-----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, J3fMEc/Xgdpme2LAj2pytVbgB3+y+hSFsmPAZ84FZaUGtln0pFPXSM3j+nd+uu9U NMIq1vtXNJ5LmNBgfYpsuA== 0000950124-98-006730.txt : 19981118 0000950124-98-006730.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950124-98-006730 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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-Q SEC ACT: SEC FILE NUMBER: 000-12728 FILM NUMBER: 98750875 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-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended September 30, 1998. / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 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, including area code: (248) 471-2660 Former name, former address and former fiscal year, if changed since last report: Not Applicable 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. YES NO --- --- The number of shares outstanding of the registrant's Common Stock, no par value, stated value $.20 per share, as of October 31, 1998 was 9,024,901. 2 Part 1. Financial Information ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets Medar, Inc. and Subsidiaries
SEPTEMBER 30 DECEMBER 31 1998 1997 --------------------------------------------- (Unaudited) (In thousands) Assets Current Assets Cash $ 748 $ 831 Accounts receivable, less allowance of $400,000 9,435 10,682 Inventories 8,422 14,227 Costs and estimated earnings in excess of billings on 1,108 2,568 incomplete contracts Other current assets 778 881 --------------------------------------------- Total Current Assets 20,491 29,189 Property, Plant and Equipment Land and land improvements 377 377 Building and building improvements 6,317 6,317 Production and engineering equipment 3,911 3,791 Furniture and fixtures 1,023 1,022 Vehicles 423 875 Computer equipment 5,671 5,241 --------------------------------------------- 17,722 17,623 Less accumulated depreciation 9,054 8,021 --------------------------------------------- 8,668 9,602 Other Assets Capitalized computer software development costs, net of amortization 5,357 10,796 Patents, net of amortization 2,001 2,127 Other 1,230 1,444 --------------------------------------------- 8,588 14,367 --------------------------------------------- $ 37,747 $ 53,158 =============================================
See notes to consolidated financial statements. 2 3 Consolidated Balance Sheets - Continued Medar, Inc. and Subsidiaries
SEPTEMBER 30 DECEMBER 31 1998 1997 ----------------------------------------------- (Unaudited) (In thousands) Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 2,651 $ 4,472 Employee compensation 1,005 1,110 Accrued and other liabilities 566 714 Current maturities of long term debt 17,078 19,415 ----------------------------------------------- Total Current Liabilities 21,300 25,711 Long-Term Debt, less current maturities 4,712 4,892 Stockholders' Equity Common stock, without par value, stated value $.20 per share; 15,000,000 shares authorized; 9,024,901 shares issued and outstanding 1,805 1,805 Additional paid-in capital 31,187 31,187 Retained-earnings deficit (21,328) (10,444) Accumulated translation adjustment 71 7 ----------------------------------------------- Total Stockholders' Equity 11,735 22,555 ----------------------------------------------- $ 37,747 $ 53,158 ===============================================
See notes to consolidated financial statements. 3 4 Consolidated Statements of Operations Medar, Inc. and Subsidiaries
THREE MONTHS ENDED SEPTEMBER 30 1998 1997 --------------------------------------------- (Unaudited) (In thousands, except per share data) Net revenues $ 8,947 $ 10,970 Direct cost of sales 6,377 7,298 --------------------------------------------- 2,570 3,672 Other costs and expenses: Marketing 978 1,006 General and administrative 804 678 Research, development, and engineering 1,262 861 --------------------------------------------- 3,044 2,545 Interest: Expense 613 669 Income (31) (12) --------------------------------------------- 582 657 --------------------------------------------- Earnings (Loss) Before Income Tax (1,056) 470 Provision for income taxes 50 --------------------------------------------- Net Earnings (Loss) (1,056) 420 ============================================= Basic and diluted earnings (loss) per share $ (.12) $ .05 ============================================= Weighted average number of shares of common stock and common stock equivalents, where applicable 9,024 9,123 =============================================
See notes to consolidated financial statements. 4 5 Consolidated Statements of Operations Medar, Inc. and Subsidiaries
NINE MONTHS ENDED SEPTEMBER 30 ----------------------------------------------- 1998 1997 ----------------------------------------------- (Unaudited) (In thousands, except for per share data) Net revenues $ 24,406 $ 32,167 Direct cost of sales 19,146 22,386 ----------------------------------------------- 5,260 9,781 Costs and expenses: Marketing 2,836 3,089 General and administrative 2,317 1,936 Research, development, and engineering 3,604 2,229 Product restructuring and Other Changes - Note B 5,571 ----------------------------------------------- 14,328 7,254 Interest: Expense 1,876 1,665 Income (60) (35) ----------------------------------------------- 1,816 1,630 ----------------------------------------------- Earnings (Loss) before Income Tax (10,884) 897 Provision for income taxes 50 ----------------------------------------------- Net Earnings (Loss) $ (10,884) $ 847 =============================================== Basic and diluted earnings (loss) per share $ (1.21) $ .09 =============================================== Weighted average number of shares of common stock and common stock equivalents, where applicable 9,029 9,110 ===============================================
See notes to consolidated financial statements. 5 6 Condensed Consolidated Statements of Cash Flows Medar, Inc. and Subsidiaries
NINE MONTHS ENDED SEPTEMBER 30 1998 1997 -------------------------------------------- (Unaudited) (In thousands) Operating Activities Net earnings (loss) $ (10,884) $ 847 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 2,895 4,006 Changes in operating assets and liabilities 5,050 (2,248) Restructuring charges 6,973 -------------------------------------------- Net Cash provided by Operating Activities 4,034 2,605 Investing Activities Purchase of property and equipment (99) (455) Investment in capitalized software and patents (1,565) (3,232) -------------------------------------------- Net Cash used in Investing Activities (1,664) (3,687) Financing Activities Proceeds from issuance of subordinated debentures 6,444 Proceeds from issuance of stock warrants 602 Decrease in long term debt (2,517) (6,467) Proceeds from issuance of common stock 750 Proceeds from exercise of stock options 103 -------------------------------------------- Net Cash provided (used) by Financing Activities (2,517) 1,432 -------------------------------------------- Effect of exchange rate changes on cash 64 (80) -------------------------------------------- Increase (Decrease) in Cash (83) 270 Cash at beginning of period 831 215 -------------------------------------------- Cash at end of period $ 748 $ 485 ============================================
See notes to consolidated financial statements. 6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Medar, Inc. and Subsidiaries September 30, 1998 Note A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1997. Note B - Restructuring of Operations Early in the second quarter of 1998, management completed an evaluation of competitive conditions and product offerings in the vision and welding divisions. A charge of $6,973,000 was recorded as of March 31, 1998 to give effect to the impairment of assets identified in this review. The charge consisted of $5,268,000 related to capitalized software development costs, $1,402,000 related to inventory (included in direct costs of sales) and $303,000 of other accruals. Note C - Comprehensive Income During 1997, The Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income. This Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company adopted Statement 130 as of January 1, 1998. The adoption of this Statement had no impact on the Company's net earnings (loss) or stockholders' equity. Statement 130 requires foreign currency translation adjustments and unrealized gains or losses on investments and certain derivative instruments, which prior to the adoption of Statement 130 were reported as a component of stockholders' equity, to be included in other comprehensive income. Total comprehensive income (loss) was ($1,029) and $725 for the three months ended September 30, 1998 and 1997, respectively and ($10,820) and $340 for the nine months ended September 30, 1998 and 1997, respectively. Note D - Inventories Inventories are stated at the lower of first-in, first-out cost or market, and the major classes of inventories at the dates indicated were as follows:
SEPTEMBER 30 DECEMBER 31 1998 1997 --------------------------------------- (In thousands) Raw materials $ 4,420 $ 6,076 Work-in-process 1,244 1,654 Finished goods 2,758 6,497 --------------------------------------- $ 8,422 $ 14,227 =======================================
7 8 Note E - Costs and Estimated Earnings in Excess of Billings on Incomplete 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 period determined and losses, if any, are recognized fully when identified. Costs incurred and 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. Activity on long-term contracts is summarized as follows:
SEPTEMBER 30 DECEMBER 31 1998 1997 -------------------------------------- (In thousands) Contract costs to date $ 6,393 $ 3,499 Estimated contract earnings 3,524 3,377 -------------------------------------- 9,917 6,876 Less billings to date (8,809) (4,308) -------------------------------------- Costs and estimated earnings in excess of billings on incomplete contracts $ 1,108 $ 2,568 ======================================
Note F - Long Term Debt and Other Financing Arrangements Long-term debt consisted of the following:
SEPTEMBER 30 DECEMBER 31 1998 1997 -------------------------------------- (In thousands) Revolving note payable to bank $ 10,000 $ 12,258 Subordinated debentures, interest at 12.95%, principal due 6,560 6,490 June 2000 through 2004 Term notes payable to bank 3,326 3,660 Patent license to corporation, payable $300,000 yearly 1,554 1,715 including interest Other 350 184 -------------------------------------- 21,790 24,307 Less current maturities 17,078 19,415 -------------------------------------- $ 4,712 $ 4,892 ======================================
The revolving note payable to bank is due August 31, 1999, and provides for advances of up to $10,000,000 based upon levels of eligible accounts receivable and inventory. At September 30, 1998, $10,000,000 was available for advances and interest was at the bank's prime rate plus 1/4%. Substantially all company assets not previously pledged under term notes (see below), have been pledged as collateral for this indebtedness. The term notes to bank are payable as follows: - - $62,500 quarterly plus interest at the bank's prime rate, plus 1/4%, due June 29, 2002; collateralized by a first mortgage on the Company's Grand River facility; - - $14,111 monthly, plus interest at 7.7%, due October 31, 2000; collateralized by a first mortgage on the Company's Crestview facility; - - $2,189 monthly, plus interest at the bank's prime rate, plus 1/4%; due March 20, 2002; 8 9 The subordinated debentures mature $700,000 on each June 30 in the years 2000 to 2004, with the balance due June 30, 2005. Interest on the debentures is payable quarterly at 12.95%. Substantially all company assets are secondarily pledged as collateral for the debentures. The debenture holders have warrants for the purchase of 1,400,000 shares of Medar common stock at $6.86. These warrants expire June 30, 2005. The agreements related to the revolving note and the subordinated debentures require that the Company maintain certain levels of tangible net worth and certain debt to equity ratios. At September 30, 1998, the Company did not meet the required levels of net worth and debt to equity ratios in the agreements related to the revolving note and subordinated debt. As such, the amounts due under these notes have been classified as current. See further discussion of this issue in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" elsewhere in this document. The patent license payable relates to future payments to a corporation for use of certain patents. The payments are due in seven remaining installments and have been discounted at 8%. The fair values of these financial instruments approximates their carrying amounts at September 30, 1998. Maturities of long-term debt and capitalized lease obligations, excluding those payable within twelve months form September 30, 1998 (which are stated as current maturities of long-term debt) are $694,000 in 1999; $2,378,000 in 2000; $549,000 in 2001, $554,000 in 2002, and $537,000, thereafter. Note G - Income Taxes 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 are as follows:
SEPTEMBER 30 DECEMBER 31 1998 1997 -------------------------------------- (In thousands) Deferred tax liabilities: Deductible software development costs, net of amortization $ 1,814 $ 3,609 Tax over book depreciation 95 275 Percentage of completion 377 873 -------------------------------------- Total deferred tax liabilities 2,286 4,757 Deferred tax assets: 8,000 7,592 Net operating loss carry forwards 1,061 1,061 Credit carry forwards 68 68 Reserve for warranty 816 144 Other 204 181 -------------------------------------- Total deferred tax assets 10,149 9,046 Valuation allowance for deferred tax assets 7,863 4,289 -------------------------------------- Net deferred tax assets 2,286 4,757 -------------------------------------- Net deferred tax liabilities $ -0- $ -0- ======================================
9 10 Note G - Income Taxes (cont) The reconciliation of income taxes computed at the U.S. federal statutory rates to income tax expense for the nine months ended September 30 is as follows:
1998 1997 ------------------------------------- (In thousands) Tax at U.S. statutory rates $ (3,700) $ 145 Change in valuation allowance 3,574 Utilization of net operating loss carry forward (17) Other 126 (128) ------------------------------------- $ - $ - =====================================
Note H - Earnings per Share The following table sets forth the computation of basic and diluted earnings per share.
