note. An Event of Default under the Loan Agreement constitutes a default hereunder. Capitalized terms used but not defined in this Note 2 shall have the respective meanings assigned to them in the Loan Agreement. As provided in the Loan Agreement, this Note is secured by certain collateral granted under the Loan Documents. Borrowers and each endorser or guarantor hereof, waive demand, presentment, protest, diligence, notice of dishonor and any other formality in connection with this Note. Borrowers further agree to pay, in addition to the principal, interest and other sums due and payable hereon, all costs of collecting this Note, including reasonable attorneys' fees and expenses. This Note is made under, and shall be governed by and construed in accordance with, the laws of the State of Michigan applicable to contracts made and to be performed entirely within the State of Michigan and without giving effect to the choice of law principles of the State of Michigan. MEDAR, INC., a Michigan corporation By: _______________________________ Charles Drake Its: President INTEGRAL VISION, LTD. an English corporation By: _______________________________ Richard Current Its: Corporate Secretary 2 EX-10.33 4 EXHIBIT 10.33 1 EXHIBIT 10.33 BRIDGE LOAN NOTE $1,500,000 February 27, 1997 Due: March 31, 1997 Detroit, Michigan FOR VALUE RECEIVED, the undersigned, MEDAR, INC. ("Medar") and INTEGRAL VISION, LTD. ("Integral"), jointly and severally (collectively, "Borrowers"), hereby promise to pay to the order of NBD Bank, ("Bank"), pursuant to the Revolving Credit and Loan Agreement dated as of August 10, 1995 (as amended, the "Loan Agreement"), as amended by the First Amendment to Revolving Credit and Loan Agreement dated October 12, 1995, the Second Amendment to Revolving Credit and Loan Agreement dated October 31, 1995, the Third Amendment to Revolving Credit and Loan Agreement dated as of March 29, 1996, the Fourth Amendment to Revolving Credit and Loan Agreement dated as of August 11, 1996 and the Fifth Amendment to Revolving Credit and Loan Agreement dated as of the date hereof, among Borrowers and Bank, at the main office of Bank in Detroit, Michigan, in lawful money of the United States of America and in immediately available funds, the principal sum of One Million Five Hundred Thousand and 00/100 Dollars (U.S. $1,500,000), payable in one principal payment on March 31, 1997, plus accrued but unpaid interest payable monthly on the last business day of each month beginning March 31, 1997, and on the maturity date set forth above. The indebtedness outstanding hereunder shall bear interest as provided in the Loan Agreement. During the period that any amount owing on this Note is not paid in full when due (whether at stated maturity, by acceleration or otherwise), such amount shall bear interest at the Default Rate in effect from time to time or the maximum rate permitted by law, whichever is lower, for the period commencing on the due date until the same is paid in full. In addition to the foregoing, during the period that any other Event of Default has occurred and shall be continuing, Borrower shall pay on demand, at the election of Bank, interest at the Default Rate or the maximum rate permitted by law, whichever is lower, on the principal amount outstanding hereunder during such period from and after the date of any such demand. Bank is hereby authorized by Borrower to record on its books and records, the date and amount of each payment, which books and records shall constitute rebuttable presumptive evidence of the information so recorded, provided, however, that any failure by Bank to record any such information shall not relieve Borrower of its obligation to repay the outstanding principal amount, all accrued interest hereon and any amount payable with respect hereto in accordance with the terms of this Note and the Loan Agreement. This Note is subject to, and evidences the Bridge Loan made by Bank to Borrower under the Loan Agreement, to which reference is hereby made for a statement of the circumstances and terms under which this Note may be prepaid and under which its due date may be accelerated and other terms applicable to this Note. An Event of Default under the Loan Agreement constitutes a default hereunder. Capitalized terms used but not defined in this Note shall have 2 the respective meanings assigned to them in the Loan Agreement. As provided in the Loan Agreement, this Note is secured by certain collateral granted under the Loan Documents. Borrowers and each endorser or guarantor hereof, waive demand, presentment, protest, diligence, notice of dishonor and any other formality in connection with this Note. Borrowers further agree to pay, in addition to the principal, interest and other sums due and payable hereon, all costs of collecting this Note, including reasonable attorneys' fees and expenses. This Note is made under, and shall be governed by and construed in accordance with, the laws of the State of Michigan applicable to contracts made and to be performed entirely within the State of Michigan and without giving effect to the choice of law principles of the State of Michigan. MEDAR, INC., a Michigan corporation By: _______________________________ Charles Drake Its: President INTEGRAL VISION, LTD. an English corporation By: _______________________________ Richard Current Its: Corporate Secretary 2 EX-10.34 5 EXHIBIT 10.34 1 EXHIBIT 10.34 GUARANTY This Guaranty is given by Maxco, Inc., a Michigan corporation of 1118 Centennial Way, Lansing, MI 48917 (Guarantor") to NBD Bank, ("Bank") to induce Bank to make a loan dated February 27, 1997 in the principal amount of $1,500,000 ("Indebtedness") to Medar, Inc., a Michigan corporation of 38700 Grand River Avenue, Farmington Hills, MI 48335 ("Borrower"). 