QUARTER ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30 1998 1997 1998 1997 (In thousands except share and per share amounts) --------------------------------------------------------------------------------- Numerator: Net earnings (loss) for basic and $ (1,056) $ 420 $ (10,884) $ 847 diluted earnings per share: *there was no effect of dilutive securities Denominator: Denominator for basic earnings per share - weighted- 9,025 8,986 9,025 8,973 average shares Effect of dilutive securities: Employee stock options 137 137 -------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares 9,025 9,123 9,025 9,110 Basic and diluted earnings (loss) $ (.12) $ .05 $ (1.21) $ .09 per share =================================================================================
For additional disclosures regarding stock options and warrants see Note I. Warrants to purchase 1,400,000 shares of common stock and options to purchase 662,100 shares of common stock were outstanding during 1998 but were not included in the computation of diluted earnings per share because the inclusion of these options would have an antidilutive effect. Note I - Stock Options and Warrants At September 30, 1998, there were options outstanding to purchase 662,100 shares of common stock at prices ranging from $1.75 to $9.25 per share and warrants outstanding to purchase 1,400,000 shares at $6.86 per share. 10 11 Note J - Segment Data Quarter Ended September 30, 1998
- ------------------------------------------------------------------------------------------------------------------- Optical Inspection Resistance Welding Consolidated Systems Controls - ------------------------------------------------------------------------------------------------------------------- (In thousands) Net revenues $ 2,528 $ 6,419 $ 8,947 Amortization of software development cost 171 65 236 Research, development, and engineering expense 838 424 1,262 Earnings (loss) from operations (1,318) 844 (474) Net interest expense 582 - ------------------------------------------------------------------------------------------------------------------- Loss before income taxes $ (1,056) =================================================================================================================== Quarter Ended September 30, 1997 - ------------------------------------------------------------------------------------------------------------------- Optical Inspection Resistance Welding Consolidated Systems Controls - ------------------------------------------------------------------------------------------------------------------- (In thousands) Net revenues $ 4,448 $ 6,522 $ 10,970 Amortization of software development cost 594 233 827 Research, development, and engineering expense 526 335 861 Earnings (loss) from operations (254) 1,381 1,127 Net interest expense 657 - ------------------------------------------------------------------------------------------------------------------- Loss before income taxes $ 470 ===================================================================================================================
11 12 Note J - Segment Data (cont) Nine Months Ended September 30, 1998
- ------------------------------------------------------------------------------------------------------------------- Optical Inspection Resistance Welding Consolidated Systems Controls - ------------------------------------------------------------------------------------------------------------------- (In thousands) Net revenues $ 7,686 $ 16,720 $ 24,406 Amortization of software development cost 1,172 342 1,514 Research, development, and engineering expense 2,512 1,092 3,604 Loss from operations (a) (8,801) (267) 9,068 Net interest expense 1,816 - ------------------------------------------------------------------------------------------------------------------- Loss before income taxes $ (10,884) =================================================================================================================== Nine Months Ended September 30, 1997 - ------------------------------------------------------------------------------------------------------------------- Optical Inspection Resistance Welding Consolidated Systems Controls - ------------------------------------------------------------------------------------------------------------------- (In thousands) Net revenues $ 12,939 $ 19,228 $ 32,167 Amortization of software development cost 1,834 697 2,531 Research, development, and engineering expense 1,362 867 2,229 Earnings (loss) from operations (977) 3,504 2,527 Net interest expense 1,630 - ------------------------------------------------------------------------------------------------------------------- Loss before income taxes $ 897 ===================================================================================================================
(a) loss from operations for the nine months ended September 30, 1998 includes restructuring charges of $5,785 for Vision-based Inspection Systems and $1,188 for Resistance Welding Controls (see note B). 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended September 30, 1998 Compared to September 30, 1997. Net sales in the third quarter of 1998 decreased 18.4% to $8.9 million from $11.0 million in 1997. The decrease resulted from decreases of resistance welding product revenues of $.1 million and optical inspection revenues of $2.0 million. Optical inspection product revenues were down as the third quarter of 1997 revenues included the sale of licenses related to certain excess technology for $1.5 million that did not recur in 1998 and from decreases in sales of CD and DVD inspection products following management's first quarter decision to stop pursuit of the CD market (see nine month discussion below) and slow consumer acceptance of DVD products. Gross margin decreased as a percentage of net sales to 28.7% from 33.5% in the third quarter of 1997. Welding product gross margins were down principally as a result of the effects of product mix. Vision product margins decreased as a result of sales of excess technology licenses during the third quarter of 1997 quarter for which there was no recorded cost. The reduction in amortization of software development costs following the product restructuring charges in the first quarter of 1998 (see nine month discussion below) contributed positively to vision product margins. The sales backlog for the Company at September 30, 1998 was $4.8 million compared to $9.2 million at September 30, 1997. Welding product backlogs are lower than comparable 1997 levels, however, they are expected to strengthen in the fourth quarter of 1998 as the Company books orders on projects for which its products have been specified by the end user. Vision product backlogs are low because of the historical buying patterns of vision customers who generally expect expedited delivery of products following placement of the order. Marketing expense decreased less than $.1 million from $1.0 million and as a percentage of net sales increased to 10.9% from 9.2%. The increase in expenses expressed as a percentage of net sales came principally from the continuation of fixed costs with the decline in sales. General and Administrative expense increased to $.8 million from $.7 million and as a percentage of net sales increased to 9.0% from 6.2% The dollar increase is principally related to the costs associated with the implementation of the Company's new financial and manufacturing software. The percentage increase results principally from the fixed nature of many general and administrative expenses with the decrease in the level of net sales in 1998. Research, development, and engineering expense increased to $1.3 million from $.9 million and as a percentage of net sales to 14.1% from 7.8% in 1997. This increase resulted from less software development costs meeting the criteria for capitalization in 1998 as compared to 1997 as the development of VisionBlox and DVD products are substantially completed. Many of the personnel formerly dedicated to these products are now assigned directly to customer projects. Net interest expense decreased to $.6 million from $.7 million in the prior year due to reduced levels of borrowing during the quarter and as a percentage of net sales to 6.5% from 6.0% due to lower sales. Results of Operations Nine Months Ended September 30, 1998 Compared to September 30, 1997. Net sales in the nine months ended September 30, 1998 decreased 24% to $24.4 million from $32.2 million in 1997. The decrease resulted from decreases of resistance welding product revenues of $2.8 million and optical inspection revenues of $5.2 million. Welding product sales decreased as fewer large automotive programs were scheduled in the period as compared to the first nine months of 1997. Optical inspection 13 14 product revenues were down due to decreases in sales of CD and DVD inspection products due to the management's first quarter decision to stop pursuit of the CD market, slow consumer acceptance of DVD products, and lower sales in Asia caused by economic conditions in the region. During the first quarter of 1998 in response to the financial conditions that arose due to heavy investments necessary to complete certain projects under development and unexpected low levels of orders and sales, management terminated 15% of the Company's employees with combined salaries totaling 20% of total compensation. As these terminations severely constrained resources available for product support, it was quickly followed by an extensive review of product offerings. This review determined that the Company would concentrate its efforts going forward toward products for the inspection of DVD discs, products based on VisionBlox technology and certain higher margin and better selling welding products. Other products including those related to compact disc production and certain other products that were selling poorly or at low margins or which were no longer supportable in the software configurations in use were identified for phase out or abandonment. These products had recorded software development costs totaling $5.3 million that was charged off to operations. In addition, reserves totaling $1.4 million to reduce the cost of inventory related to these products to estimated realizable value were established. Finally, in connection with a decision to offer for sale one of the Company's buildings, a reserve was established in the amount of $.3 million to cover the costs to carry the building until the estimated sale date. The charges related to inventory ($1.4 million) were recorded as part of direct cost of sales and the charges related to software development costs and the building reserve (totaling $5.6 million) were reflected as product restructuring and other charges with other costs and expenses in the consolidated statements of operations. Gross margin in the nine-month period ended September 30, 1998 decreased as a percentage of net sales to 21.6% from 30.4% in the comparable period 1997. Welding product gross margins decreased as a result of lower levels of fixed cost absorption during 1998 as the result of lower levels of production during the period in response to lower order levels. Vision product margins decreased as a result of lower levels of fixed cost absorption during the period. The reduction in amortization of software development costs following the product restructuring charges in the first quarter of 1998 contributed positively to vision product margins. Marketing expense decreased to $.3 million from $3.1 million and as a percentage of net sales increased to 11.6% from 9.6%. The decrease in expenses expressed in dollars came principally from reduction of expenditures related to CD products. The increase in expenses expressed as a percentage of net sales came principally from the continuation of fixed costs with the decline in sales. General and Administrative expense increased to $2.3 million from $1.9 million and as a percentage of net sales increased to 9.5% from 6.0%. The increase in the dollars of expense results from certain classification changes from the prior year, increases in legal expenses related to the final resolution of several issues and legal activities related to the Companies product patents and costs associated with implementation of the company's new financial and manufacturing software. The percentage increase results from the classifications and expense increases and from the fixed nature of many general and administrative expenses with the decrease in the level of net sales in 1998. Research, development, and engineering expense increased to $3.6 million from $2.2 million and as a percentage of net sales to 14.8% from 6.9% in 1997. This increase resulted from less software development expenses meeting the criteria for capitalization in 1998 as compared to 1997 as the development of VisionBlox and DVD products are substantially completed. Many of the personnel formerly dedicated to these products are now assigned directly to customer projects. Net interest expense increased to $1.8 million from $1.6 million in the prior year and as a percentage of net sales to 7.4% from 5.1% due to lower sales volumes combined with increased average debt and debt at higher interest rates. 14 15 Liquidity and Capital Resources At September 30, 1998 the Company had a revolving note payable to bank, with a scheduled due date of August 1999, subordinated debentures with scheduled due dates 2000 through 2005 and various term notes that generally mature in 2 to 4 years. Levels of advances under the revolving note are based on levels of acceptable accounts receivable and inventory. The revolving note payable provides for advances of up to $10,000,000. At June 30, 1998 $10,000,000 was available for advances of which $10,000,000 had been advanced. The Company is prohibited from paying dividends under terms of the credit agreement. The agreements related to the revolving note and the subordinated debentures require that the Company maintain certain levels of tangible net worth and certain debt to equity ratios. The Company did not meet the required levels of at December 31, 1997; however, the bank and subordinated note holders waived the shortfall at that date. At March 31, 1998, the Company again did not meet the levels of tangible net worth and debt to equity ratios required in the agreements. In May 1998, the bank agreed to revise the agreement and installed new equity and ratios floors. Although discussions have continued, the subordinated note holders have not agreed to any revisions of their agreement. At September 30, 1998, the Company did not meet the revised required levels of net worth and debt to equity ratios in the bank agreement and continued not to meet the levels required in the note holder's agreement. Management is currently in negotiations with both the bank and the note holders in an attempt to resolve these matters. With respect to the bank, management is attempting to obtain an extension into early 1999 of the current agreement. It is anticipated that the bank will be replaced with another lending institution at that time. Although management believes it will be successful in negotiating an agreement with the bank, there is no assurance that an acceptable agreement can be achieved. Additionally, at the present time, management is holding active discussions with several lending institutions with the intention of replacing the bank as senior lender. There, however, can be no assurance that an agreement will be reached that will provide the type or level of credit that the Company needs to sustain its operations. With respect to the note holders, the management has continued to hold discussions regarding the covenants and is hopeful that a resolution can be achieved. Meanwhile the note holders have not elected to exercise any of the options available to them under the terns of the lending agreement and they have not informed management of their intention to do so. The Company generated $4.0 million of cash from operations in the nine months ended September 30, 1998. The cash was used principally to fund additions to capitalize software and to reduce bank debt. The company has no material commitments for the purchase of property and equipment or software development costs. The amount of software development costs incurred and capitalized over the remainder of 1998 will be dependent on determinations throughout the year of the long and short-term revenue opportunities for the Company's various products. Under the assumption that the current negotiations with the bank and the note holders are successful and that an acceptable new long-term lending arrangement is obtained, management believes that the resources together with any cash generated from operations are adequate to meet cash needs for the next twelve months. 15 16 Part II. Other Information ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description of Document - ------- ----------------------- 3.1 Articles of Incorporation, as amended (filed as Exhibit 3.1 to the registrant's Form 10-K for the year ended December 31, 1995, SEC file 0-12728, and incorporated herein by reference). 3.2 Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the registrant's Form 10-K for the year ended December 31, 1994, SEC file 0-12728, and incorporated herein by reference). 4.1 Note and Warrant Purchase Agreement (filed as Exhibit 4.1 to the registrants Form 8-K dated July 15, 1997, SEC file 0-12728, and incorporated herein by reference). 4.2 Form of 12.95% Senior Subordinated Secured Note (filed as Exhibit 4.2 to the registrants Form 8-K dated July 15, 1997, SEC file 0-12728, and incorporated herein by reference). 4.3 Form of Medar, Inc. Common Stock Purchase Warrant Certificate (filed as Exhibit 4.3 to registrants Form 8-K dated July 15, 1997, SEC file 0-12728, and incorporated herein by reference). 10.1 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). 16 17 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). 10.12 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). 10.13 Mortgage dated October 31, 1995 by and between Medar, Inc. and NBD Bank (filed as Exhibit 10.21 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.14 Installment Business Loan Note dated October 31, 1995, by and between Medar, Inc. and NBD Bank (filed as Exhibit 10.22 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.15 Guarantee and Postponement of Claim dated August 10, 1995 between Medar Canada, Ltd. and NBD Bank (filed as Exhibit 10.23 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.16* Patent License Agreement dated October 4, 1995 by and between Medar, Inc. and Square D Company (filed as Exhibit 10.24 to the registrant's Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). 10.17 General Security Agreement dated March 29, 1996 by and between Medar, Inc. and NBD Bank (filed as Exhibit 10.26 to the registrant's Form 10-Q for the quarter ended March 31, 1996, SEC file 0-12728, and incorporated herein by reference). 10.18 General Security Agreement dated March 29, 1996 by and between Integral Vision-AID, Inc. and NBD Bank (filed as Exhibit 10.27 to the registrant's Form 10-Q for the quarter ended March 31, 1996, SEC file 0-12728, and incorporated herein by reference). 10.19 General Security Agreement dated May 1, 1996 by and between Medar Canada Ltd. and NBD Bank (filed as Exhibit 10.28 to the registrant's Form 10-Q for the quarter ended June 30,1996, SEC file 0-12728, and incorporated herein by reference). 10.20 Amended and Restated Term Note dated July 15, 1997 by and between Medar, Inc. and NBD bank (filed as Exhibit 10.37 to the registrant's Form 10-Q for the quarter ended June 30, 1997, SEC file 0-12728, and incorporated herein by reference). 10.21 Collateral Assignment of Property Rights and Security Agreement dated July 15, 1997 by and between Medar, Inc. and NBD bank (filed as Exhibit 10.38 to the registrant's Form 10-Q for the quarter ended June 30, 1997, SEC file 0-12728, and incorporated herein by reference). 17 18 10.22 Stock Purchase Agreement between Maxco, Inc. and Medar, Inc. dated July 23, 1997 (filed as Exhibit 10.39 to the registrant's Form 10-Q for the quarter ended June 30, 1997, SEC file 0-12728, and incorporated herein by reference). 10.23 Waiver of debt covenants from sub-debt holders (filed as Exhibit 10.41 to the registrant's Form 10-K for the year ended December 31, 1997, SEC file 0-12728, and incorporated herein by reference. 10.24 Amended and restated Revolving Credit and Loan Agreement dated July 31, 1998 by and between Medar, Inc. and Integral Vision Ltd. and NBD Bank (b) There were no reports on Form 8-K filed in the quarter ended September 30, 1998. * 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. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /S/CHARLES J. DRAKE ________________________________________________________________________11/12/98 Charles J. Drake President & Chairman of the Board Medar, Inc. (Principal Executive Officer) /S/RICHARD R. CURRENT ________________________________________________________________________11/12/98 Richard R. Current Executive Vice President & Chief Financial Officer Medar, Inc. (Principal Financial & Accounting Officer) 19 20 Exhibits to Form 10Q Medar, Inc. Quarter Ended September 30, 1998 Exhibit Number Exhibit Index Description - -------------- ------------------------- 10.24 Amended and restated Revolving Credit and Loan Agreement dated July 31, 1998 by and between Medar, Inc. and Integral Vision Ltd. and NBD Bank. 27 Financial Data Schedule 20 EX-10.24 2 AMENDED & RESTATE REVOLVING CREDIT & LOAN AGREMT 1 MEDAR, INC. INTEGRAL VISION LTD. --------------------------------- $10,000,000 AMENDED AND RESTATED REVOLVING CREDIT AND LOAN AGREEMENT DATED AS OF JULY 31, 1998 --------------------------------- NBD BANK 2 TABLE OF CONTENTS
PAGE INTRODUCTION..............................................................................................................1 ARTICLE I. DEFINITIONS.............................................................................................1 1.1 Certain Definitions.....................................................................................1 1.2 Certain Rules of Construction..........................................................................10 1.3 Acknowledgment and Restatement of Credit...............................................................11 ARTICLE II. THE CREDIT FACILITIES..................................................................................11 2.1 Revolving Loan.........................................................................................11 2.2 Commitment Fee and Reducing Commitment.................................................................12 2.3 Letters of Credit......................................................................................13 2.4 Real Estate Loans......................................................................................15 2.6 NBD Records and Determinations.........................................................................15 ARTICLE III. PAYMENTS AND PREPAYMENTS OF LOANS......................................................................15 3.1 Interest Rate and Method of Computation................................................................15 3.2 Payment of Principal and Interest......................................................................16 3.3 Prepayment.............................................................................................16 3.4 Manner, Time and Place of Payment......................................................................16 3.5 Authorization of Payments..............................................................................17 3.6 No Setoff or Deduction.................................................................................17 3.7 Payment on Non-Business Day; Payment Computations......................................................17 3.8 Conditions for Initial Loans...........................................................................17 3.9 Further Conditions for Disbursement....................................................................18 ARTICLE IV. - ADDITIONAL COSTS.......................................................................................19 4.1 Increased Costs........................................................................................19 4.2 Capital Requirements...................................................................................19 ARTICLE V. REPRESENTATIONS AND WARRANTIES.........................................................................20 5.1 Corporate Existence and Power..........................................................................20 5.2 Corporate Authority....................................................................................20 5.3 Binding Effect.........................................................................................20 5.4 Subsidiaries...........................................................................................21 5.5 Litigation.............................................................................................21 5.6 Financial Condition....................................................................................21 5.7 Use of Loans...........................................................................................21 5.8 Consents, Etc..........................................................................................21 5.9 Taxes..................................................................................................21 5.10 Title to Properties....................................................................................22 5.11 Compliance with Governmental Regulations...............................................................22
i 3 5.12 ERISA..................................................................................................22 5.13 Environmental Matters..................................................................................22 5.14 Investment Company Act.................................................................................23 5.15 Disclosure.............................................................................................23 ARTICLE VI. COVENANTS..............................................................................................23 6.1 Affirmative Covenants..................................................................................23 6.2 Negative Covenants.....................................................................................26 ARTICLE VII. DEFAULT................................................................................................29 7.1 Events of Default......................................................................................29 7.2 Remedies...............................................................................................32 ARTICLE VIII. CROSS-GUARANTIES.......................................................................................33 8. Cross Guaranties 8.1 Guaranty...............................................................................................33 8.2 Waivers and Consents...................................................................................33 8.3 Subrogation; Subordination.............................................................................34 ARTICLE IX. MISCELLANEOUS..........................................................................................34 9.1 Amendments.............................................................................................34 9.2 Notices................................................................................................34 9.3 No Waiver By Conduct; Remedies Cumulative..............................................................34 9.4 Reliance on and Survival of Various Provisions.........................................................35 9.5 Expenses; Indemnification..............................................................................35 9.6 Successors and Assigns.................................................................................36 9.7 Participations.........................................................................................36 9.8 Disclosure of Information..............................................................................36 9.9 Counterparts...........................................................................................36 9.10 Governing Law..........................................................................................36 9.11 Table of Contents and Headings.........................................................................37 9.12 Construction of Certain Provisions.....................................................................37 9.13 Integration and Severability...........................................................................37 9.14 Independence of Covenants..............................................................................37 9.15 Joint and Several Liability............................................................................37 9.16 Interest Rate Limitation...............................................................................38 9.17 Limitation of Liability................................................................................38 9.18 Waiver Of Jury Trial...................................................................................38
ii 4 EXHIBITS - -------- Exhibit 2.1 Revolving Note Exhibit 3.2 Request for Revolving Loan iii 5 SCHEDULES - --------- Schedule 5.4 Subsidiaries Schedule 5.5 Litigation Schedule 5.6 Financial Statements Schedule 5.13 Environmental Matters Schedule 6.2(c) Existing Indebtedness Schedule 6.2(d) Existing Liens 6 AMENDED AND RESTATED REVOLVING CREDIT AND LOAN AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT AND LOAN AGREEMENT (this "Agreement"), dated as of July 31, 1998, is by and between 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"), formerly NBD Bank, N.A. The Company and Integral are collectively referred to as the "Borrowers" and individually as a "Borrower." INTRODUCTION WHEREAS, Integral and Medar Canada, Ltd. ("Guarantor") are wholly owned Subsidiaries of the Company and receive substantial benefit from the Company and each other, including without limitation, accounting and administrative services, research and development, marketing and sales assistance. WHEREAS, NBD has provided a committed line of credit of varying amounts to the Company (including Automatic Inspection Devices, Inc. which has since been merged into the Company) and Integral under the terms of a Revolving Credit and Loan Agreement dated August 10, 1995 as amended by agreements dated October 12, 1995, October 31, 1995, March 29, 1996, August 11, 1996, February 27, 1997, March 28, 1997, June 27, 1997, July 15, 1997 and March 16, 1998 ("Existing Loan Agreement"), and has provided various other financial accommodations to the Company and its Subsidiaries, including mortgage loans and various equipment loans and letters of credit. WHEREAS, in order to provide funds for the working capital and other corporate purposes of the Borrowers and Guarantor, NBD has agreed to extend a discretionary authorization, in addition to the outstanding term loans in favor of the Borrowers on the terms and conditions herein set forth. Therefore, the parties agree as follows: ARTICLE I. DEFINITIONS 1.1 Certain Definitions. In addition to the terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings: "Affiliate", when used with respect to any person, means any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and 7 policies of such person, whether through the ownership of voting securities or by contract or otherwise. "Applicable Rate" means, (i) with respect to the Revolving Loans, the Floating Rate, (ii) with respect to the Existing Equipment Loan, the rate specified as the non-default interest rate in the applicable Equipment Loan Documents for such Existing Equipment Loan, and (iii) with respect to the 1995 Mortgage Loan and the 1993 Mortgage Loan, the Term Rate. "Borrowing Base" means an amount determined by NBD equal to the sum of the following: (a) Up to 80% of the book value of Eligible Accounts Receivables of the Borrowers and Guarantor; plus (b) Up to 40% of the lower of costs or market value of Eligible Inventory of the Borrowers and Guarantor for advances made on or before September 30, 1998, and up to 35% of the lower of cost or market value of Eligible Inventory of the Borrowers and Guarantor for advances made on or after October 1, 1998. Notwithstanding the foregoing, in no event will the amount advanced against Eligible Inventory exceed $4,000,000 until September 30, 1998, and $3,500,000 beginning October 1, 1998. "Business Day" means a day other than a Saturday, Sunday or other day on which NBD is not open to the public for carrying on substantially all of its banking functions. "Capital Expenditures" means, for any period, the additions to property, plant and equipment and other capital expenditures of the Borrowers and the Guarantor for such period, as the same are or should be set forth on the Combined financial statements of the Company and its Subsidiaries in accordance with GAAP. "Capital Lease" of any person means any lease which, in accordance with GAAP, is or should be capitalized on the books of such person. "Cash Equivalents" means, as to any person, (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than 12 months from the date of acquisition, (b) time deposits and certificates of deposit of any commercial bank with a long term unsecured debt rating of at least A or its equivalent from Standard & Poor's Rating Group or at least A-2 or its equivalent from Moody's Investors Service, Inc. with maturities of not more than six months from the date of acquisition by such person, (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (b) above, (d) commercial paper issued by any 2 8 person incorporated in the United States, which commercial paper is rated at least A1 or the equivalent thereof by Standard & Poor's Ratings Group or at least P1 or the equivalent thereof by Moody's Investors Service, Inc. or at least F1 or the equivalent thereof by Fitch Investor Services, Inc. and in each case maturing not more than 180 days after the date of issuance by such person, and (e) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (a) through (d) above. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder. "Combined" or "combined" means, when used with reference to any financial term in this Agreement, the aggregate for the Company, Integral and the Guarantor of the amounts signified by such term for all such persons determined on a combined basis in accordance with GAAP. "Commitment" means the commitment of NBD to make Revolving Loans pursuant to Section 2.1, in the initial amount of $10,000,000, as such amount may be reduced from time to time pursuant to Section 2.2(b). "Contingent Liabilities" of any person means, as of any date, all obligations of such person or of others for which such person is contingently liable, as obligor, guarantor, surety or in any other capacity, or in respect of which obligations such person assures a creditor against loss or agrees to take any action to prevent any such loss (other than endorsements of negotiable instruments for collection in the ordinary course of business), including all reimbursement obligations of such person in respect of any letters of credit, surety bonds or similar obligations and all obligations of such person to advance funds to, or to purchase assets, property or services from, any other person in order to maintain the financial condition of such other person. "Debt to Worth Ratio" means the relationship, expressed as a numerical ratio, which Total Debt bears to Tangible Net Worth. "Default" means any of the events or conditions described in Section 7.1 which might become an Event of Default with notice or lapse of time or both. "Default Rate" means the rate per annum which is two percent (2%) per annum in excess of the Applicable Rate. "Dollars" and "$" means the lawful money of the United States of America. "Eligible Accounts Receivable" means each account owing to any of the Borrowers or Guarantor ("Loan Party") which meets the following specifications: (a) it arose from a bona fide sale of goods, in the ordinary course of business, such goods having been delivered or shipped to the account debtor and 3 9 the appropriate Loan Party has genuine purchase orders, invoices and shipping documents or receipts; (b) has been outstanding for no more than 120 days from the date of shipment or delivery; (c) it is owned by the appropriate Loan Party, free and clear of any Lien, other than the perfected, first priority Lien created in favor of NBD and a Lien subject to the Subordination Agreement; (d) it is enforceable against the account debtor for the amount included in the Borrowing Base, is in compliance with applicable laws and regulations, is not subject to any set-off, credit allowance or adjustment (except discounts for prompt payment reflected in the computation thereof) and the account debtor has not returned the goods or disputed liability with respect to such account; (e) none of the Loan Parties have notice or knowledge of any fact or occurrence which could reasonably be expected to impair the credit worthiness of the account debtor; (f) the account debtor is not an Affiliate of any Loan Party, nor is it the United States of America, or any agency thereof; (g) the account debtor has its principle place of business in the United States, or Canada, or the account is covered by acceptable credit insurance; and (h) NBD has not notified the Borrowers that the account or account debtor is unsatisfactory, in the sole discretion of NBD. "Eligible Inventory" means finished goods, work-in-progress or raw material inventory of any of the Loan Parties which meets the following specifications: (a) it is owned by the appropriate Loan Party free and clear of any Lien other than the perfected, first priority Lien created in favor of NBD and a Lien subject to the Subordination Agreement; (b) it is in good and saleable condition and does not consist of returned goods, or damaged, obsolete or slow-moving inventory; (c) it is located at a location owned or leased by a Loan Party and NBD is properly perfected on inventory in such location; and 4 10 (d) NBD has not notified the Borrowers that the Inventory is unsatisfactory, in the sole discretion of NBD. "Environmental Laws" means any and all Governmental Regulations concerning the protection of, or regulating the discharge of substances into, the environment, including the Governmental Regulations specified in the definition of Hazardous Materials. "Effective Date" means the effective date specified in the final paragraph of this Agreement. "Equipment Loans" means the loan evidenced by the Existing Equipment Note and the loan, lease or conditional sales contract funded or otherwise guarantied by NBD Section 2.5. "Equipment Loans Documents" means any and all documents which NBD may require in connection with any Equipment Loan, as originally executed or as they may from time to time be supplemented, modified, amended, renewed or extended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations thereunder. "ERISA Affiliate" means, with respect to any person, any trade or business (whether or not incorporated) which, together with such person or any Subsidiary of such person, would be treated as a single employer under Section 414 of the Code. "Event of Default" means any of the events or conditions described in Section 7.1. "Existing Equipment Loan" means the equipment loan made to Borrower under the Existing Loan Agreement, as evidenced by the Existing Equipment Note. "Existing Equipment Note" means the Term Note dated March 20, 1997 in the original principal amount of $131,315.80, together with any amendment, restatement, replacement or renewal thereof. "Floating Rate" means the per annum rate equal to 1/4% per annum, plus the Prime Rate in effect from time to time. "Funding Date" means any Business Day designated by the Company as a day on which a Revolving Loan is to be made. "GAAP" means generally accepted accounting principles applied on a basis consistent with those reflected in the financial statements listed in Schedule 5.6. "Governmental Regulations" means any and all laws, statutes, ordinances, rules, 5 11 regulations, judgments, writs, injunctions, decrees, orders, awards and standards, or any similar requirement, of the government of the United States, any foreign government or any state, province, municipality or other political subdivision thereof or therein or any court, agency, instrumentality, regulatory authority or commission of any of the foregoing. "Guarantor" means Medar Canada, Ltd., a Canadian corporation, and any other subsidiary of