1. For valuable consideration, Guarantor unconditionally guaranties the payment when due, upon maturity, acceleration, or otherwise, of all or any of Borrower's Indebtedness to Bank. If all or any of such Indebtedness becomes due and payable hereunder due to Borrower's failure to pay such Indebtedness or Bank's refusal to refinance such Indebtedness on or before March 31, 1997, Guarantor unconditionally promises to pay the debt to Bank, on demand, in lawful money of the United States. 2. Guarantor unconditionally guaranties the payment of all or any of Borrower's Indebtedness to Bank, regardless of whether due or payable by Borrower, upon: (a) the dissolution, insolvency, or business failure of, or any assignment for benefit of creditors by, or commencement of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceedings by or against, Borrower or (b) the appointment of a receiver for, or the attachment, restraint of, or making or levying of any order of court or legal process affecting, Borrower's property. 3. Guarantor's liability hereunder shall not exceed at any one time the sum of (i) the principal amount of the Indebtedness and (ii) all interest upon the Indebtedness. 4. Guarantor's liability hereunder is exclusive and independent of any security for or other guaranty of Borrower's Indebtedness, whether executed by Guarantor or by any other party. Guarantor's liability hereunder is not affected or impaired by the following: (a) any indebtedness exceeding Guarantor's liability; (b) direction of application of payment by Borrower or any other party; (c) any other continuing or other guaranty, undertaking, or maximum liability of Guarantor or of any other party as to Borrower's Indebtedness; (d) any payment on or in reduction of such guaranty or undertaking; (e) any notice of termination hereof as to future transactions given by, or by the death or termination, revocation, or release of any obligations hereunder of, any other guarantors; (f) any payment made to Bank on the Indebtedness which Bank repays to Borrower under court order in a bankruptcy, reorganization, arrangement, moratorium, or other debtor relief proceeding, and Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of such proceedings. 5. Guarantor's obligations hereunder are independent of Borrower's obligations. A separate action or actions may be brought and prosecuted against Guarantor, regardless of whether action is brought against Borrower or whether Borrower is joined in any such action or actions. 2 6. Guarantor authorizes Bank (whether or not after revocation or termination of this guaranty), without notice or demand (except as is required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to: (a) renew, compromise, extend, increase, accelerate, or otherwise change the time for payment of, or otherwise change the terms of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this guaranty or the indebtedness and exchange, enforce, waive, and release any such security; (c) apply such security and direct the order or manner of sale thereof as Bank in its discretion determines; and (d) release or substitute any one or more endorsers, guarantors, borrowers, or other obligors. Bank may without notice assign all or part of this guaranty. 7. It is not necessary for Bank to inquire into the capacity or powers of Borrower or the officers, directors, or agents acting or purporting to act on its behalf, and any Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 8. Guarantor waives any right to require Bank to (a) proceed against Borrower or any other party, (b) proceed against or exhaust any security held from Borrower, or (c) pursue any other remedy in Bank's power. Guarantor waives any defense based on or arising out of any defense of Borrower other than payment in full of the Indebtedness, including any defense based on or arising out of Borrower's disability, or the unenforceability of all or any part of the Indebtedness from any cause, or the cessation from any cause of Borrower's liability other than full payment of the Indebtedness. Bank may foreclose on any security held by it by one or more judicial or nonjudicial sales, regardless of whether every aspect of any such sale is commercially reasonable, or exercise any other right or remedy it has against Borrower, or any security, without affecting or impairing in any way Guarantor's liability hereunder except to the extent the Indebtedness has been paid. Guarantor waives any defense arising out of any the election by Bank, unless the election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of Guarantor against Borrower or any security. Guarantor waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. Guarantor assumes all responsibility for being and keeping itself informed of Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Indebtedness and the nature, scope, and extent of the risks which Guarantor assumes and incurs hereunder, and agrees that Bank shall have no duty to advise Guarantor of information known to it regarding such circumstances or risks. 