the Company which may from time to time execute a guaranty of the Obligations. "Guaranty Agreement" means the Guaranty Agreement dated August 10, 1995 executed and delivered by the Guarantor to NBD. "Hazardous Materials" means asbestos-containing materials, mono- or polychlorinated biphenyls, urea formaldehyde products, radon, radioactive materials and any "hazardous substance", "hazardous waste", "pollutant", "toxic pollutant", "oil" or "contaminant" as used in, or defined pursuant to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 USC Sections 9601 et seq., and 40 CFR Sections 302.1 et seq.; the Federal Clean Air Act, as amended, 42 USC Sections 7401 et seq., and regulations thereunder; the Resource Conservation and Recovery Act, 42 USC Sections 6901 et seq., as amended, and regulations thereunder; the Federal Water Pollution Control Act, 33 USC Sections 1251 et seq., as amended, and regulations thereunder; 40 CFR Sections 116.1 et seq. and Sections 129.1 et seq.; and any other substance, waste, pollutant, contaminant or material, including petroleum products and derivatives, the use, transport, disposal, storage, treatment, recycling, handling, release, threatened release, or emission of which is regulated or governed by any Environmental Laws. "Indebtedness" of any person means (a) all obligations of such person for borrowed money, (b) all obligations of such person as lessee under any Capital Lease, (c) all obligations which are secured by any Lien existing on any asset or property of such person whether or not the obligation secured thereby shall have been assumed by such person, (d) the unpaid purchase price for goods, property or services acquired by such person, except for trade accounts payable arising in the ordinary course of business that are not past due, (e) all obligations of such person to purchase goods, property or services where payment therefor is required regardless of whether delivery of such goods or property or the performance of such services is ever made or tendered (generally referred to as "take or pay contracts"), (f) all liabilities of such person in respect of unfunded benefit liabilities (determined in accordance with Section 4001(a)(18) of ERISA) under any Plan of such person or of any ERISA Affiliate, (g) all obligations of such person in respect of any interest rate or currency swap, rate cap or other similar transaction (valued in an amount equal to the highest termination payment, if any, that would be payable by such person upon termination for any reason on the date of determination), and (h) all Contingent Liabilities of such person. "Investment" means (a) any transfer or delivery of cash, stock or other property or value by such Person in exchange for Indebtedness, stock or any other security of another Person; (b) any loan, advance or capital contribution to or in any other Person; (c) any guaranty, creation or 6 12 assumption of any liability or obligation of any other Person; and (d) any investment in any fixed property or fixed assets other than fixed properties and fixed assets acquired and used in the ordinary course of the business of that Person. "L/C Documents" means the L/C and all applications and other documents which NBD may require in connection with any issuance of an L/C by NBD hereunder, as originally executed or as they may from time to time be supplemented, modified, amended, renewed or extended. "L/Cs" means the letters of credit issued by NBD on behalf of any Borrower pursuant to Section 2.3, and any amendments, restatements, replacements, extensions or renewals thereof. "L/C Sublimit" means the maximum amount of L/Cs which may be outstanding at any time, which amount shall be $500,000. "Lien" means any pledge, assignment, hypothecation, mortgage, security interest, deposit arrangement, option, conditional sale or title retaining contract, sale and leaseback transaction, financing statement filing, lessor's or lessee's interest under any lease, subordination of any claim or right, or any other type of lien, charge, encumbrance, preferential arrangement or other claim or right. "Loans" means (i) the Revolving Loans made by NBD to the Borrowers pursuant to Section 2.1 evidenced by the Revolving Note, (ii) the Existing Equipment Loan (iii) the 1995 Mortgage Loan made by NBD to the Company as described in Section 2.4(a), and (iv) the 1993 Mortgage Loan made by NBD to the Company as described in Section 2.4(b). "Loan Documents" means this Agreement, the Notes, the Guaranty Agreement, the L/C Documents, the Equipment Loan Documents, the Security Documents, the 1995 Term Note (defined in Section 2.4(a)), the 1995 Mortgage (defined in Section 2.4(a)), the 1993 Term Note (defined in Section 2.4(b)) and the 1993 Mortgage (defined in Section 2.4(b)), given to NBD, as any of the foregoing may be amended from time to time, and all other agreements, documents or instruments now or hereafter executed by or on behalf of any of the Borrowers or the Guarantor and delivered to NBD in connection with this Agreement or any amendment thereof. "Loans" means (i) the Revolving Loans made by NBD to the Borrower pursuant to Section 2.1, evidenced by the Revolving Note, (ii) the Equipment Loans made by NBD to any one or more of the Borrowers pursuant to Section 2.4, (iii) 1995 Mortgage Loan described in Section 2.4(a), and (iv) the 1993 Mortgage Loan described in Section 2.4(b). "Material Adverse Event" means any event, occurrence or state of facts which has or could have a material adverse effect on the business, properties, assets, operations, condition (financial or otherwise) or prospects of any Borrower or any Guarantor. 7 13 "Multiemployer Plan" means any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA or Section 414(f) of the Code. "Notes" means the Revolving Note, the 1995 Term Note, the 1993 Term Note, and the Existing Equipment Note, together with any amendment, restatement, replacement or renewal thereof, together with any amendment, restatement, replacement or renewal thereof. "Note Subordination Agreement" means the Subordination Agreement given to NBD by the holders of the Subordinated Notes, dated July 14, 1997, and any amendment, replacement or restatement thereof which has been approved by NBD. "Obligations" means the principal of and interest on the Loans, the aggregate amount of outstanding L/Cs and all other indebtedness, obligations and liabilities of any of the Borrowers to NBD under, arising out of or in connection with this Agreement or any other Loan Document (including indemnities, fees and expenses), whether now existing or hereafter incurred, direct or indirect, absolute or contingent, matured or unmatured, joint or several, whether for principal, interest, reimbursement obligations, fees, expenses or otherwise, and the due performance and compliance with the terms and conditions of this Agreement and the other Loan Documents by any Borrower or any Guarantor. "Payment Date" means the last Business Day of each month, commencing July 31, 1998. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means the Liens permitted by Section 6.2(d). "Person" or "person" includes an individual, a corporation, an association, a partnership, a trust or estate, a joint stock company, an unincorporated organization, a joint venture, a trade or business (whether or not incorporated), a government (foreign or domestic) and any agency or political subdivision thereof, or any other entity. "Plan" means, with respect to any person, any pension plan (other than a Multiemployer Plan) subject to Title IV of ERISA or to the minimum funding standards of Section 412 of the Code which has been established or maintained by such person, any Subsidiary of such person or any ERISA Affiliate, or by any other person if such person, any Subsidiary of such person or any ERISA Affiliate could have liability with respect to such pension plan. "Prime Rate" means the prime rate of interest as announced by NBD at its principal office at Detroit, Michigan, as in effect from time to time, which rate may not be the lowest rate charged by NBD to any of its customers, which Prime Rate shall change simultaneously with any change in such announced rate. 8 14 "Prohibited Transaction" means any transaction involving any Plan which is proscribed by Section 406 of ERISA or Section 4975 of the Code. "Property" means any real property in which any Borrower or any Guarantor has an interest or right of possession. "Purchase Money Liens" means Liens securing purchase money Indebtedness incurred in connection with the acquisition of capital assets by any Borrower or any Guarantor in the ordinary course of business; provided that (a) such Liens do not extend to or cover assets or properties other than those purchased in connection with the purchase in which such Indebtedness was incurred and (b) the obligation secured by any such Lien so created shall not exceed 100% of the cost of the property including transportation and installation costs covered thereby. "Reportable Event" means a reportable event as described in Section 4043(b) of ERISA including those events as to which the 30-day notice period is waived under Part 2615 of the regulations promulgated by the PBGC under ERISA. "Restricted Payments" means any dividend (other than dividends payable solely in capital stock of such person) or returns of capital to any shareholder of such person, or any other distribution, payment or delivery of property or cash to any of such person's shareholder's or any redemption, retirement, purchase or other acquisition of capital stock of such person. "Revolving Loan" means a loan made by NBD to the Borrowers pursuant to Section 2.1. "Revolving Note" means the Revolving Credit Note of the Borrowers evidencing the Revolving Loans in the form of Exhibit 2.1, together with any amendment, restatement, replacement or renewal thereof. "Security Documents" means the General Security Agreement, dated March 29, 1996, from the Company to the Bank, the Composite Guarantee and Debenture dated June 7, 1996, from Integral to the Bank, the General Security Agreement, dated May 1, 1996, from Medar Canada, Ltd. and other documents from any Borrower or Guarantor which grant or perfect a lien in favor of NBD. "Subordinated Notes" means Indebtedness of the Company under seven 12.95% Senior Subordinated Secured Notes dated July 14, 1997, in the aggregate original principal amount of $7,000,000, which have been issued under the Note and Warrant Purchase Agreement, dated as of July 14, 1997, and any replacements thereof; provided that such Indebtedness, any guaranties and any Liens are made subordinate to the Obligations and Liens of NBD on terms satisfactory to NBD. 9 15 "Subsidiary" of any person means any other person (whether now existing or hereafter organized or acquired) in which (other than directors' qualifying shares required by law) at least a majority of the securities or other ownership interests of each class having ordinary voting power or analogous right (other than securities or other ownership interests which at the time as of which any determination is being made, are owned, have such power or right only by reason of the happening of a contingency), beneficially and of record, by such person or by one or more of the other Subsidiaries of such person or by any combination thereof. "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 evidenced by the subordinated Notes, 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. "Term Loans" means the loans made by NBD to the Company as described in Sections 2.3 and 2.4. "Term Rate" means the per annum rate equal to (i) 1/4% per annum, plus (ii) the greater of .50% above the Federal Funds Rate or the Prime Rate in effect from time to time. "Termination Date" means the earlier to occur of (a) August 31, 1999, (b) the date on which NBD's obligations under this Agreement are terminated pursuant to Section 2.2(b) or 7.2, and (c) demand for payment of the Obligations. "Total Debt" means the total of all liabilities of the Borrowers and the Guarantors which would appear as liabilities on a Combined balance sheet of the Borrowers and the Guarantor, determined in accordance with GAAP. 1.2 Certain Rules of Construction. For purposes of this Agreement: (a) Certain References. The words "herein," "hereof" and "hereunder," and words of similar import, refer to this Agreement as a whole and not to any particular provision of this Agreement, and references to Articles, Sections, Exhibits or Schedules, and similar references, are to Articles or Sections of, or Exhibits or Schedules to, this Agreement unless otherwise specified. (b) General Rules. Unless the context otherwise requires: (i) the singular includes the plural, and vice versa; (ii) all definitions and references to an agreement, instrument 10 16 or document shall mean such agreement, instrument or document together with all exhibits and schedules thereto and any and all amendments, supplements or modifications thereto as the same may be in effect at the time such definition or reference is applicable for any purpose; (iii) all references to any party shall include such party's successors and permitted assigns; (iv) the term "including" means including, without limitation; and (v) reasonable attorneys' fees shall include allocated costs of in-house counsel. (c) Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement shall have the meanings given to them in accordance with GAAP, all computations made pursuant to this Agreement shall be made in accordance with GAAP, and all financial statements shall be prepared in accordance with GAAP. 1.3 Acknowledgment and Restatement of Credit. (a) Acknowledgment. By executing this Agreement, NBD and the Borrowers acknowledge and agree that as of July 30, 1998, (i) the principal amount owed to NBD under Section 2.1 of the Existing Loan Agreement by the Borrowers is (in the aggregate principal amount) $8,743,000.00 (ii) the principal amount owed to NBD under the 1995 Mortgage Loan and the 1993 Mortgage Loan is (in the aggregate principal amount) $3,338,448.00, and (iii) the principal amount owed to NBD under the Existing Equipment Note is $96,298.20 (collectively, the "Existing Indebtedness"). All borrowings on July 30, 1998 under Section 2.1 of the Existing Loan Agreement shall be deemed to be an advance under Section 2.1 of this Agreement. The Borrowers further acknowledge and agree that, as of the Effective Date, all Existing Indebtedness is and shall be owed to NBD without offset, deduction, counterclaim or any other defense or claim whatsoever. (b) Effect of Restatement. The parties acknowledge and agree that this Agreement and the other Loan Agreement amend, modify and restate the Existing Indebtedness to NBD under the Existing Loan Documents and the execution and delivery of this Agreement or any of the Loan Documents shall not constitute (i) a novation or (ii) a waiver or release of any Default or Event of Default based on any facts or events occurring or existing prior to the date hereof and unknown to NBD prior to the date hereof. ARTICLE II. THE CREDIT FACILITIES 2.1 Revolving Loan. (a) Commitment. Subject to the terms and conditions of this Agreement, NBD will 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 outstanding hereunder when added to the face amount of all then outstanding L/Cs shall not at any time exceed the lesser of the (a) Commitment or (b) the Borrowing Base at such time. 11 17 The principal amount of each Revolving Loan shall be in an integral multiples of $10,000 and shall be in an amount not less than $10,000. The Revolving Loans advanced under this Section 2.1 shall be evidenced by a Revolving Note of the Company in substantially the form of Exhibit 2.1. The Revolving Note shall be dated the Effective Date and be due on the Termination Date. Interest shall accrue on the unpaid principal balance of the Revolving Loans from time to time outstanding under this Section 2.1 at the Floating Rate and shall be payable in accordance with Article III. Subject to the other terms and conditions of this Agreement the Revolving Loans may be borrowed, repaid and reborrowed prior to the Termination Date. Although the Revolving Credit Note shall be expressed to be payable in the maximum amount of the Commitment, the Borrowers shall be obligated to pay only the unpaid balance of the Revolving Loans together with interest thereon and other amounts due in connection therewith as provided herein and in the Revolving Note. The proceeds of Revolving Loans shall be used by the Borrowers for working capital or other general corporate purposes of the Borrowers and/or Guarantors. (b) Procedure for Borrowing. The Company shall give notice to the Bank of each proposed Revolving Loan not later than 3:00 p.m., Detroit time, on the proposed Funding Date. Each such request shall be effective upon receipt by the Bank, shall be in writing or by telephone to be promptly confirmed in writing, shall specify the Funding Date and amount of the requested Revolving Loan. Each of the Borrowers hereby authorizes the Company to request Revolving Loans and otherwise give and receive notices regarding the Loans and this Agreement on its behalf. Subject to the terms and conditions of this Agreement, the proceeds of each Revolving Loan shall be made available to the Borrowers by depositing on the Funding Date the proceeds thereof, in immediately available funds, in an account maintained by the Company or in Subsidiaries at the main office of the Bank. 2.2 Commitment Fee and Reducing Commitment. (a) Commitment Fee. The Borrowers agree to pay to NBD a commitment fee computed at the rate of 1/2% per annum on the average daily unused portion of the Commitment. The face amount of any outstanding standby L/C issued pursuant Section 2.3 will be considered an amount used for purposes of calculating such commitment fee, however, the face amount of any commercial L/C will not be considered an amount used for purposes of calculating such commitment fee. Such commitment fee will accrue from and after the Effective Date, shall be calculated on a daily basis during the applicable period and will be due and payable quarterly in arrears, beginning on September 30, 1998, and on each December 31, March 31 and September 30 thereafter through the Termination Date, with any accrued but unpaid commitment fee due on the Termination Date. (b) Reducing and Terminating Commitment. The Borrowers will have the right to terminate or reduce the Commitment at any time and from time to time, in which case the Commitment will be terminated or permanently reduced by the amount so specified, as the case may be; provided, however, that (a) the Borrowers shall give notice of such termination or 12 18 reduction to NBD at least five Business Days in advance thereof, specifying the amount and effective date thereof, (b) each partial reduction of the Commitment shall be in a minimum amount of $1,000,000 and in an integral multiple of $100,000, (c) no such termination or reduction shall be permitted with respect to any portion of the Commitment as to which a request for a Revolving Loan or a L/C is then pending, and (d) the entire Commitment may not be terminated if any Revolving Loans are then outstanding and may not be reduced below the sum of the principal amount of Revolving Loans then outstanding plus the aggregate amount of all then outstanding L/Cs. The Commitment or any portion thereof so terminated or reduced pursuant to this Section 2.2(b) may not be reinstated. 