9. Guarantor agrees not to enforce any common law rights of subrogation, contribution or indemnification that it has against Borrower or any collateral until Bank has been paid in full for all obligations of Borrower to Bank. This is not intended to limit the rights of Guarantor under the subordination agreement between Guarantor and Bank dated February 27, 1997. 10. In addition to all liens upon, and rights of setoff against the moneys, securities, or other property of Guarantor given to Bank by law, Bank shall have a lien upon and a right of setoff against all moneys, securities, and other property of Guarantor now or hereafter in the 3 possession of or on deposit with Bank, whether held in a general or special account or deposit, or for safekeeping or otherwise. Every such lien and right of setoff may be exercised without demand upon or notice to Guarantor. 11. No right or power of Bank hereunder shall be deemed to have been waived by any act or conduct by it, by any neglect to exercise such right or power, or by any delay in so doing. Every right or power shall continue in full force and effect until specifically waived or released by an instrument executed by Bank. 12. This guaranty shall be deemed to be made under and shall be governed by the laws of the State of Michigan in all respects. Its terms and provisions may not be waived, altered, modified, or amended except in writing duly signed by an authorized officer of Bank and by Guarantor. 13. If any provision of this guaranty contravenes or is held invalid under the laws of any jurisdiction, this guaranty shall be construed as if not containing those provisions and the rights and obligations of the parties shall be construed and enforced accordingly. 14. This guaranty and the liability and obligations of Guarantor hereunder are binding upon Guarantor and its successors and assigns, and inures to the benefit of and is enforceable by Bank and its successors, transferees, and assigns. In witness whereof the undersigned Guarantor has executed this guaranty on February 27, 1997. Maxco, Inc. _________________________________ Vincent Shunsky Vice President of Finance EX-11 6 EXHIBIT 11 1 EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE MEDAR, INC. AND SUBSIDIARIES
Year Ended December 31 - ----------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- (in thousands) - ----------------------------------------------------------------------------------------------------- Per common share and common share equivalents Outstanding shares - beginning of period 8,712 7,976 6,609 Weighted average of: Shares issued to acquire Integral Vision, Ltd. 654 654 Issuance of common stock 816(A) Exercise of stock options 108 62 28 Net effect of dilutive stock options-based on treasury stock method using average market price 417 TOTAL 8,820 8,692 8,524 ==================================================================================================== Net earnings (loss) $(1,979) $(11,583) $3,688 ==================================================================================================== Net earnings (loss) per share $ (.22) $ (1.33) $ .43 ==================================================================================================== Per common share assuming full dilution: Outstanding shares - beginning of period 8,712 7,976 6,609 Weighted average of: Shares issued to acquire Integral Vision, Ltd. 654 654 Issuance of common stock 816(A) Exercise of stock options 108 62 28 Net effect of dilutive stock options-based on treasury stock method using year-end market price if higher than average market price 430 - ----------------------------------------------------------------------------------------------------- TOTAL 8,820 8,692 8,537 ==================================================================================================== Net earnings (loss) $(1,979) $(11,583) $3,688 ==================================================================================================== Net earnings (loss) per share $ (.22) $ (1.33) $ .43 ====================================================================================================
(A) Issuance of 1,300,000 shares to the public and 30,000 shares to acquire technology EX-21 7 EXHIBIT 21 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 EX-23 8 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement 33-61977 on Form S-8 dated August 21, 1995, and Registration Statement 33-619797 on Form S-8 dated August 21, 1995, and Registration Statement 33-12571 on Form S-8 dated March 11, 1987, and Registration Statement 33-593 on Form S-8 dated October 1, 1985, of our report dated February 27, 1997, with respect to the consolidated financial statements and schedule of Medar, Inc. and subsidiaries listed in the index at Item 14(a) of this Annual Report (Form 10-K) for the year ended December 31, 1996. /s/Ernest & Young LLP Detroit, Michigan March 27, 1997 EX-27 9 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 215 0 9,815 400 15,991 28,005 16,744 6,625 50,276 10,964 21,647 0 0 1,771 19,531 50,276 41,471 41,521 30,788 30,788 11,265 0 1,523 (2,055) (76) (1,979) 0 0 0 (1,979) (.22) (.22)
-----END PRIVACY-ENHANCED MESSAGE-----