2.3 Letters of Credit (a) Issuance of L/Cs. Provided there is sufficient availability under the Borrowing Base and Commitment and if requested by the Borrowers (with no less than three Business Days prior written application in such form as requested by NBD), NBD shall issue for the account of any Borrower standby or commercial letters of credit, upon the following conditions: (i) Total Amount. The total face amount of all outstanding L/Cs at any time shall not exceed an amount equal to the lesser, at such time, of (A) the L/C Sublimit or (B) the lesser of (1) the Commitment or (2) the Borrowing Base at such time. (ii) Expiry. The expiry date of any L/C shall not exceed a maximum of 12 months from the date of issuance, provided, however, that any L/Cs outstanding on the Termination Date will be (A) secured by cash or other collateral satisfactory to NBD, or (B) replaced as of the Termination Date under conditions which cause such outstanding L/Cs to be cancelled. (iii) Fees. The Borrowers will be charged a $150 issuance fee for each standby L/C issued pursuant to this Section 2.3. Any outstanding standby will accrue a commission at a per annum rate of 1.25% of the face amount of such L/C, payable annually in advance at time of issuance. All commercial L/Cs will incur the usual and customary charges, to be agreed upon by the Borrowers and NBD at the time of issuance, for the issuance of commercial L/Cs. (iv) Documentation. The Borrowers shall execute standard documentation as requested by NBD with respect to the issuance of each L/C. (v) Conditions Met. On the date of issuance, all of the conditions present specified in Sections 3.9 and 3.10 have been satisfied. (b) Obligations Unconditional. The obligation of the to pay to NBD the amount of any L/C shall be absolute, unconditional and irrevocable and shall remain in 13 19 full force and effect until all Obligations of the Borrowers shall have been satisfied, and the Obligations with respect to each L/C shall not be affected, modified or impaired upon the happening of any event, including, without limitation, any of the following, whether or not with notice to, or the consent of, the Borrowers: (i) Any lack of validity or enforceability of any L/C or any other L/C Document or to any transaction related in any way to such L/C; (ii) Any amendment, modification, waiver, consent, or any substitution, exchange or release of or failure to perfect any interest in collateral or security, with respect to any of the L/C Documents; (iii) The existence of any claim, setoff, defense or other right which any Borrower may have at any time against any beneficiary or any transferee of any L/C (or any persons for whom any such beneficiary or any such transferee may be acting), NBD or any other person or entity, whether in connection with any of the L/C Documents, the transactions contemplated herein or therein or any unrelated transactions; (iv) Any draft or other statement or document presented under any L/C proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) Payment by NBD to the beneficiary under any L/C against presentation of documents which do not strictly comply with the terms of the L/C, including failure of any documents to bear any reference or adequate reference to such L/C; (vi) Any failure, omission, delay or lack on the part of NBD or any party to any of the L/C Documents to enforce, assert or exercise any right, power or remedy conferred upon NBD or any such party under this Agreement or any of the L/C Documents, or any other acts or omissions on the part of NBD or any such party; and (vii) Any other event or circumstance that would, in the absence of this clause, result in the release or discharge by operation of law or otherwise of the Borrowers from the performance or observance of any obligation, covenant or agreement contained in this Section 2.3. (d) Repayment. The Borrowers agree, jointly and severally, to pay to NBD, on the day on which any L/C shall come due, the face amount of such L/C and all expenses paid or incurred by NBD relative thereto. Unless the Borrowers shall have made such payment to NBD on such day, NBD shall be deemed to have disbursed to the Borrowers and the Borrowers shall be deemed to have elected to satisfy its repayment obligation by a Revolving Loan in an amount equal to the amount due with respect to such L/C. Such Revolving Loan shall be 14 20 disbursed notwithstanding any failure to satisfy any conditions for disbursement of any Loan set forth in Section 3.10 and, to the extent of such Revolving Loan, the repayment obligation of the Borrowers with respect to such L/C under this subsection shall be deemed satisfied. 2.4 Real Estate Loans. (a) NBD has extended a term loan to the Company in the original principal amount of $2,540,000 ("1995 Mortgage Loan"), evidenced by an Installment Business Loan Note in such amount, dated October 31, 1995 (together with any amendments, restatements, replacements or renewals, the "1995 Term Note"). In connection with the 1995 Mortgage Loan, the Company granted to NBD a mortgage (the "1995 Mortgage") on the property commonly known as 24755 Crestview Court, Farmington Hills, Michigan, which the Company acknowledges secures the 1995 Term Note, the other Obligations of the Borrowers under this Agreement and any other amounts owed by the Company to NBD. (b) NBD has extended a term loan to the Company in the principal amount of $2,500,000 ("1993 Mortgage Loan"), evidenced by a Term Note, dated June 29, 1993 (together with any amendments, restatements, replacements or renewals, the "1993 Term Note"). In connection with the 1993 Mortgage Loan, the Company granted to NBD a mortgage (the "1993 Mortgage") on the property commonly known as 38700 Grand River, Farmington Hills, Michigan, which the Company acknowledges secures the 1993 Term Note, the other Obligations of the Borrowers under this Agreement and any other amounts owed by the Company to NBD. 2.5 NBD Records and Determinations. NBD is hereby authorized by the Borrowers to note on NBD's books and records, the date and amount of each Revolving Loan and Equipment Loan, the amount of each payment or prepayment on any of the Loans and such other information as appropriate, which books and records shall constitute prima facie evidence of the information so noted. Notwithstanding the foregoing, the failure of NBD to record, or any error in recording, any such information shall not relieve the Borrowers of their obligation to repay the outstanding principal amount of the Loans, the L/Cs, all accrued interest thereon and other amounts payable with respect thereto in accordance with the terms of the Notes, the L/C Documents, and this Agreement. NBD's determinations of the Applicable Rates, the Default Rate, the fees, any indemnity payment or other amounts payable under this Agreement shall be conclusive and binding absent manifest error. ARTICLE III. PAYMENTS AND PREPAYMENTS OF LOANS 3.1 Interest Rate and Method of Computation. (a) Interest Rates. The outstanding principal balance of the Revolving Loans shall bear interest at the Floating Rate in effect from time to time and 1995 Mortgage Loan and 1993 Mortgage Loan shall bear interest at the Term Rate in effect from time to time; provided that if there is an Event of Default or if any amount of principal and interest (to the extent legally enforceable) that is not paid when due (whether at maturity, upon mandatory prepayment, by acceleration or otherwise) shall bear interest, payable upon demand, at the Default Rate or the 15 21 maximum rate permitted by law, whichever is lower, for the period commencing on the due date thereof until the same is paid in full. In addition to the foregoing, during the period that an Event of Default has occurred and shall be continuing, the Borrowers shall pay on demand, at the election of the Bank, interest at the Default Rate on the outstanding principal amount of all the Obligations which are outstanding during such period from and after the date of any such demand. (b) Computations. All computations of interest and other amounts due under this Agreement (including fees) shall be made on the basis of a year of 360 days using the actual number of days occurring in the period for which such interest or other amounts are payable, including the first day but excluding the last day of the relevant period. Each determination by the Bank of such amounts shall be presumed to be correct. 3.2 Payment of Principal and Interest. The Borrowers shall pay all accrued and unpaid interest on the outstanding principal balance of the Revolving Loans on (i) the last day of each month and (ii) the Termination Date. Principal and accrued and unpaid interest on the outstanding balance of the 1995 Mortgage Loan, the 1993 Mortgage Loan and the Existing Equipment Loan shall be paid by the Borrowers as set forth in the corresponding Notes. 3.3 Prepayment. (a) Mandatory Prepayment. If the principal balance outstanding under Section 2.1 when added to the face amount of all outstanding L/Cs exceeds the Commitment or the Borrowing Base at any time, the Borrowers shall immediately prepay the amount of such excess to the Bank. (b) Voluntary Prepayment of Notes. The Loans may be voluntarily prepaid in whole or in part at any time, without premium or penalty (except for any fixed rate Equipment Loans which may be subject to a prepayment premium). The Company, on behalf of the Borrowers, may designate the Note or Notes to which a payment is to be applied and the Bank will apply such payment to the Note or Notes so designated. In case of prepayment of less than all of the outstanding principal amount of the Notes, the prepayment will be applied first to accrued, but unpaid interest on the Note designated for prepayment by the Company, and then to the principal amounts due on that Note, and if the principal prepayments are to be made on the 1995 Mortgage Note, the 1993 Mortgage Note or on any Equipment Loan, then to installment payments of principal in the inverse order of maturity. 3.4 Manner, Time and Place of Payment. All payments (and prepayments when required or permitted under Section 3.3) of principal, interest or fees shall be made in Dollars in immediately available funds to the Bank at its address set forth in this Agreement no later than 3:00 p.m., Detroit time, on the dates when due. Any payments received after such time shall be deemed to have been received on the following Business Day. If any payment under this Agreement or any Note becomes due on a day other than a Business Day, its maturity will be 16 22 extended to the next succeeding Business Day, with interest continuing to accrue on the unpaid principal. 3.5 Authorization of Payments. If the Borrowers shall not otherwise have made payment of any of the Obligations as provided in this Agreement, NBD is expressly authorized to charge any such Obligations, when due, to any of the Borrower's demand deposit accounts maintained with NBD or, if such accounts shall not control sufficient funds, to any other account maintained by any Borrower with NBD. 3.6 No Setoff or Deduction. All payments of principal of and interest on the Loans and other Obligations shall be paid by the Borrowers without setoff or counterclaim, and free and clear of, and without deduction or withholding for, or on account of, any present or future taxes, levies, imposts, duties, fees, assessments, or other charges of whatever nature, imposed by any governmental authority, or by any department, agency or other political subdivision or taxing authority or other person. 3.7 Payment on Non-Business Day; Payment Computations. Except as otherwise provided in this Agreement, whenever any installment of principal of, or interest on, any Loan or any other Obligation becomes due and payable on a day which is not a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, in the case of any installment of principal, interest shall be payable thereon at the then Applicable Rate during such extension. 3.8 Conditions for Initial Loans. The obligation of NBD to make the first Revolving Loans or to issue the first L/C hereunder is subject to receipt by NBD of the following documents and completion of the following matters on or prior to the Effective Date, in form and substance satisfactory to NBD: (a) Charter Documents. Certificates of recent date of the appropriate authority or official of the jurisdiction of incorporation of Medar, Inc. listing all charter documents of Medar, Inc. on file in that office and certifying as to the good standing and corporate existence of Medar, Inc., together with copies of such charter documents of Medar, Inc. certified as of a recent date by such authority or official, and certified as true and correct as of the Effective Date by a duly authorized officer of Medar, Inc. (b) By-Laws and Corporate Authorizations. Copies of the by-laws of each Borrower and Guarantor, together with all authorizing resolutions and evidence of other corporate action taken by each Borrower and Guarantor. to authorize the execution, delivery and performance by such Person of this Agreement and the other Loan Documents to which it is a party and the consummation by such Person of the transactions contemplated hereby, certified as true and correct as of the Effective Date by a duly authorized officer of such Person. (c) Incumbency Certificate. Certificates of incumbency of each Borrower and 17 23 Guarantor containing, and attesting to the genuineness of, the signatures of those officers authorized to act on behalf of the Borrowers in connection with this Agreement and the other Loan Documents to which the Borrowers is a party and the consummation by the Borrowers of the transactions contemplated hereby, certified as true and correct as of the Effective Date by a duly authorized officer of such Borrower. (d) Note. The Revolving Note appropriately completed and duly executed on behalf of the Borrowers. (e) Legal Opinion. The favorable written opinion of counsel for Medar, with respect to each of the matters set forth in Sections 5.1, 5.2, 5.3, 5.5 and 5.8, and as to such other matters as NBD may reasonably request. (f) Consents, Approvals, Etc. Copies of all governmental and nongovernmental consents, approvals, authorizations, declarations, registrations or filings, if any, required on the part of the Borrowers in connection with the execution, delivery and performance of this Agreement and the other Loan Documents or the transactions contemplated hereby or as a condition to the legality, validity or enforceability of this Agreement or the other Loan Documents, certified as true and correct and in full force and effect as of the Effective Date by a duly authorized officer of the appropriate Borrower. (g) Satisfaction of Legal Counsel. Satisfaction of legal counsel to NBD with all documents and instruments delivered hereunder or under any other Loan Document and all proceedings related to the consummation of the transactions contemplated by this Agreement and the other Loan Documents, and delivery to NBD and such legal counsel of copies (executed or certified as may be appropriate) of all legal documents or proceedings which NBD or such legal counsel may reasonably request in connection with the consummation of such transactions. (h) Reaffirmation of Guaranty of Medar Canada, LTD executed by a duly authorized officer of Guarantor. 3.9 Further Conditions for Disbursement. The obligation of NBD to make any Revolving Loans or to issue any L/C hereunder is subject to the following conditions being true and correct and the Borrowers shall be deemed to have made to NBD at the time any Loan is advanced or any L/C is issued (including any renewal or extension of any L/C) the following representations and warranties unless otherwise stated in writing by the Borrowers: (a) Representations True. The representations and warranties contained in Article V are true and correct on and as of the date such Loan is made or such L/C is issued (both before and after such Loan is made or such L/C is issued) as if such representations and warranties were made on and as of such date. For purposes of this Section 3.10, the representations and warranties contained in Section 5.6 shall be deemed made with respect to both the financial statements referred to therein and the most recent financial statements 18 24 delivered pursuant to Section 6.1(d). (b) No Default. No Default or Event of Default exists or has occurred and is continuing on the date such Loan is made or such L/C is issued (whether before or after such Loan is made or such L/C issued). (c) No Material Adverse Event. Nothing has occurred since the Effective Date which either (i) constitutes a Material Adverse Event or (ii) has, or may have, an adverse effect on the rights or remedies of NBD under this Agreement or any other Loan Document. ARTICLE IV - ADDITIONAL COSTS 4.1 Increased Costs. In the event that any Governmental Regulation now or hereafter in effect and whether or not presently applicable to NBD, or any interpretation or administration thereof by any governmental authority (including without limitation the Board of Governors of the Federal Reserve System) charged with the interpretation or administration thereof, or compliance by NBD with any guideline, request or directive of any such authority (whether or not having the force of law), shall (i) affect the basis of taxation of payments to NBD of any amounts payable by the Borrowers under this Agreement or any other Loan Documents (other than taxes imposed on the overall net income of NBD, by the jurisdiction, or by any political subdivision or taxing authority of any such jurisdiction, in which NBD has its principal office), or (ii) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by NBD, or (iii) impose any other condition with respect to this Agreement, the Commitment, the Note, the Loans or any other Obligation, and the result of any of the foregoing is to increase the cost to NBD of making, funding or maintaining any Loan or to reduce the amount of any sum receivable by NBD under this Agreement, then the Borrowers shall pay to NBD, from time to time, upon request by NBD, additional amounts sufficient to compensate NBD for such increased cost or reduced sum receivable. A statement as to the amount of such increased cost or reduced sum receivable, prepared in good faith and in reasonable detail by NBD and submitted by NBD to the Borrowers, shall be conclusive and binding for all purposes absent manifest error in computation. 4.2 Capital Requirements. In the event that any Governmental Regulation now or hereafter in effect and whether or not presently applicable to NBD, or any interpretation or administration thereof by any governmental authority (including without limitation the Board of Governors of the Federal Reserve System) charged with the interpretation or administration thereof, or compliance by NBD with any guideline, request or directive of any such authority (whether or not having the force of law), including any risk-based capital guidelines, affects or would affect the amount of capital required or expected to be maintained by NBD (or any corporation controlling NBD) and NBD determines that the amount of such capital is increased by or based upon the existence of NBD's obligations hereunder and such increase has the effect of reducing the rate of return on NBD's (or such controlling corporation's) capital as a consequence of such obligations hereunder to a level below that which NBD (or such controlling 19 25 corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy) by an amount deemed by NBD to be material, then the Borrowers shall pay to NBD, from time to time, upon request by NBD, additional amounts sufficient to compensate NBD (or such controlling corporation) for any increase in the amount of capital and reduced rate of return which NBD reasonably determines to be allocable to the existence of NBD's obligations hereunder. A statement as to the amount of such compensation, prepared in good faith and in reasonable detail by NBD and submitted by NBD to the Borrowers, shall be conclusive and binding for all purposes absent manifest error in computation. ARTICLE V. REPRESENTATIONS AND WARRANTIES The Borrowers represent and warrant to NBD as follows, on the Effective Date and on each Funding Date: 5.1 Corporate Existence and Power. Each Borrower and each Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified to do business, and is in good standing, in all additional jurisdictions where such qualification is necessary under applicable law. Each Borrower and each Guarantor has all requisite corporate power to own or lease the properties used in its business and to carry on its business as now being conducted and as proposed to be conducted, and to execute and deliver this Agreement and the other Loan Documents to be executed by such Borrower and such Guarantor and to engage in the transactions contemplated by this Agreement. 5.2 Corporate Authority. (a) The execution, delivery and performance by each Borrower of this Agreement and the other Loan Documents have been duly authorized by all necessary corporate action and are not in contravention of any Governmental Regulation, or of the terms of the respective Borrower's charter or by-laws, or of any contract or undertaking to which any Borrower is a party or by which such Borrower or its property may be bound or affected and do not result in the imposition of any Lien, except for the Liens granted to NBD. (b) The execution, delivery and performance by Guarantor of the Guaranty Agreement has been duly authorized by all necessary corporate action and are not in contravention of any Governmental Regulation, or of the terms of Guarantor's charter or by-laws, or of any contract or undertaking to which Guarantor is a party or by which Guarantor or its property may be bound or affected and do not result in the imposition of any Lien, except the Liens granted to NBD. 5.3 Binding Effect. This Agreement is, and each of the Loan Documents when delivered hereunder will be, legal, valid and binding obligations of each Borrower or the Guarantors, which is a party to such agreement, enforceable against each Borrower or the 20 26 Guarantors in accordance with their respective terms. 5.4 Subsidiaries. All of the Subsidiaries of the Company (and any of the other Borrowers or Guarantor) are listed on Schedule 5.4, together with the percentage of ownership thereof. 5.5 Litigation. Except as set forth in Schedule 5.5, there is no action, suit or proceeding pending or, to the best of the Borrowers' knowledge, threatened against or affecting any Borrower or any Guarantor before or by any court, governmental authority or arbitrator, which if adversely decided might result, either individually or collectively, in any Material Adverse Event or in any adverse effect on the legality, validity or enforceability of this Agreement or any other Loan Document and, to the best of the Borrowers' knowledge, there is no basis for any such action, suit or proceeding. 5.6 Financial Condition. The financial statements listed in Schedule 5.6, copies of which have been furnished to NBD, fairly present, and the financial statements delivered pursuant to Section 6.1(d) will fairly present, the financial position of the Borrowers and the Guarantor as at the respective dates thereof, and the results of operations of the Company and the Guarantor for the respective periods indicated, all on a Combined basis in accordance with GAAP (subject, in the case of interim statements, to normal, immaterial year-end audit adjustments). There has been no Material Adverse Event since December 31, 1997. There is no material Contingent Liability of any Borrower or any Guarantor that is not reflected in such Combined statements or in the notes thereto. 5.7 Use of Loans. The Borrowers will use the proceeds of the Loans for their working capital and other general corporate purposes. The Borrowers do not extend or maintain, in the ordinary course of business, credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used for the purpose, whether immediate, incidental, or ultimate, of buying or carrying any such margin stock or maintaining or extending credit to others for such purpose. 5.8 Consents, Etc. Except for such consents, approvals, authorizations, declarations, registrations or filings delivered by the Borrowers pursuant to Section 3.8(f), if any, each of which is in full force and effect, no consent, approval or authorization of or declaration, registration or filing with any governmental authority or any nongovernmental person, including any creditor, lessor or shareholder of any Borrower or any Guarantor, is required on the part of any Borrower or the Guarantor in connection with the execution, delivery and performance of this Agreement and the other Loan Documents or the transactions contemplated hereby or as a condition to the legality, validity or enforceability of this Agreement and the other Loan Documents. 5.9 Taxes. Each of the Company and the Guarantors has filed all tax returns (federal, 21 27 state and local) required to be filed and have paid all taxes shown thereon to be due, including interest and penalties, or has established adequate financial reserves on its books and records for payment thereof. The Borrowers do not know of any actual or proposed tax assessment or any basis therefor, and no extension of time for the assessment of deficiencies in any federal or state tax has been granted to any of the Borrowers. 5.10 Title to Properties. Except as otherwise disclosed in the latest Combined balance sheet delivered pursuant to Section 5.6 or 6.1(d), the Borrowers and the Guarantor have a valid and indefeasible ownership interest in all of the properties and assets reflected in the Combined balance sheet of the Borrowers and the Guarantors or subsequently acquired by any Borrowers or any Guarantor. All of such properties and assets are free and clear of any Lien, except for Permitted Liens. 5.11 Compliance with Governmental Regulations. Each of the Borrowers and the Guarantor is in compliance in all material respects with all Governmental Regulations (including Environmental Laws) applicable to such person or its business or properties. Without limiting the generality of the foregoing, all licenses, permits, orders or approvals which are required under any Governmental Regulation in connection with any of the businesses or properties of any Borrower or any Guarantor ("Permits") are in full force and effect, no notice of any violation has been received in respect of any such Permits and no proceeding is pending or, to the knowledge of the Borrowers, threatened to terminate, revoke or limit any such Permits. 5.12 ERISA. The Borrowers, the Guarantor, their ERISA Affiliates and their respective Plans are in compliance in all material respects with those provisions of ERISA and of the Code which are applicable with respect to any Plan. No Prohibited Transaction and no Reportable Event has occurred with Respect to any such Plan. None of the Borrowers, the Guarantor or any of their ERISA Affiliates is an employer with respect to any Multiemployer Plan. The Borrowers, the Guarantor and each of their ERISA Affiliates have met the minimum funding requirements under ERISA and the Code with respect to each of their respective Plans, if any, and have not incurred any liability to the PBGC or any Plan. There is no material unfunded benefit liability, determined in accordance with Section 4001(a)(18) of ERISA, with respect to any Plan of the Company, the Guarantors or their ERISA Affiliates. 5.13 Environmental Matters. Except as disclosed in Schedule 5.13, and without limiting the generality of Section 5.11: (a) No written demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private person or otherwise, arising under, relating to or in connection with any Environmental Laws is pending or, to the best of the Borrowers' knowledge, threatened against any Borrower, any Guarantor, any Property or any past or present operation of any Borrower or any Guarantor which could result in a Material Adverse Event. 22 28 (b) The Borrowers do not have any knowledge that any other person has ever received any notice, claim or allegation of any violation, and the Borrowers are not aware of any existing violation, of Environmental Laws at or about any Property, and the Borrowers do not have any knowledge of any actions commenced or threatened by any party for or related to or arising out of non-compliance with Environmental Laws which apply to any Property, activities at any Property or Hazardous Materials at, from or affecting any Property. (c) None of the Property appears on the National Priority List (as defined under federal law) or any state listing which identifies sites for remedial clean-up or investigatory actions. To the best of the Borrowers' knowledge, none of the Property has been contaminated with substances which give rise to a clean-up obligation under any Environmental Law or common law. 5.14 Investment Company Act. Neither any Borrower nor any Guarantor is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 5.15 Disclosure. No report or other information furnished in writing by or on behalf of any Borrower to NBD in connection with the negotiation or administration of this Agreement contains any material misstatement of fact or omits to state any material fact or any fact necessary to make the statements contained therein not misleading. Neither this Agreement, the other Loan Documents, nor any other document, certificate, or report or statement or other information furnished to the NBD by or on behalf of any Borrower in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact in order to make the statements contained herein and therein not misleading. There is no fact known to any Borrower which materially and adversely affects, or which in the future may (so far as the Borrowers can now foresee) materially and adversely affect, the business, properties, operations, condition, financial or otherwise, or prospects of any Borrower or any Guarantor, which has not been set forth in this Agreement or in the other documents, certificates, statements, reports and other information furnished in writing to NBD by or on behalf of any Borrower in connection with the transactions contemplated hereby. ARTICLE VI. COVENANTS 6.1 Affirmative Covenants. Each Borrower covenants and agrees that, until the Termination Date and thereafter until payment in full of the principal of and accrued interest on the Note and the payment or performance of all other Obligations, unless NBD shall otherwise consent in writing, each Borrower, and shall cause each other Borrower and each Guarantor to: (a) Preservation of Corporate Existence; Etc. Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except to the extent permitted by Section 6.2(g), and its qualification as a foreign corporation in good standing in each jurisdiction in which such qualification is necessary under applicable law, and 23 29 the rights, licenses, permits (including those required under Environmental Laws), franchises, patents, copyrights, trademarks and trade names material to the conduct of its businesses; and defend all of the foregoing against all claims, actions, demands, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority. (b) Compliance with Laws; Etc. Comply with all Governmental Regulations (including ERISA, the Code and Environmental Laws), in effect from time to time; and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income, revenues or property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might give rise to any Lien upon such properties or any portion thereof, except to the extent that payment of any of the foregoing is then being contested in good faith by appropriate legal proceedings and with respect to which adequate financial reserves have been established on the books and records of such Borrower or such Guarantor. (c) Maintenance of Properties; Insurance. Maintain, preserve and protect all property that is material to the conduct of its business and keep such property in good repair, working order and condition and from time to time make, or cause to be made all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times in accordance with customary and prudent business practices for similar businesses; and maintain in full force and effect insurance with responsible and reputable insurance companies or associations in such amounts, on such terms and covering such risks, including fire and other risks insured against by extended coverage, as is usually carried by companies engaged in similar businesses and owning similar properties similarly situated and maintain in full force and effect public liability insurance, business interruption insurance, insurance against claims for personal injury or death or property damage occurring in connection with any of its activities or any of any properties owned, occupied or controlled by it, in such amounts as it shall reasonably deem necessary, and maintain such other insurance as may be required by Governmental Regulations or as may be reasonably requested by NBD. Upon request, the Borrowers shall deliver to NBD copies of all or any of such insurance policies or the related certificates of insurance. (d) Reporting Requirements. Furnish to NBD the following: (i) promptly and in any event within three calendar days after becoming aware of the occurrence of (A) any Default or Event of Default, (B) the commencement of any material litigation against, by or affecting any Borrower or any Guarantor, and any material developments therein, or (C) any development in the business or affairs of any Borrower or any Guarantor which has resulted in or which is likely, in the reasonable judgment of the Borrowers, to result in a Material Adverse Event, a statement of the chief financial officer of the Company setting forth details of such Event of Default or such event or condition or such litigation and the action which the affected person has taken and proposes to take with respect thereto; 24 30 (ii) as soon as available and in any event within 45 days after the end of each fiscal quarter of the Borrowers (other than the fourth fiscal quarter), (x) the Combined balance sheet of the Borrowers and the Guarantor as of the end of each such quarter and Combined statements of income, surplus and cash flow of the Borrowers and the Guarantors for each such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, 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 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) and (b) in conformity with the terms of this Agreement; (iii) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a copy of the annual audited Combined financial statements of the Borrowers and the Guarantor for such fiscal year, with a customary audit report of such independent certified public accountants selected by the Company and reasonably acceptable to NBD, without qualifications unacceptable to NBD, together with the unaudited combining annual financial statements of the Borrowers and the Guarantor (prepared in a manner consistent with the Company's audited Combined annual financial statements) and a certificate of the chief financial officer or controller of the Company (A) stating that no Default or Event of Default has occurred or 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) and (b) in conformity with the terms of this Agreement; (iv) promptly after receipt thereof by any Borrower, copies of any audit or management reports submitted to it by independent accountants in connection with any audit, interim audit or other report submitted to the board of directors (or other governing body) of any Borrower or any Guarantor; 25 31 (v) promptly after the same are available, copies of each annual report, proxy or financial statement or other communication sent to a Borrowers' or a Guarantor's stockholders and copies of all annual, regular, periodic and special reports and registration statements which the Company may file or be required to file with the Securities and Exchange Commission or with any securities exchange or the National Association of Securities Dealers, Inc.; and (vi) promptly, such other information respecting the business, properties, operations or condition, financial or otherwise, of any Borrower or any Guarantor as NBD may from time to time reasonably request upon reasonable notice. (e) Accounting; Access to Records, Books, Etc. Maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in accordance with GAAP and to comply with the requirements of this Agreement and, at any reasonable time and from time to time, (i) permit NBD or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, such person and to discuss the affairs, finances and accounts of such person with their respective directors, officers, employees and independent auditors, and by this provision each Borrower does hereby authorize the same, and (ii) permit NBD or any of its agents or representatives to conduct a comprehensive field audit of its books, records, properties and assets. (f) Further Assurances. Execute and deliver promptly after request therefor by NBD, all further instruments and documents and take all further action that may be necessary or desirable, or that NBD may request, in order to give effect to, and to aid in the exercise and enforcement of the rights and remedies of NBD under, this Agreement and the other Loan Documents. (g) Audits. Prior to the occurrence of an Event of Default, permit NBD's representatives to conduct quarterly, on-site audits 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 (including its standard auditor fees) incurred in connection therewith within 10 days after receipt of an invoice therefor. 6.2 Negative Covenants. Each Borrower covenants and agrees that, until the Termination Date and thereafter until payment in full of the principal of and accrued interest on the Note and the payment and performance of all other Obligations, unless NBD shall otherwise consent in writing (which consent shall not be unreasonably withheld in connection with Sections 6.2 (c), (f), (h), (j) and (k)), each Borrower shall not, and shall cause each other Borrower and each Guarantor not to: (a) Tangible Net Worth. Permit or suffer Tangible Net Worth to be (a) on 26 32 June 30, 1998, less than $4,250,000, (b) on November 30, 1998, less than $4,500,000, and (c) on December 31, 1998 and thereafter, less than $5,000,000. (b) Debt to Worth Ratio. Permit or suffer the Debt to Worth Ratio to exceed, (a) on June 30, 1998, to 6.25 to 1.0, (b) on November 30, 1998, 5.5 to 1.0, and (c) on December 31, 1998 and thereafter, 4.25 to 1.0. (c) Indebtedness. Create, incur, assume or any manner become liable in respect of, or suffer to exist, any Indebtedness other than: (i) Indebtedness to NBD or NBD Equipment Finance; (ii) Indebtedness secured by Permitted Liens; (iii) Indebtedness existing as the date of this Agreement and listed on Schedule 6.2(c), and renewals, extensions and refinancings thereof (as long as the principal amount of such Indebtedness is not increased); (iv) Indebtedness of the Company under the Subordinated Notes and the guarantee of such debt by Integral and Guarantor; and (v) Other Indebtedness (including Capital Leases), in addition to that permitted under clauses (i) through (iii) above, having an aggregate outstanding balance at any time not to exceed $500,000. (d) Liens. Create, incur or suffer to exist any Lien on any of the assets, rights, revenues or property, real, personal or mixed, tangible or intangible, whether now owned or hereafter acquired, of any Borrower or any Guarantor, except: (i) Liens for taxes not delinquent or for taxes being contested in good faith by appropriate proceedings and as to which adequate financial reserves have been established on its books and records; (ii) Liens (other than any Lien imposed by ERISA) created and maintained in the ordinary course of business which are not material in the aggregate, and which would not constitute or result in a Material Adverse Event, and which constitute (A) pledges or deposits under worker's compensation laws, unemployment insurance laws or similar legislation, (B) good faith deposits in connection with bids, tenders, contracts or leases to which a Borrower or a Guarantor is a party for a purpose other than borrowing money or obtaining credit, including rent security deposits, (C) Liens imposed by law, such as those of carriers, warehousemen and mechanics, if payment of the obligation secured thereby is not yet due, (D) Liens securing taxes, assessments or other governmental charges or levies not yet subject to penalties for nonpayment, and 27 33 (E) pledges or deposits to secure public or statutory obligations of a Borrower or a Guarantor, or surety, customs or appeal bonds to which a Borrower or a Guarantor is a party; (iii) Liens affecting real property which constitute minor survey exceptions or defects or irregularities in title, minor encumbrances, easements or reservations of, or rights of others for, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of such real property; provided, however, that all of the foregoing, in the aggregate, do not at any time materially detract from the value of said properties or materially impair their use in the operation of the businesses of any Borrower or any Guarantor, as the case may be; (iv) Liens described on Schedule 6.2(d), which may be suffered to exist upon the same terms as those existing on the date hereof, but no extension or renewal thereof shall be permitted except for a refinancing in the ordinary course of business for an amount not in excess of the original amount subject to such Liens; (v) Purchase Money Liens securing purchase money Indebtedness; provided, however, that the aggregate outstanding amount of Indebtedness not extended by NBD and secured by all such Purchase Money Liens for the Borrowers and the Guarantors shall not exceed, on an aggregate basis, $500,000 at any time after the Effective Date; and. (vi) Liens in favor of NBD and Liens granted in connection with the Subordinated Notes by the Company and subordinated to NBD's Liens under the Note Subordination Agreement. (e) Merger; Purchase of Assets; Acquisitions; Etc. Purchase or otherwise acquire, whether in one or a series of transactions, all or a substantial portion of the business, assets, rights, revenues or property, real, personal or mixed, tangible or intangible, of any person, or all or a substantial portion of the capital stock of or other ownership interest in any other person; nor merge or consolidate or amalgamate with any other person or take any other action having a similar effect, nor enter into any joint venture or similar arrangement with any other person. (f) Disposition of Assets; Etc. Sell, lease, license, transfer, assign or otherwise dispose of any of its business, assets, rights, revenues or property, real, personal or mixed, tangible or intangible, whether in one or a series of transactions, other than, prior to the occurrence of an Event of Default, (i) inventory sold in the ordinary course of business upon customary credit terms, (ii) sales or other disposition of equipment, provided that such equipment is replaced by equipment of a similar kind and equivalent value, and (iii) dispositions by the Borrowers and the Guarantor in any single fiscal year of assets or properties having an aggregate net book value of $500,000 or less on a non-cumulative basis. 28 34 (g) Sale and Leaseback. Enter into any agreement, directly or indirectly, to sell or transfer any real or personal property used in its business and thereafter to lease back the same or similar property. (h) Investments. Make or commit to make any Investments (including any loan, extension of credit or guarantee), other than: (i) trade credit extended in the ordinary course of a Borrower's business; (ii) Cash Equivalents; (iii) loans and advances made in the ordinary course of business to officers and employees of Borrower for relocation expenses, travel advances and similar expenses relating to their employment; (iv) endorsements of instruments or items of payment for deposit to a Borrower's bank accounts; (v) capital stock in Subsidiaries owned by the Company on the date hereof and disclosed on Schedule 5.4; and (vi) additional Investments not to exceed $100,000 in the aggregate. (i) Restricted Payments. Make or commit to make any Restricted Payment at any time after the Effective Date, provided that so long as no Default or Event of Default exists both before and after the declaring and payment of a dividend, Integral and the Guarantor may pay cash dividends to the Company. (j) Nature of Business. Make any substantial change in the nature of its business from that engaged in on the Effective Date or engage in any other businesses other than those in which it is engaged on the Effective Date. (k) Transactions with Affiliates. Enter into, or permit or suffer to exist, any transaction or arrangement with any Affiliate, except on terms which are no less favorable to such Borrower or such Guarantor than could be obtained from persons who are not Affiliates. ARTICLE VII. DEFAULT 7.1 Events of Default. The occurrence of any one of the following events or conditions shall be deemed an "Event of Default" hereunder unless waived by NBD pursuant to Section 8.1: (a) Nonpayment. The Borrowers shall fail to pay (i) when due (whether by mandatory prepayment or otherwise) any principal of the Note or the amount due under any L/C Document or Guaranty Issued by NBD Document or (ii) more than five days after the due date thereof, any interest on the Note or any fees or any other Obligations payable hereunder. (b) Other NBD Debt. Any default, event of default or event of acceleration under any other agreement between any Borrower or Guarantor, on one hand, and NBD or any Affiliate of NBD (including NBD Equipment Finance), on the other hand, which has not been waived in writing by NBD. (c) Misrepresentation. Any representation or warranty made by any Borrower 29 35 in Article V or in any certificate, report, financial statement other document furnished by or on behalf of any Borrower in connection with this Agreement, shall prove to have been incorrect in any material respect when made or deemed made. (d) Certain Covenants. Any term, covenant or agreement contained in Section 6.2 shall be breached. (e) Other Defaults. Any term, covenant or agreement contained in this Agreement or any other Loan Document (other than Section 6.2 or with regard to payments) shall be breached, and such breach shall remain unremedied for 10 calendar days after written notice is sent by NBD to any Borrower. (f) Cross Default. Any Borrower or any Guarantor shall fail to pay any part of the principal of, the premium, if any, or the interest on, or any other payment of money due under, any of its Indebtedness (other than Indebtedness under this Agreement), beyond any period of grace provided with respect thereto, which individually or together with other such Indebtedness as to which any such failure exists has an aggregate outstanding principal amount in excess of $100,000; or any Borrower or any Guarantor shall fail to perform or observe any other term, covenant or agreement contained in any agreement, document or instrument evidencing or securing any Indebtedness in an aggregate outstanding principal amount in excess of $100,000, or under which any such Indebtedness was issued or created, beyond any period of grace, if any, if the effect of such failure is to cause, or permit the holders of such Indebtedness (or a trustee on behalf of such holders) to cause, any payment in respect of such Indebtedness to become due prior to its due date. (g) Judgments. One or more judgments or orders for the payment of money in an aggregate amount of $250,000 or more shall be rendered against any of the Borrowers or any Guarantor, or any other judgment or order (whether or not for the payment of money) shall be rendered against or shall affect any Borrower or any Guarantor which causes or could cause a Material Adverse Event or which does or could have an adverse effect on the legality, validity or enforceability of this Agreement or any other Loan Document and either (i) such judgment or order shall have remained unsatisfied and such Borrower or such Guarantor shall not have taken action necessary to stay enforcement thereof by reason of pending appeal or otherwise, prior to the expiration of the applicable period of limitations for taking such action or, if such action shall have been taken, a final order denying such stay shall have been rendered, or (ii) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order; provided that (I) no final judgment shall be included in the calculation under this subsection to the extent that the claim underlying such judgment is covered by insurance and defense of such claim has been tendered to and accepted by the insurer without reservation, and (II) any settlement or judgment rendered against the Company in either Case No. 94-CV-7140807, filed in the U.S. District Court, Eastern District of Michigan or Case No. 94-184, filed in the U.S. District Court, Delaware, will not be included in the calculation to the extent the aggregate amounts do not result in an operational charge under GAAP in excess of $4,000,000 during 30 36 fiscal year ended December 31, 1995. (h) ERISA. The occurrence of a Reportable Event that results in or could result in liability of any Borrower, or their respective ERISA Affiliates to the PBGC or to any Plan in excess of $50,000 and such Reportable Event is not corrected within thirty (30) days after the occurrence thereof; or the occurrence of any Reportable Event which could constitute grounds for termination of any Plan of the Company, any other Borrower or their respective ERISA Affiliates by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan and such Reportable Event is not corrected within thirty (30) days after the occurrence thereof; or the filing by the Company, any other Borrower or any of their respective ERISA Affiliates of a notice of intent to terminate a Plan or the institution of other proceedings to terminate a Plan; or the Company, any other Borrower or any of their respective ERISA Affiliates shall fail to pay when due any liability to the PBGC or to a Plan in excess of $50,000; or the PBGC shall have instituted proceedings to terminate, or to cause a trustee to be appointed to administer, any Plan of the Company, any other Borrower or their respective ERISA Affiliates; or any person engages in a Prohibited Transaction with respect to any Plan which results in or could result in liability of any Borrower, any of their respective ERISA Affiliates, any Plan of any Borrower or their respective ERISA Affiliates or any fiduciary of any such Plan in excess of $50,000; or failure by any Borrower or any of their respective ERISA Affiliates to make a required installment or other payment to any Plan within the meaning of Section 302(f) of ERISA or Section 412(n) of the Code that results in or could result in liability of any Borrower or any of their respective ERISA Affiliates to the PBGC or any Plan in excess of $50,000; or the withdrawal of any Borrower or any of their respective ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or any Borrower or any of their respective ERISA Affiliates becomes an employer with respect to any Multiemployer Plan without the prior written consent of NBD. (i) Insolvency, Etc. Any Borrower or any Guarantor: shall be dissolved or liquidated (or any judgment, order or decree therefor shall be entered); or shall generally not pay its debts as they become due; or shall admit in writing its inability to pay its debts generally; or shall make a general assignment for the benefit of creditors; or shall institute, or there shall be instituted against any Borrower or any Guarantor, any proceeding or case seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors or seeking the entry of an order for relief, or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its assets, rights, revenues or property, and, if such proceeding is instituted against any Borrower or any Guarantor and is being contested by such Borrower or such Guarantor, in good faith by appropriate proceedings, such proceeding shall remain undismissed or unstayed for a period of 60 days; or shall take any action (corporate or other) to authorize or further any of the actions described above in this subsection. 31 37 (j) Change of Control. The Company shall cease to own 100% of each class of the outstanding voting stock of each of the other Borrowers and the Guarantor. (k) Enforceability of Loan Documents. This Agreement or any of the other Loan Documents shall, at any time after their respective execution and delivery, and for any reason, cease to be in full force and effect or shall be declared null and void, or be revoked or terminated, or the validity or enforceability thereof or hereof shall be contested by any Borrower, the Guarantor, or any stockholder of any Borrower, or any Borrower or the Guarantor shall deny that it has any or further liability or obligation thereunder or hereunder, as the case may be. 7.2 Remedies. (a) Termination of Commitment; Acceleration. Upon the occurrence and during the continuance of any Event of Default, NBD shall by notice to Borrowers terminate the Commitment or declare the outstanding principal of, and accrued interest on, the Note and all other Obligations to be immediately due and payable, or both, whereupon the Commitment shall terminate forthwith and all such amounts shall become immediately due and payable, or both; provided, however, that, in the case of any event or condition described in Section 7.1(i) with respect to any Borrower, the Commitment shall automatically terminate forthwith and all such amounts shall automatically become immediately due and payable without notice; in all cases without demand, presentment, protest, diligence, notice of dishonor or other formality, all of which are hereby expressly waived. (b) Other Remedies. Upon the occurrence and during the continuance of an Event of Default, NBD may exercise and enforce any and all other rights and remedies available to it, whether arising under this Agreement or any other Loan Document or under applicable law, in any manner deemed appropriate by it, including suit in equity, action at law, or other appropriate proceedings, whether for the specific performance (to the extent permitted by law) of any covenant or agreement contained in this Agreement or in any other Loan Document or in aid of the exercise of any power granted in this Agreement or any other Loan Document or under applicable law. (c) Set off. Upon the occurrence and during the continuance of any Event of Default, NBD (including the London Branch) may at any time and from time to time, without notice to the Borrowers (any requirement for such notice being expressly waived by the Borrowers) set off and apply against any and all of the Obligations any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by NBD to or for the credit or the account of any Borrower and any property of any Borrower from time to time in possession of NBD, irrespective of whether or not NBD shall have made any demand hereunder and although such obligations may be contingent and unmatured. The Borrowers hereby grant to NBD a Lien on all such deposits, indebtedness and property as collateral security for the payment and performance of the Obligations. The rights of NBD under this Section 7.2(c) are in addition to other rights and remedies (including other rights 32 38 of setoff) which NBD may otherwise have. ARTICLE VIII CROSS-GUARANTIES 8. Cross Guaranties. 8.1 Guaranty. Each Borrower hereby unconditionally and absolutely guarantees to NBD the full and complete payment and performance when due of the obligations of each of the other Borrowers to NBD, whether under this Loan Agreement and the Notes, or otherwise. The obligations of any Borrower to NBD shall be referred to as "Guarantied Obligations" and the foregoing guaranty of each Borrower shall be referred to as "Guaranty." 8.2 Waivers and Consents. Upon the occurrence and during the continuance of any Event of Default, NBD may enforce the Guaranty of any Borrower independently of any other remedy, guaranty or security of NBD at any time may have or hold in connection with the Guarantied Obligations. It will not be necessary for NBD to proceed upon or against and/or exhaust any security or remedy before proceeding to enforce the Guaranty of any Borrower. Each Borrower expressly waives any right it may have to receive notice of acceptance by NBD, any credit that NBD extends to the other Borrowers, default, demand and any action or forbearance that NBD takes regarding any Borrower, any collateral or any of the Guarantied Obligations which it might be entitled to by law or under any other agreement. Each Borrower also waives any right to require NBD to marshal assets in favor of any other Borrower or any other person or to proceed against any other Borrower or any other guarantor of the Guarantied Obligations or any collateral provided by any person. Each Borrower expressly waives any and all defenses now or hereafter arising or asserted by reason of (i) any disability or other defense of any other Borrower or any other guarantor for the Guarantied Obligations with respect to the Guarantied Obligations, (ii) the unenforceability or invalidity of any security for or guaranty of the Guarantied Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Guarantied Obligations, (iii) the cessation for any cause whatsoever of the liability of any other Borrower or any other guarantor of the Guarantied Obligations (other than by reason of the full payment and performance of all Guarantied Obligations), (iv) any failure of NBD to give notice of sale or other disposition of collateral to any other Borrower or any other person or any defect in any notice that may be given in connection with any sale or disposition of collateral, (v) any act or omission of NBD or others that directly or indirectly results in or aids the discharge or release of any other Borrower or any other guarantor of the Guarantied Obligations, or of any security or guaranty therefor by operation of law or otherwise, (vi) any failure of NBD to file or enhance a claim in any bankruptcy or other proceeding with respect to any person, (vii) the avoidance of any lien or security interest in favor of NBD for any reason, (viii) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any person, including without limitation any discharge of, or bar or stay against collecting, all or any of the Guarantied Obligations (or any interest thereon) in or as a result of any such proceeding, or (ix) any action taken by NBD that is authorized by this Section. 33 39 8.3 Subrogation; Subordination. No claim, including without limitation, reimbursement, contribution, indemnity or subrogation, which any Borrower may have against any other guarantor of any of the Guarantied Obligations or against any other Borrower shall be enforced nor any payment accepted until the Obligations are paid in full and all such payments are not subject to any right of recovery. ARTICLE IX. MISCELLANEOUS 9.1 Amendments. No provision of this Agreement or any other Loan Document may be modified, waived, or amended except by an instrument or instruments signed by the Company and NBD. 9.2 Notices. (a) General. Except as otherwise provided in Section 9.2(c), all notices, requests, consents and other communications hereunder shall be in writing and shall be delivered, telecopied or sent to the Borrowers or NBD at the "Address for Notices" set forth on the signature pages hereof; or to such other address as may be designated by the Borrowers or NBD by written notice to each other. All notices, requests, consents and other communications shall be deemed to have been given when received if hand delivered, if mailed by certified or registered mail, postage prepaid, on the third (3rd) day after such mailing, or if deposited with an expedited courier service such as "Federal Express" or "Purolator", on the Business Day following such deposit, or if telecopied, on the Business Day on which such telecopy is confirmed as having been received, in all cases, addressed to the respective address set forth on the signature pages hereof or as may otherwise be designated in accordance herewith. (b) Notices of Termination or Prepayment. Notices by the Borrowers to NBD with respect to terminations or reductions of the Commitment or the L/C Sublimit pursuant to Section 2.2, and notices of prepayment pursuant to Section 4.1 shall be irrevocable and binding on the Borrowers. (c) Telephonic Notices. Any notice to be given by the Borrowers to NBD pursuant to Section 3.1, 3.2, 3.3 or 3.4 and any notice to be given by NBD hereunder, may be given by telephone, to be confirmed in writing in the manner provided in Section 9.2(a). Any such notice given by telephone shall be deemed effective upon receipt thereof by the party to whom such notice is given. 9.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing on the part of NBD, nor any delay or failure on the part of NBD in exercising any right, power or privilege hereunder or under any other Loan Document shall operate as a waiver of such right, power or privilege or otherwise prejudice NBD's rights and remedies hereunder or under any other Loan Document; nor shall any single or partial exercise thereof preclude any further exercise thereof 34 40 or the exercise of any other right, power or privilege. No right or remedy conferred upon or reserved to NBD under this Agreement or under any other Loan Document is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to every other right or remedy granted thereunder or now or hereafter existing under any applicable law. Every right and remedy granted by this Agreement or under any other Loan Document or by applicable law to NBD may be exercised from time to time and as often as may be deemed expedient by NBD and, unless contrary to the express provisions of this Agreement or the other Loan Documents, irrespective of the occurrence or continuance of any Default or Event of Default. 9.4 Reliance on and Survival of Various Provisions. All terms, covenants, agreements, representations and warranties of the Borrowers made herein or in any certificate, report, financial statement or other document furnished by or on behalf of the Borrowers or the Guarantor in connection with this Agreement or any other Loan Document shall be deemed to be material and to have been relied upon by NBD, notwithstanding any investigation heretofore or hereafter made by NBD, and those covenants and agreements of the Borrowers set forth in Article IV and Section 9.5 shall survive the repayment in full of the Obligations and the termination of this Agreement and the Commitments. 9.5 Expenses; Indemnification. The Borrowers agree, jointly and severally, to pay, or reimburse NBD for the payment of, on demand, (a) the reasonable fees and expenses of counsel to NBD, including the fees and expenses of Honigman Miller Schwartz and Cohn in connection with the preparation, execution, delivery and administration of this Agreement and the consummation of the transactions contemplated hereby, and in connection with advising NBD as to its rights and responsibilities with respect thereto, and in connection with any amendments, waivers or consents in connection therewith, and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement, the Note and the other Loan Documents and the consummation of the transactions contemplated hereby, and any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes or fees, and (c) all reasonable costs and expenses of NBD (including reasonable fees and expenses of counsel and whether incurred through negotiations, legal proceedings or otherwise) in connection with any Default or Event of Default or the enforcement of, or the exercise or preservation of any rights under, this Agreement or any other Loan Document or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement. The Borrowers, jointly and severally, further agree to indemnify NBD for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever (including reasonable attorneys' fees) which may be imposed on, incurred by or asserted against NBD in any way relating to or arising out of its duties under this Agreement or any other Loan Documents or the transactions contemplated hereby (excluding, unless a Default or an Event of Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its duties hereunder); provided, however, that the Borrowers shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct 35 41 of NBD. 9.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrowers may not, without the prior consent of NBD, assign its rights or obligations hereunder or under the Note and NBD shall not be obligated to make any Loan or issue any L/C or Guaranty Issued by NBD hereunder to or for the account of any person other than the Borrowers. 9.7 Participations. NBD may grant participations in all or any part of its Loans, Note and Commitment to any bank or other institutional investor (including any Affiliate of NBD), without the consent of the Borrowers. The Borrowers hereby acknowledge and agree that any participant described in this Section 9.7 shall be considered to have the same rights and remedies as NBD hereunder (including for purposes of Section 7.2(c)) and may rely on, and possess all rights under, any opinions, certificates, or other instruments or documents delivered under or in connection with this Agreement or any Loan Document. 9.8 Disclosure of Information. The Borrowers authorize NBD to disclose to any permitted participant or assignee of NBD or to any successor of NBD (each, a "Transferee") and any prospective Transferee any and all financial and other information in NBD's possession concerning the Borrowers which has been delivered to NBD by the Borrowers pursuant to this Agreement or the other Loan Documents or which has been received by NBD in connection with its credit evaluation of the Borrowers prior to entering into this Agreement. 9.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 9.10 Governing Law. (a) General. This Agreement is a contract 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 such State and without giving effect to choice of law principles of such State, except that any Guaranty Issued by NBD hereunder shall be governed by and construed in accordance with the laws of the United Kingdom. The Company further agrees that any legal action or proceeding with respect to this Agreement or any other Loan Document or the transactions contemplated hereby may be brought in any court of the State of Michigan, or in any court of the United States of America sitting in the Eastern District of Michigan, or, with respect to Guaranties Issued by NBD or Revolving Loans denominated in Pounds Sterling any court of the United Kingdom sitting in or having jurisdiction over London; and the Borrowers hereby submits to and accepts generally and unconditionally the jurisdiction of those courts with respect to its person and property. 36 42 (b) Suit in Other Jurisdictions. Nothing in Section 9.10(a) shall affect the right of NBD to serve legal process in any other manner permitted by law or affect the right of NBD to bring any action or proceeding against the borrowers, the Guarantor or their respective property in the courts of any other jurisdictions. (c) Immunity. To the extent that such Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any service of process (whether from service or notice, or otherwise) with respect to itself or its property, such Borrower hereby irrevocably waives such immunity in respect of its obligations under this Agreement, the Note and the other Loan Documents. 9.11 Table of Contents and Headings. The table of contents and the headings of the various Articles, Sections and paragraphs hereof are for the convenience of reference only and shall in no way modify any of the terms or provisions hereof. 9.12 Construction of Certain Provisions. If any provision of this Agreement refers to any action to be taken by any person, or which such person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such person, whether or not expressly specified in such provision. 9.13 Integration and Severability. This Agreement and the other Loan Documents embody the entire agreement and understanding between the Borrowers and NBD with respect to the revolving credit granted by NBD to the Borrowers, and supersede all prior agreements and understandings, relating to the subject matter hereof. In case any one or more of the obligations, of any of the Borrowers under this Agreement or any other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrowers shall not in any way be affected or impaired thereby, and such invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality nor enforceability of the obligations of the Borrowers under this Agreement or any other Loan Document in any other jurisdiction. 9.14 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that it would be permitted by an exception to, or would be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default or any event or condition which with notice or lapse of time, or both, could become such a Default or an Event of Default if such action is taken or such condition exists. 9.15 Joint and Several Liability. All liabilities of the Borrowers under this Agreement and the Notes shall be joint and several. 37 43 9.16 Interest Rate Limitation. Notwithstanding any provisions of this Agreement or any other Loan Document, in no event shall the amount of interest paid or agreed to be paid by the Borrowers exceed an amount computed at the highest rate of interest permissible under applicable law. If, from any circumstances whatsoever, fulfillment of any provision of this Agreement or any other Loan Document at the time performance of such provision shall be due, shall involve exceeding the interest rate limitation validly prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be fulfilled shall be reduced to an amount computed at the highest rate of interest permissible under applicable law, and if for any reason whatsoever NBD shall ever receive as interest an amount which would be deemed unlawful under such applicable law such interest shall be automatically applied to the payment of principal of the Loans outstanding hereunder (whether or not then due and payable) and not to the payment of interest, or shall be refunded to the Borrowers if such principal and all other Obligations of the Borrowers to NBD have been paid in full. 9.17 Limitation of Liability. Neither NBD nor any of its Affiliates, directors, officers, agents, attorneys or employees shall be liable to the Borrowers or any of the Borrower's Affiliates for any action taken, or omitted to be taken, by it or them or any of them under this Agreement or any other Loan Document or in connection herewith or therewith, except that no person shall be relieved of any liability imposed by law for gross negligence or willful misconduct. No claim may be made by the Borrowers or any of the Borrowers' Affiliates against NBD, or any of its Affiliates, directors, officers, agents, attorneys or employees, for any special, indirect, consequential or punitive damages in respect of any breach or wrongful conduct (whether the claim is based on contract or tort or duty imposed by law) arising out of or related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby, or any act, omission or event occurring in connection herewith or therewith. The Borrowers, on their own behalf and on behalf of their Affiliates, hereby waive, release and agree not to sue upon any claim for any such damages, whether or not accrued, and whether or not known or suspected to exist in its favor. 9.18 WAIVER OF JURY TRIAL. NBD AND EACH BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER NBD NOR THE ANY OF THE BORROWERS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY NBD OR THE BORROWERS EXCEPT BY A WRITTEN 38 44 INSTRUMENT EXECUTED BY ALL OF THEM. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of this 31st day of July, 1998, which shall be the date inserted by NBD on which it has received counterparts of this Agreement executed by each of the parties hereto, notwithstanding the date first above written or the date this Agreement is executed by any of the parties hereto on the following signature pages. Address for Notices: MEDAR, INC. a Michigan corporation 38700 Grand River Ave. Farmington Hills, MI 48335-1563 Attn: Richard Current By: /s/Charles Drake Telephone: 810/477-3900 ----------------------------------- Telecopy: 810/477-8897 Charles Drake Its: Chairman INTEGRAL VISION, LTD. an English corporation 12 Railton Road Woburn Road Industrial Estate By: /s/Richard Current Kempston, Bedford MK7PW ----------------------------------- ENGLAND Richard Current Attn: Peter Ramsden Its: Company Secretary --------------------------- Telephone: 44/1234-843345 Telecopy: 44/1234-843390 NBD BANK 235 Sheldon Rd. Plymouth, Michigan 48170 Attn: James Keyes By: /s/Richard Haslinger Telephone: 313/454-7738 ----------------------------------- Telecopy: 313/454-7723 Richard Haslinger Its: First Vice President and By: /s/James Keyes ----------------------------------- James Keyes Its: Assistant Vice President 39 45 REVOLVING NOTE $10,000,000 July 31, 1998 Detroit, Michigan FOR VALUE RECEIVED, the undersigned, MEDAR, INC. ("Medar"), and INTEGRAL VISION, LTD. (collectively, "Borrowers"), jointly and severally, hereby promise to pay to the order of NBD Bank, ("Bank"), pursuant to that Amended and Restated Revolving Credit and Loan Agreement, entered into as of July 31, 1998 (the "Loan Agreement"), among Borrowers and Bank, at the main office of Bank in Detroit, Michigan in accordance with the Loan Agreement, in immediately available funds, the principal sum of Ten Million and 00/100 Dollars (U.S. $10,000,000), or such lesser amount as is recorded on the books and records of Bank, on August 31, 1999, or such later Termination Date as may be agreed to under the Loan Agreement as amended from time to time, together with interest on the outstanding balance thereof as provided in the Loan Agreement. Capitalized terms used but not defined in this Note shall have the respective meanings assigned to them in the Loan Agreement. Bank is hereby authorized by Borrowers to record on its books and records, the date and amount of each Revolving Loan, the Loan Period, the applicable interest rate (including any changes therein), the amount of each payment of principal thereon and such other information as appropriate, 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 Borrowers of their obligation to repay the outstanding principal amount of all Revolving Loans made by Bank, all accrued interest thereon and any amount payable with respect thereto in accordance with the terms of this Note and the Loan Agreement. All payments of principal and interest shall be made in lawful money of the United States of America. This Note is subject to, and evidences the Revolving Loans made by Bank under, the Loan Agreement, to which reference is hereby made for a statement of the circumstances and terms under which all or a portion of this Note is subject to prepayment 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. 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 applicable to each Revolving Loan 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, Borrowers 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 outstanding principal amount of all the Obligations which are outstanding during such period from and after the date of any such demand. This Revolving Note amends and restates, but does not satisfy, certain existing obligations of the Borrowers evidenced by the Amended and Restated Revolving Note in the 46 principal amount of $8,000,000 dated August 10, 1995, from Borrowers and Automatic Inspection Devices, Inc. (which has since merged into Medar, Inc.) to Bank. 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: /s/Charles Drake ----------------------------------- Charles Drake Its: President INTEGRAL VISION, LTD. an English corporation By: /s/Richard Current ----------------------------------- Richard Current Its: Company Secretary 47 EXHIBIT 3.2 REQUEST UNDER REVOLVING CREDIT AGREEMENT (FLOATING, BASE OR EURODOLLAR) The undersigned, Medar, Inc., Automatic Inspection Devices, Inc. and Integral Vision, Ltd. (collectively, "Borrowers"), hereby certify as set forth below pursuant to the Revolving Credit and Loan Agreement, dated as of August 10, 1995, among the Borrowers and NBD Bank (such agreement, as amended, modified or supplemented from time to time, is referred to herein as the "Credit Agreement"). Reference is made to the Credit Agreement for definitions of capitalized terms not otherwise defined herein and for additional terms and conditions for Revolving Loans. Check applicable number(s) and complete request as appropriate. All Floating Rate Loans are in U.S. Dollars. All Base Rate Loans and Eurodollar Rate Loans are in Pounds Sterling. ___ 1. NEW ADVANCE. Borrowers hereby request a new Revolving Loan in the amount of ____________, with such terms as described in Section 3 below. ___ 2. CONVERSION OR EXTENSIONS. Borrowers hereby request that the following Revolving Loans be converted or extended with such new terms as described in Section 3 below: a. Type of Loan being converted or extended: ______________ b. Amount of such Loan: ______________ c. Due date of such Loan: ______________ 3. TERMS. Terms of new, extended or converted Loan, as applicable: a. Type of Advance: ___________________________________________ (specify Floating, Base Rate or Eurodollar) b. Loan Period Requested: ______________________________________ (Eurodollar - 1, 2 or 3 month only) c. Funding Date (same as former due date for conversion):_______ 4. CERTIFICATION. Borrowers certify that: (a) representations and warranties in the Credit Agreement are true in all material respects as of the date hereof (both before and after giving effect to the making of the Loan requested herein); (b) the aggregate amount of all outstanding Revolving Loans and Loans to be outstanding upon the making of the Loan requested herein together with the face amount of all outstanding L/Cs and Guarantees Issued by NBD and will not exceed the current Activated Amount; and (c) no Default or Event of Default has occurred and is continuing as of the date hereof. 5. TRANSFER REQUEST. Borrowers hereby request that, any new Loan be credited to Acct. No. ______________ of ________________ at NBD Bank. This Request Under Revolving Credit Agreement is executed and delivered to NBD by the undersigned authorized representative of the Borrowers on ____________, 199__. MEDAR, INC. _________________________ By:__________________________ (Insert Company Name) By:______________________ Its:______________________ Its:__________________ 48 SCHEDULE 5.4 SUBSIDIARIES 1. Integral - 100% owned by the Company. 2. Medar Canada, Ltd. - 100% owned by the Company. 40 49 SCHEDULE 5.5 LITIGATION NONE 41 50 SCHEDULE 5.6 FINANCIAL STATEMENTS Audited Annual Financial Statements for the year ending December 31, 1997. Quarterly Financial Statements for the quarter ending March 31, 1998 and the periods then ending. 42 51 SCHEDULE 5.13 ENVIRONMENTAL MATTERS NONE 43 52 SCHEDULE 6.2 (C) EXISTING INDEBTEDNESS Patent license obligations in the amount of $1,554,239 (Net of current maturities) to Square D Corporation (payable $300,000 per year including interest). 44 53 REVOLVING NOTE $10,000,000 July 31, 1998 Detroit, Michigan FOR VALUE RECEIVED, the undersigned, MEDAR, INC. ("Medar"), and INTEGRAL VISION, LTD. (collectively, "Borrowers"), jointly and severally, hereby promise to pay to the order of NBD Bank, ("Bank"), pursuant to that Amended and Restated Revolving Credit and Loan Agreement, entered into as of July 31, 1998 (the "Loan Agreement"), among Borrowers and Bank, at the main office of Bank in Detroit, Michigan in accordance with the Loan Agreement, in immediately available funds, the principal sum of Ten Million and 00/100 Dollars (U.S. $10,000,000), or such lesser amount as is recorded on the books and records of Bank, on August 31, 1999, or such later Termination Date as may be agreed to under the Loan Agreement as amended from time to time, together with interest on the outstanding balance thereof as provided in the Loan Agreement. Capitalized terms used but not defined in this Note shall have the respective meanings assigned to them in the Loan Agreement. Bank is hereby authorized by Borrowers to record on its books and records, the date and amount of each Revolving Loan, the Loan Period, the applicable interest rate (including any changes therein), the amount of each payment of principal thereon and such other information as appropriate, 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 Borrowers of their obligation to repay the outstanding principal amount of all Revolving Loans made by Bank, all accrued interest thereon and any amount payable with respect thereto in accordance with the terms of this Note and the Loan Agreement. All payments of principal and interest shall be made in lawful money of the United States of America. This Note is subject to, and evidences the Revolving Loans made by Bank under, the Loan Agreement, to which reference is hereby made for a statement of the circumstances and terms under which all or a portion of this Note is subject to prepayment 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. 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 applicable to each Revolving Loan 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, Borrowers 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 outstanding principal amount of all the Obligations which are outstanding during such period from and after the date of any such demand. This Revolving Note amends and restates, but does not satisfy, certain existing obligations of the Borrowers evidenced by the Amended and Restated Revolving Note in the 54 principal amount of $8,000,000 dated August 10, 1995, from Borrowers and Automatic Inspection Devices, Inc. (which has since merged into Medar, Inc.) to Bank. 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: /s/Charles Drake ----------------------------------- Charles Drake Its: President INTEGRAL VISION, LTD. an English corporation By: /s/Richard Current ----------------------------------- Richard Current Its: Company Secretary EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 748 0 9,435 400 8,422 20,491 17,722 9,054 37,747 21,300 4,712 0 0 1,805 9,930 37,747 8,947 8,947 6,377 6,377 3,044 0 613 (1,056) 0 (1,056) 0 0 0 (1,056) (.12) (.12)
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